S-4
As filed with the Securities and Exchange Commission on
August 11, 2006
Registration
No.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Charter Communications, Inc.,
CCH II, LLC
and
CCH II Capital Corp.
(Exact name of registrants as specified in their charters)
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Delaware
Delaware
Delaware |
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4841
4841
4841 |
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43-1857213
03-0511293
13-4257703 |
(State or other jurisdiction of
incorporation or organization) |
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(Primary Standard Industrial
Classification Code Number) |
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(I.R.S. Employer
Identification Number) |
12405 Powerscourt Drive
St. Louis, Missouri 63131
(314) 965-0555
(Address, including zip code, and telephone number, including
area code, of registrants principal executive offices)
Grier C. Raclin
Executive Vice President, General Counsel and Corporate
Secretary
12405 Powerscourt Drive
St. Louis, Missouri 63131
(314) 965-0555
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Dennis J. Friedman
Barbara L. Becker
Gibson, Dunn & Crutcher LLP
200 Park Avenue
New York, NY 10166
(212) 351-4000
Approximate date of commencement of proposed sale to the
public: As soon as practicable after the effective date of
this Registration Statement.
If the securities being registered on this form are being
offered in connection with the formation of a holding company
and there is compliance with General Instruction G, check the
following
box. o
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same
offering. o
If this form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
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Proposed Maximum |
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Proposed Maximum |
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Title of Each Class of |
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Amount to be |
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Offering |
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Aggregate |
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Amount of |
Securities to be Registered |
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Registered |
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Price Per Unit |
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Offering Price |
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Registration Fee |
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Class A Common Stock (par value $0.001 per share)
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45,000,000 shares |
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n/a |
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$358,875,000.00(1) |
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$38,399.63(1) |
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10.25% Senior Notes due 2010 |
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$146,250,000.000 |
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n/a |
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(1) |
Calculated pursuant to Rule 457(f)(1). On August 9,
2006, the closing bid price for the Convertible Notes was
$792.50 per $1,000 principal amount and the closing ask price
was $802.50, the average of which equals $797.50. The Offerors
are offering to exchange up to $450,000,000.00 principal amount
of the Convertible Notes. Therefore, the maximum aggregate
offering price equals $358,875,000.00. |
The Registrants hereby amend this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrants shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933, as amended, or until this
Registration Statement shall become effective on such date as
the Commission, acting pursuant to said Section 8(a), may
determine.
The
information in this Exchange Offer Prospectus may change. We may
not offer these securities until the registration statement
filed with the Securities and Exchange Commission is effective.
This Exchange Offer Prospectus is not an offer to sell these
securities and it is not soliciting an offer to buy these
securities in any jurisdiction where the offer or sale is not
permitted.
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EXCHANGE OFFER
PROSPECTUS
CCHC, LLC, CCH II, LLC and CCH II Capital Corp.
Offer to Exchange up to $450,000,000 Principal Amount
Outstanding of
Charter Communications, Inc.s
5.875% Convertible Senior Notes due 2009
(CUSIP Nos. 16117MAE7 and 16117MAD9)
The Exchange Consideration offered per $1,000
principal amount of Charter Communications, Inc.s
(Charter) 5.875% convertible senior notes due 2009
(the Convertible Notes) validly tendered for
exchange and not validly withdrawn on or prior to the Expiration
Date (as defined below) consists of:
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$417.75 in cash, |
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100 shares of Charters Class A Common Stock,
par value $0.001 (the Class A Common
Stock) and |
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$325.00 principal amount of 10.25% Senior Notes due 2010
issued by CCH II (the CCH II Notes), as an
add-on to its currently outstanding series. |
This Exchange Offer will expire at 11:59 p.m., New York
City time, on September 8, 2006, unless extended or earlier
terminated (such date, as the same may be extended or earlier
terminated, the Expiration Date). Holders of
Convertible Notes (as defined below) must tender their
Convertible Notes for exchange on or prior to the Expiration
Date to receive the Exchange Consideration (as defined
below).
CCHC, LLC (CCHC) and CCH II, LLC and
CCH II Capital Corp. (collectively, CCH II
and, together with CCHC, the Offerors) hereby offer
up to $187,987,500 in cash, 45,000,000 shares of
Class A Common Stock and $146,250,000 principal amount of
CCH II Notes to holders (the Holders) of up to
$450,000,000 of Charters $862,500,000 principal amount
outstanding Convertible Notes who elect to exchange their
Convertible Notes upon the terms and subject to the conditions
set forth in this Exchange Offer Prospectus (this Exchange
Offer Prospectus) and in the accompanying Letter of
Transmittal (the Letter of Transmittal and together
with this Exchange Offer Prospectus, the Exchange
Offer). The Convertible Notes are not listed on any
national securities exchange but are eligible for trading on the
PORTAL Market.
The Exchange Offer is not conditioned on a minimum amount of
Convertible Notes being tendered. The Offerors will not accept
for exchange more than $450,000,000 principal amount of
Convertible Notes (the Maximum Amount). As a result,
if more than the Maximum Amount of Convertible Notes is validly
tendered and not validly withdrawn, the Offerors will accept
Convertible Notes from each Holder pro rata, based on the total
principal amount of Convertible Notes validly tendered and not
validly withdrawn.
The CCH II Notes being offered as part of the Exchange
Consideration will be issued under a temporary CUSIP number
until the next interest payment date, which is expected to be
September 15, 2006, at which time it is expected that they
will be mandatorily merged into the existing CUSIP number of
approximately $1.6 billion outstanding principal amount of
CCH II Notes. The CCH II Notes are not listed on any
national securities exchange but are eligible for trading on the
PORTAL Market.
The Class A Common Stock is traded on the Nasdaq Global
Market under the symbol CHTR.
In addition to the Exchange Consideration, we will pay accrued
interest on the Convertible Notes from and after the last
interest payment date (which was May 16, 2006) up to, but
not including, the Settlement Date.
The Settlement Date in respect of any Convertible
Notes that are validly tendered for exchange and not validly
withdrawn is expected to be promptly following the Expiration
Date.
Exchange of the Convertible Notes and an investment in our
Class A Common Stock and CCH II Notes involves risks.
See Recent Events on page 1 and Risk
Factors on page 21 for a discussion of issues that
you should consider with respect to the Exchange Offer.
You must make your own decision whether to exchange any
Convertible Notes pursuant to the Exchange Offer, and, if you
wish to exchange Convertible Notes, the principal amount of
Convertible Notes to tender. In addition, you must make your own
decision as to whether to unwind any hedged positions you hold
with respect to your Convertible Notes. Neither Charter, CCHC,
CCH II, their subsidiaries nor their respective Boards of
Directors make any recommendation as to whether Holders should
exchange their Convertible Notes or unwind any hedged positions
with respect to the Convertible Notes.
Neither this transaction nor the securities to be issued upon
exchange of the Convertible Notes have been approved or
disapproved by the Securities and Exchange Commission or any
state securities commission. Neither the Securities and Exchange
Commission nor any state securities commission has passed upon
the fairness or merits of this transaction or upon the accuracy
or adequacy of the information contained in this document. Any
representation to the contrary is a criminal offense.
The Dealer Managers for the Exchange Offer are:
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Citigroup |
Banc of America Securities LLC |
The Date of this Exchange Offer Prospectus is August 11, 2006.
TABLE OF CONTENTS
Unless otherwise stated, the discussion in this Exchange
Offer Prospectus of our business and operations includes the
business of Charter Communications, Inc. (Charter)
and its direct and indirect subsidiaries. Unless otherwise
stated or the context otherwise requires, the terms
we, us and our refer to
Charter and its direct and indirect subsidiaries on a
consolidated basis.
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IMPORTANT
Convertible Notes tendered for exchange may be validly withdrawn
at any time up until 11:59 p.m., New York City time, on the
Expiration Date. In the event of a termination of the Exchange
Offer, the Convertible Notes tendered for exchange pursuant to
the Exchange Offer will be promptly returned to the tendering
Holders. Likewise, any Convertible Notes not accepted for
exchange because the Maximum Amount has been exceeded will be
promptly returned to the tendering Holders.
Convertible Notes tendered for exchange, along with completed
Letters of Transmittal and any other required documents should
be directed to the Exchange Agent (as defined below). Any
requests for assistance in connection with the Exchange Offer or
for additional copies of this Exchange Offer Prospectus or
related materials should be directed to the Information Agent
(as defined below). Any additional questions regarding the
Exchange Offer should be directed to either of the Dealer
Managers (as defined below). Contact information for the
Information Agent, the Exchange Agent and the Dealer Managers is
set forth on the back cover of this Exchange Offer Prospectus.
Neither we nor any of the Dealer Managers, the Trustee (as
defined below), the Information Agent or the Exchange Agent make
any recommendation as to whether or not Holders should tender
their Convertible Notes for exchange pursuant to the Exchange
Offer.
The Information Agent for the Exchange Offer is Global
Bondholder Services Corporation (the Information
Agent). The Exchange Agent for the Exchange Offer is
Global Bondholder Services Corporation (the Exchange
Agent). Citigroup and Banc of America Securities LLC (the
Dealer Managers) are acting as dealer managers in
connection with the Exchange Offer.
Subject to the terms and conditions set forth in the Exchange
Offer, the Exchange Consideration to which a tendering Holder is
entitled pursuant to the Exchange Offer will be paid on the
Settlement Date. Under no circumstances will any interest be
payable because of any delay in the transmission of the Exchange
Consideration to Holders by the Exchange Agent.
Notwithstanding any other provision of the Exchange Offer,
the Offerors obligation to pay the Exchange Consideration
for Convertible Notes validly tendered for exchange and not
validly withdrawn pursuant to the Exchange Offer is subject to,
and conditioned upon, the satisfaction or waiver of, the
conditions described below under Description of the
Exchange Offer Conditions to the Exchange
Offer.
The Offerors reserve the right, in their sole discretion, to
waive any one or more of the conditions to the Exchange Offer at
any time. See Description of the Exchange
Offer Conditions to the Exchange Offer.
The Offerors reserve the right to extend the Exchange Offer,
if necessary, so that the Expiration Date occurs upon or shortly
after the satisfaction of the conditions to the Exchange
Offer.
Subject to applicable securities laws and the terms set forth in
this Exchange Offer, the Offerors reserve the right:
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to waive any and all conditions to the Exchange Offer; |
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to extend the Exchange Offer; |
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to terminate the Exchange Offer, but only if any condition to
the Exchange Offer is not satisfied (see Description of
the Exchange Offer Conditions to the Exchange
Offer); or |
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otherwise to amend the Exchange Offer in any respect; however,
the Offerors do not currently intend to change the amount of
Class A Common Stock offered to more than 134 shares
or less than 67 shares per $1,000 principal amount of
Convertible Notes. |
In accordance with applicable securities laws, if a material
change occurs in the information published, sent or given to
Holders, the Offerors will promptly disclose the change in a
manner reasonably calculated to inform Holders of the change.
ii
In the event that the Exchange Offer is withdrawn or otherwise
not completed, the Exchange Consideration will not be paid or
become payable to Holders of the Convertible Notes who have
validly tendered their Convertible Notes for exchange in
connection with the Exchange Offer and the Convertible Notes
tendered for exchange pursuant to the Exchange Offer will be
promptly returned to the tendering Holders.
Any Holder who desires to tender Convertible Notes pursuant to
the Exchange Offer and who holds physical certificates
evidencing such Convertible Notes must complete and sign a
Letter of Transmittal in accordance with the instructions
therein, have the signature thereon guaranteed (if required by
Instruction 4 of the Letter of Transmittal) and send or
deliver such manually signed Letter of Transmittal (or a
manually signed facsimile thereof), together with certificates
evidencing such Convertible Notes being tendered and any other
required documents to the Exchange Agent at its address set
forth on the back cover of this Exchange Offer Prospectus. Only
Holders of Convertible Notes are entitled to tender Convertible
Notes for exchange.
Beneficial owners of Convertible Notes that are held of record
by a broker, dealer, commercial bank, trust company or other
nominee must instruct such nominee to tender the Convertible
Notes for exchange on the beneficial owners behalf. A
letter of instructions is included in the materials provided
along with this Exchange Offer Prospectus, which may be used by
a beneficial owner in this process to effect the tender of
Convertible Notes for exchange. See Description of the
Exchange Offer Procedure for Tendering Convertible
Notes.
The Depository Trust Company (DTC) has authorized
DTC participants that hold Convertible Notes on behalf of
beneficial owners of Convertible Notes through DTC to tender
their Convertible Notes for exchange as if they were Holders. To
tender their Convertible Notes for exchange, DTC participants
may, in lieu of physically completing and signing the Letter of
Transmittal, transmit their acceptance to DTC through the DTC
Automated Tender Offer Program (ATOP), for which the
transaction will be eligible, and follow the procedure for
book-entry transfer set forth in Description of the
Exchange Offer Procedure for Tendering Convertible
Notes.
Converting Holders will not be obligated to pay brokerage fees
or commissions to the Dealer Managers, the Exchange Agent, the
Information Agent, the Trustee or the Offerors.
Any requests for assistance in connection with the Exchange
Offer or for additional copies of this Exchange Offer Prospectus
or related materials should be directed to the Information
Agent. Any additional questions regarding the Exchange Offer
should be directed to either of the Dealer Managers. Contact
information for the Information Agent and the Dealer Managers is
set forth on the back cover of this Exchange Offer Prospectus.
Beneficial owners may also contact their brokers, dealers,
commercial banks, trust companies or other nominees through
which they hold the Convertible Notes with questions and
requests for assistance.
This Exchange Offer Prospectus and the Letter of Transmittal
contain important information that should be read before any
decision is made with respect to a exchange of Convertible
Notes.
The delivery of this Exchange Offer shall not under any
circumstances create any implication that the information
contained herein is correct as of any time subsequent to the
date hereof or that there has been no change in the information
set forth herein or in any attachments hereto or in the affairs
of Charter or any of its subsidiaries or affiliates since the
date hereof.
This Exchange Offer does not constitute an offer to sell or
exchange or a solicitation of an offer to buy or exchange
securities in any jurisdiction where it is unlawful to make such
an offer or solicitation.
No one has been authorized to give any information or to make
any representations with respect to the matters described in
this Exchange Offer Prospectus, other than those contained in
this Exchange Offer Prospectus. If given or made, such
information or representation may not be relied upon as having
been authorized by us.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Exchange Offer Prospectus includes forward-looking
statements regarding, among other things, our plans, strategies
and prospects, both business and financial. Although we believe
that our plans, intentions and expectations reflected in or
suggested by these forward-looking statements are reasonable, we
cannot assure you that we will achieve or realize these plans,
intentions or expectations. Forward-looking statements are
inherently subject to risks, uncertainties and assumptions. Many
of the forward-looking statements contained in this Exchange
Offer Prospectus may be identified by the use of forward-looking
words such as believe, expect,
anticipate, should, planned,
will, may, intend,
estimated, aim, on track and
potential, among others. Important factors that
could cause actual results to differ materially from the
forward-looking statements we make in this Exchange Offer
Prospectus are set forth in this Exchange Offer Prospectus and
in other reports or documents that we file from time to time
with the SEC and include, but are not limited to:
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the availability, in general, of funds to meet interest payment
obligations under our debt and to fund our operations and
necessary capital expenditures, either through cash flows from
operating activities, further borrowings or other sources and,
in particular, our ability to be able to provide under
applicable debt instruments and applicable law such funds (by
dividend, investment or otherwise) to the applicable obligor of
such debt; |
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our ability to comply with all covenants in our indentures and
credit facilities, any violation of which would result in a
violation of the applicable facility or indenture and could
trigger a default of other obligations under cross-default
provisions; |
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our 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 through new issuances, exchange
offers or otherwise, including restructuring our balance sheet
and leverage position; |
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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; |
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our ability to obtain programming at reasonable prices or to
pass programming cost increases on to our customers; |
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general business conditions, economic uncertainty or
slowdown; and |
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the effects of governmental regulation, including but not
limited to local franchise authorities, on our business. |
All forward-looking statements attributable to us or any person
acting on our behalf are expressly qualified in their entirety
by this cautionary statement. We are under no duty or obligation
to update any of the forward-looking statements after the date
of this Exchange Offer Prospectus.
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SUMMARY
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The following summary is provided solely for the convenience
of the Holders of the Convertible Notes. This summary is not
intended to be complete and is qualified in its entirety by
reference to the full text and more specific details contained
elsewhere in this Exchange Offer Prospectus, the Letter of
Transmittal and any amendments or supplements hereto or thereto.
Holders of the Convertible Notes are urged to read this Exchange
Offer Prospectus in its entirety. Each of the capitalized terms
used in this summary and not defined herein has the meaning set
forth elsewhere in this Exchange Offer Prospectus. |
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CCHC, LLC (CCHC) is an indirect subsidiary of
Charter Communications, Inc. (Charter). CCHC is a
holding company with no operations of its own. CCH II, LLC
is a wholly-owned indirect subsidiary of CCHC. CCH II, LLC
is a holding company with no operations of its own. CCH II
Capital Corp. (together with CCH II, LLC,
CCH II) is a wholly-owned subsidiary of
CCH II, LLC. CCH II Capital Corp. is a company with no
operations of its own and no subsidiaries. For a chart showing
our ownership structure, see page 3. |
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The Company
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We are a broadband communications company operating in the
United States, with approximately 5.81 million customers at
June 30, 2006, pro forma for the asset sales discussed
below. Through our broadband network of coaxial and fiber optic
cable, we offer our customers traditional cable video
programming (analog and digital, which we refer to as
video service), high-speed Internet access, advanced
broadband cable services (such as video on demand
(VOD), high definition television service, and
interactive television) and, in some of our markets, telephone
service. See Business Products and
Services for further description of these terms, including
customers. |
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At June 30, 2006, pro forma for the asset sales discussed
below, we served approximately 5.52 million analog video
customers, of which approximately 2.73 million were also
digital video customers. We also served approximately
2.26 million high-speed Internet customers (including
approximately 266,700 who received only high-speed Internet
services). We also provided telephone service to approximately
257,600 customers (including approximately 24,100 who received
telephone service only). |
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Our principal executive offices are located at Charter Plaza,
12405 Powerscourt Drive, St. Louis, Missouri 63131.
Our telephone number is
(314) 965-0555 and
we have a website accessible at www.charter.com. The information
posted or linked on this website is not part of the Exchange
Offer or this Exchange Offer Prospectus and you should rely
solely on the information contained in this Exchange Offer
Prospectus and the related documents to which we refer herein
when deciding whether or not to tender your Convertible Notes. |
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The Offerors are offering to pay the Exchange Consideration with
respect to up to $450,000,000 of the Convertible Notes tendered
for exchange upon the terms and subject to the conditions set
forth in this Exchange Offer Prospectus and the related Letter
of Transmittal. The Exchange Offer and the payment of the
Exchange Consideration are conditioned upon, among other things,
the satisfaction of certain conditions. See Description of
the Exchange Offer Conditions to the Exchange
Offer. |
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Recent Events
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Contribution of CC VIII, LLC Interests to CCH I,
LLC. As part of the Private Exchange Offers (as defined
below), CCHC will contribute its 70% interest (the
CC VIII Interest) in the Class A preferred
equity interests of CC VIII, LLC
(CC VIII), a majority-owned indirect subsidiary
of Charter Communications Operating, LLC (Charter
Operating), to CCH I, LLC (CCH I). The
CC VIII Interest will be pledged as security for all
CCH I notes, including those that may be issued in the
Private Exchange Offers described below. The CC VIII
preferred interests are entitled to a 2% accreting priority
return on the priority capital. The CC VIII Interest
represents approximately 13% of the total equity |
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interests in CC VIII at June 30, 2006. CC VIII
owns systems with approximately 934,000 analog video customers
at June 30, 2006. |
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Charter Communications Holdings, LLC (Charter
Holdings) Exchange Offers. Concurrently with the
Exchange Offer, CCH II and CCH I have commenced private
offers (the Private Exchange Offers) in which
certain holders of certain of Charter Holdings outstanding
notes are being offered the right to exchange those notes for up
to $200 million principal amount of 10.25% Senior Notes due
2013 of CCH II (CCH II 2013 notes) and up to
$675 million principal amount of 11% Senior Secured Notes
due 2015 of CCH I (CCH I notes). The
CCH I notes to be issued in the Private Exchange Offers, if
issued, will be of the same class as the currently outstanding
$3.525 billion principal amount of CCH I notes.
Charter Holdings will unconditionally guarantee the CCH II
2013 notes. Charter Holdings guarantees the currently
outstanding CCH I notes and will guarantee the CCH I
notes to be issued in the Private Exchange Offers. As noted
above, the CC VIII Interest to be held by CCH I will
be pledged as security for any CCH I notes that may be
issued in the Private Exchange Offers and all outstanding CCH I
notes. The CCH I notes currently outstanding are, and the
CCH I Notes to be issued in the Private Exchange Offers
also will be secured by a pledge of CCH Is equity
interests in CCH II. Neither consummation of the Exchange
Offer nor the Private Exchange Offers is conditioned upon
consummation of the other offer. Affiliates of Mr. Paul G.
Allen, Charters Chairman and controlling stockholder, hold
approximately $56 million of Charter Holdings notes
that are the subject of the Private Exchange Offers.
Mr. Allen has agreed to cause these affiliates to tender
these notes in the Private Exchange Offers.
Asset Sales. Earlier in 2006, we signed three separate
definitive agreements to sell certain cable television systems
serving a total of approximately 356,000 analog video customers
in (1) West Virginia and Virginia to Cebridge Connections,
Inc. (Cebridge), (2) Illinois and Kentucky to
Telecommunications Management, LLC, doing business as New Wave
Communications (New Wave) and (3) Nevada,
Colorado, New Mexico and Utah to Orange Broadband Holding
Company, LLC (Orange) for a total of approximately
$971 million. The sale of the systems to Cebridge and New
Wave closed on July 1, 2006, and the sale of the systems to
Orange is scheduled to close in the third quarter of 2006.
Proceeds from the sales to Cebridge and New Wave that closed on
July 1, 2006 were used to reduce the amount outstanding on
our revolving credit facility to zero, without reducing
commitments, and the remainder to fund our business. Proceeds
from the sale to Orange are expected to be used for general
corporate purposes, including to fund the cash consideration to
be paid in the Exchange Offer. Because the West Virginia and
Virginia systems meet the criteria for presentation as
discontinued operations, on August 10, 2006, Charter and
CCH II each filed current reports on
Form 8-K
reflecting revenues and expenses related to the West Virginia
and Virginia systems for each of the three years ended
December 31, 2005 as discontinued operations.
Purpose of the Exchange Offer
The purpose of the Exchange Offer is to exchange up to
$450,000,000 of Charters outstanding Convertible Notes to
extend maturities and reduce our overall indebtedness.
2
Organizational Structure
The chart below sets forth our organizational structure as of
June 30, 2006 and that of our direct and indirect
subsidiaries after giving effect to the contribution
of the CC VIII Interest to CCH I. This chart does not
include all of our affiliates and subsidiaries and, in some
cases, we have combined separate entities for presentation
purposes. The equity ownership, voting percentages and
indebtedness amounts shown below are approximations as of
June 30, 2006 after giving effect to the
contribution of the CC VIII Interest to CCH I and do
not give effect to any exercise, conversion or exchange of then
outstanding options, preferred stock, convertible notes and
other convertible or exchangeable securities. Indebtedness
amounts shown below are accreted values for financial reporting
purposes as of June 30, 2006. See Description of
Other Indebtedness, which also includes the principal
amount of the indebtedness described below.
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(1) |
Charter acts as the sole manager of Charter Holdco and its
direct and indirect limited liability company subsidiaries,
including CCHC and CCH II. |
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(2) |
Without giving effect to the Exchange Offer. Concurrently with
the Exchange Offer, CCH II and CCH I have commenced
the Private Exchange Offers. |
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(3) |
Held by Charter Investment, Inc. (CII) and Vulcan
Cable III Inc., each of which is 100% owned by Paul G.
Allen, Charters Chairman and controlling shareholder. They
are exchangeable at any time on a one-for-one basis for shares
of Class A Common Stock. |
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(4) |
The percentages reflect the issuance of the 116.9 million
shares of Class A Common Stock issued in 2005 and February
2006 and the corresponding issuance of an equal number of mirror
membership units by Charter Holdco to Charter. However, for
accounting purposes, Charters common equity interest in
Charter Holdco is 48%, and Paul G. Allens ownership of
Charter Holdco is 52%. These percentages exclude the
116.9 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. |
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(5) |
Represents an exchangeable accreting note issued by CCHC related
to the settlement of the CC VIII dispute. See Certain
Relationships and Related Party Transactions
Transactions Arising Out of Our Organizational Structure and
Mr. Allens Investment in Charter and Its
Subsidiaries Equity Put Rights CC
VIII. |
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(6) |
Without giving effect to the Private Exchange Offers or the
Exchange Offer. In the Private Exchange Offers, CCH I is
offering up to $675 million of the CCH I notes. |
|
(7) |
Without giving effect to the Private Exchange Offers or the
Exchange Offer. In the Private Exchange Offers, CCH II is
expected to offer up to $200 million of the CCH II 2013
notes. In the Exchange Offer, CCH II is offering up to
$146 million of CCH II Notes. |
|
(8) |
Giving pro forma effect to the asset sales described under
Recent Events Asset Sales,
the aggregate principal amount of loans under Charter
Operatings senior credit facilities is $5.0 billion. |
|
(9) |
This subsidiary guarantees the Charter Operating senior credit
facilities and senior second lien notes, which guarantee is
secured by substantially all assets of this subsidiary. |
4
The Exchange Offer
|
|
|
Exchange Offer |
|
The Offerors are offering to pay the Exchange Consideration to
Holders of up to $450,000,000 aggregate principal amount of the
Convertible Notes who elect to exchange their Convertible Notes
upon the terms and subject to the conditions of the Exchange
Offer. |
|
Offerors |
|
CCHC and CCH II are the entities making the Exchange Offer.
See Organizational Structure. |
|
Exchange Consideration |
|
The Exchange Consideration offered per $1,000 principal amount
of Convertible Notes validly tendered for exchange and not
validly withdrawn on or prior to the Expiration Date consists of: |
|
|
|
$417.75 in cash, |
|
|
|
100 shares of Class A Common
Stock, and |
|
|
|
$325.00 principal amount of CCH II Notes. |
|
|
|
Subject to applicable securities laws and the terms set forth in
the Exchange Offer Prospectus, the Offerors reserve the right to
amend the Exchange Offer in any respect; however, the Offerors
do not currently intend to change the amount of Class A
Common Stock offered to more than 134 shares or less than
67 shares per $1,000 principal amount of Convertible Notes. |
|
|
|
CCH II Notes will be issued only in minimum denominations
of $1,000 and integral multiples of $1,000. See
Description of the Exchange Offer. |
|
No Minimum Condition |
|
The Exchange Offer is not conditioned on a minimum principal
amount of Convertible Notes being tendered. |
|
Maximum Amount |
|
The Offerors will not accept for exchange more than the Maximum
Amount. As a result, if more than the Maximum Amount of
Convertible Notes is validly tendered and not validly withdrawn,
the Offerors will accept Convertible Notes from each Holder pro
rata based on the total principal amount of Convertible Notes
validly tendered and not validly withdrawn. |
|
Accrued Interest on the Convertible Notes |
|
In addition to the Exchange Consideration, the Offerors will pay
accrued interest on the Convertible Notes from and after the
last interest payment date (which was May 16, 2006) up to,
but not including, the Settlement Date. |
|
Consequences of Failure to Exchange |
|
For a description of certain risks of continuing to own
Convertible Notes after the Settlement Date because such Holder
elects not to tender Convertible Notes or Convertible Notes
tendered are not accepted (as a result of the Maximum Amount or
otherwise) see Risk Factors Risks to
Continuing Holders of Convertible Notes After the
Settlement Date. In particular, you should note that as
part of the Private Exchange Offers CCHC will contribute the
CC VIII Interest to CCH I. The CC VIII Interest
will be pledged as security for all CCH I notes, including those
to be issued in the Private Exchange |
5
|
|
|
|
|
Offers. Any claim Holders of the Convertible Notes have against
those assets will become subordinate to claims of the holders of
CCH I notes, as well as the creditors of CCHC, Charter
Holdings and CIH. |
|
Expiration Date |
|
September 8, 2006, unless extended or earlier terminated by
the Offerors. The Offerors reserve the right to extend the
Exchange Offer, if necessary, so that the Expiration Date occurs
upon or shortly after the satisfaction of the conditions to the
Exchange Offer. We do not currently intend to extend the
Expiration Date beyond September 8, 2006. |
|
Settlement Date |
|
The Settlement Date in respect of any Convertible
Notes that are validly tendered for exchange prior to
11:59 p.m., New York City time, on the Expiration Date is
expected to be promptly following the Expiration Date. |
|
How to Tender Convertible Notes |
|
See Description of the Exchange Offer
Procedure for Tendering Convertible Notes. For further
information, call the Information Agent or the Exchange Agent at
the respective telephone numbers set forth on the back cover of
this Exchange Offer Prospectus or consult your broker, dealer,
commercial bank, trust company or other nominee for assistance. |
|
Withdrawal and Revocation Rights |
|
Convertible Notes may be validly withdrawn at any time up until
11:59 p.m., New York City time, on the Expiration Date. In
the event of a termination of the Exchange Offer, which can only
occur if a condition to the Exchange Offer is not satisfied, the
Convertible Notes tendered pursuant to the Exchange Offer will
be promptly returned to the tendering Holders. |
|
Purpose of the Exchange Offer |
|
The purpose of the Exchange Offer is to exchange up to
$450,000,000 of Charters outstanding Convertible Notes to
extend maturities and reduce our overall indebtedness. |
|
Certain Conditions Precedent to the Exchange Offer |
|
The Offerors obligation to pay the Exchange Consideration
in respect of Convertible Notes validly tendered for exchange
pursuant to the Exchange Offer is conditioned upon the
satisfaction of certain conditions including effectiveness of
the registration statement. See Description of the
Exchange Offer Conditions to the Exchange
Offer. |
|
Optional Settlement Procedure |
|
If you tender Convertible Notes in the Exchange Offer, and you
have entered into a share loan agreement with Citigroup Global
Markets Limited (CGML) pursuant to which you have an
open borrow position thereunder as of the Settlement Date of the
Exchange Offer, you may, at your option, elect to close out such
position as described under Description of the Exchange
Offer Optional Settlement Procedure. If you
validly make such an election, any shares you are entitled to
receive as a component of the Exchange Consideration will be
used, to the extent you have, as of the Settlement Date, an
obligation outstanding to return Class A Common Stock under
the share loan agreement, to satisfy a corresponding portion of
such return obligation to CGML. Although it has no obligation to
do so, we |
6
|
|
|
|
|
anticipate that CGML will return such shares to us under the
Share Lending Agreement we entered into with CGML described
under Description of Capital Stock and Membership
Units Share Lending Agreement. See
Description of the Exchange Offer Optional
Settlement Procedure. |
|
Certain U.S. Federal Income Tax Consequences |
|
For a summary of the material U.S. federal income tax
consequences of the Exchange Offer, see Certain
U.S. Federal Income Tax Consequences. |
|
Use of Proceeds |
|
Neither the Offerors, Charter nor any of their subsidiaries will
receive any proceeds from the Exchange Offer. |
|
Brokerage Commissions |
|
No brokerage commissions are payable by Holders of the
Convertible Notes to the Dealer Managers, the Information Agent,
the Offerors, the Trustee or the Exchange Agent. |
|
Dealer Managers |
|
Citigroup and Banc of America Securities LLC are the Dealer
Managers for the Exchange Offer. Their respective addresses and
telephone numbers are set forth on the back cover of this
Exchange Offer Prospectus. |
|
Information Agent |
|
Global Bondholder Services Corporation is the Information Agent
for the Exchange Offer. Its address and telephone number are set
forth on the back cover of this Exchange Offer Prospectus. |
|
Exchange Agent |
|
Global Bondholder Services Corporation is the Exchange Agent for
the Exchange Offer. Its address and telephone number are set
forth on the back cover of this Exchange Offer Prospectus. |
|
Regulatory Approvals |
|
The Offerors are not aware of any other material regulatory
approvals necessary to complete the Exchange Offer, other than
the obligation to file a Schedule TO with the SEC and
otherwise comply with applicable securities laws. |
|
No Appraisal Rights |
|
No appraisal rights are available to the Holders in connection
with the Exchange Offer. |
|
Further Information |
|
Any requests for assistance in connection with the Exchange
Offer or for additional copies of this Exchange Offer Prospectus
or related materials should be directed to the Information
Agent. Any questions regarding the Exchange Offer should be
directed to either of the Dealer Managers. Contact information
for the Information Agent and the Dealer Managers is set forth
on the back cover of this Exchange Offer Prospectus. Beneficial
owners may also contact their brokers, dealers, commercial
banks, trust companies or other nominees through which they hold
the Convertible Notes with questions and requests for assistance. |
7
The CCH II Notes
|
|
|
Issuers |
|
CCH II, LLC and CCH II Capital Corp. |
|
Maturity |
|
September 15, 2010. |
|
Interest |
|
Interest will accrue from and including the Settlement Date and
is payable in cash semi-annually, in arrears, on March 15
and September 15 of each year. |
|
Interest Rate |
|
The per annum interest rate on the CCH II Notes equals
10.25%. |
|
CCH II Notes Offered/ CUSIP |
|
The CCH II Notes offered hereby will be pari passu with, of
the same class as, will vote on any matter submitted to
bondholders with and otherwise be substantially identical in all
respects to approximately $2.1 billion principal amount of
currently outstanding CCH II Notes. However, the currently
outstanding CCH II Notes trade under two CUSIP numbers,
which are not fungible. The CCH II Notes being offered as
part of the Exchange Consideration will be issued under a
temporary CUSIP number until the next interest payment date,
which is expected to be September 15, 2006 at which time it
is expected that they will be mandatorily merged into the
existing CUSIP number of approximately $1.6 billion
outstanding principal amount of CCH II Notes. |
|
Ranking |
|
The CCH II Notes are the senior unsecured obligations of
CCH II and rank pari passu to all of CCH IIs existing
and future unsecured senior indebtedness, including
approximately $2.1 billion aggregate principal amount of
CCH II notes that are outstanding and up to
$200 million of CCH II 2013 notes that are being
offered in the Private Exchange Offers. In addition, the
CCH II Notes are structured to be effectively senior to any
indebtedness of any parent of CCH II. However, the
CCH II Notes are effectively subordinated to all existing
and future obligations of CCH IIs subsidiaries. As of
June 30, 2006, CCH II had stand-alone indebtedness and
other obligations outstanding of $2.1 billion, and its
consolidated subsidiaries had approximately $11.3 billion
of indebtedness and other liabilities outstanding on their
consolidated balance sheet. See Capitalization. |
|
Optional Redemption |
|
CCH II may redeem, at its option, the CCH II Notes in
whole or in part from time to time as described in the section
Description of the CCH II Notes Optional
redemption. |
|
Change of Control |
|
Upon the occurrence of a Change of Control (as defined herein
under Description of the CCH II Notes), each holder
of the CCH II Notes will have the right to require
CCH II to repurchase all or any part of that holders
CCH II Notes at a repurchase price equal to 101% of the
aggregate principal amount of the CCH II Notes repurchased
plus accrued and unpaid interest thereon, if any, to the date of
purchase. There can be no assurance that CCH II will have
sufficient funds available at the time of any Change of Control
to make any required debt repayment (including repurchases of
the CCH II |
8
|
|
|
|
|
Notes). See Description of the CCH II
Notes Repurchase at the Option of
Holders Change of Control. |
|
Restrictive Covenants |
|
The indenture under which the CCH II Notes will be issued,
which we refer to as the CCH II indenture,
restricts the ability of CCH II and CCH IIs
restricted subsidiaries to: (1) incur indebtedness;
(2) create liens; (3) pay dividends or make
distributions in respect of capital stock and other restricted
payments; (4) make investments; (5) sell assets;
(6) create restrictions on the ability of restricted
subsidiaries to make certain payments; (7) enter into
transactions with affiliates; or (8) consolidate, merge or
sell all or substantially all assets. However, such covenants
are subject to a number of important qualifications and
exceptions as described under Description of the
CCH II Notes Certain Covenants, including
provisions allowing CCH II and its restricted subsidiaries,
as long as CCH IIs leverage ratio is not greater than
5.5 to 1.0, to incur additional indebtedness and make
investments. CCH II is also permitted under these covenants
to provide funds to its parent companies, to repay intercompany
debt and to pay interest on and, subject to meeting its leverage
ratio test, to retire or repurchase their debt obligations. |
|
Events of Default |
|
For a discussion of events that will permit acceleration of the
payment of the principal of and accrued interest on the
CCH II Notes, see Description of the CCH II
Notes Events of Default and Remedies. |
9
Summary Consolidated Financial Data
Charter is a holding company whose principal assets are a
controlling common equity interest in Charter Holdco and
mirror notes that are payable by Charter Holdco to
Charter which have the same principal amount and terms as those
of Charters convertible senior notes. Charter Holdco is a
holding company whose primary assets are equity interests in our
cable operating subsidiaries and intercompany loan receivables.
Charter consolidates Charter Holdco as a variable interest
entity under Financial Accounting Standards Board
(FASB) Interpretation (FIN) 46(R)
Consolidation of Variable Interest Entities. Charter
Holdcos limited liability agreement provides that so long
as Charters Class B common stock retains its special
voting rights, Charter will maintain 100% voting interest in
Charter Holdco. Voting control gives Charter full authority and
control over the operations of Charter Holdco.
CCH II, LLC is a holding company whose primary assets are
equity interests in our cable operating subsidiaries.
CCH II, LLC was formed in March 2003 and is a direct
subsidiary of CCH I, which is an indirect subsidiary of
Charter Holdings. Charter Holdings is an indirect subsidiary of
Charter.
Historical Financial Data. The following tables present
summary financial and other data for Charter and CCH II and
their subsidiaries and has been derived from the audited
consolidated financial statements of Charter and CCH II and
their subsidiaries as of December 31, 2005 and 2004 and for
the three years ended December 31, 2005 and the unaudited
consolidated financial statements of Charter and CCH II and
their subsidiaries as of June 30, 2006 and for the six
months ended June 30, 2006 and 2005. The consolidated
financial statements of Charter and CCH II and their
subsidiaries as of December 31, 2005 and 2004, and for the
three years ended December 31, 2005 have been audited
by KPMG LLP, an independent registered public accounting firm.
The following information should be read in conjunction with
Selected Historical Consolidated Financial Data,
Capitalization, Managements Discussion
and Analysis of Financial Condition and Results of Operations of
Charter, Managements Discussion and Analysis
of Financial Condition and Results of Operations of CCH II,
LLC and the historical consolidated financial statements
and related notes of Charter and CCH II included elsewhere
in this Exchange Offer Prospectus.
10
Charter Communications, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended | |
|
|
Year Ended December 31, | |
|
June 30, | |
|
|
| |
|
| |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
2005 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Video
|
|
$ |
3,306 |
|
|
$ |
3,217 |
|
|
$ |
3,248 |
|
|
$ |
1,623 |
|
|
$ |
1,684 |
|
|
|
High-speed Internet
|
|
|
535 |
|
|
|
712 |
|
|
|
875 |
|
|
|
425 |
|
|
|
506 |
|
|
|
Telephone
|
|
|
14 |
|
|
|
18 |
|
|
|
36 |
|
|
|
14 |
|
|
|
49 |
|
|
|
Advertising sales
|
|
|
254 |
|
|
|
279 |
|
|
|
284 |
|
|
|
135 |
|
|
|
147 |
|
|
|
Commercial
|
|
|
196 |
|
|
|
227 |
|
|
|
266 |
|
|
|
128 |
|
|
|
149 |
|
|
|
Other
|
|
|
311 |
|
|
|
307 |
|
|
|
324 |
|
|
|
156 |
|
|
|
168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
4,616 |
|
|
|
4,760 |
|
|
|
5,033 |
|
|
|
2,481 |
|
|
|
2,703 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (excluding depreciation and amortization)
|
|
|
1,873 |
|
|
|
1,994 |
|
|
|
2,203 |
|
|
|
1,081 |
|
|
|
1,215 |
|
|
|
Selling, general and administrative
|
|
|
909 |
|
|
|
965 |
|
|
|
1,012 |
|
|
|
483 |
|
|
|
551 |
|
|
|
Depreciation and amortization
|
|
|
1,396 |
|
|
|
1,433 |
|
|
|
1,443 |
|
|
|
730 |
|
|
|
690 |
|
|
|
Impairment of franchises
|
|
|
|
|
|
|
2,297 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset impairment charges
|
|
|
|
|
|
|
|
|
|
|
39 |
|
|
|
39 |
|
|
|
99 |
|
|
|
Other operating (income) expenses, net
|
|
|
(46 |
) |
|
|
13 |
|
|
|
32 |
|
|
|
6 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
4,132 |
|
|
|
6,702 |
|
|
|
4,729 |
|
|
|
2,339 |
|
|
|
2,565 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) from continuing operations
|
|
|
484 |
|
|
|
(1,942 |
) |
|
|
304 |
|
|
|
142 |
|
|
|
138 |
|
|
Interest expense, net
|
|
|
(1,557 |
) |
|
|
(1,670 |
) |
|
|
(1,789 |
) |
|
|
(871 |
) |
|
|
(943 |
) |
|
Gain (loss) on extinguishment of debt and preferred stock
|
|
|
267 |
|
|
|
(31 |
) |
|
|
521 |
|
|
|
8 |
|
|
|
(27 |
) |
|
Other income, net
|
|
|
49 |
|
|
|
49 |
|
|
|
72 |
|
|
|
47 |
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before minority interest, income
taxes and cumulative effect of accounting change
|
|
|
(757 |
) |
|
|
(3,594 |
) |
|
|
(892 |
) |
|
|
(674 |
) |
|
|
(814 |
) |
|
Minority interest
|
|
|
394 |
|
|
|
19 |
|
|
|
1 |
|
|
|
(6 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes and
cumulative effect of accounting change
|
|
|
(363 |
) |
|
|
(3,575 |
) |
|
|
(891 |
) |
|
|
(680 |
) |
|
|
(815 |
) |
|
Income tax benefit (expense)
|
|
|
122 |
|
|
|
134 |
|
|
|
(112 |
) |
|
|
(56 |
) |
|
|
(60 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before cumulative effect of
accounting change
|
|
|
(241 |
) |
|
|
(3,441 |
) |
|
|
(1,003 |
) |
|
|
(736 |
) |
|
|
(875 |
) |
|
Income (loss) from discontinued operations, net of tax
|
|
|
3 |
|
|
|
(135 |
) |
|
|
36 |
|
|
|
29 |
|
|
|
34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before cumulative effect of accounting change
|
|
|
(238 |
) |
|
|
(3,576 |
) |
|
|
(967 |
) |
|
|
(707 |
) |
|
|
(841 |
) |
|
Cumulative effect of accounting change, net of tax
|
|
|
|
|
|
|
(765 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(238 |
) |
|
|
(4,341 |
) |
|
|
(967 |
) |
|
|
(707 |
) |
|
|
(841 |
) |
|
Dividends on preferred stock-redeemable
|
|
|
(4 |
) |
|
|
(4 |
) |
|
|
(3 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss applicable to common stock
|
|
$ |
(242 |
) |
|
$ |
(4,345 |
) |
|
$ |
(970 |
) |
|
$ |
(709 |
) |
|
$ |
(841 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per common share, basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before cumulative effect of
accounting change per common share, basic and diluted
|
|
$ |
(0.83 |
) |
|
$ |
(11.47 |
) |
|
$ |
(3.24 |
) |
|
$ |
(2.43 |
) |
|
$ |
(2.76 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(0.82 |
) |
|
$ |
(14.47 |
) |
|
$ |
(3.13 |
) |
|
$ |
(2.34 |
) |
|
$ |
(2.65 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding, basic and diluted
|
|
|
294,597,519 |
|
|
|
300,291,877 |
|
|
|
310,159,047 |
|
|
|
303,465,474 |
|
|
|
317,531,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended | |
|
|
Year Ended December 31, | |
|
June 30, | |
|
|
| |
|
| |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
2005 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$ |
854 |
|
|
$ |
924 |
|
|
$ |
1,088 |
|
|
$ |
542 |
|
|
$ |
539 |
|
|
Deficiency of earnings to cover fixed charges(a)
|
|
|
725 |
|
|
|
3,698 |
|
|
|
853 |
|
|
|
655 |
|
|
|
776 |
|
Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(end of period)(b):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Analog video customers
|
|
|
6,431,300 |
|
|
|
5,991,500 |
|
|
|
5,884,500 |
|
|
|
5,943,100 |
|
|
|
5,876,100 |
|
|
|
Digital video customers
|
|
|
2,671,900 |
|
|
|
2,674,700 |
|
|
|
2,796,600 |
|
|
|
2,685,600 |
|
|
|
2,889,000 |
|
|
|
Residential high-speed Internet customers
|
|
|
1,565,600 |
|
|
|
1,884,400 |
|
|
|
2,196,400 |
|
|
|
2,022,200 |
|
|
|
2,375,100 |
|
|
|
Telephone customers
|
|
|
24,900 |
|
|
|
45,400 |
|
|
|
121,500 |
|
|
|
67,800 |
|
|
|
257,600 |
|
12
CCH II, LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended | |
|
|
Year Ended December 31, | |
|
June 30, | |
|
|
| |
|
| |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
2005 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Video
|
|
$ |
3,306 |
|
|
$ |
3,217 |
|
|
$ |
3,248 |
|
|
$ |
1,623 |
|
|
$ |
1,684 |
|
|
|
High-speed Internet
|
|
|
535 |
|
|
|
712 |
|
|
|
875 |
|
|
|
425 |
|
|
|
506 |
|
|
|
Telephone
|
|
|
14 |
|
|
|
18 |
|
|
|
36 |
|
|
|
14 |
|
|
|
49 |
|
|
|
Advertising sales
|
|
|
254 |
|
|
|
279 |
|
|
|
284 |
|
|
|
135 |
|
|
|
147 |
|
|
|
Commercial
|
|
|
196 |
|
|
|
227 |
|
|
|
266 |
|
|
|
128 |
|
|
|
149 |
|
|
|
Other
|
|
|
311 |
|
|
|
307 |
|
|
|
324 |
|
|
|
156 |
|
|
|
168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
4,616 |
|
|
|
4,760 |
|
|
|
5,033 |
|
|
|
2,481 |
|
|
|
2,703 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (excluding depreciation and amortization)
|
|
|
1,873 |
|
|
|
1,994 |
|
|
|
2,203 |
|
|
|
1,081 |
|
|
|
1,215 |
|
|
|
Selling, general and administrative
|
|
|
909 |
|
|
|
965 |
|
|
|
1,012 |
|
|
|
483 |
|
|
|
551 |
|
|
|
Depreciation and amortization
|
|
|
1,396 |
|
|
|
1,433 |
|
|
|
1,443 |
|
|
|
730 |
|
|
|
690 |
|
|
|
Impairment of franchises
|
|
|
|
|
|
|
2,297 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset impairment charges
|
|
|
|
|
|
|
|
|
|
|
39 |
|
|
|
39 |
|
|
|
99 |
|
|
|
Other operating (income) expenses, net
|
|
|
(46 |
) |
|
|
13 |
|
|
|
32 |
|
|
|
6 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
4,132 |
|
|
|
6,702 |
|
|
|
4,729 |
|
|
|
2,339 |
|
|
|
2,565 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) from continuing operations
|
|
|
484 |
|
|
|
(1,942 |
) |
|
|
304 |
|
|
|
142 |
|
|
|
138 |
|
|
Interest expense, net
|
|
|
(545 |
) |
|
|
(726 |
) |
|
|
(858 |
) |
|
|
(408 |
) |
|
|
(488 |
) |
|
Other income (expense), net
|
|
|
27 |
|
|
|
71 |
|
|
|
99 |
|
|
|
35 |
|
|
|
(19 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes and
cumulative effect of accounting change
|
|
|
(34 |
) |
|
|
(2,597 |
) |
|
|
(455 |
) |
|
|
(231 |
) |
|
|
(369 |
) |
|
Income tax benefit (expense)
|
|
|
(13 |
) |
|
|
35 |
|
|
|
(9 |
) |
|
|
(8 |
) |
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before cumulative effect of
accounting change
|
|
|
(47 |
) |
|
|
(2,562 |
) |
|
|
(464 |
) |
|
|
(239 |
) |
|
|
(373 |
) |
|
Income (loss) from discontinued operations, net of tax
|
|
|
32 |
|
|
|
(104 |
) |
|
|
39 |
|
|
|
19 |
|
|
|
38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before cumulative effect of accounting change
|
|
|
(15 |
) |
|
|
(2,666 |
) |
|
|
(425 |
) |
|
|
(220 |
) |
|
|
(335 |
) |
|
Cumulative effect of accounting change, net of tax
|
|
|
|
|
|
|
(840 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(15 |
) |
|
$ |
(3,506 |
) |
|
$ |
(425 |
) |
|
$ |
(220 |
) |
|
$ |
(335 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended | |
|
|
Year Ended December 31, | |
|
June 30, | |
|
|
| |
|
| |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
2005 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$ |
804 |
|
|
$ |
893 |
|
|
$ |
1,088 |
|
|
$ |
542 |
|
|
$ |
539 |
|
|
Ratio of earnings to cover fixed charges
|
|
|
1.05 |
|
|
|
NA |
|
|
|
NA |
|
|
|
NA |
|
|
|
NA |
|
|
Deficiency of earnings to cover fixed charges(a)
|
|
|
NA |
|
|
|
2,721 |
|
|
|
449 |
|
|
|
206 |
|
|
|
321 |
|
Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(end of period)(b):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Analog video customers
|
|
|
6,431,300 |
|
|
|
5,991,500 |
|
|
|
5,884,500 |
|
|
|
5,943,100 |
|
|
|
5,876,100 |
|
|
|
Digital video customers
|
|
|
2,671,900 |
|
|
|
2,674,700 |
|
|
|
2,796,600 |
|
|
|
2,685,600 |
|
|
|
2,889,000 |
|
|
|
Residential high-speed Internet customers
|
|
|
1,565,600 |
|
|
|
1,884,400 |
|
|
|
2,196,400 |
|
|
|
2,022,200 |
|
|
|
2,375,100 |
|
|
|
Telephone customers
|
|
|
24,900 |
|
|
|
45,400 |
|
|
|
121,500 |
|
|
|
67,800 |
|
|
|
257,600 |
|
13
As Adjusted and Pro Forma Financial Data. The as
adjusted data set forth below represent our unaudited
consolidated financial statements after giving effect to the
following transactions as if they occurred on January 1, 2005
for the statement of operations data and other financial data
and as of the last day of the respective period for the
operating and balance sheet data:
|
|
|
(1) the redemption in March, 2005 of all (approximately
$113 million principal amount) of CC V Holdings, LLCs
outstanding 11.875% senior discount notes due 2008 with
cash on hand; |
|
|
(2) the issuance and sale of $300 million of
83/4
% CCO Holdings senior notes in August, 2005 and the use
of a portion of such proceeds to pay financing costs and accrued
interest in the September, 2005 exchange transaction referenced
below; |
|
|
(3) the exchange in September, 2005 of approximately
$3.4 billion principal amount of Charter Holdings
notes scheduled to mature in 2009 and 2010 for CCH I notes and
the exchange of approximately $3.4 billion principal amount
of Charter Holdings notes scheduled to mature in 2011 and
2012 for CIH notes and CCH I notes; |
|
|
(4) the issuance and sale of $450 million principal
amount of CCH II Notes in January, 2006 and the use of such
proceeds to pay down credit facilities; |
|
|
(5) the refinancing of the Charter Operating credit
facilities in April, 2006 and the related reductions in interest
rate margins on the term loan; |
|
|
(6) the acquisition of certain assets in January, 2006 for
approximately $42 million; |
|
|
(7) the completed and scheduled disposition of certain
assets for total proceeds of $971 million and the temporary
use of such proceeds to reduce amounts outstanding under our
revolving credit facility to zero; and |
|
|
(8) the Private Exchange Offers Pro Forma Adjustments
(defined in the section entitled Unaudited Pro Forma
Consolidated Financials below). |
The pro forma data set forth below represent our
unaudited pro forma consolidated financial statements after
giving effect to the as adjusted transactions
described above and the Exchange Offer Pro Forma Adjustments
(defined in the section entitled Unaudited Pro Forma
Consolidated Financials below) as if they occurred on
January 1, 2005 for the statement of operations data and
other financial data and as of the last day of the respective
period for the operating and balance sheet data.
The following information should be read in conjunction with
Selected Historical Consolidated Financial Data,
Capitalization, Unaudited Pro Forma
Consolidated Financials, Managements
Discussion and Analysis of Financial Condition and Results of
Operations of Charter and Managements
Discussion Analysis of Financial Condition and Results of
Operations of CCH II, LLC and the historical
consolidated financial statements and related notes of Charter
and CCH II included elsewhere in this Exchange Offer
Prospectus.
The pro forma data are based on information available to us as
of the date of this Exchange Offer Prospectus and certain
assumptions that we believe are reasonable under the
circumstances. The financial data required allocation of certain
revenues and expenses and such information has been presented
for comparative purposes and is not intended to provide any
indication of what our actual financial position, including
actual cash balances and revolver borrowings, or results of
operations would have been had the transactions described above
been completed on the dates indicated or to project our results
of operations for any future date.
14
Charter Communications, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
Six Months Ended June 30, | |
|
|
| |
|
| |
|
|
2005 | |
|
2005 | |
|
2005 | |
|
2005 | |
|
2006 | |
|
2006 | |
|
|
As Adjusted | |
|
Pro Forma | |
|
As Adjusted | |
|
Pro Forma | |
|
As Adjusted | |
|
Pro Forma | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Video
|
|
$ |
3,195 |
|
|
$ |
3,195 |
|
|
$ |
1,596 |
|
|
$ |
1,596 |
|
|
$ |
1,655 |
|
|
$ |
1,655 |
|
|
|
High-speed Internet
|
|
|
868 |
|
|
|
868 |
|
|
|
422 |
|
|
|
422 |
|
|
|
499 |
|
|
|
499 |
|
|
|
Telephone
|
|
|
41 |
|
|
|
41 |
|
|
|
17 |
|
|
|
17 |
|
|
|
49 |
|
|
|
49 |
|
|
|
Advertising sales
|
|
|
280 |
|
|
|
280 |
|
|
|
133 |
|
|
|
133 |
|
|
|
145 |
|
|
|
145 |
|
|
|
Commercial
|
|
|
260 |
|
|
|
260 |
|
|
|
125 |
|
|
|
125 |
|
|
|
145 |
|
|
|
145 |
|
|
|
Other
|
|
|
319 |
|
|
|
319 |
|
|
|
153 |
|
|
|
153 |
|
|
|
165 |
|
|
|
165 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
4,963 |
|
|
|
4,963 |
|
|
|
2,446 |
|
|
|
2,446 |
|
|
|
2,658 |
|
|
|
2,658 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (excluding depreciation and amortization)
|
|
|
2,172 |
|
|
|
2,172 |
|
|
|
1,066 |
|
|
|
1,066 |
|
|
|
1,191 |
|
|
|
1,191 |
|
|
|
Selling, general and administrative
|
|
|
1,003 |
|
|
|
1,003 |
|
|
|
476 |
|
|
|
476 |
|
|
|
544 |
|
|
|
544 |
|
|
|
Depreciation and amortization
|
|
|
1,432 |
|
|
|
1,432 |
|
|
|
730 |
|
|
|
730 |
|
|
|
685 |
|
|
|
685 |
|
|
|
Other operating expenses, net
|
|
|
32 |
|
|
|
32 |
|
|
|
6 |
|
|
|
6 |
|
|
|
10 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
4,639 |
|
|
|
4,639 |
|
|
|
2,278 |
|
|
|
2,278 |
|
|
|
2,430 |
|
|
|
2,430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) from continuing operations
|
|
|
324 |
|
|
|
324 |
|
|
|
168 |
|
|
|
168 |
|
|
|
228 |
|
|
|
228 |
|
|
Interest expense, net
|
|
|
(1,707 |
) |
|
|
(1,687 |
) |
|
|
(833 |
) |
|
|
(823 |
) |
|
|
(906 |
) |
|
|
(896 |
) |
|
Other income, net
|
|
|
109 |
|
|
|
109 |
|
|
|
54 |
|
|
|
54 |
|
|
|
17 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes
|
|
|
(1,274 |
) |
|
|
(1,254 |
) |
|
|
(611 |
) |
|
|
(601 |
) |
|
|
(661 |
) |
|
|
(651 |
) |
|
Income tax expense
|
|
|
(110 |
) |
|
|
(110 |
) |
|
|
(55 |
) |
|
|
(55 |
) |
|
|
(79 |
) |
|
|
(79 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
$ |
(1,384 |
) |
|
$ |
(1,364 |
) |
|
$ |
(666 |
) |
|
$ |
(656 |
) |
|
$ |
(740 |
) |
|
$ |
(730 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations per common share, basic and
diluted
|
|
$ |
(4.47 |
) |
|
$ |
(3.87 |
) |
|
$ |
(2.20 |
) |
|
$ |
(1.90 |
) |
|
$ |
(2.33 |
) |
|
$ |
(2.02 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding, basic and diluted
|
|
|
310,159,047 |
|
|
|
353,284,047 |
|
|
|
303,465,474 |
|
|
|
346,590,474 |
|
|
|
317,531,492 |
|
|
|
360,656,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
Six Months Ended June 30, | |
|
|
| |
|
| |
|
|
2005 | |
|
2005 | |
|
2005 | |
|
2005 | |
|
2006 | |
|
2006 | |
|
|
As Adjusted | |
|
Pro Forma | |
|
As Adjusted | |
|
Pro Forma | |
|
As Adjusted | |
|
Pro Forma | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$ |
1,051 |
|
|
$ |
1,051 |
|
|
$ |
524 |
|
|
$ |
524 |
|
|
$ |
524 |
|
|
$ |
524 |
|
|
Deficiency of earnings to cover fixed charges(a)
|
|
|
1,275 |
|
|
|
1,255 |
|
|
|
605 |
|
|
|
595 |
|
|
|
660 |
|
|
|
650 |
|
Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(end of period)(b):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Analog video customers
|
|
|
5,542,100 |
|
|
|
5,542,100 |
|
|
|
5,570,000 |
|
|
|
5,570,000 |
|
|
|
5,520,100 |
|
|
|
5,520,100 |
|
|
Digital video customers
|
|
|
2,650,500 |
|
|
|
2,650,500 |
|
|
|
2,532,300 |
|
|
|
2,532,300 |
|
|
|
2,730,000 |
|
|
|
2,730,000 |
|
|
Residential high-speed Internet customers
|
|
|
2,106,000 |
|
|
|
2,106,000 |
|
|
|
1,937,000 |
|
|
|
1,937,000 |
|
|
|
2,264,200 |
|
|
|
2,264,200 |
|
|
Telephone customers
|
|
|
136,000 |
|
|
|
136,000 |
|
|
|
82,600 |
|
|
|
82,600 |
|
|
|
257,600 |
|
|
|
257,600 |
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2006 | |
|
|
| |
|
|
As Adjusted | |
|
Pro Forma | |
|
|
| |
|
| |
|
|
(Dollars in millions) | |
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
(end of period):
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
175 |
|
|
$ |
|
|
|
|
Total assets
|
|
|
15,496 |
|
|
|
15,310 |
|
|
|
Long-term debt
|
|
|
18,935 |
|
|
|
18,668 |
|
|
|
Note payable-related party
|
|
|
53 |
|
|
|
53 |
|
|
|
Minority interest(c)
|
|
|
189 |
|
|
|
189 |
|
|
|
Shareholders deficit
|
|
|
(5,444 |
) |
|
|
(5,359 |
) |
|
|
|
(a) |
|
Earnings include net loss plus fixed charges. Fixed charges
consist of interest expense and an estimated interest component
of rent expense. |
|
(b) |
|
See Business Products and Services for
definitions of the terms contained in this section. |
|
(c) |
|
Minority interest represents preferred membership interests in
CC VIII. This preferred interest arises from approximately
$630 million of preferred membership units issued by CC
VIII in connection with an acquisition in February 2000 and was
the subject of a dispute between Charter and Mr. Allen,
Charters Chairman and controlling shareholder that was
settled October 31, 2005. See Certain Relationships
and Related Party Transactions Transactions Arising
Out of Our Organizational Structure and Mr. Allens
Investment in Charter and Its Subsidiaries Equity
Put Rights CC VIII. |
16
CCH II, LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
Six Months Ended June 30, | |
|
|
| |
|
| |
|
|
2005 | |
|
2005 | |
|
2005 | |
|
2005 | |
|
2006 | |
|
2006 | |
|
|
As Adjusted | |
|
Pro Forma | |
|
As Adjusted | |
|
Pro Forma | |
|
As Adjusted | |
|
Pro Forma | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Video
|
|
$ |
3,195 |
|
|
$ |
3,195 |
|
|
$ |
1,596 |
|
|
$ |
1,596 |
|
|
$ |
1,655 |
|
|
$ |
1,655 |
|
|
|
High-speed Internet
|
|
|
868 |
|
|
|
868 |
|
|
|
422 |
|
|
|
422 |
|
|
|
499 |
|
|
|
499 |
|
|
|
Telephone
|
|
|
41 |
|
|
|
41 |
|
|
|
17 |
|
|
|
17 |
|
|
|
49 |
|
|
|
49 |
|
|
|
Advertising sales
|
|
|
280 |
|
|
|
280 |
|
|
|
133 |
|
|
|
133 |
|
|
|
145 |
|
|
|
145 |
|
|
|
Commercial
|
|
|
260 |
|
|
|
260 |
|
|
|
125 |
|
|
|
125 |
|
|
|
145 |
|
|
|
145 |
|
|
|
Other
|
|
|
319 |
|
|
|
319 |
|
|
|
153 |
|
|
|
153 |
|
|
|
165 |
|
|
|
165 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
4,963 |
|
|
|
4,963 |
|
|
|
2,446 |
|
|
|
2,446 |
|
|
|
2,658 |
|
|
|
2,658 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (excluding depreciation and amortization)
|
|
|
2,172 |
|
|
|
2,172 |
|
|
|
1,066 |
|
|
|
1,066 |
|
|
|
1,191 |
|
|
|
1,191 |
|
|
|
Selling, general and administrative
|
|
|
1,003 |
|
|
|
1,003 |
|
|
|
476 |
|
|
|
476 |
|
|
|
544 |
|
|
|
544 |
|
|
|
Depreciation and amortization
|
|
|
1,432 |
|
|
|
1,432 |
|
|
|
730 |
|
|
|
730 |
|
|
|
685 |
|
|
|
685 |
|
|
|
Other operating expenses, net
|
|
|
32 |
|
|
|
32 |
|
|
|
6 |
|
|
|
6 |
|
|
|
10 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
4,639 |
|
|
|
4,639 |
|
|
|
2,278 |
|
|
|
2,278 |
|
|
|
2,430 |
|
|
|
2,430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
324 |
|
|
|
324 |
|
|
|
168 |
|
|
|
168 |
|
|
|
228 |
|
|
|
228 |
|
|
Interest expense, net
|
|
|
(847 |
) |
|
|
(862 |
) |
|
|
(412 |
) |
|
|
(419 |
) |
|
|
(465 |
) |
|
|
(472 |
) |
|
Other income, net
|
|
|
104 |
|
|
|
104 |
|
|
|
40 |
|
|
|
40 |
|
|
|
8 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes and
cumulative effect of accounting change
|
|
|
(419 |
) |
|
|
(434 |
) |
|
|
(204 |
) |
|
|
(211 |
) |
|
|
(229 |
) |
|
|
(236 |
) |
|
Income tax expense
|
|
|
(9 |
) |
|
|
(9 |
) |
|
|
(8 |
) |
|
|
(8 |
) |
|
|
(4 |
) |
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before cumulative effect of
accounting change
|
|
$ |
(428 |
) |
|
$ |
(443 |
) |
|
$ |
(212 |
) |
|
$ |
(219 |
) |
|
$ |
(233 |
) |
|
$ |
(240 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
Six Months Ended June 30, | |
|
|
| |
|
| |
|
|
2005 | |
|
2005 | |
|
2005 | |
|
2005 | |
|
2006 | |
|
2006 | |
|
|
As Adjusted | |
|
Pro Forma | |
|
As Adjusted | |
|
Pro Forma | |
|
As Adjusted | |
|
Pro Forma | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$ |
1,051 |
|
|
$ |
1,051 |
|
|
$ |
524 |
|
|
$ |
524 |
|
|
$ |
524 |
|
|
$ |
524 |
|
|
Deficiency of earnings to cover fixed charges(a)
|
|
|
452 |
|
|
|
467 |
|
|
|
198 |
|
|
|
205 |
|
|
|
219 |
|
|
|
226 |
|
Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(end of period)(b):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Analog video customers
|
|
|
5,542,100 |
|
|
|
5,542,100 |
|
|
|
5,570,000 |
|
|
|
5,570,000 |
|
|
|
5,520,100 |
|
|
|
5,520,100 |
|
|
|
Digital video customers
|
|
|
2,650,500 |
|
|
|
2,650,500 |
|
|
|
2,532,300 |
|
|
|
2,532,300 |
|
|
|
2,730,000 |
|
|
|
2,730,000 |
|
|
|
Residential high-speed Internet customers
|
|
|
2,106,000 |
|
|
|
2,106,000 |
|
|
|
1,937,000 |
|
|
|
1,937,000 |
|
|
|
2,264,200 |
|
|
|
2,264,200 |
|
|
|
Telephone customers
|
|
|
136,000 |
|
|
|
136,000 |
|
|
|
82,600 |
|
|
|
82,600 |
|
|
|
257,600 |
|
|
|
257,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2006 | |
|
|
| |
|
|
As Adjusted | |
|
Pro Forma | |
|
|
| |
|
| |
|
|
(Dollars in millions) | |
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
(end of period):
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
168 |
|
|
$ |
|
|
|
|
Total assets
|
|
|
15,219 |
|
|
|
15,056 |
|
|
|
Long-term debt
|
|
|
10,462 |
|
|
|
10,619 |
|
|
|
Loans payable-related party
|
|
|
109 |
|
|
|
109 |
|
|
|
Minority interest(c)
|
|
|
631 |
|
|
|
631 |
|
|
|
Members equity
|
|
|
2,621 |
|
|
|
2,301 |
|
|
|
|
(a) |
|
Earnings include net loss plus fixed charges. Fixed charges
consist of interest expense and an estimated interest component
of rent expense. |
17
|
|
|
(b) |
|
See Business Products and Services for
definitions of the terms contained in this section. |
|
(c) |
|
Minority interest represents preferred membership interests in
CC VIII. This preferred interest arises from approximately
$630 million of preferred membership units issued by CC
VIII in connection with an acquisition in February 2000 and was
the subject of a dispute between Charter and Mr. Allen,
Charters Chairman and controlling shareholder that was
settled October 31, 2005. See Certain Relationships
and Related Party Transactions Transactions Arising
Out of Our Organizational Structure and Mr. Allens
Investment in Charter and Its Subsidiaries Equity
Put Rights CC VIII. |
18
Charter Communications, Inc. and Subsidiaries
Ratio of Earnings to Fixed Charges Calculation
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months | |
|
|
Year Ended December 31, | |
|
Ended June 30, | |
|
|
| |
|
| |
|
|
2001 | |
|
2002 | |
|
2003 | |
|
2004 | |
|
2005 | |
|
2005 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before Minority Interest, Income Taxes and Cumulative
Effect of Accounting Change
|
|
$ |
(2,630 |
) |
|
$ |
(5,944 |
) |
|
$ |
(725 |
) |
|
$ |
(3,698 |
) |
|
$ |
(853 |
) |
|
$ |
(655 |
) |
|
$ |
(776 |
) |
Fixed Charges
|
|
|
1,316 |
|
|
|
1,510 |
|
|
|
1,564 |
|
|
|
1,677 |
|
|
|
1,796 |
|
|
|
874 |
|
|
|
946 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Earnings
|
|
$ |
(1,314 |
) |
|
$ |
(4,434 |
) |
|
$ |
839 |
|
|
$ |
(2,021 |
) |
|
$ |
943 |
|
|
$ |
219 |
|
|
$ |
170 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense
|
|
$ |
1,045 |
|
|
$ |
1,149 |
|
|
$ |
1,186 |
|
|
$ |
1,406 |
|
|
$ |
1,567 |
|
|
$ |
817 |
|
|
$ |
920 |
|
Amortization of Debt Costs
|
|
|
265 |
|
|
|
354 |
|
|
|
371 |
|
|
|
264 |
|
|
|
222 |
|
|
|
54 |
|
|
|
23 |
|
Interest Element of Rentals
|
|
|
6 |
|
|
|
7 |
|
|
|
7 |
|
|
|
7 |
|
|
|
7 |
|
|
|
3 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fixed Charges
|
|
$ |
1,316 |
|
|
$ |
1,510 |
|
|
$ |
1,564 |
|
|
$ |
1,677 |
|
|
$ |
1,796 |
|
|
$ |
874 |
|
|
$ |
946 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of Earnings to Fixed Charges(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Earnings for the years ended December 31, 2001, 2002, 2003,
2004 and 2005 and the six months ended June 30, 2005 and
2006 were insufficient to cover fixed charges by $2,630, $5,944,
$725, $3,698, $853, $655 and $776, respectively. As a result of
such deficiencies, the ratios are not presented above. |
19
CCH II, LLC and Subsidiaries
Ratio of Earnings to Fixed Charges Calculation
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months | |
|
|
Year Ended December 31, | |
|
Ended June 30, | |
|
|
| |
|
| |
|
|
2001 | |
|
2002 | |
|
2003 | |
|
2004 | |
|
2005 | |
|
2005 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before Minority Interest, Income Taxes and Cumulative
Effect of Accounting Change
|
|
$ |
(1,838 |
) |
|
$ |
(4,946 |
) |
|
$ |
27 |
|
|
$ |
(2,721 |
) |
|
$ |
(449 |
) |
|
$ |
(206 |
) |
|
$ |
(321 |
) |
Fixed Charges
|
|
|
531 |
|
|
|
519 |
|
|
|
552 |
|
|
|
733 |
|
|
|
865 |
|
|
|
411 |
|
|
|
491 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Earnings
|
|
$ |
(1,307 |
) |
|
$ |
(4,427 |
) |
|
$ |
579 |
|
|
$ |
(1,988 |
) |
|
$ |
416 |
|
|
$ |
205 |
|
|
$ |
170 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense
|
|
$ |
517 |
|
|
$ |
502 |
|
|
$ |
532 |
|
|
$ |
702 |
|
|
$ |
829 |
|
|
$ |
394 |
|
|
$ |
474 |
|
Amortization of Debt Costs
|
|
|
8 |
|
|
|
10 |
|
|
|
13 |
|
|
|
24 |
|
|
|
29 |
|
|
|
14 |
|
|
|
14 |
|
Interest Element of Rentals
|
|
|
6 |
|
|
|
7 |
|
|
|
7 |
|
|
|
7 |
|
|
|
7 |
|
|
|
3 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fixed Charges
|
|
$ |
531 |
|
|
$ |
519 |
|
|
$ |
552 |
|
|
$ |
733 |
|
|
$ |
865 |
|
|
$ |
411 |
|
|
$ |
491 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of Earnings to Fixed Charges(1)
|
|
|
|
|
|
|
|
|
|
|
1.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Earnings for the years ended December 31, 2001, 2002, 2004
and 2005 and the six months ended June 30, 2005 and 2006
were insufficient to cover fixed charges by $1,838, $4,946,
$2,721, $449, $206 and $321, respectively. As a result of such
deficiencies, the ratios are not presented above. |
Book Value per Common Share
The book value per share of Class A Common Stock as of
June 30, 2006 was $(13.14). Pro forma for the Exchange
Offer, the book value per share of Class A Common Stock as
of June 30, 2006 was $(11.13).
20
RISK FACTORS
Your decision whether to tender your Convertible Notes
pursuant to the Exchange Offer, and to acquire the Exchange
Consideration, including the Class A Common Stock and
CCH II Notes, involves risk. You should be aware of, and
carefully consider, the following risk factors, along with all
of the other information provided or referred to in this
Exchange Offer Prospectus, before deciding whether to tender
your Convertible Notes pursuant to the Exchange Offer.
Risks to Continuing Holders of Convertible Notes After
the Settlement Date
The following risks specifically apply to the extent a Holder
continues to own Convertible Notes after the Settlement Date
because such Holder elects not to tender Convertible Notes or
because Convertible Notes tendered are not accepted for exchange
(as a result of the Maximum Amount or otherwise). There are
additional risks attendant to being an investor in our equity
and debt securities that you should review, whether or not you
elect to tender your Convertible Notes. These risks are
described elsewhere in this Risk Factors section
under the headings Risks Related to Our and
Our Subsidiaries Significant Indebtedness,
Risks Related to Our Business,
Risks Related to Mr. Allens
Controlling Position and Risks Related
to Regulatory and Legislative Matters.
The preferred equity interests of CC VIII currently held
by CCHC will be contributed to CCH I and pledged as
security for all outstanding CCH I notes, including those
to be issued in the Private Exchange Offers, and any claims that
Holders of the Convertible Notes have against those assets will
become subordinated to claims of the holders of CCH I
notes, as well as the creditors of CCHC, Charter Holdings and
CIH.
In addition to its equity interests in Charter Holdings, CCHC
currently holds a direct interest in certain Class A
preferred equity of CC VIII, LLC, an indirect subsidiary of
Charter Operating representing 70% of all outstanding
Class A preferred units in CC VIII. As part of the
Private Exchange Offers, CCHC will contribute its preferred
equity interest in CC VIII to CCH I. This interest in
CC VIII will be pledged as security for all outstanding
CCH I notes, including those to be issued in the Private
Exchange Offers. As a result, any claim that Holders of the
Convertible Notes have against those CC VIII assets will
become subordinated to claims of the holders of CCH I
notes, as well as creditors of certain of Charters
subsidiaries, including CCHC, Charter Holdings and CIH. The
subordination of the claims of the Holders of Convertible Notes
not exchanged against the CC VIII preferred equity
interests could materially and adversely affect the value of any
Convertible Notes not exchanged and, in the event of a
bankruptcy, liquidation or insolvency of Charter, the extent of
a Holders recovery. CC VIII owns systems with
approximately 934,000 analog video customers at June 30,
2006. CC VIII has guaranteed, on a secured basis, the credit
facility and senior second lien notes of Charter Operating.
If the Offerors consummate the Exchange Offer, claims with
respect to any Convertible Notes not exchanged will be
structurally subordinated to claims with respect to the
CCH II Notes.
The Convertible Notes are obligations of Charter and the
CCH II Notes will be issued by, and obligations of, its
indirect subsidiary CCH II. All of our consolidated
operations are conducted through indirect subsidiaries of
CCH II. To the extent that the Exchange Offer is
consummated, holders of the CCH II Notes will have direct
claims against the assets of CCH II and, in the event of a
bankruptcy, liquidation or insolvency of CCH II, will be
entitled to payment before any funds are available to creditors
of Charter, including the Holders of Convertible Notes not
exchanged. The structural subordination and unsecured nature of
the claims of the Holders of Convertible Notes not exchanged
could materially and adversely affect the value of such
Convertible Notes and, in the event of a bankruptcy, liquidation
or insolvency of Charter or any of its subsidiaries, the extent
of such Holders recovery.
21
Restrictions in Charters subsidiaries debt
instruments and under applicable law limit those
subsidiaries ability to provide funds to Charter to pay
principal of and interest on the Convertible Notes
Charters subsidiaries ability to make distributions
to Charter is subject to their compliance with the terms of
their credit facilities and indentures and restrictions under
applicable law. Under the Delaware limited liability company
act, Charters subsidiaries may only pay dividends to
Charter if they have surplus as defined in the act.
Under fraudulent transfer laws, our subsidiaries may not pay
dividends to us if they are insolvent or are rendered insolvent
thereby. There can be no assurance that these subsidiaries will
be permitted to make distributions in the future in compliance
with these restrictions in the amounts needed to service the
Convertible Notes. See Risks Related to Our
and Our Subsidiaries Significant Indebtedness
Because of our holding company structure, our outstanding notes
are structurally subordinated in right of payment to all
liabilities of our subsidiaries. Restrictions in our
subsidiaries debt instruments and under applicable law
limit their ability to provide funds to us.
Liquidity of the market for non-tendered Convertible Notes
likely will be decreased, and the market prices for any
Convertible Notes not exchanged may therefore be reduced.
If the Exchange Offer is consummated, the aggregate principal
amount of outstanding Convertible Notes will be reduced, which
will likely adversely affect the liquidity of any Convertible
Notes not exchanged. An issue of securities with a small
outstanding principal amount available for trading, or float,
generally commands a lower price than does a comparable issue of
securities with a greater float. Therefore, the market price for
Convertible Notes that are not exchanged may be adversely
affected. The reduced float also may tend to make the trading
prices of any Convertible Notes that are not exchanged more
volatile. The market prices for any Convertible Notes not
exchanged may also be negatively affected by their structural
subordination to new notes.
If shares of our Class A common stock are returned to us
under our Share Lending Agreement with an affiliate of
Citigroup, the liquidity of our Class A Common Stock will
likely be affected, which may affect the market value of the
Convertible Notes.
As described under Description of Capital Stock and
Membership Units Share Lending Agreement
below, we have loaned to Citigroup Global Markets Limited
(CGML) 116.9 million shares of our Class A
common stock to facilitate the placement of the Convertible
Notes. CGML, or its affiliates, have sold such loaned shares
short in a series of registered offerings and concurrently
entered into swap transactions or share lending agreements with
Holders of Convertible Notes. Because it is likely that Holders
of Convertible Notes who tender their Convertible Notes in the
Exchange Offer will terminate all or a portion of the swap
transactions or share lending agreements upon tender of their
Convertible Notes, we expect CGML to return shares of our
Class A common stock to us under the Share Lending
Agreement. In addition, as described under Description of
the Exchange Offer Optional Settlement
Procedure, we are offering holders the election to use
shares to be issued by us as part of the Exchange Consideration,
to the extent such holder has, as of the Settlement Date of the
Exchange Offer, an open borrow position with CGML under a share
lending agreement, to close such borrow position with CGML.
Although it has no obligation to do, we expect that CGML will
return such shares to us under the Share Lending Agreement.
Any such shares we receive from CGML pursuant to the Share
Lending Agreement will be retired and no longer outstanding for
corporate law purposes, which will likely adversely affect the
liquidity of our Class A common stock and, accordingly, the
market prices for non-tendered Convertible Notes.
We do not intend to distribute Convertible Notes received in
the Exchange Offer to Charter for cancellation. As a result, the
exchanged Convertible Notes will remain outstanding and held by
Charter Holdco, which will be entitled to the benefit of the
U.S. government securities held in escrow for the payment
of interest and principal to the same extent as Holders of
Convertible Notes not exchanged.
With some of the proceeds from the initial sale of the
Convertible Notes, we purchased and pledged to the trustee under
the indenture for the Convertible Notes as security for the
benefit of the Holders,
22
approximately $144 million of U.S. government
securities. These securities were pledged to provide for the
payment of the first six scheduled interest payments due on the
original principal amount of the Convertible Notes. Because we
intend that, following the closing of the Exchange Offer,
Charter Holdco will hold the Convertible Notes accepted for
exchange, Holders of Convertible Notes not exchanged will not be
entitled to any increase in the pro rata share of these pledged
U.S. government securities.
Charter Holdco will receive any benefit from these U.S.
government securities on the same pro rata basis as any Holders
of Convertible Notes not exchanged. However, there can be no
assurance that the cash received by Charter Holdco as interest
on the Convertible Notes will be available to pay either
principal or interest on any Convertible Notes not exchanged.
See Description of the Convertible Notes.
We cannot assure you that, if the Offerors consummate the
Exchange Offer, existing ratings for the Convertible Notes will
be maintained.
We cannot assure you that, as a result of the Exchange Offer,
the rating agencies, including Standard & Poors
Ratings Service, Moodys Investors Service and Fitch
Ratings, will not downgrade or negatively comment upon the
ratings for Convertible Notes.
Risks to Tendering Holders of Convertible Notes
The following risks specifically apply to the extent a Holder
elects to tender Convertible Notes pursuant to the Exchange
Offer and such Convertible Notes are accepted for Exchange and
should be considered, along with the other risk factors. There
are additional risks attendant to being an investor in our
equity and debt securities that you should review, whether or
not you elect to tender your Convertible Notes. These risks are
described elsewhere in this Risk Factors section
under the headings Risks Related to Our and
Our Subsidiaries Significant Indebtedness,
Risks Related to Our Business,
Risks Related to Mr. Allens
Controlling Position and Risks Related
to Regulatory and Legislative Matters.
Claims with respect to the Class A Common Stock issued
as part of the Exchange Consideration, as equity, will be junior
to claims with respect to the non-tendered Convertible Notes.
A significant portion of the Exchange Consideration is in the
form of Class A Common Stock. The Class A Common Stock
is the most junior security outstanding of any Charter entity.
As result, any claims with respect to the Class A Common
Stock against the assets of Charter will be junior to claims
with respect to the non-tendered Convertible Notes, and in the
event of a bankruptcy, liquidation or insolvency of Charter, the
Convertible Notes will be entitled to payment before any funds
are available to holders of the Class A Common Stock. This
could materially and adversely affect the value of the
Class A Common Stock and, in the event of a bankruptcy,
liquidation or insolvency of Charter, the extent of recovery by
a holder of the Class A Common Stock.
During the pendency of this Exchange Offer, it is likely that
the market prices of the Class A Common Stock will be
volatile.
It is likely that during the pendency of the Exchange Offer, the
market price of the Class A Common Stock will be volatile.
Holders of Convertible Notes will likely terminate all or a
portion of any hedging arrangement they have entered into in
respect of their Convertible Notes (including swap transactions
or share lending agreements with an affiliate of Citigroup),
which may lead to increased purchase activity by or on behalf of
such Holders during the Exchange Offer. Such purchase activity
may temporarily increase, or retard a decline in, the price of
the Class A Common Stock, or may lead to unusually high
trading volumes.
23
Failure to close the Exchange Offer may adversely affect the
market price and borrow availability of the Class A Common
Stock and, consequently, the market value of the Convertible
Notes.
If for any reason the Exchange Offer fails to close, the market
value of the Class A Common Stock and the Convertible Notes
may be adversely affected. Holders of Convertible Notes who
elect to terminate all or a portion of any hedging transaction
in respect of the Convertible Notes may not be able to
re-establish such transaction if the Exchange Offer does not
close for any reason. In addition, if the Exchange Offer fails
to close, such Holders of Convertible Notes may seek to
re-establish a short position in the Class A Common Stock
against the Convertible Notes, which may adversely affect the
market price of the Class A Common Stock. These activities
are likely to adversely affect the value of the Convertible
Notes.
We have not committed to provide any loans of shares of
Class A Common Stock, other than as described under
Description of Capital Stock and Membership
Units Share Lending Agreement.
If shares of Class A Common Stock are returned to
Charter under the Share Lending Agreement with an affiliate of
Citigroup, the liquidity of the Class A common stock will
likely be affected.
As described above under Risks to Continuing
Holders of Convertible Notes After the Settlement
Date If shares of our Class A common stock are
returned to us under our Share Lending Agreement with an
affiliate of Citigroup, the liquidity of our Class A Common
Stock will likely be affected which may affect the market value
of the Convertible Notes, liquidity of the Class A
Common Stock may be adversely affected through the return of
shares under the Share Lending Agreement. As a result, the
market price of any shares of Class A Common Stock that the
Offerors issue as Exchange Consideration will also likely be
adversely affected.
The market price of the Class A Common Stock and
CCH II Notes may be volatile, which could affect the value
of your investment.
It is impossible to predict whether the price of the
Class A Common Stock and CCH II Notes will rise or
fall. Trading prices of the Class A Common Stock and
CCH II Notes will be influenced by our operating results
and prospects and by economic, financial, regulatory and other
factors, as well as by this Exchange Offer and/or the Private
Exchange Offer. General market conditions, including the level
of, and fluctuations in, the prices of stocks and high-yield
notes, will also have an impact. In addition, sales of
substantial amounts of the Class A Common Stock and
CCH II Notes after this Exchange Offer, or the perception
that such sales may occur, could affect the price of the
Class A Common Stock and CCH II Notes. Furthermore,
the Exchange Offer may cause a significant number of investors
in the Convertible Notes to purchase the Class A Common
Stock, which may temporarily increase its price. As a result,
because the price of the Convertible Notes is linked to the
price of the Class A Common Stock, the price of the
Convertible Notes may exceed the Exchange Consideration after
the Expiration Date.
The market price of the Class A Common Stock could be
adversely affected by the large number of additional shares of
Class A Common Stock eligible for issuance in the
future.
As of June 30, 2006, 438,474,028 shares of
Class A Common Stock were issued and outstanding, and
50,000 shares of Class B common stock were issued and
outstanding. This includes 116,900,000 shares of
Class A Common Stock that were issued in previous share
borrow transactions related to the original issuance of the
Convertible Notes. An additional 339,132,031 shares of
Class A Common Stock are issuable upon conversion of
outstanding units of Charter Holdco and an additional
26,418,908 shares are issuable as of June 30, 2006 if
Mr. Allen were to exchange the CCHC subordinated accreting
note that he holds as a result of the settlement of the
CC VIII dispute, into Charter Holdco units and exchange
Charter Holdco units into Class A Common Stock. See
Certain Relationships and Related Party
Transactions Transactions Arising Out of Our
Organizational Structure and Mr. Allens Investment in
Charter and Its Subsidiaries Equity Put
Rights CC VIII. Also
28,571,485 shares were issuable upon the exercise of
outstanding options under our option plans and, assuming 50% of
the outstanding Convertible Notes are tendered pursuant to the
Exchange Offer, approximately 178 million shares will still
24
be issuable upon conversion of the Convertible Notes. All of the
365,550,939 shares of Class A Common Stock issuable
upon exchange of Charter Holdco membership units and all shares
of the Class A Common Stock issuable upon conversion of
shares of the Class B common stock will have
demand and/or piggyback registration
rights attached to them. All of the shares issuable upon
conversion of the Convertible Notes are eligible for resale
pursuant to a shelf registration statement. The sale of a
substantial number of shares of Class A Common Stock or the
perception that such sales could occur could adversely affect
the market price for the Class A Common Stock because the
sale could cause the amount of the Class A Common Stock
available for sale in the market to exceed the demand for the
Class A Common Stock and could also make it more difficult
for us to sell equity securities or equity-related securities in
the future at a time and price that we deem appropriate. This
could adversely affect our ability to fund our current and
future obligations. See Shares Eligible for Future
Sale.
The failure to maintain a minimum share price of
$1.00 per share of Class A Common Stock could result
in delisting of Charters shares on the Nasdaq Global
Market, which would harm the market price of the Class A
Common Stock.
In order to retain Charters listing on the Nasdaq Global
Market we are required to maintain a minimum bid price of
$1.00 per share. Although, as of August 9, 2006, the
trading price of the Class A Common Stock was
$1.17 per share, Charters stock has traded below this
$1.00 minimum in the recent past. If the bid price falls below
the $1.00 minimum for more than 30 consecutive trading
days, we will have 180 days to satisfy the
$1.00 minimum bid price for a period of at least
10 trading days. If we are unable to take action to
increase the bid price per share (either by reverse stock split
or otherwise), we could be subject to delisting from the Nasdaq
Global Market.
The failure to maintain Charters listing on the Nasdaq
Global Market would harm the liquidity of the Class A
Common Stock and would have an adverse effect on the market
price of Charters common stock. In addition,
Charters common stock would become subject to the
low-priced security or so-called penny stock rules
that impose additional sales practice requirements on
broker-dealers who sell such securities.
The Offerors will not be able to determine whether the
Maximum Amount has been exceeded until after the Expiration
Date, and, therefore, tendering Holders of Convertible Notes
will not know the percentage of such notes accepted for exchange
until after the Expiration Date.
If the amount of Convertible Notes validly tendered and not
validly withdrawn exceeds the Maximum Amount, the Offerors will
accept Convertible Notes from each Holder pro rata based on the
total principal amount of Convertible Notes validly tendered and
not validly withdrawn. The Offerors will not be able to
determine whether the Maximum Amount has been exceeded, and the
principal amount of Convertible Notes accepted for exchange from
each Holder, until after the Expiration Date.
The Exchange Consideration does not reflect any independent
valuation of the Convertible Notes.
We have not obtained or requested a fairness opinion from any
banking or other firm as to the fairness of the Exchange
Consideration or the value of the Convertible Notes. If you
tender your Convertible Notes, you may or may not receive more
or as much value than if you choose to keep them.
To the extent that a Holder of Convertible Notes is tendering
Convertible Notes for CCH II Notes with a later maturity,
such holder may ultimately find that we would have been able to
repay the non-tendered Convertible Notes when they otherwise
would have matured, but are unable to repay or refinance the
CCH II Notes when they mature.
If you tender your Convertible Notes, you will receive
CCH II Notes, which have a later maturity than the
Convertible Notes that you presently own. It is possible that
tendering Holders of such Convertible Notes will be adversely
affected by the extension of maturity. Following the maturity
date of the Convertible Notes, but prior to the maturity date of
the CCH II Notes, we may become subject to a
25
bankruptcy or similar proceeding. If so, Holders of the
Convertible Notes who opted not to participate in the Exchange
Offer may have been paid in full, and there is a risk that the
holders of the CCH II Notes will not be paid in full. If
you decide to tender Convertible Notes, you will be exposed to
the risk of nonpayment for a longer period of time.
Because of our holding company structure, the CCH II
Notes are structurally subordinated in right of payment to all
liabilities of CCH IIs subsidiaries. Restrictions in
CCH IIs subsidiaries debt instruments limit
their ability to provide funds to CCH II.
CCH IIs sole assets are its equity interests in its
subsidiaries. Its operating subsidiaries are separate and
distinct legal entities and are not obligated to make funds
available to CCH II for payments on the CCH II Notes
or other obligations in the form of loans, distributions or
otherwise. CCH IIs subsidiaries ability to make
distributions to CCH II is subject to their compliance with
the terms of their credit facilities and indentures.
CCH IIs direct or indirect subsidiaries include the
borrowers and guarantors under the Charter Operating credit
facilities. Several of CCH IIs subsidiaries are also
obligors under other senior high yield notes. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations of CCH II,
LLC Liquidity and Capital Resources Debt
Covenants. CCH IIs notes are structurally
subordinated in right of payment to all of the debt and other
liabilities of its subsidiaries. As of June 30, 2006,
CCH IIs total consolidated debt was approximately
$11.1 billion, of which approximately $9.0 billion was
structurally senior to the CCH II Notes.
In the event of bankruptcy, liquidation or dissolution of one or
more of CCH IIs subsidiaries, that subsidiarys
assets would first be applied to satisfy its own obligations,
and following such payments, such subsidiary may not have
sufficient assets remaining to make payments to CCH II as
an equity holder or otherwise. In that event the lenders under
Charter Operatings credit facilities and the holders of
CCH IIs subsidiaries other debt instruments
will have the right to be paid in full before CCH II from
any of its subsidiaries assets. Furthermore, because the
CC VIII Interest will be held by CCH I, holders of the
CCH II Notes will not have any claim against those assets.
In addition, the CCH II Notes are unsecured and therefore
will be effectively subordinated in right of payment to all
existing and future secured debt CCH II may incur to the
extent of the value of the assets securing such debt.
Any failure by CCH IIs direct and indirect parent
companies to satisfy their substantial debt obligations could
have a material adverse effect on the CCH II notes.
Because Charter is CCH IIs sole manager, and because
CCH II is directly and indirectly wholly owned by certain
parent entities, financial or liquidity problems of Charter and
CCH IIs parent companies could cause serious
disruption to CCH IIs business and could have a
material adverse effect on its operations and results. To the
extent Charter or any other parent company relies on receiving
distributions from its subsidiaries, it is subject to compliance
with the terms of their credit facilities and indentures and
restrictions under applicable law. Under the Delaware limited
liability company act, these subsidiaries may only pay dividends
to their parent if they have surplus as defined in
the act. Under fraudulent transfer laws, these subsidiaries may
not pay dividends to their parent if they are insolvent or are
rendered insolvent thereby. See Risks to Tendering
Holders of Convertible Notes Under certain
circumstances, federal and state laws may allow courts to avoid
or subordinate claims with respect to the CCH II
Notes for the meaning of insolvent in this
context. While we believe that the relevant Charter subsidiaries
currently have surplus and are not insolvent, there can be no
assurance that these subsidiaries will be permitted to make
distributions in the future in compliance with these
restrictions in amounts needed to service parent company
indebtedness.
A failure by Charter Holdings or any parent of CCOH that is a
subsidiary of Charter Holdings to satisfy certain of its
respective debt payment obligations or a bankruptcy filing with
respect to such parent with respect to indebtedness in an
outstanding aggregate principal amount which exceeds
$200 million would give the lenders under the Charter
Operating credit facilities the right to accelerate the payment
26
obligations under these facilities. Any such acceleration would
be a default under the indentures governing the CCH II
Notes. In addition, if such parent companies were to default
under their respective debt obligations and that default were to
result in a change of control of any of them (whether through a
bankruptcy, receivership or other reorganization, or otherwise),
such a change of control could result in an event of default
under the Charter Operating credit facilities and require a
change of control repurchase offer under the new notes, the old
notes and our parent companies and subsidiaries
other outstanding notes. See Risks Related to
Our and Our Subsidiaries Significant
Indebtedness All of our and our subsidiaries
outstanding debt is subject to change of control provisions. We
may not have the ability to raise the funds necessary to fulfill
our obligations under our indebtedness following a change of
control, which would place us in default under the applicable
debt instruments.
Furthermore, the Charter Operating credit facilities provide
that an event of default would occur if certain of Charter
Operatings parent companies have indebtedness in excess of
$500 million aggregate principal amount which remains
undefeased three months prior to its final maturity. The parent
company indebtedness subject to this provision will mature in
2009 and 2010, respectively. The inability of those parent
companies to refinance or repay their indebtedness would result
in a default under those credit facilities.
There is currently no public market for the CCH II
Notes, and an active trading market may not develop for the
CCH II Notes. The failure of a market to develop for the
CCH II Notes could adversely affect the liquidity and value
of the CCH II Notes.
There is no public market for the currently outstanding
CCH II Notes. In addition, until September 15, 2007,
the CCH II Notes being offered hereby will trade with a
separate CUSIP and will not be fungible with the currently
outstanding CCH II Notes. Further, although the Offerors
intend to apply for the CCH II Notes to be eligible for
trading in the
PORTALsm
Market, the Offerors do not intend to apply for listing of the
CCH II Notes on any securities exchanges or for quotation
of the CCH II Notes on any automated dealer quotation
system. Accordingly, notwithstanding any existing market for our
existing high-yield notes, a market may not develop for the
CCH II Notes, and if a market does develop, it may not be
sufficiently liquid for your purposes. If an active, liquid
market does not develop for the CCH II Notes, the market
price and liquidity of such issue of the CCH II Notes may
be adversely affected.
The liquidity of the trading market, if any, and future trading
prices of the CCH II Notes will depend on many factors,
including, among other things, prevailing interest rates, our
operating results, financial performance and prospects, the
market for similar securities and the overall securities market,
and may be adversely affected by unfavorable changes in these
factors. The market for the CCH II Notes may be subject to
disruptions that could have a negative effect on the holders of
the CCH II Notes, regardless of our operating results,
financial performance or prospects.
We may not have the ability to raise the funds necessary to
fulfill our obligations under the CCH II Notes following a
change of control, which would place us in default under the
indenture governing the CCH II Notes.
Under the indenture governing the CCH II Notes, upon the
occurrence of specified change of control events, we will be
required to offer to repurchase all of the outstanding
CCH II Notes. However, we may not have sufficient funds at
the time of the change of control event to make the required
repurchases of the CCH II Notes. In addition, a change of
control would require the repayment of borrowings under credit
facilities and an offer to repurchase publicly held debt of our
subsidiaries. Our failure to make or complete an offer to
repurchase the CCH II Notes would place us in default under
the indenture governing the CCH II Notes.
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If we do not fulfill our obligations to you under the
CCH II Notes, you will not have any recourse against
Charter, Charter Holdco, CCHC, Mr. Allen or their
affiliates.
None of our direct or indirect equity holders, directors,
officers, employees or affiliates, including, without
limitation, Charter, Charter Holdco, CCHC, Charter Holdings,
CIH, CCH I, and Mr. Allen, will be an obligor or
guarantor under the CCH II Notes. The indenture governing
the CCH II Notes expressly provides that these parties will
not have any liability for our obligations under the CCH II
Notes or the indenture governing the CCH II Notes. By
accepting the CCH II Notes, you waive and release all such
liability as consideration for issuance of the CCH II
Notes. If we do not fulfill our obligations to you under the
CCH II Notes, you will have no recourse against any of our
direct or indirect equity holders, directors, officers,
employees or affiliates including, without limitation, Charter,
Charter Holdco, CCHC, Charter Holdings, CIH, CCH I, and
Mr. Allen.
Your receipt of the Exchange Consideration offered hereby
could be wholly or partially voided as a preferential
transfer.
If we become the subject of a bankruptcy proceeding within
90 days after we consummate the Exchange Offer (or, with
respect to any insiders specified in the bankruptcy law who are
Holders of the Convertible Notes, within one year after
consummation of the Exchange Offer), and the court determines
that we were insolvent at the time of the Exchange Offer, the
court could find that the issuance of the cash and the
CCH II Note consideration involved a preferential transfer.
If the court determined that the Exchange Offer was a
preferential transfer which did not qualify for a bankruptcy law
defense, then the value of any consideration Holders received
with respect to the Convertible Notes could be recovered from
such holders and possibly from subsequent transferees, and such
persons might be returned to the same position they would have
held as holders of the Convertible Notes so exchanged.
Under certain circumstances, federal and state laws may allow
courts to avoid or subordinate claims with respect to the
CCH II Notes.
Under the federal Bankruptcy Code and comparable provisions of
state fraudulent transfer laws, a court could void claims with
respect to the CCH II Notes or subordinate them, if, among
other things, at the time CCH II issued the CCH II
Notes it:
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received less than reasonably equivalent value or fair
consideration for the CCH II Notes; and |
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was insolvent or rendered insolvent by reason of the incurrence; |
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was engaged in a business or transaction for which its remaining
assets constituted an unreasonably small capital; or |
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intended to incur, or believed that it would incur, debts beyond
its ability to pay such debts as they became due. |
The measures of insolvency for purposes of these fraudulent
transfer laws vary depending upon the law applied in any
proceeding to determine whether a fraudulent transfer has
occurred. Generally, however, CCH II would be considered
insolvent if:
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the sum of its debts, including contingent liabilities, was
greater than the fair saleable value of all its assets; |
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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 |
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it could not pay its debts as they became due. |
In addition, if there were to be a bankruptcy of Charter or its
subsidiaries, creditors of Charter and its subsidiaries, or the
trustee in bankruptcy on behalf of such companies, may attempt
to make claims
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against CCH II and its subsidiaries, which (if successful)
could have an adverse effect on the holders of the CCH II
Notes and their recoveries in any bankruptcy proceeding.
The Offerors cannot issue the securities offered as part of
this Exchange Offer until after the registration statement
including Exchange Offer Prospectus is declared effective.
You will not be able to withdraw your validly tendered
Convertible Notes from the Expiration Date until 60 days
after the commencement of the Exchange Offer. As a result, if
the registration statement including this Exchange Offer
Prospectus is not declared effective before the Expiration Date,
there may be a substantial period (up to 20 business days) where
the Offerors cannot accept and exchange any validly tendered
Convertible Notes and you cannot withdraw, and therefore cannot
trade, your Convertible Notes.
Risks Related to Our and Our Subsidiaries Significant
Indebtedness
We may not generate (or, in general, have available to the
applicable obligor) sufficient cash flow or access to additional
external liquidity sources to fund our capital expenditures,
ongoing operations and debt obligations, including our payment
obligations under the Convertible Notes and the CCH II
Notes, which could have a material adverse effect on you as
holders of the Convertible Notes and the CCH II Notes.
Our ability to service our debt (including payments on the
Convertible Notes and the CCH II Notes) and to fund our
planned capital expenditures and ongoing operations will depend
on both our ability to generate cash flow and our access to
additional external liquidity sources, and in general our
ability to provide (by dividend or otherwise), such funds to the
applicable issuer of the debt obligation. Our ability to
generate cash flow is dependent on many factors, including:
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our future operating performance; |
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the demand for our products and services; |
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general economic conditions and conditions affecting customer
and advertiser spending; |
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competition and our ability to stabilize customer
losses; and |
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legal and regulatory factors affecting our business. |
Some of these factors are beyond our control. If we are unable
to generate sufficient cash flow or access additional external
liquidity sources, we may not be able to service and repay our
debt, operate our business, respond to competitive challenges or
fund our other liquidity and capital needs. Although CCH II
sold $450 million principal amount of the CCH II Notes
in January 2006 and our subsidiary, Charter Operating, completed
a $6.85 billion refinancing of its credit facilities in
April 2006, we may not be able to access additional sources of
external liquidity on similar terms, if at all. We expect that
cash on hand, cash flows from operating activities, proceeds
from sales of assets and the amounts available under our credit
facilities will be adequate to meet our cash needs through 2007.
We believe that cash flows from operating activities and amounts
available under our credit facilities may not be sufficient to
fund our operations and satisfy our interest and principal
repayment obligations in 2008 and will not be sufficient to fund
such needs in 2009 and beyond. To the extent we use cash to
purchase Convertible Notes in the Exchange Offer, our liquidity
will be adversely impacted. See Managements
Discussion and Analysis of Financial Condition and Results of
Operations of Charter Liquidity and Capital
Resources and Managements Discussion and
Analysis of Financial Condition and Results of Operations of
CCH II, LLC Liquidity and Capital
Resources in this Exchange Offer Prospectus.
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Charter Operating may not be able to access funds under its
credit facilities if it fails to satisfy the covenant
restrictions in its credit facilities, which could adversely
affect our financial condition and our ability to conduct our
business.
Our subsidiaries have historically relied on access to credit
facilities in order to fund operations and to service parent
company debt, and we expect such reliance to continue in the
future. Our total potential borrowing availability under the
Charter Operating credit facilities was approximately
$900 million as of June 30, 2006, none of which was
limited by covenant restrictions. In the past, our actual
availability under our credit facilities has been limited by
covenant restrictions. There can be no assurance that our actual
availability under our credit facilities will not be limited by
covenant restrictions in the future. However, pro forma for the
closing of the asset sales on July 1, 2006, and the related
application of net proceeds to repay amounts outstanding under
our revolving credit facility, potential availability under our
credit facilities as of June 30, 2006 would have been
approximately $1.7 billion, although actual availability
would have been limited to $1.3 billion because of limits
imposed by covenant restrictions.
One of the conditions to the availability of funding under
Charter Operatings credit facilities is the absence of a
default under the credit facilities, including as a result of
any failure to comply with the covenants under the facilities.
Among other covenants, the facilities require Charter Operating
to maintain specific financial ratios. The facilities also
provide that Charter Operating has to obtain an unqualified
audit opinion from its independent accountants for each fiscal
year, which among other things requires Charter Operating to
demonstrate that it has adequate access to liquidity. There can
be no assurance that Charter Operating will be able to continue
to comply with these or any other of the covenants under the
credit facilities.
An event of default under the credit facilities or indentures,
if not waived, could result in the acceleration of those debt
obligations and, consequently, other debt obligations. Such
acceleration could result in exercise of remedies by our
creditors and could force us to seek the protection of the
bankruptcy laws, which could materially adversely impact our
ability to operate our business and to make payments under our
debt instruments.
Because of our holding company structure, our outstanding
notes are structurally subordinated in right of payment to all
liabilities of our subsidiaries. Restrictions in our
subsidiaries debt instruments and under applicable law
limit their ability to provide funds to us.
Our sole assets are our equity interests in our subsidiaries.
Our operating subsidiaries are separate and distinct legal
entities and are not obligated to make funds available to us for
payments on our notes or other obligations in the form of loans,
distributions or otherwise. Our subsidiaries ability to
make distributions to us is subject to their compliance with the
terms of their credit facilities and indentures and restrictions
under applicable law. Under the Delaware limited liability
company act, our subsidiaries may only pay dividends to us if
they have surplus as defined in the act. Under
fraudulent transfer laws, our subsidiaries may not pay dividends
to us if they are insolvent or are rendered insolvent thereby.
See Risks to Tendering Holders of Convertible
Notes Under certain circumstances, federal and state
laws may allow courts to avoid or subordinate claims with
respect to the CCH II Notes for the meaning of
insolvent in this context. While we believe that our
relevant subsidiaries currently have surplus and are not
insolvent, there can be no assurance that these subsidiaries
will be permitted to make distributions in the future in
compliance with these restrictions in amounts needed to service
our indebtedness, including the Convertible Notes.
Our direct or indirect subsidiaries include the borrowers and
guarantors under the Charter Operating credit facilities.
Several of our subsidiaries are also obligors under other senior
high yield notes. See Managements Discussion and
Analysis of Financial Conditions and Results of Operations of
Charter Liquidity and Capital Resources
Recent Financing Transactions and Managements
Discussion and Analysis of Financial Condition and Results of
Operations of CCH II, LLC Liquidity and Capital
Resources Debt Covenants in this Exchange
Offer Prospectus. Our notes are structurally subordinated in
right of payment to all of the debt and other liabilities of the
subsidiaries of the respective issuers.
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However, because the CC VIII Interest will be held by
CCH I, holders of CCH I notes, through CCH I,
will have a preferred equity claim against the CC VIII
assets and holders of the CCH II Notes will not have any
claim against, or interest in, those preferred equity interests.
As of June 30, 2006, taking into account the Exchange Offer
Pro Forma Adjustments and the Private Exchange Offers Pro Forma
Adjustments, Charters total debt was approximately
$18.7 billion, of which approximately $18.2 billion
was structurally senior to the Convertible Notes and
CCH IIs total debt was approximately
$10.6 billion of which approximately $8.2 billion was
structurally senior to the CCH II Notes.
In the event of bankruptcy, liquidation or dissolution of one or
more of our subsidiaries, that subsidiarys assets would
first be applied to satisfy its own obligations, and following
such payments, such subsidiary may not have sufficient assets
remaining to make payments to us as an equity holder or
otherwise. In that event:
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the lenders under Charter Operatings 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 |
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the other holders of preferred membership interests in CCH
Is subsidiary, CC VIII, would have a claim on a
portion of its assets that may reduce the amounts available for
repayment to holders of our outstanding notes. |
We and our subsidiaries have a significant amount of existing
debt and may incur significant additional debt, including
secured debt, in the future, which could adversely affect our
financial health and our ability to react to changes in our
business.
Charter and its subsidiaries have a significant amount of debt
and may (subject to applicable restrictions in their debt
instruments) incur additional debt in the future. As of
June 30, 2006, Charters total debt was approximately
$19.9 billion, Charters shareholders deficit
was approximately $5.8 billion and the deficiency of
earnings to cover fixed charges for the six months ended
June 30, 2006 was $776 million. As of June 30,
2006, CCH IIs total debt was approximately
$11.1 billion, its members equity was approximately
$2.6 billion and the deficiency of earnings to cover fixed
charges for the six months ended June 30, 2006 was
$321 million.
As of June 30, 2006, Charter had outstanding approximately
$863 million aggregate principal amount of Convertible
Notes, Charter Holdings had outstanding approximately
$1.8 billion aggregate principal amount of notes, CIH had
outstanding approximately $2.5 billion aggregate principal
amount of notes, CCH I had outstanding approximately
$3.5 billion aggregate principal amount of notes and
CCH II had outstanding approximately $2.1 billion
aggregate principal amount of notes. Charter will need to raise
additional capital and/or receive distributions or payments from
its subsidiaries in order to satisfy its debt obligations in
2009. CCH II will need to raise additional capital and/or
receive distributions or payments from its subsidiaries in order
to satisfy its debt obligations in 2010, including the
CCH II Notes. However, because of our significant
indebtedness, our ability to raise additional capital at
reasonable rates or at all is uncertain, and the ability of our
subsidiaries to make distributions or payments to their parent
companies is subject to availability of funds and restrictions
under our and our subsidiaries applicable debt instruments
as more fully described in the section entitled
Description of Other Indebtedness. If we were to
raise capital through the issuance of additional equity or to
engage in a recapitalization or other similar transaction, our
shareholders could suffer significant dilution.
Our significant amount of debt could have other important
consequences. For example, the debt will or could:
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require us to dedicate a significant portion of our cash flow
from operating activities to make payments on our debt, which
will reduce our funds available for working capital, capital
expenditures and other general corporate expenses; |
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limit our flexibility in planning for, or reacting to, changes
in our business, the cable and telecommunications industries and
the economy at large; |
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place us at a disadvantage as compared to our competitors that
have proportionately less debt; |
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make us vulnerable to interest rate increases, because a
significant portion of our borrowings are, and will continue to
be, at variable rates of interest; |
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expose us to increased interest expense as we refinance all
existing lower interest rate instruments; |
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adversely affect our relationship with customers and suppliers; |
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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. |
A default by one of our subsidiaries under its debt obligations
could result in the acceleration of those obligations, the
obligations of our other subsidiaries, CCH IIs
obligations under the CCH II Notes and Charters
obligations under the Convertible Notes. We may not have the
ability to fund our obligations under the Convertible Notes and
the CCH II Notes in the event of such a default. We and our
subsidiaries may incur substantial additional debt in the
future. If current debt levels increase, the related risks that
we now face will intensify.
The agreements and instruments governing our debt and the
debt of our subsidiaries contain restrictions and limitations
that could significantly affect our ability to operate our
business, as well as significantly affect our liquidity, and
adversely affect the holders of the Convertible Notes and the
CCH II Notes.
The Charter Operating credit facilities and the indentures
governing our and our subsidiaries debt (including the
Convertible Notes and the CCH II Notes) contain a number of
significant covenants that could adversely affect the holders of
the Convertible Notes and the CCH II Notes and our ability
to operate our business, as well as significantly affect our
liquidity, and therefore could adversely affect our results of
operations. These covenants will restrict, among other things,
our and our subsidiaries ability to:
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incur additional debt; |
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repurchase or redeem equity interests and debt; |
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issue equity; |
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make certain investments or acquisitions; |
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pay dividends or make other distributions; |
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dispose of assets or merge; |
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enter into related party transactions; and |
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grant liens and pledge assets. |
Furthermore, Charter Operatings credit facilities require
our subsidiaries to, among other things, maintain specified
financial ratios, meet specified financial tests and provide
annual audited financial statements, with an unqualified opinion
from our independent auditors. See Description of Other
Indebtedness for a summary of our outstanding indebtedness
and a description of our credit facilities and other
indebtedness and for details on our debt covenants and future
liquidity. Charter Operatings ability to comply with these
provisions may be affected by events beyond our control.
The breach of any covenants or obligations in the foregoing
indentures or credit facilities, not otherwise waived or
amended, could result in a default under the applicable debt
agreement or instrument and could trigger acceleration of the
related debt, which in turn could trigger defaults under other
agreements governing our long-term indebtedness. In addition,
the secured lenders under the Charter Operating credit
facilities and the holders of the Charter Operating second-lien
notes could foreclose on
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their collateral, which includes equity interests in our
subsidiaries, and exercise other rights of secured creditors.
Any default under those credit facilities, the indentures
governing the Convertible Notes or our subsidiaries debt
could adversely affect our growth, our financial condition and
our results of operations and our ability to make payments on
our notes and Charter Operatings credit facilities and
other debt of our subsidiaries. See Description of Other
Indebtedness for a summary of our outstanding indebtedness
and a description of our credit facilities and other
indebtedness and for details on our debt covenants and future
liquidity.
All of our and our subsidiaries outstanding debt is
subject to change of control provisions. We may not have the
ability to raise the funds necessary to fulfill our obligations
under our indebtedness following a change of control, which
would place us in default under the applicable debt
instruments.
We may not have the ability to raise the funds necessary to
fulfill our obligations under our and our subsidiaries
notes and credit facilities following a change of control. Under
the indentures governing our and our subsidiaries notes
(including the Convertible Notes and the CCH II Notes),
upon the occurrence of specified change of control events, we
are required to offer to repurchase all of these notes. However,
Charter and our subsidiaries may not have sufficient funds at
the time of the change of control event to make the required
repurchase of these notes, and our subsidiaries are limited in
their ability to make distributions or other payments to fund
any required repurchase. In addition, a change of control under
our subsidiaries credit facilities would result in a
default under those credit facilities. Because such credit
facilities and our subsidiaries notes are obligations of
our subsidiaries, the credit facilities and our
subsidiaries notes would have to be repaid by our
subsidiaries before their assets could be available to us to
repurchase the Convertible Notes or the CCH II Notes. Our
failure to make or complete a change of control offer would
place us in default under the Convertible Notes or CCH II
Notes. The failure of our subsidiaries to make a change of
control offer or repay the amounts accelerated under their
credit facilities would place them in default.
Paul G. Allen and his affiliates are not obligated to
purchase equity from, contribute to or loan funds to us or any
of our subsidiaries.
Paul G. Allen and his affiliates are not obligated to
purchase equity from, contribute to or loan funds to us or any
of our subsidiaries.
Risks Related to Our Business
We operate in a very competitive business environment, which
affects our ability to attract and retain customers and can
adversely affect our business and operations. We have lost a
significant number of video customers to direct broadcast
satellite competition and further loss of video customers could
have a material negative impact on our business.
The industry in which we operate is highly competitive and has
become more so in recent years. In some instances, we compete
against companies with fewer regulatory burdens, easier access
to financing, greater personnel resources, greater brand name
recognition and long-established relationships with regulatory
authorities and customers. Increasing consolidation in the cable
industry and the repeal of certain ownership rules may provide
additional benefits to certain of our competitors, either
through access to financing, resources or efficiencies of scale.
Our principal competitor for video services throughout our
territory is direct broadcast satellite (DBS).
Competition from DBS, including intensive marketing efforts and
aggressive pricing has had an adverse impact on our ability to
retain customers. DBS has grown rapidly over the last several
years and continues to do so. The cable industry, including us,
has lost a significant number of subscribers to DBS competition,
and we face serious challenges in this area in the future. We
believe that competition from DBS service providers may present
greater challenges in areas of lower population density, and
that our systems service a higher concentration of such areas
than those of other major cable service providers.
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Local telephone companies and electric utilities can offer video
and other services in competition with us and they increasingly
may do so in the future. Certain telephone companies have begun
more extensive deployment of fiber in their networks that enable
them to begin providing video services, as well as telephone and
high bandwidth Internet access services, to residential and
business customers and they are now offering such service in
limited areas. Some of these telephone companies have obtained,
and are now seeking, franchises or operating authorizations that
are less burdensome than existing Charter franchises.
The subscription television industry also faces competition from
free broadcast television and from other communications and
entertainment media. Further loss of customers to DBS or other
alternative video and Internet services could have a material
negative impact on the value of our business and its performance.
With respect to our Internet access services, we face
competition, including intensive marketing efforts and
aggressive pricing, from telephone companies and other providers
of DSL and
dial-up.
DSL service is competitive with high-speed Internet service
over cable systems. In addition, DBS providers have entered
into joint marketing arrangements with Internet access providers
to offer bundled video and Internet service, which competes with
our ability to provide bundled services to our customers.
Moreover, as we expand our telephone offerings, we will face
considerable competition from established telephone companies
and other carriers, including VoIP providers.
In order to attract new customers, from time to time we make
promotional offers, including offers of temporarily
reduced-price or free service. These promotional programs result
in significant advertising, programming and operating expenses,
and also require us to make capital expenditures to acquire
additional digital set-top terminals. Customers who subscribe to
our services as a result of these offerings may not remain
customers for any significant period of time following the end
of the promotional period. A failure to retain existing
customers and customers added through promotional offerings or
to collect the amounts they owe us could have a material adverse
effect on our business and financial results.
Mergers, joint ventures and alliances among franchised, wireless
or private cable operators, satellite television providers,
local exchange carriers and others, may provide additional
benefits to some of our competitors, either through access to
financing, resources or efficiencies of scale, or the ability to
provide multiple services in direct competition with us.
We cannot assure you that our cable systems will allow us to
compete effectively. Additionally, as we expand our offerings to
include other telecommunications services, and to introduce new
and enhanced services, we will be subject to competition from
other providers of the services we offer. We cannot predict the
extent to which competition may affect our business and
operations in the future.
We have a history of net losses and expect to continue to
experience net losses. Consequently, we may not have the ability
to finance future operations.
We have had a history of net losses and expect to continue to
report net losses for the foreseeable future. Our net losses are
principally attributable to insufficient revenue to cover the
combination of operating costs and interest costs we incur
because of our high level of debt and the depreciation expenses
that we incur resulting from the capital investments we have
made in our cable properties. We expect that these expenses will
remain significant, and we expect to continue to report net
losses for the foreseeable future. Charter reported net losses
applicable to common stock of $382 million and
$356 million for the three months ended June 30, 2006
and 2005, respectively, and $841 million and
$709 million for the six months ended June 30, 2006
and 2005, respectively. CCH II reported net losses of
$107 million and $87 million for the three months
ended June 30, 2006 and 2005, respectively, and
$335 million and $220 million for the six months ended
June 30, 2006 and 2005, respectively. Continued losses
would reduce our cash available from operations to service our
indebtedness, as well as limit our ability to finance our
operations.
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We may not have the ability to pass our increasing
programming costs on to our customers, which would adversely
affect our cash flow and operating margins.
Programming has been, and is expected to continue to be, our
largest operating expense item. In recent years, the cable
industry has experienced a rapid escalation in the cost of
programming, particularly sports programming. We expect
programming costs to continue to increase because of a variety
of factors, including inflationary or negotiated annual
increases, additional programming being provided to customers
and increased costs to purchase programming. The inability to
fully pass these programming cost increases on to our customers
has had an adverse impact on our cash flow and operating
margins. As measured by programming costs, and excluding premium
services (substantially all of which were renegotiated and
renewed in 2003), as of July 7, 2006, approximately 11% of
our current programming contracts were expired, and
approximately another 4% were scheduled to expire at or before
the end of 2006. There can be no assurance that these agreements
will be renewed on favorable or comparable terms. Our
programming costs increased by approximately 13% and 11% in the
three and six months ended June 30, 2006 compared to the
corresponding periods in 2005, respectively. We expect our
programming costs in 2006 to continue to increase at a higher
rate than in 2005. To the extent that we are unable to reach
agreement with certain programmers on terms that we believe are
reasonable we may be forced to remove such programming channels
from our line-up, which could result in a further loss of
customers.
If our required capital expenditures in 2006, 2007 and beyond
exceed our projections, we may not have sufficient funding,
which could adversely affect our growth, financial condition and
results of operations.
During the three and six months ended June 30, 2006, we
spent approximately $298 million and $539 million,
respectively, on capital expenditures. During 2006, we expect
capital expenditures to be approximately $1.0 billion to
$1.1 billion. The actual amount of our capital expenditures
depends on the level of growth in high-speed Internet and
telephone customers and in the delivery of other advanced
services, as well as the cost of introducing any new services.
We may need additional capital in 2006, 2007 and beyond if there
is accelerated growth in high-speed Internet customers,
telephone customers or in the delivery of other advanced
services. If we cannot obtain such capital from increases in our
cash flow from operating activities, additional borrowings,
proceeds from asset sales or other sources, our growth,
financial condition and results of operations could suffer
materially.
Our inability to respond to technological developments and
meet customer demand for new products and services could limit
our ability to compete effectively.
Our business is characterized by rapid technological change and
the introduction of new products and services. We cannot assure
you that we will be able to fund the capital expenditures
necessary to keep pace with unanticipated technological
developments, or that we will successfully anticipate the demand
of our customers for products and services requiring new
technology. Our inability to maintain and expand our upgraded
systems and provide advanced services in a timely manner, or to
anticipate the demands of the marketplace, could materially
adversely affect our ability to attract and retain customers.
Consequently, our growth, financial condition and results of
operations could suffer materially.
Malicious and abusive Internet practices could impair our
high-speed Internet services
Our high-speed Internet customers utilize our network to access
the Internet and, as a consequence, we or they may become victim
to common malicious and abusive Internet activities, such as
unsolicited mass advertising (i.e., spam) and
dissemination of viruses, worms and other destructive or
disruptive software. These activities could have adverse
consequences on our network and our customers, including
degradation of service, excessive call volume to call centers
and damage to our or our customers equipment and data.
Significant incidents could lead to customer dissatisfaction
and, ultimately, loss of customers or revenue, in addition to
increased costs to us to service our customers and protect our
network. Any significant loss of high-speed Internet customers
or revenue or significant increase in costs of serving those
customers could adversely affect our growth, financial condition
and results of operations.
35
Charter could be deemed an investment company
under the Investment Company Act of 1940. This would impose
significant restrictions on us and would be likely to have a
material adverse impact on our growth, financial condition and
results of operation.
Charters principal assets are its equity interests in
Charter Holdco and certain indebtedness of Charter Holdco. If
Charters membership interest in Charter Holdco were to
constitute less than 50% of the voting securities issued by
Charter Holdco, then Charters interest in Charter Holdco
could be deemed an investment security for purposes
of the Investment Company Act. This may occur, for example, if a
court determines that the Class B common stock is no longer
entitled to special voting rights and, in accordance with the
terms of the Charter Holdco limited liability company agreement,
Charters membership units in Charter Holdco were to lose
their special voting privileges. A determination that such
interest was an investment security could cause Charter to be
deemed to be an investment company under the Investment Company
Act, unless an exemption from registration were available or we
were to obtain an order of the Securities and Exchange
Commission excluding or exempting us from registration under the
Investment Company Act.
If anything were to happen which would cause Charter to be
deemed an investment company, the Investment Company Act would
impose significant restrictions on us, including severe
limitations on our ability to borrow money, to issue additional
capital stock and to transact business with affiliates. In
addition, because our operations are very different from those
of the typical registered investment company, regulation under
the Investment Company Act could affect us in other ways that
are extremely difficult to predict. In sum, if we were deemed to
be an investment company it could become impractical for us to
continue our business as currently conducted and our growth, our
financial condition and our results of operations could suffer
materially.
If a court determines that the Class B common stock is
no longer entitled to special voting rights, we would lose our
rights to manage Charter Holdco. In addition to the investment
company risks discussed above, this could materially impact the
value of the Class A Common Stock.
If a court determines that the Class B common stock is no
longer entitled to special voting rights, Charter would no
longer have a controlling voting interest in, and would lose its
right to manage, Charter Holdco. If this were to occur:
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we would retain our proportional equity interest in Charter
Holdco but would lose all of our powers to direct the management
and affairs of Charter Holdco and its subsidiaries; and |
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we would become strictly a passive investment vehicle and would
be treated under the Investment Company Act as an investment
company. |
This result, as well as the impact of being treated under the
Investment Company Act as an investment company, could
materially adversely impact:
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the liquidity of the Class A Common Stock; |
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how the Class A Common Stock trades in the marketplace; |
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the price that purchasers would be willing to pay for the
Class A Common Stock in a change of control transaction or
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the market price of the Class A Common Stock. |
Uncertainties that may arise with respect to the nature of our
management role and voting power and organizational documents as
a result of any challenge to the special voting rights of the
Class B common stock, including legal actions or
proceedings relating thereto, may also materially adversely
impact the value of the Class A Common Stock.
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Risks Related to Charters Future Ability to Utilize Net
Operating Loss Carryforwards
The issuance of the Class A Common Stock offered hereby,
the possible return of shares of Class A Common Stock in
connection with the unwinding of hedge positions and possible
future conversions of the Convertible Notes significantly
increase the risk that we will experience an ownership change in
the future for tax purposes, resulting in a material limitation
on the use of a substantial amount of our existing net operating
loss carryforwards.
As of June 30, 2006, we had approximately $6.4 billion
of tax net operating loss carryforwards and current year losses
(resulting in a gross deferred tax asset of approximately
$2.6 billion) expiring in the years 2007 through 2026. Due
to uncertainties in projected future taxable income, valuation
allowances have been established against the gross deferred tax
assets for book accounting purposes except for deferred benefits
available to offset certain deferred tax liabilities. Currently,
such tax net operating losses can be used to offset any of our
future taxable income. An ownership change as
defined in Section 382 of the Internal Revenue Code of
1986, as amended, would place significant limitations, on an
annual basis, on the use of such net operating losses existing
as of the date of an ownership change to offset any future
taxable income we may generate post-ownership change. Such
limitations, in conjunction with the net operating loss
expiration provisions, could effectively eliminate our ability
to use a substantial portion of our net operating losses prior
to such ownership change to offset any post-ownership change
taxable income.
The issuance of the Class A Common Stock offered hereby and
the possible return of shares of our Class A Common Stock
in connection with the unwinding of hedge positions undertaken
by Holders of the Convertible Notes who participate in the
Exchange Offer as well as the issuance of up to a total of
150 million shares of Class A Common Stock (of which a
total of 116.9 million have been issued through
June 2006) offered pursuant to a share lending agreement
executed by Charter in connection with the issuance of the
Convertible Notes in November 2004 and possible future
transactions significantly increase the risk that we will
experience an ownership change in the future for tax purposes.
Such transactions include additional issuances of Class A
Common Stock by us (including but not limited to issuances upon
future conversion of the Convertible Notes and any future
issuances pursuant to the share lending agreement),
reacquisitions by us of shares borrowed pursuant to the share
lending agreement, or acquisitions or sales of shares by certain
holders of our shares, including persons who have held,
currently hold, or accumulate in the future five percent or more
of our outstanding stock (including upon an exchange by
Mr. Allen or his affiliates, directly or indirectly, of
membership units of Charter Holdco into Class A Common
Stock). Many of the foregoing transactions are beyond our
control.
Risks Related to Mr. Allens Controlling
Position
The failure by Mr. Allen to maintain a minimum voting
and economic interest in us could trigger a change of control
default under our subsidiarys credit facilities.
The Charter Operating credit facilities provide that the failure
by (a) Mr. Allen, (b) his estate, spouse,
immediate family members and heirs and (c) any trust,
corporation, partnership or other entity, the beneficiaries,
stockholders, partners or other owners of which consist
exclusively of Mr. Allen or such other persons referred to
in (b) above or a combination thereof, to maintain a 35%
direct or indirect voting interest in the applicable borrower
would result in a change of control default. Such a default
could result in the acceleration of repayment of our and our
subsidiaries indebtedness, including borrowings under the
Charter Operating credit facilities.
Mr. Allen controls our stockholder voting and may have
interests that conflict with your interests.
Mr. Allen has the ability to control us. Through his
control as of June 30, 2006 of approximately 90% of the
voting power of Charters capital stock, Mr. Allen is
entitled to elect all but one of our board members and
effectively has the voting power to elect the remaining board
member as well. Mr. Allen
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thus has the ability to control fundamental corporate
transactions requiring equity holder approval, including, but
not limited to, the election of all of our directors, approval
of merger transactions involving us and the sale of all or
substantially all of our assets.
Mr. Allen is not restricted from investing in, and has
invested in, and engaged in, other businesses involving or
related to the operation of cable television systems, video
programming, high-speed Internet service, telephone or business
and financial transactions conducted through broadband
interactivity and Internet services. Mr. Allen may also
engage in other businesses that compete or may in the future
compete with us.
Mr. Allens control over our management and affairs
could create conflicts of interest if he is faced with decisions
that could have different implications for him, us and the
holders of the Class A Common Stock. Further,
Mr. Allen could effectively cause us to enter into
contracts with another entity in which he owns an interest or to
decline a transaction into which he (or another entity in which
he owns an interest) ultimately enters.
Current and future agreements between us and either
Mr. Allen or his affiliates may not be the result of
arms-length negotiations. Consequently, such agreements
may be less favorable to us than agreements that we could
otherwise have entered into with unaffiliated third parties.
We are not permitted to engage in any business activity other
than the cable transmission of video, audio and data unless
Mr. Allen authorizes us to pursue that particular business
activity, which could adversely affect our ability to offer new
products and services outside of the cable transmission business
and to enter into new businesses, and could adversely affect our
growth, financial condition and results of operations.
The Restated Certificate of Incorporation of Charter and Charter
Holdcos limited liability company agreement provide that
Charter and Charter Holdco and our subsidiaries, cannot engage
in any business activity outside the cable transmission business
except for specified businesses. This will be the case unless
Mr. Allen consents to our engaging in the business
activity. The cable transmission business means the business of
transmitting video, audio (including telephone services), and
data over cable television systems owned, operated or managed by
us from time to time. These provisions may limit our ability to
take advantage of attractive business opportunities.
The loss of Mr. Allens services could adversely
affect our ability to manage our business.
Mr. Allen is Chairman of our board of directors and
provides strategic guidance and other services to us. If we were
to lose his services, our growth, financial condition and
results of operations could be adversely impacted.
The special tax allocation provisions of the Charter Holdco
limited liability company agreement may cause us in some
circumstances to pay more taxes than if the special tax
allocation provisions were not in effect.
Charter Holdcos limited liability company agreement
provided that through the end of 2003, net tax losses (such net
tax losses being determined under the federal income tax rules
for determining capital accounts) of Charter Holdco that would
otherwise have been allocated to us based generally on our
percentage ownership of outstanding common membership units of
Charter Holdco would instead be allocated to the membership
units held by Vulcan Cable III Inc. (Vulcan
Cable) and Charter Investment, Inc. (CII). The
purpose of these special tax allocation provisions was to allow
Mr. Allen to take advantage, for tax purposes, of the
losses generated by Charter Holdco during such period. In some
situations, these special tax allocation provisions could result
in our having to pay taxes in an amount that is more or less
than if Charter Holdco had allocated net tax losses to its
members based generally on the percentage of outstanding common
membership units owned by such members. For further discussion
on the details of the tax allocation provisions see
Managements Discussion and Analysis of Financial
Condition and Results of Operations of Charter
Critical Accounting Policies and Estimates Income
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Taxes and Managements Discussion and Analysis
of Financial Condition and Results of Operations of CCH II,
LLC Critical Accounting Policies and
Estimates Income Taxes in this Exchange Offer
Prospectus.
Risks Related to Regulatory and Legislative Matters
Our business is subject to extensive governmental legislation
and regulation, which could adversely affect our business.
Regulation of the cable industry has increased cable
operators administrative and operational expenses and
limited their revenues. Cable operators are subject to, among
other things:
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rules governing the provision of cable equipment and
compatibility with new digital technologies; |
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rules and regulations relating to subscriber privacy; |
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limited rate regulation; |
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requirements governing when a cable system must carry a
particular broadcast station and when it must first obtain
consent to carry a broadcast station; |
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rules and regulations relating to provision of voice
communications; |
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rules for franchise renewals and transfers; and |
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other requirements covering a variety of operational areas such
as equal employment opportunity, technical standards and
customer service requirements. |
Additionally, many aspects of these regulations are currently
the subject of judicial proceedings and administrative or
legislative proposals. There are also ongoing efforts to amend
or expand the federal, state and local regulation of some of our
cable systems, which may compound the regulatory risks we
already face. Certain states and localities are considering new
telecommunications taxes that could increase operating expenses.
Our cable systems are operated under franchises that are
subject to non-renewal or termination. The failure to renew a
franchise in one or more key markets could adversely affect our
business.
Our cable systems generally operate pursuant to franchises,
permits and similar authorizations issued by a state or local
governmental authority controlling the public
rights-of-way. Many
franchises establish comprehensive facilities and service
requirements, as well as specific customer service standards and
monetary penalties for non-compliance. In many cases, franchises
are terminable if the franchisee fails to comply with
significant provisions set forth in the franchise agreement
governing system operations. Franchises are generally granted
for fixed terms and must be periodically renewed. Local
franchising authorities may resist granting a renewal if either
past performance or the prospective operating proposal is
considered inadequate. Franchise authorities often demand
concessions or other commitments as a condition to renewal. In
some instances, franchises have not been renewed at expiration,
and we have operated and are operating under either temporary
operating agreements or without a license while negotiating
renewal terms with the local franchising authorities.
Approximately 12% of our franchises, covering approximately 13%
of our analog video customers, were expired as of June 30,
2006. Approximately 4% of additional franchises, covering
approximately an additional 6% of our analog video customers,
will expire on or before December 31, 2006, if not renewed
prior to expiration.
We cannot assure you that we will be able to comply with all
significant provisions of our franchise agreements and certain
of our franchisors have from time to time alleged that we have
not complied with these agreements. Additionally, although
historically we have renewed our franchises without incurring
significant costs, we cannot assure you that we will be able to
renew, or to renew as favorably, our franchises in the future. A
termination of or a sustained failure to renew a franchise in
one or more key markets could adversely affect our business in
the affected geographic area.
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Our cable systems are operated under franchises that are
non-exclusive. Accordingly, local franchising authorities can
grant additional franchises and create competition in market
areas where none existed previously, resulting in overbuilds,
which could adversely affect results of operations.
Our cable systems are operated under non-exclusive franchises
granted by local franchising authorities. Consequently, local
franchising authorities can grant additional franchises to
competitors in the same geographic area or operate their own
cable systems. In addition, certain telephone companies are
seeking authority to operate in local communities without first
obtaining a local franchise. As a result, competing operators
may build systems in areas in which we hold franchises. In some
cases municipal utilities may legally compete with us without
obtaining a franchise from the local franchising authority.
Different legislative proposals have been introduced in the
United States Congress and in some state legislatures that would
greatly streamline cable franchising. This legislation is
intended to facilitate entry by new competitors, particularly
local telephone companies. Such legislation has passed in at
least six states in which we have operations and one of these
newly enacted statutes is subject to court challenge. Although
various legislative proposals provide some regulatory relief for
incumbent cable operators, these proposals are generally viewed
as being more favorable to new entrants due to a number of
factors, including provisions withholding streamlined cable
franchising from incumbents until after the expiration of their
existing franchises. To the extent incumbent cable operators are
not able to avail themselves of this streamlined franchising
process, such operators may continue to be subject to more
onerous franchise requirements at the local level than new
entrants. A proceeding is pending at the Federal Communications
Commission (FCC) to determine whether local
franchising authorities are impeding the deployment of
competitive cable services through unreasonable franchising
requirements and whether such impediments should be preempted.
We are not yet able to determine what impact such proceeding may
have on us.
The existence of more than one cable system operating in the
same territory is referred to as an overbuild. These overbuilds
could adversely affect our growth, financial condition and
results of operations by creating or increasing competition. As
of June 30, 2006, we are aware of overbuild situations
impacting approximately 8% of our estimated homes passed, and
potential overbuild situations in areas servicing approximately
an additional 5% of our estimated homes passed. Additional
overbuild situations may occur in other systems.
Local franchise authorities have the ability to impose
additional regulatory constraints on our business, which could
further increase our expenses.
In addition to the franchise agreement, cable authorities in
some jurisdictions have adopted cable regulatory ordinances that
further regulate the operation of cable systems. This additional
regulation increases the cost of operating our business. We
cannot assure you that the local franchising authorities will
not impose new and more restrictive requirements. Local
franchising authorities also generally have the power to reduce
rates and order refunds on the rates charged for basic services.
Further regulation of the cable industry could cause us to
delay or cancel service or programming enhancements or impair
our ability to raise rates to cover our increasing costs,
resulting in increased losses.
Currently, rate regulation is strictly limited to the basic
service tier and associated equipment and installation
activities. However, the FCC and the U.S. Congress continue
to be concerned that cable rate increases are exceeding
inflation. It is possible that either the FCC or the
U.S. Congress will again restrict the ability of cable
system operators to implement rate increases. Should this occur,
it would impede our ability to raise our rates. If we are unable
to raise our rates in response to increasing costs, our losses
would increase.
There has been considerable legislative and regulatory interest
in requiring cable operators to offer historically bundled
programming services on an á la carte basis or to at
least offer a separately available
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child-friendly Family Tier. It is possible that new
marketing restrictions could be adopted in the future. Such
restrictions could adversely affect our operations.
Actions by pole owners might subject us to significantly
increased pole attachment costs.
Pole attachments are cable wires that are attached to poles.
Cable system attachments to public utility poles historically
have been regulated at the federal or state level, generally
resulting in favorable pole attachment rates for attachments
used to provide cable service. The FCC clarified that a cable
operators favorable pole rates are not endangered by the
provision of Internet access, and that approach ultimately was
upheld by the Supreme Court of the United States. Despite the
existing regulatory regime, utility pole owners in many areas
are attempting to raise pole attachment fees and impose
additional costs on cable operators and others. The favorable
pole attachment rates afforded cable operators under federal law
can be increased by utility companies if the operator provides
telecommunications services, in addition to cable service, over
cable wires attached to utility poles. To date, Voice over
Internet Protocol, or VoIP, service has not been classified as
either a telecommunications service or cable service under the
Communications Act. If VoIP were classified as a
telecommunications service under the Communications Act by the
FCC, a state Public Utility Commission, or an appropriate court,
it might result in significantly increased pole attachment costs
for us, which could adversely affect our financial condition and
results of operations. Any significant increased costs could
have a material adverse impact on our profitability and
discourage system upgrades and the introduction of new products
and services.
We may be required to provide access to our networks to other
Internet service providers or restrictions could be imposed on
our ability to manage our broadband infrastructure, either of
which could significantly increase our competition and adversely
affect our ability to provide new products and services.
A number of companies, including independent Internet service
providers, or ISPs, have requested local authorities and the FCC
to require cable operators to provide non-discriminatory access
to cables broadband infrastructure, so that these
companies may deliver Internet services directly to customers
over cable facilities. In a June 2005 ruling, commonly referred
to as Brand X, the Supreme Court upheld an FCC decision
(and overruled a conflicting Ninth Circuit opinion) making it
less likely that any nondiscriminatory open access
requirements (which are generally associated with common carrier
regulation of telecommunications services) will be
imposed on the cable industry by local, state or federal
authorities. The Supreme Court held that the FCC was correct in
classifying cable provided Internet service as an
information service, rather than a
telecommunications service. Notwithstanding Brand
X, there has been increasing advocacy by certain internet
content providers and consumer groups for new federal laws or
regulations to limiting the ability of broadband network owners
(like Charter) to manage and control their own networks. The
proposals might prevent network owners, for example, from
charging bandwidth intensive content providers, such as certain
online gaming, music, and video service providers, an additional
fee to ensure quality delivery of the services to consumers. If
we were required to allocate a portion of our bandwidth capacity
to other Internet service providers, or were prohibited from
charging heavy bandwidth intensive services a fee for use of our
networks, we believe that it could impair our ability to use our
bandwidth in ways that would generate maximum revenues.
Changes in channel carriage regulations could impose
significant additional costs on us.
Cable operators also face significant regulation of their
channel carriage. They currently can be required to devote
substantial capacity to the carriage of programming that they
would not carry voluntarily, including certain local broadcast
signals, local public, educational and government access
programming, and unaffiliated commercial leased access
programming. This carriage burden could increase in the future,
particularly if cable systems were required to carry both the
analog and digital versions of local broadcast signals (dual
carriage) or to carry multiple program streams included with a
single digital broadcast transmission (multicast carriage).
Additional government-mandated broadcast carriage obliga-
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tions could disrupt existing programming commitments, interfere
with our preferred use of limited channel capacity and limit our
ability to offer services that would maximize customer appeal
and revenue potential. Although the FCC issued a decision in
February 2005, confirming an earlier ruling against mandating
either dual carriage or multicast carriage, that decision is
subject to a petition for reconsideration which is pending. In
addition, the FCC could reverse its own ruling or Congress could
legislate additional carriage obligations.
Offering voice communications service may subject us to
additional regulatory burdens, causing us to incur additional
costs.
In 2002, we began to offer voice communications services on a
limited basis over our broadband network. We continue to develop
and deploy Voice over Internet Protocol or VoIP services. The
FCC has declared that certain VoIP services are not subject to
traditional state public utility regulation. The full extent of
the FCC preemption of state and local regulation of VoIP
services is not yet clear. Expanding our offering of these
services may require us to obtain certain authorizations,
including federal and state licenses. We may not be able to
obtain such authorizations in a timely manner, or conditions
could be imposed upon such licenses or authorizations that may
not be favorable to us. The FCC has extended certain traditional
telecommunications requirements, such as E911 and Universal
Service requirements, to many VoIP providers, such as Charter.
The FCC has also required that these VoIP providers comply with
obligations applied to traditional telecommunications carriers
to ensure their networks can accommodate law enforcement
wiretaps by May 2007, that requirement has been affirmed by the
Court of Appeals for the D.C. Circuit. Telecommunications
companies generally are subject to other significant regulation
which could also be extended to VoIP providers. If additional
telecommunications regulations are applied to our VoIP service,
it could cause us to incur additional costs.
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QUESTIONS AND ANSWERS ABOUT THE EXCHANGE OFFER
For your convenience, the following is additional summary
information regarding the Exchange Offer in a question and
answer format.
Who is making the Exchange Offer?
The Offerors, CCHC, LLC, CCH II, LLC and CCH II
Capital Corp., are offering to pay the Exchange Consideration to
Holders of outstanding Convertible Notes who agree to tender
their Convertible Notes in accordance with the terms of the
Exchange Offer.
What securities are the subject of the Exchange Offer?
The securities that are the subject of the Exchange Offer are
Charters 5.875% Convertible Senior Notes due 2009. As
of the date of this Exchange Offer Prospectus, there are
$862,500,000 in aggregate principal amount of Convertible Notes
outstanding. The Offerors will not accept for exchange more than
$450,000,000 principal amount of Convertible Notes.
What will I receive in the Exchange Offer if I tender my
Convertible Notes pursuant to the Exchange Offer and they are
accepted?
The Exchange Consideration offered per $1,000 principal amount
of Convertible Notes validly tendered for exchange and not
validly withdrawn on or prior to the Expiration Date consists of:
|
|
|
|
|
$417.75 in cash, |
|
|
|
100 shares of Class A Common Stock and |
|
|
|
$325.00 principal amount of CCH II Notes. |
The Exchange Offer is not conditioned on a minimum amount of
Convertible Notes being tendered. The Offerors will not accept
for exchange more than the Maximum Amount. As a result, if more
than the Maximum Amount of Convertible Notes is validly tendered
and not validly withdrawn, the Offerors will accept Convertible
Notes from each Holder pro rata, based on the total amount of
Convertible Notes validly tendered and not validly withdrawn.
Subject to applicable securities laws and the terms set forth in
this Exchange Offer, the Offerors reserve the right to amend the
Exchange Offer in any respect; however, the Offerors do not
currently intend to change the amount of Class A Common
Stock offered to more than 134 shares or less than
67 shares per $1,000 principal amount of Convertible Notes.
The CCH II Notes being offered as part of the Exchange
Consideration will be issued under a temporary CUSIP number
until the next interest payment date which is expected to be
September 15, 2006, at which time it is expected that they
will be mandatorily merged into the existing CUSIP number of
approximately $1.6 billion outstanding principal amount of
CCH II Notes.
CCH II Notes will be issued only in minimum denominations
of $1,000 and integral multiples of $1,000. See
Description of the Exchange Offer.
If the Exchange Offer is consummated and I do not fully
participate or some of my Convertible Notes are not accepted for
exchange, how will my rights and obligations under the
Convertible Notes be affected?
Convertible Notes not tendered pursuant to the Exchange Offer
will remain outstanding after the consummation of the Exchange
Offer. Holders of Convertible Notes not tendered pursuant to the
Exchange Offer will continue to have the same rights under the
Convertible Notes as they are entitled to today.
With some of the proceeds from the initial sale of the
Convertible Notes, we purchased and pledged to the trustee under
the indenture for the Convertible Notes as security for the
benefit of the Holders,
43
approximately $144 million of U.S. government
securities. These securities were pledged to provide for the
payment of the first six scheduled interest payments due on the
original principal amount of the Convertible Notes. Because we
currently intend that the Convertible Notes accepted for
exchange will not be cancelled and will be held by Charter
Holdco after the Settlement Date, you will not be entitled to
any increases in your pro rata share of the U.S. government
securities pledged as security for the Convertible Notes.
Holders are subject to certain risks associated with both
tendering or not tendering Convertible Notes pursuant to the
Exchange Offer. See Risk Factors Risks to
Continuing Holders of Convertible Notes After the Settlement
Date and Risk Factors Risks to Tendering
Holders of Convertible Notes.
How does the contribution of the CC VIII Interest to CCH I by
CCHC impact the Convertible Notes that remain outstanding?
As of October 31, 2005, as a result of Charters
settlement of a dispute with Paul G. Allen, Charters
controlling stockholder and Chairman of the Board, the interest
in CC VIII was transferred to CCHC (the remaining preferred
equity interests were retained by affiliates of Mr. Allen).
As part of the Private Exchange Offers, CCHC will contribute its
preferred equity interest in CC VIII to CCH I. The
interest in CC VIII will be pledged as security for all
outstanding CCH I notes, including those to be issued in the
Private Exchange Offers. As a result, any claim that Holders of
the Convertible Notes have against those CC VIII assets will
become subordinated to claims of the holders of CCH I notes, as
well as creditors of certain of Charters subsidiaries,
including CCHC, Charter Holdings and CIH.
What is the purpose of the Exchange Offer?
The purpose of the Exchange Offer is to exchange up to
$450,000,000 of Charters outstanding Convertible Notes to
extend maturities and reduce our overall indebtedness.
What is the market value of the Convertible Notes?
The Convertible Notes are not listed on any national securities
exchange but are eligible for trading on the PORTAL Market.
What is the recent market price of the Class A Common
Stock?
The Class A Common Stock is traded on the Nasdaq Global
Market under the symbol CHTR. The last reported sale
price of the Class A Common Stock on August 9, 2006
was $1.17 per share. Each $1,000 principal amount of Convertible
Notes is convertible into 413.2331 shares of Class A
Common Stock, which is equivalent to a conversion price of
$2.42 per share. See Price Range of Common
Stock.
For the reasons described elsewhere herein, it is likely that
the market price of the Class A Common Stock will be
especially volatile during the Exchange Offer and may be
substantially affected by the unwinding of hedging positions
that Holders of Convertible Notes had entered into in connection
with their investment in the Convertible Notes.
What is the market value of the CCH II Notes?
The CCH II Notes are not listed on any national securities
exchange but are eligible for trading on the PORTAL Market.
How does the Exchange Consideration I will receive if I
tender my Convertible Notes compare to what I would receive if I
do not tender them?
If you do not tender your Convertible Notes pursuant to the
Exchange Offer you will be entitled to receive interest payments
of 5.875% per annum, payable semi-annually in arrears on
May 16 and November 16 of each year through maturity
(November 16, 2009). In addition, prior to the maturity of
the Convertible Notes, you may elect to convert them into
Class A Common Stock. Each $1,000 principal amount of
Convertible Notes is convertible into 413.2231 shares of
Class A Common Stock, which is
44
equivalent to a conversion price of $2.42 per share. At
maturity, if you have not elected to convert your Convertible
Notes, you will be entitled to the repayment of the principal
amount of the Convertible Notes.
Because we intend that Charter Holdco will hold the Convertible
Notes accepted for exchange, Holders of Convertible Notes not
exchanged will not be entitled to any increase in the pro rata
share of these pledged securities. Instead, Charter Holdco will
receive any benefit from these U.S. government securities
on the same pro rata basis as any Holders of Convertible Notes
not exchanged. Furthermore, there can be no assurance that the
cash received by Charter Holdco as interest on the Convertible
Notes will be available to pay either principal or interest on
any Convertible Notes not exchanged.
If, however, you participate in the Exchange Offer, you will
receive the Exchange Consideration described in the previous
question and answer.
Will I receive accrued and unpaid interest from and after
May 16, 2006 to the Expiration Date?
In addition to the Exchange Consideration the Offerors will pay
accrued interest on the Convertible Notes from and after the
last interest payment date (which was May 16, 2006) up to,
but not including, the Settlement Date.
How will fluctuations in the trading price of the
Class A Common Stock and CCH II Notes affect the amount I
will receive if I tender my Convertible Notes?
You will receive a fixed number of shares of Class A Common
Stock and a fixed principal amount of CCH II Notes. If the
market price of the Class A Common Stock and/or CCH II
Notes declines, the value of the shares of Class A Common
Stock and CCH II Notes you will receive will decline.
Trading prices of the Class A Common Stock and CCH II
Notes will be influenced by our operating results and prospects
and by economic, financial, regulatory and other factors, as
well as by this Exchange Offer and/or the Private Exchange
Offer. General market conditions, including the level of, and
fluctuations in, the prices of stocks and high-yield notes, will
also have an impact. In addition, sales of substantial amounts
of the Class A Common Stock and CCH II Notes after
this Exchange Offer, or the perception that such sales may
occur, could affect the price of the Class A Common Stock
and CCH II Notes.
When will I receive the Exchange Consideration for tendering
my Convertible Notes pursuant to the Exchange Offer?
Assuming the Offerors have not previously elected to terminate
the Exchange Offer (which the Offerors can only do if a
condition to the Exchange Offer has not been satisfied, see
Description of the Exchange Offer Conditions
to the Exchange Offer), Convertible Notes validly tendered
in accordance with the procedures set forth herein prior to
11:59 p.m., New York City time, on the Expiration Date,
will, upon the terms and subject to the conditions of the
Exchange Offer, be accepted for exchange and payment by the
Offerors of the Exchange Consideration, and payments will be
made therefor promptly on the Settlement Date. The Offerors
intend to deposit the Exchange Consideration with the Exchange
Agent or return tendered Convertible Notes pursuant to the
Exchange Offer, as applicable, on the third business day
following the Expiration Date. If the Exchange Offer is not
consummated, no such exchange will occur and no payments will be
made.
In the event of a termination of the Exchange Offer, the
Convertible Notes tendered for exchange pursuant to the Exchange
Offer will be promptly returned to the tendering Holders.
Likewise, any Convertible Notes not accepted for exchange
because the Maximum Amount has been exceeded will be promptly
returned to the tendering Holders.
Will the Class A Common Stock and CCH II
Notes I receive upon tender of the Convertible Notes be
freely tradable?
Yes. Generally, the Class A Common Stock and CCH II
Notes you will receive pursuant to the Exchange Offer will be
freely tradable, unless you are an affiliate of Charter, as that
term is defined in the
45
Securities Act, or you acquired your Convertible Notes from an
affiliate of Charter in an unregistered transaction. The
Class A Common Stock will be listed on Nasdaq Global Market
under the symbol CHTR. However, the Offerors do not
intend to list the CCH II Notes on any securities exchange
or to seek approval for quotation through any automated
quotation system.
What will happen if I unwind positions relating to my hedging
of my investment in the Convertible Notes and the Exchange Offer
is not consummated?
Neither we nor our board of directors is making any
recommendation whether you should tender your Convertible Notes
in the Exchange Offer. We cannot assure you that the conditions
to this Exchange Offer will be satisfied on a timely basis, if
at all. We are making no recommendation, and bear no
responsibility, for any activities that Holders of Convertible
Notes may undertake in connection with any hedging activities
that they may have entered into in connection with their
investment in the Convertible Notes.
Are any Convertible Notes held by the officers or directors
of Charter or its subsidiaries?
No. None of our directors or executive officers beneficially
holds Convertible Notes.
However, Mr. Neil Smit, our President and Chief Executive
Officer has expressed an intention, to sell shares of
Class A Common Stock in the open market during such period
in an amount sufficient to pay a tax liability related to the
vesting of shares of Class A Common Stock. See
Management Potential Sale of Restricted Shares
by Mr. Smit.
Are Charter, the Offerors or any of their subsidiaries making
a recommendation regarding whether I should tender my
Convertible Notes pursuant to the Exchange Offer?
Neither Charter, the Offerors, their subsidiaries nor their
respective Boards of Directors has made, nor will they make a
recommendation to any Holder, and will remain neutral as to
whether you should exchange your Convertible Notes pursuant to
the Exchange Offer or unwind any hedged positions with respect
to the Convertible Notes. You must make your own investment
decision with regard to the Exchange Offer. The Offerors urge
you to carefully read this Exchange Offer Prospectus and the
related Letter of Transmittal in its entirety, including the
information set forth in the section entitled Risk
Factors.
What are the conditions to the Exchange Offer?
The Exchange Offer is subject to applicable law and the
conditions described under Description of the Exchange
Offer Conditions to the Exchange Offer,
including effectiveness of the registration statement. The
Exchange Offer is not conditioned upon any minimum principal
amount of Convertible Notes being tendered. The Offerors
currently expect that each of the conditions will be satisfied
and that no waiver of any condition will be necessary. the
Offerors do not know whether any of the conditions will be
satisfied on a timely basis, if at all, and have made no
determination of whether or not (or to what extent) that the
Offerors would waive any of the conditions to the Exchange
Offer. We have no obligation, and do not presently intend, to
extend the expiration date of the Exchange Offer beyond
September 8, 2006.
When does the Exchange Offer expire?
The Exchange Offer will expire at 11:59 p.m., New York City
time, on September 8, 2006, unless extended or earlier
terminated by the Offerors.
Under what circumstances can the Exchange Offer be extended,
amended or terminated?
The Offerors may extend or amend the Exchange Offer in its their
and absolute discretion, and the Offerors expressly reserve the
right, in their discretion and subject to
Rule 14e-l(c)
under the Exchange
46
Act, to delay acceptance of, or payment of Exchange
Consideration in respect of, Convertible Notes in order to
comply with any applicable law, however, the Offerors do not
currently intend to change the amount of Class A Common
Stock offered to more than 134 shares or less than
67 shares per $1,000 principal amount of Convertible Notes.
In addition, the Offerors may terminate the Exchange Offer if
any one or more of the conditions to the Exchange Offer is not
satisfied, but in no other circumstance. See Description
of the Exchange Offer Conditions to the Exchange
Offer. We do not currently intend to extend the Expiration
Date beyond September 8, 2006.
How will I be notified if the Exchange Offer is extended,
amended or terminated?
Any extension, amendment or termination of the Exchange Offer
will be followed promptly by public announcement thereof, the
announcement in the case of an extension of the Exchange Offer
to be issued no later than 9:00 a.m., New York City time,
on the next business day after the previously scheduled
Expiration Date.
Without limiting the manner in which any public announcement may
be made, the Offerors shall have no obligation to publish,
advertise or otherwise communicate any such public announcement
other than by issuing a release to the Dow Jones News Service.
What risks should I consider in deciding whether or not to
tender my Convertible Notes pursuant to the Exchange Offer?
In deciding whether to participate in the Exchange Offer, you
should carefully consider the discussion of risks and
uncertainties described under Recent Events and
Risk Factors herein.
What are the material United States federal income tax
consequences of the Exchange Offer?
For a summary of the material U.S. federal income tax
consequences of the Exchange Offer, see Certain U.S.
Federal Income Tax Consequences.
Will Charter, the Offerors or any of their subsidiaries
receive any proceeds from the Exchange Offer?
No.
How do I tender my Convertible Notes pursuant to the Exchange
Offer?
If your Convertible Notes are held in the name of a broker,
dealer or other nominee, the Convertible Notes may be tendered
by your nominee through DTC. If your Convertible Notes are not
held in the name of a broker, dealer or other nominee, you must
tender your Convertible Notes together with a completed Letter
of Transmittal and any other documents required thereby or
hereby, to the Exchange Agent, no later than 11:59 p.m. New
York City time, on the Expiration Date. For more information
regarding the procedures for tendering your Convertible Notes
pursuant to the Exchange Offer. See Description of the
Exchange Offer Procedures for Tendering Convertible
Notes.
May I tender only a portion of the Convertible Notes that I
hold?
Yes. You do not have to tender all of your Convertible Notes to
participate in the Exchange Offer. However, you may only tender
Convertible Notes in integral multiples of $1,000 principal
amount.
What happens if some of my Convertible Notes are not accepted
for exchange?
The Offerors will not accept for exchange more than $450,000,000
principal amount of Convertible Notes, which is the Maximum
Amount. As a result, if more than the Maximum Amount of
Convertible Notes is validly tendered and not validly withdrawn,
the Offerors will accept Convertible Notes from each Holder pro
rata, based on the total principal amount of Convertible Notes
validly tendered and not validly withdrawn. Any Convertible
Notes not accepted for exchange because the Maximum Amount has
been exceeded will be promptly returned to the tendering Holders.
47
What is the deadline and what are the procedures for
withdrawing previously tendered Convertible Notes?
Convertible Notes previously tendered may be withdrawn at any
time up until 11:59 p.m. New York City time, on the
Expiration Date. For a withdrawal of tendered Convertible Notes
to be effective, a written, telegraphic or facsimile
transmission with all the information required must be received
by the Exchange Agent on or prior to 11:59 p.m. New York
City time, on the Expiration Date at its address set forth on
the back cover of this Exchange Offer Prospectus. See
Description of the Exchange Offer Withdrawal
of Tendered Convertible Notes.
Who do I call if I have any questions on how to tender my
Convertible Notes or any other questions relating to the
Exchange Offer?
Any requests for assistance in connection with the Exchange
Offer or for additional copies of this Exchange Offer Prospectus
or related materials should be directed to the Information
Agent. Any questions regarding the Exchange Offer should be
directed to either of the Dealer Managers. Contact information
for the Information Agent and the Dealer Managers is set forth
on the back cover of this Exchange Offer Prospectus. Beneficial
owners may also contact their brokers, dealers, commercial
banks, trust companies or other nominees through which they hold
the Convertible Notes with questions and requests for assistance.
48
PRICE RANGE OF COMMON STOCK
The Class A Common Stock is quoted on the Nasdaq Global
Market under the symbol CHTR. The following table
sets forth, for the periods indicated, the range of high and low
last reported sale price per share of Class A Common Stock
on the Nasdaq Global Market. There is no established trading
market for the Class B common stock.
|
|
|
|
|
|
|
|
|
|
|
High | |
|
Low | |
|
|
| |
|
| |
2004
|
|
|
|
|
|
|
|
|
First quarter
|
|
$ |
5.43 |
|
|
$ |
3.99 |
|
Second quarter
|
|
|
4.70 |
|
|
|
3.61 |
|
Third quarter
|
|
|
3.90 |
|
|
|
2.61 |
|
Fourth quarter
|
|
|
3.01 |
|
|
|
2.03 |
|
2005
|
|
|
|
|
|
|
|
|
First quarter
|
|
$ |
2.30 |
|
|
$ |
1.35 |
|
Second quarter
|
|
|
1.53 |
|
|
|
0.90 |
|
Third quarter
|
|
|
1.71 |
|
|
|
1.14 |
|
Fourth quarter
|
|
|
1.50 |
|
|
|
1.12 |
|
2006
|
|
|
|
|
|
|
|
|
First quarter
|
|
$ |
1.25 |
|
|
$ |
0.94 |
|
Second quarter
|
|
|
1.38 |
|
|
|
1.03 |
|
Third quarter through August 9, 2006
|
|
|
1.32 |
|
|
|
1.11 |
|
As of June 30, 2006, there were 4,424 holders of record of
the Class A Common Stock, one holder of the Class B
common stock and 4 holders of record of Charters
Series A Convertible Redeemable Preferred Stock.
The last reported sale price of the Class A Common Stock on
the Nasdaq Global Market on August 9, 2006 was $1.17 per
share.
We have never paid and do not expect to pay any cash dividends
on the Class A Common Stock in the foreseeable future.
Charter Holdco is required under certain circumstances to pay
distributions pro rata to all its common members to the extent
necessary for any common member to pay taxes incurred with
respect to its share of taxable income attributed to Charter
Holdco. Covenants in the indentures and credit agreements
governing the debt of our subsidiaries restrict their ability to
make distributions to us and, accordingly, limit our ability to
declare or pay cash dividends. We intend to cause Charter Holdco
and its subsidiaries to retain future earnings, if any, to
finance the operation of the business of Charter Holdco and its
subsidiaries.
BOOK VALUE PER COMMON SHARE
The book value per share of Class A Common Stock as of
June 30, 2006 was $(13.14).
USE OF PROCEEDS
None of Charter, CCHC, CCH II or any of their subsidiaries
will receive any proceeds from the Exchange Offer.
49
CAPITALIZATION
Capitalization of Charter and its Subsidiaries.
The following table sets forth, as of June 30, 2006, on a
consolidated basis:
|
|
|
|
|
cash and cash equivalents of Charter; |
|
|
|
the actual (historical) capitalization of Charter; |
|
|
|
the actual as adjusted capitalization of Charter after giving
effect to: |
|
|
|
|
(1) |
the completed and scheduled disposition of certain assets for
total proceeds of $971 million and the temporary use of
such proceeds to reduce amounts outstanding under our revolving
credit facility; and |
|
|
(2) |
the Private Exchange Offers Pro Forma Adjustments. |
|
|
|
|
|
the capitalization of Charter, on a pro forma basis to reflect
the Private Exchange Offers Pro Forma Adjustments and the
Exchange Offer Pro Forma Adjustments. |
The following information should be read in conjunction with
Selected Historical Consolidated Financial Data,
Unaudited Pro Forma Consolidated Financials,
Managements Discussion and Analysis of Financial
Condition and Results of Operations of Charter and the
historical consolidated financial statements and related notes
of Charter included elsewhere in this Exchange Offer Prospectus.
We use a 50% participation rate for illustrative purposes only
and cannot assure you that we will achieve a participation rate
at or near that percentage or to what extent the Convertible
Notes or Charter Holdings notes will be tendered. This table
should be read in conjunction with the Summary
Summary Consolidated Financial Data and the historical
consolidated financial statements of Charter and CCH II
included elsewhere in this Exchange Offer Prospectus. The
financial data is not intended to provide any indication of what
our actual financial position, including actual cash balances
and revolver borrowings, or results 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2006 | |
|
|
| |
|
|
|
|
As | |
|
|
|
|
Actual | |
|
Adjusted | |
|
Pro Forma | |
|
|
| |
|
| |
|
| |
|
|
(Dollars in millions, unaudited) | |
Cash and cash equivalents
|
|
$ |
56 |
|
|
$ |
175 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charter Communications, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.875% convertible senior notes due 2009
|
|
|
848 |
|
|
|
848 |
|
|
|
424 |
|
|
Charter Communications Holdings, LLC:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior and senior discount notes(a)
|
|
|
1,757 |
|
|
|
931 |
|
|
|
931 |
|
|
CCH I Holdings, LLC:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior and senior discount notes(b)(c)
|
|
|
2,520 |
|
|
|
2,520 |
|
|
|
2,520 |
|
|
CCH I, LLC:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11.000% senior notes due 2015
|
|
|
3,678 |
|
|
|
4,174 |
|
|
|
4,174 |
|
|
CCH II, LLC:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.250% senior notes due 2010
|
|
|
2,042 |
|
|
|
2,247 |
|
|
|
2,389 |
|
|
CCO Holdings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83/4
% senior notes due 2013
|
|
|
795 |
|
|
|
795 |
|
|
|
795 |
|
|
|
Senior floating rate notes due 2010
|
|
|
550 |
|
|
|
550 |
|
|
|
550 |
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2006 | |
|
|
| |
|
|
|
|
As | |
|
|
|
|
Actual | |
|
Adjusted | |
|
Pro Forma | |
|
|
| |
|
| |
|
| |
|
|
(Dollars in millions, unaudited) | |
|
Charter Operating:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.000% senior second lien notes due 2012
|
|
|
1,100 |
|
|
|
1,100 |
|
|
|
1,100 |
|
|
|
83/8
% senior second lien notes due 2014
|
|
|
770 |
|
|
|
770 |
|
|
|
770 |
|
Credit Facilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charter Operating(d)
|
|
|
5,800 |
|
|
|
5,000 |
|
|
|
5,015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
19,860 |
|
|
|
18,935 |
|
|
|
18,668 |
|
|
|
|
|
|
|
|
|
|
|
Note Payable Related Party(e)
|
|
|
53 |
|
|
|
53 |
|
|
|
53 |
|
|
|
|
|
|
|
|
|
|
|
Preferred stock redeemable(f)
|
|
|
4 |
|
|
|
4 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
Minority Interest(g)
|
|
|
189 |
|
|
|
189 |
|
|
|
189 |
|
|
|
|
|
|
|
|
|
|
|
Shareholders Deficit
|
|
|
(5,762 |
) |
|
|
(5,444 |
) |
|
|
(5,359 |
) |
|
|
|
|
|
|
|
|
|
|
Total Capitalization
|
|
$ |
14,344 |
|
|
$ |
13,737 |
|
|
$ |
13,555 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Represents the following Charter Holdings notes: |
|
|
|
|
|
|
|
|
As of June 30, 2006 | |
|
|
| |
|
|
(Dollars in millions) | |
8.250% senior notes due 2007
|
|
$ |
105 |
|
8.625% senior notes due 2009
|
|
|
292 |
|
9.920% senior discount notes due 2011
|
|
|
198 |
|
10.000% senior notes due 2009
|
|
|
154 |
|
10.250% senior notes due 2010
|
|
|
49 |
|
11.750% senior discount notes due 2010
|
|
|
43 |
|
10.750% senior notes due 2009
|
|
|
131 |
|
11.125% senior notes due 2011
|
|
|
217 |
|
13.500% senior discount notes due 2011
|
|
|
94 |
|
9.625% senior notes due 2009
|
|
|
107 |
|
10.000% senior notes due 2011
|
|
|
136 |
|
11.750% senior discount notes due 2011
|
|
|
125 |
|
12.125% senior discount notes due 2012
|
|
|
106 |
|
|
|
|
|
|
Total
|
|
$ |
1,757 |
|
|
|
|
|
|
|
|
(b) |
|
Represents the following CIH notes: |
|
|
|
|
|
|
|
|
As of June 30, 2006 | |
|
|
| |
|
|
(Dollars in millions) | |
11.125% senior notes due 2014
|
|
$ |
151 |
|
9.920% senior discount notes due 2014
|
|
|
471 |
|
10.000% senior notes due 2014
|
|
|
299 |
|
11.750% senior discount notes due 2014
|
|
|
815 |
|
13.500% senior discount notes due 2014
|
|
|
581 |
|
12.125% senior discount notes due 2015
|
|
|
203 |
|
|
|
|
|
|
Total
|
|
$ |
2,520 |
|
|
|
|
|
|
|
|
(c) |
|
Certain of the CIH notes and CCH I notes issued in exchange for
Charter Holdings notes in 2005 and certain of the CCH I
notes and CCH II notes to be issued in the Private Exchange
Offers are |
51
|
|
|
|
|
recorded at the historical book values of the Charter Holdings
notes for financial reporting purposes as opposed to the current
accreted value for 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
June 30, 2006, the accreted value of Charters debt
for legal purposes and notes indenture purposes is approximately
$19.4 billion. |
|
(d) |
|
As of June 30, 2006, our potential availability under our
credit facilities totaled approximately $900 million, none
of which was limited by covenant restrictions. However, pro
forma for the closing of the asset sales on July 1, 2006,
and the related application of net proceeds to repay amounts
outstanding under our revolving credit facility, potential
availability under our credit facilities as of June 30,
2006 would have been approximately $1.7 billion, although
actual availability would have been limited to $1.3 billion
because of limits imposed by covenant restrictions. |
|
(e) |
|
Represents an exchangeable accreting note issued by CCHC in
relation to the CC VIII settlement. See Certain
Relationships and Related Party Transactions
Transactions Arising Out of Our Organizational Structure and
Mr. Allens Investment in Charter and Its
Subsidiaries Equity Put Rights CC
VIII. |
|
(f) |
|
In connection with Charters acquisition of Cable USA, Inc.
and certain cable system assets from affiliates of Cable USA,
Inc., Charter issued 545,259 shares of Series A
Convertible Redeemable Preferred Stock valued at and with a
liquidation preference of $55 million. Holders of the
preferred stock have no voting rights but are entitled to
receive cumulative cash dividends at an annual rate of 5.75%,
payable quarterly or 7.75% if not paid but accrued. Beginning
January 1, 2005 and through September 30, 2005,
Charter accrued the dividend on its Series A Convertible
Redeemable Preferred Stock. The preferred stock is redeemable by
Charter at its option on or after August 31, 2004 and must
be redeemed by Charter at any time upon a change of control, or
if not previously redeemed or converted, on August 31,
2008. In November 2005, we repurchased 508,546 shares of
the preferred stock. The preferred stock is convertible, in
whole or in part, at the option of the holders from
April 1, 2002 through August 31, 2008, into shares of
Class A common stock at an initial conversion rate equal to
a conversion price of $24.71 per share of Class A
common stock, subject to certain customary adjustments. |
|
(g) |
|
Minority interest represents 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 Party Transactions
Transactions Arising Out of Our Organizational Structure and
Mr. Allens Investment in Charter and Its
Subsidiaries Equity Put Rights CC
VIII. |
52
Capitalization of CCH II and its Subsidiaries.
The following table sets forth, as of June 30, 2006, on a
consolidated basis:
|
|
|
|
|
cash and cash equivalents of CCH II; |
|
|
|
the actual (historical) capitalization CCH II; |
|
|
|
the actual as adjusted capitalization of CCH II after
giving effect to: |
|
|
|
|
(1) |
the completed and scheduled disposition of certain assets for
total proceeds of $971 million and the temporary use of
such proceeds to reduce amounts outstanding under our revolving
credit facility; and |
|
|
(2) |
the Private Exchange Offers Pro Forma Adjustments. |
|
|
|
|
|
the capitalization of CCH II, on a pro forma basis to
reflect the Private Exchange Offers Pro Forma Adjustments
and the Exchange Offer Pro Forma Adjustments. |
The following information should be read in conjunction with
Selected Historical Consolidated Financial Data,
Unaudited Pro Forma Consolidated Financials,
Managements Discussion and Analysis of Financial
Condition and Results of Operations of CCH II, LLC
and the historical consolidated financial statements and related
notes of CCH II included elsewhere in this Exchange Offer
Prospectus.
We use a 50% participation rate for illustrative purposes only
and cannot assure you that we will achieve a participation rate
at or near that percentage or to what extent the Convertible
Notes or Charter Holdings note will be tendered. This table
should be read in conjunction with the Summary
Summary Consolidated Financial Data and the historical
consolidated financial statements of Charter and CCH II
included elsewhere in this Exchange Offer Prospectus. The
financial data is not intended to provide any indication of what
our actual financial position, including actual cash balances
and revolver borrowings, or results 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2006 | |
|
|
| |
|
|
Actual | |
|
As Adjusted | |
|
Pro Forma | |
|
|
| |
|
| |
|
| |
|
|
(Dollars in millions, unaudited) | |
Cash and cash equivalents
|
|
$ |
44 |
|
|
$ |
170 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CCH II, LLC:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.250% senior notes due 2010
|
|
|
2,042 |
|
|
|
2,247 |
|
|
|
2,389 |
|
|
CCO Holdings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83/4
% senior notes due 2013
|
|
|
795 |
|
|
|
795 |
|
|
|
795 |
|
|
|
Senior floating rate notes due 2010
|
|
|
550 |
|
|
|
550 |
|
|
|
550 |
|
|
Charter Operating:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.000% senior second lien notes due 2012
|
|
|
1,100 |
|
|
|
1,100 |
|
|
|
1,100 |
|
|
|
83/8
% senior second lien notes due 2014
|
|
|
770 |
|
|
|
770 |
|
|
|
770 |
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2006 | |
|
|
| |
|
|
Actual | |
|
As Adjusted | |
|
Pro Forma | |
|
|
| |
|
| |
|
| |
|
|
(Dollars in millions, unaudited) | |
Credit Facilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charter Operating(a)
|
|
|
5,800 |
|
|
|
5,000 |
|
|
|
5,015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
11,057 |
|
|
|
10,462 |
|
|
|
10,619 |
|
|
|
|
|
|
|
|
|
|
|
Loans Payable Related Party
|
|
|
109 |
|
|
|
109 |
|
|
|
109 |
|
|
|
|
|
|
|
|
|
|
|
Minority Interest(b)
|
|
|
631 |
|
|
|
631 |
|
|
|
631 |
|
|
|
|
|
|
|
|
|
|
|
Members Equity
|
|
|
2,648 |
|
|
|
2,621 |
|
|
|
2,301 |
|
|
|
|
|
|
|
|
|
|
|
Total Capitalization
|
|
$ |
14,445 |
|
|
$ |
13,823 |
|
|
$ |
13,660 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
As of June 30, 2006, our potential availability under our
credit facilities totaled approximately $900 million, none
of which was limited by covenant restrictions. However, pro
forma for the closing of the asset sales on July 1, 2006,
and the related application of net proceeds to repay amounts
outstanding under our revolving credit facility, potential
availability under our credit facilities as of June 30,
2006 would have been approximately $1.7 billion, although
actual availability would have been limited to $1.3 billion
because of limits imposed by covenant restrictions. |
|
(b) |
|
Minority interest consists of preferred membership interests in
CC VIII. This preferred interest arises from approximately
$630 million of preferred membership units issued by
CC VIII in connection with an acquisition in February 2000
and was the subject of a dispute between Charter and
Mr. Allen, Charters Chairman and controlling
shareholder that was settled October 31, 2005. See
Certain Relationships and Related Party
Transactions Transactions Arising Out of Our
Organizational Structure and Mr. Allens Investment in
Charter and Its Subsidiaries Equity Put
Rights CC VIII. |
54
UNAUDITED PRO FORMA CONSOLIDATED FINANCIALS
The following unaudited pro forma consolidated financial
statements are based on the historical consolidated financial
statements of Charter and CCH II, adjusted to reflect the
following transactions as if they occurred on January 1,
2005 for the unaudited pro forma consolidated statements of
operations and as of June 30, 2006 for the unaudited
consolidated balance sheets:
|
|
|
(1) the redemption in March 2005 of all (approximately
$113 million principal amount) of CC V Holdings,
LLCs outstanding 11.875% senior discount notes due
2008 with cash on hand; |
|
|
(2) the issuance and sale of $300 million of
83/4
% CCO Holdings senior notes in August 2005 and the use of
a portion of such proceeds to pay financing costs and accrued
interest in the September 2005 exchange transaction
referenced below; |
|
|
(3) the exchange in September 2005 of approximately
$3.4 billion principal amount of Charter Holdings
notes scheduled to mature in 2009 and 2010 for CCH I notes
and the exchange of approximately $3.4 billion principal
amount of Charter Holdings notes scheduled to mature in
2011 and 2012 for CIH notes and CCH I notes; |
|
|
(4) the issuance and sale of $450 million principal
amount of 10.250% CCH II senior notes in January 2006 and
the use of such proceeds to pay down credit facilities. |
|
|
(5) the refinancing of the Charter Operating credit
facilities in April 2006 and the related reductions in interest
rate margins on the term loan; |
|
|
(6) the acquisition of certain assets in January 2006 for
approximately $42 million; |
|
|
(7) the completed and scheduled disposition of certain
assets for total proceeds of $971 million and the use of
such proceeds to reduce amounts outstanding under our revolving
credit facility; |
|
|
(8) the issuance of $200 million principal amount of
CCH II 2013 notes and $530 million principal
amount of CCH I notes in exchange for 50% of the
outstanding Charter Holdings notes of each outstanding
series pursuant to the Private Exchange Offers (the
Private Exchange Offers Pro Forma Adjustments); and |
|
|
(9) the issuance of $140 million principal amount of
CCH II Notes, 43 million shares of Class A
Common Stock and the use of $180 million in cash in
exchange for 50% of the outstanding Convertible Notes pursuant
to the Exchange Offer (the Exchange Offer Pro Forma
Adjustments). |
The unaudited pro forma adjustments are based on information
available to us as of the date of this Exchange Offer Prospectus
and certain assumptions that we believe are reasonable under the
circumstances. The unaudited pro forma consolidated financial
statements required allocation of certain revenues and expenses
and such information has been presented for comparative purposes
and is not intended to provide any indication of what our actual
financial position, including actual cash balances and revolver
borrowings, or results of operations would have been had the
transactions described above been completed on the dates
indicated or to project our results of operations for any future
date.
55
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
Unaudited Pro Forma Consolidated Statement of Operations
For the Six Months Ended June 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private | |
|
|
|
|
|
|
|
|
|
|
Acquisition/ | |
|
Prior Financing | |
|
Exchange | |
|
|
|
Exchange | |
|
|
|
|
Historical | |
|
Dispositions(a) | |
|
Transactions(b) | |
|
Offers(c) | |
|
As Adjusted | |
|
Offer(d) | |
|
Pro Forma | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Video
|
|
$ |
1,684 |
|
|
$ |
(29 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
1,655 |
|
|
$ |
|
|
|
$ |
1,655 |
|
|
High-speed Internet
|
|
|
506 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
499 |
|
|
|
|
|
|
|
499 |
|
|
Telephone
|
|
|
49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49 |
|
|
|
|
|
|
|
49 |
|
|
Advertising sales
|
|
|
147 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
145 |
|
|
|
|
|
|
|
145 |
|
|
Commercial
|
|
|
149 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
145 |
|
|
|
|
|
|
|
145 |
|
|
Other
|
|
|
168 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
165 |
|
|
|
|
|
|
|
165 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,703 |
|
|
|
(45 |
) |
|
|
|
|
|
|
|
|
|
|
2,658 |
|
|
|
|
|
|
|
2,658 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS AND EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (excluding depreciation and amortization)
|
|
|
1,215 |
|
|
|
(24 |
) |
|
|
|
|
|
|
|
|
|
|
1,191 |
|
|
|
|
|
|
|
1,191 |
|
|
Selling, general and administrative
|
|
|
551 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
544 |
|
|
|
|
|
|
|
544 |
|
|
Depreciation and amortization
|
|
|
690 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
685 |
|
|
|
|
|
|
|
685 |
|
|
Asset impairment charges
|
|
|
99 |
|
|
|
(99 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating expenses, net
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10 |
|
|
|
|
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,565 |
|
|
|
(135 |
) |
|
|
|
|
|
|
|
|
|
|
2,430 |
|
|
|
|
|
|
|
2,430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income from continuing operations
|
|
|
138 |
|
|
|
90 |
|
|
|
|
|
|
|
|
|
|
|
228 |
|
|
|
|
|
|
|
228 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(943 |
) |
|
|
26 |
|
|
|
7 |
|
|
|
4 |
|
|
|
(906 |
) |
|
|
10 |
|
|
|
(896 |
) |
|
Other income (expense), net
|
|
|
(10 |
) |
|
|
|
|
|
|
27 |
|
|
|
|
|
|
|
17 |
|
|
|
|
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(953 |
) |
|
|
26 |
|
|
|
34 |
|
|
|
4 |
|
|
|
(889 |
) |
|
|
10 |
|
|
|
(879 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes
|
|
|
(815 |
) |
|
|
116 |
|
|
|
34 |
|
|
|
4 |
|
|
|
(661 |
) |
|
|
10 |
|
|
|
(651 |
) |
INCOME TAX EXPENSE
|
|
|
(60 |
) |
|
|
(19 |
) |
|
|
|
|
|
|
|
|
|
|
(79 |
) |
|
|
|
|
|
|
(79 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
$ |
(875 |
) |
|
$ |
97 |
|
|
$ |
34 |
|
|
$ |
4 |
|
|
$ |
(740 |
) |
|
$ |
10 |
|
|
$ |
(730 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations per common share, basic and
diluted
|
|
$ |
(2.76 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(2.33 |
) |
|
|
|
|
|
$ |
(2.02 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, basic
and diluted
|
|
|
317,531,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
317,531,492 |
|
|
|
43,125,000 |
|
|
|
360,656,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Represents the elimination of operating results related to the
disposition of certain cable systems in July 2006 and the
announced disposition of certain cable systems scheduled to
close in the third quarter of 2006 as discussed in
assumption (7). |
|
(b) |
|
Represents the adjustment to interest expense associated with
the completion of the financing transactions discussed in
assumptions (4) and (5) (in millions): |
|
|
|
|
|
Reduction in interest expense on the April 2006 refinancing of
Charter Operating credit facilities
|
|
$ |
(9 |
) |
Interest on $450 million principal amount of CCH II
10.250% senior notes issued in January 2006
|
|
|
2 |
|
|
|
|
|
Net decrease in interest expense
|
|
$ |
(7 |
) |
|
|
|
|
|
|
|
|
|
Adjustment to other income (expense), net represents the
elimination of the write-off of deferred financing fees and
third party costs related to the Charter Operating refinancing
in April 2006. |
56
|
|
|
(c) |
|
Represents the adjustment to interest expense associated with
the Private Exchange Offers Pro Forma Adjustments (in millions): |
|
|
|
|
|
|
|
|
|
Interest on new CCH I and CCH II senior notes issued
in August 2006
|
|
$ |
41 |
|
|
|
|
|
Amortization of deferred gain and deferred financing costs
|
|
|
(2 |
) |
|
|
|
|
Historical interest expense on Charter Holdings and CIH notes
exchanged for new CCH I and CCH II notes
|
|
|
(43 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net decrease in interest expense
|
|
|
|
|
|
$ |
(4 |
) |
|
|
|
|
|
|
|
|
|
|
(d) |
|
Represents the adjustment to interest expense associated with
the Exchange Offer Pro Forma Adjustments (in millions): |
|
|
|
|
|
|
|
|
|
Interest on new CCH II senior notes issued in August 2006
|
|
$ |
7 |
|
|
|
|
|
Historical interest expense on Charter convertible notes
|
|
|
(15 |
) |
|
|
|
|
Amortization of deferred financing costs
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net decrease in interest expense
|
|
|
|
|
|
$ |
(10 |
) |
|
|
|
|
|
|
|
57
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
Unaudited Pro Forma Consolidated Statement of Operations
For the Year Ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private | |
|
|
|
|
|
|
|
|
|
|
Acquisition/ | |
|
Prior Financing | |
|
Exchange | |
|
|
|
Exchange | |
|
|
|
|
Historical | |
|
Dispositions(a) | |
|
Transactions(b) | |
|
Offers(c) | |
|
As Adjusted | |
|
Offer(d) | |
|
Pro Forma | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Video
|
|
$ |
3,248 |
|
|
$ |
(53 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
3,195 |
|
|
$ |
|
|
|
$ |
3,195 |
|
|
High-speed Internet
|
|
|
875 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
868 |
|
|
|
|
|
|
|
868 |
|
|
Telephone
|
|
|
36 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
41 |
|
|
|
|
|
|
|
41 |
|
|
Advertising sales
|
|
|
284 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
280 |
|
|
|
|
|
|
|
280 |
|
|
Commercial
|
|
|
266 |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
260 |
|
|
|
|
|
|
|
260 |
|
|
Other
|
|
|
324 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
319 |
|
|
|
|
|
|
|
319 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,033 |
|
|
|
(70 |
) |
|
|
|
|
|
|
|
|
|
|
4,963 |
|
|
|
|
|
|
|
4,963 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS AND EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (excluding depreciation and amortization)
|
|
|
2,203 |
|
|
|
(31 |
) |
|
|
|
|
|
|
|
|
|
|
2,172 |
|
|
|
|
|
|
|
2,172 |
|
|
Selling, general and administrative
|
|
|
1,012 |
|
|
|
(9 |
) |
|
|
|
|
|
|
|
|
|
|
1,003 |
|
|
|
|
|
|
|
1,003 |
|
|
Depreciation and amortization
|
|
|
1,443 |
|
|
|
(11 |
) |
|
|
|
|
|
|
|
|
|
|
1,432 |
|
|
|
|
|
|
|
1,432 |
|
|
Asset impairment charges
|
|
|
39 |
|
|
|
(39 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating expenses, net
|
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32 |
|
|
|
|
|
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,729 |
|
|
|
(90 |
) |
|
|
|
|
|
|
|
|
|
|
4,639 |
|
|
|
|
|
|
|
4,639 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income from continuing operations
|
|
|
304 |
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
324 |
|
|
|
|
|
|
|
324 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(1,789 |
) |
|
|
34 |
|
|
|
40 |
|
|
|
8 |
|
|
|
(1,707 |
) |
|
|
20 |
|
|
|
(1,687 |
) |
|
Other income (expense), net
|
|
|
594 |
|
|
|
|
|
|
|
(485 |
) |
|
|
|
|
|
|
109 |
|
|
|
|
|
|
|
109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,195 |
) |
|
|
34 |
|
|
|
(445 |
) |
|
|
8 |
|
|
|
(1,598 |
) |
|
|
20 |
|
|
|
(1,578 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes
|
|
|
(891 |
) |
|
|
54 |
|
|
|
(445 |
) |
|
|
8 |
|
|
|
(1,274 |
) |
|
|
20 |
|
|
|
(1,254 |
) |
INCOME TAX EXPENSE
|
|
|
(112 |
) |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
(110 |
) |
|
|
|
|
|
|
(110 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
$ |
(1,003 |
) |
|
$ |
56 |
|
|
$ |
(445 |
) |
|
$ |
8 |
|
|
$ |
(1,384 |
) |
|
$ |
20 |
|
|
$ |
(1,364 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations per common share, basic and
diluted
|
|
$ |
(3.24 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(4.47 |
) |
|
|
|
|
|
$ |
(3.87 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, basic
and diluted
|
|
|
310,159,047 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
310,159,047 |
|
|
|
43,125,000 |
|
|
|
353,284,047 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Represents the elimination of operating results related to the
disposition of certain cable systems in July 2005, July 2006 and
the announced disposition of certain cable systems scheduled to
close in the third quarter of 2006 and the inclusion of
operating results related to the acquisition of certain cable
systems in January 2006 as discussed in assumptions (6) and (7). |
|
(b) |
|
Represents the adjustment to interest expense associated with
the completion of the financing transactions discussed in
assumptions (1) through (5) (in millions): |
|
|
|
|
|
|
|
|
|
Reduction in interest expense on the Charter Operating
refinancing in April 2006
|
|
|
|
|
|
$ |
(26 |
) |
Interest on $450 million principal amount of CCH II
10.250% senior notes issued in January 2006
|
|
|
48 |
|
|
|
|
|
Amortization of deferred financing costs
|
|
|
2 |
|
|
|
|
|
Historical interest expense for Charter Operatings
revolving credit facility
|
|
|
(32 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18 |
|
58
|
|
|
|
|
|
|
|
|
Interest on new CCH I notes issued in September 2005 in
exchange for CCH notes
|
|
|
279 |
|
|
|
|
|
Amortization of deferred financing costs
|
|
|
5 |
|
|
|
|
|
Historical interest expense on CCH notes exchanged for
CCH I notes
|
|
|
(327 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(43 |
) |
Interest on $300 million of CCO Holdings
83/4
% senior notes issued in August 2005
|
|
|
16 |
|
|
|
|
|
Amortization of deferred financing costs
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17 |
|
Historical interest expense on Charter Operatings
revolving credit facility repaid with cash on hand in February
2005
|
|
|
|
|
|
|
(3 |
) |
Historical interest expense on CC V Holdings, LLC
8.75% senior discount notes repaid with cash on hand in
March 2005
|
|
|
|
|
|
|
(3 |
) |
|
|
|
|
|
|
|
Net decrease in interest expense
|
|
|
|
|
|
$ |
(40 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment to other income (expense), net represents the
elimination of gains related to the exchange of Charter Holdings
notes for CCH I and CIH notes issued in September 2005 and
the elimination of losses related to the redemption of CC V
Holdings, LLC 11.875% notes due 2008. |
|
(c) |
|
Represents the adjustment to interest expense associated with
the Private Exchange Offers Pro Forma Adjustments (in millions): |
|
|
|
|
|
|
|
|
|
Interest on new CCH I and CCH II senior notes issued
in August 2006
|
|
$ |
81 |
|
|
|
|
|
Amortization of deferred gain and deferred financing costs
|
|
|
(3 |
) |
|
|
|
|
Historical interest expense on Charter Holdings and CIH notes
exchanged for new CCH I and CCH II notes
|
|
|
(86 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net decrease in interest expense
|
|
|
|
|
|
$ |
(8 |
) |
|
|
|
|
|
|
|
|
|
|
(d) |
|
Represents the adjustment to interest expense associated with
the Exchange Offer Pro Forma Adjustments (in millions): |
|
|
|
|
|
|
|
|
|
Interest on new CCH II senior notes issued in August 2006
|
|
$ |
14 |
|
|
|
|
|
Historical interest expense on Charter convertible notes
|
|
|
(30 |
) |
|
|
|
|
Amortization of deferred financing costs
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net decrease in interest expense
|
|
|
|
|
|
$ |
(20 |
) |
|
|
|
|
|
|
|
59
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
Unaudited Pro Forma Consolidated Statement of Operations
For the Six Months Ended June 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private | |
|
|
|
|
|
|
|
|
|
|
Acquisition/ | |
|
Prior Financing | |
|
Exchange | |
|
|
|
Exchange | |
|
|
|
|
Historical | |
|
Dispositions(a) | |
|
Transactions(b) | |
|
Offers(c) | |
|
As Adjusted | |
|
Offer(d) | |
|
Pro Forma | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Video
|
|
$ |
1,623 |
|
|
$ |
(27 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
1,596 |
|
|
$ |
|
|
|
$ |
1,596 |
|
|
High-speed Internet
|
|
|
425 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
422 |
|
|
|
|
|
|
|
422 |
|
|
Telephone
|
|
|
14 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
17 |
|
|
|
|
|
|
|
17 |
|
|
Advertising sales
|
|
|
135 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
133 |
|
|
|
|
|
|
|
133 |
|
|
Commercial
|
|
|
128 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
125 |
|
|
|
|
|
|
|
125 |
|
|
Other
|
|
|
156 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
153 |
|
|
|
|
|
|
|
153 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,481 |
|
|
|
(35 |
) |
|
|
|
|
|
|
|
|
|
|
2,446 |
|
|
|
|
|
|
|
2,446 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS AND EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (excluding depreciation and amortization)
|
|
|
1,081 |
|
|
|
(15 |
) |
|
|
|
|
|
|
|
|
|
|
1,066 |
|
|
|
|
|
|
|
1,066 |
|
|
Selling, general and administrative
|
|
|
483 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
476 |
|
|
|
|
|
|
|
476 |
|
|
Depreciation and amortization
|
|
|
730 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
730 |
|
|
|
|
|
|
|
730 |
|
|
Asset impairment charges
|
|
|
39 |
|
|
|
(39 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating expenses, net
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,339 |
|
|
|
(61 |
) |
|
|
|
|
|
|
|
|
|
|
2,278 |
|
|
|
|
|
|
|
2,278 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income from continuing operations
|
|
|
142 |
|
|
|
26 |
|
|
|
|
|
|
|
|
|
|
|
168 |
|
|
|
|
|
|
|
168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(871 |
) |
|
|
11 |
|
|
|
23 |
|
|
|
4 |
|
|
|
(833 |
) |
|
|
10 |
|
|
|
(823 |
) |
|
Other income, net
|
|
|
49 |
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
54 |
|
|
|
|
|
|
|
54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(822 |
) |
|
|
11 |
|
|
|
28 |
|
|
|
4 |
|
|
|
(779 |
) |
|
|
10 |
|
|
|
(769 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes
|
|
|
(680 |
) |
|
|
37 |
|
|
|
28 |
|
|
|
4 |
|
|
|
(611 |
) |
|
|
10 |
|
|
|
(601 |
) |
INCOME TAX EXPENSE
|
|
|
(56 |
) |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
(55 |
) |
|
|
|
|
|
|
(55 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
$ |
(736 |
) |
|
$ |
38 |
|
|
$ |
28 |
|
|
$ |
4 |
|
|
$ |
(666 |
) |
|
$ |
10 |
|
|
$ |
(656 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations per common share, basic and
diluted
|
|
$ |
(2.43 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(2.20 |
) |
|
|
|
|
|
$ |
(1.90 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, basic
and diluted
|
|
|
303,465,474 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
303,465,474 |
|
|
|
43,125,000 |
|
|
|
346,590,474 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Represents the elimination of operating results related to the
disposition of certain cable systems in July 2005, July 2006 and
the announced disposition of certain cable systems scheduled to
close in the third quarter of 2006 and the inclusion of
operating results related to the acquisition of certain cable
systems in January 2006 as discussed in assumptions (6)
and (7). |
60
|
|
|
(b) |
|
Represents the adjustment to interest expense associated with
the completion of the financing transactions discussed in
assumptions (1) through (5) (in millions): |
|
|
|
|
|
|
|
|
|
Reduction in interest expense on the Charter Operating
refinancing in April 2006
|
|
|
|
|
|
$ |
(13 |
) |
Interest on $450 million principal amount of CCH II
10.250% senior notes issued in January 2006
|
|
|
24 |
|
|
|
|
|
Amortization of deferred financing costs
|
|
|
1 |
|
|
|
|
|
Historical interest expense for Charter Operatings
revolving credit facility
|
|
|
(14 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11 |
|
Interest on new CCH I notes issued in September 2005 in exchange
for CCH notes
|
|
|
186 |
|
|
|
|
|
Write off of deferred financing costs
|
|
|
(3 |
) |
|
|
|
|
Historical interest expense on CCH notes exchanged for CCH I
notes
|
|
|
(211 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(28 |
) |
Interest on $300 million of CCO Holdings
83/4
% senior notes issued in August 2005
|
|
|
|
|
|
|
13 |
|
Historical interest expense on Charter Operatings
revolving credit facility repaid with cash on hand in February
2005
|
|
|
|
|
|
|
(3 |
) |
Historical interest expense on CC V Holdings, LLC
8.75% senior discount notes repaid with cash on hand in
March 2005
|
|
|
|
|
|
|
(3 |
) |
|
|
|
|
|
|
|
Net decrease in interest expense
|
|
|
|
|
|
$ |
(23 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment to other income, net represents the elimination of
losses related to the redemption of CC V Holdings, LLC
11.875% notes due 2008. |
|
(c) |
|
Represents the adjustment to interest expense associated with
the Private Exchange Offers Pro Forma Adjustments (in millions): |
|
|
|
|
|
|
|
|
|
Interest on new CCH I and CCH II senior notes issued in
August 2006
|
|
$ |
41 |
|
|
|
|
|
Amortization of deferred gain and deferred financing costs
|
|
|
(2 |
) |
|
|
|
|
Historical interest expense on Charter Holdings and CIH notes
exchanged for new CCH I and CCH II notes
|
|
|
(43 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net decrease in interest expense
|
|
|
|
|
|
$ |
(4 |
) |
|
|
|
|
|
|
|
|
|
|
(d) |
|
Represents the adjustment to interest expense associated with
the Exchange Offer Pro Forma Adjustments (in millions): |
|
|
|
|
|
|
|
|
|
Interest on new CCH II senior notes issued in August 2006
|
|
$ |
7 |
|
|
|
|
|
Historical interest expense on Charter convertible notes
|
|
|
(15 |
) |
|
|
|
|
Write off of deferred financing costs
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net decrease in interest expense
|
|
|
|
|
|
$ |
(10 |
) |
|
|
|
|
|
|
|
61
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
Unaudited Pro Forma Consolidated Balance Sheet
As of June 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private | |
|
|
|
|
|
|
|
|
|
|
Acquisition/ | |
|
Exchange | |
|
As | |
|
Exchange | |
|
|
|
|
Historical | |
|
Dispositions(a) | |
|
Offers(b) | |
|
Adjusted | |
|
Offer(c) | |
|
Pro Forma | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
ASSETS |
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
56 |
|
|
$ |
148 |
|
|
$ |
(29 |
) |
|
$ |
175 |
|
|
$ |
(175 |
) |
|
$ |
|
|
|
Accounts receivable, net
|
|
|
180 |
|
|
|
|
|
|
|
|
|
|
|
180 |
|
|
|
|
|
|
|
180 |
|
|
Prepaid expenses and other current assets
|
|
|
84 |
|
|
|
|
|
|
|
|
|
|
|
84 |
|
|
|
|
|
|
|
84 |
|
|
Assets held for sale
|
|
|
768 |
|
|
|
(768 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,088 |
|
|
|
(620 |
) |
|
|
(29 |
) |
|
|
439 |
|
|
|
(175 |
) |
|
|
264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTMENT IN CABLE PROPERTIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
5,392 |
|
|
|
|
|
|
|
|
|
|
|
5,392 |
|
|
|
|
|
|
|
5,392 |
|
|
Franchises, net
|
|
|
9,280 |
|
|
|
|
|
|
|
|
|
|
|
9,280 |
|
|
|
|
|
|
|
9,280 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment in cable properties, net
|
|
|
14,672 |
|
|
|
|
|
|
|
|
|
|
|
14,672 |
|
|
|
|
|
|
|
14,672 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER NONCURRENT ASSETS
|
|
|
385 |
|
|
|
|
|
|
|
|
|
|
|
385 |
|
|
|
(11 |
) |
|
|
374 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
16,145 |
|
|
$ |
(620 |
) |
|
$ |
(29 |
) |
|
$ |
15,496 |
|
|
$ |
(186 |
) |
|
$ |
15,310 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS DEFICIT |
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$ |
1,220 |
|
|
$ |
|
|
|
$ |
(22 |
) |
|
$ |
1,198 |
|
|
$ |
(4 |
) |
|
$ |
1,194 |
|
|
Liabilities held for sale
|
|
|
20 |
|
|
|
(20 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,240 |
|
|
|
(20 |
) |
|
|
(22 |
) |
|
|
1,198 |
|
|
|
(4 |
) |
|
|
1,194 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM DEBT
|
|
|
19,860 |
|
|
|
(800 |
) |
|
|
(125 |
) |
|
|
18,935 |
|
|
|
(267 |
) |
|
|
18,668 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE PAYABLE RELATED PARTY
|
|
|
53 |
|
|
|
|
|
|
|
|
|
|
|
53 |
|
|
|
|
|
|
|
53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DEFERRED MANAGEMENT FEES RELATED PARTY
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
14 |
|
|
|
|
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER LONG-TERM LIABILITIES
|
|
|
547 |
|
|
|
|
|
|
|
|
|
|
|
547 |
|
|
|
|
|
|
|
547 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MINORITY INTEREST
|
|
|
189 |
|
|
|
|
|
|
|
|
|
|
|
189 |
|
|
|
|
|
|
|
189 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PREFERRED STOCK REDEEMABLE; $.001 par value;
1 million shares authorized; 36,713 shares issued and
outstanding
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS DEFICIT:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A Common stock; $.001 par value;
1.75 billion shares authorized; 438,474,028 and
416,204,671 shares issued and outstanding, respectively
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class B Common stock; $.001 par value;
750 million shares authorized; 50,000 shares issued
and outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock; $.001 par value; 250 million shares
authorized; no non-redeemable shares issued and outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
5,240 |
|
|
|
|
|
|
|
|
|
|
|
5,240 |
|
|
|
|
|
|
|
5,240 |
|
|
Accumulated deficit
|
|
|
(11,007 |
) |
|
|
200 |
|
|
|
118 |
|
|
|
(10,689 |
) |
|
|
85 |
|
|
|
(10,604 |
) |
|
Accumulated other comprehensive income
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders deficit
|
|
|
(5,762 |
) |
|
|
200 |
|
|
|
118 |
|
|
|
(5,444 |
) |
|
|
85 |
|
|
|
(5,359 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders deficit
|
|
$ |
16,145 |
|
|
$ |
(620 |
) |
|
$ |
(29 |
) |
|
$ |
15,496 |
|
|
$ |
(186 |
) |
|
$ |
15,310 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Represents the elimination of assets and liabilities sold or to
be sold in the completed and scheduled disposition of certain
cable systems and the related use of the proceeds to reduce
amounts outstanding under our revolving |
62
|
|
|
|
|
credit facility and for general corporate purposes. Adjustment
to equity represents the expected gain on the sale of the assets
as discussed in assumption (7). |
|
(b) |
|
Adjustment to cash represents the payment of approximately
$7 million of transaction fees and approximately
$22 million of accrued interest related to the Charter
Holdings notes exchanged for CCH I and CCH II notes.
Adjustment to accounts payable and accrued expenses represents
payment of accrued interest related to the Charter Holdings
notes. Adjustment to equity represents the net gain expected to
be recognized on the exchange. Adjustment to long-term debt is
detailed below. |
|
|
|
|
|
|
Accreted value of Charter Holdings notes exchanged
|
|
$ |
(826 |
) |
Fair value of CCH II notes issued
|
|
|
200 |
|
Fair value of CCH I notes issued
|
|
|
477 |
|
Gain on exchange deferred
|
|
|
24 |
|
|
|
|
|
|
Net decrease in long-term debt
|
|
$ |
(125 |
) |
|
|
|
|
|
|
|
(c) |
|
Adjustment to cash represents use of cash to pay the cash
portion of the consideration paid to repurchase the Charter
convertible notes. Adjustment to other assets represents the
payment of approximately $5 million of fees and the
write-off of approximately $16 million of unamortized
deferred financing costs associated with the Charter converts
repurchased. Adjustment to accounts payable and accrued expenses
represents payment of accrued interest related to the Charter
convertible notes. Adjustments to long-term debt and
shareholders deficit are detailed below. |
|
|
|
|
|
|
Accreted value of Charter convertible notes exchanged
|
|
$ |
(424 |
) |
Fair value of CCH II notes issued
|
|
|
142 |
|
Drawdown on credit facility for payment of transaction fees and
consideration on notes exchanged
|
|
|
15 |
|
|
|
|
|
|
Net decrease in long-term debt
|
|
$ |
(267 |
) |
|
|
|
|
Fair value of Charter Class A Common stock issued
|
|
$ |
60 |
|
Net gain on exchange
|
|
|
25 |
|
|
|
|
|
|
Net increase in equity
|
|
$ |
85 |
|
|
|
|
|
63
CCH II, LLC
Unaudited Pro Forma Consolidated Statement of Operations
For the Six Months Ended June 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private | |
|
|
|
|
|
|
|
|
|
|
Acquisition/ | |
|
Prior Financing | |
|
Exchange | |
|
As | |
|
Exchange | |
|
Pro | |
|
|
Historical | |
|
Dispositions (a) | |
|
Transactions (b) | |
|
Offers (c) | |
|
Adjusted | |
|
Offer (d) | |
|
Forma | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Video
|
|
$ |
1,684 |
|
|
$ |
(29 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
1,655 |
|
|
$ |
|
|
|
$ |
1,655 |
|
|
High-speed Internet
|
|
|
506 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
499 |
|
|
|
|
|
|
|
499 |
|
|
Telephone
|
|
|
49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49 |
|
|
|
|
|
|
|
49 |
|
|
Advertising sales
|
|
|
147 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
145 |
|
|
|
|
|
|
|
145 |
|
|
Commercial
|
|
|
149 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
145 |
|
|
|
|
|
|
|
145 |
|
|
Other
|
|
|
168 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
165 |
|
|
|
|
|
|
|
165 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,703 |
|
|
|
(45 |
) |
|
|
|
|
|
|
|
|
|
|
2,658 |
|
|
|
|
|
|
|
2,658 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS AND EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (excluding depreciation and amortization)
|
|
|
1,215 |
|
|
|
(24 |
) |
|
|
|
|
|
|
|
|
|
|
1,191 |
|
|
|
|
|
|
|
1,191 |
|
|
Selling, general and administrative
|
|
|
551 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
544 |
|
|
|
|
|
|
|
544 |
|
|
Depreciation and amortization
|
|
|
690 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
685 |
|
|
|
|
|
|
|
685 |
|
|
Asset impairment charges
|
|
|
99 |
|
|
|
(99 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating expenses, net
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10 |
|
|
|
|
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,565 |
|
|
|
(135 |
) |
|
|
|
|
|
|
|
|
|
|
2,430 |
|
|
|
|
|
|
|
2,430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income from continuing operations
|
|
|
138 |
|
|
|
90 |
|
|
|
|
|
|
|
|
|
|
|
228 |
|
|
|
|
|
|
|
228 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(488 |
) |
|
|
26 |
|
|
|
7 |
|
|
|
(10 |
) |
|
|
(465 |
) |
|
|
(7 |
) |
|
|
(472 |
) |
|
Other income (expense), net
|
|
|
(19 |
) |
|
|
|
|
|
|
27 |
|
|
|
|
|
|
|
8 |
|
|
|
|
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(507 |
) |
|
|
26 |
|
|
|
34 |
|
|
|
(10 |
) |
|
|
(457 |
) |
|
|
(7 |
) |
|
|
(464 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes
|
|
|
(369 |
) |
|
|
116 |
|
|
|
34 |
|
|
|
(10 |
) |
|
|
(229 |
) |
|
|
(7 |
) |
|
|
(236 |
) |
INCOME TAX EXPENSE
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4 |
) |
|
|
|
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
$ |
(373 |
) |
|
$ |
116 |
|
|
$ |
34 |
|
|
$ |
(10 |
) |
|
$ |
(233 |
) |
|
$ |
(7 |
) |
|
$ |
(240 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Represents the elimination of operating results related to the
disposition of certain cable systems in July 2006 and the
announced disposition of certain cable systems scheduled to
close in the third quarter of 2006 as discussed in assumption
(7). |
|
(b) |
|
Represents the adjustment to interest expense associated with
the completion of the financing transactions discussed in
assumptions (4)and (5) (in millions): |
|
|
|
|
|
Reduction in interest expense on the April 2006 refinancing of
Charter Operating credit facilities
|
|
$ |
(9 |
) |
Interest on $450 million principal amount of CCH II
10.250% senior notes issued in January 2006
|
|
|
2 |
|
|
|
|
|
Net decrease in interest expense
|
|
$ |
(7 |
) |
|
|
|
|
|
|
|
|
|
Adjustment to other income (expense), net represents the
elimination of the write-off of deferred financing fees and
third party costs related to the Charter Operating refinancing
in April 2006. |
|
(c) |
|
Represents the adjustment to interest expense to reflect
interest on the new CCH II notes associated with the
Private Exchange Offers Pro Forma Adjustments. |
|
(d) |
|
Represents the adjustment to interest expense to reflect
interest on the new CCH II notes associated with the
Exchange Offer Pro Forma Adjustments. |
64
CCH II, LLC
Unaudited Pro Forma Consolidated Statement of Operations
For the Year Ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private | |
|
|
|
|
|
|
|
|
|
|
Acquisition/ | |
|
Prior Financing | |
|
Exchange | |
|
As | |
|
Exchange | |
|
Pro | |
|
|
Historical | |
|
Dispositions(a) | |
|
Transactions(b) | |
|
Offers(c) | |
|
Adjusted | |
|
Offer(d) | |
|
Forma | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Video
|
|
$ |
3,248 |
|
|
$ |
(53 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
3,195 |
|
|
$ |
|
|
|
$ |
3,195 |
|
|
High-speed Internet
|
|
|
875 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
868 |
|
|
|
|
|
|
|
868 |
|
|
Telephone
|
|
|
36 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
41 |
|
|
|
|
|
|
|
41 |
|
|
Advertising sales
|
|
|
284 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
280 |
|
|
|
|
|
|
|
280 |
|
|
Commercial
|
|
|
266 |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
260 |
|
|
|
|
|
|
|
260 |
|
|
Other
|
|
|
324 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
319 |
|
|
|
|
|
|
|
319 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,033 |
|
|
|
(70 |
) |
|
|
|
|
|
|
|
|
|
|
4,963 |
|
|
|
|
|
|
|
4,963 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS AND EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (excluding depreciation and amortization)
|
|
|
2,203 |
|
|
|
(31 |
) |
|
|
|
|
|
|
|
|
|
|
2,172 |
|
|
|
|
|
|
|
2,172 |
|
|
Selling, general and administrative
|
|
|
1,012 |
|
|
|
(9 |
) |
|
|
|
|
|
|
|
|
|
|
1,003 |
|
|
|
|
|
|
|
1,003 |
|
|
Depreciation and amortization
|
|
|
1,443 |
|
|
|
(11 |
) |
|
|
|
|
|
|
|
|
|
|
1,432 |
|
|
|
|
|
|
|
1,432 |
|
|
Asset impairment charges
|
|
|
39 |
|
|
|
(39 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating expenses, net
|
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32 |
|
|
|
|
|
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,729 |
|
|
|
(90 |
) |
|
|
|
|
|
|
|
|
|
|
4,639 |
|
|
|
|
|
|
|
4,639 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income from continuing operations
|
|
|
304 |
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
324 |
|
|
|
|
|
|
|
324 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(858 |
) |
|
|
34 |
|
|
|
(3 |
) |
|
|
(20 |
) |
|
|
(847 |
) |
|
|
(15 |
) |
|
|
(862 |
) |
|
Other income, net
|
|
|
99 |
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
104 |
|
|
|
|
|
|
|
104 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(759 |
) |
|
|
34 |
|
|
|
2 |
|
|
|
(20 |
) |
|
|
(743 |
) |
|
|
(15 |
) |
|
|
(758 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes
|
|
|
(455 |
) |
|
|
54 |
|
|
|
2 |
|
|
|
(20 |
) |
|
|
(419 |
) |
|
|
(15 |
) |
|
|
(434 |
) |
INCOME TAX EXPENSE
|
|
|
(9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9 |
) |
|
|
|
|
|
|
(9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
$ |
(464 |
) |
|
$ |
54 |
|
|
$ |
2 |
|
|
$ |
(20 |
) |
|
$ |
(428 |
) |
|
$ |
(15 |
) |
|
$ |
(443 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
Represents the elimination of operating results related to the
disposition of certain cable systems in July 2005, July 2006 and
the announced disposition of certain cable systems scheduled to
close in the third quarter of 2006 and the inclusion of
operating results related to the acquisition of certain cable
systems in January 2006 as discussed in assumption (6) and (7). |
65
|
|
(b) |
Represents the adjustment to interest expense associated with
the completion of the financing transactions discussed in as
adjusted assumptions (1), (2), (4) and (5) (in millions): |
|
|
|
|
|
|
|
|
|
Reduction in interest expense on the Charter Operating
refinancing in April 2006
|
|
|
|
|
|
$ |
(26 |
) |
Interest on $450 million principal amount of CCH II
10.250% senior notes issued in January 2006
|
|
|
48 |
|
|
|
|
|
Amortization of deferred financing costs
|
|
|
2 |
|
|
|
|
|
Historical interest expense for Charter Operatings
revolving credit facility
|
|
|
(32 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18 |
|
Interest on $300 million of CCO Holdings
83/4
% senior notes issued in August 2005
|
|
|
16 |
|
|
|
|
|
Amortization of deferred financing costs
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17 |
|
Historical interest expense on Charter Operatings
revolving credit facility repaid with cash on hand in February
2005
|
|
|
|
|
|
|
(3 |
) |
Historical interest expense on CC V Holdings, LLC
8.75% senior discount notes repaid with cash on hand in
March 2005
|
|
|
|
|
|
|
(3 |
) |
|
|
|
|
|
|
|
Net increase in interest expense
|
|
|
|
|
|
$ |
3 |
|
|
|
|
|
|
|
|
|
|
|
Adjustment to other income, net represents the elimination of
losses related to the redemption of CC V Holdings, LLC
11.875% notes due 2008. |
|
|
(c) |
Represents the adjustment to interest expense associated with
the Private Exchange Offers Pro Forma Adjustments (in millions): |
|
|
|
|
|
|
|
|
|
Interest on new CCH II senior notes issued in August 2006
|
|
$ |
21 |
|
|
|
|
|
Amortization of deferred gain and deferred financing costs
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net increase in interest expense
|
|
|
|
|
|
$ |
20 |
|
|
|
|
|
|
|
|
|
|
(d) |
Represents the adjustment to interest expense associated with
the Exchange Offer Pro Forma Adjustments (in millions): |
|
|
|
|
|
|
|
|
|
Interest on new CCH II senior notes issued in August 2006
|
|
$ |
14 |
|
|
|
|
|
Amortization of deferred financing costs
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in interest expense
|
|
|
|
|
|
$ |
15 |
|
|
|
|
|
|
|
|
66
CCH II, LLC
Unaudited Pro Forma Consolidated Statement of Operations
For the Six Months Ended June 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private | |
|
|
|
|
|
|
|
|
|
|
Acquisition/ | |
|
Prior Financing | |
|
Exchange | |
|
|
|
Exchange | |
|
Pro | |
|
|
Historical | |
|
Dispositions(a) | |
|
Transactions(b) | |
|
Offers(c) | |
|
As Adjusted | |
|
Offer(d) | |
|
Forma | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Video
|
|
$ |
1,623 |
|
|
$ |
(27 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
1,596 |
|
|
$ |
|
|
|
$ |
1,596 |
|
|
High-speed Internet
|
|
|
425 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
422 |
|
|
|
|
|
|
|
422 |
|
|
Telephone
|
|
|
14 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
17 |
|
|
|
|
|
|
|
17 |
|
|
Advertising sales
|
|
|
135 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
133 |
|
|
|
|
|
|
|
133 |
|
|
Commercial
|
|
|
128 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
125 |
|
|
|
|
|
|
|
125 |
|
|
Other
|
|
|
156 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
153 |
|
|
|
|
|
|
|
153 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,481 |
|
|
|
(35 |
) |
|
|
|
|
|
|
|
|
|
|
2,446 |
|
|
|
|
|
|
|
2,446 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS AND EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (excluding depreciation and amortization)
|
|
|
1,081 |
|
|
|
(15 |
) |
|
|
|
|
|
|
|
|
|
|
1,066 |
|
|
|
|
|
|
|
1,066 |
|
|
Selling, general and administrative
|
|
|
483 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
476 |
|
|
|
|
|
|
|
476 |
|
|
Depreciation and amortization
|
|
|
730 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
730 |
|
|
|
|
|
|
|
730 |
|
|
Asset impairment charges
|
|
|
39 |
|
|
|
(39 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating expenses, net
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,339 |
|
|
|
(61 |
) |
|
|
|
|
|
|
|
|
|
|
2,278 |
|
|
|
|
|
|
|
2,278 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income from continuing operations
|
|
|
142 |
|
|
|
26 |
|
|
|
|
|
|
|
|
|
|
|
168 |
|
|
|
|
|
|
|
168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(408 |
) |
|
|
11 |
|
|
|
(5 |
) |
|
|
(10 |
) |
|
|
(412 |
) |
|
|
(7 |
) |
|
|
(419 |
) |
|
Other income, net
|
|
|
35 |
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
40 |
|
|
|
|
|
|
|
40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(373 |
) |
|
|
11 |
|
|
|
|
|
|
|
(10 |
) |
|
|
(372 |
) |
|
|
(7 |
) |
|
|
(379 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes
|
|
|
(231 |
) |
|
|
37 |
|
|
|
|
|
|
|
(10 |
) |
|
|
(204 |
) |
|
|
(7 |
) |
|
|
(211 |
) |
INCOME TAX EXPENSE
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8 |
) |
|
|
|
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(239 |
) |
|
|
37 |
|
|
|
|
|
|
|
(10 |
) |
|
|
(212 |
) |
|
|
(7 |
) |
|
|
(219 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
Represents the elimination of operating results related to the
disposition of certain cable systems in July 2005, July 2006 and
the announced disposition of certain cable systems scheduled to
close in the third quarter of 2006 and the inclusion of
operating results related to the acquisition of certain cable
systems in January 2006 discussed in assumptions (6)
and (7). |
67
|
|
(b) |
Represents the adjustment to interest expense associated with
the completion of the financing transactions discussed in
assumptions (1), (2), (4) and (5) (in millions): |
|
|
|
|
|
|
|
|
|
Reduction in interest expense on the Charter Operating
refinancing in April 2006
|
|
|
|
|
|
$ |
(13 |
) |
Interest on $450 million principal amount of CCH II
10.250% senior notes issued in January 2006
|
|
|
24 |
|
|
|
|
|
Amortization of deferred financing costs
|
|
|
1 |
|
|
|
|
|
Historical interest expense for Charter Operatings
revolving credit facility
|
|
|
(14 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11 |
|
Interest on $300 million of CCO Holdings
83/4
% senior notes issued in August 2005
|
|
|
|
|
|
|
13 |
|
Historical interest expense on Charter Operatings
revolving credit facility repaid with cash on hand in February
2005
|
|
|
|
|
|
|
(3 |
) |
Historical interest expense on CC V Holdings, LLC
8.75% senior discount notes repaid with cash on hand in
March 2005
|
|
|
|
|
|
|
(3 |
) |
|
|
|
|
|
|
|
Net increase in interest expense
|
|
|
|
|
|
$ |
5 |
|
|
|
|
|
|
|
|
|
|
|
Adjustment to other income, net represents the elimination of
losses related to the redemption of CC V Holdings, LLC
11.875% notes due 2008. |
|
|
(c) |
Represents the adjustment to interest expense to reflect
interest on the new CCH II notes associated with the
Private Exchange Offers Pro Forma Adjustments. |
|
(d) |
Represents the adjustment to interest expense to reflect
interest on the new CCH II notes associated with the
Exchange Offer Pro Forma Adjustments. |
68
CCH II, LLC
Unaudited Pro Forma Consolidated Balance Sheet
As of June 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private | |
|
|
|
|
|
|
|
|
|
|
Acquisition/ | |
|
Exchange | |
|
As | |
|
Exchange | |
|
|
|
|
Historical | |
|
Dispositions(a) | |
|
Offers(b) | |
|
Adjusted | |
|
Offer(c) | |
|
Pro Forma | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
ASSETS |
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
44 |
|
|
$ |
148 |
|
|
$ |
(24 |
) |
|
$ |
168 |
|
|
$ |
(168 |
) |
|
$ |
|
|
|
Accounts receivable, net
|
|
|
178 |
|
|
|
|
|
|
|
|
|
|
|
178 |
|
|
|
|
|
|
|
178 |
|
|
Prepaid expenses and other current assets
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
20 |
|
|
|
|
|
|
|
20 |
|
|
Assets held for sale
|
|
|
768 |
|
|
|
(768 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,010 |
|
|
|
(620 |
) |
|
|
(24 |
) |
|
|
366 |
|
|
|
(168 |
) |
|
|
198 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTMENT IN CABLE PROPERTIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
5,354 |
|
|
|
|
|
|
|
|
|
|
|
5,354 |
|
|
|
|
|
|
|
5,354 |
|
|
Franchises, net
|
|
|
9,280 |
|
|
|
|
|
|
|
|
|
|
|
9,280 |
|
|
|
|
|
|
|
9,280 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment in cable properties, net
|
|
|
14,634 |
|
|
|
|
|
|
|
|
|
|
|
14,634 |
|
|
|
|
|
|
|
14,634 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER NONCURRENT ASSETS
|
|
|
217 |
|
|
|
|
|
|
|
2 |
|
|
|
219 |
|
|
|
5 |
|
|
|
224 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
15,861 |
|
|
$ |
(620 |
) |
|
$ |
(22 |
) |
|
$ |
15,219 |
|
|
$ |
(163 |
) |
|
$ |
15,056 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND MEMBERS EQUITY |
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$ |
917 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
917 |
|
|
$ |
|
|
|
$ |
917 |
|
|
Payables to related parties
|
|
|
106 |
|
|
|
|
|
|
|
|
|
|
|
106 |
|
|
|
|
|
|
|
106 |
|
|
Liabilities held for sale
|
|
|
20 |
|
|
|
(20 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,043 |
|
|
|
(20 |
) |
|
|
|
|
|
|
1,023 |
|
|
|
|
|
|
|
1,023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM DEBT
|
|
|
11,057 |
|
|
|
(800 |
) |
|
|
205 |
|
|
|
10,462 |
|
|
|
157 |
|
|
|
10,619 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE PAYABLE RELATED PARTY
|
|
|
109 |
|
|
|
|
|
|
|
|
|
|
|
109 |
|
|
|
|
|
|
|
109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DEFERRED MANAGEMENT FEES RELATED PARTY
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
14 |
|
|
|
|
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER LONG-TERM LIABILITIES
|
|
|
359 |
|
|
|
|
|
|
|
|
|
|
|
359 |
|
|
|
|
|
|
|
359 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MINORITY INTEREST
|
|
|
631 |
|
|
|
|
|
|
|
|
|
|
|
631 |
|
|
|
|
|
|
|
631 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MEMBERS EQUITY:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Members equity
|
|
|
2,646 |
|
|
|
200 |
|
|
|
(227 |
) |
|
|
2,619 |
|
|
|
(320 |
) |
|
|
2,299 |
|
|
Accumulated other comprehensive income
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total members equity
|
|
|
2,648 |
|
|
|
200 |
|
|
|
(227 |
) |
|
|
2,621 |
|
|
|
(320 |
) |
|
|
2,301 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and members equity
|
|
$ |
15,861 |
|
|
$ |
(620 |
) |
|
$ |
(22 |
) |
|
$ |
15,219 |
|
|
$ |
(163 |
) |
|
$ |
15,056 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
Represents the elimination of assets and liabilities sold or to
be sold in the completed and scheduled disposition of certain
cable systems and the related use of the proceeds to reduce
amounts outstanding under our revolving credit facility and for
general corporate purposes. Adjustment to equity represents the
expected gain on the sale of the assets. |
69
|
|
(b) |
Represents the exchange of CCH II notes for Charter
Holdings notes and the payment of fees and accrued interest
related to such exchange. |
|
(c) |
Adjustment to cash represents use of cash to pay the cash
portion of the consideration paid to repurchase the Charter
convertible notes. Adjustment to other assets represents the
payment of approximately $5 million of fees associated with
the issuance of the CCH II notes. Adjustment to
members equity represents the consideration paid by
CCH II in exchange for the Charter convertible notes.
Adjustment to long-term debt is detailed below. |
|
|
|
|
|
|
Fair value of CCH II notes issued
|
|
$ |
142 |
|
Drawdown on credit facility for payment of transaction fees
accrued interest and consideration on notes exchanged
|
|
|
15 |
|
|
|
|
|
|
Net increase in long-term debt
|
|
$ |
157 |
|
|
|
|
|
70
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following tables present summary financial and other data
for Charter and CCH II and their subsidiaries and has been
derived from the audited consolidated financial statements of
Charter and CCH II and their subsidiaries for the five
years ended December 31, 2005 and the unaudited
consolidated financial statements of Charter and CCH II and
their subsidiaries for the six months ended June 30, 2005
and 2006. The following information should be read in
conjunction with Managements Discussion and Analysis
of Financial Condition and Results of Operations of
Charter Liquidity and Capital Resources
Recent Financing Transactions, Managements
Discussion and Analysis of Financial Condition and Results of
Operations of CCH II, LLC and the historical
consolidated financial statements and related notes of Charter
and CCH II included elsewhere in this Exchange Offer
Prospectus.
CHARTER COMMUNICATIONS, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended | |
|
|
Year Ended December 31, | |
|
June 30, | |
|
|
| |
|
| |
|
|
2001 | |
|
2002 | |
|
2003 | |
|
2004 | |
|
2005 | |
|
2005 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
3,648 |
|
|
$ |
4,377 |
|
|
$ |
4,616 |
|
|
$ |
4,760 |
|
|
$ |
5,033 |
|
|
$ |
2,481 |
|
|
$ |
2,703 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (excluding depreciation and amortization)
|
|
|
1,430 |
|
|
|
1,736 |
|
|
|
1,873 |
|
|
|
1,994 |
|
|
|
2,203 |
|
|
|
1,081 |
|
|
|
1,215 |
|
|
Selling, general and administrative
|
|
|
789 |
|
|
|
932 |
|
|
|
909 |
|
|
|
965 |
|
|
|
1,012 |
|
|
|
483 |
|
|
|
551 |
|
|
Depreciation and amortization
|
|
|
2,638 |
|
|
|
1,364 |
|
|
|
1,396 |
|
|
|
1,433 |
|
|
|
1,443 |
|
|
|
730 |
|
|
|
690 |
|
|
Impairment of franchises
|
|
|
|
|
|
|
4,220 |
|
|
|
|
|
|
|
2,297 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset impairment charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39 |
|
|
|
39 |
|
|
|
99 |
|
|
Other operating (income) expenses, net
|
|
|
28 |
|
|
|
39 |
|
|
|
(46 |
) |
|
|
13 |
|
|
|
32 |
|
|
|
6 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,885 |
|
|
|
8,291 |
|
|
|
4,132 |
|
|
|
6,702 |
|
|
|
4,729 |
|
|
|
2,339 |
|
|
|
2,565 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) from continuing operations
|
|
|
(1,237 |
) |
|
|
(3,914 |
) |
|
|
484 |
|
|
|
(1,942 |
) |
|
|
304 |
|
|
|
142 |
|
|
|
138 |
|
Interest expense, net
|
|
|
(1,310 |
) |
|
|
(1,503 |
) |
|
|
(1,557 |
) |
|
|
(1,670 |
) |
|
|
(1,789 |
) |
|
|
(871 |
) |
|
|
(943 |
) |
Gain (loss) on extinguishment of debt and preferred stock
|
|
|
|
|
|
|
|
|
|
|
267 |
|
|
|
(31 |
) |
|
|
521 |
|
|
|
8 |
|
|
|
(27 |
) |
Other income (expense), net
|
|
|
(109 |
) |
|
|
(119 |
) |
|
|
49 |
|
|
|
49 |
|
|
|
72 |
|
|
|
47 |
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before minority interest, income
taxes and cumulative effect of accounting change
|
|
|
(2,656 |
) |
|
|
(5,536 |
) |
|
|
(757 |
) |
|
|
(3,594 |
) |
|
|
(892 |
) |
|
|
(674 |
) |
|
|
(814 |
) |
Minority interest
|
|
|
1,475 |
|
|
|
2,958 |
|
|
|
394 |
|
|
|
19 |
|
|
|
1 |
|
|
|
(6 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes and
cumulative effect of accounting change
|
|
|
(1,181 |
) |
|
|
(2,578 |
) |
|
|
(363 |
) |
|
|
(3,575 |
) |
|
|
(891 |
) |
|
|
(680 |
) |
|
|
(815 |
) |
Income tax benefit (expense)
|
|
|
12 |
|
|
|
474 |
|
|
|
122 |
|
|
|
134 |
|
|
|
(112 |
) |
|
|
(56 |
) |
|
|
(60 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before cumulative effect of
accounting change
|
|
|
(1,169 |
) |
|
|
(2,104 |
) |
|
|
(241 |
) |
|
|
(3,441 |
) |
|
|
(1,003 |
) |
|
|
(736 |
) |
|
|
(875 |
) |
Income (loss) from discontinued operations, net of tax
|
|
|
12 |
|
|
|
(204 |
) |
|
|
3 |
|
|
|
(135 |
) |
|
|
36 |
|
|
|
29 |
|
|
|
34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before cumulative effect of accounting change
|
|
|
(1,157 |
) |
|
|
(2,308 |
) |
|
|
(238 |
) |
|
|
(3,576 |
) |
|
|
(967 |
) |
|
|
(707 |
) |
|
|
(841 |
) |
Cumulative effect of accounting change, net of tax
|
|
|
(10 |
) |
|
|
(206 |
) |
|
|
|
|
|
|
(765 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(1,167 |
) |
|
|
(2,514 |
) |
|
|
(238 |
) |
|
|
(4,341 |
) |
|
|
(967 |
) |
|
|
(707 |
) |
|
|
(841 |
) |
Dividends on preferred stock redeemable
|
|
|
(1 |
) |
|
|
(3 |
) |
|
|
(4 |
) |
|
|
(4 |
) |
|
|
(3 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss applicable to common stock
|
|
$ |
(1,168 |
) |
|
$ |
(2,517 |
) |
|
$ |
(242 |
) |
|
$ |
(4,345 |
) |
|
$ |
(970 |
) |
|
$ |
(709 |
) |
|
$ |
(841 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended | |
|
|
Year Ended December 31, | |
|
June 30, | |
|
|
| |
|
| |
|
|
2001 | |
|
2002 | |
|
2003 | |
|
2004 | |
|
2005 | |
|
2005 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
Loss per common share, basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before cumulative effect of
accounting change
|
|
$ |
(4.34 |
) |
|
$ |
(7.16 |
) |
|
$ |
(0.83 |
) |
|
$ |
(11.47 |
) |
|
$ |
(3.24 |
) |
|
$ |
(2.43 |
) |
|
$ |
(2.76 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(4.33 |
) |
|
$ |
(8.55 |
) |
|
$ |
(0.82 |
) |
|
$ |
(14.47 |
) |
|
$ |
(3.13 |
) |
|
$ |
(2.34 |
) |
|
$ |
(2.65 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding, basic and diluted
|
|
|
269,594,386 |
|
|
|
294,440,261 |
|
|
|
294,597,519 |
|
|
|
300,291,877 |
|
|
|
310,159,047 |
|
|
|
303,465,474 |
|
|
|
317,531,492 |
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficiencies of earnings to cover fixed charges(a)
|
|
$ |
2,630 |
|
|
$ |
5,994 |
|
|
$ |
725 |
|
|
$ |
3,698 |
|
|
$ |
853 |
|
|
$ |
655 |
|
|
$ |
776 |
|
Balance Sheet Data (end of period):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
2 |
|
|
$ |
321 |
|
|
$ |
127 |
|
|
$ |
650 |
|
|
$ |
21 |
|
|
$ |
40 |
|
|
$ |
56 |
|
Total assets
|
|
|
26,463 |
|
|
|
22,384 |
|
|
|
21,364 |
|
|
|
17,673 |
|
|
|
16,431 |
|
|
|
16,779 |
|
|
|
16,145 |
|
Long-term debt
|
|
|
16,343 |
|
|
|
18,671 |
|
|
|
18,647 |
|
|
|
19,464 |
|
|
|
19,388 |
|
|
|
19,247 |
|
|
|
19,860 |
|
Note payable related party
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49 |
|
|
|
|
|
|
|
53 |
|
Minority interest(b)
|
|
|
4,434 |
|
|
|
1,050 |
|
|
|
689 |
|
|
|
648 |
|
|
|
188 |
|
|
|
659 |
|
|
|
189 |
|
Shareholders equity (deficit)
|
|
|
2,585 |
|
|
|
41 |
|
|
|
(175 |
) |
|
|
(4,406 |
) |
|
|
(4,920 |
) |
|
|
(5,102 |
) |
|
|
(5,762 |
) |
|
|
(a) |
Earnings include net loss plus fixed charges. Fixed charges
consist of interest expense and an estimated interest component
of rent expense. |
|
|
(b) |
Minority interest represents the percentage of Charter Holdco
not owned by Charter, plus preferred membership interests in our
indirect subsidiary, CC VIII, and since June 6, 2003, the
pro rata share of the profits and losses of CC VIII. This
preferred membership interest arises from approximately
$630 million of preferred membership units issued by CC
VIII in connection with an acquisition in February 2000 and was
the subject of a dispute between Charter and Mr. Allen,
Charters Chairman and controlling shareholder that was
settled October 31, 2005. Reported losses allocated to
minority interest on the statement of operations are limited to
the extent of any remaining minority interest on the balance
sheet related to Charter Holdco. Because minority interest in
Charter Holdco was substantially eliminated at December 31,
2003, beginning in 2004, Charter began to absorb substantially
all losses before income taxes that otherwise would have been
allocated to minority interest, resulting in an approximate
additional $454 million and $2.4 billion of net losses
for the years ended December 31, 2005 and 2004,
respectively. Under our existing capital structure, Charter will
absorb all future losses. See Certain Relationships and
Related Party Transactions Transactions Arising Out
of Our Organizational Structure and Mr. Allens
Investment in Charter and Its Subsidiaries Equity
Put Rights CC VIII. |
72
CCH II, LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended | |
|
|
Year Ended December 31, | |
|
June 30, | |
|
|
| |
|
| |
|
|
2001 | |
|
2002 | |
|
2003 | |
|
2004 | |
|
2005 | |
|
2005 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
3,648 |
|
|
$ |
4,377 |
|
|
$ |
4,616 |
|
|
$ |
4,760 |
|
|
$ |
5,033 |
|
|
$ |
2,481 |
|
|
$ |
2,703 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (excluding depreciation and amortization)
|
|
|
1,430 |
|
|
|
1,736 |
|
|
|
1,873 |
|
|
|
1,994 |
|
|
|
2,203 |
|
|
|
1,081 |
|
|
|
1,215 |
|
|
Selling, general and administrative
|
|
|
789 |
|
|
|
932 |
|
|
|
909 |
|
|
|
965 |
|
|
|
1,012 |
|
|
|
483 |
|
|
|
551 |
|
|
Depreciation and amortization
|
|
|
2,638 |
|
|
|
1,364 |
|
|
|
1,396 |
|
|
|
1,433 |
|
|
|
1,443 |
|
|
|
730 |
|
|
|
690 |
|
|
Impairment of franchises
|
|
|
|
|
|
|
4,220 |
|
|
|
|
|
|
|
2,297 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset impairment charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39 |
|
|
|
39 |
|
|
|
99 |
|
|
Other operating (income) expenses, net
|
|
|
28 |
|
|
|
39 |
|
|
|
(46 |
) |
|
|
13 |
|
|
|
32 |
|
|
|
6 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,885 |
|
|
|
8,291 |
|
|
|
4,132 |
|
|
|
6,702 |
|
|
|
4,729 |
|
|
|
2,339 |
|
|
|
2,565 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) from continuing operations
|
|
|
(1,237 |
) |
|
|
(3,914 |
) |
|
|
484 |
|
|
|
(1,942 |
) |
|
|
304 |
|
|
|
142 |
|
|
|
138 |
|
Interest expense, net
|
|
|
(525 |
) |
|
|
(512 |
) |
|
|
(545 |
) |
|
|
(726 |
) |
|
|
(858 |
) |
|
|
(408 |
) |
|
|
(488 |
) |
Loss on extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21 |
) |
|
|
(6 |
) |
|
|
(6 |
) |
|
|
(27 |
) |
Other income (expense), net
|
|
|
(118 |
) |
|
|
(128 |
) |
|
|
27 |
|
|
|
92 |
|
|
|
105 |
|
|
|
41 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes and
cumulative effect of accounting change
|
|
|
(1,880 |
) |
|
|
(4,554 |
) |
|
|
(34 |
) |
|
|
(2,597 |
) |
|
|
(455 |
) |
|
|
(231 |
) |
|
|
(369 |
) |
Income tax benefit (expense)
|
|
|
27 |
|
|
|
216 |
|
|
|
(13 |
) |
|
|
35 |
|
|
|
(9 |
) |
|
|
(8 |
) |
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before cumulative effect of
accounting change
|
|
|
(1,853 |
) |
|
|
(4,338 |
) |
|
|
(47 |
) |
|
|
(2,562 |
) |
|
|
(464 |
) |
|
|
(239 |
) |
|
|
(373 |
) |
Income (loss) from discontinued operations, net of tax
|
|
|
26 |
|
|
|
(408 |
) |
|
|
32 |
|
|
|
(104 |
) |
|
|
39 |
|
|
|
19 |
|
|
|
38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before cumulative effect of accounting change
|
|
|
(1,827 |
) |
|
|
(4,746 |
) |
|
|
(15 |
) |
|
|
(2,666 |
) |
|
|
(425 |
) |
|
|
(220 |
) |
|
|
(335 |
) |
Cumulative effect of accounting change, net of tax
|
|
|
(24 |
) |
|
|
(540 |
) |
|
|
|
|
|
|
(840 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(1,851 |
) |
|
$ |
(5,286 |
) |
|
$ |
(15 |
) |
|
$ |
(3,506 |
) |
|
$ |
(425 |
) |
|
$ |
(220 |
) |
|
$ |
(335 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of earnings to cover fixed charges
|
|
|
NA |
|
|
|
NA |
|
|
|
1.05 |
|
|
|
NA |
|
|
|
NA |
|
|
|
NA |
|
|
|
NA |
|
|
|
Deficiencies of earnings to cover fixed charges(a)
|
|
$ |
1,838 |
|
|
$ |
4,946 |
|
|
|
NA |
|
|
$ |
2,721 |
|
|
$ |
449 |
|
|
$ |
206 |
|
|
$ |
321 |
|
Balance Sheet Data (end of period):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
|
|
|
$ |
310 |
|
|
$ |
85 |
|
|
$ |
546 |
|
|
$ |
3 |
|
|
$ |
22 |
|
|
$ |
44 |
|
Total assets
|
|
|
26,091 |
|
|
|
21,984 |
|
|
|
21,009 |
|
|
|
16,979 |
|
|
|
16,101 |
|
|
|
16,356 |
|
|
|
15,861 |
|
Long-term debt
|
|
|
6,961 |
|
|
|
8,066 |
|
|
|
9,557 |
|
|
|
9,895 |
|
|
|
10,624 |
|
|
|
10,045 |
|
|
|
11,057 |
|
Loans payable related party
|
|
|
366 |
|
|
|
133 |
|
|
|
37 |
|
|
|
29 |
|
|
|
22 |
|
|
|
62 |
|
|
|
109 |
|
Minority interest(b)
|
|
|
680 |
|
|
|
693 |
|
|
|
719 |
|
|
|
656 |
|
|
|
622 |
|
|
|
662 |
|
|
|
631 |
|
Members equity
|
|
|
15,940 |
|
|
|
11,040 |
|
|
|
8,951 |
|
|
|
4,913 |
|
|
|
3,402 |
|
|
|
3,993 |
|
|
|
2,648 |
|
73
|
|
|
(a) |
|
Earnings include net loss plus fixed charges. Fixed charges
consist of interest expense and an estimated interest component
of rent expense. |
|
(b) |
|
Minority interest represents the preferred membership interests
in our indirect subsidiary, CC VIII, and since June 6,
2003, the pro rata share of the profits and losses of CC VIII.
This preferred membership interest arises from approximately
$630 million of preferred membership units issued by CC
VIII in connection with an acquisition in February 2000 and was
the subject of a dispute between Charter and Mr. Allen,
Charters Chairman and controlling shareholder that was
settled October 31, 2005. See Certain Relationships
and Related Party Transactions Transactions Arising
Out of Our Organizational Structure and Mr. Allens
Investment in Charter and Its Subsidiaries Equity
Put Rights CC VIII. |
74
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF CHARTER
Unless otherwise stated, the terms we,
us and our used in this
Managements Discussion and Analysis of Financial
Condition and Results of Operations of Charter refer to
Charter and its direct and indirect subsidiaries on a
consolidated basis.
Reference is made to Risk Factors and Special
Note Regarding Forward-Looking Statements, which describe
important factors that could cause actual results to differ from
expectations and non-historical information contained herein. In
addition, the following discussion should be read in conjunction
with the audited consolidated financial statements of Charter
Communications, Inc. and subsidiaries as of and for the years
ended December 31, 2005, 2004 and 2003 and the unaudited
consolidated financial statements of Charter Communications,
Inc. and its subsidiaries as of and for the six months ended
June 30, 2006.
Introduction
We continue to pursue opportunities to improve our liquidity.
Our efforts in this regard have resulted in the completion of a
number of financing transactions in 2005 and 2006, as follows:
|
|
|
|
|
the July 2006 sale of cable systems to Cebridge and New Wave for
proceeds of approximately $896 million; |
|
|
|
the April 2006 refinancing of our existing credit facilities
(See Liquidity and Capital
Resources Recent Financing Transactions); |
|
|
|
the January 2006 sale by our subsidiaries, 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 our subsidiaries, CCO Holdings and CCO
Holdings Capital Corp., as guarantor thereunder, 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
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 our subsidiaries, CCO Holdings and CCO
Holdings Capital Corp., 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 repurchase during 2005 of $136 million of
Charters 4.75% convertible senior notes due 2006
leaving $20 million in principal amount
outstanding; and |
|
|
|
the March 2005 redemption of all of CC V Holdings, LLCs
outstanding 11.875% senior discount notes due 2008 at a
total cost of $122 million. |
During the years 1999 through 2001, we grew significantly,
principally through acquisitions of other cable businesses
financed by debt and, to a lesser extent, equity. We have no
current plans to pursue any significant acquisitions. However,
we may pursue exchanges of non-strategic assets or divestitures,
such as the sale of cable systems discussed above. We therefore
do not believe that our historical growth rates are accurate
indicators of future growth.
The industrys and our most significant operational
challenges include competition from DBS providers and DSL
service providers. See Business
Competition. We believe that competition from DBS has
resulted in net analog video customer losses and decreased
growth rates for digital video customers. Competition from DSL
providers combined with limited opportunities to expand our
customer
75
base now that approximately 36% of our analog video customers
subscribe to our high-speed Internet services has resulted in
decreased growth rates for high-speed Internet customers. In the
recent past, we have grown revenues by offsetting video customer
losses with price increases and sales of incremental advanced
services such as high-speed Internet, video on demand, digital
video recorders and high definition television. We expect to
continue to grow revenues through price increases and through
continued growth in high-speed Internet and incremental new
services including telephone, high definition television, VOD
and DVR service.
Historically, our ability to fund operations and investing
activities has depended on our continued access to credit under
our credit facilities. We expect we will continue to borrow
under our credit facilities from time to time to fund cash
needs. The occurrence of an event of default under our credit
facilities could result in borrowings from these credit
facilities being unavailable to us and could, in the event of a
payment default or acceleration, also trigger events of default
under the indentures governing our outstanding notes and would
have a material adverse effect on us. See
Liquidity and Capital Resources.
Sale of Assets
In 2006, we signed three separate definitive agreements to sell
certain cable television systems serving a total of
approximately 356,000 analog video customers in 1) West
Virginia and Virginia to Cebridge Connections, Inc. (the
Cebridge Transaction); 2) Illinois and Kentucky
to Telecommunications Management, LLC, doing business as
New Wave Communications (the New Wave
Transaction) and 3) Nevada, Colorado, New Mexico
and Utah to Orange Broadband Holding Company, LLC (the
Orange Transaction) for a total of approximately
$971 million. These cable systems met the criteria for
assets held for sale. As such, the assets were written down to
fair value less estimated costs to sell resulting in asset
impairment charges during the six months ended June 30,
2006 of approximately $99 million related to the New Wave
Transaction and the Orange Transaction. In the third quarter of
2006, we expect to record a gain of approximately
$200 million on the Cebridge Transaction. In addition,
assets and liabilities to be sold have been presented as held
for sale. We have also determined that the West Virginia and
Virginia cable systems comprise operations and cash flows that
for financial reporting purposes meet the criteria for
discontinued operations. Accordingly, the results of operations
for the West Virginia and Virginia cable systems have been
presented as discontinued operations, net of tax for the six
months ended June 30, 2006 and all prior periods presented
herein have been reclassified to conform to the current
presentation.
Overview of Operations
Approximately 86% of our revenues for the six months ended
June 30, 2006 and year ended December 31, 2005 are
attributable to monthly subscription fees charged to customers
for our video, high-speed Internet, telephone and commercial
services provided by our cable systems. Generally, these
customer subscriptions may be discontinued by the customer at
any time. The remaining 14% of revenue for the six months ended
June 30, 2006 and year ended December 31, 2005 is
derived primarily from advertising revenues, franchise fee
revenues, which are collected by us but then paid to local
franchising authorities, pay-per-view and VOD programming where
users are charged a fee for individual programs viewed,
installation or reconnection fees charged to customers to
commence or reinstate service, and commissions related to the
sale of merchandise by home shopping services. We have increased
revenues during the past three years, primarily through the sale
of digital video and high-speed Internet services to new and
existing customers and price increases on video services offset
in part by dispositions of systems. Going forward, our goal is
to increase revenues by offsetting video customer losses with
price increases and sales of incremental advanced services such
as telephone, high-speed Internet, video on demand, digital
video recorders and high definition television. See
Business Sales and Marketing.
Our success in our efforts to grow revenues and improve margins
will be impacted by our ability to compete against companies
with easier access to financing, greater personnel resources,
greater brand name recognition, long-established relationships
with regulatory authorities and customers, and, often fewer
76
regulatory burdens. Additionally, controlling our cost of
operations is critical, particularly cable programming costs,
which have historically increased at rates in excess of
inflation and are expected to continue to increase. See
Business Programming. We are attempting
to control our costs of operations by maintaining strict
controls on expenses. More specifically, we are focused on
managing our cost structure by managing our workforce to control
cost increases and improve productivity, and leveraging our size
in purchasing activities.
Our expenses primarily consist of operating costs, selling,
general and administrative expenses, depreciation and
amortization expense and interest expense. Operating costs
primarily include programming costs, the cost of our workforce,
cable service related expenses, advertising sales costs,
franchise fees and expenses related to customer billings. For
the six months ended June 30, 2006 and 2005, our
operating income from continuing operations, which includes
depreciation and amortization expense and asset impairment
charges but excludes interest expense, was $138 million and
$142 million, respectively. We had operating margins of 5%
and 6% for the six months ended June 30, 2006 and
2005, respectively. The decrease in operating income from
continuing operations and operating margins for the
six months ended June 30, 2006 compared to 2005 was
principally due to an increase in operating costs and asset
impairment charges of $60 million. Our operating loss from
continuing operations decreased from $1.9 billion for year
ended December 31, 2004 to income of $304 million for
the year ended December 31, 2005. We had a positive
operating margin (defined as operating income (loss) from
continuing operations divided by revenues) of 6% and a negative
operating margin of 40% for the years ended December 31,
2005 and 2004, respectively. The improvement from an operating
loss from continuing operations and negative operating margin to
operating income from continuing operations and positive
operating margin for the year end December 31, 2005 is
principally due to the impairment of franchises of
$2.3 billion recorded in the third quarter of 2004 which
did not recur in 2005. For the year ended December 31,
2003, operating income from continuing operations was
$484 million and for the year ended December 31, 2004,
our operating loss from continuing operations was
$1.9 billion. We had a negative operating margin of 40% for
the year ended December 31, 2004, whereas for the year
ending December 31, 2003, we had positive operating margin
of 10%. The decline in operating income from continuing
operations and operating margin for the year end
December 31, 2004 is principally due to the impairment of
franchises of $2.3 billion recorded in the third quarter of
2004. The year ended December 31, 2004 also includes a gain
on the sale of certain cable systems to Atlantic Broadband
Finance, LLC which is substantially offset by an increase in
option compensation expense and special charges when compared to
the year ended December 31, 2003. Although we do not expect
charges for impairment in the future of comparable magnitude,
potential charges could occur due to changes in market
conditions.
We have a history of net losses. Our net losses are principally
attributable to insufficient revenue to cover the combination of
operating costs and interest costs we incur because of our high
level of debt and depreciation expenses that we incur resulting
from the capital investments we have made and continue to make
in our cable properties. We expect that these expenses will
remain significant, and we therefore expect to continue to
report net losses for the foreseeable future. We had net losses
of $841 million and $707 million for the
six months ended June 30, 2006 and 2005, respectively.
Critical Accounting Policies and Estimates
Certain of our accounting policies require our management to
make difficult, subjective or complex judgments. Management has
discussed these policies with the Audit Committee of
Charters Board of Directors and the Audit Committee has
reviewed the following disclosure. We consider the following
policies to be the most critical in understanding the estimates,
assumptions and judgments that are involved in preparing our
financial statements and the uncertainties that could affect our
results of operations, financial condition and cash flows:
|
|
|
|
|
Capitalization of labor and overhead costs; |
|
|
|
Useful lives of property, plant and equipment; |
|
|
|
Impairment of property, plant, and equipment, franchises, and
goodwill; |
77
|
|
|
|
|
Income taxes; and |
|
|
|
Litigation. |
In addition, there are other items within our financial
statements that require estimates or judgment but are not deemed
critical, such as the allowance for doubtful accounts, but
changes in judgment, or estimates in these other items could
also have a material impact on our financial statements.
Capitalization of labor and overhead costs. The
cable industry is capital intensive, and a large portion of our
resources are spent on capital activities associated with
extending, rebuilding, and upgrading our cable network. As of
June 30, 2006, December 31, 2005 and 2004, the net
carrying amount of our property, plant and equipment (consisting
primarily of cable network assets) was approximately
$5.4 billion (representing 33% of total assets),
$5.8 billion (representing 36% of total assets) and
$6.3 billion (representing 36% of total assets),
respectively. Total capital expenditures for the six months
ended June 30, 2006 and the years ended December 31,
2005, 2004 and 2003 were approximately $539 million,
$1.1 billion, $924 million and $854 million,
respectively.
Costs associated with network construction, initial customer
installations (including initial installations of new or
advanced services), installation refurbishments and the addition
of network equipment necessary to provide new or advanced
services are capitalized. While our capitalization is based on
specific activities, once capitalized, we track these costs by
fixed asset category at the cable system level and not on a
specific asset basis. Costs capitalized as part of initial
customer installations include materials, direct labor, and
certain indirect costs (overhead). These indirect
costs are associated with the activities of personnel who assist
in connecting and activating the new service and consist of
compensation and overhead costs associated with these support
functions. The costs of disconnecting service at a
customers dwelling or reconnecting service to a previously
installed dwelling are charged to operating expense in the
period incurred. Costs for repairs and maintenance are charged
to operating expense as incurred, while equipment replacement
and betterments, including replacement of cable drops from the
pole to the dwelling, are capitalized.
We make judgments regarding the installation and construction
activities to be capitalized. We capitalize direct labor and
overhead using standards developed from actual costs and
applicable operational data. We calculate standards for items
such as the labor rates, overhead rates and the actual amount of
time required to perform a capitalizable activity. For example,
the standard amounts of time required to perform capitalizable
activities are based on studies of the time required to perform
such activities. Overhead rates are established based on an
analysis of the nature of costs incurred in support of
capitalizable activities and a determination of the portion of
costs that is directly attributable to capitalizable activities.
The impact of changes that resulted from these studies were not
significant in the periods presented.
Labor costs directly associated with capital projects are
capitalized. We capitalize direct labor costs associated with
personnel based upon the specific time devoted to network
construction and customer installation activities. Capitalizable
activities performed in connection with customer installations
include such activities as:
|
|
|
|
|
Dispatching a truck roll to the customers
dwelling for service connection; |
|
|
|
Verification of serviceability to the customers dwelling
(i.e., determining whether the customers 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 customers network
connection by initiating test signals downstream from the
headend to the customers digital set-top terminal. |
78
Judgment is required to determine the extent to which overhead
is incurred as a result of specific capital activities, and
therefore should be capitalized. The primary costs that are
included in the determination of the overhead rate are
(i) employee benefits and payroll taxes associated with
capitalized direct labor, (ii) direct variable costs
associated with capitalizable activities, consisting primarily
of installation and construction vehicle costs, (iii) the
cost of support personnel, such as dispatch, that directly
assist with capitalizable installation activities, and
(iv) indirect costs directly attributable to capitalizable
activities.
While we believe our existing capitalization policies are
appropriate, a significant change in the nature or extent of our
system activities could affect managements judgment about
the extent to which we should capitalize direct labor or
overhead in the future. We monitor the appropriateness of our
capitalization policies, and perform updates to our internal
studies on an ongoing basis to determine whether facts or
circumstances warrant a change to our capitalization policies.
We capitalized internal direct labor and overhead of
$100 million, $185 million, $159 million and
$166 million, respectively, for the six months ended
June 30, 2006 and the years ended December 31, 2005,
2004 and 2003. Capitalized internal direct labor and overhead
costs have increased in 2005 as a result of the use of more
internal labor for capitalizable installations rather than third
party contractors.
Useful lives of property, plant and equipment. We
evaluate the appropriateness of estimated useful lives assigned
to our property, plant and equipment, based on annual analyses
of such useful lives, and revise such lives to the extent
warranted by changing facts and circumstances. Any changes in
estimated useful lives as a result of these analyses, which were
not significant in the periods presented, will be reflected
prospectively beginning in the period in which the study is
completed. The effect of a one-year decrease in the weighted
average remaining useful life of our property, plant and
equipment would be an increase in depreciation expense for the
year ended December 31, 2005 of approximately
$232 million. The effect of a one-year increase in the
weighted average useful life of our property, plant and
equipment would be a decrease in depreciation expense for the
year ended December 31, 2005 of approximately
$172 million.
Depreciation expense related to property, plant and equipment
totaled $687 million, $1.4 billion, $1.4 billion
and $1.4 billion, representing approximately 27%, 30%, 21%
and 34% of costs and expenses, for the six months ended
June 30, 2006 and the years ended December 31, 2005,
2004 and 2003, respectively. Depreciation is recorded using the
straight-line composite method over managements estimate
of the estimated useful lives of the related assets as listed
below:
|
|
|
Cable distribution systems
|
|
7-20 years |
Customer equipment and installations
|
|
3-5 years |
Vehicles and equipment
|
|
1-5 years |
Buildings and leasehold improvements
|
|
5-15 years |
Furniture, fixtures and equipment
|
|
5 years |
Impairment of property, plant and equipment, franchises
and goodwill. As discussed above, the net carrying value
of our property, plant and equipment is significant. We also
have recorded a significant amount of cost related to
franchises, pursuant to which we are granted the right to
operate our cable distribution network throughout our service
areas. The net carrying value of franchises as of June 30,
2006, December 31, 2005 and 2004 was approximately
$9.3 billion (representing 57% of total assets),
$9.8 billion (representing 60% of total assets) and $9.9
billion (representing 56% of total assets), respectively.
Furthermore, our noncurrent assets include approximately
$61 million of goodwill.
We adopted SFAS No. 142, Goodwill and Other
Intangible Assets, on January 1, 2002.
SFAS No. 142 requires that franchise intangible assets
that meet specified indefinite-life criteria no longer be
amortized against earnings, but instead must be tested for
impairment annually based on valuations, or more frequently as
warranted by events or changes in circumstances. In determining
whether our franchises have an indefinite-life, we considered
the exclusivity of the franchise, the expected costs of
franchise renewals, and the technological state of the
associated cable systems with a view to whether or
79
not we are in compliance with any technology upgrading
requirements. We have concluded that as of June 30, 2006,
December 31, 2005, 2004 and 2003 more than 99% of our
franchises qualify for indefinite-life treatment under
SFAS No. 142, and that less than one percent of our
franchises do not qualify for indefinite-life treatment due to
technological or operational factors that limit their lives.
Costs of finite-lived franchises, along with costs associated
with franchise renewals, are amortized on a straight-line basis
over 10 years, which represents managements best
estimate of the average remaining useful lives of such
franchises. Franchise amortization expense was approximately
$1 million, $4 million, $3 million and
$7 million for the six months ended June 30, 2006 and
the years ended December 31, 2005, 2004 and 2003,
respectively. We expect that amortization expense on franchise
assets will be approximately $2 million annually for each
of the next five years. Actual amortization expense in future
periods could differ from these estimates as a result of new
intangible asset acquisitions or divestitures, changes in useful
lives and other relevant factors. Our goodwill is also deemed to
have an indefinite life under SFAS No. 142.
SFAS No. 144, Accounting for Impairment or Disposal
of Long-Lived Assets, requires that we evaluate the
recoverability of our property, plant and equipment and
franchise assets which did not qualify for indefinite-life
treatment under SFAS No. 142 upon the occurrence of
events or changes in circumstances which indicate that the
carrying amount of an asset may not be recoverable. Such events
or changes in circumstances could include such factors as the
impairment of our indefinite-life franchises under
SFAS No. 142, changes in technological advances,
fluctuations in the fair value of such assets, adverse changes
in relationships with local franchise authorities, adverse
changes in market conditions or a deterioration of operating
results. Under SFAS No. 144, a long-lived asset is
deemed impaired when the carrying amount of the asset exceeds
the projected undiscounted future cash flows associated with the
asset. No impairments of long-lived assets were recorded in the
six months ended June 30, 2006 and the years ended
December 31, 2005, 2004 or 2003, however, approximately
$99 million and $39 million of impairment on assets
held for sale was recorded for the six months ended
June 30, 2006 and the year ended December 31, 2005. We
were also required to evaluate the recoverability of our
indefinite-life franchises, as well as goodwill, as of
January 1, 2002 upon adoption of SFAS No. 142,
and on an annual basis or more frequently as deemed necessary.
Under both SFAS No. 144 and SFAS No. 142, if
an asset is determined to be impaired, it is required to be
written down to its estimated fair market value. We determine
fair market value based on estimated discounted future cash
flows, using reasonable and appropriate assumptions that are
consistent with internal forecasts. Our assumptions include
these and other factors: penetration rates for analog and
digital video, high-speed Internet and telephone, revenue growth
rates, expected operating margins and capital expenditures.
Considerable management judgment is necessary to estimate future
cash flows, and such estimates include inherent uncertainties,
including those relating to the timing and amount of future cash
flows and the discount rate used in the calculation.
Based on the guidance prescribed in Emerging Issues Task Force
(EITF) Issue No. 02-7, Unit of Accounting
for Testing of Impairment of Indefinite-Lived Intangible
Assets, franchises were aggregated into essentially
inseparable asset groups to conduct the valuations. The asset
groups generally represent geographic clustering of our cable
systems into groups by which such systems are managed.
Management believes such groupings represent the highest and
best use of those assets.
Our valuations, which are based on the present value of
projected after tax cash flows, result in a value of property,
plant and equipment, franchises, customer relationships and our
total entity value. The value of goodwill is the difference
between the total entity value and amounts assigned to the other
assets. The use of different valuation assumptions or
definitions of franchises or customer relationships, such as our
inclusion of the value of selling additional services to our
current customers within customer relationships versus
franchises, could significantly impact our valuations and any
resulting impairment.
Franchises, for valuation purposes, are defined as the future
economic benefits of the right to solicit and service potential
customers (customer marketing rights), and the right to deploy
and market new services such as interactivity and telephone to
the potential customers (service marketing rights). Fair
80
value is determined based on estimated discounted future cash
flows using assumptions consistent with internal forecasts. The
franchise after-tax cash flow is calculated as the after-tax
cash flow generated by the potential customers obtained and the
new services added to those customers in future periods. The sum
of the present value of the franchises after-tax cash flow
in years 1 through 10 and the continuing value of the after-tax
cash flow beyond year 10 yields the fair value of the franchise.
Prior to the adoption of EITF Topic
D-108, Use of the
Residual Method to Value Acquired Assets Other than
Goodwill, discussed below, we followed a residual method of
valuing our franchise assets, which had the effect of including
goodwill with the franchise assets.
We follow the guidance of EITF
Issue 02-17,
Recognition of Customer Relationship Intangible Assets
Acquired in a Business Combination, in valuing customer
relationships. Customer relationships, for valuation purposes,
represent the value of the business relationship with our
existing customers and are calculated by projecting future
after-tax cash flows from these customers including the right to
deploy and market additional services such as interactivity and
telephone to these customers. The present value of these
after-tax cash flows yields the fair value of the customer
relationships. Substantially all our acquisitions occurred prior
to January 1, 2002. We did not record any value associated
with the customer relationship intangibles related to those
acquisitions. For acquisitions subsequent to January 1,
2002, we did assign a value to the customer relationship
intangible, which is amortized over its estimated useful life.
In September 2004, EITF Topic
D-108, Use of the
Residual Method to Value Acquired Assets Other than
Goodwill, was issued, which requires the direct method of
separately valuing all intangible assets and does not permit
goodwill to be included in franchise assets. We performed an
impairment assessment as of September 30, 2004, and adopted
Topic D-108 in that
assessment resulting in a total franchise impairment of
approximately $3.3 billion. We recorded a cumulative effect
of accounting change of $765 million (approximately
$875 million before tax effects of $91 million and
minority interest effects of $19 million) for the year
ended December 31, 2004 representing the portion of our
total franchise impairment attributable to no longer including
goodwill with franchise assets. The effect of the adoption was
to increase net loss and loss per share by $765 million and
$2.55, respectively, for the year ended December 31, 2004.
The remaining $2.4 billion of the total franchise
impairment was attributable to the use of lower projected growth
rates and the resulting revised estimates of future cash flows
in our valuation and was recorded as impairment of franchises in
our consolidated statements of operations for the year ended
December 31, 2004. Sustained analog video customer losses
by us and our industry peers in the third quarter of 2004
primarily as a result of increased competition from DBS
providers and decreased growth rates in our and our industry
peers high-speed Internet customers in the third quarter
of 2004, in part as a result of increased competition from DSL
providers, led us to lower our projected growth rates and
accordingly revise our estimates of future cash flows from those
used at October 1, 2003. See Business
Competition.
The 2003 and 2005 valuations showed franchise values in excess
of book value and thus resulted in no impairment.
The valuations used in our impairment assessments involve
numerous assumptions as noted above. While economic conditions,
applicable at the time of the valuation, indicate the
combination of assumptions utilized in the valuations are
reasonable, as market conditions change so will the assumptions
with a resulting impact on the valuation and consequently the
potential impairment charge.
Sensitivity Analysis. The effect on franchise
values as of October 1, 2005 of the indicated
increase/decrease in the selected assumptions is shown below:
|
|
|
|
|
|
|
|
|
|
|
Percentage/ | |
|
Franchise Value | |
|
|
Percentage Point | |
|
Increase/(Decrease) | |
Assumption |
|
Change | |
|
(Dollars in millions) | |
|
|
| |
|
| |
Annual Operating Cash Flow(1)
|
|
|
+/-5% |
|
|
$ |
1,200/$(1,200) |
|
Long-Term Growth Rate(2)
|
|
|
+/-1pts(3) |
|
|
|
1,700/(1,300) |
|
Discount Rate
|
|
|
+/-0.5pts(3) |
|
|
|
(1,300)/1,500 |
|
81
|
|
(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. All operations are held through
Charter Holdco and its direct and indirect subsidiaries. Charter
Holdco and the majority of its subsidiaries are not subject to
income tax. However, certain of these subsidiaries are
corporations and are subject to income tax. All of the taxable
income, gains, losses, deductions and credits of Charter Holdco
are passed through to its members: Charter, CII and Vulcan
Cable III Inc. Charter is responsible for its share of
taxable income or loss of Charter Holdco allocated to it in
accordance with the Charter Holdco limited liability company
agreement (LLC Agreement) and partnership tax rules
and regulations.
The LLC Agreement provides for certain special allocations of
net tax profits and net tax losses (such net tax profits and net
tax losses being determined under the applicable federal income
tax rules for determining capital accounts). Under the LLC
Agreement, through the end of 2003, net tax losses of Charter
Holdco that would otherwise have been allocated to Charter based
generally on its percentage ownership of outstanding common
units were allocated instead to membership units held by Vulcan
Cable III Inc. and CII (the Special Loss
Allocations) to the extent of their respective capital
account balances. After 2003, under the LLC Agreement, net tax
losses of Charter Holdco are allocated to Charter, Vulcan
Cable III Inc. and CII based generally on their respective
percentage ownership of outstanding common units to the extent
of their respective capital account balances. Allocations of net
tax losses in excess of the members aggregate capital
account balances are allocated under the rules governing
Regulatory Allocations, as described below. Subject to the
Curative Allocation Provisions described below, the LLC
Agreement further provides that, beginning at the time Charter
Holdco generates net tax profits, the net tax profits that would
otherwise have been allocated to Charter based generally on its
percentage ownership of outstanding common membership units will
instead generally be allocated to Vulcan Cable III Inc. and
CII (the Special Profit Allocations). The Special
Profit Allocations to Vulcan Cable III Inc. and CII will
generally continue until the cumulative amount of the Special
Profit Allocations offsets the cumulative amount of the Special
Loss Allocations. The amount and timing of the Special Profit
Allocations are subject to the potential application of, and
interaction with, the Curative Allocation Provisions described
in the following paragraph. The LLC Agreement generally provides
that any additional net tax profits are to be allocated among
the members of Charter Holdco based generally on their
respective percentage ownership of Charter Holdco common
membership units.
Because the respective capital account balance of each of Vulcan
Cable III Inc. and CII was reduced to zero by
December 31, 2002, certain net tax losses of Charter Holdco
that were to be allocated for 2002, 2003, 2004 and 2005, to
Vulcan Cable III Inc. and CII instead have been allocated
to Charter (the Regulatory Allocations). As a result
of the allocation of net tax losses to Charter in 2005,
Charters capital account balance was reduced to zero
during 2005. The LLC Agreement provides that once the capital
account balances of all members have been reduced to zero, net
tax losses are to be allocated to Charter, Vulcan Cable III
Inc. and CII based generally on their respective percentage
ownership of outstanding common units. Such allocations are also
considered to be Regulatory Allocations. The LLC Agreement
further provides that, to the extent possible, the effect of the
Regulatory Allocations is to be offset over time pursuant to
certain curative allocation provisions (the Curative
Allocation Provisions) so that, after certain offsetting
adjustments are made, each members capital account balance
is equal to the capital account balance such member would have
had if the Regulatory Allocations had not been part of the LLC
Agreement. The cumulative amount of the actual tax losses
allocated to Charter as a result of the Regulatory Allocations
through the year ended December 31, 2005 is approximately
$4.1 billion.
As a result of the Special Loss Allocations and the Regulatory
Allocations referred to above (and their interaction with the
allocations related to assets contributed to Charter Holdco with
differences between book and tax basis), the cumulative amount
of losses of Charter Holdco allocated to Vulcan Cable III
Inc. and CII is in excess of the amount that would have been
allocated to such entities if the
82
losses of Charter Holdco had been allocated among its members in
proportion to their respective percentage ownership of Charter
Holdco common membership units. The cumulative amount of such
excess losses was approximately $977 million through
December 31, 2005.
In certain situations, the Special Loss Allocations, Special
Profit Allocations, Regulatory Allocations and Curative
Allocation Provisions described above could result in Charter
paying taxes in an amount that is more or less than if Charter
Holdco had allocated net tax profits and net tax losses among
its members based generally on the number of common membership
units owned by such members. This could occur due to differences
in (i) the character of the allocated income (e.g.,
ordinary versus capital), (ii) the allocated amount and
timing of tax depreciation and tax amortization expense due to
the application of section 704(c) under the Internal
Revenue Code, (iii) the potential interaction between the
Special Profit Allocations and the Curative Allocation
Provisions, (iv) the amount and timing of alternative
minimum taxes paid by Charter, if any, (v) the
apportionment of the allocated income or loss among the states
in which Charter Holdco does business, and (vi) future
federal and state tax laws. Further, in the event of new capital
contributions to Charter Holdco, it is possible that the tax
effects of the Special Profit Allocations, Special Loss
Allocations, Regulatory Allocations and Curative Allocation
Provisions will change significantly pursuant to the provisions
of the income tax regulations or the terms of a contribution
agreement with respect to such contributions. Such change could
defer the actual tax benefits to be derived by Charter with
respect to the net tax losses allocated to it or accelerate the
actual taxable income to Charter with respect to the net tax
profits allocated to it. As a result, it is possible under
certain circumstances, that Charter could receive future
allocations of taxable income in excess of its currently
allocated tax deductions and available tax loss carryforwards.
The ability to utilize net operating loss carryforwards is
potentially subject to certain limitations as discussed below.
In addition, under their exchange agreement with Charter, Vulcan
Cable III Inc. and CII may exchange some or all of their
membership units in Charter Holdco for Charters
Class B common stock, be merged with Charter, or be
acquired by Charter in a non-taxable reorganization. If such an
exchange were to take place prior to the date that the Special
Profit Allocation provisions had fully offset the Special Loss
Allocations, Vulcan Cable III Inc. and CII could elect to
cause Charter Holdco to make the remaining Special Profit
Allocations to Vulcan Cable III Inc. and CII immediately
prior to the consummation of the exchange. In the event Vulcan
Cable III Inc. and CII choose not to make such election or
to the extent such allocations are not possible, Charter would
then be allocated tax profits attributable to the membership
units received in such exchange pursuant to the Special Profit
Allocation provisions. Mr. Allen has generally agreed to
reimburse Charter for any incremental income taxes that Charter
would owe as a result of such an exchange and any resulting
future Special Profit Allocations to Charter. The ability of
Charter to utilize net operating loss carryforwards is
potentially subject to certain limitations (See Risk
Factors Risks Related to Charters Future
Ability to Utilize Net Operating Loss Carryforwards). If
Charter were to become subject to such limitations (whether as a
result of an exchange described above or otherwise), and as a
result were to owe taxes resulting from the Special Profit
Allocations, then Mr. Allen may not be obligated to
reimburse Charter for such income taxes.
As of June 30, 2006 and December 31, 2005 and 2004, we
have recorded net deferred income tax liabilities of $385,
$325 million and $216 million, respectively.
Additionally, as of June 30, 2006, December 31, 2005
and 2004, we have deferred tax assets of $4.5 billion,
$4.2 billion and $3.8 billion, respectively, which
primarily relate to financial and tax losses allocated to
Charter from Charter Holdco. We are required to record a
valuation allowance when it is more likely than not that some
portion or all of the deferred income tax assets will not be
realized. Given the uncertainty surrounding our ability to
utilize our deferred tax assets, these items have been offset
with a corresponding valuation allowance of $4.0 billion,
$3.7 billion and $3.5 billion at June 30, 2006,
December 31, 2005 and 2004, respectively.
Charter Holdco is currently under examination by the Internal
Revenue Service for the tax years ending December 31, 2002
and 2003. Our results (excluding Charter and our indirect
corporate subsidiaries) for these years are subject to this
examination. Management does not expect the results of this
examination to have a material adverse effect on our
consolidated financial condition, results of operations or our
liquidity, including our ability to comply with our debt
covenants.
83
Litigation. Legal contingencies have a high degree
of uncertainty. When a loss from a contingency becomes estimable
and probable, a reserve is established. The reserve reflects
managements best estimate of the probable cost of ultimate
resolution of the matter and is revised accordingly as facts and
circumstances change and, ultimately when the matter is brought
to closure. We have established reserves for certain matters and
if any of these matters are resolved unfavorably resulting in
payment obligations in excess of managements best estimate
of the outcome, such resolution could have a material adverse
effect on our consolidated financial condition, results of
operations or our liquidity.
RESULTS OF OPERATIONS
|
|
|
Six Months Ended June 30, 2006 Compared to Six Months
Ended June 30, 2005 |
The following table sets forth the percentages of revenues that
items in the accompanying condensed consolidated statements of
operations constituted for the periods presented (dollars in
millions, except per share and share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
Revenues
|
|
$ |
2,703 |
|
|
|
100% |
|
|
$ |
2,481 |
|
|
|
100% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (excluding depreciation and amortization)
|
|
|
1,215 |
|
|
|
45% |
|
|
|
1,081 |
|
|
|
44% |
|
|
Selling, general and administrative
|
|
|
551 |
|
|
|
20% |
|
|
|
483 |
|
|
|
19% |
|
|
Depreciation and amortization
|
|
|
690 |
|
|
|
26% |
|
|
|
730 |
|
|
|
29% |
|
|
Asset impairment charges
|
|
|
99 |
|
|
|
4% |
|
|
|
39 |
|
|
|
2% |
|
|
Other operating expenses, net
|
|
|
10 |
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,565 |
|
|
|
95% |
|
|
|
2,339 |
|
|
|
94% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income from continuing operations
|
|
|
138 |
|
|
|
5% |
|
|
|
142 |
|
|
|
6% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(943 |
) |
|
|
|
|
|
|
(871 |
) |
|
|
|
|
|
Other income (expenses), net
|
|
|
(10 |
) |
|
|
|
|
|
|
49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(953 |
) |
|
|
|
|
|
|
(822 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(815 |
) |
|
|
|
|
|
|
(680 |
) |
|
|
|
|
Income tax expense
|
|
|
(60 |
) |
|
|
|
|
|
|
(56 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(875 |
) |
|
|
|
|
|
|
(736 |
) |
|
|
|
|
Income from discontinued operations, net of tax
|
|
|
34 |
|
|
|
|
|
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(841 |
) |
|
|
|
|
|
|
(707 |
) |
|
|
|
|
Dividends on preferred stock redeemable
|
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss applicable to common stock
|
|
$ |
(841 |
) |
|
|
|
|
|
$ |
(709 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per common share, basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
$ |
(2.76 |
) |
|
|
|
|
|
$ |
(2.43 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(2.65 |
) |
|
|
|
|
|
$ |
(2.34 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, basic and diluted
|
|
|
317,531,492 |
|
|
|
|
|
|
|
303,465,474 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues. The overall increase in revenues from
continuing operations in 2006 compared to 2005 is principally
the result of an increase from June 30, 2005 of 343,800
high-speed Internet customers, 194,300 digital video customers
and 189,800 telephone customers, as well as price increases for
video and high-speed Internet services, and is offset partially
by a decrease of 41,400 analog video customers. Our goal is
84
to increase revenues by improving customer service, which we
believe will stabilize our analog video customer base,
implementing price increases on certain services and packages
and increasing the number of customers who purchase high-speed
Internet services, digital video and advanced products and
services such as telephone, VOD, high definition television and
digital video recorder service.
Average monthly revenue per analog video customer increased to
$79.73 for the six months ended June 30, 2006 from $72.47
for the six months ended June 30, 2005 primarily as a
result of incremental revenues from advanced services and price
increases. Average monthly revenue per analog video customer
represents total revenue for the six months ended during the
respective period, divided by six, divided by the average number
of analog video customers during the respective period.
Revenues by service offering were as follows (dollars in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
|
|
|
| |
|
| |
|
2006 over 2005 | |
|
|
|
|
% of | |
|
|
|
% of | |
|
| |
|
|
Revenues | |
|
Revenues | |
|
Revenues | |
|
Revenues | |
|
Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Video
|
|
$ |
1,684 |
|
|
|
62% |
|
|
$ |
1,623 |
|
|
|
66% |
|
|
$ |
61 |
|
|
|
4% |
|
High-speed Internet
|
|
|
506 |
|
|
|
19% |
|
|
|
425 |
|
|
|
17% |
|
|
|
81 |
|
|
|
19% |
|
Telephone
|
|
|
49 |
|
|
|
2% |
|
|
|
14 |
|
|
|
1% |
|
|
|
35 |
|
|
|
250% |
|
Advertising sales
|
|
|
147 |
|
|
|
5% |
|
|
|
135 |
|
|
|
5% |
|
|
|
12 |
|
|
|
9% |
|
Commercial
|
|
|
149 |
|
|
|
6% |
|
|
|
128 |
|
|
|
5% |
|
|
|
21 |
|
|
|
16% |
|
Other
|
|
|
168 |
|
|
|
6% |
|
|
|
156 |
|
|
|
6% |
|
|
|
12 |
|
|
|
8% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,703 |
|
|
|
100% |
|
|
$ |
2,481 |
|
|
|
100% |
|
|
$ |
222 |
|
|
|
9% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Video revenues consist primarily of revenues from analog and
digital video services provided to our non-commercial customers.
Approximately $58 million of the increase was the result of
price increases and incremental video revenues from existing
customers and approximately $24 million was the result of
an increase in digital video customers. The increases were
offset by decreases of approximately $21 million related to
a decrease in analog video customers.
Approximately $73 million of the increase in revenues from
high-speed Internet services provided to our non-commercial
customers related to the increase in the average number of
customers receiving high-speed Internet services, whereas
approximately $8 million related to the increase in average
price of the service.
Revenues from telephone services increased primarily as a result
of an increase of 189,800 telephone customers in 2006.
Advertising sales revenues consist primarily of revenues from
commercial advertising customers, programmers and other vendors.
Advertising sales revenues increased primarily as a result of an
increase in local advertising sales and a one-time ad buy by a
programmer. For the six months ended June 30, 2006 and
2005, we received $10 million and $6 million,
respectively, in advertising sales revenues from programmers.
Commercial revenues consist primarily of revenues from video and
high-speed Internet services provided to our commercial
customers. Commercial revenues increased primarily as a result
of an increase in commercial high-speed Internet revenues.
Other revenues consist of revenues from franchise fees,
equipment rental, customer installations, home shopping,
dial-up Internet
service, late payment fees, wire maintenance fees and other
miscellaneous revenues. For the six months ended June 30,
2006 and 2005, franchise fees represented approximately 53% of
total other revenues. The increase in other revenues was
primarily the result of an increase in franchise fees of
$5 million, installation revenue of $3 million and
wire maintenance fees of $4 million.
85
Operating expenses. Programming costs represented
62% and 63% of operating expenses for the six months ended
June 30, 2006 and 2005, respectively. Key expense
components as a percentage of revenues were as follows (dollars
in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
|
|
|
| |
|
| |
|
2006 over 2005 | |
|
|
|
|
% of | |
|
|
|
% of | |
|
| |
|
|
Expenses | |
|
Revenues | |
|
Expenses | |
|
Revenues | |
|
Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Programming
|
|
$ |
755 |
|
|
|
28% |
|
|
$ |
678 |
|
|
|
27% |
|
|
$ |
77 |
|
|
|
11% |
|
Service
|
|
|
408 |
|
|
|
15% |
|
|
|
356 |
|
|
|
15% |
|
|
|
52 |
|
|
|
15% |
|
Advertising sales
|
|
|
52 |
|
|
|
2% |
|
|
|
47 |
|
|
|
2% |
|
|
|
5 |
|
|
|
11% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,215 |
|
|
|
45% |
|
|
$ |
1,081 |
|
|
|
44% |
|
|
$ |
134 |
|
|
|
12% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Programming costs consist primarily of costs paid to programmers
for analog, premium, digital channels, VOD and pay-per-view
programming. The increase in programming costs was primarily a
result of rate increases and increases in digital video
customers. Programming costs were offset by the amortization of
payments received from programmers in support of launches of new
channels of $8 million and $17 million for the six
months ended June 30, 2006 and 2005, respectively.
Our cable programming costs have increased in every year we have
operated in excess of customary inflationary and
cost-of-living
increases. We expect them to continue to increase due to a
variety of factors, including annual increases imposed by
programmers and additional programming being provided to
customers as a result of system rebuilds and bandwidth
reallocation, both of which increase channel capacity. In 2006,
programming costs have increased and we expect will continue to
increase at a higher rate than in 2005. These costs will be
determined in part on the outcome of programming negotiations in
2006 and may be subject to offsetting events. Our increasing
programming costs have resulted in declining operating margins
on our video services because we have been unable to pass on all
cost increases to our customers. We expect to partially offset
the resulting margin compression on our traditional video
services with revenue from advanced video services, increased
telephone revenues, high-speed Internet revenues, advertising
revenues and commercial service revenues.
Service costs consist primarily of service personnel salaries
and benefits, franchise fees, system utilities, costs of
providing high-speed Internet service and telephone service,
maintenance and pole rent expense. The increase in service costs
resulted primarily from increased costs of providing high-speed
Internet and telephone service of $16 million, an increase
in service personnel salaries and benefits of $14 million,
higher fuel and utility prices of $8 million, increased
labor and maintenance costs to support improved service levels
and our advanced products of $7 million and franchise fees
of $5 million. Advertising sales expenses consist of costs
related to traditional advertising services provided to
advertising customers, including salaries, benefits and
commissions. Advertising sales expenses increased primarily as a
result of increased salary, benefit and commission costs.
Selling, general and administrative expenses. Key
components of expense as a percentage of revenues were as
follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
|
|
|
| |
|
| |
|
2006 over 2005 | |
|
|
|
|
% of | |
|
|
|
% of | |
|
| |
|
|
Expenses | |
|
Revenues | |
|
Expenses | |
|
Revenues | |
|
Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
General and administrative
|
|
$ |
471 |
|
|
|
17% |
|
|
$ |
418 |
|
|
|
17% |
|
|
$ |
53 |
|
|
|
13% |
|
Marketing
|
|
|
80 |
|
|
|
3% |
|
|
|
65 |
|
|
|
2% |
|
|
|
15 |
|
|
|
23% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
551 |
|
|
|
20% |
|
|
$ |
483 |
|
|
|
19% |
|
|
$ |
68 |
|
|
|
14% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses consist primarily of
salaries and benefits, rent expense, billing costs, customer
care center costs, internal network costs, bad debt expense and
property taxes. The increase in general and administrative
expenses resulted primarily from a rise in salaries and benefits
of
86
$34 million, increases in billing costs of $7 million,
computer maintenance of $5 million, bad debt expense of
$5 million, telephone expense of $4 million, contractor
labor of $3 million and property and casualty insurance of
$2 million partially offset by decreases in consulting
services of $8 million.
Marketing expenses increased as a result of increased spending
in targeted marketing campaigns consistent with
managements strategy to increase revenues.
Depreciation and amortization. Depreciation and
amortization expense decreased by $40 million for the six
months ended June 30, 2006 compared to the six months ended
June 30, 2005. The decrease in depreciation was primarily
the result of assets becoming fully depreciated.
Asset impairment charges. Asset impairment charges
for the six months ended June 30, 2006 and 2005 represent
the write-down of assets related to cable asset sales to fair
value less costs to sell. See Note 3 to the condensed
consolidated financial statements.
Other operating expenses, net. Other operating
expenses, net increased $4 million as a result of an
$8 million increase in special charges primarily related to
severance associated with closing call centers and divisional
restructuring and a $4 million decrease related to losses
on sales of assets.
Interest expense, net. Net interest expense
increased by $72 million, or 8%, for the six months ended
June 30, 2006 compared to the six months ended
June 30, 2005. The increase in net interest expense was a
result of an increase in our average borrowing rate from 8.89%
in the six months ended June 30, 2005 to 9.42% in the six
months ended June 30, 2006 and an increase of
$204 million in average debt outstanding from
$19.4 billion for the six months ended June 30, 2005
compared to $19.6 billion for the six months ended
June 30, 2006.
Other income (expenses), net. Other income
decreased $59 million from other income of $49 million
for the six months ended June 30, 2005 to other expense of
$10 million for the six months ended June 30, 2006
primarily as a result of a $35 million decrease in the gain
(loss) on extinguishment of debt from an $8 million gain
for the six months ended June 30, 2005 to a loss of
$27 million for the six months ended June 30, 2006.
See Note 6 to the condensed consolidated financial
statements included in this Exchange Offer Prospectus. Other
income also decreased as a result of a $15 million decrease
in net gains on derivative instruments and hedging activities as
a result of decreases in gains on interest rate agreements that
do not qualify for hedge accounting under Statement of Financial
Accounting Standards (SFAS) No. 133,
Accounting for Derivative Instruments and Hedging
Activities. In addition, the six months ended June 30,
2005 included a $20 million gain on investments for the six
months ended June 30, 2005 recognized as a result of a gain
realized on an exchange of our interest in an equity investee
for an investment in a larger enterprise. Other income also
includes the 2% accretion of the preferred membership interests
in our indirect subsidiary, CC VIII, and the pro rata share of
the profits and losses of CC VIII.
Income tax expense. Income tax expense was
recognized through increases in deferred tax liabilities related
to our investment in Charter Holdco, as well as through current
federal and state income tax expense and increases in the
deferred tax liabilities of certain of our indirect corporate
subsidiaries. Income tax expense was offset by deferred tax
benefits of $21 million and $6 million related to
asset impairment charges recorded in the six months ended
June 30, 2006 and 2005, respectively.
Income from discontinued operations, net of tax.
Income from discontinued operations, net of tax increased from
$29 million for the six months ended June 30, 2005 to
$34 million for the six months ended June 30, 2006
primarily due to a decrease in depreciation for the six months
ended June 30, 2006 as we ceased recognizing depreciation
on the West Virginia and Virginia cable systems when we
classified them as assets held for sale in the first quarter of
2006.
Net loss. Net loss increased by $134 million,
or 19%, for the six months ended June 30, 2006 compared to
the six months ended June 30, 2005 as a result of the
factors described above.
Preferred stock dividends. On August 31,
2001, Charter issued 505,664 shares (and on
February 28, 2003 issued an additional 39,595 shares)
of Series A Convertible Redeemable Preferred Stock in
87
connection with the Cable USA acquisition, on which Charter pays
or accrues a quarterly cumulative cash dividend at an annual
rate of 5.75% if paid or 7.75% if accrued on a liquidation
preference of $100 per share. Beginning January 1,
2005, Charter accrues the dividend on its Series A
Convertible Redeemable Preferred Stock. In November 2005, we
repurchased 508,546 shares of our Series A Convertible
Redeemable Preferred Stock. Following the repurchase,
36,713 shares of preferred stock remain outstanding.
Loss per common share. Loss per common share
increased by $0.31, or 13%, for the six months ended
June 30, 2006 compared to the six months ended
June 30, 2005 as a result of the factors described above.
88
|
|
|
Year Ended December 31, 2005, December 31, 2004 and
December 31, 2003 |
The following table sets forth the percentage of revenues that
items in the accompanying consolidated statements of operations
constitute for the indicated periods (dollars in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Revenues
|
|
$ |
5,033 |
|
|
|
100 |
% |
|
$ |
4,760 |
|
|
|
100 |
% |
|
$ |
4,616 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (excluding depreciation and amortization)
|
|
|
2,203 |
|
|
|
44 |
% |
|
|
1,994 |
|
|
|
42 |
% |
|
|
1,873 |
|
|
|
41 |
% |
|
Selling, general and administrative
|
|
|
1,012 |
|
|
|
20 |
% |
|
|
965 |
|
|
|
20 |
% |
|
|
909 |
|
|
|
20 |
% |
|
Depreciation and amortization
|
|
|
1,443 |
|
|
|
29 |
% |
|
|
1,433 |
|
|
|
30 |
% |
|
|
1,396 |
|
|
|
30 |
% |
|
Impairment of franchises
|
|
|
|
|
|
|
|
|
|
|
2,297 |
|
|
|
48 |
% |
|
|
|
|
|
|
|
|
|
Asset impairment charges
|
|
|
39 |
|
|
|
1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating (income) expenses, net
|
|
|
32 |
|
|
|
|
|
|
|
13 |
|
|
|
|
|
|
|
(46 |
) |
|
|
(1 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,729 |
|
|
|
94 |
% |
|
|
6,702 |
|
|
|
140 |
% |
|
|
4,132 |
|
|
|
90 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) from continuing operations
|
|
|
304 |
|
|
|
6 |
% |
|
|
(1,942 |
) |
|
|
(40 |
)% |
|
|
484 |
|
|
|
10 |
% |
|
Interest expense, net
|
|
|
(1,789 |
) |
|
|
|
|
|
|
(1,670 |
) |
|
|
|
|
|
|
(1,557 |
) |
|
|
|
|
|
Gain (loss) on extinguishment of debt and preferred stock
|
|
|
521 |
|
|
|
|
|
|
|
(31 |
) |
|
|
|
|
|
|
267 |
|
|
|
|
|
|
Other income, net
|
|
|
73 |
|
|
|
|
|
|
|
68 |
|
|
|
|
|
|
|
443 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes and
cumulative effect of accounting change
|
|
|
(891 |
) |
|
|
|
|
|
|
(3,575 |
) |
|
|
|
|
|
|
(363 |
) |
|
|
|
|
|
Income tax benefit (expense)
|
|
|
(112 |
) |
|
|
|
|
|
|
134 |
|
|
|
|
|
|
|
122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before cumulative effect of
accounting change
|
|
|
(1,003 |
) |
|
|
|
|
|
|
(3,441 |
) |
|
|
|
|
|
|
(241 |
) |
|
|
|
|
|
Income (loss) from discontinued operations, net of tax
|
|
|
36 |
|
|
|
|
|
|
|
(135 |
) |
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before cumulative effect of accounting change
|
|
|
(967 |
) |
|
|
|
|
|
|
(3,576 |
) |
|
|
|
|
|
|
(238 |
) |
|
|
|
|
|
Cumulative effect of accounting change, net of tax
|
|
|
|
|
|
|
|
|
|
|
(765 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(967 |
) |
|
|
|
|
|
|
(4,341 |
) |
|
|
|
|
|
|
(238 |
) |
|
|
|
|
|
Dividends on preferred stock redeemable
|
|
|
(3 |
) |
|
|
|
|
|
|
(4 |
) |
|
|
|
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss applicable to common stock
|
|
$ |
(970 |
) |
|
|
|
|
|
$ |
(4,345 |
) |
|
|
|
|
|
$ |
(242 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per common share, basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
$ |
(3.24 |
) |
|
|
|
|
|
$ |
(11.47 |
) |
|
|
|
|
|
$ |
(0.83 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(3.13 |
) |
|
|
|
|
|
$ |
(14.47 |
) |
|
|
|
|
|
$ |
(0.82 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
310,159,047 |
|
|
|
|
|
|
|
300,291,877 |
|
|
|
|
|
|
|
294,597,519 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89
|
|
|
Year Ended December 31, 2005 Compared to Year Ended
December 31, 2004 |
Revenues. The overall increase in revenues in 2005
compared to 2004 is principally the result of an increase from
December 31, 2004 of 306,000 and 124,600 high-speed
Internet customers and digital video customers, respectively, as
well as price increases for video and high-speed Internet
services, and is offset partially by a decrease of 79,100 analog
video customers and $12 million of credits issued to
hurricane Katrina and Rita impacted customers related to service
outages. We have restored service to our impacted customers.
Included in the reduction in analog video customers and reducing
the increase in digital video and high-speed Internet customers
are 26,800 analog video customers, 12,000 digital video
customers and 600 high-speed Internet customers sold in the
cable system sales in Texas and West Virginia, which closed in
July 2005. The cable system sales to Atlantic Broadband Finance,
LLC, which closed in March and April 2004 and the cable system
sales in Texas and West Virginia, which closed in July 2005
(collectively referred to in this section as the Systems
Sales) reduced the increase in revenues by approximately
$30 million.
Average monthly revenue per analog video customer increased from
$67.37 for the year ended December 31, 2004 to $73.73 for
the year ended December 31, 2005 primarily as a result of
price increases and incremental revenues from advanced services.
Average monthly revenue per analog video customer represents
total annual revenue, divided by twelve, divided by the average
number of analog video customers during the respective period.
Revenues by service offering were as follows (dollars in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2005 over 2004 | |
|
|
| |
|
| |
|
| |
|
|
Revenues | |
|
% of Revenues | |
|
Revenues | |
|
% of Revenues | |
|
Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Video
|
|
$ |
3,248 |
|
|
|
65 |
% |
|
$ |
3,217 |
|
|
|
68 |
% |
|
$ |
31 |
|
|
|
1 |
% |
High-speed Internet
|
|
|
875 |
|
|
|
17 |
% |
|
|
712 |
|
|
|
15 |
% |
|
|
163 |
|
|
|
23 |
% |
Telephone
|
|
|
36 |
|
|
|
1 |
% |
|
|
18 |
|
|
|
|
|
|
|
18 |
|
|
|
100 |
% |
Advertising sales
|
|
|
284 |
|
|
|
6 |
% |
|
|
279 |
|
|
|
6 |
% |
|
|
5 |
|
|
|
2 |
% |
Commercial
|
|
|
266 |
|
|
|
5 |
% |
|
|
227 |
|
|
|
5 |
% |
|
|
39 |
|
|
|
17 |
% |
Other
|
|
|
324 |
|
|
|
6 |
% |
|
|
307 |
|
|
|
6 |
% |
|
|
17 |
|
|
|
6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,033 |
|
|
|
100 |
% |
|
$ |
4,760 |
|
|
|
100 |
% |
|
$ |
273 |
|
|
|
6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Video revenues consist primarily of revenues from analog and
digital video services provided to our non-commercial customers.
Approximately $119 million of the increase in video
revenues was the result of price increases and incremental video
revenues from existing customers and approximately
$18 million was the result of an increase in digital video
customers. The increases were offset by decreases of
approximately $76 million related to a decrease in analog
video customers, approximately $21 million resulting from
the System Sales and approximately $9 million of credits
issued to hurricanes Katrina and Rita impacted customers related
to service outages.
Approximately $135 million of the increase in revenues from
high-speed Internet services provided to our non-commercial
customers related to the increase in the average number of
customers receiving high-speed Internet services, whereas
approximately $34 million related to the increase in
average price of the service. The increase was offset by
approximately $3 million of credits issued to hurricanes
Katrina and Rita impacted customers related to service outages
and $3 million resulting from the System Sales.
Revenues from telephone services increased primarily as a result
of an increase of 76,100 telephone customers in 2005.
Advertising sales revenues consist primarily of revenues from
commercial advertising customers, programmers and other vendors.
Advertising sales revenues increased primarily as a result of an
increase in local advertising sales and offset by a decline in
national advertising sales. In addition, the increase was
90
offset by a decrease of $1 million as a result of the
System Sales. For the years ended December 31, 2005 and
2004, we received $15 million and $16 million,
respectively, in advertising sales revenues from programmers.
Commercial revenues consist primarily of revenues from cable
video and high-speed Internet services provided to our
commercial customers. Commercial revenues increased primarily as
a result of an increase in commercial high-speed Internet
revenues. The increase was reduced by approximately
$3 million as a result of the System Sales.
Other revenues consist of revenues from franchise fees,
equipment rental, customer installations, home shopping,
dial-up Internet
service, late payment fees, wire maintenance fees and other
miscellaneous revenues. For the years ended December 31,
2005 and 2004, franchise fees represented approximately 54% and
52%, respectively, of total other revenues. The increase in
other revenues was primarily the result of an increase in
franchise fees of $14 million and installation revenue of
$8 million offset by a decrease of $2 million in
equipment rental and $2 million in processing fees. In
addition, other revenues were offset by approximately
$2 million as a result of the System Sales.
Operating expenses. The overall increase in
operating expenses was reduced by approximately $12 million
as a result of the System Sales. Programming costs were
$1.4 billion and $1.3 billion, representing 62% and
63% of total operating expenses for the years ended
December 31, 2005 and 2004, respectively. Key expense
components as a percentage of revenues were as follows (dollars
in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2005 over 2004 | |
|
|
| |
|
| |
|
| |
|
|
|
|
% of | |
|
|
|
% of | |
|
|
|
% | |
|
|
Expenses | |
|
Revenues | |
|
Expenses | |
|
Revenues | |
|
Change | |
|
Change | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Programming
|
|
$ |
1,359 |
|
|
|
27 |
% |
|
$ |
1,264 |
|
|
|
27 |
% |
|
$ |
95 |
|
|
|
8 |
% |
Service
|
|
|
748 |
|
|
|
15 |
% |
|
|
638 |
|
|
|
13 |
% |
|
|
110 |
|
|
|
17 |
% |
Advertising sales
|
|
|
96 |
|
|
|
2 |
% |
|
|
92 |
|
|
|
2 |
% |
|
|
4 |
|
|
|
4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,203 |
|
|
|
44 |
% |
|
$ |
1,994 |
|
|
|
42 |
% |
|
$ |
209 |
|
|
|
10 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Programming costs consist primarily of costs paid to programmers
for analog, premium, digital channels and pay-per-view
programming. The increase in programming was a result of price
increases, particularly in sports programming, partially offset
by a decrease in analog video customers. Additionally, the
increase in programming costs was reduced by $9 million as
a result of the Systems Sales. Programming costs were offset by
the amortization of payments received from programmers in
support of launches of new channels of $40 million and
$59 million for the year ended December 31, 2005 and
2004, respectively. Programming costs for the year ended
December 31, 2004 also include a $5 million reduction
related to the settlement of a dispute with TechTV, Inc., a
related party. See Note 25 to the accompanying consolidated
financial statements included in this Exchange Offer Prospectus.
Service costs consist primarily of service personnel salaries
and benefits, franchise fees, system utilities, cost of
providing high-speed Internet and telephone service, maintenance
and pole rental expense. The increase in service costs resulted
primarily from increased labor and maintenance costs to support
improved service levels and our advanced products, increased
costs of providing high-speed Internet and telephone service as
a result of the increase in these customers and higher fuel
prices. The increase in service costs was reduced by
$3 million as a result of the System Sales. Advertising
sales expenses consist of costs related to traditional
advertising services provided to advertising customers,
including salaries, benefits and commissions. Advertising sales
expenses increased primarily as a result of increased salary,
benefit and commission costs.
91
Selling, general and administrative expenses. The
overall increase in selling, general and administrative expenses
was reduced by $4 million as a result of the System Sales.
Key components of expense as a percentage of revenues were as
follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2005 over 2004 | |
|
|
| |
|
| |
|
| |
|
|
|
|
% of | |
|
|
|
% of | |
|
|
|
% | |
|
|
Expenses | |
|
Revenues | |
|
Expenses | |
|
Revenues | |
|
Change | |
|
Change | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
General and administrative
|
|
$ |
870 |
|
|
|
17 |
% |
|
$ |
846 |
|
|
|
18 |
% |
|
$ |
24 |
|
|
|
3 |
% |
Marketing
|
|
|
142 |
|
|
|
3 |
% |
|
|
119 |
|
|
|
2 |
% |
|
|
23 |
|
|
|
19 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,012 |
|
|
|
20 |
% |
|
$ |
965 |
|
|
|
20 |
% |
|
$ |
47 |
|
|
|
5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses consist primarily of
salaries and benefits, rent expense, billing costs, call center
costs, internal network costs, bad debt expense and property
taxes. The increase in general and administrative expenses
resulted primarily from increases in salaries and benefits of
$24 million and professional fees associated with
consulting services of $18 million both related to
investments to improve service levels in our customer care
centers as well as an increase of $13 million in legal and
other professional fees offset by decreases in bad debt expense
of $16 million related to a reduction in the use of
discounted pricing, property taxes of $5 million, property
and casualty insurance of $6 million and the System Sales
of $4 million.
Marketing expenses increased as a result of an increased
investment in targeted marketing campaigns.
Depreciation and amortization. Depreciation and
amortization expense increased by $10 million in 2005. The
increase in depreciation is related to an increase in capital
expenditures, which was partially offset by lower depreciation
as the result of the Systems Sales and certain assets becoming
fully depreciated.
Impairment of franchises. We performed an
impairment assessment during the third quarter of 2004. The use
of lower projected growth rates and the resulting revised
estimates of future cash flows in our valuation, primarily as a
result of increased competition, led to the recognition of a
$2.3 billion impairment charge for the year ended
December 31, 2004. Our annual assessment in 2005 did not
result in an impairment.
Asset impairment charges. Asset impairment charges
for the year ended December 31, 2005 represent the
write-down of assets related to cable asset sales to fair value
less costs to sell. See Note 4 to the accompanying
consolidated financial statements included in this Exchange
Offer Prospectus.
Other operating (income) expenses, net. Other
operating expenses increased $19 million primarily as a
result of a $19 million hurricane asset retirement loss
recorded in 2005 associated with the write-off of the net book
value of assets destroyed by hurricanes Katrina and Rita. This
was coupled with a decrease in gain on sale of assets of
$92 million primarily as a result of the gain realized on
the sale of systems to Atlantic Broadband Finance, LLC which
closed in 2004. This was offset by a decrease in special charges
of $97 million primarily as a result of a decrease in
severance and related costs of our management reduction and
realignment in 2004, litigation costs and costs incurred as part
of a settlement of the consolidated federal class actions, state
derivative actions and federal derivative actions.
Interest expense, net. Net interest expense
increased by $119 million, or 7%, for the year ended
December 31, 2005 compared to the year ended
December 31, 2004. The increase in net interest expense was
a result of an increase in our average borrowing rate from 8.66%
in the year ended December 31, 2004 to 9.04% in the year
ended December 31, 2005 and an increase of
$612 million in average debt outstanding from
$18.6 billion in 2004 to $19.2 billion in 2005
combined with approximately $11 million of liquidated
damages on our 5.875% convertible senior notes. The
increase was offset partially by $29 million in gains
related to embedded derivatives in Charters
5.875% convertible senior notes. See Note 16 to the
accompanying consolidated financial statements included in this
Exchange Offer Prospectus.
92
Gain (loss) on extinguishment of debt and preferred
stock. Gain on extinguishment of debt and preferred
stock for the year ended December 31, 2005 represents
$490 million related to the exchange of approximately
$6.8 billion total principal amount of outstanding debt
securities of Charter Holdings for new CCH I and CIH debt
securities, approximately $10 million related to the
issuance of Charter Operating notes in exchange for Charter
Holdings notes, approximately $3 million related to the
repurchase of $136 million principal amount of our
4.75% convertible senior notes due 2006 and
$23 million of gain realized on the repurchase of
508,546 shares of Series A convertible redeemable
preferred stock. These gains were offset by approximately
$5 million of losses related to the redemption of our
subsidiarys CC V Holdings, LLC 11.875% notes due
2008. See Note 9 to the accompanying consolidated financial
statements included in this Exchange Offer Prospectus. Loss on
extinguishment of debt for the year ended December 31, 2004
represents the write-off of deferred financing fees and third
party costs related to the Charter Communications Operating
refinancing in April 2004 and the redemption of our
5.75% convertible senior notes due 2005 in December 2004.
Other income, net. Other income increased
$5 million primarily as a result of a gain realized on an
exchange of our interest in an equity investee for an investment
in a larger enterprise which did not occur in 2004 partially
offset by a decrease in gains on derivative instruments and
hedging activities as a result of decreases in gains on interest
rate agreements that do not qualify for hedge accounting under
SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities. Other income in 2004 included a loss
on debt to equity conversions which represents the loss
recognized from privately negotiated exchanges of a total of
$30 million principal amount of Charters
5.75% convertible senior notes held by two unrelated
parties for shares of Charter Class A common stock. Other
income also includes the 2% accretion of the preferred
membership interests in our indirect subsidiary, CC VIII, and
the pro rate share of the profits and losses of CC VIII.
Income tax benefit (expense). Income tax expense
for the year ended December 31, 2005 was recognized through
increases in deferred tax liabilities related to our investment
in Charter Holdco, as well as through current federal and state
income tax expense and increases in the deferred tax liabilities
of certain of our indirect corporate subsidiaries. Income tax
benefit for the year ended December 31, 2004 was realized
as a result of decreases in certain deferred tax liabilities
related to our investment in Charter Holdco as well as decreases
in the deferred tax liabilities of certain of our indirect
corporate subsidiaries, attributable to the write-down of
franchise assets for financial statement purposes and not for
tax purposes. We do not expect to recognize a similar benefit
associated with the impairment of franchises in future periods.
However, the actual tax provision calculations in future periods
will be the result of current and future temporary differences,
as well as future operating results.
Income (loss) from discontinued operations, net of
tax. Loss from discontinued operations, net of tax
decreased from $135 million for the year ended
December 31, 2004 to income from discontinued operations,
net of tax of $36 million for the year ended
December 31, 2005 primarily due to the impairment of
franchises recognized in 2004 described above.
Cumulative effect of accounting change, net of
tax. Cumulative effect of accounting change of
$765 million (net of minority interest effects of
$19 million and tax effects of $91 million) in 2004
represents the impairment charge recorded as a result of our
adoption of Topic D-108.
Net loss. Net loss decreased by $3.4 billion
in 2005 compared to 2004 as a result of the factors described
above. The impact to net loss in 2005 of the asset impairment
charges, extinguishment of debt and preferred stock was to
decrease net loss by approximately $482 million. The impact
to net loss in 2004 of the impairment of franchises, cumulative
effect of accounting change and the reduction in losses
allocated to minority interest was to increase net loss by
approximately $3.7 billion.
Preferred stock dividends. On August 31,
2001, Charter issued 505,664 shares (and on
February 28, 2003 issued an additional 39,595 shares)
of Series A Convertible Redeemable Preferred Stock in
connection with the Cable USA acquisition, on which Charter pays
or accrues a quarterly cumulative cash dividend at an annual
rate of 5.75% if paid or 7.75% if accrued on a liquidation
preference of $100 per share. Beginning January 1,
2005, Charter accrued the dividend on its Series A
Convertible Redeemable
93
Preferred Stock. In November 2005, we repurchased
508,546 shares of our Series A Convertible Redeemable
Preferred Stock. Following the repurchase, 36,713 shares or
preferred stock remain outstanding. In addition, the Certificate
of Designation governing the Series A Convertible
Redeemable Preferred Stock was amended to (i) delete the
dividend rights of the remaining shares outstanding and
(ii) increase the liquidation preference and redemption
price from $100 to $105.4063 per share, which amount shall
further increase at the rate of 7.75% per annum, compounded
quarterly, from September 30, 2005.
Loss per common share. The loss per common share
decreased by $11.34, or 78%, as a result of the factors
described above.
|
|
|
Year Ended December 31, 2004 Compared to Year Ended
December 31, 2003 |
Revenues. The overall increase in revenues in 2004
compared to 2003 is principally the result of an increase of
311,600 from December 31, 2003 and 2,300 high-speed
Internet customers and digital video customers, respectively, as
well as price increases for video and high-speed Internet
services, and is offset partially by a decrease of 425,300
analog video customers. Included in the reduction in analog
video customers and reducing the increase in digital video and
high-speed Internet customers are 230,800 analog video
customers, 83,300 digital video customers and 37,800 high-speed
Internet customers sold in the cable system sales to Atlantic
Broadband Finance, LLC, which closed in March and April 2004
(collectively, with the cable system sale to WaveDivision
Holdings, LLC in October 2003, referred to in this section as
the Systems Sales). The Systems Sales reduced the
increase in revenues by $161 million.
Average monthly revenue per analog video customer increased from
$61.84 for the year ended December 31, 2003 to $67.37 for
the year ended December 31, 2004 primarily as a result of
price increases and incremental revenues from advanced services.
Average monthly revenue per analog video customer represents
total annual revenue, divided by twelve, divided by the average
number of analog video customers during the respective period.
Revenues by service offering were as follows (dollars in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2004 over 2003 | |
|
|
| |
|
| |
|
| |
|
|
|
|
% of | |
|
|
|
% of | |
|
|
|
% | |
|
|
Revenues | |
|
Revenues | |
|
Revenues | |
|
Revenues | |
|
Change | |
|
Change | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Video
|
|
$ |
3,217 |
|
|
|
68 |
% |
|
$ |
3,306 |
|
|
|
72 |
% |
|
$ |
(89 |
) |
|
|
(3 |
)% |
High-speed Internet
|
|
|
712 |
|
|
|
15 |
% |
|
|
535 |
|
|
|
12 |
% |
|
|
177 |
|
|
|
33 |
% |
Telephone
|
|
|
18 |
|
|
|
|
|
|
|
14 |
|
|
|
|
|
|
|
4 |
|
|
|
29 |
% |
Advertising sales
|
|
|
279 |
|
|
|
6 |
% |
|
|
254 |
|
|
|
5 |
% |
|
|
25 |
|
|
|
10 |
% |
Commercial
|
|
|
227 |
|
|
|
5 |
% |
|
|
196 |
|
|
|
4 |
% |
|
|
31 |
|
|
|
16 |
% |
Other
|
|
|
307 |
|
|
|
6 |
% |
|
|
311 |
|
|
|
7 |
% |
|
|
(4 |
) |
|
|
(1 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,760 |
|
|
|
100 |
% |
|
$ |
4,616 |
|
|
|
100 |
% |
|
$ |
144 |
|
|
|
3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Video revenues consist primarily of revenues from analog and
digital video services provided to our non-commercial customers.
Approximately $116 million of the decrease in video
revenues was the result of the Systems Sales and approximately
an additional $58 million related to a decline in analog
video customers. These decreases were offset by increases of
approximately $59 million resulting from price increases
and incremental video revenues from existing customers and
approximately $26 million resulting from an increase in
digital video customers.
Approximately $159 million of the increase in revenues from
high-speed Internet services provided to our non-commercial
customers related to the increase in the average number of
customers receiving high-speed Internet services, whereas
approximately $31 million related to the increase in
average price of the
94
service. The increase in high-speed Internet revenues was
reduced by approximately $13 million as a result of the
Systems Sales.
Revenues from telephone services increased primarily as a result
of an increase of 20,500 telephone customers.
Advertising sales revenues consist primarily of revenues from
commercial advertising customers, programmers and other vendors.
Advertising sales revenues increased primarily as a result of an
increase in national advertising campaigns and election related
advertising. The increase was offset by a decrease of
$7 million as a result of the System Sales. For the years
ended December 31, 2004 and 2003, we received
$16 million and $15 million, respectively, in
advertising revenue from programmers.
Commercial revenues consist primarily of revenues from cable
video and high-speed Internet services to our commercial
customers. Commercial revenues increased primarily as a result
of an increase in commercial high-speed Internet revenues. The
increase was reduced by approximately $14 million as a
result of the Systems Sales.
Other revenues consist of revenues from franchise fees,
equipment rental, customer installations, home shopping,
dial-up Internet
service, late payment fees, wire maintenance fees and other
miscellaneous revenues. For the year ended December 31,
2004 and 2003, franchise fees represented approximately 52% and
50%, respectively, of total other revenues. Approximately
$11 million of the decrease in other revenues was the
result of the Systems Sales offset by an increase in home
shopping and infomercial revenue.
Operating expenses. The overall increase in
operating expenses was reduced by approximately $59 million
as a result of the System Sales. Programming costs were
$1.3 billion and $1.2 billion, representing 63% and
64% of total operating expenses for the years ended
December 31, 2004 and 2003, respectively. Key expense
components as a percentage of revenues were as follows (dollars
in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2004 over 2003 | |
|
|
| |
|
| |
|
| |
|
|
|
|
% of | |
|
|
|
% of | |
|
|
|
% | |
|
|
Expenses | |
|
Revenues | |
|
Expenses | |
|
Revenues | |
|
Change | |
|
Change | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Programming
|
|
$ |
1,264 |
|
|
|
27 |
% |
|
$ |
1,195 |
|
|
|
26 |
% |
|
$ |
69 |
|
|
|
6 |
% |
Service
|
|
|
638 |
|
|
|
13 |
% |
|
|
595 |
|
|
|
13 |
% |
|
|
43 |
|
|
|
7 |
% |
Advertising sales
|
|
|
92 |
|
|
|
2 |
% |
|
|
83 |
|
|
|
2 |
% |
|
|
9 |
|
|
|
11 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,994 |
|
|
|
42 |
% |
|
$ |
1,873 |
|
|
|
41 |
% |
|
$ |
121 |
|
|
|
6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Programming costs consist primarily of costs paid to programmers
for analog, premium and digital channels and pay-per-view
programming. The increase in programming costs was a result of
price increases, particularly in sports programming, an
increased number of channels carried on our systems, and an
increase in digital video customers, partially offset by a
decrease in analog video customers. Additionally, the increase
in programming costs was reduced by $42 million as a result
of the Systems Sales. Programming costs were offset by the
amortization of payments received from programmers in support of
launches of new channels of $59 million and
$63 million for the year ended December 31, 2004 and
2003, respectively. Programming costs for the year ended
December 31, 2004 also include a $5 million reduction
related to the settlement of a dispute with TechTV, Inc., a
related party. See Note 25 to the accompanying consolidated
financial statements included in this Exchange Offer Prospectus.
Service costs consist primarily of service personnel salaries
and benefits, franchise fees, system utilities, Internet service
provider fees, maintenance and pole rental expense. The increase
in service costs resulted primarily from additional activity
associated with ongoing infrastructure maintenance. The increase
in service costs was reduced by $15 million as a result of
the System Sales. Advertising sales expenses consist of costs
related to traditional advertising services provided to
advertising customers, including salaries, benefits and
commissions. Advertising sales expenses increased primarily as a
result of increased
95
salary, benefit and commission costs. The increase in
advertising sales expenses was reduced by $2 million as a
result of the System Sales.
Selling, general and administrative expenses. The
overall increase in selling, general and administrative expenses
was reduced by $22 million as a result of the System Sales.
Key components of expense as a percentage of revenues were as
follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2004 over 2003 | |
|
|
| |
|
| |
|
| |
|
|
|
|
% of | |
|
|
|
% of | |
|
|
|
% | |
|
|
Expenses | |
|
Revenues | |
|
Expenses | |
|
Revenues | |
|
Change | |
|
Change | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
General and administrative
|
|
$ |
846 |
|
|
|
17 |
% |
|
$ |
806 |
|
|
|
18 |
% |
|
$ |
40 |
|
|
|
5 |
% |
Marketing
|
|
|
119 |
|
|
|
3 |
% |
|
|
103 |
|
|
|
2 |
% |
|
|
16 |
|
|
|
16 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
965 |
|
|
|
20 |
% |
|
$ |
909 |
|
|
|
20 |
% |
|
$ |
56 |
|
|
|
6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses consist primarily of
salaries and benefits, rent expense, billing costs, call center
costs, internal network costs, bad debt expense and property
taxes. The increase in general and administrative expenses
resulted primarily from increases in costs associated with our
commercial business of $21 million, third party call center
costs resulting from increased emphasis on customer service of
$10 million, bad debt expense of $9 million and costs
associated with salaries and benefits of $11 million offset
by decreases in and rent expense of $3 million.
Marketing expenses increased as a result of an increased
investment in marketing and branding campaigns.
Depreciation and amortization. Depreciation and
amortization expense increased by $37 million, or 3%. The
increase in depreciation related to an increase in capital
expenditures, which was partially offset by lower depreciation
as the result of the Systems Sales.
Impairment of franchises. We performed an
impairment assessment during the third quarter of 2004. The use
of lower projected growth rates and the resulting revised
estimates of future cash flows in our valuation, primarily as a
result of increased competition, led to the recognition of a
$2.3 billion impairment charge for the year ended
December 31, 2004.
Other operating (income) expenses, net. Other
operating income decreased $59 million primarily as a
result of an increase in special charges of $83 million
related to severance and related costs of our management
reduction and realignment in 2004, litigation costs and costs
incurred as part of a settlement of the consolidated federal
class actions, state derivative actions and federal derivative
actions. This was coupled with a decrease of $67 million in
the settlement of estimated liabilities recorded in connection
with prior business combinations, which based on current facts
and circumstances, are no longer required. This was offset by an
increase of $91 million in gain on sale of assets as a
result of the gain realized on the sale of systems to Atlantic
Broadband Finance, LLC which closed in 2004.
Interest expense, net. Net interest expense
increased by $113 million, or 7%, for the year ended
December 31, 2004 compared to the year ended
December 31, 2003. The increase in net interest expense was
a result of an increase in our average borrowing rate from 7.99%
in the year ended December 31, 2003 to 8.66% in the year
ended December 31, 2004 partially offset by a decrease of
$306 million in average debt outstanding from
$18.9 billion in 2003 to $18.6 billion in 2004.
Gain (loss) on extinguishment of debt. Loss on
extinguishment of debt for the year ended December 31, 2004
represents the write-off of deferred financing fees and third
party costs related to the Charter Communications Operating
refinancing in April 2004 and the redemption of our
5.75% convertible senior notes due 2005 in December 2004.
Gain on extinguishment of debt for the year ended
December 31, 2003 represents the gain realized on the
purchase of an aggregate $609 million principal amount of
our outstanding convertible senior notes and $1.3 billion
principal amount of Charter Holdings senior notes and
senior discount notes in consideration for an aggregate of
$1.6 billion principal amount of
96
10.25% notes due 2010 issued by our indirect subsidiary,
CCH II. The gain is net of the write-off of deferred
financing costs associated with the retired debt of
$27 million.
Other income, net. Other income decreased
$358 million primarily as a result of a decrease in
minority interest. Reported losses allocated to minority
interest on the statement of operations are limited to the
extent of any remaining minority interest on the balance sheet
related to Charter Holdco. Because minority interest in Charter
Holdco was substantially eliminated at December 31, 2003,
beginning in the first quarter of 2004, Charter began to absorb
substantially all future losses before income taxes that
otherwise would have been allocated to minority interest. For
the year ended December 31, 2003, 53.5% of our losses were
allocated to minority interest. As a result of negative equity
at Charter Holdco during the year ended December 31, 2004,
no additional losses were allocated to minority interest,
resulting in an additional $2.4 billion of net losses.
Under our existing capital structure, future losses will be
substantially absorbed by Charter. This was coupled with an
increase in net gains on derivative instruments and hedging
activities as a result of increases in gains on interest rate
agreements that do not qualify for hedge accounting under
SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities. Other income in 2004 included a loss
on debt to equity conversions which represents the loss
recognized from privately negotiated exchanges of a total of
$30 million principal amount of Charters
5.75% convertible senior notes held by two unrelated
parties for shares of Charter Class A common stock. Other
income also includes the 2% accretion of the preferred
membership interests in our indirect subsidiary, CC VIII,
and the pro rata share of the profits and losses of CC VIII.
Income tax benefit. Income tax benefits were
realized for the years ended December 31, 2004 and 2003 as
a result of decreases in certain deferred tax liabilities
related to our investment in Charter Holdco as well as decreases
in the deferred tax liabilities of certain of our indirect
corporate subsidiaries.
The income tax benefit recognized in the year ended
December 31, 2004 was directly related to the impairment of
franchises as discussed above because the deferred tax
liabilities decreased as a result of the write-down of franchise
assets for financial statement purposes and not for tax
purposes. We do not expect to recognize a similar benefit
associated with the impairment of franchises in future periods.
However, the actual tax provision calculations in future periods
will be the result of current and future temporary differences,
as well as future operating results.
The income tax benefit recognized in the year ended
December 31, 2003 was directly related to the tax losses
allocated to Charter from Charter Holdco. In the second quarter
of 2003, Charter started receiving tax loss allocations from
Charter Holdco. Previously, the tax losses had been allocated to
Vulcan Cable III Inc. and CII in accordance with the
Special Loss Allocations provided under the Charter Holdco
limited liability company agreement. We do not expect to
recognize a similar benefit related to our investment in Charter
Holdco after 2003 related to tax loss allocations received from
Charter Holdco, due to limitations associated with our ability
to offset future tax benefits against the remaining deferred tax
liabilities. However, the actual tax provision calculations in
future periods will be the result of current and future
temporary differences, as well as future operating results.
Income (loss) from discontinued operations, net of
tax. Income from discontinued operations, net of tax
decreased from $3 million for the year ended
December 31, 2003 to loss from discontinued operations, net
of tax of $135 million for the year ended December 31,
2005 primarily due to the impairment of franchises recognized in
2004 described above.
Cumulative effect of accounting change, net of
tax. Cumulative effect of accounting change of
$765 million (net of minority interest effects of
$19 million and tax effects of $91 million) in 2004
represents the impairment charge recorded as a result of our
adoption of
Topic D-108.
Net loss. Net loss increased by $4.1 billion
in 2004 compared to 2003 as a result of the factors described
above. The impact to net loss in 2004 of the impairment of
franchises, cumulative effect of accounting change and the
reduction in losses allocated to minority interest was to
increase net loss by approximately $3.7 billion. The impact
to net loss in 2003 of the gain on the sale of systems,
unfavorable
97
contracts and settlements and gain on debt exchange, net of
income tax impact, was to decrease net loss by $168 million.
Preferred stock dividends. On August 31,
2001, in connection with the Cable USA acquisition, Charter
issued 505,664 shares (and on February 28, 2003 issued
an additional 39,595 shares) of Series A Convertible
Redeemable Preferred Stock, on which it pays a quarterly
cumulative cash dividend at an annual rate of 5.75% on a
liquidation preference of $100 per share.
Loss per common share. The loss per common share
increased by $13.65 as a result of the factors described above.
Liquidity and Capital Resources
This section contains a discussion of our liquidity and capital
resources, including a discussion of our cash position, sources
and uses of cash, access to credit facilities and other
financing sources, historical financing activities, cash needs,
capital expenditures and outstanding debt.
|
|
|
Recent Financing Transactions |
In January 2006, CCH II, LLC (CCH II) and
CCH II Capital Corp. issued $450 million in debt
securities, the proceeds of which were provided, directly or
indirectly, to Charter Communications Operating, LLC
(Charter Operating), which used such funds to reduce
borrowings, but not commitments, under the revolving portion of
its credit facilities.
In April 2006, Charter Operating completed a $6.85 billion
refinancing of its credit facilities including a new
$350 million revolving/term facility (which converts to a
term loan no later than April 2007), a $5.0 billion term
loan due in 2013 and certain amendments to the existing
$1.5 billion revolving credit facility. In addition, the
refinancing reduced margins on Eurodollar rate term loans to
2.625% from a weighted average of 3.15% previously and margins
on base rate term loans to 1.625% from a weighted average of
2.15% previously. Concurrent with this refinancing, the CCO
Holdings, LLC (CCO Holdings) bridge loan was
terminated.
We have a significant level of debt. Our long-term financing as
of June 30, 2006 consists of $5.8 billion of credit
facility debt, $13.2 billion accreted value of high-yield
notes and $848 million accreted value of convertible senior
notes. For the remainder of 2006, none of the Companys
debt matures, and in 2007 and 2008, $130 million and
$50 million mature, respectively. In 2009 and beyond,
significant additional amounts will become due under our
remaining long-term debt obligations.
Our business requires significant cash to fund debt service
costs, capital expenditures and ongoing operations. We have
historically funded these requirements through cash flows from
operating activities, borrowings under our credit facilities,
sales of assets, issuances of debt and equity securities and
cash on hand. However, the mix of funding sources changes from
period to period. For the six months ended June 30, 2006,
we generated $205 million of net cash flows from operating
activities after paying cash interest of $791 million. In
addition, we used approximately $539 million for purchases
of property, plant and equipment. Finally, we had net cash flows
from financing activities of $383 million. We expect that
our mix of sources of funds will continue to change in the
future based on overall needs relative to our cash flow and on
the availability of funds under our credit facilities, our
access to the debt and equity markets, the timing of possible
asset sales and our ability to generate cash flows from
operating activities. We continue to explore asset dispositions
as one of several possible actions that we could take in the
future to improve our liquidity, but we do not presently believe
unannounced future asset sales to be a significant source of
liquidity.
We expect that cash on hand, cash flows from operating
activities, proceeds from sale of assets and the amounts
available under our credit facilities will be adequate to meet
our cash needs through 2007. We believe that cash flows from
operating activities and amounts available under our credit
facilities may
98
not be sufficient to fund our operations and satisfy our
interest and principal repayment obligations in 2008 and will
not be sufficient to fund such needs in 2009 and beyond. See
Risk Factors Risks Related to Our and Our
Subsidiaries Significant Indebtedness We may
not generate (or, in general, have available to the applicable
obligor) sufficient cash flow or access to additional external
liquidity sources to fund our capital expenditures, ongoing
operations and debt obligations, including our payment
obligations under the Convertible Notes and the CCH II
Notes, which could have a material adverse effect on you as
holders of the Convertible Notes and the CCH II
Notes. We continue to work with our financial advisors in
our approach to addressing liquidity, debt maturities and our
overall balance sheet leverage.
Our ability to operate depends upon, among other things, our
continued access to capital, including credit under the Charter
Operating credit facilities. The Charter Operating credit
facilities, along with our indentures, contain certain
restrictive covenants, some of which require us to maintain
specified financial ratios and meet financial tests and to
provide annual audited financial statements with an unqualified
opinion from our independent auditors. As of June 30, 2006,
we are in compliance with the covenants under our indentures and
credit facilities, and we expect to remain in compliance with
those covenants for the next twelve months. As of June 30,
2006, our potential availability under our credit facilities
totaled approximately $900 million, none of which was
limited by covenant restrictions. In the past, our actual
availability under our credit facilities has been limited by
covenant restrictions. There can be no assurance that our actual
availability under our credit facilities will not be limited by
covenant restrictions in the future. However, pro forma for the
closing of the asset sales on July 1, 2006, and the related
application of net proceeds to repay amounts outstanding under
our revolving credit facility, potential availability under our
credit facilities as of June 30, 2006 would have been
approximately $1.7 billion, although actual availability
would have been limited to $1.3 billion because of limits
imposed by covenant restrictions. Continued access to our credit
facilities is subject to our remaining in compliance with these
covenants, including covenants tied to our operating
performance. If any events of non-compliance occur, funding
under the credit facilities may not be available and defaults on
some or potentially all of our debt obligations could occur. An
event of default under any of our debt instruments could result
in the acceleration of our payment obligations under that debt
and, under certain circumstances, in cross-defaults under our
other debt obligations, which could have a material adverse
effect on our consolidated financial condition and results of
operations. See Risk Factors Risks Related to
Our and Our Subsidiaries Significant
Indebtedness Charter Operating may not be able to
access funds under its credit facilities if it fails to satisfy
the covenant restrictions in its credit facilities, which could
adversely affect our financial condition and our ability to
conduct our business.
Our ability to make interest payments on our convertible senior
notes, and, in 2009, to repay the outstanding principal of our
convertible senior notes of $863 million will depend on our
ability to raise additional capital and/or on receipt of
payments or distributions from Charter Holdco and its
subsidiaries. As of June 30, 2006, Charter Holdco was owed
$3 million in intercompany loans from its subsidiaries,
which were available to pay interest and principal on our
convertible senior notes. In addition, Charter has
$74 million of U.S. government securities pledged as
security for the next three scheduled semi-annual interest
payments on Charters 5.875% convertible senior notes.
Distributions by Charters subsidiaries to a parent company
(including Charter, Charter Holdco and CCHC, LLC) for payment of
principal on parent company notes are restricted under the
indentures governing the CIH notes, CCH I notes,
CCH II notes, CCO Holdings notes and Charter Operating
notes unless there is no default under the applicable indenture,
each applicable subsidiarys leverage ratio test is met at
the time of such distribution and, in the case of our
convertible senior notes, other specified tests are met. For the
quarter ended June 30, 2006, there was no default under any
of these indentures and each such subsidiary met its applicable
leverage ratio tests based on June 30, 2006 financial
results. Such distributions would be restricted, however, if any
such subsidiary fails to meet these tests at such time. In
99
the past, certain subsidiaries have from time to time failed to
meet their leverage ratio test. There can be no assurance that
they will satisfy these tests at the time of such distribution.
Distributions by Charter Operating for payment of principal on
parent company notes are further restricted by the covenants in
the credit facilities.
Distributions by CIH, CCH I, CCH II, CCO Holdings and
Charter Operating to a parent company for payment of parent
company interest are permitted if there is no default under the
aforementioned indentures. However, distributions for payment of
interest on our convertible senior notes are further limited to
when each applicable subsidiarys leverage ratio test is
met and other specified tests are met. There can be no assurance
that the subsidiary will satisfy these tests at the time of such
distribution.
The indentures governing the Charter Holdings notes permit
Charter Holdings to make distributions to Charter Holdco for
payment of interest or principal on the convertible senior
notes, only if, after giving effect to the distribution, Charter
Holdings can incur additional debt under the leverage ratio of
8.75 to 1.0, there is no default under Charter Holdings
indentures and other specified tests are met. For the quarter
ended June 30, 2006, there was no default under Charter
Holdings indentures and Charter Holdings met its leverage
ratio test based on June 30, 2006 financial results. Such
distributions would be restricted, however, if Charter Holdings
fails to meet these tests at such time. In the past, Charter
Holdings has from time to time failed to meet this leverage
ratio test. There can be no assurance that Charter Holdings will
satisfy these tests at the time of such distribution. During
periods in which distributions are restricted, the indentures
governing the Charter Holdings notes permit Charter Holdings and
its subsidiaries to make specified investments (that are not
restricted payments) in Charter Holdco or Charter up to an
amount determined by a formula, as long as there is no default
under the indentures.
Our significant amount of debt could negatively affect our
ability to access additional capital in the future.
Additionally, our ability to incur additional debt may be
limited by the restrictive covenants in our indentures and
credit facilities. No assurances can be given that we will not
experience liquidity problems if we do not obtain sufficient
additional financing on a timely basis as our debt becomes due
or because of adverse market conditions, increased competition
or other unfavorable events. If, at any time, additional capital
or borrowing capacity is required beyond amounts internally
generated or available under our credit facilities or through
additional debt or equity financings, we would consider:
|
|
|
|
|
issuing equity that would significantly dilute existing
shareholders; |
|
|
|
issuing convertible debt or some other securities that may have
structural or other priority over our existing notes and may
also significantly dilute Charters existing shareholders; |
|
|
|
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, the availability and terms of which would be subject
to market conditions. |
If the above strategies are not successful, we could be forced
to restructure our obligations or seek protection under the
bankruptcy laws. In addition, if we need to raise additional
capital through the issuance of equity or find it necessary to
engage in a recapitalization or other similar transaction, our
shareholders could suffer significant dilution and our
noteholders might not receive principal and interest payments to
which they are contractually entitled.
In July 2006, we closed the Cebridge Transaction and New Wave
Transaction for net proceeds of approximately $896 million.
We used the net proceeds from the asset sales to repay (but not
reduce permanently) amounts outstanding under our revolving
credit facility. The Orange Transaction is scheduled to close in
the third quarter of 2006.
100
In July 2005, we closed the sale of certain cable systems in
Texas and West Virginia and closed the sale of an additional
cable system in Nebraska in October 2005 for a total sales price
of approximately $37 million, representing a total of
approximately 33,000 customers.
In January 2006, we closed the purchase of certain cable systems
in Minnesota from Seren Innovations, Inc. We acquired
approximately 17,500 analog video customers, 8,000 digital video
customers, 13,200 high-speed Internet customers and 14,500
telephone customers for a total purchase price of approximately
$42 million.
|
|
|
Summary of Outstanding Contractual Obligations |
The following table summarizes our payment obligations as of
December 31, 2005 under our long-term debt and certain
other contractual obligations and commitments (dollars in
millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments by Period | |
|
|
| |
|
|
|
|
Less than | |
|
1-3 | |
|
3-5 | |
|
More than | |
|
|
Total | |
|
1 Year | |
|
Years | |
|
Years | |
|
5 Years | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Contractual Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Debt Principal Payments(1)
|
|
$ |
19,336 |
|
|
$ |
50 |
|
|
$ |
1,129 |
|
|
$ |
5,781 |
|
|
$ |
12,376 |
|
Long-Term Debt Interest Payments(2)
|
|
|
11,426 |
|
|
|
1,469 |
|
|
|
3,224 |
|
|
|
3,066 |
|
|
|
3,667 |
|
Payments on Interest Rate Instruments(3)
|
|
|
18 |
|
|
|
8 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
Capital and Operating Lease Obligations(1)
|
|
|
94 |
|
|
|
20 |
|
|
|
27 |
|
|
|
23 |
|
|
|
24 |
|
Programming Minimum Commitments(4)
|
|
|
1,253 |
|
|
|
342 |
|
|
|
678 |
|
|
|
233 |
|
|
|
|
|
Other(5)
|
|
|
301 |
|
|
|
146 |
|
|
|
70 |
|
|
|
42 |
|
|
|
43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
32,428 |
|
|
$ |
2,035 |
|
|
$ |
5,138 |
|
|
$ |
9,145 |
|
|
$ |
16,110 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
The table presents maturities of long-term debt outstanding as
of December 31, 2005. Refer to Notes 9 and 26 to our
accompanying consolidated financial statements contained in
Item 8. Financial Statements and Supplementary
Data in our 2005 Annual Report on
Form 10-K 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, 2005 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, 2005. 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 applicable rates for the quarter during the
interest rate reset based on the yield curve in effect at
December 31, 2005. |
|
(4) |
We pay programming fees under multi-year contracts ranging from
three to ten years typically based on a flat fee per customer,
which may be fixed for the term or may in some cases, escalate
over the term. Programming costs included in the accompanying
statement of operations were $1.4 billion,
$1.3 billion and $1.2 billion for the years ended
December 31, 2005, 2004 and 2003, 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. |
|
(5) |
Other represents other guaranteed minimum
commitments, which consist primarily of commitments to our
billing services vendors. |
101
The following items are not included in the contractual
obligations table because the obligations are not fixed and/or
determinable due to various factors discussed below. However, we
incur these costs as part of our operations:
|
|
|
|
|
We 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 related to continuing operations for the
years ended December 31, 2005, 2004 and 2003, was
$44 million, $42 million and $38 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 related to continuing operations
included in the accompanying statement of operations were
$165 million, $159 million and $157 million for
the years ended December 31, 2005, 2004 and 2003,
respectively. |
|
|
|
We also have $165 million in letters of credit, primarily
to our various workers 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 |
Our cash flows include the cash flows related to our
discontinued operations for all periods presented.
We held $56 million in cash and cash equivalents as of
June 30, 2006 compared to $21 million as of
December 31, 2005. For the six months ended June 30,
2006, we generated $205 million of net cash flows from
operating activities after paying cash interest of
$791 million. In addition, we used approximately
$539 million for purchases of property, plant and
equipment. Finally, we had net cash flows from financing
activities of $383 million.
Operating Activities. Net cash provided by
operating activities increased $24 million, or 13%, from
$181 million for the six months ended June 30, 2005 to
$205 million for the six months ended June 30, 2006.
For the six months ended June 30, 2006, net cash provided
by operating activities increased primarily as a result of
changes in operating assets and liabilities that provided
$107 million more cash during the six months ended
June 30, 2006 than the corresponding period in 2005 coupled
with an increase in revenue over cash costs offset by an
increase in cash interest expense of $99 million over the
corresponding prior period.
Net cash provided by operating activities decreased
$212 million, or 45%, from $472 million for the year
ended December 31, 2004 to $260 million for the year
ended December 31, 2005. For the year ended
December 31, 2005, net cash provided by operating
activities decreased primarily as a result of an increase in
cash interest expense of $189 million over the
corresponding prior period and changes in operating assets and
liabilities that used $45 million more cash during the year
ended December 31, 2005 than the corresponding period in
2004. The change in operating assets and liabilities is
primarily the result of the finalization of the class action
settlement in the third quarter of 2005.
Net cash provided by operating activities decreased
$293 million, or 38%, from $765 million for the year
ended December 31, 2003 to $472 million for the year
ended December 31, 2004. For the year ended
December 31, 2004, net cash provided by operating
activities decreased primarily as a result of an increase in
cash interest expense of $203 million over the
corresponding prior period and changes in operating assets and
liabilities that provided $83 million less cash during the
year ended December 31, 2004 than the corresponding period
in 2003. The change in operating assets and liabilities is
primarily the result of the benefit in the year ended
December 31, 2003 from collection of receivables from
programmers related to network launches, while accounts
receivable remained essentially flat in the year ended
December 31, 2004.
102
Investing Activities. Net cash used by investing
activities for the six months ended June 30, 2006 and 2005
was $553 million and $477 million, respectively.
Investing activities used $76 million more cash during the
six months ended June 30, 2006 than the corresponding
period in 2005 primarily as a result of increased cash used for
the purchase of cable systems discussed above coupled with a
decrease in our liabilities related to capital expenditures. Net
cash used in investing activities for the years ended
December 31, 2005 and 2004 was $1.0 billion and
$243 million, respectively. Investing activities used
$782 million more cash during the year ended
December 31, 2005 than the corresponding period in 2004
primarily as a result of cash provided by proceeds from the sale
of certain cable systems to Atlantic Broadband Finance, LLC in
2004 which did not recur in 2005 combined with increased cash
used for capital expenditures.
Net cash used in investing activities for the years ended
December 31, 2004 and 2003 was $243 million and
$817 million, respectively. Investing activities used
$574 million less cash during the year ended
December 31, 2004 than the corresponding period in 2003
primarily as a result of cash provided by proceeds from the sale
of certain cable systems to Atlantic Broadband Finance, LLC
offset by increased cash used for capital expenditures.
Financing Activities. Net cash provided by
financing activities was $383 million for the six months
ended June 30, 2006 and net cash used in financing
activities was $314 million for the six months ended
June 30, 2005. The increase in cash provided during the six
months ended June 30, 2006 as compared to the corresponding
period in 2005, was primarily the result of proceeds from the
issuance of debt.
Net cash provided by financing activities was $136 million
and $294 million for the years ended December 31, 2005
and 2004, respectively. The decrease in cash provided during the
year ended December 31, 2005, as compared to the
corresponding period in 2004, was primarily the result of an
decrease in borrowings of long-term debt and proceeds from
issuance of debt offset by a decrease in repayments of long-term
debt.
Net cash provided by financing activities for the year ended
December 31, 2004 was $294 million and the net cash
used in financing activities for the year ended
December 31, 2003 was $142 million. The increase in
cash provided during the year ended December 31, 2004, as
compared to the corresponding period in 2003, was primarily the
result of an increase in borrowings of long-term debt and
proceeds from issuance of debt reduced by repayments of
long-term debt.
We have significant ongoing capital expenditure requirements.
Capital expenditures were $539 million, $542 million,
$1.1 billion, $924 million and $854 million for
the six months ended June 30, 2006 and 2005 and the years
ended December 31, 2005, 2004 and 2003, respectively.
Capital expenditures decreased as a result of decreases in
expenditures related to line extensions and support capital
partially offset by increased spending on customer premise
equipment as a result of increases in digital video, high-speed
Internet and telephone customers. See the table below for more
details.
Our capital expenditures are funded primarily from cash flows
from operating activities, the issuance of debt and borrowings
under credit facilities. In addition, during the six months
ended June 30, 2006 and 2005 and the years ended
December 31, 2005, 2004 and 2003, our liabilities related
to capital expenditures decreased $9 million and increased
$45 million and $8 million and decreased
$43 million and $33 million, respectively.
During 2006, we expect capital expenditures to be approximately
$1.0 billion to $1.1 billion. We expect that the
nature of these expenditures will continue to be composed
primarily of purchases of customer premise equipment related to
telephone and other advanced services, support capital and for
scalable infrastructure costs. We expect to fund capital
expenditures for 2006 primarily from cash flows from operating
activities, proceeds from asset sales and borrowings under our
credit facilities.
We have adopted capital expenditure disclosure guidance, which
was developed by eleven publicly traded cable system operators,
including Charter, with the support of the National
Cable &
103
Telecommunications Association (NCTA). The
disclosure is intended to provide more consistency in the
reporting of operating statistics in capital expenditures and
customers among peer companies in the cable industry. These
disclosure guidelines are not required disclosure under
Generally Accepted Accounting Principles (GAAP), nor
do they impact our accounting for capital expenditures under
GAAP.
The following table presents our major capital expenditures
categories in accordance with NCTA disclosure guidelines for the
three and six months ended June 30, 2006 and 2005 (dollars
in millions):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months | |
|
|
|
|
Ended June 30, | |
|
Year Ended December 31, | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Customer premise equipment(a)
|
|
$ |
258 |
|
|
$ |
228 |
|
|
$ |
434 |
|
|
$ |
451 |
|
|
$ |
380 |
|
Scalable infrastructure(b)
|
|
|
97 |
|
|
|
89 |
|
|
|
174 |
|
|
|
108 |
|
|
|
67 |
|
Line extensions(c)
|
|
|
59 |
|
|
|
77 |
|
|
|
134 |
|
|
|
131 |
|
|
|
131 |
|
Upgrade/ Rebuild(d)
|
|
|
23 |
|
|
|
22 |
|
|
|
49 |
|
|
|
49 |
|
|
|
132 |
|
Support capital(e)
|
|
|
102 |
|
|
|
126 |
|
|
|
297 |
|
|
|
185 |
|
|
|
144 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures
|
|
$ |
539 |
|
|
$ |
542 |
|
|
$ |
1,088 |
|
|
$ |
924 |
|
|
$ |
854 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Customer premise equipment includes costs incurred at the
customer residence to secure new customers, revenue units and
additional bandwidth revenues. It also includes customer
installation costs in accordance with SFAS No. 51,
Financial Reporting by Cable Television Companies, and
customer premise equipment (e.g., set-top 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). |
Interest Rate Risk
We are exposed to various market risks, including fluctuations
in interest rates. We use interest rate risk management
derivative instruments, such as interest rate swap agreements
and interest rate collar agreements (collectively referred to
herein as interest rate agreements) as required under the terms
of the credit facilities of our subsidiaries. Our policy is to
manage interest costs using a mix of fixed and variable rate
debt. Using interest rate swap agreements, we agree to exchange,
at specified intervals through 2007, the difference between
fixed and variable interest amounts calculated by reference to
an agreed-upon notional principal amount. Interest rate collar
agreements are used to limit our exposure to, and to derive
benefits from, interest rate fluctuations on variable rate debt
to within a certain range of rates. Interest rate risk
management agreements are not held or issued for speculative or
trading purposes.
As of June 30, 2006 and December 31, 2005, our
long-term debt totaled approximately $19.9 billion and
$19.4 billion, respectively. This debt was comprised of
approximately $5.8 billion and $5.7 billion of credit
facilities debt, $13.2 billion and $12.8 billion
accreted amount of high-yield notes and $848 million and
$863 million accreted amount of convertible senior notes,
respectively.
104
As of June 30, 2006 and December 31, 2005, the
weighted average interest rate on the credit facility debt was
approximately 8.0% and 7.8%, the weighted average interest rate
on the high-yield notes was approximately 10.3% and 10.2%, and
the weighted average interest rate on the convertible senior
notes was approximately 6.4% and 6.3%, respectively, resulting
in a blended weighted average interest rate of 9.5% and 9.3%,
respectively. The interest rate on approximately 77% of the
total principal amount of our debt was effectively fixed,
including the effects of our interest rate hedge agreements as
of June 30, 2006 and December 31, 2005. The fair value
of our high-yield notes was $11.0 billion and
$10.4 billion at June 30, 2006 and December 31,
2005, respectively. The fair value of our convertible senior
notes was $628 million and $647 million at
June 30, 2006 and December 31, 2005, respectively. The
fair value of our credit facilities is $5.8 billion and
$5.7 billion at June 30, 2006 and December 31,
2005, respectively. The fair value of high-yield and convertible
notes is based on quoted market prices, and the fair value of
the credit facilities is based on dealer quotations.
We do not hold or issue derivative instruments for trading
purposes. We do, however, have certain interest rate derivative
instruments that have been designated as cash flow hedging
instruments. For qualifying hedges, SFAS No. 133
allows derivative gains and losses to offset related results on
hedged items in the consolidated statement of operations. We
have formally documented, designated and assessed the
effectiveness of transactions that receive hedge accounting. For
the six months ended June 30, 2006 and 2005 and the years
ended December 31, 2005, 2004 and 2003, other income
includes gains of $2 million, $1 million,
$3 million, $4 million and $8 million,
respectively, which represent cash flow hedge ineffectiveness on
interest rate hedge agreements arising from differences between
the critical terms of the agreements and the related hedged
obligations. Changes in the fair value of interest rate
agreements designated as hedging instruments of the variability
of cash flows associated with floating-rate debt obligations
that meet the effectiveness criteria of SFAS No. 133
are reported in accumulated other comprehensive loss and
minority interest. For the six months ended June 30, 2006
and 2005 and the years ended December 31, 2005, 2004 and
2003, a gain of $0 and $9 million, $16 million,
$42 million and $48 million, respectively, related to
derivative instruments designated as cash flow hedges, was
recorded in accumulated other comprehensive loss. The amounts
are subsequently reclassified into interest expense as a yield
adjustment in the same period in which the related interest on
the floating-rate debt obligations affects earnings (losses).
Certain interest rate derivative instruments are not designated
as hedges as they do not meet the effectiveness criteria
specified by SFAS No. 133. However, management
believes such instruments are closely correlated with the
respective debt, thus managing associated risk. Interest rate
derivative instruments not designated as hedges are marked to
fair value, with the impact recorded as other income in our
statements of operations. For the six months ended June 30,
2006 and 2005 and the years ended December 31, 2005, 2004
and 2003, other income includes gains of $9 million,
$25 million, $47 million, $65 million and
$57 million, respectively, for interest rate derivative
instruments not designated as hedges.
105
The table set forth below summarizes the fair values and
contract terms of financial instruments subject to interest rate
risk maintained by us as of June 30, 2006 (dollars in
millions):
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|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
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|
|
|
|
Fair Value at | |
|
|
2006 | |
|
2007 | |
|
2008 | |
|
2009 | |
|
2010 | |
|
2011 | |
|
Thereafter | |
|
Total | |
|
June 30, 2006 | |
|
|
| |
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| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Debt:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate
|
|
$ |
|
|
|
$ |
105 |
|
|
$ |
|
|
|
$ |
1,547 |
|
|
$ |
2,143 |
|
|
$ |
771 |
|
|
$ |
8,842 |
|
|
$ |
13,408 |
|
|
$ |
11,058 |
|
|
|
Average Interest Rate
|
|
|
|
|
|
|
8.25 |
% |
|
|
|
|
|
|
7.48 |
% |
|
|
10.28 |
% |
|
|
11.01 |
% |
|
|
10.38 |
% |
|
|
10.06 |
% |
|
|
|
|
|
Variable Rate
|
|
$ |
|
|
|
$ |
25 |
|
|
$ |
50 |
|
|
$ |
50 |
|
|
$ |
600 |
|
|
$ |
850 |
|
|
$ |
4,775 |
|
|
$ |
6,350 |
|
|
$ |
6,359 |
|
|
|
Average Interest Rate
|
|
|
|
|
|
|
8.21 |
% |
|
|
8.14 |
% |
|
|
8.22 |
% |
|
|
9.64 |
% |
|
|
8.66 |
% |
|
|
8.39 |
% |
|
|
8.75 |
% |
|
|
|
|
Interest Rate Instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable to Fixed Swaps
|
|
$ |
898 |
|
|
$ |
875 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,773 |
|
|
$ |
6 |
|
|
|
Average Pay Rate
|
|
|
7.70 |
% |
|
|
7.58 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.64 |
% |
|
|
|
|
|
|
Average Receive Rate
|
|
|
8.33 |
% |
|
|
8.31 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.32 |
% |
|
|
|
|
The notional amounts of interest rate instruments do not
represent amounts exchanged by the parties and, thus, are not a
measure of our exposure to credit loss. The amounts exchanged
are determined by reference to the notional amount and the other
terms of the contracts. The estimated fair value approximates
the costs (proceeds) to settle the outstanding contracts.
Interest rates on variable debt are estimated using the average
implied forward London Interbank Offering Rate
(LIBOR) rates for the year of maturity based on the yield
curve in effect at June 30, 2006.
At June 30, 2006 and December 31, 2005, we had
outstanding $1.8 billion and $1.8 billion and
$20 million and $20 million, respectively, in notional
amounts of interest rate swaps and collars, respectively. The
notional amounts of interest rate instruments do not represent
amounts exchanged by the parties and, thus, are not a measure of
exposure to credit loss. The amounts exchanged are determined by
reference to the notional amount and the other terms of the
contracts.
Recently Issued Accounting Standards
In November 2004, the Financial Accounting Standards Board
(FASB) issued SFAS No. 153, Exchanges
of Non-monetary Assets An Amendment of APB
No. 29. This statement eliminates the exception to fair
value for exchanges of similar productive assets and replaces it
with a general exception for exchange transactions that do not
have commercial substance that is, transactions that
are not expected to result in significant changes in the cash
flows of the reporting entity. We adopted this pronouncement
effective April 1, 2005. The exchange transaction discussed
in Note 3 to our consolidated financial statements included
elsewhere in this prospectus, was accounted for under this
standard.
In December 2004, the FASB issued the revised
SFAS No. 123, Share-Based Payment, which
addresses the accounting for share-based payment transactions in
which a company receives employee services in exchange for
(a) equity instruments of that company or
(b) liabilities that are based on the fair value of the
companys equity instruments or that may be settled by the
issuance of such equity instruments. This statement was
effective for us beginning January 1, 2006. Because we
adopted the fair value recognition provisions of
SFAS No. 123 on January 1, 2003, we do not expect
this revised standard to have a material impact on our financial
statements.
In March 2005, the FASB issued FASB Interpretation No. 47,
Accounting for Conditional Asset Retirement Obligations.
This interpretation clarifies that the term conditional
asset retirement obligation as used in FASB Statement
No. 143, Accounting for Asset Retirement Obligations,
refers to a legal obligation to perform an asset retirement
activity in which the timing and/or method of settlement are
conditional on a future event that may or may not be within the
control of the entity. This pronouncement
106
is effective for fiscal years ending after December 15,
2005. The adoption of this interpretation did not have a
material impact on our financial statements.
In July 2006, the FASB issued FIN 48, Accounting for
Uncertainty in Income Taxes an Interpretation of
FASB Statement No. 109, which provides criteria for the
recognition, measurement, presentation and disclosure of
uncertain tax positions. A tax benefit from an uncertain
position may be recognized only if it is more likely than
not that the position is sustainable based on its
technical merits. The provisions of FIN 48 are effective
for fiscal years beginning after December 15, 2006. We are
currently assessing the impact of FIN 48 on our financial
statements.
We do not believe that any other recently issued, but not yet
effective accounting pronouncements, if adopted, would have a
material effect on our accompanying financial statements.
107
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND
RESULTS OF OPERATIONS OF CCH II, LLC
Unless otherwise stated, the terms we,
us and our used in this
Managements Discussion and Analysis of Financial
Condition and Results of Operations of CCH II, LLC
refer to CCH II and its direct and indirect subsidiaries on
a consolidated basis.
Reference is made to Risk Factors and Special
Note Regarding Forward-Looking Statements, which describe
important factors that could cause actual results to differ from
expectations and non-historical information contained herein. In
addition, the following discussion should be read in conjunction
with the audited consolidated financial statements of
CCH II, LLC and its subsidiaries as of and for the years
ended December 31, 2005, 2004 and 2003 and the unaudited
consolidated financial statements of CCH II, LLC and its
subsidiaries as of and for the six months ended June 30,
2006.
For a chart showing our ownership structure, see page 3.
The data included in this Managements Discussion and
Analysis of Financial Condition and Results of Operations of
CCH II, LLC takes into account the effect of the sale
of various geographically non-strategic assets to Cebridge
Connections, Inc., which are reflected as discontinued
operations in all periods presented. See
Summary Recent Events Assets
Sales.
CCH II, LLC is a holding company whose primary assets are
equity interests in our cable operating subsidiaries.
CCH II, LLC was formed in March 2003 and is a direct
subsidiary of CCH I, which is an indirect subsidiary of
Charter Holdings. Charter Holdings is an indirect subsidiary of
Charter. See Summary Organizational
Structure. Our parent companies are
CCH I, CIH, Charter Holdings, CCHC, Charter Holdco and
Charter.
CCH II, LLC is the sole owner of CCO Holdings, which in
turn is the sole owner of Charter Operating. In June and July
2003, Charter Holdings entered into a series of transactions and
contributions which had the effect of (i) creating
CCH II, LLC, CCH II Capital Corp., CCH I, our
direct parent, and our subsidiary, CCO Holdings and
(ii) combining and contributing all of Charter
Holdings interest in cable operations not previously owned
by Charter Operating to Charter Operating. This transaction was
accounted for as a reorganization of entities under common
control. Accordingly, the historical financial condition and
results of operations of CCH II, LLC combine the historical
financial condition and results of operations of Charter
Operating, and the operations of subsidiaries contributed by
Charter Holdings, for all periods presented.
Introduction
We and our parent companies continue to pursue opportunities to
improve our and our parent companies liquidity. Our and
our parent companies efforts in this regard have resulted
in the completion of a number of transactions in 2005 and 2006,
as follows:
|
|
|
|
|
the July 2006 sale of cable systems to Cebridge and New Wave for
proceeds of approximately $896 million; |
|
|
|
the April 2006 refinancing of our existing credit facilities
(see Liquidity and Capital
Resources Recent Refinancing Transactions); |
|
|
|
the January 2006 sale by us of an additional $450 million
principal amount of our 10.250% senior notes due 2010; |
|
|
|
the September 2005 exchange by our direct and indirect parent
companies, Charter Holdings, CCH I and CIH, 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 our subsidiaries, CCO Holdings and CCO
Holdings Capital Corp., of $300 million of
83/4
% senior notes due 2013; |
108
|
|
|
|
|
the March and June 2005 issuance of $333 million of Charter
Operating notes in exchange for $346 million of Charter
Holdings notes; |
|
|
|
the repurchase during 2005 of $136 million of
Charters 4.75% convertible senior notes due 2006
leaving $20 million in principal amount
outstanding; and |
|
|
|
the March 2005 redemption of all of CC V Holdings, LLCs
outstanding 11.875% senior discount notes due 2008 at a
total cost of $122 million; |
During the years 1999 through 2001, we grew significantly,
principally through acquisitions of other cable businesses
financed by debt and, to a lesser extent, equity. We have no
current plans to pursue any significant acquisitions. However,
we may pursue exchanges of non-strategic assets or divestitures,
such as the sale of cable systems discussed above. We therefore
do not believe that our historical growth rates are accurate
indicators of future growth.
The industrys and our most significant operational
challenges include competition from DBS providers and DSL
service providers. See Business
Competition. We believe that competition from DBS has
resulted in net analog video customer losses and decreased
growth rates for digital video customers. Competition from DSL
providers combined with limited opportunities to expand our
customer base now that approximately 36% of our analog video
customers subscribe to our high-speed Internet services has
resulted in decreased growth rates for high-speed Internet
customers. In the recent past, we have grown revenues by
offsetting video customer losses with price increases and sales
of incremental advanced services such as high-speed Internet,
video on demand, digital video recorders and high definition
television. We expect to continue to grow revenues through price
increases and through continued growth in high-speed Internet
and incremental new services including telephone, high
definition television, VOD and DVR service.
Historically, our ability to fund operations and investing
activities has depended on our continued access to credit under
our credit facilities. We expect we will continue to borrow
under our credit facilities from time to time to fund cash
needs. The occurrence of an event of default under our credit
facilities could result in borrowings from these facilities
being unavailable to us and could, in the event of a payment
default or acceleration, trigger events of default under our
outstanding notes and would have a material adverse effect on us.
Sale of Assets
In 2006, we signed three separate definitive agreements to sell
certain cable television systems serving a total of
approximately 356,000 analog video customers in 1) West
Virginia and Virginia to Cebridge Connections, Inc. (the
Cebridge Transaction); 2) Illinois and Kentucky
to Telecommunications Management, LLC, doing business as
New Wave Communications (the New Wave
Transaction) and 3) Nevada, Colorado, New Mexico
and Utah to Orange Broadband Holding Company, LLC (the
Orange Transaction) for a total of approximately
$971 million. These cable systems met the criteria for
assets held for sale. As such, the assets were written down to
fair value less estimated costs to sell resulting in asset
impairment charges during the six months ended June 30,
2006 of approximately $99 million related to the New Wave
Transaction and the Orange Transaction. In the third quarter of
2006, we expect to record a gain of approximately
$200 million on the Cebridge Transaction. In addition,
assets and liabilities to be sold have been presented as held
for sale. We have also determined that the West Virginia and
Virginia cable systems comprise operations and cash flows that
for financial reporting purposes meet the criteria for
discontinued operations. Accordingly, the results of operations
for the West Virginia and Virginia cable systems have been
presented as discontinued operations, net of tax for the six
months ended June 30, 2006 and all prior periods presented
herein have been reclassified to conform to the current
presentation.
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Overview of Operations
Approximately 86% of our revenues for the six months ended
June 30, 2006 and year ended December 31, 2005 are
attributable to monthly subscription fees charged to customers
for our video, high-speed Internet, telephone and commercial
services provided by our cable systems. Generally, these
customer subscriptions may be discontinued by the customer at
any time. The remaining 14% of revenue for the six months ended
June 30, 2006 and year ended December 31, 2005 is
derived primarily from advertising revenues, franchise fee
revenues, which are collected by us but then paid to local
franchising authorities, pay-per-view and VOD programming where
users are charged a fee for individual programs viewed,
installation or reconnection fees charged to customers to
commence or reinstate service, and commissions related to the
sale of merchandise by home shopping services. We have increased
revenues during the past three years, primarily through the sale
of digital video and high-speed Internet services to new and
existing customers and price increases on video services offset
in part by dispositions of systems. Going forward, our goal is
to increase revenues by offsetting video customer losses with
price increases, sales of incremental advanced services such as
telephone, high-speed Internet, video on demand, digital video
recorders and high definition television. See
Business Sales and Marketing for more
details.
Our success in our efforts to grow revenues and improve margins
will be impacted by our ability to compete against companies
with easier access to financing, greater personnel resources,
greater brand name recognition, long-established relationships
with regulatory authorities and customers, and, often fewer
regulatory burdens. Additionally, controlling our cost of
operations is critical, particularly cable programming costs,
which have historically increased at rates in excess of
inflation and are expected to continue to increase. See
Business Programming for more details.
We are attempting to control our costs of operations by
maintaining strict controls on expenses. More specifically, we
are focused on managing our workforce to control cost increases
and improve productivity, and leveraging our size in purchasing
activities.
Our expenses primarily consist of operating costs, selling,
general and administrative expenses, depreciation and
amortization expense and interest expense. Operating costs
primarily include programming costs, the cost of our workforce,
cable service related expenses, advertising sales costs,
franchise fees and expenses related to customer billings. For
the six months ended June 30, 2006 and 2005, our operating
income from continuing operations, which includes depreciation
and amortization expense and asset impairment charges but
excludes interest expense, was $138 million and
$142 million, respectively. We had operating margins of 5%
and 6% for the six months ended June 30, 2006 and 2005,
respectively. The decrease in operating income from continuing
operations and operating margins for the six months ended
June 30, 2006 compared to 2005 was principally due to an
increase in operating costs and asset impairment charges of
$60 million. Our operating loss from continuing operations
decreased from $1.9 billion for year ended
December 31, 2004 to income of $304 million for the
year ended December 31, 2005. We had a positive operating
margin (defined as operating income (loss) from continuing
operations divided by revenues) of 6% and a negative operating
margin of 40% for the years ended December 31, 2005 and
2004, respectively. The improvement from an operating loss from
continuing operations and negative operating margin to operating
income from continuing operations and positive operating margin
for the year end December 31, 2005 is principally due to
the impairment of franchises of $2.3 billion recorded in
the third quarter of 2004 which did not recur in 2005. For the
year ended December 31, 2003, operating income from
continuing operations was $484 million and for the year
ended December 31, 2004, our operating loss from continuing
operations was $1.9 billion. We had a negative operating
margin of 40% for the year ended December 31, 2004, whereas
for the year ending December 31, 2003, we had positive
operating margin of 10%. The decline in operating income from
continuing operations and operating margin for the year end
December 31, 2004 is principally due to the impairment of
franchises of $2.3 billion recorded in the third quarter of
2004. The year ended December 31, 2004 also includes a gain
on the sale of certain cable systems to Atlantic Broadband
Finance, LLC which is substantially offset by an increase in
option compensation expense and special charges when compared to
the year ended December 31, 2003. Although we do not expect
charges for impairment in the future of comparable magnitude,
potential charges could occur due to changes in market
conditions.
110
We have a history of net losses. Further, we expect to continue
to report net losses for the foreseeable future. Our net losses
are principally attributable to insufficient revenue to cover
the combination of operating costs and interest costs we incur
because of our debt and the depreciation expenses that we incur
resulting from the capital investments we have made in our cable
properties. We expect that these expenses will remain
significant, and we therefore expect to continue to report net
losses for the foreseeable future. We had net losses of
$335 million and $220 million for the six months ended
June 30, 2006 and 2005, respectively.
Critical Accounting Policies and Estimates
Certain of our accounting policies require our management to
make difficult, subjective or complex judgments. Management has
discussed these policies with the Audit Committee of
Charters Board of Directors and the Audit Committee has
reviewed the following disclosure. We consider the following
policies to be the most critical in understanding the estimates,
assumptions and judgments that are involved in preparing our
financial statements and the uncertainties that could affect our
results of operations, financial condition and cash flows:
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Capitalization of labor and overhead costs; |
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Useful lives of property, plant and equipment; |
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Impairment of property, plant, and equipment, franchises, and
goodwill; |
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Income taxes; and |
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Litigation. |
In addition, there are other items within our financial
statements that require estimates or judgment but are not deemed
critical, such as the allowance for doubtful accounts, but
changes in judgment, or estimates in these other items could
also have a material impact on our financial statements.
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Capitalization of labor and overhead costs |
The cable industry is capital intensive, and a large portion of
our resources are spent on capital activities associated with
extending, rebuilding, and upgrading our cable network. As of
June 30, 2006 and December 31, 2005 and 2004, the net
carrying amount of our property, plant and equipment (consisting
primarily of cable network assets) was approximately
$5.4 billion (representing 34% of total assets),
$5.8 billion (representing 36% of total assets) and
$6.1 billion (representing 36% of total assets),
respectively. Total capital expenditures for the six months
ended June 30, 2006 and the years ended December 31,
2005, 2004 and 2003 were approximately $539 million,
$1.1 billion, $893 million and $804 million,
respectively.
Costs associated with network construction, initial customer
installations (including initial installations of new or
advanced services), installation refurbishments and the addition
of network equipment necessary to provide new or advanced
services are capitalized. While our capitalization is based on
specific activities, once capitalized we track these costs by
fixed asset category at the cable system level and not on a
specific asset basis. Costs capitalized as part of initial
customer installations include materials, direct labor, and
certain indirect costs (overhead). These indirect
costs are associated with the activities of personnel who assist
in connecting and activating the new service and consist of
compensation and overhead costs associated with these support
functions. The costs of disconnecting service at a
customers dwelling or reconnecting service to a previously
installed dwelling are charged to operating expense in the
period incurred. Costs for repairs and maintenance are charged
to operating expense as incurred, while equipment replacement
and betterments, including replacement of cable drops from the
pole to the dwelling, are capitalized.
We make judgments regarding the installation and construction
activities to be capitalized. We capitalize direct labor and
overhead using standards developed from actual costs and
applicable operational data. We calculate standards for items
such as the labor rates, overhead rates and the actual amount of
111
time required to perform a capitalizable activity. For example,
the standard amounts of time required to perform capitalizable
activities are based on studies of the time required to perform
such activities. Overhead rates are established based on an
analysis of the nature of costs incurred in support of
capitalizable activities and a determination of the portion of
costs that is directly attributable to capitalizable activities.
The impact of changes that resulted from these studies were not
significant in the periods presented.
Labor costs directly associated with capital projects are
capitalized. We capitalize direct labor costs associated with
personnel based upon the specific time devoted to network
construction and customer installation activities. Capitalizable
activities performed in connection with customer installations
include such activities as:
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Dispatching a truck roll to the customers
dwelling for service connection; |
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Verification of serviceability to the customers dwelling
(i.e., determining whether the customers dwelling is
capable of receiving service by our cable network and/or
receiving advanced or Internet services); |
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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 |
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Verifying the integrity of the customers network
connection by initiating test signals downstream from the
headend to the customers digital set-top terminal. |
Judgment is required to determine the extent to which overhead
is incurred as a result of specific capital activities, and
therefore should be capitalized. The primary costs that are
included in the determination of the overhead rate are
(i) employee benefits and payroll taxes associated with
capitalized direct labor, (ii) direct variable costs
associated with capitalizable activities, consisting primarily
of installation and construction vehicle costs, (iii) the
cost of support personnel, such as dispatch, that directly
assist with capitalizable installation activities, and
(iv) indirect costs directly attributable to capitalizable
activities.
While we believe our existing capitalization policies are
appropriate, a significant change in the nature or extent of our
system activities could affect managements judgment about
the extent to which we should capitalize direct labor or
overhead in the future. We monitor the appropriateness of our
capitalization policies, and perform updates to our internal
studies on an ongoing basis to determine whether facts or
circumstances warrant a change to our capitalization policies.
We capitalized internal direct labor and overhead of
$100 million, $185 million, $159 million and
$166 million, respectively, for the six months ended
June 30, 2006 and the years ended December 31, 2005,
2004 and 2003. Capitalized internal direct labor and overhead
costs have increased in 2005 as a result of the use of more
internal labor for capitalizable installations rather than third
party contractors.
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Useful lives of property, plant and equipment |
We evaluate the appropriateness of estimated useful lives
assigned to our property, plant and equipment, based on annual
analyses of such useful lives, and revise such lives to the
extent warranted by changing facts and circumstances. Any
changes in estimated useful lives as a result of these analyses,
which were not significant in the periods presented, will be
reflected prospectively beginning in the period in which the
study is completed. The effect of a one-year decrease in the
weighted average remaining useful life of our property, plant
and equipment would be an increase in depreciation expense for
the year ended December 31, 2005 of approximately
$232 million. The effect of a one-year increase in the
weighted average useful life of our property, plant and
equipment would be a decrease in depreciation expense for the
year ended December 31, 2005 of approximately
$172 million.
Depreciation expense related to property, plant and equipment
totaled $687 million, $1.4 billion, $1.4 billion
and $1.4 billion, representing approximately 27%, 30%, 21%
and 34% of costs and expenses, for
112
the six months ended June 30, 2006 and the years ended
December 31, 2005, 2004 and 2003, respectively.
Depreciation is recorded using the straight-line composite
method over managements estimate of the estimated useful
lives of the related assets as listed below:
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Cable distribution systems
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7-20 years |
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Customer premise equipment and installations
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3-5 years |
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Vehicles and equipment
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1-5 years |
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Buildings and leasehold improvements
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5-15 years |
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Furniture, fixtures and equipment
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5 years |
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Impairment of property, plant and equipment, franchises
and goodwill |
As discussed above, the net carrying value of our property,
plant and equipment is significant. We also have recorded a
significant amount of cost related to franchises, pursuant to
which we are granted the right to operate our cable distribution
network throughout our service areas. The net carrying value of
franchises as of June 30, 2006, December 31, 2005 and
2004 was approximately $9.3 billion (representing 59% of
total assets), $9.8 billion (representing 61% of total
assets) and $9.9 billion (representing 58% of total
assets), respectively. Furthermore, our noncurrent assets
include approximately $61 million of goodwill.
We adopted SFAS No. 142, Goodwill and Other
Intangible Assets, on January 1, 2002.
SFAS No. 142 requires that franchise intangible assets
that meet specified indefinite-life criteria no longer be
amortized against earnings, but instead must be tested for
impairment annually based on valuations, or more frequently as
warranted by events or changes in circumstances. In determining
whether our franchises have an indefinite-life, we considered
the exclusivity of the franchise, the expected costs of
franchise renewals, and the technological state of the
associated cable systems with a view to whether or not we are in
compliance with any technology upgrading requirements. We have
concluded that as of June 30, 2006, December 31, 2005,
2004 and 2003 more than 99% of our franchises qualify for
indefinite-life treatment under SFAS No. 142, and that
less than one percent of our franchises do not qualify for
indefinite-life treatment due to technological or operational
factors that limit their lives. Costs of finite-lived
franchises, along with costs associated with franchise renewals,
are amortized on a straight-line basis over 10 years, which
represents managements best estimate of the average
remaining useful lives of such franchises. Franchise
amortization expense was approximately $1 million,
$4 million, $3 million and $7 million for the six
months ended June 30, 2006 and the years ended
December 31, 2005, 2004 and 2003, respectively. We expect
that amortization expense on franchise assets will be
approximately $2 million annually for each of the next five
years. Actual amortization expense in future periods could
differ from these estimates as a result of new intangible asset
acquisitions or divestitures, changes in useful lives and other
relevant factors. Our goodwill is also deemed to have an
indefinite life under SFAS No. 142.
SFAS No. 144, Accounting for Impairment or Disposal
of Long-Lived Assets, requires that we evaluate the
recoverability of our property, plant and equipment and
franchise assets which did not qualify for indefinite-life
treatment under SFAS No. 142 upon the occurrence of
events or changes in circumstances which indicate that the
carrying amount of an asset may not be recoverable. Such events
or changes in circumstances could include such factors as the
impairment of our indefinite-life franchises under
SFAS No. 142, changes in technological advances,
fluctuations in the fair value of such assets, adverse changes
in relationships with local franchise authorities, adverse
changes in market conditions or a deterioration of operating
results. Under SFAS No. 144, a long-lived asset is
deemed impaired when the carrying amount of the asset exceeds
the projected undiscounted future cash flows associated with the
asset. No impairments of long-lived assets were recorded in the
six months ended June 30, 2006 and the years ended
December 31, 2005, 2004 or 2003, however, approximately
$99 million and $39 million of impairment on assets
held for sale was recorded for the six months ended
June 30, 2006 and the year ended December 31, 2005. We
were also required to evaluate the recoverability of our
indefinite-life
113
franchises, as well as goodwill, as of January 1, 2002 upon
adoption of SFAS No. 142, and on an annual basis or
more frequently as deemed necessary.
Under both SFAS No. 144 and SFAS No. 142, if
an asset is determined to be impaired, it is required to be
written down to its estimated fair market value. We determine
fair market value based on estimated discounted future cash
flows, using reasonable and appropriate assumptions that are
consistent with internal forecasts. Our assumptions include
these and other factors: penetration rates for analog and
digital video, high-speed Internet and telephone, revenue growth
rates, expected operating margins and capital expenditures.
Considerable management judgment is necessary to estimate future
cash flows, and such estimates include inherent uncertainties,
including those relating to the timing and amount of future cash
flows and the discount rate used in the calculation.
Based on the guidance prescribed in Emerging Issues Task Force
(EITF) Issue No. 02-7, Unit of Accounting
for Testing of Impairment of Indefinite-Lived Intangible
Assets, franchises were aggregated into essentially
inseparable asset groups to conduct the valuations. The asset
groups generally represent geographic clustering of our cable
systems into groups by which such systems are managed.
Management believes such groupings represent the highest and
best use of those assets.
Our valuations, which are based on the present value of
projected after tax cash flows, result in a value of property,
plant and equipment, franchises, customer relationships and our
total entity value. The value of goodwill is the difference
between the total entity value and amounts assigned to the other
assets. The use of different valuation assumptions or
definitions of franchises or customer relationships, such as our
inclusion of the value of selling additional services to our
current customers within customer relationships versus
franchises, could significantly impact our valuations and any
resulting impairment.
Franchises, for valuation purposes, are defined as the future
economic benefits of the right to solicit and service potential
customers (customer marketing rights), and the right to deploy
and market new services such as interactivity and telephone to
the potential customers (service marketing rights). Fair value
is determined based on estimated discounted future cash flows
using assumptions consistent with internal forecasts. The
franchise after-tax cash flow is calculated as the after-tax
cash flow generated by the potential customers obtained and the
new services added to those customers in future periods. The sum
of the present value of the franchises after-tax cash flow
in years 1 through 10 and the continuing value of the after-tax
cash flow beyond year 10 yields the fair value of the franchise.
Prior to the adoption of EITF Topic
D-108, Use of the
Residual Method to Value Acquired Assets Other than
Goodwill, discussed below, we followed a residual method of
valuing our franchise assets, which had the effect of including
goodwill with the franchise assets.
We follow the guidance of EITF
Issue 02-17,
Recognition of Customer Relationship Intangible Assets
Acquired in a Business Combination, in valuing customer
relationships. Customer relationships, for valuation purposes,
represent the value of the business relationship with our
existing customers and are calculated by projecting future
after-tax cash flows from these customers including the right to
deploy and market additional services such as interactivity and
telephone to these customers. The present value of these
after-tax cash flows yields the fair value of the customer
relationships. Substantially all our acquisitions occurred prior
to January 1, 2002. We did not record any value associated
with the customer relationship intangibles related to those
acquisitions. For acquisitions subsequent to January 1,
2002, we did assign a value to the customer relationship
intangible, which is amortized over its estimated useful life.
In September 2004, EITF Topic
D-108, Use of the
Residual Method to Value Acquired Assets Other than Goodwill,
was issued, which requires the direct method of separately
valuing all intangible assets and does not permit goodwill to be
included in franchise assets. We performed an impairment
assessment as of September 30, 2004, and adopted Topic
D-108 in that
assessment resulting in a total franchise impairment of
approximately $3.3 billion. We recorded a cumulative effect
of accounting change of $840 million (approximately
$875 million before tax effects of $16 million and
minority interest effects of $19 million) for the year
ended December 31, 2004 representing the portion of our
total franchise impairment attributable to no longer including
goodwill with franchise assets. The remaining $2.4 billion
of the total franchise impairment was attributable to the use of
lower projected growth rates and the resulting revised
114
estimates of future cash flows in our valuation and was recorded
as impairment of franchises in our consolidated statements of
operations for the year ended December 31, 2004. Sustained
analog video customer losses by us and our industry peers in the
third quarter of 2004 primarily as a result of increased
competition from DBS providers and decreased growth rates in our
and our industry peers high speed Internet customers in
the third quarter of 2004, in part as a result of increased
competition from DSL providers, led us to lower our projected
growth rates and accordingly revise our estimates of future cash
flows from those used at October 1, 2003. See
Business Competition.
The 2003 and 2005 valuations showed franchise values in excess
of book value and thus resulted in no impairment.
The valuations used in our impairment assessments involve
numerous assumptions as noted above. While economic conditions,
applicable at the time of the valuation, indicate the
combination of assumptions utilized in the valuations are
reasonable, as market conditions change so will the assumptions
with a resulting impact on the valuation and consequently the
potential impairment charge.
Sensitivity Analysis. The effect on franchise
values as of October 1, 2005 of the indicated
increase/decrease in the selected assumptions is shown below:
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Percentage/ | |
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Percentage Point | |
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Impairment Charge | |
Assumption |
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Increase/(Decrease) | |
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(Dollars in | |
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millions) | |
Annual Operating Cash Flow(1)
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1,200/$(1,200 |
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Long-Term Growth Rate(2)
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1,700/(1,300 |
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Discount Rate
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(1,300)/1,500 |
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(1) |
Operating Cash Flow is defined as revenues less operating
expenses and selling, general and administrative expenses. |
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Long-Term Growth Rate is the rate of cash flow growth beyond
year ten. |
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(3) |
A percentage point change of one point equates to 100 basis
points. |
All operations are held through Charter Holdco and its direct
and indirect subsidiaries, including us. Charter Holdco and the
majority of its subsidiaries are not subject to income tax.
However, certain of these subsidiaries are corporations and are
subject to income tax. All of the taxable income, gains, losses,
deductions and credits of Charter Holdco are passed through to
its members: Charter, CII and VulcanCable III Inc. Charter
is responsible for its share of taxable income or loss of
Charter Holdco allocated to it in accordance with the Charter
Holdco limited liability company agreement (LLC
Agreement) and partnership tax rules and regulations.
The LLC Agreement provides for certain special allocations of
net tax profits and net tax losses (such net tax profits and net
tax losses being determined under the applicable federal income
tax rules for determining capital accounts). Under the LLC
Agreement, through the end of 2003, net tax losses of Charter
Holdco that would otherwise have been allocated to Charter based
generally on its percentage ownership of outstanding common
units were allocated instead to membership units held by Vulcan
Cable III Inc. and CII (the Special Loss
Allocations) to the extent of their respective capital
account balances. After 2003, under the LLC Agreement, net tax
losses of Charter Holdco are allocated to Charter, Vulcan
Cable III Inc. and CII based generally on their respective
percentage ownership of outstanding common units to the extent
of their respective capital account balances. Allocations of net
tax losses in excess of the members aggregate capital
account balances are allocated under the rules governing
Regulatory Allocations, as described below. Subject to the
Curative Allocation Provisions described below, the LLC
Agreement further provides that, beginning at the time Charter
Holdco generates net tax profits, the net tax profits that would
otherwise have been allocated to Charter based generally on its
percentage
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ownership of outstanding common membership units will instead
generally be allocated to Vulcan Cable III Inc. and CII
(the Special Profit Allocations). The Special Profit
Allocations to Vulcan Cable III Inc. and CII will generally
continue until the cumulative amount of the Special Profit
Allocations offsets the cumulative amount of the Special Loss
Allocations. The amount and timing of the Special Profit
Allocations are subject to the potential application of, and
interaction with, the Curative Allocation Provisions described
in the following paragraph. The LLC Agreement generally provides
that any additional net tax profits are to be allocated among
the members of Charter Holdco based generally on their
respective percentage ownership of Charter Holdco common
membership units.
Because the respective capital account balance of each of Vulcan
Cable III Inc. and CII was reduced to zero by
December 31, 2002, certain net tax losses of Charter Holdco
that were to be allocated for 2002, 2003, 2004 and 2005, to
Vulcan Cable III Inc. and CII instead have been allocated
to Charter (the Regulatory Allocations). As a result
of the allocation of net tax losses to Charter in 2005,
Charters capital account balance was reduced to zero
during 2005. The LLC Agreement provides that once the capital
account balances of all members have been reduced to zero, net
tax losses are to be allocated to Charter, Vulcan Cable III
Inc. and CII based generally on their respective percentage
ownership of outstanding common units. Such allocations are also
considered to be Regulatory Allocations. The LLC Agreement
further provides that, to the extent possible, the effect of the
Regulatory Allocations is to be offset over time pursuant to
certain curative allocation provisions (the Curative
Allocation Provisions) so that, after certain offsetting
adjustments are made, each members capital account balance
is equal to the capital account balance such member would have
had if the Regulatory Allocations had not been part of the LLC
Agreement. The cumulative amount of the actual tax losses
allocated to Charter as a result of the Regulatory Allocations
through the year ended December 31, 2005 is approximately
$4.1 billion.
As a result of the Special Loss Allocations and the Regulatory
Allocations referred to above (and their interaction with the
allocations related to assets contributed to Charter Holdco with
differences between book and tax basis), the cumulative amount
of losses of Charter Holdco allocated to Vulcan Cable III
Inc. and CII is in excess of the amount that would have been
allocated to such entities if the losses of Charter Holdco had
been allocated among its members in proportion to their
respective percentage ownership of Charter Holdco common
membership units. The cumulative amount of such excess losses
was approximately $977 million through December 31,
2005.
In certain situations, the Special Loss Allocations, Special
Profit Allocations, Regulatory Allocations and Curative
Allocation Provisions described above could result in Charter
paying taxes in an amount that is more or less than if Charter
Holdco had allocated net tax profits and net tax losses among
its members based generally on the number of common membership
units owned by such members. This could occur due to differences
in (i) the character of the allocated income (e.g.,
ordinary versus capital), (ii) the allocated amount and
timing of tax depreciation and tax amortization expense due to
the application of section 704(c) under the Internal
Revenue Code, (iii) the potential interaction between the
Special Profit Allocations and the Curative Allocation
Provisions, (iv) the amount and timing of alternative
minimum taxes paid by Charter, if any, (v) the
apportionment of the allocated income or loss among the states
in which Charter Holdco does business, and (vi) future
federal and state tax laws. Further, in the event of new capital
contributions to Charter Holdco, it is possible that the tax
effects of the Special Profit Allocations, Special Loss
Allocations, Regulatory Allocations and Curative Allocation
Provisions will change significantly pursuant to the provisions
of the income tax regulations or the terms of a contribution
agreement with respect to such contributions. Such change could
defer the actual tax benefits to be derived by Charter with
respect to the net tax losses allocated to it or accelerate the
actual taxable income to Charter with respect to the net tax
profits allocated to it. As a result, it is possible under
certain circumstances, that Charter could receive future
allocations of taxable income in excess of its currently
allocated tax deductions and available tax loss carryforwards.
The ability to utilize net operating loss carryforwards is
potentially subject to certain limitations as discussed below.
In addition, under their exchange agreement with Charter, Vulcan
Cable III Inc. and CII may exchange some or all of their
membership units in Charter Holdco for Charters
Class B common stock, be merged with Charter, or be
acquired by Charter in a non-taxable reorganization. If such an
exchange
116
were to take place prior to the date that the Special Profit
Allocation provisions had fully offset the Special Loss
Allocations, Vulcan Cable III Inc. and CII could elect to
cause Charter Holdco to make the remaining Special Profit
Allocations to Vulcan Cable III Inc. and CII immediately
prior to the consummation of the exchange. In the event Vulcan
Cable III Inc. and CII choose not to make such election or
to the extent such allocations are not possible, Charter would
then be allocated tax profits attributable to the membership
units received in such exchange pursuant to the Special Profit
Allocation provisions. Mr. Allen has generally agreed to
reimburse Charter for any incremental income taxes that Charter
would owe as a result of such an exchange and any resulting
future Special Profit Allocations to Charter. The ability of
Charter to utilize net operating loss carryforwards is
potentially subject to certain limitations (see Risk
Factors Risks Related to Mr. Allens
Controlling Position). If Charter were to become subject
to such limitations (whether as a result of an exchange
described above or otherwise), and as a result were to owe taxes
resulting from the Special Profit Allocations, then
Mr. Allen may not be obligated to reimburse Charter for
such income taxes. Charters ability to make such income
tax payments, if any, will depend on its liquidity or its
ability to raise additional capital and/or on receipt of
payments or distributions from Charter Holdco and its
subsidiaries, including us.
As of June 30, 2006 and December 31, 2005 and 2004, we
have recorded net deferred income tax liabilities of
$213 million, $213 million and $208 million,
respectively. Additionally, as of June 30, 2006 and
December 31, 2005 and 2004, we have deferred tax assets of
$86 million, $86 million and $103 million,
respectively, which primarily relate to tax net operating loss
carryforwards of certain of our indirect corporate subsidiaries.
We are required to record a valuation allowance when it is, more
likely than not that some portion or all of the deferred income
tax assets will not be realized. Given the uncertainty
surrounding our ability to utilize our deferred tax assets,
these items have been offset with a corresponding valuation
allowance of $51 million, $51 million and
$71 million at June 30, 2006 and December 31,
2005 and 2004, respectively.
We are currently under examination by the Internal Revenue
Service for the tax years ending December 31, 2002 and
2003. Our results (excluding our indirect corporate
subsidiaries) for these years are subject to this examination.
Management does not expect the results of this examination to
have a material adverse effect on our consolidated financial
condition, results of operations or our liquidity, including our
ability to comply with our debt covenants.
Legal contingencies have a high degree of uncertainty. When a
loss from a contingency becomes estimable and probable, a
reserve is established. The reserve reflects managements
best estimate of the probable cost of ultimate resolution of the
matter and is revised accordingly as facts and circumstances
change and, ultimately when the matter is brought to closure. We
have established reserves for certain matters and if any of
these matters are resolved unfavorably resulting in payment
obligations in excess of managements best estimate of the
outcome, such resolution could have a material adverse effect on
our consolidated financial condition, results of operations or
our liquidity.
117
Results of Operations
|
|
|
Six Months Ended June 30, 2006 Compared to Six Months
Ended June 30, 2005 |
The following table sets forth the percentages of revenues that
items in the accompanying condensed consolidated statements of
operations constituted for the periods presented (dollars in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
Revenues
|
|
$ |
2,703 |
|
|
|
100 |
% |
|
$ |
2,481 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (excluding depreciation and amortization)
|
|
|
1,215 |
|
|
|
45 |
% |
|
|
1,081 |
|
|
|
44 |
% |
|
Selling, general and administrative
|
|
|
551 |
|
|
|
20 |
% |
|
|
483 |
|
|
|
19 |
% |
|
Depreciation and amortization
|
|
|
690 |
|
|
|
26 |
% |
|
|
730 |
|
|
|
29 |
% |
|
Asset impairment charges
|
|
|
99 |
|
|
|
4 |
% |
|
|
39 |
|
|
|
2 |
% |
|
Other operating expenses, net
|
|
|
10 |
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,565 |
|
|
|
95 |
% |
|
|
2,339 |
|
|
|
94 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income from continuing operations
|
|
|
138 |
|
|
|
5 |
% |
|
|
142 |
|
|
|
6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(488 |
) |
|
|
|
|
|
|
(408 |
) |
|
|
|
|
|
Other income (expense), net
|
|
|
(19 |
) |
|
|
|
|
|
|
35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(507 |
) |
|
|
|
|
|
|
(373 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(369 |
) |
|
|
|
|
|
|
(231 |
) |
|
|
|
|
Income tax expense
|
|
|
(4 |
) |
|
|
|
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(373 |
) |
|
|
|
|
|
|
(239 |
) |
|
|
|
|
Income from discontinued operations, net of tax
|
|
|
38 |
|
|
|
|
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(335 |
) |
|
|
|
|
|
$ |
(220 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues. The overall increase in revenues from
continuing operations in 2006 compared to 2005 is principally
the result of an increase from June 30, 2005 of 343,800
high-speed Internet customers, 194,300 digital video customers
and 189,800 telephone customers, as well as price increases for
video and high-speed Internet services, and is offset partially
by a decrease of 41,400 analog video customers. Our goal is to
increase revenues by improving customer service, which we
believe will stabilize our analog video customer base,
implementing price increases on certain services and packages
and increasing the number of customers who purchase high-speed
Internet services, digital video and advanced products and
services such as telephone, VOD, high definition television and
digital video recorder service.
Average monthly revenue per analog video customer increased to
$79.73 for the six months ended June 30, 2006 from $72.47
for the six months ended June 30, 2005 primarily as a
result of incremental revenues from advanced services and price
increases. Average monthly revenue per analog video customer
represents total revenue for the six months ended during the
respective period, divided by six, divided by the average number
of analog video customers during the respective period.
118
Revenues by service offering were as follows (dollars in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
2006 over 2005 | |
|
|
| |
|
| |
|
| |
|
|
|
|
% of | |
|
|
|
% of | |
|
|
|
% | |
|
|
Revenues | |
|
Revenues | |
|
Revenues | |
|
Revenues | |
|
Change | |
|
Change | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Video
|
|
$ |
1,684 |
|
|
|
62% |
|
|
$ |
1,623 |
|
|
|
66% |
|
|
$ |
61 |
|
|
|
4% |
|
High-speed Internet
|
|
|
506 |
|
|
|
19% |
|
|
|
425 |
|
|
|
17% |
|
|
|
81 |
|
|
|
19% |
|
Telephone
|
|
|
49 |
|
|
|
2% |
|
|
|
14 |
|
|
|
1% |
|
|
|
35 |
|
|
|
250% |
|
Advertising sales
|
|
|
147 |
|
|
|
5% |
|
|
|
135 |
|
|
|
5% |
|
|
|
12 |
|
|
|
9% |
|
Commercial
|
|
|
149 |
|
|
|
6% |
|
|
|
128 |
|
|
|
5% |
|
|
|
21 |
|
|
|
16% |
|
Other
|
|
|
168 |
|
|
|
6% |
|
|
|
156 |
|
|
|
6% |
|
|
|
12 |
|
|
|
8% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,703 |
|
|
|
100% |
|
|
$ |
2,481 |
|
|
|
100% |
|
|
$ |
222 |
|
|
|
9% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Video revenues consist primarily of revenues from analog and
digital video services provided to our non-commercial customers.
Approximately $58 million of the increase was the result of
price increases and incremental video revenues from existing
customers and approximately $24 million was the result of
an increase in digital video customers. The increases were
offset by decreases of approximately $21 million related to
a decrease in analog video customers.
Approximately $73 million of the increase in revenues from
high-speed Internet services provided to our non-commercial
customers related to the increase in the average number of
customers receiving high-speed Internet services, whereas
approximately $8 million related to the increase in average
price of the service.
Revenues from telephone services increased primarily as a result
of an increase of 189,800 telephone customers in 2006.
Advertising sales revenues consist primarily of revenues from
commercial advertising customers, programmers and other vendors.
Advertising sales revenues increased primarily as a result of an
increase in local advertising sales and a one-time ad buy by a
programmer. For the six months ended June 30, 2006 and
2005, we received $10 million and $6 million,
respectively, in advertising sales revenues from programmers.
Commercial revenues consist primarily of revenues from video and
high-speed Internet services provided to our commercial
customers. Commercial revenues increased primarily as a result
of an increase in commercial high-speed Internet revenues.
Other revenues consist of revenues from franchise fees,
equipment rental, customer installations, home shopping,
dial-up Internet
service, late payment fees, wire maintenance fees and other
miscellaneous revenues. For the six months ended June 30,
2006 and 2005, franchise fees represented approximately 53% of
total other revenues. The increase in other revenues was
primarily the result of an increase in franchise fees of
$5 million, installation revenue of $3 million and
wire maintenance fees of $4 million.
119
Operating expenses. Programming costs represented
62% and 63% of operating expenses for the six months ended
June 30, 2006 and 2005, respectively. Key expense
components as a percentage of revenues were as follows (dollars
in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
2006 over 2005 | |
|
|
| |
|
| |
|
| |
|
|
|
|
% of | |
|
|
|
% of | |
|
|
|
% | |
|
|
Expenses | |
|
Revenues | |
|
Expenses | |
|
Revenues | |
|
Change | |
|
Change | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Programming
|
|
$ |
755 |
|
|
|
28% |
|
|
$ |
678 |
|
|
|
27% |
|
|
$ |
77 |
|
|
|
11% |
|
Service
|
|
|
408 |
|
|
|
15% |
|
|
|
356 |
|
|
|
15% |
|
|
|
52 |
|
|
|
15% |
|
Advertising sales
|
|
|
52 |
|
|
|
2% |
|
|
|
47 |
|
|
|
2% |
|
|
|
5 |
|
|
|
11% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,215 |
|
|
|
45% |
|
|
$ |
1,081 |
|
|
|
44% |
|
|
$ |
134 |
|
|
|
12% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Programming costs consist primarily of costs paid to programmers
for analog, premium, digital channels, VOD and pay-per-view
programming. The increase in programming costs was primarily a
result of rate increases and increases in digital video
customers. Programming costs were offset by the amortization of
payments received from programmers in support of launches of new
channels of $8 million and $17 million for the six
months ended June 30, 2006 and 2005, respectively.
Our cable programming costs have increased in every year we have
operated in excess of customary inflationary and
cost-of-living
increases. We expect them to continue to increase due to a
variety of factors, including annual increases imposed by
programmers and additional programming being provided to
customers as a result of system rebuilds and bandwidth
reallocation, both of which increase channel capacity. In 2006,
programming costs have increased and we expect will continue to
increase at a higher rate than in 2005. These costs will be
determined in part on the outcome of programming negotiations in
2006 and may be subject to offsetting events. Our increasing
programming costs have resulted in declining operating margins
on our video services because we have been unable to pass on all
cost increases to our customers. We expect to partially offset
the resulting margin compression on our traditional video
services with revenue from advanced video services, increased
telephone revenues, high-speed Internet revenues, advertising
revenues and commercial service revenues.
Service costs consist primarily of service personnel salaries
and benefits, franchise fees, system utilities, costs of
providing high-speed Internet service and telephone service,
maintenance and pole rent expense. The increase in service costs
resulted primarily from increased costs of providing high-speed
Internet and telephone service of $16 million, an increase
in service personnel salaries and benefits of $14 million,
higher fuel and utility prices of $8 million, increased
labor and maintenance costs to support improved service levels
and our advanced products of $7 million and franchise fees
of $5 million. Advertising sales expenses consist of costs
related to traditional advertising services provided to
advertising customers, including salaries, benefits and
commissions. Advertising sales expenses increased primarily as a
result of increased salary, benefit and commission costs.
Selling, general and administrative expenses. Key
components of expense as a percentage of revenues were as
follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
2006 over 2005 | |
|
|
| |
|
| |
|
| |
|
|
|
|
% of | |
|
|
|
% of | |
|
|
|
% | |
|
|
Expenses | |
|
Revenues | |
|
Expenses | |
|
Revenues | |
|
Change | |
|
Change | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
General and administrative
|
|
$ |
471 |
|
|
|
17% |
|
|
$ |
418 |
|
|
|
17% |
|
|
$ |
53 |
|
|
|
13% |
|
Marketing
|
|
|
80 |
|
|
|
3% |
|
|
|
65 |
|
|
|
2% |
|
|
|
15 |
|
|
|
23% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
551 |
|
|
|
20% |
|
|
$ |
483 |
|
|
|
19% |
|
|
$ |
68 |
|
|
|
14% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses consist primarily of
salaries and benefits, rent expense, billing costs, customer
care center costs, internal network costs, bad debt expense and
property taxes. The increase in general and administrative
expenses resulted primarily from a rise in salaries and benefits
of
120
$34 million, increases in billing costs of $7 million,
computer maintenance of $5 million, bad debt expense of
$5 million, telephone expense of $4 million,
contractor labor of $3 million and property and casualty
insurance of $2 million partially offset by decreases in
consulting services of $8 million.
Marketing expenses increased as a result of increased spending
in targeted marketing campaigns consistent with
managements strategy to increase revenues.
Depreciation and amortization. Depreciation and
amortization expense decreased by $40 million for the six
months ended June 30, 2006 compared to the six months ended
June 30, 2005. The decrease in depreciation was primarily
the result of assets becoming fully depreciated.
Asset impairment charges. Asset impairment charges
for the six months ended June 30, 2006 and 2005 represent
the write-down of assets related to cable asset sales to fair
value less costs to sell. See Note 3 to the condensed
consolidated financial statements.
Other operating expenses, net. Other operating
expenses, net increased $4 million as a result of an
$8 million increase in special charges primarily related to
severance associated with closing call centers and divisional
restructuring and a $4 million decrease related to losses
on sales of assets.
Interest expense, net. Net interest expense
increased by $80 million, or 20%, for the six months ended
June 30, 2006 compared to the six months ended
June 30, 2005. The increase in net interest expense was a
result of an increase in our average borrowing rate from 7.85%
in the six months ended June 30, 2005 to 8.54% in the six
months ended June 30, 2006 and an increase of
$815 million in average debt outstanding from
$10.0 billion for the six months ended June 30, 2005
compared to $10.8 billion for the six months ended
June 30, 2006.
Other income (expense), net. Other income
decreased $54 million from other income of $35 million
for the six months ended June 30, 2005 to other expense of
$19 million for the six months ended June 30, 2006
primarily as a result of a $21 million increase in the loss
on extinguishment of debt from $6 million for the six
months ended June 30, 2005 to $27 million for the six
months ended June 30, 2006. See Note 6 to the
condensed consolidated financial statements included in this
Exchange Offer Prospectus. Other income also decreased as a
result of a $15 million decrease in net gains on derivative
instruments and hedging activities as a result of decreases in
gains on interest rate agreements that do not qualify for hedge
accounting under Statement of Financial Accounting Standards
(SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities. In addition, the six
months ended June 30, 2005 included a $20 million gain
on investments for the six months ended June 30, 2005
recognized as a result of a gain realized on an exchange of our
interest in an equity investee for an investment in a larger
enterprise. Other income also includes the 2% accretion of the
preferred membership interests in our indirect subsidiary, CC
VIII, and the pro rata share of the profits and losses of CC
VIII.
Income tax expense. Income tax expense was
recognized through increases in deferred tax liabilities related
to our investment in Charter Holdco, as well as through current
federal and state income tax expense and increases in the
deferred tax liabilities of certain of our indirect corporate
subsidiaries. Income tax expense was offset by deferred tax
benefits of $21 million and $6 million related to
asset impairment charges recorded in the six months ended
June 30, 2006 and 2005, respectively.
Income from discontinued operations, net of tax.
Income from discontinued operations, net of tax increased from
$19 million for the six months ended June 30, 2005 to
$38 million for the six months ended June 30, 2006
primarily due to a decrease in depreciation for the six months
ended June 30, 2006 as we ceased recognizing depreciation
on the West Virginia and Virginia cable systems when we
classified them as assets held for sale in the first quarter of
2006.
Net loss. Net loss increased by $115 million,
or 52%, for the six months ended June 30, 2006 compared to
the six months ended June 30, 2005 as a result of the
factors described above.
121
Year Ended December 31, 2005, December 31, 2004 and
December 31, 2003
The following table sets forth the percentages of revenues that
items in the accompanying consolidated statements of operations
constitute for the indicated periods (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Revenues
|
|
$ |
5,033 |
|
|
|
100 |
% |
|
$ |
4,760 |
|
|
|
100 |
% |
|
$ |
4,616 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (excluding depreciation and amortization)
|
|
|
2,203 |
|
|
|
44 |
% |
|
|
1,994 |
|
|
|
42 |
% |
|
|
1,873 |
|
|
|
41 |
% |
|
Selling, general and administrative
|
|
|
1,012 |
|
|
|
20 |
% |
|
|
965 |
|
|
|
20 |
% |
|
|
909 |
|
|
|
20 |
% |
|
Depreciation and amortization
|
|
|
1,443 |
|
|
|
29 |
% |
|
|
1,433 |
|
|
|
30 |
% |
|
|
1,396 |
|
|
|
30 |
% |
|
Impairment of franchises
|
|
|
|
|
|
|
|
|
|
|
2,297 |
|
|
|
48 |
% |
|
|
|
|
|
|
|
|
|
Asset impairment charges
|
|
|
39 |
|
|
|
1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating (income) expenses, net
|
|
|
32 |
|
|
|
|
|
|
|
13 |
|
|
|
|
|
|
|
(46 |
) |
|
|
(1 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,729 |
|
|
|
94 |
% |
|
|
6,702 |
|
|
|
140 |
% |
|
|
4,132 |
|
|
|
90 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) from continuing operations
|
|
|
304 |
|
|
|
6 |
% |
|
|
(1,942 |
) |
|
|
(40 |
)% |
|
|
484 |
|
|
|
10 |
% |
|
Interest expense, net
|
|
|
(858 |
) |
|
|
|
|
|
|
(726 |
) |
|
|
|
|
|
|
(545 |
) |
|
|
|
|
|
Other income, net
|
|
|
99 |
|
|
|
|
|
|
|
71 |
|
|
|
|
|
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes and
cumulative effect of accounting change
|
|
|
(455 |
) |
|
|
|
|
|
|
(2,597 |
) |
|
|
|
|
|
|
(34 |
) |
|
|
|
|
|
Income tax benefit (expense)
|
|
|
(9 |
) |
|
|
|
|
|
|
35 |
|
|
|
|
|
|
|
(13 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before cumulative effect of
accounting change
|
|
|
(464 |
) |
|
|
|
|
|
|
(2,562 |
) |
|
|
|
|
|
|
(47 |
) |
|
|
|
|
|
Income (loss) from discontinued operations, net of tax
|
|
|
39 |
|
|
|
|
|
|
|
(104 |
) |
|
|
|
|
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before cumulative effect of accounting change
|
|
|
(425 |
) |
|
|
|
|
|
|
(2,666 |
) |
|
|
|
|
|
|
(15 |
) |
|
|
|
|
|
Cumulative effect of accounting change, net of tax
|
|
|
|
|
|
|
|
|
|
|
(840 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(425 |
) |
|
|
|
|
|
$ |
(3,506 |
) |
|
|
|
|
|
$ |
(15 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2005 Compared to Year Ended
December 31, 2004
Revenues. The overall increase in revenues in 2005
compared to 2004 is principally the result of an increase of
306,000 and 124,600 high-speed Internet customers and digital
video customers, respectively, as well as price increases for
video and high-speed Internet services, and is offset partially
by a decrease of 79,100 analog video customers and
$12 million of credits issued to hurricane Katrina and Rita
impacted customers related to service outages. We have restored
service to our impacted customers. Included in the reduction in
analog video customers and reducing the increase in digital
video and high-speed Internet customers are 26,800 analog video
customers, 12,000 digital video customers and 600 high-speed
Internet customers sold in the cable system sales in Texas and
West Virginia, which closed in July 2005. The cable system sales
to Atlantic Broadband Finance, LLC, which closed in March and
April 2004 and the cable system sales in Texas and West
Virginia, which closed in July 2005 (collectively referred to in
this section as the Systems Sales) reduced the
increase in revenues by approximately $30 million.
Average monthly revenue per analog video customer increased from
$67.37 for the year ended December 31, 2004 to $73.73 for
the year ended December 31, 2005 primarily as a result of
price increases and incremental revenues from advanced services.
Average monthly revenue per analog video customer represents
total annual revenue, divided by twelve, divided by the average
number of analog video customers during the respective period.
122
Revenues by service offering were as follows (dollars in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2005 over 2004 | |
|
|
| |
|
| |
|
| |
|
|
|
|
% of | |
|
|
|
% of | |
|
|
|
% | |
|
|
Revenues | |
|
Revenues | |
|
Revenues | |
|
Revenues | |
|
Change | |
|
Change | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Video
|
|
$ |
3,248 |
|
|
|
65% |
|
|
$ |
3,217 |
|
|
|
68 |
% |
|
$ |
31 |
|
|
|
1 |
% |
High-speed Internet
|
|
|
875 |
|
|
|
17% |
|
|
|
712 |
|
|
|
15 |
% |
|
|
163 |
|
|
|
23 |
% |
Telephone
|
|
|
36 |
|
|
|
1% |
|
|
|
18 |
|
|
|
|
|
|
|
18 |
|
|
|
100 |
% |
Advertising sales
|
|
|
284 |
|
|
|
6% |
|
|
|
279 |
|
|
|
6 |
% |
|
|
5 |
|
|
|
2 |
% |
Commercial
|
|
|
266 |
|
|
|
5% |
|
|
|
227 |
|
|
|
5 |
% |
|
|
39 |
|
|
|
17 |
% |
Other
|
|
|
324 |
|
|
|
6% |
|
|
|
307 |
|
|
|
6 |
% |
|
|
17 |
|
|
|
6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,033 |
|
|
|
100% |
|
|
$ |
4,760 |
|
|
|
100 |
% |
|
$ |
273 |
|
|
|
6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Video revenues consist primarily of revenues from analog and
digital video services provided to our non-commercial customers.
Approximately $119 million of the increase in video
revenues was the result of price increases and incremental video
revenues from existing customers and approximately
$18 million was the result of an increase in digital video
customers. The increases were offset by decreases of
approximately $76 million related to a decrease in analog
video customers, approximately $21 million resulting from
the System Sales and approximately $9 million of credits
issued to hurricanes Katrina and Rita impacted customers related
to service outages.
Approximately $135 million of the increase in revenues from
high-speed Internet services provided to our non-commercial
customers related to the increase in the average number of
customers receiving high-speed Internet services, whereas
approximately $34 million related to the increase in
average price of the service. The increase was offset by
approximately $3 million of credits issued to hurricanes
Katrina and Rita impacted customers related to service outages
and $3 million resulting from the System Sales.
Revenues from telephone services increased primarily as a result
of an increase of 76,100 telephone customers in 2005.
Advertising sales revenues consist primarily of revenues from
commercial advertising customers, programmers and other vendors.
Advertising sales revenues increased primarily as a result of an
increase in local advertising sales and offset by a decline in
national advertising sales. In addition, the increase was offset
by a decrease of $1 million as a result of the System
Sales. For the years ended December 31, 2005 and 2004, we
received $15 million and $16 million, respectively, in
advertising sales revenues from programmers.
Commercial revenues consist primarily of revenues from cable
video and high-speed Internet services provided to our
commercial customers. Commercial revenues increased primarily as
a result of an increase in commercial high-speed Internet
revenues. The increase was reduced by approximately
$3 million as a result of the System Sales.
Other revenues consist of revenues from franchise fees,
equipment rental, customer installations, home shopping,
dial-up Internet
service, late payment fees, wire maintenance fees and other
miscellaneous revenues. For the years ended December 31,
2005 and 2004, franchise fees represented approximately 54% and
52%, respectively, of total other revenues. The increase in
other revenues was primarily the result of an increase in
franchise fees of $14 million and installation revenue of
$8 million offset by a decrease of $2 million in
equipment rental and $2 million in processing fees. In
addition, other revenues were offset by approximately
$2 million as a result of the System Sales.
Operating expenses. The overall increase in
operating expenses was reduced by approximately $12 million
as a result of the System Sales. Programming costs were
$1.4 billion and $1.3 billion,
123
representing 62% and 63% of total operating expenses for the
years ended December 31, 2005 and 2004, respectively. Key
expense components as a percentage of revenues were as follows
(dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2005 over 2004 | |
|
|
| |
|
| |
|
| |
|
|
|
|
% of | |
|
|
|
% of | |
|
|
|
% | |
|
|
Expenses | |
|
Revenues | |
|
Expenses | |
|
Revenues | |
|
Change | |
|
Change | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Programming
|
|
$ |
1,359 |
|
|
|
27% |
|
|
$ |
1,264 |
|
|
|
27% |
|
|
$ |
95 |
|
|
|
8% |
|
Service
|
|
|
748 |
|
|
|
15% |
|
|
|
638 |
|
|
|
13% |
|
|
|
110 |
|
|
|
17% |
|
Advertising sales
|
|
|
96 |
|
|
|
2% |
|
|
|
92 |
|
|
|
2% |
|
|
|
4 |
|
|
|
4% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,203 |
|
|
|
44% |
|
|
$ |
1,994 |
|
|
|
42% |
|
|
$ |
209 |
|
|
|
10% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Programming costs consist primarily of costs paid to programmers
for analog, premium, digital channels and pay-per-view
programming. The increase in programming was a result of price
increases, particularly in sports programming, partially offset
by a decrease in analog video customers. Additionally, the
increase in programming costs was reduced by $9 million as
a result of the Systems Sales. Programming costs were offset by
the amortization of payments received from programmers in
support of launches of new channels of $40 million and
$59 million for the year ended December 31, 2005 and
2004, respectively. Programming costs for the year ended
December 31, 2004 also include a $5 million reduction
related to the settlement of a dispute with TechTV, Inc., a
related party. See Note 25 to the accompanying consolidated
financial statements contained in Item 8. Financial
Statements and Supplementary Data included in this
Exchange Offer Prospectus.
Service costs consist primarily of service personnel salaries
and benefits, franchise fees, system utilities, cost of
providing high-speed Internet and telephone service, maintenance
and pole rental expense. The increase in service costs resulted
primarily from increased labor and maintenance costs to support
improved service levels and our advanced products, increased
costs of providing high-speed Internet and telephone service as
a result of the increase in these customers and higher fuel
prices. The increase in service costs was reduced by
$3 million as a result of the System Sales. Advertising
sales expenses consist of costs related to traditional
advertising services provided to advertising customers,
including salaries, benefits and commissions. Advertising sales
expenses increased primarily as a result of increased salary,
benefit and commission costs.
Selling, general and administrative expenses. The
overall increase in selling, general and administrative expenses
was reduced by $4 million as a result of the System Sales.
Key components of expense as a percentage of revenues were as
follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2005 over 2004 | |
|
|
| |
|
| |
|
| |
|
|
|
|
% of | |
|
|
|
% of | |
|
|
|
% | |
|
|
Expenses | |
|
Revenues | |
|
Expenses | |
|
Revenues | |
|
Change | |
|
Change | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
General and administrative
|
|
$ |
870 |
|
|
|
17% |
|
|
$ |
846 |
|
|
|
18% |
|
|
$ |
24 |
|
|
|
3% |
|
Marketing
|
|
|
142 |
|
|
|
3% |
|
|
|
119 |
|
|
|
2% |
|
|
|
23 |
|
|
|
19% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,012 |
|
|
|
20% |
|
|
$ |
965 |
|
|
|
20% |
|
|
$ |
47 |
|
|
|
5% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses consist primarily of
salaries and benefits, rent expense, billing costs, call center
costs, internal network costs, bad debt expense and property
taxes. The increase in general and administrative expenses
resulted primarily from increases in salaries and benefits of
$24 million and professional fees associated with
consulting services of $18 million both related to
investments to improve service levels in our customer care
centers as well as an increase of $13 million in legal and
other professional fees offset by decreases in bad debt expense
of $16 million related to a reduction in the use of
discounted pricing, property taxes of $5 million, property
and casualty insurance of $6 million and the System Sales
of $4 million.
Marketing expenses increased as a result of an increased
investment in targeted marketing campaigns.
124
Depreciation and amortization. Depreciation and
amortization expense increased by $10 million in 2005. The
increase in depreciation is related to an increase in capital
expenditures, which was partially offset by lower depreciation
as the result of the Systems Sales and certain assets becoming
fully depreciated.
Impairment of franchises. We performed an
impairment assessment during the third quarter of 2004. The use
of lower projected growth rates and the resulting revised
estimates of future cash flows in our valuation, primarily as a
result of increased competition, led to the recognition of a
$2.3 billion impairment charge for the year ended
December 31, 2004. Our annual assessment in 2005 did not
result in an impairment.
Asset impairment charges. Asset impairment charges
for the year ended December 31, 2005 represent the
write-down of assets related to cable asset sales to fair value
less costs to sell. See Note 4 to the accompanying
consolidated financial statements included elsewhere in this
Exchange Offer Prospectus.
Other operating (income) expenses, net. Other
operating expenses increased $19 million primarily as a
result of a $19 million hurricane asset retirement loss
recorded in 2005 associated with the write-off of the net book
value of assets destroyed by hurricanes Katrina and Rita. This
was coupled with a decrease in gain on sale of assets of
$92 million primarily as a result of the gain realized on
the sale of systems to Atlantic Broadband Finance, LLC which
closed in 2004. This was offset by a decrease in special charges
of $97 million primarily as a result of a decrease in
severance and related costs of our management reduction and
realignment in 2004, litigation costs and costs incurred as part
of a settlement of the consolidated federal class actions, state
derivative actions and federal derivative actions.
Interest expense, net. Net interest expense
increased by $132 million, or 18%, for the year ended
December 31, 2005 compared to the year ended
December 31, 2004. The increase in net interest expense was
a result of an increase in our average borrowing rate from 7.38%
in the year ended December 31, 2004 to 8.03% in the year
ended December 31, 2005 and an increase of
$753 million in average debt outstanding from
$9.4 billion in 2004 to $10.1 billion in 2005.
Other income, net. Other income increased
$28 million primarily as a result of a gain realized on an
exchange of our interest in an equity investee for an investment
in a larger enterprise which did not occur in 2004 partially
offset by a decrease in gains on derivative instruments and
hedging activities as a result of decreases in gains on interest
rate agreements that do not qualify for hedge accounting under
SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities. Other income in 2005 also included
losses related to the redemption of our subsidiarys CC V
Holdings, LLC, 11.875% notes due 2008. Other income in 2004
included the write-off of deferred financing fees and third
party costs related to the Charter Operating refinancing in
April 2004. Other income also includes the 2% accretion of the
preferred membership interests in our indirect subsidiary, CC
VIII, and the pro rate share of the profits and losses of CC
VIII.
Income tax benefit (expense). Income tax expense
for the year ended December 31, 2005 was recognized through
increases in deferred tax liabilities and current federal and
state income tax expenses of certain of our indirect corporate
subsidiaries. Income tax benefit for the year ended
December 31, 2004 was directly related to the impairment of
franchises. The deferred tax liabilities of our indirect
corporate subsidiaries decreased as a result of the write-down
of franchise assets for financial statement purposes. We do not
expect to recognize a similar benefit associated with the
impairment of franchises in future periods. However, the actual
tax provision calculations in future periods will be the result
of current and future temporary differences, as well as future
operating results.
Income (loss) from discontinued operations, net of
tax. Loss from discontinued operations, net of tax
decreased from $104 million for the year ended
December 31, 2004 to income from discontinued operations,
net of tax of $39 million for the year ended
December 31, 2005 primarily due to the impairment of
franchises recognized in 2004 described above.
125
Cumulative effect of accounting change, net of
tax. Cumulative effect of accounting change of
$840 million (net of minority interest effects of
$19 million and tax effects of $16 million) in 2004
represents the impairment charge recorded as a result of our
adoption of Topic D-108.
Net loss. Net loss decreased by $3.1 billion
in 2005 compared to 2004 as a result of the factors described
above. The impact to net loss in 2005 of the asset impairment
charges and extinguishment of debt was to increase net loss by
approximately $45 million. The impact to net loss in 2004
of the impairment of franchises and cumulative effect of
accounting change was to increase net loss by approximately
$3.0 billion.
Year Ended December 31, 2004 Compared to Year Ended
December 31, 2003
Revenues. The overall increase in revenues in 2004
compared to 2003 is principally the result of an increase of
311,600 from December 31, 2003 and 2,300 high-speed
Internet customers and digital video customers, respectively, as
well as price increases for video and high-speed Internet
services, and is offset partially by a decrease of 425,300
analog video customers. Included in the reduction in analog
video customers and reducing the increase in digital video and
high-speed Internet customers are 230,800 analog video
customers, 83,300 digital video customers and 37,800 high-speed
Internet customers sold in the cable system sales to Atlantic
Broadband Finance, LLC, which closed in March and April 2004
(collectively, with the cable system sale to WaveDivision
Holdings, LLC in October 2003, referred to in this section as
the Systems Sales). The Systems Sales reduced the
increase in revenues by $161 million.
Average monthly revenue per analog video customer increased from
$61.84 for the year ended December 31, 2003 to $67.37 for
the year ended December 31, 2004 primarily as a result of
price increases and incremental revenues from advanced services.
Average monthly revenue per analog video customer represents
total annual revenue, divided by twelve, divided by the average
number of analog video customers during the respective period.
Revenues by service offering were as follows (dollars in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2004 over 2003 | |
|
|
| |
|
| |
|
| |
|
|
|
|
% of | |
|
|
|
% of | |
|
|
|
% | |
|
|
Revenues | |
|
Revenues | |
|
Revenues | |
|
Revenues | |
|
Change | |
|
Change | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Video
|
|
$ |
3,217 |
|
|
|
68% |
|
|
$ |
3,306 |
|
|
|
72% |
|
|
$ |
(89 |
) |
|
|
(3 |
)% |
High-speed Internet
|
|
|
712 |
|
|
|
15% |
|
|
|
535 |
|
|
|
12% |
|
|
|
177 |
|
|
|
33 |
% |
Telephone
|
|
|
18 |
|
|
|
|
|
|
|
14 |
|
|
|
|
|
|
|
4 |
|
|
|
29 |
% |
Advertising sales
|
|
|
279 |
|
|
|
6% |
|
|
|
254 |
|
|
|
5% |
|
|
|
25 |
|
|
|
10 |
% |
Commercial
|
|
|
227 |
|
|
|
5% |
|
|
|
196 |
|
|
|
4% |
|
|
|
31 |
|
|
|
16 |
% |
Other
|
|
|
307 |
|
|
|
6% |
|
|
|
311 |
|
|
|
7% |
|
|
|
(4 |
) |
|
|
(1 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,760 |
|
|
|
100% |
|
|
$ |
4,616 |
|
|
|
100% |
|
|
$ |
144 |
|
|
|
3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Video revenues consist primarily of revenues from analog and
digital video services provided to our non-commercial customers.
Approximately $116 million of the decrease in video
revenues was the result of the Systems Sales and approximately
an additional $58 million related to a decline in analog
video customers. These decreases were offset by increases of
approximately $59 million resulting from price increases
and incremental video revenues from existing customers and
approximately $26 million resulting from an increase in
digital video customers.
Approximately $159 million of the increase in revenues from
high-speed Internet services provided to our non-commercial
customers related to the increase in the average number of
customers receiving high-speed Internet services, whereas
approximately $31 million related to the increase in
average price of the service. The increase in high-speed
Internet revenues was reduced by approximately $13 million
as a result of the Systems Sales.
126
Revenues from telephone services increased primarily as a result
of an increase of 20,500 telephone customers.
Advertising sales revenues consist primarily of revenues from
commercial advertising customers, programmers and other vendors.
Advertising sales revenues increased primarily as a result of an
increase in national advertising campaigns and election related
advertising. The increase was offset by a decrease of
$7 million as a result of the System Sales. For the years
ended December 31, 2004 and 2003, we received
$16 million and $15 million, respectively, in
advertising revenue from programmers.
Commercial revenues consist primarily of revenues from cable
video and high-speed Internet services to our commercial
customers. Commercial revenues increased primarily as a result
of an increase in commercial high-speed Internet revenues. The
increase was reduced by approximately $14 million as a
result of the Systems Sales.
Other revenues consist of revenues from franchise fees,
equipment rental, customer installations, home shopping,
dial-up Internet
service, late payment fees, wire maintenance fees and other
miscellaneous revenues. For the year ended December 31,
2004 and 2003, franchise fees represented approximately 52% and
50%, respectively, of total other revenues. Approximately
$11 million of the decrease in other revenues was the
result of the Systems Sales offset by an increase in home
shopping and infomercial revenue.
Operating expenses. The overall increase in
operating expenses was reduced by approximately $59 million
as a result of the System Sales. Programming costs were
$1.3 billion and $1.2 billion, representing 63% and
64% of total operating expenses for the years ended
December 31, 2004 and 2003, respectively. Key expense
components as a percentage of revenues were as follows (dollars
in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2004 over 2003 | |
|
|
| |
|
| |
|
| |
|
|
|
|
% of | |
|
|
|
% of | |
|
|
|
% | |
|
|
Expenses | |
|
Revenues | |
|
Expenses | |
|
Revenues | |
|
Change | |
|
Change | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Programming
|
|
$ |
1,264 |
|
|
|
27% |
|
|
$ |
1,195 |
|
|
|
26% |
|
|
$ |
69 |
|
|
|
6% |
|
Service
|
|
|
638 |
|
|
|
13% |
|
|
|
595 |
|
|
|
13% |
|
|
|
43 |
|
|
|
7% |
|
Advertising sales
|
|
|
92 |
|
|
|
2% |
|
|
|
83 |
|
|
|
2% |
|
|
|
9 |
|
|
|
11% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,994 |
|
|
|
42% |
|
|
$ |
1,873 |
|
|
|
41% |
|
|
$ |
121 |
|
|
|
6% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Programming costs consist primarily of costs paid to programmers
for analog, premium and digital channels and pay-per-view
programming. The increase in programming costs was a result of
price increases, particularly in sports programming, an
increased number of channels carried on our systems, and an
increase in digital video customers, partially offset by a
decrease in analog video customers. Additionally, the increase
in programming costs was reduced by $42 million as a result
of the Systems Sales. Programming costs were offset by the
amortization of payments received from programmers in support of
launches of new channels of $59 million and
$63 million for the year ended December 31, 2004 and
2003, respectively. Programming costs for the year ended
December 31, 2004 also include a $5 million reduction
related to the settlement of a dispute with TechTV, Inc., a
related party. See Note 25 to the accompanying consolidated
financial statements contained elsewhere in this Exchange Offer
Prospectus.
Service costs consist primarily of service personnel salaries
and benefits, franchise fees, system utilities, Internet service
provider fees, maintenance and pole rental expense. The increase
in service costs resulted primarily from additional activity
associated with ongoing infrastructure maintenance. The increase
in service costs was reduced by $15 million as a result of
the System Sales. Advertising sales expenses consist of costs
related to traditional advertising services provided to
advertising customers, including salaries, benefits and
commissions. Advertising sales expenses increased primarily as a
result of increased salary, benefit and commission costs. The
increase in advertising sales expenses was reduced by
$2 million as a result of the System Sales.
127
Selling, general and administrative expenses. The
overall increase in selling, general and administrative expenses
was reduced by $22 million as a result of the System Sales.
Key components of expense as a percentage of revenues were as
follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2004 over 2003 | |
|
|
| |
|
| |
|
| |
|
|
|
|
% of | |
|
|
|
% of | |
|
|
|
% | |
|
|
Expenses | |
|
Revenues | |
|
Expenses | |
|
Revenues | |
|
Change | |
|
Change | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
General and administrative
|
|
$ |
846 |
|
|
|
17% |
|
|
$ |
806 |
|
|
|
18% |
|
|
$ |
40 |
|
|
|
5% |
|
Marketing
|
|
|
119 |
|
|
|
3% |
|
|
|
103 |
|
|
|
2% |
|
|
|
16 |
|
|
|
16% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
965 |
|
|
|
20% |
|
|
$ |
909 |
|
|
|
20% |
|
|
$ |
56 |
|
|
|
6% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses consist primarily of
salaries and benefits, rent expense, billing costs, call center
costs, internal network costs, bad debt expense and property
taxes. The increase in general and administrative expenses
resulted primarily from increases in costs associated with our
commercial business of $21 million, third party call center
costs resulting from increased emphasis on customer service of
$10 million, bad debt expense of $9 million and costs
associated with salaries and benefits of $11 million offset
by decreases in and rent expense of $3 million.
Marketing expenses increased as a result of an increased
investment in marketing and branding campaigns.
Depreciation and amortization. Depreciation and
amortization expense increased by $37 million, or 3%. The
increase in depreciation related to an increase in capital
expenditures, which was partially offset by lower depreciation
as the result of the Systems Sales.
Impairment of franchises. We performed an
impairment assessment during the third quarter of 2004. The use
of lower projected growth rates and the resulting revised
estimates of future cash flows in our valuation, primarily as a
result of increased competition, led to the recognition of a
$2.3 billion impairment charge for the year ended
December 31, 2004.
Other operating (income) expenses, net. Other
operating income decreased $59 million primarily as a
result of an increase in special charges of $83 million
related to severance and related costs of our management
reduction and realignment in 2004, litigation costs and costs
incurred as part of a settlement of the consolidated federal
class actions, state derivative actions and federal derivative
actions. This was coupled with a decrease of $67 million in
the settlement of estimated liabilities recorded in connection
with prior business combinations, which based on current facts
and circumstances, are no longer required. This was offset by an
increase of $91 million in gain on sale of assets as a
result of the gain realized on the sale of systems to Atlantic
Broadband Finance, LLC which closed in 2004.
Interest expense, net. Net interest expense
increased by $181 million, or 33%, from $545 million
for the year ended December 31, 2003 to $726 million
for the year ended December 31, 2004. The increase in net
interest expense was a result of an increase in our average
borrowing rate from 6.00% in the year ended December 31,
2003 to 7.38% in the year ended December 31, 2004 coupled
with an increase of $509 million in average debt
outstanding from $8.9 billion in 2003 to $9.4 billion
in 2004.
Other income, net. Other income increased
$44 million primarily as a result of an increase in net
gains on derivative instruments and hedging activities as a
result of increases in gains on interest rate agreements that do
not qualify for hedge accounting under SFAS No. 133,
Accounting for Derivative Instruments and Hedging
Activities. Other income in 2004 included the write-off of
deferred financing fees and third party costs related to the
Charter Operating refinancing in April 2004 which did not occur
in 2003. Other income also includes the 2% accretion of the
preferred membership interests in our indirect subsidiary, CC
VIII, and the pro rata share of the profits and losses of CC
VIII.
Income tax benefit (expense). The income tax
benefit for the year ended December 31, 2004 was directly
related to the impairment of franchises. The deferred tax
liabilities of our indirect corporate
128
subsidiaries decreased as a result of the write-down of
franchise assets for financial statement purposes. We do not
expect to recognize a similar benefit associated with the
impairment of franchises in future periods. However, the actual
tax provision calculations in future periods will be the result
of current and future temporary differences, as well as future
operating results.
The income tax expense recognized in the year ended
December 31, 2003 represents increases in the deferred tax
liabilities and current federal and state income tax expenses of
certain of our indirect corporate subsidiaries.
Income (loss) from discontinued operations, net of
tax. Income from discontinued operations, net of tax
decreased from $32 million for the year ended
December 31, 2003 to loss from discontinued operations, net
of tax of $104 million for the year ended December 31,
2005 primarily due to the impairment of franchises recognized in
2004 described above.
Cumulative effect of accounting change, net of
tax. Cumulative effect of accounting change of
$840 million (net of minority interest effects of
$19 million and tax effects of $16 million) in 2004
represents the impairment charge recorded as a result of our
adoption of EITF Topic
D-108.
Net loss. Net loss increased by $3.5 billion
from $15 million in 2003 to $3.5 billion in 2004 as a
result of the factors described above. The impact to net loss in
2004 of the impairment of franchises and cumulative effect of
accounting change was to increase net loss by approximately
$3.0 billion. The impact to net loss in 2003 of the gain on
sale of systems and unfavorable contracts and settlements, net
of income tax impacts, was to decrease net loss by
$93 million.
Liquidity and Capital Resources
This section contains a discussion of our liquidity and capital
resources, including a discussion of our cash position, sources
and uses of cash, access to credit facilities and other
financing sources, historical financing activities, cash needs,
capital expenditures and outstanding debt.
|
|
|
Recent Financing Transactions |
In January 2006, CCH II, LLC and CCH II Capital Corp.
issued $450 million of the original notes, the proceeds of
which were provided, directly or indirectly, to Charter
Operating, which used such funds to reduce borrowings, but not
commitments, under the revolving portion of its credit
facilities.
In April 2006, Charter Operating completed a $6.85 billion
refinancing of its credit facilities including a new
$350 million revolving/term facility (which converts to a
term loan no later than April 2007), a $5.0 billion term
loan due in 2013 and certain amendments to the existing
$1.5 billion revolving credit facility. In addition, the
refinancing reduced margins on Eurodollar rate Term A &
B loans to 2.625% from a weighted average of 3.15% previously
and margins on base rate term loans to 1.625% from a weighted
average of 2.15% previously. Concurrent with this refinancing,
the CCO Holdings bridge loan was terminated.
Our long-term financing as of June 30, 2006 consists of
$5.8 billion of credit facility debt and $5.3 billion
accreted value of high-yield notes. For the remainder of 2006,
none of our debt matures, and in 2007 and 2008, $25 million
and $50 million mature, respectively. In 2009 and beyond,
significant additional amounts will become due under our
remaining long-term debt obligations.
Our business requires significant cash to fund debt service
costs, capital expenditures and ongoing operations. We have
historically funded these requirements through cash flows from
operating activities, borrowings under our credit facilities,
equity contributions from our parent companies, sales of assets,
issuances of debt securities and cash on hand. However, the mix
of funding sources changes from period to period. For the six
months ended June 30, 2006, we generated $525 million
of net cash flows from operating activities after paying cash
interest of $451 million. In addition, we used
approximately $539 million for purchases of property, plant
and equipment. Finally, we had net cash flows from financing
129
activities of $69 million. We expect that our mix of
sources of funds will continue to change in the future based on
overall needs relative to our cash flow and on the availability
of funds under our credit facilities, our and our parent
companies access to the debt markets, the timing of
possible asset sales and our ability to generate cash flows from
operating activities. We continue to explore asset dispositions
as one of several possible actions that we could take in the
future to improve our liquidity, but we do not presently believe
unannounced asset sales to be a significant source of liquidity.
We expect that cash on hand, cash flows from operating
activities, proceeds from sale of assets and the amounts
available under our credit facilities will be adequate to meet
our and our parent companies cash needs through 2007. We
believe that cash flows from operating activities and amounts
available under our credit facilities may not be sufficient to
fund our operations and satisfy our and our parent
companies interest and principal repayment obligations in
2008 and will not be sufficient to fund such needs in 2009 and
beyond. See Risk Factors Risks Related to Our
and Our Subsidiaries Significant Indebtedness
We may not generate (or, in general, have available to the
applicable obligor) sufficient cash flow or access to additional
external liquidity sources to fund our capital expenditures,
ongoing operations and debt obligations, including our payment
obligations under the Convertible Notes and the CCH II
Notes, which could have a material adverse effect on you as
holders of the Convertible Notes and the CCH II
Notes. We have been advised that Charter continues to work
with its financial advisors in its approach to addressing
liquidity, debt maturities and our overall balance sheet
leverage.
Our ability to operate depends upon, among other things, our
continued access to capital, including credit under the Charter
Operating credit facilities. The Charter Operating credit
facilities, along with our indentures, contain certain
restrictive covenants, some of which require us to maintain
specified financial ratios and meet financial tests and to
provide annual audited financial statements with an unqualified
opinion from our independent auditors. As of June 30, 2006,
we are in compliance with the covenants under our indentures and
credit facilities, and we expect to remain in compliance with
those covenants for the next twelve months. As of June 30,
2006, our potential availability under our credit facilities
totaled approximately $900 million, none of which was
limited by covenant restrictions. In the past, our actual
availability under our credit facilities has been limited by
covenant restrictions. There can be no assurance that our actual
availability under our credit facilities will not be limited by
covenant restrictions in the future. However, pro forma for the
closing of the asset sales on July 1, 2006, and the related
application of net proceeds to repay amounts outstanding under
our revolving credit facilities, potential availability under
our credit facilities as of June 30, 2006 would have been
approximately $1.7 billion, although actual availability
would have been limited to $1.3 billion because of limits
imposed by covenant restrictions. Continued access to our credit
facilities is subject to our remaining in compliance with these
covenants, including covenants tied to our operating
performance. If any events of non-compliance occur, funding
under the credit facilities may not be available and defaults on
some or potentially all of our debt obligations could occur. An
event of default under any of our debt instruments could result
in the acceleration of our payment obligations under that debt
and, under certain circumstances, in cross-defaults under our
other debt obligations, which could have a material adverse
effect on our consolidated financial condition and results of
operations. See Risk Factors Risks Related to
Our and Our Subsidiaries Significant
Indebtedness Charter Operating may not be able to
access funds under its credit facilities if it fails to satisfy
the covenant restrictions in its credit facilities, which could
adversely affect our financial condition and our ability to
conduct our business.
|
|
|
Parent Company Debt Obligations |
Any financial or liquidity problems of our parent companies
could cause serious disruption to our business and have a
material adverse effect on our business and results of
operations. A failure by Charter Holdings, CIH or CCH I to
satisfy their debt payment obligations or a bankruptcy filing
with respect to Charter Holdings, CIH or CCH I would give the
lenders under our credit facilities the right to accelerate the
payment obligations under these facilities. Any such
acceleration would be a default under the
130
indenture governing our notes. On a consolidated basis, our
parent companies have a significant level of debt, which,
including our debt, totaled approximately $19.9 billion as
of June 30, 2006, as discussed below.
Charters ability to make interest payments on its
convertible senior notes, and, in 2009, to repay the outstanding
principal of its convertible senior notes of $ $863 million
will depend on its ability to raise additional capital and/or on
receipt of payments or distributions from Charter Holdco and its
subsidiaries. As of June 30, 2006, Charter Holdco was owed
$3 million in intercompany loans from its subsidiaries,
which were available to pay interest and principal on
Charters convertible senior notes. In addition, Charter
has $74 million of governmental securities pledged as
security for the next three scheduled semi-annual interest
payments on Charters 5.875% convertible senior notes.
As of June 30, 2006, Charter Holdings, CIH and CCH I had
approximately $7.8 billion principal amount of high-yield
notes outstanding with approximately $105 million, $0,
$684 million and $7.0 billion maturing in 2007, 2008,
2009 and thereafter, respectively. Charter, Charter Holdings,
CIH and CCH I will need to raise additional capital or receive
distributions or payments from us in order to satisfy their debt
obligations. However, because of their significant indebtedness,
our ability and the ability of our parent companies to raise
additional capital at reasonable rates or at all is uncertain.
During the six months ended June 30, 2006, we distributed
$420 million of cash to our parent company.
Distributions by Charters subsidiaries to a parent company
(including Charter, CCHC, Charter Holdco, Charter Holdings, CIH
and CCH I) for payment of principal on parent company notes are
restricted under the indentures governing the CIH notes, CCH I
notes, CCH II Notes, CCO Holdings notes and Charter
Operating notes unless there is no default under the applicable
indenture, each applicable subsidiarys leverage ratio test
is met at the time of such distribution and, in the case of
Charters convertible senior notes, other specified tests
are met. For the quarter ended June 30, 2006, there was no
default under any of these indentures and each such subsidiary
met its applicable leverage ratio tests based on June 30,
2006 financial results. Such distributions would be restricted,
however, if any such subsidiary fails to meet these tests at
such time. In the past, certain subsidiaries have from time to
time failed to meet their leverage ratio test. There can be no
assurance that they will satisfy these tests at the time of such
distribution. Distributions by Charter Operating for payment of
principal on parent company notes are further restricted by the
covenants in the credit facilities.
Distributions by CIH, CCH I, CCH II, CCO Holdings and
Charter Operating to a parent company for payment of parent
company interest are permitted if there is no default under the
aforementioned indentures. However, distributions for payment of
interest on Charters convertible senior notes are further
limited to when each applicable subsidiarys leverage ratio
test is met and other specified tests are met. There can be no
assurance that they will satisfy these tests at the time of such
distribution.
Distributions to our parent companies may also be subject to
certain restrictions under applicable law. See Risks
Related to Our and Our Subsidiaries Significant
Indebtedness Because of our holding company
structure, our outstanding notes are structurally subordinated
in right of payment to all liabilities of our subsidiaries.
Restriction in our subsidiaries debt instruments and under
applicable law limit their ability to provide funds to us.
While we believe that we and our parent companies currently have
surplus and are not insolvent, there can be no assurance that we
and our parent companies will be permitted to make distributions
in the future in compliance with these restrictions in amounts
needed to service all their indebtedness, including the
Convertible Notes.
|
|
|
Specific Limitations at Charter Holdings |
The indentures governing the Charter Holdings notes permit
Charter Holdings to make distributions to Charter Holdco for
payment of interest or principal on the convertible senior
notes, only if, after giving effect to the distribution, Charter
Holdings can incur additional debt under the leverage ratio of
8.75 to 1.0, there is no default under Charter Holdings
indentures and other specified tests are met. For the quarter
ended June 30, 2006, there was no default under Charter
Holdings indentures and Charter Holdings met its leverage
ratio test based on June 30, 2006 financial results. Such
distributions would be
131
restricted, however, if Charter Holdings fails to meet these
tests at such time. In the past, Charter Holdings has from time
to time failed to meet this leverage ratio test. There can be no
assurance that Charter Holdings will satisfy these tests at the
time of such distribution. During periods in which distributions
are restricted, the indentures governing the Charter Holdings
notes permit Charter Holdings and its subsidiaries to make
specified investments (that are not restricted payments) in
Charter Holdco or Charter up to an amount determined by a
formula, as long as there is no default under the indentures.
Our ability to incur additional debt may be limited by the
restrictive covenants in our indentures and credit facilities.
No assurances can be given that we will not experience liquidity
problems if we do not obtain sufficient additional financing on
a timely basis as our debt becomes due or because of adverse
market conditions, increased competition or other unfavorable
events. If, at any time, additional capital or borrowing
capacity is required beyond amounts internally generated or
available under our credit facilities or through additional debt
or equity financings, we would consider:
|
|
|
|
|
issuing equity at a parent company 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, the availability and terms of which would be subject
to market conditions. |
If the above strategies are not successful, we could be forced
to restructure our obligations or seek protection under the
bankruptcy laws. In addition, if we find it necessary to engage
in a recapitalization or other similar transaction, our
noteholders might not receive principal and interest payments to
which they are contractually entitled.
In July 2006, we closed the transactions with Cebridge and New
Wave for net proceeds of approximately $896 million. We
used the net proceeds from the asset sales to repay (but not
reduce permanently) amounts outstanding under our revolving
credit facility. The transaction with Orange is scheduled to
close in the third quarter of 2006.
In July 2005, we closed the sale of certain cable systems in
Texas and West Virginia and closed the sale of an additional
cable system in Nebraska in October 2005 for a total sales price
of approximately $37 million, representing a total of
approximately 33,000 customers.
In January 2006, we closed the purchase of certain cable systems
in Minnesota from Seren Innovations, Inc. We acquired
approximately 17,500 analog video customers, 8,000 digital video
customers, 13,200 high-speed Internet customers and 14,500
telephone customers for a total purchase price of approximately
$42 million.
132
|
|
|
Summary of Outstanding Contractual Obligations |
The following table summarizes our payment obligations as of
December 31, 2005 under our long-term debt and certain
other contractual obligations and commitments (dollars in
millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
$ |
10,629 |
|
|
$ |
30 |
|
|
$ |
1,024 |
|
|
$ |
4,142 |
|
|
$ |
5,433 |
|
Long-Term Debt Interest Payments(2)
|
|
|
4,231 |
|
|
|
746 |
|
|
|
1,478 |
|
|
|
1,396 |
|
|
|
611 |
|
Payments on Interest Rate Instruments(3)
|
|
|
18 |
|
|
|
8 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
Capital and Operating Lease Obligations(1)
|
|
|
94 |
|
|
|
20 |
|
|
|
27 |
|
|
|
23 |
|
|
|
24 |
|
Programming Minimum Commitments(4)
|
|
|
1,253 |
|
|
|
342 |
|
|
|
678 |
|
|
|
233 |
|
|
|
|
|
Other(5)
|
|
|
301 |
|
|
|
146 |
|
|
|
70 |
|
|
|
42 |
|
|
|
43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
16,526 |
|
|
$ |
1,292 |
|
|
$ |
3,287 |
|
|
$ |
5,836 |
|
|
$ |
6,111 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
The table presents maturities of long-term debt outstanding as
of December 31, 2005. Refer to Description of Other
Indebtedness and Notes 9 and 22 to our
December 31, 2005 consolidated financial statements
included in this Exchange Offer 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, 2005 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, 2005. 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, 2005. |
|
(4) |
We pay programming fees under multi-year contracts ranging from
three to ten years typically based on a flat fee per customer,
which may be fixed for the term or may in some cases, escalate
over the term. Programming costs included in the accompanying
statements of operations were approximately $1.4 billion,
$1.3 billion and $1.2 billion for the years ended
December 31, 2005, 2004 and 2003, 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. |
|
(5) |
Other represents other guaranteed minimum
commitments, which consist primarily of commitments to our
billing services vendors. |
The following items are not included in the contractual
obligations table because the obligations are not fixed and/or
determinable due to various factors discussed below. However, we
incur these costs as part of our operations:
|
|
|
|
|
We 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 related to continuing operations for the
years ended December 31, 2005, 2004 and 2003, was
$44 million, $42 million and $38 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 related to continuing operations
included in the accompanying statements of operations were |
133
|
|
|
|
|
$165 million, $159 million and $157 million for
the years ended December 31, 2005, 2004 and 2003,
respectively. |
|
|
|
We also have $165 million in letters of credit, primarily
to our various workers 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 |
Our cash flows include the cash flows related to our
discontinued operations for all periods presented.
We held $44 million in cash and cash equivalents as of
June 30, 2006 compared to $3 million as of
December 31, 2005. For the six months ended June 30,
2006, we generated $525 million of net cash flows from
operating activities after paying cash interest of
$451 million. In addition, we used approximately
$539 million for purchases of property, plant and
equipment. Finally, we had net cash flows from financing
activities of $69 million.
Operating Activities. Net cash provided by
operating activities increased $56 million, or 12%, from
$469 million for the six months ended June 30, 2005 to
$525 million for the six months ended June 30, 2006.
For the six months ended June 30, 2006, net cash provided
by operating activities increased primarily as a result of
changes in operating assets and liabilities that provided
$117 million more cash during the six months ended
June 30, 2006 than the corresponding period in 2005 offset
with an increase in cash interest expense of $78 million
over the corresponding prior period.
Net cash provided by operating activities decreased
$125 million, or 12%, from $1.0 billion for the year
ended December 31, 2004 to $884 million for the year
ended December 31, 2005. For the year ended
December 31, 2005, net cash provided by operating
activities decreased primarily as a result of an increase in
cash interest expense of $128 million over the
corresponding prior period.
Net cash provided by operating activities decreased
$312 million, or 24%, from $1.3 billion for the year
ended December 31, 2003 to $1.0 billion for the year
ended December 31, 2004. For the year ended
December 31, 2004, net cash provided by operating
activities decreased primarily as a result of changes in
operating assets and liabilities that used $114 million
more cash during the year ended December 31, 2004 than the
corresponding period in 2003 and an increase in cash interest
expense of $192 million over the corresponding prior
period. The change in operating assets and liabilities is
primarily the result of the benefit in the year ended
December 31, 2003 from collection of receivables from
programmers related to network launches, while accounts
receivable remained essentially flat in the year ended
December 31, 2004.
Investing Activities. Net cash used by investing
activities for the six months ended June 30, 2006 and 2005
was $553 million and $472 million, respectively.
Investing activities used $81 million more cash during the
six months ended June 30, 2006 than the corresponding
period in 2005 primarily as a result of increased cash used for
capital expenditures in 2006 coupled with cash used for the
purchase of cable systems discussed above.
Net cash used in investing activities for the years ended
December 31, 2005 and 2004 was $1.0 billion and
$191 million, respectively. Investing activities used
$827 million more cash during the year ended
December 31, 2005 than the corresponding period in 2004
primarily as a result of cash provided by proceeds from the sale
of certain cable systems to Atlantic Broadband Finance, LLC in
2004 which did not recur in 2005 combined with increased cash
used for capital expenditures.
Net cash used in investing activities for the years ended
December 31, 2004 and 2003 was $191 million and
$757 million, respectively. Investing activities used
$566 million less cash during the year ended
December 31, 2004 than the corresponding period in 2003
primarily as a result of cash provided by proceeds from the sale
of certain cable systems to Atlantic Broadband Finance, LLC
offset by increased cash used for capital expenditures.
134
Financing Activities. Net cash provided by
financing activities was $69 million for the six months
ended June 30, 2006 and net cash used in financing
activities was $521 million for the six months ended
June 30, 2005. The increase in cash provided during the six
months ended June 30, 2006 as compared to the corresponding
period in 2005, was primarily the result of proceeds from the
issuance of debt.
Net cash used in financing activities was $409 million and
$357 million for the years ended December 31, 2005 and
2004, respectively. The increase in cash used during the year
ended December 31, 2005, as compared to the corresponding
period in 2004, was primarily the result of an increase in
distributions offset by a decrease in payments for debt issuance
costs.
Net cash used in financing activities for the year ended
December 31, 2004 and 2003 was $357 million and
$789 million, respectively. The decrease in cash used
during the year ended December 31, 2004, as compared to the
corresponding period in 2003, was primarily the result of an
increase in borrowings of long-term debt and proceeds from
issuance of debt reduced by repayments of long-term debt.
We have significant ongoing capital expenditure requirements.
Capital expenditures were $539 million, $542 million,
$1.1 billion, $893 million and $804 million for
the six months ended June 30, 2006 and 2005 and the years
ended December 31, 2005, 2004 and 2003, respectively.
Capital expenditures increased as a result of increased spending
on customer premise equipment as a result of increases in
digital video, high-speed Internet and telephone customers. See
the table below for more details.
Our capital expenditures are funded primarily from cash flows
from operating activities, the issuance of debt and borrowings
under credit facilities. In addition, during the six months
ended June 30, 2006 and 2005 and the years ended
December 31, 2005, 2004 and 2003, our liabilities related
to capital expenditures decreased $9 million, increased
$48 million and $13 million and decreased
$33 million and $41 million, respectively.
During 2006, we expect capital expenditures to be approximately
$1.0 billion to $1.1 billion. We expect that the
nature of these expenditures will continue to be composed
primarily of purchases of customer premise equipment related to
telephone and other advanced services, support capital and for
scalable infrastructure costs. We expect to fund capital
expenditures for 2006 primarily from cash flows from operating
activities, proceeds from asset sales and borrowings under our
credit facilities.
We have adopted capital expenditure disclosure guidance, which
was developed by eleven publicly traded cable system operators,
including Charter, with the support of the National
Cable & Telecommunications Association
(NCTA). The disclosure is intended to provide more
consistency in the reporting of operating statistics in capital
expenditures and customers among peer companies in the cable
industry. These disclosure guidelines are not required
disclosure under generally accepted accounting principles
(GAAP), nor do they impact our accounting for
capital expenditures under GAAP.
135
The following table presents our major capital expenditures
categories in accordance with NCTA disclosure guidelines for the
six months ended June 30, 2006 and 2005 and the years ended
December 31, 2005, 2004 and 2003 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the | |
|
|
|
|
|
|
|
|
Six Months | |
|
|
|
|
Ended | |
|
For the Years Ended | |
|
|
June 30, | |
|
December 31, | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Customer premise equipment(a)
|
|
$ |
258 |
|
|
$ |
228 |
|
|
$ |
434 |
|
|
$ |
451 |
|
|
$ |
380 |
|
Scalable infrastructure(b)
|
|
|
97 |
|
|
|
89 |
|
|
|
174 |
|
|
|
108 |
|
|
|
66 |
|
Line extensions(c)
|
|
|
59 |
|
|
|
77 |
|
|
|
134 |
|
|
|
131 |
|
|
|
130 |
|
Upgrade/Rebuild(d)
|
|
|
23 |
|
|
|
22 |
|
|
|
49 |
|
|
|
49 |
|
|
|
132 |
|
Support capital(e)
|
|
|
102 |
|
|
|
126 |
|
|
|
297 |
|
|
|
154 |
|
|
|
96 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures
|
|
$ |
539 |
|
|
$ |
542 |
|
|
$ |
1,088 |
|
|
$ |
893 |
|
|
$ |
804 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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). |
Interest Rate Risk
We are exposed to various market risks, including fluctuations
in interest rates. We use interest rate risk management
derivative instruments, such as interest rate swap agreements
and interest rate collar agreements (collectively referred to
herein as interest rate agreements) as required under the terms
of the credit facilities of our subsidiaries. Our policy is to
manage interest costs using a mix of fixed and variable rate
debt. Using interest rate swap agreements, we agree to exchange,
at specified intervals through 2007, the difference between
fixed and variable interest amounts calculated by reference to
an agreed-upon notional principal amount. Interest rate collar
agreements are used to limit our exposure to, and to derive
benefits from, interest rate fluctuations on variable rate debt
to within a certain range of rates. Interest rate risk
management agreements are not held or issued for speculative or
trading purposes.
As of June 30, 2006 and December 31, 2005, our
long-term debt totaled approximately $11.1 billion and
$10.6 billion, respectively. This debt was comprised of
approximately $5.8 billion and $5.7 billion of credit
facility debt and $5.3 billion and $4.9 billion
accreted amount of high-yield notes, respectively.
As of June 30, 2006 and December 31, 2005, the
weighted average interest rate on the credit facility debt was
approximately 8.0% and 7.8%, respectively, and the weighted
average interest rate on our high-yield notes was approximately
9.2% and 9.0%, respectively, resulting in a blended weighted
average interest rate of 8.6% and 8.3%, respectively. The
interest rate on approximately 58% of the total principal amount
of our debt was effectively fixed, including the effects of our
interest rate hedge agreements as of March 31, 2006 and
December 31, 2005. The fair value of our high-yield notes
was $5.3 billion and
136
$4.8 billion at March 31, 2006 and December 31,
2005, respectively. The fair value of our credit facilities was
$5.8 billion and $5.7 billion at March 31, 2006
and December 31, 2005, respectively. The fair value of
high-yield notes is based on quoted market prices and the fair
value of the credit facilities is based on dealer quotations.
We do not hold or issue derivative instruments for trading
purposes. We do, however, have certain interest rate derivative
instruments that have been designated as cash flow hedging
instruments. For qualifying hedges, SFAS No. 133
allows derivative gains and losses to offset related results on
hedged items in the consolidated statement of operations. We
have formally documented, designated and assessed the
effectiveness of transactions that receive hedge accounting. For
the six months ended June 30, 2006 and 2005 and the years
ended December 31, 2005, 2004 and 2003, other income
includes gains of $2 million, $1 million,
$3 million, $4 million and $8 million,
respectively, which represent cash flow hedge ineffectiveness on
interest rate hedge agreements arising from differences between
the critical terms of the agreements and the related hedged
obligations. Changes in the fair value of interest rate
agreements designated as hedging instruments of the variability
of cash flows associated with floating-rate debt obligations
that meet the effectiveness criteria of SFAS No. 133
are reported in accumulated other comprehensive loss. For the
six months ended June 30, 2006 and 2005 and the years ended
December 31, 2005, 2004 and 2003, a gain of $0 and
$9 million, $16 million, $42 million and
$48 million, respectively, related to derivative
instruments designated as cash flow hedges, was recorded in
accumulated other comprehensive loss. The amounts are
subsequently reclassified into interest expense as a yield
adjustment in the same period in which the related interest on
the floating-rate debt obligations affects earnings (losses).
Certain interest rate derivative instruments are not designated
as hedges as they do not meet the effectiveness criteria
specified by SFAS No. 133. However, management
believes such instruments are closely correlated with the
respective debt, thus managing associated risk. Interest rate
derivative instruments not designated as hedges are marked to
fair value, with the impact recorded as other income in our
statements of operations. For the six months ended June 30,
2006 and 2005 and the years ended December 31, 2005, 2004
and 2003, other income includes gains of $9 million,
$25 million, $47 million, $65 million and
$57 million, respectively, for interest rate derivative
instruments not designated as hedges.
The table set forth below summarizes the fair values and
contract terms of financial instruments subject to interest rate
risk maintained by us as of June 30, 2006 (dollars in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
at June 30, | |
|
|
2006 | |
|
2007 | |
|
2008 | |
|
2009 | |
|
2010 | |
|
2011 | |
|
Thereafter | |
|
Total | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2,051 |
|
|
$ |
|
|
|
$ |
2,670 |
|
|
$ |
4,721 |
|
|
$ |
4,693 |
|
|
|
Average Interest Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.25 |
% |
|
|
|
|
|
|
8.33 |
% |
|
|
9.17 |
% |
|
|
|
|
|
Variable Rate
|
|
$ |
|
|
|
$ |
25 |
|
|
$ |
50 |
|
|
$ |
50 |
|
|
$ |
600 |
|
|
$ |
850 |
|
|
$ |
4,775 |
|
|
$ |
6,350 |
|
|
$ |
6,359 |
|
|
|
Average Interest Rate
|
|
|
|
|
|
|
8.21 |
% |
|
|
8.14 |
% |
|
|
8.22 |
% |
|
|
9.64 |
% |
|
|
8.66 |
% |
|
|
8.39 |
% |
|
|
8.75 |
% |
|
|
|
|
Interest Rate Instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable to Fixed Swaps
|
|
$ |
898 |
|
|
$ |
875 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,773 |
|
|
$ |
6 |
|
|
|
Average Pay Rate
|
|
|
7.70 |
% |
|
|
7.58 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.64 |
% |
|
|
|
|
|
|
Average Receive Rate
|
|
|
8.33 |
% |
|
|
8.31 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.32 |
% |
|
|
|
|
The notional amounts of interest rate instruments do not
represent amounts exchanged by the parties and, thus, are not a
measure of our exposure to credit loss. The amounts exchanged
are determined by reference to the notional amount and the other
terms of the contracts. The estimated fair value approximates
the costs (proceeds) to settle the outstanding contracts.
Interest rates on variable debt are estimated using the average
implied forward London Interbank Offering Rate
(LIBOR) rates for the year of maturity based on the yield
curve in effect at June 30, 2006.
At June 30, 2006 and December 31, 2005, we had
outstanding $1.8 billion and $1.8 billion and
$20 million and $20 million, respectively, in notional
amounts of interest rate swaps and collars,
137
respectively. The notional amounts of interest rate instruments
do not represent amounts exchanged by the parties and, thus, are
not a measure of exposure to credit loss. The amounts exchanged
are determined by reference to the notional amount and the other
terms of the contracts.
Recently Issued Accounting Standards
In November 2004, the Financial Accounting Standards Board
(FASB) issued SFAS No. 153, Exchanges
of Non-monetary Assets An Amendment of APB
No. 29. This statement eliminates the exception to fair
value for exchanges of similar productive assets and replaces it
with a general exception for exchange transactions that do not
have commercial substance that is, transactions that
are not expected to result in significant changes in the cash
flows of the reporting entity. We adopted this pronouncement
effective April 1, 2005. The exchange transaction discussed
in Note 3 to our consolidated financial statements included
elsewhere in this Exchange Offer Prospectus, was accounted for
under this standard.
In December 2004, the FASB issued the revised
SFAS No. 123, Share-Based Payment, which
addresses the accounting for share-based payment transactions in
which a company receives employee services in exchange for
(a) equity instruments of that company or
(b) liabilities that are based on the fair value of the
companys equity instruments or that may be settled by the
issuance of such equity instruments. This statement was
effective for us beginning January 1, 2006. Because we
adopted the fair value recognition provisions of
SFAS No. 123 on January 1, 2003, we do not expect
this revised standard to have a material impact on our financial
statements.
In March 2005, the FASB issued FASB Interpretation No. 47,
Accounting for Conditional Asset Retirement Obligations.
This interpretation clarifies that the term conditional
asset retirement obligation as used in FASB Statement
No. 143, Accounting for Asset Retirement
Obligations, refers to a legal obligation to perform an
asset retirement activity in which the timing and/or method of
settlement are conditional on a future event that may or may not
be within the control of the entity. This pronouncement is
effective for fiscal years ending after December 15, 2005.
The adoption of this interpretation did not have a material
impact on our financial statements.
In July 2006, the FASB issued FIN 48, Accounting for
Uncertainty in Income Taxes an Interpretation of
FASB Statement No. 109, which provides criteria for the
recognition, measurement, presentation and disclosure of
uncertain tax positions. A tax benefit from an uncertain
position may be recognized only if it is more likely than
not that the position is sustainable based on its
technical merits. We will adopt FIN 48 effective
January 1, 2007. We are currently assessing the impact of
FIN 48 on our financial statements.
We do not believe that any other recently issued, but not yet
effective accounting pronouncements, if adopted, would have a
material effect on our accompanying financial statements.
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CCHC, LLC, CCH II, LLC AND CCH II CAPITAL CORP.
We are registering 45,000,000 shares of Class A Common
Stock and $146,250,000.00 principal amount of CCH II Notes
for exchange by CCHC, LLC, CCH II, LLC and CCH II Capital
Corp. CCHC is an indirect subsidiary of Charter. CCH II,
LLC is a wholly-owned indirect subsidiary of CCHC, and
CCH II Capital Corp. is a wholly-owned subsidiary of
CCH II, LLC. The Class A Common Stock and the
CCH II Notes are being registered to permit the exchange of
such securities, as part of the Exchange Consideration, for the
outstanding Convertible Notes validly tendered and not validly
withdrawn in accordance with the terms of the Exchange Offer.
As of August 9, 2006, CCHC beneficially owned no shares of
Class A Common Stock. The Class A Common Stock offered
hereby will be contributed to CCHC immediately prior to the
settlement. CCHC will hold no shares of Class A Common
Stock subsequent to the offering.
CCH II, LLC and CCH II Capital Corp. will issue the
CCH II Notes on the Settlement Date.
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DESCRIPTION OF THE EXCHANGE OFFER
General
The Exchange Consideration offered per $1,000 principal amount
of Convertible Notes validly tendered for exchange and not
validly withdrawn on or prior to the Expiration Date consists of:
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$417.75 in cash, |
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100 shares of Charters Class A Common
Stock, and |
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$325.00 principal amount of CCH II Notes. |
The Exchange Offer is not conditioned on a minimum amount of
Convertible Notes being tendered. The Offerors will not accept
for exchange more than the Maximum Amount. As a result, if more
than the Maximum Amount of Convertible Notes is validly tendered
and not validly withdrawn, the Offerors will accept Convertible
Notes from each Holder pro rata, based on the total principal
amount of Convertible Notes validly tendered and not validly
withdrawn.
In addition to the Exchange Consideration the Offerors will pay
the accrued interest on the Convertible Notes from and after the
last interest payment date (which was May 16, 2006) up to,
but not including, the Settlement Date.
The CCH II Notes being offered as part of the Exchange
Consideration will be issued under a temporary CUSIP number
until the next interest payment date which is expected to be
September 15, 2006, at which time it is expected that they
will be manditorily merged into the existing CUSIP number of
approximately $1.6 billion outstanding principal amount of
CCH II Notes. CCH II Notes will be issued only in
minimum denominations of $1,000 and integral multiples of
$1,000. If, under the terms of the Exchange Offer, any tendering
Holder is entitled to receive CCH II Notes in a
principal amount that is not an integral multiple of $1,000, the
Offerors will round downward the amount of
CCH II Notes to the nearest integral multiple of
$1,000.
Tendered Convertible Notes may be validly withdrawn at any time
up until 11:59 p.m., New York City time, on the Expiration
Date. In the event of a termination of the Exchange Offer,
Convertible Notes tendered pursuant to the Exchange Offer will
be promptly returned to the tendering Holders.
The Offerors obligation to accept for exchange and to pay the
related Exchange Consideration is conditioned upon satisfaction
of the conditions, including effectiveness of the Registration
Settlement as set forth in Description of the Exchange
Offer Conditions to the Exchange Offer. As
described therein, subject to applicable securities laws and the
terms set forth in this Exchange Offer Prospectus, the Offerors
reserve the right, prior to the expiration of the Exchange Offer
on the Expiration Date:
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to waive any and all conditions to the Exchange Offer; |
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to extend the Exchange Offer; |
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to terminate the Exchange Offer, but only if any condition to
the Exchange Offer is not satisfied (see
Conditions to the Exchange
Offer); or |
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otherwise to amend the Exchange Offer in any respect; however,
the Offerors do not currently intend to change the amount of
Class A Common Stock offered to more than 134 shares
or less than 67 shares per $1,000 principal amount of
Convertible Notes. |
Any amendment to the Exchange Offer will apply to all
Convertible Notes tendered pursuant to the Exchange Offer. Any
extension, amendment or termination will be followed promptly by
public announcement thereof, the announcement in the case of an
extension of the Exchange Offer to be issued no later than
9:00 a.m., New York City time, on the next business day
after the previously scheduled Expiration Date. Without limiting
the manner in which any public announcement may be made, the
Offerors shall have no obligation to publish, advertise or
otherwise communicate any such public announcement other than by
issuing a release to the Dow Jones News Service.
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If the Offerors make a material change in the terms of the
Exchange Offer or the information concerning the Exchange Offer,
the Offerors will promptly amend the Exchange Offer materials,
disseminate notice of such change to Holders, extend such
Exchange Offer to the extent required by law and, if required,
promptly file a post-effective amendment to the registration
statement relating to the Exchange Offer.
Neither Charter, CCHC, CCH II, their subsidiaries nor their
respective Boards of Directors make any recommendation as to
whether Holders should exchange their Convertible Notes pursuant
to the Exchange Offer or unwind any hedged positions with
respect to the Convertible Notes. Holders must make their own
decisions with regard to tendering their Convertible Notes.
Purchases of Convertible Notes
The Offerors and their affiliates reserve the right, in their
absolute discretion, to purchase or make offers to purchase any
Convertible Notes that remain outstanding subsequent to the
Expiration Date and, to the extent permitted by applicable law,
purchase Convertible Notes in the open market, in privately
negotiated transactions or otherwise. The terms of any such
purchases or offers could differ from the terms of the Exchange
Offer.
Acceptance of Convertible Notes for Exchange and Payment of
Exchange Consideration
Upon the terms and subject to the conditions of the Exchange
Offer (including, if the Exchange Offer is extended or amended,
the terms and conditions of any such extension or amendment) and
applicable law, the Offerors will accept for exchange, and
promptly exchange pursuant to the terms and conditions of the
Exchange Offer and will pay the Exchange Consideration in
respect of, all Convertible Notes validly tendered pursuant to
the Exchange Offer (and not validly withdrawn, or if withdrawn,
then validly re-tendered). Such payment shall be made by the
deposit of the Exchange Consideration by the Offerors promptly
after the Expiration Date with the Exchange Agent, which will
act as agent for exchanging Holders for the purpose of receiving
the Exchange Consideration from the Offerors and transmitting
such Exchange Consideration to exchanging Holders. Subject to
the terms of this Exchange Offer, the Offerors intend to deposit
the Exchange Consideration with the Exchange Agent or to return
tendered Convertible Notes, as applicable, on or about the third
business day following the Expiration Date. Under no
circumstances will interest on the Exchange Consideration, as
applicable, be paid by the Offerors by reason of any delay on
behalf of the Exchange Agent in making payment. In all cases,
payment by the Exchange Agent to Holders or beneficial owners of
the Exchange Consideration for Convertible Notes tendered
pursuant to the Exchange Offer will be made only after receipt
by the Exchange Agent of (1) timely confirmation of a
book-entry transfer of such Convertible Notes into the Exchange
Agents account at DTC pursuant to the procedures set forth
in the section Procedure for Tendering
Convertible Notes, (2) a properly completed and duly
executed Letter of Transmittal (or manually signed facsimile
thereof) or a properly transmitted Agents Message (as
defined below) through ATOP and (3) any other documents
required by the Letter of Transmittal.
For purposes of the Exchange Offer, Convertible Notes tendered
will be deemed to have been accepted for tender and payment of
Exchange Consideration, if, as and when the Offerors give oral
or written notice thereof to the Exchange Agent.
Tendering Holders will not be obligated to pay brokerage fees or
commissions to the Dealer Managers, the Information Agent, the
Exchange Agent or us, or, except as set forth in
Instruction 7 of the Letter of Transmittal, transfer taxes
on the payment of the Exchange Consideration.
Optional Settlement Procedure
As described under Description of Capital Stock and
Membership Units Share Lending Agreement
below, Charter has loaned to Citigroup Global Markets Limited
(CGML) 116.9 million shares of Class A
Common Stock to facilitate the placement of the Convertible
Notes. To the extent you tender Convertible Notes in the
Exchange Offer, and you have entered into a share loan agreement
with
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CGML pursuant to which you have, as of the Settlement Date of
the Exchange Offer, an open borrow position thereunder, you may,
at your option, elect the settlement of Class A Common
Stock to be issued by Charter as part of the Exchange
Consideration through the settlement procedure described below.
Any such election may be made:
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if you hold your Convertible Notes in book-entry form through
DTC, by instructing your nominee to make such an election on
your behalf in accordance with DTC procedures; or |
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otherwise, by making such an election in the Letter of
Transmittal and delivery of such Letter of Transmittal in
accordance with the procedures described under
Procedures for Tendering Convertible
Notes below. |
If you validly make such an election as described above, any
Class A Common Stock you are entitled to receive as a
component of the Exchange Consideration will be issued by
Charter to CGML, or an affiliate, and used, to the extent you
have, as of the Settlement Date of the Exchange Offer, an
outstanding obligation to return shares of our Class A
Common Stock under the share loan agreement, to satisfy a
corresponding portion of such return obligation to CGML. Such
share deliveries will occur on the Settlement Date and will be
used, on such date, to satisfy your return obligation to CGML.
Although it has no obligation to do so, we anticipate that CGML
will contemporaneously return such shares to Charter under the
Share Lending Agreement on such date. In lieu of actual
issuances of shares by Charter to CGML or an affiliate, and
return of those shares to CGML under our share loan agreement,
CGML and Charter may agree to deem your obligation to deliver
those shares to CGML and CGMLs obligation to deliver those
shares to Charter to be mutually satisfied.
Procedure for Tendering Convertible Notes
If you wish to participate in the Exchange Offer and your
Convertible Notes are held by a custodial entity such as a bank,
broker, dealer, trust company or other nominee, you must
instruct that custodial entity to tender your Convertible Notes
on your behalf pursuant to the procedures of that custodial
entity.
To participate in the Exchange Offer, you must either:
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complete, sign and date the Letter of Transmittal, or a
facsimile thereof, in accordance with the instructions in the
Letter of Transmittal, including guaranteeing the signatures to
the Letter of Transmittal, if required, and mail or otherwise
deliver the Letter of Transmittal or a facsimile thereof, to the
Exchange Agent at one of its addresses listed on the back cover
page of this Exchange Offer Prospectus, for receipt on or prior
to the Expiration Date; or |
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comply with the ATOP procedures for book-entry transfer
described below on or prior to the Expiration Date. |
The Exchange Agent and DTC have confirmed that the Exchange
Offer is eligible for ATOP. The Letter of Transmittal, or a
facsimile thereof, with any required signature guarantees, or,
in the case of book-entry transfer, an Agents Message in
lieu of the Letter of Transmittal, and any other required
documents, must be transmitted to and received by the Exchange
Agent on or prior to the Expiration Date at one of its addresses
listed on the back cover page of this Exchange Offer Prospectus.
Convertible Notes will not be deemed to have been tendered until
the Letter of Transmittal and signature guarantees, if any, or
Agents Message, is received by the Exchange Agent.
The method of delivery of the Letter of Transmittal, and all
other required documents to the Exchange Agent is at the
election and risk of the Holder. Holders should use an overnight
or hand-delivery service, properly insured. In all cases,
sufficient time should be allowed to assure delivery to and
receipt by the Exchange Agent on or prior to the Expiration
Date. Do not send the Letter of Transmittal to anyone other than
the Exchange Agent.
If you are tendering your Convertible Notes and anticipate
delivering your Letter of Transmittal and other documents other
than through DTC, we urge you to contact promptly a bank, broker
or other intermediary that has the capability to hold the
Convertible Notes custodially through DTC to arrange for
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receipt of the Exchange Consideration and to obtain the
information necessary to provide the required DTC participant
with account information in the Letter of Transmittal.
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Book-Entry Delivery Procedures for Tendering Convertible
Notes Held with DTC |
If you wish to tender Convertible Notes held on your behalf by a
nominee with DTC, you must:
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inform your nominee of your interest in tendering your
Convertible Notes pursuant to the Exchange Offer; and |
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instruct your nominee to tender all Convertible Notes you wish
to be tendered in the Exchange Offer into the Exchange
Agents account at DTC on or prior to the Expiration Date. |
Any financial institution that is a nominee in DTC, including
Euroclear and Clearstream, must tender Convertible Notes by
effecting a book-entry transfer of Convertible Notes to be
tendered in the Exchange Offer into the account of the Exchange
Agent at DTC by electronically transmitting its acceptance of
the Exchange Offer through the ATOP procedures for transfer. DTC
will then verify the acceptance, execute a book-entry delivery
to the Exchange Agents account at DTC and send an
Agents Message to the Exchange Agent. An
Agents Message is a message, transmitted by
DTC to, and received by, the Exchange Agent and forming part of
a book-entry confirmation, which states that DTC has received an
express acknowledgement from an organization that participates
in DTC, which the Offerors refer to as a
participant, tendering Convertible Notes that the
participant has received and agrees to be bound by the terms of
the Letter of Transmittal and that the Offerors may enforce the
agreement against the participant. A Letter of Transmittal need
not accompany tenders effected through ATOP.
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Proper Execution and Delivery of the Letter of
Transmittal |
Signatures on a Letter of Transmittal or notice of withdrawal
described under Withdrawal of Tendered Convertible
Notes, as applicable, must be guaranteed by an eligible
guarantor institution unless the Convertible Notes tendered
pursuant to the Letter of Transmittal are tendered for the
account of an eligible guarantor institution. An eligible
guarantor institution is one of the following firms or
other entities identified in
Rule 17Ad-15 under
the Exchange Act (as the terms are used in
Rule 17Ad-15):
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(1) a bank; |
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(2) a broker, dealer, municipal securities dealer,
municipal securities broker, government securities dealer or
government securities broker; |
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(3) a credit union; |
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(4) a national securities exchange, registered securities
association or clearing agency; or |
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(5) a savings institution that is a participant in a
Securities Transfer Association recognized program. |
If signatures on a Letter of Transmittal or notice of withdrawal
are required to be guaranteed, that guarantee must be made by an
eligible guarantor institution.
If the Letter of Transmittal is signed by the Holders of
Convertible Notes tendered thereby, the signatures must
correspond with the names as written on the face of the
Convertible Notes without any alteration, enlargement or any
change whatsoever. If any of the Convertible Notes tendered
thereby are held by two or more Holders, each of those Holders
must sign the Letter of Transmittal. If any of the Convertible
Notes tendered thereby are registered in different names on
different Convertible Notes, it will be necessary to complete,
sign and submit as many separate Letters of Transmittal, and any
accompanying documents, as there are different registrations of
certificates.
If Convertible Notes that are not tendered for exchange pursuant
to the Exchange Offer are to be returned to a person other than
the tendering holder, certificates for those Convertible Notes
must be endorsed or accompanied by an appropriate instrument of
transfer, signed exactly as the name of the
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registered owner appears on the certificates, with the
signatures on the certificates or instruments of transfer
guaranteed by an eligible institution.
If the Letter of Transmittal is signed by a person other than
the Holder of any Convertible Notes listed in the Letter of
Transmittal, those Convertible Notes must be properly endorsed
or accompanied by a properly completed bond power, signed by the
Holder exactly as the Holders name appears on those
Convertible Notes. If the Letter of Transmittal or any
Convertible Notes, bond powers or other instruments of transfer
are signed by trustees, executors, administrators, guardians,
attorneys-in-fact,
officers of corporations or others acting in a fiduciary or
representative capacity, those persons should so indicate when
signing, and, unless waived by us, evidence satisfactory to us
of their authority to so act must be submitted with the Letter
of Transmittal.
No conditional, irregular or contingent tenders will be
accepted. By executing the Letter of Transmittal, or facsimile
thereof, the tendering Holders of Convertible Notes waive any
right to receive any notice of the acceptance for exchange of
their Convertible Notes. Tendering Holders should indicate in
the applicable box in the Letter of Transmittal the name and
address to which payments or substitute certificates evidencing
Convertible Notes for amounts not tendered or not exchanged are
to be issued or sent, if different from the name and address of
the person signing the Letter of Transmittal. If those
instructions are not given, Convertible Notes not tendered or
exchanged will be returned to the tendering Holder.
Determination of Validity
All questions as to the validity, form, eligibility, including
time of receipt, and acceptance and withdrawal of tendered
Convertible Notes, will be determined by the Offerors in their
absolute discretion, which determination will be final and
binding. The Offerors reserve the absolute right to reject any
and all tendered Convertible Notes determined by the Offerors
not to be in proper form or not to be tendered properly or any
tendered Convertible Notes the acceptance of which by the
Offerors would, in the opinion of their counsel, be unlawful.
The Offerors also reserve the right to waive, in their absolute
discretion, any defects, irregularities or conditions of tender
as to particular Convertible Notes, whether or not waived in the
case of other Convertible Notes. The Offerors interpretation of
the terms and conditions of the Exchange Offer, including the
terms and instructions in the Letter of Transmittal, will be
final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Convertible Notes
must be cured within the time the Offerors determine. Although
the Offerors intend to notify Holders of defects or
irregularities with respect to tenders of Convertible Notes,
neither the Offerors, the Exchange Agent, the Information Agent,
the Dealer Managers nor any other person will be under any duty
to give that notification or incur any liability for failure to
give that notification. Tenders of Convertible Notes will not be
deemed to have been made until any defects or irregularities
have been cured or waived.
Any Holder whose Convertible Notes have been mutilated, lost,
stolen or destroyed will be responsible for obtaining
replacement securities or for arranging for indemnification with
the trustee of the Convertible Notes. Holders may contact the
Information Agent for assistance with these matters.
Withdrawal of Tendered Convertible Notes
Convertible Notes previously tendered may be withdrawn at any
time up until 11:59 p.m., New York City time, on the
Expiration Date. In the event of a termination of the Exchange
Offer, the Convertible Notes tendered pursuant to the Exchange
Offer will be promptly returned to the tendering Holders. In
addition, even after the Expiration Date, if the Offerors have
not accepted for payment any validly tendered Convertible Notes,
such Convertible Notes may be withdrawn 60 days after
commencement of the Exchange Offer.
For a withdrawal of tendered Convertible Notes to be effective,
a written, telegraphic or facsimile transmission notice of
withdrawal must be received by the Exchange Agent on or prior to
11:59 p.m., New
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York City time, on the Expiration Date at its address set forth
on the back cover of this Exchange Offer Prospectus. Any such
notice of withdrawal must:
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specify the name of the person who tendered the Convertible
Notes to be withdrawn; |
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contain the description of the Convertible Notes to be withdrawn
and the aggregate principal amount represented by such
Convertible Notes; and |
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be signed by the Holder of such Convertible Notes in the same
manner as the original signature on the Letter of Transmittal by
which such Convertible Notes were tendered (including any
required signature guarantees), if any, or be accompanied by
(x) documents of transfer sufficient to have the Trustee
register the transfer of the Convertible Notes to the name of
the person withdrawing such Convertible Notes and (y) a
properly completed irrevocable proxy that authorized such person
to effect such revocation on behalf of such Holder. |
If the Convertible Notes to be withdrawn have been delivered or
otherwise identified to the Exchange Agent, a signed notice of
withdrawal is effective immediately upon written or facsimile
notice of withdrawal even if physical release is not yet
effected. Any Convertible Notes validly withdrawn will be deemed
to be not validly tendered for purposes of the Exchange Offer.
Withdrawal of Convertible Notes can be accomplished only in
accordance with the foregoing procedures.
All questions as to the validity (including time of receipt)
of notices of withdrawal will be determined by the Offerors in
their sole discretion, and their determination shall be final
and binding. None of the Offerors, the Exchange Agent, the
Dealer Managers, the Information Agent, the Trustee or any other
person will be under any duty to give notification of any
defects or irregularities in any notice of withdrawal, or incur
any liability for failure to give any such notification.
Backup Withholding
To prevent United States federal income tax backup withholding,
each tendering Holder of Convertible Notes that is a United
States person generally must provide the Exchange Agent with
such Holders correct taxpayer identification number and
certify that such Holder is not subject to United States federal
income tax backup withholding by completing the Substitute
Form W-9 included
in the Letter of Transmittal. Each tendering Holder of
Convertible Notes that is not a United States person generally
will be subject to a 30% withholding tax unless such Holder
provides the Exchange Agent with an applicable
Form W-8BEN or
W-8ECI to demonstrate
exemption from withholding or a reduced rate of withholding. For
a discussion of the material United States federal income tax
consequences relating to backup withholding, see Certain
U.S. Federal Income Tax Consequences.
Conditions to the Exchange Offer
Notwithstanding any other provision of the Exchange Offer and in
addition to (and not in limitation of) the Offerors right
to extend and/or amend the Exchange Offer, the Offerors and
their affiliates shall not be required to accept for exchange
pursuant to the Exchange Offer, pay Exchange Consideration in
respect of, and may delay the acceptance for tender and payment
of Exchange Consideration in respect of, any Convertible Notes
tendered pursuant to the Exchange Offer, in each event subject
to Rule 14e-l(c)
under the Exchange Act, and may terminate the Exchange Offer, if
the registration statement has not been declared effective by
the SEC by the Expiration Date or if any of the following have
occurred:
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(1) the Offerors and their affiliates are not in
compliance, after taking into account the effects of the
Exchange Offer, the Private Exchange Offer and other relevant
events, with the covenants and other restrictions contained in
the agreements governing our indebtedness and other obligations; |
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(2) there shall have been instituted, threatened or be
pending any action or proceeding (or there shall have been any
material adverse development to any action or proceeding
currently instituted, threatened or pending) before or by any
court, governmental, regulatory or administrative agency or |
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instrumentality, or by any other person, in connection with the
Exchange Offer that, in the Offerors reasonable judgment,
either (a) is, or is reasonably likely to be, materially
adverse to the business, operations, properties, condition
(financial or otherwise), assets or liabilities of Charter and
its subsidiaries, taken as a whole, or (b) would or might
prohibit, prevent, restrict or delay consummation of the
Exchange Offer; |
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(3) an order, statute, rule, regulation, executive order,
stay, decree, judgment or injunction shall have been proposed,
enacted, entered, issued, promulgated, enforced or deemed
applicable by any court or governmental, regulatory or
administrative agency or instrumentality that, in the
Offerors reasonable judgment, either (a) is, or is
reasonably likely to be, materially adverse to the business,
operations, properties, condition (financial or otherwise),
assets or liabilities of Charter and its subsidiaries, taken as
a whole, or (b) would or might prohibit, prevent, restrict
or delay consummation of the Exchange Offer; |
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(4) there shall have occurred or be likely to occur any
event affecting the business or financial affairs of Charter
that, in the Offerors reasonable judgment, would or might
prohibit, prevent, restrict or delay consummation of the
Exchange Offer; |
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(5) the Trustee shall have objected in any respect to, or
taken action that could, in the Offerors sole judgment,
adversely affect the consummation of, the Exchange Offer or
shall have taken any action that challenges the validity or
effectiveness of the procedures used by us in the making of the
Exchange Offer or the acceptance for exchange of, or payment of
Exchange Consideration in respect of, Convertible Notes tendered
pursuant to the Exchange Offer; or |
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(6) there has occurred (a) any general suspension of,
or limitation on prices for, trading in securities in the United
States securities or financial markets, (b) any decline of
more than 10% in the price of the Convertible Notes since the
date of commencement of the Exchange Offer, (c) a
declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States or other major
financial markets, (d) any limitation (whether or not
mandatory) by any government or governmental, administrative or
regulatory authority or agency, domestic or foreign, or other
event that, in the Offerors reasonable judgment, might
affect the extension of credit by banks or other lending
institutions, (e) a commencement of a war or armed
hostilities or other national or international calamity directly
or indirectly involving the United States or (f) in the
case of any of the foregoing existing on the date hereof, a
material acceleration or worsening thereof. |
The foregoing conditions are for the sole benefit of the
Offerors and may be asserted by the Offerors regardless of the
circumstances giving rise to any such condition and may be
waived by the Offerors, in whole or in part, at any time and
from time to time, in their sole discretion. Notwithstanding the
previous sentence, unless the Exchange Offer is terminated, all
conditions to the Exchange Offer will be either satisfied or
waived by the Offerors prior to the Expiration Date. The failure
by the Offerors at any time to exercise any of the foregoing
rights will not be deemed a waiver of any other right, and each
right will be deemed an ongoing right which may be asserted at
any time and from time to time, but only prior to
11:59 p.m., New York City time, on the Expiration Date.
We currently do not anticipate extending the Expiration Date
beyond September 8, 2006.
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BUSINESS
For a chart showing our ownership structure, see page 3.
The data included in this Business section does not
take into account the effect of the sale of various assets to
Cebridge described under Summary Recent
Events Assets Sales unless otherwise noted.
Overview
We are a broadband communications company operating in the
United States, with approximately 6.17 million customers at
June 30, 2006. Through our broadband network of coaxial and
fiber optic cable, we offer our customers traditional cable
video programming (analog and digital, which we refer to as
video service), high-speed Internet access, advanced
broadband cable services (such as video on demand
(VOD), high definition television service and
interactive television) and, in some of our markets, telephone
service. See Products and Services for
further description of these terms, including
customers.
At June 30, 2006, we served approximately 5.88 million
analog video customers, of which approximately 2.89 million
were also digital video customers. We also served approximately
2.38 million high-speed Internet customers (including
approximately 272,500 who received only high-speed Internet
services). We also provided telephone service to approximately
257,600 customers (including approximately 24,100 who received
telephone service only).
At June 30, 2006, Charters investment in cable
properties, long-term debt and total shareholders deficit
was $14.7 billion, $19.9 billion and
$5.8 billion, respectively. Charters working capital
deficit was $152 million at June 30, 2006. For the six
months ended June 30, 2006, Charters revenues from
continuing operations and net loss were approximately
$2.7 billion and $841 million, respectively.
At June 30, 2006, CCH IIs investment in cable
properties, long-term debt and total members equity was
$14.6 billion, $11.1 billion and $2.6 billion,
respectively. CCH IIs working capital deficit was
$33 million at June 30, 2006. For the six months ended
June 30, 2006, CCH IIs revenues from continuing
operations and net loss were approximately $2.7 billion and
$335 million, respectively.
We have a history of net losses. Further, we expect to continue
to report net losses for the foreseeable future. Our net losses
are principally attributable to insufficient revenue to cover
the combination of operating costs and interest costs we incur
because of our high level of debt and the depreciation expenses
that we incur resulting from the capital investments we have
made in our cable properties. We expect that these expenses will
remain significant, and we therefore expect to continue to
report net losses for the foreseeable future.
CCH II is wholly-owned by its parent, CCH I, and
indirectly owned by Charter. Charter was organized as a Delaware
corporation in 1999 and completed an initial public offering of
its Class A Common Stock in November 1999. Charter is a
holding company whose principal assets are, for accounting
purposes, an approximate 48% equity interest and a 100% voting
interest in Charter Holdco, the direct parent of CCHC which is
the direct parent of Charter Holdings. Charter also holds
certain preferred equity and indebtedness of Charter Holdco that
mirror the terms of securities issued by Charter. Charters
only business is to act as the sole manager of Charter Holdco
and its subsidiaries. As sole manager, Charter controls the
affairs of Charter Holdco and most of its subsidiaries. Certain
of our subsidiaries commenced operations under the Charter
Communications name in 1994, and our growth through 2001
was primarily due to acquisitions and business combinations. We
do not expect to make any significant acquisitions in the
foreseeable future, but plan to evaluate opportunities to
consolidate our operations through exchanges of cable systems
with other cable operators, as they arise. We may also sell
certain assets from time to time. See
Summary Recent Events Assets
Sales. Paul G. Allen owns 44% of Charter Holdco
through affiliated entities. His membership units are
convertible at any time for shares of the Class A Common
Stock on a one-for-one basis. Paul G. Allen controls
Charter with an as-converted common equity interest of
approximately 47% and a voting control interest of 90% as of
June 30, 2006.
147
Business Strategy
Our strategy is to leverage the capacity and the capabilities of
our broadband network to become the premier provider of in-home
entertainment and communications services in the communities we
serve. By offering excellent value and variety to our customers
through creative product bundles, strategic pricing and
packaging of all our products and services, our goal is to
increase profitable revenues that will enable us to maximize
return on our invested capital.
Building on the foundation established throughout 2005, in 2006
we will strive toward:
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improving the
end-to-end customer
experience and increasing customer loyalty; |
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growing sales and retention for all our products and
services; and |
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driving operating and capital effectiveness. |
Providing superior customer service is an essential element of
our fundamental business strategy. We strive to continually
improve the end-to-end
customer experience and increase customer loyalty by effectively
managing our customer care contact centers in alignment with
technical operations. We are seeking to instill a
customer-service-oriented culture throughout the organization
and will continue to focus on excellence by pursuing further
improvements in customer service, technical operations, sales
and marketing.
We are dedicated to fostering strong relationships and making
not only financial investments, but the investment of time and
effort to strengthen the communities we serve. We have developed
programs and initiatives that provide valuable television time
to groups and organizations over our cable networks.
Providing desirable products and services and investing in
profitable marketing programs are major components of our sales
strategy. Bundling services, combining two or more services for
one discounted price, is fundamental to our marketing strategy.
We believe that combining our products into bundled offerings
provides value to our customers that distinguishes us from the
competition. We believe bundled offerings increase penetration
of all our products and services and improves customer retention
and perception. Through targeted marketing of bundled services,
we will pursue growth in our customer base and improvements in
customer satisfaction. Targeted marketing also promotes the
appropriate matching of services with customer needs leading to
improved retention of existing customers and lower bad debt
expense.
Expanding telephone service to additional markets and achieving
increased telephone service penetration will be a high priority
in 2006 and will be important to revenue growth. We plan to add
enhancements to our high-speed Internet service to provide
customers the best possible Internet experience. Our digital
video platform enables us to provide customers advanced video
products and services such as VOD, high-definition television
and digital video recorder (DVR) service. We will
also continue to explore additional product and service
offerings to complement and enhance our existing offerings and
generate profitable revenue growth.
In addition to the focus on our primary residential customer
base, we will strive to expand the marketing of our video and
high-speed Internet services to the business community and
introduce telephone service, which we believe has growth
potential.
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Operating and Capital Effectiveness |
We plan to further capitalize on initiatives launched during
2005 to continue to drive operating and capital effectiveness.
Specifically, additional improvements in work force management
will enhance the efficient operation of our customer care
centers and technical operations functions. We will continue to
148
place the highest priority for capital spending on
revenue-generating initiatives such as telephone deployment.
With over 92% of our homes passed having bandwidth of 550
megahertz or higher, we believe our broadband network provides
the infrastructure to deliver the products and services
todays consumer desires. See Our Network
Technology. In 2005 we invested in programs and
initiatives to improve all aspects of operations, and going
forward we will seek to capitalize on that solid foundation. We
plan to leverage both our broadband network and prior
investments in operational efficiencies to generate profitable
revenue growth.
Through our targeted marketing strategy, we plan to meet the
needs of our current customers and potential customers with
desirable, value-based offerings. We will seek to capitalize on
the capabilities of our broadband network in order to bring
innovative products and services to the marketplace. Our
employees are dedicated to our customer-first philosophy, and we
will strive to support their continued professional growth and
development, providing the right tools and training necessary to
accomplish our goals. We believe our strategy differentiates us
from the competition and plan to enhance our ability to continue
to grow our broadband operations in the communities we serve.
We continue to pursue opportunities to improve our liquidity.
Our efforts in this regard have resulted in the completion of a
number of transactions in 2005 and 2006, as follows:
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the July 2006 sale of cable systems to Cebridge and New Wave for
proceeds of approximately $896 million; |
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the April 2006 refinancing of our existing credit facilities
(see Managements Discussion and Analysis of
Financial Condition and Results of Operations of
Charter Liquidity and Capital Resources
Recent Financing Transactions and Managements
Discussion and Analysis of Financial Condition and Results of
Operations of CCH II, LLC Liquidity and Capital
Resources Recent Financing Transactions
included elsewhere in this Exchange Offer Prospectus; |
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the January 2006 sale by CCH II of an additional
$450 million principal amount of CCH II Notes; |
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the September 2005 exchange by Charter Holdings, CCH I and
CCH I Holdings, LLC (CIH), of approximately
$6.8 billion in total principal amount of outstanding debt
securities of Charter Holdings in a private placement for new
debt securities; |
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the August 2005 sale by our subsidiaries, CCO Holdings, LLC
(CCO Holdings) and CCO Holdings Capital Corp., of
$300 million of
83/4
% senior notes due 2013; |
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the March and June 2005 issuance of $333 million of Charter
Operating notes in exchange for $346 million of Charter
Holdings notes; |
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the repurchase during 2005 of $136 million of
Charters 4.75% convertible senior notes due 2006
leaving $20 million in principal amount
outstanding; and |
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the March 2005 redemption of all of CC V Holdings,
LLCs outstanding 11.875% senior discount notes due
2008 at a total cost of $122 million. |
Charter Background
In 1998, Mr. Allen acquired approximately 99% of the
non-voting economic interests in Marcus Cable, which owned
various operating subsidiaries that served approximately
1.1 million customers. Thereafter, in December 1998,
Mr. Allen acquired, through a series of transactions,
approximately 94% of the equity interests of CII, which
controlled various operating subsidiaries that serviced
approximately 1.2 million customers.
In March and April of 1999, Mr. Allen acquired the
remaining interests in Marcus Cable and, through a series of
transactions, combined the Marcus companies with the Charter
companies. As a
149
consequence, the former operating subsidiaries of Marcus Cable
and all of the cable systems they owned came under the ownership
of Charter Holdings.
In July 1999, Charter was formed as a wholly owned subsidiary of
CII, and in November 1999, Charter completed its initial public
offering.
During 1999 and 2000, Charter completed 16 cable system
acquisitions for a total purchase price of $14.7 billion
including $9.1 billion in cash, $3.3 billion of
assumed debt, $1.9 billion of equity interests issued and
Charter cable systems valued at $420 million. These
transactions resulted in a net total increase of approximately
3.9 million customers as of their respective dates of
acquisition.
In February 2001, Charter entered into several agreements with
AT&T Broadband, LLC involving several strategic cable system
transactions that resulted in a net addition of customers for
our systems. In the AT&T transactions, which closed in June
2001, Charter acquired cable systems from AT&T Broadband,
LLC serving approximately 551,000 customers for a total of
$1.74 billion consisting of $1.71 billion in cash and
a Charter cable system valued at $25 million. In 2001,
Charter also acquired all of the outstanding stock of Cable USA,
Inc. and the assets of certain of its related affiliates in
exchange for consideration valued at $100 million
(consisting of Series A Preferred Stock with a face amount
of $55 million and the remainder in cash and assumed debt).
During 2002, Charter purchased additional cable systems in
Illinois serving approximately 28,000 customers, for a total
cash purchase price of approximately $63 million.
In 2003 and 2004, Charter sold certain non-core cable systems
serving approximately 264,100 customers in Florida,
Pennsylvania, Maryland, Delaware, West Virginia and Washington
for an aggregate consideration of approximately
$826 million.
Products and Services
We offer our customers traditional cable video programming
(analog and digital) and in some areas advanced broadband
services such as high definition television, VOD and interactive
television as well as high-speed Internet services. We sell our
video programming and high-speed Internet services on a
subscription basis, with prices and related charges, that vary
primarily based on the types of service selected, whether the
services are sold as a bundle versus on an
á la carte basis, and the equipment necessary
to receive the services, with some variation in prices depending
on geographic location. In addition, we offer telephone service
to a portion of our homes passed.
The following table summarizes our customer statistics for
analog and digital video, residential high-speed Internet, and
residential telephone as of June 30, 2006 and 2005:
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Approximate as of | |
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June 30, | |
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June 30, | |
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2006(a) | |
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2005(a) | |
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Cable Video Services:
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Analog Video:
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Residential (non-bulk) analog video customers(b)
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5,600,300 |
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5,683,400 |
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Multi-dwelling (bulk) and commercial unit customers(c)
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275,800 |
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259,700 |
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Total analog video customers(b)(c)
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5,876,100 |
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5,943,100 |
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Digital Video:
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Digital video customers(d)
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2,889,000 |
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2,685,600 |
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Non-Video Cable Services:
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Residential high-speed Internet customers(e)
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2,375,100 |
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2,022,200 |
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Residential telephone customers(f)
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257,600 |
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67,800 |
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(a) |
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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). At June 30, 2006 and 2005,
customers include approximately 55,900 and 45,100
persons whose accounts were over 60 days past due in
payment, approximately 14,300 and 8,200 persons whose accounts
were over 90 days past due in payment and approximately
8,900 and 4,500 of which were over 120 days past due in
payment, respectively. |
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(b) |
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Analog video customers include all customers who
receive video services (including those who also purchase
high-speed Internet and telephone services) but excludes
approximately 296,500 and 248,400 customers at June 30,
2006 and 2005, respectively, who receive high-speed Internet
service only or telephone service only and who are only counted
as high-speed Internet customers or telephone customers. |
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(c) |
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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 used consistently. 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. |
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(d) |
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Digital video customers include all households that
have one or more digital set-top terminals. Included in
digital video customers on June 30, 2006 and
2005 are approximately 8,400 and 9,700 customers, respectively,
that receive digital video service directly through satellite
transmission. |
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Residential high-speed Internet customers represent
those customers who subscribe to our high-speed Internet service. |
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(f) |
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Residential telephone customers include all
households receiving telephone service. |
Our video service offerings include the following:
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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 channel
line-up generally has
between 15 and 30 channels. |
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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. |
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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. |
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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. |
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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 8 to 30 additional video channels. We
also offer our |
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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. |
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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. |
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High Definition Television. High definition
television offers our digital customers video programming at a
higher resolution than the standard analog or digital video
image. |
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Digital Video Recorder. DVR service enables
customers to digitally record programming and to pause and
rewind live programming. |
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High-Speed Internet Services |
We offer high-speed Internet services to our residential and
commercial customers primarily via cable modems attached to
personal computers. We generally offer our high-speed Internet
service as Charter High-Speed
Internettm.
We also offer traditional
dial-up Internet access
in a very limited number of our markets.
We ended the second quarter of 2006 with 21% penetration of
high-speed Internet homes passed, up from 18% penetration of
high-speed Internet homes passed at June 30, 2005. This
gave us an annual percentage increase in high-speed Internet
customers of 17% and an increase in high-speed Internet revenues
of 19% in the six months ended June 30, 2006 compared to
the six months ended June 30, 2005.
We provide voice communications services using voice over
Internet protocol, or VoIP, to transmit digital
voice signals over our systems. At June 30, 2006, telephone
service was available to approximately 4.7 million homes
passed, and we were marketing to approximately 92% of those
homes. We will continue to prepare additional markets for
telephone launches in 2006 and expect to have 6 to
8 million homes passed by the end of 2006.
We offer integrated network solutions to commercial and
institutional customers. These solutions include high-speed
Internet and video services. In addition, we offer high-speed
Internet services to small businesses. We will continue to
expand the marketing of our video and high-speed Internet
services to the business community and intend to introduce
telephone services.
We receive revenues from the sale of local advertising on
satellite-delivered networks such as
MTV®,
CNN®
and
ESPN®.
In any particular market, we generally insert local advertising
on up to 48 channels. We also provide cross-channel advertising
to some programmers.
From time to time, certain of our vendors, including programmers
and equipment vendors, have purchased advertising from us. For
the six months ended June 30, 2006 and the years ending
December 31, 2005, 2004 and 2003, we had advertising
revenues from programmers of approximately $10 million,
$15 million, $16 million and $15 million,
respectively. These revenues resulted from purchases at market
rates pursuant to binding agreements.
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Pricing of Our Products and Services
Our revenues are derived principally from the monthly fees our
customers pay for the services we offer. A one-time installation
fee, which is sometimes waived or discounted during certain
promotional periods, is charged to new customers. The prices we
charge vary based on the level of service the customer chooses
and the geographic market. Most of our pricing is reviewed and
adjusted on an annual basis.
In accordance with the Federal Communications Commissions
(FCC) rules, the prices we charge for cable-related
equipment, such as set-top terminals and remote control devices,
and for installation services are based on actual costs plus a
permitted rate of return.
Although our cable service offerings vary across the markets we
serve because of various factors including competition and
regulatory factors, our services, when offered on a stand-alone
basis, are typically offered at monthly price ranges, excluding
franchise fees and other taxes, as follows:
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Price Range as of | |
Service |
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June 30, 2006 | |
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Analog video packages
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$ |
6.38 - $ 58.00 |
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Premium channels
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$ |
10.00 - $ 15.00 |
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Pay-per-view events
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$ |
2.99 - $179.00 |
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Digital video packages (including high-speed Internet service
for higher tiers)
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$ |
34.00 - $172.99 |
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High-speed Internet service
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$ |
21.95 - $ 59.99 |
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Video on demand (per selection)
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$ |
0.99 - $ 29.99 |
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High definition television
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$ |
3.00 - $ 10.99 |
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Digital video recorder (DVR)
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$ |
9.99 - $ 14.99 |
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In addition, from time to time we offer free service or
reduced-price service during promotional periods in order to
attract new customers. There is no assurance that these
customers will remain as customers when the period of free
service expires.
Our Network Technology
The following table sets forth the technological capacity of our
systems as of June 30, 2006 based on a percentage of homes
passed:
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Less than | |
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550 megahertz | |
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550 megahertz | |
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750 megahertz | |
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860/870 megahertz | |
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Two-way Enabled | |
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8% |
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5% |
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40% |
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47% |
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87% |
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Approximately 92% of our homes passed are served by systems that
have bandwidth of 550 megahertz or greater. This bandwidth
capacity enables us to offer digital television, high-speed
Internet services and other advanced services. It also enables
us to offer up to 82 analog channels, and even more channels
when our bandwidth is used for digital signal transmissions. Our
increased bandwidth also permits two-way communication for
Internet access, interactive services and telephone services.
We have reduced the number of headends that serve our customers
from 1,138 at January 1, 2001 to 711 at June 30, 2006.
Because headends are the control centers of a cable system,
where incoming signals are amplified, converted, processed and
combined for transmission to the customer, reducing the number
of headends reduces related equipment, service personnel and
maintenance expenditures. We believe that the headend
consolidation, together with our other upgrades, allows us to
provide enhanced picture quality and greater system reliability.
As of June 30, 2006, approximately 86% of our customers
were served by headends serving at least 10,000 customers.
As of June 30, 2006, our cable systems consisted of
approximately 223,000 strand miles, including approximately
59,400 strand miles of fiber optic cable, passing approximately
12.6 million households and serving approximately
6.2 million customers.
153
We adopted the hybrid fiber coaxial cable (HFC)
architecture as the standard for our systems upgrades. HFC
architecture combines the use of fiber optic cable with coaxial
cable. Fiber optic cable is a communication medium that uses
glass fibers to transmit signals over long distances with
minimum signal loss or distortion. Fiber optic cable has
excellent broadband frequency characteristics, noise immunity
and physical durability and can carry hundreds of video, data
and voice channels over extended distances. Coaxial cable is
less expensive but requires a more extensive signal
amplification in order to obtain the desired transmission levels
for delivering channels. In most systems, we deliver our signals
via fiber optic cable from the headend to a group of nodes, and
use coaxial cable to deliver the signal from individual nodes to
the homes passed served by that node. Our system design enables
a maximum of 500 homes passed to be served by a single node.
Currently, our average node serves approximately 385 homes
passed. Our system design provides for six strands of fiber to
each node, with two strands activated and four strands reserved
for spares and future services. The design also provides reserve
capacity for the addition of future services.
The primary advantages of HFC architecture over traditional
coaxial-only cable networks include:
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increased bandwidth capacity, for more channels and other
services; |
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dedicated bandwidth for two-way services, which avoids reverse
signal interference problems that can occur with two-way
communication capability; and |
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improved picture quality and service reliability. |
We currently maintain a national network operations center to
monitor our data networks and to further our strategy of
providing high quality service. Centralized monitoring is
increasingly important as we increase the number of high-speed
Internet customers utilizing two-way high-speed Internet
service. Our local dispatch centers focus primarily on
monitoring the HFC plant.
Management of Our Systems
Many of the functions associated with our financial and
administrative management are centralized, including accounting,
cash management, billing, finance and acquisitions, payroll,
accounts payable and benefits administration, information system
design and support, internal audit, purchasing, customer care,
marketing, programming contract administration and Internet
service, network and circuits administration. We operate with
four divisions. Each division is supported by operational,
financial, customer care, marketing and engineering functions.
Customer Care
Our customer care centers are managed centrally by Corporate
Vice Presidents of Customer Care. This team oversees and
administers the deployment and execution of care strategies and
initiatives on a company-wide basis. We have 36 customer service
locations, including 14 regional contact centers that serve our
customers. This reflects a substantial consolidation of our
customer care facilities. We believe that this consolidation
will continue to allow us to improve the consistency of our
service delivery and customer satisfaction.
Specifically, through this consolidation, we are now able to
service our customers 24 hours a day, seven days a week and
utilize technologically advanced equipment that we believe
enhances interactions with our customers through more
intelligent call routing, data management, and forecasting and
scheduling capabilities. We believe this consolidation also
allows us to more effectively provide our customer care
specialists with ongoing training intended to improve complaint
resolution, equipment troubleshooting, sales of new and
additional services, and customer retention.
We believe that, despite our consolidation, we still need to
make improvements in the area of customer care, and that this
has, in part, led to a continued loss of customers. Accordingly,
we have begun an internal operational improvement initiative
aimed at helping us gain new customers and retain existing
customers, which is focused on customer care, among other areas.
We have increased our efforts to focus
154
management attention on instilling a customer service oriented
culture throughout the company and to give those areas of our
operations increased priority of resources for staffing levels,
training budgets and financial incentives for employee
performance in those areas.
In a further effort to better serve our customers, we have also
entered into outsource partnership agreements with multiple
outsource providers. We believe the establishment of these
relationships expands our ability to achieve our service
objectives and increases our ability to support marketing
activities by providing additional capacity available to support
customer inquiries.
We also utilize our website to enhance customer care by enabling
customers to view and pay their bills online, obtain useful
information and perform various equipment troubleshooting
procedures. We also offer chat and email functionality on-line
to our customers.
Sales and Marketing
Our marketing infrastructure is intended to promote interaction,
information flow and sharing of best practices between our
corporate office and our field offices, which make local
decisions as to when and how marketing programs will be
implemented. In 2005, our primary strategic direction was
focused on eliminating aggressive promotional pricing and
implementing targeted marketing programs designed to offer the
optimal combination of products to the most appropriate
consumers to accelerate the growth of profitable revenues.
In 2005, we increased our targeted marketing efforts and related
expenditures, the long-term objective of which is to increase
revenues through deeper market penetration of all of our
services and increase the average number of services per
household. Marketing expenditures from continuing operations
increased 23% to $80 million for the six months ended
June 30, 2006, as compared to the six months ended
June 30, 2005. Marketing expenditures from continuing
operations increased 19% over the year ended December 31,
2004 to $142 million for the year ended December 31,
2005. We will continue to invest in targeted marketing efforts
in 2006.
We monitor customer perception, competition, pricing and product
preferences, among other factors, to increase our responsiveness
to our customers. Our coordinated marketing strategies include
door-to-door
solicitation, telemarketing, media advertising,
e-marketing, direct
mail solicitation and retail locations. In 2005, we increased
our focus on marketing and selling our services through consumer
electronics retailers and other retailers that sell televisions
or cable modems.
Programming
We believe that offering a wide variety of programming is an
important factor that influences a customers decision to
subscribe to and retain our cable services. We rely on market
research, customer demographics and local programming
preferences to determine channel offerings in each of our
markets. We obtain basic and premium programming from a number
of suppliers, usually pursuant to a written contract. Our
programming contracts generally continue for a fixed period of
time, usually from three to ten years, and are subject to
negotiated renewal. Some program suppliers offer financial
incentives to support the launch of a channel and/or ongoing
marketing support. We also negotiate volume discount pricing
structures. Programming costs are usually payable each month
based on calculations performed by us and are subject to audits
by the programmers.
Programming is usually made available to us for a license fee,
which is generally paid based on the number of customers to whom
we make such programming available. Such license fees may
include volume discounts available for higher
numbers of customers, as well as discounts for channel placement
or service penetration. Some channels are available without cost
to us for a limited period of time, after
155
which we pay for the programming. For home shopping channels, we
receive a percentage of the revenue attributable to our
customers purchases.
Our cable programming costs have increased, in every year we
have operated, in excess of customary inflationary and
cost-of-living type
increases. We expect them to continue to increase due to a
variety of factors, including annual increases imposed by
programmers and additional programming being provided to
customers as a result of system rebuilds and bandwidth
reallocation, both of which increase channel capacity. In
particular, sports programming costs have increased
significantly over the past several years. In addition,
contracts to purchase sports programming sometimes provide for
optional additional programming to be available on a surcharge
basis during the term of the contract.
Over the past several years, we have not been able to increase
prices sufficiently to offset increased programming costs and
with the impact of competition and other marketplace factors, we
will not be able to do so in the foreseeable future. In order to
maintain or mitigate reductions of margins despite increasing
programming costs, we plan to continue to migrate certain
program services from our analog level of service to our digital
tiers. As we migrate our programming to our digital tier
packages, certain programming that was previously available to
all of our customers via an analog signal, may be part of an
elective digital tier package. As a result, the customer base
upon which we pay programming fees will proportionately
decrease, and the overall expense for providing that service
would likewise decrease. Reductions in the size of certain
programming customer bases may result in the loss of specific
volume discount benefits.
As measured by programming costs, and excluding premium services
(substantially all of which were renegotiated and renewed in
2003), as of July 7, 2006 approximately 11% of our current
programming contracts were expired, and approximately another 4%
are scheduled to expire by the end of 2006. We plan to seek to
renegotiate the terms of our agreements with certain programmers
as these agreements come due for renewal. There can be no
assurance that these agreements will be renewed on favorable or
comparable terms. To the extent that we are unable to reach
agreement with certain programmers on terms that we believe are
reasonable, we may be forced to remove such programming channels
from our line-up, which may result in a loss of customers. In
addition, our inability to fully pass these programming cost
increases on to our customers has had an adverse impact on our
cash flow and operating margins.
Franchises
As of June 30, 2006, our systems operated pursuant to a
total of approximately 4,100 franchises, permits and similar
authorizations issued by local and state governmental
authorities. Each franchise, permit or similar authorization is
awarded by a governmental authority and such governmental
authority often must approve a transfer to another party. Most
franchises are subject to termination proceedings in the event
of a material breach. In addition, most franchises require us to
pay the granting authority a franchise fee of up to 5.0% of
gross revenues as defined in the various agreements, which is
the maximum amount that may be charged under the applicable
federal law. We are entitled to and generally do pass this fee
through to the customer.
Prior to the scheduled expiration of most franchises, we
initiate renewal proceedings with the granting authorities. This
process can take three years but in some instances can take a
shorter period of time. The Communications Act of 1934, as
amended (the Communications Act), which is the
primary federal statute regulating interstate communications,
provides for an orderly franchise renewal process in which
granting authorities may not unreasonably withhold renewals. In
connection with the franchise renewal process, many governmental
authorities require the cable operator to make certain
commitments. Historically we have been able to renew our
franchises without incurring significant costs, although any
particular franchise may not be renewed on commercially
favorable terms or otherwise. Our failure to obtain renewals of
our franchises, especially those in the major metropolitan areas
where we have the most customers, could have a material adverse
effect on our consolidated financial condition, results of
operations or our liquidity, including our ability to comply
with our debt covenants. Approximately 12% of our franchises,
covering approximately 13% of our analog video customers, were
expired as of June 30,
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2006. Approximately 4% of additional franchises, covering
approximately 6% of additional analog video customers, will
expire on or before December 31, 2006, if not renewed prior
to expiration. We do not expect the granting authorities to deny
our right to renew substantially all of these franchises.
Different legislative proposals have been introduced in the
United States Congress and in some state legislatures that would
greatly streamline cable franchising. This legislation is
intended to facilitate entry by new competitors, particularly
local telephone companies. Such legislation has passed in a
number of states in which we have operations and one of these
newly enacted statutes is subject to court challenge. Although
various legislative proposals provide some regulatory relief for
incumbent cable operators, these proposals are generally viewed
as being more favorable to new entrants due to a number of
varying factors including efforts to withhold streamlined cable
franchising from incumbents until after the expiration of their
existing franchises and the potential for new entrants to serve
only higher-income areas of a particular community. To the
extent incumbent cable operators are not able to avail
themselves of this streamlined franchising process, such
operators may continue to be subject to more onerous franchise
requirements at the local level than new entrants. The FCC
recently initiated a proceeding to determine whether local
franchising authorities are impeding the deployment of
competitive cable services through unreasonable franchising
requirements and whether any such impediments should be
preempted. At this time, we are not able to determine what
impact such proceeding may have on us.
Competition
We face competition in the areas of price, service offerings,
and service reliability. We compete with other providers of
television signals and other sources of home entertainment. In
addition, as we continue to expand into additional services such
as high-speed Internet access and telephone, we face competition
from other providers of each type of service. We operate in a
very competitive business environment, which can adversely
affect our business and operations.
In terms of competition for customers, we view ourselves as a
member of the broadband communications industry, which
encompasses multi-channel video for television and related
broadband services, such as high-speed Internet, telephone and
other interactive video services. In the broadband industry, our
principal competitor for video services throughout our territory
is direct broadcast satellite (DBS), our principal
competitor for data services is digital subscriber line
(DSL) provided by telephone companies and our
principal competitors for telephone services are established
telephone companies and other carriers, including VoIP
providers. Based on telephone companies entry into video
service and the upgrade of their networks, they will likely
increasingly become an even more significant competitor for both
data and video services. We do not consider other cable
operators to be significant
one-on-one competitors
in the market overall, as traditional overbuilds are infrequent
and spotty geographically (although in any particular market, a
cable operator overbuilder would likely be a significant
competitor at the local level). As of June 30, 2006, we are
aware of traditional overbuild situations in service areas
covering approximately 8% of our total homes passed and
potential overbuilds in areas servicing approximately an
additional 5% of our total homes passed.
Although cable operators tend not to be direct competitors for
customers, their relative size may affect the competitive
landscape in terms of how a cable company competes against
non-cable competitors in the marketplace as well as in
relationships with vendors who deal with cable operators. For
example, a larger cable operator might have better access to and
pricing for the multiple types of services cable companies
offer. Also, a larger entity might have different access to
financial resources and acquisition opportunities.
Our key competitors include:
Direct broadcast satellite is a significant competitor to cable
systems. The DBS industry has grown rapidly over the last
several years and now serves more than 27 million
subscribers nationwide. DBS service allows the subscriber to
receive video services directly via satellite using a relatively
small dish
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antenna. EchoStar and DirecTV both have entered into joint
marketing agreements with major telecommunications companies to
offer bundled packages combining phone, data and video services.
Video compression technology and high powered satellites allow
DBS providers to offer more than 200 digital channels from
a single satellite, thereby surpassing the typical analog cable
system. In 2005, major DBS competitors offered a greater variety
of channel packages, and were especially competitive at the
lower end pricing, such as a monthly price of approximately $35
for 60 channels compared to approximately $45 for the
closest comparable package in most of our markets. In addition,
while we continue to believe that the initial investment by a
DBS customer exceeds that of a cable customer, the initial
equipment cost for DBS has decreased substantially, as the DBS
providers have aggressively marketed offers to new customers of
incentives for discounted or free equipment, installation and
multiple units. DBS providers are able to offer service
nationwide and are able to establish a national image and
branding with standardized offerings, which together with their
ability to avoid franchise fees of up to 5% of revenues and
property tax, leads to greater efficiencies and lower costs in
the lower tiers of service. We believe that cable-delivered VOD
and SVOD service are superior to DBS service because cable
headends can store thousands of titles which customers can
access and control independently, whereas DBS technology can
only make available a much smaller number of titles with
DVR-like customer control. We also believe that our higher tier
products, particularly our bundled premium packages, are
price-competitive with DBS packages and that many consumers
prefer our ability to economically bundle video packages with
data packages. Further, cable providers have the potential in
some areas to provide a more complete whole house
communications package when combining video, high-speed Internet
and telephone services. We believe that this ability to bundle,
combined with the introduction of more new products that DBS
cannot readily offer (local high definition television and local
interactive television) differentiates us from DBS competitors
and could enable us to win back some of our former customers who
migrated to satellite. However, joint marketing arrangements
between DBS providers and telecommunications carriers allow
similar bundling of services in certain areas and DBS providers
are making investments to offer more high definition programming
including local high definition programming. Competition from
DBS service providers may also present greater challenges in
areas of lower population density, and we believe that our
systems serve a higher concentration of such areas than those of
other major cable service providers.
DBS providers have made attempts at widespread deployment of
high-speed Internet access services via satellite but those
services have been technically constrained and of limited
appeal. DBS providers continue to explore options, such as
combining satellite communications with terrestrial wireless
networks, to provide high-speed Internet and other services. DBS
providers have entered into joint marketing arrangements with
telecommunications carriers allowing them to offer terrestrial
DSL services in many markets.
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DSL and Other Broadband Services |
DSL service allows Internet access to subscribers at data
transmission speeds greater than those available over
conventional telephone lines. DSL service therefore is
competitive with high-speed Internet access over cable systems.
Most telephone companies which already have plant, an existing
customer base, and other operational functions in place (such
as, billing, service personnel, etc.) offer DSL service. DSL
actively markets its service and many providers have offered
promotional pricing with a one-year service agreement. The FCC
has determined that DSL service is an information
service, and based on that classification removed DSL
service from many traditional telecommunications regulations.
Legislative action and the FCCs decisions and policies in
this area are subject to change. We expect DSL to remain a
significant competitor to our data services, particularly as we
enter the telephone business and telephone companies
aggressively bundle DSL with telephone service to discourage
customers from switching. In addition, the continuing deployment
of fiber by telephone companies into their networks will enable
them to provide higher bandwidth Internet service than provided
over traditional DSL lines.
DSL and other forms of high-speed Internet access provide
competition to our high-speed Internet service. For example, as
discussed above, satellite-based delivery options are in
development. In addition, local wireless Internet services have
recently begun to operate in many markets using available
unlicensed
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radio spectrum. This service option, popularly known as
wi-fi, offers another alternative to cable-based
Internet access.
High-speed Internet access facilitates the streaming of video
into homes and businesses. As the quality and availability of
video streaming over the Internet improves, video streaming
likely will compete with the traditional delivery of video
programming services over cable systems. It is possible that
programming suppliers will consider bypassing cable operators
and market their services directly to the consumer through video
streaming over the Internet.
We believe that pricing for residential and commercial Internet
services on our system is generally comparable to that for
similar DSL services and that some residential customers prefer
our ability to bundle Internet services with video services.
However, DSL providers may currently be in a better position to
offer data services to businesses since their networks tend to
be more complete in commercial areas. They also have the ability
to bundle telephone with Internet services for a higher
percentage of their customers, and that ability is appealing to
many consumers. Joint marketing arrangements between DSL
providers and DBS providers may allow some additional bundling
of services. Moreover, major telephone companies, such as
AT&T and Verizon, are now deploying fiber deep into their
networks that enables them in some areas to offer high bandwidth
video services over their networks, in addition to established
voice and Internet services.
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Telephone Companies and Utilities |
The competitive environment has been significantly affected by
technological developments and regulatory changes enacted under
the 1996 Telecom Act, which amended the Communications Act and
which is designed to enhance competition in the cable television
and local telephone markets (the 1996 Telecom Act).
Federal cross-ownership restrictions historically limited entry
by local telephone companies into the cable business. The 1996
Telecom Act modified this cross-ownership restriction, making it
possible for local exchange carriers, who have considerable
resources, to provide a wide variety of video services
competitive with services offered by cable systems.
Telephone companies already provide facilities for the
transmission and distribution of voice and data services,
including Internet services, in competition with our existing or
potential interactive services ventures and businesses.
Telephone companies can lawfully enter the cable television
business and some telephone companies have been extensively
deploying fiber in their networks, which enables them to provide
video services, as well as telephone and Internet access
service. At least one major telephone company plans to provide
Internet protocol video over its upgraded network and contends
that its use of this technology should allow it to provide video
service without a cable franchise as required under
Title VI of the Communications Act. Telephone companies
deploying fiber more extensively are already providing video
services in some communities. Although telephone companies have
obtained franchises or alternative authorizations in some areas
and are seeking them in others, they are attempting through
various means (including federal and state legislation and
through FCC rulemaking) to weaken or streamline the franchising
requirements applicable to them. If telephone companies are
successful in avoiding or weakening the franchise and other
regulatory requirements that are applicable to cable operators
like us, their competitive posture would be enhanced. We cannot
predict the likelihood of success of the broadband services
offered by our competitors or the impact on us of such
competitive ventures. The large scale entry of major telephone
companies as direct competitors in the video marketplace could
adversely affect the profitability and valuation of established
cable systems.
We provide telephone service over our broadband communications
networks in a number of its service areas. We also provide
traditional circuit-switched phone service in a few communities.
In these areas, we compete directly with established telephone
companies and other carriers, including VoIP providers, for
voice service customers. As we expand our offerings to include
voice services, we will be subject to considerable competition
from telephone companies and other telecommunications providers.
The telecommunications industry is highly competitive and
includes competitors with greater financial and personnel
resources, who have brand name recognition and long-standing
relationships with regulatory
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authorities and customers. Moreover, mergers, joint ventures and
alliances among franchise, wireless or private cable operators,
local exchange carriers and others may result in providers
capable of offering cable television, Internet, and
telecommunications services in direct competition with us. For
example, major local exchange carriers have entered into
arrangements with EchoStar and DirecTV in which they will market
packages combining phone service, DSL and DBS services.
Additionally, we are subject to competition from utilities which
possess fiber optic transmission lines capable of transmitting
signals with minimal signal distortion. Utilities are also
developing broadband over power line technology, which will
allow the provision of Internet and other broadband services to
homes and offices. Utilities have deployed broadband over power
line technology in a few limited markets.
Cable television has long competed with broadcast television,
which consists of television signals that the viewer is able to
receive without charge using an off-air antenna. The
extent of such competition is dependent upon the quality and
quantity of broadcast signals available through
off-air reception compared to the services provided
by the local cable system. Traditionally, cable television has
provided a higher picture quality and more channel offerings
than broadcast television. However, the recent licensing of
digital spectrum by the FCC will provide traditional
broadcasters with the ability to deliver high definition
television pictures and multiple digital-quality program
streams, as well as advanced digital services such as
subscription video and data transmission.
Cable systems are operated under non-exclusive franchises
granted by local authorities. More than one cable system may
legally be built in the same area. It is possible that a
franchising authority might grant a second franchise to another
cable operator and that such a franchise might contain terms and
conditions more favorable than those afforded us. In addition,
entities willing to establish an open video system, under which
they offer unaffiliated programmers non-discriminatory access to
a portion of the systems cable system, may be able to
avoid local franchising requirements. Well financed businesses
from outside the cable industry, such as public utilities that
already possess fiber optic and other transmission lines in the
areas they serve, may over time become competitors. There are a
number of cities that have constructed their own cable systems,
in a manner similar to city-provided utility services. There
also has been interest in traditional overbuilds by private
companies. Constructing a competing cable system is a capital
intensive process which involves a high degree of risk. We
believe that in order to be successful, a competitors
overbuild would need to be able to serve the homes and
businesses in the overbuilt area on a more cost-effective basis
than we can. Any such overbuild operation would require either
significant access to capital or access to facilities already in
place that are capable of delivering cable television
programming.
As of June 30, 2006, we are aware of overbuild situations
impacting approximately 8% of our total homes passed and
potential overbuild situations in areas servicing approximately
an additional 5% of our total homes passed. Additional overbuild
situations may occur in other systems.
Additional competition is posed by satellite master antenna
television systems, or SMATV systems, serving multiple dwelling
units, or MDUs, such as condominiums, apartment complexes, and
private residential communities. These private cable systems may
enter into exclusive agreements with such MDUs, which may
preclude operators of franchise systems from serving residents
of such private complexes. Private cable systems can offer both
improved reception of local television stations and many of the
same satellite-delivered program services that are offered by
cable systems. SMATV systems currently benefit from operating
advantages not available to franchised cable systems, including
fewer regulatory burdens and no requirement to service low
density or economically depressed communities. Exemption from
regulation may provide a competitive advantage to certain of our
current and potential competitors.
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Cable systems also compete with wireless program distribution
services such as multi-channel multipoint distribution systems
or wireless cable, known as MMDS, which uses
low-power microwave frequencies to transmit television
programming
over-the-air to paying
customers. MMDS services, however, require unobstructed
line of sight transmission paths and MMDS ventures
have been quite limited to date.
The FCC completed its auction of Multichannel Video
Distribution & Data Service (MVDDS)
licenses. MVDDS is a new terrestrial video and data fixed
wireless service that the FCC hopes will spur competition in the
cable and DBS industries.
Our principal physical assets consist of cable distribution
plant and equipment, including signal receiving, encoding and
decoding devices, headend reception facilities, distribution
systems and customer drop equipment for each of our cable
systems.
Our cable plant and related equipment are generally attached to
utility poles under pole rental agreements with local public
utilities and telephone companies, and in certain locations are
buried in underground ducts or trenches. We own or lease real
property for signal reception sites and own most of our service
vehicles.
Historically, our subsidiaries have owned the real property and
buildings for our data centers, customer contact centers and our
divisional administrative offices. Since early 2003 we have
reduced our total real estate portfolio square footage by
approximately 17% and have decreased our operating annual lease
costs by approximately 30%. In addition, Charter has sold
$15 million worth of surplus land and buildings. We plan to
continue to reduce costs and excess capacity in this area
through consolidation of sites within our system footprints. Our
subsidiaries generally have leased space for business offices
throughout our operating divisions. Our headend and tower
locations are located on owned or leased parcels of land, and we
generally own the towers on which our equipment is located.
Charter Holdco owns the real property and building for our
principal executive offices.
The physical components of our cable systems require maintenance
as well as periodic upgrades to support the new services and
products we introduce. See Our Network
Technology. We believe that our properties are generally
in good operating condition and are suitable for our business
operations.
Employees
As of June 30, 2006, we had approximately
16,100 full-time equivalent employees. At June 30,
2006, approximately 100 of our employees were represented by
collective bargaining agreements. We have never experienced a
work stoppage.
The corporate office, which includes employees of Charter and
Charter Holdco, is responsible for coordinating and overseeing
our operations. The corporate office performs certain financial
and administrative functions on a centralized basis such as
accounting, taxes, billing, finance and acquisitions, payroll
and benefit administration, information system design and
support, internal audit, purchasing, customer care, marketing
and programming contract administration and oversight and
coordination of external auditors and consultants and related
professional fees. The corporate office performs these services
on a cost reimbursement basis pursuant to a management services
agreement. See Certain Relationships and Related Party
Transactions Transactions Arising Out of Our
Organizational Structure and Mr. Allens Investment in
Charter and Its Subsidiaries Intercompany Management
Arrangements and Certain Relationships and Related
Party Transactions Transactions Arising Out of Our
Organizational Structure and Mr. Allens Investment in
Charter and Its Subsidiaries Mutual Services
Agreements.
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Legal Proceedings
Charter is a party to lawsuits and claims that have arisen in
the ordinary course of conducting its business. The ultimate
outcome of all of these legal matters pending against us or our
subsidiaries cannot be predicted, and although such lawsuits and
claims are not expected individually to have a material adverse
effect on our consolidated financial condition, results of
operations or liquidity, such lawsuits could have, in the
aggregate, a material adverse effect on our consolidated
financial condition, results of operations or liquidity.
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REGULATION AND LEGISLATION
The following summary addresses the key regulatory and
legislative developments affecting the cable industry. Cable
system operations are extensively regulated by the FCC, some
state governments and most local governments. A failure to
comply with these regulations could subject us to substantial
penalties. Our business can be dramatically impacted by changes
to the existing regulatory framework, whether triggered by
legislative, administrative, or judicial rulings. Congress and
the FCC have expressed a particular interest in increasing
competition in the communications field generally and in the
cable television field specifically. The 1996 Telecom Act, which
amended the Communications Act, altered the regulatory structure
governing the nations communications providers. It removed
barriers to competition in both the cable television market and
the local telephone market. At the same time, the FCC has
pursued spectrum licensing options designed to increase
competition to the cable industry by wireless multi-channel
video programming distributors. We could be materially
disadvantaged in the future if we are subject to new regulations
that do not equally impact our key competitors.
Congress and the FCC have frequently revisited the subject of
communications regulation, and they are likely to do so in the
future. In addition, franchise agreements with local governments
must be periodically renewed, and new operating terms may be
imposed. Future legislative, regulatory, or judicial changes
could adversely affect our operations. We can provide no
assurance that the already extensive regulation of our business
will not be expanded in the future.
Cable Rate Regulation
The cable industry has operated under a federal rate regulation
regime for more than a decade. The regulations currently
restrict the prices that cable systems charge for the minimum
level of video programming service, referred to as basic
service, and associated equipment. All other cable
offerings are now universally exempt from rate regulation.
Although basic rate regulation operates pursuant to a federal
formula, local governments, commonly referred to as local
franchising authorities, are primarily responsible for
administering this regulation. The majority of our local
franchising authorities have never been certified to regulate
basic cable rates, but they retain the right to do so (and order
rate reductions and refunds), except in those specific
communities facing effective competition, as defined
under federal law. With increased DBS competition, our systems
are increasingly likely to satisfy the effective competition
standard. We have already secured FCC recognition of effective
competition, and been rate deregulated, in many of our
communities.
There have been frequent calls to impose expanded rate
regulation on the cable industry. Confronted with rapidly
increasing cable programming costs, it is possible that Congress
may adopt new constraints on the retail pricing or packaging of
cable programming. For example, there has been considerable
legislative and regulatory interest in requiring cable operators
to offer historically bundled programming services on an á
la carte basis or to at least offer a separately available
child-friendly Family Tier. Such constraints could
adversely affect our operations.
Federal rate regulations generally require cable operators to
allow subscribers to purchase premium or pay-per-view services
without the necessity of subscribing to any tier of service,
other than the basic service tier. The applicability of this
rule in certain situations remains unclear, and adverse
decisions by the FCC could affect our pricing and packaging of
services. As we attempt to respond to a changing marketplace
with competitive pricing practices, such as targeted promotions
and discounts, we may face additional legal restraints and
challenges that impede our ability to compete.
Must Carry/Retransmission Consent
There are two alternative legal methods for carriage of local
broadcast television stations on cable systems. Federal law
currently includes must carry regulations, which
require cable systems to carry certain local broadcast
television stations that the cable operator would not select
voluntarily. Alternatively, federal law includes
retransmission consent regulations, by which popular
commercial television stations can prohibit cable carriage
unless the cable operator first negotiates for
retransmission consent, which
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may be conditioned on significant payments or other concessions.
Either option has a potentially adverse effect on our business.
The burden associated with must carry could increase
significantly if cable systems were required to simultaneously
carry both the analog and digital signals of each television
station (dual carriage), as the broadcast industry transitions
from an analog to a digital format. The burden could also
increase significantly if cable systems become required to carry
multiple program streams included within a single digital
broadcast transmission (multicast carriage). Additional
government-mandated broadcast carriage obligations could disrupt
existing programming commitments, interfere with our preferred
use of limited channel capacity and limit our ability to offer
services that would maximize customer appeal and revenue
potential.
Although the FCC issued a decision in 2005 confirming an earlier
ruling against mandating either dual carriage or multicast
carriage, that decision is subject to a petition for
reconsideration which is pending before the FCC. In addition,
the FCC could reverse its own ruling or Congress could legislate
additional carriage obligations. February 2009 has been
established as the deadline for broadcasters to complete their
transition to digital spectrum and for the federal government to
reclaim analog spectrum. Cable operators may need to take
additional operational steps at that time to ensure that
customers not otherwise equipped to receive digital programming,
retain access to broadcast programming.
Access Channels
Local franchise agreements often require cable operators to set
aside certain channels for public, educational and governmental
access programming. Federal law also requires cable systems to
designate a portion of their channel capacity for commercial
leased access by unaffiliated third parties. Increased activity
in this area could further burden the channel capacity of our
cable systems.
Access to Programming
The Communications Act and the FCCs program
access rules generally prevent video programmers
affiliated with cable operators from favoring cable operators
over competing multichannel video distributors, such as DBS, and
limit the ability of such programmers to offer exclusive
programming arrangements to cable operators. The FCC has
extended the exclusivity restrictions through October 2007.
Given the heightened competition and media consolidation that we
face, it is possible that we will find it increasingly difficult
to gain access to popular programming at favorable terms. Such
difficulty could adversely impact our business.
Ownership Restrictions
Federal regulation of the communications field traditionally
included a host of ownership restrictions, which limited the
size of certain media entities and restricted their ability to
enter into competing enterprises. Through a series of
legislative, regulatory, and judicial actions, most of these
restrictions recently were eliminated or substantially relaxed.
For example, historic restrictions on local exchange carriers
offering cable service within their telephone service area, as
well as those prohibiting broadcast stations from owning cable
systems within their broadcast service area, no longer exist.
Changes in this regulatory area could alter the business
landscape in which we operate, as formidable new competitors
(including electric utilities, local exchange carriers, and
broadcast/media companies) may increasingly choose to offer
cable services.
The FCC previously adopted regulations precluding any cable
operator from serving more than 30% of all domestic
multi-channel video subscribers and from devoting more than 40%
of the activated channel capacity of any cable system to the
carriage of affiliated national video programming services.
These cable ownership restrictions were invalidated by the
courts, and the FCC is now considering adoption of replacement
regulations.
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Internet Service
Over the past several years, proposals have been advanced that
would require cable operators offering Internet service to
provide non-discriminatory access to its network to competing
Internet service providers. In a 2005 ruling, commonly referred
to as Brand X, the Supreme Court upheld an FCC decision
making it less likely that any non-discriminatory open
access requirements (which are generally associated with
common carrier regulation of telecommunications
services) will be imposed on the cable industry by local,
state or federal authorities. The Supreme Court held that the
FCC was correct in classifying cable-provided Internet service
as an information service, rather than a
telecommunications service. This favorable
regulatory classification limits the ability of various
governmental authorities to impose open access requirements on
cable-provided Internet service.
Claiming an interest in maintaining network
neutrality, certain internet content providers and
consumer groups have advocated for new federal laws or
regulations limiting the ability of broadband network owners
(like us) to manage and control their own networks. In 2005, the
FCC issued a non-binding policy statement establishing four
basic principles that the FCC says will inform its ongoing
policymaking activities regarding broadband-related Internet
services. Those principles state that: consumers are entitled to
access the lawful Internet content of their choice; consumers
are entitled to run applications and services of their choice,
subject to the needs of law enforcement; consumers are entitled
to connect their choice of legal devices that do not harm the
network; and consumers are entitled to competition among network
providers, application and service providers and content
providers. It is unclear what, if any, additional regulations
the FCC or Congress might impose on our Internet service, and
what, if any, impact such regulations might have on our business.
As the Internet has matured, it has become the subject of
increasing regulatory interest. Congress and federal regulators
have adopted a wide range of measures directly or potentially
affecting Internet use, including, for example, consumer
privacy, accommodation of law enforcement wiretaps, copyright
protections (which afford copyright owners certain rights
against us that could adversely affect our relationship with a
customer accused of violating copyright laws), defamation
liability, taxation, obscenity, and unsolicited commercial
e-mail regulations.
State and local governmental organizations have also adopted
Internet-related regulations. These various governmental
jurisdictions are also considering additional regulations in
these and other areas, such as pricing, service and product
quality, and intellectual property ownership. The adoption of
new Internet regulations or the adaptation of existing laws to
the Internet could adversely affect our business.
Phone Service
The 1996 Telecom Act, which amended the Communications Act,
created a more favorable regulatory environment for us to
provide phone services. In particular, it limited the regulatory
role of local franchising authorities and established
requirements ensuring that we could interconnect with other
telephone companies to provide a viable service. Many
implementation details remain unresolved, and there are
substantial regulatory changes being considered that could
impact, in both positive and negative ways, our primary
telecommunications competitors and our own entry into the field
of phone service. The FCC and state regulatory authorities are
considering, for example, whether common carrier regulation
traditionally applied to incumbent local exchange carriers
should be modified. The FCC has concluded that alternative voice
technologies, like certain types of VoIP, should be regulated
only at the federal level, rather than by individual states. A
legal challenge to that FCC decision is pending. While the
FCCs decision appears to be a positive development for
VoIP offerings, the FCC has demonstrated a willingness to impose
some traditional telecommunications regulations on VoIP
providers, requiring phone services using Internet Protocol
technology to comply with traditional 911 emergency service
obligations (E911) and universal service
obligations. It has also extended its requirement for
accommodating law enforcement wiretaps to such providers with a
deadline for compliance in 2007, that requirement has been
affirmed by the Court of Appeals for the D.C. Circuit. The
extension of other traditional telecommunications common carrier
requirements to VoIP providers could adversely affect our
business. It is unclear how these
165
regulatory matters ultimately will be resolved and how they will
affect our potential expansion into phone service.
Pole Attachments
The Communications Act requires most utilities to provide cable
systems with access to poles and conduits and simultaneously
subjects the rates charged for this access to either federal or
state regulation. The Communications Act specifies that
significantly higher rates apply if the cable plant is providing
telecommunications service, in addition to cable service. The
FCC has clarified that a cable operators favorable pole
rates are not endangered by the provision of Internet access,
and that determination was upheld by the United States Supreme
Court. To date, VoIP service has not been classified as either a
telecommunications service or cable service under the
Communications Act. If VoIP were classified as a
telecommunications service under the Communications Act by the
FCC, a state Public Utility Commission, or an appropriate court,
it might result in significant increased pole attachment costs
for us, which could adversely affect our financial condition and
results of operations. It also remains possible that the
underlying pole attachment formula, or its application to
Internet and telecommunications offerings, will be modified in a
manner that substantially increases our pole attachment costs.
Cable Equipment
The FCC has undertaken several steps to promote competition in
the delivery of cable equipment and compatibility with new
digital technology. The FCC has expressly ruled that cable
customers must be allowed to purchase set-top terminals from
third parties and established a multi-year phase-in during which
security functions (which would remain in the operators
exclusive control) would be unbundled from the basic converter
functions, which could then be provided by third party vendors.
The first phase of implementation has already passed. A
prohibition on cable operators leasing digital set-top terminals
that integrate security and basic navigation functions is
currently scheduled to go into effect as of July 1, 2007.
We are among the cable operators challenging that prohibition in
court. We have petitioned the FCC to waive the prohibition as
applied to our least expensive digital set-top box. We cannot
predict whether the FCC will grant our request.
The FCC has adopted rules implementing an agreement between
major cable operators and manufacturers of consumer electronics
on plug and play specifications for one-way digital
televisions. The rules require cable operators to provide
CableCard security modules and support to customer
owned digital televisions and similar devices equipped with
built-in set-top terminal functionality. Cable operators must
support basic home recording rights and copy protection rules
for digital programming content. The FCCs plug and play
rules are under appeal, although the appeal has been stayed
pending FCC reconsideration.
The FCC is conducting additional related rulemakings, and the
cable and consumer electronics industries are currently
negotiating an agreement that would establish additional
specifications for two-way digital televisions. Congress is also
considering companion broadcast flag legislation to
provide copy protection for digital broadcast signals. It is
unclear how this process will develop and how it will affect our
offering of cable equipment and our relationship with our
customers.
Other Communications Act Provisions and FCC Regulatory
Matters
In addition to the Communications Act provisions and FCC
regulations noted above, there are other statutory provisions
and FCC regulations affecting our business. The Communications
Act, for example, includes cable and telecommunications-specific
privacy obligations. The Communications Act carefully limits our
ability to collect and disclose personal information.
FCC regulations include a variety of additional areas,
including, among other things: (1) equal employment
opportunity obligations; (2) customer service standards;
(3) technical service standards; (4) mandatory
blackouts of certain network, syndicated and sports programming;
(5) restrictions on political advertising;
(6) restrictions on advertising in childrens
programming; (7) restrictions on
166
origination cablecasting; (8) restrictions on carriage of
lottery programming; (9) sponsorship identification
obligations; (10) closed captioning of video programming;
(11) licensing of systems and facilities;
(12) maintenance of public files; and (13) emergency
alert systems.
It is possible that Congress or the FCC will expand or modify
its regulation of cable systems in the future, and we cannot
predict at this time how that might impact our business. For
example, there have been recent discussions about imposing
indecency restrictions directly on cable programming.
Copyright
Cable systems are subject to federal copyright licensing
covering carriage of television and radio broadcast signals. The
possible modification or elimination of this compulsory
copyright license is the subject of continuing legislative
review and could adversely affect our ability to obtain desired
broadcast programming. Moreover, the Copyright Office has not
yet provided any guidance as to how the compulsory copyright
license should apply to newly offered digital broadcast signals.
Copyright clearances for non-broadcast programming services are
arranged through private negotiations. Cable operators also must
obtain music rights for locally originated programming and
advertising from the major music performing rights
organizations. These licensing fees have been the source of
litigation in the past, and we cannot predict with certainty
whether license fee disputes may arise in the future.
Franchise Matters
Cable systems generally are operated pursuant to nonexclusive
franchises granted by a municipality or other state or local
government entity in order to cross public
rights-of-way. Cable
franchises generally are granted for fixed terms and in many
cases include monetary penalties for noncompliance and may be
terminable if the franchisee fails to comply with material
provisions.
The specific terms and conditions of cable franchises vary
materially between jurisdictions. Each franchise generally
contains provisions governing cable operations, franchise fees,
system construction, maintenance, technical performance, and
customer service standards. A number of states subject cable
systems to the jurisdiction of centralized state government
agencies, such as public utility commissions. Although local
franchising authorities have considerable discretion in
establishing franchise terms, there are certain federal
protections. For example, federal law caps local franchise fees
and includes renewal procedures designed to protect incumbent
franchisees from arbitrary denials of renewal. Even if a
franchise is renewed, however, the local franchising authority
may seek to impose new and more onerous requirements as a
condition of renewal. Similarly, if a local franchising
authoritys consent is required for the purchase or sale of
a cable system, the local franchising authority may attempt to
impose more burdensome requirements as a condition for providing
its consent.
Different legislative proposals have been introduced and are
being actively considered in the United States Congress and
in some state legislatures that would greatly streamline cable
franchising. This legislation is intended to facilitate entry by
new competitors, particularly local telephone companies. Such
legislation has already passed in a number of states in which we
have operations and one of these newly enacted statutes is
subject to court challenge. Although various legislative
proposals provide some regulatory relief for incumbent cable
operators, these proposals are generally viewed as being more
favorable to new entrants due to a number of factors, including
provisions withholding streamlined cable franchising from
incumbents until after the expiration of their existing
franchises and allowing new entrants to serve only higher-income
areas of a particular community. To the extent incumbent cable
operators are not able to avail themselves of this streamlined
franchising process, such operators may continue to be subject
to more onerous franchise requirements at the local level than
new entrants. The FCC has initiated a proceeding to determine
whether local franchising authorities are impeding the
deployment of competitive cable services through unreasonable
franchising requirements and whether such impediments should be
preempted. At this time, we are not able to determine what
impact such proceeding may have on us.
167
MANAGEMENT
Directors
CCH II, LLC is a holding company with no operations.
CCH II Capital Corp. is a direct, wholly owned finance
subsidiary of CCH II, LLC that exists solely for the
purpose of serving as co-obligor of CCH IIs notes.
Neither CCH II, LLC nor CCH II Capital Corp. has any
employees. CCH II and its direct and indirect subsidiaries
are managed by Charter. See Certain Relationships and
Related Party Transactions Transactions Arising Out
of Our Organization Structure and Mr. Allens
Investment in Charter and Its Subsidiaries
Intercompany Management Arrangements.
Neil Smit is the sole director of CCH II Capital Corp.
The persons listed below are directors of Charter or CCH II
Capital Corp. as indicated.
|
|
|
Directors |
|
Position(s) |
|
|
|
Paul G. Allen
|
|
Chairman of the board of directors |
W. Lance Conn
|
|
Director of Charter |
Nathaniel A. Davis
|
|
Director of Charter |
Jonathan L. Dolgen
|
|
Director of Charter |
Rajive Johri
|
|
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, CCH II Capital Corp., President and
Chief Executive Officer of Charter and Charter Holdco |
John H. Tory
|
|
Director of Charter |
Larry W. Wangberg
|
|
Director of Charter |
The following sets forth certain biographical information with
respect to the directors listed above.
Paul G. Allen, 53, has been Chairman of
Charters board of directors since July 1999, and Chairman
of the board of directors of Charter Investment, Inc. (a
predecessor to, and currently an affiliate of, Charter) since
December 1998. Mr. Allen co-founded Microsoft Corporation
with Bill Gates in 1976 and remained the companys chief
technologist until he left Microsoft Corporation in 1983.
Mr. Allen is the founder and chairman of Vulcan Inc., a
multibillion dollar investment portfolio that includes large
stakes in DreamWorks Animation SKG, Digeo, Oxygen Media, real
estate and more than 40 other technology, media and content
companies. In 2004, Mr. Allen funded SpaceShipOne, the
first privately-funded effort to successfully put a civilian in
suborbital space and winner of the Ansari
X-Prize competition.
Mr. Allen also owns the Seattle Seahawks NFL and Portland
Trail Blazers NBA franchises. In addition, Mr. Allen is a
director of Vulcan Programming Inc., Vulcan Ventures, Vulcan
Inc., Vulcan Cable III Inc., numerous privately held
companies and, until its sale in May 2004 to an unrelated third
party, TechTV L.L.C.
W. Lance Conn, 38, was elected to the board
of directors of Charter in September 2004. Since July 2004,
Mr. Conn has served as Executive Vice President, Investment
Management for Vulcan Inc., the investment and project
management company that oversees a diverse multi-billion dollar
portfolio of investments by Paul G. Allen. Prior to joining
Vulcan Inc., Mr. Conn was employed by America Online, Inc.,
an interactive online services company, from March 1996 to May
2003. From 1997 to 2000, Mr. Conn served in various senior
business development roles at America Online. In 2000,
Mr. Conn began supervising all of America Onlines
European investments, alliances and business initiatives. In
2002, he became Senior Vice President of America Online
U.S. where he led a company-wide effort to restructure and
optimize America Onlines operations. From September 1994
until February 1996,
168
Mr. Conn was an attorney with the Shaw Pittman law firm in
Washington, D.C. Mr. Conn holds a J.D. degree
from the University of Virginia, a M.A. degree in history
from the University of Mississippi and an A.B. degree in
history from Princeton University.
Nathaniel A. Davis, 52, was elected to the board
of directors of Charter on August 23, 2005. In
July 2006, Mr. Davis became President and Chief
Operating Officer of XM Satellite Radio Holdings, Inc.
where he is also a director. Prior to that, from June 2003
until July 2006, Mr. Davis was Managing Director and
owner of RANND Advisory Group, a technology consulting group,
which advises venture capital, telecom and other technology
related firms. From January 2000 through May of 2003, he was
President and Chief Operating Officer of XO Communication,
Inc. XO Communications filed a petition to reorganize under
Chapter 11 of the Bankruptcy Code in June 2002 and
completed its restructuring and emerged from Chapter 11 in
January 2003. From October 1998 to December 1999 he was
Executive Vice President, Network and Technical Services of
Nextel Communications, Inc. Prior to that, he worked for MCI
Communications from 1982 until 1998 in a number of positions,
including as Chief Financial Officer of MCIT from November 1996
until October 1998. Previously, Mr. Davis served in a
variety of roles that include Senior Vice President of Network
Operations, Chief Operating Officer of MCImetro, Senior Vice
President of Finance and Vice President of Systems Development.
Mr. Davis holds a B.S. degree from Stevens Institute
of Technology, an M.S. degree from Moore School of
Engineering and an M.B.A. degree from the Wharton School at
the University of Pennsylvania. He is a member of the board of
Mutual of America Capital Management Corporation.
Jonathan L. Dolgen, 61, was elected to the board
of directors of Charter in October 2004. Since July 2004,
Mr. Dolgen has also been a Senior Advisor to Viacom Inc.
(Old Viacom), a worldwide entertainment and media
company, where he provided advisory services to the Chief
Executive Officer of Old Viacom, or others designated by him, on
an as requested basis. Effective December 31, 2005, Old
Viacom was separated into two publicly traded companies, Viacom
Inc. (New Viacom) and CBS Corporation. Since
the separation of Old Viacom, Mr. Dolgen provides advisory
services to the Chief Executive Officer of New Viacom, or others
designated by him, on an as requested basis. Since
July 2004, Mr. Dolgen has been a private investor and
since September 2004, Mr. Dolgen has been a principal of
Wood River Ventures, LLC, a private
start-up entity that
seeks investment and other opportunities primarily in the media
sector and seeks to provide consulting services. Mr. Dolgen
is also a member of the board of directors of Expedia, Inc. From
April 1994 to July 2004, Mr. Dolgen served as Chairman
and Chief Executive Officer of the Viacom Entertainment Group, a
unit of Old Viacom, where he oversaw various operations of Old
Viacoms businesses, which during 2003 and 2004 primarily
included the operations engaged in motion picture production and
distribution, television production and distribution, regional
theme parks, theatrical exhibition and publishing. As a result
of the separation of Old Viacom, Old Viacoms motion
picture production and distribution and theatrical exhibition
businesses became part of New Viacoms businesses, and the
remainder of Old Viacoms businesses overseen by
Mr. Dolgen remained with CBS Corporation.
Mr. Dolgen began his career in the entertainment industry
in 1976, and until joining the Viacom Entertainment Group,
served in executive positions at Columbia Pictures Industries,
Inc., Twentieth Century Fox and Fox, Inc., and Sony Pictures
Entertainment. Mr. Dolgen holds a B.S. degree from
Cornell University and a J.D. degree from New York
University.
Rajive Johri, 56, was elected to the board of
directors of Charter on April 18, 2006. Since
June 2006, Mr. Johri has served as President and
Director of First National Bank of Omaha. From September 2005 to
June 2006, he served as President of the First National
Credit Cards Center for First National Bank of Omaha. From
August 2004 to September 2005, he served as Executive
Consultant for Park Li Group in New York, NY. Prior to
that, Mr. Johri served as Executive Vice President,
Marketing for J.P. Morgan Chase Bank from September 1999
until August 2004. From 1985 to 1999, Mr. Johri was
employed by Citibank N.A. in a number of management positions.
Mr. Johri is a director for First National Bank of Nebraska
and Chairman of InfiCorp/InfiBank. Mr. Johri received a
bachelors of technology degree in Mechanical Engineering
from Indian Institute of Technology in New Delhi, India and
a M.B.A. degree in Marketing and Finance from Indian
Institute of Management in Calcutta, India.
169
Robert P. May, 57, was elected to Charters
board of directors in October 2004 and was Charters
Interim President and Chief Executive Officer from January until
August 2005. Mr. May was named Chief Executive Officer
and a director of Calpine Corporation, a power company, in
December 2005. Calpine filed for Chapter 11 bankruptcy
reorganization in December 2005. He served on the board of
directors of HealthSouth Corporation, a national provider of
healthcare services, from October 2002 until October 2005, and
was its Chairman from July 2004 until October 2005.
Mr. May also served as HealthSouth Corporations
Interim Chief Executive Officer from March 2003 until May 2004,
and as Interim President of its Outpatient and Diagnostic
Division from August 2003 to January 2004. Since March
2001, Mr. May has been a private investor and principal of
RPM Systems, which provides strategic business consulting
services. From March 1999 to March 2001, Mr. May served on
the board of directors and was Chief Executive of PNV Inc.,
a national telecommunications company. Prior to his employment
at PNV Inc., Mr. May was Chief Operating Officer and a
member of the board of directors of Cablevision Systems
Corporation from October 1996 to February 1998, and from
1973 to 1993 he held several senior executive positions with
Federal Express Corporation, including President, Business
Logistics Services. He is a member of Deutsche Bank of Americas
Advisory Board. Mr. May was educated at Curry College and
Boston College and attended Harvard Business Schools
Program for Management Development.
David C. Merritt, 52, was elected to the board of
directors of Charter in July 2003, and was also appointed
as Chairman of Charters Audit Committee at that time.
Since October 2003, Mr. Merritt has been a Managing
Director of Salem Partners, LLC, an investment banking firm. He
was a Managing Director in the Entertainment Media Advisory
Group at Gerard Klauer Mattison & Co., Inc., a company
that provided financial advisory services to the entertainment
and media industries from January 2001 through April 2003.
From July 1999 to November 2000, he served as Chief
Financial Officer of CKE Associates, Ltd., a privately held
company with interests in talent management, film production,
television production, music and new media. He also served as a
director of Laser-Pacific Media Corporation from
January 2001 until October 2003 and served as Chairman
of its audit committee. In December 2003, he became a director
of Outdoor Channel Holdings, Inc. and serves as Chairman of its
audit committee. Mr. Merritt joined KPMG in 1975 and served
in a variety of capacities during his years with the firm,
including national partner in charge of the media and
entertainment practice. Mr. Merritt was an audit and
consulting partner of KPMG for 14 years. In February 2006,
Mr. Merritt became a director of Calpine Corporation.
Mr. Merritt holds a B.S. degree in business and accounting
from California State University Northridge.
Marc B. Nathanson, 61, has been a director of
Charter since January 2000 and serves as Vice Chairman of
Charters board of directors, a non-executive position.
Mr. Nathanson is the Chairman of Mapleton Investments LLC,
an investment vehicle formed in 1999. He also founded and served
as Chairman and Chief Executive Officer of Falcon Holding Group,
Inc., a cable operator, and its predecessors, from 1975 until
1999. He served as Chairman and Chief Executive Officer of
Enstar Communications Corporation, a cable operator, from 1988
until November 1999. Prior to 1975, Mr. Nathanson held
executive positions with Teleprompter Corporation, Warner Cable
and Cypress Communications Corporation. In 1995, he was
appointed by the President of the United States to the
Broadcasting Board of Governors, and from 1998 through
September 2002, served as its Chairman. Mr. Nathanson
holds a B.A. degree in mass communications from the University
of Denver and a M.A. degree in political science from University
of California/Santa Barbara.
Jo Allen Patton, 48, has been a director of
Charter since April 2004. Ms. Patton joined Vulcan Inc. as
Vice President in 1993, and since that time she has served as an
officer and director of many affiliates of Mr. Allen,
including her current position as President and Chief Executive
Officer of Vulcan Inc. since July 2001. Ms. Patton is
also President of Vulcan Productions, an independent feature
film and documentary production company, Vice Chair of
First & Goal, Inc., which developed and operated the
Seattle Seahawks NFL stadium, and serves as Executive Director
of the six Paul G. Allen Foundations. Ms. Patton is a
co-founder of the
Experience Music Project museum, as well as the Science Fiction
Museum and Hall of Fame. Ms. Patton is the sister of
Mr. Allen.
170
Neil Smit, 47, was elected a director and
President and Chief Executive Officer of Charter on
August 22, 2005. He had previously worked at Time Warner,
Inc. since 2000, most recently serving as the President of Time
Warners America Online Access Business. He also served at
America Online (AOL) as Executive Vice President,
Member Development, Senior Vice President of AOLs product
and programming team, Chief Operating Officer of AOL Local and
Chief Operating Officer of MapQuest. Prior to that he was a
Regional President with Nabisco and was with Pillsbury in a
number of management positions. Mr. Smit has a B.S. degree
from Duke University and a M.S. degree with a focus in
international business from Tufts Universitys Fletcher
School of Law and Diplomacy.
John H. Tory, 52, has been a director of Charter
since December 2001. Mr. Tory served as the Chief Executive
Officer of Rogers Cable Inc., Canadas largest broadband
cable operator, from 1999 until 2003. From 1995 to 1999,
Mr. Tory was President and Chief Executive Officer of
Rogers Media Inc., a broadcasting and publishing company. Prior
to joining Rogers, Mr. Tory was a Managing Partner and
member of the executive committee at Tory Tory
DesLauriers & Binnington, one of Canadas largest
law firms. Mr. Tory serves on the board of directors of
Rogers Telecommunications Limited and Cara Operations Limited
and is Chairman of Cara Operations Audit Committee.
Mr. Tory was educated at University of Toronto Schools,
Trinity College (University of Toronto) and Osgoode Hall Law
School. Effective September 18, 2004, Mr. Tory was
elected Leader of the Ontario Progressive Conservative Party. On
March 17, 2005, he was elected a Member of the Provincial
Parliament and on March 29, 2005, became the Leader of Her
Majestys Loyal Opposition.
Larry W. Wangberg, 64, has been a director of
Charter since January 2002. Since July 2002,
Mr. Wangberg has been an independent business consultant.
From August 1997 to May 2004, Mr. Wangberg was a
director of TechTV L.L.C., a cable television network controlled
by Mr. Allen. He also served as its Chairman and Chief
Executive Officer from August 1997 through July 2002.
In May 2004, TechTV L.L.C. was sold to an unrelated party.
Prior to joining TechTV L.L.C., Mr. Wangberg was Chairman
and Chief Executive Officer of StarSight Telecast Inc., an
interactive navigation and program guide company which later
merged with Gemstar International, from 1994 to 1997.
Mr. Wangberg was Chairman and Chief Executive Officer of
Times Mirror Cable Television and Senior Vice President of its
corporate parent, Times Mirror Co., from 1983 to 1994. He
currently serves on the boards of Autodesk Inc. and ADC
Telecommunications, Inc. Mr. Wangberg holds a
B.S. degree in mechanical engineering and a
M.S. degree in industrial engineering, both from the
University of Minnesota.
Board of Directors and Committees of the Board of
Directors
Charters board of directors meets regularly throughout the
year on a set schedule. The board may also hold special meetings
and act by written consent from time to time if necessary.
Meetings of the independent members of the board occur from time
to time. Management is not present at these meetings.
Charters board of directors delegates authority to act
with respect to certain matters to board committees whose
members are appointed by the board. As of December 31, 2005
the following were the committees of Charters board of
directors: Audit Committee, Financing Committee, Compensation
Committee, Executive Committee, Strategic Planning Committee,
and a Special Committee for matters related to the CC VIII
put dispute.
Charters Audit Committee, which has a written charter
approved by the board, consists of Nathaniel Davis, Rajive Johri
and David Merritt, all of whom are believed to be independent in
accordance with the applicable corporate governance listing
standards of the Nasdaq Global Market. Charters board of
directors has determined that, in its judgment, David Merritt is
an audit committee financial expert within the meaning of the
applicable federal regulations.
Director Compensation
Each non-employee member of Charters board receives an
annual retainer of $40,000 in cash plus restricted stock,
vesting one year after the date of grant, with a value on the
date of grant of $50,000. In
171
addition, Charters Audit Committee chair receives
$25,000 per year, and the chair of each other committee
receives $10,000 per year. Prior to February 22, 2005,
all committee members also received $1,000 for attendance at
each committee meeting. Beginning on February 22, 2005 each
director also receives $1,000 for telephonic attendance at each
meeting of the full board and $2,000 for
in-person attendance.
Each director of Charter is entitled to reimbursement for costs
incurred in connection with attendance at board and committee
meetings. Vulcan has informed us that, in accordance with its
internal policy, Mr. Conn turns over to Vulcan all cash
compensation he receives for his participation on Charters
board of directors or committees thereof.
Directors who were employees did not receive additional
compensation in 2004 or 2005. Messrs. Vogel and Smit, who
were Charters President and Chief Executive Officer in
2005, were the only directors who were also employees during
2005. Mr. May, who was Charters Interim President and
Chief Executive Officer from January 2005 until
August 2005, was not an employee. However, he received fees
and a bonus pursuant to an agreement. See
Employment Arrangements and Related
Agreements.
Charters Bylaws provide that all directors are entitled to
indemnification to the maximum extent permitted by law from and
against any claims, damages, liabilities, losses, costs or
expenses incurred in connection with or arising out of the
performance by them of their duties for Charter or its
subsidiaries.
Executive Officers
The following persons are executive officers of Charter and
other than Mr. Allen, also hold similar positions with
Charter Holdco, CCHC, Charter Holdings, CCH II, LLC,
CCH II Capital Corp. and Charter Operating:
|
|
|
Executive Officers |
|
Position |
|
|
|
Paul G. Allen
|
|
Chairman of the Board of Directors |
Neil Smit
|
|
President and Chief Executive Officer |
Michael J. Lovett
|
|
Executive Vice President and Chief Operating Officer |
Jeffrey T. Fisher
|
|
Executive Vice President and Chief Financial Officer |
Grier C. Raclin
|
|
Executive Vice President, General Counsel and Corporate Secretary |
Marwan Fawaz
|
|
Executive Vice President and Chief Technical Officer |
Robert A. Quigley
|
|
Executive Vice President and Chief Marketing Officer |
Sue Ann R. Hamilton
|
|
Executive Vice President, Programming |
Lynne F. Ramsey
|
|
Senior Vice President, Human Resources |
Kevin D. Howard
|
|
Vice President and Chief Accounting Officer |
Information regarding our executive officers who do not serve as
directors is set forth below.
Michael J. Lovett, 45, Executive Vice President
and Chief Operating Officer. Mr. Lovett was promoted to his
current position in April 2005. Prior to that he served as
Executive Vice President, Operations and Customer Care from
September 2004 through March 2005, and as Senior Vice
President, Midwest Division Operations and as Senior Vice
President of Operations Support, since joining Charter in
August 2003 until September 2004. Mr. Lovett was
Chief Operating Officer of Voyant Technologies, Inc., a voice
conferencing hardware and software solutions provider, from
December 2001 to August 2003. From November 2000
to December 2001, he was Executive Vice President of
Operations for OneSecure, Inc., a startup company delivering
management/monitoring of firewalls and virtual private networks.
Prior to that, Mr. Lovett was Regional Vice President at
AT&T from June 1999 to November 2000 where he was
responsible for operations. Mr. Lovett was Senior Vice
President at Jones Intercable from October 1989 to
172
June 1999 where he was responsible for operations in nine
states. Mr. Lovett began his career in cable television at
Centel Corporation where he held a number of positions.
Mr. Lovett serves on the board of directors for Conversant
Communications and Digeo, Inc.
Jeffrey T. Fisher, 44, Executive Vice President
and Chief Financial Officer. Mr. Fisher was appointed to
the position of Executive Vice President and Chief Financial
Officer, effective February 6, 2006. Prior to joining
Charter, Mr. Fisher was employed by Delta Airlines, Inc.
from 1998 to 2006 in a number of positions including Senior Vice
President Restructuring from September 2005
until January 2006, President and General Manager of Delta
Connection, Inc. from January to September 2005, Chief
Financial Officer of Delta Connection from 2001 until
January 2005, Vice President of Finance, Marketing and
Sales Controller of Delta Airlines in 2001 and Vice President of
Financial Planning and Analysis of Delta Airlines from 2000 to
2001. Delta Airlines filed a petition under Chapter 11 of
the Bankruptcy Code on September 14, 2005. Mr. Fisher
received a B.B.M. degree from Embry Riddle University and a
M.B.A. degree in International Finance from University of
Texas in Arlington, Texas.
Grier C. Raclin, 53, Executive Vice President,
General Counsel and Corporate Secretary. Mr. Raclin joined
Charter in his current position in October 2005. Prior to
joining Charter, Mr. Raclin had served as the Chief Legal
Officer and Corporate Secretary of Savvis Communications
Corporation from January 2003 until October 2005. Prior to
joining Savvis, Mr. Raclin served as Executive Vice
President, Chief Administrative Officer, General Counsel and
Corporate Secretary from 2000 to 2002 and as Senior Vice
President of Corporate Affairs, General Counsel and Corporate
Secretary from 1997 to 2000 of Global TeleSystems Inc.
(GTS). In 2001, GTS filed, in pre-arranged
proceedings, a petition for surseance (moratorium),
offering a composition, in The Netherlands and a petition under
Chapter 11 of the United States Bankruptcy Code, both in
connection with the sale of the company to KPNQwest. Prior to
joining GTS, Mr. Raclin was Vice-Chairman and a Managing
Partner of Gardner, Carton and Douglas in Washington, D.C.
Mr. Raclin earned a J.D. degree from Northwestern
University Law School, where he served on the Editorial Board of
the Northwestern University Law School Law Review, attended
business school at the University of Chicago Executive Program
and earned a B.S. degree from Northwestern University,
where he was a member of Phi Beta Kappa.
Marwan Fawaz, 43, Executive Vice President and
Chief Technical Officer. Mr. Fawaz joined Charter in his
current position on August 1, 2006. Prior to that, he
served as Senior Vice President and Chief Technical Officer for
Adelphia Communications Corporation (Adelphia) from
March 2003 until July 2006. Adelphia filed a petition under
Chapter 11 of the Bankruptcy Code in June 2002. From
May 2002 to March 2003, he served as Investment
Specialist/Technology Analyst for Vulcan, Inc. Mr. Fawaz
served as Regional Vice President of Operations for the
Northwest Region for Charter from July 2001 to March 2002.
From July 2000 to Dec 2000, he served as Chief Technology
Officer for Infinity Broadband. He served as Vice
President Engineering and Operations at MediaOne,
Inc. from January 1996 to June 2000. Mr. Fawaz
received a B.S. degree in electrical engineering and a M.S.
in electrical/communication-engineering from California State
University Long Beach.
Robert A. Quigley, 62, Executive Vice President
and Chief Marketing Officer. Mr. Quigley joined Charter in
his current position in December 2005. Prior to joining
Charter, Mr. Quigley was President and CEO at Quigley
Consulting Group, LLC, a private consulting group, from April
2005 to December 2005. From March 2004 to March 2005, he
was Executive Vice President of Sales and Marketing at Cardean
Education Group (formerly UNext com LLC), a private online
education company. From February 2000 to March 2004,
Mr. Quigley was Executive Vice President of America Online
and Chief Operating Officer of its Consumer Marketing division.
Prior to America Online, he was owner, President and CEO of
Wordsquare Publishing Co. from July 1994 to February 2000.
Mr. Quigley is a graduate of Wesleyan University with a
B.A. degree in history and is a member of the Direct
Marketing Association board of directors.
Sue Ann R. Hamilton, 45, Executive Vice President,
Programming. Ms. Hamilton joined Charter as Senior Vice
President of Programming in March 2003 and was promoted to her
current position in April 2005. From March 1999 to
November 2002, Ms. Hamilton served as Vice President
of Programming for
173
AT&T Broadband, L.L.C. Prior to that, from October 1993
to March 1999, Ms. Hamilton held numerous management
positions at AT&T Broadband, L.L.C. and Tele-Communications,
Inc. (TCI), which was acquired by AT&T Broadband, L.L.C. in
1999. Prior to her cable television career with TCI, she was a
partner with Kirkland & Ellis representing domestic and
international clients in complex commercial transactions and
securities matters. A magna cum laude graduate of Carleton
College in Northfield, Minnesota, Ms. Hamilton received a
J.D. degree from Stanford Law School, where she was
Associate Managing Editor of the Stanford Law Review and
Editor of the Stanford Journal of International Law.
Lynne F. Ramsey, 48, Senior Vice President, Human
Resources. Ms. Ramsey joined Charters Human Resources
group in March 2001, serving as Corporate Vice President, Human
Resources and was promoted to Senior Vice President in
July 2004. Before joining Charter, Ms. Ramsey was
Executive Vice President of Human Resources for Broadband
Infrastructure Group from March 2000 through November 2000. From
1994 to 1999, Ms. Ramsey served as Senior Vice President of
Human Resources for Firstar Bank, previously Mercantile Bank of
St. Louis. She served as Vice President of Human Resources
for United Postal Savings, where she worked from 1982 through
1994, at which time it was acquired by Mercantile Bank of
St. Louis. Ms. Ramsey received a bachelors
degree in Education from Maryville College and a masters
degree in Human Resources Management from Washington University
in St. Louis.
Kevin D. Howard, 37, Vice President and Chief
Accounting Officer. Mr. Howard was promoted to his current
position in April 2006. Prior to that, he served as Vice
President of Finance from April 2003 until April 2006 and as
Director of Financial Reporting since joining Charter in April
2002. Mr. Howard began his career at Arthur Andersen LLP in
1993 where he held a number of positions in the audit division
prior to leaving in April 2002. Mr. Howard received a
B.S.B.A. degree in finance and economics from the University of
Missouri Columbia and is a certified public
accountant, certified managerial accountant and certified in
financial management.
Compensation Committee Interlocks and Insider
Participation
At the beginning of 2005, Mr. Lillis and Mr. Merritt
served as the Option Plan Committee which administered the 1999
Charter Communications Option Plan and the Charter
Communications, Inc. 2001 Stock Incentive Plan and the
Compensation Committee consisted of Messrs. Allen, Lillis
and Nathanson. The Option Plan Committee and the Compensation
Committee merged in February 2005 and the committee then
consisted of Messrs. Allen, Merritt and Nathanson.
Mr. May joined the committee in August 2005. The
Compensation Committee is currently comprised of
Messrs. Allen, May, Merritt and Nathanson.
No member of Charters Compensation Committee or its Option
Plan Committee was an officer or employee of Charter or any of
its subsidiaries during 2005, except for Mr. Allen who
served as a non-employee chairman of the Compensation Committee
and Mr. May who served in a non-employee capacity as
Interim President and Chief Executive Officer from January 2005
until August 2005. Mr. May joined the Compensation
Committee in August 2005 after his service as Interim President
and Chief Executive Officer. Also, Mr. Nathanson was an
officer of certain subsidiaries of Charter prior to their
acquisition by Charter in 1999 and held the title of Vice
Chairman of Charters board of directors, a non-executive,
non-salaried position in 2005. Mr. Allen is the 100% owner
and a director of Vulcan Inc. and certain of its affiliates,
which employs Mr. Conn and Ms. Patton as executive
officers. Mr. Allen also was a director of and indirectly
owned 98% of TechTV, of which Mr. Wangberg, one of
Charters directors, was a director until the sale of
TechTV to an unrelated third party in May 2004. Transactions
between Charter and members of the Compensation Committee are
more fully described in Director
Compensation and in Certain Relationships and
Related Party Transactions Other Miscellaneous
Relationships.
During 2005, (1) none of Charters executive officers
served on the compensation committee of any other company that
has an executive officer currently serving on Charters
board of directors, Compensation Committee or Option Plan
Committee and (2) none of Charters executive officers
served as a director of another entity, one of whose executive
officers served on the Compensation Committee or
174
Option Plan Committee, except for Carl Vogel who served as a
director of Digeo, Inc., an entity of which Paul Allen is a
director and by virtue of his position as Chairman of the board
of directors of Digeo, Inc. is also a non-employee executive
officer. Mr. Lovett was appointed a director of Digeo, Inc.
in December 2005.
Summary Compensation Table
The following table sets forth information as of
December 31, 2005 regarding the compensation of those
executive officers listed below for services rendered for the
fiscal years ended December 31, 2003, 2004 and 2005. These
officers consist of the three individuals who served as Chief
Executive Officer and each of the other four most highly
compensated executive officers as of December 31, 2005.
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Long-Term | |
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Annual Compensation | |
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Compensation Award | |
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Restricted | |
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Securities | |
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Year | |
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Other Annual | |
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Stock | |
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Underlying | |
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All Other | |
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Ended | |
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Salary | |
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Bonus | |
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Compensation | |
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Awards | |
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Options | |
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Compensation | |
Name and Principal Position |
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Dec. 31 | |
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($) | |
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($) | |
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($) | |
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($) | |
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(#) | |
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($)(1) | |
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Neil Smit(2)
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2005 |
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415,385 |
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1,200,000 |
(9) |
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3,278,500 |
(21) |
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3,333,333 |
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23,236 |
(28) |
President and Chief |
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2004 |
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Executive Officer |
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2003 |
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Robert P. May(3)
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2005 |
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839,000 |
(10) |
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1,360,239 |
(16) |
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180,000 |
(22) |
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Former Interim President |
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2004 |
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10,000 |
(16) |
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50,000 |
(22) |
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and Chief Executive Officer |
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2003 |
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Carl E. Vogel(4)
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2005 |
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115,385 |
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1,428 |
(17) |
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1,697,451 |
(29) |
Former President and Chief |
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2004 |
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1,038,462 |
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500,000 |
(11) |
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38,977 |
(17) |
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4,729,400 |
(23) |
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580,000 |
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3,239 |
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Executive Officer |
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2003 |
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1,000,000 |
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150,000 |
(12) |
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40,345 |
(17) |
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750,000 |
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3,239 |
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Michael J. Lovett(5)
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2005 |
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516,153 |
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377,200 |
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14,898 |
(18) |
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265,980 |
(24) |
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216,000 |
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59,013 |
(30) |
Executive Vice President |
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2004 |
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291,346 |
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241,888 |
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7,797 |
(18) |
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355,710 |
(24) |
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172,000 |
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6,994 |
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and Chief Operating Officer |
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2003 |
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81,731 |
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60,000 |
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2,400 |
(18) |
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100,000 |
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1,592 |
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Paul E. Martin(6)
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2005 |
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350,950 |
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299,017 |
(13) |
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52,650 |
(25) |
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83,700 |
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7,047 |
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Senior Vice President, |
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2004 |
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193,173 |
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25,000 |
(13) |
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269,100 |
(25) |
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77,500 |
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6,530 |
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Interim Chief Financial |
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2003 |
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167,308 |
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14,000 |
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4,048 |
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Officer, Principal
Accounting Officer and
Corporate Controller |
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Wayne H. Davis(7)
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2005 |
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409,615 |
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184,500 |
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108,810 |
(26) |
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145,800 |
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3527 |
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Executive Vice President |
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2004 |
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269,231 |
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61,370 |
(14) |
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435,635 |
(26) |
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135,000 |
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2,278 |
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and Chief Technical Officer |
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2003 |
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212,885 |
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47,500 |
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581 |
(19) |
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225,000 |
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436 |
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Sue Ann R. Hamilton(8)
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2005 |
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362,700 |
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152,438 |
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107,838 |
(27) |
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145,000 |
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6,351 |
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Executive Vice President |
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2004 |
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346,000 |
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13,045 |
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245,575 |
(27) |
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90,000 |
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3,996 |
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Programming |
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2003 |
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225,000 |
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231,250 |
(15) |
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4,444 |
(20) |
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200,000 |
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1,710 |
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(1) |
Except as noted in notes 28 through 30 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. |
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(2) |
Mr. Smit joined Charter on August 22, 2005 in his
current position. |
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(3) |
Mr. May served as Interim President and Chief Executive
Officer from January 2005 through August 2005. |
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(4) |
Mr. Vogel resigned from all of his positions with Charter
and its subsidiaries on January 17, 2005. |
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(5) |
Mr. Lovett joined Charter in August 2003 and was promoted
to his current position in April 2005. |
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(6) |
Mr. Martin resigned from all of his positions with Charter
and its subsidiaries on April 3, 2006. |
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(7) |
Mr. Davis resigned from all of his positions with Charter
and its subsidiaries on March 23, 2006. |
175
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(8) |
Ms. Hamilton joined Charter in March 2003 and was promoted
to her current position in April 2005. |
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(9) |
Pursuant to his employment agreement, Mr. Smit received a
$1,200,000 bonus for 2005. |
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(10) |
This bonus was paid pursuant to Mr. Mays Executive
Services Agreement. See Employment Arrangements and
Related Agreements. |
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(11) |
Mr. Vogels 2004 bonus was a mid-year discretionary
bonus. |
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(12) |
Mr. Vogels 2003 bonus was determined in accordance
with the terms of his employment agreement. |
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(13) |
Includes (i) for 2005, Mr. Martins bonus
included a guarantee bonus of $50,000 for Mr. Martins
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. |
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(14) |
Mr. Davis 2004 bonus included a $50,000 discretionary
bonus. |
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(15) |
Ms. Hamiltons 2003 bonus included a $150,000 signing
bonus. |
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(16) |
Includes (i) for 2005, $1,177,885 as compensation for
services of Mr. May as Interim President and Chief
Executive Officer pursuant to his Executive Services Agreement
(see Employment Arrangements and Related
Agreements), $67,000 as compensation for services as a
director on Charters 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 Mr. Mays Executive Services Agreement,
and (ii) for 2004, compensation for services as a director
on Charters board of directors. |
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(17) |
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. |
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(18) |
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. |
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(19) |
Amount attributed to personal use of the corporate airplane. |
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(20) |
Amount attributed to personal use of the corporate airplane. |
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(21) |
Pursuant to his employment agreement, Mr. Smit received
1,250,000 restricted shares in August 2005, which will vest on
the first anniversary of the grant date and 1,562,500 restricted
shares in August 2005, which will vest over three years in equal
one-third installments. See Employment Arrangements and
Related Agreements. At December 31, 2005, the value
of all of Mr. Smits unvested restricted stock
holdings was $3,431,250, based on a per share market value
(closing sale price) of $1.22 for the Class A Common Stock
on December 31, 2005. |
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(22) |
Includes (i) for 2005, 100,000 restricted shares granted in
April 2005 under our 2001 Stock Incentive Program for
Mr. Mays 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 Program for
Mr. Mays annual director grant which vest on the
first anniversary of the grant date, and (ii) for 2004,
19,685 restricted shares granted in October 2004 under our 2001
Stock Incentive Program for Mr. Mays annual director
grant, which vested on the first anniversary of the grant date
in October 2005. At December 31, 2005, the value of all of
Mr. Mays unvested restricted stock holdings was
$49,593, based on a per share market value (closing sale price)
of $1.22 for the Class A Common Stock on December 31,
2005. |
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(23) |
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 Mr. Vogel 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 |
176
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date only if Charter met 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 and
Related Agreements, Mr. Vogels options and
remaining restricted stock vested until December 31, 2005,
and all vested options were 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 Mr. Vogels unvested restricted
stock holdings was $0. |
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(24) |
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 our 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 Mr. Lovetts unvested restricted stock holdings
(including performance shares) was $356,972, based on a per
share market value (closing sale price) of $1.22 for the
Class A Common Stock on December 31, 2005. |
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(25) |
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 were to 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 Mr. Martin 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. At
December 31, 2005, the value of all of
Mr. Martins unvested restricted stock holdings
(including performance shares) was $112,661, based on a per
share market value (closing sale price) of $1.22 for the
Class A Common Stock on December 31, 2005. |
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(26) |
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 Mr. Davis 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
Mr. Daviss unvested restricted stock holdings
(including performance shares) was $204,797, based on a per
share market value (closing sale price) of $1.22 for the
Class A Common Stock on December 31, 2005. |
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(27) |
These restricted shares consist of 83,700 and 47,500 performance
shares granted in 2005 and 2004 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
Ms. Hamiltons unvested restricted stock holdings
(including performance shares) was $160,064 based on a per share
market value (closing sale price) of $1.22 for the Class A
Common Stock on December 31, 2005. |
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(28) |
In addition to items in Note 1 above, includes $19,697
attributed to reimbursement for taxes (on a grossed
up basis) paid in respect of prior reimbursements for
relocation expenses. |
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(29) |
In addition to items in Note 1 above, includes accrued
vacation at time of termination and severance payments pursuant
to Mr. Vogels separation agreement (See
Employment Arrangements and Related
Agreements). |
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(30) |
In addition to items in Note 1 above, includes $51,223
attributed to reimbursement for taxes (on a grossed
up basis) paid in respect of prior reimbursements for
relocation expenses. |
2005 Option Grants
The following table shows individual grants of options made to
individuals named in the Summary Compensation Table during 2005.
All such grants were made under the 2001 Stock Incentive Plan
and the exercise price was based upon the fair market value of
our Class A Common Stock on the respective grant dates.
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Potential Realizable Value at | |
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Number of | |
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% of Total | |
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Assumed Annual Rate of | |
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Securities | |
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Options | |
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Stock Price Appreciation For | |
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Underlying | |
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Granted to | |
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Exercise | |
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Option Term(2) | |
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Options | |
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Employees | |
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Price | |
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Expiration | |
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Name |
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Granted (#)(1) | |
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in 2005 | |
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Date | |
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5% ($) | |
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10% ($) | |
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|
| |
|
| |
|
| |
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
The following table sets forth, for the individuals named in the
Summary Compensation Table, (i) information concerning
options exercised during 2005, (ii) the number of shares of
the Class A Common Stock underlying unexercised options at
year-end 2005, and (iii) the value of unexercised
in-the-money
options (i.e., the positive spread between the exercise
price of outstanding options and the market value of the
Class A Common Stock) on December 31, 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities | |
|
|
|
|
|
|
|
|
Underlying Unexercised | |
|
Value of Unexercised | |
|
|
|
|
|
|
Options at December 31, | |
|
In-the-Money Options at | |
|
|
Shares | |
|
|
|
2005 (#)(1) | |
|
December 31, 2005 ($)(2) | |
|
|
Acquired on | |
|
Value | |
|
| |
|
| |
Name |
|
Exercise (#) | |
|
Realized ($) | |
|
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(4)
|
|
|
|
|
|
|
|
|
|
|
143,125 |
|
|
|
193,075 |
|
|
|
|
|
|
|
|
|
Wayne H. Davis(5)
|
|
|
|
|
|
|
|
|
|
|
176,250 |
|
|
|
379,550 |
|
|
|
|
|
|
|
|
|
Sue Ann R. Hamilton
|
|
|
|
|
|
|
|
|
|
|
122,500 |
|
|
|
312,500 |
|
|
|
|
|
|
|
|
|
178
|
|
(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 the Class A
Common Stock upon exercise of the option. Options granted under
the 2001 Stock Incentive Plan and after 2000 are exercisable for
shares of the Class A Common Stock. |
|
(2) |
Based on a per share market value (closing price) of $1.22 as of
December 31, 2005 for the Class A Common Stock. |
|
(3) |
Mr. Vogels 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 were exercisable for sixty (60) days thereafter. |
|
(4) |
Mr. Martins employment terminated on April 3,
2006. Under the terms of his January 9, 2006 retention
agreement, his options continue to vest until September 2,
2007, and all vested options are exercisable until sixty
(60) days thereafter. |
|
(5) |
Mr. Davis employment terminated on March 23,
2006. Under the terms of his separation agreement, his options
continue to vest until September 30, 2007, and all vested
options are exercisable until sixty (60) days thereafter. |
Long-Term Incentive Plans Awards in Last Fiscal
Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Future Payouts of Shares | |
|
|
Number of | |
|
|
|
Under Non-Stock Price-Based Plans | |
|
|
Shares, Units or | |
|
Performance or Other Period | |
|
| |
Name |
|
Other Rights | |
|
Until Maturation or Payout | |
|
Threshold | |
|
Target | |
|
Maximum | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Neil Smit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert P. May
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carl E. Vogel
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael J. Lovett
|
|
|
|
|
|
|
1 year performance cycle |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
129,600 |
|
|
|
3 year vesting |
|
|
|
90,720 |
|
|
|
129,600 |
|
|
|
259,200 |
|
Paul E. Martin
|
|
|
|
|
|
|
1 year performance cycle |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,500 |
|
|
|
3 year vesting |
|
|
|
28,350 |
|
|
|
40,500 |
|
|
|
81,000 |
|
Wayne H. Davis
|
|
|
83,700 |
|
|
|
1 year performance cycle |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 year vesting |
|
|
|
58,590 |
|
|
|
83,700 |
|
|
|
167,400 |
|
Sue Ann R. Hamilton
|
|
|
83,700 |
|
|
|
1 year performance cycle |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 year vesting |
|
|
|
58,590 |
|
|
|
83,700 |
|
|
|
167,400 |
|
Option/ Stock Incentive Plans
The Plans. We have granted stock options,
restricted stock and other incentive compensation under two
plans the 1999 Charter Communications Option Plan
and the 2001 Stock Incentive Plan. The 1999 Charter
Communications Option Plan provided for the grant of options to
purchase membership units in Charter Holdco to current and
prospective employees and consultants of Charter Holdco and its
affiliates and to our current and prospective non-employee
directors. Membership units received upon exercise of any
options are immediately exchanged for shares of the Class A
Common Stock on a one-for-one basis.
The 2001 Stock Incentive Plan provides for the grant of
non-qualified stock options, stock appreciation rights, dividend
equivalent rights, performance units and performance shares,
share awards, phantom stock and shares of restricted stock
(currently not to exceed 20,000,000 shares) as each term is
defined in the 2001 Stock Incentive Plan. Employees, officers,
consultants and directors of Charter and its subsidiaries and
affiliates are eligible to receive grants under the 2001 Stock
Incentive Plan. Generally, options expire 10 years from the
grant date. Unless sooner terminated by our board of directors,
the 2001 Stock Incentive Plan will terminate on
February 12, 2011, and no option or award can be granted
thereafter.
179
Together, the plans allow for the issuance of up to a total of
90,000,000 shares of the Class A Common Stock (or
units exchangeable for the Class A Common Stock). Any
shares covered by options that are terminated under the 1999
Charter Communications Option Plan will be transferred to the
2001 Stock Incentive Plan, and no new options will be granted
under the 1999 Charter Communications Option Plan. At
December 31, 2005, 1,317,520 shares had been issued
under the plans upon exercise of options, 825,725 had been
issued upon vesting of restricted stock granted under the plans,
and 4,252,570 shares were subject to future vesting under
restricted stock agreements. Of the remaining
83,604,185 shares covered by the plans, as of
December 31, 2005, 29,126,744 were subject to outstanding
options (34% of which were vested), and there were 11,719,032
performance shares granted under Charters Long-Term
Incentive Program as of December 31, 2005, to vest on the
third anniversary of the date of grant conditional upon
Charters performance against certain financial targets
approved by Charters board of directors at the time of the
award. As of December 31, 2005, 42,758,409 shares
remained available for future grants under the plans. As of
December 31, 2005, there were 5,341 participants in the
plans.
The plans authorize the repricing of options, which could
include reducing the exercise price per share of any outstanding
option, permitting the cancellation, forfeiture or tender of
outstanding options in exchange for other awards or for new
options with a lower exercise price per share, or repricing or
replacing any outstanding options by any other method.
Long-Term Incentive Program. In January 2004, the
Compensation Committee of our board of directors approved our
Long-Term Incentive Program (the LTIP) which is a
program administered under the 2001 Stock Incentive Plan. Under
the LTIP, employees of Charter and its subsidiaries whose pay
classifications exceed a certain level are eligible to receive
stock options, and more senior level employees were eligible to
receive stock options and performance shares. The stock options
vest 25% on each of the first four anniversaries of the date of
grant. The performance shares vest on the third anniversary of
the date of grant, conditional upon our performance against
financial performance measures established by our management and
approved by the board of directors or Compensation Committee as
of the time of the award. Charter granted 3.2 million
performance shares in 2005 under this program except that the
2005 performance share grants are based on a one-year
performance cycle. We recognized expense of $1 million in
the first three quarters of 2005. However, in the fourth quarter
of 2005, we reversed the entire $1 million of expense based
on our assessment of the probability of achieving the financial
performance measures established by management and required to
be met for the performance shares to vest. In February 2006,
Charters Compensation Committee approved achievement of
the financial performance measures required for the 2005
performance shares to vest at a level of 86.25%. Management
believes that approximately 2.5 million of the performance
shares are likely to vest. As such, expense of approximately
$3 million will be amortized over the remaining two year
service period.
The 2001 Stock Incentive Plan must be administered by, and
grants and awards to eligible individuals must be approved by,
our board of directors or a committee thereof consisting solely
of non-employee directors as defined in
Section 16b-3
under the Securities Exchange Act of 1934, as amended. The board
of directors or such committee determines the terms of each
stock option grant, restricted stock grant or other award at the
time of grant, including the exercise price to be paid for the
shares, the vesting schedule for each option, the price, if any,
to be paid by the grantee for the restricted stock, the
restrictions placed on the shares, and the time or times when
the restrictions will lapse. The board of directors or such
committee also has the power to accelerate the vesting of any
grant or extend the term thereof.
Upon a change of control of Charter, the board of directors or
the administering committee can shorten the exercise period of
any option, have the survivor or successor entity assume the
options with appropriate adjustments, or cancel options and pay
out in cash. If an optionees or grantees employment
is terminated without cause or for good
reason following a change in control (as those
terms are defined in the plans), unless otherwise provided in an
agreement, with respect to such optionees or
grantees awards under the plans, all outstanding options
will become immediately and fully exercisable, all outstanding
stock appreciation rights will become immediately and fully
exercisable, the restrictions on the outstanding restricted
stock will lapse, and all of the outstanding performance shares
will vest and the
180
restrictions on all of the outstanding performance shares will
lapse as if all performance objectives had been satisfied at the
maximum level.
February 2004 Option Exchange. In January 2004, we
offered employees of Charter and its subsidiaries the right to
exchange all stock options (vested and unvested) under the 1999
Charter Communications Option Plan and 2001 Stock Incentive Plan
that had an exercise price over $10 per share for shares of
restricted Charter Class A Common Stock or, in some
instances, cash. Based on a sliding exchange ratio, which varied
depending on the exercise price of an employees
outstanding options, if an employee would have received more
than 400 shares of restricted stock in exchange for
tendered options, we issued to that employee shares of
restricted stock in the exchange. If, based on the exchange
ratios, an employee would have received 400 or fewer shares of
restricted stock in exchange for tendered options, we instead
paid to the employee cash in an amount equal to the number of
shares the employee would have received multiplied by $5.00. The
offer applied to options to purchase a total of
22,929,573 shares of Class A Common Stock, or
approximately 48% of our 47,882,365 total options (vested and
unvested) issued and outstanding as of December 31, 2003.
Participation by employees was voluntary. Non-employee members
of the board of directors of Charter or any of its subsidiaries
were not eligible to participate in the exchange offer.
In the closing of the exchange offer on February 20, 2004,
we accepted for cancellation eligible options to purchase
approximately 18,137,664 shares of Class A Common
Stock. In exchange, we granted approximately
1,966,686 shares of restricted stock, including 460,777
performance shares to eligible employees of the rank of senior
vice president and above, and paid a total cash amount of
approximately $4 million (which amount includes applicable
withholding taxes) to those employees who received cash rather
than shares of restricted stock. The restricted stock was
granted on February 25, 2004. Employees tendered
approximately 79% of the options eligible to be exchanged under
the program.
The cost of the stock option exchange program was approximately
$10 million, with a 2004 cash compensation expense of
approximately $4 million and a non-cash compensation
expense of approximately $6 million to be expensed ratably
over the three-year vesting period of the restricted stock
issued in the exchange.
The participation of the named executive officers in this
exchange offer is reflected in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market | |
|
|
|
|
|
|
|
|
|
|
Number of | |
|
Price of | |
|
Exercise | |
|
|
|
|
|
|
|
|
Securities | |
|
Stock at | |
|
Price at | |
|
New | |
|
Length of Original | |
|
|
|
|
Underlying | |
|
Time of | |
|
Time of | |
|
Exercise | |
|
Option Term | |
|
|
|
|
Options | |
|
Exchange | |
|
Exchange | |
|
Price | |
|
Remaining at Date | |
Name |
|
Date | |
|
Exchanged | |
|
($) | |
|
($) | |
|
($) | |
|
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 |
|
|
Former Senior Vice President, |
|
|
|
|
|
|
50,000 |
|
|
|
4.37 |
|
|
|
11.99 |
|
|
|
|
|
|
|
7 years 7 months |
|
|
Principal Accounting Officer |
|
|
|
|
|
|
40,000 |
|
|
|
4.37 |
|
|
|
15.03 |
|
|
|
|
|
|
|
6 years 3 months |
|
|
and Corporate Controller |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wayne H. Davis
|
|
|
2/25/04 |
|
|
|
40,000 |
|
|
|
4.37 |
|
|
|
23.09 |
|
|
|
(3) |
|
|
|
7 years 0 months |
|
|
Former Executive Vice President |
|
|
|
|
|
|
40,000 |
|
|
|
4.37 |
|
|
|
12.27 |
|
|
|
|
|
|
|
7 years 11 months |
|
|
and 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 date of grant. On
the grant date, the price of our 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 |
181
|
|
|
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 Charters 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 Charters common stock was $4.37. |
2005 Executive Cash Award Plan
On June 9, 2005, we adopted the 2005 Executive Cash Award
Plan to provide additional incentive to, and retain the services
of, certain officers of Charter and its subsidiaries, to achieve
the highest level of individual performance and contribute to
the success of Charter. Eligible participants are employees of
Charter or any of its subsidiaries who have been recommended by
the CEO and designated and approved as Plan participants by the
Compensation Committee Charters board of directors. At the
time the Plan was adopted, the interim CEO recommended and the
Compensation Committee designated and approved as Plan
participants the permanent President and Chief Executive Officer
position (when filled), Executive Vice President positions and
selected Senior Vice President positions.
The Plan provides that each participant be granted an award
which represents an opportunity to receive cash payments in
accordance with the Plan. An award will be credited in book
entry format to a participants account in an amount equal
to 100% of a participants base salary on the date of Plan
approval in 2005 and 20% of participants base salary in
each year 2006 through 2009, based on that participants
base salary as of May 1 of the applicable year. The Plan
awards will vest at the rate of 50% of the plan award balance at
the end of 2007 and 100% of the plan award balance at the end of
2009. Participants will be entitled to receive payment of the
vested portion of the award if the participant remains employed
by Charter continuously from the date of the participants
initial participation through the end of the calendar year in
which his or her award becomes vested, subject to payment of
pro-rated award balances to a participant who terminates due to
death or disability or in the event we elect to terminate the
Plan.
A participants eligibility for, and right to receive, any
payment under the Plan (except in the case of intervening death)
is conditioned upon the participant first executing and
delivering to Charter an agreement releasing and giving up all
claims that participant may have against Charter and related
parties arising out of or based upon any facts or conduct
occurring prior to the payment date, and containing additional
restrictions on post-employment use of confidential information,
non-competition and nonsolicitation and recruitment of customers
and employees.
In April 2006, the Plan was revised to accommodate new
participants who become eligible for the Plan beginning in April
2006 through December 2006. For those new participants, an award
will be credited in book entry format to a participants
account in an amount equal to 100% of a participants base
salary on the date of eligibility approval or hire in 2006 and
20% of participants base salary in each year 2007 through
2010, based on that participants base salary as of
May 1 of the applicable year. The Plan awards will vest at
the rate of 50% of the plan award balance at the end of 2008 and
100% of the Plan award balance at the end of 2010. All other
terms and conditions remain the same.
Employment Arrangements and Related Agreements
Charter and Neil Smit entered into an agreement as of
August 9, 2005 whereby Mr. Smit will serve as
Charters President and Chief Executive Officer (the
Employment Agreement) for a term expiring on
December 31, 2008, and Charter may extend the agreement for
an additional two years by giving Mr. Smit written notice
of its intent to extend not less than six months prior to the
expiration of the Employment Agreement (Mr. Smit has the
right to reject the extension within a certain time period as
set forth in the Employment Agreement). Under the Employment
Agreement, Mr. Smit will receive a $1,200,000 base salary
per year, through the third anniversary of the Employment
Agreement, and thereafter $1,440,000 per year for the
remainder of the Employment Agreement. Mr. Smit shall be
eligible
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to receive a performance-based target bonus of 125% of
annualized salary, with a maximum bonus of 200% of annualized
salary, as determined by the Compensation Committee of
Charters board of directors. However, for 2005 only, he
received a minimum bonus of $1,200,000, provided only that he
was employed by Charter on December 31, 2005. Under
Charters Long-Term Incentive Plan, he received options to
purchase 3,333,333 shares of Class A Common Stock,
exercisable for 10 years, with annual vesting of one-third
of the grant in each of the three years from his employment
date; a performance share award for a maximum of
4,123,720 shares of Class A Common Stock, to be earned
during a three-year performance cycle starting January 2006; and
a restricted stock award of 1,562,500 shares of
Class A Common Stock, with annual vesting over three years
following his employment date. In addition, Mr. Smit
received another restricted stock award for
1,250,000 shares of Class A Common Stock which will
vest on the first anniversary of his employment date.
Mr. Smit received full reimbursement for his relocation
expenses and will receive employee benefits consistent with
those made generally available to other senior executives. In
the event that Mr. Smit is terminated by Charter without
cause or for good reason termination, as
those terms are defined in the Employment Agreement, he will
receive the greater of two times base salary or salary through
the remainder to the term of the Employment Agreement; a pro
rata bonus for the year of termination; full vesting of options
and restricted shares; vesting of performance stock if targets
are achieved; and a lump sum payment equal to twelve months of
COBRA payments. The Employment Agreement contains non-compete
provisions from six months to two years, depending on the type
of termination. Charter will gross up federal taxes in the event
that Mr. Smit is subject to any additional tax under
Section 409A of the Internal Revenue Code.
Charter entered into an agreement with Robert May, effective
January 17, 2005, whereby Mr. May served as
Charters Interim President and Chief Executive Officer
(the May Executive Services Agreement). Under the
May Executive Services Agreement, Mr. May received a
$1,250,000 base fee per year. Mr. May continued to receive
the compensation and reimbursement of expenses to which he was
entitled in his capacity as a member of Charters board of
directors. The May Executive Services Agreement provided that
Charter would provide equity incentives commensurate with his
position and responsibilities, as determined by Charters
board of directors. Accordingly, Mr. May was granted
100,000 shares of restricted stock under Charters
2001 Stock Incentive Plan. The 100,000 restricted shares vested
on the date on which Mr. Mays interim service as
President and Chief Executive Officer terminated,
August 22, 2005. Mr. May served as an independent
contractor and was not entitled to any vacation or eligible to
participate in any employee benefit programs of Charter. Charter
reimbursed Mr. May for reasonable transportation costs from
Mr. Mays residence in Florida or other locations to
Charters offices and provided temporary living quarters or
reimbursed expenses related thereto. The May Executive Services
Agreement was terminated effective December 31, 2005 and
upon termination of the Agreement, Mr. May was eligible for
a bonus payment. On January 5, 2006, Charter paid him a
bonus of $750,000, with the possibility that such bonus would be
increased by an additional percentage. In February 2006,
Charters Compensation Committee approved an additional
bonus of approximately $88,900 for Mr. May.
Charter and Michael Lovett entered into an employment agreement,
effective as of February 28, 2006 (the Lovett
Agreement), whereby Mr. Lovett will serve as its
Executive Vice President and Chief Operating Officer at a salary
of $700,000 per year which is to be reviewed annually, and
will perform such duties and responsibilities set forth in the
Lovett Agreement. The Lovett Agreement amends, supersedes and
replaces Mr. Lovetts prior employment agreement dated
March 31, 2005. The term of the Agreement is three years
from the effective date and will be reviewed and considered for
extension at 18-month
intervals during Mr. Lovetts employment. Under the
Lovett Agreement, Mr. Lovett will be entitled to receive
cash bonus payments in an amount per year targeted at 100% of
salary in accordance with the senior management plan and to
participate in all employee benefit plans that are offered to
other senior executives. Mr. Lovett received a grant of
150,000 restricted shares of Class A Common Stock on the
effective date of the Lovett Agreement, which will vest in equal
installments over a three-year period from employment date; an
award of 300,000 restricted shares of Class A Common Stock
on the first anniversary
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of the Lovett Agreement, vesting in equal installments over a
three-year period; an award of options to purchase
432,000 shares of Class A Common Stock under terms of
Charters 2001 Stock Incentive Plan on the effective date
of the Lovett Agreement; an award of options to purchase
864,000 shares of Class A Common Stock under the terms
of the 2001 Stock Incentive Plan on the first anniversary of the
Lovett Agreement; an award of 259,200 performance shares under
the 2001 Stock Incentive Plan on the effective date of the
Lovett Agreement and will be eligible to earn these shares over
a performance cycle from January 2006 to December 2006; and an
award of 518,400 performance shares under the 2001 Stock
Incentive Plan on the first anniversary of the Lovett Agreement
and will be eligible to earn these shares over a three-year
performance cycle January 2007-December 2009.
If terminated other than for cause, as such term is
defined in the Lovett Agreement, prior to March 31, 2007,
Mr. Lovett will receive relocation expenses to the city of
his choice in the 48 contiguous states in accordance with
Charters relocation policy. In the event that
Mr. Lovett is terminated by Charter without
cause, for good reason or by
Mr. Lovett within 60 days following a change in
control, as those terms are defined in the Lovett
Agreement, Mr. Lovett will receive his salary for the
remainder of the term of the Lovett Agreement; a pro rata bonus
for the year of termination; and the immediate vesting of
options, restricted stock and performance shares. The Lovett
Agreement also contains a two-year non-solicitation clause.
As of January 20, 2006, Charter entered into an employment
agreement with Jeffrey Fisher, Executive Vice President and
Chief Executive Officer (the Fisher Agreement). The
Fisher Agreement provides that Mr. Fisher will serve in an
executive capacity as its Executive Vice President at a salary
of $500,000, to perform such executive, managerial and
administrative duties as are assigned or delegated by the
President and/or Chief Executive Officer, including but not
limited to serving as Chief Financial Officer. The term of the
Fisher Agreement is two years from the effective date. Under the
Fisher Agreement, Mr. Fisher received a signing bonus of
$100,000 and he shall be eligible to receive a performance-based
target bonus of up to 70% of salary and to participate in the
Long-Term Incentive Plan and to receive such other employee
benefits as are available to other senior executives.
Mr. Fisher will participate in the 2005 Executive Cash
Award Plan commencing in 2006 and, in addition, Charter will
provide the same additional benefit to Mr. Fisher that he
would have been entitled to receive under the Plan if he had
participated in the Plan at the time of its inception in 2005.
He also received a grant of 50,000 restricted shares of
Class A Common Stock, which will vest in equal installments
over a three-year period from his employment date; an award of
options to purchase 1,000,000 shares of Class A Common
Stock under terms of the 2001 Stock Incentive Plan on the
effective date of the Fisher Agreement; and in the first quarter
of 2006, an award of additional options to purchase
145,800 shares of Class A Common Stock under the 2001
Stock Incentive Plan. Those options shall vest in equal
installments over a four-year time period from the grant date.
In addition, in the first quarter of 2006, he received 83,700
performance shares under the 2001 Stock Incentive Plan and will
be eligible to earn these shares over a three-year performance
cycle from January 2006 to December 2008.
Mr. Fisher received relocation assistance pursuant to
Charters executive homeowner relocation plan and the costs
for temporary housing. In the event that Mr. Fisher is
terminated by Charter without cause or for
good reason, as those terms are defined in the
Fisher Agreement, Mr. Fisher will receive his salary for
the remainder of the term of the agreement or twelve
months salary, whichever is greater; a pro rata bonus for
the year of termination; a lump sum payment equal to payments
due under COBRA for the greater of twelve months or the number
of full months remaining in the term of the agreement; and the
vesting of options and restricted stock for as long as severance
payments are made. The Fisher Agreement contains a one-year
non-compete provision (or until the end of the term of the
Fisher Agreement, if longer) and a two-year non-solicitation
clause.
Until his employment terminated on March 23, 2006, Wayne
Davis was employed as Executive Vice President and Chief
Technical Officer. On April 5, 2006, Charter entered into
an agreement with Mr. Davis governing the terms and
conditions of his resignation as an officer and employee of
Charter, effective March 23, 2006 (the Separation
Agreement). Under the terms of the Separation Agreement,
Mr. Davis will receive the amount of base salary,
calculated at an annual rate of $450,000 from March 23,
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2006 until September 30, 2007, (the Separation
Term), which will be paid over the remainder of the
Separation Term in equal bi-weekly installments on
Charters regular pay days for executives. These payments
will be made in accordance with section 409A of the
Internal Revenue Code. Mr. Davis will be eligible for a
prorated amount of incentive compensation for 2006 based on the
period from January 1, 2006 and his termination date of
March 23, 2006. This amount will be payable no later than
April 1, 2007. Mr. Davis received a lump sum payment
equal to 18 times the monthly cost, at the time of termination,
for paid coverage for health, dental and vision benefits under
COBRA. Any stock options and restricted stock previously granted
to Mr. Davis will continue to vest during the remainder of
the Separation Term. Mr. Davis agreed to abide by the
non-disparagement provision in the Separation Agreement and
released Charter from any claims arising out of or based upon
any facts occurring prior to the date of the Separation
Agreement. Mr. Davis has also agreed that he will continue
to be bound by the non-competition, non-interference and
non-disclosure provisions contained in his September 7,
2005 employment agreement.
On April 5, 2006, Charter entered into a consulting
agreement with Mr. Davis governing the terms and conditions
for his services as an independent consultant to Charter,
effective March 23, 2006 (the Consulting
Agreement). Mr. Davis will serve as an independent
consultant for Charter providing such professional, executive
and administrative duties, directives and assignments as may
reasonable by assigned to him by the Chief Executive Officer,
Chief Operating Officer or their designee, from March 24,
2006 until April 28, 2006 or such later date designated by
Charter (the Consulting Period). Mr. Davis
received $45,000 in return for his services through
April 28, 2006, which was paid on the regular Charter pay
period for executives following April 28, 2006. If Charter
requests Mr. Davis services after April 28,
2006, Mr. Davis will be paid at a rate of $1,730 per
day for each worked thereafter, which he will receive on the
next regular Charter pay period for executives immediately
following the last day of service. Mr. Davis payments
as an independent consultant are separate from the payments he
will receive pursuant to his Separation Agreement. During the
Consulting Period, Mr. Davis will be reimbursed for
reasonable expenses incurred at Charters request in
connection with his consulting activities, including but not
limited to reasonable travel, lodging and entertainment
expenses. Since Mr. Davis will not be an employee of
Charter, he agrees that he will not be eligible for programs
applicable to an employee of Charter, such as incentive, bonus
and benefit plans, vacation, sick or paid leave and 401(k).
Mr. Davis agrees that the confidentiality and
non-disclosure obligations contained in his Separation Agreement
and his employment agreement will extend during his Consulting
Period.
On September 7, 2005, Charter entered into an employment
agreement with Mr. Davis, then Executive Vice President and
Chief Technical Officer. The agreement provided that
Mr. Davis be employed in an executive capacity to perform
such duties as were assigned or delegated by the President and
Chief Executive Officer or the designee thereof, at a salary of
$450,000. The term of this agreement was two years from the date
of the agreement. Mr. Davis was eligible to participate in
Charters Long-Term Incentive Plan, 2001 Stock
Incentive Plan and to receive such employee benefits as are
available to other senior executives. In the event that he was
terminated by Charter without cause or for
good reason, as those terms are defined in the
agreement, he would receive his salary for the remainder of the
term of the agreement or twelve months salary, whichever
was greater; a pro rata bonus for the year of termination; a
lump sum payment equal to payments due under COBRA for the
greater of twelve months or the number of full months remaining
in the term of the agreement; and the vesting of options and
restricted stock for as long as severance payments are made. The
agreement contains one-year, non-compete provisions (or until
the end of the term of the agreement, if longer) in a
Competitive Business, as such term is defined in the agreement,
and two-year non-solicitation clauses.
Until his resignation in April 2006, Paul Martin was employed as
Senior Vice President, Principal Accounting Officer and
Corporate Controller. Upon resignation, the termination terms of
his retention agreement went into effect. Effective
January 9, 2006, Charter entered into a retention agreement
with Mr. Martin, in which Mr. Martin agreed to remain
as Interim Chief Financial Officer until at least March 31,
2006 or such time as Charter reassigns or terminates his
employment, whichever occurs first (the Termination
Date). On the Termination Date, Charter paid
Mr. Martin a special retention bonus
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in a lump sum of $116,200. This special retention bonus was in
addition to any amounts due to Mr. Martin under the 2005
Executive Bonus Plan and to any other severance amounts, set
forth below. Mr. Martin will not participate in any
executive incentive or bonus plan for 2006 unless otherwise
agreed to by the parties. In addition, pursuant to this
agreement, Charter would treat (a) any termination of
Mr. Martins employment by Charter without cause, and
other than due to death or disability, as such latter term is
defined in his previously-executed employment agreement, after
January 1, 2006, and (b) any termination by
Mr. Martin of his employment for any reason after
April 1, 2006 (including voluntary resignation), as if his
employment terminated without cause and Charter would pay as
severance to Mr. Martin an amount calculated pursuant to
his employment agreement on the basis of his base salary as
Controller and without regard to any additional compensation he
had been receiving as Interim Chief Financial Officer. He also
received three months of outplacement assistance at a level and
from a provider selected by Charter in its sole discretion.
On September 2, 2005, Charter entered into an employment
agreement with Mr. Martin. The agreement provides that
Mr. Martin would be employed in an executive capacity to
perform such duties as are assigned or delegated by the
President and Chief Executive Officer or the designee thereof,
at a salary of $240,625. The term of this agreement was two
years from the date of the agreement. Mr. Martin was
eligible to participate in Charters Long-Term Incentive
Plan, 2001 Stock Incentive Plan and to receive such employee
benefits as available to other senior executives. In the event
that he was terminated by Charter without cause or
for good reason, as those terms are defined in the
agreement, he would receive his salary for the remainder of the
term of the agreement or twelve months salary, whichever
was greater; a pro rata bonus for the year of termination; a
lump sum payment equal to payments due under COBRA for the
greater of twelve months or the number of full months remaining
in the term of the agreement; and the vesting of options and
restricted stock for as long as severance payments are made. The
agreement contained one-year, non-compete provisions (or until
the end of the term of the agreement, if longer) in a
Competitive Business, as such term is defined in the agreement,
and two-year non-solicitation clauses.
Effective April 15, 2005, Charter also entered into an
agreement governing the terms of the service of Mr. Martin
as Interim Chief Financial Officer. Under the terms of the
agreement, Mr. Martin received approximately $13,700 each
month for his service in the capacity of Interim Chief Financial
Officer until a permanent Chief Financial Officer was employed.
Under the agreement, Mr. Martin was also be eligible to
receive an additional bonus opportunity of up to approximately
$13,600 per month served as Interim Chief Financial
Officer, payable in accordance with Charters 2005
Executive Bonus Plan. The amounts payable to Mr. Martin
under the agreement were in addition to all other amounts
Mr. Martin received for his services in his capacity as
Senior Vice President, Principal Accounting Officer and
Corporate Controller. In addition, Mr. Martin received an
additional special bonus of $50,000 for his service as Interim
co-Chief Financial Officer prior to April 15, 2005. This
amount was in addition to the bonus agreed upon in 2004 for his
service in that capacity through March 31, 2005.
On October 31, 2005, Charter entered into an employment
agreement with Sue Ann Hamilton, Executive Vice President,
Programming. The agreement provides that Ms. Hamilton shall
be employed in an executive capacity to perform such duties as
are assigned or delegated by the President and Chief Executive
Officer or the designee thereof, at a salary of $371,800. The
term of this agreement is two years from the date of the
agreement. She shall be eligible to participate in
Charters incentive bonus plan that applies to senior
executives, the 2001 Stock Incentive Plan and to receive such
employee benefits as are available to other senior executives.
In the event that Ms. Hamiltons employment is
terminated by Charter without cause or for
good reason, as those terms are defined in the
employment agreement, Ms. Hamilton will receive her salary
for the remainder of the term of the agreement or twelve
months salary, whichever is greater; a pro rata bonus for
the year of termination; a lump sum payment equal to payments
due under COBRA for the greater of twelve months or the number
of full months remaining in the term of the agreement; and the
vesting of options and restricted stock for as long as severance
payments are made. The employment agreement contains a one-year
non-compete provision (or until the
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end of the term of the agreement, if longer) in a Competitive
Business, as such term is defined in the agreement, and two-year
non-solicitation clauses.
On November 14, 2005, Charter executed an employment
agreement with Grier Raclin, effective as of October 10,
2005. The agreement provides that Mr. Raclin shall be
employed in an executive capacity as Executive Vice President
and General Counsel with management responsibility for
Charters legal affairs, governmental affairs, compliance
and regulatory functions and to perform such other legal,
executive, managerial and administrative duties as are assigned
or delegated by the Chief Executive Officer or the equivalent
position, at a salary of $425,000, to be reviewed on an annual
basis. The agreement also provides for a one time signing bonus
of $200,000, the grant of 50,000 restricted shares of
Class A Common Stock, an option to purchase
100,000 shares of Class A Common Stock under the 2001
Stock Incentive Plan, an option to purchase 145,800 shares
of Class A Common Stock under the Long-Term Incentive
portion of the 2001 Stock Incentive Plan, and 62,775 performance
shares under the 2001 Stock Incentive Plan. He shall be eligible
to participate in the incentive bonus plan, the 2005 Executive
Cash Award Plan and to receive such other employee benefits as
are available to other senior executives. The term of this
agreement is two years from the effective date of the agreement.
In the event that Mr. Raclins employment is
terminated by Charter without cause or by
Mr. Raclin for good reason, as those terms are
defined in the employment agreement, Mr. Raclin will
receive (a) if such termination occurs before the first
scheduled payout of the executive cash award plan (unless that
failure is due to his failure to execute the required related
agreement) or at any time within one year after a change of
control as defined in the agreement, two (2) times his
salary or (b) if such termination occurs at any other time,
his salary for the remainder of the term of the agreement or
twelve months salary, whichever is greater; a pro rata
bonus for the year of termination; a lump sum payment equal to
payments due under COBRA for the greater of twelve months or the
number of full months remaining in the term of the agreement;
and the vesting of options and restricted stock for as long as
severance payments are made. The employment agreement contains a
one-year non-compete provision (or until the end of the term of
the agreement, if longer) in a Competitive Business, as such
term is defined in the agreement, and a two-year
non-solicitation clause. Mr. Raclin is entitled to
relocation assistance pursuant to Charters executive
homeowner relocation plan and the costs for temporary housing
until he consummates the purchase of a home in the
St. Louis area or August 16, 2006, whichever occurs
first.
On August 1, 2006, Charter executed an employment agreement
with Mr. Fawaz. The agreement provides that Mr. Fawaz
will serve in an executive capacity as its Executive Vice
President at a salary of $450,000, to perform such executive,
managerial and administrative duties as are assigned or
delegated by the President and/or Chief Executive Officer,
including but not limited to serving as Chief Technology
Officer. The term of the employment agreement is two years from
the effective date. Under the employment agreement,
Mr. Fawaz will receive a signing bonus of $100,000 and he
shall be eligible to receive a performance-based target bonus of
up to 70% of salary and to participate in the LTIP and to
receive such other employee benefits as are available to other
senior executives. Mr. Fawaz will participate in the 2005
Executive Cash Award Plan, as amended, commencing in 2006, which
will provide the same benefit to Mr. Fawaz that he would
have been entitled to receive under the Cash Award Plan if he
had participated in the Plan at the time of the inception of the
Plan in 2005, only with cash awards made one-year later. He will
also receive a grant of 50,000 restricted shares of Class A
Common Stock, vesting in equal installments over a three-year
period from effective date and an award of options to purchase
300,000 shares of Class A Common Stock under terms of
the stock incentive plan on the effective date of the Employment
Agreement, which will vest in equal installments over a
four-year time period from the grant date. In addition, on the
effective date, he will receive 133,741 performance shares under
the stock incentive plan and will be eligible to earn these
shares over a one-year performance cycle to vest at the end of a
three-year vesting period. In the event that
Mr. Fawazs employment is terminated by Charter
without cause or for good reason, as
those terms are defined in the employment agreement,
Mr. Fawaz will receive his salary for the remainder of the
term of the agreement or twelve months salary, whichever
is greater; a pro rata bonus for the year of termination; a lump
sum payment equal to payments due under COBRA for the greater of
twelve months or the number of full months remaining in the term
of the agreement; and the vesting of options and restricted
stock for as long as severance payments are
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made. The employment agreement contains a one-year non-compete
provision (or until the end of the term of the agreement, if
longer) and a two-year non-solicitation clause.
On December 9, 2005, Charter executed an employment
agreement with Robert Quigley. The agreement provides that
Mr. Quigley shall be employed in an executive capacity to
perform such executive, managerial and administrative duties as
are assigned or delegated by the President and Chief Executive
Officer or the designee thereof, at a salary of $450,000. He
shall be eligible to participate in the incentive bonus plan,
the 2001 Stock Incentive Plan and to receive such other employee
benefits as are available to other senior executives. The term
of this agreement is two years from the effective date of the
agreement. In the event that Mr. Quigleys employment
is terminated by Charter without cause or by
Mr. Quigley for good reason, as those terms are
defined in the employment agreement, Mr. Quigley will
receive his salary for the remainder of the term of the
agreement or twelve months salary, whichever is greater; a
pro rata bonus for the year of termination; a lump sum payment
equal to payments due under COBRA for the greater of twelve
months or the number of full months remaining in the term of the
agreement; and the vesting of options and restricted stock for
as long as severance payments are made. The employment agreement
contains a one-year non-compete provision (or until the end of
the term of the agreement, if longer) in a Competitive Business,
as such term is defined in the agreements, and two-year
non-solicitation clauses. In addition, at the time of his
employment, Charter agreed to pay him a signing bonus of
$200,000 deferred until January 2006; grant options to purchase
145,800 shares of Class A Common Stock under our 2001
Stock Incentive Plan; 83,700 performance shares under our 2001
Stock Incentive Plan; and 50,000 shares of restricted stock
which will vest over a three year period.
Until his resignation in January 2005, Carl Vogel was employed
as President and Chief Executive Officer, earning a base annual
salary of $1,000,000 and was eligible to receive an annual bonus
of up to $500,000, a portion of which was based on personal
performance goals and a portion of which was based on
Charters performance measured against criteria established
by the board of directors of Charter with Mr. Vogel.
Pursuant to his employment agreement, Mr. Vogel was granted
3,400,000 options to purchase Class A Common Stock and
50,000 shares of restricted stock under our 2001 Stock
Incentive Plan. In the February 2004 option exchange,
Mr. Vogel exchanged his 3,400,000 options for
340,000 shares of restricted stock and 340,000 performance
shares. Mr. Vogels initial 50,000 restricted shares
vested 25% on the grant date, with the remainder vesting in 36
equal monthly installments beginning December 2002. The
340,000 shares of restricted stock were to vest over a
three-year period, with one-third of the shares vesting on each
of the first three anniversaries of the grant date. The 340,000
performance shares were to vest at the end of a three-year
period if certain financial criteria were met.
Mr. Vogels agreement provided that, if Mr. Vogel
is terminated without cause or if Mr. Vogel terminated the
agreement for good reason, he would be entitled to his aggregate
base salary due during the remainder of the term and full
prorated benefits and bonus for the year in which termination
occurs. Mr. Vogels agreement included a covenant not
to compete for the balance of the initial term or any renewal
term, but no more than one year in the event of termination
without cause or by Mr. Vogel with good reason.
Mr. Vogels agreement entitled him to participate in
any disability insurance, pensions or other benefit plans
afforded to employees generally or to our executives, including
our LTIP. We agreed to reimburse Mr. Vogel annually for the
cost of term life insurance with a death benefit in the amount
of $5 million, although he declined this reimbursement in
2003, 2004 and 2005. Mr. Vogel was entitled to
reimbursement of fees and dues for his membership in a country
club of his choice, which he declined in 2003, 2004 and 2005,
and reimbursement for up to $10,000 per year for tax, legal
and financial planning services. His agreement also provided for
a car and associated expenses for Mr. Vogels use.
Mr. Vogels agreement provided for automatic one-year
renewals and also provided that we would cause him to be elected
to our board of directors without any additional compensation.
In February 2005, Charter entered into an agreement with
Mr. Vogel setting forth the terms of his resignation. Under
the terms of the agreement, Mr. Vogel received in February
2005 all accrued and unpaid base salary and vacation pay through
the date of resignation and a lump sum payment equal to the
remainder of his base salary during 2005 (totaling $953,425). In
addition, he received a lump sum cash
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payment of approximately $358,000 in January 2006, which
represented the agreed-upon payment of $500,000 reduced to the
extent of compensation attributable to certain competitive
activities.
Mr. Vogel continued to receive certain health benefits
during 2005 and will receive COBRA premiums for such health
insurance coverage for 18 months thereafter. All of his
outstanding stock options, as well as his restricted stock
granted in 2004 (excluding 340,000 shares of restricted
stock granted as performance units, which were
automatically forfeited), continued to vest through
December 31, 2005. In addition, one-half of the remaining
unvested portion of his 2001 restricted stock grant vested upon
the effectiveness of the agreement and the other half was
forfeited. Mr. Vogel had 60 days after
December 31, 2005 to exercise any outstanding vested stock
options. Under the agreement, Mr. Vogel waived any further
right to any bonus or incentive plan participation and provided
certain releases of claims against Charter and its subsidiaries
from any claims arising out of or based upon any facts occurring
prior to the date of the agreement, but Charter will continue to
provide Mr. Vogel certain indemnification rights and to
include Mr. Vogel in its director and officer liability
insurance for a period of six years. Charter and its
subsidiaries also agreed to provide releases of certain claims
against Mr. Vogel with certain exceptions reserved.
Mr. Vogel also agreed, with limited exceptions that he will
continue to be bound by the covenant not to compete,
confidentiality and non-disparagement provisions contained in
his 2001 employment agreement.
In addition to the indemnification provisions which apply to all
employees under Charters Bylaws, Mr. Vogels
agreement provides that we will indemnify and hold him harmless
to the maximum extent permitted by law from and against any
claims, damages, liabilities, losses, costs or expenses in
connection with or arising out of the performance by him of his
duties. The above agreement also contains confidentiality and
non-solicitation provisions.
We have established separation guidelines which generally apply
to all employees in situations where management determines that
an employee is entitled to severance benefits. Severance
benefits are granted solely in managements discretion and
are not an employee entitlement or guaranteed benefit. The
guidelines provide that persons employed at the level of Senior
Vice President may be eligible to receive between six and
fifteen months of severance benefits. Currently, all Executive
Vice Presidents have employment agreements with Charter which
provide for specific separation arrangements ranging from the
payment of twelve to twenty-four months of severance benefits.
Separation benefits are contingent upon the signing of a
separation agreement containing certain provisions including a
release of all claims against us. Severance amounts paid under
these guidelines are distinct and separate from any one-time,
special or enhanced severance programs that may be approved by
us from time to time.
Our senior executives are eligible to receive bonuses according
to our 2005 Executive Bonus Plan. Under this plan, our executive
officers and certain other management and professional employees
are eligible to receive an annual bonus. Each participating
employee would receive his or her target bonus if Charter (or
such employees division) meets specified performance
measures for revenues, operating cash flow, un-levered free cash
flow and customer satisfaction.
Limitation of Directors Liability and Indemnification
Matters
The Restated Certificate of Incorporation of Charter limits the
liability of directors to the maximum extent permitted by
Delaware law. The Delaware General Corporation Law provides that
a corporation may eliminate or limit the personal liability of a
director for monetary damages for breach of fiduciary duty as a
director, except for liability for:
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(1) any breach of the directors duty of loyalty to
the corporation and its shareholders; |
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(2) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; |
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(3) unlawful payments of dividends or unlawful stock
purchases or redemptions; or |
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(4) any transaction from which the director derived an
improper personal benefit. |
189
Charters Bylaws provide that we will indemnify all persons
whom we may indemnify pursuant thereto to the fullest extent
permitted by law.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or
persons controlling us pursuant to the foregoing provisions, we
have been informed that in the opinion of the SEC, such
indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
We have reimbursed certain of our current and former directors,
officers and employees in connection with their defense in
certain legal actions. See Certain Relationships and
Related Party Transactions Other Miscellaneous
Relationships Indemnification Advances.
Potential Sale of Restricted Shares by Mr. Smit
Mr. Neil Smit, our President and Chief Executive Officer owns
3,278,500 shares of Class A common stock subject to
restrictions. On August 22, 2006, restrictions on 1,770,834 of
such shares lapse and as a result of such lapse, Mr. Smit will
have a taxable event based upon the fair market value of the
shares of Class A Common Stock on which such restrictions
lapse on such date. Mr. Smit has expressed an intention, in
order to fund such tax liability, to sell shares in the open
market on or about such date in an amount sufficient to pay that
liability.
190
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information regarding
beneficial ownership of the Class A Common Stock as of
June 30, 2006 by:
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each current director of Charter; |
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the current chief executive officer and individuals named in the
Summary Compensation Table; |
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all persons currently serving as directors and officers of
Charter, as a group; and |
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each person known by us to own beneficially 5% or more of
outstanding Class A Common Stock as of June 30, 2006. |
With respect to the percentage of voting power set forth in the
following table:
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each holder of Class A Common Stock is entitled to one vote
per share; and |
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each holder of 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. |
The 50,000 shares of Class B common stock owned by
Mr. Allen represents 100% of the outstanding Class B
shares.
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Class A Shares | |
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% of | |
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Number of | |
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Unvested | |
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Receivable on | |
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Class B | |
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Class A | |
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Class A | |
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Restricted | |
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Exercise of | |
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Shares | |
|
Shares | |
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|
Shares | |
|
Class A | |
|
Vested Options | |
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Issuable upon | |
|
(Voting and | |
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% of | |
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(Voting and | |
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Shares | |
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or Other | |
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Number of | |
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Exchange or | |
|
Investment | |
|
Voting | |
Name and Address |
|
Investment | |
|
(Voting Power | |
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Convertible | |
|
Class B | |
|
Conversion of | |
|
Power) | |
|
Power | |
of Beneficial Owner |
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Power)(1) | |
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Only)(2) | |
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Securities(3) | |
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Shares Owned | |
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Units(4) | |
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(4)(5) | |
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(5)(6) | |
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Paul G. Allen(7)
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29,165,526 |
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10,000 |
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50,000 |
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365,550,939 |
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49.10 |
% |
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90.00 |
% |
Charter Investment, Inc.(8)
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249,237,766 |
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36.24 |
% |
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* |
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Vulcan Cable III Inc.(9)
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116,313,173 |
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20.96 |
% |
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* |
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Neil Smit
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1,770,834 |
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1,041,666 |
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1,111,111 |
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* |
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* |
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Robert P. May
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119,685 |
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40,650 |
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* |
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* |
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W. Lance Conn
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19,231 |
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32,072 |
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* |
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* |
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Nathaniel A. Davis
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43,215 |
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* |
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* |
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Jonathan L. Dolgen
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19,685 |
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40,650 |
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* |
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* |
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Rajive Johri
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18,137 |
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* |
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* |
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David C. Merritt
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64,768 |
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* |
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* |
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Marc B. Nathanson
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464,768 |
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50,000 |
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* |
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* |
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Jo Allen Patton
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51,300 |
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14,744 |
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* |
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* |
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John H. Tory
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69,068 |
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40,000 |
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* |
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* |
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Larry W. Wangberg
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67,768 |
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40,000 |
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* |
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* |
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Michael J. Lovett
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24,387 |
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200,000 |
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194,500 |
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* |
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* |
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Sue Ann R. Hamilton
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219,300 |
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* |
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* |
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All current directors, director nominees and executive officers
as a group (19 persons)
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31,881,426 |
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1,538,902 |
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1,767,086 |
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50,000 |
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365,550,939 |
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49.74 |
% |
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90.11 |
% |
Carl E. Vogel(10)
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158,126 |
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* |
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* |
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Wayne Davis(11)
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1,642 |
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1,333 |
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312,700 |
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* |
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* |
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Paul Martin(12)
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9,659 |
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2,869 |
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224,675 |
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* |
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* |
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Steelhead Partners(13)
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37,621,030 |
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8.58 |
% |
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* |
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191
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Class A Shares | |
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% of | |
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Number of | |
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Unvested | |
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Receivable on | |
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Class B | |
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Class A | |
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|
Class A | |
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Restricted | |
|
Exercise of | |
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|
Shares | |
|
Shares | |
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|
|
|
Shares | |
|
Class A | |
|
Vested Options | |
|
|
|
Issuable upon | |
|
(Voting and | |
|
% of | |
|
|
(Voting and | |
|
Shares | |
|
or Other | |
|
Number of | |
|
Exchange or | |
|
Investment | |
|
Voting | |
Name and Address |
|
Investment | |
|
(Voting Power | |
|
Convertible | |
|
Class B | |
|
Conversion of | |
|
Power) | |
|
Power | |
of Beneficial Owner |
|
Power)(1) | |
|
Only)(2) | |
|
Securities(3) | |
|
Shares Owned | |
|
Units(4) | |
|
(4)(5) | |
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(5)(6) | |
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| |
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| |
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| |
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| |
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J-K Navigator Fund, L.P.(13)
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22,067,209 |
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5.03 |
% |
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* |
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James Michael Johnston(13)
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30,284,630 |
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6.91 |
% |
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* |
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Brian Katz Klein(13)
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30,284,630 |
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6.91 |
% |
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* |
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FMR Corp.(14)
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52,487,788 |
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11.97 |
% |
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1.37 |
% |
Fidelity Management & Research Company(14)
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14,961,471 |
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31,231,402 |
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9.83 |
% |
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1.20 |
% |
Edward C. Johnson 3d(14)
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52,487,788 |
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11.97 |
% |
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1.37 |
% |
Kingdon Capital Management, LLC(15)
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24,236,312 |
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5.53 |
% |
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* |
|
Wellington Management Company, LLC(16)
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21,985,377 |
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|
|
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5.01 |
% |
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|
* |
|
|
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(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. |
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(2) |
Includes unvested shares of restricted stock issued under the
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 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). |
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(3) |
Includes shares of Class A Common Stock issuable upon
exercise of options that have vested or will vest on or before
August 29, 2006 under the 1999 Charter Communications
Option Plan and the 2001 Stock Incentive Plan. |
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(4) |
Beneficial ownership is determined in accordance with
Rule 13d-3 under
the Exchange Act. The beneficial owners at June 30, 2006 of
Class B common stock, Charter Holdco membership units and
Charters convertible senior notes 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 June 30, 2006
for 26,418,908 Charter Holdco units. See Certain
Relationships and Related Party Transactions
Transactions Arising Out of Our Organizational Structure and
Mr. Allens Investment in Charter and Its
Subsidiaries Equity Put Rights
CC VIII. |
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(5) |
The calculation of this percentage assumes for each person that: |
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438,474,028 shares of Class A Common Stock are issued
and outstanding as of June 30, 2006; |
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50,000 shares of Class B common stock held by
Mr. Allen have been converted into shares of Class A
Common Stock; |
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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 |
192
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subsidiaries or conversion of Series A Convertible
Redeemable Preferred Stock or the Convertible Notes or
4.75% convertible senior notes; |
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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
August 29, 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 person pursuant to the exercise of options or otherwise. |
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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. |
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(6) |
The calculation of this percentage assumes that
Mr. Allens 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). |
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(7) |
The total listed includes: |
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|
249,237,766 membership units in Charter Holdco held by Charter
Investment, Inc.; and |
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|
116,313,173 membership units in Charter Holdco held by Vulcan
Cable III Inc. |
|
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|
The listed total excludes 26,418,908 shares of Class A
Common Stock issuable as of June 30, 2006 upon exchange of
units of Charter Holdco, which may be 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 Party
Transactions Transactions Arising Out of Our
Organizational Structure and Mr. Allens Investment in
Charter and Its Subsidiaries Equity Put
Rights CC VIII. The address of this person is:
505 Fifth Avenue South, Suite 900, Seattle, WA 98104. |
|
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(8) |
Includes 249,237,766 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. |
|
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(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. |
|
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(10) |
Mr. Vogel terminated his employment effective on
January 17, 2005. His stock options and restricted stock
continued to vest through December 31, 2005, and his
options were exercisable for 60 days thereafter. |
|
(11) |
Mr. Davis terminated his employment effective
March 23, 2006. His stock options and restricted stock
shown in this table continue to vest until September 30,
2007, and his options will be exercisable for another
60 days thereafter. |
|
(12) |
Mr. Martin terminated his employment effective
April 3, 2006. His stock options and restricted stock shown
in this table continue to vest until September 2, 2007, and
his options will be exercisable for another 60 days
thereafter. |
|
(13) |
The equity ownership reported in this table is based upon the
holders Schedule 13F filed with the SEC on
April 28, 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 |
193
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|
|
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
holders Schedule 13G/A filed with the SEC on
February 14, 2006. 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
46,192,873 shares as a result of acting as investment
adviser to various investment companies and includes:
31,231,402 shares resulting from the assumed conversion of
5.875% senior notes. Fidelity Management Trust Company, a
wholly-owned subsidiary of FMR Corp. and is a beneficial owner
of 3,066,115 shares as a result of acting as investment
adviser to various investment companies and includes:
3,066,115 shares resulting from the assumed conversion of
5.875% senior notes. Fidelity International Limited
(FIL) provides investment advisory and management
services to
non-U.S. investment
companies and certain institutional investors and is a
beneficial owner of 3,228,800 shares. FIL is a separate and
independent corporate entity from FMR Corp. Edward C. Johnson
3d, Chairman of FMR Corp. and FIL own shares of FIL voting stock
with the right to cast approximately 38% of the total votes of
FIL voting stock. Edward C. Johnson 3d, chairman of FMR Corp.,
and FMR Corp. each has sole power to dispose of
52,487,788 shares. |
|
(15) |
The equity ownership reported in this table is based upon
holders 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. |
|
(16) |
The equity ownership reported in this table is based upon
holders Schedule 13G filed with the SEC on
February 14, 2006. The address of the reporting person is:
75 State Street, Boston, MA 02109. Wellington Management
Company, LLC, in its capacity as investment adviser, may be
deemed to beneficially own 21,985,377 shares of Charter
which are held of record by clients of Wellington Management
Company, LLC. |
Securities Authorized for Issuance under Equity Compensation
Plans
The following information is provided as of December 31,
2005 with respect to equity compensation plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities | |
|
|
|
Number of Securities | |
|
|
to be Issued Upon | |
|
Weighted Average | |
|
Remaining Available | |
|
|
Exercise of Outstanding | |
|
Exercise Price of | |
|
for Future Issuance | |
|
|
Options, Warrants and | |
|
Outstanding Options, | |
|
Under Equity | |
Plan Category |
|
Rights | |
|
Warrants and 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 |
|
|
|
|
|
|
|
|
|
|
|
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TOTAL
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29,416,012 |
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|
$ |
4.46 |
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|
|
42,758,409 |
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|
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(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 upon Charters 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. |
194
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The following sets forth certain transactions in which we are
involved and in which the directors, executive officers and
affiliates of ours have or may have a material interest. The
transactions fall generally into three broad categories:
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Transactions in which Mr. Allen has an interest that
arise directly out of Mr. Allens investment in
Charter and Charter Holdco. A large number of the
transactions described below arise out of Mr. Allens
direct and indirect (through Charter Investment, Inc.
(CII), 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. |
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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. |
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Other Miscellaneous Transactions. We have a
limited number of transactions in which certain of the officers,
directors and principal stockholders of Charter and its
subsidiaries, other than Mr. Allen, have an interest. |
A number of our debt instruments and those of our subsidiaries
require delivery of fairness opinions for transactions with
Mr. Allen or his affiliates involving more than
$50 million. Such fairness opinions have been obtained
whenever required. All of our transactions with Mr. Allen
or his affiliates have been considered for approval either by
the board of directors of Charter or a committee of the board of
directors. All of our transactions with Mr. Allen or his
affiliates have been deemed by the board of directors or a
committee of the board of directors to be in our best interest.
Related party transactions are approved by our Audit Committee
in compliance with the listing requirements applicable to Nasdaq
Global Market listed companies. Except where noted below, we do
not believe that these transactions present any unusual risks
for us that would not be present in any similar commercial
transaction.
The chart below summarizes certain information with respect to
these transactions. Additional information regarding these
transactions is provided following the chart.
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Transaction |
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Interested Related Party |
|
Description of Transaction |
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Intercompany Management Arrangements |
|
Paul G. Allen |
|
Subsidiaries of Charter Communications Holdings, LLC
(Charter Holdings) paid Charter approximately
$84 million, $90 million, $128 million and
$67 million for management services rendered in 2003, 2004
and 2005 and the six months ended June 30, 2006,
respectively. |
Mutual Services Agreement |
|
Paul G. Allen |
|
Charter paid Charter Holdco approximately $73 million,
$74 million, $89 million and $52 million for
services rendered in 2003, 2004 and 2005 and the six months
ended June 30, 2006, respectively. |
Previous Management Agreement |
|
Paul G. Allen |
|
No fees were paid in 2003, 2004, 2005 or 2006, although total
management fees accrued and payable to CII, exclusive of
interest, were approximately $14 million at
December 31, 2003, 2004 and 2005 and June 30, 2006. |
195
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Transaction |
|
Interested Related Party |
|
Description of Transaction |
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Channel Access Agreement |
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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 Charter and CC VIII, 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,
$1 million and $0.6 million from TechTV under the
affiliation agreement in 2003, 2004 and 2005 and the six months
ended June 30, 2006, respectively, related to launch
incentives as a reduction of programming expense. |
Oxygen Media Corporation Carriage Agreement |
|
Paul G. Allen
W. Lance Conn
Jo Allen Patton |
|
We paid Oxygen Media approximately $9 million,
$13 million, $9 million and $4 million under a
carriage agreement in exchange for programming in 2003, 2004 and
2005 and the six months ended June 30, 2006, respectively.
We recorded approximately $1 million, $1 million,
$0.1 million and $0 in 2003, 2004 and 2005 and the six
months ended June 30, 2006, 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, $2 million and $0 as a reduction of
programming expense in 2003, 2004 and 2005 and the six months
ended June 30, 2006, respectively, in recognition of the
guaranteed value of the investment. |
196
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Transaction |
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Interested Related Party |
|
Description of Transaction |
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Portland Trail Blazers Carriage Agreement |
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Paul G. Allen |
|
We paid approximately $135,200, $96,100, $116,500 and $115,600
for rights to carry the cable broadcast of certain Trail Blazers
basketball games in 2003, 2004 and 2005 and the six months ended
June 30, 2006, 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,
$3 million and $1 million for customized development
of the i-channels and the local content tool kit in 2003, 2004
and 2005 and for the six months ended June 30, 2006,
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, $1 million
and $3 million in license and maintenance fees in 2004,
2005 and for the six months ended June 30, 2006,
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 $1 million,
$10 million and $8 million in capital purchases in
2004, 2005 and for the six months ended June 30, 2006,
respectively. |
Viacom Networks |
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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, 2004 and
2005, Charter paid Old Viacom approximately $188 million,
$194 million, $201 million, respectively, and for the
six months ended June 30, 2006, Charter paid New Viacom
$62 million and CBS Corporation $46 million for
programming, and Charter recorded as receivables approximately
$5 million, $8 million and $15 million for launch
incentives and marketing support for the years ended
December 31, 2003, 2004 and 2005, respectively. |
Payment for relatives services |
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Carl E. Vogel |
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Since June 2003, Mr. Vogels brother-in-law has been
an employee of Charter Holdco and has received a salary
commensurate with his position in the engineering department. |
197
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Transaction |
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Interested Related Party |
|
Description of Transaction |
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Radio advertising |
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Marc B. Nathanson |
|
We believe that, through a third party advertising agency, we
have paid approximately $67,300, $49,300, $67,600 and $56,500 in
2003, 2004 and 2005 and for the six months ended June 30,
2006, respectively, to Mapleton Communications, an affiliate of
Mapleton Investments, LLC. |
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, $0 and $0 in
2003, 2004 and 2005 and for the six months ended June 30,
2006, 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, $16,200 and $400 for costs incurred in
connection with litigation matters in 2003, 2004 and 2005 and
for the six months ended June 30, 2006, respectively. |
The following sets forth additional information regarding the
transactions summarized above.
Transactions Arising Out of Our Organizational Structure and
Mr. Allens Investment in Charter and Its
Subsidiaries
As noted above, a number of our related party transactions arise
out of Mr. Allens investment in Charter and its
subsidiaries. Some of these transactions are with CII and Vulcan
Ventures (both owned 100% by Mr. Allen), Charter
(controlled by Mr. Allen) and Charter Holdco (approximately
55% owned by us and 45% owned by other affiliates of
Mr. Allen). See Summary Organizational
Structure for more information regarding the ownership by
Mr. Allen and certain of his affiliates.
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Intercompany Management Arrangements |
Charter is a party to management arrangements with Charter
Holdco and certain of its subsidiaries. Under these agreements,
Charter provides management services for the cable systems owned
or operated by its subsidiaries. These management agreements
provide for reimbursement to Charter for all costs and expenses
incurred by it for activities relating to the ownership and
operation of the managed cable systems, including corporate
overhead, administration and salary expense.
The total amount paid by Charter Holdco and all of its
subsidiaries is limited to the amount necessary to reimburse
Charter for all of its expenses, costs, losses, liabilities and
damages paid or incurred by it in connection with the
performance of its services under the various management
agreements and in connection with its corporate overhead,
administration, salary expense and similar items. The expenses
subject to reimbursement include fees Charter is obligated to
pay under the mutual services agreement with CII. Payment of
management fees by Charters operating subsidiaries is
subject to certain restrictions under the credit facilities and
indentures of such subsidiaries and the indentures governing the
Charter Holdings and its subsidiaries public debt. If any
portion of the management fee due and payable is not paid, it is
deferred by Charter and accrued as a liability of such
subsidiaries. Any deferred amount of the management fee will
bear interest at the rate of 10% per year, compounded
annually, from the date it was due and payable until the date it
is paid. For the years ended December 31, 2003, 2004 and
2005 and the six months ended June 30, 2006, the
subsidiaries of Charter Holdings paid approximately
$84 million, $90 million, $128 million and
$67 million, respectively, in management fees to Charter.
198
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Mutual Services Agreement |
Charter, Charter Holdco and CII are parties to a mutual services
agreement whereby each party shall provide rights and services
to the other parties as may be reasonably requested for the
management of the entities involved and their subsidiaries,
including the cable systems owned by their subsidiaries all on a
cost-reimbursement basis. The officers and employees of each
party are available to the other parties to provide these rights
and services, and all expenses and costs incurred in providing
these rights and services are paid by Charter. Each of the
parties will indemnify and hold harmless the other parties and
their directors, officers and employees from and against any and
all claims that may be made against any of them in connection
with the mutual services agreement except due to its or their
gross negligence or willful misconduct. The mutual services
agreement expires on November 12, 2009, and may be
terminated at any time by any party upon thirty days
written notice to the other. For the years ended
December 31, 2003, 2004 and 2005 and the six months ended
June 30, 2006, Charter paid approximately $73 million,
$74 million, $89 million and $52 million,
respectively, to Charter Holdco for services rendered pursuant
to the mutual services agreement. All such amounts are
reimbursable to Charter pursuant to a management arrangement
with our subsidiaries. See Intercompany
Management Arrangements. The accounts and balances related
to these services eliminate in consolidation. CII no longer
provides services pursuant to this agreement.
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Previous Management Agreement with Charter Investment,
Inc. |
Prior to November 12, 1999, CII provided management and
consulting services to our operating subsidiaries for a fee
equal to 3.5% of the gross revenues of the systems then owned,
plus reimbursement of expenses. The balance of management fees
payable under the previous management agreement was accrued with
payment at the discretion of CII with interest payable on unpaid
amounts. For the years ended December 31, 2003, 2004 and
2005, our subsidiaries did not pay any fees to CII to reduce
management fees payable. As of December 31, 2003, 2004 and
2005 and June 30, 2006, total management fees payable by
our subsidiaries to CII were approximately $14 million,
exclusive of any interest that may be charged and are included
in deferred management fees-related party on our consolidated
balance sheets.
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Vulcan Ventures Channel Access Agreement |
Vulcan Ventures, an entity controlled by Mr. Allen,
Charter, CII and Charter Holdco are parties to an agreement
dated September 21, 1999 granting to Vulcan Ventures the
right to use up to eight of our digital cable channels as
partial consideration for a prior capital contribution of
$1.325 billion. Specifically, at Vulcan Ventures
request, we will provide Vulcan Ventures with exclusive rights
for carriage of up to eight digital cable television programming
services or channels on each of the digital cable systems with
local and to the extent available, national control of the
digital product owned, operated, controlled or managed by
Charter or its subsidiaries now or in the future of 550
megahertz or more. If the system offers digital services but has
less than 550 megahertz of capacity, then the programming
services will be equitably reduced. Upon request of Vulcan
Ventures, we will attempt to reach a comprehensive programming
agreement pursuant to which it will pay the programmer, if
possible, a fee per digital video customer. If such fee
arrangement is not achieved, then we and the programmer shall
enter into a standard programming agreement. The initial term of
the channel access agreement was 10 years, and the term
extends by one additional year (such that the remaining term
continues to be 10 years) on each anniversary date of the
agreement unless either party provides the other with notice to
the contrary at least 60 days prior to such anniversary
date. To date, Vulcan Ventures has not requested to use any of
these channels. However, in the future it is possible that
Vulcan Ventures could require us to carry programming that is
less profitable to us than the programming that we would
otherwise carry and our results would suffer accordingly.
CC VIII. As part of the acquisition of the cable
systems owned by Bresnan Communications Company Limited
Partnership in February 2000, CC VIII, Charters
indirect limited liability company
199
subsidiary, issued, after adjustments, 24,273,943 Class A
preferred membership units (collectively, the CC VIII
interest) with a value and an initial capital account of
approximately $630 million to certain sellers affiliated
with AT&T Broadband, subsequently owned by Comcast
Corporation (the Comcast sellers). Mr. Allen
granted the Comcast sellers the right to sell to him the
CC VIII interest for approximately $630 million plus
4.5% interest annually from February 2000 (the Comcast put
right). In April 2002, the Comcast sellers exercised the
Comcast put right in full, and this transaction was consummated
on June 6, 2003. Accordingly, Mr. Allen, indirectly
through a company controlled by him, CII, became the holder of
the CC VIII interest. In the event of a liquidation of CC
VIII, Mr. Allen would be entitled to a priority
distribution with respect to a 2% priority return (which will
continue to accrete). Any remaining distributions in liquidation
would be distributed to CC V Holdings, LLC and
Mr. Allen in proportion to CC V Holdings, LLCs
capital account and Mr. Allens capital account (which
will equal the initial capital account of the Comcast sellers of
approximately $630 million, increased or decreased by
Mr. Allens pro rata share of CC VIIIs
profits or losses (as computed for capital account purposes)
after June 6, 2003).
An issue arose as to whether the documentation for the Bresnan
transaction was correct and complete with regard to the ultimate
ownership of the CC VIII interest following consummation of the
Comcast put right. Thereafter, the board of directors of Charter
formed a Special Committee (comprised of Messrs. Merritt,
Tory and Wangberg) to investigate the matter and take any other
appropriate action on behalf of Charter with respect to this
matter. After conducting an investigation of the relevant facts
and circumstances, the Special Committee determined that a
scriveners error had occurred in February 2000
in connection with the preparation of the last-minute revisions
to the Bresnan transaction documents and that, as a result,
Charter should seek the reformation of the Charter Holdco
limited liability company agreement, or alternative relief, in
order to restore and ensure the obligation that the CC VIII
interest be automatically exchanged for Charter Holdco units.
The Special Committee further determined that, as part of such
contract reformation or alternative relief, Mr. Allen
should be required to contribute the CC VIII interest to
Charter Holdco in exchange for 24,273,943 Charter Holdco
membership units. The Special Committee also recommended to the
board of directors of Charter that, to the extent the contract
reformation is achieved, the board of directors should consider
whether the CC VIII interest should ultimately be held by
Charter Holdco or Charter Holdings or another entity owned
directly or indirectly by them.
Mr. Allen disagreed with the Special Committees
determinations described above and so notified the Special
Committee. Mr. Allen contended that the transaction was
accurately reflected in the transaction documentation and
contemporaneous and subsequent company public disclosures. The
Special Committee and Mr. Allen determined to utilize the
Delaware Court of Chancerys program for mediation of
complex business disputes in an effort to resolve the
CC VIII interest dispute.
As of October 31, 2005, Mr. Allen, the Special
Committee, Charter, Charter Holdco and certain of their
affiliates agreed to settle the dispute, and execute certain
permanent and irrevocable releases pursuant to the Settlement
Agreement and Mutual Release agreement dated October 31,
2005 (the Settlement). Pursuant to the Settlement,
CII has retained 30% of its CC VIII interest (the
Remaining Interests). The Remaining Interests are
subject to certain drag along, tag along and transfer
restrictions as detailed in the revised CC VIII Limited
Liability Company Agreement. CII transferred the other 70% of
the CC VIII interest directly and indirectly, through
Charter Holdco, to a newly formed entity, CCHC (a direct
subsidiary of Charter Holdco and the direct parent of Charter
Holdings). Of that other 70% of the CC VIII preferred
interests, 7.4% has been transferred by CII to CCHC for a
subordinated exchangeable note with an initial accreted value of
$48 million, accreting at 14%, compounded quarterly, with a
15-year maturity (the
CCHC note). The remaining 62.6% has been transferred
by CII to Charter Holdco, in accordance with the terms of the
settlement for no additional monetary consideration. Charter
Holdco contributed the 62.6% interest to CCHC.
As part of the Settlement, CC VIII issued approximately
49 million additional Class B units to CC V in
consideration for prior capital contributions to CC VIII by
CC V, with respect to transactions that were unrelated to
the dispute in connection with CIIs membership units in
CC VIII. As a result, Mr. Allens
200
pro rata share of the profits and losses of CC VIII
attributable to the Remaining Interests is approximately 5.6%.
The CCHC note is exchangeable, at CIIs option, at any
time, for Charter Holdco Class A common units at a rate
equal to the then accreted value, divided by $2.00 (the
Exchange Rate). Customary anti-dilution protections
have been provided that could cause future changes to the
Exchange Rate. Additionally, the Charter Holdco Class A
common units received will be exchangeable by the holder into
Charter common stock in accordance with existing agreements
between CII, Charter and certain other parties signatory
thereto. Beginning February 28, 2009, if the closing price
of Charter common stock is at or above the Exchange Rate for a
certain period of time as specified in the Exchange Agreement,
Charter Holdco may require the exchange of the CCHC note for
Charter Holdco Class A common units at the Exchange Rate.
CCHC has the right to redeem the CCHC note under certain
circumstances, for cash in an amount equal to the then accreted
value, such amount, if redeemed prior to February 28, 2009,
would also include a make whole up to the accreted value through
February 28, 2009. CCHC must redeem the CCHC note at its
maturity for cash in an amount equal to the initial stated value
plus the accreted return through maturity.
There are no contractual or other obligations that would prevent
the transfer or encumbrance of the CC VIII interest by CCHC.
Rifkin. On September 14, 1999, Mr. Allen
and Charter Holdco entered into a put agreement with certain
sellers of the Rifkin cable systems that received a portion of
their purchase price in the form of 3,006,202 Class A
preferred membership units of Charter Holdco. This put agreement
allowed these holders to compel Charter Holdco to redeem their
Class A preferred membership units at any time before
September 14, 2004 at $1.00 per unit, plus accretion
thereon at 8% per year from September 14, 1999.
Mr. Allen had guaranteed the redemption obligation of
Charter Holdco. These units were put to Charter Holdco for
redemption, and were redeemed on April 18, 2003 for a total
price of approximately $3.9 million.
Mr. Allen also was a party to a put agreement with certain
sellers of the Rifkin cable systems that received a portion of
their purchase price in the form of shares of Class A
Common Stock of Charter. Under this put agreement, such holders
have the right to sell to Mr. Allen any or all of such
shares of the Class A Common Stock at $19 per share
(subject to adjustments for stock splits, reorganizations and
similar events), plus interest at a rate of 4.5% per year,
compounded annually from November 12, 1999. Approximately
4.6 million shares were put to Mr. Allen under these
agreements prior to their expiration on November 12, 2003.
Falcon. Mr. Allen also was a party to a put
agreement with certain sellers of the Falcon cable systems
(including Mr. Nathanson, one of our directors) that
received a portion of their purchase price in the form of shares
of Class A Common Stock of Charter. Under the Falcon put
agreement, such holders had the right to sell to Mr. Allen
any or all shares of Class A Common Stock received in the
Falcon acquisition at $25.8548 per share (subject to
adjustments for stock splits, reorganizations and similar
events), plus interest at a rate of 4.5% per year,
compounded annually from November 12, 1999. Approximately
19.4 million shares were put to Mr. Allen under these
agreements prior to their expiration on November 12, 2003.
Helicon. In 1999 we purchased the Helicon cable
systems. As part of that purchase Mr. Allen entered into a
put agreement with a certain seller of the Helicon cable systems
that received a portion of the purchase price in the form of a
preferred membership interest in Charter Helicon LLC with a
redemption price of $25 million plus accrued interest.
Under the Helicon put agreement, such holder has the right to
sell to Mr. Allen any or all of the interest to
Mr. Allen prior to its mandatory redemption in cash on
July 30, 2009. On August 31, 2005, 40% of the
preferred membership interest was put to Mr. Allen. The
remaining 60% of the preferred interest in Charter Helicon LLC
remained subject to the put to Mr. Allen. Such preferred
interest was recorded in other long-term liabilities as of
December 31,
201
2004. On October 6, 2005, Charter Helicon, LLC redeemed all
of the preferred membership interest for the redemption price of
$25 million plus accrued interest.
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Previous Funding Commitment of Vulcan Inc. |
Effective April 14, 2003, our subsidiary, Charter
Communications VII, LLC entered into a commitment letter with
Vulcan Inc., which is an affiliate of Paul Allen, under which
Vulcan Inc. agreed to lend, under certain circumstances, or
cause an affiliate to lend initially to Charter
Communications VII, LLC, or another subsidiary of Charter
Holdings, up to $300 million, which amount included a
subfacility of up to $100 million for the issuance of
letters of credit. No amounts were ever drawn under the
commitment letter. In November 2003, the commitment was
terminated. We incurred expenses to Vulcan Inc. totaling
$5 million in connection with the commitment (including an
extension fee) prior to termination. Ms. Jo Allen Patton is
a director and the President and Chief Executive Officer of
Vulcan Inc., and Mr. Lance Conn is Executive Vice President
of Vulcan Inc.
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Allocation of Business Opportunities with
Mr. Allen |
As described under Third Party Business
Relationships in which Mr. Allen has or had an
Interest in this section, Mr. Allen and a number of
his affiliates have interests in various entities that provide
services or programming to our subsidiaries. Given the diverse
nature of Mr. Allens investment activities and
interests, and to avoid the possibility of future disputes as to
potential business, Charter and Charter Holdco, under the terms
of their respective organizational documents, may not, and may
not allow their subsidiaries, to engage in any business
transaction outside the cable transmission business except for
the Digeo, Inc. joint venture; a joint venture to develop a
digital video recorder set-top terminal; an existing investment
in Cable Sports Southeast, LLC, a provider of regional sports
programming; as an owner of the business of Interactive
Broadcaster Services Corporation or, Chat TV; an investment in
@Security Broadband Corp., a company developing broadband
security applications; and incidental businesses engaged in as
of the closing of Charters initial public offering in
November 1999. This restriction will remain in effect until all
of the shares of Charters high-vote Class B
common stock have been converted into shares of the Class A
Common Stock due to Mr. Allens equity ownership
falling below specified thresholds.
Charter or Charter Holdco or any of their subsidiaries may not
pursue, or allow their subsidiaries to pursue, a business
transaction outside of this scope, unless Mr. Allen
consents to Charter or its subsidiaries engaging in the business
transaction. In any such case, the Restated Certificate of
Incorporation of Charter and the limited liability company
agreement of Charter Holdco would need to be amended accordingly
to modify the current restrictions on the ability of such
entities to engage in any business other than the cable
transmission business. The cable transmission business means the
business of transmitting video, audio, including telephone, and
data over cable systems owned, operated or managed by Charter,
Charter Holdco or any of their subsidiaries from time to time.
Under Delaware corporate law, each director of Charter,
including Mr. Allen, is generally required to present to
Charter, any opportunity he or she may have to acquire any cable
transmission business or any company whose principal business is
the ownership, operation or management of cable transmission
businesses, so that we may determine whether we wish to pursue
such opportunities. However, Mr. Allen and the other
directors generally will not have an obligation to present other
types of business opportunities to Charter, and they may exploit
such opportunities for their own account.
Also, conflicts could arise with respect to the allocation of
corporate opportunities between us and Mr. Allen and his
affiliates in connection with his investments in businesses in
which we are permitted to engage under the Restated Certificate
of Incorporation of Charter. Certain of the indentures of
Charter and its subsidiaries require the applicable issuer of
notes to obtain, under certain circumstances, approval of the
board of directors of Charter and, where a transaction or series
of related transactions is valued at or in excess of
$50 million, a fairness opinion with respect to
transactions in which Mr. Allen has an interest. Related
party transactions are approved by Charters Audit
Committee in compliance with the listing
202
requirements applicable to Nasdaq Global Market listed
companies. We have not instituted any other formal plan or
arrangement to address potential conflicts of interest.
Third Party Business Relationships in Which Mr. Allen
has or had an Interest
As previously noted, Mr. Allen has and has had extensive
investments in the areas of media and technology. We have a
number of commercial relationships with third parties in which
Mr. Allen has an interest. Mr. Allen or his affiliates
own equity interests or warrants to purchase equity interests in
various entities with which we do business or which provide us
with products, services or programming. Mr. Allen owns 100%
of the equity of Vulcan Ventures Incorporated and Vulcan Inc.
and is the president of Vulcan Ventures. Ms. Jo Allen
Patton is a director and the President and Chief Executive
Officer of Vulcan Inc. and is a director and Vice President of
Vulcan Ventures. Mr. Lance Conn is Executive Vice President
of Vulcan Inc. and Vulcan Ventures. The various cable, media,
Internet and telephone companies in which Mr. Allen has
invested may mutually benefit one another. We can give no
assurance, nor should you expect, that any of these business
relationships will be successful, that we will realize any
benefits from these relationships or that we will enter into any
business relationships in the future with Mr. Allens
affiliated companies.
TechTV, Inc. (TechTV) operated a cable television
network that offered programming mostly related to technology.
Pursuant to an affiliation agreement that originated in 1998 and
that terminates in 2008, TechTV has provided us with programming
for distribution via our cable systems. The affiliation
agreement provides, among other things, that TechTV must offer
Charter Holdco certain terms and conditions that are no less
favorable in the affiliation agreement than are given to any
other distributor that serves the same number of or fewer TechTV
viewing customers. Additionally, pursuant to the affiliation
agreement, we were entitled to incentive payments for channel
launches through December 31, 2003.
In March 2004, Charter Holdco entered into agreements with
Vulcan Programming and TechTV, which provide for
(a) Charter Holdco and TechTV to amend the affiliation
agreement which, among other things, revises the description of
the TechTV network content, provides for Charter Holdco to waive
certain claims against TechTV relating to alleged breaches of
the affiliation agreement and provides for TechTV to make
payment of outstanding launch receivables due to Charter Holdco
under the affiliation agreement, (b) Vulcan Programming to
pay approximately $10 million and purchase over a
24-month period, at
fair market rates, $2 million of advertising time across
various cable networks on Charter cable systems in consideration
of the agreements, obligations, releases and waivers under the
agreements and in settlement of the aforementioned claims and
(c) TechTV to be a provider of content relating to
technology and video gaming for Charters interactive
television platforms through December 31, 2006 (exclusive
for the first year). For the years ended December 31, 2003,
2004 and 2005 and the six months ended June 30, 2006 we
recognized approximately $1 million, $5 million,
$1 million and $0.6 million respectively, of the
Vulcan Programming payment as an offset to programming expense.
We believe that Vulcan Programming, which is 100% owned by
Mr. Allen, owned an approximate 98% equity interest in
TechTV at the time Vulcan Programming sold TechTV to an
unrelated third party in May 2004.
Oxygen Media LLC (Oxygen) provides programming
content aimed at the female audience for distribution over cable
systems and satellite. On July 22, 2002, Charter Holdco
entered into a carriage agreement with Oxygen, whereby we agreed
to carry programming content from Oxygen. Under the carriage
agreement, we currently make Oxygen programming available to
approximately 5 million of our video customers. In August
2004, Charter Holdco and Oxygen entered into agreements that
amended and renewed the carriage agreement. The amendment to the
carriage agreement (a) revised the number of our customers
to which Oxygen programming must be carried and for which we
must pay, (b) released
203
Charter Holdco from any claims related to the failure to achieve
distribution benchmarks under the carriage agreement,
(c) required Oxygen to make payment on outstanding
receivables for launch incentives due to us under the carriage
agreement, and (d) requires that Oxygen provide its
programming content to us on economic terms no less favorable
than Oxygen provides to any other cable or satellite operator
having fewer subscribers than us. The renewal of the carriage
agreement (a) extends the period that we will carry Oxygen
programming to our customers through January 31, 2008, and
(b) requires license fees to be paid based on customers
receiving Oxygen programming, rather than for specific customer
benchmarks. For the years ended December 31, 2003, 2004 and
2005 and the six months ended June 30, 2006, we paid Oxygen
approximately $9 million, $13 million, $9 million
and $4 million, respectively, for programming content. In
addition, Oxygen pays us launch incentives for customers
launched after the first year of the term of the carriage
agreement up to a total of $4 million. We recorded
approximately $1 million, $1 million,
$0.1 million and $0 related to these launch incentives as a
reduction of programming expense for the years ended
December 31, 2003, 2004 and 2005 and the six months ended
June 30, 2006, respectively.
In August 2004, Charter Holdco and Oxygen amended an equity
issuance agreement to provide for the issuance of 1 million
shares of Oxygen Preferred Stock with a liquidation preference
of $33.10 per share plus accrued dividends to Charter
Holdco in place of the $34 million of unregistered shares
of Oxygen Media common stock required under the original equity
issuance agreement. Oxygen Media delivered these shares in March
2005. The preferred stock is convertible into common stock after
December 31, 2007 at a conversion ratio, the numerator of
which is the liquidation preference and the denominator which is
the fair market value per share of Oxygen Media common stock on
the conversion date.
We recognized the guaranteed value of the investment over the
life of the carriage agreement as a reduction of programming
expense. For the years ended December 31, 2003, 2004 and
2005 and the six months ended June 30, 2006, we recorded
approximately $9 million, $13 million, $2 million
and $0, respectively, as a reduction of programming expense. The
carrying value of our investment in Oxygen was approximately
$19 million, $32 million, $33 million and
$33 million as of December 31, 2003, 2004 and 2005 and
June 30, 2006, respectively.
As of December 31, 2005, through Vulcan Programming,
Mr. Allen owned an approximate 31% interest in Oxygen
assuming no exercises of outstanding warrants or conversion or
exchange of convertible or exchangeable securities.
Ms. Jo Allen Patton is a director and the President of
Vulcan Programming. Mr. Lance Conn is a Vice President of
Vulcan Programming. Marc Nathanson has an indirect beneficial
interest of less than 1% in Oxygen.
On October 7, 1996, the former owner of our Falcon cable
systems entered into a letter agreement and a cable television
agreement with Trail Blazers Inc. for the cable broadcast in the
metropolitan area surrounding Portland, Oregon of pre-season,
regular season and playoff basketball games of the Portland
Trail Blazers, a National Basketball Association basketball
team. Mr. Allen is the 100% owner of the Portland Trail
Blazers and Trail Blazers Inc. Under the letter agreement, Trail
Blazers Inc. was paid a fixed fee for each customer in areas
directly served by the Falcon cable systems. Under the cable
television agreement, we shared subscription revenues with Trail
Blazers Inc. For the years ended December 31, 2003, 2004
and 2005 and the six months ended June 30, 2006, we paid
approximately $135,200, $96,100, $116,500 and $115,600,
respectively, in connection with the cable broadcast of Portland
Trail Blazers basketball games under the October 1996 cable
television agreement and subsequent local cable distribution
agreements.
In March 2001, a subsidiary of CCH II, Charter
Communications Ventures, LLC (Charter Ventures) and
Vulcan Ventures Incorporated formed DBroadband Holdings, LLC for
the sole purpose of
204
purchasing equity interests in Digeo, Inc. (Digeo),
an entity controlled by Paul Allen. In connection with the
execution of the broadband carriage agreement, DBroadband
Holdings, LLC purchased an equity interest in Digeo funded by
contributions from Vulcan Ventures Incorporated. The equity
interest is subject to a priority return of capital to Vulcan
Ventures up to the amount contributed by Vulcan Ventures on
Charter Ventures behalf. After Vulcan Ventures recovers
its amount contributed and any cumulative loss allocations,
Charter Ventures has a 100% profit interest in DBroadband
Holdings, LLC. Charter Ventures is not required to make any
capital contributions, including capital calls, to Digeo.
DBroadband Holdings, LLC is therefore not included in our
consolidated financial statements. Pursuant to an amended
version of this arrangement, in 2003, Vulcan Ventures
contributed a total of $29 million to Digeo,
$7 million of which was contributed on Charter
Ventures behalf, subject to Vulcan Ventures
aforementioned priority return. Since the formation of
DBroadband Holdings, LLC, Vulcan Ventures has contributed
approximately $56 million on Charter Ventures behalf.
On March 2, 2001, Charter Ventures entered into a broadband
carriage agreement with Digeo Interactive, LLC (Digeo
Interactive), a wholly owned subsidiary of Digeo. The
carriage agreement provided that Digeo Interactive would provide
to Charter a portal product, which would function as
the television-based Internet portal (the initial point of entry
to the Internet) for Charters customers who received
Internet access from Charter. The agreement term was for
25 years and Charter agreed to use the Digeo portal
exclusively for six years. Before the portal product was
delivered to Charter, Digeo terminated development of the portal
product.
On September 27, 2001, Charter and Digeo Interactive
amended the broadband carriage agreement. According to the
amendment, Digeo Interactive would provide to Charter the
content for enhanced Wink interactive television
services, known as Charter Interactive Channels
(i-channels).
In order to provide the i-channels, Digeo Interactive
sublicensed certain Wink technologies to Charter. Charter is
entitled to share in the revenues generated by the i-channels.
Currently, our digital video customers who receive i-channels
receive the service at no additional charge.
On September 28, 2002, Charter entered into a second
amendment to its broadband carriage agreement with Digeo
Interactive. This amendment superseded the amendment of
September 27, 2001. It provided for the development by
Digeo Interactive of future features to be included in the Basic
i-TV service to be
provided by Digeo and for Digeos development of an
interactive toolkit to enable Charter to develop
interactive local content. Furthermore, Charter could request
that Digeo Interactive manage local content for a fee. The
amendment provided for Charter to pay for development of the
Basic i-TV service as
well as license fees for customers who would receive the
service, and for Charter and Digeo to split certain revenues
earned from the service. In 2003, 2004, 2005 and the six months
ended June 30, 2006, we paid Digeo Interactive
approximately $4 million, $3 million, $3 million
and $1 million respectively, for customized development of
the i-channels and the local content tool kit. This amendment
expired pursuant to its terms on December 31, 2003. Digeo
Interactive is continuing to provide the Basic
i-TV service on a
month-to-month basis.
On June 30, 2003, Charter Holdco entered into an agreement
with Motorola, Inc. for the purchase of 100,000 digital video
recorder (DVR) units. The software for these DVR
units is being supplied by Digeo Interactive, LLC under a
license agreement entered into in April 2004. Under the license
agreement Digeo Interactive granted to Charter Holdco the right
to use Digeos proprietary software for the number of DVR
units that Charter deployed from a maximum of 10 headends
through year-end 2004. This maximum number of headends
restriction was expanded and eventually eliminated through
successive agreement amendments and the date for entering into
license agreements for units deployed was extended. The license
granted for each unit deployed under the agreement is valid for
five years. In addition, Charter will pay certain other fees
including a per-headend license fee and maintenance fees.
Maximum license and maintenance fees during the term of the
agreement are expected to be approximately $7 million. The
agreement includes an MFN clause pursuant to which
Charter is entitled to receive contract terms, considered on the
whole, and license fees, considered apart from other contract
terms, no less favorable than those accorded to any other Digeo
customer. Charter paid approximately $0.5 million,
$1 million and
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$3 million in license and maintenance fees for the years
ended December 31, 2004 and 2005 and the six months ended
June 30, 2006, respectively.
In April 2004, we launched DVR service (using units containing
the Digeo software) in our Rochester, Minnesota market using a
broadband media center that is an integrated set-top terminal
with a cable converter, DVR hard drive and connectivity to other
consumer electronics devices (such as stereos, MP3 players, and
digital cameras).
In May 2004, Charter Holdco entered into a binding term sheet
with Digeo Interactive for the development, testing and purchase
of 70,000 Digeo PowerKey DVR units. The term sheet provided that
the parties would proceed in good faith to negotiate, prior to
year-end 2004, definitive agreements for the development,
testing and purchase of the DVR units and that the parties would
enter into a license agreement for Digeos proprietary
software on terms substantially similar to the terms of the
license agreement described above. In November 2004, Charter
Holdco and Digeo Interactive executed the license agreement and
in December 2004, the parties executed the purchase agreement,
each on terms substantially similar to the binding term sheet.
Total purchase price and license and maintenance fees during the
term of the definitive agreements are expected to be
approximately $41 million. The definitive agreements are
terminable at no penalty to Charter in certain circumstances. We
paid approximately $0, $10 million and $8 million in
capital purchases under this agreement for the years ended
December 31, 2004 and 2005 and the six months ended
June 30, 2006, respectively.
In late 2003, Microsoft filed suit against Digeo for
$9 million in a breach of contract action, involving an
agreement that Digeo and Microsoft had entered into in 2001.
Digeo informed Charter that it believed it had an
indemnification claim against Charter for half that amount.
Digeo settled with Microsoft agreeing to make a cash payment and
to purchase certain amounts of Microsoft software products and
consulting services through 2008. In consideration of Digeo
agreeing to release Charter from its potential claim against
Charter, after consultation with outside counsel Charter agreed,
in June 2005, to purchase a total of $2.3 million in
Microsoft consulting services through 2008, a portion of which
amounts Digeo has informed Charter will count against
Digeos purchase obligations with Microsoft.
In October 2005, Charter Holdco and Digeo Interactive entered
into a binding term sheet for the test market deployment of the
Moxi Entertainment Applications Pack (MEAP). The
MEAP is an addition to the Moxi Client Software and will contain
ten games (such as Video Poker and Blackjack), a photo
application and jukebox application. The term sheet is limited
to a test market application of approximately 14,000 subscribers
and the aggregate value is not expected to exceed
$0.1 million. In the event the test market proves
successful, the companies will replace the term sheet with a
long form agreement including a planned roll-out across
additional markets. The term sheet expires on August 30,
2006.
We believe that Vulcan Ventures, an entity controlled by
Mr. Allen, owns an approximate 60% equity interest in
Digeo, Inc., on a fully converted non-diluted basis.
Messrs. Allen and Conn and Ms. Patton are directors of
Digeo. Mr. Lovett is a director of Digeo since December
2005 and Mr. Vogel was a director of Digeo in 2004. During
2004 and 2005, Mr. Vogel held options to
purchase 10,000 shares of Digeo common stock.
Other Miscellaneous Relationships
Pursuant to certain affiliation agreements with networks of New
Viacom, including MTV, MTV2, Nickelodeon, VH1, TVLand, CMT,
Spike TV, Comedy Central and Viacom Digital Suite, and stations
and networks of CBS Corporation including CBS-owned and
operated broadcast stations, Showtime, The Movie Channel, and
Flix, New Viacom and CBS Corporation provide Charter with
programming for distribution via our cable systems. The
affiliation agreements provide for, among other things, rates
and terms of carriage, advertising on these networks, which
Charter can sell to local advertisers and marketing support. For
the years ended December 31, 2003, 2004 and 2005, Charter
paid Old Viacom approximately
206
$188 million, $194 million and $201 million,
respectively, and for the six months ended June 30, 2006,
Charter paid New Viacom $62 million and
CBS Corporation $46 million for programming. Charter
recorded approximately $5 million, $8 million and
$15 million as receivables from Old Viacom networks related
to launch incentives for certain channels and marketing support,
respectively, for the years ended December 31, 2003, 2004
and 2005. From April 1994 to July 2004, Mr. Dolgen served
as Chairman and Chief Executive Officer of the Viacom
Entertainment Group.
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Payments for Relatives Services |
Since June 2003, Mr. Vogels
brother-in-law has been
an employee of Charter Holdco and has received a salary
commensurate with his position in the engineering department.
We believe that, through a third party advertising agency, we
have paid approximately $67,300, $49,300, $67,600 and $56,500 in
2003, 2004 and 2005 and the six months ended June 30, 2006,
respectively, to Mapleton Communications, an affiliate of
Mapleton Investments, LLC that owns radio stations in Oregon and
California. Mr. Nathanson is the Chairman and owner of
Mapleton Investments, LLC.
Enstar Cable Corporation, the manager of the Enstar limited
partnerships through a management agreement, engaged Charter
Holdco to manage the Enstar limited partnerships. Pursuant to
the management agreement, Charter Holdco provides management
services to the Enstar limited partnerships in exchange for
management fees. The Enstar limited partnerships also purchase
basic and premium programming for their systems at cost from
Charter Holdco. For the years ended December 31, 2003, 2004
and 2005 and the six months ended June 30, 2006, Charter
Holdco earned approximately $469,300, $0, $0 and $0,
respectively, by providing management services to the Enstar
limited partnerships. In September 2003 the Enstar limited
partnerships completed sales of all their remaining assets, and
as a result no further management fees were paid in 2004. In
November 2004, the Enstar limited partnerships were dissolved.
All of the executive officers of Charter (with the exception of
Mr. Allen), Charter Holdco and Charter Holdings acted as
officers of Enstar Communications Corporation.
Pursuant to Charters Bylaws (and the employment agreements
of certain of our current and former officers), Charter is
obligated (subject to certain limitations) to indemnify and hold
harmless, to the fullest extent permitted by law, any officer,
director or employee against all expense, liability and loss
(including, among other things, attorneys fees) reasonably
incurred or suffered by such officer, director or employee as a
result of the fact that he or she is a party or is threatened to
be made a party or is otherwise involved in any action, suit or
proceeding by reason of the fact that he or she is or was a
director, officer or employee of Charter. In addition, Charter
is obligated to pay, as an advancement of its indemnification
obligation, the expenses (including attorneys fees)
incurred by any officer, director or employee in defending any
such action, suit or proceeding in advance of its final
disposition, subject to an obligation to repay those amounts
under certain circumstances. Pursuant to these indemnification
arrangements and as an advancement of costs, Charter has
reimbursed certain of its current and former directors and
executive officers a total of approximately $8 million,
$3 million, $16,200 and $400 in respect of invoices
received in 2003, 2004 and 2005 and the six months ended
June 30, 2006, respectively, in connection with their
defense of certain legal actions. These amounts were submitted
to Charters director and officer insurance carrier and
have been reimbursed consistent with the terms of the settlement
of the legal actions.
207
DESCRIPTION OF OTHER INDEBTEDNESS
The following description of our external indebtedness is
qualified in its entirety by reference to the relevant credit
facilities, indentures and related documents governing such
indebtedness. Intercompany indebtedness is not included or
described herein. As used herein, we, our, us means CCI or
Charter.
Description of Our Outstanding Debt
As of June 30, 2006 and December 31, 2005,
CCH IIs actual total consolidated debt was
approximately $11.1 billion and $10.6 billion,
respectively, and Charters actual total debt was
approximately $19.9 billion and $19.4 billion,
respectively, as summarized below (dollars in millions):
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June 30, 2006 | |
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December 31, 2005 | |
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for Interest | |
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Credit Facilities
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Charter Operating
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$ |
5,800 |
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5,800 |
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5,731 |
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5,731 |
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Renaissance Media Group LLC:
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10.000% senior discount notes due 2008
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114 |
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115 |
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4/15 & 10/15 |
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10/15/03 |
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4/15/08 |
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Charter Operating:
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8% senior second-lien notes due 2012
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1,100 |
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1,100 |
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1,100 |
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1,100 |
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4/30 & 10/30 |
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4/30/12 |
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83/8
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770 |
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770 |
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733 |
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733 |
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4/30 & 10/30 |
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4/30/14 |
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CCO Holdings, LLC:
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83/4
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800 |
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795 |
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800 |
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794 |
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11/15/13 |
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550 |
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550 |
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550 |
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550 |
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3/15, 6/15, 9/15 & 12/15 |
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CCH II, LLC:
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10.250% senior notes due 2010
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2,051 |
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2,042 |
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1,601 |
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1,601 |
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3/15 & 9/15 |
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9/15/10 |
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CCH II, LLC
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11,071 |
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11,057 |
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10,629 |
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10,624 |
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CCH I(a):
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11.00% senior notes due 2015
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3,525 |
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3,678 |
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3,525 |
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3,683 |
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CIH(a):
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11.125% senior notes due 2014
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151 |
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151 |
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151 |
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151 |
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1/15 & 7/15 |
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1/15/14 |
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9.920% senior discount notes due 2014
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471 |
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471 |
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471 |
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471 |
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4/1 & 10/1 |
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4/1/14 |
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10.000% senior notes due 2014
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299 |
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299 |
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299 |
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299 |
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5/15 & 11/15 |
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5/15/14 |
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11.750% senior discount notes due 2014
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815 |
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815 |
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815 |
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781 |
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5/15 & 11/15 |
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11/15/06 |
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5/15/14 |
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13.500% senior discount notes due 2014
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581 |
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581 |
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581 |
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578 |
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1/15 & 7/15 |
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7/15/06 |
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1/15/14 |
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12.125% senior discount notes due 2015
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217 |
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203 |
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217 |
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192 |
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1/15 & 7/15 |
|
|
|
7/15/07 |
|
|
|
1/15/15 |
|
Charter Holdings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.250% senior notes due 2007
|
|
|
105 |
|
|
|
105 |
|
|
|
105 |
|
|
|
105 |
|
|
|
4/1 & 10/1 |
|
|
|
|
|
|
|
4/1/07 |
|
|
8.625% senior notes due 2009
|
|
|
292 |
|
|
|
292 |
|
|
|
292 |
|
|
|
292 |
|
|
|
4/1 & 10/1 |
|
|
|
|
|
|
|
4/1/09 |
|
|
9.920% senior discount notes due 2011
|
|
|
198 |
|
|
|
198 |
|
|
|
198 |
|
|
|
198 |
|
|
|
4/1 & 10/1 |
|
|
|
10/1/04 |
|
|
|
4/1/11 |
|
|
10.000% senior notes due 2009
|
|
|
154 |
|
|
|
154 |
|
|
|
154 |
|
|
|
154 |
|
|
|
4/1 & 10/1 |
|
|
|
|
|
|
|
4/1/09 |
|
|
10.250% senior notes due 2010
|
|
|
49 |
|
|
|
49 |
|
|
|
49 |
|
|
|
49 |
|
|
|
1/15 & 7/15 |
|
|
|
|
|
|
|
1/15/10 |
|
208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Start Date | |
|
|
|
|
June 30, 2006 | |
|
December 31, 2005 | |
|
Semi-Annual | |
|
for Interest | |
|
|
|
|
| |
|
| |
|
Interest | |
|
Payment on | |
|
|
|
|
Principal | |
|
Accreted | |
|
Principal | |
|
Accreted | |
|
Payment | |
|
Discount | |
|
Maturity | |
|
|
Amount | |
|
Value(a) | |
|
Amount | |
|
Value(a) | |
|
Dates | |
|
Notes | |
|
Date(b) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
11.750% senior discount notes due 2010
|
|
|
43 |
|
|
|
43 |
|
|
|
43 |
|
|
|
43 |
|
|
|
1/15 & 7/15 |
|
|
|
7/15/05 |
|
|
|
1/15/10 |
|
|
10.750% senior notes due 2009
|
|
|
131 |
|
|
|
131 |
|
|
|
131 |
|
|
|
131 |
|
|
|
4/1 & 10/1 |
|
|
|
|
|
|
|
10/1/09 |
|
|
11.125% senior notes due 2011
|
|
|
217 |
|
|
|
217 |
|
|
|
217 |
|
|
|
217 |
|
|
|
1/15 & 7/15 |
|
|
|
|
|
|
|
1/15/11 |
|
|
13.500% senior discount notes due 2011
|
|
|
94 |
|
|
|
94 |
|
|
|
94 |
|
|
|
94 |
|
|
|
1/15 & 7/15 |
|
|
|
7/15/06 |
|
|
|
1/15/11 |
|
|
9.625% senior notes due 2009
|
|
|
107 |
|
|
|
107 |
|
|
|
107 |
|
|
|
107 |
|
|
|
5/15 & 11/15 |
|
|
|
|
|
|
|
11/15/09 |
|
|
10.000% senior notes due 2011
|
|
|
137 |
|
|
|
136 |
|
|
|
137 |
|
|
|
136 |
|
|
|
5/15 & 11/15 |
|
|
|
|
|
|
|
5/15/11 |
|
|
11.750% senior discount notes due 2011
|
|
|
125 |
|
|
|
125 |
|
|
|
125 |
|
|
|
120 |
|
|
|
5/15 & 11/15 |
|
|
|
11/15/06 |
|
|
|
5/15/11 |
|
|
12.125% senior discount notes due 2012
|
|
|
113 |
|
|
|
106 |
|
|
|
113 |
|
|
|
100 |
|
|
|
1/15 & 7/15 |
|
|
|
7/15/07 |
|
|
|
1/15/12 |
|
Charter Communications, Inc.:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.750% convertible senior notes due 2006(c)
|
|
|
|
|
|
|
|
|
|
|
20 |
|
|
|
20 |
|
|
|
12/1 & 6/1 |
|
|
|
|
|
|
|
6/1/06 |
|
|
5.875% convertible senior notes due 2009(c)
|
|
|
863 |
|
|
|
848 |
|
|
|
863 |
|
|
|
843 |
|
|
|
5/16 & 11/16 |
|
|
|
|
|
|
|
11/16/09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charter Communications, Inc.
|
|
$ |
19,758 |
|
|
$ |
19,860 |
(d) |
|
$ |
19,336 |
|
|
$ |
19,388 |
(d) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The accreted value presented above generally 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
except as follows. The accreted value of 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 are
recorded at the historical book values of the Charter Holdings
notes for financial reporting purposes as opposed to the current
accreted value for 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
June 30, 2006 and December 31, 2005, the accreted
value of Charters debt for legal purposes and notes and
indentures purposes is approximately $19.4 billion and
$18.8 billion, respectively. |
|
(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
Convertible Notes, the 8.25% Charter Holdings notes due 2007,
the 10.000% Charter Holdings notes due 2009, the 10.75% Charter
Holdings notes due 2009 and the 9.625% Charter Holdings notes
due 2009) in whole or 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 Convertible Notes are redeemable if the closing
price of the Class A Common Stock exceeds the conversion
price by certain percentages as described below. For additional
information, see Note 9 to the accompanying consolidated
financial statements included elsewhere in this Exchange Offer
Prospectus. |
|
(c) |
|
The 4.75% convertible senior notes and the Convertible
Notes are convertible at the option of the holders into shares
of Class A Common Stock at a conversion rate, subject to
certain adjustments, of 38.0952 and 413.2231 shares,
respectively, per $1,000 principal amount of notes, which is
equivalent to a price of $26.25 and $2.42 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 us when
deemed appropriate. |
|
(d) |
|
Not included within total long-term debt is the $53 million
and $49 million CCHC note at June 30, 2006 and
December 31, 2005, respectively, which is included in note
payable-related party on Charters accompanying
consolidated balance sheets. See Note 10 to the
accompanying consolidated financial statements included
elsewhere in this Exchange Offer Prospectus. |
209
As of June 30, 2006 and December 31, 2005,
Charters long-term debt totaled approximately
$19.9 billion and $19.4 billion, respectively. This
debt was comprised of approximately $5.8 billion and
$5.7 billion of credit facility debt, $13.2 billion
and $12.8 billion accreted amount of high-yield notes and
$848 million and $863 million accreted amount of
convertible senior notes at June 30, 2006 and
December 31, 2005, respectively.
As of June 30, 2006 and December 31, 2005,
CCH IIs long-term debt totaled approximately
$11.1 billion and $10.6 billion, respectively. This
debt was comprised of approximately $5.8 billion and
$5.7 billion of credit facility debt and $5.3 billion
and $4.9 billion accreted amount of high-yield notes at
June 30, 2006 and December 31, 2005, respectively.
As of June 30, 2006 and December 31, 2005, the
weighted average interest rate on the credit facility debt was
approximately 8.0% and 7.8%, the weighted average interest rate
on Charters high-yield notes was approximately 10.3% and
10.2%, and the weighted average interest rate on Charters
convertible senior notes was approximately 6.4% and 6.3%,
respectively, resulting in a blended weighted average interest
rate of 9.5% and 9.3%, respectively. The interest rate on
approximately 77% of the total principal amount of
Charters debt was effectively fixed, including the effects
of Charters interest rate hedge agreements as of
June 30, 2006 and December 31, 2005. The fair value of
Charters high-yield notes was $11.0 billion and
$10.4 billion at June 30, 2006 and December 31,
2005, respectively. The fair value of Charters convertible
senior notes was $681 million and $647 million at
June 30, 2006 and December 31, 2005, respectively. The
fair value of Charters credit facilities is
$5.8 billion and $5.7 billion at June 30, 2006
and December 31, 2005, respectively. The fair value of
high-yield and convertible notes is based on quoted market
prices, and the fair value of the credit facilities is based on
dealer quotations.
As of June 30, 2006 and December 31, 2005, the
weighted average interest rate on the credit facility debt was
approximately 8.0% and 7.8% and the weighted average interest
rate on CCH IIs high-yield notes was approximately
9.2% and 9.0%, respectively, resulting in a blended weighted
average interest rate of 8.6% and 8.3%, respectively. The
interest rate on approximately 58% of the total principal amount
of CCH IIs debt was effectively fixed, including the
effects of CCH IIs interest rate hedge agreements as
of June 30, 2006 and December 31, 2005. The fair value
of CCH IIs high-yield notes was $5.3 billion and
$4.8 billion at June 30, 2006 and December 31,
2005, respectively. The fair value of CCH IIs credit
facilities is $5.8 billion and $5.7 billion at
June 30, 2006 and December 31, 2005, respectively. The
fair value of high-yield notes is based on quoted market prices,
and the fair value of the credit facilities is based on dealer
quotations.
The following description is a summary of certain material
provisions of the amended and restated Charter Operating credit
facilities and our other notes and those of our subsidiaries
(collectively, the Debt Agreements). The summary
does not restate the terms of the Debt Agreements in their
entirety, nor does it describe all terms of the Debt Agreements.
The agreements and instruments governing each of the Debt
Agreements are complicated and you should consult such
agreements and instruments for more detailed information
regarding the Debt Agreements.
Charter Operating Credit Facilities General
The Charter Operating credit facilities were amended and
restated in April 2006, among other things, to defer maturities
and increase availability under these facilities. The Charter
Operating credit facilities provide borrowing availability of up
to $6.85 billion as follows:
|
|
|
|
|
a term facility with a total principal amount of
$5.0 billion, which shall be repayable in 23 equal
quarterly installments, commencing September 30, 2007,
aggregating in each loan year to 1% of the original amount of
the term facility, with the remaining balance due at final
maturity in 2013; |
|
|
|
a revolving credit facility, in a total amount of
$1.5 billion, with a maturity date in 2010; and |
|
|
|
a revolving credit facility (the R/T Facility), in a
total amount of $350.0 million, that converts to term loans
in April 2007, repayable on the same terms as the term facility
described above. |
210
Amounts outstanding under the Charter Operating credit
facilities bear interest, at Charter Operatings election,
at a base rate or the Eurodollar rate, as defined, plus a margin
for Eurodollar loans of up to 3.00% for the revolving credit
facility and R/T Facility (until converted to term loans), and
up to 2.625% for the term facility and R/T Facility loans after
converting to term loans, and for base rate loans of up to 2.00%
for the revolving credit facility and R/T Facility (until
converted to term loans), and up to 1.625% for the term facility
and R/T Facility loans after converting to term loans. A
quarterly commitment fee of up to .75% is payable on the average
daily unborrowed balance of the revolving credit facility and,
until April 2007, the R/T Facility.
The obligations of our subsidiaries under the Charter Operating
credit facilities (the Obligations) are guaranteed
by Charter Operatings immediate parent company, CCO
Holdings, and the subsidiaries of Charter Operating, except for
immaterial subsidiaries and subsidiaries precluded from
guaranteeing by reason of the provisions of other indebtedness
to which they are subject (the non-guarantor
subsidiaries). The Obligations are also secured by
(i) a lien on all of the assets of Charter Operating and
its subsidiaries (other than assets of the non-guarantor
subsidiaries), to the extent such lien can be perfected under
the Uniform Commercial Code by the filing of a financing
statement, and (ii) a pledge by CCO Holdings of the equity
interests owned by it in Charter Operating or any of Charter
Operatings subsidiaries, as well as intercompany
obligations owing to it by any of such entities.
Charter Operating Credit Facilities Restrictive
Covenants
The Charter Operating credit facilities contain representations
and warranties and affirmative and negative covenants customary
for financings of this type. The financial covenants measure
performance against standards set for leverage, debt service
coverage, and interest coverage, tested as of the end of each
quarter. The maximum allowable leverage ratio is 4.25 to 1.0 and
the minimum allowable interest coverage ratio (applicable to the
revolving credit facility and R/T Facility (until converted to
term loans) only) is 1.10 to 1.0. Additionally, the Charter
Operating credit facilities contain provisions requiring
mandatory loan prepayments when significant amounts of assets
are sold and the proceeds are not reinvested in assets useful in
the business of the borrower within a specified period.
The Charter Operating credit facilities permit Charter Operating
and its subsidiaries to make distributions to pay interest on
the CCO Holdings senior notes, the CCH II senior notes, the
CCH I Notes, the CIH senior notes, the Charter Holdings senior
notes and the Convertible Notes; provided that, among other
things, no default has occurred and is continuing under the
Charter Operating credit facilities. The Charter Operating
credit facilities restrict the ability of Charter Operating and
its subsidiaries to make distributions for the purpose of
repaying indebtedness of their parent companies, except if
certain conditions are met, including (1) the satisfaction
of a 1.5 to 1.0 interest coverage ratio test, (2) a minimum
available liquidity requirement of $250 million,
(3) the requirement that no default under the credit
facilities or parent indentures exist or be caused by such
distribution and (4) the requirement that the debt
repayment take place within 60 days of the distribution,
except that the 1.5 to 1.0 interest coverage test does not have
to be met for any such debt repayments made with proceeds of
certain asset sales that do not need to be applied to prepay
loans under the credit facilities in order to keep the leverage
ratio at the same level as it was prior to such sale, after
giving pro forma effect to such sale, up to a total amount of
$3 billion of such asset sales. Conditions to future
borrowings include absence of a default or an event of default
under the Charter Operating credit facilities and the continued
accuracy in all material respects of the representations and
warranties, including the absence since December 31, 2005
of any event, development or circumstance that has had or could
reasonably be expected to have a material adverse effect on our
business.
The events of default under the Charter Operating credit
facilities include, among other things:
|
|
|
(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, |
211
|
|
|
(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 Operatings
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 Operatings indirect or
direct parent companies, Charter Operating or Charter
Operatings subsidiaries having indebtedness in excess of
$500 million aggregate principal amount (other than under
the Charter Operating credit facilities) 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. |
CCO Holdings, LLC Notes
|
|
|
83/4% Senior
Notes due 2013 |
In November 2003 and August 2005, CCO Holdings and CCO Holdings
Capital Corp. jointly issued $500 million and
$300 million, respectively, total principal amount of
83/4% senior
notes due 2013. Interest on the CCO Holdings senior notes
accrues at
83/4
% per year and is payable semi-annually in arrears
on each May 15 and November 15.
At any time prior to November 15, 2006, the issuers of the
CCO Holdings senior notes may redeem up to 35% of the total
principal amount of the CCO Holdings senior notes to the extent
of public equity proceeds they have received on a pro rata basis
at a redemption price equal to 108.75% of the principal amount
of CCO Holdings senior notes redeemed, plus any accrued and
unpaid interest. On or after November 15, 2008, the issuers
of the CCO Holdings senior notes may redeem all or a part of the
notes at a redemption price that declines ratably from the
initial redemption price of 104.375% to a redemption price on or
after November 15, 2011 of 100.0% of the principal amount
of the CCO Holdings senior notes redeemed, plus, in each case,
any accrued and unpaid interest.
|
|
|
Senior Floating Rate Notes Due 2010 |
In December 2004, CCO Holdings and CCO Holdings Capital Corp.
jointly issued $550 million total principal amount of
senior floating rate notes due 2010. The CCO Holdings senior
floating rate notes have an annual interest rate of LIBOR plus
4.125%, which resets and is payable quarterly in arrears on each
March 15, June 15, September 15 and
December 15.
At any time prior to December 15, 2006, CCO Holdings and
CCO Holdings Capital Corp. may redeem up to 35% of the notes in
an amount not to exceed the amount of proceeds of one or more
public equity offerings at a redemption price equal to 100% of
the principal amount, plus a premium equal to the interest rate
per annum applicable to the notes on the date notice of
redemption is given, plus accrued and unpaid interest, if any,
to the redemption date, provided that at least 65% of the
original aggregate principal amount of the notes issued remains
outstanding after the redemption. CCO Holdings and CCO Holdings
Capital Corp. may redeem the notes in whole or in part at the
issuers option from December 15, 2006 until
December 14, 2007 for 102% of the principal amount, from
December 15, 2007 until
212
December 14, 2008 for 101% of the principal amount and from
and after December 15, 2008, at par, in each case, plus
accrued and unpaid interest.
|
|
|
Additional Terms of the CCO Holdings Senior Notes and
Senior Floating Rate Notes |
The CCO Holdings notes are general unsecured obligations of CCO
Holdings and CCO Holdings Capital Corp. They rank equally with
all other current or future unsubordinated obligations of CCO
Holdings and CCO Holdings Capital Corp. The CCO Holdings notes
are structurally subordinated to all obligations of subsidiaries
of CCO Holdings, including the Charter Operating notes and the
Charter Operating credit facilities.
In the event of specified change of control events, CCO Holdings
must offer to purchase the outstanding CCO Holdings senior notes
from the holders at a purchase price equal to 101% of the total
principal amount of the notes, plus any accrued and unpaid
interest.
The indenture governing the CCO Holdings senior notes contains
restrictive covenants that limit certain transactions or
activities by CCO Holdings and its restricted subsidiaries,
including the covenants summarized below. Substantially all of
CCO Holdings direct and indirect subsidiaries are
currently restricted subsidiaries.
The covenant in the indenture governing the CCO Holdings senior
notes that restricts incurrence of debt and issuance of
preferred stock permits CCO Holdings and its subsidiaries to
incur or issue specified amounts of debt or preferred stock, if,
after giving pro forma effect to the incurrence or issuance, CCO
Holdings could meet a leverage ratio (ratio of consolidated debt
to four times EBITDA, as defined, from the most recent fiscal
quarter for which internal financial reports are available) of
4.5 to 1.0. In addition, regardless of whether the leverage
ratio could be met, so long as no default exists or would result
from the incurrence or issuance, CCO Holdings and its restricted
subsidiaries are permitted to incur or issue:
|
|
|
|
|
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. |
The restricted subsidiaries of CCO Holdings are generally not
permitted to issue debt securities contractually subordinated to
other debt of the issuing subsidiary or preferred stock, in
either case in any public or Rule 144A offering.
The CCO Holdings indenture permits CCO Holdings and its
restricted subsidiaries to incur debt under one category, and
later reclassify that debt into another category. The Charter
Operating credit facilities generally impose more restrictive
limitations on incurring new debt than CCO Holdings
indenture, so our subsidiaries that are subject to credit
facilities are not permitted to utilize the full debt incurrence
that would otherwise be available under the CCO Holdings
indenture covenants.
Generally, under CCO Holdings indenture, 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.
213
In addition, CCO Holdings may make distributions or restricted
payments, so long as no default exists or would be caused by the
transaction:
|
|
|
|
|
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 the Convertible Notes, Charter Holdings notes, CIH
notes, CCH I notes and the CCH II Notes; |
|
|
|
to purchase, redeem or refinance Charter Holdings notes, CIH
notes, CCH I 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 |
|
|
|
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. |
The indenture governing the CCO Holdings senior notes restricts
CCO Holdings and its restricted subsidiaries from making
investments, except specified permitted investments, or creating
new unrestricted subsidiaries, if there is a default under the
indenture or if CCO Holdings could not incur $1.00 of new debt
under the 4.5 to 1.0 leverage ratio test described above after
giving effect to the transaction.
Permitted investments include:
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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, |
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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, |
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other investments up to $750 million outstanding at any
time, and |
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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. |
CCO Holdings is not permitted to grant liens on its assets other
than specified permitted liens. Permitted liens include liens
securing debt and other obligations incurred under our
subsidiaries credit facilities, liens securing the
purchase price of new assets, liens securing indebtedness up to
$50 million and other specified liens incurred in the
ordinary course of business. The lien covenant does not restrict
liens on assets of subsidiaries of CCO Holdings.
CCO Holdings and CCO Holdings Capital Corp., its co-issuer, are
generally not permitted to sell all or substantially all of
their assets or merge with or into other companies unless their
leverage ratio after any such transaction would be no greater
than their leverage ratio immediately prior to the transaction,
or unless CCO Holdings and its subsidiaries could incur $1.00 of
new debt under the 4.5 to 1.0 leverage ratio test described
above after giving effect to the transaction, no default exists,
and the surviving entity is a U.S. entity that assumes the
CCO Holdings senior notes.
CCO Holdings and its restricted subsidiaries may generally not
otherwise sell assets or, in the case of restricted
subsidiaries, issue equity interests, unless they receive
consideration at least equal to the fair market value of the
assets or equity interests, consisting of at least 75% in cash,
assumption of liabilities, securities converted into cash within
60 days or productive assets. CCO Holdings and its
restricted subsidiaries are then required within 365 days
after any asset sale either to commit to use the net cash
proceeds over a specified threshold to acquire assets, including
current assets, used or useful in their businesses or use the
net cash proceeds to repay debt, or to offer to repurchase the
CCO Holdings senior notes with any remaining proceeds.
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CCO Holdings and its restricted subsidiaries may generally not
engage in sale and leaseback transactions unless, at the time of
the transaction, CCO Holdings could have incurred secured
indebtedness in an amount equal to the present value of the net
rental payments to be made under the lease, and the sale of the
assets and application of proceeds is permitted by the covenant
restricting asset sales.
CCO Holdings restricted subsidiaries may generally not
enter into restrictions on their ability to make dividends or
distributions or transfer assets to CCO Holdings on terms that
are materially more restrictive than those governing their debt,
lien, asset sale, lease and similar agreements existing when
they entered into the indenture, unless those restrictions are
on customary terms that will not materially impair CCO
Holdings ability to repay its notes.
The restricted subsidiaries of CCO Holdings are generally not
permitted to guarantee or pledge assets to secure debt of CCO
Holdings, unless the guarantying subsidiary issues a guarantee
of the notes of comparable priority and tenor, and waives any
rights of reimbursement, indemnity or subrogation arising from
the guarantee transaction for at least one year.
The indenture also restricts the ability of CCO Holdings and its
restricted subsidiaries to enter into certain transactions with
affiliates involving consideration in excess of $15 million
without a determination by the board of directors that the
transaction is on terms no less favorable than arms-length, or
transactions with affiliates involving over $50 million
without receiving an independent opinion as to the fairness of
the transaction to the holders of the CCO Holdings notes.
Charter Communications Operating, LLC Notes
On April 27, 2004, Charter Operating and Charter
Communications Operating Capital Corp. jointly issued
$1.1 billion of 8% senior second-lien notes due 2012
and $400 million of
83/8% senior
second-lien notes due 2014, for total gross proceeds of
$1.5 billion. In March and June 2005, Charter Operating
consummated exchange transactions with a small number of
institutional holders of Charter Holdings 8.25% senior
notes due 2007 pursuant to which Charter Operating issued, in
private placement transactions, approximately $333 million
principal amount of its
83/8
% senior second-lien notes due 2014 in exchange for
approximately $346 million of the Charter Holdings
8.25% senior notes due 2007. Interest on the Charter
Operating notes is payable semi-annually in arrears on each
April 30 and October 30.
The Charter Operating notes were sold in a private transaction
that was not subject to the registration requirements of the
Securities Act of 1933. The Charter Operating notes are not
expected to have the benefit of any exchange or other
registration rights, except in specified limited circumstances.
On the issue date of the Charter Operating notes, because of
restrictions contained in the Charter Holdings indentures, there
were no Charter Operating note guarantees, even though Charter
Operatings immediate parent, CCO Holdings, and certain of
our subsidiaries were obligors and/or guarantors under the
Charter Operating credit facilities. Upon the occurrence of the
guarantee and pledge date (generally, the fifth business day
after the Charter Holdings leverage ratio was certified to be
below 8.75 to 1.0), CCO Holdings and those subsidiaries of
Charter Operating that were then guarantors of, or otherwise
obligors with respect to, indebtedness under the Charter
Operating credit facilities and related obligations were
required to guarantee the Charter Operating notes. The note
guarantee of each such guarantor is:
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a senior obligation of such guarantor; |
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structurally senior to the outstanding senior notes of CCO
Holdings (except in the case of CCO Holdings note
guarantee, which is structurally pari passu with such
senior notes), the outstanding CCH II Notes, the
outstanding CCH I notes, the outstanding CIH notes, the
outstanding Charter Holdings notes and the outstanding
Convertible Notes (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 |
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senior in right of payment to any future subordinated
indebtedness of such guarantor. |
215
As a result of the above leverage ratio test being met, CCO
Holdings and certain of its subsidiaries provided the additional
guarantees described above during the first quarter of 2005. All
the subsidiaries of Charter Operating (except CCO NR Sub, LLC,
and certain other subsidiaries that are not deemed material and
are designated as nonrecourse subsidiaries under the Charter
Operating credit facilities) are restricted subsidiaries of
Charter Operating under the Charter Operating notes.
Unrestricted subsidiaries generally will not be subject to the
restrictive covenants in the Charter Operating indenture.
In the event of specified change of control events, Charter
Operating must offer to purchase the Charter Operating notes at
a purchase price equal to 101% of the total principal amount of
the Charter Operating notes repurchased plus any accrued and
unpaid interest thereon.
The limitations on incurrence of debt contained in the indenture
governing the Charter Operating notes permit Charter Operating
and its restricted subsidiaries that are guarantors of the
Charter Operating notes to incur additional debt or issue shares
of preferred stock if, after giving pro forma effect to the
incurrence, Charter Operating could meet a leverage ratio test
(ratio of consolidated debt to four times EBITDA, as defined,
from the most recent fiscal quarter for which internal financial
reports are available) of 4.25 to 1.0.
In addition, regardless of whether the leverage ratio test could
be met, so long as no default exists or would result from the
incurrence or issuance, Charter Operating and its restricted
subsidiaries are permitted to incur or issue:
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up to $6.8 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 as there are such guarantors),
including debt under credit facilities outstanding on the issue
date of the Charter Operating notes; |
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up to $75 million of debt incurred to finance the purchase
or capital lease of assets; |
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up to $300 million of additional debt for any
purpose, and |
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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. |
The indenture governing the Charter Operating notes permits
Charter Operating to incur debt under one of the categories
above, and later reclassify the debt into a different category.
The Charter Operating credit facilities generally impose more
restrictive limitations on incurring new debt than the Charter
Operating indenture, so our subsidiaries that are subject to the
Charter Operating credit facilities are not permitted to utilize
the full debt incurrence that would otherwise be available under
the Charter Operating indenture covenants.
Generally, under Charter Operatings indenture, Charter
Operating and its restricted subsidiaries are permitted to pay
dividends on equity interests, repurchase interests, or make
other specified restricted payments only if Charter Operating
could incur $1.00 of new debt under the leverage ratio test,
which requires that Charter Operating meet a 4.25 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 Charter
Operatings 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 Charter
Operating and not allocated to the debt incurrence covenant, all
cumulatively from the fiscal quarter commenced April 1,
2004, plus $100 million.
In addition, Charter Operating may make distributions or
restricted payments, so long as no default exists or would be
caused by the transaction:
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to repurchase management equity interests in amounts not to
exceed $10 million per fiscal year; |
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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; |
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to pay, regardless of the existence of any default, interest
when due on the Convertible Notes, the Charter Holdings notes,
the CIH notes, the CCH I notes, the CCH II Notes and
the CCO Holdings notes; |
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to purchase, redeem or refinance the Charter Holdings notes, the
CIH notes, the CCH I notes, the CCH II Notes, the CCO
Holdings notes, the Convertible 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 |
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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. |
The indenture governing the Charter Operating notes restricts
Charter Operating and its restricted subsidiaries from making
investments, except specified permitted investments, or creating
new unrestricted subsidiaries, if there is a default under the
indenture or if Charter Operating could not incur $1.00 of new
debt under the 4.25 to 1.0 leverage ratio test described above
after giving effect to the transaction.
Permitted investments include:
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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, |
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other investments up to $750 million outstanding at any
time, and |
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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. |
Charter Operating and its restricted subsidiaries are not
permitted to grant liens senior to the liens securing the
Charter Operating notes, other than permitted liens, on their
assets to secure indebtedness or other obligations, if, after
giving effect to such incurrence, the senior secured leverage
ratio (generally, the ratio of obligations secured by first
priority liens to four times EBITDA, as defined, from the most
recent fiscal quarter for which internal financial reports are
available) would exceed 3.75 to 1.0. Permitted liens include
liens securing indebtedness and other obligations under
permitted credit facilities, liens securing the purchase price
of new assets, liens securing indebtedness of up to
$50 million and other specified liens incurred in the
ordinary course of business.
Charter Operating and Charter Communications Operating Capital
Corp., its co-issuer, are generally not permitted to sell all or
substantially all of their assets or merge with or into other
companies unless their leverage ratio after any such transaction
would be no greater than their leverage ratio immediately prior
to the transaction, or unless Charter Operating and its
subsidiaries could incur $1.00 of new debt under the 4.25 to 1.0
leverage ratio test described above after giving effect to the
transaction, no default exists, and the surviving entity is a
U.S. entity that assumes the Charter Operating notes.
Charter Operating and its restricted subsidiaries generally may
not otherwise sell assets or, in the case of restricted
subsidiaries, issue equity interests, unless they receive
consideration at least equal to the fair market value of the
assets or equity interests, consisting of at least 75% in cash,
assumption of liabilities, securities converted into cash within
60 days or productive assets. Charter Operating and its
restricted subsidiaries are then required within 365 days
after any asset sale either to commit to use the net cash
proceeds over a specified threshold to acquire assets, including
current assets, used or useful in their businesses or use the
net cash proceeds to repay debt, or to offer to repurchase the
Charter Operating notes with any remaining proceeds.
Charter Operating and its restricted subsidiaries may generally
not engage in sale and leaseback transactions unless, at the
time of the transaction, Charter Operating could have incurred
secured
217
indebtedness in an amount equal to the present value of the net
rental payments to be made under the lease, and the sale of the
assets and application of proceeds is permitted by the covenant
restricting asset sales.
Charter Operatings restricted subsidiaries may generally
not enter into restrictions on their ability to make dividends
or distributions or transfer assets to Charter Operating on
terms that are materially more restrictive than those governing
their debt, lien, asset sale, lease and similar agreements
existing when Charter Operating entered into the indenture
governing the Charter Operating senior second-lien notes unless
those restrictions are on customary terms that will not
materially impair Charter Operatings ability to repay the
Charter Operating notes.
The restricted subsidiaries of Charter Operating are generally
not permitted to guarantee or pledge assets to secure debt of
Charter Operating, unless the guarantying subsidiary issues a
guarantee of the notes of comparable priority and tenor, and
waives any rights of reimbursement, indemnity or subrogation
arising from the guarantee transaction for at least one year.
The indenture also restricts the ability of Charter Operating
and its restricted subsidiaries to enter into certain
transactions with affiliates involving consideration in excess
of $15 million without a determination by the board of
directors that the transaction is on terms no less favorable
than arms-length, or transactions with affiliates involving over
$50 million without receiving an independent opinion as to
the fairness of the transaction to the holders of the Charter
Operating notes.
Charter Operating and its restricted subsidiaries are generally
not permitted to transfer equity interests in restricted
subsidiaries unless the transfer is of all of the equity
interests in the restricted subsidiary or the restricted
subsidiary remains a restricted subsidiary and net proceeds of
the equity sale are applied in accordance with the asset sales
covenant.
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Until the guarantee and pledge date, the Charter Operating notes
are secured by a second-priority lien on all of Charter
Operatings assets that secure the obligations of Charter
Operating under the Charter Operating credit facility and
specified related obligations. The collateral secures the
obligations of Charter Operating with respect to the
8% senior second-lien notes due 2012 and the
83/8
% senior second-lien notes due 2014 on a ratable
basis. The collateral consists of substantially all of Charter
Operatings assets in which security interests may be
perfected under the Uniform Commercial Code by filing a
financing statement (including capital stock and intercompany
obligations), including, but not limited to: |
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all of the capital stock of all of Charter Operatings
direct subsidiaries, including, but not limited to, CCO NR
Holdings, LLC; and |
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all intercompany obligations owing to Charter Operating
including, but not limited to, intercompany notes from
CC VI Operating, CC VIII Operating and Falcon, which
notes are supported by the same guarantees and collateral that
supported these subsidiaries credit facilities prior to
the amendment and restatement of the Charter Operating credit
facilities. |
Since the occurrence of the guarantee and pledge date, the
collateral for the Charter Operating notes consists of all of
Charter Operatings and its subsidiaries assets that
secure the obligations of Charter Operating or any subsidiary of
Charter Operating with respect to the Charter Operating credit
facilities and the related obligations. The collateral currently
consists of the capital stock of Charter Operating held by CCO
Holdings, all of the intercompany obligations owing to CCO
Holdings by Charter Operating or any subsidiary of Charter
Operating, and substantially all of Charter Operatings and
the guarantors assets (other than the assets of CCO
Holdings) in which security interests may be perfected under the
Uniform
218
Commercial Code by filing a financing statement (including
capital stock and intercompany obligations), including, but not
limited to:
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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 |
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with certain exceptions, all intercompany obligations owing to
Charter Operating or any guarantor. |
In March 2005, CC V Holdings, LLC redeemed in full the notes
outstanding under the CC V indenture. In June 2006,
Renaissance Media (Louisiana) LLC, Renaissance Media (Tennessee)
LLC and Renaissance Media Holdings Capital Corporation redeemed
in full the notes outstanding under the Renaissance indenture.
Following the redemptions CC V Holdings, LLC and its
subsidiaries and Renaissance Media LLC, respectively, guaranteed
the Charter Operating credit facilities and the related
obligations and secured those guarantees with first-priority
liens, and guaranteed the notes and secured the Charter
Operating senior second-lien notes with second-priority liens,
on substantially all of their assets in which security interests
may be perfected under the Uniform Commercial Code by filing a
financing statement (including capital stock and intercompany
obligations).
In the event that additional liens are granted by Charter
Operating or its subsidiaries to secure obligations under the
Charter Operating credit facilities or the related obligations,
second priority liens on the same assets will be granted to
secure the Charter Operating notes, which liens will be subject
to the provisions of an intercreditor agreement (to which none
of Charter Operating or its affiliates are parties).
Notwithstanding the foregoing sentence, no such second priority
liens need be provided if the time such lien would otherwise be
granted is not during a guarantee and pledge availability period
(when the Leverage Condition is satisfied), but such second
priority liens will be required to be provided in accordance
with the foregoing sentence on or prior to the fifth business
day of the commencement of the next succeeding guarantee and
pledge availability period.
CCHC, LLC Note
In October 2005, Charter, acting through a Special Committee of
Charters Board of Directors, and Mr. Allen, settled a
dispute that had arisen between the parties with regard to the
ownership of CC VIII. As part of that settlement, CCHC
issued the CCHC note to CII. The CCHC note has a
15-year maturity. The
CCHC note has an initial accreted value of $48 million
accreting at the rate of 14% per annum compounded
quarterly, except that from and after February 28, 2009,
CCHC may pay any increase in the accreted value of the CCHC note
in cash and the accreted value of the CCHC note will not
increase to the extent such amount is paid in cash. The CCHC
note is exchangeable at CIIs option, at any time, for
Charter Holdco Class A common units at a rate equal to the
then accreted value, divided by $2.00 (the Exchange
Rate). Customary anti-dilution protections have been
provided that could cause future changes to the Exchange Rate.
Additionally, the Charter Holdco Class A common units
received will be exchangeable by the holder into Charter
Class A Common Stock in accordance with existing agreements
between CII, Charter and certain other parties signatory
thereto. Beginning February 28, 2009, if the closing price
of Charter Class A Common Stock is at or above the Exchange
Rate for a certain period of time as specified in the Exchange
Agreement, Charter Holdco may require the exchange of the CCHC
note for Charter Holdco Class A common units at the
Exchange Rate. Additionally, CCHC has the right to redeem the
CCHC note under certain circumstances for cash in an amount
equal to the then accreted value, such amount, if redeemed prior
to February 28, 2009, would also include a make whole up to
the accreted value through February 28, 2009. CCHC must
redeem the CCHC note at its maturity for cash in an amount equal
to the initial stated value plus the accreted return through
maturity. The accreted value of the CCHC note is
$53 million as of June 30, 2006.
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Charter Communications Holdings, LLC Notes
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March 1999 Charter Holdings Notes |
The March 1999 Charter Holdings notes were issued under three
separate indentures, each dated as of March 17, 1999, among
Charter Holdings and Charter Communications Holdings Capital
Corporation (Charter Holdings Capital), as the
issuers, and BNY Midwest Trust Company, as trustee. Charter
Holdings and Charter Holdings Capital exchanged these notes for
new notes with substantially similar terms, except that the new
notes are registered under the Securities Act.
The March 1999 Charter Holdings notes are general unsecured
obligations of Charter Holdings and Charter Holdings Capital.
Cash interest on the March 1999 9.920% Charter Holdings notes
began to accrue on April 1, 2004.
The March 1999 Charter Holdings notes are senior debt
obligations of Charter Holdings and Charter Holdings Capital.
They rank equally with all other current and future
unsubordinated obligations of Charter Holdings and Charter
Holdings Capital. They are structurally subordinated to the
obligations of Charter Holdings subsidiaries, including
the CIH notes, the CCH I notes, the CCH II Notes, the
CCO Holdings notes, the Charter Operating notes and the Charter
Operating credit facilities.
Charter Holdings and Charter Holdings Capital will not have the
right to redeem the March 1999 8.250% Charter Holdings notes
prior to their maturity date on April 1, 2007. Charter
Holdings and Charter Holdings Capital may redeem some or all of
the March 1999 8.625% Charter Holdings notes and the March 1999
9.920% Charter Holdings notes at any time, in each case, at a
premium. The optional redemption price declines to 100% of the
principal amount of March 1999 Charter Holdings notes redeemed,
plus accrued and unpaid interest, if any, for redemption on or
after April 1, 2007.
In the event that a specified change of control event occurs,
Charter Holdings and Charter Holdings Capital must offer to
repurchase any then outstanding March 1999 Charter Holdings
notes at 101% of their principal amount or accreted value, as
applicable, plus accrued and unpaid interest, if any.
The indentures governing the March 1999 Charter Holdings notes
contain restrictive covenants that limit certain transactions or
activities by Charter Holdings and its restricted subsidiaries.
Substantially all of Charter Holdings direct and indirect
subsidiaries are currently restricted subsidiaries. See
Summary of Restrictive Covenants Under the
Charter Holdings High Yield Notes.
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January 2000 Charter Holdings Notes |
The January 2000 Charter Holdings notes were issued under three
separate indentures, each dated as of January 12, 2000,
among Charter Holdings and Charter Holdings Capital, as the
issuers, and BNY Midwest Trust Company, as trustee. In June
2000, Charter Holdings and Charter Holdings Capital exchanged
these notes for new notes with substantially similar terms,
except that the new notes are registered under the Securities
Act.
The January 2000 Charter Holdings notes are general unsecured
obligations of Charter Holdings and Charter Holdings Capital.
Cash interest on the January 2000 11.75% Charter Holdings notes
began to accrue on January 15, 2005.
The January 2000 Charter Holdings notes are senior debt
obligations of Charter Holdings and Charter Holdings Capital.
They rank equally with all other current and future
unsubordinated obligations of Charter Holdings and Charter
Holdings Capital. They are structurally subordinated to the
obligations of Charter Holdings subsidiaries, including
the CIH notes, the CCH I notes, the CCH II Notes, the
CCO Holdings notes, the Charter Operating notes and the Charter
Operating credit facilities.
Charter Holdings and Charter Holdings Capital will not have the
right to redeem the January 2000 10.00% Charter Holdings notes
prior to their maturity on April 1, 2009. Charter Holdings
and Charter Holdings Capital may redeem some or all of the
January 2000 10.25% Charter Holdings notes and the
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January 2000 11.75% Charter Holdings notes at any time, in each
case, at a premium. The optional redemption price declines to
100% of the principal amount of the January 2000 Charter
Holdings notes redeemed, plus accrued and unpaid interest, if
any, for redemption on or after January 15, 2008.
In the event that a specified change of control event occurs,
Charter Holdings and Charter Holdings Capital must offer to
repurchase any then outstanding January 2000 Charter Holdings
notes at 101% of their total principal amount or accreted value,
as applicable, plus accrued and unpaid interest, if any.
The indentures governing the January 2000 Charter Holdings notes
contain substantially identical events of default, affirmative
covenants and negative covenants as those contained in the
indentures governing the March 1999 Charter Holdings notes. See
Summary of Restrictive Covenants Under the
Charter Holdings High-Yield Notes.
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January 2001 Charter Holdings Notes |
The January 2001 Charter Holdings notes were issued under three
separate indentures, each dated as of January 10, 2001,
each among Charter Holdings and Charter Holdings Capital, as the
issuers, and BNY Midwest Trust Company, as trustee. In March
2001, Charter Holdings and Charter Holdings Capital exchanged
these notes for new notes with substantially similar terms,
except that the new notes are registered under the Securities
Act.
The January 2001 Charter Holdings notes are general unsecured
obligations of Charter Holdings and Charter Holdings Capital.
Cash interest on the January 2001 13.500% Charter Holdings notes
began to accrue on January 15, 2006.
The January 2001 Charter Holdings notes are senior debt
obligations of Charter Holdings and Charter Holdings Capital.
They rank equally with all other current and future
unsubordinated obligations of Charter Holdings and Charter
Holdings Capital. They are structurally subordinated to the
obligations of Charter Holdings subsidiaries, including
the CIH notes, the CCH I notes, the CCH II Notes, the
CCO Holdings notes, the Charter Operating notes and the Charter
Operating credit facilities.
Charter Holdings and Charter Holdings Capital will not have the
right to redeem the January 2001 10.750% Charter Holdings notes
prior to their maturity on October 1, 2009. Charter
Holdings and Charter Holdings Capital may redeem some or all of
the January 2001 11.125% Charter Holdings notes and the January
2001 13.500% Charter Holdings notes at any time, in each case,
at a premium. The optional redemption price declines to 100% of
the principal amount of the January 2001 Charter Holdings notes
redeemed, plus accrued and unpaid interest, if any, for
redemption on or after January 15, 2009.
In the event that a specified change of control event occurs,
Charter Holdings and Charter Holdings Capital must offer to
repurchase any then outstanding January 2001 Charter Holdings
notes at 101% of their total principal amount or accreted value,
as applicable, plus accrued and unpaid interest, if any.
The indentures governing the January 2001 Charter Holdings notes
contain substantially identical events of default, affirmative
covenants and negative covenants as those contained in the
indentures governing the March 1999 and January 2000 Charter
Holdings notes. See Summary of Restrictive
Covenants Under the Charter Holdings High-Yield Notes.
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May 2001 Charter Holdings Notes |
The May 2001 Charter Holdings notes were issued under three
separate indentures, each among Charter Holdings and Charter
Holdings Capital, as the issuers, and BNY Midwest Trust Company,
as trustee. In September 2001, Charter Holdings and Charter
Holdings Capital exchanged substantially all of these notes for
new notes with substantially similar terms, except that the new
notes are registered under the Securities Act.
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The May 2001 Charter Holdings notes are general unsecured
obligations of Charter Holdings and Charter Holdings Capital.
Cash interest on the May 2001 11.750% Charter Holdings notes
will not accrue prior to May 15, 2006.
The May 2001 Charter Holdings notes are senior debt obligations
of Charter Holdings and Charter Holdings Capital. They rank
equally with all other current and future unsubordinated
obligations of Charter Holdings and Charter Holdings Capital.
They are structurally subordinated to the obligations of Charter
Holdings subsidiaries, including the CIH notes, the
CCH I notes, the CCH II Notes, the CCO Holdings notes,
the Charter Operating notes and the Charter Operating credit
facilities.
Charter Holdings and Charter Holdings Capital will not have the
right to redeem the May 2001 9.625% Charter Holdings notes prior
to their maturity on November 15, 2009. On or after
May 15, 2006, Charter Holdings and Charter Holdings Capital
may redeem some or all of the May 2001 10.000% Charter Holdings
notes and the May 2001 11.750% Charter Holdings notes at any
time, in each case, at a premium. The optional redemption price
declines to 100% of the principal amount of the May 2001 Charter
Holdings notes redeemed, plus accrued and unpaid interest, if
any, for redemption on or after May 15, 2009.
In the event that a specified change of control event occurs,
Charter Holdings and Charter Holdings Capital must offer to
repurchase any then outstanding May 2001 Charter Holdings notes
at 101% of their total principal amount or accreted value, as
applicable, plus accrued and unpaid interest, if any.
The indentures governing the May 2001 Charter Holdings notes
contain substantially identical events of default, affirmative
covenants and negative covenants as those contained in the
indentures governing the March 1999, January 2000 and January
2001 Charter Holdings notes. See Summary of
Restrictive Covenants Under the Charter Holdings High-Yield
Notes.
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January 2002 Charter Holdings Notes |
The January 2002 Charter Holdings notes were issued under three
separate indentures, each among Charter Holdings and Charter
Holdings Capital, as the issuers, and BNY Midwest Trust Company,
as trustee, two of which were supplements to the indentures for
the May 2001 Charter Holdings notes. In July 2002, Charter
Holdings and Charter Holdings Capital exchanged substantially
all of these notes for new notes with substantially similar
terms, except that the new notes are registered under the
Securities Act.
The January 2002 Charter Holdings notes are general unsecured
obligations of Charter Holdings and Charter Holdings Capital.
Cash interest on the January 2002 12.125% Charter Holdings notes
will not accrue prior to January 15, 2007.
The January 2002 Charter Holdings notes are senior debt
obligations of Charter Holdings and Charter Holdings Capital.
They rank equally with the current and future unsecured and
unsubordinated debt of Charter Holdings and Charter Holdings
Capital. They are structurally subordinated to the obligations
of Charter Holdings subsidiaries, including the CIH notes,
the CCH I notes, the CCH II Notes, the CCO Holdings
notes, the Charter Operating notes and the Charter Operating
credit facilities.
The Charter Holdings 12.125% senior discount notes are
redeemable at the option of the issuers at amounts decreasing
from 106.063% to 100% of accreted value beginning
January 15, 2007.
In the event that a specified change of control event occurs,
Charter Holdings and Charter Holdings Capital must offer to
repurchase any then outstanding January 2002 Charter Holdings
notes at 101% of their total principal amount or accreted value,
as applicable, plus accrued and unpaid interest, if any.
The indentures governing the January 2002 Charter Holdings notes
contain substantially identical events of default, affirmative
covenants and negative covenants as those contained in the
indentures governing the March 1999, January 2000, January 2001
and May 2001 Charter Holdings notes. See
Summary of Restrictive Covenants Under the
Charter Holdings High-Yield Notes.
222
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Summary of Restrictive Covenants Under the Charter
Holdings High-Yield Notes |
The limitations on incurrence of debt and issuance of preferred
stock contained in Charter Holdings indentures permit
Charter Holdings and its subsidiaries to incur additional debt
or issue preferred stock, so long as there is no default under
the Charter Holdings indentures. These limitations restrict the
incurrence of debt unless, after giving pro forma effect to the
incurrence, the Charter Holdings leverage ratio would be below
8.75 to 1.0. In addition, regardless of whether the leverage
ratio could be met, so long as no default exists or would result
from the incurrence or issuance, Charter Holdings and its
restricted subsidiaries are permitted to issue:
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up to $3.5 billion of debt under credit facilities, |
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up to $75 million of debt incurred to finance the purchase
or capital lease of new assets, |
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up to $300 million of additional debt for any purpose, |
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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 |
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other items of indebtedness for specific purposes such as
intercompany debt, refinancing of existing debt, and interest
rate swaps to provide protection against fluctuation in interest
rates. |
Indebtedness under a single facility or agreement may be
incurred in part under one of the categories listed above and in
part under another. Accordingly, indebtedness under our credit
facilities is incurred under a combination of the categories of
permitted indebtedness listed above.
The restricted subsidiaries of Charter Holdings are generally
not permitted to issue debt securities contractually
subordinated in right of payment to other debt of the issuing
subsidiary or preferred stock, in either case in any public or
Rule 144A offering.
The Charter Holdings indentures permit Charter Holdings and its
restricted subsidiaries to incur debt under one category, and
later reclassify that debt into another category. The Charter
Operating credit facilities generally impose more restrictive
limitations on incurring new debt than Charter Holdings
indentures, so our subsidiaries that are subject to the Charter
Operating credit facilities may not be permitted to utilize the
full debt incurrence that would otherwise be available under the
Charter Holdings indenture covenants.
Generally, under Charter Holdings high-yield indentures,
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,
Charter Holdings can incur $1.00 of new debt under the Charter
Holdings leverage ratio test which requires 8.75 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 in a total amount
of up to 100% of Charter Holdings consolidated 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.
In addition, Charter Holdings may make distributions or
restricted payments, so long as no default exists or would be
caused by transactions:
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to repurchase management equity interests in amounts not to
exceed $10 million per fiscal year, |
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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 |
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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. |
223
Charter Holdings and its restricted subsidiaries may not make
investments except permitted investments if there is a default
under the indentures or if, after giving effect to the
transaction, the Charter Holdings leverage ratio would be above
8.75 to 1.0.
Permitted investments include:
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investments by Charter Holdings in restricted subsidiaries or by
restricted subsidiaries in Charter Holdings, |
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investments in productive assets (including through equity
investments) aggregating up to $150 million since March
1999, |
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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 |
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other investments aggregating up to $50 million since March
1999. |
Charter Holdings is not permitted to grant liens on its assets
other than specified permitted liens. Permitted liens include
liens securing debt and other obligations incurred under Charter
Holdings and its subsidiaries credit facilities,
liens securing the purchase price of new assets, liens securing
indebtedness of up to $50 million and other specified liens
incurred in the ordinary course of business. The lien covenant
does not restrict liens on assets of subsidiaries of Charter
Holdings.
Charter Holdings and Charter Holdings Capital, its co-issuer,
are generally not permitted to sell all or substantially all of
their assets or merge with or into other companies unless their
leverage ratio after any such transaction would be no greater
than their leverage ratio immediately prior to the transaction,
or unless after giving effect to the transaction, the Charter
Holdings leverage ratio would be below 8.75 to 1.0, no default
exists, and the surviving entity is a U.S. entity that
assumes the Charter Holdings notes.
Charter Holdings and its restricted subsidiaries may generally
not otherwise sell assets or, in the case of restricted
subsidiaries, issue equity interests, unless they receive
consideration at least equal to the fair market value of the
assets or equity interests, consisting of at least 75% in cash,
assumption of liabilities, securities converted into cash within
60 days or productive assets. Charter Holdings and its
restricted subsidiaries are then required within 365 days
after any asset sale either to commit to use the net cash
proceeds over a specified threshold to acquire assets, including
current assets, used or useful in their businesses or use the
net cash proceeds to repay debt, or to offer to repurchase the
Charter Holdings notes with any remaining proceeds.
Charter Holdings and its restricted subsidiaries may generally
not engage in sale and leaseback transactions unless, at the
time of the transaction, Charter Holdings could have incurred
secured indebtedness in an amount equal to the present value of
the net rental payments to be made under the lease, and the sale
of the assets and application of proceeds is permitted by the
covenant restricting asset sales.
Charter Holdings restricted subsidiaries may generally not
enter into restrictions on their ability to make dividends or
distributions or transfer assets to Charter Holdings on terms
that are materially more restrictive than those governing their
debt, lien, asset sale, lease and similar agreements existing
when they entered into the indentures, unless those restrictions
are on customary terms that will not materially impair Charter
Holdings ability to repay the high-yield notes.
The restricted subsidiaries of Charter Holdings are generally
not permitted to guarantee or pledge assets to secure debt of
Charter Holdings, unless the guaranteeing subsidiary issues a
guarantee of the notes of comparable priority and tenor, and
waives any rights of reimbursement, indemnity or subrogation
arising from the guarantee transaction for at least one year.
The indentures also restrict the ability of Charter Holdings and
its restricted subsidiaries to enter into certain transactions
with affiliates involving consideration in excess of
$15 million without a determination by the board of
directors of Charter Holdings that the transaction is on terms
no less favorable than arms
224
length, or transactions with affiliates involving over
$50 million without receiving an independent opinion as to
the fairness of the transaction addressed to the holders of the
Charter Holdings notes.
CCH I Holdings, LLC Notes
In September 2005, CIH and CCH I Holdings Capital Corp. jointly
issued $2.5 billion total principal amount of 9.92% to
13.50% senior accreting notes due 2014 and 2015 in exchange
for an aggregate amount of $2.4 billion of Charter Holdings
notes due 2011 and 2012, spread over six series of notes and
with varying interest rates as set forth in the table under
Description of Other Indebtedness. The notes are
guaranteed by Charter Holdings.
The CIH notes are senior debt obligations of CIH and CCH I
Holdings Capital Corp. They rank equally with all other current
and future unsecured, unsubordinated obligations of CIH and
CCH I Holdings Capital Corp. The CIH notes are structurally
subordinated to all obligations of subsidiaries of CIH,
including the CCH I notes, the CCH II Notes, the CCO
Holdings notes, the Renaissance notes, the Charter Operating
notes and the Charter Operating credit facilities.
The CIH notes may not be redeemed at the option of the issuers
until September 30, 2007. On or after such date, the CIH
notes may be redeemed in accordance with the following table.
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Percentage of | |
Note Series |
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Redemption Dates |
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Principal | |
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11.125%
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September 30, 2007 - January 14, 2008 |
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103.708% |
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January 15, 2008 - January 14, 2009 |
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101.854% |
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Thereafter |
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100.0% |
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9.92%
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September 30, 2007 - Thereafter |
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100.0% |
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10.0%
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September 30, 2007 - May 14, 2008 |
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103.333% |
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May 15, 2008 - May 14, 2009 |
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101.667% |
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Thereafter |
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100.0% |
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11.75%
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September 30, 2007 - May 14, 2008 |
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103.917% |
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May 15, 2008 - May 14, 2009 |
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101.958% |
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Thereafter |
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100.0% |
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13.5%
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September 30, 2007 - January 14, 2008 |
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104.5% |
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January 15, 2008 - January 14, 2009 |
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102.25% |
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Thereafter |
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100.0% |
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12.125%
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September 30, 2007 - January 14, 2008 |
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106.063% |
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January 15, 2008 - January 14, 2009 |
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104.042% |
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January 15, 2009 - January 14, 2010 |
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102.021% |
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Thereafter |
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100.0% |
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In the event that a specified change of control event happens,
CIH and CCH I Holdings Capital Corp. must offer to
repurchase any outstanding notes at a price equal to the sum of
the accreted value of the notes plus accrued and unpaid interest
plus a premium that varies over time.
The indenture governing the CIH notes contains restrictive
covenants similar to those contained in the indenture governing
the Charter Holdings notes with the following exceptions:
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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). |
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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 are permitted in a total amount of up to the
sum of (1) the greater of (a) $500 million or
(b) 100% of CIHs consolidated EBITDA, as defined,
minus 1.2 times its consolidated interest |
225
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expense each for the period from September 28, 2005 to the
end of CIHs 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 September 28,
2005. |
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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
In September 2005, CCH I and CCH I Capital Corp. jointly issued
$3.5 billion total principal amount of 11% senior
secured notes due October 2015 in exchange for an aggregate
amount of $4.2 billion of certain Charter Holdings notes.
The notes are guaranteed by Charter Holdings and are secured by
a pledge of 100% of the equity interest of CCH Is wholly
owned direct subsidiary, CCH II, LLC. Such pledge is
subject to significant limitations as described in the related
pledge agreement. Interest on the CCH I notes accrues at
11% per annum and is payable semi-annually in arrears on
each April 1 and October 1, commencing on
April 1, 2006.
The CCH I notes are senior debt obligations of CCH I and
CCH I Capital Corp. To the extent of the value of the
collateral, they rank senior to all of CCH Is future
unsecured senior indebtedness. The CCH I notes are
structurally subordinated to all obligations of subsidiaries of
CCH I, including the CCH II Notes, CCO Holdings notes,
the Charter Operating notes and the Charter Operating credit
facilities.
CCH I and CCH I Capital Corp. may, prior to October 1, 2008
in the event of a qualified equity offering providing sufficient
proceeds, redeem up to 35% of the aggregate principal amount of
the CCH I notes at a redemption price of 111% of the principal
amount plus accrued and unpaid interest. Aside from this
provision, CCH I and CCH I Capital Corp. may not
redeem at their option any of the notes prior to October 1,
2010. On or after October 1, 2010, CCH I and
CCH I Capital Corp. may redeem, in whole or in part, CCH I
notes at the applicable prices (expressed as percentages of
principal amount) listed below, plus accrued and unpaid interest
if redeemed during the twelve month period beginning on
October 1 of the years listed below.
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Year |
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Percentage | |
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2010
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105.5% |
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2011
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102.75% |
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2012
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101.375% |
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2013 and thereafter
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100.0% |
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If a change of control occurs, each holder of the CCH I
notes will have the right to require the repurchase of all or
any part of that holders CCH I notes at 101% of the
principal amount plus accrued and unpaid interest.
The indenture governing the CCH I notes contains
restrictive covenants that limit certain transactions or
activities by CCH I and its restricted subsidiaries,
including the covenants summarized below. Substantially all of
CCH Is direct and indirect subsidiaries are currently
restricted subsidiaries.
The covenant in the indenture governing the CCH I notes
that restricts incurrence of debt and issuance of preferred
stock permits CCH I and its subsidiaries to incur or issue
specified amounts of debt or preferred stock, if, after giving
pro forma effect to the incurrence or issuance, CCH I could
meet a leverage ratio (ratio of consolidated debt to four times
EBITDA, as defined, from the most recent fiscal quarter for
which internal financial reports are available) of 7.5 to 1.0.
226
In addition, regardless of whether the leverage ratio could be
met, so long as no default exists or would result from the
incurrence or issuance, CCH I and its restricted
subsidiaries are permitted to incur or issue:
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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); |
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up to $75 million of debt incurred to finance the purchase
or capital lease of new assets; |
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up to $300 million of additional debt for any
purpose; and |
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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. |
The restricted subsidiaries of CCH I are generally not permitted
to issue debt securities contractually subordinated to other
debt of the issuing subsidiary or preferred stock, in either
case in any public offering or private placement.
The CCH I indenture generally permits CCH I and its restricted
subsidiaries to incur debt under one category, and later
reclassify that debt into another category. The Charter
Operating credit facilities generally impose more restrictive
limitations on incurring new debt than those in the CCH I
indenture, so our subsidiaries that are subject to credit
facilities are not permitted to utilize the full debt incurrence
that would otherwise be available under the CCH I indenture
covenants.
Generally, under the CCH I indenture, 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 Is consolidated EBITDA, as defined, for
the period from September 28, 2005 to the end of
CCH Is 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.
In addition, CCH I and its restricted subsidiaries may make
distributions or restricted payments, so long as no default
exists or would be caused by the transaction:
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to repurchase management equity interests in amounts not to
exceed $10 million per fiscal year; |
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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; |
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to enable certain of its parents to pay interest on certain of
their indebtedness; |
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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. |
The indenture governing the CCH I notes restricts CCH I and its
restricted subsidiaries from making investments, except
specified permitted investments, or creating new unrestricted
subsidiaries, if there is a default under the indenture or if
CCH I could not incur $1.00 of new debt under the 7.5 to
1.0 leverage ratio test described above after giving effect to
the transaction.
227
Permitted investments include:
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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, |
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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, |
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other investments up to $750 million outstanding at any
time, and |
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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. |
CCH I is not permitted to grant liens on its assets other than
specified permitted liens. Permitted liens include liens
securing the purchase price of new assets, liens securing
obligations up to $50 million and other specified liens.
The lien covenant does not restrict liens on assets of
subsidiaries of CCH I.
CCH I and CCH I Capital Corp., its co-issuer, are generally not
permitted to sell all or substantially all of their assets or
merge with or into other companies unless their leverage ratio
after any such transaction would be no greater than their
leverage ratio immediately prior to the transaction, or unless
CCH I and its subsidiaries could incur $1.00 of new debt
under the 7.50 to 1.0 leverage ratio test described above after
giving effect to the transaction, no default exists, and the
surviving entity is a U.S. entity that assumes the
CCH I notes.
CCH I and its restricted subsidiaries may generally not
otherwise sell assets or, in the case of restricted
subsidiaries, issue equity interests, unless they receive
consideration at least equal to the fair market value of the
assets or equity interests, consisting of at least 75% in cash,
assumption of liabilities, securities converted into cash within
60 days or productive assets. CCH I and its restricted
subsidiaries are then required within 365 days after any
asset sale either to commit to use the net cash proceeds over a
specified threshold to acquire assets, including current assets,
used or useful in their businesses or use the net cash proceeds
to repay certain debt, or to offer to repurchase the CCH I notes
with any remaining proceeds.
CCH I and its restricted subsidiaries may generally not engage
in sale and leaseback transactions unless, at the time of the
transaction, CCH I could have incurred secured indebtedness
in an amount equal to the present value of the net rental
payments to be made under the lease, and the sale of the assets
and application of proceeds is permitted by the covenant
restricting asset sales.
With certain exceptions, CCH Is restricted subsidiaries
may generally not enter into restrictions on their ability to
make dividends or distributions or transfer assets to CCH I.
The restricted subsidiaries of CCH I are generally not permitted
to guarantee or pledge assets to secure other debt of
CCH I, except in respect of credit facilities unless the
guarantying subsidiary issues a guarantee of the CCH I
notes and waives any rights of reimbursement, indemnity or
subrogation arising from the guarantee transaction for at least
one year.
The indenture also restricts the ability of CCH I and its
restricted subsidiaries to enter into certain transactions with
affiliates involving consideration in excess of $15 million
without a determination by the board of directors that the
transaction is on terms no less favorable than arms-length, or
transactions with affiliates involving over $50 million
without receiving an independent opinion as to the fairness of
the transaction to the holders of the CCH I notes.
228
Cross-Defaults
Our indentures and those of certain of our parent companies and
our subsidiaries include various events of default, including
cross-default provisions. Under these provisions, a failure by
any of the issuers or any of their restricted subsidiaries to
pay at the final maturity thereof the principal amount of other
indebtedness having a principal amount of $100 million or
more (or any other default under any such indebtedness resulting
in its acceleration) would result in an event of default under
the indenture governing the applicable notes. The Renaissance
indenture contains a similar cross-default provision with a
$10 million threshold that applies to the issuers of the
Renaissance notes and their restricted subsidiaries. As a
result, an event of default related to the failure to repay
principal at maturity or the acceleration of the indebtedness
under the Charter Holdings notes, CIH notes, CCH I notes,
CCH II Notes, CCO Holdings notes, Charter Operating notes
or the Charter Operating credit facilities could cause
cross-defaults under CCH IIs and our and our
subsidiaries indentures.
229
DESCRIPTION OF CAPITAL STOCK AND MEMBERSHIP UNITS
General
Charters capital stock and the provisions of the Restated
Certificate of Incorporation and Bylaws of Charter are as
described below. These summaries are qualified by reference to
the Restated Certificate of Incorporation and the Bylaws of
Charter, copies of which have been filed with the Securities and
Exchange Commission.
Charters authorized capital stock consists of
1.750 billion shares of Class A Common Stock, par
value $.001 per share, 750 million shares of
Class B common stock, par value $.001 per share, and
250 million shares of preferred stock, par value
$.001 per share.
The Restated Certificate of Incorporation of Charter and Charter
Holdcos amended and restated limited liability company
agreement contain provisions that are designed to cause the
number of shares of Charters common stock that are
outstanding to equal the number of common membership units of
Charter Holdco owned by Charter and to cause the value of a
share of common stock to be equal to the value of a common
membership unit. These provisions are meant to allow a holder of
Charters common stock to easily understand the economic
interest that such holders common shares represent of
Charter Holdcos business.
In particular, provisions in the Restated Certificate of
Incorporation of Charter provide that:
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(1) at all times the number of shares of common stock
outstanding will be equal to the number of Charter Holdco common
membership units owned by Charter. |
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(2) Charter will not hold any assets other than, among
other allowable assets: |
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working capital and cash held for the payment of current
obligations and receivables from Charter Holdco; |
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common membership units of Charter Holdco; and |
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obligations and equity interests of Charter Holdco that
correspond to obligations and equity interests issued by Charter; |
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(3) Charter will not borrow any money or enter into any
capital lease unless Charter Holdco enters into the same
arrangements with Charter so that Charters liability flows
through to Charter Holdco. |
Provisions in Charter Holdcos amended and restated limited
liability company agreement provide that, upon the contribution
by Charter of assets acquired through the issuance of common
stock by Charter, Charter Holdco will issue to Charter that
number of common membership units as equals the number of shares
of common stock issued by Charter. In the event of the
contribution by Charter of assets acquired through the issuance
of indebtedness or preferred interests of Charter, Charter
Holdco will issue to Charter a corresponding obligation or
interest, respectively to allow Charter to pass through to
Charter Holdco these liabilities or preferred interests. Such
liabilities or preferred interest of Charter Holdco will be
assets of Charter, in addition to the Class B common units
of Charter Holdco that are held by Charter.
Common Stock
As of June 30, 2006, there were 438.5 million shares
of Class A Common Stock issued and outstanding and
50,000 shares of Class B common stock issued and
outstanding. If, as described below, all shares of Class B
common stock convert to shares of Class A Common Stock as a
result of dispositions by Mr. Allen and his affiliates, the
holders of Class A Common Stock will be entitled to elect
all members of the board of directors, other than any members
elected separately by the holders of any preferred shares with
the right to vote, of which there are currently none outstanding.
230
Voting Rights. The holders of Class A Common
Stock and Class B common stock generally have identical
rights, except:
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each Class A common shareholder is entitled to one vote per
share; and |
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each Class B common shareholder is entitled to a number of
votes based on the number of outstanding Class B common
stock and Charter Holdco membership units exchangeable for
Class B common stock. For example, Mr. Allen is
entitled to ten votes for each share of Class B common
stock held by him or his affiliates and ten votes for each
membership unit held by him or his affiliates; and |
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the Class B common shareholders have the sole power to vote
to amend or repeal the provisions of the Restated Certificate of
Incorporation of Charter relating to: |
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(1) the activities in which Charter may engage; |
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(2) the required ratio of outstanding shares of common
stock to outstanding membership units owned by Charter; and |
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(3) the restrictions on the assets and liabilities that
Charter may hold. |
The effect of the provisions described in the final bullet point
is that holders of Class A Common Stock have no right to
vote on these matters. These provisions allow Mr. Allen,
for example, to amend the Restated Certificate of Incorporation
to permit Charter to engage in currently prohibited business
activities without having to seek the approval of holders of
Class A Common Stock.
The voting rights relating to the election of Charters
board of directors are as follows:
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The Class B common shareholders, voting separately as a
class, are entitled to elect all but one member of our board of
directors. |
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Class A and Class B common shareholders, voting
together as one class, are entitled to elect the remaining
member of our board of directors who is not elected by the
Class B common shareholders. |
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Class A common shareholders and Class B common
shareholders are not entitled to cumulate their votes in the
election of directors. |
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In addition, Charter may issue one or more series of preferred
stock that entitle the holders of such preferred stock to elect
directors. |
Other than the election of directors and any matters where
Delaware law or the Restated Certificate of Incorporation or
Bylaws of Charter requires otherwise, all matters to be voted on
by shareholders must be approved by a majority of the votes cast
by the holders of shares of Class A Common Stock and
Class B common stock present in person or represented by
proxy, voting together as a single class, subject to any voting
rights granted to holders of any preferred stock.
Amendments to the Restated Certificate of Incorporation of
Charter that would adversely alter or change the powers,
preferences or special rights of the Class A Common Stock
or the Class B common stock must be approved by a majority
of the votes entitled to be cast by the holders of the
outstanding shares of the affected class, voting as a separate
class. In addition, the following actions by Charter must be
approved by the affirmative vote of the holders of at least a
majority of the voting power of the outstanding Class B
common stock, voting as a separate class:
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the issuance of any Class B common stock other than to
Mr. Allen and his affiliates and other than pursuant to
specified stock splits and dividends; |
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the issuance of any stock other than Class A Common Stock
(and other than Class B common stock as described
above); and |
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the amendment, modification or repeal of any provision of the
Restated Certificate of Incorporation of Charter relating to
capital stock or the removal of directors. |
Charter will lose its rights to manage the business of Charter
Holdco and Charter Investment, Inc. will become the sole manager
of Charter Holdco if at any time a court holds that the holders
of the Class B common stock no longer:
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have the number of votes per share of Class B common stock
described above; |
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have the right to elect, voting separately as a class, all but
one member of Charters board of directors, except for any
directors elected separately by the holders of preferred
stock; or |
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have the right to vote as a separate class on matters that
adversely affect the Class B common stock with respect to: |
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(1) the issuance of equity securities of Charter other than
the Class A Common Stock; or |
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(2) the voting power of the Class B common stock. |
These provisions are contained in the amended and restated
limited liability company agreement of Charter Holdco. The
Class B common stock could lose these rights if a holder of
Class A Common Stock successfully challenges in a court
proceeding the voting rights of the Class B common stock.
In any of these circumstances, Charter would also lose its 100%
voting control of Charter Holdco as provided in Charter
Holdcos amended and restated limited liability company
agreement. These provisions exist to assure Mr. Allen that
he will be able to control Charter Holdco in the event he was no
longer able to control Charter through his ownership of
Class B common stock. These events could have a material
adverse impact on our business and the market price of the
Class A Common Stock and the notes.
Dividends. Holders of Class A Common Stock
and Class B common stock will share ratably (based on the
number of shares of common stock held) in any dividend declared
by our board of directors, subject to any preferential rights of
any outstanding preferred stock. Dividends consisting of shares
of Class A Common Stock and Class B common stock may
be paid only as follows:
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shares of Class A Common Stock may be paid only to holders
of Class A Common Stock; |
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shares of Class B common stock may be paid only to holders
of Class B common stock; and |
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the number of shares of each class of common stock payable per
share of such class of common stock shall be equal in number. |
The restated certificate of incorporation of Charter provides
that we may not pay a stock dividend unless the number of
outstanding Charter Holdco common membership units are adjusted
accordingly. This provision is designed to maintain the equal
value between shares of common stock and membership units and
the one-to-one exchange
ratio.
Conversion of Class B Common Stock. Each
share of outstanding Class B common stock will
automatically convert into one share of Class A Common
Stock if, at any time, Mr. Allen or any of his affiliates
sells any shares of common stock of Charter or membership units
of Charter Holdco and as a result of such sale, Mr. Allen
and his affiliates no longer own directly and indirectly common
stock and other equity interests in Charter and membership units
in Charter Holdco that in total represent at least:
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20% of the sum of the values, calculated as of November 12,
1999, of the shares of Class B common stock directly or
indirectly owned by Mr. Allen and his affiliates and the
shares of Class B common stock for which outstanding
Charter Holdco membership units directly or indirectly owned by
Mr. Allen and his affiliates were exchangeable on that
date; and |
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5% of the sum of the values, calculated as of the measuring
date, of shares of outstanding common stock and other equity
interests in Charter and the shares of Charter common stock for
which outstanding Charter Holdco membership units are
exchangeable on such date. |
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These provisions exist to assure that Mr. Allen will no
longer be able to control Charter if after sales of his equity
interests he owns an insignificant economic interest in our
business. The conversion of all Class B common stock in
accordance with these provisions would not trigger Charter
Holdcos limited liability company agreement provisions
described above whereby Charter would lose its management rights
and special voting rights relating to Charter Holdco in the
event of an adverse determination of a court affecting the
rights of the Class B common stock.
Each holder of a share of Class B common stock has the
right to convert such share into one share of Class A
Common Stock at any time on a one-for-one basis. If a
Class B common shareholder transfers any shares of
Class B common stock to a person other than an authorized
Class B common shareholder, these shares of Class B
common stock will automatically convert into shares of
Class A Common Stock. Authorized Class B common
shareholders are Paul G. Allen entities controlled by
Mr. Allen, Mr. Allens estate, any organization
qualified under Section 501(c)(3) of the Internal Revenue
Code that is Mr. Allens beneficiary upon his death
and certain trusts established by or for the benefit of
Mr. Allen. In this context controlled means the
ownership of more than 50% of the voting power and economic
interest of an entity and transfer means the
transfer of record or beneficial ownership of any such share of
Class B common stock.
Other Rights. Shares of Class A Common Stock
will be treated equally in the event of any merger or
consolidation of Charter so that:
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each class of common shareholders will receive per share the
same kind and amount of capital stock, securities, cash and/or
other property received by any other class of common
shareholders, provided that any shares of capital stock so
received may differ in a manner similar to the manner in which
the shares of Class A Common Stock and Class B common
stock differ; or |
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each class of common shareholders, to the extent they receive a
different kind (other than as described above) or different
amount of capital stock, securities, cash and/or other property
than that received by any other class of common shareholders,
will receive for each share of common stock they hold, stock,
securities, cash and/or either property having a value
substantially equivalent to that received by such other class of
common shareholders. |
Upon Charters liquidation, dissolution or winding up,
after payment in full of the amounts required to be paid to
preferred shareholders, if any, all common shareholders,
regardless of class, are entitled to share ratably in any assets
and funds available for distribution to common shareholders.
No shares of any class of common stock are subject to redemption
or have preemptive right to purchase additional shares of common
stock.
Preferred Stock
Charters board of directors is authorized, subject to the
approval of the holders of the Class B common stock, to
issue from time to time up to a total of 250 million shares
of preferred stock in one or more series and to fix the numbers,
powers, designations, preferences, and any special rights of the
shares of each such series thereof, including:
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dividend rights and rates; |
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conversion rights; |
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voting rights; |
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terms of redemption (including any sinking fund provisions) and
redemption price or prices; |
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liquidation preferences; and |
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the number of shares constituting and the designation of such
series. |
Pursuant to their authority the board of directors has
designated 1 million of the above-described
250 million shares as Series A Convertible Redeemable
Preferred Stock (Series A Preferred Stock).
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Holders of the Series A Preferred Stock have no voting
rights but are entitled to receive cumulative cash dividends at
an annual rate of 5.75%, payable quarterly. If for any reason
Charter fails to pay the dividends on the Series A
Preferred Stock on a timely basis, the dividend rate on each
share increases to an annual rate of 7.75% until the payment is
made. The Series A Preferred Stock is redeemable by Charter
at its option on or after August 31, 2004 and must be
redeemed by Charter at any time upon a change of control, or if
not previously redeemed or converted, on August 31, 2008.
The Series A Preferred Stock is convertible, in whole or in
part, at the option of the holders on or before August 31,
2008, into shares of common stock at an initial conversion rate
equal to a conversion price of $24.71 per share of common
stock, subject to certain customary adjustments. The redemption
price per share of Series A Preferred Stock is the
liquidation preference of $100, subject to certain customary
adjustments. At December 31, 2005, there were
36,713 shares of Series A Preferred Stock outstanding,
with an aggregate liquidation preference of approximately
$4 million. These shares are convertible into approximately
148,575 shares of Class A Common Stock.
In connection with the repurchase of 508,546 shares in
November 2005, the holders of Series A Preferred Stock
consented to an amendment to the Certificate of Designation
governing the Series A Preferred Stock that will eliminate
the quarterly dividends on all of the outstanding Series A
Preferred Stock and will provide that the liquidation preference
for the remaining shares outstanding will be $105.4063 per
share, which amount shall accrete from September 30, 2005
at an annual rate of 7.75%, compounded quarterly. Certain
holders of Series A Preferred Stock also released Charter
from various threatened claims relating to their acquisition and
ownership of the Series A Preferred Stock, including
threatened claims for breach of contract.
Charter has no present plans to issue any other shares of
preferred stock.
Options
As of June 30, 2006, options to purchase a total of
1,139,535 membership units in Charter Holdco were outstanding
pursuant to the 1999 Charter Communications Option Plan, and
options to purchase a total of 27,431,950 shares of
Class A Common Stock were outstanding pursuant to
Charters 2001 Stock Incentive Plan. Of these options,
10,453,765 have vested. The membership units received upon
exercise of any of the options under the 1999 Charter
Communications Option Plan are automatically exchanged for
shares of the Class A Common Stock on a one-for-one basis.
In addition, a portion of the unvested options will vest each
month. There are also additional options outstanding to purchase
an aggregate of 289,268 shares of Class A Common
Stock, which were issued to a consultant outside of the 2001
Stock Incentive Plan.
Convertible Notes
At June 30, 2006, we had outstanding $862.5 million
principal amount of the Convertible Notes, which are convertible
(at approximately $2.42 per share) into a total of
approximately 356 million shares of the Class A Common
Stock.
Anti-takeover Effects of Provisions of the Restated
Certificate of Incorporation and Bylaws of Charter
Provisions of the Restated Certificate of Incorporation and
Bylaws of Charter may be deemed to have an anti-takeover effect
and may delay, defer or prevent a tender offer or takeover
attempt that a shareholder might consider in its best interest,
including those attempts that might result in a premium over the
market price for the shares held by shareholders.
Special Meeting of Shareholders. Charters
Bylaws provide that, subject to the rights of holders of any
series of preferred stock, special meetings of Charters
shareholders may be called only by the chairman of our board of
directors, our chief executive officer or a majority of our
board of directors.
Advance Notice Requirements For Shareholder Proposals And
Director Nominations. Charters Bylaws provide that
shareholders seeking to bring business before an annual meeting
of shareholders, or to
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nominate candidates for election as directors at an annual
meeting of shareholders, must provide timely prior written
notice of their proposals. To be timely, a shareholders
notice must be received at our principal executive offices not
less than 45 days nor more than 70 days prior to the
first anniversary of the date on which we first mailed the proxy
statement for the prior years annual meeting. If, however,
the date of the annual meeting is more than 30 days before
or after the anniversary date of the prior years annual
meeting, notice by the shareholder must be received not less
than 90 days prior to the annual meeting or by the
10th day following the public announcement of the date of
the meeting, whichever occurs later, and not more than
120 days prior to the annual meeting. Charters Bylaws
specify requirements as to the form and content of a
shareholders notice. These provisions may limit
shareholders in bringing matters before an annual meeting of
shareholders or in making nominations for directors at an annual
meeting of shareholders.
Authorized But Unissued Shares. The authorized but
unissued shares of Class A Common Stock are available for
future issuance without shareholder approval and, subject to
approval by the holders of the Class B common stock, the
authorized but unissued shares of Class B common stock and
preferred stock are available for future issuance. These
additional shares may be utilized for a variety of corporate
purposes, including future public offerings to raise additional
capital, corporate acquisitions and employee benefit plans. The
existence of authorized but unissued shares of common stock and
preferred stock could render more difficult or discourage an
attempt to obtain control of us by means of a proxy contest,
tender offer, merger or otherwise.
Membership Units of Charter Holdco
The Charter Holdco limited liability company agreement provides
for three separate classes of common membership units designed
Class A, Class B and Class C and one class of
preferred membership units designated Class A. As of
June 30, 2006, there were 777,656,059 Charter Holdco common
membership units issued and outstanding, 438,524,028 of which
were held by Charter.
Class A Common Membership Units. As of
June 30, 2006, there were a total of 324,300,479 issued and
outstanding Class A common membership units, consisting of
217,585,246 units owned by Charter Investment, Inc.
(CII) and 106,715,233 units owned by Vulcan
Cable III Inc.
Class B Common Membership Units. As of
June 30, 2006, there were a total of 438,524,028 issued and
outstanding Class B common membership units, all of which
are owned by Charter.
Class C Common Membership Units. As of
June 30, 2006, there were a total of 14,831,552 issued and
outstanding Class C common membership units, consisting of
5,233,612 units owned by CII and 9,597,940 units owned
by Vulcan Cable III Inc.
Convertible Preferred Membership Units. As of
June 30, 2006, there were a total of 36,713 issued and
outstanding convertible preferred membership units. These units
are owned by Charter and mirror the terms of Charters
Series A Preferred Stock.
Any matter requiring a vote of the members of Charter Holdco
requires the affirmative vote of a majority of the Class B
common membership units. Charter owns all Class B common
membership units and therefore controls Charter Holdco. Because
Mr. Allen owns high vote Class B common stock of
Charter that entitles him to approximately 90% of the voting
power of the outstanding common stock of Charter. Mr. Allen
controls us and through us has voting control of Charter Holdco.
The net cash proceeds that Charter receives from any issuance of
shares of common stock will be immediately transferred to
Charter Holdco in exchange for membership units equal in number
to the number of shares of common stock issued by Charter.
In addition, in October 2005 a settlement was reached in a
dispute concerning the ownership of 24,273,943 units of
CC VIII, LLC. As part of the settlement, CII received an
accreting exchangeable note of CCHC, LLC with an initial value
of $48 million, accreting at 14%, compounded quarterly,
with a 15-year
maturity. The note is exchangeable, at CIIs option, at any
time, for Charter Holdco Class A
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common units at a rate equal to then accreted value, divided by
$2.00 (the Exchange Rate). Customary anti-dilution
protections have been provided that could cause future changes
to the Exchange Rate. Additionally, the Charter Holdco
Class A common units received will be exchangeable by the
holder into Charter Class A Common Stock in accordance with
existing agreements between CII, Charter and certain other
parties signatory thereto. Beginning three years and four months
after the closing of the Settlement, if the closing price of
Charter Class A Common Stock is at or above the Exchange
Rate for a certain period of time as specified in the Exchange
Agreement, Charter Holdco may require the exchange of the Note
for Charter Holdco Class A units at the Exchange Rate.
Exchange Agreement
Charter is a party to an agreement permitting Vulcan
Cable III Inc., CII and any other affiliate of
Mr. Allen to exchange at any time on a one-for-one basis
any or all of their Charter Holdco common membership units for
shares of Class B common stock. This exchange may occur
directly or, at the election of the exchanging holder,
indirectly through a tax-free reorganization such as a share
exchange or a statutory merger of any Allen-controlled entity
with and into Charter or a wholly owned subsidiary of Charter.
In the case of an exchange in connection with a tax-free share
exchange or a statutory merger, shares of Class A Common
Stock held by Mr. Allen or the Allen-controlled entity will
also be exchanged for Class B common stock. Mr. Allen
currently owns shares of Class A Common Stock as a result
of the exercise of put rights granted to sellers in the Falcon
acquisition and the Rifkin acquisition.
Charter Holdco common membership units held by Mr. Allen
and his affiliates are exchangeable at any time for shares of
the Class B common stock, which is then convertible into
shares of Class A Common Stock. The exchange agreement and
the 1999 Charter Communications Option Plan state that common
membership units are exchangeable for shares of common stock at
a value equal to the fair market value of the common membership
units. The exchange ratio of common membership units to shares
of Class A Common Stock will be one to one because Charter
and Charter Holdco have been structured so that the fair market
value of a share of the Class A Common Stock equals the
fair market value of a common membership unit owned by Charter.
Charters organizational documents achieve this result by
limiting the assets and liabilities that Charter may hold; and
requiring the number of shares of Charters common stock
outstanding at any time to equal the number of common membership
units owned by Charter.
If we fail to comply with these provisions or they are changed,
the exchange ratio may vary from one to one and will then be
based on a pre-determined formula contained in the exchange
agreements and the 1999 Charter Communications Option Plan. This
formula will be based on the then current relative fair market
values of common membership units and common stock.
Special Tax Allocation Provisions.
Charter Holdcos limited liability company agreement
contains a number of provisions affecting allocation of net tax
losses and net tax profits to its members. In some situations,
these provisions could result in Charter having to pay income
taxes in an amount that is more or less than it would have had
to pay if these provisions did not exist.
Other Material Terms of the Amended and Restated Limited
Company Agreement of Charter Holdco
General. Charter Holdcos amended and
restated limited liability company agreement contains provisions
that permit each member (and its officers, directors, agents,
shareholders, members, partners or affiliates) to engage in
businesses that may compete with the businesses of Charter
Holdco or any subsidiary. However, the directors of Charter,
including Mr. Allen, are subject to fiduciary duties under
Delaware corporate law that generally require them to present
business opportunities in the cable transmission business to
Charter.
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The amended and restated limited liability company agreement
restricts the business activities that Charter Holdco may engage
in.
Transfer Restrictions. The amended and restated
limited liability company agreement restricts the ability of
each member to transfer its membership interest unless specified
conditions have been met. These conditions include:
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the transfer will not result in the loss of any license or
regulatory approval or exemption that has been obtained by
Charter Holdco and is materially useful in its business as then
conducted or proposed to be conducted; |
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the transfer will not result in a material and adverse
limitation or restriction on the operations of Charter Holdco
and its subsidiaries taken as a whole; |
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the proposed transferee agrees in writing to be bound by the
limited liability company agreement; and |
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except for a limited number of permitted transfers under the
limited liability company agreement, the transfer has been
approved by the manager in its sole discretion. |
Amendments to the Limited Liability Company
Agreement. Any amendment to the limited liability
company agreement generally may be adopted only upon the
approval of a majority of the Class B common membership
units. The agreement may not be amended in a manner that
adversely affects the rights of any class of common membership
units without the consent of holders holding a majority of the
membership units of that class.
Registration Rights
Holders of Class B Common Stock. Charter,
Mr. Allen, CII and Vulcan Cable III Inc., are parties
to a registration rights agreement. The agreement gives
Mr. Allen and his affiliates the right to cause us to
register the shares of Class A Common Stock issued to them
upon conversion of any shares of Class B common stock that
they may hold.
This registration rights agreement provides that each eligible
holder is entitled to unlimited piggyback
registration rights permitting them to include their shares of
Class A Common Stock in registration statements filed by
us. These holders may also exercise their demand rights causing
us, subject to specified limitations, to register their
Class A shares, provided that the amount of shares subject
to each demand has a market value at least equal to
$50 million or, if the market value is less than
$50 million, all of the Class A shares of the holders
participating in the offering are included in such registration.
We are obligated to pay the costs associated with all such
registrations.
Holders may elect to have their shares registered pursuant to a
shelf registration statement if at the time of the election,
Charter is eligible to file a registration statement on
Form S-3 and the
amount of shares to be registered has a market value equal to at
least $100 million on the date of the election.
All shares of Class A Common Stock issuable to the
registration rights holders in exchange for Charter Holdco
membership units and upon conversion of outstanding Class B
common stock and conversion of Class B common stock
issuable to the registration rights holders upon exchange of
Charter Holdco membership units are subject to the registration
rights described above.
Transfer Agent and Registrar
The transfer agent and registrar for the Class A Common
Stock is Mellon Investor Services, LLC.
Share Lending Agreement
We understood that, when we sold the Convertible Notes, and for
some time thereafter, it was difficult for investors in the
Convertible Notes to borrow shares of the Class A Common
Stock for the purpose of shorting such stock to hedge their
investment in the Convertible Notes. We also understand
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that many investors in convertible securities seek to hedge
their exposure to the issuers common stock by selling the
stock short to establish an initial hedge position that
partially offsets the long position represented by the
convertible securities. Such investors then dynamically adjust
their hedge position over time as the market price of the
underlying stock and the time to maturity of the convertible
securities changes. As the stock price increases, investors will
generally increase their hedge position by borrowing and
shorting more shares, and as the stock price decreases,
investors will generally decrease their hedge position by buying
shares in the market and closing out their stock loans.
Because we believed there were not sufficient shares of the
Class A Common Stock available for investors to borrow when
we offered the Convertible Notes, and because we understood that
the shares that were available were relatively expensive to
borrow, we were concerned that, in order to sell the Convertible
Notes, we would be forced to offer terms that would have been
unfavorable to us. To address this concern, and to make it
possible or less expensive for prospective investors in the
Convertible Notes to hedge their investment, we entered into a
share lending agreement, dated November 22, 2004 (the
Share Lending Agreement), with Citigroup Global
Markets Inc. (Citigroup), as agent for Citigroup
Global Markets Limited (CGML), as borrower. Under
the Share Lending Agreement, we agreed to loan to CGML up to
150,000,000 shares of the Class A Common Stock on one
or more occasions prior to November 16, 2006 or, if
earlier, the date as of which all of the Convertible Notes cease
to be outstanding as the result of conversion, repurchase,
redemption or otherwise. To date, 116.9 million shares have
been sold in three share borrow transactions. Because less than
the full 150 million shares covered by the Share Lending
Agreement were sold in the prior share borrow transactions, we
remain obligated to issue, at CGMLs request, up to an
additional 33.1 million shares in up to two additional
subsequent registered public offerings pursuant to the share
lending agreement. We will receive a loan fee of $.001 per
share for each share that we loan to CGML, payable at the time
such share is borrowed. Citigroup Global Markets Holdings Inc.
guaranteed the obligations of CGML under the Share Lending
Agreement.
Under the agreement, CGML agreed that it will not transfer or
dispose of the borrowed shares except for the purpose of
directly or indirectly facilitating the hedging of the
Convertible Notes by Holders. Any shares of the Class A
Common Stock that Citigroup returns to us to reduce its stock
loan after such shares have been sold into the public market
pursuant to a registration statement cannot be reborrowed.
Share loans under the agreement will terminate and the borrowed
shares must be returned to us:
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if and when CGML in its discretion terminates all or any portion
of a loan at any time; |
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if and when we terminate any or all of the outstanding loans
upon a default by CGML under the Share Lending Agreement,
including a breach by CGML of any of its representations and
warranties, covenants or agreements under such agreement or the
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on November 16, 2009, the termination date for the Share
Lending Agreement or, sooner, if and when all of the Convertible
Notes have been converted, repaid, redeemed or are otherwise no
longer outstanding. We will not otherwise have the right to
terminate any loan of borrowed shares. |
Any shares that we loan to CGML will be issued and outstanding
for corporate law purposes, and accordingly, the purchasers of
the borrowed shares and their transferees will have all of the
rights of a holder of outstanding shares of Class A Common
Stock, including the right to vote the shares on all matters
submitted to a vote of Charters stockholders and the right
to receive any dividends or other distributions that we may pay
or make on outstanding shares of Class A Common Stock.
However, under the Share Lending Agreement, CGML has agreed:
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to pay to us an amount equal to any cash dividends that we pay
on the borrowed shares, and |
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to pay or deliver to us any other distribution, in liquidation
or otherwise, that we make on the borrowed shares. |
CGML has also agreed under the share lending agreement that it
will not vote any borrowed shares of which it is the record
owner, and it will not transfer or dispose of any borrowed
shares except pursuant to a registration statement that is
effective under the Securities Act of 1933, as amended. However,
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investors that purchase the shares from CGML (and any subsequent
transferees of such purchasers) will be entitled to the same
voting rights with respect to those shares as any other holder
of the Class A Common Stock.
If the credit ratings of Citigroup Global Markets Holdings Inc.,
the guarantor of CGMLs obligations under the Share Lending
Agreement, decline below a specified level, CGML has agreed
under the Share Lending Agreement to post and maintain with
Citigroup, as collateral agent on Charters behalf,
collateral in the form of cash, government securities,
certificates of deposit, high grade commercial paper of
U.S. issuers or money market shares with a market value at
least equal to 100% of the market value of the borrowed shares
as security for the obligation of CGML to return the borrowed
shares to us when required.
In view of the contractual undertakings of CGML in the Share
Lending Agreement, which have the effect of substantially
eliminating the economic dilution that would otherwise result
from the issuance of the borrowed shares, we believe that under
U.S. generally accepted accounting principles currently in
effect, the borrowed shares will not be considered outstanding
for the purpose of computing and reporting Charters
earnings per share.
Charters issuance of loaned shares of the Class A
Common Stock offered pursuant to the Share Lending Agreement is
essentially analogous to a sale of shares coupled with a forward
contract for the reacquisition of the shares at a future date.
An instrument that requires physical settlement by repurchase of
a fixed number of shares in exchange for cash is considered a
forward purchase instrument. While the Share Lending Agreement
does not require a cash payment upon return of the shares,
physical settlement is required (i.e., the loaned shares must be
returned at the end of the arrangement). The fair value of the
Class A Common Stock lent in the three share borrow
transactions is approximately $111 million. However, the
net effect on shareholders deficit of the Share Lending
Agreement (exclusive of the adjustment for the fair value of the
stock borrow facility discussed below) which includes our
requirement to lend the shares and the counterparties
requirement to return the shares, is to increase equity by
$117,000, which represents the cash received upon lending of the
shares and is equal to the par value of the common stock to be
issued.
The shares issued are required to be returned, in accordance
with the contractual arrangement, and are treated in basic and
diluted earnings per share as if they were already returned and
retired. Consequently, there is no impact of the
116.9 million shares of Class A Common Stock issued
subject to the Share Lending Agreement in the earnings per share
calculation. However, the shares are nonetheless issued and
outstanding and are eligible for trading in the Nasdaq Global
Market. Accordingly, the increase in supply of shares may have
an adverse impact on the trading price of the Class A
Common Stock. Accordingly, the existence of the Share Lending
Agreement and the short positions established in connection with
facilitating the hedging of the Convertible Notes could have the
effect of causing the market price of the Class A Common
Stock to be lower over the term of the Share Lending Agreement
than it would have been had we not entered into the agreement,
but we believe that entering into the Share Lending Agreement
was in our best interests and the best interests of
Charters shareholders as it facilitated the sale of the
Convertible Notes on terms more favorable to us than we could
have otherwise obtained.
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SHARES ELIGIBLE FOR FUTURE SALE
In addition to the 45,000,000 shares of Class A Common
Stock offered hereby, as of June 30, 2006, we had
438.5 million shares of Class A Common Stock
issued and outstanding, all of which are eligible for immediate
resale (subject to limitations of Rule 144 in the case of
shares held by affiliates).
As of June 30, 2006, the following additional shares of
Class A Common Stock are or will be issuable after giving
effect to this exchange offer:
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365,550,939 shares of Class A Common Stock are
issuable upon conversion of Class B common stock issuable
upon exchange of Charter Holdco membership units held by Vulcan
Cable III Inc. and Charter Investment, Inc. These
membership units are exchangeable for shares of Class B
common stock on a one-for-one basis. Shares of Class B
common stock are convertible into shares of Class A Common
Stock on a one-for-one basis. |
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26,418,908 shares of Class A Common Stock are issuable
upon the exchange of Charter Holdco membership units issuable in
exchange for a subordinated exchangeable note of CCHC with an
initial accreted value of $48.2 million, accreting at 14%,
compounded quarterly, with a
15-year maturity. The
note is exchangeable, at Charter Investment, Inc.s option,
at any time, for Holdco membership units at a rate equal to then
accreted value, divided by $2.00. See Certain
Relationships and Related Party Transactions
Transactions Arising Out of Our Organizational Structure and
Mr. Allens Investment in Charter and Its
Subsidiaries Equity Put Rights
CC VIII. |
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50,000 shares of Class A Common Stock will be issuable
upon conversion of outstanding Class B common stock on a
one-for-one basis. |
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Up to 90,000,000 shares of Class A Common Stock (or
units exchangeable for Class A Common Stock) are authorized
for issuance pursuant to Charters 2001 Stock Incentive
Plan and 1999 Charter Communications Option Plan. At
June 30, 2006, 1,318,020 shares had been issued under
the plans upon exercise of options, 1,256,376 shares had
been issued upon vesting of restricted stock grants, and
3,854,368 shares are subject to future vesting under
restricted stock agreements. Of the remaining
83,571,236 shares covered by the plans, as of June 30,
2006, 28,571,485 were subject to outstanding options (37% of
which were vested), and there were 24,605,998 performance units
granted under Charters long-term incentive program or the
February 20, 2004 exchange offer, which will vest on the
third anniversary of the date of grant conditional upon
Charters performance against financial targets approved by
the board of directors at the time of the awards. As of
June 30, 2006, 30,393,763 shares remained available
for future grant under the plans. |
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178,202,479 shares of Class A Common Stock are
issuable upon conversion of the Convertible Notes assuming 50%
of the Convertible Notes are tendered in this Exchange Offer. |
All of the shares of Class A Common Stock issuable upon
exchange of Charter Holdco membership units and upon conversion
of shares of the Class B common stock are subject to demand
and piggyback registration rights.
Shares issuable upon conversion of the Convertible Notes are
expected to be eligible for resale pursuant to a resale shelf
registration statement which was declared effective on
July 15, 2005. All of the shares issuable to claimants
pursuant to the settlements will be eligible for immediate
resale. The additional shares that may be issued under the share
lending agreement are expected, if and when issued, to be
available for immediate resale pursuant to a registration
statement to be filed prior to the issuance of those shares.
240
A registration statement on
Form S-8 covering
the Class A Common Stock issuable pursuant to the exercise
of options under the 1999 Charter Communications Option Plan was
filed with the Securities and Exchange Commission in
May 2000 and registration statements on
Form S-8 covering
shares issuable under the 2001 Stock Incentive Plan were filed
in May 2001 and November 2003. The shares of
Class A Common Stock covered by the
Form S-8
registration statements generally may be resold in the public
market without restriction or limitation, except in the case of
our affiliates who generally may only resell such shares in
accordance with the provisions of Rule 144 of the
Securities Act of 1933.
The sale of a substantial number of shares of Class A
Common Stock, or the perception that such sales could occur,
could adversely affect prevailing market prices for the
Class A Common Stock. In addition, any such sale or
perception could make it more difficult for us to sell equity
securities or equity related securities in the future at a time
and price that we deem appropriate.
241
DESCRIPTION OF THE CCH II NOTES
This description of notes relates to the 10.25% senior
notes due 2010 (the CCH II Notes) of
CCH II, LLC and CCH II Capital Corp. We refer, in this
Description of the CCH II Notes, to CCH II, LLC and
CCH II Capital Corp., which are the co-obligors with
respect to the CCH II Notes, as the Issuers, and we
sometimes refer to them each as an Issuer. We may
also refer to CCH II, LLC as CCH II. You
can find the definitions of certain terms used in this
description under Certain definitions.
The CCH II Notes offered hereby will be pari passu with, of
the same class as, will vote on any matter submitted to
bondholders with and otherwise substantially identical in all
respects to approximately $2.1 billion principal amount of
currently outstanding CCH II Notes (the Existing
Notes). However, the Existing Notes trade under two CUSIP
numbers, which are not fungible. The CCH II Notes being
offered as part of the Exchange Consideration will be issued
under a temporary CUSIP number until the next interest payment
date, which is expected to be September 15, 2006, at which
time it is expected that they will be mandatorily merged into
the existing CUSIP number of approximately $1.6 billion
outstanding principal amount of CCH II Notes.
CCH II Notes will be issued only in minimum
denominations of $1,000 and integral multiples of $1,000. For
purposes of this description, except where the context otherwise
requires, the term CCH II Notes shall refer
collectively to the Existing Notes and the CCH II Notes
offered hereby.
The CCH II Notes will be issued pursuant to a supplemental
indenture to the indenture, dated as of September 23, 2003
(as supplemented, the Indenture), among the Issuers
and Wells Fargo Bank, National Association, as trustee, under
which the Issuers previously issued the Existing Notes. The
terms of the CCH II Notes include those stated in the
Indenture and those made part of the Indenture by reference to
the Trust Indenture Act of 1939.
The following description is a summary of the provisions we
consider material of the Indenture. It does not restate that
agreement in its entirety. We urge you to read the Indenture
because it, and not this description, defines your rights as
holders of the respective CCH II Notes. Copies of the
Indenture are available as set forth under
Additional information.
Brief description of the CCH II Notes
The CCH II Notes are:
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senior unsecured obligations of the Issuers; |
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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; |
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equal in right of payment to any future unsubordinated,
unsecured Indebtedness of the Issuers and any notes of
CCH II issued in the Private Exchange Offers; |
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structured to be effectively senior to the outstanding senior
notes and senior discount notes of CCH I, any notes of
CCH I issued in the Private Exchange Offers, CIH and
Charter Holdings and the outstanding convertible senior notes of
Charter Communications, Inc.; |
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senior in right of payment to any future subordinated
Indebtedness of the Issuers; and |
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structurally subordinated to all indebtedness and other
liabilities (including trade payables) of the Issuers
subsidiaries, including indebtedness under our
subsidiaries credit facilities and the senior notes of CCO
Holdings and CCO. |
At June 30, 2006, on a pro forma basis after giving effect
to the issuance and sale of the CCH II Notes and up to
$200 million of CCH IIs 10.25 % Senior
Notes due 2013 that are being offered in the Private Exchange
Offers and the application of the net proceeds therefrom, as if
those transactions had occurred on that date, the outstanding
Indebtedness of CCH II and its subsidiaries would have
totaled approximately $13.2 billion, approximately
$11.1 billion of which would have been Indebtedness of its
242
Subsidiaries and, therefore, structurally senior to the
CCH II Notes. Substantially all of the Subsidiaries of
CCH II (except certain non-material subsidiaries) are
Restricted Subsidiaries. Under the circumstances
described below under Certain
covenants Investments, CCH II will be
permitted to designate additional Subsidiaries as
Unrestricted Subsidiaries. Unrestricted Subsidiaries
will generally not be subject to the restrictive covenants in
the Indenture.
Principal, maturity and interest
The CCH II Notes will be issued in denominations of $1,000
and integral multiples of $1,000. The CCH II Notes will
mature on September 15, 2010. CCH II Notes will
be issued only in minimum denominations of $1,000 and integral
multiples of $1,000.
Interest on the CCH II Notes will accrue at the rate of
10.25% per annum. Interest on the CCH II Notes will
accrue from the Settlement Date. Interest will be payable
semi-annually in arrears on March 15 and September 15
of each year. The Issuers will make each interest payment to the
holders of record of the CCH II Notes on the immediately
preceding March 1 and September 1. Interest will be
computed on the basis of a
360-day year comprised
of twelve 30-day months.
The Existing Notes were issued in the aggregate principal amount
of approximately $2.1 billion. The new CCH II Notes
will be issued in the aggregate principal amount of up to
$146.3 million. Subject to the limitations set forth under
Certain covenants Incurrence of
indebtedness and issuance of preferred stock, the Issuers
may issue an unlimited principal amount of Additional Notes
under the Indenture. The CCH II Notes and any Additional
Notes subsequently issued under the Indenture would be treated
as a single class of securities for all purposes of the
Indenture. For purposes of this description, unless otherwise
indicated, references to the CCH II Notes include any
Additional Notes subsequently issued under the Indenture.
Optional redemption
The CCH II Notes are not redeemable at the option of the
Issuers prior to September 15, 2008.
On or after September 15, 2008, the Issuers may redeem all
or a part of the CCH II Notes upon not less than 30 nor
more than 60 days notice, at the redemption prices
(expressed as percentages of principal amount of the CCH II
Notes) set forth below plus accrued and unpaid interest thereon,
if any, to the applicable redemption date, if redeemed during
the twelve-month period beginning on September 15 of the
years indicated below:
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2008
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105.125% |
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2009 and thereafter
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100.000% |
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Repurchase at the option of holders
If a Change of Control occurs, each holder of CCH II Notes
will have the right to require the Issuers to repurchase all or
any part (equal to $1,000 or an integral multiple thereof) of
that holders CCH II Notes pursuant to a Change
of Control Offer. In the Change of Control Offer, the
Issuers will offer a Change of Control Payment in
cash equal to 101% of the aggregate principal amount of the
CCH II Notes repurchased plus accrued and unpaid interest
thereon, if any, to the date of purchase.
Within ten days following any Change of Control, the Issuers
will mail a notice to each holder (with a copy to the trustee)
describing the transaction or transactions that constitute the
Change of Control and offering to repurchase CCH II Notes
on a certain date (the Change of Control Payment
Date) specified in such notice, pursuant to the procedures
required by the Indenture and described in such notice. The
Issuers will comply with the requirements of
Rule 14e-1 under
the Securities Exchange Act of 1934 or any successor rules, and
any other securities laws and regulations thereunder to the
extent such
243
laws and regulations are applicable in connection with the
repurchase of the CCH II Notes as a result of a Change of
Control. To the extent that the provisions of any securities
laws or regulations conflict with the provisions of this
covenant, the Issuers compliance with such laws and
regulations shall not in and of itself cause a breach of their
obligations under such covenant.
On the Change of Control Payment Date, the Issuers will, to the
extent lawful:
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(1) accept for payment all CCH II Notes or portions
thereof properly tendered pursuant to the Change of Control
Offer; |
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(2) deposit with the paying agent an amount equal to the
Change of Control Payment in respect of all CCH II Notes or
portions thereof so tendered; and |
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(3) deliver or cause to be delivered to the trustee the
CCH II Notes so accepted together with an officers
certificate stating the aggregate principal amount of
CCH II Notes or portions thereof being purchased by the
Issuers. |
The paying agent will promptly mail to each holder of
CCH II Notes so tendered the Change of Control Payment for
such CCH II Notes, and the trustee will promptly
authenticate and mail, or cause to be transferred by book entry,
to each holder a new CCH II Note equal in principal amount
to any unpurchased portion of the CCH II Notes surrendered,
if any; provided that each such new CCH II Note will be in
a principal amount of $1,000 or an integral multiple thereof.
The provisions described above that require the Issuers to make
a Change of Control Offer following a Change of Control will be
applicable regardless of whether or not any other provisions of
the Indenture are applicable. Except as described above with
respect to a Change of Control, the Indenture does not contain
provisions that permit the holders of the CCH II Notes to
require that the Issuers repurchase or redeem the CCH II
Notes in the event of a takeover, recapitalization or similar
transaction.
The Issuers will not be required to make a Change of Control
Offer upon a Change of Control if a third party makes the Change
of Control Offer in the manner, at the times and otherwise in
compliance with the requirements set forth in the Indenture
applicable to a Change of Control Offer made by the Issuers and
purchases all CCH II Notes validly tendered and not
withdrawn under such Change of Control Offer.
The definition of Change of Control includes a phrase relating
to the sale, lease, transfer, conveyance or other disposition of
all or substantially all of the assets of
CCH II and its Subsidiaries, taken as a whole, or of a
Parent and its Subsidiaries, taken as a whole. Although there is
a limited body of case law interpreting the phrase
substantially all, there is no precise established
definition of the phrase under applicable law. Accordingly, the
ability of a holder of CCH II Notes to require the Issuers
to repurchase CCH II Notes as a result of a sale, lease,
transfer, conveyance or other disposition of less than all of
the assets of CCH II and its Subsidiaries, taken as a
whole, or of a Parent and its Subsidiaries, taken as a whole, to
another Person or group may be uncertain.
CCH II will not, and will not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless:
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(1) CCH II or such Restricted Subsidiary receives
consideration at the time of such Asset Sale at least equal to
the fair market value of the assets or Equity Interests issued
or sold or otherwise disposed of; |
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(2) such fair market value is determined by the Board of
Directors of CCH II and evidenced by a resolution of such
Board of Directors set forth in an officers certificate
delivered to the trustee; and |
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(3) at least 75% of the consideration therefor received by
CCH II or such Restricted Subsidiary is in the form of
cash, Cash Equivalents or readily marketable securities. |
244
For purposes of this provision, each of the following shall be
deemed to be cash:
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(a) any liabilities (as shown on CCH IIs or such
Restricted Subsidiarys most recent balance sheet) of
CCH II or any Restricted Subsidiary (other than contingent
liabilities and liabilities that are by their terms subordinated
to the CCH II Notes) that are assumed by the transferee of
any such assets pursuant to a customary novation agreement that
releases CCH II or such Restricted Subsidiary from further
liability; |
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(b) any securities, CCH II Notes or other obligations
received by CCH II or any such Restricted Subsidiary from
such transferee that are converted by the recipient thereof into
cash, Cash Equivalents or readily marketable securities within
60 days after receipt thereof (to the extent of the cash,
Cash Equivalents or readily marketable securities received in
that conversion); and |
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(c) Productive Assets. |
Within 365 days after the receipt of any Net Proceeds from
an Asset Sale, CCH II or a Restricted Subsidiary of
CCH II may apply such Net Proceeds at its option:
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(1) to repay debt under the Credit Facilities or any other
Indebtedness of the Restricted Subsidiaries of CCH II
(other than Indebtedness represented by a guarantee of a
Restricted Subsidiary of CCH II); or |
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(2) to invest in Productive Assets; provided that any such
amount of Net Proceeds which CCH II or a Restricted
Subsidiary has committed to invest in Productive Assets within
365 days of the applicable Asset Sale may be invested in
Productive Assets within two years of such Asset Sale. |
The amount of any Net Proceeds received from Asset Sales that
are not applied or invested as provided in the preceding
paragraph will constitute Excess Proceeds. When the aggregate
amount of Excess Proceeds exceeds $25 million, CCH II
will make an Asset Sale Offer to all holders of CCH II
Notes and all holders of other Indebtedness that is of equal
priority with the CCH II Notes containing provisions
requiring offers to purchase or redeem with the proceeds of
sales of assets to purchase the maximum principal amount of
CCH II Notes and such other Indebtedness of equal priority
that may be purchased out of the Excess Proceeds, which amount
includes the entire amount of the Net Proceeds. The offer price
in any Asset Sale Offer will be payable in cash and equal to
100% of the principal amount of the subject CCH II Notes
plus accrued and unpaid interest, if any, to the date of
purchase. If the aggregate principal amount of CCH II Notes
and such other Indebtedness of equal priority tendered into such
Asset Sale Offer exceeds the amount of Excess Proceeds, the
trustee shall select the CCH II Notes and such other
Indebtedness of equal priority to be purchased on a pro rata
basis.
If any Excess Proceeds remain after consummation of an Asset
Sale Offer, then CCH II or any Restricted Subsidiary
thereof may use such remaining Excess Proceeds for any purpose
not otherwise prohibited by the Indenture. Upon completion of
any Asset Sale Offer, the amount of Excess Proceeds shall be
reset at zero.
Selection and notice
If less than all of the CCH II Notes are to be redeemed at
any time, the trustee will select CCH II Notes for
redemption as follows:
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(1) if any CCH II Notes are listed, in compliance with
the requirements of the principal national securities exchange
on which the CCH II Notes are listed; or |
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(2) if the CCH II Notes are not so listed, on a
pro rata basis, by lot or by such method as the trustee
shall deem fair and appropriate. |
No CCH II Notes of $1,000 principal amount or less shall be
redeemed in part. Notices of redemption shall be mailed by first
class mail at least 30 but not more than 60 days before the
redemption date to each holder of CCH II Notes to be
redeemed at its registered address. Notices of redemption may
not be conditional.
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If any CCH II Note is to be redeemed in part only, the
notice of redemption that relates to that CCH II Note shall
state the portion of the principal amount thereof to be
redeemed. A new CCH II Note in principal amount equal to
the unredeemed portion of the original CCH II Note will be
issued in the name of the holder thereof upon cancellation of
the original CCH II Note. CCH II Notes called for
redemption become irrevocably due and payable on the date fixed
for redemption at the redemption price. On and after the
redemption date, interest ceases to accrue on the CCH II
Notes or portions of them called for redemption.
Certain covenants
Set forth in this section are summaries of certain covenants
contained in the Indenture.
During any period of time that (a) any CCH II Notes
have Investment Grade Ratings from both Rating Agencies and
(b) no Default or Event of Default has occurred and is
continuing under the Indenture, CCH II and the Restricted
Subsidiaries of CCH II will not be subject to the
provisions of the Indenture described under:
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Repurchase at the option of
holders Asset sales, |
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Restricted payments, |
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Investments, |
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Incurrence of indebtedness and issuance of
preferred stock, |
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Dividend and other payment restrictions
affecting subsidiaries, |
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clause (D) of the first paragraph of
Merger, consolidation, or sale of assets, |
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Transactions with affiliates and |
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Sale and leaseback transactions. |
If CCH II and its Restricted Subsidiaries are not subject
to these covenants for any period of time as a result of the
previous sentence and, subsequently, one, or both, of the Rating
Agencies withdraws its ratings or downgrades the ratings
assigned to the applicable CCH II Notes below the required
Investment Grade Ratings or a Default or Event of Default occurs
and is continuing, then CCH II and its Restricted
Subsidiaries will thereafter again be subject to these
covenants. The ability of CCH II and its Restricted
Subsidiaries to make Restricted Payments after the time of such
withdrawal, downgrade, Default or Event of Default will be
calculated as if the covenant governing Restricted Payments had
been in effect during the entire period of time from the Issue
Date.
CCH II will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly:
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(1) declare or pay any dividend or make any other payment
or distribution on account of its or any of its Restricted
Subsidiaries Equity Interests (including, without
limitation, any payment in connection with any merger or
consolidation involving CCH II or any of its Restricted
Subsidiaries) or to the direct or indirect holders of
CCH IIs or any of its Restricted Subsidiaries
Equity Interests in their capacity as such (other than dividends
or distributions payable (x) solely in Equity Interests
(other than Disqualified Stock) of CCH II or (y), in
the case of CCH II and its Restricted Subsidiaries, to
CCH II or a Restricted Subsidiary thereof); |
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(2) purchase, redeem or otherwise acquire or retire for
value (including, without limitation, in connection with any
merger or consolidation involving CCH II or any of its
Restricted Subsidiaries) any Equity Interests of CCH II or
any direct or indirect Parent of CCH II or any Restricted
Subsidiary of CCH II (other than, in the case of
CCH II and its Restricted Subsidiaries, any such Equity
Interests owned by CCH II or any of its Restricted
Subsidiaries); or |
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(3) make any payment on or with respect to, or purchase,
redeem, defease or otherwise acquire or retire for value, any
Indebtedness of CCH II that is subordinated to the
CCH II Notes, except a payment of interest or principal at
the Stated Maturity thereof (all such payments and other actions
set forth in clauses (1) through (3) above are collectively
referred to as Restricted Payments), unless, at the
time of and after giving effect to such Restricted Payment: |
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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 |
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(b) CCH II would, at the time of such Restricted
Payment and after giving pro forma effect thereto as if such
Restricted Payment had been made at the beginning of the
applicable quarter period, have been 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
below under the caption Incurrence of
indebtedness and issuance of preferred stock; and |
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(c) such Restricted Payment, together with the aggregate
amount of all other Restricted Payments made by CCH II and
its Restricted Subsidiaries from and after the Issue Date
(excluding Restricted Payments permitted by clauses (2),
(3), (4), (5), (6), (7), (8) and (10) of the next succeeding
paragraph), shall not exceed, at the date of determination, the
sum of: |
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(1) an amount equal to 100% of the Consolidated EBITDA of
CCH II for the period beginning on the first day of the
fiscal quarter commencing July 1, 2003 to the end of
CCH IIs 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 CCH II for such period,
plus |
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(2) 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 |
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(3) $100 million. |
So long as no Default under the Indenture has occurred and is
continuing or would be caused thereby, the preceding provisions
will not prohibit:
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(1) the payment of any dividend within 60 days after
the date of declaration thereof, if at said date of declaration
such payment would have complied with the provisions of the
Indenture; |
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(2) the redemption, repurchase, retirement, defeasance or
other acquisition of any subordinated Indebtedness of
CCH II in exchange for, or out of the net proceeds of, the
substantially concurrent sale (other than to a Subsidiary of
CCH II) of Equity Interests of CCH II (other than
Disqualified Stock); provided that the amount of any such net
cash proceeds that are utilized for any such redemption,
repurchase, retirement, defeasance or other acquisition shall be
excluded from clause (3)(b) of the preceding paragraph; |
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(3) the defeasance, redemption, repurchase or other
acquisition of subordinated Indebtedness of CCH II or any
of its Restricted Subsidiaries with the net cash proceeds from
an incurrence of Permitted Refinancing Indebtedness; |
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(4) regardless of whether a Default then exists, the
payment of any dividend or distribution to the extent necessary
to permit direct or indirect beneficial owners of shares of
Capital Stock of CCH II to pay federal, state or local
income tax liabilities that would arise solely from income of
CCH II or any of its Restricted Subsidiaries, as the case
may be, for the relevant taxable period and attributable to them
solely as a result of CCH II (and any intermediate entity
through which the holder owns such shares) or any of its
Restricted Subsidiaries being a limited liability company,
partnership or similar entity for federal income tax purposes; |
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(5) regardless of whether a Default then exists, the
payment of any dividend by a Restricted Subsidiary of
CCH II to the holders of its common Equity Interests on a
pro rata basis; |
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(6) the payment of any dividend on the Helicon Preferred
Stock or the redemption, repurchase, retirement or other
acquisition of the Helicon Preferred Stock in an amount not in
excess of its aggregate liquidation value; |
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(7) the repurchase, redemption or other acquisition or
retirement for value, or the payment of any dividend or
distribution to the extent necessary to permit the repurchase,
redemption or other acquisition or retirement for value, of any
Equity Interests of CCH II or a Parent of CCH II held
by any member of CCH IIs or such Parents
management pursuant to any management equity subscription
agreement or stock option agreement entered into in accordance
with the policies of CCH II or any Parent; provided that
the aggregate price paid for all such repurchased, redeemed,
acquired or retired Equity Interests shall not exceed
$10 million in any fiscal year of the Issuers; |
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(8) payment of fees in connection with any acquisition,
merger or similar transaction in an amount that does not exceed
an amount equal to 1.25% of the transaction value of such
acquisition, merger or similar transaction; |
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(9) additional dividends and distributions directly or
indirectly to CCH II or any Parent (i) regardless of
whether a Default exists (other than a Default described in
paragraphs (1), (2), (7) or (8) under the caption
Events of default and remedies), for the purpose of
enabling Charter Holdings, and/or any Charter Refinancing
Subsidiary to pay interest when due on Indebtedness under the
Charter Holdings Indentures, and/or any Charter Refinancing
Indebtedness, (ii) for the purpose of enabling Charter
and/or any Charter Refinancing Subsidiary to pay interest when
due on Indebtedness under the Charter Indentures and/or any
Charter Refinancing Indebtedness and (iii) so long as
CCH II would have been permitted, at the time of such
Restricted Payment and after giving pro forma effect thereto as
if such Restricted Payment had been made at the beginning of the
applicable quarter period, 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 below under the
caption Incurrence of indebtedness and
issuance of preferred stock, to the extent required to
enable Charter Holdings, Charter or any Charter Refinancing
Subsidiary to defease, redeem, repurchase, prepay, repay,
discharge or otherwise acquire or retire for value Indebtedness
under the Charter Holdings Indentures, the
Charter Indentures or any Charter Refinancing
Indebtedness; and |
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(10) dividends or distributions to any Parent to consummate
the Private Exchanges. |
The amount of all Restricted Payments (other than cash) shall be
the fair market value on the date of the Restricted Payment of
the asset(s) or securities proposed to be transferred or issued
by CCH II or any of its Restricted Subsidiaries pursuant to
the Restricted Payment. The fair market value of any assets or
securities that are required to be valued by this covenant shall
be determined by the Board of Directors of CCH II, whose
resolution with respect thereto shall be delivered to the
trustee. Such Board of Directors determination must be
based upon an opinion or appraisal issued by an accounting,
appraisal or investment banking firm of national standing if the
fair market value exceeds $100 million.
Not later than the date of making any Restricted Payment
involving an amount or fair market value in excess of
$10 million, the Issuers shall deliver to the trustee an
officers certificate stating that such Restricted Payment
is permitted and setting forth the basis upon which the
calculations required by this Restricted Payments
covenant were computed, together with a copy of any fairness
opinion or appraisal required by the Indenture.
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CCH II will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly:
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(1) make any Restricted Investment; or |
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(2) allow any of its Restricted Subsidiaries to become an
Unrestricted Subsidiary, unless, in each case: |
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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 |
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(b) CCH II 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. |
An Unrestricted Subsidiary may be redesignated as a Restricted
Subsidiary if such redesignation would not cause a Default.
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Incurrence of indebtedness and issuance of preferred
stock |
CCH II will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly
liable, contingently or otherwise, with respect to
(collectively, incur) any Indebtedness (including
Acquired Debt) and CCH II will not issue any Disqualified
Stock and will not permit any of its Restricted Subsidiaries to
issue any shares of Disqualified Stock or Preferred Stock,
provided that CCH II or any of its Restricted Subsidiaries
may incur Indebtedness, CCH II may issue Disqualified Stock
and subject to the final paragraph of this covenant below,
Restricted Subsidiaries of CCH II may incur Preferred Stock
if the Leverage Ratio of CCH II and its Restricted
Subsidiaries would have been not greater than 5.5 to 1.0
determined on a pro forma basis (including a pro forma
application of the net proceeds therefrom), as if the additional
Indebtedness had been incurred, or the Disqualified Stock or
Preferred Stock had been issued, as the case may be, at the
beginning of the most recently ended fiscal quarter.
So long as no Default under the Indenture shall have occurred
and be continuing or would be caused thereby, the first
paragraph of this covenant will not prohibit the incurrence of
any of the following items of Indebtedness (collectively,
Permitted Debt):
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(1) the incurrence by CCH II and its Restricted
Subsidiaries of Indebtedness under the Credit Facilities;
provided that the aggregate principal amount of all Indebtedness
of CCH II and its Restricted Subsidiaries outstanding under
this clause (1) for all Credit Facilities of CCH II
and its Restricted Subsidiaries after giving effect to such
incurrence does not exceed an amount equal to $9.75 billion
less the aggregate amount of all Net Proceeds from Asset Sales
applied by CCH II or any of its Restricted Subsidiaries to
repay Indebtedness under a Credit Facility pursuant to the
covenant described under Repurchase at the
option of holders Asset sales; |
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(2) the incurrence by CCH II and its Restricted
Subsidiaries of Existing Indebtedness (other than under the
Credit Facilities); |
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(3) the incurrence on the Issue Date by CCH II and its
Restricted Subsidiaries of Indebtedness represented by the
CCH II Notes (other than any Additional Notes); |
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(4) the incurrence by CCH II or any of its Restricted
Subsidiaries of Indebtedness represented by Capital Lease
Obligations, mortgage financings or purchase money obligations,
in each case, incurred for the purpose of financing all or any
part of the purchase price or cost of construction or
improvement (including, without limitation, the cost of design,
development, construction, acquisition, transportation,
installation, improvement, and migration) of Productive Assets
of CCH II or any of its |
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Restricted Subsidiaries in an aggregate principal amount not to
exceed $75 million at any time outstanding pursuant to this
clause (4); |
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(5) the incurrence by CCH II or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange
for, or the net proceeds of which are used to refund, refinance
or replace, in whole or in part, Indebtedness (other than
intercompany Indebtedness) that was permitted by the Indenture
to be incurred under this clause (5), the first paragraph
of this covenant or clauses (2) or (3) of this paragraph; |
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(6) the incurrence by CCH II or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among
CCH II and any of its Restricted Subsidiaries; provided
that: |
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(a) if CCH II 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
CCH II Notes; and |
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(b) (i) any subsequent issuance or transfer of Equity
Interests that results in any such Indebtedness being held by a
Person other than CCH II or a Restricted Subsidiary of
CCH II and (ii) any sale or other transfer of any such
Indebtedness to a Person that is not either CCH II or a
Restricted Subsidiary of CCH II, 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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(7) the incurrence by CCH II or any of its Restricted
Subsidiaries of Hedging Obligations that are incurred for the
purpose of fixing or hedging interest rate risk with respect to
any floating rate Indebtedness that is permitted by the terms of
the Indenture to be outstanding; |
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(8) the guarantee by CCH II or any of its Restricted
Subsidiaries of Indebtedness of a Restricted Subsidiary that was
permitted to be incurred by another provision of this covenant; |
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(9) the incurrence by CCH II or any of its Restricted
Subsidiaries of additional Indebtedness in an aggregate
principal amount at any time outstanding under this
clause (9), not to exceed $300 million; and |
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(10) the accretion or amortization of original issue
discount and the write up of Indebtedness in accordance with
purchase accounting. |
For purposes of determining compliance with this
Incurrence of Indebtedness and Issuance of Preferred
Stock covenant, any Indebtedness under Credit Facilities
outstanding on the Issue Date shall be deemed to have been
incurred pursuant to clause (1) above and, in the event
that an item of proposed Indebtedness (other than any
Indebtedness initially deemed on the Issue Date to be incurred
under clause (1) above) (a) meets the criteria of more
than one of the categories of Permitted Debt described in
clauses (1) through (10) above or (b) is entitled
to be incurred pursuant to the first paragraph of this covenant,
CCH II will be permitted to classify and from time to time
to reclassify such item of Indebtedness in any manner that
complies with this covenant. Once any item of Indebtedness is so
reclassified, it will no longer be deemed outstanding under the
category of Permitted Debt, where initially incurred or
previously reclassified. For avoidance of doubt, Indebtedness
incurred pursuant to a single agreement, instrument, program,
facility or line of credit may be classified as Indebtedness
arising in part under one of the clauses listed above or under
the first paragraph of this covenant, and in part under any one
or more of the clauses listed above, to the extent that such
Indebtedness satisfies the criteria for such classification.
Notwithstanding the foregoing, in no event shall any Restricted
Subsidiary of CCH II consummate a Subordinated Debt
Financing or a Preferred Stock Financing. A Subordinated
Debt Financing or a Preferred Stock Financing,
as the case may be, with respect to any Restricted Subsidiary of
CCH II shall mean a public offering or private placement
(whether pursuant to Rule 144A under the Securities Act or
otherwise) of Subordinated Notes or Preferred Stock (whether or
not such Preferred Stock constitutes Disqualified Stock), as the
case may be, of such Restricted Subsidiary to one or more
purchasers (other than to one or more Affiliates of
CCH II). Subordinated Notes with respect to any
250
Restricted Subsidiary of CCH II shall mean Indebtedness of
such Restricted Subsidiary that is contractually subordinated in
right of payment to any other Indebtedness of such Restricted
Subsidiary (including, without limitation, Indebtedness under
the Credit Facilities). The foregoing limitation shall not apply
to
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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 CCH II; provided that 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, CCH II, and |
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(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;
provided that 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. |
The Indenture provides that CCH II will not, directly or
indirectly, create, incur, assume or suffer to exist any Lien of
any kind securing Indebtedness, Attributable Debt or trade
payables on any asset of CCH II, whether owned on the Issue
Date or thereafter acquired, except Permitted Liens.
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Dividend and other payment restrictions affecting
subsidiaries |
CCH II will not, directly or indirectly, create or permit
to exist or become effective any encumbrance or restriction on
the ability of any of its Restricted Subsidiaries to:
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(1) pay dividends or make any other distributions on its
Capital Stock to CCH II or any of its Restricted
Subsidiaries, or with respect to any other interest or
participation in, or measured by, its profits, or pay any
Indebtedness owed to CCH II or any of its Restricted
Subsidiaries; |
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(2) make loans or advances to CCH II or any of its
Restricted Subsidiaries; or |
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(3) transfer any of its properties or assets to CCH II
or any of its Restricted Subsidiaries. |
However, the preceding restrictions will not apply to
encumbrances or restrictions existing under or by reason of:
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(1) Existing Indebtedness as in effect on the Issue Date
(including, without limitation, the Indebtedness under any of
the Credit Facilities, including the Vulcan Backstop Facility,
and only with respect to the Vulcan Backstop Facility, whether
or not any Indebtedness is outstanding on the Issue Date) and
any amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacements or refinancings
thereof; provided that such amendments, modifications,
restatements, renewals, increases, supplements, refundings,
replacements or refinancings are no more restrictive, taken as a
whole, with respect to such dividend and other payment
restrictions than those contained in the most restrictive
Existing Indebtedness, as in effect on the Issue Date, including
the Vulcan Backstop Facility; |
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(2) the Indenture and the CCH II Notes; |
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(3) applicable law; |
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(4) any instrument governing Indebtedness or Capital Stock
of a Person acquired by CCH II or any of its Restricted
Subsidiaries as in effect at the time of such acquisition
(except to the extent such Indebtedness was incurred in
connection with or in contemplation of such acquisition), which
encumbrance or restriction is not applicable to any Person, or
the properties or assets of any Person, other than the Person,
or the property or assets of the Person, so acquired; provided
that, in the case of Indebtedness, such Indebtedness was
permitted by the terms of the Indenture to be incurred; |
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(5) customary non-assignment provisions in leases,
franchise agreements and other commercial agreements entered
into in the ordinary course of business and consistent with past
practices; |
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(6) purchase money obligations for property acquired in the
ordinary course of business that impose restrictions on the
property so acquired of the nature described in clause (3)
of the preceding paragraph; |
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(7) any agreement for the sale or other disposition of a
Restricted Subsidiary that restricts distributions by such
Restricted Subsidiary pending its sale or other disposition; |
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(8) Permitted Refinancing Indebtedness; provided that the
restrictions contained in the agreements governing such
Permitted Refinancing Indebtedness are no more restrictive,
taken as a whole, than those contained in the agreements
governing the Indebtedness being refinanced; |
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(9) Liens securing Indebtedness or other obligations
otherwise permitted to be incurred pursuant to the provisions of
the covenant described above under the caption
Liens that limit the right of
CCH II or any of its Restricted Subsidiaries to dispose of
the assets subject to such Lien; |
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(10) provisions with respect to the disposition or
distribution of assets or property in joint venture agreements
and other similar agreements entered into in the ordinary course
of business; |
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(11) restrictions on cash or other deposits or net worth
imposed by customers under contracts entered into in the
ordinary course of business; |
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(12) restrictions contained in the terms of Indebtedness
permitted to be incurred under the covenant described under the
caption Incurrence of indebtedness and
issuance of preferred stock; provided that such
restrictions are no more restrictive, taken as a whole, than the
terms contained in the most restrictive, together or
individually, of the Credit Facilities as in effect on the Issue
Date and the terms contemplated by the Vulcan Facility; and |
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(13) restrictions that are not materially more restrictive,
taken as a whole, than customary provisions in comparable
financings and that the management of CCH II determines, at
the time of such financing, will not materially impair the
Issuers ability to make payments as required under the
CCH II Notes. |
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Merger, consolidation or sale of assets |
Neither Issuer may, directly or indirectly, (1) consolidate
or merge with or into another Person (whether or not such Issuer
is the surviving Person) or (2) sell, assign, transfer,
convey or otherwise dispose of all or substantially all of its
properties or assets, in one or more related transactions, to
another Person; unless:
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(i) such Issuer is the surviving Person; or |
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(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, provided that 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
CCH II Notes; |
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(B) the Person formed by or surviving any such
consolidation or merger (if other than such Issuer) or the
Person to which such sale, assignment, transfer, conveyance or
other disposition shall have been made assumes all the
obligations of such Issuer under the CCH II Notes and the
Indenture pursuant to agreements reasonably satisfactory to the
trustee; |
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(C) immediately after such transaction no Default or Event
of Default exists; and |
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(D) such Issuer or the Person formed by or surviving any
such consolidation or merger (if other than such Issuer) will,
on the date of such transaction after giving pro forma effect
thereto and any related financing transactions as if the same
had occurred at the beginning of the applicable four-quarter
period, |
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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 |
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(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. |
In addition, neither of the Issuers may, directly or indirectly,
lease all or substantially all of their properties or assets, in
one or more related transactions, to any other Person. The
foregoing clause (D) of this Merger,
Consolidation, or Sale of Assets covenant will not apply
to a sale, assignment, transfer, conveyance or other disposition
of assets between or among an Issuer and any of its Wholly Owned
Restricted Subsidiaries or to the consummation of the Private
Exchanges.
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Transactions with affiliates |
CCH II will not, and will not permit any of its Restricted
Subsidiaries to, make any payment to, or sell, lease, transfer
or otherwise dispose of any of its properties or assets to, or
purchase any property or assets from, or enter into or make or
amend any transaction, contract, agreement, understanding, loan,
advance or guarantee with, or for the benefit of, any Affiliate
(each, an Affiliate Transaction), unless:
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(1) such Affiliate Transaction is on terms that are no less
favorable to CCH II or the relevant Restricted Subsidiary
than those that would have been obtained in a comparable
transaction by CCH II or such Restricted Subsidiary with an
unrelated Person; and |
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(2) CCH II delivers to the trustee: |
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(a) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate consideration
given or received by CCH II or any such Restricted
Subsidiary in excess of $15 million, a resolution of the
Board of Directors of CCH II 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 |
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(b) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate consideration
given or received by CCH II 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. |
The following items shall not be deemed to be Affiliate
Transactions and, therefore, will not be subject to the
provisions of the prior paragraph:
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(1) any existing employment agreement entered into by
CCH II or any of its Subsidiaries and any employment
agreement entered into by CCH II or any of its Restricted
Subsidiaries in the ordinary course of business and consistent
with the past practice of CCH II or such Restricted
Subsidiary; |
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(2) transactions between or among CCH II and/or its
Restricted Subsidiaries; |
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(3) payment of reasonable directors fees to Persons who are
not otherwise Affiliates of CCH II, and customary
indemnification and insurance arrangements in favor of
directors, regardless of affiliation with CCH II or any of
its Restricted Subsidiaries; |
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(4) payment of Management Fees; |
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(5) Restricted Payments that are permitted by the
provisions of the covenant described above under the caption
Restricted payments and Restricted
Investments that are permitted by the provisions of the covenant
described above under the caption
Investments; |
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(6) Permitted Investments; |
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(7) the transactions contemplated by the Vulcan Backstop
Facility on substantially the same terms as described in
Charters quarterly report on
Form 10-Q for its
fiscal quarter ended June 30, 2003 with respect to the
commitment letter; and |
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(8) transactions pursuant to agreements existing on the
Issue Date, as in effect on the Issue Date, or as subsequently
modified, supplemented, or amended, to the extent that any such
modifications, supplements, or amendments complied with the
applicable provisions of the first paragraph of this covenant. |
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Sale and leaseback transactions |
CCH II will not, and will not permit any of its Restricted
Subsidiaries to, enter into any sale and leaseback transaction;
provided that CCH II and its Restricted Subsidiaries may
enter into a sale and leaseback transaction if:
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(1) CCH II or such Restricted Subsidiary could have |
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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 |
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(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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(2) the transfer of assets in that sale and leaseback
transaction is permitted by, and CCH II or such Restricted
Subsidiary applies the proceeds of such transaction in
compliance with, the covenant described above under the caption
Repurchase at the option of
holders Asset sales. |
The foregoing restrictions do not apply to a sale and leaseback
transaction if the lease is for a period, including renewal
rights, of not in excess of three years.
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Limitations on issuances of guarantees of
indebtedness |
CCH II will not permit any of its Restricted Subsidiaries,
directly or indirectly, to Guarantee or pledge any assets to
secure the payment of any other Indebtedness of CCH II,
except in respect of the Credit Facilities (the Guaranteed
Indebtedness), unless
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(1) such Restricted Subsidiary simultaneously executes and
delivers a supplemental indenture providing for the Guarantee (a
Subsidiary Guarantee) of the payment of the
CCH II Notes by such Restricted Subsidiary, and |
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(2) until one year after all the CCH II Notes have
been paid in full in cash, such Restricted Subsidiary waives and
will not in any manner whatsoever claim or take the benefit or
advantage of, any rights of reimbursement, indemnity or
subrogation or any other rights against CCH II or any other
Restricted Subsidiary of CCH II as a result of any payment
by such Restricted Subsidiary under its Subsidiary Guarantee;
provided that this paragraph shall not be applicable to any
Guarantee or any Restricted Subsidiary that existed at the time
such Person became a Restricted Subsidiary and was not incurred
in connection with, or in contemplation of, such Person becoming
a Restricted Subsidiary. |
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If the Guaranteed Indebtedness is subordinated to the
CCH II Notes, then the Guarantee of such Guaranteed
Indebtedness shall be subordinated to the Subsidiary Guarantee
at least to the extent that the Guaranteed Indebtedness is
subordinated to the CCH II Notes.
CCH II will not, and will not permit any of its
Subsidiaries to, directly or indirectly, pay or cause to be paid
any consideration to or for the benefit of any holder of
CCH II Notes for or as an inducement to any consent, waiver
or amendment of any of the terms or provisions of the Indenture
or the CCH II Notes unless such consideration is offered to
be paid and is paid to all holders of the CCH II Notes that
consent, waive or agree to amend in the time frame set forth in
the solicitation documents relating to such consent, waiver or
agreement.
Whether or not required by the Securities and Exchange
Commission, so long as any CCH II Notes are outstanding,
the Issuers will furnish to the holders of the CCH II
Notes, within the time periods specified in the Securities and
Exchange Commissions rules and regulations:
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(1) all quarterly and annual financial information that
would be required to be contained in a filing with the
Securities and Exchange Commission on
Forms 10-Q
and 10-K if the
Issuers were required to file such forms, including a
Managements Discussion and Analysis of Financial
Condition and Results of Operations section and, with
respect to the annual information only, a report on the annual
consolidated financial statements of CCH II of its
independent public accountants; and |
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(2) all current reports that would be required to be filed
with the Securities and Exchange Commission on
Form 8-K if the
Issuers were required to file such reports. |
If CCH II has designated any of its Subsidiaries as
Unrestricted Subsidiaries, then the quarterly and annual
financial information required by the preceding paragraph shall
include a reasonably detailed presentation, either on the face
of the financial statements or in the footnotes thereto, and in
Managements Discussion and Analysis of Financial Condition
and Results of Operations, of the financial condition and
results of operations of CCH II and its Restricted
Subsidiaries separate from the financial condition and results
of operations of the Unrestricted Subsidiaries of CCH II.
In addition, after consummation of the exchange offer, whether
or not required by the Securities and Exchange Commission, the
Issuers will file a copy of all of the information and reports
referred to in clauses (1) and (2) above with the
Securities and Exchange Commission for public availability
within the time periods specified in the Securities and Exchange
Commissions rules and regulations, unless the Securities
and Exchange Commission will not accept such a filing, and make
such information available to securities analysts and
prospective investors upon request.
Events of default and remedies
Each of the following is an Event of Default with respect to the
CCH II Notes:
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(1) default for 30 days in the payment when due of
interest on the CCH II Notes; |
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(2) default in payment when due of the principal of or
premium, if any, on the CCH II Notes; |
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(3) failure by CCH II or any of its Restricted
Subsidiaries to comply with the provisions of the Indenture
described under the captions Repurchase at the
option of holders Change of control or
Certain covenants Merger,
consolidation, or sale of Assets; |
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(4) failure by CCH II or any of its Restricted
Subsidiaries for 30 days after written notice thereof has
been given to the Issuers by the trustee or to the Issuers and
the trustee by holders of at |
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least 25% of the aggregate principal amount of the CCH II
Notes outstanding to comply with any of their other covenants or
agreements in the Indenture; |
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(5) default under any mortgage, indenture or instrument
under which there may be issued or by which there may be secured
or evidenced any Indebtedness for money borrowed by CCH II
or any of its Restricted Subsidiaries (or the payment of which
is guaranteed by CCH II or any of its Restricted
Subsidiaries) whether such Indebtedness or guarantee now exists,
or is created after the Issue Date, if that default: |
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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 |
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(b) results in the acceleration of such Indebtedness prior
to its express maturity, and, in each case, the principal amount
of any such Indebtedness, together with the principal amount of
any other such Indebtedness under which there has been a Payment
Default or the maturity of which has been so accelerated,
aggregates $100 million or more; |
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(6) failure by CCH II or any of its Restricted
Subsidiaries to pay final judgments which are non-appealable
aggregating in excess of $100 million, net of applicable
insurance which has not been denied in writing by the insurer,
which judgments are not paid, discharged or stayed for a period
of 60 days; and |
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(7) CCH II or any of its Significant Subsidiaries
pursuant to or within the meaning of bankruptcy law: |
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(a) commences a voluntary case, |
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(b) consents to the entry of an order for relief against it
in an involuntary case, |
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(c) consents to the appointment of a custodian of it or for
all or substantially all of its property, or |
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(d) makes a general assignment for the benefit of its
creditors; or |
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(8) a court of competent jurisdiction enters an order or
decree under any bankruptcy law that: |
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(a) is for relief against CCH II or any of its
Significant Subsidiaries in an involuntary case; |
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(b) appoints a custodian of CCH II or any of its
Significant Subsidiaries or for all or substantially all of the
property of CCH II or any of its Significant Subsidiaries;
or |
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(c) orders the liquidation of CCH II or any of its
Significant Subsidiaries; |
and the order or decree remains unstayed and in effect for 60
consecutive days.
In the case of an Event of Default described in the foregoing
clauses (7) and (8) with respect to CCH II, all
outstanding CCH II Notes will become due and payable
immediately without further action or notice. If any other Event
of Default occurs and is continuing, the trustee or the holders
of at least 25% in principal amount of the then outstanding
CCH II Notes may declare the CCH II Notes to be due
and payable immediately.
Holders of the CCH II Notes may not enforce the Indenture
or the CCH II Notes except as provided in the Indenture.
Subject to certain limitations, the holders of a majority in
principal amount of the then outstanding CCH II Notes may
direct the trustee in its exercise of any trust or power. The
trustee may withhold from holders of the CCH II Notes
notice of any continuing Default or Event of Default under the
Indenture (except a Default or Event of Default relating to the
payment of principal or interest) if it determines that
withholding notice is in their interest.
The holders of a majority in aggregate principal amount of the
CCH II Notes then outstanding by notice to the trustee may
on behalf of the holders of all of the CCH II Notes waive
any existing Default
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or Event of Default and its consequences under the Indenture
except a continuing Default or Event of Default in the payment
of interest on, or the principal of, or premium, if any, on, the
CCH II Notes.
The Issuers will be required to deliver to the trustee annually
a statement regarding compliance with the Indenture. Upon
becoming aware of any Default or Event of Default, the Issuers
will be required to deliver to the trustee a statement
specifying such Default or Event of Default and what action the
Issuers are taking or propose to take with respect thereto.
No personal liability of directors, officers, employees,
members and stockholders
No director, officer, employee or incorporator of the Issuers,
as such, and no member or stockholder of the Issuers, as such,
shall have any liability for any obligations of the Issuers
under the CCH II Notes or the Indenture, or for any claim
based on, in respect of, or by reason of, such obligations or
their creation. Each holder of CCH II Notes by accepting a
CCH II Note waives and releases all such liability. The
waiver and release are part of the consideration for issuance of
the CCH II Notes. The waiver may not be effective to waive
liabilities under the federal securities laws.
Legal defeasance and covenant defeasance
The Issuers may, at their option and at any time, elect to have
all of their obligations discharged with respect to any
outstanding CCH II Notes (Legal Defeasance)
except for:
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(1) the rights of holders of outstanding CCH II Notes
to receive payments in respect of the principal of, premium, if
any, and interest on the CCH II Notes when such payments
are due from the trust referred to below; |
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(2) the Issuers obligations with respect to the
CCH II Notes concerning issuing temporary CCH II
Notes, registration of CCH II Notes, mutilated, destroyed,
lost or stolen CCH II Notes and the maintenance of an
office or agency for payment and money for security payments
held in trust; |
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(3) the rights, powers, trusts, duties and immunities of
the trustee, and the Issuers obligations in connection
therewith; and |
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(4) the Legal Defeasance provisions of the Indenture. |
In addition, the Issuers may, at their option and at any time,
elect to have the obligations of the Issuers released with
respect to certain covenants that are described in the Indenture
(Covenant Defeasance) and thereafter any omission to
comply with those covenants shall not constitute a Default or
Event of Default with respect to the CCH II Notes. In the
event Covenant Defeasance occurs, certain events (not including
non-payment, bankruptcy, receivership, rehabilitation and
insolvency events) described under Events of Default
will no longer constitute an Event of Default with respect to
the CCH II Notes.
In order to exercise either Legal Defeasance or Covenant
Defeasance:
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(1) the Issuers must irrevocably deposit with the trustee,
in trust, for the benefit of the holders of the CCH II
Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of,
premium, if any, and interest on the outstanding CCH II
Notes on the stated maturity or on the applicable redemption
date, as the case may be, and the Issuers must specify whether
the CCH II Notes are being defeased to maturity or to a
particular redemption date; |
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(2) in the case of Legal Defeasance, the Issuers shall have
delivered to the trustee an opinion of counsel reasonably
acceptable to the trustee confirming that |
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(a) the Issuers have received from, or there has been
published by, the Internal Revenue Service a ruling or |
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(b) since the Issue Date, there has been a change in the
applicable federal income tax law, in either case to the effect
that, and based thereon such opinion of counsel shall confirm
that, the holders of the outstanding CCH II Notes will not
recognize income, gain or loss for federal income tax purposes
as a result of such Legal Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such Legal
Defeasance had not occurred; |
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(3) in the case of Covenant Defeasance, the Issuers shall
have delivered to the trustee an opinion of counsel reasonably
acceptable to the trustee confirming that the holders of the
outstanding CCH II Notes will not recognize income, gain or
loss for federal income tax purposes as a result of such
Covenant Defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as
would have been the case if such Covenant Defeasance had not
occurred; |
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(4) no Default or Event of Default under the Indenture
shall have occurred and be continuing either: |
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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 |
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(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; |
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(5) such Legal Defeasance or Covenant Defeasance will not
result in a breach or violation of, or constitute a default
under any material agreement or instrument (other than the
Indenture) to which the Issuers or any of their Restricted
Subsidiaries is a party or by which the Issuers or any of their
Restricted Subsidiaries is bound; |
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(6) the Issuers must have delivered to the trustee an
opinion of counsel to the effect that after the 91st day,
assuming no intervening bankruptcy, that no holder is an insider
of either of the Issuers following the deposit and that such
deposit would not be deemed by a court of competent jurisdiction
a transfer for the benefit of the Issuers in their capacities as
such, the trust funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar
laws affecting creditors rights generally; |
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(7) the Issuers must deliver to the trustee an
officers certificate stating that the deposit was not made
by the Issuers with the intent of preferring the holders of the
CCH II Notes over the other creditors of the Issuers with
the intent of defeating, hindering, delaying or defrauding
creditors of the Issuers or others; and |
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(8) the Issuers must deliver to the trustee an
officers certificate and an opinion of counsel, each
stating that all conditions precedent relating to the Legal
Defeasance or the Covenant Defeasance have been complied with. |
Notwithstanding the foregoing, the opinion of counsel required
by clause (2) above with respect to a Legal Defeasance need
not be delivered if all applicable CCH II Notes not
theretofore delivered to the trustee for cancellation
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(a) have become due and payable or |
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(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. |
Amendment, supplement and waiver
Except as provided below, the Indenture or CCH II Notes may
be amended or supplemented with the consent of the holders of at
least a majority in aggregate principal amount of the then
outstanding CCH II Notes. This includes consents obtained
in connection with a purchase of CCH II Notes, a tender
258
offer for CCH II Notes or an exchange offer for CCH II
Notes. Any existing Default or compliance with any provision of
the Indenture or the CCH II Notes (other than any provision
relating to the right of any holder of a CCH II Note to
bring suit for the enforcement of any payment of principal,
premium, if any, and interest on the CCH II Note, on or
after the scheduled due dates expressed in the CCH II
Notes) may be waived with the consent of the holders of a
majority in aggregate principal amount of the then outstanding
CCH II Notes. This includes consents obtained in connection
with a purchase of CCH II Notes, a tender offer for
CCH II Notes or an exchange offer for CCH II Notes.
Without the consent of each holder affected, an amendment or
waiver may not (with respect to any CCH II Notes held by a
non-consenting holder):
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(1) reduce the principal amount of CCH II Notes whose
holders must consent to an amendment, supplement or waiver; |
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(2) reduce the principal of or change the fixed maturity of
any CCH II Note or alter the payment provisions with
respect to the redemption of the CCH II Notes (other than
provisions relating to the covenants described above under the
caption Repurchase at the option of
holders); |
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(3) reduce the rate of or extend the time for payment of
interest on any CCH II Note; |
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(4) waive a Default or an Event of Default in the payment
of principal of or premium, if any, or interest on the
CCH II Notes (except a rescission of acceleration of the
CCH II Notes by the holders of at least a majority in
aggregate principal amount of the CCH II Notes and a waiver
of the payment default that resulted from such acceleration); |
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(5) make any CCH II Note payable in money other than
that stated in the CCH II Notes; |
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(6) make any change in the provisions of the Indenture
relating to waivers of past Defaults or the rights of holders of
CCH II Notes to receive payments of principal of, or
premium, if any, or interest on the CCH II Notes; |
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(7) waive a redemption payment with respect to any
CCH II Note (other than a payment required by one of the
covenants described above under the caption
Repurchase at the option of
holders); or |
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(8) make any change in the preceding amendment and waiver
provisions. Notwithstanding the preceding, without the consent
of any holder of CCH II Notes, the Issuers and the trustee
may amend or supplement the Indenture or the CCH II Notes: |
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(1) to cure any ambiguity, defect or inconsistency; |
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(2) to provide for uncertificated CCH II Notes in
addition to or in place of certificated CCH II Notes; |
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(3) to provide for or confirm the issuance of Additional
Notes; |
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(4) to provide for the assumption of the Issuers
obligations to holders of CCH II Notes in the case of a
merger or consolidation or sale of all or substantially all of
the Issuers assets; |
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(5) to make any change that would provide any additional
rights or benefits to the holders of CCH II Notes or that
does not adversely affect the legal rights under the Indenture
of any such holder; or |
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(6) to comply with requirements of the Securities and
Exchange Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act or
otherwise as necessary to comply with applicable law. |
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Governing law
The Indenture and the CCH II Notes are governed by the laws
of the State of New York.
Concerning the trustee
If the trustee becomes a creditor of the Issuers, the Indenture
will limit its right to obtain payment of claims in certain
cases, or to realize on certain property received in respect of
any such claim as security or otherwise. The trustee will be
permitted to engage in other transactions; however, if it
acquires any conflicting interest it must eliminate such
conflict within 90 days, apply to the Securities and
Exchange Commission for permission to continue or resign.
The holders of a majority in principal amount of the then
outstanding CCH II Notes will have the right to direct the time,
method and place of conducting any proceeding for exercising any
remedy available to the trustee, subject to certain exceptions.
The Indenture provides that in case an Event of Default shall
occur and be continuing, the trustee will be required, in the
exercise of its power, to use the degree of care of a prudent
man in the conduct of his own affairs. Subject to such
provisions, the trustee will be under no obligation to exercise
any of its rights or powers under the Indenture at the request
of any holder of CCH II Notes, unless such holder shall
have offered to the trustee indemnity satisfactory to it against
any loss, liability or expense.
Additional information
Anyone who receives this offering memorandum may obtain a copy
of the Indenture and the exchange and registration rights
agreement without charge by writing to the Issuers at Charter
Plaza, 12405 Powerscourt Drive, St. Louis, Missouri 63131,
Attention: Corporate Secretary.
Certain definitions
This section sets forth certain defined terms used in the
Indenture. Reference is made to the Indenture for a full
disclosure of all such terms, as well as any other capitalized
terms used herein for which no definition is provided.
Acquired Debt means, with respect to any specified
Person:
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(1) Indebtedness of any other Person existing at the time
such other Person is merged with or into or became a Subsidiary
of such specified Person, whether or not such Indebtedness is
incurred in connection with, or in contemplation of, such other
Person merging with or into, or becoming a Subsidiary of, such
specified Person; and |
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(2) Indebtedness secured by a Lien encumbering any asset
acquired by such specified Person. |
Additional Notes means the Issuers
10.25% Senior Notes due 2010 issued under the Indenture in
addition to the Existing Notes (other than CCH II Notes
issued in exchange for the Existing Notes and certain Existing
Notes identified in the Indenture). The CCH II Notes
offered hereby constitute Additional Notes under the
Indenture.
Affiliate of any specified Person means any other
Person directly or indirectly controlling or controlled by or
under direct or indirect common control with such specified
Person. For purposes of this definition, control, as
used with respect to any Person, shall mean the possession,
directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether
through the ownership of voting securities, by agreement or
otherwise; provided that beneficial ownership of 10% or more of
the Voting Stock of a Person shall be deemed to be control. For
purposes of this definition, the terms controlling,
controlled by and under common control
with shall have correlative meanings.
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Asset Acquisition means
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(a) an Investment by CCH II or any of its Restricted
Subsidiaries in any other Person pursuant to which such Person
shall become a Restricted Subsidiary of CCH II or any of
its Restricted Subsidiaries or shall be merged with or into
CCH II or any of its Restricted Subsidiaries, or |
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(b) the acquisition by CCH II or any of its Restricted
Subsidiaries of the assets of any Person which constitute all or
substantially all of the assets of such Person, any division or
line of business of such Person or any other properties or
assets of such Person other than in the ordinary course of
business. |
Asset Sale means:
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(1) the sale, lease, conveyance or other disposition of any
assets or rights, other than sales of inventory in the ordinary
course of the Cable Related Business consistent with applicable
past practices; provided that the sale, conveyance or other
disposition of all or substantially all of the assets of
CCH II and its Subsidiaries, taken as a whole, will be
governed by the provisions of the Indenture described above
under the caption Repurchase at the option of
holders Change of control and/or the
provisions described above under the caption
Certain covenants Merger,
consolidation, or sale of assets and not by the provisions
of the Asset Sale covenant; and |
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(2) the issuance of Equity Interests by any Restricted
Subsidiary of CCH II or the sale of Equity Interests in any
Restricted Subsidiary of CCH II. |
Notwithstanding the preceding, the following items shall not be
deemed to be Asset Sales:
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(1) any single transaction or series of related
transactions that: |
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(a) involves assets having a fair market value of less than
$100 million; or |
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(b) results in net proceeds to CCH II and its
Restricted Subsidiaries of less than $100 million; |
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(2) a transfer of assets between or among CCH II and
its Restricted Subsidiaries; |
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(3) an issuance of Equity Interests by a Restricted
Subsidiary of CCH II to CCH II or to another Wholly
Owned Restricted Subsidiary of CCH II; |
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(4) a Restricted Payment that is permitted by the covenant
described above under the caption Certain
covenants Restricted payments, a Restricted
Investment that is permitted by the covenant described above
under the caption Certain
covenants Investments or a Permitted
Investment; |
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(5) the incurrence of Liens not prohibited by the Indenture
and the disposition of assets related to such Liens by the
secured party pursuant to a foreclosure; and |
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(6) any disposition of cash or Cash Equivalents. |
Attributable Debt in respect of a sale and leaseback
transaction means, at the time of determination, the present
value of the obligation of the lessee for net rental payments
during the remaining term of the lease included in such sale and
leaseback transaction, including any period for which such lease
has been extended or may, at the option of the lessee, be
extended. Such present value shall be calculated using a
discount rate equal to the rate of interest implicit in such
transaction, determined in accordance with GAAP.
Beneficial Owner has the meaning assigned to such
term in Rule 13d-3
and Rule 13d-5
under the Exchange Act, except that in calculating the
beneficial ownership of any particular person (as
such term is used in Section 13(d)(3) of the Exchange Act)
such person shall be deemed to have beneficial
ownership of all securities that such person has the
right to acquire, whether such right is currently exercisable or
is exercisable only upon the occurrence of a subsequent
condition.
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Board of Directors means the board of directors or
comparable governing body of Charter or if so specified
CCH II, in either case, as constituted as of the date of
any determination required to be made, or action required to be
taken, pursuant to the Indenture.
Cable Related Business means the business of owning
cable television systems and businesses ancillary, complementary
and related thereto.
Capital Corp. means, CCH II Capital Corp., a
Delaware corporation, and any successor Person thereto.
Capital Lease Obligation means, at the time any
determination thereof is to be made, the amount of the liability
in respect of a capital lease that would at that time be
required to be capitalized on a balance sheet in accordance with
GAAP.
Capital Stock means:
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(1) in the case of a corporation, corporate stock; |
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(2) in the case of an association or business entity, any
and all shares, interests, participations, rights or other
equivalents (however designated) of corporate stock; |
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(3) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or
limited); and |
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(4) any other interest (other than any debt obligation) or
participation that confers on a Person the right to receive a
share of the profits and losses of, or distributions of assets
of, the issuing Person. |
Capital Stock Sale Proceeds means the aggregate net
cash proceeds (including the fair market value of the non-cash
proceeds, as determined by an independent appraisal firm)
received by CCH II from and after the Issue Date, in each
case
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(x) as a contribution to the common equity capital or from
the issue or sale of Equity Interests (other than Disqualified
Stock and other than issuances or sales to a Subsidiary of
CCH II) of CCH II after the Issue Date, or |
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(y) from the issue or sale of convertible or exchangeable
Disqualified Stock or convertible or exchangeable debt
securities of CCH II that have been converted into or
exchanged for such Equity Interests (other than Equity Interests
(or Disqualified Stock or debt securities) sold to a Subsidiary
of CCH II). |
Cash Equivalents means:
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(1) United States dollars; |
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(2) securities issued or directly and fully guaranteed or
insured by the United States government or any agency or
instrumentality thereof (provided that the full faith and credit
of the United States is pledged in support thereof) having
maturities of not more than twelve months from the date of
acquisition; |
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(3) certificates of deposit and eurodollar time deposits
with maturities of twelve months or less from the date of
acquisition, bankers acceptances with maturities not
exceeding six months and overnight bank deposits, in each case,
with any domestic commercial bank having combined capital and
surplus in excess of $500 million and a Thompson Bank Watch
Rating at the time of acquisition of B or better; |
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(4) repurchase obligations with a term of not more than
seven days for underlying securities of the types described in
clauses (2) and (3) above entered into with any
financial institution meeting the qualifications specified in
clause (3) above; |
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(5) commercial paper having a rating at the time of
acquisition of at least P-1 from Moodys or at
least A-1
from S&P and in each case maturing within twelve months
after the date of acquisition; |
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(6) corporate debt obligations maturing within twelve
months after the date of acquisition thereof, rated at the time
of acquisition at least Aaa or
P-1 by
Moodys or AAA or
A-1 by
S&P; |
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(7) auction-rate Preferred Stocks of any corporation
maturing not later than 45 days after the date of
acquisition thereof, rated at the time of acquisition at least
Aaa by Moodys or AAA by S&P; |
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(8) securities issued by any state, commonwealth or
territory of the United States, or by any political subdivision
or taxing authority thereof, maturing not later than six months
after the date of acquisition thereof, rated at the time of
acquisition at least A by Moodys or
S&P; and |
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(9) money market or mutual funds at least 90% of the assets
of which constitute Cash Equivalents of the kinds described in
clauses (1) through (8) of this definition. |
CCH I means CCH I, LLC, a Delaware limited
liability company, and any successor Person thereto.
CCH II means CCH II, LLC, a Delaware
limited liability company, and any successor Person thereto.
CCO Holdings means CCO Holdings, LLC, a Delaware
limited liability company, and any successor Person thereto.
Change of Control means the occurrence of any of the
following:
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(1) the sale, transfer, conveyance or other disposition
(other than by way of merger or consolidation), in one or a
series of related transactions, of all or substantially all of
the assets of CCH II and its Subsidiaries, taken as a
whole, or of a Parent and its Subsidiaries, taken as a whole, to
any person (as such term is used in
Section 13(d)(3) of the Exchange Act) other than Paul G.
Allen or a Related Party; |
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(2) the adoption of a plan relating to the liquidation or
dissolution of CCH II or a Parent (except the liquidation
of any Parent into any other Parent); |
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(3) the consummation of any transaction, including, without
limitation, any merger or consolidation, the result of which is
that any person (as defined above) other than Paul
G. Allen and Related Parties becomes the Beneficial Owner,
directly or indirectly, of more than 35% of the Voting Stock of
CCH II or a Parent, measured by voting power rather than
the number of shares, unless Paul G. Allen or a Related Party
Beneficially Owns, directly or indirectly, a greater percentage
of Voting Stock of CCH II or such Parent, as the case may be,
measured by voting power rather than the number of shares, than
such person; |
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(4) after the Issue Date, the first day on which a majority
of the members of the board of directors of CCH II or the
board of directors of a Parent are not Continuing Directors; |
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(5) CCH II or a Parent consolidates with, or merges
with or into, any Person, or any Person consolidates with, or
merges with or into, CCH II or a Parent, in any such event
pursuant to a transaction in which any of the outstanding Voting
Stock of CCH II or such Parent is converted into or
exchanged for cash, securities or other property, other than any
such transaction where the Voting Stock of CCH II or such
Parent outstanding immediately prior to such transaction is
converted into or exchanged for Voting Stock (other than
Disqualified Stock) of the surviving or transferee Person
constituting a majority of the outstanding shares of such Voting
Stock of such surviving or transferee Person immediately after
giving effect to such issuance; or |
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(6) (i) Charter Communications Holdings Company, LLC
shall cease to own beneficially, directly or indirectly, 100% of
the Capital Stock of Charter Holdings or (ii) Charter
Holdings shall cease to own beneficially, directly or
indirectly, 100% of the Capital Stock of CCH II. |
Charter means Charter Communications, Inc., a
Delaware corporation, and any successor Person thereto.
Charter Holdings means Charter Communications
Holdings, LLC, a Delaware limited liability company, and any
successor Person thereto.
Charter Holdings Indentures means, collectively
(a) the indentures entered into by Charter Holdings and
Charter Communications Holdings Capital Corporation in
connection with the issuance of each 8.250% Senior Notes
Due 2007 dated March 1999, 8.625% Senior Notes Due 2009
dated March 1999, 9.920% Senior Discount Notes Due 2011
dated March 1999, 10.000% Senior Notes Due 2009 dated
January 2000, 10.250% Senior Notes Due 2010 dated January
2000, 11.750% Senior Discount Notes Due 2010 dated January
2000, 10.750% Senior Notes Due 2009 dated January 2001,
11.125% Senior Notes Due 2011 dated January 2001,
13.500% Senior Discount Notes Due 2011 dated January 2001,
9.625% Senior Notes Due 2009 dated May 2001,
10.000% Senior Notes Due 2011 dated May 2001,
11.750% Senior Discount Notes Due 2011 dated May 2001,
9.625% Senior Notes Due 2009 dated January 2002,
10.000% Senior Notes Due 2011 dated January 2002, and
12.125% Senior Discount Notes Due 2012 dated January 2002,
and (b) any indentures, note purchase agreements or similar
documents entered into by Charter Holdings and/or Charter
Communications Holdings Capital Corporation on or after the
Issue Date for the purpose of incurring Indebtedness in exchange
for, or proceeds of which are used to refinance, any of the
Indebtedness described in the foregoing clause (a), in each
case, together with all instruments and other agreements entered
into by Charter Holdings or Charter Communications Holdings
Capital Corporation in connection therewith, as the same may be
refinanced, replaced, amended, supplemented or otherwise
modified from time to time.
Charter Indentures means, collectively, the
indentures entered into by Charter with respect to its
5.75% Convertible Senior Notes due 2005, its
4.75% Convertible Senior Notes due 2006 and any indentures,
note purchase agreements or similar documents entered into by
Charter for the purpose of incurring Indebtedness in exchange
for, or the proceeds of which are used to refinance, any of the
Indebtedness described above, in each case, together with all
instruments and other agreements entered into by Charter in
connection therewith, as any of the foregoing may be refinanced,
replaced, amended, supplemented or otherwise modified from time
to time.
Charter Refinancing Indebtedness means any
Indebtedness of a Charter Refinancing Subsidiary issued in
exchange for, or the net proceeds of which are used within
90 days after the date of issuance thereof to extend,
refinance, renew, replace, defease, purchase, acquire or refund
(including successive extensions, refinancings, renewals,
replacements, defeasances, purchases, acquisitions or refunds),
Indebtedness initially incurred under any one or more of the
Charter Holdings Indentures, the Charter Indentures, or the
Indenture; provided that:
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(1) the principal amount (or accreted value, if applicable)
of such Charter Refinancing Indebtedness does not exceed the
principal amount of (or accreted value, if applicable) plus
accrued interest and premium, if any, on the Indebtedness so
extended, refinanced, renewed, replaced, defeased, purchased,
acquired or refunded (plus the amount of reasonable fees,
commissions and expenses incurred in connection
therewith); and |
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(2) such Charter Refinancing Indebtedness has a final
maturity date later than the final maturity date of, and has a
Weighted Average Life to Maturity equal to or greater than the
Weighted Average Life to Maturity of, the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded. |
Charter Refinancing Subsidiary means CCH I,
CCH II or any other directly or indirectly wholly owned
Subsidiary (and any related corporate co-obligor if such
Subsidiary is a limited liability company or
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other association not taxed as a corporation) of Charter or
Charter Communications Holding Company, LLC, which is or becomes
a Parent.
Consolidated EBITDA means with respect to any
Person, for any period, the net income of such Person and its
Restricted Subsidiaries for such period plus, to the extent such
amount was deducted in calculating such net income:
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(1) Consolidated Interest Expense; |
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(2) income taxes; |
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(3) depreciation expense; |
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(4) amortization expense; |
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(5) all other non-cash items, extraordinary items,
nonrecurring and unusual items and the cumulative effects of
changes in accounting principles reducing such net income, less
all non-cash items, extraordinary items, nonrecurring and
unusual items and cumulative effects of changes in accounting
principles increasing such net income, all as determined on a
consolidated basis for such Person and its Restricted
Subsidiaries in conformity with GAAP; |
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(6) amounts actually paid during such period pursuant to a
deferred compensation plan; and |
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(7) for purposes of Section 4.10 only, Management
Fees; provided that Consolidated EBITDA shall not include: |
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(x) the net income (or net loss) of any Person that is not
a Restricted Subsidiary (Other Person), except |
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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 |
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(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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(y) solely for the purposes of calculating the amount of
Restricted Payments that may be made pursuant to clause (3)
of the covenant described under the caption
Certain covenants Restricted
payments (and in such case, except to the extent
includable pursuant to clause (x) above), the net income
(or net loss) of any Other Person accrued prior to the date it
becomes a Restricted Subsidiary or is merged into or
consolidated with such Person or any Restricted Subsidiaries or
all or substantially all of the property and assets of such
Other Person are acquired by such Person or any of its
Restricted Subsidiaries; and |
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(z) the net income of any Restricted Subsidiary of
CCH II to the extent that the declaration or payment of
dividends or similar distributions by such Restricted Subsidiary
of such net income is not at the time permitted by the operation
of the terms of such Restricted Subsidiarys charter or any
agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to such Restricted Subsidiary
(other than any agreement or instrument evidencing Indebtedness
or Preferred Stock (i) outstanding on the Issue Date or
(ii) incurred or issued thereafter in compliance with the
covenant described under the caption Certain
covenants Incurrence of indebtedness and issuance of
preferred stock; provided that (a) the terms of any
such agreement or instrument restricting the declaration and
payment of dividends or similar distributions apply only in the
event of a default with respect to a financial covenant or a
covenant relating to payment, beyond any applicable period of
grace, contained in such agreement or instrument, (b) such
terms are determined by such Person to be customary in
comparable financings and (c) such restrictions are
determined by CCH II not to materially |
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affect the Issuers ability to make principal or interest
payments on the applicable Notes when due). |
Consolidated Indebtedness means, with respect to any
Person as of any date of determination, the sum, without
duplication, of:
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(1) the total amount of outstanding Indebtedness of such
Person and its Restricted Subsidiaries, plus |
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(2) the total amount of Indebtedness of any other Person
that has been Guaranteed by the referent Person or one or more
of its Restricted Subsidiaries, plus |
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(3) the aggregate liquidation value of all Disqualified
Stock of such Person and all Preferred Stock of Restricted
Subsidiaries of such Person, in each case, determined on a
consolidated basis in accordance with GAAP. |
Consolidated Interest Expense means, with respect to
any Person for any period, without duplication, the sum of:
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(1) the consolidated interest expense of such Person and
its Restricted Subsidiaries for such period, whether paid or
accrued (including, without limitation, amortization or original
issue discount, non-cash interest payments, the interest
component of any deferred payment obligations, the interest
component of all payments associated with Capital Lease
Obligations, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers
acceptance financings, and net payments (if any) pursuant to
Hedging Obligations); and |
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(2) the consolidated interest expense of such Person and
its Restricted Subsidiaries that was capitalized during such
period; and |
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(3) any interest expense on Indebtedness of another Person
that is guaranteed by such Person or one of its Restricted
Subsidiaries or secured by a Lien on assets of such Person or
one of its Restricted Subsidiaries (whether or not such
Guarantee or Lien is called upon); excluding, however, any
amount of such interest of any Restricted Subsidiary of the
referent Person if the net income of such Restricted Subsidiary
is excluded in the calculation of Consolidated EBITDA pursuant
to clause (z) of the definition thereof (but only in the
same proportion as the net income of such Restricted Subsidiary
is excluded from the calculation of Consolidated EBITDA pursuant
to clause (z) of the definition thereof), in each case, on
a consolidated basis and in accordance with GAAP. |
Continuing Directors means, as of any date of
determination, any member of the Board of Directors of Charter
who:
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(1) was a member of the Board of Directors of Charter on
the Issue Date; or |
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(2) was nominated for election or elected to the Board of
Directors of Charter with the approval of a majority of the
Continuing Directors who were members of such Board of Directors
of Charter at the time of such nomination or election or whose
election or appointment was previously so approved. |
Credit Facilities means, with respect to CCH II
and/or its Restricted Subsidiaries, one or more debt facilities
or commercial paper facilities (including the Vulcan Backstop
Facility), in each case with banks or other lenders (other than
a Parent of the Issuers, but including the Lenders under the
Vulcan Backstop Facility) providing for revolving credit loans,
term loans, receivables financing (including through the sale of
receivables to such lenders or to special purpose entities
formed to borrow from such lenders against such receivables) or
letters of credit, in each case, as amended, restated, modified,
renewed, refunded, replaced or refinanced in whole or in part
from time to time.
Default means any event that is, or with the passage
of time or the giving of notice or both would be, an Event of
Default.
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Disposition means, with respect to any Person, any
merger, consolidation or other business combination involving
such Person (whether or not such Person is the Surviving Person)
or the sale, assignment, transfer, lease or conveyance, or other
disposition of all or substantially all of such Persons
assets or Capital Stock.
Disqualified Stock means any Capital Stock that, by
its terms (or by the terms of any security into which it is
convertible, or for which it is exchangeable, in each case at
the option of the holder thereof) or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the
option of the holder thereof, in whole or in part, on or prior
to the date that is 91 days after the date on which the
CCH II Notes mature. Notwithstanding the preceding
sentence, any Capital Stock that would constitute Disqualified
Stock solely because the holders thereof have the right to
require CCH II to repurchase such Capital Stock upon the
occurrence of a change of control or an asset sale shall not
constitute Disqualified Stock if the terms of such Capital Stock
provide that CCH II may not repurchase or redeem any such
Capital Stock pursuant to such provisions unless such repurchase
or redemption complies with the covenant described above under
the caption Certain covenants
Restricted payments.
Equity Interests means Capital Stock and all
warrants, options or other rights to acquire Capital Stock (but
excluding any debt security that is convertible into, or
exchangeable for, Capital Stock).
Equity Offering means any private or underwritten
public offering of Qualified Capital Stock of CCH II or a
Parent of which the gross proceeds to CCH II or received by
CCH II as a capital contribution from such Parent, as the
case may be, are at least $25 million.
Existing Indebtedness means Indebtedness of
CCH II and its Restricted Subsidiaries in existence on the
Issue Date, until such amounts are repaid.
GAAP means generally accepted accounting principles
set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of
the accounting profession, which were in effect on the Issue
Date.
Guarantee or guarantee means a guarantee
other than by endorsement of negotiable instruments for
collection in the ordinary course of business, direct or
indirect, in any manner including, without limitation, by way of
a pledge of assets or through letters of credit or reimbursement
agreements in respect thereof, of all or any part of any
Indebtedness, measured as the lesser of the aggregate
outstanding amount of the Indebtedness so guaranteed and the
face amount of the guarantee.
Hedging Obligations means, with respect to any
Person, the obligations of such Person under:
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(1) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements; |
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(2) interest rate option agreements, foreign currency
exchange agreements, foreign currency swap agreements; and |
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(3) other agreements or arrangements designed to protect
such Person against fluctuations in interest and currency
exchange rates. |
Helicon Preferred Stock means the preferred limited
liability company interest of Charter-Helicon LLC with an
aggregate liquidation value of $25 million.
Indebtedness means, with respect to any specified
Person, any indebtedness of such Person, whether or not
contingent:
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(1) in respect of borrowed money; |
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(2) evidenced by bonds, notes, debentures or similar
instruments or letters of credit (or reimbursement agreements in
respect thereof); |
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(3) in respect of bankers acceptances; |
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(4) representing Capital Lease Obligations; |
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(5) in respect of the balance deferred and unpaid of the
purchase price of any property, except any such balance that
constitutes an accrued expense or trade payable; or |
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(6) representing the notional amount of any Hedging
Obligations, if and to the extent any of the preceding items
(other than letters of credit and Hedging Obligations) would
appear as a liability upon a balance sheet of the specified
Person prepared in accordance with GAAP. In addition, the term
Indebtedness includes all Indebtedness of others
secured by a Lien on any asset of the specified Person (whether
or not such Indebtedness is assumed by the specified Person)
and, to the extent not otherwise included, the guarantee by such
Person of any indebtedness of any other Person. |
The amount of any Indebtedness outstanding as of any date shall
be:
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(1) the accreted value thereof, in the case of any
Indebtedness issued with original issue discount; and |
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(2) the principal amount thereof, together with any
interest thereon that is more than 30 days past due, in the
case of any other Indebtedness. |
Investment Grade Rating means a rating equal to or
higher than Baa3 (or the equivalent) by Moodys and BBB-
(or the equivalent) by S&P.
Investments means, with respect to any Person, all
investments by such Person in other Persons, including
Affiliates, in the forms of direct or indirect loans (including
guarantees of Indebtedness or other obligations), advances or
capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course
of business) and purchases or other acquisitions for
consideration of Indebtedness, Equity Interests or other
securities, together with all items that are or would be
classified as investments on a balance sheet prepared in
accordance with GAAP.
Issue Date means September 23, 2003.
Leverage Ratio means, as to CCH II, as of any
date, the ratio of:
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(1) the Consolidated Indebtedness of CCH II on such
date to |
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(2) the aggregate amount of Consolidated EBITDA for
CCH II for the most recently ended fiscal quarter for which
internal financial statements are available multiplied by four
(the Reference Period). |
In addition to the foregoing, for purposes of this definition,
Consolidated EBITDA shall be calculated on a pro
forma basis after giving effect to
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(1) the issuance of the CCH II Notes; |
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(2) the incurrence of the Indebtedness or the issuance of
the Disqualified Stock or Preferred Stock of a Restricted
Subsidiary (and the application of the proceeds therefrom)
giving rise to the need to make such calculation and any
incurrence or issuance (and the application of the proceeds
therefrom) or repayment of other Indebtedness, Disqualified
Stock or Preferred Stock of a Restricted Subsidiary, other than
the incurrence or repayment of Indebtedness for ordinary working
capital purposes, at any time subsequent to the beginning of the
Reference Period and on or prior to the date of determination,
as if such incurrence (and the application of the proceeds
thereof), or the repayment, as the case may be, occurred on the
first day of the Reference Period; |
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(3) any Dispositions or Asset Acquisitions (including,
without limitation, any Asset Acquisition giving rise to the
need to make such calculation as a result of such Person or one
of its Restricted Subsidiaries (including any person that
becomes a Restricted Subsidiary as a result of such Asset
Acquisition) incurring, assuming or otherwise becoming liable
for or issuing Indebtedness, Disqualified Stock or Preferred
Stock) made on or subsequent to the first day of the Reference |
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Period and on or prior to the date of determination, as if such
Disposition or Asset Acquisition (including the incurrence,
assumption or liability for any such Indebtedness, Disqualified
Stock or Preferred Stock and also including any Consolidated
EBITDA associated with such Asset Acquisition, including any
cost savings adjustments in compliance with
Regulation S-X
promulgated by the Securities and Exchange Commission) had
occurred on the first day of the Reference Period. |
Lien means, with respect to any asset, any mortgage,
lien, pledge, charge, security interest or encumbrance of any
kind in respect of such asset, whether or not filed, recorded or
otherwise perfected under applicable law, including any
conditional sale or other title retention agreement, any lease
in the nature thereof, any option or other agreement to sell or
give a security interest in and any filing of or agreement to
give any financing statement under the Uniform Commercial Code
(or equivalent statutes) of any jurisdiction.
Management Fees means the fees payable to Charter
pursuant to the management and mutual services agreements
between any Parent of CCH II and Charter Communications
Operating, LLC and between any Parent of CCH II and other
Restricted Subsidiaries of CCH II and pursuant to the
limited liability company agreements of certain Restricted
Subsidiaries as such management, mutual services or limited
liability company agreements existed on the Issue Date (or, if
later, on the date any new Restricted Subsidiary is acquired or
created), including any amendment or replacement thereof,
provided, that any such new agreements or amendments or
replacements of existing agreements is not more disadvantageous
to the holders of the CCH II Notes in any material respect
than such management agreements that existed on the Issue Date
and further provided, that such new, amended or replacement
management agreements do not provide for percentage fees, taken
together with fees under existing agreements, any higher than
3.5% of Charters consolidated total revenues for the
applicable payment period.
Moodys means Moodys Investors Service,
Inc. or any successor to the rating agency business thereof.
Net Proceeds means the aggregate cash proceeds
received by CCH II or any of its Restricted Subsidiaries in
respect of any Asset Sale (including, without limitation, any
cash received upon the sale or other disposition of any non-cash
consideration received in any Asset Sale), net of the direct
costs relating to such Asset Sale, including, without
limitation, legal, accounting and investment banking fees, and
sales commissions, and any relocation expenses incurred as a
result thereof or taxes paid or payable as a result thereof
(including amounts distributable in respect of owners,
partners or members tax liabilities resulting from
such sale), in each case after taking into account any available
tax credits or deductions and any tax sharing arrangements and
amounts required to be applied to the repayment of Indebtedness.
Non-Recourse Debt means Indebtedness:
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(1) as to which neither CCH II nor any of its
Restricted Subsidiaries |
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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 |
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(c) constitutes the lender; |
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(2) no default with respect to which (including any rights
that the holders thereof may have to take enforcement action
against an Unrestricted Subsidiary) would permit upon notice,
lapse of time or both any holder of any other Indebtedness
(other than the CCH II Notes) of CCH II or any of its
Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or
payable prior to its stated maturity; and |
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(3) as to which the lenders have been notified in writing
that they will not have any recourse to the Capital Stock or
assets of CCH II or any of its Restricted Subsidiaries. |
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Parent means CCH I, Charter Holdings, Charter
Communications Holding Company, LLC, Charter and/or any direct
or indirect Subsidiary of the foregoing 100% of the Capital
Stock of which is owned directly or indirectly by one or more of
the foregoing Persons, as applicable, and that directly or
indirectly beneficially owns 100% of the Capital Stock of
CCH II, and any successor Person to any of the foregoing.
Permitted Investments means:
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(1) any Investment by CCH II in a Restricted
Subsidiary thereof, or any Investment by a Restricted Subsidiary
of CCH II in CCH II or in another Restricted
Subsidiary of CCH II; |
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(2) any Investment in Cash Equivalents; |
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(3) any Investment by CCH II or any of its Restricted
Subsidiaries in a Person, if as a result of such Investment: |
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(a) such Person becomes a Restricted Subsidiary of
CCH II; or |
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(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, CCH II or a Restricted
Subsidiary of CCH II; |
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(4) any Investment made as a result of the receipt of
non-cash consideration from an Asset Sale that was made pursuant
to and in compliance with the covenant described above under the
caption Repurchase at the option of
holders Asset sales; |
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(5) any Investment made out of the net cash proceeds of the
issue and sale from and after the Issue Date (other than to a
Subsidiary of CCH II) of Equity Interests (other than
Disqualified Stock) of CCH II to the extent that such net
cash proceeds have not been applied to make a Restricted Payment
or to effect other transactions pursuant to the covenant
described under Restricted payments |
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(6) other Investments in any Person (other than any Parent)
having an aggregate fair market value when taken together with
all other Investments in any Person made by CCH II and its
Restricted Subsidiaries (without duplication) pursuant to this
clause (6) from and after the Issue Date, not to exceed
$750 million (initially measured on the date each such
Investment was made and without giving effect to subsequent
changes in value, but reducing the amount outstanding by the
aggregate amount of principal, interest, dividends,
distributions, repayments, proceeds or other value otherwise
returned or recovered in respect of any such Investment, but not
to exceed the initial amount of such Investment) at any one time
outstanding; and |
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(7) Investments in customers and suppliers in the ordinary
course of business which either |
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(A) generate accounts receivable, or |
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(B) are accepted in settlement of bona fide
disputes; and |
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(8) Investments resulting from the Private Exchanges. |
Permitted Liens means:
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(1) Liens on the assets of CCH II and its Restricted
Subsidiaries securing Indebtedness and other obligations under
any of the Credit Facilities; |
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(2) Liens in favor of CCH II; |
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(3) Liens on property of a Person existing at the time such
Person is merged with or into or consolidated with CCH II
or a Restricted Subsidiary thereof; provided that such Liens
were in existence prior to the contemplation of such merger or
consolidation and do not extend to any assets other than those
of the Person merged into or consolidated with CCH II or a
Restricted Subsidiary thereof; |
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(4) Liens on property existing at the time of acquisition
thereof by CCH II or its Restricted Subsidiaries; provided
that such Liens were in existence prior to the contemplation of
such acquisition; |
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(5) Liens to secure the performance of statutory
obligations, surety or appeal bonds, performance bonds or other
obligations of a like nature incurred in the ordinary course of
business; |
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(6) purchase money mortgages or other purchase money Liens
(including, without limitation, any Capitalized Lease
Obligations) incurred by CCH II or its Restricted
Subsidiaries upon any fixed or capital assets acquired after the
Issue Date or purchase money mortgages (including, without
limitation, Capital Lease Obligations) on any such assets,
whether or not assumed, existing at the time of acquisition of
such assets, whether or not assumed, so long as |
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(a) such mortgage or lien does not extend to or cover any
of the assets of CCH II or any of its Restricted
Subsidiaries, 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 |
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(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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(7) Liens existing on the Issue Date (other than in
connection with the Credit Facilities) and replacement Liens
therefor that do not encumber additional property; |
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(8) Liens for taxes, assessments or governmental charges or
claims that are not yet delinquent or that are being contested
in good faith by appropriate proceedings promptly instituted and
diligently concluded; provided that any reserve or other
appropriate provision as shall be required in conformity with
GAAP shall have been made therefor; |
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(9) statutory and common law Liens of landlords and
carriers, warehousemen, mechanics, suppliers, materialmen,
repairmen or other similar Liens arising in the ordinary course
of business and with respect to amounts not yet delinquent or
being contested in good faith by appropriate legal proceedings
promptly instituted and diligently conducted and for which a
reserve or other appropriate provision, if any, as shall be
required in conformity with GAAP shall have been made; |
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(10) Liens incurred or deposits made in the ordinary course
of business in connection with workers compensation,
unemployment insurance and other types of social security; |
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(11) Liens incurred or deposits made to secure the
performance of tenders, bids, leases, statutory or regulatory
obligation, bankers acceptance, surety and appeal bonds,
government contracts, performance and
return-of-money bonds
and other obligations of a similar nature incurred in the
ordinary course of business (exclusive of obligations for the
payment of borrowed money); |
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(12) easements,
rights-of-way,
municipal and zoning ordinances and similar charges,
encumbrances, title defects or other irregularities that do not
materially interfere with the ordinary course of business of CCO
Holdings or any of its Restricted Subsidiaries; |
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(13) Liens of franchisors or other regulatory bodies
arising in the ordinary course of business; |
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(14) Liens arising from filing Uniform Commercial Code
financing statements regarding leases or other Uniform
Commercial Code financing statements for precautionary purposes
relating to arrangements not constituting Indebtedness; |
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(15) Liens arising from the rendering of a final judgment
or order against CCH II or any of its Restricted Subsidiaries
that does not give rise to an Event of Default; |
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(16) Liens securing reimbursement obligations with respect
to letters of credit that encumber documents and other property
relating to such letters of credit and the products and proceeds
thereof; |
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(17) Liens encumbering customary initial deposits and
margin deposits, and other Liens that are within the general
parameters customary in the industry and incurred in the
ordinary course of business, in each case, securing Indebtedness
under Hedging Obligations and forward contracts, options, future
contracts, future options or similar agreements or arrangements
designed solely to protect CCH II or any of its Restricted
Subsidiaries from fluctuations in interest rates, currencies or
the price of commodities; |
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(18) Liens consisting of any interest or title of licensor
in the property subject to a license; |
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(19) Liens on the Capital Stock of Unrestricted
Subsidiaries; |
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(20) Liens arising from sales or other transfers of
accounts receivable which are past due or otherwise doubtful of
collection in the ordinary course of business; |
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(21) Liens incurred in the ordinary course of business of
CCH II and its Restricted Subsidiaries with respect to
obligations which in the aggregate do not exceed
$50 million at any one time outstanding; |
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(22) Liens in favor of the trustee arising under the
Indenture and similar provisions in favor of trustees or other
agents or representatives under indentures or other agreements
governing debt instruments entered into after the date hereof; |
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(23) Liens in favor of the trustee for its benefit and the
benefit of holders of the CCH II Notes, as their respective
interests appear; and |
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(24) Liens securing Permitted Refinancing Indebtedness, to
the extent that the Indebtedness being refinanced was secured or
was permitted to be secured by such Liens. |
Permitted Refinancing Indebtedness means any
Indebtedness of CCH II or any of its Restricted
Subsidiaries issued in exchange for, or the net proceeds of
which are used within 60 days after the date of issuance
thereof to extend, refinance, renew, replace, defease or refund,
other Indebtedness of CCO Holdings or any of its Restricted
Subsidiaries (other than intercompany Indebtedness); provided
that unless permitted otherwise by the Indenture, no
Indebtedness of any Restricted Subsidiary may be issued in
exchange for, nor may the net proceeds of Indebtedness be used
to extend, refinance, renew, replace, defease or refund,
Indebtedness of the direct or indirect parent of such Restricted
Subsidiary; provided further that:
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(1) the principal amount (or accreted value, if applicable)
of such Permitted Refinancing Indebtedness does not exceed the
principal amount of (or accreted value, if applicable) plus
accrued interest and premium, if any, on the Indebtedness so
extended, refinanced, renewed, replaced, defeased or refunded
(plus the amount of reasonable expenses incurred in connection
therewith), except to the extent that any such excess principal
amount would be then permitted to be incurred by other
provisions of the covenant described above under the caption
Certain covenants Incurrence of
indebtedness and issuance of preferred stock. |
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(2) such Permitted Refinancing Indebtedness has a final
maturity date later than the final maturity date of, and has a
Weighted Average Life to Maturity equal to or greater than the
Weighted Average Life to Maturity of, the Indebtedness being
extended, refinanced, renewed, replaced, defeased or
refunded; and |
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(3) if the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded is subordinated in right
of payment to the CCH II Notes, such Permitted Refinancing
Indebtedness has a final maturity date later than the final
maturity date of, and is subordinated in right of payment to,
the CCH II Notes on terms at least as favorable to the
holders of CCH II Notes as those contained in the
documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded. |
272
Person means any individual, corporation,
partnership, joint venture, association, limited liability
company, joint stock company, trust, unincorporated
organization, government or agency or political subdivision
thereof or any other entity.
Preferred Stock, as applied to the Capital Stock of
any Person, means Capital Stock of any class or classes (however
designated) which, by its terms, is preferred as to the payment
of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such
Person, over shares of Capital Stock of any other class of such
Person.
Private Exchanges means, collectively,
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(1) the acquisition by CCH II of certain senior notes
and senior discount notes outstanding under the Charter Holdings
Indentures, in exchange for notes, pursuant to one or more
Exchange Agreements dated on or after September 18, 2003,
as such agreements may be supplemented, modified, extended or
amended from time to time; |
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(2) the acquisition by CCH II of certain convertible
senior notes outstanding under the Charter Indentures in
exchange for notes, pursuant to one or more Exchange Agreements
dated on or after September 18, 2003, as such agreements
may be supplemented, modified, extended or amended from time to
time; and |
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(3) the distribution, loan or investment of (a) senior
notes and senior discount notes accepted in exchange for notes
as contemplated by clause (1) of this definition,
(B) convertible notes accepted in exchange for notes as
contemplated by clause (2) of this definition and
(c) amounts sufficient to satisfy the expenses incurred by
any Parent in connection therewith (including any required
payment of accrued interest thereon), in each case, directly or
indirectly to or in any Parent. |
Productive Assets means assets (including assets of
a referent Person owned directly or indirectly through ownership
of Capital Stock) of a kind used or useful in the Cable Related
Business.
Qualified Capital Stock means any Capital Stock that
is not Disqualified Stock.
Rating Agencies means Moodys and S&P.
Related Party means: (1) the spouse or an
immediate family member, estate or heir of Paul G. Allen; or
(2) any trust, corporation, partnership or other entity,
the beneficiaries, stockholders, partners, owners or Persons
beneficially holding an 80% or more controlling interest of
which consist of Paul G. Allen and/or such other Persons
referred to in the immediately preceding clause (1).
Restricted Investment means an Investment other than
a Permitted Investment.
Restricted Subsidiary of a Person means any
Subsidiary of the referent Person that is not an Unrestricted
Subsidiary.
S&P means Standard & Poors
Ratings Service, a division of the McGraw-Hill Companies, Inc.
or any successor to the rating agency business thereof.
Significant Subsidiary means (a) with respect
to any Person, any Restricted Subsidiary of such Person which
would be considered a Significant Subsidiary as
defined in Rule 1-02(w) of
Regulation S-X
under the Securities Act and (b) in addition, with respect
to CCH II, Capital Corp.
Stated Maturity means, with respect to any
installment of interest or principal on any series of
Indebtedness, the date on which such payment of interest or
principal was scheduled to be paid in the documentation
governing such Indebtedness on the Issue Date, or, if none, the
original documentation governing such Indebtedness, and shall
not include any contingent obligations to repay, redeem or
repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
Subsidiary means, with respect to any Person:
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(1) any corporation, association or other business entity
of which at least 50% of the total voting power of shares of
Capital Stock entitled (without regard to the occurrence of any
contingency) to |
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vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by
such Person or one or more of the other Subsidiaries of that
Person (or a combination thereof) and, in the case of any such
entity of which 50% of the total voting power of shares of
Capital Stock is so owned or controlled by such Person or one or
more of the other Subsidiaries of such Person, such Person and
its Subsidiaries also have the right to control the management
of such entity pursuant to contract or otherwise; and |
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(2) any partnership |
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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 |
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(b) the only general partners of which are such Person or
of one or more Subsidiaries of such Person (or any combination
thereof). |
Unrestricted Subsidiary means any Subsidiary of
CCH II that is designated by the Board of Directors of
CCH II as an Unrestricted Subsidiary pursuant to a board
resolution, but only to the extent that such Subsidiary:
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(1) has no Indebtedness other than Non-Recourse Debt; |
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(2) is not party to any agreement, contract, arrangement or
understanding with CCH II or any Restricted Subsidiary of
CCH II unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to
CCH II or such Restricted Subsidiary of CCH II than
those that might be obtained at the time from Persons who are
not Affiliates of CCH II unless such terms constitute
Investments permitted by the covenant described above under the
caption Certain covenants
Investments, Permitted Investments, Asset Sales permitted
under the covenant described above under the caption
Repurchase at the option of the
holders Asset sales or sale-leaseback
transactions permitted by the covenant described above under the
caption Certain covenants Sale and leaseback
transactions; |
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(3) is a Person with respect to which neither CCH II
nor any of its Restricted Subsidiaries has any direct or
indirect obligation |
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(a) to subscribe for additional Equity Interests or |
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(b) to maintain or preserve such Persons financial
condition or to cause such Person to achieve any specified
levels of operating results; |
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(4) has not guaranteed or otherwise directly or indirectly
provided credit support for any Indebtedness of CCH II or
any of its Restricted Subsidiaries; |
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(5) has at least one director on its board of directors
that is not a director or executive officer of CCH II or
any of its Restricted Subsidiaries or has at least one executive
officer that is not a director or executive officer of
CCH II or any of its Restricted Subsidiaries; and |
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(6) does not own any Capital Stock of any Restricted
Subsidiary of CCH II. |
Any designation of a Subsidiary of CCH II as an
Unrestricted Subsidiary shall be evidenced to the trustee by
filing with the trustee a certified copy of the board resolution
giving effect to such designation and an officers
certificate certifying that such designation complied with the
preceding conditions and was permitted by the covenant described
above under the caption Certain
covenants Investments. If, at any time, any
Unrestricted Subsidiary would fail to meet the preceding
requirements as an Unrestricted Subsidiary, it shall thereafter
cease to be an Unrestricted Subsidiary for purposes of the
Indenture and any Indebtedness of such Subsidiary shall be
deemed to be incurred by a Restricted Subsidiary of CCH II
as of such date and, if such Indebtedness is not permitted to be
incurred as of such date under the covenant described under the
caption Certain covenants
Incurrence of indebtedness and issuance of preferred
stock, CCH II shall be in default of such covenant.
The Board of Directors of CCH II may at any time designate
any Unrestricted Subsidiary to be a Restricted Subsidiary;
provided that such designation shall
274
be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of any outstanding Indebtedness of such Unrestricted
Subsidiary and such designation shall only be permitted if:
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(1) such Indebtedness is permitted under the covenant
described under the caption Certain
covenants Incurrence of indebtedness and issuance of
preferred stock, calculated on a pro forma basis as if
such designation had occurred at the beginning of the
four-quarter reference period; and |
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(2) no Default or Event of Default would be in existence
immediately following such designation. |
Voting Stock of any Person as of any date means the
Capital Stock of such Person that is at the time entitled to
vote in the election of the board of directors or comparable
governing body of such Person.
Vulcan Backstop Facility means a credit facility
entered into or to be entered into by and among CCO Holdings,
LLC, a Delaware limited liability company, Charter, Charter
Communications Holding Company, LLC, Charter Holdings,
CCH I, CCH II and/or one or more other Subsidiaries of
CCH II and the lenders party thereto pursuant to a
commitment letter dated March 14, 2003 between Vulcan Inc.
and Charter Communications VII, LLC, as amended by an extension
letter dated June 30, 2003, by and between Vulcan Inc., CCO
Holdings, LLC and Charter Communications VII, LLC, as the same
may be further amended, extended, modified, supplemented or
replaced from time to time.
Weighted Average Life to Maturity means, when
applied to any Indebtedness at any date, the number of years
obtained by dividing:
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(1) the sum of the products obtained by multiplying |
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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 |
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(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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(2) the then outstanding principal amount of such
Indebtedness. |
Wholly Owned Restricted Subsidiary of any Person
means a Restricted Subsidiary of such Person all of the
outstanding common equity interests or other ownership interests
of which (other than directors qualifying shares) shall at
the time be owned by such Person and/or by one or more Wholly
Owned Restricted Subsidiaries of such Person.
275
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth below, CCH II Notes will be issued in
registered, global form (Global Notes) in minimum
denominations of $1,000 and integral multiples of $1,000 in
excess thereof. New Notes will be issued on the Settlement Date.
The Global Notes will be deposited upon issuance with the
trustee, as custodian for The Depository Trust Company
(DTC), in New York, New York, and registered in the
name of DTC or its nominee, in each case for credit to an
account of a direct or indirect participant in DTC as described
below.
Except as set forth below, the Global Notes may be transferred,
in whole and not in part, only to another nominee of DTC or to a
successor of DTC or its nominee. Beneficial interests in the
Global Notes may not be exchanged for new notes in certificated
form except in the limited circumstances described below. See
Exchange of Book-Entry Notes for Certificated
Notes. Except in the limited circumstances described
below, owners of beneficial interests in the Global Notes will
not be entitled to receive physical delivery of Certificated
Notes (as defined below).
Transfers of beneficial interests in the Global Notes will be
subject to the applicable rules and procedures of DTC and its
direct or indirect participants which may change from time to
time. Initially, the trustee will act as paying agent and
registrar. The CCH II Notes may be presented for
registration of transfer and exchange at the offices of the
registrar.
Certain Procedures
The following description of the operations and procedures of
DTC are provided solely as a matter of convenience. These
operations and procedures are solely within the control of the
respective settlement systems and are subject to changes by them
from time to time. We take no responsibility for these
operations and procedures and urge investors to contact the
system or their participants directly to discuss these matters.
DTC has advised us that DTC is a limited-purpose trust company
created to hold securities for its participating organizations
(collectively, the Participants) and to facilitate
the clearance and settlement of transactions in those securities
between Participants through electronic book-entry changes in
accounts of its Participants. The Participants include
securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations. Access to
DTCs system is also available to other entities such as
banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a Participant, either
directly or indirectly (collectively, the Indirect
Participants).
Persons who are not Participants may beneficially own securities
held by or on behalf of DTC only through the Participants or the
Indirect Participants. The ownership interests in, and transfers
of ownership interests in, each security held by or on behalf of
DTC are recorded on the records of the Participants and Indirect
Participants.
DTC has also advised us that, pursuant to procedures established
by it, (i) upon deposit of the Global Notes, DTC will
credit the accounts of Participants designated by the initial
purchasers with portions of the principal amount of the Global
Notes and (ii) ownership of such interests in the Global
Notes will be shown on, and the transfer of ownership thereof
will be effected only through, records maintained by DTC (with
respect to the Participants) or by the Participants and the
Indirect Participants (with respect to other owners of
beneficial interest in the Global Notes).
Investors in the Global Notes may hold their interests therein
directly through DTC, if they are Participants in such system,
or indirectly through organizations which are Participants in
such system. All interests in a Global Note may be subject to
the procedures and requirements of DTC. The laws of some states
require that certain persons take physical delivery in
definitive form of securities that they own. Consequently, the
ability to transfer beneficial interests in a Global Note to
such persons will be limited to that extent. Because DTC can act
only on behalf of Participants, which in turn act on behalf of
Indirect Participants and certain banks, the ability of a person
having beneficial interests in a Global Note to
276
pledge such interests to persons or entities that do not
participate in the DTC system, or otherwise take actions in
respect of such interests, may be affected by the lack of a
physical certificate evidencing such interests.
Except as described below, owners of interests in the Global
Notes will not have CCH II Notes registered in their names,
will not receive physical delivery of new notes in certificated
form and will not be considered the registered owners or
holders thereof under the Indenture for any purpose.
Payments in respect of the principal of, premium, if any, and
interest on a Global Note registered in the name of DTC or its
nominee will be payable to DTC in its capacity as the registered
holder under the Indenture. Under the terms of the Indenture, we
and the trustee will treat the persons in whose names the
CCH II Notes, including the Global Notes, are registered as
the owners thereof for the purpose of receiving such payments
and for any and all other purposes whatsoever. Consequently,
neither we, the trustee nor any of our or the trustees
agents has or will have any responsibility or liability for
(i) any aspect of DTCs records or any
Participants or Indirect Participants records
relating to or payments made on account of beneficial ownership
interest in the Global Notes, or for maintaining, supervising or
reviewing any of DTCs records or any Participants or
Indirect Participants records relating to the beneficial
ownership interests in the Global Notes or (ii) any other
matter relating to the actions and practices of DTC or any of
its Participants or Indirect Participants. DTC has advised us
that its current practice, upon receipt of any payment in
respect of securities such as the CCH II Notes (including
principal and interest), is to credit the accounts of the
relevant Participants with the payment on the payment date, in
amounts proportionate to their respective holdings in the
principal amount of beneficial interest in the relevant security
as shown on the records of DTC unless DTC has reason to believe
it will not receive payment on such payment date. Payments by
the Participants and the Indirect Participants to the beneficial
owners of CCH II Notes will be governed by standing
instructions and customary practices and will be the
responsibility of the Participants or the Indirect Participants
and will not be the responsibility of DTC, the trustee or us.
Neither we nor the trustee will be liable for any delay by DTC
or any of its Participants in identifying the beneficial owners
of the CCH II Notes, and we and the trustee may
conclusively rely on and will be protected in relying on
instructions from DTC or its nominee for all purposes.
Transfers between Participants in DTC will be effected in
accordance with DTCs procedures, and will be settled in
same-day funds.
DTC has advised us that it will take any action permitted to be
taken by a holder of CCH II Notes only at the direction of
one or more Participants to whose account DTC has credited
the interests in the Global Notes and only in respect of such
portion of the aggregate principal amount of the CCH II
Notes as to which such Participant or Participants has or have
given such direction. However, if there is an event of default
under the new notes, DTC reserves the right to exchange the
Global Notes for CCH II Notes in certificated form, and to
distribute such CCH II Notes to its Participants.
DTC is under no obligation to perform or continue to perform the
foregoing procedures to facilitate transfers of interests in the
Global Notes among Participants in DTC, and such procedures may
be discontinued at any time. Neither we nor the trustee nor any
of our or their respective agents will have any responsibility
for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and
procedures governing their operations.
Exchange of Book-Entry Notes for Certificated Notes
A Global Note is exchangeable for definitive CCH II Notes
in registered certificated form (Certificated Notes)
if (i) DTC (x) notifies us that it is unwilling or
unable to continue as depositary for the Global Notes and we
thereupon fail to appoint a successor depositary or (y) has
ceased to be a clearing agency registered under the Exchange
Act, (ii) we, at our option, notify the trustee in writing
that we elect to cause the issuance of the Certificated Notes or
(iii) there shall have occurred and be continuing a default
or event of default with respect to the CCH II Notes. In
addition, beneficial interests in a Global Note may be exchanged
for Certificated Notes upon request but only upon prior written
notice
277
given to the trustee by or on behalf of DTC in accordance with
the Indenture and in accordance with the certification
requirements set forth in the Indenture. In all cases,
Certificated Notes delivered in exchange for any Global Note or
beneficial interests therein will be registered in the names,
and issued in any approved denominations, requested by or on
behalf of DTC (in accordance with its customary procedures).
Same-Day Settlement and Payment
Payments in respect of the CCH II Notes represented by
the Global Notes (including principal, premium, if any, and
interest) will be made by wire transfer of immediately available
funds to the accounts specified by the Global Note holder. With
respect to CCH II Notes in certificated form, we will
make all payments of principal, premium, if any, and interest,
by wire transfer of immediately available funds to the accounts
specified by the holders thereof or, if no such account is
specified, by mailing a check to each such holders
registered address. The CCH II Notes represented by
the Global Notes are expected to be eligible to trade in the
PORTALsm
market and to trade in DTCs Same-Day Funds Settlement
System, and any permitted secondary market trading activity in
such CCH II Notes will, therefore, be required by DTC
to be settled in immediately available funds. We expect that
secondary trading in any Certificated Notes will also be settled
in immediately available funds.
278
DESCRIPTION OF THE CONVERTIBLE NOTES
The Convertible Notes were issued under an indenture dated as of
November 22, 2004 between us and Wells Fargo Bank, N.A., as
trustee. Copies of the indenture, the pledge agreement, the
resale registration rights agreement and the borrow facility
registration rights agreement are included as exhibits to the
registration statement of which this Exchange Offer Prospectus
is a part and will be made available upon request. We have
summarized portions of these documents below. This summary is
not complete. We urge you to read the indenture, the pledge
agreement, the resale registration rights agreement and the
borrow facility registration rights agreement because these
documents define your rights as a Holder of the Convertible
Notes. In this section, Charter Communications,
Inc., we, our and us
each refers only to Charter Communications, Inc. and not to any
existing or future subsidiary.
General
The Convertible Notes are senior unsecured obligations of
Charter Communications, Inc. and are convertible into our
Class A Common Stock as described under
Conversion Rights below. The Convertible
Notes were issued in an aggregate original principal amount of
$862,500,000 and will mature on November 16, 2009.
The Convertible Notes bear interest at the rate of
5.875% per year on the accreted principal amount from
November 22, 2004, the date of original issuance of the
Convertible Notes, or from the most recent date to which
interest had been paid or provided for. Interest is payable
semi-annually in arrears on May 16 and November 16 of
each year, commencing May 16, 2005, to holders of record at
the close of business on the preceding May 1 and
November 1, respectively. Interest is computed on the basis
of a 360-day year
comprised of twelve
30-day months. In the
event of the maturity, conversion, purchase by us at the option
of the holder or redemption of a Convertible Note, interest will
cease to accrue on the Convertible Note under the terms of and
subject to the conditions of the indenture.
Principal is payable, and Convertible Notes may be presented for
conversion, registration of transfer and exchange, without
service charge, at our office or agency in New York, New York,
which is initially the office or agency of the trustee in New
York, New York. See Form, Denomination and
Registration. The indenture does not contain any financial
covenants or any restrictions on the payment of dividends, the
incurrence of senior debt or other indebtedness, or the issuance
or repurchase of securities by us. The indenture will contain no
covenants or other provisions to protect holders of the
Convertible Notes in the event of a highly leveraged transaction
or a fundamental change, except to the extent described under
Fundamental Change Requires Us to Repurchase
Convertible Notes at the Option of the Holder below.
Ranking
The Convertible Notes are our unsecured, except with respect to
the Pledged Securities as described below, and unsubordinated
obligations. The Convertible Notes rank, in right of payment,
the same as all of our existing and future unsecured and
unsubordinated indebtedness, except with respect to the Pledged
Securities as described below. The Convertible Notes rank senior
in right of payment to all of our subordinated indebtedness and
will be effectively subordinated to any secured indebtedness,
except with respect to the Pledged Securities as described
below, and structurally subordinated to indebtedness and other
liabilities of our subsidiaries.
As of December 31, 2005, Charter Communications, Inc. had
no secured indebtedness and our subsidiaries had total
indebtedness and other liabilities of $20.2 billion,
excluding intercompany obligations.
Security
Our subsidiary, Charter Holdco, has purchased and pledged to us
as security for an intercompany note, and pursuant to a pledge
agreement we repledged to the trustee as security for the
benefit of the Holders of the Convertible Notes (and not for the
benefit of our other creditors), U.S. government
279
securities, which we refer to as the Pledged Securities, in such
amount as will be sufficient upon receipt of scheduled payments
with respect to such Pledged Securities to provide for payment
in full of the first six scheduled interest payments due on the
Convertible Notes, without regard to any liquidated damages we
may owe or any deferred interest in respect of accretion of the
principal amount of the Notes. Charter Holdco used approximately
$144 million of the net proceeds from the offering to
acquire such Pledged Securities.
The Pledged Securities were repledged by us to the trustee for
the exclusive benefit of the Holders of the Convertible Notes
and are held by the trustee in a pledge account. Immediately
prior to each of the first six interest payment dates, the
trustee will release from the pledge account cash generated by
Pledged Securities then maturing sufficient to pay the interest
then due on the original principal amount of the Convertible
Notes. A failure to pay interest on the original principal
amount of the Convertible Notes when due through the first six
scheduled interest payment dates will constitute an immediate
event of default under the indenture, with no grace period
(unless the failure to make such payment results from the
failure by the trustee to release such proceeds from the pledge
account, provided such failure is not caused by any act or
omission by us). Upon any conversion of Convertible Notes prior
to November 16, 2007, the trustee will liquidate a portion
of the Pledged Securities and release from the pledge account
proceeds sufficient to pay the Early Conversion Make Whole
Amount described under Conversion
Rights Interest Make Whole Upon Conversion. If
any Early Conversion Make Whole Amount is limited by the formula
described therein, the portion of the proceeds of the
liquidation of the Pledged Securities not paid to the converting
Holder as a result of such limitation will be released to
Charter Holdco from the pledge account.
If prior to November 16, 2007
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an event of default under the Convertible Notes occurs and is
continuing, and |
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the trustee or the Holders of 25% in aggregate original
principal amount of the Convertible Notes accelerate the
Convertible Notes by declaring the accreted principal amount of
the Convertible Notes to be immediately due and payable (by
written consent, at a meeting of Convertible Note Holders or
otherwise), except for the occurrence of an event of default
relating to our bankruptcy, insolvency or reorganization, upon
which the Convertible Notes will be accelerated automatically, |
then the proceeds from the liquidation of the Pledged Securities
will be promptly released to Convertible Note Holders, subject
to the automatic stay provisions of bankruptcy law, if
applicable. Distributions from the pledge account will be
applied:
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first, to any accrued and unpaid interest on the Convertible
Notes, and |
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second, to the extent available, to the repayment of a portion
of the principal amount of the Convertible Notes. |
However, if any event of default is cured or waived prior to the
acceleration of the Convertible Notes by the trustee or Holders
of the Convertible Notes referred to above, the trustee and the
holders of the Convertible Notes will not be able to accelerate
the Convertible Notes as a result of that event of default.
For example, if the first two interest payments were made when
due but the third interest payment was not made when due and the
Convertible Note Holders promptly exercised their right to
declare the accreted principal amount of the Convertible Notes
to be immediately due and payable then, assuming automatic stay
provisions of bankruptcy law are inapplicable and the proceeds
of the Pledged Securities are promptly distributed from the
pledge account,
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an amount equal to the interest payment due with respect to the
third interest payment would be distributed from the pledge
account as accrued interest, and |
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the balance of the proceeds of the pledge account would be
distributed as a portion of the principal amount of the
Convertible Notes. |
280
In addition, Convertible Note Holders would have an unsecured
claim against us for the remainder of the accreted principal
amount of their Convertible Notes.
Once we make the first six scheduled interest payments on the
Convertible Notes, all of the remaining Pledged Securities, if
any, will be released to Charter Holdco from the pledge account
and thereafter the Convertible Notes will be unsecured.
Conversion Rights
Holders may convert their Convertible Notes into shares of our
Class A Common Stock at an initial conversion rate of
413.2231 shares of our Class A Common Stock, par value
$.001 per share, per $1,000 original principal amount of
Convertible Notes, unless previously redeemed or purchased. This
is equivalent to an initial conversion price of approximately
$2.42 per share.
The conversion rate and the equivalent conversion price in
effect at any given time are referred to as the applicable
conversion rate and the applicable conversion
price, respectively, and will be subject to adjustment as
set forth in Conversion Rate Adjustments
below. In addition, if we elect to accrete the principal amount
of the Convertible Notes to pay any liquidated damages, we will
increase the conversion rate at the same rate as the accretion
rate and over the same period of time. A Holder may convert
fewer than all of such Holders Convertible Notes so long
as the Convertible Notes converted are a multiple of $1,000
original principal amount.
Upon conversion of a Convertible Note, a Holder will not receive
any cash payment of interest (unless such conversion occurs
between a regular record date and the interest payment date to
which it relates), subject to our obligations described under
Interest Make Whole Upon Conversion
below, and we will not adjust the conversion rate to account for
accrued and unpaid interest. Our delivery to the Holder of cash
and shares, if any, of our Class A Common Stock into which
the Convertible Note is convertible will be deemed to satisfy
our obligation with respect to such Convertible Note, subject to
our obligations described under Interest Make
Whole Upon Conversion below. Except to the extent we are
required to make payments in respect of such obligations, any
accrued but unpaid interest will be deemed to be paid in full
upon conversion, rather than cancelled, extinguished or
forfeited.
Holders of Convertible Notes at the close of business on a
regular record date will receive payment of interest payable on
the corresponding interest payment date notwithstanding the
conversion of such Convertible Notes at any time after the close
of business on the applicable regular record date. Convertible
Notes surrendered for conversion by a Holder after the close of
business on any regular record date but prior to the next
interest payment date must be accompanied by payment of an
amount equal to the interest that the Holder is to receive on
the Convertible Notes; provided, however, that no such payment
need be made (1) if the conversion date is prior to
November 16, 2007, (2) we have specified a redemption
date that is after a record date and on or prior to the next
interest payment date, (3) if we have specified a purchase
date following a fundamental change that is after a record date
and on or prior to the next interest payment date or
(4) only to the extent of overdue interest, if any overdue
interest exists at the time of conversion with respect to such
Convertible Note.
If a Holder converts Convertible Notes, we will pay any
documentary, stamp or similar issue or transfer tax due on the
issue of shares of our Class A Common Stock upon the
conversion, if any, unless the tax is due because the Holder
requests the shares to be issued or delivered to a person other
than the holder, in which case the Holder will pay that tax.
If a Holder wishes to exercise its conversion right, such Holder
must deliver an irrevocable duly completed conversion notice,
together, if the Convertible Notes are in certificated form,
with the certificated security, to the conversion agent along
with appropriate endorsements and transfer documents, if
required, and pay any transfer or similar tax, if required. The
date a Holder makes such required deliveries is the conversion
date for the Convertible Notes converted. The conversion agent
will, on the holders behalf, convert the Convertible Notes
into shares of our Class A Common Stock, subject to our
281
right to deliver cash or a combination of cash and shares.
Holders may obtain copies of the required form of the conversion
notice from the conversion agent. A certificate, or a book-entry
transfer through The Depository Trust Company, New York, New
York, or DTC, for the number of full shares of our Class A
Common Stock into which any Convertible Notes are converted,
together with a cash payment for any fractional shares, and cash
or shares, if applicable, with respect to any Early Conversion
Make Whole Amount or Redemption Make Whole Amount as described
under Interest Make Whole Upon
Conversion below, will be delivered through the conversion
agent on the conversion settlement date, which will
be as soon as practicable, but no later than the fifth business
day, following the conversion date, unless we elect cash
settlement as described under Cash Settlement
Option below. The trustee will initially act as the
conversion agent.
Convertible Notes called for redemption may be surrendered for
conversion at any time prior to the close of business on the
business day immediately preceding the redemption date. If a
Holder has already delivered a purchase notice as described
under Fundamental Change Requires Us to
Repurchase Convertible Notes at the Option of the Holder
with respect to a Convertible Note, however, the holder may not
surrender that Convertible Note for conversion until the Holder
has withdrawn the purchase notice in accordance with the
indenture.
Upon conversion, we will have the right to deliver, in lieu of
shares of our Class A Common Stock, cash or a combination
of cash and Class A Common Stock. We will inform converting
holders through the trustee no later than two business days
following the conversion date if we elect to pay cash in lieu of
delivering shares and will specify in such notice the percentage
of the shares otherwise deliverable for which we will pay cash,
unless we have already informed Holders of our election in a
notice of redemption for the Convertible Notes, as described
under Redemption below. If we elect to
pay holders cash upon conversion, such payment will be based on
the average price of our Class A Common Stock. If we elect
cash settlement, the conversion settlement date on
which we deliver the cash and shares of our Class A Common
Stock, if any, together with the cash or shares, if applicable,
with respect to any Early Conversion Make Whole Amount or
Redemption Make Whole Amount, to converting Holders will be
the third business day following the determination of the
average price. We will deliver cash in lieu of any fractional
shares of our Class A Common Stock issuable in connection
with any conversion of Convertible Notes based upon the average
price.
The average price of our Class A Common Stock
means, with respect to any conversion of Convertible Notes, the
average of the sale prices of our Class A Common Stock over
the 20 trading day period beginning on the third trading day
immediately following the applicable conversion date.
The sale price of our Class A Common Stock on
any date means the closing sale price per share (or if no
closing sale price is reported, the average of the bid and asked
prices or, if more than one in either case, the average of the
average bid and the average asked prices) on that date as
reported in transactions for the principal U.S. securities
exchange on which our common stock is traded or, if our common
stock is not listed on a U.S. national or regional
securities exchange. The sale price will be determined without
reference to after-hours or extended market trading.
If our Class A Common Stock is not listed for trading on a
U.S. national or regional securities exchange, the
sale price will be the last quoted bid price for our
common stock on the Nasdaq Small Cap Market or in the
over-the-counter market
on the relevant date as reported by Pink Sheets LLC or any
similar organization.
If our Class A Common Stock is not so quoted, the
sale price will be the average of the mid-point of
the last bid and asked prices for our common stock on the
relevant date from each of at least three nationally recognized
independent investment banking firms selected by us for this
purpose.
Trading day means a day during which trading in
securities generally occurs on the principal U.S. national
or regional securities exchange on which our Class A Common
Stock is then listed or, if our
282
Class A Common Stock is not then listed on a national or
regional securities exchange, on the principal other market on
which our Class A Common Stock is then traded.
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Limitation on Beneficial Ownership |
Notwithstanding the foregoing, no Holder of Convertible Notes
will be entitled to receive shares of our Class A Common
Stock upon conversion to the extent (but only to the extent)
that such receipt would cause such converting Holder to become,
directly or indirectly, a beneficial owner (within
the meaning of Section 13(d) of the Exchange Act and the
rules and regulations promulgated thereunder) of more than the
specified percentage of the shares of Class A Common Stock
outstanding at such time. With respect to any conversion prior
to November 16, 2008, the specified percentage will be
4.9%, and with respect to any conversion thereafter until the
maturity of the Convertible Notes, the specified percentage will
be 9.9%. Any purported delivery of shares of our Class A
Common Stock upon conversion of Convertible Notes shall be void
and have no effect to the extent (but only to the extent) that
such delivery would result in the converting Holder becoming the
beneficial owner of more than the specified percentage of the
shares of Class A Common Stock outstanding at such time. If
any delivery of shares of our Class A Common Stock owed to
a Holder upon conversion of Convertible Notes is not made, in
whole or in part, as a result of this limitation, our obligation
to make such delivery shall not be extinguished and we shall
deliver such shares as promptly as practicable after, but in no
event later than two trading days after, any such converting
Holder gives notice to us that such delivery would not result in
it being the beneficial owner of more than the specified
percentage of the shares of Class A Common Stock
outstanding at such time.
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Interest Make Whole Upon Conversion |
Early Conversion Make Whole Amount. Holders who
convert their Convertible Notes prior to November 16, 2007
will receive, in addition to a number of shares of our
Class A Common Stock equal to the conversion rate, or cash
in lieu thereof, the cash proceeds, subject to the limitation
described below, of the sale by the trustee of the Pledged
Securities remaining with respect to the Convertible Notes being
converted, which we refer to as the Early Conversion Make Whole
Amount; provided that if a Holder converts Convertible Notes
after the close of business on any regular record date but prior
to the next interest payment date, the Pledged Securities with
respect to the Convertible Notes being converted that will
mature immediately prior to the applicable interest payment date
shall be excluded from such sale and from the Early Conversion
Make Whole Amount since the proceeds thereof will be paid to
such Holder on such interest payment date. The Early Conversion
Make Whole Amount will not compensate a converting Holder for
any deferred interest in respect of accretion of the principal
amount of the Convertible Notes if we elect to accrete such
principal amount to pay any liquidated damages we may owe.
Upon receipt by the conversion agent of a conversion notice, the
trustee will liquidate a portion of the Pledged Securities,
excluding, in the case of any conversion after the close of
business on any regular record date but prior to the next
interest payment date, Pledged Securities that will mature
immediately prior to the applicable interest payment date,
rounded down to the nearest whole multiple of the minimum
denomination of such Pledged Securities, and release the cash
proceeds thereof to the converting Holder. The percentage of the
remaining Pledged Securities to be sold will be determined based
on the aggregate original principal amount of Convertible Notes
being converted as a percentage of the total original principal
amount of Convertible Notes then outstanding.
If a Holder converts Convertible Notes prior to the earlier of
(1) the sale of such Convertible Notes pursuant to an
effective registration statement (including under this
prospectus) or (2) November 22, 2006, the Early
Conversion Make Whole Amount such Holder will receive upon
conversion of each $1,000 original principal amount of
Convertible Notes will not exceed $18.18, which is the amount
determined pursuant to the following formula:
1000 - 1.1(CR * OP)
283
Where CR is 413.2231, the initial conversion rate for the
Convertible Notes and OP is $2.16, the last reported sale price
of our Class A Common Stock on the date we priced this
offering of Convertible Notes. The portion of the Early
Conversion Make Whole Amount not paid to the holder upon
conversion of its Convertible Notes because of the limitation
described above will be paid to Charter Holdco promptly
following the sale of the relevant Pledged Securities.
Notwithstanding the foregoing paragraph, the cash proceeds
received upon conversion by any Holders who convert Convertible
Notes that have been called for redemption will not be limited
by the formula described above.
Redemption Make Whole Amount. Any Holders who
convert Convertible Notes that have been called for redemption
shall receive, in addition to the Early Conversion Make Whole
Amount, if applicable, the present value of the interest on the
Convertible Notes converted that would have been payable for the
period from and including November 16, 2007, or if later,
the redemption date, to but excluding November 16, 2009,
plus any accrued and unpaid deferred interest, which we refer to
as the Redemption Make Whole Amount. The Redemption Make
Whole Amount shall be calculated by discounting the amount of
such interest, other than any deferred interest, on a
semi-annual basis using a discount rate equal to 3.0% plus the
arithmetic mean of the yields under the respective headings
This Week and Last Week published in the
Statistical Release under the caption Treasury Constant
Maturities for the maturity (rounded to the nearest month)
corresponding to the period from and including the redemption
date to but excluding November 16, 2009. If no maturity
exactly corresponds to such maturity, yields for the two
published maturities most closely corresponding to such maturity
shall be calculated pursuant to the immediately preceding
sentence and the applicable rate shall be interpolated or
extrapolated from such yields on a straight-line basis, rounding
in each of such relevant periods to the nearest month. For the
purpose of calculating the applicable rate, the most recent
Statistical Release published prior to the date of determination
of the Redemption Make Whole Amount shall be used.
The term Statistical Release shall mean the
statistical release designated H.15(519) or any
successor publication which is published weekly by the Federal
Reserve System and which establishes yields on actively traded
U.S. government securities adjusted to constant maturities
or, if such statistical release is not published at the time of
any determination under the indenture, then such other
reasonably comparable index that we will designate.
We may pay the Redemption Make Whole Amount in cash or in
shares of our Class A Common Stock, with the number of such
shares determined based on the average of the sale prices of our
Class A Common Stock over the ten trading days immediately
preceding the applicable conversion date. If we elect to pay the
Redemption Make Whole Amount in shares of our Class A
Common Stock, the number of shares we deliver, together with the
shares deliverable upon conversion, shall not exceed
462 per $1,000 original principal amount of Convertible
Notes, subject to adjustment in the same manner as the
conversion rate as set forth under Conversion
Rate Adjustments, and we must deliver cash with respect to
the remainder of the Redemption Make Whole Amount, if any.
Make Whole Amount and Public Acquirer Change of
Control
If a transaction described in clause (2) of the definition
of change of control (as set forth under
Fundamental Change Requires Us to Repurchase
Convertible Notes at the Option of the Holder) occurs on
or prior to November 16, 2009, we must give notice to all
record Holders of Convertible Notes and the trustee at least ten
trading days prior to the anticipated effective date of such
change of control transaction. We must also give notice to all
record Holders of Convertible Notes and the trustee that such a
transaction has occurred within 15 days after the actual
effective date of such change of control transaction. If a
Holder elects to convert its Convertible Notes at any time
following the date we give notice of the anticipated effective
date of such change of control transaction we will increase the
applicable conversion rate for the Convertible Notes surrendered
for conversion by a number of additional shares of Class A
Common Stock (the additional shares), as described
below.
284
The number of additional shares will be determined by reference
to the table below and is based on the date on which such change
of control transaction becomes effective (the effective
date) and the price (the stock price) paid per
share of our Class A Common Stock in such transaction. If
the holders of our Class A Common Stock receive only cash
in the change of control transaction, the stock price shall be
the cash amount paid per share. Otherwise the stock price shall
be the average of the sale prices of our Class A Common
Stock on the 10 trading days up to but not including the
effective date.
The additional shares will be delivered to Holders who elect to
convert their Convertible Notes during the period described
above on the later of (1) five business days following the
effective date and (2) the conversion settlement date for
those Convertible Notes.
The stock prices set forth in the first row of the table (i.e.,
the column headers) will be adjusted as of any date on which the
conversion rate of the Convertible Notes is adjusted. The
adjusted stock prices will equal the stock prices applicable
immediately prior to such adjustment multiplied by a fraction,
the numerator of which is the conversion rate immediately prior
to the adjustment giving rise to the stock price adjustment and
the denominator of which is the conversion rate as so adjusted.
Our obligation to deliver the additional shares will be subject
to adjustment in the same manner as the conversion rate as set
forth under Conversion Rate Adjustments.
The following table sets forth the hypothetical stock price and
number of additional shares to be received per $1,000 original
principal amount of Convertible Notes.
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Stock Price | |
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Effective Date |
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$2.16 | |
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$2.25 | |
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$2.50 | |
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$3.00 | |
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$3.50 | |
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$4.00 | |
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$4.50 | |
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$5.00 | |
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November 16, 2006
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74.2 |
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66.2 |
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48.5 |
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25.4 |
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12.1 |
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4.1 |
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0.0 |
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0.0 |
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November 16, 2007
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95.1 |
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85.5 |
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64.0 |
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36.5 |
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20.9 |
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11.7 |
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6.3 |
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3.0 |
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November 16, 2008
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85.6 |
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75.0 |
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52.0 |
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24.5 |
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10.7 |
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3.8 |
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0.8 |
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0.0 |
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November 16, 2009
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49.7 |
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31.2 |
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0.0 |
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0.0 |
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0.0 |
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0.0 |
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0.0 |
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0.0 |
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The exact stock price and effective dates may not be set forth
on the table, in which case:
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1. if the stock price is between two stock price amounts on
the table or the effective date is between two dates on the
table, the additional premium will be determined by
straight-line interpolation between the number of additional
shares set forth for the higher and lower stock price amounts
and the two dates, as applicable, based on a 365 day year; |
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2. if the stock price is in excess of $5.00 per share
(subject to adjustment), no additional shares will be issued
upon conversion; and |
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3. if the stock price is less than $2.16 per share
(the last reported sale price of our Class A Common Stock
on the date the Convertible Notes were priced) (subject to
adjustment), no additional shares will be issued upon conversion. |
Notwithstanding the foregoing, in no event will the total number
of shares of Class A Common Stock issuable upon conversion
exceed 462 per $1,000 original principal amount of
Convertible Notes, subject to adjustment in the same manner as
the conversion rate as set forth under
Conversion Rate Adjustments.
Our obligation to deliver the additional shares could be
considered a penalty, in which case the enforceability thereof
would be subject to general principles of reasonableness of
economic remedies.
Notwithstanding the foregoing, and in lieu of adjusting the
conversion rate as set forth above, in the case of a
public acquirer change of control (as defined below)
we may elect that, from and after the effective date of such
public acquirer change of control, the right to convert a
Convertible Note will be changed into a right to convert a
Convertible Note into a number of shares of acquirer
common stock
285
(as defined below). The conversion rate following the effective
date of such transaction will be a number of shares of acquirer
common stock equal to the product of:
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the conversion rate in effect immediately prior to the effective
date of such change of control, times |
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the average of the quotients obtained, for each trading day in
the 10 consecutive trading day period commencing on the trading
day next succeeding the effective date of such public acquirer
change of control (the valuation period), of: |
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(i) the acquisition value of our Class A
Common Stock on each such trading day in the valuation period,
divided by |
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(ii) the closing sale price of the acquirer common stock on
each such trading day in the valuation period. |
The acquisition value of our Class A Common
Stock means, for each trading day in the valuation period, the
value of the consideration paid per share of our Class A
Common Stock in connection with such public acquirer change of
control, as follows:
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for any cash, 100% of the face amount of such cash, |
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for any acquirer common stock or any other securities that are
traded on a U.S. national securities exchange, 100% of the
closing sale price of such acquirer common stock or other traded
securities on each such trading day; and |
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for any other securities, assets or property, 102% of the fair
market value of such security, asset or property on each such
trading day, as determined by two independent nationally
recognized investment banks selected by the trustee for this
purpose. |
After the adjustment of the conversion rate in connection with a
public acquirer change of control, the conversion rate will be
subject to further similar adjustments in the event that any of
the events described above occur thereafter.
A public acquirer change of control is any
transaction described in clause (2) of the definition of
change control below where the acquirer, or any entity that is a
direct or indirect beneficial owner (as defined in
Rule 13d-3 under
the Exchange Act) of more than 50% of the total voting power of
all shares of such acquirers capital stock that are
entitled to vote generally in the election of directors has a
class of common stock traded on a national securities exchange
or which will be so traded or quoted when issued or exchanged in
connection with such change of control. We refer to such
acquirers or other entitys class of common stock
traded on a national securities exchange or which will be so
traded or quoted when issued or exchanged in connection with
such fundamental change as the acquirer common stock.
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Conversion Rate Adjustments |
The initial conversion rate will be adjusted for certain events,
including:
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(1) the issuance of our Class A Common Stock as a
dividend or distribution on our Class A Common Stock, or
certain subdivisions and combinations of our Class A Common
Stock, in which event the conversion rate will be adjusted based
on the following formula: |
where,
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CR
0 |
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= |
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the conversion rate in effect at the close of business on the
record date |
CR 1
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= |
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the conversion rate in effect immediately after the record date |
OS
0
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= |
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the number of shares of our Class A Common Stock
outstanding at the close of business on the record date |
286
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OS 1
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= |
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the number of shares of our Class A Common Stock
outstanding that would be outstanding immediately after such
event |
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(2) the issuance to all holders of our Class A Common
Stock of certain rights or warrants to purchase our Class A
Common Stock (or securities convertible into our Class A
Common Stock) for a period expiring 45 days or less from
the date of issuance of such rights or warrants at less than (or
having a conversion price per share less than) the current
market price of our Class A Common Stock; provided that the
conversion rate will be readjusted to the extent that such
rights or warrants are not exercised prior to the expiration, in
which event the conversion rate will be adjusted based on the
following formula: |
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CR1
= CR
0
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× |
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OS 0
+ X |
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OS 0
OS
0
+ Y |
where,
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CR
0 |
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= |
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the conversion rate in effect at the close of business on the
record date |
CR 1
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= |
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the conversion rate in effect immediately after the record date |
OS
0
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= |
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the number of shares of our Class A Common Stock
outstanding at the close of business on the record date |
X
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= |
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the total number of shares of our Class A Common Stock
issuable pursuant to such rights |
Y
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= |
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the number of shares of our Class A Common Stock equal to
the aggregate price payable to exercise such rights divided by
the average of the sale prices of our Class A Common Stock
for the ten consecutive trading days prior to the business day
immediately preceding the announcement of the issuance of such
rights |
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(3) the dividend or other distribution to all holders of
our Class A Common Stock of shares of our capital stock
(other than Class A Common Stock) or evidences of our
indebtedness or our assets (excluding (A) any dividend,
distribution or issuance covered by clause (1) or (2) above
and (B) any dividend or distribution paid exclusively in
cash), in which event the conversion rate will be adjusted based
on the following formula: |
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CR1
= CR
0
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× |
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SP
0 |
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SP 0
- FMV |
where,
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CR
0 |
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= |
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the conversion rate in effect at the close of business on the
record date |
CR 1
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the conversion rate in effect immediately after the record date |
SP
0
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= |
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the current market price |
FMV
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the fair market value (as determined by our board of directors)
of the shares of capital stock, evidences of indebtedness,
assets or property distributed with respect to each outstanding
share of our Class A Common Stock on the record date for
such distribution |
With respect to an adjustment pursuant to this clause (3)
where there has been a payment of a dividend or other
distribution on our Class A Common Stock or shares of
capital stock of, or similar equity interests in, a subsidiary
or other business unit of ours, in which event the conversion
rate will be adjusted based on the following formula:
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CR1
=
CR0
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× |
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FMV 0
+ MP
0 |
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MP
0 |
287
where,
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CR
0 |
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= |
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the conversion rate in effect at the close of business on the
record date |
CR 1
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= |
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the conversion rate in effect immediately after the record date |
FMV
0
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= |
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the average of the sale prices of the capital stock or similar
equity interest distributed to holders of our Class A
Common Stock applicable to one share of our Class A Common
Stock over the 10 trading days commencing on and including the
fifth trading day after the date on which ex-distribution
trading commences for such dividend or distribution on the
Nasdaq Global Market or such other national or regional exchange
or market on which the securities are then listed or quoted |
MP
0
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= |
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the average of the sale prices of our Class A Common Stock
over the 10 trading days commencing on and including the fifth
trading day after the date on which ex-distribution
trading commences for such dividend or distribution on the
Nasdaq Global Market or such other national or regional exchange
or market on which the securities are then listed or quoted |
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(4) dividends or other distributions consisting exclusively
of cash to all holders of our Class A Common Stock, in
which event the conversion rate will be adjusted based on the
following formula: |
|
|
|
|
|
CR1
= CR
0
|
|
× |
|
SP
0 |
|
|
|
|
|
|
|
|
|
SP 0
- C |
where,
|
|
|
|
|
CR
0 |
|
= |
|
the conversion rate in effect at the close of business on the
record date |
CR 1
|
|
= |
|
the conversion rate in effect immediately after the record date |
SP
0
|
|
= |
|
the current market price |
C
|
|
= |
|
the amount in cash per share we distribute to holders of our
Class A Common Stock |
|
|
|
(5) we or one or more of our subsidiaries make purchases of
our Class A Common Stock pursuant to a tender offer or
exchange offer by us or one of our subsidiaries for our
Class A Common Stock to the extent that the cash and value
of any other consideration included in the payment per share of
our Class A Common Stock exceeds the current market price
per share of our Class A Common Stock on the trading day
next succeeding the last date on which tenders or exchanges may
be made pursuant to such tender or exchange offer (the
expiration date), in which event the conversion rate
will be adjusted based on the following formula: |
|
|
|
|
|
CR1
= CR
0
|
|
× |
|
FMV + (SP1
×
OS1) |
|
|
|
|
|
|
|
|
|
OS 0
×
SP1 |
where,
|
|
|
|
|
CR
0 |
|
= |
|
the conversion rate in effect on the expiration date |
CR 1
|
|
= |
|
the conversion rate in effect immediately after the expiration
date |
FMV
|
|
= |
|
the fair market value (as determined by our board of directors)
of the aggregate value of all cash and any other consideration
paid or payable for shares validly tendered or exchanged and not
withdrawn as of the expiration date (the purchased
shares) |
OS 1
|
|
= |
|
the number of shares of our Class A Common Stock
outstanding immediately after the expiration date less any
purchased shares |
OS
0
|
|
= |
|
the number of shares of our Class A Common Stock
outstanding immediately after the expiration date, including any
purchased shares |
SP 1
|
|
= |
|
the sale price of our Class A Common Stock on the trading
day next succeeding the expiration date |
288
|
|
|
(6) someone other than us or one of our subsidiaries makes
a payment in respect of a tender offer or exchange offer in
which, as of the expiration date, our board of directors is not
recommending rejection of the offer, in which event the
conversion rate will be adjusted based on the following formula: |
|
|
|
|
|
CR1
= CR
0
|
|
× |
|
FMV + (SP1
×
OS1) |
|
|
|
|
|
|
|
|
|
OS 0
×
SP1 |
where,
|
|
|
|
|
CR
0 |
|
= |
|
the conversion rate in effect on the expiration date |
CR 1
|
|
= |
|
the conversion rate in effect immediately after the expiration
date |
FMV
|
|
= |
|
the fair market value (as determined by our board of directors)
of the aggregate consideration payable to our shareholders based
on the acceptance (up to any maximum specified in the terms of
the tender or exchange offer) of all shares validly tendered or
exchanged and not withdrawn as of the expiration date |
OS 1
|
|
= |
|
the number of shares of our Class A Common Stock
outstanding immediately after the expiration date less any
purchased shares |
OS
0
|
|
= |
|
the number of shares of our Class A Common Stock
outstanding immediately after the expiration date, including any
purchased shares |
SP 1
|
|
= |
|
the sale price of our Class A Common Stock on the trading
day next succeeding the expiration date |
The adjustment referred to in this clause (6) will only be
made if:
|
|
|
|
|
the tender offer or exchange offer is for an amount that
increases the offerors ownership of Class A Common
Stock to more than 25% of the total shares of Class A
Common Stock outstanding; and |
|
|
|
the cash and value of any other consideration included in the
payment per share of Class A Common Stock exceeds the sale
price of our Class A Common Stock on the trading day next
succeeding the last date on which tenders or exchanges may be
made pursuant to the tender or exchange offer. |
However, the adjustment referred to in this clause (6) will
generally not be made if as of the closing of the offer, the
offering documents disclose a plan or an intention to cause us
to engage in a consolidation or merger or a sale of the
consolidated assets of us and our subsidiaries substantially as
an entirety.
Current market price of our Class A Common
Stock on any day means the average of the sale price of our
Class A Common Stock for each of the 10 consecutive trading
days ending on the earlier of the day in question and the day
before the ex-date with respect to the issuance or
distribution requiring such computation. For purposes of this
paragraph, ex-date means the first date on which the
shares of our Class A Common Stock trade on the applicable
exchange or in the applicable market, regular way, without the
right to receive such issuance or distribution.
Record date means, for purpose of this section, with
respect to any dividend, distribution or other transaction or
event in which the holders of our Class A Common Stock have
the right to receive any cash, securities or other property or
in which our Class A Common Stock (or other applicable
security) is exchanged for or converted into any combination of
cash, securities or other property, the date fixed for
determination of holders of our Class A Common Stock
entitled to receive such cash, securities or other property
(whether such date is fixed by our board of directors or by
statute, contract or otherwise).
To the extent that we have a rights plan in effect upon
conversion of the Convertible Notes into Class A Common
Stock, you will receive, in addition to the Class A Common
Stock, the rights under the rights plan, unless prior to any
conversion, the rights have separated from the Class A
Common Stock, in which case the conversion rate will be adjusted
at the time of separation as if we distributed, to all holders
of our Class A Common Stock, shares of our capital stock,
evidences of indebtedness or assets as
289
described above, subject to readjustment in the event of the
expiration, termination or redemption of such rights.
Except as stated above, the conversion rate will not be adjusted
for the issuance of our Class A Common Stock or any
securities convertible into or exchangeable for our Class A
Common Stock or carrying the right to purchase any of the
foregoing.
In the case of any recapitalization, reclassification or change
of our Class A Common Stock (other than changes resulting
from a subdivision or combination), a consolidation, merger or
combination involving us, a sale, lease or other transfer to
another corporation of the consolidated assets of ours and our
subsidiaries substantially as an entirety, or any statutory
share exchange, in each case as a result of which holders of our
Class A Common Stock are entitled to receive stock, other
securities, other property or assets (including cash or any
combination thereof) with respect to or in exchange for our
Class A Common Stock, the Holders of the Convertible Notes
then outstanding will be entitled thereafter to convert those
Convertible Notes into the kind and amount of shares of stock,
other securities or other property or assets (including cash or
any combination thereof) that they would have owned or been
entitled to receive upon such recapitalization,
reclassification, change, consolidation, merger, combination,
sale, lease, transfer or statutory share exchange had such
Convertible Notes been converted into our Class A Common
Stock immediately prior to such transaction. We will agree in
the indenture not to become a party to any such transaction
unless its terms are consistent with the foregoing.
We may from time to time, to the extent permitted by law and
subject to applicable rules of The Nasdaq Stock Market, increase
the conversion rate of the Convertible Notes by any amount for
any period of at least 20 days. In that case we will give
at least 15 days notice of such increase. We may make such
increases in the conversion rate, to the extent permitted by law
and subject to applicable rules of The Nasdaq Stock Market, in
addition to those set forth above, as our board of directors
deems advisable to avoid or diminish any income tax to holders
of our Class A Common Stock resulting from any dividend or
distribution of stock (or rights to acquire stock) or from any
event treated as such for income tax purposes.
As a result of any adjustment of the conversion rate, the
Holders of Convertible Notes may, in certain circumstances, be
deemed to have received a distribution subject to
U.S. income tax as a dividend. In certain other
circumstances, the absence of an adjustment may result in a
taxable dividend to the holders of Class A Common Stock. In
addition,
non-U.S. Holders
of Convertible Notes in certain circumstances may be deemed to
have received a distribution subject to U.S. federal
withholding tax requirements.
Exchange in Lieu of Conversion
Unless we have called the relevant Convertible Notes for
redemption, when a Holder surrenders Convertible Notes for
conversion, we may direct the conversion agent to surrender, on
or prior to the date two business days following the conversion
date, such Convertible Notes to a financial institution
designated by us for exchange in lieu of conversion. In order to
accept any such Convertible Notes, the designated institution
must agree to deliver, in exchange for such Convertible Notes, a
number of shares of our common stock equal to the applicable
conversion rate, or at its option, cash or a combination of cash
and shares of our common stock in lieu thereof, calculated based
on the average price, plus cash for any fractional shares and
any Early Conversion Make Whole Amount.
If the designated institution accepts any such Convertible
Notes, it will deliver the appropriate number of shares of our
common stock (and cash, if any), or cash in lieu thereof, to the
conversion agent and the conversion agent will deliver those
shares or cash to the Holder. Such designated institution will
also deliver cash equal to any Early Conversion Make Whole
Amount we would owe such Holder if we had converted its
Convertible Notes. Any Convertible Notes exchanged by the
designated institution will remain outstanding. If the
designated institution agrees to accept any Convertible Notes
for exchange but does not timely deliver the related
consideration, we will, as promptly as practical thereafter, but
not later than the third business day following (1) the
conversion date, or (2) if the designated institution
elects to deliver cash or a combination of cash and shares of
our common stock, the determination of the average
290
price, convert the Convertible Notes and deliver shares of our
common stock, as described under Conversion
Rights General, or, at our option cash in lieu
thereof based on the average price, along with any applicable
Early Conversion Make Whole Amount.
Our designation of an institution to which the Convertible Notes
may be submitted for exchange does not require the institution
to accept any Convertible Notes. If the designated institution
declines to accept any Convertible Notes surrendered for
exchange, we will convert those Convertible Notes into shares of
our Class A Common Stock, or cash in lieu thereof, as
described under Conversion Rights above.
We will not pay any consideration to, or otherwise enter into
any arrangement with, the designated institution for or with
respect to such designation.
Redemption
We may redeem for cash the Convertible Notes in whole or in
part, at a price equal to 100% of the accreted principal amount
of such Convertible Notes plus accrued and unpaid interest,
deferred interest and liquidated damages, if any, on the
Convertible Notes to, but excluding, the redemption date, if the
closing price of our Class A Common Stock has exceeded, for
at least 20 trading days in any consecutive 30 trading day
period, 180% of the conversion price if such 30 trading day
period begins prior to November 16, 2007 and 150% if such
30 trading day period begins thereafter. The conversion
price as of any day will equal the accreted principal
amount of $1,000 original principal amount of Convertible Notes
divided by the conversion rate in effect on such day. We are
required to give notice of redemption to the trustee and all
registered Holders not less than 30 nor more than 60 days
prior to the redemption date. We must specify in such notice
(1) whether we will deliver shares of our Class A
Common Stock, or cash in lieu thereof, upon conversion of any
Convertible Notes called for redemption, (2) if we elect to
deliver cash, the percentage of the shares otherwise deliverable
for which we will pay cash and (3) whether we will deliver
cash or shares of our Class A Common Stock upon conversion
with respect to the Redemption Make Whole Amount.
Convertible Notes or portions of Convertible Notes called for
redemption will be convertible by the Holder until the close of
business on the business day prior to the redemption date.
If we decide to redeem fewer than all of the outstanding
Convertible Notes, the trustee will select the Convertible Notes
to be redeemed (in original principal amounts of $1,000 or
integral multiples thereof) by lot, on a pro rata basis or by
another method the trustee considers fair and appropriate.
If any Convertible Notes are to be redeemed in part only, we
will issue a new Convertible Note or Convertible Notes with a
principal amount equal to the unredeemed principal portion
thereof. If the trustee selects a portion of your Convertible
Note for partial redemption and you convert a portion of the
same Convertible Note, the converted portion will be deemed to
be from the portion selected for redemption. In the event of any
redemption in part, we will not be required to issue, register
the transfer of or exchange any certificated Convertible Note
during a period of 15 days before the mailing of the
redemption notice.
Fundamental Change Requires Us to Repurchase Convertible
Notes at the Option of the Holder
If a fundamental change occurs, each Holder of Convertible Notes
will have the right to require us to purchase some or all of
that Holders Convertible Notes for cash on a repurchase
date that is not less than 20 nor more than 35 business days
after the date of our notice of the fundamental change. We will
purchase such Convertible Notes at a purchase price equal to
100% of the accreted principal amount of the Convertible Notes
to be purchased, plus any accrued and unpaid interest (including
deferred interest and liquated damages, if any) to but excluding
the fundamental change repurchase date, unless such fundamental
change repurchase date falls after a record date and on or prior
to the corresponding interest payment date, in which case we
will pay the full amount of accrued and unpaid interest
(including liquated damages, if any, but excluding any deferred
interest) payable on such interest payment date to the Holder of
record at the close of business on the corresponding record date.
291
Within 20 days after the occurrence of a fundamental
change, we are required to give notice to all Holders of
Convertible Notes, as provided in the indenture, of the
occurrence of the fundamental change and of their resulting
repurchase right and the fundamental change repurchase date. We
must also deliver a copy of our notice to the trustee. To
exercise the repurchase right, a Holder of Convertible Notes
must deliver, on or before the fundamental change repurchase
date specified in our notice, written notice to the trustee of
the Holders exercise of its repurchase right, together
with the Convertible Notes with respect to which the right is
being exercised. We will promptly pay the repurchase price for
Convertible Notes surrendered for repurchase following the
fundamental change repurchase date.
You may withdraw any written repurchase notice by delivering a
written notice of withdrawal to the paying agent prior to the
close of business on the repurchase date. The withdrawal notice
must state:
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|
|
the original principal amount of the withdrawn Convertible Notes; |
|
|
|
if certificated Convertible Notes have been issued, the
certificate number of the withdrawn Convertible Notes (or, if
your Convertible Notes are not certificated, your withdrawal
notice must comply with appropriate DTC procedures); and |
|
|
|
the original principal amount, if any, that remains subject to
the repurchase notice. |
Payment of the repurchase price for a Convertible Note for which
a repurchase notice has been delivered and not withdrawn is
conditioned upon book-entry transfer or delivery of the
Convertible Note, together with necessary endorsements, to the
paying agent at its corporate trust office in the Borough of
Manhattan, The City of New York, or any other office of the
paying agent, at any time after delivery of the repurchase
notice. Payment of the repurchase price for the Convertible Note
will be made promptly following the later of the fundamental
change repurchase date and the time of book-entry transfer or
delivery of the Convertible Note. If the paying agent holds
money sufficient to pay the repurchase price of the Convertible
Note, on the repurchase date, then, on and after the business
day following the repurchase date:
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|
|
the Convertible Note will cease to be outstanding; |
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|
|
interest will cease to accrue; and |
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|
all other rights of the Holder will terminate, other than the
right to receive the repurchase price upon delivery of the
Convertible Note. |
This will be the case whether or not book-entry transfer of the
Convertible Note has been made or the Convertible Note has been
delivered to the paying agent.
A fundamental change will be deemed to have occurred
upon a change of control or a termination of trading.
A termination of trading will be deemed to have
occurred if our Class A Common Stock (or other common stock
into which the Convertible Notes are then convertible) is not
listed for trading on a U.S. national securities exchange;
provided that a termination of trading will not occur so long as
our Class A Common Stock is listed for trading on the
Nasdaq Small Cap market or quoted bid prices for our
Class A Common Stock in the
over-the-counter market
are reported by Pink Sheets LLC or any similar organization.
A change of control will be deemed to have occurred
at such time after the original issuance of the Convertible
Notes when the following has occurred:
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(1) the consummation of any transaction (including, without
limitation, any merger or consolidation), the result of which is
that any person or group within the
meaning of Section 13(d) of the Exchange Act other than
Paul G. Allen and Related Parties, becomes the direct or
indirect beneficial owner as defined in
Rule 13d-3 under
the Exchange Act of more than 35% of the Voting Stock of Charter
Communications, Inc., measured by voting power rather than
number of shares, unless Mr. Allen and the Related Parties,
collectively, beneficially own, directly or indirectly, a |
292
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greater percentage of Voting Stock of Charter Communications,
Inc., measured by voting power rather than number of shares,
than such person; (2) the consummation of any transaction
or event (whether by means of a liquidation, share exchange,
tender offer, consolidation, recapitalization, reclassification,
merger of us or any sale, lease or other transfer of the
consolidated assets of ours and our subsidiaries) or a series of
related transactions or events pursuant to which our common
stock is exchanged for, converted into or constitutes solely the
right to receive cash, securities or other property more than
10% of the fair market value of which consists of cash,
securities or other property that are not, or upon issuance will
not be, traded on any U.S. national securities exchange; |
|
|
(3) the sale, transfer, conveyance, lease or other
disposition (including by way of liquidation or dissolution, but
excluding by way of merger or consolidation), in one or a series
of related transactions, of all or substantially all of the
assets of Charter Communications, Inc. and its subsidiaries,
taken as a whole, to any person or group
as defined above; |
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|
(4) the purchase by Mr. Allen or any Allen Affiliates
in any transaction or series of transactions, of shares of our
Class A Common Stock, which results in the aggregate number
of shares of Class A Common Stock held by Mr. Allen
and any Allen Affiliates exceeding 70% of the total number of
shares of Class A Common Stock issued and outstanding
(including any shares borrowed pursuant to the share lending
agreement) at such time to the extent that the closing price per
share of the Class A Common Stock for any five trading days
within the period of the ten consecutive trading days
immediately after the later of the last date of such purchases
or the public announcement of such purchases is less than 100%
of the applicable conversion price of the Convertible Notes in
effect on each of those trading days; provided that the
calculation of the number of shares of Class A Common Stock
held by Mr. Allen and any Allen Affiliates will not include
any share of our Class A Common Stock acquired by
Mr. Allen or any Allen Affiliates as a result of the
exchange or conversion of membership units of Charter Holdco or
shares of our Class B common stock or any securities
exchangeable or convertible into shares of Class A Common
Stock or issued in exchange (by merger or otherwise) for shares
of a Person that holds units of Charter Holdco. |
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(5) the adoption of a plan relating to the liquidation or
dissolution of Charter Holdco; or |
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|
(6) continuing directors (as defined below in this section)
cease to constitute at least a majority of our board of
directors. |
As used in connection with the definition of change of control,
the following terms will have the meaning described below:
Allen Affiliate means any person in which
Mr. Allen, directly or indirectly, owns at least a 50.1%
equity interest, provided that Charter Communications, Inc.,
Charter Holdco or any of its subsidiaries will not be included
in such definition.
Continuing director means a director who either was
a member of our board of directors on November 16, 2004 or
who becomes a member of our board of directors subsequent to
that date and whose appointment, election or nomination for
election by our shareholders is duly approved by a majority of
the continuing directors on our board of directors at the time
of such approval, either by a specific vote or by approval of
the proxy statement issued by us on behalf of the board of
directors in which such individual is named as nominee for
director.
Related Party means:
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(i) the spouse or an immediate family member, estate or
heir of the Mr. Allen; or |
|
|
(ii) any trust, corporation, partnership or other entity,
the beneficiaries, stockholders, partners, owners or persons
beneficially holding an 80% or more controlling interest of
which consist of Mr. Allen and/or such other persons
referred to in the immediately preceding clause (i) or this
clause (ii). |
293
Voting Stock of any person as of any date means the
capital stock of such person that is at the time entitled to
vote in the election of the board of directors of such person.
The beneficial owner shall be determined in accordance with
Rule 13d-3
promulgated by the SEC under the Exchange Act. The term
person includes any syndicate or group which would
be deemed to be a person under Section 13(d)(3)
of the Exchange Act.
The definition of change of control includes a phrase relating
to the conveyance, transfer, sale, lease or disposition of our
consolidated assets substantially as an entirety.
There is no precise, established definition of the phrase
substantially as an entirety. under applicable law.
Accordingly, your ability to require us to repurchase your
Convertible Notes as a result of a conveyance, transfer, sale,
lease or other disposition of less than all our assets may be
uncertain.
Rule 13e-4 under
the Exchange Act, as amended, requires the dissemination of
certain information to security holders if an issuer tender
offer occurs and may apply if the repurchase option becomes
available to Holders of the Convertible Notes. We will comply
with this rule to the extent applicable at that time.
We may, to the extent permitted by applicable law, at any time
purchase the Convertible Notes in the open market or by tender
at any price or by private agreement. Any Convertible Note so
purchased by us may, to the extent permitted by applicable law,
be reissued or resold or may be surrendered to the trustee for
cancellation. Any Convertible Notes surrendered to the trustee
may not be reissued or resold and will be canceled promptly.
The foregoing provisions would not necessarily protect Holders
of the Convertible Notes if highly leveraged or other
transactions involving us occur that may adversely affect
Holders.
Our ability to repurchase Convertible Notes upon the occurrence
of a fundamental change is subject to important limitations. Our
subsidiaries existing credit agreements and indentures
contain and any future credit agreements or other agreements
relating to our indebtedness may also contain provisions
prohibiting repurchase of the Convertible Notes under certain
circumstances, or expressly prohibit our repurchase of the
Convertible Notes upon a fundamental change or may provide that
a fundamental change constitutes an event of default under that
agreement. If a fundamental change occurs at a time when we are
prohibited from repurchasing Convertible Notes, we could seek
the consent of our or our subsidiaries lenders and
noteholders to repurchase the Convertible Notes or attempt to
refinance this debt. If we do not obtain consent, we would not
be permitted to repurchase the Convertible Notes. Our failure to
repurchase tendered Convertible Notes would constitute an event
of default under the indenture, which might constitute a default
under the terms of our other indebtedness.
No Convertible Notes may be purchased by us at the option of the
Holders upon a fundamental change if the accreted principal
amount of the Convertible Notes has been accelerated, and such
acceleration has not been rescinded, on or prior to such date.
The fundamental change purchase feature of the Convertible Notes
may in certain circumstances make more difficult or discourage a
takeover of our company. The fundamental change repurchase
feature, however, is not the result of our knowledge of any
specific effort to accumulate shares of our Class A Common
Stock, to obtain control of us by means of a merger, tender
offer solicitation or otherwise, or by management to adopt a
series of anti-takeover provisions. Instead, the fundamental
change repurchase feature is a standard term contained in
securities similar to the Convertible Notes.
Consolidation, Merger and Sale of Assets
We may, without the consent of the holders of Convertible Notes,
consolidate with, merge into or sell, lease or otherwise
transfer in one transaction or a series of related transactions
the consolidated assets of ours and our subsidiaries
substantially as an entirety to any corporation, limited
liability company,
294
partnership or trust organized under the laws of the United
States or any of its political subdivisions provided that:
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the surviving entity assumes all our obligations under the
indenture and the Convertible Notes; |
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if as a result of such transaction the Convertible Notes become
convertible into common stock or other securities issued by a
third party that is not the successor under the Convertible
Notes and the indenture, such third party fully and
unconditionally guarantees all obligations of Charter
Communications, Inc. or such successor under the Convertible
Notes and the indenture; |
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at the time of such transaction, no event of default, and no
event which, after notice or lapse of time, would become an
event of default, shall have happened and be continuing; and |
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an officers certificate and an opinion of counsel, each
stating that the consolidation, merger or transfer complies with
the provisions of the indenture, have been delivered to the
trustee. |
Information Requirement
Until November 22, 2006, during any period in which we are
not subject to the reporting requirements of the Exchange Act,
to make available to Holders of the Convertible Notes, or
beneficial owners of interests therein, or any prospective
purchaser of the Convertible Notes, the information required by
Rule 144A(d)(4) to be made available in connection with the
sale of Convertible Notes or beneficial interests in the
Convertible Notes.
Events of Default
Each of the following will constitute an event of default under
the indenture:
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our failure to pay when due the principal on any of the
Convertible Notes at maturity, upon redemption or exercise of a
repurchase right or otherwise; |
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our failure to pay an installment of interest (including
liquidated damages, if any) other than any deferred interest on
any of the Convertible Notes for 30 days after the date
when due; provided that a failure to make any of the first six
scheduled interest payments on the original principal amount of
the Convertible Notes on the applicable interest payment date
will constitute an event of default with no grace or cure period
(unless the failure to make such payment results from the
failure by the trustee to release the relevant cash amount from
the pledge account, provided that such failure is not caused by
any act or omission by us); |
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our failure to deliver shares of our Class A Common Stock,
or cash in lieu thereof, when due upon conversion of Convertible
Notes, together with cash in respect of any fractional shares
and any Early Conversion Make Whole Amount and any
Redemption Make Whole Amount, upon conversion of a
Convertible Note, and that failure continues for 10 days; |
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our failure to comply with our obligations described under
Covenant when required and such failure
continues for five days; |
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our failure for 30 days after written notice thereof has
been given to us by the trustee or to us and the trustee by the
Holders of at least 25% in aggregate original principal amount
of the Convertible Notes then outstanding to comply with any of
the other covenants or agreements in the indenture; |
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our failure to make any payment under any mortgage, indenture or
instrument under which there may be issued or by which there may
be secured or evidenced any indebtedness for money borrowed by
us or any of our significant subsidiaries (or the payment of
which is guaranteed by us |
295
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or any of our significant subsidiaries) whether such
indebtedness or guarantee now exists, or is created after the
issue date, if that default: |
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(i) 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 |
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(ii) results in the acceleration of such indebtedness prior
to its express maturity, and, in each case, the principal amount
of any such indebtedness, together with the principal amount of
any other such indebtedness under which there has been a Payment
Default or the maturity of which has been so accelerated,
aggregates $100 million or more; |
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our failure to give timely notice of a fundamental change or of
the anticipated effective date of a change of control
transaction as described under Conversion
Rights Make Whole Amount and Public Acquirer Change
of Control; and |
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certain events of our bankruptcy, insolvency or reorganization
or any significant subsidiary of ours. |
Significant subsidiary has the meaning set forth in
clauses (1) and (2) of the definition thereof in
Regulation S-X
under the Securities Act.
If an event of default specified in the eighth bullet point
above occurs and is continuing, then the principal of all the
Convertible Notes and the interest thereon shall automatically
become immediately due and payable. If an event of default shall
occur and be continuing, other than an event of default
specified in the eighth bullet point above, the trustee or the
Holders of at least 25% in aggregate original principal amount
of the Convertible Notes then outstanding may declare the
Convertible Notes due and payable at their accreted principal
amount together with accrued and unpaid interest (including
deferred interest and liquidated damages, if any), and thereupon
the trustee may, at its discretion, proceed to protect and
enforce the rights of the Holders of Convertible Notes by
appropriate judicial proceedings. Such declaration may be
rescinded and annulled with the written consent of the Holders
of a majority in aggregate original principal amount of the
Convertible Notes then outstanding, subject to the provisions of
the indenture.
The Holders of a majority in aggregate original principal amount
of Convertible Notes at the time outstanding through their
written consent, or the Holders of a majority in aggregate
original principal amount of Convertible Notes then outstanding
represented at a meeting at which a quorum is present by a
written resolution, may waive any existing default or event of
default and its consequences except any default or event of
default:
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in any payment on the Convertible Notes; |
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in respect of the failure to convert the Convertible
Notes; or |
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in respect of the covenants or provisions in the indenture that
may not be modified or amended without the consent of the Holder
of each Convertible Note affected as described in
Modification, Waiver and Meetings below. |
Holders of a majority in aggregate original principal amount of
the Convertible Notes then outstanding through their written
consent, or the Holders of a majority in aggregate original
principal amount of the Convertible Notes then outstanding
represented at a meeting at which a quorum is present by a
written resolution, may direct the time, method and place of
conducting any proceeding for any remedy available to the
trustee or exercising any trust or power conferred upon the
trustee, subject to the provisions of the indenture. The
indenture contains a provision entitling the trustee, subject to
the duty of the trustee during a default to act with the
required standard of care, to be indemnified by the Holders of
Convertible Notes before proceeding to exercise any right or
power under the indenture at the request of such Holders. The
rights of Holders of the Convertible Notes to pursue remedies
with respect to the indenture and the Convertible Notes are
subject to a number of additional requirements set forth in the
indenture.
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The indenture provides that the trustee shall, within
90 days of the occurrence of a default, give to the
registered Holders of the Convertible Notes notice of all
uncured defaults known to it, but the trustee shall be protected
in withholding such notice if it, in good faith, determines that
the withholding of such notice is in the best interest of such
registered Holders, except in the case of a default in the
payment of the principal of, or premium, if any, or interest on,
any of the Convertible Notes when due or in the payment of any
conversion, redemption or repurchase obligation.
We are required to furnish annually to the trustee a statement
as to the fulfillment of our obligations under the indenture. In
addition, we are required to file with the trustee a written
notice of the occurrence of any default or event of default
within five business days of our becoming aware of the
occurrence of any default or event of default.
Modification, Waiver and Meetings
The indenture contains provisions for convening meetings of the
Holders of Convertible Notes to consider matters affecting their
interests.
The indenture (including the terms and conditions of the
Convertible Notes) may be modified or amended by us and the
trustee, without the consent of the Holder of any Convertible
Note, for the purposes of, among other things:
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adding to our covenants for the benefit of the Holders of
Convertible Notes; |
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adding additional dates on which Holders may require us to
repurchase their Convertible Notes; |
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surrendering any right or power conferred upon us; |
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providing for conversion rights of Holders of Convertible Notes
if any reclassification or change of our Class A Common
Stock or any consolidation, merger or sale of the consolidated
assets of us and our subsidiaries substantially as an entirety
occurs; |
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providing for the assumption of our obligations to the Holders
of Convertible Notes in the case of a merger, consolidation,
conveyance, sale, transfer or lease; |
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increasing the conversion rate in the manner described in the
indenture, provided that the increase will not adversely affect
the interests of Holders of Convertible Notes in any material
respect; |
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complying with the requirements of the SEC in order to effect or
maintain the qualification of the indenture under the Trust
Indenture Act of 1939, as amended; |
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making any changes or modifications to the indenture necessary
in connection with the registration of the Notes under the
Securities Act, as contemplated by the registration rights
agreement, provided that this action does not adversely affect
the interests of the Holders of the Convertible Notes in any
material respect; |
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curing any ambiguity or correcting or supplementing any
defective provision contained in the indenture; provided that
such modification or amendment does not, in the good faith
opinion of our board of directors, adversely affect the
interests of the Holders of Convertible Notes in any material
respect; provided further that any amendment made solely to
conform the provisions of the indenture to the description of
the Convertible Notes in this prospectus will not be deemed to
adversely affect the interests of the Holders of the Convertible
Notes; or |
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adding or modifying any other provisions which we and the
trustee may deem necessary or desirable and which will not
adversely affect the interests of the Holders of Convertible
Notes. |
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Modifications and amendments to the indenture or to the terms
and conditions of the Convertible Notes may also be made, and
noncompliance by us with any provision of the indenture or the
Convertible Notes may be waived, either:
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with the written consent of the Holders of at least a majority
in aggregate original principal amount of the Convertible Notes
at the time outstanding; or |
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by the adoption of a resolution at a meeting of Holders at which
a quorum is present by at least a majority in aggregate original
principal amount of the Convertible Notes represented at such
meeting. |
However, no such modification, amendment or waiver may, without
the written consent or the affirmative vote of the Holder of
each Convertible Note affected:
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change the maturity of the principal of or any installment of
interest on any Convertible Note (including any payment of
liquidated damages); |
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reduce the principal amount of, or any premium, if any, on any
Convertible Note; |
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reduce the interest rate or amount of interest (including any
liquidated damages) on any Convertible Note; |
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reduce the Early Conversion Make Whole Amount or the Redemption
Make Whole Amount or otherwise modify the provisions of the
indenture related thereto in a manner adverse to the Holders of
the Convertible Notes; |
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modify the provisions of the indenture relating to the Pledged
Securities as described above under
Security in a manner adverse to the
Holders of the Convertible Notes; |
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other than as contemplated by the terms of the indenture, change
the currency of payment of principal of, premium, if any, or
interest on any Convertible Note; |
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impair the right to institute suit for the enforcement of any
payment on or with respect to, or the conversion of, any
Convertible Note; |
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except as otherwise permitted or contemplated by provisions of
the indenture concerning specified reclassifications or
corporate reorganizations, impair or adversely affect the
conversion rights of Holders of the Convertible Notes; |
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adversely affect any repurchase option of holders; |
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modify the redemption provisions of the indenture in a manner
adverse to the holders of Convertible Notes; |
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reduce the percentage in aggregate original principal amount of
Convertible Notes outstanding necessary to modify or amend the
indenture or to waive any past default; or |
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reduce the percentage in aggregate original principal amount of
Convertible Notes outstanding required for any other waiver
under the indenture. |
The quorum at any meeting called to adopt a resolution will be
persons holding or representing a majority in aggregate original
principal amount of the Convertible Notes at the time
outstanding.
Form, Denomination and Registration
The Notes were issued in fully registered form, without coupons,
in denominations of $1,000 original principal amount and whole
multiples of $1,000.
Global Notes: Book-Entry Form
The Convertible Notes are evidenced by one or more global
Convertible Notes deposited with the trustee as custodian for
DTC, and registered in the name of Cede & Co., as
DTCs nominee. Record
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ownership of the global Convertible Notes may be transferred, in
whole or in part, only to another nominee of DTC or to a
successor of DTC or its nominee, except as set forth below.
Ownership of beneficial interests in a global Convertible Note
will be limited to persons that have accounts with DTC or its
nominee (participants) or persons that may hold
interests through participants. Transfers between direct DTC
participants will be effected in the ordinary way in accordance
with DTCs rules and will be settled in same-day funds.
Holders may also beneficially own interests in the global
Convertible Notes held by DTC through certain banks, brokers,
dealers, trust companies and other parties that clear through or
maintain a custodial relationship with a direct DTC participant,
either directly or indirectly.
So long as Cede & Co., as nominee of DTC, is the
registered owner of the global Notes, Cede & Co. for
all purposes will be considered the sole holder of the global
Convertible Notes. Except as provided below, owners of
beneficial interests in the global Convertible Notes will not be
entitled to have certificates registered in their names, will
not receive or be entitled to receive physical delivery of
certificates in definitive form, and will not be considered
holders thereof. The laws of some states require that certain
persons take physical delivery of securities in definitive form.
Consequently, the ability to transfer a beneficial interest in
the global Convertible Notes to such persons may be limited.
We will wire, through the facilities of the trustee, principal,
premium, if any, and interest payments on the global Convertible
Notes to Cede & Co., the nominee for DTC, as the
registered owner of the global Convertible Notes. We, the
trustee and any paying agent will have no responsibility or
liability for paying amounts due on the global Convertible Notes
to owners of beneficial interests in the global Convertible
Notes.
It is DTCs current practice, upon receipt of any payment
of principal of and premium, if any, and interest on the global
Convertible Notes, to credit participants accounts on the
payment date in amounts proportionate to their respective
beneficial interests in the Convertible Notes represented by the
global Convertible Notes, as shown on the records of DTC, unless
DTC believes that it will not receive payment on the payment
date. Payments by DTC participants to owners of beneficial
interests in Convertible Notes represented by the global
Convertible Notes held through DTC participants will be the
responsibility of DTC participants, as is now the case with
securities held for the accounts of customers registered in
street name.
If a Holder would like to convert Convertible Notes into
Class A Common Stock pursuant to the terms of the
Convertible Notes, the Holder should contact the Holders
broker or other direct or indirect DTC participant to obtain
information on procedures, including proper forms and cut-off
times, for submitting those requests.
Because DTC can only act on behalf of DTC participants, who in
turn act on behalf of indirect DTC participants and other banks,
a holders ability to pledge the holders interest in
the Convertible Notes represented by global Convertible Notes to
persons or entities that do not participate in the DTC system,
or otherwise take actions in respect of such interest, may be
affected by the lack of a physical certificate.
Neither we nor the trustee (nor any registrar, paying agent or
conversion agent under the indenture) will have any
responsibility for the performance by DTC or direct or indirect
DTC participants of their obligations under the rules and
procedures governing their operations. DTC has advised us that
it will take any action permitted to be taken by a Holder of
Convertible Notes, including, without limitation, the
presentation of Convertible Notes for conversion as described
below, only at the direction of one or more direct DTC
participants to whose account with DTC interests in the global
Convertible Notes are credited and only for the principal amount
of the Convertible Notes for which directions have been given.
DTC has advised us as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a
member of the Federal Reserve System, a clearing
corporation within the meaning of the Uniform Commercial
Code and a clearing agency registered pursuant to
the provisions of Section 17A of the Exchange Act. DTC was
created to hold securities for DTC participants and to
facilitate the clearance and settlement of securities
transactions between DTC participants through
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electronic book-entry changes to the accounts of its
participants, thereby eliminating the need for physical movement
of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and
may include certain other organizations such as the initial
purchasers of the Notes. Certain DTC participants or their
representatives, together with other entities, own DTC. Indirect
access to the DTC system is available to others such as banks,
brokers, dealers and trust companies that clear through, or
maintain a custodial relationship with, a participant, either
directly or indirectly.
Although DTC has agreed to the foregoing procedures in order to
facilitate transfers of interests in the global Notes among DTC
participants, it is under no obligation to perform or continue
to perform such procedures, and such procedures may be
discontinued at any time. If DTC is at any time unwilling or
unable to continue as depositary and a successor depositary is
not appointed by us within 90 days, we will cause
Convertible Notes to be issued in definitive registered form in
exchange for the global Convertible Notes. None of us, the
trustee or any of their respective agents will have any
responsibility for the performance by DTC, direct or indirect
DTC participants of their obligations under the rules and
procedures governing their operations, including maintaining,
supervising or reviewing the records relating to, or payments
made on account of, beneficial ownership interests in global
Convertible Notes.
According to DTC, the foregoing information with respect to DTC
has been provided to its participants and other members of the
financial community for informational purposes only and is not
intended to serve as a representation, warranty or contract
modification of any kind.
Certificated Convertible Notes
We will issue the Convertible Notes in definitive certificated
form if DTC notifies us that it is unwilling or unable to
continue as depositary or DTC ceases to be a clearing agency
registered under the U.S. Securities Exchange Act of 1934,
as amended and a successor depositary is not appointed by us
within 90 days. In addition, beneficial interests in a
global Convertible Note may be exchanged for definitive
certificated Convertible Notes upon request by or on behalf of
DTC in accordance with customary procedures. The indenture
permits us to determine at any time and in our sole discretion
that Convertible Notes shall no longer be represented by global
Convertible Notes. DTC has advised us that, under its current
practices, it would notify its participants of our request, but
will only withdraw beneficial interests from the global
Convertible Notes at the request of each DTC participant. We
would issue definitive certificates in exchange for any such
beneficial interests withdrawn.
Any Convertible Note that is exchangeable pursuant to the
preceding sentence is exchangeable for Convertible Notes
registered in the names which DTC will instruct the trustee. It
is expected that DTCs instructions may be based upon
directions received by DTC from its participants with respect to
ownership of beneficial interests in that global Convertible
Note. Subject to the foregoing, a global Convertible Note is not
exchangeable except for a global Convertible Note or global
Convertible Notes of the same aggregate denominations to be
registered in the name of DTC or its nominee.
Notices
Except as otherwise provided in the indenture, notices to
Holders of Convertible Notes will be given by mail to the
addresses of Holders of the Convertible Notes as they appear in
the Convertible Note register.
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Governing Law
The indenture, the Convertible Notes and the registration rights
agreement are governed by, and construed in accordance with, the
law of the State of New York.
Information Regarding the Trustee
Wells Fargo Bank, N.A., as trustee under the indenture, has been
appointed by us as paying agent, collateral agent, conversion
agent, registrar and custodian with regard to the Convertible
Notes. The trustee or its affiliates may from time to time in
the future provide banking and other services to us in the
ordinary course of their business.
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CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material United States federal
income tax consequences to Holders of the Convertible Notes of
the receipt of the Exchange Consideration pursuant to the
Exchange Offer. It is based on provisions of the United States
Internal Revenue Code of 1986, as amended (the
Code), existing and proposed Treasury regulations
promulgated thereunder (the Treasury Regulations)
and administrative and judicial interpretations thereof, all as
of the date hereof and all of which are subject to change,
possibly on a retroactive basis. No ruling from the Internal
Revenue Service (the IRS) has been or is expected to
be sought with respect to any aspect of the transactions
described herein. The following relates only to the Convertible
Notes, and the Class A Common Stock and CCH II Notes
received in exchange therefor, that are held by Holders who hold
such notes as capital assets. This summary does not address all
of the tax consequences that may be relevant to particular
Holders in light of their personal circumstances, or to certain
types of Holders such as banks and other financial institutions,
employee stock ownership plans, certain expatriates, real estate
investment trusts, regulated investment companies, insurance
companies, tax-exempt organizations, partnerships or other
pass-through entities, dealers in securities, brokers, persons
who have hedged the interest rate on the old notes or who hedge
the interest rate on the new notes, traders in securities that
elect to use a
mark-to-market method
of accounting for their securities holdings, United States
persons whose functional currency is not the United States
dollar, or persons who hold the old notes or the new notes as
part of a straddle, hedge or
conversion transaction. In addition, this summary
does not include any description of the United States federal
alternative minimum tax or estate and gift tax, or the
consequences under any state, local or
non-U.S. government
tax that may be applicable to a particular Holder.
A U.S. Holder is a beneficial owner of a
Convertible Note, a CCH II Note, or Class A Common
Stock, as the case may be, that is, for United States federal
income tax purposes, (i) a citizen or resident of the
United States, (ii) a corporation that is organized under
the laws of the United States or any political subdivision
thereof, (iii) an estate, the income of which is subject to
United States federal income tax without regard to its source or
(iv) a trust if a court within the United States is able to
exercise primary supervision over the administration of the
trust and one or more United States persons have the authority
to control all substantial decisions of the trust or if the
trust has made a valid election to be treated as a United States
person. A
non-U.S. Holder
is a beneficial owner of a Convertible Note, a CCH II Note,
or Class A Common Stock that is neither a U.S. Holder
nor a partnership.
If a partnership (including for this purpose any entity treated
as a partnership for United States federal income tax purposes)
is a beneficial owner of a Convertible Note, a CCH II Note,
or Class A Common Stock, the treatment of a partner in the
partnership will generally depend upon the status of the partner
and upon the activities of the partnership. Partnerships and
partners in such partnerships should consult their tax advisors
about the United States federal income tax consequences of
owning and disposing of a Convertible Note, a CCH II Note,
or Class A Common Stock.
HOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT
TO THE PARTICULAR U.S. FEDERAL INCOME TAX CONSEQUENCES TO
THEM OF THE CONSUMMATION OF THE EXCHANGE OFFER, INCLUDING THE
ACQUISITION, OWNERSHIP AND DISPOSITION OF THE CLASS A
COMMON STOCK AND NEW NOTES AS WELL AS THE TAX CONSEQUENCES
UNDER STATE, LOCAL,
NON-U.S. AND OTHER
U.S. FEDERAL TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES
IN TAX LAWS BEFORE DETERMINING WHETHER TO PARTICIPATE IN THE
EXCHANGE OFFER.
Tax Consequences to Exchanging U.S. Holders
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The Exchange of Convertible Notes for Exchange
Consideration |
Holders exchanging Convertible Notes will receive cash,
Class A Common Stock and new CCH II Notes in
accordance with the Exchange Offer. We will take the position
that the exchange of the Convertible Notes for the Exchange
Consideration will be a taxable transaction for Holders of the
Convertible Notes. Accordingly, each exchanging U.S. Holder
of Convertible Notes will recognize gain or
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loss with respect to the Convertible Notes being exchanged equal
to the difference between (i) the sum of the cash received,
the market value of the Class A Common Stock received, and
the issue price of the CCH II Notes received and
(ii) the adjusted tax basis of such Convertible Notes. A
U.S. Holders adjusted tax basis in a Convertible Note
equals the price such Holder paid for that note, increased by
the amount of any original issue discount (OID)
(taking into account acquisition premium, if any) and market
discount previously included in income by such Holder with
respect to the note and reduced (but not below zero) (i) by
any amortizable bond premium previously taken as a deduction
with respect to the note and (ii) by any payments received
by such Holder on the note prior to the exchange other than
qualified stated interest payments (defined below). Any such
gain or loss generally will be capital gain or loss, and will be
long-term capital gain or loss if, at the time of the exchange,
the U.S. Holders holding period for the existing note
is more than one year (provided that any such gain would be
treated as ordinary income to the extent attributable to any
market discount such Holder has accrued with respect to the
existing note, unless such Holder has elected to include market
discount in income currently as it accrues). The deductibility
of capital losses is subject to limitations under the Code.
For United States federal income tax purposes, the issue
price of the CCH II Notes will depend on whether the
CCH II Notes or the Convertible Notes are deemed to be
publicly traded. The CCH II Notes or the
Convertible Notes will be treated as publicly traded if, at any
time during the 60-day
period ending 30 days after the issue date of the
CCH II Notes, the CCH II Notes or the Convertible
Notes are or were, as the case may be, traded on an
established market. Subject to certain exceptions, a debt
instrument generally will be treated as traded on an established
market if (1) it is listed on at least one of certain
securities exchanges, interdealer quotation systems, or certain
foreign exchanges or boards of trade, (2) it is traded on
at least one of certain boards of trade that are designated as a
contract market or on an interbank market, (3) it appears
on a system of general circulation that provides a reasonable
basis to determine fair market value by disseminating either
recent price quotations of identified brokers, dealers or
traders or actual prices of recent sales transactions, or
(4) price quotations are readily available from brokers,
dealers or traders and certain other conditions are met. Debt
instruments generally are not considered to be traded on an
established market if indications of interest are publicly
disseminated without actual trading or offer prices, as in the
case of the so-called yellow sheets.
From the information currently available, we believe the
Convertible Notes, and likely the CCH II Notes, will be
considered publicly traded within the relevant time period under
the rules set forth above. However, we cannot predict with
certainty what position the IRS may take with regard to whether
either the Convertible Notes or the CCH II Notes are
publicly traded. If the CCH II Notes are publicly traded,
then the issue price of such CCH II Notes will equal the
trading price of the CCH II Notes at the time of
consummation of the Exchange Offer. If the CCH II Notes are
not publicly traded but the Convertible Notes are publicly
traded, then the issue price of the CCH II Notes will equal
the difference between (i) the trading price of the
Convertible Notes at the time of the consummation of the
Exchange Offer and (ii) the sum of any cash and the trading
price at the time of the consummation of the Exchange Offer of
any Class A Common Stock received in addition to the
CCH II Notes in exchange for the Convertible Notes. See
Ownership of the CCH II Notes
Original Issue Discount, below for the effect of using the
trading price of either the Convertible Notes or the CCH II
Notes to determine the issue price of the CCH II Notes. If
neither the Convertible Notes nor the CCH II Notes are
publicly traded, then the issue price of the CCH II Notes
will be their stated principal amounts.
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Cash Payments of Accrued and Unpaid Interest |
Holders that exchange Convertible Notes for Exchange
Consideration will receive a cash payment representing accrued
and unpaid interest to, but not including, the settlement date.
Such accrued and unpaid interest will be taxable to Holders of
the Convertible Notes in accordance with their regular method of
accounting for United States federal income tax purposes.
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Ownership of the CCH II Notes |
Original Issue Discount. In general, subject to a de
minimis exception, the CCH II Notes will be treated as
being issued with original issue discount
(OID) to the extent their stated redemption
price at maturity (SRPM) exceeds their
issue price. A note will be considered to have de
minimis OID if the difference between the notes SRPM and
its issue price is less than
1/4
of 1% (i. e., 0.25%) of the SRPM multiplied by
the number of complete years to maturity. U.S. Holders of
notes with a de minimis amount of OID will include this OID in
income, as capital gain, on a pro rata basis as principal
payments are made on the note.
The SRPM of a CCH II Notes is the aggregate of all payments
due to its holder under such CCH II Notes at or prior to
its maturity, other than interest payments that (among other
requirements) are actually and unconditionally payable at least
annually. Interest meeting these requirements is referred to as
qualified stated interest. The issue price of the
CCH II Notes will be determined in the manner set forth
above under The Exchange of Convertible Notes for
Exchange Consideration. The amount, if any, by which the
SRPM exceeds the issue price will be OID.
U.S. Holders of CCH II Notes will be required to
include any OID on the CCH II Notes in income for
U.S. federal income tax purposes as it accrues on a
constant yield to maturity basis, regardless of such
holders regular methods of accounting for
U.S. federal income tax purposes. The amount of OID
includible in income will be the sum of the daily
portions of OID with respect to the CCH II Notes for
each day during the taxable year or portion of the taxable year
in which a U.S. Holder holds the CCH II Notes
(accrued OID). The daily portion is determined by
allocating to each day in any accrual period a pro rata
portion of the OID allocable to that accrual period. We expect
that the accrual period for the CCH II Notes will
correspond to the intervals between payment dates provided by
the terms of the CCH II Notes. The amount of OID allocable
to any accrual period is an amount equal to the excess, if any,
of (i) the product of the CCH II Notes adjusted
issue price at the beginning of such accrual period and its
yield to maturity (determined on the basis of compounding at the
close of each accrual period and properly adjusted for the
length of the accrual period) less (ii) the amount of any
qualified stated interest allocable to the accrual period. OID
allocable to a final accrual period is the difference between
the amount payable at maturity (other than a payment of
qualified stated interest) and the adjusted issue price at the
beginning of the final accrual period. Special rules apply for
calculating OID for an initial short accrual period. The
adjusted issue price of the new notes at the beginning of any
accrual period is equal to their issue price increased by the
accrued OID for each prior accrual period previously includible
in gross income and decreased by the amount of any payments
previously made on the CCH II Notes (other than qualified
stated interest payments).
When required, we will furnish annually to the IRS and to
holders of the CCH II Notes information with respect to any
OID accruing while the CCH II Notes are held. The
CCH II Notes will bear a legend setting forth information
about any OID, or a name and telephone number for our employee
who can provide this information.
A U.S. Holder of CCH II Notes may elect to treat all
interest on the CCH II Notes as OID and calculate the amount
included in gross income under the constant yield method
described above. For the purposes of this election, interest
includes stated interest, OID, de minimis OID, and
unstated interest. The election is to be made for the taxable
year in which the CCH II Notes are acquired and may not be
revoked without the consent of the IRS. A holder of CCH II
Notes should consult with its tax advisors if it is considering
this election.
A U.S. Holder will not be required to recognize any
additional income upon the receipt of any payment corresponding
to OID on the new notes, but will be required to reduce its tax
basis in the new notes by the amount of such payment.
Effect of Optional Redemption on Original Issue Discount.
At any time prior to September 15, 2006, we may redeem up
to 35% of the CCH II Notes upon the occurrence of certain
public equity offerings. Computation of the yield and maturity
of the CCH II Notes is not affected by such redemption
rights if,
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based on all of the facts and circumstances as of the date of
issuance, the stated payment schedule of the CCH II Notes
(that does not reflect the equity offering event) is
significantly more likely than not to occur. We have determined
that, based on all of the facts and circumstances as of the date
of issuance, it is significantly more likely than not that the
CCH II Notes will be paid according to their stated
schedule.
We may redeem the CCH II Notes, in whole or in part, at any
time on or after September 15, 2008 at redemption prices
specified elsewhere herein plus accrued and unpaid interest, if
any. The Treasury Regulations contain rules for determining the
maturity date and the SRPM of an instrument that may
be redeemed prior to its stated maturity date at the option of
the issuer. Under such Treasury Regulations, solely for the
purposes of the accrual of OID, it is assumed that an issuer
will exercise any option to redeem a debt instrument only if
such exercise would lower the yield to maturity of the debt
instrument. Because the exercise of such options would not lower
the yield to maturity of the CCH II Notes, we believe that
we will not be presumed under these rules to redeem the
CCH II Notes prior to their stated maturity.
Stated Cash Interest on the CCH II Notes. The
amount of interest on the CCH II Notes that is
unconditionally payable at a fixed rate should be considered
qualified stated interest and, as such, will be
taxable to a holder as ordinary income at the time it is
received or accrued, depending on the holders regular
method of accounting for United States federal income tax
purposes.
Sale, Exchange or Retirement of the CCH II
Notes. Upon the sale, exchange, redemption, retirement
at maturity or other taxable disposition of new notes, a
U.S. Holder generally will recognize taxable gain or loss
equal to the difference between the sum of the cash and the fair
market value of all other property received on such disposition
(less any amount received on account of accrued but unpaid
interest, which will be taxed as such) and such
U.S. Holders adjusted tax basis in the CCH II
Notes. The adjusted tax basis of the CCH II Notes generally
will equal the issue price of the CCH II Notes, as
described above in Tax Consequences to
Exchanging Holders The Exchange of Convertible Notes
for Exchange Consideration, increased by any OID
includable in income by the holder with respect to the
CCH II Notes, and reduced by the amount of any payments
previously received by the holder (other than qualified stated
interest). Any such gain or loss generally will be capital gain
or loss, and will be long-term capital gain or loss if, at the
time of such disposition, the U.S. Holders holding
period for the note is more than one year. Each exchanging
U.S. Holders holding period in the CCH II Notes
will begin on the day after the Exchange Offer is consummated.
The deductibility of capital losses is subject to limitations
under the Code.
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Ownership of the Class A Common Stock |
Dividends on Shares of Class A Common Stock.
Distributions, if any, on shares of Class A Common Stock
generally will be taxable to a U.S. Holder as ordinary
income to the extent that the cash and fair market value of
property distributed does not exceed such holders
pro rata share of Charters current and accumulated
earnings and profits, if any. There is an exception to this
treatment for distributions that constitute qualified
dividend income, as described below. Any distributions in
excess of Charters current and accumulated earnings and
profits will reduce such holders tax basis in such
Class A Common Stock until such holders basis is
reduced to zero, and any further distribution will be treated as
gain from the sale of such Class A Common Stock.
Qualified dividend income received by noncorporate
U.S. Holders of stock is currently taxed at the long-term
capital gain rate, which is currently a maximum of 15%. The tax
on qualified dividend income is currently scheduled
to increase after 2010. Dividends that Charter pays with respect
to Class A Common Stock acquired through the exchange
generally will be qualified dividend income provided that
(i) the holder is an individual, (ii) such holder
holds such common stock for more than 60 days during the
120-day period
beginning 60 days before the ex-dividend date, and
(iii) such holder meets certain other requirements.
Corporate U.S. Holders of the Class A Common Stock may
be eligible for a dividends received deduction with respect to
any distributions received with respect to the Class A
Common Stock.
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Sale of Shares of Class A Common Stock. A
U.S. Holder generally should recognize capital gain or loss
upon the sale of Class A Common Stock acquired through the
exchange in an amount equal to the difference between the amount
realized and such holders tax basis in the Class A
Common Stock. Each exchanging U.S. Holders basis in
the Class A Common Stock will initially be the market value
of such Class A Common Stock at the time of the
consummation of the Exchange Offer, but may be adjusted upon the
occurrence of certain events. The capital gain or loss should be
long-term if such holders holding period in the shares is
more than one year. Generally, long-term capital gains
recognized by individuals are taxable at a maximum rate of 15%,
and long-term capital gains recognized by corporations are
taxable at ordinary corporate tax rates. If a holder has held
its shares of common stock for one year or less, such
holders capital gain or loss will be short-term.
Short-term capital gains generally are taxed at the rates
applicable to ordinary income. Each exchanging
U.S. Holders holding period in the Class A
Common Stock will begin on the day after the Exchange Offer is
consummated. The ability of a holder to use any capital loss is
subject to substantial restrictions.
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Backup Withholding and Information Reporting. |
In general, an exchanging U.S. Holder of a Convertible Note
will be subject to backup withholding at the applicable tax rate
(currently 28%) with respect to the total consideration payable
to such Holder pursuant to the Exchange Offer, unless such
Holder (a) is an entity that is exempt from backup
withholding (generally including corporations, tax-exempt
organizations and certain qualified nominees) and, when
required, demonstrates this fact, or (b) provides the payor
with its taxpayer identification number (TIN),
certifies that the TIN provided to the payor is correct and that
the Holder has not been notified by the IRS that such Holder is
subject to backup withholding due to underreporting of interest
or dividends, and otherwise complies with applicable
requirements of the backup withholding rules. In addition, such
payments to Holders that are not exempt entities will generally
be subject to information reporting requirements. A Holder who
does not provide the payor with its correct TIN may be subject
to penalties imposed by the IRS. The amount of any backup
withholding from a payment to a Holder will be allowed as a
credit against such Holders United States federal income
tax liability and may entitle such Holder to a refund, provided
that the required information is timely furnished to the IRS. In
general, a holder of CCH II Notes will be subject to backup
withholding and information reporting requirements with respect
to interest, OID, principal and premium, if any, paid on the
CCH II Notes, and the proceeds of a sale of CCH II
Notes, in the same manner and subject to the same exceptions
described above for an exchanging holder of a Convertible Note.
Similarly, a holder of Class A Common Stock will generally
be subject to backup withholding and information reporting
requirements with respect to dividend payments on or gross
proceeds from the disposition of the Class A Common Stock
in the same manner and subject to the same exceptions described
above for an exchanging holder of a Convertible Note. We will
report to holders and to the IRS the amount of any
reportable payments (including any interest paid)
and any amounts withheld with respect to the CCH II Notes
and Class A Common Stock during the calendar year.
Tax Consequences to
Non-U.S. Holders
The following discussion applies to
non-U.S. Holders.
Special rules may apply if a
non-U.S. Holder is
a controlled foreign corporation, foreign personal holding
company, a corporation that accumulates earnings to avoid United
States federal income tax or, in certain circumstances, a United
States expatriate.
The Exchange of Convertible Notes for Exchange
Consideration. A
non-U.S. Holder
will not be subject to U.S. federal income tax on any gain
recognized in the Exchange unless:
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it is effectively connected with the
non-U.S. Holders
conduct of a trade or business in the United States (and, if a
treaty applies, is attributable to the
non-U.S. Holders
permanent establishment or, in the case of an individual, a
fixed base, in the United States) or |
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in the case of a
non-U.S. Holder
that is an individual, such
non-U.S. Holder
is present in the United States for 183 days or more during
the taxable year in which such sale, exchange, or other
disposition occurs and certain other conditions are met. |
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Ownership of the CCH II Notes |
Interest and OID. Subject to the discussion of
backup withholding and information reporting below, payments of
interest or OID in respect of the new notes or the old notes by
us or our paying agent to a holder that is a
non-U.S. Holder
will not be subject to U.S. federal income tax or
withholding tax, provided that,:
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such interest is not effectively connected with such
non-U.S. Holders
conduct of a trade or business in the United States; |
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the
non-U.S. Holder
does not actually or constructively own 10% or more of our
capital or profits interests; |
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the
non-U.S. Holder is
not a controlled foreign corporation that is,
directly or indirectly, related to us through stock ownership; |
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the
non-U.S. Holder is
not a bank whose receipt of interest on the new notes is
described in Section 881(c)(3)(A) of the Code; and |
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the
non-U.S. Holder
and/or each securities clearing organization, bank, or other
financial institution that holds the new notes on behalf of such
non-U.S. Holder in
the ordinary course of its trade or business, in the chain
between the
non-U.S. Holder
and the paying agent, complies with applicable identification
requirements (generally by providing an IRS Form W-8) to
establish that the holder is a
non-U.S. Holder. |
If the requirements described above are not satisfied, a 30%
withholding tax will apply to the gross amount of interest
(including OID) on the CCH II Notes that is paid to a
non-U.S. Holder,
unless, either: (a) an applicable income tax treaty reduces
or eliminates such tax, and the
non-U.S. Holder
claims the benefit of that treaty by providing a properly
completed and duly executed IRS
Form W-8BEN (or
suitable successor or substitute form) establishing
qualification for benefits under the treaty, or (b) the
interest is effectively connected with the
non-U.S. Holders
conduct of a trade or business in the United States and the
non-U.S. Holder
provides an appropriate statement to that effect on a properly
completed and duly executed IRS
Form W-8ECI (or
suitable successor form).
If a
non-U.S. Holder is
engaged in a U.S. trade or business and interest on a
CCH II Note (including OID) is effectively connected with
the conduct of that trade or business, the
non-U.S. Holder
will be required to pay U.S. federal income tax on that
interest on a net income basis (and the 30% withholding tax
described above will not apply provided the appropriate
statement is provided to us) generally in the same manner as a
U.S. Holder. If a
non-U.S. Holder is
eligible for the benefits of an income tax treaty between the
United States and its country or residence, any interest income
that is effectively connected with a U.S. trade or business
will be subject to U.S. federal income tax in the manner
specified by the treaty and generally will only be subject to
U.S. federal income tax if such income is attributable to a
permanent establishment (or a fixed base in the case of an
individual) maintained by the
non-U.S. Holder in
the United States and the
non-U.S. Holder
claims the benefit of the treaty by properly submitting an IRS
Form W-8BEN. In addition, a
non-U.S. Holder
that is treated as a foreign corporation for U.S. federal
income tax purposes may be subject to a branch profits tax equal
to 30% (or lower applicable treaty rate) of its earnings and
profits for the taxable year, subject to adjustments, that are
effectively connected with its conduct of a trade or business in
the United States.
Sale, Exchange or Retirement of the CCH II
Notes. A
non-U.S. Holder
will not be subject to U.S. federal income tax on any gain
realized by such holder upon a sale, exchange, redemption,
retirement at maturity or other taxable disposition of the
CCH II Notes, unless one of the exceptions discussed above
307
under the caption Tax Consequences to
Non-U.S. Holders
The Exchange of Convertible Notes for Exchange
Consideration applies.
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Ownership of the Class A Common Stock |
Dividends on Shares of Class A Common Stock.
A 30% withholding tax will generally apply to any distributions
with respect to shares of Class A Common Stock to
non-U.S. Holders
to the extent that the cash and fair market value of property
distributed does not exceed such holders pro rata share of
Charters current and accumulated earnings and profits, if
any, unless, either: (a) an applicable income tax treaty
reduces or eliminates such tax, and the
non-U.S. Holder
claims the benefit of that treaty by providing a properly
completed and duly executed IRS
Form W-8BEN (or
suitable successor or substitute form) establishing
qualification for benefits under the treaty, or (b) the
distributions are effectively connected with the
non-U.S. Holders
conduct of a trade or business in the United States and the
non-U.S. Holder
provides an appropriate statement to that effect on a properly
completed and duly executed IRS
Form W-8ECI (or
suitable successor form).
If a
non-U.S. Holder is
engaged in a U.S. trade or business and distributions with
respect to the Class A Common Stock are effectively
connected with the conduct of that trade or business, the
non-U.S. Holder
will be required to pay U.S. federal income tax on the
distributions (and the 30% withholding tax described above will
not apply provided the appropriate statement is provided to us)
generally in the same manner as a U.S. Holder. If a
non-U.S. Holder is
eligible for the benefits of an income tax treaty between the
United States and its country or residence, any income arising
from distributions that is effectively connected with a
U.S. trade or business will be subject to U.S. federal
income tax in the manner specified by the treaty and generally
will only be subject to U.S. federal income tax if such
income is attributable to a permanent establishment (or a fixed
base in the case of an individual) maintained by the
non-U.S. Holder in
the United States and the
non-U.S. Holder
claims the benefit of the treaty by properly submitting an IRS
Form W-8BEN. In
addition, a
non-U.S. Holder
that is treated as a foreign corporation for U.S. federal
income tax purposes may be subject to a branch profits tax equal
to 30% (or lower applicable treaty rate) of its earnings and
profits for the taxable year, subject to adjustments, that are
effectively connected with its conduct of a trade or business in
the United States.
Sale, Exchange or Retirement of the Class A Common
Stock. A
non-U.S. Holder
will not be subject to U.S. federal income tax on any gain
realized by such holder upon a sale, exchange, redemption,
retirement at maturity or other taxable disposition of the
Class A Common Stock, unless one of the exceptions
discussed above under the caption Tax
Consequences to
Non-U.S. Holders
The Exchange of Convertible Notes for Exchange
Consideration applies.
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Backup Withholding and Information Reporting |
Backup withholding and information reporting will not apply to
payments of principal or interest on the CCH II Notes or
payments of distributions on the Class A Common Stock by us
or our paying agent if an exchanging holder certifies as to its
status as a
non-U.S. Holder
under penalties of perjury or otherwise establishes an exemption
(provided that neither we nor our paying agent has actual
knowledge that it is a United States person or that the
conditions of any other exemptions are not in fact satisfied).
The payment of the proceeds of the disposition of the
CCH II Notes, the Convertible Notes, or the Class A
Common Stock to or through the United States office of a United
States or foreign broker will be subject to information
reporting and backup withholding unless an exchanging holder
provides the certification described above or otherwise
establishes an exemption. The proceeds of a disposition effected
outside the United States by a holder of the CCH II Notes,
the Convertible Notes, or Class A Common Stock to or
through a foreign office of a broker generally will not be
subject to backup withholding or information reporting. However,
if that broker is, for United States tax purposes, a United
States person, a controlled foreign corporation, a foreign
person 50% or more of whose gross income from all sources for
certain periods is effectively connected with a trade or
business in the United States, or a foreign partnership that is
engaged in the conduct of a trade or business in the United
States or that has one or more partners that are United States
persons who in the aggregate hold more than 50% of the income or
308
capital interests in the partnership, information reporting
requirements will apply unless that broker has documentary
evidence in its files of such holders status as a
non-U.S. Holder
and has no actual knowledge to the contrary or unless such
holder otherwise establishes an exemption. Any amounts withheld
from a payment to a holder under the backup withholding rules
will be allowed as a credit against such holders United
States federal income tax liability and may entitle it to a
refund, provided it timely furnishes the required information to
the IRS.
Tax Consequences to Non-Exchanging Holders
Holders who do not tender their Convertible Notes pursuant to
the Exchange Offer should not recognize income, gain or loss for
United States federal income tax purposes if, as we expect, the
exchange of some of the Convertible Notes for Exchange
Consideration does not result in a significant
modification of the remaining Convertible Notes. The
exchange would result in a significant modification
if, based on all the facts and circumstances and taking into
account all modifications, other than certain specified
modifications, the legal rights and obligations under the
Convertible Notes are altered in a manner that is
economically significant. In particular, the legal
rights and obligations under the Convertible Notes will be
deemed to have been altered in a manner that is
economically significant if the exchange results in
a change in payment expectations with respect to the Convertible
Notes due to a substantial enhancement or substantial impairment
of our ability to meet the payment obligations under the
Convertible Notes. We will take the position that the exchange
will not result in a taxable transaction for non-exchanging
holders. However, in the event it were finally determined that a
significant modification had occurred in respect of the old
notes, non-exchanging U.S. Holders would recognize gain or
loss, as the case may be, to the extent of the difference
between their adjusted basis in the Convertible Notes and the
fair market value of the Convertible Notes after consummation of
the Exchange Offer. See Tax Consequences to
Exchanging U.S. Holders The Exchange of
Convertible Notes for Exchange Consideration for
discussion of gain or loss as a result of the Exchange Offer.
309
INTEREST OF DIRECTORS AND OFFICERS IN THE TRANSACTION
We are not aware of any of our directors, officers, principal
stockholders or affiliates that own Convertible Notes or will be
surrendering Convertible Notes for exchange pursuant to the
Exchange Offer. Neither we, nor, to the best of our knowledge,
any of the our directors or executive officers, nor any
affiliates of any of the foregoing, have engaged in any
transactions in the Convertible Notes during the 60 business
days prior to the date hereof.
DEALER MANAGERS
The Dealer Managers for the Exchange Offer are Citigroup and
Banc of America Securities LLC. Charter has agreed to pay the
Dealer Managers compensation for their services in connection
with the Exchange Offer, which compensation is estimated to be
approximately $5.0 million, assuming full participation in
the Exchange Offer. The Dealer Managers and their affiliates
have rendered and may in the future render various investment
banking, lending and commercial banking services and other
advisory services to us. The Dealer Managers have received, and
may in the future receive, customary compensation from us for
such services. The Dealer Managers have regularly acted as
underwriters and initial purchasers of long and short-term debt
securities issued by us in public and private offerings and will
likely continue to do so from time to time.
The Dealer Managers may from time to time hold notes, shares of
Class A Common Stock and other securities of ours in their
proprietary accounts, and, to the extent they own Convertible
Notes in these accounts at the time of the Exchange Offer, the
Dealer Managers may surrender such Convertible Notes for
exchange pursuant to the Exchange Offer. During the course of
the Exchange Offer, the Dealer Managers may trade shares of
Class A Common Stock or effect transactions in other
securities of ours for their own accounts or for the accounts of
their customers. As a result, the Dealer Managers may hold a
long or short position in the Class A Common Stock or other
of our securities. In addition, we entered into a share lending
agreement with respect to the Convertible Notes with an
affiliate of Citigroup. See Description of Capital Stock
and Membership Units Share Lending Agreement.
INFORMATION AGENT
Global Bondholder Services has been appointed as the Information
Agent for the Exchange Offer. We have agreed to pay the
Information Agent reasonable and customary fees for its services
and will reimburse the Information Agent for its reasonable
out-of-pocket expenses.
Any requests for assistance in connection with the Exchange
Offer or for additional copies of this Exchange Offer Prospectus
or related materials should be directed to the Information Agent
at the addresses set forth on the back cover of this Exchange
Offer Prospectus.
EXCHANGE AGENT
Global Bondholder Services, has been appointed Exchange Agent
for the Exchange Offer. We have agreed to pay the Exchange Agent
reasonable and customary fees for its services and will
reimburse the Exchange Agent for its reasonable
out-of-pocket expenses.
All completed Letters of Transmittal should be directed to the
Exchange Agent at the address set forth on the back cover of
this Exchange Offer Prospectus.
FEES AND EXPENSES
We will bear the fees and expenses relating to the Exchange
Offer. Where permitted by applicable law, we are making the
solicitation via facsimile, telephone, email or in person by the
Dealer Managers and Information Agent, as well as by our
officers and regular employees and those of our affiliates. We
will also pay the Exchange Agent and the Information Agent
reasonable and customary fees for their services and will
reimburse them for their reasonable
out-of-pocket expenses.
We will indemnify each of
310
the Exchange Agent, the Dealer Managers and the Information
Agent against certain liabilities and expenses in connection
with the Exchange Offer, including liabilities under the federal
securities laws.
LEGAL MATTERS
The validity of the securities offered hereby and certain tax
matters will be passed upon for Charter Communications, Inc.,
CCH II, LLC and CCH II Capital Corp. by Gibson,
Dunn & Crutcher LLP. Cahill Gordon & Reindel
LLP will pass upon certain legal matters in connection with the
Exchange Offer for the Dealer Managers.
EXPERTS
The consolidated financial statements of Charter Communications
Inc. and its subsidiaries as of December 31, 2005 and 2004,
and for each of the years in the three-year period ended
December 31, 2005, have been included herein in reliance
upon the report of KPMG LLP, independent registered public
accounting firm, appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing.
The consolidated financial statements of CCH II and its
subsidiaries as of December 31, 2005 and 2004, and for each
of the years in the three-year period ended December 31,
2005, have been included herein in reliance upon the report of
KPMG LLP, independent registered public accounting firm,
appearing elsewhere herein, and upon the authority of said firm
as experts in accounting and auditing. The reports on the
consolidated financial statements referred to above include
explanatory paragraphs regarding the adoption, effective
September 30, 2004 of EITF
Topic D-108,
Use of the Residual Method to Value Acquired Assets Other
than Goodwill, and, effective January 1, 2003, of
Statement of Financial Accounting Standards, No. 123,
Accounting for Stock-Based Compensation, as amended
by Statement of Financial Accounting Standards No. 148,
Accounting for Stock Based Compensation
Transition and Disclosure an amendment to FASB
Statement No. 123.
With respect to the unaudited Charter Communications, Inc.
interim financial information for the periods ended
June 30, 2006 and 2005 included herein, the independent
registered public accounting firm has reported that they applied
limited procedures in accordance with professional standards for
a review of such information. However, their separate report
included in Charter Communications, Inc.s quarterly report
on Form 10-Q for
the quarter ended June 30, 2006 and 2005, and included
herein, states that they did not audit and they do not express
an opinion on that interim financial information. Accordingly,
the degree of reliance on their report on such information
should be restricted in light of the limited nature of the
review procedures applied. The accountants are not subject to
the liability provisions of Section 11 of the Securities
Act of 1933 (the 1933 Act) for their report on the
unaudited interim financial information because that report is
not a report or a part of the
registration statement prepared or certified by the accountants
with the meaning of Sections 7 and 11 of the 1933 Act.
WHERE YOU CAN FIND MORE INFORMATION
Charter is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the Exchange
Act) and in accordance therewith file reports, proxy
statements and other information with the SEC. These reports,
proxy statements and other information may be inspected and
copied at the Public Reference Room of the SEC at
100 F Street, N.E., Washington, D.C. 20549.
Information on the operation of the Public Reference Room may be
obtained by calling the SEC at
1-800-SEC-0330.
Reports, proxy and information statements and other information,
including the registration statement of which this Exchange
Offer Prospectus is a part, filed electronically with the SEC,
are available at the SECs website at http://www.sec.gov.
Pursuant to
Rule 13e-4 of the
General Rules and Regulations of the Exchange Act, we have filed
with the Commission a Third Party Tender Offer Statement on
Schedule TO which contains additional information with
respect to the Exchange Offer. Such Schedule TO, including
the exhibits and any
311
amendments thereto, may be examined, and copies may be obtained,
as the same places and in the same manner as set forth in the
paragraph above.
The information in this Exchange Offer Prospectus may not
contain all the information that may be important to you. You
should read the entire Exchange Offer Prospectus, the
registration statement of which this Exchange Offer Prospectus
is a part, including the exhibits thereto, and the
Schedule TO before making an investment decision.
Additionally, the indenture governing the CCH II Notes
provides that, regardless of whether it is at any time required
to file reports with the SEC, CCH II will file with the SEC
and furnish to the holders of the CCH II Notes all such
reports and other information as would be required to be filed
with the SEC if CCH II was subject to the reporting
requirements of the Exchange Act. While any CCH II Notes
remain outstanding, CCH II, LLC and CCH II Capital
Corp. will make available upon request to any holder and any
prospective purchaser of notes the information required pursuant
to Rule 144A(d)(4) under the Securities Act during any
period in which CCH II is not subject to Section 13 or
15(d) of the Exchange Act. This Exchange Offer Prospectus
contains summaries, believed to be accurate in all material
respects, of certain terms of the CCH II Notes (including
but not limited to the indenture governing the CCH II
Notes), but reference is hereby made to the actual agreements,
copies of which will be made available to you upon request to us
or the Dealer Manager, for complete information with respect
thereto, and all such summaries are qualified in their entirety
by this reference. Any such request for the agreements
summarized herein should be directed to Investor Relations,
CCH II, LLC, Charter Plaza, 12405 Powerscourt Drive,
St. Louis, Missouri 63131, telephone number
(314) 965-0555.
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INDEX TO FINANCIAL STATEMENTS
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Index to the Consolidated Financial Statements of Charter
Communications, Inc. as of December 31, 2005 and 2004 and
for Each of The Years in the Three-Year Period Ended
December 31, 2005
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F-2 |
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Index to the Condensed Consolidated Financial Statements of
Charter Communications, Inc. as of June 30, 2006, and for
the Three-Month and Six-Month Periods Ended June 30, 2006
and 2005
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F-62 |
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Index to the Consolidated Financial Statements of CCH II,
LLC as of December 31, 2005 and 2004 and for Each of the
Years in the Three-Year Period Ended December 31, 2005
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F-84 |
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Index to the Condensed Consolidated Financial Statements of
CCH II, LLC as of June 30, 2006, and for the
Three-Month and Six-Month Periods Ended June 30, 2006 and
2005
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F-129 |
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F-1
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
CHARTER COMMUNICATIONS, INC.
AS OF DECEMBER 31, 2005 AND 2004 AND FOR EACH OF THE
YEARS IN THE THREE-YEAR PERIOD ENDED DECEMBER 31, 2005
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Audited Financial Statements
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F-3 |
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F-4 |
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F-5 |
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F-6 |
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F-7 |
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F-8 |
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F-2
Report of Independent Registered Public Accounting Firm
To the Board of Directors
Charter Communications, Inc.:
We have audited the accompanying consolidated balance sheets of
Charter Communications, Inc. and subsidiaries (the Company) as
of December 31, 2005 and 2004, and the related consolidated
statements of operations, changes in shareholders equity
(deficit), and cash flows for each of the years in the
three-year period ended December 31, 2005. These
consolidated financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Charter Communications, Inc. and subsidiaries as of
December 31, 2005 and 2004, and the results of their
operations and their cash flows for each of the years in the
three-year period ended December 31, 2005, in conformity
with U.S. generally accepted accounting principles.
As discussed in Note 7 to the consolidated financial
statements, effective September 30, 2004, the Company
adopted EITF Topic
D-108, Use of the
Residual Method to Value Acquired Assets Other than Goodwill.
As discussed in Note 21 to the consolidated financial
statements, effective January 1, 2003, the Company adopted
Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation, as amended by
Statement of Financial Accounting Standards No. 148,
Accounting for Stock-Based Compensation
Transition and Disclosure an amendment of FASB
Statement No. 123.
St. Louis, Missouri
February 27, 2006, except as to Note 4,
which is as of August 8, 2006
F-3
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Millions, Except Share Data)
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
ASSETS |
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
21 |
|
|
$ |
650 |
|
|
Accounts receivable, less allowance for doubtful accounts of $17
and $15, respectively
|
|
|
214 |
|
|
|
190 |
|
|
Prepaid expenses and other current assets
|
|
|
92 |
|
|
|
82 |
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
327 |
|
|
|
922 |
|
|
|
|
|
|
|
|
INVESTMENT IN CABLE PROPERTIES:
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net of accumulated depreciation
of $6,749 and $5,311, respectively
|
|
|
5,840 |
|
|
|
6,289 |
|
|
Franchises, net
|
|
|
9,826 |
|
|
|
9,878 |
|
|
|
|
|
|
|
|
|
|
Total investment in cable properties, net
|
|
|
15,666 |
|
|
|
16,167 |
|
|
|
|
|
|
|
|
OTHER NONCURRENT ASSETS
|
|
|
438 |
|
|
|
584 |
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
16,431 |
|
|
$ |
17,673 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS DEFICIT |
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$ |
1,191 |
|
|
$ |
1,217 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,191 |
|
|
|
1,217 |
|
|
|
|
|
|
|
|
LONG-TERM DEBT
|
|
|
19,388 |
|
|
|
19,464 |
|
|
|
|
|
|
|
|
NOTE PAYABLE RELATED PARTY
|
|
|
49 |
|
|
|
|
|
|
|
|
|
|
|
|
DEFERRED MANAGEMENT FEES RELATED PARTY
|
|
|
14 |
|
|
|
14 |
|
|
|
|
|
|
|
|
OTHER LONG-TERM LIABILITIES
|
|
|
517 |
|
|
|
681 |
|
|
|
|
|
|
|
|
MINORITY INTEREST
|
|
|
188 |
|
|
|
648 |
|
|
|
|
|
|
|
|
PREFERRED STOCK REDEEMABLE; $.001 par value;
1 million shares authorized; 36,713 and 545,259 shares
issued and outstanding, respectively
|
|
|
4 |
|
|
|
55 |
|
|
|
|
|
|
|
|
SHAREHOLDERS DEFICIT:
|
|
|
|
|
|
|
|
|
|
Class A Common stock; $.001 par value;
1.75 billion shares authorized; 416,204,671 and
305,203,770 shares issued and outstanding, respectively
|
|
|
|
|
|
|
|
|
|
Class B Common stock; $.001 par value;
750 million shares authorized; 50,000 shares issued
and outstanding
|
|
|
|
|
|
|
|
|
Preferred stock; $.001 par value; 250 million shares
authorized; no non-redeemable shares issued and outstanding
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
5,241 |
|
|
|
4,794 |
|
Accumulated deficit
|
|
|
(10,166 |
) |
|
|
(9,196 |
) |
Accumulated other comprehensive loss
|
|
|
5 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
Total shareholders deficit
|
|
|
(4,920 |
) |
|
|
(4,406 |
) |
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders deficit
|
|
$ |
16,431 |
|
|
$ |
17,673 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Millions, Except Per Share and Share Data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
REVENUES
|
|
$ |
5,033 |
|
|
$ |
4,760 |
|
|
$ |
4,616 |
|
|
|
|
|
|
|
|
|
|
|
COSTS AND EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (excluding depreciation and amortization)
|
|
|
2,203 |
|
|
|
1,994 |
|
|
|
1,873 |
|
|
Selling, general and administrative
|
|
|
998 |
|
|
|
934 |
|
|
|
905 |
|
|
Depreciation and amortization
|
|
|
1,443 |
|
|
|
1,433 |
|
|
|
1,396 |
|
|
Impairment of franchises
|
|
|
|
|
|
|
2,297 |
|
|
|
|
|
|
Asset impairment charges
|
|
|
39 |
|
|
|
|
|
|
|
|
|
|
(Gain) loss on sale of assets, net
|
|
|
6 |
|
|
|
(86 |
) |
|
|
5 |
|
|
Option compensation expense, net
|
|
|
14 |
|
|
|
31 |
|
|
|
4 |
|
|
Hurricane asset retirement loss
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
Special charges, net
|
|
|
7 |
|
|
|
104 |
|
|
|
21 |
|
|
Unfavorable contracts and other settlements
|
|
|
|
|
|
|
(5 |
) |
|
|
(72 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
4,729 |
|
|
|
6,702 |
|
|
|
4,132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) from continuing operations
|
|
|
304 |
|
|
|
(1,942 |
) |
|
|
484 |
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME AND EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(1,789 |
) |
|
|
(1,670 |
) |
|
|
(1,557 |
) |
|
Gain on derivative instruments and hedging activities, net
|
|
|
50 |
|
|
|
69 |
|
|
|
65 |
|
|
Loss on debt to equity conversions
|
|
|
|
|
|
|
(23 |
) |
|
|
|
|
|
Gain (loss) on extinguishment of debt and preferred stock
|
|
|
521 |
|
|
|
(31 |
) |
|
|
267 |
|
|
Other, net
|
|
|
22 |
|
|
|
3 |
|
|
|
(16 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,196 |
) |
|
|
(1,652 |
) |
|
|
(1,241 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before minority interest, income
taxes and cumulative effect of accounting change
|
|
|
(892 |
) |
|
|
(3,594 |
) |
|
|
(757 |
) |
MINORITY INTEREST
|
|
|
1 |
|
|
|
19 |
|
|
|
394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes and
cumulative effect of accounting change
|
|
|
(891 |
) |
|
|
(3,575 |
) |
|
|
(363 |
) |
INCOME TAX BENEFIT (EXPENSE)
|
|
|
(112 |
) |
|
|
134 |
|
|
|
122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before cumulative effect of
accounting change
|
|
|
(1,003 |
) |
|
|
(3,441 |
) |
|
|
(241 |
) |
CUMULATIVE EFFECT OF ACCOUNTING CHANGE, NET OF TAX
|
|
|
|
|
|
|
(765 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(1,003 |
) |
|
|
(4,206 |
) |
|
|
(241 |
) |
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAX
|
|
|
36 |
|
|
|
(135 |
) |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(967 |
) |
|
|
(4,341 |
) |
|
|
(238 |
) |
|
|
Dividends on preferred stock redeemable
|
|
|
(3 |
) |
|
|
(4 |
) |
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss applicable to common stock
|
|
$ |
(970 |
) |
|
$ |
(4,345 |
) |
|
$ |
(242 |
) |
|
|
|
|
|
|
|
|
|
|
LOSS PER COMMON SHARE, BASIC AND DILUTED:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
$ |
(3.24 |
) |
|
$ |
(11.47 |
) |
|
$ |
(0.83 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(3.13 |
) |
|
$ |
(14.47 |
) |
|
$ |
(0.82 |
) |
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, basic and diluted
|
|
|
310,159,047 |
|
|
|
300,291,877 |
|
|
|
294,597,519 |
|
|
|
|
|
|
|
|
|
|
|
F-5
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS
EQUITY (DEFICIT)
(Dollars in Millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated | |
|
|
|
|
|
|
|
|
|
|
|
|
Other | |
|
Total | |
|
|
Class A |
|
Class B |
|
Additional | |
|
|
|
Comprehensive | |
|
Shareholders | |
|
|
Common |
|
Common |
|
Paid-In | |
|
Accumulated | |
|
Income | |
|
Equity | |
|
|
Stock |
|
Stock |
|
Capital | |
|
Deficit | |
|
(Loss) | |
|
(Deficit) | |
|
|
|
|
|
|
| |
|
| |
|
| |
|
| |
BALANCE, December 31, 2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in fair value of interest
|
|
$ |
|
|
|
$ |
|
|
|
$ |
4,697 |
|
|
$ |
(4,609 |
) |
|
$ |
(47 |
) |
|
$ |
41 |
|
|
|
rate agreements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23 |
|
|
|
23 |
|
|
Option compensation expense, net
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
Issuance of common stock related to acquisitions
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
Loss on issuance of equity by subsidiary
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
Dividends on preferred stock redeemable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4 |
) |
|
|
|
|
|
|
(4 |
) |
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(238 |
) |
|
|
|
|
|
|
(238 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, December 31, 2003
|
|
|
|
|
|
|
|
|
|
|
4,700 |
|
|
|
(4,851 |
) |
|
|
(24 |
) |
|
|
(175 |
) |
|
Changes in fair value of interest rate agreements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20 |
|
|
|
20 |
|
|
Option compensation expense, net
|
|
|
|
|
|
|
|
|
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
27 |
|
|
Issuance of common stock in exchange for convertible notes
|
|
|
|
|
|
|
|
|
|
|
67 |
|
|
|
|
|
|
|
|
|
|
|
67 |
|
|
Dividends on preferred stock redeemable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4 |
) |
|
|
|
|
|
|
(4 |
) |
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,341 |
) |
|
|
|
|
|
|
(4,341 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
4,794 |
|
|
|
(9,196 |
) |
|
|
(4 |
) |
|
|
(4,406 |
) |
|
Changes in fair value of interest rate agreements and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9 |
|
|
|
9 |
|
|
Option compensation expense, net
|
|
|
|
|
|
|
|
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
14 |
|
|
Issuance of shares in Securities Class Action settlement
|
|
|
|
|
|
|
|
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
15 |
|
|
CC VIII settlement exchange of interests
|
|
|
|
|
|
|
|
|
|
|
418 |
|
|
|
|
|
|
|
|
|
|
|
418 |
|
|
Dividends on preferred stock redeemable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3 |
) |
|
|
|
|
|
|
(3 |
) |
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(967 |
) |
|
|
|
|
|
|
(967 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, December 31, 2005
|
|
$ |
|
|
|
$ |
|
|
|
$ |
5,241 |
|
|
$ |
(10,166 |
) |
|
$ |
5 |
|
|
$ |
(4,920 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-6
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(967 |
) |
|
$ |
(4,341 |
) |
|
$ |
(238 |
) |
|
Adjustments to reconcile net loss to net cash flows from
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest
|
|
|
(1 |
) |
|
|
(19 |
) |
|
|
(377 |
) |
|
|
Depreciation and amortization
|
|
|
1,499 |
|
|
|
1,495 |
|
|
|
1,453 |
|
|
|
Impairment of franchises
|
|
|
|
|
|
|
2,433 |
|
|
|
|
|
|
|
Asset impairment charges
|
|
|
39 |
|
|
|
|
|
|
|
|
|
|
|
(Gain) loss on sale of assets, net
|
|
|
6 |
|
|
|
(86 |
) |
|
|
5 |
|
|
|
Option compensation expense, net
|
|
|
14 |
|
|
|
27 |
|
|
|
4 |
|
|
|
Hurricane asset retirement loss
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
Special charges, net
|
|
|
|
|
|
|
85 |
|
|
|
|
|
|
|
Unfavorable contracts and other settlements
|
|
|
|
|
|
|
(5 |
) |
|
|
(72 |
) |
|
|
Noncash interest expense
|
|
|
254 |
|
|
|
324 |
|
|
|
414 |
|
|
|
Gain on derivative instruments and hedging activities, net
|
|
|
(50 |
) |
|
|
(69 |
) |
|
|
(65 |
) |
|
|
Loss on debt to equity conversions
|
|
|
|
|
|
|
23 |
|
|
|
|
|
|
|
(Gain) loss on extinguishment of debt and preferred stock
|
|
|
(527 |
) |
|
|
20 |
|
|
|
(267 |
) |
|
|
Other, net
|
|
|
(22 |
) |
|
|
(3 |
) |
|
|
3 |
|
|
|
Deferred income taxes
|
|
|
109 |
|
|
|
(109 |
) |
|
|
(110 |
) |
|
|
Cumulative effect of accounting change, net of tax
|
|
|
|
|
|
|
765 |
|
|
|
|
|
|
Changes in operating assets and liabilities, net of effects from
acquisitions and dispositions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(29 |
) |
|
|
(7 |
) |
|
|
70 |
|
|
|
Prepaid expenses and other assets
|
|
|
97 |
|
|
|
(2 |
) |
|
|
5 |
|
|
|
Accounts payable, accrued expenses and other
|
|
|
(181 |
) |
|
|
(59 |
) |
|
|
(69 |
) |
|
|
Receivables from and payables to related party, including
deferred management fees
|
|
|
|
|
|
|
|
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from operating activities
|
|
|
260 |
|
|
|
472 |
|
|
|
765 |
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
|
(1,088 |
) |
|
|
(924 |
) |
|
|
(854 |
) |
|
Change in accrued expenses related to capital expenditures
|
|
|
8 |
|
|
|
(43 |
) |
|
|
(33 |
) |
|
Proceeds from sale of assets
|
|
|
44 |
|
|
|
744 |
|
|
|
91 |
|
|
Purchases of investments
|
|
|
(3 |
) |
|
|
(17 |
) |
|
|
(11 |
) |
|
Proceeds from investments
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
Other, net
|
|
|
(3 |
) |
|
|
(3 |
) |
|
|
(10 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from investing activities
|
|
|
(1,025 |
) |
|
|
(243 |
) |
|
|
(817 |
) |
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings of long-term debt
|
|
|
1,207 |
|
|
|
3,148 |
|
|
|
738 |
|
|
Repayments of long-term debt
|
|
|
(1,239 |
) |
|
|
(5,448 |
) |
|
|
(1,368 |
) |
|
Proceeds from issuance of debt
|
|
|
294 |
|
|
|
2,882 |
|
|
|
529 |
|
|
Payments for debt issuance costs
|
|
|
(70 |
) |
|
|
(145 |
) |
|
|
(41 |
) |
|
Redemption of preferred stock
|
|
|
(56 |
) |
|
|
|
|
|
|
|
|
|
Purchase of pledge securities
|
|
|
|
|
|
|
(143 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from financing activities
|
|
|
136 |
|
|
|
294 |
|
|
|
(142 |
) |
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
(629 |
) |
|
|
523 |
|
|
|
(194 |
) |
CASH AND CASH EQUIVALENTS, beginning of period
|
|
|
650 |
|
|
|
127 |
|
|
|
321 |
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, end of period
|
|
$ |
21 |
|
|
$ |
650 |
|
|
$ |
127 |
|
|
|
|
|
|
|
|
|
|
|
CASH PAID FOR INTEREST
|
|
$ |
1,526 |
|
|
$ |
1,302 |
|
|
$ |
1,111 |
|
|
|
|
|
|
|
|
|
|
|
NONCASH TRANSACTIONS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of debt by CCH I Holdings, LLC
|
|
$ |
2,423 |
|
|
$ |
|
|
|
$ |
|
|
|
Issuance of debt by CCH I, LLC
|
|
|
3,686 |
|
|
|
|
|
|
|
|
|
|
Issuance of debt by Charter Communications Operating, LLC
|
|
|
333 |
|
|
|
|
|
|
|
|
|
|
Retirement of Charter Communications Holdings, LLC debt
|
|
|
(7,000 |
) |
|
|
|
|
|
|
1,257 |
|
|
Issuance of shares in Securities Class Action Settlement
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
CC VIII Settlement exchange of interests
|
|
|
418 |
|
|
|
|
|
|
|
|
|
|
Debt exchanged for Charter Class A common stock
|
|
|
|
|
|
|
30 |
|
|
|
|
|
|
Issuance of debt by CCH II, LLC
|
|
|
|
|
|
|
|
|
|
|
1,572 |
|
|
Retirement of Charter Communications, Inc. debt
|
|
|
|
|
|
|
|
|
|
|
609 |
|
|
Issuances of preferred stock redeemable, as payment
for acquisitions
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
Issuance of equity as partial payments for acquisitions
|
|
|
|
|
|
|
|
|
|
|
2 |
|
F-7
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005, 2004 AND 2003
(Dollars in Millions, Except Where Indicated)
|
|
1. |
Organization and Basis of Presentation |
Charter Communications, Inc. (Charter) is a holding
company whose principal assets at December 31, 2005 are the
48% controlling common equity interest in Charter Communications
Holding Company, LLC (Charter Holdco) and
mirror notes which are payable by Charter Holdco to
Charter and have the same principal amount and terms as those of
Charters convertible senior notes. Charter Holdco is the
sole owner of CCHC, LLC, which is the sole owner of Charter
Communications Holdings, LLC (Charter Holdings). The
consolidated financial statements include the accounts of
Charter, Charter Holdco, Charter Holdings and all of their
wholly owned subsidiaries where the underlying operations
reside, which are collectively referred to herein as the
Company. Charter has 100% voting control over
Charter Holdco and had historically consolidated on that basis.
Charter continues to consolidate Charter Holdco as a variable
interest entity under Financial Accounting Standards Board
(FASB) Interpretation (FIN) 46(R)
Consolidation of Variable Interest Entities. Charter
Holdcos limited liability company agreement provides that
so long as Charters Class B common stock retains its
special voting rights, Charter will maintain a 100% voting
interest in Charter Holdco. Voting control gives Charter full
authority and control over the operations of Charter Holdco. All
significant intercompany accounts and transactions among
consolidated entities have been eliminated. The Company is a
broadband communications company operating in the United States.
The Company offers its customers traditional cable video
programming (analog and digital video) as well as high-speed
Internet services and, in some areas, advanced broadband
services such as high-definition television, video on demand and
telephone. The Company sells its cable video programming,
high-speed Internet and advanced broadband services on a
subscription basis. The Company also sells local advertising on
satellite-delivered networks.
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Areas involving
significant judgments and estimates include capitalization of
labor and overhead costs; depreciation and amortization costs;
impairments of property, plant and equipment, franchises and
goodwill; income taxes; and contingencies. Actual results could
differ from those estimates.
Reclassifications. Certain prior year amounts have been
reclassified to conform with the 2005 presentation.
|
|
2. |
Liquidity and Capital Resources |
The Company incurred net loss applicable to common stock of
$970 million, $4.3 billion and $242 million in
2005, 2004 and 2003, respectively. The Companys net cash
flows from operating activities were $260 million,
$472 million and $765 million for the years ending
December 31, 2005, 2004 and 2003, respectively.
The Company has a significant level of debt. The Companys
long-term financing as of December 31, 2005 consists of
$5.7 billion of credit facility debt, $12.8 billion
accreted value of high-yield notes and $863 million
accreted value of convertible senior notes. In 2006,
$50 million of the Companys debt matures and in 2007,
an additional $385 million matures. In 2008 and beyond,
significant additional amounts will become due under the
Companys remaining long-term debt obligations.
F-8
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
Recent Financing Transactions |
On January 30, 2006, CCH II, LLC
(CCH II) and CCH II Capital Corp. issued
$450 million in debt securities, the proceeds of which were
provided, directly or indirectly, to Charter Communications
Operating, LLC (Charter Operating), which used such
funds to reduce borrowings, but not commitments, under the
revolving portion of its credit facilities.
In October 2005, CCO Holdings, LLC (CCO Holdings)
and CCO Holdings Capital Corp., as guarantor thereunder, entered
into a senior bridge loan agreement (the Bridge
Loan) with JPMorgan Chase Bank, N.A., Credit Suisse,
Cayman Islands Branch and Deutsche Bank AG Cayman Islands
Branch (the Lenders) whereby the Lenders committed
to make loans to CCO Holdings in an aggregate amount of
$600 million. Upon the issuance of $450 million of
CCH II notes discussed above, the commitment under the
Bridge Loan was reduced to $435 million. CCO Holdings may
draw upon the facility between January 2, 2006 and
September 29, 2006 and the loans will mature on the sixth
anniversary of the first borrowing under the Bridge Loan.
In September 2005, Charter Holdings and its wholly owned
subsidiaries, CCH I, LLC (CCH I) and
CCH I Holdings, LLC (CIH), completed the
exchange of approximately $6.8 billion total principal
amount of outstanding debt securities of Charter Holdings in a
private placement for new debt securities. Holders of Charter
Holdings notes due in 2009 and 2010 exchanged $3.4 billion
principal amount of notes for $2.9 billion principal amount
of new 11% CCH I notes due 2015. Holders of Charter
Holdings notes due 2011 and 2012 exchanged $845 million
principal amount of notes for $662 million principal amount
of 11% CCH I notes due 2015. In addition, holders of
Charter Holdings notes due 2011 and 2012 exchanged
$2.5 billion principal amount of notes for
$2.5 billion principal amount of various series of new CIH
notes. Each series of new CIH notes has the same interest rate
and provisions for payment of cash interest as the series of old
Charter Holdings notes for which such CIH notes were exchanged.
In addition, the maturities for each series were extended three
years. See Note 9 for discussion of transaction and related
financial statement impact.
The Company requires significant cash to fund debt service
costs, capital expenditures and ongoing operations. The Company
has historically funded these requirements through cash flows
from operating activities, borrowings under its credit
facilities, sales of assets, issuances of debt and equity
securities and cash on hand. However, the mix of funding sources
changes from period to period. For the year ended
December 31, 2005, the Company generated $260 million
of net cash flows from operating activities after paying cash
interest of $1.5 billion. In addition, the Company used
$1.1 billion for purchases of property, plant and
equipment. Finally, the Company had net cash flows from
financing activities of $136 million.
The Company expects that cash on hand, cash flows from operating
activities and the amounts available under its credit facilities
and Bridge Loan will be adequate to meet its cash needs in 2006.
The Company believes that cash flows from operating activities
and amounts available under the Companys credit facilities
and Bridge Loan will not be sufficient to fund the
Companys operations and satisfy its interest and debt
repayment obligations in 2007 and beyond. The Company is working
with its financial advisors to address this funding requirement.
However, there can be no assurance that such funding will be
available to the Company. In addition, Paul G. Allen,
Charters Chairman and controlling shareholder, and his
affiliates are not obligated to purchase equity from, contribute
to or loan funds to the Company.
The Companys ability to operate depends upon, among other
things, its continued access to capital, including credit under
the Charter Operating credit facilities and Bridge Loan. The
Charter Operating credit facilities, along with the
Companys and its subsidiaries indentures and Bridge
Loan, contain certain restrictive covenants, some of which
require the Company to maintain specified financial ratios and
meet
F-9
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
financial tests and to provide audited financial statements with
an unqualified opinion from the Companys independent
auditors. As of December 31, 2005, the Company is in
compliance with the covenants under its indentures, Bridge Loan
and credit facilities, and the Company expects to remain in
compliance with those covenants for the next twelve months. As
of December 31, 2005, the Companys potential
availability under its credit facilities totaled approximately
$553 million, none of which was limited by covenants. In
addition, as of January 2, 2006, the Company has additional
borrowing availability of $600 million under the Bridge
Loan (which was reduced to $435 million as a result of the
issuance of the CCH II notes). Continued access to the
Companys credit facilities and Bridge Loan is subject to
the Company remaining in compliance with these covenants,
including covenants tied to the Companys operating
performance. If any events of non-compliance occur, funding
under the credit facilities and Bridge Loan may not be available
and defaults on some or potentially all of the Companys
debt obligations could occur. An event of default under any of
the Companys debt instruments could result in the
acceleration of its payment obligations under that debt and,
under certain circumstances, in cross-defaults under its other
debt obligations, which could have a material adverse effect on
the Companys consolidated financial condition and results
of operations.
Charters ability to make interest payments on its
convertible senior notes, and, in 2006 and 2009, to repay the
outstanding principal of its convertible senior notes of
$20 million and $863 million, respectively, will
depend on its ability to raise additional capital and/or on
receipt of payments or distributions from Charter Holdco and its
subsidiaries. During 2005, Charter Holdings distributed
$60 million to Charter Holdco. As of December 31,
2005, Charter Holdco was owed $22 million in intercompany
loans from its subsidiaries, which were available to pay
interest and principal on Charters convertible senior
notes. In addition, Charter has $98 million of governmental
securities pledged as security for the next four scheduled
semi-annual interest payments on Charters
5.875% convertible senior notes.
Distributions by Charters subsidiaries to a parent company
(including Charter, CCHC and Charter Holdco) for payment of
principal on parent company notes are restricted under the
indentures governing the CIH notes, CCH I notes, CCH II
notes, CCO Holdings notes and Charter Operating notes unless
there is no default, each applicable subsidiarys leverage
ratio test is met at the time of such distribution and, in the
case of the convertible senior notes, other specified tests are
met. For the quarter ended December 31, 2005, there was no
default under any of these indentures and each such subsidiary
met its applicable leverage ratio tests based on
December 31, 2005 financial results. Such distributions
would be restricted, however, if any such subsidiary fails to
meet these tests. In the past, certain subsidiaries have from
time to time failed to meet their leverage ratio test. There can
be no assurance that they will satisfy these tests at the time
of such distribution. Distributions by Charter Operating and CCO
Holdings for payment of principal on parent company notes are
further restricted by the covenants in the credit facilities and
Bridge Loan, respectively.
Distributions by CIH, CCH I, CCH II, CCO Holdings and
Charter Operating to a parent company for payment of parent
company interest are permitted if there is no default under the
aforementioned indentures. However, distributions for payment of
interest on the convertible senior notes are further limited to
when each applicable subsidiarys leverage ratio test is
met and other specified tests are met. There can be no assurance
that they will satisfy these tests at the time of such
distribution.
The indentures governing the Charter Holdings notes permit
Charter Holdings to make distributions to Charter Holdco for
payment of interest or principal on the convertible senior
notes, only if, after giving effect to the distribution, Charter
Holdings can incur additional debt under the leverage ratio of
8.75 to 1.0, there is no default under Charter Holdings
indentures and other specified tests are met. For the quarter
ended December 31, 2005, there was no default under Charter
Holdings indentures and Charter
F-10
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Holdings met its leverage ratio test based on December 31,
2005 financial results. Such distributions would be restricted,
however, if Charter Holdings fails to meet these tests. In the
past, Charter Holdings has from time to time failed to meet this
leverage ratio test. There can be no assurance that Charter
Holdings will satisfy these tests at the time of such
distribution. During periods in which distributions are
restricted, the indentures governing the Charter Holdings notes
permit Charter Holdings and its subsidiaries to make specified
investments (that are not restricted payments) in Charter Holdco
or Charter up to an amount determined by a formula, as long as
there is no default under the indentures.
|
|
3. |
Summary of Significant Accounting Policies |
The Company considers all highly liquid investments with
original maturities of three months or less to be cash
equivalents. These investments are carried at cost, which
approximates market value.
|
|
|
Property, Plant and Equipment |
Property, plant and equipment are recorded at cost, including
all material, labor and certain indirect costs associated with
the construction of cable transmission and distribution
facilities. While the Companys capitalization is based on
specific activities, once capitalized, costs are tracked by
fixed asset category at the cable system level and not on a
specific asset basis. Costs associated with initial customer
installations and the additions of network equipment necessary
to enable advanced services are capitalized. Costs capitalized
as part of initial customer installations include materials,
labor, and certain indirect costs. Indirect costs are associated
with the activities of the Companys personnel who assist
in connecting and activating the new service and consist of
compensation and indirect costs associated with these support
functions. Indirect costs primarily include employee benefits
and payroll taxes, direct variable costs associated with
capitalizable activities, consisting primarily of installation
and construction vehicle costs, the cost of dispatch personnel
and indirect costs directly attributable to capitalizable
activities. The costs of disconnecting service at a
customers dwelling or reconnecting service to a previously
installed dwelling are charged to operating expense in the
period incurred. Costs for repairs and maintenance are charged
to operating expense as incurred, while plant and equipment
replacement and betterments, including replacement of cable
drops from the pole to the dwelling, are capitalized.
Depreciation is recorded using the straight-line composite
method over managements estimate of the useful lives of
the related assets as follows:
|
|
|
Cable distribution systems
|
|
7-20 years |
Customer equipment and installations
|
|
3-5 years |
Vehicles and equipment
|
|
1-5 years |
Buildings and leasehold improvements
|
|
5-15 years |
Furniture, fixtures and equipment
|
|
5 years |
|
|
|
Asset Retirement Obligations |
Certain of our franchise agreements and leases contain
provisions requiring us to restore facilities or remove
equipment in the event that the franchise or lease agreement is
not renewed. We expect to continually renew our franchise
agreements and have concluded that substantially all of the
related franchise rights are indefinite lived intangible assets.
Accordingly, the possibility is remote that we would be required
to incur significant restoration or removal costs related to
these franchise agreements in the foreseeable future. Statement
of Financial Accounting Standards (SFAS)
No. 143, Accounting for Asset Retirement
Obligations, as interpreted by FIN No. 47,
Accounting for Conditional Asset Retirement
F-11
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Obligations an Interpretation of FASB Statement
No. 143, requires that a liability be recognized for an
asset retirement obligation in the period in which it is
incurred if a reasonable estimate of fair value can be made. We
have not recorded an estimate for potential franchise related
obligations but would record an estimated liability in the
unlikely event a franchise agreement containing such a provision
were no longer expected to be renewed. We also expect to renew
many of our lease agreements related to the continued operation
of our cable business in the franchise areas. For our lease
agreements, the liabilities related to the removal provisions,
where applicable, have been recorded and are not significant to
the financial statements.
Franchise rights represent the value attributed to agreements
with local authorities that allow access to homes in cable
service areas acquired through the purchase of cable systems.
Management estimates the fair value of franchise rights at the
date of acquisition and determines if the franchise has a finite
life or an indefinite-life as defined by SFAS No. 142,
Goodwill and Other Intangible Assets. All franchises that
qualify for indefinite-life treatment under
SFAS No. 142 are no longer amortized against earnings
but instead are tested for impairment annually as of
October 1, or more frequently as warranted by events or
changes in circumstances (see Note 7). The Company
concluded that 99% of its franchises qualify for indefinite-life
treatment; however, certain franchises did not qualify for
indefinite-life treatment due to technological or operational
factors that limit their lives. These franchise costs are
amortized on a straight-line basis over 10 years. Costs
incurred in renewing cable franchises are deferred and amortized
over 10 years.
Other noncurrent assets primarily include deferred financing
costs, governmental securities, investments in equity securities
and goodwill. Costs related to borrowings are deferred and
amortized to interest expense over the terms of the related
borrowings.
Investments in equity securities are accounted for at cost,
under the equity method of accounting or in accordance with
SFAS No. 115, Accounting for Certain Investments in
Debt and Equity Securities. Charter recognizes losses for
any decline in value considered to be other than temporary.
Certain marketable equity securities are classified as
available-for-sale and reported at market value with unrealized
gains and losses recorded as accumulated other comprehensive
income or loss.
The following summarizes investment information as of and for
the years ended December 31, 2005 and 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying | |
|
Gain (loss) For the | |
|
|
Value at | |
|
Years Ended | |
|
|
December 31, | |
|
December 31, | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Equity investments, under the cost method
|
|
$ |
61 |
|
|
$ |
39 |
|
|
$ |
|
|
|
$ |
(3 |
) |
|
$ |
(2 |
) |
Equity investments, under the equity method
|
|
|
13 |
|
|
|
25 |
|
|
|
22 |
|
|
|
7 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
74 |
|
|
$ |
64 |
|
|
$ |
22 |
|
|
$ |
4 |
|
|
$ |
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The gain on equity investments, under the equity method for the
year ended December 31, 2005 primarily represents a gain
realized on an exchange of the Companys interest in an
equity investee for an investment in a larger enterprise. Such
amounts are included in other, net in the statements of
operations.
As required by the indentures to the Companys
5.875% convertible senior notes issued in November 2004,
the Company purchased U.S. government securities valued at
approximately $144 million with
F-12
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
maturities corresponding to the interest payment dates for the
convertible senior notes. These securities were pledged and are
held in escrow to provide payment in full for the first six
interest payments of the convertible senior notes (see
Note 9), two of which were funded in 2005. These securities
are accounted for as
held-to-maturity
securities. At December 31, 2005, the carrying value and
fair value of the securities was approximately $98 million
and $97 million, respectively, with approximately
$50 million recorded in prepaid and other assets and
approximately $48 million recorded in other assets on the
Companys consolidated balance sheet.
|
|
|
Valuation of Property, Plant and Equipment |
The Company evaluates the recoverability of long-lived assets to
be held and used for impairment when events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable using asset groupings consistent with those
used to evaluate franchises. Such events or changes in
circumstances could include such factors as impairment of the
Companys indefinite life franchise under
SFAS No. 142, changes in technological advances,
fluctuations in the fair value of such assets, adverse changes
in relationships with local franchise authorities, adverse
changes in market conditions or a deterioration of operating
results. If a review indicates that the carrying value of such
asset is not recoverable from estimated undiscounted cash flows,
the carrying value of such asset is reduced to its estimated
fair value. While the Company believes that its estimates of
future cash flows are reasonable, different assumptions
regarding such cash flows could materially affect its
evaluations of asset recoverability. No impairments of
long-lived assets to be held and used were recorded in 2005,
2004 and 2003, however, approximately $39 million of
impairment on assets held for sale was recorded for the year
ended December 31, 2005 (see Note 4).
|
|
|
Derivative Financial Instruments |
The Company accounts for derivative financial instruments in
accordance with SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, as amended.
For those instruments which qualify as hedging activities,
related gains or losses are recorded in accumulated other
comprehensive income. For all other derivative instruments, the
related gains or losses are recorded in the income statement.
The Company uses interest rate risk management derivative
instruments, such as interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements
(collectively referred to herein as interest rate agreements) as
required under the terms of the credit facilities of the
Companys subsidiaries. The Companys policy is to
manage interest costs using a mix of fixed and variable rate
debt. Using interest rate swap agreements, the Company agrees to
exchange, at specified intervals, the difference between fixed
and variable interest amounts calculated by reference to an
agreed-upon notional principal amount. Interest rate cap
agreements are used to lock in a maximum interest rate should
variable rates rise, but enable the Company to otherwise pay
lower market rates. Interest rate collar agreements are used to
limit exposure to and benefits from interest rate fluctuations
on variable rate debt to within a certain range of rates. The
Company does not hold or issue any derivative financial
instruments for trading purposes.
Certain provisions of the Companys 5.875% convertible
senior notes issued in November 2004 were considered embedded
derivatives for accounting purposes and were required to be
separately accounted for from the convertible senior notes. In
accordance with SFAS No. 133, these derivatives are
marked to market with gains or losses recorded in interest
expense on the Companys consolidated statement of
operations. For the year ended December 31, 2005 and 2004,
the Company recognized $29 million in gains and
$1 million in losses, respectively, related to these
derivatives. The gains resulted in a reduction of interest
expense while the losses resulted in an increase in interest
expense related to these derivatives. At December 31, 2005
and 2004, $1 million and $10 million, respectively, is
recorded in accounts payable and
F-13
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
accrued expenses relating to the short-term portion of these
derivatives and $1 million and $21 million,
respectively, is recorded in other long-term liabilities related
to the long-term portion.
Revenues from residential and commercial video, high-speed
Internet and telephone services are recognized when the related
services are provided. Advertising sales are recognized at
estimated realizable values in the period that the
advertisements are broadcast. Local governmental authorities
impose franchise fees on the Company ranging up to a federally
mandated maximum of 5% of gross revenues as defined in the
franchise agreement. Such fees are collected on a monthly basis
from the Companys customers and are periodically remitted
to local franchise authorities. Franchise fees are reported as
revenues on a gross basis with a corresponding operating
expense.
The Company has various contracts to obtain analog, digital and
premium video programming from program suppliers whose
compensation is typically based on a flat fee per customer. The
cost of the right to exhibit network programming under such
arrangements is recorded in operating expenses in the month the
programming is available for exhibition. Programming costs are
paid each month based on calculations performed by the Company
and are subject to periodic audits performed by the programmers.
Certain programming contracts contain launch incentives to be
paid by the programmers. The Company receives these payments
related to the activation of the programmers cable
television channel and recognizes the launch incentives on a
straight-line basis over the life of the programming agreement
as a reduction of programming expense. This offset to
programming expense was $40 million, $59 million and
$63 million for the years ended December 31, 2005,
2004 and 2003, respectively. Programming costs included in the
accompanying statement of operations were $1.4 billion,
$1.3 billion and $1.2 billion for the years ended
December 31, 2005, 2004 and 2003, respectively. As of
December 31, 2005 and 2004, the deferred amount of launch
incentives, included in other long-term liabilities, were
$83 million and $105 million, respectively.
Advertising costs associated with marketing the Companys
products and services are generally expensed as costs are
incurred. Such advertising expense was $94 million,
$70 million and $60 million for the years ended
December 31, 2005, 2004 and 2003, respectively.
The Company has historically accounted for stock-based
compensation in accordance with Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock
Issued to Employees, and related interpretations, as
permitted by SFAS No. 123, Accounting for
Stock-Based Compensation. On January 1, 2003, the
Company adopted the fair value measurement provisions of
SFAS No. 123 using the prospective method under which
the Company will recognize compensation expense of a stock-based
award to an employee over the vesting period based on the fair
value of the award on the grant date consistent with the method
described in Financial Accounting Standards Board Interpretation
(FIN) No. 28, Accounting for Stock
Appreciation Rights and Other Variable Stock Option or Award
Plans. Adoption of these provisions resulted in utilizing a
preferable accounting method as the consolidated financial
statements will present the estimated fair value of stock-based
compensation in expense consistently with other forms of
compensation and other expense associated with goods and
services received for equity instruments. In accordance with
SFAS No. 148, Accounting for Stock-Based
Compensation Transition and Disclosure, the fair
value method was applied only to awards granted or modified
after January 1, 2003, whereas
F-14
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
awards granted prior to such date were accounted for under APB
No. 25, unless they were modified or settled in cash.
SFAS No. 123 requires pro forma disclosure of the
impact on earnings as if the compensation expense for these
plans had been determined using the fair value method. The
following table presents the Companys net loss and loss
per share as reported and the pro forma amounts that would have
been reported using the fair value method under
SFAS No. 123 for the years presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Net loss applicable to common stock
|
|
$ |
(970 |
) |
|
$ |
(4,345 |
) |
|
$ |
(242 |
) |
Add back stock-based compensation expense related to stock
options included in reported net loss (net of minority interest)
|
|
|
14 |
|
|
|
31 |
|
|
|
2 |
|
Less employee stock-based compensation expense determined under
fair value based method for all employee stock option awards
(net of minority interest)
|
|
|
(14 |
) |
|
|
(33 |
) |
|
|
(14 |
) |
Effects of unvested options in stock option exchange (see
Note 21)
|
|
|
|
|
|
|
48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma
|
|
$ |
(970 |
) |
|
$ |
(4,299 |
) |
|
$ |
(254 |
) |
|
|
|
|
|
|
|
|
|
|
Loss per common shares, basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$ |
(3.13 |
) |
|
$ |
(14.47 |
) |
|
$ |
(0.82 |
) |
|
|
|
|
|
|
|
|
|
|
|
Pro forma
|
|
$ |
(3.13 |
) |
|
$ |
(14.32 |
) |
|
$ |
(0.86 |
) |
|
|
|
|
|
|
|
|
|
|
The fair value of each option granted is estimated on the date
of grant using the Black-Scholes option-pricing model. The
following weighted average assumptions were used for grants
during the years ended December 31, 2005, 2004 and 2003,
respectively: risk-free interest rates of 4.0%, 3.3%, and 3.0%;
expected volatility of 70.9%, 92.4% and 93.6%; and expected
lives of 4.5 years, 4.6 years and 4.5 years,
respectively. The valuations assume no dividends are paid.
|
|
|
Unfavorable Contracts and Other Settlements |
The Company recognized $5 million of benefit for the year
ended December 31, 2004 related to changes in estimated
legal reserves established as part of previous business
combinations, which, based on an evaluation of current facts and
circumstances, are no longer required.
The Company recognized $72 million of benefit for the year
ended December 31, 2003 as a result of the settlement of
estimated liabilities recorded in connection with prior business
combinations. The majority of this benefit (approximately
$52 million) is due to the renegotiation of a major
programming contract, for which a liability had been recorded
for the above market portion of the agreement in conjunction
with the Falcon acquisition in 1999 and the Bresnan acquisition
in 2000. The remaining benefit relates to the reversal of
previously recorded liabilities, which are no longer required.
The Company recognizes deferred tax assets and liabilities for
temporary differences between the financial reporting basis and
the tax basis of the Companys assets and liabilities and
expected benefits of utilizing net operating loss carryforwards.
The impact on deferred taxes of changes in tax rates and tax
law, if any, applied to the years during which temporary
differences are expected to be settled, are reflected in the
consolidated financial statements in the period of enactment
(see Note 24).
F-15
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Minority interest on the consolidated balance sheets primarily
represents preferred membership interests in an indirect
subsidiary of Charter held by Mr. Paul G. Allen. Minority
interest totaled $188 million and $648 million as of
December 31, 2005 and 2004, respectively, on the
accompanying consolidated balance sheets.
Reported losses allocated to minority interest on the statement
of operations reflect the minority interests in CC VIII and
Charter Holdco. Because minority interest in Charter Holdco was
substantially eliminated at December 31, 2003, beginning in
2004, Charter began to absorb substantially all future losses
before income taxes that otherwise would have been allocated to
minority interest (see Note 11).
Basic loss per common share is computed by dividing the net loss
applicable to common stock by 310,159,047 shares,
300,291,877 shares and 294,597,519 shares for the
years ended December 31, 2005, 2004 and 2003, representing
the weighted-average common shares outstanding during the
respective periods. Diluted loss per common share equals basic
loss per common share for the periods presented, as the effect
of stock options and other convertible securities are
antidilutive because the Company incurred net losses. All
membership units of Charter Holdco are exchangeable on a
one-for-one basis into common stock of Charter at the option of
the holders. As of December 31, 2005, Charter Holdco has
755,386,702 membership units outstanding. Should the holders
exchange units for shares, the effect would not be dilutive
because the Company incurred net losses.
The 94.9 million shares issued in November 2005 and July
2005 pursuant to the share lending agreement described in
Note 14 are required to be returned, in accordance with the
contractual arrangement, and are treated in basic and diluted
earnings per share as if they were already returned and retired.
Consequently, there is no impact of the shares of common stock
lent under the share lending agreement in the earnings per share
calculation.
SFAS No. 131, Disclosure about Segments of an
Enterprise and Related Information, established standards
for reporting information about operating segments in annual
financial statements and in interim financial reports issued to
shareholders. Operating segments are defined as components of an
enterprise about which separate financial information is
available that is evaluated on a regular basis by the chief
operating decision maker, or decision making group, in deciding
how to allocate resources to an individual segment and in
assessing performance of the segment.
The Companys operations are managed on the basis of
geographic divisional operating segments. The Company has
evaluated the criteria for aggregation of the geographic
operating segments under paragraph 17 of
SFAS No. 131 and believes it meets each of the
respective criteria set forth. The Company delivers similar
products and services within each of its geographic divisional
operations. Each geographic and divisional service area utilizes
similar means for delivering the programming of the
Companys services; have similarity in the type or class of
customer receiving the products and services; distributes the
Companys services over a unified network; and operates
within a consistent regulatory environment. In addition, each of
the geographic divisional operating segments has similar
economic characteristics. In light of the Companys similar
services, means for delivery, similarity in type of customers,
the use of a unified network and other considerations across its
geographic divisional operating structure, management has
determined that the Company has one reportable segment,
broadband services.
F-16
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In 2006, the Company signed a definitive agreement to sell
certain cable television systems serving a total of
approximately 242,600 analog video customers in West Virginia
and Virginia to Cebridge Connections, Inc. for a total of
approximately $770 million. During the second quarter of
2006, the Company determined, based on changes in the
Companys organizational and cost structure, that its asset
groupings for long lived asset accounting purposes are at the
level of their individual market areas, which are at a level
below the Companys geographic clustering. As a result, the
Company has determined that the West Virginia and Virginia cable
systems comprise operations and cash flows that for financial
reporting purposes meet the criteria for discontinued
operations. Accordingly, the results of operations for the West
Virginia and Virginia cable systems have been presented as
discontinued operations, net of tax for the years ended
December 31, 2005, 2004 and 2003. Relevant financial
information in other footnotes herein have been updated to be
consistent with this presentation.
Summarized consolidated financial information for the years
ended December 31, 2005, 2004 and 2003 for the West
Virginia and Virginia cable systems is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Revenues
|
|
$ |
221 |
|
|
$ |
217 |
|
|
$ |
203 |
|
Income (loss) before minority interest, income taxes and
cumulative effect of accounting change
|
|
$ |
39 |
|
|
$ |
(104 |
) |
|
$ |
32 |
|
Income tax benefit (expense)
|
|
$ |
3 |
|
|
$ |
31 |
|
|
$ |
12 |
|
Net income (loss)
|
|
$ |
36 |
|
|
$ |
(135 |
) |
|
$ |
3 |
|
Earnings (loss) per common share, basic and diluted
|
|
$ |
0.12 |
|
|
$ |
(0.45 |
) |
|
$ |
0.01 |
|
In 2005, the Company closed the sale of certain cable systems in
Texas, West Virginia and Nebraska, representing a total of
approximately 33,000 analog video customers. During the year
ended December 31, 2005, those cable systems met the
criteria for assets held for sale under Statement of Financial
Accounting Standards (SFAS) No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets. As such, the assets were written down to fair value
less estimated costs to sell resulting in asset impairment
charges during the year ended December 31, 2005 of
approximately $39 million.
In 2004, the Company closed the sale of certain cable systems in
Florida, Pennsylvania, Maryland, Delaware, New York and West
Virginia to Atlantic Broadband Finance, LLC. These transactions
resulted in a $106 million gain recorded as a gain on sale
of assets in the Companys consolidated statements of
operations. The total net proceeds from the sale of all of these
systems were approximately $735 million. The proceeds were
used to repay a portion of amounts outstanding under the
Companys revolving credit facility.
|
|
5. |
Allowance for Doubtful Accounts |
Activity in the allowance for doubtful accounts is summarized as
follows for the years presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Balance, beginning of year
|
|
$ |
15 |
|
|
$ |
17 |
|
|
$ |
19 |
|
Charged to expense
|
|
|
76 |
|
|
|
92 |
|
|
|
79 |
|
Uncollected balances written off, net of recoveries
|
|
|
(74 |
) |
|
|
(94 |
) |
|
|
(81 |
) |
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$ |
17 |
|
|
$ |
15 |
|
|
$ |
17 |
|
|
|
|
|
|
|
|
|
|
|
F-17
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
6. |
Property, Plant and Equipment |
Property, plant and equipment consists of the following as of
December 31, 2005 and 2004:
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Cable distribution systems
|
|
$ |
7,035 |
|
|
$ |
6,596 |
|
Customer equipment and installations
|
|
|
3,934 |
|
|
|
3,500 |
|
Vehicles and equipment
|
|
|
473 |
|
|
|
433 |
|
Buildings and leasehold improvements
|
|
|
584 |
|
|
|
578 |
|
Furniture, fixtures and equipment
|
|
|
563 |
|
|
|
493 |
|
|
|
|
|
|
|
|
|
|
|
12,589 |
|
|
|
11,600 |
|
Less: accumulated depreciation
|
|
|
(6,749 |
) |
|
|
(5,311 |
) |
|
|
|
|
|
|
|
|
|
$ |
5,840 |
|
|
$ |
6,289 |
|
|
|
|
|
|
|
|
The Company periodically evaluates the estimated useful lives
used to depreciate its assets and the estimated amount of assets
that will be abandoned or have minimal use in the future. A
significant change in assumptions about the extent or timing of
future asset retirements, or in the Companys use of new
technology and upgrade programs, could materially affect future
depreciation expense.
Depreciation expense for each of the years ended
December 31, 2005, 2004 and 2003 was $1.4 billion.
|
|
7. |
Franchises and Goodwill |
Franchise rights represent the value attributed to agreements
with local authorities that allow access to homes in cable
service areas acquired through the purchase of cable systems.
Management estimates the fair value of franchise rights at the
date of acquisition and determines if the franchise has a finite
life or an indefinite-life as defined by SFAS No. 142,
Goodwill and Other Intangible Assets. Franchises that
qualify for indefinite-life treatment under
SFAS No. 142 are tested for impairment annually each
October 1 based on valuations, or more frequently as
warranted by events or changes in circumstances. Such test
resulted in a total franchise impairment of approximately
$3.3 billion during the third quarter of 2004. The 2003 and
2005 annual impairment tests resulted in no impairment.
Franchises are aggregated into essentially inseparable asset
groups to conduct the valuations. The asset groups generally
represent geographic clustering of the Companys cable
systems into groups by which such systems are managed.
Management believes such grouping represents the highest and
best use of those assets.
The Companys valuations, which are based on the present
value of projected after tax cash flows, result in a value of
property, plant and equipment, franchises, customer
relationships and its total entity value. The value of goodwill
is the difference between the total entity value and amounts
assigned to the other assets.
Franchises, for valuation purposes, are defined as the future
economic benefits of the right to solicit and service potential
customers (customer marketing rights), and the right to deploy
and market new services such as interactivity and telephone to
the potential customers (service marketing rights). Fair value
is determined based on estimated discounted future cash flows
using assumptions consistent with internal forecasts. The
franchise after-tax cash flow is calculated as the after-tax
cash flow generated by the potential customers obtained and the
new services added to those customers in future periods. The sum
of the present value of the franchises after-tax cash flow
in years 1 through 10 and the continuing value of the after-tax
cash flow beyond year 10 yields the fair value of the franchise.
The Company follows the guidance of Emerging Issues Task Force
(EITF)
Issue 02-17,
Recognition of Customer Relationship Intangible Assets
Acquired in a Business Combination, in valuing
F-18
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
customer relationships. Customer relationships, for valuation
purposes, represent the value of the business relationship with
existing customers and are calculated by projecting future
after-tax cash flows from these customers including the right to
deploy and market additional services such as interactivity and
telephone to these customers. The present value of these
after-tax cash flows yields the fair value of the customer
relationships. Substantially all acquisitions occurred prior to
January 1, 2002. The Company did not record any value
associated with the customer relationship intangibles related to
those acquisitions. For acquisitions subsequent to
January 1, 2002 the Company did assign a value to the
customer relationship intangible, which is amortized over its
estimated useful life.
In September 2004, the SEC staff issued EITF Topic
D-108 which requires
the direct method of separately valuing all intangible assets
and does not permit goodwill to be included in franchise assets.
The Company adopted Topic
D-108 in its impairment
assessment as of September 30, 2004 that resulted in a
total franchise impairment of approximately $3.3 billion.
The Company recorded a cumulative effect of accounting change of
$765 million (approximately $875 million before tax
effects of $91 million and minority interest effects of
$19 million) for the year ended December 31, 2004
representing the portion of the Companys total franchise
impairment attributable to no longer including goodwill with
franchise assets. The effect of the adoption was to increase net
loss and loss per share by $765 million and $2.55,
respectively, for the year ended December 31, 2004. The
remaining $2.4 billion of the total franchise impairment
was attributable to the use of lower projected growth rates and
the resulting revised estimates of future cash flows in the
Companys valuation, and was recorded as impairment of
franchises in the Companys accompanying consolidated
statements of operations for the year ended December 31,
2004. Sustained analog video customer losses by the Company in
the third quarter of 2004 primarily as a result of increased
competition from direct broadcast satellite providers and
decreased growth rates in the Companys high-speed Internet
customers in the third quarter of 2004, in part, as a result of
increased competition from digital subscriber line service
providers led to the lower projected growth rates and the
revised estimates of future cash flows from those used at
October 1, 2003.
As of December 31, 2005 and 2004, indefinite-lived and
finite-lived intangible assets are presented in the following
table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
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
|
|
$ |
9,806 |
|
|
$ |
|
|
|
$ |
9,806 |
|
|
$ |
9,845 |
|
|
$ |
|
|
|
$ |
9,845 |
|
|
Goodwill
|
|
|
52 |
|
|
|
|
|
|
|
52 |
|
|
|
52 |
|
|
|
|
|
|
|
52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
9,858 |
|
|
$ |
|
|
|
$ |
9,858 |
|
|
$ |
9,897 |
|
|
$ |
|
|
|
$ |
9,897 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchises with finite lives
|
|
$ |
27 |
|
|
$ |
7 |
|
|
$ |
20 |
|
|
$ |
37 |
|
|
$ |
4 |
|
|
$ |
33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, 2005 and 2004, the net
carrying amount of indefinite-lived franchises was reduced by
$52 million and $490 million, respectively, related to
the sale of cable systems (see Note 4). Additionally, in
2004 and 2005, approximately $37 million and
$13 million, respectively, of franchises that were
previously classified as finite-lived were reclassified to
indefinite-lived, based on the Companys renewal of these
franchise assets in 2004 and 2005. Franchise amortization
expense for the years ended December 31, 2005, 2004 and
2003 was $4 million, $3 million and $7 million,
respectively, which represents the amortization relating to
franchises that did not qualify for indefinite-life treatment
under SFAS No. 142, including costs associated with
franchise renewals. The Company expects that
F-19
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
amortization expense on franchise assets will be approximately
$2 million annually for each of the next five years. Actual
amortization expense in future periods could differ from these
estimates as a result of new intangible asset acquisitions or
divestitures, changes in useful lives and other relevant factors.
|
|
8. |
Accounts Payable and Accrued Expenses |
Accounts payable and accrued expenses consist of the following
as of December 31, 2005 and 2004:
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Accounts payable trade
|
|
$ |
114 |
|
|
$ |
148 |
|
Accrued capital expenditures
|
|
|
73 |
|
|
|
65 |
|
Accrued expenses:
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
333 |
|
|
|
324 |
|
|
Programming costs
|
|
|
272 |
|
|
|
278 |
|
|
Franchise related fees
|
|
|
67 |
|
|
|
67 |
|
|
Compensation
|
|
|
90 |
|
|
|
66 |
|
|
Other
|
|
|
242 |
|
|
|
269 |
|
|
|
|
|
|
|
|
|
|
$ |
1,191 |
|
|
$ |
1,217 |
|
|
|
|
|
|
|
|
Long-term debt consists of the following as of December 31,
2005 and 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
Principal | |
|
Accreted | |
|
Principal | |
|
Accreted | |
|
|
Amount | |
|
Value | |
|
Amount | |
|
Value | |
|
|
| |
|
| |
|
| |
|
| |
Long-Term Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charter Communications, Inc.:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.750% convertible senior notes due 2006
|
|
$ |
20 |
|
|
$ |
20 |
|
|
$ |
156 |
|
|
$ |
156 |
|
|
5.875% convertible senior notes due 2009
|
|
|
863 |
|
|
|
843 |
|
|
|
863 |
|
|
|
834 |
|
Charter Holdings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.250% senior notes due 2007
|
|
|
105 |
|
|
|
105 |
|
|
|
451 |
|
|
|
451 |
|
|
8.625% senior notes due 2009
|
|
|
292 |
|
|
|
292 |
|
|
|
1,244 |
|
|
|
1,243 |
|
|
9.920% senior discount notes due 2011
|
|
|
198 |
|
|
|
198 |
|
|
|
1,108 |
|
|
|
1,108 |
|
|
10.000% senior notes due 2009
|
|
|
154 |
|
|
|
154 |
|
|
|
640 |
|
|
|
640 |
|
|
10.250% senior notes due 2010
|
|
|
49 |
|
|
|
49 |
|
|
|
318 |
|
|
|
318 |
|
|
11.750% senior discount notes due 2010
|
|
|
43 |
|
|
|
43 |
|
|
|
450 |
|
|
|
448 |
|
|
10.750% senior notes due 2009
|
|
|
131 |
|
|
|
131 |
|
|
|
874 |
|
|
|
874 |
|
|
11.125% senior notes due 2011
|
|
|
217 |
|
|
|
217 |
|
|
|
500 |
|
|
|
500 |
|
|
13.500% senior discount notes due 2011
|
|
|
94 |
|
|
|
94 |
|
|
|
675 |
|
|
|
589 |
|
|
9.625% senior notes due 2009
|
|
|
107 |
|
|
|
107 |
|
|
|
640 |
|
|
|
638 |
|
|
10.000% senior notes due 2011
|
|
|
137 |
|
|
|
136 |
|
|
|
710 |
|
|
|
708 |
|
|
11.750% senior discount notes due 2011
|
|
|
125 |
|
|
|
120 |
|
|
|
939 |
|
|
|
803 |
|
|
12.125% senior discount notes due 2012
|
|
|
113 |
|
|
|
100 |
|
|
|
330 |
|
|
|
259 |
|
F-20
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
Principal | |
|
Accreted | |
|
Principal | |
|
Accreted | |
|
|
Amount | |
|
Value | |
|
Amount | |
|
Value | |
|
|
| |
|
| |
|
| |
|
| |
CIH:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11.125% senior notes due 2014
|
|
|
151 |
|
|
|
151 |
|
|
|
|
|
|
|
|
|
|
9.920% senior discount notes due 2014
|
|
|
471 |
|
|
|
471 |
|
|
|
|
|
|
|
|
|
|
10.000% senior notes due 2014
|
|
|
299 |
|
|
|
299 |
|
|
|
|
|
|
|
|
|
|
11.750% senior discount notes due 2014
|
|
|
815 |
|
|
|
781 |
|
|
|
|
|
|
|
|
|
|
13.500% senior discount notes due 2014
|
|
|
581 |
|
|
|
578 |
|
|
|
|
|
|
|
|
|
|
12.125% senior discount notes due 2015
|
|
|
217 |
|
|
|
192 |
|
|
|
|
|
|
|
|
|
CCH I:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11.000% senior notes due 2015
|
|
|
3,525 |
|
|
|
3,683 |
|
|
|
|
|
|
|
|
|
CCH II:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.250% senior notes due 2010
|
|
|
1,601 |
|
|
|
1,601 |
|
|
|
1,601 |
|
|
|
1,601 |
|
CCO Holdings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83/4
% senior notes due 2013
|
|
|
800 |
|
|
|
794 |
|
|
|
500 |
|
|
|
500 |
|
|
Senior floating notes due 2010
|
|
|
550 |
|
|
|
550 |
|
|
|
550 |
|
|
|
550 |
|
Charter Operating:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
5,731 |
|
|
|
5,731 |
|
|
|
5,515 |
|
|
|
5,515 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
19,336 |
|
|
$ |
19,388 |
|
|
$ |
19,791 |
|
|
$ |
19,464 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accreted values presented above generally represent the
principal amount of the notes less the original issue discount
at the time of sale plus the accretion to the balance sheet date
except as follows. The accreted value of 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 are
recorded at the historical book values of the Charter Holdings
notes for financial reporting purposes as opposed to the current
accreted value for legal purposes and notes indenture purposes
(the amount that is currently payable if the debt becomes
immediately due). As of December 31, 2005, the accreted
value of the Companys debt for legal purposes and notes
indenture purposes is $18.8 billion.
On January 30, 2006, CCH II and CCH II Capital
Corp. issued $450 million in debt securities, the proceeds
of which will be provided, directly or indirectly, to Charter
Operating, which will use such funds to reduce borrowings, but
not commitments, under the revolving portion of its credit
facilities.
In October 2005, CCO Holdings and CCO Holdings Capital Corp., as
guarantor thereunder, entered into the Bridge Loan with the
Lenders whereby the Lenders committed to make loans to CCO
Holdings in an aggregate amount of $600 million. Upon the
issuance of $450 million of CCH II notes discussed
above, the commitment under the bridge loan agreement was
reduced to $435 million. CCO Holdings may draw upon the
facility between January 2, 2006 and September 29,
2006 and the loans will mature on the sixth anniversary of the
first borrowing under the bridge loan. Each loan will accrue
interest at a rate equal to an adjusted LIBOR rate plus a
spread. The spread will initially be 450 basis points and
will increase
F-21
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(a) by an additional 25 basis points at the end of the
six-month period following the date of the first borrowing,
(b) by an additional 25 basis points at the end of
each of the next two subsequent three month periods and
(c) by 62.5 basis points at the end of each of the
next two subsequent three-month periods. CCO Holdings will be
required to prepay loans from the net proceeds from (i) the
issuance of equity or incurrence of debt by Charter and its
subsidiaries, with certain exceptions, and (ii) certain
asset sales (to the extent not used for other purposes permitted
under the bridge loan).
In August 2005, CCO Holdings issued $300 million in debt
securities, the proceeds of which were used for general
corporate purposes, including the payment of distributions to
its parent companies, including Charter Holdings, to pay
interest expense.
|
|
|
Gain on Extinguishment of Debt |
In September 2005, Charter Holdings and its wholly owned
subsidiaries, CCH I and CIH, completed the exchange of
approximately $6.8 billion total principal amount of
outstanding debt securities of Charter Holdings in a private
placement for new debt securities. Holders of Charter Holdings
notes due in 2009 and 2010 exchanged $3.4 billion principal
amount of notes for $2.9 billion principal amount of new
11% CCH I senior secured notes due 2015. Holders of Charter
Holdings notes due 2011 and 2012 exchanged $845 million
principal amount of notes for $662 million principal amount
of 11% CCH I notes due 2015. In addition, holders of Charter
Holdings notes due 2011 and 2012 exchanged $2.5 billion
principal amount of notes for $2.5 billion principal amount
of various series of new CIH notes. Each series of new CIH notes
has the same interest rate and provisions for payment of cash
interest as the series of old Charter Holdings notes for which
such CIH notes were exchanged. In addition, the maturities for
each series were extended three years. The exchanges resulted in
a net gain on extinguishment of debt of approximately
$490 million for the year ended December 31, 2005.
In March and June 2005, Charter Operating consummated exchange
transactions with a small number of institutional holders of
Charter Holdings 8.25% senior notes due 2007 pursuant to
which Charter Operating issued, in private placements,
approximately $333 million principal amount of new notes
with terms identical to Charter Operatings
8.375% senior second lien notes due 2014 in exchange for
approximately $346 million of the Charter Holdings
8.25% senior notes due 2007. The exchanges resulted in a
net gain on extinguishment of debt of approximately
$10 million for the year ended December 31, 2005. The
Charter Holdings notes received in the exchange were thereafter
distributed to Charter Holdings and cancelled.
During the year ended December 31, 2005, the Company
repurchased, in private transactions, from a small number of
institutional holders, a total of $136 million principal
amount of its 4.75% convertible senior notes due 2006.
These transactions resulted in a net gain on extinguishment of
debt of approximately $3 million for the year ended
December 31, 2005.
In March 2005, Charters subsidiary, CC V Holdings, LLC,
redeemed all of its 11.875% notes due 2008, at 103.958% of
principal amount, plus accrued and unpaid interest to the date
of redemption. The total cost of redemption was approximately
$122 million and was funded through borrowings under the
Charter Operating credit facilities. The redemption resulted in
a loss on extinguishment of debt for the year ended
December 31, 2005 of approximately $5 million.
Following such redemption, CC V Holdings, LLC and its
subsidiaries (other than non-guarantor subsidiaries) guaranteed
the Charter Operating credit facilities and granted a lien on
all of their assets as to which a lien can be perfected under
the Uniform Commercial Code by the filing of a financing
statement.
On November 22, 2004, the Company issued
$862.5 million original principal amount of
5.875% convertible senior notes due 2009, which are
convertible into shares of Charters Class A common
stock, par value $.001 per share, at a rate of
413.2231 shares per $1,000 principal amount of notes (or
F-22
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
approximately $2.42 per share), subject to adjustment in
certain circumstances. On December 23, 2004, the Company
used a portion of the proceeds from the sale of the notes to
redeem all of its outstanding 5.75% convertible senior
notes due 2005 (total principal amount of $588 million).
The redemption resulted in a loss on extinguishment of debt of
$10 million for the year ended December 31, 2004.
In April 2004, Charters indirect subsidiaries, Charter
Operating and Charter Communications Operating Capital Corp.,
sold $1.5 billion of senior second-lien notes in a private
transaction. Additionally, Charter Operating amended and
restated its $5.1 billion credit facilities, among other
things, to defer maturities and increase availability under
those facilities to approximately $6.5 billion, consisting
of a $1.5 billion six-year revolving credit facility, a
$2.0 billion six-year term loan facility and a
$3.0 billion seven-year term loan facility. Charter
Operating used the additional borrowings under the amended and
restated credit facilities, together with proceeds from the sale
of the Charter Operating senior second-lien notes to refinance
the credit facilities of its subsidiaries, CC VI Operating
Company, LLC (CC VI Operating), Falcon Cable
Communications, LLC (Falcon Cable), and CC VIII
Operating, LLC (CC VIII Operating), all in
concurrent transactions. In addition, Charter Operating was
substituted as the lender in place of the banks under those
subsidiaries credit facilities. These transactions
resulted in a net loss on extinguishment of debt of
$21 million for the year ended December 31, 2004.
The Company recognized a loss of approximately $23 million
recorded as loss on debt to equity conversion on the
accompanying consolidated statement of operations for the year
ended December 31, 2004 from privately negotiated exchanges
of a total of $30 million principal amount of
Charters 5.75% convertible senior notes for shares of
Charter Class A common stock. The exchanges resulted in the
issuance of more shares in the exchange transaction than would
have been issuable under the original terms of the convertible
senior notes.
In September 2003, Charter, Charter Holdings and their indirect
subsidiary, CCH II purchased, in a non-monetary transaction, a
total of approximately $609 million principal amount of
Charters outstanding convertible senior notes and
approximately $1.3 billion principal amount of the senior
notes and senior discount notes issued by Charter Holdings from
institutional investors in a small number of privately
negotiated transactions. As consideration for these securities,
CCH II issued approximately $1.6 billion principal
amount of 10.25% notes due 2010, and realized approximately
$294 million of debt discount. CCH II also issued an
additional $30 million principal amount of
10.25% notes for an equivalent amount of cash and used the
proceeds for transaction costs and for general corporate
purposes. This transaction resulted in a gain on extinguishment
of debt of $267 million for the year ended
December 31, 2003. See discussion of the CCH II notes
below for more details.
4.75% Charter Convertible Notes. In May 2001,
Charter issued 4.75% convertible senior notes with a total
principal amount at maturity of $633 million. As of
December 31, 2005, there was $20 million in total
principal amount of these notes outstanding. The 4.75% Charter
convertible notes rank equally with any of Charters future
unsubordinated and unsecured indebtedness, but are structurally
subordinated to all existing and future indebtedness and other
liabilities of Charters subsidiaries.
The 4.75% Charter convertible notes are convertible at the
option of the holder into shares of Class A common stock at
a conversion rate of 38.0952 shares per $1,000 principal
amount of notes, which is equivalent to a price of
$26.25 per share, subject to certain adjustments.
Specifically, the adjustments include anti-dilutive provisions,
which automatically occur based on the occurrence of specified
events to provide protection rights to holders of the notes.
Additionally, Charter may adjust the conversion ratio under
certain circumstances when deemed appropriate. These notes are
redeemable at Charters option at amounts decreasing from
101.9% to 100% of the principal amount, plus accrued and unpaid
interest beginning on June 4, 2004, to the date of
redemption. Interest is payable semiannually on December 1
and June 1, until maturity on June 1, 2006.
F-23
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Upon a change of control, subject to certain conditions and
restrictions, Charter may be required to repurchase the notes,
in whole or in part, at 100% of their principal amount plus
accrued interest at the repurchase date.
5.875% Charter Convertible Notes. In November
2004, Charter issued 5.875% convertible senior notes due
2009 with a total original principal amount of
$862.5 million. The 5.875% convertible senior notes
are unsecured (except with respect to the collateral as
described below) and rank equally with our existing and future
unsubordinated and unsecured indebtedness (except with respect
to the collateral described below), but are structurally
subordinated to all existing and future indebtedness and other
liabilities of our subsidiaries. Interest is payable
semi-annually in arrears. As of December 31, 2005, there
was $862.5 million in total principal amount outstanding
and $843 million in accreted value outstanding.
The 5.875% convertible senior notes are convertible at any
time at the option of the holder into shares of Class A
common stock at an initial conversion rate of
413.2231 shares per $1,000 principal amount of notes, which
is equivalent to a conversion price of approximately
$2.42 per share, subject to certain adjustments.
Specifically, the adjustments include anti-dilutive provisions,
which cause adjustments to occur automatically based on the
occurrence of specified events to provide protection rights to
holders of the notes. The conversion rate may also be increased
(but not to exceed 462 shares per $1,000 principal amount
of notes) upon a specified change of control transaction.
Additionally, Charter may elect to increase the conversion rate
under certain circumstances when deemed appropriate and subject
to applicable limitations of the NASDAQ stock market. Holders
who convert their notes prior to November 16, 2007 will
receive an early conversion make whole amount in respect of
their notes based on a proportional share of the portfolio of
pledged securities described below, with specified adjustments.
No holder of notes will be entitled to receive shares of our
Class A common stock on conversion to the extent that
receipt of the shares would cause the converting holder to
become, directly or indirectly, a beneficial holder
(within the meaning of Section 13(d) of the Exchange Act
and the rules and regulations promulgated thereunder) of more
than 4.9% of the outstanding shares of our Class A common
stock if such conversion would take place prior to
November 16, 2008, or more than 9.9% thereafter.
If a holder tenders a note for conversion, we may direct that
holder (unless we have called those notes for redemption) to a
financial institution designated by us to conduct a transaction
with that institution, on substantially the same terms that the
holder would have received on conversion, but if any such
financial institution does not accept such notes or does not
deliver the required conversion consideration, we remain
obligated to convert the notes.
Charter Holdco used a portion of the proceeds from the sale of
the notes to purchase a portfolio of U.S. government
securities in an amount which we believe will be sufficient to
make the first six interest payments on the notes. These
government securities were pledged to us as security for a
mirror note issued by Charter Holdco to Charter and pledged to
the trustee under the indenture governing the notes as security
for our obligations thereunder. Such securities are being used
to fund the next four interest payments under the notes. The
fair value of the pledged securities was $97 million at
December 31, 2005.
Upon a change of control and certain other fundamental changes,
subject to certain conditions and restrictions, Charter may be
required to repurchase the notes, in whole or in part, at 100%
of their principal amount plus accrued interest at the
repurchase date.
We may redeem the notes in whole or in part for cash at any time
at a redemption price equal to 100% of the aggregate principal
amount plus accrued and unpaid interest, deferred interest and
liquidated damages, if any, but only if for any 20 trading days
in any 30 consecutive trading day period the closing price has
exceeded 180% of the conversion price, if such 30 trading day
period begins prior to November 16, 2007 or 150% of the
conversion price, if such 30 trading period begins thereafter.
Holders who convert notes that we have called for redemption
shall receive, in addition to the early conversion
F-24
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
make whole amount, if applicable, the present value of the
interest on the notes converted that would have been payable for
the period from the later of November 17, 2007 and the
redemption date through the scheduled maturity date for the
notes, plus any accrued deferred interest.
March 1999 Charter Holdings Notes. The March 1999
Charter Holdings notes are general unsecured obligations of
Charter Holdings and Charter Communications Capital Corporation
(Charter Capital). The March 1999 8.250% Charter
Holdings notes mature on April 1, 2007, and as of
December 31, 2005, there was $105 million in total
principal amount outstanding. The March 1999 8.625% Charter
Holdings notes mature on April 1, 2009 and as of
December 31, 2005, there was $292 million in total
principal amount outstanding. The March 1999 9.920% Charter
Holdings notes mature on April 1, 2011 and as of
December 31, 2005, the total principal amount and accreted
value outstanding was $198 million. Cash interest on the
March 1999 9.920% Charter Holdings notes began to accrue on
April 1, 2004.
The March 1999 Charter Holdings notes are senior debt
obligations of Charter Holdings and Charter Capital. They rank
equally with all other current and future unsubordinated
obligations of Charter Holdings and Charter Capital. They are
structurally subordinated to the obligations of Charter
Holdings subsidiaries, including the CIH notes, the CCH I
notes, the CCH II notes, the CCO Holdings notes, the
Renaissance notes, the Charter Operating notes and the Charter
Operating credit facilities.
Charter Holdings and Charter Capital will not have the right to
redeem the March 1999 8.250% Charter Holdings notes prior to
their maturity on April 1, 2007. Charter Holdings and
Charter Capital may redeem some or all of the March 1999 8.625%
Charter Holdings notes and the March 1999 9.920% Charter
Holdings notes at any time, in each case, at a premium. The
optional redemption price declines to 100% of the principal
amount of March 1999 Charter Holdings notes redeemed, plus
accrued and unpaid interest, if any, for redemption on or after
April 1, 2007.
In the event that a specified change of control event occurs,
Charter Holdings and Charter Capital must offer to repurchase
any then outstanding March 1999 Charter Holdings notes at 101%
of their principal amount or accreted value, as applicable, plus
accrued and unpaid interest, if any.
The indentures governing the March 1999 Charter Holdings notes
contain restrictive covenants that limit certain transactions or
activities by Charter Holdings and its restricted subsidiaries.
Substantially all of Charter Holdings direct and indirect
subsidiaries are currently restricted subsidiaries.
January 2000 Charter Holdings Notes. The January
2000 Charter Holdings notes are general unsecured obligations of
Charter Holdings and Charter Capital. The January 2000 10.00%
Charter Holdings notes mature on April 1, 2009, and as of
December 31, 2005, there was $154 million in total
principal amount of these notes outstanding. The January 2000
10.25% Charter Holdings notes mature on January 15, 2010
and as of December 31, 2005, there was $49 million in
total principal amount of these notes outstanding. The January
2000 11.75% Charter Holdings notes mature on January 15,
2010 and as of December 31, 2005, the total principal
amount and accreted value outstanding of these notes was
$43 million. Cash interest on the January 2000 11.75%
Charter Holdings notes began to accrue on January 15, 2005.
The January 2000 Charter Holdings notes are senior debt
obligations of Charter Holdings and Charter Capital. They rank
equally with all other current and future unsubordinated
obligations of Charter Holdings and Charter Capital. They are
structurally subordinated to the obligations of Charter
Holdings subsidiaries, including the CIH notes, the CCH I
notes, the CCH II notes, the CCO Holdings notes, the
Renaissance notes, the Charter Operating notes and the Charter
Operating credit facilities.
Charter Holdings and Charter Capital will not have the right to
redeem the January 2000 10.00% Charter Holdings notes prior to
their maturity on April 1, 2009. Charter Holdings and
Charter Capital
F-25
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
may redeem some or all of the January 2000 10.25% Charter
Holdings notes and the January 2000 11.75% Charter Holdings
notes at any time, in each case, at a premium. The optional
redemption price declines to 100% of the principal amount of the
January 2000 Charter Holdings notes redeemed, plus accrued and
unpaid interest, if any, for redemption on or after
January 15, 2008.
In the event that a specified change of control event occurs,
Charter Holdings and Charter Capital must offer to repurchase
any then outstanding January 2000 Charter Holdings notes at 101%
of their total principal amount or accreted value, as
applicable, plus accrued and unpaid interest, if any.
The indentures governing the January 2000 Charter Holdings notes
contain substantially identical events of default, affirmative
covenants and negative covenants as those contained in the
indentures governing the March 1999 Charter Holdings notes.
January 2001 Charter Holdings Notes. The January
2001 Charter Holdings notes are general unsecured obligations of
Charter Holdings and Charter Capital. The January 2001 10.750%
Charter Holdings notes mature on October 1, 2009, and as of
December 31, 2005, there was $131 million in total
principal amount of these notes outstanding. The January 2001
11.125% Charter Holdings notes mature on January 15, 2011
and as of December 31, 2005, there was $217 million in
total principal amount outstanding. The January 2001 13.500%
Charter Holdings notes mature on January 15, 2011 and as of
December 31, 2005 the total principal amount and accreted
value outstanding of these notes was $94 million. Cash
interest on the January 2001 13.500% Charter Holdings notes
began to accrue on January 15, 2006.
The January 2001 Charter Holdings notes are senior debt
obligations of Charter Holdings and Charter Capital. They rank
equally with all other current and future unsubordinated
obligations of Charter Holdings and Charter Capital. They are
structurally subordinated to the obligations of Charter
Holdings subsidiaries, including the CIH notes, the CCH I
notes, the CCH II notes, the CCO Holdings notes, the
Renaissance notes, the Charter Operating notes and the Charter
Operating credit facilities.
Charter Holdings and Charter Capital will not have the right to
redeem the January 2001 10.750% Charter Holdings notes prior to
their maturity date on October 1, 2009. Charter Holdings
and Charter Capital may redeem some or all of the January 2001
11.125% Charter Holdings notes and the January 2001 13.500%
Charter Holdings notes at any time, in each case, at a premium.
The optional redemption price declines to 100% of the principal
amount of the January 2001 Charter Holdings notes redeemed, plus
accrued and unpaid interest, if any, for redemption on or after
January 15, 2009.
In the event that a specified change of control event occurs,
Charter Holdings and Charter Capital must offer to repurchase
any then outstanding January 2001 Charter Holdings notes at 101%
of their total principal amount or accreted value, as
applicable, plus accrued and unpaid interest, if any.
The indentures governing the January 2001 Charter Holdings notes
contain substantially identical events of default, affirmative
covenants and negative covenants as those contained in the
indentures governing the March 1999 and January 2000 Charter
Holdings notes.
May 2001 Charter Holdings Notes. The May 2001
Charter Holdings notes are general unsecured obligations of
Charter Holdings and Charter Capital. The May 2001 9.625%
Charter Holdings notes mature on November 15, 2009, and as
of December 31, 2005, combined with the January 2002
additional bond issue, there was $107 million in total
principal amount outstanding. The May 2001 10.000% Charter
Holdings notes mature on May 15, 2011 and as of
December 31, 2005, combined with the January 2002
additional bond issue, there was $137 million in total
principal amount outstanding and the total accreted value of the
10.000% notes was approximately $136 million. The May
2001 11.750% Charter Holdings notes mature on May 15, 2011
and as of December 31, 2005, the total principal amount
outstanding was
F-26
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
$125 million and the total accreted value of the
11.750% notes was approximately $120 million. Cash
interest on the May 2001 11.750% Charter Holdings notes will not
accrue prior to May 15, 2006.
The May 2001 Charter Holdings notes are senior debt obligations
of Charter Holdings and Charter Capital. They rank equally with
all other current and future unsubordinated obligations of
Charter Holdings and Charter Capital. They are structurally
subordinated to the obligations of Charter Holdings
subsidiaries, including the CIH notes, the CCH I notes, the
CCH II notes, the CCO Holdings notes, the Renaissance
notes, the Charter Operating notes and the Charter Operating
credit facilities.
Charter Holdings and Charter Capital will not have the right to
redeem the May 2001 9.625% Charter Holdings notes prior to their
maturity on November 15, 2009. On or after May 15,
2006, Charter Holdings and Charter Capital may redeem some or
all of the May 2001 10.000% Charter Holdings notes and the May
2001 11.750% Charter Holdings notes at any time, in each case,
at a premium. The optional redemption price declines to 100% of
the principal amount of the May 2001 Charter Holdings notes
redeemed, plus accrued and unpaid interest, if any, for
redemption on or after May 15, 2009.
In the event that a specified change of control event occurs,
Charter Holdings and Charter Capital must offer to repurchase
any then outstanding May 2001 Charter Holdings notes at 101% of
their total principal amount or accreted value, as applicable,
plus accrued and unpaid interest, if any.
The indentures governing the May 2001 Charter Holdings notes
contain substantially identical events of default, affirmative
covenants and negative covenants as those contained in the
indentures governing the March 1999, January 2000 and January
2001 Charter Holdings notes.
January 2002 Charter Holdings Notes. The January
2002 Charter Holdings notes are general unsecured obligations of
Charter Holdings and Charter Capital.
The January 2002 12.125% senior discount notes mature on
January 15, 2012, and as of December 31, 2005, the
total principal amount outstanding was $113 million and the
total accreted value of these notes was approximately
$100 million. Cash interest on the January 2002 12.125%
Charter Holdings notes will not accrue prior to January 15,
2007.
The January 2002 Charter Holdings notes are senior debt
obligations of Charter Holdings and Charter Capital. They rank
equally with the current and future unsecured and unsubordinated
debt of Charter Holdings. They are structurally subordinated to
the obligations of Charter Holdings subsidiaries,
including the CIH notes, the CCH I notes, the CCH II notes,
the CCO Holdings notes, the Renaissance notes, the Charter
Operating notes and the Charter Operating credit facilities.
The Charter Holdings 12.125% senior discount notes are
redeemable at the option of the issuers at amounts decreasing
from 106.063% to 100% of accreted value beginning
January 15, 2007.
In the event that a specified change of control event occurs,
Charter Holdings and Charter Capital must offer to repurchase
any then outstanding January 2002 Charter Holdings notes at 101%
of their total principal amount or accreted value, as
applicable, plus accrued and unpaid interest, if any.
The indentures governing the January 2002 Charter Holdings notes
contain substantially identical events of default, affirmative
covenants and negative covenants as those contained in the
indentures governing the March 1999, January 2000, January 2001
and May 2001 Charter Holdings notes.
CCH I Holdings, LLC Notes. In September 2005, CIH
and CCH I Holdings Capital Corp. jointly issued
$2.5 billion total principal amount of 9.920% to
13.500% senior accreting notes due 2014 and 2015 in
exchange for an aggregate amount of $2.4 billion of Charter
Holdings notes due 2011 and 2012, spread over six series of
notes and with varying interest rates. The notes are guaranteed
by Charter Holdings. As of December 31, 2005, there was
$2.5 billion in total principal amount and accreted value
outstanding and
F-27
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
$2.1 billion in accreted value for legal purposes and notes
indentures purposes. Interest on the CIH notes is payable
semi-annually in arrears as follows:
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11.125% senior notes due 2014
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1/15 & 7/15 |
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9.920% senior discount notes due 2014
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10.000% senior notes due 2014
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11.750% senior discount notes due 2014
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5/15 & 11/15 |
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13.500% senior discount notes due 2014
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12.125% senior discount notes due 2015
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The CIH notes are senior debt obligations of CIH and CCH I
Holdings Capital Corp. They rank equally with all other current
and future unsecured, unsubordinated obligations of CIH and CCH
I Holdings Capital Corp. The CIH notes are structurally
subordinated to all obligations of subsidiaries of CIH,
including the CCH I notes, the CCH II notes, the CCO
Holdings notes, the Renaissance notes, the Charter Operating
notes and the Charter Operating credit facilities.
The CIH notes may not be redeemed at the option of the issuers
until September 30, 2007. On or after such date, the CIH
notes may be redeemed at any time, in each case at a premium.
The optional redemption price declines to 100% of the respective
series principal amount, plus accrued and unpaid interest,
on or after varying dates in 2009 and 2010.
In the event that a specified change of control event happens,
CIH and CCH I Holdings Capital Corp. must offer to repurchase
any outstanding notes at a price equal to the sum of the
accreted value of the notes plus accrued and unpaid interest
plus a premium that varies over time.
CCH I, LLC Notes. In September 2005, CCH I
and CCH I Capital Corp. jointly issued $3.5 billion total
principal amount of 11.000% senior secured notes due
October 2015 in exchange for an aggregate amount of
$4.2 billion of certain Charter Holdings notes. The notes
are guaranteed by Charter Holdings and are secured by a pledge
of 100% of the equity interest of CCH Is wholly owned
direct subsidiary, CCH II. Such pledge is subject to
significant limitations as described in the related pledge
agreement. Interest on the CCH I notes accrues at 11% per
annum and is payable semi-annually in arrears on each
April 1 and October 1, commencing on April 1,
2006. As of December 31, 2005, there was $3.5 billion
in total principal amount outstanding, $3.7 billion in
accreted value outstanding and $3.5 billion in accreted
value for legal purposes and notes indentures purposes.
The CCH I notes are senior debt obligations of CCH I and CCH I
Capital Corp. To the extent of the value of the collateral, they
rank senior to all of CCH Is future unsecured senior
indebtedness. The CCH I notes are structurally subordinated to
all obligations of subsidiaries of CCH I, including the
CCH II notes, CCO Holdings notes, the Renaissance notes,
the Charter Operating notes and the Charter Operating credit
facilities.
CCH I and CCH I Capital Corp. may, prior to October 1, 2008
in the event of a qualified equity offering providing sufficient
proceeds, redeem up to 35% of the aggregate principal amount of
the CCH I notes at a redemption price of 111% of the principal
amount plus accrued and unpaid interest. Aside from this
provision, CCH I and CCH I Capital Corp. may not redeem at their
option any of the notes prior to October 1, 2010. On or
after October 1, 2010, CCH I and CCH I Capital Corp. may
redeem, in whole or in part, CCH I notes at anytime, in each
case at a premium. The optional redemption price declines to
100% of the principal amount, plus accrued and unpaid interest,
on or after October 1, 2013.
F-28
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
If a change of control occurs, each holder of the CCH I notes
will have the right to require the repurchase of all or any part
of that holders CCH I notes at 101% of the principal
amount plus accrued and unpaid interest.
CCH II Notes. In September 2003, CCH II
and CCH II Capital Corp. jointly issued $1.6 billion
total principal amount of 10.25% senior notes due 2010 and
in January 2006, they issued an additional $450 million
principal amount of these notes. The CCH II notes are
general unsecured obligations of CCH II and CCH II
Capital Corp. They rank equally with all other current or future
unsubordinated obligations of CCH II and CCH II
Capital Corp. The CCH II notes are structurally
subordinated to all obligations of subsidiaries of CCH II,
including the CCO Holdings notes, the Renaissance notes, the
Charter Operating notes and the Charter Operating credit
facilities.
Interest on the CCH II notes accrues at 10.25% per
annum and is payable semi-annually in arrears on each March 15
and September 15.
At any time prior to September 15, 2006, the issuers of the
CCH II notes may redeem up to 35% of the total principal
amount of the CCH II notes on a pro rata basis at a
redemption price equal to 110.25% of the principal amount of
CCH II notes redeemed, plus any accrued and unpaid interest.
On or after September 15, 2008, the issuers of the
CCH II notes may redeem all or a part of the notes at a
redemption price that declines ratably from the initial
redemption price of 105.125% to a redemption price on or after
September 15, 2009 of 100.0% of the principal amount of the
CCH II notes redeemed, plus, in each case, any accrued and
unpaid interest.
In the event of specified change of control events, CCH II
must offer to purchase the outstanding CCH II notes from
the holders at a purchase price equal to 101% of the total
principal amount of the notes, plus any accrued and unpaid
interest.
The indenture governing the CCH II notes contains
restrictive covenants that limit certain transactions or
activities by CCH II and its restricted subsidiaries.
Substantially all of CCH IIs direct and indirect
subsidiaries are currently restricted subsidiaries.
83/4% Senior
Notes due 2013. In November 2003 and August 2005, CCO
Holdings and CCO Holdings Capital Corp. jointly issued
$500 million and $300 million, respectively, total
principal amount of
83/4
% senior notes due 2013. The CCO Holdings notes are
general unsecured obligations of CCO Holdings and CCO Holdings
Capital Corp. They rank equally with all other current or future
unsubordinated obligations of CCO Holdings and CCO Holdings
Capital Corp. The CCO Holdings notes are structurally
subordinated to all obligations of CCO Holdings
subsidiaries, including the Renaissance notes, the Charter
Operating notes and the Charter Operating credit facilities. As
of December 31, 2005, there was $800 million in total
principal amount outstanding and $794 million in accreted
value outstanding.
Interest on the CCO Holdings senior notes accrues at
83/4
% per year and is payable semi-annually in arrears
on each May 15 and November 15.
At any time prior to November 15, 2006, the issuers of the
CCO Holdings senior notes may redeem up to 35% of the total
principal amount of the CCO Holdings senior notes to the extent
of public equity proceeds they have received on a pro rata basis
at a redemption price equal to 108.75% of the principal amount
of CCO Holdings senior notes redeemed, plus any accrued and
unpaid interest.
On or after November 15, 2008, the issuers of the CCO
Holdings senior notes may redeem all or a part of the notes at a
redemption price that declines ratably from the initial
redemption price of 104.375%
F-29
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
to a redemption price on or after November 15, 2011 of
100.0% of the principal amount of the CCO Holdings senior notes
redeemed, plus, in each case, any accrued and unpaid interest.
In the event of specified change of control events, CCO Holdings
must offer to purchase the outstanding CCO Holdings senior notes
from the holders at a purchase price equal to 101% of the total
principal amount of the notes, plus any accrued and unpaid
interest.
Senior Floating Rate Notes Due 2010. In December
2004, CCO Holdings and CCO Holdings Capital Corp. jointly issued
$550 million total principal amount of senior floating rate
notes due 2010. The CCO Holdings notes are general unsecured
obligations of CCO Holdings and CCO Holdings Capital Corp. They
rank equally with all other current or future unsubordinated
obligations of CCO Holdings and CCO Holdings Capital Corp. The
CCO Holdings notes are structurally subordinated to all
obligations of CCO Holdings subsidiaries, including the
Renaissance notes, the Charter Operating notes and the Charter
Operating credit facilities.
Interest on the CCO Holdings senior floating rate notes accrues
at the LIBOR rate (4.53% and 2.56% as of December 31, 2005
and 2004, respectively) plus 4.125% annually, from the date
interest was most recently paid. Interest is reset and payable
quarterly in arrears on each March 15, June 15,
September 15 and December 15.
At any time prior to December 15, 2006, the issuers of the
senior floating rate notes may redeem up to 35% of the notes in
an amount not to exceed the amount of proceeds of one or more
public equity offerings at a redemption price equal to 100% of
the principal amount, plus a premium equal to the interest rate
per annum applicable to the notes on the date notice of
redemption is given, plus accrued and unpaid interest, if any,
to the redemption date, provided that at least 65% of the
original aggregate principal amount of the notes issued remains
outstanding after the redemption.
The issuers of the senior floating rate notes may redeem the
notes in whole or in part at the issuers option from
December 15, 2006 until December 14, 2007 for 102% of
the principal amount, from December 15, 2007 until
December 14, 2008 for 101% of the principal amount and from
and after December 15, 2008, at par, in each case, plus
accrued and unpaid interest.
The indentures governing the CCO Holdings senior notes contain
restrictive covenants that limit certain transactions or
activities by CCO Holdings and its restricted subsidiaries.
Substantially all of CCO Holdings direct and indirect
subsidiaries are currently restricted subsidiaries.
In the event of specified change of control events, CCO Holdings
must offer to purchase the outstanding CCO Holdings senior notes
from the holders at a purchase price equal to 101% of the total
principal amount of the notes, plus any accrued and unpaid
interest.
Charter Operating Notes. On April 27, 2004,
Charter Operating and Charter Communications Operating Capital
Corp. jointly issued $1.1 billion of 8% senior
second-lien notes due 2012 and $400 million of
83/8% senior
second-lien notes due 2014, for total gross proceeds of
$1.5 billion. In March and June 2005, Charter Operating
consummated exchange transactions with a small number of
institutional holders of Charter Holdings 8.25% senior
notes due 2007 pursuant to which Charter Operating issued, in
private placement transactions, approximately $333 million
principal amount of its
83/8
% senior second-lien notes due 2014 in exchange for
approximately $346 million of the Charter Holdings
8.25% senior notes due 2007. Interest on the Charter
Operating notes is payable semi-annually in arrears on each
April 30 and October 30.
The Charter Operating notes were sold in a private transaction
that was not subject to the registration requirements of the
Securities Act of 1933. The Charter Operating notes are not
expected to have the benefit of any exchange or other
registration rights, except in specified limited circumstances.
On the issue date of the Charter Operating notes, because of
restrictions contained in the Charter Holdings indentures,
F-30
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
there were no Charter Operating note guarantees, even though
Charter Operatings immediate parent, CCO Holdings, and
certain of the Companys subsidiaries were obligors and/or
guarantors under the Charter Operating credit facilities. Upon
the occurrence of the guarantee and pledge date (generally, the
fifth business day after the Charter Holdings leverage ratio was
certified to be below 8.75 to 1.0), CCO Holdings and those
subsidiaries of Charter Operating that were then guarantors of,
or otherwise obligors with respect to, indebtedness under the
Charter Operating credit facilities and related obligations were
required to guarantee the Charter Operating notes. The note
guarantee of each such guarantor is:
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structurally senior to the outstanding CCO Holdings notes
(except in the case of CCO Holdings note guarantee, which
is structurally pari passu with such senior notes), the
outstanding CCH II notes, the outstanding CCH I notes, the
outstanding CIH notes, the outstanding Charter Holdings notes
and the outstanding Charter convertible senior notes (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 |
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senior in right of payment to any future subordinated
indebtedness of such guarantor. |
As a result of the above leverage ratio test being met, CCO
Holdings and certain of its subsidiaries provided the additional
guarantees described above during the first quarter of 2005.
All the subsidiaries of Charter Operating (except CCO NR Sub,
LLC, and certain other subsidiaries that are not deemed material
and are designated as nonrecourse subsidiaries under the Charter
Operating credit facilities) are restricted subsidiaries of
Charter Operating under the Charter Operating notes.
Unrestricted subsidiaries generally will not be subject to the
restrictive covenants in the Charter Operating indenture.
In the event of specified change of control events, Charter
Operating must offer to purchase the Charter Operating notes at
a purchase price equal to 101% of the total principal amount of
the Charter Operating notes repurchased plus any accrued and
unpaid interest thereon.
The indenture governing the Charter Operating senior notes
contains restrictive covenants that limit certain transactions
or activities by Charter Operating and its restricted
subsidiaries. Substantially all of Charter Operatings
direct and indirect subsidiaries are currently restricted
subsidiaries.
Renaissance Notes. In connection with the
acquisition of Renaissance in April 1999, the Company assumed
$163 million principal amount at maturity of
10.000% senior discount notes due 2008 of which
$49 million was repurchased in May 1999. The Renaissance
notes bear interest, payable semi-annually, on April 15 and
October 15. The Renaissance notes are due on April 15,
2008. As of December 31, 2005, there was $114 million
in total principal amount outstanding and $115 million in
accreted value outstanding.
CC V Holdings Notes. These notes were redeemed on
March 14, 2005 and are therefore no longer outstanding.
High-Yield Restrictive Covenants; Limitation on
Indebtedness. The indentures governing the notes of the
Companys subsidiaries contain certain covenants that
restrict the ability of Charter Holdings, Charter Capital, CIH,
CIH, Capital Corp., CCH I, CCH I Capital Corp.,
CCH II, CCH II Capital Corp., CCO Holdings, CCO
Holdings Capital Corp., Charter Operating, Charter
Communications Operating Capital Corp., Renaissance Media Group,
and all of their restricted subsidiaries to:
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|
|
incur additional debt; |
|
|
|
pay dividends on equity or repurchase equity; |
F-31
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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|
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 |
|
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|
grant liens. |
|
|
|
Charter Operating Credit Facilities |
The Charter Operating credit facilities were amended and
restated concurrently with the sale of $1.5 billion senior
second-lien notes in April 2004, among other things, to defer
maturities and increase availability under these facilities and
to enable Charter Operating to acquire the interests of the
lenders under the CC VI Operating, CC VIII Operating and Falcon
credit facilities, thereby consolidating all credit facilities
under one amended and restated Charter Operating credit
agreement.
The Charter Operating credit facilities provide borrowing
availability of up to $6.5 billion as follows:
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|
|
(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 |
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|
|
|
|
a revolving credit facility, in a total amount of
$1.5 billion, with a maturity date in 2010. |
Amounts outstanding under the Charter Operating credit
facilities bear interest, at Charter Operatings election,
at a base rate or the Eurodollar rate (4.06% to 4.50% as of
December 31, 2005 and 2.07% to 2.28% as of
December 31, 2004), as defined, plus a margin for
Eurodollar loans of up to 3.00% for the Term A facility and
revolving credit facility, and up to 3.25% for the Term B
facility, and for base rate loans of up to 2.00% for the Term A
facility and revolving credit facility, and up to 2.25% for the
Term B facility. A quarterly commitment fee of up to .75% is
payable on the average daily unborrowed balance of the revolving
credit facilities.
The obligations of our subsidiaries under the Charter Operating
credit facilities (the Obligations) are guaranteed
by Charter Operatings immediate parent company, CCO
Holdings, and the subsidiaries of Charter Operating, except for
immaterial subsidiaries and subsidiaries precluded from
guaranteeing by reason of the provisions of other indebtedness
to which they are subject (the non-guarantor
subsidiaries, primarily Renaissance and its subsidiaries).
The Obligations are also secured by (i) a lien on all of
the assets of Charter Operating and its subsidiaries (other than
assets of the non-guarantor subsidiaries), to the extent such
lien can be perfected under the Uniform Commercial Code by the
filing of a financing statement, and (ii) a pledge by CCO
Holdings of the equity interests owned by it in Charter
Operating or any of Charter Operatings subsidiaries, as
well as intercompany obligations owing to it by any of such
entities.
F-32
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Upon the Charter Holdings Leverage Ratio (as defined in the
indenture governing the Charter Holdings senior notes and senior
discount notes) being under 8.75 to 1.0, the Charter Operating
credit facilities required that the 11.875% notes due 2008
issued by CC V Holdings, LLC be redeemed. Because such Leverage
Ratio was determined to be under 8.75 to 1.0, CC V
Holdings, LLC redeemed such notes in March 2005, and CC V
Holdings, LLC and its subsidiaries (other than non-guarantor
subsidiaries) became guarantors of the Obligations and have
granted a lien on all of their assets as to which a lien can be
perfected under the Uniform Commercial Code by the filing of a
financing statement.
As of December 31, 2005, outstanding borrowings under the
Charter Operating credit facilities were approximately
$5.7 billion and the unused total potential availability
was approximately $553 million, none of which was limited
by covenant restrictions.
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|
|
Charter Operating Credit Facilities
Restrictive Covenants |
The Charter Operating credit facilities contain representations
and warranties, and affirmative and negative covenants customary
for financings of this type. The financial covenants measure
performance against standards set for leverage, debt service
coverage, and interest coverage, tested as of the end of each
quarter. The maximum allowable leverage ratio is 4.25 to 1.0
until maturity, tested as of the end of each quarter beginning
September 30, 2004. Additionally, the Charter Operating
credit facilities contain provisions requiring mandatory loan
prepayments under specific circumstances, including when
significant amounts of assets are sold and the proceeds are not
reinvested in assets useful in the business of the borrower
within a specified period, and upon the incurrence of certain
indebtedness when the ratio of senior first lien debt to
operating cash flow is greater than 2.0 to 1.0.
The Charter Operating credit facilities permit Charter Operating
and its subsidiaries to make distributions to pay interest on
the Charter Operating senior second-lien notes, the CIH notes,
the CCH I notes, the CCH II senior notes, the CCO Holdings
senior notes, the Charter convertible senior notes, the CCHC
notes and the Charter Holdings senior notes, provided that,
among other things, no default has occurred and is continuing
under the Charter Operating credit facilities. Conditions to
future borrowings include absence of a default or an event of
default under the Charter Operating credit facilities and the
continued accuracy in all material respects of the
representations and warranties, including the absence since
December 31, 2003 of any event, development or circumstance
that has had or could reasonably be expected to have a material
adverse effect on our business.
The events of default under the Charter Operating credit
facilities include, among other things:
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|
the failure to make payments when due or within the applicable
grace period, |
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|
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, |
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|
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 Operatings
subsidiaries in amounts in excess of $50 million in
aggregate principal amount, |
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|
|
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, |
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|
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, |
F-33
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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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, |
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|
|
certain of Charter Operatings 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 |
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|
Charter Operating ceasing to be a wholly-owned direct subsidiary
of CCO Holdings, except in certain very limited circumstances. |
In October 2005, CCO Holdings and CCO Holdings Capital Corp., as
guarantor thereunder, entered into the Bridge Loan) with
JPMorgan Chase Bank, N.A., Credit Suisse, Cayman Islands Branch
and Deutsche Bank AG Cayman Islands Branch (the
Lenders) whereby the Lenders committed to make loans
to CCO Holdings in an aggregate amount of $600 million. In
January 2006, upon the issuance of $450 million of
CCH II notes discussed above, the commitment under the
bridge loan agreement was reduced to $435 million. CCO
Holdings may draw upon the facility between January 2, 2006
and September 29, 2006 and the loans will mature on the
sixth anniversary of the first borrowing under the Bridge Loan.
Beginning on the first anniversary of the first date that CCO
Holdings borrows under the Bridge Loan and at any time
thereafter, any Lender will have the option to receive
exchange notes (the terms of which are described
below, the Exchange Notes) in exchange for any loan
that has not been repaid by that date. Upon the earlier of
(x) the date that at least a majority of all loans that
have been outstanding have been exchanged for Exchange Notes and
(y) the date that is 18 months after the first date
that CCO Holdings borrows under the Bridge Loan, the remainder
of loans will be automatically exchanged for Exchange Notes.
As conditions to each draw, (i) there shall be no default
under the Bridge Loan, (ii) all the representations and
warranties under the bridge loan shall be true and correct in
all material respects and (iii) all conditions to borrowing
under the Charter Operating credit facilities (with certain
exceptions) shall be satisfied.
The aggregate unused commitment will be reduced by 100% of the
net proceeds from certain asset sales, to the extent such net
proceeds have not been used to prepay loans or Exchange Notes.
However, asset sales that generate net proceeds of less than
$75 million will not be subject to such commitment
reduction obligation, unless the aggregate net proceeds from
such asset sales exceed $200 million, in which case the
aggregate unused commitment will be reduced by the amount of
such excess.
CCO Holdings will be required to prepay loans (and redeem or
offer to repurchase Exchange Notes, if issued) from the net
proceeds from (i) the issuance of equity or incurrence of
debt by Charter and its subsidiaries, with certain exceptions,
and (ii) certain asset sales (to the extent not used for
purposes permitted under the bridge loan).
The covenants and events of default applicable to CCO Holdings
under the Bridge Loan are similar to the covenants and events of
default in the indenture for the senior secured notes of CCH I.
The Exchange Notes will mature on the sixth anniversary of the
first borrowing under the Bridge Loan. The Exchange Notes will
bear interest at a rate equal to the rate that would have been
borne by the loans. The same mandatory redemption provisions
will apply to the Exchange Notes as applied to the
F-34
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
loans, except that CCO Holdings will be required to make an
offer to redeem upon the occurrence of a change of control at
101% of principal amount plus accrued and unpaid interest.
The Exchange Notes will, if held by a person other than an
initial lender or an affiliate thereof, be (a) non-callable
for the first three years after the first borrowing date and
(b) thereafter, callable at par plus accrued interest plus
a premium equal to 50% of the coupon in effect on the first
anniversary of the first borrowing date, which premium shall
decline to 25% of such coupon in the fourth year and to zero
thereafter. Otherwise, the Exchange Notes will be callable at
any time at 100% of the amount thereof plus accrued and unpaid
interest.
Based upon outstanding indebtedness as of December 31,
2005, the amortization of term loans, scheduled reductions in
available borrowings of the revolving credit facilities, and the
maturity dates for all senior and subordinated notes and
debentures, total future principal payments on the total
borrowings under all debt agreements as of December 31,
2005, are as follows:
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|
|
|
|
Year |
|
Amount | |
|
|
| |
2006
|
|
$ |
50 |
|
2007
|
|
|
385 |
|
2008
|
|
|
744 |
|
2009
|
|
|
2,326 |
|
2010
|
|
|
3,455 |
|
Thereafter
|
|
|
12,376 |
|
|
|
|
|
|
|
$ |
19,336 |
|
|
|
|
|
For the amounts of debt scheduled to mature during 2006, it is
managements intent to fund the repayments from borrowings
on the Companys revolving credit facility. The
accompanying consolidated balance sheet reflects this intent by
presenting all debt balances as long-term while the table above
reflects actual debt maturities as of the stated date.
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|
10. |
Note Payable Related Party |
In October 2005, Charter, acting through a Special Committee of
Charters Board of Directors, and Mr. Allen, settled a
dispute that had arisen between the parties with regard to the
ownership of CC VIII. As part of that settlement, CCHC issued a
subordinated exchangeable note (the CCHC Note) to
Charter Investment, Inc. (CII). The CCHC Note has a
15-year maturity. The
CCHC Note has an initial accreted value of $48 million
accreting at 14% compounded quarterly, except that from and
after February 28, 2009, CCHC may pay any increase in the
accreted value of the CCHC Note in cash and the accreted value
of the CCHC Note will not increase to the extent such amount is
paid in cash. The CCHC Note is exchangeable at CIIs
option, at any time, for Charter Holdco Class A Common
units at a rate equal to the then accreted value, divided by
$2.00 (the Exchange Rate). Customary anti-dilution
protections have been provided that could cause future changes
to the Exchange Rate. Additionally, the Charter Holdco
Class A Common units received will be exchangeable by the
holder into Charter common stock in accordance with existing
agreements between CII, Charter and certain other parties
signatory thereto. Beginning February 28, 2009, if the
closing price of Charter common stock is at or above the
Exchange Rate for a certain period of time as specified in the
Exchange Agreement, Charter Holdco may require the exchange of
the CCHC Note for Charter Holdco Class A Common units at
the Exchange Rate. Additionally, CCHC has the right to redeem
the CCHC Note under certain circumstances for cash in an amount
equal to the then accreted value, such amount, if redeemed prior
to February 28, 2009,
F-35
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
would also include a make whole up to the accreted value through
February 28, 2009. CCHC must redeem the CCHC Note at its
maturity for cash in an amount equal to the initial stated value
plus the accreted return through maturity. The accreted value of
the CCHC Note as of December 31, 2005 is $49 million.
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11. |
Minority Interest and Equity Interest of Charter Holdco |
Charter is a holding company whose primary assets are a
controlling equity interest in Charter Holdco, the indirect
owner of the Companys cable systems, and $863 million
and $990 million at December 31, 2005 and 2004,
respectively, of mirror notes that are payable by Charter Holdco
to Charter and have the same principal amount and terms as those
of Charters convertible senior notes. Minority interest on
the Companys consolidated balance sheets as of
December 31, 2005 and 2004 primarily represents preferred
membership interests in CC VIII, LLC (CC VIII), an
indirect subsidiary of Charter Holdco, of $188 million and
$656 million, respectively. As more fully described in
Note 25, this preferred interest arises from the
approximately $630 million of preferred membership units
issued by CC VIII in connection with an acquisition in
February 2000 and was the subject of a dispute between Charter
and Mr. Allen, Charters Chairman and controlling
shareholder that was settled October 31, 2005. In
conjunction with the settlement, the Company adjusted minority
interest for $467 million, of which $418 million was
reclassified from minority interest to equity in the fourth
quarter of 2005. Beginning in the fourth quarter of 2005,
approximately 5.6% of CC VIIIs income is allocated to
minority interest.
Minority interest historically included the portion of Charter
Holdcos members equity not owned by Charter.
However, members deficit of Charter Holdco was
$4.8 billion, $4.4 billion and $57 million as of
December 31, 2005, 2004 and 2003, respectively, thus
minority interest in Charter Holdco has been eliminated.
Minority interest was 52%, 53% and 54% as of December 31,
2005, 2004 and 2003, respectively. Reported losses allocated to
minority interest on the consolidated statement of operations
are limited to the extent of any remaining minority interest on
the balance sheet related to Charter Holdco. Additionally,
minority interest includes the proportionate share of changes in
fair value of interest rate risk derivative agreements. Such
amounts are temporary as they are contractually scheduled to
reverse over the life of the underlying instrument. Because
minority interest in Charter Holdco was substantially eliminated
at December 31, 2003, beginning in 2004, the Company began
to absorb substantially all losses before income taxes that
otherwise would have been allocated to minority interest. This
resulted in an additional $454 million and
$2.4 billion of net loss for the year ended
December 31, 2005 and 2004, respectively.
F-36
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Subject to any changes in Charter Holdcos capital
structure, future losses will continue to be absorbed by
Charter. Changes to minority interest consist of the following
for the periods presented:
|
|
|
|
|
|
|
|
Minority | |
|
|
Interest | |
|
|
| |
Balance, December 31, 2002
|
|
$ |
1,050 |
|
|
Minority interest in loss of a subsidiary
|
|
|
(377 |
) |
|
Minority interest in income tax benefit
|
|
|
(8 |
) |
|
Changes in fair value of interest rate agreements
|
|
|
25 |
|
|
Other
|
|
|
(1 |
) |
|
|
|
|
Balance, December 31, 2003
|
|
|
689 |
|
|
Minority interest in loss of a subsidiary
|
|
|
(19 |
) |
|
Minority interest in cumulative effect of accounting change
|
|
|
(19 |
) |
|
Reclass of Helicon, LLC interest
|
|
|
(25 |
) |
|
Changes in fair value of interest rate agreements
|
|
|
22 |
|
|
|
|
|
Balance, December 31, 2004
|
|
|
648 |
|
|
Minority interest in loss of subsidiary
|
|
|
(1 |
) |
|
CC VIII settlement exchange of interests
|
|
|
(467 |
) |
|
Changes in fair value of interest rate agreements and other
|
|
|
8 |
|
|
|
|
|
Balance, December 31, 2005
|
|
$ |
188 |
|
|
|
|
|
|
|
12. |
Preferred Stock Redeemable |
On August 31, 2001, in connection with its acquisition of
Cable USA, Inc. and certain cable system assets from affiliates
of Cable USA, Inc., the Company issued 505,664 shares of
Series A Convertible Redeemable Preferred Stock (the
Preferred Stock) valued at and with a liquidation
preference of $51 million. Holders of the Preferred Stock
have no voting rights but are entitled to receive cumulative
cash dividends at an annual rate of 5.75%, payable quarterly. If
for any reason Charter fails to pay the dividends on the
Preferred Stock on a timely basis, the dividend rate on each
share increases to an annual rate of 7.75% until the payment is
made. The Preferred Stock is redeemable by Charter at its option
on or after August 31, 2004 and must be redeemed by Charter
at any time upon a change of control, or if not previously
redeemed or converted, on August 31, 2008. The Preferred
Stock is convertible, in whole or in part, at the option of the
holders from April 1, 2002 through August 31, 2008,
into shares of common stock at an initial conversion rate equal
to a conversion price of $24.71 per share of common stock,
subject to certain customary adjustments. The redemption price
per share of Preferred Stock is the Liquidation Preference of
$100, subject to certain customary adjustments. In the first
quarter of 2003, the Company issued 39,595 additional shares of
preferred stock valued at and with a liquidation preference of
$4 million.
In November 2005, Charter repurchased 508,546 shares of its
Series A Convertible Redeemable Preferred Stock for an
aggregate purchase price of approximately $31 million (or
$60 per share). The shares had liquidation preference of
approximately $51 million and had accrued but unpaid
dividends of approximately $3 million resulting in a gain
of approximately $23 million recorded in gain (loss) on
extinguishment of debt and preferred stock. Following the
repurchase, 36,713 shares of preferred stock remained
outstanding.
In connection with the repurchase, the holders of Preferred
Stock consented to an amendment to the Certificate of
Designation governing the Preferred Stock that will eliminate
the quarterly dividends on all of the outstanding Preferred
Stock and will provide that the liquidation preference for the
remaining shares
F-37
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
outstanding will be $105.4063 per share, which amount shall
accrete from September 30, 2005 at an annual rate of 7.75%,
compounded quarterly. Certain holders of Preferred Stock also
released Charter from various threatened claims relating to
their acquisition and ownership of the Preferred Stock,
including threatened claims for breach of contract.
The Companys Class A common stock and Class B
common stock are identical except with respect to certain
voting, transfer and conversion rights. Holders of Class A
common stock are entitled to one vote per share and holder of
Class B common stock is entitled to ten votes for each
share of Class B common stock held and for each Charter
Holdco membership unit held. The Class B common stock is
subject to significant transfer restrictions and is convertible
on a share for share basis into Class A common stock at the
option of the holder. Charter Holdco membership units are
exchangeable on a one-for-one basis for shares of Class A
common stock.
|
|
14. |
Share Lending Agreement |
In 2005, Charter issued 94.9 million shares of Class A
common stock in a public offering, which was effected pursuant
to an effective registration statement that initially covered
the issuance and sale of up to 150 million shares of
Class A common stock. The shares were issued pursuant to
the share lending agreement, pursuant to which Charter had
previously agreed to loan up to 150 million shares to
Citigroup Global Markets Limited (CGML). Because
less than the full 150 million shares covered by the share
lending agreement were sold in the offering, Charter as of
December 31, 2005 was obligated to issue, at CGMLs
request, up to an additional 55.1 million loaned shares in
subsequent registered public offerings pursuant to the share
lending agreement. In February 2006, an additional
22.0 million shares were issued under the share lending
agreement.
This offering of Charters Class A common stock was
conducted to facilitate transactions by which investors in
Charters 5.875% convertible senior notes due 2009,
issued on November 22, 2004, hedged their investments in
the convertible senior notes. Charter did not receive any of the
proceeds from the sale of this Class A common stock.
However, under the share lending agreement, Charter received a
loan fee of $.001 for each share that it lends to CGML.
The issuance of up to a total of 150 million shares of
common stock (of which 94.9 million were issued in 2005)
pursuant to a share lending agreement executed by Charter in
connection with the issuance of the 5.875% convertible
senior notes in November 2004 is essentially analogous to a sale
of shares coupled with a forward contract for the reacquisition
of the shares at a future date. An instrument that requires
physical settlement by repurchase of a fixed number of shares in
exchange for cash is considered a forward purchase instrument.
While the share lending agreement does not require a cash
payment upon return of the shares, physical settlement is
required (i.e., the shares borrowed must be returned at the end
of the arrangement.) The fair value of the 94.9 million
shares lent in 2005 is approximately $116 million as of
December 31, 2005. However, the net effect on
shareholders deficit of the shares lent in July pursuant
to the share lending agreement, which includes Charters
requirement to lend the shares and the counterparties
requirement to return the shares, is de minimis and represents
the cash received upon lending of the shares and is equal to the
par value of the common stock to be issued.
Certain marketable equity securities are classified as
available-for-sale and reported at market value with unrealized
gains and losses recorded as accumulated other comprehensive
loss on the accompanying consolidated balance sheets.
Additionally, the Company reports changes in the fair value of
interest rate agreements designated as hedging the variability
of cash flows associated with floating-rate debt
F-38
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
obligations, that meet the effectiveness criteria of
SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities, in accumulated other comprehensive
loss, after giving effect to the minority interest share of such
gains and losses. Comprehensive loss for the years ended
December 31, 2005, 2004 and 2003 was $961 million,
$4.3 billion and $219 million, respectively.
|
|
16. |
Accounting for Derivative Instruments and Hedging
Activities |
The Company uses interest rate risk management derivative
instruments, such as interest rate swap agreements and interest
rate collar agreements (collectively referred to herein as
interest rate agreements) to manage its interest costs. The
Companys policy is to manage interest costs using a mix of
fixed and variable rate debt. Using interest rate swap
agreements, the Company has agreed to exchange, at specified
intervals through 2007, the difference between fixed and
variable interest amounts calculated by reference to an
agreed-upon notional principal amount. Interest rate collar
agreements are used to limit the Companys exposure to and
benefits from interest rate fluctuations on variable rate debt
to within a certain range of rates.
The Company does not hold or issue derivative instruments for
trading purposes. The Company does, however, have certain
interest rate derivative instruments that have been designated
as cash flow hedging instruments. Such instruments effectively
convert variable interest payments on certain debt instruments
into fixed payments. For qualifying hedges,
SFAS No. 133 allows derivative gains and losses to
offset related results on hedged items in the consolidated
statement of operations. The Company has formally documented,
designated and assessed the effectiveness of transactions that
receive hedge accounting. For the years ended December 31,
2005, 2004 and 2003, net gain on derivative instruments and
hedging activities includes gains of $3 million,
$4 million and $8 million, respectively, which
represent cash flow hedge ineffectiveness on interest rate hedge
agreements arising from differences between the critical terms
of the agreements and the related hedged obligations. Changes in
the fair value of interest rate agreements designated as hedging
instruments of the variability of cash flows associated with
floating-rate debt obligations that meet the effectiveness
criteria SFAS No. 133 are reported in accumulated
other comprehensive loss. For the years ended December 31,
2005, 2004 and 2003, a gain of $16 million,
$42 million and $48 million, respectively, related to
derivative instruments designated as cash flow hedges, was
recorded in accumulated other comprehensive loss and minority
interest. The amounts are subsequently reclassified into
interest expense as a yield adjustment in the same period in
which the related interest on the floating-rate debt obligations
affects earnings (losses).
Certain interest rate derivative instruments are not designated
as hedges as they do not meet the effectiveness criteria
specified by SFAS No. 133. However, management
believes such instruments are closely correlated with the
respective debt, thus managing associated risk. Interest rate
derivative instruments not designated as hedges are marked to
fair value, with the impact recorded as gain (loss) on
derivative instruments and hedging activities in the
Companys consolidated statement of operations. For the
years ended December 31, 2005, 2004 and 2003, net gain on
derivative instruments and hedging activities includes gains of
$47 million, $65 million and $57 million,
respectively, for interest rate derivative instruments not
designated as hedges.
As of December 31, 2005, 2004 and 2003, the Company had
outstanding $1.8 billion, $2.7 billion and
$3.0 billion and $20 million, $20 million and
$520 million, respectively, in notional amounts of interest
rate swaps and collars, respectively. The notional amounts of
interest rate instruments do not represent amounts exchanged by
the parties and, thus, are not a measure of exposure to credit
loss. The amounts exchanged are determined by reference to the
notional amount and the other terms of the contracts.
F-39
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
17. |
Fair Value of Financial Instruments |
The Company has estimated the fair value of its financial
instruments as of December 31, 2005 and 2004 using
available market information or other appropriate valuation
methodologies. Considerable judgment, however, is required in
interpreting market data to develop the estimates of fair value.
Accordingly, the estimates presented in the accompanying
consolidated financial statements are not necessarily indicative
of the amounts the Company would realize in a current market
exchange.
The carrying amounts of cash, receivables, payables and other
current assets and liabilities approximate fair value because of
the short maturity of those instruments. The Company is exposed
to market price risk volatility with respect to investments in
publicly traded and privately held entities.
The fair value of interest rate agreements represents the
estimated amount the Company would receive or pay upon
termination of the agreements. Management believes that the
sellers of the interest rate agreements will be able to meet
their obligations under the agreements. In addition, some of the
interest rate agreements are with certain of the participating
banks under the Companys credit facilities, thereby
reducing the exposure to credit loss. The Company has policies
regarding the financial stability and credit standing of major
counterparties. Nonperformance by the counterparties is not
anticipated nor would it have a material adverse effect on the
Companys consolidated financial condition or results of
operations.
The estimated fair value of the Companys notes and
interest rate agreements at December 31, 2005 and 2004 are
based on quoted market prices, and the fair value of the credit
facilities is based on dealer quotations.
A summary of the carrying value and fair value of the
Companys debt and related interest rate agreements at
December 31, 2005 and 2004 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
Carrying | |
|
Fair | |
|
Carrying | |
|
Fair | |
|
|
Value | |
|
Value | |
|
Value | |
|
Value | |
|
|
| |
|
| |
|
| |
|
| |
Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charter convertible notes
|
|
$ |
863 |
|
|
$ |
647 |
|
|
$ |
990 |
|
|
$ |
1,127 |
|
|
Charter Holdings debt
|
|
|
1,746 |
|
|
|
1,145 |
|
|
|
8,579 |
|
|
|
7,669 |
|
|
CIH debt
|
|
|
2,472 |
|
|
|
1,469 |
|
|
|
|
|
|
|
|
|
|
CCH I debt
|
|
|
3,683 |
|
|
|
2,959 |
|
|
|
|
|
|
|
|
|
|
CCH II debt
|
|
|
1,601 |
|
|
|
1,592 |
|
|
|
1,601 |
|
|
|
1,698 |
|
|
CCO Holdings debt
|
|
|
1,344 |
|
|
|
1,299 |
|
|
|
1,050 |
|
|
|
1,064 |
|
|
Charter Operating debt
|
|
|
1,833 |
|
|
|
1,820 |
|
|
|
1,500 |
|
|
|
1,563 |
|
|
Credit facilities
|
|
|
5,731 |
|
|
|
5,719 |
|
|
|
5,515 |
|
|
|
5,502 |
|
|
Other
|
|
|
115 |
|
|
|
114 |
|
|
|
229 |
|
|
|
236 |
|
Interest Rate Agreements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets (Liabilities)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swaps
|
|
|
(4 |
) |
|
|
(4 |
) |
|
|
(69 |
) |
|
|
(69 |
) |
|
Collars
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
(1 |
) |
The weighted average interest pay rate for the Companys
interest rate swap agreements was 9.51% and 8.07% at
December 31, 2005 and 2004, respectively.
F-40
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Revenues consist of the following for the years presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Video
|
|
$ |
3,248 |
|
|
$ |
3,217 |
|
|
$ |
3,306 |
|
High-speed Internet
|
|
|
875 |
|
|
|
712 |
|
|
|
535 |
|
Telephone
|
|
|
36 |
|
|
|
18 |
|
|
|
14 |
|
Advertising sales
|
|
|
284 |
|
|
|
279 |
|
|
|
254 |
|
Commercial
|
|
|
266 |
|
|
|
227 |
|
|
|
196 |
|
Other
|
|
|
324 |
|
|
|
307 |
|
|
|
311 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,033 |
|
|
$ |
4,760 |
|
|
$ |
4,616 |
|
|
|
|
|
|
|
|
|
|
|
Operating expenses consist of the following for the years
presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Programming
|
|
$ |
1,359 |
|
|
$ |
1,264 |
|
|
$ |
1,195 |
|
Service
|
|
|
748 |
|
|
|
638 |
|
|
|
595 |
|
Advertising sales
|
|
|
96 |
|
|
|
92 |
|
|
|
83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,203 |
|
|
$ |
1,994 |
|
|
$ |
1,873 |
|
|
|
|
|
|
|
|
|
|
|
|
|
20. |
Selling, General and Administrative Expenses |
Selling, general and administrative expenses consist of the
following for the years presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
General and administrative
|
|
$ |
856 |
|
|
$ |
815 |
|
|
$ |
802 |
|
Marketing
|
|
|
142 |
|
|
|
119 |
|
|
|
103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
998 |
|
|
$ |
934 |
|
|
$ |
905 |
|
|
|
|
|
|
|
|
|
|
|
Components of selling expense are included in general and
administrative and marketing expense.
|
|
21. |
Stock Compensation Plans |
The Company grants stock options, restricted stock and other
incentive compensation pursuant to the 2001 Stock Incentive Plan
of Charter (the 2001 Plan). Prior to 2001, options
were granted under the 1999 Option Plan of Charter Holdco (the
1999 Plan).
The 1999 Plan provided for the grant of options to purchase
membership units in Charter Holdco to current and prospective
employees and consultants of Charter Holdco and its affiliates
and current and prospective non-employee directors of Charter.
Options granted generally vest over five years from the grant
date, with 25% vesting 15 months after the anniversary of
the grant date and ratably thereafter. Options not exercised
accumulate and are exercisable, in whole or in part, in any
subsequent period, but not later than 10 years from the
date of grant. Membership units received upon exercise of the
options are automatically exchanged into Class A common
stock of Charter on a one-for-one basis.
F-41
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The 2001 Plan provides for the grant of non-qualified stock
options, stock appreciation rights, dividend equivalent rights,
performance units and performance shares, share awards, phantom
stock and/or shares of restricted stock (not to exceed
20,000,000), as each term is defined in the 2001 Plan.
Employees, officers, consultants and directors of the Company
and its subsidiaries and affiliates are eligible to receive
grants under the 2001 Plan. Options granted generally vest over
four years from the grant date, with 25% vesting on the
anniversary of the grant date and ratably thereafter. Generally,
options expire 10 years from the grant date.
The 2001 Plan allows for the issuance of up to a total of
90,000,000 shares of Charter Class A common stock (or
units convertible into Charter Class A common stock). The
total shares available reflect a July 2003 amendment to the 2001
Plan approved by the board of directors and the shareholders of
Charter to increase available shares by 30,000,000 shares.
In 2001, any shares covered by options that terminated under the
1999 Plan were transferred to the 2001 Plan, and no new options
can be granted under the 1999 Plan.
In the years ended December 31, 2005, 2004 and 2003,
certain directors were awarded a total of 492,225, 182,932 and
80,603 shares, respectively, of restricted Class A
common stock of which 44,121 shares had been cancelled as
of December 31, 2005. The shares vest one year from the
date of grant. In 2005, 2004 and 2003, in connection with new
employment agreements, certain officers were awarded 2,987,500,
50,000 and 50,000 shares, respectively, of restricted
Class A common stock of which 68,750 shares had been
cancelled as of December 31, 2005. The shares vest annually
over a one to three-year period beginning from the date of
grant. As of December 31, 2005, deferred compensation
remaining to be recognized in future period totaled
$2 million.
A summary of the activity for the Companys stock options,
excluding granted shares of restricted Class A common
stock, for the years ended December 31, 2005, 2004 and
2003, is as follows (amounts in thousands, except per share
data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
|
|
Weighted | |
|
|
|
Weighted | |
|
|
|
Weighted | |
|
|
|
|
Average | |
|
|
|
Average | |
|
|
|
Average | |
|
|
|
|
Exercise | |
|
|
|
Exercise | |
|
|
|
Exercise | |
|
|
Shares | |
|
Price | |
|
Shares | |
|
Price | |
|
Shares | |
|
Price | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Options outstanding, beginning of period
|
|
|
24,835 |
|
|
$ |
6.57 |
|
|
|
47,882 |
|
|
$ |
12.48 |
|
|
|
53,632 |
|
|
$ |
14.22 |
|
Granted
|
|
|
10,810 |
|
|
|
1.36 |
|
|
|
9,405 |
|
|
|
4.88 |
|
|
|
7,983 |
|
|
|
3.53 |
|
Exercised
|
|
|
(17 |
) |
|
|
1.11 |
|
|
|
(839 |
) |
|
|
2.02 |
|
|
|
(165 |
) |
|
|
3.96 |
|
Cancelled
|
|
|
(6,501 |
) |
|
|
7.40 |
|
|
|
(31,613 |
) |
|
|
15.16 |
|
|
|
(13,568 |
) |
|
|
14.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, end of period
|
|
|
29,127 |
|
|
$ |
4.47 |
|
|
|
24,835 |
|
|
$ |
6.57 |
|
|
|
47,882 |
|
|
$ |
12.48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average remaining contractual life
|
|
|
8 years |
|
|
|
|
|
|
|
8 years |
|
|
|
|
|
|
|
8 years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable, end of period
|
|
|
9,999 |
|
|
$ |
7.80 |
|
|
|
7,731 |
|
|
$ |
10.77 |
|
|
|
22,861 |
|
|
$ |
16.36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average fair value of options granted
|
|
$ |
0.65 |
|
|
|
|
|
|
$ |
3.71 |
|
|
|
|
|
|
$ |
2.71 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-42
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes information about stock options
outstanding and exercisable as of December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding | |
|
Options Exercisable | |
|
|
| |
|
| |
|
|
|
|
Weighted- | |
|
|
|
|
|
Weighted- | |
|
|
|
|
|
|
Average | |
|
Weighted- | |
|
|
|
Average | |
|
Weighted- | |
|
|
|
|
Remaining | |
|
Average | |
|
|
|
Remaining | |
|
Average | |
|
|
Number | |
|
Contractual | |
|
Exercise | |
|
Number | |
|
Contractual | |
|
Exercise | |
Range of Exercise Prices |
|
Outstanding | |
|
Life | |
|
Price | |
|
Exercisable | |
|
Life | |
|
Price | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
|
|
|
|
|
(In thousands) | |
|
|
|
|
$ 1.11 $ 1.60
|
|
|
12,565 |
|
|
|
9 years |
|
|
$ |
1.39 |
|
|
|
1,297 |
|
|
|
9 years |
|
|
$ |
1.49 |
|
$ 2.85 $ 4.56
|
|
|
5,906 |
|
|
|
7 years |
|
|
|
3.40 |
|
|
|
3,028 |
|
|
|
7 years |
|
|
|
3.33 |
|
$ 5.06 $ 5.17
|
|
|
6,970 |
|
|
|
8 years |
|
|
|
5.15 |
|
|
|
2,187 |
|
|
|
8 years |
|
|
|
5.13 |
|
$ 9.13 $13.68
|
|
|
1,712 |
|
|
|
6 years |
|
|
|
10.96 |
|
|
|
1,513 |
|
|
|
6 years |
|
|
|
11.10 |
|
$13.96 $23.09
|
|
|
1,974 |
|
|
|
4 years |
|
|
|
19.24 |
|
|
|
1,974 |
|
|
|
4 years |
|
|
|
19.24 |
|
On January 1, 2003, the Company adopted the fair value
measurement provisions of SFAS No. 123, under which
the Company recognizes compensation expense of a stock-based
award to an employee over the vesting period based on the fair
value of the award on the grant date. Adoption of these
provisions resulted in utilizing a preferable accounting method
as the consolidated financial statements present the estimated
fair value of stock-based compensation in expense consistently
with other forms of compensation and other expense associated
with goods and services received for equity instruments. In
accordance with SFAS No. 123, the fair value method
will be applied only to awards granted or modified after
January 1, 2003, whereas awards granted prior to such date
will continue to be accounted for under APB No. 25, unless
they are modified or settled in cash. The ongoing effect on
consolidated results of operations or financial condition will
be dependent upon future stock based compensation awards
granted. The Company recorded $14 million, $31 million
and $4 million of option compensation expense for the years
ended December 31, 2005, 2004 and 2003, respectively.
In January 2004, the Company began an option exchange program in
which the Company offered its employees the right to exchange
all stock options (vested and unvested) under the 1999 Charter
Communications Option Plan and 2001 Stock Incentive Plan that
had an exercise price over $10 per share for shares of
restricted Charter Class A common stock or, in some
instances, cash. Based on a sliding exchange ratio, which varied
depending on the exercise price of an employees
outstanding options, if an employee would have received more
than 400 shares of restricted stock in exchange for
tendered options, Charter issued that employee shares of
restricted stock in the exchange. If, based on the exchange
ratios, an employee would have received 400 or fewer shares of
restricted stock in exchange for tendered options, Charter
instead paid the employee cash in an amount equal to the number
of shares the employee would have received multiplied by $5.00.
The offer applied to options (vested and unvested) to purchase a
total of 22,929,573 shares of Class A common stock, or
approximately 48% of the Companys 47,882,365 total options
issued and outstanding as of December 31, 2003.
Participation by employees was voluntary. Those members of the
Companys board of directors who were not also employees of
the Company or any of its subsidiaries were not eligible to
participate in the exchange offer.
In the closing of the exchange offer on February 20, 2004,
the Company accepted for cancellation eligible options to
purchase approximately 18,137,664 shares of its
Class A common stock. In exchange, the Company granted
1,966,686 shares of restricted stock, including 460,777
performance shares to eligible employees of the rank of senior
vice president and above, and paid a total cash amount of
approximately $4 million (which amount includes applicable
withholding taxes) to those employees who received cash rather
than shares of restricted stock. The restricted stock was
granted on February 25, 2004. Employees tendered
approximately 79% of the options eligible to be exchanged under
the program.
F-43
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The cost to the Company of the stock option exchange program was
approximately $10 million, with a 2004 cash compensation
expense of approximately $4 million and a non-cash
compensation expense of approximately $6 million to be
expensed ratably over the three-year vesting period of the
restricted stock in the exchange.
In January 2004, the Compensation Committee of the board of
directors of Charter approved Charters Long-Term Incentive
Program (LTIP), which is a program administered
under the 2001 Stock Incentive Plan. Under the LTIP, employees
of Charter and its subsidiaries whose pay classifications exceed
a certain level are eligible to receive stock options, and more
senior level employees are eligible to receive stock options and
performance shares. The stock options vest 25% on each of the
first four anniversaries of the date of grant. The performance
shares vest on the third anniversary of the grant date and
shares of Charter Class A common stock are issued,
conditional upon Charters performance against financial
performance measures established by Charters management
and approved by its board of directors as of the time of the
award. Charter granted 3.2 million and 6.9 million
shares in 2005 and 2004, respectively, under this program and
recognized expense of $1 million and $8 million in the
first three quarters of 2005 and 2004, respectively. However, in
the fourth quarter of 2005 and 2004, the Company reversed the
entire $1 million and $8 million, respectively, of
expense based on the Companys assessment of the
probability of achieving the financial performance measures
established by Charter and required to be met for the
performance shares to vest. In February 2006, the Compensation
Committee approved a modification to the financial performance
measures required to be met for the performance shares to vest
after which management believes that a approximately
2.5 million of the performance shares are likely to vest.
As such, expense of approximately $3 million will be
amortized over the remaining two year service period.
|
|
22. |
Hurricane Asset Retirement Loss |
Certain of the Companys cable systems in Louisiana
suffered significant plant damage as a result of hurricanes
Katrina and Rita in September 2005. As a result, the Company
wrote off $19 million of its plants net book value in
the third quarter of 2005.
In the fourth quarter of 2002, the Company began a workforce
reduction program and consolidation of its operations from three
divisions and ten regions into five operating divisions,
eliminating redundant practices and streamlining its management
structure. The Company has recorded special charges as a result
of reducing its workforce, executive severance and consolidating
administrative offices in 2003, 2004 and 2005. The activity
associated with this initiative is summarized in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total | |
|
|
Severance/ | |
|
|
|
|
|
Special | |
|
|
Leases | |
|
Litigation | |
|
Other | |
|
Charge | |
|
|
| |
|
| |
|
| |
|
| |
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Special Charges
|
|
|
6 |
|
|
$ |
1 |
|
|
$ |
|
|
|
$ |
7 |
|
Payments
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005
|
|
$ |
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-44
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
For the year ended December 31, 2003, the severance and
lease costs were offset by a $5 million settlement from the
Internet service provider Excite@Home related to the conversion
of high-speed Internet customers to Charter Pipeline service in
2001. For the year ended December 31, 2004, special charges
include approximately $85 million, as part of a settlement
of the consolidated federal class action and federal derivative
action lawsuits and approximately $10 million of litigation
costs related to the settlement of a 2004 national class action
suit (see Note 26). For the year ended December 31,
2004, special charges were offset by $3 million received
from a third party in settlement of a legal dispute. For the
year ended December 31, 2005, special charges also include
approximately $1 million related to various legal
settlements.
All operations are held through Charter Holdco and its direct
and indirect subsidiaries. Charter Holdco and the majority of
its subsidiaries are not subject to income tax. However, certain
of these subsidiaries are corporations and are subject to income
tax. All of the taxable income, gains, losses, deductions and
credits of Charter Holdco are passed through to its members:
Charter, Charter Investment, Inc. (CII) and Vulcan
Cable III Inc. (Vulcan Cable). Charter is
responsible for its share of taxable income or loss of Charter
Holdco allocated to Charter in accordance with the Charter
Holdco limited liability company agreement (the LLC
Agreement) and partnership tax rules and regulations.
The LLC Agreement provides for certain special allocations of
net tax profits and net tax losses (such net tax profits and net
tax losses being determined under the applicable federal income
tax rules for determining capital accounts). Under the LLC
Agreement, through the end of 2003, net tax losses of Charter
Holdco that would otherwise have been allocated to Charter based
generally on its percentage ownership of outstanding common
units were allocated instead to membership units held by Vulcan
Cable and CII (the Special Loss Allocations) to the
extent of their respective capital account balances. After 2003,
under the LLC Agreement, net tax losses of Charter Holdco are to
be allocated to Charter, Vulcan Cable and CII based generally on
their respective percentage ownership of outstanding common
units to the extent of their respective capital account
balances. Allocations of net tax losses in excess of the
members aggregate capital account balances are allocated
under the rules governing Regulatory Allocations, as described
below. Subject to the Curative Allocation Provisions described
below, the LLC Agreement further provides that, beginning at the
time Charter Holdco generates net tax profits, the net tax
profits that would otherwise have been allocated to Charter
based generally on its percentage ownership of outstanding
common membership units will instead generally be allocated to
Vulcan Cable and CII (the Special Profit
Allocations). The Special Profit Allocations to Vulcan
Cable and CII will generally continue until the cumulative
amount of the Special Profit Allocations offsets the cumulative
amount of the Special Loss Allocations. The amount and timing of
the Special Profit Allocations are subject to the potential
application of, and interaction with, the Curative Allocation
Provisions described in the following paragraph. The LLC
Agreement generally provides that any additional net tax profits
are to be allocated among the members of Charter Holdco based
generally on their respective percentage ownership of Charter
Holdco common membership units.
Because the respective capital account balance of each of Vulcan
Cable and CII was reduced to zero by December 31, 2002,
certain net tax losses of Charter Holdco that were to be
allocated for 2002, 2003, 2004 and 2005, to Vulcan Cable and CII
instead have been allocated to Charter (the Regulatory
Allocations). As a result of the allocation of net tax
losses to Charter in 2005, Charters capital account
balance was reduced to zero during 2005. The LLC Agreement
provides that once the capital account balances of all members
have been reduced to zero, net tax losses are to be allocated to
Charter, Vulcan Cable and CII based generally on their
respective percentage ownership of outstanding common units.
Such allocations are also considered to be Regulatory
Allocations. The LLC Agreement further provides that, to the
extent possible, the effect of the Regulatory Allocations is to
be offset over time pursuant to
F-45
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
certain curative allocation provisions (the Curative
Allocation Provisions) so that, after certain offsetting
adjustments are made, each members capital account balance
is equal to the capital account balance such member would have
had if the Regulatory Allocations had not been part of the LLC
Agreement. The cumulative amount of the actual tax losses
allocated to Charter as a result of the Regulatory Allocations
through the year ended December 31, 2005 is approximately
$4.1 billion.
As a result of the Special Loss Allocations and the Regulatory
Allocations referred to above (and their interaction with the
allocations related to assets contributed to Charter Holdco with
differences between book and tax basis), the cumulative amount
of losses of Charter Holdco allocated to Vulcan Cable and CII is
in excess of the amount that would have been allocated to such
entities if the losses of Charter Holdco had been allocated
among its members in proportion to their respective percentage
ownership of Charter Holdco common membership units. The
cumulative amount of such excess losses was approximately
$977 million through December 31, 2005.
In certain situations, the Special Loss Allocations, Special
Profit Allocations, Regulatory Allocations and Curative
Allocation Provisions described above could result in Charter
paying taxes in an amount that is more or less than if Charter
Holdco had allocated net tax profits and net tax losses among
its members based generally on the number of common membership
units owned by such members. This could occur due to differences
in (i) the character of the allocated income (e.g.,
ordinary versus capital), (ii) the allocated amount and
timing of tax depreciation and tax amortization expense due to
the application of section 704(c) under the Internal
Revenue Code, (iii) the potential interaction between the
Special Profit Allocations and the Curative Allocation
Provisions, (iv) the amount and timing of alternative
minimum taxes paid by Charter, if any, (v) the
apportionment of the allocated income or loss among the states
in which Charter Holdco does business, and (vi) future
federal and state tax laws. Further, in the event of new capital
contributions to Charter Holdco, it is possible that the tax
effects of the Special Profit Allocations, Special Loss
Allocations, Regulatory Allocations and Curative Allocation
Provisions will change significantly pursuant to the provisions
of the income tax regulations or the terms of a contribution
agreement with respect to such contribution. Such change could
defer the actual tax benefits to be derived by Charter with
respect to the net tax losses allocated to it or accelerate the
actual taxable income to Charter with respect to the net tax
profits allocated to it. As a result, it is possible under
certain circumstances, that Charter could receive future
allocations of taxable income in excess of its currently
allocated tax deductions and available tax loss carryforwards.
The ability to utilize net operating loss carryforwards is
potentially subject to certain limitations as discussed below.
In addition, under their exchange agreement with Charter, Vulcan
Cable and CII may exchange some or all of their membership units
in Charter Holdco for Charters Class B common stock,
be merged with Charter, or be acquired by Charter in a
non-taxable reorganization. If such an exchange were to take
place prior to the date that the Special Profit Allocation
provisions had fully offset the Special Loss Allocations, Vulcan
Cable and CII could elect to cause Charter Holdco to make the
remaining Special Profit Allocations to Vulcan Cable and CII
immediately prior to the consummation of the exchange. In the
event Vulcan Cable and CII choose not to make such election or
to the extent such allocations are not possible, Charter would
then be allocated tax profits attributable to the membership
units received in such exchange pursuant to the Special Profit
Allocation provisions. Mr. Allen has generally agreed to
reimburse Charter for any incremental income taxes that Charter
would owe as a result of such an exchange and any resulting
future Special Profit Allocations to Charter. The ability of
Charter to utilize net operating loss carryforwards is
potentially subject to certain limitations as discussed below.
If Charter were to become subject to certain limitations
(whether as a result of an exchange described above or
otherwise), and as a result were to owe taxes resulting from the
Special Profit Allocations, then Mr. Allen may not be
obligated to reimburse Charter for such income taxes.
F-46
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
For the years ended December 31, 2005, 2004 and 2003, the
Company recorded deferred income tax expense and benefits as
shown below. The income tax expense is recognized through
increases in deferred tax liabilities related to our investment
in Charter Holdco, as well as through current federal and state
income tax expense and increases in the deferred tax liabilities
of certain of our indirect corporate subsidiaries. The income
tax benefits were realized through reductions in the deferred
tax liabilities related to Charters investment in Charter
Holdco, as well as the deferred tax liabilities of certain of
Charters indirect corporate subsidiaries. In 2003, Charter
received tax loss allocations from Charter Holdco. Previously,
the tax losses had been allocated to Vulcan Cable and CII in
accordance with the Special Loss Allocations provided under the
Charter Holdco limited liability company agreement. The Company
does not expect to recognize a similar benefit related to its
investment in Charter Holdco after 2003 due to limitations on
its ability to offset future tax benefits against the remaining
deferred tax liabilities. However, the actual tax provision
calculation in future periods will be the result of current and
future temporary differences, as well as future operating
results.
Current and deferred income tax benefit (expense) is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Current expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal income taxes
|
|
$ |
(2 |
) |
|
$ |
(2 |
) |
|
$ |
(1 |
) |
|
State income taxes
|
|
|
(4 |
) |
|
|
(4 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
Current income tax expense
|
|
|
(6 |
) |
|
|
(6 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
Deferred benefit (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal income taxes
|
|
|
(95 |
) |
|
|
175 |
|
|
|
98 |
|
|
State income taxes
|
|
|
(14 |
) |
|
|
25 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax benefit (expense)
|
|
|
(109 |
) |
|
|
200 |
|
|
|
112 |
|
|
|
|
|
|
|
|
|
|
|
Total income benefit (expense)
|
|
$ |
(115 |
) |
|
$ |
194 |
|
|
$ |
110 |
|
|
|
|
|
|
|
|
|
|
|
The Company recorded the portion of the income tax benefit
associated with the adoption of EITF Topic
D-108 as a
$91 million reduction of the cumulative effect of
accounting change on the accompanying statement of operations
for the year ended December 31, 2004.
The Companys effective tax rate differs from that derived
by applying the applicable federal income tax rate of 35%, and
average state income tax rate of 5% for the years ended
December 31, 2005, 2004 and 2003 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Statutory federal income taxes
|
|
$ |
298 |
|
|
$ |
1,288 |
|
|
$ |
122 |
|
State income taxes, net of federal benefit
|
|
|
43 |
|
|
|
184 |
|
|
|
17 |
|
Valuation allowance provided
|
|
|
(456 |
) |
|
|
(1,278 |
) |
|
|
(29 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(115 |
) |
|
|
194 |
|
|
|
110 |
|
Less: cumulative effect of accounting change
|
|
|
|
|
|
|
(91 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit (expense)
|
|
$ |
(115 |
) |
|
$ |
103 |
|
|
$ |
110 |
|
|
|
|
|
|
|
|
|
|
|
F-47
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The tax effects of these temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities at December 31, 2005 and 2004 which are
included in long-term liabilities are presented below.
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
Net operating loss carryforward
|
|
$ |
4,169 |
|
|
$ |
3,833 |
|
|
Other
|
|
|
6 |
|
|
|
8 |
|
|
|
|
|
|
|
|
Total gross deferred tax assets
|
|
|
4,175 |
|
|
|
3,841 |
|
Less: valuation allowance
|
|
|
(3,656 |
) |
|
|
(3,451 |
) |
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$ |
519 |
|
|
$ |
390 |
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
Investment in Charter Holdco
|
|
$ |
(597 |
) |
|
$ |
(365 |
) |
|
Indirect Corporate Subsidiaries:
|
|
|
|
|
|
|
|
|
|
Property, plant & equipment
|
|
|
(41 |
) |
|
|
(40 |
) |
|
Franchises
|
|
|
(206 |
) |
|
|
(201 |
) |
|
|
|
|
|
|
|
Gross deferred tax liabilities
|
|
|
(844 |
) |
|
|
(606 |
) |
|
|
|
|
|
|
|
Net deferred tax liabilities
|
|
$ |
(325 |
) |
|
$ |
(216 |
) |
|
|
|
|
|
|
|
As of December 31, 2005, the Company has deferred tax
assets of $4.2 billion, which primarily relate to financial
and tax losses allocated to Charter from Charter Holdco. The
deferred tax assets include $2.4 billion of tax net
operating loss carryforwards (generally expiring in years 2006
through 2025) of Charter and its indirect corporate
subsidiaries. Valuation allowances of $3.7 billion exist
with respect to these deferred tax assets of which
$1.8 billion relate to the tax net operating loss
carryforwards.
Realization of any benefit from the Companys tax net
operating losses is dependent on: (1) Charter and its
indirect corporate subsidiaries ability to generate future
taxable income and (2) the absence of certain future
ownership changes of Charters common stock. An
ownership change as defined in the applicable
federal income tax rules, would place significant limitations,
on an annual basis, on the use of such net operating losses to
offset any future taxable income the Company may generate. Such
limitations, in conjunction with the net operating loss
expiration provisions, could effectively eliminate the
Companys ability to use a substantial portion of its net
operating losses to offset any future taxable income. Future
transactions and the timing of such transactions could cause an
ownership change. Such transactions include additional issuances
of common stock by the Company (including but not limited to the
issuance of up to a total of 150 million shares of common
stock (of which 116.9 million were issued through 2006)
under the share lending agreement), the issuance of shares of
common stock upon future conversion of Charters
convertible senior notes and the issuance of common stock in the
class action settlement discussed in Note 26, reacquisition
of the borrowed shares by Charter, or acquisitions or sales of
shares by certain holders of Charters shares, including
persons who have held, currently hold, or accumulate in the
future five percent or more of Charters outstanding stock
(including upon an exchange by Mr. Allen or his affiliates,
directly or indirectly, of membership units of Charter Holdco
into CCI common stock). Many of the foregoing transactions are
beyond managements control.
The total valuation allowance for deferred tax assets as of
December 31, 2005 and 2004 was $3.7 billion and
$3.5 billion, respectively. In assessing the realizability
of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax
assets will be
F-48
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
realized. Because of the uncertainties in projecting future
taxable income of Charter Holdco, valuation allowances have been
established except for deferred benefits available to offset
certain deferred tax liabilities.
The Company is currently under examination by the Internal
Revenue Service for the tax years ending December 31, 2002
and 2003. The Companys results (excluding Charter and its
indirect corporate subsidiaries) for these years are subject to
this examination. Management does not expect the results of this
examination to have a material adverse effect on the
Companys consolidated financial condition or results of
operations.
|
|
25. |
Related Party Transactions |
The following sets forth certain transactions in which the
Company and the directors, executive officers and affiliates of
the Company are involved. Unless otherwise disclosed, management
believes that each of the transactions described below was on
terms no less favorable to the Company than could have been
obtained from independent third parties.
Charter is a holding company and its principal assets are its
equity interest in Charter Holdco and certain mirror notes
payable by Charter Holdco to Charter and mirror preferred units
held by Charter, which have the same principal amount and terms
as those of Charters convertible senior notes and
Charters outstanding preferred stock. In 2004, Charter
Holdco paid to Charter $49 million related to interest on
the mirror notes, and Charter Holdco paid an additional
$4 million related to dividends on the mirror preferred
membership units. Further, during 2004 Charter Holdco issued
7,252,818 common membership units to Charter in cancellation of
$30 million principal amount of mirror notes so as to
mirror the issuance by Charter of Class A common stock in
exchange for a like principal amount of its outstanding
convertible notes.
Charter is a party to management arrangements with Charter
Holdco and certain of its subsidiaries. Under these agreements,
Charter provides management services for the cable systems owned
or operated by its subsidiaries. The management services include
such services as centralized customer billing services, data
processing and related support, benefits administration and
coordination of insurance coverage and self-insurance programs
for medical, dental and workers compensation claims. Costs
associated with providing these services are billed and charged
directly to the Companys operating subsidiaries and are
included within operating costs in the accompanying consolidated
statements of operations. Such costs totaled $205 million,
$195 million and $203 million for the years ended
December 31, 2005, 2004 and 2003, respectively. All other
costs incurred on the behalf of Charters operating
subsidiaries are considered a part of the management fee and are
recorded as a component of selling, general and administrative
expense, in the accompanying consolidated financial statements.
For the years ended December 31, 2005, 2004 and 2003, the
management fee charged to the Companys operating
subsidiaries approximated the expenses incurred by Charter
Holdco and Charter on behalf of the Companys operating
subsidiaries. The credit facilities of the Companys
operating subsidiaries prohibit payments of management fees in
excess of 3.5% of revenues until repayment of the outstanding
indebtedness. In the event any portion of the management fee due
and payable is not paid, it is deferred by Charter and accrued
as a liability of such subsidiaries. Any deferred amount of the
management fee will bear interest at the rate of 10% per
year, compounded annually, from the date it was due and payable
until the date it is paid.
Mr. Allen, the controlling shareholder of Charter, and a
number of his affiliates have interests in various entities that
provide services or programming to Charters subsidiaries.
Given the diverse nature of Mr. Allens investment
activities and interests, and to avoid the possibility of future
disputes as to potential business, Charter and Charter Holdco,
under the terms of their respective organizational documents,
may not, and may not allow their subsidiaries to engage in any
business transaction outside the cable transmission business
except for certain existing approved investments. Should Charter
or Charter Holdco
F-49
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
or any of their subsidiaries wish to pursue, or allow their
subsidiaries to pursue, a business transaction outside of this
scope, it must first offer Mr. Allen the opportunity to
pursue the particular business transaction. If he decides not to
pursue the business transaction and consents to Charter or its
subsidiaries engaging in the business transaction, they will be
able to do so. The cable transmission business means the
business of transmitting video, audio, including telephone, and
data over cable systems owned, operated or managed by Charter,
Charter Holdco or any of their subsidiaries from time to time.
Mr. Allen or his affiliates own or have owned equity
interests or warrants to purchase equity interests in various
entities with which the Company does business or which provides
it with products, services or programming. Among these entities
are TechTV L.L.C. (TechTV), Oxygen Media Corporation
(Oxygen Media), Digeo, Inc., Click2learn, Inc.,
Trail Blazer Inc., Action Sports Cable Network (Action
Sports) and Microsoft Corporation. In May 2004, TechTV was
sold to an unrelated third party. Mr. Allen owns 100% of
the equity of Vulcan Ventures Incorporated (Vulcan
Ventures) and Vulcan Inc. and is the president of Vulcan
Ventures. Ms. Jo Allen Patton is a director and the
President and Chief Executive Officer of Vulcan Inc. and is a
director and Vice President of Vulcan Ventures. Mr. Lance
Conn is Executive Vice President of Vulcan Inc. and Vulcan
Ventures. Mr. Savoy was a vice president and a director of
Vulcan Ventures until his resignation in September 2003 and he
resigned as a director of Charter in April 2004. The various
cable, media, Internet and telephone companies in which
Mr. Allen has invested may mutually benefit one another.
The Company can give no assurance, nor should you expect, that
any of these business relationships will be successful, that the
Company will realize any benefits from these relationships or
that the Company will enter into any business relationships in
the future with Mr. Allens affiliated companies.
Mr. Allen and his affiliates have made, and in the future
likely will make, numerous investments outside of the Company
and its business. The Company cannot assure that, in the event
that the Company or any of its subsidiaries enter into
transactions in the future with any affiliate of Mr. Allen,
such transactions will be on terms as favorable to the Company
as terms it might have obtained from an unrelated third party.
Also, conflicts could arise with respect to the allocation of
corporate opportunities between the Company and Mr. Allen
and his affiliates. The Company has not instituted any formal
plan or arrangement to address potential conflicts of interest.
The Company received or receives programming for broadcast via
its cable systems from TechTV (now G4), Oxygen Media and Trail
Blazers Inc. The Company pays a fee for the programming service
generally based on the number of customers receiving the
service. Such fees for the years ended December 31, 2005,
2004 and 2003 were each less than 1% of total operating expenses.
Tech TV. The Company received from TechTV programming for
distribution via its cable system pursuant to an affiliation
agreement. The affiliation agreement provided, among other
things, that TechTV must offer Charter certain terms and
conditions that are no less favorable in the affiliation
agreement than are given to any other distributor that serves
the same number of or fewer TechTV viewing customers.
Additionally, pursuant to the affiliation agreement, the Company
was entitled to incentive payments for channel launches through
December 31, 2003.
In March 2004, Charter Holdco entered into agreements with
Vulcan Programming and TechTV, which provide for
(i) Charter Holdco and TechTV to amend the affiliation
agreement which, among other things, revises the description of
the TechTV network content, provides for Charter Holdco to waive
certain claims against TechTV relating to alleged breaches of
the affiliation agreement and provides for TechTV to make
payment of outstanding launch receivables due to Charter Holdco
under the affiliation agreement, (ii) Vulcan Programming to
pay approximately $10 million and purchase over a
24-month period, at
fair market rates, $2 million of advertising time across
various cable networks on Charter cable systems in consideration
of the agreements, obligations, releases and waivers under the
agreements and in settlement of the aforementioned claims and
(iii) TechTV to be a provider of content relating to
F-50
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
technology and video gaming for Charters interactive
television platforms through December 31, 2006 (exclusive
for the first year). For the years ended December 31, 2005
and 2004, the Company recognized approximately $1 million
and $5 million, respectively, of the Vulcan Programming
payment as an offset to programming expense.
Oxygen. Oxygen Media LLC (Oxygen) provides
programming content aimed at the female audience for
distribution over cable systems and satellite. On July 22,
2002, Charter Holdco entered into a carriage agreement with
Oxygen whereby the Company agreed to carry programming content
from Oxygen. Under the carriage agreement, the Company currently
makes Oxygen programming available to approximately
5 million of its video customers. In August 2004, Charter
Holdco and Oxygen entered into agreements that amended and
renewed the carriage agreement. The amendment to the carriage
agreement (a) revised the number of the Companys
customers to which Oxygen programming must be carried and for
which the Company must pay, (b) released Charter Holdco
from any claims related to the failure to achieve distribution
benchmarks under the carriage agreement, (c) required
Oxygen to make payment on outstanding receivables for launch
incentives due to the Company under the carriage agreement; and
(d) requires that Oxygen provide its programming content to
the Company on economic terms no less favorable than Oxygen
provides to any other cable or satellite operator having fewer
subscribers than the Company. The renewal of the carriage
agreement (a) extends the period that the Company will
carry Oxygen programming to its customers through
January 31, 2008, and (b) requires license fees to be
paid based on customers receiving Oxygen programming, rather
than for specific customer benchmarks. For the years ended
December 31, 2005, 2004 and 2003, the Company paid Oxygen
approximately $9 million, $13 million and
$9 million, respectively. In addition, Oxygen pays the
Company launch incentives for customers launched after the first
year of the term of the carriage agreement up to a total of
$4 million. The Company recorded approximately
$0.1 million related to these launch incentives as a
reduction of programming expense for the year ended
December 31, 2005 and $1 million for each of the years
ended December 31, 2004 and 2003, respectively.
In August 2004, Charter Holdco and Oxygen also amended the
equity issuance agreement to provide for the issuance of
1 million shares of Oxygen Preferred Stock with a
liquidation preference of $33.10 per share plus accrued
dividends to Charter Holdco on February 1, 2005 in place of
the $34 million of unregistered shares of Oxygen Media
common stock required under the original equity issuance
agreement. Oxygen Media delivered these shares in March 2005.
The preferred stock is convertible into common stock after
December 31, 2007 at a conversion ratio, the numerator of
which is the liquidation preference and the denominator which is
the fair market value per share of Oxygen Media common stock on
the conversion date.
The Company recognized the guaranteed value of the investment
over the life of the carriage agreement as a reduction of
programming expense. For the years ended December 31, 2005,
2004 and 2003, the Company recorded approximately
$2 million, $13 million, and $9 million,
respectively, as a reduction of programming expense. The
carrying value of the Companys investment in Oxygen was
approximately $33 million and $32 million as of
December 31, 2005 and 2004, respectively.
Digeo, Inc. In March 2001, Charter Ventures and Vulcan
Ventures Incorporated formed DBroadband Holdings, LLC for the
sole purpose of purchasing equity interests in Digeo. In
connection with the execution of the broadband carriage
agreement, DBroadband Holdings, LLC purchased an equity interest
in Digeo funded by contributions from Vulcan Ventures
Incorporated. The equity interest is subject to a priority
return of capital to Vulcan Ventures up to the amount
contributed by Vulcan Ventures on Charter Ventures behalf.
After Vulcan Ventures recovers its amount contributed and any
cumulative loss allocations, Charter Ventures has a 100% profit
interest in DBroadband Holdings, LLC. Charter Ventures is not
required to make any capital contributions, including capital
calls to Digeo. DBroadband Holdings, LLC is therefore not
included in the Companys consolidated financial statements.
F-51
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Pursuant to an amended version of this arrangement, in 2003,
Vulcan Ventures contributed a total of $29 million to
Digeo, $7 million of which was contributed on Charter
Ventures behalf, subject to Vulcan Ventures
aforementioned priority return. Since the formation of
DBroadband Holdings, LLC, Vulcan Ventures has contributed
approximately $56 million on Charter Ventures behalf.
On September 27, 2001, Charter and Digeo Interactive
amended the broadband carriage agreement. According to the
amendment, Digeo Interactive would provide to Charter the
content for enhanced Wink interactive television
services, known as Charter Interactive Channels
(i-channels).
In order to provide the
i-channels, Digeo
Interactive sublicensed certain Wink technologies to Charter.
Charter is entitled to share in the revenues generated by the
i-channels. Currently,
the Companys digital video customers who receive
i-channels receive the
service at no additional charge.
On September 28, 2002, Charter entered into a second
amendment to its broadband carriage agreement with Digeo
Interactive. This amendment superseded the amendment of
September 27, 2001. It provided for the development by
Digeo Interactive of future features to be included in the Basic
i-TV service to be
provided by Digeo and for Digeos development of an
interactive toolkit to enable Charter to develop
interactive local content. Furthermore, Charter could request
that Digeo Interactive manage local content for a fee. The
amendment provided for Charter to pay for development of the
Basic i-TV service as
well as license fees for customers who would receive the
service, and for Charter and Digeo to split certain revenues
earned from the service. The Company paid Digeo Interactive
approximately $3 million, $3 million and
$4 million for the years ended December 31, 2005, 2004
and 2003, respectively, for customized development of the
i-channels and the local content tool kit. This amendment
expired pursuant to its terms on December 31, 2003. Digeo
Interactive is continuing to provide the Basic
i-TV service on a
month-to-month basis.
On June 30, 2003, Charter Holdco entered into an agreement
with Motorola, Inc. for the purchase of 100,000 digital video
recorder (DVR) units. The software for these
DVR units is being supplied by Digeo Interactive, LLC under a
license agreement entered into in April 2004. Under the license
agreement Digeo Interactive granted to Charter Holdco the right
to use Digeos proprietary software for the number of DVR
units that Charter deployed from a maximum of 10 headends
through year-end 2004. This maximum number of headends
restriction was expanded and eventually eliminated through
successive agreement amendments and the date for entering into
license agreements for units deployed was extended. The license
granted for each unit deployed under the agreement is valid for
five years. In addition, Charter will pay certain other fees
including a per-headend license fee and maintenance fees.
Maximum license and maintenance fees during the term of the
agreement are expected to be approximately $7 million. The
agreement provides that Charter is entitled to receive contract
terms, considered on the whole, and license fees, considered
apart from other contract terms, no less favorable than those
accorded to any other Digeo customer. Charter paid approximately
$1 million in license and maintenance fees in 2005.
In April 2004, the Company launched DVR service using units
containing the Digeo software in its Rochester, Minnesota market
using a broadband media center that is an integrated set-top
terminal with a cable converter, DVR hard drive and connectivity
to other consumer electronics devices (such as stereos, MP3
players, and digital cameras).
In May 2004, Charter Holdco entered into a binding term sheet
with Digeo Interactive for the development, testing and purchase
of 70,000 Digeo PowerKey DVR units. The term sheet provided that
the parties would proceed in good faith to negotiate, prior to
year-end 2004, definitive agreements for the development,
testing and purchase of the DVR units and that the parties would
enter into a license agreement for Digeos proprietary
software on terms substantially similar to the terms of the
license agreement described above. In November 2004, Charter
Holdco and Digeo Interactive executed the license agreement and
in December 2004, the parties executed the purchase agreement,
each on terms substantially similar to the binding term sheet.
Product development and testing has been completed. Total
F-52
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
purchase price and license and maintenance fees during the term
of the definitive agreements are expected to be approximately
$41 million. The definitive agreements are terminable at no
penalty to Charter in certain circumstances. Charter paid
approximately $10 million and $1 million for the years
ended December 31, 2005 and 2004, respectively, in capital
purchases under this agreement.
CC VIII. As part of the acquisition of the cable systems
owned by Bresnan Communications Company Limited Partnership in
February 2000, CC VIII, LLC, Charters indirect
limited liability company subsidiary, issued, after adjustments,
24,273,943 Class A preferred membership units
(collectively, the CC VIII interest) with a
value and an initial capital account of approximately
$630 million to certain sellers affiliated with AT&T
Broadband, subsequently owned by Comcast Corporation (the
Comcast sellers). Mr. Allen granted the Comcast
sellers the right to sell to him the CC VIII interest for
approximately $630 million plus 4.5% interest annually from
February 2000 (the Comcast put right). In April
2002, the Comcast sellers exercised the Comcast put right in
full, and this transaction was consummated on June 6, 2003.
Accordingly, Mr. Allen has become the holder of the
CC VIII interest, indirectly through an affiliate. In the
event of a liquidation of CC VIII, Mr. Allen would be
entitled to a priority distribution with respect to a 2%
priority return (which will continue to accrete). Any remaining
distributions in liquidation would be distributed to CC V
Holdings, LLC and Mr. Allen in proportion to CC V Holdings,
LLCs capital account and Mr. Allens capital
account (which will equal the initial capital account of the
Comcast sellers of approximately $630 million, increased or
decreased by Mr. Allens pro rata share of
CC VIIIs profits or losses (as computed for capital
account purposes) after June 6, 2003).
An issue arose as to whether the documentation for the Bresnan
transaction was correct and complete with regard to the ultimate
ownership of the CC VIII interest following consummation of
the Comcast put right. Thereafter, the board of directors of
Charter formed a Special Committee of independent directors to
investigate the matter and take any other appropriate action on
behalf of Charter with respect to this matter. After conducting
an investigation of the relevant facts and circumstances, the
Special Committee determined that a scriveners
error had occurred in February 2000 in connection with the
preparation of the last-minute revisions to the Bresnan
transaction documents and that, as a result, Charter should seek
the reformation of the Charter Holdco limited liability company
agreement, or alternative relief, in order to restore and ensure
the obligation that the CC VIII interest be automatically
exchanged for Charter Holdco units. The Special Committee
further determined that, as part of such contract reformation or
alternative relief, Mr. Allen should be required to
contribute the CC VIII interest to Charter Holdco in
exchange for 24,273,943 Charter Holdco membership units. The
Special Committee also recommended to the board of directors of
Charter that, to the extent the contract reformation is
achieved, the board of directors should consider whether the
CC VIII interest should ultimately be held by Charter
Holdco or Charter Holdings or another entity owned directly or
indirectly by them.
Mr. Allen disagreed with the Special Committees
determinations described above and so notified the Special
Committee. Mr. Allen contended that the transaction was
accurately reflected in the transaction documentation and
contemporaneous and subsequent company public disclosures. The
Special Committee and Mr. Allen determined to utilize the
Delaware Court of Chancerys program for mediation of
complex business disputes in an effort to resolve the CC VIII
interest dispute.
As of October 31, 2005, Mr. Allen, the Special
Committee, Charter, Charter Holdco and certain of their
affiliates, agreed to settle the dispute, and execute certain
permanent and irrevocable releases pursuant to the Settlement
Agreement and Mutual Release agreement dated October 31,
2005 (the Settlement). Pursuant to the Settlement,
CII has retained 30% of its CC VIII interest (the
Remaining Interests). The Remaining Interests are
subject to certain drag along, tag along and transfer
restrictions as detailed in the revised CC VIII Limited
Liability Company Agreement. CII transferred the other 70% of
the CC VIII interest directly and indirectly, through
Charter Holdco, to a newly formed entity, CCHC
F-53
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(a direct subsidiary of Charter Holdco and the direct parent of
Charter Holdings). Of the 70% of the CC VIII preferred
interests, 7.4% has been transferred by CII to CCHC for a
subordinated exchangeable note with an initial accreted value of
$48 million, accreting at 14%, compounded quarterly, with a
15-year maturity (the
Note). The remaining 62.6% has been transferred by
CII to Charter Holdco, in accordance with the terms of the
settlement for no additional monetary consideration. Charter
Holdco contributed the 62.6% interest to CCHC.
As part of the Settlement, CC VIII issued approximately
49 million additional Class B units to CC V in
consideration for prior capital contributions to CC VIII by
CC V, with respect to transactions that were unrelated to
the dispute in connection with CIIs membership units in
CC VIII. As a result, Mr. Allens pro rata share
of the profits and losses of CC VIII attributable to the
Remaining Interests is approximately 5.6%.
The Note is exchangeable, at CIIs option, at any time, for
Charter Holdco Class A Common units at a rate equal to the
then accreted value, divided by $2.00 (the Exchange
Rate). Customary anti-dilution protections have been
provided that could cause future changes to the Exchange Rate.
Additionally, the Charter Holdco Class A Common units
received will be exchangeable by the holder into Charter common
stock in accordance with existing agreements between CII,
Charter and certain other parties signatory thereto. Beginning
February 28, 2009, if the closing price of Charter common
stock is at or above the Exchange Rate for a certain period of
time as specified in the Exchange Agreement, Charter Holdco may
require the exchange of the Note for Charter Holdco Class A
Common units at the Exchange Rate.
CCHC has the right to redeem the Note under certain
circumstances, for cash in an amount equal to the then accreted
value, such amount, if redeemed prior to February 28, 2009,
would also include a make whole up to the accreted value through
February 28, 2009. CCHC must redeem the Note at its
maturity for cash in an amount equal to the initial stated value
plus the accreted return through maturity.
The Board of Directors has determined that the transferred
CC VIII interests remain at CCHC.
Helicon. In 1999, the Company purchased the Helicon cable
systems. As part of that purchase, Mr. Allen entered into a
put agreement with a certain seller of the Helicon cable systems
that received a portion of the purchase price in the form of a
preferred membership interest in Charter Helicon, LLC with a
redemption price of $25 million plus accrued interest.
Under the Helicon put agreement, such holder had the right to
sell any or all of the interest to Mr. Allen prior to its
mandatory redemption in cash on July 30, 2009. On
August 31, 2005, 40% of the preferred membership interest
was put to Mr. Allen. The remaining 60% of the preferred
interest in Charter Helicon, LLC remained subject to the put to
Mr. Allen. Such preferred interest was recorded in other
long-term liabilities. On October 6, 2005, Charter Helicon,
LLC redeemed all of the preferred membership interest for the
redemption price of $25 million plus accrued interest.
Certain related parties, including members of the board of
directors and officers, hold interests in the Companys
senior convertible debt and senior notes and discount notes of
the Companys subsidiary of approximately $60 million
of face value at December 31, 2005.
F-54
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
26. |
Commitments and Contingencies |
The following table summarizes the Companys payment
obligations as of December 31, 2005 for its contractual
obligations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total | |
|
2006 | |
|
2007 | |
|
2008 | |
|
2009 | |
|
2010 | |
|
Thereafter | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Contractual Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating and Capital Lease Obligations(1)
|
|
$ |
94 |
|
|
$ |
20 |
|
|
$ |
15 |
|
|
$ |
12 |
|
|
$ |
10 |
|
|
$ |
13 |
|
|
$ |
24 |
|
Programming Minimum Commitments(2)
|
|
|
1,253 |
|
|
|
342 |
|
|
|
372 |
|
|
|
306 |
|
|
|
233 |
|
|
|
|
|
|
|
|
|
Other(3)
|
|
|
301 |
|
|
|
146 |
|
|
|
49 |
|
|
|
21 |
|
|
|
21 |
|
|
|
21 |
|
|
|
43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
1,648 |
|
|
$ |
508 |
|
|
$ |
436 |
|
|
$ |
339 |
|
|
$ |
264 |
|
|
$ |
34 |
|
|
$ |
67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
The Company leases certain facilities and equipment under
noncancelable operating leases. Leases and rental costs charged
to expense for the years ended December 31, 2005, 2004 and
2003, were $22 million, $22 million and
$29 million, respectively. |
|
(2) |
The Company pays programming fees under multi-year contracts
ranging from three to ten years typically based on a flat fee
per customer, which may be fixed for the term or may in some
cases, escalate over the term. Programming costs included in the
accompanying statement of operations were $1.4 billion,
$1.3 billion and $1.2 billion for the years ended
December 31, 2005, 2004 and 2003, respectively. Certain of
the Companys 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 Companys programming contracts. |
|
(3) |
Other represents other guaranteed minimum
commitments, which consist primarily of commitments to the
Companys billing services vendors. |
The following items are not included in the contractual
obligation table due to various factors discussed below.
However, the Company incurs these costs as part of its
operations:
|
|
|
|
|
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, 2005, 2004 and 2003, was $44 million,
$42 million and $38 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, such as public education grants under multi-year
agreements. Franchise fees and other franchise-related costs
included in the accompanying statement of operations were
$165 million, $159 million and $157 million for
the years ended December 31, 2005, 2004 and 2003,
respectively. |
|
|
|
The Company also has $165 million in letters of credit,
primarily to its various workers 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. |
|
|
|
Securities Class Actions and Derivative Suits |
In 2002 and 2003, the Company had a series of lawsuits filed
against Charter and certain of its former and present officers
and directors (collectively the Actions). In
general, the lawsuits alleged that
F-55
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Charter utilized misleading accounting practices and failed to
disclose these accounting practices and/or issued false and
misleading financial statements and press releases concerning
Charters operations and prospects.
Charter and the individual defendants entered into a Memorandum
of Understanding on August 5, 2004 setting forth agreements
in principle regarding settlement of the Actions. Charter and
various other defendants in those actions subsequently entered
into Stipulations of Settlement dated as of January 24,
2005, setting forth a settlement of the Actions in a manner
consistent with the terms of the Memorandum of Understanding. On
June 30, 2005, the Court issued its final approval of the
settlements. At the end of September 2005, after the period for
appeals of the settlements expired, Stipulations of Dismissal
were filed with the Eighth Circuit Court of Appeals resulting in
the dismissal of the two appeals with prejudice. Procedurally
therefore, the settlements are final.
As amended, the Stipulations of Settlement provided that, in
exchange for a release of all claims by plaintiffs against
Charter and its former and present officers and directors named
in the Actions, Charter would pay to the plaintiffs a
combination of cash and equity collectively valued at
$144 million, which was to include the fees and expenses of
plaintiffs counsel. Of this amount, $64 million was
to be paid in cash (by Charters insurance carriers) and
the $80 million balance was to be paid in shares of Charter
Class A common stock having an aggregate value of
$40 million and ten-year warrants to purchase shares of
Charter Class A common stock having an aggregate warrant
value of $40 million, with such values in each case being
determined pursuant to formulas set forth in the Stipulations of
Settlement. However, Charter had the right, in its sole
discretion, to substitute cash for some or all of the
aforementioned securities on a dollar for dollar basis. Pursuant
to that right, Charter elected to fund the $80 million
obligation with 13.4 million shares of Charter Class A
common stock (having an aggregate value of approximately
$15 million pursuant to the formula set forth in the
Stipulations of Settlement) with the remaining balance (less an
agreed upon $2 million discount in respect of that portion
allocable to plaintiffs attorneys fees) to be paid
in cash. In addition, Charter had agreed to issue additional
shares of its Class A common stock to its insurance carrier
having an aggregate value of $5 million; however, by
agreement with its carrier, Charter paid $4.5 million in
cash in lieu of issuing such shares. As a result in 2004, the
Company recorded a $149 million litigation liability within
other long-term liabilities and a $64 million insurance
receivable as part of other non-current assets on its
consolidated balance sheet and an $85 million special
charge on its consolidated statement of operations. Charter
delivered the settlement consideration to the claims
administrator on July 8, 2005, and it was held in escrow
pending resolution of the appeals. Those appeals are now
resolved.
In October 2001 and 2002, two class action lawsuits were filed
against Charter alleging that Charter Holdco improperly charged
them a wire maintenance fee without request or permission. They
also claimed that Charter Holdco improperly required them to
rent analog and/or digital set-top terminals even though their
television sets were cable ready. In April 2004, the
parties participated in a mediation which resulted in settlement
of the lawsuits. As a result of the settlement, we recorded a
special charge of $9 million in our consolidated statement
of operations in 2004. In December 2004 the court entered a
written order formally approving that settlement.
Furthermore, Charter is also party to, other lawsuits and claims
that arose in the ordinary course of conducting its business. In
the opinion of management, after taking into account recorded
liabilities, the outcome of these other lawsuits and claims are
not expected to have a material adverse effect on the
Companys consolidated financial condition, results of
operations or its liquidity.
|
|
|
Regulation in the Cable Industry |
The operation of a cable system is extensively regulated by the
Federal Communications Commission (FCC), some state
governments and most local governments. The FCC has the
authority to enforce its
F-56
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
regulations through the imposition of substantial fines, the
issuance of cease and desist orders and/or the imposition of
other administrative sanctions, such as the revocation of FCC
licenses needed to operate certain transmission facilities used
in connection with cable operations. The 1996 Telecom Act
altered the regulatory structure governing the nations
communications providers. It removed barriers to competition in
both the cable television market and the local telephone market.
Among other things, it reduced the scope of cable rate
regulation and encouraged additional competition in the video
programming industry by allowing local telephone companies to
provide video programming in their own telephone service areas.
Future legislative and regulatory changes could adversely affect
the Companys operations, including, without limitation,
additional regulatory requirements the Company may be required
to comply with as it offers new services such as telephone.
|
|
27. |
Employee Benefit Plan |
The Companys employees may participate in the Charter
Communications, Inc. 401(k) Plan. Employees that qualify for
participation can contribute up to 50% of their salary, on a
pre-tax basis, subject to a maximum contribution limit as
determined by the Internal Revenue Service. The Company matches
50% of the first 5% of participant contributions. The Company
made contributions to the 401(k) plan totaling $6 million,
$7 million and $7 million for the years ended
December 31, 2005, 2004 and 2003, respectively.
|
|
28. |
Recently Issued Accounting Standards |
In November 2004, the FASB issued SFAS No. 153,
Exchanges of Non-monetary Assets An Amendment of
APB No. 29. This statement eliminates the exception to
fair value for exchanges of similar productive assets and
replaces it with a general exception for exchange transactions
that do not have commercial substance that is,
transactions that are not expected to result in significant
changes in the cash flows of the reporting entity. We adopted
this pronouncement effective April 1, 2005. The exchange
transaction discussed in Note 3 was accounted for under
this standard.
In December 2004, the FASB issued the revised
SFAS No. 123, Share Based Payment,
which addresses the accounting for share-based payment
transactions in which a company receives employee services in
exchange for (a) equity instruments of that company or
(b) liabilities that are based on the fair value of the
companys equity instruments or that may be settled by the
issuance of such equity instruments. This statement will be
effective for the Company beginning January 1, 2006.
Because Charter adopted the fair value recognition provisions of
SFAS No. 123 on January 1, 2003, the Company does
not expect this revised standard to have a material impact on
its financial statements.
In March 2005, the FASB issued FIN No. 47,
Accounting for Conditional Asset Retirement Obligations.
This interpretation clarifies that the term conditional
asset retirement obligation as used in FASB Statement
No. 143, Accounting for Asset Retirement
Obligations, refers to a legal obligation to perform an
asset retirement activity in which the timing and/or method of
settlement are conditional on a future event that may or may not
be within the control of the entity. This pronouncement is
effective for fiscal years ending after December 15, 2005.
The adoption of this interpretation did not have a material
impact on our financial statements.
Charter does not believe that any other recently issued, but not
yet effective accounting pronouncements, if adopted, would have
a material effect on the Companys accompanying financial
statements.
F-57
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
29. |
Parent Company Only Financial Statements |
As the result of limitations on, and prohibitions of,
distributions, substantially all of the net assets of the
consolidated subsidiaries are restricted from distribution to
Charter, the parent company. The following condensed parent-only
financial statements of Charter account for the investment in
Charter Holdco under the equity method of accounting. The
financial statements should be read in conjunction with the
consolidated financial statements of the Company and notes
thereto.
F-58
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Charter Communications, Inc. (Parent Company Only)
Condensed Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
ASSETS |
Cash and cash equivalents
|
|
$ |
|
|
|
$ |
|
|
Receivable from related party
|
|
|
9 |
|
|
|
20 |
|
Notes receivable from Charter Holdco
|
|
|
886 |
|
|
|
1,073 |
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
895 |
|
|
$ |
1,093 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS DEFICIT |
Current liabilities
|
|
$ |
20 |
|
|
$ |
20 |
|
Convertible notes
|
|
|
863 |
|
|
|
990 |
|
Deferred income taxes
|
|
|
113 |
|
|
|
6 |
|
Losses in excess of investment
|
|
|
4,814 |
|
|
|
4,406 |
|
Other long term liabilities
|
|
|
1 |
|
|
|
22 |
|
Preferred stock redeemable
|
|
|
4 |
|
|
|
55 |
|
Shareholders deficit
|
|
|
(4,920 |
) |
|
|
(4,406 |
) |
|
|
|
|
|
|
|
Total liabilities and shareholders deficit
|
|
$ |
895 |
|
|
$ |
1,093 |
|
|
|
|
|
|
|
|
Condensed Statement of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$ |
76 |
|
|
$ |
52 |
|
|
$ |
69 |
|
Management fees
|
|
|
35 |
|
|
|
15 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
111 |
|
|
|
67 |
|
|
|
80 |
|
|
|
|
|
|
|
|
|
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in losses of Charter Holdco
|
|
|
(865 |
) |
|
|
(4,488 |
) |
|
|
(359 |
) |
General and administrative expenses
|
|
|
(35 |
) |
|
|
(14 |
) |
|
|
(11 |
) |
Interest expense
|
|
|
(73 |
) |
|
|
(49 |
) |
|
|
(65 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
(973 |
) |
|
|
(4,551 |
) |
|
|
(435 |
) |
|
|
|
|
|
|
|
|
|
|
Net loss before income taxes
|
|
|
(862 |
) |
|
|
(4,484 |
) |
|
|
(355 |
) |
Income tax (expense) benefit
|
|
|
(105 |
) |
|
|
143 |
|
|
|
117 |
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(967 |
) |
|
|
(4,341 |
) |
|
|
(238 |
) |
Dividend on preferred equity
|
|
|
(3 |
) |
|
|
(4 |
) |
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
Net loss after preferred dividends
|
|
$ |
(970 |
) |
|
$ |
(4,345 |
) |
|
$ |
(242 |
) |
|
|
|
|
|
|
|
|
|
|
F-59
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss after preferred dividends
|
|
$ |
(970 |
) |
|
$ |
(4,345 |
) |
|
$ |
(242 |
) |
|
Equity in losses of Charter Holdco
|
|
|
865 |
|
|
|
4,488 |
|
|
|
359 |
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
(1 |
) |
|
|
(9 |
) |
|
Deferred income taxes
|
|
|
105 |
|
|
|
(143 |
) |
|
|
(117 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from operating activities
|
|
|
|
|
|
|
(1 |
) |
|
|
(9 |
) |
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables from Charter Holdco
|
|
|
|
|
|
|
(863 |
) |
|
|
|
|
|
Payments from Charter Holdco
|
|
|
132 |
|
|
|
588 |
|
|
|
|
|
|
Investment in Charter Holdco
|
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from investing activities
|
|
|
132 |
|
|
|
(277 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of convertible notes
|
|
|
|
|
|
|
863 |
|
|
|
|
|
|
Paydown of convertible notes
|
|
|
(132 |
) |
|
|
(588 |
) |
|
|
|
|
|
Net proceeds from issuance of common stock
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from financing activities
|
|
|
(132 |
) |
|
|
277 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET DECREASE IN CASH AND CASH EQUIVALENTS
|
|
|
|
|
|
|
(1 |
) |
|
|
(9 |
) |
CASH AND CASH EQUIVALENTS, beginning of year
|
|
|
|
|
|
|
1 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, end of year
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
30. |
Unaudited Quarterly Financial Data |
The following table presents quarterly data for the periods
presented on the consolidated statement of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2005 | |
|
|
| |
|
|
First | |
|
Second | |
|
Third | |
|
Fourth | |
|
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
|
| |
|
| |
|
| |
|
| |
Revenues
|
|
$ |
1,215 |
|
|
$ |
1,266 |
|
|
$ |
1,265 |
|
|
$ |
1,287 |
|
Operating income from continuing operations
|
|
|
42 |
|
|
|
100 |
|
|
|
54 |
|
|
|
108 |
|
Income (loss) from continuing operations before minority
interest and income taxes
|
|
|
(343 |
) |
|
|
(331 |
) |
|
|
99 |
|
|
|
(317 |
) |
Net income (loss) applicable to common stock
|
|
|
(353 |
) |
|
|
(356 |
) |
|
|
75 |
|
|
|
(336 |
) |
Basic income (loss) per common share
|
|
|
(1.16 |
) |
|
|
(1.18 |
) |
|
|
0.24 |
|
|
|
(1.06 |
) |
Diluted income (loss) per common share
|
|
|
(1.16 |
) |
|
|
(1.18 |
) |
|
|
0.09 |
|
|
|
(1.06 |
) |
Weighted-average shares outstanding, basic
|
|
|
303,308,880 |
|
|
|
303,620,347 |
|
|
|
316,214,740 |
|
|
|
317,272,233 |
|
Weighted-average shares outstanding, diluted
|
|
|
303,308,880 |
|
|
|
303,620,347 |
|
|
|
1,012,591,842 |
|
|
|
317,272,233 |
|
F-60
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2004 | |
|
|
| |
|
|
First | |
|
Second | |
|
Third | |
|
Fourth | |
|
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
|
| |
|
| |
|
| |
|
| |
Revenues
|
|
$ |
1,161 |
|
|
$ |
1,185 |
|
|
$ |
1,194 |
|
|
$ |
1,220 |
|
Operating income (loss) from continuing operations
|
|
|
167 |
|
|
|
7 |
|
|
|
(2,215 |
) |
|
|
99 |
|
Loss from continuing operations before minority interest and
income taxes
|
|
|
(243 |
) |
|
|
(376 |
) |
|
|
(2,645 |
) |
|
|
(330 |
) |
Net loss applicable to common stock
|
|
|
(294 |
) |
|
|
(416 |
) |
|
|
(3,295 |
) |
|
|
(340 |
) |
Basic and diluted loss per common share
|
|
|
(1.00 |
) |
|
|
(1.39 |
) |
|
|
(10.89 |
) |
|
|
(1.12 |
) |
Weighted-average shares outstanding, basic and diluted
|
|
|
295,106,077 |
|
|
|
300,522,815 |
|
|
|
302,604,978 |
|
|
|
302,934,348 |
|
31. Subsequent Events
In February 2006, the Company signed two separate definitive
agreements to sell certain cable television systems serving a
total of approximately 316,000 analog video customers in West
Virginia, Virginia, Illinois and Kentucky for a total of
approximately $896 million. The closings of these
transactions are expected to occur in the third quarter of 2006.
Under the terms of the Bridge Loan, bridge availability will be
reduced by the proceeds of asset sales.
F-61
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
INDEX TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OF
CHARTER COMMUNICATIONS, INC.
AS OF JUNE 30, 2006, AND FOR THE THREE-MONTH AND
SIX-MONTH PERIODS
ENDED JUNE 30, 2006 AND 2005
|
|
|
|
|
|
|
Page | |
|
|
| |
|
|
|
F-63 |
|
|
|
|
F-64 |
|
|
|
|
F-65 |
|
|
|
|
F-66 |
|
|
|
|
F-67 |
|
F-62
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Charter Communications, Inc.:
We have reviewed the condensed consolidated balance sheet of
Charter Communications, Inc. and subsidiaries (the Company) as
of June 30, 2006, the related condensed consolidated
statements of operations for the three-month and six-month
periods ended June 30, 2006 and 2005, and the related
condensed consolidated statements of cash flows for the
six-month periods ended June 30, 2006 and 2005. These
condensed consolidated financial statements are the
responsibility of the Companys management.
We conducted our reviews in accordance with the standards of the
Public Company Accounting Oversight Board (United States). A
review of interim financial information consists principally of
applying analytical procedures and making inquiries of persons
responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in
accordance with the standards of the Public Company Accounting
Oversight Board (United States), the objective of which is the
expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material
modifications that should be made to the condensed consolidated
financial statements referred to above for them to be in
conformity with U.S. generally accepted accounting
principles.
We have previously audited, in accordance with standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheet of the Company as of
December 31, 2005, and the related consolidated statements
of operations, changes in shareholders equity (deficit),
and cash flows for the year then ended (not presented herein),
and in our report dated February 27, 2006, which includes
explanatory paragraphs regarding the adoption, effective
September 30, 2004, of EITF Topic
D-108, Use of the
Residual Method to Value Acquired Assets Other than
Goodwill, and effective January 1, 2003, of Statement
of Financial Accounting Standards (SFAS) No. 123,
Accounting for Stock-Based Compensation, as amended by
SFAS No. 148, Accounting for Stock Based
Compensation Transition and Disclosure
an amendment of FASB Statement No. 123, we expressed an
unqualified opinion on those consolidated financial statements.
In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of December 31,
2005, is fairly stated, in all material respects, in relation to
the consolidated balance sheet from which it has been derived.
St. Louis, Missouri
August 7, 2006
F-63
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Millions, Except Share Data)
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, | |
|
December 31, | |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
|
(Unaudited) | |
|
|
ASSETS
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
56 |
|
|
$ |
21 |
|
|
Accounts receivable, less allowance for doubtful accounts of $19
and $17, respectively
|
|
|
180 |
|
|
|
214 |
|
|
Prepaid expenses and other current assets
|
|
|
84 |
|
|
|
92 |
|
|
Assets held for sale
|
|
|
768 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,088 |
|
|
|
327 |
|
|
|
|
|
|
|
|
INVESTMENT IN CABLE PROPERTIES:
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net of accumulated depreciation
of $7,054 and $6,749, respectively
|
|
|
5,392 |
|
|
|
5,840 |
|
|
Franchises, net
|
|
|
9,280 |
|
|
|
9,826 |
|
|
|
|
|
|
|
|
|
|
Total investment in cable properties, net
|
|
|
14,672 |
|
|
|
15,666 |
|
|
|
|
|
|
|
|
OTHER NONCURRENT ASSETS
|
|
|
385 |
|
|
|
438 |
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
16,145 |
|
|
$ |
16,431 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS DEFICIT
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$ |
1,220 |
|
|
$ |
1,191 |
|
|
Liabilities held for sale
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,240 |
|
|
|
1,191 |
|
|
|
|
|
|
|
|
LONG-TERM DEBT
|
|
|
19,860 |
|
|
|
19,388 |
|
|
|
|
|
|
|
|
NOTE PAYABLE RELATED PARTY
|
|
|
53 |
|
|
|
49 |
|
|
|
|
|
|
|
|
DEFERRED MANAGEMENT FEES RELATED PARTY
|
|
|
14 |
|
|
|
14 |
|
|
|
|
|
|
|
|
OTHER LONG-TERM LIABILITIES
|
|
|
547 |
|
|
|
517 |
|
|
|
|
|
|
|
|
MINORITY INTEREST
|
|
|
189 |
|
|
|
188 |
|
|
|
|
|
|
|
|
PREFERRED STOCK REDEEMABLE; $.001 par value;
1 million shares authorized; 36,713 shares issued and
outstanding
|
|
|
4 |
|
|
|
4 |
|
|
|
|
|
|
|
|
SHAREHOLDERS DEFICIT:
|
|
|
|
|
|
|
|
|
|
Class A Common stock; $.001 par value;
1.75 billion shares authorized; 438,474,028 and
416,204,671 shares issued and outstanding, respectively
|
|
|
|
|
|
|
|
|
|
Class B Common stock; $.001 par value;
750 million shares authorized; 50,000 shares issued
and outstanding
|
|
|
|
|
|
|
|
|
|
Preferred stock; $.001 par value; 250 million shares
authorized; no non-redeemable shares issued and outstanding
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
5,240 |
|
|
|
5,241 |
|
|
Accumulated deficit
|
|
|
(11,007 |
) |
|
|
(10,166 |
) |
|
Accumulated other comprehensive income
|
|
|
5 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
Total shareholders deficit
|
|
|
(5,762 |
) |
|
|
(4,920 |
) |
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders deficit
|
|
$ |
16,145 |
|
|
$ |
16,431 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
F-64
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Millions, Except Share and Per Share Data)
Unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, | |
|
Six Months Ended June 30, | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
REVENUES
|
|
$ |
1,383 |
|
|
$ |
1,266 |
|
|
$ |
2,703 |
|
|
$ |
2,481 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS AND EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (excluding depreciation and amortization)
|
|
|
611 |
|
|
|
546 |
|
|
|
1,215 |
|
|
|
1,081 |
|
|
Selling, general and administrative
|
|
|
279 |
|
|
|
250 |
|
|
|
551 |
|
|
|
483 |
|
|
Depreciation and amortization
|
|
|
340 |
|
|
|
364 |
|
|
|
690 |
|
|
|
730 |
|
|
Asset impairment charges
|
|
|
|
|
|
|
8 |
|
|
|
99 |
|
|
|
39 |
|
|
Other operating (income) expenses, net
|
|
|
7 |
|
|
|
(2 |
) |
|
|
10 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,237 |
|
|
|
1,166 |
|
|
|
2,565 |
|
|
|
2,339 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income from continuing operations
|
|
|
146 |
|
|
|
100 |
|
|
|
138 |
|
|
|
142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME AND (EXPENSES):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(475 |
) |
|
|
(451 |
) |
|
|
(943 |
) |
|
|
(871 |
) |
|
Other income (expenses), net
|
|
|
(21 |
) |
|
|
17 |
|
|
|
(10 |
) |
|
|
49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(496 |
) |
|
|
(434 |
) |
|
|
(953 |
) |
|
|
(822 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes
|
|
|
(350 |
) |
|
|
(334 |
) |
|
|
(815 |
) |
|
|
(680 |
) |
INCOME TAX EXPENSE
|
|
|
(52 |
) |
|
|
(25 |
) |
|
|
(60 |
) |
|
|
(56 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(402 |
) |
|
|
(359 |
) |
|
|
(875 |
) |
|
|
(736 |
) |
INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX
|
|
|
20 |
|
|
|
4 |
|
|
|
34 |
|
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(382 |
) |
|
|
(355 |
) |
|
|
(841 |
) |
|
|
(707 |
) |
Dividends on preferred stock redeemable
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss applicable to common stock
|
|
$ |
(382 |
) |
|
$ |
(356 |
) |
|
$ |
(841 |
) |
|
$ |
(709 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS PER COMMON SHARE, BASIC AND DILUTED:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
$ |
(1.27 |
) |
|
$ |
(1.18 |
) |
|
$ |
(2.76 |
) |
|
$ |
(2.43 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(1.20 |
) |
|
$ |
(1.17 |
) |
|
$ |
(2.65 |
) |
|
$ |
(2.34 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, basic and diluted
|
|
|
317,646,946 |
|
|
|
303,620,347 |
|
|
|
317,531,492 |
|
|
|
303,465,474 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
F-65
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
Unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended | |
|
|
June 30, | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(841 |
) |
|
$ |
(707 |
) |
|
Adjustments to reconcile net loss to net cash flows from
operating activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
698 |
|
|
|
759 |
|
|
|
Asset impairment charges
|
|
|
99 |
|
|
|
39 |
|
|
|
Noncash interest expense
|
|
|
87 |
|
|
|
114 |
|
|
|
Deferred income taxes
|
|
|
60 |
|
|
|
43 |
|
|
|
Other, net
|
|
|
17 |
|
|
|
(45 |
) |
|
Changes in operating assets and liabilities, net of effects from
acquisitions and dispositions:
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
30 |
|
|
|
1 |
|
|
|
Prepaid expenses and other assets
|
|
|
29 |
|
|
|
|
|
|
|
Accounts payable, accrued expenses and other
|
|
|
26 |
|
|
|
(23 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash flows from operating activities
|
|
|
205 |
|
|
|
181 |
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
|
(539 |
) |
|
|
(542 |
) |
|
Change in accrued expenses related to capital expenditures
|
|
|
(9 |
) |
|
|
45 |
|
|
Proceeds from sale of assets
|
|
|
9 |
|
|
|
8 |
|
|
Purchase of cable system
|
|
|
(42 |
) |
|
|
|
|
|
Proceeds from investments
|
|
|
28 |
|
|
|
17 |
|
|
Other, net
|
|
|
|
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash flows from investing activities
|
|
|
(553 |
) |
|
|
(477 |
) |
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Borrowings of long-term debt
|
|
|
5,830 |
|
|
|
635 |
|
|
Repayments of long-term debt
|
|
|
(5,858 |
) |
|
|
(946 |
) |
|
Proceeds from issuance of debt
|
|
|
440 |
|
|
|
|
|
|
Payments for debt issuance costs
|
|
|
(29 |
) |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash flows from financing activities
|
|
|
383 |
|
|
|
(314 |
) |
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
35 |
|
|
|
(610 |
) |
CASH AND CASH EQUIVALENTS, beginning of period
|
|
|
21 |
|
|
|
650 |
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, end of period
|
|
$ |
56 |
|
|
$ |
40 |
|
|
|
|
|
|
|
|
CASH PAID FOR INTEREST
|
|
$ |
791 |
|
|
$ |
744 |
|
|
|
|
|
|
|
|
NONCASH TRANSACTIONS:
|
|
|
|
|
|
|
|
|
|
Issuance of debt by Charter Communications Operating, LLC
|
|
$ |
37 |
|
|
$ |
333 |
|
|
|
|
|
|
|
|
|
Retirement of Renaissance Media Group LLC debt
|
|
$ |
(37 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
Retirement of Charter Communications Holdings, LLC debt
|
|
$ |
|
|
|
$ |
(346 |
) |
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
F-66
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in Millions, Except Share and Per Share Amounts and
Where Indicated)
|
|
1. |
Organization and Basis of Presentation |
Charter Communications, Inc. (Charter) is a holding
company whose principal assets at June 30, 2006 are the 48%
controlling common equity interest in Charter Communications
Holding Company, LLC (Charter Holdco) and
mirror notes that are payable by Charter Holdco to
Charter and have the same principal amount and terms as those of
Charters convertible senior notes. Charter Holdco is the
sole owner of CCHC, LLC (CCHC), which is the sole
owner of Charter Communications Holdings, LLC (Charter
Holdings). The condensed consolidated financial statements
include the accounts of Charter, Charter Holdco, CCHC, Charter
Holdings and all of their subsidiaries where the underlying
operations reside, which are collectively referred to herein as
the Company. Charter has 100% voting control over
Charter Holdco and had historically consolidated on that basis.
Charter continues to consolidate Charter Holdco as a variable
interest entity under Financial Accounting Standards Board
(FASB) Interpretation (FIN) 46(R)
Consolidation of Variable Interest Entities. Charter
Holdcos limited liability company agreement provides that
so long as Charters Class B common stock retains its
special voting rights, Charter will maintain a 100% voting
interest in Charter Holdco. Voting control gives Charter full
authority and control over the operations of Charter Holdco. All
significant intercompany accounts and transactions among
consolidated entities have been eliminated. The Company is a
broadband communications company operating in the United States.
The Company offers its customers traditional cable video
programming (analog and digital video) as well as high-speed
Internet services and, in some areas, advanced broadband
services such as high definition television, video on demand,
and telephone. The Company sells its cable video programming,
high-speed Internet and advanced broadband services on a
subscription basis. The Company also sells local advertising on
satellite-delivered networks.
The accompanying condensed consolidated financial statements of
the Company have been prepared in accordance with accounting
principles generally accepted in the United States for interim
financial information and the rules and regulations of the
Securities and Exchange Commission (the SEC).
Accordingly, certain information and footnote disclosures
typically included in Charters Annual Report on
Form 10-K have
been condensed or omitted for this quarterly report. The
accompanying condensed consolidated financial statements are
unaudited and are subject to review by regulatory authorities.
However, in the opinion of management, such financial statements
include all adjustments, which consist of only normal recurring
adjustments, necessary for a fair presentation of the results
for the periods presented. Interim results are not necessarily
indicative of results for a full year.
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Areas involving
significant judgments and estimates include capitalization of
labor and overhead costs; depreciation and amortization costs;
impairments of property, plant and equipment, franchises and
goodwill; income taxes; and contingencies. Actual results could
differ from those estimates.
Certain 2005 amounts have been reclassified to conform with the
2006 presentation.
|
|
2. |
Liquidity and Capital Resources |
The Company had net loss applicable to common stock of
$382 million and $356 million for the three months
ended June 30, 2006 and 2005, respectively, and
$841 million and $709 million for the six months
F-67
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(UNAUDITED)
(Dollars in Millions, Except Share and Per Share Amounts and
Where Indicated)
ended June 30, 2006 and 2005, respectively. The
Companys net cash flows from operating activities were
$205 million and $181 million for the six months ended
June 30, 2006 and 2005, respectively.
|
|
|
Recent Financing Transactions |
In January 2006, CCH II, LLC (CCH II) and
CCH II Capital Corp. issued $450 million in debt
securities, the proceeds of which were provided, directly or
indirectly, to Charter Communications Operating, LLC
(Charter Operating), which used such funds to reduce
borrowings, but not commitments, under the revolving portion of
its credit facilities.
In April 2006, Charter Operating completed a $6.85 billion
refinancing of its credit facilities including a new
$350 million revolving/term facility (which converts to a
term loan no later than April 2007), a $5.0 billion term
loan due in 2013 and certain amendments to the existing
$1.5 billion revolving credit facility. In addition, the
refinancing reduced margins on Eurodollar rate term loans to
2.625% from a weighted average of 3.15% previously and margins
on base rate term loans to 1.625% from a weighted average of
2.15% previously. Concurrent with this refinancing, the CCO
Holdings, LLC (CCO Holdings) bridge loan was
terminated.
The Company has a significant level of debt. The Companys
long-term financing as of June 30, 2006 consists of
$5.8 billion of credit facility debt, $13.2 billion
accreted value of high-yield notes and $848 million
accreted value of convertible senior notes. For the remainder of
2006, none of the Companys debt matures, and in 2007 and
2008, $130 million and $50 million mature,
respectively. In 2009 and beyond, significant additional amounts
will become due under the Companys remaining long-term
debt obligations.
The Company requires significant cash to fund debt service
costs, capital expenditures and ongoing operations. The Company
has historically funded these requirements through cash flows
from operating activities, borrowings under its credit
facilities, sales of assets, issuances of debt and equity
securities and cash on hand. However, the mix of funding sources
changes from period to period. For the six months ended
June 30, 2006, the Company generated $205 million of
net cash flows from operating activities, after paying cash
interest of $791 million. In addition, the Company used
approximately $539 million for purchases of property, plant
and equipment. Finally, the Company had net cash flows from
financing activities of $383 million.
The Company expects that cash on hand, cash flows from operating
activities, proceeds from sales of assets, and the amounts
available under its credit facilities will be adequate to meet
its cash needs through 2007. The Company believes that cash
flows from operating activities and amounts available under the
Companys credit facilities may not be sufficient to fund
the Companys operations and satisfy its interest and
principal repayment obligations in 2008, and will not be
sufficient to fund such needs in 2009 and beyond. The Company
continues to work with its financial advisors in its approach to
addressing liquidity, debt maturities and its overall balance
sheet leverage.
The Companys ability to operate depends upon, among other
things, its continued access to capital, including credit under
the Charter Operating credit facilities. The Charter Operating
credit facilities, along with the Companys indentures,
contain certain restrictive covenants, some of which require the
Company to maintain specified financial ratios, and meet
financial tests and to provide annual audited financial
statements with an unqualified opinion from the Companys
independent auditors. As of June 30, 2006, the Company is
in compliance with the covenants under its indentures and credit
facilities, and the
F-68
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(UNAUDITED)
(Dollars in Millions, Except Share and Per Share Amounts and
Where Indicated)
Company expects to remain in compliance with those covenants for
the next twelve months. As of June 30, 2006, the
Companys potential availability under its credit
facilities totaled approximately $900 million, none of
which was limited by covenant restrictions. In the past, the
Companys actual availability under its credit facilities
has been limited by covenant restrictions. There can be no
assurance that the Companys actual availability under its
credit facilities will not be limited by covenant restrictions
in the future. However, pro forma for the closing of the asset
sales on July 1, 2006, and the related application of net
proceeds to repay amounts outstanding under the Companys
revolving credit facility, potential availability under the
Companys credit facilities as of June 30, 2006 would
have been approximately $1.7 billion, although actual
availability would have been limited to $1.3 billion
because of limits imposed by covenant restrictions. Continued
access to the Companys credit facilities is subject to the
Company remaining in compliance with these covenants, including
covenants tied to the Companys operating performance. If
any events of non-compliance occur, funding under the credit
facilities may not be available and defaults on some or
potentially all of the Companys debt obligations could
occur. An event of default under any of the Companys debt
instruments could result in the acceleration of its payment
obligations under that debt and, under certain circumstances, in
cross-defaults under its other debt obligations, which could
have a material adverse effect on the Companys
consolidated financial condition and results of operations.
Charters ability to make interest payments on its
convertible senior notes, and, in 2009, to repay the outstanding
principal of its convertible senior notes of $863 million,
will depend on its ability to raise additional capital and/or on
receipt of payments or distributions from Charter Holdco and its
subsidiaries. As of June 30, 2006, Charter Holdco was owed
$3 million in intercompany loans from its subsidiaries,
which were available to pay interest and principal on
Charters convertible senior notes. In addition, Charter
has $74 million of U.S. government securities pledged
as security for the next three scheduled semi-annual interest
payments on Charters 5.875% convertible senior notes.
Distributions by Charters subsidiaries to a parent company
(including Charter, Charter Holdco and CCHC) for payment of
principal on parent company notes are restricted under the
indentures governing the CIH notes, CCH I notes, CCH II
notes, CCO Holdings notes, and Charter Operating notes unless
there is no default under the applicable indenture, each
applicable subsidiarys leverage ratio test is met at the
time of such distribution and, in the case of the convertible
senior notes, other specified tests are met. For the quarter
ended June 30, 2006, there was no default under any of
these indentures and each such subsidiary met its applicable
leverage ratio tests based on June 30, 2006 financial
results. Such distributions would be restricted, however, if any
such subsidiary fails to meet these tests at such time. In the
past, certain subsidiaries have from time to time failed to meet
their leverage ratio test. There can be no assurance that they
will satisfy these tests at the time of such distribution.
Distributions by Charter Operating for payment of principal on
parent company notes are further restricted by the covenants in
the credit facilities.
Distributions by CIH, CCH I, CCH II, CCO Holdings and
Charter Operating to a parent company for payment of parent
company interest are permitted if there is no default under the
aforementioned indentures. However, distributions for payment of
interest on the convertible senior notes are further limited to
when each applicable subsidiarys leverage ratio test is
met and other specified tests are met. There can be no assurance
that the subsidiary will satisfy these tests at the time of such
distribution.
The indentures governing the Charter Holdings notes permit
Charter Holdings to make distributions to Charter Holdco for
payment of interest or principal on the convertible senior
notes, only if, after giving
F-69
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(UNAUDITED)
(Dollars in Millions, Except Share and Per Share Amounts and
Where Indicated)
effect to the distribution, Charter Holdings can incur
additional debt under the leverage ratio of 8.75 to 1.0, there
is no default under Charter Holdings indentures, and other
specified tests are met. For the quarter ended June 30,
2006, there was no default under Charter Holdings
indentures and Charter Holdings met its leverage ratio test
based on June 30, 2006 financial results. Such
distributions would be restricted, however, if Charter Holdings
fails to meet these tests at such time. In the past, Charter
Holdings has from time to time failed to meet this leverage
ratio test. There can be no assurance that Charter Holdings will
satisfy these tests at the time of such distribution. During
periods in which distributions are restricted, the indentures
governing the Charter Holdings notes permit Charter Holdings and
its subsidiaries to make specified investments (that are not
restricted payments) in Charter Holdco or Charter up to an
amount determined by a formula, as long as there is no default
under the indentures.
In 2006, the Company signed three separate definitive agreements
to sell certain cable television systems serving a total of
approximately 356,000 analog video customers in 1) West
Virginia and Virginia to Cebridge Connections, Inc. (the
Cebridge Transaction); 2) Illinois and Kentucky
to Telecommunications Management, LLC, doing business as New
Wave Communications (the New Wave Transaction) and
3) Nevada, Colorado, New Mexico and Utah to Orange
Broadband Holding Company, LLC (the Orange
Transaction) for a total of approximately
$971 million. These cable systems met the criteria for
assets held for sale. As such, the assets were written down to
fair value less estimated costs to sell resulting in asset
impairment charges during the six months ended June 30,
2006 of approximately $99 million related to the New Wave
Transaction and the Orange Transaction. In the third quarter of
2006, the Company expects to record a gain of approximately
$200 million on the Cebridge Transaction. In addition,
assets and liabilities to be sold have been presented as held
for sale. Assets held for sale on the Companys balance
sheet as of June 30, 2006 included current assets of
approximately $6 million, property, plant and equipment of
approximately $319 million and franchises of approximately
$443 million. Liabilities held for sale on the
Companys balance sheet as of June 30, 2006 included
current liabilities of approximately $7 million and other
long-term liabilities of approximately $13 million.
During the second quarter of 2006, the Company determined, based
on changes in the Companys organizational and cost
structure, that its asset groupings for long lived asset
accounting purposes are at the level of their individual market
areas, which are at a level below the Companys geographic
clustering. As a result, the Company has determined that the
West Virginia and Virginia cable systems comprise operations and
cash flows that for financial reporting purposes meet the
criteria for discontinued operations. Accordingly, the results
of operations for the West Virginia and Virginia cable systems
have been presented as discontinued operations, net of tax for
the three and six months ended June 30, 2006 and all prior
periods presented herein have been reclassified to conform to
the current presentation.
Summarized consolidated financial information for the three and
six months ended June 30, 2006 and 2005 for the West
Virginia and Virginia cable systems is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months | |
|
Six Months | |
|
|
Ended June 30, | |
|
Ended June 30, | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
Revenues
|
|
$ |
55 |
|
|
$ |
57 |
|
|
$ |
109 |
|
|
$ |
113 |
|
Income before income taxes
|
|
$ |
23 |
|
|
$ |
10 |
|
|
$ |
38 |
|
|
$ |
19 |
|
Income tax benefit (expense)
|
|
$ |
(3 |
) |
|
$ |
(6 |
) |
|
$ |
(4 |
) |
|
$ |
10 |
|
Net income
|
|
$ |
20 |
|
|
$ |
4 |
|
|
$ |
34 |
|
|
$ |
29 |
|
Earnings per common share, basic and diluted
|
|
$ |
0.06 |
|
|
$ |
0.01 |
|
|
$ |
0.11 |
|
|
$ |
0.10 |
|
F-70
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(UNAUDITED)
(Dollars in Millions, Except Share and Per Share Amounts and
Where Indicated)
In July 2006, the Company closed the Cebridge Transaction and
New Wave Transaction for net proceeds of approximately
$896 million. The Company used the net proceeds from the
asset sales to repay (but not reduce permanently) amounts
outstanding under the Companys revolving credit facility.
The Orange Transaction is scheduled to close in the third
quarter of 2006.
In 2005, the Company closed the sale of certain cable systems in
Texas, West Virginia and Nebraska representing a total of
approximately 33,000 analog video customers. During the six
months ended June 30, 2005, certain of those cable systems
met the criteria for assets held for sale. As such, the assets
were written down to fair value less estimated costs to sell
resulting in asset impairment charges during the three and six
months ended June 30, 2005 of approximately $8 million
and $39 million, respectively.
|
|
4. |
Franchises and Goodwill |
Franchise rights represent the value attributed to agreements
with local authorities that allow access to homes in cable
service areas acquired through the purchase of cable systems.
Management estimates the fair value of franchise rights at the
date of acquisition and determines if the franchise has a finite
life or an indefinite-life as defined by Statement of Financial
Accounting Standards (SFAS) No. 142,
Goodwill and Other Intangible Assets. Franchises that
qualify for indefinite-life treatment under
SFAS No. 142 are tested for impairment annually each
October 1 based on valuations, or more frequently as
warranted by events or changes in circumstances. Franchises are
aggregated into essentially inseparable asset groups to conduct
the valuations. The asset groups generally represent
geographical clustering of the Companys cable systems into
groups by which such systems are managed. Management believes
such grouping represents the highest and best use of those
assets.
As of June 30, 2006 and December 31, 2005,
indefinite-lived and finite-lived intangible assets are
presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2006 | |
|
December 31, 2005 | |
|
|
| |
|
| |
|
|
Gross | |
|
|
|
Net | |
|
Gross | |
|
|
|
Net | |
|
|
Carrying | |
|
Accumulated | |
|
Carrying | |
|
Carrying | |
|
Accumulated | |
|
Carrying | |
|
|
Amount | |
|
Amortization | |
|
Amount | |
|
Amount | |
|
Amortization | |
|
Amount | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Indefinite-lived
intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchises with
indefinite lives
|
|
$ |
9,263 |
|
|
$ |
|
|
|
$ |
9,263 |
|
|
$ |
9,806 |
|
|
$ |
|
|
|
$ |
9,806 |
|
|
Goodwill
|
|
|
61 |
|
|
|
|
|
|
|
61 |
|
|
|
52 |
|
|
|
|
|
|
|
52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
9,324 |
|
|
$ |
|
|
|
$ |
9,324 |
|
|
$ |
9,858 |
|
|
$ |
|
|
|
$ |
9,858 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finite-lived
intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchises with
finite lives
|
|
$ |
23 |
|
|
$ |
6 |
|
|
$ |
17 |
|
|
$ |
27 |
|
|
$ |
7 |
|
|
$ |
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2006, the net carrying
amount of indefinite-lived and finite-lived franchises was
reduced by $441 million and $2 million, respectively,
related to franchises reclassified as assets held for sale. For
the six months ended June 30, 2006, franchises with
indefinite lives also decreased $3 million related to a
cable asset sale completed in the first quarter of 2006 and
$99 million as a result of the asset impairment charges
recorded related to assets held for sale (see Note 3).
Franchise amortization expense for the three and six months
ended June 30, 2006 was approximately $1 million and
$1 million, respectively, and $1 million and
$2 million for the three and six months ended June 30,
2005, respectively,
F-71
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(UNAUDITED)
(Dollars in Millions, Except Share and Per Share Amounts and
Where Indicated)
which represents the amortization relating to franchises that
did not qualify for indefinite-life treatment under
SFAS No. 142, including costs associated with
franchise renewals. The Company expects that amortization
expense on franchise assets will be approximately
$2 million annually for each of the next five years. Actual
amortization expense in future periods could differ from these
estimates as a result of new intangible asset acquisitions or
divestitures, changes in useful lives and other relevant factors.
For the six months ended June 30, 2006, the net carrying
amount of goodwill increased $9 million as a result of the
Companys purchase of certain cable systems in Minnesota
from Seren Innovations, Inc. in January 2006.
|
|
5. |
Accounts Payable and Accrued Expenses |
Accounts payable and accrued expenses consist of the following
as of June 30, 2006 and December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
June 30, | |
|
December 31, | |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
Accounts payable trade
|
|
$ |
86 |
|
|
$ |
114 |
|
Accrued capital expenditures
|
|
|
64 |
|
|
|
73 |
|
Accrued expenses:
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
398 |
|
|
|
333 |
|
|
Programming costs
|
|
|
297 |
|
|
|
272 |
|
|
Franchise-related fees
|
|
|
55 |
|
|
|
67 |
|
|
Compensation
|
|
|
94 |
|
|
|
90 |
|
|
Other
|
|
|
226 |
|
|
|
242 |
|
|
|
|
|
|
|
|
|
|
$ |
1,220 |
|
|
$ |
1,191 |
|
|
|
|
|
|
|
|
Long-term debt consists of the following as of June 30,
2006 and December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2006 | |
|
December 31, 2005 | |
|
|
| |
|
| |
|
|
Principal | |
|
Accreted | |
|
Principal | |
|
Accreted | |
|
|
Amount | |
|
Value | |
|
Amount | |
|
Value | |
|
|
| |
|
| |
|
| |
|
| |
Long-Term Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charter Communications, Inc.:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.750% convertible senior notes due 2006
|
|
$ |
|
|
|
$ |
|
|
|
$ |
20 |
|
|
$ |
20 |
|
|
|
5.875% convertible senior notes due 2009
|
|
|
863 |
|
|
|
848 |
|
|
|
863 |
|
|
|
843 |
|
F-72
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(UNAUDITED)
(Dollars in Millions, Except Share and Per Share Amounts and
Where Indicated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2006 | |
|
December 31, 2005 | |
|
|
| |
|
| |
|
|
Principal | |
|
Accreted | |
|
Principal | |
|
Accreted | |
|
|
Amount | |
|
Value | |
|
Amount | |
|
Value | |
|
|
| |
|
| |
|
| |
|
| |
|
Charter Communications Holdings, LLC:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.250% senior notes due 2007
|
|
|
105 |
|
|
|
105 |
|
|
|
105 |
|
|
|
105 |
|
|
|
8.625% senior notes due 2009
|
|
|
292 |
|
|
|
292 |
|
|
|
292 |
|
|
|
292 |
|
|
|
9.920% senior discount notes due 2011
|
|
|
198 |
|
|
|
198 |
|
|
|
198 |
|
|
|
198 |
|
|
|
10.000% senior notes due 2009
|
|
|
154 |
|
|
|
154 |
|
|
|
154 |
|
|
|
154 |
|
|
|
10.250% senior notes due 2010
|
|
|
49 |
|
|
|
49 |
|
|
|
49 |
|
|
|
49 |
|
|
|
11.750% senior discount notes due 2010
|
|
|
43 |
|
|
|
43 |
|
|
|
43 |
|
|
|
43 |
|
|
|
10.750% senior notes due 2009
|
|
|
131 |
|
|
|
131 |
|
|
|
131 |
|
|
|
131 |
|
|
|
11.125% senior notes due 2011
|
|
|
217 |
|
|
|
217 |
|
|
|
217 |
|
|
|
217 |
|
|
|
13.500% senior discount notes due 2011
|
|
|
94 |
|
|
|
94 |
|
|
|
94 |
|
|
|
94 |
|
|
|
9.625% senior notes due 2009
|
|
|
107 |
|
|
|
107 |
|
|
|
107 |
|
|
|
107 |
|
|
|
10.000% senior notes due 2011
|
|
|
137 |
|
|
|
136 |
|
|
|
137 |
|
|
|
136 |
|
|
|
11.750% senior discount notes due 2011
|
|
|
125 |
|
|
|
125 |
|
|
|
125 |
|
|
|
120 |
|
|
|
12.125% senior discount notes due 2012
|
|
|
113 |
|
|
|
106 |
|
|
|
113 |
|
|
|
100 |
|
|
CCH I Holdings, LLC:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11.125% senior notes due 2014
|
|
|
151 |
|
|
|
151 |
|
|
|
151 |
|
|
|
151 |
|
|
|
9.920% senior discount notes due 2014
|
|
|
471 |
|
|
|
471 |
|
|
|
471 |
|
|
|
471 |
|
|
|
10.000% senior notes due 2014
|
|
|
299 |
|
|
|
299 |
|
|
|
299 |
|
|
|
299 |
|
|
|
11.750% senior discount notes due 2014
|
|
|
815 |
|
|
|
815 |
|
|
|
815 |
|
|
|
781 |
|
|
|
13.500% senior discount notes due 2014
|
|
|
581 |
|
|
|
581 |
|
|
|
581 |
|
|
|
578 |
|
|
|
12.125% senior discount notes due 2015
|
|
|
217 |
|
|
|
203 |
|
|
|
217 |
|
|
|
192 |
|
|
CCH I, LLC:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11.000% senior notes due 2015
|
|
|
3,525 |
|
|
|
3,678 |
|
|
|
3,525 |
|
|
|
3,683 |
|
|
CCH II, LLC:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.250% senior notes due 2010
|
|
|
2,051 |
|
|
|
2,042 |
|
|
|
1,601 |
|
|
|
1,601 |
|
|
CCO Holdings, LLC:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83/4
% senior notes due 2013
|
|
|
800 |
|
|
|
795 |
|
|
|
800 |
|
|
|
794 |
|
|
|
Senior floating 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
|
|
|
770 |
|
|
|
770 |
|
|
|
733 |
|
|
|
733 |
|
|
Renaissance Media Group LLC:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.000% senior discount notes due 2008
|
|
|
|
|
|
|
|
|
|
|
114 |
|
|
|
115 |
|
Credit Facilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charter Operating
|
|
|
5,800 |
|
|
|
5,800 |
|
|
|
5,731 |
|
|
|
5,731 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
19,758 |
|
|
$ |
19,860 |
|
|
$ |
19,336 |
|
|
$ |
19,388 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accreted values presented above generally represent the
principal amount of the notes less the original issue discount
at the time of sale plus the accretion to the balance sheet date
except as follows. The accreted value of the CIH notes issued in
exchange for Charter Holdings notes and the portion of the CCH I
notes issued in 2005 in exchange for the 8.625% Charter Holdings
notes due 2009 are recorded at
F-73
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(UNAUDITED)
(Dollars in Millions, Except Share and Per Share Amounts and
Where Indicated)
the historical book values of the Charter Holdings notes for
financial reporting purposes as opposed to the current accreted
value for legal purposes and notes indenture purposes (the
amount that is currently payable if the debt becomes immediately
due). As of June 30, 2006, the accreted value of the
Companys debt for legal purposes and notes indenture
purposes is approximately $19.4 billion.
In January 2006, CCH II and CCH II Capital Corp.
issued $450 million in debt securities, the proceeds of
which were provided, directly or indirectly, to Charter
Operating, which used such funds to reduce borrowings, but not
commitments, under the revolving portion of its credit
facilities.
In March 2006, the Company exchanged $37 million of
Renaissance Media Group LLC 10% senior discount notes due
2008 for $37 million principal amount of new Charter
Operating
83/8% senior
second-lien notes due 2014 issued in a private transaction under
Rule 144A. The terms and conditions of the new Charter
Operating
83/8% senior
second-lien notes due 2014 are identical to Charter
Operatings currently outstanding
83/8
% senior second-lien notes due 2014. In June 2006,
the Company retired the remaining $77 million principal
amount of Renaissance Media Group LLCs 10% senior
discount notes due 2008.
In June 2006, the Company retired the remaining $20 million
principal amount of Charters 4.75% convertible senior
notes due 2006.
|
|
|
Gain (loss) on extinguishment of debt |
In April 2006, Charter Operating completed a $6.85 billion
refinancing of its credit facilities including a new
$350 million revolving/term facility (which converts to a
term loan no later than April 2007), a $5.0 billion term
loan due in 2013 and certain amendments to the existing
$1.5 billion revolving credit facility. In addition, the
refinancing reduced margins on Eurodollar rate term loans to
2.625% from a weighted average of 3.15% previously and margins
on base rate term loans to 1.625% from a weighted average of
2.15% previously. Concurrent with this refinancing, the CCO
Holdings bridge loan was terminated. The refinancing resulted in
a loss on extinguishment of debt for the three and six months
ended June 30, 2006 of approximately $27 million
included in other income (expenses), net on the Companys
condensed consolidated statements of operations.
In March and June 2005, Charter Operating consummated exchange
transactions with a small number of institutional holders of
Charter Holdings 8.25% senior notes due 2007 pursuant to
which Charter Operating issued, in private placements,
approximately $333 million principal amount of new notes
with terms identical to Charter Operatings
8.375% senior second lien notes due 2014 in exchange for
approximately $346 million of the Charter Holdings
8.25% senior notes due 2007. The exchanges resulted in a
loss on extinguishment of debt of approximately $1 million
for the three months ended June 30, 2005 and a gain on
extinguishment of debt of approximately $10 million for the
six months ended June 30, 2005 included in other income
(expenses), net on the Companys condensed consolidated
statements of operations. The Charter Holdings notes received in
the exchange were thereafter distributed to Charter Holdings and
cancelled.
During the three and six months ended June 30, 2005, the
Company repurchased in private transactions from a small number
of institutional holders, a total of $97 million and
$131 million, respectively, principal amount of its
4.75% convertible senior notes due 2006. These transactions
resulted in a net gain on extinguishment of debt of
approximately $3 million and $4 million for the three
and six months ended June 30, 2005, respectively, included
in other income (expenses), net on the Companys condensed
consolidated statements of operations.
In March 2005, Charters subsidiary, CC V Holdings, LLC,
redeemed all of its 11.875% notes due 2008, at 103.958% of
principal amount, plus accrued and unpaid interest to the date
of redemption. The
F-74
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(UNAUDITED)
(Dollars in Millions, Except Share and Per Share Amounts and
Where Indicated)
total cost of redemption was approximately $122 million and
was funded through borrowings under the Charter Operating credit
facilities. The redemption resulted in a loss on extinguishment
of debt for the six months ended June 30, 2005 of
approximately $5 million included in other income
(expenses), net on the Companys condensed consolidated
statements of operations. Following such redemption, CC V
Holdings, LLC and its subsidiaries (other than non-guarantor
subsidiaries) became guarantors under the Charter Operating
credit facilities and granted a lien on their assets to the same
extent as granted by the other guarantors under the credit
facility.
|
|
7. |
Minority Interest and Equity Interest of Charter Holdco |
Charter is a holding company whose primary assets are a
controlling equity interest in Charter Holdco, the indirect
owner of the Companys cable systems, and $848 million
and $863 million at June 30, 2006 and
December 31, 2005, respectively, of mirror notes that are
payable by Charter Holdco to Charter and have the same principal
amount and terms as those of Charters convertible senior
notes. Minority interest on the Companys consolidated
balance sheets as of June 30, 2006 and December 31,
2005 primarily represents preferred membership interests in CC
VIII, LLC (CC VIII), an indirect subsidiary of
Charter Holdco, of $189 million and $188 million,
respectively. As more fully described in Note 19, this
preferred interest is held by Mr. Allen, Charters
Chairman and controlling shareholder, and CCHC. Approximately
5.6% of CC VIIIs income is allocated to minority interest.
|
|
8. |
Share Lending Agreement |
Charter issued 94.9 million and 22.0 million shares of
Class A common stock during 2005 and the six months ended
June 30, 2006, respectively, in public offerings. The
shares were issued pursuant to the share lending agreement,
pursuant to which Charter had previously agreed to loan up to
150 million shares to Citigroup Global Markets Limited
(CGML). Because less than the full 150 million
shares covered by the share lending agreement were sold in
offerings through June 30, 2006, Charter is obligated to
issue until November 2006, at CGMLs request, up to an
additional 33.1 million loaned shares in subsequent
registered public offerings pursuant to the share lending
agreement.
These offerings of Charters Class A common stock were
conducted to facilitate transactions by which investors in
Charters 5.875% convertible senior notes due 2009,
issued on November 22, 2004, hedged their investments in
the convertible senior notes. Charter did not receive any of the
proceeds from the sale of this Class A common stock.
However, under the share lending agreement, Charter received a
loan fee of $.001 for each share that it lends to CGML.
The issuance of up to a total of 150 million shares of
common stock (of which 116.9 million were issued in 2005
and 2006) pursuant to this share lending agreement is
essentially analogous to a sale of shares coupled with a forward
contract for the reacquisition of the shares at a future date.
An instrument that requires physical settlement by repurchase of
a fixed number of shares in exchange for cash is considered a
forward purchase instrument. While the share lending agreement
does not require a cash payment upon return of the shares,
physical settlement is required (i.e., the shares borrowed must
be returned at the end of the arrangement). The fair value of
the 116.9 million shares lent is approximately
$132 million as of June 30, 2006. However, the net
effect on shareholders deficit of the shares lent pursuant
to the share lending agreement, which includes Charters
requirement to lend the shares and the counterparties
requirement to return the shares, is de minimis and represents
the cash received upon lending of the shares and is equal to the
par value of the common stock to be issued.
The 116.9 million shares issued through June 30, 2006
pursuant to the share lending agreement are required to be
returned, in accordance with the contractual arrangement, and
are treated in basic and
F-75
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(UNAUDITED)
(Dollars in Millions, Except Share and Per Share Amounts and
Where Indicated)
diluted earnings per share as if they were already returned and
retired. Consequently, there is no impact of the shares of
common stock lent under the share lending agreement in the
earnings per share calculation.
Certain marketable equity securities are classified as
available-for-sale and reported at market value with unrealized
gains and losses recorded as accumulated other comprehensive
loss on the accompanying condensed consolidated balance sheets.
Additionally, the Company reports changes in the fair value of
interest rate agreements designated as hedging the variability
of cash flows associated with floating-rate debt obligations,
that meet the effectiveness criteria of SFAS No. 133,
Accounting for Derivative Instruments and Hedging
Activities, in accumulated other comprehensive loss, after
giving effect to the minority interest share of such gains and
losses. Comprehensive loss for the three months ended
June 30, 2006 and 2005 was $381 million and
$355 million, respectively, and $841 million and
$704 million for the six months ended June 30, 2006
and 2005, respectively.
|
|
10. |
Accounting for Derivative Instruments and Hedging
Activities |
The Company uses interest rate risk management derivative
instruments, such as interest rate swap agreements and interest
rate collar agreements (collectively referred to herein as
interest rate agreements) to manage its interest costs. The
Companys policy is to manage interest costs using a mix of
fixed and variable rate debt. Using interest rate swap
agreements, the Company has agreed to exchange, at specified
intervals through 2007, the difference between fixed and
variable interest amounts calculated by reference to an
agreed-upon notional principal amount. Interest rate collar
agreements are used to limit the Companys exposure to and
benefits from interest rate fluctuations on variable rate debt
to within a certain range of rates.
The Company does not hold or issue derivative instruments for
trading purposes. The Company does, however, have certain
interest rate derivative instruments that have been designated
as cash flow hedging instruments. Such instruments effectively
convert variable interest payments on certain debt instruments
into fixed payments. For qualifying hedges,
SFAS No. 133 allows derivative gains and losses to
offset related results on hedged items in the consolidated
statement of operations. The Company has formally documented,
designated and assessed the effectiveness of transactions that
receive hedge accounting. For each of the three months ended
June 30, 2006 and 2005, other income includes gains of $0,
and for the six months ended June 30, 2006 and 2005, other
income includes gains of $2 million and $1 million,
respectively, which represent cash flow hedge ineffectiveness on
interest rate hedge agreements arising from differences between
the critical terms of the agreements and the related hedged
obligations. Changes in the fair value of interest rate
agreements designated as hedging instruments of the variability
of cash flows associated with floating-rate debt obligations
that meet the effectiveness criteria of SFAS No. 133
are reported in accumulated other comprehensive loss. For the
three months ended June 30, 2006 and 2005, a gain of
$1 million and $0, respectively, and for the six months
ended June 30, 2006 and 2005, a gain of $0 and
$9 million, respectively, related to derivative instruments
designated as cash flow hedges, was recorded in accumulated
other comprehensive loss and minority interest. The amounts are
subsequently reclassified into interest expense as a yield
adjustment in the same period in which the related interest on
the floating-rate debt obligations affects earnings (losses).
Certain interest rate derivative instruments are not designated
as hedges as they do not meet the effectiveness criteria
specified by SFAS No. 133. However, management
believes such instruments are closely correlated with the
respective debt, thus managing associated risk. Interest rate
derivative instruments not designated as hedges are marked to
fair value, with the impact recorded as other income
F-76
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(UNAUDITED)
(Dollars in Millions, Except Share and Per Share Amounts and
Where Indicated)
in the Companys condensed consolidated statements of
operations. For the three months ended June 30, 2006 and
2005, other income includes gains of $3 million and losses
of $1 million, respectively, and for the six months ended
June 30, 2006 and 2005, other income includes gains of
$9 million and $25 million, respectively, for interest
rate derivative instruments not designated as hedges.
As of June 30, 2006 and December 31, 2005, the Company
had outstanding $1.8 billion and $1.8 billion and
$20 million and $20 million, respectively, in notional
amounts of interest rate swaps and collars, respectively. The
notional amounts of interest rate instruments do not represent
amounts exchanged by the parties and, thus, are not a measure of
exposure to credit loss. The amounts exchanged are determined by
reference to the notional amount and the other terms of the
contracts.
Certain provisions of the Companys 5.875% convertible
senior notes due 2009 are considered embedded derivatives for
accounting purposes and are required to be accounted for
separately from the convertible senior notes. In accordance with
SFAS No. 133, these derivatives are marked to market
with gains or losses recorded in interest expense on the
Companys condensed consolidated statement of operations.
For the three months ended June 30, 2006 and 2005, the
Company recognized gains of $0 and $8 million,
respectively, and for the six months ended June 30, 2006
and 2005, the Company recognized gains of $2 million and
$27 million, respectively. The gains resulted in a
reduction in interest expense related to these derivatives. At
June 30, 2006 and December 31, 2005, $1 million
and $1 million, respectively, is recorded in accounts
payable and accrued expenses relating to the short-term portion
of these derivatives and $0 and $1 million, respectively,
is recorded in other long-term liabilities related to the
long-term portion.
Revenues consist of the following for the three and six months
ended June 30, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months | |
|
Six Months | |
|
|
Ended | |
|
Ended | |
|
|
June 30, | |
|
June 30, | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
Video
|
|
$ |
853 |
|
|
$ |
821 |
|
|
$ |
1,684 |
|
|
$ |
1,623 |
|
High-speed Internet
|
|
|
261 |
|
|
|
218 |
|
|
|
506 |
|
|
|
425 |
|
Telephone
|
|
|
29 |
|
|
|
8 |
|
|
|
49 |
|
|
|
14 |
|
Advertising sales
|
|
|
79 |
|
|
|
73 |
|
|
|
147 |
|
|
|
135 |
|
Commercial
|
|
|
76 |
|
|
|
66 |
|
|
|
149 |
|
|
|
128 |
|
Other
|
|
|
85 |
|
|
|
80 |
|
|
|
168 |
|
|
|
156 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,383 |
|
|
$ |
1,266 |
|
|
$ |
2,703 |
|
|
$ |
2,481 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-77
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(UNAUDITED)
(Dollars in Millions, Except Share and Per Share Amounts and
Where Indicated)
Operating expenses consist of the following for the three and
six months ended June 30, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months | |
|
Six Months | |
|
|
Ended | |
|
Ended | |
|
|
June 30, | |
|
June 30, | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
Programming
|
|
$ |
379 |
|
|
$ |
336 |
|
|
$ |
755 |
|
|
$ |
678 |
|
Service
|
|
|
205 |
|
|
|
186 |
|
|
|
408 |
|
|
|
356 |
|
Advertising sales
|
|
|
27 |
|
|
|
24 |
|
|
|
52 |
|
|
|
47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
611 |
|
|
$ |
546 |
|
|
$ |
1,215 |
|
|
$ |
1,081 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13. |
Selling, General and Administrative Expenses |
Selling, general and administrative expenses consist of the
following for the three and six months ended June 30, 2006
and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months | |
|
Six Months | |
|
|
Ended | |
|
Ended | |
|
|
June 30, | |
|
June 30, | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
General and administrative
|
|
$ |
236 |
|
|
$ |
220 |
|
|
$ |
471 |
|
|
$ |
418 |
|
Marketing
|
|
|
43 |
|
|
|
30 |
|
|
|
80 |
|
|
|
65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
279 |
|
|
$ |
250 |
|
|
$ |
551 |
|
|
$ |
483 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of selling expense are included in general and
administrative and marketing expense.
|
|
14. |
Other Operating (Income) Expenses, Net |
Other operating (income) expenses, net consist of the following
for the three and six months ended June 30, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months | |
|
Six Months | |
|
|
Ended | |
|
Ended | |
|
|
June 30, | |
|
June 30, | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
Loss on sale of assets, net
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
4 |
|
Special charges, net
|
|
|
7 |
|
|
|
(2 |
) |
|
|
10 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
7 |
|
|
$ |
(2 |
) |
|
$ |
10 |
|
|
$ |
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special charges for the three and six months ended June 30,
2006 primarily represent severance associated with the closing
of call centers and divisional restructuring. Special charges
for the six months ended June 30, 2005 primarily represent
severance costs as a result of reducing workforce, consolidating
administrative offices and executive severance.
For the three and six months ended June 30, 2005, special
charges were offset by approximately $2 million related to
an agreed upon discount in respect of the portion of settlement
consideration payable under the settlement terms of class action
lawsuits.
F-78
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(UNAUDITED)
(Dollars in Millions, Except Share and Per Share Amounts and
Where Indicated)
|
|
15. |
Other Income (Expenses), Net |
Other income (expenses), net consists of the following for the
three and six months ended June 30, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months | |
|
Six Months | |
|
|
Ended | |
|
Ended | |
|
|
June 30, | |
|
June 30, | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
Gain (loss) on derivative instruments and hedging activities, net
|
|
$ |
3 |
|
|
$ |
(1 |
) |
|
$ |
11 |
|
|
$ |
26 |
|
Gain (loss) on extinguishment of debt
|
|
|
(27 |
) |
|
|
1 |
|
|
|
(27 |
) |
|
|
8 |
|
Minority interest
|
|
|
(1 |
) |
|
|
(3 |
) |
|
|
(1 |
) |
|
|
(6 |
) |
Gain on investments
|
|
|
5 |
|
|
|
20 |
|
|
|
4 |
|
|
|
21 |
|
Other, net
|
|
|
(1 |
) |
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(21 |
) |
|
$ |
17 |
|
|
$ |
(10 |
) |
|
$ |
49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on investments for the three and six months ended
June 30, 2005 primarily represents a gain realized on an
exchange of the Companys interest in an equity investee
for an investment in a larger enterprise.
All operations are held through Charter Holdco and its direct
and indirect subsidiaries. Charter Holdco and the majority of
its subsidiaries are limited liability companies that are not
subject to income tax. However, certain of these subsidiaries
are corporations and are subject to income tax. All of the
taxable income, gains, losses, deductions and credits of Charter
Holdco are passed through to its members: Charter, Charter
Investment, Inc. (CII) and Vulcan Cable III
Inc. (Vulcan Cable). Charter is responsible for its
share of taxable income or loss of Charter Holdco allocated to
Charter in accordance with the Charter Holdco limited liability
company agreement (the LLC Agreement) and
partnership tax rules and regulations.
As of June 30, 2006 and December 31, 2005, the Company
had net deferred income tax liabilities of approximately
$385 million and $325 million, respectively.
Approximately $213 million and $212 million of the
deferred tax liabilities recorded in the condensed consolidated
financial statements at June 30, 2006 and December 31,
2005, respectively, relate to certain indirect subsidiaries of
Charter Holdco, which file separate income tax returns.
During the three and six months ended June 30, 2006, the
Company recorded $55 million and $64 million of income
tax expense, respectively. Income tax expense of $3 million
and $4 million was associated with discontinued operations
for the same periods. During the three and six months ended
June 30, 2005, the Company recorded $31 million and
$46 million of income tax expense, respectively. Income tax
expense of $6 million and income tax benefit of
$10 million was associated with discontinued operations for
the same periods. Income tax expense is recognized through
increases in the deferred tax liabilities related to
Charters investment in Charter Holdco, as well as current
federal and state income tax expense and increases to the
deferred tax liabilities of certain of Charters indirect
corporate subsidiaries. Income tax expense was offset by
deferred tax benefits of $21 million related to asset
impairment charges recorded in the six months ended
June 30, 2006, and $6 million in the six months ended
June 30, 2005. The Company recorded an additional deferred
tax asset of approximately $130 million and
$312 million during the three and six months ended
June 30, 2006, respectively, relating
F-79
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(UNAUDITED)
(Dollars in Millions, Except Share and Per Share Amounts and
Where Indicated)
to net operating loss carryforwards, but recorded a valuation
allowance with respect to this amount because of the uncertainty
of the ability to realize a benefit from the Companys
carryforwards in the future.
The Company has deferred tax assets of approximately
$4.5 billion and $4.2 billion as of June 30, 2006
and December 31, 2005, respectively, which primarily relate
to financial and tax losses allocated to Charter from Charter
Holdco. The deferred tax assets include approximately
$2.6 billion and $2.4 billion of tax net operating
loss carryforwards as of June 30, 2006 and
December 31, 2005, respectively (generally expiring in
years 2007 through 2026), of Charter and its indirect corporate
subsidiaries. Valuation allowances of $4.0 billion and
$3.7 billion as of June 30, 2006 and December 31,
2005, respectively, exist with respect to these deferred tax
assets.
Realization of any benefit from the Companys tax net
operating losses is dependent on: (1) Charter and its
indirect corporate subsidiaries ability to generate future
taxable income and (2) the absence of certain future
ownership changes of Charters common stock. An
ownership change as defined in the applicable
federal income tax rules, would place significant limitations,
on an annual basis, on the use of such net operating losses to
offset any future taxable income the Company may generate. Such
limitations, in conjunction with the net operating loss
expiration provisions, could effectively eliminate the
Companys ability to use a substantial portion of its net
operating losses to offset any future taxable income. Future
transactions and the timing of such transactions could cause an
ownership change. Such transactions include additional issuances
of common stock by the Company (including but not limited to the
issuance of up to a total of 150 million shares of common
stock (of which 116.9 million were issued through
June 30, 2006) under the share lending agreement), the
issuance of shares of common stock upon future conversion of
Charters convertible senior notes, reacquisition of the
borrowed shares by Charter, or acquisitions or sales of shares
by certain holders of Charters shares, including persons
who have held, currently hold, or accumulate in the future five
percent or more of Charters outstanding stock (including
upon an exchange by Mr. Allen or his affiliates, directly
or indirectly, of membership units of Charter Holdco into CCI
common stock). Many of the foregoing transactions are beyond
managements control.
In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that
some portion or all of the deferred tax assets will be realized.
Because of the uncertainties in projecting future taxable income
of Charter Holdco, valuation allowances have been established
except for deferred benefits available to offset certain
deferred tax liabilities.
Charter Holdco is currently under examination by the Internal
Revenue Service for the tax years ending December 31, 2002
and 2003. The Companys results (excluding Charter and the
indirect corporate subsidiaries) for these years are subject to
this examination. Management does not expect the results of this
examination to have a material adverse effect on the
Companys condensed consolidated financial condition or
results of operations.
Charter is a party to lawsuits and claims that arise in the
ordinary course of conducting its business. The ultimate outcome
of all of these legal matters pending against the Company or its
subsidiaries cannot be predicted, and although such lawsuits and
claims are not expected individually to have a material adverse
effect on the Companys consolidated financial condition,
results of operations or liquidity, such lawsuits could have, in
the aggregate, a material adverse effect on the Companys
consolidated financial condition, results of operations or
liquidity.
F-80
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(UNAUDITED)
(Dollars in Millions, Except Share and Per Share Amounts and
Where Indicated)
|
|
18. |
Stock Compensation Plans |
The Company has stock option plans (the Plans) which
provide for the grant of non-qualified stock options, stock
appreciation rights, dividend equivalent rights, performance
units and performance shares, share awards, phantom stock and/or
shares of restricted stock (not to exceed 20,000,000 shares
of charter Class A common stock), as each term is defined
in the Plans. Employees, officers, consultants and directors of
the Company and its subsidiaries and affiliates are eligible to
receive grants under the Plans. Options granted generally vest
over four to five years from the grant date, with 25% generally
vesting on the anniversary of the grant date and ratably
thereafter. Generally, options expire 10 years from the
grant date. The Plans allow for the issuance of up to a total of
90,000,000 shares of Charter Class A common stock (or
units convertible into Charter Class A common stock).
The fair value of each option granted is estimated on the date
of grant using the Black-Scholes option-pricing model. The
following weighted average assumptions were used for grants
during the three months ended June 30, 2006 and 2005,
respectively: risk-free interest rates of 5.0% and 3.8%;
expected volatility of 91.0% and 70.1%; and expected lives of
6.25 years and 4.5 years, respectively. The following
weighted average assumptions were used for grants during the six
months ended June 30, 2006 and 2005, respectively:
risk-free interest rates of 4.6% and 3.8%; expected volatility
of 91.6% and 71.3%; and expected lives of 6.25 years and
4.5 years, respectively. The valuations assume no dividends
are paid. During the three and six months ended June 30,
2006, the Company granted 0.1 million and 4.9 million
stock options, respectively, with a weighted average exercise
price of $1.02 and $1.07, respectively. As of June 30,
2006, the Company had 28.6 million and 10.7 million
options outstanding and exercisable, respectively, with weighted
average exercise prices of $3.97 and $7.27, respectively, and
weighted average remaining contractual lives of 8 years and
6 years, respectively.
On January 1, 2006, the Company adopted revised
SFAS No. 123, Share Based payment,
which addresses the accounting for share-based payment
transactions in which a company receives employee services in
exchange for (a) equity instruments of that company or
(b) liabilities that are based on the fair value of the
companys equity instruments or that may be settled by the
issuance of such equity instruments. Because the Company adopted
the fair value recognition provisions of SFAS No. 123
on January 1, 2003, the revised standard did not have a
material impact on its financial statements. The Company
recorded $3 million and $4 million of option
compensation expense which is included in general and
administrative expense for the three months ended June 30,
2006 and 2005, respectively, and $7 million and
$8 million for the six months ended June 30, 2006 and
2005, respectively.
In February 2006, the Compensation and Benefits Committee of
Charters Board of Directors approved a modification to the
financial performance measures under Charters Long-Term
Incentive Program (LTIP) required to be met for the
performance shares to vest. After the modification, management
believes that approximately 2.5 million of the performance
shares are likely to vest. As such, expense of approximately
$3 million will be amortized over the remaining two year
service period. During the six months ended June 30, 2006,
Charter granted an additional 8.0 million performance
shares under the LTIP. The impacts of such grant and the
modification of the 2005 awards was $1 million for the six
months ended June 30, 2006.
|
|
19. |
Related Party Transactions |
The following sets forth certain transactions in which the
Company and the directors, executive officers and affiliates of
the Company are involved. Unless otherwise disclosed, management
believes that each of the transactions described below was on
terms no less favorable to the Company than could have been
obtained from independent third parties.
F-81
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(UNAUDITED)
(Dollars in Millions, Except Share and Per Share Amounts and
Where Indicated)
As part of the acquisition of the cable systems owned by Bresnan
Communications Company Limited Partnership in February 2000, CC
VIII, LLC, Charters indirect limited liability company
subsidiary, issued, after adjustments, 24,273,943 Class A
preferred membership units (collectively, the CC VIII
interest) with an initial value and an initial capital
account of approximately $630 million to certain sellers
affiliated with AT&T Broadband, subsequently owned by
Comcast Corporation (the Comcast sellers).
Mr. Allen granted the Comcast sellers the right to sell to
him the CC VIII interest for approximately $630 million
plus 4.5% interest annually from February 2000 (the
Comcast put right). In April 2002, the Comcast
sellers exercised the Comcast put right in full, and this
transaction was consummated on June 6, 2003. Accordingly,
Mr. Allen became the holder of the CC VIII interest,
indirectly through an affiliate. In the event of a liquidation
of CC VIII, the owners of the CC VIII interest would be entitled
to a priority distribution with respect to a 2% priority return
(which will continue to accrete). Any remaining distributions in
liquidation would be distributed to CC V Holdings, LLC and the
owners of the CC VIII interest in proportion to their capital
accounts (which would have equaled the initial capital account
of the Comcast sellers of approximately $630 million,
increased or decreased by Mr. Allens pro rata share
of CC VIIIs profits or losses (as computed for capital
account purposes) after June 6, 2003).
An issue arose as to whether the documentation for the Bresnan
transaction was correct and complete with regard to the ultimate
ownership of the CC VIII interest following consummation of the
Comcast put right. Thereafter, the board of directors of Charter
formed a Special Committee of independent directors to
investigate the matter and take any other appropriate action on
behalf of Charter with respect to this matter. After conducting
an investigation of the relevant facts and circumstances, the
Special Committee determined that a scriveners
error had occurred in February 2000 in connection with the
preparation of the last-minute revisions to the Bresnan
transaction documents and that, as a result, Charter should seek
the reformation of the Charter Holdco limited liability company
agreement, or alternative relief, in order to restore and ensure
the obligation that the CC VIII interest be automatically
exchanged for Charter Holdco units.
As of October 31, 2005, Mr. Allen, the Special
Committee, Charter, Charter Holdco and certain of their
affiliates, agreed to settle the dispute, and execute certain
permanent and irrevocable releases pursuant to the Settlement
Agreement and Mutual Release agreement dated October 31,
2005 (the Settlement). Pursuant to the Settlement,
CII has retained 30% of its CC VIII interest (the
Remaining Interests). The Remaining Interests are
subject to certain transfer restrictions, including requirements
that the Remaining Interests participate in a sale with other
holders or that allow other holders to participate in a sale of
the Remaining Interests, as detailed in the revised CC VIII
Limited Liability Company Agreement. CII transferred the other
70% of the CC VIII interest directly and indirectly, through
Charter Holdco, to a newly formed entity, CCHC (a direct
subsidiary of Charter Holdco and the direct parent of Charter
Holdings). Of the 70% of the CC VIII interest, 7.4% has been
transferred by CII to CCHC for a subordinated exchangeable note
with an initial accreted value of $48 million, accreting at
14% per annum, compounded quarterly, with a
15-year maturity (the
Note). The remaining 62.6% has been transferred by
CII to Charter Holdco, in accordance with the terms of the
settlement for no additional monetary consideration. Charter
Holdco contributed the 62.6% interest to CCHC.
As part of the Settlement, CC VIII issued approximately
49 million additional Class B units to CC V in
consideration for prior capital contributions to CC VIII by
CC V, with respect to transactions that were unrelated to
the dispute in connection with CIIs membership units in CC
VIII. As a result, Mr. Allens
F-82
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(UNAUDITED)
(Dollars in Millions, Except Share and Per Share Amounts and
Where Indicated)
pro rata share of the profits and losses of CC VIII attributable
to the Remaining Interests is approximately 5.6%.
The Note is exchangeable, at CIIs option, at any time, for
Charter Holdco Class A Common units at a rate equal to the
then accreted value, divided by $2.00 (the Exchange
Rate). Customary anti-dilution protections have been
provided that could cause future changes to the Exchange Rate.
Additionally, the Charter Holdco Class A Common units
received will be exchangeable by the holder into Charter common
stock in accordance with existing agreements between CII,
Charter and certain other parties signatory thereto. Beginning
February 28, 2009, if the closing price of Charter common
stock is at or above the Exchange Rate for a certain period of
time as specified in the Exchange Agreement, Charter Holdco may
require the exchange of the Note for Charter Holdco Class A
Common units at the Exchange Rate.
CCHC has the right to redeem the Note under certain
circumstances, for cash in an amount equal to the then accreted
value. Such amount, if redeemed prior to February 28, 2009,
would also include a make whole provision up to the accreted
value through February 28, 2009. CCHC must redeem the Note
at its maturity for cash in an amount equal to the initial
stated value plus the accreted return through maturity.
The Board of Directors has determined that the transferred CC
VIII interest will remain at CCHC for the present time, but
there are currently no contractual or other obligations of CCHC
that would prevent the contribution of those assets to a
subsidiary of CCHC.
|
|
20. |
Recently Issued Accounting Standards |
In June 2006, the FASB issued FIN 48, Accounting for
Uncertainty in Income Taxes an Interpretation of
FASB Statement No. 109, which provides criteria for the
recognition, measurement, presentation and disclosure of
uncertain tax positions. A tax benefit from an uncertain
position may be recognized only if it is more likely than
not that the position is sustainable based on its
technical merits. The Company will adopt FIN 48 effective
January 1, 2007. The Company is currently assessing the
impact of FIN 48 on its financial statements.
F-83
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
CCH II, LLC
AS OF DECEMBER 31, 2005 AND 2004
AND FOR EACH OF THE YEARS IN THE THREE-YEAR PERIOD
ENDED DECEMBER 31, 2005
|
|
|
|
|
|
|
Page | |
|
|
| |
Audited Financial Statements
|
|
|
|
|
|
|
|
F-85 |
|
|
|
|
F-86 |
|
|
|
|
F-87 |
|
|
|
|
F-88 |
|
|
|
|
F-89 |
|
|
|
|
F-90 |
|
F-84
Report of Independent Registered Public Accounting Firm
To the Board of Directors
CCH II, LLC:
We have audited the accompanying consolidated balance sheets of
CCH II, LLC and subsidiaries (the Company) as of
December 31, 2005 and 2004, and the related consolidated
statements of operations, changes in members equity
(deficit), and cash flows for each of the years in the
three-year period ended December 31, 2005. These
consolidated financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of CCH II, LLC and subsidiaries as of
December 31, 2005 and 2004, and the results of their
operations and their cash flows for each of the years in the
three-year period ended December 31, 2005, in conformity
with U.S. generally accepted accounting principles.
As discussed in Note 7 to the consolidated financial
statements, effective September 30, 2004, the Company
adopted EITF Topic
D-108, Use of the
Residual Method to Value Acquired Assets Other than Goodwill.
As discussed in Note 17 to the consolidated financial
statements, effective January 1, 2003, the Company adopted
Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation, as amended by
Statement of Financial Accounting Standards No. 148,
Accounting for Stock-Based Compensation
Transition and Disclosure an amendment of FASB
Statement No. 123.
St. Louis, Missouri
February 27, 2006, except as to Note 4,
which is as of August 8, 2006
F-85
CCH II, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
ASSETS |
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
3 |
|
|
$ |
546 |
|
|
Accounts receivable, less allowance for doubtful accounts of $17
and $15, respectively
|
|
|
212 |
|
|
|
175 |
|
|
Prepaid expenses and other current assets
|
|
|
22 |
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
237 |
|
|
|
741 |
|
|
|
|
|
|
|
|
INVESTMENT IN CABLE PROPERTIES:
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net of accumulated depreciation
of $6,712 and $5,142, respectively
|
|
|
5,800 |
|
|
|
6,110 |
|
|
Franchises, net
|
|
|
9,826 |
|
|
|
9,878 |
|
|
|
|
|
|
|
|
|
|
Total investment in cable properties, net
|
|
|
15,626 |
|
|
|
15,988 |
|
|
|
|
|
|
|
|
OTHER NONCURRENT ASSETS
|
|
|
238 |
|
|
|
250 |
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
16,101 |
|
|
$ |
16,979 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND MEMBERS EQUITY |
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$ |
923 |
|
|
$ |
949 |
|
|
Payables to related party
|
|
|
102 |
|
|
|
30 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,025 |
|
|
|
979 |
|
|
|
|
|
|
|
|
LONG-TERM DEBT
|
|
|
10,624 |
|
|
|
9,895 |
|
|
|
|
|
|
|
|
LOANS PAYABLE RELATED PARTY
|
|
|
22 |
|
|
|
29 |
|
|
|
|
|
|
|
|
DEFERRED MANAGEMENT FEES RELATED PARTY
|
|
|
14 |
|
|
|
14 |
|
|
|
|
|
|
|
|
OTHER LONG-TERM LIABILITIES
|
|
|
392 |
|
|
|
493 |
|
|
|
|
|
|
|
|
MINORITY INTEREST
|
|
|
622 |
|
|
|
656 |
|
|
|
|
|
|
|
|
MEMBERS EQUITY:
|
|
|
|
|
|
|
|
|
Members equity
|
|
|
3,400 |
|
|
|
4,928 |
|
Accumulated other comprehensive income (loss)
|
|
|
2 |
|
|
|
(15 |
) |
|
|
|
|
|
|
|
|
|
Total members equity
|
|
|
3,402 |
|
|
|
4,913 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and members equity
|
|
$ |
16,101 |
|
|
$ |
16,979 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-86
CCH II, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
REVENUES
|
|
$ |
5,033 |
|
|
$ |
4,760 |
|
|
$ |
4,616 |
|
|
|
|
|
|
|
|
|
|
|
COSTS AND EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (excluding depreciation and amortization)
|
|
|
2,203 |
|
|
|
1,994 |
|
|
|
1,873 |
|
|
Selling, general and administrative
|
|
|
998 |
|
|
|
934 |
|
|
|
905 |
|
|
Depreciation and amortization
|
|
|
1,443 |
|
|
|
1,433 |
|
|
|
1,396 |
|
|
Impairment of franchises
|
|
|
|
|
|
|
2,297 |
|
|
|
|
|
|
Asset impairment charges
|
|
|
39 |
|
|
|
|
|
|
|
|
|
|
(Gain) loss on sale of assets, net
|
|
|
6 |
|
|
|
(86 |
) |
|
|
5 |
|
|
Option compensation expense, net
|
|
|
14 |
|
|
|
31 |
|
|
|
4 |
|
|
Hurricane asset retirement loss
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
Special charges, net
|
|
|
7 |
|
|
|
104 |
|
|
|
21 |
|
|
Unfavorable contracts and other settlements
|
|
|
|
|
|
|
(5 |
) |
|
|
(72 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
4,729 |
|
|
|
6,702 |
|
|
|
4,132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) from continuing operations
|
|
|
304 |
|
|
|
(1,942 |
) |
|
|
484 |
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME AND EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(858 |
) |
|
|
(726 |
) |
|
|
(545 |
) |
|
Gain on derivative instruments and hedging activities, net
|
|
|
50 |
|
|
|
69 |
|
|
|
65 |
|
|
Loss on extinguishment of debt
|
|
|
(6 |
) |
|
|
(21 |
) |
|
|
|
|
|
Other, net
|
|
|
22 |
|
|
|
3 |
|
|
|
(9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(792 |
) |
|
|
(675 |
) |
|
|
(489 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before minority interest, income
taxes and cumulative effect of accounting change
|
|
|
(488 |
) |
|
|
(2,617 |
) |
|
|
(5 |
) |
MINORITY INTEREST
|
|
|
33 |
|
|
|
20 |
|
|
|
(29 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes and
cumulative effect of accounting change
|
|
|
(455 |
) |
|
|
(2,597 |
) |
|
|
(34 |
) |
INCOME TAX BENEFIT (EXPENSE)
|
|
|
(9 |
) |
|
|
35 |
|
|
|
(13 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before cumulative effect of
accounting change
|
|
|
(464 |
) |
|
|
(2,562 |
) |
|
|
(47 |
) |
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAX
|
|
|
39 |
|
|
|
(104 |
) |
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before cumulative effect of accounting change
|
|
|
(425 |
) |
|
|
(2,666 |
) |
|
|
(15 |
) |
CUMULATIVE EFFECT OF ACCOUNTING CHANGE, NET OF TAX
|
|
|
|
|
|
|
(840 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(425 |
) |
|
$ |
(3,506 |
) |
|
$ |
(15 |
) |
|
|
|
|
|
|
|
|
|
|
F-87
CCH II, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS EQUITY
(Dollars in Millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated | |
|
|
|
|
|
|
Other | |
|
Total | |
|
|
Members | |
|
Comprehensive | |
|
Members | |
|
|
Equity | |
|
Income (Loss) | |
|
Equity | |
|
|
| |
|
| |
|
| |
BALANCE, December 31, 2002
|
|
$ |
11,145 |
|
|
$ |
(105 |
) |
|
$ |
11,040 |
|
|
Capital contributions
|
|
|
10 |
|
|
|
|
|
|
|
10 |
|
|
Distributions to parent company
|
|
|
(2,133 |
) |
|
|
|
|
|
|
(2,133 |
) |
|
Changes in fair value of interest rate agreements
|
|
|
|
|
|
|
48 |
|
|
|
48 |
|
|
Other, net
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
|
Net loss
|
|
|
(15 |
) |
|
|
|
|
|
|
(15 |
) |
|
|
|
|
|
|
|
|
|
|
BALANCE, December 31, 2003
|
|
|
9,008 |
|
|
|
(57 |
) |
|
|
8,951 |
|
|
Distributions to parent company
|
|
|
(578 |
) |
|
|
|
|
|
|
(578 |
) |
|
Changes in fair value of interest rate agreements
|
|
|
|
|
|
|
42 |
|
|
|
42 |
|
|
Other, net
|
|
|
4 |
|
|
|
|
|
|
|
4 |
|
|
Net loss
|
|
|
(3,506 |
) |
|
|
|
|
|
|
(3,506 |
) |
|
|
|
|
|
|
|
|
|
|
BALANCE, December 31, 2004
|
|
|
4,928 |
|
|
|
(15 |
) |
|
|
4,913 |
|
|
Distributions to parent company
|
|
|
(1,103 |
) |
|
|
|
|
|
|
(1,103 |
) |
|
Changes in fair value of interest rate agreements and other
|
|
|
|
|
|
|
17 |
|
|
|
17 |
|
|
Net loss
|
|
|
(425 |
) |
|
|
|
|
|
|
(425 |
) |
|
|
|
|
|
|
|
|
|
|
BALANCE, December 31, 2005
|
|
$ |
3,400 |
|
|
$ |
2 |
|
|
$ |
3,402 |
|
|
|
|
|
|
|
|
|
|
|
F-88
CCH II, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(425 |
) |
|
$ |
(3,506 |
) |
|
$ |
(15 |
) |
|
Adjustments to reconcile net loss to net cash flows from
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest
|
|
|
(33 |
) |
|
|
(20 |
) |
|
|
29 |
|
|
|
Depreciation and amortization
|
|
|
1,499 |
|
|
|
1,495 |
|
|
|
1,453 |
|
|
|
Impairment of franchises
|
|
|
|
|
|
|
2,433 |
|
|
|
|
|
|
|
Asset impairment charges
|
|
|
39 |
|
|
|
|
|
|
|
|
|
|
|
(Gain) loss on sale of assets, net
|
|
|
6 |
|
|
|
(86 |
) |
|
|
5 |
|
|
|
Option compensation expense, net
|
|
|
14 |
|
|
|
27 |
|
|
|
4 |
|
|
|
Hurricane asset retirement loss
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
Special charges, net
|
|
|
|
|
|
|
85 |
|
|
|
|
|
|
|
Unfavorable contracts and other settlements
|
|
|
|
|
|
|
(5 |
) |
|
|
(72 |
) |
|
|
Noncash interest expense
|
|
|
31 |
|
|
|
27 |
|
|
|
38 |
|
|
|
Gain on derivative instruments and hedging activities, net
|
|
|
(50 |
) |
|
|
(69 |
) |
|
|
(65 |
) |
|
|
Loss on extinguishment of debt
|
|
|
|
|
|
|
18 |
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
3 |
|
|
|
(42 |
) |
|
|
13 |
|
|
|
Cumulative effect of accounting change, net of tax
|
|
|
|
|
|
|
840 |
|
|
|
|
|
|
|
Other, net
|
|
|
(22 |
) |
|
|
(5 |
) |
|
|
|
|
|
Changes in operating assets and liabilities, net of effects from
acquisitions and dispositions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(41 |
) |
|
|
(4 |
) |
|
|
69 |
|
|
|
Prepaid expenses and other assets
|
|
|
(7 |
) |
|
|
(4 |
) |
|
|
12 |
|
|
|
Accounts payable, accrued expenses and other
|
|
|
(66 |
) |
|
|
(103 |
) |
|
|
(103 |
) |
|
|
Receivables from and payables to related party, including
deferred management fees
|
|
|
(83 |
) |
|
|
(72 |
) |
|
|
(47 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from operating activities
|
|
|
884 |
|
|
|
1,009 |
|
|
|
1,321 |
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
|
(1,088 |
) |
|
|
(893 |
) |
|
|
(804 |
) |
|
Change in accrued expenses related to capital expenditures
|
|
|
13 |
|
|
|
(33 |
) |
|
|
(41 |
) |
|
Proceeds from sale of assets
|
|
|
44 |
|
|
|
744 |
|
|
|
91 |
|
|
Purchases of investments
|
|
|
(1 |
) |
|
|
(6 |
) |
|
|
|
|
|
Proceeds from investments
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
Other, net
|
|
|
(2 |
) |
|
|
(3 |
) |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from investing activities
|
|
|
(1,018 |
) |
|
|
(191 |
) |
|
|
(757 |
) |
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings of long-term debt
|
|
|
1,207 |
|
|
|
3,147 |
|
|
|
739 |
|
|
Borrowings from related parties
|
|
|
140 |
|
|
|
|
|
|
|
|
|
|
Repayments of long-term debt
|
|
|
(1,107 |
) |
|
|
(4,860 |
) |
|
|
(1,368 |
) |
|
Repayments to related parties
|
|
|
(147 |
) |
|
|
(8 |
) |
|
|
(96 |
) |
|
Proceeds from issuance of debt
|
|
|
294 |
|
|
|
2,050 |
|
|
|
530 |
|
|
Payments for debt issuance costs
|
|
|
(11 |
) |
|
|
(108 |
) |
|
|
(42 |
) |
|
Redemption of preferred interest
|
|
|
(25 |
) |
|
|
|
|
|
|
|
|
|
Capital contributions
|
|
|
|
|
|
|
|
|
|
|
10 |
|
|
Distributions
|
|
|
(760 |
) |
|
|
(578 |
) |
|
|
(562 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from financing activities
|
|
|
(409 |
) |
|
|
(357 |
) |
|
|
(789 |
) |
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
(543 |
) |
|
|
461 |
|
|
|
(225 |
) |
CASH AND CASH EQUIVALENTS, beginning of period
|
|
|
546 |
|
|
|
85 |
|
|
|
310 |
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, end of period
|
|
$ |
3 |
|
|
$ |
546 |
|
|
$ |
85 |
|
|
|
|
|
|
|
|
|
|
|
CASH PAID FOR INTEREST
|
|
$ |
814 |
|
|
$ |
693 |
|
|
$ |
457 |
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of debt by CCH II, LLC to retire parent company
debt
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,572 |
|
|
|
|
|
|
|
|
|
|
|
F-89
CCH II, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and 2003
(Dollars in Millions, Except Where Indicated)
|
|
1. |
Organization and Basis of Presentation |
CCH II, LLC (CCH II) is a holding company
whose principal assets at December 31, 2005 are equity
interests in its operating subsidiaries. CCH II is a direct
subsidiary of CCH I, LLC (CCH I), which is an
indirect subsidiary of Charter Communications Holdings, LLC
(Charter Holdings). Charter Holdings is an indirect
subsidiary of Charter Communications, Inc.
(Charter). The consolidated financial statements
include the accounts of CCH II and all of its wholly owned
subsidiaries where the underlying operations reside, which are
collectively referred to herein as the Company. All
significant intercompany accounts and transactions among
consolidated entities have been eliminated. The Company is a
broadband communications company operating in the United States.
The Company offers its customers traditional cable video
programming (analog and digital video) as well as high-speed
Internet services and, in some areas, advanced broadband
services such as high-definition television, video on demand and
telephone. The Company sells its cable video programming,
high-speed Internet and advanced broadband services on a
subscription basis. The Company also sells local advertising on
satellite-delivered networks.
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Areas involving
significant judgments and estimates include capitalization of
labor and overhead costs; depreciation and amortization costs;
impairments of property, plant and equipment, franchises and
goodwill; income taxes; and contingencies. Actual results could
differ from those estimates.
Reclassifications. Certain prior year amounts have
been reclassified to conform with the 2005 presentation.
|
|
2. |
Liquidity and Capital Resources |
The Company incurred net loss of $425 million,
$3.5 billion and $15 million in 2005, 2004 and 2003,
respectively. The Companys net cash flows from operating
activities were $884 million, $1.0 billion and
$1.3 billion for the years ending December 31, 2005,
2004 and 2003, respectively.
The Companys long-term financing as of December 31,
2005 consists of $5.7 billion of credit facility debt and
$4.9 billion accreted value of high-yield notes. In 2006,
$30 million of the Companys debt matures and in 2007,
an additional $280 million matures. In 2008 and beyond,
significant additional amounts will become due under the
Companys remaining long-term debt obligations.
|
|
|
Recent Financing Transactions |
In January 2006, the Company issued $450 million in
debt securities, the proceeds of which were provided, directly
or indirectly, to Charter Communications Operating, LLC
(Charter Operating), which used such funds to reduce
borrowings, but not commitments, under the revolving portion of
its credit facilities.
In October 2005, CCO Holdings, LLC (CCO
Holdings) and CCO Holdings Capital Corp., as
guarantor thereunder, entered into a senior bridge loan
agreement (the Bridge Loan) with JPMorgan Chase
Bank, N.A., Credit Suisse, Cayman Islands Branch and Deutsche
Bank AG Cayman Islands Branch (the Lenders) whereby
the Lenders committed to make loans to CCO Holdings in an
aggregate amount of $600 million. Upon the issuance of
$450 million of CCH II notes discussed above, the
F-90
CCH II, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
commitment under the Bridge Loan was reduced to
$435 million. CCO Holdings may draw upon the facility
between January 2, 2006 and September 29, 2006 and the
loans will mature on the sixth anniversary of the first
borrowing under the Bridge Loan.
The Company requires significant cash to fund debt service
costs, capital expenditures and ongoing operations. The Company
has historically funded these requirements through cash flows
from operating activities, borrowings under its credit
facilities, equity contributions from its parent companies,
sales of assets, issuances of debt securities and cash on hand.
However, the mix of funding sources changes from period to
period. For the year ended December 31, 2005, the Company
generated $884 million of net cash flows from operating
activities after paying cash interest of $814 million. In
addition, the Company used $1.1 billion for purchases of
property, plant and equipment. Finally, the Company used
$409 million of net cash flows in financing activities.
The Company expects that cash on hand, cash flows from operating
activities and the amounts available under its credit facilities
and Bridge Loan will be adequate to meet its and its parent
companies cash needs in 2006. The Company believes that
cash flows from operating activities and amounts available under
the Companys credit facilities and Bridge Loan will not be
sufficient to fund the Companys operations and satisfy its
and its parent companies interest and debt repayment
obligations in 2007 and beyond. The Company has been advised
that Charter is working with its financial advisors to address
this funding requirement. However, there can be no assurance
that such funding will be available to the Company or its parent
companies. In addition, Paul G. Allen, Charters Chairman
and controlling shareholder, and his affiliates are not
obligated to purchase equity from, contribute to or loan funds
to the Company or its parent companies.
The Companys ability to operate depends upon, among other
things, its continued access to capital, including credit under
the Charter Operating credit facilities and Bridge Loan. The
Charter Operating credit facilities, along with the
Companys indentures and Bridge Loan, contain certain
restrictive covenants, some of which require the Company to
maintain specified financial ratios and meet financial tests and
to provide audited financial statements with an unqualified
opinion from the Companys independent auditors. As of
December 31, 2005, the Company is in compliance with the
covenants under its indentures, Bridge Loan and credit
facilities, and the Company expects to remain in compliance with
those covenants for the next twelve months. As of
December 31, 2005, the Companys potential
availability under its credit facilities totaled approximately
$553 million, none of which was limited by covenants. In
addition, as of January 2, 2006, the Company had additional
borrowing availability of $600 million under the Bridge
Loan (which was reduced to $435 million as a result of the
issuance of the CCH II notes). Continued access to the
Companys credit facilities and Bridge Loan is subject to
the Company remaining in compliance with these covenants,
including covenants tied to the Companys operating
performance. If any events of non-compliance occur, funding
under the credit facilities and Bridge Loan may not be available
and defaults on some or potentially all of the Companys
debt obligations could occur. An event of default under any of
the Companys debt instruments could result in the
acceleration of its payment obligations under that debt and,
under certain circumstances, in cross-defaults under its other
debt obligations, which could have a material adverse effect on
the Companys consolidated financial condition and results
of operations.
|
|
|
Parent Company Debt Obligations |
Any financial or liquidity problems of the Companys parent
companies could cause serious disruption to the Companys
business and have a material adverse effect on the
Companys business and results of operations. A failure by
Charter Holdings, CCH I Holdings, LLC (CIH) or
CCH I to satisfy their debt
F-91
CCH II, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
payment obligations or a bankruptcy filing with respect to
Charter Holdings, CIH or CCH I would give the lenders under
the Companys credit facilities the right to accelerate the
payment obligations under these facilities. Any such
acceleration would be a default under the indenture governing
the Companys notes.
Charters ability to make interest payments on its
convertible senior notes, and, in 2006 and 2009, to repay the
outstanding principal of its convertible senior notes of
$20 million and $863 million, respectively, will
depend on its ability to raise additional capital and/or on
receipt of payments or distributions from Charter Communications
Holding Company, LLC (Charter Holdco) and its
subsidiaries, including the Company. During 2005, the Company
distributed $760 million of cash to its parent company of
which $60 million was subsequently distributed to Charter
Holdco. As of December 31, 2005, Charter Holdco was owed
$22 million in intercompany loans from its subsidiaries,
which were available to pay interest and principal on
Charters convertible senior notes. In addition, Charter
has $98 million of governmental securities pledged as
security for the next four scheduled semi-annual interest
payments on Charters 5.875% convertible senior notes.
As of December 31, 2005, Charter Holdings, CIH and
CCH I had approximately $7.8 billion principal amount
of high-yield notes outstanding with approximately
$105 million, $0, $684 million and $7.0 billion
maturing in 2007, 2008, 2009 and thereafter, respectively.
Charter, Charter Holdings, CIH and CCH I will need to raise
additional capital or receive distributions or payments from the
Company in order to satisfy their debt obligations. However,
because of their significant indebtedness, the Companys
ability and the ability of the parent companies to raise
additional capital at reasonable rates or at all is uncertain.
Distributions by Charters subsidiaries to a parent company
(including Charter, CCHC, LLC (CCHC), Charter
Holdco, Charter Holdings, CIH and CCH I) for payment of
principal on parent company notes are restricted under the
indentures governing the CIH notes, CCH I notes,
CCH II notes, CCO Holdings notes and Charter Operating
notes unless there is no default, each applicable
subsidiarys leverage ratio test is met at the time of such
distribution and, in the case of Charters convertible
senior notes, other specified tests are met. For the quarter
ended December 31, 2005, there was no default under any of
these indentures and each such subsidiary met its applicable
leverage ratio tests based on December 31, 2005 financial
results. Such distributions would be restricted, however, if any
such subsidiary fails to meet these tests. In the past, certain
subsidiaries have from time to time failed to meet their
leverage ratio test. There can be no assurance that they will
satisfy these tests at the time of such distribution.
Distributions by Charter Operating and CCO Holdings for payment
of principal on parent company notes are further restricted by
the covenants in the credit facilities and Bridge Loan,
respectively.
Distributions by CIH, CCH I, CCH II, CCO Holdings and
Charter Operating to a parent company for payment of parent
company interest are permitted if there is no default under the
aforementioned indentures. However, distributions for payment of
interest on Charters convertible senior notes are further
limited to when each applicable subsidiarys leverage ratio
test is met and other specified tests are met. There can be no
assurance that they will satisfy these tests at the time of such
distribution.
In September 2005, Charter Holdings and its wholly owned
subsidiaries, CCH I and CIH, completed the exchange of
approximately $6.8 billion total principal amount of
outstanding debt securities of Charter Holdings in a private
placement for new debt securities. Holders of Charter Holdings
notes due in 2009 and 2010 exchanged $3.4 billion principal
amount of notes for $2.9 billion principal amount of new
11% CCH I notes due 2015. Holders of Charter Holdings notes
due 2011 and 2012 exchanged $845 million principal amount
of notes for $662 million principal amount of 11%
CCH I notes due 2015. In addition, holders of Charter
Holdings notes due 2011 and 2012 exchanged $2.5 billion
principal amount of notes for $2.5 billion principal amount
of various series of new CIH notes. Each series of new CIH notes
has the same interest rate and provisions for payment of cash
interest as the series of old Charter Holdings notes
F-92
CCH II, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
for which such CIH notes were exchanged. In addition, the
maturities for each series were extended three years.
|
|
|
Specific Limitations at Charter Holdings |
The indentures governing the Charter Holdings notes permit
Charter Holdings to make distributions to Charter Holdco for
payment of interest or principal on the convertible senior
notes, only if, after giving effect to the distribution, Charter
Holdings can incur additional debt under the leverage ratio of
8.75 to 1.0, there is no default under Charter Holdings
indentures and other specified tests are met. For the quarter
ended December 31, 2005, there was no default under Charter
Holdings indentures and Charter Holdings met its leverage
ratio test based on December 31, 2005 financial results.
Such distributions would be restricted, however, if Charter
Holdings fails to meet these tests. In the past, Charter
Holdings has from time to time failed to meet this leverage
ratio test. There can be no assurance that Charter Holdings will
satisfy these tests at the time of such distribution. During
periods in which distributions are restricted, the indentures
governing the Charter Holdings notes permit Charter Holdings and
its subsidiaries to make specified investments (that are not
restricted payments) in Charter Holdco or Charter up to an
amount determined by a formula, as long as there is no default
under the indentures.
|
|
3. |
Summary of Significant Accounting Policies |
The Company considers all highly liquid investments with
original maturities of three months or less to be cash
equivalents. These investments are carried at cost, which
approximates market value.
|
|
|
Property, Plant and Equipment |
Property, plant and equipment are recorded at cost, including
all material, labor and certain indirect costs associated with
the construction of cable transmission and distribution
facilities. While the Companys capitalization is based on
specific activities, once capitalized, costs are tracked by
fixed asset category at the cable system level and not on a
specific asset basis. Costs associated with initial customer
installations and the additions of network equipment necessary
to enable advanced services are capitalized. Costs capitalized
as part of initial customer installations include materials,
labor, and certain indirect costs. Indirect costs are associated
with the activities of the Companys personnel who assist
in connecting and activating the new service and consist of
compensation and indirect costs associated with these support
functions. Indirect costs primarily include employee benefits
and payroll taxes, direct variable costs associated with
capitalizable activities, consisting primarily of installation
and construction vehicle costs, the cost of dispatch personnel
and indirect costs directly attributable to capitalizable
activities. The costs of disconnecting service at a
customers dwelling or reconnecting service to a previously
installed dwelling are charged to operating expense in the
period incurred. Costs for repairs and maintenance are charged
to operating expense as incurred, while plant and equipment
replacement and betterments, including replacement of cable
drops from the pole to the dwelling, are capitalized.
Depreciation is recorded using the straight-line composite
method over managements estimate of the useful lives of
the related assets as follows:
|
|
|
|
|
Cable distribution systems
|
|
|
7-20 years |
|
Customer equipment and installations
|
|
|
3-5 years |
|
Vehicles and equipment
|
|
|
1-5 years |
|
Buildings and leasehold improvements
|
|
|
5-15 years |
|
Furniture, fixtures and equipment
|
|
|
5 years |
|
F-93
CCH II, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
Asset Retirement Obligations |
Certain of the Companys franchise agreements and leases
contain provisions requiring the Company to restore facilities
or remove equipment in the event that the franchise or lease
agreement is not renewed. The Company expects to continually
renew its franchise agreements and has concluded that
substantially all of the related franchise rights are indefinite
lived intangible assets. Accordingly, the possibility is remote
that the Company would be required to incur significant
restoration or removal costs related to these franchise
agreements in the foreseeable future. Statement of Financial
Accounting Standards (SFAS) No. 143,
Accounting for Asset Retirement Obligations, as
interpreted by Financial Accounting Standards Board
(FASB) Interpretation (FIN) No. 47,
Accounting for Conditional Asset Retirement
Obligations an Interpretation of FASB Statement
No. 143, requires that a liability be recognized for an
asset retirement obligation in the period in which it is
incurred if a reasonable estimate of fair value can be made. The
Company has not recorded an estimate for potential franchise
related obligations but would record an estimated liability in
the unlikely event a franchise agreement containing such a
provision were no longer expected to be renewed. The Company
also expects to renew many of its lease agreements related to
the continued operation of its cable business in the franchise
areas. For the Companys lease agreements, the liabilities
related to the removal provisions, where applicable, have been
recorded and are not significant to the financial statements.
Franchise rights represent the value attributed to agreements
with local authorities that allow access to homes in cable
service areas acquired through the purchase of cable systems.
Management estimates the fair value of franchise rights at the
date of acquisition and determines if the franchise has a finite
life or an indefinite-life as defined by SFAS No. 142,
Goodwill and Other Intangible Assets. All franchises that
qualify for indefinite-life treatment under
SFAS No. 142 are no longer amortized against earnings
but instead are tested for impairment annually as of
October 1, or more frequently as warranted by events or
changes in circumstances (see Note 7). The Company
concluded that 99% of its franchises qualify for indefinite-life
treatment; however, certain franchises did not qualify for
indefinite-life treatment due to technological or operational
factors that limit their lives. These franchise costs are
amortized on a straight-line basis over 10 years. Costs
incurred in renewing cable franchises are deferred and amortized
over 10 years.
Other noncurrent assets primarily include deferred financing
costs, governmental securities, investments in equity securities
and goodwill. Costs related to borrowings are deferred and
amortized to interest expense over the terms of the related
borrowings.
Investments in equity securities are accounted for at cost,
under the equity method of accounting or in accordance with
SFAS No. 115, Accounting for Certain Investments in
Debt and Equity Securities. Charter recognizes losses for
any decline in value considered to be other than temporary.
Certain marketable equity securities are classified as
available-for-sale and reported at market value with unrealized
gains and losses recorded as accumulated other comprehensive
income or loss.
F-94
CCH II, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following summarizes investment information as of and for
the years ended December 31, 2005 and 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying | |
|
Gain (Loss) for | |
|
|
Value at | |
|
the Years Ended | |
|
|
December 31, | |
|
December 31, | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Equity investments, under the cost method
|
|
$ |
27 |
|
|
$ |
8 |
|
|
$ |
|
|
|
$ |
(3 |
) |
|
$ |
(2 |
) |
Equity investments, under the equity method
|
|
|
13 |
|
|
|
24 |
|
|
|
22 |
|
|
|
6 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
40 |
|
|
$ |
32 |
|
|
$ |
22 |
|
|
$ |
3 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The gain on equity investments, under the equity method for the
year ended December 31, 2005 primarily represents a gain
realized on an exchange of the Companys interest in an
equity investee for an investment in a larger enterprise. Such
amounts are included in other, net in the statements of
operations.
|
|
|
Valuation of Property, Plant and Equipment |
The Company evaluates the recoverability of long-lived assets to
be held and used for impairment when events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable using asset groupings consistent with those
used to evaluate franchises. Such events or changes in
circumstances could include such factors as impairment of the
Companys indefinite life franchise under
SFAS No. 142, changes in technological advances,
fluctuations in the fair value of such assets, adverse changes
in relationships with local franchise authorities, adverse
changes in market conditions or a deterioration of operating
results. If a review indicates that the carrying value of such
asset is not recoverable from estimated undiscounted cash flows,
the carrying value of such asset is reduced to its estimated
fair value. While the Company believes that its estimates of
future cash flows are reasonable, different assumptions
regarding such cash flows could materially affect its
evaluations of asset recoverability. No impairments of
long-lived assets to be held and used were recorded in 2005,
2004 and 2003, however, approximately $39 million of
impairment on assets held for sale was recorded for the year
ended December 31, 2005 (see Note 4).
|
|
|
Derivative Financial Instruments |
The Company accounts for derivative financial instruments in
accordance with SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, as amended.
For those instruments which qualify as hedging activities,
related gains or losses are recorded in accumulated other
comprehensive income. For all other derivative instruments, the
related gains or losses are recorded in the income statement.
The Company uses interest rate risk management derivative
instruments, such as interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements
(collectively referred to herein as interest rate agreements) as
required under the terms of the credit facilities of the
Companys subsidiaries. The Companys policy is to
manage interest costs using a mix of fixed and variable rate
debt. Using interest rate swap agreements, the Company agrees to
exchange, at specified intervals, the difference between fixed
and variable interest amounts calculated by reference to an
agreed-upon notional principal amount. Interest rate cap
agreements are used to lock in a maximum interest rate should
variable rates rise, but enable the Company to otherwise pay
lower market rates. Interest rate collar agreements are used to
limit exposure to and benefits from interest rate fluctuations
on variable rate debt to within a certain range of rates. The
Company does not hold or issue any derivative financial
instruments for trading purposes.
F-95
CCH II, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Revenues from residential and commercial video, high-speed
Internet and telephone services are recognized when the related
services are provided. Advertising sales are recognized at
estimated realizable values in the period that the
advertisements are broadcast. Local governmental authorities
impose franchise fees on the Company ranging up to a federally
mandated maximum of 5% of gross revenues as defined in the
franchise agreement. Such fees are collected on a monthly basis
from the Companys customers and are periodically remitted
to local franchise authorities. Franchise fees are reported as
revenues on a gross basis with a corresponding operating
expense.
The Company has various contracts to obtain analog, digital and
premium video programming from program suppliers whose
compensation is typically based on a flat fee per customer. The
cost of the right to exhibit network programming under such
arrangements is recorded in operating expenses in the month the
programming is available for exhibition. Programming costs are
paid each month based on calculations performed by the Company
and are subject to periodic audits performed by the programmers.
Certain programming contracts contain launch incentives to be
paid by the programmers. The Company receives these payments
related to the activation of the programmers cable
television channel and recognizes the launch incentives on a
straight-line basis over the life of the programming agreement
as a reduction of programming expense. This offset to
programming expense was $40 million, $59 million and
$63 million for the years ended December 31, 2005,
2004 and 2003, respectively. Programming costs included in the
accompanying statement of operations were $1.4 billion,
$1.3 billion and $1.2 billion for the years ended
December 31, 2005, 2004 and 2003, respectively. As of
December 31, 2005 and 2004, the deferred amount of launch
incentives, included in other long-term liabilities, were
$83 million and $105 million, respectively.
Advertising costs associated with marketing the Companys
products and services are generally expensed as costs are
incurred. Such advertising expense was $94 million,
$70 million and $60 million for the years ended
December 31, 2005, 2004 and 2003, respectively.
The Company has historically accounted for stock-based
compensation in accordance with Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock
Issued to Employees, and related interpretations, as
permitted by SFAS No. 123, Accounting for
Stock-Based Compensation. On January 1, 2003, the
Company adopted the fair value measurement provisions of
SFAS No. 123 using the prospective method under which
the Company will recognize compensation expense of a stock-based
award to an employee over the vesting period based on the fair
value of the award on the grant date consistent with the method
described in FIN No. 28, Accounting for Stock
Appreciation Rights and Other Variable Stock Option or Award
Plans. Adoption of these provisions resulted in utilizing a
preferable accounting method as the consolidated financial
statements will present the estimated fair value of stock-based
compensation in expense consistently with other forms of
compensation and other expense associated with goods and
services received for equity instruments. In accordance with
SFAS No. 148, Accounting for Stock-Based
Compensation Transition and Disclosure, the fair
value method was applied only to awards granted or modified
after January 1, 2003, whereas awards granted prior to such
date were accounted for under APB No. 25, unless they
were modified or settled in cash.
SFAS No. 123 requires pro forma disclosure of the
impact on earnings as if the compensation expense for these
plans had been determined using the fair value method. The
following table presents the
F-96
CCH II, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Companys net loss as reported and the pro forma amounts
that would have been reported using the fair value method under
SFAS No. 123 for the years presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Net loss
|
|
$ |
(425 |
) |
|
$ |
(3,506 |
) |
|
$ |
(15 |
) |
Add back stock-based compensation expense related to stock
options included in reported net loss
|
|
|
14 |
|
|
|
31 |
|
|
|
4 |
|
Less employee stock-based compensation expense determined under
fair value based method for all employee stock option awards
|
|
|
(14 |
) |
|
|
(33 |
) |
|
|
(30 |
) |
Effects of unvested options in stock option exchange (see
Note 17)
|
|
|
|
|
|
|
48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma
|
|
$ |
(425 |
) |
|
$ |
(3,460 |
) |
|
$ |
(41 |
) |
|
|
|
|
|
|
|
|
|
|
The fair value of each option granted is estimated on the date
of grant using the Black-Scholes option-pricing model. The
following weighted average assumptions were used for grants
during the years ended December 31, 2005, 2004 and 2003,
respectively: risk-free interest rates of 4.0%, 3.3%, and 3.0%;
expected volatility of 70.9%, 92.4% and 93.6%; and expected
lives of 4.5 years, 4.6 years and 4.5 years,
respectively. The valuations assume no dividends are paid.
|
|
|
Unfavorable Contracts and Other Settlements |
The Company recognized $5 million of benefit for the year
ended December 31, 2004 related to changes in estimated
legal reserves established as part of previous business
combinations, which, based on an evaluation of current facts and
circumstances, are no longer required.
The Company recognized $72 million of benefit for the year
ended December 31, 2003 as a result of the settlement of
estimated liabilities recorded in connection with prior business
combinations. The majority of this benefit (approximately
$52 million) is due to the renegotiation of a major
programming contract, for which a liability had been recorded
for the above market portion of the agreement in conjunction
with the Falcon acquisition in 1999 and the Bresnan acquisition
in 2000. The remaining benefit relates to the reversal of
previously recorded liabilities, which are no longer required.
CCH II is a single member limited liability company not
subject to income tax. CCH II holds all operations through
indirect subsidiaries. The majority of these indirect
subsidiaries are limited liability companies that are also not
subject to income tax. However, certain of CCH IIs
indirect subsidiaries are corporations that are subject to
income tax. The Company recognizes deferred tax assets and
liabilities for temporary differences between the financial
reporting basis and the tax basis of these indirect corporate
subsidiaries assets and liabilities and expected benefits
of utilizing net operating loss carryforwards. The impact on
deferred taxes of changes in tax rates and tax law, if any,
applied to the years during which temporary differences are
expected to be settled, are reflected in the consolidated
financial statements in the period of enactment (see
Note 20).
SFAS No. 131, Disclosure about Segments of an
Enterprise and Related Information, established standards
for reporting information about operating segments in annual
financial statements and in interim financial reports issued to
shareholders. Operating segments are defined as components of an
enterprise about which separate financial information is
available that is evaluated on a regular basis by the chief
F-97
CCH II, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
operating decision maker, or decision making group, in deciding
how to allocate resources to an individual segment and in
assessing performance of the segment.
The Companys operations are managed on the basis of
geographic divisional operating segments. The Company has
evaluated the criteria for aggregation of the geographic
operating segments under paragraph 17 of
SFAS No. 131 and believes it meets each of the
respective criteria set forth. The Company delivers similar
products and services within each of its geographic divisional
operations. Each geographic and divisional service area utilizes
similar means for delivering the programming of the
Companys services; have similarity in the type or class of
customer receiving the products and services; distributes the
Companys services over a unified network; and operates
within a consistent regulatory environment. In addition, each of
the geographic divisional operating segments has similar
economic characteristics. In light of the Companys similar
services, means for delivery, similarity in type of customers,
the use of a unified network and other considerations across its
geographic divisional operating structure, management has
determined that the Company has one reportable segment,
broadband services.
In 2006, the Company signed a definitive agreement to sell
certain cable television systems serving a total of
approximately 242,600 analog video customers in West Virginia
and Virginia to Cebridge Connections, Inc. for a total of
approximately $770 million. During the second quarter of
2006, the Company determined, based on changes in the
Companys organizational and cost structure, that its asset
groupings for long lived asset accounting purposes are at the
level of their individual market areas, which are at a level
below the Companys geographic clustering. As a result, the
Company has determined that the West Virginia and Virginia cable
systems comprise operations and cash flows that for financial
reporting purposes meet the criteria for discontinued
operations. Accordingly, the results of operations for the West
Virginia and Virginia cable systems have been presented as
discontinued operations, net of tax for the years ended
December 31, 2005, 2004 and 2003. Relevant financial
information in other footnotes herein have been updated to be
consistent with this presentation.
Summarized consolidated financial information for the years
ended December 31, 2005, 2004 and 2003 for the West
Virginia and Virginia cable systems is as follows:
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
|
|
2005 |
|
2004 |
|
2003 |
|
|
|
|
|
|
|
Revenues
|
|
$221 |
|
$217 |
|
$203 |
Income (loss) before minority interest, income taxes and
cumulative effect of accounting change
|
|
$39 |
|
$(104) |
|
$32 |
In 2005, the Company closed the sale of certain cable systems in
Texas, West Virginia and Nebraska, representing a total of
approximately 33,000 analog video customers. During the year
ended December 31, 2005, those cable systems met the
criteria for assets held for sale under SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets. As such, the assets were written down to fair value
less estimated costs to sell resulting in asset impairment
charges during the year ended December 31, 2005 of
approximately $39 million.
In 2004, the Company closed the sale of certain cable systems in
Florida, Pennsylvania, Maryland, Delaware, New York and West
Virginia to Atlantic Broadband Finance, LLC. These transactions
resulted in a $106 million gain recorded as a gain on sale
of assets in the Companys consolidated statements of
operations. The total net proceeds from the sale of all of these
systems were approximately $735 million. The proceeds were
used to repay a portion of amounts outstanding under the
Companys revolving credit facility.
F-98
CCH II, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
5. |
Allowance for Doubtful Accounts |
Activity in the allowance for doubtful accounts is summarized as
follows for the years presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended | |
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Balance, beginning of year
|
|
$ |
15 |
|
|
$ |
17 |
|
|
$ |
19 |
|
Charged to expense
|
|
|
76 |
|
|
|
92 |
|
|
|
79 |
|
Uncollected balances written off, net of recoveries
|
|
|
(74 |
) |
|
|
(94 |
) |
|
|
(81 |
) |
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$ |
17 |
|
|
$ |
15 |
|
|
$ |
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
6. |
Property, Plant and Equipment |
Property, plant and equipment consists of the following as of
December 31, 2005 and 2004:
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Cable distribution systems
|
|
$ |
7,035 |
|
|
$ |
6,555 |
|
Customer equipment and installations
|
|
|
3,934 |
|
|
|
3,497 |
|
Vehicles and equipment
|
|
|
462 |
|
|
|
419 |
|
Buildings and leasehold improvements
|
|
|
525 |
|
|
|
518 |
|
Furniture, fixtures and equipment
|
|
|
556 |
|
|
|
263 |
|
|
|
|
|
|
|
|
|
|
|
12,512 |
|
|
|
11,252 |
|
Less: accumulated depreciation
|
|
|
(6,712 |
) |
|
|
(5,142 |
) |
|
|
|
|
|
|
|
|
|
$ |
5,800 |
|
|
$ |
6,110 |
|
|
|
|
|
|
|
|
The Company periodically evaluates the estimated useful lives
used to depreciate its assets and the estimated amount of assets
that will be abandoned or have minimal use in the future. A
significant change in assumptions about the extent or timing of
future asset retirements, or in the Companys use of new
technology and upgrade programs, could materially affect future
depreciation expense.
Depreciation expense for each of the years ended
December 31, 2005, 2004 and 2003 was $1.4 billion.
|
|
7. |
Franchises and Goodwill |
Franchise rights represent the value attributed to agreements
with local authorities that allow access to homes in cable
service areas acquired through the purchase of cable systems.
Management estimates the fair value of franchise rights at the
date of acquisition and determines if the franchise has a finite
life or an indefinite-life as defined by SFAS No. 142,
Goodwill and Other Intangible Assets. Franchises that
qualify for indefinite-life treatment under
SFAS No. 142 are tested for impairment annually each
October 1 based on valuations, or more frequently as
warranted by events or changes in circumstances. Such test
resulted in a total franchise impairment of approximately
$3.3 billion during the third quarter of 2004. The 2003 and
2005 annual impairment tests resulted in no impairment.
Franchises are aggregated into essentially inseparable asset
groups to conduct the valuations. The asset groups generally
represent geographic clustering of the Companys cable
systems into groups by which such systems are managed.
Management believes such grouping represents the highest and
best use of those assets.
The Companys valuations, which are based on the present
value of projected after tax cash flows, result in a value of
property, plant and equipment, franchises, customer
relationships and its total entity
F-99
CCH II, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
value. The value of goodwill is the difference between the total
entity value and amounts assigned to the other assets.
Franchises, for valuation purposes, are defined as the future
economic benefits of the right to solicit and service potential
customers (customer marketing rights), and the right to deploy
and market new services such as interactivity and telephone to
the potential customers (service marketing rights). Fair value
is determined based on estimated discounted future cash flows
using assumptions consistent with internal forecasts. The
franchise after-tax cash flow is calculated as the after-tax
cash flow generated by the potential customers obtained and the
new services added to those customers in future periods. The sum
of the present value of the franchises after-tax cash flow
in years 1 through 10 and the continuing value of the after-tax
cash flow beyond year 10 yields the fair value of the franchise.
The Company follows the guidance of Emerging Issues Task Force
(EITF)
Issue 02-17,
Recognition of Customer Relationship Intangible Assets
Acquired in a Business Combination, in valuing customer
relationships. Customer relationships, for valuation purposes,
represent the value of the business relationship with existing
customers and are calculated by projecting future after-tax cash
flows from these customers including the right to deploy and
market additional services such as interactivity and telephone
to these customers. The present value of these after-tax cash
flows yields the fair value of the customer relationships.
Substantially all acquisitions occurred prior to January 1,
2002. The Company did not record any value associated with the
customer relationship intangibles related to those acquisitions.
For acquisitions subsequent to January 1, 2002 the Company
did assign a value to the customer relationship intangible,
which is amortized over its estimated useful life.
In September 2004, the SEC staff issued EITF Topic
D-108 which requires
the direct method of separately valuing all intangible assets
and does not permit goodwill to be included in franchise assets.
The Company adopted Topic
D-108 in its impairment
assessment as of September 30, 2004 that resulted in a
total franchise impairment of approximately $3.3 billion.
The Company recorded a cumulative effect of accounting change of
$840 million (approximately $875 million before tax
effects of $16 million and minority interest effects of
$19 million) for the year ended December 31, 2004
representing the portion of the Companys total franchise
impairment attributable to no longer including goodwill with
franchise assets. The remaining $2.4 billion of the total
franchise impairment was attributable to the use of lower
projected growth rates and the resulting revised estimates of
future cash flows in the Companys valuation, and was
recorded as impairment of franchises in the Companys
accompanying consolidated statements of operations for the year
ended December 31, 2004. Sustained analog video customer
losses by the Company in the third quarter of 2004 primarily as
a result of increased competition from direct broadcast
satellite providers and decreased growth rates in the
Companys high-speed Internet customers in the third
quarter of 2004, in part, as a result of increased competition
from digital subscriber line service providers led to the lower
projected growth rates and the revised estimates of future cash
flows from those used at October 1, 2003.
F-100
CCH II, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As of December 31, 2005 and 2004, indefinite-lived and
finite-lived intangible assets are presented in the following
table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
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
|
|
$ |
9,806 |
|
|
$ |
|
|
|
$ |
9,806 |
|
|
$ |
9,845 |
|
|
$ |
|
|
|
$ |
9,845 |
|
|
Goodwill
|
|
|
52 |
|
|
|
|
|
|
|
52 |
|
|
|
52 |
|
|
|
|
|
|
|
52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
9,858 |
|
|
$ |
|
|
|
$ |
9,858 |
|
|
$ |
9,897 |
|
|
$ |
|
|
|
$ |
9,897 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchises with finite lives
|
|
$ |
27 |
|
|
$ |
7 |
|
|
$ |
20 |
|
|
$ |
37 |
|
|
$ |
4 |
|
|
$ |
33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, 2005 and 2004, the net
carrying amount of indefinite-lived franchises was reduced by
$52 million and $490 million, respectively, related to
the sale of cable systems (see Note 4). Additionally, in
2005 and 2004, approximately $13 million and
$37 million, respectively, of franchises that were
previously classified as finite-lived were reclassified to
indefinite-lived, based on the Companys renewal of these
franchise assets in 2005 and 2004. Franchise amortization
expense for the years ended December 31, 2005, 2004 and
2003 was $4 million, $3 million and $7 million,
respectively, which represents the amortization relating to
franchises that did not qualify for indefinite-life treatment
under SFAS No. 142, including costs associated with
franchise renewals. The Company expects that amortization
expense on franchise assets will be approximately
$2 million annually for each of the next five years. Actual
amortization expense in future periods could differ from these
estimates as a result of new intangible asset acquisitions or
divestitures, changes in useful lives and other relevant factors.
|
|
8. |
Accounts Payable and Accrued Expenses |
Accounts payable and accrued expenses consist of the following
as of December 31, 2005 and 2004:
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Accounts payable trade
|
|
$ |
100 |
|
|
$ |
138 |
|
Accrued capital expenditures
|
|
|
73 |
|
|
|
60 |
|
Accrued expenses:
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
166 |
|
|
|
149 |
|
|
Programming costs
|
|
|
272 |
|
|
|
278 |
|
|
Franchise related fees
|
|
|
67 |
|
|
|
67 |
|
|
Compensation
|
|
|
60 |
|
|
|
47 |
|
|
Other
|
|
|
185 |
|
|
|
210 |
|
|
|
|
|
|
|
|
|
|
$ |
923 |
|
|
$ |
949 |
|
|
|
|
|
|
|
|
F-101
CCH II, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Long-term debt consists of the following as of December 31,
2005 and 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
Principal | |
|
Accreted | |
|
Principal | |
|
Accreted | |
|
|
Amount | |
|
Value | |
|
Amount | |
|
Value | |
|
|
| |
|
| |
|
| |
|
| |
Long-Term Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CCH II:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.250% senior notes due 2010
|
|
$ |
1,601 |
|
|
$ |
1,601 |
|
|
$ |
1,601 |
|
|
$ |
1,601 |
|
CCO Holdings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83/4% senior
notes due 2013
|
|
|
800 |
|
|
|
794 |
|
|
|
500 |
|
|
|
500 |
|
|
Senior floating notes due 2010
|
|
|
550 |
|
|
|
550 |
|
|
|
550 |
|
|
|
550 |
|
Charter Operating:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
5,731 |
|
|
|
5,731 |
|
|
|
5,515 |
|
|
|
5,515 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
10,629 |
|
|
$ |
10,624 |
|
|
$ |
9,893 |
|
|
$ |
9,895 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accreted values presented above generally represent the
principal amount of the notes less the original issue discount
at the time of sale plus the accretion to the balance sheet date.
In January 2006, the Company issued $450 million in debt
securities, the proceeds of which will be provided, directly or
indirectly, to Charter Operating, which will use such funds to
reduce borrowings, but not commitments, under the revolving
portion of its credit facilities.
In October 2005, CCO Holdings and CCO Holdings Capital Corp., as
guarantor thereunder, entered into the Bridge Loan with the
Lenders whereby the Lenders committed to make loans to CCO
Holdings in an aggregate amount of $600 million. Upon the
issuance of $450 million of CCH II notes discussed
above, the commitment under the bridge loan agreement was
reduced to $435 million. CCO Holdings may draw upon the
facility between January 2, 2006 and September 29,
2006 and the loans will mature on the sixth anniversary of the
first borrowing under the bridge loan. Each loan will accrue
interest at a rate equal to an adjusted LIBOR rate plus a
spread. The spread will initially be 450 basis points and
will increase (a) by an additional 25 basis points at
the end of the six-month period following the date of the first
borrowing, (b) by an additional 25 basis points at the
end of each of the next two subsequent three month periods and
(c) by 62.5 basis points at the end of each of the
next two subsequent three-month periods. CCO Holdings will be
required to prepay loans from the net proceeds from (i) the
issuance of equity or incurrence of debt by Charter and its
subsidiaries, with certain exceptions, and (ii) certain
asset sales (to the extent not used for other purposes permitted
under the bridge loan).
In August 2005, CCO Holdings issued $300 million in debt
securities, the proceeds of which were used for general
corporate purposes, including the payment of distributions to
its parent companies, including Charter Holdings, to pay
interest expense.
F-102
CCH II, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In March and June 2005, Charter Operating consummated exchange
transactions with a small number of institutional holders of
Charter Holdings 8.25% senior notes due 2007 pursuant to
which Charter Operating issued, in private placements,
approximately $333 million principal amount of new notes
with terms identical to Charter Operatings
8.375% senior second lien notes due 2014 in exchange for
approximately $346 million of the Charter Holdings
8.25% senior notes due 2007. The Charter Holdings notes
received in the exchange were thereafter distributed to Charter
Holdings and cancelled.
|
|
|
Loss on Extinguishment of Debt |
In March 2005, CCH IIs subsidiary, CC V Holdings,
LLC, redeemed all of its 11.875% notes due 2008, at
103.958% of principal amount, plus accrued and unpaid interest
to the date of redemption. The total cost of redemption was
approximately $122 million and was funded through
borrowings under the Charter Operating credit facilities. The
redemption resulted in a loss on extinguishment of debt for the
year ended December 31, 2005 of approximately
$5 million. Following such redemption, CC V Holdings, LLC
and its subsidiaries (other than non-guarantor subsidiaries)
guaranteed the Charter Operating credit facilities and granted a
lien on all of their assets as to which a lien can be perfected
under the Uniform Commercial Code by the filing of a financing
statement.
In April 2004, CCH IIs indirect subsidiaries, Charter
Operating and Charter Communications Operating Capital Corp.,
sold $1.5 billion of senior second-lien notes in a private
transaction. Additionally, Charter Operating amended and
restated its $5.1 billion credit facilities, among other
things, to defer maturities and increase availability under
those facilities to approximately $6.5 billion, consisting
of a $1.5 billion six-year revolving credit facility, a
$2.0 billion six-year term loan facility and a
$3.0 billion seven-year term loan facility. Charter
Operating used the additional borrowings under the amended and
restated credit facilities, together with proceeds from the sale
of the Charter Operating senior second-lien notes to refinance
the credit facilities of its subsidiaries, CC VI Operating
Company, LLC (CC VI Operating), Falcon Cable
Communications, LLC (Falcon Cable), and CC VIII
Operating, LLC (CC VIII Operating), all in
concurrent transactions. In addition, Charter Operating was
substituted as the lender in place of the banks under those
subsidiaries credit facilities. These transactions
resulted in a net loss on extinguishment of debt of
$21 million for the year ended December 31, 2004.
CCH II Notes. In September 2003, CCH II
and CCH II Capital Corp. jointly issued $1.6 billion
total principal amount of 10.25% senior notes due 2010 and
in January 2006, they issued an additional $450 million
principal amount of these notes. The CCH II notes are
general unsecured obligations of CCH II and CCH II
Capital Corp. They rank equally with all other current or future
unsubordinated obligations of CCH II and CCH II
Capital Corp. The CCH II notes are structurally
subordinated to all obligations of subsidiaries of CCH II,
including the CCO Holdings notes, the Renaissance notes, the
Charter Operating notes and the Charter Operating credit
facilities.
Interest on the CCH II notes accrues at 10.25% per
annum and is payable semi-annually in arrears on each March 15
and September 15.
At any time prior to September 15, 2006, in the event of a
qualified equity offering providing sufficient proceeds, the
issuers of the CCH II notes may redeem up to 35% of the
total principal amount of the CCH II notes on a pro rata
basis at a redemption price equal to 110.25% of the principal
amount of CCH II notes redeemed, plus any accrued and
unpaid interest.
On or after September 15, 2008, the issuers of the
CCH II notes may redeem all or a part of the notes at a
redemption price that declines ratably from the initial
redemption price of 105.125% to a redemption price on or after
September 15, 2009 of 100.0% of the principal amount of the
CCH II notes redeemed, plus, in each case, any accrued and
unpaid interest.
F-103
CCH II, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In the event of specified change of control events, CCH II
must offer to purchase the outstanding CCH II notes from
the holders at a purchase price equal to 101% of the total
principal amount of the notes, plus any accrued and unpaid
interest.
The indenture governing the CCH II notes contains
restrictive covenants that limit certain transactions or
activities by CCH II and its restricted subsidiaries.
Substantially all of CCH IIs direct and indirect
subsidiaries are currently restricted subsidiaries.
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|
|
83/4% Senior
Notes due 2013 |
In November 2003 and August 2005, CCO Holdings and CCO Holdings
Capital Corp. jointly issued $500 million and
$300 million, respectively, total principal amount of
83/4% senior
notes due 2013. The CCO Holdings notes are general unsecured
obligations of CCO Holdings and CCO Holdings Capital Corp. They
rank equally with all other current or future unsubordinated
obligations of CCO Holdings and CCO Holdings Capital Corp. The
CCO Holdings notes are structurally subordinated to all
obligations of CCO Holdings subsidiaries, including the
Renaissance notes, the Charter Operating notes and the Charter
Operating credit facilities. As of December 31, 2005, there
was $800 million in total principal amount outstanding and
$794 million in accreted value outstanding.
Interest on the CCO Holdings senior notes accrues at
83/4% per
year and is payable semi-annually in arrears on each May 15 and
November 15.
At any time prior to November 15, 2006, the issuers of the
CCO Holdings senior notes may redeem up to 35% of the total
principal amount of the CCO Holdings senior notes to the extent
of public equity proceeds they have received on a pro rata basis
at a redemption price equal to 108.75% of the principal amount
of CCO Holdings senior notes redeemed, plus any accrued and
unpaid interest.
On or after November 15, 2008, the issuers of the CCO
Holdings senior notes may redeem all or a part of the notes at a
redemption price that declines ratably from the initial
redemption price of 104.375% to a redemption price on or after
November 15, 2011 of 100.0% of the principal amount of the
CCO Holdings senior notes redeemed, plus, in each case, any
accrued and unpaid interest.
In the event of specified change of control events, CCO Holdings
must offer to purchase the outstanding CCO Holdings senior notes
from the holders at a purchase price equal to 101% of the total
principal amount of the notes, plus any accrued and unpaid
interest.
|
|
|
Senior Floating Rate Notes Due 2010 |
In December 2004, CCO Holdings and CCO Holdings Capital Corp.
jointly issued $550 million total principal amount of
senior floating rate notes due 2010. The CCO Holdings notes are
general unsecured obligations of CCO Holdings and CCO Holdings
Capital Corp. They rank equally with all other current or future
unsubordinated obligations of CCO Holdings and CCO Holdings
Capital Corp. The CCO Holdings notes are structurally
subordinated to all obligations of CCO Holdings
subsidiaries, including the Renaissance notes, the Charter
Operating notes and the Charter Operating credit facilities.
Interest on the CCO Holdings senior floating rate notes accrues
at the LIBOR rate (4.53% and 2.56% as of December 31, 2005
and 2004, respectively) plus 4.125% annually, from the date
interest was most recently paid. Interest is reset and payable
quarterly in arrears on each March 15, June 15,
September 15 and December 15.
At any time prior to December 15, 2006, the issuers of the
senior floating rate notes may redeem up to 35% of the notes in
an amount not to exceed the amount of proceeds of one or more
public equity
F-104
CCH II, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
offerings at a redemption price equal to 100% of the principal
amount, plus a premium equal to the interest rate per annum
applicable to the notes on the date notice of redemption is
given, plus accrued and unpaid interest, if any, to the
redemption date, provided that at least 65% of the original
aggregate principal amount of the notes issued remains
outstanding after the redemption.
The issuers of the senior floating rate notes may redeem the
notes in whole or in part at the issuers option from
December 15, 2006 until December 14, 2007 for 102% of
the principal amount, from December 15, 2007 until
December 14, 2008 for 101% of the principal amount and from
and after December 15, 2008, at par, in each case, plus
accrued and unpaid interest.
The indentures governing the CCO Holdings senior notes contain
restrictive covenants that limit certain transactions or
activities by CCO Holdings and its restricted subsidiaries.
Substantially all of CCO Holdings direct and indirect
subsidiaries are currently restricted subsidiaries.
In the event of specified change of control events, CCO Holdings
must offer to purchase the outstanding CCO Holdings senior notes
from the holders at a purchase price equal to 101% of the total
principal amount of the notes, plus any accrued and unpaid
interest.
Charter Operating Notes. On April 27, 2004,
Charter Operating and Charter Communications Operating Capital
Corp. jointly issued $1.1 billion of 8% senior
second-lien notes due 2012 and $400 million of
83/8% senior
second-lien notes due 2014, for total gross proceeds of
$1.5 billion. In March and June 2005, Charter Operating
consummated exchange transactions with a small number of
institutional holders of Charter Holdings 8.25% senior
notes due 2007 pursuant to which Charter Operating issued, in
private placement transactions, approximately $333 million
principal amount of its
83/8% senior
second-lien notes due 2014 in exchange for approximately
$346 million of the Charter Holdings 8.25% senior
notes due 2007. Interest on the Charter Operating notes is
payable semi-annually in arrears on each April 30 and
October 30.
The Charter Operating notes were sold in a private transaction
that was not subject to the registration requirements of the
Securities Act of 1933. The Charter Operating notes are not
expected to have the benefit of any exchange or other
registration rights, except in specified limited circumstances.
On the issue date of the Charter Operating notes, because of
restrictions contained in the Charter Holdings indentures, there
were no Charter Operating note guarantees, even though Charter
Operatings immediate parent, CCO Holdings, and certain of
the Companys subsidiaries were obligors and/or guarantors
under the Charter Operating credit facilities. Upon the
occurrence of the guarantee and pledge date (generally, the
fifth business day after the Charter Holdings leverage ratio was
certified to be below 8.75 to 1.0), CCO Holdings and those
subsidiaries of Charter Operating that were then guarantors of,
or otherwise obligors with respect to, indebtedness under the
Charter Operating credit facilities and related obligations were
required to guarantee the Charter Operating notes. The note
guarantee of each such guarantor is:
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|
|
a senior obligation of such guarantor; |
|
|
|
structurally senior to the outstanding CCO Holdings notes
(except in the case of CCO Holdings note guarantee, which
is structurally pari passu with such senior notes), the
outstanding CCH II notes, the outstanding CCH I notes, the
outstanding CIH notes, the outstanding Charter Holdings notes
and the outstanding Charter convertible senior notes (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. |
As a result of the above leverage ratio test being met, CCO
Holdings and certain of its subsidiaries provided the additional
guarantees described above during the first quarter of 2005.
F-105
CCH II, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
All the subsidiaries of Charter Operating (except CCO NR Sub,
LLC, and certain other subsidiaries that are not deemed material
and are designated as nonrecourse subsidiaries under the Charter
Operating credit facilities) are restricted subsidiaries of
Charter Operating under the Charter Operating notes.
Unrestricted subsidiaries generally will not be subject to the
restrictive covenants in the Charter Operating indenture.
In the event of specified change of control events, Charter
Operating must offer to purchase the Charter Operating notes at
a purchase price equal to 101% of the total principal amount of
the Charter Operating notes repurchased plus any accrued and
unpaid interest thereon.
The indenture governing the Charter Operating senior notes
contains restrictive covenants that limit certain transactions
or activities by Charter Operating and its restricted
subsidiaries. Substantially all of Charter Operatings
direct and indirect subsidiaries are currently restricted
subsidiaries.
Renaissance Notes. In connection with the
acquisition of Renaissance in April 1999, the Company assumed
$163 million principal amount at maturity of
10.000% senior discount notes due 2008 of which
$49 million was repurchased in May 1999. The Renaissance
notes bear interest, payable semi-annually, on April 15 and
October 15. The Renaissance notes are due on April 15,
2008. As of December 31, 2005, there was $114 million
in total principal amount outstanding and $115 million in
accreted value outstanding.
CC V Holdings Notes. These notes were redeemed on
March 14, 2005 and are therefore no longer outstanding.
High-Yield Restrictive Covenants; Limitation on
Indebtedness. The indentures governing the notes of the
Companys subsidiaries contain certain covenants that
restrict the ability of CCH II, CCH II Capital Corp.,
CCO Holdings, CCO Holdings Capital Corp., Charter Operating,
Charter Communications Operating Capital Corp., Renaissance
Media Group, and all of their restricted subsidiaries to:
|
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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 |
|
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|
grant liens. |
|
|
|
Charter Operating Credit Facilities |
The Charter Operating credit facilities were amended and
restated concurrently with the sale of $1.5 billion senior
second-lien notes in April 2004, among other things, to defer
maturities and increase availability under these facilities and
to enable Charter Operating to acquire the interests of the
lenders under the CC VI Operating, CC VIII Operating and Falcon
credit facilities, thereby consolidating all credit facilities
under one amended and restated Charter Operating credit
agreement.
F-106
CCH II, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Charter Operating credit facilities provide borrowing
availability of up to $6.5 billion as follows:
|
|
|
(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 |
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|
a revolving credit facility, in a total amount of
$1.5 billion, with a maturity date in 2010. |
Amounts outstanding under the Charter Operating credit
facilities bear interest, at Charter Operatings election,
at a base rate or the Eurodollar rate (4.06% to 4.50% as of
December 31, 2005 and 2.07% to 2.28% as of
December 31, 2004), as defined, plus a margin for
Eurodollar loans of up to 3.00% for the Term A facility and
revolving credit facility, and up to 3.25% for the Term B
facility, and for base rate loans of up to 2.00% for the Term A
facility and revolving credit facility, and up to 2.25% for the
Term B facility. A quarterly commitment fee of up to .75% is
payable on the average daily unborrowed balance of the revolving
credit facilities.
The obligations of our subsidiaries under the Charter Operating
credit facilities (the Obligations) are guaranteed
by Charter Operatings immediate parent company, CCO
Holdings, and the subsidiaries of Charter Operating, except for
immaterial subsidiaries and subsidiaries precluded from
guaranteeing by reason of the provisions of other indebtedness
to which they are subject (the non-guarantor
subsidiaries, primarily Renaissance and its subsidiaries).
The Obligations are also secured by (i) a lien on all of
the assets of Charter Operating and its subsidiaries (other than
assets of the non-guarantor subsidiaries), to the extent such
lien can be perfected under the Uniform Commercial Code by the
filing of a financing statement, and (ii) a pledge by CCO
Holdings of the equity interests owned by it in Charter
Operating or any of Charter Operatings subsidiaries, as
well as intercompany obligations owing to it by any of such
entities.
Upon the Charter Holdings Leverage Ratio (as defined in the
indenture governing the Charter Holdings senior notes and senior
discount notes) being under 8.75 to 1.0, the Charter Operating
credit facilities required that the 11.875% notes due 2008
issued by CC V Holdings, LLC be redeemed. Because such Leverage
Ratio was determined to be under 8.75 to 1.0, CC V Holdings, LLC
redeemed such notes in March 2005, and CC V Holdings, LLC and
its subsidiaries (other than non-guarantor subsidiaries) became
guarantors of the Obligations and have granted a lien on all of
their assets as to which a lien can be perfected under the
Uniform Commercial Code by the filing of a financing statement.
As of December 31, 2005, outstanding borrowings under the
Charter Operating credit facilities were approximately
$5.7 billion and the unused total potential availability
was approximately $553 million, none of which was limited
by covenant restrictions.
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|
|
Charter Operating Credit Facilities
Restrictive Covenants |
The Charter Operating credit facilities contain representations
and warranties, and affirmative and negative covenants customary
for financings of this type. The financial covenants measure
performance against standards set for leverage, debt service
coverage, and interest coverage, tested as of the end of each
quarter. The maximum allowable leverage ratio is 4.25 to 1.0
until maturity, tested as of the end of each quarter beginning
September 30, 2004. Additionally, the Charter Operating
credit facilities contain provisions requiring mandatory loan
prepayments under specific circumstances, including when
significant amounts of assets are sold and the proceeds are not
reinvested in assets useful in the business of the
F-107
CCH II, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
borrower within a specified period, and upon the incurrence of
certain indebtedness when the ratio of senior first lien debt to
operating cash flow is greater than 2.0 to 1.0.
The Charter Operating credit facilities permit Charter Operating
and its subsidiaries to make distributions to pay interest on
the Charter Operating senior second-lien notes, the CIH notes,
the CCH I notes, the CCH II senior notes, the CCO Holdings
senior notes, the Charter convertible senior notes, the CCHC
notes and the Charter Holdings senior notes, provided that,
among other things, no default has occurred and is continuing
under the Charter Operating credit facilities. Conditions to
future borrowings include absence of a default or an event of
default under the Charter Operating credit facilities and the
continued accuracy in all material respects of the
representations and warranties, including the absence since
December 31, 2003 of any event, development or circumstance
that has had or could reasonably be expected to have a material
adverse effect on our business.
The events of default under the Charter Operating credit
facilities include, among other things:
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|
the failure to make payments when due or within the applicable
grace period, |
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|
|
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, |
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|
|
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 Operatings
subsidiaries in amounts in excess of $50 million in
aggregate principal amount, |
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|
|
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, |
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|
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, |
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|
certain of Charter Operatings 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 |
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Charter Operating ceasing to be a wholly-owned direct subsidiary
of CCO Holdings, except in certain very limited circumstances. |
In October 2005, CCO Holdings and CCO Holdings Capital Corp., as
guarantor thereunder, entered into the Bridge Loan) with
JPMorgan Chase Bank, N.A., Credit Suisse, Cayman Islands Branch
and Deutsche Bank AG Cayman Islands Branch (the
Lenders) whereby the Lenders committed to make loans
to CCO Holdings in an aggregate amount of $600 million. In
January 2006, upon the issuance of $450 million of
CCH II notes discussed above, the commitment under the
bridge loan agreement was reduced to $435 million. CCO
Holdings may draw upon the facility between January 2, 2006
and September 29, 2006 and the loans will mature on the
sixth anniversary of the first borrowing under the Bridge Loan.
F-108
CCH II, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Beginning on the first anniversary of the first date that CCO
Holdings borrows under the Bridge Loan and at any time
thereafter, any Lender will have the option to receive
exchange notes (the terms of which are described
below, the Exchange Notes) in exchange for any loan
that has not been repaid by that date. Upon the earlier of
(x) the date that at least a majority of all loans that
have been outstanding have been exchanged for Exchange Notes and
(y) the date that is 18 months after the first date
that CCO Holdings borrows under the Bridge Loan, the remainder
of loans will be automatically exchanged for Exchange Notes.
As conditions to each draw, (i) there shall be no default
under the Bridge Loan, (ii) all the representations and
warranties under the bridge loan shall be true and correct in
all material respects and (iii) all conditions to borrowing
under the Charter Operating credit facilities (with certain
exceptions) shall be satisfied.
The aggregate unused commitment will be reduced by 100% of the
net proceeds from certain asset sales, to the extent such net
proceeds have not been used to prepay loans or Exchange Notes.
However, asset sales that generate net proceeds of less than
$75 million will not be subject to such commitment
reduction obligation, unless the aggregate net proceeds from
such asset sales exceed $200 million, in which case the
aggregate unused commitment will be reduced by the amount of
such excess.
CCO Holdings will be required to prepay loans (and redeem or
offer to repurchase Exchange Notes, if issued) from the net
proceeds from (i) the issuance of equity or incurrence of
debt by Charter and its subsidiaries, with certain exceptions,
and (ii) certain asset sales (to the extent not used for
purposes permitted under the bridge loan).
The covenants and events of default applicable to CCO Holdings
under the Bridge Loan are similar to the covenants and events of
default in the indenture for the senior secured notes of CCH I.
The Exchange Notes will mature on the sixth anniversary of the
first borrowing under the Bridge Loan. The Exchange Notes will
bear interest at a rate equal to the rate that would have been
borne by the loans. The same mandatory redemption provisions
will apply to the Exchange Notes as applied to the loans, except
that CCO Holdings will be required to make an offer to redeem
upon the occurrence of a change of control at 101% of principal
amount plus accrued and unpaid interest.
The Exchange Notes will, if held by a person other than an
initial lender or an affiliate thereof, be (a) non-callable
for the first three years after the first borrowing date and
(b) thereafter, callable at par plus accrued interest plus
a premium equal to 50% of the coupon in effect on the first
anniversary of the first borrowing date, which premium shall
decline to 25% of such coupon in the fourth year and to zero
thereafter. Otherwise, the Exchange Notes will be callable at
any time at 100% of the amount thereof plus accrued and unpaid
interest.
Based upon outstanding indebtedness as of December 31,
2005, the amortization of term loans, scheduled reductions in
available borrowings of the revolving credit facilities, and the
maturity dates for all
F-109
CCH II, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
senior and subordinated notes and debentures, total future
principal payments on the total borrowings under all debt
agreements as of December 31, 2005, are as follows:
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Amount | |
|
|
| |
2006
|
|
$ |
30 |
|
2007
|
|
|
280 |
|
2008
|
|
|
744 |
|
2009
|
|
|
779 |
|
2010
|
|
|
3,363 |
|
Thereafter
|
|
|
5,433 |
|
|
|
|
|
|
|
$ |
10,629 |
|
|
|
|
|
For the amounts of debt scheduled to mature during 2006, it is
managements intent to fund the repayments from borrowings
on the Companys revolving credit facility. The
accompanying consolidated balance sheet reflects this intent by
presenting all debt balances as long-term while the table above
reflects actual debt maturities as of the stated date.
Minority interest on the Companys consolidated balance
sheets as of December 31, 2005 and 2004 primarily
represents preferred membership interests in CC VIII, LLC
(CC VIII), an indirect subsidiary of CCH II, of
$622 million and $656 million, respectively. As more
fully described in Note 21, this preferred interest arises
from approximately $630 million of preferred membership
units issued by CC VIII in connection with an acquisition in
February 2000 and was the subject of a dispute between Charter
and Mr. Allen, Charters Chairman and controlling
shareholder that was settled October 31, 2005. In
conjunction with the settlement of this dispute and the related
change in ownership interest, approximately 18.6% of CC
VIIIs income or losses are allocated to minority interest
in the Companys consolidated statements of operations,
including amounts estimated in prior years and the 2% accretion
of the preferred membership interests.
|
|
11. |
Comprehensive Income (Loss) |
Certain marketable equity securities are classified as
available-for-sale and reported at market value with unrealized
gains and losses recorded as accumulated other comprehensive
loss on the accompanying consolidated balance sheets.
Additionally, the Company reports changes in the fair value of
interest rate agreements designated as hedging the variability
of cash flows associated with floating-rate debt obligations,
that meet the effectiveness criteria of SFAS No. 133,
Accounting for Derivative Instruments and Hedging
Activities, in accumulated other comprehensive loss.
Comprehensive loss for the years ended December 31, 2005
and 2004 was $408 million and $3.5 billion,
respectively. Comprehensive income for the year ended
December 31, 2003 was $33 million.
|
|
12. |
Accounting for Derivative Instruments and Hedging
Activities |
The Company uses interest rate risk management derivative
instruments, such as interest rate swap agreements and interest
rate collar agreements (collectively referred to herein as
interest rate agreements) to manage its interest costs. The
Companys policy is to manage interest costs using a mix of
fixed and variable rate debt. Using interest rate swap
agreements, the Company has agreed to exchange, at specified
intervals through 2007, the difference between fixed and
variable interest amounts calculated by reference to an
agreed-upon notional principal amount. Interest rate collar
agreements are used to limit the
F-110
CCH II, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Companys exposure to and benefits from interest rate
fluctuations on variable rate debt to within a certain range of
rates.
The Company does not hold or issue derivative instruments for
trading purposes. The Company does, however, have certain
interest rate derivative instruments that have been designated
as cash flow hedging instruments. Such instruments effectively
convert variable interest payments on certain debt instruments
into fixed payments. For qualifying hedges,
SFAS No. 133 allows derivative gains and losses to
offset related results on hedged items in the consolidated
statement of operations. The Company has formally documented,
designated and assessed the effectiveness of transactions that
receive hedge accounting. For the years ended December 31,
2005, 2004 and 2003, net gain on derivative instruments and
hedging activities includes gains of $3 million,
$4 million and $8 million, respectively, which
represent cash flow hedge ineffectiveness on interest rate hedge
agreements arising from differences between the critical terms
of the agreements and the related hedged obligations. Changes in
the fair value of interest rate agreements designated as hedging
instruments of the variability of cash flows associated with
floating-rate debt obligations that meet the effectiveness
criteria SFAS No. 133 are reported in accumulated
other comprehensive loss. For the years ended December 31,
2005, 2004 and 2003, a gain of $16 million,
$42 million and $48 million, respectively, related to
derivative instruments designated as cash flow hedges, was
recorded in accumulated other comprehensive loss. The amounts
are subsequently reclassified into interest expense as a yield
adjustment in the same period in which the related interest on
the floating-rate debt obligations affects earnings (losses).
Certain interest rate derivative instruments are not designated
as hedges as they do not meet the effectiveness criteria
specified by SFAS No. 133. However, management
believes such instruments are closely correlated with the
respective debt, thus managing associated risk. Interest rate
derivative instruments not designated as hedges are marked to
fair value, with the impact recorded as gain (loss) on
derivative instruments and hedging activities in the
Companys consolidated statement of operations. For the
years ended December 31, 2005, 2004 and 2003, net gain on
derivative instruments and hedging activities includes gains of
$47 million, $65 million and $57 million,
respectively, for interest rate derivative instruments not
designated as hedges.
As of December 31, 2005, 2004 and 2003, the Company had
outstanding $1.8 billion, $2.7 billion and
$3.0 billion and $20 million, $20 million and
$520 million, respectively, in notional amounts of interest
rate swaps and collars, respectively. The notional amounts of
interest rate instruments do not represent amounts exchanged by
the parties and, thus, are not a measure of exposure to credit
loss. The amounts exchanged are determined by reference to the
notional amount and the other terms of the contracts.
|
|
13. |
Fair Value of Financial Instruments |
The Company has estimated the fair value of its financial
instruments as of December 31, 2005 and 2004 using
available market information or other appropriate valuation
methodologies. Considerable judgment, however, is required in
interpreting market data to develop the estimates of fair value.
Accordingly, the estimates presented in the accompanying
consolidated financial statements are not necessarily indicative
of the amounts the Company would realize in a current market
exchange.
The carrying amounts of cash, receivables, payables and other
current assets and liabilities approximate fair value because of
the short maturity of those instruments. The Company is exposed
to market price risk volatility with respect to investments in
publicly traded and privately held entities.
The fair value of interest rate agreements represents the
estimated amount the Company would receive or pay upon
termination of the agreements. Management believes that the
sellers of the interest rate agreements will be able to meet
their obligations under the agreements. In addition, some of the
interest rate agreements are with certain of the participating
banks under the Companys credit facilities,
F-111
CCH II, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
thereby reducing the exposure to credit loss. The Company has
policies regarding the financial stability and credit standing
of major counterparties. Nonperformance by the counterparties is
not anticipated nor would it have a material adverse effect on
the Companys consolidated financial condition or results
of operations.
The estimated fair value of the Companys notes and
interest rate agreements at December 31, 2005 and 2004 are
based on quoted market prices, and the fair value of the credit
facilities is based on dealer quotations.
A summary of the carrying value and fair value of the
Companys debt and related interest rate agreements at
December 31, 2005 and 2004 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
Carrying | |
|
Fair | |
|
Carrying | |
|
Fair | |
|
|
Value | |
|
Value | |
|
Value | |
|
Value | |
|
|
| |
|
| |
|
| |
|
| |
Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CCH II debt
|
|
$ |
1,601 |
|
|
$ |
1,592 |
|
|
$ |
1,601 |
|
|
$ |
1,698 |
|
|
CCO Holdings debt
|
|
|
1,344 |
|
|
|
1,299 |
|
|
|
1,050 |
|
|
|
1,064 |
|
|
Charter Operating debt
|
|
|
1,833 |
|
|
|
1,821 |
|
|
|
1,500 |
|
|
|
1,563 |
|
|
Credit facilities
|
|
|
5,731 |
|
|
|
5,719 |
|
|
|
5,515 |
|
|
|
5,502 |
|
|
Other
|
|
|
115 |
|
|
|
114 |
|
|
|
229 |
|
|
|
236 |
|
Interest Rate Agreements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets (Liabilities) Swaps
|
|
|
(4 |
) |
|
|
(4 |
) |
|
|
(69 |
) |
|
|
(69 |
) |
|
Collars
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
(1 |
) |
The weighted average interest pay rate for the Companys
interest rate swap agreements was 9.51% and 8.07% at
December 31, 2005 and 2004, respectively.
Revenues consist of the following for the years presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Video
|
|
$ |
3,248 |
|
|
$ |
3,217 |
|
|
$ |
3,306 |
|
High-speed Internet
|
|
|
875 |
|
|
|
712 |
|
|
|
535 |
|
Telephone
|
|
|
36 |
|
|
|
18 |
|
|
|
14 |
|
Advertising sales
|
|
|
284 |
|
|
|
279 |
|
|
|
254 |
|
Commercial
|
|
|
266 |
|
|
|
227 |
|
|
|
196 |
|
Other
|
|
|
324 |
|
|
|
307 |
|
|
|
311 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,033 |
|
|
$ |
4,760 |
|
|
$ |
4,616 |
|
|
|
|
|
|
|
|
|
|
|
F-112
CCH II, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Operating expenses consist of the following for the years
presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Programming
|
|
$ |
1,359 |
|
|
$ |
1,264 |
|
|
$ |
1,195 |
|
Service
|
|
|
748 |
|
|
|
638 |
|
|
|
595 |
|
Advertising sales
|
|
|
96 |
|
|
|
92 |
|
|
|
83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,203 |
|
|
$ |
1,994 |
|
|
$ |
1,873 |
|
|
|
|
|
|
|
|
|
|
|
16. Selling,
General and Administrative Expenses
Selling, general and administrative expenses consist of the
following for the years presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
General and administrative
|
|
$ |
856 |
|
|
$ |
815 |
|
|
$ |
802 |
|
Marketing
|
|
|
142 |
|
|
|
119 |
|
|
|
103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
998 |
|
|
$ |
934 |
|
|
$ |
905 |
|
|
|
|
|
|
|
|
|
|
|
Components of selling expense are included in general and
administrative and marketing expense.
|
|
17. |
Stock Compensation Plans |
Charter grants stock options, restricted stock and other
incentive compensation pursuant to the 2001 Stock Incentive Plan
of Charter (the 2001 Plan). Prior to 2001, options
were granted under the 1999 Option Plan of Charter Holdco (the
1999 Plan).
The 1999 Plan provided for the grant of options to purchase
membership units in Charter Holdco to current and prospective
employees and consultants of Charter Holdco and its affiliates
and current and prospective non-employee directors of Charter.
Options granted generally vest over five years from the grant
date, with 25% vesting 15 months after the anniversary of
the grant date and ratably thereafter. Options not exercised
accumulate and are exercisable, in whole or in part, in any
subsequent period, but not later than 10 years from the
date of grant. Membership units received upon exercise of the
options are automatically exchanged into Class A common
stock of Charter on a one-for-one basis.
The 2001 Plan provides for the grant of non-qualified stock
options, stock appreciation rights, dividend equivalent rights,
performance units and performance shares, share awards, phantom
stock and/or shares of restricted stock (not to exceed
20,000,000), as each term is defined in the 2001 Plan.
Employees, officers, consultants and directors of the Company
and its subsidiaries and affiliates are eligible to receive
grants under the 2001 Plan. Options granted generally vest over
four years from the grant date, with 25% vesting on the
anniversary of the grant date and ratably thereafter. Generally,
options expire 10 years from the grant date.
The 2001 Plan allows for the issuance of up to a total of
90,000,000 shares of Charter Class A common stock (or
units convertible into Charter Class A common stock). The
total shares available reflect a July 2003 amendment to the 2001
Plan approved by the board of directors and the shareholders of
Charter to increase available shares by 30,000,000 shares.
In 2001, any shares covered by options that terminated under the
1999 Plan were transferred to the 2001 Plan, and no new options
can be granted under the 1999 Plan.
F-113
CCH II, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In the years ended December 31, 2005, 2004 and 2003,
certain directors were awarded a total of 492,225, 182,932 and
80,603 shares, respectively, of restricted Charter
Class A common stock of which 44,121 shares had been
cancelled as of December 31, 2005. The shares vest one year
from the date of grant. In 2005, 2004 and 2003, in connection
with new employment agreements, certain officers were awarded
2,987,500, 50,000 and 50,000 shares, respectively, of
restricted Charter Class A common stock of which
68,750 shares had been cancelled as of December 31,
2005. The shares vest annually over a one to three-year period
beginning from the date of grant. As of December 31, 2005,
deferred compensation remaining to be recognized in future
period totaled $2 million.
A summary of the activity for Charters stock options,
excluding granted shares of restricted Charter Class A
common stock, for the years ended December 31, 2005, 2004
and 2003, is as follows (amounts in thousands, except per share
data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
|
|
Weighted | |
|
|
|
Weighted | |
|
|
|
Weighted | |
|
|
|
|
Average | |
|
|
|
Average | |
|
|
|
Average | |
|
|
|
|
Exercise | |
|
|
|
Exercise | |
|
|
|
Exercise | |
|
|
Shares | |
|
Price | |
|
Shares | |
|
Price | |
|
Shares | |
|
Price | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Options outstanding, beginning of period
|
|
|
24,835 |
|
|
$ |
6.57 |
|
|
|
47,882 |
|
|
$ |
12.48 |
|
|
|
53,632 |
|
|
$ |
14.22 |
|
Granted
|
|
|
10,810 |
|
|
|
1.36 |
|
|
|
9,405 |
|
|
|
4.88 |
|
|
|
7,983 |
|
|
|
3.53 |
|
Exercised
|
|
|
(17 |
) |
|
|
1.11 |
|
|
|
(839 |
) |
|
|
2.02 |
|
|
|
(165 |
) |
|
|
3.96 |
|
Cancelled
|
|
|
(6,501 |
) |
|
|
7.40 |
|
|
|
(31,613 |
) |
|
|
15.16 |
|
|
|
(13,568 |
) |
|
|
14.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, end of period
|
|
|
29,127 |
|
|
$ |
4.47 |
|
|
|
24,835 |
|
|
$ |
6.57 |
|
|
|
47,882 |
|
|
$ |
12.48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average remaining contractual life
|
|
|
8 years |
|
|
|
|
|
|
|
8 years |
|
|
|
|
|
|
|
8 years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable, end of period
|
|
|
9,999 |
|
|
$ |
7.80 |
|
|
|
7,731 |
|
|
$ |
10.77 |
|
|
|
22,861 |
|
|
$ |
16.36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average fair value of options granted
|
|
$ |
0.65 |
|
|
|
|
|
|
$ |
3.71 |
|
|
|
|
|
|
$ |
2.71 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes information about stock options
outstanding and exercisable as of December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
12,565 |
|
|
|
9 years |
|
|
$ |
1.39 |
|
|
|
1,297 |
|
|
|
9 years |
|
|
$ |
1.49 |
|
|
$ 2.85 - $ 4.56 |
|
|
|
5,906 |
|
|
|
7 years |
|
|
|
3.40 |
|
|
|
3,028 |
|
|
|
7 years |
|
|
|
3.33 |
|
|
$ 5.06 - $ 5.17 |
|
|
|
6,970 |
|
|
|
8 years |
|
|
|
5.15 |
|
|
|
2,187 |
|
|
|
8 years |
|
|
|
5.13 |
|
|
$ 9.13 - $13.68 |
|
|
|
1,712 |
|
|
|
6 years |
|
|
|
10.96 |
|
|
|
1,513 |
|
|
|
6 years |
|
|
|
11.10 |
|
|
$13.96 - $23.09 |
|
|
|
1,974 |
|
|
|
4 years |
|
|
|
19.24 |
|
|
|
1,974 |
|
|
|
4 years |
|
|
|
19.24 |
|
On January 1, 2003, the Company adopted the fair value
measurement provisions of SFAS No. 123, under which
the Company recognizes compensation expense of a stock-based
award to an employee over the vesting period based on the fair
value of the award on the grant date. Adoption of these
provisions resulted in utilizing a preferable accounting method
as the consolidated financial statements present the estimated
fair value of stock-based compensation in expense consistently
with other forms of compensation
F-114
CCH II, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
and other expense associated with goods and services received
for equity instruments. In accordance with
SFAS No. 123, the fair value method will be applied
only to awards granted or modified after January 1, 2003,
whereas awards granted prior to such date will continue to be
accounted for under APB No. 25, unless they are modified or
settled in cash. The ongoing effect on consolidated results of
operations or financial condition will be dependent upon future
stock based compensation awards granted. The Company recorded
$14 million, $31 million and $4 million of option
compensation expense for the years ended December 31, 2005,
2004 and 2003, respectively.
In January 2004, Charter began an option exchange program in
which the Company offered its employees the right to exchange
all stock options (vested and unvested) under the 1999 Charter
Communications Option Plan and 2001 Stock Incentive Plan that
had an exercise price over $10 per share for shares of
restricted Charter Class A common stock or, in some
instances, cash. Based on a sliding exchange ratio, which varied
depending on the exercise price of an employees outstanding
options, if an employee would have received more than
400 shares of restricted stock in exchange for tendered
options, Charter issued that employee shares of restricted stock
in the exchange. If, based on the exchange ratios, an employee
would have received 400 or fewer shares of restricted stock in
exchange for tendered options, Charter instead paid the employee
cash in an amount equal to the number of shares the employee
would have received multiplied by $5.00. The offer applied to
options (vested and unvested) to purchase a total of
22,929,573 shares of Charter Class A common stock, or
approximately 48% of Charters 47,882,365 total options
issued and outstanding as of December 31, 2003.
Participation by employees was voluntary. Those members of
Charters board of directors who were not also employees of
the Company or any of its subsidiaries were not eligible to
participate in the exchange offer.
In the closing of the exchange offer on February 20, 2004,
Charter accepted for cancellation eligible options to purchase
approximately 18,137,664 shares of its Class A common
stock. In exchange, Charter granted 1,966,686 shares of
restricted stock, including 460,777 performance shares to
eligible employees of the rank of senior vice president and
above, and paid a total cash amount of approximately
$4 million (which amount includes applicable withholding
taxes) to those employees who received cash rather than shares
of restricted stock. The restricted stock was granted on
February 25, 2004. Employees tendered approximately 79% of
the options eligible to be exchanged under the program.
The cost to the Company of the stock option exchange program was
approximately $10 million, with a 2004 cash compensation
expense of approximately $4 million and a non-cash
compensation expense of approximately $6 million to be
expensed ratably over the three-year vesting period of the
restricted stock in the exchange.
In January 2004, the Compensation Committee of the board of
directors of Charter approved Charters Long-Term Incentive
Program (LTIP), which is a program administered
under the 2001 Stock Incentive Plan. Under the LTIP, employees
of Charter and its subsidiaries whose pay classifications exceed
a certain level are eligible to receive stock options, and more
senior level employees are eligible to receive stock options and
performance shares. The stock options vest 25% on each of the
first four anniversaries of the date of grant. The performance
shares vest on the third anniversary of the grant date and
shares of Charter Class A common stock are issued,
conditional upon Charters performance against financial
performance measures established by Charters management
and approved by its board of directors as of the time of the
award. Charter granted 3.2 million and 6.9 million
shares in 2005 and 2004, respectively, under this program and
recognized expense of $1 million and $8 million in the
first three quarters of 2005 and 2004, respectively. However, in
the fourth quarter of 2005 and 2004, the Company reversed the
entire $1 million and $8 million, respectively, of
expense based on the Companys assessment of the
probability of achieving the financial performance measures
established by Charter and required to be met for the
performance shares to vest. In February 2006, Charters
Compensation Committee approved a modification to the financial
performance measures required to be met for the 2005
F-115
CCH II, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
performance shares to vest after which management believes that
a approximately 2.5 million of the performance shares are
likely to vest. As such, expense of approximately
$3 million will be amortized over the remaining two year
service period.
|
|
18. |
Hurricane Asset Retirement Loss |
Certain of the Companys cable systems in Louisiana
suffered significant plant damage as a result of hurricanes
Katrina and Rita in September 2005. As a result, the Company
wrote off $19 million of its plants net book value in
the third quarter of 2005.
In the fourth quarter of 2002, the Company began a workforce
reduction program and consolidation of its operations from three
divisions and ten regions into five operating divisions,
eliminating redundant practices and streamlining its management
structure. The Company has recorded special charges as a result
of reducing its workforce, executive severance and consolidating
administrative offices in 2003, 2004 and 2005. The activity
associated with this initiative is summarized in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total | |
|
|
|
|
|
|
|
|
Special | |
|
|
Severance/Leases | |
|
Litigation | |
|
Other | |
|
Charge | |
|
|
| |
|
| |
|
| |
|
| |
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Special Charges
|
|
|
6 |
|
|
$ |
1 |
|
|
$ |
|
|
|
$ |
7 |
|
Payments
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005
|
|
$ |
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2003, the severance and
lease costs were offset by a $5 million settlement from the
Internet service provider Excite@Home related to the conversion
of high-speed Internet customers to Charter Pipeline service in
2001. For the year ended December 31, 2004, special charges
include approximately $85 million, as part of a settlement
of the consolidated federal class action and federal derivative
action lawsuits and approximately $10 million of litigation
costs related to the settlement of a 2004 national class action
suit (see Note 22). For the year ended December 31,
2004, special charges were offset by $3 million received
from a third party in settlement of a legal dispute. For the
year ended December 31, 2005, special charges also include
approximately $1 million related to various legal
settlements.
CCH II is a single member limited liability company not
subject to income tax. CCH II holds all operations through
indirect subsidiaries. The majority of these indirect
subsidiaries are limited liability companies that are also not
subject to income tax. However, certain of CCH IIs
indirect subsidiaries are corporations that are subject to
income tax.
F-116
CCH II, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
For the years ended December 31, 2005 and 2003, the Company
recorded income tax expense related to increases in deferred tax
liabilities and current federal and state income taxes primarily
related to differences in accounting for franchises at our
indirect corporate subsidiaries. For the year ended
December 31, 2004, the Company recorded income tax benefit
for its indirect corporate subsidiaries primarily related to
differences between book and tax accounting for franchises,
primarily resulting from the impairment recorded during 2004.
Current and deferred income tax (expense) benefit is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Current expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal income taxes
|
|
$ |
(2 |
) |
|
$ |
(2 |
) |
|
$ |
(1 |
) |
|
State income taxes
|
|
|
(4 |
) |
|
|
(4 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
Current income tax expense
|
|
|
(6 |
) |
|
|
(6 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
Deferred benefit (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal income taxes
|
|
|
(3 |
) |
|
|
50 |
|
|
|
(10 |
) |
|
State income taxes
|
|
|
|
|
|
|
7 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
Deferred income tax benefit (expense)
|
|
|
(3 |
) |
|
|
57 |
|
|
|
(11 |
) |
|
|
|
|
|
|
|
|
|
|
Total income benefit (expense)
|
|
$ |
(9 |
) |
|
$ |
51 |
|
|
$ |
(13 |
) |
|
|
|
|
|
|
|
|
|
|
The Company recorded the portion of the income tax benefit
associated with the adoption of EITF Topic
D-108 as a
$16 million reduction of the cumulative effect of
accounting change on the accompanying statement of operations
for the year ended December 31, 2004.
The Companys effective tax rate differs from that derived
by applying the applicable federal income tax rate of 35%, and
average state income tax rate of 5% for the years ended
December 31, 2005, 2004 and 2003 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Statutory federal income taxes
|
|
$ |
146 |
|
|
$ |
945 |
|
|
$ |
1 |
|
State income taxes, net of federal benefit
|
|
|
21 |
|
|
|
135 |
|
|
|
|
|
Losses allocated to limited liability companies not subject to
income taxes
|
|
|
(196 |
) |
|
|
(1,009 |
) |
|
|
12 |
|
Valuation allowance used (provided)
|
|
|
20 |
|
|
|
(20 |
) |
|
|
(26 |
) |
|
|
|
|
|
|
|
|
|
|
Income tax benefit (expense)
|
|
|
(9 |
) |
|
|
51 |
|
|
|
(13 |
) |
Less: cumulative effect of accounting change
|
|
|
|
|
|
|
(16 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit (expense)
|
|
$ |
(9 |
) |
|
$ |
35 |
|
|
$ |
(13 |
) |
|
|
|
|
|
|
|
|
|
|
F-117
CCH II, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The tax effects of these temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities at December 31, 2005 and 2004 for the indirect
corporate subsidiaries of the Company which are included in
long-term liabilities are presented below.
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
Net operating loss carryforward
|
|
$ |
80 |
|
|
$ |
95 |
|
|
Other
|
|
|
6 |
|
|
|
8 |
|
|
|
|
|
|
|
|
Total gross deferred tax assets
|
|
|
86 |
|
|
|
103 |
|
Less: valuation allowance
|
|
|
(51 |
) |
|
|
(71 |
) |
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$ |
35 |
|
|
$ |
32 |
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
Property, plant & equipment
|
|
$ |
(41 |
) |
|
$ |
(39 |
) |
|
Franchises
|
|
|
(207 |
) |
|
|
(201 |
) |
|
|
|
|
|
|
|
Gross deferred tax liabilities
|
|
|
(248 |
) |
|
|
(240 |
) |
|
|
|
|
|
|
|
Net deferred tax liabilities
|
|
$ |
(213 |
) |
|
$ |
(208 |
) |
|
|
|
|
|
|
|
As of December 31, 2005 and 2004, the Company has deferred
tax assets of $86 million and $103 million,
respectively, which primarily relate to net operating loss
carryforwards of certain of its indirect corporate subsidiaries.
These net operating loss carryforwards (generally expiring in
years 2006 through 2025), are subject to certain return
limitations. Valuation allowances of $51 million and
$71 million exist with respect to these carryforwards as of
December 31, 2005 and 2004, respectively.
In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that
some portion or all of the deferred tax assets will be realized.
Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income and tax planning
strategies in making this assessment. Management believes that
the deferred tax assets will be realized prior to the expiration
of the tax net operating loss carryforwards in 2006 through
2025, except for those tax net operating loss carryforwards that
may be subject to certain limitations. Because of the
uncertainty associated in realizing the deferred tax assets
associated with the potentially limited tax net operating loss
carryforwards, valuation allowances have been established except
for deferred tax assets available to offset deferred tax
liabilities.
Charter Holdco is currently under examination by the Internal
Revenue Service for the tax years ending December 31, 2002
and 2003. The results of the Company (excluding the
Companys indirect corporate subsidiaries) for these years
are subject to this examination. Management does not expect the
results of this examination to have a material adverse effect on
the Companys consolidated financial condition or results
of operations.
|
|
21. |
Related Party Transactions |
The following sets forth certain transactions in which the
Company and the directors, executive officers and affiliates of
the Company are involved. Unless otherwise disclosed, management
believes that each of the transactions described below was on
terms no less favorable to the Company than could have been
obtained from independent third parties.
Charter is a party to management arrangements with Charter
Holdco and certain of its subsidiaries. Under these agreements,
Charter provides management services for the cable systems owned
or operated
F-118
CCH II, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
by its subsidiaries. The management services include such
services as centralized customer billing services, data
processing and related support, benefits administration and
coordination of insurance coverage and self-insurance programs
for medical, dental and workers compensation claims. Costs
associated with providing these services are billed and charged
directly to the Companys operating subsidiaries and are
included within operating costs in the accompanying consolidated
statements of operations. Such costs totaled $205 million,
$195 million and $203 million for the years ended
December 31, 2005, 2004 and 2003, respectively. All other
costs incurred on the behalf of Charters operating
subsidiaries are considered a part of the management fee and are
recorded as a component of selling, general and administrative
expense, in the accompanying consolidated financial statements.
For the years ended December 31, 2005, 2004 and 2003, the
management fee charged to the Companys operating
subsidiaries approximated the expenses incurred by Charter
Holdco and Charter on behalf of the Companys operating
subsidiaries. The Companys credit facilities prohibit
payments of management fees in excess of 3.5% of revenues until
repayment of the outstanding indebtedness. In the event any
portion of the management fee due and payable is not paid, it is
deferred by Charter and accrued as a liability of such
subsidiaries. Any deferred amount of the management fee will
bear interest at the rate of 10% per year, compounded
annually, from the date it was due and payable until the date it
is paid.
Mr. Allen, the controlling shareholder of Charter, and a
number of his affiliates have interests in various entities that
provide services or programming to Charters subsidiaries.
Given the diverse nature of Mr. Allens investment
activities and interests, and to avoid the possibility of future
disputes as to potential business, Charter and Charter Holdco,
under the terms of their respective organizational documents,
may not, and may not allow their subsidiaries to engage in any
business transaction outside the cable transmission business
except for certain existing approved investments. Charter,
Charter Holdco or any of their subsidiaries may not pursue, or
allow their subsidiaries to pursue, a business transaction
outside of this scope, unless Mr. Allen consents to Charter
or its subsidiaries engaging in the business transaction. The
cable transmission business means the business of transmitting
video, audio, including telephone, and data over cable systems
owned, operated or managed by Charter, Charter Holdco or any of
their subsidiaries from time to time.
Mr. Allen or his affiliates own or have owned equity
interests or warrants to purchase equity interests in various
entities with which the Company does business or which provides
it with products, services or programming. Among these entities
are TechTV L.L.C. (TechTV), Oxygen Media Corporation
(Oxygen Media), Digeo, Inc., Click2learn, Inc.,
Trail Blazer Inc., Action Sports Cable Network (Action
Sports) and Microsoft Corporation. In May 2004, TechTV was
sold to an unrelated third party. Mr. Allen owns 100% of
the equity of Vulcan Ventures Incorporated (Vulcan
Ventures) and Vulcan Inc. and is the president of Vulcan
Ventures. Ms. Jo Allen Patton is a director and the
President and Chief Executive Officer of Vulcan Inc. and is a
director and Vice President of Vulcan Ventures. Mr. Lance
Conn is Executive Vice President of Vulcan Inc. and Vulcan
Ventures. Mr. Savoy was a vice president and a director of
Vulcan Ventures until his resignation in September 2003 and he
resigned as a director of Charter in April 2004. The various
cable, media, Internet and telephone companies in which
Mr. Allen has invested may mutually benefit one another.
The Company can give no assurance, nor should you expect, that
any of these business relationships will be successful, that the
Company will realize any benefits from these relationships or
that the Company will enter into any business relationships in
the future with Mr. Allens affiliated companies.
Mr. Allen and his affiliates have made, and in the future
likely will make, numerous investments outside of the Company
and its business. The Company cannot assure that, in the event
that the Company or any of its subsidiaries enter into
transactions in the future with any affiliate of Mr. Allen,
such transactions will be on terms as favorable to the Company
as terms it might have obtained from an unrelated third party.
Also, conflicts could arise with respect to the allocation of
corporate opportunities
F-119
CCH II, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
between the Company and Mr. Allen and his affiliates. The
Company has not instituted any formal plan or arrangement to
address potential conflicts of interest.
The Company received or receives programming for broadcast via
its cable systems from TechTV (now G4), Oxygen Media and Trail
Blazers Inc. The Company pays a fee for the programming service
generally based on the number of customers receiving the
service. Such fees for the years ended December 31, 2005,
2004 and 2003 were each less than 1% of total operating expenses.
Tech TV. The Company received from TechTV programming for
distribution via its cable system pursuant to an affiliation
agreement. The affiliation agreement provided, among other
things, that TechTV must offer Charter certain terms and
conditions that are no less favorable in the affiliation
agreement than are given to any other distributor that serves
the same number of or fewer TechTV viewing customers.
Additionally, pursuant to the affiliation agreement, the Company
was entitled to incentive payments for channel launches through
December 31, 2003.
In March 2004, Charter Holdco entered into agreements with
Vulcan Programming and TechTV, which provide for
(i) Charter Holdco and TechTV to amend the affiliation
agreement which, among other things, revises the description of
the TechTV network content, provides for Charter Holdco to waive
certain claims against TechTV relating to alleged breaches of
the affiliation agreement and provides for TechTV to make
payment of outstanding launch receivables due to Charter Holdco
under the affiliation agreement, (ii) Vulcan Programming to
pay approximately $10 million and purchase over a
24-month period, at
fair market rates, $2 million of advertising time across
various cable networks on Charter cable systems in consideration
of the agreements, obligations, releases and waivers under the
agreements and in settlement of the aforementioned claims and
(iii) TechTV to be a provider of content relating to
technology and video gaming for Charters interactive
television platforms through December 31, 2006 (exclusive
for the first year). For the years ended December 31, 2005
and 2004, the Company recognized approximately $1 million
and $5 million, respectively, of the Vulcan Programming
payment as an offset to programming expense.
Oxygen. Oxygen Media LLC (Oxygen) provides
programming content aimed at the female audience for
distribution over cable systems and satellite. On July 22,
2002, Charter Holdco entered into a carriage agreement with
Oxygen whereby the Company agreed to carry programming content
from Oxygen. Under the carriage agreement, the Company currently
makes Oxygen programming available to approximately
5 million of its video customers. In August 2004, Charter
Holdco and Oxygen entered into agreements that amended and
renewed the carriage agreement. The amendment to the carriage
agreement (a) revised the number of the Companys
customers to which Oxygen programming must be carried and for
which the Company must pay, (b) released Charter Holdco
from any claims related to the failure to achieve distribution
benchmarks under the carriage agreement, (c) required
Oxygen to make payment on outstanding receivables for launch
incentives due to the Company under the carriage agreement; and
(d) requires that Oxygen provide its programming content to
the Company on economic terms no less favorable than Oxygen
provides to any other cable or satellite operator having fewer
subscribers than the Company. The renewal of the carriage
agreement (a) extends the period that the Company will
carry Oxygen programming to its customers through
January 31, 2008, and (b) requires license fees to be
paid based on customers receiving Oxygen programming, rather
than for specific customer benchmarks. For the years ended
December 31, 2005, 2004 and 2003, the Company paid Oxygen
approximately $9 million, $13 million and
$9 million, respectively. In addition, Oxygen pays the
Company launch incentives for customers launched after the first
year of the term of the carriage agreement up to a total of
$4 million. The Company recorded approximately
$0.1 million related to these launch incentives as a
reduction of programming expense for the year ended
December 31, 2005 and $1 million for each of the years
ended December 31, 2004 and 2003, respectively.
F-120
CCH II, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In August 2004, Charter Holdco and Oxygen also amended the
equity issuance agreement to provide for the issuance of
1 million shares of Oxygen Preferred Stock with a
liquidation preference of $33.10 per share plus accrued
dividends to Charter Holdco on February 1, 2005 in place of
the $34 million of unregistered shares of Oxygen Media
common stock required under the original equity issuance
agreement. Oxygen Media delivered these shares in March 2005.
The preferred stock is convertible into common stock after
December 31, 2007 at a conversion ratio, the numerator of
which is the liquidation preference and the denominator which is
the fair market value per share of Oxygen Media common stock on
the conversion date.
The Company recognized the guaranteed value of the investment
over the life of the carriage agreement as a reduction of
programming expense. For the years ended December 31, 2005,
2004 and 2003, the Company recorded approximately
$2 million, $13 million, and $9 million,
respectively, as a reduction of programming expense. The
carrying value of the Companys investment in Oxygen was
approximately $33 million and $32 million as of
December 31, 2005 and 2004, respectively.
Digeo, Inc. In March 2001, Charter Communications
Ventures, LLC (Charter Ventures) and Vulcan Ventures
formed DBroadband Holdings, LLC for the sole purpose of
purchasing equity interests in Digeo. In connection with the
execution of the broadband carriage agreement, DBroadband
Holdings, LLC purchased an equity interest in Digeo funded by
contributions from Vulcan Ventures. The equity interest is
subject to a priority return of capital to Vulcan Ventures up to
the amount contributed by Vulcan Ventures on Charter
Ventures behalf. After Vulcan Ventures recovers its amount
contributed and any cumulative loss allocations, Charter
Ventures has a 100% profit interest in DBroadband Holdings, LLC.
Charter Ventures is not required to make any capital
contributions, including capital calls to Digeo. DBroadband
Holdings, LLC is therefore not included in the Companys
consolidated financial statements. Pursuant to an amended
version of this arrangement, in 2003, Vulcan Ventures
contributed a total of $29 million to Digeo,
$7 million of which was contributed on Charter
Ventures behalf, subject to Vulcan Ventures
aforementioned priority return. Since the formation of
DBroadband Holdings, LLC, Vulcan Ventures has contributed
approximately $56 million on Charter Ventures behalf.
On September 27, 2001, Charter and Digeo Interactive
amended the broadband carriage agreement. According to the
amendment, Digeo Interactive would provide to Charter the
content for enhanced Wink interactive television
services, known as Charter Interactive Channels
(i-channels).
In order to provide the
i-channels, Digeo
Interactive sublicensed certain Wink technologies to Charter.
Charter is entitled to share in the revenues generated by the
i-channels. Currently,
the Companys digital video customers who receive
i-channels receive the
service at no additional charge.
On September 28, 2002, Charter entered into a second
amendment to its broadband carriage agreement with Digeo
Interactive. This amendment superseded the amendment of
September 27, 2001. It provided for the development by
Digeo Interactive of future features to be included in the Basic
i-TV service to be
provided by Digeo and for Digeos development of an
interactive toolkit to enable Charter to develop
interactive local content. Furthermore, Charter could request
that Digeo Interactive manage local content for a fee. The
amendment provided for Charter to pay for development of the
Basic i-TV service as
well as license fees for customers who would receive the
service, and for Charter and Digeo to split certain revenues
earned from the service. The Company paid Digeo Interactive
approximately $3 million, $3 million and
$4 million for the years ended December 31, 2005, 2004
and 2003, respectively, for customized development of the
i-channels and the
local content tool kit. This amendment expired pursuant to its
terms on December 31, 2003. Digeo Interactive is continuing
to provide the Basic
i-TV service on a
month-to-month basis.
On June 30, 2003, Charter Holdco entered into an agreement
with Motorola, Inc. for the purchase of 100,000 digital video
recorder (DVR) units. The software for these
DVR units is being supplied by Digeo Interactive, LLC under a
license agreement entered into in April 2004. Under the license
agreement
F-121
CCH II, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Digeo Interactive granted to Charter Holdco the right to use
Digeos proprietary software for the number of DVR units
that Charter deployed from a maximum of 10 headends through
year-end 2004. This maximum number of headends restriction was
expanded and eventually eliminated through successive agreement
amendments and the date for entering into license agreements for
units deployed was extended. The license granted for each unit
deployed under the agreement is valid for five years. In
addition, Charter will pay certain other fees including a
per-headend license fee and maintenance fees. Maximum license
and maintenance fees during the term of the agreement are
expected to be approximately $7 million. The agreement
provides that Charter is entitled to receive contract terms,
considered on the whole, and license fees, considered apart from
other contract terms, no less favorable than those accorded to
any other Digeo customer. The Company paid approximately
$1 million in license and maintenance fees in 2005.
In April 2004, the Company launched DVR service using units
containing the Digeo software in its Rochester, Minnesota market
using a broadband media center that is an integrated set-top
terminal with a cable converter, DVR hard drive and connectivity
to other consumer electronics devices (such as stereos, MP3
players, and digital cameras).
In May 2004, Charter Holdco entered into a binding term sheet
with Digeo Interactive for the development, testing and purchase
of 70,000 Digeo PowerKey DVR units. The term sheet provided that
the parties would proceed in good faith to negotiate, prior to
year-end 2004, definitive agreements for the development,
testing and purchase of the DVR units and that the parties would
enter into a license agreement for Digeos proprietary
software on terms substantially similar to the terms of the
license agreement described above. In November 2004, Charter
Holdco and Digeo Interactive executed the license agreement and
in December 2004, the parties executed the purchase agreement,
each on terms substantially similar to the binding term sheet.
Product development and testing has been completed. Total
purchase price and license and maintenance fees during the term
of the definitive agreements are expected to be approximately
$41 million. The definitive agreements are terminable at no
penalty to Charter in certain circumstances. The Company paid
approximately $10 million and $1 million for the years
ended December 31, 2005 and 2004, respectively, in capital
purchases under this agreement.
CC VIII. As part of the acquisition of the cable systems
owned by Bresnan Communications Company Limited Partnership in
February 2000, CC VIII, LLC, CCH IIs indirect limited
liability company subsidiary, issued, after adjustments,
24,273,943 Class A preferred membership units
(collectively, the CC VIII interest) with a value
and an initial capital account of approximately
$630 million to certain sellers affiliated with AT&T
Broadband, subsequently owned by Comcast Corporation (the
Comcast sellers). Mr. Allen granted the Comcast
sellers the right to sell to him the CC VIII interest for
approximately $630 million plus 4.5% interest annually from
February 2000 (the Comcast put right). In April
2002, the Comcast sellers exercised the Comcast put right in
full, and this transaction was consummated on June 6, 2003.
Accordingly, Mr. Allen became the holder of the CC VIII
interest, indirectly through an affiliate. In the event of a
liquidation of CC VIII, Mr. Allen would be entitled to a
priority distribution with respect to a 2% priority return
(which will continue to accrete). Any remaining distributions in
liquidation would be distributed to CC V Holdings, LLC and
Mr. Allen in proportion to CC V Holdings, LLCs
capital account and Mr. Allens capital account (which
will equal the initial capital account of the Comcast sellers of
approximately $630 million, increased or decreased by
Mr. Allens pro rata share of CC VIIIs profits
or losses (as computed for capital account purposes) after
June 6, 2003).
An issue arose as to whether the documentation for the Bresnan
transaction was correct and complete with regard to the ultimate
ownership of the CC VIII interest following consummation of the
Comcast put right. Thereafter, the board of directors of Charter
formed a Special Committee of independent directors to
investigate the matter and take any other appropriate action on
behalf of Charter with respect to this matter. After conducting
an investigation of the relevant facts and circumstances, the
Special Committee
F-122
CCH II, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
determined that a scriveners error had
occurred in February 2000 in connection with the preparation of
the last-minute revisions to the Bresnan transaction documents
and that, as a result, Charter should seek the reformation of
the Charter Holdco limited liability company agreement, or
alternative relief, in order to restore and ensure the
obligation that the CC VIII interest be automatically exchanged
for Charter Holdco units. The Special Committee further
determined that, as part of such contract reformation or
alternative relief, Mr. Allen should be required to
contribute the CC VIII interest to Charter Holdco in exchange
for 24,273,943 Charter Holdco membership units. The Special
Committee also recommended to the board of directors of Charter
that, to the extent the contract reformation is achieved, the
board of directors should consider whether the CC VIII interest
should ultimately be held by Charter Holdco or Charter Holdings
or another entity owned directly or indirectly by them.
Mr. Allen disagreed with the Special Committees
determinations described above and so notified the Special
Committee. Mr. Allen contended that the transaction was
accurately reflected in the transaction documentation and
contemporaneous and subsequent company public disclosures. The
Special Committee and Mr. Allen determined to utilize the
Delaware Court of Chancerys program for mediation of
complex business disputes in an effort to resolve the CC VIII
interest dispute.
As of October 31, 2005, Mr. Allen, the Special
Committee, Charter, Charter Holdco and certain of their
affiliates, agreed to settle the dispute, and execute certain
permanent and irrevocable releases pursuant to the Settlement
Agreement and Mutual Release agreement dated October 31,
2005 (the Settlement). Pursuant to the Settlement,
Charter Investment, Inc. (CII) has retained 30% of
its CC VIII interest (the Remaining Interests). The
Remaining Interests are subject to certain drag along, tag along
and transfer restrictions as detailed in the revised CC VIII
Limited Liability Company Agreement. CII transferred the other
70% of the CC VIII interest directly and indirectly, through
Charter Holdco, to a newly formed entity, CCHC (a direct
subsidiary of Charter Holdco and the direct parent of Charter
Holdings). Of the 70% of the CC VIII preferred interests, 7.4%
has been transferred by CII to CCHC for a subordinated
exchangeable note with an initial accreted value of
$48 million, accreting at 14%, compounded quarterly, with a
15-year maturity (the
Note). The remaining 62.6% has been transferred by
CII to Charter Holdco, in accordance with the terms of the
settlement for no additional monetary consideration. Charter
Holdco contributed the 62.6% interest to CCHC.
As part of the Settlement, CC VIII issued approximately
49 million additional Class B units to CC V in
consideration for prior capital contributions to CC VIII by
CC V, with respect to transactions that were unrelated to
the dispute in connection with CIIs membership units in CC
VIII. As a result, Mr. Allens pro rata share of the
profits and losses of CC VIII attributable to the Remaining
Interests is approximately 5.6%.
The Note is exchangeable, at CIIs option, at any time, for
Charter Holdco Class A Common units at a rate equal to the
then accreted value, divided by $2.00 (the Exchange
Rate). Customary anti-dilution protections have been
provided that could cause future changes to the Exchange Rate.
Additionally, the Charter Holdco Class A Common units
received will be exchangeable by the holder into Charter common
stock in accordance with existing agreements between CII,
Charter and certain other parties signatory thereto. Beginning
February 28, 2009, if the closing price of Charter common
stock is at or above the Exchange Rate for a certain period of
time as specified in the Exchange Agreement, Charter Holdco may
require the exchange of the Note for Charter Holdco Class A
Common units at the Exchange Rate.
CCHC has the right to redeem the Note under certain
circumstances, for cash in an amount equal to the then accreted
value, such amount, if redeemed prior to February 28, 2009,
would also include a make whole up to the accreted value through
February 28, 2009. CCHC must redeem the Note at its
maturity for cash in an amount equal to the initial stated value
plus the accreted return through maturity.
Charters Board of Directors has determined that the
transferred CC VIII interests remain at CCHC.
F-123
CCH II, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Helicon. In 1999, the Company purchased the
Helicon cable systems. As part of that purchase, Mr. Allen
entered into a put agreement with a certain seller of the
Helicon cable systems that received a portion of the purchase
price in the form of a preferred membership interest in Charter
Helicon, LLC with a redemption price of $25 million plus
accrued interest. Under the Helicon put agreement, such holder
had the right to sell any or all of the interest to
Mr. Allen prior to its mandatory redemption in cash on
July 30, 2009. On August 31, 2005, 40% of the
preferred membership interest was put to Mr. Allen. The
remaining 60% of the preferred interest in Charter Helicon, LLC
remained subject to the put to Mr. Allen. Such preferred
interest was recorded in other long-term liabilities. On
October 6, 2005, Charter Helicon, LLC redeemed all of the
preferred membership interest for the redemption price of
$25 million plus accrued interest.
|
|
22. |
Commitments and Contingencies |
The following table summarizes the Companys payment
obligations as of December 31, 2005 for its contractual
obligations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total | |
|
2006 | |
|
2007 | |
|
2008 | |
|
2009 | |
|
2010 | |
|
Thereafter | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Contractual Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating and Capital Lease Obligations(1)
|
|
$ |
94 |
|
|
$ |
20 |
|
|
$ |
15 |
|
|
$ |
12 |
|
|
$ |
10 |
|
|
$ |
13 |
|
|
$ |
24 |
|
Programming Minimum Commitments(2)
|
|
|
1,253 |
|
|
|
342 |
|
|
|
372 |
|
|
|
306 |
|
|
|
233 |
|
|
|
|
|
|
|
|
|
Other(3)
|
|
|
301 |
|
|
|
146 |
|
|
|
49 |
|
|
|
21 |
|
|
|
21 |
|
|
|
21 |
|
|
|
43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
1,648 |
|
|
$ |
508 |
|
|
$ |
436 |
|
|
$ |
339 |
|
|
$ |
264 |
|
|
$ |
34 |
|
|
$ |
67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
The Company leases certain facilities and equipment under
noncancelable operating leases. Leases and rental costs charged
to expense for the years ended December 31, 2005, 2004 and
2003, were $22 million, $22 million and
$29 million, respectively. |
|
(2) |
The Company pays programming fees under multi-year contracts
ranging from three to ten years typically based on a flat fee
per customer, which may be fixed for the term or may in some
cases, escalate over the term. Programming costs included in the
accompanying statement of operations were $1.4 billion,
$1.3 billion and $1.2 billion for the years ended
December 31, 2005, 2004 and 2003, respectively. Certain of
the Companys 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 Companys programming contracts. |
|
(3) |
Other represents other guaranteed minimum
commitments, which consist primarily of commitments to the
Companys billing services vendors. |
The following items are not included in the contractual
obligation table due to various factors discussed below.
However, the Company incurs these costs as part of its
operations:
|
|
|
|
|
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, 2005, 2004 and 2003, was $44 million,
$42 million and $38 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, such as public education grants under multi-year
agreements. Franchise fees and other franchise- |
F-124
CCH II, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
related costs included in the accompanying statement of
operations were $165 million, $159 million and
$157 million for the years ended December 31, 2005,
2004 and 2003, respectively. |
|
|
|
The Company also has $165 million in letters of credit,
primarily to its various workers 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. |
|
|
|
Securities Class Actions and Derivative Suits |
In 2002 and 2003, Charter had a series of lawsuits filed against
Charter and certain of its former and present officers and
directors (collectively the Actions). In general,
the lawsuits alleged that Charter utilized misleading accounting
practices and failed to disclose these accounting practices
and/or issued false and misleading financial statements and
press releases concerning Charters operations and
prospects.
Charter and the individual defendants entered into a Memorandum
of Understanding on August 5, 2004 setting forth agreements
in principle regarding settlement of the Actions. Charter and
various other defendants in those actions subsequently entered
into Stipulations of Settlement dated as of January 24,
2005, setting forth a settlement of the Actions in a manner
consistent with the terms of the Memorandum of Understanding. On
June 30, 2005, the Court issued its final approval of the
settlements. At the end of September 2005, after the period for
appeals of the settlements expired, Stipulations of Dismissal
were filed with the Eighth Circuit Court of Appeals resulting in
the dismissal of the two appeals with prejudice. Procedurally
therefore, the settlements are final.
As amended, the Stipulations of Settlement provided that, in
exchange for a release of all claims by plaintiffs against
Charter and its former and present officers and directors named
in the Actions, Charter would pay to the plaintiffs a
combination of cash and equity collectively valued at
$144 million, which was to include the fees and expenses of
plaintiffs counsel. Of this amount, $64 million was
to be paid in cash (by Charters insurance carriers) and
the $80 million balance was to be paid in shares of Charter
Class A common stock having an aggregate value of
$40 million and ten-year warrants to purchase shares of
Charter Class A common stock having an aggregate warrant
value of $40 million, with such values in each case being
determined pursuant to formulas set forth in the Stipulations of
Settlement. However, Charter had the right, in its sole
discretion, to substitute cash for some or all of the
aforementioned securities on a dollar for dollar basis. Pursuant
to that right, Charter elected to fund the $80 million
obligation with 13.4 million shares of Charter Class A
common stock (having an aggregate value of approximately
$15 million pursuant to the formula set forth in the
Stipulations of Settlement) with the remaining balance (less an
agreed upon $2 million discount in respect of that portion
allocable to plaintiffs attorneys fees) to be paid
in cash. In addition, Charter had agreed to issue additional
shares of its Class A common stock to its insurance carrier
having an aggregate value of $5 million; however, by
agreement with its carrier, Charter paid $4.5 million in
cash in lieu of issuing such shares. As a result in 2004, the
Company recorded an $85 million special charge on its
consolidated statement of operations. Charter delivered the
settlement consideration to the claims administrator on
July 8, 2005, and it was held in escrow pending resolution
of the appeals. Those appeals are now resolved.
In October 2001 and 2002, two class action lawsuits were filed
against Charter alleging that Charter Holdco improperly charged
them a wire maintenance fee without request or permission. They
also claimed that Charter Holdco improperly required them to
rent analog and/or digital set-top terminals even though their
television sets were cable ready. In April 2004, the
parties participated in a mediation which resulted in settlement
of the lawsuits. As a result of the settlement, we recorded a
special charge of
F-125
CCH II, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
$9 million in our consolidated statement of operations in
2004. In December 2004 the court entered a written order
formally approving that settlement.
Furthermore, the Company is also party to, other lawsuits and
claims that arose in the ordinary course of conducting its
business. In the opinion of management, after taking into
account recorded liabilities, the outcome of these other
lawsuits and claims are not expected to have a material adverse
effect on the Companys consolidated financial condition,
results of operations or its liquidity.
|
|
|
Regulation in the Cable Industry |
The operation of a cable system is extensively regulated by the
Federal Communications Commission (FCC), some state
governments and most local governments. The FCC has the
authority to enforce its regulations through the imposition of
substantial fines, the issuance of cease and desist orders
and/or the imposition of other administrative sanctions, such as
the revocation of FCC licenses needed to operate certain
transmission facilities used in connection with cable
operations. The 1996 Telecom Act altered the regulatory
structure governing the nations communications providers.
It removed barriers to competition in both the cable television
market and the local telephone market. Among other things, it
reduced the scope of cable rate regulation and encouraged
additional competition in the video programming industry by
allowing local telephone companies to provide video programming
in their own telephone service areas.
Future legislative and regulatory changes could adversely affect
the Companys operations, including, without limitation,
additional regulatory requirements the Company may be required
to comply with as it offers new services such as telephone.
|
|
23. |
Employee Benefit Plan |
The Companys employees may participate in the Charter
Communications, Inc. 401(k) Plan. Employees that qualify for
participation can contribute up to 50% of their salary, on a
pre-tax basis, subject to a maximum contribution limit as
determined by the Internal Revenue Service. The Company matches
50% of the first 5% of participant contributions. The Company
made contributions to the 401(k) plan totaling $6 million,
$7 million and $7 million for the years ended
December 31, 2005, 2004 and 2003, respectively.
|
|
24. |
Recently Issued Accounting Standards |
In November 2004, the FASB issued SFAS No. 153,
Exchanges of Non-monetary Assets An Amendment of
APB No. 29. This statement eliminates the exception to
fair value for exchanges of similar productive assets and
replaces it with a general exception for exchange transactions
that do not have commercial substance that is,
transactions that are not expected to result in significant
changes in the cash flows of the reporting entity. The Company
adopted this pronouncement effective April 1, 2005. The
exchange transaction discussed in Note 3 was accounted for
under this standard.
In December 2004, the FASB issued the revised
SFAS No. 123, Share Based Payment,
which addresses the accounting for share-based payment
transactions in which a company receives employee services in
exchange for (a) equity instruments of that company or
(b) liabilities that are based on the fair value of the
companys equity instruments or that may be settled by the
issuance of such equity instruments. This statement will be
effective for the Company beginning January 1, 2006.
Because the Company adopted the fair value recognition
provisions of SFAS No. 123 on January 1, 2003,
the Company does not expect this revised standard to have a
material impact on its financial statements.
In March 2005, the FASB issued FIN No. 47,
Accounting for Conditional Asset Retirement Obligations.
This interpretation clarifies that the term conditional
asset retirement obligation as used in FASB Statement
No. 143, Accounting for Asset Retirement
Obligations, refers to a legal obligation to
F-126
CCH II, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
perform an asset retirement activity in which the timing and/or
method of settlement are conditional on a future event that may
or may not be within the control of the entity. This
pronouncement is effective for fiscal years ending after
December 15, 2005. The adoption of this interpretation did
not have a material impact on the Companys financial
statements.
Charter does not believe that any other recently issued, but not
yet effective accounting pronouncements, if adopted, would have
a material effect on the Companys accompanying financial
statements.
|
|
25. |
Parent Company Only Financial Statements |
As the result of limitations on, and prohibitions of,
distributions, substantially all of the net assets of the
consolidated subsidiaries are restricted from distribution to
CCH II, the parent company. The following condensed
parent-only financial statements of CCH II account for the
investment in its subsidiaries under the equity method of
accounting. The financial statements should be read in
conjunction with the consolidated financial statements of the
Company and notes thereto.
CCH II, LLC (Parent Company Only)
Condensed Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
ASSETS |
Investment in subsidiaries
|
|
$ |
5,044 |
|
|
$ |
6,553 |
|
Other assets
|
|
|
13 |
|
|
|
15 |
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
5,057 |
|
|
$ |
6,568 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND MEMBERS EQUITY |
Current liabilities
|
|
$ |
54 |
|
|
$ |
54 |
|
Long-term debt
|
|
|
1,601 |
|
|
|
1,601 |
|
Members equity
|
|
|
3,402 |
|
|
|
4,913 |
|
|
|
|
|
|
|
|
Total liabilities and members equity
|
|
$ |
5,057 |
|
|
$ |
6,568 |
|
|
|
|
|
|
|
|
Condensed Statement of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Interest expense
|
|
$ |
(167 |
) |
|
$ |
(166 |
) |
|
$ |
(45 |
) |
Equity in income (losses) of subsidiaries
|
|
|
(258 |
) |
|
|
(3,340 |
) |
|
|
30 |
|
Other, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(425 |
) |
|
$ |
(3,506 |
) |
|
$ |
(15 |
) |
|
|
|
|
|
|
|
|
|
|
F-127
CCH II, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(425 |
) |
|
$ |
(3,506 |
) |
|
$ |
(15 |
) |
|
Noncash interest expense
|
|
|
2 |
|
|
|
3 |
|
|
|
|
|
|
Equity in losses of subsidiaries
|
|
|
258 |
|
|
|
3,340 |
|
|
|
(30 |
) |
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
6 |
|
|
|
48 |
|
|
|
Net cash flows from operating activities
|
|
|
(165 |
) |
|
|
(157 |
) |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in subsidiaries
|
|
|
|
|
|
|
|
|
|
|
(10 |
) |
|
Distributions from subsidiaries
|
|
|
925 |
|
|
|
738 |
|
|
|
545 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from investing activities
|
|
|
925 |
|
|
|
738 |
|
|
|
535 |
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of debt
|
|
|
|
|
|
|
|
|
|
|
30 |
|
|
Capital contributions
|
|
|
|
|
|
|
|
|
|
|
10 |
|
|
Distributions to parent companies
|
|
|
(760 |
) |
|
|
(578 |
) |
|
|
(562 |
) |
|
Payments for debt issuance costs
|
|
|
|
|
|
|
(3 |
) |
|
|
(16 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from financing activities
|
|
|
(760 |
) |
|
|
(581 |
) |
|
|
(538 |
) |
NET CHANGE IN CASH AND CASH EQUIVALENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, beginning of year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, end of year
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
In February 2006, the Company signed two separate definitive
agreements to sell certain cable television systems serving a
total of approximately 316,000 analog video customers in West
Virginia, Virginia, Illinois and Kentucky for a total of
approximately $896 million. The closings of these
transactions are expected to occur in the third quarter of 2006.
Under the terms of the Bridge Loan, bridge availability will be
reduced by the proceeds of asset sales. The Company expects to
use the net proceeds from the asset sales to repay (but not
reduce permanently) amounts outstanding under the Companys
revolving credit facility and that the asset sale proceeds,
along with other existing sources of funds, will provide
additional liquidity supplementing the Companys cash
availability in 2006 and beyond.
F-128
INDEX TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF
CCH II, LLC
AS OF JUNE 30, 2006, AND FOR THE THREE-MONTH AND
SIX-MONTH PERIODS
ENDED JUNE 30, 2006 AND 2005
|
|
|
|
|
|
|
Page | |
|
|
| |
|
|
|
F-130 |
|
|
|
|
F-131 |
|
|
|
|
F-132 |
|
|
|
|
F-133 |
|
F-129
CCH II, LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, | |
|
December 31, | |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
|
(Unaudited) | |
|
|
ASSETS
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
44 |
|
|
$ |
3 |
|
|
Accounts receivable, less allowance for doubtful accounts of $19
and $17, respectively
|
|
|
178 |
|
|
|
212 |
|
|
Prepaid expenses and other current assets
|
|
|
20 |
|
|
|
22 |
|
|
Assets held for sale
|
|
|
768 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,010 |
|
|
|
237 |
|
|
|
|
|
|
|
|
INVESTMENT IN CABLE PROPERTIES:
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net of accumulated depreciation
of $7,014 and $6,712, respectively
|
|
|
5,354 |
|
|
|
5,800 |
|
|
Franchises, net
|
|
|
9,280 |
|
|
|
9,826 |
|
|
|
|
|
|
|
|
|
|
Total investment in cable properties, net
|
|
|
14,634 |
|
|
|
15,626 |
|
|
|
|
|
|
|
|
OTHER NONCURRENT ASSETS
|
|
|
217 |
|
|
|
238 |
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
15,861 |
|
|
$ |
16,101 |
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND MEMBERS EQUITY
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$ |
917 |
|
|
$ |
923 |
|
|
Payables to related party
|
|
|
106 |
|
|
|
102 |
|
|
Liabilities held for sale
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,043 |
|
|
|
1,025 |
|
|
|
|
|
|
|
|
LONG-TERM DEBT
|
|
|
11,057 |
|
|
|
10,624 |
|
|
|
|
|
|
|
|
LOANS PAYABLE RELATED PARTY
|
|
|
109 |
|
|
|
22 |
|
|
|
|
|
|
|
|
DEFERRED MANAGEMENT FEES RELATED PARTY
|
|
|
14 |
|
|
|
14 |
|
|
|
|
|
|
|
|
OTHER LONG-TERM LIABILITIES
|
|
|
359 |
|
|
|
392 |
|
|
|
|
|
|
|
|
MINORITY INTEREST
|
|
|
631 |
|
|
|
622 |
|
|
|
|
|
|
|
|
MEMBERS EQUITY:
|
|
|
|
|
|
|
|
|
|
Members equity
|
|
|
2,646 |
|
|
|
3,400 |
|
|
Accumulated other comprehensive income
|
|
|
2 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
Total members equity
|
|
|
2,648 |
|
|
|
3,402 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and members equity
|
|
$ |
15,861 |
|
|
$ |
16,101 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
F-130
CCH II, LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Millions)
Unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Six Months Ended | |
|
|
June 30, | |
|
June 30, | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
REVENUES
|
|
$ |
1,383 |
|
|
$ |
1,266 |
|
|
$ |
2,703 |
|
|
$ |
2,481 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS AND EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (excluding depreciation and amortization)
|
|
|
611 |
|
|
|
546 |
|
|
|
1,215 |
|
|
|
1,081 |
|
|
Selling, general and administrative
|
|
|
279 |
|
|
|
250 |
|
|
|
551 |
|
|
|
483 |
|
|
Depreciation and amortization
|
|
|
340 |
|
|
|
364 |
|
|
|
690 |
|
|
|
730 |
|
|
Asset impairment charges
|
|
|
|
|
|
|
8 |
|
|
|
99 |
|
|
|
39 |
|
|
Other operating (income) expenses, net
|
|
|
7 |
|
|
|
(2 |
) |
|
|
10 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,237 |
|
|
|
1,166 |
|
|
|
2,565 |
|
|
|
2,339 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income from continuing operations
|
|
|
146 |
|
|
|
100 |
|
|
|
138 |
|
|
|
142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME AND (EXPENSES):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(248 |
) |
|
|
(210 |
) |
|
|
(488 |
) |
|
|
(408 |
) |
|
Other income (expenses), net
|
|
|
(26 |
) |
|
|
15 |
|
|
|
(19 |
) |
|
|
35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(274 |
) |
|
|
(195 |
) |
|
|
(507 |
) |
|
|
(373 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes
|
|
|
(128 |
) |
|
|
(95 |
) |
|
|
(369 |
) |
|
|
(231 |
) |
INCOME TAX EXPENSE
|
|
|
(2 |
) |
|
|
(2 |
) |
|
|
(4 |
) |
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(130 |
) |
|
|
(97 |
) |
|
|
(373 |
) |
|
|
(239 |
) |
INCOME FROM DISCONTINUED OPERATIONS,
NET OF TAX
|
|
|
23 |
|
|
|
10 |
|
|
|
38 |
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(107 |
) |
|
$ |
(87 |
) |
|
$ |
(335 |
) |
|
$ |
(220 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
F-131
CCH II, LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
Unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months | |
|
|
Ended June 30, | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(335 |
) |
|
$ |
(220 |
) |
|
Adjustments to reconcile net loss to net cash flows from
operating activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
698 |
|
|
|
759 |
|
|
|
Asset impairment charges
|
|
|
99 |
|
|
|
39 |
|
|
|
Noncash interest expense
|
|
|
16 |
|
|
|
14 |
|
|
|
Deferred income taxes
|
|
|
|
|
|
|
5 |
|
|
|
Other, net
|
|
|
27 |
|
|
|
(31 |
) |
|
Changes in operating assets and liabilities, net of effects from
acquisitions and dispositions:
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
29 |
|
|
|
(10 |
) |
|
|
Prepaid expenses and other assets
|
|
|
|
|
|
|
(21 |
) |
|
|
Accounts payable, accrued expenses and other
|
|
|
(10 |
) |
|
|
(46 |
) |
|
|
Receivables from and payables to related party, including
management fees
|
|
|
21 |
|
|
|
(20 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash flows from operating activities
|
|
|
545 |
|
|
|
469 |
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
|
(539 |
) |
|
|
(542 |
) |
|
Change in accrued expenses related to capital expenditures
|
|
|
(9 |
) |
|
|
48 |
|
|
Proceeds from sale of assets
|
|
|
9 |
|
|
|
8 |
|
|
Purchase of cable system
|
|
|
(42 |
) |
|
|
|
|
|
Proceeds from investments
|
|
|
28 |
|
|
|
16 |
|
|
Other, net
|
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash flows from investing activities
|
|
|
(553 |
) |
|
|
(472 |
) |
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Borrowings of long-term debt
|
|
|
5,830 |
|
|
|
635 |
|
|
Borrowings from related parties
|
|
|
|
|
|
|
140 |
|
|
Repayments of long-term debt
|
|
|
(5,838 |
) |
|
|
(819 |
) |
|
Repayments to related parties
|
|
|
(40 |
) |
|
|
(107 |
) |
|
Proceeds from issuance of debt
|
|
|
440 |
|
|
|
|
|
|
Payments for debt issuance costs
|
|
|
(29 |
) |
|
|
(3 |
) |
|
Distributions
|
|
|
(314 |
) |
|
|
(367 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash flows from financing activities
|
|
|
49 |
|
|
|
(521 |
) |
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
41 |
|
|
|
(524 |
) |
CASH AND CASH EQUIVALENTS, beginning of period
|
|
|
3 |
|
|
|
546 |
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, end of period
|
|
$ |
44 |
|
|
$ |
22 |
|
|
|
|
|
|
|
|
CASH PAID FOR INTEREST
|
|
$ |
451 |
|
|
$ |
390 |
|
|
|
|
|
|
|
|
NONCASH TRANSACTIONS:
|
|
|
|
|
|
|
|
|
|
Issuance of debt by Charter Communications Operating, LLC
|
|
$ |
37 |
|
|
$ |
333 |
|
|
|
|
|
|
|
|
|
Retirement of Renaissance Media Group LLC debt
|
|
$ |
(37 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
Distribution of intercompany note to related party
|
|
$ |
(105 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
Retirement of Charter Communications Holdings, LLC notes and
accrued interest
|
|
$ |
|
|
|
$ |
(343 |
) |
|
|
|
|
|
|
|
|
Transfer of property, plant and equipment from parent company
|
|
$ |
|
|
|
$ |
139 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
F-132
CCH II, LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in Millions, Except Where Indicated)
|
|
1. |
Organization and Basis of Presentation |
CCH II, LLC (CCH II) is a holding company
whose principal assets at June 30, 2006 are the equity
interests in its operating subsidiaries. CCH II is a direct
subsidiary of CCH I, LLC (CCH I) which is an
indirect subsidiary of Charter Communications Holdings, LLC
(Charter Holdings). Charter Holdings is an indirect
subsidiary of Charter Communications, Inc.
(Charter). The condensed consolidated financial
statements include the accounts of CCH II and all of its
subsidiaries where the underlying operations reside, which are
collectively referred to herein as the Company. All
significant intercompany accounts and transactions among
consolidated entities have been eliminated. The Company is a
broadband communications company operating in the United States.
The Company offers its customers traditional cable video
programming (analog and digital video) as well as high-speed
Internet services and, in some areas, advanced broadband
services such as high definition television, video on demand,
and telephone. The Company sells its cable video programming,
high-speed Internet and advanced broadband services on a
subscription basis. The Company also sells local advertising on
satellite-delivered networks.
The accompanying condensed consolidated financial statements of
the Company have been prepared in accordance with accounting
principles generally accepted in the United States for interim
financial information and the rules and regulations of the
Securities and Exchange Commission (the SEC).
Accordingly, certain information and footnote disclosures
typically included in CCH IIs Annual Report on
Form 10-K have
been condensed or omitted for this quarterly report. The
accompanying condensed consolidated financial statements are
unaudited and are subject to review by regulatory authorities.
However, in the opinion of management, such financial statements
include all adjustments, which consist of only normal recurring
adjustments, necessary for a fair presentation of the results
for the periods presented. Interim results are not necessarily
indicative of results for a full year.
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Areas involving
significant judgments and estimates include capitalization of
labor and overhead costs; depreciation and amortization costs;
impairments of property, plant and equipment, franchises and
goodwill; income taxes; and contingencies. Actual results could
differ from those estimates.
Certain 2005 amounts have been reclassified to conform with the
2006 presentation.
|
|
2. |
Liquidity and Capital Resources |
The Company had net loss of $107 million and
$87 million for the three months ended June 30, 2006
and 2005, respectively, and $335 million and
$220 million for the six months ended June 30, 2006
and 2005, respectively. The Companys net cash flows from
operating activities were $545 million and
$469 million for the six months ended June 30, 2006
and 2005, respectively.
|
|
|
Recent Financing Transactions |
In January 2006, CCH II and CCH II Capital Corp.
issued $450 million in debt securities, the proceeds of
which were provided, directly or indirectly, to Charter
Communications Operating, LLC
F-133
CCH II, LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Charter Operating), which used such funds to reduce
borrowings, but not commitments, under the revolving portion of
its credit facilities.
In April 2006, Charter Operating completed a $6.85 billion
refinancing of its credit facilities including a new
$350 million revolving/term facility (which converts to a
term loan no later than April 2007), a $5.0 billion term
loan due in 2013 and certain amendments to the existing
$1.5 billion revolving credit facility. In addition, the
refinancing reduced margins on Eurodollar rate term loans to
2.625% from a weighted average of 3.15% previously and margins
on base rate term loans to 1.625% from a weighted average of
2.15% previously. Concurrent with this refinancing, the CCO
Holdings, LLC (CCO Holdings) bridge loan was
terminated.
The Companys long-term financing as of June 30, 2006
consists of $5.8 billion of credit facility debt and
$5.3 billion accreted value of high-yield notes. For the
remainder of 2006, none of the Companys debt matures, and
in 2007 and 2008, $25 million and $50 million mature,
respectively. In 2009 and beyond, significant additional amounts
will become due under the Companys remaining long-term
debt obligations.
The Company requires significant cash to fund debt service
costs, capital expenditures and ongoing operations. The Company
has historically funded these requirements through cash flows
from operating activities, borrowings under its credit
facilities, equity contributions from its parent companies,
sales of assets, issuances of debt securities and cash on hand.
However, the mix of funding sources changes from period to
period. For the six months ended June 30, 2006, the Company
generated $545 million of net cash flows from operating
activities, after paying cash interest of $451 million. In
addition, the Company used approximately $539 million for
purchases of property, plant and equipment. Finally, the Company
had net cash flows from financing activities of $49 million.
The Company expects that cash on hand, cash flows from operating
activities, proceeds from sales of assets, and the amounts
available under its credit facilities will be adequate to meet
its and its parent companies cash needs through 2007. The
Company believes that cash flows from operating activities and
amounts available under the Companys credit facilities may
not be sufficient to fund the Companys operations and
satisfy its and its parent companies interest and
principal repayment obligations in 2008 and will not be
sufficient to fund such needs in 2009, and beyond. The Company
has been advised that Charter continues to work with its
financial advisors in its approach to addressing liquidity, debt
maturities and its overall balance sheet leverage.
The Companys ability to operate depends upon, among other
things, its continued access to capital, including credit under
the Charter Operating credit facilities. The Charter Operating
credit facilities, along with the Companys indentures,
contain certain restrictive covenants, some of which require the
Company to maintain specified financial ratios, and meet
financial tests and to provide annual audited financial
statements with an unqualified opinion from the Companys
independent auditors. As of June 30, 2006, the Company is
in compliance with the covenants under its indentures and credit
facilities, and the Company expects to remain in compliance with
those covenants for the next twelve months. As of June 30,
2006, the Companys potential availability under its credit
facilities totaled approximately $900 million, none of
which was limited by covenant restrictions. In the past, the
Companys actual availability under its credit facilities
has been limited by covenant restrictions. There can be no
assurance that the Companys actual availability under its
credit facilities will not be limited by covenant restrictions
in the future. However, pro forma for the closing of the asset
sales on July 1, 2006, and the related application of net
proceeds to repay amounts outstanding under the Companys
revolving credit facility, potential availability under the
Companys credit facilities as of June 30, 2006 would
have been approximately $1.7 billion, although actual
availability would have been limited to $1.3 billion
because of limits imposed by covenant restrictions. Continued
access to the Companys credit facilities is subject to
F-134
CCH II, LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the Company remaining in compliance with these covenants,
including covenants tied to the Companys operating
performance. If any events of non-compliance occur, funding
under the credit facilities may not be available and defaults on
some or potentially all of the Companys debt obligations
could occur. An event of default under any of the Companys
debt instruments could result in the acceleration of its payment
obligations under that debt and, under certain circumstances, in
cross-defaults under its other debt obligations, which could
have a material adverse effect on the Companys
consolidated financial condition and results of operations.
|
|
|
Parent Company Debt Obligations |
Any financial or liquidity problems of the Companys parent
companies could cause serious disruption to the Companys
business and have a material adverse effect on the
Companys business and results of operations. A failure by
Charter Holdings, CCH I Holdings, LLC (CIH) or CCH I
to satisfy their debt payment obligations or a bankruptcy filing
with respect to Charter Holdings, CIH or CCH I would give the
lenders under the Companys credit facilities the right to
accelerate the payment obligations under these facilities. Any
such acceleration would be a default under the indenture
governing the Companys notes. On a consolidated basis, the
Companys parent companies have a significant level of
debt, which, including the Companys debt, totaled
approximately $19.9 billion as of June 30, 2006, as
discussed below.
Charters ability to make interest payments on its
convertible senior notes, and, in 2009, to repay the outstanding
principal of its convertible senior notes of $863 million,
will depend on its ability to raise additional capital and/or on
receipt of payments or distributions from Charter Holdco and its
subsidiaries. As of June 30, 2006, Charter Holdco was owed
$3 million in intercompany loans from its subsidiaries,
which were available to pay interest and principal on
Charters convertible senior notes. In addition, Charter
has $74 million of U.S. government securities pledged
as security for the next three scheduled semi-annual interest
payments on Charters 5.875% convertible senior notes.
As of June 30, 2006, Charter Holdings, CIH and CCH I
had approximately $7.8 billion principal amount of
high-yield notes outstanding with approximately
$105 million, $0, $684 million and $7.0 billion
maturing in 2007, 2008, 2009 and thereafter, respectively.
Charter Holdings, CIH and CCH I will need to raise
additional capital or receive distributions or payments from the
Company in order to satisfy their debt obligations. However,
because of their significant indebtedness, the Companys
ability and the ability of the parent companies to raise
additional capital at reasonable rates or at all is uncertain.
During the six months ended June 30, 2006, the Company
distributed $314 million of cash to its parent company.
Distributions by Charters subsidiaries to a parent company
(including Charter, Charter Holdco, CCHC, LLC
(CCHC), Charter Holdings, CIH and CCH I) for
payment of principal on parent company notes are restricted
under the indentures governing the CIH notes, CCH I notes,
CCH II notes, CCO Holdings notes, and Charter Operating
notes unless there is no default under the applicable indenture,
each applicable subsidiarys leverage ratio test is met at
the time of such distribution and, in the case of Charters
convertible senior notes, other specified tests are met. For the
quarter ended June 30, 2006, there was no default under any
of these indentures and each such subsidiary met its applicable
leverage ratio tests based on June 30, 2006 financial
results. Such distributions would be restricted, however, if any
such subsidiary fails to meet these tests at such time. In the
past, certain subsidiaries have from time to time failed to meet
their leverage ratio test. There can be no assurance that they
will satisfy these tests at the time of such distribution.
Distributions by Charter Operating for payment of principal on
parent company notes are further restricted by the covenants in
the credit facilities.
Distributions by CIH, CCH I, CCH II, CCO Holdings and
Charter Operating to a parent company for payment of parent
company interest are permitted if there is no default under the
aforementioned indentures. However, distributions for payment of
interest on Charters convertible senior notes are further
F-135
CCH II, LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
limited to when each applicable subsidiarys leverage ratio
test is met and other specified tests are met. There can be no
assurance that the subsidiary will satisfy these tests at the
time of such distribution.
|
|
|
Specific Limitations at Charter Holdings |
The indentures governing the Charter Holdings notes permit
Charter Holdings to make distributions to Charter Holdco for
payment of interest or principal on Charters convertible
senior notes, only if, after giving effect to the distribution,
Charter Holdings can incur additional debt under the leverage
ratio of 8.75 to 1.0, there is no default under
Charter Holdings indentures, and other specified tests are
met. For the quarter ended June 30, 2006, there was no
default under Charter Holdings indentures and Charter
Holdings met its leverage ratio test based on June 30, 2006
financial results. Such distributions would be restricted,
however, if Charter Holdings fails to meet these tests at such
time. In the past, Charter Holdings has from time to time failed
to meet this leverage ratio test. There can be no assurance that
Charter Holdings will satisfy these tests at the time of such
distribution. During periods in which distributions are
restricted, the indentures governing the Charter Holdings notes
permit Charter Holdings and its subsidiaries to make specified
investments (that are not restricted payments) in Charter Holdco
or Charter up to an amount determined by a formula, as long as
there is no default under the indentures.
In 2006, the Company signed three separate definitive agreements
to sell certain cable television systems serving a total of
approximately 356,000 analog video customers in 1) West
Virginia and Virginia to Cebridge Connections, Inc. (the
Cebridge Transaction); 2) Illinois and Kentucky
to Telecommunications Management, LLC, doing business as New
Wave Communications (the New Wave Transaction) and
3) Nevada, Colorado, New Mexico and Utah to Orange
Broadband Holding Company, LLC (the Orange
Transaction) for a total of approximately
$971 million. These cable systems met the criteria for
assets held for sale. As such, the assets were written down to
fair value less estimated costs to sell resulting in asset
impairment charges during the six months ended June 30,
2006 of approximately $99 million related to the New Wave
Transaction and the Orange Transaction. In the third quarter of
2006, the Company expects to record a gain of approximately
$200 million on the Cebridge Transaction. In addition,
assets and liabilities to be sold have been presented as held
for sale. Assets held for sale on the Companys balance
sheet as of June 30, 2006 included current assets of
approximately $6 million, property, plant and equipment of
approximately $319 million and franchises of approximately
$443 million. Liabilities held for sale on the
Companys balance sheet as of June 30, 2006 included
current liabilities of approximately $7 million and other
long-term liabilities of approximately $13 million.
During the second quarter of 2006, the Company determined, based
on changes in the Companys organizational and cost
structure, that its asset groupings for long lived asset
accounting purposes are at the level of their individual market
areas, which are at a level below the Companys geographic
clustering. As a result, the Company has determined that the
West Virginia and Virginia cable systems comprise operations and
cash flows that for financial reporting purposes meet the
criteria for discontinued operations. Accordingly, the results
of operations for the West Virginia and Virginia cable systems
have been presented as discontinued operations, net of tax for
the three and six months ended June 30, 2006 and all prior
periods presented herein have been reclassified to conform to
the current presentation.
F-136
CCH II, LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Summarized consolidated financial information for the three and
six months ended June 30, 2006 and 2005 for the West
Virginia and Virginia cable systems is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months | |
|
Six Months | |
|
|
Ended June 30, | |
|
Ended June 30, | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
Revenues
|
|
$ |
55 |
|
|
$ |
57 |
|
|
$ |
109 |
|
|
$ |
113 |
|
Net income (loss)
|
|
$ |
23 |
|
|
$ |
10 |
|
|
$ |
38 |
|
|
$ |
19 |
|
In July 2006, the Company closed the Cebridge Transaction
and New Wave Transaction for net proceeds of approximately
$896 million. The Company used the net proceeds from the
asset sales to repay (but not reduce permanently) amounts
outstanding under the Companys revolving credit facility.
The Orange Transaction is scheduled to close in the third
quarter of 2006.
In 2005, the Company closed the sale of certain cable systems in
Texas, West Virginia and Nebraska representing a total of
approximately 33,000 analog video customers. During the six
months ended June 30, 2005, certain of those cable systems
met the criteria for assets held for sale. As such, the assets
were written down to fair value less estimated costs to sell
resulting in asset impairment charges during the three and six
months ended June 30, 2005 of approximately $8 million
and $39 million, respectively.
|
|
4. |
Franchises and Goodwill |
Franchise rights represent the value attributed to agreements
with local authorities that allow access to homes in cable
service areas acquired through the purchase of cable systems.
Management estimates the fair value of franchise rights at the
date of acquisition and determines if the franchise has a finite
life or an indefinite-life as defined by Statement of Financial
Accounting Standards (SFAS) No. 142,
Goodwill and Other Intangible Assets. Franchises that
qualify for indefinite-life treatment under
SFAS No. 142 are tested for impairment annually each
October 1 based on valuations, or more frequently as
warranted by events or changes in circumstances. Franchises are
aggregated into essentially inseparable asset groups to conduct
the valuations. The asset groups generally represent
geographical clustering of the Companys cable systems into
groups by which such systems are managed. Management believes
such grouping represents the highest and best use of those
assets.
As of June 30, 2006 and December 31, 2005,
indefinite-lived and finite-lived intangible assets are
presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2006 | |
|
December 31, 2005 | |
|
|
| |
|
| |
|
|
Gross | |
|
|
|
Net | |
|
Gross | |
|
|
|
Net | |
|
|
Carrying | |
|
Accumulated | |
|
Carrying | |
|
Carrying | |
|
Accumulated | |
|
Carrying | |
|
|
Amount | |
|
Amortization | |
|
Amount | |
|
Amount | |
|
Amortization | |
|
Amount | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Indefinite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchises with indefinite lives
|
|
$ |
9,263 |
|
|
$ |
|
|
|
$ |
9,263 |
|
|
$ |
9,806 |
|
|
$ |
|
|
|
$ |
9,806 |
|
|
Goodwill
|
|
|
61 |
|
|
|
|
|
|
|
61 |
|
|
|
52 |
|
|
|
|
|
|
|
52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
9,324 |
|
|
$ |
|
|
|
$ |
9,324 |
|
|
$ |
9,858 |
|
|
$ |
|
|
|
$ |
9,858 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchises with finite lives
|
|
$ |
23 |
|
|
$ |
6 |
|
|
$ |
17 |
|
|
$ |
27 |
|
|
$ |
7 |
|
|
$ |
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2006, the net carrying
amount of indefinite-lived and finite-lived franchises was
reduced by $441 million and $2 million, respectively,
related to franchises reclassified as assets held for sale. For
the six months ended June 30, 2006, franchises with
indefinite lives also decreased $3 million related to a
cable asset sale completed in the first quarter of 2006 and
$99 million as a result of
F-137
CCH II, LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the asset impairment charges recorded related to assets held for
sale (see Note 3). Franchise amortization expense for the
three and six months ended June 30, 2006 was approximately
$1 million and $1 million, respectively, and
$1 million and $2 million for the three and six months
ended June 30, 2005, respectively, which represents the
amortization relating to franchises that did not qualify for
indefinite-life treatment under SFAS No. 142,
including costs associated with franchise renewals. The Company
expects that amortization expense on franchise assets will be
approximately $2 million annually for each of the next five
years. Actual amortization expense in future periods could
differ from these estimates as a result of new intangible asset
acquisitions or divestitures, changes in useful lives and other
relevant factors.
For the six months ended June 30, 2006, the net carrying
amount of goodwill increased $9 million as a result of the
Companys purchase of certain cable systems in Minnesota
from Seren Innovations, Inc. in January 2006.
|
|
5. |
Accounts Payable and Accrued Expenses |
Accounts payable and accrued expenses consist of the following
as of June 30, 2006 and December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
June 30, | |
|
December 31, | |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
Accounts payable trade
|
|
$ |
72 |
|
|
$ |
100 |
|
Accrued capital expenditures
|
|
|
64 |
|
|
|
73 |
|
Accrued expenses:
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
184 |
|
|
|
166 |
|
|
Programming costs
|
|
|
297 |
|
|
|
272 |
|
|
Franchise-related fees
|
|
|
55 |
|
|
|
67 |
|
|
Compensation
|
|
|
64 |
|
|
|
60 |
|
|
Other
|
|
|
181 |
|
|
|
185 |
|
|
|
|
|
|
|
|
|
|
$ |
917 |
|
|
$ |
923 |
|
|
|
|
|
|
|
|
F-138
CCH II, LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Long-term debt consists of the following as of June 30,
2006 and December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2006 | |
|
December 31, 2005 | |
|
|
| |
|
| |
|
|
Principal | |
|
Accreted | |
|
Principal | |
|
Accreted | |
|
|
Amount | |
|
Value | |
|
Amount | |
|
Value | |
|
|
| |
|
| |
|
| |
|
| |
Long-Term Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CCH II, LLC:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.250% senior notes due 2010
|
|
$ |
2,051 |
|
|
$ |
2,042 |
|
|
$ |
1,601 |
|
|
$ |
1,601 |
|
|
CCO Holdings, LLC:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83/4
% senior notes due 2013
|
|
|
800 |
|
|
|
795 |
|
|
|
800 |
|
|
|
794 |
|
|
|
Senior floating 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
|
|
|
770 |
|
|
|
770 |
|
|
|
733 |
|
|
|
733 |
|
|
Renaissance Media Group LLC:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.000% senior discount notes due 2008
|
|
|
|
|
|
|
|
|
|
|
114 |
|
|
|
115 |
|
Credit Facilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charter Operating
|
|
|
5,800 |
|
|
|
5,800 |
|
|
|
5,731 |
|
|
|
5,731 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
11,071 |
|
|
$ |
11,057 |
|
|
$ |
10,629 |
|
|
$ |
10,624 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accreted values presented above generally represent the
principal amount of the notes less the original issue discount
at the time of sale plus the accretion to the balance sheet date.
In January 2006, CCH II and CCH II Capital Corp.
issued $450 million in debt securities, the proceeds of
which were provided, directly or indirectly, to Charter
Operating, which used such funds to reduce borrowings, but not
commitments, under the revolving portion of its credit
facilities.
In March 2006, the Company exchanged $37 million of
Renaissance Media Group LLC 10% senior discount notes due
2008 for $37 million principal amount of new Charter
Operating
83/8% senior
second-lien notes due 2014 issued in a private transaction under
Rule 144A. The terms and conditions of the new Charter
Operating
83/8% senior
second-lien notes due 2014 are identical to Charter
Operatings currently outstanding
83/8
% senior second-lien notes due 2014. In
June 2006, the Company retired the remaining
$77 million principal amount of Renaissance Media Group
LLCs 10% senior discount notes due 2008.
Gain
(loss) on extinguishment of debt
In April 2006, Charter Operating completed a
$6.85 billion refinancing of its credit facilities
including a new $350 million revolving/term facility (which
converts to a term loan no later than April 2007), a
$5.0 billion term loan due in 2013 and certain amendments
to the existing $1.5 billion revolving credit facility. In
addition, the refinancing reduced margins on Eurodollar rate
term loans to 2.625% from a weighted average of 3.15% previously
and margins on base rate term loans to 1.625% from a weighted
average of 2.15% previously. Concurrent with this refinancing,
the CCO Holdings bridge loan was terminated. The
refinancing resulted in a loss on extinguishment of debt for the
three and six months ended June 30, 2006 of approximately
$27 million included in other income (expenses), net on the
Companys condensed consolidated statements of operations.
In March and June 2005, Charter Operating consummated
exchange transactions with a small number of institutional
holders of Charter Holdings 8.25% senior notes due 2007
pursuant to which
F-139
CCH II, LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Charter Operating issued, in private placements, approximately
$333 million principal amount of new notes with terms
identical to Charter Operatings 8.375% senior second
lien notes due 2014 in exchange for approximately
$346 million of the Charter Holdings 8.25% senior
notes due 2007. The Charter Holdings notes received in the
exchange were thereafter distributed to Charter Holdings and
cancelled.
In March 2005, CCH IIs subsidiary,
CC V Holdings, LLC, redeemed all of its
11.875% notes due 2008, at 103.958% of principal amount,
plus accrued and unpaid interest to the date of redemption. The
total cost of redemption was approximately $122 million and
was funded through borrowings under the Charter Operating credit
facilities. The redemption resulted in a loss on extinguishment
of debt for the six months ended June 30, 2005 of
approximately $5 million included in other income
(expenses), net on the Companys condensed consolidated
statements of operations. Following such redemption,
CC V Holdings, LLC and its subsidiaries (other than
non-guarantor subsidiaries) became guarantors under the Charter
Operating credit facilities and granted a lien on their assets
to the same extent as granted by the other guarantors under the
credit facility.
|
|
7. |
Loans Payable-Related Party |
Loans payable-related party as of June 30, 2006 consists of
loans from Charter Holdco and Charter Holdings to the Company of
$4 million and $105 million, respectively. Loans
payable-related party as of December 31, 2005 consists of
loans from Charter Holdco to the Company of $22 million.
These loans bear interest at a rate of LIBOR plus 3.0%, reset
quarterly. These loans are subject to certain limitations and
may be repaid with borrowings under the Companys revolving
credit facility.
Minority interest on the Companys consolidated balance
sheets as of June 30, 2006 and December 31, 2005
primarily represents preferred membership interests in
CC VIII, LLC (CC VIII), an indirect
subsidiary of CCH II, of $631 million and
$622 million, respectively. As more fully described in
Note 19, this preferred interest is held by Mr. Allen,
Charters Chairman and controlling shareholder, and CCHC.
Minority interest in the accompanying condensed consolidated
statements of operations includes the 2% accretion of the
preferred membership interests plus approximately 18.6% of
CC VIIIs income, net of accretion.
Certain marketable equity securities are classified as
available-for-sale and reported at market value with unrealized
gains and losses recorded as accumulated other comprehensive
loss on the accompanying condensed consolidated balance sheets.
Additionally, the Company reports changes in the fair value of
interest rate agreements designated as hedging the variability
of cash flows associated with floating-rate debt obligations,
that meet the effectiveness criteria of SFAS No. 133,
Accounting for Derivative Instruments and Hedging
Activities, in accumulated other comprehensive loss.
Comprehensive loss for the three months ended June 30, 2006
and 2005 was $106 million and $86 million,
respectively, and $335 million and $210 million for
the six months ended June 30, 2006 and 2005, respectively.
|
|
10. |
Accounting for Derivative Instruments and Hedging
Activities |
The Company uses interest rate risk management derivative
instruments, such as interest rate swap agreements and interest
rate collar agreements (collectively referred to herein as
interest rate agreements) to manage its interest costs. The
Companys policy is to manage interest costs using a mix of
fixed and variable rate debt. Using interest rate swap
agreements, the Company has agreed to exchange, at specified
intervals through 2007, the difference between fixed and
variable interest amounts calculated by reference to an
agreed-upon notional principal amount. Interest rate collar
agreements are used to limit the
F-140
CCH II, LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Companys exposure to and benefits from interest rate
fluctuations on variable rate debt to within a certain range of
rates.
The Company does not hold or issue derivative instruments for
trading purposes. The Company does, however, have certain
interest rate derivative instruments that have been designated
as cash flow hedging instruments. Such instruments effectively
convert variable interest payments on certain debt instruments
into fixed payments. For qualifying hedges,
SFAS No. 133 allows derivative gains and losses to
offset related results on hedged items in the consolidated
statement of operations. The Company has formally documented,
designated and assessed the effectiveness of transactions that
receive hedge accounting. For each of the three months ended
June 30, 2006 and 2005, other income includes gains of $0,
and for the six months ended June 30, 2006 and 2005, other
income includes gains of $2 million and $1 million,
respectively, which represent cash flow hedge ineffectiveness on
interest rate hedge agreements arising from differences between
the critical terms of the agreements and the related hedged
obligations. Changes in the fair value of interest rate
agreements designated as hedging instruments of the variability
of cash flows associated with floating-rate debt obligations
that meet the effectiveness criteria of SFAS No. 133
are reported in accumulated other comprehensive loss. For the
three months ended June 30, 2006 and 2005, a gain of
$1 million and $0, respectively, and for the six months
ended June 30, 2006 and 2005, a gain of $0 and
$9 million, respectively, related to derivative instruments
designated as cash flow hedges, was recorded in accumulated
other comprehensive loss. The amounts are subsequently
reclassified into interest expense as a yield adjustment in the
same period in which the related interest on the floating-rate
debt obligations affects earnings (losses).
Certain interest rate derivative instruments are not designated
as hedges as they do not meet the effectiveness criteria
specified by SFAS No. 133. However, management
believes such instruments are closely correlated with the
respective debt, thus managing associated risk. Interest rate
derivative instruments not designated as hedges are marked to
fair value, with the impact recorded as other income in the
Companys condensed consolidated statements of operations.
For the three months ended June 30, 2006 and 2005, other
income includes gains of $3 million and losses of
$1 million, respectively, and for the six months ended
June 30, 2006 and 2005, other income includes gains of
$9 million and $25 million, respectively, for interest
rate derivative instruments not designated as hedges.
As of June 30, 2006 and December 31, 2005, the Company
had outstanding $1.8 billion and $1.8 billion and
$20 million and $20 million, respectively, in notional
amounts of interest rate swaps and collars, respectively. The
notional amounts of interest rate instruments do not represent
amounts exchanged by the parties and, thus, are not a measure of
exposure to credit loss. The amounts exchanged are determined by
reference to the notional amount and the other terms of the
contracts.
F-141
CCH II, LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Revenues consist of the following for the three and six months
ended June 30, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months | |
|
Six Months | |
|
|
Ended June 30, | |
|
Ended June 30, | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
Video
|
|
$ |
853 |
|
|
$ |
821 |
|
|
$ |
1,684 |
|
|
$ |
1,623 |
|
High-speed Internet
|
|
|
261 |
|
|
|
218 |
|
|
|
506 |
|
|
|
425 |
|
Telephone
|
|
|
29 |
|
|
|
8 |
|
|
|
49 |
|
|
|
14 |
|
Advertising sales
|
|
|
79 |
|
|
|
73 |
|
|
|
147 |
|
|
|
135 |
|
Commercial
|
|
|
76 |
|
|
|
66 |
|
|
|
149 |
|
|
|
128 |
|
Other
|
|
|
85 |
|
|
|
80 |
|
|
|
168 |
|
|
|
156 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,383 |
|
|
$ |
1,266 |
|
|
$ |
2,703 |
|
|
$ |
2,481 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12. Operating Expenses
Operating expenses consist of the following for the three and
six months ended June 30, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months | |
|
Six Months | |
|
|
Ended June 30, | |
|
Ended June 30, | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
Programming
|
|
$ |
379 |
|
|
$ |
336 |
|
|
$ |
755 |
|
|
$ |
678 |
|
Service
|
|
|
205 |
|
|
|
186 |
|
|
|
408 |
|
|
|
356 |
|
Advertising sales
|
|
|
27 |
|
|
|
24 |
|
|
|
52 |
|
|
|
47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
611 |
|
|
$ |
546 |
|
|
$ |
1,215 |
|
|
$ |
1,081 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13. Selling, General and
Administrative Expenses
Selling, general and administrative expenses consist of the
following for the three and six months ended June 30, 2006
and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months | |
|
Six Months | |
|
|
Ended June 30, | |
|
Ended June 30, | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
General and administrative
|
|
$ |
236 |
|
|
$ |
220 |
|
|
$ |
471 |
|
|
$ |
418 |
|
Marketing
|
|
|
43 |
|
|
|
30 |
|
|
|
80 |
|
|
|
65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
279 |
|
|
$ |
250 |
|
|
$ |
551 |
|
|
$ |
483 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of selling expense are included in general and
administrative and marketing expense.
F-142
CCH II, LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
14. |
Other Operating (Income) Expenses, Net |
Other operating (income) expenses, net consist of the following
for the three and six months ended June 30, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months | |
|
Six Months | |
|
|
Ended June 30, | |
|
Ended June 30, | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
Loss on sale of assets, net
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
4 |
|
Special charges, net
|
|
|
7 |
|
|
|
(2 |
) |
|
|
10 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
7 |
|
|
$ |
(2 |
) |
|
$ |
10 |
|
|
$ |
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special charges for the three and six months ended June 30,
2006 primarily represent severance associated with the closing
of call centers and divisional restructuring. Special charges
for the six months ended June 30, 2005 primarily represent
severance costs as a result of reducing workforce, consolidating
administrative offices and executive severance.
For the three and six months ended June 30, 2005, special
charges were offset by approximately $2 million related to
an agreed upon discount in respect of the portion of settlement
consideration payable under the settlement terms of class action
lawsuits.
15. Other Income (Expenses),
Net
Other income (expenses), net consists of the following for the
three and six months ended June 30, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months | |
|
Six Months | |
|
|
Ended June 30, | |
|
Ended June 30, | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
Gain (loss) on derivative instruments and hedging activities, net
|
|
$ |
3 |
|
|
$ |
(1 |
) |
|
$ |
11 |
|
|
$ |
26 |
|
Gain (loss) on extinguishment of debt
|
|
|
(27 |
) |
|
|
(1 |
) |
|
|
(27 |
) |
|
|
(6 |
) |
Minority interest
|
|
|
(6 |
) |
|
|
(3 |
) |
|
|
(10 |
) |
|
|
(6 |
) |
Gain on investments
|
|
|
5 |
|
|
|
20 |
|
|
|
4 |
|
|
|
21 |
|
Other, net
|
|
|
(1 |
) |
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(26 |
) |
|
$ |
15 |
|
|
$ |
(19 |
) |
|
$ |
35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on investments for the three and six months ended
June 30, 2005 primarily represents a gain realized on an
exchange of the Companys interest in an equity investee
for an investment in a larger enterprise.
CCH II is a single member limited liability company not
subject to income tax. CCH II holds all operations through
indirect subsidiaries. The majority of these indirect
subsidiaries are limited liability companies that are also not
subject to income tax. However, certain of CCH IIs
indirect subsidiaries are corporations that are subject to
income tax.
As of June 30, 2006 and December 31, 2005, the Company
had net deferred income tax liabilities of approximately
$213 million. The net deferred income tax liabilities
relate to certain of the Companys indirect subsidiaries,
which file separate income tax returns.
F-143
CCH II, LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
During the three and six months ended June 30, 2006, the
Company recorded $2 million and $4 million of income
tax expense, respectively, and during the three and six months
ended June 30, 2005, the Company recorded $2 million
and $8 million of income tax expense, respectively. The
income tax expense is recognized through current federal and
state income tax expense as well as increases to the deferred
tax liabilities of certain of the Companys indirect
corporate subsidiaries.
Charter Holdco is currently under examination by the Internal
Revenue Service for the tax years ending December 31, 2002
and 2003. The Companys results (excluding the indirect
corporate subsidiaries) for these years are subject to this
examination. Management does not expect the results of this
examination to have a material adverse effect on the
Companys condensed consolidated financial condition or
results of operations.
The Company is a party to lawsuits and claims that arise in the
ordinary course of conducting its business. The ultimate outcome
of all of these legal matters pending against the Company or its
subsidiaries cannot be predicted, and although such lawsuits and
claims are not expected individually to have a material adverse
effect on the Companys consolidated financial condition,
results of operations or liquidity, such lawsuits could have, in
the aggregate, a material adverse effect on the Companys
consolidated financial condition, results of operations or
liquidity.
|
|
18. |
Stock Compensation Plans |
Charter has stock option plans (the Plans) which
provide for the grant of non-qualified stock options, stock
appreciation rights, dividend equivalent rights, performance
units and performance shares, share awards, phantom stock and/or
shares of restricted stock (not to exceed 20,000,000 shares
of Charter Class A common stock), as each term is defined
in the Plans. Employees, officers, consultants and directors of
Charter and its subsidiaries and affiliates are eligible to
receive grants under the Plans. Options granted generally vest
over four to five years from the grant date, with 25% generally
vesting on the anniversary of the grant date and ratably
thereafter. Generally, options expire 10 years from the
grant date. The Plans allow for the issuance of up to a total of
90,000,000 shares of Charter Class A common stock (or
units convertible into Charter Class A common stock).
The fair value of each option granted is estimated on the date
of grant using the Black-Scholes option-pricing model. The
following weighted average assumptions were used for grants
during the three months ended June 30, 2006 and 2005,
respectively: risk-free interest rates of 5.0% and 3.8%;
expected volatility of 91.0% and 70.1%; and expected lives of
6.25 years and 4.5 years, respectively. The following
weighted average assumptions were used for grants during the six
months ended June 30, 2006 and 2005, respectively:
risk-free interest rates of 4.6% and 3.8%; expected volatility
of 91.6% and 71.3%; and expected lives of 6.25 years and
4.5 years, respectively. The valuations assume no dividends
are paid. During the three and six months ended June 30,
2006, Charter granted 0.1 million and 4.9 million
stock options, respectively, with a weighted average exercise
price of $1.02 and $1.07, respectively. As of June 30,
2006, Charter had 28.6 million and 10.7 million
options outstanding and exercisable, respectively, with weighted
average exercise prices of $3.97 and $7.27, respectively, and
weighted average remaining contractual lives of 8 years and
6 years, respectively.
On January 1, 2006, the Company adopted revised
SFAS No. 123, Share Based payment,
which addresses the accounting for share-based payment
transactions in which a company receives employee services in
exchange for (a) equity instruments of that company or
(b) liabilities that are based on the fair value of the
companys equity instruments or that may be settled by the
issuance of such equity instruments. Because the Company adopted
the fair value recognition provisions of SFAS No. 123
on January 1, 2003, the revised standard did not have a
material impact on its financial statements. The
F-144
CCH II, LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Company recorded $3 million and $4 million of option
compensation expense which is included in general and
administrative expense for the three months ended June 30,
2006 and 2005, respectively, and $7 million and
$8 million for the six months ended June 30, 2006 and
2005, respectively.
In February 2006, the Compensation and Benefits Committee of
Charters Board of Directors approved a modification to the
financial performance measures under Charters Long-Term
Incentive Program (LTIP) required to be met for the
performance shares to vest. After the modification, management
believes that approximately 2.5 million of the performance
shares are likely to vest. As such, expense of approximately
$3 million will be amortized over the remaining two year
service period. During the six months ended June 30, 2006,
Charter granted an additional 8.0 million performance
shares under the LTIP. The impacts of such grant and the
modification of the 2005 awards was $1 million for the
six months ended June 30, 2006.
|
|
19. |
Related Party Transactions |
The following sets forth certain transactions in which the
Company and the directors, executive officers and affiliates of
the Company are involved. Unless otherwise disclosed, management
believes that each of the transactions described below was on
terms no less favorable to the Company than could have been
obtained from independent third parties.
As part of the acquisition of the cable systems owned by Bresnan
Communications Company Limited Partnership in February 2000,
CC VIII, LLC, CCH IIs indirect limited liability
company subsidiary, issued, after adjustments, 24,273,943
Class A preferred membership units (collectively, the
CC VIII interest) with an initial value and an
initial capital account of approximately $630 million to
certain sellers affiliated with AT&T Broadband, subsequently
owned by Comcast Corporation (the Comcast sellers).
Mr. Allen granted the Comcast sellers the right to sell to
him the CC VIII interest for approximately
$630 million plus 4.5% interest annually from February 2000
(the Comcast put right). In April 2002, the Comcast
sellers exercised the Comcast put right in full, and this
transaction was consummated on June 6, 2003. Accordingly,
Mr. Allen became the holder of the CC VIII interest,
indirectly through an affiliate. In the event of a liquidation
of CC VIII, the owners of the CC VIII interest would
be entitled to a priority distribution with respect to a
2% priority return (which will continue to accrete). Any
remaining distributions in liquidation would be distributed to
CC V Holdings, LLC and the owners of the CC VIII
interest in proportion to their capital accounts (which would
have equaled the initial capital account of the Comcast sellers
of approximately $630 million, increased or decreased by
Mr. Allens pro rata share of CC VIIIs
profits or losses (as computed for capital account purposes)
after June 6, 2003).
An issue arose as to whether the documentation for the Bresnan
transaction was correct and complete with regard to the ultimate
ownership of the CC VIII interest following consummation of
the Comcast put right. Thereafter, the board of directors of
Charter formed a Special Committee of independent directors to
investigate the matter and take any other appropriate action on
behalf of Charter with respect to this matter. After conducting
an investigation of the relevant facts and circumstances, the
Special Committee determined that a scriveners
error had occurred in February 2000 in connection with the
preparation of the last-minute revisions to the Bresnan
transaction documents and that, as a result, Charter should seek
the reformation of the Charter Holdco limited liability company
agreement, or alternative relief, in order to restore and ensure
the obligation that the CC VIII interest be automatically
exchanged for Charter Holdco units.
As of October 31, 2005, Mr. Allen, the Special
Committee, Charter, Charter Holdco and certain of their
affiliates, agreed to settle the dispute, and execute certain
permanent and irrevocable releases
F-145
CCH II, LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
pursuant to the Settlement Agreement and Mutual Release
agreement dated October 31, 2005 (the
Settlement). Pursuant to the Settlement, Charter
Investment, Inc. (CII) has retained 30% of its
CC VIII interest (the Remaining Interests). The
Remaining Interests are subject to certain transfer
restrictions, including requirements that the Remaining
Interests participate in a sale with other holders or that allow
other holders to participate in a sale of the Remaining
Interests, as detailed in the revised CC VIII Limited
Liability Company Agreement. CII transferred the other 70% of
the CC VIII interest directly and indirectly, through
Charter Holdco, to a newly formed entity, CCHC (a direct
subsidiary of Charter Holdco and the direct parent of Charter
Holdings). Of the 70% of the CC VIII interest, 7.4% has
been transferred by CII to CCHC for a subordinated exchangeable
note with an initial accreted value of $48 million,
accreting at 14% per annum, compounded quarterly, with a
15-year maturity (the
Note). The remaining 62.6% has been transferred by
CII to Charter Holdco, in accordance with the terms of the
settlement for no additional monetary consideration. Charter
Holdco contributed the 62.6% interest to CCHC.
As part of the Settlement, CC VIII issued approximately
49 million additional Class B units to CC V in
consideration for prior capital contributions to CC VIII by
CC V, with respect to transactions that were unrelated to
the dispute in connection with CIIs membership units in
CC VIII. As a result, Mr. Allens pro rata share
of the profits and losses of CC VIII attributable to the
Remaining Interests is approximately 5.6%.
The Note is exchangeable, at CIIs option, at any time, for
Charter Holdco Class A Common units at a rate equal to the
then accreted value, divided by $2.00 (the Exchange
Rate). Customary anti-dilution protections have been
provided that could cause future changes to the Exchange Rate.
Additionally, the Charter Holdco Class A Common units
received will be exchangeable by the holder into Charter common
stock in accordance with existing agreements between CII,
Charter and certain other parties signatory thereto. Beginning
February 28, 2009, if the closing price of Charter common
stock is at or above the Exchange Rate for a certain period of
time as specified in the Exchange Agreement, Charter Holdco may
require the exchange of the Note for Charter Holdco Class A
Common units at the Exchange Rate.
CCHC has the right to redeem the Note under certain
circumstances, for cash in an amount equal to the then accreted
value. Such amount, if redeemed prior to February 28, 2009,
would also include a make whole provision up to the accreted
value through February 28, 2009. CCHC must redeem the Note
at its maturity for cash in an amount equal to the initial
stated value plus the accreted return through maturity.
Charters Board of Directors has determined that the
transferred CC VIII interest will remain at CCHC for the
present time, but there are currently no contractual or other
obligations of CCHC that would prevent the contribution of those
assets to a subsidiary of CCHC.
|
|
20. |
Recently Issued Accounting Standards |
In June 2006, the FASB issued FIN 48, Accounting for
Uncertainty in Income Taxes an Interpretation of
FASB Statement No. 109, which provides criteria for the
recognition, measurement, presentation and disclosure of
uncertain tax positions. A tax benefit from an uncertain
position may be recognized only if it is more likely than
not that the position is sustainable based on its
technical merits. The Company will adopt FIN 48 effective
January 1, 2007. The Company is currently assessing the
impact of FIN 48 on its financial statements.
F-146
Completed Letters of Transmittal and any other documents
required in connection with surrenders of Convertible Notes for
conversion should be directed to the Exchange Agent at the
address set forth below.
The exchange agent for the Exchange Offer is:
Global Bondholder Services Corporation
|
|
|
By Facsimile (Eligible Guarantor Institutions Only)
(212) 430-3775
(provide call back telephone number
on fax cover sheet for confirmation)
Confirmation:
(212) 430-3774 |
|
By Mail, Overnight Courier or Hand Delivery
Global Bondholder Services Corporation
65 Broadway Suite 723
New York, New York 10006
Attn: Corporate Actions |
Any requests for assistant in connection with the Exchange Offer
or for additional copies of this Exchange Offer Prospectus or
related materials may be directors to the Information Agent at
the address or telephone numbers set forth below. A Holder may
also contact such Holders broker, dealer, commercial bank,
trust company or other nominee for assistance concerning the
Exchange Offer.
The information agent for the Exchange Offer is:
Global Bondholder Services Corporation
65 Broadway Suite 723
New York, New York 10006
Attn: Corporate Actions
Banks and Brokers call: (212) 430-3774
Toll-free (866) 470-3700
|
|
|
The Dealer Managers for the Exchange Offer are: |
Citigroup Global Markets Inc.
390 Greenwich Street, 5th Floor
New York, New York 10013
Attn: Special Equity Transactions Group
Collect: (212) 723-7406
U.S. Toll-free: (877) 531-8365 |
|
Banc of America Securities LLC
9 West 57th Street, 29th Floor
New York, New York 10019
Attn: Convertible Securities Department
Collect: (212) 933-2200
U.S. Toll-free: (888) 583-8900 x2200 |
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
|
|
Item. 20. |
Indemnification of Directors and Officers. |
|
|
|
Indemnification Under the Restated Certificate of
Incorporation and Bylaws of Charter Communications, Inc. |
Charter Communications, Inc.s Restated Certificate of
Incorporation provides that a director of Charter
Communications, Inc. shall not be personally liable to Charter
Communications, Inc. or its shareholders for monetary damages
for breach of fiduciary duty as a director, except for
liability: (i) for any breach of the directors duty
of loyalty to Charter Communications, Inc. or its shareholders;
(ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law;
(iii) under Section 174 of the Delaware General
Corporation law; or (iv) for any transaction from which the
director derived an improper personal benefit. Charter
Communications, Inc.s Bylaws require Charter
Communications, Inc., to the fullest extent authorized by the
Delaware General Corporation Law, to indemnify any person who
was or is made a party or is threatened to be made a party or is
otherwise involved in any action, suit or proceeding by reason
of the fact that he is or was a director or officer of Charter
Communications, Inc. or is or was serving at the request of
Charter Communications, Inc. as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other entity or enterprise, in each
case, against all expense, liability and loss (including
attorneys fees, judgments, amounts paid in settlement,
fines, ERISA excise taxes or penalties) reasonably incurred or
suffered by such person in connection therewith.
|
|
|
Indemnification Under the By-Laws of CCH II Capital
Corp. |
The Bylaws of CCH II Capital Corp. require CCH II
Capital Corp., to the fullest extent authorized by the Delaware
General Corporation Law, to indemnify any person who was or is
made a party or is threatened to be made a party or is otherwise
involved in any action, suit or proceeding by reason of the fact
that he is or was a director or officer of CCH II Capital
Corp. or is or was serving at the request of CCH II Capital
Corp. as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit
plan or other entity or enterprise, in each case, against all
expense, liability and loss (including attorneys fees,
judgments, amounts paid in settlement, fines, ERISA excise taxes
or penalties) reasonably incurred or suffered by such person in
connection therewith.
|
|
|
Indemnification Under the Delaware General Corporation
Law |
Section 145 of the Delaware General Corporation Law,
authorizes a corporation to indemnify any person who was or is a
party, or is threatened to be made a party, to any threatened,
pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact
that the person is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise, against expenses, including attorneys fees,
judgments, fines and amounts paid in settlement actually and
reasonably incurred by the person in connection with such
action, suit or proceeding, if the person acted in good faith
and in a manner the person reasonably believed to be in, or not
opposed to, the best interests of the corporation and, with
respect to any criminal action or proceeding, had no reasonable
cause to believe the persons conduct was unlawful. In
addition, the Delaware General Corporation Law does not permit
indemnification in any threatened, pending or completed action
or suit by or in the right of the corporation in respect of any
claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation, unless and only to the
extent that the court in which such action or suit was brought
shall determine upon application that, despite the adjudication
of liability, but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for
such expenses, which such court shall deem proper. To the extent
that a present or former director or officer of a corporation
has been successful on the merits or otherwise in defense of any
action, suit or
II-1
proceeding referred to above, or in defense of any claim, issue
or matter, such person shall be indemnified against expenses,
including attorneys fees, actually and reasonably incurred
by such person. Indemnity is mandatory to the extent a claim,
issue or matter has been successfully defended. The Delaware
General Corporation Law also allows a corporation to provide for
the elimination or limit of the personal liability of a director
to the corporation or its shareholders for monetary damages for
breach of fiduciary duty as a director, provided that such
provision shall not eliminate or limit the liability of a
director
|
|
|
(i) for any breach of the directors duty of loyalty
to the corporation or its shareholders, |
|
|
(ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, |
|
|
(iii) for unlawful payments of dividends or unlawful stock
purchases or redemptions, or |
|
|
(iv) for any transaction from which the director derived an
improper personal benefit. These provisions will not limit the
liability of directors or officers under the federal securities
laws of the United States. |
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
or persons controlling the registrant pursuant to the foregoing
provisions, the registrant has been informed that in the opinion
of the SEC such indemnification is against public policy as
expressed in the Act and is therefore unenforceable.
|
|
|
Indemnification Under the Limited Liability Company
Agreement of CCH II |
The limited liability company agreement of CCH II, LLC
provides that the members, the manager, the directors, their
affiliates or any person who at any time serves or has served as
a director, officer, employee or other agent of any member or
any such affiliate, and who, in such capacity, engages or has
engaged in activities on behalf of CCH II, LLC, shall be
indemnified and held harmless by CCH II, LLC to the fullest
extent permitted by law from and against any losses, damages,
expenses, including attorneys fees, judgments and amounts
paid in settlement actually and reasonably incurred by or in
connection with any claim, action, suit or proceeding arising
out of or incidental to such indemnifiable persons acts or
omissions on behalf of CCH II, LLC. Notwithstanding the
foregoing, no indemnification is available under the limited
liability company agreement in respect of any such claim
adjudged to be primarily the result of bad faith, willful
misconduct or fraud of an indemnifiable person. Payment of these
indemnification obligations shall be made from the assets of
CCH II, LLC and the members shall not be personally liable
to an indemnifiable person for payment of indemnification.
|
|
|
Indemnification Under the Delaware Limited Liability
Company Act |
Section 18-108 of
the Delaware Limited Liability Company Act authorizes a limited
liability company to indemnify and hold harmless any member or
manager or other person from and against any and all claims and
demands whatsoever, subject to such standards and restrictions,
if any, as are set forth in its limited liability company
agreement.
|
|
Item 21. |
Exhibits and Financial Statement Schedules |
Exhibits are listed by numbers corresponding to the
Exhibit Table of Item 601 in
Regulation S-K.
|
|
|
|
|
Exhibit |
|
Description |
|
|
|
|
1 |
.1* |
|
Form of Dealer Manager Agreement. |
|
2 |
.1 |
|
Purchase Agreement, dated May 29, 2003, by and between
Falcon Video Communications, L.P. and WaveDivision Holdings, LLC
(incorporated by reference to Exhibit 2.1 to Charter
Communications, Inc.s current report on Form 8-K
filed on May 30, 2003 (File No. 000-27927)). |
II-2
|
|
|
|
|
Exhibit |
|
Description |
|
|
|
|
2 |
.2 |
|
Asset Purchase Agreement, dated September 3, 2003, by and
between Charter Communications VI, LLC, The Helicon Group,
L.P., Hornell Television Service, Inc., Interlink Communications
Partners, LLC, Charter Communications Holdings, LLC and Atlantic
Broadband Finance, LLC (incorporated by reference to
Exhibit 2.1 to Charter Communications, Inc.s current
report on Form 8-K/A filed on September 3, 2003 (File
No. 000-27927)). |
|
2 |
.3 |
|
Purchase Agreement, dated August 11, 2005 by and among CCO
Holdings, LLC, CCO Holdings Capital Corp. and J.P. Morgan
Securities Inc., Credit Suisse First Boston LLC, and Banc of
America Securities LLC as representatives of the purchasers
(incorporated by reference to Exhibit 10.1 to the current
report on Form 8-K of CCO Holdings, LLC and CCO Holdings
Capital Corp. filed on August 17, 2005 (File
No. 333-112593)). |
|
2 |
.4 |
|
Purchase Agreement dated as of January 26, 2006, by and
between CCH II, LLC, CCH II Capital Corp. and
J.P. Morgan Securities, Inc as Representative of several
Purchasers for $450,000,000 10.25% Senior Notes Due 2010
(incorporated by reference to Exhibit 10.3 to the current
report on Form 8-K of Charter Communications, Inc. filed on
January 27, 2006 (File No. 000-27927)). |
|
2 |
.5 |
|
Asset Purchase Agreement dated February 27, 2006, by and
between Charter Communications Operating, LLC and Cebridge
Acquisition Co., LLC (incorporated by reference to
Exhibit 2.2 to the quarterly report on Form 10-Q of
Charter Communications, Inc. filed on May 2, 2006 (File
No. 000-27927)). |
|
3 |
.1 |
|
Certificate of Formation of CCH II, LLC (incorporated by
reference to Exhibit 3.1 to Amendment No. 1 to the
registration statement on Form S-4 of CCH II, LLC and
CCH II Capital Corp. filed on March 24, 2004 (File
No. 333-111423)). |
|
3 |
.2 |
|
Amended and Restated Limited Liability Company Agreement of
CCH II, LLC, dated as of July 10, 2003 (incorporated
by reference to Exhibit 3.2 to Amendment No. 1 to the
registration statement on Form S-4 of CCH II, LLC and
CCH II Capital Corp. filed on March 24, 2004 (File
No. 333-111423)). |
|
3 |
.3 |
|
Certificate of Incorporation of CCH II Capital Corp.
(incorporated by reference to Exhibit 3.3 to Amendment
No. 1 to the registration statement on Form S-4 of
CCH II, LLC and CCH II Capital Corp. filed on
March 24, 2004 (File No. 333-111423)). |
|
3 |
.4 |
|
Amended and Reinstated By-laws of CCH II Capital
Corporation (incorporated by reference to Exhibit 3.4 to
Amendment No. 1 to the registration statement on
Form S-4 of CCH II, LLC and CCH II Capital Corp.
filed on March 24, 2004 (File No. 333-111423)). |
|
3 |
.5(a)# |
|
Restated Certificate of Incorporation of Charter Communications,
Inc. (Originally incorporated July 22, 1999) (incorporated
by reference to Exhibit 3.1 to Amendment No. 3 to the
registration statement on Form S-1 of Charter
Communications, Inc. filed on October 18, 1999 (File
No. 333-83887)). |
|
3 |
.5(b)# |
|
Certificate of Amendment of Restated Certificate of
Incorporation of Charter Communications, Inc. filed May 10,
2001 (incorporated by reference to Exhibit 3.1(b) to the
annual report on Form 10-K filed by Charter Communications,
Inc. on March 29, 2002 (File No. 000-27927)). |
|
3 |
.6# |
|
Amended and Restated By-laws of Charter Communications, Inc. as
of June 6, 2001 (incorporated by reference to
Exhibit 3.2 to the quarterly report on Form 10-Q filed
by Charter Communications, Inc. on November 14, 2001 (File
No. 000-27927)). |
|
3 |
.6(a)# |
|
First Amendment to Amended and Restated By-Laws of Charter
Communications, Inc. adopted as of November 8, 1999
(incorporated by reference to Exhibit 3.2(b) to Amendment
No. 1 to the registration statement on Form S-1 filed
by Charter Communications, Inc. on February 3, 2006 (File
No. 333-130898)). |
|
3 |
.6(b)# |
|
Second Amendment to Amended and Restated By-Laws of Charter
Communications, Inc. adopted as of January 1, 2000
(incorporated by reference to Exhibit 3.2(c) to Amendment
No. 1 to the registration statement on Form S-1 filed
by Charter Communications, Inc. on February 3, 2006 (File
No. 333-130898)). |
II-3
|
|
|
|
|
Exhibit |
|
Description |
|
|
|
|
3 |
.6(c)# |
|
Third Amendment to Amended and Restated By-Laws of Charter
Communications, Inc. adopted as of June 6,
2001(incorporated by reference to Exhibit 3.2(d) to
Amendment No. 1 to the registration statement on
Form S-1 filed by Charter Communications, Inc. on
February 3, 2006 (File No. 333-130898)). |
|
3 |
.6(d)# |
|
Fourth Amendment to Amended and Restated By-laws of Charter
Communications, Inc. as of October 3, 2003 (incorporated by
reference to Exhibit 3.3 to Charter Communications,
Inc.s quarterly report on Form 10-Q filed on
November 3, 2003 (File No. 000-27927)). |
|
3 |
.6(e)# |
|
Fifth Amendment to Amended and Restated By-laws of Charter
Communications, Inc. as of October 28, 2003 (incorporated
by reference to Exhibit 3.4 to Charter Communications,
Inc.s quarterly report on Form 10-Q filed on
November 3, 2003 (File No. 000-27927)). |
|
3 |
.6(f)# |
|
Sixth Amendment to Amended and Restated By-laws of Charter
Communications, Inc. (incorporated by reference to Charter
Communications, Inc.s current report on Form 8-K
filed on September 30, 2004 (File No. 000-27927)). |
|
3 |
.6(g)# |
|
Seventh Amendment to Amended and Restated By-laws of Charter
Communications, Inc. (incorporated by reference to Charter
Communications, Inc.s current report on Form 8-K
filed on October 22, 2004 (File No. 000-27927)). |
|
3 |
.6(h)# |
|
Eighth Amendment to the Amended and Restated By-Laws of Charter
Communications, Inc. adopted as of December 14, 2004
(incorporated by reference to Exhibit 3.1 to the current
report on Form 8-K of Charter Communications, Inc. filed on
December 15, 2004 (File No. 000-27927)). |
|
3 |
.6(i)# |
|
Ninth Amendment to Amended and Restated By-laws of Charter
Communications, Inc. (incorporated by reference to
Exhibit 3.1 to the Charter Communications, Inc.s
current report on Form 8-K filed of Charter Communications,
Inc. filed on April 21, 2006 (File No. 000-27927)). |
|
4 |
.1 |
|
Indenture relating to the 10.25% Senior Notes due 2010,
dated as of September 23, 2003, among CCH II, LLC,
CCH II Capital Corp. and Wells Fargo Bank, National
Association (incorporated by reference to Exhibit 10.1 to
the current report on Form 8-K of Charter Communications
Inc. filed on September 26, 2003 (File No. 000-27927)). |
|
4 |
.2 |
|
Indenture relating to the
83/4
% Senior Notes due 2013, dated as of
November 10, 2003, by and among CCO Holdings, LLC, CCO
Holdings Capital Corp. and Wells Fargo Bank, N.A., as trustee
(incorporated by reference to Exhibit 4.1 to Charter
Communications, Inc.s current report on Form 8-K
filed on November 12, 2003 (File No. 000-27927)). |
|
4 |
.3 |
|
Indenture relating to the 8% senior second lien notes due
2012 and
83/8
% senior second lien notes due 2014, dated as of
April 27, 2004, by and among Charter Communications
Operating, LLC, Charter Communications Operating Capital Corp.
and Wells Fargo Bank, N.A. as trustee (incorporated by reference
to Exhibit 10.32 to Amendment No. 2 to the
registration statement on Form S-4 of CCH II, LLC
filed on May 5, 2004 (File No. 333-111423)). |
|
4 |
.4(a) |
|
Indenture dated as of December 15, 2004 among CCO Holdings,
LLC, CCO Holdings Capital Corp. and Wells Fargo Bank, N.A., as
trustee (incorporated by reference to Exhibit 10.1 to the
current report on Form 8-K of CCO Holdings, LLC filed on
December 21, 2004 (File No. 333-112593)). |
|
4 |
.4(b) |
|
First Supplemental Indenture dated August 17, 2005 by and
among CCO Holdings, LLC, CCO Holdings Capital Corp. and Wells
Fargo Bank, L.A., as trustee (incorporated by reference to
Exhibit 10.1 to the current report on Form 8-K of CCO
Holdings, LLC and CCO Holdings Capital Corp. filed on
August 23, 2005 (File No. 333-112593)). |
|
4 |
.5 |
|
Exchange and Registration Rights Agreement dated August 17,
2005 by and among CCO Holdings, LLC, CCO Holdings Capital Corp.
and J.P. Morgan Securities Inc., Credit Suisse First Boston
LLC, and Banc of America Securities LLC as representatives of
the purchasers (incorporated by reference to Exhibit 10.2
to the current report on Form 8-K of CCO Holdings, LLC and
CCO Holdings Capital Corp. filed on August 23, 2005 (File
No. 333-112593)). |
|
5 |
.1* |
|
Opinion of Gibson, Dunn & Crutcher regarding legality. |
II-4
|
|
|
|
|
Exhibit |
|
Description |
|
|
|
|
8 |
.1* |
|
Opinion of Gibson, Dunn & Crutcher regarding tax
matters. |
|
10 |
.1 |
|
Settlement Agreement and Mutual Releases, dated as of
October 31, 2005, by and among Charter Communications,
Inc., Special Committee of the Board of Directors of Charter
Communications, Inc., Charter Communications Holding Company,
LLC, CCHC, LLC, CC VIII, LLC, CC V, LLC, Charter
Investment, Inc., Vulcan Cable III, LLC and Paul G. Allen
(incorporated by reference to Exhibit 10.17 to the
quarterly report on Form 10-Q of Charter Communications,
Inc. filed on November 2, 2005 (File No. 000-27927)). |
|
10 |
.2 |
|
Exchange Agreement, dated as of October 31, 2005, by and
among Charter Communications Holding Company, LLC, Charter
Investment, Inc. and Paul G. Allen (incorporated by reference to
Exhibit 10.18 to the quarterly report on Form 10-Q of
Charter Communications, Inc. filed on November 2, 2005
(File No. 000-27927)). |
|
10 |
.3 |
|
CCHC, LLC Subordinated and Accreting Note, dated as of
October 31, 2005 (revised) (incorporated by reference to
Exhibit 10.3 to the current report on Form 8-K of
Charter Communications, Inc. filed on November 4, 2005
(File No. 000-27927)). |
|
10 |
.4 |
|
Amended and Restated Credit Agreement, dated as of
April 28, 2006, among Charter Communications Operating,
LLC, CCO) Holdings, LLC, the lenders from time to time parties
thereto and JPMorgan Chase Bank, N.A., as administrative agent
(incorporated by reference to Exhibit 10.1 to the current
report on Form 8-K of Charter Communications, Inc. filed on
May 1, 2006 (File No. 000-27927)). |
|
10 |
.5(a) |
|
First Amended and Restated Mutual Services Agreement, dated as
of December 21, 2000, by and between Charter
Communications, Inc., Charter Investment, Inc. and Charter
Communications Holding Company, LLC (incorporated by reference
to Exhibit 10.2(b) to the registration statement on
Form S-4 of Charter Communications Holdings, LLC and
Charter Communications Holdings Capital Corporation filed on
February 2, 2001 (File No. 333-54902)). |
|
10 |
.5(b) |
|
Letter Agreement, dated June 19, 2003, by and among Charter
Communications, Inc., Charter Communications Holding Company,
LLC and Charter Investment, Inc. regarding Mutual Services
Agreement (incorporated by reference to Exhibit No. 10.5(b)
to the quarterly report on Form 10-Q filed by Charter
Communications, Inc. on August 5, 2003 (File
No. 000-27927)). |
|
10 |
.5(c) |
|
Second Amended and Restated Mutual Services Agreement, dated as
of June 19, 2003 between Charter Communications, Inc. and
Charter Communications Holding Company, LLC (incorporated by
reference to Exhibit 10.5(a) to the quarterly report on
Form 10-Q filed by Charter Communications, Inc. on
August 5, 2003 (File No. 000-27927)). |
|
10 |
.6(a) |
|
Amended and Restated Limited Liability Company Agreement for CC
VIII, LLC, dated as of March 31, 2003 (incorporated by
reference to Exhibit 10.27 to the annual report on
Form 10-K of Charter Communications, Inc. filed on
April 15, 2003 (File No. 000-27927)). |
|
10 |
.6(b) |
|
Third Amended and Restated Limited Liability Company Agreement
for CC VIII, LLC, dated as of October 31, 2005
(incorporated by reference to Exhibit 10.20 to the
quarterly report on Form 10-Q filed by Charter
Communications, Inc. on November 2, 2005 (File
No. 000-27927)). |
|
10 |
.7(a) |
|
Amended and Restated Limited Liability Company Agreement of
Charter Communications Operating, LLC, dated as of June 19,
2003 (incorporated by reference to Exhibit No. 10.2 to the
quarterly report on Form 10-Q filed by Charter
Communications, Inc. on August 5, 2003 (File
No. 000-27927)). |
|
10 |
.7(b) |
|
First Amendment to the Amended and Restated Limited Liability
Company Agreement of Charter Communications Operating, LLC,
adopted as of June 22, 2004 (incorporated by reference to
Exhibit 10.38(b) to the annual report on Form 10-K
filed by Charter Communications, Inc. on February 28, 2006
(File No. 000-27927)). |
|
10 |
.8 |
|
Amended and Restated Management Agreement, dated as of
June 19, 2003, between Charter Communications Operating,
LLC and Charter Communications, Inc. (incorporated by reference
to Exhibit 10.4 to the quarterly report on Form 10-Q
filed by Charter Communications, Inc. on August 5, 2003
(File No. 333-83887)). |
II-5
|
|
|
|
|
Exhibit |
|
Description |
|
|
|
|
10 |
.9(a) |
|
Stipulation of Settlement, dated as of January 24, 2005,
regarding settlement of Consolidated Federal Class Action
entitled in Re Charter Communications, Inc. Securities
Litigation. (incorporated by reference to Exhibit 10.48 to
the Annual Report on Form 10-K filed by Charter
Communications, Inc. on March 3, 2005 (File
No. 000-27927)). |
|
10 |
.9(b) |
|
Amendment to Stipulation of Settlement, dated as of May 23,
2005, regarding settlement of Consolidated Federal
Class Action entitled In Re Charter Communications, Inc.
Securities Litigation (incorporated by reference to
Exhibit 10.35(b) to Amendment No. 3 to the
registration statement on Form S-1 filed by Charter
Communications, Inc. on June 8, 2005 (File
No. 333-121186)). |
|
10 |
.10 |
|
Settlement Agreement and Mutual Release, dated as of
February 1, 2005, by and among Charter Communications, Inc.
and certain other insureds, on the other hand, and Certain
Underwriters at Lloyds of London and certain subscribers,
on the other hand. (incorporated by reference to
Exhibit 10.49 to the annual report on Form 10-K filed
by Charter Communications, Inc. on March 3, 2005 (File
No. 000-27927)). |
|
10 |
.11 |
|
Stipulation of Settlement, dated as of January 24, 2005,
regarding settlement of Federal Derivative Action, Arthur J.
Cohn v. Ronald L. Nelson et al and Charter
Communications, Inc. (incorporated by reference to
Exhibit 10.50 to the annual report on Form 10-K filed
by Charter Communications, Inc. on March 3, 2005 (File
No. 000-27927)). |
|
10 |
.12(a) |
|
Charter Communications Holdings, LLC 1999 Option Plan
(incorporated by reference to Exhibit 10.4 to Amendment
No. 4 to the registration statement on Form S-4 of
Charter Communications Holdings, LLC and Charter Communications
Holdings Capital Corporation filed on July 22, 1999 (File
No. 333-77499)). |
|
10 |
.12(b) |
|
Assumption Agreement regarding Option Plan, dated as of
May 25, 1999, by and between Charter Communications
Holdings, LLC and Charter Communications Holding Company, LLC
(incorporated by reference to Exhibit 10.13 to Amendment
No. 6 to the registration statement on Form S-4 of
Charter Communications Holdings, LLC and Charter Communications
Holdings Capital Corporation filed on August 27, 1999 (File
No. 333-77499)). |
|
10 |
.12(c) |
|
Form of Amendment No. 1 to the Charter Communications
Holdings, LLC 1999 Option Plan (incorporated by reference to
Exhibit 10.10(c) to Amendment No. 4 to the
registration statement on Form S-1 of Charter
Communications, Inc. filed on November 1, 1999 (File
No. 333-83887)). |
|
10 |
.12(d) |
|
Amendment No. 2 to the Charter Communications Holdings, LLC
1999 Option Plan (incorporated by reference to
Exhibit 10.4(c) to the annual report on Form 10-K
filed by Charter Communications, Inc. on March 30, 2000
(File No. 000-27927)). |
|
10 |
.12(e) |
|
Amendment No. 3 to the Charter Communications 1999 Option
Plan (incorporated by reference to Exhibit 10.14(e) to the
annual report of Form 10-K of Charter Communications, Inc.
filed on March 29, 2002 (File No. 000-27927)). |
|
10 |
.12(f) |
|
Amendment No. 4 to the Charter Communications 1999 Option
Plan (incorporated by reference to Exhibit 10.10(f) to the
annual report on Form 10-K of Charter Communications, Inc.
filed on April 15, 2003 (File No. 000-27927)). |
|
10 |
.13(a) |
|
Charter Communications, Inc. 2001 Stock Incentive Plan
(incorporated by reference to Exhibit 10.25 to the
quarterly report on Form 10-Q filed by Charter
Communications, Inc. on May 15, 2001 (File
No. 000-27927)). |
|
10 |
.13(b) |
|
Amendment No. 1 to the Charter Communications, Inc. 2001
Stock Incentive Plan (incorporated by reference to
Exhibit 10.11(b) to the annual report on Form 10-K of
Charter Communications, Inc. filed on April 15, 2003 (File
No. 000-27927)). |
|
10 |
.13(c) |
|
Amendment No. 2 to the Charter Communications, Inc. 2001
Stock Incentive Plan (incorporated by reference to
Exhibit 10.10 to the quarterly report on Form 10-Q
filed by Charter Communications, Inc. on November 14, 2001
(File No. 000-27927)). |
|
10 |
.13(d) |
|
Amendment No. 3 to the Charter Communications, Inc. 2001
Stock Incentive Plan effective January 2, 2002
(incorporated by reference to Exhibit 10.15(c) to the
annual report of Form 10-K of Charter Communications, Inc.
filed on March 29, 2002 (File No. 000-27927)). |
II-6
|
|
|
|
|
Exhibit |
|
Description |
|
|
|
|
10 |
.13(e) |
|
Amendment No. 4 to the Charter Communications, Inc. 2001
Stock Incentive Plan (incorporated by reference to
Exhibit 10.11(e) to the annual report on Form 10-K of
Charter Communications, Inc. filed on April 15, 2003 (File
No. 000-27927)). |
|
10 |
.13(f) |
|
Amendment No. 5 to the Charter Communications, Inc. 2001
Stock Incentive Plan (incorporated by reference to
Exhibit 10.11(f) to the annual report on Form 10-K of
Charter Communications, Inc. filed on April 15, 2003 (File
No. 000-27927)). |
|
10 |
.13(g) |
|
Amendment No. 6 to the Charter Communications, Inc. 2001
Stock Incentive Plan effective December 23, 2004
(incorporated by reference to Exhibit 10.43(g) to the
registration statement on Form S-1 of Charter
Communications, Inc. filed on October 5, 2005 (File
No. 333-128838)). |
|
10 |
.13(h) |
|
Amendment No. 7 to the Charter Communications, Inc. 2001
Stock Incentive Plan effective August 23, 2005
(incorporated by reference to Exhibit 10.43(h) to the
registration statement on Form S-1 of Charter
Communications, Inc. filed on October 5, 2005 (File
No. 333-128838)). |
|
10 |
.13(i) |
|
Description of Long-Term Incentive Program to the Charter
Communications, Inc. 2001 Stock Incentive Plan (incorporated by
reference to Exhibit 10.18(g) to the annual report on
Form 10-K filed by Charter Communications Holdings, LLC on
March 31, 2005 (File No. 333-77499)). |
|
10 |
.14 |
|
Description of Charter Communications, Inc. 2006 Executive Bonus
Plan (incorporated by reference to Exhibit 10.2 to the
quarterly report on Form 10-Q filed by Charter
Communications, Inc. on May 2, 2006 (File
No. 000-27927)). |
|
10 |
.15 |
|
2005 Executive Cash Award Plan amended for 2006 (incorporated by
reference to Exhibit 10.1 to the current report on
Form 8-K of Charter Communications, Inc. filed
April 17, 2006 (File No. 000-27927)). |
|
10 |
.16 |
|
Executive Services Agreement, dated as of January 17, 2005,
between Charter Communications, Inc. and Robert P. May
(incorporated by reference to Exhibit 99.1 to the current
report on Form 8-K of Charter Communications, Inc. filed on
January 21, 2005 (File No. 000-27927)). |
|
10 |
.17 |
|
Employment Agreement, dated as of October 8, 2001, by and
between Carl E. Vogel and Charter Communications, Inc.
(Incorporated by reference to Exhibit 10.4 to the quarterly
report on Form 10-Q filed by Charter Communications, Inc.
on November 14, 2001 (File No. 000-27927)). |
|
10 |
.18 |
|
Separation Agreement and Release for Carl E. Vogel, dated as of
February 17, 2005 (incorporated by reference to
Exhibit 99.1 to the current report on Form 8-K filed
by Charter Communications, Inc. on February 22, 2005 (File
No. 000-27927)). |
|
10 |
.19 |
|
Letter Agreement, dated April 15, 2005, by and between
Charter Communications, Inc. and Paul E. Martin (incorporated by
reference to Exhibit 99.1 to the current report on
Form 8-K of Charter Communications, Inc. filed
April 19, 2005 (File No. 000-27927)). |
|
10 |
.20 |
|
Restricted Stock Agreement, dated as of July 13, 2005, by
and between Robert P. May and Charter Communications, Inc.
(incorporated by reference to Exhibit 99.1 to the current
report on Form 8-K of Charter Communications, Inc. filed
July 13, 2005 (File No. 000-27927)). |
|
10 |
.21 |
|
Restricted Stock Agreement, dated as of July 13, 2005, by
and between Michael J. Lovett and Charter Communications, Inc.
(incorporated by reference to Exhibit 99.2 to the current
report on Form 8-K of Charter Communications, Inc. filed
July 13, 2005 (File No. 000-27927)). |
|
10 |
.22 |
|
Employment Agreement, dated as of August 9, 2005, by and
between Neil Smit and Charter Communications, Inc. (incorporated
by reference to Exhibit 99.1 to the current report on
Form 8-K of Charter Communications, Inc. filed on
August 15, 2005 (File No. 000-27927)). |
II-7
|
|
|
|
|
Exhibit |
|
Description |
|
|
|
|
10 |
.23 |
|
Employment Agreement dated as of September 2, 2005, by and
between Paul E. Martin and Charter Communications, Inc.
(incorporated by reference to Exhibit 99.1 to the current
report on Form 8-K of Charter Communications, Inc. filed on
September 9, 2005 (File No. 000-27927)). |
|
10 |
.24 |
|
Employment Agreement dated as of September 2, 2005, by and
between Wayne H. Davis and Charter Communications, Inc.
(incorporated by reference to Exhibit 99.2 to the current
report on Form 8-K of Charter Communications, Inc. filed on
September 9, 2005 (File No. 000-27927)). |
|
10 |
.25 |
|
Employment Agreement dated as of October 31, 2005, by and
between Sue Ann Hamilton and Charter Communications, Inc.
(incorporated by reference to Exhibit 10.21 to the
quarterly report on Form 10-Q of Charter Communications,
Inc. filed on November 2, 2005 (File No. 000-27927)). |
|
10 |
.26 |
|
Employment Agreement effective as of October 10, 2005, by
and between Grier C. Raclin and Charter Communications, Inc.
(incorporated by reference to Exhibit 99.1 to the current
report on Form 8-K of Charter Communications, Inc. filed on
November 14, 2005 (File No. 000-27927)). |
|
10 |
.27 |
|
Employment Offer Letter, dated November 22, 2005, by and
between Charter Communications, Inc. and Robert A. Quigley
(incorporated by reference to 10.68 to Amendment No. 1 to
the registration statement on Form S-1 of Charter
Communications, Inc. filed on February 2, 2006 (File
No. 333-130898)). |
|
10 |
.28 |
|
Employment Agreement dated as of December 9, 2005, by and
between Robert A. Quigley and Charter Communications, Inc.
(incorporated by reference to Exhibit 99.1 to the current
report on Form 8-K of Charter Communications, Inc. filed on
December 13, 2005 (File No. 000-27927)). |
|
10 |
.29 |
|
Retention Agreement dated as of January 9, 2006, by and
between Paul E. Martin and Charter Communications, Inc.
(incorporated by reference to Exhibit 99.1 to the current
report on Form 8-K of Charter Communications, Inc. filed on
January 10, 2006 (File No. 000-27927)). |
|
10 |
.30 |
|
Employment Agreement dated as of January 20, 2006 by and
between Jeffrey T. Fisher and Charter Communications, Inc.
(incorporated by reference to Exhibit 10.1 to the current
report on Form 8-K of Charter Communications, Inc. filed on
January 27, 2006 (File No. 000-27927)). |
|
10 |
.31 |
|
Employment Agreement dated as of February 28, 2006 by and
between Michael J. Lovett and Charter Communications, Inc.
(incorporated by reference to Exhibit 99.2 to the current
report on Form 8-K of Charter Communications, Inc. filed on
March 3, 2006 (File No. 000-27927)). |
|
10 |
.32 |
|
Separation Agreement of Wayne H. Davis, dated as of
March 23, 2006 (incorporated by reference to
Exhibit 99.1 to the current report on Form 8-K of
Charter Communications, Inc. filed on April 6, 2006 (File
No. 000-27927)). |
|
10 |
.33 |
|
Consulting Agreement of Wayne H. Davis, dated as of
March 23, 2006 (incorporated by reference to
Exhibit 99.2 to the current report on Form 8-K of
Charter Communications, Inc. filed on April 6, 2006 (File
No. 000-27927)). |
|
10 |
.34# |
|
Indenture dated May 30, 2001 between Charter
Communications, Inc. and BNY Midwest Trust Company as Trustee
governing 4.75% Convertible Senior Notes due 2006
(incorporated by reference to Exhibit 4.1(b) to the current
report on Form 8-K filed by Charter Communications, Inc. on
June 1, 2001 (File No. 000-27927)). |
|
10 |
.35# |
|
Certificate of Designation of Series A Convertible
Redeemable Preferred Stock of Charter Communications, Inc. and
related Certificate of Correction of Certificate of Designation
(incorporated by reference to Exhibit 3.1 to the quarterly
report on Form 10-Q filed by Charter Communications, Inc.
on November 14, 2001 (File No. 000-27927)). |
II-8
|
|
|
|
|
Exhibit |
|
Description |
|
|
|
|
10 |
.36# |
|
Certificate of Amendment of Certificate of Designation of
Series A Convertible Redeemable Preferred Stock of Charter
Communications, Inc. (incorporated by reference to Annex A
to the Definitive Information Statement on Schedule 14C filed by
Charter Communications, Inc. on December 12, 2005 (File No.
000-27927)). |
|
10 |
.37# |
|
Indenture relating to the 5.875% convertible senior notes
due 2009, dated as of November 2004, by and among Charter
Communications, Inc. and Wells Fargo Bank, N.A. as trustee
(incorporated by reference to Exhibit 10.1 to the current
report on Form 8-K of Charter Communications, Inc. filed on
November 30, 2004 (File No. 000-27927)). |
|
10 |
.38# |
|
5.875% convertible senior notes due 2009 Resale
Registration Rights Agreement, dated November 22, 2004, by
and among Charter Communications, Inc. and Citigroup Global
Markets Inc. and Morgan Stanley and Co. Incorporated as
representatives of the initial purchasers (incorporated by
reference to Exhibit 10.2 to the current report on
Form 8-K of Charter Communications, Inc. filed on
November 30, 2004 (File No. 000-27927)). |
|
10 |
.39# |
|
Share Loan Registration Rights Agreement, dated
November 22, 2004, by and between Charter Communications,
Inc. and Citigroup Global Markets Inc. (incorporated by
reference to Exhibit 10.3 to the current report on
Form 8-K of Charter Communications, Inc. filed on
November 30, 2004 (File No. 000-27927)). |
|
10 |
.40# |
|
Collateral Pledge and Security Agreement, dated as of
November 22, 2004, by and between Charter Communications,
Inc. and Wells Fargo Bank, N.A. as trustee and collateral agent
(incorporated by reference to Exhibit 10.4 to the current
report on Form 8-K of Charter Communications, Inc. filed on
November 30, 2004 (File No. 000-27927)). |
|
10 |
.41# |
|
Collateral Pledge and Security Agreement, dated as of
November 22, 2004 among Charter Communications, Inc.,
Charter Communications Holding Company, LLC and Wells Fargo
Bank, N.A. as trustee and collateral agent (incorporated by
reference to Exhibit 10.5 to the current report on
Form 8-K of Charter Communications, Inc. filed on
November 30, 2004 (File No. 000-27927)). |
|
10 |
.42# |
|
Indenture relating to the 8.250% Senior Notes due 2007,
dated as of March 17, 1999, between Charter Communications
Holdings, LLC, Charter Communications Holdings Capital
Corporation and Harris Trust and Savings Bank (incorporated by
reference to Exhibit 4.1(a) to Amendment No. 2 to the
registration statement on Form S-4 of Charter
Communications Holdings, LLC and Charter Communications Holdings
Capital Corporation filed on June 22, 1999 (File
No. 333-77499)). |
|
10 |
.43(a)# |
|
Indenture relating to the 8.625% Senior Notes due 2009,
dated as of March 17, 1999, among Charter Communications
Holdings, LLC, Charter Communications Holdings Capital
Corporation and Harris Trust and Savings Bank (incorporated by
reference to Exhibit 4.2(a) to Amendment No. 2 to the
registration statement on Form S-4 of Charter
Communications Holdings, LLC and Charter Communications Holdings
Capital Corporation filed on June 22, 1999 (File
No. 333-77499)). |
|
10 |
.43(b)# |
|
First Supplemental Indenture relating to the 8.625% Senior
Notes due 2009, dated as of September 28, 2005, among
Charter Communications Holdings, LLC, Charter Communications
Holdings Capital Corporation and BNY Midwest Trust Company as
Trustee (incorporated by reference to Exhibit 10.3 to the
current report on Form 8-K of Charter Communications, Inc.
filed on October 4, 2005 (File No. 000-27927)). |
|
10 |
.44(a)# |
|
Indenture relating to the 9.920% Senior Discount Notes due
2011, dated as of March 17, 1999, among Charter
Communications Holdings, LLC, Charter Communications Holdings
Capital Corporation and Harris Trust and Savings Bank
(incorporated by reference to Exhibit 4.3(a) to Amendment
No. 2 to the registration statement on Form S-4 of
Charter Communications Holdings, LLC and Charter Communications
Holdings Capital Corporation filed on June 22, 1999 (File
No. 333-77499)). |
II-9
|
|
|
|
|
Exhibit |
|
Description |
|
|
|
|
10 |
.44(b)# |
|
First Supplemental Indenture relating to the 9.920% Senior
Discount Notes due 2011, dated as of September 28, 2005,
among Charter Communications Holdings, LLC, Charter
Communications Holdings Capital Corporation and BNY Midwest
Trust Company as Trustee (incorporated by reference to
Exhibit 10.4 to the current report on Form 8-K of
Charter Communications, Inc. filed on October 4, 2005 (File
No. 000-27927)). |
|
10 |
.45(a)# |
|
Indenture relating to the 10.00% Senior Notes due 2009,
dated as of January 12, 2000, between Charter
Communications Holdings, LLC, Charter Communications Holdings
Capital Corporation and Harris Trust and Savings Bank
(incorporated by reference to Exhibit 4.1(a) to the
registration statement on Form S-4 of Charter
Communications Holdings, LLC and Charter Communications Holdings
Capital Corporation filed on January 25, 2000 (File
No. 333-95351)). |
|
10 |
.45(b)# |
|
First Supplemental Indenture relating to the 10.00% Senior
Notes due 2009, dated as of September 28, 2005, between
Charter Communications Holdings, LLC, Charter Communications
Holdings Capital Corporation and BNY Midwest Trust Company as
Trustee (incorporated by reference to Exhibit 10.5 to the
current report on Form 8-K of Charter Communications, Inc.
filed on October 4, 2005 (File No. 000-27927)). |
|
10 |
.46(a)# |
|
Indenture relating to the 10.25% Senior Notes due 2010,
dated as of January 12, 2000, among Charter Communications
Holdings, LLC, Charter Communications Holdings Capital
Corporation and Harris Trust and Savings Bank (incorporated by
reference to Exhibit 4.2(a) to the registration statement
on Form S-4 of Charter Communications Holdings, LLC and
Charter Communications Holdings Capital Corporation filed on
January 25, 2000 (File No. 333-95351)). |
|
10 |
.46(b)# |
|
First Supplemental Indenture relating to the 10.25% Senior
Notes due 2010, dated as of September 28, 2005, among
Charter Communications Holdings, LLC, Charter Communications
Holdings Capital Corporation and BNY Midwest Trust Company as
Trustee (incorporated by reference to Exhibit 10.6 to the
current report on Form 8-K of Charter Communications, Inc.
filed on October 4, 2005 (File No. 000-27927)). |
|
10 |
.47(a)# |
|
Indenture relating to the 11.75% Senior Discount Notes due
2010, dated as of January 12, 2000, among Charter
Communications Holdings, LLC, Charter Communications Holdings
Capital Corporation and Harris Trust and Savings Bank
(incorporated by reference to Exhibit 4.3(a) to the
registration statement on Form S-4 of Charter
Communications Holdings, LLC and Charter Communications Holdings
Capital Corporation filed on January 25, 2000 (File
No. 333-95351)). |
|
10 |
.47(b)# |
|
First Supplemental Indenture relating to the 11.75% Senior
Discount Notes due 2010, among Charter Communications Holdings,
LLC, Charter Communications Holdings Capital Corporation and BNY
Midwest Trust Company as Trustee, dated as of September 28,
2005 (incorporated by reference to Exhibit 10.7 to the
current report on Form 8-K of Charter Communications, Inc.
filed on October 4, 2005 (File No. 000-27927)). |
|
10 |
.48(a)# |
|
Indenture dated as of January 10, 2001 between Charter
Communications Holdings, LLC, Charter Communications Holdings
Capital Corporation and BNY Midwest Trust Company as Trustee
governing 10.750% senior notes due 2009 (incorporated by
reference to Exhibit 4.2(a) to the registration statement
on Form S-4 of Charter Communications Holdings, LLC and
Charter Communications Holdings Capital Corporation filed on
February 2, 2001 (File No. 333-54902)). |
|
10 |
.48(b)# |
|
First Supplemental Indenture dated as of September 28, 2005
between Charter Communications Holdings, LLC, Charter
Communications Holdings Capital Corporation and BNY Midwest
Trust Company as Trustee governing 10.750% Senior Notes due
2009 (incorporated by reference to Exhibit 10.8 to the
current report on Form 8-K of Charter Communications, Inc.
filed on October 4, 2005 (File No. 000-27927)). |
II-10
|
|
|
|
|
Exhibit |
|
Description |
|
|
|
|
10 |
.49(a)# |
|
Indenture dated as of January 10, 2001 between Charter
Communications Holdings, LLC, Charter Communications Holdings
Capital Corporation and BNY Midwest Trust Company as Trustee
governing 11.125% senior notes due 2011 (incorporated by
reference to Exhibit 4.2(b) to the registration statement
on Form S-4 of Charter Communications Holdings, LLC and
Charter Communications Holdings Capital Corporation filed on
February 2, 2001 (File No. 333-54902)). |
|
10 |
.49(b)# |
|
First Supplemental Indenture dated as of September 28,
2005, between Charter Communications Holdings, LLC, Charter
Communications Capital Corporation and BNY Midwest Trust Company
governing 11.125% Senior Notes due 2011 (incorporated by
reference to Exhibit 10.9 to the current report on
Form 8-K of Charter Communications, Inc. filed on
October 4, 2005 (File No. 000-27927)). |
|
10 |
.50(a)# |
|
Indenture dated as of January 10, 2001 between Charter
Communications Holdings, LLC, Charter Communications Holdings
Capital Corporation and BNY Midwest Trust Company as Trustee
governing 13.500% senior discount notes due 2011
(incorporated by reference to Exhibit 4.2(c) to the
registration statement on Form S-4 of Charter
Communications Holdings, LLC and Charter Communications Holdings
Capital Corporation filed on February 2, 2001 (File
No. 333-54902)). |
|
10 |
.50(b)# |
|
First Supplemental Indenture dated as of September 28,
2005, between Charter Communications Holdings, LLC, Charter
Communications Holdings Capital Corporation and BNY Midwest
Trust Company as Trustee governing 13.500% Senior Discount
Notes due 2011 (incorporated by reference to Exhibit 10.10
to the current report on Form 8-K of Charter
Communications, Inc. filed on October 4, 2005 (File No.
000-27927)). |
|
10 |
.51(a)# |
|
Indenture dated as of May 15, 2001 between Charter
Communications Holdings, LLC, Charter Communications Holdings
Capital Corporation and BNY Midwest Trust Company as Trustee
governing 9.625% Senior Notes due 2009 (incorporated by
reference to Exhibit 10.2(a) to the current report on
Form 8-K filed by Charter Communications, Inc. on
June 1, 2001 (File No. 000-27927)). |
|
10 |
.51(b)# |
|
First Supplemental Indenture dated as of January 14, 2002
between Charter Communications Holdings, LLC, Charter
Communications Holdings Capital Corporation and BNY Midwest
Trust Company as Trustee governing 9.625% Senior Notes due
2009 (incorporated by reference to Exhibit 10.2(a) to the
current report on Form 8-K filed by Charter Communications,
Inc. on January 15, 2002 (File No. 000-27927)). |
|
10 |
.51(c)# |
|
Second Supplemental Indenture dated as of June 25, 2002
between Charter Communications Holdings, LLC, Charter
Communications Holdings Capital Corporation and BNY Midwest
Trust Company as Trustee governing 9.625% Senior Notes due
2009 (incorporated by reference to Exhibit 4.1 to the
quarterly report on Form 10-Q filed by Charter
Communications, Inc. on August 6, 2002 (File No.
000-27927)). |
|
10 |
.51(d)# |
|
Third Supplemental Indenture dated as of September 28, 2005
between Charter Communications Holdings, LLC, Charter
Communications Capital Corporation and BNY Midwest Trust Company
as Trustee governing 9.625% Senior Notes due 2009
(incorporated by reference to Exhibit 10.11 to the current
report on Form 8-K of Charter Communications, Inc. filed on
October 4, 2005 (File No. 000-27927)). |
|
10 |
.52(a)# |
|
Indenture dated as of May 15, 2001 between Charter
Communications Holdings, LLC, Charter Communications Holdings
Capital Corporation and BNY Midwest Trust Company as Trustee
governing 10.000% Senior Notes due 2011 (incorporated by
reference to Exhibit 10.3(a) to the current report on
Form 8-K filed by Charter Communications, Inc. on
June 1, 2001 (File No. 000-27927)). |
|
10 |
.52(b)# |
|
First Supplemental Indenture dated as of January 14, 2002
between Charter Communications Holdings, LLC, Charter
Communications Holdings Capital Corporation and BNY Midwest
Trust Company as Trustee governing 10.000% Senior Notes due
2011 (incorporated by reference to Exhibit 10.3(a) to the
current report on Form 8-K filed by Charter Communications,
Inc. on January 15, 2002 (File No. 000-27927)). |
II-11
|
|
|
|
|
Exhibit |
|
Description |
|
|
|
|
10 |
.52(c)# |
|
Second Supplemental Indenture dated as of June 25, 2002
between Charter Communications Holdings, LLC, Charter
Communications Holdings Capital Corporation and BNY Midwest
Trust Company as Trustee governing 10.000% Senior Notes due
2011 (incorporated by reference to Exhibit 4.2 to the
quarterly report on Form 10-Q filed by Charter
Communications, Inc. on August 6, 2002 (File No.
000-27927)). |
|
10 |
.52(d)# |
|
Third Supplemental Indenture dated as of September 28, 2005
between Charter Communications Holdings, LLC, Charter
Communications Holdings Capital Corporation and BNY Midwest
Trust Company as Trustee governing the 10.000% Senior Notes
due 2011 (incorporated by reference to Exhibit 10.12 to the
current report on Form 8-K of Charter Communications, Inc.
filed on October 4, 2005 (File No. 000-27927)). |
|
10 |
.53(a)# |
|
Indenture dated as of May 15, 2001 between Charter
Communications Holdings, LLC, Charter Communications Holdings
Capital Corporation and BNY Midwest Trust Company as Trustee
governing 11.750% Senior Discount Notes due 2011
(incorporated by reference to Exhibit 10.4(a) to the
current report on Form 8-K filed by Charter Communications,
Inc. on June 1, 2001 (File No. 000-27927)). |
|
10 |
.53(b)# |
|
First Supplemental Indenture dated as of September 28, 2005
between Charter Communications Holdings, LLC, Charter
Communications Holdings Capital Corporation and BNY Midwest
Trust Company as Trustee governing 11.750% Senior Discount
Notes due 2011 (incorporated by reference to Exhibit 10.13
to the current report on Form 8-K of Charter
Communications, Inc. filed on October 4, 2005 (File No.
000-27927)). |
|
10 |
.54# |
|
4.75% Mirror Note in the principal amount of $632.5 million
dated as of May 30, 2001, made by Charter Communications
Holding Company, LLC, a Delaware limited liability company, in
favor of Charter Communications, Inc., a Delaware corporation
(incorporated by reference to Exhibit 4.5 to the quarterly
report on Form 10-Q filed by Charter Communications, Inc.
on August 6, 2002 (File No. 000-27927)). |
|
10 |
.55(a)# |
|
Indenture dated as of January 14, 2002 between Charter
Communications Holdings, LLC, Charter Communications Holdings
Capital Corporation and BNY Midwest Trust Company as Trustee
governing 12.125% Senior Discount Notes due 2012
(incorporated by reference to Exhibit 10.4(a) to the
current report on Form 8-K filed by Charter Communications,
Inc. on January 15, 2002 (File No. 000-27927)). |
|
10 |
.55(b)# |
|
First Supplemental Indenture dated as of June 25, 2002
between Charter Communications Holdings, LLC, Charter
Communications Holdings Capital Corporation and BNY Midwest
Trust Company as Trustee governing 12.125% Senior Discount
Notes due 2012 (incorporated by reference to Exhibit 4.3 to
the quarterly report on Form 10-Q filed by Charter
Communications, Inc. on August 6, 2002 (File No.
000-27927)). |
|
10 |
.55(c)# |
|
Second Supplemental Indenture dated as of September 28,
2005 between Charter Communications Holdings, LLC, Charter
Communications Holdings Capital Corporation and BNY Midwest
Trust Company as Trustee governing 12.125% Senior Discount
Notes due 2012 (incorporated by reference to Exhibit 10.14
to the current report on Form 8-K of Charter
Communications, Inc. filed on October 4, 2005 (File No.
000-27927)). |
|
10 |
.56# |
|
Share Lending Agreement, dated as of November 22, 2004
between Charter Communications, Inc., Citigroup Global Markets
Limited, through Citigroup Global Markets, Inc. (incorporated by
reference to Exhibit 10.6 to the current report on
Form 8-K of Charter Communications, Inc. filed on
November 30, 2004 (File No. 000-27927)). |
|
10 |
.57# |
|
Holdco Mirror Notes Agreement, dated as of
November 22, 2004, by and between Charter Communications,
Inc. and Charter Communications Holding Company, LLC
(incorporated by reference to Exhibit 10.7 to the current
report on Form 8-K of Charter Communications, Inc. filed on
November 30, 2004 (File No. 000-27927)). |
|
10 |
.58# |
|
Unit Lending Agreement, dated as of November 22, 2004, by
and between Charter Communications, Inc. and Charter
Communications Holding Company, LLC (incorporated by reference
to Exhibit 10.8 to the current report on Form 8-K of
Charter Communications, Inc. filed on November 30, 2004
(File No. 000-27927)). |
II-12
|
|
|
|
|
Exhibit |
|
Description |
|
|
|
|
10 |
.59# |
|
5.875% Mirror Convertible Senior Note due 2009, in the principal
amount of $862,500,000 dated as of November 22, 2004 made
by Charter Communications Holding Company, LLC, a Delaware
limited liability company, in favor of Charter Communications,
Inc., a Delaware limited liability company, in favor of Charter
Communications, Inc., a Delaware corporation (incorporated by
reference to Exhibit 10.9 to the current report on
Form 8-K of Charter Communications, Inc. filed on
November 30, 2004 (File No. 000-27927)). |
|
10 |
.60# |
|
Indenture dated as of September 28, 2005 among CCH I
Holdings, LLC and CCH I Holdings Capital Corp., as Issuers and
Charter Communications Holdings, LLC, as Parent Guarantor, and
The Bank of New York Trust Company, NA, as Trustee, governing:
11.125% Senior Accreting Notes due 2014, 9.920% Senior
Accreting Notes due 2014, 10.000% Senior Accreting Notes
due 2014, 11.75% Senior Accreting Notes due 2014,
13.50% Senior Accreting Notes due 2014, 12.125% Senior
Accreting Notes due 2015 (incorporated by reference to
Exhibit 10.1 to the current report on Form 8-K of
Charter Communications, Inc. filed on October 4, 2005 (File
No. 000-27927)). |
|
10 |
.61# |
|
Indenture dated as of September 28, 2005 among CCH I,
LLC and CCH I Capital Corp., as Issuers, Charter Communications
Holdings, LLC, as Parent Guarantor, and The Bank of New York
Trust Company, NA, as Trustee, governing 11.00% Senior
Secured Notes due 2015 (incorporated by reference to
Exhibit 10.2 to the current report on Form 8-K of
Charter Communications, Inc. filed on October 4, 2005 (File
No. 000-27927)). |
|
10 |
.62# |
|
Consulting Agreement, dated as of March 10, 1999, by and
between Vulcan Northwest Inc., Charter Communications, Inc. (now
called Charter Investment, Inc.) and Charter Communications
Holdings, LLC (incorporated by reference to Exhibit 10.3 to
Amendment No. 4 to the registration statement on
Form S-4 of Charter Communications Holdings, LLC and
Charter Communications Holdings Capital Corporation filed on
July 22, 1999 (File No. 333-77499)). |
|
10 |
.63# |
|
Letter Agreement, dated September 21, 1999, by and among
Charter Communications, Inc., Charter Investment, Inc., Charter
Communications Holding Company, Inc. and Vulcan Ventures Inc.
(incorporated by reference to Exhibit 10.22 to Amendment
No. 3 to the registration statement on Form S-1 of
Charter Communications, Inc. filed on October 18, 1999
(File No. 333-83887)). |
|
10 |
.64# |
|
Form of Exchange Agreement, dated as of November 12, 1999
by and among Charter Investment, Inc., Charter Communications,
Inc., Vulcan Cable III Inc. and Paul G. Allen (incorporated
by reference to Exhibit 10.13 to Amendment No. 3 to
the registration statement on Form S-1 of Charter
Communications, Inc. filed on October 18, 1999 (File
No. 333-83887)). |
|
10 |
.65(a)# |
|
Amended and Restated Limited Liability Company Agreement for
Charter Communications Holding Company, LLC made as of
August 31, 2001 (incorporated by reference to
Exhibit 10.9 to the quarterly report on Form 10-Q
filed by Charter Communications, Inc. on November 14, 2001
(File No. 000-27927)). |
|
10 |
.65(b)# |
|
Letter Agreement between Charter Communications, Inc. and
Charter Investment Inc. and Vulcan Cable III Inc. amending
the Amended and Restated Limited Liability Company Agreement of
Charter Communications Holding Company, LLC, dated as of
November 22, 2004 (incorporated by reference to
Exhibit 10.10 to the current report on Form 8-K of
Charter Communications, Inc. filed on November 30, 2004
(File No. 000-27927)). |
|
10 |
.66# |
|
Second Amended and Restated Limited Liability Company Agreement
for Charter Communications Holdings, LLC, dated as of
October 31, 2005 (incorporated by reference to
Exhibit 10.21 to the quarterly report on Form 10-Q of
Charter Communications, Inc. filed on November 2, 2005
(File No. 000-27927)). |
|
15 |
.1* |
|
Letter re: unaudited interim financial information of Charter
Communications, Inc. |
|
21 |
.1* |
|
Subsidiaries of CCH II, LLC. |
II-13
|
|
|
|
|
Exhibit |
|
Description |
|
|
|
|
21 |
.2* |
|
Subsidiaries of Charter Communications, Inc. |
|
23 |
.1* |
|
Consent of KPMG LLP with respect to the Consolidated Financial
Statements of Charter Communications, Inc. |
|
23 |
.2* |
|
Consent of KPMG LLP with respect to the Consolidated Financial
Statements of CCH II, LLC. |
|
23 |
.3* |
|
Consent of Gibson, Dunn & Crutcher LLP (included with
Exhibit 5.1). |
|
23 |
.4* |
|
Consent of Gibson, Dunn & Crutcher LLP regarding tax
matters (included with Exhibit 8.1). |
|
24 |
.1* |
|
Power of attorney (included in signature page). |
|
25 |
.1** |
|
Statement of eligibility of trustee. |
|
99 |
.1* |
|
Letter of Transmittal. |
|
99 |
.2* |
|
Letter to Brokers, Dealers, Commercial Banks, Trust Companies
and Other Nominees. |
|
99 |
.3* |
|
Letter to Clients. |
|
|
** |
To be filed by amendment. |
|
|
Management compensatory plan or arrangement. |
|
# |
Applicable only to Charter Communications, Inc. |
The undersigned registrants hereby undertake that:
|
|
|
(i) Prior to any public reoffering of the securities
registered hereunder through use of a prospectus which is a part
of this registration statement, by any person or party who is
deemed to be an underwriter within the meaning of
Rule 145(c), the issuers undertake that such reoffering
prospectus will contain the information called for by the
applicable registration form with respect to the reofferings by
persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form. |
II-14
|
|
|
(ii) Every prospectus: (i) that is filed pursuant to
the immediately preceding paragraph or (ii) that purports
to meet the requirements of Section 10(a)(3) of the
Securities Act of 1933 and is used in connection with an
offering of securities subject to Rule 415, will be filed
as a part of an amendment to the registration statement and will
not be used until such amendment is effective, and that, for
purposes of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities
offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering
thereof. |
The undersigned registrants hereby undertake to supply by means
of a post-effective amendment all information concerning a
transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration
statement when it became effective.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers,
and controlling persons of the registrants pursuant to the
foregoing provisions, or otherwise, the registrants have been
advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities, other than the payment by the
registrants of expenses incurred or paid by a director, officer,
or controlling person of the registrants in the successful
defense of any action, suit or proceeding, is asserted by such
director, officer, or controlling person in connection with the
securities being registered, the registrants will, unless in the
opinion of their counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by them
is against public policy as expressed in the Securities Act of
1933 and will be governed by the final adjudication of such
issue.
II-15
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
Charter Communications, Inc. has duly caused this registration
statement on
Form S-4 to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Saint Louis, State of Missouri, on
August 10, 2006.
|
|
|
CHARTER COMMUNICATIONS, INC., |
|
Registrant |
|
|
|
|
Title: |
Vice President and Chief Accounting Officer |
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints each of Neil Smit, Kevin
D. Howard and Grier C. Raclin, individually, with full power to
act as his true and lawful
attorney-in-fact and
agent, with full power of substitution and resubstitution, for
him and in his name, place and stead, in any and all capacities,
to sign any and all amendments (including post-effective
amendments) to the registration statement, and to file the same,
with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission and any
other regulatory authority, granting unto said
attorney-in-fact and
agent, full power and authority to do and perform each and every
act and thing requisite and necessary to be done in connection
therewith, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that
said attorney-in-fact
and agent, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following
persons in the capacities and on the dates indicated.
|
|
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
|
/s/ Paul G. Allen
Paul
G. Allen |
|
Chairman of the Board of Directors of Charter Communications,
Inc. |
|
August 10, 2006 |
|
/s/ Neil Smit
Neil
Smit |
|
President and
Chief Executive Officer, Director
(Principal Executive Officer)
Charter Communications, Inc. |
|
August 10, 2006 |
|
/s/ Jeffrey T. Fisher
Jeffrey
T. Fisher |
|
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Charter Communications, Inc. |
|
August 10, 2006 |
|
/s/ Kevin D. Howard
Kevin
D. Howard |
|
Vice President and
Chief Accounting Officer
(Principal Accounting Officer)
Charter Communications, Inc. |
|
August 10, 2006 |
S-1
|
|
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
|
/s/ W. Lance Conn
W.
Lance Conn |
|
Director of
Charter Communications, Inc. |
|
August 10, 2006 |
|
/s/ Nathaniel A. Davis
Nathaniel
A. Davis |
|
Director of
Charter Communications, Inc. |
|
August 10, 2006 |
|
/s/ Jonathan L. Dolgen
Jonathan
L. Dolgen |
|
Director of
Charter Communications, Inc. |
|
August 8, 2006 |
|
/s/ Rajive Johri
Rajive
Johri |
|
Director of
Charter Communications, Inc. |
|
August 9, 2006 |
|
/s/ Robert P. May
Robert
P. May |
|
Director of
Charter Communications, Inc. |
|
August 9, 2006 |
|
/s/ David C. Merritt
David
C. Merritt |
|
Director of
Charter Communications, Inc. |
|
August 10, 2006 |
|
/s/ Marc B. Nathanson
Marc
B. Nathanson |
|
Director of
Charter Communications, Inc. |
|
August 4, 2006 |
|
/s/ Jo Allen Patton
Jo
Allen Patton |
|
Director of
Charter Communications, Inc. |
|
August 9, 2006 |
|
/s/ John H. Tory
John
H. Tory |
|
Director of
Charter Communications, Inc. |
|
August 10, 2006 |
|
/s/ Larry W. Wangberg
Larry
W. Wangberg |
|
Director of
Charter Communications, Inc. |
|
August 10, 2006 |
S-2
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
CCH II, LLC has duly caused this registration statement on
Form S-4 to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Saint Louis, State of Missouri, on
August 10, 2006.
|
|
|
CCH II, LLC, |
|
Registrant |
|
|
CHARTER COMMUNICATIONS, INC., |
|
Sole Manager |
|
|
|
|
Title: |
Vice President and |
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints each of Neil Smit, Kevin
D. Howard and Grier C. Raclin, individually, with full power to
act as his true and lawful
attorney-in-fact and
agent, with full power of substitution and resubstitution, for
him and in his name, place and stead, in any and all capacities,
to sign any and all amendments (including post-effective
amendments) to the registration statement, and to file the same,
with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission and any
other regulatory authority, granting unto said
attorney-in-fact and
agent, full power and authority to do and perform each and every
act and thing requisite and necessary to be done in connection
therewith, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that
said attorney-in-fact
and agent, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following
persons in the capacities and on the dates indicated.
|
|
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
|
/s/ Paul G. Allen
Paul
G. Allen |
|
Chairman of the Board of Directors of Charter Communications,
Inc. |
|
August 10, 2006 |
|
/s/ Neil Smit
Neil
Smit |
|
President and
Chief Executive Officer, Director
(Principal Executive Officer)
Charter Communications, Inc. |
|
August 10, 2006 |
|
/s/ Jeffrey T. Fisher
Jeffrey
T. Fisher |
|
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Charter Communications, Inc. |
|
August 10, 2006 |
S-3
|
|
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
|
/s/ Kevin D. Howard
Kevin
D. Howard |
|
Vice President and
Chief Accounting Officer
(Principal Accounting Officer)
Charter Communications, Inc. |
|
August 10, 2006 |
|
/s/ W. Lance Conn
W.
Lance Conn |
|
Director of
Charter Communications, Inc. |
|
August 10, 2006 |
|
/s/ Nathaniel A. Davis
Nathaniel
A. Davis |
|
Director of
Charter Communications, Inc. |
|
August 10, 2006 |
|
/s/ Jonathan L. Dolgen
Jonathan
L. Dolgen |
|
Director of
Charter Communications, Inc. |
|
August 8, 2006 |
|
/s/ Rajive Johri
Rajive
Johri |
|
Director of
Charter Communications, Inc. |
|
August 9, 2006 |
|
/s/ Robert P. May
Robert
P. May |
|
Director of
Charter Communications, Inc. |
|
August 9, 2006 |
|
/s/ David C. Merritt
David
C. Merritt |
|
Director of
Charter Communications, Inc. |
|
August 10, 2006 |
|
/s/ Marc B. Nathanson
Marc
B. Nathanson |
|
Director of
Charter Communications, Inc. |
|
August 4, 2006 |
|
/s/ Jo Allen Patton
Jo
Allen Patton |
|
Director of
Charter Communications, Inc. |
|
August 9, 2006 |
|
/s/ John H. Tory
John
H. Tory |
|
Director of
Charter Communications, Inc. |
|
August 10, 2006 |
|
/s/ Larry W. Wangberg
Larry
W. Wangberg |
|
Director of
Charter Communications, Inc. |
|
August 10, 2006 |
S-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
CCH II Capital Corp. has duly caused this registration
statement on
Form S-4 to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Saint Louis, State of Missouri, on
August 10, 2006.
|
|
|
CCH II Capital Corp., |
|
Registrant |
|
|
|
|
Title: |
Vice President and Chief Accounting Officer |
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints each of Neil Smit, Kevin
D. Howard and Grier C. Raclin, individually, with full power to
act as his true and lawful
attorney-in-fact and
agent, with full power of substitution and resubstitution, for
him and in his name, place and stead, in any and all capacities,
to sign any and all amendments (including post-effective
amendments) to the registration statement, and to file the same,
with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission and any
other regulatory authority, granting unto said
attorney-in-fact and
agent, full power and authority to do and perform each and every
act and thing requisite and necessary to be done in connection
therewith, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that
said attorney-in-fact
and agent, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following
persons in the capacities and on the dates indicated.
|
|
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
|
/s/ Neil Smit
Neil
Smit |
|
President and
Chief Executive Officer, Director
(Principal Executive Officer)
CCH II Capital Corp. |
|
August 10, 2006 |
|
/s/ Jeffrey T. Fisher
Jeffrey
T. Fisher |
|
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
CCH II Capital Corp. |
|
August 10, 2006 |
|
/s/ Kevin D. Howard
Kevin
D. Howard |
|
Vice President and
Chief Accounting Officer
(Principal Accounting Officer)
CCH II Capital Corp. |
|
August 10, 2006 |
S-5
EXHIBIT INDEX
|
|
|
|
|
Exhibit |
|
Description |
|
|
|
|
1 |
.1* |
|
Form of Dealer Manager Agreement. |
|
2 |
.1 |
|
Purchase Agreement, dated May 29, 2003, by and between
Falcon Video Communications, L.P. and WaveDivision Holdings, LLC
(incorporated by reference to Exhibit 2.1 to Charter
Communications, Inc.s current report on Form 8-K
filed on May 30, 2003 (File No. 000-27927)). |
|
2 |
.2 |
|
Asset Purchase Agreement, dated September 3, 2003, by and
between Charter Communications VI, LLC, The Helicon Group,
L.P., Hornell Television Service, Inc., Interlink Communications
Partners, LLC, Charter Communications Holdings, LLC and Atlantic
Broadband Finance, LLC (incorporated by reference to
Exhibit 2.1 to Charter Communications, Inc.s current
report on Form 8-K/A filed on September 3, 2003 (File
No. 000-27927)). |
|
2 |
.3 |
|
Purchase Agreement, dated August 11, 2005 by and among CCO
Holdings, LLC, CCO Holdings Capital Corp. and J.P. Morgan
Securities Inc., Credit Suisse First Boston LLC, and Banc of
America Securities LLC as representatives of the purchasers
(incorporated by reference to Exhibit 10.1 to the current
report on Form 8-K of CCO Holdings, LLC and CCO Holdings
Capital Corp. filed on August 17, 2005 (File
No. 333-112593)). |
|
2 |
.4 |
|
Purchase Agreement dated as of January 26, 2006, by and
between CCH II, LLC, CCH II Capital Corp. and
J.P. Morgan Securities, Inc as Representative of several
Purchasers for $450,000,000 10.25% Senior Notes Due 2010
(incorporated by reference to Exhibit 10.3 to the current
report on Form 8-K of Charter Communications, Inc. filed on
January 27, 2006 (File No. 000-27927)). |
|
2 |
.5 |
|
Asset Purchase Agreement dated February 27, 2006, by and
between Charter Communications Operating, LLC and Cebridge
Acquisition Co., LLC (incorporated by reference to
Exhibit 2.2 to the quarterly report on Form 10-Q of
Charter Communications, Inc. filed on May 2, 2006 (File
No. 000-27927)). |
|
3 |
.1 |
|
Certificate of Formation of CCH II, LLC (incorporated by
reference to Exhibit 3.1 to Amendment No. 1 to the
registration statement on Form S-4 of CCH II, LLC and
CCH II Capital Corp. filed on March 24, 2004 (File
No. 333-111423)). |
|
3 |
.2 |
|
Amended and Restated Limited Liability Company Agreement of
CCH II, LLC, dated as of July 10, 2003 (incorporated
by reference to Exhibit 3.2 to Amendment No. 1 to the
registration statement on Form S-4 of CCH II, LLC and
CCH II Capital Corp. filed on March 24, 2004 (File
No. 333-111423)). |
|
3 |
.3 |
|
Certificate of Incorporation of CCH II Capital Corp.
(incorporated by reference to Exhibit 3.3 to Amendment
No. 1 to the registration statement on Form S-4 of
CCH II, LLC and CCH II Capital Corp. filed on
March 24, 2004 (File No. 333-111423)). |
|
3 |
.4 |
|
Amended and Reinstated By-laws of CCH II Capital
Corporation (incorporated by reference to Exhibit 3.4 to
Amendment No. 1 to the registration statement on
Form S-4 of CCH II, LLC and CCH II Capital Corp.
filed on March 24, 2004 (File No. 333-111423)). |
|
3 |
.5(a)# |
|
Restated Certificate of Incorporation of Charter Communications,
Inc. (Originally incorporated July 22, 1999) (incorporated
by reference to Exhibit 3.1 to Amendment No. 3 to the
registration statement on Form S-1 of Charter
Communications, Inc. filed on October 18, 1999 (File
No. 333-83887)). |
|
3 |
.5(b)# |
|
Certificate of Amendment of Restated Certificate of
Incorporation of Charter Communications, Inc. filed May 10,
2001 (incorporated by reference to Exhibit 3.1(b) to the
annual report on Form 10-K filed by Charter Communications,
Inc. on March 29, 2002 (File No. 000-27927)). |
|
3 |
.6# |
|
Amended and Restated By-laws of Charter Communications, Inc. as
of June 6, 2001 (incorporated by reference to
Exhibit 3.2 to the quarterly report on Form 10-Q filed
by Charter Communications, Inc. on November 14, 2001 (File
No. 000-27927)). |
|
|
|
|
|
Exhibit |
|
Description |
|
|
|
|
3 |
.6(a)# |
|
First Amendment to Amended and Restated By-Laws of Charter
Communications, Inc. adopted as of November 8, 1999
(incorporated by reference to Exhibit 3.2(b) to Amendment
No. 1 to the registration statement on Form S-1 filed
by Charter Communications, Inc. on February 3, 2006 (File
No. 333-130898)). |
|
3 |
.6(b)# |
|
Second Amendment to Amended and Restated By-Laws of Charter
Communications, Inc. adopted as of January 1, 2000
(incorporated by reference to Exhibit 3.2(c) to Amendment
No. 1 to the registration statement on Form S-1 filed
by Charter Communications, Inc. on February 3, 2006 (File
No. 333-130898)). |
|
3 |
.6(c)# |
|
Third Amendment to Amended and Restated By-Laws of Charter
Communications, Inc. adopted as of June 6,
2001(incorporated by reference to Exhibit 3.2(d) to
Amendment No. 1 to the registration statement on
Form S-1 filed by Charter Communications, Inc. on
February 3, 2006 (File No. 333-130898)). |
|
3 |
.6(d)# |
|
Fourth Amendment to Amended and Restated By-laws of Charter
Communications, Inc. as of October 3, 2003 (incorporated by
reference to Exhibit 3.3 to Charter Communications,
Inc.s quarterly report on Form 10-Q filed on
November 3, 2003 (File No. 000-27927)). |
|
3 |
.6(e)# |
|
Fifth Amendment to Amended and Restated By-laws of Charter
Communications, Inc. as of October 28, 2003 (incorporated
by reference to Exhibit 3.4 to Charter Communications,
Inc.s quarterly report on Form 10-Q filed on
November 3, 2003 (File No. 000-27927)). |
|
3 |
.6(f)# |
|
Sixth Amendment to Amended and Restated By-laws of Charter
Communications, Inc. (incorporated by reference to Charter
Communications, Inc.s current report on Form 8-K
filed on September 30, 2004 (File No. 000-27927)). |
|
3 |
.6(g)# |
|
Seventh Amendment to Amended and Restated By-laws of Charter
Communications, Inc. (incorporated by reference to Charter
Communications, Inc.s current report on Form 8-K
filed on October 22, 2004 (File No. 000-27927)). |
|
3 |
.6(h)# |
|
Eighth Amendment to the Amended and Restated By-Laws of Charter
Communications, Inc. adopted as of December 14, 2004
(incorporated by reference to Exhibit 3.1 to the current
report on Form 8-K of Charter Communications, Inc. filed on
December 15, 2004 (File No. 000-27927)). |
|
3 |
.6(i)# |
|
Ninth Amendment to Amended and Restated By-laws of Charter
Communications, Inc. (incorporated by reference to
Exhibit 3.1 to the Charter Communications, Inc.s
current report on Form 8-K filed of Charter Communications,
Inc. filed on April 21, 2006 (File No. 000-27927)). |
|
4 |
.1 |
|
Indenture relating to the 10.25% Senior Notes due 2010,
dated as of September 23, 2003, among CCH II, LLC,
CCH II Capital Corp. and Wells Fargo Bank, National
Association (incorporated by reference to Exhibit 10.1 to
the current report on Form 8-K of Charter Communications
Inc. filed on September 26, 2003 (File No. 000-27927)). |
|
4 |
.2 |
|
Indenture relating to the
83/4
% Senior Notes due 2013, dated as of
November 10, 2003, by and among CCO Holdings, LLC, CCO
Holdings Capital Corp. and Wells Fargo Bank, N.A., as trustee
(incorporated by reference to Exhibit 4.1 to Charter
Communications, Inc.s current report on Form 8-K
filed on November 12, 2003 (File No. 000-27927)). |
|
4 |
.3 |
|
Indenture relating to the 8% senior second lien notes due
2012 and
83/8
% senior second lien notes due 2014, dated as of
April 27, 2004, by and among Charter Communications
Operating, LLC, Charter Communications Operating Capital Corp.
and Wells Fargo Bank, N.A. as trustee (incorporated by reference
to Exhibit 10.32 to Amendment No. 2 to the
registration statement on Form S-4 of CCH II, LLC
filed on May 5, 2004 (File No. 333-111423)). |
|
4 |
.4(a) |
|
Indenture dated as of December 15, 2004 among CCO Holdings,
LLC, CCO Holdings Capital Corp. and Wells Fargo Bank, N.A., as
trustee (incorporated by reference to Exhibit 10.1 to the
current report on Form 8-K of CCO Holdings, LLC filed on
December 21, 2004 (File No. 333-112593)). |
|
|
|
|
|
Exhibit |
|
Description |
|
|
|
|
4 |
.4(b) |
|
First Supplemental Indenture dated August 17, 2005 by and
among CCO Holdings, LLC, CCO Holdings Capital Corp. and Wells
Fargo Bank, L.A., as trustee (incorporated by reference to
Exhibit 10.1 to the current report on Form 8-K of CCO
Holdings, LLC and CCO Holdings Capital Corp. filed on
August 23, 2005 (File No. 333-112593)). |
|
4 |
.5 |
|
Exchange and Registration Rights Agreement dated August 17,
2005 by and among CCO Holdings, LLC, CCO Holdings Capital Corp.
and J.P. Morgan Securities Inc., Credit Suisse First Boston
LLC, and Banc of America Securities LLC as representatives of
the purchasers (incorporated by reference to Exhibit 10.2
to the current report on Form 8-K of CCO Holdings, LLC and
CCO Holdings Capital Corp. filed on August 23, 2005 (File
No. 333-112593)). |
|
5 |
.1* |
|
Opinion of Gibson, Dunn & Crutcher regarding legality. |
|
8 |
.1* |
|
Opinion of Gibson, Dunn & Crutcher regarding tax
matters. |
|
10 |
.1 |
|
Settlement Agreement and Mutual Releases, dated as of
October 31, 2005, by and among Charter Communications,
Inc., Special Committee of the Board of Directors of Charter
Communications, Inc., Charter Communications Holding Company,
LLC, CCHC, LLC, CC VIII, LLC, CC V, LLC, Charter
Investment, Inc., Vulcan Cable III, LLC and Paul G. Allen
(incorporated by reference to Exhibit 10.17 to the
quarterly report on Form 10-Q of Charter Communications,
Inc. filed on November 2, 2005 (File No. 000-27927)). |
|
10 |
.2 |
|
Exchange Agreement, dated as of October 31, 2005, by and
among Charter Communications Holding Company, LLC, Charter
Investment, Inc. and Paul G. Allen (incorporated by reference to
Exhibit 10.18 to the quarterly report on Form 10-Q of
Charter Communications, Inc. filed on November 2, 2005
(File No. 000-27927)). |
|
10 |
.3 |
|
CCHC, LLC Subordinated and Accreting Note, dated as of
October 31, 2005 (revised) (incorporated by reference to
Exhibit 10.3 to the current report on Form 8-K of
Charter Communications, Inc. filed on November 4, 2005
(File No. 000-27927)). |
|
10 |
.4 |
|
Amended and Restated Credit Agreement, dated as of
April 28, 2006, among Charter Communications Operating,
LLC, CCO) Holdings, LLC, the lenders from time to time parties
thereto and JPMorgan Chase Bank, N.A., as administrative agent
(incorporated by reference to Exhibit 10.1 to the current
report on Form 8-K of Charter Communications, Inc. filed on
May 1, 2006 (File No. 000-27927)). |
|
10 |
.5(a) |
|
First Amended and Restated Mutual Services Agreement, dated as
of December 21, 2000, by and between Charter
Communications, Inc., Charter Investment, Inc. and Charter
Communications Holding Company, LLC (incorporated by reference
to Exhibit 10.2(b) to the registration statement on
Form S-4 of Charter Communications Holdings, LLC and
Charter Communications Holdings Capital Corporation filed on
February 2, 2001 (File No. 333-54902)). |
|
10 |
.5(b) |
|
Letter Agreement, dated June 19, 2003, by and among Charter
Communications, Inc., Charter Communications Holding Company,
LLC and Charter Investment, Inc. regarding Mutual Services
Agreement (incorporated by reference to Exhibit No. 10.5(b)
to the quarterly report on Form 10-Q filed by Charter
Communications, Inc. on August 5, 2003 (File
No. 000-27927)). |
|
10 |
.5(c) |
|
Second Amended and Restated Mutual Services Agreement, dated as
of June 19, 2003 between Charter Communications, Inc. and
Charter Communications Holding Company, LLC (incorporated by
reference to Exhibit 10.5(a) to the quarterly report on
Form 10-Q filed by Charter Communications, Inc. on
August 5, 2003 (File No. 000-27927)). |
|
10 |
.6(a) |
|
Amended and Restated Limited Liability Company Agreement for CC
VIII, LLC, dated as of March 31, 2003 (incorporated by
reference to Exhibit 10.27 to the annual report on
Form 10-K of Charter Communications, Inc. filed on
April 15, 2003 (File No. 000-27927)). |
|
10 |
.6(b) |
|
Third Amended and Restated Limited Liability Company Agreement
for CC VIII, LLC, dated as of October 31, 2005
(incorporated by reference to Exhibit 10.20 to the
quarterly report on Form 10-Q filed by Charter
Communications, Inc. on November 2, 2005 (File
No. 000-27927)). |
|
|
|
|
|
Exhibit |
|
Description |
|
|
|
|
10 |
.7(a) |
|
Amended and Restated Limited Liability Company Agreement of
Charter Communications Operating, LLC, dated as of June 19,
2003 (incorporated by reference to Exhibit No. 10.2 to the
quarterly report on Form 10-Q filed by Charter
Communications, Inc. on August 5, 2003 (File
No. 000-27927)). |
|
10 |
.7(b) |
|
First Amendment to the Amended and Restated Limited Liability
Company Agreement of Charter Communications Operating, LLC,
adopted as of June 22, 2004 (incorporated by reference to
Exhibit 10.38(b) to the annual report on Form 10-K
filed by Charter Communications, Inc. on February 28, 2006
(File No. 000-27927)). |
|
10 |
.8 |
|
Amended and Restated Management Agreement, dated as of
June 19, 2003, between Charter Communications Operating,
LLC and Charter Communications, Inc. (incorporated by reference
to Exhibit 10.4 to the quarterly report on Form 10-Q
filed by Charter Communications, Inc. on August 5, 2003
(File No. 333-83887)). |
|
10 |
.9(a) |
|
Stipulation of Settlement, dated as of January 24, 2005,
regarding settlement of Consolidated Federal Class Action
entitled in Re Charter Communications, Inc. Securities
Litigation. (incorporated by reference to Exhibit 10.48 to
the Annual Report on Form 10-K filed by Charter
Communications, Inc. on March 3, 2005 (File
No. 000-27927)). |
|
10 |
.9(b) |
|
Amendment to Stipulation of Settlement, dated as of May 23,
2005, regarding settlement of Consolidated Federal
Class Action entitled In Re Charter Communications, Inc.
Securities Litigation (incorporated by reference to
Exhibit 10.35(b) to Amendment No. 3 to the
registration statement on Form S-1 filed by Charter
Communications, Inc. on June 8, 2005 (File
No. 333-121186)). |
|
10 |
.10 |
|
Settlement Agreement and Mutual Release, dated as of
February 1, 2005, by and among Charter Communications, Inc.
and certain other insureds, on the other hand, and Certain
Underwriters at Lloyds of London and certain subscribers,
on the other hand. (incorporated by reference to
Exhibit 10.49 to the annual report on Form 10-K filed
by Charter Communications, Inc. on March 3, 2005 (File
No. 000-27927)). |
|
10 |
.11 |
|
Stipulation of Settlement, dated as of January 24, 2005,
regarding settlement of Federal Derivative Action, Arthur J.
Cohn v. Ronald L. Nelson et al and Charter
Communications, Inc. (incorporated by reference to
Exhibit 10.50 to the annual report on Form 10-K filed
by Charter Communications, Inc. on March 3, 2005 (File
No. 000-27927)). |
|
10 |
.12(a) |
|
Charter Communications Holdings, LLC 1999 Option Plan
(incorporated by reference to Exhibit 10.4 to Amendment
No. 4 to the registration statement on Form S-4 of
Charter Communications Holdings, LLC and Charter Communications
Holdings Capital Corporation filed on July 22, 1999 (File
No. 333-77499)). |
|
10 |
.12(b) |
|
Assumption Agreement regarding Option Plan, dated as of
May 25, 1999, by and between Charter Communications
Holdings, LLC and Charter Communications Holding Company, LLC
(incorporated by reference to Exhibit 10.13 to Amendment
No. 6 to the registration statement on Form S-4 of
Charter Communications Holdings, LLC and Charter Communications
Holdings Capital Corporation filed on August 27, 1999 (File
No. 333-77499)). |
|
10 |
.12(c) |
|
Form of Amendment No. 1 to the Charter Communications
Holdings, LLC 1999 Option Plan (incorporated by reference to
Exhibit 10.10(c) to Amendment No. 4 to the
registration statement on Form S-1 of Charter
Communications, Inc. filed on November 1, 1999 (File
No. 333-83887)). |
|
10 |
.12(d) |
|
Amendment No. 2 to the Charter Communications Holdings, LLC
1999 Option Plan (incorporated by reference to
Exhibit 10.4(c) to the annual report on Form 10-K
filed by Charter Communications, Inc. on March 30, 2000
(File No. 000-27927)). |
|
10 |
.12(e) |
|
Amendment No. 3 to the Charter Communications 1999 Option
Plan (incorporated by reference to Exhibit 10.14(e) to the
annual report of Form 10-K of Charter Communications, Inc.
filed on March 29, 2002 (File No. 000-27927)). |
|
10 |
.12(f) |
|
Amendment No. 4 to the Charter Communications 1999 Option
Plan (incorporated by reference to Exhibit 10.10(f) to the
annual report on Form 10-K of Charter Communications, Inc.
filed on April 15, 2003 (File No. 000-27927)). |
|
|
|
|
|
Exhibit |
|
Description |
|
|
|
|
10 |
.13(a) |
|
Charter Communications, Inc. 2001 Stock Incentive Plan
(incorporated by reference to Exhibit 10.25 to the
quarterly report on Form 10-Q filed by Charter
Communications, Inc. on May 15, 2001 (File
No. 000-27927)). |
|
10 |
.13(b) |
|
Amendment No. 1 to the Charter Communications, Inc. 2001
Stock Incentive Plan (incorporated by reference to
Exhibit 10.11(b) to the annual report on Form 10-K of
Charter Communications, Inc. filed on April 15, 2003 (File
No. 000-27927)). |
|
10 |
.13(c) |
|
Amendment No. 2 to the Charter Communications, Inc. 2001
Stock Incentive Plan (incorporated by reference to
Exhibit 10.10 to the quarterly report on Form 10-Q
filed by Charter Communications, Inc. on November 14, 2001
(File No. 000-27927)). |
|
10 |
.13(d) |
|
Amendment No. 3 to the Charter Communications, Inc. 2001
Stock Incentive Plan effective January 2, 2002
(incorporated by reference to Exhibit 10.15(c) to the
annual report of Form 10-K of Charter Communications, Inc.
filed on March 29, 2002 (File No. 000-27927)). |
|
10 |
.13(e) |
|
Amendment No. 4 to the Charter Communications, Inc. 2001
Stock Incentive Plan (incorporated by reference to
Exhibit 10.11(e) to the annual report on Form 10-K of
Charter Communications, Inc. filed on April 15, 2003 (File
No. 000-27927)). |
|
10 |
.13(f) |
|
Amendment No. 5 to the Charter Communications, Inc. 2001
Stock Incentive Plan (incorporated by reference to
Exhibit 10.11(f) to the annual report on Form 10-K of
Charter Communications, Inc. filed on April 15, 2003 (File
No. 000-27927)). |
|
10 |
.13(g) |
|
Amendment No. 6 to the Charter Communications, Inc. 2001
Stock Incentive Plan effective December 23, 2004
(incorporated by reference to Exhibit 10.43(g) to the
registration statement on Form S-1 of Charter
Communications, Inc. filed on October 5, 2005 (File
No. 333-128838)). |
|
10 |
.13(h) |
|
Amendment No. 7 to the Charter Communications, Inc. 2001
Stock Incentive Plan effective August 23, 2005
(incorporated by reference to Exhibit 10.43(h) to the
registration statement on Form S-1 of Charter
Communications, Inc. filed on October 5, 2005 (File
No. 333-128838)). |
|
10 |
.13(i) |
|
Description of Long-Term Incentive Program to the Charter
Communications, Inc. 2001 Stock Incentive Plan (incorporated by
reference to Exhibit 10.18(g) to the annual report on
Form 10-K filed by Charter Communications Holdings, LLC on
March 31, 2005 (File No. 333-77499)). |
|
10 |
.14 |
|
Description of Charter Communications, Inc. 2006 Executive Bonus
Plan (incorporated by reference to Exhibit 10.2 to the
quarterly report on Form 10-Q filed by Charter
Communications, Inc. on May 2, 2006 (File
No. 000-27927)). |
|
10 |
.15 |
|
2005 Executive Cash Award Plan amended for 2006 (incorporated by
reference to Exhibit 10.1 to the current report on
Form 8-K of Charter Communications, Inc. filed
April 17, 2006 (File No. 000-27927)). |
|
10 |
.16 |
|
Executive Services Agreement, dated as of January 17, 2005,
between Charter Communications, Inc. and Robert P. May
(incorporated by reference to Exhibit 99.1 to the current
report on Form 8-K of Charter Communications, Inc. filed on
January 21, 2005 (File No. 000-27927)). |
|
10 |
.17 |
|
Employment Agreement, dated as of October 8, 2001, by and
between Carl E. Vogel and Charter Communications, Inc.
(Incorporated by reference to Exhibit 10.4 to the quarterly
report on Form 10-Q filed by Charter Communications, Inc.
on November 14, 2001 (File No. 000-27927)). |
|
10 |
.18 |
|
Separation Agreement and Release for Carl E. Vogel, dated as of
February 17, 2005 (incorporated by reference to
Exhibit 99.1 to the current report on Form 8-K filed
by Charter Communications, Inc. on February 22, 2005 (File
No. 000-27927)). |
|
10 |
.19 |
|
Letter Agreement, dated April 15, 2005, by and between
Charter Communications, Inc. and Paul E. Martin (incorporated by
reference to Exhibit 99.1 to the current report on
Form 8-K of Charter Communications, Inc. filed
April 19, 2005 (File No. 000-27927)). |
|
|
|
|
|
Exhibit |
|
Description |
|
|
|
|
10 |
.20 |
|
Restricted Stock Agreement, dated as of July 13, 2005, by
and between Robert P. May and Charter Communications, Inc.
(incorporated by reference to Exhibit 99.1 to the current
report on Form 8-K of Charter Communications, Inc. filed
July 13, 2005 (File No. 000-27927)). |
|
10 |
.21 |
|
Restricted Stock Agreement, dated as of July 13, 2005, by
and between Michael J. Lovett and Charter Communications, Inc.
(incorporated by reference to Exhibit 99.2 to the current
report on Form 8-K of Charter Communications, Inc. filed
July 13, 2005 (File No. 000-27927)). |
|
10 |
.22 |
|
Employment Agreement, dated as of August 9, 2005, by and
between Neil Smit and Charter Communications, Inc. (incorporated
by reference to Exhibit 99.1 to the current report on
Form 8-K of Charter Communications, Inc. filed on
August 15, 2005 (File No. 000-27927)). |
|
10 |
.23 |
|
Employment Agreement dated as of September 2, 2005, by and
between Paul E. Martin and Charter Communications, Inc.
(incorporated by reference to Exhibit 99.1 to the current
report on Form 8-K of Charter Communications, Inc. filed on
September 9, 2005 (File No. 000-27927)). |
|
10 |
.24 |
|
Employment Agreement dated as of September 2, 2005, by and
between Wayne H. Davis and Charter Communications, Inc.
(incorporated by reference to Exhibit 99.2 to the current
report on Form 8-K of Charter Communications, Inc. filed on
September 9, 2005 (File No. 000-27927)). |
|
10 |
.25 |
|
Employment Agreement dated as of October 31, 2005, by and
between Sue Ann Hamilton and Charter Communications, Inc.
(incorporated by reference to Exhibit 10.21 to the
quarterly report on Form 10-Q of Charter Communications,
Inc. filed on November 2, 2005 (File No. 000-27927)). |
|
10 |
.26 |
|
Employment Agreement effective as of October 10, 2005, by
and between Grier C. Raclin and Charter Communications, Inc.
(incorporated by reference to Exhibit 99.1 to the current
report on Form 8-K of Charter Communications, Inc. filed on
November 14, 2005 (File No. 000-27927)). |
|
10 |
.27 |
|
Employment Offer Letter, dated November 22, 2005, by and
between Charter Communications, Inc. and Robert A. Quigley
(incorporated by reference to 10.68 to Amendment No. 1 to
the registration statement on Form S-1 of Charter
Communications, Inc. filed on February 2, 2006 (File
No. 333-130898)). |
|
10 |
.28 |
|
Employment Agreement dated as of December 9, 2005, by and
between Robert A. Quigley and Charter Communications, Inc.
(incorporated by reference to Exhibit 99.1 to the current
report on Form 8-K of Charter Communications, Inc. filed on
December 13, 2005 (File No. 000-27927)). |
|
10 |
.29 |
|
Retention Agreement dated as of January 9, 2006, by and
between Paul E. Martin and Charter Communications, Inc.
(incorporated by reference to Exhibit 99.1 to the current
report on Form 8-K of Charter Communications, Inc. filed on
January 10, 2006 (File No. 000-27927)). |
|
10 |
.30 |
|
Employment Agreement dated as of January 20, 2006 by and
between Jeffrey T. Fisher and Charter Communications, Inc.
(incorporated by reference to Exhibit 10.1 to the current
report on Form 8-K of Charter Communications, Inc. filed on
January 27, 2006 (File No. 000-27927)). |
|
10 |
.31 |
|
Employment Agreement dated as of February 28, 2006 by and
between Michael J. Lovett and Charter Communications, Inc.
(incorporated by reference to Exhibit 99.2 to the current
report on Form 8-K of Charter Communications, Inc. filed on
March 3, 2006 (File No. 000-27927)). |
|
10 |
.32 |
|
Separation Agreement of Wayne H. Davis, dated as of
March 23, 2006 (incorporated by reference to
Exhibit 99.1 to the current report on Form 8-K of
Charter Communications, Inc. filed on April 6, 2006 (File
No. 000-27927)). |
|
10 |
.33 |
|
Consulting Agreement of Wayne H. Davis, dated as of
March 23, 2006 (incorporated by reference to
Exhibit 99.2 to the current report on Form 8-K of
Charter Communications, Inc. filed on April 6, 2006 (File
No. 000-27927)). |
|
|
|
|
|
Exhibit |
|
Description |
|
|
|
|
10 |
.34# |
|
Indenture dated May 30, 2001 between Charter
Communications, Inc. and BNY Midwest Trust Company as Trustee
governing 4.75% Convertible Senior Notes due 2006
(incorporated by reference to Exhibit 4.1(b) to the current
report on Form 8-K filed by Charter Communications, Inc. on
June 1, 2001 (File No. 000-27927)). |
|
10 |
.35# |
|
Certificate of Designation of Series A Convertible
Redeemable Preferred Stock of Charter Communications, Inc. and
related Certificate of Correction of Certificate of Designation
(incorporated by reference to Exhibit 3.1 to the quarterly
report on Form 10-Q filed by Charter Communications, Inc.
on November 14, 2001 (File No. 000-27927)). |
|
10 |
.36# |
|
Certificate of Amendment of Certificate of Designation of
Series A Convertible Redeemable Preferred Stock of Charter
Communications, Inc. (incorporated by reference to Annex A
to the Definitive Information Statement on Schedule 14C filed by
Charter Communications, Inc. on December 12, 2005 (File No.
000-27927)). |
|
10 |
.37# |
|
Indenture relating to the 5.875% convertible senior notes
due 2009, dated as of November 2004, by and among Charter
Communications, Inc. and Wells Fargo Bank, N.A. as trustee
(incorporated by reference to Exhibit 10.1 to the current
report on Form 8-K of Charter Communications, Inc. filed on
November 30, 2004 (File No. 000-27927)). |
|
10 |
.38# |
|
5.875% convertible senior notes due 2009 Resale
Registration Rights Agreement, dated November 22, 2004, by
and among Charter Communications, Inc. and Citigroup Global
Markets Inc. and Morgan Stanley and Co. Incorporated as
representatives of the initial purchasers (incorporated by
reference to Exhibit 10.2 to the current report on
Form 8-K of Charter Communications, Inc. filed on
November 30, 2004 (File No. 000-27927)). |
|
10 |
.39# |
|
Share Loan Registration Rights Agreement, dated
November 22, 2004, by and between Charter Communications,
Inc. and Citigroup Global Markets Inc. (incorporated by
reference to Exhibit 10.3 to the current report on
Form 8-K of Charter Communications, Inc. filed on
November 30, 2004 (File No. 000-27927)). |
|
10 |
.40# |
|
Collateral Pledge and Security Agreement, dated as of
November 22, 2004, by and between Charter Communications,
Inc. and Wells Fargo Bank, N.A. as trustee and collateral agent
(incorporated by reference to Exhibit 10.4 to the current
report on Form 8-K of Charter Communications, Inc. filed on
November 30, 2004 (File No. 000-27927)). |
|
10 |
.41# |
|
Collateral Pledge and Security Agreement, dated as of
November 22, 2004 among Charter Communications, Inc.,
Charter Communications Holding Company, LLC and Wells Fargo
Bank, N.A. as trustee and collateral agent (incorporated by
reference to Exhibit 10.5 to the current report on
Form 8-K of Charter Communications, Inc. filed on
November 30, 2004 (File No. 000-27927)). |
|
10 |
.42# |
|
Indenture relating to the 8.250% Senior Notes due 2007,
dated as of March 17, 1999, between Charter Communications
Holdings, LLC, Charter Communications Holdings Capital
Corporation and Harris Trust and Savings Bank (incorporated by
reference to Exhibit 4.1(a) to Amendment No. 2 to the
registration statement on Form S-4 of Charter
Communications Holdings, LLC and Charter Communications Holdings
Capital Corporation filed on June 22, 1999 (File
No. 333-77499)). |
|
10 |
.43(a)# |
|
Indenture relating to the 8.625% Senior Notes due 2009,
dated as of March 17, 1999, among Charter Communications
Holdings, LLC, Charter Communications Holdings Capital
Corporation and Harris Trust and Savings Bank (incorporated by
reference to Exhibit 4.2(a) to Amendment No. 2 to the
registration statement on Form S-4 of Charter
Communications Holdings, LLC and Charter Communications Holdings
Capital Corporation filed on June 22, 1999 (File
No. 333-77499)). |
|
10 |
.43(b)# |
|
First Supplemental Indenture relating to the 8.625% Senior
Notes due 2009, dated as of September 28, 2005, among
Charter Communications Holdings, LLC, Charter Communications
Holdings Capital Corporation and BNY Midwest Trust Company as
Trustee (incorporated by reference to Exhibit 10.3 to the
current report on Form 8-K of Charter Communications, Inc.
filed on October 4, 2005 (File No. 000-27927)). |
|
|
|
|
|
Exhibit |
|
Description |
|
|
|
|
10 |
.44(a)# |
|
Indenture relating to the 9.920% Senior Discount Notes due
2011, dated as of March 17, 1999, among Charter
Communications Holdings, LLC, Charter Communications Holdings
Capital Corporation and Harris Trust and Savings Bank
(incorporated by reference to Exhibit 4.3(a) to Amendment
No. 2 to the registration statement on Form S-4 of
Charter Communications Holdings, LLC and Charter Communications
Holdings Capital Corporation filed on June 22, 1999 (File
No. 333-77499)). |
|
10 |
.44(b)# |
|
First Supplemental Indenture relating to the 9.920% Senior
Discount Notes due 2011, dated as of September 28, 2005,
among Charter Communications Holdings, LLC, Charter
Communications Holdings Capital Corporation and BNY Midwest
Trust Company as Trustee (incorporated by reference to
Exhibit 10.4 to the current report on Form 8-K of
Charter Communications, Inc. filed on October 4, 2005 (File
No. 000-27927)). |
|
10 |
.45(a)# |
|
Indenture relating to the 10.00% Senior Notes due 2009,
dated as of January 12, 2000, between Charter
Communications Holdings, LLC, Charter Communications Holdings
Capital Corporation and Harris Trust and Savings Bank
(incorporated by reference to Exhibit 4.1(a) to the
registration statement on Form S-4 of Charter
Communications Holdings, LLC and Charter Communications Holdings
Capital Corporation filed on January 25, 2000 (File
No. 333-95351)). |
|
10 |
.45(b)# |
|
First Supplemental Indenture relating to the 10.00% Senior
Notes due 2009, dated as of September 28, 2005, between
Charter Communications Holdings, LLC, Charter Communications
Holdings Capital Corporation and BNY Midwest Trust Company as
Trustee (incorporated by reference to Exhibit 10.5 to the
current report on Form 8-K of Charter Communications, Inc.
filed on October 4, 2005 (File No. 000-27927)). |
|
10 |
.46(a)# |
|
Indenture relating to the 10.25% Senior Notes due 2010,
dated as of January 12, 2000, among Charter Communications
Holdings, LLC, Charter Communications Holdings Capital
Corporation and Harris Trust and Savings Bank (incorporated by
reference to Exhibit 4.2(a) to the registration statement
on Form S-4 of Charter Communications Holdings, LLC and
Charter Communications Holdings Capital Corporation filed on
January 25, 2000 (File No. 333-95351)). |
|
10 |
.46(b)# |
|
First Supplemental Indenture relating to the 10.25% Senior
Notes due 2010, dated as of September 28, 2005, among
Charter Communications Holdings, LLC, Charter Communications
Holdings Capital Corporation and BNY Midwest Trust Company as
Trustee (incorporated by reference to Exhibit 10.6 to the
current report on Form 8-K of Charter Communications, Inc.
filed on October 4, 2005 (File No. 000-27927)). |
|
10 |
.47(a)# |
|
Indenture relating to the 11.75% Senior Discount Notes due
2010, dated as of January 12, 2000, among Charter
Communications Holdings, LLC, Charter Communications Holdings
Capital Corporation and Harris Trust and Savings Bank
(incorporated by reference to Exhibit 4.3(a) to the
registration statement on Form S-4 of Charter
Communications Holdings, LLC and Charter Communications Holdings
Capital Corporation filed on January 25, 2000 (File
No. 333-95351)). |
|
10 |
.47(b)# |
|
First Supplemental Indenture relating to the 11.75% Senior
Discount Notes due 2010, among Charter Communications Holdings,
LLC, Charter Communications Holdings Capital Corporation and BNY
Midwest Trust Company as Trustee, dated as of September 28,
2005 (incorporated by reference to Exhibit 10.7 to the
current report on Form 8-K of Charter Communications, Inc.
filed on October 4, 2005 (File No. 000-27927)). |
|
10 |
.48(a)# |
|
Indenture dated as of January 10, 2001 between Charter
Communications Holdings, LLC, Charter Communications Holdings
Capital Corporation and BNY Midwest Trust Company as Trustee
governing 10.750% senior notes due 2009 (incorporated by
reference to Exhibit 4.2(a) to the registration statement
on Form S-4 of Charter Communications Holdings, LLC and
Charter Communications Holdings Capital Corporation filed on
February 2, 2001 (File No. 333-54902)). |
|
|
|
|
|
Exhibit |
|
Description |
|
|
|
|
10 |
.48(b)# |
|
First Supplemental Indenture dated as of September 28, 2005
between Charter Communications Holdings, LLC, Charter
Communications Holdings Capital Corporation and BNY Midwest
Trust Company as Trustee governing 10.750% Senior Notes due
2009 (incorporated by reference to Exhibit 10.8 to the
current report on Form 8-K of Charter Communications, Inc.
filed on October 4, 2005 (File No. 000-27927)). |
|
10 |
.49(a)# |
|
Indenture dated as of January 10, 2001 between Charter
Communications Holdings, LLC, Charter Communications Holdings
Capital Corporation and BNY Midwest Trust Company as Trustee
governing 11.125% senior notes due 2011 (incorporated by
reference to Exhibit 4.2(b) to the registration statement
on Form S-4 of Charter Communications Holdings, LLC and
Charter Communications Holdings Capital Corporation filed on
February 2, 2001 (File No. 333-54902)). |
|
10 |
.49(b)# |
|
First Supplemental Indenture dated as of September 28,
2005, between Charter Communications Holdings, LLC, Charter
Communications Capital Corporation and BNY Midwest Trust Company
governing 11.125% Senior Notes due 2011 (incorporated by
reference to Exhibit 10.9 to the current report on
Form 8-K of Charter Communications, Inc. filed on
October 4, 2005 (File No. 000-27927)). |
|
10 |
.50(a)# |
|
Indenture dated as of January 10, 2001 between Charter
Communications Holdings, LLC, Charter Communications Holdings
Capital Corporation and BNY Midwest Trust Company as Trustee
governing 13.500% senior discount notes due 2011
(incorporated by reference to Exhibit 4.2(c) to the
registration statement on Form S-4 of Charter
Communications Holdings, LLC and Charter Communications Holdings
Capital Corporation filed on February 2, 2001 (File
No. 333-54902)). |
|
10 |
.50(b)# |
|
First Supplemental Indenture dated as of September 28,
2005, between Charter Communications Holdings, LLC, Charter
Communications Holdings Capital Corporation and BNY Midwest
Trust Company as Trustee governing 13.500% Senior Discount
Notes due 2011 (incorporated by reference to Exhibit 10.10
to the current report on Form 8-K of Charter
Communications, Inc. filed on October 4, 2005 (File No.
000-27927)). |
|
10 |
.51(a)# |
|
Indenture dated as of May 15, 2001 between Charter
Communications Holdings, LLC, Charter Communications Holdings
Capital Corporation and BNY Midwest Trust Company as Trustee
governing 9.625% Senior Notes due 2009 (incorporated by
reference to Exhibit 10.2(a) to the current report on
Form 8-K filed by Charter Communications, Inc. on
June 1, 2001 (File No. 000-27927)). |
|
10 |
.51(b)# |
|
First Supplemental Indenture dated as of January 14, 2002
between Charter Communications Holdings, LLC, Charter
Communications Holdings Capital Corporation and BNY Midwest
Trust Company as Trustee governing 9.625% Senior Notes due
2009 (incorporated by reference to Exhibit 10.2(a) to the
current report on Form 8-K filed by Charter Communications,
Inc. on January 15, 2002 (File No. 000-27927)). |
|
10 |
.51(c)# |
|
Second Supplemental Indenture dated as of June 25, 2002
between Charter Communications Holdings, LLC, Charter
Communications Holdings Capital Corporation and BNY Midwest
Trust Company as Trustee governing 9.625% Senior Notes due
2009 (incorporated by reference to Exhibit 4.1 to the
quarterly report on Form 10-Q filed by Charter
Communications, Inc. on August 6, 2002 (File No.
000-27927)). |
|
10 |
.51(d)# |
|
Third Supplemental Indenture dated as of September 28, 2005
between Charter Communications Holdings, LLC, Charter
Communications Capital Corporation and BNY Midwest Trust Company
as Trustee governing 9.625% Senior Notes due 2009
(incorporated by reference to Exhibit 10.11 to the current
report on Form 8-K of Charter Communications, Inc. filed on
October 4, 2005 (File No. 000-27927)). |
|
10 |
.52(a)# |
|
Indenture dated as of May 15, 2001 between Charter
Communications Holdings, LLC, Charter Communications Holdings
Capital Corporation and BNY Midwest Trust Company as Trustee
governing 10.000% Senior Notes due 2011 (incorporated by
reference to Exhibit 10.3(a) to the current report on
Form 8-K filed by Charter Communications, Inc. on
June 1, 2001 (File No. 000-27927)). |
|
|
|
|
|
Exhibit |
|
Description |
|
|
|
|
10 |
.52(b)# |
|
First Supplemental Indenture dated as of January 14, 2002
between Charter Communications Holdings, LLC, Charter
Communications Holdings Capital Corporation and BNY Midwest
Trust Company as Trustee governing 10.000% Senior Notes due
2011 (incorporated by reference to Exhibit 10.3(a) to the
current report on Form 8-K filed by Charter Communications,
Inc. on January 15, 2002 (File No. 000-27927)). |
|
10 |
.52(c)# |
|
Second Supplemental Indenture dated as of June 25, 2002
between Charter Communications Holdings, LLC, Charter
Communications Holdings Capital Corporation and BNY Midwest
Trust Company as Trustee governing 10.000% Senior Notes due
2011 (incorporated by reference to Exhibit 4.2 to the
quarterly report on Form 10-Q filed by Charter
Communications, Inc. on August 6, 2002 (File No.
000-27927)). |
|
10 |
.52(d)# |
|
Third Supplemental Indenture dated as of September 28, 2005
between Charter Communications Holdings, LLC, Charter
Communications Holdings Capital Corporation and BNY Midwest
Trust Company as Trustee governing the 10.000% Senior Notes
due 2011 (incorporated by reference to Exhibit 10.12 to the
current report on Form 8-K of Charter Communications, Inc.
filed on October 4, 2005 (File No. 000-27927)). |
|
10 |
.53(a)# |
|
Indenture dated as of May 15, 2001 between Charter
Communications Holdings, LLC, Charter Communications Holdings
Capital Corporation and BNY Midwest Trust Company as Trustee
governing 11.750% Senior Discount Notes due 2011
(incorporated by reference to Exhibit 10.4(a) to the
current report on Form 8-K filed by Charter Communications,
Inc. on June 1, 2001 (File No. 000-27927)). |
|
10 |
.53(b)# |
|
First Supplemental Indenture dated as of September 28, 2005
between Charter Communications Holdings, LLC, Charter
Communications Holdings Capital Corporation and BNY Midwest
Trust Company as Trustee governing 11.750% Senior Discount
Notes due 2011 (incorporated by reference to Exhibit 10.13
to the current report on Form 8-K of Charter
Communications, Inc. filed on October 4, 2005 (File No.
000-27927)). |
|
10 |
.54# |
|
4.75% Mirror Note in the principal amount of $632.5 million
dated as of May 30, 2001, made by Charter Communications
Holding Company, LLC, a Delaware limited liability company, in
favor of Charter Communications, Inc., a Delaware corporation
(incorporated by reference to Exhibit 4.5 to the quarterly
report on Form 10-Q filed by Charter Communications, Inc.
on August 6, 2002 (File No. 000-27927)). |
|
10 |
.55(a)# |
|
Indenture dated as of January 14, 2002 between Charter
Communications Holdings, LLC, Charter Communications Holdings
Capital Corporation and BNY Midwest Trust Company as Trustee
governing 12.125% Senior Discount Notes due 2012
(incorporated by reference to Exhibit 10.4(a) to the
current report on Form 8-K filed by Charter Communications,
Inc. on January 15, 2002 (File No. 000-27927)). |
|
10 |
.55(b)# |
|
First Supplemental Indenture dated as of June 25, 2002
between Charter Communications Holdings, LLC, Charter
Communications Holdings Capital Corporation and BNY Midwest
Trust Company as Trustee governing 12.125% Senior Discount
Notes due 2012 (incorporated by reference to Exhibit 4.3 to
the quarterly report on Form 10-Q filed by Charter
Communications, Inc. on August 6, 2002 (File No.
000-27927)). |
|
10 |
.55(c)# |
|
Second Supplemental Indenture dated as of September 28,
2005 between Charter Communications Holdings, LLC, Charter
Communications Holdings Capital Corporation and BNY Midwest
Trust Company as Trustee governing 12.125% Senior Discount
Notes due 2012 (incorporated by reference to Exhibit 10.14
to the current report on Form 8-K of Charter
Communications, Inc. filed on October 4, 2005 (File No.
000-27927)). |
|
10 |
.56# |
|
Share Lending Agreement, dated as of November 22, 2004
between Charter Communications, Inc., Citigroup Global Markets
Limited, through Citigroup Global Markets, Inc. (incorporated by
reference to Exhibit 10.6 to the current report on
Form 8-K of Charter Communications, Inc. filed on
November 30, 2004 (File No. 000-27927)). |
|
10 |
.57# |
|
Holdco Mirror Notes Agreement, dated as of
November 22, 2004, by and between Charter Communications,
Inc. and Charter Communications Holding Company, LLC
(incorporated by reference to Exhibit 10.7 to the current
report on Form 8-K of Charter Communications, Inc. filed on
November 30, 2004 (File No. 000-27927)). |
|
|
|
|
|
Exhibit |
|
Description |
|
|
|
|
10 |
.58# |
|
Unit Lending Agreement, dated as of November 22, 2004, by
and between Charter Communications, Inc. and Charter
Communications Holding Company, LLC (incorporated by reference
to Exhibit 10.8 to the current report on Form 8-K of
Charter Communications, Inc. filed on November 30, 2004
(File No. 000-27927)). |
|
10 |
.59# |
|
5.875% Mirror Convertible Senior Note due 2009, in the principal
amount of $862,500,000 dated as of November 22, 2004 made
by Charter Communications Holding Company, LLC, a Delaware
limited liability company, in favor of Charter Communications,
Inc., a Delaware limited liability company, in favor of Charter
Communications, Inc., a Delaware corporation (incorporated by
reference to Exhibit 10.9 to the current report on
Form 8-K of Charter Communications, Inc. filed on
November 30, 2004 (File No. 000-27927)). |
|
10 |
.60# |
|
Indenture dated as of September 28, 2005 among CCH I
Holdings, LLC and CCH I Holdings Capital Corp., as Issuers and
Charter Communications Holdings, LLC, as Parent Guarantor, and
The Bank of New York Trust Company, NA, as Trustee, governing:
11.125% Senior Accreting Notes due 2014, 9.920% Senior
Accreting Notes due 2014, 10.000% Senior Accreting Notes
due 2014, 11.75% Senior Accreting Notes due 2014,
13.50% Senior Accreting Notes due 2014, 12.125% Senior
Accreting Notes due 2015 (incorporated by reference to
Exhibit 10.1 to the current report on Form 8-K of
Charter Communications, Inc. filed on October 4, 2005 (File
No. 000-27927)). |
|
10 |
.61# |
|
Indenture dated as of September 28, 2005 among CCH I,
LLC and CCH I Capital Corp., as Issuers, Charter Communications
Holdings, LLC, as Parent Guarantor, and The Bank of New York
Trust Company, NA, as Trustee, governing 11.00% Senior
Secured Notes due 2015 (incorporated by reference to
Exhibit 10.2 to the current report on Form 8-K of
Charter Communications, Inc. filed on October 4, 2005 (File
No. 000-27927)). |
|
10 |
.62# |
|
Consulting Agreement, dated as of March 10, 1999, by and
between Vulcan Northwest Inc., Charter Communications, Inc. (now
called Charter Investment, Inc.) and Charter Communications
Holdings, LLC (incorporated by reference to Exhibit 10.3 to
Amendment No. 4 to the registration statement on
Form S-4 of Charter Communications Holdings, LLC and
Charter Communications Holdings Capital Corporation filed on
July 22, 1999 (File No. 333-77499)). |
|
10 |
.63# |
|
Letter Agreement, dated September 21, 1999, by and among
Charter Communications, Inc., Charter Investment, Inc., Charter
Communications Holding Company, Inc. and Vulcan Ventures Inc.
(incorporated by reference to Exhibit 10.22 to Amendment
No. 3 to the registration statement on Form S-1 of
Charter Communications, Inc. filed on October 18, 1999
(File No. 333-83887)). |
|
10 |
.64# |
|
Form of Exchange Agreement, dated as of November 12, 1999
by and among Charter Investment, Inc., Charter Communications,
Inc., Vulcan Cable III Inc. and Paul G. Allen (incorporated
by reference to Exhibit 10.13 to Amendment No. 3 to
the registration statement on Form S-1 of Charter
Communications, Inc. filed on October 18, 1999 (File
No. 333-83887)). |
|
10 |
.65(a)# |
|
Amended and Restated Limited Liability Company Agreement for
Charter Communications Holding Company, LLC made as of
August 31, 2001 (incorporated by reference to
Exhibit 10.9 to the quarterly report on Form 10-Q
filed by Charter Communications, Inc. on November 14, 2001
(File No. 000-27927)). |
|
10 |
.65(b)# |
|
Letter Agreement between Charter Communications, Inc. and
Charter Investment Inc. and Vulcan Cable III Inc. amending
the Amended and Restated Limited Liability Company Agreement of
Charter Communications Holding Company, LLC, dated as of
November 22, 2004 (incorporated by reference to
Exhibit 10.10 to the current report on Form 8-K of
Charter Communications, Inc. filed on November 30, 2004
(File No. 000-27927)). |
|
10 |
.66# |
|
Second Amended and Restated Limited Liability Company Agreement
for Charter Communications Holdings, LLC, dated as of
October 31, 2005 (incorporated by reference to
Exhibit 10.21 to the quarterly report on Form 10-Q of
Charter Communications, Inc. filed on November 2, 2005
(File No. 000-27927)). |
|
15 |
.1* |
|
Letter re: unaudited interim financial information of Charter
Communications, Inc. |
|
|
|
|
|
Exhibit |
|
Description |
|
|
|
|
21 |
.1* |
|
Subsidiaries of CCH II, LLC. |
|
21 |
.2* |
|
Subsidiaries of Charter Communications, Inc. |
|
23 |
.1* |
|
Consent of KPMG LLP with respect to the Consolidated Financial
Statements of Charter Communications, Inc. |
|
23 |
.2* |
|
Consent of KPMG LLP with respect to the Consolidated Financial
Statements of CCH II, LLC. |
|
23 |
.3* |
|
Consent of Gibson, Dunn & Crutcher LLP (included with
Exhibit 5.1). |
|
23 |
.4* |
|
Consent of Gibson, Dunn & Crutcher LLP regarding tax
matters (included with Exhibit 8.1). |
|
24 |
.1* |
|
Power of attorney (included in signature page). |
|
25 |
.1** |
|
Statement of eligibility of trustee. |
|
99 |
.1* |
|
Letter of Transmittal. |
|
99 |
.2* |
|
Letter to Brokers, Dealers, Commercial Banks, Trust Companies
and Other Nominees. |
|
99 |
.3* |
|
Letter to Clients. |
|
|
** |
To be filed by amendment. |
|
|
Management compensatory plan or arrangement. |
|
# |
Applicable only to Charter Communications, Inc. |
The undersigned registrants hereby undertake that:
|
|
|
(i) Prior to any public reoffering of the securities
registered hereunder through use of a prospectus which is a part
of this registration statement, by any person or party who is
deemed to be an underwriter within the meaning of
Rule 145(c), the issuers undertake that such reoffering
prospectus will contain the information called for by the
applicable registration form with respect to the reofferings by
persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form. |