Charter 2002 Annual Report Download

Download and view the complete annual report

Please find the complete 2002 Charter annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 130

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130

2002 Annual Report
Charter Communications, Inc.:Charter Media Charter Business Networks Charter Cable
TV Charter Digital Charter Pipeline Charter High Definition Service Charter On Demand Charter Media Charter Business Networks Charter Cable TV
Charter Digital Charter Pipeline Charter High Definition Service Charter On Demand Charter Media Charter Business Networks Charter Cable TV Charter
Digital Charter Pipeline Charter High Definition Service Charter On Demand Charter Media Charter Business Networks Charter Cable TV Charter Digital
Charter Pipeline Charter High Definition Service Charter On Demand Charter Media®Charter Business Networks Charter Cable TV Charter Digital Charter
Pipeline Charter High Definition Service Charter On Demand Charter Media Charter Business Networks Charter Cable TV Charter Digital Charter Pipeline
Charter High Definition Service Charter On Demand Charter Media Charter Business Networks Charter Cable TV Charter Digital Charter Pipeline®Charter
High Definition Service Charter On Demand Charter Media Charter Business Networks Charter Cable TV Charter Digital Charter Pipeline Charter High
Definition Service Charter On Demand Charter Media Charter Business Networks Charter Cable TV Charter Digital Charter Pipeline Charter High Definition
Service Charter On Demand Charter Media Charter Business Networks Charter Cable TV Charter Digitalâ„¢Charter Pipeline Charter High Definition Service
Charter On Demand Charter Media Charter Business Networks Charter Cable TV Charter Digital Charter Pipeline Charter High Definition Service Charter
On Demand Charter Media Charter Business Networks Charter Cable TV Charter Digital Charter Pipeline Charter High Definition Service Charter On
Demand Charter Media Charter Business Networks Charter Cable TV Charter Digital Charter Pipeline Charter High Definition Service Charter On Demand
Charter Media Charter Business Networks Charter Cable TV®Charter Digital Charter Pipeline Charter High Definition Service Charter On Demand Charter
Media Charter Business Networks Charter Cable TV Charter Digital Charter Pipeline Charter High Definition Service Charter On Demand Charter Media
Charter Business Networks Charter Cable TV Charter Digital Charter Pipeline Charter High Definition Service Charter On Demand Charter Media Charter
Business Networks Charter Cable TV Charter Digital Charter Pipeline Charter High Definition Service Charter On Demand Charter Media Charter Business
Networks Charter Cable TV Charter Digital Charter Pipeline Charter High Definition Service Charter On Demand Charter Media Charter Business Networks
Charter Cable TV Charter Digital Charter Pipeline Charter High Definition Service Charter On Demand Charter Media Charter Business Networks Charter
Cable TV Charter Digital Charter Pipeline Charter High Definition Service Charter On Demand Charter Media Charter Business Networks®Charter Cable
TV Charter Digital Charter Pipeline Charter High Definition Service Charter On Demand Charter Media Charter Business Networks Charter Cable TV
Charter Digital Charter Pipeline Charter High Definition Service Charter On Demand Charter Media Charter Business Networks Charter Cable TV Charter
Digital Charter Pipeline Charter High Definition Serviceâ„¢Charter On Demand Charter Media Charter Business Networks Charter Cable TV Charter Digital
Charter Pipeline Charter High Definition Service Charter On Demand Charter Media Charter Business Networks Charter Cable TV Charter Digital Charter
Pipeline Charter High Definition Service Charter On Demand Charter Media Charter Business Networks Charter Cable TV Charter Digital Charter Pipeline
Charter High Definition Service Charter On Demand Charter Media Charter Business Networks Charter Cable TV Charter Digital Charter Pipeline Charter

Table of contents

  • Page 1
    2002 Annual Report Charter Media Charter Business Networks Charter Cable TV Charter Digital Charter Pipeline Charter High Definition Service Charter On Demand Charter Media Charter Business Networks Charter Cable TV Charter Digital Charter Pipeline Charter High Definition Service Charter On Demand ...

  • Page 2
    ... Depreciation and amortization Impairment of franchises Option compensation expense Special charge, net Adjusted EBITDA Interest on cash pay obligations Special charges, net Changes in operating assets and liabilities Net cash flows from operating activities $ (4,320) 1,437 4,638 5 36 1,796...

  • Page 3
    ... Association (NCTA) that have been adopted by eleven publicly traded cable operators (including Charter Communications, Inc.) as an industry standard. See the Customer Statistics Chart in the "Our Business" section for additional information related to the above statistics. 2002 Annual Report 1.

  • Page 4
    ... a society equipped with a modern, always-on broadband network. We remain convinced that by providing customers choice in their high-speed data access speeds, and the prices associated with them, we remain competitive and often provide, quite simply, the best deal in town. 2. Charter Communications

  • Page 5
    ... who continue to make Charter's Wired Worldâ„¢ vision a daily reality for millions of customers nationwide. Carl E. Vogel President and Chief Executive Officer Carl E. Vogel President and Chief Executive Officer Paul G. Allen Chairman Paul G. Allen Chairman June 13, 2003 2002 Annual Report 3.

  • Page 6
    ... Flint-Saginaw-Bay City Birmingham (Anniston and Tuscaloosa) Dallas-Ft. Worth Boston (Manchester) Grand Rapids-Kalamazoo-Battle Creek Minneapolis-St. Paul Traverse City-Cadillac Reno Nashville New Orleans Tri-Cities, TN-VA Charleston-Huntington Charlotte Knoxville Green Bay-Appleton La Crosse-Eau...

  • Page 7
    ... Statements Organizational Structure Our Business Selected Financial Data Management's Discussion and Analysis of Financial Condition and Results of Operations Quantitative and Qualitative Disclosure about Market Risk Change in Principal Accounting Firm Financial Statements, Notes and Reports...

  • Page 8
    ... class action and derivative shareholders litigation against us; ‚ the cost and availability of funding to reÃ'nance the existing debt that becomes due commencing in 2005; ‚ our ability to achieve free cash Ã-ow; ‚ our ability to obtain programming at reasonable prices; ‚ general business...

  • Page 9
    ... stock issued in connection with certain acquisitions to former owners of cable systems, convertible at a rate of 4.0469446 shares of Class A common stock for each share of non-voting convertible redeemable preferred stock, for an aggregate of approximately 2,206,633 shares of Charter Communications...

  • Page 10
    ... securities were put to Charter Communications Holding Company, LLC for redemption, and this redemption ultimately occurred on April 18, 2003 for an aggregate redemption price of approximately $3.9 million. (6) Charter Communications, Inc. acts as the sole manager of Charter Communications Holding...

  • Page 11
    ...Average monthly revenue per customer relationship(k)(l $ 57 $ 47 (a) ""Customers'' include all persons corporate billing records show as receiving service, regardless of their payment status, except for complimentary accounts (such as our employees). Prior to publicly reporting the number of...

  • Page 12
    ... 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...

  • Page 13
    ... that have been adopted by eleven publicly traded cable operators (including Charter Communications, Inc.) as an industry standard. (l) Average monthly revenue per customer relationship represents total revenue, divided by twelve, divided by the average number of customer relationships. 11

  • Page 14
    ...Statement of Operations Data: Revenues Costs and Expenses: Operating (excluding depreciation and amortization and other items listed below Selling, general and administrative Depreciation and amortization Impairment of franchises ÏÏÏÏ Option compensation expense, net Special charges Income...

  • Page 15
    ... Financial Condition and Results of Operations Ì Restatement of Prior Results.'' (b) Prior to the acquisition of the Charter companies by Mr. Allen on December 23, 1998, the cable systems operated under the Charter Communications name were operated under three groups of companies which were managed...

  • Page 16
    ...amounts are oÃ...set by reduced depreciation and amortization expense. Capitalized Labor and Overhead Costs. Certain elements of labor costs and related overhead allocations previously capitalized as property, plant and equipment as part of our rebuild activities, customer installation and new service...

  • Page 17
    ... program over the three-year period. As the rebuild program was beginning in early 2000, we were nearing the end of a period in which we were acquired by Paul G. Allen and merged with Marcus Cable and in which we had subsequently completed an initial public oÃ...ering and acquired 16 cable businesses...

  • Page 18
    ... customer acquisition costs previously charged against purchase accounting reserves, certain tax reclassiÃ'cations from tax expense to operating costs, reclassifying management fee revenue from a joint venture to oÃ...set losses from investments and adjustments to option compensation expense. The net...

  • Page 19
    ... and administrative Depreciation and amortization Option compensation income Special charges Loss from operations Loss before minority interest, income taxes and cumulative eÃ...ect of accounting change Loss before cumulative eÃ...ect of accounting change Net loss applicable to common stock Loss...

  • Page 20
    ... table sets forth selected consolidated cash Ã-ow information, showing previously reported and restated amounts, for the years ended December 31, 2001 and 2000 (in millions): 2001 As previously reported As restated 2000 As previously reported As restated Net cash from operating activities Net cash...

  • Page 21
    ... Systems LLC, a subsidiary of Charter Communications Holding Company, purchased from High Speed Access Corp. the contracts and associated assets, and assumed related liabilities, that serve our data services customers, including a customer contact center, a network operations center and provisioning...

  • Page 22
    ... amortization expense and interest expense. Operating costs primarily include programming costs, the cost of our workforce, cable service related expenses, and advertising sales costs, franchise fees and expenses related to customer billings. Our negative operating margins increased from 32% for the...

  • Page 23
    ...and activating the new service and consist of compensation and overhead costs associated with these support functions. The costs of disconnecting service at a customer's dwelling or reconnecting service to a previously installed dwelling are charged to operating expense in the period incurred. Costs...

  • Page 24
    .... Depreciation is recorded using the straight-line method over management's estimate of the estimated useful lives of the related assets as follows: Cable distribution systems Customer equipment and installations Vehicles and equipment Buildings and leasehold improvements Furniture and Ã'xtures...

  • Page 25
    ... groups generally represent geographic clusters of our cable systems which management believes represents the highest and best use of those assets. We determined that our franchises were impaired and as a result recorded the cumulative eÃ...ect of a change in accounting principle of $266 million, net...

  • Page 26
    ... the membership units held by Vulcan Cable and Charter Investment (the ""Special Loss Allocations'') to the extent of their capital account balances. The LLC Agreement further provides that, beginning at the time Charter Communications Holding Company Ã'rst generates net tax proÃ'ts, the net tax pro...

  • Page 27
    ... under their exchange agreement with Charter Communications, Inc., Vulcan Cable and Charter Investment may exchange some or all of their membership units in Charter Communications Holding Company for Charter Communications, Inc.'s Class B common stock, be merged with Charter Communications, Inc., or...

  • Page 28
    ... 2000 Revenues Costs and Expenses: Operating (excluding depreciation and amortization and other items listed below Selling, general and administrative ÏÏÏ Depreciation and amortization Impairment of franchises Option compensation expense, net ÏÏÏÏ Special charges Loss from operations...

  • Page 29
    ...fair value. In some cases we purchased equipment from the vendors at the same time. Other revenues consist primarily of revenues from franchise fees, customer installations, equipment rental, processing fees, wire maintenance fees, home shopping, dial-up Internet service, late payment fees and other...

  • Page 30
    ... pass on cost increases to our customers. We expect to partially oÃ...set any resulting margin compression through increased incremental high-speed data revenues. Advertising sales expenses consist of costs related to traditional advertising services, including salaries and beneÃ'ts. Advertising sales...

  • Page 31
    ... and other costs associated with our shareholder lawsuits and governmental investigations. Special charges of $18 million in 2001 represent charges associated with the transition of approximately 145,000 data customers from the Excite@Home Internet service to our Charter Pipeline service, as well...

  • Page 32
    ..., Charter Communications, Inc. 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 in August 2001, on which it pays a quarterly cumulative cash dividends at an annual rate...

  • Page 33
    ... value of advertising. Other revenues consist primarily of revenues from franchise fees, customer installations, equipment rental, processing fees, wire maintenance fees, home shopping, dial-up Internet service, late payment fees and other miscellaneous revenues. Other revenues increased $28 million...

  • Page 34
    ...revenues are as follows (dollars in millions): 2001 Balance Year Ended December 31, 2000 % of % of Revenues Balance Revenues 2001 over 2000 % Change Change Analog video programming Digital video programming High-speed data Advertising sales Service $ 874 103 65 64 374 $1,480 23% 2% 2% 2% 10...

  • Page 35
    ... options which ends in April 2004. Special Charges. Special charges in 2001 of $18 million represent charges associated with the transition of approximately 145,000 data customers from the Excite@Home Internet service to our Charter Pipeline service, as well as employee severance costs. Net Interest...

  • Page 36
    ...our capital expenditures. Preferred Stock Dividends. Charter Communications, Inc. issued 505,664 shares of Series A Convertible Redeemable Preferred Stock in connection with the Cable USA acquisition in August 2001, on which it pays a quarterly cumulative cash dividends at an annual rate of 5.75% on...

  • Page 37
    ... of our corporate structure, Charter Communications, Inc. has less access to capital than certain of its operating subsidiaries and therefore Charter Communications, Inc.'s ability to repay its senior notes is subject to additional uncertainties. Charter Communications, Inc. is a holding company and...

  • Page 38
    ... senior notes unless it can obtain additional Ã'nancing or it receives distributions or other payments from its subsidiaries. The indentures governing the Charter Communications Holdings notes permit Charter Communications Holdings to make distributions to Charter Communications Holding Company...

  • Page 39
    ... and upgrade program and purchases of digital set-top terminals and cable modems. Upgrading our cable systems has enabled us to oÃ...er digital television, cable modem high-speed Internet access, video-on-demand, interactive services, additional channels and tiers, and expanded pay-per-view options to...

  • Page 40
    ... 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...

  • Page 41
    ...(a) Semi-Annual Interest Payment Dates Start Date for Interest Payment on Discount Notes Maturity Date(b) Long-Term Debt Charter Communications, Inc.: October and November 2000 5.750% convertible senior notes due 2005(c May 2001 4.750% convertible senior notes due 2006(c Charter Holdings: March...

  • Page 42
    ... on quoted market prices. Traditionally, we have accessed the high-yield bond market as a source of capital for our growth. Moody's Investor Services downgraded our outstanding debt in October, 2002 and again in January, 2003. Moody's also reduced its liquidity rating of Charter Communications, Inc...

  • Page 43
    ... our operating expenses increase. If we are not able to obtain such capital from increases in our operating cash Ã-ow, additional borrowings or other sources, we may not be able to fund customer demand for digital video, data or telephony services, oÃ...er certain services in certain of our markets or...

  • Page 44
    ... Charter Operating, this includes the Renaissance Media Group LLC senior discount notes with an accreted value of $113 million as of December 31, 2002. (2) Includes permitted intercompany loans between Charter Holdings or Charter Communications Holding Company to the respective bank group entities...

  • Page 45
    ... are not presented on the balance sheet as we intend to reÃ'nance the amounts due in 2003 with availability under the revolving portions of our credit facilities or with cash on hand. Charter Operating CC VI Operating Falcon Cable Communications CC VIII Operating Total 2003 2004 2005 2006...

  • Page 46
    ... CC VI Operating revolving credit facilities with proceeds from the issuance of the January 2002 Charter Holdings notes. Falcon Facilities. The obligations under the Falcon credit facilities are guaranteed by the direct parent of Falcon Cable Communications, Charter Communications VII, LLC, and by...

  • Page 47
    ...of our subsidiaries, information requirements, events of default and Ã'nancial covenants. The Ã'nancial covenants, which are generally tested on a quarterly basis, measure performance against standards set for leverage, debt service coverage, and operating cash Ã-ow coverage of cash interest expense...

  • Page 48
    ...and to Charter Communications, Inc. to pay interest on the convertible senior notes, in each case provided the respective borrower's interest coverage test (as deÃ'ned in the relevant credit agreement) for the most recent Ã'scal quarter preceding the distribution exceeds 1.75 times its cash interest...

  • Page 49
    ... 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 the bond issuers' debt, or issue speciÃ'ed equity interests; and ‚ engage in certain...

  • Page 50
    ... 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 speciÃ'ed threshold...

  • Page 51
    ...to the fair market value of the assets or equity interests, with at least 75% of the consideration for such sale consisting of a controlling interest in a permitted business or assets useful in a permitted business or cash, assumption of liabilities or securities promptly converted into cash. The CC...

  • Page 52
    ... assets, including controlling assets in permitted businesses, make capital expenditures or use the net cash proceeds to repay debt, or to oÃ...er to repurchase the CC V notes with any remaining proceeds. ‚ The CC V issuers and their restricted subsidiaries may not engage in sale and leaseback...

  • Page 53
    ... used in their own or related businesses or use the net cash proceeds to repay debt, or to oÃ...er to repurchase the Renaissance notes with any remaining proceeds. ‚ Renaissance Media Group and its restricted subsidiaries may generally not engage in sale and leaseback transactions unless the lease...

  • Page 54
    ... all or any portion of its convertible senior notes at maturity. See ""ÃŒ Certain Trends and Uncertainties ÃŒ Restrictive Covenants.'' Funding Commitment of Vulcan Inc. In February 2003, we received a proposal from Paul Allen, Chairman of our board of directors, oÃ...ering to provide a backup credit...

  • Page 55
    ... headquarters in St. Louis and certain corporate aircraft. We would be required to use our commercially reasonable eÃ...orts to form a new interim holding company (CCH II, LLC) as a subsidiary of Charter Holdings and to cause Charter Holdings to transfer to it the equity interests in Charter Operating...

  • Page 56
    ... to the lender. All new holding company subsidiaries of ours will guarantee the facility on a senior basis. No transfer by Charter Holdings of its equity interests in Charter Operating, CC V Holdings, LLC, CC VI Holdings, LLC, and Charter Communications VII, LLC will be permitted except to CCH II...

  • Page 57
    ...Charter Communications Holding Company and, subject to compliance with the restrictions on the creation of holding companies covenant, new holding companies that are parents of CCH II, LLC (without duplication) and management fees will be permitted to the extent permitted under the operating company...

  • Page 58
    ... or fees on the loans or other amounts under the facility when due; (ii) a default in (x) the payment of principal when due, (y) the payment of interest when due after giving eÃ...ect to any applicable grace period or (z) a non-payment default which causes, or permits the holders of indebtedness...

  • Page 59
    ... which are scheduled to come due in 2005 and thereafter. We do not expect that cash Ã-ows from operations will be suÇcient, on their own, to permit us to satisfy these obligations. In addition, because of our corporate structure, Charter Communications, Inc., a holding company, has less access to...

  • Page 60
    .... Our diÇculty in accessing these markets will impact our ability to obtain future Ã'nancing for operations, to fund our planned capital expenditures and to react to changes in our business. If our business does not generate suÇcient cash Ã-ow from operations, and suÇcient future distributions...

  • Page 61
    ...issuer of senior notes and senior discount notes issued in March 1999, January 2000, January 2001, May 2001 and January 2002. As of December 31, 2002, our total debt was approximately $18.7 billion, $17.3 billion of which would have been structurally senior to the Charter Communications, Inc. public...

  • Page 62
    ..., movie theaters, the Internet, live sports events and home video products. With respect to our Internet access services, we face competition, including intensive marketing eÃ...orts and aggressive pricing, from telephone companies and other providers of ""dial-up'' and digital subscriber line...

  • Page 63
    .... The inability to pass these programming cost increases on to our customers would have an adverse impact on our cash Ã-ow and operating margins. Class A Common Stock and Public Notes Price Volatility. The market price of our Class A common stock and the publicly-traded notes issued by us and our...

  • Page 64
    ... governing the Charter Communications, Inc. convertible senior notes. Regulation and Legislation. Cable systems are extensively regulated at the federal, state, and local level, including rate regulation of basic service and equipment and municipal approval of franchise agreements and their...

  • Page 65
    ..., the Financial Accounting Standards Board issued SFAS No. 146, ""Accounting for Costs Associated with Exit or Disposal Activities.'' SFAS No. 146 addresses Ã'nancial accounting and reporting for costs associated with exit or disposal activities and nulliÃ'es Emerging Issues Task Force Issue No. 94...

  • Page 66
    ... for Stock-Based Compensation'' on the prospective method under which we 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. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate...

  • Page 67
    ... LLP agreed with such statements in a letter dated April 26, 2002 that was Ã'led with the SEC. In 2003, KPMG re-audited the Company's 2000 and 2001 Ã'nancial statements. See ""Management's Discussion and Analysis of Financial Condition and Results of Operations ÃŒ Restatement of Prior Results'' and...

  • Page 68
    ... application of accounting principles to a speciÃ'ed transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company's consolidated Ã'nancial statements, or any other matters or reportable events as set forth in Items 304(a)(2)(i) and (ii) of Regulation...

  • Page 69
    INDEX TO FINANCIAL STATEMENTS Page Independent Auditors' Report Consolidated Balance Sheets as of December 31, 2002, 2001 and 2000 Consolidated Statements of Operations for the Years Ended December 31, 2002, 2001 and 2000 ÏÏÏÏ Consolidated Statements of Changes in Shareholders' Equity for the...

  • Page 70
    ...To the Board of Directors Charter Communications, Inc: We have audited the accompanying consolidated balance sheets of Charter Communications, Inc. and subsidiaries as of December 31, 2002, 2001 and 2000, and the related consolidated statements of operations, changes in shareholders' equity and cash...

  • Page 71
    ... ASSETS: Cash and cash equivalents Accounts receivable, less allowance for doubtful accounts of $19, $33 and $12, respectively Receivables from related party Prepaid expenses and other current assets Total current assets INVESTMENT IN CABLE PROPERTIES: Property, plant and equipment, net of...

  • Page 72
    ... data) REVENUES COSTS AND EXPENSES: Operating (excluding depreciation and amortization and other items listed below Selling, general and administrative Depreciation and amortization Impairment of franchises Option compensation expense, net Special charges Loss from operations OTHER INCOME...

  • Page 73
    ... on marketable securities available for sale ÏÏÏÏÏ Option compensation expense, net (restated Loss on issuance of equity by subsidiary (restated Stock options exercised Net loss (restated BALANCE, December 31, 2000 (restated Issuance of common stock related to acquisitions Net proceeds...

  • Page 74
    ... from and payables to related party, including deferred management fees Other operating activities Net cash Ã-ows from operating activities CASH FLOWS FROM INVESTMENT ACTIVITIES: Purchases of property, plant and equipment Payments for acquisitions, net of cash acquired Purchases of investments...

  • Page 75
    ... analog television services to the home, along with advanced broadband services, including television on an advanced digital programming platform and high-speed Internet access. The Company also provides commercial high-speed data, video, telephony and Internet services as well as advertising sales...

  • Page 76
    ... elements of labor costs and related overhead allocations previously capitalized as property, plant and equipment as part of the Company's rebuild activities, customer installations and new service introductions have been expensed in the period incurred. Such adjustments increased operating expenses...

  • Page 77
    ... customer acquisition costs previously charged against purchase accounting reserves, certain tax reclassiÃ'cations from tax expense to operating costs, reclassifying management fee revenue from a joint venture to oÃ...set losses from investments and adjustments to option compensation expense. The net...

  • Page 78
    ...Reported As Restated CURRENT ASSETS: Cash and cash equivalents Accounts receivable, net Receivables from related parties Prepaid expenses and other current assets Total current assets INVESTMENT IN CABLE PROPERTIES: Property, plant and equipment, net Franchises, net Total investment in cable...

  • Page 79
    ... and administrative Depreciation and amortization Option compensation expense, net Special charges Loss from operations OTHER INCOME (EXPENSE): Interest expense, net Loss on equity investments Other, net Loss before minority interest, income taxes and cumulative eÃ...ect of accounting change...

  • Page 80
    ...table sets forth the consolidated balance sheet for the Company, showing previously reported and restated amounts, as of December 31, 2000 (in millions): As Previously Reported As Restated CURRENT ASSETS: Cash and cash equivalents Accounts receivable, net Receivables from related parties Prepaid...

  • Page 81
    ... 31, 2000 (in millions, except share data): As Previously Reported As Restated REVENUES COSTS AND EXPENSES: Operating (excluding depreciation and amortization and other items listed below Selling, general and administrative Depreciation and amortization Option compensation expense, net Loss...

  • Page 82
    ...recorded using the straight-line method over management's estimate of the useful lives of the related assets as follows: Cable distribution systems Customer equipment and installations Vehicles and equipment Buildings and leasehold improvements Furniture and Ã'xtures Franchises Franchise rights...

  • Page 83
    ... cable franchises were deferred and amortized using the straight-line method over a period of 15 years. Franchise rights acquired through the purchase of cable systems were generally amortized using the straight-line method over a period of 15 years. The period of 15 years was management's best...

  • Page 84
    ... from analog, digital and high-speed data services are recognized when the related services are provided. Advertising sales are recognized in the period that the advertisements are broadcast. Local governmental authorities impose franchise fees on the Company ranging up to a federally mandated...

  • Page 85
    ...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 No. 28 (FIN 28), Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans. Adoption of...

  • Page 86
    ... of Charter at the option of the holders. Should the holders exchange units for shares, the eÃ...ect would not be dilutive. Segments SFAS No. 131, ""Disclosure about Segments of an Enterprise and Related Information,'' established standards for reporting information about operating segments in annual...

  • Page 87
    ... Entertainment I, LLC purchased all of Enstar Income Program II-1, L.P.'s Illinois cable television systems, serving approximately 6,400 (unaudited) customers, for a cash purchase price of $15 million. Enstar Communications Corporation, a direct subsidiary of Charter Holdco, is a general partner...

  • Page 88
    ...during 2000 and 2001; the issuance of Charter Holdings senior notes and senior discount notes in January 2002 and 2001; the issuance of Charter Holdings senior notes and senior discount notes in May 2001; and the issuance of and sale by Charter of convertible senior notes and Class A common stock in...

  • Page 89
    ...Ã'nite-Lived Intangible Assets, franchises were aggregated into essentially inseparable asset groups to conduct the valuations. The asset groups generally represent geographic clusters of the Company's cable systems, which management believes represents the highest and best use of those assets. Fair...

  • Page 90
    ...with a view to whether or not the Company is in compliance with any technology upgrading requirements. Certain franchises did not qualify for indeÃ'nite-life treatment due to technological or operational factors that limit their lives. These franchise costs will be amortized on a straight-line basis...

  • Page 91
    ... consist of the following as of December 31, 2002, 2001 and 2000 (in millions): 2002 2001 2000 Accounts payable Capital expenditures Accrued interest Programming costs Accrued general and administrative Franchise fees State sales tax Other accrued expenses $ 290 141 243 237 126 68 67 233...

  • Page 92
    ... Senior bridge loan facility Renaissance: 10.00% senior discount notes due 2008 ÏÏÏÏ CC V Holdings: 11.875% senior discount notes due 2008 ÏÏÏ Other long-term debt Credit Facilities Charter Operating CC Michigan, LLC and CC New England, LLC (Avalon CC VI Falcon Cable CC VIII Operating...

  • Page 93
    ... Convertible Notes''). The net proceeds of $728 million were used to repay certain amounts outstanding under the Charter Holdings 2000 senior bridge loan facility. The 5.75% Charter Convertible Notes are convertible at the option of the holder into shares of Class A common stock at a conversion rate...

  • Page 94
    ... principal amount at maturity of 13.500% senior discount notes due 2011. The net proceeds of approximately $1.72 billion were used to repay all remaining amounts then outstanding under the Charter Holdings 2000 senior bridge loan facility and the CC VI revolving credit facility and a portion of the...

  • Page 95
    ... at maturity of 11.750% senior discount notes due 2011. The net proceeds of approximately $1.47 billion were used to pay a portion of the purchase price of the AT&T transactions, repay all amounts outstanding under the Charter Operating and Falcon Cable revolving credit facilities and for general...

  • Page 96
    ... 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 speciÃ'ed equity interests; and ‚ engage in...

  • Page 97
    CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2002, 2001 and 2000 (dollars in millions, except where indicated) 0.375% per annum is payable on the unborrowed balance of the revolving credit facilities. As of December 31, 2002, outstanding ...

  • Page 98
    ...in St. Louis and certain corporate aircraft. The Company would be required to use its commercially reasonable eÃ...orts to form a new interim holding company (CCH II, LLC) as a subsidiary of Charter Holdings and to cause Charter Holdings to transfer to it the equity interests in Charter Communications...

  • Page 99
    ... and 2000 (dollars in millions, except where indicated) Company refers to as the equity contribution. The equity interests to be transferred in the equity contribution have been pledged as security for the loans under the Charter Operating credit facility. The Company would also be required to use...

  • Page 100
    ... and Equity Interests of Charter Holdco The Company is a holding company whose primary asset is a controlling equity interest in Charter Holdco, the indirect owner of the Company's cable systems. Minority interest on the Company's consolidated balance sheets represents the ownership percentages of...

  • Page 101
    ...of Class A common stock Minority interest in loss of a subsidiary Minority interest in change in accounting principle Minority interest in income tax beneÃ't Option compensation expense, net Changes in fair value of interest rate agreements Gain on issuance of equity by Charter Holdco Balance...

  • Page 102
    ... Sellers have the right at their option to exchange the CC VIII Interest for shares of Charter Class A common stock. Charter does not have the right to force such an exchange. In connection with the Bresnan acquisition, Mr. Allen granted the Comcast Sellers the right to sell to Mr. Allen the CC VIII...

  • Page 103
    ... 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...

  • Page 104
    .... 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...

  • Page 105
    ...position or results of operations. The estimated fair value of the Company's notes, credit facilities and interest rate agreements at December 31, 2002, 2001 and 2000 are based on quoted market prices or a discounted cash Ã-ow analysis using the Company's incremental borrowing rate for similar types...

  • Page 106
    ... expenses consist of the following for the years presented (in millions): Year Ended December 31, 2002 2001 2000 Analog video programming Digital video programming High-speed data Advertising sales Service $1,012 159 112 87 434 $1,804 $ 874 103 65 64 374 $1,480 $ 741 34 25 57 328 $1,185...

  • Page 107
    CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2002, 2001 and 2000 (dollars in millions, except where indicated) September and October 2001, in connection with new employment agreements and related option agreements entered into by the Company, ...

  • Page 108
    ... management structure. The remaining $4 million is related to legal and other costs associated with the Company's ongoing grand jury investigation, shareholder lawsuits and SEC investigation. The $31 million charge related to realignment activities includes severance costs of $28 million and lease...

  • Page 109
    ... activities. During the year ended December 31, 2001, the Company recorded $18 million in special charges that represent $15 million of costs associated with the transition of approximately 145,000 (unaudited) data customers from the Excite@Home Internet service to the Charter Pipeline Internet...

  • Page 110
    ... and available tax loss carryforwards. In addition to the aforementioned reasons, under their exchange agreement with Charter, Vulcan Cable and Charter Investment may exchange some or all of their membership units in Charter Holdco for Charter's Class B common stock, be merged with Charter, or be...

  • Page 111
    CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2002, 2001 and 2000 (dollars in millions, except where indicated) The Company's eÃ...ective tax rate diÃ...ers from that derived by applying the applicable Federal income tax rate of 35%, and average ...

  • Page 112
    ...customer billing services, data processing and related support, beneÃ'ts administration and coordination of insurance coverage and self-insurance programs for medical, dental and workers' compensation claims. Certain costs for these services are billed and charged directly to the Company's operating...

  • Page 113
    ...High Speed Access Corp. (High Speed Access) has been a provider of high-speed Internet access services over cable modems. During the period from 1997 to 2000, certain Charter entities entered into Internet-access related service agreements, and both Vulcan Ventures, an entity controlled by Mr. Allen...

  • Page 114
    ... Sellers have the right at their option to exchange the CC VIII Interest for shares of Charter Class A common stock. Charter does not have the right to force such an exchange. In connection with the Bresnan acquisition, Mr. Allen granted the Comcast Sellers the right to sell to Mr. Allen the CC VIII...

  • Page 115
    ...NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2002, 2001 and 2000 (dollars in millions, except where indicated) 24. Commitments and Contingencies Leases The Company leases certain facilities and equipment under noncancellable operating leases. Leases and rental costs charged to expense for...

  • Page 116
    ...advanced certain costs and expenses incurred in connection with their defense. In addition to the matters set forth above, 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...

  • Page 117
    ... the subject of cable regulation. Future legislative and regulatory changes could adversely aÃ...ect the Company's operations. The 1992 Cable Act permits certiÃ'ed local franchising authorities to order refunds of basic service tier rates paid in the previous twelve-month period determined to be...

  • Page 118
    ..., the Financial Accounting Standards Board issued SFAS No. 146, ""Accounting for Costs Associated with Exit or Disposal Activities.'' SFAS No. 146 addresses Ã'nancial accounting and reporting for costs associated with exit or disposal activities and nulliÃ'es Emerging Issues Task Force Issue No. 94...

  • Page 119
    ...CONSOLIDATED FINANCIAL STATEMENTS December 31, 2002, 2001 and 2000 (dollars in millions, except where indicated) CHARTER COMMUNICATIONS, INC. (Parent Company Only) CONDENSED BALANCE SHEET December 31, 2002 ASSETS Cash and cash equivalents Receivable from related party Investment in Charter Holdco...

  • Page 120
    CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2002, 2001 and 2000 (dollars in millions, except where indicated) CONDENSED STATEMENTS OF CASH FLOWS Year Ended December 31, 2002 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss after preferred ...

  • Page 121
    ... CONDENSED STATEMENT OF OPERATIONS Year Ended December 31, 2001 (As previously reported) (As restated) REVENUES Interest income Management fees Total revenues EXPENSES Equity in losses of Charter Holdco General and administrative expenses Interest expense Total expenses Net loss Dividend on...

  • Page 122
    CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2002, 2001 and 2000 (dollars in millions, except where indicated) method of accounting, showing previously reported and restated amounts as of December 31, 2000 (in millions): CONDENSED BALANCE ...

  • Page 123
    ... FINANCIAL STATEMENTS December 31, 2002, 2001 and 2000 (dollars in millions, except where indicated) CONDENSED STATEMENTS OF CASH FLOWS Year Ended December 31, 2000 (As previously reported) (As restated) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss Equity in losses of Charter Holdco Changes...

  • Page 124
    ... be read in conjunction with Note 3. For the Three Months Ended March 31, 2002 As previously reported Adjustments As restated Revenues Income (loss) from operations Loss before minority interest, income taxes and cumulative eÃ...ect of accounting change Net loss applicable to common stock Basic...

  • Page 125
    ... with customer acquisition and installation and deferral of launch incentives. For the Three Months Ended September 30, 2002 As previously reported Adjustments As restated Revenues Income (loss) from operations Loss before minority interest and income taxes Net loss applicable to common stock...

  • Page 126
    ...and 2000 (dollars in millions, except where indicated) For the Three Months Ended March 31, 2001 As previously reported Adjustments As restated Revenues Loss from operations Loss before minority interest, income taxes and cumulative eÃ...ect of accounting change Net loss applicable to common stock...

  • Page 127
    ... not taken out of service in the Company's rebuild and upgrade plan. For the Three Months Ended June 30, 2000 As previously reported Adjustments As restated Revenues Loss from operations Loss before minority interest and income taxes Net loss applicable to common stock Basic and diluted loss...

  • Page 128
    ...) (623) (253) (1.08) 233,738,668 233,738,668 The nature of the items increasing net loss applicable to common stock was primarily the same as in the three months ended March 31, 2000 with an additional adjustment to expense certain costs originally capitalized as customer acquisition costs. F-60

  • Page 129
    ...investment vehicle Ronald L. Nelson Director, Charter Communications Chief Financial Officer and Board Member, Cendant Corp., a travel and real estate conglomerate Nancy B. Peretsman Director, Charter Communications Executive Vice President and Managing Director, Allen & Co., an investment bank (not...

  • Page 130
    ... account changes should be directed to: Mellon Investor Services LLC Overpeck Centre 85 Challenger Road Ridgefield Park, NJ 07660 Toll-free number: 888.213.0965 Web site: www.mellon-investor.com Corporate Headquarters Charter Communications, Inc. Charter Plaza 12405 Powerscourt Drive St. Louis, MO...