Charter 2004 Annual Report Download - page 4

2Charter Communications
Letter to Stockholders
To Our Stockholders:
The past two years have indeed been
a period of change and transformation
for Charter. We have moved the Company
forward, repositioning squarely on serving
our customers and strengthening our
operations to take advantage of exciting
new opportunities, creating new standards
of excellence, and establishing a founda-
tion for long-term shareholder value.
Your Board and management team
understand the goals and objectives nec-
essary to bolster operating and financial
performance, and to position the business
for long-term success. Simply stated, our
objective is to unlock the unrealized value
at all levels of Charter, taking advantage
of our past investments to generate future
growth. We are confident we have the
infrastructure, products, services, and
human resources to achieve our goals.
While we operate in a highly com-
petitive environment, we believe we
provide the products and technology that
consumers want and need. By combining
these products with a higher degree of
customer service, we look to create addi-
tional value and enhance our relationship
with our customers. At the same time,
we are looking to attract new customers
and win back those who have turned to
alternative providers.
Our immediate focus internally is
to instill a renewed sense of operational
excellence throughout the organization.
Our goal is to become the premier
provider of in-home entertainment and
communications services in every market
we serve. In order to achieve this, we
must focus on execution, building on our
past successes and setting aggressive but
achievable goals for ourselves in 2005.
2004 In Review: A Snap Shot
For the year, Charter reported revenues of
$4.977 billion, an increase of 3 percent
from 2003. On a pro forma basis, our
revenues were $4.948 billion, an increase
of 7 percent over pro forma revenues of
$4.630 billion for 2003. This increase in
revenue was due primarily to a $197 mil-
lion, or 36 percent, increase in pro forma
high-speed Internet (HSI) revenues year
over year. Adjusted EBITDA (which is a
non-GAAP measure — see the “Financial
Summary” section of this report for
reconciliation to GAAP measures) totaled
$1.926 billion for the year ended
December 31, 2004, essentially even
with the year ended December 31, 2003.
On a pro forma basis, adjusted EBITDA
totaled $1.913 billion for the year, an
increase of $78 million, or 4 percent,
compared to pro forma adjusted EBITDA
of $1.835 billion for 2003.
In 2003, our revenues increased
6 percent to $4.819 billion and adjusted
EBITDA grew 7 percent to $1.927 billion
compared to 2002.
With regard to the balance sheet, we
are pleased with the improvements we
have made in strengthening the financial
profile of the Company. In April 2004
we completed the $8 billion Charter
Communications Operating, LLC bank
and bond financing. That transaction
extended beyond 2008 approximately
$8 billion of scheduled debt maturities
and credit facility commitment reductions
which would have otherwise come due
before that time, giving us enhanced
financial flexibility. Last November we
issued $863 million of convertible senior
notes to refinance the $588 million of
convertible senior notes due 2005.
We also issued $550 million of senior
floating rate notes to further improve
liquidity. In early 2005 we completed a
few private transactions to further improve
our debt maturities. We recognize the
need to reduce our overall leverage
and continuously look at opportunistic
alternatives to improve liquidity and
leverage that maximize the interest of
all our stakeholders.
Due to the timing of the financing
activities late in 2004, we ended the
year with slightly inflated cash and debt
balances. At December 31, 2004, we had
$19.5 billion of debt, and $650 million
of cash and cash equivalents. Bank avail-
ability was $804 million at year end.
Products:
We remain enthusiastic about the revenue
and growth opportunities from new
advanced services, including telephone
service, HSI, Video on Demand (VOD),
high-definition television (HDTV), Digital
Video Recording (DVR) equipped set-tops
and wireless home networking. In early
2004, we introduced the first all-digital
cable telecommunications network in
Long Beach, California, resulting in
widespread industry acclaim. Converting
from analog to digital improves picture
quality and potentially recovers precious
bandwidth capacity that can be used
to provide more HDTV channels as
well as targeted services including VOD
and specialized subscription services.
We launched all-digital in two additional
markets, Madison, Wisconsin and
St. Louis in early 2005, and expect to
make the all-digital switch in additional
markets this year.
We gained 86,100 digital customers
during 2004, increasing our digital base
3 percent on a pro forma basis. Charter
has always been among the industry
leaders in digital penetration and we
are adding enhancements to the digital
service to continue to grow that business.
Advanced set-tops providing HDTV and
DVR services were available to approxi-
mately three-fourths of our 2.7 million
digital customers at December 31, 2004.
Our VOD service was available to over
50 percent of our digital customer base
at year end, and we saw usage of this