Charter 2006 Annual Report Download

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driving growth
+
2006 Annual Report

Table of contents

  • Page 1
    driving growth 2006 Annual Report +

  • Page 2
    ...return on investment drive telephone roll-out + + + Expanded availability to 60% of service area Celebrated installation of our 500,000th telephone customer in February 2007 Three-quarters of telephone customers choosing the triple-play bundle of cable television, high-speed Internet, and telephone...

  • Page 3
    ... of cable systems in January 2006 and sales of certain cable systems in 2005 and 2006 as if such transactions occurred as of January 1, 2005. (3) Revenue generating units is an industry term that refers to the sum of each category of customers, including analog and digital video, high-speed Internet...

  • Page 4
    ... I C AT I O N S , I N C . LETTER TO STOCKHOLDERS letter to our stockholders 2006 was a successful year at Charter. Through the hard work and determination of our employees, we implemented a series of organizational and operational changes, built strong momentum, and created a solid foundation for...

  • Page 5
    ... + increase sales and retention + focus resources on high-return investments + improve the balance sheet Based on these priorities, we rapidly expanded the availability of Charter Telephone® while enhancing our cable television, high-speed Internet, and telephone services with value-added features...

  • Page 6
    ... that generate the highest projected returns. In 2006, we made thoughtful capital and operating investments across many areas of our business. Capital expenditures were approximately $1.1 billion, 75% of which supported revenue-producing activities, including customer premise equipment, line...

  • Page 7
    ... radio, music, and video content; and wireless home networking. These value-added features help set us apart from the competition. With the addition of 305,000 customers in 2006 and the strong reception of our customers to our higher-speed services, revenues from Charter High-Speed ® increased 20...

  • Page 8
    ...our customers, while better aligning our pricing structure with programming costs, we're adjusting our video channel packages. This new video packaging strategy, along with initiatives to improve bandwidth utilization, provides network capacity to further expand our high-definition television (HDTV...

  • Page 9
    ...LETTER TO STOCKHOLDERS divisions and markets, as well as our customer call centers, with the goal of more effectively serving our customers. These and other operating enhancements increase the productivity of our customer care representatives and field service agents. We expect these improvements...

  • Page 10
    ...31, 2006 (3) Revenue Generating Units Analog video customers Digital video customers Residential high-speed Internet customers Telephone customers Total revenue generating units 5,433,300 2,808,400 2,402,200 445,800 11,089,700 5,506,800 2,638,500 2,097,700 136,000 10,379,000 Video Cable Services...

  • Page 11
    ...registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes n The aggregate market value of the registrant of outstanding Class A Common Stock held by non-affiliates of the registrant at June 30, 2006 was approximately $459 million, computed based on the closing sale price as quoted on...

  • Page 12

  • Page 13
    ...9B Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Selected Financial Data Management's Discussion and Analysis of Financial Condition and Results of Operations Quantitative and Qualitative Disclosure About Market Risk Financial Statements...

  • Page 14
    ... installations and customer service; 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...

  • Page 15
    ... coaxial cable network, 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 Charter OnDemandTM video service (''OnDemand''), high definition television service...

  • Page 16
    ... increase customer loyalty by instilling a service-oriented culture throughout our care centers, field service operations, and corporate support organization. Charter markets its service offerings by employing a segmented, targeted marketing approach. We determine which marketing and sales programs...

  • Page 17
    ... of common stock and $408 million of convertible senior notes) (1) 55% common equity interest and minor senior securities (3) 100% voting interest Charter Communications, Inc. Holding Company, LLC (''Charter Holdco'') CCHC, LLC (''CCHC'') Charter Communications, Holdings, LLC (''Charter Holdings...

  • Page 18
    ...Charter Investment, Inc. (''CII'') and Vulcan Cable III Inc., each of which is 100% owned by Paul G. Allen, our chairman and controlling shareholder. They are exchangeable at any time on a one-for-one basis for shares of Charter Class B common stock, which in turn are exchangeable into Charter Class...

  • Page 19
    ... Investment, Inc. Vulcan Cable III Inc. Total As Converted Shares Outstanding Other Convertible Securities Charter Communications, Inc.: Convertible Preferred Stock(d) Convertible Debt: 5.875% Convertible Senior Notes(e) Employee, Director and Consultant Stock Options(f) CCHC: 14% Exchangeable...

  • Page 20
    ...areas advanced broadband services such as high definition television, OnDemand, and DVR. Our telephone services are primarily provided using voice over Internet protocol (''VoIP''), to transmit digital voice signals over our systems. Our video, high-speed Internet, and telephone services are offered...

  • Page 21
    ... customers to access hundreds of movies and other programming at any time with digital picture quality. In some systems we also offer subscription OnDemand for a monthly fee or included in a digital tier premium channel subscription. High Definition Television. High definition television offers...

  • Page 22
    ... such as accounting, cash management, taxes, billing, finance, human resources, risk management, telephone, payroll, information system design and support, internal audit, legal, purchasing, customer care, marketing and programming contract administration and Internet service, network and circuits...

  • Page 23
    ... various equipment troubleshooting procedures. Our customers may also obtain support through our on-line chat and email functionality. SALES AND MARKETING In 2006, our primary strategic direction was to accelerate the rate of revenue growth by increasing our investments in marketing, sustaining...

  • Page 24
    ... on telephone companies' entry into video service and the upgrades of their networks, they will likely become increasingly more significant competitors for both high-speed Internet and video customers. We do not consider other cable operators to be significant competitors in our overall market, as...

  • Page 25
    ... their networks. Some upgraded portions of these networks are or will be capable of carrying two-way video services that are technically comparable to ours, high-speed Internet services that operate at speeds as high as or higher than those we make available to customers in these areas, and digital...

  • Page 26
    ... more competitive with high-speed Internet access over cable systems than conventional dial-up. 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...

  • Page 27
    ... phone service operators are also marketing PC cards offering wireless broadband access to their cellular networks. These service options offer another alternative to cable-based Internet access. High-speed Internet access facilitates the streaming of video into homes and businesses. As the quality...

  • Page 28
    ... leased access channels. Increased activity in this area could further burden the channel capacity of our cable systems, and potentially limit the amount of services we are able to offer and may necessitate further investments to expand our network capacity. Access to Programming. The Communications...

  • Page 29
    ... how it will affect our offering of cable equipment and our relationship with our customers. Privacy Regulation. The Communications Act limits our ability to collect and disclose subscribers' personally identifiable information for our video, telephone, and high-speed Internet services, as well as...

  • Page 30
    ... Congress are considering subjecting high-speed Internet access services to the Universal Service funding requirements. This would impose significant new costs on our high-speed Internet service. State and local governmental organizations have also adopted Internet-related regulations. These various...

  • Page 31
    ...to raise additional capital by issuing equity. ( ( ( ( ( require us to dedicate a significant portion of our cash flow from operating activities to make payments on our debt, reducing our funds available for working capital, capital expenditures, and other general corporate expenses; limit our...

  • Page 32
    ...to meet heightened demand for installations and customer service; our ability to sustain and grow revenues 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...

  • Page 33
    ... to fund such needs in 2009 and beyond. See ''Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources.'' Because of our holding company structure, our outstanding notes are structurally subordinated in right of payment...

  • Page 34
    ... 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 under terms...

  • Page 35
    ... our telephone service in new operating areas and as we increase the scale of our telephone service offerings in areas in which they have already been launched. First, we face heightened customer expectations for the reliability of telephone services, as compared with our video and high-speed data...

  • Page 36
    ... terms. For example, each of our systems currently purchases settop boxes from a limited number of vendors, because each of our cable systems uses one or two proprietary conditional access security schemes, which allow us to regulate subscriber access to some services, such as premium channels...

  • Page 37
    ... 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...

  • Page 38
    ... limited their revenues. Cable operators are subject to, among other things: ( rules governing the provision of cable equipment and compatibility with new digital technologies; rules and regulations relating to subscriber privacy; limited rate regulation; requirements governing when a cable system...

  • Page 39
    ...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...

  • Page 40
    ... 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 which could significantly increase our competition and adversely affect our ability to provide new products and services. A number of companies...

  • Page 41
    ... 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 ''Item 1. Business - Our Network...

  • Page 42
    ... of Charter Communications Holdings and its subsidiaries restrict their ability to make distributions to us, and accordingly, limit our ability to declare or pay cash dividends. See ''Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.'' (D) Securities...

  • Page 43
    ...cumulative total return on our Class A common stock for the period from December 31, 2001 through December 31, 2006, in comparison to the cumulative total return on Standard & Poor's 500 Index and a peer group consisting of the four national cable operators that are most comparable to us in terms of...

  • Page 44
    ...effect of accounting change per common share Basic and diluted loss per common share Weighted-average shares outstanding, basic and diluted Balance Sheet Data (end of period): Investment in cable properties Total assets Long-term debt Note payable - related party Minority interest(b) Preferred stock...

  • Page 45
    ... cable network, 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 OnDemand, high definition television service and DVR) and, in many of our markets, telephone...

  • Page 46
    ..., and reducing the number of states in which the majority of our customers reside. In 2006, we determined that the West Virginia and Virginia cable systems, which were part of the system sales disclosed above, comprised operations and cash flows that for financial reporting purposes met the criteria...

  • Page 47
    ... 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 December 31, 2006 and 2005 was approximately $9.2 billion (representing 61% of total assets) and...

  • Page 48
    ...and digital video, high-speed Internet, and telephone; revenue growth rates; and 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...

  • Page 49
    ... of future cash flows from those used in prior years. See ''Item 1. Business - Competition.'' The valuations completed at October 1, 2006 and 2005 showed franchise values in excess of book value, and thus resulted in no impairment. Income Taxes. All operations are held through Charter Holdco and...

  • Page 50
    ... limitations as discussed below. In addition, under their exchange agreement with Charter, Vulcan Cable and CII have the right at anytime to exchange some or all of their membership units in Charter Holdco for Charter's Class B common stock, be merged with Charter in exchange for Charter's Class...

  • Page 51
    ... by the average number of analog video customers during the respective period. Revenue growth in 2006 and 2005 primarily reflects increases in the number of customers, price increases, and incremental video revenues from OnDemand, DVR and high-definition television services. Cable system sales, net...

  • Page 52
    ...a result of an increase in commercial high-speed Internet revenues. The increases were reduced by approximately $1 million in 2006 and $3 million in 2005 as a result of system sales. Other revenues consist of revenues from franchise fees, equipment rental, customer installations, home shopping, dial...

  • Page 53
    ... following (dollars in millions): 2006 compared to 2005 2005 compared to 2004 Increases in programming costs Increases in labor costs Increases in costs of providing high-speed Internet and telephone services Increases in maintenance costs Increases in advertising sales costs Increases in franchise...

  • Page 54
    ... 31, 2006 and 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 contained in ''Item 8. Financial Statements and Supplementary Data.'' Other operating expenses, net. The increases...

  • Page 55
    ...in ''Item 8. Financial Statements and Supplementary Data.'' Income tax benefit (expense). Income tax expense in 2006 and 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...

  • Page 56
    ... the balance sheet date except as follows. Certain of the CIH notes, CCH I notes, and CCH II notes issued in exchange for Charter Holdings notes and Charter convertible notes in 2005 and 2006 are recorded for financial reporting purposes at values different from the current accreted value for legal...

  • Page 57
    ... 31, 2006, 2005, and 2004, was $44 million, $44 million, and $42 million, respectively. We pay franchise fees under multi-year franchise agreements based on a percentage of revenues generated from video service per year. We also pay other franchise related costs, such as public education grants...

  • Page 58
    ... basis as our debt becomes due, 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...

  • Page 59
    ... 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. Historical Operating, Financing and Investing Activities Cash and Cash Equivalents. We held $60 million in cash and cash...

  • Page 60
    ... to be composed primarily of purchases of customer premise equipment related to telephone and other advanced services, support capital, and scalable infrastructure. We expect to fund capital expenditures for 2007 primarily from cash flows from operating activities and borrowings under our credit...

  • Page 61
    ...the Paul Allen Group) having power, directly or indirectly, to vote more than 35% of the ordinary voting power of Charter Operating, unless the Paul Allen Group holds a greater share of ordinary voting power of Charter Operating, certain of Charter Operating's indirect or direct parent companies and...

  • Page 62
    ..., 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 CII's option, at any time, for Charter Holdco Class A Common units at a rate equal to the...

  • Page 63
    ... II notes, the CCO Holdings notes, the Charter Operating notes and the Charter Operating credit facilities. 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...

  • Page 64
    ... assets of CCO Holdings) 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: ( In the event that additional liens are granted by Charter Operating or its...

  • Page 65
    ...notes due 2014 12.125% senior discount notes due 2015 CCH I: 11.000% senior notes due 2015* CCH II: 10.250% senior notes due 2010 10.250% senior notes due 2013** CCO Holdings: Senior floating notes due 2010 8 3/4% senior notes due 2013 Charter Operating:*** 8% senior second-lien notes due 2012...

  • Page 66
    ... of capital stock and other restricted payments; issue equity; make investments; create liens; ( ( up to an amount of debt under credit facilities not otherwise allocated as indicated below: ( ( ( Charter Holdings: $3.5 billion CIH, CCH I, CCH II and CCO Holdings: $9.75 billion Charter Operating...

  • Page 67
    ... II, CCO Holdings, and Charter Operating and their respective restricted subsidiaries may make distributions or restricted payments: (i) so long as certain defaults do not exist and even if the applicable leverage test referred to above is not met, to enable certain of its parents to pay interest on...

  • Page 68
    ... payments covenant (as if CIH had been in existence at all times during such periods); ( liens include liens securing indebtedness and other obligations under credit facilities (subject to specified limitations in the case of Charter Operating), liens securing the purchase price of financed new...

  • Page 69
    ...FORM 10-K transaction from a financial point of view issued by an accounting, appraisal or investment banking firm of national standing. Cross Acceleration Our indentures and those of certain of our subsidiaries include various events of default, including cross acceleration provisions. Under these...

  • Page 70
    ... terms of financial instruments subject to interest rate risk maintained by us as of December 31, 2006 (dollars in millions): Fair Value at December 31, 2006 2007 2008 2009 2010 2011 Thereafter Total Debt Fixed Rate Average Interest Rate Variable Rate Average Interest Rate Interest Rate...

  • Page 71
    ... fair presentation of published financial statements. Charter's management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2006. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway...

  • Page 72
    ... herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED reference. The Proxy Statement will be filed with the SEC pursuant to Regulation 14A within 120 days of the end of the Corporation's 2006 fiscal year. STOCKHOLDER MATTERS. The information...

  • Page 73
    ... financial statements or notes thereto. (3) The index to the exhibits begins on page 61 of this annual report. We agree to furnish to the SEC, upon request, copies of any long-term debt instruments that authorize an amount of securities constituting 10% or less of the total assets of Charter...

  • Page 74
    ... Officer Date: February 28, 2007 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Charter Communications, Inc. and in the capacities and on the dates indicated. Signature Title Date /s/ PAUL G. ALLEN Paul...

  • Page 75
    ... (File No. 000-27927)). 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...

  • Page 76
    ...Exhibit Description 2006 FORM 10-K 10.5 (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...

  • Page 77
    ...-27927)). Indenture relating to the 10.25% Senior Notes due 2010, dated as of September 23, 2003, among CCH II, LLC, CCH II Capital Corporation 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...

  • Page 78
    ...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...

  • Page 79
    ...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...

  • Page 80
    ... 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)). (a)†Charter Communications Holdings, LLC 1999 Option...

  • Page 81
    ....1 to the current report on Form 8-K of Charter Communications, Inc. filed on August 1, 2006 (File No. 000-27927)). Subsidiaries of Charter Communications, Inc. Consent of KPMG LLP. Certificate of Chief Executive Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) under the Securities Exchange Act of...

  • Page 82
    ... of Independent Registered Public Accounting Firm - Consolidated Financial Statements Report of Independent Registered Public Accounting Firm - Internal Controls over Financial Reporting Consolidated Balance Sheets as of December 31, 2006 and 2005 Consolidated Statements of Operations for the Years...

  • Page 83
    ... of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company's internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the...

  • Page 84
    ... REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Shareholders Charter Communications, Inc.: We have audited management's assessment, included in the accompanying Management's Report on Internal Control Over Financial Reporting, that Charter Communications, Inc. (the Company) maintained...

  • Page 85
    ..., except share data) 2006 2005 ASSETS Current Assets: Cash and cash equivalents Accounts receivable, less allowance for doubtful accounts of $16 and $17, respectively Prepaid expenses and other current assets Total current assets Investment in Cable Properties: Property, plant and equipment, net of...

  • Page 86
    ... data) 2006 2005 2004 Revenues Costs and Expenses: Operating (excluding depreciation and amortization) Selling, general and administrative Depreciation and amortization Impairment of franchises Asset impairment charges Other operating expenses, net Operating income (loss) from continuing operations...

  • Page 87
    ..., LLC settlement - exchange of interests Dividends on preferred stock - redeemable Net loss Balance, December 31, 2005 Changes in fair value of interest rate agreements Option compensation expense, net Issuance of common stock in exchange for convertible notes Net loss Balance, December 31, 2006 The...

  • Page 88
    ... assets Accounts payable, accrued expenses and other Net cash flows from operating activities Cash Flows From Investing Activities: Purchases of property, plant and equipment Change in accrued expenses related to capital expenditures Proceeds from sale of assets Purchase of cable system Purchases of...

  • Page 89
    ...by Charter Communications Operating, LLC Retirement of Charter convertible notes Retirement of Charter Communications Holdings, LLC debt Retirement of Renaissance Media Group LLC debt Issuance of Charter Class A common stock in Securities Class Action Settlement CC VIII, LLC Settlement - exchange of...

  • Page 90
    ... United States. The Company offers its customers traditional cable video programming (analog and digital video), high-speed Internet services, advanced broadband services such as high definition television, OnDemand, and digital video recorder service, and, in many of our markets, telephone service...

  • Page 91
    ... debt obligations, which could have a material adverse effect on the Company's consolidated financial condition and results of operations. Limitations on Distributions Charter's ability to make interest payments on its convertible senior notes, and, in 2009, to repay the outstanding principal of...

  • Page 92
    ... in the exchange are held by CCHC. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Depreciation is recorded using the straight-line composite method over management's estimate of the useful lives of the related assets as follows: Cable distribution systems Customer equipment and installations Vehicles...

  • Page 93
    ... the Company's 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...

  • Page 94
    ... authorities are recorded on a net basis. The Company's revenues by product line are as follows: Year Ended December 31, 2006 2005 2004 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...

  • Page 95
    ...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, 2006, Charter Holdco had...

  • Page 96
    ...2006, the Company sold 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...

  • Page 97
    ... the Company's high-speed Internet customers in the third quarter of 2004, in part, as a result of increased competition from digital Property, plant and equipment consists of the following as of December 31, 2006 and 2005: 2006 2005 Cable distribution systems Customer equipment and installations...

  • Page 98
    ...2006 and 2005: 2006 2005 Accounts payable - trade Accrued capital expenditures Accrued expenses: Interest Programming costs Franchise related fees Compensation Other $ 92 97 410 268 68 110 253 $ 114 73 333 269 67 90 245 $1,191 $1,298 9. LONG-TERM DEBT Long-term debt consists of the following...

  • Page 99
    .... In June 2006, the Company retired the remaining $20 million principal amount of Charter's 4.75% convertible senior notes due 2006. 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...

  • Page 100
    ...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 approximately $333 million principal amount of new notes with terms identical to Charter Operating's 8.375...

  • Page 101
    ... 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...

  • Page 102
    ... 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. Renaissance Notes In March 2006, the Company exchanged $37 million of Renaissance Media Group LLC 10% senior...

  • Page 103
    ... 2006 FORM 10-K Notes to Consolidated Financial Statements (continued) Charter Operating Credit Facilities The Charter Operating credit facilities provide borrowing availability of up to $6.85 billion as follows: ( term facility with a total principal amount of $5.0 billion, repayable in 23 equal...

  • Page 104
    ..., 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 CII's option, at any time, for Charter Holdco Class A Common units at a rate equal to the...

  • Page 105
    ... contract. 13. COMMON STOCK The following table summarizes our share activity for the three years ended December 31, 2006: Class A Common Stock Class B Common Stock BALANCE, January 1, 2004 Option exercises Restricted stock issuances, net of cancellations Issuances in exchange for convertible notes...

  • Page 106
    ... to Consolidated Financial Statements (continued) includes Charter's 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. 14...

  • Page 107
    ... the sale of certain cable systems in Florida, Pennsylvania, Maryland, Delaware, New York and West Virginia to Atlantic Broadband Finance, LLC. Hurricane asset retirement loss For the year ended December 31, 2005, hurricane asset retirement loss represents the write off of $19 million of the Company...

  • Page 108
    ...the activity for the Company's stock options, excluding granted shares of restricted Class A common stock, for the years ended December 31, 2006, 2005 and 2004, is as follows (amounts in thousands, except per share data): 2006 Weighted Average Exercise Price 2005 Weighted Average Exercise Price 2004...

  • Page 109
    ...R I E S 2006 FORM 10-K Notes to Consolidated Financial Statements (continued) 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. The offer applied to options (vested and unvested) to purchase a total of 22...

  • Page 110
    ... limitations as discussed below. In addition, under their exchange agreement with Charter, Vulcan Cable and CII have the right at anytime to exchange some or all of their membership units in Charter Holdco for Charter's Class B common stock, be merged with Charter in exchange for Charter's Class...

  • Page 111
    ... returned through December 31, 2006), or acquisitions or sales of shares by certain holders of Charter's shares, including persons who have held, currently hold, or accumulate in the future five percent or more of Charter's outstanding stock (including upon an exchange by Mr. Allen or his affiliates...

  • Page 112
    ... 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...

  • Page 113
    ..., among other things, 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...

  • Page 114
    ... 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. CC VIII. As part of the acquisition of the cable systems owned by Bresnan Communications Company Limited...

  • Page 115
    ... 31, 2006, 2005, and 2004, was $44 million, $44 million, and $42 million, respectively. The Company pays franchise fees under multi-year franchise agreements based on a percentage of revenues generated from video service per year. The Company also pays other franchise related costs, such as public...

  • Page 116
    ... 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...

  • Page 117
    ... Financial Statements (continued) Charter Communications, Inc. (Parent Company Only) CONDENSED BALANCE SHEET December 31, 2006 2005 Assets Cash and cash equivalents Receivable from related party Notes receivable from Charter Holdco Total assets Liabilities and Shareholders' Deficit Current...

  • Page 118
    ... Holdco Payments from Charter Holdco Investment in Charter Holdco Net cash flows from investing activities Cash Flows from Financing Activities Issuance of convertible notes Paydown of convertible notes Net proceeds from issuance of common stock Net cash flows from financing activities Net Increase...

  • Page 119
    ... of 2006. Year Ended December 31, 2005 First Quarter Second Quarter Third Quarter Fourth Quarter Revenues Operating income from continuing operations Income (loss) from continuing operations Income from discontinued operations, net of tax Net income (loss) applicable to common stock Basic income...

  • Page 120
    ... in working capital levels from period to period. The Company believes that adjusted EBITDA, pro forma adjusted EBITDA, un-levered free cash ï¬,ow, and free cash ï¬,ow provide information useful to investors in assessing Charter's ability to service its debt, fund operations, and make additional...

  • Page 121
    ... costs Service Advertising sales General and administrative Marketing Operating costs and expenses Adjusted EBITDA Less: Purchases of property, plant, and equipment Un-levered free cash ï¬,ow Less: Interest on cash pay obligations Free cash ï¬,ow Purchases of property, plant, and equipment Special...

  • Page 122
    ...com/isd Corporate Headquarters Charter Communications, Inc. Charter Plaza 12405 Powerscourt Drive St. Louis, MO 63131-3674 314.965.0555 www.charter.com Charter's Web site contains an Investor & News Center that offers financial information, including stock data, press releases, access to quarterly...

  • Page 123
    ... Paul G. Allen Chairman of the Board, Charter Communications, Inc. W. Lance Conn Executive Vice President, Investment Management, Vulcan Inc. Nathaniel A. Davis President and Chief Operating Officer, XM Satellite Radio Holdings, Inc. Jonathan L. Dolgen Principal, Wood River Ventures, LLC.; Senior...

  • Page 124
    Charter Plaza 12405 Powerscourt Drive St. Louis, MO 63131-3674 www.charter.com