Charter 2007 Annual Report Download

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2007 Annual Report

Table of contents

  • Page 1
    2007 Annual Report

  • Page 2
    ..., high-speed Internet and telephone services. Our 16,500 employees are hard at work in 29 states, adding value for our customers by improving their end-to-end experience. Cable With Charter Digital Cable you can enjoy tons of great entertainment and premium channels, and the on-screen programming...

  • Page 3
    ... 2007 was a successful year for Charter. Through the hard work of our employees, we achieved double-digit revenue and adjusted EBITDA growth year over year in each of the four quarters of the year on a pro forma basis, and we made significant improvements to the overall customer experience. Charter...

  • Page 4
    ... revenue per customer (total ARPU) increase of 13% over 2006. These results demonstrate the momentum in Charter's performance. As we manage the business with the goal of sustainable growth, we invest in the initiatives that generate the highest projected returns. In 2007, we made disciplined capital...

  • Page 5
    ... of our customers in a bundle increased to 47% in 2007 from 40% in 2006. Telephone, our fastest growing service in 2007, is a major driving force behind the success of the Bundle, as 78% of our telephone customers at the end of the year were in a triple-play. Our Internet service offers a speed and...

  • Page 6
    ... hours, improving average time to repair and providing online, self help and chat capabilities. In 2007, our care center service levels improved considerably compared to 2006. Improving the customer experience will continue to be a major focus in 2008. Financing In order to invest in the business...

  • Page 7
    .... Charter Business Charter Business™ provides broadband communications services to small and medium-sized businesses, including video and music entertainment, high-speed Internet, data networking and telephone services. Commercial telephone and the Charter Business Bundle® are now available in...

  • Page 8
    ... from operations Pro forma (1) 2007 $ 5,971 2,101 602 Actual (3) 2007 Pro forma (1) 2006 $ 5,383 1,878 512 Pro forma (1) 2006 Approximate as of December 31, REVENUE GENERATING UNITS Video customers Digital video customers Residential high-speed Internet customers Telephone customers Total revenue...

  • Page 9
    ... (Registrant's telephone number, including area code) Name of Exchange which registered Securities registered pursuant to section 12(b) of the Act: Class A Common Stock, $.001 Par Value Preferred Share Purchase Rights NASDAQ Global Select Market NASDAQ Global Select Market Securities registered...

  • Page 10
    ... Related Transactions, and Director Independence Principal Accounting Fees and Services 58 58 58 58 58 PART IV Item 15 SIGNATURES EXHIBIT INDEX Exhibits and Financial Statement Schedules 59 60 61 This annual report on Form 10-K is for the year ended December 31, 2007. The Securities and Exchange...

  • Page 11
    ... we file from time to time with the SEC, and include, but are not limited to: k our ability to adequately meet demand for 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...

  • Page 12
    ... operates broadband communications businesses in the United States, with approximately 5.60 million customers at December 31, 2007. Through our hybrid fiber and coaxial cable network, we offer traditional cable video programming (analog and digital, which we refer to as "video" service), high-speed...

  • Page 13
    CHARTER COMMUNICATIONS, INC. 2007 FORM 10-K We believe that customers value our ability to combine video, high-speed Internet, and telephone services into attractively priced bundled offerings that distinguish us from the direct broadcast satellite ("DBS") competition. Bundling of services, by ...

  • Page 14
    ...Paul G. Allen and his controlled entities 7% common equity interest, 91% voting interest 46% common equity interest (exchangeable for Charter common stock) (2)(3) $65 million subordinated accreting note (4) Charter Operating Subsidiaries CCO NR Holdings, LLC 100% common equity Charter Operating...

  • Page 15
    ...mirror the terms of securities issued by Charter. See "Item 1. Business - Corporate Organizational Structure - Charter Communications, Inc." below. (2) These membership units are held by Charter Investment, Inc. ("CII") and Vulcan Cable III Inc., each of which is 100% owned by Paul G. Allen, Charter...

  • Page 16
    ... Outstanding Voting Percentage Class A Common Stock Class B Common Stock Total Common Shares Outstanding One-for-One Exchangeable Equity in Subsidiaries: Charter Investment, Inc. Vulcan Cable III Inc. Total As Converted Shares Outstanding Other Convertible Securities Charter Communications, Inc...

  • Page 17
    ...primarily provided using voice over Internet protocol ("VoIP") technology, to transmit digital voice signals over our systems. Our video, high-speed Internet, and telephone services are offered to residential and commercial customers on a subscription basis, with prices and related charges that vary...

  • Page 18
    ... a digital tier premium channel subscription. k High Definition Television. High definition television offers our digital customers certain video programming at a higher resolution to improve picture quality versus standard analog or digital video images. Digital Video Recorder. DVR service enables...

  • Page 19
    ... 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, communications, programming contract administration, Internet service, network and...

  • Page 20
    ...limited period of time, after 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 costof-living...

  • Page 21
    .... Based on telephone companies' entry into video service and the upgrades of their networks, they will 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 22
    CHARTER COMMUNICATIONS, INC. 2007 FORM 10-K cable system. In 2007, major DBS competitors offered a greater variety of channel packages, and were especially competitive with promotional pricing for more basic services, such as a monthly price of approximately $35 for 100 channels compared to ...

  • Page 23
    ... 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 24
    ...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 service rate regulation operates pursuant to...

  • Page 25
    ... Act limits our ability to collect and disclose subscribers' personally identifiable information for our video, telephone, and high-speed Internet services, as well as provides requirements to safeguard such information. Charter is subject to additional federal, state, and local laws and regulations...

  • Page 26
    ... new costs on our high-speed Internet service. 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...

  • Page 27
    ... positive and negative ways, our primary telecommunications competitors and our own entry into the field of telephone service. The FCC and state regulatory authorities are considering, for example, whether common carrier regulation traditionally applied to incumbent local exchange carriers should be...

  • Page 28
    ... for the reliability of voice services; our ability to adequately meet demand for 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...

  • Page 29
    CHARTER COMMUNICATIONS, INC. 2007 FORM 10-K our customer base, particularly in the face of increasingly aggressive competition; k our ability to obtain programming at reasonable prices or to adequately raise prices to offset the effects of higher programming costs; general business conditions, ...

  • Page 30
    ...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 and install customer premise equipment...

  • Page 31
    ... Internet and telephone customers, and in the delivery of other advanced broadband services such as additional high-definition channels, faster high-speed Internet services, DVRs and other customer premise equipment, as well as the cost of introducing any new services. We may need additional capital...

  • Page 32
    ...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. We could be deemed an "investment company...

  • Page 33
    ... 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...

  • Page 34
    ... 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 35
    ... 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...

  • Page 36
    ... operate generally have the power to reduce rates and order refunds on the rates charged for basic service and equipment. 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...

  • Page 37
    ... certain local broadcast signals; local PEG programming; and unaffiliated, commercial leased access programming (required channel capacity for use by persons unaffiliated with the cable operator who desire to distribute programming over a cable system). Under two recently released FCC orders, it...

  • Page 38
    ... financial condition, results of operations, or liquidity. Whether or not we ultimately prevail in any particular lawsuit or claim, litigation can be time consuming and costly and injure our reputation. Patent Litigation Ronald A. Katz Technology Licensing, L.P. v. Charter Communications...

  • Page 39
    CHARTER COMMUNICATIONS, INC. 2007 FORM 10-K PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. low last reported sale price per share of Class A common stock on the NASDAQ Global Select Market. There is no established ...

  • Page 40
    ...07 12/07 Charter Communications, Inc. S&P 500 New Peer Group Old Peer Group * $100 invested on 12/31/02 in stock or index-including reinvestment of dividends. Fiscal year ending December 31. Copyright · 2008, Standard & Poor's, a division of the McGraw-Hill Companies, Inc. All rights reserved...

  • Page 41
    ... - 689 55 (175) In 2006, we sold certain cable television systems in West Virginia and Virginia to Cebridge Connections, Inc. We determined that the West Virginia and Virginia cable systems comprise operations and cash flows that for financial reporting purposes meet the criteria for discontinued...

  • Page 42
    ... price increases and high-speed Internet upgrades, increases in the number of our customers who purchase bundled services including high-speed Internet and telephone, and through sales of incremental video services including wireless networking, high definition television, OnDemand, and DVR service...

  • Page 43
    ... 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...

  • Page 44
    CHARTER COMMUNICATIONS, INC. 2007 FORM 10-K 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 ...

  • Page 45
    ... 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; and expected operating margins and capital...

  • Page 46
    ... 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...

  • Page 47
    ...allowance of $4.8 billion and $4.2 billion at December 31, 2007 and 2006, respectively. Charter and Charter Holdco are currently under examination by the Internal Revenue Service for the tax years ending December 31, 2004 and 2005. Management does not expect the results of these examinations to have...

  • Page 48
    ...) (3.24) (3.13) 331,941,788 310,209,047 and incremental video revenues from OnDemand, DVR and high-definition television services. Cable system sales, net of acquisitions, in 2005, 2006, and 2007 reduced the increase in revenues in 2007 as compared to 2006 by approximately $90 million and in 2006...

  • Page 49
    ... of an increase in commercial high-speed Internet revenues. The increases were reduced by approximately $6 million in 2007 and $1 million in 2006 as a result of system sales. Other revenues consist of franchise fees, equipment rental, customer installations, home shopping, late payment fees, wire...

  • Page 50
    ... of system sales. Operating expenses. The increases in our operating expenses are attributable to the following (dollars in millions): 2007 compared to 2006 2006 compared to 2005 Programming costs Labor costs Costs of providing high-speed Internet and telephone services Maintenance costs Other...

  • Page 51
    ... senior notes and marked to fair value at the end of each reporting period. Other derivatives are held to manage our interest costs and reduce our exposure to increases in floating interest rates. Change in value of derivatives consists of the following for the years ended December 31, 2007...

  • Page 52
    ... in 2006 on the sale of the West Virginia and Virginia systems. Net loss. The impact to net loss in 2007, 2006, and 2005 of asset impairment charges, impairment of franchises, extinguishment of debt, and gain on discontinued operations, net of related tax effects, was to increase net loss by...

  • Page 53
    ... stated maturity dates, subject to certain conditions, upon the payment of the outstanding principal amount (plus a specified redemption premium) and all accrued and unpaid interest. The 5.875% and 6.50% convertible senior notes are redeemable if the closing price of Charter's Class A common stock...

  • Page 54
    ... 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, proceeds from sales of assets, issuances of debt and equity securities, and cash...

  • Page 55
    CHARTER COMMUNICATIONS, INC. 2007 FORM 10-K been able to raise funds through issuances of debt in the past, we may not be able to access additional sources of liquidity on similar terms or pricing as those that are currently in place, or at all. A continuation of the recent turmoil in the credit ...

  • Page 56
    ...as a result of spending on customer premise equipment and support capital to meet increased digital, high-speed Internet, and telephone customer growth. See the table below for more details. Our capital expenditures are funded primarily from cash flows from operating activities, the issuance of debt...

  • Page 57
    ...with SFAS No. 51, Financial Reporting by Cable Television Companies, and customer premise equipment (e.g., set-top boxes 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...

  • Page 58
    ... 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, and Charter Operating ceasing to...

  • Page 59
    CHARTER COMMUNICATIONS, INC. 2007 FORM 10-K 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 ...

  • Page 60
    ..., 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 61
    ...on or prior to the fifth business day of the commencement of the next succeeding guarantee and pledge availability period. The Charter Operating notes are senior debt obligations of Charter Operating and Charter Communications Operating Capital Corp. To the extent of the value of the collateral (but...

  • Page 62
    CHARTER COMMUNICATIONS, INC. 2007 FORM 10-K REDEMPTION PROVISIONS OF OUR HIGH YIELD NOTES The various notes issued by our subsidiaries included in the table may be redeemed in accordance with the following table or are not redeemable until maturity as indicated: Note ...

  • Page 63
    ..., plus the Make-Whole Premium. The Make-Whole Premium is an amount equal to the excess of (a) the present value of the remaining interest and principal payments due on a 8% senior second-lien notes due 2012 to its final maturity date, computed using a discount rate equal to the Treasury Rate on such...

  • Page 64
    CHARTER COMMUNICATIONS, INC. k 2007 FORM 10-K Charter Holdings and CIH may incur additional debt in an amount equal to 200% of proceeds of new cash equity proceeds received since March 1999, the date of our first indenture, and not allocated for restricted payments or permitted investments (the "...

  • Page 65
    ... obligations under credit facilities (subject to specified limitations in the case of Charter Operating), liens securing the purchase price of financed new assets, liens securing indebtedness of up to $50 million and other specified liens. Restrictions on the Sale of Assets; Mergers The note issuers...

  • Page 66
    .... Recently Issued Accounting Standards In September 2006, the FASB issued SFAS 157, Fair Value Measurements, which establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007 and...

  • Page 67
    ... 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 LIBOR for the year of maturity based on the yield curve in effect at December 31, 2007 including...

  • Page 68
    ... assurances. MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Charter's management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control system was designed to...

  • Page 69
    CHARTER COMMUNICATIONS, INC. 2007 FORM 10-K PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. The information required by Item 10 will be included in Charter's 2008 Proxy Statement (the "Proxy Statement") under the headings "Election of Class A/Class B Director," "Election ...

  • Page 70
    CHARTER COMMUNICATIONS, INC. 2007 FORM 10-K PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) The following documents are filed as part of this annual report: (1) Financial Statements. A listing of the financial statements, notes and reports of independent public accountants ...

  • Page 71
    ... Officer Date: February 27, 2008 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 72
    ... report on Form 8-K of Charter Communications, Inc. filed on October 5, 2007 (File No. 000-27927)). 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...

  • Page 73
    ...2005 (File No. 000-27927)). 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...

  • Page 74
    ... Description Exhibit Description 2007 FORM 10-K 10.8 (b) 10.9 10.9 10.10 10.10 10.10 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...

  • Page 75
    ... 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...

  • Page 76
    ... 10.7 to the current report on Form 8-K of Charter Communications, Inc. filed on November 30, 2004 (File No. 000-27927)). 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...

  • Page 77
    ... 5, 2005 (File No. 333-128838)). (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...

  • Page 78
    ... 2007 (File No. 000-27927)). Computation of Ratio of Earnings to Fixed Charges. 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 1934. Certificate of Chief Financial...

  • Page 79
    CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES 2007 FORM 10-K INDEX TO FINANCIAL STATEMENTS Page Audited Financial Statements Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets as of December 31, 2007 and 2006 Consolidated Statements of Operations for the Years ...

  • Page 80
    ... in all material respects, effective internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control - Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission. St. Louis, Missouri February 26, 2008 F-2

  • Page 81
    ...: Accounts payable and accrued expenses Total current liabilities Long-Term Debt Note Payable - Related Party Deferred Management Fees - Related Party Other Long-Term Liabilities Minority Interest Preferred Stock - Redeemable; $.001 par value; 1 million shares authorized; 36,713 shares issued and...

  • Page 82
    CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES 2007 FORM 10-K Consolidated Statements of Operations Year Ended December 31, (Dollars in millions, except per share and share data) 2007 2006 2005 Revenues Costs and Expenses: Operating (excluding depreciation and amortization) Selling, general and ...

  • Page 83
    CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES 2007 FORM 10-K Consolidated Statements of Changes in Shareholders' Deficit Class A Common Stock Class B Common Stock Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Total Shareholders' Deficit (Dollars in ...

  • Page 84
    ... 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, including cable systems Other, net Net cash flows from investing activities Cash Flows...

  • Page 85
    ... services such as high definition television, Charter OnDemandTM, and digital video recorder service. The Company sells its cable video programming, high-speed Internet, telephone, and advanced broadband services on a subscription basis. The Company also sells local advertising on cable networks...

  • Page 86
    CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES 2007 FORM 10-K Notes to Consolidated Financial Statements (continued) adverse market conditions, increased competition, or other unfavorable events. If, at any time, additional capital or borrowing capacity is required beyond amounts internally ...

  • Page 87
    ... significant to the financial statements. Franchises 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...

  • Page 88
    ... other long-term liabilities related to the long-term portion. Revenue Recognition 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...

  • Page 89
    CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES 2007 FORM 10-K Notes to Consolidated Financial Statements (continued) respectively, are reported as revenues on a gross basis with a corresponding operating expense. Sales taxes collected and remitted to state and local authorities are recorded on a ...

  • Page 90
    ... operating structure, management has determined that the Company has one reportable segment, broadband services. 4. SALE OF ASSETS In 2006, the Company sold certain cable television systems serving approximately 356,000 video customers in 1) West Virginia and Virginia to Cebridge Connections...

  • Page 91
    ... billion, respectively. 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...

  • Page 92
    ... new intangible asset acquisitions or divestitures, changes in useful lives and other relevant factors. For the year ended December 31, 2007 and 2006, the net carrying amount of goodwill increased $6 million and $9 million, respectively, as a result of the Company's purchase of certain cable systems...

  • Page 93
    ...,062 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. However, certain of the notes are recorded for financial reporting purposes at values different from the...

  • Page 94
    ... control event occurs, Charter Holdings and Charter Capital must offer to repurchase any then outstanding notes at 101% of their principal amount or accreted value, as applicable, plus accrued and unpaid interest, if any. In September 2006, Charter Holdings, CCH I and CCH II, completed the exchange...

  • Page 95
    ...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 The CCH I notes are guaranteed on a senior...

  • Page 96
    ...% of the principal amount of the 83⁄8% senior second lien notes redeemed plus in each case accrued and unpaid interest. 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...

  • Page 97
    ... Operating credit facilities which provide for a $1.5 billion senior secured revolving line of credit, a continuation of the existing $5.0 billion term loan facility (the "Existing Term Loan"), and a $1.5 billion new term loan facility (the "New Term Loan"), which was funded in March and April 2007...

  • Page 98
    ... Charter Operating, unless the Paul Allen Group holds a greater share of ordinary voting power of Charter Operating, and Charter Operating ceasing to be a wholly-owned direct subsidiary of CCO Holdings, except in certain very limited circumstances. under all debt agreements as of December 31, 2007...

  • Page 99
    ...the required issuance of mirror securities by Charter Holdco. The terms of the Mirror Note mirror the terms of the 6.50% convertible senior notes. The Company's Class A common stock and Class B common stock are identical except with respect to certain voting, transfer and conversion rights. Holders...

  • Page 100
    ... Person, may exercise their Rights upon payment of the purchase price to purchase five shares of Charter's Class A common stock and/or Class B common stock, as applicable (or other securities or assets as determined by Charter's board of directors) at a 50% discount to the then current market price...

  • Page 101
    ... a material adverse effect on the Company's consolidated financial condition or results of operations. The estimated fair value of the Company's notes and interest rate agreements at December 31, 2007 and 2006 are based on quoted market prices, and the fair value of the credit facilities is based...

  • Page 102
    ...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 103
    ... shares, respectively, of restricted Class A common stock of which no shares had been cancelled as of December 31, 2007. The shares vest one year from the date of grant. In 2007, 2006, and 2005, in connection with new employment agreements, certain officers were awarded 2.3 million, 0.1 million...

  • Page 104
    ...the Charter Holdco limited liability company agreement (the "LLC Agreement") and partnership tax rules and regulations. Charter also records financial statement deferred tax assets and liabilities related to its investment in Charter Holdco. The LLC Agreement provides for certain special allocations...

  • Page 105
    ... years ended December 31, 2007, 2006, and 2005, 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...

  • Page 106
    ... over time. Charter and Charter Holdco are currently under examination by the Internal Revenue Service for the tax years ending December 31, 2004 and 2005. Management does not expect the results of these examinations to have a material adverse effect on the Company's consolidated financial condition...

  • Page 107
    ... plan or arrangement to address potential conflicts of interest. The Company received or receives programming for broadcast via its cable systems from Oxygen Media and Trail Blazers Inc. The Company pays a fee for the programming service generally based on the number of customers receiving the The...

  • Page 108
    ... for the years ended December 31, 2007, 2006, and 2005, respectively, for customized development of the i-channels and the local content tool kit. 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...

  • Page 109
    ...The Company leases certain facilities and equipment under noncancelable operating leases. Leases and rental costs charged to expense for the years ended December 31, 2007, 2006, and 2005, were $23 million, $23 million, and $22 million, respectively. The Company pays programming fees under multi-year...

  • Page 110
    ...the Company's consolidated financial condition, results of operations or 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...

  • Page 111
    ... 10-K Notes to Consolidated Financial Statements (continued) Charter Communications, Inc. (Parent Company Only) CONDENSED BALANCE SHEET December 31, 2007 2006 Assets Cash and cash equivalents Receivable from related party Notes receivable from Charter Holdco Other assets Total assets Liabilities...

  • Page 112
    ..., 2007 2006 2005 Cash Flows from Operating Activities: Net loss after preferred dividends Equity in losses of Charter Holdco Changes in operating assets and liabilities Deferred income taxes Net cash flows from operating activities Cash Flows from Investing Activities: Payments from Charter Holdco...

  • Page 113
    CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES 2007 FORM 10-K Notes to Consolidated Financial Statements (continued) Year Ended December 31, 2006 First Quarter Second Quarter Third Quarter Fourth Quarter Revenues Operating income (loss) from continuing operations Loss from continuing operations ...

  • Page 114
    ... in working capital levels from period to period. The Company believes that adjusted EBITDA, pro forma adjusted EBITDA, and free cash ï¬,ow provide information useful to investors in assessing Charter's ability to service its debt, fund operations, and make additional investments with internally...

  • Page 115
    ...) 2007 pro forma (1) Revenues Less: Operating costs and expenses Operating Selling, general and administrative Operating costs and expenses Adjusted EBITDA Less: Interest on cash pay obligations Less: Purchases of property, plant, and equipment Less: Change in accrued expenses related to capital...

  • Page 116
    ... the Securities and Exchange Commission (SEC), are available without charge (without exhibits) by accessing our Web site at www.charter.com or by contacting Investor Relations. Investor Relations Stockholder requests may be directed to Investor Relations at our corporate headquarters via e-mail at...

  • Page 117
    ...Executive Vice President and Chief Financial Officer Marc B. Nathanson Board of Directors Paul G. Allen Chairman of the Board, Charter Communications, Inc. Marwan Fawaz Executive Vice President and Chief Technology Officer Chairman, Mapleton Investments LLC Jo Allen Patton President and Chief...

  • Page 118
    Charter Plaza 12405 Powerscourt Drive St. Louis, MO 63131-3674 www.charter.com