Charter 2009 Annual Report Download - page 56

CCH II, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009, 2008, AND 2007
(dollars in millions, except where indicated)
F-8
issuance; (v) holders of notes issued by Charter Communications Holdings, LLC (“Charter Holdings”) received 1.3
million warrants to purchase shares of new Charter Class A common stock with an exercise price of $51.28 per
share that expire five years from the date of issuance; (vi) holders of convertible notes issued by Charter received
$25 million and 5.5 million shares of preferred stock issued by Charter; and (vii) all previously outstanding shares of
Charter Class A and Class B common stock were cancelled. In addition, as part of the Plan, the holders of CCH I
notes received and transferred to Mr. Paul G. Allen, Charter’ s principal stockholder, $85 million of new CCH II
notes. The Plan resulted in the reduction of the principal amount of the Company’ s debt by approximately $708
million and its parent companies’ debt by approximately $7.5 billion, reducing the Company’ s parent companies’
consolidated interest expense by approximately $830 million annually.
The consummation of the Plan was funded with cash on hand, the Notes Exchange, and net proceeds of
approximately $1.6 billion of an equity rights offering (the “Rights Offering”) in which holders of CCH I notes
purchased new Charter Class A common stock.
In connection with the Plan, Charter, Mr. Allen and Charter Investment, Inc. (“CII”) entered into a separate
restructuring agreement (as amended, the “Allen Agreement”), in settlement and compromise of their legal,
contractual and equitable rights, claims and remedies against Charter and its subsidiaries. In addition to any
amounts received by virtue of CII’ s holding other claims against Charter and its subsidiaries, on the Effective Date,
CII was issued 2.2 million shares of the new Charter Class B common stock equal to 2% of the equity value of
Charter, after giving effect to the Rights Offering, but prior to issuance of warrants and equity-based awards
provided for by the Plan and 35% (determined on a fully diluted basis) of the total voting power of all new capital
stock of Charter. Each share of new Charter Class B common stock is convertible, at the option of the holder, into
one share of new Charter Class A common stock, and is subject to significant restrictions on transfer and
conversion. Certain holders of new Charter Class A common stock (and securities convertible into or exercisable or
exchangeable therefore) and new Charter Class B common stock received certain customary registration rights with
respect to their shares. On the Effective Date, CII received: (i) 4.7 million warrants to purchase shares of new
Charter Class A common stock, (ii) $85 million principal amount of new CCH II notes (transferred from CCH I
noteholders), (iii) $25 million in cash for amounts previously owed to CII under a management agreement, (iv) $20
million in cash for reimbursement of fees and expenses in connection with the Plan, and (v) an additional $150
million in cash. The warrants described above have an exercise price of $19.80 per share and expire seven years
after the date of issuance. In addition, on the Effective Date, CII retained a minority equity interest in reorganized
Charter Holdco of 1% and a right to exchange such interest into new Charter Class A common stock. On December
28, 2009, CII exchanged 81% of its interest in Charter Holdco, and on February 8, 2010 the remaining interest was
exchanged after which Charter Holdco became 100% owned by Charter (the “Holdco Exchange”) and ownership of
CII was transferred to Charter. The warrants and common stock previously issued to CII were transferred to Mr.
Allen in connection with the Holdco Exchange and transfer of CII’ s ownership to Charter. In connection with the
Plan, Mr. Allen transferred his preferred equity interest in CC VIII, LLC (“CC VIII”) to Charter. Mr. Allen has the
right to elect up to four of Charter's eleven board members.
Fresh Start Accounting — Upon the Company’ s emergence from bankruptcy, the Company adopted fresh start
accounting. This resulted in the Company becoming a new entity on December 1, 2009, with a new capital structure,
a new accounting basis in the identifiable assets and liabilities assumed and no retained earnings or accumulated
losses. Accordingly, the consolidated financial statements on or after December 1, 2009 are not comparable to the
consolidated financial statements prior to that date. The financial statements for the periods ended prior to
November 30, 2009 do not include the effect of any changes in the Company’ s capital structure or changes in the
fair value of assets and liabilities as a result of fresh start accounting.
The Company selected December 1, 2009 for adoption of fresh start accounting. Accordingly, the results of
operations of the Company for the eleven months ended November 30, 2009 include reorganization items of $588
million and a pre-emergence loss of $353 million primarily resulting from the exchange of $1.5 billion of old CCH
II notes for new CCH II notes in accordance with the Plan. In addition, the Company recorded a pre-tax credit to
earnings of $5.5 billion resulting from the aggregate changes to the net carrying value of its pre-emergence assets
and liabilities to record their fair values under fresh start accounting.