Charter 2010 Annual Report Download

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A STRONG
FOUNDATION
2010 ANNUAL REPORT
chARTER cOmmUNicATiONs, iNc. 2010 ANNUAL REPORT

Table of contents

  • Page 1
    chARTER cOmmUNicATiONs, iNc. 2010 ANNUAL REPORT A STRONG FOUNDATION 2010 ANNUAL REPORT

  • Page 2

  • Page 3
    Charter CommuniCations, inC. Letter to sharehoLDers Dear Fellow Shareholders, 2010 was a transformational year for Charter. With a stronger balance sheet, we sought new opportunities and faced new challenges. We generated healthy financial and operating results and executed meaningful steps in ...

  • Page 4
    ... highly valued subscription-based communications and entertainment products to residential and business consumers. Today, we are a stronger company In April, I became president and chief executive officer of Charter after having served as the Company's chief operating officer for five years...

  • Page 5
    ...to meet the growing needs of our residential and business customers, and I am pleased to report that we achieved significant progress during 2010. We increased revenues in high-speed Internet, phone, video, commercial products and advertising, while maintaining financial and operating discipline. On...

  • Page 6
    ... in our video services and Internet penetration, along with opportunity for continued growth in phone through the Charter Bundle. The addressable market opportunity on the commercial side is approximately $8.5 billion, and we will aggressively seek out growth in this business in 2011 and beyond...

  • Page 7
    ... forward, Charter will continue to remain focused on delivering value for you, our investors, by carefully managing operations, maintaining our targeted level of leverage, and striking the right balance in pursuing appropriate investment opportunities, both strategic and organic. New technologies...

  • Page 8
    ... for your continued support and confidence in Charter, and extend a special thanks to the more than 16,000 Charter employees and our many services partners for their hard work and dedication, which will define our future. I look forward to reporting our future successes. 8fP]cc^cWP]Z TeTah...

  • Page 9
    ... impact Charter's revenue and operating costs and expenses. However, all transactions completed in 2009 and 2010 have been reflected in the operating statistics. At December 31, 2009, actual basic video customers, digital video customers, high-speed Internet customers and telephone customers were...

  • Page 10
    ... Indicate by check mark whether the registrants have submitted electronically and posted on their corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such...

  • Page 11
    ... of securities under a plan confirmed by a court. Yes ˛ No ® There were 114,566,527 shares of Class A common stock outstanding as of January 31, 2011. There were no shares of Class B common stock outstanding as of the same date. Documents incorporated By reference Information required by...

  • Page 12
    ... and Related Transactions, and Director Independence Principal Accounting Fees and Services 64 64 64 64 64 Part iv Item 15 Exhibits and Financial Statement Schedules 65 S-1 E-1 Index i signatures exhibit index This annual report on Form 10-K is for the year ended December 31, 2010. The Securities...

  • Page 13
    ...in this annual report and in other reports or documents that we file from time to time with the SEC, and include, but are not limited to: • our ability to sustain and grow revenues and free cash flow by offering video, high-speed Internet, telephone and other services to residential and commercial...

  • Page 14
    ...,900 business revenue generating units, including small- and medium-sized commercial customers. Our advertising sales division, Charter Media®, provides local, regional and national businesses with the opportunity to advertise in individual markets on cable television networks. We have a history of...

  • Page 15
    ...context requires otherwise. Our principal executive offices are located at 12405 Powerscourt Drive, St. Louis, Missouri 63131. Our telephone number is (314) 965-0555, and we have a website accessible at www.charter.com. Since January 1, 2002, our annual reports, quarterly reports and current reports...

  • Page 16
    ... Communications Holding Company, LLC ("Charter Holdco") CCHC, LLC ("CCHC") 0.19% common equity interest CCI Exchange I, Inc. 0.81% common equity interest Charter Communications Holdings, LLC ("Charter Holdings") CCH I Holdings, LLC ("CIH") CCH I, LLC ("CCH I") CCH II, LLC/ CCH II Capital Corp...

  • Page 17
    ... ("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 primarily based on the types of service selected...

  • Page 18
    ...), digital quality music channels and the option to also receive a cable card. In addition to video programming, digital video service enables customers to receive our advanced video services such as DVRs and high definition television. Charter also offers premium sports content over the Internet on...

  • Page 19
    ... rules, the prices we charge for video cable-related equipment, such as set-top boxes and remote control devices, and for installation services, are based on actual costs plus a permitted rate of return in regulated markets. Commercial Services In 2010, commercial services represented approximately...

  • Page 20
    Charter CommuniCations, inC. 2010 Form 10-K We offer reduced-price service for promotional periods in order to attract new customers, to promote the bundling of two or more services and to retain existing customers. We often also offer a two-year price guarantee to our customers. There is no ...

  • Page 21
    ..., plus several third-party call center locations that through technology and procedures function as an integrated system. We provide service to our customers 24 hours a day, seven days a week. We also utilize our website to enable our customers to view and pay their bills online, obtain information...

  • Page 22
    ...and Legislation - Video Services - Franchise Matters." Competition We face competition for both residential and commercial customers in the areas of price, service offerings, and service reliability. We compete with other providers of video, high-speed Internet access, telephone services, and other...

  • Page 23
    ... their ability to avoid franchise fees of up to 5% of revenues and property tax, leads to greater efficiencies and lower costs in the lower tiers of service. Also, DBS providers are currently offering more high definition programming, including local high definition programming. However, we believe...

  • Page 24
    ... number of commercial areas, such as retail malls, restaurants and airports, offer Wi-Fi Internet service. Numerous local governments are also considering or actively pursuing publicly subsidized Wi-Fi and WiMAX Internet access networks. Operators are also marketing PC cards and "personal hotspots...

  • Page 25
    ... cable industry and our three primary services for both residential and commercial customers: video service, high-speed Internet service, and telephone service. Cable system operations are extensively regulated by the federal government (primarily the FCC), certain state governments, and many local...

  • Page 26
    .... Local franchise agreements often require cable operators to set aside certain channels for public, educational, and governmental access programming. Federal law also requires cable systems to designate a portion of their channel capacity for commercial leased access by unaffiliated third parties...

  • Page 27
    ... 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 provides requirements to safeguard such information. We are subject to additional federal, state, and local laws and...

  • Page 28
    ...." In August 2008, the FCC issued an order concerning one Internet network management practice in use by another cable operator, effectively treating the four principles as rules and ordering a change in network management practices. On April 6, 2010, the United States Court of Appeals for the...

  • Page 29
    ...requirements relating to 911 emergency services ("E911"), the Communications Assistance for Law Enforcement Act ("CALEA") regarding law enforcement surveillance of communications, Universal Service fund contribution issues, customer privacy and Customer Proprietary Network Information issues, number...

  • Page 30
    ... 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 flexibility in planning for, or reacting to, changes in our business, the cable and telecommunications industries...

  • Page 31
    ... telephone companies, direct broadcast satellite operators, wireless broadband providers and DSL providers and competition from video provided over the Internet; • general business conditions, economic uncertainty or downturn, high unemployment levels and the level of activity in the housing...

  • Page 32
    ... have sufficient access to funds at the time of the change of control event to make the required repurchase of the applicable notes, and all of the notes issuers are limited in their ability to make distributions or other payments to their respective parent company to fund any required repurchase...

  • Page 33
    Charter CommuniCations, inC. 2010 Form 10-K Upgraded portions of these networks carry two-way video, data service offerings and provide digital voice services similar to ours. In the case of Verizon, high-speed data services offer speeds as high as or higher than ours. In addition, these companies...

  • Page 34
    ... these factors have contributed to an increase in the number of homes that replace their traditional telephone service with wireless service thereby impacting the growth of our telephone business. These conditions have affected our net customer additions and revenue growth during 2009 and 2010 and...

  • Page 35
    ... on favorable terms. In that regard, we currently purchase set-top boxes from a limited number of vendors, because each of our cable systems use one or two proprietary conditional access security schemes, which allows us to regulate subscriber access to some services, such as premium channels. We...

  • Page 36
    ... increase in costs of serving those customers, could adversely affect our growth, financial condition and results of operations. For tax purposes, we experienced a deemed ownership change upon emergence from Chapter 11 bankruptcy, resulting in an annual limitation on our ability to use our existing...

  • Page 37
    ... in us. Charter's principal stockholders are not restricted from investing in, and have 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 transactions...

  • Page 38
    ...states and localities are considering new cable and telecommunications taxes that could increase operating expenses. Our cable system franchises are subject to non-renewal or • requirements governing the provision of channel capacity to unaffiliated commercial leased access programmers; • rules...

  • Page 39
    ...Local franchising authorities may impose new and more restrictive requirements. Local franchising authorities who are certified to regulate rates in the communities where they operate generally have the power to reduce rates and order refunds on the rates charged for basic service and equipment. Tax...

  • Page 40
    ...limited to the basic service tier and associated equipment and installation activities. However, the FCC and Congress continue to be concerned that cable rate increases are exceeding inflation. It is possible that either the FCC or Congress will further restrict the ability of cable system operators...

  • Page 41
    ... signals; local public, educational and government access ("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). The FCC adopted a plan...

  • Page 42
    ... were events of default under the Charter Operating Credit Agreement. JPMorgan, as well as other parties, objected to the Plan. The Bankruptcy Court jointly held 19 days of trial in the JPMorgan Adversary Proceeding and on the objections to the Plan. On November 17, 2009, the Bankruptcy Court issued...

  • Page 43
    ...defendants deny any liability and plan to vigorously contest these cases. We are also aware of three suits filed by holders of securities issued by us or our subsidiaries. Key Colony Fund, LP. v. Charter Communications, Inc. and Paul W. Allen (sic), was filed in February 2009 in the Circuit Court of...

  • Page 44
    ... by the Third Party Release and Injunction within Charter's Plan of Reorganization. Mr. Smith has appealed. Herb Lair, Iron Workers Local No. 25 Pension Fund et al. v. Neil Smit, Eloise Schmitz, and Paul G. Allen ("Iron Workers Local No. 25"), was filed in the United States District Court for...

  • Page 45
    Charter CommuniCations, inC. 2010 Form 10-K PART II item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. (a) market information Charter's Class A common stock is listed on the NASDAQ Global Select Market under the symbol "CHTR." (B)...

  • Page 46
    Charter CommuniCations, inC. 2010 Form 10-K The following information is provided as of December 31, 2010 with respect to equity compensation plans: Number of Securities to be Issued Upon Exercise of Outstanding Option, Warrants and Rights 13,797,026 __ (1) Weighted Average Exercise Price of ...

  • Page 47
    ...result, Charter withheld 176,475 restricted shares, valued at $33.68, the average of the high and low share price on November 30, 2010 on the NASDAQ Global Select Market, to cover the taxes of the participants. We do not have a publicly announced plan or program to purchase shares of Charter's Class...

  • Page 48
    ...of December 31, 2009, represents the fair value of Mr. Allen's previous 0.19% interest of Charter Holdco on the Effective Date plus the allocation of income for the month ended December 31, 2009. On February 8, 2010, Mr. Allen exercised his remaining right to exchange Charter Holdco units for shares...

  • Page 49
    ... EBITDA and free cash flow. Adjusted EBITDA increased as a result of continued growth in high-speed Internet and telephone customers combined with growth in our commercial services and advertising sales businesses. For the years ended December 31, 2010, our income from operations was $1.0 billion...

  • Page 50
    ...service related expenses, advertising sales costs and franchise fees. Selling, general and administrative expenses primarily include salaries and benefits, rent expense, billing costs, call center costs, internal network costs, bad debt expense, and property taxes. We control our costs of operations...

  • Page 51
    ...video services), installation refurbishments, and the addition of network equipment necessary to provide new or advanced video 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 52
    ... represent the value attributed to agreements or authorizations with local and state authorities that allow access to homes in cable service areas. For valuation purposes, they are defined as the future economic benefits of the right to solicit and service potential customers (customer marketing...

  • Page 53
    ... video, high-speed Internet, and telephone; revenue growth rates; operating margins; and capital expenditures. The assumptions are derived based on Charter's and its peers' historical operating performance adjusted for current and expected competitive and economic factors surrounding the cable...

  • Page 54
    ... a fair royalty rate to estimated revenue. Royalty rates are estimated based on a review of market royalty rates in the communications and entertainment industries. As we expect to continue to use each trade name indefinitely, trademarks have been assigned an indefinite life and are tested annually...

  • Page 55
    ... 31, 2010, Charter and its indirect corporate subsidiaries had state tax net operating and capital loss carryforwards, resulting in a gross deferred tax asset (net of federal tax benefit) of approximately $228 million, generally expiring in years 2011 through 2030. Due to uncertainties in projected...

  • Page 56
    ... for Charter or Charter Holdco are currently under examination by the Internal Revenue Service. Tax years ending 2007 through 2010 remain subject to examination and assessment. Years prior to 2007 remain open solely for purposes of examination of Charter's loss and credit carryforwards. contract in...

  • Page 57
    ... residential and commercial telephone, high-speed Internet, and digital video customers, price increases, and incremental video revenues from premium, DVR, and high-definition television services, offset by a decrease in basic video customers. Asset sales, net of acquisitions, in 2008, 2009 and 2010...

  • Page 58
    ... Average monthly revenue per telephone customer decreased during 2010 compared to 2009 due to promotional activity to increase sales of the Charter Bundle®. Commercial revenues consist primarily of revenues from services provided to our commercial customers. Commercial revenues increased primarily...

  • Page 59
    Charter CommuniCations, inC. 2010 Form 10-K Operating expenses. The increases in our operating expenses are attributable to the following (dollars in millions): 2010 compared to 2009 Programming costs Labor costs Franchise and regulatory fees Commercial services Vehicle costs Ad sales Other, net ...

  • Page 60
    ...were required to be accounted for separately from the convertible senior notes and marked to fair value at the end of each reporting period. On the Effective Date, the convertible debt was cancelled. Change in value of derivatives consists of the following for the years ended December 31, 2010, 2009...

  • Page 61
    ... result of impairment charges, loss on extinguishment of debt, reorganization items and gains due to Plan effects and fresh start accounting, net of tax, was to increase net loss by approximately $91 million in 2010, increase net income by approximately $11.0 billion in 2009 and to increase net loss...

  • Page 62
    Charter CommuniCations, inC. 2010 Form 10-K assets used in generating revenues and our cash cost of financing. Management evaluates these costs through other financial measures. Free cash flow is defined as net cash flows from operating activities, less capital expenditures and changes in accrued ...

  • Page 63
    Charter CommuniCations, inC. 2010 Form 10-K transactions will be subject to market conditions. Additionally, we may, from time to time, depending on market conditions and other factors, use cash on hand and the proceeds from securities offerings or other borrowings, to retire our debt through open...

  • Page 64
    ... certain facilities and equipment under noncancelable operating leases. Leases and rental costs charged to expense for the years ended December 31, 2010, 2009, and 2008, were $24 million, $25 million and $24 million, respectively. (4) We pay programming fees under multi-year contracts ranging from...

  • Page 65
    ... December 31, 2010, 2009, and 2008, was $50 million, $47 million and $47 million. • 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, under...

  • Page 66
    ...depends in part on the deployment of advanced video services and offerings. Capital expenditures will increase if there is accelerated growth in high-speed Internet, telephone, commercial business or digital customers or there is an increased need to respond to competitive pressures by expanding the...

  • Page 67
    ...for LIBOR term loans is 2.50% above LIBOR. If an event of default were to occur, CCO Holdings would not be able to elect LIBOR and would have to pay interest at the base rate plus the applicable margin. The CCO Holdings credit facility is secured by the equity interests of Charter Operating, and all...

  • Page 68
    Charter CommuniCations, inC. 2010 Form 10-K less than the yield for the other certain term loans. Charter Operating pays interest equal to LIBOR plus 3.0% on amounts borrowed under the revolving credit facility and pays a revolving commitment fee of .5% per annum on the daily average available ...

  • Page 69
    ... issued by CCH II, CCO Holdings and Charter Operating. CCH II Notes On November 30, 2009, CCH II and CCH II Capital Corp. issued approximately $1.8 billion in total principal amount of new 13.5% senior notes (the "CCH II 2016 Notes"). Such notes are guaranteed by Charter. The CCH II 2016 Notes pay...

  • Page 70
    ... in accordance with the foregoing sentence 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. 

  • Page 71
    ... and principal payments due on an 8% senior second-lien notes due 2012 to its final maturity date, computed using a discount rate equal to the Treasury Rate on such date plus 0.50%, over (b) the outstanding principal amount of such note. In the event that a specified change of control event occurs...

  • Page 72
    ...CCH II: $1 billion CCO Holdings: $1.5 billion Charter Operating: $6.8 billion • up to $75 million of debt incurred to finance the purchase or capital lease of new assets; • up to $300 million of additional debt for any purpose (in the case of CCO Holdings notes, the limit is the greater of $300...

  • Page 73
    ... 2010, plus 100% of new cash and appraised non-cash equity proceeds received by CCO Holdings and not allocated to certain investments, cumulatively from the issue date, plus $2 billion; and • Charter Operating: the sum of 100% of Charter Operating's Consolidated EBITDA, as defined, minus 1.3 times...

  • Page 74
    ... 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 assets, liens securing indebtedness of up to $50 million (in the case of CCO Holdings notes, the greater of $50 million...

  • Page 75
    ...sales, issuances and settlements relating to Level 3 measurements is effective for fiscal years beginning after December 15, 2010 and all interim periods within. We adopted ASU 2010-06 on January 1, 2011. The adoption did not have a material impact on our consolidated financial statements. increase...

  • Page 76
    ... the effectiveness of the design and operation of our disclosure controls and procedures with respect to the information generated for use in this annual report. The evaluation was based in part upon reports and certifications provided by a number of executives. Based upon, and as of the date of...

  • Page 77
    ... reporting was effective. Our independent auditors, KPMG LLP, have audited our internal control over financial reporting as stated in their report on page F-2. SEC. item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. The information required...

  • Page 78
    ... CommuniCations, inC. 2010 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 required...

  • Page 79
    ... this annual report to be signed on its behalf by the undersigned, thereunto duly authorized. CHARTER COMMUNICATION, INC. Registrant By: / s / Michael J. Lovett _____ Michael J. Lovett President, Cheif Executive Officer and Director Date: March 1. 2011 Pursuant to the requirements of the Securities...

  • Page 80
    ...4, 2009 (File No. 001-33664)). Warrant Agreement, dated as of November 30, 2009, by and between Charter Communications, Inc. and Mellon Investor Services LLC (incorporated by reference to Exhibit 4.1 to the current report on Form 8-K of Charter Communications, Inc. filed on December 4, 2009 (File No...

  • Page 81
    ... Indenture relating to the 13.50% senior notes due 2016, dated as of November 30, 2009, by and among CCH II, LLC, CCH II Capital Corp. and The Bank of New York Mellon Trust Company, NA (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K of Charter Communications, Inc. filed...

  • Page 82
    ... 10.3 to the current report on Form 8-K of Charter Communications, Inc. filed on December 4, 2009 (File No. 001-33664)). Exchange and Registration Rights Agreement related to the 7.875% Senior Notes due 2018 of CCO Holdings, LLC, CCO Holdings Capital Corp., dated as of April 28, 2010, by and among...

  • Page 83
    ... Investment, Inc. Paul G. Allen and Charter Communications Holding Company, LLC (incorporated by reference to Exhibit 10.5 to the current report on Form 8-K of Charter Communications, Inc. filed on December 4, 2009 (File No. 00133664)). Amended and Restated Management Agreement, dated as of June...

  • Page 84
    ..., Inc., dated effective as of February 1, 2010 (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K of Charter Communications, Inc. filed on April 13, 2010 (File No. 001-33664)). Employment Agreement between Christopher L. Winfrey and Charter Communications, Inc., dated as of...

  • Page 85
    .... Management compensatory plan or arrangement inDeX to FinanCiaL statements Page Audited Financial Statements Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets as of December 31, 2010 and 2009 (Successor) Consolidated Statements of Operations for the Year Ended...

  • Page 86
    ..., the Company filed a petition for reorganization under Chapter 11 of the United States Bankruptcy Code on March 27, 2009. The Company's plan of reorganization became effective and CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2010, 2009, AND...

  • Page 87
    Charter CommuniCations, inC. 2010 Form 10-K the Company emerged from bankruptcy protection on November 30, 2009. In connection with its emergence from bankruptcy, the Company adopted fresh-start accounting in conformity with AICPA Statement of Position 90-7, Financial Reporting by Entities in ...

  • Page 88
    ... CURRENT LIABILITIES: Accounts payable and accrued expenses Current portion of long-term debt Total current liabilities LONG-TERM DEBT OTHER LONG-TERM LIABILITIES SHAREHOLDERS' EQUITY: Class A common stock; $.001 par value; 900 million shares authorized; 112,494,166 and 112,576,872 shares issued...

  • Page 89
    ... the eleven months ended November 30, 2009) Gain due to Plan effects Gain due to fresh start accounting adjustments Reorganization items, net Gain (loss) on extinguishment of debt Change in value of derivatives Other income (expense), net Income (loss) before income taxes Income tax benefit (expense...

  • Page 90
    Charter CommuniCations, inC. 2010 Form 10-K Charter CommuniCations, inC. anD suBsiDiaries ConsoLiDateD statements oF ChanGes in sharehoLDers' eQuitY (DeFiCit) (dollars in millions) Class A Common Srock PREDECESSOR: BALANCE, December 31, 2007, Predecessor Changes in fair value of interest rate ...

  • Page 91
    ... debt Deferred income taxes Other, net Changes in operating assets and liabilities, net of effects from acquisitions and dispositions: Accounts receivable Prepaid expenses and other assets Accounts payable, accrued expenses and other Payment of deferred management fees - related party Net cash flows...

  • Page 92
    ... as Charter OnDemandâ„¢, high definition television, and digital video recorder ("DVR") service. The Company sells its cable video programming, high-speed Internet, telephone, and advanced video services primarily on a subscription basis. The Company also sells local advertising on cable networks...

  • Page 93
    ... 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 date of acquisition...

  • Page 94
    ... contracts and upon emergence from bankruptcy, received payment for the market value of the interest rate swap as measured on the date the counterparties terminated. In April 2010, the Company entered into $2.0 billion notional amounts of interest rate swap agreements. F- CHARTER COMMUNICATIONS...

  • Page 95
    ... of franchise fees, equipment rental and video customer installation revenue as video revenue, and telephone regulatory fees as telephone revenue, rather than other revenue. Programming Costs The Company has various contracts to obtain basic, digital and premium video programming from programming...

  • Page 96
    ... 2009 and eleven months ended November 30, 2009 is based on the average number of shares used for the basic earnings per common share calculation, adjusted for the dilutive effect of stock options and other convertible securities (See Note 19). Predecessor shares were cancelled on the Effective Date...

  • Page 97
    Charter CommuniCations, inC. 2010 Form 10-K type or class of customer receiving the products and services; distributes the Company's services over a unified network; and operates within a consistent regulatory environment. In addition, each of the geographic operating segments has similar economic...

  • Page 98
    ... video, high-speed Internet, and telephone; revenue growth rates; operating margins; and capital expenditures. The assumptions are derived based on the Company's and its peers' historical operating performance adjusted for current and expected competitive and economic factors surrounding the cable...

  • Page 99
    Charter CommuniCations, inC. 2010 Form 10-K The fair value of trademarks was determined using the relief-from-royalty method which applies a fair royalty rate to estimated revenue. Royalty rates are estimated based on a review of market royalty rates in the communications and entertainment ...

  • Page 100
    ... 2010 and 2009: Successor December 31, 2010 Accounts payable - trade Accrued capital expenditures Accrued expenses: Interest Programming costs Franchise related fees Compensation Other $ 162 282 53 124 206 1,049 $ 90 270 53 102 224 898 $ 168 54 $ December 31, 2009 113 46 7. Long-term Debt Long-term...

  • Page 101
    ... price equal to 101% of the total principal amount of the notes, plus any accrued and unpaid interest. CCH II Notes On the Effective Date, CCH II and CCH II Capital Corp. issued approximately $1.8 billion in total principal amount of new 13.5% senior notes. Such notes are guaranteed by Charter...

  • Page 102
    ...maturity date, computed using a discount rate equal to the Treasury Rate on such date plus 0.50%, over (b) the outstanding principal amount of such note. In March 2008, Charter Operating issued $546 million principal amount of 10.875% senior second-lien notes due 2014, guaranteed by CCO Holdings and...

  • Page 103
    ...for LIBOR term loans is 2.50% above LIBOR. If an event of default were to occur, CCO Holdings would not be able to elect LIBOR and would have to pay interest at the base rate plus the applicable margin. The CCO Holdings credit facility is secured by the equity interests of Charter Operating, and all...

  • Page 104
    ... sales of assets, so long as the proceeds have not been reinvested in the business. The Charter Operating credit facilities permit Charter Operating and its subsidiaries to make distributions to pay interest on the currently outstanding subordinated and parent company indebtedness, Limitations...

  • Page 105
    ...December 31, 2009 represented the fair value of Mr. Allen's .19% interest of Charter Holdco plus the allocation of income for the month ended December 31, 2009. On January 1, 2009, Charter adopted new accounting guidance regarding consolidations and noncontrolling interests, which requires losses to...

  • Page 106
    ..., par value $.001 per share, and any other outstanding equity securities of Predecessor, including all options and restricted stock, were cancelled on the Effective Date, and Successor issued 109.7 million shares of new Charter Class A common stock, par value $.001 per share and 2.2 million shares...

  • Page 107
    ... Effective Date. During the year ended December 31, 2010, the Company withheld 176,475 shares of its common stock in payment of income tax withholding owed by employees upon vesting of restricted shares. The Company accounts for treasury stock using the cost method and F- CHARTER COMMUNICATIONS...

  • Page 108
    ...and the other terms of the contracts. The effect of derivative instruments on the Company's consolidated statements of operations is presented in the table below. F- CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2010, 2009, AND 2008 (dollars...

  • Page 109
    ... quoted market prices and is classified within Level 1 (defined below) of the valuation hierarchy. A summary of the carrying value and fair value of the Company's debt at December 31, 2010 and 2009 is as follows: December 31, 2010 Carrying Value Debt CCH II debt CCO Holdings debt Charter Operating...

  • Page 110
    ... December 31, 2010 using a present value calculation based on an implied forward LIBOR curve (adjusted for Charter Operating's or counterparties' credit risk) and were classified within Level 2 of the valuation hierarchy. The weighted average pay rate for the Company's interest rate swap agreements...

  • Page 111
    ... assets represents the loss recognized on the sales of fixed assets and cable systems, including the sale of systems serving approximately 64,900 basic video customers in October 2010. Special charges, net Special charges, net for the year ended December 31, 2010, one month ended December 31, 2009...

  • Page 112
    ... for the year ended December 31, 2010 (Successor). On April 28, 2010, CCO Holdings and CCO Holdings Capital Corp. closed on transactions in which they issued the 2018 Notes and 2020 Notes. The net proceeds were used to finance the tender offers and redemptions of CCO Holdings' 2013 Notes and Charter...

  • Page 113
    ... options, were cancelled on the Effective Date. The Plan included an allocation of not less than 3% of new equity for employee grants with 50% of the allocation to be granted within thirty days of the Company's emergence from bankruptcy. In December 2009, the Company's board of directors authorized...

  • Page 114
    Charter CommuniCations, inC. 2010 Form 10-K A summary of the activity for the Company's stock options for the year ended December 31, 2010, one month ended December 31, 2009, eleven months ended November 30, 2009 and year ended December 31, 2008, is as follows (amounts in thousands, except per ...

  • Page 115
    ...the conditions necessary to allow it to elect a tax-free transaction at any time during the remaining term of the Exchange Agreement. F-0 CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2010, 2009, AND 2008 (dollars in millions, except share or...

  • Page 116
    ... deferred tax benefit related to the impairment of franchises. The Company's effective tax rate differs from that derived by applying the applicable federal income tax rate of 35% for the year ended December 31, 2010, one month ended December 31, 2009, eleven months ended November 30, 2009 and year...

  • Page 117
    ...176 million annually over each of the next 18 years of federal tax loss carryforwards, should become unrestricted and available for Charter's use. Those limitation amounts accumulate for future use to the extent they are not utilized in a given year. Charter's state loss F- CHARTER COMMUNICATIONS...

  • Page 118
    ... does not currently anticipate that its existing reserves related to uncertain income tax positions as of December 31, 2010 will significantly increase or decrease during the twelve-month period ending December 31, 2011; however, various events could cause the Company's current expectations to...

  • Page 119
    ... the average market price of the common shares. Restricted stock was also not included in the computation of diluted earnings per share because the effect would have been antidilutive. Predecessor Eleven Months Ended November 30, 2009 Earnings Basic earnings per share Effect of CII Class B Charter...

  • Page 120
    ... billing services, data processing and related support, benefits administration and coordination of insurance coverage and self-insurance programs for medical, dental and workers' compensation claims. Costs associated with providing these services are charged directly to the Company's operating...

  • Page 121
    ... a percentage of revenues generated from video service per year. The Company also pays other franchise related costs, such as public education grants, under multi-year agreements. Franchise fees and other franchise-related costs included in the accompanying statement of operations were $178 million...

  • Page 122
    ...Marc Goodell et al. v. Charter Communications, LLC and Charter Communications, Inc.). The plaintiffs sought to represent a class of current and former broadband, system and other types of technicians who are or were employed by Charter or Charter LLC in the states of Michigan, Minnesota, Missouri or...

  • Page 123
    ...November 17, 2009, and became effective on the Effective Date, the date on which the Company emerged from protection under Chapter 11 of the Bankruptcy Code. 22. employee Benefit Plan The Company's employees may participate in the Charter Communications, Inc. 401(k) Plan. Employees that qualify for...

  • Page 124
    .... Reorganization value, along with other terms of the Plan, was Charter Holdings Notes. On the Effective Date, $440 million of Charter Holdings senior and senior discount notes were cancelled. Holders of Charter Holdings notes received 1.3 million warrants to purchase shares of new Charter Class...

  • Page 125
    ... Year Ended December 31, 2010 Penalty interest, net Loss on debt at allowed claim amount Professional fees Paul Allen management fee settlement - related party Other Total Reorganization Items, Net $ --6 -$ 6 $ Predecessor Eleven Months Ended November 30, 2009 $ 351 97 167 11 18 644 One Month...

  • Page 126
    ... more robust fair value disclosures. The disclosures about purchases, sales, issuances and settlements relating to Level 3 measurements is effective for fiscal years beginning after December 15, 2010 and all interim periods within. The Company adopted ASU 2010-06 on January 1, 2011. The adoption...

  • Page 127
    ... guaranteed on an unsecured senior basis by Charter. The accompanying condensed consolidating financial information has been prepared and presented pursuant to SEC Regulation S-X Rule 310, Financial Statements of Guarantors and Affiliates Whose Securities Collateralize an Issue Registered...

  • Page 128
    ...-K Charter Communication, inc. Condensed Consolidating Balance sheet successor as of December 31, 2010 Charter Operating and Subsidiaries Charter ASSETS CURRENT ASSETS: Cash and cash equivalents Restricted cash and cash equivalents Accounts receivable, net Receivables from related party Prepaid...

  • Page 129
    Charter CommuniCations, inC. 2010 Form 10-K Charter Communication, inc. Condensed Consolidating Balance sheet successor as of December 31, 2009 Intermediate Holding Companies Charter Operating and Subsidiaries Charter ASSETS CURRENT ASSETS: Cash and cash equivalents Restricted cash and cash ...

  • Page 130
    ... CommuniCations, inC. 2010 Form 10-K Charter Communications, inc. Condensed Consolidating statement of operations successor For the year ended December 31, 2010 Intermediate Holding Companies $ 118 $ Charter Operating and Subsidiaries $ 7,059 Charter REVENUES COSTS AND EXPENSES: Operating...

  • Page 131
    ... CommuniCations, inC. 2010 Form 10-K Charter Communications, inc. Condensed Consolidating statement of operations successor For the one month ended December 31, 2009 Intermediate Holding Companies $ 12 $ Charter Operating and Subsidiaries $ 572 Charter REVENUES COSTS AND EXPENSES: Operating...

  • Page 132
    Charter CommuniCations, inC. 2010 Form 10-K Charter Communications, inc. Condensed Consolidating statement of operations Predecessor For the eleven months ended november 30, 2009 Intermediate Holding Companies $ 306 Charter Operating and Subsidiaries $ 6,183 Charter REVENUES COSTS AND ...

  • Page 133
    ... CommuniCations, inC. 2010 Form 10-K Charter Communications, inc. Condensed Consolidating statement of operations Predecessor For the year ended December 31, 2008 Intermediate Holding Companies $ 166 Charter Operating and Subsidiaries $ 6,479 Charter REVENUES COSTS AND EXPENSES: Operating...

  • Page 134
    .... 2010 Form 10-K Charter Communications, inc. Condensed Consolidating statement of Cash Flows successor For the year ended December 31, 2010 Intermediate Holding Companies $ (1) ----2 2 Charter Operating and Subsidiaries $ 390 1,524 97 66 12 -34 Charter CASH FLOWS FROM OPERATING ACTIVITIES...

  • Page 135
    ..., inC. 2010 Form 10-K Charter Communications, inc. Condensed Consolidating statement of Cash Flows successor For the one month ended December 31, 2009 Intermediate Holding Companies $ 9 ---(6) (2) Charter Operating and Subsidiaries $ 29 122 9 3 -3 Charter CASH FLOWS FROM OPERATING ACTIVITIES...

  • Page 136
    Charter CommuniCations, inC. 2010 Form 10-K Charter Communications, inc. Condensed Consolidating statement of Cash Flows Predecessor For the eleven months ended november 30, 2009 Intermediate Holding Companies Charter Operating and Subsidiaries Charter CASH FLOWS FROM OPERATING ACTIVITIES: ...

  • Page 137
    ... Accounts payable, accrued expenses and other Receivables from and payables to related party, including deferred management fees Net cash flows from operating activities CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment Change in accrued expenses related to capital...

  • Page 138
    Charter CommuniCations, inC. 2010 Form 10-K This Page Intentionally Left Blank F- CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2010, 2009, AND 2008 (dollars in millions, except share or per share data or where indicated)

  • Page 139
    ... from operating activities in this annual report. Adjusted EBITDA is defined as consolidated net income (loss) plus net interest expense, income taxes, depreciation and amortization, reorganization items, impairment charges, gains related to our emergence from bankruptcy and fresh start accounting...

  • Page 140
    ... activities Less: Purchases of property, plant and equipment Change in accrued expenses related to capital expenditures Free cash flow (1,192) (39) ($857) 2008 Actual Reconciliation of Non-GAAP Measures to GAAP Measures Consolidated net income (loss) Plus: Interest expense, net Income tax (benefit...

  • Page 141
    ... this Form 10-K, filed annually with the Securities and Exchange Commission (SEC), are available without charge (without exhibits) by accessing our Web site at Charter.com or by contacting Investor Relations. Headquarters Charter Communications, Inc. 12405 Powerscourt Drive St. Louis, MO 63131-3674...

  • Page 142
    Charter CommuniCations, inC. annuaL rePort Leadership Michael J. Lovett President & Chief Executive Officer Board of Directors Eric L. Zinterhofer Chairman Founder of Searchlight Capital Partners, LLC Robert Cohn Independent Investor and Advisor W. Lance Conn Former President of Vulcan Capital ...

  • Page 143
    Charter CommuniCations, inC. 12405 PowersCourt Drive st. Louis, mo 63131-3674 Charter.Com