Charter 2010 Annual Report Download - page 124

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F- F-PB
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)
$6.8 billion primarily resulting from the discharge of long-term debt
under the Plan and the related accrued interest offset by the issuance
of common stock, preferred stock, warrants and new notes to holders
of such notes. e following notes were eliminated on the Effective Date:
Charter Convertible Notes. On the Effective Date, $482 million of
Charter convertible senior notes were cancelled and holders of the
convertible senior notes received $25 million in cash and 5.5 million
shares of preferred stock issued by Charter valued at $145 million as
of the Effective Date.
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 A common stock with an
exercise price of $51.28 per share that expire five years after the
date of issuance. e warrants were valued at $6 million as of the
Effective Date.
CCH I Holdings, LLC Notes. On the Effective Date, $2.5 billion of
CCH I Holdings, LLC (“CIH”) senior and senior discount notes
were cancelled. Holders of CIH notes received 6.4 million warrants
to purchase shares of new Charter Class A common stock with an
exercise price of $46.86 per share that expire five years after the
date of issuance. e warrants were valued at $35 million as of the
Effective Date.
CCH I, LLC Notes. On the Effective Date, $4.0 billion of CCH I
senior and senior discount notes were cancelled. Holders of CCH I
notes received 21.1 million shares of new Charter Class A common
stock. In addition, as part of the Plan, the holders of CCH I notes
received and transferred to Mr. Allen $85 million principal amount
of new CCH II notes valued at $101 million as of the Effective Date.
CCH II, LLC Notes. On the Effective Date, $2.5 billion of CCH II
senior notes were cancelled through an exchange with holders who
received new 13.500% senior CCH II notes and cash paid for the
remaining unexchanged amount.
Fresh start accounting provided, among other things, for a
determination of the value assigned to the equity of the emerging
company as of a date selected for financial reporting purposes. In
the Disclosure Statement, the reorganization value of the Company
was set forth as approximately $14.1 billion to $16.6 billion, with
a midpoint estimate of $15.4 billion. Under fresh start accounting,
this reorganization value was allocated to the Company’s assets
based on their respective fair values. e fresh start adjustments to
fair value resulted in an increase to the carrying value of property,
plant and equipment of $2.0 billion, the establishment of customer
relationships at a fair value of $2.4 billion, and the recording of
goodwill of $951 million. e reduction in long-term debt was
$502 million to reflect it at its fair value and the net increase to
shareholder’s equity was $6.0 billion.
Reorganization value, along with other terms of the Plan, was
determined after extensive arms-length negotiations with the
Company’s creditors. e value was based upon expected future
cash flows of the business after emergence from Chapter 11,
discounted at rates reflecting perceived business and financial risks
(the discounted cash flows). is valuation and a valuation using
market value multiples for peer companies were blended to arrive
at the reorganization value. Reorganization value is intended to
approximate the amount a willing buyer would pay for the assets of
the Company immediately after the reorganization.
Based on conditions in the cable industry and general economic
conditions, the mid-point of the range of valuations was used to
determine the reorganization value. Under fresh start accounting,
this reorganization value was allocated to the Company’s assets
based on their respective fair values. e reorganization value,
after adjustments for working capital, is reduced by the fair value
of debt and other noncurrent liabilities, and preferred stock with
the remainder representing the value to common shareholders.
e market capitalization of Charter’s common stock may differ
materially from this value.
e significant assumptions related to the valuations of the
Company’s assets and liabilities in connection with fresh start
accounting include the following:
Property, plant and equipment — Property, plant and equipment was
valued at fair value of $6.8 billion as of November 30, 2009. In
establishing fair value for the vast majority of the Company’s property,
plant and equipment, the cost approach was utilized. e cost approach
considers the amount required to replace an asset by constructing or
purchasing a new asset with similar utility, then adjusts the value in
consideration of all forms of depreciation as of the appraisal date.