<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2000.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From to .
------ ------
Commission File Number: 000-27927
CHARTER COMMUNICATIONS, INC.
----------------------------
(Exact name of registrant as specified in its charter)
Delaware 43-1857213
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12444 Powerscourt Drive - Suite 100
St. Louis, Missouri 63131
- ----------------------------------- -----
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (314) 965-0555
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Number of shares of Class A Common Stock outstanding as of May 11, 2000:
222,039,746
Number of shares of Class B Common Stock outstanding as of May 11, 2000: 50,000
<PAGE> 2
CHARTER COMMUNICATIONS, INC.
----------------------------
FORM 10-Q - FOR THE QUARTER ENDED MARCH 31, 2000
------------------------------------------------
INDEX
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<TABLE>
<CAPTION>
Part I. Financial Information Page
--------------------- ----
<S> <C>
Item 1. Financial Statements - Charter Communications, Inc. and
Subsidiaries. 3
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk. 26
Part II. Other Information
------------------
Item 6. Exhibits and Reports on Form 8-K. 27
Signatures. 30
</TABLE>
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS:
This Report includes forward-looking statements regarding, among other things,
our plans, strategies and prospects, both business and financial. Although we
believe that our plans, intentions and expectations reflected in or suggested by
these forward-looking statements are reasonable, we cannot assure you that we
will achieve or realize these plans, intentions or expectations. Forward-looking
statements are inherently subject to risks, uncertainties and assumptions. Many
of the forward-looking statements contained in this Report may be identified by
the use of forward-looking words such as "believe," "expect," "anticipate,"
"should," "planned," "estimated" and "potential," among others. Important
factors that could cause actual results to differ materially from the
forward-looking statements we make in this Report are set forth in this Report
and in other reports or documents that we file from time to time with the
Securities and Exchange Commission and include, but are not limited to:
- - Our plans to achieve growth by offering new products and services, and
through acquisitions and swaps;
- - Our anticipated capital expenditures for our planned upgrades and the
ability to fund these expenditures;
- - Our beliefs regarding the effects of governmental regulation on our
business; and
- - Our ability to effectively compete in a highly competitive environment.
All forward-looking statements attributable to us or a person acting on our
behalf are expressly qualified in their entirety by those cautionary statements.
2
<PAGE> 3
PART I. FINANCIAL INFORMATION.
ITEM 1. FINANCIAL STATEMENTS.
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999*
---------------- -----------------
<S> <C> <C>
ASSETS (UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents $ 130,713 $ 133,706
Accounts receivable, net of allowance for doubtful accounts of $18,493
and $11,471, respectively 97,900 93,743
Prepaid expenses and other 44,279 35,142
------------ ------------
Total current assets 272,892 262,591
------------ ------------
INVESTMENT IN CABLE PROPERTIES:
Property, plant and equipment, net of accumulated depreciation of
$474,885 and $317,079, respectively 3,831,644 3,490,573
Franchises, net of accumulated amortization of $940,201 and $650,478,
respectively 17,446,157 14,985,793
------------ ------------
21,277,801 18,476,366
------------ ------------
OTHER ASSETS 253,977 227,550
------------ ------------
$ 21,804,670 $ 18,966,507
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 745,549 $ 706,775
Payables to related party 19,353 13,183
------------ ------------
Total current liabilities 764,902 719,958
------------ ------------
LONG-TERM DEBT 11,154,423 8,936,455
------------ ------------
DEFERRED MANAGEMENT FEES - RELATED PARTY 13,751 21,623
------------ ------------
OTHER LONG-TERM LIABILITIES 150,139 145,124
------------ ------------
MINORITY INTEREST 4,979,745 5,381,331
------------ ------------
REDEEMABLE SECURITIES 1,846,176 750,937
------------ ------------
SHAREHOLDERS' EQUITY:
Class A common stock; $.001 par value; 1.5 billion shares authorized;
222,039,746 and 221,740,584 shares issued and outstanding,
respectively 195 195
Class B common stock; $.001 par value; 750 million shares authorized;
50,000 shares issued and outstanding -- --
Preferred stock; $.001 par value; 250 million shares authorized;
no shares issued and outstanding -- --
Additional paid-in capital 3,141,608 3,075,694
Retained deficit (246,945) (66,231)
Accumulated other comprehensive income 676 1,421
------------ ------------
Total shareholders' equity 2,895,534 3,011,079
------------ ------------
$ 21,804,670 $ 18,966,507
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
- --------
* Agrees with audited consolidated balance sheet included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1999.
3
<PAGE> 4
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 2000 MARCH 31, 1999
----------------- -----------------
<S> <C> <C>
REVENUES $ 721,604 $ 160,956
------------- -------------
OPERATING EXPENSES:
Operating, general and administrative 371,769 83,091
Depreciation 252,876 23,535
Amortization 293,224 66,543
Option compensation expense 15,500 16,651
Corporate expense charges - related party 12,508 2,928
------------- -------------
945,877 192,748
------------- -------------
Loss from operations (224,273) (31,792)
OTHER INCOME (EXPENSE):
Interest expense (230,914) (45,426)
Interest income 5,435 1,664
Other, net 132 (7,621)
------------- -------------
(225,347) (51,383)
------------- -------------
Loss before minority interest (449,620) (83,175)
MINORITY INTEREST IN LOSS OF SUBSIDIARY 268,906 83,142
------------- -------------
Net loss $ (180,714) $ (33)
============= =============
LOSS PER COMMON SHARE, basic and diluted $ (0.81) $ (0.67)
============= =============
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING, basic and diluted 221,917,083 50,000
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
4
<PAGE> 5
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 2000 MARCH 31, 1999
-------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (180,714) $ (33)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Minority interest in loss of subsidiary (268,906) (83,142)
Depreciation and amortization 546,100 90,078
Option compensation expense 15,500 16,651
Non-cash interest expense 42,122 20,072
Gain on disposal of property, plant and equipment -- (173)
Changes in assets and liabilities, net of effects from acquisitions:
Accounts receivable (9,332) (1,788)
Prepaid expenses and other (8,835) (6,250)
Accounts payable and accrued expenses 64,728 (11,454)
Payables to related party, including deferred management fees (1,702) (7,341)
----------- -----------
Net cash provided by operating activities 198,961 16,620
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (259,945) (54,853)
Payments for acquisitions, net of cash acquired (1,701,464) (2,752)
Loan to Marcus Cable Holdings, LLC -- (1,680,142)
Other investing activities (6,521) (5,039)
----------- -----------
Net cash used in investing activities (1,967,930) (1,742,786)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt, including proceeds from Charter
Holdings Notes 4,195,203 4,819,127
Repayments of long-term debt (2,384,336) (1,961,524)
Payments for debt issuance costs (47,227) (88,880)
Distributions to Charter Investment -- (3,240)
Payment to related party -- (20,000)
Other financing activities 2,336 --
----------- -----------
Net cash provided by financing activities 1,765,976 2,745,483
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,993) 1,019,317
CASH AND CASH EQUIVALENTS, beginning of period 133,706 9,573
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 130,713 $ 1,028,890
=========== ===========
CASH PAID FOR INTEREST $ 76,942 $ 78,865
=========== ===========
NON-CASH TRANSACTION:
Issuances of equity as partial payment for acquisition $ 1,014,110 $ --
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
5
<PAGE> 6
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. ORGANIZATION AND BASIS OF PRESENTATION:
CHARTER COMMUNICATIONS, INC.
On July 22, 1999, Charter Investment, Inc. (Charter Investment), a company
controlled by Paul G. Allen, formed a wholly owned subsidiary, Charter
Communications, Inc. (Charter), a Delaware corporation, with a nominal initial
investment.
On November 12, 1999, Charter sold 195.5 million shares of Class A common stock
in an initial public offering and 50,000 shares of high vote Class B common
stock to Mr. Allen, and used the net proceeds to purchase a 100% voting interest
and an approximate 40.6% economic interest in Charter Communications Holdings
Company, LLC (Charter Holdco), an indirect owner of cable systems.
Prior to November 12, 1999, Charter Holdco was owned 100% by Charter Investment
and Vulcan Cable III Inc., both entities controlled by Mr. Allen. Subsequent to
November 12, 1999, Mr. Allen controls Charter through his ownership of all of
the high vote Class B common stock, and Charter controls Charter Holdco through
its ownership of all the voting interests. Charter's purchase of 50,000
membership units of Charter Holdco was accounted for as a reorganization of
entities under common control similar to a pooling of interests. For financial
reporting purposes, 50,000 of the membership units previously issued by Charter
Holdco to Charter Investment on November 12, 1999, representing an economic
interest of less than 1%, are considered held by Charter effective December 23,
1998, the date Mr. Allen was first deemed to control Charter Holdco.
Accordingly, Charter Holdco's results of operations for the three months ended
March 31, 1999 are included in the accompanying consolidated statements of
operations.
Charter is a holding company whose sole asset is a 39.6% controlling equity
interest in Charter Holdco. Charter, Charter Holdco and its subsidiaries are
collectively referred to as the "Company" herein. All material intercompany
transactions and balances have been eliminated in consolidation.
The Company owns and operates cable systems currently serving approximately 6.2
million customers, including customers from the acquisition of Bresnan
Communications Company Limited Partnership and its subsidiaries (Bresnan)
completed in February 2000 (see Note 3). The Company offers a full range of
traditional cable television services and has begun to offer digital cable
television services, interactive video programming and high-speed Internet
access.
LOSS PER COMMON SHARE
For purposes of the loss per common share calculation for the three months ended
March 31, 1999, Mr. Allen's 50,000 shares of high vote Class B common stock are
considered to be outstanding for the entire period. Basic loss per common share
is computed by dividing the net loss by 50,000 shares for the three months ended
March 31, 1999, and 221,917,083 shares for the three months ended March 31,
2000, which represents the weighted average common shares outstanding during
this period. Diluted loss per common share equals basic loss per common share
for the periods presented, as the effect of stock options is anti-dilutive
because the Company generated net losses. All membership units of Charter Holdco
are exchangeable on a one-for-one basis into Class A common stock of Charter at
the option of the holders. Should the holders exchange units for shares, the
effect would not be dilutive.
6
<PAGE> 7
2. RESPONSIBILITY FOR INTERIM FINANCIAL STATEMENTS:
The accompanying consolidated financial statements of the Company have been
prepared in accordance with the rules and regulations of the Securities and
Exchange Commission. Accordingly, certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted.
The accompanying consolidated financial statements are unaudited; however, in
the opinion of management, such statements include all adjustments, which
consist of only normal recurring adjustments, necessary for a fair presentation
of the results for the periods presented. Interim results are not necessarily
indicative of results for a full year. For further information, refer to the
Company's Annual Report on Form 10-K for the year ended December 31, 1999.
3. ACQUISITIONS:
On February 14, 2000, Charter Holdco and Charter Communications Holdings, LLC
(Charter Holdings), a wholly owned subsidiary of Charter Holdco, completed the
acquisition of Bresnan. Prior to the acquisition, Charter Holdco assigned a
portion of its rights to purchase Bresnan to Charter Holdings. Charter Holdco
and Charter Holdings purchased 52% of Bresnan from certain sellers for cash, and
certain sellers contributed 18% of Bresnan to Charter Holdco for 14.8 million
Class C common membership units of Charter Holdco, an approximate 2.6% equity
interest in Charter Holdco. Charter Holdco then transferred its ownership
interest to Charter Holdings. Thereafter, Charter Holdings and certain sellers
contributed all of the outstanding interests in Bresnan to CC VIII, LLC (CC
VIII), a subsidiary of Charter Holdings, and Bresnan was dissolved. In exchange
for the contribution of their interests in Bresnan, the sellers received
approximately 24.2 million Class A preferred membership units in CC VIII,
representing 30% of the equity of CC VIII, and are entitled to a 2% annual
return on their preferred membership units. The purchase price for Bresnan was
approximately $3.1 billion, subject to adjustment, and was comprised of $1.1
billion in cash, $384.6 million and $629.5 million in equity in Charter Holdco
and CC VIII, respectively, and approximately $964.4 million in assumed debt. All
of the membership units received by the sellers are exchangeable on a
one-for-one basis for Class A common stock of Charter. The Bresnan cable systems
acquired are primarily located in Michigan, Minnesota, Wisconsin and Nebraska
and serve approximately 687,000 customers.
The Bresnan acquisition was accounted for using the purchase method of
accounting, and, accordingly, results of operations of the acquired assets have
been included in the financial statements from the date of acquisition. The
purchase price was allocated to assets acquired and liabilities assumed based on
their relative fair values, including amounts assigned to franchises of $2.8
billion. The allocation of the purchase price for this acquisition is based, in
part, on preliminary information, which is subject to adjustment upon obtaining
complete valuation information. Management believes that finalization of the
purchase price and allocation will not have a material impact on the
consolidated results of operations or financial position of the Company.
7
<PAGE> 8
Pro forma operating results of the Company as though the Bresnan acquisition had
occurred on January 1, 1999, with adjustments to give effect to amortization of
franchises, interest expense, minority interest, and certain other adjustments,
follows. The impact of the issuance and sale of the January 2000 Charter
Holdings Notes (see Note 4) is not significant and is therefore not taken into
account below.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------------------------------
2000 1999
---------------------- -------------------
<S> <C> <C>
Revenues $ 759,264 $ 711,190
Loss from operations (237,108) (122,930)
Loss before minority interest (486,982) (371,777)
Net loss (193,957) (137,421)
Loss per common share, basic and diluted (0.87) (0.62)
</TABLE>
The pro forma information has been presented for comparative purposes and does
not purport to be indicative of the results of operations had these transactions
been completed as of the assumed date or which may be obtained in the future.
In March 2000, Charter entered into an agreement providing for the merger of
Cablevision of Michigan, Inc., the indirect owner of a cable system in
Kalamazoo, Michigan, with and into Charter. As a result of the merger, Charter
will become the indirect owner of the Kalamazoo system. The merger consideration
of approximately $172.5 million will be paid in Class A common stock of Charter.
After the merger, Charter will contribute 100% of the equity interests of the
direct owner of the Kalamazoo system to Charter Holdco in exchange for
membership units. The Kalamazoo cable system has approximately 49,000 customers
and had revenues of approximately $4.9 million for the three months ended March
31, 2000. This acquisition is expected to close in the third quarter of 2000.
4. LONG-TERM DEBT:
JANUARY 2000 CHARTER HOLDINGS NOTES. On January 6, 2000, Charter Holdings and
Charter Communications Holdings Capital Corporation issued notes with a
principal amount of $1.5 billion (January 2000 Charter Holdings Notes). The
January 2000 Charter Holdings Notes consist of $675.0 million 10.00% Senior
Notes due 2009, $325.0 million 10.25% Senior Notes due 2010, and $532.0 million
$11.75% Senior Discount Notes due 2010. The net proceeds were approximately $1.3
billion, after giving effect to discounts, commissions and expenses. The
proceeds from the January 2000 Charter Holdings Notes were used to finance the
repurchases of debt assumed in certain transactions, as described below.
On April 24, 2000, Charter Holdings and Charter Communications Holdings Capital
Corporation made an offer to exchange the January 2000 Charter Holdings Notes
for new notes. The new notes have substantially similar terms, except that the
notes are registered under the Securities Act of 1933, as amended, and,
therefore, will not bear legends restricting their transfer.
AVALON CABLE OF MICHIGAN HOLDINGS, INC. AND ITS SUBSIDIARIES NOTES. In January
2000, through change of control offers and purchases in the open market, all of
the Avalon 9.375% Senior Subordinated Notes due 2008 with a principal amount of
$150.0 million were repurchased for $153.7 million. In addition, also through
change of control offers, $16.3 million in aggregate principal amount at
maturity of the Avalon 11.875% Senior Discount Notes due 2008 was repurchased
for $10.5 million. As of March 31, 2000, Avalon 11.875% notes with an aggregate
principal amount of $179.8 million at maturity remain outstanding with an
accreted value of $117.8 million.
FALCON COMMUNICATIONS, L.P. AND ITS SUBSIDIARIES DEBENTURES. In February 2000,
through change of control offers and purchases in the open market, all of the
Falcon 8.375% Senior Debentures due 2010 with a principal amount of $375.0
million were repurchased for $388.0 million, and all of the Falcon 9.285% Senior
Discount Debentures due 2010 with an aggregate principal amount at maturity of
$435.3 million were repurchased for $328.1 million.
8
<PAGE> 9
BRESNAN CREDIT FACILITIES. Upon the closing of the Bresnan acquisition, we
amended and assumed the previous Bresnan credit facilities. The Bresnan credit
facilities provide for borrowings of up to $900.0 million. The Bresnan credit
facilities provide for two term facilities, one with a principal amount of
$403.0 million (Term A), and the other with a principal amount of $297.0 million
(Term B). The Bresnan credit facilities also provide for a $200.0 million
revolving credit facility with a maturity date in June 2007 and, at the option
of lenders, supplemental facilities in the amount of $200.0 million. Amounts
under the Bresnan credit facilities bear interest at the Base Rate or the
Eurodollar Rate, as defined, plus a margin of up to 2.75% (7.5% to 8.74% as of
March 31, 2000). A quarterly commitment fee of between 0.250% and 0.375% is
payable on the unborrowed balance of Term A and the revolving credit facility.
At the closing of the Bresnan acquisition, we borrowed approximately $601.2
million to replace the borrowings outstanding under the previous credit
facilities and an additional $30.0 million to fund a portion of the Bresnan
purchase price. As of March 31, 2000, $680.9 million was outstanding and $219.1
million was available for borrowing.
BRESNAN NOTES. Charter Holdco and Charter Holdings acquired Bresnan in February
2000 and assumed Bresnan's $170 million in principal amount of 8% Senior Notes
due 2009 and $275 million in principal amount at maturity of 9.25% Senior
Discount Notes due 2009. In March 2000, we repurchased all of the outstanding
Bresnan notes at 101% of the outstanding principal amounts plus accrued and
unpaid interest or accreted value, as applicable, for a total of $369.7 million
using proceeds from the sale of the January 2000 Charter Holdings Notes.
CHARTER COMMUNICATIONS OPERATING, LLC CREDIT FACILITIES. In March 2000, the
Charter Operating Credit Facilities were amended to increase the amount of the
supplemental credit facility to $1.0 billion. In connection with this amendment,
$600.0 million of the supplemental credit facility was exercised, thereby
increasing the total borrowing capacity to $4.7 billion. The remaining $400.0
million of the supplemental credit facility is subject to the Company's ability
to obtain additional commitments from the lenders. As of March 31, 2000,
outstanding borrowings were approximately $3.8 billion, and the unused
availability was $0.9 billion.
5. MINORITY INTEREST:
As of March 31, 2000, minority interest consists primarily of total members'
equity of Charter Holdco ($9.1 billion) multiplied by 60.4%, the ownership
percentage of Charter Holdco not owned by Charter and preferred equity in an
indirect subsidiary of Charter held by certain Bresnan sellers less a portion
of redeemable securities. Gains (losses) arising from the issuance by Charter
Holdco of its membership units are recorded as capital transactions, thereby
increasing (decreasing) shareholders' equity and (decreasing) increasing
minority interest on the accompanying consolidated balance sheets.
Changes to minority interest consist of the following:
<TABLE>
<S> <C>
Balance, December 31, 1999 $ 5,381,331
Minority interest in loss of subsidiary (268,906)
Equity issued to Bresnan sellers 1,014,010
Equity classified as redeemable securities (1,095,239)
Loss on issuance of equity by Charter Holdco (59,600)
Option compensation expense 9,286
Unrealized loss on marketable securities available for sale (1,137)
==============
Balance, March 31, 2000 $ 4,979,745
==============
</TABLE>
6. REDEEMABLE SECURITIES:
The Company acquired Helicon I, L.P. and affiliates (Helicon) in July 1999. The
Company acquired Rifkin Acquisition Partners L.L.L.P. and InterLink
Communications Partners, LLLP (collectively, "Rifkin") in September 1999,
acquired Falcon Communications, L.P. (Falcon) in November 1999 and acquired
Bresnan in
9
<PAGE> 10
February 2000. The Rifkin, Falcon and Bresnan sellers who acquired
Charter Holdco membership units or, in the case of Bresnan, additional equity
interests in an indirect subsidiary of Charter Holdings, in connection with
these respective acquisitions and the Helicon sellers who acquired shares of
Class A common stock in Charter's initial public offering may have rescission
rights against Charter and Charter Holdco arising out of possible violations of
Section 5 of the Securities Act of 1933, as amended, in connection with the
offers and sales of these equity interests.
If all of these equity holders successfully exercised their possible rescission
rights, Charter or Charter Holdco would become obligated to repurchase all such
equity interests, and the total repurchase obligation would be up to
approximately $1.8 billion as of March 31, 2000. Accordingly, the maximum
potential cash obligation related to the possible rescission rights has been
excluded from shareholders' equity and minority interest and classified as
"redeemable securities" on the accompanying consolidated balance sheets. One
year after the dates of issuance or purchase of these equity interests (when
these possible rescission rights will have expired), the Company will reclassify
the respective amounts to shareholders' equity and minority interest, as
applicable.
7. REVENUES:
Revenues consist of the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------------------------------------
2000 1999
-------------------------- ---------------------------
<S> <C> <C>
Basic $ 524,547 $ 109,590
Premium 55,773 15,344
Pay-per-view 7,231 4,650
Digital 9,196 190
Advertising sales 33,278 7,839
Data 9,712 718
Other 81,867 22,625
-------------------------- ---------------------------
$ 721,604 $ 160,956
========================== ===========================
</TABLE>
8. OPERATING, GENERAL AND ADMINISTRATIVE EXPENSES:
Operating, general and administrative expenses consist of the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------------------------------------
2000 1999
-------------------------- ---------------------------
<S> <C> <C>
Programming $ 164,825 $ 36,426
General and administrative 125,292 27,256
Service 47,091 10,318
Advertising 12,277 3,659
Marketing 11,693 3,598
Other 10,591 1,834
-------------------------- ---------------------------
$ 371,769 $ 83,091
========================== ===========================
</TABLE>
10
<PAGE> 11
9. COMPREHENSIVE LOSS:
Comprehensive loss was $181,459 and $33 for the three months ended March 31,
2000 and 1999, respectively. The Company owns common stock of WorldGate
Communications, Inc. that is classified as "available for sale" and reported at
market value, with unrealized gains and losses recorded as accumulated other
comprehensive income.
10. SUBSEQUENT EVENTS:
In April 2000, one of Charter's subsidiaries purchased a cable system of
Falcon/Capital Cable Partners, L.P. and another cable system of Farmington
Cablevision Company. These cable systems are primarily located in Illinois,
Indiana and Missouri. The aggregate purchase price for these acquisitions was
approximately $75.0 million in cash and was funded with borrowings from the
Charter Operating Credit Facilities. For the three months ended March 31, 2000,
these systems had revenues of approximately $3.1 million.
In April 2000, Morgan Stanley Senior Funding, Inc. committed to provide Charter
Holdings and Charter Communications Holdings Capital Corporation with senior
increasing rate bridge loans in an aggregate principal amount of up to $1.0
billion. The commitment to provide the bridge loans expires on October 14, 2000.
Each bridge loan must be in a principal amount not less than $400.0 million and
the bridge loans mature one year from the date of the initial loan. The bridge
loan facility will not close unless specified closing conditions are satisfied.
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Reference is made to the "Certain Trends and Uncertainties" section below
in this Management's Discussion and Analysis for a discussion of important
factors that could cause actual results to differ from expectations and
non-historical information contained herein.
INTRODUCTION
We do not believe that our historical financial condition and results
of operations are accurate indicators of future results because of certain past
and pending events, including:
(1) the merger of Marcus Cable Holdings, LLC (Marcus Holdings) with
and into Charter Communications Holdings, LLC (Charter Holdings) in March
1999;
(2) the acquisitions of Charter Communications Holdings Company, LLC
(Charter Holdco) and its direct and indirect subsidiaries since January 1,
1999, and the pending Kalamazoo transaction;
(3) the refinancing or replacement of the previous credit facilities
of the Charter companies (Charter Communications Properties Holdings, LLC,
CCA Group, CharterComm Holdings, LLC) and certain of our subsidiaries
acquired in 1999 and 2000;
(4) the purchase of publicly held notes that had been issued by
several of the direct and indirect subsidiaries of Charter Holdco and
Marcus Holdings; and
(5) the allocation of losses to minority interests.
ORGANIZATIONAL HISTORY
In July 1999, Charter Communications, Inc. (Charter) was formed as a wholly
owned subsidiary of Charter Investment, Inc. (Charter Investment). On November
12, 1999, we sold substantially all of our equity interests to the public in an
initial offering, and on that same date, we sold less than 1% of our equity
interests to Mr. Allen. We contributed substantially all of the proceeds of the
initial public offering and sale to Mr. Allen to Charter Holdco, which issued
membership units to us.
ACQUISITIONS
On February 14, 2000, Charter Holdco and Charter Holdings completed the
acquisition of Bresnan Communications Company Limited Partnership (Bresnan).
Prior to the acquisition, Charter Holdco assigned a portion of its rights to
purchase Bresnan to Charter Holdings. Charter Holdco and Charter Holdings
purchased 52% of Bresnan from certain sellers for cash, and certain sellers
contributed 18% of Bresnan to Charter Holdco for 14.8 million Class C common
membership units of Charter Holdco, an approximate 2.6% equity interest in
Charter Holdco. Charter Holdco then transferred its ownership interest to
Charter Holdings. Thereafter, Charter Holdings and certain sellers contributed
all of the outstanding interests in Bresnan to CC VIII, a subsidiary of Charter
Holdings, and Bresnan was dissolved. In exchange for the contribution of their
interests in Bresnan, the sellers received approximately 24.2 million Class A
preferred membership units in CC VIII, representing 30% of the equity of CC
VIII, and are entitled to a 2% annual return on their preferred membership
units. The purchase price for Bresnan was approximately $3.1 billion, subject to
adjustment, and was comprised of $1.1 billion in cash, $384.6 million and $629.5
million in equity in Charter Holdco and CC VIII, respectively, and approximately
$964.4 million in assumed debt. All of the membership units received by the
sellers are exchangeable on a one-for-one basis for Class A common stock of
Charter. The Bresnan cable systems acquired are located primarily in Michigan,
Minnesota, Wisconsin and Nebraska.
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<PAGE> 13
The following table sets forth additional information on certain of our
acquisitions since January 1, 2000.
<TABLE>
<CAPTION>
AS OF AND FOR
THE THREE MONTHS ENDED
PURCHASE MARCH 31, 2000
PRICE, --------------
INCLUDING DEBT
ACQUISITION ASSUMED REVENUES
DATE (IN MILLIONS) CUSTOMERS (IN THOUSANDS)
---- ------------- --------- --------------
<S> <C> <C> <C> <C>
Cable system of Interlake
Cablevision Enterprises, LLC 2/00 $ 13 5,000 $ 445
Bresnan 2/00 3,100 687,000 76,563
Cable system of Falcon/Capital
Cable Partners, L.P. 4/00 60 25,000 2,585
Cable system of Farmington
Cablevision Company 4/00 15 6,000 495
------ ------- ------
Total $ 3,188 723,000 $80,088
======= ======= =======
</TABLE>
- ----------
Note: As part of the October 1999 transaction with InterMedia Capital
Partners IV, L.P., InterMedia Partners and affiliates (collectively,
"InterMedia"), we agreed to "swap" some of our non-strategic cable systems
located in Indiana, Montana, Utah and northern Kentucky, representing 142,000
basic customers. We transferred cable systems with 112,000 customers to
InterMedia in connection with this swap in October 1999. The remaining cable
system, with customers totaling 30,000, was transferred in March 2000 after
receipt of the necessary regulatory approvals. This transfer is not reflected in
the table above.
PENDING KALAMAZOO TRANSACTION
In March 2000, we entered into an agreement providing for the merger of
Cablevision of Michigan, Inc., the indirect owner of a cable system in
Kalamazoo, Michigan, with and into us. As a result of the merger, we will become
the owner of the Kalamazoo system. The merger consideration of approximately
$172.5 million will be paid in our Class A common stock. After the merger, we
will contribute 100% of the equity interests of the direct owner of the
Kalamazoo system to Charter Holdco in exchange for membership units. Charter
Holdco will, in turn, contribute all of the assets and all of the equity
interests to Charter Holdings. The Kalamazoo cable system has approximately
49,000 customers and had revenues of approximately $4.9 million for the three
months ended March 31, 2000. We anticipate that this acquisition will close in
the third quarter of 2000.
POSSIBLE SWAP TRANSACTION
Charter continues to hold negotiations with AT&T regarding the exchange of
certain of our cable systems for cable systems owned by AT&T. This possible swap
transaction is subject to the negotiation and execution of a definitive purchase
agreement, regulatory approvals and other conditions typical in transactions of
this type. We cannot assure you that these conditions will be satisfied.
In addition, we continue to have discussions with several other cable
operators about the possibility of "swapping" cable systems that would further
complement our regional operating clusters.
OVERVIEW OF OPERATIONS
Approximately 88% of our historical revenues for the three months ended
March 31, 2000, are attributable to monthly subscription fees charged to
customers for our basic, expanded basic and premium cable television programming
services, equipment rental and ancillary services provided by our cable systems.
In addition, we derive other revenues from installation and reconnection fees
charged to customers to commence or reinstate service, pay-per-view programming,
where users are charged a fee for individual programs requested, advertising
revenues and commissions related to the sale of merchandise by home
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<PAGE> 14
shopping services. We have generated increased revenues in each of the past
three fiscal years, primarily through internal customer growth, basic and
expanded tier rate increases, acquisitions and innovative marketing. We are
beginning to offer our customers several other services, which are expected to
significantly contribute to our revenues. One of these services is digital
cable, which provides customers with additional programming options. We are also
offering high-speed Internet access to the World Wide Web through cable modems.
Our television-based Internet access allows us to offer users TV-based e-mail
and other Internet access.
Our expenses primarily consist of operating costs, general and
administrative expenses, depreciation and amortization expense and management
fees/corporate expense charges. Operating costs primarily include programming
costs, cable service related expenses, marketing and advertising costs,
franchise fees and expenses related to customer billings. Programming costs
accounted for approximately 44% of our operating, general and administrative
expenses for the three months ended March 31, 2000. Programming costs have
increased in recent years and are expected to continue to increase due to
additional programming being provided to customers, increased cost to produce or
purchase cable programming, inflation and other factors affecting the cable
television industry. In each year we have operated, our costs to acquire
programming have exceeded customary inflationary increases. Significant factors
with respect to increased programming costs are the rate increases and
surcharges imposed by national and regional sports networks directly tied to
escalating costs to acquire programming for professional sports packages in a
competitive market. We have benefited in the past from our membership in an
industry cooperative that provided members with volume discounts from
programming networks. This industry cooperative no longer exists. However, our
increased size is believed to give us substantially equivalent buying power.
Also, we have been able to negotiate favorable terms with premium networks in
conjunction with the premium packages we offer, which minimized the impact on
margins and provided substantial volume incentives to grow the premium category.
Although we believe that we will be able to pass future increases in programming
costs through to customers, there can be no assurance that we will be able to do
so.
General and administrative expenses primarily include accounting and
administrative personnel and professional fees. Depreciation and amortization
expense relates to the depreciation of our tangible assets and the amortization
of our franchise costs. Corporate expense charges are fees paid or charges for
management services. Pursuant to a mutual services agreement between Charter and
Charter Investment, each entity provides services to the other in order to
manage Charter Holdco and to manage and operate the cable systems owned by its
subsidiaries. We record actual expenses incurred by Charter Investment on our
behalf. All expenses and costs incurred with respect to the services provided
are paid by us. Our credit facilities limit the amount of such reimbursements.
We have had a history of net losses and expect to continue to report net
losses for the foreseeable future. The principal reasons for our prior and
anticipated net losses include depreciation and amortization expenses associated
with our acquisitions and capital expenditures related to construction and
upgrading of our systems, and interest costs on borrowed money. We cannot
predict what impact, if any, continued losses will have on our ability to
finance our operations in the future.
RESULTS OF OPERATIONS
The following discusses the results of operations for:
(1) Charter, comprised of the Charter companies for the three months ended
March 31, 1999; and
(2) Charter, comprised of the Charter companies, all 1999 acquisitions and
the following for the three months ended March 31, 2000:
- Cable system of Interlake from February 2, 2000, the acquisition date,
through March 31, 2000; and
- Bresnan from February 14, 2000, the acquisition date, through March 31,
2000.
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<PAGE> 15
The following table sets forth the percentages of revenues that items in
the statements of operations constitute for the indicated periods (dollars in
thousands, except per share data):
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 2000 MARCH 31, 1999
------------------------- ------------------------------
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS:
Revenues .............................. $ 721,604 100.0% $ 160,956 100.0%
--------- -------- --------- -------
Operating expenses:
Operating costs ..................... 246,477 34.2% 55,835 34.7%
General and administrative costs .... 125,292 17.4% 27,256 16.9%
Depreciation ........................ 252,876 35.0% 23,535 14.6%
Amortization ........................ 293,224 40.6% 66,543 41.3%
Option compensation expense ......... 15,500 2.2% 16,651 10.3%
Corporate expense charges ........... 12,508 1.7% 2,928 1.8%
-------- -------- --------- --------
Total operating expenses .............. 945,877 131.1% 192,748 119.6%
--------- -------- --------- --------
Loss from operations .................. (224,273) (31.1%) (31,792) (19.6%)
Interest expense ...................... (230,914) (32.0%) (45,426) (28.4%)
Interest income ....................... 5,435 0.8% 1,664 1.0%
Other income (expense) ................ 132 -- (7,621) (4.7%)
--------- -------- --------- --------
Loss before minority interest ......... (449,620) (62.3%) (83,175) (51.7%)
Minority interest in loss of
subsidiary............................. 268,906 37.3% 83,142 51.7%
--------- -------- --------- --------
Net loss .............................. $(180,714) (25.0%) $ (33) --
========= ======== ========= ========
Loss per common share, basic and
diluted ............................. $ (0.81) $ (0.67)
========= =========
</TABLE>
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
Since January 1, 1999, Charter Holdings and Charter Holdco have closed
numerous acquisitions. In addition, Charter Holdings merged with Marcus Holdings
in April 1999. Thus, increases in amounts for the three months ended March 31,
2000, are not comparable to those for the three months ended March 31, 1999.
REVENUES. Revenues increased by $560.6 million, from $161.0 million for the
three months ended March 31, 1999, to $721.6 million for the three months ended
March 31, 2000. The increase in revenues primarily resulted from acquisitions.
OPERATING COSTS. Operating costs increased by $190.6 million, from $55.8
million for the three months ended March 31, 1999, to $246.5 million for the
three months ended March 31, 2000. This increase was due primarily to
acquisitions.
GENERAL AND ADMINISTRATIVE COSTS. General and administrative costs
increased by $98.0 million, from $27.3 million for the three months ended March
31, 1999, to $125.3 million for the three months ended March 31, 2000. This
increase was due primarily to acquisitions.
DEPRECIATION. Depreciation expense increased by $229.3 million, from $23.5
million for the three months ended March 31, 1999, to $252.9 million for the
three months ended March 31, 2000. This increase was due primarily to
acquisitions.
AMORTIZATION. Amortization expense increased by $226.7 million, from $66.5
million for the three months ended March 31, 1999, to $293.2 million for the
three months ended March 31, 2000. There was a significant increase in
amortization expense resulting from acquisitions.
OPTION COMPENSATION EXPENSE. Option compensation expense did not change
significantly for the three months ended March 31, 2000 as compared to the three
months ended March 31, 1999. This expense is due to the granting of options to
employees in December 1998 and February 1999 at exercise prices less than the
estimated fair values of the underlying membership units at time of grant, thus
resulting in compensation expense being accrued over the vesting period of each
grant.
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<PAGE> 16
CORPORATE EXPENSE CHARGES. Corporate expense charges increased by $9.6
million, from $2.9 million for the three months ended March 31, 1999, to $12.5
million for the three months ended March 31, 2000. The increase was primarily
the result of acquisitions.
INTEREST EXPENSE. Interest expense increased by $185.5 million, from $45.4
million for the three months ended March 31, 1999, to $230.9 million for the
three months ended March 31, 2000. This increase resulted primarily from
interest on debt used to finance acquisitions.
INTEREST INCOME. Interest income increased by $3.8 million, from $1.7
million for the three months ended March 31, 1999, to $5.4 million for the three
months ended March 31, 2000. The increase was primarily due to investing excess
cash from the issuance and sale of the January 2000 Charter Holdings Notes prior
to completing the change of control offers described herein.
OTHER INCOME (EXPENSE). In March 1999, the Company extinguished all
then-existing long-term debt, excluding borrowings of the Company under its
then-existing credit facilities, and refinanced substantially all then-existing
credit facilities at various subsidiaries with a new credit facility. The excess
of the amount paid over the carrying value, net of deferred financing costs, of
the then-existing long-term debt was recorded in other income (expense).
MINORITY INTEREST. Minority interest is $83.1 million for the three months
ended March 31, 1999, and $268.9 million for the three months ended March 31,
2000. The minority interest represents the ownership in Charter Holdco by
entities other than Charter Communications, Inc. For financial reporting
purposes, 50,000 of the membership units Charter Holdco previously issued to
companies controlled by Mr. Allen are considered held by Charter Communications,
Inc. since December 24, 1998.
NET LOSS. Net loss increased by $180.7 million for the three months ended
March 31, 2000 compared to the three months ended March 31, 1999. The increase
in revenues that resulted from acquisitions was not sufficient to offset the
operating expenses associated with the acquired systems.
LOSS PER COMMON SHARE. The loss per common share increased by $0.14, from
$0.67 per common share for the three months ended March 31, 1999, to $0.81 per
common share for the three months ended March 31, 2000.
LIQUIDITY AND CAPITAL RESOURCES
Our business requires significant cash to fund acquisitions, capital
expenditures, debt service costs and ongoing operations. We have historically
funded and expect to fund future liquidity and capital requirements through cash
flows from operations, equity contributions, borrowings under our credit
facilities and debt and equity financings.
Our historical cash flows from operating activities were $199.0 million and
$16.6 million for the three months ended March 31, 2000 and 1999, respectively.
CAPITAL EXPENDITURES
We have substantial ongoing capital expenditure requirements. We make
capital expenditures primarily to upgrade, rebuild and expand our cable systems,
as well as for system maintenance, the development of new products and services,
and converters. Converters are set-top devices added in front of a subscriber's
television receiver to change the frequency of the cable television signals to a
suitable channel. The television receiver is then able to tune and to allow
access to premium service.
Upgrading our cable systems will enable us to offer new products and
services, including digital television, additional channels and tiers, expanded
pay-per-view options, high-speed Internet access and interactive services.
16
<PAGE> 17
For the three months ended March 31, 2000, we made capital expenditures,
excluding the acquisition of the Interlake and Bresnan cable systems, of $259.9
million. The majority of these capital expenditures related to rebuilding
existing cable systems and were funded from cash flows from operations and
borrowings under credit facilities.
For the period from January 1, 2000 to December 31, 2002, we plan to spend
approximately $6.4 billion for capital expenditures, approximately $3.2 billion
of which will be used to upgrade and rebuild our systems to a bandwidth capacity
of 550 megahertz or greater and add two-way capability, so that we may offer
advanced services. The remaining $3.2 billion will be used for extensions of
systems, development of new products and services, converters and system
maintenance. Capital expenditures for 2000 are expected to be approximately $2.7
billion, and aggregate capital expenditures for 2001 and 2002 are expected to be
approximately $3.7 billion. We currently expect to finance the anticipated
capital expenditures with cash generated from operations and additional
borrowings under credit facilities, including a bridge loan for which we have
received a commitment. We cannot assure you that these amounts will be
sufficient to accomplish our planned system upgrades, expansion and maintenance.
If we are not able to obtain amounts sufficient for our planned upgrades and
other capital expenditures, it could adversely affect our ability to offer new
products and services and compete effectively, and could adversely affect our
growth, financial condition and results of operations.
FINANCING ACTIVITIES
As of March 31, 2000, our total debt was approximately $11.2 billion and
the deficiency of earnings available to cover fixed charges before minority
interest was approximately $449.6 million for the three months then ended. In
connection with the April 2000 acquisitions of Capital Cable and Farmington, an
additional $75.0 million was borrowed. Our significant amount of debt may
adversely affect our ability to obtain financing in the future and react to
changes in our business. Our credit facilities and other debt instruments
contain various financial and operating covenants that could adversely impact
our ability to operate our business, including restrictions on the ability of
our operating subsidiaries to distribute cash to their parents. See "-- Certain
Trends and Uncertainties -- Restrictive Covenants," for further information.
JANUARY 2000 CHARTER HOLDINGS NOTES. On January 6, 2000, Charter Holdings
and Charter Communications Holdings Capital Corporation issued notes with a
principal amount of $1.5 billion (January 2000 Charter Holdings Notes). The
January 2000 Charter Holdings Notes consist of $675.0 million 10.00% Senior
Notes due 2009, $325.0 million 10.25% Senior Notes due 2010 and $532.0 million
$11.75% Senior Discount Notes due 2010. The net proceeds were approximately $1.3
billion, after giving effect to discounts, commissions and expenses. The
proceeds from the sale of January 2000 Charter Holdings Notes were used to
finance the repurchases of debt assumed in certain transactions, as described
below.
On April 24, 2000, Charter Holdings and Charter Communications Holdings
Capital Corporation made an offer to exchange the January 2000 Charter Holdings
Notes for new notes. The new notes have substantially similar terms, except that
the notes are registered under the Securities Act of 1933, as amended and,
therefore, will not bear legends restricting their transfer.
AVALON CABLE OF MICHIGAN HOLDINGS AND ITS SUBSIDIARIES NOTES. In January
2000, through change of control offers and purchases in the open market, all of
the Avalon 9.375% Senior Subordinated Notes due 2008 with a principal amount of
$150.0 million were repurchased for $153.7 million. In addition, also through
change of control offers, $16.3 million in aggregate principal amount at
maturity of the Avalon 11.875% Senior Discount Notes due 2008 was repurchased
for $10.5 million. As of March 31, 2000, Avalon 11.875% notes with an aggregate
principal amount of $179.8 million at maturity remain outstanding with an
accreted value of $117.8 million.
17
<PAGE> 18
FALCON COMMUNICATIONS, L.P. AND ITS SUBSIDIARIES DEBENTURES. In February
2000, through change of control offers and purchases in the open market, all of
the Falcon 8.375% Senior Debentures due 2010 with a principal amount of $375.0
million were repurchased for $388.0 million, and all of the Falcon 9.285% Senior
Discount Debentures due 2010 with an aggregate principal amount at maturity of
$435.3 million were repurchased for $328.1 million.
BRESNAN CREDIT FACILITIES. Upon the closing of the Bresnan acquisition, we
amended and assumed the previous Bresnan credit facilities. The Bresnan credit
facilities provide for borrowings of up to $900.0 million. The Bresnan credit
facilities provide for two term facilities, one with a principal amount of
$403.0 million (Term A), and the other with a principal amount of $297.0 million
(Term B). The Bresnan credit facilities also provide for a $200.0 million
revolving credit facility with a maturity date in June 2007 and, at the option
of lenders, supplemental facilities in the amount of $200.0 million. Amounts
under the Bresnan credit facilities bear interest at the Base Rate or the
Eurodollar Rate, as defined, plus a margin of up to 2.75% (7.5% to 8.74% as of
March 31, 2000). A quarterly commitment fee of between 0.250% and 0.375% is
payable on the unborrowed balance of Term A and the revolving credit facility.
At the closing of the Bresnan acquisition, we borrowed approximately $601.2
million to replace the borrowings outstanding under the previous credit
facilities and an additional $30.0 million to fund a portion of the Bresnan
purchase price. As of March 31, 2000, $680.9 million was outstanding and $219.1
million was available for borrowing.
BRESNAN NOTES. Charter Holdco and Charter Holdings acquired Bresnan in
February 2000 and assumed Bresnan's $170 million in principal amount of 8%
Senior Notes due 2009 and $275 million in principal amount at maturity of 9.25%
Senior Discount Notes due 2009. In March 2000, we repurchased all of the
outstanding Bresnan notes at 101% of the outstanding principal amounts plus
accrued and unpaid interest or accreted value, as applicable, for a total of
$369.7 million using proceeds from the sale of the January 2000 Charter Holdings
Notes.
CHARTER OPERATING CREDIT FACILITIES. In March 2000, the Charter Operating
credit facilities were amended to increase the amount of the supplemental credit
facility to $1.0 billion. In connection with this amendment, $600.0 million of
the supplemental credit facility was exercised, thereby increasing the total
borrowing capacity to $4.7 billion. The remaining $400.0 million of the
supplemental credit facility is subject to our ability to obtain additional
commitments from the lenders. As of March 31, 2000, outstanding borrowings were
approximately $3.8 billion, and the unused availability was $0.9 billion.
CHARTER HOLDINGS COMMITTED SENIOR BRIDGE LOAN FACILITY. Morgan Stanley
Senior Funding, Inc. has committed to provide Charter Holdings and Charter
Communications Holdings Capital Corporation with senior increasing rate bridge
loans in an aggregate principal amount of up to $1.0 billion. The commitment to
provide the bridge loans expires on October 14, 2000. Each bridge loan must be
in a principal amount not less than $400.0 million, and the bridge loans mature
one year from the date of the initial loan.
The first loan will initially bear interest at an annual rate equal to the
yield corresponding to the bid price on our 10.25% notes less 0.25%, calculated
as of the initial date of funding of the loan. If the first loan is not repaid
within 90 days following its initial date of funding, the interest rate will
increase by 1.25% at the end of such 90-day period and will increase by an
additional 0.50% at the end of each additional 90-day period. The second loan
will initially bear interest at an annual rate equal to the greater of: (a) the
interest rate on the first loan in effect on the date of funding of the second
loan; or (b) the yield corresponding to the bid price on our 10.25% notes as of
the date of funding of the second loan. If the second loan is not repaid in
whole by the last day of each 90-day period following its funding, the interest
rate on the loan will increase on the last day of each 90-day period by an
amount equal to the increase in interest rate on the first loan on such day.
Unless additional default interest is assessed, the interest rate on the bridge
loans will be between 9% and 15% annually.
The bridge loan facility will not close unless specified closing conditions
are satisfied. We cannot assure you that all closing conditions will be
satisfied.
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<PAGE> 19
CERTAIN TRENDS AND UNCERTAINTIES
The following discussion highlights a number of trends and uncertainties,
in addition to those discussed elsewhere in this Quarterly Report, that could
materially impact our business, results of operations and financial condition.
SUBSTANTIAL LEVERAGE. As of March 31, 2000, our total debt was
approximately $11.2 billion. We anticipate incurring significant additional debt
in the future to fund the expansion, maintenance and upgrade of our cable
systems.
Our ability to make payments on our debt and to fund our planned capital
expenditures for upgrading our cable systems and our ongoing operations will
depend on our ability to generate cash and secure financing in the future. This,
to a certain extent, is subject to general economic, financial, competitive,
legislative, regulatory and other factors beyond our control. We cannot assure
you that our business will generate sufficient cash flow from operations, or
that future borrowings will be available to us under our existing credit
facilities, new facilities or from other sources of financing at acceptable
rates or in an amount sufficient to enable us to repay our debt, to grow our
business or to fund our other liquidity and capital needs.
VARIABLE INTEREST RATES. A significant portion of our debt bears interest
at variable rates that are linked to short-term interest rates. In addition, a
significant portion of our existing debt, assumed debt or debt we might arrange
in the future will bear interest at variable rates. If interest rates rise, our
costs relative to those obligations will also rise. See discussion in Item 3.
RESTRICTIVE COVENANTS. Our credit facilities and the indentures governing
our outstanding debt contain a number of significant covenants that, among other
things, restrict our ability and the ability of our subsidiaries to:
- pay dividends or make other distributions;
- make certain investments or acquisitions;
- dispose of assets or merge;
- incur additional debt;
- issue equity;
- repurchase or redeem equity interests and debt;
- create liens; and
- pledge assets.
Furthermore, in accordance with our credit facilities we are required to
maintain specified financial ratios and meet financial tests. The ability to
comply with these provisions may be affected by events beyond our control. The
breach of any of these covenants will result in a default under the applicable
debt agreement or instrument, which could trigger acceleration of the debt. Any
default under our credit facilities or the indentures governing our outstanding
debt may adversely affect our growth, our financial condition and our results of
operations.
IMPORTANCE OF GROWTH STRATEGY AND RELATED RISKS. We expect that a
substantial portion of any of our future growth will be achieved through
revenues from additional services. We cannot assure you that we will be able to
offer new advanced services successfully to our customers or that those new
advanced services will generate revenues. The amount of our capital expenditures
and related roll-out of advanced services may be limited by the availability of
certain equipment (in particular, converters) due to production capacity
constraints of certain vendors and raw material shortages. We continue to work
with our primary vendors to address such problems and have been assured that we
will have an adequate supply to meet our demand. If we are unable to grow our
cash flow sufficiently, we may be unable to fulfill our obligations or obtain
alternative financing.
MANAGEMENT OF GROWTH. We have experienced rapid growth that has placed and
is expected to continue to place a significant strain on our management,
operations and other resources. Our future success will
19
<PAGE> 20
depend in part on our ability to successfully integrate the operations acquired
and to be acquired and to attract and retain qualified personnel. No significant
severance cost was incurred in conjunction with the Bresnan acquisition. The
failure to retain or obtain needed personnel or to implement management,
operating or financial systems necessary to successfully integrate acquired
operations or otherwise manage growth when and as needed could have a material
adverse effect on our business, results of operations and financial condition.
In connection with our acquisitions over the past year, we maintain
multi-disciplinary teams to formulate plans for establishing customer service
centers, identifying property, plant and equipment requirements and possible
reduction of headends. Headends are the control centers of a cable television
system where incoming signals are amplified, converted, processed and combined
for transmission to customers. These teams also determine market position and
how to attract talented personnel. Our goals include rapid transition in
achieving performance objectives and implementing "best practice" procedures.
REGULATION AND LEGISLATION. Cable systems are extensively regulated at the
federal, state, and local level. These regulations have increased the
administrative and operational expenses of cable television systems and affected
the development of cable competition. Rate regulation of cable systems has been
in place since passage of the Cable Television Consumer Protection and
Competition Act of 1992, although the scope of this regulation recently was
sharply contracted. Since March 31, 1999, rate regulation exists only with
respect to the lowest level of basic cable service and associated equipment.
This change affords cable operators much greater pricing flexibility, although
Congress could revisit this issue if confronted with substantial rate increases.
Cable operators also face significant regulation of their channel capacity.
They currently can be required to devote substantial capacity to the carriage of
programming that they would not carry voluntarily, including certain local
broadcast signals, local public, educational and government access users, and
unaffiliated commercial leased access programmers. This carriage burden could
increase in the future, particularly if the Federal Communications Commission
(FCC) were to require cable systems to carry both the analog and digital
versions of local broadcast signals. The FCC is currently conducting a
proceeding in which it is considering this channel usage possibility. The FCC
recently rejected a request to allow unaffiliated Internet service providers
seeking direct cable access to invoke commercial leased access rights originally
devised for video programmers.
There is also uncertainty whether local franchising authorities, the FCC,
or the U.S. Congress will impose obligations on cable operators to provide
unaffiliated Internet service providers with access to cable plant on
non-discriminatory terms. If they were to do so, and the obligations were found
to be lawful, it could complicate our operations in general, and our Internet
operations in particular, from a technical and marketing standpoint. These
access obligations could adversely impact our profitability and discourage
system upgrades and the introduction of new products and services.
POSSIBLE RESCISSION LIABILITY. The Rifkin, Falcon and Bresnan sellers who
acquired Charter Holdco membership units or, in the case of Bresnan, additional
equity interests in one of our subsidiaries, in connection with these respective
acquisitions and the Helicon sellers who acquired shares of Class A common stock
in our initial public offering may have rescission rights against Charter Holdco
and us arising out of possible violations of Section 5 of the Securities Act in
connection with the offers and sales of these equity interests.
If all of these equity holders successfully exercised their possible
rescission rights, we or Charter Holdco would become obligated to repurchase all
such equity interests, and the total repurchase obligation would be up to
approximately $1.8 billion as of March 31, 2000. For financial reporting
purposes, this maximum potential obligation has been excluded from shareholders'
equity and minority interest and has been classified as redeemable securities
(temporary equity). After one year from the dates of issuance or purchase of
these equity securities, (when these possible rescission rights will have
expired) we will reclassify the respective amounts to shareholders' equity and
minority interest. We cannot assure you that we would be able to obtain capital
sufficient to fund any required repurchases. This could adversely affect our
financial condition and
20
<PAGE> 21
results of operations.
NEW PRODUCTS AND SERVICES
Charter currently offers its customers a full array of traditional cable
television services and we have begun to offer advanced high bandwidth services
such as digital video and high-speed Internet access. We plan to continually
enhance and upgrade these services, including adding new programming and other
telecommunications services.
Charter is in the process of introducing a variety of new or expanded
products and services beyond the traditional offerings of analog television
programming for the benefit of both our residential and commercial customers.
These new products and services are as follows:
- Digital television and its related enhancements;
- High-speed Internet access via cable modems;
- Internet access through dial-up telephone modems;
- Internet access through television-based service; and
- Interactive programming.
The following statistics for December 31, 1999 are pro forma for the
Interlake and Bresnan acquisitions completed in February 2000.
<TABLE>
<CAPTION>
ACTUAL PRO FORMA
MARCH 31, 2000 DECEMBER 31, 1999
-------------- -----------------
<S> <C> <C>
DIGITAL VIDEO
Homes Passed 4,808,300 4,675,000
Digital Customers 224,700 155,400
Digital Penetration 4.7% 3.3%
DATA
Homes Passed 5,081,300 4,422,000
Data Customers 122,900 84,400
Penetration 2.4% 1.9%
TELEVISION-BASED INTERNET ACCESS
Homes Passed 429,000 429,000
Customers 7,300 7,100
Penetration 1.7% 1.7%
</TABLE>
21
<PAGE> 22
SUPPLEMENTAL UNAUDITED PRO FORMA FINANCIAL DATA
The following Supplemental Unaudited Pro Forma Financial Data is based on
the financial data of Charter. Our financial data, on a consolidated basis, is
adjusted on a pro forma basis to illustrate the estimated effects of the Bresnan
acquisition. The impact of the issuance and sale of the January 2000 Charter
Holdings Notes is not significant and is therefore not taken into account below.
The Supplemental Unaudited Pro Forma Financial Data reflects the
application of the principles of purchase accounting to the Bresnan acquisition.
The allocation of this purchase price is based, in part, on preliminary
information, which is subject to adjustment upon obtaining complete valuation
information of intangible assets and is subject to post-closing purchase price
adjustments. We believe that finalization of the purchase price allocation will
not have a material impact on our results of operations or financial position.
The Supplemental Unaudited Pro Forma Financial Data does not purport to be
indicative of what our results of operations would actually have been had the
transactions described above been completed on the dates indicated or to project
our results of operations for any future date.
<TABLE>
<CAPTION>
SUPPLEMENTAL UNAUDITED PRO FORMA DATA
AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 2000
---------------------------------------------------
CHARTER
COMMUNICATIONS, INC. ACQUISITIONS (a) TOTAL
-------------------- ---------------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
REVENUES:
Basic.................................. $ 524,547 $ 27,953 $ 552,500
Premium................................ 55,773 2,964 58,737
Pay-per-view........................... 7,231 369 7,600
Digital................................ 9,196 705 9,901
Advertising............................ 33,278 2,344 35,622
Data................................... 9,712 1,640 11,352
Other.................................. 81,867 1,685 83,552
---------- ---------- -------------
Total revenues....................... 721,604 37,660 759,264
OPERATING EXPENSES:
Programming............................ 164,825 9,397 174,222
General and administrative............. 125,292 5,533 130,825
Service................................ 47,091 4,672 51,763
Advertising............................ 12,277 1,219 13,496
Marketing.............................. 11,693 623 12,316
Other.................................. 10,591 8 10,599
Depreciation........................... 252,876 6,539 259,415
Amortization........................... 293,224 20,950 314,174
Option compensation expense............ 15,500 -- 15,500
Corporate expense charges.............. 12,508 1,554 14,062
--------- ---------- -------------
Total operating expenses............. 945,877 50,495 996,372
Loss from operations................... (224,273) (12,835) (237,108)
Interest expense....................... (230,914) (24,481) (255,395)
Interest income........................ 5,435 44 5,479
Other income (expense)................. 132 -- 132
---------- ---------- -------------
Loss before minority interest.......... (449,620) (37,272) (486,892)
Minority interest (b).................. 268,906 24,029 292,935
---------- ---------- -------------
Net loss............................... $ (180,714) $ (13,243) $ (193,957)
========== ========== =============
Loss per common share, basic and
diluted (c)......................... $ (0.87)
=============
Weighted average common shares
outstanding, basic and diluted (d).. 222,089,746
=============
Converted loss per common share (e).... $ (0.83)
=============
Weighted average common shares
outstanding -- converted (f)......... 585,401,969
=============
</TABLE>
22
<PAGE> 23
<TABLE>
<S> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDA (g)............................ $ 321,959 $ 14,654 $ 336,613
EBITDA margin (h)..................... 44.6% 38.9% 44.3%
Adjusted EBITDA (i)................... $ 349,835 $ 16,208 $ 366,043
OPERATING DATA (at end of period, except for averages):
Homes passed (j)...................... 9,895,400
Basic customers (k)................... 6,152,000
Basic penetration (l)................. 62.2%
Premium units (m)..................... 3,088,000
Premium penetration (n)............... 50.2%
Average monthly revenue per basic
customer (o)........................ $ 41.14
</TABLE>
- ----------
(a) Comprised of Bresnan's results of operations through February 14, 2000,
the date of acquisition and the results of operations of cable systems acquired
by Bresnan through the respective dates of acquisition.
(b) Represents the allocation of 60.4% of the net loss of Charter Holdco to
the minority interest. The net loss of Charter Holdco has been increased by the
amount of the accretion of dividends on the preferred membership units in an
indirect subsidiary of Charter Holdings held by certain Bresnan sellers.
(c) Loss per common share, basic and diluted assumes none of the membership
units of Charter Holdco or preferred membership units in an indirect subsidiary
of Charter Holdco, held by Bresnan sellers as of March 31, 2000, are exchanged
for Class A common stock of Charter Communications, Inc., and none of the
outstanding options to purchase membership units of Charter Holdco that are
automatically exchanged for Class A common stock of Charter Communications, Inc.
are exercised. Basic and diluted loss per common share equals net loss divided
by weighted average common shares outstanding. If the membership units were
exchanged or options exercised, the effects would be antidilutive.
(d) Represents all shares issued to the public and Mr. Allen in November
1999 (195,550,000 shares) plus the additional shares issued to the Rifkin and
Falcon sellers through March 31, 2000 (26,539,746 shares).
(e) Converted loss per common share assumes all membership units of Charter
Holdco and preferred membership units in an indirect subsidiary of Charter
Holdco held by Bresnan sellers as of March 31, 2000, are exchanged for Class A
common stock of Charter Communications, Inc. If all these shares are converted,
minority interest would equal zero. Converted loss per common share is
calculated by dividing loss before minority interest by the weighted average
common shares outstanding -- converted.
(f) Weighted average common shares outstanding -- converted assumes the
total membership units in Charter Holdco and in an indirect subsidiary of
Charter Holdco held by Bresnan sellers are exchanged on a one-for-one basis for
Class A common stock of Charter Communications, Inc.
(g) EBITDA represents earnings (loss) before interest, income taxes,
depreciation and amortization, and minority interest. EBITDA is presented
because it is a widely accepted financial indicator of a cable company's ability
to service indebtedness. However, EBITDA should not be considered as an
alternative to income from operations or to cash flows from operating, investing
or financing activities, as determined in accordance with generally accepted
accounting principles. EBITDA should also not be construed as an indication of a
company's operating performance or as a measure of liquidity. Management's
discretionary use of funds depicted by EBITDA may be limited by working capital,
debt service and capital expenditure requirements and by restrictions related to
legal requirements, commitments and uncertainties.
(h) EBITDA margin represents EBITDA as a percentage of revenues.
(i) Adjusted EBITDA means EBITDA before option compensation expense,
corporate expense charges,
23
<PAGE> 24
management fees and other income (expense). Adjusted EBITDA is presented because
it is a widely accepted financial indicator of a cable company's ability to
service its indebtedness. However, adjusted EBITDA should not be considered as
an alternative to income from operations or to cash flows from operating,
investing or financing activities, as determined in accordance with generally
accepted accounting principles. Adjusted EBITDA should also not be construed as
an indication of a company's operating performance or as a measure of liquidity.
In addition, because adjusted EBITDA is not calculated identically by all
companies, the presentation here may not be comparable to other similarly titled
measures of other companies. Management's discretionary use of funds depicted by
adjusted EBITDA may be limited by working capital, debt service and capital
expenditure requirements and by restrictions related to legal requirements,
commitments and uncertainties.
(j) Homes passed are the number of living units, such as single residence
homes, apartments and condominium units, passed by the cable television
distribution network in a given cable system service area.
(k) Basic customers are customers who receive basic cable service.
(l) Basic penetration represents basic customers as a percentage of homes
passed.
(m) Premium units represent the total number of subscriptions to premium
channels.
(n) Premium penetration represents premium units as a percentage of basic
customers.
(o) Average monthly revenue per basic customer represents revenues divided
by the number of months in the period divided by the number of basic customers
at period end.
24
<PAGE> 25
The following information presents operating results and data for the three
months ended March 31, 2000, as compared to the three months ended March 31,
1999, for the cable systems owned or managed by us as of January 1, 1999.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, PERCENT
2000 1999 VARIANCE
---- ---- --------
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS (Unaudited) (Dollar amounts in thousands)
Revenues:
Basic....................................................... $ 205,895 $ 188,164
Premium..................................................... 24,107 24,405
Pay-per-view................................................ 3,490 7,243
Digital..................................................... 4,276 261
Advertising sales........................................... 15,510 9,993
Data........................................................ 3,441 1,082
Other....................................................... 38,688 37,015
----------- ---------------
Total revenues........................................... 295,407 268,163 10.2%
----------- ---------------
Operating Expenses:
Programming................................................. 66,600 63,510
General and administrative.................................. 51,282 47,630
Service..................................................... 18,425 18,589
Marketing................................................... 5,349 6,737
Other operating expenses.................................... 9,748 5,084
----------- ---------------
Total operating expenses................................. 151,404 141,550 7.0%
----------- ---------------
Adjusted EBITDA............................................... $ 144,003 $ 126,613 13.7%
=========== ===============
PERCENT
OPERATING DATA MARCH 31, 2000 MARCH 31, 1999 VARIANCE
-------------- -------------- --------
Homes passed.................................................. 3,878,900 3,805,200
Basic customers*.............................................. 2,254,100 2,202,200 2.4%
Basic penetration............................................. 58.1% 57.9%
Premium units................................................. 1,365,600 1,280,200 6.7%
Digital video customers....................................... 117,300 2,800
Data customers................................................ 38,700 6,900
Average monthly revenue per basic customer.................... $ 43.68 $ 40.59 7.6%
</TABLE>
- ----------
* December 31, 1999 pro forma customers were 2,244,000 after the transfer
of a certain Indiana cable system to complete the InterMedia exchange in March
2000.
Revenues increased by $27.2 million or 10.2% when comparing the revenues
for the three months ended March 31, 2000, to the results for the comparable
systems for the three months ended March 31, 1999. This increase is due to a net
gain of approximately 51,900 or 2.4% basic customers between quarters and retail
rate increases implemented in certain of our systems. Pay-per-view revenues
decreased as a result of few special events in the first quarter of 2000.
Advertising revenues increased 55.2% as a result of launching advertising in new
markets and increasing the number of cable channels on which advertising is
sold.
Total operating expenses increased approximately $9.9 million or 7.0% when
comparing the operating expenses for the three months ended March 31, 2000, to
the results for the same systems for the three months ended March 31, 1999. This
increase is primarily due to increases in license fees paid for programming as a
result of additional subscribers, new channels launched and increases in the
rates paid for programming services. We believe that the increases in
programming expense are consistent with industry-wide increases.
We experienced growth in adjusted EBITDA of approximately $17.4 million or
13.7% when comparing adjusted EBITDA for the three months ended March 31, 2000,
to the results for the same systems for the three months ended March 31, 1999.
Adjusted EBITDA margin increased from 47.2% to 48.7% when comparing the similar
periods.
25
<PAGE> 26
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
INTEREST RATE RISK
The use of interest rate risk management instruments, such as interest rate
exchange agreements, interest rate cap agreements and interest rate collar
agreements is required under the terms of the credit facilities of our
subsidiaries. Our policy is to manage interest costs using a mix of fixed and
variable rate debt. Using interest rate swap agreements, we agree to exchange,
at specified intervals, the difference between fixed and variable interest
amounts calculated by reference to an agreed-upon notional principal amount.
Interest rate cap agreements are used to lock in a maximum interest rate should
variable rates rise, but enable us to otherwise pay lower market rates. Collars
limit our exposure to and benefits from interest rate fluctuations on variable
rate debt to within a certain range of rates.
Our participation in interest rate hedging transactions involves
instruments that have a close correlation with its debt, thereby managing its
risk. Interest rate hedge agreements have been designed for hedging purposes and
are not held or issued for speculative purposes.
The table set forth below summarizes contract terms of financial
instruments subject to interest rate risk maintained by us as of March 31, 2000
(dollars in thousands):
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE
---------------------------------------------------------------------------------------
2000 2001 2002 2003 2004 THEREAFTER TOTAL
------------ ----------- ----------- ----------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
DEBT
Fixed Rate.................. -- -- -- $ 56,729 -- $5,345,662 $ 5,402,391
Average Interest Rate..... -- -- -- 11.8% -- 9.6% 9.7%
Variable Rate............... $ 3,750 $ 5,000 $ 101,345 $ 299,433 $444,880 $ 5,683,242 $ 6,537,650
Average Interest Rate..... 9.3% 9.3% 9.1% 9.1% 8.7% 8.4% 8.5%
INTEREST RATE INSTRUMENTS
Variable to Fixed Swaps..... $ 500,000 $ 780,000 $ 350,000 $ 110,000 $300,000 $ 392,713 $ 2,432,713
Average Pay Rate.......... 8.0% 7.8% 7.5% 7.1% 6.8% 7.6% 7.6%
Average Receive Rate...... 8.9% 9.4% 9.3% 9.2% 8.8% 8.9% 9.1%
Cap......................... -- -- $ 15,000 -- -- -- $ 15,000
Average Cap Rate.......... -- -- 9.0% -- -- -- 9.0%
Collars..................... $ 195,000 $ 545,000 -- -- -- -- $ 740,000
Average Cap Rate.......... 9.0% 9.5% -- -- -- -- 9.3%
Average Floor Rate........ 7.8% 9.0% -- -- -- -- 8.7%
</TABLE>
The fair value of fixed-rate debt at March 31, 2000, was $4.1 billion. The
fair value of fixed-rate debt is based on quoted market prices. The fair value
of variable-rate debt approximates carrying value at March 31, 2000, since this
debt bears interest at current market rates.
The notional amounts of interest rate instruments, as presented in the
above table, are used to measure interest to be paid or received and do not
represent the amount of exposure to credit loss. 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 London
Interbank Offering Rate (LIBOR) rates for the year of maturity based on the
yield curve in effect at March 31, 2000. While swaps, caps and collars represent
an integral part of our interest rate risk management program, their incremental
effect on interest expense for the three months ended March 31, 2000 and 1999,
was not significant.
26
<PAGE> 27
PART II. OTHER INFORMATION.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
1.1 Purchase Agreement, dated as of January 6, 2000 by and among
Charter Communications Holdings, LLC, Charter Communications
Capital Corporation and Goldman, Sachs & Co., Chase Securities
Inc., FleetBoston Robertson Stephens Inc., Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Morgan Stanley & Co. Incorporated, TD
Securities (USA) Inc., First Union Securities, Inc., PNC Capital
Markets, Inc. and SunTrust Equitable Securities Corporation (1)
4.1(a) Indenture relating to the 10.00% Senior Notes due 2009, dated as
of January 12, 2000 between Charter Communications Holdings, LLC
and Charter Communications Holdings Capital Corporation and Harris
Trust and Savings Bank (1)
4.1(b) Form of 10.00% Senior Note due 2009 (1)
4.1(c) Exchange and Registration Rights Agreement, dated January 12,
2000, by and among Charter Communications Holdings, LLC and Charter
Communications Holdings Capital Corporation, Goldman, Sachs & Co.,
Chase Securities Inc., FleetBoston Robertson Stephens Inc., Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co.
Incorporated, TD Securities (USA) Inc., First Union Securities,
Inc., PNC Capital Markets, Inc. and SunTrust Equitable Securities
Corporation, relating to the 10.00% Senior Notes due 2010 (1)
4.2(a) Indenture relating to the 10.25% Senior Notes due 2010, dated as
of January 12, 2000 between Charter Communications Holdings, LLC
and Charter Communications Holdings Capital Corporation and Harris
Trust and Savings Bank (1)
4.2(b) Form of 10.25% Senior Note due 2010 (included in Exhibit No.
4.2(a)) (1)
4.2(c) Exchange and Registration Rights Agreement, dated January 12,
2000, by and among Charter Communications Holdings, LLC and Charter
Communications Holdings Capital Corporation, Goldman, Sachs & Co.,
Chase Securities Inc., FleetBoston Robertson Stephens Inc., Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co.
Incorporated, TD Securities (USA) Inc., First Union Securities,
Inc., PNC Capital Markets, Inc. and SunTrust Equitable Securities
Corporation, relating to the 10.25% Senior Notes due 2010 (1)
4.3(a) Indenture relating to the 11.75% Senior Discount Notes due 2010,
dated as of January 12, 2000 between Charter Communications
Holdings, LLC and Charter Communications Holdings Capital
Corporation and Harris Trust and Savings Bank (1)
4.3(b) Form of 11.75% Senior Discount Notes due 2010 (included in
Exhibit No. 4.3(a)) (1)
27
<PAGE> 28
4.3(c) Exchange and Registration Rights Agreement, dated January 12,
2000, by and among Charter Communications Holdings, LLC and Charter
Communications Holdings Capital Corporation, Goldman, Sachs & Co.,
Chase Securities Inc., FleetBoston Robertson Stephens Inc., Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co.
Incorporated, TD Securities (USA) Inc., First Union Securities,
Inc., PNC Capital Markets, Inc. and SunTrust Equitable Securities
Corporation, relating to the 11.75% Senior Discount Notes due 2010
(1)
10.1(c) Third Amendment to Credit Agreement dated as of March 18, 2000,
between Charter Communications Operating, LLC, Charter
Communications Holdings, LLC and certain lenders and agents named
therein (2)
10.2(f) Management Agreement, dated as of February 14, 2000, by and
between CC VIII Operating, LLC, certain subsidiaries of CC VIII
Operating, LLC and Charter Communications, Inc. (2)
10.4(c) Amendment No. 2 to the Charter Communications Holdings, LLC 1999
Option Plan (2)
10.18(a) Amended and Restated Credit Agreement, dated as of February
14, 2000, made by CC VIII Holdings, LLC, CC VIII Operating, LLC and
certain of its subsidiaries in favor of Toronto Dominion (Texas),
Inc., as Administrative Agent (3)
10.22 Amended and Restated Limited Liability Company Agreement for
Charter Communications Holdings Company, LLC, dated February 14,
2000 (3)
10.24 Exchange Agreement, dated as of February 14, 2000, by and among
Charter Communications, Inc., BCI (USA), LLC, William J. Bresnan,
Blackstone BC Capital Partners L.P., Blackstone BC Offshore Capital
Partners L.P., Blackstone Family Media, III L.P. (as assignee of
Blackstone Family Investment III L.P.), TCID of Michigan, Inc. and
TCI Bresnan LLC (3)
10.26 Commitment Letter dated April 14, 2000 from Morgan Stanley Senior
Funding, Inc. (4)
27.1 Financial Data Schedule.*
---------
* Filed herewith.
(1) Incorporated by reference to the registration statement on Form S-4
of Charter Communications Holdings, LLC and Charter Communications
Holdings Capital Corporation filed on January 25, 2000 (File No.
333-77499).
(2) Incorporated by reference to the annual report on Form 10-K of
Charter Communications, Inc. filed on March 30, 2000 (File No.
000-27927).
(3) Incorporated by reference to the current report on Form 8-K of
Charter Communications, Inc. filed on February 29, 2000 (File No.
000-27927).
(4) Incorporated by reference to Amendment No.1 to the registration
statement on Form S-4 of Charter Communications Holdings, LLC and
Charter Communications Holdings Capital Corporation filed on April
18, 2000 (File No. 333-77499).
28
<PAGE> 29
(b) REPORTS ON FORM 8-K
- On January 5, 2000, an 8-K dated December 27, 1999, was filed to
announce plans for Charter Holdings and Charter Communications
Holdings Capital Corporation to raise $900.0 million in a private
placement of high yield bonds.
- On January 18, 2000, an 8-K dated January 6, 2000, was filed to
announce that Charter Holdings and Charter Communications Holdings
Capital Corporation had entered into an agreement to sell $675.0
million of 10.00% Senior Notes due 2009, $325.0 million of 10.25%
Senior Notes due 2010, and 11.75% Senior Discount Notes due 2010
with a principal amount at maturity of $532.0 million. The sale of
the notes provided gross proceeds of approximately $1.3 billion.
- On January 26, 2000, an amended 8-K dated January 25, 2000, was
filed to present the unaudited pro forma financial statements of
Charter as a result of the Falcon acquisition completed in November
1999.
- On February 23, 2000, an 8-K dated February 16, 2000, was filed to
announce fourth quarter 1999 financial results.
- On February 29, 2000, an 8-K dated February 14, 2000, was filed to
announce the completion of the acquisition of Bresnan; the
subsequent change of Bresnan's name to CCG VIII, LLC; Charter's
intention to make an offer to repurchase Bresnan's publicly held
notes as required under the indenture; the increase in the
borrowing availability under Bresnan's credit agreement to $900.0
million; and the amendment and restatement of Charter Holdco's
limited liability company agreement. Finally, a new management
agreement with Bresnan was disclosed, and Bresnan financial
statements were filed as exhibits.
- On March 10, 2000, an 8-K dated March 7, 2000, was filed to
announce a definitive agreement to acquire a 48,500 subscriber
cable system in Kalamazoo, Michigan, for consideration of $172.5
million in Class A common stock of Charter.
- On May 3, 2000, an 8-K dated May 3, 2000, was filed to announce
first quarter 2000 financial results.
29
<PAGE> 30
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHARTER COMMUNICATIONS, INC.,
registrant
Dated May 12, 2000 By: /s/ Kent D. Kalkwarf
--------------------------------
Name: Kent D. Kalkwarf
Title: Senior Vice President and Chief
Financial Officer (Principal
Financial Officer and Principal
Accounting Officer)
30
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001091667
<NAME> CHARTER COMMUNICATIONS, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 130,713
<SECURITIES> 0
<RECEIVABLES> 116,393
<ALLOWANCES> 18,493
<INVENTORY> 0
<CURRENT-ASSETS> 272,892
<PP&E> 4,306,529
<DEPRECIATION> 474,885
<TOTAL-ASSETS> 21,804,670
<CURRENT-LIABILITIES> 764,902
<BONDS> 11,154,423
0
0
<COMMON> 195
<OTHER-SE> 2,895,339
<TOTAL-LIABILITY-AND-EQUITY> 21,804,670
<SALES> 0
<TOTAL-REVENUES> 721,604
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 945,877
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 230,914
<INCOME-PRETAX> (180,714)
<INCOME-TAX> 0
<INCOME-CONTINUING> (180,714)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (180,714)
<EPS-BASIC> (.81)
<EPS-DILUTED> (.81)
</TABLE>
