Annual Report — [x] Reg. S-K Item 405 — Form 10-K
Filing Table of Contents
Document/Exhibit Description Pages Size
1: 10-K405 Form 10-K 143 879K
2: EX-3.2 Amended and Restated Limited Liability Agreement HTML 45K
3: EX-3.4.B Amendment to By-Laws HTML 8K
4: EX-12.1 Computation of Ratio of Earnings to Fixed Charges HTML 28K
5: EX-21.1 Subsidiaries 2 12K
6: EX-99.1 Risk Factors HTML 61K
7: EX-99.2 Letter Responsive to Temporary Note 3T HTML 10K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the year ended December 31, 2001
OR
|_| 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: 333-77499
Charter Communications Holdings, LLC
------------------------------------
Charter Communications Holdings Capital Corporation*
----------------------------------------------------
(Exact name of registrants as specified in their charters)
Delaware 43-1843179
Delaware 43-1843177
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
12405 Powerscourt Drive
St. Louis, Missouri
-------------------
(Address of principal executive offices)
63131
-----
(Zip Code)
(314) 965-0555
--------------
(Registrants' telephone number, including area code)
Securities registered pursuant to section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act: None
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 |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes |X|
The aggregate market value of the registrant of equity securities held by
non-affiliates of the registrants: There is no public trading market for the
equity securities of the registrants.
Number of shares of common stock of Charter Communications Holdings
Capital Corporation outstanding as of March 28, 2002: 100.
* Charter Communications Holdings Capital Corporation meets the conditions
set forth in General Instruction I(1)(a) and (b) to Form 10-K and is therefore
filing with the reduced disclosure format.
Documents Incorporated By Reference
The following documents are incorporated into this Report by reference: None
CHARTER COMMUNICATIONS HOLDINGS, LLC
CHARTER COMMUNICATIONS HOLDINGS CAPITAL CORPORATION
FORM 10-K--FOR THE YEAR ENDED DECEMBER 31, 2001
TABLE OF CONTENTS
[Enlarge/Download Table]
Page
----
PART I
Item 1. Business .................................................................... 4
Item 2. Properties .................................................................. 29
Item 3. Legal Proceedings ........................................................... 29
Item 4. Submission of Matters to a Vote of Security Holders ......................... 29
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters ....... 30
Item 6. Selected Financial Data ..................................................... 30
Management's Discussion and Analysis of Financial Condition and Results of
Item 7. Operations .............................................................. 31
Item 7A. Quantitative and Qualitative Disclosure about Market Risk ................... 59
Item 8. Financial Statements and Supplementary Data ................................. 61
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure .............................................................. 61
PART III
Item 10. Directors and Executive Officers of the Registrant .......................... 61
Item 11. Executive Compensation ...................................................... 66
Item 12. Security Ownership of Certain Beneficial Owners and Management .............. 73
Item 13. Certain Relationships and Related Transactions .............................. 76
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ............ 85
SIGNATURES ............................................................................. 87
This Annual Report on Form 10-K is for the year ended December 31, 2001.
This Annual Report modifies and supersedes documents filed prior to this Annual
Report. The Securities and Exchange Commission (SEC) allows us to "incorporate
by reference" information that we file with the SEC, which means that we can
disclose important information to you by referring you directly to those
documents. Information incorporated by reference is considered to be part of
this Annual Report. In addition, information that we file with the SEC in the
future will automatically update and supersede information contained in this
Annual Report. In this Annual Report, "we," "us" and "our" refer to Charter
Communications Holdings, LLC and its subsidiaries.
- 2 -
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Annual 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 Annual
Report may be identified by the use of forward-looking words such as "believe,"
"expect," "anticipate," "should," "planned," "will," "may," "intend,"
"estimate," and "potential," among others. Important factors that could cause
actual results to differ materially from the forward-looking statements we make
in this Annual Report are set forth in this Annual Report, in Exhibit 99.1 filed
with this Annual Report and incorporated by reference herein, and in other
reports or documents that we file from time to time with the SEC and include,
but are not limited to:
o our plans to achieve growth by offering advanced products and
services;
o our anticipated capital expenditures for our upgrades and new
equipment and facilities;
o our ability to fund capital expenditures and any future
acquisitions;
o the effects of governmental regulation on our business;
o our ability to compete effectively in a highly competitive and
changing environment;
o our ability to obtain programming as needed and at a reasonable
price;
o our ability to continue to do business with existing vendors,
particularly high-tech companies that do not have a long operating
history; and
o general business and economic conditions, particularly in light of
the uncertainty stemming from the September 11, 2001 terrorist
activities in the United States and the armed conflict abroad.
All forward-looking statements attributable to us or a person acting on
our behalf are expressly qualified in their entirety by this cautionary
statement. We are under no obligation to update any of the forward looking
statements after the date of this Annual Report to conform these statements to
actual results or to changes in our expectations.
- 3 -
PART I
ITEM 1. BUSINESS.
Introduction
Charter Communications Holdings, LLC, operating through its subsidiaries,
is the fourth largest operator of cable systems in the United States. Charter
Communications Holdings Capital Corporation is a wholly-owned subsidiary of
Charter Holdings and was formed and exists solely as a co-issuer of the public
debt issued with Charter Holdings. Through our broadband network of coaxial and
fiber optic cable, we provide video, data, interactive and private business
network services to approximately 7 million customers in 40 states. All of our
systems offer traditional analog cable television. We are steadily increasing
the availability of digital television, along with an array of advanced products
and services such as high-speed Internet access (data services), interactive
video programming and video-on-demand, in an increasing number of our systems.
In 2002, we expect to offer several new advanced products and services in
targeted markets, including a set-top terminal companion that enables digital
video recorder capability, home networking and internet-access over the
television; wireless home networking; and an enhanced customized internet
portal, with a customized browser and charter.com e-mail. In 2002, we began
offering telephony on a limited basis through our broadband network using switch
technology and will continue our trials of voice-over Internet protocol
telephony. The introduction and roll-out of new products and services represents
an important step toward the realization of our Wired World(TM) vision, where
cable's ability to transmit interactive video, data and voice at high-speeds
enables it to serve as the primary platform for the delivery of new services to
the home and workplace.
We are wholly owned by our parent company, Charter Communications Holding
Company, LLC, and indirectly owned by Charter Communications, Inc. Charter
Communications, Inc. was organized as a Delaware corporation in 1999 and
conducted an initial public offering of its Class A common stock in November
1999. It is a holding company whose principal assets are an approximate 52.8%
equity interest (assuming conversion and exchange of all convertible and
exchangeable securities) and a 100% voting interest in Charter Communications
Holding Company. Charter Communications, Inc.'s only business is to act as the
sole manager of Charter Communications Holding Company and its subsidiaries,
including us. As sole manager, Charter Communications, Inc. controls the affairs
of Charter Communications Holding Company and its subsidiaries, including us.
Certain of our subsidiaries commenced operations under the "Charter
Communications" name in 1994. Our principal executive offices are located at
Charter Plaza, 12405 Powerscourt Drive, St. Louis, Missouri 63131. Our telephone
number is (314) 965-0555. We have a web site accessible at
http://www.charter.com. The information posted on our web site is not
incorporated into this Annual Report.
General Business Developments in 2001
In 2001, we continued the upgrade of our cable systems to more quickly
provide advanced products and services and improve service reliability. Our
upgrade plan emphasizes higher bandwidth capacity and two-way communication
capability, as well as reduction of the number of headend control centers. As a
result of this rebuild effort, by December 31, 2003, we expect that over 87% of
our customers will be served by systems with bandwidth of 750 megahertz or
greater and also will have the two-way communication capability that is
necessary for cable modem high-speed Internet access.
In 2001, we emphasized digital service as a core product and the base
platform for interactive and other advanced services. For an increasing number
of systems, we deployed video-on-demand and Wink-enhanced interactive content.
We also launched virtual interactive channels, or "i-channels" starting in
November 2001. Complementing our system upgrade in 2001 and increased digital
availability, we offered cable modem high-speed Internet access (data services)
to an increasing number of customers.
We completed two acquisitions in 2001, which resulted in a net addition of
approximately 604,500 customers as of the acquisition date, prior to a closing
adjustment of approximately 21,000 fewer customers, primarily to existing
operating areas. For these acquired systems, we applied our core operating
strategies to integrate and improve the operations. As a result of one of these
acquisitions, we assumed existing telephony operations for approximately 16,000
customers, using switch-based telephony.
- 4 -
To finance our acquisitions and the upgrade of our systems, as well as to
pay off certain debt, we issued additional long-term debt, refinanced some of
our existing credit facility debt and received capital contributions from our
parent.
We will continue to evaluate opportunities for new acquisitions and swaps
of our cable systems for systems of other cable operators. Our primary criterion
in considering these opportunities is the potential financial benefits we expect
to ultimately realize as a result of the acquisition or swap. We consider each
acquisition or swap in the context of our overall existing and planned
operations. In particular, we focus on the impact the acquisition or swap may
have on our ability to enhance our operations in existing markets or to develop
major new markets for our operations.
Recent Developments in 2002
In January 2002, Charter Holdings and Charter Capital issued additional
long-term debt in the form of high yield bonds in an aggregate principal amount
of $1.1 billion for net proceeds of approximately $872.8 million, repaid a
portion of the amounts outstanding under our revolving credit facilities and
refinanced some of our existing credit facility debt.
In February 2002, one of our subsidiaries acquired the contracts and
associated assets of High Speed Access Corp. that served our customers for whom
High Speed Access was the Internet access provider and provided operational
support. The acquired assets, which all related to the high-speed cable modem
Internet service, included a customer contact center, network operations center
and provisioning software. See "Item 13. Certain Relationships and Related
Transactions - Business Relationships."
Organizational Structure
We are an indirect subsidiary of Charter Communications, Inc. Charter
Communications, Inc.'s principal asset is an approximate 52.8% equity interest
(assuming the conversion and exchange of all convertible and exchangeable
securities) and a 100% voting interest in our direct 100% parent, Charter
Communications Holding Company, LLC. Charter Communications, Inc. provides
management services to Charter Communications Holding Company and its
subsidiaries, including us. As sole manager, Charter Communications, Inc.
controls our affairs and those of our subsidiaries.
The following more detailed textual information concerns our ownership
structure as of February 28, 2002:
Ownership of Charter Communications, Inc. Paul G. Allen owns approximately
3.7% of the outstanding capital stock and controls approximately 92.3% of the
voting power of Charter Communications, Inc. The remaining equity interests and
voting power are held by the public. Mr. Allen's voting control arises primarily
from his ownership of Charter Communications, Inc.'s high vote Class B common
stock, which gives him voting rights that reflect investments by his affiliates
(Charter Investment and Vulcan Cable III) in our parent, Charter Communications
Holding Company, although he also owns shares of Charter Communications, Inc.
Class A common stock.
Charter Communications, Inc. is the issuer of $750.0 million principal
amount of 5.75% convertible senior notes issued in October and November 2000 and
$632.5 million principal amount of 4.75% convertible senior notes issued in May
2001, which are convertible into shares of Class A Common Stock at an initial
conversion price of approximately $21.56 and $26.25 per share, respectively,
subject to certain adjustments. Charter Communications, Inc. is also the issuer
of 505,664 shares of 5.75% Series A Convertible Redeemable Preferred Stock that
were issued to the sellers in the Cable USA acquisition, which are convertible
into shares of Class A Common Stock at an initial conversion price of $24.71 per
share, subject to certain adjustments.
The following table sets forth information as of February 28, 2002 with
respect to the outstanding shares of common stock of Charter Communications,
Inc. and pro forma for (i) the exchange of membership units in two of its
subsidiaries (Charter Communications Holding Company, LLC and CC VIII, LLC),
which are exchangeable for shares of Charter Communications, Inc. Class A common
stock on a one-for-one basis at any time, (ii) conversion of all outstanding
shares of Series A Convertible Redeemable Preferred Stock of Charter
Communications, Inc., which are convertible into shares of Charter
Communications, Inc. Class A common stock and (iii) conversion of all
outstanding 5.75% convertible senior notes and 4.75% convertible senior notes of
Charter Communications, Inc., which are convertible into shares of Charter
Communications, Inc. Class A common stock:
- 5 -
[Enlarge/Download Table]
Pro Forma for Exchange of
Equity in Subsidiaries and
Conversion of Convertible
As of February 28, 2002 Senior Notes
----------------------------- ----------------------------
Percent of Number of Percent of
Number of Total Common Common Total Common
Shares Shares Shares Shares
Outstanding(a) Outstanding Outstanding Outstanding
-------------- ------------ ----------- ------------
Class A Common Stock .................................. 294,536,963 99.98% 294,536,963 40.97%
Class B Common Stock .................................. 50,000 0.02 50,000 0.01
----------- ------ ----------- ------
Total Common Stock Outstanding .............. 294,586,963 100.00% 294,586,963 40.98%
=========== ======
Convertible Equity in Charter Communications, Inc.
Convertible Redeemable Preferred Stock(b) ........ 505,664 -- 2,046,394 0.28%
Convertible Debt in Charter Communications, Inc.
5.75% Convertible Senior Notes(c) ................ -- -- 34,786,642 4.84%
4.75% Convertible Senior Notes(d) ................ -- -- 24,095,238 3.35%
Exchangeable Equity in Subsidiaries:
Charter Investment, Inc.(e) ...................... 222,818,858 30.99%
Vulcan Cable III Inc.(e) ......................... 116,313,173 16.18%
Sellers of Bresnan cable systems(f) .............. 24,273,943 3.38%
----------- ------
Total Pro Forma Common Stock Outstanding .... 718,921,211 100.00%
=========== ======
----------
(a) Does not include shares of Class A common stock covered by options.
(b) Assumes conversion of Series A Convertible Redeemable Preferred Stock held
by sellers of the Cable USA systems.
(c) Assumes conversion of 5.75% convertible senior notes issued in October and
November 2000.
(d) Assumes conversion of 4.75% convertible senior notes issued in May 2001.
(e) Assumes exchange of membership units in Charter Communications Holding
Company held by such entities. Each of Charter Investment and Vulcan Cable
III are controlled by Paul G. Allen.
(f) Assumes exchange of membership units in CC VIII, LLC held by such persons.
Charter Communications Holding Company, LLC. Charter Communications
Holding Company is the direct 100% parent of Charter Holdings. The common
membership units of Charter Communications Holding Company are owned 52.8% by
Charter Communications, Inc., 16.2% by Vulcan Cable III and 31.0% by Charter
Investment (assuming conversion and exchange of all convertible and exchangeable
securities). All of the outstanding common membership units in Charter
Communications Holding Company held by Vulcan Cable III and Charter Investment
are exchangeable on a one-for-one basis at any time for shares of Class B common
stock of Charter Communications, Inc. which are in turn convertible into Class A
common stock of Charter Communications, Inc.
Charter Communications, Inc. controls 100% of the voting power of Charter
Communications Holding Company.
Certain provisions of the Charter Communications, Inc. certificate of
incorporation and Charter Communications Holding Company limited liability
company agreement effectively require that Charter Communications, Inc.'s
investment in Charter Communications Holding Company replicate, on a "mirror"
basis, Charter Communications, Inc.'s outstanding equity and debt structure. As
a result of these coordinating provisions, whenever Charter Communications, Inc.
issues equity or debt, Charter Communications, Inc. transfers the proceeds from
such issuance to Charter Communications Holding Company, and Charter
Communications Holding Company issues a "mirror" security to Charter
Communications, Inc. that replicates the characteristics of the security issued
by Charter Communications, Inc. As a result, in addition to its equity interest
in common units of Charter Communications Holding Company, Charter
Communications, Inc. also holds 100% of the mirror convertible notes of Charter
Communications Holding Company that automatically convert into common membership
units upon the conversion of any Charter Communications, Inc. convertible senior
notes and 100% of the mirror preferred units of Charter Communications Holding
Company that automatically convert into common membership units upon the
conversion of the Series A Convertible Redeemable Preferred Stock of Charter
Communications, Inc.
- 6 -
Vulcan Cable III Inc. Vulcan Cable III has a 16.2% common equity interest
(assuming conversion and exchange of all convertible and exchangeable
securities) and no voting rights in Charter Communications Holding Company.
Vulcan Cable III's membership units in Charter Communications Holding Company
are exchangeable for shares of Charter Communications, Inc. Class B common stock
on a one-for-one basis at any time. Mr. Allen owns 100% of the outstanding
capital stock of Vulcan Cable III.
Charter Investment, Inc. Charter Investment has a 31.0% common equity
interest (assuming conversion of all convertible and exchangeable securities)
and no voting rights in Charter Communications Holding Company. Charter
Investment's membership units in Charter Communications Holding Company are
exchangeable for shares of Charter Communications, Inc. Class B common stock at
any time on a one-for-one basis. Mr. Allen owns 100% of the outstanding capital
stock of Charter Investment.
Sellers of Bresnan Cable Systems. Upon the closing of the Bresnan
acquisition, some of the sellers received a portion of their purchase price in
the form of equity interests in subsidiaries of Charter Communications, Inc.
rather than in cash. Certain sellers received common membership units in Charter
Communications Holding Company that were exchangeable for shares of Charter
Communications, Inc. Class A common stock on a one-for-one basis at any time. In
February 2002, Bresnan sellers holding in aggregate 14,831,552 membership units
in Charter Communications Holding Company (representing approximately 2.1% of
the common equity of Charter Communications, Inc. (assuming conversion and
exchange of all convertible or exchangeable securities)), exercised their right
to cause Mr. Allen or his designee to purchase the membership units. As a
result, Vulcan Cable III and Charter Investment, as Mr. Allen's designees,
acquired 9,597,940 and 5,233,612 units, respectively, in Charter Communications
Holding Company. Other sellers in the Bresnan acquisition received preferred
membership units in CC VIII, LLC that are exchangeable for shares of Charter
Communications, Inc. Class A Common Stock. These sellers also have a right to
put these units to Mr. Allen. If these remaining Bresnan sellers exchanged their
membership units in CC VIII, LLC, these equity holders as a group would have a
total 3.4% equity interest in Charter Communications, Inc. (assuming conversion
and exchange of all convertible or exchangeable securities). If Charter
Communications, Inc. issues Class A common stock to the Bresnan sellers in
exchange for their CC VIII preferred membership units, Charter Communications
Holding Company will issue mirror Class B common units to Charter
Communications, Inc.
The following table sets forth the information as of February 28, 2002
with respect to the common units of Charter Communications Holding Company and
pro forma for (i) the conversion of the mirror convertible notes into Class B
common units, (ii) the conversion of the Class B preferred units into Class B
common units and (iii) exchange by the Bresnan sellers of their CC VIII
preferred membership units for Class A common stock:
[Enlarge/Download Table]
Pro Forma for Conversion
of Mirror Securities and Exchange of CC
As of February 28, 2002 VIII Preferred Units
------------------------------------------ ---------------------------------------
Percent of Number of Percent of
Total Common Common Total
Number of Units Units Voting Units Common Voting
Outstanding(a) Outstanding Power Outstanding Units Power
--------------- ------------ ------ ----------- ---------- ------
Charter Communications, Inc.
Class B Common Units ................... 294,586,963 46.5% 100% 294,586,963 41.0% 100%
CC VIII Preferred Membership Units(b) .. -- -- -- 24,273,943 3.4% --
Mirror Class B Preferred Units (c) ..... 505,664 -- -- 2,046,394 0.3% --
Mirror Convertible Notes (d) ........... -- -- -- 58,881,880 8.1% --
----------- ----- --- ----------- --- ---
Total Charter Communications, Inc. .. 295,092,627 46.5% 100% 379,789,180 52.8% 100%
Vulcan Cable III .......................... 116,313,173 18.4% -- 116,313,173 16.2% --
Charter Investment ........................ 222,818,858 35.1% -- 222,818,858 31.0% --
----------- ----- --- ----------- --- ---
634,224,658 100.0% 100% 718,921,211 100% 100%
=========== ===== === =========== === ===
----------
(a) Does not include units covered by options that are immediately exchanged
for shares of Class A common stock.
(b) Assumes exchange of CC VIII preferred membership units held by certain of
the Bresnan sellers.
(c) Assumes conversion of Charter Communications, Inc. Series A Convertible
Redeemable Preferred Stock held by sellers of the Cable USA systems.
(d) Assumes conversion of Charter Communications, Inc.'s 5.75% and 4.75%
convertible senior notes.
- 7 -
Charter Communications Holdings, LLC. Charter Holdings, a Delaware limited
liability company formed on February 9, 1999, is a co-issuer of the publicly
held Charter Holdings notes that consist of $3.575 billion aggregate principal
amount of notes issued in March 1999, $1.532 billion aggregate principal amount
of notes issued in January 2000, $2.075 billion aggregate principal amount of
notes issued in January 2001, $1.943 billion aggregate principal amount of notes
issued in May 2001 and $1.1 billion aggregate principal amount of notes issued
in January 2002. Charter Holdings owns 100% of Charter Communications Holdings
Capital, the co-issuer of these notes. Charter Holdings also owns the various
subsidiaries that conduct all of our cable operations, including the Charter,
CCV, CC VI, CC VII and CC VIII Companies described below.
Charter Communications Holdings Capital Corporation. Charter Capital, a
Delaware corporation formed on February 16, 1999, is a wholly owned subsidiary
of Charter Holdings and a co-issuer of the publicly held Charter Holdings notes
described in the preceding paragraph.
Operating Subsidiaries. These companies are our subsidiaries and own or
operate all of our cable systems. There are separate credit facilities for each
of four groups of these operating subsidiaries. As indicated below, these groups
include systems acquired in the acquisitions listed in "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations." These
groups consist of:
o the Charter Companies, including Charter Operating and its
subsidiaries, which own or operate all of the cable systems formerly
operated by Charter Investment under the "Charter Communications"
name, the cable systems acquired in the following 1999 and 2000
transactions: Marcus, American Cable, Greater Media, Helicon, Vista,
Rifkin, South Miami, Farmington and Capital Cable and a portion of
the systems acquired in the AT&T transactions. The Charter Companies
also include the issuers of outstanding publicly held notes of a
subsidiary acquired in the Renaissance acquisition;
o the CC V and CC VIII Companies, which own or operate all of the
cable systems acquired in the Avalon, Interlake and Bresnan
acquisitions, a portion of the systems acquired in the Cable USA
acquisition, and include co-issuers of outstanding publicly held
notes;
o the CC VI Companies, which own or operate all of the cable systems
acquired in the Fanch and Kalamazoo acquisitions and a portion of
the systems acquired in the Cable USA acquisition; and
o the CC VII Companies, which own or operate all of the cable systems
acquired in the Falcon acquisition and a portion of the systems
acquired in the AT&T transactions.
Acquisitions Completed in 2001
AT&T Transactions. In February 2001, Charter Communications, Inc. and
certain of our subsidiaries entered into several agreements with AT&T Broadband,
LLC and certain of its affiliates involving several strategic cable system
transactions. Charter Communications, Inc. assigned the agreements to certain of
our subsidiaries, and the AT&T transactions closed in June 2001. In the AT&T
transactions, we acquired cable systems from AT&T Broadband serving customers in
Missouri, Illinois, Alabama, Nevada and California for a total adjusted purchase
price of $1.74 billion, consisting of $1.71 billion in cash and a Charter cable
system valued at $25.1 million, for a net addition of approximately 551,100
customers as of the closing date. A portion of the net proceeds from the sale of
the Charter Holdings May 2001 notes was used to pay a portion of the purchase
price of the AT&T transactions. As of December 31, 2001, these cable systems had
570,800 customers. For the year ended December 31, 2001, including the period
prior to our acquisition, these systems had revenues of $332.7 million.
Cable USA Transaction. In August 2001, Charter Communications, Inc. and
Charter Communications Holding Company completed the acquisition of several
cable systems from Cable USA, Inc. and its affiliates, resulting in a net
addition of approximately 30,600 customers in Nebraska, Minnesota and Colorado
for a total purchase price of $100.3 million (including certain assumed
liabilities), consisting of $44.6 million in cash, 505,664 shares of Charter
Communications, Inc. Series A Convertible Redeemable Preferred Stock valued at
$50.6 million and additional shares of Series A Convertible Redeemable Preferred
Stock valued at $5.1 million to be issued to certain sellers subject to certain
holdback provisions of the acquisition agreement. Charter Communications, Inc.
and Charter Communications Holding
- 8 -
Company contributed the systems acquired in these acquisitions to us, which we
subsequently contributed to our subsidiaries. As of December 31, 2001, these
cable systems had 32,200 customers. For the year ended December 31, 2001,
including the period prior to the acquisition, these systems had revenues of
$13.9 million.
Business Strategy
This section includes forward-looking statements regarding, among other
things, our plans, strategies and prospects. Forward-looking statements are
inherently subject to risks, uncertainties and assumptions. Many of the
forward-looking statements contained in this section may be identified by the
use of forward-looking words such as "believe," "expect," "anticipate,"
"should," "planned," "will," "may," "intend," "estimate," and "potential," among
others. Among these risks, uncertainties and assumptions are those specified in
"- Certain Trends and Uncertainties" and in Exhibit 99.1, "Risk Factors." We
refer you to these sections, as well as to "Forward-Looking Statements."
Our ultimate objective is to increase the amount of revenue and cash flow
per customer. To achieve this objective, we are pursuing the following
strategies:
Offer an Array of Advanced Products and Services. Consistent with our
Wired World(TM) vision, we seek to be a market leader in the introduction and
distribution of advanced products and services. We currently offer advanced
video and interactive services, as well as high-speed Internet access data
services. Using digital technology, we are able to offer additional video
channels to our standard, premium and pay-per-view line-up, including
programming of local interest, as well as digital music services. In addition,
we offer interactive video programming, including video-on-demand, virtual
interactive channels accessible on television through a web-like screen, and an
interactive program guide to access television program listings by channel,
time, date or programming type. In 2002, we expect to offer several new advanced
products and services in targeted markets, including an advanced media center
terminal that enables digital video recorder capability, home networking and
internet-access over the television; wireless home networking; and an enhanced
customized internet portal, with a customized browser and charter.com e-mail. In
2002, we began to offer telephony on a limited basis through our broadband
network using circuit-based switch technology and will continue with trials of
our voice-over Internet protocol telephony. Digital television and its related
suite of interactive services, as well as high-speed cable modem Internet
access, provide additional value and product differentiation, both to us and to
our customers, and as a result, are instrumental in solidifying the relationship
with our customers.
Build and Operate a Technologically Advanced Broadband Network. We
continue to upgrade the technical quality and capacity of our existing systems.
We will build out new systems to a minimum bandwidth of 550 megahertz or
greater, which will allow us to:
o offer digital television, high-speed Internet access (data services)
and other advanced products and services;
o increase channel capacity up to 82 analog channels, and add even
more channels and services when our bandwidth is used for digital
signal transmission; and
o permit two-way communication, so that Internet access does not
require a separate telephone line and our systems can provide
interactive services, and potentially, telephony services.
By December 31, 2003, when we anticipate that the upgrade of our existing
systems will be substantially complete, we expect that approximately 92% of our
customers will be served by cable systems with at least 550 megahertz bandwidth
capacity, 87% of our customers will be served by cable systems with at least 750
megahertz bandwidth capacity, 89% of our customers will have the two-way
communication capability that is necessary for cable modem high-speed Internet
access, and 92% of our customers will have access to digital services.
As part of our upgrade, we are working to reduce the number of headends
that serve our customers. Because headends are the control centers of a cable
television system, where incoming signals are amplified, converted, processed
and combined for transmission to the customer, reducing the number of headends
reduces related equipment and maintenance expenditures. Headend consolidation,
together with our other upgrades, also will provide enhanced picture quality and
system reliability. It is anticipated that upon completion of our upgrade,
approximately 83.5% of our customers will be served by headends serving at least
10,000 customers.
- 9 -
In 2001, we completed a national network operations center to monitor and
control all aspects of our network to enhance the reliability of our upgraded
systems and support our high-speed Internet access and other advanced products.
By December 31, 2003, we plan to have nine regional operations centers that will
focus on our local network operations.
As a result of our upgraded cable systems, we believe that we are well
positioned to be a market leader in the deployment of technologically advance
products and services as they are developed.
Focus on the Customer. To maximize customer satisfaction and loyalty, we
operate our business to provide reliable, high-quality products and services and
superior customer care. We tailor our product and service packages to suit the
diverse communities we serve and satisfy local preferences for programming.
Because of our decentralized operating structure, we are able to maintain a
strong management presence at the local system level to improve our customer
service and respond to local customer needs. We operate seven state-of-the-art
regional customer contact centers that provide customers with access to
specialized customer care representatives 24 hours a day, seven days a week,
including a fully-staffed and equipped facility acquired in 2002 from High Speed
Access Corp. We expect to build four additional customer contact centers in
2002. We believe that our customer service efforts enhance customer
satisfaction, enable us to attract and retain valuable customers, increase
customer demand and acceptance for our new advanced products and services, and
strengthen the Charter brand name.
Employ Innovative Marketing. Our marketing efforts continue to focus on
offering our variety of Charter-branded entertainment and information services
that provide value, choice, convenience and quality to our customers. We offer
value-priced packages of multiple advanced products and services, such as
combinations of digital television, premium video channels and high speed
Internet access for a price that is lower than purchasing the products
separately. These bundled offerings enable us to respond to consumer demand for
advanced services such as high-speed Internet access, provide cutting-edge new
services such as interactive virtual channels, and at the same time, offer an
attractive price/value ratio that enhances customer satisfaction. Because our
advanced products and services are often new to the marketplace, our marketing
programs are designed to educate customers about the availability and the
advantages of those products and services. We utilize database marketing to
target audiences and tailor marketing programs to local customer preferences. In
2001, we retained Dan Aykroyd to serve as our celebrity spokesperson for media
advertising. In addition, we promote our services through consumer electronics
retailers and proprietary locations. We also have retention and loyalty programs
for retaining customers that include televised advertising to reinforce the link
between quality service and the Charter brand name.
Products and Services
This section includes forward-looking statements regarding, among other
things, our plans, strategies and prospects. Forward-looking statements are
inherently subject to risks, uncertainties and assumptions. Many of the
forward-looking statements contained in this section may be identified by the
use of forward-looking words such as "believe," "expect," "anticipate,"
"should," "planned," "will," "may," "intend," "estimate," and "potential," among
others. Among these risks, uncertainties and assumptions are those specified in
"- Certain Trends and Uncertainties" and in Exhibit 99.1, "Risk Factors." We
refer you to these sections, as well as to "Forward-Looking Statements."
We offer our customers traditional cable television services and
programming as well as advanced high bandwidth services such as digital
television, cable modem high-speed Internet access and interactive television.
We plan to continue to enhance and upgrade these services by adding new
programming and other advanced products and services as they are developed. In
2001, we focused on our digital television and high-speed Internet services,
with several market deployments of video-on-demand. Because our upgraded systems
now allow us to offer advanced products and services in a greater number of
markets, in 2002 we will focus on increased deployment of high-speed Internet
access so that more customers will have access to both data and video services.
Traditional Cable Television Services. Customers subscribing to both
"basic" and "expanded basic" service generally receive a line-up of between 33
and 82 channels of television programming, depending on the bandwidth capacity
of the system. Customers who pay additional amounts can also subscribe to
additional channels, either individually or in packages, as add-ons to the basic
channels. We tailor both our basic channel line-up and our additional channel
offerings to each system according to demographics, programming preferences,
competition, price sensitivity and local regulation.
- 10 -
Our traditional cable television service offerings include the following:
o Basic Cable. All of our customers receive a package of basic
programming, transmitted via an analog signal, which generally
consists of local broadcast television, local community programming,
including governmental and public access, and limited satellite
delivered or non-broadcast channels.
o Expanded Basic Cable. This expanded programming level includes a
package of satellite-delivered or non-broadcast channels (such as
ESPN, CNN and Lifetime Television) in addition to the basic channel
line-up.
o Premium Channels. These channels provide commercial-free movies,
sports and other special event entertainment programming. Home Box
Office, Cinemax, Showtime, the Movie Channel, Starz and Encore are
examples of premium channels. Although we offer subscriptions to
premium channels on an individual basis, we are offering an
increasing number of premium channel packages and are bundling
premium channels with our advanced services.
o Pay-Per-View. These channels allow customers to pay on a per event
basis to view a single showing of a recently released movie, a
one-time special sporting event or music concert on a
commercial-free basis.
Advanced Products and Services. Cable's high bandwidth is a key factor in
the successful delivery of advanced products and services. A variety of emerging
technologies and increasing Internet usage by our customer base have presented
us with substantial opportunities to expand our sources of revenue. In an
increasing number of our systems, we now offer a variety of advanced products
and services, including:
o digital television and its related enhancements, such as an
interactive programming guide;
o high-speed Internet access via cable modem;
o interactive services related to on-screen broadcast programming,
such as Wink, which adds interactivity and electronic commerce
opportunities to traditional programming and advertising;
o virtual interactive channels for news, finance, weather, sports,
shopping and movie theater listings, accessible on television
through a web-like screen;
o video-on-demand;
o television-based Internet access, which allows customers to access
the Internet through the use of our two-way capable cable systems
without the need for a personal computer; and
o private network services, such as voice and data transmission
services to a network of interconnected locations of a single
customer.
- 11 -
The following table summarizes our customer statistics for our analog and
digital cable and advanced products and services. The pro forma statistics as of
December 31, 2000 reflect all acquisitions and dispositions completed in 2000
and 2001 as if such acquisitions occurred on January 1, 2000.
[Enlarge/Download Table]
As of December 31,
-------------------------------------------
Actual 2001 Pro Forma 2000 Actual 2000
----------- -------------- -----------
Video services
Basic cable
Homes passed(a) ........................ 11,502,300 11,291,800 10,225,000
Basic customers(b) ..................... 6,953,700 6,913,100 6,350,900
Penetration(c) ......................... 60.5% 61.2% 62.1%
Digital cable
Homes passed(a) ........................ 10,638,300 9,711,600 8,793,000
Digital customers ...................... 2,144,800 1,177,500 1,069,500
Penetration of homes passed(c) ......... 20.2% 12.1% 12.2%
Penetration of basic customers ......... 30.8% 17.0% 16.8%
Number of digital terminals deployed ... 2,951,400 1,470,500 1,336,900
Video-on-demand
Homes passed(a) ............................ 1,994,700 170,000 170,000
Internet and other data services
Cable modem high-speed Internet access
Homes passed(a) ........................ 7,560,600 5,841,300 5,550,800
Cable modem customers .................. 607,700 229,000 215,900
Dial-up customers ...................... 37,100 42,000 36,500
Total data customers ............... 644,800 271,000 252,400
Penetration(c) ......................... 8.5% 4.6% 4.5%
Interactive television (Wink)
Homes passed(a) ............................ 3,419,900 3,271,400 3,271,400
Interactive TV customers ................... 679,100 304,400 304,400
[Enlarge/Download Table]
Pro Forma for the Year Ended
December 31,
----------------------------
2001 2000
-------- --------
Average monthly pro forma revenue per basic customer(b)(d) ............... $ 49.31 $ 43.53
Average monthly pro forma operating cash flow per basic customer(b)(e) ... $ 21.76 $ 19.94
----------
(a) 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 to which we
offer the named service.
(b) Basic customers are customers who receive basic cable service. All of our
customers, including those receiving digital or advanced services, receive
basic cable service.
(c) Penetration represents customers as a percentage of homes passed.
(d) Average pro forma monthly revenue per basic customer represents pro forma
revenues from all sources, adjusted to illustrate the effect of all 2000
and 2001 acquisitions as if they had closed on January 1, 2000, divided by
twelve, divided by the number of basic customers at the end of the year
(actual for December 31, 2001 and pro forma for December 31, 2000,
reflecting all acquisitions closed since this date).
(e) Average pro forma monthly operating cash flow per basic customer
represents pro forma operating cash flow (defined as pro forma revenues
less the sum of pro forma operating, general and administrative expenses
and corporate expense charges), adjusted to illustrate the effect of all
2000 and 2001 acquisitions as if they had closed on January 1, 2000,
divided by twelve, divided by the number of basic customers at the end of
the year (actual for December 31, 2001 and pro forma for December 31,
2000, reflecting all acquisitions closed since this date).
- 12 -
Digital Television. As part of our systems upgrade, we are installing
headend equipment capable of delivering digitally encoded cable transmissions to
a two-way digital-capable set-top terminal in the customer's home. This digital
connection offers significant advantages. For example, we can compress the
digital signal to allow the transmission of up to twelve digital channels in the
bandwidth normally used by one analog channel. The increased channel capacity
will allow us to increase both programming and service offerings, including
offering video-on-demand to pay-per-view customers.
We offer digital service to our customers in several different service
combination packages. All digital packages include a digital set-top terminal,
an interactive electronic programming guide, 45 channels of CD quality digital
music, an expanded menu of pay-per-view channels and at least thirty additional
digital channels. In markets where Wink-enhanced programming and video-on-demand
are available, all of our digital customers also are able to receive these
services. Certain digital packages also offer customers one or more premium
channels of their choice with "multiplexes." Multiplexes give customers access
to several different versions of the same premium channel which are varied as to
time of broadcast (such as east and west coast time slots) or programming
content theme (such as westerns or romance). Other digital packages bundle
digital television with other advanced services, such as Internet access.
As of December 31, 2001, we had approximately 2.1 million digital
customers and our digital penetration was 20.2% of digital homes passed. We
expect to increase our digital customers to approximately 2.7 million by
December 31, 2002.
Cable Modem-Based High-Speed Internet Access. We offer high-speed data and
Internet access to our residential customers primarily via cable modems attached
to personal computers, at speeds of up to approximately 50 times the speed of a
conventional telephone modem. As of December 31, 2001 we had approximately
607,700 cable modem high-speed Internet customers. Primarily as a result of
increased consumer demand, by December 31, 2002, we expect to increase the
number of our cable modem high-speed Internet access customers to between
approximately 1.2 million and 1.25 million.
We offer high-speed Internet access services under the Charter Pipeline
brand to our high-speed Internet access customers and in certain markets we
offer high-speed Internet access in conjunction with a third-party provider. In
October 2001, pursuant to an agreement between Charter Communications Holding
Company and Microsoft Corporation, we introduced for our Charter Pipeline
customers a custom start page that is co-branded with Microsoft's network of
websites, known as MSN, with content modules that we provide, including, for
example, movie trailers, previewing movies on pay-per-view and video-on-demand,
and television listings. In the second quarter of 2002, we expect to introduce a
custom browser that will be co-branded with the MSN browser and charter.com
e-mail. Our recent acquisition of high-speed Internet access assets from High
Speed Access in February 2002, included a customer contact center, network
operating center and provisioning software, all of which were being utilized to
service our high-speed cable modem Internet access customers.
On September 28, 2001, Excite@Home Corporation, the provider of high-speed
Internet access service to approximately 145,000, or 25%, of our data customers,
filed for protection under Chapter 11 of the U.S. Bankruptcy Code. By March 1,
2002, we successfully transitioned over all of our customers served by
Excite@Home to our Charter Pipeline(TM) service. As of December 31, 2001, after
giving effect to the Excite@Home transition and the High Speed Access
acquisition, approximately 87.3% of our high-speed Internet access customers
received our Charter Pipeline high-speed Internet access service and 13.7%
received services provided in conjunction with a third-party service provider.
Traditional Dial-Up Modem Internet Access. Traditional dial-up Internet
access is available upon customer request in a limited number of our markets
where two-way cable modem Internet access is not yet available.
TV-Based Internet Access. We expect to launch the digeo(TM)
television-based Internet access service in St. Louis in the second half of
2002. This premium digeo(TM) product is designed to blend the power of the
Internet with the convenience of the television. Through the use of an advanced
digital set-top terminal companion, customers will be able to access
Internet-based streaming media on the television, including both local and
national news, sports and entertainment. The Internet domain name of customers
using this service will be "Charter TV." The digeo(TM) product is a "portal,"
which is an Internet web site that serves as a user's initial point of entry to
the World Wide Web. By offering selected content, services and links to other
web sites, a portal guides and directs users through the World Wide Web. In
addition, the portal generates revenues from advertising on its own web pages
and by sharing revenues generated by linked or featured web sites.
- 13 -
We plan to use digeo(TM)as our television-based portal for an initial
six-year period. An affiliate of Mr. Allen and one of our subsidiaries each owns
equity interests in digeo, inc. See "Item 13. Certain Relationships and Related
Transactions - Business Relationships."
Our WorldGate television-based Internet access service offers easy,
low-cost Internet access to customers at connection speeds ranging up to 128
kilobits per second. This service, with its user-friendly interface, appeals to
first-time Internet users and does not require the use of a personal computer,
an existing or additional telephone line, or any additional equipment. The
Internet domain name of the customers who use this service is "Charter.net."
This allows customers to switch or expand to our other Internet services without
a change of e-mail address. As of December 31, 2001, we had 557,100 homes passed
and 9,000 TV-based Internet customers.
Video-On-Demand. Roll-out of video-on-demand (VOD) service to digital
customers began in some of our markets in 2000, with expanded distribution in
2001. With VOD service, customers can access hundreds of movies and other
programming at any time, with digital picture quality. VOD allows full VCR
functionality, including the ability to pause, rewind and fast-forward programs.
Customers can also stop a program and resume watching it several hours later
during the rental period. In addition, the VOD programming available in a
particular market can be customized for market-based or customer preferences and
local interest. For example, foreign language or other local programming could
be offered in markets where such programming is likely to appeal to customers.
Generally, customers pay for VOD (such as movies) on a per-selection basis. Some
VOD programming is also available on a category basis (such as children's
programming) for a single monthly fee in addition to single selection purchases.
As of December 31, 2001, VOD was available to digital customers in systems
passing approximately 2.0 million homes in ten markets with approximately 300
titles available to customers. In systems where VOD is available, it is included
as a standard feature of our digital service packages. By December 31, 2002, we
expect video-on-demand to be available in systems passing in excess of 4.0
million homes. In 2001, we relied on a single source-provider for the hardware,
software, programming content, and operational support used for VOD. In 2002, we
plan to add other sources for each of these products and services and will
attempt to secure some or all of the programming content directly from
programmers rather than through a third-party content consolidator.
Interactive Video Programming. We provide interactive programming using
technology developed by Wink Communications, Inc. The Wink technology embeds
interactive features, such as additional information and statistics about a
television program or the option to order an advertised product, into
programming and advertisements. A customer with a Wink-enabled set-top terminal
and a Wink-enabled cable provider sees an icon flash on the screen when
additional Wink features are available to enhance a program or advertisement. By
pressing the select button on a standard remote control, a viewer of a
Wink-enhanced program is able to access additional information regarding such
program, including, for example, information on prior episodes or the program's
characters. A viewer watching an advertisement is able to access additional
information regarding the advertised product and may also be able to utilize the
two-way transmission features to order a product. We have bundled Wink's
services with our traditional cable services in both our advanced analog and
digital platforms. Wink's services are provided free of charge to the customer.
A company controlled by Mr. Allen has a minority equity interest in Wink. See
"Item 13. Certain Relationships and Related Transactions - Business
Relationships."
Various programming networks, including CNN, NBC, ESPN, HBO, Showtime,
Lifetime, VH1, the Weather Channel and Nickelodeon, together currently produce
over 2,400 hours of Wink-enhanced programming per week. Under certain
revenue-sharing arrangements, we will modify our headend technology to allow
Wink-enabled programming to be offered on our systems. We receive fees from Wink
each time one of our customers uses Wink to request certain additional
information or order advertised products. In 2001 our customers averaged
approximately 381,000 clicks per week on Wink icons.
In September 2001, Charter Communications, Inc. amended its agreement with
digeo interactive, LLC, a subsidiary of digeo, inc., to provide that digeo would
provide Charter Interactive Channels (commonly known as "i-channels") to certain
of our customers receiving Wink services. In November 2001, we made this service
available to our digital subscribers in Glendale, California, and by March 1,
2002, the i-channels were available to an aggregate of 550,000 digital
subscribers. As of March 1, 2002, over 20% of the digital subscribers in these
markets were active users of the i-channels, with a per-user average of 12.5
screen views per week. We plan to deploy this service aggressively in 2002 and
intend to offer the service to over 1.0 million customers by December 31, 2002.
Currently, those digital subscribers receiving i-channels receive the service at
no additional charge.
- 14 -
Telephony/Voice Services. We are exploring technologies using Internet
protocol telephony to transmit digital voice signals over our systems. We
launched preliminary Internet protocol telephony trials in 2001 and 2002, and
will continue with our market trials during 2002. Following these market trials,
we will evaluate the business model for deployment of this service. Commencing
in January 2002, we began offering traditional circuit switch-based telephony in
the St. Louis area to approximately 16,000 customers acquired in the AT&T
acquisition. We have marketed telephony services as a competitive access
provider in Wisconsin through one of our subsidiaries and are currently
exploring the expansion of our services as a competitive access provider in
other states.
Other New Business Initiatives. We are seeking to provide our customers in
2002 with advanced broadband media center terminals that include digital video
recording capabilities (commonly referred to as "DVR") and operate in
conjunction with certain existing digital set top terminals. Built-in DVR
capability in the set-top terminal will enable customers to store video, audio
and Internet content. In February 2002, we signed an agreement with Motorola,
Inc. to engineer, manufacture and market these media centers, and a stand-alone
unit is also planned for development. digeo, inc. collaborated with us on the
design for the advanced broadband media centers. An affiliate of Mr. Allen and
one of our subsidiaries each owns an equity interest in digeo, inc. See "Item
13. Certain Relationships and Related Transaction - Business Relationships."
We expect to offer high-definition television (HDTV) on a limited basis in
five test markets by the end of the first half of 2002, and in at least two
additional test markets by the third quarter of 2002. HDTV will provide our
digital customers with video services at a higher resolution than standard
television. We hope to expand our offering of HDTV to additional markets and to
increase the number of channels for which we provide HDTV by December 31, 2002.
In addition, in 2002 we are anticipating that we will be able to expand
our offering of subscription video-on-demand (commonly known as "SVOD"), or VOD
programming that is available on a category basis, for a single monthly fee,
beyond children's programming to include premium programming. If we are
successful in expanding this offering, our customers receiving SVOD would have
access to the regular programming provided by many of our program providers and
access to a certain number of movies carried by these providers.
We are also exploring the deployment of wireless networking technology for
our residential cable modem customers. This will initially be available to cable
modem customers who will utilize the technology over multiple personal
computers. The service is expected to eventually have a broader application by
allowing shared use of other video-based data throughout the home.
We evaluate the feasibility and profitability of our new business
initiatives on an ongoing basis to understand the risks and benefits posed by
investing in such new products and services and to gauge our interest and
commitment level with respect to these new products. Because we launch new
products and services in a limited number of targeted markets, we do not expect
these initiatives to produce meaningful or material revenues or cash flows.
Additionally, because it takes time for new products and services to gain
acceptance and reach certain utilization levels, we cannot predict when, if
ever, such initiatives would begin to produce such revenues or cash flow.
Private Business Networks. We established Charter Business Networks as a
separate division to offer integrated network solutions for data, video,
Internet and private voice communications to commercial and institutional
customers in certain of our markets. These solutions include virtual local area
and wide area networks with bandwidth and Internet access capacity based on
customer needs, supported by remote monitoring.
Sale of Local Advertising. We receive revenue from the sale of local
advertising on satellite-delivered networks such as MTV, CNN and ESPN. In any
particular system, we generally insert local advertising on a minimum of twelve
networks, and have covered up to 40 channels. Our system rebuild and additional
digital services launches have increased the number of channels, and made it
possible to insert local advertising. In addition, we receive revenue from
certain programmers related to the launch of new cable television channels.
Home Shopping. In 2001, we received revenues from channels devoted
exclusively to home shopping (such as HSN) and other channels that allow us to
insert infomercials during off-peak hours.
- 15 -
Pricing for Our Products and Services
Our revenues are derived principally from the monthly fees our customers
pay for cable services. The prices we charge vary based on the market served and
level of service selected and are usually adjusted on an annual basis. As of
December 31, 2001, the average monthly fee was $13.22 for basic service and
$23.84 for expanded basic service. A one-time installation fee, which may be
waived in part during certain promotional periods, is charged to new customers.
We believe our price practices are in accordance with Federal Communications
Commission guidelines and are consistent with those prevailing in the industry
generally. See "- Regulation and Legislation."
In accordance with the Federal Communications Commission's rules, the
prices we charge for cable-related equipment, such as set-top terminals and
remote control devices, and installation services are based on actual costs plus
a permitted rate of return.
Although our service offerings vary by market because of differences in
the bandwidth capacity of the cable systems in each of our markets and
competitive and regulatory factors, our services, when offered on a stand-alone
basis, are typically offered at monthly price ranges as follows:
[Download Table]
Service Price Range
------- -----------
Basic cable ................................. $ 9.88-$17.00
Expanded basic cable ........................ $17.00-$33.63
Premium channel ............................. $11.95-$13.95
Pay-per-view (per movie or event) ........... $ 3.95-$49.95
Digital cable video packages ................ $45.95-$85.95
High-speed Internet access by cable modem ... $29.95-$79.95
Video-on-demand (per selection) ............. $ 0.99-$12.95
Our Network Technology
As of December 31, 2001, our cable systems consisted of approximately
210,228 sheath miles, including approximately 43,046 sheath miles of fiber optic
cable, passing approximately 11.5 million households and serving approximately 7
million customers. Fiber optic cable is a communication medium that uses glass
fibers to transmit signals over long distances with minimum signal loss or
distortion.
The following table describes the current technological state of our
systems as of December 31, 2001 and the anticipated progress of planned upgrades
through 2003, based on the percentage of our customers who will have access to
the bandwidths listed below and two-way capability:
[Enlarge/Download Table]
550 megahertz
Less than to Two-way
550 megahertz 660 megahertz 750 megahertz 870 megahertz capability
------------- ------------- ------------- ------------- ----------
December 31, 2001 ....... 19.7% 9.6% 40.7% 30.0% 73.1%
December 31, 2002 ....... 9.3% 6.2% 40.8% 43.8% 86.1%
December 31, 2003 ....... 7.8% 4.9% 40.4% 46.9% 88.5%
We have adopted the hybrid fiber coaxial cable (HFC) architecture as the
standard for our ongoing systems upgrades. HFC architecture combines the use of
fiber optic cable with coaxial cable. Fiber optic cable has excellent broadband
frequency characteristics, noise immunity and physical durability and can carry
hundreds of video, data and voice channels over extended distances. Coaxial
cable is less expensive and requires a more extensive signal amplification in
order to obtain the desired transmission levels for delivering channels. In most
systems, we deliver our signals via fiber optic cable from the headend to a
group of nodes, and use coaxial cable to deliver the signal from individual
nodes to the homes passed served by that node. Our system design enables a
maximum of 500 homes passed to be served by a single node. Currently, our
average node serves approximately 380 homes passed. Our system design provides
for six strands of fiber to each node, with two strands activated and four
strands reserved for future services (sometimes referred to as "dark fiber"). We
believe that this hybrid network design provides high capacity and superior
signal quality, and will enable us to provide the newest forms of
telecommunications services to our customers. It also provides reserve capacity
for the addition of future services.
- 16 -
The primary advantages of HFC architecture over traditional coaxial-only
cable networks include:
o increased bandwidth capacity, for more channels and other services;
o dedicated bandwidth for two-way services, which avoids reverse
signal interference problems that can otherwise occur with two-way
communication capability;
o improved picture quality and service reliability; and
o operating efficiencies resulting from a reduced number of headends.
In 2001, we established a fully operational national network operations
center to monitor our networks and ensure maximum quality of service. Monitoring
becomes increasingly important as we increase the number of customers utilizing
two-way high-speed data service. In February 2002, we acquired a fully
operational network operations center from High Speed Access Corp., which we
will convert into a regional network operations center. By December 31, 2003, we
expect to operate nine regional operations centers that will focus on local
network operations. These regional operations centers will be either new
facilities or conversions of existing facilities.
Management of Our Systems
Our operating philosophy emphasizes decentralized management, with
decisions being made as close to the customer as possible. In January 2002, we
restructured from two to three operating divisions and consolidated from twelve
to ten operating regions; the existing Eastern Division was subdivided into four
operating regions; the Western Division was subdivided into three operating
regions; and the Midwest Division was subdivided into three operating regions.
Each of the three divisions is managed by a Senior Vice President, who is
responsible for the overall supervision of the operating regions within the
division. Each operating region is separately managed and supported by
operational, marketing and engineering personnel at the regional and local
system level.
Our consolidation of certain functions at the regional level has resulted
in numerous operating efficiencies and superior customer care. At the same time,
our centralized financial management by our corporate office enables us to set
financial and operating benchmarks and monitor system performance on an ongoing
basis. Our corporate office also performs certain financial functions such as
accounting, finance and acquisitions, payroll and benefit administration,
internal audit, purchasing and programming contract administration on a
centralized basis.
Markets
We provide our cable and other services throughout 40 of the 48
continental United States, with approximately 80% of our customers located in 14
states. The following table shows our major strategic markets and the number of
basic customers in each of these markets as of December 31, 2001:
[Download Table]
Number of
Market Basic Customers
------ ---------------
Los Angeles, California 521,000
St. Louis, Missouri 512,000
Greenville/Spartanville, South Carolina 333,000
Madison, Wisconsin 237,000
Atlanta, Georgia 232,000
Charleston, West Virginia 193,000
Fort Worth, Texas 190,000
Birmingham, Alabama 170,000
Worcester, Massachusetts 155,000
Reno, Nevada 151,000
Hickory, North Carolina 133,000
Kingsport, Tennessee 129,000
Bay City, Michigan 120,000
- 17 -
[Download Table]
Fond du Lac, Wisconsin 111,000
-----------
Total 3,187,000
===========
Sales and Marketing
We have a strong team responsible for overseeing the sales and the
marketing strategies of our individual systems. We have a dedicated marketing
manager in each of our significant systems, while smaller systems are handled
regionally. We believe our success in marketing comes in large part from new and
innovative ideas and from good interaction, quick information flow and sharing
of best practices between our corporate office, which handles programs and
administration, and our field offices, which implement the various programs. In
addition, we constantly monitor the regulatory arena, customer perception,
competition, pricing and product preferences to increase our responsiveness to
our customers.
Our long-term marketing objective is to increase our revenue growth per
household. We hope that customers will come to view their cable connection as
the best "pipeline" to the home for a multitude of services. To achieve this
objective, we are pursuing the following strategies:
o package product offerings to promote the sale of multiple advanced
and premium services, provide an attractive price/value relationship
to our customers, and enable greater opportunity for customer
entertainment and information choices;
o increase the number of residential consumers who subscribe to
digital service, which enables them to receive a greater variety of
television channels and interactive services;
o increase the number of systems where our advanced products and
services are available;
o be a market leader in the introduction of new advanced products and
services;
o educate customers about the advantages offered by advanced products
and services;
o target marketing opportunities based on geodemographic data and past
purchasing behavior; and
o employ Charter branding of products to promote customer awareness
and loyalty, including retention of Dan Aykroyd as celebrity
spokesperson.
We invest significant amounts of time, effort and financial resources in
marketing new and existing services. To increase customer penetration and
increase the level of services used by our customers, we use coordinated
marketing techniques, including door-to-door solicitation, media advertising,
e-marketing, and proprietary locations. We have developed specialized programs
to attract customers who have never subscribed for cable services and customers
of competitive services. In 2001, we began to sell our services through consumer
electronics retailers and other retailers that sell televisions or cable modems.
Customer Care
Maximizing customer satisfaction is a key element of our business
strategy. In support of our commitment to customer satisfaction, we operate a
24-hour customer service hotline for nearly all of our systems and offer on-time
installation and service guarantees.
To better serve our customers, we are consolidating some of our local
customer care functions at the regional level. As of December 31, 2001, the ten
largest customer contact centers handled approximately 38% of our customers. In
February 2002, through our acquisition of the high-speed Internet access assets
of High Speed Access, we acquired an additional customer contact center
dedicated to serving cable modem high-speed Internet access customers. By
establishing regional customer contact centers, we are able to service our
customers 24 hours a day, seven days a week, with highly trained personnel.
These regional centers utilize state-of-the-art equipment that enhances all
interactions with our customers and provides a high-performance employee
environment. Our customer care specialists receive extensive training to develop
customer contact skills and product knowledge that are critical to high rates of
customer retention as
- 18 -
well as to selling additional services and higher levels of service to our
customers. We expect that our customer care functions will benefit from the
additional technologies available as our national and regional network
operations centers open in the related area. We utilize surveys, focus groups
and other research tools as part of our efforts to determine and respond to
customer needs.
Consistent with our focus on customer satisfaction, we have implemented
stringent customer care standards that we believe meet or exceed those
established by the National Cable Television Association, the Washington,
D.C.-based trade association for the cable industry.
Programming
General. We believe that offering a wide variety of conveniently scheduled
programming is an important factor influencing a customer's decision to
subscribe to and retain our cable services. We devote considerable resources to
obtaining access to a wide range of programming that we believe will appeal to
both existing and potential customers. We rely on extensive market research,
customer demographics and local programming preferences to determine channel
offerings in each of our markets. We obtain basic and premium programming from a
number of suppliers, usually pursuant to a written contract. Our programming
contracts generally continue for a fixed period of time, usually from three to
ten years, and are subject to negotiated renewal. Some program suppliers offer
financial support for the launch of a new channel and ongoing marketing support.
We also try to negotiate volume discount pricing structures.
Costs. Programming tends to be made available to us for a flat fee per
customer. However, some channels are available without cost to us. In connection
with the launch of a new channel, we may receive a distribution fee to support
the channel launch. For home shopping channels, we receive a percentage of the
amount spent in home shopping purchases by our customers on channels we carry.
Our cable programming costs have increased in recent years and are
expected to continue to increase due to factors including:
o additional programming being provided to customers as a result of
system rebuilds that increase channel capacity;
o increased cost to produce or purchase cable programming;
o inflationary or negotiated annual increases; and
o system acquisitions that increase the number of customers.
In every year we have operated, our costs to acquire programming have
exceeded customary inflationary and cost-of-living type increases. In
particular, sports programming costs have increased significantly over the past
several years. In addition, contracts to purchase sports programming sometimes
contain built-in cost increases for programming added during the term of the
contract.
Under rate regulations of the Federal Communications Commission, cable
operators may increase their rates to customers to cover increased costs for
programming, subject to certain limitations. See "-Regulation and Legislation."
Franchises
As of December 31, 2001, our systems operated pursuant to a total of
approximately 4,570 franchises, permits and similar authorizations issued by
local and state governmental authorities. Each franchise is awarded by a
governmental authority and is usually not transferable unless the granting
governmental authority consents. Most franchises are subject to termination
proceedings in the event of a material breach. In addition, most franchises
require us to pay the granting authority a franchise fee of up to 5.0% of gross
revenues, which is the maximum amount that may be charged under the applicable
federal law.
Prior to the scheduled expiration of most franchises, we initiate renewal
proceedings with the granting authorities. This process usually takes three
years but can take a longer period of time. The Communications Act provides for
an
- 19 -
orderly franchise renewal process in which granting authorities may not
unreasonably withhold renewals. If a renewal is withheld and the granting
authority takes over operation of the affected cable system or awards the cable
franchise to another party, the granting authority must pay the existing cable
operator the "fair market value" of the physical system assets. However, there
is no requirement that the granting authority take over the operation or award
it to another party. The Communications Act also established comprehensive
renewal procedures requiring that an incumbent franchisee's renewal application
be evaluated on its own merit and not as part of a comparative process with
competing applications. In connection with the franchise renewal process, many
governmental authorities require the cable operator to make certain commitments,
such as technological upgrades to the system. Although historically we have been
able to renew our franchises without incurring significant costs, we cannot
assure you that any particular franchise will be renewed or that it can be
renewed on commercially favorable terms. Our failure to obtain renewals of our
franchises, especially those in major metropolitan areas where we have the most
customers, would have a material adverse effect on our business, results of
operations and financial condition. Approximately 37% of our franchises covering
approximately 37% of our basic cable customers expire within five years of
December 31, 2001.
Under the 1996 Telecom Act, state and local authorities are prohibited
from limiting, restricting or conditioning the provision of telecommunications
services. They may, however, impose "competitively neutral" requirements and
manage the public rights-of-way. Granting authorities may not require a cable
operator to provide telecommunications services or facilities, other than
institutional networks, as a condition of an initial franchise grant, a
franchise renewal, or a franchise transfer. The 1996 Telecom Act also limits
franchise fees to an operator's cable-related revenues and clarifies that they
do not apply to revenues that a cable operator derives from providing new
telecommunications services. In a March 2002 decision, the Federal
Communications Commission tentatively held that a cable operator's provision of
Internet access service should not subject the operator to additional
franchising requirements nor should the revenue derived from such service be
subject to local franchise fee assessments.
We believe our relations with the franchising authorities under which our
systems are operated are generally good. Substantially all of the material
franchises relating to our systems which are eligible for renewal have been
renewed or extended at or prior to their stated expiration dates.
Competition
We face competition in the areas of price, products and services, and
service reliability. We compete with other providers of television signals and
other sources of home entertainment. In addition, as we expand into additional
services such as high-speed Internet access, interactive services and telephony,
we face competition from other providers of each type of service. We operate in
a very competitive business environment which can adversely affect our business
and operations.
Through business developments such as the merger of Tele-Communications,
Inc. and AT&T and the merger of America Online, Inc. (AOL) and Time Warner Inc.,
customers have come to expect a variety of services from a single provider.
While these mergers are not expected to have a direct or immediate impact on our
business, they encourage providers of cable and telecommunications services to
expand their service offerings. They also encourage consolidation in the cable
industry, such as the proposed merger of AT&T Broadband with Comcast Corp., the
largest and third largest cable providers in the country, as cable operators
recognize the competitive benefits of a large customer base and expanded
financial resources.
Our key competitors include:
DBS. Direct broadcast satellite, known as DBS, is a significant competitor
to cable systems. The DBS industry has grown rapidly over the last several
years, far exceeding the growth rate of the cable television industry, and now
serves more than 17 million subscribers nationwide. DBS service allows the
subscriber to receive video and high-speed Internet access services directly via
satellite using a relatively small dish antenna. Moreover, video compression
technology allows DBS providers to offer more than 100 digital channels, thereby
surpassing the typical analog cable system.
DBS companies historically were prohibited from retransmitting popular
local broadcast programming. However, a change to the copyright laws in 1999
eliminated this legal impediment. As a result, DBS companies now may retransmit
such programming, once they have secured retransmission consent from the popular
broadcast stations they wish to carry, and they faced mandatory carriage
obligations of less popular broadcast stations as of January 2002. In response
to the legislation, DirecTV, Inc. and EchoStar Communications Corporation have
begun carrying the major network stations in
- 20 -
the nation's top television markets. DBS, however, is limited in the local
programming it can provide because of the current capacity limitations of
satellite technology, and the DBS companies currently offer local broadcast
programming only in the larger U.S. markets. The DBS industry initiated a
judicial challenge to the 2002 requirement mandating carriage of less popular
broadcast stations. This lawsuit alleges that the requirement (similar to the
one applicable to cable systems) is unconstitutional. The federal district court
and circuit court both rejected the DBS industry's constitutional challenge, but
the industry is now seeking review by the U.S. Supreme Court.
In October 2001, EchoStar and DirecTV, the two largest DBS providers in
the country, announced EchoStar's planned merger with DirecTV, subject to, among
other things, regulatory approval. If approved by regulators and consummated,
the proposed merger would provide expanded transmission capacity for a single
company serving more than 17 million customers. It is unclear what impact the
consolidation of these two companies will have on the competition we face from
the DBS industry. EchoStar and DirecTV have announced, however, that the merger
would afford the surviving entity sufficient capacity to expand the carriage of
local broadcast programming to every U.S. television market.
DSL. The deployment of digital subscriber line technology, known as DSL,
allows Internet access to subscribers at data transmission speeds greater than
available over conventional telephone lines. DSL service therefore is
competitive with high-speed Internet access over cable systems. Several
telephone companies and other companies offer DSL service. There are bills now
before Congress that would reduce regulation of Internet services offered by
incumbent telephone companies, and the Federal Communications Commission
recently initiated a rulemaking proceeding that could materially reduce existing
regulation of DSL service, essentially freeing such service from traditional
telecommunications regulation. The Federal Communications Commission's decisions
and policies in this area are subject to change. We cannot predict the
likelihood of success of the Internet access services offered by our
competitors, or the impact on our business and operations of these competitive
ventures.
DSL and other forms of high-speed Internet access provide competition to
our own provision of Internet access. For example, EchoStar and DirecTV have
both begun the provision of high-speed Internet access to residential consumers.
High-speed Internet access also facilitates the streaming of video into homes
and businesses. As the quality and availability of video streaming over the
Internet improve, video streaming may compete with the traditional delivery of
video programming services over cable systems. It is possible that programming
suppliers will consider bypassing cable operators and market their services
directly to the consumer through video streaming over the Internet.
Broadcast Television. Cable television has long competed with broadcast
television, which consists of television signals that the viewer is able to
receive without charge using an "off-air" antenna. The extent of such
competition is dependent upon the quality and quantity of broadcast signals
available through "off-air" reception compared to the services provided by the
local cable system. The recent licensing of digital spectrum by the Federal
Communications Commission will provide incumbent television licenses with the
ability to deliver high definition television pictures and multiple
digital-quality program streams, as well as advanced digital services such as
subscription video and data transmission.
Traditional Overbuilds. Cable television systems are operated under
non-exclusive franchises granted by local authorities. More than one cable
system may legally be built in the same area. It is possible that a franchising
authority might grant a second franchise to another cable operator and that such
a franchise might contain terms and conditions more favorable than those
afforded us. In addition, entities willing to establish an open video system,
under which they offer unaffiliated programmers non-discriminatory access to a
portion of the system's cable system, may be able to avoid local franchising
requirements. Well-financed businesses from outside the cable industry, such as
public utilities that already possess fiber optic and other transmission lines
in the areas they serve, may over time become competitors. There are a number of
cities that have constructed their own cable systems, in a manner similar to
city-provided utility services. There also has been interest in traditional
overbuilds by private companies. Constructing a competing cable system is a
capital intensive process which involves a high degree of risk. We believe that
in order to be successful, a competitor's overbuild would need to be able to
serve the homes and businesses in the overbuilt area on a more cost-effective
basis than us. Any such overbuild operation would require either significant
access to capital or access to facilities already in place that are capable of
delivering cable television programming.
As of December 31, 2001, we are aware of overbuild situations impacting
approximately 3.5% of our total basic customers, and potential overbuild
situations in areas servicing approximately 4.6% of our total basic customers,
together representing a total of approximately 8.1% of our basic customers.
Additional overbuild situations may occur in other systems. In response to such
overbuilds, these systems have been designated priorities for the upgrade of
cable plant and
- 21 -
the launch of new and enhanced services. As of December 31, 2001, we have
upgraded many of these systems to at least 750 megahertz two-way HFC
architecture.
Telephone Companies and Utilities. The competitive environment has been
significantly affected by technological developments and regulatory changes
enacted under the 1996 Telecom Act, which was designed to enhance competition in
the cable television and local telephone markets. Federal cross-ownership
restrictions historically limited entry by local telephone companies into the
cable business. The 1996 Telecom Act modified this cross-ownership restriction,
making it possible for local exchange carriers, who have considerable resources,
to provide a wide variety of video services competitive with services offered by
cable systems.
Several telephone companies have obtained or are seeking cable franchises
from local governmental authorities and are constructing cable systems. Some
local exchange carriers may choose to make broadband services available under
the open video regulatory framework of the Federal Communications Commission or
through wireless technology. In addition, local exchange carriers provide
facilities for the transmission and distribution of voice and data services,
including Internet services, in competition with our existing or potential
interactive services ventures and businesses. We cannot predict the likelihood
of success of the broadband services offered by our competitors or the impact on
us of such competitive ventures. Although enthusiasm on the part of local
exchange carriers appears to have waned in recent months, the entry of telephone
companies as direct competitors in the video marketplace may become more
widespread and could adversely affect the profitability and valuation of
established cable systems.
As we expand our offerings to include Internet access and other
telecommunications services, we will be subject to competition from other
telecommunications providers. The telecommunications industry is highly
competitive and includes competitors with greater financial and personnel
resources, who have brand name recognition and long-standing relationships with
regulatory authorities and customers. Moreover, mergers, joint ventures and
alliances among franchise, wireless or private cable operators, local exchange
carriers and others may result in providers capable of offering cable
television, Internet, and telecommunications services in direct competition with
us.
Additionally, we are subject to competition from utilities which possess
fiber optic transmission lines capable of transmitting signals with minimal
signal distortion.
Private Cable. Additional competition is posed by satellite master antenna
television systems known as "SMATV systems" serving multiple dwelling units,
referred to in the cable industry as "MDUs", such as condominiums, apartment
complexes, and private residential communities. These private cable systems may
enter into exclusive agreements with such MDUs, which may preclude operators of
franchise systems from serving residents of such private complexes. Private
cable systems can offer both improved reception of local television stations and
many of the same satellite-delivered program services which are offered by cable
systems. SMATV systems currently benefit from operating advantages not available
to franchised cable systems, including fewer regulatory burdens and no
requirement to service low density or economically depressed communities.
Exemption from regulation may provide a competitive advantage to certain of our
current and potential competitors. The Federal Communications Commission ruled
in 1998 that private cable operators can lease video distribution capacity from
local telephone companies and distribute cable programming services over public
rights-of-way without obtaining a cable franchise. In 1999, both the Fifth and
Seventh Circuit Courts of Appeals upheld this Federal Communications Commission
policy.
Wireless Distribution. Cable television systems also compete with wireless
program distribution services such as multi-channel multipoint distribution
systems or "wireless cable," known as MMDS. MMDS uses low-power microwave
frequencies to transmit television programming over-the-air to paying customers.
Wireless distribution services generally provide many of the programming
services provided by cable systems, and digital compression technology is likely
to increase significantly the channel capacity of their systems. Both analog and
digital MMDS services require unobstructed "line of sight" transmission paths.
Regulation and Legislation
The following summary addresses the key regulatory developments and
legislation affecting the cable industry.
The operation of a cable system is extensively regulated by the Federal
Communications Commission, some state governments and most local governments.
The Federal Communications Commission has the authority to enforce its
regulations through the imposition of substantial fines, the issuance of cease
and desist orders and/or the imposition of other
- 22 -
administrative sanctions, such as the revocation of Federal Communications
Commission licenses needed to operate certain transmission facilities used in
connection with cable operations. The 1996 Telecom Act altered the regulatory
structure governing the nation's communications providers. It removed barriers
to competition in both the cable television market and the local telephone
market. Among other things, it reduced the scope of cable rate regulation and
encouraged additional competition in the video programming industry by allowing
local telephone companies to provide video programming in their own telephone
service areas.
The 1996 Telecom Act required the Federal Communications Commission to
undertake a host of implementing rulemakings. Moreover, Congress and the Federal
Communications Commission have frequently revisited the subject of cable
regulation. Future legislative and regulatory changes could adversely affect our
operations.
Cable Rate Regulation. The 1992 Cable Act imposed an extensive rate
regulation regime on the cable television industry, which limited the ability of
cable companies to increase subscriber fees. Under that regime, all cable
systems were subjected to rate regulation, unless they faced "effective
competition" in their local franchise area. Federal law defines "effective
competition" on a community-specific basis as requiring satisfaction of certain
conditions. These conditions are not typically satisfied in the current
marketplace; hence, most cable systems potentially are subject to rate
regulation. However, with the rapid growth of DBS, it is likely that additional
cable systems will soon qualify for "effective competition" and thereby avoid
further rate regulation.
Although the Federal Communications Commission established the underlying
regulatory scheme, local government units, commonly referred to as local
franchising authorities, are primarily responsible for administering the
regulation of the lowest level of cable service - the basic service tier, which
typically contains local broadcast stations and public, educational, and
government access channels. Before a local franchising authority begins basic
service rate regulation, it must certify to the Federal Communications
Commission that it will follow applicable federal rules. Many local franchising
authorities have voluntarily declined to exercise their authority to regulate
basic service rates. Local franchising authorities also have primary
responsibility for regulating cable equipment rates. Under federal law, charges
for various types of cable equipment must be unbundled from each other and from
monthly charges for programming services.
As of December 31, 2001, approximately 16.3% of our local franchising
authorities were certified to regulate basic tier rates. Because the 1992 Cable
Act permits communities to become certified and regulate rates at any time, it
is possible that additional localities served by the systems may choose to
certify and regulate basic rates in the future.
For regulated cable systems, the basic service tier rate increases are
governed by a complicated price cap scheme devised by the Federal Communications
Commission that allows for the recovery of inflation and certain increased
costs, as well as providing some incentive for system upgrades. Operators also
have the opportunity to bypass this "benchmark" regulatory scheme in favor of
traditional "cost-of-service" regulation in cases where the latter methodology
appears favorable. Cost of service regulation is a traditional form of rate
regulation, under which a utility is allowed to recover its costs of providing
the regulated service, plus a reasonable profit.
With regard to cable programming service tiers, which are the expanded
basic programming packages that offer services other than basic programming and
which typically contain satellite-delivered programming, the Federal
Communications Commission historically administered rate regulation of these
tiers. Under the 1996 Telecom Act, however, the Federal Communications
Commission's authority to regulate cable programming service tier rates expired
on March 31, 1999. The Federal Communications Commission still adjudicates cable
programming service tier complaints filed prior to that date, but strictly
limits its review, and possible refund orders, to the time period prior to March
31, 1999. As of December 31, 2001, we had cable programming service tier rate
complaints relating to approximately 93 franchise areas pending at the Federal
Communications Commission. We do not believe any adjudications regarding these
complaints will have a material adverse effect on our business. The elimination
of cable programming service tier regulation affords us substantially greater
pricing flexibility.
Premium cable services offered on a per-channel or per-program basis
remain unregulated under both the 1992 Cable Act and the 1996 Telecom Act.
However, federal law requires that the basic service tier be offered to all
cable subscribers and limits the ability of operators to require purchase of any
cable programming service tier if a customer seeks to purchase premium services
offered on a per-channel or per-program basis, subject to a technology exception
which expires in October 2002. The 1996 Telecom Act also relaxes existing
"uniform rate" requirements by specifying that uniform rate requirements do not
apply where the operator faces "effective competition," and by exempting bulk
discounts
- 23 -
to multiple dwelling units, although complaints about predatory pricing still
may be made to the Federal Communications Commission.
Cable Entry into Telecommunications and Pole Attachment Rates. The 1996
Telecom Act creates a more favorable environment for us to provide
telecommunications services beyond traditional video delivery. It provides that
no state or local laws or regulations may prohibit or have the effect of
prohibiting any entity from providing any interstate or intrastate
telecommunications service. A cable operator is authorized under the 1996
Telecom Act to provide telecommunications services without obtaining a separate
local franchise. States are authorized, however, to impose "competitively
neutral" requirements regarding universal service, public safety and welfare,
service quality, and consumer protection. State and local governments also
retain their authority to manage the public rights-of-way and may require
reasonable, competitively neutral compensation for management of the public
rights-of-way when cable operators provide telecommunications service. The
favorable pole attachment rates afforded cable operators under federal law can
be gradually increased by utility companies owning the poles if the operator
provides telecommunications service, as well as cable service, over its plant.
The Federal Communications Commission clarified that a cable operator's
favorable pole rates are not endangered by the provision of Internet access, and
that approach ultimately was upheld by the United States Supreme Court.
Cable entry into telecommunications will be affected by the rulings and
regulations implementing the 1996 Telecom Act, including the rules governing
interconnection. A cable operator offering telecommunications services generally
needs efficient interconnection with other telephone companies to provide a
viable service. A number of details designed to facilitate interconnection are
subject to ongoing regulatory and judicial review, but the basic obligation of
incumbent telephone companies to interconnect with competitors, such as cable
companies offering telephone service, is well established. Even so, the economic
viability of different interconnection arrangements can be greatly affected by
regulatory changes. Consequently, we cannot predict whether reasonable
interconnection terms will be available in any particular market we may choose
to enter.
Internet Service. Over the past several years, proposals have been
advanced at the Federal Communications Commission and Congress that would
require cable operators to provide non-discriminatory access to unaffiliated
Internet service providers and online service providers. Several local
franchising authorities actually adopted mandatory "open access" requirements,
but various federal courts have rejected each of these actions, relying on
different legal theories.
In March 2002, the Federal Communications Commission ruled that cable
modem service (that is, the provision of high speed internet access over cable
system infrastructure) is an interstate information service, rather than a cable
or telecommunications service. This classification should leave cable modem
service exempt from the burdens associated with traditional cable and
telecommunications regulation. Indeed, the Federal Communications Commission
tentatively concluded that revenue earned from the provision of cable service is
not subject to local cable franchise fee assessments. With regard to the open
access question, the Federal Communications Commission specifically held that,
regardless of classification, regulatory forbearance should now apply.
The full consequences of classifying cable modem service as an interstate
information service are not yet fully known. The Federal Communications
Commission is already considering whether providers of cable modem service
should contribute to the federal government's universal service fund. This
contribution could more than offset the savings associated with excluding cable
modem service from local franchise fee assessments. The Federal Communications
Commission also initiated a rulemaking proceeding to determine whether its
jurisdiction over information services still might warrant imposition of open
access requirements in the future. Finally, the information services
classification itself is likely to be subject to judicial review. If regulators
ultimately were allowed to impose Internet access requirements on cable
operators, it could burden the capacity of cable systems and complicate our own
plans for providing Internet service.
Telephone Company Entry into Cable Television. The 1996 Telecom Act allows
telephone companies to compete directly with cable operators by repealing the
historic telephone company/cable cross-ownership ban. Local exchange carriers
can now compete with cable operators both inside and outside their telephone
service areas with certain regulatory safeguards. Because of their resources,
local exchange carriers could be formidable competitors to traditional cable
operators. Various local exchange carriers already are providing video
programming services within their telephone service areas through a variety of
distribution methods.
Under the 1996 Telecom Act, local exchange carriers or any other cable
competitor providing video programming to subscribers through broadband wire
should be regulated as a traditional cable operator, subject to local
franchising and
- 24 -
federal regulatory requirements, unless the local exchange carrier or other
cable competitor elects to deploy its broadband plant as an open video system.
To qualify for favorable open video system status, the competitor must reserve
two-thirds of the system's activated channels for unaffiliated entities. Even
then, the Federal Communications Commission revised its open video system policy
to leave franchising discretion to state and local authorities. It is unclear
what effect this ruling will have on the entities pursuing open video system
operation.
Although local exchange carriers and cable operators can now expand their
offerings across traditional service boundaries, the general prohibition remains
on local exchange carrier buyouts of cable systems serving an overlapping
territory. Cable operator buyouts of overlapping local exchange carrier systems,
and joint ventures between cable operators and local exchange carriers in the
same market, also are prohibited. The 1996 Telecom Act provides a few limited
exceptions to this buyout prohibition, including a carefully circumscribed
"rural exemption." The 1996 Telecom Act also provides the Federal Communications
Commission with the limited authority to grant waivers of the buyout
prohibition.
Electric Utility Entry into Telecommunications/Cable Television. The 1996
Telecom Act provides that registered utility holding companies and subsidiaries
may provide telecommunications services, including cable television,
notwithstanding the Public Utility Holding Company Act. Electric utilities must
establish separate subsidiaries, known as "exempt telecommunications companies"
and must apply to the Federal Communications Commission for operating authority.
Like telephone companies, electric utilities have substantial resources at their
disposal, and could be formidable competitors to traditional cable systems.
Several such utilities have been granted broad authority by the Federal
Communications Commission to engage in activities which could include the
provision of video programming.
Additional Ownership Restrictions. The 1996 Telecom Act eliminates
statutory restrictions on broadcast/cable cross-ownership, including broadcast
network/cable restrictions, but leaves in place existing Federal Communications
Commission regulations prohibiting local cross-ownership between co-located
television stations and cable systems. The District of Columbia Circuit Court of
Appeals recently struck down this remaining cross-ownership prohibition,
concluding that the Federal Communications Commission had failed to explain why
its continuation was "necessary" in the public interest. In the same decision,
the Court struck down another Federal Communications Commission regulation
precluding any entity from operating broadcast television stations serving more
than 35% of the nation. If these rulings withstand further administrative and
judicial review, they may trigger additional consolidation among domestic media
companies.
Pursuant to the 1992 Cable Act, the Federal Communications Commission
adopted rules precluding a cable system from devoting more than 40% of its
activated channel capacity to the carriage of affiliated national video program
services. Also pursuant to the 1992 Cable Act, the Federal Communications
Commission adopted rules that preclude any cable operator from serving more than
30% of all U.S. domestic multichannel video subscribers, including cable and
direct broadcast satellite subscribers. The D.C. Circuit Court of Appeals struck
down these vertical and horizontal ownership limits as unconstitutional,
concluding that the Federal Communications Commission had not adequately
justified the specific rules (i.e., the 40% and 30% figures) adopted. As a
result, an existing divestiture requirement on AT&T was suspended. The Federal
Communications Commission is now considering replacement regulations. These
ownership restrictions may be affected by the proposed merger of EchoStar and
DirecTV and the proposed merger of AT&T Broadband and Comcast Cable. These
recently announced transactions involve the nation's two largest DBS providers
and the nation's largest and third largest cable operators. The proposed
combinations might prompt additional consolidation in the cable industry and are
likely to heighten regulatory concerns regarding industry consolidation.
Although any resulting restrictions could be limited to the particular entities
involved, it is also possible that the restrictions would apply to other cable
operators, including us.
Must Carry/Retransmission Consent. The 1992 Cable Act contains broadcast
signal carriage requirements. Broadcast signal carriage is the transmission of
broadcast television signals over a cable system to cable customers. These
requirements, among other things, allow local commercial television broadcast
stations to elect once every three years between "must carry" status or
"retransmission consent" status. Less popular stations typically elect must
carry, which is the broadcast signal carriage requirement that allows local
commercial television broadcast stations to require a cable system to carry the
station. More popular stations, such as those affiliated with a national
network, typically elect retransmission consent which is the broadcast signal
carriage requirement that allows local commercial television broadcast stations
to negotiate for payments for granting permission to the cable operator to carry
the stations. Must carry requests can dilute the appeal of a cable system's
programming offerings because a cable system with limited channel capacity may
be required to forego carriage of popular channels in favor of less popular
broadcast stations electing must carry. Retransmission consent demands may
require substantial payments or other concessions. Either option has a
potentially adverse effect on our business. The burden associated with must
carry may increase substantially if broadcasters proceed
- 25 -
with planned conversion to digital transmission and the Federal Communications
Commission determines that cable systems simultaneously must carry all analog
and digital broadcasts in their entirety. This burden would reduce capacity
available for more popular video programming and new Internet and
telecommunication offerings. The Federal Communications Commission tentatively
decided against imposition of dual digital and analog must carry in a January
2001 ruling. At the same time, however, it initiated further fact-gathering
which ultimately could lead to a reconsideration of the tentative conclusion.
The Federal Communications Commission is also considering whether it should
maintain its initial ruling that, whenever a digital broadcast signal does
become eligible for must carry, a cable operator's obligation is limited to
carriage of the primary video signal. If the Commission reverses itself, and
cable operators are required to carry ancillary digital feeds, the burden
associated with digital must carry could be significantly increased.
Access Channels. Local franchising authorities can include franchise
provisions requiring cable operators to set aside certain channels for public,
educational and governmental access programming. Federal law also requires cable
systems to designate a portion of their channel capacity, up to 15% in some
cases, for commercial leased access by unaffiliated third parties. The Federal
Communications Commission has adopted rules regulating the terms, conditions and
maximum rates a cable operator may charge for commercial leased access use. We
believe that requests for commercial leased access carriages have been
relatively limited. The Federal Communications Commission rejected a request
that unaffiliated Internet service providers be found eligible for commercial
leased access.
Access to Programming. To spur the development of independent cable
programmers and competition to incumbent cable operators, the 1992 Cable Act
imposed restrictions on the dealings between cable operators and cable
programmers. Of special significance from a competitive business position, the
1992 Cable Act precludes video programmers affiliated with cable companies from
favoring their cable operators over new competitors and requires such
programmers to sell their satellite-delivered programming to other multichannel
video distributors. This provision limits the ability of vertically integrated
cable programmers to offer exclusive programming arrangements to cable
companies. This prohibition is scheduled to expire in October 2002, unless the
Federal Communications Commission determines in a pending proceeding that an
extension is necessary to protect competition and diversity. There also has been
interest expressed in further restricting the marketing practices of cable
programmers, including subjecting programmers who are not affiliated with cable
operators to all of the existing program access requirements, and subjecting
terrestrially-delivered programming (especially regional sports networks) to the
program access requirements. Terrestrially-delivered programming is programming
delivered other than by satellite and is currently exempt from the ban on
exclusivity. These changes should not have a dramatic impact on us, but would
limit potential competitive advantages we now enjoy. DBS providers have no
similar restrictions on exclusive programming contracts. Pursuant to the
Satellite Home Viewer Improvement Act, the Federal Communications Commission has
adopted regulations governing retransmission consent negotiations between
broadcasters and all multichannel video programming distributors, including
cable and DBS.
Inside Wiring; Subscriber Access. In an order issued in 1997, the Federal
Communications Commission established rules that require an incumbent cable
operator upon expiration of a multiple dwelling unit service contract to sell,
abandon, or remove "home run" wiring that was installed by the cable operator in
a multiple dwelling unit building. These inside wiring rules are expected to
assist building owners in their attempts to replace existing cable operators
with new programming providers who are willing to pay the building owner a
higher fee, where such a fee is permissible. The Federal Communications
Commission has also proposed terminating all exclusive multiple dwelling unit
service agreements held by incumbent operators, but allowing such contracts when
held by new entrants. In another proceeding, the Federal Communications
Commission has preempted restrictions on the deployment of private antennae on
property within the exclusive use of a condominium owner or tenant, such as
balconies and patios. This Federal Communications Commission ruling may limit
the extent to which we along with multiple dwelling unit owners may enforce
certain aspects of multiple dwelling unit agreements which otherwise prohibit,
for example, placement of digital broadcast satellite receiver antennae in
multiple dwelling unit areas under the exclusive occupancy of a renter. These
developments may make it even more difficult for us to provide service in
multiple dwelling unit complexes.
- 26 -
Other Regulations of the Federal Communications Commission. In addition to
the Federal Communications Commission regulations noted above, there are other
regulations of the Federal Communications Commission covering such areas as:
o subscriber privacy,
o programming practices, including, among other things,
(1) blackouts of programming offered by a distant broadcast signal
carried on a cable system which duplicates the programming for
which a local broadcast station has secured exclusive
distribution rights,
(2) local sports blackouts,
(3) indecent programming,
(4) lottery programming,
(5) political programming,
(6) sponsorship identification,
(7) children's programming advertisements, and
(8) closed captioning,
o registration of cable systems and facilities licensing,
o maintenance of various records and public inspection files,
o aeronautical frequency usage,
o lockbox availability,
o antenna structure notification,
o tower marking and lighting,
o consumer protection and customer service standards,
o technical standards,
o equal employment opportunity,
o consumer electronics equipment compatibility, and
o emergency alert systems.
The Federal Communications Commission ruled that cable customers must be
allowed to purchase set-top terminals from third parties and established a
multi-year phase-in during which security functions (which would remain in the
operator's exclusive control) would be unbundled from basic converter functions,
which could then be provided by third party vendors. The first phase
implementation date was July 1, 2000.
Additional Regulatory Policies May Be Added in the Future. The Federal
Communications Commission recently initiated an inquiry to determine whether the
cable industry's future provision of interactive services should be subject to
regulations ensuring equal access and competition among service vendors. The
inquiry, which grew out of the Commission's review of the AOL-Time Warner
merger, is in its earliest stages, but is yet another expression of regulatory
concern regarding control over cable capacity.
Copyright. Cable television systems are subject to federal copyright
licensing covering carriage of television and radio broadcast signals. In
exchange for filing certain reports and contributing a percentage of their
revenues to a federal copyright royalty pool that varies depending on the size
of the system, the number of distant broadcast television signals carried, and
the location of the cable system, cable operators can obtain blanket permission
to retransmit copyrighted material included in broadcast signals. The possible
modification or elimination of this compulsory copyright license is the
- 27 -
subject of continuing legislative review and could adversely affect our ability
to obtain desired broadcast programming. We cannot predict the outcome of this
legislative activity. Copyright clearances for nonbroadcast programming services
are arranged through private negotiations.
Cable operators distribute locally originated programming and advertising
that use music controlled by the two principal major music performing rights
organizations, the American Society of Composers, Authors and Publishers and
Broadcast Music, Inc. The cable industry has had a long series of negotiations
and adjudications with both organizations. Although we cannot predict the
ultimate outcome of these industry proceedings or the amount of any license fees
we may be required to pay for past and future use of association-controlled
music, we do not believe such license fees will be significant to our business
and operations.
State and Local Regulation. Cable systems generally are operated pursuant
to nonexclusive franchises granted by a municipality or other state or local
government entity in order to cross public rights-of-way. Federal law now
prohibits local franchising authorities from granting exclusive franchises or
from unreasonably refusing to award additional franchises. Cable franchises
generally are granted for fixed terms and in many cases include monetary
penalties for non-compliance and may be terminable if the franchisee fails to
comply with material provisions.
The specific terms and conditions of franchises vary materially between
jurisdictions. Each franchise generally contains provisions governing cable
operations, franchising fees, system construction and maintenance obligations,
system channel capacity, design and technical performance, customer service
standards, and indemnification protections. A number of states, including
Connecticut, subject cable systems to the jurisdiction of centralized state
governmental agencies, some of which impose regulation of a character similar to
that of a public utility. Although local franchising authorities have
considerable discretion in establishing franchise terms, there are certain
federal limitations. For example, local franchising authorities cannot insist on
franchise fees exceeding 5% of the system's gross cable-related revenues, cannot
dictate the particular technology used by the system, and cannot specify video
programming other than identifying broad categories of programming. Certain
states are considering the imposition of new broadly applied telecommunications
taxes.
Federal law contains renewal procedures designed to protect incumbent
franchisees against arbitrary denials of renewal. Even if a franchise is
renewed, the local franchising authority may seek to impose new and more onerous
requirements such as significant upgrades in facilities and service or increased
franchise fees as a condition of renewal. Similarly, if a local franchising
authority's consent is required for the purchase or sale of a cable system or
franchise, such local franchising authority may attempt to impose more
burdensome or onerous franchise requirements in connection with a request for
consent. Historically, most franchises have been renewed for and consents
granted to cable operators that have provided satisfactory services and have
complied with the terms of their franchise.
Under the 1996 Telecom Act, states and local franchising authorities are
prohibited from limiting, restricting, or conditioning the provision of
competitive telecommunications services, except for certain "competitively
neutral" requirements and as necessary to manage the public rights-of-way. This
law should facilitate entry into competitive telecommunications services,
although certain jurisdictions still may attempt to impose rigorous entry
requirements. In addition, local franchising authorities may not require a cable
operator to provide any telecommunications service or facilities, other than
institutional networks under certain circumstances, as a condition of an initial
franchise grant, a franchise renewal, or a franchise transfer. The 1996 Telecom
Act also provides that franchising fees are limited to an operator's
cable-related revenues and do not apply to revenues that a cable operator
derives from providing new telecommunications services. In a March 2002
decision, the Federal Communications Commission tentatively held that a cable
operator's provision of Internet access service should not subject the operator
to additional franchising requirements nor should the revenue derived from such
service be subject to local franchise fee assessments.
Employees
Pursuant to a mutual services agreement between Charter Communications,
Inc., Charter Investment, Inc. and Charter Communications Holding Company,
Charter Communications Holding Company leases the necessary personnel and
provides services to Charter Communications, Inc. to manage Charter
Communications Holding Company and its subsidiaries, including us. The mutual
services agreement provides that Charter Investment and Charter Communications
Holding Company will provide services to Charter Communications, Inc. on a cost
reimbursement basis. The corporate office includes employees of Charter
Communications, Inc. and Charter Communications Holding Company, which total
approximately 500 employees. The corporate office is responsible for
coordinating and overseeing our operations,
- 28 -
including certain critical functions, such as marketing and engineering, that
are conducted by personnel at the regional and local system level. The corporate
office also performs certain financial functions such as accounting, finance and
acquisitions, payroll and benefit administration, internal audit, purchasing and
programming contract administration on a centralized basis. See "Item 13.
Certain Relationships and Related Transactions - Management and Consulting
Arrangements."
As of December 31, 2001, we had approximately 17,200, full-time equivalent
employees, approximately 300 of which were represented by collective bargaining
agreements. We believe we have a good relationship with our employees and have
never experienced a work stoppage.
ITEM 2. PROPERTIES.
Our principal physical assets consist of a cable television distribution
plant and equipment, including signal receiving, encoding and decoding devices,
headend reception facilities, distribution systems and customer drop equipment
for each of our cable television systems.
Our cable television plant and related equipment are generally attached to
utility poles under pole rental agreements with local public utilities and
telephone companies, and in certain locations are buried in underground ducts or
trenches. We own or lease real property for signal reception sites and own most
of our service vehicles.
Our subsidiaries generally own the real property and buildings for our
regional data center, customer contact centers and our regional and divisional
administrative offices. Our subsidiaries generally have leased space for
business offices throughout our operating regions, although an increasing number
of our systems are now purchasing property for system offices. Our headend and
tower locations are located on owned or leased parcels of land, and we generally
own the towers on which our equipment is located. Charter Communications Holding
Company owns the real property and building for our principal executive offices.
The physical components of our cable systems require maintenance and
periodic upgrades to support the new services and products we introduce. We
believe that our properties are in good operating condition and are suitable for
our business operations.
ITEM 3. LEGAL PROCEEDINGS.
We are involved from time to time in routine legal matters and other
claims incidental to our business. We believe that the resolution of such
matters, taking into account established reserves and insurance, will not have a
material adverse impact on our consolidated financial position or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of our sole security holder during the
fourth quarter of the year ended December 31, 2001.
- 29 -
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(A) Market Information
Our equity interests are not publicly traded.
(B) Holders
All of the membership interests of Charter Holdings are owned by Charter
Communications Holding Company. All of the outstanding capital stock of Charter
Capital is owned by Charter Holdings.
(C) Dividends
None.
(D) Recent Sales of Unregistered Securities
No unregistered equity securities of Charter Holdings were sold by Charter
Holdings during the fourth quarter of the year ended December 31, 2001. No
unregistered equity securities of Charter Capital were sold by Charter Capital
during the fourth quarter of the year ended December 31, 2001. For information
regarding securities issued under the equity compensation plans of Charter
Communications, Inc., see "Item 12. Security Ownership of Certain Beneficial
Owners and Management - Securities Authorized for Issuance under Equity
Compensation Plans."
ITEM 6. SELECTED FINANCIAL DATA.
The following table presents selected financial data for the periods
indicated (dollars in thousands):
[Enlarge/Download Table]
CHARTER COMMUNICATIONS HOLDINGS, LLC
-------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 12/24/98 1/1/98 YEAR ENDED
---------------------------------------------- THROUGH THROUGH DECEMBER 31,
2001 2000 1999 12/31/98 12/23/98 1997
------------ ------------ ------------ ----------- --------- ------------
Statement of Operations Data:
Revenues $ 3,953,132 $ 3,249,222 $ 1,428,090 $ 13,713 $ 49,731 $ 18,867
------------ ------------ ------------ ----------- --------- ------------
Operating Expenses:
Operating, general and
administrative 2,110,043 1,650,918 737,957 7,134 25,952 11,767
Depreciation and amortization 3,010,068 2,462,544 745,315 8,318 16,864 6,103
Option compensation expense (51,839) 40,978 79,979 845 -- --
Corporate expenses 56,930 55,243 51,428 473 6,176 566
Special charges 17,629 -- -- -- -- --
------------ ------------ ------------ ----------- --------- ----------
Operating expenses 5,142,831 4,209,683 1,614,679 16,770 48,992 18,436
------------ ------------ ------------ ----------- --------- ----------
Income (loss) from operations (1,189,699) (960,461) (186,589) (3,057) 739 431
Interest expense (1,260,396) (1,065,236) (471,871) (2,353) (17,277) (5,120)
Interest income 8,766 6,679 18,821 133 44 41
Loss on equity investments (48,957) (10,963) -- -- -- --
Other income (expense) (90,661) (6,540) (245) -- (728) 25
------------ ------------ ------------ ----------- --------- ----------
Loss before income taxes, minority
interest and extraordinary item (2,580,947) (2,036,521) (639,884) (5,277) (17,222) (4,623)
Income tax expense -- -- (1,030) -- -- --
------------ ------------ ------------ ----------- --------- ----------
Loss before minority interest and
extraordinary item (2,580,947) (2,036,521) (640,914) (5,277) (17,222) (4,623)
Minority interest expense (12,828) (11,038) -- -- -- --
------------ ------------ ------------ ----------- --------- ----------
Loss before extraordinary item (2,593,775) (2,047,559) (640,914) (5,277) (17,222) (4,623)
------------ ------------ ------------ ----------- --------- ----------
Extraordinary item - Loss on early
extinguishment of debt -- -- (7,794) -- -- --
------------ ------------ ------------ ----------- --------- ----------
Net loss $ (2,593,775) $ (2,047,559) $ (648,708) $ (5,277) $ (17,222) $ (4,623)
============ ============ ============ =========== ========= ==========
- 30 -
[Enlarge/Download Table]
Balance Sheet Data (end of period):
Total assets $ 24,722,927 $ 22,982,177 $ 18,939,477 $ 4,335,527 $ 281,969 $ 55,811
Total debt 14,960,373 12,310,455 8,936,455 2,002,206 274,698 41,500
Minority interest 676,028 640,526 -- -- -- --
Member's equity (deficit) 7,283,685 8,383,863 8,047,953 830 (8,397) (1,975)
Comparability of the above information from year to year is affected by
acquisitions and dispositions completed by us. See Note 3 to our consolidated
financial statements included with this Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Reference is made to "Certain Trends and Uncertainties" of this section
and Exhibit 99.1 "Risk Factors" which describes important factors that could
cause actual results to differ from expectations and non-historical information
contained herein. In addition, this section should be read in conjunction with
the audited consolidated financial statements of Charter Communications
Holdings, LLC and subsidiaries as of and for the years ended December 31, 2001,
2000 and 1999.
Introduction
We do not believe that our historical financial condition and results of
operations are accurate indicators of future results because of certain
significant past events. Those events include numerous mergers, acquisitions,
debt financing transactions and capital contributions over the last several
years.
Prior to the acquisition of the Charter companies by Mr. Allen on December
23, 1998 and the merger of Marcus Holdings with and into Charter Holdings
effective April 7, 1999, the cable systems of the Charter and Marcus companies
were operated under four groups of companies. Three of these groups were
comprised of companies that were managed by Charter Investment and in which
Charter Investment had an ownership interest: (i) Charter Communications
Properties Holdings, LLC (CCPH); (ii) CCA Group; and (iii) CharterComm Holdings,
LLC. The fourth group was comprised of companies that were subsidiaries of
Marcus Holdings which Charter Investment began managing in October 1998. In
April 1998, Mr. Allen acquired approximately 99% of the non-voting economic
interests in Marcus Cable and agreed to acquire the remaining interests.
Mr. Allen's acquisition of the Charter companies became effective on
December 23, 1998, through a series of transactions in which Mr. Allen acquired
approximately 94% of the equity interests of Charter Investment for an aggregate
purchase price of $2.2 billion, excluding $2.0 billion in assumed debt. CCPH and
the operating companies that formerly comprised CCA Group and CharterComm
Holdings were contributed to Charter Operating subsequent to Mr. Allen's
acquisition. CCPH is deemed to be our predecessor. Consequently, the
contribution of CCPH was accounted for as a reorganization under common control.
Accordingly, our results of operations for periods prior to and including
December 23, 1998 include the accounts of CCPH. The contributions of the
operating companies that formerly comprised CCA Group and CharterComm Holdings
were accounted for in accordance with purchase accounting. Accordingly, our
results of operations for periods after December 23, 1998 include the accounts
of CCPH, CCA Group and CharterComm Holdings.
In February 1999, Charter Holdings was formed as a wholly owned subsidiary
of Charter Investment, and Charter Operating was formed as a wholly owned
subsidiary of Charter Holdings. All of Charter Investment's direct interests in
the entities described above were transferred to Charter Operating. All of the
prior management agreements were terminated, and a single new management
agreement was entered into between Charter Investment and Charter Operating to
cover all of the subsidiaries.
In March 1999, all of Mr. Allen's interests in Marcus Cable were
transferred to Marcus Holdings, a then newly-formed company. Later in March
1999, Mr. Allen acquired the remaining interests in Marcus Cable, including
voting control, which interests were transferred to Marcus Holdings. In April
1999, Mr. Allen merged Marcus Holdings into Charter Holdings and the operating
subsidiaries of Marcus Holdings and all of the cable systems they owned came
under the ownership of Charter Holdings and, in turn, Charter Operating. For
financial reporting purposes, the merger of Marcus Holdings with and into
Charter Holdings was accounted for as an acquisition of Marcus Holdings
effective March 31, 1999, and accordingly, the results of operations of Marcus
Holdings have been included in our consolidated financial statements since that
date.
- 31 -
In May 1999, Charter Communications Holding Company was formed as a wholly
owned subsidiary of Charter Investment. All of Charter Investment's interests in
Charter Holdings were transferred to Charter Communications Holding Company. In
July 1999, Charter Communications, Inc. was formed as a wholly owned subsidiary
of Charter Investment.
In November 1999, Charter Communications, Inc. conducted its initial
public offering. In the initial public offering, substantially all of the equity
interests in Charter Communications, Inc. were sold to the public, and less than
1% of its equity interests were sold to Mr. Allen. Charter Communications, Inc.
contributed substantially all of the proceeds of its initial public offering to
Charter Communications Holding Company, which issued membership units to Charter
Communications, Inc. In November 1999, the management agreement between Charter
Investment and Charter Operating was amended and assigned from Charter
Investment to Charter Communications, Inc. Also in November 1999, Charter
Communications Holding Company sold membership units to Vulcan Cable III. Our
organizational structure is very complex and is described in more detail in
"Item 1. Business."
Operating through our subsidiaries, we are the fourth largest operator of
cable systems in the United States. Through our broadband network of coaxial and
fiber optic cable, we provide video, data, interactive and private business
network services to approximately 7 million customers in 40 states. We seek to
be a market leader in the introduction and distribution of advanced products and
services. We currently offer advanced video and interactive services, as well as
high-speed Internet access data services. Using digital technology, we are able
to offer additional video channels to our standard, premium and pay-per-view
line-up, including programming of local interest, as well as digital music
services. In addition, we offer interactive video programming, including
video-on-demand, virtual interactive channels accessible on television through a
web-like screen, and an interactive program guide to access television program
listings by channel, time, date or programming type. In 2002, we expect to offer
several new advanced products and services in targeted markets, including an
advanced media center terminal that enables digital video recorder capability,
home networking and internet-access over the television; wireless home
networking; and an enhanced customized internet portal, with a customized
browser and charter.com e-mail. In 2002, we began to offer telephony on a
limited basis through our broadband network using circuit-based switch
technology and will continue with trials of our voice-over Internet protocol
telephony. Digital television and its related suite of interactive services, as
well as high-speed cable modem Internet access, provide additional value and
product differentiation, both to us and to our customers, and as a result, are
instrumental in solidifying the relationship with our customers.
Acquisitions
During the three-year period ended December 31, 2001, Charter
Communications, Inc. and its subsidiaries completed a total of 18 acquisitions
for an aggregate purchase price of $16.6 billion, including aggregate cash
payments of $10.9 billion, $3.3 billion of assumed debt and $2.4 billion of
securities issued and other consideration paid. These acquisitions were funded
through the issuances of equity by our parent companies, issuances of long-term
debt, bank borrowings, capital contributions from our parent company, the
assumption of outstanding debt amounts and internally generated funds. In 2000,
Charter Communications Holding Company transferred the cable systems it acquired
in three of those acquisitions (Fanch, Falcon and Avalon) to Charter Holdings.
The systems acquired in the Bresnan, Kalamazoo and Cable USA transactions were
contributed to us immediately following the acquisition by our parent companies.
All acquisitions were accounted for under the purchase method of accounting and
results of operations were included in our consolidated financial statements
from their respective dates of acquisition.
The following table sets forth information regarding our acquisitions in
1999, 2000 and 2001:
[Enlarge/Download Table]
PURCHASE PRICE (IN MILLIONS)
--------------------------------------------------------
SECURITIES
ACQUISITION CASH ASSUMED ISSUED/OTHER TOTAL ACQUIRED
DATE PAID DEBT CONSIDERATION PRICE CUSTOMERS
----------- ------- ------- ------------- ------- ---------
Renaissance ............................ 4/99 $ 348 $ 111 $ -- $ 459 134,000
American Cable ......................... 5/99 240 -- -- 240 69,000
Greater Media Systems .................. 6/99 500 -- -- 500 176,000
Helicon ................................ 7/99 410 115 25(a) 550 171,000
Vista .................................. 7/99 126 -- -- 126 26,000
Cable Satellite ........................ 8/99 22 -- -- 22 9,000
Rifkin ................................. 9/99 1,200 128 133(b) 1,461 463,000
InterMedia ............................. 10/99 873 -- 420(c) 1,293 278,000
------- ------ ------ ------- ---------
Total 1999 Acquisitions .......... $ 3,719 $ 354 $ 578 $ 4,651 1,326,000
======= ====== ====== ======= =========
- 32 -
[Enlarge/Download Table]
PURCHASE PRICE (IN MILLIONS)
--------------------------------------------------------
SECURITIES
ACQUISITION CASH ASSUMED ISSUED/OTHER TOTAL ACQUIRED
DATE PAID DEBT CONSIDERATION PRICE CUSTOMERS
----------- ------- ------- ------------- ------- ---------
Fanch .................................. 1/00 2,400 -- -- 2,400 535,600
Falcon ................................. 1/00 1,250 1,700 550(d) 3,500 977,200
Avalon ................................. 1/00 558 274 -- 832 270,800
Interlake .............................. 1/00 13 -- -- 13 6,000
Bresnan ................................ 2/00 1,100 963 1,014(e) 3,077 695,800
Capital Cable .......................... 4/00 60 -- -- 60 23,200
Farmington ............................. 4/00 15 -- -- 15 5,700
Kalamazoo .............................. 9/00 -- -- 171(f) 171 50,700
------- ------ ------ ------- ---------
Total 2000 Acquisitions .......... $ 5,396 $2,937 $1,735 $10,068 2,565,000
======= ====== ====== ======= =========
AT&T Systems ........................... 6/01 $ 1,711 $ -- $ 25(g) $ 1,736(g) 551,100
Cable USA .............................. 8/01 45 -- 55(h) 100 30,600
------- ------ ------ ------- ---------
Total 2001 Acquisitions ............. $ 1,756 $ -- $ 80 $ 1,836 581,700
------- ------ ------ ------- ---------
Total 1999-2001 Acquisitions ..... $10,871 $3,291 $2,393 $16,555 4,472,700
======= ====== ====== ======= =========
----------
(a) Represents a preferred limited liability company interest in
Charter-Helicon, LLC, an indirect wholly owned subsidiary.
(b) Relates to preferred equity in Charter Communications Holding Company,
approximately $130.3 million, excluding accrued dividends, of which was
subsequently exchanged for shares of Charter Communications, Inc. Class A
common stock.
(c) As part of this transaction, we agreed to "swap" certain of our
non-strategic cable systems serving customers in Indiana, Montana, Utah
and Northern Kentucky valued at $420.0 million.
(d) Relates to common membership units in Charter Communications Holding
Company issued to certain of the Falcon sellers, which were subsequently
exchanged for shares of Charter Communications, Inc. Class A common stock.
(e) Comprised of $384.6 million in equity in Charter Communications Holding
Company and $629.5 million of equity in CC VIII.
(f) In connection with this transaction, Charter Communications, Inc. acquired
all of the outstanding stock of Cablevision of Michigan in exchange for
11,173,376 shares of Charter Communications, Inc. Class A common stock.
(g) Comprised of $1.7 billion, as adjusted, in cash and a cable system located
in Florida valued at $25.1 million, as adjusted post-closing.
(h) In connection with this transaction, Charter Communications, Inc. and
Charter Communications Holding Company acquired all of the outstanding
stock of Cable USA and the assets of related affiliates in exchange for
cash and 505,664 shares of Charter Communications, Inc. Series A
Convertible Redeemable Preferred Stock.
AT&T Transactions. In February 2001, Charter Communications, Inc. and
certain of our subsidiaries entered into several agreements with AT&T Broadband,
LLC and certain of its affiliates involving several strategic cable system
transactions. Charter Communications, Inc. assigned the agreements to certain of
our subsidiaries, and the AT&T transactions closed in June 2001. In the AT&T
transactions, we acquired cable systems from AT&T Broadband serving customers in
Missouri, Illinois, Alabama, Nevada and California for a total adjusted purchase
price of $1.74 billion, consisting of $1.71 billion in cash and a Charter cable
system valued at $25.1 million, for a net addition of approximately 551,100
customers as of the closing date. A portion of the net proceeds from the sale of
the Charter Holdings May 2001 notes was used to pay a portion of the purchase
price of the AT&T transactions. As of December 31, 2001, these cable systems had
570,800 customers. For the year ended December 31, 2001, including the period
prior to our acquisition, these systems had revenues of $332.7 million.
- 33 -
Cable USA Transaction. In August 2001, Charter Communications, Inc. and
Charter Communications Holding Company completed the acquisition of several
cable systems from Cable USA, Inc. and its affiliates, resulting in a net
addition of approximately 30,600 customers in Nebraska, Minnesota and Colorado
for a total purchase price of $100.3 million (including certain assumed
liabilities), consisting of $44.6 million in cash, 505,664 shares of Charter
Communications, Inc. Series A Convertible Redeemable Preferred Stock valued at
$50.6 million and additional shares of Series A Convertible Redeemable Preferred
Stock valued at $5.1 million to be issued to certain sellers subject to certain
holdback provisions of the acquisition agreement. Charter Communications, Inc.
and Charter Communications Holding Company contributed the systems acquired in
these acquisitions to us, which we subsequently contributed to our subsidiaries.
As of December 31, 2001, these cable systems had 32,200 customers. For the year
ended December 31, 2001, including the period prior to the acquisition, these
systems had revenues of $13.9 million.
Purchase of Certain Enstar Limited Partnership Systems. In August 2001,
Interlink Communications Partners, LLC, Rifkin Acquisition Partners, LLC and
Charter Communications Entertainment I, LLC, each an indirect, wholly-owned
subsidiary of Charter Holdings, entered into an agreement to purchase
substantially all of the assets of Enstar Income Program II-2, L.P., Enstar
Income Program II-1, L.P., Enstar Income Program IV-3, L.P., Enstar
Income/Growth Program Six-A, L.P. and Enstar Cable of Macoupin County and
certain assets of Enstar IV/PBD Systems Venture, serving in the aggregate
approximately 28,000 customers. Enstar Communications Corporation, a direct
subsidiary of Charter Communications Holding Company, is the general partner of
the Enstar limited partnerships. The cash sale price of approximately $63.0
million, subject to certain closing adjustments, was the highest bid received by
the Enstar limited partnerships following a broadly-based solicitation process.
We expect that the transaction will close in the first half of 2002. See "Item
13. Certain Relationships and Related Transactions - Business Relationships."
Overview of Operations
Approximately 85% of our revenues for the year ended December 31, 2001 are
attributable to monthly subscription fees charged to customers for our basic,
expanded basic, premium and digital cable television programming services,
Internet access through television-based service, dial-up telephone modems and
high-speed cable modem service, equipment rental and ancillary services provided
by our cable systems. The remaining 15% of revenue is derived primarily 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 viewed, advertising revenues and commissions related to the sale of
merchandise by home shopping services and franchise revenues. We have generated
increased revenues in each of the past three years, primarily through customer
growth from acquisitions, internal customer growth, basic and expanded tier
price increases and revenues from new services and products.
Our expenses primarily consist of operating costs, general and
administrative expenses, depreciation and amortization expense, interest 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.
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 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. These factors, with the
exception of amortization of our franchise assets, are expected to contribute to
anticipated net losses in the future. We cannot predict what impact, if any,
continued losses will have on our ability to finance our operations in the
future.
Critical Accounting Policies
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. We evaluate our estimates and assumptions
on an ongoing basis based on a combination of historical information and various
other assumptions that are believed to be reasonable under the particular
circumstances. Actual results may differ from these estimates based on different
assumptions or conditions. Although we believe that certain of the accounting
policies that most impact our consolidated financial statements and that require
our management to make difficult, subjective or complex judgments are described
below, Note 2, Summary of Significant Accounting Policies, to our consolidated
financial
- 34 -
statements, which describes our significant accounting policies, should be read
in conjunction with this Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Investment in Cable Properties. Our investment in cable properties
represents a significant portion of our total assets. Investment in cable
properties totaled $24.1 billion and $22.3 billion, representing approximately
97.5% and 97.0% of total assets, at December 31, 2001 and 2000, respectively.
Investment in cable properties includes property, plant and equipment and
franchises. Our investment in cable properties has continued to grow over the
past several years as we have completed numerous acquisitions of other cable
systems and increased capital expenditures to upgrade, rebuild and expand our
cable systems.
Property, Plant and Equipment. Property, plant and equipment totaled $7.0
billion and $5.2 billion, representing approximately 28.1% and 22.8% of total
assets, at December 31, 2001 and 2000, respectively. Property, plant and
equipment are recorded at cost, including all direct and certain indirect costs
associated with the construction of cable transmission and distribution
facilities and the cost of new customer installations. The costs of
disconnecting a customer are charged to expense in the period incurred.
Expenditures for repairs and maintenance are charged to operating expense as
incurred, while equipment replacement and betterments are capitalized.
Depreciation expense related to property, plant and equipment totaled $1.7
billion, $1.2 billion and $225.0 million, representing approximately 32.3%,
28.6% and 13.9% of operating expenses, for the years ended December 31, 2001,
2000 and 1999, respectively. Depreciation is recorded using the straight-line
method over management's estimate of the estimated useful lives of the related
assets as follows:
[Download Table]
Cable distribution systems 3-15 years
Buildings and leasehold improvements 5-15 years
Vehicles and equipment 3-5 years
During the years ended December 31, 2001 and December 31, 2000, we reduced
the estimated useful lives of certain depreciable assets expected to be
abandoned as a result of our rebuild and upgrade of cable distribution systems.
As a result, an additional $540.9 million and $508.5 million of depreciation
expense was recorded during the years ended December 31, 2001 and 2000,
respectively. We periodically evaluate the estimated useful lives used to
depreciate our assets and the estimated amount of assets that will be abandoned
or have minimal use in the future. While we believe our estimates of useful
lives are reasonable, significant differences in actual experience or
significant changes in our assumptions may materially affect future depreciation
expense.
Franchises. Franchises totaled $17.1 billion at both December 31, 2001 and
2000, representing approximately 69.3% and 74.3% of total assets, respectively.
Costs incurred in obtaining and renewing cable franchises are deferred and
amortized using the straight-line method over a period of 15 years. Franchise
rights acquired through the purchase of cable systems represent management's
estimate of fair value and are generally amortized using the straight-line
method over a period of 15 years. The period of 15 years was management's best
estimate of the useful lives of the franchises and assumed that substantially
all of those franchises that expired during the period would be renewed,
although not indefinitely. Because substantially all of our franchises rights
have been acquired in the past several years (see Notes 2 and 3 to the
consolidated financial statements), we did not have sufficient experience with
the local franchise authorities to conclude that renewals of franchises could be
accomplished indefinitely. In addition, because the technological state of our
cable systems, with many systems with less than 550 megahertz bandwidths, could
have resulted in demands from local franchise authorities to upgrade those
systems sooner than previously planned, there was a risk that the franchises
would not be renewed.
We believe that facts and circumstances have changed to enable us to
conclude that substantially all of our franchises will be renewed indefinitely,
with some portion of the franchises continuing to be amortized. We have
sufficiently upgraded the technological state of our cable systems and now have
sufficient experience with the local franchise authorities where we acquired
franchises to conclude substantially all franchises will be renewed
indefinitely. Any revisions to the estimated useful lives of franchises will be
reflected in the 2002 financial statements (see Note 18 to the consolidated
financial statements regarding the adoption of SFAS 142).
Amortization expense related to franchises totaled $1.3 billion, $1.2
billion and $520.0 million, representing approximately 25.5%, 28.6% and 32.2% of
operating expenses, for the years ended December 31, 2001, 2000 and 1999,
respectively.
- 35 -
Valuation of long-lived assets. We evaluate the recoverability of
long-lived assets, including property, plant and equipment and franchises, for
impairment when events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Such events or changes in
circumstances could include such factors as changes in technological advances,
fluctuations in the market value of such assets or adverse changes in
relationships with local franchise authorities. If a review indicates that the
carrying value of such asset is not recoverable based on projected undiscounted
net cash flows related to the asset over its remaining life, the carry value of
such asset is reduced to its estimated fair value. While we believe that our
estimates of future cash flows are reasonable, different assumptions regarding
such cash flows could materially affect our evaluations.
Results of Operations
The following table sets forth the percentages of revenues that items in
the accompanying consolidated statements of operations constitute for the
indicated periods (dollars in millions):
[Enlarge/Download Table]
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------
2001 2000 1999
---------------------- ---------------------- -----------------------
STATEMENTS OF OPERATIONS:
Revenues $ 3,953.1 100.0% $ 3,249.2 100.0% $1,428.1 100.0%
--------- ----- --------- ----- -------- -----
Operating Expenses:
Operating, general and administrative 2,110.0 53.4% 1,650.9 50.8% 738.0 51.7%
Depreciation and amortization 3,010.1 76.1% 2,462.6 75.8% 745.3 52.2%
Option compensation expense (51.8) (1.3)% 41.0 1.3% 80.0 5.6%
Corporate expenses 56.9 1.4% 55.2 1.7% 51.4 3.6%
Special charges 17.6 0.5% -- -- -- --
--------- ----- --------- ----- -------- -----
Total operating expenses 5,142.8 130.1% 4,209.7 129.6% 1,614.7 113.1%
--------- ----- --------- ----- -------- -----
Loss from operations (1,189.7) (30.1)% (960.5) (29.6)% (186.6) (13.1)%
Interest expense (1,260.4) (31.9)% (1,065.2) (32.8)% (471.9) (33.0)%
Interest income 8.8 0.2% 6.7 0.2% 18.8 1.3%
Loss on equity investments (48.9) (1.2)% (11.0) (0.3)% -- --
Other, net (90.7) (2.3)% (6.5) (0.2)% (0.2) --
--------- ----- --------- ----- -------- -----
Loss before income taxes, minority
interest and extraordinary item (2,580.9) (65.3)% (2,036.5) (62.7)% (639.9) (44.8)%
Income tax expense -- -- -- -- (1.0) (0.1)%
--------- ----- --------- ----- -------- -----
Loss before minority interest and
extraordinary item (2,580.9) (65.3)% (2,036.5) (62.7)% (640.9) (44.9)%
Minority interest expense (12.8) (0.3)% (11.0) (0.3)% -- --
--------- ----- --------- ----- -------- -----
Loss before extraordinary item (2,593.7) (65.6)% (2,047.5) (63.0)% (640.9) (44.9)%
Extraordinary item - Loss on early
extinguishment of debt -- -- -- -- (7.8) (0.5)%
--------- ----- --------- ----- -------- -----
Net loss $(2,593.7) (65.6)% $(2,047.5) (63.0)% $ (648.7) (45.4)%
========= ===== ========= ===== ======== =====
Year Ended December 31, 2001 Compared to Year Ended December 31, 2000
Revenues. Revenues increased by $703.9 million, or 21.7%, from $3,249.2
million in 2000 to $3,953.1 million in 2001. System operations acquired after
January 1, 2000 accounted for $524.6 million, or 75%, of the increase in 2001,
while systems acquired before January 1, 2000 accounted for $179.3 million, or
25%. Revenues by service offering are as follows (dollars in millions):
[Enlarge/Download Table]
YEAR ENDED DECEMBER 31,
--------------------------------------------------- ---------------------
2001 2000 2001 OVER 2000
----------------------- ------------------------ ---------------------
% OF % OF %
BALANCE REVENUES BALANCE REVENUES CHANGE CHANGE
------- -------- ------- -------- ------ ------
Analog video ......... $2,787.6 70.5% $2,504.5 77.1% $ 283.1 11.3%
Digital video ........ 307.2 7.8% 89.3 2.7% 217.9 244.0%
Cable modem .......... 154.4 3.9% 54.7 1.7% 99.7 182.3%
Advertising sales .... 312.6 7.9% 234.6 7.2% 78.0 33.2%
Other ................ 391.3 9.9% 366.1 11.3% 25.2 6.9%
-------- ----- -------- ----- --------
$3,953.1 100.0% $3,249.2 100.0% $ 703.9
======== ===== ======== ===== ========
- 36 -
Analog video customers increased by 602,800, or 9.5%, to 6,953,700 at
December 31, 2001 as compared to 6,350,900 at December 31, 2000. Of this
increase, approximately 581,700 customer additions were the result of
acquisitions. The remaining net increase of 21,100 customers relates to internal
growth.
Digital video customers increased by 1,075,300, or 100.5%, to 2,144,800 at
December 31, 2001 from 1,069,500 at December 31, 2000. The increase resulted
primarily from internal growth, which continues to increase as we upgrade our
systems to provide advanced services to a larger customer base. Increased
marketing efforts and strong demand for this service have also contributed to
the increase.
Data customers increased by 392,400, or 155.5%, to 644,800 at December 31,
2001 from 252,400 at December 31, 2000. Data customers consisted of 607,700
cable modem customers and 37,100 dial-up customers at December 31, 2001. The
increase resulted primarily from internal growth, which continues to increase as
we upgrade our systems to offer high-speed interactive services to a larger
customer base. Marketing efforts coupled with strong demand for such services
have also contributed to the increase.
Advertising sales increased $78.0 million, or 33.2%, from $234.6 million
in 2000 to $312.6 million in 2001. The increase resulted primarily from internal
growth and was partially offset by a weakening advertising environment. As a
result of our rebuild efforts, we experienced increased capacity primarily as
the result of expanded channel line-ups. In addition, the level of advertising
purchased by programmers to promote their channels, added as part of our
expansion of channel line-ups, increased during 2001 compared to the
corresponding period in 2000.
Operating, General and Administrative Expenses. Operating, general and
administrative expenses increased by $459.1 million, or 27.8%, from $1,650.9
million in 2000 to $2,110.0 million in 2001. System operations acquired after
January 1, 2000 accounted for $288.5 million, or 63%, of the increase in 2001
while systems acquired before January 1, 2000 accounted for $170.6 million, or
37%. Key expense components as a percentage of revenues are as follows (dollars
in millions):
[Enlarge/Download Table]
YEAR ENDED DECEMBER 31,
-------------------------------------------------- ----------------------
2001 2000 2001 OVER 2000
----------------------- ----------------------- ----------------------
% OF % OF %
BALANCE REVENUES BALANCE REVENUES CHANGE CHANGE
------- -------- ------- -------- ------ ------
General, administrative and service .... $ 861.7 21.8% $ 719.2 22.1% $ 142.5 19.8%
Analog video programming ............... 902.8 22.8% 736.0 22.7% 166.8 22.7%
Digital video .......................... 111.2 2.8% 36.2 1.1% 75.0 207.2%
Cable modem ............................ 100.0 2.5% 39.2 1.2% 60.8 155.1%
Advertising sales ...................... 64.0 1.6% 56.5 1.7% 7.5 13.3%
Marketing .............................. 70.3 1.8% 63.8 2.0% 6.5 10.2%
-------- -------- --------
$2,110.0 $1,650.9 $ 459.1
======== ======== ========
The increase in general, administrative and service costs of $142.5
million, or 19.8%, resulted from increased bad debt expense of $48.6 million
resulting primarily from the discounting of our analog product, coupled with
increased spending on customer care and overall continued growth. The increase
in analog video programming costs of $166.8 million, or 22.7%, was primarily the
result of continued inflationary or negotiated increases, primarily in sports
programming, coupled with increased channel capacity. The increase of $75.0
million, or 207.2%, in direct operating costs to provide digital video services
resulted primarily from internal growth of these advanced services. The increase
of $60.8 million, or 155.1%, in direct operating costs to provide cable modem
services resulted primarily from internal growth. Advertising sales costs
increased $7.5 million, or 13.3%, primarily as the result of internal growth and
increased channel capacity. Marketing expenses increased $6.5 million, or 10.2%,
related to an increased level of promotions of our service offerings.
Gross Margin. Gross margin (defined as revenues less operating, general
and administrative expenses) decreased from 49.2% in 2000 to 46.6% in 2001,
primarily resulting from the acquisition of less profitable cable systems from
AT&T. Analog video gross margin decreased from 70.6% in 2000 to 67.6% in 2001,
primarily resulting from such acquisitions coupled with continued inflation and
negotiated increases in programming costs. Digital video gross margin increased
from 59.5% in 2000 to 63.8% in 2001, primarily resulting from an increased
customer base. Cable modem gross margin increased from 28.3% in 2000 to 35.2% in
2001 resulting from an increased customer base. Advertising sales gross margin
increased from 75.9% in 2000 to 79.5% in 2001 resulting from expanded channel
capacity as a result of our system upgrades, coupled with increased advertising
purchases by programmers.
- 37 -
Depreciation and Amortization. Depreciation and amortization expense
increased by $547.5 million, or 22.2%, from $2,462.6 million in 2000 to $3,010.1
million in 2001. This increase resulted from capital expenditures under our
rebuild and upgrade program in 2000 and 2001 and amortization of franchises in
connection with acquisitions completed in 2000 and 2001.
Option Compensation Expense. Option compensation expense decreased by
$92.8 million from $41.0 million of expense in 2000 to $51.8 million of income
in 2001. The decrease is primarily the result of the reversal of $66.6 million
of expense previously recorded in connection with approximately 7 million
options forfeited by our former President and Chief Executive Officer as part of
his September 2001 separation agreement. This was partially offset by expense
recorded because exercise prices on certain options that were issued prior to
the initial public offering in 1999 of Charter Communications, Inc. were less
than the estimated fair values of our common stock at the time of grant.
Compensation expense is being accrued over the vesting period of such options
and will continue to be recorded at a decreasing rate until the last vesting
period lapses in April 2004.
Special Charges. Special charges of $17.6 million represent charges
associated with the transition of approximately 145,000 data customers from the
Excite@Home Internet service to our Charter Pipeline service, as well as
employee severance costs. These charges included $14.3 million in operational
expenses in connection with the transition, including a one-time contract
payment of $1.0 million to Excite@Home for the provision of services through
February 2002 to the 10% of customers that would not be transitioned by December
31, 2001; and severance costs of $3.3 million associated with the termination of
approximately 360 employees.
Corporate Expenses. Corporate expenses increased by $1.7 million, or 3.1%,
from $55.2 million in 2000 to $56.9 million in 2001. The increase was primarily
a result of continued growth as a result of acquisitions.
Interest Expense. Interest expense increased by $195.2 million, or 18.3%,
from $1,065.2 million in 2000 to $1,260.4 million in 2001. The increase in
interest expense was a result of increased average debt outstanding in 2001 of
$14,576.5 million compared to $12,281.2 million in 2000, partially offset by a
decrease in our average borrowing rate of 0.40% from 9.02% in 2000 to 8.62% in
2001. The increased debt was used for acquisitions, capital expenditures and for
other corporate purposes.
Interest Income. Interest income increased by $2.1 million, or 31.3%, from
$6.7 million in 2000 to $8.8 million in 2001. The increase in interest income
was a result of higher average cash balances during in 2001.
Loss on Equity Investments. Loss on equity investments increased by $37.9
million, or 77.6%, from $11.0 million in 2000 to $48.9 million in 2001. The
increase in loss on equity investments was primarily due to losses of $41.1
million on investments carried under the equity method of accounting, losses of
$2.1 million on marketable securities and other than temporary losses of $5.7
million on investments carried under the cost method. These losses were
primarily the result of weakening market conditions coupled with poor
performance of these investments. The loss on equity investments included a loss
of $36.0 million related to our investment in High Speed Access, a related
party, which is described below.
Other Expense. Other expense increased by $84.2 million from $6.5 million,
in 2000 to $90.7 million in 2001. This increase resulted primarily from a
cumulative effect of a change in accounting principle of $23.9 million related
to our adoption of SFAS No. 133 on January 1, 2001 and a loss of $51.3 million
on interest rate agreements as a result of SFAS No. 133.
Minority Interest Expense. Minority interest expense represents 2%
accretion of the preferred membership units in our indirect subsidiary, CC VIII,
LLC, issued to certain Bresnan sellers. These membership units are exchangeable
on a one-for-one basis for shares of Class A common stock of Charter
Communications, Inc.
Net Loss. Net loss increased by $546.2 million from $2,047.5 million in
2000 to $2,593.7 million in 2001 as a result of the combination of factors
described above.
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
Revenues. Revenues increased by $1,821.1 million, or 128%, from $1,428.1
million in 1999 to $3,249.2 million in 2000. System operations acquired after
January 1, 1999 accounted for $1,578.3 million, or 87%, of the increase in 2000,
- 38 -
while systems acquired before January 1, 1999 accounted for $242.8 million, or
13%. Revenues by service offering are as follows (dollars in millions):
[Enlarge/Download Table]
YEAR ENDED DECEMBER 31,
--------------------------------------------------- ---------------------
2000 1999 2000 OVER 1999
----------------------- ------------------------ ---------------------
% OF % OF %
BALANCE REVENUES BALANCE REVENUES CHANGE CHANGE
------- -------- ------- -------- ------ ------
Analog video ......... $2,504.5 77.1% $1,155.2 80.8% $1,349.3 116.8%
Digital video ........ 89.3 2.7% 7.7 0.6% 81.6 1,059.7%
Cable modem .......... 54.7 1.7% 10.0 0.7% 44.7 447.0%
Advertising sales .... 234.6 7.2% 72.0 5.1% 162.6 225.8%
Other ................ 366.1 11.3% 183.2 12.8% 182.9 99.8%
------- ----- -------- ----- --------
3,249.2 100.0% $1,428.1 100.0% $1,821.1
======= ===== ======== ===== ========
Analog video customers increased by 898,300, or 16.5%, to 6,350,900 at
December 31, 2000 as compared to 5,452,600 at December 31, 1999. Of this
increase, approximately 781,400 customer additions were the result of
acquisitions. The remaining net increase of 116,900 customers relates to
internal growth, which represents an increase of approximately 2.5% compared to
the prior year on a pro forma basis.
Digital video customers increased by 943,300, or 747.5%, to 1,069,500 at
December 31, 2000 from 126,200 at December 31, 1999. Of this increase,
approximately 29,200 customer additions were the result of acquisitions. The
remaining net increase of 914,100 customers relates to internal growth. The pace
of growth increased throughout the year as we upgraded our systems. We surpassed
our expectations throughout the year, with an average of 17,600 digital
installations per week during 2000 which increased to 40,000 digital
installations per week in December 2000. Increased marketing efforts and strong
demand for this service contributed to the increase.
Data customers increased by 180,400, or 250.6%, to 252,400 at December 31,
2000 from 72,000 at December 31, 1999. Of this increase, approximately 12,400
customer additions were the result of acquisitions. The remaining net increase
of 168,000 customers relates to internal growth. Data customers consisted of
215,900 cable modem customers and 36,500 dial-up customers at December 31, 2000.
The increase resulted primarily from internal growth, which continued to
increase as we upgraded our systems to offer high-speed interactive services to
a larger customer base. Marketing efforts coupled with strong demand for such
services also contributed to the increase.
Advertising sales increased $162.6 million, or 225.8%, from $72.0 million
in 1999 to $234.6 million in 2000. Of this increase, approximately $101.8
million was the result of acquisitions. The remaining increase of $60.8 million
relates to internal growth. As a result of our rebuild efforts, we experienced
increased capacity primarily as the result of expanded channel line-ups and
thus, increased advertising. The significant level of political campaign
advertising in 2000 also contributed to increased advertising revenues.
Operating, General and Administrative Expenses. Operating, general and
administrative expenses increased by $912.9 million from $738.0 million in 1999
to $1,650.9 million in 2000. System operations acquired after January 1, 1999
accounted for $813.4 million or 89% of the increase in 2000 while systems
acquired before January 1, 1999 accounted for $99.5 million or 11%. Key expense
components as a percentage of revenues are as follows (dollars in millions):
[Enlarge/Download Table]
YEAR ENDED DECEMBER 31,
-------------------------------------------------- ----------------------
2000 1999 2000 OVER 1999
----------------------- ----------------------- ----------------------
% OF % OF %
BALANCE REVENUES BALANCE REVENUES CHANGE CHANGE
------- -------- ------- -------- ------ ------
General, administrative and service .... $ 719.2 22.1% $ 342.9 24.0% $ 376.3 109.7%
Analog video programming ............... 736.0 22.7% 327.9 23.0% 408.1 124.5%
Digital video .......................... 36.2 1.1% 3.5 0.2% 32.7 934.3%
Cable modem ............................ 39.2 1.2% 9.0 0.6% 30.2 335.6%
Advertising sales ...................... 56.5 1.7% 19.0 1.3% 37.5 197.4%
Marketing .............................. 63.8 2.0% 35.7 2.5% 28.1 78.7%
-------- -------- --------
$1,650.9 $ 738.0 $ 912.9
======== ======== ========
- 39 -
The increase in general, administrative and service costs of approximately
$376.3 million, or 109.7%, resulted primarily from increases in corporate and
regional resources to support our growth. The increase in analog video
programming costs of approximately $408.1 million, or 124.5%, was primarily the
result of continued inflationary or negotiated increases, primarily in sports
programming, coupled with increased channel capacity. The increase of
approximately $32.7 million, or 934.3%, in direct operating costs to provide
digital video services resulted from acquisitions and internal growth of these
advanced services. The increase of approximately $30.2 million, or 335.6%, in
direct operating costs to provide cable modem services resulted from
acquisitions and internal growth. Advertising sales costs increased by
approximately $37.5 million, or 197.4%, primarily as the result of acquired
operations. Marketing expenses increased by approximately $28.1 million, or
78.7%, as the result of acquired operations coupled with an increased level of
promotions of advanced product offerings, including digital video and cable
modem high-speed service.
Gross Margin. Gross margin (defined as revenues less operating, general
and administrative expenses) increased from 48.3% in 1999 to 49.2% in 2000,
primarily resulting from the increases in sales of digital video and cable modem
services in 2000 as compared to 1999. Analog video gross margin decreased from
71.6% in 1999 to 70.6% in 2000, primarily resulting from continued inflation and
negotiated increases in programming costs. Digital video gross margin increased
from 54.5% in 1999 to 59.5% in 2000, primarily resulting from an increased
customer base. Cable modem gross margin increased from 10.0% in 1999 to 28.3% in
2000 resulting from an increased customer base. Advertising sales gross margin
increased from 73.6% in 1999 to 75.9% in 2000 resulting from expanded channel
capacity as a result of our system upgrades, coupled with increased advertising
purchases by programmers.
Depreciation and Amortization. Depreciation and amortization expense
increased by $1,717.3 million, or 230.4%, from $745.3 million in 1999 to
$2,462.6 million in 2000. This increase resulted from a full year of expense on
the fixed assets and franchises of our 1999 acquisitions, a partial year of
expense on 2000 acquisitions and capital expenditures of $2,909.1 million to
rebuild and upgrade our cable systems in 2000. Related to the rebuild and
upgrade of our plant, the useful lives of certain depreciable assets were
shortened. As a result, an additional $508.5 million of depreciation expense was
recorded during 2000. These increases were partially offset by the elimination
of depreciation and amortization expense related to dispositions of cable
systems.
Option Compensation Expense. Option compensation expense decreased by
$39.0 million, or 48.8%, from $80.0 million in 1999 to $41.0 million in 2000.
The expense relates to option grants at the time of the initial public offering
of Charter Communications, Inc. at prices less than the estimated fair market
value of our stock resulting in compensation expense to be accrued over the
vesting period of the options. Compensation expense will continue to be recorded
at a decreasing rate until the last vesting period lapses in April 2004.
Corporate Expenses. Corporate expenses increased by $3.8 million, or 7.4%,
from $51.4 million in 1999 to $55.2 million in 2000. The increase was primarily
a result of continued growth as a result of acquisitions.
Interest Expense. Interest expense increased by $593.3 million, or 125.7%,
from $471.9 million in 1999 to $1,065.2 million in 2000. The increase in
interest expense was a result of increased average debt outstanding in 2000 of
$12,281.2 million compared to $7,108.5 million in 1999, coupled with an increase
in our average borrowing rate of 0.66% from 8.36% in 1999 to 9.02% in 2000. The
increased debt was used for acquisitions, capital expenditures and for other
corporate purposes.
Interest Income. Interest income decreased by $12.1 million, or 64.4%,
from $18.8 million in 1999 to $6.7 million in 2000. The decrease in interest
income was a result of lower average cash balances during 2000 due to required
credit facility draw downs in 1999 which were not required in 2000.
Loss on Equity Investments. The loss in 2000 was primarily due to losses
of $7.0 million on investments carried under the equity method of accounting and
other than temporary losses of $4.7 million on investments carried under the
cost method partially offset by realized gains of $0.7 million on sales of
marketable securities. These losses were primarily the result of weakening
market conditions coupled with poor performance.
Minority Interest Expense. Minority interest expense represents 2%
accretion of the preferred membership units in our indirect subsidiary, CC VIII,
LLC, issued to certain Bresnan sellers. These membership units are exchangeable
on a one-for-one basis for shares of Class A common stock of Charter
Communications, Inc.
- 40 -
Net Loss. Net loss increased by $1,398.8 million from $648.7 million in
1999 to $2,047.5 million in 2000 as a result of the combination of factors
discussed above.
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, borrowings under the credit facilities of our
subsidiaries, issuances of debt securities and capital contributions from
Charter Communications, Inc. Charter Holdings' ability to make payments on its
debt securities is dependent primarily upon distributions from its subsidiaries.
Operating Activities. Net cash provided by operating activities for the
years ended December 31, 2001, 2000 and 1999 was $537.0 million, $1.1 billion
and $460.4 million, respectively. For the year ended December 31, 2001, net cash
provided by operating activities was due primarily to a loss before minority
interest expense of $2.6 billion, and offset partially by a change in other
operating assets and liabilities of $728.9 million. For the year ended December
31, 2000, net cash provided by operating activities was due primarily to a
loss before minority interest expense of $2.0 billion, and offset partially by
a change in other operating assets and liabilities of $463.1 million. For the
year ended December 31, 1999, net cash provided by operating activities was
due primarily to a loss before minority interest expense and extraordinary
item of $640.9 million, and offset by a change in other operating assets and
liabilities of $178.4 million.
Operating activities provided $589.3 million less cash in 2001 than in
2000. Net loss provided $546.2 million less cash in 2001 than in 2000 primarily
due to increases in interest expense resulting from higher average outstanding
debt balances due to net borrowings of $2.4 billion during 2001, and changes in
accounts payable and accrued expenses that provided $749.0 million less cash in
2001 than in 2000 primarily due to differences in the timing of payments.
Operating activities provided $665.9 million more cash in 2000 than in
1999. Net loss provided $1.4 billion less cash in the year ended December 31,
2000 than in 1999 primarily due to increases in interest expense resulting from
higher average outstanding debt balances due to net borrowings of long-term debt
of $2.2 billion during 2000, changes in accounts payable and accrued expenses
that provided $519.9 million more cash in 2000 than in 1999 primarily due to
differences in the timing of payments, and changes in accounts receivable that
used $106.0 million more cash in 2000 than in 1999 primarily due to differences
in the timing of receivable collections.
Investing Activities. Net cash used in investing activities for the years
ended December 31, 2001, 2000 and 1999 was $4.6 billion, $2.9 billion and $6.0
billion, respectively. For the year ended December 31, 2001, net cash used in
investing activities resulted primarily from capital expended of $2.9 billion
for property and equipment and $1.7 billion for the acquisition of cable
systems. For the year ended December 31, 2000, cash used in investing activities
resulted primarily from capital expended of $2.8 billion for property and
equipment and $101.2 million for the acquisition of cable systems. For the year
ended December 31, 1999, net cash used in investing activities resulted
primarily from $3.6 billion for the acquisition of cable systems and $1.7
billion from a loan to Marcus Cable Holdings. Capital expenditures are primarily
for the continued upgrade and rebuild of our systems in order to offer advanced
services to our customers and for normal recurring capital expenditures and our
continued upgrade and rebuild will continue to require substantial capital. In
2002, we expect to spend a total of approximately $2.5 billion to upgrade and
rebuild our systems. See "- Capital Expenditures" for further information.
Investing activities used $1.7 billion more cash in 2001 than in 2000.
Purchases of property, plant and equipment used $125.7 million more cash in 2001
than in 2000 as a result of our efforts to upgrade, rebuild and expand our cable
systems. Payments for acquisitions used $1.6 billion more cash in 2001 than in
2000 primarily as a result of our acquisition of cable systems from AT&T
Broadband.
Investing activities used $3.1 billion less cash in 2000 than in 1999.
Purchases in property, plant and equipment used $2.0 billion more cash in 2000
than in 1999 as a result of our efforts to upgrade, rebuild and expand our cable
systems. This was offset by payments for acquisitions which used $3.5 billion
less cash in 2000 than in 1999 due to our eight acquisitions in 1999 for which
we paid, among other consideration, $3.6 billion in cash, net of cash acquired.
In addition, we used $1.7 billion less cash in 2000 than in 1999 due to a
nonrecurring loan to Marcus Cable Holdings during 1999.
Financing Activities. Net cash provided by financing activities for the
years ended December 31, 2001, 2000 and 1999 was $4.0 billion, $1.8 billion and
$5.6 billion, respectively. For the year ended December 31, 2001, we received
- 41 -
proceeds from the issuance of long-term debt of $6.7 billion and $1.6 billion
from the proceeds of capital contributions from Charter Communications, Inc.
This was offset primarily by repayment of long-term debt of $4.3 billion. For
the year ended December 31, 2000, we received proceeds from the issuance of
long-term debt of $6.7 billion. This was offset primarily by repayment of
long-term debt of $4.5 billion. The increase in cash from financing activities
was primarily due to the additional funding needed for acquisitions, capital
expenditures and general corporate purposes. For the year ended December 31,
1999, we received proceeds from the issuance of long-term debt of $9.3 billion,
proceeds from capital contributions from Charter Communications, Inc. of $1.1
billion. This was offset primarily by repayment of long-term debt of $5.7
billion. Financing activities provided $2.2 billion more cash in 2001 than in
2000. The increase in cash provided in 2001 compared to 2000 was primarily due
to proceeds from the capital contributions from Charter Communications, Inc. of
$1.6 billion.
Financing activities provided $3.9 billion less cash in 2000 than in 1999.
Borrowings of long-term debt provided $2.5 billion less cash in 2000 than in
1999 due to lower borrowings in 2000 while repayments of long-term debt used
$1.2 billion less cash in 2000 than in 1999. Net proceeds from Charter
Communications, Inc. provided $393.2 million less cash in 2000 due to one time
events that did not recur in 2000. See "- Financing Activities."
As of December 31, 2001 and 2000, long-term debt totaled approximately
$15.0 billion and $12.3 billion, respectively. This debt was comprised of
approximately $6.7 billion and $7.3 billion of debt under our credit facilities
and $8.2 billion and $5.0 billion of high yield debt at December 31, 2001 and
2000, respectively. As of December 31, 2001, we had unused availability of $2.3
billion under the credit facilities of our subsidiaries. After giving effect to
the amendment of the Charter Operating and CC VIII Operating credit facilities
on January 3, 2002, we would have had $2.6 billion of unused availability under
the credit facilities of our subsidiaries as of December 31, 2001.
As of December 31, 2001 and 2000, the weighted average rate on the bank
debt was approximately 6.0% and 8.3%, respectively, while the weighted average
rate on the high yield debt was approximately 10.1% and 9.1%, respectively,
resulting in a blended weighted average rate of 8.2% and 8.9%, respectively.
Approximately 80.2% of our debt was effectively fixed including the effects of
our interest rate hedge agreements as of December 31, 2001 as compared to
approximately 57.2% at December 31, 2000. The fair value of our total fixed-rate
debt was $8.2 billion and $5.5 billion at December 31, 2001 and 2000,
respectively. The fair value of fixed-rate debt is based on quoted market
prices. The fair value of variable-rate debt approximated the carrying value of
$6.7 billion and $7.3 billion at December 31, 2001 and 2000, respectively, since
this debt bears interest at current market rates.
In recent years, we have incurred significant additional debt to fund our
capital expenditures and acquisitions. 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 "- Financing
Activities," "- Certain Trends and Uncertainties - Restrictive Covenants" and
Exhibit 99.1 "Risk Factors" for further information. Additionally, in the event
of a default or an event of default under the credit agreements of our
subsidiaries, such as the failure to maintain the applicable required financial
ratios, we would be unable to borrow under these credit facilities, which could
adversely impact our ability to operate our business and to make payments under
our debt instruments. An event of default may in certain circumstances result in
the acceleration of our debt under the related credit facility and may result in
defaults under the agreements governing our other long-term indebtedness. See "-
Financing Activities" for a description of certain of the terms of the
agreements governing our long-term indebtedness.
We currently anticipate that we will have sufficient capital from
operating revenues and existing credit facilities to fund our operating costs,
interest expense, required debt repayments and capital expenditures during 2002
and through 2003, after which time we expect that cash flows from operations
will fund our operating costs, interest expense and capital expenditures.
However, any projections about future capital need and cash flows are subject to
substantial uncertainty. See "- Certain Trends and Uncertainties."
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 improvements, for the development of new products and
services, and deployment of digital converters and cable modems. Upgrading our
cable systems will enable us to offer an increasing variety of advanced products
and services, including digital television, cable modem high-speed Internet
- 42 -
access, video-on-demand interactive services additional channels and tiers and
expanded pay-per-view options, to a larger customer base.
We made capital expenditures, excluding acquisitions of cable systems, of
$2.9 billion, $2.8 billion and $741.5 million for the years ended December 31,
2001, 2000 and 1999, respectively. The majority of the capital expenditures in
2001 related to our rebuild and upgrade program and purchases of converters and
cable modems, and were funded from cash flows from operations, the issuance of
debt, borrowings under the credit facilities of our subsidiaries and the
issuance of Class A common stock by Charter Communications, Inc.
In 2002, we expect to spend a total of approximately $2.5 billion to
upgrade and rebuild our systems in order to offer advanced services to our
customers and for normal recurring capital expenditures. Normal recurring
capital expenditures will include extensions of systems, development of new
products and services, purchases of converters and cable modems, system
improvements and the build-out of advanced customer contact centers. The actual
amount that we spend on these types of capital expenditures will depend on the
level of our growth in digital cable customer base and in the delivery of other
advanced services. We currently anticipate that we will have sufficient capital
to fund our capital expenditures through 2003, after which time we expect that
cash flows from operations will fund our capital expenditures and interest
expense. However, we may need additional capital if there is accelerated growth
in digital cable customers or in the delivery of other advanced services,
whether as a result of increasing demand for advanced products and services in
our upgraded service areas or a need to upgrade other service areas ahead of
schedule. We may also need additional capital if we acquire substantial
additional customers. If we are not able to obtain such capital from increases
in our operating cash flow, additional borrowings or other sources, we may not
be able to fund any accelerated growth, offer advanced products and services or
compete effectively. Consequently, our growth, financial condition and results
of operations could suffer materially.
Investing Activities
High Speed Access Corp. High Speed Access was a provider of high-speed
Internet access services over cable modems. During the period from 1997 to 2000,
certain Charter Communications entities entered into Internet-access related
service agreements, and both Vulcan Ventures, an entity controlled by Mr. Allen,
Charter Communications Holding Company and one of our subsidiaries made equity
investments in High Speed Access. On December 5, 2000, one of our subsidiaries,
Charter Communications Ventures, LLC, and Vulcan Ventures purchased 37,000
shares and 38,000 shares, respectively, of Series D convertible preferred stock
of High Speed Access for $37.0 million and $38.0 million, respectively.
On September 28, 2001, Charter Communications Holding Company and High
Speed Access entered into an asset purchase agreement pursuant to which Charter
Communications Holding Company agreed to purchase from High Speed Access the
contracts and associated assets, and assume related liabilities, that serve our
customers, including a customer contact center, network operations center and
provisioning software. On December 20, 2001, Charter Communications Holding
Company assigned certain of its rights under the asset purchase agreement and
certain related agreements to our subsidiary, CC Systems, LLC. The transaction
closed on February 28, 2002. At the closing, CC Systems wired funds in the
amount of $77.5 million to High Speed Access and delivered 37,000 shares of High
Speed Access' Series D convertible preferred stock and all of the warrants to
buy High Speed Access common stock owned by Charter Communications Holding
Company and High Speed Access purchased 38,000 shares of its Series D Preferred
Stock from Vulcan Ventures for $8.0 million. To secure indemnity claims against
High Speed Access under the asset purchase agreement, $2.0 million of the
purchase price was held back. Additional purchase price adjustments may be made
as provided in the asset purchase agreement. Charter Communications Holding
Company obtained a fairness opinion from a qualified investment-banking firm
regarding the valuation of the assets purchased by CC Systems pursuant to the
asset purchase agreement. Concurrently with the closing of the transaction, High
Speed Access purchased all of its common stock held by Vulcan Ventures, and
certain of the agreements between Charter Communications Holding Company and
High Speed Access Corp., including the programming content agreement, the
services agreement, the systems access agreement, the 1998 network services
agreement and the May 2000 network services agreement were terminated. As of
December 31, 2000, the carrying value of our and Charter Communications Holdings
Company's investment in High Speed Access was approximately $36.0 million and
$2.2 million, respectively. As of December 31, 2001, the carrying value of the
investment in High Speed Access was zero. Following the closing of the asset
purchase, neither Charter Communications Holding Company, we nor Vulcan Ventures
beneficially owned any equity securities of High Speed Access. See "Item 13.
Certain Relationships and Related Transactions - Business Relationships."
- 43 -
WorldGate/TVGateway. WorldGate Communications, Inc. is a provider of
Internet access through cable systems. Charter Communications, Inc. has an
affiliation agreement with WorldGate for an initial term which expires in
November 2002. On July 25, 2000, Charter Communications Holding Company entered
into a joint venture, named TVGateway, LLC, with WorldGate Communications, Inc.
and several other cable operators to develop and deploy a server-based
interactive program guide. Charter Communications Holding Company initially
invested $850,000, providing it a 16.25% ownership interest in the joint venture
and through subsequent investments of $1.0 million, $1.5 million and $1.5
million in December 2000, July 2001 and December 2001, respectively, increased
its ownership interest to 17.63% as of December 31, 2001. For the first four
years after the formation of TVGateway, Charter Communications Holding Company
will earn additional ownership units, up to a maximum of 750,000 ownership
units, as the interactive program guide is deployed to our customers. On August
15, 2000, in connection with the formation of the joint venture, Charter
Communications Holding Company purchased 31,211 shares of common stock of
WorldGate at $16.02 per share for a total purchase price of $500,000. As a
result of this purchase, Charter Communications Holding Company received a
$125,000 credit from WorldGate against future equipment purchases relating to
the deployment of its service. Additionally, WorldGate granted Charter
Communications Holding Company warrants to purchase up to 500,000 shares of
WorldGate common stock for a period of seven years at a exercise price of $24.78
per share. For a period of three years from the date of closing, Charter
Communications Holding Company will also be issued warrants to purchase common
stock of WorldGate based on the number of two-way digital homes passed in the
systems in which Charter Communications Holding Company has deployed WorldGate
service. As of December 31, 2001, Charter Communications Holding Company had
earned warrants to purchase 27,853 shares, but has not yet received
documentation evidencing them. One of our subsidiaries holds additional warrants
to purchase 263,353 shares of WorldGate common stock for $10.65 per share, which
expire on June 30, 2002 and also owns 107,554 shares of WorldGate common stock
for which it paid a total of $1.5 million. As of December 31, 2001 and 2000, the
carrying value of our investment in WorldGate was approximately $80,000 and
$300,000, respectively, and the carrying value of Charter Communications Holding
Company's investment in WorldGate and TVGateway was approximately $103,000 and
$29,000, respectively, and $2.6 million and $1.1 million, respectively. See
"Item 13. Certain Relationships and Related Transactions - Business
Relationships."
digeo, inc. In connection with the execution Charter Communications,
Inc.'s carriage agreement on March 5, 2001, with digeo interactive, LLC, a
subsidiary of digeo, inc., which will function as its television-based Internet
portal for an initial six-year period, Charter Communications Ventures, LLC,
received an equity interest in digeo, inc. funded by Vulcan Ventures
Incorporated's contribution of approximately $21.2 million, which is subject to
a priority return of capital to Vulcan up to the amount so funded. Vulcan also
agreed to make, through January 24, 2004, certain additional contributions
through Digeo Broadband Holdings, LLC to acquire digeo, inc. equity in order to
maintain Charter Venture's pro rata interest in digeo, inc. in the event of
certain future digeo, inc. equity financings by the founders of digeo, inc.
These additional equity interests will also be subject to a priority return of
capital to Vulcan up to the amount so contributed. As of December 31, 2001, the
carrying value of our investment in digeo was approximately $599,000. See "Item
13. Certain Relationships and Related Transactions - Business Relationships."
Acquisitions. See "- Business - Acquisitions" for a discussion of our
investments through acquisitions.
- 44 -
Financing Activities
As of December 31, 2001, our total debt was approximately $15.0 billion.
Actual debt outstanding at December 31, 2001 and pro forma for the issuance of
the January 2002 Charter Holdings notes described herein is summarized below
(dollars in thousands):
[Download Table]
ACTUAL PRO FORMA
BALANCE AT BALANCE AT
DECEMBER 31, DECEMBER 31,
2001 2001
------------ ------------
LONG-TERM DEBT
Charter Holdings:
March 1999
8.250% senior notes due 2007 ............... $ 600,000 $ 600,000
8.625% senior notes due 2009 ............... 1,500,000 1,500,000
9.920% senior discount notes due 2011 ...... 1,475,000 1,475,000
January 2000
10.000% senior notes due 2009 .............. 675,000 675,000
10.250% senior notes due 2010 .............. 325,000 325,000
11.750% senior discount notes due 2010 ..... 532,000 532,000
January 2001
10.750% senior notes due 2009 .............. 900,000 900,000
11.125% senior notes due 2011 .............. 500,000 500,000
13.500% senior discount notes due 2011 ..... 675,000 675,000
May 2001
9.625% senior notes due 2009 ............... 350,000 350,000
10.000% senior notes due 2011 .............. 575,000 575,000
11.750% senior discount notes due 2011 ..... 1,018,000 1,018,000
January 2002
9.625% senior notes due 2009 ............... -- 350,000
10.000% senior notes due 2011 .............. -- 300,000
12.125% senior discount notes due 2012 ..... -- 450,000
Renaissance:
10.00% senior discount notes due 2008 ...... 114,413 114,413
CC V Holdings:
11.875% senior discount notes due 2008 ..... 179,750 179,750
Other long-term debt ............................. 1,313 1,313
Credit Facilities
Charter Operating ................................ 4,145,000 3,680,000
CC VI Operating .................................. 901,000 825,000
CC VII ........................................... 582,000 485,000
CC VIII Operating ................................ 1,082,000 975,000
------------ ------------
16,130,476 16,485,476
Unamortized discount ............................. (1,170,103) (1,375,144)
------------ ------------
$ 14,960,373 $ 15,110,332
============ ============
March 1999 Charter Holdings Notes. In March 1999, Charter Holdings and
Charter Capital issued $3.6 billion principal amount of senior notes. The March
1999 Charter Holdings notes consisted of $600.0 million in aggregate principal
amount of 8.250% senior notes due 2007, $1.5 billion in aggregate principal
amount of 8.625% senior notes due 2009, and $1.475 billion in aggregate
principal amount at maturity of 9.920% senior discount notes due 2011. The net
proceeds of approximately $2.9 billion, combined with the borrowings under our
credit facilities, were used to consummate tender offers for publicly held debt
of several of our subsidiaries, to refinance borrowings under our previous
credit facilities, for working capital purposes and to finance a number of
acquisitions.
The 8.250% senior notes are not redeemable prior to maturity. Interest is
payable semiannually in arrears on April 1 and October 1, beginning October 1,
1999, until maturity. The 8.625% senior notes are redeemable at our option at
amounts decreasing from 104.313% to 100% of par value plus accrued and unpaid
interest beginning on April 1, 2004, to the date of redemption. At any time
prior to April 1, 2002, we may redeem up to 35% of the aggregate principal
amount of the 8.625% senior notes at a redemption price of 108.625% of the
principal amount under certain conditions. Interest is payable semiannually in
arrears on April 1 and October 1, beginning October 1, 1999, until maturity.
The 9.920% senior discount notes are redeemable at our option at amounts
decreasing from 104.960% to 100% of accreted value beginning April 1, 2004. At
any time prior to April 1, 2002, we may redeem up to 35% of the aggregate
- 45 -
principal amount of the 9.920% senior discount notes at a redemption price of
109.920% of the accreted value under certain conditions. Thereafter, cash
interest is payable semiannually in arrears on April 1 and October 1 beginning
October 1, 2004, until maturity.
As of December 31, 2001, a total of $2.1 billion was outstanding under the
8.250% notes and the 8.625% notes, and the accreted value of the outstanding
9.920% notes was approximately $1.2 billion.
January 2000 Charter Holdings Notes. In January 2000, Charter Holdings and
Charter Capital issued $1.5 billion principal amount of senior notes. The
January 2000 Charter Holdings notes consisted of $675.0 million in aggregate
principal amount of 10.000% senior notes due 2009, $325.0 million in aggregate
principal amount of 10.250% senior notes due 2010, and $532.0 million in
aggregate principal amount at maturity of 11.750% senior discount notes due
2010. The net proceeds of approximately $1.25 billion were used to consummate
change of control offers for certain of the Falcon, Avalon and Bresnan notes.
The 10.000% senior notes are not redeemable prior to maturity. Interest is
payable semiannually in arrears on April 1 and October 1, beginning April 1,
2000, until maturity. The 10.250% senior notes are redeemable at our option at
amounts decreasing from 105.125% to 100% of par value plus accrued and unpaid
interest beginning on January 15, 2005, to the date of redemption. At any time
prior to January 15, 2003, we may redeem up to 35% of the aggregate principal
amount of the 10.250% senior notes at a redemption price of 110.250% of the
principal amount under certain conditions. Interest is payable semiannually in
arrears on January 15 and July 15, beginning July 15, 2000, until maturity.
The 11.750% senior discount notes are redeemable at our option at amounts
decreasing from 105.875% to 100% of accreted value beginning January 15, 2005.
At any time prior to January 15, 2003, we may redeem up to 35% of the aggregate
principal amount of the 11.750% senior discount notes at a redemption price of
111.750% of the accreted value under certain conditions. Thereafter, cash
interest is payable semiannually in arrears on January 15 and July 15 beginning
July 15, 2005, until maturity.
As of December 31, 2001, a total of $1.0 billion of the January 2000
Charter Holdings 10.000% and 10.250% senior notes were outstanding, and the
accreted value of the 11.750% senior discount notes was approximately $376.1
million.
January 2001 Charter Holdings Notes. In January 2001, Charter Holdings and
Charter Capital issued $2.1 billion in aggregate principal amount of senior
notes. The January 2001 Charter Holdings notes consisted of $900.0 million in
aggregate principal amount of 10.750% senior notes due 2009, $500.0 million in
aggregate principal amount of 11.125% senior notes due 2011 and $675.0 million
in aggregate principal amount at maturity of 13.500% senior discount notes due
2011. The net proceeds of approximately $1.72 billion were used to repay all
remaining amounts then outstanding under the Charter Holdings 2000 senior bridge
loan facility and the CC VI Operating revolving credit facility and a portion of
the amounts then outstanding under the Charter Operating and CC VII revolving
credit facilities and for general corporate purposes.
The 10.750% senior notes are not redeemable prior to maturity. Interest is
payable semiannually on April 1 and October 1, beginning October 1, 2001 until
maturity. The 11.125% senior notes are redeemable at our option at amounts
decreasing from 105.563% to 100% of par value plus accrued and unpaid interest,
beginning on January 15, 2006, to the date of redemption. At any time prior to
January 15, 2004, we may redeem up to 35% of the aggregate principal amount of
the 11.125% senior notes at a redemption price of 111.125% of the principal
amount under certain conditions. Interest is payable semiannually in arrears on
January 15 and July 15, beginning on July 15, 2001, until maturity.
The 13.500% senior discount notes are redeemable at our option at amounts
decreasing from 106.750% to 100% of accreted value beginning January 15, 2006.
At any time prior to January 15, 2004, we may redeem up to 35% of the aggregate
principal amount of the 13.500% senior notes at a redemption price of 113.500%
of the accreted value under certain conditions. Interest is payable semiannually
in arrears on January 15 and July 15, beginning on July 15, 2006, until
maturity.
As of December 31, 2001, a total of $1.4 billion of the January 2001
Charter Holdings 10.750% and 11.125% senior notes were outstanding, and the
accreted value of the 13.500% senior discount notes was approximately $398.3
million.
- 46 -
May 2001 Charter Holdings Notes. In May 2001, Charter Holdings and Charter
Capital issued $1.94 billion in aggregate principal amount of senior notes. The
May 2001 Charter Holdings notes consisted of $350.0 million in aggregate
principal amount of 9.625% senior notes due 2009, $575.0 million in aggregate
principal amount of 10.000% senior notes due 2011 and $1.0 billion in aggregate
principal amount at maturity of 11.750% senior discount notes due 2011. The net
proceeds of approximately $1.47 billion were used to pay a portion of the
purchase price of the AT&T transactions, repay all amounts outstanding under the
Charter Operating and CC VII revolving credit facilities and for general
corporate purposes, including capital expenditures.
The 9.625% senior notes are not redeemable prior to maturity. Interest is
payable semiannually in arrears on May 15 and November 15, beginning November
15, 2001, until maturity. The 10.000% senior notes are redeemable at our option
at amounts decreasing from 105.000% to 100% of par value plus accrued and unpaid
interest beginning on May 15, 2006, to the date of redemption. At any time prior
to May 15, 2004, we may redeem up to 35% of the aggregate principal amount of
the 10.000% senior notes at a redemption price of 110.000% of the principal
amount under certain conditions. Interest is payable semiannually in arrears on
May 15 and November 15, beginning November 15, 2001, until maturity.
The 11.750% senior discount notes are redeemable at our option at amounts
decreasing from 105.875% to 100% of accreted value beginning January 15, 2006.
At any time prior to May 15, 2004, we may redeem up to 35% of the aggregate
principal amount of the 11.750% senior discount notes at a redemption price of
111.750% of the accreted value under certain conditions. Thereafter, cash
interest is payable semiannually in arrears on May 15 and November 15 beginning
November 15, 2006, until maturity.
As of December 31, 2001, a total of $925.0 million of the May 2001 Charter
Holdings 9.625% and 10.000% senior notes were outstanding, and the accreted
value of the 11.750% senior discount notes was approximately $618.1 million.
Renaissance Notes. In connection with the acquisition of Renaissance in
April 1999, we assumed $163.2 million principal amount at maturity of 10.000%
senior discount notes due 2008. The Renaissance notes do not require the payment
of interest until April 15, 2003. From and after April 15, 2003, the Renaissance
notes bear interest, payable semi-annually in cash, on April 15 and October 15,
commencing on October 15, 2003. The Renaissance notes are due on April 15, 2008.
In May 1999, $48.8 million aggregate face amount of the Renaissance notes
was repurchased at 101% of the accreted value plus accrued and unpaid interest.
As of December 31, 2001, $114.4 million of the Renaissance notes were
outstanding, and the accreted value was approximately $103.6 million.
CC V Holdings Notes. Charter Communications Holding Company acquired CC V
Holdings (f/k/a Avalon Cable) in November 1999 and assumed CC V Holdings'
outstanding 11.875% senior discount notes due 2008 with an accreted value of
$123.3 million and $150.0 million in principal amount of 9.375% senior
subordinated notes due 2008. After December 1, 2003, cash interest on the CC V
Holdings 11.875% notes will be payable semi-annually on June 1 and December 1 of
each year, commencing June 1, 2004.
In January 2000, through change of control offers and purchases in the
open market, we repurchased all of the $150.0 million aggregate principal amount
of the CC V Holdings 9.375% notes. The aggregate repurchase price was $153.7
million and was funded with the proceeds from sale of the January 2000 Charter
Holdings notes.
Contemporaneously, we completed change of control offers in which we
repurchased $16.3 million aggregate principal amount at maturity of the 11.875%
notes at a purchase price of 101% of accreted value as of January 28, 2000, for
$10.5 million. As of December 31, 2001, CC V Holdings 11.875% notes with an
aggregate principal amount of $179.8 million at maturity remained outstanding
with an accreted value of $146.3 million.
Falcon Notes. Charter Communications Holding Company acquired the Falcon
entities (n/k/a CC VII) in November 1999 and assumed Falcon's outstanding $375.0
million in principal amount of 8.375% senior notes due 2010 and 9.285% senior
discount notes due 2010 with an accreted value of approximately $319.1 million
as of the acquisition date. Charter Communications Holding Company transferred
Falcon to Charter Holdings in January 2000.
In February 2000, through change of control offers and purchases in the
open market, all of the Falcon 8.375% senior notes with a principal amount of
$375.0 million were repurchased for $388.0 million, and all of the Falcon 9.285%
- 47 -
senior discount notes with an aggregate principal amount at maturity of $435.3
million were repurchased for $328.1 million.
Bresnan Notes. We acquired the Bresnan companies (n/k/a CC VIII) in
February 2000 and assumed Bresnan's outstanding $170.0 million in principal
amount of 8.000% senior notes due 2009 and $275.0 million in principal amount at
maturity of 9.250% senior discount notes due 2009 with an accreted value of
$192.2 million. In March 2000, we repurchased all of the outstanding Bresnan
notes at purchase prices of 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.
January 2002 Charter Holdings Notes. In January 2002, Charter Holdings and
Charter Capital issued senior notes with an aggregate principal amount at
maturity of $1.1 billion. The January 2002 Charter Holdings notes are comprised
of $350.0 million 9.625% senior notes due 2009, $300.0 million 10.000% senior
notes due 2011, and $450.0 principal amount at maturity of 12.125% senior
discount notes due 2012. The net proceeds of approximately $872.8 million, were
used to repay a portion of the amounts outstanding under the revolving credit
facilities of our subsidiaries.
The 9.625% senior notes are not redeemable prior to maturity. Interest is
payable semiannually in arrears on May 15 and November 15, beginning November
15, 2001, until maturity. The 10.000% senior notes are redeemable at our option
at amounts decreasing from 105.000% to 100% of par value plus accrued and unpaid
interest beginning on May 15, 2006, to the date of redemption. At any time prior
to May 15, 2004, we may redeem up to 35% of the aggregate principal amount of
the 10.000% senior notes at a redemption price of 110.000% of the principal
amount under certain conditions. Interest is payable semiannually in arrears on
May 15 and November 15, beginning November 15, 2001, until maturity.
The 12.125% senior discount notes are redeemable at our option at amounts
decreasing from 106.683% to 100% of accreted value beginning January 15, 2007.
At any time prior to January 15, 2005, we may redeem up to 35% of the aggregate
principal amount of the 12.125% senior discount notes at a redemption price of
112.125% of the accreted value under certain conditions. Thereafter, cash
interest is payable semiannually in arrears on January 15 and July 15 beginning
July 15, 2007, until maturity.
Capital Transactions. In October and November 2000, Charter
Communications, Inc. issued 5.75% convertible senior notes with an aggregate
principal amount at maturity of $750.0 million. Charter Communications, Inc.
used the net proceeds from the sale of these notes to purchase from Charter
Communications Holding Company a mirror convertible senior note with terms
substantially similar to the terms of the convertible senior notes issued by
Charter Communications Inc. Charter Communications Holding Company used the net
proceeds of approximately $727.5 million from the sale of the mirror note to
purchase common equity in Charter Holdings, which in turn used the capital
contribution to repay a portion of the amount outstanding under the 2000 Charter
Holdings senior bridge loan. In May 2001, Charter Communications, Inc. issued
4.75% convertible senior notes due 2006 in the aggregate principal amount of
$632.5 million. Charter Communications, Inc. used the net proceeds from the sale
of these notes to purchase from Charter Communications Holding Company, a mirror
convertible senior note with terms substantially similar to the terms of the
convertible senior notes issued by Charter Communications, Inc. Charter
Communications Holding Company used the net proceeds of approximately $608.7
million from the sale of the mirror convertible note to purchase common equity
in Charter Holdings. The net proceeds were used to repay a portion of the
amounts outstanding under the credit facilities of our subsidiaries and for
general corporate purposes, including working capital. Also, in May 2001,
Charter Communications, Inc. sold shares of its Class A common stock for total
proceeds of approximately $1.21 billion. Charter Communications, Inc. used the
net proceeds from the sale to purchase additional membership units in Charter
Communications Holding Company which used approximately $700.0 million of such
proceeds to purchase common equity in Charter Holdings, which were used for
general corporate purposes, including capital expenditures. Such transactions
are reflected as a total capital contribution of approximately $1.6 billion as
of December 31, 2001.
High Yield Indebtedness - Change of Control; Restrictive Covenants. In the
event of a specified change of control under each of the indentures governing
the public notes described above, we must offer to repurchase any then
outstanding public notes at 101% of their principal amount or accreted value, as
applicable, plus accrued and unpaid interest, if any. See "- Certain Trends and
Uncertainties - Long-Term Indebtedness - Change of Control Payments."
- 48 -
The indentures governing the public notes described above contain certain
covenants that restrict the ability of Charter Holdings and Charter Capital and
their restricted subsidiaries to:
o incur additional debt;
o pay dividends on stock or repurchase stock;
o grant liens;
o make investments;
o sell all or substantially all of our assets or merge with or into
other companies;
o sell assets;
o in the case of restricted subsidiaries, create or permit to exist
dividend or payment restrictions with respect to us; and
o engage in certain transactions with affiliates.
The indentures governing the Avalon and Renaissance notes contain similar
restrictions.
Additionally, the indentures governing our high yield debt contain
information requirements and events of default and certain restrictive
covenants. The events of default under the Charter Holdings notes include a
cross-default to acceleration of, or failure to pay when due any scheduled
payment of principal in respect of, any indebtedness of Charter Holdings,
Charter Capital or any of our restricted subsidiaries having an outstanding
principal amount in excess of $100 million. As a result, an event of default
related to the failure to make a principal payment when due or the acceleration
of the indebtedness under the credit facilities of our subsidiaries or the
Avalon and Renaissance indentures could cause a cross-default under the Charter
Holdings indentures. See "- Certain Trends and Uncertainties - Acceleration of
Indebtedness of Subsidiaries" and "- Certain Trends and Uncertainties -
Restrictive Covenants."
The Renaissance indenture contains a similar cross-default provision with
a $10 million threshold that applies to the issuers of the Renaissance notes and
their restricted subsidiaries. The Avalon indenture contains events of default
that include a cross-default to acceleration of, or failure to make payments
when due or within the applicable grace period, by CC V Holdings, CC V Holdings
Finance or any restricted subsidiary, on any indebtedness in excess of $5.0
million. As a result, an event of default related to the failure to make a
payment when due or the acceleration of the indebtedness under the CC VIII
Operating credit facility could cause a cross-default under the Avalon
indenture. See "- Certain Trends and Uncertainties - Acceleration of
Indebtedness of Subsidiaries."
Distributions to Charter Holdings to pay interest on the Charter Holdings
notes are subject to the restricted payment provisions contained in the
indenture for the 11.875% CC V Holdings, LLC notes and the Renaissance notes.
See "- Certain Trends and Uncertainties - Restrictive Covenants."
Charter Operating Credit Facilities. Obligations under the Charter
Operating credit facilities are guaranteed by Charter Operating's parent,
Charter Holdings, and by Charter Operating's subsidiaries. The obligations under
the Charter Operating credit facilities are secured by pledges by Charter
Operating of intercompany obligations and the equity interests of Charter
Operating in its subsidiaries and its subsidiaries obligations of and interests
in each of their subsidiaries, but are not secured by the other assets of
Charter Operating or its subsidiaries. The obligations under the Charter
Operating credit facilities are also secured by pledges of intercompany
obligations and the equity interests of Charter Holdings in Charter Operating,
but are not secured by the other assets of Charter Holdings.
The Charter Operating credit facilities were amended and restated on
January 3, 2002 and provide for four term facilities: two Term A facilities with
an aggregate principal amount of $1.11 billion that matures in September 2007,
each with different amortization schedules, one beginning in June 2002 and one
beginning in September 2005; and two Term B facilities with an aggregate
principal amount of $2.75 billion, of which $1.85 billion matures in March 2008
and $900 million matures in September 2008. The amortization of the principal
amount of the Term B term loan facilities is substantially "back-ended," with
more than 90% of the principal balance due in the year of maturity. The Charter
Operating credit facilities also provide for two revolving credit facilities, in
an aggregate amount of $1.34 billion, which will reduce annually beginning in
March 2004 and September 2005, with a maturity date in September 2007. At the
option of the lenders, supplemental credit facilities in the amount of $100.0
million may be available. Amounts under the Charter Operating credit facilities
bear interest at the base rate or the Eurodollar rate, as defined, plus a margin
of up to 2.75% for Eurodollar loans (6.50% to 7.69% as of December 31, 2001) and
1.75% for base rate loans. A quarterly commitment fee of between 0.25% and
0.375% per annum is payable on the unborrowed balance of the revolving credit
facilities.
- 49 -
As of December 31, 2001, outstanding borrowings were approximately $4.1
billion and the unused availability was $855.0 million. After giving effect to
the amendment to the Charter Operating credit facilities on January 3, 2002,
unused availability would have been $1.06 billion as of December 31, 2001. We
repaid $465.0 million under the Charter Operating revolving credit facilities
with proceeds from the issuance of the January 2002 Charter Holdings notes.
CC VI Operating Credit Facilities. The obligations under the CC VI
Operating credit facilities are guaranteed by CC VI Operating's parent, CC VI
Holdings, LLC, and by the subsidiaries of CC VI Operating. The obligations under
the CC VI Operating credit facilities are secured by pledges of the equity
interests and intercompany obligations of CC VI Operating in its subsidiaries
and its subsidiaries obligations of and interests in each of their subsidiaries,
but are not secured by other assets of CC VI Operating or its subsidiaries. The
obligations under the CC VI Operating credit facilities are also secured by
pledges of intercompany obligations and the equity interests of CC VI Holdings
in CC VI Operating, but are not secured by the other assets of CC VI Holdings.
The CC VI Operating credit facilities provide for two term facilities, one
with a principal amount of $450.0 million that matures May 2008 (Term A), and
the other with a principal amount of $400.0 million that matures November 2008
(Term B). The CC VI credit facilities also provide for a $350.0 million reducing
revolving credit facility with a maturity date in May 2008. At the option of the
lenders, supplemental credit facilities in the amount of $300.0 million may be
available until December 31, 2004. Amounts under the CC VI credit facilities
bear interest at the base rate or the Eurodollar rate, as defined, plus a margin
of up to 3.0% for Eurodollar loans (6.34% to 7.93% as of December 31, 2001) and
2.0% for base rate loans. A quarterly commitment fee of between 0.250% and
0.375% per annum is payable on the unborrowed balance of the Term A facility and
the revolving facility. We used $850.0 million of the credit facilities to fund
a portion of the Fanch purchase price.
As of December 31, 2001, outstanding borrowings were $901.0 million and
unused availability was $299.0 million. We repaid $76.0 million under the CC VI
revolving credit facilities with proceeds from the issuance of the January 2002
Charter Holdings notes.
CC VII Credit Facilities. The obligations under the CC VII credit
facilities are guaranteed by the direct parent of Falcon Cable Communications,
Charter Communications VII, LLC, and by the subsidiaries of Falcon Cable
Communications. The obligations under the CC VII credit facilities are secured
by pledges of the equity interests and intercompany obligations of Falcon Cable
Communications in its subsidiaries and its subsidiaries' obligations and
interests in each of their subsidiaries, but are not secured by other assets of
Falcon Cable Communications or its subsidiaries. The obligations under the CC
VII credit facilities are also secured by pledges of intercompany obligations
and the equity interests of Charter Communications VII in Falcon Cable
Communications, but are not secured by the other assets of Charter
Communications VII.
The previous Falcon credit facilities were amended in connection with the
Falcon acquisition in November 1999 and again in September 2001. The CC VII
credit facilities provide for two term facilities, one with a principal amount
of $194.0 million that matures June 2007 (Term B), and the other with the
principal amount of $291.0 million that matures December 2007 (Term C). The CC
VII credit facilities also provide for a reducing revolving facility of up to
approximately $77.7 million (maturing in December 2006), a reducing supplemental
facility of up to $110.0 million (maturing in December 2007) and a second
reducing revolving facility of up to $670.0 million (maturing in June 2007). At
the option of the lenders, supplemental credit facilities in the amount of up to
$486.4 million may also be available. Amounts under the CC VII credit facilities
bear interest at the base rate or the Eurodollar rate, as defined, plus a margin
of up to 2.5% for Eurodollar loans (5.50% to 7.08% as of December 31, 2001) and
up to 1.5% for base rate loans. A quarterly commitment fee of between 0.25% and
0.375% per annum is payable on the unborrowed balance of the revolving
facilities.
As of December 31, 2001, outstanding borrowings were $582.0 million and
unused availability was $760.7 million. We repaid $97.0 million under the CC VII
revolving credit facilities with proceeds from the issuance of the January 2002
Charter Holdings notes.
CC V Holdings Credit Facilities. In December 2000, the entities holding
the systems acquired in the Bresnan and Avalon transactions were consolidated
under CC V Holdings. Upon completion of the Bresnan/Avalon combination in
January 2001, all amounts outstanding under the CC V Holdings credit facilities
were repaid and the CC V Holdings credit facilities were terminated.
- 50 -
CC VIII Operating Credit Facilities. The obligations under the CC VIII
Operating credit facilities are guaranteed by the parent company of CC VIII
Operating, CC VIII Holdings, LLC, and by the subsidiaries of CC VIII Operating.
The obligations under the CC VIII Operating credit facilities are secured by
pledges of the equity interests and intercompany obligations of CC VIII
Operating in its subsidiaries and its subsidiaries obligations of and interests
in each of their subsidiaries, but are not secured by other assets of CC VIII
Operating or its subsidiaries. The obligations under the CC VIII Operating
credit facilities are also secured by pledges of intercompany obligations and
the equity interests of CC VIII Holdings in CC VIII Operating, but are not
secured by the other assets of CC VIII Holdings.
Upon the completion of the Bresnan/Avalon combination in January 2001, the
CC VIII Operating credit facilities were amended and restated to, among other
things, increase borrowing availability by $555.0 million. The credit facilities
were further amended and restated on January 3, 2002 and provide for borrowings
of up to $1.55 billion. The CC VIII Operating credit facilities provide for
three term facilities, two Term A facilities with an aggregate principal amount
of $500.0 million that mature in June 2007, and a Term B facility with a
principal amount of $500.0 million that matures in February 2008. The
amortization of the principal amount of the Term B term loan facilities is
substantially "back-ended," with more than 90% of the principal balance due in
the year of maturity. The CC VIII Operating credit facilities also provide for
two reducing revolving credit facilities, in the aggregate amount of $550.0
million, which will reduce quarterly beginning in March 2002 and September 2005,
respectively, with maturity dates in June 2007. At the option of the lenders,
supplemental facilities in the amount of $300.0 million may be available.
Amounts under the CC VIII Operating credit facilities bear interest at the base
rate or the Eurodollar rate, as defined, plus a margin of up to 2.75% for
Eurodollar loans (6.09% to 7.84% as of December 31, 2001) and up to 1.75% for
base rate loans. A quarterly commitment fee of between 0.250% and 0.375% is
payable on the unborrowed balance of the revolving credit facilities.
As of December 31, 2001, outstanding borrowings were $1.1 billion, and
unused availability was $368.0 million. After giving effect to the amendment to
the CC VIII credit facilities on January 3, 2002, unused availability would have
been $468.0 million as of December 31, 2001. We repaid $107.0 million under the
CC VIII revolving credit facilities with proceeds from the issuance of the
January 2002 Charter Holdings notes.
Charter Holdings 2000 Senior Bridge Loan Facility. On August 4, 2000,
Charter Holdings and Charter Capital entered into a senior bridge loan agreement
providing for senior increasing rate bridge loans in an aggregate principal
amount of up to $1.0 billion.
On August 14, 2000, Charter Holdings borrowed $1.0 billion under the
senior bridge loan facility and used substantially all of the proceeds to repay
a portion of the amounts outstanding under the Charter Operating and the CC VII
revolving credit facilities. The bridge loan initially bore interest at an
annual rate of 10.21%. For amounts not repaid by November 14, 2000, the interest
rate increased by 1.25% at such date.
The net proceeds, totaling $727.5 million, from the sales in October and
November 2000 of convertible senior notes issued by Charter Communications, Inc.
were used to repay $727.5 million of the amount outstanding under the Charter
Holdings 2000 senior bridge loan facility. The remaining balance of $272.5
million on the senior bridge loan facility was repaid with the proceeds from the
sale of the Charter Holdings January 2001 notes.
Credit Facilities - Change of Control; Restrictive Covenants. Similar to
our indentures, the credit facilities of our subsidiaries contain change of
control provisions, making it an event of default, and permitting acceleration
of the debt, in the event of certain specified changes of control, including if
Mr. Allen, his estate, heirs and related entities, fails to maintain, directly
or indirectly, at least 51% voting interest in the related borrower, or ceases
to own of record or beneficially, directly or indirectly, at least 25% of the
equity interests in the related borrower. See "- Certain Trends and
Uncertainties - Long-Term Indebtedness - Change of Control Payments."
Each of the credit facilities of our subsidiaries contain representations
and warranties, affirmative and negative covenants similar to those described
above with respect to the indentures governing our public notes, information
requirements, events of default and financial covenants. The financial
covenants, which are generally tested on a quarterly basis, measure performance
against standards set for leverage, debt service coverage, and operating cash
flow coverage of cash interest expense. Additionally, the credit facilities
contain provisions requiring mandatory loan prepayments under specific
circumstances, including when significant amounts of assets are sold and the
proceeds are not promptly reinvested in assets useful in the business of the
borrower. The Charter Operating credit facility also provides that in the event
that any existing Charter Holdings notes or other long-term indebtedness of
Charter Holdings remain outstanding on the date which is six months prior to the
scheduled final maturity, the term loans under the Charter Operating credit
facility will
- 51 -
mature and the revolving credit facilities will terminate on such date. See "-
Certain Trends and Uncertainties - Restrictive Covenants."
Distributions under the credit facilities of our subsidiaries to Charter
Holdings to pay interest on the Charter Holdings notes are generally permitted,
in each case provided the relevant borrower's cash flow for the most recent
fiscal quarter preceding the distribution exceeds 1.75 times its cash interest
expense, including the amount of such distribution. Other distributions to
Charter Holdings are also permitted if the relevant borrower meets specified
financial ratios. In each case, such distributions are not permitted during the
existence of a default under the related credit facilities. See "- Certain
Trends and Uncertainties - Restrictive Covenants."
The events of default for these credit facilities include, among other
things, the failure to comply with specified covenants and a cross-default to
acceleration of, or failure to make payments when due or within the applicable
grace period, by the related guarantor, borrower or the borrower's restricted
subsidiaries, or any specified subsidiary, on any indebtedness in excess of the
amounts specified below:
[Download Table]
Guarantor/Borrower Principal Amount
------------------ ----------------
Charter Holdings/Charter Operating $50.0 million
CC VI Holdings/CC VI Operating $25.0 million
Charter Communications VII/
Falcon Cable Communications $10.0 million
CC VIII Holdings/CC VIII Operating $25.0 million
An event of default related to the failure to make a payment or the
acceleration of the indebtedness under the indentures governing the Charter
Holdings notes, which could be caused by a similar event of default under the
credit facilities of our subsidiaries, could trigger the cross-default provision
of the Charter Operating credit facilities. See "- Certain Trends and
Uncertainties - Acceleration of Indebtedness of Subsidiaries."
Related Party Transactions
See "Item 13. Certain Relationships and Related Transactions - Business
Relationships" for information regarding related party transactions and
transactions with other parties with whom we or our related parties may have a
relationship that enables the parties to negotiate terms of material
transactions that may not be available from other, more clearly independent
parties, on an arm's length basis.
Outlook
During 2001, we continued to roll out our advanced services aggressively,
focusing on our digital cable and cable modem businesses. We expect 2002 revenue
growth of 12% to 14% and operating cash flow growth, after corporate overhead
expense, of 11% to 13% over the pro forma results in 2001 (as detailed below in
"- Supplemental Unaudited Pro Forma Data"). We expect no meaningful increase in
basic customers in 2002. We anticipate that the number of our digital customers
will increase dramatically, from 2.1 million customers at December 31, 2001 to
approximately 2.7 million customers by the end of 2002 as a result of increased
marketing efforts and strong demand for this service. We anticipate that the
number of our data customers will increase from 644,800 data customers at
December 31, 2001 to between 1.2 million and 1.25 million data customers by the
end of 2002. In addition, video-on-demand launches are planned for 17 additional
markets in 2002 and we expect that approximately half of our digital customers
will have access to video-on-demand technology by the end of 2002. Furthermore,
we will continue our focus on interactive TV following its recent launch to over
550,000 customers in a number of markets with additional launches in several
other markets in 2002 and expect to expand our offering of this service in 2002
to include over 1.0 million customers. In 2002 we expect to offer several new
advanced products and services, including an advanced broadband media center
terminal that enables digital video recorder capability, home networking and
internet-access over the television; wireless home networking; and an enhanced
customized internet portal, with a customized browser and charter.com e-mail.
Voice-over Internet protocol telephony initiatives will continue to be tested
and developed.
Customer care will remain a priority at Charter. In 2002, we plan to build
four additional customer contact centers with goals of increasing efficiency and
improving customer service. These new customer contact centers will serve our
customer base with state-of-the-art technology to further improve customer
satisfaction.
- 52 -
We will continue our system rebuilds and upgrades so that our customers
have access to advanced service technology. We expect to spend approximately
$2.5 billion during 2002 for upgrades, rebuilds, and normal recurring capital
expenditures.
Achieving the anticipated growth and increases specified in this Outlook
section is subject to many factors, some of which are outside our control. This
section includes forward-looking statements regarding, among other things, our
plans, strategies and prospects, both business and financial. Forward-looking
statements are inherently subject to risks, uncertainties and assumptions. Many
of the forward-looking statements contained in this section may be identified by
the use of forward-looking words such as "believe," "expect," "anticipate,"
"should," "planned," "will," "may," "intend," "estimate," and "potential," among
others. Among these risks, uncertainties and assumptions are those specified in
"- Certain Trends and Uncertainties" and in Exhibit 99.1, "Risk Factors." We
refer you to these sections, as well as to "Forward-Looking Statements."
Certain Trends And Uncertainties
The following discussion highlights a number of trends and uncertainties,
in addition to those discussed elsewhere in this Annual Report, including in
Exhibit 99.1 "Risk Factors", which is incorporated by reference herein, and in
other documents that we file with the SEC, that could materially impact our
business, results of operations and financial condition.
Substantial Leverage. We and our subsidiaries have a significant amount of
debt. As of December 31, 2001, pro forma for the issuance and sale of the
January 2002 Charter Holdings notes and the application of the net proceeds
therefrom to repay a portion of the amounts then outstanding under the credit
facilities of our subsidiaries, our total debt would have been approximately
$15.1 billion and the deficiency of our earnings available to cover fixed
charges would have been approximately $2.7 billion. Since December 31, 2001, our
subsidiaries have incurred substantial additional debt under their revolving
credit facilities.
We anticipate that we may incur significant additional debt, including
through our subsidiaries, in the future to fund the expansion, maintenance and
upgrade of our cable systems. If current debt levels increase, the related risks
that we now face will intensify. Our ability to service 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 to 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. Additionally, it is difficult to assess the impact that the terrorist
attacks on September 11, 2001 and the subsequent armed conflict and related
events, combined with the general economic slowdown, will have on future
operations. If our business does not generate sufficient cash flow from
operations, and sufficient future distributions are not available to us from
borrowings under our credit facilities or from other sources of financing, we
may not be able to repay our debt, to grow our business or to fund our other
liquidity and capital needs.
Restrictive Covenants. The credit facilities of our subsidiaries and the
indentures governing the publicly held notes described above contain a number of
significant covenants that could adversely impact our business. In particular,
the credit facilities of our subsidiaries and our indentures restrict the
ability to:
o pay dividends or make other distributions;
o make certain investments or acquisitions;
o dispose of assets or merge;
o incur additional debt;
o issue equity;
o repurchase or redeem equity interests and debt;
o grant liens; and
- 53 -
o pledge assets.
Furthermore, in accordance with our subsidiaries' credit facilities, a
number of our subsidiaries 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 could
trigger acceleration of the debt under the applicable agreement and in certain
cases under other agreements governing our long-term indebtedness. Any default
under our credit facilities or indentures governing our outstanding debt might
adversely affect our growth, our financial condition and our results of
operations and our ability to make payments on our publicly held notes and the
credit facilities of our subsidiaries.
Acceleration of Indebtedness of Our Subsidiaries. In the event of a
default under our subsidiaries' credit facilities or public notes our
subsidiaries' creditors could elect to declare all amounts borrowed, together
with accrued and unpaid interest and other fees, to be due and payable. In such
event, our subsidiaries' credit facilities and indentures will not permit our
subsidiaries to distribute funds to Charter Holdings to pay interest or
principal on our public notes. If the amounts outstanding under such credit
facilities or public notes are accelerated, all of our subsidiaries' debt and
liabilities would be payable from our subsidiaries' assets, prior to any
distribution of our subsidiaries' assets to pay the interest and principal
amounts on our public notes, and we might not be able to repay or make any
payments on our public notes. Additionally, such a default would cause a
cross-default in the indentures governing the Charter Holdings notes and would
trigger the cross-default provision of the Charter Operating Credit Agreement.
Any default under any of our subsidiaries' credit facilities or public notes
might adversely affect the holders of our public notes and our growth, financial
condition and results of operations.
Long-Term Indebtedness - Change of Control Payments. We may not have the
ability to raise the funds necessary to fulfill our obligations under our public
notes and the public notes and credit facilities of our subsidiaries following a
change of control. Under the indentures governing our public notes, upon the
occurrence of specified change of control events, including certain specified
dispositions of our stock by Mr. Allen, we are required to offer to repurchase
all of our outstanding public notes. However, we may not have sufficient funds
at the time of the change of control event to make the required repurchase of
our public notes and our subsidiaries are limited in their ability to make
distributions or other payments to us to fund any required repurchase. In
addition, a change of control under our subsidiaries' credit facilities and the
indentures governing their public notes would require the repayment of
borrowings under those credit facilities and indentures. Because such credit
facilities and public notes are obligations of our subsidiaries, the credit
facilities and the public notes would have to be repaid by our subsidiaries
before their assets could be available to us to repurchase our public notes. Our
failure to make or complete a change of control offer would place us in default
under our public notes. The failure of our subsidiaries to make a change of
control offer to repay the amounts outstanding under their credit facilities
would place them in default of these agreements and could result in a default
under the indentures governing our public notes.
Variable Interest Rates. At December 31, 2001, excluding the effects of
hedging, approximately 44.9% 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. As of December 31, 2001 and December 31, 2000, the
weighted average rate on the bank debt was approximately 6.0% and 8.3%,
respectively, while the weighted average rate on the high-yield debt was
approximately 10.1% and 9.1%, respectively, resulting in a blended weighted
average rate of 8.2% and 8.9%, respectively. Approximately 80.2% of our debt was
effectively fixed including the effects of our interest rate hedge agreements as
of December 31, 2001 as compared to approximately 57.2% at December 31, 2000.
Regulation and Legislation. Cable systems are extensively regulated at the
federal, state, and local level, including rate regulation of basic service and
equipment and municipal approval of franchise agreements and their terms, such
as franchise requirements to upgrade cable plant and meet specified customer
service standards. Cable operators also face significant regulation of their
channel carriage. 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
programming, and unaffiliated commercial leased access programming. This
carriage burden could increase in the future, particularly if the Federal
Communications Commission were to require cable systems to carry both the analog
and digital versions of local broadcast signals. The Federal Communications
Commission is currently conducting a proceeding in which it is considering this
channel usage possibility, although it recently issued a tentative decision
against such dual carriage.
- 54 -
There is also uncertainty whether local franchising authorities, state
regulators, the Federal Communications Commission, 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. Multiple federal courts have now struck down
open-access requirements imposed by several different franchising authorities as
unlawful. In March 2002, the Federal Communications Commission adopted a policy
of regulatory forbearance concerning cable's provision of high-speed Internet
service, and it officially classified such service in a manner that makes open
access requirements unlikely. At the same time, the Federal Communications
Commission initiated a rulemaking proceeding that leaves open the possibility
that the Commission may assert regulatory control in the future. As we offer
other advanced services over our cable system, we are likely to face additional
calls for regulation of our capacity and operation. These regulations, if
adopted, could adversely affect our operations.
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 depend in part on our
ability to successfully integrate the operations acquired. The failure 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.
New Services and Products. We expect that a substantial portion of our
future growth will be achieved through revenues from new products and services.
We may not be able to offer these new products and services successfully to our
customers and these new products and services may not generate adequate
revenues. If we are unable to grow our cash flow sufficiently, we may be unable
to fulfill our obligations or obtain alternative financing. Further, due to
declining market conditions and slowing economic trends during the last year,
both before and after the terrorist attacks on September 11, 2001, we cannot
assure you that we will be able to achieve our planned levels of growth as these
conditions and events may negatively affect the demand for our additional
services and products and spending by customers and advertisers.
Economic Slowdown, Terrorism and Armed Conflict. Although we do not
believe that the terrorist attacks on September 11, 2001 and the subsequent
armed conflict and related events have resulted in any material changes to our
business and operations to date, it is difficult to assess the impact that these
events, combined with the general economic slowdown, will have on future
operations. These events, combined with the general economic slowdown, could
result in reduced spending by customers and advertisers, which could reduce our
revenues and operating cash flow. Additionally, an economic slowdown could
affect our ability to collect accounts receivable. If we experience reduced
operating revenues, it could negatively affect our ability to make expected
capital expenditures and could also result in our inability to meet our
obligations under our financing agreements. These developments could also have a
negative impact on our financing and variable interest rate agreements through
disruptions in the market or negative market conditions. Terrorist attacks could
interrupt or disrupt our ability to deliver our services (or the services
provided to us by programmers) and could cause unforeseen damage to our physical
facilities. Terrorism and the related events may have other adverse effects on
us, in ways that cannot be presently predicted.
Interest Rate Risk
We use interest rate risk management derivative instruments, such as
interest rate swap agreements, interest rate cap agreements and interest rate
collar agreements (collectively referred to herein as interest rate agreements)
as 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. Interest rate collar
agreements are used to limit our exposure to and benefits from interest rate
fluctuations on variable rate debt to within a certain range of rates.
At December 31, 2001 and 2000, we had outstanding $3.3 billion and $1.9
billion, $0 and $15.0 million, and $520.0 million and $520.0 million,
respectively, in notional amounts of interest rate swaps, caps and collars,
respectively. The notional amounts of interest rate instruments do not represent
amounts exchanged by the parties and, thus, are not a measure of our exposure to
credit loss. See "Item 7A. Quantitative and Qualitative Disclosures About Market
Risk," for further information regarding the fair values and contract terms of
our interest rate agreements.
- 55 -
New Accounting Standards
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141, "Business Combinations", No. 142,
"Goodwill and Other Intangible Assets" and No. 143, "Accounting for Asset
Retirement Obligations." We adopted SFAS No. 141, which requires all business
combinations initiated after June 30, 2001 to be accounted for using the
purchase method of accounting, on July 1, 2001. Adoption of SFAS No. 141 did not
have a significant impact on our consolidated financial statements.
Under SFAS No. 142, goodwill and other indefinite lived intangible assets
are no longer subject to amortization over their useful lives, rather, they are
subject to at least annual assessments for impairment. Also, under SFAS Nos. 141
and 142, an intangible asset should be recognized if the benefit of the
intangible asset is obtained through contractual or other legal rights or if the
intangible asset can be sold, transferred, licensed, rented or exchanged. Such
intangibles will be amortized over their useful lives. We believe that
substantially all franchises will qualify for indefinite life treatment under
the new standard. While the analysis, including the impairment testing of
franchises required under the new standard, is not complete, we expect to stop
amortizing franchise intangible assets that meet the indefinite life treatment
beginning January 1, 2002. We will test these assets for impairment at least
annually. Other than during any periods in which we may record a charge for
impairment, we expect that the adoption of SFAS No. 142 will result in a reduced
loss as a result of reduced amortization expense. If the new standard had been
in effect for 2001, amortization expense would have been reduced by
approximately $1.2 billion to $1.3 billion.
Under SFAS No. 143, the fair value of a liability for an asset retirement
obligation is required to be recognized in the period in which it is incurred if
a reasonable estimate of fair value can be made. The associated asset retirement
costs are capitalized as part of the carrying amount of the long-lived asset. We
implemented SFAS No. 143 on January 1, 2002. Adoption of SFAS No. 143 will not
have a material impact on our consolidated financial statements.
In August 2001, the Financial Accounting Standards Board issued SFAS No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No.
144 addresses financial accounting and reporting for the impairment of
long-lived assets and for long lived assets to be disposed of and supersedes
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." SFAS No. 144 establishes a single
accounting model for long-lived assets to be disposed of by sale and resolves
implementation issues related to SFAS No. 121. We implemented SFAS No. 144 on
January 1, 2002. Adoption of SFAS No. 144 will not have a material impact on our
consolidated financial statements.
- 56 -
SUPPLEMENTAL UNAUDITED PRO FORMA DATA
The following Supplemental Unaudited Pro Forma Data is based on the
historical financial data of Charter Holdings. Our financial data, on a
consolidated basis, is adjusted on a pro forma basis to illustrate the estimated
effects of the following transactions as if they had occurred on January 1,
2001:
o all significant acquisitions and dispositions by Charter
Communications, Inc. and its subsidiaries completed since January 1,
2001, including the AT&T transactions;
o the issuance and sale of the January 2001 Charter Holdings notes and
the application of the net proceeds therefrom to repay all of the
amounts outstanding under the 2000 Charter Holdings senior bridge
loan and the CC VI Operating revolving credit facility and a portion
of the amounts outstanding under the Charter Operating and CC VII
revolving credit facilities and for general corporate purposes;
o the issuance and sale of the May 2001 Charter Holdings notes and the
application of the net proceeds therefrom to pay a portion of the
AT&T purchase price, to repay a portion of the amounts outstanding
under the Charter Operating and CC VII revolving credit facilities
and for general corporate purposes, including capital expenditures;
o an equity contribution of $1.6 billion of the net proceeds from the
issuance and sale by Charter Communications, Inc. of its May 2001
convertible senior notes and the May 2001 issuance and sale by
Charter Communications, Inc. of 60,247,350 shares of its Class A
common stock and the application of the net proceeds therefrom to
repay a portion of the amounts outstanding under the revolving
credit facilities of our subsidiaries and for general corporate
purposes, including capital expenditures; and
o the issuance and sale of the January 2002 Charter Holdings notes and
the application of the net proceeds therefrom to repay a portion of
the amounts outstanding under the revolving credit facilities of our
subsidiaries.
The Supplemental Unaudited Pro Forma Financial Statements reflect the
application of the principles of purchase accounting in accordance with
Accounting Principles Board Opinions No. 16, Accounting for Business
Combinations, to the transactions listed in the first bullet point, above.
Accordingly, the Supplemental Unaudited Pro Forma Financial Statements include
adjustments to reflect amortization of franchises. Upon adoption of SFAS 142, on
January 1, 2002, franchises will no longer be amortized. The impact of the
adoption of SFAS 142 is not reflected in the Supplemental Unaudited Pro Forma
Statements of Operations. The Supplemental Unaudited Pro Forma Financial
Statements do not purport to be indicative of what our financial position or
results of operations actually would have been had the transactions described
above been completed on the dates indicated or to project our results of
operations for any future date. The allocation of the purchase price related to
the AT&T transactions 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 the finalization of the allocation of the purchase price will not
have a material impact on the results of operations or financial position of
Charter Communications, Inc. The Supplemental Unaudited Pro Forma Financial
Statements do not reflect the Cable USA Transaction that closed in 2001, because
the effect of the transaction is not significant.
- 57 -
[Enlarge/Download Table]
SUPPLEMENTAL UNAUDITED PRO FORMA DATA
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2001
--------------------------------------------------
PRO FORMA
CHARTER HOLDINGS ADJUSTMENTS(a) TOTAL
---------------- -------------- ------------
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA
Revenues:
Analog video ..................................... $ 2,787,632 $ 125,322 $ 2,912,954
Digital video .................................... 307,240 7,224 314,464
Cable modem ...................................... 154,402 4,255 158,657
Advertising sales ................................ 312,554 20,325 332,879
Other ............................................ 391,304 4,509 395,813
----------- --------- ------------
Total revenues ............................... 3,953,132 161,635 4,114,767
Operating Expenses
General, administrative and service .............. 861,722 43,522 905,244
Analog video programming ......................... 902,837 48,621 951,458
Digital video .................................... 111,167 2,540 113,707
Cable modem ...................................... 99,956 3,662 103,618
Advertising sales ................................ 64,026 4,152 68,178
Marketing ........................................ 70,335 2,092 72,427
Depreciation and amortization .................... 3,010,068 74,153 3,084,221
Option compensation expense ...................... (51,839) -- (51,839)
Special charges .................................. 17,629 -- 17,629
Corporate expense charges ........................ 56,930 9,556 66,486
----------- --------- ------------
Total operating expenses ..................... 5,142,831 188,298 5,331,129
Loss from operations ............................. (1,189,699) (26,663) (1,216,362)
Interest expense ................................. (1,260,396) (90,629) (1,351,025)
Interest income .................................. 8,766 -- 8,766
Loss on equity investments ....................... (48,957) -- (48,957)
Other income (expense) ........................... (90,661) (486) (91,147)
----------- --------- ------------
Loss before minority interest expense ............ (2,580,947) (117,778) (2,698,725)
Minority interest expense(b) ..................... (12,828) (12,828)
----------- --------- ------------
Net loss ......................................... $(2,593,775) $(117,778) $(2,711,553)
=========== ========= ============
OTHER FINANCIAL DATA
EBITDA(c) ........................................ 1,680,751 47,004 1,727,755
EBITDA margin(d) ................................. 42.5% 29.1% 42.0%
Adjusted EBITDA(e) ............................... 1,843,089 57,046 1,900,135
OPERATING DATA
(at end of period, except for average)
Homes passed(f) .................................. 11,502,300
Basic customers(g) ............................... 6,953,700
Basic penetration(h) ............................. 60.5%
Average monthly revenue per basic customer(i) .... $ 49.31
----------
(a) Comprised of: (1) Our acquisitions' results of operations since their
respective acquisition dates; (2) the issuance and sale of the January
2001 Charter Holdings notes and the application of the net proceeds
therefrom to repay all of the amounts outstanding under the 2000 Charter
Holdings senior bridge loan and the CC VI Operating revolving credit
facility and a portion of the amounts then outstanding under the Charter
Operating and CC VII revolving credit facilities and for general corporate
purposes; (3) the issuance and sale of the May 2001 Charter Holdings notes
and the application of the net proceeds therefrom to pay a portion of the
purchase price of the AT&T acquisition, to repay a portion of the amounts
outstanding under the Charter Operating and CC VII revolving credit
facilities and for general corporate purposes, including capital
expenditures; (4) the issuance and sale by Charter Communications, Inc. of
the May 2001 4.75% convertible senior notes and 60,247,350 shares of Class
A common stock and the application of the net proceeds therefrom to repay
a portion of the amounts outstanding under the revolving credit facilities
of our subsidiaries and for general corporate purposes, including capital
expenditures; and (5) the issuance and sale of the January 2002 Charter
Holdings notes and the application of the net proceeds to repay a portion
of the amounts outstanding under the revolving credit facilities of our
subsidiaries.
(b) Represents the accretion of the preferred membership units in our indirect
subsidiary, CC VIII, LLC, issued to certain Bresnan sellers. These
membership units are exchangeable on a one-for-one basis for shares of
Class A common stock of Charter Communications, Inc.
- 58 -
(c) EBITDA represents earnings (loss) before interest, income taxes,
depreciation and amortization, and minority interest expense. 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. In addition, because 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 EBITDA may be limited
by working capital, debt service and capital expenditure requirements and
by restrictions related to legal requirements, commitments and
uncertainties.
(d) EBITDA margin represents EBITDA as a percentage of revenues.
(e) Adjusted EBITDA means EBITDA before option compensation expense, corporate
expense charges, special charges and other income (expense). Adjusted
EBITDA is presented because it is a widely accepted financial indicator of
a cable company's ability to service 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.
(f) Homes passed are the number of living units, such as single residence
homes, apartments and condominium units, passed by the cable distribution
network in a given cable system service area.
(g) Basic customers are customers who receive basic cable service. All of our
customers, including those receiving digital or advanced services, receive
basic cable service.
(h) Basic penetration represents basic customers as a percentage of homes
passed.
(i) Average monthly revenue per basic customer represents revenues divided by
twelve divided by the number of basic customers at period end.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Interest Rate Risk
We are exposed to various market risks, including fluctuations in interest
rates. We use interest rate risk management derivative instruments, such as
interest rate swap agreements, interest rate cap agreements and interest rate
collar agreements (collectively referred to herein as interest rate agreements)
as 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. Interest rate collar
agreements are used to limit our exposure to and benefits from interest rate
fluctuations on variable rate debt to within a certain range of rates.
Interested rate risk management agreements are not held or issued for
speculative or trading purposes.
As of December 31, 2001 and 2000, long-term debt totaled approximately
$15.0 billion and $12.3 billion, respectively. This debt was comprised of
approximately $6.7 billion and $7.3 billion of debt under our subsidiaries'
credit facilities and $8.2 billion and $5.0 billion of high-yield debt at
December 31, 2001 and 2000, respectively. As of December 31, 2001 and 2000, the
weighted average rate on the bank debt was approximately 6.0% and 8.3%,
respectively, while the weighted average rate on the high-yield was
approximately 10.1% and 9.1%, respectively, resulting in a blended weighted
average rate of 8.2% and 8.9%, respectively. Approximately 80.2% of our debt was
effectively fixed including the effects of our interest rate hedge agreements as
of December 31, 2001 as compared to approximately 57.2% at December 31, 2000.
The fair value of our total fixed-rate debt was $8.2 billion and $5.5 billion at
December 31, 2001 and 2000, respectively.
- 59 -
The fair value of fixed-rate debt is based on quoted market prices. The fair
value of variable-rate debt approximated the carrying value of $6.7 billion and
$7.3 billion at December 31, 2001 and 2000, respectively, since this debt bears
interest at current market rates.
Effective January 1, 2001, we adopted SFAS No. 133 "Accounting for
Derivative Instruments and Hedging Activities." Our interest rate agreements are
recorded in the consolidated balance sheet at December 31, 2001 as either an
asset or liability measured at fair value. In connection with the adoption of
SFAS No. 133, we recorded a loss of $23.9 million for the cumulative effect of
change in accounting principle as other expense. The effect of adoption was to
increase other expense resulting in increased loss before minority interest
expense and net loss by $23.9 million and $9.8 million, respectively, for the
year ended December 31, 2001.
We have certain interest rate derivative instruments that have been
designated as cash flow hedging instruments. Such instruments are those which
effectively convert variable interest payments on debt instruments into fixed
payments. For qualifying hedges, SFAS No. 133 allows derivative gains and losses
to offset related results on hedged items in the consolidated statement of
operations. We have formally documented, designated and assessed the
effectiveness of transactions that receive hedge accounting. For the year ended
December 31, 2001, other expense includes $2.5 million of losses, which
represent cash flow hedge ineffectiveness on interest rate hedge agreements
arising from differences between the critical terms of the agreements and the
related hedged obligations. Changes in the fair value of interest rate
agreements designated as hedging instruments of the variability of cash flows
associated with floating-rate debt obligations are reported in accumulated other
comprehensive loss. At December 31, 2001, included in accumulated other
comprehensive loss was a loss of $38.5 million related to derivative instruments
designated as cash flow hedges. The amounts are subsequently reclassified into
interest expense as a yield adjustment in the same period in which the related
interest on the floating-rate debt obligations affects earnings (losses).
Certain interest rate derivative instruments are not designated as hedges
as they do not meet the effectiveness criteria specified by SFAS No. 133.
However, we believe such instruments are closely correlated with the respective
debt, thus managing associated risk. Interest rate derivative instruments not
designated as hedges are marked to fair value with the impact recorded as other
income or expense. For the year ended December 31, 2001, we recorded other
expense of $48.8 million for interest rate derivative instruments not designated
as hedges.
The table set forth below summarizes the fair values and contract terms of
financial instruments subject to interest rate risk maintained by us as of
December 31, 2001 (dollars in thousands):
[Enlarge/Download Table]
Fair Value at
December 31,
2002 2003 2004 2005 2006 Thereafter Total 2001
-------- -------- -------- -------- -------- ---------- ---------- -------------
Debt
Fixed Rate ................. $ -- $ 67,565 $ 218 $ -- $ -- $9,352,693 $9,420,476 $8,200,939
Average Interest Rate ... -- 11.8% 7.5% -- -- 10.3% 10.4%
Variable Rate .............. $ -- $169,139 $192,333 $430,307 $717,832 $5,200,389 $6,710,000 $6,710,000
Average Interest Rate ... -- 7.5% 5.5% 6.3% 6.8% 7.7% 7.4%
Interest Rate Instruments
Variable to Fixed Swaps .... $450,000 $575,000 $515,000 $900,000 $872,713 $ -- $3,312,713 $ 79,925
Average Pay Rate ........ 7.7% 7.8% 6.8% 6.9% 7.1% -- 7.2%
Average Receive Rate .... 4.2% 5.4% 5.8% 6.7% 7.2% -- 6.2%
The notional amounts of interest rate instruments do not represent amounts
exchanged by the parties and, thus, are not a measure of our exposure to credit
loss. The amounts exchanged are determined by reference to the notional amount
and the other terms of the contracts. The estimated fair value approximates the
costs (proceeds) to settle the outstanding contracts. Interest rates on variable
debt are estimated using the average implied forward London Interbank Offering
Rate (LIBOR) rates for the year of maturity based on the yield curve in effect
at December 31, 2001.
At December 31, 2001 and 2000, we had outstanding $3.3 billion and $1.9
billion, $0 and $15.0 million, and $520.0 million and $520.0 million,
respectively, in notional amounts of interest rate swaps, caps and collars,
respectively. The collar agreements are structured so that if LIBOR falls below
5.3%, we pay 6.7%. If the LIBOR rate is between 5.3% and 8.0%, we pay LIBOR. If
LIBOR falls between 8.0% and 9.9%, the LIBOR rate is capped at 8.0%. If rates go
above 9.9%, the cap is removed. As of December 31, 2001, the fair value of the
collars was a liability of $33.7 million.
- 60 -
We do not hold collateral for these instruments and are therefore subject
to credit loss in the event of nonperformance by the counter party to the
interest rate exchange agreement. However we do not anticipate nonperformance by
the counter party to the interest rate exchange agreement.
January 2002 Charter Holdings Notes - Credit Facility Amendment. In
January 2002, Charter Holdings and Charter Capital issued senior notes with an
aggregate principal amount at maturity of $1.1 billion. The January 2002 Charter
Holdings notes are comprised of $350.0 million 9.625% senior notes due 2009,
$300.0 million 10.000% senior notes due 2011, and $450.0 principal amount at
maturity of 12.125% senior discount notes due 2012. The net proceeds of
approximately $872.8 million were used to repay a portion of the amounts
outstanding under the revolving credit facilities of our subsidiaries.
In January 2002, we amended the Charter Operating credit facilities and
the CC VIII credit facilities to provide, among other things, for the deferral
of the repayment of the principal and a delay in the reduction of certain
facilities and, in consideration, we increased the interest rates related to
such facilities and paid a consent fee to those lenders that consented to the
amendment. The amounts available for borrowing under the Charter Operating and
the CC VIII facilities were increased by $200 million and $100 million,
respectively, at the time of the amendments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Our consolidated financial statements, the related notes thereto, and the
reports of independent auditors are included in this Annual Report beginning on
page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Directors
Charter Holdings is a holding company with no operations. Charter Capital
is a direct, wholly-owned finance subsidiary of Charter Holdings that exists
solely for the purpose of serving as co-obligor of the January 2002, May 2001,
January 2001, January 2000 and March 1999 public notes issued by Charter
Holdings. Neither Charter Holdings nor Charter Capital has any employees. We and
our direct and indirect subsidiaries are managed by Charter Communications, Inc.
See "Item 13. Certain Relationships and Related Transactions."
Charter Holdings has two directors, Carl E. Vogel and William D. Savoy.
The persons listed below are directors of Charter Communications, Inc., Charter
Communications Holding Company, Charter Holdings or Charter Capital, as
indicated. All of the directors of Charter Communications, Inc. are elected
annually.
- 61 -
[Download Table]
Directors Position(s)
--------- -----------
Paul G. Allen................. Chairman of the Board of Directors of Charter
Communications, Inc. and Director of Charter
Communications Holding Company
Marc B. Nathanson............. Director of Charter Communications, Inc.
Ronald L. Nelson.............. Director of Charter Communications, Inc.
Nancy B. Peretsman............ Director of Charter Communications, Inc.
John H. Tory.................. Director of Charter Communications, Inc.
William D. Savoy.............. Director of Charter Communications, Inc.,
Charter Communications Holding Company
and Charter Holdings
Carl E. Vogel................. Director of Charter Communications, Inc.,
Charter Communications Holding Company,
Charter Holdings and Charter Capital
Larry W. Wangberg............. Director of Charter Communications, Inc.
The following sets forth certain biographical information as of March 15,
2002 with respect to the directors listed above.
Paul G. Allen, 49, has been Chairman of the Board of Directors of Charter
Communications, Inc. since July 1999, and Chairman of the board of directors of
Charter Investment (a predecessor to, and currently an affiliate of, Charter
Communications, Inc.) since December 1998. Mr. Allen, cofounder of Microsoft
Corporation, has been a private investor for more than 15 years, with interests
in over 50 technology, telecommunications, content and biotech companies. Mr.
Allen's investments include Vulcan Inc., Clear Blue Sky Productions, the
Portland Trail Blazers NBA and Seattle Seahawks NFL franchises, and investments
in USA Networks, TechTV Inc., DreamWorks SKG, Wink Communications, and Oxygen
Media. In addition, he is a director of USA Networks, TechTV Inc., Vulcan
Programming Inc., Vulcan Ventures, Vulcan Inc. (f/k/a Vulcan Northwest), Vulcan
Cable III and numerous privately held companies.
Marc B. Nathanson, 56, has been a director of Charter Communications, Inc.
since January 2000. Mr. Nathanson is the chairman of Mapleton Investments LLC,
an investment vehicle formed in 1999. He also founded and served as chairman and
chief executive officer of Falcon Holding Group, Inc., a cable operator, and its
predecessors, from 1975 until 1999. He served as chairman and chief executive
officer of Enstar Communications Corporation, a cable operator, from 1988 until
November 1999. Prior to 1975, Mr. Nathanson held executive positions with
Teleprompter Corporation, Warner Cable and Cypress Communications Corporation.
In 1995, he was appointed by the President of the United States to the
Broadcasting Board of Governors, and since 1998 has served as its chairman.
Pursuant to a May 1999 letter agreement, Mr. Nathanson serves as Vice-Chairman
and as a director of Charter Communications, Inc. See "Item 11. Executive
Compensation - Employment and Consulting Arrangements."
Ronald L. Nelson, 49, has been a director of Charter Communications, Inc.
since November 1999. Mr. Nelson is a founding member of DreamWorks SKG, where he
has served in executive management since 1994. Prior to that time, during his 15
years at Paramount Communications Inc., he served in a variety of operating and
executive positions. He currently serves as a member of the board of directors
of Advanced Tissue Sciences, Inc. and Centre Pacific, L.L.C., a registered
investment advisor. Mr. Nelson has a B.S. degree from the University of
California at Berkeley and an M.B.A. degree from the University of California at
Los Angeles.
Nancy B. Peretsman, 47, has been a director of Charter Communications,
Inc. since November 1999. Ms. Peretsman has been a managing director and
executive vice president of Allen & Company Incorporated, an investment bank
unrelated to Paul G. Allen, since 1995. From 1983 to 1995, she was an investment
banker at Salomon Brothers Inc., where she was a managing director since 1990.
She is a director of Priceline.com Incorporated and several privately held
companies. She has a B.A. degree from Princeton University and an M.P.P.M.
degree from Yale University.
- 62 -
William D. Savoy, 37, has been a director of Charter Communications, Inc.
since July 1999 and a director of Charter Investment since December 1998. Since
1990, Mr. Savoy has been an officer and a director of many affiliates of Mr.
Allen, including vice president and a director of Vulcan Ventures Incorporated,
president of Vulcan Northwest, Inc., and president and a director of Vulcan
Programming Inc. and Vulcan Cable III Mr. Savoy also serves on the advisory
board of DreamWorks SKG and as a director of drugstore.com, InfoSpace, Inc.,
INVESTools, Inc., Peregrine Systems, Inc., RCN Corporation, USA Networks, Inc.,
TechTV Inc. and digeo, inc. Mr. Savoy holds a B.S. degree in computer science,
accounting and finance from Atlantic Union College.
John H. Tory, 47, has been a director of Charter Communications, Inc.
since December 2001. Mr. Tory is the President and Chief Executive Officer of
Rogers Cable Inc., Canada's largest broadband cable operator, and has held that
position since April 1999. From 1995 to 1999 Mr. Tory was President and Chief
Executive Officer of Rogers Media Inc., a broadcasting and publishing company.
Prior to joining Rogers, Mr. Tory was a managing partner and member of the
executive committee at Tory Tory DesLauriers & Binnington, one of Canada's
largest law firms. Mr. Tory serves on the board of a number of Canadian
companies, including Rogers Cable Inc., Rogers Media Inc., Cara Operations
Limited, Enbridge Consumers Gas and the Toronto Blue Jays Baseball Club. He also
served for nine years as the Chairman of the Canadian Football League, including
four years as League Commissioner. Mr. Tory was educated at University of
Toronto Schools, Trinity College (University of Toronto) and Osgoode Hall Law
School.
Carl E. Vogel, 44, has been a director, President and Chief Executive
Officer of Charter Communications, Inc. since October 2001. Mr. Vogel has more
than 20 years experience in telecommunications and the subscription television
business. Prior to joining Charter, he was a senior vice president of Liberty
Media Corp. from November 1999 until October 2001, and chief executive officer
of Liberty Satellite and Technology from April 2000 until October 2001. Prior to
joining Liberty, Mr. Vogel was an executive vice president and chief operating
officer of field operations for AT&T Broadband and Internet Services with
responsibility for managing operations of all of AT&T's cable broadband
properties from June 1999 until November 1999. From June 1998 to June 1999, Mr.
Vogel served as chief executive officer of Primestar Inc., a national provider
of subscription television services, and from 1997 to 1998, he served as chief
executive officer of Star Choice Communications. From 1994 through 1997, Mr.
Vogel served as the President and Chief Operating Officer of EchoStar
Communications. He began his career at Jones Intercable in 1983. Mr. Vogel
serves as a director of OnCommand Corporation, the National Cable and
Telecommunications Association, CableLabs and digeo, inc., and sits on the
executive committees of CableLabs and the National Cable and Telecommunications
Association. Mr. Vogel holds a B.S. degree in finance and accounting from St.
Norbert College. His employment agreement provides that he will serve on the
Board of Directors of Charter Communications, Inc. See "Item 11. Executive
Compensation - Employment and Consulting Arrangements."
Larry W. Wangberg, 59, has been a director of Charter Communications, Inc.
since January 2002. Mr. Wangberg has served as Chairman, Chief Executive Officer
and a director of TechTV Inc., a cable television network, since 1997. He
recently announced his intention to step down as the chief executive officer of
TechTV Inc., but will remain in his current position until a successor is named
and afterwards will continue to serve as a director of TechTV Inc. Prior to
joining TechTV Inc., Mr. Wangberg was chairman and Chief Executive Officer of
StarSight Telecast Inc., an interactive navigation and program guide company
which later merged with Gemstar International, from 1994 to 1997. Mr. Wangberg
was chairman and Chief Executive Officer of Times Mirror Cable Television and
senior vice president of its corporate parent, Times Mirror Co., from 1983 to
1994. He currently serves on the boards of TechTV Inc., Autodesk Inc., and ADC
Telecommunications. Mr. Wangberg holds a bachelor's degree in mechanical
engineering and a master's degree in industrial engineering, both from the
University of Minnesota.
- 63 -
Executive Officers
The following persons are executive officers of Charter Communications,
Inc. and other than Mr. Allen, Charter Communications Holding Company, Charter
Holdings and Charter Capital:
[Enlarge/Download Table]
Executive Officers Position
------------------ --------
Paul G. Allen...................... Chairman of the Board
Carl E. Vogel...................... President and Chief Executive Officer
David C. Andersen.................. Senior Vice President - Communications
David G. Barford................... Executive Vice President and Chief Operating Officer
J. Christian Fenger................ Senior Vice President of Operations - Western Division
Eric A. Freesmeier................. Senior Vice President - Administration
Thomas R. Jokerst.................. Senior Vice President - Advanced Technology Development
Kent D. Kalkwarf................... Executive Vice President and Chief Financial Officer
Ralph G. Kelly..................... Senior Vice President - Treasurer
David L. McCall.................... Senior Vice President of Operations - Eastern Division
Majid R. Mir....................... Senior Vice President - Telephony and Advanced Services
John C. Pietri..................... Senior Vice President - Engineering
Michael E. Riddle.................. Senior Vice President and Chief Information Officer
William J. Shreffler............... Senior Vice President of Operations - Midwest Division
Steven A. Schumm................... Executive Vice President, Assistant to the President
Curtis S. Shaw..................... Senior Vice President, General Counsel and Secretary
Stephen E. Silva................... Executive Vice President - Corporate Development and Chief
Technology Officer
Information regarding our executive officers who do not also act as
directors as of March 15, 2002 is set forth below.
David C. Andersen, 53, Senior Vice President - Communications. Mr.
Andersen was named to his current position in May 2000. Prior to this he was
Vice President of Global Communications for CNBC, the worldwide cable and
satellite business news network subsidiary of NBC, from September 1999 to April
2000. He worked for Cox Communications, Inc. from 1982 to 1999, establishing
their communications department and advancing to Vice President of Public
Affairs. He held various positions in communications with the General Motors
Corporation from 1971 until 1982. Mr. Andersen is a past recipient of the cable
industry's highest honor - the Vanguard Award. He serves on the Board of
KIDSNET, the educational non-profit clearinghouse of children's programming, and
is a former chairman of the National Captioning Institute's Cable Advisory
Board. Mr. Andersen holds a B.S. in Journalism from the University of Kansas.
David G. Barford, 43, Executive Vice President and Chief Operating
Officer. Mr. Barford was promoted to his current position in July 2000, having
previously served as Senior Vice President of Operations - Western Division from
June 1997 to July 2000. Prior to joining Charter Investment in 1995, Mr. Barford
held various senior marketing and operating roles during nine years at Comcast
Cable Communications, Inc. He received a B.A. degree from California State
University, Fullerton, and an M.B.A. degree from National University.
J. Christian Fenger, 46, Senior Vice President of Operations - Western
Division. Mr. Fenger was promoted to his current position in January 2002,
having served as Vice President and Senior Vice President of Operations for our
North Central Region since 1998. From 1992 until joining us in 1998, Mr. Fenger
served as the Vice President of Operations for Marcus Cable, and, prior to that,
as Regional Manager of Simmons Cable TV since 1986. Mr. Fenger received his
bachelor's degree and his master's degree in communications management from
Syracuse University's Newhouse School of Public Communications.
Eric A. Freesmeier, 49, Senior Vice President - Administration. From 1986
until joining Charter Investment in 1998, Mr. Freesmeier served in various
executive management positions at Edison Brothers Stores, Inc. Earlier, he held
- 64 -
management and executive positions at Montgomery Ward. Mr. Freesmeier holds
bachelor's degrees from the University of Iowa and a master's degree from
Northwestern University's Kellogg Graduate School of Management.
Thomas R. Jokerst, 52, Senior Vice President - Advanced Technology
Development. Mr. Jokerst joined Charter Investment in 1994. Previously he served
as a vice president of Cable Television Laboratories and as a regional director
of engineering for Continental Cablevision. Mr. Jokerst is a graduate of Ranken
Technical Institute and of Southern Illinois University.
Kent D. Kalkwarf, 42, Executive Vice President and Chief Financial
Officer. Mr. Kalkwarf was promoted to the position of Executive Vice President
in July 2000, having previously served as Senior Vice President. Prior to
joining Charter Investment in 1995, Mr. Kalkwarf was employed for 13 years by
Arthur Andersen LLP, where he attained the position of senior tax manager. He
has extensive experience in cable, real estate and international tax issues. Mr.
Kalkwarf has a B.S. degree from Illinois Wesleyan University and is a certified
public accountant.
Ralph G. Kelly, 44, Senior Vice President - Treasurer. Prior to joining
Charter Investment in 1993, Mr. Kelly was controller and then treasurer of
Cencom Cable Associates between 1984 and 1992. He left Charter Investment in
1994, to become chief financial officer of CableMaxx, Inc., and returned in
1996. Mr. Kelly received his bachelor's degree in accounting from the University
of Missouri - Columbia and his M.B.A. degree from Saint Louis University. Mr.
Kelly is a certified public accountant.
David L. McCall, 46, Senior Vice President - Operations - Eastern
Division. Prior to joining Charter Investment in 1995, Mr. McCall was associated
with Crown Cable and its predecessor company, Cencom Cable Associates, Inc.,
from 1983 to 1994. Mr. McCall is a member of the Southern Cable Association's
Tower Club.
Majid R. Mir, 51, Senior Vice President - Telephony and Advanced Services.
Prior to joining Charter Communications, Inc. in April 2001, Mr. Mir worked with
GENUITY Networks, Inc. as vice president, Metro Network Engineering in Irving,
Texas from June 2000 to April 2001. Prior to that, Mr. Mir worked with GTE from
1979 to June 2000 in various capacities of increasing responsibility, most
recently as assistant vice president of Core Network Engineering. Mr. Mir served
as director, Business Development for GTE, from 1996 to 1997. Mr. Mir earned a
bachelor's of science in systems science from the University of West Florida and
holds a master's degree in business administration from the University of South
Florida.
John C. Pietri, 52, Senior Vice President - Engineering. Prior to joining
Charter Investment in 1998, Mr. Pietri was with Marcus Cable for nine years,
most recently serving as senior vice president and chief technical officer.
Earlier he was in operations with West Marc Communications and Minnesota Utility
Contracting. Mr. Pietri attended the University of Wisconsin-Oshkosh.
Michael E. Riddle, 43, Senior Vice President and Chief Information
Officer. Prior to joining Charter Communications, Inc. in December 1999, Mr.
Riddle was director, applied technologies of Cox Communications for four years.
Prior to that, he held technical and management positions during 17 years at
Southwestern Bell and its subsidiaries. Mr. Riddle attended Fort Hays State
University.
William J. Shreffler, 48, Senior Vice President of Operations - Midwest
Division. Mr. Shreffler was promoted to his current position in January 2002,
having previously served as Vice President of Operations for the Michigan
region. Prior to joining Charter Communications in 1999, Mr. Shreffler acted as
a Managing Director of Cablevision. Between 1995 and 1999, he held various
positions with Century Communications, most recently as its Group Vice
President. From 1985 to 1995, Mr. Shreffler acted as the Regional Controller for
American Cable Systems and, following the acquisition of American by Continental
Cablevision, as its General Manager in its Chicago region. Mr. Shreffler holds
degrees from Robert Morris College and Duquesne University and is obtaining a
master's degree in business from Lewis University in Chicago.
Steven A. Schumm, 49, Executive Vice President and Assistant to the
President. Prior to joining Charter Investment in 1998, Mr. Schumm was managing
partner of the St. Louis office of Ernst & Young LLP for 14 years. He had joined
Ernst & Young in 1974. He served as one of 10 members of the firm's National Tax
Committee. Mr. Schumm earned a B.S. degree from Saint Louis University. He is
member of the board of directors of TVGateway, LLC.
- 65 -
Curtis S. Shaw, 53, Senior Vice President, General Counsel and Secretary.
From 1988 until he joined Charter Investment in 1997, Mr. Shaw served as
corporate counsel to NYNEX. Since 1973, Mr. Shaw has practiced as a corporate
lawyer, specializing in mergers and acquisitions, joint ventures, public
offerings, financings, and federal securities and antitrust law. Mr. Shaw
received a B.A. degree from Trinity College and a J.D. degree from Columbia
University School of Law.
Stephen E. Silva, 42, Executive Vice President - Corporate Development and
Technology and Chief Technology Officer. Mr. Silva joined Charter Investment in
1995. Prior to his promotion to Executive Vice President and Chief Technology
Officer in October 2001, he was Senior Vice President - Corporate Development
and Technology since September 1999. Mr. Silva previously served in various
management positions at U.S. Computer Services, Inc., a billing service provider
specializing in the cable industry. He is a member of the board of directors of
Diva Systems Corporation.
ITEM 11. EXECUTIVE COMPENSATION.
Summary Compensation Table
The following table sets forth information regarding the compensation paid
for services rendered to executive officers of Charter Communications, Inc. for
the fiscal years ended December 31, 1999, 2000 and 2001, including individuals
who served as Chief Executive Officer during 2001 and each of the other four
most highly compensated executive officers as of December 31, 2001. Prior to
November 1999, such executive officers had received their compensation from
Charter Investment. Commencing in November 1999, such officers received their
compensation from Charter Communications, Inc. Pursuant to a mutual services
agreement between Charter Communications, Inc., Charter Investment and Charter
Communications Holding Company, each entity leases the personnel and provides
services to each of the others, including the knowledge and expertise of their
respective officers, that are reasonably requested to manage Charter
Communications Holding Company, Charter Holdings and the cable systems owned by
their subsidiaries. See "Item 13. Certain Relationships and Related Transactions
-- Management and Consulting Agreements."
[Enlarge/Download Table]
Long-Term
Annual Compensation Compensation Award
---------------------------------------------------- ------------------------- ------------
Year Other Annual Restricted Securities All Other
Ended Compensation Stock Underlying Compensation
Name and Principal Position Dec. 31 Salary($) Bonus($)(1) ($)(2) Awards($)(3) Options(#) ($)(4)
--------------------------- ------- --------- -------------- ------------ ------------ ---------- ------------
Carl E. Vogel (5)
President and Chief
Executive Officer ............. 2001 207,692 546,000(7) 17,463(12) 513,000 3,400,000 8,986(15)
Steven A. Schumm ................ 2001 435,000 402,000(8)(a) -- -- 165,000 5,250
Executive Vice President ...... 2000 410,000 444,000(8)(b) -- -- -- 2,040
1999 400,000 60,000 -- -- 782,681 1,920
David G. Barford ................ 2001 330,769 495,875(9)(a) 79,739(13) 449,625 1,135,000 5,250
Executive Vice President ...... 2000 255,000 250,500(9)(b) -- -- 40,000 5,250
and Chief Operating Officer ... 1999 235,000 80,000 -- -- 200,000 7,000
Kent D. Kalkwarf ................ 2001 330,769 495,875(10)(a) -- 449,625 1,160,000 5,250
Executive Vice President ...... 2000 225,000 250,500(10)(b) -- -- 40,000 5,250
and Chief Financial Officer ... 1999 180,000 80,000 -- -- 200,000 2,586
David L. McCall ................. 2001 300,000 413,150(11)(a) -- 366,450 300,000 5,250
Senior Vice President of ...... 2000 225,000 283,625(11)(b) -- -- 25,000 4,237
Operations--Eastern Division .. 1999 149,656 108,800 -- -- 200,000 505
Jerald L. Kent (6) .............. 2001 1,615,385 900,000 98,733(14) -- -- 506,915(16)
Former President and .......... 2000 1,250,000 1,000,000 127,005(14) -- -- 5,250
Chief Executive Officer ....... 1999 1,250,000 625,000 76,799(14) -- -- 4,000
----------
(1) Where indicated, includes grants of restricted stock during 2001
under the Charter Communications 2001 Stock Incentive Plan to
officers specified below that were immediately vested as to
twenty-five percent (25%) of the shares, with the remaining shares
vesting in 36 equal monthly installments commencing approximately 15
months from the grant date. The value as of the grant date based on
the closing market price of those shares that were vested
immediately is included in the table for the employee's bonus amount
for 2001. Also, where indicated, includes "stay" bonus in form of
principal and interest forgiven under employee's promissory note, as
more fully described in "- Employment and Consulting Arrangements."
Unless otherwise indicated, includes only bonus for services
rendered in the applicable fiscal year.
- 66 -
(2) Includes other non-cash compensation, unless the aggregate amount
does not exceed the lesser of $50,000 or 10% of such officer's total
annual salary and bonus shown in the table.
(3) Includes grants of restricted stock during 2001 under the Charter
Communications 2001 Stock Incentive Plan, as follows: (i) Carl E.
Vogel, 50,000 shares as of October 8, 2001, (ii) David G. Barford,
50,000 shares as of September 28, 2001, (iii) Kent D. Kalkwarf,
50,000 shares as of September 28, 2001, (iv) David C. McCall, 35,000
shares as of September 28, 2001. The restricted shares were
immediately vested as to twenty-five percent (25%) of the shares,
with the remaining shares vesting in 36 equal monthly installments
commencing approximately 15 months from the grant date. The value as
of the date of grant based on the closing market price of those
shares that were vested immediately is disclosed in the "Bonus"
column of the table. The value as of the date of grant based on the
closing market price of the unvested restricted shares is disclosed
in the table. Pursuant to the terms of these employees' restricted
stock agreement, each is entitled to any cash and/or stock dividends
on the restricted shares. At December 31, 2001 based on a per share
closing market price of $16.43 for Charter Communications, Inc.
Class A common stock, the aggregate number (and value) for each of
the officers holding outstanding restricted stock was: Mr. Vogel
37,500 ($616,125); Mr. Barford 37,500 ($616,125); Mr. Kalkwarf
37,500 ($616,125); and Mr. McCall: 26,250 shares ($431,288)
(4) Unless otherwise noted, includes only matching contributions under
Charter Communications, Inc.'s 401(k) plan.
(5) Mr. Vogel became the Chief Executive Officer of Charter
Communications, Inc. in October 2001.
(6) As of September 28, 2001, Mr. Kent no longer served as President and
Chief Executive Officer; his bonus for 2001 was provided for in the
agreement regarding his termination. See "- Employment and
Consulting Arrangements" for additional information.
(7) Includes: (i) $171,000, representing the value based on the closing
market price on October 8, 2001, the original grant date, of 12,500
shares of Class A common stock, the vested portion of Mr. Vogel's
restricted stock grant; (ii) a one-time signing bonus of $250,000;
and (iii) $125,000 awarded as a bonus for services performed in
2001.
(8)(a) Includes: (i) "stay" bonus of $342,000 representing the principal
and interest forgiven under employee's promissory note; and (ii)
$60,000 awarded as a bonus for services performed in 2001.
(8)(b) Includes: (i) "stay" bonus of $321,000 representing the principal
and interest forgiven under employee's promissory note; and (ii)
$123,000 awarded as a bonus for services performed in 2000.
(9)(a) Includes: (i) $149,875, representing the value based on the closing
market price on September 28, 2001, the original grant date, of
12,500 shares of Class A common stock, the vested portion of Mr.
Barford's restricted stock grant; (ii) "stay" bonus of $171,000
representing the principal and interest forgiven under employee's
promissory note; and (iii) $175,000 awarded as a bonus for services
performed in 2001.
(9)(b) Includes: (i) "stay" bonus of $160,500 representing the principal
and interest forgiven under employee's promissory note; and (ii)
$90,000 awarded as a bonus for services performed in 2000.
(10)(a) Includes: (i) $149,875, representing the value based on the closing
market price on September 28, 2001, the original grant date, of
12,500 shares of Class A common stock, the vested portion of Mr.
Kalkwarf's restricted stock grant; (ii) "stay" bonus of $171,000
representing the principal and interest forgiven under employee's
promissory note; and (iii) $175,000 awarded as a bonus for services
performed in 2001.
(10)(b) Includes: (i) "stay" bonus of $160,500 representing the principal
and interest forgiven under employee's promissory note; and (ii)
$90,000 awarded as a bonus for services performed in 2000.
(11)(a) Includes: (i) $122,150, representing the value based on the closing
market price on October 30, 2001, the original grant date, of 8,750
shares of Class A common stock, the vested portion of Mr. McCall's
restricted stock grant; (ii) "stay" bonus of $171,000 representing
the principal and interest forgiven under employee's promissory
note; and (iii) $120,000 awarded as a bonus for services performed
in 2001.
(11)(b) Includes: (i) "stay" bonus of $160,500 representing the principal
and interest forgiven under employee's promissory note; and (ii)
$123,125 awarded as a bonus for services performed in 2000.
(12) Includes $17,463 attributed to personal use of corporate airplane.
(13) Includes $79,739 for reimbursement for purchase of a car.
- 67 -
(14) For 2001, includes $98,733 attributed to personal use of corporate
airplane. For 2000, includes $35,499 attributed to personal use of a
corporate airplane and $85,214 as reimbursement for a car purchased
in 2000. For 1999, includes $55,719 paid for club membership and
dues and $20,351 attributed to personal use of corporate airplane.
(15) Includes: (i) $7,500 as reimbursement for legal expenses; and (ii)
$1,486 paid by us for COBRA expenses.
(16) Includes: (i) $500,000 paid by Charter Communications, Inc. to
charities designated by Mr. Kent, pursuant to Mr. Kent's agreement
regarding termination; (ii) $5,250 contributed by Charter
Communications under its 401(k) plan; and (iii) $1,665 paid by us
for COBRA expenses following termination of employment. See
"--Employment and Consulting Arrangements" for additional
information.
2001 Option Grants
The following table shows individual grants of options made to executive
officers named in the Summary Compensation Table during 2001. All such grants
were made under the 2001 Stock Incentive Plan and the exercise price was based
upon the fair market value of the Class A common stock.
[Enlarge/Download Table]
Potential Realizable Value at
Number of % of Total Assumed Annual Rate of
Securities Options Stock Price Appreciation
Underlying Granted to for Option Term (2)
Options Granted Employees Exercise Expiration -----------------------------
Name (#)(1) in 2001 Price ($/Sh) Date 5%($) 10%($)
-------------------------- --------------- ---------- ------------ ---------- ----------- -----------
Carl E. Vogel............. 3,400,000(3) 11.57% $13.68 10/07/11 $29,251,147 $74,128,149
Steven A. Schumm.......... 25,000(4) 0.09% 23.09 02/12/11 363,029 919,988
140,000(5) 0.48% 11.99 9/28/11 1,055,663 2,675,256
David G. Barford.......... 185,000(4) 0.63% 23.09 2/12/11 2,686,418 6,807,910
200,000(5) 0.68% 11.99 9/28/11 1,508,089 3,821,794
750,000(6) 2.55% 11.99 9/28/11 5,655,335 14,331,729
Kent D. Kalkwarf.......... 210,000(4) 0.71% 23.09 2/12/11 3,049,447 7,727,898
200,000(5) 0.68% 11.99 9/28/11 1,508,089 3,821,794
750,000(6) 2.55% 11.99 9/28/11 5,655,335 14,311,729
David L. McCall........... 150,000(4) 0.51% 23.09 2/12/11 2,178,177 5,519,927
150,000(5) 0.51% 11.99 9/28/11 1,131,067 2,866,346
Jerald L. Kent............ -- -- -- -- -- --
----------
(1) Options are transferable under limited conditions, primarily to
accommodate estate planning purposes.
(2) This column shows the hypothetical gains on the options granted based on
assumed annual compound price appreciation of 5% and 10% over the full
ten-year term of the options. The assumed rates of 5% and 10% appreciation
are mandated by the SEC and do not represent our estimate or projection of
future prices.
(3) These options vested as to 25% on date of grant of October 8, 2001, with
the remainder vesting in 36 equal monthly installments commencing
approximately 15 months from the grant date.
(4) These options vest annually in four equal installments commencing on the
first anniversary following the grant date of February 12, 2001.
(5) These options vest annually in four equal installments commencing on the
first anniversary following the grant date of September 28, 2001.
(6) These options vested as to 25% on date of grant of September 28, 2001,
with the remainder vesting in 36 equal monthly installments commencing
approximately 15 months from the grant date.
- 68 -
2001 Aggregated Option Exercises and Option Value Table
The following table sets forth, for the officers named in the Summary
Compensation Table, information concerning options, including the number of
securities for which options were held at December 31, 2001, the value of
unexercised "in-the-money" options (i.e., the positive spread between the
exercise price of outstanding options and the market value of Charter
Communications, Inc. Class A common stock on December 31, 2001) and the value of
unexercised options as of December 31, 2001:
[Enlarge/Download Table]
Number of Securities Underlying Value of Unexercised
Options at In-the-Money Options at
Securities December 31, 2001 (#)(1) December 31, 2001 ($)(2)
Acquired on Value ------------------------------- ---------------------------
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
-------------------------- ------------ ------------ -------------- --------------- ----------- -------------
Carl E. Vogel............. -- -- 850,000 2,550,000 $2,337,500 $7,012,500
Steven A. Schumm.......... -- -- 456,563 491,118 -- 621,600
David G. Barford.......... -- -- 318,832 1,056,168 832,500 2,497,500
Kent D. Kalkwarf.......... -- -- 318,832 1,081,168 832,500 2,497,500
David L. McCall........... -- -- 125,832 399,168 -- 666,000
Jerald L. Kent............ -- -- -- -- -- --
----------
(1) Options granted prior to 2001 and under the 1999 Charter Communications
Option Plan, when vested, are exercisable for membership units of Charter
Communications Holding Company, which are immediately exchanged on a
one-for-one basis for shares of Charter Communications, Inc. Class A
common stock. Options granted under the 2001 Stock Incentive Plan and
after 2000 are exercisable for shares of Charter Communications, Inc.
Class A common stock.
(2) Based on a per share market value of $16.43 for Charter Communications,
Inc. Class A common stock.
Option/Stock Incentive Plans
Stock options, restricted stock and other incentive compensation are
granted pursuant to two plans - the 1999 Charter Communications Option Plan and
the 2001 Stock Incentive Plan. The 1999 Charter Communications Option Plan
provided for the grant of options to purchase membership units in Charter
Communications Holding Company to current and prospective employees and
consultants of Charter Communications Holding Company and its affiliates and
current and prospective non-employee directors of Charter Communications, Inc.
Membership units received upon exercise of any options are immediately exchanged
for shares of Charter Communications, Inc. Class A common stock on a one-for-one
basis.
The 2001 Stock Incentive Plan provides for the grant of non-qualified
stock options, stock appreciation rights, dividend equivalent rights,
performance units and performance shares, share awards, phantom stock and/or
shares of restricted stock (not to exceed 3,000,000) as each term is defined in
the 2001 Stock Incentive Plan. Employees, officers, consultants and directors of
Charter Communications, Inc. and its subsidiaries and affiliates are eligible to
receive grants under the 2001 Stock Incentive Plan. Generally, options expire 10
years from the grant date.
Together, the plans allow for the issuance of up to an aggregate of
60,000,000 shares of Charter Communications, Inc. Class A common stock (or units
exchangeable for Charter Communication, Inc. Class A common stock). Any shares
covered by options that are terminated under the 1999 Charter Communications
Option Plan will be transferred to the 2001 Stock Incentive Plan, and no new
options will be granted under the 1999 Charter Communications Option Plan. At
December 31, 2001, 524,939 shares had been issued under the plans, 165,750
shares are subject to vesting under restricted stock agreements. Of the
remaining 59,640,811 shares covered by the plans, as of December 31, 2001,
46,557,571 were subject to outstanding options (21.5% of which are vested) and
12,917,490 remain eligible for future grant.
The board of directors of Charter Communications, Inc. appointed Nancy B.
Peretsman and Ronald L. Nelson as members of the Option Plan Committee to
administer and authorize grants and awards under the 2001 Stock Incentive Plan
to any eligible individuals. The Option Plan Committee will determine the terms
of each stock option grant, restricted stock grant or other award at the time of
grant, including the exercise price to be paid for the shares, the vesting
schedule for each option, the price, if any, to be paid by the grantee for the
restricted stock, the restrictions placed on the shares, and
- 69 -
the time or times when the restrictions will lapse. The Option Plan Committee
also has the power to accelerate the vesting of any grant or extend the term
thereof.
Upon a change of control, the Option Plan Committee can shorten the
exercise period of any option, have the survivor or successor entity assume the
options with appropriate adjustments, or cancel options and pay out in cash. If
an optionee's or grantee's employment is terminated without "cause" or for "good
reason" during the 12-month period following a "change in control" (as those
terms are defined in the plans), unless otherwise provided in an agreement, with
respect to such optionee's or grantee's awards under the plans, all outstanding
options will become immediately and fully exercisable, all outstanding stock
appreciation rights will become immediately and fully exercisable, the
restrictions on the outstanding restricted stock will lapse, and all of the
outstanding performance units will vest and the restrictions on all of the
outstanding performance shares will lapse as if all performance objectives had
been satisfied at the maximum level.
Unless sooner terminated by the board of directors of Charter
Communications, Inc., the 2001 Stock Incentive Plan will terminate on February
12, 2011, and no option or award can be granted thereafter.
Director Compensation
Neither Mr. Kent nor Mr. Vogel, each of whom acted as President and Chief
Executive Officer in 2001 and were the only directors that were also employees
during 2001, received any additional compensation for serving as a director or
attending any meeting of the board of directors during 2001. Each of Mr. Tory
and Mr. Wangberg, neither of whom is an officer or employee of Charter
Communications, Inc., was issued 40,000 fully vested options upon joining the
board of directors in 2001. Also in 2001, directors Allen, Nathanson, Peretsman,
Savoy, and Wood, none of whom were employees of Charter Communications, Inc.,
each received an annual grant of 10,000 vested options. All directors of Charter
Communications, Inc. are entitled to reimbursement for costs incurred in
connection with attendance at board and committee meetings and may receive
additional compensation to be determined.
Mr. Vogel is party to an employment agreement with Charter Communications,
Inc. Mr. Kent, prior to his resignation as President, Chief Executive Officer
and director in September 2001, was a party to an employment agreement with
Charter Communications, Inc. Mr. Wood, who resigned as a director in December
2001, was a party to a consulting agreement with Charter Communications, Inc.
that terminated on January 18, 2002 and Mr. Nathanson is a party to a letter
agreement with Charter Communications, Inc. Mr. Vogel's agreement is summarized
in "--Employment and Consulting Arrangements."
Howard L. Wood Consulting Agreement. Howard L. Wood was a member of the
Charter Communications, Inc. board of directors until December 21, 2001, and
also served as a consultant until January 18, 2002. Pursuant to Mr. Wood's
consulting agreement, Mr. Wood was entitled to receive annual cash compensation
at a rate of $60,000, health benefits, and use of an office and a full-time
secretary. The cost of the office and secretary for the year ended December 31,
2001 was $46,666. The consulting agreement also provided that Charter
Communications, Inc. will indemnify and hold harmless Mr. Wood to the maximum
extent permitted by law from and against any claims, damages, liabilities,
losses, costs or expenses incurred in connection with or arising out of the
performance by him of his duties. Mr. Wood is entitled to receive compensation
under the consulting agreement through November 2002.
Marc B. Nathanson Letter Agreement. Effective as of May 25, 1999, Marc B.
Nathanson entered into a letter agreement with Charter Communications, Inc. for
a three-year term. Under this agreement, Mr. Nathanson serves as Vice-Chairman
and as a director of Charter Communications, Inc. During the term of this
agreement, Mr. Nathanson receives a benefit equal to approximately $200,000 per
year, which Charter Communications, Inc. pays to a company controlled by Mr.
Nathanson. In addition, Mr. Nathanson is entitled to the rights and benefits
provided to other directors of Charter Communications, Inc. Charter
Communications, Inc. will indemnify and hold harmless Mr. Nathanson to the
maximum extent permitted by law from and against any claims, damages,
liabilities, losses, costs or expenses incurred in connection with or arising
out of the performance by Mr. Nathanson of his duties.
- 70 -
Employment and Consulting Arrangements
Employment Agreements. Messrs. Vogel, Barford, Kalkwarf, McCall and Silva
each are employed by Charter Communications, Inc. under separate employment
agreements that terminate on December 31, 2005. Below is a table listing the
position, salary and bonus of each employee and the stock options and restricted
stock shares received by each employee under his agreement:
[Enlarge/Download Table]
Stock Restricted
Annual Base Options Shares
Name Position Salary Received Received Annual Bonus
---------------- ---------------------------- ----------- --------- ---------- -------------------------
Carl E. Vogel President and Chief $1,000,000 3,400,000 50,000 Up to $500,000
Executive Officer
David G. Barford Executive Vice President and $350,000 750,000 50,000 50% of base, according to
Chief Operating Officer Executive Bonus Policy;
Discretionary Bonus
Kent D. Kalkwarf Executive Vice President and $350,000 750,000 50,000 50% of base, according to
Chief Financial Officer Executive Bonus Policy;
Discretionary Bonus
David L. McCall Senior Vice President of $300,000 -- 35,000 40% of base, according to
Operations-Eastern Division Executive Bonus Policy;
Discretionary Bonus
Stephen E. Silva Executive Vice President- $300,000 -- 36,000 50% of base, according to
Corporate Development and Executive Bonus Policy;
Chief Technology Officer Discretionary Bonus
The options and restricted shares generally vested 25% on the grant date,
with the remainder to vest in 36 equal monthly installments beginning on or
about the 15th month after the grant date. Generally, the agreements provide
that if the employee is terminated without cause, then a specified portion of
the remaining unvested options and restricted stock will vest immediately.
All five agreements provide that the employee is entitled to participate
in any disability insurance, pension or other benefit plan afforded to employees
generally or to executives of Charter Communications, Inc. Mr. Vogel's agreement
provides that he will be reimbursed by Charter Communications, Inc. for the cost
of term life insurance in the amount of $5.0 million. The other four agreements
provide that, to the extent Charter Communications, Inc. does not provide life
insurance in an amount at least equal to the unpaid amount of the employee's
base salary through the end of the term of his agreement, Charter
Communications, Inc. will continue to pay his estate an amount equal to his base
salary in installments through the end of the term. Each of the agreements
contain non-solicitation and confidentiality provisions applicable to each
employee. Each of Mr. Vogel, Mr. Barford, and Mr. Kalkwarf is entitled to the
use of a car in accordance with his agreement. Mr. Vogel's agreement provides
that he is entitled to the reimbursement of fees and dues for his membership in
a country club of his choice. The base salary of any employee may be increased
at the discretion of the board of directors of Charter Communications, Inc.
Each agreement provides that, if it is terminated by Charter
Communications, Inc. without cause or by the employee for good reason (including
due to a change in control of Charter Communications, Inc.), Charter
Communications, Inc. will pay to the applicable employee an amount equal to the
aggregate base salary due to the employee for the remaining term and a full
prorated bonus for the year in which the termination occurs. In addition, each
agreement provides that Charter Communications, Inc. will indemnify and hold
harmless each employee to the maximum extent permitted by law from and against
any claims, damages, liabilities, losses, costs or expenses in connection with
or arising out of the performance by the applicable employee of his duties.
Mr. Vogel's agreement provides for automatic one-year renewals and that
Charter Communications, Inc. will cause him to be elected to the Charter
Communications, Inc. board of directors without any additional compensation.
- 71 -
Jerald L. Kent. Effective September 28, 2001, Jerald L. Kent resigned as
President, Chief Executive Officer and director of Charter Communications, Inc.
and all of its subsidiaries. Pursuant to the terms of Mr. Kent's separation
agreement, Mr. Kent's employment agreement with Charter Communications, Inc.
terminated effective September 28, 2001 and all of Mr. Kent's options covering
shares of Class A common stock of Charter Communications, Inc. and Charter
Communications Holding Company membership units were cancelled. Pursuant to the
terms of the separation agreement, Mr. Kent was entitled to: receive his
prorated base salary of $1.5 million through December 23, 2001; a $900,000
separation bonus; the right to direct charitable contributions by Charter
Communications, Inc. of up to $500,000; retain ownership of the vehicle provided
to Mr. Kent under his employment agreement; and, through December 23, 2001, the
right to use the corporate plane. Mr. Kent agreed to provide consulting services
to Charter Communications, Inc. through December 23, 2001. Mr. Kent's
indemnification rights under the employment agreement described below are still
in effect.
Mr. Kent's employment agreement provided that during the initial term, Mr.
Kent would receive an annual base salary of $1.25 million, or such higher rate
as was from time to time be determined by Charter Communications, Inc.'s board
of directors in its discretion, and an annual bonus up to $625,000, in an amount
determined by the board based on an assessment of the performance of Mr. Kent as
well as the achievement of certain financial targets. Charter Communications,
Inc. also agreed to cause Mr. Kent to be elected to Charter Communications,
Inc.'s board of directors without any additional compensation. Effective for
2001, Mr. Kent's base salary was increased to $1.5 million.
Under the employment agreement, Mr. Kent was entitled to participate in
any disability insurance, pension or other benefit plan afforded to employees
generally or to executives of Charter Communications, Inc. Mr. Kent was entitled
to be reimbursed by Charter Communications, Inc. for life insurance premiums of
up to $30,000 per year and was granted personal use of the corporate airplane.
Mr. Kent also was entitled to the use of a car valued at up to $100,000 and the
fees and dues for his membership in a country club of his choice. In 2000, Mr.
Kent did not avail himself of reimbursement for life insurance premiums or
country club dues.
The employment agreement further provided that Charter Communications,
Inc. would indemnify and hold harmless Mr. Kent to the maximum extent permitted
by law from and against any claims, damages, liabilities, losses, costs or
expenses in connection with or arising out of the performance by Mr. Kent of his
duties.
Stay Bonuses. Charter Investment issued 1999 "stay bonuses" and Charter
Communications, Inc. issued 2000 and 2001 "stay bonuses" to executive officers
in the form of three-year promissory notes. One-third of the original
outstanding principal amount of each of these notes and interest is forgiven at
the end of each of the first three anniversaries of the issue date, as long as
the employee is still employed by the issuer of the bonus or any of its
affiliates. Generally, the promissory notes bear interest at 7% per year. The
following table provides certain information about such notes as of December 31,
2001 with respect to our current executive officers:
- 72 -
[Download Table]
Outstanding
Principal
Balance as of
Individual Issue Date December 31, 2001
---------------------------------------------- ------------ -----------------
David C. Andersen............................. April 2000 $100,000
David G. Barford (1).......................... January 1999 150,000
J. Christian Fenger (1)....................... January 1999 50,000
Eric A. Freesmeier (1)........................ January 1999 150,000
Thomas R. Jokerst (1)......................... January 1999 150,000
Kent D. Kalkwarf (1).......................... January 1999 150,000
Ralph G. Kelly (1)............................ January 1999 150,000
David L. McCall (1)........................... January 1999 150,000
Majid R. Mir.................................. March 2001 240,000
John C. Pietri (1)............................ January 1999 75,000
Michael Riddle................................ October 1999 15,000
Steven A. Schumm (1).......................... January 1999 300,000
Curtis S. Shaw (1)............................ January 1999 150,000
Stephen E. Silva (1).......................... January 1999 100,000
----------
(1) As of February 22, 2002, the remaining principal and accrued interest on
these notes was forgiven, so that these notes are no longer outstanding.
Compensation Committee Interlocks and Insider Participation
In 2001, the Compensation Committee of Charter Communications, Inc. was
comprised of Messrs. Paul G. Allen, William D. Savoy, and Marc B. Nathanson, and
also included Howard L. Wood until his resignation from the board of directors
in December 2001. Since February 2000, executive officer compensation matters,
including option grants, have been delegated to the Compensation Committee. In
2001, Nancy B. Peretsman and Ronald L. Nelson served as the Option Plan
Committee that administered the 1999 Charter Communications Option Plan and the
Charter Communications, Inc. 2001 Stock Incentive Plan.
With the exception of Mr. Allen (who serves as Chairman of the Board),
during 2001 and through the date hereof, no other member of the Compensation
Committee or the Option Plan Committee was an officer or employee of Charter
Communications, Inc. or any of its subsidiaries. Mr. Wood served as a consultant
to Charter Communications, Inc. in 2001, and prior to February 1999, served as
an officer of Charter Investment and various subsidiaries. Transactions between
Charter Communications, Inc. and certain members of the Compensation Committee
are more fully described in "- Director Compensation" and in "Item 13. Certain
Relationships and Related Transactions - Other Relationships."
With the exception of Mr. Allen, none of the executive officers of Charter
Communications, Inc. or its subsidiaries serve on the compensation committee of
any other company that has an executive officer currently serving on the board
of directors, Compensation Committee or Option Plan Committee of Charter
Communications, Inc. or any of its affiliates. With the exception of Mr. Allen,
none of the executive officers of Charter Communications, Inc. or its
subsidiaries served as a director of another entity, one of whose executive
officers served on the Compensation Committee or Option Plan Committee of
Charter Communications, Inc. or any of its affiliates. Mr. Allen is a director
of DreamWorks SKG, which employs Mr. Nelson as an executive officer, and is the
100% owner and a director of Vulcan Inc. and certain of its affiliates, which
employ Mr. Savoy as an executive officer. Mr. Allen also is a director of and
indirectly owns 97.7% of TechTV, of which Mr. Wangberg is the chairman, the
chief executive officer and a director. Mr. Wangberg has announced his intent to
resign as the chief executive officer of TechTV.
- 73 -
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Beneficial Ownership of Securities
The following table sets forth certain information regarding beneficial
ownership of Charter Communications, Inc.'s Class A common stock as of February
28, 2002 by:
o each of our directors and the directors of Charter Communications,
Inc.
o the current chief executive officer and the executive officers of
Charter Communications, Inc. named in the Summary Compensation
Table;
o all directors and executive officers of Charter Holdings and Charter
Communications, Inc. as a group; and
o each person known by us to own beneficially 5% or more of the
outstanding Charter Communications, Inc. Class A common stock.
With respect to the percentage of voting power set forth in the following
table:
o each holder of Charter Communications, Inc. Class A common stock is
entitled to one vote per share; and
o each holder of Charter Communications, Inc. Class B common stock is
entitled to a number of votes based on the number of such holder's
and his affiliates' shares of Class B common stock and membership
units of Charter Communications Holding Company exchangeable for
Class B common stock. For example, Mr. Allen is entitled to ten
votes for each share of Class B common stock held by him or his
affiliates and ten votes for each membership unit of Charter
Communications Holding Company held by him or his affiliates.
[Enlarge/Download Table]
Unvested
Restricted Class A Class A
Number of Class A Shares Shares Class B
Class A Shares Shares Receivable Receivable on Number of Shares Issuable % of
(Voting and (Voting on Exercise Exercise of Class B upon Exchange or % of Voting
Name and Address of Investment Power Only) of Vested Convertible Shares Conversion of Equity Power
Beneficial Owner Power) (1) (2) Options (3) Sr. Notes Owned Units (4) (4)(5) (5)(6)
-------------------------- -------------- ------------ ------------ ------------- --------- ----------------- ------- ------
Paul G. Allen (7) ........ 10,804,003 10,000 50,000 339,132,031(7) 55.23% 92.3%
Charter Investment (8) ... -- -- 222,818,858(8) 43.06% *
Vulcan Cable III (9) ..... -- -- 116,313,173(9)(10) 28.31% *
Carl E. Vogel ............ 12,500 37,500 850,000 * *
John H. Tory ............. -- 40,000 * *
Marc B. Nathanson (11) ... 9,967,435 50,000 3.40% *
Ronald L. Nelson ......... 37,500 50,000 * *
Nancy B. Peretsman ....... 60,000 50,000 * *
William D. Savoy ......... -- 50,000 951,338(10) * *
Larry W. Wangberg ........ 3,000 40,000 * *
Steven A. Schumm (12) .... 5,940 528,037 * *
David G. Barford ......... 15,000 37,500 381,083 * *
Kent D. Kalkwarf ......... 24,500 37,500 387,333 * *
David L. McCall .......... 15,950 26,250 178,333
All current directors and
executive officers as
a group (23 persons) ... 21,071,603 165,750 3,803,450 50,000 339,132,031 57.21% 92.6%
Jerald L. Kent (13) ...... 34,000 * *
Massachusetts Financial
Services Company (14) .. 23,434,034(15) 1,336,220 7.95% *
Janus Capital
Corporation (16) ....... 28,001,995(15) 9.51% *
----------
*Less than 1%.
(1) Includes shares for which the named person has:
o sole voting and investment power; or
o shared voting and investment power with a spouse.
Does not include shares that may be acquired through exercise of options.
- 74 -
(2) Includes unvested shares of restricted stock issued under the 2001 Stock
Incentive Plan, as to which the applicable employee has sole voting power
but not investment power.
(3) Includes shares of Class A common stock issuable upon exercise of options
vested on or before April 29, 2002 under the 1999 Charter Communications
Option Plan and the 2001 Stock Incentive Plan.
(4) Beneficial ownership is determined in accordance with Rule 13d-3. The
beneficial owners of Charter Communications, Inc. Class B common stock,
Charter Communications Holding Company membership units, CC VIII, LLC
membership units and convertible senior notes of Charter Communications,
Inc. are deemed to be beneficial owners of an equal number of shares of
Charter Communications, Inc. Class A common stock because such holdings
are either convertible into Class A shares (in the case of Class B shares
and convertible senior notes) or exchangeable (directly or indirectly) for
Class A shares (in the case of the membership units) on a one-for-one
basis. Unless otherwise noted, the named holders have sole investment and
voting power with respect to the shares listed as beneficially owned.
(5) The calculation of this percentage assumes for each person that:
o 294,536,963 shares of Class A common stock are currently issued and
outstanding;
o 50,000 shares of Class B common stock held by Mr. Allen have been
converted into shares of Class A common stock;
o the acquisition by such person of all shares of Class A common stock
that such person or affiliates of such person has the right to
acquire upon exchange of membership units in subsidiaries or
conversion of Series A Convertible Redeemable Preferred Stock or
5.75% or 4.75% convertible senior notes;
o the acquisition by such person of all shares that may be acquired
upon exercise of options to purchase shares or exchangeable
membership units that have vested or will vest by April 29, 2002;
and
o that none of the other listed persons or entities has received any
shares of Class A common stock that are issuable to any of such
persons pursuant to the exercise of options or otherwise.
A person is deemed to have the right to acquire shares of Class A common
stock with respect to options vested under the 1999 Charter Communications
Option Plan. When vested, these options are exercisable for membership
units of Charter Communications Holding Company, which are immediately
exchanged on a one-for-one basis for shares of Charter Communications,
Inc. Class A common stock. A person is also deemed to have the right to
acquire shares of Class A common stock issuable upon the exercise of
vested options under the 2001 Stock Incentive Plan.
(6) The calculation of this percentage assumes that Mr. Allen's equity
interests are retained in the form that maximizes voting power (i.e., the
50,000 shares of Class B common stock held by Mr. Allen have not been
converted into shares of Class A common stock; that the membership units
of Charter Communications Holding Company owned by each of Vulcan Cable
III and Charter Investment have not been exchanged for shares of Class A
common stock); and that outstanding membership units of CC VIII, LLC owned
by certain Bresnan sellers have not been exchanged for shares of Class A
common stock.
(7) The address of this person is: 505 Fifth Avenue South, Suite 900, Seattle,
WA 98104. The total listed includes:
o 222,818,858 membership units in Charter Communications Holding
Company held by Charter Investment; and
o 116,313,173 membership units in Charter Communications Holding
Company held by Vulcan Cable III
(8) Includes 222,818,858 membership units in Charter Communications Holding
Company which are exchangeable for shares of Class B common stock on a
one-for-one basis, which are convertible to shares of Class A common stock
on a one-for-one basis. The address of this person is Charter Plaza, 12405
Powerscourt Drive, St. Louis, MO 63131.
(9) Includes 116,313,173 membership units in Charter Communications Holding
Company which are exchangeable for shares of Class B common stock on a
one-for-one basis, which are convertible to shares of Class A common stock
on a one-for-one basis. The address of this person is: 505 Fifth Avenue
South, Suite 900, Seattle, WA 98104.
(10) Includes 951,338 shares issuable upon exchange of membership units that
may be acquired by Mr. Savoy upon exercise of options from Vulcan Cable
III that have vested or will vest by April 29, 2002.
(11) Consists of the following shares:
- 75 -
o 4,023,336 shares for which he has sole investment and voting power;
o 5,543,654 shares for which he has shared investment and voting
power; and
o 400,445 shares for which he has sole investment power and shared
voting power.
(12) Includes 3,700 shares for which Mr. Schumm has shared investment and
voting power.
(13) As of September 28, 2001, Jerald L. Kent no longer served as President,
Chief Executive Officer and Director.
(14) The address of this person is: 500 Boylston Street, Boston, MA 02116.
(15) Based on the shareholder's most recent Form 13F or 13G filing, as
applicable, with the SEC as of January 1, 2002.
(16) The address of this person is: 100 Fillmore Street, Suite 300, Denver, CO
80206.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following information is provided as of December 31, 2001 with respect
to equity compensation outstanding:
[Enlarge/Download Table]
Number of Securities to be Number of securities
issued upon exercise of Weighted-average exercise remaining available for future
outstanding options, price of outstanding options, issuance under equity
Plan Category warrants and rights warrants and rights compensation plans
------------------------------ -------------------------- ----------------------------- ------------------------------
Equity compensation
plans approved by
security holders.............. 60,000,000 $17.10 12,917,490
Equity compensation
plans not approved by
security holders(1)........... 186,385 $20.46 --
---------- ------ ----------
TOTAL 60,186,385 $17.11 12,917,490
========== ====== ==========
----------
(1) Includes shares of Class A common stock to be issued upon exercise of
options granted pursuant to an individual compensation agreement with a
consultant. For a narrative description of the material features of the
individual compensation agreement with the consultant, please see Note 13
included in the consolidated financial statements included in this Annual
Report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The following sets forth certain transactions in which we and our
directors, executive officers and affiliates are involved. Unless otherwise
disclosed, management believes that each of the transactions described below was
on terms no less favorable to us than could have been obtained from independent
third parties.
Management and Consulting Arrangements
Management Arrangements. Charter Communications, Inc. has entered into
management arrangements with Charter Communications Holding Company and certain
of its subsidiaries. Under these agreements, Charter Communications, Inc.
provides management services for and operates the cable television systems owned
or acquired by its subsidiaries. The management agreements covering the CC VI
and CC VII companies limit management fees payable to Charter Communications,
Inc. to 5% of gross revenues. Under the arrangement covering all of our other
operating subsidiaries, there is no limit on the dollar amount or percentage of
revenues payable as management fees. However, the total amount paid by Charter
Communications Holding Company and all of its subsidiaries is limited to the
amount necessary to reimburse Charter Communications, Inc. for all of its
expenses, costs, losses, liabilities and damages paid or incurred by it in
connection with the performance of its services under the various management
agreements. The expenses subject to reimbursement include any fees Charter
Communications, Inc. is obligated to pay under the mutual services agreement
described below. Payment of management fees by Charter Communications, Inc.'s
operating subsidiaries is subject to certain restrictions under the credit
facilities of such subsidiaries. In the event any portion of the management fee
due and payable is not paid, it is deferred by Charter Communications, Inc. and
accrued as a liability of such subsidiaries.
- 76 -
Any deferred amount of the management fee will bear interest at the rate of 10%
per annum, compounded annually, from the date it was due and payable until the
date it is paid.
For the year ended December 31, 2001, Charter Communications, Inc.
received a total of $6.2 million as management fees from Charter Communications
Holding Company and its subsidiaries, exclusive of amounts being paid to Charter
Investment pursuant to the mutual services agreement described below.
Mutual Services Agreement. During 2001, pursuant to a mutual services
agreement between Charter Communications, Inc., Charter Communications Holding
Company and Charter Investment, Charter Communications Holding Company leased
the necessary personnel and provided services on a cost-reimbursement basis to
Charter Communications, Inc. to manage its subsidiaries. The mutual services
agreement provides that each party shall provide rights and services to the
other parties as may be reasonably requested for the management of the entities
involved and their subsidiaries, including the cable systems owned by their
subsidiaries. The officers and employees of each party are available to the
other parties to provide these rights and services, and all expenses and costs
incurred in providing these rights and services are paid by Charter
Communications, Inc. Each of the parties will indemnify and hold harmless the
other parties and their directors, officers and employees from and against any
and all claims that may be made against any of them in connection with the
mutual services agreement except due to its or their gross negligence or willful
misconduct. The mutual services agreement expires on November 12, 2009, and may
be terminated at any time by any party upon thirty days' written notice to the
other. For the year ended December 31, 2001, Charter Communications, Inc. paid
$50.7 million to Charter Investment for services rendered pursuant to the mutual
services agreement. All such amounts are reimbursable to Charter Communications,
Inc. pursuant to a management arrangement with its subsidiaries. See "-
Management Arrangements."
Consulting Agreement. Charter Communications Holding Company is a party to
a consulting agreement with Vulcan Inc. (f/k/a Vulcan Northwest) and Charter
Investment. Pursuant to this consulting agreement, Vulcan Inc. provides and,
through January 2001, Charter Investment provided, advisory, financial and other
consulting services with respect to the acquisitions by Charter Communications
Holding Company of the business, assets or stock of other companies. Such
services include participation in the evaluation, negotiation and implementation
of these acquisitions. The original agreement had an expiration date of December
31, 2000, but has and will continue to automatically renew for successive
one-year terms unless otherwise terminated. The consulting agreement provides
for a fee equal to 1% of the aggregate value of any acquisition by Charter
Communications Holding Company or any of its affiliates, for which Vulcan
provides services, as well as reimbursement of reasonable out-of-pocket expenses
incurred and indemnification. For the year ended December 31, 2001, no fees were
incurred with respect to these consulting services. Because Charter Investment
personnel became employees of Charter Communications Holding Company effective
January 1, 2001, Charter Investment no longer provides services pursuant to the
terms of the agreement.
Previous Management Agreement with Charter Investment. Prior to November
12, 1999, Charter Investment provided management and consulting services to our
operating subsidiaries for a fee equal to 3% of the gross revenues of the
systems then owned, plus reimbursement of expenses. The balance of management
fees payable under the previous management agreement was accrued with payment at
the discretion of Charter Investment, with interest payable on unpaid amounts.
For the year ended December 31, 2001, Charter Communications, Inc.'s
subsidiaries did not pay any fees to Charter Investment to reduce management
fees payable. As of December 31, 2001, total management fees payable to Charter
Investment were $13.8 million, exclusive of any interest that may be charged.
Allocation of Business Opportunities with Mr. Allen
As described under "Business Relationships" in this section, Mr. Allen and
a number of his affiliates have interests in various entities that provide
services or programming to our subsidiaries. Given the diverse nature of Mr.
Allen's investment activities and interests, and to avoid the possibility of
future disputes as to potential business, Charter Communications, Inc. and
Charter Communications Holding Company, under the terms of their respective
organizational documents, may not, and may not allow their subsidiaries to
engage in any business transaction outside the cable transmission business,
except for the digeo, inc. joint venture; the joint venture to develop a digital
video recorder set-top terminal; the investment in High Speed Access Corp.; the
investment in Cable Sports Southeast, LLC, a provider of regional sports
programming; as an owner and operator of the business of Interactive Broadcaster
Services Corporation (Chat TV); an investment in @Security Broadband Corp., a
company developing broadband security applications; and incidental businesses
engaged in as of the closing of Charter Communications, Inc.'s initial public
offering in November 1999. This restriction will remain in effect until all of
the shares of Charter Communications, Inc.'s high-vote Class B
- 77 -
common stock have been converted into shares of Class A common stock due to Mr.
Allen's equity ownership falling below specified thresholds.
Should Charter Communications, Inc. or Charter Communications Holding
Company or any of their subsidiaries wish to pursue, or allow their subsidiaries
to pursue, a business transaction outside of this scope, it must first offer Mr.
Allen the opportunity to pursue the particular business transaction. If he
decides not to pursue the business transaction and consents to Charter
Communications, Inc. or its subsidiaries engaging in the business transaction,
they will be able to do so. In any such case, the restated certificate of
incorporation of Charter Communications, Inc. and the amended and restated
limited liability company agreement of Charter Communications Holding Company
would be amended accordingly to modify the current restrictions on the ability
of such entities to engage in any business other than the cable transmission
business. The cable transmission business means the business of transmitting
video, audio, including telephony, and data over cable television systems owned,
operated or managed by Charter Communications, Inc., Charter Communications
Holding Company or any of their subsidiaries from time to time.
Under Delaware corporate law, each director of Charter Communications,
Inc., including Mr. Allen, is generally required to present to Charter
Communications, Inc., any opportunity he or she may have to acquire any cable
transmission business or any company whose principal business is the ownership,
operation or management of cable transmission businesses, so that we may
determine whether we wish to pursue such opportunities. However, Mr. Allen and
the other directors generally will not have an obligation to present other types
of business opportunities to Charter Communications, Inc. and they may exploit
such opportunities for their own account.
Intercompany Loans
From time to time, there are intercompany borrowings and repayments
between or among Charter Communications, Inc. and its subsidiaries and between
or among our subsidiaries. For amounts borrowed, our practice is for the
borrowing party to pay interest to the lending party based on the borrower's
cost of funds on its revolving credit facility, which is based on a spread over
LIBOR. On occasion, indebtedness between companies has been forgiven in lieu of
a contribution to capital. The average month-end outstanding principal balance
of indebtedness from our subsidiaries to Charter Communications Holding Company,
our parent company, during the year ended December 31, 2001 was $189.0 million.
The total interest paid by our subsidiaries for parent company for indebtedness
was $3.2 million for the year ended December 31, 2001, and accrued interest on
such debt at December 31, 2001 was $0.5 million.
Other Relationships
David L. McCall, Senior Vice President - Operations - Eastern Division, is
a partner in a partnership that leases office space to us. The partnership
received approximately $117,600 pursuant to such lease and related agreements
for the year ended December 31, 2001. In addition, approximately $571,553 was
paid to a construction company controlled by Mr. McCall's brother and $462,071
to a construction company controlled by Mr. McCall's son for the year ended
December 31, 2001.
Mr. Wood resigned as a director in December 2001. In 2001, the benefit to
a company controlled by Mr. Wood that owned an airplane for the full annual cost
of two individuals qualified to operate the plane, who were otherwise available
to Charter Communications, Inc. in connection with its own flight operations was
approximately $108,500 for annual compensation to the pilots. Charter
Communications, Inc. is entitled to reimbursement for these amounts. In
addition, Mr. Wood also used Charter Communications, Inc.'s airplane for
occasional personal use in 2001, a benefit valued at $12,500 for the year ended
December 31, 2001.
Additionally, in 1999, one of Mr. Wood's daughters, who resigned as a Vice
President of Charter Communications Holding Company in February 2002, received a
bonus in the form of a three-year promissory note bearing interest at 7% per
year. One-third of the original outstanding principal amount of the note and
interest were forgiven as long as she remained employed by Charter
Communications Holding Company at the end of each of the first three
anniversaries of the issue date in February 1999. The amount of principal and
interest forgiven on this note for the year ended December 31, 2001, was
$85,500, and the outstanding balance on the note was forgiven effective as of
February 22, 2002. Another daughter of Mr. Wood received approximately $70,210
from Charter Communications Holding Company during the year ended December 31,
2001 for event planning services performed by her company.
- 78 -
Companies controlled by Mr. Nathanson, a director of Charter
Communications, Inc., leased certain office space in Pasadena, California, and
warehouse space in Riverside, California, to our subsidiaries. For the Pasadena
office lease, which Charter Communications, Inc. terminated in April 2001 in
exchange for a payment of $638,600, aggregate rent of $204,000 was paid from
January 1, 2001 to April 2001. For the Riverside warehouse space, aggregate rent
paid for the year ended December 31, 2001 was $182,989.
Employment Agreements and Consulting Arrangements
Certain of our executive officers are party to employment agreements with
Charter Communications, Inc. and other compensatory arrangements, including
"stay" bonuses in the form of promissory notes, and certain directors are party
to agreements with Charter Communications, Inc. regarding their service on the
Board of Directors. These transactions are described in "Item 11. Executive
Compensation - Employment and Consulting Arrangements."
Business Relationships
Mr. Allen or his affiliates own equity interests or warrants to purchase
equity interests in various entities with which we do business or which provide
us with services or programming. Among these entities are Wink Communications,
Inc., TechTV Inc., USA Networks, Inc., Oxygen Media Corporation, digeo, inc.,
Microsoft Corporation and, prior to February 28, 2002, High Speed Access Corp.
Mr. Allen owns 100% of the equity of Vulcan Ventures and Vulcan Inc. and is the
president of Vulcan Ventures. Mr. Savoy is also a vice president and a director
of Vulcan Ventures. The various cable, Internet and telephony companies in which
Mr. Allen has invested may mutually benefit one another. The agreements
governing our relationship with digeo, inc. are an example of a cooperative
business relationship among his affiliated companies. We can give no assurance,
nor should you expect, that any of these business relationships will be
successful, that we will realize any benefits from these relationships or that
we will enter into any business relationships in the future with Mr. Allen's
affiliated companies.
Mr. Allen and his affiliates have made, and in the future likely will
make, numerous investments outside of us and our business. We cannot assure you
that, in the event that we or any of our subsidiaries enter into transactions in
the future with any affiliate of Mr. Allen, such transactions will be on terms
as favorable to us as terms we might have obtained from an unrelated third
party. Also, conflicts could arise with respect to the allocation of corporate
opportunities between us and Mr. Allen and his affiliates. We have not
instituted any formal plan or arrangement to address potential conflicts of
interest.
In February 2001, Charter Communications, Inc. entered into certain of the
purchase agreements related to the AT&T transactions and in June 2001, it
assigned its rights and obligations under these contracts to certain of our
subsidiaries, which purchased the assets from AT&T. In August 2001, the systems
acquired in the Cable USA transaction by Charter Communications, Inc. and
Charter Communications Holding Company, were contributed through Charter
Holdings to certain of our subsidiaries which now own and operate these systems.
With respect to the following business relationships, unless otherwise
noted where Charter Communications, Inc. and Charter Communications Holding
Company are party to an agreement, we function as the operating entity under the
contract receiving all revenue, making all payments and fulfilling the
operational commitments under the contracts. In these cases references to "we",
"us" or "our" relate to commitments made by our direct and indirect parent (and
manager) that operate through us and our systems.
Vulcan Ventures. Vulcan Ventures Incorporated, an entity controlled by Mr.
Allen, Charter Communications, Inc., Charter Investment and Charter
Communications Holding Company are parties to an agreement dated September 21,
1999 regarding the right of Vulcan Ventures to use up to eight of our digital
cable channels in consideration of a capital contribution of $1.325 billion.
Specifically, we will provide Vulcan Ventures with exclusive rights for carriage
of up to eight digital cable television programming services or channels on each
of the digital cable television systems with local and to the extent available,
national control of the digital product owned, operated, controlled or managed
by Charter Communications, Inc. or its subsidiaries now or in the future of 550
megahertz or more. If the system offers digital services but has less than 550
megahertz of capacity, then the programming services will be equitably reduced.
Upon request of Vulcan Ventures, we will attempt to reach a comprehensive
programming agreement pursuant to which we will pay the programmer, if possible,
a fee per digital subscriber. If such fee arrangement is not achieved, then we
and the programmer shall enter into a standard programming agreement. As of
December 31, 2001, Vulcan Ventures did not use any of these channels.
- 79 -
High Speed Access. High Speed Access Corp. has been a provider of
high-speed Internet access services over cable modems. During the period from
1997 to 2000, certain Charter Communications entities entered into
Internet-access related service agreements, and both Vulcan Ventures, an entity
controlled by Mr. Allen, Charter Communications Holding Company and one of our
subsidiaries made equity investments in High Speed Access.
On September 28, 2001, Charter Communications Holding Company and High
Speed Access entered into an asset purchase agreement pursuant to which Charter
Communications Holding Company agreed to purchase from High Speed Access the
contracts and associated assets, and assume related liabilities, that serve our
customers, including a customer contact center, network operations center and
provisioning software. On December 20, 2001, Charter Communications Holding
Company assigned certain of its rights under the asset purchase agreement and
certain related agreements to our subsidiary, CC Systems, LLC. The transaction
closed on February 28, 2002. At the closing, CC Systems wired funds in the
amount of $77.5 million to High Speed Access and delivered 37,000 shares of High
Speed Access's Series D convertible preferred stock and all of the warrants to
buy High Speed Access common stock owned by Charter Communications Holding
Company and High Speed Access purchased 38,000 shares of its Series D Preferred
Stock from Vulcan Ventures for $8.0 million. To secure indemnity claims against
High Speed Access under the asset purchase agreement, $2.0 million of the
purchase price was held back. Additional purchase price adjustments may be made
as provided in the asset purchase agreement. Charter Communications Holding
Company obtained a fairness opinion from a qualified investment-banking firm
regarding the valuation of the assets purchased by CC Systems pursuant to the
asset purchase agreement. Concurrently with the closing of the transaction, High
Speed Access purchased all of its common stock held by Vulcan Ventures, and
certain of the agreements between Charter Communications Holding Company and
High Speed Access Corp., including the programming content agreement, the
services agreement, the systems access agreement, the 1998 network services
agreement and the May 2000 network services agreement, each as described in more
detail below, were terminated. As of December 31, 2000, the carrying value of
our and Charter Communications Holdings Company's investment in High Speed
Access was approximately $36.0 million and $2.2 million, respectively. As of
December 31, 2001, the carrying value of the investment in High Speed Access was
zero.
On September 28, 2001, in connection with the asset purchase agreement
with High Speed Access, Charter Communications Holding Company and High Speed
Access entered into a license agreement that was effective on February 28, 2002,
pursuant to which Charter Communications Holding Company granted High Speed
Access the right to use certain intellectual property sold by High Speed Access
to Charter Communications Holding Company pursuant to the asset purchase
agreement described above. High Speed Access does not pay any fees under the
agreement. The domestic portion of the license terminates on June 30, 2002, and
the international portion of the license will expire on February 2, 2005.
Concurrently with the license agreement, High Speed Access and Charter
Communications, Inc. entered into a services agreement, pursuant to which
Charter Communications, Inc. agreed to perform certain management services
formerly performed by High Speed Access. This agreement terminated on February
28, 2002, upon the closing of the asset purchase agreement.
In 2001, Charter Communications Holding Company was a party to a systems
access and investment agreement with Vulcan Ventures and High Speed Access and a
related network services agreement with High Speed Access. These agreements
provided High Speed Access with exclusive access to at least 750,000 of our
homes that had either an installed cable drop from our cable system or that were
eligible for a cable drop by virtue of our cable system passing the home. The
term of the network services agreement was, as to a particular cable system,
five years from the date revenue billing commenced for that cable system. The
programming content agreement provided each of Vulcan Ventures and High Speed
Access with a license to use certain content and materials of the other on a
non-exclusive, royalty-free basis. The revenues we earned from High Speed Access
for the year ended December 31, 2001 were approximately $7.8 million.
Additionally, Charter Communications Holding Company, as the assignee of
Vulcan Ventures, held warrants that were amended and restated on May 12, 2000,
giving Charter Communications Holding Company the right to purchase up to
12,000,000 shares of High Speed Access common stock at an exercise price of
$3.23 per share. A portion of the warrants could be earned under the agreements
described above, and the other portion related to warrants that could be earned
under a network agreement entered into with High Speed Access on May 12, 2000,
described below. Warrants earned under the agreements described above became
vested at the time systems were committed by us and were based upon the number
of homes passed. Warrants under these agreements could only be earned until July
31, 2003, and were earned at the rate of 1.55 shares of common stock for each
home passed in excess of 750,000. Warrants earned under the agreements described
above were exercisable until May 25, 2006. Such warrants were subject to
forfeiture in certain circumstances, generally if we withdrew a committed
system.
- 80 -
On May 12, 2000, Charter Communications, Inc. entered into a second
network services agreement with High Speed Access, which was assigned by Charter
Communications, Inc. to Charter Communications Holding Company on August 1,
2000. Under the terms of the May 12, 2000 network services agreement, we agreed
to commit a total of 5,000,000 homes passed, including all homes passed in
systems previously committed by us, to High Speed Access (other than full
turnkey systems), on or prior to May 12, 2003. With respect to each system
launched or intended to be launched, we paid a per customer fee to High Speed
Access according to agreed pricing terms. In addition, we compensated High Speed
Access for services exceeding certain minimum thresholds. For the year ended
December 31, 2001, we paid High Speed Access approximately $12.9 million under
this agreement and the 1998 network services agreement.
Warrants earned under the May 12, 2000 network services agreement vested
at the time we authorized High Speed Access to proceed with respect to a system,
and were based upon the number of homes passed in such system. With respect to
the initial total 5,000,000 homes passed, the warrant provided that Charter
Communications Holding Company would have the right to purchase 0.775 shares of
common stock for every home passed. With respect to any additional homes passed
in excess of 5,000,000, the warrant provided that Charter Communications Holding
Company would have the right to purchase 1.55 shares of common stock for every
home passed. Warrants earned under the agreement were exercisable until 7 1/2
years from the date they were earned, and generally were not subject to
forfeiture. High Speed Access had agreed to increase the number of shares of
common stock subject to the amended and restated warrant, upon Charter
Communications Holding Company's request, if the number of warrants earned
exceeded 11,500,000. High Speed Access also granted Charter Communications
Holding Company certain registration rights with respect to shares of common
stock held by Charter Communications Holding Company and its direct and indirect
subsidiaries, including shares of common stock issuable upon exercise of the
amended and restated warrant. The May 2000 network services agreement with High
Speed Access had a term of five years starting in May 2000. Charter
Communications Holding Company had the option to renew the agreement for
additional successive five-year terms on similar terms. All of the warrants
earned under the network services agreements described above were cancelled in
connection with the closing of the asset purchase agreement on February 28,
2002.
On December 5, 2000 pursuant to a preferred stock purchase agreement
entered into as of October 19, 2000, one of our subsidiaries, Charter
Communications Ventures, LLC, and Vulcan Ventures purchased 37,000 shares and
38,000 shares, respectively, of Series D convertible preferred stock of High
Speed Access for $37.0 million and $38.0 million, respectively. The preferred
stock had a liquidation preference of $1,000 per share plus declared but unpaid
dividends and generally shared in dividends on High Speed Access common stock on
an "as converted to common stock" basis. Each share of Series D preferred stock
was convertible into that number of shares of common stock of High Speed Access
calculated by dividing the liquidation preference by the conversion price per
share, which was $5.01875, subject to adjustments for certain events. Each share
of Series D preferred stock was therefore convertible into 199.25 shares of High
Speed Access common stock, so long as no adjustments occurred and there were no
declared but unpaid dividends. In connection with their acquisition of the
Series D convertible preferred stock, Charter Communications Ventures and Vulcan
Ventures were granted certain preemptive, first refusal, registration and
significant board representation rights as part of the transaction. At the
closing on February 28, 2002 of the asset acquisition from High Speed Access, CC
Systems delivered to High Speed Access the 37,000 shares of Series D convertible
preferred stock acquired by Charter Communications Ventures and High Speed
Access purchased from Vulcan Ventures its Series D convertible preferred stock.
Immediately prior to our acquisition from High Speed Access on February
28, 2001, Vulcan Ventures owned 20,222,139 shares of common stock and 38,000
shares of Series D convertible preferred stock of High Speed Access, Charter
Communications Ventures owned 37,000 shares of Series D convertible preferred
stock and Charter Communications Holding Company held warrants convertible into
2,650,659 shares of common stock. If all of the shares of preferred stock and
warrants were converted into common stock, then Mr. Allen, through his
affiliates, would have beneficially owned 48.5% of the common stock of High
Speed Access as of January 23, 2002. Following the consummation of the
transactions contemplated by the asset purchase agreement with High Speed Access
and related agreements, neither Charter Communications Holding Company, we nor
Vulcan Ventures beneficially owned any securities of, or were otherwise
affiliated with, High Speed Access.
WorldGate/TVGateway. WorldGate Communications, Inc. is a provider of
Internet access through cable systems. Charter Communications, Inc. has an
affiliation agreement with WorldGate for an initial term which expires in
November 2002. The agreement automatically renews for additional successive
two-year periods upon expiration of the initial five-year term, unless
terminated by either party for failure of the other party to perform any of its
obligations or undertakings required under the agreement. We started offering
WorldGate service in 1998. Pursuant to the agreement, Charter Communications,
Inc. agreed to deploy the WorldGate Internet access service within a portion of
our cable systems and to
- 81 -
install the appropriate headend equipment in all of our major markets in those
systems. Major markets for purposes of this agreement include those in which we
have more than 25,000 customers. We incur the cost for the installation of
headend equipment. In addition, to the extent we determine that it is
economically practical, we have agreed to use our reasonable best efforts to
deploy such service in all non-major markets that are technically capable of
providing interactive pay-per-view service. When WorldGate has a telephone
return path service available, we will, if economically practical, use all
reasonable efforts to install the appropriate headend equipment and deploy the
WorldGate service in our remaining markets. Telephone return path service is the
usage of telephone lines to connect to the Internet to transmit data or receive
data. We have also agreed to market the WorldGate service within our market
areas. We pay a monthly subscriber access fee to WorldGate based on the number
of subscribers to the WorldGate service. We have the discretion to determine
what fees, if any, we will charge our subscribers for access to the WorldGate
service. For the year ended December 31, 2001, we paid WorldGate approximately
$1.729 million, consisting of $1.529 million for equipment purchases and
$199,470 for subscriber access fees. We charged our subscribers approximately
$342,000 for the year ended December 31, 2001.
On July 25, 2000, Charter Communications Holding Company entered into a
joint venture, named TVGateway, LLC, with WorldGate and several other cable
operators to develop and deploy a server-based interactive program guide.
Charter Communications Holding Company initially invested $850,000, providing it
a 16.25% ownership interest in the joint venture and through subsequent
investments of $1.0 million, $1.5 million and $1.5 million in December 2000,
July 2001 and December 2001, respectively, increased its ownership interest to
17.63% as of December 31, 2001. For the first four years after the formation of
TVGateway, Charter Communications Holding Company will earn additional ownership
units, up to a maximum of 750,000 ownership units, as the interactive program
guide is deployed to our customers. On August 15, 2000, in connection with the
formation of the joint venture, Charter Communications Holding Company purchased
31,211 shares of common stock of WorldGate at $16.02 per share for a total
purchase price of $500,000. As a result of this purchase, Charter Communications
Holding Company received a $125,000 credit from WorldGate against future
equipment purchases relating to the deployment of its service. Additionally,
WorldGate granted Charter Communications Holding Company warrants to purchase up
to 500,000 shares of WorldGate common stock for a period of seven years at a
exercise price of $24.78 per share. For a period of three years from the date of
closing, Charter Communications Holding Company will also be issued warrants to
purchase common stock of WorldGate based on the number of two-way digital homes
passed in the systems in which Charter Communications Holding Company has
deployed WorldGate service. As of December 31, 2001, Charter Communications
Holding Company had earned warrants to purchase 27,853 shares, but has not yet
received documentation evidencing them. One of our subsidiaries holds additional
warrants to purchase 263,353 shares of WorldGate common stock for $10.65 per
share, which expire on June 30, 2002 and also owns 107,554 shares of WorldGate
common stock for which it paid a total of $1.5 million. As of December 31, 2001
and 2000, the carrying value of our investment in WorldGate was approximately
$80,000 and $300,000, respectively, and the carrying value of Charter
Communications Holding Company's investment in WorldGate and TVGateway was
approximately $103,000 and $29,000, respectively, and $2.6 million and $1.1
million, respectively.
Wink. Wink Communications, Inc. offers an enhanced broadcasting system
that adds interactivity and electronic commerce opportunities to traditional
programming and advertising. Viewers can, among other things, find news, weather
and sports information on-demand and order products through use of a remote
control.
Charter Communications Holding Company is party to a June 7, 2001 cable
affiliation agreement for a three year term with Wink, which was amended in
October 2001 and in March 2002. The agreement has three one-year renewal options
at our discretion. Pursuant to the agreement, Wink granted Charter
Communications Holding Company and its subsidiaries a non-exclusive license to
use the Wink software to deliver the enhanced broadcasting services to our cable
systems. Charter Communications Holding Company agreed to make commercially
reasonable efforts to deploy the Wink services to three million subscribers for
which it is eligible to receive a launch fee for transactions generated by our
customers. Wink also agreed to issue Charter Communications Holding Company one
million shares of Wink common stock subject to finalization of a grant
agreement. As a result of this stock grant, Charter Communications Holdings
Company will have an equity ownership in Wink that exceeds 5%. Under the amended
agreement we agreed to pay a fee for the license grant and Wink agreed to
purchase an advertising package during 2002 and 2003. At December 31, 2001,
Vulcan Ventures had an approximate 2% equity interest in Wink.
TechTV. TechTV Inc. operates a cable television channel which broadcasts
shows about technology. Pursuant to a carriage agreement terminating in 2008,
TechTV has provided us with programming for broadcast via our cable television
systems. Carriage fee amounts per subscriber are determined based on the
percentage of subscribers in a particular system receiving the services. These
fees will be waived for systems with higher penetration levels until December
31, 2003, and were waived for systems with lower penetration levels through
April 30, 2001. In certain circumstances, we are entitled to
- 82 -
a percentage of TechTV's net product revenues from infomercials and home
shopping and attributed to our carriage of the service. Additionally, we receive
incentive payments for channel launches through December 31, 2003. TechTV may
not offer its services to any other cable operator which serves the same or
fewer number of customers at a more favorable rate or on more favorable carriage
terms. For the year ended December 31, 2001, we received $9.4 million from
TechTV under the carriage agreement, which is included in other revenues in the
accompanying consolidated statement of operations.
On February 5, 1999, Vulcan Programming, which is 100% owned by Mr. Allen,
acquired a one-third interest in TechTV. In January 2000, Vulcan Programming
acquired an additional 64% in TechTV for $204.8 million. Mr. Savoy is the
president and director of Vulcan Programming. As of December 31, 2001, Vulcan
Programming's interest in TechTV was approximately 97.7%. The remaining
approximate 2.3% of TechTV is owned by its management and employees. Mr.
Wangberg is the chairman, chief executive officer and a director of TechTV.
Although Mr. Wangberg has announced his intent to resign as the chief executive
officer of TechTV when his successor is named, he will remain with TechTV as a
director. In September 2000 Mr. Wangberg sold his approximately 2.63% equity
interest in TechTV to Vulcan Programming and in April 2001 his remaining 1.37%
interest was redeemed by TechTV. Mr. Allen is a director of TechTV and Mr. Savoy
is a director of TechTV.
USA Networks / Home Shopping Network. USA Networks, Inc. operates the USA
Network, The Sci-Fi Channel, Trio and World News International cable television
networks. USA Networks also operates Home Shopping Network, which is a retail
sales program available via cable television systems. Pursuant to an agreement
terminating in 2005, Charter Communications Holding Company is a party to a
non-exclusive affiliation agreement with USA Networks for the cablecast of USA
Network programming. For the year ended December 31, 2001, we received
approximately $12.1 million from USA Networks under the affiliation agreement
and for commissions from USA Networks for home shopping sales generated by its
customers and/or promotion of the Home Shopping Network, which is included in
other revenues in the accompanying consolidated statement of operations. For the
year ended December 31, 2001, we paid USA Networks approximately $39.3 million
for cable television programming. Mr. Allen and Mr. Savoy are directors of USA
Networks. As of December 31, 2001, Mr. Allen owned approximately 5% and Mr.
Savoy owned less than 1% of the capital stock of USA Networks.
Oxygen Media Corporation. Oxygen Media provides programming content aimed
at the female audience for distribution over the Internet and cable television
systems. Oxygen Media programming content is currently available to
approximately 2 million Charter Communications customers. For the year ended
December 31, 2001 we paid Oxygen approximately $2.7 million for programming
content. In the first half of 2002, Charter Communications Holding Company
expects to enter into an agreement with Oxygen Media setting forth the terms of
our carriage of Oxygen Media programming content. Mr. Savoy, a director of
Charter Communications, Inc., Charter Communications Holding Company and Charter
Holdings, serves on the board of directors of Oxygen Media. As of February 8,
2002, through Vulcan Programming, Mr. Allen owns an approximate 34.2% interest
in Oxygen Media (51.2% assuming exercise of all warrants held by Vulcan
Programming but no exercise of warrants or options by other holders).
Replay TV Joint Venture. Charter Communications Ventures was party to a
joint venture with General Instrument Corporation (doing business as Broadband
Communications Sector of Motorola, Inc.), Replay TV Inc. and Interval Research
Corporation, an entity controlled by Mr. Allen, to develop and integrate digital
video recording capabilities in advanced digital set-top boxes. The joint
venture focused on creating a set-top based digital recording platform designed
for storing video, audio and Internet content. Prior to the dissolution of the
joint venture in 2001, Charter Communications Ventures received management fees
of $1.3 million for the year ended December 31, 2001, which is included in other
revenues in the accompanying consolidated statement of operations.
Purchase of Certain Enstar Limited Partnership Systems. On August 29,
2001, Interlink Communications Partners, LLC, Rifkin Acquisition Partners, LLC
and Charter Communications Entertainment I, LLC, each an indirect, wholly-owned
subsidiary of Charter Holdings, entered into an agreement to purchase
substantially all of the assets of Enstar Income Program II-2, L.P., Enstar
Income Program II-1, L.P., Enstar Income Program IV-3, L.P., Enstar
Income/Growth Program Six-A, L.P. and Enstar Cable of Macoupin County and
certain assets of Enstar IV/PBD Systems Venture, serving in the aggregate
approximately 28,000 customers. Enstar Communications Corporation, a direct
subsidiary of Charter Communications Holding Company, is the general partner of
the Enstar limited partnerships. The cash sale price of approximately $63.0
million, subject to certain closing adjustments, was the highest bid received by
the Enstar limited partnerships following a broadly-based solicitation process.
We expect that the transaction will close in the first half of 2002.
- 83 -
In addition, Enstar Cable Corporation, the manager of the Enstar limited
partnerships through a management agreement, engaged Charter Communications
Holding Company to manage the Enstar limited partnerships. Pursuant to the
management agreement, Charter Communications Holding Company provides management
services to the Enstar limited partnerships in exchange for management fees. The
Enstar limited partnerships also purchase basic and premium programming for
their systems at cost from Charter Communications Holding Company. For the year
ended December 31, 2001, the Enstar limited partnerships paid Charter
Communications Holding Company $2.1 million for management services.
With the exception of Mr. Allen, all of the executive officers of Charter
Communications, Inc., Charter Communications Holding Company and Charter
Holdings act as officers of Enstar Communications Corporation.
Portland Trail Blazers. On October 7, 1996, the former owner of our Falcon
cable systems entered into a letter agreement and a cable television agreement
with Trail Blazers Inc. for the cable broadcast in the metropolitan area
surrounding Portland, Oregon of pre-season, regular season and playoff
basketball games of the Portland Trail Blazers, a National Basketball
Association basketball team. Mr. Allen is the 100% owner of the Portland Trail
Blazers and Trail Blazers Inc. After the acquisition of the Falcon cable systems
in November 1999, we continued to operate under the terms of these agreements
until their termination on September 30, 2001. Under the letter agreement, Trail
Blazers Inc. was paid a fixed fee for each subscriber in areas directly served
by the Falcon cable systems. Under the cable television agreement, we shared
subscription revenues with Trail Blazers Inc. We paid approximately $1.055
million for the year ended December 31, 2001 in connection with the cable
broadcast of Portland Trail Blazers basketball games under the October 1996
cable television agreement.
On July 1, 2001, Charter Communications Holding Company and Action Sports
Cable Network, which is 100% owned by Mr. Allen, entered into a new carriage
agreement for a five year term, which became effective on October 1, 2001 with
the expiration of the previous agreement. Under the July 2001 carriage
agreement, we pay Action Sports a fixed fee for each subscriber receiving the
Action Sports programming, which covers sporting events in the Pacific
Northwest, including the Portland Trail Blazers, the Seattle Seahawks, a
National Football League football team, and the Portland Fire, a Women's
National Basketball Association basketball team. For the year ended December 31,
2001, we had paid $382,550 under the July 2001 agreement.
digeo, inc. Vulcan Ventures, an entity controlled by Mr. Allen, owns an
approximate 67% interest in digeo, inc. We expect to launch digeo's
television-based Internet access service in St. Louis in the second half of
2002. The digeoTM product is designed to blend the power of the Internet with
the convenience of the television. Through the use of an advanced digital
set-top terminal, customers will be able to access Internet-based streaming
media on the television, including both local and national news, sports and
entertainment. The Internet domain name of customers using this service will be
"Charter TV." The digeoTM product is a "portal," which is an Internet web site
that serves as a user's initial point of entry to the World Wide Web. By
offering selected content, services and links to other web sites and a portal
guide, it directs users through the World Wide Web. In addition, the portal
generates revenues from advertising on its own web pages and by sharing revenues
generated by linked or featured web sites. digeo, inc. has a license agreement
with Microsoft for software used in the digeo set top companion. Fees under this
license agreement are passed on to us through Charter Communications, Inc.'s
agreement with digeo.
On March 5, 2001, Charter Communications, Inc. finalized an exclusive
carriage agreement with digeo interactive, LLC, which will function as its
television-based Internet portal for an initial six-year period. In connection
with the execution of the carriage agreement on March 5, 2001, our wholly-owned
subsidiary, Charter Communications Ventures, LLC, received an equity interest in
digeo, inc. funded by Vulcan Ventures Incorporated's contribution of
approximately $21.2 million, which is subject to a priority return of capital to
Vulcan up to the amount so funded. Vulcan also agreed to make, through January
24, 2004, certain additional contributions through Digeo Broadband Holdings, LLC
to acquire digeo, inc. equity in order to maintain Charter Venture's pro rata
interest in digeo, inc. in the event of certain future digeo, inc. equity
financings by the founders of digeo, inc. These additional equity interests will
also be subject to a priority return of capital to Vulcan up to the amount so
contributed. On September 27, 2001, Charter Communications, Inc. and digeo, inc.
amended the March 2001 carriage agreement. Pursuant to the amendment, digeo
interactive, a subsidiary of digeo, inc., will provide the content for enhanced
Wink interactive television services, known as Charter Interactive Channels
(known as "i-channels"), to Charter Communications, Inc. In order to provide the
i-channels, digeo, inc. sublicensed certain Wink technologies to Charter
Communications, Inc. Charter Communications, Inc. will share in the revenues
generated by the i-channels. In November 2001, we made this service available to
our digital subscribers in Glendale, California, and by March 1, 2002, the
i-channels were available to an aggregate of 550,000 digital subscribers. As of
- 84 -
March 1, 2002, over 20% of the digital subscribers in these markets were active
users of the i-channels, with a per-user average of 12.5 screen views per week.
We plan to deploy this service aggressively in 2002 and intend to offer the
service to over 1.0 million customers by December 31, 2002. Currently, those
digital subscribers receiving i-channels receive the service at no additional
charge. For the year ended December 31, 2001, we did not receive any payments or
shared revenues from digeo. As of December 31, 2001, the carrying value of our
investment in digeo was approximately $599,000.
Messrs. Allen, Savoy and Vogel are directors of digeo, inc. Mr. Kent, our
former director, served on the board of digeo, inc. Mr. Savoy serves on the
compensation committee of digeo, inc. Each of Mr. Savoy and Mr. Vogel owns
options to purchase 10,000 shares of digeo, inc. common stock.
drugstore.com. We are party to an advertising agreement with drugstore.com
pursuant to which we will carry advertising of drugstore.com. Mr. Allen owns
less than 5% of the outstanding equity of drugstore.com and Mr. Savoy acts as a
director for drugstore.com.
Microsoft Corporation/MSN. In September 2001, Charter Communications
Holding Company entered into an agreement with Microsoft Corporation. Pursuant
to the agreement with Microsoft, Charter Communications Holding Company
introduced for our Charter Pipeline(TM) customers a custom start page that is
co-branded with Microsoft's MSN network of websites, with content modules that
we provide, including, for example, movie trailers previewing movies on
pay-per-view and video-on-demand, as well as television listings. In the second
quarter of 2002, we expect to introduce a custom browser that will be co-branded
with the MSN browser, and charter.com e-mail. Under the agreement, Microsoft
developed the website and will develop the browser. The agreement provides for
the provision of an advertising package to Charter Communications Holding
Company by Microsoft on the MSN network, the purchase of advertising time by
Microsoft on our cable systems, and for certain payments from Microsoft to
Charter Communications Holding Company related to the marketing of the product.
Microsoft will receive payments from Charter Communications Holding Company for
e-mail services hosted by Microsoft and development costs for the website and
browser. The agreement also provides that Microsoft and Charter Communications
Holding Company will share in the revenue generated from the co-branded site and
portions of the browser. Mr. Allen owns approximately 2.1% of the outstanding
equity of Microsoft.
ADC Telecommunications Inc. We and Charter Communications Holding Company
purchase certain equipment for use in our business from ADC Telecommunications,
which provides broadband access and network equipment. Mr. Wangberg acts as a
director for ADC Telecommunications.
This section includes forward-looking statements regarding, among other
things, our plans, strategies and prospects. Forward-looking statements are
inherently subject to risks, uncertainties and assumptions. Many of the
forward-looking statements contained in this section may be identified by the
use of forward-looking words such as "believe," "expect," "anticipate,"
"should," "planned," "will," "may," "intend," "estimate," and "potential," among
others. Among these risks, uncertainties and assumptions are those specified in
"- Certain Trends and Uncertainties" and in Exhibit 99.1, "Risk Factors." We
refer you to these sections, as well as to "Forward-Looking Statements."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this Annual Report:
(1) Financial Statements.
A listing of the financial statements, notes and reports of
independent public accountants required by Item 8 begins on
page F-1 of this Annual Report.
(2) Financial Statement Schedules.
No financial statement schedules are required to be filed by
Items 8 and 14(d) because they are not required or are not
applicable, or the required information is set forth in the
applicable financial statements or notes thereto.
- 85 -
(3) The index to the Exhibits is on page 89.
(b) Reports on Form 8-K
On October 4, 2001, the Registrants filed a current report on Form 8-K
dated October 1, 2001 to report the execution of long-term employment agreements
for Kent D. Kalkwarf, Executive Vice President and Chief Financial Officer; and
David G. Barford, Executive Vice President and Chief Operating Officer and to
announce the execution of a definitive agreement to purchase substantially all
of the assets used by High Speed Access Corp. to serve our high-speed data
customers.
On October 11, 2001, the Registrants filed a current report on Form 8-K
dated October 9, 2001 to report the Board of Directors' selection of Carl Vogel
as the new President and Chief Executive Officer and as a member of our Board of
Directors and Executive Committee.
On January 4, 2002, the Registrants filed a current report on Form 8-K
dated January 4, 2002 to report that they planned to raise $600 million in a
private placement offering of senior and senior discount notes. (The transaction
size was subsequently increased and the issuers received gross proceeds of
approximately $900 million when the notes were sold in January 2002.)
On January 7, 2002, the Registrants filed a current report on Form 8-K
dated September 28, 2001 to report various other events, including expected 2001
year-end results, updates on director resignations and elections, anticipated
closing of the acquisition of assets from High Speed Access Corp. and internal
restructuring.
On January 9, 2002, the Registrants filed a current report on Form 8-K
dated January 8, 2002 to report that they had entered into an agreement to sell
senior and senior discount notes with gross proceeds of approximately $900
million, with the offering to be made in a private placement to qualified
institutional buyers and in compliance with Regulation S.
On January 15, 2002, the Registrants filed a current report on Form 8-K
dated January 8, 2002 to report that they had sold senior and senior discount
notes and to file the relevant documents as exhibits.
On January 25, 2002, the Registrants filed a current report on Form 8-K
dated January 2, 2002 to file as exhibits amended and restated credit agreements
entered into by the Registrants' subsidiaries.
- 86 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Charter Communications, Inc. has duly caused this Annual
Report to be signed on its behalf by the undersigned, thereunto duly authorized.
CHARTER COMMUNICATIONS HOLDINGS, LLC, Registrant
By: CHARTER COMMUNICATIONS, INC., Sole Manager
By: /s/ Carl E. Vogel
_____________________________________
Carl E. Vogel
President and Chief Executive Officer
Date: March 29, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of Charter
Communications, Inc. and in the capacities and on the dates indicated.
[Enlarge/Download Table]
Signature Title Date
----------------------------- ------------------------------------------------------- ---------------
/s/ Paul G. Allen
_____________________________ Chairman of the Board of Directors, Charter March 29, 2002
Paul G. Allen Communications, Inc.
/s/ Carl E. Vogel
_____________________________ President, Chief Executive Officer, Director (Principal March 29, 2002
Carl E. Vogel Executive Officer), Charter Communications, Inc. and
Charter Communications Holdings Capital Corporation
/s/ Kent D. Kalkwarf
_____________________________ Executive Vice President and Chief Financial Officer March 29, 2002
Kent D. Kalkwarf (Principal Financial Officer and Principal Accounting
Officer), Charter Communications, Inc. and Charter
Communications Holdings Capital Corporation
/s/ Marc B. Nathanson
_____________________________ Director, Charter Communications, Inc. March 29, 2002
Marc B. Nathanson
/s/ Ronald L. Nelson
_____________________________ Director, Charter Communications, Inc. March 29, 2002
Ronald L. Nelson
/s/ Nancy B. Peretsman
_____________________________ Director, Charter Communications, Inc. March 29, 2002
Nancy B. Peretsman
/s/ William D. Savoy
_____________________________ Director, Charter Communications, Inc. March 29, 2002
William D. Savoy
/s/ John H. Tory
_____________________________ Director, Charter Communications, Inc. March 29, 2002
John H. Tory
/s/ Larry W. Wangberg
_____________________________ Director, Charter Communications, Inc. March 29, 2002
Larry W. Wangberg
- 87 -
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Charter Communications Holdings Capital Corporation has
duly caused this Annual Report to be signed on its behalf by the undersigned
thereunto duly authorized.
CHARTER COMMUNICATIONS HOLDINGS CAPITAL CORPORATION,
Registrant
By: /s/ Carl E. Vogel
________________________________________________
Carl E. Vogel
President and Chief Executive Officer
- 88 -
Exhibit Index
(Exhibits are listed by numbers corresponding to the Exhibit Table of Item 601
in Regulation S-K).
[Download Table]
Exhibit Description
------- -----------
2.1 Merger Agreement, dated March 31, 1999, by and between Charter
Communications Holdings, LLC and Marcus Cable Holdings, LLC
(Incorporated by reference to Exhibit 2.1 to Amendment No. 2 to the
registration statement on Form S-4 of Charter Communications
Holdings, LLC and Charter Communications Holdings Capital
Corporation filed on June 22, 1999 (File No. 333-77499)).
2.2(a) Asset and Stock Purchase Agreement, dated April 20, 1999, between
InterMedia Partners of West Tennessee, L.P. and Charter
Communications, LLC (Incorporated by reference to Exhibit 2.6(a) to
Amendment No. 2 to the registration statement on Form S-4 of Charter
Communications Holdings, LLC and Charter Communications Holdings
Capital Corporation filed on June 22, 1999 (File No. 333-77499)).
2.2(b) Stock Purchase Agreement, dated April 20, 1999, between TCID 1P-V,
Inc. and Charter Communications, LLC (Incorporated by reference to
Exhibit 2.6(b) to Amendment No. 2 to the registration statement on
Form S-4 of Charter Communications Holdings, LLC and Charter
Communications Holdings Capital Corporation filed on June 22, 1999
(File No. 333-77499)).
2.2(c) RMG Purchase Agreement, dated as of April 20, 1999, between Robin
Media Group, Inc., InterMedia Partners of West Tennessee, L.P. and
Charter RMG, LLC (Incorporated by reference to Exhibit 2.6(c) to
Amendment No. 2 to the registration statement on Form S-4 of Charter
Communications Holdings, LLC and Charter Communications Holdings
Capital Corporation filed on June 22, 1999 (File No. 333-77499)).
2.2(d) Asset Exchange Agreement, dated April 20, 1999, among InterMedia
Partners Southeast, Charter Communications, LLC, Charter
Communications Properties, LLC, and Marcus Cable Associates, L.L.C.
(Incorporated by reference to Exhibit 2.6(d) to Amendment No. 2 to
the registration statement on Form S-4 of Charter Communications
Holdings, LLC and Charter Communications Holdings Capital
Corporation filed on June 22, 1999 (File No. 333-77499)).
2.2(e) Amendment to Asset Exchange Agreement, made as of October 1, 1999,
by and among InterMedia Partners Southeast and Charter
Communications, LLC, Charter Communications Properties, LLC and
Marcus Cable Associates, L.L.C. (Incorporated by reference to
Exhibit 2.6(f) to Amendment No. 3 to the registration statement on
Form S-1 of Charter Communications, Inc. filed on October 18, 1999
(File No. 333-83887)).
2.2(f) Asset Exchange Agreement, dated April 20, 1999, among InterMedia
Partners, a California Limited Partnership, Brenmor Cable Partners,
L.P. and Robin Media Group, Inc. (Incorporated by reference to
Exhibit 2.6(e) to Amendment No. 2 to the registration statement on
Form S-4 of Charter Communications Holdings, LLC and Charter
Communications Holdings Capital Corporation filed on June 22, 1999
(File No. 333-77499)).
2.2(g) Common Agreement, dated April 20, 1999, between InterMedia Partners,
InterMedia Partners Southeast, InterMedia Partners of West
Tennessee, L.P., InterMedia Capital Partners IV, L.P., InterMedia
Partners IV, L.P., Brenmor Cable Partners, L.P., TCID IP-V, Inc.,
Charter Communications, LLC, Charter Communications Properties, LLC,
Marcus Cable Associates, L.L.C. and Charter RMG, LLC (Incorporated
by reference to Exhibit 2.6(f) to Amendment No. 3 to the
registration statement on Form S-4 of Charter Communications
Holdings, LLC and Charter Communications Holdings Capital
Corporation filed on July 2, 1999 (File No. 333-77499)). (Portions
of this exhibit have been omitted pursuant to a request for
confidential treatment.)
- 89 -
[Download Table]
Exhibit Description
------- -----------
2.3(a) Purchase and Sale Agreement, dated as of April 26, 1999, by and
among InterLink Communications Partners, LLLP, the sellers listed
therein and Charter Communications, Inc. (now called Charter
Investment, Inc.) (Incorporated by reference to Exhibit 2.7(a) to
Amendment No. 2 to the registration statement on Form S-4 of Charter
Communications Holdings, LLC and Charter Communications Holdings
Capital Corporation filed on June 22, 1999 (File No. 333-77499)).
2.3(b) Purchase and Sale Agreement, dated as of April 26, 1999, by and
among Rifkin Acquisition Partners, L.L.L.P., the sellers listed
therein and Charter Communications, Inc. (now called Charter
Investment, Inc.) (Incorporated by reference to Exhibit 2.7(b) to
Amendment No. 4 to the registration statement on Form S-4 of Charter
Communications Holdings, LLC and Charter Communications Holdings
Capital Corporation filed on July 22, 1999 (File No. 333-77499)).
2.3(c) RAP Indemnity Agreement, dated April 26, 1999, by and among the
sellers listed therein and Charter Communications, Inc. (now called
Charter Investment, Inc.) (Incorporated by reference to Exhibit
2.7(c) to Amendment No. 4 to the registration statement on Form S-4
of Charter Communications Holdings, LLC and Charter Communications
Holdings Capital Corporation filed on July 22, 1999 (File No.
333-77499)).
2.3(d) Assignment of Purchase Agreement with InterLink Communications
Partners, LLLP, dated as of June 30, 1999, by and between Charter
Communications, Inc. (now called Charter Investment, Inc.) and
Charter Communications Operating, LLC (Incorporated by reference to
Exhibit 2.7(d) to Amendment No. 4 to the registration statement on
Form S-4 of Charter Communications Holdings, LLC and Charter
Communications Holdings Capital Corporation filed on July 22, 1999
(File No. 333-77499)).
2.3(e) Assignment of Purchase Agreement with Rifkin Acquisition Partners
L.L.L.P., dated as of June 30, 1999, by and between Charter
Communications, Inc. (now called Charter Investment, Inc.) and
Charter Communications Operating, LLC (Incorporated by reference to
Exhibit 2.7(e) to Amendment No. 4 to the registration statement on
Form S-4 of Charter Communications Holdings, LLC and Charter
Communications Holdings Capital Corporation filed on July 22, 1999
(File No. 333-77499)).
2.3(f) Assignment of RAP Indemnity Agreement, dated as of June 30, 1999, by
and between Charter Communications, Inc. (now called Charter
Investment, Inc.) and Charter Communications Operating, LLC
(Incorporated by reference to Exhibit 2.7(f) to Amendment No. 4 to
the registration statement on Form S-4 of Charter Communications
Holdings, LLC and Charter Communications Holdings Capital
Corporation filed on July 22, 1999 (File No. 333-77499)).
2.3(g) Amendment to the Purchase Agreement with InterLink Communications
Partners, LLLP, dated June 29, 1999 (Incorporated by reference to
Exhibit 2.7(g) to Amendment No. 6 to the registration statement on
Form S-4 of Charter Communications Holdings, LLC and Charter
Communications Holdings Capital Corporation filed on August 27, 1999
(File No. 333-77499)).
2.3(h) Contribution Agreement, dated as of September 14, 1999, by and among
Charter Communications Operating, LLC, Charter Communications
Holding Company, LLC, Charter Communications, Inc., Paul G. Allen
and the certain other individuals and entities listed on the
signature pages thereto (Incorporated by reference to Exhibit 2.7(h)
to Amendment No. 3 to the registration statement on Form S-1 of
Charter Communications, Inc. filed on October 18, 1999 (File No.
333-83887)).
2.3(i) Form of First Amendment to the Contribution Agreement dated as of
September 14, 1999, by and among Charter Communications Operating,
LLC, Charter Communications Holding Company, LLC, Charter
Communications, Inc. and Paul G. Allen (Incorporated by reference to
Exhibit 2.7(i) to Amendment No. 5 to the registration statement on
Form S-1 of Charter Communications, Inc. filed on November 4, 1999
(File No. 333-83887)).
- 90 -
[Download Table]
Exhibit Description
------- -----------
2.4 Contribution and Sale Agreement dated as of December 30, 1999, by
and among Charter Communications Holding Company, LLC, CC VII
Holdings, LLC and Charter Communications VII, LLC (Incorporated by
reference to Exhibit 2.8 to the report on Form 8-K of Charter
Communications Holdings, LLC and Charter Communications Holdings
Capital Corporation filed on January 18, 2000 (File No. 333-77499)).
2.5 Contribution and Sale Agreement dated as of December 30, 1999, by
and among Charter Communications Holding Company, LLC and Charter
Communications Holdings, LLC (Incorporated by reference to Exhibit
2.9 to the report on Form 8-K of Charter Communications Holdings,
LLC and Charter Communications Holdings Capital Corporation filed on
January 18, 2000 (File No. 333-77499)).
2.6(a) Securities Purchase Agreement, dated May 13, 1999, by and between
Avalon Cable Holdings LLC, Avalon Investors, L.L.C., Avalon Cable of
Michigan Holdings, Inc. and Avalon Cable LLC and Charter
Communications Holdings LLC and Charter Communications, Inc. (now
called Charter Investment, Inc.) (Incorporated by reference to
Exhibit 2.2 to Amendment No. 1 to the registration statement on Form
S-4 of Avalon Cable of Michigan LLC, Avalon Cable of Michigan Inc.,
Avalon Cable of New England LLC and Avalon Cable Finance Inc. filed
on May 28, 1999 (File No. 333-75453)).
2.6(b) Assignment and Contribution Agreement, entered into as of October
11, 1999 by and between Charter Communications Holding Company, LLC
and Charter Communications, Inc. (Incorporated by reference to
Exhibit 2.8(b) to Amendment No. 3 to the registration statement on
Form S-1 of Charter Communications, Inc. filed on October 18, 1999
(File No. 333-83887)).
2.6(c) Assignment Agreement effective as of June 16, 1999, by and among
Charter Communications, Inc., Charter Communications Holdings LLC,
Charter Communications Holding Company, LLC, Avalon Cable Holdings
LLC, Avalon Investors, L.L.C., Avalon Cable of Michigan Holdings,
Inc. and Avalon Cable LLC (Incorporated by reference to Exhibit
2.8(c) to Amendment No. 3 to the registration statement on Form S-1
of Charter Communications, Inc. filed on October 18, 1999 (File No.
333-83887)).
2.7(a) Purchase and Contribution Agreement, dated as of May 26, 1999, by
and among Falcon Communications, L.P., Falcon Holding Group, L.P.,
TCI Falcon Holdings, LLC, Falcon Cable Trust, Falcon Holding Group,
Inc. and DHN Inc. and Charter Communications, Inc. (now called
Charter Investment, Inc.) (Incorporated by reference to Exhibit 2.9
to Amendment No. 2 to the registration statement on Form S-1 of
Charter Communications, Inc. filed on September 28, 1999 (File No.
333-83887)).
2.7(b) First Amendment to Purchase and Contribution Agreement, dated as of
June 22, 1999, by and among Charter Communications, Inc., Charter
Communications Holding Company, LLC, Falcon Communications, L.P.,
Falcon Holding Group, L.P., TCI Falcon Holdings, LLC, Falcon Cable
Trust, Falcon Holding Group, Inc. and DHN Inc. (Incorporated by
reference to Exhibit 10.37 to the quarterly report on Form 10-Q
filed by Falcon Communications, L.P. and Falcon Funding Corporation
on August 13, 1999 (File Nos. 033-60776 and 333-55755)).
2.7(c) Form of Second Amendment to Purchase And Contribution Agreement,
dated as of October 27, 1999, by and among Charter Investment, Inc.,
Charter Communications Holding Company, LLC, Falcon Communications,
L.P., Falcon Holding Group, L.P., TCI Falcon Holdings, LLC, Falcon
Holding Group, Inc. and DHN Inc. (Incorporated by reference to
Exhibit 2.9(b) to Amendment No. 5 to the registration statement on
Form S-1 of Charter Communications, Inc. filed on November 4, 1999
(File No. 333-83887)).
- 91 -
[Download Table]
Exhibit Description
------- -----------
2.7(d) Third Amendment to Purchase and Contribution Agreement dated as of
November 12, 1999, by and among Charter Communications, Inc., Falcon
Communications L.P., Falcon Holdings Group, L.P., TCI Falcon
Holdings, LLC, Falcon Cable Trust, Falcon Holding Group, Inc. and
DHN Inc. (Incorporated by reference to Exhibit 2.4 to the report on
Form 8-K of CC VII Holdings, LLC and Falcon Funding Corporation
filed on November 26, 1999 (File No. 033-60776 and 333-55755)).
2.8(a) Purchase Agreement, dated as of May 21, 1999, among Blackstone TWF
Capital Partners, L.P., Blackstone TWF Capital Partners A L.P.,
Blackstone TWF Capital Partners B L.P., Blackstone TWF Family
Investment Partnership, L.P., RCF Carry, LLC, Fanch Management
Partners, Inc., PBW Carried Interest, Inc., RCF Indiana Management
Corp, The Robert C. Fanch Revocable Trust, A. Dean Windry, Thomas
Binning, Jack Pottle, SDG/Michigan Communications Joint Venture,
Fanch-JV2 Master Limited Partnership, Cooney Cable Associates of
Ohio, Limited Partnership, North Texas Cablevision, LTD., Post
Cablevision of Texas, Limited Partnership, Spring Green
Communications, L.P., Fanch-Narragansett CSI Limited Partnership,
and Fanch Cablevision of Kansas General Partnership and Charter
Communications, Inc. (now called Charter Investment, Inc.)
(Incorporated by reference to Exhibit 2.10 to Amendment No. 2 to the
registration statement on Form S-1 of Charter Communications, Inc.
filed on September 28, 1999 (File No. 333-83887)).
2.8(b) Assignment of Purchase Agreement by and between Charter Investment,
Inc. and Charter Communications Holding Company, LLC, effective as
of September 21, 1999 (Incorporated by reference to Exhibit 2.10(b)
Amendment No. 3 to the registration statement on Form S-1 of Charter
Communications, Inc. filed on October 18, 1999 (File No.
333-83887)).
2.9(a) Purchase and Contribution Agreement, entered into as of June 1999,
by and among BCI (USA), LLC, William Bresnan, Blackstone BC Capital
Partners L.P., Blackstone BC Offshore Capital Partners L.P.,
Blackstone Family Investment Partnership III L.P., TCID of Michigan,
Inc. and TCI Bresnan LLC and Charter Communications Holding Company,
LLC (now called Charter Investment, Inc.) (Incorporated by reference
to Exhibit 2.11 to Amendment No. 2 to the registration statement on
Form S-1 of Charter Communications, Inc. filed on September 28, 1999
(File No. 333-83887)).
2.9(b) First Amendment to Purchase and Contribution Agreement dated as of
February 14, 2000, by and among 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., TCI
Bresnan, LLC and Charter Communications Holding Company, LLC.
(Incorporated by reference to Exhibit 2.11(a) to the current report
on Form 8-K filed by Charter Communications, Inc. on February 29,
2000 (File No. 000-27927)).
2.10(a) Asset Purchase Agreement, dated as of February 26, 2001, among
Marcus Cable of Alabama, L.L.C., on the one hand, and TCI of Selma,
Inc., TCI of Lee County, Inc., TCI Cablevision of Alabama, Inc.,
Alabama T.V. Cable, Inc. and TCI Southeast, Inc., on the other hand
(Incorporated by reference to Exhibit 2.14(a) to the annual report
of Form 10-K of Charter Communications, Inc. filed on March 6, 2001
(File No. 000-27927)).
2.10(b) Reorganization Agreement, dated as of February 26, 2001, among
Charter Communications, Inc., on the one hand, and TCI TKR of
Alabama, Inc. and TCI Southeast, Inc., on the other hand
(Incorporated by reference to Exhibit 2.14(b) to the annual report
of Form 10-K of Charter Communications, Inc. filed on March 6, 2001
(File No. 000-27927)).
- 92 -
[Download Table]
Exhibit Description
------- -----------
2.10(c) Asset Purchase Agreement, dated as of February 26, 2001, among
Falcon Cable Systems Company II, L.P., on the one hand, and AT&T
Broadband, LLC, Communication Services, Inc., Ohio Cablevision
Network, Inc., TCI Cablevision of California, Inc. and TCI
Washington Associates, L.P., on the other hand (Incorporated by
reference to Exhibit 2.14(c) to the annual report of Form 10-K of
Charter Communications, Inc. filed on March 6, 2001 (File No.
000-27927)).
2.10(d) Reorganization Agreement, dated as of February 26, 2001, among
Charter Communications, Inc., on the one hand, and TCI Cablevision
of Nevada, Inc. and TCI West, Inc., on the other hand (Incorporated
by reference to Exhibit 2.14(d) to the annual report of Form 10-K of
Charter Communications, Inc. filed on March 6, 2001 (File No.
000-27927)).
2.10(e) Asset Purchase Agreement, dated as of February 26, 2001, among
Charter Communications, Inc., Interlink Communications Partners,
LLC, Charter Communications, LLC and Falcon Cable Media, on the one
hand, and TCI Cable Partners of St. Louis, L.P. and TCI Cablevision
of Missouri, Inc., on the other hand (Incorporated by reference to
Exhibit 2.14(e) to the annual report of Form 10-K of Charter
Communications, Inc. filed on March 6, 2001 (File No. 000-27927)).
2.10(f) Asset Purchase Agreement, dated as of February 26, 2001, among
Charter Communications Entertainment I, LLC, on the one hand, and
St. Louis Tele-Communications, Inc., TCI Cable Partners of St.
Louis, L.P., TCI Cablevision of Missouri, Inc., TCI of Illinois,
Inc., TCI TKR of Central Florida, Inc. and TCI Holdings, Inc., on
the other hand (Incorporated by reference to Exhibit 2.14(f) to the
annual report of Form 10-K of Charter Communications, Inc. filed on
March 6, 2001 (File No. 000-27927)).
2.10(g) Agreement Regarding Closing Matters, dated as of February 26, 2001,
among Charter Communications, Inc., on behalf of itself, Marcus
Cable of Alabama, L.L.C., Falcon Cable Systems Company II, L.P.,
Interlink Communications Partners, LLC, Charter Communications, LLC,
Falcon Cable Media, and Charter Communications Entertainment I, LLC,
on the one hand, and AT&T Broadband, LLC, on behalf of itself, TCI
TKR of Alabama, Inc., TCI of Selma, Inc., TCI of Lee County, TCI
Cablevision of Alabama, Inc. and Alabama T.V. Cable, Inc., TCI
Southeast, Inc., TCI Cablevision of Nevada, Inc., TCI West, Inc.,
Communications Services, Inc., Ohio Cablevision Network, Inc., TCI
Cablevision of California, Inc., TCI Washington Associates, LP., TCI
of Illinois, Inc., TCI Cablevision of Missouri, Inc., St. Louis
Tele-Communications, Inc., TCI Cable Partners of St. Louis, L.P.,
TCI TKR of Central Florida, Inc. and TCI Holdings, Inc., on the
other hand (Incorporated by reference to Exhibit 2.14(g) to the
annual report of Form 10-K of Charter Communications, Inc. filed on
March 6, 2001 (File No. 000-27927)).
2.10(h) First Amendment to Asset Purchase Agreement, dated as of June 30,
2001, among Marcus Cable of Alabama, L.L.C., on the one hand, and
TCI of Selma, Inc., TCI of Lee County, Inc., TCI Cablevision of
Alabama, Inc., Alabama T.V. Cable, Inc. and TCI Southeast, Inc., on
the other hand (Incorporated by reference to Exhibit 2.1(a) to the
quarterly report on Form 10-Q filed by Charter Communications, Inc.
on November 14, 2001 (File No. 000-27927)).
2.10(i) First Amendment to Reorganization Agreement, dated as of June 30,
2001, among Marcus Cable of Alabama, L.L.C., as assignee of Charter
Communications, Inc., on the one hand, and TCI TKR of Alabama, Inc.
and TCI Southeast, Inc., on the other hand (Incorporated by
reference to Exhibit 2.1(b) to the quarterly report on Form 10-Q
filed by Charter Communications, Inc. on November 14, 2001 (File No.
000-27927)).
- 93 -
[Download Table]
Exhibit Description
------- -----------
2.10(j) Assignment Letter Agreement, dated as of June 30, 2001, between
Charter Communications, Inc. and Marcus Cable of Alabama, L.L.C.
(Incorporated by reference to Exhibit 2.14(h) to the registration
statement on Form S-4 of Charter Communications Holdings, LLC and
Charter Communications Holdings Capital Corporation filed on July
13, 2001 (File No. 333-65094)).
2.10(k) First Amendment to Asset Purchase Agreement, dated as of June 30,
2001, among Falcon Cable Systems Company II, L.P., on the one hand,
and AT&T Broadband, LLC, Communication Services, Inc., Ohio
Cablevision Network, Inc., TCI Cablevision of California, Inc. and
TCI Washington Associates, L.P., on the other hand (Incorporated by
reference to Exhibit 2.1(c) to the quarterly report on Form 10-Q
filed by Charter Communications, Inc. on November 14, 2001 (File No.
000-27927)).
2.10(l) First Amendment to Reorganization Agreement, dated as of June 30,
2001, among Falcon Cable Systems Company II, L.P., as assignee of
Charter Communications, Inc., on the one hand, and TCI Cablevision
of Nevada, Inc. and TCI West, Inc., on the other hand (Incorporated
by reference to Exhibit 2.1(d) to the quarterly report on Form 10-Q
filed by Charter Communications, Inc. on November 14, 2001 (File No.
000-27927)).
2.10(m) Assignment Letter Agreement, dated as of June 30, 2001, between
Charter Communications, Inc. and Falcon Cable Systems Company II,
L.P. (Incorporated by reference to Exhibit 2.14(i) to the
registration statement on Form S-4 of Charter Communications
Holdings, LLC and Charter Communications Holdings Capital
Corporation filed on July 13, 2001 (File No. 333-65094)).
2.10(n) First Amendment to Asset Purchase Agreement, dated as of June 30,
2001, among Charter Communications, Inc., Interlink Communications
Partners, LLC, Charter Communications, LLC and Falcon Cable Media,
on the one hand, and TCI Cable Partners of St. Louis, L.P. and TCI
Cablevision of Missouri, Inc., on the other hand (Incorporated by
reference to Exhibit 2.1(e) to the quarterly report on Form 10-Q
filed by Charter Communications, Inc. on November 14, 2001 (File No.
000-27927)).
2.10(o) First Amendment to Asset Purchase Agreement, dated as of June 30,
2001, among Charter Communications Entertainment I, LLC, on the one
hand, and St. Louis Tele-Communications, Inc., TCI Cable Partners of
St. Louis, L.P., TCI Cablevision of Missouri, Inc., TCI of Illinois,
Inc., TCI TKR of Central Florida, Inc. and TCI Holdings, Inc., on
the other hand (Incorporated by reference to Exhibit 2.1(f) to the
quarterly report on Form 10-Q filed by Charter Communications, Inc.
on November 14, 2001 (File No. 000-27927)).
2.10(p) First Amendment to Agreement Regarding Closing Matters, dated as of
June 30, 2001, among Charter Communications, Inc., on behalf of
itself, Marcus Cable of Alabama, L.L.C., Falcon Cable Systems
Company II, L.P., Interlink Communications Partners, LLC, Charter
Communications, LLC, Falcon Cable Media, and Charter Communications
Entertainment I, LLC, on the one hand, and AT&T Broadband, LLC, on
behalf of itself, TCI TKR of Alabama, Inc., TCI of Selma, Inc., TCI
of Lee County, TCI Cablevision of Alabama, Inc. and Alabama T.V.
Cable, Inc., TCI Southeast, Inc., TCI Cablevision of Nevada, Inc.,
TCI West, Inc., Communications Services, Inc., Ohio Cablevision
Network, Inc., TCI Cablevision of California, Inc., TCI Washington
Associates, LP., TCI of Illinois, Inc., TCI Cablevision of Missouri,
Inc., St. Louis Tele-Communications, Inc., TCI Cable Partners of St.
Louis, L.P., TCI TKR of Central Florida, Inc. and TCI Holdings,
Inc., on the other hand (Incorporated by reference to Exhibit 2.1(g)
to the quarterly report on Form 10-Q filed by Charter
Communications, Inc. on November 14, 2001 (File No. 000-27927)).
- 94 -
[Download Table]
Exhibit Description
------- -----------
2.11(a) Asset Purchase Agreement, dated as of September 28, 2001, between
High Speed Access Corp. and Charter Communications Holding Company,
LLC (including as Exhibit A, the Form of Voting Agreement, as
Exhibit B, the form of Management Agreement, as Exhibit C, the form
of License Agreement, and as Exhibit D, the Form of Billing Letter
Agreement) (Incorporated by reference to Exhibit 10.1 to Amendment
No. 6 to Schedule 13D filed by Charter Communications, Inc. and
others with respect to High Speed Access Corp., filed on October 1,
2001 (File No. 005-56431)).
2.11(b) Services and Management Agreement, dated as of September 28, 2001,
between High Speed Access Corp. and Charter Communications, Inc.
(Incorporated by reference to Exhibit 10.2 to Amendment No. 6 to
Schedule 13D filed by Charter Communications, Inc. and others with
respect to High Speed Access Corp., filed on October 1, 2001 (File
No. 005-56431)).
2.11(c) License Agreement, dated as of September 28, 2001, between High
Speed Access Corp., HSA International, Inc. and Charter
Communications Holding Company, LLC. (Incorporated by reference to
Exhibit 10.3 to Amendment No. 6 to Schedule 13D filed by Charter
Communications, Inc. and others with respect to High Speed Access
Corp., filed on October 1, 2001 (File No. 005-56431)).
2.11(d) Stock Purchase Agreement, dated as of September 28, 2001, by and
among Vulcan Ventures Incorporated and Charter Communications
Holding Company, LLC. (Incorporated by reference to Exhibit 10.4 to
Amendment No. 6 to Schedule 13D filed by Charter Communications,
Inc. and others with respect to High Speed Access Corp., filed on
October 1, 2001 (File No. 005-56431)).
2.11(e) Voting Agreement, dated as of September 28, 2001, between High Speed
Access Corp, Charter Communications Ventures, LLC, Vulcan Ventures
Incorporated and certain directors party thereto (Incorporated by
reference to Exhibit 10.5 to Amendment No. 6 to Schedule 13D filed
by Charter Communications, Inc. and others with respect to High
Speed Access Corp., filed on October 1, 2001 (File No. 005-56431)).
2.11(f) Assignment and Consent, dated as of December 20, 2001, by and among
Vulcan Ventures Incorporated, CC Systems, LLC and Charter
Communications Holding Company, LLC. (Incorporated by reference to
Exhibit 10.6 to Amendment No. 8 to Schedule 13D filed by Charter
Communications, Inc. and others with respect to High Speed Access
Corp., filed on December 21, 2001 (File No. 005-56431)).
3.1(a) Certificate of Formation of Charter Communications Holdings, LLC
(Incorporated by reference to Exhibit 3.1 to Amendment No. 2 to the
registration statement on Form S-4 of Charter Communications
Holdings, LLC and Charter Communications Holdings Capital
Corporation filed on June 22, 1999 (File No. 333-77499)).
3.2** Amended and Restated Limited Liability Company Agreement of Charter
Communications Holdings, LLC, dated as of October 30, 2001.
3.3 Certificate of Incorporation of Charter Communications Holdings
Capital Corporation (Incorporated by reference to Exhibit 3.3 to
Amendment No. 2 to the registration statement on Form S-4 of Charter
Communications Holdings, LLC and Charter Communications Holdings
Capital Corporation filed on June 22, 1999 (File No. 333-77499)).
3.4(a) By-Laws of Charter Communications Holdings Capital Corporation
(Incorporated by reference to Exhibit 3.4 to Amendment No. 2 to the
registration statement on Form S-4 of Charter Communications
Holdings, LLC and Charter Communications Holdings Capital
Corporation filed on June 22, 1999 (File No. 333-77499)).
3.4(b)** Amendment to By-Laws of Charter Communications Holdings Capital
Corporation, dated as of October 30, 2001.
- 95 -
[Download Table]
Exhibit Description
------- -----------
4.1 Indenture, dated as of April 9, 1998, by and among Renaissance Media
(Louisiana) LLC, Renaissance Media (Tennessee) LLC, Renaissance
Media Capital Corporation, Renaissance Media Group LLC and United
States Trust Company of New York, as trustee (Incorporated by
reference to Exhibit 4.1 to the registration statement on Forms S-4
of Renaissance Media Group LLC, Renaissance Media (Tennessee) LLC,
Renaissance Media (Louisiana) LLC and Renaissance Media Capital
Corporation filed on June 12, 1998 (File No. 333-56679)).
4.2(a) Indenture, dated as of December 10, 1998, by and among Avalon Cable
of Michigan Holdings, Inc., Avalon Cable LLC and Avalon Cable
Holdings Finance, Inc., as issuers and The Bank of New York, as
trustee for the Notes (Incorporated by reference to Exhibit 4.1 to
Amendment No. 1 to the registration statement on Form S-4 of Avalon
Cable LLC, Avalon Cable Holdings Finance, Inc., Avalon Cable of
Michigan Holdings, Inc. and Avalon Cable of Michigan, Inc. filed on
May 28, 1999 (File Nos. 333-75415 and 333-75453)).
4.2(b) Supplemental Indenture, dated as of March 26, 1999, by and among
Avalon Cable of Michigan Holdings, Inc., Avalon Cable LLC and Avalon
Cable Holdings Finance, Inc., as issuers, Avalon Cable of Michigan,
Inc., as guarantor, and The Bank of New York, as trustee for the
Notes (Incorporated by reference to Exhibit 4.2 to Amendment No. 1
to the registration statement on Form S-4 of Avalon Cable LLC,
Avalon Cable Holdings Finance, Inc., Avalon Cable of Michigan
Holdings, Inc. and Avalon Cable of Michigan, Inc. filed on May 28,
1999 (File Nos. 333-75415 and 333-75453)).
4.3 Indenture relating to the 8.250% Senior Notes due 2007, dated as of
March 17, 1999, between Charter Communications Holdings, LLC,
Charter Communications Holdings Capital Corporation and Harris Trust
and Savings Bank (Incorporated by reference to Exhibit 4.1(a) to
Amendment No. 2 to the registration statement on Form S-4 of Charter
Communications Holdings, LLC and Charter Communications Holdings
Capital Corporation filed on June 22, 1999 (File No. 333-77499)).
4.4 Indenture relating to the 8.625% Senior Notes due 2009, dated as of
March 17, 1999, among Charter Communications Holdings, LLC, Charter
Communications Holdings Capital Corporation and Harris Trust and
Savings Bank (Incorporated by reference to Exhibit 4.2(a) to
Amendment No. 2 to the registration statement on Form S-4 of Charter
Communications Holdings, LLC and Charter Communications Holdings
Capital Corporation filed on June 22, 1999 (File No. 333-77499)).
4.5 Indenture relating to the 9.920% Senior Discount Notes due 2011,
dated as of March 17, 1999, among Charter Communications Holdings,
LLC, Charter Communications Holdings Capital Corporation and Harris
Trust and Savings Bank (Incorporated by reference to Exhibit 4.3(a)
to Amendment No. 2 to the registration statement on Form S-4 of
Charter Communications Holdings, LLC and Charter Communications
Holdings Capital Corporation filed on June 22, 1999 (File No.
333-77499)).
4.6 Indenture relating to the 10.00% Senior Notes due 2009, dated as of
January 12, 2000, between Charter Communications Holdings, LLC,
Charter Communications Holdings Capital Corporation and Harris Trust
and Savings Bank (Incorporated by reference to Exhibit 4.1(a) 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. 333-95351)).
4.7 Indenture relating to the 10.25% Senior Notes due 2010, dated as of
January 12, 2000, among Charter Communications Holdings, LLC,
Charter Communications Holdings Capital Corporation and Harris Trust
and Savings Bank (Incorporated by reference to Exhibit 4.2(a) 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. 333-95351)).
- 96 -
[Download Table]
Exhibit Description
------- -----------
4.8 Indenture relating to the 11.75% Senior Discount Notes due 2010,
dated as of January 12, 2000, among Charter Communications Holdings,
LLC, Charter Communications Holdings Capital Corporation and Harris
Trust and Savings Bank (Incorporated by reference to Exhibit 4.3(a)
to 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. 333-95351)).
4.9 Indenture dated as of January 10, 2001 between Charter
Communications Holdings, LLC, Charter Communications Holdings
Capital Corporation and BNY Midwest Trust Company as Trustee
governing 10 3/4% senior notes due 2009 (Incorporated by reference
to Exhibit 4.2(a) to the registration statement on Form S-4 of
Charter Communications Holdings, LLC and Charter Communications
Holdings Capital Corporation filed on February 2, 2001 (File No.
333-54902)).
4.10 Indenture dated as of January 10, 2001 between Charter
Communications Holdings, LLC, Charter Communications Holdings
Capital Corporation and BNY Midwest Trust Company as Trustee
governing 11 1/8% senior notes due 2011 (Incorporated by reference
to Exhibit 4.2(b) to the registration statement on Form S-4 of
Charter Communications Holdings, LLC and Charter Communications
Holdings Capital Corporation filed on February 2, 2001 (File No.
333-54902)).
4.11 Indenture dated as of January 10, 2001 between Charter
Communications Holdings, LLC, Charter Communications Holdings
Capital Corporation and BNY Midwest Trust Company as Trustee
governing 13 1/2% senior discount notes due 2011 (Incorporated by
reference to Exhibit 4.2(c) to the registration statement on Form
S-4 of Charter Communications Holdings, LLC and Charter
Communications Holdings Capital Corporation filed on February 2,
2001 (File No. 333-54902)).
4.12(a) Indenture dated as of May 15, 2001 between Charter Communications
Holdings, LLC, Charter Communications Holdings Capital Corporation
and BNY Midwest Trust Company as Trustee governing 9.625% Senior
Notes due 2009. (Incorporated by reference to Exhibit 10.2(a) to the
current report on Form 8-K filed by Charter Communications, Inc. on
June 1, 2001 (File No. 000-27927)).
4.12(b) First Supplemental Indenture dated as of January 14, 2002 between
Charter Communications Holdings, LLC, Charter Communications
Holdings Capital Corporation and BNY Midwest Trust Company as
Trustee governing 9.625% Senior Notes due 2009 (Incorporated by
reference to Exhibit 10.2(a) to the current report on Form 8-K filed
by Charter Communications, Inc. on January 15, 2002 (File No.
000-27927)).
4.12(c) Exchange and Registration Rights Agreement relating to 9.625% Senior
Notes due 2009, dated as of January 14, 2002, among Charter
Communications Holding Company, LLC, Charter Communications Capital
Corporation, Salomon Smith Barney Inc., Banc of America Securities
LLC, J.P. Morgan Securities Inc., Fleet Securities, Inc., TD
Securities (USA) Inc., BMO Nesbitt Burns Corp., Credit Lyonnais
Securities (USA) Inc., RBC Dominion Securities Corporation, Scotia
Capital (USA) Inc., SunTrust Capital Markets, Inc., U.S. Bancorp
Piper Jaffray Inc., ABN AMRO Incorporated, First Union Securities,
Inc., CIBC World Markets Corp. and Dresdner Kleinwort Wasserstein -
Grantchester, Inc. (Incorporated by reference to Exhibit 10.2(b) to
the current report on Form 8-K filed by Charter Communications, Inc.
on January 15, 2002 (File No. 000-27927)).
4.13(a) Indenture dated as of May 15, 2001 between Charter Communications
Holdings, LLC, Charter Communications Holdings Capital Corporation
and BNY Midwest Trust Company as Trustee governing 10.000% Senior
Notes due 2011. (Incorporated by reference to Exhibit 10.3(a) to the
current report on Form 8-K filed by Charter Communications, Inc. on
June 1, 2001 (File No. 000-27927)).
- 97 -
[Download Table]
Exhibit Description
------- -----------
4.13(b) First Supplemental Indenture dated as of January 14, 2002 between
Charter Communications Holdings, LLC, Charter Communications
Holdings Capital Corporation and BNY Midwest Trust Company as
Trustee governing 10.000% Senior Notes due 2011 (Incorporated by
reference to Exhibit 10.3(a) to the current report on Form 8-K filed
by Charter Communications, Inc. on January 15, 2002 (File No.
000-27927)).
4.13(c) Exchange and Registration Rights Agreement relating to 10.000%
Senior Notes due 2011, dated as of January 14, 2002, among Charter
Communications Holding Company, LLC, Charter Communications Capital
Corporation, Salomon Smith Barney Inc., Banc of America Securities
LLC, J.P. Morgan Securities Inc., Fleet Securities, Inc., TD
Securities (USA) Inc., BMO Nesbitt Burns Corp., Credit Lyonnais
Securities (USA) Inc., RBC Dominion Securities Corporation, Scotia
Capital (USA) Inc., SunTrust Capital Markets, Inc., U.S. Bancorp
Piper Jaffray Inc., ABN AMRO Incorporated, First Union Securities,
Inc., CIBC World Markets Corp. and Dresdner Kleinwort Wasserstein -
Grantchester, Inc. (Incorporated by reference to Exhibit 10.3(b) to
the current report on Form 8-K filed by Charter Communications, Inc.
on January 15, 2002 (File No. 000-27927)).
4.14 Indenture dated as of May 15, 2001 between Charter Communications
Holdings, LLC, Charter Communications Holdings Capital Corporation
and BNY Midwest Trust Company as Trustee governing 11.750% Senior
Discount Notes due 2011. (Incorporated by reference to Exhibit
10.4(a) to the current report on Form 8-K filed by Charter
Communications, Inc. on June 1, 2001 (File No. 000-27927)).
4.15(a) Indenture dated as of January 14, 2002 between Charter
Communications Holdings, LLC, Charter Communications Holdings
Capital Corporation and BNY Midwest Trust Company as Trustee
governing 12.125% Senior Discount Notes due 2012 (Incorporated by
reference to Exhibit 10.4(a) to the current report on Form 8-K filed
by Charter Communications, Inc. on January 15, 2002 (File No.
000-27927)).
4.15(b) Exchange and Registration Rights Agreement relating to 12.125%
Senior Discount Notes due 2012, dated as of January 14, 2002, among
Charter Communications Holding Company, LLC, Charter Communications
Capital Corporation, Salomon Smith Barney Inc., Banc of America
Securities LLC, J.P. Morgan Securities Inc., Fleet Securities, Inc.,
TD Securities (USA) Inc., BMO Nesbitt Burns Corp., Credit Lyonnais
Securities (USA) Inc., RBC Dominion Securities Corporation, Scotia
Capital (USA) Inc., SunTrust Capital Markets, Inc., U.S. Bancorp
Piper Jaffray Inc., ABN AMRO Incorporated, First Union Securities,
Inc., CIBC World Markets Corp. and Dresdner Kleinwort Wasserstein -
Grantchester, Inc. (Incorporated by reference to Exhibit 10.4(b) to
the current report on Form 8-K filed by Charter Communications, Inc.
on January 15, 2002 (File No. 000-27927)).
10.1(a) Membership Interests Purchase Agreement, dated July 22, 1999, by and
between Charter Communications Holding Company, LLC and Paul G.
Allen (Incorporated by reference to Exhibit 10.5 to Amendment No. 6
to the registration statement on Form S-4 of Charter Communications
Holdings, LLC and Charter Communications Holdings Capital
Corporation filed on August 27, 1999 (File No. 333-77499)).
10.1(b) Amendment to Membership Interests Purchase Agreement, dated as of
August 10, 1999, by and among Charter Communications Holding
Company, LLC, Vulcan Cable III Inc. and Paul G. Allen (Incorporated
by reference to Exhibit 10.12 to Amendment No. 6 to the registration
statement on Form S-4 of Charter Communications Holdings, LLC and
Charter Communications Holdings Capital Corporation filed on August
27, 1999 (File No. 333-77499)).
- 98 -
[Download Table]
Exhibit Description
------- -----------
10.2 Consulting Agreement, dated as of March 10, 1999, by and between
Vulcan Northwest Inc., Charter Communications, Inc. (now called
Charter Investment Inc.) and Charter Communications Holdings, LLC
(Incorporated by reference to Exhibit 10.3 to Amendment No. 4 to the
registration statement on Form S-4 of Charter Communications
Holdings, LLC and Charter Communications Holdings Capital
Corporation filed on July 22, 1999 (File No. 333-77499)).
10.3 Letter Agreement, dated as of July 22, 1999 between Charter
Communications Holding Company, LLC and Charter Communications
Holdings, LLC (Incorporated by reference to Exhibit 10.10 to
Amendment No. 5 to the registration statement on Form S-4 of Charter
Communications Holdings, LLC and Charter Communications Holdings
Capital Corporation filed on August 10, 1999 (File No. 333-77499)).
10.4 Letter Agreement, dated September 21, 1999, by and among Charter
Communications, Inc., Charter Investment, Inc., Charter
Communications Holding Company, Inc. and Vulcan Ventures Inc.
(Incorporated by reference to Exhibit 10.22 to Amendment No. 3 to
the registration statement on Form S-1 of Charter Communications,
Inc. filed on October 18, 1999 (File No. 333-83887)).
10.5 First Amended and Restated Mutual Services Agreement, dated as of
December 21, 2000, by and between Charter Communications, Inc.,
Charter Investment, Inc. and Charter Communications Holding Company,
LLC (Incorporated by reference to Exhibit 10.2(b) to the
registration statement on Form S-4 of Charter Communications
Holdings, LLC and Charter Communications Holdings Capital
Corporation filed on February 2, 2001 (File No. 333-54902)).
10.6 Form of Consulting Agreement, dated as of December 31, 2000, by and
between Vulcan Ventures Incorporated, Charter Communications, Inc.
and Charter Communications Holding Company, LLC (Incorporated by
reference to Exhibit 10.3 to the registration statement on Form S-4
of Charter Communications Holdings, LLC and Charter Communications
Holdings Capital Corporation filed on February 2, 2001 (File No.
333-54902)).
10.7 Form of Management Agreement, dated as of November 9, 1999, by and
between Charter Communications Holding Company, LLC and Charter
Communications, Inc. (Incorporated by reference to Exhibit 10.2(d)
to Amendment No. 3 to the registration statement on Form S-1 of
Charter Communications, Inc. filed on October 18, 1999 (File No.
333-83887)).
10.8(a) Amended and Restated Management Agreement, dated March 17, 1999,
between Charter Communications Operating, LLC and Charter
Communications, Inc. (Incorporated by reference to Exhibit 10.2 to
Amendment No. 4 to the registration statement on Form S-4 of Charter
Communications Holdings, LLC and Charter Communications Holdings
Capital Corporation filed on July 22, 1999 (File No. 333-77499)).
10.8(b) Form of Amended and Restated Management Agreement, dated as of March
17, 1999, as amended as of November 9, 1999, by and among Charter
Investment, Inc., Charter Communications, Inc. and Charter
Communications Operating, LLC (Incorporated by reference to Exhibit
10.2(b) to Amendment No. 3 to the registration statement on Form S-1
of Charter Communications, Inc. filed on October 18, 1999 (File No.
333-83887)).
10.8(c) Second Amendment to Amended and Restated Management Agreement, dated
as of March 17, 1999, as amended as of January 1, 2002, by and
between Charter Communications Operating, LLC and Charter
Communications, Inc. (Incorporated by reference to Exhibit 10.8(c)
to the annual report of Form 10-K of Charter Communications, Inc.
filed on March 29, 2001 (File No. 000-27927)).
- 99 -
[Download Table]
Exhibit Description
------- -----------
10.9 Management Agreement, dated as of November 12, 1999, by and between
CC VI Operating Company, LLC and Charter Communications, Inc.
(Incorporated by reference to Exhibit 10.2(d) 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)).
10.10 Management Agreement, dated as of November 12, 1999 by and between
Falcon Cable Communications, LLC and Charter Communications, Inc.
(Incorporated by reference to Exhibit 10.2(e) 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)).
10.11 Form of Exchange Agreement, dated as of November 12, 1999 by and
among Charter Investment, Inc., Charter Communications, Inc., Vulcan
Cable III Inc. and Paul G. Allen (Incorporated by reference to
Exhibit 10.13 to Amendment No. 3 to the registration statement on
Form S-1 of Charter Communications, Inc. filed on October 18, 1999
(File No. 333-83887)).
10.12 Form of Registration Rights Agreement, dated as of November 12,
1999, by and among Charter Communications, Inc., Charter Investment,
Inc., Vulcan Cable III Inc., Mr. Paul G. Allen, Mr. Jerald L. Kent,
Mr. Howard L. Wood and Mr. Barry L. Babcock (Incorporated by
reference to Exhibit 10.14 to Amendment No. 3 to the registration
statement on Form S-1 of Charter Communications, Inc. filed on
October 18, 1999 (File No. 333-83887)).
10.13 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 (Incorporated by reference to Exhibit 10.40 to the
current report on Form 8-K of Charter Communications, Inc. filed on
February 29, 2000 (File No. 000-27927)).
10.14(a) Charter Communications Holdings, LLC 1999 Option Plan (Incorporated
by reference to Exhibit 10.4 to Amendment No. 4 to the registration
statement on Form S-4 of Charter Communications Holdings, LLC and
Charter Communications Holdings Capital Corporation filed on July
22, 1999 (File No. 333-77499)).
10.14(b) Assumption Agreement regarding Option Plan, dated as of May 25,
1999, by and between Charter Communications Holdings, LLC and
Charter Communications Holding Company, LLC (Incorporated by
reference to Exhibit 10.13 to Amendment No. 6 to the registration
statement on Form S-4 of Charter Communications Holdings, LLC and
Charter Communications Holdings Capital Corporation filed on August
27, 1999 (File No. 333-77499)).
10.14(c) Form of Amendment No. 1 to the Charter Communications Holdings, LLC
1999 Option Plan (Incorporated by reference to Exhibit 10.10(c) to
Amendment No. 4 to the registration statement on Form S-1 of Charter
Communications, Inc. filed on November 1, 1999 (File No.
333-83887)).
10.14(d) Amendment No. 2 to the Charter Communications Holdings, LLC 1999
Option Plan (Incorporated by reference to Exhibit 10.4(c) to the
annual report on Form 10-K filed by Charter Communications, Inc. on
March 30, 2000 (File No. 000-27927)).
10.14(e) Amendment No. 3 to the Charter Communications 1999 Option Plan
(Incorporated by reference to Exhibit 10.8(c) to the annual report
of Form 10-K of Charter Communications, Inc. filed on March 29, 2001
(File No. 000-27927)).
- 100 -
[Download Table]
Exhibit Description
------- -----------
10.15(a) Charter Communications, Inc. 2001 Stock Incentive Plan (Incorporated
by reference to Exhibit 10.25 to the quarterly report on Form 10-Q
filed by Charter Communications, Inc. on May 15, 2001 (File No.
000-27927)).
10.15(b) Amendment to the Charter Communications, Inc. 2001 Stock Incentive
Plan (Incorporated by reference to Exhibit 10.10 to the quarterly
report on Form 10-Q filed by Charter Communications, Inc. on
November 14, 2001 (File No. 000-27927).
10.15(c) Amendment No. 2 to the Charter Communications, Inc. 2001 Stock
Incentive Plan effective January 2, 2002 (Incorporated by reference
to Exhibit 10.8(c) to the annual report of Form 10-K of Charter
Communications, Inc. filed on March 29, 2001 (File No. 000-27927)).
10.16(a) Employment Agreement, dated as of August 28, 1998, between Jerald L.
Kent and Paul G. Allen (Incorporated by reference to Exhibit 10.6 to
Amendment No. 5 to the registration statement on Form S-4 of Charter
Communications Holdings, LLC and Charter Communications Holdings
Capital Corporation filed on August 10, 1999 (File No. 333-77499)).
10.16(b) Assignment of Employment Agreements, dated as of December 23, 1998,
between Paul G. Allen and Charter Communications, Inc. (now called
Charter Investment, Inc.) (Incorporated by reference to Exhibit
10.11 to Amendment No. 6 to the registration statement on Form S-4
of Charter Communications Holdings, LLC and Charter Communications
Holdings Capital Corporation filed on August 27, 1999 (File No.
333-77499)).
10.16(c) Form of Assignment and Assumption Agreement, dated as of November 4,
1999, by and between Charter Investment, Inc. and Charter
Communications, Inc. (Incorporated by reference to Exhibit 10.15(c)
to Amendment No. 2 to the registration statement on Form S-1 of
Charter Communications, Inc. filed on September 28, 1999 (File No.
333-83887)).
10.16(d) Agreement, dated as of September 24, 2001, by and between Jerald
Kent and Charter Communications, Inc. (Incorporated by reference to
Exhibit 10.1 to the quarterly report on Form 10-Q filed by Charter
Communications, Inc. on November 14, 2001 (File No. 000-27927)).
10.16(e) Option Agreement, dated as of February 9, 1999, between Jerald L.
Kent and Charter Communications Holdings, LLC (Incorporated by
reference to Exhibit 10.9(a) to Amendment No. 6 to the registration
statement on Form S-4 of Charter Communications Holdings, LLC and
Charter Communications Holdings Capital Corporation filed on August
27, 1999 (File No. 333-77499)).
10.16(f) Amendment to the Option Agreement, dated as of May 25, 1999, between
Jerald L. Kent and Charter Communications Holding Company, LLC
(Incorporated by reference to Exhibit 10.9(b) to Amendment No. 6 to
the registration statement on Form S-4 of Charter Communications
Holdings, LLC and Charter Communications Holdings Capital
Corporation filed on August 27, 1999 (File No. 333-77499)).
10.16(g) Form of Amendment to the Option Agreement, dated as of November 8,
1999, by and among Jerald L. Kent, Charter Communications Holding
Company, LLC and Charter Communications, Inc. (Incorporated by
reference to Exhibit 10.20(c) to Amendment No. 4 to the registration
statement on Form S-1 of Charter Communications, Inc. filed on
November 1, 1999 (File No. 333-83887)).
10.17 Letter Agreement, dated May 25, 1999, between Charter
Communications, Inc. and Marc Nathanson (Incorporated by reference
to Exhibit 10.36 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.
333-95351)).
- 101 -
[Download Table]
Exhibit Description
------- -----------
10.18 Form of Consulting Agreement, dated as of November 1, 1999, by and
between Howard L. Wood and Charter Communications, Inc.
(Incorporated by reference to Exhibit 10.17(c) to Amendment No. 4 to
the registration statement on Form S-1 of Charter Communications,
Inc. filed on November 1, 1999 (File No. 333-83887)).
10.19 Employment Agreement, dated as of September 28, 2001, by and between
Kent D. Kalkwarf and Charter Communications, Inc. (Incorporated by
reference to Exhibit 10.2 to the quarterly report on Form 10-Q filed
by Charter Communications, Inc. on November 14, 2001 (File No.
000-27927)).
10.20 Employment Agreement, dated as of September 28, 2001, by and between
David G. Barford and Charter Communications, Inc. (Incorporated by
reference to Exhibit 10.3 to the quarterly report on Form 10-Q filed
by Charter Communications, Inc. on November 14, 2001 (File No.
000-27927)).
10.21 Employment Agreement, dated as of October 8, 2001, by and between
Carl E. Vogel and Charter Communications, Inc. (Incorporated by
reference to Exhibit 10.4 to the quarterly report on Form 10-Q filed
by Charter Communications, Inc. on November 14, 2001 (File No.
000-27927)).
10.22 Employment Agreement, dated as of October 18 2001, by and between
Stephen E. Silva and Charter Communications, Inc. (Incorporated by
reference to Exhibit 10.5 to the quarterly report on Form 10-Q filed
by Charter Communications, Inc. on November 14, 2001 (File No.
000-27927)).
10.23 Employment Agreement, dated as of October 30, 2001, by and between
David L. McCall and Charter Communications, Inc. (Incorporated by
reference to Exhibit 10.6 to the quarterly report on Form 10-Q filed
by Charter Communications, Inc. on November 14, 2001 (File No.
000-27927)).
10.24 Employment Agreement, dated as of October 30, 2001, by and between
James H. Smith, III and Charter Communications, Inc. (Incorporated
by reference to Exhibit 10.7 to the quarterly report on Form 10-Q
filed by Charter Communications, Inc. on November 14, 2001 (File No.
000-27927)).
10.25(a) Credit Agreement, among Charter Communications Operating, LLC and
certain lenders and agents named therein, dated as of March 18,
1999, (Incorporated by reference to Exhibit 10.1 to Amendment No. 2
to the registration statement on Form S-4 of Charter Communications
Holdings, LLC and Charter Communications Holdings Capital
Corporation filed on June 22, 1999 (File No. 333-77499)).
10.25(b) First Amendment to Credit Agreement, among Charter Communications
Operating, LLC, Charter Communications Holdings LLC and certain
lenders and agents named therein, dated as of June 28, 1999
(Incorporated by reference to Exhibit 10.1(a) 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. 333-95351)).
10.25(c) Second Amendment to Credit Agreement, among Charter Communications
Operating, LLC, Charter Communications Holdings LLC and certain
lenders and agents named therein dated as of December 14, 1999
(Incorporated by reference to Exhibit 10.1(b) 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. 333-95351)).
10.25(d) Third Amendment to Credit Agreement, among Charter Communications
Operating, LLC, Charter Communications, LLC and certain lenders and
agents named therein, dated as of March 18, 2000 (Incorporated by
reference to Exhibit 10.1(c) to the annual report on Form 10-K filed
by Charter Communications, Inc. on March 30, 2000 (File No.
000-27927)).
- 102 -
[Download Table]
Exhibit Description
------- -----------
10.25(e) Credit Agreement, among Charter Communications Operating, LLC,
Charter Communications Holdings, LLC and certain lenders and agents
named therein, dated as of March 18, 1999, as amended and restated
as of January 3, 2002 (Incorporated by reference to Exhibit 99.1 to
the current report on Form 8-K filed by Charter Communications, Inc.
on January 24, 2002 (File No. 000-27927)).
10.26(a) Form of Credit Agreement, among Falcon Cable Communications, LLC,
certain guarantors and several financial institutions or entities
named therein, dated as of June 30, 1998, as amended and restated as
of November 12, 1999, (Incorporated by reference to Exhibit 10.36 to
Amendment No. 3 to the registration statement on Form S-1 of Charter
Communications, Inc. filed on October 18, 1999 (File No.
333-83887)).
10.26(b) Credit Agreement, dated as of June 30, 1998, as amended and restated
as of November 12, 1999, as further amended and restated as of
September 26, 2001, among Falcon Cable Communications, LLC, certain
guarantors, and several financial institutions or entities named
therein. (Incorporated by reference to Exhibit 10.8 to the quarterly
report on Form 10-Q filed by Charter Communications, Inc. on
November 14, 2001 (File No. 000-27927)).
10.27(a) Amended and Restated Credit Agreement dated as of February 2, 1999,
as amended and restated as of February 14, 2000 by and among CC VIII
Operating, LLC, as borrower, CC VIII Holdings, LLC, as guarantor,
and several financial institutions or entities named therein
(Incorporated by reference to Exhibit 10.18(a) to the annual report
on Form 10-K filed by Charter Communications, Inc. on March 30, 2000
(File No. 000-27927)).
10.27(b) Second Amended and Restated Credit Agreement, among CC VIII
Operating, LLC, as borrower, CC VIII Holdings, LLC, as guarantor,
and several financial institutions or entities named therein, dated
as of February 2, 1999, as amended and restated as of January 2,
2001 (Incorporated by reference to Exhibit 10.17 to the annual
report on Form 10-K filed by Charter Communications Holdings, LLC
and Charter Communications Holdings Capital Corporation on April 2,
2001 (File No. 333-77499)).
10.27(c) Third Amended and Restated Credit Agreement, among CC VIII
Operating, LLC, as borrower, CC VIII Holdings, LLC, as guarantor,
and certain lenders and agents named therein, dated as of February
2, 1999, as amended and restated as of January 3, 2002 (Incorporated
by reference to Exhibit 99.2 to the current report on Form 8-K filed
by Charter Communications, Inc. on January 24, 2002 (File No.
000-27927)).
10.28 Credit Agreement, among CC VI Holdings, LLC, CC VI Operating
Company, LLC and several financial institutions or entities named
therein, dated as of November 12, 1999, (Incorporated by reference
to Exhibit 10.41 to the report on Form 8-K of Charter
Communications, Inc. filed on November 29, 1999 (File No.
000-27927)).
10.29 Commitment Letter, dated February 26, 2001, by and among Goldman
Sachs Credit Partners, L.P. and Morgan Stanley Senior Funding, Inc.,
on the one hand, and Charter Communications Holdings, LLC and
Charter Communications Holdings Capital Corporation, on the other
hand (Incorporated by reference to Exhibit 10.24 to the annual
report of Form 10-K of Charter Communications, Inc. filed on March
6, 2001 (File No. 000-27927)).
10.30 Amended and Restated Limited Liability Company Agreement for Charter
Communications Holding Company, LLC made as of August 31, 2001
(Incorporated by reference to Exhibit 10.9 to the quarterly report
on Form 10-Q filed by Charter Communications, Inc. on November 14,
2001 (File No. 000-27927)).
10.31 Certificate of Designation of Series A Convertible Redeemable
Preferred Stock of Charter Communications, Inc. and related
Certificate of Correction of Certificate of Designation
(Incorporated by reference to Exhibit 3.1 to the quarterly report on
Form 10-Q filed by Charter Communications, Inc. on November 14, 2001
(File No. 000-27927)).
- 103 -
[Download Table]
Exhibit Description
------- -----------
10.32 Indenture relating to 5.75% Convertible Senior Notes due 2005, dated
as of October 25, 2000, among Charter Communications, Inc. and BNY
Midwest Trust Company as trustee (Incorporated by reference to
Exhibit 10.35 to the quarterly report on Form 10-Q filed by Charter
Communications, Inc. on November 14, 2000 (File No. 000-27927)).
10.33 Indenture dated May 30, 2001 between Charter Communications, Inc.
and BNY Midwest Trust Company as Trustee governing 4.75% Convertible
Senior Notes due 2006. (Incorporated by reference to Exhibit 4.1(b)
to the current report on Form 8-K filed by Charter Communications,
Inc. on June 1, 2001 (File No. 000-27927)).
12.1** Computation of Ratio of Earnings to Fixed Charges
21.1** Subsidiaries of Charter Communications Holdings, LLC
99.1** Risk Factors
99.2** Letter responsive to Temporary Note 3T to Article 3 of Regulation
S-X.
----------
** Document Attached
- 104 -
INDEX TO FINANCIAL STATEMENTS
[Enlarge/Download Table]
Page
----
Report of Independent Public Accountants...................................................... F-2
Report of Independent Auditors................................................................ F-3
Report of Independent Auditors................................................................ F-4
Consolidated Balance Sheets as of December 31, 2001 and 2000.................................. F-5
Consolidated Statements of Operations for the Years Ended December 31, 2001, 2000 and 1999.... F-6
Consolidated Statements of Changes in Member's Equity for the Years Ended
December 31, 2001, 2000 and 1999........................................................... F-7
Consolidated Statements of Cash Flows for the Years Ended December 31, 2001, 2000 and 1999.... F-8
Notes to Consolidated Financial Statements.................................................... F-9
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO CHARTER COMMUNICATIONS HOLDINGS, LLC:
We have audited the accompanying consolidated balance sheets of Charter
Communications Holdings, LLC and subsidiaries as of December 31, 2001 and 2000,
and the related consolidated statements of operations, changes in member's
equity and cash flows for each of the three years in the period ended December
31, 2001. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We did not audit the financial statements of
Charter Communications VI Operating Company, LLC and subsidiaries, and CC VII
Holdings, LLC -- Falcon Systems, for the periods from the dates of acquisition
through December 31, 1999, which statements on a combined basis reflect total
revenues of 6 percent, of the related consolidated totals of the Company. Those
statements were audited by other auditors whose reports have been furnished to
us, and our opinion, insofar as it relates to the amounts included for those
entities, is based solely on the reports of the other auditors.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits and the reports of other auditors
provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Charter Communications Holdings, LLC and subsidiaries
as of December 31, 2001 and 2000, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 2001, in
conformity with accounting principles generally accepted in the United States.
/s/ ARTHUR ANDERSEN LLP
St. Louis, Missouri,
January 29, 2002
F-2
REPORT OF INDEPENDENT AUDITORS
Charter Communications VI
Operating Company, LLC
We have audited the consolidated statements of operations, member's equity
and cash flows of Charter Communications VI Operating Company, LLC and
subsidiaries for the period from inception (November 9, 1999) to December 31,
1999 (not presented separately herein). These financial statements are the
responsibility of management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated results of operations and cash flows
of Charter Communications VI Operating Company, LLC and subsidiaries for the
period from November 9, 1999 to December 31, 1999 in conformity with accounting
principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Denver, Colorado
February 11, 2000
F-3
REPORT OF INDEPENDENT AUDITORS
Sole Member
CC VII Holdings, LLC
We have audited the combined statements of operations and parent's
investment and cash flows of the CC VII Holdings, LLC--Falcon Systems for the
period from November 13, 1999 (commencement date) to December 31, 1999 (not
presented separately herein). These combined financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these combined financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above
present fairly, in all material respects, the combined results of operations and
cash flows of the CC VII Holdings, LLC--Falcon Systems for the period from
November 13, 1999 (commencement date) to December 31, 1999, in conformity with
accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Los Angeles, California
March 2, 2000
F-4
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
[Enlarge/Download Table]
December 31,
2001 2000
------------ ------------
(dollars in thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ..................................... $ 1,674 $ 130,619
Accounts receivable, net of allowance for doubtful accounts
of $32,866 and $12,421, respectively ...................... 273,564 217,605
Receivables from related party ................................ 16,964 13,044
Prepaid expenses and other current assets ..................... 67,255 72,252
------------ ------------
Total current assets ...................................... 359,457 433,520
------------ ------------
INVESTMENT IN CABLE PROPERTIES:
Property, plant and equipment, net ............................ 6,956,777 5,230,483
Franchises, net ............................................... 17,138,774 17,068,702
------------ ------------
Total investment in cable properties, net ................. 24,095,551 22,299,185
------------ ------------
OTHER ASSETS ..................................................... 267,919 249,472
------------ ------------
Total assets .............................................. $ 24,722,927 $ 22,982,177
============ ============
LIABILITIES AND MEMBER'S EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses ......................... $ 1,271,886 $ 1,358,479
Payables to related party ..................................... 189,000 --
------------ ------------
Total current liabilities ................................. 1,460,886 1,358,479
------------ ------------
LONG-TERM DEBT ................................................... 14,960,373 12,310,455
------------ ------------
DEFERRED MANAGEMENT FEES - RELATED PARTY ......................... 13,751 13,751
------------ ------------
OTHER LONG-TERM LIABILITIES ...................................... 328,204 275,103
------------ ------------
MINORITY INTEREST ................................................ 676,028 640,526
------------ ------------
MEMBER'S EQUITY:
Member's equity ............................................... 7,323,119 8,384,161
Accumulated other comprehensive loss .......................... (39,434) (298)
------------ ------------
Total member's equity ..................................... 7,283,685 8,383,863
------------ ------------
Total liabilities and member's equity ..................... $ 24,722,927 $ 22,982,177
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
[Enlarge/Download Table]
Year Ended December 31,
-------------------------------------------
2001 2000 1999
----------- ----------- -----------
(dollars in thousands, except share data)
REVENUES .......................................................... $ 3,953,132 $ 3,249,222 $ 1,428,090
----------- ----------- -----------
OPERATING EXPENSES:
Operating, general and administrative .......................... 2,110,043 1,650,918 737,957
Depreciation and amortization .................................. 3,010,068 2,462,544 745,315
Option compensation expense .................................... (51,839) 40,978 79,979
Corporate expenses ............................................. 56,930 55,243 51,428
Special charges ................................................ 17,629 -- --
----------- ----------- -----------
5,142,831 4,209,683 1,614,679
----------- ----------- -----------
Loss from operations ....................................... (1,189,699) (960,461) (186,589)
OTHER INCOME (EXPENSE):
Interest expense ............................................... (1,260,396) (1,065,236) (471,871)
Interest income ................................................ 8,766 6,679 18,821
Loss on equity investments ..................................... (48,957) (10,963) --
Other, net ..................................................... (90,661) (6,540) (245)
----------- ----------- -----------
(1,391,248) (1,076,060) (453,295)
----------- ----------- -----------
Loss before income tax expense, minority interest
expense and extraordinary item .......................... (2,580,947) (2,036,521) (639,884)
INCOME TAX EXPENSE ................................................ -- -- (1,030)
----------- ----------- -----------
Loss before minority interest expense and extraordinary item ... (2,580,947) (2,036,521) (640,914)
MINORITY INTEREST EXPENSE ......................................... (12,828) (11,038) --
----------- ----------- -----------
Loss before extraordinary item ................................. (2,593,775) (2,047,559) (640,914)
EXTRAORDINARY ITEM - Loss on debt extinguishment ............... -- -- (7,794)
----------- ----------- -----------
Net loss ....................................................... $(2,593,775) $(2,047,559) $ (648,708)
=========== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBER'S EQUITY
[Enlarge/Download Table]
Total
Member's Accumulated Other Member's
Equity Comprehensive Loss Equity
----------- ------------------ -----------
(dollars in thousands)
BALANCE, December 31, 1998 ....................................... $ 2,147,379 $ -- $ 2,147,379
Capital contribution .......................................... 6,477,363 -- 6,477,363
Distributions to Charter Investment and Charter ............... (10,276) -- (10,276)
Option compensation expense ................................... 79,979 -- 79,979
Net loss ...................................................... (648,708) -- (648,708)
Unrealized gain on marketable securities available for sale ... -- 2,216 2,216
----------- ------------------ -----------
BALANCE, December 31, 1999 ....................................... 8,045,737 2,216 8,047,953
Capital contributions ......................................... 2,371,595 -- 2,371,595
Distributions to parent company ............................... (26,590) -- (26,590)
Option compensation expense ................................... 40,978 -- 40,978
Net loss ...................................................... (2,047,559) -- (2,047,559)
Unrealized loss on marketable securities available for sale ... -- (2,514) (2,514)
----------- ------------------ -----------
BALANCE, December 31, 2000 ....................................... 8,384,161 (298) 8,383,863
Capital contributions ......................................... 1,681,434 -- 1,681,434
Distributions to parent company ............................... (96,862) -- (96,862)
Changes in fair value of interest rate agreements ............. -- (38,478) (38,478)
Option compensation expense ................................... (51,839) -- (51,839)
Net loss ...................................................... (2,593,775) -- (2,593,775)
Unrealized loss on marketable securities available for sale ... -- (658) (658)
----------- ------------------ -----------
BALANCE, December 31, 2001 ....................................... $ 7,323,119 $(39,434) $ 7,283,685
=========== ================== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
[Enlarge/Download Table]
Year Ended December 31,
-------------------------------------------
2001 2000 1999
----------- ----------- -----------
(dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ........................................................................ $(2,593,775) $(2,047,559) $ (648,708)
Adjustments to reconcile net loss to net cash
flows from operating activities:
Minority interest expense ................................................... 12,828 11,038 --
Depreciation and amortization ............................................... 3,010,068 2,462,544 745,315
Option compensation expense ................................................. (51,839) 40,978 79,979
Noncash interest expense .................................................... 290,232 180,685 98,920
Loss on equity investments .................................................. 48,957 10,963 --
Loss on early extinguishment of debt ........................................ -- -- 7,794
Changes in operating assets and liabilities, net of effects from acquisitions
and dispositions:
Accounts receivable ......................................................... (50,923) (138,391) (32,366)
Prepaid expenses and other assets ........................................... (44,561) (44,515) 14,256
Accounts payable and accrued expenses ....................................... (53,787) 695,188 175,280
Receivables from and payables to related party,
including deferred management fees ....................................... (39,673) (49,232) 21,183
Other operating activities ...................................................... 9,488 4,587 (1,245)
----------- ----------- -----------
Net cash flows from operating activities ................................. 537,015 1,126,286 460,408
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment ...................................... (2,909,109) (2,783,440) (741,508)
Payments for acquisitions, net of cash acquired ................................. (1,710,106) (101,210) (3,560,241)
Loan to Marcus Cable Holdings ................................................... -- -- (1,680,142)
Purchases of investments ........................................................ (9,898) (47,573) --
Other investing activities ...................................................... (14,671) 24,268 (22,198)
----------- ----------- -----------
Net cash flows from investing activities ........................................ (4,643,784) (2,907,955) (6,004,089)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt .................................................... 6,675,032 6,715,303 9,261,546
Repayments of long-term debt .................................................... (4,290,157) (4,499,793) (5,694,375)
Borrowings from (repayments to) related party ................................... 189,000 (1,079,163) 1,079,163
Payments for debt issuance costs ................................................ (78,323) (62,848) (113,481)
Capital contributions ........................................................... 1,579,134 751,095 1,144,290
Distributions ................................................................... (96,862) (26,590) (10,276)
Other financing activities ...................................................... -- 188 (18,663)
----------- ----------- -----------
Net cash flows from financing activities ........................................ 3,977,824 1,798,192 5,648,204
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ............................... (128,945) 16,523 104,523
CASH AND CASH EQUIVALENTS, beginning of year ....................................... 130,619 114,096 9,573
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of year ............................................. $ 1,674 $ 130,619 $ 114,096
=========== =========== ===========
CASH PAID FOR INTEREST ............................................................. $ 945,840 $ 775,647 $ 314,606
=========== =========== ===========
NONCASH TRANSACTIONS:
Issuance of preferred equity in a subsidiary as payment for acquisition ......... $ -- $ 629,488 $ --
Exchange of assets for acquisition .............................................. 25,089 -- --
Transfer of equity interests to the Company ..................................... 102,300 1,620,500 5,333,073
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except where indicated)
1. Organization and Basis of Presentation
As of December 31, 2001, Charter Communications Holdings, LLC (Charter
Holdings or the Company), a Delaware limited liability company, owns and
operates cable systems through its operating subsidiaries and is the fourth
largest operator of cable systems in the United States. Through its broadband
network of coaxial and fiber optic cable, the Company provides video, data,
interactive and private business network services to approximately seven million
(unaudited) customers in 40 states. All of the Company's systems offer
traditional analog cable television. The Company is steadily increasing the
availability of digital television, along with an array of advanced products and
services such as high-speed Internet access (data services), interactive video
programming and video-on-demand, in an increasing number of systems. In 2002,
the Company expects to offer several new advanced products and services,
including a set-top terminal companion that enables digital video recorder
capability, home networking and internet-access over the television; wireless
home networking; and an enhanced customized internet portal, with a customized
browser and charter.com e-mail. In 2002, the Company began offering telephony on
a limited basis through its broadband network using switch technology and will
continue trials of voice-over Internet protocol telephony. The introduction and
roll-out of new products and services represents an important step toward the
realization of the Company's Wired World(TM) vision, where cable's ability to
transmit interactive video, data and voice at high-speeds enables it to serve as
the primary platform for the delivery of new services to the home and workplace.
Charter Holdings, a subsidiary of Charter Communications Holding Company,
LLC (Charter Holdco), which is a subsidiary of Charter Communications, Inc.
(Charter), is a holding company whose principal assets are equity interests in
cable operating subsidiaries. In November 1999, Charter completed an initial
public offering of the sale of 195.5 million shares of Class A common stock.
Proceeds from the offering were used by Charter to purchase membership units in
Charter Holdco, which used the funds received from Charter for the acquisition
of additional cable systems.
Charter Holdings was formed in February 1999 as a wholly owned subsidiary
of Charter Investment, Inc. (Charter Investment). Charter Investment, through
its wholly owned subsidiary, Charter Communications Properties Holdings LLC
(CCPH), commenced operations with the acquisition of a cable system on September
30, 1995.
Effective December 23, 1998, through a series of transactions, Mr. Allen
acquired approximately 94% of Charter Investment for an aggregate purchase price
of $2.2 billion, excluding $2.0 billion in debt assumed (the Paul Allen
Transaction). In conjunction with the Paul Allen Transaction, Charter Investment
acquired, for fair value from unrelated third parties, all of the interests it
did not already own in CharterComm Holdings, LLC (CharterComm Holdings) and CCA
Group (comprised of CCA Holdings Corp., CCT Holdings Corp. and Charter
Communications Long Beach, Inc.), all cable operating companies, for $2.0
billion, excluding $1.8 billion in debt assumed. Charter Investment previously
managed and owned minority interests in these companies. These acquisitions were
accounted for using the purchase method of accounting and accordingly, results
of operations of CharterComm Holdings and CCA Group are included in the
consolidated financial statements from the date of acquisition. In February
1999, Charter Investment transferred all of its cable operating subsidiaries to
a wholly owned subsidiary of Charter Holdings. This transfer was accounted for
as a reorganization of entities under common control similar to a pooling of
interests.
As a result of the change in ownership of CCPH, CharterComm Holdings and
CCA Group, Charter Holdings applied push-down accounting in the preparation of
its consolidated financial statements. Accordingly, on December 23, 1998,
Charter Holdings increased its member's equity by $2.2 billion to reflect the
amounts paid by Mr. Allen and Charter Investment. The purchase price was
allocated to assets acquired and liabilities assumed based on their relative
fair values, including amounts assigned to franchises of $3.6 billion.
On April 23, 1998, Mr. Allen and a company controlled by Mr. Allen,
(collectively, the Mr. Allen Companies) purchased substantially all of the
outstanding partnership interests in Marcus Cable Company, L.L.C. (Marcus Cable)
for $1.4 billion, excluding $1.8 billion in assumed liabilities. The owner of
the remaining partnership interest retained voting control of Marcus Cable. In
February 1999, Marcus Cable Holdings, LLC (Marcus Holdings) was formed, and Mr.
Allen's interests in Marcus Cable were transferred to Marcus Holdings on March
15, 1999. On March 31, 1999, Mr. Allen purchased the
F-9
remaining partnership interests in Marcus Cable, including voting control. On
April 7, 1999, Marcus Holdings was merged into Charter Holdings and Marcus Cable
was transferred to Charter Holdings. For financial reporting purposes, the
merger was accounted for as an acquisition of Marcus Cable effective March 31,
1999, the date Mr. Allen obtained voting control of Marcus Cable. Accordingly,
the results of operations of Marcus Cable have been included in the consolidated
financial statements from April 1, 1999. The assets and liabilities of Marcus
Cable have been recorded in the consolidated financial statements using
historical carrying values reflected in the accounts of the Mr. Allen Companies.
Total member's equity of Charter Holdings increased by $1.3 billion as a result
of the Marcus Cable acquisition. Previously, on April 23, 1998, the Mr. Allen
Companies recorded the assets acquired and liabilities assumed of Marcus Cable
based on their relative fair values.
On January 1, 2000, Charter Holdco and Charter Holdings effected a number
of transactions in which cable systems acquired by Charter Holdco in November
1999 were contributed to Charter Holdings (the Transferred Systems). As a result
of these transactions, Charter Holdings became the indirect parent of the CC VI
Holdings, LLC, CC VII Holdings, LLC and CC V Holdings LLC cable systems.
Effective January 1, 2000, the Company accounted for the contribution of the
Transferred Systems to Charter Holdings as a reorganization of entities under
common control in a manner similar to a pooling of interests. The accounts of
the Transferred Systems are included in these consolidated financial statements
from the date the Transferred Systems were acquired by Charter Holdco, November
1999.
Pursuant to a membership interests purchase agreement, as amended, Vulcan
Cable III Inc. (Vulcan), a company controlled by Mr. Allen, contributed $500
million in cash in August 1999 to Charter Holdco, contributed an additional
$180.7 million in certain equity interests acquired in connection with Charter
Holdings' acquisition of Rifkin Acquisition Partners, L.L.L.P. and InterLink
Communications Partners, LLLP (collectively, Rifkin) in September 1999, and
contributed $644.3 million in cash in September 1999 to Charter Holdco. All
funds and equity interests were contributed by Charter Holdco to Charter
Holdings to finance certain acquisitions. In addition, certain Rifkin sellers
received $133.3 million of the purchase price in the form of preferred equity in
Charter Holdco.
2. Summary of Significant Accounting Policies
Basis of Consolidation and Presentation
The consolidated financial statements of the Company include the accounts
of Charter Holdings and all of its wholly owned, majority owned or controlled
subsidiaries. All significant intercompany accounts and transactions among
consolidated entities have been eliminated.
Certain amounts in the prior years' consolidated financial statements have
been reclassified to conform with the 2001 presentation.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United Sates requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. These investments are
carried at cost which approximates market value.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost, including all direct
and certain indirect costs associated with the construction of cable
transmission and distribution facilities and the cost of new customer
installations. The costs of disconnecting a customer are charged to expense in
the period incurred. Expenditures for repairs and maintenance are charged to
operating expense as incurred, while equipment replacement and betterments are
capitalized.
F-10
Depreciation is recorded using the straight-line method over management's
estimate of the useful lives of the related assets as follows:
[Download Table]
Cable distribution systems ................................ 3-15 years
Buildings and leasehold improvements ...................... 5-15 years
Vehicles and equipment .................................... 3-5 years
Franchises
Costs incurred in obtaining and renewing cable franchises are deferred and
amortized using the straight-line method over a period of 15 years. Franchise
rights acquired through the purchase of cable systems represent management's
estimate of fair value and are generally amortized using the straight-line
method over a period of 15 years. The period of 15 years was management's best
estimate of the useful lives of the franchises and assumed that substantially
all of those franchises that expired during the period would be renewed but not
indefinitely. Because substantially all of the Company's franchise rights have
been acquired in the past several years (see Note 3), the Company did not have
sufficient experience with the local franchise authorities to conclude that
renewals of franchises could be accomplished indefinitely. In addition, because
the technological state of the Company's cable systems, with many systems with
less than 550 megahertz bandwidths, could have resulted in demands from local
franchise authorities to upgrade those systems sooner than previously planned,
there was a risk that the franchises would not be renewed.
The Company believes that facts and circumstances have changed to enable
it to conclude that substantially all of its franchises will be renewed
indefinitely, with some portion of the franchises continuing to be amortized.
The Company has sufficiently upgraded the technological state of its cable
systems and now has sufficient experience with the local franchise authorities
where it acquired franchises to conclude substantially all franchises will be
renewed indefinitely. Any revisions to the estimated useful lives of franchises
will be reflected in the 2002 financial statements (see Note 18 regarding the
adoption of SFAS No. 142).
Accumulated amortization related to franchises was $3.2 billion and $1.9
billion, as of December 31, 2001 and 2000, respectively. Amortization expense
related to franchises for the years ended December 31, 2001, 2000 and 1999, was
$1.3 billion, $1.2 billion and $520.0 million, respectively.
Other Assets
Other assets primarily include deferred financing costs and investments in
equity securities. Costs related to borrowings are deferred and amortized to
interest expense using the effective interest method over the terms of the
related borrowings. As of December 31, 2001 and 2000, other assets include
$205.0 million and $158.8 million of deferred financing costs, net of
accumulated amortization of $62.0 million and $35.2 million, respectively.
Investments in equity securities are accounted for at cost, under the
equity method of accounting or in accordance with Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt
and Equity Securities." Charter recognizes losses for any decline in value
considered to be other than temporary. Certain marketable equity securities are
classified as available-for-sale and reported at market value with unrealized
gains and losses recorded as accumulated other comprehensive income or loss.
Comprehensive loss for the years ended December 31, 2001, 2000 and 1999, was
$2.6 billion, $2.1 billion and $646.5 million, respectively.
The following summarizes investment information as of and for the year
ended December 31, 2001:
[Enlarge/Download Table]
Carrying Value at Loss for the Year Ended
December 31, December 31,
--------------------- -----------------------
2001 2000 2001 2000
------- -------- -------- --------
Equity investments, under the cost method ..... $31,659 $ 5,041 $ (5,703) $ (4,690)
Equity investments, under the equity method ... 9,575 36,005 (41,107) (6,989)
Marketable securities, at market value ........ 2,020 -- (2,147) 716
------- -------- -------- --------
$43,254 $ 41,046 $(48,957) $(10,963)
======= ======== ======== ========
F-11
Valuation of Long-Lived Assets
The Company periodically evaluates the recoverability of long-lived
assets, including property, plant and equipment and franchises for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. If a review indicates that the carrying value
of such asset is not recoverable based on projected undiscounted net cash flows
related to the asset over its remaining life, a loss is recognized for the
difference between the fair value of the asset and its carrying value.
Other Long-term Liabilities
The Company receives upfront payments from certain programmers related to
the launch of new cable television channels. Revenue is recognized to the extent
of the fair value of the advertising services provided to promote the new
channels. Such revenue is classified as advertising revenue and totaled $99.7
million and $51.5 million for the years ended December 31, 2001 and 2000,
respectively, and was insignificant during 1999. The remaining portion is
deferred and amortized as an offset to programming expense over the respective
terms of the program agreements, which range from one to 20 years. For the years
ended December 31, 2001, 2000 and 1999, the Company amortized and recorded as a
reduction of programming costs $10.3 million, $6.9 million and $3.4 million,
respectively. As of December 31, 2001 and 2000, the unamortized portion of the
deferred payments totaled $95.9 million and $104.2 million, respectively, and is
included in other long-term liabilities in the accompanying consolidated balance
sheets.
Derivative Financial Instruments
The Company uses interest rate risk management derivative instruments,
such as interest rate swap agreements, interest rate cap agreements and interest
rate collar agreements (collectively referred to herein as interest rate
agreements) as required under the terms of the credit facilities of the
Company's subsidiaries. The Company's policy is to manage interest costs using a
mix of fixed and variable rate debt. Using interest rate swap agreements, the
Company agrees 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 the Company to otherwise
pay lower market rates. Interest rate collar agreements are used to limit
exposure to and benefits from interest rate fluctuations on variable rate debt
to within a certain range of rates. The Company does not hold or issue any
derivative financial instruments for trading purposes.
Revenue Recognition
Revenues from analog, digital and cable modem services are recognized when
the related services are provided. Advertising sales are recognized in the
period that the advertisements are broadcast.
Local governmental authorities impose franchise fees on the Company
ranging up to a federally mandated maximum of 5.0% of gross revenues. Such fees
are collected on a monthly basis from the Company's customers and are
periodically remitted to local franchise authorities. Franchise fees collected
and paid are reported as revenues and expenses.
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued
to Employees," and related interpretations, as permitted by SFAS No. 123,
"Accounting for Stock-Based Compensation." Compensation expense for stock
options is measured as the excess, if any, of the quoted market price of the
Company's common stock at the date of the grant over the amount an employee must
pay to acquire the common stock. Compensation expense for restricted stock
awards is recorded over the vesting period with an increase to additional
paid-in capital based on the quoted market price of the Company's common stock
at the date of the grant.
Income Taxes
Certain indirect subsidiaries of the Company are corporations and file
separate federal and state income tax returns. Results of operations from these
subsidiaries are not material to the consolidated results of operations of the
Company. Income
F-12
tax expense for the year ended December 31, 1999 represents taxes assessed by
certain state jurisdictions. Deferred income tax assets and liabilities are not
material.
Minority Interest
Minority interest represents preferred membership units issued by a
subsidiary in connection with the acquisition of a company by Charter Holdco.
The preferred membership units accrete at a rate of 2% per year and are
exchangeable on a one-for-one basis for shares of Charter Class A common stock.
The accretion on the preferred membership units is recorded as minority interest
expense in the accompanying consolidated statements of operations.
Segments
SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information," established standards for reporting information about operating
segments in annual financial statements and in interim financial reports issued
to shareholders. Operating segments are defined as components of an enterprise
about which separate financial information is available that is evaluated on a
regular basis by the chief operating decision maker, or decision making group,
in deciding how to allocate resources to an individual segment and in assessing
performance of the segment. Because the Company provides a variety of broadband
services over the same means of delivery, management has determined the Company
has one reportable segment, broadband services.
3. Acquisitions
During 2001, the Company acquired cable systems for an aggregate purchase
price of $1.71 billion, net of cash acquired, and a cable system valued at $25.1
million. Also during 2001, Charter Holdco acquired cable systems for a purchase
price of $44.6 million in cash, and 505,664 shares of Charter Series A
Convertible Redeemable Preferred Stock valued at $50.6 million and additional
shares of Series A Convertible Redeemable Preferred Stock valued at $5.1 million
to be issued to certain sellers subject to certain holdback provisions of the
acquisition agreement. Immediately after the acquisition, Charter Holdco
contributed all of its equity interest in the acquisition to the Company. The
purchase prices were allocated to assets and liabilities assumed based on
relative fair values including amounts assigned to franchises of $1.4 billion.
During 2000, the Company acquired cable systems for an aggregate purchase
price of $101.2 million, net of cash acquired. Also during 2000, Charter Holdco
acquired cable systems for an aggregate purchase price of $1.1 billion, net of
cash acquired, excluding debt assumed of $963.3 million. In connection with the
acquisitions, Charter issued shares of Class A common stock valued at
approximately $178.0 million, and Charter Holdco and an indirect subsidiary of
Charter Holdings issued equity interests totaling $384.6 million and $629.5
million, respectively. Immediately after the acquisitions, Charter Holdco
contributed all of its equity interests in these acquisitions to Charter
Holdings. The purchase prices were allocated to assets and liabilities assumed
based on relative fair values, including amounts assigned to franchises of $3.0
billion.
During 1999, the Company acquired cable systems in eight separate
transactions for an aggregate purchase price of $3.6 billion, net of cash
acquired, excluding debt assumed of $354.0 million. In connection with the
Rifkin acquisition, Charter Holdco issued equity interests totaling $133.3
million to certain sellers. In addition, Vulcan purchased $180.7 million of
equity interests in Rifkin. Vulcan and Charter Holdco contributed interests in
Rifkin to Charter Holdings, increasing equity by $314.0 million. The purchase
prices were allocated to assets acquired and liabilities assumed based on their
relative fair values, including amounts assigned to franchises of $3.9 billion.
During 1999, Charter Holdco acquired the cable systems of Fanch, Falcon
and Avalon and on January 1, 2000, Charter Holdco transferred its equity
interests in these cable systems to Charter Holdings (see Note 1), increasing
member's equity by $4.6 billion. Charter Holdco acquired these cable systems for
an aggregate purchase price of $4.0 billion, net of cash acquired, excluding
debt assumed of $2.2 billion and equity issued by Charter Holdco of $550.0
million. Charter Holdco allocates the purchase price to assets acquired and
liabilities assumed based on their relative fair values, including amounts
assigned to franchises of $5.8 billion.
The above transactions were accounted for using the purchase method of
accounting, and, accordingly, the results of operations of the acquired assets
have been included in the consolidated financial statements from their
respective dates of
F-13
acquisition. The purchase prices were allocated to assets and liabilities
assumed based on relative fair values. The allocation of the purchase prices for
the 2001 acquisitions is based, in part, on preliminary information, which is
subject to adjustment upon obtaining complete valuation information. Management
believes that finalization of the allocation of the purchase prices will not
have material impact on the consolidated results of operations or financial
position of the Company.
The summarized operating results of the Company which follow are presented
on a pro forma basis as if the following had occurred on January 1, 2000: all
significant acquisitions and dispositions completed during 2001 and 2000, the
issuance of Charter Holdings senior and senior discount notes in January 2001
and 2000, the drawdown of Charter Holdings' 2000 senior bridge loan facility,
the issuance of Charter Holdings senior and senior discount notes in May 2001,
the issuance by Charter of convertible senior notes in October and November 2000
and subsequent contribution of proceeds to the Company, and the issuance of and
sale by Charter of convertible senior notes and common stock in May 2001 and
subsequent contribution of proceeds to the Company. Adjustments have been made
to give effect to amortization of franchises, interest expense, minority
interest expense, and certain other adjustments.
[Download Table]
Year Ended December 31,
----------------------------------
2001 2000
----------- -----------
(Unaudited)
Revenues ......................... $ 4,114,767 $ 3,609,521
Loss from operations ............. (1,216,362) (1,045,375)
Net loss ......................... (2,659,500) (2,300,411)
The unaudited pro forma financial information has been presented for
comparative purposes and does not purport to be indicative of the consolidated
results of operations had these transactions been completed as of the assumed
date or which may be obtained in the future.
On August 29, 2001, certain of the Company's subsidiaries entered into an
agreement to purchase substantially all of the assets of certain Enstar
partnerships for which Charter is the manager for a purchase price of
approximately $63.0 million in cash.
On September 28, 2001, Charter Holdco and High-Speed Access Corp. (HSA)
entered into an asset purchase agreement pursuant to which Charter Holdco agreed
to purchase from HSA the contracts and associated assets, and assume related
liabilities, that served certain of the Company's high-speed data customers for
$77.5 million in cash. The transaction is expected to close in February 2002.
The rights under this agreement were subsequently assigned to a subsidiary of
the Company.
4. Allowance for Doubtful Accounts
Activity in the allowance for doubtful accounts is summarized as follows
for the years presented:
[Enlarge/Download Table]
Year Ended December 31,
----------------------------------
2001 2000 1999
-------- -------- --------
Balance, beginning of year ............................ $ 12,421 $ 11,471 $ 1,728
Acquisitions of cable systems ......................... 1,053 780 5,860
Charged to expense .................................... 94,720 46,151 20,872
Uncollected balances written off, net of recoveries ... (75,328) (45,981) (16,989)
-------- -------- --------
Balance, end of year .................................. $ 32,866 $ 12,421 $ 11,471
======== ======== ========
F-14
5. Property, Plant and Equipment
Property, plant and equipment consists of the following as of December 31,
2001 and 2000:
[Download Table]
2001 2000
----------- -----------
Cable distribution systems ................... $ 7,832,428 $ 5,618,889
Land, buildings and leasehold improvements ... 446,468 282,960
Vehicles and equipment ....................... 646,125 385,199
----------- -----------
8,925,021 6,287,048
Less: accumulated depreciation ............... (1,968,244) (1,056,565)
----------- -----------
$ 6,956,777 $ 5,230,483
=========== ===========
For the years ended December 31, 2001, 2000 and 1999, depreciation expense
was $1.7 billion, $1.2 billion, and $225.0 million, respectively.
During the years ended December 31, 2001 and 2000, the Company reduced the
estimated useful lives of certain depreciable assets expected to be abandoned as
a result of its rebuild and upgrade of cable distribution systems. As a result,
an additional $540.9 million and $508.5 million of depreciation expense was
recorded during the years ended December 31, 2001 and 2000, respectively. The
Company periodically evaluates the estimated useful lives used to depreciate its
assets and the estimated amount of assets that will be abandoned or have minimal
use in the future. While the Company believes its estimates of useful lives are
reasonable, significant differences in actual experience or significant changes
in assumptions may affect future depreciation expense.
6. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following as of
December 31, 2001 and 2000:
[Download Table]
2001 2000
---------- ----------
Accounts payable ........................... $ 286,800 $ 365,007
Capital expenditures ....................... 177,971 281,142
Accrued interest ........................... 233,174 208,850
Programming costs .......................... 133,748 120,035
Accrued general and administrative ......... 97,672 75,315
Franchise fees ............................. 61,902 53,494
Other accrued expenses ..................... 280,619 254,636
---------- ----------
$1,271,886 $1,358,479
========== ==========
F-15
7. Long-Term Debt
Long-term debt consists of the following as of December 31, 2001 and 2000:
[Download Table]
2001 2000
------------ ------------
Long-Term Debt
Charter Holdings:
March 1999
8.250% senior notes due 2007 ....................... $ 600,000 $ 600,000
8.625% senior notes due 2009 ....................... 1,500,000 1,500,000
9.920% senior discount notes due 2011 .............. 1,475,000 1,475,000
January 2000
10.000% senior notes due 2009 ...................... 675,000 675,000
10.250% senior notes due 2010 ...................... 325,000 325,000
11.750% senior discount notes due 2010 ............. 532,000 532,000
January 2001
10.750% senior notes due 2009 ...................... 900,000 --
11.125% senior notes due 2011 ...................... 500,000 --
13.500% senior discount notes due 2011 ............. 675,000 --
May 2001
9.625% senior notes due 2009 ....................... 350,000 --
10.000% senior notes due 2011 ...................... 575,000 --
11.750% senior discount notes due 2011 ............. 1,018,000 --
Senior bridge loan facility ........................ -- 272,500
Renaissance:
10.00% senior discount notes due 2008 .............. 114,413 114,413
CC V Holdings:
11.875% senior discount notes due 2008 ............. 179,750 179,750
Other long-term debt .................................. 1,313 1,971
Credit Facilities
Charter Operating ..................................... 4,145,000 4,432,000
CC Michigan, LLC and CC New England, LLC (Avalon) ..... -- 213,000
CC VI ................................................. 901,000 895,000
CC VII ................................................ 582,000 1,050,000
CC VIII ............................................... 1,082,000 712,000
------------ ------------
16,130,476 12,977,634
Unamortized discount .................................. (1,170,103) (667,179)
------------ ------------
$ 14,960,373 $ 12,310,455
============ ============
In March 1999, the Company extinguished substantially all existing
long-term debt, excluding borrowings of the Company under its credit agreements,
and refinanced substantially all existing credit agreements at various
subsidiaries with a new credit agreement entered into by Charter Communications
Operating, LLC (Charter Operating) (the Charter Operating Credit Facilities).
The excess of the amount paid over the carrying value, net of deferred financing
costs, of the Company's long-term debt of $7.8 million was recorded as an
extraordinary item-loss on debt extinguishment in the accompanying consolidated
statement of operations.
March 1999 Charter Holdings Notes. In March 1999, Charter Holdings and
Charter Communications Holdings Capital Corporation ("Charter Capital")
(collectively, the "Issuers") issued $3.6 billion principal amount of senior
notes. The March 1999 Charter Holdings notes consisted of $600.0 million in
aggregate principal amount of 8.250% senior notes due 2007, $1.5 billion in
aggregate principal amount of 8.625% senior notes due 2009, and $1.475 billion
in aggregate principal amount at maturity of 9.920% senior discount notes due
2011. The net proceeds of approximately $2.9 billion, combined with the
borrowings under the Company's credit facilities, were used to consummate tender
offers for publicly held debt of several of the Company's subsidiaries, as
described below, to refinance borrowings under the Company's previous credit
facilities, for working capital purposes and to finance acquisitions.
F-16
The 8.250% senior notes are not redeemable prior to maturity. Interest is
payable semiannually in arrears on April 1 and October 1, beginning October 1,
1999, until maturity.
The 8.625% senior notes are redeemable at the option of the Issuers at
amounts decreasing from 104.313% to 100% of par value plus accrued and unpaid
interest beginning on April 1, 2004, to the date of redemption. At any time
prior to April 1, 2002, the Issuers may redeem up to 35% of the aggregate
principal amount of the 8.625% senior notes at a redemption price of 108.625% of
the principal amount under certain conditions. Interest is payable semiannually
in arrears on April 1 and October 1, beginning October 1, 1999, until maturity.
The 9.920% senior discount notes are redeemable at the option of the
Issuers at amounts decreasing from 104.960% to 100% of accreted value beginning
April 1, 2004. At any time prior to April 1, 2002, the Issuers may redeem up to
35% of the aggregate principal amount of the 9.920% senior discount notes at a
redemption price of 109.920% of the accreted value under certain conditions.
Thereafter, cash interest is payable semiannually in arrears on April 1 and
October 1 beginning October 1, 2004, until maturity.
As of December 31, 2001 and 2000, $2.1 billion of the May 1999 Charter
Holdings 8.250% notes and 8.625% senior notes were outstanding, and the accreted
value of the 9.920% senior discount notes was approximately $1.2 billion and
$1.1 billion, respectively.
January 2000 Charter Holdings Notes. In January 2000, Charter Holdings and
Charter Capital issued $1.5 billion principal amount of senior notes. The
January 2000 Charter Holdings notes consisted of $675.0 million in aggregate
principal amount of 10.000% senior notes due 2009, $325.0 million in aggregate
principal amount of 10.250% senior notes due 2010, and $532.0 million in
aggregate principal amount at maturity of 11.750% senior discount notes due
2010. The net proceeds of approximately $1.25 billion were used to consummate
change of control offers for certain of the Falcon, Avalon and Bresnan notes and
debentures.
The 10.000% senior notes are not redeemable prior to maturity. Interest is
payable semiannually on April 1 and October 1, beginning April 1, 2000 until
maturity.
The 10.250% senior notes are redeemable at the option of the Issuers at
amounts decreasing from 105.125% to 100% of par value plus accrued and unpaid
interest, beginning on January 15, 2005, to the date of redemption. At any time
prior to January 15, 2003, the Issuers may redeem up to 35% of the aggregate
principal amount of the 10.250% senior notes at a redemption price of 110.25% of
the principal amount under certain conditions. Interest is payable semiannually
in arrears on January 15 and July 15, beginning on July 15, 2000, until
maturity.
The 11.750% senior discount notes are redeemable at the option of the
Issuers at amounts decreasing from 105.875% to 100% of accreted value beginning
January 15, 2005. At any time prior to January 15, 2003, the Issuers may redeem
up to 35% of the aggregate principal amount of the 11.750% senior notes at a
redemption price of 111.750% of the accreted value under certain conditions.
Interest is payable semiannually in arrears on January 15 and July 15, beginning
on July 15, 2005, until maturity. The discount on the 11.750% senior discount
notes is being accreted using the effective interest method.
As of December 31, 2001 and 2000, $1.0 billion of the January 2000 Charter
Holdings 10.000% and 10.250% senior notes were outstanding, and the accreted
value of the 11.750% senior discount notes was approximately $376.1 million and
$335.5 million, respectively.
January 2001 Charter Holdings Notes. In January 2001, Charter Holdings and
Charter Capital issued $2.1 billion in aggregate principal amount of senior
notes. The January 2001 Charter Holdings notes consisted of $900.0 million in
aggregate principal amount of 10.750% senior notes due 2009, $500.0 million in
aggregate principal amount of 11.125% senior notes due 2011 and $675.0 million
in aggregate principal amount at maturity of 13.500% senior discount notes due
2011. The net proceeds of approximately $1.72 billion were used to repay all
remaining amounts then outstanding under the Charter Holdings 2000 senior bridge
loan facility and the CC VI revolving credit facility and a portion of the
amounts then outstanding under the Charter Operating and CC VII revolving credit
facilities and for general corporate purposes.
The 10.750% senior notes are not redeemable prior to maturity. Interest is
payable semiannually in arrears on April 1 and October 1, beginning October 1,
2001, until maturity.
F-17
The 11.125% senior notes are redeemable at the option of the Issuers at
amounts decreasing from 105.563% to 100% of par value plus accrued and unpaid
interest beginning on January 15, 2006, to the date of redemption. At any time
prior to January 15, 2004, the Issuers may redeem up to 35% of the aggregate
principal amount of the 11.125% senior notes at a redemption price of 111.125%
of the principal amount under certain conditions. Interest is payable
semiannually in arrears on January 15 and July 15, beginning July 15, 2001,
until maturity.
The 13.500% senior discount notes are redeemable at the option of the
Issuers at amounts decreasing from 106.750% to 100% of accreted value beginning
January 15, 2006. At any time prior to January 15, 2004, the Issuers may redeem
up to 35% of the aggregate principal amount of the 13.500% senior discount notes
at a redemption price of 113.500% of the accreted value under certain
conditions. Thereafter, cash interest is payable semiannually in arrears on
January 15 and July 15 beginning July 15, 2006, until maturity. The discount on
the 13.500% senior discount notes is being accreted using the effective interest
method.
As of December 31, 2001, $1.4 billion of the January 2001 Charter Holdings
10.750% and 11.125% senior notes were outstanding, and the accreted value of the
13.500% senior discount notes was approximately $398.3 million.
May 2001 Charter Holdings Notes. In May 2001, Charter Holdings and Charter
Capital issued $1.94 billion in aggregate principal amount of senior notes. The
May 2001 Charter Holdings notes consisted of $350.0 million in aggregate
principal amount of 9.625% senior notes due 2009, $575.0 million in aggregate
principal amount of 10.000% senior notes due 2011 and $1.0 billion in aggregate
principal amount at maturity of 11.750% senior discount notes due 2011. The net
proceeds of approximately $1.47 billion were used to pay a portion of the
purchase price of the AT&T transactions, repay all amounts outstanding under the
Charter Operating and CC VII revolving credit facilities and for general
corporate purposes, including capital expenditures.
The 9.625% senior notes are not redeemable prior to maturity. Interest is
payable semiannually in arrears on May 15 and November 15, beginning November
15, 2001, until maturity.
The 10.000% senior notes are redeemable at the option of the Issuers at
amounts decreasing from 105.000% to 100% of par value plus accrued and unpaid
interest beginning on May 15, 2006, to the date of redemption. At any time prior
to May 15, 2004, the Company may redeem up to 35% of the aggregate principal
amount of the 10.000% senior notes at a redemption price of 110.000% of the
principal amount under certain conditions. Interest is payable semiannually in
arrears on May 15 and November 15, beginning November 15, 2001, until maturity.
The 11.750% senior discount notes are redeemable at the option of the
Issuers at amounts decreasing from 105.875% to 100% of accreted value beginning
January 15, 2006. At any time prior to May 15, 2004, the Issuers may redeem up
to 35% of the aggregate principal amount of the 11.750% senior discount notes at
a redemption price of 111.750% of the accreted value under certain conditions.
Thereafter, cash interest is payable semiannually in arrears on May 15 and
November 15 beginning November 15, 2006, until maturity. The discount on the
11.750% senior discount notes is being accreted using the effective interest
method.
As of December 31, 2001, $925.0 million of the May 2001 Charter Holdings
9.625% and 10.000% senior notes were outstanding, and the accreted value of the
11.750% senior discount notes was approximately $618.1 million.
Charter Holdings 2000 Senior Bridge Loan Facility. On August 4, 2000,
Charter Holdings and Charter Capital entered into a senior bridge loan agreement
providing for senior increasing rate bridge loans in an aggregate principal
amount of up to $1.0 billion.
On August 14, 2000, Charter Holdings borrowed $1.0 billion under the
senior bridge loan facility and used substantially all of the proceeds to repay
a portion of the amounts outstanding under the Charter Operating and the CC VII
revolving credit facilities. The bridge loan initially bore interest at an
annual rate of 10.21%. For amounts not repaid by November 14, 2000, the interest
rate increased by 1.25% at such date.
The net proceeds, totaling $727.5 million, from the sales in October and
November 2000 of convertible senior notes were used to repay $727.5 million of
the amount outstanding under the Charter Holdings 2000 senior bridge loan
facility. The remaining balance of $272.5 million on the senior bridge loan
facility was repaid with the proceeds from the sale of the Charter Holdings
January 2001 notes.
F-18
Renaissance Notes. In connection with the acquisition of Renaissance in
April 1999, the Company assumed $163.2 million principal amount at maturity of
10.000% senior discount notes due 2008. The Renaissance notes do not require the
payment of interest until April 15, 2003. From and after April 15, 2003, the
Renaissance notes bear interest, payable semi-annually in cash, on April 15 and
October 15, commencing on October 15, 2003. The Renaissance notes are due on
April 15, 2008.
In May 1999, $48.8 million aggregate face amount of the Renaissance notes
was repurchased at 101% of the accreted value plus accrued and unpaid interest.
As of December 31, 2001 and 2000, $114.4 million of the Renaissance notes were
outstanding, and the accreted value was approximately $103.6 million and $94.6
million, respectively.
CC V Holdings Notes. Charter Holdco acquired CC V Holdings in November
1999 and assumed CC V Holdings' outstanding 11.875% senior discount notes due
2008 with an accreted value of $123.3 million and $150.0 million in principal
amount of 9.375% senior subordinated notes due 2008. After December 1, 2003,
cash interest on the CC V Holdings 11.875% notes will be payable semi-annually
on June 1 and December 1 of each year, commencing June 1, 2004.
In January 2000, through change of control offers and purchases in the
open market, the Company repurchased all of the $150.0 million aggregate
principal amount of the CC V Holdings 9.375% notes. The aggregate repurchase
price was $153.7 million and was funded with the proceeds from sale of the
January 2000 Charter Holdings notes.
Contemporaneously, the Company completed change of control offers in which
it repurchased $16.3 million aggregate principal amount at maturity of the
11.875% notes at a purchase price of 101% of accreted value as of January 28,
2000, for $10.5 million. As of December 31, 2001, CC V Holdings 11.875% notes
with an aggregate principal amount of $179.8 million at maturity remained
outstanding with an accreted value of $146.3 million.
Charter Operating Credit Facilities. The Charter Operating credit
facilities were amended and restated on January 3, 2002 and provide for four
term facilities: two Term A facilities with an aggregate principal amount of
$1.11 billion that matures in September 2007, each with different amortization
schedules, one beginning in June 2002 and one beginning in September 2005; and
two Term B facilities with an aggregate principal amount of $2.75 billion, of
which $1.85 billion matures in March 2008 and $900 million matures in September
2008. The Charter Operating credit facilities also provide for two revolving
credit facilities, in an aggregate amount of $1.34 billion, which will reduce
annually beginning in March 2004 and September 2005, with a maturity date in
September 2007. At the option of the lenders, supplemental credit facilities in
the amount of $100.0 million may be available. Amounts under the Charter
Operating credit facilities bear interest at the Base Rate or the Eurodollar
rate, as defined, plus a margin of up to 2.75% for Eurodollar loans (6.50% to
7.69% as of December 31, 2001) and 1.75% for base rate loans. A quarterly
commitment fee of between 0.25% and 0.375% per annum is payable on the
unborrowed balance of the revolving credit facilities.
As of December 31, 2001, outstanding borrowings were approximately $4.1
billion and the unused availability was $855.0 million. After giving effect to
the amendment to the Charter Operating credit facilities on January 3, 2002,
unused availability would have been $1.06 billion as of December 31, 2001. In
January 2002, the Company repaid $465.0 million under the Charter Operating
revolving credit facilities with proceeds from the issuance of the January 2002
Charter Holdings notes.
CC V Holdings Credit Facilities. In December 2000, two of the Company's
subsidiaries, CC VIII, LLC and CC V Holdings, LLC (formerly known as Avalon),
were consolidated into CC V Holdings (the "CC V Holdings Combination"). Upon
completion of the CC V Holdings Combination in January 2001, all amounts
outstanding under the Avalon credit facilities were repaid and the Avalon credit
facilities were terminated. The CC VIII credit facilities were amended and
restated to, among other things, increase borrowing availability by $550.0
million to $1.45 billion.
CC VI Operating Credit Facilities. The CC VI Operating credit facilities
provide for two term facilities, one with a principal amount of $450.0 million
that matures May 2008 (Term A), and the other with a principal amount of $400.0
million that matures November 2008 (Term B). The CC VI Operating credit
facilities also provide for a $350.0 million reducing revolving credit facility
with a maturity date in May 2008. At the option of the lenders, supplemental
credit facilities in the amount of $300.0 million may be available until
December 31, 2004. Amounts under the CC VI Operating credit facilities bear
interest at the base rate or the Eurodollar rate, as defined, plus a margin of
up to 3.0% for Eurodollar loans (6.34% to 7.93% as of December 31, 2001) and
2.0% for base rate loans. A quarterly commitment fee of between 0.250% and
0.375% per annum is
F-19
payable on the unborrowed balance of the Term A facility and the revolving
facility. The Company used $850.0 million of the credit facilities to fund a
portion of the Fanch purchase price.
As of December 31, 2001, outstanding borrowings were $901.0 million and
unused availability was $299.0 million. In January 2002, the Company repaid
$76.0 million under the CC VI Operating revolving credit facilities with
proceeds from the issuance of the January 2002 Charter Holdings notes.
CC VII Credit Facilities. The previous Falcon credit facilities were
amended in connection with the Falcon acquisition and again in September 2001.
The CC VII credit facilities provide for two term facilities, one with a
principal amount of $194.0 million that matures June 2007 (Term B), and the
other with the principal amount of $291.0 million that matures December 2007
(Term C). The CC VII credit facilities also provide for a reducing revolving
facility of up to approximately $77.7 million (maturing in December 2006), a
reducing supplemental facility of up to $110.0 million (maturing in December
2007) and a second reducing revolving facility of up to $670.0 million (maturing
in June 2007). At the option of the lenders, supplemental credit facilities in
the amount of up to $486.4 million may also be available. Amounts under the CC
VII credit facilities bear interest at the base rate or the Eurodollar rate, as
defined, plus a margin of up to 2.5% for Eurodollar loans (5.50% to 7.08% as of
December 31, 2001) and up to 1.5% for base rate loans. A quarterly commitment
fee of between 0.25% and 0.375% per annum is payable on the unborrowed balance
of the revolving facilities.
As of December 31, 2001, outstanding borrowings were $582.0 million and
unused availability was $760.7 million. In January 2002, the Company repaid
$97.0 million under the CC VII revolving credit facilities with proceeds from
the issuance of the January 2002 Charter Holdings notes.
CC VIII Credit Facilities. Upon the completion of the CC V Holdings
Combination in January 2001, the CC VIII credit facilities were amended and
restated to, among other things, increase borrowing availability by $555.0
million to $1.45 billion. The credit facilities were further amended and
restated on January 3, 2002 and provide for borrowings of up to $1.55 billion.
The CC VIII credit facilities provide for three term facilities, two Term A
facilities with an aggregate principal amount of $500.0 million that mature in
June 2007, and a Term B facility with a principal amount of $500.0 million that
matures in February 2008. The CC VIII credit facilities also provide for two
reducing revolving credit facilities, in the aggregate amount of $550.0 million,
which will reduce quarterly beginning in March 2002 and September 2005,
respectively, with maturity dates in June 2007. At the option of the lenders,
supplemental facilities in the amount of $300.0 million may be available.
Amounts under the CC VIII credit facilities bear interest at the base rate or
the Eurodollar rate, as defined, plus a margin of up to 2.75% for Eurodollar
loans (6.09% to 7.84% as of December 31, 2001) and up to 1.75% for base rate
loans. A quarterly commitment fee of between 0.250% and 0.375% is payable on the
unborrowed balance of the revolving credit facilities.
As of December 31, 2001, outstanding borrowings were $1.1 billion, and
unused availability was $368.0 million. After giving effect to the amendment to
the CC VIII credit facilities on January 3, 2002, unused availability would have
been $468.0 million as of December 31, 2001. In January 2002, the Company repaid
$107.0 million under the CC VIII revolving credit facilities with proceeds from
the issuance of the January 2002 Charter Holdings notes.
The indentures governing the debt agreements require issuers of the debt
and/or its subsidiaries to comply with various financial and other covenants,
including the maintenance of certain operating and financial ratios. These debt
instruments also contain substantial limitations on, or prohibitions of,
distributions, additional indebtedness, liens, asset sales and certain other
items. As a result of limitations and prohibitions of distributions,
substantially all of the net assets of the consolidated subsidiaries are
restricted for distribution to the Company, Charter and Charter Holdco.
In the event of a default under the Company's subsidiaries' credit
facilities or public notes, the subsidiaries' creditors could elect to declare
all amounts borrowed, together with accrued and unpaid interest and other fees,
to be due and payable. In such event, the subsidiaries' credit facilities and
indentures will not permit the subsidiaries to distribute funds to Charter
Holdco or the Company to pay interest or principal on the public notes. If the
amounts outstanding under such credit facilities or public notes are
accelerated, all of the subsidiaries' debt and liabilities would be payable from
the subsidiaries' assets, prior to any distribution of the subsidiaries' assets
to pay the interest and principal amounts on the public notes and the Company
might not be able to repay or make any payments on its public notes.
Additionally, such a default would cause a cross-default in the indentures
governing the Charter Holdings notes and the convertible senior notes and would
trigger the cross-default provision of the Charter Operating Credit Agreement.
Any default under any of the subsidiaries' credit facilities or public
F-20
notes might adversely affect the holders of the Company's public notes and the
Company's growth, financial condition and results of operations.
Based upon outstanding indebtedness as of December 31, 2001, giving effect
to the refinancing of certain of the Company's credit facilities on January 3,
2002, the amortization of term loans, scheduled reductions in available
borrowings of the revolving credit facilities, and the maturity dates for all
senior and subordinated notes and debentures, aggregate future principal
payments on the total borrowings under all debt agreements as of December 31,
2001, are as follows:
[Download Table]
Year Amount
---- -----------
2002 ............................................... $ --
2003 ............................................... 236,704
2004 ............................................... 192,551
2005 ............................................... 430,307
2006 ............................................... 717,832
Thereafter ......................................... 14,553,082
-----------
$16,130,476
===========
8. Capital Transactions
5.75% Charter Convertible Notes. In October and November 2000, Charter
issued 5.75% convertible senior notes with an aggregate principal amount at
maturity of $750.0 million (the "5.75% Charter Convertible Notes"). Charter used
the net proceeds from the sale of these notes to purchase from Charter Holdco a
mirror convertible senior note with terms substantially similar to the terms of
the convertible senior notes issued by Charter. Charter Holdco used the net
proceeds of approximately $727.5 million from the sale of the mirror note to
purchase common equity in the Company, which in turn used the capital
contribution to repay certain amounts outstanding under the Charter Holdings
2000 senior bridge loan facility.
4.75% Charter Convertible Notes. In May 2001, Charter issued 4.75%
convertible senior notes with an aggregate principal amount at maturity of
$632.5 million (the "4.75% Charter Convertible Notes"). Charter used the net
proceeds from the sale of these notes to purchase from Charter Holdco, a mirror
convertible senior note with terms substantially similar to the terms of the
convertible senior notes issued by Charter. Charter Holdco used the net proceeds
of approximately $608.7 million from the sale of the mirror convertible note to
purchase common equity in the Company, which in turn used the net proceeds to
repay certain amounts outstanding under the revolving portions of the credit
facilities of the Company's subsidiaries and for general corporate purposes,
including capital expenditures.
Also, in May 2001, Charter sold shares of its Class A common stock for
total proceeds of approximately $1.21 billion. Charter used the net proceeds
from the sale to purchase additional membership units in Charter Holdco which
used approximately $700.0 million of such proceeds to purchase common equity in
the Company, which in turn used the net proceeds for general corporate purposes,
including capital expenditures.
9. Accounting for Derivative Instruments and Hedging Activities
Effective January 1, 2001, the Company adopted SFAS No. 133 "Accounting
for Derivative Instruments and Hedging Activities." Interest rate agreements are
recorded in the consolidated balance sheet at December 31, 2001 as either an
asset or liability measured at fair value. In connection with the adoption of
SFAS No. 133, the Company recorded a loss of $23.9 million for the cumulative
effect of change in accounting principle as other expense. The effect of
adoption was to increase other expense resulting in increased net loss of $23.9
million for the year ended December 31, 2001.
The Company has certain interest rate derivative instruments that have
been designated as cash flow hedging instruments. Such instruments are those
which effectively convert variable interest payments on debt instruments into
fixed payments. For qualifying hedges, SFAS No. 133 allows derivative gains and
losses to offset related results on hedged items in the consolidated statement
of operations. The Company has formally documented, designated and assessed the
effectiveness of transactions that receive hedge accounting. For the year ended
December 31, 2001, other expense includes $2.5 million of losses, which
represent cash flow hedge ineffectiveness on interest rate hedge agreements
arising from differences between the critical terms of the agreements and the
related hedged obligations. Changes in the fair value of interest rate
agreements designated as
F-21
hedging instruments of the variability of cash flows associated with
floating-rate debt obligations are reported in accumulated other comprehensive
loss. At December 31, 2001, included in accumulated other comprehensive loss was
a loss of $38.5 million related to derivative instruments designated as cash
flow hedges. The amounts are subsequently reclassified into interest expense as
a yield adjustment in the same period in which the related interest on the
floating-rate debt obligations affects earnings (losses).
Certain interest rate derivative instruments are not designated as hedges
as they do not meet the effectiveness criteria specified by SFAS No. 133.
However, management believes such instruments are closely correlated with the
respective debt, thus managing associated risk. Interest rate derivative
instruments not designated as hedges are marked to fair value with the impact
recorded as other income or expense. For the year ended December 31, 2001, the
Company recorded other expense of $48.8 million for interest rate derivative
instruments not designated as hedges.
As of December 31, 2001 and 2000, the Company had outstanding $3.3 billion
and $1.9 billion, $0 and $15.0 million, and $520.0 million and $520.0 million,
respectively, in notional amounts of interest rate swaps, caps and collars,
respectively. The notional amounts of interest rate instruments do not represent
amounts exchanged by the parties and, thus, are not a measure of exposure to
credit loss. The amounts exchanged are determined by reference to the notional
amount and the other terms of the contracts.
10. Fair Value of Financial Instruments
The Company has estimated the fair value of its financial instruments as
of December 31, 2001 and 2000 using available market information or other
appropriate valuation methodologies. Considerable judgment, however, is required
in interpreting market data to develop the estimates of fair value. Accordingly,
the estimates presented in the accompanying consolidated financial statements
are not necessarily indicative of the amounts the Company would realize in a
current market exchange.
The carrying amounts of cash, receivables, payables and other current
assets and liabilities approximate fair value because of the short maturity of
those instruments. The Company is exposed to market price risk volatility with
respect to investments in publicly traded and privately held entities.
The fair value of interest rate agreements represents the estimated amount
the Company would receive or pay upon termination of the agreements. Management
believes that the sellers of the interest rate agreements will be able to meet
their obligations under the agreements. In addition, some of the interest rate
agreements are with certain of the participating banks under the Company's
credit facilities, thereby reducing the exposure to credit loss. The Company has
policies regarding the financial stability and credit standing of major
counterparties. Nonperformance by the counterparties is not anticipated nor
would it have a material adverse effect on the Company's consolidated financial
position or results of operations.
The Company's credit facilities bear interest at current market rates and,
thus, their carrying value approximates fair value at December 31, 2001 and
2000. The Company is exposed to interest rate volatility with respect to these
variable-rate instruments.
The estimated fair value of the Company's notes and interest rate
agreements at December 31, 2001 and 2000 are based on quoted market prices or a
discounted cash flow analysis using the Company's incremental borrowing rate for
similar types of borrowing arrangements and dealer quotations.
F-22
A summary of the carrying value and fair value of the Company's debt and
related interest rate agreements at December 31, 2001 and 2000 is as follows:
[Enlarge/Download Table]
2001 2000
---------------------------- ------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
---------- ---------- ----------- ----------
Debt
Charter Holdings debt ........ $7,999,203 $7,963,888 $ 4,780,212 $4,425,631
Credit facilities ............ 6,710,000 6,710,000 7,302,000 7,302,000
Other ........................ 251,170 237,051 228,243 194,729
Interest Rate Agreements
Swaps ........................ 79,925 79,925 (1,306) 5,236
Collars ...................... 33,699 33,699 -- 10,807
The weighted average interest pay rate for the Company's interest rate
swap agreements was 7.22% and 7.61% at December 31, 2001 and 2000, respectively.
The Company's interest rate collar agreements are structured so that if LIBOR
falls below 5.3%, the Company pays 6.7%. If the LIBOR rate is between 5.3% and
8.0%, the Company pays LIBOR. The LIBOR rate is capped at 8.0% if LIBOR is
between 8.0% and 9.9%. If the LIBOR rate rises above 9.9%, the cap is removed.
11. Revenues
Revenues consist of the following for the years presented:
[Download Table]
Year Ended December 31,
--------------------------------------------
2001 2000 1999
---------- ---------- ----------
Analog video ................ $2,787,632 $2,504,528 $1,155,279
Digital video ............... 307,240 89,288 7,664
Cable modem ................. 154,402 54,714 9,996
Advertising sales ........... 312,554 234,560 71,997
Other ....................... 391,304 366,132 183,154
---------- ---------- ----------
$3,953,132 $3,249,222 $1,428,090
========== ========== ==========
12. Operating, General and Administrative Expenses
Operating, general and administrative expenses consist of the following
for the years presented:
[Download Table]
Year Ended December 31,
------------------------------------
2001 2000 1999
---------- ---------- --------
General, administrative and service .... $ 861,722 $ 719,197 $342,933
Analog video programming ............... 902,837 736,042 327,830
Digital video .......................... 111,167 36,173 3,451
Cable modem ............................ 99,956 39,218 9,016
Advertising sales ...................... 64,026 56,499 19,019
Marketing .............................. 70,335 63,789 35,708
---------- ---------- --------
$2,110,043 $1,650,918 $737,957
========== ========== ========
13. Option Plans
Stock options, restricted stock and other incentive compensation are
granted pursuant to two plans - the 1999 Option Plan of Charter Holdco (the
"1999 Plan") and the 2001 Stock Incentive Plan of Charter (the "2001 Plan"). The
1999 Plan provided for the grant of options to purchase membership units in
Charter Holdco to current and prospective employees and consultants of Charter
Holdco and its affiliates and current and prospective non-employee directors of
Charter. Membership units
F-23
received upon exercise of any options are immediately exchanged for shares of
Class A common stock of Charter on a one-for-one basis. Options granted
generally vest over five years from the grant date, commencing 15 months after
the date of grant. Options not exercised accumulate and are exercisable, in
whole or in part, in any subsequent period, but not later than ten years from
the date of grant. Membership units received upon exercise of the options are
automatically exchanged into Class A common stock of Charter on a one-for-one
basis.
The 2001 Plan provides for the grant of non-qualified stock options, stock
appreciation rights, dividend equivalent rights, performance units and
performance shares, share awards, phantom stock and/or shares of restricted
stock (not to exceed 3,000,000) of Charter, as each term is defined in the 2001
Plan. Employees, officers, consultants and directors of the Company and its
subsidiaries and affiliates are eligible to receive grants under the 2001 Plan.
Options granted generally vest over four years from the grant date, with 25%
vesting on each anniversary date following the grant date until options are
fully vested. Generally, options expire 10 years from the grant date.
Together, the plans allow for the issuance of up to an aggregate of
60,000,000 shares of Charter Class A common stock (or units convertible into
Charter Class A common stock). In 2001, any shares covered by options that
terminated under the 1999 Plan were transferred to the 2001 Plan, and no new
options were granted under the 1999 Plan. During September and October 2001, in
connection with new employment agreements and related option agreements entered
into by the Company, certain executives of the Company were awarded an aggregate
of 256,000 shares of Charter restricted Class A common stock, of which 26,250
shares were subsequently cancelled. The shares vested 25% upon grant, with the
remaining shares vesting monthly over a three-year period beginning after the
first anniversary of the date of grant. As of December 31, 2001, deferred
compensation remaining to be recognized in future periods totaled $2.2 million.
In September 2001, when the Company's former President and Chief Executive
Officer terminated his employment, he forfeited an option to purchase
approximately seven million Charter Holdco membership units, of which
approximately 4.8 million had vested. Accordingly, the Company recorded a
reversal of previously recorded compensation expense of $66.6 million.
A summary of the activity for the stock options, excluding granted shares
of Charter restricted Class A common stock, for the years ended December 31,
2001, 2000 and 1999, is as follows (amounts not in thousands):
[Enlarge/Download Table]
2001 2000 1999
----------------------- ---------------------- ----------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
----------- -------- ----------- -------- ----------- --------
Options outstanding, beginning of period .. 28,482,357 $19.24 20,757,608 $19.79 7,044,127 $20.00
Granted:
Pre IPO grants ......................... -- -- -- -- 9,584,681 20.04
Post IPO grants ........................ 29,395,457 16.01 10,247,200 18.06 4,741,400 19.00
Exercised ................................. (278,675) 19.23 (16,514) 20.00 -- --
Cancelled ................................. (11,041,568) 19.59 (2,505,937) 18.98 (612,600) 19.95
----------- ------ ----------- ------ ----------- ------
Options outstanding, end of period ........ 46,557,571 $17.10 28,482,357 $19.24 20,757,608 $19.79
=========== ====== =========== ====== =========== ======
Weighted average remaining
contractual life ....................... 8.9 years 8.6 years 9.2 years
=========== =========== ===========
Options exercisable, end of period ........ 9,386,429 $18.55 7,026,346 $19.98 2,091,032 $19.90
=========== ====== =========== ====== =========== ======
Weighted average fair value of
options granted ......................... $ 6.20 $ 12.34 $ 12.59
=========== =========== ===========
F-24
The following table summarizes information about stock options outstanding
and exercisable as of December 31, 2001:
[Enlarge/Download Table]
Options Outstanding Options Exercisable
-------------------------------------------- --------------------------------------------
Weighted- Weighted-
Average Weighted- Average Weighted-
Remaining Average Remaining Average
Range of Exercise Number Contractual Exercise Number Contractual Exercise
Prices Outstanding Life Price Exercisable Life Price
----------------- ----------- ----------- --------- ----------- ----------- ---------
$11.99 - $13.96 18,285,375 9.77 years $12.49 1,225,000 9.80 years $13.16
$14.31 - $20.73 20,925,816 7.95 years $19.19 8,111,429 7.56 years $19.33
$21.20 - $23.09 7,346,380 9.15 years $22.76 50,000 9.12 years $23.09
The Company uses the intrinsic value method prescribed by APB Opinion No.
25, "Accounting for Stock Issued to Employees," to account for the option plans.
Option compensation expense of $41.0 million and $80.0 million for the years
ended December 31, 2000 and 1999, respectively, was recorded in the consolidated
statements of operations since the exercise prices of certain options were less
than the estimated fair values of the underlying membership interests on the
date of grant. Option compensation income of $51.8 million for the year ended
December 31, 2001 was recorded in the consolidated statements of operations
primarily due to the reversal of expense previously recorded in connection with
approximately seven million options forfeited by the Company's former President
and Chief Executive Officer as part of his September 2001 separation agreement.
This was partially offset by expense recorded because exercise prices on certain
options were less than the estimated fair values of the Company's stock at the
time of grant. Estimated fair values were determined by the Company using the
valuation inherent in the Paul Allen Transaction and valuations of public
companies in the cable television industry adjusted for factors specific to the
Company. Compensation expense is being recorded over the vesting period of each
grant that varies from four to five years. As of December 31, 2001, deferred
compensation remaining to be recognized in future periods totaled $8.0 million.
No stock option compensation expense was recorded for the options granted after
November 8, 1999, since the exercise price was equal to the estimated fair value
of the underlying membership interests or shares of Class A common stock on the
date of grant. Since the membership units are exchangeable into Class A common
stock of Charter on a one-for-one basis, the estimated fair value was equal to
the quoted market values of Class A common stock.
SFAS No. 123 requires pro forma disclosure of the impact on earnings as if
the compensation expense for these plans had been determined using the fair
value method. The Company's net loss as reported and the pro forma net loss that
would have been reported using the fair value method under SFAS 123 for the
years presented:
[Download Table]
Year Ended December 31,
-------------------------------------------------
2001 2000 1999
----------- ----------- ---------
Net loss:
As reported .......... $(2,593,775) $(2,047,559) $(648,708)
Pro forma ............ (2,694,574) (2,224,239) (673,042)
The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option-pricing model. The following weighted average
assumptions were used for grants during the years ended December 31, 2001, 2000
and 1999, respectively: risk-free interest rates of 5.0%, 6.5%, and 5.5%;
expected volatility of 55.7%, 46.9% and 43.8%; and expected lives of 10 years.
The valuations assume no dividends are paid.
On July 25, 2001, Charter issued options to purchase 186,385 shares of
Charter Class A common stock to a consultant in consideration of services to be
rendered in the future, pursuant to an equity compensation plan not approved by
shareholders. The options are exercisable immediately, at an exercise price of
$20.46 per share and if not exercised prior to the tenth anniversary of the
grant date, will expire. The Company accounts for options granted to consultants
in accordance with the provisions of SFAS No. 123 and recorded option
compensation expense of $2.6 million. The fair value of the options, $13.95 per
option, was estimated on the date of grant using the Black-Scholes
option-pricing model and the following assumptions: risk-free interest rate of
5.7%; expected volatility of 49.8%; and an expected life of 10 years. The
valuation assumed no dividends are paid.
F-25
14. Special Charges
During the year ended December 31, 2001, the Company recorded $17.6
million in special charges which represent costs associated with the transition
of approximately 145,000 (unaudited) data customers from the Excite@Home
Internet service to the Charter Pipeline Internet service, as well as certain
employee severance costs.
On September 28, 2001, Excite@Home Corporation filed for protection under
Chapter 11 of the U.S. Bankruptcy Code. The Company undertook a transition plan
to convert all of its customers from the Excite@Home Internet service to its own
Charter Pipeline Internet service, successfully transitioning over 90% of its
customers served by Excite@Home by December 31, 2001. The remaining customers
were converted by March 1, 2002. The Company incurred $14.3 million in
operational expenses in connection with the transition, including a one-time
contract payment of $1.0 million to Excite@Home for the provision of services
through February 2002 to the 10% of customers that would not be transitioned by
December 31, 2001.
In December 2001, the Company implemented a restructuring plan to reduce
its workforce in certain markets and reorganize its operating divisions from two
to three and operating regions from twelve to ten. The restructuring plan was
completed during the first quarter of 2002, resulting in the termination of
approximately 360 employees and severance costs of $3.3 million.
15. Related Party Transactions
The following sets forth certain transactions in which the Company and its
directors, executive officers and affiliates are involved. Unless otherwise
disclosed, management believes that each of the transactions described below was
on terms no less favorable to the Company than could have been obtained from
independent third parties.
Management and Consulting Arrangements
Management Arrangements
Charter has entered into management arrangements with Charter Holdco and
certain of its subsidiaries. Under these agreements, Charter provides management
services for and operates the cable television systems owned or acquired by its
subsidiaries. The management agreements covering the CC VI and CC VII companies
limit management fees payable to Charter to 5% of gross revenues. Under the
arrangement covering all of Charter's other operating subsidiaries, there is no
limit on the dollar amount or percentage of revenues payable as management fees.
However, the total amount paid by Charter Holdco and all of its subsidiaries is
limited to the amount necessary to reimburse Charter for all of its expenses,
costs, losses, liabilities and damages paid or incurred by it in connection with
the performance of its services under the various management agreements. The
expenses subject to reimbursement include any fees Charter is obligated to pay
under the mutual services agreement described below. Payment of management fees
by Charter's operating subsidiaries is subject to certain restrictions under the
credit facilities of such subsidiaries. In the event any portion of the
management fee due and payable is not paid, it is deferred by Charter and
accrued as a liability of such subsidiaries. Any deferred amount of the
management fee will bear interest at the rate of 10% per annum, compounded
annually, from the date it was due and payable until the date it is paid.
For the years ended December 31, 2001, 2000 and 1999, Charter received a
total of $6.2 million, $5.0 million and $0.8 million, respectively, as
management fees from Charter Holdco and its subsidiaries, exclusive of amounts
being paid to Charter Holdco and Charter Investment pursuant to the mutual
services agreement described below. The accounts and balances related to these
fees eliminate in consolidation.
Mutual Services Agreement
During 2001, pursuant to a mutual services agreement between Charter,
Charter Holdco and Charter Investment, Charter Holdco leased the necessary
personnel and provided services on a cost-reimbursement basis to Charter to
manage its subsidiaries. The mutual services agreement provides that each party
shall provide rights and services to the other parties as may be reasonably
requested for the management of the entities involved and their subsidiaries,
including the cable systems owned by their subsidiaries. The officers and
employees of each party are available to the other parties to provide these
rights and services, and all expenses and costs incurred in providing these
rights and services are paid by Charter. Each of the
F-26
parties will indemnify and hold harmless the other parties and their directors,
officers and employees from and against any and all claims that may be made
against any of them in connection with the mutual services agreement except due
to its or their gross negligence or willful misconduct. The mutual services
agreement expires on November 12, 2009, and may be terminated at any time by any
party upon thirty days' written notice to the other. For the years ended
December 31, 2001, 2000 and 1999, Charter paid $50.7 million, $50.3 million and
$50.7 million, respectively, to Charter Investment for services rendered
pursuant to the mutual services agreement. All such amounts are reimbursable to
Charter pursuant to a management arrangement with subsidiaries. The accounts and
balances related to these services eliminate in consolidation.
Consulting Agreement
Charter Holdco is a party to a consulting agreement with Vulcan Inc.
(f/k/a Vulcan Northwest) and Charter Investment. Pursuant to this consulting
agreement, Vulcan Inc. provides and, through January 2001, Charter Investment
provided, advisory, financial and other consulting services with respect to the
acquisitions by Charter Holdco of the business, assets or stock of other
companies. Such services include participation in the evaluation, negotiation
and implementation of these acquisitions. The original agreement had an
expiration date of December 31, 2000, but has and will continue to automatically
renew for successive one-year terms unless otherwise terminated. The consulting
agreement provides for a fee equal to 1% of the aggregate value of any
acquisition by Charter Holdco or any of its affiliates, for which Vulcan
provides services, as well as reimbursement of reasonable out-of-pocket expenses
incurred and indemnification. For the years ended December 31, 2001, 2000 and
1999, no fees were incurred with respect to these consulting services. Because
Charter Investment personnel became employees of Charter Holdco effective
January 1, 2001, Charter Investment no longer provides services pursuant to the
terms of the agreement.
Previous Management Agreement with Charter Investment
Prior to November 12, 1999, Charter Investment provided management and
consulting services to Charter's operating subsidiaries for a fee equal to 3% of
the gross revenues of the systems then owned, plus reimbursement of expenses.
The balance of management fees payable under the previous management agreement
was accrued with payment at the discretion of Charter Investment, with interest
payable on unpaid amounts. For the year ended December 31, 2001, the Company's
subsidiaries did not pay any fees to Charter Investment to reduce management
fees payable. As of December 31, 2001 and 2000, total management fees payable to
Charter Investment were $13.8 million and $13.8 million, respectively, exclusive
of any interest that may be charged.
Payables to Related Party
During 2001, certain of the Company's subsidiaries entered into agreements
to borrow an aggregate of $189.0 million from Charter Holdco. The borrowings
bear interest at rates available to the subsidiaries (ranging from 3.48% to
5.39%) and are renewable quarterly. Proceeds from the borrowings are used for
general corporate purposes. As of December 31, 2001, outstanding borrowings
totaled $189.0 million.
Allocation of Business Opportunities with Mr. Allen
Mr. Allen and a number of his affiliates have interests in various
entities that provide services or programming to the Company's subsidiaries.
Given the diverse nature of Mr. Allen's investment activities and interests, and
to avoid the possibility of future disputes as to potential business, Charter
and Charter Holdco, under the terms of their respective organizational
documents, may not, and may not allow their subsidiaries to, engage in any
business transaction outside the cable transmission business except for the
digeo, inc. joint venture; the joint venture to develop a digital video recorder
set-top terminal; the investment in HSA; the investment in Cable Sports
Southeast, LLC, a provider of regional sports programming; as an owner and
operator of the business of Interactive Broadcaster Services Corporation (Chat
TV); an investment in @Security Broadband Corp., a company developing broadband
security applications; and incidental businesses engaged in as of the closing of
Charter's initial public offering in November 1999. This restriction will remain
in effect until all of the shares of Charter's high-vote Class B common stock
have been converted into shares of Class A common stock due to Mr. Allen's
equity ownership falling below specified thresholds.
Should Charter or Charter Holdco or any of their subsidiaries wish to
pursue, or allow their subsidiaries to pursue, a business transaction outside of
this scope, it must first offer Mr. Allen the opportunity to pursue the
particular business
F-27
transaction. If he decides not to pursue the business transaction and consents
to Charter or its subsidiaries engaging in the business transaction, they will
be able to do so. In any such case, the restated certificate of incorporation of
Charter and the amended and restated limited liability company agreement of
Charter Holdco would be amended accordingly to modify the current restrictions
on the ability of such entities to engage in any business other than the cable
transmission business. The cable transmission business means the business of
transmitting video, audio, including telephony, and data over cable television
systems owned, operated or managed by Charter, Charter Holdco or any of their
subsidiaries from time to time.
Under Delaware corporate law, each director of Charter, including Mr.
Allen, is generally required to present to Charter, any opportunity he or she
may have to acquire any cable transmission business or any company whose
principal business is the ownership, operation or management of cable
transmission businesses, so that Charter may determine whether it wishes to
pursue such opportunities. However, Mr. Allen and the other directors generally
will not have an obligation to present other types of business opportunities to
Charter and they may exploit such opportunities for their own account.
Other Relationships
David L. McCall, Senior Vice President - Operations - Eastern Division, is
a partner in a partnership that leases office space to the Company. The
partnership received approximately $0.1 million, $0.1 million and $0.2 million
pursuant to such lease and related agreements for the years ended December 31,
2001, 2000 and 1999. In addition, approximately $0.6 million, $0.5 million and
$0.6 million was paid to a construction company controlled by Mr. McCall's
brother and $0.5 million, $0.3 million and $0 to a construction company
controlled by Mr. McCall's son for the years ended December 31, 2001, 2000 and
1999, respectively.
Mr. Wood resigned as a director of Charter in December 2001. A company
controlled by Mr. Wood that owned an airplane reimbursed Charter for the full
annual cost of two individuals qualified to operate the plane, who were
otherwise available to Charter in connection with its own flight operations. For
each of the years ended December 31, 2001, 2000 and 1999, Mr. Wood's affiliate
owed Charter $0.1 million for annual compensation to the pilots. Charter is
entitled to reimbursement for these amounts. In addition, Mr. Wood also used
Charter 's airplane for occasional personal use in 2001, the value of which was
insignificant.
Additionally in 1999, one of Mr. Wood's daughters, who resigned as a Vice
President of Charter Holdco in February 2002, received a bonus in the form of a
three-year promissory note bearing interest at 7% per year. One-third of the
original outstanding principal amount of the note and interest were forgiven as
long as she remained employed by Charter Holdco at the end of each of the first
three anniversaries of the issue date in February 1999. The amount of principal
and interest forgiven on this note for the years ended December 31, 2001 and
2000 was $0.1 million, and the outstanding balance on the note was forgiven
effective as of February 22, 2002. Another daughter of Mr. Wood received
approximately $0.1 million during the year ended December 31, 2001 from Charter
Holdco for event planning services performed by her company.
Companies controlled by Mr. Nathanson, a director of Charter, leased
certain office space in Pasadena, California, and warehouse space in Riverside,
California, to Charter's subsidiaries. For the Pasadena office lease, which the
Company's subsidiaries terminated in April 2001 in exchange for a payment of
$0.6 million, aggregate rent of $0.2 million was paid for the period from
January 1, 2001 to April 2001 and $0.4 million was paid during the year ended
December 31, 2000. For the Riverside warehouse space, aggregate rent paid for
each of the years ended December 31, 2001 and 2000 was $0.2 million.
Business Relationships
Mr. Allen or his affiliates own equity interests or warrants to purchase
equity interests in various entities with which the Company does business or
which provides it with services or programming. Among these entities are Wink
Communications, Inc. (Wink), TechTV Inc. (TechTV), USA Networks, Inc. (USA
Networks), Oxygen Media Corporation (Oxygen Media), digeo, inc., Microsoft
Corporation and HSA. Mr. Allen owns 100% of the equity of Vulcan Ventures
Incorporated (Vulcan Ventures) and Vulcan Inc. and is the president of Vulcan
Ventures. Mr. Savoy is also a vice president and a director of Vulcan Ventures.
The various cable, Internet and telephony companies in which Mr. Allen has
invested may mutually benefit one another. The agreements governing the
Company's relationship with digeo, inc. are an example of a cooperative business
relationship among his affiliated companies. The Company can give no assurance,
nor should you
F-28
expect, that any of these business relationships will be successful, that the
Company will realize any benefits from these relationships or that the Company
will enter into any business relationships in the future with Mr. Allen's
affiliated companies.
Mr. Allen and his affiliates have made, and in the future likely will
make, numerous investments outside of Charter and its business. The Company
cannot assure that, in the event that Charter or any of its subsidiaries enter
into transactions in the future with any affiliate of Mr. Allen, such
transactions will be on terms as favorable to the Company as terms it might have
obtained from an unrelated third party. Also, conflicts could arise with respect
to the allocation of corporate opportunities between the Company and Mr. Allen
and his affiliates. The Company has not instituted any formal plan or
arrangement to address potential conflicts of interest.
With respect to the following business relationships, unless otherwise
noted where Charter and Charter Holdco are party to an agreement, the Company
functions as the operating entity under the contract receiving all revenue,
making all payments and fulfilling the operational commitments under the
contracts. In these cases references to "the Company" relate to commitments made
by the Company's direct and indirect parent (and manager) that operate through
the Company and its systems.
Vulcan Ventures
Vulcan Ventures, Charter, Charter Investment and Charter Holdco are
parties to an agreement dated September 21, 1999 regarding the right of Vulcan
Ventures to use up to eight of the Company's digital cable channels in
consideration of a capital contribution of $1.325 billion that was received
during 1999. Specifically, the Company will provide Vulcan Ventures with
exclusive rights for carriage of up to eight digital cable television
programming services or channels on each of the digital cable television systems
with local, and to the extent available, national control of the digital product
owned, operated, controlled or managed by Charter or Charter Holdco now or in
the future of 550 megahertz or more. If the system offers digital services but
has less than 550 megahertz of capacity, then the programming services will be
equitably reduced. Upon request of Vulcan Ventures, the Company will attempt to
reach a comprehensive programming agreement pursuant to which it will pay the
programmer, if possible, a fee per digital subscriber. If such fee arrangement
is not achieved, then the Company and the programmer shall enter into a standard
programming agreement. As of December 31, 2001, Vulcan Ventures did not use any
channels.
High-Speed Access
HSA has been a provider of high-speed Internet access services over cable
modems. During the period from 1997 to 2000, certain Charter Communications
entities entered into Internet-access related service agreements, and both
Vulcan Ventures and certain of Charter's subsidiaries made equity investments in
HSA.
On September 28, 2001, Charter Holdco and HSA entered into an asset
purchase agreement pursuant to which Charter Holdco agreed to purchase from HSA
the contracts and associated assets, and assume related liabilities, that serve
the Company's customers, including a customer contact center, network operations
center and provisioning software. On December 20, 2001, Charter Holdco assigned
certain of its rights under the asset purchase agreement and certain related
agreements to its subsidiary, CC Systems, LLC. The transaction closed in the
first quarter of 2002. At the closing, CC Systems wired funds in the amount of
$77.5 million to HSA and delivered 37,000 shares of HSA's Series D convertible
preferred stock and all of the warrants to buy HSA common stock owned by Charter
Holdco and HSA purchased 38,000 shares of its Series D convertible preferred
stock from Vulcan Ventures for $8.0 million. Charter Holdco obtained a fairness
opinion from a qualified investment-banking firm regarding the valuation of the
assets purchased by CC Systems pursuant to the asset purchase agreement.
Concurrent with the transaction closing, HSA purchased all of the stock held by
Vulcan Ventures, and certain of the agreements between Holdco and HSA, including
the programming content agreement, the services agreement, the systems access
agreement, the 1998 network services agreement and the May 2000 network services
agreement, each as described in more detail below, were terminated. As of
December 31, 2001 and 2000, the carrying value of Charter Holdco and the
Company's investment in HSA, including warrants and preferred stock, was zero
and $38.2 million, respectively.
On September 28, 2001, in connection with the asset purchase agreement
with HSA, Charter Holdco and HSA entered into a license agreement pursuant to
which Charter Holdco granted HSA the right to use certain intellectual property
to be sold by HSA to Charter Holdco. HSA does not pay any fees under the
agreement. The domestic portion of the license
F-29
terminates on June 30, 2002, and the international portion of the license will
expire on February 2, 2005. Concurrently with the license agreement, HSA and
Charter entered into a services agreement, pursuant to which Charter agreed to
perform certain management services formerly performed by HSA. This agreement
terminated at closing.
In 2001, Charter Holdco was a party to a systems access and investment
agreement with Vulcan Ventures and HSA and a related network services agreement
with HSA. These agreements provided HSA with exclusive access to at least
750,000 of the Company's homes that had either an installed cable drop from the
Company's cable system or that were eligible for a cable drop by virtue of the
Company's cable system passing the home. The term of the network services
agreement was, as to a particular cable system, five years from the date revenue
billing commenced for that cable system. The programming content agreement
provided each of Vulcan Ventures and HSA with a license to use certain content
and materials of the other on a non-exclusive, royalty-free basis. The revenues
the Company earned from HSA for the years ended December 31, 2001, 2000 and 1999
were approximately $7.8 million, $1.6 million and $0.2 million, respectively.
Additionally, Charter Holdco, as the assignee of Vulcan Ventures, held
warrants that were amended and restated on May 12, 2000, giving Charter Holdco
the right to purchase up to 12,000,000 shares of HSA common stock at an exercise
price of $3.23 per share. A portion of the warrants could be earned under the
agreements described above, and the other portion related to warrants that could
be earned under a network agreement entered into with HSA on May 12, 2000,
described below. Warrants earned under the agreements described above became
vested at the time systems were committed by the Company and were based upon the
number of homes passed. Warrants under these agreements could only be earned
until July 31, 2003, and were earned at the rate of 1.55 shares of common stock
for each home passed in excess of 750,000. Warrants earned under the agreements
described above were exercisable until May 25, 2006. Such warrants were subject
to forfeiture in certain circumstances, generally if the Company withdrew a
committed system.
On May 12, 2000, Charter entered into a second network services agreement
with HSA, which was assigned by Charter to Charter Holdco on August 1, 2000.
Under the terms of the May 12, 2000 network services agreement, the Company
agreed to commit a total of 5,000,000 homes passed, including all homes passed
in systems previously committed by the Company, to HSA (other than full turnkey
systems), on or prior to May 12, 2003. With respect to each system launched or
intended to be launched, the Company paid a per customer fee to HSA according to
agreed pricing terms. In addition, the Company will also compensate HSA for
services that exceed certain minimum thresholds. For the years ended December
31, 2001, 2000 and 1999, the Company paid HSA approximately $12.9 million, $5.3
million and $1.1 million, respectively, under this agreement and the 1998
network services agreement.
Warrants earned under the May 12, 2000 network services agreement vested
at the time the Company authorized HSA to proceed with respect to a system, and
were based upon the number of homes passed in such system. With respect to the
initial total 5,000,000 homes passed, the warrant provided that Charter Holdco
would have the right to purchase 0.775 shares of common stock for every home
passed. With respect to any additional homes passed in excess of 5,000,000, the
warrant provided that Charter Holdco would have the right to purchase 1.55
shares of common stock for every home passed. Warrants earned under the
agreement were exercisable until seven and a half years from the date they were
earned, and generally were not subject to forfeiture. HSA had agreed to increase
the number of shares of common stock subject to the amended and restated
warrant, upon Charter Holdco's request, if the number of warrants earned
exceeded 11,500,000. The May 2000 network services agreement with HSA had a term
of five years starting in May 2000. All of the warrants earned under the network
services agreements described above, were cancelled in connection with the
closing of the asset purchase agreement.
On December 5, 2000, pursuant to a preferred stock purchase agreement
entered into as of October 19, 2000, one of the Company's subsidiaries, Charter
Communications Ventures, LLC, and Vulcan Ventures purchased 37,000 shares and
38,000 shares, respectively, of Series D convertible preferred stock of HSA for
$37.0 million and $38.0 million, respectively. In connection with their
acquisition of the Series D convertible preferred stock, Charter Communications
Ventures and Vulcan Ventures were granted certain preemptive, first refusal,
registration and significant board representation rights as part of the
transaction. At the closing of the asset acquisition from HSA, CC Systems
delivered to HSA the 37,000 shares of Series D convertible preferred stock
acquired by Charter Communications Ventures and HSA purchased from Vulcan
Ventures its Series D convertible preferred stock.
Immediately prior to the acquisition from HSA, Vulcan Ventures owned
20,222,139 shares of common stock and 38,000 shares of Series D convertible
preferred stock of HSA, Charter Communications Ventures owned 37,000 shares of
F-30
Series D convertible preferred stock and Charter Holdco held warrants
convertible into 2,650,659 shares of common stock. If all shares of preferred
stock and warrants owned by affiliates of Mr. Allen were converted into common
stock, then Mr. Allen, through such affiliates, would have beneficially own
48.5% of the common stock of HSA as of January 23, 2002. All equity interests in
HSA held by Charter Communications Ventures, Vulcan Ventures and Charter Holdco
were cancelled, pursuant to the closing of the asset purchase agreement.
WorldGate/TV Gateway
WorldGate Communications, Inc. (WorldGate) is a provider of Internet
access through cable systems. Charter has an affiliation agreement with
WorldGate for an initial term which expires in November 2002. The agreement
automatically renews for additional successive two-year periods upon expiration
of the initial five-year term, unless terminated by either party for failure of
the other party to perform any of its obligations or undertakings required under
the agreement. The Company started offering WorldGate service in 1998. Pursuant
to the agreement, the Company agreed to deploy the WorldGate Internet access
service within a portion of its cable systems and to install the appropriate
headend equipment in all of its major markets in those systems. Major markets
for purposes of this agreement include those in which the Company has more than
25,000 customers. The Company incurs the cost for the installation of headend
equipment. In addition, to the extent the Company determines that it is
economically practical, it has agreed to use its reasonable best efforts to
deploy such service in all non-major markets that are technically capable of
providing interactive pay-per-view service. When WorldGate has a telephone
return path service available, the Company will, if economically practical, use
all reasonable efforts to install the appropriate headend equipment and deploy
the WorldGate service in its remaining markets. The Company has also agreed to
market the WorldGate service within its market areas. The Company pays a monthly
subscriber access fee to WorldGate based on the number of subscribers to the
WorldGate service. The Company has the discretion to determine what fees, if
any, it will charge its subscribers for access to the WorldGate service. For the
year ended December 31, 2001, the Company paid WorldGate approximately $1.7
million, consisting of $1.5 million for equipment purchases and $0.2 million for
subscriber access fees. The Company charged its subscribers approximately $0.3
million for Internet access for the year ended December 31, 2001. For the year
ended December 31, 2000, the Company paid WorldGate approximately $5.1 million,
consisting of $5.0 million for equipment purchases and $0.1 million for
subscriber access fees. The Company charged its subscribers approximately $0.4
million for Internet access for the year ended December 31, 2000. For the year
ended December 31, 1999, the Company paid WorldGate approximately $0.8 million,
primarily pertaining to the purchase of equipment. The Company charged its
subscribers approximately $0.3 million for the year ended December 31, 1999.
On July 25, 2000, Charter Holdco entered into a joint venture, named
TVGateway, LLC, with WorldGate and several other cable operators to develop and
deploy a server-based interactive program guide. Charter Holdco initially
invested $850,000, providing it a 16.25% ownership interest in the joint venture
and through subsequent investments of $1.0 million and $3.0 million in 2000 and
2001, respectively, increased its ownership interest to 17.63% as of December
31, 2001. For the first four years after the formation of TVGateway, Charter
Holdco will earn additional ownership units, up to a maximum of 750,000
ownership units, as the interactive program guide is deployed to the Company's
customers. In August 2000, Charter Holdco purchased 31,211 shares of common
stock of WorldGate at $16.02 per share for a total purchase price of $500,000.
As a result of this purchase, Charter Holdco received a $125,000 credit from
WorldGate against future equipment purchases relating to the deployment of its
service. Additionally, WorldGate granted Charter Holdco warrants to purchase up
to 500,000 shares of WorldGate common stock for a period of seven years at a
exercise price of $24.78. For a period of three years from the date of closing,
Charter Holdco will also be issued warrants to purchase common stock of
WorldGate based on the number of two-way digital homes passed in the systems in
which Charter Holdco has deployed WorldGate service. As of December 31, 2001,
Charter Holdco had earned 27,853 warrants, but has not yet received
documentation evidencing them. Charter holds additional warrants to purchase
263,353 shares of WorldGate common stock for $10.65 per share, which expire on
June 30, 2002. Charter also owns 107,554 shares of WorldGate common stock for
which it paid a total of $1.5 million. As of December 31, 2001 and 2000, the
carrying value of the Company's investment in WorldGate was approximately
$80,000 and $300,000, respectively, and the carrying value of Charter Holdco's
investment in WorldGate and TVGateway was approximately $103,000 and $29,000,
respectively, and $2.6 million and $1.1 million, respectively.
Wink
Wink offers an enhanced broadcasting system that adds interactivity and
electronic commerce opportunities to traditional programming and advertising.
Viewers can, among other things, find news, weather and sports information
on-demand and order products through use of a remote control.
F-31
Charter Holdco is party to a June 7, 2001 cable affiliation agreement for
a three year term with Wink, which was amended in October 2001 and in March
2002. The agreement has three one-year renewal options at the Charter Holdco's
discretion. Pursuant to the agreement, Wink granted Charter Holdco and its
subsidiaries a non-exclusive license to use the Wink software to deliver the
enhanced broadcasting services to their cable systems. Charter Holdco agreed to
make commercially reasonable efforts to deploy the Wink services to three
million subscribers for which it is eligible to receive a launch fee for
transactions generated by the Company's customers. Wink also agreed to issue
Charter Holdco one million shares of Wink common stock subject to finalization
of a grant agreement. As a result of this stock grant, Charter Holdco will have
an equity ownership in Wink that exceeds 5%. Under the amended agreement,
Charter Holdco agreed to pay a fee for the license grant and Wink agreed to
purchase an advertising package during 2002 and 2003. At December 31, 2001,
Vulcan Ventures had an approximate 2% equity interest in Wink.
TechTV
TechTV operates a cable television channel which broadcasts shows about
technology and the Internet. Pursuant to a carriage agreement terminating in
2008, TechTV has provided the Company with programming for broadcast via its
cable television systems. Carriage fee amounts per subscriber are determined
based on the percentage of subscribers in a particular system receiving the
services. These fees will be waived for systems with higher penetration levels
until December 31, 2003, and were waived for systems with lower penetration
levels through April 30, 2001. In certain circumstances, the Company is entitled
to a percentage of TechTV's net product revenues from infomercials and home
shopping and attributed to their carriage of the service. Additionally, the
Company receives incentive payments for channel launches through December 31,
2003. TechTV may not offer its services to any other cable operator which serves
the same or fewer number of customers at a more favorable rate or on more
favorable carriage terms. For the year ended December 31, 2001, the Company
received $9.4 million from TechTV under the carriage agreement which are
included in other revenues in the accompanying consolidated statements of
operations.
On February 5, 1999, Vulcan Programming, which is 100% owned by Mr. Allen,
acquired a one-third interest in TechTV. In January 2000, Vulcan Programming
acquired an additional 64% in TechTV for $204.8 million. Mr. Savoy is the
president and a director of Vulcan Programming. As of December 31, 2001, Vulcan
Programming's interest in TechTV was approximately 97.7%. The remaining
approximate 2.3% of TechTV is owned by its management and employees. Mr.
Wangberg, one of Charter's directors, is the chairman, chief executive officer
and a director of TechTV. Although Mr. Wangberg has announced his intent to
resign as the chief executive officer of TechTV when his successor is named, he
will remain with TechTV as a director. In September 2000 Mr. Wangberg sold his
approximately 2.63% equity interest in TechTV to Vulcan Programming and in April
2001 his remaining 1.37% interest was redeemed by TechTV. Mr. Allen is a
director of TechTV and Mr. Savoy is a director and Vice President of TechTV.
USA Networks / Home Shopping Network
USA Networks operates the USA Network, The Sci-Fi Channel, Trio and World
News International cable television networks. USA Networks also operates Home
Shopping Network, which is a retail sales program available via cable television
systems. Pursuant to an agreement terminating in 2005, Charter Holdco is a party
to a non-exclusive affiliation agreement with USA Networks for the cablecast of
USA Network programming. For the years ended December 31, 2001, 2000 and 1999,
the Company received approximately $12.1 million, $26.5 million and $1.8
million, respectively, from USA Networks under the affiliation agreement and for
commissions from USA Networks for home shopping sales generated by its customers
and/or promotion of the Home Shopping Network which are included in other
revenues in the accompanying consolidated statements of operations. For the
years ended December 31, 2001, 2000 and 1999, the Company paid USA Networks
approximately $39.3 million, $25.0 million and $16.7 million, respectively, for
cable television programming. Mr. Allen and Mr. Savoy are directors of USA
Networks. As of December 31, 2001, Mr. Allen owned approximately 5% and Mr.
Savoy owned less than 1% of the common stock of USA Networks.
F-32
Oxygen Media Corporation
Oxygen Media provides programming content aimed at the female audience for
distribution over the Internet and cable television systems. Oxygen Media
programming content is currently available to approximately 2 million of the
Company's customers. For the year ended December 31, 2001, the Company paid
Oxygen Media approximately $2.7 million for programming content. Mr. Savoy, a
director of the Company, Charter Holdco and Charter, serves on the board of
directors of Oxygen Media. As of February 8, 2002, through Vulcan Programming,
Mr. Allen owns an approximate 34.2% interest in Oxygen Media (51.2% assuming
exercise of all warrants held by Vulcan Programming but no exercise of warrants
or options by other holders).
Replay TV Joint Venture
Charter Communications Ventures was party to a joint venture with General
Instrument Corporation (doing business as Broadband Communications Sector of
Motorola, Inc.), Replay TV Inc. and Interval Research Corporation, an entity
controlled by Mr. Allen, to develop and integrate digital video recording
capabilities in advanced digital set-top boxes. The joint venture focused on
creating a set-top based digital recording platform designed for storing video,
audio and Internet content. Prior to the dissolution of the joint venture in
2001, Charter Communications Ventures received management fees of $1.3 million
for the year ended December 31, 2001 which are included in other revenues in the
accompanying consolidated statements of operations.
Purchase of Certain Enstar Limited Partnership Systems
On August 29, 2001, Interlink Communications Partners, LLC, Rifkin
Acquisition Partners, LLC and Charter Communications Entertainment I, LLC, each
an indirect, wholly-owned subsidiary of the Company, entered into an agreement
to purchase substantially all of the assets of Enstar Income Program II-2, L.P.,
Enstar Income Program II-1, L.P., Enstar Income Program IV-3, L.P., Enstar
Income/Growth Program Six-A, L.P. and Enstar Cable of Macoupin County and
certain assets of Enstar IV/PBD Systems Venture. Enstar Communications
Corporation, a direct subsidiary of Charter Holdco, is the general partner of
the Enstar limited partnerships. The cash sale price of approximately $63.0
million, subject to certain closing adjustments, was the highest bid received by
the Enstar limited partnerships following a broadly-based solicitation process.
The Company expects that the transaction will close in the first half of 2002.
In addition, Enstar Cable Corporation, the manager of the Enstar limited
partnerships through a management agreement, engaged Charter Holdco to manage
the Enstar limited partnerships. Pursuant to the management agreement, Charter
Holdco provides management services to the Enstar limited partnerships in
exchange for management fees. The Enstar limited partnerships also purchase
basic and premium programming for their systems at cost from Charter Holdco. For
the year ended December 31, 2001, the Enstar limited partnerships paid Charter
Holdco $2.1 million for management services.
With the exception of Mr. Allen, all of the executive officers of the
Company, Charter Holdco and Charter act as officers of Enstar Communications
Corporation.
Portland Trail Blazers
On October 7, 1996, the former owner of the Company's Falcon cable systems
entered into a letter agreement and a cable television agreement with Trail
Blazers Inc. for the cable broadcast in the metropolitan area surrounding
Portland, Oregon of pre-season, regular season and playoff basketball games of
the Portland Trail Blazers, a National Basketball Association team. Mr. Allen is
the 100% owner of the Portland Trail Blazers and Trail Blazers Inc. After the
acquisition of the Falcon cable systems in November 1999, the Company continued
to operate under the terms of these agreements until their termination on
September 30, 2001. Under the letter agreement, Trail Blazers Inc. was paid a
fixed fee for each subscriber in areas directly served by the Falcon cable
systems. Under the cable television agreement, the Company shared subscription
revenues with Trail Blazers Inc. The Company paid approximately $1.1 million for
each of the two years ended December 31, 2001 and 2000 and $0.2 million for the
year ended December 31, 1999 in connection with the cable broadcast of Portland
Trail Blazers basketball games under the October 1996 cable television
agreement.
F-33
On July 1, 2001, Charter Holdco and Action Sports Cable Network, which is
100% owned by Mr. Allen, entered into a new carriage agreement for a five year
term, which became effective on October 1, 2001 with the expiration of the
previous agreement. Under the July 2001 carriage agreement, the Company pays
Action Sports a fixed fee for each subscriber receiving the Action Sports
programming, which covers sporting events in the Pacific Northwest, including
the Portland Trail Blazers, the Seattle Seahawks, a National Football League
team, and the Portland Fire, a Women's National Basketball Association team. For
the year ended December 31, 2001, the Company had paid $0.4 million under the
July 2001 agreement.
digeo, inc.
Vulcan Ventures, an entity controlled by Mr. Allen, owns an approximate
67% interest in digeo, inc (digeo). digeo provides a television-based Internet
access service that combines Internet access with the convenience of the
television. The digeo product is a "portal," which is an Internet web site that
serves as a user's initial point of entry to the World Wide Web. The portal
generates revenues from advertising on its own web pages and by sharing revenues
generated by linked or featured web sites. Digeo, inc. has a license agreement
with Microsoft for software used in the digeo set top companion. Fees under this
license agreement are passed on to the Company through Charter's agreement with
digeo.
On March 5, 2001, Charter finalized an exclusive carriage agreement with
digeo interactive, LLC, which will function as its television-based Internet
portal for an initial six-year period. In connection with the execution of the
carriage agreement on March 5, 2001, the Company's wholly owned subsidiary,
Charter Communications Ventures, LLC, received an equity interest in digeo
funded by Vulcan Ventures Incorporated's contribution of approximately $21.2
million, which is subject to a priority return of capital to Vulcan up to the
amount so funded. Vulcan also agreed to make, through January 24, 2004, certain
additional contributions through Digeo Broadband Holdings, LLC to acquire digeo
equity in order to maintain Charter Venture's pro rata interest in digeo in the
event of certain future digeo equity financings by the founders of digeo. These
additional equity interests will also be subject to a priority return of capital
to Vulcan up to the amount so contributed. On September 27, 2001, Charter and
digeo amended the March 2001 carriage agreement. Pursuant to the amendment,
digeo will provide the content for enhanced Wink interactive television services
to the Company (the "digeo(TM) Basic Service"). In order to provide the digeo
Basic Services, digeo sublicensed certain Wink technologies to Charter. The
Company will share in the revenues generated by the digeo Basic Services. For
the year ended December 31, 2001, no amounts were received by the Company for
its portion of shared revenues. As of December 31, 2001, the carrying value of
the Company's investment in digeo was approximately $599,000.
Messrs. Allen, Savoy and Vogel are directors of digeo. Mr. Kent, the
Company's former director, served on the board of digeo. Mr. Savoy serves on the
compensation committee of digeo. Each of Mr. Savoy and Mr. Vogel owns 10,000
options to purchase shares of digeo common stock.
drugstore.com
Charter Media is party to an advertising agreement with drugstore.com
pursuant to which it will carry advertising of drugstore.com beginning in 2002.
Mr. Allen owns less than 5% of the outstanding equity of drugstore.com and Mr.
Savoy acts as a director for drugstore.com.
ADC Telecommunications Inc.
During the year ended December 31, 2001, the Company and Charter Holdco
purchased approximately $3.0 million in equipment from ADC Telecommunications,
which provides broadband access and network equipment. Mr. Wangberg acts as a
director for ADC Telecommunications.
F-34
16. Commitments and Contingencies
Leases
The Company leases certain facilities and equipment under noncancellable
operating leases. Leases and rental costs charged to expense for the years ended
December 31, 2001, 2000 and 1999, were $22.7 million, $14.2 million and $11.2
million, respectively. As of December 31, 2001, future minimum lease payments
are as follows:
[Download Table]
Year Amount
---- ------
2002 ................................................. $17,130
2003 ................................................. 12,687
2004 ................................................. 9,549
2005 ................................................. 7,918
2006 ................................................. 6,574
Thereafter ........................................... 18,712
The Company also rents utility poles in its operations. Generally, pole
rentals are cancelable on short notice, but the Company anticipates that such
rentals will recur. Rent expense incurred for pole rental attachments for the
years ended December 31, 2001, 2000 and 1999, was $33.3 million, $31.6 million
and $14.3 million, respectively.
Litigation
The Company is party to lawsuits and claims that arose in the ordinary
course of conducting its business. In the opinion of management, after
consulting with legal counsel, and taking into account recorded liabilities, the
outcome of these lawsuits and claims will not have a material adverse effect on
the Company's consolidated financial position or results of operations.
Regulation in the Cable Industry
The operation of a cable system is extensively regulated by the Federal
Communications Commission (FCC), some state governments and most local
governments. The FCC has the authority to enforce its regulations through the
imposition of substantial fines, the issuance of cease and desist orders and/or
the imposition of other administrative sanctions, such as the revocation of FCC
licenses needed to operate certain transmission facilities used in connection
with cable operations. The 1996 Telecom Act altered the regulatory structure
governing the nation's communications providers. It removed barriers to
competition in both the cable television market and the local telephone market.
Among other things, it reduced the scope of cable rate regulation and encouraged
additional competition in the video programming industry by allowing local
telephone companies to provide video programming in their own telephone service
areas.
The 1996 Telecom Act required the FCC to undertake a host of implementing
rulemakings. Moreover, Congress and the FCC have frequently revisited the
subject of cable regulation. Future legislative and regulatory changes could
adversely affect the Company's operations.
The 1992 Cable Act permits certified local franchising authorities to
order refunds of basic service tier rates paid in the previous twelve-month
period determined to be in excess of the maximum permitted rates. During 2001
and 2000, the amounts refunded by the Company have been insignificant. The
Company may be required to refund additional amounts in the future.
17. Employee Benefit Plan
The Company's employees may participate in the Charter Communications,
Inc. 401(k) Plan. Employees that qualify for participation can contribute up to
15% of their salary, on a pre-tax basis, subject to a maximum contribution limit
as determined by the Internal Revenue Service. The Company matches 50% of the
first 5% of participant contributions. The Company made contributions to the
401(k) plan totaling $7.8 million, $6.1 million and $2.9 million for the years
ended December 31, 2001, 2000 and 1999, respectively.
F-35
18. New Accounting Standards
In June 2001, the Financial Accounting Standards Board issued SFAS No.
141, "Business Combinations", No. 142, "Goodwill and Other Intangible Assets"
and No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 141
requires all business combinations initiated after June 30, 2001 to be accounted
for using the purchase method of accounting and was adopted by the company on
July 1, 2001. Adoption of SFAS No. 141 did not have a significant impact on the
consolidated financial statements of the Company.
Under SFAS No. 142, goodwill and other indefinite lived intangible assets
are no longer subject to amortization over their useful lives, rather, they are
subject to at least annual assessments for impairment. Also, under SFAS Nos. 141
and 142, an intangible asset should be recognized if the benefit of the
intangible asset is obtained through contractual or other legal rights or if the
intangible asset can be sold, transferred, licensed, rented or exchanged. Such
intangibles will be amortized over their useful lives. The Company believes that
substantially all franchises will qualify for indefinite life treatment under
the new standard. While the analysis, including the impairment testing of
franchises required under the new standard, is not complete, the Company expects
to stop amortizing franchise intangible assets that meet the indefinite life
treatment beginning January 1, 2002. The Company will test these assets for
impairment at least annually. Other than during any periods in which the Company
may record a charge for impairment, the Company expects that the adoption of
SFAS No. 142 will result in a reduced loss as a result of reduced amortization
expense. If the new standard had been in effect for 2001, amortization expense
would have been reduced by approximately $1.2 billion to $1.3 billion.
Under SFAS No. 143, the fair value of a liability for an asset retirement
obligation is required to be recognized in the period in which it is incurred if
a reasonable estimate of fair value can be made. The associated asset retirement
costs are capitalized as part of the carrying amount of the long-lived asset.
SFAS No. 143 will be implemented by the Company on January 1, 2002. Adoption of
SFAS No. 143 will not have a material impact on the consolidated financial
statements of the Company.
In August 2001, the Financial Accounting Standards Board issued SFAS No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No.
144 addresses financial accounting and reporting for the impairment of
long-lived assets and for long-lived assets to be disposed of and supersedes
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." SFAS No. 144 establishes a single
accounting model for long-lived assets to be disposed of by sale and resolves
implementation issues related to SFAS No. 121. SFAS No. 144 will be implemented
by the Company on January 1, 2002. Adoption of SFAS No. 144 will not have a
material impact on the consolidated financial statements of the Company.
F-36
19. Parent Company Only Financial Statements
As the result of limitations on and prohibitions of distributions,
substantially all of the net assets of the consolidated subsidiaries are
restricted for distribution to the Company. The following condensed parent-only
financial statements of the Company account for the investment in its
subsidiaries under the equity method of accounting. The financial statements
should be read in conjunction with the consolidated financial statements of the
Company and notes thereto.
Charter Communications Holdings, LLC (Parent Company Only)
Condensed Balance Sheets
[Download Table]
December 31,
----------------------------
2001 2000
----------- -----------
(dollars in thousands)
ASSETS
Cash and cash equivalents ...................... $ 1,674 $ 8,462
Receivables from related party ................. 176,552 --
Investment in subsidiaries ..................... 15,095,061 13,170,266
Other assets ................................... 154,197 121,176
----------- -----------
$15,427,484 $13,299,904
=========== ===========
LIABILITIES AND MEMBER'S EQUITY
Current liabilities ............................ $ 143,318 $ 96,041
Payables to related party ...................... 1,278 39,789
Long-term debt ................................. 7,999,203 4,780,211
Member's equity ................................ 7,283,685 8,383,863
----------- -----------
Total liabilities and member's equity ........ $15,427,484 $13,299,904
=========== ===========
Charter Communications Holdings, LLC (Parent Company Only)
Condensed Statements of Operations
[Download Table]
Year Ended December 31,
-----------------------------------------
2001 2000 1999
----------- ----------- ---------
(dollars in thousands)
Interest expense ................... $ (724,076) $ (424,601) $(221,925)
Interest income .................... 7,105 4,938 11,833
Equity in losses of subsidiaries ... (1,876,804) (1,627,896) (438,616)
----------- ----------- ---------
Net loss ........................... $(2,593,775) $(2,047,559) $(648,708)
=========== =========== =========
F-37
Charter Communications Holdings, LLC (Parent Company Only)
Condensed Statements of Cash Flows
[Enlarge/Download Table]
Year Ended December 31,
-------------------------------------------
2001 2000 1999
----------- ----------- -----------
(dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ....................................... $(2,593,775) $(2,047,559) $ (648,708)
Noncash interest expense ....................... 259,396 153,274 78,473
Equity in losses of subsidiaries ............... 1,876,804 1,627,896 438,616
Changes in operating assets and liabilities .... 2,900 76,333 48,825
----------- ----------- -----------
Net cash flows from operating activities ... (454,675) (190,056) (82,794)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in subsidiaries ..................... (4,266,612) (2,048,323) (1,730,466)
Loans to subsidiaries .......................... (1,648,992) -- (1,680,142)
Repayments on loans to subsidiaries ............ 1,548,439 -- (663,259)
Distributions .................................. -- -- 96,748
----------- ----------- -----------
Net cash flows from investing activities ... (4,367,165) (2,048,323) (3,977,119)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from debt offering ................ 3,250,032 -- 2,999,385
Payments for debt issuance costs ............... (67,331) (60,228) (74,000)
Borrowings of long-term debt ................... -- 2,300,303 --
Repayments of long-term debt ................... (272,500) (727,500) --
Capital contributions .......................... 1,579,135 751,095 1,144,290
Distributions from subsidiaries ................ 422,578 -- --
Distributions .................................. (96,862) (26,591) --
----------- ----------- -----------
Net cash flows from financing activities ... 4,815,052 2,237,079 4,069,675
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ............................... (6,788) (1,300) 9,762
CASH AND CASH EQUIVALENTS, beginning of year ...... 8,462 9,762 --
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of year ............ $ 1,674 $ 8,462 $ 9,762
=========== =========== ===========
20. Subsequent Events
In January 2002, Charter Holdings and Charter Capital issued senior notes
with an aggregate principal amount at maturity of $1.1 billion. The January 2002
Charter Holdings notes are comprised of $350.0 million 9.625% senior notes due
2009, $300.0 million 10.000% senior notes due 2011, and $450.0 principal amount
at maturity of 12.125% senior discount notes due 2012. The net proceeds of
approximately $872.8 million, were used to repay a portion of the amounts
outstanding under the revolving credit facilities of the Company's subsidiaries.
F-38
Dates Referenced Herein and Documents Incorporated by Reference
↑Top
Filing Submission 0000950123-02-003205 – Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)
Copyright © 2024 Fran Finnegan & Company LLC – All Rights Reserved.
About — Privacy — Redactions — Help —
Mon., Apr. 29, 4:21:38.2am ET 
