UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark One)
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For
the quarterly period ended June 30, 2008
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 | |
| 333-77499-01 | ||
| 333-111423 | ||
| 333-111423-01 | ||
| 333-112593 | ||
| 333-112593-01 |
Charter
Communications Holdings, LLC *
Charter
Communications Holdings Capital Corporation*
CCH
II, LLC*
CCH
II Capital Corp.*
CCO
Holdings, LLC*
CCO Holdings Capital
Corp.*
(Exact name of registrants as
specified in their charters)
|
Delaware
|
43-1843179
|
|
|
Delaware
|
43-1843177
|
|
|
Delaware
|
03-0511293
|
|
|
Delaware
|
13-4257703
|
|
|
Delaware
|
86-1067239
|
|
|
Delaware
|
20-0259004
|
|
|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification Number)
|
|
|
12405
Powerscourt Drive
|
||
|
St.
Louis, Missouri 63131
|
(314)
965-0555
|
|
|
(Address
of principal executive offices, including zip code)
|
(Registrants’
telephone number, including area
code)
|
Indicate
by check mark whether the registrants (1) have 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 registrants were
required to file such reports), and (2) have been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
Indicate
by check mark whether the registrants are large accelerated filers, accelerated
filers, non-accelerated filers, or smaller reporting companies. See definition
of “accelerated filers,” “large accelerated filers,” and “smaller reporting
companies” in Rule 12b-2 of the Exchange Act. (Check one):
Large
accelerated filers o Accelerated
filers o Non-accelerated
filers þ Smaller
reporting companies o
Indicate
by check mark whether the registrants are shell companies (as defined in Rule
12b-2 of the Act). Yes o
No þ
Number of
shares of common stock of Charter Communications Holdings Capital Corporation
outstanding as of August 7, 2008: 100
Number of
shares of common stock of CCH II Capital Corp. outstanding as of August 7, 2008:
1
Number of
shares of CCO Holdings Capital Corp. outstanding as of August 7, 2008:
1
*Charter Communications
Holdings, LLC, Charter Communications Holdings Capital Corporation, CCH II, LLC,
CCH II Capital Corp., CCO Holdings, LLC, and CCO Holdings Capital Corp. meet the
conditions set forth in General Instruction H(1)(a) and (b) to
Form 10-Q and are therefore filing with the reduced disclosure
format.
This
combined Form 10-Q is separately filed by Charter Communications Holdings,
LLC, Charter Communications Holdings Capital Corporation, CCH II, LLC, CCH II
Capital Corp., CCO Holdings, LLC, and CCO Holdings Capital Corp. Each
registrant hereto is filing on its own behalf all of the information contained
in this quarterly report that relates to such registrant. Each registrant
hereto is not filing any information that does not relate to such registrant,
and therefore makes no representation as to any such information.
Table
of Contents
|
PART
I. FINANCIAL INFORMATION
|
Page
|
|
Item
1.Financial Statements - Charter Communications Holdings, LLC and
Subsidiaries
|
|
|
Condensed
Consolidated Balance Sheets as of June 30, 2008
|
|
|
and
December 31, 2007
|
4
|
|
Condensed
Consolidated Statements of Operations for the three and
six
|
|
|
months
ended June 30, 2008 and 2007
|
5
|
|
Condensed
Consolidated Statements of Cash Flows for the
|
|
|
six
months ended June 30, 2008 and 2007
|
6
|
|
Financial
Statements – CCH II, LLC and Subsidiaries
|
|
|
Condensed
Consolidated Balance Sheets as of June 30, 2008
|
|
|
and
December 31, 2007
|
7
|
|
Condensed
Consolidated Statements of Operations for the three and
six
|
|
|
months
ended June 30, 2008 and 2007
|
8
|
|
Condensed
Consolidated Statements of Cash Flows for the
|
|
|
six
months ended June 30, 2008 and 2007
|
9
|
|
Financial
Statements – CCO Holdings, LLC and Subsidiaries
|
|
|
Condensed
Consolidated Balance Sheets as of June 30, 2008
|
|
|
and
December 31, 2007
|
10
|
|
Condensed
Consolidated Statements of Operations for the three and
six
|
|
|
months
ended June 30, 2008 and 2007
|
11
|
|
Condensed
Consolidated Statements of Cash Flows for the
|
|
|
six months
ended June 30, 2008 and 2007
|
12
|
|
Combined
Notes to Condensed Consolidated Financial Statements
|
13
|
|
Item
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
|
34
|
|
Item
3. Quantitative and Qualitative Disclosures about Market
Risk
|
46
|
|
Item
4. Controls and Procedures
|
47
|
|
PART
II. OTHER INFORMATION
|
|
|
Item
1. Legal Proceedings
|
48
|
|
Item
1A. Risk Factors
|
48
|
|
Item
6. Exhibits
|
51
|
|
SIGNATURES
|
S-1
|
|
EXHIBIT
INDEX
|
E-1
|
This
quarterly report on Form 10-Q is for the three and six months ended June
30, 2008. 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. This information incorporates documents
previously filed by our parent company, Charter Communications, Inc., with the
SEC including its quarterly report on Form 10-Q for the quarter ended June 30,
2008, filed on August 5, 2008. Information incorporated by reference
is considered to be part of this quarterly report. In addition,
information that we file with the SEC in the future will automatically update
and supersede information contained in this quarterly report. In this
quarterly report, "we," "us" and "our" refer to Charter Communications,
Holdings, LLC and its subsidiaries, including its indirect subsidiaries CCH II,
LLC and CCO Holdings, LLC, and their subsidiaries. Please refer to
our Annual Report on Form 10-K for the year ended December 31, 2007 for an
organizational chart set forth in Part I. Item 1. under the heading
"Business – Corporate Organizational
Structure."
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS:
This
quarterly report includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities
Act"), and Section 21E of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), regarding, among other things, our plans, strategies and
prospects, both business and financial including, without limitation, the
forward-looking statements set forth in the "Results of Operations" and
"Liquidity and Capital Resources" sections under Part I, Item 2. "Management’s
Discussion and Analysis of Financial Condition and Results of Operations" in
this quarterly report. 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 including, without
limitation, the factors described under "Risk Factors" under Part II, Item 1A
and the factors described under “Risk Factors” under Part I, Item 1A of our most
recent Form 10-K filed with the SEC. Many of the forward-looking
statements contained in this quarterly report may be identified by the use of
forward-looking words such as "believe," "expect," "anticipate," "should,"
"planned," "will," "may," "intend," "estimated," "aim," "on track," "target,"
"opportunity," and "potential," among others. Important factors that
could cause actual results to differ materially from the forward-looking
statements we make in this quarterly report are set forth in this quarterly
report and in other reports or documents that we file from time to time with the
SEC, and include, but are not limited to:
|
|
·
|
the
availability, in general, of funds to meet interest payment obligations
under our and our parent companies’ debt and to fund our operations and
necessary capital expenditures, either through cash flows from operating
activities, further borrowings or other sources and, in particular, our
and our parent companies’ ability to fund debt obligations (by dividend,
investment or otherwise) to the applicable obligor of such
debt;
|
|
|
·
|
our
and our parent companies’ ability to comply with all covenants in our and
our parent companies’ indentures and credit facilities, any violation of
which, if not cured in a timely manner, could trigger a default of our
other obligations under cross-default
provisions;
|
|
|
·
|
our
and our parent companies’ ability to pay or refinance debt prior to or
when it becomes due and/or refinance that debt through new issuances,
exchange offers or otherwise, including restructuring our and our parent
companies’ balance sheet and leverage position;
|
|
·
|
the
impact of competition from other distributors, including incumbent
telephone companies, direct broadcast satellite operators, wireless
broadband providers, and digital subscriber line (“DSL”)
providers;
|
|
|
·
|
difficulties
in growing, further introducing, and operating our telephone services,
while adequately meeting customer expectations for the reliability of
voice services;
|
|
|
·
|
our
ability to adequately meet demand for installations and customer
service;
|
|
|
·
|
our
ability to sustain and grow revenues and cash flows from operating
activities by offering video, high-speed Internet, telephone and other
services, and to maintain and grow our customer base, particularly in the
face of increasingly aggressive
competition;
|
|
|
·
|
our
ability to obtain programming at reasonable prices or to adequately raise
prices to offset the effects of higher programming
costs;
|
|
|
·
|
general
business conditions, economic uncertainty or slowdown, including the
recent significant slowdown in the housing sector and overall economy;
and
|
|
|
·
|
the
effects of governmental regulation on our
business.
|
All
forward-looking statements attributable to us or any person acting on our behalf
are expressly qualified in their entirety by this cautionary
statement. We are under no duty or obligation to update any of the
forward-looking statements after the date of this quarterly report.
3
PART
I. FINANCIAL INFORMATION.
|
Item
1.
|
Financial
Statements.
|
CHARTER
COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN
MILLIONS)
|
June 30,
|
December
31,
|
|||||||
|
2008
|
2007
|
|||||||
|
(Unaudited)
|
||||||||
|
ASSETS
|
||||||||
|
CURRENT
ASSETS:
|
||||||||
|
Cash
and cash equivalents
|
$ | 62 | $ | 13 | ||||
|
Short-term
investments
|
13 | -- | ||||||
|
Accounts
receivable, less allowance for doubtful accounts of
|
||||||||
|
$19
and $18, respectively
|
242 | 220 | ||||||
|
Prepaid
expenses and other current assets
|
23 | 24 | ||||||
|
Total
current assets
|
340 | 257 | ||||||
|
INVESTMENT
IN CABLE PROPERTIES:
|
||||||||
|
Property, plant and equipment, net of accumulated
depreciation
|
5,077 | 5,072 | ||||||
|
Franchises,
net
|
8,935 | 8,942 | ||||||
|
Total
investment in cable properties, net
|
14,012 | 14,014 | ||||||
|
OTHER
NONCURRENT ASSETS
|
294 | 269 | ||||||
|
Total
assets
|
$ | 14,646 | $ | 14,540 | ||||
|
LIABILITIES
AND MEMBER’S DEFICIT
|
||||||||
|
CURRENT
LIABILITIES:
|
||||||||
|
Accounts
payable and accrued expenses
|
$ | 1,194 | $ | 1,212 | ||||
|
Payables
to related party
|
165 | 168 | ||||||
|
Total
current liabilities
|
1,359 | 1,380 | ||||||
|
LONG-TERM
DEBT
|
20,115 | 19,506 | ||||||
|
LOANS
PAYABLE – RELATED PARTY
|
150 | 123 | ||||||
|
DEFERRED
MANAGEMENT FEES – RELATED PARTY
|
14 | 14 | ||||||
|
OTHER
LONG-TERM LIABILITIES
|
510 | 545 | ||||||
|
MINORITY
INTEREST
|
203 | 199 | ||||||
|
Member’s
deficit
|
(7,600 | ) | (7,104 | ) | ||||
|
Accumulated
other comprehensive loss
|
(105 | ) | (123 | ) | ||||
|
Total
member’s deficit
|
(7,705 | ) | (7,227 | ) | ||||
|
Total
liabilities and member’s deficit
|
$ | 14,646 | $ | 14,540 | ||||
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
4
CHARTER
COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(DOLLARS
IN MILLIONS)
Unaudited
|
Three
Months Ended June 30,
|
Six
Months Ended June 30,
|
|||||||||||||||
|
2008
|
2007
|
2008
|
2007
|
|||||||||||||
|
REVENUES
|
$ | 1,623 | $ | 1,499 | $ | 3,187 | $ | 2,924 | ||||||||
|
COSTS
AND EXPENSES:
|
||||||||||||||||
|
Operating
(excluding depreciation and amortization)
|
698 | 647 | 1,380 | 1,278 | ||||||||||||
|
Selling,
general and administrative
|
342 | 317 | 687 | 620 | ||||||||||||
|
Depreciation
and amortization
|
328 | 334 | 649 | 665 | ||||||||||||
|
Other
operating expenses, net
|
25 | 1 | 36 | 5 | ||||||||||||
| 1,393 | 1,299 | 2,752 | 2,568 | |||||||||||||
|
Income
from operations
|
230 | 200 | 435 | 356 | ||||||||||||
|
OTHER
INCOME AND (EXPENSES):
|
||||||||||||||||
|
Interest
expense, net
|
(462 | ) | (452 | ) | (913 | ) | (906 | ) | ||||||||
|
Change
in value of derivatives
|
36 | 6 | 6 | 5 | ||||||||||||
|
Other
expense, net
|
(3 | ) | (36 | ) | (6 | ) | (39 | ) | ||||||||
| (429 | ) | (482 | ) | (913 | ) | (940 | ) | |||||||||
|
Loss
before income taxes
|
(199 | ) | (282 | ) | (478 | ) | (584 | ) | ||||||||
|
INCOME
TAX BENEFIT (EXPENSE)
|
-- | 1 | (2 | ) | (1 | ) | ||||||||||
|
Net
loss
|
$ | (199 | ) | $ | (281 | ) | $ | (480 | ) | $ | (585 | ) | ||||
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
5
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS
IN MILLIONS)
Unaudited
|
Six
Months Ended June 30,
|
||||||||
|
2008
|
2007
|
|||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
|
Net
loss
|
$ | (480 | ) | $ | (585 | ) | ||
|
Adjustments
to reconcile net loss to net cash flows from operating
activities:
|
||||||||
|
Depreciation
and amortization
|
649 | 665 | ||||||
|
Noncash
interest expense
|
12 | 12 | ||||||
|
Change
in value of derivatives
|
(6 | ) | (5 | ) | ||||
|
Deferred
income taxes
|
-- | (3 | ) | |||||
|
Other,
net
|
24 | 39 | ||||||
|
Changes
in operating assets and liabilities, net of effects from
dispositions:
|
||||||||
|
Accounts
receivable
|
(22 | ) | (26 | ) | ||||
|
Prepaid
expenses and other assets
|
1 | 2 | ||||||
|
Accounts
payable, accrued expenses and other
|
16 | 6 | ||||||
|
Receivables
from and payables to related party, including deferred management
fees
|
(14 | ) | (4 | ) | ||||
|
Net
cash flows from operating activities
|
180 | 101 | ||||||
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
|
Purchases
of property, plant and equipment
|
(650 | ) | (579 | ) | ||||
|
Change
in accrued expenses related to capital expenditures
|
(41 | ) | (39 | ) | ||||
|
Other,
net
|
(11 | ) | 31 | |||||
|
Net
cash flows from investing activities
|
(702 | ) | (587 | ) | ||||
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
|
Borrowings
of long-term debt
|
1,765 | 7,247 | ||||||
|
Repayments
of long-term debt
|
(1,118 | ) | (6,727 | ) | ||||
|
Repayments
to related parties
|
(12 | ) | -- | |||||
|
Payments
for debt issuance costs
|
(39 | ) | (33 | ) | ||||
|
Distributions
|
(16 | ) | -- | |||||
|
Contributions
|
-- | 1 | ||||||
|
Other,
net
|
(9 | ) | -- | |||||
|
Net
cash flows from financing activities
|
571 | 488 | ||||||
|
NET
INCREASE IN CASH AND CASH EQUIVALENTS
|
49 | 2 | ||||||
|
CASH
AND CASH EQUIVALENTS, beginning of period
|
13 | 38 | ||||||
|
CASH
AND CASH EQUIVALENTS, end of period
|
$ | 62 | $ | 40 | ||||
|
CASH
PAID FOR INTEREST
|
$ | 895 | $ | 904 | ||||
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
6
CCH
II, LLC AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN
MILLIONS)
|
June 30,
|
December
31,
|
|||||||
|
2008
|
2007
|
|||||||
|
(Unaudited)
|
||||||||
|
ASSETS
|
||||||||
|
CURRENT
ASSETS:
|
||||||||
|
Cash
and cash equivalents
|
$ | 62 | $ | 7 | ||||
|
Short-term
investments
|
7 | -- | ||||||
|
Accounts
receivable, less allowance for doubtful accounts of
|
||||||||
|
$19
and $18, respectively
|
242 | 220 | ||||||
|
Prepaid
expenses and other current assets
|
23 | 24 | ||||||
|
Total
current assets
|
334 | 251 | ||||||
|
INVESTMENT
IN CABLE PROPERTIES:
|
||||||||
|
Property, plant and equipment, net of accumulated
depreciation
|
5,077 | 5,072 | ||||||
|
Franchises,
net
|
8,935 | 8,942 | ||||||
|
Total
investment in cable properties, net
|
14,012 | 14,014 | ||||||
|
OTHER
NONCURRENT ASSETS
|
233 | 205 | ||||||
|
Total
assets
|
$ | 14,579 | $ | 14,470 | ||||
|
LIABILITIES
AND MEMBER’S DEFICIT
|
||||||||
|
CURRENT
LIABILITIES:
|
||||||||
|
Accounts
payable and accrued expenses
|
$ | 982 | $ | 1,001 | ||||
|
Payables
to related party
|
177 | 181 | ||||||
|
Total
current liabilities
|
1,159 | 1,182 | ||||||
|
LONG-TERM
DEBT
|
12,961 | 12,311 | ||||||
|
LOANS
PAYABLE – RELATED PARTY
|
115 | 123 | ||||||
|
DEFERRED
MANAGEMENT FEES – RELATED PARTY
|
14 | 14 | ||||||
|
OTHER
LONG-TERM LIABILITIES
|
510 | 545 | ||||||
|
MINORITY
INTEREST
|
675 | 663 | ||||||
|
Member’s
deficit
|
(750 | ) | (245 | ) | ||||
|
Accumulated
other comprehensive loss
|
(105 | ) | (123 | ) | ||||
|
Total
member’s deficit
|
(855 | ) | (368 | ) | ||||
|
Total
liabilities and member’s deficit
|
$ | 14,579 | $ | 14,470 | ||||
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
7
CCH
II, LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(DOLLARS
IN MILLIONS)
Unaudited
|
Three
Months Ended June 30,
|
Six
Months Ended June 30,
|
|||||||||||||||
|
2008
|
2007
|
2008
|
2007
|
|||||||||||||
|
REVENUES
|
$ | 1,623 | $ | 1,499 | $ | 3,187 | $ | 2,924 | ||||||||
|
COSTS
AND EXPENSES:
|
||||||||||||||||
|
Operating
(excluding depreciation and amortization)
|
698 | 647 | 1,380 | 1,278 | ||||||||||||
|
Selling,
general and administrative
|
342 | 317 | 687 | 620 | ||||||||||||
|
Depreciation
and amortization
|
328 | 334 | 649 | 665 | ||||||||||||
|
Other
operating expenses, net
|
25 | 1 | 36 | 5 | ||||||||||||
| 1,393 | 1,299 | 2,752 | 2,568 | |||||||||||||
|
Income
from operations
|
230 | 200 | 435 | 356 | ||||||||||||
|
OTHER
INCOME AND (EXPENSES):
|
||||||||||||||||
|
Interest
expense, net
|
(263 | ) | (256 | ) | (516 | ) | (506 | ) | ||||||||
|
Change
in value of derivatives
|
36 | 6 | 6 | 5 | ||||||||||||
|
Other
expense, net
|
(7 | ) | (37 | ) | (14 | ) | (43 | ) | ||||||||
| (234 | ) | (287 | ) | (524 | ) | (544 | ) | |||||||||
|
Loss
before income taxes
|
(4 | ) | (87 | ) | (89 | ) | (188 | ) | ||||||||
|
INCOME
TAX BENEFIT (EXPENSE)
|
-- | 1 | (2 | ) | (1 | ) | ||||||||||
|
Net
loss
|
$ | (4 | ) | $ | (86 | ) | $ | (91 | ) | $ | (189 | ) | ||||
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
8
CCH
II, LLC AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS
IN MILLIONS)
Unaudited
|
Six
Months Ended June 30,
|
||||||||
|
2008
|
2007
|
|||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
|
Net
loss
|
$ | (91 | ) | $ | (189 | ) | ||
|
Adjustments
to reconcile net loss to net cash flows from operating
activities:
|
||||||||
|
Depreciation
and amortization
|
649 | 665 | ||||||
|
Noncash
interest expense
|
13 | 12 | ||||||
|
Change
in value of derivatives
|
(6 | ) | (5 | ) | ||||
|
Deferred
income taxes
|
-- | (3 | ) | |||||
|
Other,
net
|
32 | 44 | ||||||
|
Changes
in operating assets and liabilities, net of effects from
dispositions:
|
||||||||
|
Accounts
receivable
|
(22 | ) | (26 | ) | ||||
|
Prepaid
expenses and other assets
|
1 | 2 | ||||||
|
Accounts
payable, accrued expenses and other
|
16 | -- | ||||||
|
Receivables
from and payables to related party, including deferred management
fees
|
(14 | ) | 1 | |||||
|
Net
cash flows from operating activities
|
578 | 501 | ||||||
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
|
Purchases
of property, plant and equipment
|
(650 | ) | (579 | ) | ||||
|
Change
in accrued expenses related to capital expenditures
|
(41 | ) | (39 | ) | ||||
|
Other,
net
|
(5 | ) | 31 | |||||
|
Net
cash flows from investing activities
|
(696 | ) | (587 | ) | ||||
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
|
Borrowings
of long-term debt
|
1,765 | 7,247 | ||||||
|
Repayments
of long-term debt
|
(1,118 | ) | (6,338 | ) | ||||
|
Repayments
to related parties
|
(12 | ) | -- | |||||
|
Payments
for debt issuance costs
|
(39 | ) | (33 | ) | ||||
|
Distributions
|
(414 | ) | (788 | ) | ||||
|
Other,
net
|
(9 | ) | -- | |||||
|
Net
cash flows from financing activities
|
173 | 88 | ||||||
|
NET
INCREASE IN CASH AND CASH EQUIVALENTS
|
55 | 2 | ||||||
|
CASH
AND CASH EQUIVALENTS, beginning of period
|
7 | 32 | ||||||
|
CASH
AND CASH EQUIVALENTS, end of period
|
$ | 62 | $ | 34 | ||||
|
CASH
PAID FOR INTEREST
|
$ | 497 | $ | 506 | ||||
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
9
CCO
HOLDINGS, LLC AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN
MILLIONS)
|
June 30,
|
December
31,
|
|||||||
|
2008
|
2007
|
|||||||
|
(Unaudited)
|
||||||||
|
ASSETS
|
||||||||
|
CURRENT
ASSETS:
|
||||||||
|
Cash
and cash equivalents
|
$ | 62 | $ | 2 | ||||
|
Short-term
investments
|
2 | -- | ||||||
|
Accounts
receivable, less allowance for doubtful accounts of
|
||||||||
|
$19
and $18, respectively
|
242 | 220 | ||||||
|
Prepaid
expenses and other current assets
|
23 | 24 | ||||||
|
Total
current assets
|
329 | 246 | ||||||
|
INVESTMENT
IN CABLE PROPERTIES:
|
||||||||
|
Property, plant and equipment, net of accumulated
depreciation
|
5,077 | 5,072 | ||||||
|
Franchises,
net
|
8,935 | 8,942 | ||||||
|
Total
investment in cable properties, net
|
14,012 | 14,014 | ||||||
|
OTHER
NONCURRENT ASSETS
|
217 | 186 | ||||||
|
Total
assets
|
$ | 14,558 | $ | 14,446 | ||||
|
LIABILITIES
AND MEMBER’S EQUITY
|
||||||||
|
CURRENT
LIABILITIES:
|
||||||||
|
Accounts
payable and accrued expenses
|
$ | 910 | $ | 929 | ||||
|
Payables
to related party
|
178 | 192 | ||||||
|
Total
current liabilities
|
1,088 | 1,121 | ||||||
|
LONG-TERM
DEBT
|
10,508 | 9,859 | ||||||
|
LOANS
PAYABLE – RELATED PARTY
|
342 | 332 | ||||||
|
DEFERRED
MANAGEMENT FEES – RELATED PARTY
|
14 | 14 | ||||||
|
OTHER
LONG-TERM LIABILITIES
|
510 | 545 | ||||||
|
MINORITY
INTEREST
|
675 | 663 | ||||||
|
Member’s
equity
|
1,526 | 2,035 | ||||||
|
Accumulated
other comprehensive loss
|
(105 | ) | (123 | ) | ||||
|
Total
member’s equity
|
1,421 | 1,912 | ||||||
|
Total
liabilities and member’s equity
|
$ | 14,558 | $ | 14,446 | ||||
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
10
CCO
HOLDINGS, LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(DOLLARS
IN MILLIONS)
Unaudited
|
Three
Months Ended June 30,
|
Six
Months Ended June 30,
|
|||||||||||||||
|
2008
|
2007
|
2008
|
2007
|
|||||||||||||
|
REVENUES
|
$ | 1,623 | $ | 1,499 | $ | 3,187 | $ | 2,924 | ||||||||
|
COSTS
AND EXPENSES:
|
||||||||||||||||
|
Operating
(excluding depreciation and amortization)
|
698 | 647 | 1,380 | 1,278 | ||||||||||||
|
Selling,
general and administrative
|
342 | 317 | 687 | 620 | ||||||||||||
|
Depreciation
and amortization
|
328 | 334 | 649 | 665 | ||||||||||||
|
Other
operating expenses, net
|
25 | 1 | 36 | 5 | ||||||||||||
| 1,393 | 1,299 | 2,752 | 2,568 | |||||||||||||
|
Income
from operations
|
230 | 200 | 435 | 356 | ||||||||||||
|
OTHER
INCOME AND (EXPENSES):
|
||||||||||||||||
|
Interest
expense, net
|
(202 | ) | (196 | ) | (395 | ) | (386 | ) | ||||||||
|
Change
in value of derivatives
|
36 | 6 | 6 | 5 | ||||||||||||
|
Other
expense, net
|
(7 | ) | (37 | ) | (14 | ) | (43 | ) | ||||||||
| (173 | ) | (227 | ) | (403 | ) | (424 | ) | |||||||||
|
Income
(loss) before income taxes
|
57 | (27 | ) | 32 | (68 | ) | ||||||||||
|
INCOME
TAX BENEFIT (EXPENSE)
|
-- | 1 | (2 | ) | (1 | ) | ||||||||||
|
Net
income (loss)
|
$ | 57 | $ | (26 | ) | $ | 30 | $ | (69 | ) | ||||||
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
11
CCO
HOLDINGS, LLC AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS
IN MILLIONS)
Unaudited
|
Six
Months Ended June 30,
|
||||||||
|
2008
|
2007
|
|||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
|
Net
income (loss)
|
$ | 30 | $ | (69 | ) | |||
|
Adjustments
to reconcile net income (loss) to net cash flows from operating
activities:
|
||||||||
|
Depreciation
and amortization
|
649 | 665 | ||||||
|
Noncash
interest expense
|
10 | 9 | ||||||
|
Change
in value of derivatives
|
(6 | ) | (5 | ) | ||||
|
Deferred
income taxes
|
-- | (3 | ) | |||||
|
Other,
net
|
32 | 44 | ||||||
|
Changes
in operating assets and liabilities, net of effects from
dispositions:
|
||||||||
|
Accounts
receivable
|
(22 | ) | (26 | ) | ||||
|
Prepaid
expenses and other assets
|
1 | 2 | ||||||
|
Accounts
payable, accrued expenses and other
|
16 | 1 | ||||||
|
Receivables
from and payables to related party, including deferred
management fees
|
(7 | ) | 9 | |||||
|
Net
cash flows from operating activities
|
703 | 627 | ||||||
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
|
Purchases
of property, plant and equipment
|
(650 | ) | (579 | ) | ||||
|
Change
in accrued expenses related to capital expenditures
|
(41 | ) | (39 | ) | ||||
|
Other,
net
|
-- | 31 | ||||||
|
Net
cash flows from investing activities
|
(691 | ) | (587 | ) | ||||
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
|
Borrowings
of long-term debt
|
1,765 | 7,247 | ||||||
|
Repayments
of long-term debt
|
(1,118 | ) | (6,338 | ) | ||||
|
Repayments
to related parties
|
(12 | ) | -- | |||||
|
Payments
for debt issuance costs
|
(39 | ) | (33 | ) | ||||
|
Distributions
|
(539 | ) | (915 | ) | ||||
|
Other,
net
|
(9 | ) | -- | |||||
|
Net
cash flows from financing activities
|
48 | (39 | ) | |||||
|
NET
INCREASE IN CASH AND CASH EQUIVALENTS
|
60 | 1 | ||||||
|
CASH
AND CASH EQUIVALENTS, beginning of period
|
2 | 28 | ||||||
|
CASH
AND CASH EQUIVALENTS, end of period
|
$ | 62 | $ | 29 | ||||
|
CASH
PAID FOR INTEREST
|
$ | 372 | $ | 380 | ||||
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
12
CHARTER
COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH
II, LLC AND SUBSIDIARIES
CCO
HOLDINGS, LLC AND SUBSIDIARIES
COMBINED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars
in millions, except where indicated)
|
Organization
and Basis of Presentation
|
Charter
Communications Holdings, LLC ("Charter Holdings") is a holding company whose
principal assets at June 30, 2008 are the equity interests in its subsidiaries,
which include CCH II, LLC (“CCH II”) and CCO Holdings, LLC (“CCO Holdings”).
Charter Holdings, CCH II, and CCO Holdings are indirect subsidiaries of Charter
Communications Holding Company, LLC ("Charter Holdco"), which is a subsidiary of
Charter Communications, Inc. (“Charter”). Each set of consolidated
financial statements include the accounts of Charter Holdings, CCH II, and CCO
Holdings, and all of their respective subsidiaries where the underlying
operations reside, which are collectively referred to herein as the
"Companies." All significant intercompany accounts and transactions
among consolidated entities have been eliminated.
The
Companies, through their operating subsidiary, Charter Communications Operating,
LLC (“Charter Operating”), operate broadband communications businesses in the
United States offering to residential and commercial customers traditional cable
video programming (basic and digital video), high-speed Internet services, and
telephone services, as well as advanced broadband services such as high
definition television, Charter OnDemand™ (“OnDemand”), and digital video
recorder (“DVR”) service. Cable video programming, high-speed
Internet, telephone, and advanced broadband services are sold primarily on a
subscription basis. The Companies also sell local advertising on
cable networks.
The
accompanying condensed consolidated financial statements of the Companies have
been prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and the rules and regulations of
the Securities and Exchange Commission (the "SEC"). Accordingly,
certain information and footnote disclosures typically included in the
Companies’ Annual Report on Form 10-K have been condensed or omitted for this
quarterly report. The accompanying condensed consolidated financial
statements are unaudited and are subject to review by regulatory
authorities. However, in the opinion of management, such financial
statements include all adjustments, which consist of only normal recurring
adjustments, necessary for a fair presentation of the results for the periods
presented. Interim results are not necessarily indicative of results
for a full year.
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States (“GAAP”) 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. Areas involving significant judgments
and estimates include capitalization of labor and overhead costs; depreciation
and amortization costs; impairments of property, plant and equipment, franchises
and goodwill; income taxes; and contingencies. Actual results could
differ from those estimates.
Reclassifications. Certain
prior year amounts have been reclassified to conform with the 2008
presentation.
2. Liquidity
and Capital Resources
Charter
Holdings and CCH II have each incurred net losses for the three and six months
ended June 30, 2008 and 2007 and expect to continue to incur net losses for the
foreseeable future. For the three and six months ended June 30, 2008, CCO
Holdings generated net income, however, there can be no assurance that CCO
Holdings will continue to do so. For the six months ended June
30, 2008 and 2007, Charter Holdings, CCH II, and CCO Holdings each generated
cash flows from operating activities.
The
Companies have significant amounts of debt. Charter Holdings’, CCH
II’s, and CCO Holdings’ long-term debt as of June 30, 2008 totaled $20.1
billion, $13.0 billion, and $10.5 billion, respectively, consisting of $7.3
billion of credit facility debt, and $12.8 billion, $5.6 billion, and $3.2
billion accreted value of high-yield notes, respectively. For the
remainder of 2008, $36 million of Charter Operating’s credit facility debt
matures. As of June 30, 2008, an additional $165 million of Charter
Holdings’ notes and $70 million of Charter Operating’s credit facility debt
matures in 2009.
13
CHARTER
COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH
II, LLC AND SUBSIDIARIES
CCO
HOLDINGS, LLC AND SUBSIDIARIES
COMBINED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
(dollars
in millions, except where indicated)
In 2010
and beyond, significant additional amounts will become due under the Companies’
remaining long-term debt obligations.
The
Companies require significant cash to fund debt service costs, capital
expenditures and ongoing operations. The Companies have historically
funded these requirements through cash flows from operating activities,
borrowings under credit facilities, equity contributions from their respective
parent companies, proceeds from sales of assets, issuances of debt securities,
and cash on hand. However, the mix of funding sources changes from
period to period. For the six months ended June 30, 2008, Charter
Holdings, CCH II, and CCO Holdings generated $180 million, $578 million, and
$703 million of net cash flows from operating activities, respectively, after
paying cash interest of $895 million, $497 million, and $372 million,
respectively. In addition, Charter Holdings, CCH II, and CCO Holdings
used $650 million for purchases of property, plant and
equipment. Finally, Charter Holdings, CCH II, and CCO Holdings
generated net cash flows from financing activities of $571 million, $173
million, and $48 million, respectively, as a result of financing transactions
completed during the six months ended June 30, 2008. On a
consolidated basis, the Companies’ parent companies have a significant level of
debt, which totaled approximately $20.5 billion as of June 30,
2008.
The
Companies expect that cash on hand, cash flows from operating activities, and
the amounts available under the Charter Operating credit facilities will be
adequate to fund their and their parent companies’ projected cash needs,
including scheduled maturities, through 2009. The Companies believe
that cash flows from operating activities, and the amounts available under the
Charter Operating credit facilities will not be sufficient to fund their and
their parent companies’ projected cash needs in 2010 (primarily as a result of
the CCH II $1.9 billion of senior notes outstanding at July 2, 2008 that mature
in September 2010) and thereafter. The Companies’ projected cash
needs and projected sources of liquidity depend upon, among other things, the
Companies’ actual results, the timing and amount of capital expenditures, and
ongoing compliance with the Charter Operating credit facilities, including
obtaining an unqualified audit opinion from its independent
accountants. Although the Companies and their parent companies have
been able to refinance or otherwise fund the repayment of debt in the past, they
may not be able to access additional sources of refinancing on similar terms or
pricing as those that are currently in place, or at all, or otherwise obtain
other sources of funding. A continuation of the recent turmoil in the
credit markets and the general economic downturn could adversely impact the
terms and/or pricing when the Companies need to raise additional
liquidity. No assurances can be given that the Companies will not
experience liquidity problems if they do not obtain sufficient additional
financing on a timely basis as the Companies’ debt becomes due or because of
adverse market conditions, increased competition, or other unfavorable
events.
If, at
any time, additional capital or borrowing capacity is required beyond amounts
internally generated or available under the credit facilities, the Companies
would consider requesting that Charter or Charter Holdco issue equity, issuing
debt securities, further reducing expenses and capital expenditures, selling
assets, or requesting waivers or amendments with respect to the Companies’
credit facilities.
If the
above strategies were not successful, the Companies could be forced to
restructure their obligations or seek protection under the bankruptcy
laws. In addition, if the Companies find it necessary to engage in a
recapitalization or other similar transaction, the Companies’ noteholders might
not receive principal and interest payments to which they are contractually
entitled.
Credit
Facility Availability
The
Companies’ ability to operate depends upon, among other things, their continued
access to capital, including credit under the Charter Operating credit
facilities. The Charter Operating credit facilities, along with the
Companies’ indentures and the CCO Holdings credit facility, contain certain
restrictive covenants, some of which require the Companies to maintain specified
leverage ratios, meet financial tests, and provide annual audited financial
statements with an unqualified opinion from the Companies’ independent
accountants. As of June 30, 2008, the Companies were in compliance
with the covenants under their indentures and credit facilities, and the
Companies expect to remain in
14
CHARTER
COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH
II, LLC AND SUBSIDIARIES
CCO
HOLDINGS, LLC AND SUBSIDIARIES
COMBINED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
(dollars
in millions, except where indicated)
compliance
with those covenants for the next twelve months. As of June 30, 2008,
the Companies’ potential availability under Charter Operating’s revolving credit
facility totaled approximately $1.4 billion, none of which was limited by
covenant restrictions. Continued access to Charter Operating’s
revolving credit facility is subject to the Companies remaining in compliance
with these covenants, including covenants tied to Charter Operating’s leverage
ratio and first lien leverage ratio. If any event of non-compliance
were to occur, funding under the revolving credit facility may not be available
and defaults on some or potentially all of the Companies’ debt obligations could
occur. An event of default under any of the Companies’ debt
instruments could result in the acceleration of their payment obligations under
that debt and, under certain circumstances, in cross-defaults under their parent
companies’ debt obligations, which could have a material adverse effect on the
Companies’ consolidated financial condition and results of
operations.
Parent
Company Debt Obligations
Any
financial or liquidity problems of the Companies’ parent companies could cause
serious disruption to the Companies’ business and have a material adverse effect
on the Companies’ business and results of operations.
A failure
by Charter Holdings, CCH I Holdings, LLC (“CIH”), CCH I, LLC (“CCH I”), CCH II,
or CCO Holdings to satisfy their debt payment obligations could, or a bankruptcy
with respect to Charter Holdings, CIH, CCH I, CCH II, or CCO Holdings would,
give the lenders under the Companies’ credit facilities the right to accelerate
the payment obligations under these facilities. Any such acceleration
would be a default under the indenture governing the Companies’
notes.
Limitations
on Distributions
As long
as Charter’s convertible senior notes remain outstanding and are not otherwise
converted into shares of common stock, Charter must pay interest on the
convertible senior notes and repay the principal amount. Charter’s
ability to make interest payments on its convertible senior notes, and to repay
the outstanding principal of its convertible senior notes will depend on
its ability to raise additional capital and/or on receipt of payments or
distributions from Charter Holdco and its subsidiaries. As of June 30,
2008, Charter Holdco was owed $115 million in intercompany loans from Charter
Operating, which amounts were available to pay interest and principal on
Charter's convertible senior notes. In addition, as long as
Charter Holdco continues to hold the $35 million of Charter Holdings’ notes due
2009 and 2010 (as discussed further below), Charter Holdco will receive interest
and principal payments from Charter Holdings. Such amounts may be
available to pay interest and principal on Charter’s convertible senior notes,
although Charter Holdco may use those amounts for other purposes.
Distributions
by Charter’s subsidiaries to a parent company for payment of principal on parent
company notes, are restricted under the indentures governing the CIH notes, CCH
I notes, CCH II notes, CCO Holdings notes, Charter Operating notes, and under
the CCO Holdings credit facility, unless there is no default under the
applicable indenture and credit facilities, and unless each applicable
subsidiary’s leverage ratio test is met at the time of such
distribution. For the quarter ended June 30, 2008, there was no
default under any of these indentures or credit facilities and each subsidiary
met its applicable leverage ratio tests based on June 30, 2008 financial
results. Such distributions would be restricted, however, if any such
subsidiary fails to meet these tests at the time of the contemplated
distribution. In the past, certain subsidiaries have from time to
time failed to meet their leverage ratio test. There can be no
assurance that they will satisfy these tests at the time of the contemplated
distribution. Distributions by Charter Operating for payment of
principal on parent company notes are further restricted by the covenants in the
Charter Operating credit facilities.
Distributions
by CIH, CCH I, CCH II, CCO Holdings, and Charter Operating to a parent company
for payment of parent company interest are permitted if there is no default
under the aforementioned indentures and CCO Holdings credit
facility.
15
CHARTER
COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH
II, LLC AND SUBSIDIARIES
CCO
HOLDINGS, LLC AND SUBSIDIARIES
COMBINED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars
in millions, except where indicated)
The
indentures governing the Charter Holdings notes permit Charter Holdings to make
distributions to Charter Holdco for payment of interest or principal on
Charter’s convertible senior notes, only if, after giving effect to the
distribution, Charter Holdings can incur additional debt under the leverage
ratio of 8.75 to 1.0, there is no default under Charter Holdings’ indentures,
and other specified tests are met. For the quarter ended June 30,
2008, there was no default under Charter Holdings’ indentures, the other
specified tests were met, and Charter Holdings met its leverage ratio test of
8.75 to 1.0 based on June 30, 2008 financial results. Such distributions
would be restricted, however, if Charter Holdings fails to meet these tests at
the time of the contemplated distribution. In the past, Charter
Holdings has from time to time failed to meet this leverage ratio
test. There can be no assurance that Charter Holdings will satisfy
these tests at the time of the contemplated distribution. During
periods in which distributions are restricted, the indentures governing the
Charter Holdings notes permit Charter Holdings and its subsidiaries to make
specified investments (that are not restricted payments) in Charter Holdco or
Charter, up to an amount determined by a formula, as long as there is no default
under the indentures.
Recent
Financing Transactions
In March
2008, Charter Operating issued $546 million principal amount of 10.875% senior
second-lien notes due 2014 and borrowed $500 million principal amount of
incremental term loans under the Charter Operating credit facilities (see Note
5). In the second quarter of 2008, Charter Holdco repurchased, in
private transactions, from a small number of institutional holders, a total of
approximately $35 million principal amount of various Charter Holdings notes due
2009 and 2010 and approximately $46 million principal amount of Charter’s 5.875%
convertible senior notes due 2009, for approximately $77 million of
cash. Charter Holdco continues to hold the Charter Holdings
notes. The purchased 5.875% convertible senior notes were cancelled
resulting in approximately $3 million principal amount of such notes remaining
outstanding.
In July
2008, CCH II completed a tender offer, in which $338 million of CCH II’s 10.25%
senior notes due 2010 were accepted for $364 million of CCH II’s 10.25% senior
notes due 2013, which were issued as part of the same series of notes as CCH
II’s $250 million aggregate principal amount of 10.25% senior notes due 2013,
which were issued in September 2006.
|
3.
|
Franchises
and Goodwill
|
Franchise
rights represent the value attributed to agreements with local authorities that
allow access to homes in cable service areas acquired through the purchase of
cable systems. Management estimates the fair value of franchise
rights at the date of acquisition and determines if the franchise has a finite
life or an indefinite life as defined by Statement of Financial Accounting
Standards (“SFAS”) No. 142, Goodwill and Other Intangible
Assets. Franchises that qualify for indefinite-life treatment
under SFAS No. 142 are tested for impairment annually each October 1 based
on valuations, or more frequently as warranted by events or changes in
circumstances. Franchises are aggregated into essentially inseparable
asset groups to conduct the valuations. The asset groups generally
represent geographical clustering of the Companies’ cable systems into groups by
which such systems are managed. Management believes such grouping
represents the highest and best use of those assets.
16
CHARTER
COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH
II, LLC AND SUBSIDIARIES
CCO
HOLDINGS, LLC AND SUBSIDIARIES
COMBINED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars
in millions, except where indicated)
As of
June 30, 2008 and December 31, 2007, indefinite-lived and finite-lived
intangible assets are presented in the following table:
|
June
30, 2008
|
December 31,
2007
|
|||||||||||||||||||||||
|
Gross
Carrying
Amount
|
Accumulated
Amortization
|
Net
Carrying
Amount
|
Gross
Carrying
Amount
|
Accumulated
Amortization
|
Net
Carrying
Amount
|
|||||||||||||||||||
|
Indefinite-lived
intangible assets:
|
||||||||||||||||||||||||
|
Franchises
with indefinite lives
|
$ | 8,928 | $ | -- | $ | 8,928 | $ | 8,929 | $ | -- | $ | 8,929 | ||||||||||||
|
Goodwill
|
68 | -- | 68 | 67 | -- | 67 | ||||||||||||||||||
| $ | 8,996 | $ | -- | $ | 8,996 | $ | 8,996 | $ | -- | $ | 8,996 | |||||||||||||
|
Finite-lived
intangible assets:
|
||||||||||||||||||||||||
|
Franchises
with finite lives
|
$ | 15 | $ | 8 | $ | 7 | $ | 23 | $ | 10 | $ | 13 | ||||||||||||
Franchise
amortization expense represents the amortization relating to franchises that did
not qualify for indefinite-life treatment under SFAS No. 142, including costs
associated with franchise renewals. During the six months ended June
30, 2008, the net carrying amount of indefinite-lived franchises was reduced by
$2 million related to cable asset sales completed in 2008, and $4 million as a
result of the finalization of purchase accounting related to cable asset
acquisitions. Additionally, during the six months ended June 30,
2008, approximately $5 million of franchises that were previously classified as
finite-lived were reclassified to indefinite-lived, based on management’s
assessment when these franchises migrated to state-wide franchising.
Franchise amortization expense for the three and six months ended June 30,
2008 was approximately $0 and $1 million, respectively. The Companies
expect that amortization expense on franchise assets will be approximately $2
million annually for each of the next five years. Actual amortization
expense in future periods could differ from these estimates as a result of new
intangible asset acquisitions or divestitures, changes in useful lives and other
relevant factors.
4. Accounts
Payable and Accrued Expenses
Accounts
payable and accrued expenses consist of the following as of June 30, 2008 and
December 31, 2007:
|
Charter
Holdings
|
||||||||
|
June
30,
|
December
31,
|
|||||||
|
2008
|
2007
|
|||||||
|
Accounts
payable – trade
|
$ | 81 | $ | 116 | ||||
|
Accrued
capital expenditures
|
54 | 95 | ||||||
|
Accrued
expenses:
|
||||||||
|
Interest
|
405 | 403 | ||||||
|
Programming
costs
|
288 | 273 | ||||||
|
Compensation
|
77 | 75 | ||||||
|
Franchise
related fees
|
55 | 66 | ||||||
|
Other
|
234 | 184 | ||||||
| $ | 1,194 | $ | 1,212 | |||||
17
CHARTER
COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH
II, LLC AND SUBSIDIARIES
CCO
HOLDINGS, LLC AND SUBSIDIARIES
COMBINED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars
in millions, except where indicated)
|
CCH
II
|
||||||||
|
June
30,
|
December
31,
|
|||||||
|
2008
|
2007
|
|||||||
|
Accounts
payable – trade
|
$ | 81 | $ | 116 | ||||
|
Accrued
capital expenditures
|
54 | 95 | ||||||
|
Accrued
expenses:
|
||||||||
|
Interest
|
193 | 192 | ||||||
|
Programming
costs
|
288 | 273 | ||||||
|
Compensation
|
77 | 75 | ||||||
|
Franchise
related fees
|
55 | 66 | ||||||
|
Other
|
234 | 184 | ||||||
| $ | 982 | $ | 1,001 | |||||
|
CCO
Holdings
|
||||||||
|
June
30,
|
December
31,
|
|||||||
|
2008
|
2007
|
|||||||
|
Accounts
payable – trade
|
$ | 81 | $ | 116 | ||||
|
Accrued
capital expenditures
|
54 | 95 | ||||||
|
Accrued
expenses:
|
||||||||
|
Interest
|
121 | 120 | ||||||
|
Programming
costs
|
288 | 273 | ||||||
|
Compensation
|
77 | 75 | ||||||
|
Franchise
related fees
|
55 | 66 | ||||||
|
Other
|
234 | 184 | ||||||
| $ | 910 | $ | 929 | |||||
|
5.
|
Long-Term
Debt
|
Long-term
debt consists of the following as of June 30, 2008 and December 31,
2007:
|
June
30, 2008
|
December
31, 2007
|
|||||||||||||||
|
Principal
Amount
|
Accreted
Value
|
Principal
Amount
|
Accreted
Value
|
|||||||||||||
|
Long-Term
Debt
|
||||||||||||||||
|
Charter
Communications Operating, LLC:
|
||||||||||||||||
|
8.000%
senior second lien notes due April 30, 2012
|
$ | 1,100 | $ | 1,100 | $ | 1,100 | $ | 1,100 | ||||||||
|
8
3/8% senior second lien notes due April 30, 2014
|
770 | 770 | 770 | 770 | ||||||||||||
|
10.875%
senior second lien notes due September 15, 2014
|
546 | 526 | -- | -- | ||||||||||||
|
Credit
facilities
|
6,966 | 6,966 | 6,844 | 6,844 | ||||||||||||
|
CCO
Holdings, LLC:
|
||||||||||||||||
|
8
3/4% senior notes due November 15, 2013
|
800 | 796 | 800 | 795 | ||||||||||||
|
Credit
facility
|
350 | 350 | 350 | 350 | ||||||||||||
|
Total
CCO Holdings
|
10,532 | 10,508 | 9,864 | 9,859 | ||||||||||||
18
CHARTER
COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH
II, LLC AND SUBSIDIARIES
CCO
HOLDINGS, LLC AND SUBSIDIARIES
COMBINED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars
in millions, except where indicated)
|
CCH
II, LLC:
|
||||||||||||||||
|
10.250%
senior notes due September 15, 2010
|
2,198 | 2,193 | 2,198 | 2,192 | ||||||||||||
|
10.250%
senior notes due October 1, 2013
|
250 | 260 | 250 | 260 | ||||||||||||
|
Total
CCH II
|
12,980 | 12,961 | 12,312 | 12,311 | ||||||||||||
|
CCH
I, LLC:
|
||||||||||||||||
|
11.000%
senior notes due October 1, 2015
|
3,987 | 4,077 | 3,987 | 4,083 | ||||||||||||
|
CCH
I Holdings, LLC:
|
||||||||||||||||
|
11.125%
senior notes due January 15, 2014
|
151 | 151 | 151 | 151 | ||||||||||||
|
13.500%
senior discount notes due January 15, 2014
|
581 | 581 | 581 | 581 | ||||||||||||
|
9.920%
senior discount notes due April 1, 2014
|
471 | 471 | 471 | 471 | ||||||||||||
|
10.000%
senior notes due May 15, 2014
|
299 | 299 | 299 | 299 | ||||||||||||
|
11.750%
senior discount notes due May 15, 2014
|
815 | 815 | 815 | 815 | ||||||||||||
|
12.125%
senior discount notes due January 15, 2015
|
217 | 217 | 217 | 217 | ||||||||||||
|
Charter
Holdings:
|
||||||||||||||||
|
10.000%
senior notes due April 1, 2009
|
76 | 76 | 88 | 88 | ||||||||||||
|
10.750%
senior notes due October 1, 2009
|
54 | 54 | 63 | 63 | ||||||||||||
|
9.625%
senior notes due November 15, 2009
|
35 | 35 | 37 | 37 | ||||||||||||
|
10.250%
senior notes due January 15, 2010
|
9 | 9 | 18 | 18 | ||||||||||||
|
11.750%
senior discount notes due January 15, 2010
|
13 | 13 | 16 | 16 | ||||||||||||
|
11.125%
senior notes due January 15, 2011
|
47 | 47 | 47 | 47 | ||||||||||||
|
13.500%
senior discount notes due January 15, 2011
|
60 | 60 | 60 | 60 | ||||||||||||
|
9.920%
senior discount notes due April 1, 2011
|
51 | 51 | 51 | 51 | ||||||||||||
|
10.000%
senior notes due May 15, 2011
|
69 | 69 | 69 | 69 | ||||||||||||
|
11.750%
senior discount notes due May 15, 2011
|
54 | 54 | 54 | 54 | ||||||||||||
|
12.125%
senior discount notes due January 15, 2012
|
75 | 75 | 75 | 75 | ||||||||||||
|
Total
Charter Holdings
|
$ | 20,044 | $ | 20,115 | $ | 19,411 | $ | 19,506 | ||||||||
The
accreted values presented above generally represent the principal amount of the
notes less the original issue discount at the time of sale, plus the accretion
to the balance sheet date. However, the current accreted value for
legal purposes and notes indenture purposes (the amount that is currently
payable if the debt becomes immediately due) is equal to the principal amount of
notes.
In March
2008, Charter Operating issued $546 million principal amount of 10.875% senior
second-lien notes due 2014, guaranteed by CCO Holdings and certain other
subsidiaries of Charter Operating, in a private transaction. Net
proceeds from the senior second-lien notes were used to reduce borrowings, but
not commitments, under the revolving portion of the Charter Operating credit
facilities.
The
Charter Operating 10.875% senior second-lien notes may be redeemed at the option
of Charter Operating on or after varying dates, in each case at a premium, plus
the Make-Whole Premium. The Make-Whole Premium is an amount equal to
the excess of (a) the present value of the remaining interest and principal
payments due on a 10.875% senior second-lien note due 2014 to its final maturity
date, computed using a discount rate equal to the Treasury Rate on such date
plus 0.50%, over (b) the outstanding principal amount of such
note. The Charter Operating 10.875% senior second-lien notes may be
redeemed at any time on or after March 15, 2012 at specified
prices. In the event of specified change of control events, Charter
Operating must offer to purchase the Charter Operating 10.875% senior
second-lien notes at a purchase price equal to 101% of the total principal
amount of the Charter Operating notes repurchased plus any accrued and unpaid
interest thereon.
In
addition, Charter Operating borrowed $500 million principal amount of
incremental term loans (the "Incremental Term Loans") under the Charter
Operating credit facilities. The Incremental Term Loans have a final maturity of
19
CHARTER
COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH
II, LLC AND SUBSIDIARIES
CCO
HOLDINGS, LLC AND SUBSIDIARIES
COMBINED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars
in millions, except where indicated)
March 6,
2014 and prior to this date will amortize in quarterly principal installments
totaling 1% annually beginning on June 30, 2008. The Incremental Term
Loans bear interest at LIBOR plus 5.0%, with a LIBOR floor of 3.5%, and are
otherwise governed by and subject to the existing terms of the Charter Operating
credit facilities. Net proceeds from the Incremental Term Loans were used
for general corporate purposes.
In the
second quarter of 2008, Charter Holdco repurchased, in private transactions,
from a small number of institutional holders, a total of approximately $35
million principal amount of various Charter Holdings notes due 2009 and 2010 and
approximately $46 million principal amount of Charter’s 5.875% convertible
senior notes due 2009, for approximately $77 million of cash. Charter
Holdco continues to hold the Charter Holdings notes and such notes are
classified in Loans Payable – Related Party on Charter Holdings' condensed
consolidated balance sheets. The purchased 5.875% convertible senior
notes were cancelled resulting in approximately $3 million principal amount of
such notes remaining outstanding.
6. Loans
Payable-Related Party
Charter
Holdings
Loans
payable-related party as of June 30, 2008 and December 31, 2007 includes an
intercompany note issued by Charter Operating and held by Charter Holdco of $115
million and $123 million, respectively. Loans payable-related party
as of June 30, 2008 also includes $35 million of Charter Holdings notes held by
Charter Holdco.
CCH
II
Loans
payable-related party as of June 30, 2008 and December 31, 2007 consists of an
intercompany note issued by Charter Operating and held by Charter Holdco of $115
million and $123 million, respectively.
CCO
Holdings
Loans
payable-related party as of June 30, 2008 and December 31, 2007 consists of
intercompany notes issued by Charter Operating and held by Charter Holdco of
$115 million and $123 million, respectively, and held by CCH II of $227 million
and $209 million, respectively.
These
loans are subject to certain limitations and may be repaid with borrowings under
the Charter Operating revolving credit facility.
7. Minority
Interest
Minority
interest on the Companies’ condensed consolidated balance sheets of $203 million
and $199 million for Charter Holdings, and $675 million and $663 million for
each of CCH II and CCO Holdings as of June 30, 2008 and December 31, 2007,
respectively, represents preferred membership interests in CC VIII, LLC (“CC
VIII”), an indirect subsidiary of the Companies. Charter Investment,
Inc. (“CII”) owns 30% of the CC VIII preferred membership
interests. CCH I, the indirect subsidiary of Charter Holdings and the
direct parent of CCH II, directly owns the remaining 70% of these preferred
interests. The common membership interests in CC VIII are indirectly
owned by Charter Operating. As a result, minority interest at Charter
Holdings represents 30% of the preferred membership interests whereas minority
interest at CCH II and CCO Holdings represents 100% of the preferred membership
interests. Minority interest in the accompanying consolidated
statements of operations includes the 2% accretion of the preferred membership
interests plus approximately 5.6% of CC VIII’s income, net of accretion for
Charter Holdings and 18.6% of CC VIII’s income, net of accretion for each of CCH
II and CCO Holdings.
20
CHARTER
COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH
II, LLC AND SUBSIDIARIES
CCO
HOLDINGS, LLC AND SUBSIDIARIES
COMBINED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars
in millions, except where indicated)
|
8.
|
Comprehensive
Income (Loss)
|
The
Companies report changes in the fair value of interest rate agreements
designated as hedging the variability of cash flows associated with
floating-rate debt obligations, that meet the effectiveness criteria of SFAS No.
133, Accounting for Derivative
Instruments and Hedging Activities, in accumulated other comprehensive
loss. Charter Holdings had comprehensive losses of $77 million and
$231 million, for the three months ended June 30, 2008 and 2007, respectively,
and $462 million and $538 million, for the six months ended June 30, 2008 and
2007, respectively. CCH II had comprehensive income of $118 million
for the three months ended June 30, 2008. CCH II had comprehensive
losses of $36 million for the three months ended June 30, 2007, and $73 million
and $142 million, for the six months ended June 30, 2008 and 2007,
respectively. CCO Holdings had comprehensive income of $179 million
and $24 million, for the three months ended June 30, 2008 and 2007,
respectively, and $48 million for the six months ended June 30,
2008. CCO Holdings had comprehensive losses of $22 million for the
six months ended June 30, 2007.
|
9.
|
Accounting
for Derivative Instruments and Hedging
Activities
|
The
Companies use interest rate swap agreements to manage interest costs and reduce
the Companies’ exposure to increases in floating interest rates. The
Companies’ policy is to manage exposure to fluctuations in interest rates by
maintaining a mix of fixed and variable rate debt within a targeted
range. Using interest rate swap agreements, the Companies agree to
exchange, at specified intervals through 2013, the difference between fixed and
variable interest amounts calculated by reference to agreed-upon notional
principal amounts.
The
Companies’ hedging policy does not permit them to hold or issue derivative
instruments for speculative trading purposes. The Companies do,
however, have certain interest rate derivative instruments that have been
designated as cash flow hedging instruments. Such instruments
effectively convert variable interest payments on certain 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 Companies have formally documented,
designated and assessed the effectiveness of transactions that receive hedge
accounting. For each of the three and six months ended June 30, 2008 and
2007, there was no cash flow hedge ineffectiveness on interest rate swap
agreements.
Changes
in the fair value of interest rate agreements that are designated as hedging
instruments of the variability of cash flows associated with floating-rate debt
obligations, and that meet the effectiveness criteria specified by SFAS No. 133
are reported in accumulated other comprehensive loss. For the three
months ended June 30, 2008 and 2007, gains of $122 million and $50 million,
respectively, and for the six months ended June 30, 2008 and 2007, gains of $18
million and $48 million, respectively, related to derivative instruments
designated as cash flow hedges, were recorded in accumulated other comprehensive
loss. The amounts are subsequently reclassified as an increase or
decrease to change in value of derivatives in the same periods 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 a change in value of derivatives in the Companies’ consolidated
statements of operations. For the three months ended June 30, 2008 and
2007, change in value of derivatives includes gains of $36 million and $6
million, respectively, and for the six months ended June 30, 2008 and 2007,
gains of $6 million and $5 million, respectively, resulting from interest rate
derivative instruments not designated as hedges.
As of
June 30, 2008
and December 31, 2007, the Companies had $4.3 billion in notional amounts of
interest rate swaps outstanding. The notional amounts of interest
rate instruments do not represent amounts exchanged by the
21
CHARTER
COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH
II, LLC AND SUBSIDIARIES
CCO
HOLDINGS, LLC AND SUBSIDIARIES
COMBINED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars
in millions, except where indicated)
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.
The Companies adopted SFAS
157, Fair
Value
Measurements, on their financial assets and liabilities effective January
1, 2008, and have an established process for determining fair
value. The Companies have deferred adoption of SFAS 157 on their
nonfinancial assets and liabilities including fair value measurements under SFAS
142 and SFAS 144 of franchises, goodwill, property, plant, and equipment, and
other long-term assets until January 1, 2009 as permitted by FASB Staff Position
(“FSP”) 157-2. Fair value is based upon quoted market prices, where
available. If such valuation methods are not available, fair value is
based on internally or externally developed models using market-based or
independently-sourced market parameters, where available. Fair value
may be subsequently adjusted to ensure that those assets and liabilities are
recorded at fair value. The Companies’ methodology may produce a fair
value that may not be indicative of net realizable value or reflective of future
fair values, but the Companies believe their methods are appropriate and
consistent with other market peers. The use of different
methodologies or assumptions to determine the fair value of certain financial
instruments could result in a different fair value estimate as of the Companies’
reporting date.
SFAS 157
establishes a three-level hierarchy for disclosure of fair value measurements,
based upon the transparency of inputs to the valuation of an asset or liability
as of the measurement date, as follows:
|
·
|
Level
1 – inputs to the valuation methodology are quoted prices (unadjusted) for
identical assets or liabilities in active
markets.
|
|
·
|
Level
2 – inputs to the valuation methodology include quoted prices for similar
assets and liabilities in active markets, and inputs that are observable
for the asset or liability, either directly or indirectly, for
substantially the full term of the financial
instrument.
|
|
·
|
Level
3 – inputs to the valuation methodology are unobservable and significant
to the fair value measurement.
|
Interest
rate derivatives are valued using a present value calculation based on an
implied forward LIBOR curve (adjusted for Charter Operating’s credit risk)
classified within level 2 of the valuation hierarchy.
22
CHARTER
COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH
II, LLC AND SUBSIDIARIES
CCO
HOLDINGS, LLC AND SUBSIDIARIES
COMBINED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars
in millions, except where indicated)
The
Companies’ financial assets and financial liabilities that are accounted for at
fair value on a recurring basis are presented in the table below:
|
Fair
Value As of June 30, 2008
|
||||||||||||||||
|
Level
1
|
Level
2
|
Level
3
|
Total
|
|||||||||||||
|
Short-term
investments:
|
||||||||||||||||
|
Charter
Holdings
|
||||||||||||||||
|
Available-for-sale
investments
|
$ | 13 | $ | -- | $ | -- | $ | 13 | ||||||||
| $ | 13 | $ | -- | $ | -- | $ | 13 | |||||||||
|
CCH
II
|
||||||||||||||||
|
Available-for-sale
investments
|
$ | 7 | $ | -- | $ | -- | $ | 7 | ||||||||
| $ | 7 | $ | -- | $ | -- | $ | 7 | |||||||||
|
CCO
Holdings
|
||||||||||||||||
|
Available-for-sale
investments
|
$ | 2 | $ | -- | $ | -- | $ | 2 | ||||||||
| $ | 2 | $ | -- | $ | -- | $ | 2 | |||||||||
|
Other
long-term liabilities:
|
||||||||||||||||
|
Charter
Holdings, CCH II, CCO Holdings
|
||||||||||||||||
|
Interest
rate derivatives
|
$ | -- | $ | 145 | $ | -- | $ | 145 | ||||||||
| $ | -- | $ | 145 | $ | -- | $ | 145 | |||||||||
10. Other
Operating Expenses, Net
Other
operating expenses, net consist of the following for the three and six months
ended June 30, 2008 and 2007:
|
Three
Months
Ended
June 30,
|
Six
Months
Ended
June 30,
|
|||||||||||||||
|
2008
|
2007
|
2008
|
2007
|
|||||||||||||
|
Loss
on sale of assets, net
|
$ | 2 | $ | -- | $ | 4 | $ | 3 | ||||||||
|
Special
charges, net
|
23 | 1 | 32 | 2 | ||||||||||||
| $ | 25 | $ | 1 | $ | 36 | $ | 5 | |||||||||
Special
charges, net for the three and six months ended June 30, 2008 includes severance
charges and expected settlement costs associated with the Sjoblom litigation
(see Note 14), offset by favorable insurance settlements related to hurricane
Katrina claims. Special charges, net for the three and six months
ended June 30, 2007 primarily represent severance charges.
23
CHARTER
COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH
II, LLC AND SUBSIDIARIES
CCO
HOLDINGS, LLC AND SUBSIDIARIES
COMBINED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars
in millions, except where indicated)
|
11.
|
Other
Expense, Net
|
Other
expense, net consists of the following for the three and six months ended June
30, 2008 and 2007:
|
Charter
Holdings
|
||||||||||||||||
|
Three
Months
Ended
June 30,
|
Six
Months
Ended
June 30,
|
|||||||||||||||
|
2008
|
2007
|
2008
|
2007
|
|||||||||||||
|
Loss
on extinguishment of debt
|
$ | -- | $ | (34 | ) | $ | -- | $ | (35 | ) | ||||||
|
Minority
interest
|
(2 | ) | (1 | ) | (4 | ) | (3 | ) | ||||||||
|
Loss
on investments
|
(1 | ) | (1 | ) | (1 | ) | (1 | ) | ||||||||
|
Other,
net
|
-- | -- | (1 | ) | -- | |||||||||||
| $ | (3 | ) | $ | (36 | ) | $ | (6 | ) | $ | (39 | ) | |||||
|
CCH
II and CCO Holdings
|
||||||||||||||||
|
Three
Months
Ended
June 30,
|
Six
Months
Ended
June 30,
|
|||||||||||||||
|
2008
|
2007
|
2008
|
2007
|
|||||||||||||
|
Loss
on extinguishment of debt
|
$ | -- | $ | (31 | ) | $ | -- | $ | (32 | ) | ||||||
|
Minority
interest
|
(6 | ) | (5 | ) | (12 | ) | (10 | ) | ||||||||
|
Loss
on investments
|
(1 | ) | (1 | ) | (1 | ) | (1 | ) | ||||||||
|
Other,
net
|
-- | -- | (1 | ) | -- | |||||||||||
| $ | (7 | ) | $ | (37 | ) | $ | (14 | ) | $ | (43 | ) | |||||
As part
of the refinancing in March 2007, the existing Charter Operating $350 million
revolving/term credit facility was terminated, resulting in a loss on
extinguishment of debt for the three and six months ended June 30, 2007 of
approximately $12 million and $13 million, respectively. In April
2007, Charter Holdings completed a tender offer resulting in a loss on
extinguishment of debt for each of the three and six months ended June 30, 2007
of approximately $3 million and CCO Holdings redeemed $550 million of senior
floating rate notes resulting in a loss on extinguishment of debt for each of
the three and six months ended June 30, 2007 of approximately $19
million.
|
12.
|
Income
Taxes
|
Charter
Holdings, CCH II, and CCO Holdings are single member limited liability companies
not subject to income tax and hold all operations through indirect
subsidiaries. The majority of these indirect subsidiaries are limited
liability companies that are also not subject to income tax. However,
certain of the limited liability companies are subject to state income
tax. In addition, certain of the Companies’ indirect subsidiaries are
corporations subject to federal and state income tax.
As of
June 30, 2008 and December 31, 2007, the Companies had net deferred income tax
liabilities of approximately $226 million. The deferred tax
liabilities relate to certain of the Companies’ indirect subsidiaries that file
separate income tax returns.
Income
tax expense is recognized through current federal and state income tax expense,
as well as, increases to the related deferred tax liabilities of certain of the
Companies’ indirect subsidiaries. During the three month periods
ended June 30, 2008 and 2007, the Companies recorded no income tax expense and
$1 million of income tax benefit,
24
CHARTER
COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH
II, LLC AND SUBSIDIARIES
CCO
HOLDINGS, LLC AND SUBSIDIARIES
COMBINED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars
in millions, except where indicated)
respectively. During
the six months ended June 30, 2008 and 2007, the Companies recorded $2 million
and $1 million of income tax expense, respectively.
Charter
and Charter Holdco, the Companies’ indirect parent companies, received
notification from the Internal Revenue Service (“IRS”) examining agent that no
changes to the 2004 and 2005 tax returns would be required as a result of their
examination. These findings are subject to the IRS Area Director’s
approval.
13. Related
Party Transactions
The
following sets forth certain transactions in which the Companies and the
directors, executive officers, and affiliates of the Companies are
involved. Unless otherwise disclosed, management believes each of the
transactions described below was on terms no less favorable to the Companies
than could have been obtained from independent third parties.
Digeo,
Inc.
Mr. Paul
G. Allen, the controlling shareholder of Charter, through his 100% ownership of
Vulcan Ventures Incorporated (“Vulcan Ventures”), owns a majority interest in
Digeo, Inc. on a fully-converted fully-diluted basis. Ms. Jo Allen
Patton is a director of Charter and a director and Vice President of Vulcan
Ventures. Mr. Lance Conn is a director of Charter and is Executive
Vice President of Vulcan Ventures. Currently, Charter Operating owns
1.8% of Digeo, Inc.’s common stock.
In May
2008, Charter Operating entered into an agreement with Digeo Interactive, LLC, a
subsidiary of Digeo, Inc., for the minimum purchase of high-definition DVR units
for approximately $21 million. This minimum purchase commitment is
subject to reduction as a result of certain specified events such as the failure
to deliver units timely and catastrophic failure. The software
for these units is being supplied under a software license agreement with Digeo
Interactive, LLC; the cost of which is expected to be approximately $2 million
for the initial licenses and on-going maintenance fees of approximately $0.3
million annually, subject to reduction to coincide with any reduction in the
minimum purchase commitment. For the six months ended June 30, 2008,
Charter has not purchased any units from Digeo Interactive, LLC under these
agreements.
14. Contingencies
The
Companies and their parents are defendants or co-defendants in several
unrelated lawsuits claiming infringement of various patents relating to various
aspects of their businesses. Other industry participants are
also defendants in certain of these cases, and, in many cases, the Companies
expect that any potential liability would be the responsibility of their
equipment vendors pursuant to applicable contractual indemnification provisions.
In the event that a court ultimately determines that the Companies infringe on
any intellectual property rights, they may be subject to substantial damages
and/or an injunction that could require the Companies or their vendors to modify
certain products and services the Companies offer to their
subscribers. While the Companies believe the lawsuits are without
merit and intend to defend the actions vigorously, the lawsuits could be
material to the Companies’ consolidated results of operations of any one period,
and no assurance can be given that any adverse outcome would not be material to
the Companies’ consolidated financial condition, results of operations or
liquidity.
In the
ordinary course of business, the Companies and their parent companies may face
employment law claims, including claims under the Fair Labor Standards Act and
wage and hour laws of the states in which we operate. On August 15, 2007,
a complaint was filed, on behalf of both nationwide and state of Wisconsin
classes of certain categories of current and former technicians, against Charter
Communications, LLC, a subsidiary of the Companies, and Charter Communications,
Inc. in the United States District Court for the Western District of Wisconsin
(Sjoblom v. Charter Communications, LLC and Charter Communications, Inc.),
alleging that such entities violated the Fair Labor Standards Act and Wisconsin
wage and hour laws by failing to pay technicians for certain hours claimed to
have
25
CHARTER
COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH
II, LLC AND SUBSIDIARIES
CCO
HOLDINGS, LLC AND SUBSIDIARIES
COMBINED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars
in millions, except where indicated)
been
worked. While the defendants believe they have substantial factual and
legal defenses to the claims at issue, in order to avoid the cost and
distraction of continuing to litigate the case, the Companies and their parent
companies are in active negotiations with the plaintiffs to reach a
settlement, which would be subject to the approval of the court. The
Companies have accrued expected settlement costs associated with the Sjoblom
case (see Note 10). If the Companies were subjected, in the normal
course of business, to the assertion of other similar claims in other
jurisdictions, the Companies could not predict the ultimate outcome of any such
proceedings or claims.
The
Companies and their parent companies are party to other lawsuits and claims that
arise in the ordinary course of conducting their business. The
ultimate outcome of these other legal matters pending against the Companies or
their parent companies cannot be predicted. Although such
lawsuits and claims, including the employment law claims discussed above, are
not expected individually to be material to the Companies’ consolidated
financial condition, results of operations or liquidity, such lawsuits and
claims could be, in the aggregate, material to the Companies’ consolidated
financial condition, results of operations or liquidity.
15. Stock
Compensation Plans
Charter
has stock compensation plans (the “Plans”) which provide 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 (shares of restricted stock not to exceed 20.0
million shares of Charter Class A common stock), as each term is defined in the
Plans. Employees, officers, consultants and directors of Charter and
its subsidiaries and affiliates are eligible to receive grants under the
Plans. Options granted generally vest over four years from the grant
date, with 25% generally vesting on the first anniversary of the grant date and
ratably thereafter. Generally, options expire 10 years from the
grant date. Restricted stock vests annually over a one to three-year
period beginning from the date of grant. The 2001 Stock Incentive
Plan allows for the issuance of up to a total of 90.0 million shares of Charter
Class A common stock (or units convertible into Charter Class A common
stock). In March 2008, Charter adopted an incentive program to allow
for performance cash. Under the incentive program, performance units
under the 2001 Stock Incentive Plan and performance cash are deposited into a
performance bank of which one-third of the balance is paid out each year,
subject to meeting performance criteria. During the three and six
months ended June 30, 2008, Charter granted 0.7 million and 10.4 million shares
of restricted stock, respectively. During the six months ended June
30, 2008, Charter granted 11.5 million performance units and $8 million of
performance cash under Charter’s 2008 incentive
program.
The
Companies recorded $8 million and $5 million of stock compensation expense for
the three months ended June 30, 2008 and 2007, respectively, and $16 million and
$10 million for the six months ended June 30, 2008 and 2007, respectively, which
is included in selling, general, and administrative expense.
16. Recently
Issued Accounting Standards
In March
2008, the FASB issued SFAS 161, Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No.
133, which requires companies to disclose their objectives and strategies
for using derivative instruments, whether or not designated as hedging
instruments under SFAS 133. SFAS 161 is effective for interim periods
and fiscal years beginning after November 15, 2008. The Companies
will adopt SFAS 161 effective January 1, 2009. The Companies are
currently assessing the impact of SFAS 161 on their financial
statements.
In April
2008, the FASB issued FSP FAS 142-3, Determination of the Useful Life of
Intangible Assets, which amends the factors to be considered in renewal
or extension assumptions used to determine the useful life of a recognized
intangible asset. FSP FAS 142-3 is effective for interim periods and
fiscal years beginning after December 15, 2008. The Companies will
adopt FSP FAS 142-3 effective January 1, 2009. The Companies are
currently assessing the impact of FSP FAS 142-3 on their financial
statements.
26
CHARTER
COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH
II, LLC AND SUBSIDIARIES
CCO
HOLDINGS, LLC AND SUBSIDIARIES
COMBINED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars
in millions, except where indicated)
In May
2008, the FASB issued FSP APB 14-1, Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement), which specifies that issuers of convertible debt instruments
that may be settled in cash upon conversion should separately account for the
liability and equity components in a manner reflecting their nonconvertible debt
borrowing rate when interest costs are recognized in subsequent
periods. FSP APB 14-1 is effective for interim periods and fiscal
years beginning after December 15, 2008. The Companies will adopt FSP
APB 14-1 effective January 1, 2009. The Companies are currently
assessing the impact of FSP APB 14-1 on their financial statements.
The
Companies do not believe that any other recently issued, but not yet effective
accounting pronouncements, if adopted, would have a material effect on their
accompanying financial statements.
17. Consolidating
Schedules
The
CCH II notes and CCH I notes issued in September 2006 and the CIH
notes and CCH I notes issued in September 2005, are obligations of CIH,
CCH I and CCH II, however, they are also jointly, severally, fully and
unconditionally guaranteed on an unsecured senior basis by Charter
Holdings.
The
accompanying condensed consolidating financial information has been prepared and
presented pursuant to SEC Regulation S-X Rule 3-10, Financial Statements of Guarantors
and Affiliates Whose Securities Collateralize an Issue Registered or Being
Registered. This information is not intended to present the financial
position, results of operations and cash flows of the individual companies or
groups of companies in accordance with generally accepted accounting
principles.
Condensed
consolidating financial statements as of June 30, 2008 and December 31,
2007 and for the six months ended June 30, 2008 and 2007 follow.
27
CHARTER
COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH
II, LLC AND SUBSIDIARIES
CCO
HOLDINGS, LLC AND SUBSIDIARIES
COMBINED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars
in millions, except where indicated)
|
Charter
Holdings
|
|||||||||||||||||||||
|
Condensed
Consolidating Balance Sheet
|
|||||||||||||||||||||
|
As
of June 30, 2008
|
|||||||||||||||||||||
|
Charter
Holdings
|
CIH
|
CCH
I
|
CCH
II
|
All
Other Subsidiaries
|
Eliminations
|
Charter
Holdings
Consolidated
|
|||||||||||||||
|
ASSETS
|
|||||||||||||||||||||
|
CURRENT
ASSETS:
|
|||||||||||||||||||||
|
Cash
and cash equivalents
|
$ | -- | $ | -- | $ | -- | $ | -- | $ | 62 | $ | -- | $ | 62 | |||||||
|
Short-term
investments
|
-- | 2 | 4 | 5 | 2 | -- | 13 | ||||||||||||||
|
Accounts
receivable, net
|
-- | -- | -- | -- | 242 | -- | 242 | ||||||||||||||
|
Receivables
from related party
|
19 | -- | -- | 1 | -- | (20 | ) | -- | |||||||||||||
|
Prepaid
expenses and other current assets
|
-- | -- | -- | -- | 23 | -- | 23 | ||||||||||||||
|
Total
current assets
|
19 | 2 | 4 | 6 | 329 | (20 | ) | 340 | |||||||||||||
|
INVESTMENT
IN CABLE PROPERTIES:
|
|||||||||||||||||||||
|
Property,
plant and equipment, net
|
-- | -- | -- | -- | 5,077 | -- | 5,077 | ||||||||||||||
|
Franchises,
net
|
-- | -- | -- | -- | 8,935 | -- | 8,935 | ||||||||||||||
|
Total
investment in cable properties, net
|
-- | -- | -- | -- | 14,012 | -- | 14,012 | ||||||||||||||
|
INVESTMENT
IN SUBSIDIARIES
|
-- | -- | -- | 1,421 | -- | (1,421 | ) | -- | |||||||||||||
|
OTHER
NONCURRENT ASSETS
|
2 | 17 | 42 | 16 | 217 | -- | 294 | ||||||||||||||
|
Total
assets
|
$ | 21 | $ | 19 | $ | 46 | $ | 1,443 | $ | 14,558 | $ | (1,441 | ) | $ | 14,646 | ||||||
|
LIABILITIES
AND MEMBER’S EQUITY (DEFICIT)
|
|||||||||||||||||||||
|
CURRENT
LIABILITIES:
|
|||||||||||||||||||||
|
Accounts
payable and accrued expenses
|
$ | 19 | $ | 83 | $ | 110 | $ | 72 | $ | 910 | $ | -- | $ | 1,194 | |||||||
|
Payables
to related party
|
-- | 2 | 5 | -- | 178 | (20 | ) | 165 | |||||||||||||
|
Total
current liabilities
|
19 | 85 | 115 | 72 | 1,088 | (20 | ) | 1,359 | |||||||||||||
|
LONG-TERM
DEBT
|
543 | 2,534 | 4,077 | 2,453 | 10,508 | -- | 20,115 | ||||||||||||||
|
LOANS
PAYABLE (RECEIVABLE) – RELATED PARTY
|
35 | -- | -- | (227 | ) | 342 | -- | 150 | |||||||||||||
|
DEFERRED
MANAGEMENT FEES – RELATED PARTY
|
-- | -- | -- | -- | 14 | -- | 14 | ||||||||||||||
|
OTHER
LONG-TERM LIABILITIES
|
-- | -- | -- | -- | 510 | -- | 510 | ||||||||||||||
|
MINORITY
INTEREST
|
-- | -- | (472 | ) | -- | 675 | -- | 203 | |||||||||||||
|
LOSSES
IN EXCESS OF INVESTMENT
|
7,129 | 4,529 | 855 | -- | -- | (12,513 | ) | -- | |||||||||||||
|
MEMBER’S
EQUITY (DEFICIT)
|
(7,705 | ) | (7,129 | ) | (4,529 | ) | (855 | ) | 1,421 | 11,092 | (7,705 | ) | |||||||||
|
Total
liabilities and member’s equity (deficit)
|
$ | 21 | $ | 19 | $ | 46 | $ | 1,443 | $ | 14,558 | $ | (1,441 | ) | $ | 14,646 | ||||||
28
CHARTER
COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH
II, LLC AND SUBSIDIARIES
CCO
HOLDINGS, LLC AND SUBSIDIARIES
COMBINED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars
in millions, except where indicated)
|
Charter
Holdings
|
|||||||||||||||||||||
|
Condensed
Consolidating Balance Sheet
|
|||||||||||||||||||||
|
As
of December 31, 2007
|
|||||||||||||||||||||
|
Charter
Holdings
|
CIH
|
CCH
I
|
CCH
II
|
All
Other Subsidiaries
|
Eliminations
|
Charter
Holdings Consolidated
|
|||||||||||||||
|
ASSETS
|
|||||||||||||||||||||
|
CURRENT
ASSETS:
|
|||||||||||||||||||||
|
Cash
and cash equivalents
|
$ | -- | $ | 2 | $ | 4 | $ | 5 | $ | 2 | $ | -- | $ | 13 | |||||||
|
Accounts
receivable, net
|
-- | -- | -- | -- | 220 | -- | 220 | ||||||||||||||
|
Receivables
from related party
|
19 | -- | -- | 11 | -- | (30 | ) | -- | |||||||||||||
|
Prepaid
expenses and other current assets
|
-- | -- | -- | -- | 24 | -- | 24 | ||||||||||||||
|
Total
current assets
|
19 | 2 | 4 | 16 | 246 | (30 | ) | 257 | |||||||||||||
|
INVESTMENT
IN CABLE PROPERTIES:
|
|||||||||||||||||||||
|
Property,
plant and equipment, net
|
-- | -- | -- | -- | 5,072 | -- | 5,072 | ||||||||||||||
|
Franchises,
net
|
-- | -- | -- | -- | 8,942 | -- | 8,942 | ||||||||||||||
|
Total
investment in cable properties, net
|
-- | -- | -- | -- | 14,014 | -- | 14,014 | ||||||||||||||
|
INVESTMENT
IN SUBSIDIARIES
|
-- | -- | -- | 1,912 | -- | (1,912 | ) | -- | |||||||||||||
|
OTHER
NONCURRENT ASSETS
|
3 | 17 | 44 | 19 | 186 | -- | 269 | ||||||||||||||
|
Total
assets
|
$ | 22 | $ | 19 | $ | 48 | $ | 1,947 | $ | 14,446 | $ | (1,942 | ) | $ | 14,540 | ||||||
|
LIABILITIES
AND MEMBER’S EQUITY (DEFICIT)
|
|||||||||||||||||||||
|
CURRENT
LIABILITIES:
|
|||||||||||||||||||||
|
Accounts
payable and accrued expenses
|
$ | 19 | $ | 83 | $ | 109 | $ | 72 | $ | 929 | $ | -- | $ | 1,212 | |||||||
|
Payables
to related party
|
-- | 1 | 5 | -- | 192 | (30 | ) | 168 | |||||||||||||
|
Total
current liabilities
|
19 | 84 | 114 | 72 | 1,121 | (30 | ) | 1,380 | |||||||||||||
|
LONG-TERM
DEBT
|
578 | 2,534 | 4,083 | 2,452 | 9,859 | -- | 19,506 | ||||||||||||||
|
LOANS
PAYABLE (RECEIVABLE) – RELATED PARTY
|
-- | -- | -- | (209 | ) | 332 | -- | 123 | |||||||||||||
|
DEFERRED
MANAGEMENT FEES – RELATED PARTY
|
-- | -- | -- | -- | 14 | -- | 14 | ||||||||||||||
|
OTHER
LONG-TERM LIABILITIES
|
-- | -- | -- | -- | 545 | -- | 545 | ||||||||||||||
|
MINORITY
INTEREST
|
-- | -- | (464 | ) | -- | 663 | -- | 199 | |||||||||||||
|
LOSSES
IN EXCESS OF INVESTMENT
|
6,652 | 4,053 | 368 | -- | -- | (11,073 | ) | -- | |||||||||||||
|
MEMBER’S
EQUITY (DEFICIT)
|
(7,227 | ) | (6,652 | ) | (4,053 | ) | (368 | ) | 1,912 | 9,161 | (7,227 | ) | |||||||||
|
Total
liabilities and member’s equity (deficit)
|
$ | 22 | $ | 19 | $ | 48 | $ | 1,947 | $ | 14,446 | $ | (1,942 | ) | $ | 14,540 | ||||||
29
CHARTER
COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH
II, LLC AND SUBSIDIARIES
CCO
HOLDINGS, LLC AND SUBSIDIARIES
COMBINED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars
in millions, except where indicated)
|
Charter
Holdings
|
|||||||||||||||||||||
|
Condensed
Consolidating Statement of Operations
|
|||||||||||||||||||||
|
For
the six months ended June 30, 2008
|
|||||||||||||||||||||
|
Charter
Holdings
|
CIH
|
CCH
I
|
CCH
II
|
All
Other Subsidiaries
|
Eliminations
|
Charter
Holdings Consolidated
|
|||||||||||||||
|
REVENUES
|
$ | -- | $ | -- | $ | -- | $ | -- | $ | 3,187 | $ | -- | $ | 3,187 | |||||||
|
COSTS
AND EXPENSES:
|
|||||||||||||||||||||
|
Operating
(excluding depreciation and amortization)
|
-- | -- | -- | -- | 1,380 | -- | 1,380 | ||||||||||||||
|
Selling,
general and administrative
|
-- | -- | -- | -- | 687 | -- | 687 | ||||||||||||||
|
Depreciation
and amortization
|
-- | -- | -- | -- | 649 | -- | 649 | ||||||||||||||
|
Other
operating expenses, net
|
-- | -- | -- | -- | 36 | -- | 36 | ||||||||||||||
| -- | -- | -- | -- | 2,752 | -- | 2,752 | |||||||||||||||
|
Operating
income
|
-- | -- | -- | -- | 435 | -- | 435 | ||||||||||||||
|
OTHER
INCOME AND (EXPENSES):
|
|||||||||||||||||||||
|
Interest
expense, net
|
(33 | ) | (148 | ) | (216 | ) | (121 | ) | (395 | ) | -- | (913 | ) | ||||||||
|
Other
income (expense), net
|
-- | -- | 8 | -- | (8 | ) | -- | -- | |||||||||||||
|
Equity
in losses of subsidiaries
|
(447 | ) | (299 | ) | (91 | ) | 30 | -- | 807 | -- | |||||||||||
| (480 | ) | (447 | ) | (299 | ) | (91 | ) | (403 | ) | 807 | (913 | ) | |||||||||
|
Income
(loss) before income taxes
|
(480 | ) | (447 | ) | (299 | ) | (91 | ) | 32 | 807 | (478 | ) | |||||||||
|
INCOME
TAX EXPENSE
|
-- | -- | -- | -- | (2 | ) | -- | (2 | ) | ||||||||||||
|
Net
income (loss)
|
$ | (480 | ) | $ | (447 | ) | $ | (299 | ) | $ | (91 | ) | $ | 30 | $ | 807 | $ | (480 | ) | ||
30
CHARTER
COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH
II, LLC AND SUBSIDIARIES
CCO
HOLDINGS, LLC AND SUBSIDIARIES
COMBINED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars
in millions, except where indicated)
|
Charter
Holdings
|
|||||||||||||||||||||
|
Condensed
Consolidating Statement of Operations
|
|||||||||||||||||||||
|
For
the six months ended June 30, 2007
|
|||||||||||||||||||||
|
Charter
Holdings
|
CIH
|
CCH
I
|
CCH
II
|
All
Other Subsidiaries
|
Eliminations
|
Charter
Holdings Consolidated
|
|||||||||||||||
|
REVENUES
|
$ | -- | $ | -- | $ | -- | $ | -- | $ | 2,924 | $ | -- | $ | 2,924 | |||||||
| -- | -- | -- | -- | -- | |||||||||||||||||
|
COSTS
AND EXPENSES:
|
|||||||||||||||||||||
|
Operating
(excluding depreciation and amortization)
|
-- | -- | -- | -- | 1,278 | -- | 1,278 | ||||||||||||||
|
Selling,
general and administrative
|
-- | -- | -- | -- | 620 | -- | 620 | ||||||||||||||
|
Depreciation
and amortization
|
-- | -- | -- | -- | 665 | -- | 665 | ||||||||||||||
|
Other
operating expenses, net
|
-- | -- | -- | -- | 5 | -- | 5 | ||||||||||||||
| -- | -- | -- | -- | 2,568 | -- | 2,568 | |||||||||||||||
|
Income
from operations
|
-- | -- | -- | -- | 356 | -- | 356 | ||||||||||||||
|
OTHER
INCOME AND (EXPENSES):
|
|||||||||||||||||||||
|
Interest
expense, net
|
(37 | ) | (147 | ) | (216 | ) | (120 | ) | (386 | ) | -- | (906 | ) | ||||||||
|
Other
income (expense), net
|
(3 | ) | -- | 7 | -- | (38 | ) | -- | (34 | ) | |||||||||||
|
Equity
in losses of subsidiaries
|
(545 | ) | (398 | ) | (189 | ) | (69 | ) | -- | 1,201 | -- | ||||||||||
| (585 | ) | (545 | ) | (398 | ) | (189 | ) | (424 | ) | 1,201 | (940 | ) | |||||||||
|
Loss
before income taxes
|
(585 | ) | (545 | ) | (398 | ) | (189 | ) | (68 | ) | 1,201 | (584 | ) | ||||||||
|
INCOME
TAX EXPENSE
|
-- | -- | -- | -- | (1 | ) | -- | (1 | ) | ||||||||||||
|
Net
loss
|
$ | (585 | ) | $ | (545 | ) | $ | (398 | ) | $ | (189 | ) | $ | (69 | ) | $ | 1,201 | $ | (585 | ) | |
31
CHARTER
COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH
II, LLC AND SUBSIDIARIES
CCO
HOLDINGS, LLC AND SUBSIDIARIES
COMBINED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars
in millions, except where indicated)
|
Charter
Holdings
|
|||||||||||||||||||||
|
Condensed
Consolidating Statement of Cash Flows
|
|||||||||||||||||||||
|
For
the six months ended June 30, 2008
|
|||||||||||||||||||||
|
Charter
Holdings
|
CIH
|
CCH
I
|
CCH
II
|
All
Other Subsidiaries
|
Eliminations
|
Charter
Holdings Consolidated
|
|||||||||||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|||||||||||||||||||||
|
Net
loss
|
$ | (480 | ) | $ | (447 | ) | $ | (299 | ) | $ | (91 | ) | $ | 30 | $ | 807 | $ | (480 | ) | ||
|
Adjustments
to reconcile net loss to net cash flows from operating
activities:
|
|||||||||||||||||||||
|
Depreciation
and amortization
|
-- | -- | -- | -- | 649 | -- | 649 | ||||||||||||||
|
Noncash
interest expense
|
1 | 1 | (3 | ) | 3 | 10 | -- | 12 | |||||||||||||
|
Equity
in losses of subsidiaries
|
447 | 299 | 91 | (30 | ) | -- | (807 | ) | -- | ||||||||||||
|
Other,
net
|
-- | -- | (8 | ) | -- | 26 | -- | 18 | |||||||||||||
|
Changes
in operating assets and liabilities, net of effects from
dispositions:
|
|||||||||||||||||||||
|
Accounts
receivable
|
-- | -- | -- | -- | (22 | ) | -- | (22 | ) | ||||||||||||
|
Prepaid
expenses and other assets
|
-- | -- | -- | -- | 1 | -- | 1 | ||||||||||||||
|
Accounts
payable, accrued expenses and other
|
-- | -- | -- | -- | 16 | -- | 16 | ||||||||||||||
|
Receivables
from and payables to related party, including deferred management
fees
|
-- | -- | -- | (7 | ) | (7 | ) | -- | (14 | ) | |||||||||||
|
Net
cash flows from operating activities
|
(32 | ) | (147 | ) | (219 | ) | (125 | ) | 703 | -- | 180 | ||||||||||
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|||||||||||||||||||||
|
Purchases
of property, plant and equipment
|
-- | -- | -- | -- | (650 | ) | -- | (650 | ) | ||||||||||||
|
Change
in accrued expenses related to capital expenditures
|
-- | -- | -- | -- | (41 | ) | -- | (41 | ) | ||||||||||||
|
Other,
net
|
-- | (2 | ) | (4 | ) | (5 | ) | -- | -- | (11 | ) | ||||||||||
|
Net
cash flows from investing activities
|
-- | (2 | ) | (4 | ) | (5 | ) | (691 | ) | -- | (702 | ) | |||||||||
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|||||||||||||||||||||
|
Borrowings
of long-term debt
|
-- | -- | -- | -- | 1,765 | -- | 1,765 | ||||||||||||||
|
Repayments
of long-term debt
|
-- | -- | -- | -- | (1,118 | ) | -- | (1,118 | ) | ||||||||||||
|
Repayments
of related parties
|
-- | -- | -- | -- | (12 | ) | -- | (12 | ) | ||||||||||||
|
Payments
for debt issuance costs
|
-- | -- | -- | -- | (39 | ) | -- | (39 | ) | ||||||||||||
|
Net
contributions (distributions)
|
32 | 147 | 219 | 125 | (539 | ) | -- | (16 | ) | ||||||||||||
|
Other,
net
|
-- | -- | -- | -- | (9 | ) | -- | (9 | ) | ||||||||||||
|
Net
cash flows from financing activities
|
32 | 147 | 219 | 125 | 48 | -- | 571 | ||||||||||||||
|
NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
-- | (2 | ) | (4 | ) | (5 | ) | 60 | -- | 49 | |||||||||||
|
CASH
AND CASH EQUIVALENTS, beginning of period
|
-- | 2 | 4 | 5 | 2 | -- | 13 | ||||||||||||||
|
CASH
AND CASH EQUIVALENTS, end of period
|
$ | -- | $ | -- | $ | -- | $ | -- | $ | 62 | $ | -- | $ | 62 | |||||||
32
CHARTER
COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH
II, LLC AND SUBSIDIARIES
CCO
HOLDINGS, LLC AND SUBSIDIARIES
COMBINED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars
in millions, except where indicated)
|
Charter
Holdings
|
||||||||||||||||||||||
|
Condensed
Consolidating Statement of Cash Flows
|
||||||||||||||||||||||
|
For
the six months ended June 30, 2007
|
||||||||||||||||||||||
|
Charter
Holdings
|
CIH
|
CCH
I
|
CCH
II
|
All
Other Subsidiaries
|
Eliminations
|
Charter
Holdings Consolidated
|
||||||||||||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||||||||||||||||
|
Net
loss
|
$ | (585 | ) | $ | (545 | ) | $ | (398 | ) | $ | (189 | ) | $ | (69 | ) | $ | 1,201 | $ | (585 | ) | ||
|
Adjustments
to reconcile net loss to net cash flows from operating
activities:
|
||||||||||||||||||||||
|
Depreciation
and amortization
|
-- | -- | -- | -- | 665 | -- | 665 | |||||||||||||||
|
Noncash
interest expense
|
1 | 1 | (2 | ) | 3 | 9 | -- | 12 | ||||||||||||||
|
Deferred
income taxes
|
-- | -- | -- | -- | (3 | ) | (3 | ) | ||||||||||||||
|
Equity
in losses of subsidiaries
|
545 | 398 | 189 | 69 | -- | (1,201 | ) | -- | ||||||||||||||
|
Other,
net
|
2 | -- | (7 | ) | -- | 39 | -- | 34 | ||||||||||||||
|
Changes
in operating assets and liabilities, net of effects from acquisitions and
dispositions:
|
||||||||||||||||||||||
|
Accounts
receivable
|
-- | -- | -- | -- | (26 | ) | -- | (26 | ) | |||||||||||||
|
Prepaid
expenses and other assets
|
-- | -- | -- | -- | 2 | -- | 2 | |||||||||||||||
|
Accounts
payable, accrued expenses and other
|
(5 | ) | 11 | -- | (1 | ) | 1 | -- | 6 | |||||||||||||
|
Receivables
from and payables to related party, including
deferred
management
fees
|
(5 | ) | -- | -- | (8 | ) | 9 | -- | (4 | ) | ||||||||||||
|
Net
cash flows from operating activities
|
(47 | ) | (135 | ) | (218 | ) | (126 | ) | 627 | -- | 101 | |||||||||||
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||||||||||||||||
|
Purchases
of property, plant and equipment
|
-- | -- | -- | -- | (579 | ) | -- | (579 | ) | |||||||||||||
|
Change
in accrued expenses related to capital expenditures
|
-- | -- | -- | -- | (39 | ) | -- | (39 | ) | |||||||||||||
|
Other,
net
|
-- | -- | -- | -- | 31 | -- | 31 | |||||||||||||||
|
Net
cash flows from investing activities
|
-- | -- | -- | -- | (587 | ) | -- | (587 | ) | |||||||||||||
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||||||||||||||||
|
Borrowings
of long-term debt
|
-- | -- | -- | -- | 7,247 | -- | 7,247 | |||||||||||||||
|
Repayments
of long-term debt
|
(389 | ) | -- | -- | -- | (6,338 | ) | -- | (6,727 | ) | ||||||||||||
|
Payments
for debt issuance costs
|
-- | -- | -- | -- | (33 | ) | -- | (33 | ) | |||||||||||||
|
Net
contributions (distributions)
|
436 | 134 | 219 | 127 | (915 | ) | -- | 1 | ||||||||||||||
|
Net
cash flows from financing activities
|
47 | 134 | 219 | 127 | (39 | ) | -- | 488 | ||||||||||||||
|
NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
-- | (1 | ) | 1 | 1 | 1 | -- | 2 | ||||||||||||||
|
CASH
AND CASH EQUIVALENTS, beginning of period
|
-- | 3 | 3 | 4 | 28 | -- | 38 | |||||||||||||||
|
CASH
AND CASH EQUIVALENTS, end of period
|
$ | -- | $ | 2 | $ | 4 | $ | 5 | $ | 29 | $ | -- | $ | 40 | ||||||||
33
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations.
|
General
Charter
Communications Holdings, LLC ("Charter Holdings") is a holding company whose
principal assets at June 30, 2008 are the equity interests in its subsidiaries,
which include CCH II, LLC (“CCH II”) and CCO Holdings, LLC (“CCO
Holdings”). Charter Holdings, CCH II, and CCO Holdings are indirect
subsidiaries of Charter Communications Holding Company, LLC ("Charter Holdco"),
which is a subsidiary of Charter Communications, Inc. (“Charter”).
We
operate broadband communications businesses in the United States with
approximately 5.6 million customers at June 30, 2008. Through our
hybrid fiber and coaxial cable network, we offer our customers traditional cable
video programming (basic and digital, which we refer to as “video” service),
high-speed Internet service, and telephone services, as well as, advanced
broadband services (such as OnDemand high definition television service, and
DVR). Results for Charter Holdings, CCH II, and CCO Holdings are
discussed below. Because all operating activities take place at our
subsidiary, Charter Communications Operating, LLC (“Charter Operating”), and its
subsidiaries, results of operations for each of Charter Holdings, CCH II, and
CCO Holdings are identical through income from operations.
The
following table summarizes our customer statistics for basic video, digital
video, residential high-speed Internet, and telephone as of June 30, 2008 and
2007:
|
Approximate
as of
|
||||||||
|
June
30,
|
June
30,
|
|||||||
|
2008 (a)
|
2007
(a)
|
|||||||
|
Video
Cable Services:
|
||||||||
|
Basic
Video:
|
||||||||
|
Residential
(non-bulk) basic video customers (b)
|
4,897,100 | 5,107,800 | ||||||
|
Multi-dwelling
(bulk) and commercial unit customers (c)
|
264,900 | 269,000 | ||||||
|
Total
basic video customers (b)(c)
|
5,162,000 | 5,376,800 | ||||||
|
Digital
Video:
|
||||||||
|
Digital
video customers (d)
|
3,056,900 | 2,866,000 | ||||||
|
Non-Video
Cable Services:
|
||||||||
|
Residential
high-speed Internet customers (e)
|
2,787,300 | 2,583,200 | ||||||
|
Telephone
customers (f)
|
1,175,500 | 700,300 | ||||||
After
giving effect to sales and acquisitions of cable systems in 2007 and 2008, basic
video customers, digital video customers, high-speed Internet customers and
telephone customers would have been 5,323,800, 2,843,800, 2,577,900, and
701,300, respectively, as of June 30, 2007.
|
(a)
|
"Customers"
include all persons our corporate billing records show as receiving
service (regardless of their payment status), except for complimentary
accounts (such as our employees). At June 30, 2008 and 2007,
"customers" include approximately 34,200 and 31,300 persons whose accounts
were over 60 days past due in payment, approximately 5,300 and 3,800
persons whose accounts were over 90 days past due in payment, and
approximately 2,600 and 1,500 of which were over 120 days past due in
payment, respectively.
|
|
(b)
|
"Basic
video customers" include all residential customers who receive video cable
services.
|
|
(c)
|
Included
within "basic video customers" are those in commercial and multi-dwelling
structures, which are calculated on an equivalent bulk unit ("EBU")
basis. EBU is calculated for a system by dividing the bulk
price charged to accounts in an area by the most prevalent price charged
to non-bulk residential customers in that market for the comparable tier
of service. The EBU method of estimating basic video customers
is consistent with the methodology used in determining costs paid to
programmers and has been used
consistently.
|
34
|
(d)
|
"Digital
video customers" include all basic video customers that have one or more
digital set-top boxes or cable cards
deployed.
|
|
(e)
|
"Residential
high-speed Internet customers" represent those residential customers who
subscribe to our high-speed Internet
service.
|
|
(f)
|
"Telephone
customers" include all customers receiving telephone
service.
|
Overview
For the
three months ended June 30, 2008 and 2007, our income from operations was $230
million and $200 million, respectively, and for the six months ended June 30,
2008 and 2007, our income from operations was $435 million and $356 million,
respectively. We had operating margins of 14% and 13% for the three
months ended June 30, 2008 and 2007, respectively, and 14% and 12% for the six
months ended June 30, 2008 and 2007, respectively. The increase in
income from operations and operating margins for the three and six months ended
June 30, 2008 compared to the three and six months ended June 30, 2007 was
principally due to an increase in revenue over cash expenses as a result of
increased customers for high-speed Internet, digital video, and telephone, as
well as overall rate increases.
We have a
history of net losses. Further, we expect to continue to report net
losses for the foreseeable future. Our net losses are principally
attributable to insufficient revenue to cover the combination of operating
expenses and interest expenses we incur because of our high amounts of debt, and
depreciation expenses resulting from the capital investments we have made and
continue to make in our cable properties. We expect that these
expenses will remain significant.
35
RESULTS
OF OPERATIONS
Six
Months Ended June 30, 2008 Compared to Six Months Ended June 30,
2007
The
following table sets forth the percentages of revenues that items in the
accompanying condensed consolidated statements of operations constituted for the
periods presented (dollars in millions):
|
Charter
Holdings
|
||||||||||||||||
|
Six
Months Ended June 30,
|
||||||||||||||||
|
2008
|
2007
|
|||||||||||||||
|
REVENUES
|
$ | 3,187 | 100 | % | $ | 2,924 | 100 | % | ||||||||
|
COSTS
AND EXPENSES:
|
||||||||||||||||
|
Operating
(excluding depreciation and amortization)
|
1,380 | 43 | % | 1,278 | 44 | % | ||||||||||
|
Selling,
general and administrative
|
687 | 22 | % | 620 | 21 | % | ||||||||||
|
Depreciation
and amortization
|
649 | 20 | % | 665 | 23 | % | ||||||||||
|
Other
operating expenses, net
|
36 | 1 | % | 5 | -- | |||||||||||
| 2,752 | 86 | % | 2,568 | 88 | % | |||||||||||
|
Income
from operations
|
435 | 14 | % | 356 | 12 | % | ||||||||||
|
OTHER
INCOME (EXPENSES):
|
||||||||||||||||
|
Interest
expense, net
|
(913 | ) | (906 | ) | ||||||||||||
|
Change
in value of derivatives
|
6 | 5 | ||||||||||||||
|
Other
expense, net
|
(6 | ) | (39 | ) | ||||||||||||
| (913 | ) | (940 | ) | |||||||||||||
|
Loss
before income taxes
|
(478 | ) | (584 | ) | ||||||||||||
|
INCOME
TAX EXPENSE
|
(2 | ) | (1 | ) | ||||||||||||
|
Net
loss
|
$ | (480 | ) | $ | (585 | ) | ||||||||||
36
|
CCH
II
|
||||||||||||||||
|
Six
Months Ended June 30,
|
||||||||||||||||
|
2008
|
2007
|
|||||||||||||||
|
REVENUES
|
$ | 3,187 | 100 | % | $ | 2,924 | 100 | % | ||||||||
|
COSTS
AND EXPENSES:
|
||||||||||||||||
|
Operating
(excluding depreciation and amortization)
|
1,380 | 43 | % | 1,278 | 44 | % | ||||||||||
|
Selling,
general and administrative
|
687 | 22 | % | 620 | 21 | % | ||||||||||
|
Depreciation
and amortization
|
649 | 20 | % | 665 | 23 | % | ||||||||||
|
Other
operating expenses, net
|
36 | 1 | % | 5 | -- | |||||||||||
| 2,752 | 86 | % | 2,568 | 88 | % | |||||||||||
|
Income
from operations
|
435 | 14 | % | 356 | 12 | % | ||||||||||
|
OTHER
INCOME (EXPENSES):
|
||||||||||||||||
|
Interest
expense, net
|
(516 | ) | (506 | ) | ||||||||||||
|
Change
in value of derivatives
|
6 | 5 | ||||||||||||||
|
Other
expense, net
|
(14 | ) | (43 | ) | ||||||||||||
| (524 | ) | (544 | ) | |||||||||||||
|
Loss
before income taxes
|
(89 | ) | (188 | ) | ||||||||||||
|
INCOME
TAX EXPENSE
|
(2 | ) | (1 | ) | ||||||||||||
|
Net
loss
|
$ | (91 | ) | $ | (189 | ) | ||||||||||
|
CCO
Holdings
|
||||||||||||||||
|
Six
Months Ended June 30,
|
||||||||||||||||
|
2008
|
2007
|
|||||||||||||||
|
REVENUES
|
$ | 3,187 | 100 | % | $ | 2,924 | 100 | % | ||||||||
|
COSTS
AND EXPENSES:
|
||||||||||||||||
|
Operating
(excluding depreciation and amortization)
|
1,380 | 43 | % | 1,278 | 44 | % | ||||||||||
|
Selling,
general and administrative
|
687 | 22 | % | 620 | 21 | % | ||||||||||
|
Depreciation
and amortization
|
649 | 20 | % | 665 | 23 | % | ||||||||||
|
Other
operating expenses, net
|
36 | 1 | % | 5 | -- | |||||||||||
| 2,752 | 86 | % | 2,568 | 88 | % | |||||||||||
|
Income
from operations
|
435 | 14 | % | 356 | 12 | % | ||||||||||
|
OTHER
INCOME (EXPENSES):
|
||||||||||||||||
|
Interest
expense, net
|
(395 | ) | (386 | ) | ||||||||||||
|
Change
in value of derivatives
|
6 | 5 | ||||||||||||||
|
Other
expense, net
|
(14 | ) | (43 | ) | ||||||||||||
| (403 | ) | (424 | ) | |||||||||||||
|
Income
(loss) before income taxes
|
32 | (68 | ) | |||||||||||||
|
INCOME
TAX EXPENSE
|
(2 | ) | (1 | ) | ||||||||||||
|
Net
income (loss)
|
$ | 30 | $ | (69 | ) | |||||||||||
37
Revenues. Average
monthly revenue per basic video customer increased to $102 for the six months
ended June 30, 2008 from $88 for the six months ended June 30,
2007. Average monthly revenue per basic video customer represents
total revenue, divided by the number of respective months, divided by the
average number of basic video customers during the respective
period. Revenue growth primarily reflects increases in the number of
telephone, high-speed Internet, and digital video customers, price increases,
and incremental video revenues from OnDemand, DVR, and high-definition
television services, offset by a decrease in basic video
customers. Cable system sales, net of acquisitions, in 2007 reduced
the increase in revenues for the six months ended June 30, 2008 as compared to
the six months ended June 30, 2007 by approximately $18 million.
Revenues
by service offering were as follows (dollars in millions):
|
Six
Months Ended June 30,
|
||||||||||||||||||||||||
|
2008
|
2007
|
2008
over 2007
|
||||||||||||||||||||||
|
Revenues
|
%
of
Revenues
|
Revenues
|
%
of
Revenues
|
Change
|
%
Change
|
|||||||||||||||||||
|
Video
|
$ | 1,732 | 54 | % | $ | 1,697 | 58 | % | $ | 35 | 2 | % | ||||||||||||
|
High-speed
Internet
|
667 | 21 | % | 602 | 21 | % | 65 | 11 | % | |||||||||||||||
|
Telephone
|
255 | 8 | % | 143 | 5 | % | 112 | 78 | % | |||||||||||||||
|
Commercial
|
189 | 6 | % | 164 | 6 | % | 25 | 15 | % | |||||||||||||||
|
Advertising
sales
|
143 | 5 | % | 139 | 4 | % | 4 | 3 | % | |||||||||||||||
|
Other
|
201 | 6 | % | 179 | 6 | % | 22 | 12 | % | |||||||||||||||
| $ | 3,187 | 100 | % | $ | 2,924 | 100 | % | $ | 263 | 9 | % | |||||||||||||
Video
revenues consist primarily of revenues from basic and digital video services
provided to our non-commercial customers. Basic video customers
decreased by 214,800 customers from June 30, 2007, 53,000 of which was related
to asset sales, net of acquisitions, compared to June 30,
2008. Digital video customers increased by 190,900, reduced by the
sale, net of acquisitions, of 22,200 customers. The increases in
video revenues are attributable to the following (dollars in
millions):
|
2008
compared to 2007
Increase
/ (Decrease)
|
||||
|
Incremental
video services and rate adjustments
|
$ | 51 | ||
|
Increase
in digital video customers
|
33 | |||
|
Decrease
in basic video customers
|
(36 | ) | ||
|
System
sales, net of acquisitions
|
(13 | ) | ||
| $ | 35 | |||
High-speed
Internet customers grew by 204,100 customers, reduced by system sales, net of
acquisitions, of 5,300 customers, from June 30, 2007 to June 30,
2008. The increase in high-speed Internet revenues from our
residential customers is attributable to the following (dollars in
millions):
|
2008
compared to 2007
Increase
/ (Decrease)
|
||||
|
Increase
in high-speed Internet customers
|
$ | 61 | ||
|
Rate
adjustments and service upgrades
|
6 | |||
|
System
sales, net of acquisitions
|
(2 | ) | ||
| $ | 65 | |||
Revenues
from telephone services increased primarily as a result of an increase of
475,200 telephone customers (1,000 of which was related to system acquisitions,
net of sales) from June 30, 2007 to June 30, 2008.
38
Commercial
revenues consist primarily of revenues from services provided to our commercial
customers. Commercial revenues increased primarily as a result of
increases in commercial high-speed Internet and telephone customers, offset by
decreases of $1 million related to asset sales, net of acquisitions, for the six
months ended June 30, 2008.
Advertising
sales revenues consist primarily of revenues from commercial advertising
customers, programmers, and other vendors. Advertising sales revenues
for the six months ended June 30, 2008 increased primarily as a result of an
increase in political advertising sales offset by decreased revenues from the
automotive and furniture sectors and decreases of $2 million related to asset
sales, net of acquisitions. For the six months ended June 30, 2008
and 2007, we received $7 million and $6 million, respectively, in advertising
sales revenues from vendors.
Other
revenues consist of franchise fees, regulatory fees, customer installations,
home shopping, late payment fees, wire maintenance fees and other miscellaneous
revenues. For the six months ended June 30, 2008 and 2007, franchise
fees represented approximately 47% and 50%, respectively, of total other
revenues. The increase in other revenues was primarily the result of
increases in franchise and other regulatory fees, wire maintenance fees, and
late payment fees.
Operating
expenses. The increase in
operating expenses is attributable to the following (dollars in
millions):
|
2008
compared to 2007
Increase
/ (Decrease)
|
||||
|
Programming
costs
|
$ | 44 | ||
|
Labor
costs
|
30 | |||
|
Regulatory
taxes
|
14 | |||
|
Maintenance
costs
|
9 | |||
|
Franchise
costs
|
5 | |||
|
Other,
net
|
10 | |||
|
System
sales, net of acquisitions
|
(10 | ) | ||
| $ | 102 | |||
Programming
costs were approximately $819 million and $781 million, representing 59% and 61%
of total operating expenses for the six months ended June 30, 2008 and 2007,
respectively. Programming costs consist primarily of costs paid to
programmers for basic, premium, digital, OnDemand, and pay-per-view
programming. The increase in programming costs is primarily a result
of annual contractual rate adjustments, offset in part by system
sales. Programming costs were impacted by approximately $2 million of
favorable programming contract settlements in the six months ended June 30, 2007
that did not recur in 2008. Programming costs were also offset by the
amortization of payments received from programmers in support of launches of new
channels of $12 million and $10 million for the six months ended June 30, 2008
and 2007, respectively. We expect programming expenses to continue to
increase due to a variety of factors, including annual increases imposed by
programmers, amounts paid for retransmission consent, and additional
programming, including high-definition, OnDemand, and pay-per-view programming,
being provided to our customers.
Labor
costs increased primarily due to an increased headcount to support improved
service levels and telephone deployment.
39
Selling, general
and administrative expenses. The increase in
selling, general and administrative expenses is attributable to the following
(dollars in millions):
|
2008
compared to 2007
Increase
/ (Decrease)
|
||||
|
Employee
costs
|
$ | 21 | ||
|
Marketing
costs
|
15 | |||
|
Bad
debt and collection costs
|
11 | |||
|
Billing
costs
|
8 | |||
|
Stock
compensation costs
|
6 | |||
|
Other,
net
|
9 | |||
|
System
sales, net of acquisitions
|
(3 | ) | ||
| $ | 67 | |||
Depreciation and
amortization. Depreciation and
amortization expense decreased by $16 million for the six months ended June 30,
2008 compared to June 30, 2007 and was primarily the result of certain assets
becoming fully depreciated and the impact of changes in the useful lives of
certain assets during 2007, offset by depreciation on capital
expenditures.
Other operating
expenses, net. For the six months ended June 30, 2008 compared
to June 30, 2007, the increase in other operating expenses, net was primarily
attributable to a $30 million increase in special charges. For more
information, see Note 10 to the accompanying condensed consolidated financial
statements contained in “Item 1. Financial Statements.”
Interest expense,
net.
Charter
Holdings. For the six months ended June 30, 2008 compared to
the six months ended June 30, 2007, net interest expense increased by $7
million, which was a result of average debt outstanding increasing from $19.0
billion for the six months ended June 30, 2007 to $20.0 billion for the six
months ended June 30, 2008, offset by a decrease in our average borrowing rate
from 9.4% for the six months ended June 30, 2007 to 8.9% for the six months
ended June 30, 2008.
CCH
II. For the six months ended June 30, 2008 compared to the six
months ended June 30, 2007, net interest expense increased by $10 million, which
was a result of average debt outstanding increasing from $11.6 billion for the
six months ended June 30, 2007 to $12.8 billion for the six months ended June
30, 2008, offset by a decrease in our average borrowing rate from 8.2% for the
six months ended June 30, 2007 to 7.6% for the six months ended June 30,
2008.
CCO
Holdings. For the six months ended June 30, 2008 compared to
the six months ended June 30, 2007, net interest expense increased by $9
million, which was a result of average debt outstanding increasing from $9.1
billion for the six months ended June 30, 2007 to $10.4 billion for the six
months ended June 30, 2008, offset by a decrease in our average borrowing rate
from 7.7% for the six months ended June 30, 2007 to 6.9% for the six months
ended June 30, 2008.
Other
expense, net (dollars in millions).
|
Charter
Holdings
|
||||
|
2008
compared to 2007
|
||||
|
Decrease in
loss on extinguishment of debt
|
$ | 35 | ||
|
Increase
in minority interest
|
(1 | ) | ||
|
Other,
net
|
(1 | ) | ||
| $ | 33 | |||
40
|
CCH
II and
CCO
Holdings
|
||||
|
2008
compared to 2007
|
||||
|
Decrease in
loss on extinguishment of debt
|
$ | 32 | ||
|
Increase
in minority interest
|
(2 | ) | ||
|
Other,
net
|
(1 | ) | ||
| $ | 29 | |||
For more
information, see Note 11 to the accompanying condensed consolidated financial
statements contained in “Item 1. Financial Statements.”
Change in value
of derivatives. Interest rate swaps are
held to manage our interest costs and reduce our exposure to increases in
floating interest rates. The gain from the change in value of
interest rate swaps increased from $5 million for the six months ended June 30,
2007 to $6 million for the six months ended June 30, 2008.
Income tax
expense. Income tax expense was
recognized for the six months ended June 30, 2008 and 2007, through increases in
deferred tax liabilities and current federal and state income tax expenses of
certain of our indirect subsidiaries.
Net income
(loss). Net
loss at Charter Holdings and CCH II decreased by $105 million, or 18%, and $98
million, or 52%, respectively, for the six months ended June 30, 2008 compared
to the six months ended June 30, 2007, as a result of the factors described
above. For the six months ended June 30, 2008, CCO Holdings generated
net income of $30 million compared to net loss of $69 million for the six months
ended June 30, 2007, as a result of the factors described above.
Liquidity and Capital
Resources
Introduction
This
section contains a discussion of our liquidity and capital resources, including
a discussion of our cash position, sources and uses of cash, access to credit
facilities and other financing sources, historical financing activities, cash
needs, capital expenditures and outstanding debt.
We have
significant amounts of debt. Charter Holdings’, CCH II’s, and CCO
Holdings’ long-term debt as of June 30, 2008 totaled $20.1 billion, $13.0
billion, and $10.5 billion, respectively, consisting of $7.3 billion of credit
facility debt, and $12.8 billion, $5.6 billion, and $3.2 billion accreted value
of high-yield notes, respectively. For the remainder of 2008, $36
million of Charter Operating’s credit facility debt matures. As of
June 30, 2008, an additional $165 million of Charter Holdings’ notes and $70
million of Charter Operating’s credit facility debt matures in
2009. In 2010 and beyond, significant additional amounts will become
due under our remaining long-term debt obligations.
Our
business requires significant cash to fund debt service costs, capital
expenditures and ongoing operations. We have historically funded
these requirements through cash flows from operating activities, borrowings
under our credit facilities, equity contributions from our parent companies,
proceeds from sales of assets, issuances of debt securities, and cash on
hand. However, the mix of funding sources changes from period to
period. For the six months ended June 30, 2008, Charter Holdings, CCH
II, and CCO Holdings generated $180 million, $578 million, and $703 million of
net cash flows from operating activities after paying cash interest of $895
million, $497 million, and $372 million, respectively. In addition,
we used $650 million for purchases of property, plant and
equipment. Finally, Charter Holdings, CCH II, and CCO Holdings
generated net cash flows from financing activities of $571 million, $173
million, and $48 million, respectively, as a result of financing transactions
completed during the six months ended June 30, 2008. We expect that
our mix of sources of funds will continue to change in the future based on
overall needs relative to our cash flow and on the availability of funds under
the Charter Operating credit facilities, our and our parent companies’ access to
the debt markets, Charter’s access to the equity markets, the timing of possible
asset sales, and based on our ability to generate cash flows from operating
activities. On a
41
consolidated
basis, we and our parent companies have a significant level of debt, which
totaled approximately $20.5 billion as of June 30, 2008.
We expect
that cash on hand, cash flows from operating activities, and the amounts
available under Charter Operating’s credit facilities will be adequate to fund
our and our parent companies’ projected cash needs, including scheduled
maturities, through 2009. We believe that cash flows from operating
activities and the amounts available under Charter Operating’s credit facilities
will not be sufficient to fund our and our parent companies’ projected cash
needs in 2010 (primarily as a result of the CCH II $1.9 billion of senior notes
outstanding at July 2, 2008 that mature in September 2010) and
thereafter. Our projected cash needs and projected sources of
liquidity depend upon, among other things, our actual results, the timing and
amount of our capital expenditures, and ongoing compliance with the Charter
Operating credit facilities, including obtaining an unqualified audit opinion
from our independent accountants. Although we and our parent
companies have been able to refinance or otherwise fund the repayment of debt in
the past, we and our parent companies may not be able to access additional
sources of refinancing on similar terms or pricing as those that are currently
in place, or at all, or otherwise obtain other sources of funding. A
continuation of the recent turmoil in the credit markets and the general
economic downturn could adversely impact the terms and/or pricing when we need
to raise additional liquidity.
Access
to Capital
Our
significant amount of debt could negatively affect our ability to access
additional capital in the future. Additionally, our ability to incur
additional debt may be limited by the restrictive covenants in our indentures
and credit facilities. No assurances can be given that we will not
experience liquidity problems if we do not obtain sufficient additional
financing on a timely basis as our debt becomes due or because of adverse market
conditions, increased competition or other unfavorable events. If, at
any time, additional capital or borrowing capacity is required beyond amounts
internally generated or available under our credit facilities, we would
consider:
|
·
|
requesting
that Charter or Charter Holdco issue equity, the proceeds of which
could be loaned or contributed to
us;
|
|
·
|
issuing
debt securities that may have structural or other priority over our
existing notes;
|
|
·
|
further
reducing our expenses and capital expenditures, which may impair our
ability to increase revenue and grow operating cash
flows;
|
|
·
|
selling
assets; or
|
|
·
|
requesting
waivers or amendments with respect to our credit facilities, which may not
be available on acceptable terms, and cannot be
assured.
|
If the
above strategies were not successful, we could be forced to restructure our
obligations or seek protection under the bankruptcy laws. In
addition, if we find it necessary to engage in a recapitalization or other
similar transaction, our noteholders might not receive the full principal and
interest payments to which they are contractually entitled.
Credit
Facility Availability
Our
ability to operate depends upon, among other things, our continued access to
capital, including credit under the Charter Operating credit
facilities. The Charter Operating credit facilities, along with our
indentures and the CCO Holdings credit facility, contain certain restrictive
covenants, some of which require us to maintain specified leverage ratios and
meet financial tests, and provide annual audited financial statements with an
unqualified opinion from our independent accountants. As of June 30,
2008, we were in compliance with the covenants under our indentures and credit
facilities, and we expect to remain in compliance with those covenants for the
next twelve months. As of June 30, 2008, our potential availability
under Charter Operating’s revolving credit facility totaled approximately $1.4
billion, none of which was limited by covenant
restrictions. Continued access to Charter Operating’s revolving
credit facility is subject to our remaining in compliance with these covenants,
including covenants tied to Charter Operating’s leverage ratio and first lien
leverage ratio. If any event of non-compliance were to occur, funding
under the revolving credit facility may not be available and defaults on some or
potentially all of our debt obligations could occur. An event of
default under any of our debt instruments could result in the acceleration of
our payment obligations under that debt and, under certain circumstances, in
cross-defaults under our parent companies’ debt obligations, which could have a
material adverse effect on our consolidated financial condition and results of
operations.
42
Parent
Company Debt Obligations
Any
financial or liquidity problems of our parent companies could cause serious
disruption to our business and have a material adverse effect on our business
and results of operations.
A failure
by Charter Holdings, CCH I Holdings, LLC (“CIH”), CCH I, LLC (“CCH I”), CCH II,
or CCO Holdings to satisfy their debt payment obligations could, or a bankruptcy
with respect to Charter Holdings, CIH, CCH I, CCH II, or CCO Holdings would,
give the lenders under our credit facilities the right to accelerate the payment
obligations under these facilities. Any such acceleration would be a
default under the indenture governing our notes.
Limitations
on Distributions
As long
as Charter’s convertible senior notes remain outstanding and are not otherwise
converted into shares of common stock, Charter must pay interest on the
convertible senior notes and repay the principal amount. Charter’s
ability to make interest payments on its convertible senior notes and to repay
the outstanding principal of its convertible senior notes will depend on its
ability to raise additional capital and/or on receipt of payments or
distributions from Charter Holdco and its subsidiaries. As of June 30,
2008, Charter Holdco was owed $115 million in intercompany loans from Charter
Operating, which amounts were available to pay interest and principal on
Charter's convertible senior notes. In addition, as long as
Charter Holdco continues to hold the $35 million of Charter Holdings’ notes due
2009 and 2010 (as discussed further below), Charter Holdco will receive interest
and principal payments from Charter Holdings. Such amounts may be
available to pay interest and principal on Charter’s convertible senior notes,
although Charter Holdco may use those amounts for other purposes.
Distributions
by Charter’s subsidiaries to a parent company for payment of principal on parent
company notes, are restricted under the indentures governing the CIH notes, CCH
I notes, CCH II notes, CCO Holdings notes, Charter Operating notes, and under
the CCO Holdings credit facility, unless there is no default under the
applicable indenture and credit facilities, and unless each applicable
subsidiary’s leverage ratio test is met at the time of such
distribution. For the quarter ended June 30, 2008, there was no
default under any of these indentures or credit facilities and each subsidiary
met its applicable leverage ratio tests based on June 30, 2008 financial
results. Such distributions would be restricted, however, if any such
subsidiary fails to meet these tests at the time of the contemplated
distribution. In the past, certain subsidiaries have from time to
time failed to meet their leverage ratio test. There can be no
assurance that they will satisfy these tests at the time of the contemplated
distribution. Distributions by Charter Operating for payment of
principal on parent company notes are further restricted by the covenants in the
Charter Operating credit facilities.
Distributions
by CIH, CCH I, CCH II, CCO Holdings, and Charter Operating to a parent company
for payment of parent company interest are permitted if there is no default
under the aforementioned indentures and CCO Holdings credit
facility.
The
indentures governing the Charter Holdings notes permit Charter Holdings to make
distributions to Charter Holdco for payment of interest or principal on
Charter’s convertible senior notes, only if, after giving effect to the
distribution, Charter Holdings can incur additional debt under the leverage
ratio of 8.75 to 1.0, there is no default under Charter Holdings’ indentures,
and other specified tests are met. For the quarter ended June 30,
2008, there was no default under Charter Holdings’ indentures, the other
specified tests were met, and Charter Holdings met its leverage ratio test of
8.75 to 1.0 based on June 30, 2008 financial results. Such distributions
would be restricted, however, if Charter Holdings fails to meet these tests at
the time of the contemplated distribution. In the past, Charter
Holdings has from time to time failed to meet this leverage ratio
test. There can be no assurance that Charter Holdings will satisfy
these tests at the time of the contemplated distribution. During
periods in which distributions are restricted, the indentures governing the
Charter Holdings notes permit Charter Holdings and its subsidiaries to make
specified investments (that are not restricted payments) in Charter Holdco or
Charter, up to an amount determined by a formula, as long as there is no default
under the indentures.
In
addition to the limitation on distributions under the various indentures
discussed above, distributions by our subsidiaries may be limited by applicable
law. See “Risk Factors — Because of our holding company structure,
our outstanding notes are structurally subordinated in right of payment to all
liabilities of our subsidiaries. Restrictions in our subsidiaries’
debt instruments and under applicable law limit their ability to provide funds
to us or our various debt issuers.”
43
Recent Financing
Transactions
On March
19, 2008, Charter Operating issued $546 million principal amount of 10.875%
senior second-lien notes due 2014 (the “Notes"), guaranteed by CCO Holdings and
certain other subsidiaries of Charter Operating, in a private transaction.
The net proceeds of this issuance were used to repay, but not permanently
reduce, the outstanding debt balances under the existing revolving credit
facility of Charter Operating. The Notes were sold to qualified
institutional buyers in reliance on Rule 144A and outside the United States to
non-U.S. persons in reliance on Regulation S.
On March
20, 2008, Charter Operating borrowed $500 million principal amount of
incremental term loans (the "Incremental Term Loans") under the Charter
Operating credit facilities. The net proceeds were used for general
corporate purposes. The Incremental Term Loans have a final maturity of
March 6, 2014 and prior to this date will amortize in quarterly principal
installments totaling 1% annually beginning on June 30, 2008. The
Incremental Term Loans bear interest at LIBOR plus 5.0%, with a LIBOR floor of
3.5%, and are otherwise governed by and subject to the existing terms of the
Charter Operating credit facilities.
In the
second quarter of 2008, Charter Holdco repurchased, in private transactions,
from a small number of institutional holders, a total of approximately $35
million principal amount of various Charter Holdings notes due 2009 and 2010 and
approximately $46 million principal amount of Charter’s 5.875% convertible
senior notes due 2009, for approximately $77 million of cash. Charter
Holdco continues to hold the Charter Holdings notes. The purchased
5.875% convertible senior notes were cancelled resulting in approximately $3
million principal amount of such notes remaining outstanding.
In July
2008, CCH II completed a tender offer, in which $338 million of CCH II’s 10.25%
senior notes due 2010 were accepted for $364 million of CCH II’s 10.25% senior
notes due 2013, which were issued as part of the same series of notes as CCH
II’s $250 million aggregate principal amount of 10.25% senior notes due 2013,
which were issued in September 2006.
Historical
Operating, Investing, and Financing Activities
Cash and Cash
Equivalents. Charter Holdings, CCH II, and CCO Holdings each
held $62 million in cash and cash equivalents as of June 30, 2008 compared to
$13 million, $7 million, and $2 million as of December 31, 2007,
respectively.
Operating
Activities. Net cash provided by
operating activities for Charter Holdings, CCH II, and CCO Holdings was $180
million, $578 million, and $703 million for the six months ended June 30, 2008,
respectively, and $101 million, $501 million, and $627 million for the six
months ended June 30, 2007, respectively. The increases in net cash
provided by operating activities for Charter Holdings, CCH II, and CCO Holdings
were primarily a result of revenues increasing at a faster rate than cash
expenses.
Investing
Activities. Net cash used in
investing activities for Charter Holdings, CCH II, and CCO Holdings was $702
million, $696 million, and $691 million for the six months ended June 30, 2008,
respectively, and $587 million for the six months ended June 30,
2007. The increase is primarily due to an increase of $73 million in
cash used for the purchase of property, plant, and equipment.
Financing
Activities. Net cash provided by
financing activities for Charter Holdings, CCH II, and CCO Holdings was $571
million, $173 million, and $48 million, respectively, for the six months ended
June 30, 2008. For the six months ended June 30, 2007, net cash
provided by financing activities for Charter Holdings and CCH II was $488
million and $88 million, respectively, and net cash used in financing activities
for CCO Holdings was $39 million. The increase in cash provided
during the six months ended June 30, 2008 as compared to the corresponding
period in 2007, for Charter Holdings, was primarily the result of an increase in
the amount by which borrowings exceeded repayments of long-term
debt. The increase in cash provided during the six months ended June
30, 2008 as compared to the corresponding period in 2007, for CCH II and CCO
Holdings was primarily the result of a decrease in distributions.
44
Capital
Expenditures
We have
significant ongoing capital expenditure requirements. Capital
expenditures were $650 million and $579 million for the six months ended June
30, 2008 and 2007, respectively. Capital expenditures increased as a
result of spending on customer premise equipment and support capital to meet
increased digital, high-speed Internet, and telephone customer
growth. See the table below for more
details.
Our
capital expenditures are funded primarily from cash flows from operating
activities, the issuance of debt, and borrowings under our credit
facilities. In addition, during the six months ended June 30, 2008
and 2007, our liabilities related to capital expenditures decreased $41 million
and $39 million, respectively.
During
2008, we expect capital expenditures to be approximately $1.2
billion. We expect the nature of these expenditures will continue to
be composed primarily of purchases of customer premise equipment related to
telephone and other advanced services, support capital, and scalable
infrastructure. We have funded and expect to continue to fund capital
expenditures for 2008 primarily from cash flows from operating activities and
borrowings under our credit facilities. The actual amount of our capital
expenditures depends on the deployment of advanced broadband services and
offerings. We may need additional capital if there is accelerated
growth in high-speed Internet, telephone or digital customers or there is an
increased need to respond to competitive pressures by expanding the delivery of
other advanced services.
We have
adopted capital expenditure disclosure guidance, which was developed by eleven
then publicly traded cable system operators, including Charter, with the support
of the National Cable & Telecommunications Association
("NCTA"). The disclosure is intended to provide more consistency in
the reporting of capital expenditures among peer companies in the cable
industry. These disclosure guidelines are not required disclosures
under GAAP, nor do they impact our accounting for capital expenditures under
GAAP.
The
following table presents our major capital expenditures categories in accordance
with NCTA disclosure guidelines for the six months ended June 30, 2008 and 2007
(dollars in millions):
|
Six
Months Ended
June
30,
|
||||||||
|
2008
|
2007
|
|||||||
|
Customer
premise equipment (a)
|
$ | 323 | $ | 289 | ||||
|
Scalable
infrastructure (b)
|
133 | 100 | ||||||
|
Line
extensions (c)
|
44 | 49 | ||||||
|
Upgrade/Rebuild
(d)
|
29 | 24 | ||||||
|
Support
capital (e)
|
121 | 117 | ||||||
|
Total
capital expenditures
|
$ | 650 | $ | 579 | ||||
|
(a)
|
Customer
premise equipment includes costs incurred at the customer residence to
secure new customers, revenue units and additional bandwidth
revenues. It also includes customer installation costs in
accordance with SFAS No. 51, Financial Reporting by Cable
Television Companies, and customer premise equipment (e.g., set-top
boxes and cable modems, etc.).
|
|
(b)
|
Scalable
infrastructure includes costs, not related to customer premise equipment
or our network, to secure growth of new customers, revenue units and
additional bandwidth revenues or provide service enhancements (e.g.,
headend equipment).
|
|
(c)
|
Line
extensions include network costs associated with entering new service
areas (e.g., fiber/coaxial cable, amplifiers, electronic equipment,
make-ready and design engineering).
|
|
(d)
|
Upgrade/rebuild
includes costs to modify or replace existing fiber/coaxial cable networks,
including betterments.
|
|
(e)
|
Support
capital includes costs associated with the replacement or enhancement of
non-network assets due to technological and physical obsolescence (e.g.,
non-network equipment, land, buildings and
vehicles).
|
45
Interest Rate
Risk
We are
exposed to various market risks, including fluctuations in interest
rates. We use interest rate swap agreements to manage our interest
costs and reduce our exposure to increases in floating interest
rates. Our policy is to manage our exposure to fluctuations in
interest rates by maintaining a mix of fixed and variable rate debt within a
targeted range. Using interest rate swap agreements, we agree to
exchange, at specified intervals through 2013, the difference between fixed and
variable interest amounts calculated by reference to agreed-upon notional
principal amounts.
As of
June 30, 2008 and December 31, 2007, Charter Holdings’, CCH II’s, and CCO
Holdings’ accreted value of consolidated long-term debt, weighted average
interest rates and percentage of debt effectively fixed, including the effects
of our interest rate hedge agreements are as follows (dollars in
millions):
|
|
Consolidated
Charter
Holdings
|
Consolidated
CCH
II
|
Consolidated
CCO
Holdings
|
|||||||||||||||||||||
|
June
30,
2008
|
December
31, 2007
|
June
30,
2008
|
December
31, 2007
|
June
30,
2008
|
December
31, 2007
|
|||||||||||||||||||
|
Consolidated
long-term debt -
accreted
value
|
$ | 20,115 | $ | 19,506 | $ | 12,961 | $ | 12,311 | $ | 10,508 | $ | 9,859 | ||||||||||||
|
Weighted
average interest rate -
credit
facilities
|
6.3 | % | 6.8 | % | 6.3 | % | 6.8 | % | 6.3 | % | 6.8 | % | ||||||||||||
|
Weighted
average interest rate -
high-yield
notes
|
10.4 | % | 10.3 | % | 9.4 | % | 9.1 | % | 8.8 | % | 8.2 | % | ||||||||||||
|
Blended
weighted average
interest
rate
|
8.9 | % | 9.1 | % | 7.7 | % | 7.9 | % | 7.0 | % | 7.3 | % | ||||||||||||
|
Debt
effectively fixed
|
84 | % | 85 | % | 76 | % | 76 | % | 69 | % | 68 | % | ||||||||||||
We do not
hold or issue derivative instruments for trading purposes. We do,
however, have certain interest rate derivative instruments that have been
designated as cash flow hedging instruments. Such instruments
effectively convert variable interest payments on certain 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 each of the three and six months ended June 30, 2008
and 2007, there was no cash flow hedge ineffectiveness on interest rate swap
agreements.
Changes
in the fair value of interest rate agreements that are designated as hedging
instruments of the variability of cash flows associated with floating-rate debt
obligations, and that meet the effectiveness criteria of SFAS No. 133 are
reported in accumulated other comprehensive loss. For the three months ended
June 30, 2008
and 2007, gains of $122 million and $50 million, respectively, and for the six
months ended June 30, 2008 and 2007, gains of $18 million and $48 million,
respectively, related to derivative instruments designated as cash flow hedges,
were recorded in accumulated other comprehensive loss. The amounts are
subsequently reclassified as an increase or decrease to change in value of
derivatives in the same periods 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 a change in value of derivatives in our statements of
operations. For the three months ended June 30, 2008 and
2007, change in value of derivatives included gains of $36 million and $6
million, respectively, and for the six months ended June 30, 2008 and 2007,
gains of $6 million and $5 million, respectively, resulting from 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 June 30, 2008
(dollars in millions):
46
|
2008
|
2009
|
2010
|
2011
|
2012
|
2013
|
Thereafter
|
Total
|
Fair
Value at
June
30, 2008
|
||||||||||||||||||
|
Charter
Holdings Consolidated
|
||||||||||||||||||||||||||
|
Fixed
Rate Debt
|
$
|
--
|
$
|
165
|
$
|
2,220
|
$
|
281
|
$
|
1,175
|
$
|
1,050
|
$
|
7,837
|
$
|
12,728
|
$
|
10,446
|
||||||||
|
Average
Interest Rate
|
--
|
10.18%
|
10.26%
|
11.25%
|
8.26%
|
9.11%
|
10.93%
|
10.41%
|
||||||||||||||||||
|
CCH
II Consolidated
|
||||||||||||||||||||||||||
|
Fixed
Rate Debt
|
$
|
--
|
$
|
--
|
$
|
2,198
|
$
|
--
|
$
|
1,100
|
$
|
1,050
|
$
|
1,316
|
$
|
5,664
|
$
|
5,476
|
||||||||
|
Average
Interest Rate
|
--
|
--
|
10.25%
|
--
|
8.00%
|
9.11%
|
9.41%
|
9.41%
|
||||||||||||||||||
|
CCO
Holdings Consolidated
|
||||||||||||||||||||||||||
|
Fixed
Rate Debt
|
$
|
--
|
$
|
--
|
$
|
--
|
$
|
--
|
$
|
1,100
|
$
|
800
|
$
|
1,316
|
$
|
3,216
|
$
|
3,120
|
||||||||
|
Average
Interest Rate
|
--
|
--
|
--
|
--
|
8.00%
|
8.75%
|
9.41%
|
8.76%
|
||||||||||||||||||
|
Charter
Holdings, CCH II, and CCO Holdings Consolidated
|
||||||||||||||||||||||||||
|
Variable
Rate
|
$
|
36
|
$
|
70
|
$
|
70
|
$
|
70
|
$
|
70
|
$
|
70
|
$
|
6,930
|
$
|
7,316
|
$
|
6,461
|
||||||||
|
Average
Interest Rate
|
5.71%
|
5.80%
|
6.42%
|
6.92%
|
7.05%
|
7.17%
|
6.89%
|
6.87%
|
||||||||||||||||||
|
Interest
Rate Instruments:
|
||||||||||||||||||||||||||
|
Variable
to Fixed Swaps
|
$
|
--
|
$
|
--
|
$
|
500
|
$
|
300
|
$
|
2,500
|
$
|
1,000
|
$
|
--
|
$
|
4,300
|
$
|
(145)
|
||||||||
|
Average Pay
Rate
|
--
|
--
|
7.02%
|
7.20%
|
7.16%
|
7.15%
|
--
|
7.15%
|
||||||||||||||||||
|
Average Receive
Rate
|
--
|
--
|
6.60%
|
6.77%
|
7.14%
|
7.13%
|
--
|
7.05%
|
||||||||||||||||||
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 LIBOR for the year of maturity based on the yield
curve in effect at June 30, 2008 including applicable bank spread.
At June
30, 2008 and December 31, 2007, we had $4.3 billion in notional amounts of
interest rate swaps outstanding. 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.
Item
4. Controls and
Procedures.
As of the
end of the period covered by this report, management, including our Chief
Executive Officer and Chief Financial Officer, evaluated the effectiveness of
the design and operation of our disclosure controls and procedures with respect
to the information generated for use in this quarterly report. The
evaluation was based in part upon reports and certifications provided by a
number of executives. Based upon, and as of the date of that
evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that the disclosure controls and procedures were effective to provide reasonable
assurances that information required to be disclosed in the reports we file or
submit under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the Commission’s
rules and forms.
In
designing and evaluating the disclosure controls and procedures, our management
recognized that any controls and procedures, no matter how well designed and
operated, can provide only reasonable, not absolute, assurance of achieving the
desired control objectives, and management necessarily was required to apply its
judgment in evaluating the cost-benefit relationship of possible controls and
procedures. Based upon the above evaluation, we believe that our
controls provide such reasonable assurances.
There was
no change in our internal control over financial reporting during the quarter
ended June 30, 2008 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
47
PART
II. OTHER INFORMATION.
|
Legal
Proceedings.
|
See Note
14 to our consolidated financial statements of this Quarterly Report on Form
10-Q for a discussion concerning our legal proceedings.
|
Item
1A.
|
Risk
Factors.
|
Our
Annual Report on Form 10-K for the year ended December 31, 2007 includes “Risk
Factors” under Item 1A of Part I. Except for the updated risk factors
described below, there have been no material changes from the risk factors
described in our Form 10-K. The information below updates, and should
be read in conjunction with, the risk factors and information disclosed in our
Form 10-K.
Risks
Related to Significant Indebtedness of Us and Our Parent Companies
We
and our parent companies have a significant amount of debt and may incur
significant additional debt, including secured debt, in the future, which could
adversely affect our and our parent companies’ financial health and our and
their ability to react to changes in our business.
We and
our parent companies have a significant amount of debt and may (subject to
applicable restrictions in our debt instruments) incur additional debt in the
future. As of June 30, 2008, Charter Holdings, CCH II, and CCO
Holdings had total debt of approximately $20.1 billion, $13.0 billion, and $10.5
billion, respectively. Charter Holdings and CCH II had deficiency of earnings to
cover fixed charges for the six months ended June 30, 2008 of approximately $474
million and $77 million, respectively. CCO Holdings ratio of earnings
to fixed charges was 1.1 for the six months ended June 30, 2008. As
of June 30, 2008, member’s deficit was approximately $7.7 billion and $855
million at Charter Holdings and CCH II, respectively, and member’s equity was
approximately $1.4 billion at CCO Holdings. On a consolidated basis,
we and our parent companies have a significant level of debt, which totaled
approximately $20.5 billion as of June 30, 2008.
Because
of the significant indebtedness of us and our parent companies and adverse
changes in the capital markets, our and our parent companies’ ability to raise
additional capital at reasonable rates or at all is uncertain, and our and our
parent companies’ ability to make distributions or payments to parent companies
is subject to availability of funds and restrictions under our and their
applicable debt instruments and under applicable law. Our and our
parent companies’ indentures currently permit us and our parent companies to
provide funds to our and their respective parent companies to pay interest on
debt or to repay, repurchase, redeem, or defease debt, subject to certain
conditions. If we find it necessary to engage in a recapitalization
or other similar transaction, our noteholders might not receive principal and
interest payments to which they are contractually entitled.
Our and
our parent companies’ significant amounts of debt could have other important
consequences. For example, the debt will or could:
|
|
·
|
require
us to dedicate a significant portion of our cash flow from operating
activities to make payments on our and our parent companies’ debt,
reducing our funds available for working capital, capital expenditures,
and other general corporate
expenses;
|
|
|
·
|
limit
our flexibility in planning for, or reacting to, changes in our business,
the cable and telecommunications industries, and the economy at
large;
|
|
|
·
|
place
us at a disadvantage compared to our competitors that have proportionately
less debt;
|
|
|
·
|
make
us vulnerable to interest rate increases, because net of hedging
transactions approximately 16%, 24%, and 31%, of Charter Holdings’, CCH
II’s, and CCO Holdings’ borrowings, respectively, are, and will continue
to be, subject to variable rates of
interest;
|
|
|
·
|
expose
us to increased interest expense to the extent we refinance existing debt
with higher cost debt;
|
|
|
·
|
adversely
affect our relationship with customers and
suppliers;
|
|
|
·
|
limit
our and our parent companies’ ability to borrow additional funds in the
future, due to applicable financial and restrictive covenants in our and
our parent companies’ debt;
|
|
|
·
|
make
it more difficult for us and our parent companies to satisfy our and their
obligations to the holders of our and their notes and to our and our
parent companies’ lenders under our credit facilities;
and
|
48
|
|
·
|
limit
future increases in the value, or cause a decline in the value of
Charter’s equity, which could limit Charter’s ability to raise additional
capital by issuing equity.
|
A default by us under our debt obligations could result in the acceleration of those obligations, which in turn could trigger cross-defaults under other agreements governing our long-term indebtedness. In addition, the secured lenders under the Charter Operating credit facilities, the holders of the Charter Operating senior second-lien notes, the secured lenders under the CCO Holdings credit facility, and the holders of the CCH I notes could foreclose on the collateral, which includes equity interests in certain of our subsidiaries, and exercise other rights of secured creditors. Any default under our or our parent companies’ debt could adversely affect our growth, our financial condition, our results of operations, and our and our parent companies’ ability to make payments on our and our parent companies’ debt, and could force us to seek the protection of the bankruptcy laws. We and our parent companies may incur significant additional debt in the future. If current debt amounts increase, the related risks that we now face will intensify.
We
depend on generating (and having available to the applicable obligor) sufficient
cash flow and having access to additional liquidity sources to fund our and our
parent companies’ debt obligations, capital expenditures, and ongoing
operations.
Our
ability to service our and our parent companies’ debt and to fund our planned
capital expenditures and ongoing operations will depend on both our ability to
generate and grow cash flow and our and our parent companies’ access (by
dividend or otherwise) to additional liquidity sources. Our ability to
generate and grow cash flow is dependent on many factors,
including:
|
·
|
the
impact of competition from other distributors, including incumbent
telephone companies, direct broadcast satellite operators, wireless
broadband providers and DSL
providers;
|
|
·
|
difficulties
in growing, further introducing, and operating our telephone services,
while adequately meeting customer expectations for the reliability of
voice services;
|
|
·
|
our
ability to adequately meet demand for installations and customer
service;
|
|
·
|
our
ability to sustain and grow revenues and cash flows from operating
activities by offering video, high-speed Internet, telephone and other
services, and to maintain and grow our customer base, particularly in the
face of increasingly aggressive
competition;
|
|
·
|
our
ability to obtain programming at reasonable prices or to adequately raise
prices to offset the effects of higher programming
costs;
|
|
·
|
general
business conditions, economic uncertainty or slowdown, including the
recent significant slowdown in the housing sector and overall economy;
and
|
|
·
|
the
effects of governmental regulation on our
business.
|
Some of
these factors are beyond our control. It is also difficult to assess
the impact that the general economic downturn and recent turmoil in the credit
markets will have on future operations and financial
results. However, we believe there is risk that the economic slowdown
could result in reduced spending by customers and advertisers, which could
reduce our revenues and our cash flows from operating activities from those that
otherwise would have been generated. If we are unable to generate
sufficient cash flow or we and our parent companies are unable to access
additional liquidity sources, we and our parent companies may not be able to
service and repay our and our parent companies’ debt, operate our business,
respond to competitive challenges, or fund our and our parent companies’ other
liquidity and capital needs. We expect that cash on hand, cash flows
from operating activities, and the amounts available under Charter Operating’s
credit facilities will be adequate to fund our and our parent companies’
projected cash needs, including scheduled maturities, through
2009. We believe that cash flows from operating activities, and the
amounts available under the Charter Operating credit facilities will not be
sufficient to fund our and our parent companies’ projected cash needs in 2010
(primarily as a result of the CCH II $1.9 billion of senior notes outstanding at
July 2, 2008 that mature in September 2010) and thereafter. Our
projected cash needs and projected sources of liquidity depend upon, among other
things, our actual results, the timing and amount of our capital expenditures,
and ongoing compliance with the Charter Operating credit facilities, including
obtaining an unqualified audit opinion from our independent
accountants. Although we and our parent companies have been able to
refinance or otherwise fund the repayment of debt in the past, we and our parent
companies may not be able to access additional sources of refinancing on similar
terms or pricing as those that are currently in place, or at all, or otherwise
obtain other sources of funding. An inability to access additional
sources of liquidity to fund our and our parent companies’ cash needs in 2010 or
thereafter or to refinance or otherwise fund the repayment of the CCH II
49
senior
notes could adversely affect our growth, our financial condition, our results of
operations, and our and our parent companies’ ability to make payments on our
and their debt, and could force us to seek the protection of the bankruptcy
laws, which could materially adversely impact our ability to operate our
business and to make payments under our and our parent companies’ debt
instruments. See “Part I. Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operations —
Liquidity and Capital Resources.”
We
may not be able to access funds under the Charter Operating revolving credit
facility if we fail to satisfy the covenant restrictions, which could adversely
affect our financial condition and our ability to conduct our
business.
We have
historically relied on access to credit facilities to fund operations, capital
expenditures, and to service our and our parent companies’ debt, and we expect
such reliance to continue in the future. Our total potential
borrowing availability under our revolving credit facility was approximately
$1.4 billion as of June 30, 2008, none of which was limited by covenant
restrictions. There can be no assurance that actual availability
under our credit facility will not be limited by covenant restrictions in the
future.
One of
the conditions to the availability of funding under the Charter Operating
revolving credit facility is the absence of a default under such facility,
including as a result of any failure to comply with the covenants under the
facilities. Among other covenants, the Charter Operating credit
facility requires us to maintain specified leverage ratios. The
Charter Operating revolving credit facility also provides that Charter Operating
obtain an unqualified audit opinion from its independent accountants for each
fiscal year, which, among other things, requires Charter to demonstrate its
ability to fund its and its subsidiaries’ projected liquidity needs for a
reasonable period of time following the balance sheet date of the financial
statements being audited. There can be no assurance that Charter
Operating will be able to continue to comply with these or any other of the
covenants under the credit facilities. See “—We and our parent
companies have a significant amount of debt and may incur significant additional
debt, including secured debt, in the future, which could adversely affect our
and our parent companies’ financial health and our and their ability to react to
changes in our business” for a discussion of the consequences of a default under
our and our parent companies’ debt obligations.
Because
of our holding company structure, our outstanding notes are structurally
subordinated in right of payment to all liabilities of our
subsidiaries. Restrictions in our subsidiaries’ debt instruments and
under applicable law limit their ability to provide funds to us or our various
debt issuers.
Our
primary assets are our equity interests in our subsidiaries. Our
operating subsidiaries are separate and distinct legal entities and are not
obligated to make funds available to us for payments on our notes or other
obligations in the form of loans, distributions or otherwise. Our
subsidiaries’ ability to make distributions to us or the applicable debt issuers
to service debt obligations is subject to their compliance with the terms of
their credit facilities and indentures and restrictions under applicable
law. See “Part I. Item 2. Management’s Discussion and Analysis
of Financial Condition and Results of Operations — Liquidity and Capital
Resources — Limitations on Distributions.” Under the Delaware Limited
Liability Company Act, our subsidiaries may only make distributions if they have
“surplus” as defined in the act. Under fraudulent transfer laws, our
subsidiaries may not pay dividends if they are insolvent or are rendered
insolvent thereby. The measures of insolvency for purposes of these
fraudulent transfer laws vary depending upon the law applied in any proceeding
to determine whether a fraudulent transfer has occurred. Generally, however, an
entity would be considered insolvent if:
|
·
|
the
sum of its debts, including contingent liabilities, was greater than the
fair saleable value of all its
assets;
|
|
·
|
the
present fair saleable value of its assets was less than the amount that
would be required to pay its probable liability on its existing debts,
including contingent liabilities, as they become absolute and mature;
or
|
|
·
|
it
could not pay its debts as they became
due.
|
While we
believe that our relevant subsidiaries currently have surplus and are not
insolvent, there can be no assurance that these subsidiaries will not become
insolvent or will be permitted to make distributions in the future in compliance
with these restrictions in amounts needed to service our
indebtedness. Our direct or indirect subsidiaries include the
borrowers and guarantors under the Charter Operating and CCO Holdings credit
facilities. Several of our subsidiaries are also obligors and
guarantors under senior high yield notes. As of June 30, 2008,
Charter Holdings’, CCH II’s, and CCO Holdings’ total long-term debt was
approximately $20.1 billion, $13.0 billion, and
50
$10.5
billion, respectively, of which approximately $19.6 billion, $10.5 billion, and
$9.4 billion was structurally senior to the Charter Holdings, CCH II, and CCO
Holdings notes, respectively.
In the
event of bankruptcy, liquidation or dissolution of one or more of our
subsidiaries, that subsidiary’s assets would first be applied to satisfy its own
obligations, and following such payments, such subsidiary may not have
sufficient assets remaining to make payments to its parent company as an equity
holder or otherwise. In that event:
|
|
·
|
the
lenders under Charter Operating’s credit facilities whose interests are
secured by substantially all of our operating assets, and all holders of
other debt of our subsidiaries, will have the right to be paid in full
before us from any of our subsidiaries’ assets;
and
|
|
|
·
|
the
holders of preferred membership interests in our subsidiary, CC VIII,
would have a claim on a portion of its assets that may reduce the amounts
available for repayment to holders of our outstanding
notes.
|
|
Exhibits.
|
The index
to the exhibits begins on page E-1 of this quarterly report.
51
Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, Charter
Communications Holdings, LLC, Charter Communications Holdings Capital
Corporation, CCH II, LLC, CCH II Capital Corp., CCO Holdings, LLC, and CCO
Holdings Capital Corp. have duly caused this quarterly report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CHARTER
COMMUNICATIONS HOLDINGS, LLC
Registrant
By: CHARTER COMMUNICATIONS INC.,
Sole Manager
|
Dated:
August 8, 2008
|
By:
/s/ Kevin D.
Howard
|
|
|
Name:
|
Kevin
D. Howard
|
|
|
Title:
|
Vice
President, Controller and Chief Accounting
Officer
|
|
CHARTER
COMMUNICATIONS HOLDINGS CAPITAL CORPORATION
Registrant
|
Dated:
August 8, 2008
|
By:
/s/ Kevin D.
Howard
|
|
|
Name:
|
Kevin
D. Howard
|
|
|
Title:
|
Vice
President, Controller and Chief Accounting
Officer
|
|
CCH II,
LLC
Registrant
|
Dated:
August 8, 2008
|
By:
/s/ Kevin D.
Howard
|
|
|
Name:
|
Kevin
D. Howard
|
|
|
Title:
|
Vice
President, Controller and Chief Accounting
Officer
|
|
CCH II CAPITAL
CORP.
Registrant
|
Dated:
August 8, 2008
|
By:
/s/ Kevin D.
Howard
|
|
|
Name:
|
Kevin
D. Howard
|
|
|
Title:
|
Vice
President, Controller and Chief Accounting
Officer
|
|
CCO HOLDINGS,
LLC
Registrant
|
Dated:
August 8, 2008
|
By:
/s/ Kevin D.
Howard
|
|
|
Name:
|
Kevin
D. Howard
|
|
|
Title:
|
Vice
President, Controller and Chief Accounting
Officer
|
|
CCO HOLDINGS CAPITAL
CORP.
Registrant
|
Dated:
August 8, 2008
|
By:
/s/ Kevin D.
Howard
|
|
|
Name:
|
Kevin
D. Howard
|
|
|
Title:
|
Vice
President, Controller and Chief Accounting
Officer
|
|
S-1
|
Exhibit
Number
|
Description
of Document
|
|
|
10.1
|
First
Supplemental Indenture dated as of July 2, 2008, among CCH II,
LLC, CCH II Capital Corp., Charter Communications Holdings, LLC, and
The Bank of New York Mellon Trust Company, N.A., for CCH II 10.25% Senior
Notes due 2013 (incorporated by reference to Exhibit 10.1 to the
current report on Form 8-K of Charter Communications, Inc. filed on
July 3, 2008 (File No. 000-27927)).
|
|
|
10.2
|
Exchange
and Registration Rights Agreement dated as of July 2, 2008 for the
issuance of CCH II 10.25% Senior Notes due 2013(incorporated by reference
to Exhibit 10.2 to the current report on Form 8-K of Charter
Communications, Inc. filed on July 3, 2008 (File
No. 000-27927)).
|
|
|
10.3+
|
Charter
Communications, Inc. 2008 Incentive Program dated as of June 30,
2008(incorporated by reference to Exhibit 10.3 to the quarterly
report on Form 10-Q of Charter Communications, Inc. filed on August
5, 2008 (File No. 000-27927)).
|
|
|
10.4+
|
Amended
and Restated Employment Agreement between Eloise E. Schmitz and Charter
Communications, Inc., dated as of July 1, 2008 (incorporated by reference
to Exhibit 10.4 to the quarterly report on Form 10-Q of Charter
Communications, Inc. filed on August 5, 2008 (File
No. 000-27927)).
|
|
|
10.5+
|
Amendment
to Amended and Restated Employment Agreement between Robert A. Quigley and
Charter Communications, Inc., dated as of July 1, 2008 (incorporated by
reference to Exhibit 10.5 to the quarterly report on Form 10-Q
of Charter Communications, Inc. filed on August 5, 2008 (File
No. 000-27927)).
|
|
|
12.1*
|
Charter
Communications Holdings, LLC’s Computation of Ratio of Earnings to Fixed
Charges
|
|
|
12.2*
|
CCH
II, LLC’s Computation of Ratio of Earnings to Fixed
Charges
|
|
|
12.3*
|
CCO
Holdings, LLC’s Computation of Ratio of Earnings to Fixed
Charges
|
|
|
31.1*
|
Certificate
of Chief Executive Officer of Charter Communications Holdings, LLC
pursuant to Rule 13a-14(a)/Rule 15d-14(a) under the Securities Exchange
Act of 1934.
|
|
|
31.2*
|
Certificate
of Chief Financial Officer of Charter Communications Holdings, LLC
pursuant to Rule 13a-14(a)/Rule 15d-14(a) under the Securities Exchange
Act of 1934.
|
|
|
31.3*
|
Certificate
of Chief Executive Officer of CCH II, LLC pursuant to Rule 13a-14(a)/Rule
15d-14(a) under the Securities Exchange Act of 1934.
|
|
|
31.4*
|
Certificate
of Chief Financial Officer of CCH II, LLC pursuant to Rule 13a-14(a)/Rule
15d-14(a) under the Securities Exchange Act of 1934.
|
|
|
31.5*
|
Certificate
of Chief Executive Officer of CCO Holdings, LLC pursuant to Rule
13a-14(a)/Rule 15d-14(a) under the Securities Exchange Act of
1934.
|
|
|
31.6*
|
Certificate
of Chief Financial Officer of CCO Holdings, LLC pursuant to Rule
13a-14(a)/Rule 15d-14(a) under the Securities Exchange Act of
1934.
|
|
|
32.1*
|
Certification
of Charter Communications Holdings, LLC pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Chief Executive Officer).
|
|
|
32.2*
|
Certification
of Charter Communications Holdings, LLC pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Chief Financial Officer).
|
|
|
32.3*
|
Certification
of CCH II, LLC pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive
Officer).
|
|
|
32.4*
|
Certification
of CCH II, LLC pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial
Officer).
|
|
|
32.5*
|
Certification
of CCO Holdings, LLC pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive
Officer).
|
|
|
32.6*
|
Certification
of CCO Holdings, LLC pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial
Officer).
|
*
Document attached
+
Management compensatory plan or arrangement
E-1
Exhibit
12.1
|
CHARTER
COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
|
||||||||
|
RATIO
OF EARNINGS TO FIXED CHARGES CALCULATION
|
||||||||
|
(In
millions)
|
||||||||
|
Six
Months Ended June 30,
|
||||||||
|
2008
|
2007
|
|||||||
|
Earnings
|
||||||||
|
Loss
from Operations before Minority Interest and Income Taxes
|
$ | (474 | ) | $ | (581 | ) | ||
|
Fixed
Charges
|
917 | 910 | ||||||
|
Total
Earnings
|
$ | 443 | $ | 329 | ||||
|
Fixed
Charges
|
||||||||
|
Interest
Expense
|
$ | 898 | $ | 893 | ||||
|
Amortization
of Debt Costs
|
15 | 13 | ||||||
|
Interest
Element of Rentals
|
4 | 4 | ||||||
|
Total
Fixed Charges
|
$ | 917 | $ | 910 | ||||
|
Ratio
of Earnings to Fixed Charges (1)
|
- | - | ||||||
|
(1) Earnings
for the six months ended June 30, 2008 and 2007 were insufficient to cover
fixed charges by $474
|
||||||||
|
million
and $581 million, respectively. As a result of such deficiencies, the
ratios are not presented above.
|
||||||||
Exhibit
12.2
|
CCH
II, LLC AND SUBSIDIARIES
|
||||||||
|
RATIO
OF EARNINGS TO FIXED CHARGES CALCULATION
|
||||||||
|
(In
millions)
|
||||||||
|
Six
Months Ended June 30,
|
||||||||
|
2008
|
2007
|
|||||||
|
Earnings
|
||||||||
|
Loss
from Operations before Minority Interest and Income Taxes
|
$ | (77 | ) | $ | (178 | ) | ||
|
Fixed
Charges
|
520 | 510 | ||||||
|
Total
Earnings
|
$ | 443 | $ | 332 | ||||
|
Fixed
Charges
|
||||||||
|
Interest
Expense
|
$ | 505 | $ | 496 | ||||
|
Amortization
of Debt Costs
|
11 | 10 | ||||||
|
Interest
Element of Rentals
|
4 | 4 | ||||||
|
Total
Fixed Charges
|
$ | 520 | $ | 510 | ||||
|
Ratio
of Earnings to Fixed Charges (1)
|
- | - | ||||||
|
(1) Earnings
for the six months ended June 30, 2008 and 2007 were insufficient to cover
fixed charges by $77
|
||||||||
|
million
and $178 million, respectively. As a result of such deficiencies, the
ratios are not presented above.
|
||||||||
Exhibit 12.3
|
CCO
HOLDINGS, LLC AND SUBSIDIARIES
|
||||||||
|
RATIO
OF EARNINGS TO FIXED CHARGES CALCULATION
|
||||||||
|
(In
millions)
|
||||||||
|
Six
Months Ended June 30,
|
||||||||
|
2008
|
2007
|
|||||||
|
Earnings
|
||||||||
|
Income
(loss) from Operations before Minority Interest and Income
Taxes
|
$ | 44 | $ | (58 | ) | |||
|
Fixed
Charges
|
399 | 390 | ||||||
|
Total
Earnings
|
$ | 443 | $ | 332 | ||||
|
Fixed
Charges
|
||||||||
|
Interest
Expense
|
$ | 387 | $ | 379 | ||||
|
Amortization
of Debt Costs
|
8 | 7 | ||||||
|
Interest
Element of Rentals
|
4 | 4 | ||||||
|
Total
Fixed Charges
|
$ | 399 | $ | 390 | ||||
|
Ratio
of Earnings to Fixed Charges (1)
|
1.11 | - | ||||||
|
(1) Earnings
for the six months ended June 30, 2007 were insufficient to cover fixed
charges by $58 million.
|
||||||||
|
As
a result of such deficiencies, the ratios are not presented
above.
|
||||||||
Exhibit
31.1
I, Neil
Smit, certify that:
|
1.
|
I
have reviewed this Quarterly Report on Form 10-Q of Charter
Communications Holdings, LLC and Charter Communications Holdings Capital
Corporation;
|
|
|
2.
|
Based
on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
|
|
3.
|
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrants as of, and for, the periods presented in this
report;
|
|
|
4.
|
The
registrants’ other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrants and have:
|
|
(a)
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrants, including their
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
|
||
|
(b)
|
[Reserved];
|
||
|
(c)
|
Evaluated
the effectiveness of the registrants’ disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
|
||
|
(d)
|
Disclosed
in this report any change in the registrants’ internal control over
financial reporting that occurred during the registrants’ most recent
fiscal quarter (the registrants’ fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrants’ internal control over financial
reporting; and
|
|
5.
|
The
registrants’ other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting,
to the registrants’ auditors and the audit committee of the registrants’
board of directors (or persons performing the equivalent
functions):
|
|
(a)
|
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrants’ ability to record,
process, summarize and report financial information;
and
|
||
|
(b)
|
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants’ internal control
over financial reporting.
|
Date:
August 8, 2008
/s/ Neil
Smit
Neil
Smit
President
and Chief Executive Officer
Exhibit
31.2
I, Eloise
E. Schmitz, certify that:
|
1.
|
I
have reviewed this Quarterly Report on Form 10-Q of Charter
Communications Holdings, LLC and Charter Communications Holdings Capital
Corporation;
|
|
|
2.
|
Based
on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
|
|
3.
|
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrants as of, and for, the periods presented in this
report;
|
|
|
4.
|
The
registrants’ other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrants and have:
|
|
(a)
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrants, including their
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
|
||
|
(b)
|
[Reserved];
|
||
|
(c)
|
Evaluated
the effectiveness of the registrants’ disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
|
||
|
(d)
|
Disclosed
in this report any change in the registrants’ internal control over
financial reporting that occurred during the registrants’ most recent
fiscal quarter (the registrants’ fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrants’ internal control over financial
reporting; and
|
|
5.
|
The
registrants’ other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting,
to the registrants’ auditors and the audit committee of the registrants’
board of directors (or persons performing the equivalent
functions):
|
|
(a)
|
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrants’ ability to record,
process, summarize and report financial information;
and
|
||
|
(b)
|
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants’ internal control
over financial reporting.
|
Date:
August 8, 2008
/s/ Eloise E.
Schmitz
Eloise E.
Schmitz
Chief
Financial Officer
(Principal
Financial Officer)
Exhibit
31.3
I, Neil
Smit, certify that:
|
1.
|
I
have reviewed this Quarterly Report on Form 10-Q of CCH II, LLC and
CCH II Capital Corp.;
|
|
|
2.
|
Based
on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
|
|
3.
|
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrants as of, and for, the periods presented in this
report;
|
|
|
4.
|
The
registrants’ other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrants and have:
|
|
(a)
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrants, including their
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
|
||
|
(b)
|
[Reserved];
|
||
|
(c)
|
Evaluated
the effectiveness of the registrants’ disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
|
||
|
(d)
|
Disclosed
in this report any change in the registrants’ internal control over
financial reporting that occurred during the registrants’ most recent
fiscal quarter (the registrants’ fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrants’ internal control over financial
reporting; and
|
|
5.
|
The
registrants’ other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting,
to the registrants’ auditors and the audit committee of the registrants’
board of directors (or persons performing the equivalent
functions):
|
|
(a)
|
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrants’ ability to record,
process, summarize and report financial information;
and
|
||
|
(b)
|
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants’ internal control
over financial reporting.
|
Date:
August 8, 2008
/s/ Neil
Smit
Neil
Smit
President
and Chief Executive Officer
Exhibit
31.4
I, Eloise
E. Schmitz, certify that:
|
1.
|
I
have reviewed this Quarterly Report on Form 10-Q of CCH II, LLC and
CCH II Capital Corp.;
|
|
|
2.
|
Based
on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
|
|
3.
|
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrants as of, and for, the periods presented in this
report;
|
|
|
4.
|
The
registrants’ other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrants and have:
|
|
(a)
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrants, including their
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
|
||
|
(b)
|
[Reserved];
|
||
|
(c)
|
Evaluated
the effectiveness of the registrants’ disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
|
||
|
(d)
|
Disclosed
in this report any change in the registrants’ internal control over
financial reporting that occurred during the registrants’ most recent
fiscal quarter (the registrants’ fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrants’ internal control over financial
reporting; and
|
|
5.
|
The
registrants’ other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting,
to the registrants’ auditors and the audit committee of the registrants’
board of directors (or persons performing the equivalent
functions):
|
|
(a)
|
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrants’ ability to record,
process, summarize and report financial information;
and
|
||
|
(b)
|
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants’ internal control
over financial reporting.
|
Date:
August 8, 2008
/s/ Eloise E.
Schmitz
Eloise E.
Schmitz
Chief
Financial Officer
(Principal
Financial Officer)
Exhibit
31.5
I, Neil
Smit, certify that:
|
1.
|
I
have reviewed this Quarterly Report on Form 10-Q of CCO Holdings, LLC
and CCO Holdings Capital Corp.;
|
|
|
2.
|
Based
on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
|
|
3.
|
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrants as of, and for, the periods presented in this
report;
|
|
|
4.
|
The
registrants’ other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrants and have:
|
|
(a)
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrants, including their
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
|
||
|
(b)
|
[Reserved];
|
||
|
(c)
|
Evaluated
the effectiveness of the registrants’ disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
|
||
|
(d)
|
Disclosed
in this report any change in the registrants’ internal control over
financial reporting that occurred during the registrants’ most recent
fiscal quarter (the registrants’ fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrants’ internal control over financial
reporting; and
|
|
5.
|
The
registrants’ other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting,
to the registrants’ auditors and the audit committee of the registrants’
board of directors (or persons performing the equivalent
functions):
|
|
(a)
|
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrants’ ability to record,
process, summarize and report financial information;
and
|
||
|
(b)
|
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants’ internal control
over financial reporting.
|
Date:
August 8, 2008
/s/ Neil
Smit
Neil
Smit
President
and Chief Executive Officer
Exhibit
31.6
I, Eloise
E. Schmitz, certify that:
|
1.
|
I
have reviewed this Quarterly Report on Form 10-Q of CCO Holdings, LLC
and CCO Holdings Capital Corp.;
|
|
|
2.
|
Based
on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
|
|
3.
|
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrants as of, and for, the periods presented in this
report;
|
|
|
4.
|
The
registrants’ other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrants and have:
|
|
(a)
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrants, including their
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
|
||
|
(b)
|
[Reserved];
|
||
|
(c)
|
Evaluated
the effectiveness of the registrants’ disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
|
||
|
(d)
|
Disclosed
in this report any change in the registrants’ internal control over
financial reporting that occurred during the registrants’ most recent
fiscal quarter (the registrants’ fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrants’ internal control over financial
reporting; and
|
|
5.
|
The
registrants’ other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting,
to the registrants’ auditors and the audit committee of the registrants’
board of directors (or persons performing the equivalent
functions):
|
|
(a)
|
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrants’ ability to record,
process, summarize and report financial information;
and
|
||
|
(b)
|
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants’ internal control
over financial reporting.
|
Date:
August 8, 2008
/s/ Eloise E.
Schmitz
Eloise E.
Schmitz
Chief
Financial Officer
(Principal
Financial Officer)
Exhibit
32.1
CERTIFICATION
OF CHIEF EXECUTIVE
OFFICER
REGARDING PERIODIC REPORT CONTAINING
FINANCIAL
STATEMENTS
I, Neil
Smit, the President and Chief Executive Officer of Charter Communications
Holdings, LLC and Charter Communications Holdings Capital Corporation (the
"Company") in compliance with 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, hereby certify that, the
Company's Quarterly Report on Form 10-Q for the period ended June 30, 2008 (the
"Report") filed with the Securities and Exchange Commission:
|
·
|
fully
complies with the requirements of Section 13(a) of the Securities Exchange
Act of 1934; and
|
|
·
|
the
information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
|
/s/ Neil
Smit
Neil
Smit
President and Chief
Executive Officer
August 8, 2008
Exhibit
32.2
CERTIFICATION
OF CHIEF FINANCIAL
OFFICER
REGARDING PERIODIC REPORT CONTAINING
FINANCIAL
STATEMENTS
I, Eloise
E. Schmitz, the Chief Financial Officer of Charter Communications Holdings, LLC
and Charter Communications Holdings Capital Corporation (the "Company") in
compliance with 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, hereby certify that, the Company's Quarterly
Report on Form 10-Q for the period ended June 30, 2008 (the "Report") filed with
the Securities and Exchange Commission:
|
·
|
fully
complies with the requirements of Section 13(a) of the Securities Exchange
Act of 1934; and
|
|
·
|
the
information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
|
/s/ Eloise E.
Schmitz
Eloise E.
Schmitz
Chief Financial
Officer
(Principal Financial
Officer)
August 8, 2008
Exhibit
32.3
CERTIFICATION
OF CHIEF EXECUTIVE
OFFICER
REGARDING PERIODIC REPORT CONTAINING
FINANCIAL
STATEMENTS
I, Neil
Smit, the President and Chief Executive Officer of CCH II, LLC and CCH II
Capital Corp. (the "Company") in compliance with 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, hereby
certify that, the Company's Quarterly Report on Form 10-Q for the period
ended June 30, 2008 (the "Report") filed with the Securities and Exchange
Commission:
|
·
|
fully
complies with the requirements of Section 13(a) of the Securities Exchange
Act of 1934; and
|
|
·
|
the
information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
|
/s/ Neil Smit
Neil
Smit
President and Chief
Executive Officer
August 8,
2008
Exhibit
32.4
CERTIFICATION
OF CHIEF FINANCIAL
OFFICER
REGARDING PERIODIC REPORT CONTAINING
FINANCIAL
STATEMENTS
I, Eloise
E. Schmitz, the Chief Financial Officer of CCH II, LLC and CCH II Capital Corp.
(the "Company") in compliance with 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, hereby certify that, the
Company's Quarterly Report on Form 10-Q for the period ended June 30, 2008
(the "Report") filed with the Securities and Exchange Commission:
|
·
|
fully
complies with the requirements of Section 13(a) of the Securities Exchange
Act of 1934; and
|
|
·
|
the
information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
|
/s/ Eloise E.
Schmitz
Eloise E.
Schmitz
Chief Financial
Officer
(Principal Financial
Officer)
August 8,
2008
Exhibit
32.5
CERTIFICATION
OF CHIEF EXECUTIVE
OFFICER
REGARDING PERIODIC REPORT CONTAINING
FINANCIAL
STATEMENTS
I, Neil
Smit, the President and Chief Executive Officer of CCO Holdings, LLC and CCO
Holdings Capital Corp. (the "Company") in compliance with 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
hereby certify that, the Company's Quarterly Report on Form 10-Q for the
period ended June 30, 2008 (the "Report") filed with the Securities and Exchange
Commission:
|
·
|
fully
complies with the requirements of Section 13(a) of the Securities Exchange
Act of 1934; and
|
|
·
|
the
information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
|
/s/ Neil
Smit
Neil
Smit
President and Chief
Executive Officer
August 8, 2008
Exhibit
32.6
CERTIFICATION
OF CHIEF FINANCIAL
OFFICER
REGARDING PERIODIC REPORT CONTAINING
FINANCIAL
STATEMENTS
I, Eloise
E. Schmitz, the Chief Financial Officer of CCO Holdings, LLC and CCO Holdings
Capital Corp. (the "Company") in compliance with 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, hereby
certify that, the Company's Quarterly Report on Form 10-Q for the period
ended June 30, 2008 (the "Report") filed with the Securities and Exchange
Commission:
|
·
|
fully
complies with the requirements of Section 13(a) of the Securities Exchange
Act of 1934; and
|
|
·
|
the
information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
|
/s/ Eloise E.
Schmitz
Eloise E.
Schmitz
Chief Financial
Officer
(Principal Financial
Officer)
August 8, 2008