SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
----------------------
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): MAY 7, 2003
CHARTER COMMUNICATIONS, INC.
----------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
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(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
000-27927 43-1857213
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(COMMISSION FILE NUMBER) (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
12405 POWERSCOURT DRIVE
ST. LOUIS, MISSOURI 63131
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES INCLUDING ZIP CODE)
(314) 965-0555
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(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NOT APPLICABLE
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(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
ITEM 7. EXHIBITS.
The following exhibit is not filed but furnished pursuant to Item 9:
Exhibit
Number Description
- ------ -----------
99.1 99.1 Press release dated May 7, 2003. *
* furnished herewith
ITEM 9. REGULATION FD DISCLOSURE
On May 7, 2003, Charter Communications, Inc. issued a press release announcing
its results for the first quarter ended March 31, 2003. The following
information is furnished pursuant to Item 12, "Results of Operations and
Financial Condition." The entirety of the press release appearing in Exhibit
99.1 hereto is not filed but is furnished pursuant to Regulation FD.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS:
This Report includes forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934, as amended, regarding, among other things, our plans, strategies and
prospects, both business and financial. Although we believe that our plans,
intentions and expectations reflected in or suggested by these forward-looking
statements are reasonable, we cannot assure you that we will achieve or realize
these plans, intentions or expectations. Forward-looking statements are
inherently subject to risks, uncertainties and assumptions. Many of the
forward-looking statements contained in this Report may be identified by the use
of forward-looking words such as "believe," "expect," "anticipate," "should,"
"planned," "will," "may," "intend," "estimated," and "potential," among others.
Important factors that could cause actual results to differ materially from the
forward-looking statements we make in this Report are set forth in this Report
and in reports or documents that we file from time to time with the United
States Securities and Exchange Commission, or the SEC, and include, but are not
limited to:
o our ability to sustain and grow revenues and cash from operations by
offering video and data services and to maintain a stable customer
base, particularly in the face of increasingly aggressive competition
from other service providers;
o our ability to comply with all covenants in our credit facilities and
indentures, any violation of which would result in a violation of the
applicable facility or indenture and could trigger a default of other
obligations under cross default provisions;
o availability of funds to meet interest payment obligations under our
debt and to fund our operations and necessary capital expenditures,
either through cash from operations, further borrowings or other
sources;
o any adverse consequences arising out of the recent restatement of our
financial statements;
o the results of the pending grand jury investigation by the United
States Attorney's Office for the Eastern District of Missouri, the
pending SEC investigation and the putative class action and derivative
shareholders litigation against us;
o the cost and availability of funding to refinance the existing debt
that becomes due commencing in 2005;
o our ability to achieve free cash flow; o our ability to obtain
programming at reasonable prices;
o general business conditions, economic uncertainty or slowdown and
potential international conflict;
o the impact of any armed conflict, including loss of customers in areas
with large numbers of military personnel; and
o the effects of governmental regulation on our business.
All forward-looking statements attributable to us or a person acting on our
behalf are expressly qualified in their entirety by this cautionary statement.
We are under no obligation to update any of the forward looking statements after
the date of this Report to conform these statements to actual results or to
changes in our expectations.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Charter
Communications, Inc. has duly caused this Current Report to be signed on its
behalf by the undersigned hereunto duly authorized.
CHARTER COMMUNICATIONS, INC.,
-----------------------------
REGISTRANT
Dated: May 7, 2003
By: /s/ Steven A. Schumm
----------------------
Name: Steven A. Schumm
TITLE: EXECUTIVE VICE PRESIDENT AND CHIEF
ADMINISTRATIVE OFFICER AND INTERIM CHIEF FINANCIAL
OFFICER(PRINCIPAL FINANCIAL OFFICER)
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
99.1 99.1 Press release dated May 7, 2003 (furnished pursuant to
Item 9).
(CHARTER COMMUNICATIONS LOGO)
NEWS
FOR RELEASE: 8:00 AM ET WEDNESDAY, MAY 7, 2003
CHARTER COMMUNICATIONS REPORTS
FIRST QUARTER 2003 OPERATING RESULTS
ST. LOUIS, MO - Charter Communications, Inc. (Nasdaq:CHTR) today reported
operating results for the quarter ended March 31, 2003.
For the 2003 first quarter, Charter generated revenue of $1.178 billion,
an increase of 9.7% over last year's first quarter revenue of $1.074 billion.
This year's first quarter adjusted EBITDA was $458 million, up 7.5% over
adjusted EBITDA of $426 million for the year ago quarter.
Net cash flows provided by operating activities for the first quarter of
2003 totaled $162 million, an increase of $60 million, or 59%, as compared to
amounts reported in the first quarter of 2002. Cash flows from investing
activities totaled $231 million in the first quarter of 2003, which is one third
of the $604 million reported in the first quarter of 2002, a decrease of $373
million. Cash required for all operating and investing activities totaled $69
million in the first quarter of 2003 as compared to $502 million for the same
period a year ago. This significant reduction in cash requirements is a direct
result of increasing revenue and a substantial reduction in capital expenditures
in the first quarter of 2003. At March 31, 2003, the Company had $446 million in
cash on hand.
Charter recorded special charges in the first quarter of 2003 of
approximately $7 million for severance and related costs of its on-going
initiative to reduce its workforce, partially offset by a $5 million credit from
a settlement related to the conversion of about 145,000 high-speed data
customers from the Internet service provider @Home to Charter
1
Pipeline(R) in 2001. The Company expects to record additional special charges
throughout 2003 related to the strategic restructuring of its operations and
litigation related costs.
Net loss applicable to common stock and loss per share for the quarter
ended March 31, 2003 were $182 million and $0.62, respectively. For the restated
2002 first quarter, Charter reported net loss applicable to common stock and
loss per share of $317 million and $1.08, respectively.
Revenue generating units totaled approximately 10,474,400 at March 31,
2003, an increase of 51,900 in the first quarter of 2003 and of approximately
813,200 units for the trailing twelve months.
Carl Vogel, President and CEO said, "Charter made steady progress
operationally. Our increase in revenues for the quarter as compared to last year
is principally the result of our aggressive efforts to build our base of
high-speed data customers, while also increasing service and package prices for
our video and data product offerings, and reducing customer churn in all product
categories."
Analog and digital service revenues totaled $898 million for the three
months ended March 31, 2003, an increase of $42 million, or 5%, from the same
period a year ago. During the first quarter of 2003, the Company lost
approximately 50,600 analog video customers as compared to a loss of
approximately 157,500 analog video customers in the first quarter of 2002, and
68,800 analog video customers in the fourth quarter of 2002. Included in the
loss for the first quarter of 2003 were approximately 13,000 customers
previously served by the Company's transitional satellite service outside its
broadband footprint, Charter Anywhere. Due to the failure of the Company's
service provider for this product, Charter discontinued this offering, which
resulted in this one-time loss of customers. Excluding the effect of these
one-time losses, analog video customer losses were approximately 37,600, which
is approximately half the analog video customer loss experienced in the fourth
quarter of 2002, despite the price increases described earlier.
As a result of Charter's previously announced strategy to focus on
customers that are more likely to buy higher revenue and margin products, a plan
to repackage some digital service offerings and the discontinuance of its
transitional satellite service, the Company lost 31,700 digital customers during
the first quarter of 2003 but experienced a 2% increase in the average revenue
for digital service.
2
"We plan to remain focused on improving the profitability of our digital
product, but we do not expect the customer growth rates of the past, given the
market penetration in excess of 40% that we have already achieved," Mr Vogel
said.
Mr. Vogel emphasized revenue from high-speed data services totaled $122
million, an increase of $58 million, or 91%, in the first quarter of 2003
compared to the first quarter of 2002. "We nearly doubled our high-speed data
customer base in the last year, growing to 1,272,300 customers at March 31,
2003, from 657,900 a year ago. Charter Pipeline, our own branded high-speed data
service, is the Company's most profitable product with the lowest capital cost
to deploy. Having added 134,200 data customers during the first quarter, we are
continuing to actively market data services in an effort to increase the
penetration and profitability of Charter Pipeline in residential and commercial
markets.
"With the recent restatements of prior results, Charter has a financial
baseline against which to measure operational performance and key recurring
financial metrics of our business," Mr. Vogel said. "The results of the
strategic restructuring of our operations are beginning to show positive trends,
as evidenced by our improving revenue, cash flows from operations and adjusted
EBITDA, as well as the decline in our capital expenditures as we focus
principally on our goal of generating cash flow from all operating and investing
activities."
Mr. Vogel said the year 2003 is one of transition for the Company as it
moves towards its goals of enhanced operational efficiencies and productivity,
solid financial discipline, and growth in the revenues from all products and
services. "We plan to maintain a heightened focus on meeting customer needs in
order to stabilize our customer base, especially as it relates to analog video
customers, and improve our financial performance and return on invested
capital."
USE OF NON-GAAP FINANCIAL METRICS
The Company believes that adjusted EBITDA traditionally has provided
additional information useful in analyzing the underlying business results and
allows a standardized peer company comparison, while minimizing the differences
from depreciation policies, financial leverage and tax strategies. However,
adjusted EBITDA is a non-GAAP (Generally Accepted Accounting Principles)
financial metric and should be considered in addition to, not as a substitute
for, net loss, earnings per share or net cash flows from
3
operating activities. Adjusted EBITDA is defined as income from operations
before special charges, non-cash depreciation and amortization and option
compensation expense. A reconciliation of adjusted EBITDA to net cash flows from
operating activities and operating income is included in the following Addendum.
Interest on cash pay obligations excludes accretion of original issue discounts
on certain debt securities and amortization of deferred financing costs that are
reflected as interest expense in our statement of operations.
CONFERENCE CALL
The Company will host a conference call Wednesday, May 7, 2003 at 11:00
a.m. Eastern Time (ET) related to the contents of this release.
The conference call will be broadcast live via the Company's website at
www.charter.com. The call can be accessed through the "Investor Center" portion
of the website, via the "About Us" heading at the top of the page. Participants
should go to the call link at least 10 minutes prior to the start time to
register. The call will be archived on the website beginning two hours after
completion of the call.
Those parties interested in participating via telephone should dial
888-233-1576. International participants should dial 706-643-3458.
A replay of the call will be available at 800-642-1687 or 706-645-9291
beginning two hours after the completion of the call through midnight May 12,
2003. The passcode for the replay is 259520.
ABOUT CHARTER COMMUNICATIONS
Charter Communications, A Wired World Company(TM), is the nation's
third-largest broadband communications company. Charter provides a full range of
advanced broadband services to the home, including cable television on an
advanced digital video programming platform via Charter Digital Cable(R) brand
and high-speed Internet access marketed under the Charter Pipeline(R) brand.
Commercial high-speed data, video and Internet solutions are provided under the
Charter Business Networks(R) brand. Advertising sales and production services
are sold under the Charter Media(R) brand. More information about Charter can be
found at www.charter.com.
# # #
4
Contacts:
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Media Analysts
Deb Seidel Mary Jo Moehle
314-543-5703 314-543-2397
dseidel@chartercom.com mmoehle@chartercom.com
Cautionary Statement Regarding Forward-Looking Statements:
This news release includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, as amended, regarding, among other things, our plans,
strategies and prospects, both business and financial. Although we believe that
our plans, intentions and expectations reflected in or suggested by these
forward-looking statements are reasonable, we cannot assure you that we will
achieve or realize these plans, intentions or expectations. Forward-looking
statements are inherently subject to risks, uncertainties and assumptions. Many
of the forward-looking statements contained in this news release may be
identified by the use of forward-looking words such as "believe," "expect,"
"anticipate," "should," "planned," "will," "may," "intend," "estimated," and
"potential," among others. Important factors that could cause actual results to
differ materially from the forward-looking statements we make in this news
release are set forth in reports or documents that we file from time to time
with the United States Securities and Exchange Commission, or the SEC, and
include, but are not limited to:
- our ability to sustain and grow revenues and cash from operations by
offering video and data services and to maintain a stable customer
base, particularly in the face of increasingly aggressive
competition from other service providers;
- our ability to comply with all covenants in our credit facilities
and indentures, any violation of which would result in a violation
of the applicable facility or indenture and could trigger a default
of other obligations under cross default provisions;
- availability of funds to meet interest payment obligations under our
debt and to fund our operations and necessary capital expenditures,
either through cash from operations, further borrowings or other
sources;
- any adverse consequences arising out of the recent restatement of
our financial statements;
- the results of the pending grand jury investigation by the United
States Attorney's Office for the Eastern District of Missouri, the
pending SEC investigation and the putative class action and
derivative shareholders litigation against us;
- the cost and availability of funding to refinance the existing debt
that becomes due commencing in 2005;
- our ability to achieve free cash flow;
- our ability to obtain programming at reasonable prices;
- general business conditions, economic uncertainty or slowdown and
potential international conflict;
- the impact of any armed conflict, including loss of customers in
areas with large numbers of military personnel; and
- the effects of governmental regulation on our business.
All forward-looking statements attributable to us or a person acting on our
behalf are expressly qualified in their entirety by this cautionary statement.
We are under no obligation to update any of the forward looking statements after
the date of this news release to conform these statements to actual results or
to changes in our expectations.
5
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
THREE MONTHS ENDED
MARCH 31,
--------------------------------
2003 2002
------------- -------------
(RESTATED)
REVENUES:
Analog video .................................. $ 719 $ 691
Digital video ................................. 179 165
High-speed data ............................... 122 64
Advertising sales ............................. 57 58
Other ......................................... 101 96
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Total revenues ............................. 1,178 1,074
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COSTS AND EXPENSES:
Programming costs ............................. 314 283
Advertising sales ............................. 21 19
Service ....................................... 150 124
General and administrative .................... 215 194
Marketing ..................................... 20 28
Depreciation and amortization ................. 370 326
Option compensation expense, net .............. -- 2
Special charges, net .......................... 2 1
------------- -------------
Total costs and expenses ................... 1,092 977
------------- -------------
Income from operations ..................... 86 97
OTHER EXPENSES
Interest, net ................................. (390) (362)
Other, net .................................... 3 31
(387) (331)
Loss before minority interest, income taxes and
cumulative effect of accounting change ......... (301) (234)
Minority interest ................................ 160 124
------------- -------------
Loss before income taxes and cumulative effect
of accounting change ........................... (141) (110)
Income tax expense ............................... (40) --
------------- -------------
Loss before cumulative effect of accounting change (181) (110)
Cumulative effect of accounting change, net of tax -- (206)
------------- -------------
Net loss ......................................... (181) (316)
Dividends on preferred stock - redeemable ........ (1) (1)
------------- -------------
Net loss applicable to common
stock ............................................ $ (182) $ (317)
============= =============
Basic and diluted loss per share ................. $ (0.62) $ (1.08)
============= =============
Weighted average common shares outstanding ....... 294,466,137 294,394,939
============= =============
NOTE: Certain 2002 amounts have been reclassified to conform with the 2003
presentation.
Addendum to Charter Communications, Inc. Earnings Release
Three Months Ended March 31, 2003
Page 1 of 6
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS)
MARCH 31, DECEMBER 31,
2003 2002
-------- --------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ................................. $ 446 $ 321
Accounts receivable, net of allowance for doubtful accounts 233 259
Receivables from related party ............................ -- 8
Prepaid expenses and other current assets ................. 46 45
-------- --------
Total current assets ................................ 725 633
-------- --------
INVESTMENT IN CABLE PROPERTIES:
Property, plant and equipment, net ........................ 7,408 7,679
Franchises, net ........................................... 13,725 13,727
-------- --------
Total investment in cable properties, net ........... 21,133 21,406
-------- --------
OTHER ASSETS ................................................. 337 345
-------- --------
Total assets ......................................... $ 22,195 $ 22,384
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued expenses ..................... $ 1,253 $ 1,405
-------- --------
Total current liabilities ........................... 1,253 1,405
-------- --------
LONG-TERM DEBT ............................................... 18,961 18,671
DEFERRED MANAGEMENT FEES - RELATED PARTY ..................... 14 14
OTHER LONG-TERM LIABILITIES .................................. 1,181 1,177
MINORITY INTEREST ............................................ 869 1,025
PREFERRED STOCK - REDEEMABLE ................................. 55 51
SHAREHOLDERS' EQUITY (DEFICIT) ............................... (138) 41
-------- --------
Total liabilities and shareholders' equity (deficit) $ 22,195 $ 22,384
======== ========
Addendum to Charter Communications, Inc. Earnings Release
Three Months Ended March 31, 2003
Page 2 of 6
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
THREE MONTH ENDED MARCH 31,
--------------------
2003 2002
------- -------
(RESTATED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ...................................................................... $ (181) $ (316)
Adjustments to reconcile net loss to net cash flows from operating activities:
Minority interest .......................................................... (160) (124)
Depreciation and amortization .............................................. 370 326
Noncash interest expense ................................................... 106 94
Gain on derivative instruments and hedging activities ...................... (14) (33)
Deferred income taxes ...................................................... 40 --
Change in accounting principle ............................................. -- 206
Other, net ................................................................. 11 4
Changes in operating assets and liabilities, net of effects from acquisitions:
Accounts receivable ........................................................ 26 64
Prepaid expenses and other assets .......................................... (3) (3)
Accounts payable and accrued expenses ...................................... (41) (114)
Receivables from and payables to related party,
including deferred management fees ........................................ 8 (2)
------- -------
Net cash flows from operating activities ............................... 162 102
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment .................................... (104) (435)
Change in accounts payable and accrued expenses related to capital expenditures (124) (87)
Payments for acquisitions, net of cash acquired ............................... -- (78)
Purchases of investments ...................................................... (3) (4)
------- -------
Net cash flows from investing activities ............................... (231) (604)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt .................................................. 346 1,868
Repayments of long-term debt .................................................. (152) (1,311)
Payments for debt issuance costs .............................................. -- (40)
------- -------
Net cash flows from financing activities ............................... 194 517
------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS ........................................ 125 15
CASH AND CASH EQUIVALENTS, beginning of period ................................... 321 2
------- -------
CASH AND CASH EQUIVALENTS, end of period ......................................... $ 446 $ 17
======= =======
CASH PAID FOR INTEREST ........................................................... $ 160 $ 144
======= =======
Addendum to Charter Communications, Inc. Earnings Release
Three Months Ended March 31, 2003
Page 3 of 6
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED SUMMARY OF OPERATING STATISTICS
APPROXIMATE AS OF
------------------------------------------
MARCH 31, DECEMBER 31, MARCH 31,
2003 (A) 2002 (A) 2002 (A)
---------- ---------- ----------
VIDEO SERVICES:
ANALOG VIDEO:
Estimated homes passed (b) ..................................... 11,925,300 11,925,000 11,777,300
Residential (non-bulk) analog video customers (c) .............. 6,277,300 6,328,900 6,540,800
Multi-dwelling (bulk) and commercial unit customers (c) ......... 250,900 249,900 237,900
---------- ---------- ----------
Total analog video customers (c) ............................ 6,528,200 6,578,800 6,778,700
---------- ---------- ----------
Estimated penetration of analog video homes passed (b) (c) (d) . 55% 55% 58%
DIGITAL VIDEO:
Estimated digital homes passed (b) ............................. 11,547,000 11,547,000 10,894,000
Digital customers (e) .......................................... 2,651,100 2,682,800 2,208,900
Estimated penetration of digital homes passed (b) (d) (e) ....... 23% 23% 20%
Digital percentage of analog video customers (c) (e) (f) ........ 41% 41% 33%
Digital set-top terminals deployed .............................. 3,749,400 3,772,600 3,055,900
Estimated video-on-demand homes passed (b) ...................... 3,279,000 3,195,000 1,994,700
HIGH-SPEED DATA SERVICES:
Estimated cable modem homes passed (b) ........................... 9,970,000 9,826,000 8,180,300
Residential cable modem customers (g) (h) ........................ 1,272,300 1,138,100 657,900
Estimated penetration of cable modem homes passed (b) (d) (g) (h) 13% 12% 8%
Dial-up customers ................................................ 12,700 14,200 32,500
REVENUE GENERATING UNITS (I):
Analog video customers (c) .......................................... 6,528,200 6,578,800 6,778,700
Digital customers (e) ............................................... 2,651,100 2,682,800 2,208,900
Cable modem customers (g) (h) ....................................... 1,272,300 1,138,100 657,900
Telephony customers (j) ............................................. 22,800 22,800 15,700
---------- ---------- ----------
Total revenue generating units (i) .............................. 10,474,400 10,422,500 9,661,200
========== ========== ==========
Customer relationships (k) .......................................... 6,584,900 6,634,700 6,804,800
See footnotes to unaudited summary of operating statistics on page 5 of this
Addendum.
Addendum to Charter Communications, Inc. Earnings Release
Three Months Ended March 31, 2003
Page 4 of 6
(a) "Customers" include all persons corporate billing records show as receiving
service, regardless of their payment status, except for complimentary accounts
(such as Charter employees). The adequacy of previously reported customer
reductions, our disconnect policies, the application of those policies and their
effect on the customer totals reported by us during 2001 and prior periods are
currently under investigation by the United States Attorney's Office for the
Eastern District of Missouri and the Securities and Exchange Commission. Those
investigations are not complete. Upon the completion of such investigations, and
depending on their outcome, we may make additional adjustments in the 2001 or
prior periods customer numbers if such adjustments are appropriate. When we
publicly announced our 2001 results on February 11, 2002, we also announced that
we expected the number of customers to decline by 120,000 during the first
quarter of 2002. We ultimately reported a loss of 145,000 customers in that
quarter. The customer reduction was primarily the result of eliminating
non-paying or delinquent customers from the customer totals.
(b) Homes passed represents the estimated number of living units, such as single
family homes, apartments units and condominium units passed by the cable
distribution network in a given area to which we offer the service indicated.
Homes passed excludes commercial units passed by the cable distribution network.
(c) Analog video customers include all customers who receive video services
(including those who also purchase cable modem and telephony services), but
exclude approximately 56,700, 55,900 and 26,100 customer relationships,
respectively, who pay for cable modem service only and who are only counted as
cable modem customers. This represents a change in our methodology from prior
reports through September 30, 2002, in which cable modem only customer
relationships were included within our analog video customers in light of the
fact that they were entitled to receive our most basic level of analog video
service. We made this change because we determined that most of these customers
were unable to receive our most basic level of analog service because this
service was physically secured or blocked, was unavailable in certain areas or
the customers were unaware that this service was available to them. Commercial
and multi-dwelling structures 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 analog video customers is consistent with the methodology used in
determining costs paid to programmers and has been consistently applied year
over year. As we increase our effective analog prices to residential customers
without a corresponding increase in the prices charged to commercial service or
multi-dwelling customers, our EBU count will decline even if there is no real
loss in commercial service or multi-dwelling customers. Our policy is not to
count complimentary accounts (such as Charter employees) as customers.
(d) Penetration represents customers as a percentage of homes passed.
(e) Digital video customers include all households that have one or more digital
set-top terminals. Included in digital video customers at March 31, 2003,
December 31, 2002 and March 31, 2002 are 15,000, 27,500 and 31,000 customers,
respectively, that receive digital video service directly through satellite
transmission.
(f) Represents the number of digital video customers as a percentage of analog
video customers.
(g) As noted above, all of these customers also receive video service and are
included in the video statistics above, except that the video statistics do not
include approximately 56,700, 55,900 and 26,100 customers at March 31, 2003,
December 31, 2002 and March 31, 2002, respectively, who were cable modem only
customers and were entitled to receive only our most basic analog video service.
(h) During the first three quarters of 2002, commercial cable modem or data
customers were calculated on an Equivalent Modem Unit or EMU basis, which
involves converting commercial revenues to residential customer counts. Given
the growth plans for our commercial data business, we do not believe that
converting commercial revenues to residential customer counts is the most
meaningful way to disclose or describe this growing business. We, therefore,
excluded 63,700 EMUs that were previously reported in our March 31, 2002
customer totals for comparative purposes.
(i) Revenue generating units represent the sum total of all primary analog
video, digital video, high-speed data and telephony customers, not counting
additional outlets within one household. For example, a customer who receives
two types of services (such as analog video and digital video) would be treated
as two revenue generating units, and if that customer added on cable modem
service, the customer would be treated as three revenue generating units. This
statistic is computed in accordance with the guidelines of the National Cable &
Telecommunications Association (NCTA) that have been adopted by eleven publicly
traded cable operators (including Charter Communications, Inc.) as an industry
standard.
(j) Telephony customers include all households purchasing telephone service.
(k) Customer relationships include the number of customers that receive at least
one level of service encompassing video, data and telephony services, without
regard to which service(s) customers purchase. This statistic is computed in
accordance with the guidelines of the NCTA that have been adopted by eleven
publicly traded cable operators (including Charter Communications, Inc.) as an
industry standard.
Addendum to Charter Communications, Inc. Earnings Release
Three Months Ended March 31, 2003
Page 5 of 6
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED RECONCILIATION OF ADJUSTED EBITDA TO GAAP MEASURES
(DOLLARS IN MILLIONS)
THREE MONTHS ENDED MARCH 31,
---------------
2003 2002
----- -----
Income from operations $ 86 $ 97
Depreciation and amortization 370 326
Option compensation expense -- 2
Special charge, net 2 1
----- -----
Adjusted EBITDA 458 426
Interest on cash pay obligations (284) (268)
Special charges (2) (1)
Change in operating assets and liabilities (10) (55)
----- -----
Net cash flows from operating activities $ 162 $ 102
===== =====
The above schedule is presented in order to reconcile adjusted EBITDA, a
non-GAAP measure, to the most directly comparable GAAP measures in accordance
with Section 401(b) of the Sarbanes-Oxley Act.
Addendum to Charter Communications, Inc. Earnings Release
Three Months Ended March 31, 2003
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