SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
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): November 30, 2009
CCO Holdings, LLC
CCO Holdings Capital
Corp.
(Exact name of registrants as
specified in their charters)
Delaware
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
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333-112593
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86-1067239
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333-112593-01
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20-0257904
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(Commission File
Number)
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(I.R.S. Employer
Identification Number)
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12405 Powerscourt Drive
St. Louis, Missouri
63131
(Address of principal executive
offices including zip code)
(314) 965-0555
(Registrants' telephone number,
including area code)
Not
Applicable
(Former name or former address, if
changed since last report)
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
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o
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Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
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o
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
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o
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
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ITEM
2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
On
November 30, 2009, Charter Communications, Inc. (the "Company"), the
indirect parent company of CCO Holdings, LLC and CCO Holdings Capital Corp., its
subsidiaries and certain of its affliliates consummated their Joint Plan
of Reorganization. In connection with its emergence from chapter 11 bankruptcy,
the Company issued its financial statements for the year ended December 31, 2008
to contain an audit report of the Company's registered independent public
accounting firm that does not contain going concern qualifications.
In December 2007, the
Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standards ("SFAS”) No. 160, Noncontrolling Interests in
Consolidated Financial Statements - An Amendment of ARB No. 51. which
requires noncontrolling interest (previously referred to as minority interests)
to be reported as a component of equity. The Company adopted SFAS No. 160
effective January 1, 2009. The Company’s adoption of the new standard resulted
in changes to the presentation of noncontrolling interests within the Company’s
consolidated financial statements for the years ended December 31, 2008, 2007
and 2006.
The
disclosure in this Item 2.02, as well as Exhibit 99.1 included herewith, which
revises Item 8 of the Company’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2008, is to be considered “filed” with the Securities and
Exchange Commission for all purposes under the Securities Exchange Act of 1934,
as amended.
Refer to
the Company’s website www.charter.com for
Item 8 of Charter Communications Operating, LLC’s Annual Report for the fiscal
year ended December 31, 2008 revised as described above.
ITEM 9.01. FINANCIAL STATEMENTS
AND EXHIBITS.
(d) Exhibits
The
following exhibit is filed pursuant to Item 2.02:
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Exhibit
No.
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Description
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99.1
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Item 8 of the Company’s 2008 Annual Report on Form 10-K, “Financial Statements and Supplementary Data”.* |
* filed herewith
7
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, CCO
Holdings, LLC and CCO Holdings Capital Corp. have duly caused this
Current Report to be signed on their behalf by the undersigned hereunto duly
authorized.
CCO HOLDINGS,
LLC
Registrant
By: CHARTER COMMUNICATIONS, INC., Sole
Manager
Dated: December 4, 2009
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By:/s/
Eloise E. Schmitz
Name:
Eloise E. Schmitz
Title: Executive Vice
President and Chief Financial
Officer
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CCO HOLDINGS
CAPITAL CORP.
Registrant
Dated: December 4, 2009
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By:/s/
Eloise E. Schmitz
Name:
Eloise E. Schmitz
Title: Executive Vice
President and Chief Financial
Officer
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EXHIBIT INDEX
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Exhibit
No.
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Description
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99.1
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Item 8 of the Company’s 2008 Annual Report on Form 10-K, “Financial Statements and Supplementary Data”.* |
* filed
herewith
Exhibit
99.1
INDEX
TO FINANCIAL STATEMENTS
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Page
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Audited
Financial Statements
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Report
of Independent Registered Public Accounting Firm
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F-2
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Consolidated
Balance Sheets as of December 31, 2008 and 2007
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F-3
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Consolidated
Statements of Operations for the Years Ended December 31, 2008, 2007,
and 2006
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F-4
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Consolidated
Statements of Changes in Member’s Equity (Deficit) for the Years Ended
December 31, 2008, 2007, and 2006
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F-5
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Consolidated
Statements of Cash Flows for the Years Ended December 31, 2008, 2007,
and 2006
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F-6
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Notes
to Consolidated Financial Statements
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F-7
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F-1
Report
of Independent Registered Public Accounting Firm
The
Manager and Member of
CCO
Holdings, LLC
We have
audited the accompanying consolidated balance sheets of CCO Holdings, LLC
and subsidiaries as of December 31, 2008 and 2007, and the related
consolidated statements of operations, changes in member's equity (deficit), and
cash flows for each of the years in the three-year period ended
December 31, 2008. These consolidated financial statements are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of CCO Holdings, LLC and
subsidiaries as of December 31, 2008 and 2007, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2008, in conformity with U.S. generally accepted
accounting principles.
As
discussed in Note 24 to the consolidated financial statements, effective January
1, 2009, the Company adopted Statement of Financial Accounting Standards No.
160, Noncontrolling Interests
in Consolidated Financial Statements – An Amendment of ARB No.
51.
/s/ KPMG
LLP
St.
Louis, Missouri
March 30,
2009, except as to Note 24 and Note 26, which are as of November 30,
2009
F-2
CCO
HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(dollars
in millions)
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December
31,
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||||||||
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2008
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2007
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|||||||
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ASSETS
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||||||||
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CURRENT
ASSETS:
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||||||||
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Cash
and cash equivalents
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$ | 948 | $ | 2 | ||||
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Accounts
receivable, less allowance for doubtful accounts of
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||||||||
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$18
and $18, respectively
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221 | 220 | ||||||
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Prepaid
expenses and other current assets
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23 | 24 | ||||||
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Total
current assets
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1,192 | 246 | ||||||
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INVESTMENT
IN CABLE PROPERTIES:
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||||||||
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Property,
plant and equipment, net of accumulated
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||||||||
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depreciation
of $7,191 and $6,432, respectively
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4,959 | 5,072 | ||||||
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Franchises,
net
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7,384 | 8,942 | ||||||
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Total
investment in cable properties, net
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12,343 | 14,014 | ||||||
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OTHER
NONCURRENT ASSETS
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211 | 186 | ||||||
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Total
assets
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$ | 13,746 | $ | 14,446 | ||||
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LIABILITIES
AND MEMBER’S EQUITY (DEFICIT)
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CURRENT
LIABILITIES:
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||||||||
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Accounts
payable and accrued expenses
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$ | 909 | $ | 929 | ||||
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Payables
to related party
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236 | 192 | ||||||
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Current
portion of long-term debt
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70 | -- | ||||||
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Total
current liabilities
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1,215 | 1,121 | ||||||
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LONG-TERM
DEBT
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11,719 | 9,859 | ||||||
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LOANS
PAYABLE – RELATED PARTY
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240 | 332 | ||||||
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DEFERRED
MANAGEMENT FEES – RELATED PARTY
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14 | 14 | ||||||
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OTHER
LONG-TERM LIABILITIES
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695 | 545 | ||||||
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TEMPORARY
EQUITY
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203 | 199 | ||||||
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MEMBER’S
EQUITY (DEFICIT):
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||||||||
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Accumulated
other comprehensive loss
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(303 | ) | (123 | ) | ||||
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Member’s
equity (deficit)
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(510 | ) | 2,035 | |||||
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Total
CCO Holdings member’s equity (deficit)
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(813 | ) | 1,912 | |||||
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Noncontrolling
interest
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473 | 464 | ||||||
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Total
member’s equity (deficit)
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(340 | ) | 2,376 | |||||
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Total
liabilities and member’s equity (deficit)
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$ | 13,746 | $ | 14,446 | ||||
The
accompanying notes are an integral part of these consolidated financial
statements.
F-3
CCO
HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
(dollars
in millions)
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Year
Ended December 31,
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2008
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2007
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2006
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REVENUES
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$ | 6,479 | $ | 6,002 | $ | 5,504 | ||||||
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COSTS
AND EXPENSES:
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Operating
(excluding depreciation and amortization)
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2,792 | 2,620 | 2,438 | |||||||||
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Selling,
general and administrative
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1,401 | 1,289 | 1,165 | |||||||||
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Depreciation
and amortization
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1,310 | 1,328 | 1,354 | |||||||||
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Impairment
of franchises
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1,521 | 178 | -- | |||||||||
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Asset
impairment charges
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-- | 56 | 159 | |||||||||
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Other
operating (income) expenses, net
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69 | (17 | ) | 21 | ||||||||
| 7,093 | 5,454 | 5,137 | ||||||||||
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Operating
income (loss) from continuing operations
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(614 | ) | 548 | 367 | ||||||||
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OTHER
INCOME AND EXPENSES:
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||||||||||||
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Interest
expense, net
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(818 | ) | (776 | ) | (766 | ) | ||||||
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Change
in value of derivatives
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(62 | ) | (46 | ) | 6 | |||||||
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Loss
on extinguishment of debt
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-- | (32 | ) | (27 | ) | |||||||
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Other
expense, net
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(19 | ) | (24 | ) | (4 | ) | ||||||
| (899 | ) | (878 | ) | (791 | ) | |||||||
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Loss
from continuing operations, before income tax expense
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(1,513 | ) | (330 | ) | (424 | ) | ||||||
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INCOME
TAX BENEFIT (EXPENSE)
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40 | (20 | ) | (7 | ) | |||||||
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Loss
from continuing operations
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(1,473 | ) | (350 | ) | (431 | ) | ||||||
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INCOME
FROM DISCONTINUED OPERATIONS,
NET
OF TAX
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-- | -- | 238 | |||||||||
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Net
loss
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$ | (1,473 | ) | $ | (350 | ) | $ | (193 | ) | |||
The
accompanying notes are an integral part of these consolidated financial
statements.
F-4
CCO
HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CHANGES IN MEMBER’S EQUITY (DEFICIT)
(dollars
in millions)
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Accumulated
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||||||||||||
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Other
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Total
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|||||||||||
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Member’s
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Comprehensive
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Member's
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||||||||||
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Equity
(Deficit)
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Income
(Loss)
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Equity
(Deficit)
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||||||||||
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BALANCE,
December 31, 2005
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$ | 5,042 | $ | 2 | $ | 5,044 | ||||||
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Contributions
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148 | -- | 148 | |||||||||
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Distributions
to parent company
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(1,151 | ) | -- | (1,151 | ) | |||||||
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Changes
in fair value of interest rate agreements
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-- | (1 | ) | (1 | ) | |||||||
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Net
loss
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(193 | ) | -- | (193 | ) | |||||||
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BALANCE,
December 31, 2006
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3,846 | 1 | 3,847 | |||||||||
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Distributions
to parent company
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(1,447 | ) | -- | (1,447 | ) | |||||||
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Changes
in fair value of interest rate agreements
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-- | (123 | ) | (123 | ) | |||||||
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Other
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(14 | ) | (1 | ) | (15 | ) | ||||||
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Net
loss
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(350 | ) | -- | (350 | ) | |||||||
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BALANCE,
December 31, 2007
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2,035 | (123 | ) | 1,912 | ||||||||
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Distributions
to parent company
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(1,072 | ) | -- | (1,072 | ) | |||||||
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Changes
in fair value of interest rate agreements
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-- | (180 | ) | (180 | ) | |||||||
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Net
loss
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(1,473 | ) | -- | (1,473 | ) | |||||||
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BALANCE,
December 31, 2008
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$ | (510 | ) | $ | (303 | ) | $ | (813 | ) | |||
The
accompanying notes are an integral part of these consolidated financial
statements.
F-5
CCO
HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(dollars
in millions)
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Year
Ended December 31,
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||||||||||||
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2008
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2007
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2006
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||||||||||
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CASH
FLOWS FROM OPERATING ACTIVITIES:
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||||||||||||
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Net
loss
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$ | (1,473 | ) | $ | (350 | ) | $ | (193 | ) | |||
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Adjustments
to reconcile net loss to net cash flows from operating
activities:
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||||||||||||
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Depreciation
and amortization
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1,310 | 1,328 | 1,362 | |||||||||
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Impairment
of franchises
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1,521 | 178 | -- | |||||||||
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Asset
impairment charges
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-- | 56 | 159 | |||||||||
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Noncash
interest expense
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22 | 17 | 23 | |||||||||
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Change
in value of derivatives
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62 | 46 | (6 | ) | ||||||||
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Deferred
income taxes
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(47 | ) | 12 | -- | ||||||||
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(Gain)
loss on sale of assets, net
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13 | (3 | ) | (192 | ) | |||||||
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Loss
on extinguishment of debt
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-- | 21 | 27 | |||||||||
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Other,
net
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48 | 20 | 16 | |||||||||
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Changes
in operating assets and liabilities, net of effects from acquisitions and
dispositions:
|
||||||||||||
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Accounts
receivable
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(1 | ) | (33 | ) | 23 | |||||||
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Prepaid
expenses and other assets
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-- | (5 | ) | 1 | ||||||||
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Accounts
payable, accrued expenses and other
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(21 | ) | 31 | (23 | ) | |||||||
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Receivables
from and payables to related party, including deferred management
fees
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33 | 55 | 41 | |||||||||
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Net
cash flows from operating activities
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1,467 | 1,373 | 1,238 | |||||||||
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CASH
FLOWS FROM INVESTING ACTIVITIES:
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||||||||||||
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Purchases
of property, plant and equipment
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(1,202 | ) | (1,244 | ) | (1,103 | ) | ||||||
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Change
in accrued expenses related to capital expenditures
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(39 | ) | (2 | ) | 24 | |||||||
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Proceeds
from sale of assets, including cable systems
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43 | 104 | 1,020 | |||||||||
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Other,
net
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(12 | ) | (31 | ) | (6 | ) | ||||||
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Net
cash flows from investing activities
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(1,210 | ) | (1,173 | ) | (65 | ) | ||||||
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CASH
FLOWS FROM FINANCING ACTIVITIES:
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||||||||||||
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Borrowings
of long-term debt
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3,105 | 7,877 | 6,322 | |||||||||
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Borrowings
from related parties
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-- | -- | 300 | |||||||||
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Repayments
of long-term debt
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(1,179 | ) | (6,628 | ) | (6,729 | ) | ||||||
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Repayments
to related parties
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(115 | ) | -- | (20 | ) | |||||||
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Payments
for debt issuance costs
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(38 | ) | (33 | ) | (18 | ) | ||||||
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Contributions
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-- | -- | 148 | |||||||||
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Distributions
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(1,072 | ) | (1,447 | ) | (1,151 | ) | ||||||
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Other,
net
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(12 | ) | 5 | -- | ||||||||
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Net
cash flows from financing activities
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689 | (226 | ) | (1,148 | ) | |||||||
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NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
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946 | (26 | ) | 25 | ||||||||
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CASH
AND CASH EQUIVALENTS, beginning of period
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2 | 28 | 3 | |||||||||
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CASH
AND CASH EQUIVALENTS, end of period
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$ | 948 | $ | 2 | $ | 28 | ||||||
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CASH
PAID FOR INTEREST
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$ | 774 | $ | 728 | $ | 718 | ||||||
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NONCASH
TRANSACTIONS:
|
||||||||||||
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Issuance
of debt by Charter Communications Operating, LLC
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$ | -- | $ | -- | $ | 37 | ||||||
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Retirement
of Renaissance Media Group LLC debt
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$ | -- | $ | -- | $ | (37 | ) | |||||
The
accompanying notes are an integral part of these consolidated financial
statements.
F-6
CCO
HOLDINGS, LLC AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008, 2007, AND 2006
(dollars
in millions, except where indicated)
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1.
|
|
Organization
and Basis of Presentation
|
CCO
Holdings, LLC (“CCO Holdings”) is a holding company whose principal assets at
December 31, 2008 are the equity interests in its operating
subsidiaries. CCO Holdings is a direct subsidiary of CCH II, LLC
(“CCH II”), which is an indirect subsidiary of Charter Communications Holdings,
LLC (“Charter Holdings”). Charter Holdings is an indirect subsidiary
of Charter Communications, Inc. (“Charter”). The consolidated
financial statements include the accounts of CCO Holdings and all of its
subsidiaries where the underlying operations reside, which are collectively
referred to herein as the "Company." All significant intercompany
accounts and transactions among consolidated entities have been
eliminated.
The
Company is a broadband communications company operating in the United
States. The Company offers 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™, and digital
video recorder (“DVR”) service. The Company sells its cable video
programming, high-speed Internet, telephone, and advanced broadband services
primarily on a subscription basis. The Company also sells local
advertising on cable networks.
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
|
The
Company’s consolidated financial statements have been prepared assuming that it
will continue as a going concern. The conditions noted below raise
substantial doubt about the Company’s ability to continue as a going
concern. The consolidated financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the outcome of this uncertainty.
On
February 12, 2009, Charter announced that it had reached agreements in principle
with certain holders of the Company’s parent companies’ notes (the
“Noteholders”) holding approximately $4.1 billion in aggregate principal amount
of notes issued by Charter’s subsidiaries, CCH I, LLC (“CCH I”) and CCH
II. Pursuant to separate restructuring agreements, dated February 11,
2009, entered into with each Noteholder (as amended, the “Restructuring
Agreements”), on March 27, 2009, Charter and its subsidiaries, including CCO
Holdings, filed voluntary petitions for relief under Chapter 11 of the United
States Bankruptcy Code to implement a restructuring pursuant to a joint plan of
reorganization (the “Plan”) aimed at improving their capital structure (the
“Proposed Restructuring”). The filing of bankruptcy is an event of
default under the Company’s indebtedness. Refer to discussion of
subsequent events regarding the Proposed Restructuring in Note 26.
During
the fourth quarter of 2008, Charter Operating drew down all except $27 million
of amounts available under the revolving credit facility. During the
first quarter of 2009, Charter Operating presented a qualifying draw notice to
the banks under the revolving credit facility but was refused those
funds. Additionally, upon filing bankruptcy, Charter Operating will
no longer have access to the revolving credit facility and will rely on cash on
hand and cash flows from operating activities to fund our projected cash
needs. The Company’s and its parent companies’ projected cash needs
and projected sources of liquidity depend upon, among other things, its actual
results, the timing and amount of its expenditures, and the outcome of various
matters in its Chapter 11 bankruptcy proceedings and financial
restructuring. The outcome of the Proposed Restructuring is subject
to substantial risks. See Note 26.
F-7
CCO
HOLDINGS, LLC AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008, 2007, AND 2006
(dollars
in millions, except where indicated)
The
Company incurred net losses of $1.5 billion, $350 million, and $193 million in
2008, 2007, and 2006, respectively. The Company’s net cash flows from
operating activities were $1.5 billion, $1.4 billion, and $1.2 billion for the
years ending December 31, 2008, 2007, and 2006, respectively.
The
Company's total debt as of December 31, 2008 was $11.8 billion, consisting of
$8.6 billion of credit facility debt and $3.2 billion accreted value of
high-yield notes. In each of 2009, 2010, and 2011, $70 million of the
Company’s debt matures. In 2012 and beyond, significant additional
amounts will become due under the Company’s remaining long-term debt
obligations.
The
Company requires significant cash to fund debt service costs, capital
expenditures and ongoing operations. The Company has historically
funded these requirements through cash flows from operating activities,
borrowings under its credit facilities, equity contributions from its 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 year
ended December 31, 2008, the Company generated $1.5 billion of net cash flows
from operating activities, after paying cash interest of $774 million. In addition, the Company
used $1.2 billion for purchases of property, plant and
equipment. Finally, the Company generated net cash flows from
financing activities of $689 million, as a result of financing transactions and
credit facility borrowings completed during the year ended December 31,
2008. As of December 31, 2008, the Company had cash on hand of $948
million.
Although
the Company has been able to refinance or otherwise fund the repayment of debt
in the past, it 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, especially given the recent
volatility and disruption of the capital and credit markets and the
deterioration of general economic conditions in recent months.
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 December 31,
2008, Charter Holdco was owed $13 million in intercompany loans from Charter
Communications Operating, LLC (“Charter Operating”) and had $1 million in cash,
which amounts were available to pay interest and principal on Charter's
convertible senior notes to the extent not otherwise used, for example, to
satisfy maturities at Charter Holdings. In addition, as long as Charter
Holdco continues to hold the $137 million of Charter Holdings’ notes due 2009
and 2010 (as discussed further below), Charter Holdco will receive interest and
principal payments from Charter Holdings to the extent Charter Holdings is able
to make such payments. 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 Company’s and
its parent companies’ 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 December 31, 2008, there was
no default under any of these indentures or credit
facilities. However, certain of Charter’s subsidiaries did not meet
their applicable leverage ratio tests based on December 31, 2008 financial
results. As a result, distributions from certain of Charter’s
subsidiaries to their parent companies would have been restricted at such time
and will continue to be restricted unless those tests are
met. Distributions by Charter Operating for payment of principal on
parent company notes are further restricted by the covenants in its 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 and Charter Operating
credit facilities.
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
F-8
CCO
HOLDINGS, LLC AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008, 2007, AND 2006
(dollars
in millions, except where indicated)
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 December 31, 2008, there was no
default under Charter Holdings’ indentures, the other specified tests were met,
and Charter Holdings met its leverage ratio test based on December 31, 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 Charter’s subsidiaries, including the Company,
may be limited by applicable law. Under the Delaware Limited
Liability Company Act, Charter’s subsidiaries may only make distributions if
they have “surplus” as defined in the act. Under fraudulent transfer
laws, Charter’s 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.
|
It is
uncertain whether Charter’s subsidiaries, including the Company, will have, at
the relevant times, sufficient surplus at the relevant subsidiaries to make
distributions, including for payments of interest and principal on the debts of
the parents of such entities, and there can otherwise be no assurance that
Charter’s 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 parent company indebtedness.
|
3.
|
|
Summary
of Significant Accounting Policies
|
Cash Equivalents
The
Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents. These investments are
carried at cost, which approximates market value. Cash and cash
equivalents consist primarily of money market funds and commercial
paper.
Property, Plant and
Equipment
Property,
plant and equipment are recorded at cost, including all material, labor and
certain indirect costs associated with the construction of cable transmission
and distribution facilities. While the Company’s capitalization is
based on specific activities, once capitalized, costs are tracked by fixed asset
category at the cable system level and not on a specific asset
basis. For assets that are sold or retired, the estimated historical
cost and related accumulated depreciation is removed. Costs
associated with initial customer installations and the additions of network
equipment necessary to enable advanced services are
capitalized. Costs capitalized as part of initial customer
installations include materials, labor, and certain indirect
costs. Indirect costs are associated with the activities of the
Company’s personnel who assist in connecting and activating the new service and
consist of compensation and indirect costs associated with these support
functions. Indirect costs primarily include employee benefits and
payroll taxes, direct variable costs associated with capitalizable activities,
consisting primarily of installation and construction vehicle costs, the cost of
dispatch personnel and indirect costs directly attributable to capitalizable
activities. The costs of disconnecting service at a customer’s
dwelling or reconnecting service to a previously installed dwelling are charged
to operating expense in the period incurred. Costs for repairs and
maintenance are charged to operating expense as
F-9
CCO
HOLDINGS, LLC AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008, 2007, AND 2006
(dollars
in millions, except where indicated)
incurred,
while plant and equipment replacement and betterments, including replacement of
cable drops from the pole to the dwelling, are capitalized.
Depreciation
is recorded using the straight-line composite method over management’s estimate
of the useful lives of the related assets as follows:
|
Cable
distribution systems
|
7-20 years
|
|
Customer
equipment and installations
|
3-5 years
|
|
Vehicles
and equipment
|
1-5 years
|
|
Buildings
and leasehold improvements
|
5-15 years
|
|
Furniture,
fixtures and equipment
|
5 years
|
Asset
Retirement Obligations
Certain
of the Company’s franchise agreements and leases contain provisions requiring
the Company to restore facilities or remove equipment in the event that the
franchise or lease agreement is not renewed. The Company expects to
continually renew its franchise agreements and has concluded that substantially
all of the related franchise rights are indefinite lived intangible
assets. Accordingly, the possibility is remote that the Company would
be required to incur significant restoration or removal costs related to these
franchise agreements in the foreseeable future. Statement of
Financial Accounting Standards (“SFAS”) No. 143, Accounting for Asset Retirement
Obligations, as interpreted by Financial Accounting Standards Board
(“FASB”) Interpretation (“FIN”) No. 47, Accounting for Conditional Asset
Retirement Obligations – an Interpretation of FASB Statement No. 143,
requires that a liability be recognized for an asset retirement obligation in
the period in which it is incurred if a reasonable estimate of fair value can be
made. The Company has not recorded an estimate for potential
franchise related obligations but would record an estimated liability in the
unlikely event a franchise agreement containing such a provision were no longer
expected to be renewed. The Company also expects to renew many of its
lease agreements related to the continued operation of its cable business in the
franchise areas. For the Company’s lease agreements, the estimated
liabilities related to the removal provisions, where applicable, have been
recorded and are not significant to the financial statements.
Franchises
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 SFAS No. 142, Goodwill and Other Intangible
Assets. All franchises that qualify for indefinite-life treatment under
SFAS No. 142 are no longer amortized against earnings but instead are
tested for impairment annually or more frequently as warranted by events or
changes in circumstances (see Note 7). The Company concluded that
substantially all of its franchises qualify for indefinite-life
treatment. Costs incurred in renewing cable franchises are deferred
and amortized over 10 years.
Other Noncurrent
Assets
Other
noncurrent assets primarily include deferred financing costs, investments in
equity securities and goodwill. Costs related to borrowings are
deferred and amortized to interest expense over the terms of the related
borrowings.
Investments
in equity securities are accounted for at cost, under the equity method of
accounting or in accordance with SFAS No. 115, Accounting for Certain Investments
in Debt and Equity Securities. The Company recognizes losses
for any decline in value considered to be other than temporary.
Valuation of Property, Plant and
Equipment
The
Company evaluates the recoverability of long-lived assets to be held and used
for impairment when events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Such events or
changes in circumstances could include such factors as impairment of the
Company’s indefinite life franchise under
F-10
CCO
HOLDINGS, LLC AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008, 2007, AND 2006
(dollars
in millions, except where indicated)
SFAS No.
142, changes in technological advances, fluctuations in the fair value of such
assets, adverse changes in relationships with local franchise authorities,
adverse changes in market conditions or a deterioration of operating
results. If a review indicates that the carrying value of such asset
is not recoverable from estimated undiscounted cash flows, the carrying value of
such asset is reduced to its estimated fair value. While the Company
believes that its estimates of future cash flows are reasonable, different
assumptions regarding such cash flows could materially affect its evaluations of
asset recoverability. No impairments of long-lived assets to be held
and used were recorded in 2008, 2007, and 2006; however, approximately $56
million and $159 million of impairment on assets held for sale was recorded for
the years ended December 31, 2007 and 2006, respectively (see Note
4).
Derivative Financial
Instruments
The
Company accounts for derivative financial instruments in accordance with SFAS
No. 133, Accounting for
Derivative Instruments and Hedging Activities, as amended. For
those instruments which qualify as hedging activities, related gains or losses
are recorded in accumulated other comprehensive income (loss). For
all other derivative instruments, the related gains or losses are recorded in
the statements of operations. The Company uses interest rate swap
agreements to manage its interest costs and reduce the Company’s exposure to
increases in floating interest rates. The Company’s policy is to
manage its 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 Company agrees to exchange, at specified intervals
through 2013, the difference between fixed and variable interest amounts
calculated by reference to agreed-upon notional principal amounts. At
the banks’ option, certain interest rate swap agreements may be extended through
2014. The Company does not hold or issue any derivative financial
instruments for trading purposes.
Revenue
Recognition
Revenues
from residential and commercial video, high-speed Internet and telephone
services are recognized when the related services are
provided. Advertising sales are recognized at estimated realizable
values in the period that the advertisements are broadcast. Franchise
fees imposed by local governmental authorities are collected on a monthly basis
from the Company’s customers and are periodically remitted to local franchise
authorities. Franchise fees of $187 million, $177 million, and $179
million for the years ended December 31, 2008, 2007, and 2006, respectively, are
reported in other revenues, on a gross basis with a corresponding operating
expense. Sales taxes
collected and remitted to state and local authorities are recorded on a net
basis.
The
Company’s revenues by product line are as follows:
|
Year
Ended December 31,
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
Video
|
$ | 3,463 | $ | 3,392 | $ | 3,349 | ||||||
|
High-speed
Internet
|
1,356 | 1,243 | 1,047 | |||||||||
|
Telephone
|
555 | 345 | 137 | |||||||||
|
Commercial
|
392 | 341 | 305 | |||||||||
|
Advertising
sales
|
308 | 298 | 319 | |||||||||
|
Other
|
405 | 383 | 347 | |||||||||
| $ | 6,479 | $ | 6,002 | $ | 5,504 | |||||||
Programming
Costs
The
Company has various contracts to obtain basic, digital and premium video
programming from program suppliers whose compensation is typically based on a
flat fee per customer. The cost of the right to exhibit network
programming under such arrangements is recorded in operating expenses in the
month the programming is available for exhibition. Programming costs
are paid each month based on calculations performed by the Company and are
subject to periodic audits performed by the programmers. Certain
programming contracts contain incentives to be
F-11
CCO
HOLDINGS, LLC AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008, 2007, AND 2006
(dollars
in millions, except where indicated)
paid by
the programmers. The Company receives these payments related to the
activation of the programmer’s cable television channel and recognizes the
incentives on a straight-line basis over the life of the programming agreement
as a reduction of programming expense. This offset to programming
expense was $33 million, $25 million, and $32 million for the years ended
December 31, 2008, 2007, and 2006, respectively. As of
December 31, 2008 and 2007, the deferred amounts of such economic
consideration, included in other long-term liabilities, were $61 million and $90
million, respectively. Programming costs included in the accompanying
statement of operations were $1.6 billion, $1.6 billion, and $1.5 billion for
the years ended December 31, 2008, 2007, and 2006,
respectively.
Advertising
Costs
Advertising
costs associated with marketing the Company’s products and services are
generally expensed as costs are incurred. Such advertising expense
was $229 million, $187 million, and $131 million for the years ended
December 31, 2008, 2007, and 2006, respectively.
Multiple-Element
Transactions
In the
normal course of business, the Company enters into multiple-element transactions
where it is simultaneously both a customer and a vendor with the same
counterparty or in which it purchases multiple products and/or services, or
settles outstanding items contemporaneous with the purchase of a product or
service from a single counterparty. Transactions, although negotiated
contemporaneously, may be documented in one or more contracts. The
Company’s policy for accounting for each transaction negotiated
contemporaneously is to record each element of the transaction based on the
respective estimated fair values of the products or services purchased and the
products or services sold. In determining the fair value of the
respective elements, the Company refers to quoted market prices (where
available), historical transactions or comparable cash
transactions.
Stock-Based
Compensation
The
Company accounts for stock-based compensation in accordance with SFAS No.
123(R), Share – Based
Payment, which addresses the accounting for share-based payment
transactions in which a company receives employee services in exchange for (a)
equity instruments of that company or (b) liabilities that are based on the fair
value of the company’s equity instruments or that may be settled by the issuance
of such equity instruments. The Company recorded $33 million, $18
million, and $13 million of option compensation expense which is included in
general and administrative expenses for the years ended December 31, 2008, 2007,
and 2006, respectively.
The fair
value of each option granted is estimated on the date of grant using the
Black-Scholes option-pricing model. The following weighted average
assumptions were used for grants during the years ended December 31, 2008, 2007,
and 2006, respectively; risk-free interest rates of 3.5%, 4.6%, and 4.6%;
expected volatility of 88.1%, 70.3%, and 87.3% based on historical volatility;
and expected lives of 6.3 years, 6.3 years, and 6.3 years,
respectively. The valuations assume no dividends are
paid.
Income Taxes
CCO
Holdings is a single member limited liability company not subject to income
tax. CCO Holdings holds 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 CCO Holdings’ indirect subsidiaries are
corporations that are subject to income tax. The Company recognizes
deferred tax assets and liabilities for temporary differences between the
financial reporting basis and the tax basis of these indirect corporate
subsidiaries’ assets and liabilities and expected benefits of utilizing net
operating loss carryforwards. The impact on deferred taxes of changes
in tax rates and tax law, if any, applied to the years during which temporary
differences are expected to be settled, are reflected in the consolidated
financial statements in the period of enactment (see Note 20).
F-12
CCO
HOLDINGS, LLC AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008, 2007, AND 2006
(dollars
in millions, except where indicated)
Charter,
our indirect parent company, is subject to income taxes. Accordingly,
in addition to the Company’s deferred tax liabilities, Charter has recorded net
deferred tax liabilities of approximately $379 million related to their
approximate 53% investment in Charter Holdco which is not reflected at the
Company.
Segments
SFAS
No. 131, Disclosure about
Segments of an Enterprise and Related Information, established standards
for reporting information about operating segments in annual financial
statements and in interim financial reports issued to
shareholders. Operating segments are defined as components of an
enterprise about which separate financial information is available that is
evaluated on a regular basis by the chief operating decision maker, or decision
making group, in deciding how to allocate resources to an individual segment and
in assessing performance of the segment.
The
Company’s operations are managed on the basis of geographic operating
segments. The Company has evaluated the criteria for aggregation of
the geographic operating segments under paragraph 17 of SFAS No. 131 and
believes it meets each of the respective criteria set forth. The
Company delivers similar products and services within each of its geographic
operations. Each geographic service area utilizes similar means for
delivering the programming of the Company’s services; have similarity in the
type or class of customer receiving the products and services; distributes the
Company’s services over a unified network; and operates within a consistent
regulatory environment. In addition, each of the geographic operating
segments has similar economic characteristics. In light of the
Company’s similar services, means for delivery, similarity in type of customers,
the use of a unified network and other considerations across its geographic
operating structure, management has determined that the Company has one
reportable segment, broadband services.
|
4.
|
Sale
of Assets
|
In 2006, the Company sold certain cable
television systems serving approximately 356,000 video customers in 1) West
Virginia and Virginia to
Cebridge Connections, Inc. (the “Cebridge Transaction”); 2) Illinois and
Kentucky to Telecommunications Management, LLC, doing business as New Wave
Communications (the “New Wave Transaction”) and 3) Nevada, Colorado, New Mexico
and Utah to Orange Broadband Holding Company, LLC (the “Orange Transaction”) for a total
sales price of approximately $971 million. The Company used the net
proceeds from the asset sales to reduce borrowings, but not commitments, under
the revolving portion of the Company’s credit facilities. These cable
systems met the criteria for assets held for sale. As such, the
assets were written down to fair value less estimated costs to sell, resulting
in asset impairment charges during the year ended December 31, 2006 of
approximately $99 million related to the New Wave Transaction and the Orange
Transaction. The Company determined that the West Virginia and
Virginia cable systems comprise operations and cash flows that for financial
reporting purposes meet the criteria for discontinued
operations. Accordingly, the results of operations for the West
Virginia and Virginia cable systems have been presented as discontinued
operations, net of tax, for the year ended December 31, 2006, including a gain
of $200 million on the sale of cable systems.
Summarized
consolidated financial information for the years ended December 31, 2006 for the
West Virginia and Virginia cable systems is as follows:
|
Year
Ended
December
31, 2006
|
||||
|
Revenues
|
$ | 109 | ||
|
Income
before income taxes
|
$ | 238 | ||
|
Income
tax expense
|
$ | (22 | ) | |
|
Net
income
|
$ | 216 | ||
|
Earnings
per common share, basic and diluted
|
$ | 0.65 | ||
In 2007
and 2006, the Company recorded asset impairment charges of $56 million and $60
million, respectively, related to other cable systems meeting the criteria of
assets held for sale.
F-13
CCO
HOLDINGS, LLC AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008, 2007, AND 2006
(dollars
in millions, except where indicated)
5. Allowance
for Doubtful Accounts
Activity
in the allowance for doubtful accounts is summarized as follows for the years
presented:
|
Year
Ended December 31,
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
Balance,
beginning of year
|
$ | 18 | $ | 16 | $ | 17 | ||||||
|
Charged
to expense
|
122 | 107 | 89 | |||||||||
|
Uncollected
balances written off, net of recoveries
|
(122 | ) | (105 | ) | (90 | ) | ||||||
|
Balance,
end of year
|
$ | 18 | $ | 18 | $ | 16 | ||||||
|
6.
|
Property,
Plant and Equipment
|
Property,
plant and equipment consists of the following as of December 31, 2008 and
2007:
| 2008 | 2007 | |||||||
|
Cable
distribution systems
|
$ | 7,008 | $ | 6,697 | ||||
|
Customer
equipment and installations
|
4,057 | 3,740 | ||||||
|
Vehicles
and equipment
|
256 | 257 | ||||||
|
Buildings
and leasehold improvements
|
439 | 426 | ||||||
|
Furniture,
fixtures and equipment
|
390 | 384 | ||||||
| 12,150 | 11,504 | |||||||
|
Less:
accumulated depreciation
|
(7,191 | ) | (6,432 | ) | ||||
| $ | 4,959 | $ | 5,072 | |||||
The
Company periodically evaluates the estimated useful lives used to depreciate its
assets and the estimated amount of assets that will be abandoned or have minimal
use in the future. A significant change in assumptions about the
extent or timing of future asset retirements, or in the Company’s use of new
technology and upgrade programs, could materially affect future depreciation
expense. In 2007, the Company changed the useful lives of certain
property, plant, and equipment based on technological changes. The
change in useful lives reduced depreciation expense by approximately $81 million
and $8 million during 2008 and 2007, respectively.
Depreciation
expense for each of the years ended December 31, 2008, 2007, and 2006 was $1.3
billion.
7. Franchises,
Goodwill and Other Intangible Assets
Franchise
rights represent the value attributed to agreements or authorizations with local
and state authorities that allow access to homes in cable service
areas. 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 SFAS No. 142, Goodwill and Other Intangible
Assets. Franchises that qualify for indefinite-life treatment
under SFAS No. 142 are tested for impairment annually, or more frequently as
warranted by events or changes in circumstances. Franchises are
aggregated into essentially inseparable units of accounting to conduct the
valuations. The units of accounting generally represent geographical
clustering of the Company’s cable systems into groups by which such systems are
managed. Management believes such grouping represents the highest and
best use of those assets. The Company has historically assessed that
its divisional operations were the appropriate level at which the Company’s
franchises should be evaluated. Based on certain organizational
changes in 2008, the Company determined that the appropriate units of accounting
for franchises are now the individual market area, which is a level below the
Company’s geographic divisional groupings previously used. The
organizational change in 2008 consolidated the Company’s three divisions to two
operating groups and put more management focus on the individual market
areas. The
F-14
CCO
HOLDINGS, LLC AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008, 2007, AND 2006
(dollars
in millions, except where indicated)
Company
completed its impairment assessment as of December 31, 2008 upon completion of
its 2009 budgeting process. Largely driven by the impact of the
current economic downturn along with increased competition, the Company lowered
its projected revenue and expense growth rates, and accordingly revised its
estimates of future cash flows as compared to those used in prior
valuations. As a result, the Company recorded $1.5 billion of
impairment for the year ended December 31, 2008. The Company
recorded $178 million of impairment for the year ended December 31,
2007. The valuation completed for 2006 showed franchise fair values
in excess of book value, and thus resulted in no impairment.
The
Company’s valuations, which are based on the present value of projected after
tax cash flows, result in a value of property, plant and equipment, franchises,
customer relationships, and its total entity value. The value of
goodwill is the difference between the total entity value and amounts assigned
to the other assets.
Franchises,
for valuation purposes, are defined as the future economic benefits of the right
to solicit and service potential customers (customer marketing rights), and the
right to deploy and market new services, such as interactivity and telephone, to
the potential customers (service marketing rights). Fair value is
determined based on estimated discounted future cash flows using assumptions
consistent with internal forecasts. The franchise after-tax cash flow
is calculated as the after-tax cash flow generated by the potential customers
obtained (less the anticipated customer churn), and the new services added to
those customers in future periods. The sum of the present value of
the franchises' after-tax cash flow in years 1 through 10 and the continuing
value of the after-tax cash flow beyond year 10 yields the fair value of the
franchise.
Customer
relationships, for valuation purposes, represent the value of the business
relationship with existing customers (less the anticipated customer churn), and
are calculated by projecting future after-tax cash flows from these customers,
including the right to deploy and market additional services to these
customers. The present value of these after-tax cash flows yields the
fair value of the customer relationships. Substantially all
acquisitions occurred prior to January 1, 2002. The Company did not
record any value associated with the customer relationship intangibles related
to those acquisitions. For acquisitions subsequent to January 1,
2002, the Company did assign a value to the customer relationship intangible,
which is amortized over its estimated useful life.
As of
December 31, 2008 and 2007, indefinite-lived and finite-lived intangible
assets are presented in the following table:
|
December
31,
|
||||||||||||||||||||||||
|
2008
|
2007
|
|||||||||||||||||||||||
|
Gross
|
Net
|
Gross
|
Net
|
|||||||||||||||||||||
|
Carrying
|
Accumulated
|
Carrying
|
Carrying
|
Accumulated
|
Carrying
|
|||||||||||||||||||
|
Amount
|
Amortization
|
Amount
|
Amount
|
Amortization
|
Amount
|
|||||||||||||||||||
|
Indefinite-lived
intangible assets:
|
||||||||||||||||||||||||
|
Franchises
with indefinite lives
|
$ | 7,377 | $ | -- | $ | 7,377 | $ | 8,929 | $ | -- | $ | 8,929 | ||||||||||||
|
Goodwill
|
68 | -- | 68 | 67 | -- | 67 | ||||||||||||||||||
| $ | 7,445 | $ | -- | $ | 7,445 | $ | 8,996 | $ | -- | $ | 8,996 | |||||||||||||
|
Finite-lived
intangible assets:
|
||||||||||||||||||||||||
|
Franchises
with finite lives
|
$ | 16 | $ | 9 | $ | 7 | $ | 23 | $ | 10 | $ | 13 | ||||||||||||
|
Other
intangible assets
|
71 | 41 | 30 | 97 | 73 | 24 | ||||||||||||||||||
| $ | 87 | $ | 50 | $ | 37 | $ | 120 | $ | 83 | $ | 37 | |||||||||||||
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 year ended December
31, 2008, the net carrying amount of indefinite-lived franchises was reduced by
$1.5 billion as a result of the impairment of franchises discussed above, $32
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 year ended December 31, 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
F-15
CCO
HOLDINGS, LLC AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008, 2007, AND 2006
(dollars
in millions, except where indicated)
state-wide
franchising. For the year ended December 31, 2007, the net carrying
amount of indefinite-lived franchises was reduced by $178 million as a result of
the impairment of franchises discussed above, $77 million related to cable asset
sales completed in 2007, and $56 million as a result of the asset impairment
charges recorded related to these cable asset sales. These decreases
were offset by $33 million of franchises added as a result of acquisitions of
cable assets.
Franchise
amortization expense for the years ended December 31, 2008, 2007, and 2006
was $2 million, $3 million, and $2 million, respectively. During the
year ended December 31, 2008, the net carrying amount of finite-lived franchises
increased $1 million as a result of costs incurred associated with franchise
renewals. Other intangible assets amortization expense for the years
ended December 31, 2008, 2007 and 2006 was $5 million, $4 million, and $4
million, respectively. The Company expects that amortization expense
on franchise assets and other intangible assets will be approximately $7 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.
8. Accounts
Payable and Accrued Expenses
Accounts
payable and accrued expenses consist of the following as of December 31, 2008
and 2007:
|
2008
|
2007
|
|||||||
|
Accounts
payable – trade
|
$ | 86 | $ | 116 | ||||
|
Accrued
capital expenditures
|
56 | 95 | ||||||
|
Accrued
expenses:
|
||||||||
|
Interest
|
122 | 120 | ||||||
|
Programming
costs
|
305 | 273 | ||||||
|
Franchise
related fees
|
60 | 66 | ||||||
|
Compensation
|
80 | 75 | ||||||
|
Other
|
200 | 184 | ||||||
| $ | 909 | $ | 929 | |||||
|
9.
|
Long-Term
Debt
|
Long-term
debt consists of the following as of December 31, 2008 and
2007:
|
2008
|
2007
|
|||||||||||||||
|
Principal
|
Accreted
|
Principal
|
Accreted
|
|||||||||||||
|
Amount
|
Value
|
Amount
|
Value
|
|||||||||||||
|
CCO
Holdings, LLC:
|
||||||||||||||||
|
8
3/4% senior notes due November 15, 2013
|
$ | 800 | $ | 796 | $ | 800 | $ | 795 | ||||||||
|
Credit
facility
|
350 | 350 | 350 | 350 | ||||||||||||
|
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 | 527 | -- | -- | ||||||||||||
|
Credit
facilities
|
8,246 | 8,246 | 6,844 | 6,844 | ||||||||||||
|
Total
Debt
|
$ | 11,812 | $ | 11,789 | $ | 9,864 | $ | 9,859 | ||||||||
|
Less:
Current Portion
|
70 | 70 | -- | -- | ||||||||||||
|
Long-Term
Debt
|
$ | 11,742 | $ | 11,719 | $ | 9,864 | $ | 9,859 | ||||||||
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
F-16
CCO
HOLDINGS, LLC AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008, 2007, AND 2006
(dollars
in millions, except where indicated)
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. See Note 26 related to the Proposed
Restructuring.
CCO
Holdings Notes
The CCO
Holdings notes are senior debt obligations of CCO Holdings and CCO Holdings
Capital Corp. They rank equally with all other current and future unsecured,
unsubordinated obligations of CCO Holdings and CCO Holdings Capital
Corp. The CCO Holdings notes are structurally subordinated to all
obligations of subsidiaries of CCO Holdings, including the Charter Operating
notes and the Charter Operating credit facilities.
On or
after November 15, 2008, the issuers of the CCO Holdings 8 ¾% senior notes may
redeem all or a part of the notes at a redemption price that declines ratably
from the initial redemption price of 104.375% to a redemption price on or after
November 15, 2011 of 100.0% of the principal amount of the CCO Holdings 8 ¾%
senior notes redeemed, plus, in each case, any accrued and unpaid
interest.
In the
event of specified change of control events, CCO Holdings must offer to purchase
the outstanding CCO Holdings senior notes from the holders at a purchase price
equal to 101% of the total principal amount of the notes, plus any accrued and
unpaid interest.
Charter Operating
Notes
The
Charter Operating notes are senior debt obligations of Charter Operating and
Charter Communications Operating Capital Corp. To the extent of the
value of the collateral (but subject to the prior lien of the credit
facilities), they rank effectively senior to all of Charter Operating’s future
unsecured senior indebtedness. The collateral currently consists of
the capital stock of Charter Operating held by CCO Holdings, all of the
intercompany obligations owing to CCO Holdings by Charter Operating or any
subsidiary of Charter Operating, and substantially all of Charter Operating’s
and the guarantors’ assets (other than the assets of CCO
Holdings). CCO Holdings and those subsidiaries of Charter Operating
that are guarantors of, or otherwise obligors with respect to, indebtedness
under the Charter Operating credit facilities and related obligations, guarantee
the Charter Operating notes.
Charter
Operating may, at any time and from time to time, at their option, redeem the
outstanding 8% second lien notes due 2012, in whole or in part, at a redemption
price equal to 100% of the principal amount thereof plus accrued and unpaid
interest, if any, to the redemption date, 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 an
8% senior second-lien note due 2012 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.
On or
after April 30, 2009, Charter Operating may redeem all or a part of the 8 3/8%
senior second lien notes at a redemption price that declines ratably from the
initial redemption price of 104.188% to a redemption price on or after April 30,
2012 of 100% of the principal amount of the 8 3/8% senior second lien notes
redeemed plus in each case accrued and unpaid interest.
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
F-17
CCO
HOLDINGS, LLC AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008, 2007, AND 2006
(dollars
in millions, except where indicated)
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.
High-Yield Restrictive Covenants;
Limitation on Indebtedness.
The
indentures governing the CCO Holdings and Charter Operating notes contain
certain covenants that restrict the ability of CCO Holdings, CCO Holdings
Capital Corp., Charter Operating, Charter Communications Operating Capital
Corp., and all of their restricted subsidiaries to:
|
|
·
|
incur
additional debt;
|
|
|
·
|
pay
dividends on equity or repurchase
equity;
|
|
|
·
|
make
investments;
|
|
|
·
|
sell
all or substantially all of their assets or merge with or into other
companies;
|
|
|
·
|
sell
assets;
|
|
|
·
|
enter
into sale-leasebacks;
|
|
|
·
|
in
the case of restricted subsidiaries, create or permit to exist dividend or
payment restrictions with respect to the bond issuers, guarantee their
parent companies debt, or issue specified equity
interests;
|
|
|
·
|
engage
in certain transactions with affiliates;
and
|
|
|
·
|
grant
liens.
|
CCO
Holdings Credit Facility
The CCO
Holdings credit facility consists of a $350 million term loan. The
term loan matures on September 6, 2014. The CCO Holdings credit
facility also allows the Company to enter into incremental term loans in the
future, maturing on the dates set forth in the notices establishing such term
loans, but no earlier than the maturity date of the existing term
loans. However, no assurance can be given that the Company could
obtain such incremental term loans if CCO Holdings sought to do
so. Borrowings under the CCO Holdings credit facility bear interest
at a variable interest rate based on either LIBOR or a base rate plus, in either
case, an applicable margin. The applicable margin for LIBOR term
loans, other than incremental loans, is 2.50% above LIBOR. The
applicable margin with respect to the incremental loans is to be agreed upon by
CCO Holdings and the lenders when the incremental loans are
established. The CCO Holdings credit facility is secured by the
equity interests of Charter Operating, and all proceeds thereof.
Charter
Operating Credit Facilities
The
Charter Operating credit facilities provide borrowing availability of up to $8.0
billion as follows:
|
·
|
a
term loan with an initial total principal amount of $6.5 billion, which is
repayable in equal quarterly installments, commencing March 31, 2008, and
aggregating in each loan year to 1% of the original amount of the term
loan, with the remaining balance due at final maturity on March 6, 2014;
and
|
|
·
|
a
revolving line of credit of $1.5 billion, with a maturity date on
March 6, 2013.
|
The
Charter Operating credit facilities also allow the Company to enter into
incremental term loans in the future with an aggregate amount of up to $1.0
billion, with amortization as set forth in the notices establishing such term
loans, but with no amortization greater than 1% prior to the final maturity of
the existing term loan. In March 2008, 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 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. Although the Charter Operating credit facilities
allow for the incurrence of up to an additional $500 million in incremental term
loans, no assurance can be given that additional incremental term loans could be
obtained in the future if Charter Operating sought to do so especially after
filing a Chapter 11 bankruptcy proceeding on March 27, 2009. See Note
26.
F-18
CCO
HOLDINGS, LLC AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008, 2007, AND 2006
(dollars
in millions, except where indicated)
Amounts
outstanding under the Charter Operating credit facilities bear interest, at
Charter Operating’s election, at a base rate or the Eurodollar rate (1.46% to
3.50% as of December 31, 2008 and 4.87% to 5.24% as of December 31, 2007), as
defined, plus a margin for Eurodollar loans of up to 2.00% for the revolving
credit facility and 2.00% for the term loan, and quarterly commitment fee of
0.5% per annum is payable on the average daily unborrowed balance of the
revolving credit facility.
The
obligations of Charter Operating under the Charter Operating credit facilities
(the “Obligations”) are guaranteed by Charter Operating’s immediate parent
company, CCO Holdings, and the subsidiaries of Charter Operating, except for
certain subsidiaries, including immaterial subsidiaries and subsidiaries
precluded from guaranteeing by reason of provisions of other indebtedness to
which they are subject (the “non-guarantor subsidiaries”). The Obligations
are also secured by (i) a lien on substantially all of the assets of Charter
Operating and its subsidiaries (other than assets of the non-guarantor
subsidiaries), and (ii) a pledge by CCO Holdings of the equity interests owned
by it in Charter Operating or any of Charter Operating’s subsidiaries, as well
as intercompany obligations owing to it by any of such
entities.
As of
December 31, 2008, outstanding borrowings under the Charter Operating credit
facilities were approximately $8.2 billion and the unused total potential
availability was approximately $27 million.
Credit Facilities
— Restrictive Covenants
Charter
Operating Credit Facilities
The
Charter Operating credit facilities contain representations and warranties, and
affirmative and negative covenants customary for financings of this
type. The financial covenants measure performance against standards
set for leverage to be tested as of the end of each
quarter. Additionally, the Charter Operating credit facilities
contain provisions requiring mandatory loan prepayments under specific
circumstances, including in connection with certain sales of assets, so long as
the proceeds have not been reinvested in the business.
The
Charter Operating credit facilities permit Charter Operating and its
subsidiaries to make distributions to pay interest on the Charter convertible
notes, the Charter Holdings notes, the CIH notes, the CCH I notes, the CCH II
notes, the CCO Holdings notes, the CCO Holdings credit facility, and the Charter
Operating senior second-lien notes, provided that, among other things, no
default has occurred and is continuing under the Charter Operating credit
facilities. Conditions to future borrowings include absence of a
default or an event of default under the Charter Operating credit facilities,
and the continued accuracy in all material respects of the representations and
warranties, including the absence since December 31, 2005 of any event,
development, or circumstance that has had or could reasonably be expected to
have a material adverse effect on the Company’s business.
The
events of default under the Charter Operating credit facilities include, among
other things:
|
|
·
|
the
failure to make payments when due or within the applicable grace
period,
|
|
|
·
|
the
failure to comply with specified covenants, including but not limited to a
covenant to deliver audited financial statements for Charter Operating
with an unqualified opinion from the Company’s independent accountants and
without a “going concern” or like qualification or
exception.
|
|
|
·
|
the
failure to pay or the occurrence of events that cause or permit the
acceleration of other indebtedness owing by CCO Holdings, Charter
Operating, or Charter Operating’s subsidiaries in amounts in excess of
$100 million in aggregate principal
amount,
|
|
|
·
|
the
failure to pay or the occurrence of events that result in the acceleration
of other indebtedness owing by certain of CCO Holdings’ direct and
indirect parent companies in amounts in excess of $200 million in
aggregate principal amount,
|
|
|
·
|
Paul
Allen and/or certain of his family members and/or their exclusively owned
entities (collectively, the “Paul Allen Group”) ceasing to have the power,
directly or indirectly, to vote at least 35% of the ordinary voting power
of Charter Operating,
|
F-19
CCO
HOLDINGS, LLC AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008, 2007, AND 2006
(dollars
in millions, except where indicated)
|
|
·
|
the
consummation of any transaction resulting in any person or group (other
than the Paul Allen Group) having power, directly or indirectly, to vote
more than 35% of the ordinary voting power of Charter Operating, unless
the Paul Allen Group holds a greater share of ordinary voting power of
Charter Operating, and
|
|
|
·
|
Charter
Operating ceasing to be a wholly-owned direct subsidiary of CCO Holdings,
except in certain very limited
circumstances.
|
CCO
Holdings Credit Facility
The CCO
Holdings credit facility contains covenants that are substantially similar to
the restrictive covenants for the CCO Holdings notes. The CCO
Holdings credit facility contains provisions requiring mandatory loan
prepayments under specific circumstances, including in connection with certain
sales of assets, so long as the proceeds have not been reinvested in the
business. The CCO Holdings credit facility permits CCO Holdings and
its subsidiaries to make distributions to pay interest on the Charter
convertible senior notes, the Charter Holdings notes, the CIH notes, the CCH I
notes, the CCH II notes, the CCO Holdings notes, and the Charter Operating
second-lien notes, provided that, among other things, no default has occurred
and is continuing under the CCO Holdings credit facility.
Based
upon outstanding indebtedness as of December 31, 2008, the amortization of term
loans, scheduled reductions in available borrowings of the revolving credit
facilities, and the maturity dates for all senior and subordinated notes and
debentures, total future principal payments on the total borrowings under all
debt agreements as of December 31, 2008, are as follows:
|
Year
|
Amount
|
|||
|
2009
|
$ | 70 | ||
|
2010
|
70 | |||
|
2011
|
70 | |||
|
2012
|
1,170 | |||
|
2013
|
2,185 | |||
|
Thereafter
|
8,247 | |||
| $ | 11,812 | |||
|
10.
|
Loans
Payable – Related Party
|
Loans
payable-related party as of December 31, 2008 consists of loans from Charter
Holdco and CCH II to the Company of $13 million and $227 million,
respectively. Loans payable-related party as of December 31, 2007
consists of loans from Charter Holdco and CCH II to Charter Operating of $123
million and $209 million, respectively.
11. Temporary
Equity
Temporary
equity represents Mr. Allen’s 5.6% membership interests in CC VIII, LLC (“CC
VIII”), an indirect subsidiary of the Company, of $203 million and $199 million
as of December 31, 2008 and 2007, respectively. Mr. Allen’s CC VIII
interest is classified as temporary equity as a result of Mr. Allen’s ability to
put his interest to the Company upon a change in control.
12. Noncontrolling
Interest
Noncontrolling
interest represents CCH I’s 13% membership interests in CC VIII of $473 million
and $464 million as of December 31, 2008 and 2007, respectively. Noncontrolling
interest in the accompanying condensed consolidated statements of operations
represents the 2% accretion of the preferred membership interest in CC VIII plus
approximately 18.6% of CC VIII’s income, inclusive of Mr. Allen’s 5.6%
membership interest accounted for as temporary equity.
F-20
CCO
HOLDINGS, LLC AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008, 2007, AND 2006
(dollars
in millions, except where indicated)
13. Comprehensive
Loss
The
Company reports 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. Comprehensive loss for the years ended December 31, 2008,
2007, and 2006 was $1.7 billion, $474 million, and $194 million,
respectively.
14. Accounting
for Derivative Instruments and Hedging Activities
The
Company uses interest rate swap agreements to manage its interest costs and
reduce the Company’s exposure to increases in floating interest
rates. The Company’s policy is to manage its 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 Company
agrees to exchange, at specified intervals through 2013, the difference between
fixed and variable interest amounts calculated by reference to agreed-upon
notional principal amounts. At the banks’ option, certain interest
rate swap agreements may be extended through 2014.
The
Company’s hedging policy does not permit it to hold or issue derivative
instruments for speculative trading purposes. The Company does,
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 Company has formally
documented, designated and assessed the effectiveness of transactions that
receive hedge accounting. For the years ended December 31, 2008,
2007, and 2006, change in value of derivatives includes gains of $0, $0, and $2
million, respectively, which represent cash flow hedge ineffectiveness on
interest rate hedge agreements. This ineffectiveness arises from
differences between critical terms of the agreements and the related hedged
obligations.
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 years
ended December 31, 2008, 2007, and 2006, losses of $180 million, $123 million
and $1 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 interest expense 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 Company’s consolidated statements of
operations. For the years ended December 31, 2008, 2007, and
2006, change in value of derivatives includes losses of $62 million and $46
million and gains of $4 million, respectively, resulting from interest rate
derivative instruments not designated as hedges.
As of
December 31, 2008, 2007, and 2006, the Company had outstanding $4.3
billion, $4.3 billion, and $1.7 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.
15. Fair
Value of Financial Instruments
The
Company has estimated the fair value of its financial instruments as of
December 31, 2008 and 2007 using available market information or other
appropriate valuation methodologies. Considerable judgment, however,
is required in interpreting market data to develop the estimates of fair
value. Accordingly, the estimates presented in the accompanying
consolidated financial statements are not necessarily indicative of the amounts
the Company would realize in a current market exchange.
F-21
CCO
HOLDINGS, LLC AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008, 2007, AND 2006
(dollars
in millions, except where indicated)
The
carrying amounts of cash, receivables, payables and other current assets and
liabilities approximate fair value because of the short maturity of those
instruments.
The fair
value of interest rate agreements represents the estimated amount the Company
would receive or pay upon termination of the agreements adjusted for Charter
Operating’s credit risk. Management believes that the sellers of the
interest rate agreements will be able to meet their obligations under the
agreements. In addition, some of the interest rate agreements are
with certain of the participating banks under the Company’s credit facilities,
thereby reducing the exposure to credit loss. The Company has
policies regarding the financial stability and credit standing of major
counterparties. Nonperformance by the counterparties is not
anticipated nor would it have a material adverse effect on the Company’s
consolidated financial condition or results of operations.
The
estimated fair value of the Company’s notes at December 31, 2008 and 2007
are based on quoted market prices and the fair value of the credit facilities is
based on dealer quotations.
A summary
of the carrying value and fair value of the Company’s debt at December 31,
2008 and 2007 is as follows:
|
2008
|
2007
|
|||||||||||||||
| Carrying | Fair | Carrying | Fair | |||||||||||||
| Value | Value | Value | Value | |||||||||||||
|
Debt
|
|
|||||||||||||||
|
CCO
Holdings debt
|
$ | 796 | $ | 505 | $ | 795 | $ | 761 | ||||||||
|
Charter
Operating debt
|
2,397 | 1,923 | 1,870 | 1,807 | ||||||||||||
|
Credit
facilities
|
8,596 | 6,187 | 7,194 | 6,723 | ||||||||||||
The
Company adopted SFAS No. 157, Fair Value Measurements, on
its financial assets and liabilities effective January 1, 2008, and has an
established process for determining fair value. The Company has
deferred adoption of SFAS No. 157 on its nonfinancial assets and liabilities
including fair value measurements under SFAS No. 142 and SFAS No. 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 Company’s methodology may produce a fair
value that may not be indicative of net realizable value or reflective of future
fair values, but the Company believes its 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 Company’s reporting
date.
SFAS No.
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) and
are classified within level 2 of the valuation hierarchy. The
Company’s interest rate derivatives are accounted for at fair value on a
recurring basis and totaled $411 million and
F-22
CCO
HOLDINGS, LLC AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008, 2007, AND 2006
(dollars
in millions, except where indicated)
$169 million as of
December 31, 2008 and 2007, respectively. The weighted average
interest pay rate for the Company’s interest rate swap agreements was 4.93% and
4.93% at December 31, 2008 and 2007, respectively.
16. Other
Operating (Income) Expenses, Net
Other
operating (income) expenses, net consist of the following for the years
presented:
|
Year
Ended December 31,
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
(Gain)
loss on sale of assets, net
|
$ | 13 | $ | (3 | ) | $ | 8 | |||||
|
Special
charges, net
|
56 | (14 | ) | 13 | ||||||||
| $ | 69 | $ | (17 | ) | $ | 21 | ||||||
(Gain)
loss on sale of assets, net
(Gain)
loss on sale of assets represents the (gain) loss recognized on the sale of
fixed assets and cable systems.
Special
charges, net
Special
charges, net for the year ended December 31, 2008 includes severance charges and
litigation related items, including settlement costs associated with the Sjoblom litigation (see Note
22), offset by favorable insurance settlements related to hurricane Katrina
claims. Special charges, net for the year ended December 31, 2007,
primarily represents favorable legal settlements of approximately $20 million
offset by severance associated with the closing of call centers and divisional
restructuring. Special charges, net for the year ended December 31,
2006 primarily represent severance associated with the closing of call centers
and divisional restructuring.
17. Loss
on Extinguishment of Debt
|
Year
Ended December 31,
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
CCO
Holdings notes redemption
|
$ | -- | $ | (19 | ) | $ | -- | |||||
|
Charter
Operating credit facilities refinancing
|
-- | (13 | ) | (27 | ) | |||||||
| $ | -- | $ | (32 | ) | $ | (27 | ) | |||||
In April
2007, CCO Holdings redeemed $550 million of its senior floating rate notes due
December 15, 2010 resulting in a loss on extinguishment of debt of approximately
$19 million for the year ended December 31, 2007, included in loss on
extinguishment of debt on the Company’s consolidated statements of
operations.
In March
2007, Charter Operating refinanced its facilities resulting in a loss on
extinguishment of debt for the year ended December 31, 2007 of approximately $13
million included in loss on extinguishment of debt on the Company’s consolidated
statements of operations.
In April
2006, Charter Operating completed a $6.85 billion refinancing of its credit
facilities including a new $350 million revolving/term facility (which converts
to a term loan no later than April 2007), a $5.0 billion term loan due in 2013
and certain amendments to the existing $1.5 billion revolving credit
facility. In addition, the refinancing reduced margins on Eurodollar
rate term loans to 2.625% from a weighted average of 3.15% previously and
margins on base rate term loans to 1.625% from a weighted average of 2.15%
previously. Concurrent with this refinancing, the CCO Holdings bridge
loan was terminated. The refinancing resulted in a loss on
extinguishment of debt for the year ended December 31, 2006 of approximately $27
million.
F-23
CCO
HOLDINGS, LLC AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008, 2007, AND 2006
(dollars
in millions, except where indicated)
18. Other
Expense, Net
Other
expense, net consists of the following for years presented:
|
Year
Ended December 31,
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
Noncontrolling
interest (Note 11 and 12)
|
$ | (13 | ) | $ | (22 | ) | $ | (20 | ) | |||
|
Gain
(loss) on investment
|
(1 | ) | (2 | ) | 13 | |||||||
|
Other,
net
|
(5 | ) | -- | 3 | ||||||||
| $ | (19 | ) | $ | (24 | ) | $ | (4 | ) | ||||
19. 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. 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).
Under
Charter's Long-Term Incentive Program (“LTIP”), a program administered under the
2001 Stock Incentive Plan, employees of Charter and its subsidiaries whose pay
classifications exceeded a
certain level were eligible in 2006 and 2007 to receive stock options, and more
senior level employees were eligible to receive stock options and performance
units. The stock options vest 25% on each of the first four
anniversaries of the date of grant. Generally, options expire
10 years from the grant date. The performance units became
performance shares on or about the first anniversary of the grant date,
conditional upon Charter's performance against financial performance measures
established by Charter’s management and approved by its board of directors as of
the time of the award. The performance shares become shares of
Charter Class A common stock on the third anniversary of the grant date of the
performance units. In March 2008, Charter adopted the 2008 incentive
program to allow for the issuance of performance units and restricted stock
under the 2001 Stock Incentive Plan and for the issuance of performance
cash. Under the 2008 incentive program, subject to meeting
performance criteria, performance units and performance cash are deposited into
a performance bank of which one-third of the balance is paid out each
year. Restricted stock granted under this program vests annually over
a three-year period beginning from the date of grant. During the year
ended December 31, 2008, Charter granted $8 million of performance cash under
Charter’s 2008 incentive program and recognized $2 million of expense for the
year ended December 31, 2008.
F-24
CCO
HOLDINGS, LLC AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008, 2007, AND 2006
(dollars
in millions, except where indicated)
A summary
of the activity for Charter’s stock options for the years ended
December 31, 2008, 2007, and 2006, is as follows (amounts in thousands,
except per share data):
|
2008
|
2007
|
2006
|
||||||||||||||||||||||
|
Weighted
|
Weighted
|
Weighted
|
||||||||||||||||||||||
|
Average
|
Average
|
Average
|
||||||||||||||||||||||
|
Exercise
|
Exercise
|
Exercise
|
||||||||||||||||||||||
|
Shares
|
Price
|
Shares
|
Price
|
Shares
|
Price
|
|||||||||||||||||||
|
Outstanding,
beginning of period
|
25,682 | $ | 4.02 | 26,403 | $ | 3.88 | 29,127 | $ | 4.47 | |||||||||||||||
|
Granted
|
45 | 1.19 | 4,549 | 2.77 | 6,065 | 1.28 | ||||||||||||||||||
|
Exercised
|
(53 | ) | 1.18 | (2,759 | ) | 1.57 | (1,049 | ) | 1.41 | |||||||||||||||
|
Cancelled
|
(3,630 | ) | 5.27 | (2,511 | ) | 2.98 | (7,740 | ) | 4.39 | |||||||||||||||
|
Outstanding,
end of period
|
22,044 | $ | 3.82 | 25,682 | $ | 4.02 | 26,403 | $ | 3.88 | |||||||||||||||
|
Weighted
average remaining contractual life
|
6
years
|
7
years
|
8
years
|
|||||||||||||||||||||
|
Options
exercisable, end of period
|
15,787 | $ | 4.53 | 13,119 | $ | 5.88 | 10,984 | $ | 6.62 | |||||||||||||||
|
Weighted
average fair value of options granted
|
$ | 0.90 | $ | 1.86 | $ | 0.96 | ||||||||||||||||||
The
following table summarizes information about Charter’s stock options outstanding
and exercisable as of December 31, 2008 (amounts in thousands, except per
share data):
|
Options
Outstanding
|
Options
Exercisable
|
||||||||||||||||
|
Weighted-
|
Weighted-
|
||||||||||||||||
|
Average
|
Weighted-
|
Average
|
Weighted-
|
||||||||||||||
|
Remaining
|
Average
|
Remaining
|
Average
|
||||||||||||||
|
Range
of
|
Number
|
Contractual
|
Exercise
|
Number
|
Contractual
|
Exercise
|
|||||||||||
|
Exercise
Prices
|
Outstanding
|
Life
|
Price
|
Exercisable
|
Life
|
Price
|
|||||||||||
| $ |
1.00
|
—
|
$
|
1.36
|
8,278
|
7
years
|
1.17
|
5,528
|
7
years
|
1.17
|
|||||||
| $ |
1.53
|
—
|
$
|
1.96
|
2,821
|
6
years
|
1.55
|
2,178
|
6
years
|
1.55
|
|||||||
| $ |
2.66
|
—
|
$
|
3.35
|
4,981
|
7
years
|
2.89
|
2,229
|
6
years
|
2.92
|
|||||||
| $ |
4.30
|
—
|
$
|
5.17
|
3,566
|
5
years
|
5.00
|
3,454
|
5
years
|
5.02
|
|||||||
| $ |
9.13
|
—
|
$
|
12.27
|
1,008
|
3
years
|
11.19
|
1,008
|
3
years
|
11.19
|
|||||||
| $ |
13.96
|
—
|
$
|
20.73
|
1,168
|
1
year
|
18.41
|
1,168
|
1
year
|
18.41
|
|||||||
| $ |
21.20
|
—
|
$
|
23.09
|
222
|
2
years
|
22.86
|
222
|
2
years
|
22.86
|
|||||||
F-25
CCO
HOLDINGS, LLC AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008, 2007, AND 2006
(dollars
in millions, except where indicated)
A summary
of the activity for Charter’s restricted Class A common stock for the years
ended December 31, 2008, 2007, and 2006, is as follows (amounts in
thousands, except per share data):
|
2008
|
2007
|
2006
|
|||||||||||
|
Weighted
|
Weighted
|
Weighted
|
|||||||||||
|
Average
|
Average
|
Average
|
|||||||||||
|
Grant
|
Grant
|
Grant
|
|||||||||||
|
Shares
|
Price
|
Shares
|
Price
|
Shares
|
Price
|
||||||||
|
Outstanding,
beginning of period
|
4,112
|
$
|
2.87
|
3,033
|
$
|
1.96
|
4,713
|
$
|
2.08
|
||||
|
Granted
|
10,761
|
0.85
|
2,753
|
3.64
|
906
|
1.28
|
|||||||
|
Vested
|
(2,298)
|
2.36
|
(1,208)
|
1.83
|
(2,278)
|
1.62
|
|||||||
|
Cancelled
|
(566)
|
1.57
|
(466)
|
4.37
|
(308)
|
4.37
|
|||||||
|
Outstanding,
end of period
|
12,009
|
$
|
1.21
|
4,112
|
$
|
2.87
|
3,033
|
$
|
1.96
|
||||
A summary
of the activity for Charter’s performance units and shares for the years ended
December 31, 2008, 2007, and 2006, is as follows (amounts in thousands,
except per share data):
|
2008
|
2007
|
2006
|
|||||||||||
|
Weighted
|
Weighted
|
Weighted
|
|||||||||||
|
Average
|
Average
|
Average
|
|||||||||||
|
Grant
|
Grant
|
Grant
|
|||||||||||
|
Shares
|
Price
|
Shares
|
Price
|
Shares
|
Price
|
||||||||
|
Outstanding,
beginning of period
|
28,013
|
$
|
2.16
|
15,206
|
$
|
1.27
|
5,670
|
$
|
3.09
|
||||
|
Granted
|
10,137
|
0.84
|
14,797
|
2.95
|
13,745
|
1.22
|
|||||||
|
Vested
|
(1,562)
|
1.49
|
(41)
|
1.23
|
--
|
--
|
|||||||
|
Cancelled
|
(3,551)
|
2.08
|
(1,949)
|
1.51
|
(4,209)
|
3.58
|
|||||||
|
Outstanding,
end of period
|
33,037
|
$
|
1.80
|
28,013
|
$
|
2.
16
|
15,206
|
$
|
1.27
|
||||
As of
December 31, 2008, deferred compensation remaining to be recognized in future
periods totaled $41 million.
In the
first quarter of 2009, the majority of restricted stock and performance units
and shares were forfeited, and the remaining will be cancelled in connection
with the Proposed Restructuring. See Note 26.
20. Income
Taxes
CCO
Holdings is a single member limited liability company not subject to income
tax. CCO Holdings holds all operations through indirect
subsidiaries. The majority of these indirect subsidiaries are limited
liability companies that are not subject to income tax. However,
certain of the limited liability companies are subject to state income
tax. In addition, certain of CCO Holdings’ indirect subsidiaries are
corporations that are subject to income tax.
For the
year ended December 31, 2008, the Company recorded income tax benefit
related to decreases in deferred tax liabilities of certain of its indirect
subsidiaries attributable to the write-down of franchise assets for financial
statement purposes and not for tax purposes. For the years ended
December 31, 2007 and 2006, the Company recorded income tax expense related to
increases in deferred tax liabilities and current federal and state income taxes
primarily related to differences in accounting for franchises at our indirect
corporate subsidiaries and limited liability companies that are subject to
income tax. However, the actual tax provision calculations in future
periods will be the result of current and future temporary differences, as well
as future operating results.
F-26
CCO
HOLDINGS, LLC AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008, 2007, AND 2006
(dollars
in millions, except where indicated)
Current
and deferred income tax benefit (expense) is as follows:
|
December
31,
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
Current
expense:
|
||||||||||||
|
Federal
income taxes
|
$ | (2 | ) | $ | (3 | ) | $ | (3 | ) | |||
|
State
income taxes
|
(5 | ) | (5 | ) | (4 | ) | ||||||
|
Current
income tax expense
|
(7 | ) | (8 | ) | (7 | ) | ||||||
|
Deferred
benefit (expense):
|
||||||||||||
|
Federal
income taxes
|
28 | 4 | -- | |||||||||
|
State
income taxes
|
19 | (16 | ) | -- | ||||||||
|
Deferred
income tax benefit (expense)
|
47 | (12 | ) | -- | ||||||||
|
Total
income benefit (expense)
|
$ | 40 | $ | (20 | ) | $ | (7 | ) | ||||
Income
tax benefit for the year ended December 31, 2008 included $32 million of
deferred tax benefit related to the impairment of franchises. Income
tax for the year ended December 31, 2007 includes $18 million of deferred income
tax expense previously recorded at the Company’s indirect parent
company. This adjustment should have been recorded by the Company in
prior periods.
The
Company’s effective tax rate differs from that derived by applying the
applicable federal income tax rate of 35%, and average state income tax rate of
2.3%, 2.9%, and 5% for the years ended December 31, 2008, 2007, and 2006,
respectively, as follows:
|
December
31,
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
Statutory
federal income tax benefit
|
$ | 530 | $ | 116 | $ | 149 | ||||||
|
Statutory
state income tax benefit, net
|
35 | 10 | 21 | |||||||||
|
Losses
allocated to limited liability companies not subject
to
income taxes
|
(565 | ) | (127 | ) | (165 | ) | ||||||
|
Franchises
|
47 | (12 | ) | -- | ||||||||
|
Valuation
allowance provided and other
|
(7 | ) | (7 | ) | (12 | ) | ||||||
|
Income
tax benefit (expense)
|
$ | 40 | $ | (20 | ) | $ | (7 | ) | ||||
F-27
CCO
HOLDINGS, LLC AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008, 2007, AND 2006
(dollars
in millions, except where indicated)
The tax
effects of these temporary differences that give rise to significant portions of
the deferred tax assets and deferred tax liabilities at December 31, 2008 and
2007 for the indirect subsidiaries of the Company which are included in
long-term liabilities are presented below.
|
December
31,
|
||||||||
|
2008
|
2007
|
|||||||
|
Deferred
tax assets:
|
||||||||
|
Net
operating loss carryforward
|
$ | 97 | $ | 111 | ||||
|
Other
|
2 | 8 | ||||||
|
Total
gross deferred tax assets
|
99 | 119 | ||||||
|
Less:
valuation allowance
|
(60 | ) | (70 | ) | ||||
|
Deferred
tax assets
|
$ | 39 | $ | 49 | ||||
|
Deferred
tax liabilities:
|
||||||||
|
Property,
plant & equipment
|
$ | (36 | ) | $ | (37 | ) | ||
|
Franchises
|
(182 | ) | (238 | ) | ||||
|
Deferred
tax liabilities
|
(218 | ) | (275 | ) | ||||
|
Net
deferred tax liabilities
|
$ | (179 | ) | $ | (226 | ) | ||
As of
December 31, 2008, the Company had deferred tax assets of $99 million,
which primarily relate to net operating loss carryforwards of certain of its
indirect corporate subsidiaries and limited liability companies subject to state
income tax. These net operating loss carryforwards (generally
expiring in years 2009 through 2028) are subject to certain return
limitations. A valuation allowance of $60 million exists with respect
to these carry forwards as of December 31, 2008.
No tax
years for Charter or Charter Holdco, our indirect parent companies, are
currently under examination by the Internal Revenue Service. Tax years
ending 2006, 2007 and 2008 remain subject to examination.
In
January 2007, the Company adopted FIN 48, Accounting for Uncertainty in Income
Taxes—an Interpretation of FASB Statement No. 109, which provides
criteria for the recognition, measurement, presentation and disclosure of
uncertain tax positions. A tax benefit from an uncertain position may be
recognized only if it is “more likely than not” that the position is sustainable
based on its technical merits. The Company does not believe it has
taken any significant positions that would not meet the “more likely than not”
criteria and require disclosure.
21. Related
Party Transactions
The
following sets forth certain transactions in which the Company and the
directors, executive officers, and affiliates of the Company are
involved. Unless otherwise disclosed, management believes each of the
transactions described below was on terms no less favorable to the Company than
could have been obtained from independent third parties.
Charter
is a party to management arrangements with Charter Holdco and certain of its
subsidiaries. Under these agreements, Charter and Charter Holdco
provide management services for the cable systems owned or operated by their
subsidiaries. The management services include such services as
centralized customer billing services, data processing and related support,
benefits administration and coordination of insurance coverage and
self-insurance programs for medical, dental and workers’ compensation
claims. Costs associated with providing these services are charged
directly to the Company’s operating subsidiaries and are included within
operating costs in the accompanying consolidated statements of
operations. Such costs totaled $213 million, $213 million, and $231
million for the years ended December 31, 2008, 2007, and 2006,
respectively. All other costs incurred on behalf of Charter’s
operating subsidiaries are considered a part of the management fee and are
recorded as a component of
F-28
CCO
HOLDINGS, LLC AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008, 2007, AND 2006
(dollars
in millions, except where indicated)
selling,
general and administrative expense, in the accompanying consolidated financial
statements. For the years ended December 31, 2008, 2007, and
2006, the management fee charged to the Company’s operating subsidiaries
approximated the expenses incurred by Charter Holdco and Charter on behalf of
the Company’s operating subsidiaries. The Company’s previous credit
facilities prohibited payments of management fees in excess of 3.5% of revenues
until repayment of the outstanding indebtedness. In the event any
portion of the management fee due and payable was not paid, it would be deferred
by Charter and accrued as a liability of such subsidiaries. Any
deferred amount of the management fee would bear interest at the rate of 10% per
year, compounded annually, from the date it was due and payable until the date
paid.
Mr. Allen,
the controlling shareholder of Charter, and a number of his affiliates have
interests in various entities that provide services or programming to Charter’s
subsidiaries. Given the diverse nature of Mr. Allen’s investment
activities and interests, and to avoid the possibility of future disputes as to
potential business, Charter and Charter Holdco, under the terms of their
respective organizational documents, may not, and may not allow their
subsidiaries to engage in any business transaction outside the cable
transmission business except for certain existing approved
investments. Charter or Charter Holdco or any of their subsidiaries
may not pursue, or allow their subsidiaries to pursue, a business transaction
outside of this scope, unless Mr. Allen consents to Charter or its
subsidiaries engaging in the business transaction. The cable
transmission business means the business of transmitting video, audio, including
telephone, and data over cable systems owned, operated or managed by Charter,
Charter Holdco or any of their subsidiaries from time to time.
Mr. Allen
or his affiliates own or have owned equity interests or warrants to purchase
equity interests in various entities with which the Company does business or
which provides it with products, services or programming. Among these
entities are Oxygen Media Corporation (“Oxygen Media”), Digeo, Inc. (“Digeo”),
and Microsoft Corporation. Mr. Allen owns 100% of the equity of
Vulcan Ventures Incorporated (“Vulcan Ventures”) and Vulcan Inc. and is the
president of Vulcan Ventures. Ms. Jo Allen Patton is a director of
the Company and the President and Chief Executive Officer of Vulcan Inc. and is
a director and Vice President of Vulcan Ventures. Mr. Lance Conn is a
director of the Company and is Executive Vice President of Vulcan Inc. and
Vulcan Ventures. The various cable, media, Internet and telephone
companies in which Mr. Allen has invested may mutually benefit one
another. The Company can give no assurance, nor should you expect,
that any of these business relationships will be successful, that the Company
will realize any benefits from these relationships or that the Company will
enter into any business relationships in the future with Mr. Allen’s
affiliated companies.
Mr. Allen
and his affiliates have made, and in the future likely will make, numerous
investments outside of the Company and its business. The Company
cannot provide any assurance that, in the event that the Company or any of its
subsidiaries enter into transactions in the future with any affiliate of
Mr. Allen, such transactions will be on terms as favorable to the Company
as terms it might have obtained from an unrelated third party. Also,
conflicts could arise with respect to the allocation of corporate opportunities
between the Company and Mr. Allen and his affiliates. The
Company has not instituted any formal plan or arrangement to address potential
conflicts of interest.
In 2009,
pursuant to indemnification provisions in the October 2005 settlement with Mr.
Allen regarding the CC VIII interest, the Company reimbursed Vulcan Inc.
approximately $3 million in legal expenses.
Oxygen. Oxygen Media LLC
("Oxygen") provides programming content to the Company pursuant to a carriage
agreement. Under the carriage agreement, the Company paid Oxygen
approximately $6 million, $8 million, and $8 million for the years ended
December 31, 2008, 2007, and 2006, respectively.
In 2005,
pursuant to an amended equity issuance agreement, Oxygen Media delivered 1
million shares of Oxygen Preferred Stock with a liquidation preference of $33.10
per share plus accrued dividends to Charter Holdco. In November 2007,
Oxygen was sold to an unrelated third party and Charter Holdco received
approximately $35 million representing its liquidation preference on its
preferred stock. Mr. Allen and his affiliates also no longer have an
interest in Oxygen.
Digeo, Inc. In March 2001,
Charter Ventures and Vulcan Ventures Incorporated formed DBroadband Holdings,
LLC for the sole purpose of purchasing equity interests in Digeo. In
connection with the execution of the broadband carriage agreement, DBroadband
Holdings, LLC purchased an equity interest in Digeo funded by contributions
from
F-29
CCO
HOLDINGS, LLC AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008, 2007, AND 2006
(dollars
in millions, except where indicated)
Vulcan
Ventures Incorporated. At that time, the equity interest was subject
to a priority return of capital to Vulcan Ventures up to the amount contributed
by Vulcan Ventures on Charter Ventures’ behalf. After Vulcan Ventures
recovered its amount contributed (the “Priority Return”), Charter Ventures
should have had a 100% profit interest in DBroadband Holdings,
LLC. Charter Ventures was not required to make any capital
contributions, including capital calls to DBroadband Holdings,
LLC. DBroadband Holdings, LLC therefore was not included in the
Company’s consolidated financial statements. Pursuant to an amended
version of this arrangement, in 2003, Vulcan Ventures contributed a total of
$29 million to Digeo, $7 million of which was contributed on Charter
Ventures’ behalf, subject to Vulcan Ventures’ aforementioned priority
return. Since the formation of DBroadband Holdings, LLC, Vulcan
Ventures has contributed approximately $56 million on Charter Ventures’
behalf. On October 3, 2006, Vulcan Ventures and Digeo recapitalized
Digeo. In connection with such recapitalization, DBroadband Holdings,
LLC consented to the conversion of its preferred stock holdings in Digeo to
common stock, and Vulcan Ventures surrendered its Priority Return to Charter
Ventures. As a result, DBroadband Holdings, LLC is now included in
the Company’s consolidated financial statements. Such amounts are
immaterial. After the recapitalization, DBroadband Holdings, LLC owns
1.8% of Digeo, Inc’s common stock. Digeo, Inc. is therefore not
included in the Company’s consolidated financial statements. In
December 2007, the Digeo, Inc. common stock was transferred to Charter
Operating, and DBroadband Holdings, LLC was dissolved.
The
Company paid Digeo Interactive approximately $0, $0, and $2 million for the
years ended December 31, 2008, 2007, and 2006, respectively, for customized
development of the i-channels and the local content tool kit.
On June
30, 2003, Charter Holdco entered into an agreement with Motorola, Inc. for the
purchase of 100,000 DVR units. The software for these DVR units is
being supplied by Digeo Interactive, LLC under a license agreement entered into
in April 2004. Pursuant to a software license agreement with Digeo
Interactive for the right to use Digeo's proprietary software for DVR units, the
Company paid approximately $1 million, $2 million, and $3 million in license and
maintenance fees in 2008, 2007, and 2006, respectively.
The
Company paid approximately $1 million, $10 million, and $11 million for the
years ended December 31, 2008, 2007, and 2006, respectively, in capital
purchases under an agreement with Digeo Interactive for the development, testing
and purchase of 70,000 Digeo PowerKey DVR units. Total purchase price
and license and maintenance fees during the term of the definitive agreements
are expected to be approximately $41 million. The definitive
agreements are terminable at no penalty to Charter in certain
circumstances.
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 year ended December 31, 2008,
Charter has purchased approximately $1 million of DVR units from Digeo
Interactive, LLC under these agreements.
F-30
CCO
HOLDINGS, LLC AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008, 2007, AND 2006
(dollars
in millions, except where indicated)
22. Commitments
and Contingencies
Commitments
The
following table summarizes the Company’s payment obligations as of December 31,
2008 for its contractual obligations.
|
Total
|
2009
|
2010
|
2011
|
2012
|
2013
|
Thereafter
|
||||||||||||||||||||||
|
Contractual
Obligations
|
||||||||||||||||||||||||||||
|
Capital
and Operating Lease Obligations (1)
|
$ | 96 | $ | 22 | $ | 20 | $ | 15 | $ | 12 | $ | 9 | $ | 18 | ||||||||||||||
|
Programming
Minimum Commitments (2)
|
687 | 315 | 101 | 105 | 110 | 56 | -- | |||||||||||||||||||||
|
Other
(3)
|
475 | 368 | 66 | 22 | 19 | -- | -- | |||||||||||||||||||||
|
Total
|
$ | 1,258 | $ | 705 | $ | 187 | $ | 142 | $ | 141 | $ | 65 | $ | 18 | ||||||||||||||
|
|
(1) The
Company leases certain facilities and equipment under noncancelable
operating leases. Leases and rental costs charged to expense
for the years ended December 31, 2008, 2007, and 2006, were $24
million, $23 million, and $23 million,
respectively.
|
|
|
(2) The
Company pays programming fees under multi-year contracts ranging from
three to ten years, typically based on a flat fee per customer, which may
be fixed for the term, or may in some cases escalate over the
term. Programming costs included in the accompanying statement
of operations were $1.6 billion, $1.6 billion, and $1.5 billion, for the
years ended December 31, 2008, 2007, and 2006,
respectively. Certain of the Company’s programming agreements
are based on a flat fee per month or have guaranteed minimum
payments. The table sets forth the aggregate guaranteed minimum
commitments under the Company’s programming
contracts.
|
|
|
(3) “Other”
represents other guaranteed minimum commitments, which consist primarily
of commitments to the Company’s billing services
vendors.
|
The
following items are not included in the contractual obligation table due to
various factors discussed below. However, the Company incurs these
costs as part of its operations:
|
|
·
|
The
Company also rents utility poles used in its
operations. Generally, pole rentals are cancelable on short
notice, but the Company anticipates that such rentals will
recur. Rent expense incurred for pole rental attachments for
the years ended December 31, 2008, 2007, and 2006, was $47 million,
$47 million, and $44 million,
respectively.
|
|
|
·
|
The
Company pays franchise fees under multi-year franchise agreements based on
a percentage of revenues generated from video service per
year. The Company also pays other franchise related costs, such
as public education grants, under multi-year
agreements. Franchise fees and other franchise-related costs
included in the accompanying statement of operations were $179 million,
$172 million, and $175 million for the years ended December 31, 2008,
2007, and 2006, respectively.
|
|
|
·
|
The
Company also has $158 million in letters of credit, primarily to its
various worker’s compensation, property and casualty, and general
liability carriers, as collateral for reimbursement of
claims. These letters of credit reduce the amount the Company
may borrow under its credit
facilities.
|
F-31
CCO
HOLDINGS, LLC AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008, 2007, AND 2006
(dollars
in millions, except where indicated)
Litigation
The
Company and its parent companies are defendants or co-defendants in several
unrelated lawsuits claiming infringement of various patents relating to various
aspects of its businesses. Other industry participants are also
defendants in certain of these cases, and, in many cases, the Company expects
that any potential liability would be the responsibility of its equipment
vendors pursuant to applicable contractual indemnification provisions. In the
event that a court ultimately determines that the Company infringes on any
intellectual property rights, it may be subject to substantial damages and/or an
injunction that could require the Company or its vendors to modify certain
products and services the Company offers to its subscribers. While
the Company believes the lawsuits are without merit and intends to defend the
actions vigorously, the lawsuits could be material to the Company’s consolidated
results of operations of any one period, and no assurance can be given that any
adverse outcome would not be material to the Company’s consolidated financial
condition, results of operations or liquidity.
In the
ordinary course of business, the Company and its 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 Charter technicians, against
Charter in the United States District Court for the Western District of
Wisconsin (Sjoblom v. Charter
Communications, LLC and Charter Communications, Inc.), alleging that
Charter violated the Fair Labor Standards Act and Wisconsin wage and hour laws
by failing to pay technicians for certain hours claimed to have been
worked. While the Company believes it has 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 Company reached a settlement with the
plaintiffs, which received final approval from the court on January 26,
2009. The Company has accrued settlement costs associated with the
Sjoblom
case. The Company has been subjected, in the normal course of
business, to the assertion of other similar claims and could be subjected to
additional such claims. The Company can not predict the ultimate
outcome of any such claims.
The
Company and its parent companies are party to lawsuits and claims that arise in
the ordinary course of conducting its business. The ultimate outcome
of these other legal matters pending against the Company or its subsidiaries
cannot be predicted, and although such lawsuits and claims are not expected
individually to have a material adverse effect on the Company’s consolidated
financial condition, results of operations or liquidity, such lawsuits could
have, in the aggregate, a material adverse effect on the Company’s consolidated
financial condition, results of operations or liquidity.
Regulation in the Cable
Industry
The
operation of a cable system is extensively regulated by the Federal
Communications Commission (“FCC”), some state governments and most local
governments. The FCC has the authority to enforce its regulations
through the imposition of substantial fines, the issuance of cease and desist
orders and/or the imposition of other administrative sanctions, such as the
revocation of FCC licenses needed to operate certain transmission facilities
used in connection with cable operations. The 1996 Telecom Act
altered the regulatory structure governing the nation’s communications
providers. It removed barriers to competition in both the cable
television market and the telephone market. Among other things, it
reduced the scope of cable rate regulation and encouraged additional competition
in the video programming industry by allowing telephone companies to provide
video programming in their own telephone service areas.
Future
legislative and regulatory changes could adversely affect the Company’s
operations, including, without limitation, additional regulatory requirements
the Company may be required to comply with as it offers new services such as
telephone.
23. Employee
Benefit Plan
The
Company’s employees may participate in the Charter Communications, Inc. 401(k)
Plan. Employees that qualify for participation can contribute up to
50% of their salary, on a pre-tax basis, subject to a maximum contribution limit
as determined by the Internal Revenue Service. For each payroll
period, the Company will contribute to the 401(k) Plan (a) the total amount of
the salary reduction the employee elects to defer between 1%
F-32
CCO
HOLDINGS, LLC AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008, 2007, AND 2006
(dollars
in millions, except where indicated)
and 50%
and (b) a matching contribution equal to 50% of the amount of the salary
reduction the participant elects to defer (up to 5% of the participant’s payroll
compensation), excluding any catch-up contributions. The Company made
contributions to the 401(k) plan totaling $8 million, $7 million, and $8 million
for the years ended December 31, 2008, 2007, and 2006,
respectively.
24. Recently
Issued Accounting Standards
In
December 2007, the FASB issued SFAS No. 141R, Business Combinations: Applying the
Acquisition Method, which provides guidance on the accounting and
reporting for business combinations. SFAS No. 141R is effective for
fiscal years beginning after December 15, 2008. The Company adopted
SFAS No. 141R effective January 1, 2009. The adoption of SFAS No.
141R has not had a material impact on the Company’s financial
statements.
In December 2007,
the FASB issued SFAS No. 160, Noncontrolling
Interests in Consolidated Financial Statements - An Amendment of ARB No.
51, which provides guidance on the accounting and
reporting for minority interests in consolidated financial
statements. SFAS No. 160 requires losses to be allocated to
non-controlling (minority) interests even when such amounts are deficits.
SFAS No. 160 is effective for fiscal years beginning after December 15,
2008. The Company adopted SFAS No. 160 effective January 1, 2009 and
applied the effects respectively to all periods presented to the
extent prescribed by the standard. The adoption resulted in the
presentation of Mr. Allen’s 5.6% preferred membership interest in CC VIII as
temporary equity and CCH I’s 13% membership interest
in CC VIII as noncontrolling interest in the Company’s
consolidated balance sheets as of December 31, 2008 and 2007 as
presented, which were previously classified as
minority interest. See Notes 11 and 12.
In
February 2008, the FASB issued FASB Staff Position (FSP) 157-2, Effective Date of FASB Statement No.
157, which deferred the effective date of SFAS No. 157 to fiscal years
beginning after November 15, 2008 for nonfinancial assets and nonfinancial
liabilities. The Company applied SFAS No. 157 to nonfinancial assets
and nonfinancial liabilities beginning January 1, 2009. The adoption
of SFAS No. 157 has not had a material impact on the Company’s financial
statements.
In March
2008, the FASB issued SFAS No. 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 No. 133. SFAS No. 161 is effective for interim
periods and fiscal years beginning after November 15, 2008. The
Company adopted SFAS No. 161 effective January 1, 2009. The adoption
of SFAS No. 161 has not had a material impact on the Company’s 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 Company adopted
FSP FAS 142-3 effective January 1, 2009. The adoption of FSP FAS
142-3 has not had a material impact on the Company’s financial
statements.
In May
2008, the FASB issued FSP Accounting Principles Board (“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 Company adopted FSP APB
14-1 effective January 1, 2009. The adoption of FSP APB 14-1 has not
had a material impact on the Company’s financial statements.
The
Company does not believe that any other recently issued, but not yet effective
accounting pronouncements, if adopted, would have a material effect on its
accompanying financial statements.
F-33
CCO
HOLDINGS, LLC AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008, 2007, AND 2006
(dollars
in millions, except where indicated)
25. Parent
Company Only Financial Statements
As the
result of limitations on, and prohibitions of, distributions, substantially all
of the net assets of the consolidated subsidiaries are restricted from
distribution to CCO Holdings, the parent company. The following
condensed parent-only financial statements of CCO Holdings account for the
investment in its subsidiaries under the equity method of
accounting. The financial statements should be read in conjunction
with the consolidated financial statements of the Company and notes
thereto.
CCO
Holdings, LLC (Parent Company Only)
Condensed
Balance Sheet
|
December
31,
|
||||||||
|
2008
|
2007
|
|||||||
|
ASSETS
|
||||||||
|
Cash
and cash equivalents
|
$ | 2 | $ | 2 | ||||
|
Receivable
– related party
|
15 | 18 | ||||||
|
Investment
in subsidiaries
|
18 | 2,760 | ||||||
|
Loans
receivable - subsidiaries
|
297 | 275 | ||||||
|
Other
assets
|
9 | 11 | ||||||
|
Total
assets
|
$ | 341 | $ | 3,066 | ||||
|
LIABILITIES
AND MEMBER’S EQUITY(DEFICIT)
|
||||||||
|
Current
liabilities
|
$ | 8 | $ | 9 | ||||
|
Long-term
debt
|
1,146 | 1,145 | ||||||
|
Member’s
equity (deficit)
|
(813 | ) | 1,912 | |||||
|
Total
liabilities and member’s equity (deficit)
|
$ | 341 | $ | 3,066 | ||||
Condensed
Statement of Operations
|
Year
Ended December 31,
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
Interest
expense
|
$ | (74 | ) | $ | (84 | ) | $ | (108 | ) | |||
|
Other
expense
|
-- | (19 | ) | (3 | ) | |||||||
|
Equity
in losses of subsidiaries
|
(1,399 | ) | (247 | ) | (82 | ) | ||||||
|
Net
loss
|
$ | (1,473 | ) | $ | (350 | ) | $ | (193 | ) | |||
F-34
CCO
HOLDINGS, LLC AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008, 2007, AND 2006
(dollars
in millions, except where indicated)
Condensed
Statements of Cash Flows
|
Year
Ended December 31,
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||||||
|
Net
loss
|
$ | (1,473 | ) | $ | (350 | ) | $ | (193 | ) | |||
|
Noncash
interest expense
|
3 | 2 | 5 | |||||||||
|
Equity
in losses of subsidiaries
|
1,399 | 247 | 82 | |||||||||
|
Loss
on extinguishment of debt
|
-- | 8 | 3 | |||||||||
|
Changes
in operating assets and liabilities
|
(20 | ) | (25 | ) | (19 | ) | ||||||
|
Net
cash flows from operating activities
|
(91 | ) | (118 | ) | (122 | ) | ||||||
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||||||
|
Distributions
from subsidiaries
|
1,163 | 1,767 | 1,274 | |||||||||
|
Loan
to subsidiary
|
-- | -- | (148 | ) | ||||||||
|
Net
cash flows from investing activities
|
1,163 | 1,767 | 1,126 | |||||||||
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
||||||||||||
|
Proceeds
from debt issuance
|
-- | 350 | -- | |||||||||
|
Repayments
of long-term debt
|
-- | (550 | ) | -- | ||||||||
|
Contributions
from parent companies
|
-- | -- | 148 | |||||||||
|
Distributions
to parent companies
|
(1,072 | ) | (1,447 | ) | (1,151 | ) | ||||||
|
Payments
for debt issuance costs
|
-- | (2 | ) | -- | ||||||||
|
Net
cash flows from financing activities
|
(1,072 | ) | (1,649 | ) | (1,003 | ) | ||||||
|
NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
-- | -- | 1 | |||||||||
|
CASH
AND CASH EQUIVALENTS, beginning of year
|
2 | 2 | 1 | |||||||||
|
CASH
AND CASH EQUIVALENTS, end of year
|
$ | 2 | $ | 2 | $ | 2 | ||||||
26. Subsequent
Events
Impairment
of Franchises
During
the quarter ended September 30, 2009, the Company performed an interim franchise
impairment analysis and recorded a preliminary non-cash franchise impairment
charge of $2.9 billion (unaudited) which represented the Company’s best estimate
of the impairment of its franchise assets as of the date of filing the 3rd
quarter Form 10-Q. The Company currently expects to finalize its franchise
impairment analysis during the quarter ended December 31, 2009, which could
potentially result in an impairment charge that materially differs from the
estimate. In addition, upon the effectiveness of the Company’s Plan, the
Company will apply fresh start accounting in accordance with Statement of
Position 90-7, Financial
Reporting by Entities in Reorganization Under the Bankruptcy Code (“SOP
90-7”) and as such will adjust its franchise assets to reflect fair
value.
Emergence
from Reorganization Proceedings and Related Events
On March
27, 2009, the Company, its parent companies, and certain affiliates
(collectively, the “Debtors”) filed voluntary petitions in the United States
Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”)
seeking relief under the provisions of Chapter 11 of Title 11 of the United
States Code (the “Bankruptcy Code”). The Chapter 11 cases were
jointly administered under the caption In re Charter Communications, Inc.,
et al., Case No. 09-11435 (the “Chapter 11 Cases”). The
Debtors continued to operate their businesses and managed their properties as
debtors in possession under the jurisdiction of the Bankruptcy Court and in
accordance with the
F-35
CCO
HOLDINGS, LLC AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008, 2007, AND 2006
(dollars
in millions, except where indicated)
applicable
provisions of the Bankruptcy Code from March 27, 2009 until emergence from
Chapter 11 on November 30, 2009 (the “Effective Date”).
On
November 17, 2009, the Bankruptcy Court entered an order (the “Confirmation
Order”) confirming the Plan and, on the Effective Date, the Plan was consummated
and the Company and its parent companies’ emerged from bankruptcy. As provided
in the Plan and the Confirmation Order, (i) the notes and bank debt of Charter
Operating and CCO Holdings remained outstanding; (ii) holders of approximately
$1.5 billion of notes issued by CCH II received new CCH II notes (the “Notes
Exchange”); (iii) holders of notes issued by CCH I received shares of Charter
new Class A common stock; (iv) holders of notes issued by CIH
received warrants to purchase shares of Charter new Class A common stock; (v)
holders of notes issued by Charter Holdings received warrants to purchase shares
of Charter new Class A common stock; (vi) holders of convertible notes issued by
Charter received cash and preferred stock issued by Charter; and (vii) all
previously outstanding shares of Charter Class A common stock were
cancelled. In addition, as part of the Plan, the holders of CCH I
notes received and transferred to Mr. Allen $85 million of new CCH II
notes. The Plan resulted in the reduction of the Company’s parent
companies’ debt by approximately $8 billion.
The
consummation of the Plan was funded with cash on hand, the Notes Exchange, and
proceeds of approximately $1.6 billion of an equity rights offering (the “Rights
Offering”) in which holders of CCH I notes purchased approximately $1.6
billion of Charter’s new Class A common stock.
Pursuant
to a separate restructuring agreement among Charter, Mr. Allen, and an entity
controlled by Mr. Allen (as amended, the “Allen Agreement”), in settlement and
compromise of their legal, contractual and equitable rights, claims and remedies
against Charter and its subsidiaries, and in addition to any amounts received by
virtue of their holding any claims of the type set forth above, upon the
Effective Date of the Plan, Mr. Allen or his affiliates were issued shares of
the new Class B common stock of Charter equal to 2% of the equity value of
Charter, after giving effect to the Rights Offering, but prior to issuance of
warrants and equity-based awards provided for by the Plan and 35% (determined on
a fully diluted basis) of the total voting power of all new capital stock of
Charter. Each share of new Class B common stock is convertible, at the
option of the holder subject to various restrictions, into one share of new
Class A common stock, and is subject to significant restrictions on
transfer. Certain holders of new Class A common stock and new Class B
common stock will receive certain customary registration rights with respect to
their shares. At the Effective Date of the Plan, Mr. Allen or his
affiliates also received (i) warrants to purchase shares of new Class A common
stock of Charter in an aggregate amount equal to 4% of the equity value of
reorganized Charter, after giving effect to the Rights Offering, but prior to
the issuance of warrants and equity-based awards provided for by the Plan, (ii)
$85 million principal amount of new CCH II notes, (iii) $25 million in cash for
amounts owing to CII under a management agreement, (iv) up to $20 million in
cash for reimbursement of fees and expenses in connection with the Plan, and (v)
an additional $150 million in cash. In addition, on the Effective
Date of the Plan, CII retained a 1% equity interest in reorganized Charter
Holdco and a right to exchange such interest into new Class A common stock of
Charter. Further, Mr. Allen transferred his preferred equity interest in CC VIII
to Charter.
Charter
Operating Revolving Credit Facility
The
Company has utilized $1.4 billion of the $1.5 billion revolving credit facility
under its Amended and Restated Credit Agreement, dated as of March 18, 1999, as
amended and restated as of March 6, 2007 (the “Credit
Agreement”). Upon filing bankruptcy, Charter Operating no longer had
access to the revolving feature of its revolving credit
facility. Reinstatement of the Credit Agreement resulted in the
revolving credit facility remaining in place with its original terms except its
revolving feature.
Plan
Effects and Fresh Start Accounting
In the
disclosure statement related to the Plan, the reorganization value of the
Company and its parent companies was set forth as approximately $14.1 billion to
$16.6 billion, with a midpoint estimate of $15.4 billion. The reorganization
value was determined using numerous projections and
assumptions that are inherently subject to significant uncertainties and the
resolution of contingencies beyond the control of the Company. Accordingly,
there can be no assurance that the estimates, assumptions and amounts reflected
in the valuation will be realized.
F-36
CCO
HOLDINGS, LLC AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008, 2007, AND 2006
(dollars
in millions, except where indicated)
Effective
December 1, 2009, the Company will apply fresh start accounting in accordance
with SOP 90-7 which requires assets and liabilities to be reflected at fair
value. Upon
application of fresh start accounting, the Company will adjust its property,
plant and equipment, franchise, goodwill, and other intangible assets to reflect
fair value and will also establish any previously unrecorded intangible assets
at their fair values. The Company expects these fresh start
adjustments will result in material increases to total tangible and intangible
assets, primarily as a result of adjustments to property, plant and equipment,
goodwill and customer relationships.
F-37