View:
January 7, 2005
Mail Stop 0407
Curtis S. Shaw, Esq.
Executive Vice President, General Counsel, and Secretary
Charter Communications, Inc.
12405 Powerscourt Drive
St. Louis, Missouri 63131
RE: Charter Communications, Inc.
Registration Statement on Form S-1
File No. 333-121136
Filed December 10, 2004
Charter Communications, Inc.
Registration Statement on Form S-1
File No. 333-121561
Filed December 22, 2004
Dear Mr. Shaw:
We have reviewed your filing and have the following
comments.
Where indicated, we think you should revise your document in
response
to these comments. If you disagree, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
supplemental information so we may better understand your
disclosure.
After reviewing this information, we may or may not raise
additional
comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
* * * * *
1. The purpose of the registered transactions, including the
economics involved, is not clear from your disclosure.
Supplementally, and with a view towards disclosure, please
describe
in greater detail and Plain English the nature of the hedging or
arbitrage activities that Citigroup Global Markets Limited,
Citigroup
Global Markets, Inc., and their affiliates intend to conduct with
respect to your Class A shares. Explain in greater detail how the
Class A shares borrowed by Citigroup Global Markets Limited
pursuant
to the November 22, 2004 share lending agreement would be utilized
in
these hedging or arbitrage activities. Please explain how such
hedging activities and the share lending agreement made the 5.875%
convertible senior notes "more attractive" to prospective
investors
and whether the share lending arrangement was intended (or in
fact)
to benefit any particular 5.875% note holders. In your response,
it
would be helpful to provide hypothetical examples assuming
material
increases and decreases in the company`s stock price.
In your supplemental response, please also address the following
comments:
* indicate the extent to which the registered offering, share
lending
arrangement, and the related hedging activities are being
conducted
in reliance on the staff`s position as articulated in the October
9,
2003 Goldman, Sachs & Co. interpretative letter;
* explain your analysis regarding the application of Section 5
registration and prospectus delivery requirements to sales made in
connection with the hedging activities by Citigroup;
* describe the "limited circumstances" under which the borrowed
shares, once returned, can be reborrowed (as discussed on page 179
of
the Form S-1); and
* explain who other than Citigroup Global Markets Limited may be
considered "holders of the borrowed shares" (as discussed on page
179).
Please note that your responses will also be reviewed by our
Office
of Chief Counsel (due to unusual nature of the transaction being
registered). Therefore, we, including the Office of Chief
Counsel,
may have additional comments after reviewing your responses.
2. We note that the borrowed Class A shares will be returned by
Citigroup. However, the Share Lending Agreement section does not
discuss the methods through which these borrowings would be closed
out by Citigroup. Supplementally, and with a view towards
disclosure, please explain to us in Plain English how Citigroup
intends to obtain the Class A shares that it will return to
Charter.
For example, does Citigroup intend to purchase in the public
market
the Class A shares that it returns to Charter? Please also
clarify
whether Citigroup can use any form of consideration other than
Class
A shares, e.g. cash, to close out its borrowings under the share
lending agreement. If cash can be given to close out the
borrowings
under the share lending agreement, please explain what Charter`s
intentions are with respect to the cash and reconcile the receipt
of
cash with your existing disclosure that Charter will not receive
proceeds from the offering. For example, assuming that cash
settlement of the open borrowings under the share lending
agreement
is permitted and Citigroup`s hedging activities result in cash in
excess of the amount needed to close out the borrowings, please
explain who will receive the excess cash.
3. We note the disclosure on page 179 that indicates that the
company
will loan to Citigroup "up to 150,000,000 shares of our Class A
common stock on one or more occasions..." Therefore, it appears
that
the registered offering will be conducted on a delayed or
continuous
basis, subjecting it to the requirements of Rule 415(a)(1)(x) of
Regulation C. However, the Rule 415 box on the cover page of the
registration statement has not been checked and Rule 415
undertakings
have not been provided. Please advise. In addition, delayed
offerings may only be conducted by issuers who are primarily
eligible
to use Form S-3. Additionally, the staff`s position articulated
in
the Goldman no-action letter is limited to registrants that are
eligible to use Form S-3 for a primary offering. Supplementally,
confirm that the company is primarily eligible to use Form S-3
and,
if so, advise why Form S-1 was used to register this transaction
and
your related selling shareholder offering.
4. Please provide us with a supplemental analysis explaining your
views on the applicability of the Rule 415(a)(4) "at the market"
rules to the registered offering.
5. Supplementally, please clarify the nature of the underwriting
arrangements, as described in the Underwriting section. Please
provide us with copies of the underwriting agreement that will be
filed as Exhibit 1.
6. Please provide us with your analysis explaining the
applicability
of, and compliance with, Regulation M.
7. Please ensure to update any outdated information in your next
amendment. For example, you should indicate on page 174 that you
already filed a registration statement to cover the resale of the
356,404,924 Class A shares underlying the 5.875% notes.
8. To the extent the comments in this letter are applicable,
please
apply corresponding revisions to the disclosure contained in the
Form
S-1 filed on December 22, 2004 (file no. 333-121561). Note that
we
are in the process of reviewing that Form S-1 and may have
additional
comments on that particular filing.
9. Where applicable, consider revising your disclosure in
connection
with our comments issued on your Form 10-K for the year ended
December 31, 2003 and your Form 10-Q for the period ended
September
30, 2004 in our letter dated December 30, 2004.
Summary Consolidated Financial Data, page 5
Unaudited Pro Forma Financial Information, page 28
10. Refer to your presentation of "pro forma cash flows from
operating activities," "pro forma cash flows from investing
activities," and "pro forma cash flows from financing activities."
We believe these measures represent non-GAAP measures that must
comply with Item 10 of Regulation S-K. In that regard, you are
required to provide a reconciliation of the amounts to the most
directly comparable GAAP measures and provide a statement
disclosing
why management believes the presentation of the non-GAAP measures
provides useful information. Please either revise to delete these
measures, or provide all disclosures required by Item 10 of
Regulation S-K.
11. Revise your disclosures to only present the amounts through
loss
before cumulative effect of accounting change pursuant to Article
11
of Regulation S-X. Also revise to present only basic and diluted
loss from continuing operations per common share.
Organizational Structure, page 4
12. In footnote (1) to the chart, you indicate that "Charter acts
as
the sole manager of Charter Holdco and most of its limited
liability
company subsidiaries." Clarify what limited liability company
subsidiaries are not under the sole management of the company and
who
manages these subsidiaries. It is not clear whether this
reference
is related to the dispute with Mr. Paul G. Allen.
We may not generate sufficient cash flow..., page 9
13. Please expand your discussion of how your inability to
generate
sufficient cash flow could "result in future impairments to the
franchises in [your] financial statements."
We may not have the ability to raise the funds necessary to
fulfill
our obligations..., page 10
14. Please quantify the amounts of the subsidiaries` indebtedness
(e.g. the "subsidiaries` credit facilities" and "subsidiaries`
notes"), as of the most recent practicable date, that would
require
repayment upon a change of control.
Our dispute with Paul G. Allen..., page 11
15. Although we note your disclosure in the Related Parties
Transactions section, the reference here to a "dispute" between
Mr.
Allen and the company is too vague. Explain how this "dispute"
has
manifested itself. We also note your later risk factor indicating
that the loss of Mr. Allen`s services could adversely affect the
company but no discussion of whether the dispute could result in
Mr.
Allen`s departure from the company. Please revise accordingly.
In
addition, supplementally advise with a view towards additional
disclosure whether the board has considered the impact of this
dispute on Mr. Allen`s fiduciary duty as Chairman of the Board.
16. In more descriptive language, please explain the impact on
Charter if the dispute is resolved so that Mr. Allen continues to
hold his preferred membership interests in CC VIII, LLC instead of
exchanging them for the membership units of Charter Holdco. Avoid
using vague and generic language such as "adversely affected."
If a court determines that the Class B common stock is no
longer
entitled to special voting rights..., page 15
17. Please expand your discussion of the nature of the
"uncertainties" referred to in the last paragraph of this risk
factor. For example, clarify the nature of the uncertainty
regarding
your management role and explain how such uncertainty can affect
the
Class A shares. Are these uncertainties different from the ones
already discussed in the risk factor?
Risks related to Mr. Allen`s controlling position, page
16
18. We note your disclosure that if Mr. Allen does not maintain a
35%
direct or indirect voting interest this could trigger a change in
control default. Based on the 150 million shares outstanding as a
result of the Share Lending agreement and the potential for the
newly
issued convertible notes to be converted into 356 million shares,
it
initially appears that this may be at risk. Tell us why you
believe
Mr. Allen will continue to maintain the required voting interest,
and
provide us with supplemental calculations if necessary.
The issuance of our Class A common stock offered hereby
pursuant....,
page 17
19. What is the basis for management`s belief that the offering
would
not result in an ownership change under the tax laws?
Our cable systems are operated under franchises that are subject
to
non-renewal or termination..., page 18
20. We note your statement approximately 28% of your franchises
covering approximately 30% of your video customers either expired
or
will expire on or before December 30, 2006. Instead of providing
these aggregate percentages, please revise to state the percentage
of
your franchises (and the corresponding percentage of your video
customers covered by these franchises) that have already expired.
Provide similar percentages for the franchises that will expire in
the near future.
Further regulation of the cable industry could cause us to
delay...,
page 19
21. Please refer to the second paragraph of this risk factor.
Discuss the consequences to the company if it is required to
provide
its bundled programming services on an a la carte basis.
Changes in channel carriage regulations..., page 20
22. Please discuss in greater detail the risks posed by the
possible
increased channel carriage burden, including the requirement to
carry
both analog and digital versions of the local broadcast signals.
The market price of our Class A common stock may be volatile...,
page
21
23. Please refer to the second paragraph. Please describe in
greater
detail how the "hedging or arbitrage" activities involving the
Class
A common stock would affect the stock`s trading prices.
Similarly,
on page 22, you should describe in greater detail how the market
price of the Class A shares could be "negatively affected" by
"other
short sales of [your] Class A common stock by the purchasers of
the
5.875% convertible senior notes to hedge their investment in the
convertible notes."
The effect of the issuance of our shares of Class A common
stock..., page 22
24. To enable investors to better understand the risks involved,
please avoid using generic phrases such as "negatively affected"
or
"negative effect." Instead, use more concrete language to
describe
the possible consequences resulting from the share lending
agreement.
For example, the risk factor should clearly explain that the short
sales could cause a decrease in the Class A stock`s market price.
Consider providing illustrative examples of how the hedging
activities could affect the Class A stock`s market price.
25. We note your statement that an issuance of shares upon the
conversion of the convertible notes "may require a reduction of an
equal number" of shares under the share lending agreement. We
note
your use of the word "may" instead of "will." Explain in what
circumstances there would not be a corresponding reduction in the
number of shares under the share lending agreement.
Capitalization, page 25
26. Please refer to footnote (e) on page 26. According to the
footnote, the percentage of Charter Communications Holdings
Company,
LLC not owned by Charter is "approximately 53% of the total
members`
equity of Charter Communications Holding Company, LLC." Your
chart
on page 4 indicates that 43% of the common equity interest of
Charter
Communications Holding Company, LLC is not owned by Charter.
Please
reconcile or advise.
27. Tell us why you believe it is appropriate to segregate the pro
forma adjustments between "pro forma" and "pro forma as adjusted,"
when all the events have occurred after the balance sheet date.
In
this regard, we note the amounts listed as "pro forma" in the
Summary
on page 7 are in fact the amounts disclosed as "pro forma as
adjusted" here. Revise or advise.
Management`s Discussion and Analysis of Financial Condition and
Results of Operations, page 38
Introduction, page 38
28. As suggested by Release No. 33-8350, please consider
discussing
in the introduction the effects of any material economic or
industry-
wide factors relevant to the company. For example, consider
discussing how management views the impact of the general shift
from
analog television service to digital television service.
29. Consider identifying and discussing any key performance
indicators, including non-financial performance indicators, that
the
management uses to manage the business and that would be material
to
investors. We note, for example, that your Results of Operations
section refers to "average monthly revenue per analog video
customer"
as well as changes in the number of customers.
Overview of Operations, page 47
30. We note your statement that you are attempting to control your
costs of operations by "maintaining strict controls on expenses."
However, we note that you continue to finance your operations
through
borrowings. Discuss management`s expectations as to when the
company
will no longer be reliant upon debt to finance operations.
Clarify
whether management has a plan to lower the amount of revenues
necessary to cover the company`s interest expense in future
periods.
Critical Accounting Policies and Estimates, page 48
31. As suggested in Release No. 33-8350, please revise your
discussion of critical accounting estimates or assumptions to:
* indicate the historical accuracy of the estimates or
assumptions;
and
* state whether the estimates or assumptions have changed in the
past
and, to the extent possible, whether the estimates or assumptions
are
reasonably likely to change in the future.
For example, you should discuss the historical accuracy of the
estimates or assumptions underlying the capitalization policies
described on pages 49-50. Where appropriate, consider providing
sensitivity analysis that depict reasonably likely scenarios had
other variables been chosen in the determination of your
estimates.
When reasonably feasible, you should provide quantitative
information. For example, on page 50, consider quantifying the
material effect on future depreciation expenses if management`s
assumptions about the extent or timing of future asset usage are
significantly changed.
Results of Operations, page 55
32. Please refer to the discussion of video revenues on page 62.
Revise your disclosure to quantify the impact of each factor that
resulted in the $41 million increase in video revenues in the 2003
fiscal year. For example, your revised disclosure should indicate
the degree to which the prices increases were "partially offset"
by a
decline in analog and digital video customers. Please make
corresponding revisions to any similar disclosure in the Results
of
Operations section.
Liquidity and Capital Resources, page 70
33. Overview, page 71. Please refer to page 72. Please elaborate
on
the nature of the restrictions on Charter Holdings` ability to
make
distributions to Charter as a result of its inability to meet the
8.75 to 1.0 leverage ratio test. Note that Release No. 33-8350
requests a registrant to discuss the impact or reasonably likely
impact of the breach of a debt instrument`s covenants on its
financial condition or operating performance. Your discussion
appears to indicate that Charter Holdings cannot make any
distributions. If so, this prohibition on distributions should be
clearly stated and its impact on Charter described in greater
detail.
34. To the extent that current breaches with the covenants of
existing debt instruments will materially limit Charter`s ability
to
raise the additional funding needed to repay the debt maturing in
2006, you identify these specific breaches in the risk factor
section
and explain how these breaches will specifically affect the
company.
35. Please refer to page 73. Indicate, if known, whether the
company
is currently anticipating future asset sales on the scale of the
Atlantic Broadband Finance sale as a significant source of
liquidity.
Note that Release No. 33-8380 suggests companies provide
prospective
information regarding their sources of capital.
36. Repeat the disclosures contained at page 9 relating to
potential
defaults on your debt covenants if you do not receive an
unqualified
opinion from your auditors.
37. Summary of Outstanding Contractual Obligations, page 73. We
note
the items that were not included in the contractual obligations
table. Supplementally, please explain your basis for not
including
these items in the table. Reconcile that basis with our view, as
expressed in Release No. 33-8182, that "aggregated information
about
a registrant`s contractual obligations in a single location will
provide useful context for investors to assess a registrant`s
short-
and long-term liquidity and capital resource needs and demands."
38. Confirm that the amounts disclosed in the table include
principal
and interest. If not, please revise to include.
Business, page 79
Business Strategy, page 79
39. We note your statement that "going forward" management intends
on
reducing indebtedness; however, the amount of the company`s debt
has
continued to grow. It is unclear what steps management plans to
take
to reduce the company`s indebtedness. Please provide more detail
either here or in the MD&A section.
Security Ownership of Certain Beneficial Owners and Management,
page
118
40. We note that the beneficial ownership table is as of October
31,
2004. Please update the table to the most recent practicable
date,
as required by Item 403 of Regulation S-K.
Description of Certain Indebtedness, page 141
41. Please provide disclosure identifying the events that are
assumed
to have occurred under the "Pro Forma - September 30, 2004" column
of
the table on page 141.
Summary of Restrictive Covenants Under the Charter Holdings High-
Yield Note Indentures, page 149
42. We note your disclosure that Charter Holdings and its
restricted
subsidiaries are permitted to issue up to $3.5 billion of debt
under
credit facilities. However, it appears that you have surpassed
that
limit under the credit facilities as of September 30, 2004.
Please
clarify.
Share Lending Agreement, page 179
43. We note your disclosure that you believe there is no U.S. GAAP
accounting impact of the outstanding shares under the lending
agreement. Tell us why you believe this and cite your basis in
the
relevant accounting literature.
44. We note that you disclose that CGML will not vote any of the
borrowed shares of which it is the record owner. If the borrowed
shares are transferred, tell us and disclose whether the
transferees
of these shares will be able to vote.
Underwriting, page 181
45. We note that the underwriter will place the prospectus in
electronic format on a website. Supplementally, please describe
all
electronic methods of distribution contemplated by the
underwriter,
including the electronic version of the prospectus and the website
will be used. Clarify how these methods relate to the proposed
hedging activities by Citigroup.
* * * * *
As appropriate, please amend your registration statement in
response to these comments. You may wish to provide us with
marked
copies of the amendment to expedite our review. Please furnish a
cover letter with your amendment that keys your responses to our
comments and provides any requested supplemental information.
Detailed cover letters greatly facilitate our review. Please
understand that we may have additional comments after reviewing
your
amendment and responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
Notwithstanding our comments, in the event the company
requests
acceleration of the effective date of the pending registration
statement, it should furnish a letter, at the time of such
request,
acknowledging that:
? should the Commission or the staff, acting pursuant to
delegated
authority, declare the filing effective, it does not foreclose the
Commission from taking any action with respect to the filing;
? the action of the Commission or the staff, acting pursuant to
delegated authority, in declaring the filing effective, does not
relieve the company from its full responsibility for the adequacy
and
accuracy of the disclosure in the filing; and
? the company may not assert staff comments and the declaration
of
effectiveness as a defense in any proceeding initiated by the
Commission or any person under the federal securities laws of the
United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in connection with our review of
your
filing or in response to our comments on your filing.
We will consider a written request for acceleration of the
effective date of the registration statement as a confirmation of
the
fact that those requesting acceleration are aware of their
respective
responsibilities under the Securities Act of 1933 and the
Securities
Exchange Act of 1934 as they relate to the proposed public
offering
of the securities specified in the above registration statement.
We
will act on the request and, pursuant to delegated authority,
grant
acceleration of the effective date.
We direct your attention to Rules 460 and 461 regarding
requesting acceleration of a registration statement. Please allow
adequate time after the filing of any amendment for further review
before submitting a request for acceleration. Please provide this
request at least two business days in advance of the requested
effective date.
You may contact Kathleen Kerrigan at (202) 942-1944 or
Carlos
Pacho at (202) 942-1876 if you have questions regarding comments
on
the financial statements and related matters. Please contact Ted
Yu
at (202) 824-5684 or me at (202) 942-1990 with any other
questions.
Sincerely,
Larry Spirgel
Assistant Director
Cc: Kevin L. Finch, Esq.
Irell & Manella LLP
??
??
??
??
Charter Communications, Inc.
Page 1 of 10