CHTR » Topics » Management’s Discussion and Analysis of Financial Condition and Results of Operations.

These excerpts taken from the CHTR 10-K filed Mar 16, 2009.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
Reference is made to “Part I. Item 1. Business – Recent Developments” which describes the Proposed Restructuring and “Part I. Item 1A. Risk Factors” especially the risk factors “—Risks Relating to Bankruptcy” and “Cautionary Statement Regarding Forward-Looking Statements,” which describe important factors that could cause actual results to differ from expectations and non-historical information contained herein.  In addition, the following discussion should be read in conjunction with the audited consolidated financial statements of Charter Communications, Inc. and subsidiaries as of and for the years ended December 31, 2008, 2007, and 2006.
 
Overview
 
Charter is a broadband communications company operating in the United States with approximately 5.5 million customers at December 31, 2008.  We offer our customers traditional cable video programming (basic and digital, which we refer to as "video" service), high-speed Internet access, and telephone services, as well as advanced broadband services (such as OnDemand, high definition television service and DVR).  See "Part I. Item 1. Business — Products and Services" for further description of these services, including "customers."

Approximately 86% of our revenues for each of the years ended December 31, 2008 and 2007 are attributable to monthly subscription fees charged to customers for our video, high-speed Internet, telephone, and commercial services provided by our cable systems.  Generally, these customer subscriptions may be discontinued by the customer at any time.  The remaining 14% of revenue for fiscal years 2008 and 2007 is derived primarily from advertising revenues, franchise fee revenues (which are collected by us but then paid to local franchising authorities), pay-per-view and OnDemand programming (where users are charged a fee for individual programs viewed), installation or reconnection fees charged to customers to commence or reinstate service, and commissions related to the sale of merchandise by home shopping services.

The cable industry's and our most significant competitive challenges stem from DBS providers and DSL service providers.  Telephone companies either offer, or are making upgrades of their networks that will allow them to offer, services that provide features and functions similar to our video, high-speed Internet, and telephone services, and they also offer them in bundles similar to ours.  See "Part I. Item 1. Business — Competition.''  We believe that competition from DBS and telephone companies has resulted in net video customer losses.  In addition, we face increasingly limited opportunities to upgrade our video customer base now that approximately 62% of our video customers subscribe to our digital video service.  These factors have contributed to decreased growth rates for digital video customers.  Similarly, competition from high-speed Internet providers along with increasing penetration of high-speed Internet service in homes with computers has resulted in decreased growth rates for high-speed Internet customers.  In the recent past, we have grown revenues by offsetting video customer losses with price increases and sales of incremental services such as high-speed Internet, OnDemand, DVR, high definition television, and telephone.  We expect to continue to grow revenues through price increases and high-speed Internet upgrades, increases in the number of our customers who purchase bundled services including high-speed Internet and telephone, and through sales of incremental services including wireless networking, high definition television, OnDemand, and DVR services.  In addition, we expect to increase revenues by expanding the sales of our services to our commercial customers.  However, we cannot assure you that we will be able to grow revenues at historical rates, if at all.  Dramatic declines in the housing market over the past year, including falling home prices and increasing foreclosures, together with significant increases in unemployment, have severely affected consumer confidence and may cause increased delinquencies or cancellations by our customers or lead to unfavorable changes in the mix of products purchased.  The general economic downturn also may affect advertising sales, as companies seek to reduce expenditures and conserve cash. Any of these events may adversely affect our cash flow, results of operations and financial condition.

Our expenses primarily consist of operating costs, selling, general and administrative expenses, depreciation and amortization expense, impairment of franchise intangibles and interest expense.  Operating costs primarily include programming costs, the cost of our workforce, cable service related expenses, advertising sales costs and franchise fees.  Selling, general and administrative expenses primarily include salaries and benefits, rent expense, billing costs, call center costs, internal network costs, bad debt expense, and property taxes.  We control our costs of operations by maintaining strict controls on expenses.  More specifically, we are focused on managing our cost structure by improving workforce productivity, and leveraging our scale, and increasing the effectiveness of our purchasing activities.

For the year ended December 31, 2008, our operating loss from continuing operations was $614 million and for the years ended December 31, 2007 and 2006, income from continuing operations was $548 million and $367 million,

 
41

 

respectively.  We had a negative operating margin (defined as operating loss from continuing operations divided by revenues) of 9% for the year ended December 31, 2008 and positive operating margins (defined as operating income from continuing operations divided by revenues) of 9% and 7% for the years ended December 31, 2007 and 2006, respectively.  For the year ended December 31, 2008, the operating loss from continuing operations and negative operating margin is principally due to impairment of franchises incurred during the fourth quarter.  The improvement in operating income from continuing operations in 2007 as compared to 2006 and positive operating margin for the years ended December 31, 2007 and 2006 is principally due to increased sales of our bundled services and improved cost efficiencies.

We have a history of net losses.  Our net losses are principally attributable to insufficient revenue to cover the combination of operating expenses and interest expenses we incur because of our high amounts of debt, depreciation expenses resulting from the capital investments we have made and continue to make in our cable properties, and the impairment of our franchise intangibles.

Beginning in 2004 and continuing through 2008, we sold several cable systems to divest geographically non-strategic assets and allow for more efficient operations, while also reducing debt and increasing our liquidity.  In 2006, 2007, and 2008, we closed the sale of certain cable systems representing a total of approximately 390,300, 85,100, and 14,100 video customers, respectively.  As a result of these sales we have improved our geographic footprint by reducing our number of headends, increasing the number of customers per headend, and reducing the number of states in which the majority of our customers reside.  We also made certain geographically strategic acquisitions in 2006 and 2007, adding 17,600 and 25,500 video customers, respectively.

In 2006, we determined that the West Virginia and Virginia cable systems, which were part of the system sales disclosed above, comprised operations and cash flows that for financial reporting purposes met the criteria for discontinued operations.  Accordingly, the results of operations for the West Virginia and Virginia cable systems (including a gain on sale of approximately $200 million recorded in the third quarter of 2006), have been presented as discontinued operations, net of tax, for the year ended December 31, 2006.  Tax expense of $18 million associated with this gain on sale was recorded in the fourth quarter of 2006.

Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.

 

Reference
is made to “Part I. Item 1. Business – Recent Developments” which describes the
Proposed Restructuring and “Part I. Item 1A. Risk Factors” especially the risk
factors “—Risks Relating to Bankruptcy” and “Cautionary Statement Regarding
Forward-Looking Statements,” which describe important factors that could cause
actual results to differ from expectations and non-historical information
contained herein.  In addition, the following discussion should be
read in conjunction with the audited consolidated financial statements of
Charter Communications, Inc. and subsidiaries as of and for the years ended
December 31, 2008, 2007, and 2006.

 

Overview

 

Charter
is a broadband communications company operating in the United States with
approximately 5.5 million customers at December 31, 2008.  We offer
our customers traditional cable video programming (basic and digital, which we
refer to as "video" service), high-speed Internet access, and telephone
services, as well as advanced broadband services (such as OnDemand, high
definition television service and DVR).  See "Part I. Item 1. Business
— Products and Services" for further description of these services, including
"customers."



Approximately
86% of our revenues for each of the years ended December 31, 2008 and 2007
are attributable to monthly subscription fees charged to customers for our
video, high-speed Internet, telephone, and commercial services provided by our
cable systems.  Generally, these customer subscriptions may be
discontinued by the customer at any time.  The remaining 14% of
revenue for fiscal years 2008 and 2007 is derived primarily from advertising
revenues, franchise fee revenues (which are collected by us but then paid to
local franchising authorities), pay-per-view and OnDemand programming (where
users are charged a fee for individual programs viewed), installation or
reconnection fees charged to customers to commence or reinstate service, and
commissions related to the sale of merchandise by home shopping
services.



The cable
industry's and our most significant competitive challenges stem from DBS
providers and DSL service providers.  Telephone companies either
offer, or are making upgrades of their networks that will allow them to offer,
services that provide features and functions similar to our video, high-speed
Internet, and telephone services, and they also offer them in bundles similar to
ours.  See "Part I. Item 1. Business — Competition.''  We
believe that competition from DBS and telephone companies has resulted in net
video customer losses.  In addition, we face increasingly limited
opportunities to upgrade our video customer base now that approximately 62% of
our video customers subscribe to our digital video service.  These
factors have contributed to decreased growth rates for digital video
customers.  Similarly, competition from high-speed Internet providers
along with increasing penetration of high-speed Internet service in homes with
computers has resulted in decreased growth rates for high-speed Internet
customers.  In the recent past, we have grown revenues by offsetting
video customer losses with price increases and sales of incremental services
such as high-speed Internet, OnDemand, DVR, high definition television, and
telephone.  We expect to continue to grow revenues through price
increases and high-speed Internet upgrades, increases in the number of our
customers who purchase bundled services including high-speed Internet and
telephone, and through sales of incremental services including wireless
networking, high definition television, OnDemand, and DVR
services.  In addition, we expect to increase revenues by expanding
the sales of our services to our commercial customers.  However, we
cannot assure you that we will be able to grow revenues at historical rates, if
at all.  Dramatic declines in the housing market over the past year,
including falling home prices and increasing foreclosures, together with
significant increases in unemployment, have severely affected consumer
confidence and may cause increased delinquencies or cancellations by our
customers or lead to unfavorable changes in the mix of products
purchased.  The general economic downturn also may affect advertising
sales, as companies seek to reduce expenditures and conserve cash. Any of these
events may adversely affect our cash flow, results of operations and financial
condition.



Our
expenses primarily consist of operating costs, selling, general and
administrative expenses, depreciation and amortization expense, impairment of
franchise intangibles and interest expense.  Operating costs primarily
include programming costs, the cost of our workforce, cable service related
expenses, advertising sales costs and franchise fees.  Selling,
general and administrative expenses primarily include salaries and benefits,
rent expense, billing costs, call center costs, internal network costs, bad debt
expense, and property taxes.  We control our costs of operations by
maintaining strict controls on expenses.  More specifically, we are
focused on managing our cost structure by improving workforce productivity, and
leveraging our scale, and increasing the effectiveness of our purchasing
activities.



For the
year ended December 31, 2008, our operating loss from continuing operations was
$614 million and for the years ended December 31, 2007 and 2006, income from
continuing operations was $548 million and $367 million,




 



41







 




respectively.  We
had a negative operating margin (defined as operating loss from continuing
operations divided by revenues) of 9% for the year ended December 31, 2008 and
positive operating margins (defined as operating income from continuing
operations divided by revenues) of 9% and 7% for the years ended December 31,
2007 and 2006, respectively.  For the year ended December 31, 2008,
the operating loss from continuing operations and negative operating margin is
principally due to impairment of franchises incurred during the fourth
quarter.  The improvement in operating income from continuing
operations in 2007 as compared to 2006 and positive operating margin for the
years ended December 31, 2007 and 2006 is principally due to increased sales of
our bundled services and improved cost efficiencies.



We have a
history of net losses.  Our net losses are principally attributable to
insufficient revenue to cover the combination of operating expenses and interest
expenses we incur because of our high amounts of debt, depreciation expenses
resulting from the capital investments we have made and continue to make in our
cable properties, and the impairment of our franchise intangibles.



Beginning
in 2004 and continuing through 2008, we sold several cable systems to divest
geographically non-strategic assets and allow for more efficient operations,
while also reducing debt and increasing our liquidity.  In 2006, 2007,
and 2008, we closed the sale of certain cable systems representing a total of
approximately 390,300, 85,100, and 14,100 video customers,
respectively.  As a result of these sales we have improved our
geographic footprint by reducing our number of headends, increasing the number
of customers per headend, and reducing the number of states in which the
majority of our customers reside.  We also made certain geographically
strategic acquisitions in 2006 and 2007, adding 17,600 and 25,500 video
customers, respectively.



In 2006,
we determined that the West Virginia and Virginia cable systems, which were part
of the system sales disclosed above, comprised operations and cash flows that
for financial reporting purposes met the criteria for discontinued
operations.  Accordingly, the results of operations for the West
Virginia and Virginia cable systems (including a gain on sale of approximately
$200 million recorded in the third quarter of 2006), have been presented as
discontinued operations, net of tax, for the year ended December 31,
2006.  Tax expense of $18 million associated with this gain on sale
was recorded in the fourth quarter of 2006.



These excerpts taken from the CHTR 10-K filed Feb 27, 2008.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
Reference is made to “Item 1A. Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements,” which describe important factors that could cause actual results to differ from expectations and non-historical information contained herein.  In addition, the following discussion should be read in conjunction with the audited consolidated financial statements of Charter Communications, Inc. and subsidiaries as of and for the years ended December 31, 2007, 2006, and 2005.
 
Overview
 
Charter is a broadband communications company operating in the United States, with approximately 5.6 million customers at December 31, 2007.  Through our hybrid fiber and coaxial cable network, we offer our customers traditional cable video programming (analog and digital, which we refer to as "video" service), high-speed Internet access, and telephone services, as well as, advanced broadband services (such as OnDemand, high definition television service and DVR).  See "Item 1. Business — Products and Services" for further description of these terms, including "customers."

Approximately 89% and 88% of our revenues for each of the years ended December 31, 2007 and 2006, respectively, are attributable to monthly subscription fees charged to customers for our video, high-speed Internet, telephone, and commercial services provided by our cable systems.  Generally, these customer subscriptions may be discontinued by the customer at any time.  The remaining 11% and 12% of revenue is derived primarily from advertising revenues, franchise fee revenues (which are collected by us but then paid to local franchising authorities), pay-per-view and OnDemand programming (where users are charged a fee for individual programs viewed), installation or reconnection fees charged to customers to commence or reinstate service, and commissions related to the sale of merchandise by home shopping services.

The cable industry's and our most significant competitive challenges stem from DBS providers and DSL service providers.  In addition, telephone companies either offer or are making upgrades of their networks that will allow them to offer services that provide features and functions similar to our video, high-speed Internet, and telephone services, and they also offer them in bundles similar to ours.  See "Item 1. Business — Competition.''  We believe that competition from DBS and telephone companies has resulted in net video customer losses.  In addition, we face increasingly limited opportunities to expand our customer base now that approximately 56% of our video customers subscribe to our digital video service.  These factors have contributed to decreased growth rates for digital video customers.  Similarly, competition from DSL providers along with increasing penetration of high-speed Internet service in homes with computers has resulted in decreased growth rates for high-speed Internet customers.  In the recent past, we have grown revenues by offsetting video customer losses with price increases and sales of incremental services such as high-speed Internet, OnDemand, DVR, high definition television, and telephone.  We expect to continue to grow revenues through price increases and high-speed Internet upgrades, increases in the number of our customers who purchase bundled services including high-speed Internet and telephone, and through sales of incremental video services including wireless networking, high definition television, OnDemand, and DVR service.  In addition, we expect to increase revenues by expanding the sales of our services to our commercial customers.  However, we cannot assure you that we will be able to grow revenues at historical rates, if at all.

Our expenses primarily consist of operating costs, selling, general and administrative expenses, depreciation and amortization expense and interest expense.  Operating costs primarily include programming costs, the cost of our workforce, cable service related expenses, advertising sales costs and franchise fees.  Selling, general and administrative expenses primarily include salaries and benefits, rent expense, billing costs, call center costs, internal network costs, bad debt expense, and property taxes.  We are attempting to control our costs of operations by maintaining strict controls on expenses.  More specifically, we are focused on managing our cost structure by improving workforce productivity, and leveraging our growth, and increasing the effectiveness of our purchasing activities.

Our operating income from continuing operations increased to $548 million for the year ended December 31, 2007 from $367 million for the year ended December 31, 2006 and $304 million for the year ended December 31, 2005.  We had positive operating margins (defined as operating income from continuing operations divided by revenues) of
 
 
38

 
9%, 7%, and 6% for the years ended December 31, 2007, 2006, and 2005, respectively.  The improvement in operating income from continuing operations and operating margin for the years ended December 31, 2007, 2006, and 2005 is principally due to an increase in revenue over expenses as a result of increased customers for high-speed Internet, digital video, and telephone customers, as well as overall rate increases.

We have a history of net losses.  Further, we expect to continue to report net losses for the foreseeable future.  Our net losses are principally attributable to insufficient revenue to cover the combination of operating expenses and interest expenses we incur because of our high amounts of debt, and depreciation expenses resulting from the capital investments we have made and continue to make in our cable properties.  We expect that these expenses will remain significant.

Beginning in 2004 and continuing through 2007, we sold several cable systems to divest geographically non-strategic assets and allow for more efficient operations, while also reducing debt or increasing our liquidity.  In 2005, 2006, and 2007, we closed the sale of certain cable systems representing a total of approximately 33,000, 390,300, and 85,100 video customers, respectively.  As a result of these sales we have improved our geographic footprint by reducing our number of headends, increasing the number of customers per headend, and reducing the number of states in which the majority of our customers reside.  We have also made certain geographically strategic acquisitions in 2006 and 2007 adding 17,600 and 25,500 video customers, respectively.

In 2006, we determined that the West Virginia and Virginia cable systems, which were part of the system sales disclosed above, comprised operations and cash flows that for financial reporting purposes met the criteria for discontinued operations.  Accordingly, the results of operations for the West Virginia and Virginia cable systems (including a gain on sale of approximately $200 million recorded in the third quarter of 2006), have been presented as discontinued operations, net of tax, for the year ended December 31, 2006, and all prior periods presented herein have been reclassified to conform to the current presentation.  Tax expense of $18 million associated with this gain on sale was recorded in the fourth quarter of 2006.

Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.

 

Reference
is made to “Item 1A. Risk Factors” and “Cautionary Statement Regarding
Forward-Looking Statements,” which describe important factors that could cause
actual results to differ from expectations and non-historical information
contained herein.  In addition, the following discussion should be
read in conjunction with the audited consolidated financial statements of
Charter Communications, Inc. and subsidiaries as of and for the years ended
December 31, 2007, 2006, and 2005.

 

Overview

 

Charter
is a broadband communications company operating in the United States, with
approximately 5.6 million customers at December 31, 2007.  Through our
hybrid fiber and coaxial cable network, we offer our customers traditional cable
video programming (analog and digital, which we refer to as "video" service),
high-speed Internet access, and telephone services, as well as, advanced
broadband services (such as OnDemand, high definition television service and
DVR).  See "Item 1. Business — Products and Services" for further
description of these terms, including "customers."



Approximately
89% and 88% of our revenues for each of the years ended December 31, 2007
and 2006, respectively, are attributable to monthly subscription fees charged to
customers for our video, high-speed Internet, telephone, and commercial services
provided by our cable systems.  Generally, these customer
subscriptions may be discontinued by the customer at any time.  The
remaining 11% and 12% of revenue is derived primarily from advertising revenues,
franchise fee revenues (which are collected by us but then paid to local
franchising authorities), pay-per-view and OnDemand programming (where users are
charged a fee for individual programs viewed), installation or reconnection fees
charged to customers to commence or reinstate service, and commissions related
to the sale of merchandise by home shopping services.



The cable
industry's and our most significant competitive challenges stem from DBS
providers and DSL service providers.  In addition, telephone companies
either offer or are making upgrades of their networks that will allow them to
offer services that provide features and functions similar to our video,
high-speed Internet, and telephone services, and they also offer them in bundles
similar to ours.  See "Item 1. Business — Competition.''  We
believe that competition from DBS and telephone companies has resulted in net
video customer losses.  In addition, we face increasingly limited
opportunities to expand our customer base now that approximately 56% of our
video customers subscribe to our digital video service.  These factors
have contributed to decreased growth rates for digital video
customers.  Similarly, competition from DSL providers along with
increasing penetration of high-speed Internet service in homes with computers
has resulted in decreased growth rates for high-speed Internet
customers.  In the recent past, we have grown revenues by offsetting
video customer losses with price increases and sales of incremental services
such as high-speed Internet, OnDemand, DVR, high definition television, and
telephone.  We expect to continue to grow revenues through price
increases and high-speed Internet upgrades, increases in the number of our
customers who purchase bundled services including high-speed Internet and
telephone, and through sales of incremental video services including wireless
networking, high definition television, OnDemand, and DVR service.  In
addition, we expect to increase revenues by expanding the sales of our services
to our commercial customers.  However, we cannot assure you that we
will be able to grow revenues at historical rates, if at all.



Our
expenses primarily consist of operating costs, selling, general and
administrative expenses, depreciation and amortization expense and interest
expense.  Operating costs primarily include programming costs, the
cost of our workforce, cable service related expenses, advertising sales costs
and franchise fees.  Selling, general and administrative expenses
primarily include salaries and benefits, rent expense, billing costs, call
center costs, internal network costs, bad debt expense, and property
taxes.  We are attempting to control our costs of operations by
maintaining strict controls on expenses.  More specifically, we are
focused on managing our cost structure by improving workforce productivity, and
leveraging our growth, and increasing the effectiveness of our purchasing
activities.



Our
operating income from continuing operations increased to $548 million for the
year ended December 31, 2007 from $367 million for the year ended December 31,
2006 and $304 million for the year ended December 31, 2005.  We had
positive operating margins (defined as operating income from continuing
operations divided by revenues) of

 

 







38











 

9%, 7%,
and 6% for the years ended December 31, 2007, 2006, and 2005,
respectively.  The improvement in operating income from continuing
operations and operating margin for the years ended December 31, 2007, 2006, and
2005 is principally due to an increase in revenue over expenses as a result of
increased customers for high-speed Internet, digital video, and telephone
customers, as well as overall rate increases.



We have a
history of net losses.  Further, we expect to continue to report net
losses for the foreseeable future.  Our net losses are principally
attributable to insufficient revenue to cover the combination of operating
expenses and interest expenses we incur because of our high amounts of debt, and
depreciation expenses resulting from the capital investments we have made and
continue to make in our cable properties.  We expect that these
expenses will remain significant.



Beginning
in 2004 and continuing through 2007, we sold several cable systems to divest
geographically non-strategic assets and allow for more efficient operations,
while also reducing debt or increasing our liquidity.  In 2005, 2006,
and 2007, we closed the sale of certain cable systems representing a total of
approximately 33,000, 390,300, and 85,100 video customers,
respectively.  As a result of these sales we have improved our
geographic footprint by reducing our number of headends, increasing the number
of customers per headend, and reducing the number of states in which the
majority of our customers reside.  We have also made certain
geographically strategic acquisitions in 2006 and 2007 adding 17,600 and 25,500
video customers, respectively.



In 2006,
we determined that the West Virginia and Virginia cable systems, which were part
of the system sales disclosed above, comprised operations and cash flows that
for financial reporting purposes met the criteria for discontinued
operations.  Accordingly, the results of operations for the West
Virginia and Virginia cable systems (including a gain on sale of approximately
$200 million recorded in the third quarter of 2006), have been presented as
discontinued operations, net of tax, for the year ended December 31, 2006, and
all prior periods presented herein have been reclassified to conform to the
current presentation.  Tax expense of $18 million associated with this
gain on sale was recorded in the fourth quarter of 2006.



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