10-QPeriod: Q1 FY2002

CHARTER COMMUNICATIONS, INC. /MO/ Quarterly Report for Q1 Ended Mar 31, 2002

Filed May 14, 2002For Securities:CHTR

Summary

Charter Communications, Inc. reported a significant year-over-year improvement in its first quarter 2002 results, with a narrowed net loss of $174.9 million compared to $280.7 million in the prior year's first quarter. This improvement was driven by a 23.4% increase in revenue, reaching $1.08 billion, fueled by strong growth in digital video and cable modem subscribers. A key factor contributing to the reduced loss was the adoption of SFAS No. 142, which eliminated the amortization of indefinite-lived franchise assets, leading to a substantial decrease in depreciation and amortization expenses. The company continued its strategic acquisitions and capital investments, with significant capital expenditures focused on system upgrades and rebuilds to support advanced services. Despite a substantial debt load of approximately $17 billion, Charter Communications maintained a positive cash flow from operations for the quarter, albeit with significant cash outflow for investing activities, primarily due to capital expenditures and acquisitions. The company forecasts continued revenue growth and an increase in revenue-generating units for the remainder of 2002.

Key Highlights

  • 1Revenue increased by 23.4% to $1.08 billion in Q1 2002 compared to $873.8 million in Q1 2001, driven by growth in digital video and cable modem services.
  • 2Net loss narrowed significantly to $174.9 million ($0.59 per share) in Q1 2002 from $280.7 million ($1.20 per share) in Q1 2001.
  • 3Adoption of SFAS No. 142 resulted in a 30.0% decrease in depreciation and amortization expenses, contributing to the improved net loss.
  • 4Capital expenditures for the first quarter of 2002 were $553.3 million, primarily for system upgrades and acquisitions, compared to $530.5 million in the prior year.
  • 5Total debt remained substantial at $17.0 billion as of March 31, 2002, though effectively fixed at 86.2% due to hedging activities.
  • 6Positive operating cash flow of $45.9 million was generated in Q1 2002, a significant improvement from a negative $154.1 million in Q1 2001.
  • 7The company is focused on expanding advanced services, including digital video and high-speed internet, and expects continued growth in revenue-generating units throughout 2002.

Frequently Asked Questions

The primary driver for the improvement in Charter's financial results is a combination of strong revenue growth, particularly in digital video and cable modem services, and a significant reduction in depreciation and amortization expenses due to the adoption of SFAS No. 142. The company also reported a substantial increase in basic customers and advanced service subscribers.

Charter Communications carries a significant debt load, approximately $17.0 billion as of March 31, 2002. The company is managing this through a mix of fixed and variable rate debt, with a substantial portion effectively fixed through hedging. However, the high leverage presents risks, including potential limitations on future financing, restrictive covenants in debt agreements that could impact operations, and the risk of accelerated debt repayment under certain default scenarios. The company indicates that it anticipates having sufficient capital through 2003, but future funding is subject to economic and market conditions.

Charter's key strategic priorities include expanding its advanced services offerings, such as digital cable television and high-speed Internet access, and upgrading its cable systems to support these services. The company is making substantial capital expenditures, approximately $2.475 billion planned for 2002, to fund these upgrades and rebuilds. Strategic acquisitions also remain a focus, as evidenced by recent transactions in early 2002.

The adoption of SFAS No. 142, effective January 1, 2002, eliminated the amortization of goodwill and indefinite-lived intangible assets, including most of Charter's franchise assets. This resulted in a significant decrease in amortization expense, which contributed directly to the reduction in the company's net loss and improved earnings per share for the period.