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SEC Filings

10-Q
CHARTER COMMUNICATIONS HOLDINGS CAPITAL CORP filed this Form 10-Q on 11/15/1999
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eight fiscal quarters, primarily through internal customer growth, basic and
expanded tier rate increases and acquisitions as well as innovative marketing,
such as our MVP package of premium services. The MVP package entitles customers
to receive a substantial discount on bundled premium services of HBO, Showtime,
Cinemax and The Movie Channel. The MVP package has increased premium revenue by
3.4% and premium cash flow by 5.5% in the initial nine months of this program.
We are beginning to offer our customers several other services, which are
expected to contribute to our revenues in the future. One of these services is
digital cable, which provides subscribers with additional programming options.
We are also offering high speed Internet access to the World Wide Web through
cable modems. Cable modems can be attached to personal computers so that users
can send and receive data over cable systems. Our television based Internet
access allows us to offer the services provided by WorldGate Communications,
Inc., which offers users TV-based e-mail and other Internet access.

         Our expenses primarily consist of operating costs, general and
administrative expenses, depreciation and amortization expense and management
fees/corporate expense charges. Operating costs primarily include programming
costs, cable service related expenses, marketing and advertising costs,
franchise fees and expenses related to customer billings. Programming costs
account for approximately 44% of our operating costs for the nine months ended
September 30, 1999. Programming costs have increased in recent years and are
expected to continue to increase due to additional programming being provided to
customers, increased cost to produce or purchase cable programming, inflation
and other factors affecting the cable television industry. In each year we have
operated, our costs to acquire programming have exceeded customary inflationary
increases. A significant factor with respect to increased programming costs is
the rate increases and surcharges imposed by national and regional sports
networks directly tied to escalating costs to acquire programming for
professional sports packages in a competitive market. We have benefited in the
past from our membership in an industry cooperative that provides members with
volume discounts from programming networks. We believe our membership has
minimized increases in our programming costs relative to what the increases
would otherwise have been. We also believe that we should derive additional
discounts from programming networks due to our increased size. Finally, we were
able to negotiate favorable terms with premium networks in conjunction with the
premium packages, which minimized the impact on margins and provided substantial
volume incentives to grow the premium category. Although we believe that we will
be able to pass future increases in programming costs through to customers,
there can be no assurance that we will be able to do so.

         General and administrative expenses primarily include accounting and
administrative personnel and professional fees. Depreciation and amortization
expense relates to the depreciation of our tangible assets and the amortization
of our franchise costs. Management fees/corporate expense charges are fees paid
to or charges from Charter Investment, Inc. for corporate management and
consulting services. Charter Holdings records actual corporate expense charges
incurred by Charter Investment, Inc. on behalf of Charter Holdings. Prior to the
acquisition of us by Mr. Allen, the CCA Group and CharterComm Holdings recorded
management fees payable to Charter Investment, Inc. equal to 3.0% to 5.0% of
gross revenues plus certain expenses. In October 1998, Charter Investment, Inc.
began managing the cable operations of Marcus Holdings under a management
agreement, which was terminated in February 1999 and replaced by a master
management fee arrangement. The Charter Operating credit facilities limit
management fees to 3.5% of gross revenues.

         In connection with the initial public offering by Charter
Communications, Inc., on November 9, 1999, the existing management agreement
between Charter Investment, Inc. and Charter Operating was assigned to Charter
Communications, Inc. and Charter Communications, Inc. entered into a new
management agreement with Charter Holdco. This management agreement is
substantially similar to the existing management agreement with Charter
Operating except that Charter Communications, Inc. is only entitled to receive
reimbursement of its expenses as consideration for its providing management
services.

         We have had a history of net losses and expect to continue to report
net losses for the foreseeable future. The principal reasons for our prior and
anticipated net losses include depreciation and amortization expenses associated
with our acquisitions, capital expenditures related to construction and
upgrading of our systems, and interest costs on borrowed money. We cannot
predict what impact, if any, continued losses will have on our ability to
finance our operations in the future.


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