TEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
Reference is made to the "Certain Trends and Uncertainties" section below in
this Management's Discussion and Analysis for a discussion of important factors
that could cause actual results to differ from expectations and non-historical
information contained herein.
CHARTER COMMUNICATIONS, INC.
On July 22, 1999, Charter Investment, Inc. (Charter Investment), a Company
controlled by Paul G. Allen, formed a wholly owned subsidiary, Charter
Communications, Inc. (Charter), a Delaware corporation, with a nominal
On November 12, 1999, Charter sold 195.5 million shares of Class A common stock
in an initial public offering and 50,000 shares of high vote Class B common
stock to Mr. Allen. The net proceeds from the offerings of approximately $3.57
billion were used to purchase membership units of Charter Communications Holding
Company LLC (Charter Holdco), except for a portion of the proceeds that were
retained by Charter to acquire a portion of the equity interests of Avalon
Cable, LLC (Avalon). In exchange for the contribution of the net proceeds of the
offering and equity interests acquired, Charter received 195,550,000 membership
units of Charter Holdco on November 12, 1999, representing a 100% voting
interest and an approximately 40.6% economic interest.
Prior to November 12, 1999, Charter Holdco was owned 100% by Charter Investment
and Vulcan Cable III Inc. (Vulcan Cable), both entities controlled by Mr. Allen.
Subsequent to November 12, 1999, Mr. Allen controls Charter through his
ownership of all of the high vote Class B common stock and Charter controls
Charter Holdco through its ownership of all the voting interests. Charter's
purchase of 50,000 membership units of Charter Holdco was accounted for as a
reorganization of entities under common control similar to a pooling of
interests. Accordingly, beginning December 23, 1998, the date Mr. Allen first
controlled Charter Holdco, the assets and liabilities of Charter Holdco are
reflected in the consolidated financial statements of Charter at Mr. Allen's
basis and a minority interest is recorded representing that portion of the
economic interests not owned by Charter. For financial reporting purposes,
50,000 of the membership units previously issued by Charter Holdco to companies
controlled by Mr. Allen are considered held by Charter effective December 23,
1998, representing an economic interest of less than 1%.
Charter is a holding company whose sole asset is a controlling equity interest
in Charter Holdco, a direct and indirect owner of cable systems. Charter and
Charter Holdco and its subsidiaries are collectively referred to as the Company.
The Company owns and operates cable systems currently serving approximately 5.5
million customers. The Company offers a full range of traditional cable
television services and has begun to offer digital cable television services,
interactive video programming and high-speed Internet access.
We do not believe that the historical financial condition and results of
operations are accurate indicators of future results because of recent
significant events, including:
(1) the acquisition by Mr. Allen of CCA Group, Charter
Communications Properties Holdings, LLC (CCPH) and CharterComm
Holdings LLC, referred to together with their subsidiaries as
the Charter companies;
(2) the merger of Marcus Cable Holdings, LLC with and into Charter
(3) the recent and pending acquisitions of Charter Holdings and
Charter Holdco and their direct and indirect subsidiaries;
(4) the refinancing of the previous credit facilities of the
(5) the purchase of publicly held notes that had been issued by
several of the direct and indirect subsidiaries of Charter
Holdings and Marcus Holdings; and
(6) the allocation of substantially all losses to minority