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Charter Communications Inc. Reports Operating Results (10-Q)

November 09, 2009 | About:
10qk

10qk

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Charter Communications Inc. (CHTR) filed Quarterly Report for the period ended 2009-09-30.

Charter Communications Inc. is a holding company. They provide video data interactive and private business network services through their broadband network of coaxial and fiber optic cables. All of their systems offer traditional analog cable television. They also offer digital television along with an array of advanced products and services such as high-speed Internet access interactive video programming and video-on-demand in an increasing number of their systems. They continue to explore opportunities to offer telephony through their broadband network. Charter Communications Inc. has a market cap of $8 million; its shares were traded at around $0.02 .

Highlight of Business Operations:

For the three and nine months ended September 30, 2009, our loss from operations was $2.6 billion and $2.0 billion, respectively, and for the three and nine months ended September 30, 2008, our income from operations was $208 million and $643 million, respectively. We had negative operating margins of 153% and 39% for the three and nine months ended September 30, 2009, respectively, and positive operating margin of 13% for each of the three and nine months ended September 30, 2008. The decrease in income from operations and operating margins for the three and nine months ended September 30, 2009 compared to the three and nine months ended September 30, 2008 was principally due to impairment of franchises incurred during the third quarter of 2009 offset by increased sales of our bundled services, improved cost efficiencies and favorable litigation settlements in 2009.

Impairment of franchises, goodwill and other intangible assets. We have recorded a significant amount of cost related to franchises, pursuant to which we are granted the right to operate our cable distribution network throughout our service areas. The net carrying value of franchises as of September 30, 2009 and December 31, 2008 was approximately $4.5 billion (representing 41% of total assets) and $7.4 billion (representing 53% of total assets), respectively. Furthermore, our noncurrent assets included approximately $68 million of goodwill as of September 30, 2009 and December 31, 2008.

2009 and December 31, 2008 substantially all of our franchises qualify for indefinite-life treatment under ASC 350. Costs associated with franchise renewals are amortized on a straight-line basis over 10 years, which represents management s best estimate of the average term of the franchises. Franchise amortization expense for each of the three months ended September 30, 2009 and 2008 was approximately $0.4 million, and franchise amortization expense for each of the nine months ended September 30, 2009 and 2008 was approximately $1 million. Other intangible assets amortization expense for the three months ended September 30, 2009 and 2008 was approximately $2 million and $1 million, respectively, and for the nine months ended September 30, 2009 and 2008 was approximately $5 million and $3 million, respectively. The Company expects that amortization expense on franchise assets and other intangible assets will be approximately $7 million annually for each of the next five years. Actual amortization expense in future periods could differ from these estimates as a result of new intangible asset acquisitions or divestitures, changes in useful lives, the application of fresh start accounting and other relevant factors.

While economic conditions applicable at the time of the valuations indicate the combination of assumptions utilized in the valuations are reasonable, as market conditions change so will the assumptions, with a resulting impact on the valuations and consequently the impairment charge. At September 30, 2009, a 10% and 5% decline in the estimated fair value of our franchise assets in each of our units of accounting would have increased our impairment charge by approximately $446 million and $223 million, respectively. A 10% and 5% increase in the estimated fair value of our franchise assets in each of our units of accounting would have reduced our impairment charge by approximately $446 million and $223 million, respectively.

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