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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549
 

FORM 10-Q


                         (Mark One)
[X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2011

or

[  ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from ________ to _________

Commission file number:    001-33664

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Charter Communications, Inc.
(Exact name of registrant as specified in its charter)

  Delaware
43-1857213
 (State or other jurisdiction of incorporation or organization) 
(I.R.S. Employer Identification Number)

12405 Powerscourt Drive
St. Louis, Missouri   63131
(Address of principal executive offices including zip code)

(314) 965-0555
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
             Large accelerated filer þ       Accelerated filer o       Non-accelerated filer o       Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes oNo þ

APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.  Yes þ No o

Number of shares of Class A common stock outstanding as of September 30, 2011: 107,633,812
 
 


 
 
 

 
 
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Charter Communications, Inc.
Quarterly Report on Form 10-Q for the Period ended September 30, 2011

Table of Contents

PART I. FINANCIAL INFORMATION
Page
   
Item 1. Financial Statements - Charter Communications, Inc. and Subsidiaries
 
Condensed Consolidated Balance Sheets as of September 30, 2011
 
and December 31, 2010
4
Condensed Consolidated Statements of Operations for the three
 
and nine months ended September 30, 2011 and 2010
5
Condensed Consolidated Statements of Cash Flows for the
 
nine months ended September 30, 2011 and 2010
6
Notes to Condensed Consolidated Financial Statements
7
   
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
24
   
Item 3. Quantitative and Qualitative Disclosures about Market Risk
35
   
Item 4. Controls and Procedures
36
   
PART II. OTHER INFORMATION
 
   
Item 1. Legal Proceedings
37
   
Item 1A.  Risk Factors
38
   
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
42
   
Item 6. Exhibits
42
   
SIGNATURES
S-1
   
EXHIBIT INDEX
E-1
   
   
   

This quarterly report on Form 10-Q is for the three and nine months ended September 30, 2011.  The Securities and Exchange Commission ("SEC") allows us to "incorporate by reference" information that we file with the SEC, which means that we can disclose important information to you by referring you directly to those documents.  In this quarterly report, "we," "us" and "our" refer to Charter Communications, Inc. and its subsidiaries.
 
 
 
 

 


CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS:

This quarterly report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), regarding, among other things, our plans, strategies and prospects, both business and financial including, without limitation, the forward-looking statements set forth in the “Results of Operations” and “Liquidity and Capital Resources” sections under Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this quarterly report.  Although we believe that our plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, we cannot assure you that we will achieve or realize these plans, intentions or expectations.  Forward-looking statements are inherently subject to risks, uncertainties and assumptions including, without limitation, the factors described under “Risk Factors” under Part II, Item 1A and the factors described under “Risk Factors” under Part I, Item 1A of our most recent Form 10-K filed with the SEC.  Many of the forward-looking statements contained in this quarterly report may be identified by the use of forward-looking words such as “believe,” “expect,” “anticipate,” “should,” “planned,” “will,” “may,” “intend,” “estimated,” “aim,” “on track,” “target,” “opportunity,” “tentative,” “positioning” and “potential,” among others.  Important factors that could cause actual results to differ materially from the forward-looking statements we make in this quarterly report are set forth in this quarterly report and in other reports or documents that we file from time to time with the SEC, and include, but are not limited to:

·  
our ability to sustain and grow revenues and free cash flow by offering video, Internet, telephone, advertising and other services to residential and commercial customers, to adequately meet the customer experience demands in our markets and to maintain and grow our customer base, particularly in the face of increasingly aggressive competition, the need for innovation and the related capital expenditures and the difficult economic conditions in the United States;

·  
the impact of competition from other market participants, including but not limited to incumbent telephone companies, direct broadcast satellite operators, wireless broadband and telephone providers, and digital subscriber line (“DSL”) providers and competition from video provided over the Internet;

·  
general business conditions, economic uncertainty or downturn, high unemployment levels and the level of activity in the housing sector;

·  
our ability to obtain programming at reasonable prices or to raise prices to offset, in whole or in part, the effects of higher programming costs (including retransmission consents);

·  
the effects of governmental regulation on our business;

·  
the availability and access, in general, of funds to meet our debt obligations, prior to or when they become due, and to fund our operations and necessary capital expenditures, either through (i) cash on hand, (ii) free cash flow, or (iii) access to the capital or credit markets; and
 
·  
our ability to comply with all covenants in our indentures and credit facilities, any violation of which, if not cured in a timely manner, could trigger a default of our other obligations under cross-default provisions.
 

All forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by this cautionary statement.  We are under no duty or obligation to update any of the forward-looking statements after the date of this quarterly report.
 
 
 
3

 
 
PART I. FINANCIAL INFORMATION.

Item 1.
Financial Statements.

CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE DATA)

   
September 30,
   
December 31,
 
   
2011
   
2010
 
   
(Unaudited)
       
ASSETS
           
CURRENT ASSETS:
           
Cash and cash equivalents
  $ 5     $ 4  
Restricted cash and cash equivalents
    27       28  
Accounts receivable, less allowance for doubtful accounts of $17 for each period
    253       247  
Prepaid expenses and other current assets
    50       47  
Total current assets
    335       326  
                 
INVESTMENT IN CABLE PROPERTIES:
               
    Property, plant and equipment, net of accumulated depreciation
    6,903       6,819  
Franchises
    5,287       5,257  
Customer relationships, net
    1,779       2,000  
Goodwill
    954       951  
Total investment in cable properties
    14,923       15,027  
                 
OTHER NONCURRENT ASSETS
    380       354  
                 
Total assets
  $ 15,638     $ 15,707  
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
CURRENT LIABILITIES:
               
Accounts payable and accrued expenses
  $ 1,081     $ 1,049  
Total current liabilities
    1,081       1,049  
                 
LONG-TERM DEBT
    12,581       12,306  
OTHER LONG-TERM LIABILITIES
    1,112       874  
                 
SHAREHOLDERS’ EQUITY:
               
Class A common stock; $.001 par value; 900 million shares authorized;
               
114,741,367 and 112,494,166 shares issued, respectively
    --       --  
Class B common stock; $.001 par value; 25 million shares authorized;
               
no shares and 2,241,299 shares issued and outstanding, respectively
    --       --  
Preferred stock; $.001 par value; 250 million shares
               
authorized; no non-redeemable shares issued and outstanding
    --       --  
Additional paid-in capital
    1,807       1,776  
Accumulated deficit
    (537 )     (235 )
Treasury stock at cost; 7,107,555 and 176,475 shares, respectively
    (329 )     (6 )
Accumulated other comprehensive loss
    (77 )     (57 )
Total shareholders’ equity
    864       1,478  
                 
Total liabilities and shareholders’ equity
  $ 15,638     $ 15,707  
 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
4

 
 
 
 
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT SHARE DATA)
Unaudited
 
 
   
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
   
2011
   
2010
   
2011
   
2010
 
                         
REVENUES
  $ 1,809     $ 1,769     $ 5,370     $ 5,275  
                                 
COSTS AND EXPENSES:
                               
Operating (excluding depreciation and amortization)
    792       788       2,344       2,317  
Selling, general and administrative
    374       356       1,062       1,060  
Depreciation and amortization
    405       385       1,181       1,134  
Other operating expenses, net
    1       --       7       19  
                                 
      1,572       1,529       4,594       4,530  
                                 
Income from operations
    237       240       776       745  
                                 
OTHER EXPENSES:
                               
Interest expense, net
    (244 )     (222 )     (718 )     (645 )
Loss on extinguishment of debt
    (4 )     (3 )     (124 )     (38 )
Other expenses, net
    (2 )     (1 )     (4 )     (3 )
                                 
      (250 )     (226 )     (846 )     (686 )
                                 
Income (loss) before income taxes
    (13 )     14       (70 )     59  
                                 
INCOME TAX EXPENSE
    (72 )     (109 )     (232 )     (211 )
                                 
Net loss
  $ (85 )   $ (95 )   $ (302 )   $ (152 )
                                 
LOSS PER COMMON SHARE, BASIC AND
     DILUTED:
  $ (0.79 )   $ (0.84 )   $ (2.74 )   $ (1.34 )
                                 
  Weighted average common shares outstanding,
            basic and diluted
    108,420,169       113,110,889       110,285,852       113,081,242  

The accompanying notes are an integral part of these condensed consolidated financial statements.
 
5

 
 
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
Unaudited

   
Nine Months Ended September 30,
 
   
2011
   
2010
 
             
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net loss
  $ (302 )   $ (152 )
Adjustments to reconcile net loss to net cash flows from operating activities:
               
Depreciation and amortization
    1,181       1,134  
Noncash interest expense
    27       54  
Loss on extinguishment of debt
    124       35  
Deferred income taxes
    225       204  
Other, net
    26       20  
Changes in operating assets and liabilities, net of effects from dispositions
     and acquisitions:
               
Accounts receivable
    (5 )     7  
Prepaid expenses and other assets
    (4 )     15  
Accounts payable, accrued expenses and other
    40       105  
                 
Net cash flows from operating activities
    1,312       1,422  
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Purchases of property, plant and equipment
    (984 )     (948 )
Changes in accrued expenses related to capital expenditures
    (11 )     (7 )
Purchase of cable systems
    (89 )     --  
Other, net
    (20 )     (7 )
                 
Net cash flows from investing activities
    (1,104 )     (962 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Borrowings of long-term debt
    3,801       2,757  
Repayments of long-term debt
    (3,645 )     (3,070 )
Repayment of preferred stock
    --       (138 )
Payments for debt issuance costs
    (43 )     (76 )
Purchase of treasury stock
    (323 )     --  
Other, net
    2       (5 )
                 
Net cash flows from financing activities
    (208 )     (532 )
                 
NET DECREASE IN CASH AND CASH EQUIVALENTS
    --       (72 )
CASH AND CASH EQUIVALENTS, beginning of period
    32       754  
                 
CASH AND CASH EQUIVALENTS, end of period
  $ 32     $ 682  
                 
CASH PAID FOR INTEREST
  $ 649     $ 561  
 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
6

 
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
 
1.   Organization and Basis of Presentation
 
Organization

Charter Communications, Inc. (“Charter”) is a holding company whose principal asset is a 100% common equity interest in Charter Communications Holding Company, LLC (“Charter Holdco”). Charter owns cable systems through its subsidiaries, which are collectively, with Charter, referred to herein as the “Company.”  All significant intercompany accounts and transactions among consolidated entities have been eliminated.

The Company is a cable operator providing services in the United States.  The Company offers to residential and commercial customers traditional cable video programming (basic and digital video), Internet services, and telephone services, as well as advanced video services such as Charter OnDemand™, high-definition television, and digital video recorder (“DVR”) service.  The Company sells its cable video programming, Internet, telephone, and advanced video services primarily on a subscription basis.  The Company also sells local advertising on cable networks and on the Internet and provides fiber connectivity to cellular towers.

On November 17, 2009, the Company’s Joint Plan of Reorganization (the “Plan”) was confirmed by order of the Bankruptcy Court, and became effective on November 30, 2009 (the “Effective Date”), the date on which the Company emerged from protection under Chapter 11 of the Bankruptcy Code. Upon the Company’s emergence from bankruptcy, the Company adopted fresh start accounting. This resulted in the Company becoming a new entity on December 1, 2009, with a new capital structure, a new accounting basis in the identifiable assets and liabilities assumed and no retained earnings or accumulated losses.

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (the “SEC”).  Accordingly, certain information and footnote disclosures typically included in Charter’s Annual Report on Form 10-K have been condensed or omitted for this quarterly report.  The accompanying condensed consolidated financial statements are unaudited and are subject to review by regulatory authorities.  However, in the opinion of management, such financial statements include all adjustments, which consist of only normal recurring adjustments, necessary for a fair presentation of the results for the periods presented.  Interim results are not necessarily indicative of results for a full year.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Areas involving significant judgments and estimates include capitalization of labor and overhead costs; depreciation and amortization costs; impairments of property, plant and equipment, intangibles and goodwill; income taxes; contingencies; and programming expense.  Actual results could differ from those estimates.

Certain prior year amounts have been reclassified to conform with the 2011 presentation.

Restricted cash on the accompanying condensed consolidated balance sheet as of September 30, 2011 and December 31, 2010 of $27 million and $28 million, respectively, represents amounts held in escrow accounts pending final resolution from the Bankruptcy Court. Restricted cash is included in cash and cash equivalents on the accompanying condensed consolidated statements of cash flows.  Approximately $18 million of restricted cash held in an escrow account established in bankruptcy proceedings was used to pay for professional services for the nine months ended September 30, 2010.
 
 
 
7

 
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)

2.           Franchises, Goodwill and Other Intangible Assets

As of September 30, 2011 and December 31, 2010, indefinite-lived and finite-lived intangible assets are presented in the following table:

   
September 30, 2011
 
December 31, 2010
 
   
Gross
         
Net
   
Gross
         
Net
 
   
Carrying
   
Accumulated
   
Carrying
   
Carrying
   
Accumulated
   
Carrying
 
   
Amount
   
Amortization
   
Amount
   
Amount
   
Amortization
   
Amount
 
                                     
Indefinite-lived intangible assets:
                                   
Franchises
  $ 5,287     $ --     $ 5,287     $ 5,257     $ --     $ 5,257  
Goodwill
    954       --       954       951       --       951  
Trademarks
    158       --       158       158       --       158  
                                                 
    $ 6,399     $ --     $ 6,399     $ 6,366     $ --     $ 6,366  
                                                 
Finite-lived intangible assets:
                                               
Customer relationships
  $ 2,368     $ 589     $ 1,779     $ 2,358     $ 358     $ 2,000  
Other intangible assets
    73       14       59       53       7       46  
    $ 2,441     $ 603     $ 1,838     $ 2,411     $ 365     $ 2,046  

Amortization expense related to customer relationships and other intangible assets for the three months ended September 30, 2011 and 2010 was approximately $79 million and $85 million, respectively, and for the nine months ended September 30, 2011 and 2010 was approximately $238 million and $255 million, respectively.  Franchises, customer relationships and goodwill increased by $30 million, $10 million and $3 million, respectively, as a result of acquisitions competed during the three and nine months ended September 30, 2011.

The Company expects amortization expense on its finite-lived intangible assets will be as follows.
 
 
3 months ending December 31, 2011
  $ 78  
2012
    291  
2013
    264  
2014
    238  
2015
    212  
2016
    185  
Thereafter
    570  
         
    $ 1,838  

Actual amortization expense in future periods could differ from these estimates as a result of new intangible assets, acquisitions or divestitures, changes in useful lives, impairments and other relevant factors.
 
 
 
8

 
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)

3.           Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following as of September 30, 2011 and December 31, 2010:

   
September 30,
2011
   
December 31,
2010
 
             
Accounts payable – trade
  $ 167     $ 168  
Accrued capital expenditures
    43       54  
Accrued expenses:
               
Interest
    204       162  
Programming costs
    296       282  
Compensation
    112       124  
Franchise-related fees
    46       53  
Other
    213       206  
                 
    $ 1,081     $ 1,049  

4.           Long-Term Debt

Long-term debt consists of the following as of September 30, 2011 and December 31, 2010:

   
September 30, 2011
   
December 31, 2010
 
   
Principal
Amount
   
Accreted
Value
   
Principal
Amount
   
Accreted
Value
 
CCH II, LLC:
                       
13.50% senior notes due November 30, 2016
  $ 1,766     $ 2,028     $ 1,766     $ 2,057  
CCO Holdings, LLC:
                               
7.25% senior notes due October 30, 2017
    1,000       1,000       1,000       1,000  
7.875% senior notes due April 30, 2018
    900       900       900       900  
7.00% senior notes due January 15, 2019
    1,400       1,391       --       --  
8.125% senior notes due April 30, 2020
    700       700       700       700  
6.50% senior notes due April 30, 2021
    1,500       1,500       --       --  
Credit facility due September 6, 2014
    350       323       350       314  
Charter Communications Operating, LLC:
                               
8.00% senior second-lien notes due April 30, 2012
    907       911       1,100       1,112  
10.875% senior second-lien notes due September 15, 2014
    546       583       546       591  
Credit facilities
    3,417       3,245       5,954       5,632  
Long-Term Debt
  $ 12,486     $ 12,581     $ 12,316     $ 12,306  

The accreted values presented above represent the fair value of the notes as of the Effective Date or the principal amount of the notes less the original issue discount at the time of sale, plus accretion to the balance sheet dates. However, the amount that is currently payable if the debt becomes immediately due is equal to the principal amount of the debt. The Company has availability under the revolving portion of its credit facility of approximately $1.1 billion as of September 30, 2011, and as such, debt maturing in the next twelve months is classified as long-term.

In August 2011, Charter Communications Operating, LLC (“Charter Operating”) repurchased, in private transactions, a total of $193 million principal amount of Charter Operating 8.00% senior second-lien notes due 2012 for approximately $199 million cash.  The transactions resulted in a loss on extinguishment of debt of approximately $4 million for the three and nine months ended September 30, 2011.
 
 
 
9

 
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)

In May 2011, CCO Holdings, LLC (“CCO Holdings”) and CCO Holdings Capital Corp. closed on transactions in which they issued $1.5 billion aggregate principal amount of 6.50% senior notes due 2021 (the “2021 Notes”).  The net proceeds of the issuances were contributed by CCO Holdings to Charter Operating as a capital contribution and intercompany loan and were used to repay indebtedness under the Charter Operating credit facilities.  The Company recorded a loss on extinguishment of debt of approximately $53 million for the nine months ended September 30, 2011 related to these transactions.

The 2021 Notes are guaranteed by Charter.  They are senior debt obligations of CCO Holdings and CCO Holdings Capital Corp and rank equally with all other current and future unsecured, unsubordinated obligations of CCO Holdings and CCO Holdings Capital Corp.  The 2021 Notes are structurally subordinated to all obligations of subsidiaries of CCO Holdings, including the Charter Operating notes and Charter Operating credit facilities. 

CCO Holdings may redeem some or all of the 2021 Notes at any time at a premium.  The optional redemption price declines to 100% of the respective series’ principal amount, plus accrued and unpaid interest, if any, on or after varying dates in 2015 through 2021. 

In addition, at any time prior to April 30, 2014, CCO Holdings may redeem up to 35% of the aggregate principal amount of the notes at a redemption price at a premium plus accrued and unpaid interest to the redemption date, with the net cash proceeds of one or more equity offerings (as defined in the indenture); provided that certain conditions are met.

In the event of specified change of control events, CCO Holdings must offer to purchase the outstanding 2021 Notes from the holders at a purchase price equal to 101% of the total principal amount of the notes, plus any accrued and unpaid interest.

In January 2011, CCO Holdings and CCO Holdings Capital Corp. closed on transactions in which they issued $1.4 billion aggregate principal amount of 7.00% senior notes due 2019. Such notes are guaranteed by Charter. The net proceeds of the issuances were contributed by CCO Holdings to Charter Operating as a capital contribution and were used to repay indebtedness under the Charter Operating credit facilities. The Company recorded a loss on extinguishment of debt of approximately $67 million for the nine months ended September 30, 2011 related to these transactions.

In August and September 2010, the Company prepaid $122 million principal amount of Charter Operating term B-2 loans resulting in a loss on extinguishment of debt of approximately $3 million for the three and nine months ended September 30, 2010.

In April 2010, CCO Holdings and CCO Holdings Capital Corp. closed on transactions in which they issued $900 million aggregate principal amount of 7.875% Senior Notes due 2018 and $700 million aggregate principal amount of 8.125% Senior Notes due 2020. Such notes are guaranteed by Charter. The net proceeds were used to finance the tender offers and redemptions in which $800 million principal amount of CCO Holdings' outstanding 8.75% Senior Notes due 2013 and $770 million principal amount of Charter Operating’s outstanding 8.375% Senior Second Lien Notes due 2014 were repurchased.  These transactions resulted in a loss on extinguishment of debt for the nine months ended September 30, 2010 of approximately $34 million.

On March 31, 2010, Charter Operating entered into an amended and restated credit agreement.  The refinancing resulted in a loss on extinguishment of debt for the nine months ended September 30, 2010 of approximately $1 million.

5.    Preferred Stock

On the Effective Date, Charter issued approximately 5.5 million shares of 15% Pay-In-Kind Preferred Stock having an aggregate liquidation preference of $138 million to holders of Charter convertible notes (the “Preferred Stock”).  Pursuant to the terms of the Preferred Stock, the Company was required to pay a dividend at an annual rate equal to 15% on the liquidation preference of the Preferred Stock.  The liquidation preference of the Preferred Stock was $25
 
 
 
10

 
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
 
per share. On April 16, 2010, Charter redeemed all of the shares of the Preferred Stock for a redemption payment of $25.948 per share or a total redemption payment for all shares of approximately $143 million.
 
6.    Treasury Stock
 
On August 9, 2011, the Company announced that Charter’s board of directors authorized the Company to repurchase up to $200 million of Charter’s Class A common stock and outstanding warrants.  Under the repurchase program, shares of Charter’s Class A common stock and warrants to purchase Charter’s Class A common stock may be purchased from time to time during the course of the next 12 months.  As of September 30, 2011, Charter Holdco purchased approximately 2.4 million shares of Charter’s Class A common stock for a total of approximately $116 million.

On March 22, 2011, the Company purchased, in a private transaction, 4.5 million shares of Charter’s Class A common stock from funds advised by Franklin Advisers, Inc.  The price paid was $46.10 per share for a total of $207 million. 

The transactions were funded from existing cash on hand and available liquidity.  The Company accounts for treasury stock using the cost method and the treasury shares are reflected on the Company’s condensed consolidated balance sheets as a component of total shareholders’ equity.

7.    Comprehensive Loss

The Company reports changes in the fair value of interest rate swap agreements designated as hedging the variability of cash flows associated with floating-rate debt obligations that meet the effectiveness criteria in other comprehensive loss.  Comprehensive loss was $96 million and $322 million for the three and nine months ended September 30, 2011, respectively.  Comprehensive loss for the three and nine months ended September 30, 2011 included a $11 million and $20 million loss on the change in the fair value of interest rate swap agreements designated as cash flow hedges, respectively.  Comprehensive loss was $129 million and $236 million for the three and nine months ended September 30, 2010, respectively.  Comprehensive loss for the three and nine months ended September 30, 2010 included a $34 million and $84 million loss on the change in the fair value of interest rate swap agreements designated as cash flow hedges, respectively.  
 
8.    Accounting for Derivative Instruments and Hedging Activities
 
The Company uses interest rate swap agreements to manage its interest costs and reduce the Company’s exposure to increases in floating interest rates.  The Company manages its exposure to fluctuations in interest rates by maintaining a mix of fixed and variable rate debt.  Using interest rate swap agreements, the Company agrees to exchange, at specified intervals through 2015, the difference between fixed and variable interest amounts calculated by reference to agreed-upon notional principal amounts.  

The Company does not hold or issue derivative instruments for speculative trading purposes.  The Company has certain interest rate derivative instruments that have been designated as cash flow hedging instruments.  Such instruments effectively convert variable interest payments on certain debt instruments into fixed payments.  For qualifying hedges, realized derivative gains and losses offset related results on hedged items in the consolidated statements of operations.  The Company has formally documented, designated and assessed the effectiveness of transactions that receive hedge accounting.  For the three and nine months ended September 30, 2011 and 2010, there was no cash flow hedge ineffectiveness on interest rate swap agreements.
 
 
 
11

 
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)

The effect of derivative instruments on the Company’s consolidated balance sheets is presented in the table below.

   
September 30, 2011
   
December 31, 2010
 
             
Other long-term liabilities:
           
Fair value of interest rate derivatives designated as hedges 
  $ 77     $ 57  
                 
Accumulated other comprehensive loss:
               
Interest rate derivatives designated as hedges
  $ (77 )   $ (57 )

Changes in the fair value of interest rate agreements that are designated as hedging instruments of the variability of cash flows associated with floating-rate debt obligations, and that meet effectiveness criteria are reported in other comprehensive loss.  The amounts are subsequently reclassified as an increase or decrease to interest expense in the same periods in which the related interest on the floating-rate debt obligations affected earnings (losses).    

The effect of derivative instruments on the Company’s consolidated statements of operations is presented in the table below.

   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
   
2011
   
2010
   
2011
   
2010
 
                         
Other comprehensive loss:
                       
Loss on interest rate derivatives
     designated as hedges (effective portion)
  $ (11 )   $ (34 )   $ (20 )   $ (84 )
                                 
Amount of  loss reclassified from accumulated other
     comprehensive loss into interest expense
  $ (10 )   $ (9 )   $ (30 )   $ (17 )

As of September 30, 2011 and December 31, 2010, the Company had $2.0 billion in notional amounts of interest rate swap agreements outstanding.  The notional amounts of interest rate instruments do not represent amounts exchanged by the parties and, thus, are not a measure of exposure to credit loss.  The amounts exchanged were determined by reference to the notional amount and the other terms of the contracts.

9.    Fair Value Measurements

Financial Assets and Liabilities

The Company has estimated the fair value of its financial instruments as of September 30, 2011 and December 31, 2010 using available market information or other appropriate valuation methodologies.  Considerable judgment, however, is required in interpreting market data to develop the estimates of fair value.  Accordingly, the estimates presented in the accompanying condensed consolidated financial statements are not necessarily indicative of the amounts the Company would realize in a current market exchange.

The carrying amounts of cash and cash equivalents, receivables, payables and other current assets and liabilities approximate fair value because of the short maturity of those instruments.

The estimated fair value of the Company’s long-term debt at September 30, 2011 and December 31, 2010 is based on quoted market prices and is classified within Level 1 (defined below) of the valuation hierarchy.
 
 
 
12

 
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)

A summary of the carrying value and fair value of the Company’s long-term debt at September 30, 2011 and December 31, 2010 is as follows:

   
September 30, 2011
 
December 31, 2010
   
Carrying
 
Fair
 
Carrying
 
Fair
   
Value
 
Value
 
Value
 
Value
Debt
                           
  
CCH II, LLC notes
 
$
2,028
   
$
2,018
   
$
2,057
   
$
2,113
CCO Holdings notes
   
5,491
     
5,484
     
2,600
     
2,709
Charter Operating notes
   
1,494
     
1,512
     
1,703
     
1,774
Credit facilities
   
3,568
     
3,629
     
5,946
     
6,252

The accounting guidance establishes a three-level hierarchy for disclosure of fair value measurements, based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date, as follows:

·  
Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
·  
Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
·  
Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The interest rate derivatives designated as hedges were valued as $77 million and $57 million liabilities as of September 30, 2011 and December 31, 2010, respectively, using a present value calculation based on an implied forward LIBOR curve (adjusted for Charter Operating’s or counterparties’ credit risk) and were classified within Level 2 of the valuation hierarchy.  The weighted average pay rate for the Company’s interest rate swap agreements was 2.25% (exclusive of applicable spread) at September 30, 2011 and December 31, 2010.

Nonfinancial Assets and Liabilities

The Company’s nonfinancial assets such as franchises, property, plant, and equipment, and other intangible assets are not measured at fair value on a recurring basis; however they are subject to fair value adjustments in certain circumstances, such as when there is evidence that an impairment may exist.  No impairments were recorded in the three and nine months ended September 30, 2011 and 2010.

In the third quarter of 2011, the Company acquired cable systems for total purchase prices of approximately $89 million.  The acquisitions were recorded by allocating the cost of the acquisitions to the assets acquired, including property, plant and equipment, franchises and customer relationships based on their estimated fair values at the acquisition dates. The excess of the cost of the acquisitions over the net amounts assigned to the fair value of the assets acquired was recorded as goodwill. The fair value inputs used for the acquired assets were classified as Level 3 within the fair value hierarchy.
 
 
 
13

 
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)

10.           Other Operating Expenses, Net

Other operating expenses, net consist of the following for the three and nine months ended September 30, 2011 and 2010:

   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
   
2011
   
2010
   
2011
   
2010
 
                         
Loss on sale of assets, net
  $ --     $ 1     $ --     $ 4  
Special charges, net
    1       (1 )     7       15  
                                 
    $ 1     $ --     $ 7     $ 19  

Loss on sales of assets, net

Loss on sales of assets, net represents the loss recognized on the sale of fixed assets and cable systems.

Special charges, net

Special charges, net for the three and nine months ended September 30, 2011 primarily includes severance charges.  For the three and nine months ended September 30, 2010, special charges, net primarily includes severance charges as well as net amounts of litigation settlements.

11.           Income Taxes

All operations are held through Charter Holdco and its direct and indirect subsidiaries.  Charter Holdco and the majority of its subsidiaries are generally limited liability companies that are not subject to income tax.  However, certain of these limited liability companies are subject to state income tax.  In addition, the subsidiaries that are corporations are subject to federal and state income tax.  All of the remaining taxable income, gains, losses, deductions and credits of Charter Holdco are passed through to Charter.

For the three and nine months ended September 30, 2011, the Company recorded $72 million and $232 million of income tax expense, respectively.  For the three and nine months ended September 30, 2010, the Company recorded $109 million and $211 million of income tax expense, respectively, including $23 million related to changes in estimates on the 2009 tax provision.Income tax expense was recognized through increases in deferred tax liabilities related to Charter’s investment in Charter Holdco, and certain of Charter’s indirect subsidiaries, in addition to current federal and state income tax expense.  Income tax expense for the nine months ended September 30, 2010 was reduced by $69 million related to the reduction of the valuation allowance in connection with Mr. Allen’s exchange of his 0.19% Charter Holdco interest for 212,923 shares of Charter’s Class A common stock in a non-taxable transaction in February 2010.  

As of September 30, 2011 and December 31, 2010, the Company had net deferred income tax liabilities of approximately $987 million and $762 million, respectively.  Included in these net deferred tax liabilities is approximately $221 million and $225 million of net deferred tax liabilities at September 30, 2011 and December 31, 2010, respectively, relating to certain indirect subsidiaries of Charter Holdco that file separate income tax returns. The remainder of the Company’s net deferred tax liability arose from Charter’s investment in Charter Holdco, and was largely attributable to the characterization of franchises for financial reporting purposes as indefinite-lived.

No tax years for Charter or Charter Holdco are currently under examination by the Internal Revenue Service.  Tax years ending 2008 through 2010 remain subject to examination and assessment. Years prior to 2008 remain open solely for purposes of examination of Charter’s net operating loss and credit carryforwards.
 
 
 
14

 
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)

12.           Related Party Transactions

The following sets forth certain transactions in which the Company and the directors, executive officers, and affiliates of the Company are involved.

Allen Agreement

In connection with the Plan, Charter, Mr. Allen and Charter Investment, Inc. (“CII”) entered into a separate restructuring agreement (as amended, the “Allen Agreement”), in settlement and compromise of their legal, contractual and equitable rights, claims and remedies against Charter and its subsidiaries.  In addition to any amounts received by virtue of CII’s holding other claims against Charter and its subsidiaries, on the Effective Date, CII was issued 2.2 million shares of the new Charter Class B common stock and 35% (determined on a fully diluted basis) of the total voting power of all new capital stock of Charter.  Each share of new Charter Class B common stock was convertible, at the option of the holder or the Disinterested Members of the Board of Directors of Charter, into one share of new Charter Class A common stock, and was subject to significant restrictions on transfer and conversion.  Certain holders of new Charter Class A common stock (and securities convertible into or exercisable or exchangeable therefore) and new Charter Class B common stock received certain customary registration rights with respect to their shares.  As of December 31, 2010, Mr. Allen held all 2.2 million shares of Class B common stock of Charter.  Pursuant to the terms of the Certificate of Incorporation of Charter, on January 18, 2011, the Disinterested Members of the Board of Directors of Charter caused a conversion of the shares of Class B common stock into shares of Class A common stock on a one-for-one basis.  As a result of such conversion, Mr. Allen no longer has the right to appoint four directors and the Class B directors became Class A directors. On January 18, 2011, directors William L. McGrath and Christopher M. Temple, both former Class B directors, resigned from Charter’s board of directors. Edgar Lee and Stan Parker were appointed to fill the vacant positions.

Franklin Stock Repurchase

See “Note 6.  Treasury Stock” for the description of Charter’s purchase of 4.5 million shares of its Class A common stock from Franklin Advisers, Inc.  At the time of the purchase, funds advised by Franklin Advisers, Inc. beneficially held more than 10% of Charter’s Class A common stock.

13.           Contingencies

On August 28, 2008, a lawsuit was filed against Charter and Charter Communications, LLC (“Charter LLC”) in the United States District Court for the Western District of Wisconsin (now entitled, Marc Goodell et al.  v. Charter Communications, LLC and Charter Communications, Inc.).  The plaintiffs sought to represent a class of current and former broadband, system and other types of technicians who are or were employed by Charter or Charter LLC in the states of Michigan, Minnesota, Missouri or California.  Plaintiffs alleged that Charter and Charter LLC violated certain wage and hour statutes of those four states by failing to pay technicians for all hours worked.  In May 2010, the parties entered into a settlement agreement disposing of all claims, including those potential wage and hour claims for potential class members in additional states beyond the four identified above. On September 24, 2010, the court granted final approval of the settlement. The Company had accrued and subsequently paid the settlement costs associated with this case. The Company has been subjected, in the normal course of business, to the assertion of other wage and hour claims and could be subjected to additional such claims in the future.  The Company cannot predict the outcome of any such claims nor can it estimate a reasonable range of loss.

On March 27, 2009, Charter filed its Chapter 11 petition in the United States Bankruptcy Court for the Southern District of New York.  On the same day, JPMorgan Chase Bank, N.A., (“JPMorgan”), for itself and as Administrative Agent under the Charter Operating Credit Agreement, filed an adversary proceeding (the “JPMorgan Adversary Proceeding”) in Bankruptcy Court against Charter Operating and CCO Holdings seeking a declaration that there were events of default under the Charter Operating Credit Agreement.  JPMorgan, as well as other parties, objected to the
 
 
 
15

 
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
 
Plan.  The Bankruptcy Court jointly held 19 days of trial in the JPMorgan Adversary Proceeding and on the objections to the Plan.

On November 17, 2009, the Bankruptcy Court issued its Order and Opinion confirming the Plan over the objections of JPMorgan and various other objectors.  The Court also entered an order ruling in favor of Charter in the JPMorgan Adversary Proceeding.  Several objectors attempted to stay the consummation of the Plan, but those motions were denied by the Bankruptcy Court and the U.S. District Court for the Southern District of New York.  Charter consummated the Plan on November 30, 2009 and reinstated the Charter Operating Credit Agreement and certain other debt of its subsidiaries.

Six appeals were filed relating to confirmation of the Plan.  The parties initially pursuing appeals were:  (i) JPMorgan; (ii) Wilmington Trust Company (“Wilmington Trust”) (as indenture trustee for the holders of the 8.00% senior second lien notes due 2012 and 8.375% senior second lien notes due 2014 issued by and among Charter Operating and Charter Communications Operating Capital Corp. and the 10.875% senior second lien notes due 2014 issued by and among Charter Operating and Charter Communications Operating Capital Corp.); (iii) Wells Fargo Bank, N.A. (“Wells Fargo”) (in its capacities as successor Administrative Agent and successor Collateral Agent for the third lien prepetition secured lenders to CCO Holdings under the CCO Holdings credit facility);  (iv) Law Debenture Trust Company of New York (“Law Debenture Trust”) (as the Trustee with respect to the $479 million in aggregate principal amount of 6.50% convertible senior notes due 2027 issued by Charter which are no longer outstanding following consummation of the Plan); (v) R2 Investments, LDC (“R2 Investments”) (an equity interest holder in Charter); and (vi) certain plaintiffs representing a putative class in a securities action against three former Charter officers or directors filed in the United States District Court for the Eastern District of Arkansas (Iron Workers Local No. 25 Pension Fund, Indiana Laborers Pension Fund, and Iron Workers District Council of Western New York and Vicinity Pension Fund, in the action styled Iron Workers Local No. 25 Pension Fund v. Allen, et al., Case No. 4:09-cv-00405-JLH (E.D. Ark.).

Charter Operating amended its senior secured credit facilities effective March 31, 2010.  In connection with the closing of these amendments, each of Bank of America, N.A. and JPMorgan, for itself and on behalf of the lenders under the Charter Operating senior secured credit facilities, agreed to dismiss the appeal of the Company’s Confirmation Order pending before the District Court for the Southern District of New York and to waive any objections to the Company’s Confirmation Order issued by the United States Bankruptcy Court for the Southern District of New York.  The lenders filed their stipulation of that dismissal and waiver of objections and in April 2010, the case was dismissed.  On December 3, 2009, Wilmington Trust withdrew its notice of appeal.  In April 2010, Wells Fargo filed its Stipulation of Dismissal of their appeal on behalf of the lenders under the CCO Holdings credit facility and in April 2010, the case was dismissed. The appeals of the securities plaintiffs were denied by the District Court for the Southern District of New York in July 2011. The securities plaintiffs did not appeal to the United States Court of Appeals for the Second Circuit and therefore their claim has expired. In October 2011, the securities plaintiffs dismissed the underlying action that was pending in the United States District Court for the District of Arkansas. The appeals by Law Debenture Trust and R2 Investments were denied by the District Court for the Southern District of New York in March 2011.  A Notice of Appeal of that denial has been filed by both Law Debenture Trust and R2.  The Company cannot predict the ultimate outcome of the remaining appeals nor can it estimate a reasonable range of loss.

The Company is party to lawsuits and claims that arise in the ordinary course of conducting its business, including lawsuits claiming infringement of patents.  The ultimate outcome of these other legal matters pending against the Company cannot be predicted, and although such lawsuits and claims are not expected individually to have a material adverse effect on the Company’s consolidated financial condition, results of operations or liquidity, such lawsuits could have, in the aggregate, a material adverse effect on the Company’s consolidated financial condition, results of operations or liquidity.
 
 
 
16

 
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)

14.           Stock Compensation Plans

Charter’s 2009 Stock Plan provides for grants of nonqualified stock options, incentive stock options, stock appreciation rights, dividend equivalent rights, performance units and performance shares, share awards, phantom stock, restricted stock units and restricted stock.  Directors, officers and other employees of the Company and its subsidiaries, as well as others performing consulting services for the Company, are eligible for grants under the 2009 Stock Plan.  
 
During the three and nine months ended September 30, 2011, the Company granted 27,000 and 57,100 shares of restricted stock, respectively.  During the three and nine months ended September 30, 2010, the Company granted 800 and 42,800 shares of restricted stock, respectively.  Restricted stock vests annually over a one to four-year period beginning from the date of grant.  During the three and nine months ended September 30, 2011, the Company granted 201,900 and 2.4 million stock options.  During the three and nine months ended September 30, 2010, the Company granted 1.3 million stock options.  A portion of the stock options vest annually over four years from either the grant date or delayed vesting commencement dates.  The remaining stock options vest based on achievement of stock price hurdles over a delayed vesting schedule.  All stock options expire ten years from the grant date.  During the three and nine months ended September 30, 2011, the Company granted 7,500 and 238,000 restricted stock units.  Restricted stock units have no voting rights and vest ratably over four years from either the grant date or delayed vesting commencement dates.  As of September 30, 2011, total unrecognized compensation remaining to be recognized in future periods totaled $22 million for restricted stock, $60 million for stock options and $11 million for restricted stock units and the weighted average period over which it is expected to be recognized is 1 year for restricted stock, 3 years for stock options and 4 years for restricted stock units.

The Company recorded $10 million and $25 million of stock compensation expense for the three and nine months ended September 30, 2011, respectively, and $7 million and $17 million of stock compensation expense for the three and nine months ended September 30, 2010, respectively, which is included in selling, general, and administrative expense.

15.           Consolidating Schedules

The CCO Holdings notes and the CCO Holdings credit facility are obligations of CCO Holdings.  The CCH II, LLC (“CCH II”) notes are obligations of CCH II.  However, these notes of CCO Holdings and CCH II are also jointly, severally, fully and unconditionally guaranteed on an unsecured senior basis by Charter. 

The accompanying condensed consolidating financial information has been prepared and presented pursuant to SEC Regulation S-X Rule 3-10, Financial Statements of Guarantors and Affiliates Whose Securities Collateralize an Issue Registered or Being Registered. This information is not intended to present the financial position, results of operations and cash flows of the individual companies or groups of companies in accordance with generally accepted accounting principles.

Condensed consolidating financial statements as of September 30, 2011 and December 31, 2010 and for the nine months ended September 30, 2011 and 2010 follow.


 
17

 
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)


Charter Communications, Inc.
 
Condensed Consolidating Balance Sheet
 
As of September 30, 2011
 
   
   
Charter
 
Intermediate Holding Companies
 
CCH II
 
CCO
Holdings
 
Charter Operating
and
Subsidiaries
 
Eliminations
 
Charter Consolidated
 
ASSETS
                             
                               
CURRENT ASSETS:
                             
Cash and cash equivalents
  $ 3   $ --   $ --   $ 2   $ --   $ --   $ 5  
Restricted cash and cash equivalents
    --     --     --     --     27     --     27  
Accounts receivable, net
    --     2     --     --     251     --     253  
Receivables from related party
    68     173     6     5     --     (252 )   --  
Prepaid expenses and other current assets
    1     16     --     --     33     --     50  
Total current assets
    72     191     6     7     311     (252 )   335  
                                             
INVESTMENT IN CABLE PROPERTIES:
                                           
Property, plant and equipment, net
    --     34     --     --     6,869     --     6,903  
Franchises
    --     --     --     --     5,287     --     5,287  
Customer relationships, net
    --     --     --     --     1,779     --     1,779  
Goodwill
    --     --     --     --     954     --     954  
Total investment in cable properties
    --     34     --     --     14,889     --     14,923  
                                             
CC VIII PREFERRED INTEREST
    88     206     --     --     --     (294 )   --  
                                             
INVESTMENT IN SUBSIDIARIES
    1,479     972     2,768     8,407     --     (13,626 )   --  
                                             
LOANS RECEIVABLE – RELATED PARTY
    --     43     256     231     --     (530 )   --  
                                             
OTHER NONCURRENT ASSETS
    --     158     --     81     141     --     380  
                                             
Total assets
  $ 1,639   $ 1,604   $ 3,030   $ 8,726   $ 15,341   $ (14,702 ) $ 15,638  
                                             
LIABILITIES AND SHAREHOLDERS’/MEMBER’S EQUITY
                                     
                                             
CURRENT LIABILITIES:
                                           
Accounts payable and accrued expenses
  $ 10   $ 121   $ 30   $ 144   $ 776   $ --   $ 1,081  
Payables to related party
    --     --     --     --     252     (252 )   --  
Total current liabilities
    10     121     30     144     1,028     (252 )   1.081  
                                             
LONG-TERM DEBT
    --     --     2,028     5,814     4,739     --     12,581  
LOANS PAYABLE  – RELATED PARTY
    --     --     --     --     530     (530 )   --  
OTHER LONG-TERM LIABILITIES
    765     4     --     --     343     --     1,112  
                                             
Shareholders’/Member’s equity
    864     1,479     972     2,768     8,407     (13,626 )   864  
Noncontrolling interest
    --     --     --     --     294     (294 )   --  
                 Total shareholders’/member’s equity
    864     1,479     972     2,768     8,701     (13,920 )   864  
                                             
Total liabilities and shareholders’/member’s equity
  $ 1,639   $ 1,604   $ 3,030   $ 8,726   $ 15,341   $ (14,702 ) $ 15,638  

 
 
18

 
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)

 
Charter Communications, Inc.
 
Condensed Consolidating Balance Sheet
 
As of December 31, 2010
 
   
   
Charter
 
Intermediate Holding Companies
 
CCH II
 
CCO
Holdings
 
Charter Operating
and
Subsidiaries
 
Eliminations
 
Charter Consolidated
 
ASSETS
                             
                               
CURRENT ASSETS:
                             
Cash and cash equivalents
  $ --   $ --   $ 3   $ 1   $ --   $ --   $ 4  
Restricted cash and cash equivalents
    --     --     --     --     28     --     28  
Accounts receivable, net
    --     1     --     --     246     --     247  
Receivables from related party
    57     182     8     8     --     (255 )   --  
Prepaid expenses and other current assets
    2     20     --     --     25     --     47  
Total current assets
    59     203     11     9     299     (255 )   326  
                                             
INVESTMENT IN CABLE PROPERTIES:
                                           
Property, plant and equipment, net
    --     34     --     --     6,785     --     6,819  
Franchises
    --     --     --     --     5,257     --     5,257  
Customer relationships, net
    --     --     --     --     2,000     --     2,000  
Goodwill
    --     --     --     --     951     --     951  
Total investment in cable properties
    --     34     --     --     14,993     --     15,027  
                                             
CC VIII PREFERRED INTEREST
    79     183     --     --     --     (262 )   --  
                                             
INVESTMENT IN SUBSIDIARIES
    1,887     1,409     3,296     5,946     --     (12,538 )   --  
                                             
LOANS RECEIVABLE – RELATED PARTY
    --     42     248     252     --     (542 )   --  
                                             
OTHER NONCURRENT ASSETS
    --     158     --     43     153     --     354  
                                             
Total assets
  $ 2,025   $ 2,029   $ 3,555   $ 6,250   $ 15,445   $ (13,597 ) $ 15,707  
                                             
LIABILITIES AND SHAREHOLDERS’/MEMBER’S EQUITY
                                     
                                             
CURRENT LIABILITIES:
                                           
Accounts payable and accrued expenses
  $ 11   $ 138   $ 89   $ 40   $ 771   $ --   $ 1,049  
Payables to related party
    --     --     --     --     255     (255 )   --  
Total current liabilities
    11     138     89     40     1,026     (255 )   1,049  
                                             
LONG-TERM DEBT
    --     --     2,057     2,914     7,335     --     12,306  
LOANS PAYABLE  – RELATED PARTY
    --     --     --     --     542     (542 )   --  
OTHER LONG-TERM LIABILITIES
    536     4     --     --     334     --     874  
                                             
Shareholders’/Member’s equity
    1,478     1,887     1,409     3,296     5,946     (12,538 )   1,478  
Noncontrolling interest
    --     --     --     --     262     (262 )   --  
                 Total shareholders’/member’s equity
    1,478     1,887     1,409     3,296     6,208     (12,800 )   1,478  
                                             
Total liabilities and shareholders’/member’s equity
  $ 2,025   $ 2,029   $ 3,555   $ 6,250   $ 15,445   $ (13,597 ) $ 15,707  
 
 
 
19

 
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)

 
Charter Communications, Inc.
 
Condensed Consolidating Statement of Operations
 
For the nine months ended September 30, 2011
 
                               
   
Charter
 
Intermediate Holding Companies
 
CCH II
 
CCO
Holdings
 
Charter Operating
and
Subsidiaries
 
Eliminations
 
Charter Consolidated
 
                               
REVENUES
  $ 24   $ 92   $ --   $ --   $ 5,370   $ (116 ) $ 5,370  
                                             
COSTS AND EXPENSES:
                                           
Operating (excluding depreciation and amortization)
    --     --     --     --     2,344     --     2,344  
Selling, general and administrative
    24     92     --     --     1,062     (116 )   1,062  
Depreciation and amortization
    --     --     --     --     1,181     --     1,181  
Other operating expenses, net
    --     --     --     --     7     --     7  
                                             
      24     92     --     --     4,594     (116 )   4,594  
                                             
Income from operations
    --     --     --     --     776     --     776  
                                             
OTHER INCOME (EXPENSES):
                                           
Interest expense, net
    --     1     (144 )   (274 )   (301 )   --     (718 )
Loss on extinguishment of debt
    --     --     --     --     (124 )   --     (124 )
Other expenses, net
    --     --     --     --     (4 )   --     (4 )
Equity in income (losses) of subsidiaries
    (82 )   (106 )   38     312     --     (162 )   --  
                                             
      (82 )   (105 )   (106 )   38     (429 )   (162 )   (846 )
                                             
Income (loss) before income taxes
    (82 )   (105 )   (106 )   38     347     (162 )   (70 )
                                             
INCOME TAX EXPENSE
    (229 )   --     --     --     (3 )   --     (232 )
                                             
Consolidated net income (loss)
    (311 )   (105 )   (106 )   38     344     (162 )   (302 )
                                             
Less: Net (income) loss – noncontrolling interest
    9     23     --     --     (32 )   --     --  
                                             
Net income (loss)
  $ (302 ) $ (82 ) $ (106 ) $ 38   $ 312   $ (162 ) $ (302 )

 
 
20

 
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)

 
Charter Communications, Inc.
 
Condensed Consolidating Statement of Operations
 
For the nine months ended September 30, 2010
 
                               
   
Charter
 
Intermediate Holding Companies
 
CCH II
 
CCO
Holdings
 
Charter Operating
and
Subsidiaries
 
Eliminations
 
Charter Consolidated
 
                               
REVENUES
  $ 26   $ 85   $ --   $ --   $ 5,275   $ (111 ) $ 5,275  
                                             
COSTS AND EXPENSES:
                                           
Operating (excluding depreciation and amortization)
    --     --     --     --     2,317     --     2,317  
Selling, general and administrative
    26     85     --     --     1,060     (111 )   1,060  
Depreciation and amortization
    --     --     --     --     1,134     --     1,134  
Other operating expenses, net
    --     --     --     --     19     --     19  
                                             
      26     85     --     --     4,530     (111 )   4,530  
                                             
Income from operations
    --     --     --     --     745     --     745  
                                             
OTHER INCOME (EXPENSES):
                                           
Interest expense, net
    --     1     (147 )   (87 )   (412 )   --     (645 )
Loss on extinguishment of debt
    --     --     --     (17 )   (21 )   --     (38 )
Other income, net
    3     --     --     --     (6 )   --     (3 )
Equity in income of subsidiaries
    33     13     160     264     --     (470 )   --  
                                             
      36     14     13     160     (439 )   (470 )   (686 )
                                             
Income before income taxes
    36     14     13     160     306     (470 )   59  
                                             
INCOME TAX EXPENSE
    (196 )   --     --     --     (15 )   --     (211 )
                                             
Consolidated net income (loss)
    (160 )   14     13     160     291     (470 )   (152 )
                                             
Less: Net (income) loss – noncontrolling interest
    8     19     --     --     (27 )   --     --  
                                             
Net income (loss)
  $ (152 ) $ 33   $ 13   $ 160   $ 264   $ (470 ) $ (152 )
 
 
 
21

 
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)

 
Charter Communications, Inc.
 
Condensed Consolidating Statement of Cash Flows
 
For the nine months ended September 30, 2011
 
                               
   
Charter
 
Intermediate Holding Companies
 
CCH II
 
CCO
Holdings
 
Charter Operating
and Subsidiaries
 
Eliminations
 
Charter Consolidated
 
                               
CASH FLOWS FROM OPERATING ACTIVITIES:
                             
Consolidated net income (loss)
  $ (311 ) $ (105 ) $ (106 ) $ 38   $ 344   $ (162 ) $ (302 )
Adjustments to reconcile net income (loss) to net cash flows from operating activities:
                                           
Depreciation and amortization
    --     --     --     --     1,181     --     1,181  
Noncash interest expense
    --     --     (28 )   15     40     --     27  
Loss on extinguishment of debt
    --     --     --     --     124     --     124  
Deferred income taxes
    229     --     --     --     (4 )   --     225  
Equity in (income) losses of subsidiaries
    82     106     (38 )   (312 )   --     162     --  
Other, net
    --     --     --     --     26     --     26  
Changes in operating assets and liabilities:
                                           
Accounts receivable
    --     (2 )   --     --     (3 )   --     (5 )
Prepaid expenses and other assets
    --     4     --     --     (8 )   --     (4 )
Accounts payable, accrued expenses and other
    --     (16 )   (61 )   104     13     --     40  
Receivables from and payables to related party
    --     9     (6 )   (5 )   2     --     --  
                                             
Net cash flows from operating activities
    --     (4 )   (239 )   (160 )   1,715     --     1,312  
                                             
CASH FLOWS FROM INVESTING ACTIVITIES:
                                           
Purchases of property, plant and equipment
    --     --     --     --     (984 )   --     (984 )
Changes in accrued expenses related to capital expenditures
    --     --     --     --     (11 )   --     (11 )
Purchase of cable systems
    --     --     --     --     (89 )   --     (89 )
Contribution to subsidiary
    --     --     --     (2,647 )   --     2,647     --  
Distributions from subsidiary
    206     1,630     562     493     --     (2,891 )   --  
Other, net
    --     --     --     --     (20 )   --     (20 )
                                             
Net cash flows from investing activities
    206     1,630     562     (2,154 )   (1,104 )   (244 )   (1,104 )
                                             
CASH FLOWS FROM FINANCING ACTIVITIES:
                                           
Borrowings of long-term debt
    --     --     --     2,890     911     --     3,801  
Repayments of long-term debt
    --     --     --     --     (3,645 )   --     (3,645 )
Borrowings (payments) loans payable - related parties
    --     --     --     30     (30 )   --     --  
Payments for debt issuance costs
    --     --     --     (43 )   --     --     (43 )
Purchase of treasury stock of Charter
    (207 )   (116 )   --     --     --     --     (323 )
Contribution from parent
    --     --     --     --     2,647     (2,647 )   --  
Distributions to parent
    --     (1,510 )   (326 )   (562 )   (493 )   2,891     --  
Other, net
    4     --     --     --     (2 )   --     2  
                                             
Net cash flows from financing activities
    (203 )   (1,626 )   (326 )   2,315     (612 )   244     (208 )
                                             
NET INCREASE (DECREASE) IN CASH AND  CASH
       EQUIVALENTS
    3     --     (3 )   1     (1 )   --     --  
CASH AND CASH EQUIVALENTS, beginning of period
    --     --     3     1     28     --     32  
                                             
CASH AND CASH EQUIVALENTS, end of period
  $ 3   $ --   $ --   $ 2   $ 27   $ --   $ 32  
                                             

 
 
22

 
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)

 
Charter Communications, Inc.
 
Condensed Consolidating Statement of Cash Flows
 
For the nine months ended September 30, 2010
 
                               
   
Charter
 
Intermediate Holding Companies
 
CCH II
 
CCO
Holdings
 
Charter Operating
and Subsidiaries
 
Eliminations
 
Charter Consolidated
 
                               
CASH FLOWS FROM OPERATING ACTIVITIES:
                             
Consolidated net income (loss)
  $ (160 ) $ 14   $ 13   $ 160   $ 291   $ (470 ) $ (152 )
Adjustments to reconcile net income (loss) to net cash flows from operating activities:
                                           
Depreciation and amortization
    --     --     --     --     1,134     --     1,134  
Noncash interest expense
    --     --     (26 )   8     72     --     54  
Loss on extinguishment of debt
    --     --     --     15     20     --     35  
Deferred income taxes
    196     --     --     --     8     --     204  
Equity in income of subsidiaries
    (33 )   (13 )   (160 )   (264 )   --     470     --  
Other, net
    (2 )   2     --     --     20     --     20  
Changes in operating assets and liabilities:
                                           
Accounts receivable
    --     --     --     --     7     --     7  
Prepaid expenses and other assets
    (2 )   7     --     --     10     --     15  
Accounts payable, accrued expenses and other
    1     (17 )   9     47     65     --     105  
Receivables from and payables to related party
    (20 )   (7 )   (14 )   (11 )   52     --     --  
                                             
Net cash flows from operating activities
    (20 )   (14 )   (178 )   (45 )   1,679     --     1,422  
                                             
CASH FLOWS FROM INVESTING ACTIVITIES:
                                           
Purchases of property, plant and equipment
    --     --     --     --     (948 )   --     (948 )
Change in accrued expenses related to capital expenditures
    --     --     --     --     (7 )   --     (7 )
Contributions to subsidiary
    (45 )   (77 )   (5 )   (1,697 )   --     1,824     --  
Distributions from subsidiary
    --     --     167     177     --     (344 )   --  
Loans to subsidiaries
    --     (30 )   --     --     --     30     --  
Other, net
    --     --     --     --     (7 )   --     (7 )
                                             
Net cash flows from investing activities
    (45 )   (107 )   162     (1,520 )   (962 )   1,510     (962 )
                                             
CASH FLOWS FROM FINANCING ACTIVITIES:
                                           
Borrowings of long-term debt
    --     --     --     2,600     157     --     2,757  
Borrowings from parent companies
    --     --     --     --     30     (30 )   --  
Repayments of long-term debt
    --     --     --     (826 )   (2,244 )   --     (3,070 )
Repayment of preferred stock
    (138 )   --     --     --     --     --     (138 )
Payments for debt issuance costs
    --     --     --     (45 )   (31 )   --     (76 )
Contribution from parent
    --     109     13     5     1,697     (1,824 )   --  
Distributions to parent
    --     --     --     (167 )   (177 )   344     --  
Other, net
    --     --     --     --     (5 )   --     (5 )
                                             
Net cash flows from financing activities
    (138 )   109     13     1,567     (573 )   (1,510 )   (532 )
                                             
NET INCREASE (DECREASE) IN CASH AND
    (203 )   (12 )   (3 )   2     144     --     (72 )
CASH AND CASH EQUIVALENTS, beginning of period
    203     12     6     --     533     --     754  
                                             
CASH AND CASH EQUIVALENTS, end of period
  $ --   $ --   $ 3   $ 2   $ 677   $ --   $ 682  
                                             
 
 
 
23

 

 
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.

General

Charter Communications, Inc. (“Charter”) is a holding company whose principal asset is a 100% common equity interest in Charter Communications Holding Company, LLC (“Charter Holdco”). Charter owns cable systems through its subsidiaries.

We are a cable operator providing services in the United States with approximately 5.2 million residential and commercial customers at September 30, 2011.  We offer our customers traditional cable video programming (basic and digital video), Internet services, and telephone services, as well as advanced video services such as Charter OnDemand™ (“OnDemand”), high-definition television and digital video recorder (“DVR”) service.  We also sell local advertising on cable networks and provide fiber connectivity to cellular towers.

Overview

For the three and nine months ended September 30, 2011, adjusted earnings before interest expense, income taxes, depreciation and amortization (“Adjusted EBITDA”) was $653 million and $2.0 billion, respectively.  For the three and nine months ended September 30, 2010, Adjusted EBITDA was $632 million and $1.9 billion, respectively.  See “—Use of Adjusted EBITDA and Free Cash Flow” for further information on Adjusted EBITDA and free cash flow.  Adjusted EBITDA increased as a result of continued growth in our higher margin Internet, commercial and telephone customers, continued disciplined customer acquisition, and improving customer service levels.  For the three and nine months ended September 30, 2011, our income from operations was $237 million and $776 million, respectively.  For the three and nine months ended September 30, 2010, our income from operations was $240 million and $745 million, respectively.  The increase in income from operations for the nine months ended September 30, 2011 is primarily due to the increases in adjusted EBITDA referenced above offset by increases in depreciation and amortization.

In the third quarter of 2011, we acquired cable systems serving a total of approximately 36,000 customers located in Alabama, Georgia and Missouri.  After giving effect to divestitures and acquisitions of cable systems in 2010 and 2011, during the nine months ended September 30, 2011, we had a decrease in total customers of approximately 21,100 and lost approximately 176,800 basic video customers.  We believe that continued competition and the weakened economic conditions in the United States, including the housing market and relatively high unemployment levels, have adversely affected consumer demand for our services, particularly basic video.  These conditions combined with our disciplined customer acquisition strategy contributed to video revenues declining 2% for each of the three and nine months ended September 30, 2011 compared to the corresponding periods in 2010.  Total revenue growth was 2% for each of the three and nine months ended September 30, 2011, respectively, compared to the corresponding periods in 2010 as we continued to grow our commercial, Internet and telephone businesses.  However, we believe competition from wireless and economic factors have contributed to an increase in the number of homes that replace their traditional telephone service with wireless service thereby impacting the growth of our telephone business.  If these conditions do not improve, we believe the growth of our business and results of operations will be further adversely affected which may contribute to future impairments of our franchises and goodwill.
 
 
 
24

 

The following table summarizes our customer statistics for basic video, digital video, Internet, and telephone as of September 30, 2011 and 2010:

   
Approximate as of
 
   
September 30,
   
September 30,
 
   
2011 (a)
   
2010 (a)
 
             
Video (b)
    4,135,800       4,399,900  
Internet (c)
    3,424,100       3,238,700  
Telephone (d)
    1,763,800       1,688,000  
Residential PSUs (e)
    9,323,700       9,326,600  
                 
Video (b)(f)
    235,100       252,800  
Internet (c)(g)
    156,000       134,300  
Telephone (d)
    73,800       54,900  
Commercial PSUs (e)
    464,900       442,000  
                 
Digital video RGUs (h)
    3,400,900       3,379,300  
                 
Total RGUs (i)
    13,189,500       13,147,900  

After giving effect to divestitures and acquisitions of cable systems in 2010 and 2011, residential basic video customers, residential Internet customers and residential telephone customers would have been approximately 4,368,000, 3,230,500, and 1,690,400, respectively, as of September 30, 2010. After giving effect to divestitures and acquisitions of cable systems in 2010 and 2011, commercial basic video customers, commercial Internet customers, commercial telephone customers and digital revenue generating units would have been approximately 246,700, 133,200, 54,800 and 3,351,300, respectively, as of September 30, 2010.

(a)  
We calculate the aging of customer accounts based on the monthly billing cycle for each account. On that basis, at September 30, 2011 and 2010, customers include approximately 15,500 and 14,400 customers, respectively, whose accounts were over 60 days past due in payment, approximately 1,900 and 1,900 customers, respectively, whose accounts were over 90 days past due in payment, and approximately 1,000 and 1,100 customers, respectively, whose accounts were over 120 days past due in payment.
 
(b)  
“Video customers” represent those customers who subscribe to our video cable services.

(c)  
“Internet customers” represent those customers who subscribe to our Internet service.

(d)  
“Telephone customers” represent those customers who subscribe to our telephone service.

(e)  
“Primary Service Units” or “PSUs” represent the total of video, Internet and telephone customers.

        (f)  
Included within commercial video customers are those in commercial and multi-dwelling structures, which are calculated on an equivalent bulk unit (“EBU”) basis.  We calculate EBUs by dividing the bulk price charged to accounts in an area by the published rate charged to non-bulk residential customers in that market for the comparable tier of service.  This EBU method of estimating basic video customers is consistent with the methodology used in determining costs paid to programmers and is consistent with the methodology used by other multiple system operators (“MSOs”).  As we increase our published video rates to residential customers without a corresponding increase in the prices charged to commercial service or multi-dwelling customers, our EBU count will decline even if there is no real loss in commercial service or multi-dwelling customers.

(g)  
Prior year commercial Internet customers were adjusted to reflect current year presentation.

(h)  
“Digital video RGUs” include all video customers that rent one or more digital set-top boxes or cable cards.

         (i)  
“Revenue Generating Units” or “RGUs” represent the total of all basic video, digital video, Internet and telephone customers, not counting additional outlets within one household.  For example, a customer who

 
 
25

 
 

        
receives two types of service (such as basic video and digital video) would be treated as two RGUs and, if that customer added on Internet service, the customer would be treated as three RGUs.  This statistic is computed in accordance with the guidelines of the National Cable & Telecommunications Association (“NCTA”).
 
We have a history of net losses.  Our net losses are principally attributable to insufficient revenue to cover the combination of operating expenses, interest expenses that we incur because of our debt, depreciation expenses resulting from the capital investments we have made and continue to make in our cable properties, and amortization expenses of customer relationships.

Critical Accounting Policies and Estimates

For a discussion of our critical accounting policies and the means by which we develop estimates therefore, see "Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations" in our 2010 Annual Report on Form 10-K.

RESULTS OF OPERATIONS

The following table sets forth the percentages of revenues that items in the accompanying condensed consolidated statements of operations constituted for the periods presented (dollars in millions, except per share data):

   
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
   
2011
   
2010
   
2011
   
2010
 
                                         
REVENUES
  $ 1,809     100 %   $ 1,769     100 %   $ 5,370     100 %   $ 5,275     100 %
                                                         
COSTS AND EXPENSES:
                                                       
Operating (excluding depreciation and
     amortization)
    792     44 %     788     44 %     2,344     44 %     2,317     44 %
Selling, general and administrative
    374     21 %     356     20 %     1,062     20 %     1,060     20 %
Depreciation and amortization
    405     22 %     385     22 %     1,181     22 %     1,134     22 %
Other operating expenses, net
    1     --       --     --       7     --       19     --  
                                                         
      1,572     87 %     1,529     86 %     4,594     86 %     4,530     86 %
                                                         
Income from operations
    237     13 %     240     14 %     776     14 %     745     14 %
                                                         
OTHER EXPENSES:
                                                       
Interest expense, net
    (244 )           (222 )           (718 )           (645 )      
Loss on extinguishment of debt
    (4 )           (3 )           (124 )           (38 )      
Other expenses, net
    (2 )           (1 )           (4 )           (3 )      
                                                         
      (250 )           (226 )           (846 )           (686 )      
                                                         
Income (loss) before income taxes
    (13 )           14             (70 )           59        
                                                         
INCOME TAX EXPENSE
    (72 )           (109 )           (232 )           (211 )      
                                                         
Net loss
  $ (85 )         $ (95 )         $ (302 )         $ (152 )      
                                                         
LOSS PER COMMON SHARE, BASIC AND DILUTED
  $ (0.79 )         $ (0.84 )         $ (2.74 )         $ (1.34 )      
                                                         
Weighted average common shares outstanding, basic and diluted
    108,420,169             113,110,889             110,285,852             113,081,242        

Revenues.  Average monthly revenue per basic video customer increased to $137 for the three months ended September 30, 2011 from $126 for the three months ended September 30, 2010 and increased to $134 for the nine months ended September 30, 2011 from $124 for the nine months ended September 30, 2010.  Average monthly revenue per basic video customer represents total revenue, divided by the number of respective months, divided by the average number of basic video customers during the respective period.  Revenue growth primarily reflects
 
 
 
26

 
 
increases in the number of residential Internet and telephone and commercial business customers, price increases, and incremental video revenues from DVR and high-definition television services, offset by a decrease in basic video customers.  Asset sales and acquisitions reduced the increase in revenues for the three and nine months ended September 30, 2011 as compared to the three and nine months ended September 30, 2010 by approximately $13 million and $49 million, respectively.

Revenues by service offering were as follows (dollars in millions):

   
Three Months Ended
   
Three Months Ended
       
   
September 30, 2011
   
September 30, 2010
   
2011 over 2010
 
   
Revenues
   
% of
Revenues
   
Revenues
   
% of
Revenues
   
Change
   
%
Change
 
                                     
Video
  $ 899       50 %   $ 918       52 %   $ (19 )     (2 %)
Internet
    433       24 %     404       23 %     29       7 %
Telephone
    216       12 %     208       12 %     8       4 %
Commercial
    148       8 %     126       7 %     22       17 %
Advertising sales
    73       4 %     75       4 %     (2 )     (3 %)
Other
    40       2 %     38       2 %     2       5 %
                                                 
    $ 1,809       100 %   $ 1,769       100 %   $ 40       2 %

   
Nine Months Ended
   
Nine Months Ended
       
   
September 30, 2011
   
September 30, 2010
   
2011 over 2010
 
   
Revenues
   
% of
Revenues
   
Revenues
   
% of
Revenues
   
Change
   
%
Change
 
                                     
Video
  $ 2,710       50 %   $ 2,776       53 %   $ (66 )     (2 %)
Internet
    1,264       24 %     1,201       23 %     63       5 %
Telephone
    641       12 %     612       11 %     29       5 %
Commercial
    426       8 %     365       7 %     61       17 %
Advertising sales
    211       4 %     206       4 %     5       2 %
Other
    118       2 %     115       2 %     3       3 %
                                                 
    $ 5,370       100 %   $ 5,275       100 %   $ 95       2 %

Video revenues consist primarily of revenues from basic and digital video services provided to our non-commercial customers, as well as franchise fees, equipment rental and video installation revenue.  Residential basic video customers decreased by 264,100 customers from September 30, 2010 compared to September 30, 2011. Giving effect to asset sales and acquisitions, residential basic video customers decreased by 232,200 customers from September 30, 2010 compared to September 30, 2011. Digital video customers increased by 21,600 during the same period, or 49,600 after giving effect to asset sales and acquisitions.  The decrease in video revenues is attributable to the following (dollars in millions):

   
Three months ended
September 30, 2011
compared to
three months ended
September 30, 2010
Increase / (Decrease)
   
Nine months ended
September 30, 2011
compared to
nine months ended
September 30, 2010
Increase / (Decrease)
 
             
Decrease in basic video customers
  $ (29 )   $ (85 )
Incremental video services and price adjustments
    12       21  
Increase in digital video customers
    6       30  
Asset sales and acquisitions
    (8 )     (32 )
                 
    $ (19 )   $ (66 )

 
 
27

 
 
Residential Internet customers grew by 185,400 customers from September 30, 2010 to September 30, 2011 or 193,600 after giving effect to asset sales and acquisitions.  The increase in Internet revenues from our residential customers is attributable to the following (dollars in millions):

   
Three months ended
September 30, 2011
compared to
three months ended
September 30, 2010
Increase / (Decrease)
   
Nine months ended
September 30, 2011
compared to
nine months ended
September 30, 2010
Increase / (Decrease)
 
             
Increase in residential Internet customers
  $ 24     $ 72  
Price adjustments and service level changes
    8       1  
Asset sales and acquisitions
    (3 )     (10 )
                 
    $ 29     $ 63  

Residential telephone customers grew by 75,800 customers from September 30, 2010 to September 30, 2011, or 73,400 after giving effect to asset sales and acquisitions.  The increase in telephone revenues from our residential customers is attributable to the following (dollars in millions):

   
Three months ended
September 30, 2011
compared to
three months ended
September 30, 2010
Increase / (Decrease)
   
Nine months ended
September 30, 2011
compared to
nine months ended
September 30, 2010
Increase / (Decrease)
 
             
Increase in residential telephone customers
  $ 10     $ 41  
Price adjustments and service upgrades
    (2 )     (12 )
Asset sales and acquisitions
    --       --  
                 
    $ 8     $ 29  

Average monthly revenue per residential telephone customer decreased during the three and nine months ended September 30, 2011 compared to the corresponding period in 2010 due to increased value-based packages and bundling.

The increase in commercial revenues is attributable to the following (dollars in millions):

   
Three months ended
September 30, 2011
compared to
three months ended
September 30, 2010
Increase / (Decrease)
   
Nine months ended
September 30, 2011
compared to
nine months ended
September 30, 2010
Increase / (Decrease)
 
             
Sales to small-to-medium sized business customers
  $ 18     $ 46  
Carrier site customers
    4       13  
Other
    2       7  
Asset sales and acquisitions
    (2 )     (5 )
                 
    $ 22     $ 61  

Increases in commercial revenues were the result of improved sales productivity, line extensions for carrier and non-carrier business and our strategic investments, such as DOCSIS 3.0, which enables us to deliver higher speeds and
 
 
 
28

 
 
improved reliability to our commercial customers.  Commercial PSUs increased 22,900 from September 30, 2010 compared to September 30, 2011.  After giving effect to asset sales and acquisitions, commercial PSUs increased 30,200 from September 30, 2010 compared to September 30, 2011.

Advertising sales revenues consist primarily of revenues from commercial advertising customers, programmers, and other vendors.  Advertising sales revenues for the three months ended September 30, 2011 decreased primarily as a result of a decrease in revenue from the political sector partially offset with a $3 million change to account for revenues received from selling advertising for third parties on a gross basis rather than a net basis. Advertising sales revenues for the nine months ended September 30, 2011 increased primarily as a result of an increase in revenue from the automotive, retail and restaurant sectors combined with a $5 million change to account for revenues received from selling advertising for third parties on a gross basis rather than a net basis offset by a decrease in revenue from the political sector.  For the three months ended September 30, 2011 and 2010, we received $13 million and $12 million, respectively, and for the nine months ended September 30, 2011 and 2010, we received $36 million and $33 million, respectively, in advertising sales revenues from vendors.  Asset sales and acquisitions reduced the increase in advertising sales revenues for the nine months ended September 30, 2011 as compared to the nine months ended September 30, 2010 by approximately $1 million. We expect ad sales revenue for the fourth quarter and full year 2011 to be lower than the fourth quarter of 2010 and full year 2010, respectively, as a result of the decrease in political advertising.

Other revenues consist of home shopping, late payment fees, wire maintenance fees and other miscellaneous revenues.  The increase in other revenues for the three and nine months ended September 30, 2011 was primarily the result of increases in wire maintenance fees.  Asset sales and acquisitions reduced the increase in other revenues for the nine months ended September 30, 2011 as compared to the nine months ended September 30, 2010 by approximately $1 million.

Operating expenses.  The increase in operating expenses is attributable to the following (dollars in millions):

   
Three months ended
September 30, 2011
compared to
three months ended
September 30, 2010
Increase / (Decrease)
   
Nine months ended
September 30, 2011
compared to
nine months ended
September 30, 2010
Increase / (Decrease)
 
             
Programming costs
  $ 11     $ 42  
Service labor costs
    4       15  
Other
    (3 )     (3 )
Asset sales and acquisitions
    (8 )     (27 )
                 
    $ 4     $ 27  

Programming costs were approximately $468 million and $462 million, representing 59% of total operating expenses, for the three months ended September 30, 2011 and 2010, respectively, and were approximately $1.4 billion and $1.4 billion, representing 60% and 59% of total operating expenses, for the nine months ended September 30, 2011 and 2010, respectively.  Programming costs consist primarily of costs paid to programmers for basic, premium, digital, OnDemand, and pay-per-view programming.  The increase in programming costs is primarily a result of annual contractual rate adjustments, offset in part by asset sales and customer losses.  Programming costs were also offset by the amortization of payments received from programmers of $2 million and $4 million for the three months ended September 30, 2011 and 2010, respectively, and $6 million and $12 million for the nine months ended September 30, 2011 and 2010, respectively.  We expect programming expenses to continue to increase due to a variety of factors, including amounts paid for retransmission consent, annual increases imposed by programmers, and additional programming, including high-definition, OnDemand, and pay-per-view programming, being provided to our customers.
 
 
 
29

 

Selling, general and administrative expenses. The increase in selling, general and administrative expenses is attributable to the following (dollars in millions):

   
Three months ended
September 30, 2011
compared to
three months ended
September 30, 2010
Increase / (Decrease)
   
Nine months ended
September 30, 2011
compared to
nine months ended
September 30, 2010
Increase / (Decrease)
 
             
Marketing costs
  $ 15     $ 18  
Stock compensation
    3       8  
Commercial services
    1       5  
Bad debt and collection costs
    (5 )     (18 )
Other, net
    6       1  
Asset sales and acquisitions
    (2 )     (12 )
                 
    $ 18     $ 2  

The increase in marketing costs for the three and nine months ended September 30, 2011 is the result of increased brand and media investment, channel development and increased marketing efforts for commercial. The increase in marketing costs for the nine months ended September 30, 2011 was offset by approximately $7 million of favorable adjustments related to expenses previously accrued on 2010 marketing campaigns.

Depreciation and amortization. Depreciation and amortization expense increased by $20 million and $47 million for the three and nine months ended September 30, 2011 compared to the corresponding periods in 2010, respectively, primarily representing depreciation on more recent capital expenditures, offset by certain assets becoming fully depreciated.

Other operating expenses, net.  The change in other operating expense, net is attributable to the following (dollars in millions):

   
Three months ended
September 30, 2011
compared to
three months ended
September 30, 2010
Increase / (Decrease)
   
Nine months ended
September 30, 2011
compared to
nine months ended
September 30, 2010
Increase / (Decrease)
 
             
Special charges, net
  $ 2     $ (8 )
Loss on sales of assets, net
    (1 )     (4 )
                 
    $ 1     $ (12 )

The change in special charges in the three and nine months ended September 30, 2011 as compared to the prior periods is the result of litigation settlements plus severance charges.  For more information, see Note 10 to the accompanying condensed consolidated financial statements contained in “Item 1. Financial Statements.”

Interest expense, net. For the three and nine months ended September 30, 2011 compared to September 30, 2010, net interest expense increased by $22 million and $73 million, respectively, which was primarily a result of an increase in our weighted average interest rate from 6.3% and 6.1% for the three and nine months ended September 30, 2010 to 7.5% and 7.3% for the three and nine months ended September 30, 2011 offset by a decrease in our weighted average debt outstanding from $12.8 billion and $12.9 billion for the three and nine months ended September 30, 2010 to $12.6 billion and $12.5 billion for the three and nine months ended September 30, 2011.
 
 
 
30

 

Loss on extinguishment of debt.  Loss on extinguishment of debt consists of the following for the periods presented:

   
Three months ended
September 30,
   
Nine months ended
September 30,
 
   
2011
   
2010
   
2011
   
2010
 
                         
Charter Operating credit facility prepayments
  $ --     $ (3 )   $ (120 )   $ (3 )
CCO Holdings and Charter Operating notes repurchases
    (4 )     --       (4 )     (34 )
Charter Operating credit facility amendment
    --       --       --       (1 )
                                 
    $ (4 )   $ (3 )   $ (124 )   $ (38 )

For more information, see Note 4 to the accompanying condensed consolidated financial statements contained in “Item 1. Financial Statements.”

Income tax expense. Income tax expense was recognized for the three and nine months ended September 30, 2011 and 2010, through increases in deferred tax liabilities related to our investment in Charter Holdco and certain of our indirect subsidiaries, in addition to current federal and state income tax expense.  Income tax expense for the nine months ended September 30, 2011 included an $8 million expense for a state tax law change.  Income tax expense for the nine months ended September 30, 2010 included a $69 million benefit related to the February 8, 2010 Charter Holdco partnership interest exchange and a $23 million change in estimate on the 2009 tax provision. 

Net loss. Net loss decreased by $10 million for the three months ended September 30, 2011 compared to the three months ended September 30, 2010, and increased by $150 million for the nine months ended September 30, 2011 compared to the nine months ended September 30, 2010, primarily a result of the factors described above.

Loss per common share. During the three months ended September 30, 2011 compared to the three months ended September 30, 2010, net loss per common share decreased by $0.05 and during the nine months ended September 30, 2011 compared to the nine months ended September 30, 2010 net loss per common share increased by $1.40 as a result of the factors described above.

Use of Adjusted EBITDA and Free Cash Flow

We use certain measures that are not defined by accounting principles generally accepted in the United States (“GAAP”) to evaluate various aspects of our business. Adjusted EBITDA and free cash flow are non-GAAP financial measures and should be considered in addition to, not as a substitute for, net loss and net cash flows from operating activities reported in accordance with GAAP. These terms, as defined by us, may not be comparable to similarly titled measures used by other companies. Adjusted EBITDA and free cash flow are reconciled to net loss and net cash flows from operating activities, respectively, below.

Adjusted EBITDA is defined as net loss plus net interest expense, income taxes, depreciation and amortization, stock compensation expense, loss on extinguishment of debt, and other expenses, such as special charges, loss on sale or retirement of assets and reorganization items. As such, it eliminates the significant non-cash depreciation and amortization expense that results from the capital-intensive nature of our businesses as well as other non-cash or special items, and is unaffected by our capital structure or investment activities. Adjusted EBITDA is used by management and Charter’s board of directors to evaluate the performance of our business. For this reason, it is a significant component of Charter’s annual incentive compensation program.  However, this measure is limited in that it does not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenues and our cash cost of financing.  Management evaluates these costs through other financial measures.

Free cash flow is defined as net cash flows from operating activities, less capital expenditures and changes in accrued expenses related to capital expenditures.

We believe that Adjusted EBITDA and free cash flow provide information useful to investors in assessing our performance and our ability to service our debt, fund operations and make additional investments with internally generated funds. In addition, Adjusted EBITDA generally correlates to the leverage ratio calculation under our credit facilities or outstanding notes to determine compliance with the covenants contained in the facilities and notes
 
 
 
31

 
 
(all such documents have been previously filed with the United States Securities and Exchange Commission).  For the purpose of calculating compliance with leverage covenants, we use adjusted EBITDA, as presented, excluding certain expenses paid by our operating subsidiaries to other Charter entities.  Our debt covenants refer to these expenses as management fees which fees were in the amount of $40 million and $34 million for the three months ended September 30, 2011 and 2010, respectively, and $110 million and $105 million for the nine months ended September 30, 2011 and 2010, respectively.
 
   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
   
2011
   
2010
   
2011
   
2010
 
                         
Net loss
  $ (85 )   $ (95 )   $ (302 )   $ (152 )
Plus:  Interest expense, net
    244       222       718       645  
          Income tax expense
    72       109       232       211  
          Depreciation and amortization
    405       385       1,181       1,134  
          Stock compensation expense
    10       7       25       17  
          Loss on extinguishment of debt
    4       3       124       38  
          Other, net
    3       1       11       22  
                                 
Adjusted EBITDA
  $ 653     $ 632     $ 1,989     $ 1,915  
                                 
Net cash flows from operating activities
  $ 405     $ 441     $ 1,312     $ 1,422  
Less:  Purchases of property, plant and equipment
    (304 )     (299 )     (984 )     (948 )
           Change in accrued expenses related to capital expenditures
    (11 )     (7 )     (11 )     (7 )
                                 
Free cash flow
  $ 90     $ 135     $ 317     $ 467  

Liquidity and Capital Resources
 
This section contains a discussion of our liquidity and capital resources, including a discussion of our cash position, sources and uses of cash, access to credit facilities and other financing sources, historical financing activities, cash needs, capital expenditures and outstanding debt.
 
Overview of Our Contractual Obligations and Liquidity
 
We have significant amounts of debt.  The accreted value of our debt as of September 30, 2011 was $12.6 billion, consisting of $3.6 billion of credit facility debt and $9.0 billion of notes.  Our business requires significant cash to fund principal and interest payments on our debt. For the remainder of 2011, $8 million of our debt matures.  As of September 30, 2011, $938 million of our debt matures in 2012, $230 million in 2013, $1.0 billion in 2014, $196 million in 2015, $4.6 billion in 2016 and $5.5 billion thereafter.  As of December 31, 2010, as shown in our annual report on Form 10-K, we had other contractual obligations totaling $646 million.  We also expect to incur capital expenditures of approximately $1.3 billion to $1.4 billion for 2011.

Our projected cash needs and projected sources of liquidity depend upon, among other things, our actual results, and the timing and amount of our expenditures.  Free cash flow was $90 million and $317 million for the three months and nine months ended September 30, 2011, respectively.  We expect to continue to generate free cash flow.  As of September 30, 2011, the amount available under our revolving credit facility was approximately $1.1 billion.  We expect to utilize free cash flow and availability under our revolving credit facilities as well as future refinancing transactions to further extend or reduce the maturities of our principal obligations. The timing and terms of any refinancing transactions will be subject to market conditions.  Additionally, we may, from time to time, depending on market conditions and other factors, use cash on hand and the proceeds from securities offerings or other borrowings, to retire our debt through open market purchases, privately negotiated purchases, tender offers, or redemption provisions.  We believe we have sufficient liquidity from cash on hand, free cash flow and Charter Communications Operating, LLC’s (“Charter Operating”) revolving credit facility as well as access to the capital markets to fund our projected operating cash needs.
 
 
 
 
32

 
 
We continue to evaluate the deployment of our anticipated future free cash flow including to reduce our leverage, to invest in our business growth and other strategic opportunities, including mergers and acquisitions as well as stock repurchases and dividends.  On August 9, 2011, Charter’s board of directors authorized the repurchase of up to $200 million of Charter’s Class A common stock and outstanding warrants.  As of September 30, 2011, approximately 2.4 million shares of Charter’s Class A common stock have been purchased for a total of approximately $116 million.  As possible acquisitions, swaps or dispositions arise in our industry, we actively review them against our objectives including, among other considerations, improving the operational efficiency and clustering of our business and achieving appropriate return targets, and we may participate to the extent we believe these possibilities present attractive opportunities.  In the third quarter of 2011, we acquired cable systems for total purchase prices of approximately $89 million.  We are regularly analyzing and considering acquisition, disposition and system swap possibilities.  However, there can be no assurance that we will actually complete any acquisition, disposition or system swap or that any such transactions will be material to our operations or results.
 
Free Cash Flow

Free cash flow was $90 million and $135 million for the three months ended September 30, 2011 and 2010, respectively, and $317 million and $467 million for the nine months ended September 30, 2011 and 2010, respectively.  The decrease in free cash flow for the three and nine months ended September 30, 2011 compared to the corresponding period in 2010 is primarily due to changes in operating assets and liabilities, excluding the change in accrued interest, that provided $36 million and $107 million, respectively, less cash during the same period of 2011, an increase of $23 million and $88 million, respectively, in cash paid for interest primarily related to higher interest rates as part of refinancings, net of timing of interest payments, and an increase of $5 million and $36 million, respectively, in capital expenditures.  The $107 million reduction in cash provided by changes in operating assets and liabilities is driven by one-time benefits in the first half of 2010 post emergence from bankruptcy along with timing of payments in 2011.

Limitations on Distributions

Distributions by Charter’s subsidiaries to a parent company for payment of principal on parent company notes are restricted under indentures and credit facilities governing our indebtedness, unless there is no default under the applicable indenture and credit facilities, and unless each applicable subsidiary’s leverage ratio test is met at the time of such distribution.  For the quarter ended September 30, 2011, there was no default under any of these indentures or credit facilities and each subsidiary met its applicable leverage ratio tests based on September 30, 2011 financial results. Such distributions would be restricted, however, if any such subsidiary fails to meet these tests at the time of the contemplated distribution. In the past, certain subsidiaries have from time to time failed to meet their leverage ratio test. There can be no assurance that they will satisfy these tests at the time of the contemplated distribution. Distributions by Charter Operating for payment of principal on parent company notes are further restricted by the covenants in its credit facilities.

Distributions by CCO Holdings, LLC (“CCO Holdings”) and Charter Operating to a parent company for payment of parent company interest are permitted if there is no default under the aforementioned indentures and CCO Holdings and Charter Operating credit facilities.

In addition to the limitation on distributions under the various indentures discussed above, distributions by our subsidiaries may be limited by applicable law, including the Delaware Limited Liability Company Act, under which our subsidiaries may only make distributions if they have “surplus” as defined in the act.

Historical Operating, Investing and Financing Activities

Cash and Cash Equivalents.  We held $32 million in cash and cash equivalents, including restricted cash of $27 million, as of September 30, 2011.
 
Operating Activities. Net cash provided by operating activities decreased $110 million from $1.4 billion for the nine months ended September 30, 2010 to $1.3 billion for the nine months ended September 30, 2011, primarily as a result of changes in operating assets and liabilities, excluding the change in accrued interest, that provided $107 million less cash during the same period driven by one-time benefits in the first half of 2010 post emergence from bankruptcy along with timing of payments in 2011 and an increase of $88 million in cash paid for interest primarily
 
 
33

 

related to higher interest rates as part of refinancings, net of timing of interest payments, offset by revenues increasing at a faster rate than cash expenses.
 
Investing Activities. Net cash used in investing activities was $1.1 billion and $962 million for the nine months ended September 30, 2011 and 2010, respectively.  The increase is primarily due to an increase of $36 million in purchases of property, plant, and equipment as a result of capital investments to enhance our residential and commercial products and services capabilities and $89 million related to our purchase of cable systems.
 
Financing Activities. Net cash used in financing activities was $208 million and $532 million for the nine months ended September 30, 2011 and 2010, respectively.  The decrease in cash used during the nine months ended September 30, 2011 as compared to the corresponding period in 2010, was primarily the result of increased borrowings of long-term debt, offset by increased repayments of long-term debt and purchase of treasury stock.

Capital Expenditures

We have significant ongoing capital expenditure requirements.  Capital expenditures were $984 million and $948 million for the nine months ended September 30, 2011 and 2010, respectively, and increased as a result of increasing sales and product capabilities, extending our network to serve new customers and incremental capital for storm-related damage.   
 
During 2011, we expect capital expenditures to be between $1.3 billion and $1.4 billion.  We expect the nature of these expenditures will continue to be composed primarily of purchases of customer premise equipment related to advanced video services, scalable infrastructure and support capital.  The actual amount of our capital expenditures depends in part on the deployment of advanced video services and offerings.  Capital expenditures will increase if there is accelerated growth in Internet, telephone, commercial business or digital customers or there is an increased need to respond to competitive pressures by expanding the delivery of other advanced video services. 

Our capital expenditures are funded primarily from cash flows from operating activities and borrowings on our credit facility.

The following table presents our major capital expenditures categories in accordance with NCTA disclosure guidelines for the three and nine months ended September 30, 2011 and 2010.  The disclosure is intended to provide more consistency in the reporting of capital expenditures among peer companies in the cable industry.  These disclosure guidelines are not required disclosures under GAAP, nor do they impact our accounting for capital expenditures under GAAP (dollars in millions):

   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
   
2011
   
2010
   
2011
   
2010
 
                         
Customer premise equipment (a)
  $ 146     $ 141     $ 433     $ 437  
Scalable infrastructure (b)
    58       64       265       259  
Line extensions (c)
    29       23       78       61  
Upgrade/Rebuild (d)
    7       4       19       20  
Support capital (e)
    64       67       189       171  
                                 
Total capital expenditures (f)
  $ 304     $ 299     $ 984     $ 948  

(a)
Customer premise equipment includes costs incurred at the customer residence to secure new customers, revenue units and additional bandwidth revenues.  It also includes customer installation costs and customer premise equipment (e.g., set-top boxes and cable modems, etc.).
(b)
Scalable infrastructure includes costs not related to customer premise equipment or our network, to secure growth of new customers, revenue units, and additional bandwidth revenues, or provide service enhancements (e.g., headend equipment).
(c)
Line extensions include network costs associated with entering new service areas (e.g., fiber/coaxial cable, amplifiers, electronic equipment, make-ready and design engineering).
(d)
Upgrade/rebuild includes costs to modify or replace existing fiber/coaxial cable networks, including betterments.

 
 
34

 
 

(e)
Support capital includes costs associated with the replacement or enhancement of non-network assets due to technological and physical obsolescence (e.g., non-network equipment, land, buildings and vehicles).
(f)
Total capital expenditures includes $48 million and $34 million of capital expenditures related to commercial services for the three months ended September 30, 2011 and 2010, respectively, and $120 million and $86 million for the nine months ended September 30, 2011 and 2010, respectively.
 
Recent Events

On October 11, 2011, we announced that Michael J. Lovett, our President and Chief Executive Officer, will be resigning from his positions at Charter following a transition period.  Pursuant to a Transition Agreement entered into between us and Mr. Lovett, Mr. Lovett has agreed to continue to serve as President and Chief Executive Officer and a director of Charter until April 30, 2012, or earlier if a successor is appointed before that time, in which case Mr. Lovett has agreed to assist in the transition until April 30, 2012 with such duties and responsibilities as Charter may assign to him.
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
 
We are exposed to various market risks, including fluctuations in interest rates.  We have used interest rate swap agreements to manage our interest costs and reduce our exposure to increases in floating interest rates.  We manage our exposure to fluctuations in interest rates by maintaining a mix of fixed and variable rate debt.  Using interest rate swap agreements, we agree to exchange, at specified intervals through 2015, the difference between fixed and variable interest amounts calculated by reference to agreed-upon notional principal amounts.

As of September 30, 2011 and December 31, 2010, the accreted value of our debt was approximately $12.6 billion and $12.3 billion, respectively.  As of September 30, 2011 and December 31, 2010, the weighted average interest rate on the credit facility debt, including the effects of our interest rate swap agreements, was approximately 4.4% and 3.8%, respectively, and the weighted average interest rate on the notes was approximately 8.8% and 9.7%, respectively, resulting in a blended weighted average interest rate of 7.5% and 6.7%, respectively.  The interest rate on approximately 86% and 65% of the total principal amount of our debt was effectively fixed, including the effects of our interest rate swap agreements, as of September 30, 2011 and December 31, 2010, respectively.

We do not hold or issue derivative instruments for speculative trading purposes.  We have interest rate derivative instruments that have been designated as cash flow hedging instruments.  Such instruments effectively convert variable interest payments on certain debt instruments into fixed payments.  For qualifying hedges, derivative gains and losses offset related results on hedged items in the consolidated statements of operations.  We have formally documented, designated and assessed the effectiveness of transactions that receive hedge accounting.  For the three and nine months ended September 30, 2011 and 2010, there was no cash flow hedge ineffectiveness on interest rate swap agreements.

Changes in the fair value of interest rate agreements that are designated as hedging instruments of the variability of cash flows associated with floating-rate debt obligations, and that meet effectiveness criteria are reported in other comprehensive loss.  For the three and nine months ended September 30, 2011, losses of $11 million and $20 million, respectively, and for each of the three and nine months ended September 30, 2010, losses of $34 million and $84 million, respectively, related to derivative instruments designated as cash flow hedges, were recorded in other comprehensive loss. The amounts are subsequently reclassified as an increase or decrease to interest expense in the same periods in which the related interest on the floating-rate debt obligations affects earnings (losses).    
 
 
 
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The table set forth below summarizes the fair values and contract terms of financial instruments subject to interest rate risk maintained by us as of September 30, 2011 (dollars in millions):

 
2011
 
2012
 
2013
 
2014
 
2015
 
2016
 
Thereafter
 
Total
 
Fair Value at
September 30, 2011
 
Debt:
                                                     
  Fixed Rate
$
   --    $ 907    $
--
   $ 546    $
--
   $ 1,766    $ 5,500    $ 8,719    $ 9,014  
        Average Interest Rate
 
             --
   
8.00%
   
--
   
10.88%
   
--
   
   13.50%
   
7.20%
   
8.79%
       
                                                       
  Variable Rate
$
8
 
$
31
 
$
230
 
$
467
 
$
196
 
$
      2,835
 
$
--
 
$
3,767
 
$
3,629
 
Average Interest Rate
 
3.58%
   
3.78%
   
2.65%
   
3.86%
   
5.04%
   
     5.77%
   
--
   
5.28%
       
                                                       
  Interest Rate Instruments:
                                                     
  Variable to Fixed Rate
$
--
 
$
--
 
$
900
 
$
800
 
$
300
 
$
--
 
$
--
 
$
2,000
 
$
77
 
Average Pay Rate
 
--
   
--
   
5.21%
   
5.65%
   
5.99%
   
--
   
--
   
5.50%
       
Average Receive Rate
 
--
   
--
   
3.90%
   
4.40%
   
5.03%
   
--
   
--
   
4.27%
       

At September 30, 2011, we had $2.0 billion in notional amounts of interest rate swaps outstanding. The notional amounts of interest rate instruments do not represent amounts exchanged by the parties and, thus, are not a measure of our exposure to credit loss.  The amounts exchanged are determined by reference to the notional amount and the other terms of the contracts.  The estimated fair value is determined using a present value calculation based on an implied forward LIBOR curve (adjusted for Charter Operating’s or counterparties’ credit risk).  Interest rates on variable debt are estimated using the average implied forward LIBOR for the year of maturity based on the yield curve in effect at September 30, 2011 including applicable bank spread.
 
Item 4.
Controls and Procedures.
 
As of the end of the period covered by this report, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures with respect to the information generated for use in this quarterly report.  The evaluation was based in part upon reports and certifications provided by a number of executives.  Based upon, and as of the date of that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective to provide reasonable assurances that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.  Based upon the above evaluation, we believe that our controls provide such reasonable assurances.

There was no change in our internal control over financial reporting during the quarter ended September 30, 2011 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
 
 
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PART II. OTHER INFORMATION.

Item 1.     Legal Proceedings.

Bankruptcy Proceedings

On March 27, 2009, Charter filed its Chapter 11 petition in the United States Bankruptcy Court for the Southern District of New York. On the same day, JPMorgan Chase Bank, N.A., (“JPMorgan”), for itself and as Administrative Agent under the Charter Operating Credit Agreement, filed an adversary proceeding (the “JPMorgan Adversary Proceeding”) in Bankruptcy Court against Charter Operating and CCO Holdings seeking a declaration that there were events of default under the Charter Operating Credit Agreement. JPMorgan, as well as other parties, objected to the Plan. The Bankruptcy Court jointly held 19 days of trial in the JPMorgan Adversary Proceeding and on the objections to the Plan.

On November 17, 2009, the Bankruptcy Court issued its Order and Opinion confirming the Plan over the objections of JPMorgan and various other objectors. The Court also entered an order ruling in favor of Charter in the JPMorgan Adversary Proceeding. Several objectors attempted to stay the consummation of the Plan, but those motions were denied by the Bankruptcy Court and the U.S. District Court for the Southern District of New York. Charter consummated the Plan on November 30, 2009 and reinstated the Charter Operating Credit Agreement and certain other debt of its subsidiaries.

Six appeals were filed relating to confirmation of the Plan. The parties initially pursuing appeals were: (i) JPMorgan; (ii) Wilmington Trust Company (“Wilmington Trust”) (as indenture trustee for the holders of the 8.00% Senior Second Lien Notes due 2012 and 8.375% senior second lien notes due 2014 issued by and among Charter Operating and Charter Communications Operating Capital Corp. and the 10.875% senior second lien notes due 2014 issued by and among Charter Operating and Charter Communications Operating Capital Corp.); (iii) Wells Fargo Bank, N.A. (“Wells Fargo”) (in its capacities as successor Administrative Agent and successor Collateral Agent for the third lien prepetition secured lenders to CCO Holdings under the CCO Holdings credit facility); (iv) Law Debenture Trust Company of New York (“Law Debenture Trust”) (as the Trustee with respect to the $479 million in aggregate principal amount of 6.50% convertible senior notes due 2027 issued by Charter which are no longer outstanding following consummation of the Plan); (v) R2 Investments, LDC (“R2 Investments”) (an equity interest holder in Charter); and (vi) certain plaintiffs representing a putative class in a securities action against three former Charter officers or directors filed in the United States District Court for the Eastern District of Arkansas (Iron Workers Local No. 25 Pension Fund, Indiana Laborers Pension Fund, and Iron Workers District Council of Western New York and Vicinity Pension Fund, in the action styled Iron Workers Local No. 25 Pension Fund v. Allen, et al., Case No. 4:09-cv-00405-JLH (E.D. Ark.).

Charter Operating amended its senior secured credit facilities effective March 31, 2010. In connection with the closing of these amendments, each of Bank of America, N.A. and JPMorgan, for itself and on behalf of the lenders under the Charter Operating senior secured credit facilities, agreed to dismiss the appeal of our Confirmation Order pending before the District Court for the Southern District of New York and to waive any objections to our Confirmation Order issued by the United States Bankruptcy Court for the Southern District of New York.  The lenders filed their stipulation of that dismissal and waiver of objections and in April 2010, the case was dismissed.  On December 3, 2009, Wilmington Trust withdrew its notice of appeal.  In April 2010, Wells Fargo filed its Stipulation of Dismissal of their appeal on behalf of the lenders under the CCO Holdings credit facility and in April 2010, the case was dismissed. The appeals of the securities plaintiffs were denied by the District Court for the Southern District of New York in July 2011. The securities plaintiffs did not appeal to the United States Court of Appeals for the Second Circuit and therefore their claim has expired. In October 2011, the securities plaintiffs dismissed the underlying action that was pending in the United States District Court for the District of Arkansas. The appeals by Law Debenture Trust and R2 Investments were denied by the District Court for the Southern District of New York in March 2011.  A Notice of Appeal of that denial has been filed by both Law Debenture Trust and R2.  We cannot predict the ultimate outcome of the remaining appeals nor can we estimate a reasonable range of loss.

Other Proceedings

We have had communications with the United States Environmental Protection Agency (“the EPA”) in connection with a self reporting audit which may result in a proceeding.  Pursuant to the audit, we discovered certain
 
 
 
37

 
 
compliance issues concerning our reports to the EPA for backup batteries used at our facilities.  We do not view these matters as material.

We also are party to other lawsuits and claims that arise in the ordinary course of conducting our business, including lawsuits claiming infringement of patents.  The ultimate outcome of these other legal matters pending against us or our subsidiaries cannot be predicted, and although such lawsuits and claims are not expected individually to have a material adverse effect on our consolidated financial condition, results of operations, or liquidity, such lawsuits could have in the aggregate a material adverse effect on our consolidated financial condition, results of operations, or liquidity.  Whether or not we ultimately prevail in any particular lawsuit or claim, litigation can be time consuming and costly and injure our reputation.

Item 1A.                      Risk Factors.

Our Annual Report on Form 10-K for the year ended December 31, 2010 includes “Risk Factors” under Item 1A of Part I.  Except for the updated risk factors described below, there have been no material changes from the risk factors described in our Form 10-K.  The information below updates, and should be read in conjunction with, the risk factors and information disclosed in our Form 10-K.

Risks Related to Our Business

If we are unable to attract and retain key employees, our ability to manage our business could be adversely affected.

Our operational results have depended, and our future results will depend, upon the retention and continued performance of our management team.  On October 11, 2011, we announced that Michael J. Lovett, our President and Chief Executive Officer, will be resigning from his positions from Charter following a transition period, but no later than April 30, 2012.  We are conducting a search for a candidate to fill the position of President and Chief Executive Officer. Over the last twelve months, we have experienced other significant changes in our management team and may experience additional changes in the future.  Our ability to hire new key employees for management positions could be impacted adversely by the competitive environment for management talent in the telecommunications industry.  The loss of the services of key members of management and the inability or delay in hiring new key employees could adversely affect our ability to manage our business and our future operational and financial results.

Risks Related to Regulatory and Legislative Matters

Our business is subject to extensive governmental legislation and regulation, which could adversely affect our business.

Regulation of the cable industry has increased cable operators' operational and administrative expenses and limited their revenues.  Cable operators are subject to, among other things:

·  
rules governing the provision of cable equipment and compatibility with new digital technologies;
·  
rules and regulations relating to subscriber and employee privacy and data security;
·  
limited rate regulation;
·  
rules governing the copyright royalties that must be paid for retransmitting broadcast signals;
·  
requirements governing when a cable system must carry a particular broadcast station and when it must first obtain retransmission consent to carry a broadcast station;
·  
requirements governing the provision of channel capacity to unaffiliated commercial leased access programmers;
·  
rules limiting our ability to enter into exclusive agreements with multiple dwelling unit complexes and control our inside wiring;
·  
rules, regulations, and regulatory policies relating to provision of high-speed Internet service, including net neutrality rules;
·  
rules, regulations, and regulatory policies relating to provision of voice communications;
·  
rules for franchise renewals and transfers; and

 
 
38

 
 

·  
other requirements covering a variety of operational areas such as equal employment opportunity, emergency alert systems, technical standards, and customer service requirements.
 
Additionally, many aspects of these regulations are currently the subject of judicial proceedings and administrative or legislative proposals.  In March 2010, the FCC submitted its National Broadband Plan to Congress and announced its intention to initiate approximately 40 rulemakings addressing a host of issues related to the delivery of broadband services, including video, data, VoIP and other services. The broad reach of these rulemakings could ultimately impact the environment in which we operate. On December 21, 2010, the FCC issued new “net neutrality” rules, regulating the provision of broadband Internet access.  There are also ongoing efforts to amend or expand the federal, state, and local regulation of some of our cable systems, which may compound the regulatory risks we already face, and proposals that might make it easier for our employees to unionize.  For example, Congress and various federal agencies are now considering adoption of significant new privacy restrictions, including new restrictions on the use of personal and profiling information for behavioral advertising.  In response to recent global data breaches, malicious activity and cyber threats, as well as the general increasing concerns regarding the protection of consumers’ personal information, Congress is considering the adoption of new data security and cybersecurity legislation that could result in additional network and information security requirements for our business.  In the event of a data breach or cyber attack, these new laws, as well as existing legal and regulatory obligations, could require significant expenditures to remedy any such breach or attack.   In addition, the Twenty-First Century Communications and Video Accessibility Act of 2010, which the FCC is now in the process of implementing, includes various provisions intended to ensure communications services are accessible to people with disabilities.  Certain states and localities are considering new cable and telecommunications taxes that could increase operating expenses.

Our cable system franchises are subject to non-renewal or termination. The failure to renew a franchise in one or more key markets could adversely affect our business.

Our cable systems generally operate pursuant to franchises, permits, and similar authorizations issued by a state or local governmental authority controlling the public rights-of-way.  Many franchises establish comprehensive facilities and service requirements, as well as specific customer service standards and monetary penalties for non-compliance.  In many cases, franchises are terminable if the franchisee fails to comply with significant provisions set forth in the franchise agreement governing system operations.  Franchises are generally granted for fixed terms and must be periodically renewed.  Franchising authorities may resist granting a renewal if either past performance or the prospective operating proposal is considered inadequate.  Franchise authorities often demand concessions or other commitments as a condition to renewal.  In some instances, local franchises have not been renewed at expiration, and we have operated and are operating under either temporary operating agreements or without a franchise while negotiating renewal terms with the local franchising authorities.

The traditional cable franchising regime is currently undergoing significant change as a result of various federal and state actions.  Some of the new state franchising laws do not allow us to immediately opt into favorable statewide franchising.   In many cases, state franchising laws, and their varying application to us and new video providers, will result in less franchise imposed requirements for our competitors, who are new entrants, than for us until we are able to opt into the applicable state franchise.

We cannot assure you that we will be able to comply with all significant provisions of our franchise agreements and certain of our franchisors have from time to time alleged that we have not complied with these agreements.  Additionally, although historically we have renewed our franchises without incurring significant costs, we cannot assure you that we will be able to renew, or to renew as favorably, our franchises in the future.  A termination of or a sustained failure to renew a franchise in one or more key markets could adversely affect our business in the affected geographic area.

Our cable system franchises are non-exclusive. Accordingly, local and state franchising authorities can grant additional franchises and create competition in market areas where none existed previously, resulting in overbuilds, which could adversely affect results of operations.

Our cable system franchises are non-exclusive.  Consequently, local and state franchising authorities can grant additional franchises to competitors in the same geographic area or operate their own cable systems.  In some cases, local government entities and municipal utilities may legally compete with us without obtaining a franchise from the local franchising authority.  In addition, certain telephone companies are seeking authority to operate in
 
 
 
39

 
 
communities without first obtaining a local franchise.  As a result, competing operators may build systems in areas in which we hold franchises.

In a series of rulemakings, the FCC adopted new rules that streamline entry for new competitors (particularly those affiliated with telephone companies) and reduce franchising burdens for these new entrants.  At the same time, a substantial number of states have adopted new franchising laws principally designed to streamline entry for new competitors, and often provide advantages for these new entrants that are not immediately available to existing operators.

Actions by pole owners might subject us to significantly increased pole attachment costs.

Pole attachments are cable wires that are attached to utility poles.  Cable system attachments to investor-owned public utility poles historically have been regulated at the federal or state level, generally resulting in favorable pole attachment rates for attachments used to provide cable service.  In contrast, utility poles owned by municipalities or cooperatives are not subject to federal regulation and are generally exempt from state regulation.  On April 7, 2011, the FCC amended its pole attachment rules to promote broadband deployment.  The new order (the "Order") maintains the basic rate formula applicable to "cable" attachments in the 30 states directly subject to FCC regulation, but reduces the rate formula previously applicable to "telecommunications" attachments to make it roughly equivalent to the cable attachment rate.  Although the Order maintains the status quo treatment of cable-provided VoIP service as an unclassified service eligible for the favorable cable rate, there is still some uncertainty in this area.  The Order also allows for new penalties in certain cases involving unauthorized attachments that could result in additional costs for cable operators.  The new Order overall strengthens the cable industry's ability to access investor-owned utility poles on reasonable rates, terms and conditions.  Electric utilities filed Petitions for Reconsideration at the FCC and Petitions for Review in the D.C. Circuit Court of Appeals seeking to modify or overturn the FCC’s Order, as well as a stay of the Order pending the appeal.  In August 2011, the U.S. Court of Appeals for the D.C. Circuit denied the request for a stay of the Order pending appeal.  Charter and other cable operators have intervened in the court proceeding.

Increasing regulation of our Internet service product could adversely affect our ability to provide new products and services.

In August 2005, the FCC issued a nonbinding policy statement identifying four principles it deemed necessary to ensure continuation of an “open” Internet that is not unduly restricted by network “gatekeepers.”  In August 2008, the FCC issued an order concerning one Internet network management practice in use by another cable operator, effectively treating the four principles as rules and ordering a change in that operator’s network management practices. On April 6, 2010, the United States Court of Appeals for the D.C. Circuit concluded that the FCC lacked jurisdictional authority and vacated the FCC’s 2008 order. On December 21, 2010, the FCC responded by enacting new “net neutrality” rules based on three core principles of: (1) transparency, (2) no blocking, and (3) no unreasonable discrimination. The new rules will permit broadband service providers to exercise “reasonable network management” for legitimate management purposes, such as management of congestion, harmful traffic, and network security. The rules will also permit usage-based billing, and permit broadband service providers to offer additional specialized services such as facilities-based IP voice services, without being subject to restrictions on discrimination. Although the new rules encompass both wireline providers (like us) and wireless providers, the rules are less stringent with regard to wireless providers. The FCC premised the new “net neutrality” rules on its Title I and ancillary jurisdiction.  The rules are scheduled to go into effect on November 20, 2011.  However, Verizon and other parties have filed for additional FCC review, as well as filing an appeal challenging the FCC’s authority to issue such rules, which will be heard by the U.S. Court of Appeals for the D.C. Circuit.  Assuming the rules become effective in November, the FCC will enforce these rules based on case-by-case complaints.  Because many of the requirements are vague and because the FCC has not provided clear guidance on implementation, it is unclear how the FCC will enforce its rules and adjudicate any related complaints.   A legislative review is also possible. The FCC’s new rules, if they withstand challenges, as well as any additional legislation or regulation, could impose new obligations and restraints on high-speed Internet providers. Any such rules or statutes could limit our ability to manage our cable systems to obtain value for use of our cable systems and respond to operational and competitive challenges.
 
 
40

 

Changes in channel carriage regulations could impose significant additional costs on us.

Cable operators also face significant regulation of their channel carriage.  We can be required to devote substantial capacity to the carriage of programming that we might not carry voluntarily, including certain local broadcast signals; local public, educational and government access (“PEG”) programming; and unaffiliated, commercial leased access programming (required channel capacity for use by persons unaffiliated with the cable operator who desire to distribute programming over a cable system).  Under FCC regulations, most cable systems are currently required to offer both an analog and digital version of local broadcast signals.  This burden could increase further if we are required to carry multiple programming streams included within a single digital broadcast transmission (multicast carriage) or if our broadcast carriage obligations are otherwise expanded.  Pursuant to copyright legislation adopted in 2010, the Copyright Office recently issued a report recommending that Congress gradually phase-out  the compulsory copyright license through which cable systems have historically retransmitted broadcast programming, but the Copyright Office report failed to identify specific mechanisms for accomplishing that phase-out. The General Accounting Office is now conducting a companion study evaluating the feasibility and consequences of phasing out the compulsory copyright license. At the same time, the cost that cable operators face to secure retransmission consent (separate from copyright authority) for the carriage of popular broadcast stations is increasing significantly.  The FCC also adopted new commercial leased access rules (currently stayed while under appeal) which dramatically reduce the rate we can charge for leasing this capacity and dramatically increase our associated administrative burdens.  The FCC recently adopted amendments, and is currently considering additional amendments, to its program carriage rules that provide additional rights to programmers dissatisfied with their carriage arrangements with cable and satellite companies to pursue complaints against these companies at the FCC.  These regulatory changes could disrupt existing programming commitments, interfere with our preferred use of limited channel capacity, increase our programming costs, and limit our ability to offer services that would maximize our revenue potential.  It is possible that other legal restraints will be adopted limiting our discretion over programming decisions.

Offering voice communications service may subject us to additional regulatory burdens, causing us to incur additional costs.
 
We offer voice communications services over our broadband network and continue to develop and deploy VoIP services.  The FCC has declared that certain VoIP services are not subject to traditional state public utility regulation.  The full extent of the FCC preemption of state and local regulation of VoIP services is not yet clear. Expanding our offering of these services may require us to obtain certain additional authorizations.  We may not be able to obtain such authorizations in a timely manner, or conditions could be imposed upon such licenses or authorizations that may not be favorable to us.  The FCC has extended certain traditional telecommunications carrier requirements, such as E911, Universal Service fund collection, CALEA, Customer Proprietary Network Information, number porting and telephone relay requirements to many VoIP providers such as us.  The FCC announced on October 27, 2011 that it had voted to change the rules governing intercarrier compensation payments that Charter makes to other carriers to have calls terminated to their local telephone subscribers and receives from other carriers when they deliver telephone traffic to us.  Although it appears that the rules will result in an elimination of intercarrier compensation payments through a gradual decrease over a period of six years, the text of the new rules was not immediately available, and we cannot predict with certainty the details of the new rules or the extent to which they will decrease Charter's revenues and expenses for its voice services or the timing of any decreases.  Telecommunications companies generally are subject to other significant regulation which could also be extended to VoIP providers.  If additional telecommunications regulations are applied to our VoIP service, it could cause us to incur additional costs.
 
 
41

 

Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds

(c)  Purchases of Equity Securities by the Issuer

 
 
 
 
 
Period
 
 
 
(a)
Total Number of
Shares Purchased
   
 
 
(b)
Average Price
Paid per Share
   
(c)
Total Number of
Shares Purchased as
Part of Publicly Announced Plans or Programs
 
(d)
Maximum Number of
Shares that May Yet
Be Purchased Under
the Plans or
Programs (1)
 
July 1-31, 2011
    --     --       N/A     N/A  
August 1-31, 2011
    1,700,113     $46.94       1,700,113 (1)     N/A  
September 1-30, 2011
       730,967     $48.80          730,967 (1)     N/A  

(1)  On August 9, 2011, Charter’s board of directors authorized the repurchase of up to $200 million of Charter’s Class A common stock and outstanding warrants.  Under the repurchase program, shares of Charter’s Class A common stock and warrants to purchase Charter’s Class A common stock may be purchased from time to time during the course of the following 12 months.  As of September 30, 2011, approximately 2.4 million shares of Charter’s Class A common stock have been purchased for a total of approximately $116 million.

Item 6.                                Exhibits.

The index to the exhibits begins on page E-1 of this quarterly report.
 
 
 
42

 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, Charter Communications, Inc. has duly caused this quarterly report to be signed on its behalf by the undersigned, thereunto duly authorized.



                 CHARTER COMMUNICATIONS, INC.,
                 Registrant

Dated:  November 1, 2011
By:  /s/ Kevin D. Howard
 
Name:
Kevin D. Howard
 
Title:
Senior Vice President - Finance, Controller
and Chief Accounting Officer



S-1
 

 


EXHIBIT INDEX

 
Exhibit
Number
 
 
 
Description of Document
 
10.1+
 
Charter Communications, Inc.’s Amended and Restated Supplemental Deferred Compensation Plan, dated as of September 1, 2011(incorporated by reference to the current report on Form 8-K filed by Charter Communications, Inc. on September 2, 2011 (File No. 001-33664)).
12.1*
 
Computation of Ratio of Earnings to Fixed Charges.
31.1*
 
Certificate of Chief Executive Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) under the under the Securities Exchange Act of 1934.
31.2*
 
Certificate of Chief Financial Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) under the Securities Exchange Act of 1934.
32.1*
 
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer).
32.2*
 
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer).
101
 
The following financial statements from Charter Communications, Inc.’s Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2011, filed with the Securities and Exchange Commission on November 1, 2011, formatted in XBRL (eXtensible Business Reporting Language):  (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Operations; (iii) the Consolidated Statements of Cash Flows; and (iv) the Notes to Consolidated Financial Statements.

* Document attached
+ Management compensatory plan or arrangement
 
 
E-1