Charter 2002 Annual Report Download - page 75

CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002, 2001 and 2000
(dollars in millions, except where indicated)
1. Organization
Charter Communications, Inc. (Charter) is a holding company whose primary asset at December 31,
2002 is a 47% controlling common equity interest in Charter Communications Holding Company, LLC
(Charter Holdco), which, in turn, is the sole owner of Charter Communications Holdings, LLC (Charter
Holdings). Charter, Charter Holdco and its subsidiaries are collectively referred to herein as the ""Company.''
The Company owns and operates cable systems that provide a full range of traditional analog television
services to the home, along with advanced broadband services, including television on an advanced digital
programming platform and high-speed Internet access. The Company also provides commercial high-speed
data, video, telephony and Internet services as well as advertising sales and production services.
2. Liquidity and Capital Resources
The Company has incurred losses from operations of $4.3 billion, $1.2 billion and $1.1 billion in 2002,
2001 and 2000, respectively. The Company's net cash Öows from operating activities were $748 million,
$489 million and $828 million for the years ending December 31, 2002, 2001 and 2000, respectively. In
addition, the Company has required signiÑcant cash to fund capital expenditures, debt service costs and
ongoing operations. Historically the Company has funded liquidity and capital requirements through cash
Öows from operations, borrowing under the credit facilities of the Company's subsidiaries, and by issuances of
debt and equity securities. The mix of funding sources changes from period to period, but for the year ended
December 31, 2002, approximately 70% of the Company's funding requirements were from cash Öows from
operations, 16% was from borrowings under the credit facilities of the Company's subsidiaries and 14% was for
the issuance of debt by the Company's subsidiaries.
The Company expects that cash on hand, cash Öows from operations and the funds available under the
bank facilities and borrowings under the Vulcan Inc. commitment described in Note 10 will be adequate to
meet its 2003 cash needs. However, the bank facilities are subject to certain restrictive covenants, portions of
which are subject to the operating results of the Company's subsidiaries. The Company's 2003 operating plan
maintains compliance with these covenants. If the Company's actual operating results do not maintain
compliance with these covenants, or if other events of noncompliance occur, funding under the bank facilities
may not be available and defaults on some or potentially all debt obligations could occur. In addition, no
assurances can be given that the Company may not experience liquidity problems because of adverse market
conditions or other unfavorable events or if the Company does not obtain suÇcient additional Ñnancing on a
timely basis. The Company has arranged additional availability as described in Note 10.
The indenture governing the Charter Holdco notes permits Charter Holdings and its subsidiaries to make
payments to the extent of its outstanding unsubordinated intercompany debt to Charter Holdco, which had an
aggregate principal amount of approximately $73 million as of December 31, 2002. That amount is only
suÇcient to enable Charter to make interest payments on its convertible senior notes through December,
2003, and is not suÇcient to enable Charter to make interest payments beginning in April, 2004 or to repay all
or any portion of its convertible senior notes at maturity.
Accordingly, Charter will not be able to make interest payments beginning in April, 2004, or principal
payments at maturity in 2005 and 2006, with respect to its convertible senior notes unless it can obtain
additional Ñnancing or it receives distributions or other payments from its subsidiaries. The indentures
governing the Charter Holdings notes permit Charter Holdings to make distributions to Charter Holdco only
if, at the time of distribution, Charter Holdings can meet a leverage ratio of 8.75 to 1.0, there is no default
under the indentures and other speciÑed tests are met.
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