Charter 2003 Annual Report Download - page 105

CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 and 2001
(dollars in millions, except where indicated)
1. Organization and Basis of Presentation
Charter Communications, Inc. (""Charter'') is a holding company whose principal assets at December 31,
2003 are the 46% controlling common equity interest in Charter Communications Holding Company, LLC
(""Charter Holdco'') and ""mirror'' notes that are payable by Charter Holdco to Charter which have the same
principal amount and terms as those of Charter's convertible senior notes. Charter Holdco is the sole owner of
Charter Communications Holdings, LLC (""Charter Holdings''). The consolidated Ñnancial statements
include the accounts of Charter, Charter Holdco, Charter Holdings and all of their wholly owned subsidiaries
where the underlying operations reside, collectively referred to herein as the ""Company.'' The Company
consolidates Charter Holdco on the basis of voting control. Charter Holdco's limited liability agreement
provides that so long as Charter's Class B common stock retains its special voting rights, Charter will maintain
100% voting interest in Charter Holdco. Voting control gives Charter full authority and control over the
operations of Charter Holdco. All signiÑcant intercompany accounts and transactions among consolidated
entities have been eliminated. The Company is a broadband communications company operating in the
United States. The Company oÅers its customers traditional video programming (analog and digital video) as
well as high-speed data services and in some areas advanced broadband services such as high deÑnition
television, video on demand, telephony and interactive television. The Company sells its video programming,
high-speed data and advanced broadband services on a subscription basis.
The preparation of Ñnancial statements in conformity with accounting principles generally accepted in the
United States requires management to make estimates and assumptions that aÅect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the date of the Ñnancial statements
and the reported amounts of revenues and expenses during the reporting period. Areas involving signiÑcant
judgments and estimates include capitalization of labor and overhead costs; depreciation and amortization
costs; impairments of property, plant and equipment, franchises and goodwill; income taxes; and contingen-
cies. Actual results could diÅer from those estimates.
Restatement of 2001 Results. In 2002, the Company restated its consolidated Ñnancial statements for
2001 and prior. The restatements were primarily related to the following categories: (i) launch incentives from
programmers; (ii) customer incentives and inducements; (iii) capitalized labor and overhead costs;
(iv) customer acquisition costs; (v) rebuild and upgrade of cable systems; (vi) deferred tax liabilities/
franchise assets; and (vii) other adjustments. These adjustments reduced revenue by $146 million and
decreased consolidated net loss by $11 million for the year ended December 31, 2001 and decreased
shareholders' equity by $356 million as of January 1, 2001. In addition, as a result of certain of these
adjustments, the Company's statement of cash Öow was also restated at the time. Net cash Öows from
operating activities for the year ended December 31, 2001 was reduced by $30 million.
ReclassiÑcations. Certain 2002 and 2001 amounts have been reclassiÑed to conform with the 2003
presentation.
2. Liquidity and Capital Resources
The Company recognized income from operations of $516 million in 2003 and incurred losses from
operations of $4.3 billion and $1.2 billion in 2002 and 2001, respectively. The Company's net cash Öows from
operating activities were $765 million, $748 million and $489 million for the years ending December 31, 2003,
2002 and 2001, respectively. The Company has historically required signiÑcant cash to fund capital
expenditures and debt service costs. Historically, the Company has funded these requirements through cash
Öows from operating activities, borrowing under the credit facilities of the Company's subsidiaries, by
issuances of debt and equity securities and by cash on hand. The mix of funding sources changes from period
to period, but for the year ended December 31, 2003, approximately 80% of the Company's funding
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