Charter 2003 Annual Report Download - page 92

Charter Communications, Inc.'s Public Notes are Subordinated in Right of Payment to all Liabilities of
our Subsidiaries. The borrowers and guarantors under the Charter Operating credit facilities, the CC VI
Operating credit facilities, the Falcon credit facilities and the CC VIII Operating credit facilities are our
indirect subsidiaries. A number of our subsidiaries are also obligors under other debt instruments, including
Charter Holdings, CCH II and CCO Holdings, which are each a co-issuer of senior notes and/or senior
discount notes. As of December 31, 2003, our total debt was approximately $18.6 billion, $17.9 billion of
which would have been senior in right of payment to the Charter public notes. In a liquidation, the lenders
under all of our subsidiaries' credit facilities and the holders of the other debt instruments and all other
creditors of our subsidiaries will have the right to be paid before us from any of our subsidiaries' assets.
If we caused a subsidiary to make a distribution to enable us to make payments in respect of our public
notes, and such transfer were deemed a fraudulent transfer or an unlawful distribution, the holders of our
public notes could be required to return the payment to (or for the beneÑt of) the creditors of our subsidiaries.
In the event of the bankruptcy, liquidation or dissolution of a subsidiary, following payment by such subsidiary
of its liabilities, such subsidiary may not have suÇcient assets remaining to make any payments to us as an
equity holder or otherwise and may be restricted by bankruptcy and insolvency laws from making any such
payments. This would aÅect our ability to make payments to the holders of our public notes.
Securities Litigation and Government Investigations. A number of putative federal class action lawsuits
have been Ñled against us and certain of our former and present oÇcers and directors alleging violations of
securities laws, which have been consolidated for pretrial purposes. In addition, a number of other lawsuits
have been Ñled against us in other jurisdictions. A shareholders derivative suit was Ñled in the U.S. District
Court for the Eastern District of Missouri, and several class action lawsuits were Ñled in Delaware state court
against us and certain of our directors and oÇcers. Finally, two shareholders derivative suits were Ñled in
Missouri state court against us, our then current directors and our former independent auditor; these actions
were consolidated during the fourth quarter of 2002. The federal shareholders derivative suit, the Delaware
class actions and the consolidated derivative suit each allege that the defendants breached their Ñduciary
duties.
In August 2002, we became aware of a grand jury investigation being conducted by the U.S. Attorney's
OÇce for the Eastern District of Missouri into certain of our accounting and reporting practices focusing on
how we reported customer numbers, and our reporting of amounts received from digital set-top terminal
suppliers for advertising. The U.S. Attorney's OÇce has publicly stated that we are not currently a target of
the investigation. We have also been advised by the U.S. Attorney's OÇce that no member of our board of
directors, including our Chief Executive OÇcer, is a target of the investigation. On July 24, 2003, a federal
grand jury charged four former oÇcers of Charter with conspiracy and mail and wire fraud, alleging improper
accounting and reporting practices focusing on revenue from digital set-top terminal suppliers and inÖated
customer account numbers. On July 25, 2003, one of the former oÇcers who was indicted entered a guilty
plea. We are fully cooperating with the investigation.
On November 4, 2002, we received an informal, non-public inquiry from the staÅ of the SEC. The SEC
subsequently issued a formal order of investigation dated January 23, 2003, and subsequent related document
and testimony subpoenas. The investigation and subpoenas generally concern our prior reports with respect to
our determination of the number of customers and various of our accounting policies and practices including
our capitalization of certain expenses and dealings with certain vendors, including programmers and digital
set-top terminal suppliers. We are fully cooperating with the SEC StaÅ.
Due to the inherent uncertainties of litigation and investigations, Charter cannot predict the ultimate
outcome of these proceedings. An unfavorable outcome in the lawsuits or the government investigations
described above could have a material adverse eÅect on our consolidated Ñnancial condition, results of
operations or our liquidity, including our ability to comply with our debt covenants.
In addition, the restatement of our 2000, 2001 and 2002 Ñnancial statements may lead to additional
allegations in the pending securities class and shareholders derivative actions against us, or to additional claims
being Ñled or to investigations being expanded or commenced. These proceedings, and our actions in response
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