Charter 2004 Annual Report Download - page 134

CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES 2004 FORM 10-K
Notes to Consolidated Financial Statements (continued)
flows associated with floating-rate debt obligations that meet the interest rate agreements are with certain of the participating
effectiveness criteria SFAS No. 133 are reported in accumulated banks under the Company’s credit facilities, thereby reducing
other comprehensive loss. For the years ended December 31, the exposure to credit loss. The Company has policies regarding
2004, 2003 and 2002, a gain of $42 million and $48 million and the financial stability and credit standing of major counterparties.
losses of $65 million, respectively, related to derivative instru- Nonperformance by the counterparties is not anticipated nor
ments designated as cash flow hedges, was recorded in would it have a material adverse effect on the Company’s
accumulated other comprehensive loss and minority interest. consolidated financial condition or results of operations.
The amounts are subsequently reclassified into interest expense The estimated fair value of the Company’s notes and
as a yield adjustment in the same period in which the related interest rate agreements at December 31, 2004 and 2003 are
interest on the floating-rate debt obligations affects earnings based on quoted market prices, and the fair value of the credit
(losses). facilities is based on dealer quotations.
Certain interest rate derivative instruments are not desig- A summary of the carrying value and fair value of the
nated as hedges as they do not meet the effectiveness criteria Company’s debt and related interest rate agreements at Decem-
specified by SFAS No. 133. However, management believes such ber 31, 2004 and 2003 is as follows:
instruments are closely correlated with the respective debt, thus 2004 2003
managing associated risk. Interest rate derivative instruments not Carrying Fair Carrying Fair
designated as hedges are marked to fair value, with the impact Value Value Value Value
recorded as gain (loss) on derivative instruments and hedging Debt
activities in the Company’s consolidated statement of operations. Charter convertible notes $ 990 $ 1,127 $ 774 $ 732
For the years ended December 31, 2004, 2003 and 2002, net Charter Holdings debt 8,579 7,669 8,316 7,431
CCH II debt 1,601 1,698 1,601 1,680
gain (loss) on derivative instruments and hedging activities CCO Holdings debt 1,050 1,064 500 510
includes gains of $65 million, $57 million and losses of Charter Operating debt 1,500 1,563 — —
$101 million, respectively, for interest rate derivative instruments Credit facilities 5,515 5,502 7,227 6,949
not designated as hedges. Other 229 236 229 238
As of December 31, 2004, 2003 and 2002, the Company Interest Rate Agreements
Assets (Liabilities)
had outstanding $2.7 billion, $3.0 billion and $3.4 billion and Swaps (69) (69) (171) (171)
$20 million, $520 million and $520 million, respectively, in Collars (1) (1) (8) (8)
notional amounts of interest rate swaps and collars, respectively. The weighted average interest pay rate for the Company’s
The notional amounts of interest rate instruments do not interest rate swap agreements was 8.07% and 7.25% at Decem-
represent amounts exchanged by the parties and, thus, are not a ber 31, 2004 and 2003, respectively.
measure of exposure to credit loss. The amounts exchanged are
determined by reference to the notional amount and the other 16. Revenues
terms of the contracts.
Revenues consist of the following for the years presented:
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
Year Ended December 31,
The Company has estimated the fair value of its financial 2004 2003 2002
instruments as of December 31, 2004 and 2003 using available Video $3,373 $3,461 $3,420
market information or other appropriate valuation methodolo- High-speed data 741 556 337
gies. Considerable judgment, however, is required in interpreting Advertising sales 289 263 302
market data to develop the estimates of fair value. Accordingly, Commercial 238 204 161
the estimates presented in the accompanying consolidated Other 336 335 346
financial statements are not necessarily indicative of the amounts $4,977 $4,819 $4,566
the Company would realize in a current market exchange.
The carrying amounts of cash, receivables, payables and 17. Operating Expenses
other current assets and liabilities approximate fair value because Operating expenses consist of the following for the years
of the short maturity of those instruments. The Company is presented:
exposed to market price risk volatility with respect to invest-
ments in publicly traded and privately held entities. Year Ended December 31,
The fair value of interest rate agreements represents the 2004 2003 2002
estimated amount the Company would receive or pay upon Programming $1,319 $1,249 $1,166
termination of the agreements. Management believes that the Advertising sales 98 88 87
sellers of the interest rate agreements will be able to meet their Service 663 615 554
obligations under the agreements. In addition, some of the $2,080 $1,952 $1,807
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