Charter 2004 Annual Report Download - page 44

CHARTER COMMUNICATIONS, INC. 2004 FORM 10-K
cations Option Plan and 2001 Stock Incentive Plan that had an Gain (loss) on derivative instruments and hedging
exercise price over $10 per share for shares of restricted Charter activities, net. Net gain on derivative instruments and hedg-
Class A common stock or, in some instances, cash. The ing activities increased $4 million from a gain of $65 million for
exchange offer closed in February 2004. Option compensation the year ended December 31, 2003 to a gain of $69 million for
expense of $4 million for the year ended December 31, 2003 the year ended December 31, 2004. The increase is primarily
primarily represents options expensed in accordance with the result of an increase in gains on interest rate agreements that
SFAS No. 123, Accounting for Stock-Based Compensation. See do not qualify for hedge accounting under SFAS No. 133,
Note 19 to our consolidated financial statements contained in Accounting for Derivative Instruments and Hedging Activities, which
‘‘Item 8. Financial Statements and Supplementary Data’’ for increased from a gain of $57 million for the year ended
more information regarding our option compensation plans. December 31, 2003 to a gain of $65 million for the year ended
Special charges, net. Special charges of $104 million for December 31, 2004. This was coupled with a decrease in gains
the year ended December 31, 2004 represents approximately on interest rate agreements, as a result of hedge ineffectiveness
$85 million of aggregate value of the Charter Class A common on designated hedges, which increased from $8 million for the
stock and warrants to purchase Charter Class A common stock year ended December 31, 2003 to $4 million for the year ended
contemplated to be issued as part of a settlement of the December 31, 2004.
consolidated federal class actions, state derivative actions and Loss on debt to equity conversions. Loss on debt to
federal derivative action lawsuits, approximately $10 million of equity conversions of $23 million for the year ended Decem-
litigation costs related to the tentative settlement of a South ber 31, 2004 represents the loss recognized from privately
Carolina national class action suit, all of which settlements are negotiated exchanges of a total of $30 million principal amount
subject to final documentation and court approval and approxi- of Charter’s 5.75% convertible senior notes held by two
mately $12 million of severance and related costs of our unrelated parties for shares of Charter Class A common stock.
workforce reduction and realignment. Special charges for the The exchange resulted in the issuance of more shares in the
year ended December 31, 2004 were offset by $3 million exchange transaction than would have been issuable under the
received from a third party in settlement of a dispute. Special original terms of the convertible senior notes.
charges of $21 million for the year ended December 31, 2003 Gain (loss) on extinguishment of debt. Loss on
represents approximately $26 million of severance and related extinguishment of debt of $31 million for the year ended
costs of our workforce reduction partially offset by a $5 million December 31, 2004 represents the write-off of deferred financing
credit from a settlement from the Internet service provider fees and third party costs related to the Charter Communica-
Excite@Home related to the conversion of about 145,000 high- tions Operating refinancing in April 2004 and the redemption of
speed data customers to our Charter Pipeline service in 2001. our 5.75% convertible senior notes due 2005 in December 2004.
Unfavorable contracts and other settlements. Unfa- Gain on extinguishment of debt of $267 million for the year
vorable contracts and other settlements of $5 million for the ended December 31, 2003 represents the gain realized on the
year ended December 31, 2004 relates to changes in estimated purchase of an aggregate $609 million principal amount of our
legal reserves established in connection with prior business outstanding convertible senior notes and $1.3 billion principal
combinations, which based on an evaluation of current facts and amount of Charter Holdings’ senior notes and senior discount
circumstances, are no longer required. notes in consideration for an aggregate of $1.6 billion principal
Unfavorable contracts and other settlements of $72 million amount of 10.25% notes due 2010 issued by our indirect
for the year ended December 31, 2003 represents the settlement subsidiary, CCH II. The gain is net of the write-off of deferred
of estimated liabilities recorded in connection with prior financing costs associated with the retired debt of $27 million.
business combinations. The majority of this benefit (approxi- Other, net. Net other expense decreased by $19 million
mately $52 million) is due to the renegotiation in 2003 of a from $16 million in 2003 to income of $3 million in 2004. Other
major programming contract, for which a liability had been expense in 2003 included $11 million associated with amending
recorded for the above market portion of that agreement in a revolving credit facility of our subsidiaries and costs associated
conjunction with the Falcon acquisition in 1999 and the Bresnan with terminated debt transactions that did not recur in 2004. In
acquisition in 2000. The remaining benefit relates to the reversal addition, gains on equity investments increased $7 million in
of previously recorded liabilities, which are no longer required. 2004 over 2003.
Interest expense, net. Net interest expense increased by Minority interest. Minority interest represents the 2%
$113 million, or 7%, from $1.6 billion for the year ended accretion of the preferred membership interests in our indirect
December 31, 2003 to $1.7 billion for the year ended Decem- subsidiary, CC VIII, LLC, and since June 6, 2003, the pro rata
ber 31, 2004. The increase in net interest expense was a result of share of the profits and losses of CC VIII, LLC. See ‘‘Item 13.
an increase in our average borrowing rate from 7.99% in the Certain Relationships and Related Transactions — Transactions
year ended December 31, 2003 to 8.66% in the year ended Arising out of Our Organizational Structure and Mr. Allen’s
December 31, 2004 partially offset by a decrease of $306 million Investment in Charter Communications, Inc. and Its Subsidiar-
in average debt outstanding from $18.9 billion in 2003 to ies — Equity Put Rights — CC VIII.’’ Reported losses allocated to
$18.6 billion in 2004. minority interest on the statement of operations are limited to
the extent of any remaining minority interest on the balance
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