Charter 2004 Annual Report Download - page 48

CHARTER COMMUNICATIONS, INC. 2004 FORM 10-K
Interest expense, net. Net interest expense increased by The income tax benefit recognized in the year ended
$54 million, or 4%, from $1.5 billion for the year ended December 31, 2003 was directly related to the tax losses
December 31, 2002 to $1.6 billion for the year ended Decem- allocated to Charter from Charter Holdco. In the second quarter
ber 31, 2003. The increase in net interest expense was a result of of 2003, Charter started receiving tax loss allocations from
increased average debt outstanding in 2003 of $18.9 billion Charter Holdco. Previously, the tax losses had been allocated to
compared to $17.8 billion in 2002, partially offset by a decrease Vulcan Cable III Inc. and Charter Investment, Inc. in accordance
in our average borrowing rate from 8.02% in 2002 to 7.99% in with the Special Loss Allocations provided under the Charter
2003. The increased debt was primarily used for capital Holdco limited liability company agreement. We do not expect
expenditures. to recognize a similar benefit after 2003 related to tax loss
Gain (loss) on derivative instruments and hedging allocations received from Charter Holdco, due to limitations
activities, net. Net gain on derivative instruments and hedg- associated with our ability to offset future tax benefits against
ing activities increased $180 million from a loss of $115 million the remaining deferred tax liabilities. However, the actual tax
for the year ended December 31, 2002 to a gain of $65 million provision calculations in future periods will be the result of
for the year ended December 31, 2003. The increase is primarily current and future temporary differences, as well as future
due to an increase in gains on interest rate agreements, which operating results.
do not qualify for hedge accounting under SFAS No. 133, The income tax benefit recognized in the year ended
Accounting for Derivative Instruments and Hedging Activities, which December 31, 2002 was directly related to the impairment of
increased from a loss of $101 million for the year ended franchises associated with the adoption of SFAS No. 142.
December 31, 2002 to a gain of $57 million for the year ended Cumulative effect of accounting change, net of tax.
December 31, 2003. Cumulative effect of accounting change in 2002 represents the
Gain on debt exchange, net. Net gain on debt impairment charge recorded as a result of adopting
exchange of $267 million for the year ended December 31, 2003 SFAS No. 142.
represents the gain realized on the purchase, in a non-monetary Net loss. Net loss decreased by $2.3 billion, or 91%, from
transaction, of a total of $609 million principal amount of our $2.5 billion in 2002 to $238 million in 2003 as a result of the
outstanding convertible senior notes and $1.3 billion principal factors described above. The impact of the gain on sale of
amount of Charter Holdings’ senior notes and senior discount system, unfavorable contracts and settlements and gain on debt
notes in consideration for a total of $1.6 billion principal amount exchange, net of minority interest and income tax impacts, was
of 10.25% notes due 2010 issued by our indirect subsidiary, to decrease net loss by $168 million in 2003. The impact of the
CCH II. The gain is net of the write-off of deferred financing impairment of franchises and the cumulative effect of accounting
costs associated with the retired debt of $27 million. change, net of minority interest and income tax impacts, was to
Other expense, net. Other expense increased by increase net loss by $1.6 billion in 2002.
$12 million from $4 million in 2002 to $16 million in 2003. This Preferred stock dividends. On August 31, 2001, in
increase is primarily due to increases in costs associated with connection with the Cable USA acquisition, Charter issued
amending a revolving credit facility of our subsidiaries and costs 505,664 shares (and on February 28, 2003 issued an additional
associated with terminated debt transactions. 39,595 shares) of Series A Convertible Redeemable Preferred
Minority interest. Minority interest represents the alloca- Stock, on which it pays a quarterly cumulative cash dividend at
tion of losses to the minority interest based on ownership of an annual rate of 5.75% on a liquidation preference of $100 per
Charter Holdco, the 10% dividend on preferred membership share.
units in our indirect subsidiary, Charter Helicon, LLC and the Loss per common share. Loss per common share
2% accretion of the preferred membership interests in our decreased by $7.73, from $8.55 per common share for the year
indirect subsidiary, CC VIII, LLC, and since June 6, 2003, the ended December 31, 2002 to $0.82 per common share for the
pro rata share of the profits of CC VIII, LLC. See ‘‘Item 13. year ended December 31, 2003 as a result of the factors
Certain Relationships and Related Transactions — Transactions described above.
Arising out of Our Organizational Structure and Mr. Allen’s
LIQUIDITY AND CAPITAL RESOURCES
Investment in Charter Communications, Inc. and Its
Subsidiaries — Equity Put Rights — CC VIII.’’
Introduction
Income tax benefit. Income tax benefit of $110 million
This section contains a discussion of our liquidity and capital
and $460 million was recognized for the years ended Decem-
resources, including a discussion of our cash position, sources
ber 31, 2003 and 2002, respectively. The income tax benefits
and uses of cash, access to credit facilities and other financing
were realized as a result of decreases in certain deferred tax
sources, historical financing activities, cash needs, capital
liabilities related to our investment in Charter Holdco as well as
expenditures and outstanding debt.
decreases in the deferred tax liabilities of certain of our indirect
corporate subsidiaries. Overview
We have a significant level of debt. In 2005, $30 million of our
debt matures, and in 2006, an additional $186 million matures.
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