Charter 2005 Annual Report Download - page 127

CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES 2005 FORM 10-K
Notes to Consolidated Financial Statements December 31, 2005, 2004, and 2003
(dollars in millions, except where indicated)
1. ORGANIZATION AND BASIS OF PRESENTATION 2. LIQUIDITY AND CAPITAL RESOURCES
Charter Communications, Inc. (‘‘Charter’’) is a holding company The Company incurred net loss applicable to common stock of
whose principal assets at December 31, 2005 are the 48% $970 million, $4.3 billion and $242 million in 2005, 2004 and
controlling common equity interest in Charter Communications 2003, respectively. The Company’s net cash flows from operat-
Holding Company, LLC (‘‘Charter Holdco’’) and ‘‘mirror’’ notes ing activities were $260 million, $472 million and $765 million
which are payable by Charter Holdco to Charter and have the for the years ending December 31, 2005, 2004 and 2003,
same principal amount and terms as those of Charter’s respectively.
convertible senior notes. Charter Holdco is the sole owner of The Company has a significant level of debt. The Com-
CCHC, LLC, which is the sole owner of Charter Communica- pany’s long-term financing as of December 31, 2005 consists of
tions Holdings, LLC (‘‘Charter Holdings’’). The consolidated $5.7 billion of credit facility debt, $12.8 billion accreted value of
financial statements include the accounts of Charter, Charter high-yield notes and $863 million accreted value of convertible
Holdco, Charter Holdings and all of their wholly owned senior notes. In 2006, $50 million of the Company’s debt
subsidiaries where the underlying operations reside, which are matures and in 2007, an additional $385 million matures. In
collectively referred to herein as the ‘‘Company.’’ Charter has 2008 and beyond, significant additional amounts will become
100% voting control over Charter Holdco and had historically due under the Company’s remaining long-term debt obligations.
consolidated on that basis. Charter continues to consolidate Recent Financing Transactions
Charter Holdco as a variable interest entity under Financial On January 30, 2006, CCH II, LLC (‘‘CCH II’’) and CCH II
Accounting Standards Board (‘‘FASB’’) Interpretation Capital Corp. issued $450 million in debt securities, the proceeds
(‘‘FIN’’) 46(R) Consolidation of Variable Interest Entities. Charter of which were provided, directly or indirectly, to Charter
Holdco’s limited liability company agreement provides that so Communications Operating, LLC (‘‘Charter Operating’’), which
long as Charter’s Class B common stock retains its special used such funds to reduce borrowings, but not commitments,
voting rights, Charter will maintain a 100% voting interest in under the revolving portion of its credit facilities.
Charter Holdco. Voting control gives Charter full authority and In October 2005, CCO Holdings, LLC (‘‘CCO Holdings’’)
control over the operations of Charter Holdco. All significant and CCO Holdings Capital Corp., as guarantor thereunder,
intercompany accounts and transactions among consolidated entered into a senior bridge loan agreement (the ‘‘Bridge Loan’’)
entities have been eliminated. The Company is a broadband with JPMorgan Chase Bank, N.A., Credit Suisse, Cayman Islands
communications company operating in the United States. The Branch and Deutsche Bank AG Cayman Islands Branch (the
Company offers its customers traditional cable video program- ‘‘Lenders’’) whereby the Lenders committed to make loans to
ming (analog and digital video) as well as high-speed Internet CCO Holdings in an aggregate amount of $600 million. Upon
services and, in some areas, advanced broadband services such the issuance of $450 million of CCH II notes discussed above,
as high-definition television, video on demand and telephone. the commitment under the Bridge Loan was reduced to
The Company sells its cable video programming, high-speed $435 million. CCO Holdings may draw upon the facility
Internet and advanced broadband services on a subscription between January 2, 2006 and September 29, 2006 and the loans
basis. The Company also sells local advertising on satellite- will mature on the sixth anniversary of the first borrowing under
delivered networks. the Bridge Loan.
The preparation of financial statements in conformity with In September 2005, Charter Holdings and its wholly owned
accounting principles generally accepted in the United States subsidiaries, CCH I, LLC (‘‘CCH I’’) and CCH I Holdings, LLC
requires management to make estimates and assumptions that (‘‘CIH’’), completed the exchange of approximately $6.8 billion
affect the reported amounts of assets and liabilities and total principal amount of outstanding debt securities of Charter
disclosure of contingent assets and liabilities at the date of the Holdings in a private placement for new debt securities. Holders
financial statements and the reported amounts of revenues and of Charter Holdings notes due in 2009 and 2010 exchanged
expenses during the reporting period. Areas involving significant $3.4 billion principal amount of notes for $2.9 billion principal
judgments and estimates include capitalization of labor and amount of new 11% CCH I notes due 2015. Holders of Charter
overhead costs; depreciation and amortization costs; impair- Holdings notes due 2011 and 2012 exchanged $845 million
ments of property, plant and equipment, franchises and good- principal amount of notes for $662 million principal amount of
will; income taxes; and contingencies. Actual results could differ 11% CCH I notes due 2015. In addition, holders of Charter
from those estimates. Holdings notes due 2011 and 2012 exchanged $2.5 billion
Reclassifications. Certain prior year amounts have been principal amount of notes for $2.5 billion principal amount of
reclassified to conform with the 2005 presentation. various series of new CIH notes. Each series of new CIH notes
has the same interest rate and provisions for payment of cash
interest as the series of old Charter Holdings notes for which
such CIH notes were exchanged. In addition, the maturities for
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