Charter 2005 Annual Report Download - page 128

CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES 2005 FORM 10-K
Notes to Consolidated Financial Statements (continued)
each series were extended three years. See Note 9 for discussion all of the Company’s debt obligations could occur. An event of
of transaction and related financial statement impact. default under any of the Company’s debt instruments could
The Company requires significant cash to fund debt service result in the acceleration of its payment obligations under that
costs, capital expenditures and ongoing operations. The Com- debt and, under certain circumstances, in cross-defaults under its
pany has historically funded these requirements through cash other debt obligations, which could have a material adverse
flows from operating activities, borrowings under its credit effect on the Company’s consolidated financial condition and
facilities, sales of assets, issuances of debt and equity securities results of operations.
and cash on hand. However, the mix of funding sources changes Specific Limitations
from period to period. For the year ended December 31, 2005, Charter’s ability to make interest payments on its convertible
the Company generated $260 million of net cash flows from senior notes, and, in 2006 and 2009, to repay the outstanding
operating activities after paying cash interest of $1.5 billion. In principal of its convertible senior notes of $20 million and
addition, the Company used $1.1 billion for purchases of $863 million, respectively, will depend on its ability to raise
property, plant and equipment. Finally, the Company had net additional capital and/or on receipt of payments or distributions
cash flows from financing activities of $136 million. from Charter Holdco and its subsidiaries. During 2005, Charter
The Company expects that cash on hand, cash flows from Holdings distributed $60 million to Charter Holdco. As of
operating activities and the amounts available under its credit December 31, 2005, Charter Holdco was owed $22 million in
facilities and Bridge Loan will be adequate to meet its cash intercompany loans from its subsidiaries, which were available
needs in 2006. The Company believes that cash flows from to pay interest and principal on Charter’s convertible senior
operating activities and amounts available under the Company’s notes. In addition, Charter has $98 million of governmental
credit facilities and Bridge Loan will not be sufficient to fund the securities pledged as security for the next four scheduled semi-
Company’s operations and satisfy its interest and debt repay- annual interest payments on Charter’s 5.875% convertible senior
ment obligations in 2007 and beyond. The Company is working notes.
with its financial advisors to address this funding requirement. Distributions by Charter’s subsidiaries to a parent company
However, there can be no assurance that such funding will be (including Charter, CCHC and Charter Holdco) for payment of
available to the Company. In addition, Paul G. Allen, Charter’s principal on parent company notes are restricted under the
Chairman and controlling shareholder, and his affiliates are not indentures governing the CIH notes, CCH I notes, CCH II
obligated to purchase equity from, contribute to or loan funds to notes, CCO Holdings notes and Charter Operating notes unless
the Company. there is no default, each applicable subsidiary’s leverage ratio test
Debt Covenants is met at the time of such distribution and, in the case of the
The Company’s ability to operate depends upon, among other convertible senior notes, other specified tests are met. For the
things, its continued access to capital, including credit under the quarter ended December 31, 2005, there was no default under
Charter Operating credit facilities and Bridge Loan. The Charter any of these indentures and each such subsidiary met its
Operating credit facilities, along with the Company’s and its applicable leverage ratio tests based on December 31, 2005
subsidiaries’ indentures and Bridge Loan, contain certain restric- financial results. Such distributions would be restricted, however,
tive covenants, some of which require the Company to maintain if any such subsidiary fails to meet these tests. In the past,
specified financial ratios and meet financial tests and to provide certain subsidiaries have from time to time failed to meet their
audited financial statements with an unqualified opinion from leverage ratio test. There can be no assurance that they will
the Company’s independent auditors. As of December 31, 2005, satisfy these tests at the time of such distribution. Distributions
the Company is in compliance with the covenants under its by Charter Operating and CCO Holdings for payment of
indentures, Bridge Loan and credit facilities, and the Company principal on parent company notes are further restricted by the
expects to remain in compliance with those covenants for the covenants in the credit facilities and Bridge Loan, respectively.
next twelve months. As of December 31, 2005, the Company’s Distributions by CIH, CCH I, CCH II, CCO Holdings and
potential availability under its credit facilities totaled approxi- Charter Operating to a parent company for payment of parent
mately $553 million, none of which was limited by covenants. In company interest are permitted if there is no default under the
addition, as of January 2, 2006, the Company has additional aforementioned indentures. However, distributions for payment
borrowing availability of $600 million under the Bridge Loan of interest on the convertible senior notes are further limited to
(which was reduced to $435 million as a result of the issuance when each applicable subsidiary’s leverage ratio test is met and
of the CCH II notes). Continued access to the Company’s credit other specified tests are met. There can be no assurance that
facilities and Bridge Loan is subject to the Company remaining they will satisfy these tests at the time of such distribution.
in compliance with these covenants, including covenants tied to The indentures governing the Charter Holdings notes
the Company’s operating performance. If any events of non- permit Charter Holdings to make distributions to Charter
compliance occur, funding under the credit facilities and Bridge Holdco for payment of interest or principal on the convertible
Loan may not be available and defaults on some or potentially senior notes, only if, after giving effect to the distribution,
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