Charter 2005 Annual Report Download - page 30

CHARTER COMMUNICATIONS, INC. 2005 FORM 10-K
services through unreasonable franchising requirements and financial and administrative functions on a centralized basis such
whether any such impediments should be preempted. At this as accounting, taxes, billing, finance and acquisitions, payroll and
time, we are not able to determine what impact such proceed- benefit administration, information system design and support,
ing may have on us. internal audit, purchasing, customer care, marketing and pro-
gramming contract administration and oversight and coordina-
Employees tion of external auditors and consultants and related professional
fees. The corporate office performs these services on a cost
As of December 31, 2005, we had approximately 17,200 full- reimbursement basis pursuant to a management services agree-
time equivalent employees. At December 31, 2005, approxi- ment. See ‘‘Item 13. Certain Relationships and Related Transac-
mately 100 of our employees were represented by collective tions — Transactions Arising Out of Our Organizational Structure
bargaining agreements. We have never experienced a work and Mr. Allen’s Investment in Charter Communications, Inc.
stoppage. and Its Subsidiaries — Intercompany Management Agreements’’
The corporate office, which includes employees of Charter and ‘‘— Mutual Services Agreements.’’
and Charter Holdco, is responsible for coordinating and
overseeing our operations. The corporate office performs certain
Item 1A. RISK FACTORS.
Risks Related to Significant Indebtedness of Us and Our Subsidiaries are based on the projected cash flows derived by selling
products and services to new customers in future periods.
We may not generate (or, in general, have available to the applicable Declines in future cash flows could result in lower valuations
obligor) sufficient cash flow or access to additional external liquidity which in turn may result in impairments to the franchise assets
sources to fund our capital expenditures, ongoing operations and debt in our financial statements.
obligations.
Charter Operating may not be able to access funds under its credit
Our ability to service our debt and to fund our planned capital facilities or bridge loan if it fails to satisfy the covenant restrictions in
expenditures and ongoing operations will depend on both our its credit facilities, which could adversely affect our financial condition
ability to generate cash flow and our access to additional and our ability to conduct our business.
external liquidity sources, and in general our ability to provide
(by dividend or otherwise), such funds to the applicable issuer of Our subsidiaries have historically relied on access to credit
the debt obligation. Our ability to generate cash flow is facilities in order to fund operations and to service parent
dependent on many factors, including: company debt, and we expect such reliance to continue in the
future. Our total potential borrowing availability under the
(our future operating performance; Charter Operating credit facilities was approximately $553 mil-
(the demand for our products and services; lion as of December 31, 2005, none of which was limited by
financial covenants that may from time to time in the future
(general economic conditions and conditions affecting cus- limit the availability of funds. Although as of January 2, 2006 we
tomer and advertiser spending; had additional borrowing availability of $600 million under the
(competition and our ability to stabilize customer losses; and bridge loan (which was reduced to $435 million as a result of
the issuance of the CCH II notes), such availability is subject to
(legal and regulatory factors affecting our business.
the satisfaction of certain conditions, including the satisfaction of
Some of these factors are beyond our control. If we are certain of the conditions to borrowing under the credit facilities.
unable to generate sufficient cash flow and/or access additional An event of default under the credit facilities, bridge loan or
external liquidity sources, we may not be able to service and indentures, if not waived, could result in the acceleration of
repay our debt, operate our business, respond to competitive those debt obligations and, consequently, other debt obligations.
challenges or fund our other liquidity and capital needs. Such acceleration could result in exercise of remedies by our
Although our subsidiaries, CCH II and CCH II Capital Corp., creditors and could force us to seek the protection of the
recently sold $450 million principal amount of 10.250% senior bankruptcy laws, which could materially adversely impact our
notes due 2010, we may not be able to access additional sources ability to operate our business and to make payments under our
of external liquidity on similar terms, if at all. We believe that debt instruments. In addition, an event of default under the
cash flows from operating activities and amounts available under credit facilities, such as the failure to maintain the applicable
our credit facilities and bridge loan will not be sufficient to fund required financial ratios, would prevent additional borrowing
our operations and satisfy our interest payment and principal under our credit facilities, which could materially adversely
repayment obligations in 2007 and beyond. See ‘‘Item 7. affect our ability to operate our business and to make payments
Management’s Discussion and Analysis of Financial Condition under our debt instruments. Likewise, the failure to satisfy the
and Results of Operations — Liquidity and Capital Resources.’’ conditions to borrowing under the bridge loan would prevent
Additionally, franchise valuations performed in accordance any borrowing thereunder, which could materially adversely
with the requirements of Statement of Financial Accounting
Standards (‘‘SFAS’’) No. 142, Goodwill and Other Intangible Assets,
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