Charter 2005 Annual Report Download - page 31

CHARTER COMMUNICATIONS, INC. 2005 FORM 10-K
affect our ability to operate our business and to make payments (make it more difficult for us to satisfy our obligations to the
under our debt instruments. holders of our notes and for our subsidiaries to satisfy their
obligations to their lenders under their credit facilities and
We and our subsidiaries have a significant amount of existing debt to their noteholders.
and may incur significant additional debt, including secured debt, in
the future, which could adversely affect our financial health and our A default by one of our subsidiaries under its debt
ability to react to changes in our business. obligations could result in the acceleration of those obligations,
the obligations of our other subsidiaries and our obligations
Charter and its subsidiaries have a significant amount of debt under our convertible notes. We and our subsidiaries may incur
and may (subject to applicable restrictions in their debt substantial additional debt in the future. If current debt levels
instruments) incur additional debt in the future. As of Decem- increase, the related risks that we now face will intensify.
ber 31, 2005, our total debt was approximately $19.4 billion, our
shareholders’ deficit was approximately $4.9 billion and the The agreements and instruments governing our debt and the debt of
deficiency of earnings to cover fixed charges for the year ended our subsidiaries contain restrictions and limitations that could
December 31, 2005 was $853 million. The maturities of these significantly affect our ability to operate our business, as well as
obligations are set forth in ‘‘Item 7. Description of Our significantly affect our liquidity.
Outstanding Debt.’’ The Charter Operating credit facilities, the bridge loan and the
As of December 31, 2005, Charter had outstanding approxi- indentures governing our and our subsidiaries’ debt contain a
mately $883 million aggregate principal amount of convertible number of significant covenants that could adversely affect our
notes, $20 million of which mature in 2006. We will need to ability to operate our business, as well as significantly affect our
raise additional capital and/or receive distributions or payments liquidity, and therefore could adversely affect our results of
from our subsidiaries in order to satisfy our debt obligations operations and the price of our Class A common stock. These
beyond 2006. However, because of our significant indebtedness, covenants will restrict, among other things, our and our
our ability to raise additional capital at reasonable rates or at all subsidiaries’ ability to:
is uncertain, and the ability of our subsidiaries to make
(incur additional debt;
distributions or payments to us is subject to availability of funds
and restrictions under our and our subsidiaries’ applicable debt (repurchase or redeem equity interests and debt;
instruments as more fully described in ‘‘Item 7. Description of
(issue equity;
Our Outstanding Debt.’’ If we were to raise capital through the
issuance of additional equity or to engage in a recapitalization or (make certain investments or acquisitions;
other similar transaction, our shareholders could suffer signifi- (pay dividends or make other distributions;
cant dilution.
Our significant amount of debt could have other important (dispose of assets or merge;
consequences. For example, the debt will or could: (enter into related party transactions;
(require us to dedicate a significant portion of our cash flow (grant liens and pledge assets.
from operating activities to payments on our debt, which
Furthermore, Charter Operating’s credit facilities require
will reduce our funds available for working capital, capital
our subsidiaries to, among other things, maintain specified
expenditures and other general corporate expenses;
financial ratios, meet specified financial tests and provide audited
(limit our flexibility in planning for, or reacting to, changes financial statements, with an unqualified opinion from our
in our business, the cable and telecommunications indus- independent auditors. See ‘‘Item 7. Management’s Discussion
tries and the economy at large; and Analysis of Financial Condition and Results of Operations —
(place us at a disadvantage as compared to our competitors Liquidity and Capital Resources and Description of Our
that have proportionately less debt; Outstanding Debt’’ for a summary of our outstanding indebted-
ness and a description of our credit facilities and other
(make us vulnerable to interest rate increases, because a indebtedness and for details on our debt covenants and future
significant portion of our borrowings are, and will continue liquidity. Charter Operating’s ability to comply with these
to be, at variable rates of interest; provisions may be affected by events beyond our control.
(expose us to increased interest expense as we refinance all The breach of any covenants or obligations in the
existing lower interest rate instruments; foregoing indentures, bridge loan or credit facilities, not other-
wise waived or amended, could result in a default under the
(adversely affect our relationship with customers and
applicable debt agreement or instrument and could trigger
suppliers;
acceleration of the related debt, which in turn could trigger
(limit our ability to borrow additional funds in the future, if defaults under other agreements governing our long-term
we need them, due to applicable financial and restrictive indebtedness. See ‘‘Item 7. Management’s Discussion and Analy-
covenants in our debt; and sis of Financial Condition and Results of Operations — Liquidity
and Capital Resources.’’ In addition, the secured lenders under
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