Charter 2005 Annual Report Download - page 33

CHARTER COMMUNICATIONS, INC. 2005 FORM 10-K
we will face considerable competition from established tele- additional programming being provided to customers and
phone companies and other carriers, including VoIP providers. increased costs to purchase programming. The inability to fully
In order to attract new customers, from time to time we pass these programming cost increases on to our customers has
make promotional offers, including offers of temporarily had an adverse impact on our cash flow and operating margins.
reduced-price or free service. These promotional programs result As measured by programming costs, and excluding premium
in significant advertising, programming and operating expenses, services (substantially all of which were renegotiated and
and also require us to make capital expenditures to acquire renewed in 2003), as of December 31, 2005, approximately 15%
additional digital set-top terminals. Customers who subscribe to of our current programming contracts were expired, and
our services as a result of these offerings may not remain approximately another 4% were scheduled to expire at or before
customers for any significant period of time following the end of the end of 2006. There can be no assurance that these
the promotional period. A failure to retain existing customers agreements will be renewed on favorable or comparable terms.
and customers added through promotional offerings or to Our programming costs increased by approximately 7% in 2005
collect the amounts they owe us could have a material adverse and we expect our programming costs in 2006 to increase at a
effect on our business and financial results. higher rate than in 2005. To the extent that we are unable to
Mergers, joint ventures and alliances among franchised, reach agreement with certain programmers on terms that we
wireless or private cable operators, satellite television providers, believe are reasonable we may be forced to remove such
local exchange carriers and others, may provide additional programming channels from our line-up, which could result in a
benefits to some of our competitors, either through access to further loss of customers.
financing, resources or efficiencies of scale, or the ability to If our required capital expenditures exceed our projections, we may not
provide multiple services in direct competition with us. have sufficient funding, which could adversely affect our growth,
We cannot assure you that our cable systems will allow us financial condition and results of operations.
to compete effectively. Additionally, as we expand our offerings
to include other telecommunications services, and to introduce During the year ended December 31, 2005, we spent approxi-
new and enhanced services, we will be subject to competition mately $1.1 billion on capital expenditures. During 2006, we
from other providers of the services we offer. We cannot predict expect capital expenditures to be approximately $1.0 billion to
the extent to which competition may affect our business and $1.1 billion. The actual amount of our capital expenditures
operations in the future. See ‘‘Item 1. Business — Competition.’’ depends on the level of growth in high-speed Internet and
telephone customers and in the delivery of other advanced
We have a history of net losses and expect to continue to experience services, as well as the cost of introducing any new services. We
net losses. Consequently, we may not have the ability to finance future may need additional capital if there is accelerated growth in
operations. high-speed Internet customers, telephone customers or in the
We have had a history of net losses and expect to continue to delivery of other advanced services. If we cannot obtain such
report net losses for the foreseeable future. Our net losses are capital from increases in our cash flow from operating activities,
principally attributable to insufficient revenue to cover the additional borrowings or other sources, our growth, financial
interest costs on our debt, the depreciation expenses that we condition and results of operations could suffer materially.
incur resulting from the capital investments we have made in Our inability to respond to technological developments and meet
our cable properties, and the amortization and impairment of customer demand for new products and services could limit our ability
our franchise intangibles. We expect that these expenses (other to compete effectively.
than amortization and impairment of franchises) will remain
significant, and we expect to continue to report net losses for Our business is characterized by rapid technological change and
the foreseeable future. We reported losses before cumulative the introduction of new products and services. We cannot
effect of accounting change of $2.3 billion for 2002, $238 million assure you that we will be able to fund the capital expenditures
for 2003, $3.6 billion for 2004 and $967 million for 2005. necessary to keep pace with unanticipated technological devel-
Continued losses would reduce our cash available from opera- opments, or that we will successfully anticipate the demand of
tions to service our indebtedness, as well as limit our ability to our customers for products and services requiring new technol-
finance our operations. ogy. Our inability to maintain and expand our upgraded systems
and provide advanced services in a timely manner, or to
We may not have the ability to pass our increasing programming costs anticipate the demands of the marketplace, could materially
on to our customers, which would adversely affect our cash flow and adversely affect our ability to attract and retain customers.
operating margins. Consequently, our growth, financial condition and results of
Programming has been, and is expected to continue to be, our operations could suffer materially.
largest operating expense item. In recent years, the cable We may not be able to carry out our strategy to improve operating
industry has experienced a rapid escalation in the cost of results by standardizing and streamlining operations and procedures.
programming, particularly sports programming. We expect
programming costs to continue to increase because of a variety In prior years, we experienced rapid growth through acquisitions
of factors, including inflationary or negotiated annual increases, of a number of cable operators and the rapid rebuild and rollout
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