Charter 2005 Annual Report Download - page 54

CHARTER COMMUNICATIONS, INC. 2005 FORM 10-K
disposition of plant and equipment offset by a gain of The remaining benefit relates to the reversal of previously
$21 million recognized on the sale of cable systems in Port recorded liabilities, which are no longer required.
Orchard, Washington which closed on October 1, 2003. Interest expense, net. Net interest expense increased by $113 mil-
Option compensation expense, net. Option compensation expense of lion, or 7%, for the year ended December 31, 2004 compared to
$31 million for the year ended December 31, 2004 primarily the year ended December 31, 2003. The increase in net interest
represents $22 million related to options granted and expensed expense was a result of an increase in our average borrowing
in accordance with SFAS No. 123. Additionally, during the year rate from 7.99% in the year ended December 31, 2003 to 8.66%
ended December 31, 2004, we expensed approximately $8 mil- in the year ended December 31, 2004 partially offset by a
lion related to a stock option exchange program, under which decrease of $306 million in average debt outstanding from
our employees were offered the right to exchange all stock $18.9 billion in 2003 to $18.6 billion in 2004.
options (vested and unvested) issued under the 1999 Charter Gain (loss) on derivative instruments and hedging activities, net. Net
Communications Option Plan and 2001 Stock Incentive Plan gain on derivative instruments and hedging activities increased
that had an exercise price over $10 per share for shares of $4 million in the year ended December 31, 2004 compared to
restricted Charter Class A common stock or, in some instances, the year ended December 31, 2003. The increase is primarily
cash. The exchange offer closed in February 2004. Option the result of an increase in gains on interest rate agreements that
compensation expense of $4 million for the year ended do not qualify for hedge accounting under SFAS No. 133,
December 31, 2003 primarily represents options expensed in Accounting for Derivative Instruments and Hedging Activities, which
accordance with SFAS No. 123. See Note 21 to the accompany- increased from a gain of $57 million for the year ended
ing consolidated financial statements contained in ‘‘Item 8. December 31, 2003 to a gain of $65 million for the year ended
Financial Statements and Supplementary Data’’ for more infor- December 31, 2004. This was coupled with a decrease in gains
mation regarding our option compensation plans. on interest rate agreements, as a result of hedge ineffectiveness
Special charges, net. Special charges for the year ended Decem- on designated hedges, which increased from $8 million for the
ber 31, 2004 represents approximately $85 million as part of a year ended December 31, 2003 to $4 million for the year ended
settlement of the consolidated federal class actions, state December 31, 2004.
derivative actions and federal derivative action lawsuits, approxi- Loss on debt to equity conversions. Loss on debt to equity
mately $10 million of litigation costs related to the settlement of conversions for the year ended December 31, 2004 represents
a 2004 national class action suit (see Note 26 to the accompany- the loss recognized from privately negotiated exchanges of a
ing consolidated financial statements contained in ‘‘Item 8. total of $30 million principal amount of Charter’s 5.75% convert-
Financial Statements and Supplementary Data’’) and approxi- ible senior notes held by two unrelated parties for shares of
mately $12 million of severance and related costs of our Charter Class A common stock. The exchange resulted in the
workforce reduction and realignment. Special charges for the issuance of more shares in the exchange transaction than would
year ended December 31, 2004 were offset by $3 million have been issuable under the original terms of the convertible
received from a third party in settlement of a dispute. Special senior notes.
charges for the year ended December 31, 2003 represents
approximately $26 million of severance and related costs of our Gain (loss) on extinguishment of debt. Loss on extinguishment of
workforce reduction partially offset by a $5 million credit from a debt for the year ended December 31, 2004 represents the
settlement from the Internet service provider Excite@Home write-off of deferred financing fees and third party costs related
related to the conversion of about 145,000 high-speed Internet to the Charter Communications Operating refinancing in April
customers to our Charter Pipeline service in 2001. 2004 and the redemption of our 5.75% convertible senior notes
due 2005 in December 2004. Gain on extinguishment of debt for
Unfavorable contracts and other settlements. Unfavorable contracts the year ended December 31, 2003 represents the gain realized
and other settlements for the year ended December 31, 2004 on the purchase of an aggregate $609 million principal amount
relates to changes in estimated legal reserves established in of our outstanding convertible senior notes and $1.3 billion
connection with prior business combinations, which based on an principal amount of Charter Holdings’ senior notes and senior
evaluation of current facts and circumstances, are no longer discount notes in consideration for an aggregate of $1.6 billion
required. principal amount of 10.25% notes due 2010 issued by our
Unfavorable contracts and other settlements for the year indirect subsidiary, CCH II. The gain is net of the write-off of
ended December 31, 2003 represents the settlement of estimated deferred financing costs associated with the retired debt of
liabilities recorded in connection with prior business combina- $27 million.
tions. The majority of this benefit (approximately $52 million) is
due to the renegotiation in 2003 of a major programming Other, net. Net other expense decreased by $19 million from
contract, for which a liability had been recorded for the above expense of $16 million in 2003 to income of $3 million in 2004.
market portion of that agreement in conjunction with the Other expense in 2003 included $11 million associated with
Falcon acquisition in 1999 and the Bresnan acquisition in 2000. amending a revolving credit facility of our subsidiaries and costs
associated with terminated debt transactions that did not recur
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