Charter 2005 Annual Report Download - page 55

CHARTER COMMUNICATIONS, INC. 2005 FORM 10-K
in 2004. In addition, gains on equity investments increased Cumulative effect of accounting change, net of tax. Cumulative effect
$7 million in 2004 over 2003. of accounting change of $765 million (net of minority interest
effects of $19 million and tax effects of $91 million) in 2004
Minority interest. Minority interest represents the 2% accretion of represents the impairment charge recorded as a result of our
the preferred membership interests in our indirect subsidiary, adoption of Topic D-108.
CC VIII, LLC, and since June 6, 2003, the pro rata share of the
profits and losses of CC VIII, LLC. See ‘‘Item 13. Certain Net loss. Net loss increased by $4.1 billion in 2004 compared to
Relationships and Related Transactions — Transactions Arising 2003 as a result of the factors described above. The impact to
Out of Our Organizational Structure and Mr. Allen’s Investment net loss in 2004 of the impairment of franchises, cumulative
in Charter Communications, Inc. and Its Subsidiaries — Equity effect of accounting change and the reduction in losses allocated
Put Rights — CC VIII.’’ Reported losses allocated to minority to minority interest was to increase net loss by approximately
interest on the statement of operations are limited to the extent $3.7 billion. The impact to net loss in 2003 of the gain on the
of any remaining minority interest on the balance sheet related sale of systems, unfavorable contracts and settlements and gain
to Charter Holdco. Because minority interest in Charter Holdco on debt exchange, net of income tax impact, was to decrease
was substantially eliminated at December 31, 2003, beginning in net loss by $168 million.
the first quarter of 2004, Charter began to absorb substantially Preferred stock dividends. On August 31, 2001, in connection with
all future losses before income taxes that otherwise would have the Cable USA acquisition, Charter issued 505,664 shares (and
been allocated to minority interest. For the year ended on February 28, 2003 issued an additional 39,595 shares) of
December 31, 2003, 53.5% of our losses were allocated to Series A Convertible Redeemable Preferred Stock, on which it
minority interest. As a result of negative equity at Charter pays a quarterly cumulative cash dividend at an annual rate of
Holdco during the year ended December 31, 2004, no additional 5.75% on a liquidation preference of $100 per share.
losses were allocated to minority interest, resulting in an
additional $2.4 billion of net losses. Under our existing capital Loss per common share. The loss per common share increased by
structure, future losses will be substantially absorbed by Charter. $13.65 as a result of the factors described above.
Income tax benefit. Income tax benefits were realized for the years LIQUIDITY AND CAPITAL RESOURCES
ended December 31, 2004 and 2003 as a result of decreases in
Introduction
certain deferred tax liabilities related to our investment in
This section contains a discussion of our liquidity and capital
Charter Holdco as well as decreases in the deferred tax liabilities
resources, including a discussion of our cash position, sources
of certain of our indirect corporate subsidiaries.
and uses of cash, access to credit facilities and other financing
The income tax benefit recognized in the year ended
sources, historical financing activities, cash needs, capital
December 31, 2004 was directly related to the impairment of
expenditures and outstanding debt.
franchises as discussed above because the deferred tax liabilities
decreased as a result of the write-down of franchise assets for Overview
financial statement purposes and not for tax purposes. We do We have a significant level of debt. In 2006, $50 million of our
not expect to recognize a similar benefit associated with the debt matures, and in 2007, an additional $385 million matures.
impairment of franchises in future periods. However, the actual In 2008 and beyond, significant additional amounts will become
tax provision calculations in future periods will be the result of due under our remaining long-term debt obligations.
current and future temporary differences, as well as future
Recent Financing Transactions
operating results.
On January 30, 2006, CCH II and CCH II Capital Corp. issued
The income tax benefit recognized in the year ended
$450 million in debt securities, the proceeds of which were
December 31, 2003 was directly related to the tax losses
provided, directly or indirectly, to Charter Operating, which
allocated to Charter from Charter Holdco. In the second quarter
used such funds to reduce borrowings, but not commitments,
of 2003, Charter started receiving tax loss allocations from
under the revolving portion of its credit facilities.
Charter Holdco. Previously, the tax losses had been allocated to
In October 2005, CCO Holdings and CCO Holdings
Vulcan Cable III Inc. and CII in accordance with the Special
Capital Corp., as guarantor thereunder, entered into a senior
Loss Allocations provided under the Charter Holdco limited
bridge loan agreement with JPMorgan Chase Bank, N.A., Credit
liability company agreement. We do not expect to recognize a
Suisse, Cayman Islands Branch and Deutsche Bank AG Cayman
similar benefit related to our investment in Charter Holdco after
Islands Branch (the ‘‘Lenders’’) whereby the Lenders committed
2003 related to tax loss allocations received from Charter
to make loans to CCO Holdings in an aggregate amount of
Holdco, due to limitations associated with our ability to offset
$600 million. Upon the issuance of $450 million of CCH II
future tax benefits against the remaining deferred tax liabilities.
notes discussed above, the commitment under the bridge loan
However, the actual tax provision calculations in future periods
was reduced to $435 million. CCO Holdings may draw upon
will be the result of current and future temporary differences, as
the facility between January 2, 2006 and September 29, 2006 and
well as future operating results.
the loans will mature on the sixth anniversary of the first
borrowing under the bridge loan.
45