Charter 2005 Annual Report Download - page 79

CHARTER COMMUNICATIONS, INC. 2005 FORM 10-K
restricted subsidiaries so long as the proceeds of the sale are agreements, we agree to exchange, at specified intervals through
applied in accordance with the asset sale covenant, and 2007, the difference between fixed and variable interest amounts
issuances as a result of which the restricted subsidiary is no calculated by reference to an agreed-upon notional principal
longer a restricted subsidiary and any remaining investment in amount. Interest rate collar agreements are used to limit our
that subsidiary is permitted by the covenant limiting restricted exposure to, and to derive benefits from, interest rate fluctua-
payments. tions on variable rate debt to within a certain range of rates.
The indenture governing the Renaissance notes also Interest rate risk management agreements are not held or issued
restricts the ability of Renaissance Media Group and its for speculative or trading purposes.
restricted subsidiaries to enter into certain transactions with At December 31, 2005 and 2004, we had outstanding
affiliates involving consideration in excess of $2 million without $1.8 billion and $2.7 billion and $20 million and $20 million,
a determination by the disinterested members of the board of respectively, in notional amounts of interest rate swaps and
directors that the transaction is on terms no less favorable than collars, respectively. The notional amounts of interest rate
arms length, or transactions with affiliates involving over instruments do not represent amounts exchanged by the parties
$4 million with affiliates without receiving an independent and, thus, are not a measure of our exposure to credit loss. See
opinion as to the fairness of the transaction to Renaissance ‘‘Item 7A. Quantitative and Qualitative Disclosures About
Media Group. Market Risk,’’ for further information regarding the fair values
All of these covenants are subject to additional specified and contract terms of our interest rate agreements.
exceptions. In general, the covenants of our subsidiaries’ credit
RECENTLY ISSUED ACCOUNTING STANDARDS
agreements are more restrictive than those of our indentures.
In November 2004, the Financial Accounting Standards Board
CROSS-DEFAULTS (‘‘FASB’’) issued SFAS No. 153, Exchanges of Non-monetary
Our indentures and those of certain of our subsidiaries include Assets — An Amendment of APB No. 29. This statement elimi-
various events of default, including cross-default provisions. nates the exception to fair value for exchanges of similar
Under these provisions, a failure by any of the issuers or any of productive assets and replaces it with a general exception for
their restricted subsidiaries to pay at the final maturity thereof exchange transactions that do not have commercial substance —
the principal amount of other indebtedness having a principal that is, transactions that are not expected to result in significant
amount of $100 million or more (or any other default under any changes in the cash flows of the reporting entity. We adopted
such indebtedness resulting in its acceleration) would result in this pronouncement effective April 1, 2005. The exchange
an event of default under the indenture governing the applicable transaction discussed in Note 3 to the accompanying consoli-
notes. The Renaissance indenture contains a similar cross-default dated financial statements contained in ‘‘Item 8. Financial
provision with a $10 million threshold that applies to the issuers Statements and Supplementary Data’’, was accounted for under
of the Renaissance notes and their restricted subsidiaries. As a this standard.
result, an event of default related to the failure to repay principal In December 2004, the FASB issued the revised
at maturity or the acceleration of the indebtedness under the SFAS No. 123, Share-Based Payment, which addresses the
Charter Holdings notes, CIH notes, CCH I notes, CCH II notes, accounting for share-based payment transactions in which a
CCO Holdings notes, Charter Operating notes, the Charter company receives employee services in exchange for (a) equity
Operating credit facilities or the Renaissance notes could cause instruments of that company or (b) liabilities that are based on
cross-defaults under our subsidiaries’ indentures. the fair value of the company’s equity instruments or that may
be settled by the issuance of such equity instruments. This
RELATED PARTY TRANSACTIONS statement will be effective for us beginning January 1, 2006.
Because we adopted the fair value recognition provisions of
See ‘‘Item 13. Certain Relationships and Related Transactions — SFAS No. 123 on January 1, 2003, we do not expect this revised
Business Relationships’’ for information regarding related party standard to have a material impact on our financial statements.
transactions and transactions with other parties with whom we In March 2005, the FASB issued FASB Interpretation
or our related parties may have a relationship that enables the No. 47, Accounting for Conditional Asset Retirement Obligations.
parties to negotiate terms of material transactions that may not This interpretation clarifies that the term ‘‘conditional asset
be available from other, more clearly independent parties, on an retirement obligation’’ as used in FASB Statement No. 143,
arms length basis. Accounting for Asset Retirement Obligations, refers to a legal
obligation to perform an asset retirement activity in which the
INTEREST RATE RISK
timing and/or method of settlement are conditional on a future
We use interest rate risk management derivative instruments, event that may or may not be within the control of the entity.
such as interest rate swap agreements and interest rate collar This pronouncement is effective for fiscal years ending after
agreements (collectively referred to herein as interest rate December 15, 2005. The adoption of this interpretation did not
agreements) as required under the terms of the credit facilities of have a material impact on our financial statements.
our subsidiaries. Our policy is to manage interest costs using a
mix of fixed and variable rate debt. Using interest rate swap
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