Charter 2006 Annual Report Download - page 55

CHARTER COMMUNICATIONS, INC. 2006 FORM 10-K
For more information, see Note 19 to the accompanying chased 508,546 shares of our Series A Convertible Redeemable
consolidated financial statements contained in ‘‘Item 8. Financial Preferred Stock. Following the repurchase, 36,713 shares or
Statements and Supplementary Data.’’ preferred stock remain outstanding.
Loss per common share. During 2006 and 2005, net loss per
Income tax benefit (expense). Income tax expense in 2006 and common share increased by $1.00 and decreased by $11.34, or
2005 was recognized through increases in deferred tax liabilities 32% and 78%, respectively, as a result of the factors described
related to our investment in Charter Holdco, as well as through above.
current federal and state income tax expense, and increases in
the deferred tax liabilities of certain of our indirect corporate LIQUIDITY AND CAPITAL RESOURCES
subsidiaries. Income tax expense was offset by deferred tax
benefits of $30 million related to asset impairment charges Introduction
recorded in the year ended December 31, 2006. Income tax This section contains a discussion of our liquidity and capital
benefit for the year ended December 31, 2004 was realized as a resources, including a discussion of our cash position, sources
result of decreases in certain deferred tax liabilities related to our and uses of cash, access to credit facilities and other financing
investment in Charter Holdco, as well as decreases in the sources, historical financing activities, cash needs, capital
deferred tax liabilities of certain of our indirect corporate expenditures and outstanding debt.
subsidiaries, attributable to the write-down of franchise assets for Overview of Our Debt and Liquidity
financial statement purposes and not for tax purposes. We do Our business requires significant cash to fund debt service costs,
not expect to recognize a similar benefit associated with the capital expenditures and ongoing operations. We have histori-
impairment of franchises in future periods. However, the actual cally funded these requirements through cash flows from
tax provision calculations in future periods will be the result of operating activities, borrowings under our credit facilities, pro-
current and future temporary differences, as well as future ceeds from sales of assets, issuances of debt and equity securities,
operating results. and cash on hand. However, the mix of funding sources changes
from period to period. For the year ended December 31, 2006,
Income (loss) from discontinued operations, net of tax. Income from we generated $323 million of net cash flows from operating
discontinued operations, net of tax increased in 2006 compared activities after paying cash interest of $1.7 billion. In addition,
to 2005 due to a gain of $182 million (net of $18 million of tax we received proceeds from the sale of assets of approximately
recorded in the fourth quarter of 2006) recognized in 2006 on $1.0 billion and used $1.1 billion for purchases of property, plant
the sale of the West Virginia and Virginia systems. Income from and equipment. Finally, we had net cash flows used in financing
discontinued operations, net of tax increased in 2005 compared activities of $219 million. We expect that our mix of sources of
to a loss from discontinued operations, net of tax in 2004, funds will continue to change in the future based on overall
primarily due to the impairment of franchises recognized in needs relative to our cash flow and on the availability of funds
2004 described above. under the credit facilities of our subsidiaries, our access to the
debt and equity markets, the timing of possible asset sales, and
Cumulative effect of accounting change, net of tax. Cumulative effect
our ability to generate cash flows from operating activities. We
of accounting change of $765 million (net of minority interest
continue to explore asset dispositions as one of several possible
effects of $19 million and tax effects of $91 million) in 2004
actions that we could take in the future to improve our liquidity,
represents the impairment charge recorded as a result of our
but we do not presently consider future asset sales as a
adoption of Topic D-108.
significant source of liquidity.
Net loss. The impact to net loss in 2006 and 2005 of asset We expect that cash on hand, cash flows from operating
impairment charges, extinguishment of debt, and gain on activities and the amounts available under our credit facilities
discontinued operations, was to decrease net loss by approxi- will be adequate to meet our cash needs in 2007. We believe
mately $124 million and $482 million, respectively. The impact that cash flows from operating activities and amounts available
to net loss in 2004 of the impairment of franchises and under our credit facilities may not be sufficient to fund our
cumulative effect of accounting change was to increase net loss operations and satisfy our interest and principal repayment
by approximately $3.0 billion. obligations in 2008, and will not be sufficient to fund such needs
in 2009 and beyond. We continue to work with our financial
Preferred stock dividends. On August 31, 2001, Charter issued advisors concerning our approach to addressing liquidity, debt
505,664 shares (and on February 28, 2003 issued an additional maturities and our overall balance sheet leverage.
39,595 shares) of Series A Convertible Redeemable Preferred
Stock in connection with the Cable USA acquisition, on which
Charter pays or accrues a quarterly cumulative cash dividend at
an annual rate of 5.75% if paid, or 7.75% if accrued, on a
liquidation preference of $100 per share. Beginning January 1,
2005, Charter accrued the dividend on its Series A Convertible
Redeemable Preferred Stock. In November 2005, we repur-
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