Charter 2006 Annual Report Download - page 90

CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES 2006 FORM 10-K
Notes to Consolidated Financial Statements December 31, 2006, 2005 and 2004
(dollars in millions, except where indicated)
1. ORGANIZATION AND BASIS OF PRESENTATION 2. LIQUIDITY AND CAPITAL RESOURCES
Charter Communications, Inc. (‘‘Charter’’) is a holding company The Company incurred net loss applicable to common stock of
whose principal assets at December 31, 2006 are the 55% $1.4 billion, $970 million, and $4.3 billion in 2006, 2005, and
controlling common equity interest (52% for accounting pur- 2004, respectively. The Company’s net cash flows from operat-
poses) in Charter Communications Holding Company, LLC ing activities were $323 million, $260 million, and $472 million
(‘‘Charter Holdco’’) and ‘‘mirror’’ notes which are payable by for the years ending December 31, 2006, 2005, and 2004,
Charter Holdco to Charter and have the same principal amount respectively.
and terms as those of Charter’s convertible senior notes. Charter The Company has a significant level of debt. The Com-
Holdco is the sole owner of CCHC, LLC (‘‘CCHC’’), which is pany’s long-term debt as of December 31, 2006 consisted of
the sole owner of Charter Communications Holdings, LLC $5.4 billion of credit facility debt, $13.3 billion accreted value of
(‘‘Charter Holdings’’). The consolidated financial statements high-yield notes and $408 million accreted value of convertible
include the accounts of Charter, Charter Holdco, CCHC, senior notes. In 2007, $130 million of the Company’s debt
Charter Holdings and all of their subsidiaries where the matures and in 2008, an additional $50 million matures. In 2009
underlying operations reside, which are collectively referred to and beyond, significant additional amounts will become due
herein as the ‘‘Company.’’ Charter has 100% voting control over under the Company’s remaining long-term debt obligations.
Charter Holdco and had historically consolidated on that basis. The Company requires significant cash to fund debt service
Charter continues to consolidate Charter Holdco as a variable costs, capital expenditures and ongoing operations. The Com-
interest entity under Financial Accounting Standards Board pany has historically funded these requirements through cash
(‘‘FASB’’) Interpretation (‘‘FIN’’) 46(R) Consolidation of Variable flows from operating activities, borrowings under its credit
Interest Entities. Charter Holdco’s limited liability company facilities, sales of assets, issuances of debt and equity securities,
agreement provides that so long as Charter’s Class B common and cash on hand. However, the mix of funding sources changes
stock retains its special voting rights, Charter will maintain a from period to period. For the year ended December 31, 2006,
100% voting interest in Charter Holdco. Voting control gives the Company generated $323 million of net cash flows from
Charter full authority and control over the operations of Charter operating activities after paying cash interest of $1.7 billion. In
Holdco. All significant intercompany accounts and transactions addition, the Company received proceeds from the sale of assets
among consolidated entities have been eliminated. The Com- of approximately $1.0 billion and used $1.1 billion for purchases
pany is a broadband communications company operating in the of property, plant and equipment. Finally, the Company had net
United States. The Company offers its customers traditional cash flows used in financing activities of $219 million.
cable video programming (analog and digital video), high-speed The Company expects that cash on hand, cash flows from
Internet services, advanced broadband services such as high operating activities and the amounts available under its credit
definition television, OnDemand, and digital video recorder facilities will be adequate to meet its cash needs through 2007.
service, and, in many of our markets, telephone service. The The Company believes that cash flows from operating activities
Company sells its cable video programming, high-speed Internet, and amounts available under the Company’s credit facilities may
telephone and advanced broadband services on a subscription not be sufficient to fund the Company’s operations and satisfy
basis. The Company also sells local advertising on cable its interest and principal repayment obligations in 2008, and will
networks. not be sufficient to fund such needs in 2009 and beyond. The
The preparation of financial statements in conformity with Company continues to work with its financial advisors concern-
accounting principles generally accepted in the United States ing its approach to addressing liquidity, debt maturities and its
requires management to make estimates and assumptions that overall balance sheet leverage.
affect the reported amounts of assets and liabilities and Credit Facility Availability
disclosure of contingent assets and liabilities at the date of the The Company’s ability to operate depends upon, among other
financial statements and the reported amounts of revenues and things, its continued access to capital, including credit under the
expenses during the reporting period. Areas involving significant Charter Communications Operating, LLC (‘‘Charter Operating’’)
judgments and estimates include capitalization of labor and credit facilities. The Charter Operating credit facilities, along
overhead costs; depreciation and amortization costs; impair- with the Company’s indentures, contain certain restrictive
ments of property, plant and equipment, franchises and good- covenants, some of which require the Company to maintain
will; income taxes; and contingencies. Actual results could differ specified financial ratios, and meet financial tests, and to provide
from those estimates. annual audited financial statements with an unqualified opinion
Reclassifications. Certain prior year amounts have been from the Company’s independent auditors. As of December 31,
reclassified to conform with the 2006 presentation, including 2006, the Company is in compliance with the covenants under
discontinued operations as discussed in Note 4. its credit facilities, as well as under its indentures, and the
Company expects to remain in compliance with those covenants
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