Charter 2007 Annual Report Download - page 29

our customer base, particularly in the face of increasingly
aggressive competition;
kour ability to obtain programming at reasonable prices or to
adequately raise prices to offset the effects of higher pro-
gramming costs;
kgeneral business conditions, economic uncertainty or slow-
down, including the recent significant slowdown in the new
housing sector and overall economy; and
kthe effects of governmental regulation on our business.
Some of these factors are beyond our control. It is also
difficult to assess the impact that the general economic downturn
and recent turmoil in the credit markets will have on future
operations and financial results. However, we believe there is risk
that the economic slowdown could result in reduced spending
by customers and advertisers, which could reduce our revenues
and our cash flows from operating activities from those that
otherwise would have been generated. If we are unable to
generate sufficient cash flow or access additional liquidity
sources, we may not be able to service and repay our debt,
operate our business, respond to competitive challenges, or fund
our other liquidity and capital needs. We expect that cash on
hand, cash flows from operating activities, and the amounts
available under Charter Operating’s credit facilities will be ade-
quate to meet our projected cash needs through the second or
third quarter of 2009 and thereafter will not be sufficient to fund
such needs. Our projected cash needs and projected sources of
liquidity depend upon, among other things, our actual results, the
timing and amount of our capital expenditures, and ongoing
compliance with the Charter Operating credit facilities, including
Charter Operating’s obtaining an unqualified audit opinion from
our independent accountants. Charter will therefore need to
obtain additional sources of liquidity by early 2009. Although we
and our subsidiaries have been able to raise funds through
issuances of debt in the past, we may not be able to access
additional sources of liquidity on similar terms or pricing as those
that are currently in place, or at all. An inability to access
additional sources of liquidity could adversely affect our growth,
our financial condition, our results of operations, and our ability
to make payments on our convertible senior notes, our credit
facilities, and other debt of our subsidiaries, and could force us to
seek the protection of the bankruptcy laws, which could materi-
ally adversely impact our ability to operate our business and to
make payments under our debt instruments, and would reduce
or eliminate the value of our equity shares. See “Part II. Item 7.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations – Liquidity and Capital Resources.”
Because of our holding company structure, our outstanding notes are
structurally subordinated in right of payment to all liabilities of our
subsidiaries. Restrictions in our subsidiaries’ debt instruments and
under applicable law limit their ability to provide funds to us or our
various debt issuers.
Charter’s primary assets are our equity interests in our subsidiar-
ies. Our operating subsidiaries are separate and distinct legal
entities and are not obligated to make funds available to us for
payments on our notes or other obligations in the form of loans,
distributions, or otherwise. Our subsidiaries’ ability to make
distributions to us or the applicable debt issuers to service debt
obligations is subject to their compliance with the terms of their
credit facilities and indentures, and restrictions under applicable
law. See “Part II. Item 7. Management’s Discussion and Analysis
of Financial Condition and Results of Operations – Liquidity and
Capital Resources – Limitations on Distributions” and “– Sum-
mary of Restrictive Covenants of Our High Yield Notes –
Restrictions on Distributions.” Under the Delaware Limited
Liability Company Act, our subsidiaries may only make distribu-
tions if they have “surplus” as defined in the act. Under fraudu-
lent transfer laws, our subsidiaries may not pay dividends if they
are insolvent or are rendered insolvent thereby. The measures of
insolvency for purposes of these fraudulent transfer laws vary
depending upon the law applied in any proceeding to determine
whether a fraudulent transfer has occurred. Generally, however,
an entity would be considered insolvent if:
kthe sum of its debts, including contingent liabilities, was
greater than the fair saleable value of all its assets;
kthe present fair saleable value of its assets was less than the
amount that would be required to pay its probable liability
on its existing debts, including contingent liabilities, as they
become absolute and mature; or
kit could not pay its debts as they became due.
While we believe that our relevant subsidiaries currently
have surplus and are not insolvent, there can be no assurance
that these subsidiaries will not become insolvent or will be
permitted to make distributions in the future in compliance with
these restrictions in amounts needed to service our indebtedness.
Our direct or indirect subsidiaries include the borrowers and
guarantors under the Charter Operating and CCO Holdings
credit facilities. Several of our subsidiaries are also obligors and
guarantors under senior high yield notes. Our convertible senior
notes are structurally subordinated in right of payment to all of
the debt and other liabilities of our subsidiaries. As of Decem-
ber 31, 2007, our total debt was approximately $19.9 billion, of
which approximately $19.5 billion was structurally senior to our
convertible senior notes.
In the event of bankruptcy, liquidation, or dissolution of one
or more of our subsidiaries, that subsidiary’s assets would first be
applied to satisfy its own obligations, and following such pay-
ments, such subsidiary may not have sufficient assets remaining
to make payments to its parent company as an equity holder or
otherwise. In that event:
kthe lenders under Charter Operating’s credit facilities, whose
interests are secured by substantially all of our operating
assets, and all holders of other debt of our subsidiaries, will
have the right to be paid in full before us from any of our
subsidiaries’ assets; and
kthe holders of preferred membership interests in our subsid-
iary, CC VIII, would have a claim on a portion of its assets
CHARTER COMMUNICATIONS, INC. 2007 FORM 10-K
18