Charter 2007 Annual Report Download - page 56

company notes are further restricted by the covenants in the
Charter Operating credit facilities.
Distributions by CIH, CCH I, CCH II, CCO Holdings, and
Charter Operating to a parent company for payment of parent
company interest are permitted if there is no default under the
aforementioned indentures and CCO Holdings credit facility.
The indentures governing the Charter Holdings notes per-
mit Charter Holdings to make distributions to Charter Holdco
for payment of interest or principal on Charter’s convertible
senior notes, only if, after giving effect to the distribution, Charter
Holdings can incur additional debt under the leverage ratio of
8.75 to 1.0, there is no default under Charter Holdings’ inden-
tures, and other specified tests are met. For the quarter ended
December 31, 2007, there was no default under Charter Hold-
ings’ indentures, the other specified tests were met, and Charter
Holdings met its leverage ratio test based on December 31, 2007
financial results. Such distributions would be restricted, however,
if Charter Holdings fails to meet these tests at the time of the
contemplated distribution. In the past, Charter Holdings has
from time to time failed to meet this leverage ratio test. There
can be no assurance that Charter Holdings will satisfy these tests
at the time of the contemplated distribution. During periods in
which distributions are restricted, the indentures governing the
Charter Holdings notes permit Charter Holdings and its subsid-
iaries to make specified investments (that are not restricted
payments) in Charter Holdco or Charter, up to an amount
determined by a formula, as long as there is no default under the
indentures.
In addition to the limitation on distributions under the
various indentures discussed above, distributions by our subsid-
iaries may be limited by applicable law. See “Risk Factors –
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 instru-
ments and under applicable law limit their ability to provide
funds to us or our various debt issuers.”
Historical Operating, Financing and Investing Activities
Cash and Cash Equivalents. We held $75 million in cash and cash
equivalents as of December 31, 2007 compared to $60 million as
of December 31, 2006.
Operating Activities. Net cash provided by operating activities
increased $4 million from $323 million for the year ended
December 31, 2006 to $327 million for the year ended Decem-
ber 31, 2007, primarily as a result of revenues increasing at a
faster rate than cash operating expenses, offset by an increase of
$62 million in interest on cash pay obligations and changes in
operating assets and liabilities that provided $67 million less cash
during the same period.
Net cash provided by operating activities increased $63 mil-
lion, or 24%, from $260 million for the year ended December 31,
2005 to $323 million for the year ended December 31, 2006. For
the year ended December 31, 2006, net cash provided by
operating activities increased primarily as a result of changes in
operating assets and liabilities that provided $240 million more
cash during the year ended December 31, 2006 than the
corresponding period in 2005, offset by an increase in cash
interest expense of $214 million over the corresponding prior
period.
Investing Activities. Net cash used in investing activities for the
years ended December 31, 2007, 2006, and 2005 was $1.1 billion,
$65 million, and $1.0 billion, respectively. Investing activities used
$1.1 billion more cash during the year ended December 31, 2007
than the corresponding period in 2006 and used $960 million less
cash during the year ended December 31, 2006 than the
corresponding period in 2005 primarily due to $1.0 billion of
proceeds received in 2006 from the sale of assets, including cable
systems.
Financing Activities. Net cash provided by financing activities was
$826 million and $136 million for the years ended December 31,
2007 and 2005, respectively, and net cash used by financing
activities was $219 million for the year ended December 31,
2006. The increase in cash provided during the year ended
December 31, 2007 compared to the corresponding in 2006, was
primarily the result of an increase in borrowings of long-term
debt. The decrease in cash provided during the year ended
December 31, 2006 compared to the corresponding period in
2005, was primarily the result of an increase in repayments of
long-term debt.
Capital Expenditures
We have significant ongoing capital expenditure requirements.
Capital expenditures were $1.2 billion, $1.1 billion, and $1.1 bil-
lion for the years ended December 31, 2007, 2006, and 2005,
respectively. Capital expenditures increased as a result of spend-
ing on customer premise equipment and support capital to meet
increased digital, high-speed Internet, and telephone customer
growth. See the table below for more details.
Our capital expenditures are funded primarily from cash
flows from operating activities, the issuance of debt, and borrow-
ings under credit facilities. In addition, during the years ended
December 31, 2007, 2006, and 2005, our liabilities related to
capital expenditures decreased by $2 million and increased by
$24 million and $8 million, respectively.
During 2008, we expect capital expenditures to be approxi-
mately $1.2 billion. We expect that the nature of these expendi-
tures will continue to be composed primarily of purchases of
customer premise equipment related to telephone and other
advanced services, support capital, and scalable infrastructure.
We have funded and expect to continue to fund capital expendi-
tures for 2008 primarily from cash flows from operating activities
and borrowings under our credit facilities.
We have adopted capital expenditure disclosure guidance,
which was developed by eleven then publicly traded cable
system operators, including Charter, with the support of the
National Cable & Telecommunications Association (“NCTA”).
The disclosure is intended to provide more consistency in the
reporting of capital expenditures among peer companies in the
cable industry. These disclosure guidelines are not required
CHARTER COMMUNICATIONS, INC. 2007 FORM 10-K
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