Charter 2007 Annual Report Download - page 85

Notes to Consolidated Financial Statements December 31, 2007, 2006 and 2005
(dollars in millions, except where indicated)
1. ORGANIZATION AND BASIS OF PRESENTATION
Charter Communications, Inc. (“Charter”) is a holding company
whose principal assets at December 31, 2007 are the 54%
controlling common equity interest (52% for accounting pur-
poses) in Charter Communications Holding Company, LLC
(“Charter Holdco”) and “mirror” notes which are payable by
Charter Holdco to Charter and have the same principal amount
and terms as those of Charter’s convertible senior notes. Charter
Holdco is the sole owner of CCHC, LLC (“CCHC”), which is
the sole owner of Charter Communications Holdings, LLC
(“Charter Holdings”). The consolidated financial statements
include the accounts of Charter, Charter Holdco, CCHC, Charter
Holdings and all of their subsidiaries where the underlying
operations reside, which are collectively referred to herein as the
“Company.” Charter has 100% voting control over Charter
Holdco and consolidates Charter Holdco as a variable interest
entity under Financial Accounting Standards Board (“FASB”)
Interpretation (“FIN”) 46(R) Consolidation of Variable Interest Enti-
ties. Charter Holdco’s limited liability company agreement pro-
vides that so long as Charter’s Class B common stock retains its
special voting rights, Charter will maintain a 100% voting interest
in Charter Holdco. Voting control gives Charter full authority
and control over the operations of Charter Holdco. All signifi-
cant intercompany accounts and transactions among consoli-
dated entities have been eliminated.
The Company is a broadband communications company
operating in the United States. The Company offers to residential
and commercial customers traditional cable video programming
(analog and digital video), high-speed Internet services, and
telephone services, as well as advanced broadband services such
as high definition television, Charter OnDemand
TM
, and digital
video recorder service. The Company sells its cable video
programming, high-speed Internet, telephone, and advanced
broadband services on a subscription basis. The Company also
sells local advertising on cable networks.
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
(“GAAP”) requires management to make estimates and assump-
tions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. Areas involving significant
judgments and estimates include capitalization of labor and
overhead costs; depreciation and amortization costs; impairments
of property, plant and equipment, franchises and goodwill;
income taxes; and contingencies. Actual results could differ from
those estimates.
Reclassifications. Certain prior year amounts have been reclas-
sified to conform with the 2007 presentation.
2. LIQUIDITY AND CAPITAL RESOURCES
The Company incurred net loss applicable to common stock of
$1.6 billion, $1.4 billion, and $970 million in 2007, 2006, and
2005, respectively. The Company’s net cash flows from operating
activities were $327 million, $323 million, and $260 million for
the years ending December 31, 2007, 2006, and 2005,
respectively.
The Company has a significant amount of debt. The
Company’s long-term financing as of December 31, 2007 totaled
$19.9 billion, consisting of $7.2 billion of credit facility debt,
$12.3 billion accreted value of high-yield notes, and $402 million
accreted value of convertible senior notes. In 2008, $65 million of
the Company’s debt matures and in 2009, an additional $302 mil-
lion matures. In 2010 and beyond, significant additional amounts
will become due under the Company’s remaining long-term debt
obligations.
The Company requires significant cash to fund debt service
costs, capital expenditures and ongoing operations. The Com-
pany has historically funded these requirements through cash
flows from operating activities, borrowings under its credit facil-
ities, sales of assets, issuances of debt and equity securities, and
cash on hand. However, the mix of funding sources changes
from period to period. For the year ended December 31, 2007,
the Company generated $327 million of net cash flows from
operating activities after paying cash interest of $1.8 billion. In
addition, the Company used $1.2 billion for purchases of prop-
erty, plant and equipment. Finally, the Company generated net
cash flows from financing activities of $826 million.
The Company expects that cash on hand, cash flows from
operating activities, and the amounts available under the Charter
Communications Operating, LLC (“Charter Operating”) credit
facilities will be adequate to meet its projected cash needs
through the second or third quarter of 2009 and thereafter will
not be sufficient to fund such needs. The Company’s projected
cash needs and projected sources of liquidity depend upon,
among other things, its actual results, the timing and amount of
its capital expenditures, and ongoing compliance with the Char-
ter Operating credit facilities, including Charter Operating’s
obtaining an unqualified audit opinion from its independent
accountants. The Company will therefore need to obtain addi-
tional sources of liquidity by early 2009. Although the Company
and its subsidiaries have been able to raise funds through
issuances of debt in the past, it 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. A continuation of the recent
turmoil in the credit markets and the general economic down-
turn could adversely impact the terms and/or pricing when the
Company needs to raise additional liquidity. No assurances can
be given that the Company will not experience liquidity prob-
lems if it does not obtain sufficient additional financing on a
timely basis as the Company’s debt becomes due or because of
F-7
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES 2007 FORM 10-K