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SEC Filings

S-1
CHARTER COMMUNICATIONS, INC. /MO/ filed this Form S-1 on 07/28/1999
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<PAGE>   65
 
INTEREST RATE RISK
 
     The use of interest rate risk management instruments, such as interest rate
exchange agreements, interest rate cap agreements and interest rate collar
agreements, is required under the terms of our credit facilities. Our policy is
to manage interest costs using a mix of fixed and variable rate debt. Using
interest rate swap agreements, we agree to exchange, at specified intervals, the
difference between fixed and variable interest amounts calculated by reference
to an agreed-upon notional principal amount. Interest rate cap agreements are
used to lock in a maximum interest rate should variable rates rise, but enable
us to otherwise pay lower market rates. Collars limit our exposure to and
benefits from interest rate fluctuations on variable rate debt to within a
certain range of rates.
 
     The table set forth below summarizes the fair values and contract terms of
financial instruments subject to interest rate risk maintained by us as of
December 31, 1998 (dollars in thousands):
 

<TABLE>
<CAPTION>
                                              EXPECTED MATURITY DATE                                            FAIR VALUE AT
                               ----------------------------------------------------                             DECEMBER 31,
                                 1999       2000       2001       2002       2003     THEREAFTER     TOTAL          1998
                               --------   --------   --------   --------   --------   ----------   ----------   -------------
<S>                            <C>        <C>        <C>        <C>        <C>        <C>          <C>          <C>
DEBT
Fixed Rate...................        --         --         --         --         --   $  984,509   $  984,509    $  974,327
 Average Interest Rate.......        --         --         --         --         --         13.5%        13.5%
Variable Rate................  $ 87,950   $110,245   $148,950   $393,838   $295,833   $1,497,738   $2,534,554    $2,534,533
 Average Interest Rate.......       6.0%       6.1%       6.3%       6.5%       7.2%         7.6%         7.2%
INTEREST RATE INSTRUMENTS
Variable to Fixed Swaps......  $130,000   $255,000   $180,000   $320,000   $370,000   $  250,000   $1,505,000    $ (28,977)
 Average Pay Rate............       4.9%       6.0%       5.8%       5.5%       5.6%         5.6%         5.6%
 Average Receive Rate........       5.0%       5.0%       5.2%       5.2%       5.4%         5.4%         5.2%
Caps.........................  $ 15,000         --         --         --         --           --   $   15,000            --
 Average Cap Rate............       8.5%        --         --         --         --           --          8.5%
Collar.......................        --   $195,000   $ 85,000   $ 30,000         --           --   $  310,000    $  (4,174)
 Average Cap Rate............        --        7.0%       6.5%       6.5%        --           --          6.8%
 Average Floor Rate..........        --        5.0%       5.1%       5.2%        --           --          5.0%
</TABLE>

 
     The notional amounts of interest rate instruments, as presented in the
above table, are used to measure interest to be paid or received and do not
represent the amount of exposure to credit loss. The estimated fair value
approximates the proceeds (costs) to settle the outstanding contracts. Interest
rates on variable debt are estimated using the average implied forward LIBOR
rates for the year of maturity based on the yield curve in effect at December
31, 1998 plus the borrowing margin in effect for each credit facility at
December 31, 1998. While swaps, caps and collars represent an integral part of
our interest rate risk management program, their incremental effect on interest
expense for the years ended December 31, 1998, 1997, and 1996 was not
significant.
 
     In March 1999, substantially all existing long-term debt, excluding
borrowings of our previous credit facilities was extinguished, and all previous
credit facilities were refinanced with the credit facilities. The following
table set forth the fair values and contract terms of the long-term debt
maintained by us as of March 31, 1999:
 

<TABLE>
<CAPTION>
                                               EXPECTED MATURITY DATE                                           FAIR VALUE AT
                                 --------------------------------------------------                               MARCH 31,
                                   1999       2000       2001      2002      2003     THEREAFTER     TOTAL          1999
                                 --------   --------   --------   -------   -------   ----------   ----------   -------------
<S>                              <C>        <C>        <C>        <C>       <C>       <C>          <C>          <C>
DEBT
Fixed Rate.....................        --         --         --        --        --   $3,575,000   $3,575,000    $3,004,023
 Average Interest Rate.........        --         --         --        --        --          9.0%         9.0%
Variable Rate..................        --         --         --   $13,125   $17,500   $1,719,375   $1,750,000    $1,750,000
 Average Interest Rate.........        --         --         --       5.9%      6.0%         6.4%         6.4%
</TABLE>

 
     Interest rates on variable debt are estimated using the average implied
forward LIBOR rates for the year of maturity based on the yield curve in effect
at March 31, 1998 plus the borrowing margin in effect for each credit facility
at March 31, 1999.
 
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