CERTAIN TRENDS AND UNCERTAINTIES
The following discussion highlights a number of trends and
uncertainties that could materially impact our business, results of operations
and financial condition.
SUBSTANTIAL LEVERAGE. As of September 30, 1999, our total debt was
approximately $6.2 billion and our total member's equity was approximately $4.5
billion. We anticipate incurring substantial additional debt in the future to
fund the expansion, maintenance and the upgrade of our systems.
Our ability to make payments on our debt and to fund our planned
capital expenditures for upgrading our cable television systems and our ongoing
operations will depend on our ability to generate cash and secure financing in
the future. This, to a certain extent, is subject to general economic,
financial, competitive, legislative, regulatory and other factors that are
beyond our control. There can be no assurance that our business will generate
sufficient cash flow from operations, or that future borrowings will be
available to us under our existing credit facilities, new facilities or from
other sources of financing in an amount sufficient to enable us to repay our
debt, to grow our business or to fund our other liquidity and capital needs.
VARIABLE INTEREST RATES. A significant portion of our debt bears
interest at variable rates that are linked to short-term interest rates. In
addition, a significant portion of our assumed debt or debt we expect to arrange
in connection with our pending acquisitions will bear interest at variable
rates. If interest rates rise, our costs relative to those obligations will also
rise. See later discussion in "Interest Rate Risk".
RESTRICTIVE COVENANTS. Our debt and credit facilities contain a number
of significant covenants that, among other things, restrict the ability of our
- pay dividends;
- pledge assets;
- dispose of assets or merge;
- incur additional debt;
- issue equity;
- repurchase or redeem equity interests and debt;
- create liens; and
- make certain investments or acquisitions.
In addition, the Charter Operating credit facilities require us to
maintain specified financial ratios and meet financial tests. The ability to
comply with these provisions may be affected by events beyond our control. The
breach of any of these covenants will result in a default under the applicable
debt agreement or instrument, which could trigger acceleration of the debt. Any
default under our credit facilities or the indentures governing outstanding debt
securities may adversely affect our growth, our financial condition and our
results of operations.
IMPORTANCE OF GROWTH STRATEGY AND RELATED RISKS. We expect that a
substantial portion of any of our future growth will be achieved through
revenues from additional services and the acquisition of additional cable
television systems. We cannot assure you that we will be able to offer new
services successfully to our customers or that those new services will generate
revenues. In addition, the acquisition of additional cable television systems
may not have a positive net impact on our operating results. Acquisitions
involve a number of special risks, including diversion of management's
attention, failure to retain key acquired personnel, risks associated with
unanticipated events or liabilities and difficulties in assimilation of the
operations of the acquired companies, some or all of which could have a material
adverse effect on our business, results of operations and financial condition.
If we are unable to grow our cash flow sufficiently, we may be unable to fulfill
our obligations or obtain alternative financing.
MANAGEMENT OF GROWTH. As a result of the acquisition of the Charter
companies by Paul G. Allen, our merger with Marcus Holdings and our recent
acquisitions, we have experienced and will continue to experience rapid growth
that has placed and is expected to continue to place a significant strain on our
management, operations and other resources. Our future success will depend in
part on our ability to successfully integrate the operations acquired and to
attract and retain qualified personnel. Historically, acquired entities have had
minimal employee benefit related costs and all benefit plans