Charter 2002 Annual Report Download - page 16

required principal payments on the Charter Communications, Inc. notes in 2005 unless we obtain additional
debt or equity Ñnancing, and there can be no assurance that we will be able to obtain the requisite Ñnancing or
that such Ñnancing, if available, would not bear terms that are materially disadvantageous to current debt and
equity holders.
Restatement of Prior Results
On November 19, 2002, we announced that we had determined that additional franchise costs and
deferred income tax liability should have been recorded relating to the diÅerences between the Ñnancial
statement and tax basis of assets we acquired in connection with certain cable businesses acquired throughout
1999 and 2000. As a result of this restatement, we engaged KPMG LLP to perform audits as of and for the
years ended December 31, 2001 and 2000 because our former accountants, Arthur Andersen LLP, were no
longer available to provide an opinion as to restated Ñnancial statements.
In connection with these audits and discussions with the staÅ of the Securities and Exchange
Commission (SEC) in connection with their review of our periodic Ñlings, we concluded that it was
appropriate to make certain adjustments to previously reported results. Among other things, adjustments were
made to previous interpretations and applications of generally accepted accounting principles
(GAAP) consistently followed by us since 2000 and throughout the restatement period. Although we do not
anticipate that additional adjustments will be necessary, until the SEC review process has been completed, it
is possible that additional adjustments may be required.
These adjustments reduced our revenue for the Ñrst three quarters of 2002 by $38 million, and for the
years ended December 31, 2001 and 2000 by $146 million and $108 million, respectively. Such adjustments
represent approximately 1%, 4% and 3% of reported revenues for the respective periods in 2002, 2001 and
2000. Our consolidated net loss increased by $26 million for the Ñrst three quarters of 2002 and decreased by
$11 million for the year ended December 31, 2001. Net loss increased by $29 million for the year ended
December 31, 2000, primarily due to adjustments related to the original accounting for acquisitions and
elements of the rebuild and upgrade activities discussed below. In addition, as a result of certain of these
adjustments, our statements of cash Öows have been restated. Cash Öows from operations for the years ended
December 31, 2001 and 2000 were reduced by $30 million and $303 million, respectively. The more signiÑcant
categories of adjustments relate to the following items outlined below.
Launch Incentives from Programmers. Amounts previously recognized as advertising revenue in
connection with the launch of new programming channels have been deferred and recorded in other long-term
liabilities in the year such launch support was provided, and amortized as a reduction of programming costs
based upon the relevant contract term. These adjustments decreased revenue $30 million for the Ñrst three
quarters of 2002, and $118 million and $76 million for the years ended December 31, 2001 and 2000,
respectively. Additionally, for the year ended December 31, 2000, we increased marketing expense by
$24 million for other promotional activities associated with launching new programming services previously
deferred and subsequently amortized. The corresponding amortization of such deferred amounts reduced
programming expenses by $36 million for the Ñrst three quarters of 2002, and $27 million and $5 million for
the years ended December 31, 2001 and 2000, respectively.
Customer Incentives and Inducements. Marketing inducements paid to encourage potential customers
to switch from satellite providers to Charter branded services and enter into multi-period service agreements
were previously deferred and recorded as property, plant and equipment and recognized as depreciation and
amortization expense over the life of customer contracts. These amounts have been restated as a reduction of
revenue in the period such inducements were paid. Revenue declined $5 million for the Ñrst three quarters of
2002, and $19 million and $2 million for the years ended December 31, 2001 and 2000, respectively.
Substantially all of these amounts are oÅset by reduced depreciation and amortization expense.
Capitalized Labor and Overhead Costs. Certain elements of labor costs and related overhead allocations
previously capitalized as property, plant and equipment as part of our rebuild activities, customer installation
and new service introductions have been expensed in the period incurred. Such adjustments increased
14