Charter 2002 Annual Report Download - page 25

assets), respectively. Furthermore, we recorded approximately $54 million of goodwill as a result of the
acquisition of High Speed Access in February 2002.
We adopted SFAS No. 142 ""Goodwill and Other Intangible Assets'' on January 1, 2002. SFAS No. 142
requires that franchise intangible assets that meet the indeÑnite life criteria no longer be amortized against
earnings but instead must be tested for impairment annually or more frequently as warranted by events or
changes in circumstances. In determining whether our franchises have an indeÑnite life, we considered the
exclusivity of the franchise, the expected costs of franchise renewals, and the technological state of the
associated cable systems with a view to whether or not we are in compliance with any technology upgrading
requirements. We have concluded that as of January 1, 2002 and December 31, 2002 more than 99% of our
franchises qualify for indeÑnite life treatment under SFAS No. 142, and that less than one percent of our
franchises do not qualify for indeÑnite-life treatment due to technological or operational factors that limit their
lives. Costs of Ñnite-lived franchises, along with costs associated with franchise renewals, will be amortized on
a straight-line basis over 10 years, which represents management's best estimate of the average remaining
useful lives of such franchises. Prior to the adoption of SFAS No. 142, our franchises were amortized over an
average useful life of 15 years. Franchise amortization expense related to franchises not qualifying for
indeÑnite life treatment totaled $9 million for the year ended December 31, 2002. Franchise amortization
expense was $1.4 billion and $1.4 billion, representing approximately 28% and 33% of costs and expenses, for
the years ended December 31, 2001 and 2000. Going forward, we expect amortization expense on franchise
assets will be approximately $8 million annually based on our current franchise agreements and anticipated
upgrade plans. Our goodwill is also deemed to have an indeÑnite life under SFAS No. 142.
SFAS No. 144, ""Accounting for Impairment or Disposal of Long-Lived Assets,'' requires that we
evaluate the recoverability of our property, plant and equipment and franchise assets which did not qualify for
indeÑnite life treatment under SFAS No. 142 upon the occurrence of events or changes in circumstances
which indicate that the carrying amount of an asset may not be recoverable. Such events or changes in
circumstances could include such factors as changes in technological advances, Öuctuations in the fair value of
such assets, adverse changes in relationships with local franchise authorities, adverse changes in market
conditions or poor operating results. Under SFAS No. 144, a long-lived asset is deemed impaired when the
carrying amount of the asset exceeds the projected undiscounted future cash Öows associated with the asset.
Furthermore, we were required to evaluate the recoverability of our indeÑnite life franchises, as well as
goodwill, as of January 1, 2002 upon adoption of SFAS No. 142, and on an annual basis or more frequently as
deemed necessary.
Under both SFAS No. 144 and SFAS No. 142, if an asset is determined to be impaired, it is required to
be written down to its estimated fair market value. We determine fair market value based on estimated
discounted future cash Öows, using reasonable and appropriate assumptions that are consistent with internal
forecasts. Our assumptions include these and other factors: penetration rates for analog and digital video and
high-speed data, revenue growth rates, expected operating margins and capital expenditures. Considerable
management judgment is necessary to estimate future cash Öows, and such estimates include inherent
uncertainties, including those relating to the timing and amount of future cash Öows and the discount rate used
in the calculation. We utilize an independent third-party appraiser with expertise in the cable industry to assist
in the determination of the fair value of intangible assets.
During the Ñrst quarter of 2002, we had an independent appraiser perform valuations of our franchises as
of January 1, 2002. Based on the guidance prescribed in Emerging Issues Task Force (EITF) Issue No. 02-7,
Unit of Accounting for Testing of Impairment of IndeÑnite-Lived Intangible Assets, franchises were aggregated
into essentially inseparable asset groups to conduct the valuations. The asset groups generally represent
geographic clusters of our cable systems which management believes represents the highest and best use of
those assets. We determined that our franchises were impaired and as a result recorded the cumulative eÅect
of a change in accounting principle of $266 million, net of minority interest. This adjustment has been
reÖected in the year ended December 31, 2002 Ñnancial statements. As required by SFAS No. 142, the
standard has not been retroactively applied to results for the period prior to adoption.
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