Charter 2002 Annual Report Download - page 35

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Based on the aged receivable balance at December 31, 2001, we permanently adjusted our bad debt
allowance formula to reserve 100% of the receivables more than 90 days past due and reserved an additional
$6.3 million in the fourth quarter of 2001. We disconnected many of these slower or non paying customers in
the Ñrst quarter of 2002, as we changed our marketing techniques and tightened our credit and disconnection
policies by decreasing the amount of time that we would allow a customer to receive service while payments
were past due.
Marketing costs increased $33 million, or 32%, related to an increased level of promotions of our service
oÅerings and the AT&T Broadband systems acquisition.
Depreciation and Amortization. Depreciation and amortization expense increased by $284 million, or
12%, from $2.4 billion in 2000 to $2.7 billion in 2001. This increase resulted from increased capital
expenditures under our rebuild and upgrade program in 2000 and 2001 and amortization of franchises in
connection with acquisitions completed in 2000 and 2001.
Option Compensation Expense. Option compensation expense decreased by $43 million from $38 mil-
lion of expense in 2000 to $5 million of net beneÑt in 2001. The decrease: is primarily the result of the reversal
of $22 million of expense previously recorded in connection with approximately 7 million options for which the
rights were waived by our former President and Chief Executive OÇcer as part of his September 2001
separation agreement. This was partially oÅset by expense recorded because exercise prices on certain options
issued prior to our initial public oÅering in 1999 were less than the estimated fair values of our common stock
at the time of grant Compensation expense is being accrued over the vesting period of such, options which
ends in April 2004.
Special Charges. Special charges in 2001 of $18 million represent charges associated with the transition
of approximately 145,000 data customers from the Excite@Home Internet service to our Charter Pipeline
service, as well as employee severance costs.
Net Interest Expense. Net interest expense increased by $271 million, or 26%, from $1.0 billion in 2000
to $1.3 billion in 2001. The increase in interest expense was a result of increased average debt outstanding in
2001 of $15.7 billion compared to $12.3 billion in 2000, partially oÅset by a decrease in our average borrowing
rate from 9.02% in 2000 to 8.40% in 2001. The increased debt was used for acquisitions and capital
expenditures.
Loss on Equity Investments. Loss on equity investments increased by $35 million, from $19 million in
2000 to $54 million in 2001. In 2001, the loss on equity investments was primarily due to losses of $42 million
on investments carried under the equity method of accounting, realized losses of $4 million on marketable
securities and other than temporary losses of $8 million on investments carried under the cost method. These
losses were primarily the result of weakening market conditions coupled with poor performance of these
investments. The loss on equity investments included a loss of $38 million related to our investment in High
Speed Access, a related party, which is described in Note 23 to our consolidated Ñnancial statements.
Other Expense. Other expense increased by $65 million from $1 million, in 2000 to $66 million in 2001.
This increase resulted primarily from a loss of $50 million on interest rate agreements as a result of SFAS
No. 133.
Income Tax BeneÑt. Income tax beneÑt of $12 million and $10 million for the years ended Decem-
ber 31, 2001 and 2000, respectively, represents deferred income tax beneÑts primarily related to the change in
the deferred tax assets related to our investment in Charter Communications Holding Company, LLC.
Minority Interest. Minority interest increased by $182 million, or 14%, from $1.3 billion in 2000 to
$1.5 billion in 2001. Minority interest represents the allocation of losses to the minority interest based on
ownership of Charter Communications Holding Company and the 2% accretion of the preferred membership
interests in CC VIII issued to certain former owners of the Bresnan systems acquired by CC VIII in February
2000. The increase is a result of an increase in loss before minority interest oÅset by a decrease in the minority
interest percentage as a result of the issuance of Class A common stock by Charter Communications, Inc. See
Note 23 to our consolidated Ñnancial statements.
33