Charter 2002 Annual Report Download - page 77

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CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002, 2001 and 2000
(dollars in millions, except where indicated)
These amounts have been reported as marketing expense in the period incurred and totaled $59 million and
$4 million and for the years ended December 31, 2001 and 2000, respectively. The Company discontinued this
program in the third quarter of 2002 as contracts for third-party vendors expired. Substantially all of these
amounts are oÅset by reduced depreciation and amortization expense.
Rebuild and Upgrade of Cable Systems. In 2000, the Company initiated a three-year program to
replace and upgrade a substantial portion of its network. In connection with this plan, the Company assessed
the carrying value of, and the associated depreciable lives of, various assets to be replaced. It was determined
that $1 billion of cable distribution system assets, originally treated as subject to replacement, were not part of
the original replacement plan but were to be upgraded and have remained in service. The Company also
determined that certain assets subject to replacement during the upgrade program were misstated in the
allocation of the purchase price of the acquisition. This adjustment is a reduction to property, plant and
equipment and increased franchise costs of approximately $627 million as a result of this Ñnding. In addition,
the depreciation period for the replacement assets was adjusted to more closely align with the intended service
period of these assets rather than the three-year straight-line life originally assigned. As a result, adjustments
were recorded to reduce depreciation expense $330 million and $119 million in the years ending 2001 and
2000, respectively.
Deferred Tax Liabilities/Franchise Assets. Adjustments were made to record deferred tax liabilities
associated with the acquisition of various cable television businesses. These adjustments increased amounts
assigned to franchise assets by $1.4 billion with a corresponding increase in deferred tax liabilities of
$1.2 billion. The balance of the entry was recorded to equity and minority interest. In addition, as described
above, a correction was made to reduce amounts assigned in purchase accounting to assets identiÑed for
replacement over the three-year period of the Company's rebuild and upgrade of its network. This reduced the
amount assigned to the network assets to be retained and increased the amount assigned to franchise assets by
approximately $627 million with a resulting increase in amortization expense for the years restated. Such
adjustments increased amortization expense by $130 million and $121 million, respectively, for the years
ended December 31, 2001 and 2000.
Other Adjustments. In addition to the items described above, reductions to 2000 revenues include the
reversal of certain advertising revenues from equipment vendors. Other adjustments of expenses include
expensing certain marketing and customer acquisition costs previously charged against purchase accounting
reserves, certain tax reclassiÑcations from tax expense to operating costs, reclassifying management fee
revenue from a joint venture to oÅset losses from investments and adjustments to option compensation
expense. The net impact of these adjustments to net loss is an increase of $38 million and a decrease of
$10 million, respectively, for the years ended December 31, 2001 and 2000.
F-9