Charter 2003 Annual Report Download - page 115

CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 and 2001
(dollars in millions, except where indicated)
Intangible Assets Acquired in a Business Combination, which was issued in October 2002 and requires the
consideration of assumptions that marketplace participants would consider, such as expectations of future
contract renewals and other beneÑts related to the intangible asset. Revised estimates of future cash Öows and
the use of a lower projected long-term growth rate in the Company's valuation, led to recognition of a
$4.6 billion impairment charge in the fourth quarter of 2002.
The independent third-party appraiser's valuations as of January 1, 2002, October 1, 2002 and October 1,
2003 yielded total enterprise values of approximately $30 billion, $25 billion and $25 billion, respectively,
which included approximately $2.4 billion, $3.1 billion and $3.2 billion, respectively, assigned to customer
relationships. SFAS No. 142 does not permit the recognition of intangible assets not previously recognized.
Accordingly, the impairment included approximately $572 million and $3.1 billion, before tax eÅects,
attributable to customer relationships as of January 1, 2002 and October 1, 2002, respectively. The valuation
completed at October 1, 2003 showed franchise values in excess of book value and thus resulted in no
impairment. Additionally, as a result of the sale of the Port Orchard, Washington cable system on October 1,
2003, net carrying value of franchises were reduced by $42 million.
In determining whether its franchises have an indeÑnite life, the Company considered the exclusivity of
the franchise, its expected costs of franchise renewals, and the technological state of the associated cable
systems with a view to whether or not the Company is in compliance with any technology upgrading
requirements. Certain franchises did not qualify for indeÑnite-life treatment due to technological or
operational factors that limit their lives. These franchise costs will be amortized on a straight-line basis over
10 years.
The eÅect of the adoption of SFAS No. 142 as of December 31, 2003 and 2002 is presented in the
following table:
December 31,
2003 2002
Gross Net Gross Net
Carrying Accumulated Carrying Carrying Accumulated Carrying
Amount Amortization Amount Amount Amortization Amount
IndeÑnite-lived intangible assets:
Franchises with indeÑnite livesÏÏÏÏÏÏÏ $17,018 $3,412 $13,606 $17,076 $3,428 $13,648
Goodwill ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 52 Ì 52 54 Ì 54
$17,070 $3,412 $13,658 $17,130 $3,428 $13,702
Finite-lived intangible assets:
Franchises with Ñnite lives ÏÏÏÏÏÏÏÏÏÏ $ 107 $ 33 $ 74 $ 103 $ 24 $ 79
Franchise amortization expense for each of the years ended December 31, 2003 and 2002 was $9 million
which represents the amortization relating to franchises that did not qualify for indeÑnite-life treatment under
SFAS No. 142, including costs associated with franchise renewals. The Company expects amortization
expense on franchise assets will decrease to approximately $4 million annually based on its ability in 2003 to
renew franchise agreements the Company previously classiÑed as having Ñnite lives without substantial costs.
Actual amortization expense to be reported in future periods could diÅer from these estimates as a result of
new intangible asset acquisitions or divestitures, changes in useful lives and other relevant factors. Franchise
amortization expense for the year ended December 31, 2001 was $1.5 billion.
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