Charter 2003 Annual Report Download - page 134

CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 and 2001
(dollars in millions, except where indicated)
The following table summarizes information about stock options outstanding and exercisable as of
December 31, 2003:
Options Outstanding Options Exercisable
Weighted-Average Weighted-Average
Range of Number Remaining Weighted-Average Remaining Weighted-Average
Exercise Prices Outstanding Contractual Life Exercise Price Number Exercisable Contractual Life Exercise Price
(in thousands) (in thousands)
$ 1.11 - $ 2.85 9,809 9 years $ 2.31 1,718 9 years $ 2.49
$ 3.91 - $ 9.13 6,309 9 years 5.52 319 8 years 9.13
$11.99 - $19.47 20,243 7 years 14.65 12,191 7 years 15.34
$20.00 - $23.09 11,521 6 years 21.19 8,633 6 years 20.83
On January 1, 2003, the Company adopted the fair value measurement provisions of SFAS No. 123,
under which the Company recognizes compensation expense of a stock-based award to an employee over the
vesting period based on the fair value of the award on the grant date. Adoption of these provisions resulted in
utilizing a preferable accounting method as the consolidated Ñnancial statements present the estimated fair
value of stock-based compensation in expense consistently with other forms of compensation and other
expense associated with goods and services received for equity instruments. In accordance with SFAS
No. 123, the fair value method will be applied only to awards granted or modiÑed after January 1, 2003,
whereas awards granted prior to such date will continue to be accounted for under APB No. 25, unless they
are modiÑed or settled in cash. The ongoing eÅect on consolidated results of operations or Ñnancial condition
will be dependent upon future stock based compensation awards granted. The Company recorded $4 million of
option compensation expense for the year ended December 31, 2003.
Prior to the adoption of SFAS No. 123, the Company used the intrinsic value method prescribed by APB
No. 25, Accounting for Stock Issued to Employees, to account for the option plans. Option compensation
expense of $5 million and net option compensation beneÑt of $5 million for the years ended December 31,
2002 and 2001, respectively, was recorded in the consolidated statements of operations since the exercise
prices of certain options were less than the estimated fair values of the underlying membership interests on the
date of grant. A reversal of previously recognized option compensation expense of $22 million for the year
ended December 31, 2001 was recorded in the consolidated statements of operations primarily in connection
with the waiver of the right to approximately seven million options by the Company's 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 were less than the estimated fair values of the
Company's stock at the time of grant. Estimated fair values were determined by the Company using the
valuation inherent in the companies acquired by Paul G. Allen in 1998 and valuations of public companies in
the cable television industry adjusted for factors speciÑc to the Company. Compensation expense is being
recorded with the method described in FASB Interpretation No. 28 over the vesting period of the individual
options that varies between four and Ñve years. As of December 31, 2003, no deferred compensation remained
to be recognized in future periods. No stock option compensation expense was recorded for the options granted
after November 8, 1999, since the exercise price was equal to the estimated fair value of the underlying
membership interests or shares of Class A common stock on the date of grant. Since the membership units are
exchangeable into Class A common stock of Charter on a one-for-one basis, the estimated fair value was equal
to the quoted market values of Class A common stock.
In January 2004, the Company commenced an option exchange program in which employees of the
Company and its subsidiaries were oÅered the right to exchange all stock options (vested and unvested) issued
under the 1999 Charter Communications Option Plan and 2001 Stock Incentive Plan that had an exercise
price over $10 per share for shares of restricted Charter Class A common stock or, in some instances, cash.
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