Charter 2003 Annual Report Download - page 135

CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 and 2001
(dollars in millions, except where indicated)
Based on a sliding exchange ratio, which varied depending on the exercise price of an employees outstanding
options, if an employee would have received more than 400 shares of restricted stock in exchange for tendered
options, Charter issued that employee shares of restricted stock in the exchange. If, based on the exchange
ratios, an employee would have received 400 or fewer shares of restricted stock in exchange for tendered
options, Charter instead paid the employee cash in an amount equal to the number of shares the employee
would have received multiplied by $5.00. The oÅer applied to options (vested and unvested) to purchase a
total of 22,929,573 shares of Class A common stock, or approximately 48% of the Company's 47,882,365 total
options issued and outstanding as of December 31, 2003. Participation by employees was voluntary. Those
members of the Company's board of directors who were not also employees of the Company or any of its
subsidiaries were not eligible to participate in the exchange oÅer.
In the closing of the exchange oÅer on February 20, 2004, the Company accepted for cancellation eligible
options to purchase approximately 18,137,664 shares of its Class A common stock. In exchange, the Company
granted 1,966,686 shares of restricted stock, including 460,777 performance shares to eligible employees of the
rank of senior vice president and above, and paid a total cash amount of approximately $4 million (which
amount includes applicable withholding taxes) to those employees who received cash rather than shares of
restricted stock. The grants of restricted stock were eÅective as of February 25, 2004. Employees tendered
approximately 79% of the options eligible to be exchanged under the program.
Based on the results above, the cost to the Company of the Stock Option Exchange Program was
approximately $12 million, with a 2004 cash compensation expense of approximately $4 million and a non-
cash compensation expense of approximately $8 million to be expensed ratably over the three-year vesting
period of the restricted stock in the exchange.
In January 2004, the Compensation Committee of the board of directors of Charter approved Charter's
Long-Term Incentive Program (""LTIP''), which is a program administered under the 2001 Stock Incentive
Plan. Employees of Charter and its subsidiaries whose pay classiÑcations exceed a certain level are eligible to
receive stock options, and more senior level employees are eligible to receive stock options and performance
shares. Under the LTIP, the stock options vest 25% on each of the Ñrst four anniversaries of the date of grant.
The performance shares are earned on the third anniversary of the grant date, conditional upon Charter's
performance against Ñnancial performance measures and customer growth targets established by Charter's
management and approved by its board of directors as of the time of the award. No awards were made under
the LTIP in 2003.
20. Special Charges
In the fourth quarter of 2002, the Company recorded a special charge of $35 million, of which $31 million
was associated with its workforce reduction program and the consolidation of its operations from three
divisions and ten regions into Ñve operating divisions, elimination of redundant practices and streamlining its
management structure. The remaining $4 million related to legal and other costs associated with the
Company's ongoing grand jury investigation, shareholder lawsuits and SEC investigation. The $31 million
charge related to realignment activities, included severance costs of $28 million related to approximately 1,400
employees identiÑed for termination as of December 31, 2002 and lease termination costs of $3 million.
During the year ended December 31, 2003, an additional 1,400 employees were identiÑed for termination and
additional severance costs of $20 million and additional lease costs of $6 million were recorded in special
charges. In total, approximately 2,600 employees were terminated during the year ended December 31, 2003.
Severance payments are generally made over a period of up to twelve months with approximately $39 million
paid during the year ended December 31, 2003. The Company paid $4 million in lease termination costs
during the year ended December 31, 2003. As of December 31, 2003 and December 31, 2002, a liability of
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