Charter 2004 Annual Report Download - page 120

CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES 2004 FORM 10-K
Notes to Consolidated Financial Statements (continued)
Advertising Costs award to an employee over the vesting period based on the fair
Advertising costs associated with marketing the Company’s value of the award on the grant date consistent with the
products and services are generally expensed as costs are method described in Financial Accounting Standards Board
incurred. Such advertising expense was $72 million, $62 million Interpretation (‘‘FIN’’) No. 28, Accounting for Stock Appreciation
and $60 million for the years ended December 31, 2004, 2003 Rights and Other Variable Stock Option or Award Plans. Adoption
and 2002, respectively. of these provisions resulted in utilizing a preferable accounting
method as the consolidated financial statements will present the
Stock-Based Compensation estimated fair value of stock-based compensation in expense
The Company has historically accounted for stock-based com- consistently with other forms of compensation and other
pensation in accordance with Accounting Principles Board expense associated with goods and services received for equity
(‘‘APB’’) Opinion No. 25, Accounting for Stock Issued to Employees,instruments. In accordance with SFAS No. 148, Accounting for
and related interpretations, as permitted by SFAS No. 123, Stock-Based Compensation — Transition and Disclosure, the fair value
Accounting for Stock-Based Compensation. On January 1, 2003, the method was applied only to awards granted or modified after
Company adopted the fair value measurement provisions of January 1, 2003, whereas awards granted prior to such date were
SFAS No. 123 using the prospective method under which the accounted for under APB No. 25, unless they were modified or
Company will recognize compensation expense of a stock-based settled in cash.
SFAS No. 123 requires pro forma disclosure of the impact on earnings as if the compensation expense for these plans had been
determined using the fair value method. The following table presents the Company’s net loss and loss per share as reported and the
pro forma amounts that would have been reported using the fair value method under SFAS No. 123 for the years presented:
Year Ended December 31,
2004 2003 2002
Net loss applicable to common stock $(4,345) $ (242) $(2,517)
Add back stock-based compensation expense related to stock options included in reported net loss (net of
minority interest) 31 22
Less employee stock-based compensation expense determined under fair value based method for all employee
stock option awards (net of minority interest) (33) (14) (56)
Effects of unvested options in stock option exchange (see Note 19) 48 — —
Pro forma $(4,299) $ (254) $(2,571)
Loss per common shares, basic and diluted:
As reported $(14.47) $(0.82) $ (8.55)
Pro forma $(14.32) $(0.86) $ (8.73)
The fair value of each option granted is estimated on the acquisition in 1999 and the Bresnan acquisition in 2000. The
date of grant using the Black-Scholes option-pricing model. The remaining benefit relates to the reversal of previously recorded
following weighted average assumptions were used for grants liabilities, which are no longer required.
during the years ended December 31, 2004, 2003 and 2002,
Income Taxes
respectively: risk-free interest rates of 3.3%, 3.0%, and 3.6%;
The Company recognizes deferred tax assets and liabilities for
expected volatility of 92.4%, 93.6% and 64.2%; and expected
temporary differences between the financial reporting basis and
lives of 4.6 years, 4.5 years and 4.3 years, respectively. The
the tax basis of the Company’s assets and liabilities and
valuations assume no dividends are paid.
expected benefits of utilizing net operating loss carryforwards.
Unfavorable Contracts and Other Settlements The impact on deferred taxes of changes in tax rates and tax
The Company recognized $5 million of benefit for the year law, if any, applied to the years during which temporary
ended December 31, 2004 related to changes in estimated legal differences are expected to be settled, are reflected in the
reserves established as part of previous business combinations, consolidated financial statements in the period of enactment (see
which, based on an evaluation of current facts and circum- Note 21).
stances, are no longer required.
Minority Interest
The Company recognized $72 million of benefit for the
Minority interest on the consolidated balance sheets represents
year ended December 31, 2003 as a result of the settlement of
the portion of members’ equity of Charter Holdco not owned
estimated liabilities recorded in connection with prior business
by Charter, plus preferred membership interests in an indirect
combinations. The majority of this benefit (approximately
subsidiary of Charter held by Mr. Paul G. Allen. Minority
$52 million) is due to the renegotiation of a major programming
interest totaled $648 million and $689 million as of Decem-
contract, for which a liability had been recorded for the above
ber 31, 2004 and 2003, respectively, on the accompanying
market portion of the agreement in conjunction with the Falcon
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