Charter 2005 Annual Report Download - page 129

CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES 2005 FORM 10-K
Notes to Consolidated Financial Statements (continued)
Charter Holdings can incur additional debt under the leverage Depreciation is recorded using the straight-line composite
ratio of 8.75 to 1.0, there is no default under Charter Holdings’ method over management’s estimate of the useful lives of the
indentures and other specified tests are met. For the quarter related assets as follows:
ended December 31, 2005, there was no default under Charter
Holdings’ indentures and Charter Holdings met its leverage ratio Cable distribution systems 7-20 years
Customer equipment and installations 3-5 years
test based on December 31, 2005 financial results. Such Vehicles and equipment 1-5 years
distributions would be restricted, however, if Charter Holdings Buildings and leasehold improvements 5-15 years
fails to meet these tests. In the past, Charter Holdings has from Furniture, fixtures and equipment 5 years
time to time failed to meet this leverage ratio test. There can be
Asset Retirement Obligations
no assurance that Charter Holdings will satisfy these tests at the
Certain of our franchise agreements and leases contain provi-
time of such distribution. During periods in which distributions
sions requiring us to restore facilities or remove equipment in
are restricted, the indentures governing the Charter Holdings
the event that the franchise or lease agreement is not renewed.
notes permit Charter Holdings and its subsidiaries to make
We expect to continually renew our franchise agreements and
specified investments (that are not restricted payments) in
have concluded that substantially all of the related franchise
Charter Holdco or Charter up to an amount determined by a
rights are indefinite lived intangible assets. Accordingly, the
formula, as long as there is no default under the indentures.
possibility is remote that we would be required to incur
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES significant restoration or removal costs related to these franchise
agreements in the foreseeable future. Statement of Financial
Cash Equivalents Accounting Standards (‘‘SFAS’’) No. 143, Accounting for Asset
The Company considers all highly liquid investments with Retirement Obligations, as interpreted by FIN No. 47, Accounting
original maturities of three months or less to be cash for Conditional Asset Retirement Obligations — an Interpretation of
equivalents. These investments are carried at cost, which FASB Statement No. 143, requires that a liability be recognized
approximates market value. for an asset retirement obligation in the period in which it is
Property, Plant and Equipment incurred if a reasonable estimate of fair value can be made. We
Property, plant and equipment are recorded at cost, including all have not recorded an estimate for potential franchise related
material, labor and certain indirect costs associated with the obligations but would record an estimated liability in the
construction of cable transmission and distribution facilities. unlikely event a franchise agreement containing such a provision
While the Company’s capitalization is based on specific activi- were no longer expected to be renewed. We also expect to
ties, once capitalized, costs are tracked by fixed asset category at renew many of our lease agreements related to the continued
the cable system level and not on a specific asset basis. Costs operation of our cable business in the franchise areas. For our
associated with initial customer installations and the additions of lease agreements, the liabilities related to the removal provisions,
network equipment necessary to enable advanced services are where applicable, have been recorded and are not significant to
capitalized. Costs capitalized as part of initial customer installa- the financial statements.
tions include materials, labor, and certain indirect costs. Indirect Franchises
costs are associated with the activities of the Company’s Franchise rights represent the value attributed to agreements
personnel who assist in connecting and activating the new with local authorities that allow access to homes in cable service
service and consist of compensation and indirect costs associ- areas acquired through the purchase of cable systems. Manage-
ated with these support functions. Indirect costs primarily ment estimates the fair value of franchise rights at the date of
include employee benefits and payroll taxes, direct variable costs acquisition and determines if the franchise has a finite life or an
associated with capitalizable activities, consisting primarily of indefinite-life as defined by SFAS No. 142, Goodwill and Other
installation and construction vehicle costs, the cost of dispatch Intangible Assets. All franchises that qualify for indefinite-life
personnel and indirect costs directly attributable to capitalizable treatment under SFAS No. 142 are no longer amortized against
activities. The costs of disconnecting service at a customer’s earnings but instead are tested for impairment annually as of
dwelling or reconnecting service to a previously installed October 1, or more frequently as warranted by events or
dwelling are charged to operating expense in the period changes in circumstances (see Note 7). The Company con-
incurred. Costs for repairs and maintenance are charged to cluded that 99% of its franchises qualify for indefinite-life
operating expense as incurred, while plant and equipment treatment; however, certain franchises did not qualify for
replacement and betterments, including replacement of cable indefinite-life treatment due to technological or operational
drops from the pole to the dwelling, are capitalized. factors that limit their lives. These franchise costs are amortized
on a straight-line basis over 10 years. Costs incurred in renewing
cable franchises are deferred and amortized over 10 years.
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