Charter 2005 Annual Report Download - page 130

CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES 2005 FORM 10-K
Notes to Consolidated Financial Statements (continued)
Other Noncurrent Assets SFAS No. 115, Accounting for Certain Investments in Debt and
Other noncurrent assets primarily include deferred financing Equity Securities. Charter recognizes losses for any decline in
costs, governmental securities, investments in equity securities value considered to be other than temporary. Certain market-
and goodwill. Costs related to borrowings are deferred and able equity securities are classified as available-for-sale and
amortized to interest expense over the terms of the related reported at market value with unrealized gains and losses
borrowings. recorded as accumulated other comprehensive income or loss.
Investments in equity securities are accounted for at cost,
under the equity method of accounting or in accordance with
The following summarizes investment information as of and for the years ended December 31, 2005 and 2004:
Gain (loss) For
Carrying Value at the Years Ended
December 31, December 31,
2005 2004 2005 2004 2003
Equity investments, under the cost method $61 $39 $— $(3) $(2)
Equity investments, under the equity method 13 25 22 7(1)
$74 $64 $22 $ 4 $(3)
The gain on equity investments, under the equity method reduced to its estimated fair value. While the Company believes
for the year ended December 31, 2005 primarily represents a that its estimates of future cash flows are reasonable, different
gain realized on an exchange of the Company’s interest in an assumptions regarding such cash flows could materially affect its
equity investee for an investment in a larger enterprise. Such evaluations of asset recoverability. No impairments of long-lived
amounts are included in other, net in the statements of assets to be held and used were recorded in 2005, 2004 and
operations. 2003, however, approximately $39 million of impairment on
As required by the indentures to the Company’s assets held for sale was recorded for the year ended Decem-
5.875% convertible senior notes issued in November 2004, the ber 31, 2005 (see Note 4).
Company purchased U.S. government securities valued at Derivative Financial Instruments
approximately $144 million with maturities corresponding to the The Company accounts for derivative financial instruments in
interest payment dates for the convertible senior notes. These accordance with SFAS No. 133, Accounting for Derivative
securities were pledged and are held in escrow to provide Instruments and Hedging Activities, as amended. For those
payment in full for the first six interest payments of the instruments which qualify as hedging activities, related gains or
convertible senior notes (see Note 9), two of which were funded losses are recorded in accumulated other comprehensive
in 2005. These securities are accounted for as held-to-maturity income. For all other derivative instruments, the related gains or
securities. At December 31, 2005, the carrying value and fair losses are recorded in the income statement. The Company uses
value of the securities was approximately $98 million and interest rate risk management derivative instruments, such as
$97 million, respectively, with approximately $50 million interest rate swap agreements, interest rate cap agreements and
recorded in prepaid and other assets and approximately $48 mil- interest rate collar agreements (collectively referred to herein as
lion recorded in other assets on the Company’s consolidated interest rate agreements) as required under the terms of the
balance sheet. credit facilities of the Company’s subsidiaries. The Company’s
Valuation of Property, Plant and Equipment policy is to manage interest costs using a mix of fixed and
The Company evaluates the recoverability of long-lived assets to variable rate debt. Using interest rate swap agreements, the
be held and used for impairment when events or changes in Company agrees to exchange, at specified intervals, the differ-
circumstances indicate that the carrying amount of an asset may ence between fixed and variable interest amounts calculated by
not be recoverable using asset groupings consistent with those reference to an agreed-upon notional principal amount. Interest
used to evaluate franchises. Such events or changes in circum- rate cap agreements are used to lock in a maximum interest rate
stances could include such factors as impairment of the should variable rates rise, but enable the Company to otherwise
Company’s indefinite life franchise under SFAS No. 142, pay lower market rates. Interest rate collar agreements are used
changes in technological advances, fluctuations in the fair value to limit exposure to and benefits from interest rate fluctuations
of such assets, adverse changes in relationships with local on variable rate debt to within a certain range of rates. The
franchise authorities, adverse changes in market conditions or a Company does not hold or issue any derivative financial
deterioration of operating results. If a review indicates that the instruments for trading purposes.
carrying value of such asset is not recoverable from estimated
undiscounted cash flows, the carrying value of such asset is
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