Charter 2005 Annual Report Download - page 131

CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES 2005 FORM 10-K
Notes to Consolidated Financial Statements (continued)
Certain provisions of the Company’s 5.875% convertible Advertising Costs
senior notes issued in November 2004 were considered embed- Advertising costs associated with marketing the Company’s
ded derivatives for accounting purposes and were required to be products and services are generally expensed as costs are
separately accounted for from the convertible senior notes. In incurred. Such advertising expense was $97 million, $72 million
accordance with SFAS No. 133, these derivatives are marked to and $62 million for the years ended December 31, 2005, 2004
market with gains or losses recorded in interest expense on the and 2003, respectively.
Company’s consolidated statement of operations. For the year Stock-Based Compensation
ended December 31, 2005 and 2004, the Company recognized The Company has historically accounted for stock-based com-
$29 million in gains and $1 million in losses, respectively, related pensation in accordance with Accounting Principles Board
to these derivatives. The gains resulted in a reduction of interest (‘‘APB’’) Opinion No. 25, Accounting for Stock Issued to Employees,
expense while the losses resulted in an increase in interest and related interpretations, as permitted by SFAS No. 123,
expense related to these derivatives. At December 31, 2005 and Accounting for Stock-Based Compensation. On January 1, 2003, the
2004, $1 million and $10 million, respectively, is recorded in Company adopted the fair value measurement provisions of
accounts payable and accrued expenses relating to the short- SFAS No. 123 using the prospective method under which the
term portion of these derivatives and $1 million and $21 million, Company will recognize compensation expense of a stock-based
respectively, is recorded in other long-term liabilities related to award to an employee over the vesting period based on the fair
the long-term portion. value of the award on the grant date consistent with the
Revenue Recognition method described in Financial Accounting Standards Board
Revenues from residential and commercial video, high-speed Interpretation (‘‘FIN’’) No. 28, Accounting for Stock Appreciation
Internet and telephone services are recognized when the related Rights and Other Variable Stock Option or Award Plans. Adoption
services are provided. Advertising sales are recognized at of these provisions resulted in utilizing a preferable accounting
estimated realizable values in the period that the advertisements method as the consolidated financial statements will present the
are broadcast. Local governmental authorities impose franchise estimated fair value of stock-based compensation in expense
fees on the Company ranging up to a federally mandated consistently with other forms of compensation and other
maximum of 5% of gross revenues as defined in the franchise expense associated with goods and services received for equity
agreement. Such fees are collected on a monthly basis from the instruments. In accordance with SFAS No. 148, Accounting for
Company’s customers and are periodically remitted to local Stock-Based Compensation — Transition and Disclosure, the fair value
franchise authorities. Franchise fees are reported as revenues on method was applied only to awards granted or modified after
a gross basis with a corresponding operating expense. January 1, 2003, whereas awards granted prior to such date were
accounted for under APB No. 25, unless they were modified or
Programming Costs settled in cash.
The Company has various contracts to obtain analog, digital
and premium video programming from program suppliers
whose compensation is typically based on a flat fee per
customer. The cost of the right to exhibit network programming
under such arrangements is recorded in operating expenses in
the month the programming is available for exhibition. Program-
ming costs are paid each month based on calculations per-
formed by the Company and are subject to periodic audits
performed by the programmers. Certain programming contracts
contain launch incentives to be paid by the programmers. The
Company receives these payments related to the activation of
the programmer’s cable television channel and recognizes the
launch incentives on a straight-line basis over the life of the
programming agreement as a reduction of programming
expense. This offset to programming expense was $42 million,
$62 million and $64 million for the years ended December 31,
2005, 2004 and 2003, respectively. Programming costs included
in the accompanying statement of operations were $1.4 billion,
$1.3 billion and $1.2 billion for the years ended December 31,
2005, 2004 and 2003, respectively. As of December 31, 2005 and
2004, the deferred amount of launch incentives, included in
other long-term liabilities, were $83 million and $105 million,
respectively.
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