Charter 2005 Annual Report Download - page 50

CHARTER COMMUNICATIONS, INC. 2005 FORM 10-K
General and administrative expenses consist primarily of combined with a decrease in the number of options granted.
salaries and benefits, rent expense, billing costs, call center costs, Additionally, during the year ended December 31, 2004, we
internal network costs, bad debt expense and property taxes. expensed approximately $8 million related to a stock option
The increase in general and administrative expenses resulted exchange program, under which our employees were offered the
primarily from increases in salaries and benefits of $43 million right to exchange all stock options (vested and unvested) issued
and professional fees associated with consulting services of under the 1999 Charter Communications Option Plan and 2001
$18 million both related to investments to improve service levels Stock Incentive Plan that had an exercise price over $10 per
in our customer care centers as well as an increase of share for shares of restricted Charter Class A common stock or,
$13 million in legal and other professional fees offset by in some instances, cash. See Note 21 to the accompanying
decreases in bad debt expense of $17 million related to a consolidated financial statements contained in ‘‘Item 8. Financial
reduction in the use of discounted pricing, property taxes of Statements and Supplementary Data’’ for more information
$6 million, property and casualty insurance of $6 million and the regarding our option compensation plans.
System Sales of $6 million. Hurricane asset retirement loss. Hurricane asset retirement loss
Marketing expenses increased as a result of an increased represents the loss associated with the write-off of the net book
investment in targeted marketing campaigns. value of assets destroyed by hurricanes Katrina and Rita in the
Depreciation and amortization. Depreciation and amortization third quarter of 2005.
expense increased by $4 million in 2005. The increase in Special charges, net. Special charges for the year ended Decem-
depreciation is related to an increase in capital expenditures, ber 31, 2005 represent approximately $6 million of severance
which was partially offset by lower depreciation as the result of and related costs of our management realignment and $1 million
the Systems Sales and certain assets becoming fully depreciated. related to legal settlements. Special charges for the year ended
Impairment of franchises. We performed an impairment assess- December 31, 2004 represents approximately $85 million as part
ment during the third quarter of 2004. The use of lower of a settlement of the consolidated federal class actions, state
projected growth rates and the resulting revised estimates of derivative actions and federal derivative action lawsuits, approxi-
future cash flows in our valuation, primarily as a result of mately $10 million of litigation costs related to the settlement of
increased competition, led to the recognition of a $2.4 billion a 2004 national class action suit (see Note 26 to the accompany-
impairment charge for the year ended December 31, 2004. Our ing consolidated financial statements contained in ‘‘Item 8.
annual assessment in 2005 did not result in an impairment. Financial Statements and Supplementary Data’’) and approxi-
mately $12 million of severance and related costs of our
Asset impairment charges. Asset impairment charges for the year workforce reduction and realignment. Special charges for the
ended December 31, 2005 represent the write-down of assets year ended December 31, 2004 were offset by $3 million
related to cable asset sales to fair value less costs to sell. See received from a third party in settlement of a dispute.
Note 4 to the accompanying consolidated financial statements
contained in ‘‘Item 8. Financial Statements and Supplementary Unfavorable contracts and other settlements. Unfavorable contracts
Data.’’ and other settlements for the year ended December 31, 2004
relates to changes in estimated legal reserves established in
(Gain) loss on sale of assets, net. Loss on sale of assets for the year connection with prior business combinations, which based on an
ended December 31, 2005 primarily represents the loss recog- evaluation of current facts and circumstances, are no longer
nized on the disposition of plant and equipment. Gain on sale of required.
assets for the year ended December 31, 2004 primarily
represents the pretax gain of $106 million realized on the sale of Interest expense, net. Net interest expense increased by $119 mil-
systems to Atlantic Broadband Finance, LLC which closed in lion, or 7%, for the year ended December 31, 2005 compared to
March and April 2004 offset by losses recognized on the the year ended December 31, 2004. The increase in net interest
disposition of plant and equipment. expense was a result of an increase in our average borrowing
rate from 8.66% in the year ended December 31, 2004 to 9.04%
Option compensation expense, net. Option compensation expense in the year ended December 31, 2005 and an increase of
decreased $17 million, or 55%, for the year ended December 31, $612 million in average debt outstanding from $18.6 billion in
2005 compared to the year ended December 31, 2004. Option 2004 to $19.2 billion in 2005 combined with approximately
compensation expense for the year ended December 31, 2005 $11 million of liquidated damages on our 5.875% convertible
primarily represents options expensed in accordance with senior notes. The increase was offset partially by $29 million in
SFAS No. 123, Accounting for Stock-Based Compensation gains related to embedded derivatives in Charter’s 5.875% con-
(SFAS No. 123). Option compensation expense for the year vertible senior notes. See Note 16 to the accompanying
ended December 31, 2004 primarily represents $22 million consolidated financial statements contained in ‘‘Item 8. Financial
related to options expensed in accordance with SFAS No. 123. Statements and Supplementary Data.’’
The decrease in option compensation expense is primarily the
result of a decrease in the fair value of options granted related Gain on derivative instruments and hedging activities, net. Net gain on
to a decrease in the price of our Class A common stock derivative instruments and hedging activities decreased $19 mil-
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