Charter 2006 Annual Report Download - page 46

CHARTER COMMUNICATIONS, INC. 2006 FORM 10-K
228,500 analog video customers. In 2005, we closed the sale of $5.8 billion (representing 36% of total assets), respectively. Total
certain cable systems representing a total of approximately capital expenditures for the years ended December 31, 2006,
33,000 analog video customers, and in 2006, we sold cable 2005, and 2004 were approximately $1.1 billion, $1.1 billion, and
systems serving a total of approximately 390,300 analog video $924 million, respectively.
customers. In January 2007, we completed the sale of additional Costs associated with network construction, initial customer
cable systems representing approximately 34,400 analog video installations (including initial installations of new or advanced
customers. As a result of these sales we have improved our services), installation refurbishments, and the addition of net-
geographic footprint by reducing our number of headends, work equipment necessary to provide new or advanced services,
increasing the number of customers per headend, and reducing are capitalized. While our capitalization is based on specific
the number of states in which the majority of our customers activities, once capitalized, we track these costs by fixed asset
reside. category at the cable system level, and not on a specific asset
In 2006, we determined that the West Virginia and Virginia basis. Costs capitalized as part of initial customer installations
cable systems, which were part of the system sales disclosed include materials, direct labor, and certain indirect costs (‘‘over-
above, comprised operations and cash flows that for financial head’’). These indirect costs are associated with the activities of
reporting purposes met the criteria for discontinued operations. personnel who assist in connecting and activating the new
Accordingly, the results of operations for the West Virginia and service, and consist of compensation and overhead costs
Virginia cable systems (including a gain on sale of approximately associated with these support functions. The costs of discon-
$200 million recorded in the third quarter of 2006), have been necting service at a customer’s dwelling or reconnecting service
presented as discontinued operations, net of tax, for the year to a previously installed dwelling are charged to operating
ended December 31, 2006, and all prior periods presented expense in the period incurred. Costs for repairs and mainte-
herein have been reclassified to conform to the current nance are charged to operating expense as incurred, while
presentation. Tax expense of $18 million associated with this equipment replacement and betterments, including replacement
gain on sale was recorded in the fourth quarter of 2006. of cable drops from the pole to the dwelling, are capitalized.
We make judgments regarding the installation and con-
Critical Accounting Policies and Estimates struction activities to be capitalized. We capitalize direct labor
Certain of our accounting policies require our management to and overhead using standards developed from actual costs and
make difficult, subjective or complex judgments. Management applicable operational data. We calculate standards for items
has discussed these policies with the Audit Committee of such as the labor rates, overhead rates, and the actual amount of
Charter’s board of directors, and the Audit Committee has time required to perform a capitalizable activity. For example,
reviewed the following disclosure. We consider the following the standard amounts of time required to perform capitalizable
policies to be the most critical in understanding the estimates, activities are based on studies of the time required to perform
assumptions and judgments that are involved in preparing our such activities. Overhead rates are established based on an
financial statements, and the uncertainties that could affect our analysis of the nature of costs incurred in support of capitaliz-
results of operations, financial condition and cash flows: able activities, and a determination of the portion of costs that is
(Capitalization of labor and overhead costs; directly attributable to capitalizable activities. The impact of
changes that resulted from these studies were not significant in
(Useful lives of property, plant and equipment; the periods presented.
(Impairment of property, plant, and equipment, franchises, Labor costs directly associated with capital projects are
and goodwill; capitalized. We capitalize direct labor costs based upon the
specific time devoted to network construction and customer
(Income taxes; and
installation activities. Capitalizable activities performed in con-
(Litigation. nection with customer installations include such activities as:
In addition, there are other items within our financial (Dispatching a ‘‘truck roll’’ to the customer’s dwelling for
statements that require estimates or judgment but are not service connection;
deemed critical, such as the allowance for doubtful accounts, but
changes in judgment, or estimates in these other items could (Verification of serviceability to the customer’s dwelling (i.e.,
also have a material impact on our financial statements. determining whether the customer’s dwelling is capable of
receiving service by our cable network and/or receiving
Capitalization of labor and overhead costs. The cable industry is advanced or Internet services);
capital intensive, and a large portion of our resources are spent (Customer premise activities performed by in-house field
on capital activities associated with extending, rebuilding, and technicians and third-party contractors in connection with
upgrading our cable network. As of December 31, 2006 and customer installations, installation of network equipment in
2005, the net carrying amount of our property, plant and connection with the installation of expanded services, and
equipment (consisting primarily of cable network assets) was equipment replacement and betterment; and
approximately $5.2 billion (representing 35% of total assets) and
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