Charter 2006 Annual Report Download - page 92

CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES 2006 FORM 10-K
Notes to Consolidated Financial Statements (continued)
In September 2006, Charter Holdings and its wholly owned Depreciation is recorded using the straight-line composite
subsidiaries, CCH I and CCH II, completed the exchange of method over management’s estimate of the useful lives of the
approximately $797 million in total principal amount of out- related assets as follows:
standing debt securities of Charter Holdings. Holders of Charter
Holdings notes due in 2009-2010 tendered $308 million princi- Cable distribution systems 7-20 years
Customer equipment and installations 3-5 years
pal amount of notes for $250 million principal amount of new Vehicles and equipment 1-5 years
10.25% CCH II notes due 2013 and $37 million principal Buildings and leasehold improvements 5-15 years
amount of 11% CCH I notes due 2015. Holders of Charter Furniture, fixtures and equipment 5 years
Holdings notes due 2011-2012 tendered $490 million principal
Asset Retirement Obligations
amount of notes for $425 million principal amount of 11%
Certain of the Company’s franchise agreements and leases
CCH I notes due 2015. The Charter Holdings notes received in
contain provisions requiring the Company to restore facilities or
the exchanges were thereafter distributed to Charter Holdings
remove equipment in the event that the franchise or lease
and retired. Also in September 2006, CCHC and CCH II
agreement is not renewed. The Company expects to continually
completed the exchange of $450 million principal amount of
renew its franchise agreements and have concluded that
Charter’s outstanding 5.875% senior convertible notes due 2009
substantially all of the related franchise rights are indefinite lived
for $188 million in cash, 45 million shares of Charter’s Class A
intangible assets. Accordingly, the possibility is remote that the
Common Stock and $146 million principal amount of 10.25%
Company would be required to incur significant restoration or
CCH II notes due 2010. The convertible notes received in the
removal costs related to these franchise agreements in the
exchange are held by CCHC.
foreseeable future. Statement of Financial Accounting Standards
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (‘‘SFAS’’) No. 143, Accounting for Asset Retirement Obligations, as
interpreted by FIN No. 47, Accounting for Conditional Asset
Cash Equivalents Retirement Obligations — an Interpretation of FASB Statement
The Company considers all highly liquid investments with No. 143, requires that a liability be recognized for an asset
original maturities of three months or less to be cash retirement obligation in the period in which it is incurred if a
equivalents. These investments are carried at cost, which reasonable estimate of fair value can be made. The Company
approximates market value. has not recorded an estimate for potential franchise related
Property, Plant and Equipment obligations but would record an estimated liability in the
Property, plant and equipment are recorded at cost, including all unlikely event a franchise agreement containing such a provision
material, labor and certain indirect costs associated with the were no longer expected to be renewed. The Company also
construction of cable transmission and distribution facilities. expects to renew many of its lease agreements related to the
While the Company’s capitalization is based on specific activi- continued operation of its cable business in the franchise areas.
ties, once capitalized, costs are tracked by fixed asset category at For the Company’s lease agreements, the estimated liabilities
the cable system level and not on a specific asset basis. Costs related to the removal provisions, where applicable, have been
associated with initial customer installations and the additions of recorded and are not significant to the financial statements.
network equipment necessary to enable advanced services are Franchises
capitalized. Costs capitalized as part of initial customer installa- Franchise rights represent the value attributed to agreements
tions include materials, labor, and certain indirect costs. Indirect with local authorities that allow access to homes in cable service
costs are associated with the activities of the Company’s areas acquired through the purchase of cable systems. Manage-
personnel who assist in connecting and activating the new ment estimates the fair value of franchise rights at the date of
service and consist of compensation and indirect costs associ- acquisition and determines if the franchise has a finite life or an
ated with these support functions. Indirect costs primarily indefinite-life as defined by SFAS No. 142, Goodwill and Other
include employee benefits and payroll taxes, direct variable costs Intangible Assets. All franchises that qualify for indefinite-life
associated with capitalizable activities, consisting primarily of treatment under SFAS No. 142 are no longer amortized against
installation and construction vehicle costs, the cost of dispatch earnings but instead are tested for impairment annually as of
personnel and indirect costs directly attributable to capitalizable October 1, or more frequently as warranted by events or
activities. The costs of disconnecting service at a customer’s changes in circumstances (see Note 7). The Company con-
dwelling or reconnecting service to a previously installed cluded that more than 99% of its franchises qualify for
dwelling are charged to operating expense in the period indefinite-life treatment; however, certain franchises did not
incurred. Costs for repairs and maintenance are charged to qualify for indefinite-life treatment due to technological or
operating expense as incurred, while plant and equipment operational factors that limit their lives. These franchise costs
replacement and betterments, including replacement of cable are amortized on a straight-line basis over 10 years. Costs
drops from the pole to the dwelling, are capitalized.
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