Charter 2006 Annual Report Download - page 93

CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES 2006 FORM 10-K
Notes to Consolidated Financial Statements (continued)
incurred in renewing cable franchises are deferred and amortized Investments in equity securities are accounted for at cost,
over 10 years. under the equity method of accounting or in accordance with
SFAS No. 115, Accounting for Certain Investments in Debt and
Other Noncurrent Assets Equity Securities. Charter recognizes losses for any decline in
Other noncurrent assets primarily include deferred financing value considered to be other than temporary. Certain market-
costs, governmental securities, investments in equity securities able equity securities are classified as available-for-sale and
and goodwill. Costs related to borrowings are deferred and reported at market value with unrealized gains and losses
amortized to interest expense over the terms of the related recorded as accumulated other comprehensive income or loss.
borrowings.
The following summarizes investment information as of December 31, 2006 and 2005 and for the years ended December 31, 2006,
2005 and 2004:
Gain (Loss) For
Carrying Value at the Years Ended
December 31, December 31,
2006 2005 2006 2005 2004
Equity investments, under the cost method $34 $61 $12 $—$(3)
Equity investments, under the equity method 11 13 422 7
$45 $74 $16 $22 $ 4
The gain on equity investments, under the cost method for indefinite life franchise under SFAS No. 142, changes in
the year ended December 31, 2006 primarily represents gains technological advances, fluctuations in the fair value of such
realized on the sale of two investments. Such amounts are assets, adverse changes in relationships with local franchise
included in other income, net in the statements of operations. authorities, adverse changes in market conditions or a deteriora-
The gain on equity investments, under the equity method tion of operating results. If a review indicates that the carrying
for the year ended December 31, 2005 primarily represents a value of such asset is not recoverable from estimated undis-
gain realized on an exchange of the Company’s interest in an counted cash flows, the carrying value of such asset is reduced
equity investee for an investment in a larger enterprise. Such to its estimated fair value. While the Company believes that its
amounts are included in other income, net in the statements of estimates of future cash flows are reasonable, different assump-
operations. tions regarding such cash flows could materially affect its
As required by the indentures to the Company’s evaluations of asset recoverability. No impairments of long-lived
5.875% convertible senior notes issued in November 2004, the assets to be held and used were recorded in 2006, 2005, and
Company purchased U.S. government securities valued at 2004; however, approximately $159 million and $39 million of
approximately $144 million with maturities corresponding to the impairment on assets held for sale was recorded for the years
interest payment dates for the convertible senior notes. These ended December 31, 2006 and 2005, respectively (see Note 4).
securities were pledged and are held in escrow to provide Derivative Financial Instruments
payment in full for the first six interest payments of the The Company accounts for derivative financial instruments in
convertible senior notes (see Note 9), four of which were funded accordance with SFAS No. 133, Accounting for Derivative
in 2006 and 2005. These securities are accounted for as held-to- Instruments and Hedging Activities, as amended. For those
maturity securities. At December 31, 2006 and 2005, the instruments which qualify as hedging activities, related gains or
carrying value of the securities was approximately $50 million losses are recorded in accumulated other comprehensive
and $98 million, respectively, while the fair value of the income. For all other derivative instruments, the related gains or
securities was approximately $49 million and $97 million, losses are recorded in the income statement. The Company uses
respectively. At December 31, 2006 and 2005, approximately interest rate risk management derivative instruments, such as
$50 million and $50 million was recorded in prepaid and other interest rate swap agreements, interest rate cap agreements and
assets and approximately $0 and $48 million was recorded in interest rate collar agreements (collectively referred to herein as
other assets on the Company’s consolidated balance sheets. interest rate agreements) as required under the terms of the
Valuation of Property, Plant and Equipment credit facilities of the Company’s subsidiaries. The Company’s
The Company evaluates the recoverability of long-lived assets to policy is to manage interest costs using a mix of fixed and
be held and used for impairment when events or changes in variable rate debt. Using interest rate swap agreements, the
circumstances indicate that the carrying amount of an asset may Company agrees to exchange, at specified intervals, the differ-
not be recoverable. Such events or changes in circumstances ence between fixed and variable interest amounts calculated by
could include such factors as impairment of the Company’s reference to an agreed-upon notional principal amount. Interest
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