Charter 2007 Annual Report Download - page 88

The following summarizes investment information as of December 31, 2007 and 2006 and for the years ended December 31, 2007,
2006, and 2005:
2007 2006 2007 2006 2005
Carrying Value at
December 31,
Gain For
the Years Ended
December 31,
Equity investments, under the cost method $— $34 $— $12 $—
Equity investments, under the equity method 911 —422
$9 $45 $— $16 $22
The gain on equity investments, under the cost method for
the year ended December 31, 2006 primarily represents gains
realized on the sale of two investments. The gain on equity
investments, under the equity method for the year ended
December 31, 2005 primarily represents a gain realized on an
exchange of the Company’s interest in an equity investee for an
investment in a larger enterprise. Such amounts are included in
other income (expense), net in the statements of operations.
Valuation of Property, Plant and Equipment
The Company evaluates the recoverability of long-lived assets to
be held and used for impairment when events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. Such events or changes in circumstances
could include such factors as impairment of the Company’s
indefinite life franchise under SFAS No. 142, changes in techno-
logical advances, fluctuations in the fair value of such assets,
adverse changes in relationships with local franchise authorities,
adverse changes in market conditions or a deterioration of
operating results. If a review indicates that the carrying value of
such asset is not recoverable from estimated undiscounted cash
flows, the carrying value of such asset is reduced to its estimated
fair value. While the Company believes that its estimates of
future cash flows are reasonable, different assumptions regarding
such cash flows could materially affect its evaluations of asset
recoverability. No impairments of long-lived assets to be held
and used were recorded in 2007, 2006, and 2005; however,
approximately $56 million, $159 million, and $39 million of
impairment on assets held for sale was recorded for the years
ended December 31, 2007, 2006, and 2005, respectively (see
Note 4).
Derivative Financial Instruments
The Company accounts for derivative financial instruments in
accordance with SFAS No. 133, Accounting for Derivative Instru-
ments and Hedging Activities, as amended. For those instruments
which qualify as hedging activities, related gains or losses are
recorded in accumulated other comprehensive income (loss). For
all other derivative instruments, the related gains or losses are
recorded in the income statement. The Company uses interest
rate derivative instruments, such as interest rate swap agreements
and interest rate collar agreements (collectively referred to herein
as interest rate agreements) to manage its interest costs and
reduce the Company’s exposure to increases in floating interest
rates. The Company’s policy is to manage its exposure to
fluctuations in interest rates by maintaining a mix of fixed and
variable rate debt within a targeted range. Using interest rate
swap agreements, the Company agrees to exchange, at specified
intervals through 2013, the difference between fixed and variable
interest amounts calculated by reference to agreed-upon notional
principal amounts. Interest rate collar agreements are used to
limit exposure to and benefits from interest rate fluctuations on
variable rate debt to within a certain range of rates. The
Company does not hold or issue any derivative financial instru-
ments for trading purposes.
Certain provisions of the Company’s 5.875% and 6.50%
convertible senior notes issued in November 2004 and October
2007, respectively, were considered embedded derivatives for
accounting purposes and were required to be separately
accounted for from the convertible senior notes. In accordance
with SFAS No. 133, these derivatives are marked to market with
gains or losses recorded as the change in value of derivatives on
the Company’s consolidated statement of operations. For the
years ended December 31, 2007, 2006, and 2005, the Company
recognized $98 million in gains, $10 million in losses, and
$29 million in gains, respectively, related to these derivatives. At
December 31, 2007 and 2006, $6 million and $12 million, respec-
tively, is recorded in accounts payable and accrued expenses
relating to the short-term portion of these derivatives and
$27 million and $0, respectively, is recorded in other long-term
liabilities related to the long-term portion.
Revenue Recognition
Revenues from residential and commercial video, high-speed
Internet and telephone services are recognized when the related
services are provided. Advertising sales are recognized at esti-
mated realizable values in the period that the advertisements are
broadcast. Franchise fees imposed by local governmental author-
ities are collected on a monthly basis from the Company’s
customers and are periodically remitted to local franchise author-
ities. Franchise fees of $177 million, $179 million, and $174 mil-
lion for the years ended December 31, 2007, 2006, and 2005,
F-10
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES 2007 FORM 10-K
Notes to Consolidated Financial Statements (continued)