Charter 2009 Annual Report Download - page 25

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In addition, there are other items within our financial statements that require estimates or judgment that are not
deemed critical, such as the allowance for doubtful accounts and valuations of our derivative instruments, if any, but
changes in estimates or judgment in these other items could also have a material impact on our financial statements.
Property, plant and equipment
The cable industry is capital intensive, and a large portion of our resources are spent on capital activities associated
with extending, rebuilding, and upgrading our cable network. As of December 31, 2009 and 2008, the net carrying
amount of our property, plant and equipment (consisting primarily of cable network assets) was approximately $6.8
billion (representing 42% of total assets) and $5.0 billion (representing 36% of total assets), respectively. Total
capital expenditures for the years ended December 31, 2009, 2008, and 2007 were approximately $1.1 billion, $1.2
billion, and $1.2 billion, respectively. Effective December 1, 2009, we applied fresh start accounting, which
requires assets and liabilities to be reflected at fair value. Upon application of fresh start accounting, we adjusted our
property, plant and equipment to reflect fair value. These fresh start adjustments resulted in a $2.0 billion increase
to total property, plant and equipment.
Capitalization of labor and overhead costs. Costs associated with network construction, initial customer
installations (including initial installations of new or additional advanced services), installation refurbishments, and
the addition of network equipment necessary to provide new or advanced services, are capitalized. While our
capitalization is based on specific activities, once capitalized, we track these costs by fixed asset category at the
cable system level, and not on a specific asset basis. For assets that are sold or retired, we remove the estimated
applicable cost and accumulated depreciation. Costs capitalized as part of initial customer installations include
materials, direct labor, and certain indirect costs. These indirect costs are associated with the activities of personnel
who assist in connecting and activating the new service, and consist of compensation and overhead costs associated
with these support functions. The costs of disconnecting service at a customer’ s dwelling or reconnecting service to
a previously installed dwelling are charged to operating expense in the period incurred. As our service offerings
mature and our reconnect activity increases, our capitalizable installations will continue to decrease and therefore
our service expenses will increase. Costs for repairs and maintenance are charged to operating expense as incurred,
while equipment replacement, including replacement of certain components, and betterments, including replacement
of cable drops from the pole to the dwelling, are capitalized.
We make judgments regarding the installation and construction activities to be capitalized. We capitalize direct
labor and overhead using standards developed from actual costs and applicable operational data. We calculate
standards annually (or more frequently if circumstances dictate) for items such as the labor rates, overhead rates, and
the actual amount of time required to perform a capitalizable activity. For example, the standard amounts of time
required to perform capitalizable activities are based on studies of the time required to perform such activities.
Overhead rates are established based on an analysis of the nature of costs incurred in support of capitalizable
activities, and a determination of the portion of costs that is directly attributable to capitalizable activities. The
impact of changes that resulted from these studies were not material in the periods presented.
Labor costs directly associated with capital projects are capitalized. Capitalizable activities performed in connection
with customer installations include such activities as:
• Dispatching a “truck roll” to the customer’ s dwelling for service connection;
• Verification of serviceability to the customer’ s dwelling (i.e., determining whether the customer’ s
dwelling is capable of receiving service by our cable network and/or receiving advanced or Internet
services);
• Customer premise activities performed by in-house field technicians and third-party contractors in
connection with customer installations, installation of network equipment in connection with the
installation of expanded services, and equipment replacement and betterment; and
• Verifying the integrity of the customer’ s network connection by initiating test signals downstream
from the headend to the customer’ s digital set-top box.
Judgment is required to determine the extent to which overhead costs incurred result from specific capital activities,
and therefore should be capitalized. The primary costs that are included in the determination of the overhead rate
are (i) employee benefits and payroll taxes associated with capitalized direct labor, (ii) direct variable costs
associated with capitalizable activities, consisting primarily of installation and construction vehicle costs, (iii) the
cost of support personnel, such as dispatchers, who directly assist with capitalizable installation activities, and
(iv) indirect costs directly attributable to capitalizable activities.