Charter 2009 Annual Report Download - page 27

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Depreciation expense related to property, plant and equipment totaled $1.3 billion for each of the years ended
December 31, 2009, 2008, and 2007, representing approximately 17%, 18%, and 24% of costs and expenses,
respectively. Depreciation is recorded using the straight-line composite method over management’ s estimate of the
useful lives of the related assets as listed below:
Cable distribution systems……………………………… 7-20 years
Customer equipment and installations………………….. 4-8 years
Vehicles and equipment………………………………… 1-6 years
Buildings and leasehold improvements………………… 15-40 years
Furniture, fixtures and equipment….…………………… 6-10 years
Intangible assets
We have recorded a significant amount of cost related to franchises, pursuant to which we are granted the right to
operate our cable distribution network throughout our service areas. The net carrying value of franchises as of
December 31, 2009 and 2008 was approximately $5.3 billion (representing 32% of total assets) and $7.4 billion
(representing 54% of total assets), respectively. Effective December 1, 2009, we applied fresh start accounting and
as such adjusted our franchises, customer relationships and goodwill to reflect fair value and also established any
previously unrecorded intangible assets at their fair values. As such, the value of customer relationships and
goodwill increased to $2.3 billion (representing 14% of total assets) and $951 million (representing 6% of total
assets) at December 31, 2009, respectively. The net carrying amount of customer relationships and goodwill was $9
million and $68 million, respectively, as of December 31, 2008.
Impairment of franchises. Franchise intangible assets that meet specified indefinite-life criteria must be tested for
impairment annually, or more frequently as warranted by events or changes in circumstances. In determining
whether our franchises have an indefinite-life, we considered the likelihood of franchise renewals, the expected costs
of franchise renewals, and the technological state of the associated cable systems, with a view to whether or not we
are in compliance with any technology upgrading requirements specified in a franchise agreement. We have
concluded that as of December 31, 2009 and 2008 substantially all of our franchises qualify for indefinite-life
treatment.
Costs associated with franchise renewals are amortized on a straight-line basis over 10 years, which represents
management’ s best estimate of the average term of the franchises. Franchise amortization expense for the years
ended December 31, 2009, 2008 and 2007 was approximately $2 million, $2 million, and $3 million, respectively.
Other intangible assets amortization expense, including customer relationships, for the years ended December 31,
2009, 2008 and 2007 was approximately $34 million, $5 million, and $4 million, respectively.
Franchise rights represent the value attributed to agreements or authorizations with local and state authorities that
allow access to homes in cable service areas. Franchises are tested for impairment annually, or more frequently as
warranted by events or changes in circumstances. Franchises are aggregated into essentially inseparable units of
accounting to conduct the valuations. The units of accounting generally represent geographical clustering of our
cable systems into groups by which such systems are managed. Management believes such grouping represents the
highest and best use of those assets.
As a result of the continued economic pressure on our customers from the recent economic downturn along with
increased competition, we determined that our projected future growth would be lower than previously anticipated
in our annual impairment testing in December 2008. Accordingly, we determined that sufficient indicators existed
to require us to perform an interim franchise impairment analysis as of September 30, 2009. As of the date of the
filing of Charter’ s Quarterly Report on Form 10-Q for the quarter ended September 30, 2009, we determined that an
impairment of franchises was probable and could be reasonably estimated. Accordingly, for the quarter ended
September 30, 2009, we recorded a preliminary non-cash franchise impairment charge of $2.9 billion which
represented our best estimate of the impairment of our franchise assets. We finalized our franchise impairment
analysis during the quarter ended December 31, 2009, and recorded a reduction of the non-cash franchise
impairment charge of $691 million.
We recorded non-cash franchise impairment charges of $1.5 billion and $178 million for the years ended December
31, 2008 and 2007, respectively. The impairment charge recorded in 2008 was primarily the result of the impact of
the economic downturn along with increased competition while the impairment charge recorded in 2007 was
primarily the result of an increase in competition.