Charter 2010 Annual Report Download - page 50

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which may contribute to future impairments of our franchises and
goodwill.
Our most significant competitors are DBS providers and certain
telephone companies that offer services that provide features and
functions similar to our video, high-speed Internet, and telephone
services, including in some cases wireless services and they also
offer these services in bundles similar to ours. See “Business
— Competition.” In the recent past, we have grown revenues by
offsetting basic video customer losses with price increases and sales of
incremental services such as high-speed Internet, OnDemand, DVR,
high definition television, and telephone. We expect to continue to
grow revenues in this manner and in addition, we expect to increase
revenues by expanding the sales of our services to our commercial
customers. However, we cannot assure you that we will be able to
grow revenues at recent historical rates. Our business plans include
goals for increasing the number of customers which contribute to
recurring revenue and the opportunity to sell additional services
to existing customers. In 2011, we may continue to experience
challenges in increasing, or we may continue to lose, customers.
Approximately 87% and 84% of our revenues for the years ended
December 31, 2010 and 2009, respectively, are attributable to
monthly subscription fees charged to customers for our video,
high-speed Internet, telephone, and commercial services provided
by our cable systems. Generally, these customer subscriptions may
be discontinued by the customer at any time. e remaining 13%
and 16% of revenue for fiscal years 2010 and 2009, respectively, is
derived primarily from advertising revenues, franchise fee revenues
(which are collected by us but then paid to local franchising
authorities), pay-per-view and OnDemand programming, installation
or reconnection fees charged to customers to commence or reinstate
service, and commissions related to the sale of merchandise by home
shopping services.
Our expenses primarily consist of operating costs, selling, general
and administrative expenses, depreciation and amortization expense,
impairment of franchise intangibles and interest expense. Operating
costs primarily include programming costs, the cost of our workforce,
cable service related expenses, advertising sales costs and franchise
fees. Selling, general and administrative expenses primarily include
salaries and benefits, rent expense, billing costs, call center costs,
internal network costs, bad debt expense, and property taxes. We
control our costs of operations by maintaining strict controls on
expenditures. More specifically, we are focused on managing our cost
structure by improving workforce productivity, and leveraging our
scale, and increasing the effectiveness of our purchasing activities.
We have a history of net losses. Our net losses are principally
attributable to insufficient revenue to cover the combination of
operating expenses, interest expenses that we incur because of our
debt, depreciation expenses resulting from the capital investments
we have made and continue to make in our cable properties, and in
2010, amortization expenses resulting from the application of fresh
start accounting. e Plan resulted in the reduction of the principal
amount of our debt by approximately $8 billion, reducing our
interest expense by approximately $830 million annually.
In prior years and continuing through 2010, we sold several cable
systems to divest geographically non-strategic assets and allow for
more efficient operations. In 2008, 2009, and 2010, we closed the
sale of certain cable systems representing a total of approximately
14,100, 12,400 and 76,700 basic video customers, respectively. As
a result of these sales we have improved our geographic footprint
by reducing our number of headends, increasing the number of
customers per headend, and reducing the number of states in which
the majority of our customers reside.
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Certain of our accounting policies require our management to make
difficult, subjective or complex judgments. Management has discussed
these policies with the Audit Committee of Charter’s board of directors,
and the Audit Committee has reviewed the following disclosure. We
consider the following policies to be the most critical in understanding
the estimates, assumptions and judgments that are involved in
preparing our financial statements, and the uncertainties that could
affect our results of operations, financial condition and cash flows:
Property, plant and equipment
Capitalization of labor and overhead costs
Impairment
Useful lives of property, plant and equipment
Intangible assets
Impairment of franchises
Impairment and amortization of customer relationships
Impairment of goodwill
Impairment of trademarks
Income taxes
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