Charter 2011 Annual Report Download - page 48

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Critical Accounting Policies and Estimates
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
• Litigation
• Programming agreements
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, 2011 and 2010, the net carrying amount of our property, plant
and equipment (consisting primarily of cable network assets) was approximately $6.9 billion (representing 44% of total assets)
and $6.8 billion (representing 43% of total assets), respectively. Total capital expenditures for the years ended December 31, 2011,
2010 and 2009 were approximately $1.3 billion, $1.2 billion and $1.1 billion, respectively.
Effective December 1, 2009, we applied fresh start accounting resulting in an approximately $2.0 billion increase to total property,
plant and equipment. The cost approach was the primary method used to establish fair value for our property, plant and equipment
in connection with the application of fresh start accounting. The cost approach considers the amount required to replace an asset
by constructing or purchasing a new asset with similar utility, then adjusts the value in consideration of all forms of depreciation
as of the appraisal date.
Capitalization of labor and overhead costs. Costs associated with network construction, initial customer installations (including
initial installations of new or additional advanced video services), installation refurbishments, and the addition of network equipment
necessary to provide new or advanced video 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 operating 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