Charter 2012 Annual Report Download - page 46

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have contributed to an increase in the number of homes that replace their traditional telephone service with wireless service thereby
impacting the growth of our telephone business.
If the economic and competitive conditions discussed above do not improve, or our efforts to improve our products and the way
we market those products are not ultimately successful in increasing our growth, we believe our business and results of operations
will be adversely affected, which may contribute to future impairments of our franchises and goodwill.
Approximately 85% of our revenues for both of the years ended December 31, 2012 and 2011 are attributable to monthly
subscription fees charged to customers for our video, Internet, telephone, and commercial services provided by our cable systems.
Generally, these customer subscriptions may be discontinued by the customer at any time subject to a fee for early termination of
a price guarantee product. The remaining 15% of revenue for fiscal years 2012 and 2011 is derived primarily from advertising
revenues, franchise and other regulatory fee revenues (which are collected by us but then paid to local authorities), pay-per-view
and OnDemand programming, installation, processing fees 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, depreciation and amortization expense and interest expense. Operating costs
primarily include programming costs, connectivity, franchise and other regulatory costs, the cost to service our customers such as
field, network and customer operations costs and marketing costs.
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, amortization expenses related to our customer relationship intangibles
and non-cash taxes resulting from increases in our deferred tax liabilities.
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, 2012 and 2011, the net carrying amount of our property, plant
and equipment (consisting primarily of cable network assets) was approximately $7.2 billion (representing 46% of total assets)
and $6.9 billion (representing 44% of total assets), respectively. Total capital expenditures for the years ended December 31,
2012, 2011 and 2010 were approximately $1.7 billion, $1.3 billion and $1.2 billion, respectively.
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