Charter 2013 Annual Report Download - page 49

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• Useful lives of property, plant and equipment
• Intangible assets
• Valuation and impairment of franchises
• Valuation and impairment and amortization of customer relationships
• Valuation and 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, 2013 and 2012, the net carrying amount of our property, plant
and equipment (consisting primarily of cable network assets) was approximately $8.0 billion (representing 46% of total assets)
and $7.2 billion (representing 46% of total assets), respectively. Total capital expenditures for the years ended December 31,
2013, 2012 and 2011 were approximately $1.8 billion, $1.7 billion and $1.3 billion, respectively.
Capitalization of labor and overhead costs. Costs associated with network construction, initial customer installations, 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. 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 or business for service connection;
• Verification of serviceability to the customer’s dwelling or business (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.