Charter 2004 Annual Report Download - page 45

CHARTER COMMUNICATIONS, INC. 2004 FORM 10-K
sheet related to Charter Holdco. Because minority interest in net loss in 2003 of the gain on the sale of systems, unfavorable
Charter Holdco was substantially eliminated at December 31, contracts and settlements and gain on debt exchange, net of
2003, beginning in the first quarter of 2004, Charter began to income tax impact, was to decrease net loss by $168 million.
absorb substantially all future losses before income taxes that Preferred stock dividends. On August 31, 2001, in
otherwise would have been allocated to minority interest. For connection with the Cable USA acquisition, Charter issued
the year ended December 31, 2003, 53.5% of our losses were 505,664 shares (and on February 28, 2003 issued an additional
allocated to minority interest. As a result of negative equity at 39,595 shares) of Series A Convertible Redeemable Preferred
Charter Holdco during the year ended December 31, 2004, no Stock, on which it pays a quarterly cumulative cash dividend at
additional losses were allocated to minority interest, resulting in an annual rate of 5.75% on a liquidation preference of $100 per
an additional $2.4 billion of net losses. Under our existing capital share.
structure, future losses will be substantially absorbed by Charter. Loss per common share. The loss per common share
Income tax benefit. Income tax benefit of $103 million increased by $13.65, from $0.82 per common share for the year
and $110 million was recognized for the years ended Decem- ended December 31, 2003 to $14.47 per common share for the
ber 31, 2004 and 2003, respectively. The income tax benefits year ended December 31, 2004 as a result of the factors
were realized as a result of decreases in certain deferred tax described above.
liabilities related to our investment in Charter Holdco as well as
decreases in the deferred tax liabilities of certain of our indirect
corporate subsidiaries. Year Ended December 31, 2003 Compared to Year Ended December 31,
The income tax benefit recognized in the year ended 2002
December 31, 2004 was directly related to the impairment of Revenues. Revenues increased by $253 million, or 6%, from
franchises as discussed above because the deferred tax liabilities $4.6 billion for the year ended December 31, 2002 to $4.8 billion
decreased as a result of the write-down of franchise assets for for the year ended December 31, 2003. This increase is
financial statement purposes and not for tax purposes. We do principally the result of an increase of 427,500 high-speed data
not expect to recognize a similar benefit associated with the customers, as well as price increases for video and high-speed
impairment of franchises in future periods. However, the actual data services, and is offset partially by a decrease of 147,500 and
tax provision calculations in future periods will be the result of 10,900 in analog and digital video customers, respectively.
current and future temporary differences, as well as future Included within the decrease of analog and digital video
operating results. customers and reducing the increase of high-speed data custom-
The income tax benefit recognized in the year ended ers are 25,500 analog video customers, 12,500 digital video
December 31, 2003 was directly related to the tax losses customers and 12,200 high-speed data customers sold in the
allocated to Charter from Charter Holdco. In the second quarter Port Orchard, Washington sale on October 1, 2003.
of 2003, Charter started receiving tax loss allocations from Average monthly revenue per analog video customer
Charter Holdco. Previously, the tax losses had been allocated to increased from $56.91 for the year ended December 31, 2002 to
Vulcan Cable III Inc. and Charter Investment, Inc. in accordance $61.92 for the year ended December 31, 2003 primarily as a
with the Special Loss Allocations provided under the Charter result of price increases and incremental revenues from
Holdco limited liability company agreement. We do not expect advanced services. Average monthly revenue per analog video
to recognize a similar benefit related to our investment in customer represents total annual revenue, divided by twelve,
Charter Holdco after 2003 related to tax loss allocations divided by the average number of analog video customers
received from Charter Holdco, due to limitations associated during the respective period.
with our ability to offset future tax benefits against the
remaining deferred tax liabilities. However, the actual tax
provision calculations in future periods will be the result of
current and future temporary differences, as well as future
operating results.
Cumulative effect of accounting change, net of tax.
Cumulative effect of accounting change of $765 million (net of
minority interest effects of $19 million and tax effects of
$91 million) in 2004 represents the impairment charge recorded
as a result of our adoption of Topic D-108.
Net loss. Net loss increased by $4.1 billion from
$238 million in 2003 to $4.3 billion in 2004 as a result of the
factors described above. The impact to net loss in 2004 of the
impairment of franchises, cumulative effect of accounting change
and the reduction in losses allocated to minority interest was to
increase net loss by approximately $5.3 billion. The impact to
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