Charter 2005 Annual Report Download - page 132

CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES 2005 FORM 10-K
Notes to Consolidated Financial Statements (continued)
SFAS No. 123 requires pro forma disclosure of the impact on earnings as if the compensation expense for these plans had been
determined using the fair value method. The following table presents the Company’s net loss and loss per share as reported and the
pro forma amounts that would have been reported using the fair value method under SFAS No. 123 for the years presented:
Year Ended December 31,
2005 2004 2003
Net loss applicable to common stock $ (970) $(4,345) $ (242)
Add back stock-based compensation expense related to stock options included in reported net loss (net of
minority interest) 14 31 2
Less employee stock-based compensation expense determined under fair value based method for all employee
stock option awards (net of minority interest) (14) (33) (14)
Effects of unvested options in stock option exchange (see Note 21) —48 —
Pro forma $ (970) $(4,299) $ (254)
Loss per common shares, basic and diluted:
As reported $ (3.13) $(14.47) $(0.82)
Pro forma $ (3.13) $(14.32) $(0.86)
The fair value of each option granted is estimated on the Minority Interest
date of grant using the Black-Scholes option-pricing model. The Minority interest on the consolidated balance sheets primarily
following weighted average assumptions were used for grants represents preferred membership interests in an indirect subsidi-
during the years ended December 31, 2005, 2004 and 2003, ary of Charter held by Mr. Paul G. Allen. Minority interest
respectively: risk-free interest rates of 4.0%, 3.3%, and 3.0%; totaled $188 million and $648 million as of December 31, 2005
expected volatility of 70.9%, 92.4% and 93.6%; and expected and 2004, respectively, on the accompanying consolidated
lives of 4.5 years, 4.6 years and 4.5 years, respectively. The balance sheets.
valuations assume no dividends are paid. Reported losses allocated to minority interest on the
statement of operations reflect the minority interests in CC VIII
Unfavorable Contracts and Other Settlements and Charter Holdco. Because minority interest in Charter
The Company recognized $5 million of benefit for the year Holdco was substantially eliminated at December 31, 2003,
ended December 31, 2004 related to changes in estimated legal beginning in 2004, Charter began to absorb substantially all
reserves established as part of previous business combinations, future losses before income taxes that otherwise would have
which, based on an evaluation of current facts and circum- been allocated to minority interest (see Note 11).
stances, are no longer required.
The Company recognized $72 million of benefit for the Loss per Common Share
year ended December 31, 2003 as a result of the settlement of Basic loss per common share is computed by dividing the net
estimated liabilities recorded in connection with prior business loss applicable to common stock by 310,159,047 shares,
combinations. The majority of this benefit (approximately 300,291,877 shares and 294,597,519 shares for the years ended
$52 million) is due to the renegotiation of a major programming December 31, 2005, 2004 and 2003, representing the weighted-
contract, for which a liability had been recorded for the above average common shares outstanding during the respective
market portion of the agreement in conjunction with the Falcon periods. Diluted loss per common share equals basic loss per
acquisition in 1999 and the Bresnan acquisition in 2000. The common share for the periods presented, as the effect of stock
remaining benefit relates to the reversal of previously recorded options and other convertible securities are antidilutive because
liabilities, which are no longer required. the Company incurred net losses. All membership units of
Charter Holdco are exchangeable on a one-for-one basis into
Income Taxes common stock of Charter at the option of the holders. As of
The Company recognizes deferred tax assets and liabilities for December 31, 2005, Charter Holdco has 755,386,702 member-
temporary differences between the financial reporting basis and ship units outstanding. Should the holders exchange units for
the tax basis of the Company’s assets and liabilities and shares, the effect would not be dilutive because the Company
expected benefits of utilizing net operating loss carryforwards. incurred net losses.
The impact on deferred taxes of changes in tax rates and tax The 94.9 million shares issued in November 2005 and
law, if any, applied to the years during which temporary July 2005 pursuant to the share lending agreement described in
differences are expected to be settled, are reflected in the Note 14 are required to be returned, in accordance with the
consolidated financial statements in the period of enactment (see contractual arrangement, and are treated in basic and diluted
Note 24). earnings per share as if they were already returned and retired.
Consequently, there is no impact of the shares of common stock
F-14