Charter 2005 Annual Report Download - page 154

CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES 2005 FORM 10-K
Notes to Consolidated Financial Statements (continued)
The tax effects of these temporary differences that give rise Mr. Allen or his affiliates, directly or indirectly, of membership
to significant portions of the deferred tax assets and deferred tax units of Charter Holdco into CCI common stock). Many of the
liabilities at December 31, 2005 and 2004 which are included in foregoing transactions are beyond management’s control.
long-term liabilities are presented below. The total valuation allowance for deferred tax assets as of
December 31, 2005 and 2004 was $3.7 billion and $3.5 billion,
December 31, respectively. In assessing the realizability of deferred tax assets,
2005 2004 management considers whether it is more likely than not that
some portion or all of the deferred tax assets will be realized.
Deferred tax assets:
Net operating loss carryforward $ 4,169 $ 3,833 Because of the uncertainties in projecting future taxable income
Other 68of Charter Holdco, valuation allowances have been established
Total gross deferred tax assets 4,175 3,841 except for deferred benefits available to offset certain deferred
Less: valuation allowance (3,656) (3,451) tax liabilities.
Net deferred tax assets $ 519 $ 390 The Company is currently under examination by the
Deferred tax liabilities: Internal Revenue Service for the tax years ending December 31,
Investment in Charter Holdco $ (597) $ (365) 2002 and 2003. The Company’s results (excluding Charter and
Indirect Corporate Subsidiaries: its indirect corporate subsidiaries) for these years are subject to
Property, plant & equipment (41) (40)
Franchises (206) (201) this examination. Management does not expect the results of
this examination to have a material adverse effect on the
Gross deferred tax liabilities (844) (606)
Company’s consolidated financial condition or results of
Net deferred tax liabilities $ (325) $ (216)
operations.
As of December 31, 2005, the Company has deferred tax
25. Related Party Transactions
assets of $4.2 billion, which primarily relate to financial and tax
losses allocated to Charter from Charter Holdco. The deferred The following sets forth certain transactions in which the
tax assets include $2.4 billion of tax net operating loss Company and the directors, executive officers and affiliates of
carryforwards (generally expiring in years 2006 through 2025) of the Company are involved. Unless otherwise disclosed, manage-
Charter and its indirect corporate subsidiaries. Valuation ment believes that each of the transactions described below was
allowances of $3.7 billion exist with respect to these deferred tax on terms no less favorable to the Company than could have
assets of which $1.8 billion relate to the tax net operating loss been obtained from independent third parties.
carryforwards. Charter is a holding company and its principal assets are its
Realization of any benefit from the Company’s tax net equity interest in Charter Holdco and certain mirror notes
operating losses is dependent on: (1) Charter and its indirect payable by Charter Holdco to Charter and mirror preferred
corporate subsidiaries’ ability to generate future taxable income units held by Charter, which have the same principal amount
and (2) the absence of certain future ‘‘ownership changes’’ of and terms as those of Charter’s convertible senior notes and
Charter’s common stock. An ‘‘ownership change’’ as defined in Charter’s outstanding preferred stock. In 2004, Charter Holdco
the applicable federal income tax rules, would place significant paid to Charter $49 million related to interest on the mirror
limitations, on an annual basis, on the use of such net operating notes, and Charter Holdco paid an additional $4 million related
losses to offset any future taxable income the Company may to dividends on the mirror preferred membership units. Further,
generate. Such limitations, in conjunction with the net operating during 2004 Charter Holdco issued 7,252,818 common member-
loss expiration provisions, could effectively eliminate the Com- ship units to Charter in cancellation of $30 million principal
pany’s ability to use a substantial portion of its net operating amount of mirror notes so as to mirror the issuance by Charter
losses to offset any future taxable income. Future transactions of Class A common stock in exchange for a like principal
and the timing of such transactions could cause an ownership amount of its outstanding convertible notes.
change. Such transactions include additional issuances of com- Charter is a party to management arrangements with
mon stock by the Company (including but not limited to the Charter Holdco and certain of its subsidiaries. Under these
issuance of up to a total of 150 million shares of common stock agreements, Charter provides management services for the cable
(of which 116.9 million were issued through 2006) under the systems owned or operated by its subsidiaries. The management
share lending agreement), the issuance of shares of common services include such services as centralized customer billing
stock upon future conversion of Charter’s convertible senior services, data processing and related support, benefits adminis-
notes and the issuance of common stock in the class action tration and coordination of insurance coverage and self-insur-
settlement discussed in Note 26, reacquisition of the borrowed ance programs for medical, dental and workers’ compensation
shares by Charter, or acquisitions or sales of shares by certain claims. Costs associated with providing these services are billed
holders of Charter’s shares, including persons who have held, and charged directly to the Company’s operating subsidiaries
currently hold, or accumulate in the future five percent or more and are included within operating costs in the accompanying
of Charter’s outstanding stock (including upon an exchange by
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