Charter 2006 Annual Report Download - page 111

CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES 2006 FORM 10-K
Notes to Consolidated Financial Statements (continued)
Current and deferred income tax benefit (expense) is as liabilities at December 31, 2006 and 2005 which are included in
follows: long-term liabilities are presented below.
December 31, December 31,
2006 2005 2004 2006 2005
Current expense: Deferred tax assets:
Federal income taxes $(2)$ (2) $ (2) Net operating loss carryforward $ 2,689 $ 2,352
State income taxes (5) (4) (4) Investment in Charter Holdco 1,955 1,817
Other 56
Current income tax expense (7) (6) (6)
Total gross deferred tax assets 4,649 4,175
Deferred benefit (expense): Less: valuation allowance (4,200) (3,656)
Federal income taxes (177) (95) 175
State income taxes (25) (14) 25 Net deferred tax assets $ 449 $ 519
Deferred income tax benefit (expense) (202) (109) 200 Deferred tax liabilities:
Investment in Charter Holdco $ (737) $ (597)
Total income benefit (expense) $ (209) $(115) $194 Indirect Corporate Subsidiaries:
Property, plant & equipment (31) (41)
The Company recorded the portion of the income tax Franchises (195) (206)
benefit associated with the adoption of EITF Topic D-108 as a Gross deferred tax liabilities (963) (844)
$91 million reduction of the cumulative effect of accounting Net deferred tax liabilities $ (514) $ (325)
change on the accompanying statement of operations for the
year ended December 31, 2004. Also a portion of income tax As of December 31, 2006, the Company has deferred tax
expense was recorded as a reduction of income (loss) from assets of $4.6 billion, which include $2.0 billion of financial
discontinued operations in the years ended December 31, 2006, losses in excess of tax losses allocated to Charter from Charter
2005, and 2004. See Note 4. Holdco. The deferred tax assets also include $2.7 billion of tax
The Company’s effective tax rate differs from that derived net operating loss carryforwards (generally expiring in years
by applying the applicable federal income tax rate of 35%, and 2007 through 2026) of Charter and its indirect corporate
average state income tax rate of 5% for the years ended subsidiaries. Valuation allowances of $4.2 billion exist with
December 31, 2006, 2005, and 2004 as follows: respect to these deferred tax assets of which $2.2 billion relate
to the tax net operating loss carryforwards.
December 31, The amount of any benefit from the Company’s tax net
2006 2005 2004 operating losses is dependent on: (1) Charter and its indirect
Statutory federal income taxes $ 407 $ 298 $ 1,288 corporate subsidiaries’ ability to generate future taxable income
Statutory state income taxes, net 58 43 184 and (2) the impact of any future ‘‘ownership changes’’ of
Franchises (202) (109) 200 Charter’s common stock. An ‘‘ownership change’’ as defined in
Valuation allowance provided and other (472) (347) (1,478) the applicable federal income tax rules, would place significant
(209) (115) 194 limitations, on an annual basis, on the use of such net operating
Less: cumulative effect of accounting
change and discontinued operations 22 3 (60) losses to offset any future taxable income the Company may
Income tax benefit (expense) $ (187) $(112) $ 134 generate. Such limitations, in conjunction with the net operating
loss expiration provisions, could effectively eliminate the Com-
The tax effects of these temporary differences that give rise pany’s ability to use a substantial portion of its net operating
to significant portions of the deferred tax assets and deferred tax losses to offset any future taxable income. Future transactions
and the timing of such transactions could cause an ownership
change. Such transactions include the issuance of shares of
common stock upon future conversion of Charter’s convertible
senior notes, reacquisition of the shares borrowed under the
share lending agreement by Charter (of which 77.1 million were
returned through December 31, 2006), or acquisitions or sales of
shares by certain holders of Charter’s shares, including persons
who have held, currently hold, or accumulate in the future five
percent or more of Charter’s outstanding stock (including upon
an exchange by Mr. Allen or his affiliates, directly or indirectly,
of membership units of Charter Holdco into CCI common
stock). Many of the foregoing transactions, including whether
Mr. Allen exchanges his Charter Holdco units, are beyond
management’s control.
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