Charter 2006 Annual Report Download - page 38

CHARTER COMMUNICATIONS, INC. 2006 FORM 10-K
Internet services. Mr. Allen may also engage in other businesses pay more taxes than if the special tax allocation provisions were not
that compete or may in the future compete with us. in effect.
Mr. Allen’s control over our management and affairs could
Charter Holdco’s limited liability company agreement provided
create conflicts of interest if he is faced with decisions that could
that through the end of 2003, net tax losses (such net tax losses
have different implications for him, us and the other holders of
being determined under the federal income tax rules for
our Class A common stock. For example, if Mr. Allen were to
determining capital accounts) of Charter Holdco that would
elect to exchange his Charter Holdco membership units for our
otherwise have been allocated to us based generally on our
Class B common stock pursuant to our existing exchange
percentage ownership of outstanding common membership units
agreement with him, such a transaction would result in an
of Charter Holdco, would instead be allocated to the member-
ownership change for income tax purposes, as discussed above.
ship units held by Vulcan Cable III Inc. (‘‘Vulcan Cable’’) and
See ‘‘— For tax purposes, there is significant risk that we will
CII. The purpose of these special tax allocation provisions was
experience an ownership change resulting in a material limita-
to allow Mr. Allen to take advantage, for tax purposes, of the
tion on the use of a substantial amount of our existing net
losses generated by Charter Holdco during such period. In some
operating loss carryforwards.’’ Further, Mr. Allen could effec-
situations, these special tax allocation provisions could result in
tively cause us to enter into contracts with another entity in
our having to pay taxes in an amount that is more or less than
which he owns an interest, or to decline a transaction into
if Charter Holdco had allocated net tax losses to its members
which he (or another entity in which he owns an interest)
based generally on the percentage of outstanding common
ultimately enters.
membership units owned by such members. For further discus-
Current and future agreements between us and either
sion on the details of the tax allocation provisions see ‘‘Part II.
Mr. Allen or his affiliates may not be the result of arm’s-length
Item 7. Management’s Discussion and Analysis of Financial
negotiations. Consequently, such agreements may be less
Condition and Results of Operations — Critical Accounting Poli-
favorable to us than agreements that we could otherwise have
cies and Estimates — Income Taxes.’’
entered into with unaffiliated third parties.
Risks Related to Regulatory and Legislative Matters
We are not permitted to engage in any business activity other than the
cable transmission of video, audio and data unless Mr. Allen Our business is subject to extensive governmental legislation and
authorizes us to pursue that particular business activity, which could regulation, which could adversely affect our business.
adversely affect our ability to offer new products and services outside
of the cable transmission business and to enter into new businesses, Regulation of the cable industry has increased cable operators’
and could adversely affect our growth, financial condition and results administrative and operational expenses and limited their reve-
of operations. nues. Cable operators are subject to, among other things:
(rules governing the provision of cable equipment and
Our certificate of incorporation and Charter Holdco’s limited compatibility with new digital technologies;
liability company agreement provide that Charter and Charter
Holdco and our subsidiaries, cannot engage in any business (rules and regulations relating to subscriber privacy;
activity outside the cable transmission business except for (limited rate regulation;
specified businesses. This will be the case unless Mr. Allen
consents to our engaging in the business activity. The cable (requirements governing when a cable system must carry a
transmission business means the business of transmitting video, particular broadcast station and when it must first obtain
audio (including telephone services), and data over cable consent to carry a broadcast station;
television systems owned, operated, or managed by us from (rules and regulations relating to provision of voice
time to time. These provisions may limit our ability to take communications;
advantage of attractive business opportunities.
(rules for franchise renewals and transfers; and
The loss of Mr. Allen’s services could adversely affect our ability to (other requirements covering a variety of operational areas
manage our business. such as equal employment opportunity, technical standards,
and customer service requirements.
Mr. Allen is Chairman of our board of directors and provides
strategic guidance and other services to us. If we were to lose Additionally, many aspects of these regulations are cur-
his services, our growth, financial condition, and results of rently the subject of judicial proceedings and administrative or
operations could be adversely impacted. legislative proposals. There are also ongoing efforts to amend or
expand the federal, state, and local regulation of some of our
The special tax allocation provisions of the Charter Holdco limited cable systems, which may compound the regulatory risks we
liability company agreement may cause us in some circumstances to already face. Certain states and localities are considering new
telecommunications taxes that could increase operating
expenses.
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