Charter 2006 Annual Report Download - page 95

CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES 2006 FORM 10-K
Notes to Consolidated Financial Statements (continued)
company receives employee services in exchange for (a) equity have a material impact on its financial statements. The
instruments of that company or (b) liabilities that are based on Company recorded $13 million, $14 million, and $31 million of
the fair value of the company’s equity instruments or that may option compensation expense which is included in general and
be settled by the issuance of such equity instruments. Because administrative expenses for the years ended December 31, 2006,
the Company adopted the fair value recognition provisions of 2005, and 2004, respectively.
SFAS No. 123 on January 1, 2003, the revised standard did not
SFAS No. 123R 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. 123R for the years presented:
Year Ended December 31,
2006 2005 2004
Net loss applicable to common stock $(1,370) $ (970) $(4,345)
Add back stock-based compensation expense related to stock options included in reported net loss (net of
minority interest) 13 14 31
Less employee stock-based compensation expense determined under fair value based method for all employee
stock option awards (net of minority interest) (13) (14) (33)
Effects of unvested options in stock option exchange (see Note 20) —— 48
Pro forma $(1,370) $ (970) $(4,299)
Loss per common shares, basic and diluted:
As reported $ (4.13) $(3.13) $(14.47)
Pro forma $ (4.13) $(3.13) $(14.32)
The fair value of each option granted is estimated on the substantially all losses before income taxes that otherwise would
date of grant using the Black-Scholes option-pricing model. The have been allocated to minority interest (see Note 11).
following weighted average assumptions were used for grants Loss per Common Share
during the years ended December 31, 2006, 2005, and 2004, Basic loss per common share is computed by dividing the net
respectively; risk-free interest rates of 4.6%, 4.0%, and 3.3%; loss applicable to common stock by 331,941,788 shares,
expected volatility of 87.3%, 70.9%, and 92.4% based on 310,209,047 shares, and 300,341,877 shares for the years ended
historical volatility; and expected lives of 6.3 years, 4.5 years, December 31, 2006, 2005, and 2004, representing the weighted-
and 4.6 years, respectively. The valuations assume no dividends average common shares outstanding during the respective
are paid. periods. Diluted loss per common share equals basic loss per
Income Taxes common share for the periods presented, as the effect of stock
The Company recognizes deferred tax assets and liabilities for options and other convertible securities are antidilutive because
temporary differences between the financial reporting basis and the Company incurred net losses. All membership units of
the tax basis of the Company’s assets and liabilities and Charter Holdco are exchangeable on a one-for-one basis into
expected benefits of utilizing net operating loss carryforwards. common stock of Charter at the option of the holders. As of
The impact on deferred taxes of changes in tax rates and tax December 31, 2006, Charter Holdco had 747,176,616 member-
law, if any, applied to the years during which temporary ship units outstanding. Should the holders exchange units for
differences are expected to be settled, are reflected in the shares, the effect would not be dilutive because the Company
consolidated financial statements in the period of enactment (see incurred net losses.
Note 21). The 39.8 million and 116.9 million shares outstanding as of
December 31, 2006 and 2005, respectively, pursuant to the share
Minority Interest lending agreement described in Note 13 are required to be
Minority interest on the consolidated balance sheets primarily returned, in accordance with the contractual arrangement, and
represents preferred membership interests in an indirect subsidi- are treated in basic and diluted earnings per share as if they
ary of Charter held by Mr. Paul G. Allen. Minority interest were already returned and retired. Consequently, there is no
totaled $192 million and $188 million as of December 31, 2006 impact of the shares of common stock lent under the share
and 2005, respectively, on the accompanying consolidated lending agreement in the earnings per share calculation.
balance sheets.
Reported losses allocated to minority interest on the Segments
statement of operations reflect the minority interests in CC VIII, SFAS No. 131, Disclosure about Segments of an Enterprise and
LLC (‘‘CC VIII’’) and Charter Holdco. Because minority interest Related Information, established standards for reporting informa-
in Charter Holdco was substantially eliminated, Charter absorbs tion about operating segments in annual financial statements and
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