Charter 2007 Annual Report Download - page 47

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future transactions, and the timing of such transactions could
cause a deemed ownership change for U.S. federal income tax
purposes”). If Charter were to become subject to such limitations
(whether as a result of an exchange described above or other-
wise), and as a result were to owe taxes resulting from the
Special Profit Allocations, then Mr. Allen may not be obligated
to reimburse Charter for such income taxes. Further, Mr. Allen’s
obligation to reimburse Charter for taxes attributable to the
Special Profit Allocation to Charter ceases upon a subsequent
change of control of Charter.
As of December 31, 2007 and 2006, we have recorded net
deferred income tax liabilities of $665 million and $514 million,
respectively. As part of our net liability, on December 31, 2007
and 2006, we had deferred tax assets of $5.1 billion and $4.6 bil-
lion, respectively, which primarily relate to financial and tax
losses allocated to Charter from Charter Holdco. We are
required to record a valuation allowance when it is more likely
than not that some portion or all of the deferred income tax
assets will not be realized. Given the uncertainty surrounding our
ability to utilize our deferred tax assets, these items have been
offset with a corresponding valuation allowance of $4.8 billion
and $4.2 billion at December 31, 2007 and 2006, respectively.
Charter and Charter Holdco are currently under examina-
tion by the Internal Revenue Service for the tax years ending
December 31, 2004 and 2005. Management does not expect the
results of these examinations to have a material adverse effect on
our consolidated financial condition or results of operations.
Litigation. Legal contingencies have a high degree of uncertainty.
When a loss from a contingency becomes estimable and proba-
ble, a reserve is established. The reserve reflects management’s
best estimate of the probable cost of ultimate resolution of the
matter and is revised as facts and circumstances change. A
reserve is released when a matter is ultimately brought to closure.
We have established reserves for certain matters. If any of these
matters are resolved unfavorably, resulting in payment obligations
in excess of management’s best estimate of the outcome, such
resolution could have a material adverse effect on our consoli-
dated financial condition, results of operations, or our liquidity.
36
CHARTER COMMUNICATIONS, INC. 2007 FORM 10-K