Charter 2010 Annual Report Download - page 115

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F-0 F-PB
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2010, 2009, AND 2008
(dollars in millions, except share or per share data or where indicated)
Predecessor
Eleven Months Ended Year Ended,
November 30, 2009 December 31, 2008
Shares
Weighted
Average
Grant
Price Shares
Weighted
Average
Grant
Price
Outstanding, beginning of period 33,037 $ 1.80 28,013 $ 2.16
Granted -- $ -- 10,137 $ 0.84
Vested (951) $ 1.21 (1,562) $ 1.49
Cancelled (32,086) $ 1.81 (3,551) $ 2.08
Outstanding, end of period -- $ -- 33,037 $ 1.80
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All of Charter’s operations are held through Charter Holdco and its
direct and indirect subsidiaries. Charter Holdco and the majority
of its subsidiaries are generally limited liability companies that
are not subject to income tax. However, certain of these limited
liability companies are subject to state income tax. In addition, the
indirect subsidiaries that are corporations are subject to federal and
state income tax. All of the remaining taxable income, gains, losses,
deductions and credits of Charter Holdco are passed through to
Charter.
In connection with the Plan, Charter, CII, Mr. Allen and Charter
Holdco entered into an exchange agreement (the “Exchange
Agreement”), pursuant to which CII had the right to require Charter
to (i) exchange all or a portion of CII’s membership interest in
Charter Holdco or 100% of CII for $1,000 in cash and shares of
Charter’s Class A common stock in a taxable transaction, or (ii)
merge CII with and into Charter, or a wholly-owned subsidiary of
Charter, in a tax-free transaction (or undertake a tax-free transaction
similar to the taxable transaction in subclause (i)), subject to CII
meeting certain conditions. In addition, Charter had the right,
under certain circumstances involving a change of control of Charter
to require CII to effect an exchange transaction of the type elected
by CII from subclauses (i) or (ii) above, which election is subject to
certain limitations.
On December 28, 2009, CII exercised its right, under the Exchange
Agreement with Charter, to exchange 81% of its common
membership interest in Charter Holdco for $1,000 in cash and
907,698 shares of Charter’s Class A common stock in a fully taxable
transaction. As a result of this transaction, Charter’s deferred tax
liability increased by $100 million. Charter also received a step-
up in tax basis in Charter Holdco’s assets, under section 743 of the
Code, relative to the interest in Charter Holdco it acquired from
CII. Based upon the taxable exchange which occurred on December
28, 2009, CII fulfilled the conditions necessary to allow it to elect
a tax-free transaction at any time during the remaining term of the
Exchange Agreement.
On February 8, 2010, the remaining CII interest in Charter Holdco
was exchanged for 212,923 shares of Charter’s Class A common
stock in a non-taxable transaction after which Charter Holdco
became 100% owned by Charter. As a result of this transaction,
Charter recorded the tax attributes previously attributed to the CII
noncontrolling interest which increased net deferred tax liabilities by
approximately $99 million. e $99 million is the result of an overall
increase in the gross deferred tax liability of $221 million and a
corresponding reduction of valuation allowance of $122 million. e
combined net effects of this transaction were recorded in the financial
statements as a $168 million reduction of additional paid-in capital
and a $69 million reduction of income tax expense for the year ended
December 31, 2010 (Successor).
For the year ended December 2010 (Successor), one month ended
December 31, 2009 (Successor), eleven months ended November
30, 2009 (Predecessor) and year ended December 31, 2008
(Predecessor), the Company recorded deferred income tax expense
and benefits as shown below. e income tax expense is recognized
primarily through increases in deferred tax liabilities related to our