Charter 2011 Annual Report Download - page 115

CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2011, 2010 AND 2009
(dollars in millions, except share or per share data or where indicated)
F- 31
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. The $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. The 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 years ended December 2011 and 2010 (Successor), one month ended December 31, 2009 (Successor) and eleven months
ended November 30, 2009 (Predecessor), the Company recorded deferred income tax expense and benefits as shown below. The
income tax expense is recognized primarily through increases in deferred tax liabilities related to our investment in Charter Holdco,
as well as through current federal and state income tax expense and increases in the deferred tax liabilities of certain of our indirect
corporate subsidiaries. The income tax benefits were realized through reductions in the deferred tax liabilities related to Charter’s
investment in Charter Holdco, as well as the deferred tax liabilities of certain of Charter’s indirect corporate subsidiaries. The tax
provision in future periods will vary based on current and future temporary differences, as well as future operating results.
Current and deferred income tax benefit (expense) is as follows:
Current expense:
Federal income taxes
State income taxes
Current income tax expense
Deferred benefit (expense):
Federal income taxes
State income taxes
Deferred income tax benefit (expense)
Total income benefit (expense)
Successor
Year Ended December 31,
2011
$ —
(9)
(9)
(258)
(32)
(290)
$ (299)
2010
$ —
(8)
(8)
(263)
(24)
(287)
$(295)
One Month
Ended
December 31,
2009
$ —
(1)
(1)
(6)
(1)
(7)
$(8)
Predecessor
Eleven
Months Ended
November 30,
2009
$(1)
(6)
(7)
343
15
358
$ 351
Income tax benefit for the eleven months ended November 30, 2009 (Predecessor) included $480 million of deferred tax benefit
related to the impairment of franchises.
The Company’s effective tax rate differs from that derived by applying the applicable federal income tax rate of 35% for the