Charter 2011 Annual Report Download - page 34

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believe that the general lack of compatibility among set-top box operating systems has slowed the industry’s development and
deployment of digital set-top box applications.
We depend on patent, copyright, trademark and trade secret laws and licenses to establish and maintain our intellectual property
rights in technology and the products and services used in our operating activities. Any of our intellectual property rights could
be challenged or invalidated, or such intellectual property rights may not be sufficient to permit us to continue to use certain
intellectual property, which could result in discontinuance of certain product or service offerings or other competitive harm, our
incurring substantial monetary liability or being enjoined preliminarily or permanently from further use of the intellectual property
in question.
Malicious and abusive activities could disrupt our networks, information systems or properties and could impair our operating
activities.
Network and information systems technologies are critical to our operating activities, as well as our customers' access to our
services. Malicious and abusive activities, such as the dissemination of computer viruses, worms, and other destructive or disruptive
software, computer hackings, social engineering, process breakdowns, denial of service attacks, malicious social engineering and
other malicious activities have become more common in industry overall. If directed at us or technologies upon which we depend,
these activities could have adverse consequences on our network and our customers, including degradation of service, excessive
call volume to call centers, and damage to our or our customers' equipment and data. Further, these activities could result in
security breaches, such as misappropriation, misuse, leakage, falsification or accidental release or loss of information maintained
in our information technology systems and networks, including customer, personnel and vendor data. If a significant incident
were to occur, it could damage our reputation and credibility, lead to customer dissatisfaction and, ultimately, loss of customers
or revenue, in addition to increased costs to service our customers and protect our network. These events also could result in large
expenditures to repair or replace the damaged properties, networks or information systems or to protect them from similar events
in the future. Any significant loss of Internet customers or revenue, or significant increase in costs of serving those customers,
could adversely affect our growth, financial condition and results of operations.
For tax purposes, we experienced a deemed ownership change upon emergence from Chapter 11 bankruptcy, resulting in an
annual limitation on our ability to use our existing tax loss carryforwards. We could experience another deemed ownership
change in the future that could further limit our ability to use our tax loss carryforwards.
As of December 31, 2011, we had approximately $7.4 billion of federal tax net operating and capital loss carryforwards resulting
in a gross deferred tax asset of approximately $2.6 billion, expiring in the years 2014 through 2031. These losses resulted from
the operations of Charter Holdco and its subsidiaries. In addition, as of December 31, 2011, we had state tax net operating and
capital loss carryforwards, resulting in a gross deferred tax asset (net of federal tax benefit) of approximately $252 million, generally
expiring in years 2012 through 2031. Due to uncertainties in projected future taxable income, valuation allowances have been
established against the gross deferred tax assets for book accounting purposes, except for future taxable income that will result
from the reversal of existing temporary differences for which deferred tax liabilities are recognized. Such tax loss carryforwards
can accumulate and be used to offset our future taxable income.
The consummation of the Plan generated an “ownership change” as defined in Section 382 of the Internal Revenue Code of 1986,
as amended (the “Code”). In general, an “ownership change” occurs whenever the percentage of the stock of a corporation owned,
directly or indirectly, by “5-percent stockholders” (within the meaning of Section 382 of the Code) increases by more than 50
percentage points over the lowest percentage of the stock of such corporation owned, directly or indirectly, by such “5-percent
stockholders” at any time over the preceding three years. As a result, Charter is subject to an annual limitation on the use of our
loss carryforwards which existed at November 30, 2009. Further, our loss carryforwards have been reduced by the amount of the
cancellation of debt income resulting from the Plan that was allocable to Charter. The limitation on our ability to use our loss
carryforwards, in conjunction with the loss carryforward expiration provisions, could reduce our ability to use a portion of our
loss carryforwards to offset future taxable income which could result in us being required to make material cash tax payments.
Our ability to make such income tax payments, if any, will depend at such time on our liquidity or our ability to raise additional
capital, and/or on receipt of payments or distributions from Charter Holdco and its subsidiaries.
If Charter were to experience a second ownership change in the future (as a result of purchases and sales of stock by Charter’s 5-
percent stockholders, new issuances or redemptions of Charter’s stock, certain acquisitions of Charter’s stock and issuances,
redemptions, sales or other dispositions or acquisitions of interests in Charter’s 5-percent stockholders), Charter’s ability to use
our loss carryforwards could become subject to further limitations. Our common stock is subject to certain transfer restrictions
contained in our amended and restated certificate of incorporation. These restrictions, which are designed to minimize the likelihood
of an ownership change occurring and thereby preserve our ability to utilize our loss carryforwards, are not currently operative