Charter 2012 Annual Report Download - page 34

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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 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, and in our vendors’ 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 could experience a deemed ownership change in the future that could limit our ability to use our tax loss
carryforwards.
As of December 31, 2012, we had approximately $7.7 billion of federal tax net operating loss carryforwards, capital loss
carryforwards and suspended losses resulting in a gross deferred tax asset of approximately $2.7 billion. Federal tax net operating
and capital loss carryforwards expire in the years 2014 through 2032. Federal suspended losses can generally be carried forward
indefinitely. These losses resulted from the operations of Charter Holdco and its subsidiaries. In addition, as of December 31,
2012, we had state tax net operating loss carryforwards, capital loss carryforwards and suspended losses, resulting in a gross
deferred tax asset (net of federal tax benefit) of approximately $252 million. State tax net operating and capital loss carryforwards
generally expire in the years 2013 through 2032. State suspended losses can generally be carried forward indefinitely. 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
but could become operative in the future if certain events occur and the restrictions are imposed by Charter’s board of directors.
However, there can be no assurance that Charter’s board of directors would choose to impose these restrictions or that such
restrictions, if imposed, would prevent an ownership change from occurring.