Charter 2015 Annual Report Download - page 129

CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015, 2014 AND 2013
(dollars in millions, except share or per share data or where indicated)
F- 32
Net deferred tax liabilities included approximately $28 million and $234 million at December 31, 2015 and 2014, respectively,
relating to certain indirect subsidiaries that file separate income tax returns. The decrease in net deferred tax liabilities relating to
certain indirect subsidiaries is a result of Charter Holdco’s indirect subsidiaries that are corporations joining the Charter consolidated
group as noted above in connection with the Election. Following the Election, the remaining indirect subsidiary deferred tax
balances represent only certain state jurisdictions.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or
all of the deferred tax assets will be realized. Due to the Company’s history of losses, valuation allowances have been established
except for future taxable income that will result from the reversal of existing temporary differences for which deferred tax liabilities
are recognized. Realization of deferred tax assets is dependent on generating sufficient taxable income prior to expiration of the
loss carryforwards. The amount of the deferred tax assets considered realizable and, therefore, reflected in the consolidated balance
sheet, would be increased at such time that it is more-likely-than-not future taxable income will be realized during the carryforward
period. The Company periodically evaluates the facts and circumstances surrounding this assessment and, at the time this
consideration is met, an adjustment to reverse some portion of the existing valuation allowance would result.
As of December 31, 2015, Charter had approximately $11.3 billion of federal tax net operating loss carryforwards resulting in a
gross deferred tax asset of approximately $4.0 billion. Federal tax net operating loss carryforwards expire in the years 2020
through 2035; with $560 million expiring through 2023, $5.7 billion expiring between 2024 and 2028, and $5.0 billion expiring
thereafter. These losses resulted from the operations of Charter Holdco and its subsidiaries. In addition, as of December 31, 2015,
Charter had state tax net operating loss carryforwards, resulting in a gross deferred tax asset (net of federal tax benefit) of
approximately $365 million. State tax net operating loss carryforwards generally expire in the years 2016 through 2035. Included
in the loss carryforwards is $222 million of loss, the tax benefit of which will be recorded through equity when realized as a
reduction of income tax payable.
On May 1, 2013, Liberty Media Corporation (“Liberty Media”) completed its purchase of a 27% beneficial interest in Charter.
Upon closing, Charter experienced a second “ownership change” as defined in Section 382 of the Internal Revenue Code resulting
in a second set of limitations on Charter’s use of its existing federal and state net operating losses, capital losses, and tax credit
carryforwards. The first ownership change limitations that applied as a result of our emergence from bankruptcy in 2009 will also
continue to apply. As of December 31, 2015, $9.1 billion of federal tax loss carryforwards are unrestricted and available for
Charter’s immediate use, while approximately $2.2 billion of federal tax loss carryforwards are still subject to Section 382 and
other restrictions. Pursuant to these restrictions, Charter estimates that approximately $400 million in 2016 and an additional $226
million annually over each of the next eight years of federal tax loss carryforwards should become unrestricted and available for
Charter's use. Since the limitation amounts accumulate for future use to the extent they are not utilized in any given year, Charter
believes its loss carryforwards should become fully available to offset future taxable income, if any. Charter’s state loss
carryforwards are subject to similar, but varying limitations on their future use. If the Company was to experience another
“ownership change” in the future, its ability to use its loss carryforwards could be subject to further limitations.
In determining the Company’s tax provision for financial reporting purposes, the Company establishes a reserve for uncertain tax
positions unless such positions are determined to be “more likely than not” of being sustained upon examination, based on their
technical merits. There is considerable judgment involved in making such a determination. The Company has recorded
unrecognized tax benefits totaling approximately $5 million as of December 31, 2015, presented net of deferred taxes. The
Company did not have any unrecognized tax benefits as of December 31, 2014. The Company does not currently anticipate that
its existing reserves related to uncertain income tax positions as of December 31, 2015 will significantly increase or decrease
during the twelve-month period ending December 31, 2016; however, various events could cause the Company’s current
expectations to change in the future. These uncertain tax positions, if ever recognized in the financial statements, would be recorded
in the consolidated statements of operations as part of the income tax provision.
No tax years for Charter or Charter Holdco, for income tax purposes, are currently under examination by the IRS. Tax years
ending 2012 through 2015 remain subject to examination and assessment. Years prior to 2012 remain open solely for purposes
of examination of Charter’s loss and credit carryforwards.