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Charter Communications Inc. (CHTR)

Analysis of Income Taxes

Difficulty: Advanced

Income Tax Accounting Policy
Income Tax Expense (Benefit)
Effective Income Tax Rate (EITR)
Components of Deferred Tax Assets and Liabilities
Deferred Tax Assets and Liabilities, Classification
Analyst Adjustments: Removal of Deferred Taxes
Adjusted Ratios: Removal of Deferred Taxes (Summary)
Adjusted Net Profit Margin
Adjusted Financial Leverage
Adjusted Return on Equity (ROE)
Adjusted Return on Assets (ROA)

Income Tax Accounting Policy

Charter recognizes deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of Charter’s assets and liabilities and expected benefits of utilizing loss carryforwards. Since substantially all Charter’s operations are held through its partnership interest in Charter Holdings, the primary deferred tax component recorded in the consolidated balance sheet relates to the excess financial reporting outside basis, excluding amounts attributable to nondeductible goodwill, over Charter’s tax basis in its investment in the partnership. Valuation allowances are established when management determines that it is more likely than not that some portion or the entire deferred tax asset will not be realized. The impact on deferred taxes of changes in tax rates and tax law, if any, applied to the years during which temporary differences are expected to be settled, are reflected in the consolidated financial statements in the period of enactment. In determining Charter’s tax provision for financial reporting purposes, Charter 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. Interest and penalties are recognized on uncertain income tax positions as part of the income tax provision.

Source: 10-K (filing date: 2019-01-31).

Income Tax Expense (Benefit)

Charter Communications Inc., income tax expense (benefit), continuing operations

US$ in millions

	12 months ended	Dec 31, 2018		Dec 31, 2017		Dec 31, 2016		Dec 31, 2015		Dec 31, 2014
	Federal income taxes
	State income taxes
	Current income tax expense
	Federal income taxes
	State income taxes
	Deferred income tax expense (benefit)
	Income tax expense (benefit)

Based on: 10-K (filing date: 2019-01-31), 10-K (filing date: 2018-02-02), 10-K (filing date: 2017-02-16), 10-K (filing date: 2016-02-10), 10-K (filing date: 2015-02-24).

Item	Description	The company
Current income tax expense	Amount of current income tax expense (benefit) pertaining to taxable income (loss) from continuing operations.	Charter Communications Inc.’s current income tax expense declined from 2016 to 2017 but then increased from 2017 to 2018 exceeding 2016 level.
Deferred income tax expense (benefit)	Amount of deferred income tax expense (benefit) pertaining to income (loss) from continuing operations.	Charter Communications Inc.’s deferred income tax expense (benefit) declined from 2016 to 2017 but then increased from 2017 to 2018 exceeding 2016 level.
Income tax expense (benefit)	Amount of current income tax expense (benefit) and deferred income tax expense (benefit) pertaining to continuing operations.	Charter Communications Inc.’s income tax expense (benefit) declined from 2016 to 2017 but then increased from 2017 to 2018 exceeding 2016 level.

Effective Income Tax Rate (EITR)

Charter Communications Inc., effective income tax rate (EITR) reconciliation

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	Statutory federal income tax rate
	Effective tax rate

Based on: 10-K (filing date: 2019-01-31), 10-K (filing date: 2018-02-02), 10-K (filing date: 2017-02-16), 10-K (filing date: 2016-02-10), 10-K (filing date: 2015-02-24).

Item	Description	The company
Effective tax rate	Percentage of current income tax expense (benefit) and deferred income tax expense (benefit) pertaining to continuing operations.

Components of Deferred Tax Assets and Liabilities

Charter Communications Inc., components of deferred tax assets and liabilities

US$ in millions

		Dec 31, 2018		Dec 31, 2017		Dec 31, 2016		Dec 31, 2015		Dec 31, 2014
	Loss carryforwards
	Goodwill
	Investment in partnership
	Other intangibles
	Accrued and other
	Gross deferred tax assets
	Valuation allowance
	Deferred tax assets
	Investment in partnership
	Indefinite-lived intangibles
	Property, plant and equipment
	Accrued and other
	Deferred tax liabilities
	Net deferred tax assets (liabilities)

Based on: 10-K (filing date: 2019-01-31), 10-K (filing date: 2018-02-02), 10-K (filing date: 2017-02-16), 10-K (filing date: 2016-02-10), 10-K (filing date: 2015-02-24).

Item	Description	The company
Gross deferred tax assets	Amount before allocation of valuation allowances of deferred tax asset attributable to deductible temporary differences and carryforwards.	Charter Communications Inc.’s gross deferred tax assets declined from 2016 to 2017 but then slightly increased from 2017 to 2018.
Deferred tax assets	Amount after allocation of valuation allowances of deferred tax asset attributable to deductible temporary differences and carryforwards.	Charter Communications Inc.’s deferred tax assets declined from 2016 to 2017 but then slightly increased from 2017 to 2018.
Net deferred tax assets (liabilities)	Amount, after allocation of valuation allowances and deferred tax liability, of deferred tax asset attributable to deductible differences and carryforwards, without jurisdictional netting.	Charter Communications Inc.’s net deferred tax assets (liabilities) increased from 2016 to 2017 but then slightly declined from 2017 to 2018.

Deferred Tax Assets and Liabilities, Classification

Charter Communications Inc., deferred tax assets and liabilities, classification

US$ in millions

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	Deferred tax liabilities

Based on: 10-K (filing date: 2019-01-31), 10-K (filing date: 2018-02-02), 10-K (filing date: 2017-02-16), 10-K (filing date: 2016-02-10), 10-K (filing date: 2015-02-24).

Item	Description	The company
Deferred tax liabilities	Amount, after deferred tax asset, of deferred tax liability attributable to taxable differences, with jurisdictional netting and classified as noncurrent.	Charter Communications Inc.’s deferred tax liabilities declined from 2016 to 2017 but then slightly increased from 2017 to 2018.

Analyst Adjustments: Removal of Deferred Taxes

Charter Communications Inc., adjustments to financial data

US$ in millions

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	Adjustment to Total Liabilities
	Total liabilities (as reported)
	Less: Noncurrent deferred tax liabilities, net
	Total liabilities (adjusted)
	Adjustment to Total Charter Shareholders’ Equity (deficit)
	Total Charter shareholders’ equity (deficit) (as reported)
	Less: Net deferred tax assets (liabilities)
	Total Charter shareholders’ equity (deficit) (adjusted)
	Adjustment to Net Income (loss) Attributable To Charter Shareholders
	Net income (loss) attributable to Charter shareholders (as reported)
	Add: Deferred income tax expense (benefit)
	Net income (loss) attributable to Charter shareholders (adjusted)

Based on: 10-K (filing date: 2019-01-31), 10-K (filing date: 2018-02-02), 10-K (filing date: 2017-02-16), 10-K (filing date: 2016-02-10), 10-K (filing date: 2015-02-24).

Charter Communications Inc., Financial Data: Reported vs. Adjusted

Adjusted Ratios: Removal of Deferred Taxes (Summary)

Charter Communications Inc., adjusted ratios

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	Net Profit Margin
	Reported net profit margin
	Adjusted net profit margin
	Financial Leverage
	Reported financial leverage
	Adjusted financial leverage
	Return on Equity (ROE)
	Reported ROE
	Adjusted ROE
	Return on Assets (ROA)
	Reported ROA
	Adjusted ROA

Based on: 10-K (filing date: 2019-01-31), 10-K (filing date: 2018-02-02), 10-K (filing date: 2017-02-16), 10-K (filing date: 2016-02-10), 10-K (filing date: 2015-02-24).

Ratio	Description	The company
Adjusted net profit margin	An indicator of profitability, calculated as adjusted net income divided by total revenue.	Charter Communications Inc.’s adjusted net profit margin deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.
Adjusted financial leverage	A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity. Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.	Charter Communications Inc.’s adjusted financial leverage increased from 2016 to 2017 and from 2017 to 2018.
Adjusted ROE	A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity.	Charter Communications Inc.’s adjusted ROE improved from 2016 to 2017 and from 2017 to 2018.
Adjusted ROA	A profitability ratio calculated as adjusted net income divided by adjusted total assets.	Charter Communications Inc.’s adjusted ROA improved from 2016 to 2017 and from 2017 to 2018.

Charter Communications Inc., Ratios: Reported vs. Adjusted

Adjusted Net Profit Margin

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (US$ in millions)
	Net income (loss) attributable to Charter shareholders
	Revenues
	Ratio
	Net profit margin¹
	Adjusted for Deferred Taxes
	Selected Financial Data (US$ in millions)
	Adjusted net income (loss) attributable to Charter shareholders
	Revenues
	Ratio
	Adjusted net profit margin²

Based on: 10-K (filing date: 2019-01-31), 10-K (filing date: 2018-02-02), 10-K (filing date: 2017-02-16), 10-K (filing date: 2016-02-10), 10-K (filing date: 2015-02-24).

2018 Calculations

¹ Net profit margin = 100 × Net income (loss) attributable to Charter shareholders ÷ Revenues
= 100 × hidden ÷ hidden = hidden

² Adjusted net profit margin = 100 × Adjusted net income (loss) attributable to Charter shareholders ÷ Revenues
= 100 × hidden ÷ hidden = hidden

Ratio	Description	The company
Adjusted net profit margin	An indicator of profitability, calculated as adjusted net income divided by total revenue.	Charter Communications Inc.’s adjusted net profit margin deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.

Adjusted Financial Leverage

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (US$ in millions)
	Total assets
	Total Charter shareholders’ equity (deficit)
	Ratio
	Financial leverage¹
	Adjusted for Deferred Taxes
	Selected Financial Data (US$ in millions)
	Total assets
	Adjusted total Charter shareholders’ equity (deficit)
	Ratio
	Adjusted financial leverage²

Based on: 10-K (filing date: 2019-01-31), 10-K (filing date: 2018-02-02), 10-K (filing date: 2017-02-16), 10-K (filing date: 2016-02-10), 10-K (filing date: 2015-02-24).

2018 Calculations

¹ Financial leverage = Total assets ÷ Total Charter shareholders’ equity (deficit)
= hidden ÷ hidden = hidden

² Adjusted financial leverage = Total assets ÷ Adjusted total Charter shareholders’ equity (deficit)
= hidden ÷ hidden = hidden

Ratio	Description	The company
Adjusted financial leverage	A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity. Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.	Charter Communications Inc.’s adjusted financial leverage increased from 2016 to 2017 and from 2017 to 2018.

Adjusted Return on Equity (ROE)

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (US$ in millions)
	Net income (loss) attributable to Charter shareholders
	Total Charter shareholders’ equity (deficit)
	Ratio
	ROE¹
	Adjusted for Deferred Taxes
	Selected Financial Data (US$ in millions)
	Adjusted net income (loss) attributable to Charter shareholders
	Adjusted total Charter shareholders’ equity (deficit)
	Ratio
	Adjusted ROE²

Based on: 10-K (filing date: 2019-01-31), 10-K (filing date: 2018-02-02), 10-K (filing date: 2017-02-16), 10-K (filing date: 2016-02-10), 10-K (filing date: 2015-02-24).

2018 Calculations

¹ ROE = 100 × Net income (loss) attributable to Charter shareholders ÷ Total Charter shareholders’ equity (deficit)
= 100 × hidden ÷ hidden = hidden

² Adjusted ROE = 100 × Adjusted net income (loss) attributable to Charter shareholders ÷ Adjusted total Charter shareholders’ equity (deficit)
= 100 × hidden ÷ hidden = hidden

Ratio	Description	The company
Adjusted ROE	A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity.	Charter Communications Inc.’s adjusted ROE improved from 2016 to 2017 and from 2017 to 2018.

Adjusted Return on Assets (ROA)

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (US$ in millions)
	Net income (loss) attributable to Charter shareholders
	Total assets
	Ratio
	ROA¹
	Adjusted for Deferred Taxes
	Selected Financial Data (US$ in millions)
	Adjusted net income (loss) attributable to Charter shareholders
	Total assets
	Ratio
	Adjusted ROA²

Based on: 10-K (filing date: 2019-01-31), 10-K (filing date: 2018-02-02), 10-K (filing date: 2017-02-16), 10-K (filing date: 2016-02-10), 10-K (filing date: 2015-02-24).

2018 Calculations

¹ ROA = 100 × Net income (loss) attributable to Charter shareholders ÷ Total assets
= 100 × hidden ÷ hidden = hidden

² Adjusted ROA = 100 × Adjusted net income (loss) attributable to Charter shareholders ÷ Total assets
= 100 × hidden ÷ hidden = hidden

Ratio	Description	The company
Adjusted ROA	A profitability ratio calculated as adjusted net income divided by adjusted total assets.	Charter Communications Inc.’s adjusted ROA improved from 2016 to 2017 and from 2017 to 2018.

	Charter Communications Inc.	Other companies (not purchased previously)
Financial Statements
Common-Size Financial Statements
Ratios
Relative Valuation
Discounted Cash Flow (DCF) Valuation
Economic Value Added (EVA)
Long-term Trends
Analysis
Financial Reporting Quality

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Financial Statements
Common-Size Financial Statements
Ratios
Relative Valuation
Discounted Cash Flow (DCF) Valuation
Economic Value Added (EVA)
Long-term Trends
Analysis
Financial Reporting Quality