.Analysis of Income Taxes
Difficulty: Advanced
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: Charter Communications Inc., Annual Report
Income Tax Expense (Benefit)
Charter Communications Inc., income tax expense (benefit), continuing operations
USD $ in millions
| 12 months ended | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | |
|---|---|---|---|---|---|---|
| | 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) |
Source: Based on data from Charter Communications Inc. Annual Reports
| Item | Description | The company |
|---|---|---|
| Current income tax expense | The component of income tax expense for the period representing amounts of income taxes paid or payable (or refundable) for the period for all income tax obligations as determined by applying the provisions of relevant enacted tax laws to relevant amounts of taxable income (loss) from continuing operations. | Charter Communications Inc.'s current income tax expense increased from 2015 to 2016 but then slightly declined from 2016 to 2017. |
| Deferred income tax expense (benefit) | The component of income tax expense for the period representing the net change in the entity's deferred tax assets and liabilities pertaining to continuing operations. | Charter Communications Inc.'s deferred income tax expense (benefit) declined from 2015 to 2016 and from 2016 to 2017. |
| Income tax expense (benefit) | The sum of the current income tax expense (benefit) and the deferred income tax expense (benefit) pertaining to pretax income (loss) from continuing operations; income tax expense (benefit) may include interest and penalties on tax uncertainties based on the entity's accounting policy. | Charter Communications Inc.'s income tax expense (benefit) declined from 2015 to 2016 and from 2016 to 2017. |
Effective Income Tax Rate (EITR)
Charter Communications Inc., effective income tax rate (EITR) reconciliation
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| | Statutory federal income tax rate | % | % | % | % | % |
| | Effective tax rate | % | % | % | % | % |
Source: Based on data from Charter Communications Inc. Annual Reports
| Item | Description | The company |
|---|---|---|
| Effective tax rate | A ratio calculated by dividing the reported amount of income tax expense attributable to continuing operations for the period by GAAP-basis pretax income from continuing operations. |
Components of Deferred Tax Assets and Liabilities
Charter Communications Inc., components of deferred tax assets and liabilities
USD $ in millions
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| | 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) |
Source: Based on data from Charter Communications Inc. Annual Reports
| Item | Description | The company |
|---|---|---|
| Gross deferred tax assets | The sum of the tax effects as of the balance sheet date of the amounts of all future tax deductions arising from temporary differences between tax basis and generally accepted accounting principles basis recognition of assets, liabilities, revenues and expenses, which can only be deducted for tax purposes when permitted under enacted tax laws (before the valuation allowance, if any, to reduce such sum amount to net realizable value). Includes any tax benefit realized in deferred tax assets for significant impacts of tax planning strategies. | Charter Communications Inc.'s gross deferred tax assets declined from 2015 to 2016 and from 2016 to 2017. |
| Deferred tax assets | The aggregate tax effects as of the balance sheet date of all future tax deductions arising from temporary differences between tax basis and generally accepted accounting principles basis recognition of assets, liabilities, revenues and expenses, which can only be deducted for tax purposes when permitted under enacted tax laws; net of deducting the allocated valuation allowance, if any, to reduce such amount to net realizable value. | Charter Communications Inc.'s deferred tax assets increased from 2015 to 2016 but then slightly declined from 2016 to 2017 not reaching 2015 level. |
| Net deferred tax assets (liabilities) | For entities that net deferred tax assets and tax liabilities, represents the unclassified net amount of deferred tax assets and liabilities as of the balance sheet date, which result from applying the applicable enacted tax rate to net temporary differences and carryforwards pertaining to assets or liabilities. A temporary difference is a difference between the tax basis of an asset or liability and its carrying amount in the financial statements prepared in accordance with generally accepted accounting principles that will reverse in ensuing periods. | Charter Communications Inc.'s net deferred tax assets (liabilities) declined from 2015 to 2016 but then slightly increased from 2016 to 2017. |
Deferred Tax Assets and Liabilities, Classification
Charter Communications Inc., deferred tax assets and liabilities, classification
USD $ in millions
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| | Deferred tax liabilities |
Source: Based on data from Charter Communications Inc. Annual Reports
| Item | Description | The company |
|---|---|---|
| Deferred tax liabilities | Represents the noncurrent portion of deferred tax liabilities, which result from applying the applicable tax rate to net taxable temporary differences pertaining to each jurisdiction to which the entity is obligated to pay income tax. A noncurrent taxable temporary difference is a difference between the tax basis and the carrying amount of a noncurrent asset or liability in the financial statements prepared in accordance with generally accepted accounting principles. In a classified statement of financial position, an enterprise shall separate deferred tax liabilities and assets into a current amount and a noncurrent amount. Deferred tax liabilities and assets shall be classified as current or noncurrent based on the classification of the related asset or liability for financial reporting. A deferred tax liability or asset that is not related to an asset or liability for financial reporting, including deferred tax assets related to carryforwards, shall be classified according to the expected reversal date of the temporary difference. | Charter Communications Inc.'s deferred tax liabilities increased from 2015 to 2016 but then slightly declined from 2016 to 2017. |
Analyst Adjustments: Removal of Deferred Taxes
Charter Communications Inc., adjustments to financial data
USD $ in millions
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| 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) | |||||
Adjusted Ratios: Removal of Deferred Taxes (Summary)
Charter Communications Inc., adjusted ratios
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| 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 | % | % | % | % | % |
| 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 improved from 2015 to 2016 but then slightly deteriorated from 2016 to 2017. |
| 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 declined from 2015 to 2016 but then slightly increased from 2016 to 2017. |
| Adjusted ROE | A profitability ratio calculated as adjusted net income divided by adjusted shareholders' equity. | Charter Communications Inc.'s adjusted ROE improved from 2015 to 2016 and from 2016 to 2017. |
| Adjusted ROA | A profitability ratio calculated as adjusted net income divided by adjusted total assets. | Charter Communications Inc.'s adjusted ROA improved from 2015 to 2016 and from 2016 to 2017. |
Adjusted Net Profit Margin
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| As Reported | ||||||
| | Net income (loss) attributable to Charter shareholders (USD $ in millions) | |||||
| | Revenues (USD $ in millions) | |||||
| | Net profit margin1 | % | % | % | % | % |
| Adjusted for Deferred Taxes | ||||||
| | Adjusted net income (loss) attributable to Charter shareholders (USD $ in millions) | |||||
| | Adjusted net profit margin2 | % | % | % | % | % |
2017 Calculations
1 Net profit margin = 100 × Net income (loss) attributable to Charter shareholders ÷ Revenues
= 100 × ÷ = %
2 Adjusted net profit margin = 100 × Adjusted net income (loss) attributable to Charter shareholders ÷ Revenues
= 100 × ÷ = %
| 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 improved from 2015 to 2016 but then slightly deteriorated from 2016 to 2017. |
Adjusted Financial Leverage
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| As Reported | ||||||
| | Total assets (USD $ in millions) | |||||
| | Total Charter shareholders' equity (deficit) (USD $ in millions) | |||||
| | Financial leverage1 | |||||
| Adjusted for Deferred Taxes | ||||||
| | Adjusted total Charter shareholders' equity (deficit) (USD $ in millions) | |||||
| | Adjusted financial leverage2 | |||||
2017 Calculations
1 Financial leverage = Total assets ÷ Total Charter shareholders' equity (deficit)
= ÷ =
2 Adjusted financial leverage = Total assets ÷ Adjusted total Charter shareholders' equity (deficit)
= ÷ =
| 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 declined from 2015 to 2016 but then slightly increased from 2016 to 2017. |
Adjusted Return on Equity (ROE)
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| As Reported | ||||||
| | Net income (loss) attributable to Charter shareholders (USD $ in millions) | |||||
| | Total Charter shareholders' equity (deficit) (USD $ in millions) | |||||
| | ROE1 | % | % | % | % | % |
| Adjusted for Deferred Taxes | ||||||
| | Adjusted net income (loss) attributable to Charter shareholders (USD $ in millions) | |||||
| | Adjusted total Charter shareholders' equity (deficit) (USD $ in millions) | |||||
| | Adjusted ROE2 | % | % | % | % | % |
2017 Calculations
1 ROE = 100 × Net income (loss) attributable to Charter shareholders ÷ Total Charter shareholders' equity (deficit)
= 100 × ÷ = %
2 Adjusted ROE = 100 × Adjusted net income (loss) attributable to Charter shareholders ÷ Adjusted total Charter shareholders' equity (deficit)
= 100 × ÷ = %
| 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 2015 to 2016 and from 2016 to 2017. |
Adjusted Return on Assets (ROA)
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| As Reported | ||||||
| | Net income (loss) attributable to Charter shareholders (USD $ in millions) | |||||
| | Total assets (USD $ in millions) | |||||
| | ROA1 | % | % | % | % | % |
| Adjusted for Deferred Taxes | ||||||
| | Adjusted net income (loss) attributable to Charter shareholders (USD $ in millions) | |||||
| | Adjusted ROA2 | % | % | % | % | % |
2017 Calculations
1 ROA = 100 × Net income (loss) attributable to Charter shareholders ÷ Total assets
= 100 × ÷ = %
2 Adjusted ROA = 100 × Adjusted net income (loss) attributable to Charter shareholders ÷ Total assets
= 100 × ÷ = %
| 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 2015 to 2016 and from 2016 to 2017. |
