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S-4
CHARTER COMMUNICATIONS HOLDINGS CAPITAL CORP filed this Form S-4 on 01/25/2000
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<PAGE>   591
                     CABLE MICHIGAN, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
6. INCOME TAXES
 
     The income tax provision (benefit) in the accompanying consolidated
financial statements of operations is comprised of the following:
 

<TABLE>
<CAPTION>
                                                       1996       1997       1998
                                                      -------    -------    -------
<S>                                                   <C>        <C>        <C>
CURRENT
Federal.............................................  $(6,700)   $   245    $   320
State...............................................       --         --         28
                                                      -------    -------    -------
Total Current.......................................   (6,700)       245        348
                                                      -------    -------    -------
DEFERRED:
Federal.............................................      988     (4,359)    (2,074)
State...............................................       --         --       (183)
                                                      -------    -------    -------
Total Deferred......................................      988     (4,359)    (2,257)
                                                      -------    -------    -------
Total (benefit) for income taxes....................  $(5,712)   $(4,114)   $(1,909)
                                                      =======    =======    =======
</TABLE>

 
     The benefit for income taxes is different from the amounts computed by
applying the U.S. statutory federal tax rate of 35% for 1996, 34% for 1997 and
35% for the period from January 1, 1998 to November 5, 1998. The differences are
as follows:
 

<TABLE>
<CAPTION>
                                                 YEAR ENDED
                                                DECEMBER 31,           PERIOD FROM
                                             -------------------    JANUARY 1, 1998 TO
                                               1996       1997      NOVEMBER 11, 1998
                                             --------    -------    ------------------
<S>                                          <C>         <C>        <C>
(Loss) before (benefit) for income
  taxes..................................    $(15,119)   $(8,525)        $(12,368)
                                             ========    =======         ========
Federal tax (benefit) at statutory
rates....................................    $ (5,307)   $(2,899)        $ (4,329)
State income taxes.......................          --         --             (101)
Goodwill.................................         175        171              492
Increase (decrease) in valuation
  allowance..............................        (518)    (1,190)              --
Nondeductible expenses...................          --        147            2,029
Benefit of rate differential applied to
  reversing timing differences...........          --       (424)              --
Other, net...............................         (62)        81               --
                                             --------    -------         --------
(Benefit) for income taxes...............    $ (5,712)   $(4,114)        $ (1,909)
                                             ========    =======         ========
</TABLE>

 
     Mercom, which files a separate consolidated income tax return, has the
following net operating losses available:
 

<TABLE>
<CAPTION>
                                                            TAX NET
                                                           OPERATING   EXPIRATION
YEAR                                                        LOSSES        DATE
----                                                       ---------   ----------
<S>                                                        <C>         <C>
1992.....................................................   $  435        2007
1995.....................................................   $2,713        2010
</TABLE>

 
     In 1997, Mercom was liable for Federal Alternative Minimum Tax (AMT). At
December 31, 1997 and at November 5, 1998, the cumulative minimum tax credits
are $141 and $141, respectively. This amount can be carried forward indefinitely
to reduce regular tax liabilities that exceed AMT in future years.
 
                                      F-362