Charter 2002 Annual Report Download - page 27

under the Internal Revenue Code, (iii) the amount and timing of alternative minimum taxes paid by Charter
Communications, Inc., (iv) the apportionment of the allocated income or loss among the states in which
Charter Communications Holding Company does business, and (v) future federal and state tax laws. Further,
in the event of new capital contributions to Charter Communications Holding Company, it is possible that the
tax eÅects of the Special ProÑt Allocations and Special Loss Allocations will change signiÑcantly pursuant to
the provisions of the income tax regulations. Such change could defer the actual tax beneÑts to be derived by
Charter Communications, Inc. with respect to the net tax losses allocated to it or accelerate the actual taxable
income to Charter Communications, Inc. with respect to the net tax proÑts allocated to it. As a result, it is
possible under certain circumstances, that Charter Communications, Inc. could receive future allocations of
taxable income in excess of its currently allocated tax deductions and available tax loss carryforwards.
In addition to the aforementioned reasons, under their exchange agreement with Charter Communica-
tions, Inc., Vulcan Cable and Charter Investment may exchange some or all of their membership units in
Charter Communications Holding Company for Charter Communications, Inc.'s Class B common stock, be
merged with Charter Communications, Inc., or be acquired by Charter Communications, Inc. in a non-
taxable reorganization. If such an exchange were to take place prior to the date that the Special ProÑt
Allocation provisions had fully oÅset the Special Loss Allocations, Vulcan Cable and Charter Investment
could elect to cause Charter Communications Holding Company to make the remaining Special ProÑt
Allocations to Vulcan Cable and Charter Investment immediately prior to the consummation of the exchange.
In the event Vulcan Cable and Charter Investment choose not to make such election or to the extent such
allocations are not possible, Charter Communications, Inc. would then be allocated tax proÑts attributable to
the membership units received in such exchange pursuant to the Special ProÑt Allocation provisions.
Mr. Allen has generally agreed to reimburse Charter Communications, Inc. for any incremental income taxes
that Charter Communications, Inc. would owe as a result of such an exchange and any resulting future Special
ProÑt Allocations to Charter Communications, Inc.
As of December 31, 2002, we have recorded deferred income tax liabilities of $499 million. This includes
approximately $232 million of the deferred income tax liabilities recorded in the consolidated Ñnancial
statements related to certain indirect corporate subsidiaries of Charter Communications Holding Company,
which Ñle separate income tax returns.
Additionally, we have deferred tax assets of $1.4 billion, which primarily relate to the excess of
cumulative Ñnancial statement losses over cumulative tax losses allocated to us. The deferred tax assets also
include $322 million of tax net operating loss carryforwards of Charter Communications, Inc. and its indirect
corporate subsidiaries which are subject to separate return limitations. We are required to record a valuation
allowance when it is more likely than not that some portion or all of the deferred income tax assets will not be
realized. Given the uncertainty surrounding our ability to utilize our deferred tax assets, these items have been
oÅset with a corresponding valuation allowance of $1.4 billion.
We are currently under examination by the Internal Revenue Service for the tax years ending
December 31, 1999 and 2000. Management does not expect the results of this examination to have a material
adverse eÅect on our consolidated Ñnancial position or results of operation.
Litigation. We have legal contingencies that have a high degree of uncertainty. As described in Note 24
to our consolidated Ñnancial statements, numerous allegations have been made against us. No reserves have
been established for those matters because we believe they are either not estimable or not probable. When a
contingency becomes probable and estimable a reserve is established. We have established reserves for certain
other matters. If any of our litigation matters described in Note 24 to our consolidated Ñnancial statements are
resolved unfavorably, they could have a material adverse eÅect on our future results of operations and Ñnancial
condition.
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