Charter 2003 Annual Report Download - page 136

CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 and 2001
(dollars in millions, except where indicated)
approximately $14 million and $31 million, respectively, is recorded on the accompanying consolidated
balance sheets related to the realignment activities. For the year ended December 31, 2003, the additional
severance costs were oÅset by a $5 million settlement from the Internet service provider Excite@Home
related to the conversion of high-speed data customers to Charter Pipeline service in 2001.
During the year ended December 31, 2001, the Company recorded $18 million in special charges that
represent $15 million of costs associated with the transition of approximately 145,000 (unaudited) data
customers from the Excite@Home Internet service to the Charter Pipeline Internet service.
In December 2001, the Company implemented a restructuring plan to reduce its workforce in certain
markets and reorganize its operating divisions from two to three and operating regions from twelve to ten. The
restructuring plan was completed during the Ñrst quarter of 2002, resulting in the termination of approximately
320 employees and severance costs of $4 million of which $1 million was recorded in the Ñrst quarter of 2002
and $3 million was recorded in the fourth quarter of 2001.
21. Income Taxes
All operations are held through Charter Holdco and its direct and indirect subsidiaries. Charter Holdco
and the majority of its subsidiaries are not subject to income tax. However, certain of these subsidiaries are
corporations and are subject to income tax. All of the taxable income, gains, losses, deductions and credits of
Charter Holdco are passed through to its members: Charter, Charter Investment, Inc. and Vulcan Cable III,
Inc. Charter is responsible for its share of taxable income or loss of Charter Holdco allocated to it in
accordance with the Charter Holdco limited liability company agreement (""LLC Agreement'') and
partnership tax rules and regulations.
The LLC Agreement provides for certain special allocations of net tax proÑts and net tax losses (such net
tax proÑts and net tax losses being determined under the applicable federal income tax rules for determining
capital accounts). Pursuant to the LLC Agreement, through the end of 2003, net tax losses of Charter Holdco
that would otherwise have been allocated to Charter based generally on its percentage ownership of
outstanding common units were allocated instead to membership units held by Vulcan Cable III, Inc. and
Charter Investment, Inc. (the ""Special Loss Allocations'') to the extent of their respective capital account
balances. After 2003, pursuant to the LLC Agreement, net tax losses of Charter Holdco are to be allocated to
Charter, Vulcan Cable III, Inc. and Charter Investment, Inc. based generally on their respective percentage
ownership of outstanding common units to the extent of their respective capital account balances. The LLC
Agreement further provides that, beginning at the time Charter Holdco generates net tax proÑts, the net tax
proÑts that would otherwise have been allocated to Charter based generally on its percentage ownership of
outstanding common membership units will instead generally be allocated to Vulcan Cable III, Inc. and
Charter Investment, Inc. (the ""Special ProÑt Allocations''). The Special ProÑt Allocations to Vulcan Cable
III, Inc. and Charter Investment, Inc. will generally continue until the cumulative amount of the Special
ProÑt Allocations oÅsets the cumulative amount of the Special Loss Allocations. The amount and timing of
the Special ProÑt Allocations are subject to the potential application of, and interaction with, the Curative
Allocation Provisions described in the following paragraph. The LLC Agreement generally provides that any
additional net tax proÑts are to be allocated among the members of Charter Holdco based generally on their
respective percentage ownership of Charter Holdco common membership units.
Because the respective capital account balance of each of Vulcan Cable III, Inc. and Charter Investment,
Inc. was reduced to zero by December 31, 2002, certain net tax losses of Charter Holdco that were to be
allocated for 2002, 2003 (subject to resolution of the issue described in Note 22) and possibly later years to
Vulcan Cable III, Inc. and Charter Investment, Inc. will instead be allocated to Charter (the ""Regulatory
Allocations''). The LLC Agreement further provides that, to the extent possible, the eÅect of the Regulatory
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