Charter 2003 Annual Report Download - page 137

CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 and 2001
(dollars in millions, except where indicated)
Allocations is to be oÅset over time pursuant to certain curative allocation provisions (the ""Curative
Allocation Provisions'') so that, after certain oÅsetting adjustments are made, each member's capital account
balance is equal to the capital account balance such member would have had if the Regulatory Allocations
had not been part of the LLC Agreement. The cumulative amount of the actual tax losses allocated to Charter
as a result of the Regulatory Allocations through the year ended December 31, 2003 is approximately
$2.0 billion to $2.6 billion pending the resolution of the issue described in Note 22.
As a result of the Special Loss Allocations and the Regulatory Allocations referred to above, the
cumulative amount of losses of Charter Holdco allocated to Vulcan Cable III, Inc. and Charter Investment,
Inc. is in excess of the amount that would have been allocated to such entities if the losses of Charter Holdco
had been allocated among its members in proportion to their respective percentage ownership of Charter
Holdco common membership units. The cumulative amount of such excess losses was approximately
$3.1 billion through December 31, 2002 and $2.0 billion to $2.5 billion through December 31, 2003, depending
upon the resolution of the issue described in Note 22.
In certain situations, the Special Loss Allocations, Special ProÑt Allocations, Regulatory Allocations and
Curative Allocation Provisions described above could result in Charter paying taxes in an amount that is more
or less than if Charter Holdco had allocated net tax proÑts and net tax losses among its members based
generally on the number of common membership units owned by such members. This could occur due to
diÅerences in (i) the character of the allocated income (e.g., ordinary versus capital), (ii) the allocated
amount and timing of tax depreciation and tax amortization expense due to the application of section 704(c)
under the Internal Revenue Code, (iii) the potential interaction between the Special ProÑt Allocations and
the Curative Allocation Provisions, (iv) the amount and timing of alternative minimum taxes paid by Charter,
if any, (v) the apportionment of the allocated income or loss among the states in which Charter Holdco does
business, and (vi) future federal and state tax laws. Further, in the event of new capital contributions to
Charter Holdco, it is possible that the tax eÅects of the Special ProÑt Allocations, Special Loss Allocations,
Regulatory Allocations and Curative Allocation Provisions 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 with
respect to the net tax losses allocated to it or accelerate the actual taxable income to Charter with respect to
the net tax proÑts allocated to it. As a result, it is possible under certain circumstances, that Charter could
receive future allocations of taxable income in excess of its currently allocated tax deductions and available tax
loss carryforwards.
In addition, under their exchange agreement with Charter, Vulcan Cable III, Inc. and Charter
Investment, Inc. may exchange some or all of their membership units in Charter Holdco for Charter's Class B
common stock, be merged with Charter, or be acquired by Charter 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 III, Inc. and Charter Investment, Inc. could elect to cause Charter
Holdco to make the remaining Special ProÑt Allocations to Vulcan Cable III, Inc. and Charter Investment,
Inc. immediately prior to the consummation of the exchange. In the event Vulcan Cable III, Inc. and Charter
Investment, Inc. choose not to make such election or to the extent such allocations are not possible, Charter
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 for any
incremental income taxes that Charter would owe as a result of such an exchange and any resulting future
Special ProÑt Allocations to Charter.
For the years ended December 31, 2003, 2002 and 2001, the Company recorded deferred income tax
beneÑts as shown below. The income tax beneÑts were realized through reductions in the deferred tax
liabilities related to Charter's investment in Charter Holdco, as well as the deferred tax liabilities of certain of
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