Charter 2003 Annual Report Download - page 146

CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 and 2001
(dollars in millions, except where indicated)
mismanaged Charter by failing to establish and maintain adequate internal controls and procedures.
UnspeciÑed damages, allegedly on Charter's behalf, are sought by the plaintiÅs.
In addition to the Federal Class Actions, the State Derivative Action and the Federal Derivative Action,
six putative class action lawsuits have been Ñled against Charter and certain of its then current directors and
oÇcers in the Court of Chancery of the State of Delaware (the ""Delaware Class Actions''). The lawsuits were
Ñled after the Ñling of a 13D amendment by Mr. Allen indicating that he was exploring a number of possible
alternatives with respect to restructuring or expanding his ownership interest in Charter. Charter believes the
plaintiÅs speculated that Mr. Allen might have been contemplating an unfair bid for shares of Charter or some
other sort of going private transaction on unfair terms and generally alleged that the defendants breached their
Ñduciary duties by participating in or acquiescing to such a transaction. The lawsuits were brought on behalf of
Charter's securities holders as of July 29, 2002, and seek unspeciÑed damages and possible injunctive relief.
The Delaware Class Actions are substantively identical. No such transaction by Mr. Allen has been presented.
PlaintiÅs' counsel has granted the defendants an indeÑnite extension of time to respond to the only complaint
that has been served in the Delaware Class Actions.
The lawsuits discussed above are each in preliminary stages. No reserves have been established for
potential losses or related insurance recoveries on these matters because the Company is unable to predict the
outcome. Charter intends to vigorously defend the lawsuits.
In August of 2002, Charter became aware of a grand jury investigation being conducted by the United
States Attorney's OÇce for the Eastern District of Missouri into certain of its accounting and reporting
practices, focusing on how Charter reported customer numbers and its reporting of amounts received from
digital set-top terminal suppliers for advertising. The U.S. Attorney's OÇce has publicly stated that Charter is
not currently a target of the investigation. Charter has also been advised by the U.S. Attorney's OÇce that no
member of its board of directors, including its Chief Executive OÇcer, is a target of the investigation. On
July 24, 2003, a federal grand jury charged four former oÇcers of Charter with conspiracy and mail and wire
fraud, alleging improper accounting and reporting practices focusing on revenue from digital set-top terminal
suppliers and inÖated customer account numbers. On July 25, 2003, one of the former oÇcers who was
indicted entered a guilty plea. Charter is fully cooperating with the investigation.
On November 4, 2002, Charter received an informal, non-public inquiry from the staÅ of the Securities
and Exchange Commission (""SEC''). The SEC subsequently issued a formal order of investigation dated
January 23, 2003, and subsequent related document and testimony subpoenas. The investigation and
subpoenas generally concern Charter's prior reports with respect to its determination of the number of
customers, and various of its other accounting policies and practices including its capitalization of certain
expenses and dealings with certain vendors, including programmers and digital set-top terminal suppliers.
Charter is fully cooperating with the SEC StaÅ.
Charter is generally required to indemnify each of the named individual defendants in connection with
these matters pursuant to the terms of its Bylaws and (where applicable) such individual defendants'
employment agreements. Pursuant to the terms of certain employment agreements and in accordance with the
Bylaws of Charter, in connection with the pending grand jury investigation, SEC investigation and the above
described lawsuits, Charter's current directors and its current and former oÇcers have been advanced certain
costs and expenses incurred in connection with their defense.
Charter has liability insurance coverage that it believes is available for these matters, where applicable,
and subject to the terms, conditions and limitations of the respective policies. There is no assurance that
current coverage will be suÇcient for all claims described above or any future claims that may arise.
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