Charter 2003 Annual Report Download - page 44

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 ""Certain Relationships and Related
Transactions Ì Transactions Arising Out of Our Organizational Structure and Mr. Allen's Investment in
Charter and Its Subsidiaries Ì Equity Put Rights Ì CC VIII'' in the Charter Communications, Inc. 2004
Proxy Statement available at www.sec.gov) 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 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 ""Certain Relationships and Related Transactions Ì Transactions Arising Out of Our
Organizational Structure and Mr. Allen's Investment in Charter and Its Subsidiaries Ì Equity Put Rights Ì
CC VIII'' in the Charter Communications, Inc. 2004 Proxy Statement available at www.sec.gov.
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 ""Certain Relationships and Related Transactions Ì Transactions
Arising Out of Our Organizational Structure and Mr. Allen's Investment in Charter and Its Subsidiaries Ì
Equity Put Rights Ì CC VIII'' in the Charter Communications, Inc. 2004 Proxy Statement available at
www.sec.gov.
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
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