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S-4
CHARTER COMMUNICATIONS HOLDINGS CAPITAL CORP filed this Form S-4 on 01/25/2000
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<PAGE>   541
                       AVALON CABLE LLC AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
9. INCOME TAXES
 
     The income tax provision in the accompanying consolidated financial
statements of operations relating to Mercom, Inc., a majority-owned subsidiary,
is comprised of the following:
 

<TABLE>
<CAPTION>
                                                              1998
                                                              ----
<S>                                                           <C>
CURRENT
Federal.....................................................  $ --
State.......................................................    --
                                                              ----
Total Current...............................................    --
                                                              ----
DEFERRED
Federal.....................................................   171
State.......................................................    15
                                                              ----
Total Deferred..............................................   186
                                                              ----
Total provision for income taxes............................  $186
                                                              ====
</TABLE>

 
     The benefit for income taxes is different from the amounts computed by
applying the U.S. statutory federal tax rate of 35% for 1998. The differences
are as follows:
 

<TABLE>
<CAPTION>
                                                               1998
                                                              -------
<S>                                                           <C>
Loss before provision for income taxes......................  $(8,833)
                                                              =======
Federal tax provision at statutory rates....................  $(3,092)
State income taxes..........................................     (182)
Allocated to members........................................    3,082
Goodwill....................................................        6
                                                              -------
Provision for income taxes..................................  $   186
                                                              =======
</TABLE>

 

<TABLE>
<CAPTION>
                                                          TAX NET
                                                         OPERATING    EXPIRATION
YEAR                                                      LOSSES         DATE
----                                                     ---------    ----------
<S>                                                      <C>          <C>
1998...................................................    $922          2018
</TABLE>

 
     Temporary differences that give rise to significant portion of deferred tax
assets and liabilities at December 31 are as follows:
 

<TABLE>
<CAPTION>
                                                               1998
                                                              -------
<S>                                                           <C>
NOL carryforwards...........................................  $   922
Reserves....................................................      459
Other, net..................................................       20
                                                              -------
Total deferred assets.......................................    1,401
                                                              -------
Property, plant and equipment...............................   (2,725)
Intangible assets...........................................      (38)
                                                              -------
Total deferred liabilities..................................   (2,763)
                                                              -------
Subtotal....................................................   (1,362)
                                                              -------
Valuation allowance.........................................       --
                                                              -------
Total deferred taxes........................................  $(1,362)
                                                              =======
</TABLE>

 
                                      F-312