Charter 2002 Annual Report Download - page 112

CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002, 2001 and 2000
(dollars in millions, except where indicated)
23. Related Party Transactions
The following sets forth certain transactions in which the Company and the directors, executive oÇcers
and aÇliates of the Company are involved. Unless otherwise disclosed, management believes that each of the
transactions described below was on terms no less favorable to the Company than could have been obtained
from independent third parties.
Charter has entered into management arrangements with Charter Holdco and certain of its subsidiaries.
Under these agreements, Charter provides management services for the cable television systems owned or
operated by its subsidiaries. The management services include such services as centralized customer billing
services, data processing and related support, beneÑts administration and coordination of insurance coverage
and self-insurance programs for medical, dental and workers' compensation claims. Certain costs for these
services are billed and charged directly to the Company's operating subsidiaries and are included within
operating costs. Such costs totaled $176 million, $119 million and $51 million for the years ended
December 31, 2002, 2001 and 2000, respectively. All other costs incurred on the behalf of the Company's
operating subsidiaries are considered a part of the management fee and are recorded as corporate expense in
the accompanying consolidated Ñnancial statements. For the years ended December 31, 2002, 2001 and 2000,
the management fee charged to the Company's operating subsidiaries approximated the corporate expenses
incurred by Charter Holdco and Charter on behalf of the Company's operating subsidiaries. The credit
facilities of the Company's operating subsidiaries prohibit payments of management fees in excess of 3.5% of
revenues until repayment of the outstanding indebtedness. In the event any portion of the management fee due
and payable is not paid, it is deferred by Charter and accrued as a liability of such subsidiaries. Any deferred
amount of the management fee will bear interest at the rate of 10% per annum, compounded annually, from
the date it was due and payable until the date it is paid.
Mr. Allen, the controlling shareholder of Charter, and a number of his aÇliates have interests in various
entities that provide services or programming to Charter's subsidiaries. Given the diverse nature of Mr. Allen's
investment activities and interests, and to avoid the possibility of future disputes as to potential business,
Charter may not, and may not allow its subsidiaries to, engage in any business transaction outside the cable
transmission business except for certain existing approved investments. Should Charter or its subsidiaries wish
to pursue a business transaction outside of this scope, it must Ñrst oÅer Mr. Allen the opportunity to pursue
the particular business transaction. If he decides not to pursue the business transaction and consents to
Charter or its subsidiaries to engage in the business transaction, they will be able to do so. The cable
transmission business means the business of transmitting video, audio, including telephony, and data over
cable television systems owned, operated or managed by Charter or its subsidiaries from time to time.
Mr. Allen or his aÇliates own equity interests or warrants to purchase equity interests in various entities
with which the Company does business or which provides it with products, services or programming. Among
these entities are TechTV Inc. (TechTV), Oxygen Media Corporation (Oxygen Media), Digeo, Inc.,
Click2learn, Inc., Trail Blazer Inc., Action Sports Cable Network (Action Sports) and Microsoft Corpora-
tion. In addition, Mr. Allen and Mr. Savoy were directors of USA Networks, Inc. (USA Networks), who
operates the USA Network, The Sci-Fi Channel, Trio, World News International and Home Shopping
Network, owning approximately 5% and less than 1%, respectively, of the common stock of USA Networks. In
2002, Mr. Allen and Mr. Savoy sold their common stock and are no longer directors of the USA Network.
Mr. Allen owns 100% of the equity of Vulcan Ventures Incorporated (Vulcan Ventures) and Vulcan Inc. and
is the president of Vulcan Ventures. Mr. Savoy is also a vice president and a director of Vulcan Ventures. The
various cable, media, Internet and telephony companies in which Mr. Allen has invested may mutually beneÑt
one another. The agreements governing the Company's relationship with Digeo, Inc. are an example of a
cooperative business relationship among Mr. Allen's aÇliated companies. The Company can give no
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