Charter 2003 Annual Report Download - page 140

CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 and 2001
(dollars in millions, except where indicated)
insurance programs for medical, dental and workers' compensation claims. Costs associated with providing
these services are billed and charged directly to the Company's operating subsidiaries and are included within
operating costs in the accompanying consolidated statements of operations. Such costs totaled $210 million,
$176 million and $119 million for the years ended December 31, 2003, 2002 and 2001, 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 a component of selling, general and administrative expense, in the accompanying
consolidated Ñnancial statements. For the years ended December 31, 2003, 2002 and 2001, the management
fee charged to the Company's operating subsidiaries approximated the 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 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 L.L.C. (""TechTV''), Oxygen Media Corporation (""Oxygen Media''), Digeo, Inc.,
Click2learn, Inc., Trail Blazer Inc., Action Sports Cable Network (""Action Sports'') and Microsoft
Corporation. 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 was a vice president and a director of
Vulcan Ventures until his resignation in September 2003. Mr. Savoy will remain as a member of the board of
directors of Charter. 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. (""Digeo'') are an example of a cooperative business relationship among Mr. Allen's aÇliated companies.
The Company can give no assurance that any of these business relationships will be successful, that the
Company will realize any beneÑts from these relationships or that the Company will enter into any business
relationships in the future with Mr. Allen's aÇliated companies.
Mr. Allen and his aÇliates have made, and in the future likely will make, numerous investments outside
of the Company and its business. The Company cannot assure that, in the event that the Company or any of
its subsidiaries enter into transactions in the future with any aÇliate of Mr. Allen, such transactions will be on
terms as favorable to the Company as terms it might have obtained from an unrelated third party. Also,
conÖicts could arise with respect to the allocation of corporate opportunities between the Company and
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