Charter 2004 Annual Report Download - page 93

CHARTER COMMUNICATIONS, INC. 2004 FORM 10-K
The following sets forth additional information regarding Mutual Services Agreement
the transactions summarized above. Charter, Charter Holdco and Charter Investment, Inc. are
parties to a mutual services agreement whereby each party shall
TRANSACTIONS ARISING OUT OF OUR ORGANIZATIONAL STRUCTURE AND provide rights and services to the other parties as may be
MR. ALLEN’S INVESTMENT IN CHARTER COMMUNICATIONS, INC. AND ITS reasonably requested for the management of the entities
SUBSIDIARIES involved and their subsidiaries, including the cable systems
As noted above, a number of our related party transactions arise owned by their subsidiaries all on a cost-reimbursement basis.
out of Mr. Allen’s investment in Charter and its subsidiaries. The officers and employees of each party are available to the
Some of these transactions are with Charter Investment, Inc. other parties to provide these rights and services, and all
and Vulcan Ventures (both owned 100% by Mr. Allen), Charter expenses and costs incurred in providing these rights and
(controlled by Mr. Allen) and Charter Holdco (approximately services are paid by Charter. Each of the parties will indemnify
47% owned by us and 53% owned by other affiliates of and hold harmless the other parties and their directors, officers
Mr. Allen). See ‘‘Item 1. Business — Organizational Chart’’ for and employees from and against any and all claims that may be
more information regarding the ownership by Mr. Allen and made against any of them in connection with the mutual
certain of his affiliates. services agreement except due to its or their gross negligence or
willful misconduct. The mutual services agreement expires on
November 12, 2009, and may be terminated at any time by any
Intercompany Management Arrangements. party upon thirty days’ written notice to the other. For the year
Charter is a party to management arrangements with Charter ended December 31, 2004, Charter paid approximately $74 mil-
Holdco and certain of its subsidiaries. Under these agreements, lion to Charter Holdco for services rendered pursuant to the
Charter provides management services for the cable systems mutual services agreement. All such amounts are reimbursable
owned or operated by its subsidiaries. These management to Charter pursuant to a management arrangement with our
agreements provide for reimbursement to Charter for all costs subsidiaries. See ‘‘ — Intercompany Management Arrangements.’’
and expenses incurred by it attributable to the ownership and The accounts and balances related to these services eliminate in
operation of the managed cable systems (referred to as consolidation. Charter Investment, Inc. no longer provides
‘‘company expenses’’), plus an additional fee to reimburse services pursuant to this agreement.
additional costs incurred by Charter that are not in the nature of
company expenses (such as corporate overhead, administration Previous Management Agreement with Charter Investment, Inc.
and salary expense). The management agreements covering the Prior to November 12, 1999, Charter Investment, Inc. provided
CC VI, CC VII, and CC VIII companies limit the additional fee management and consulting services to our operating subsidiar-
that is not in respect of company expenses to 5%, 5%, and 3.5%, ies for a fee equal to 3.5% of the gross revenues of the systems
respectively, of their respective gross revenues. Under the then owned, plus reimbursement of expenses. The balance of
arrangement covering all of our other operating subsidiaries, management fees payable under the previous management
there is no limit on the dollar amount or percentage of revenues agreement was accrued with payment at the discretion of
payable as this additional fee. Charter Investment, Inc., with interest payable on unpaid
However, the total amount paid by Charter Holdco and all amounts. For the year ended December 31, 2004, Charter’s
of its subsidiaries is limited to the amount necessary to subsidiaries did not pay any fees to Charter Investment, Inc. to
reimburse Charter for all of its expenses, costs, losses, liabilities reduce management fees payable. As of December 31, 2004,
and damages paid or incurred by it in connection with the total management fees payable by our subsidiaries to Charter
performance of its services under the various management Investment, Inc. were approximately $14 million, exclusive of
agreements and in connection with its corporate overhead, any interest that may be charged.
administration, salary expense and similar items. The expenses Charter Communications Holding Company, LLC Limited Liability Agree-
subject to reimbursement include fees Charter is obligated to ment — Taxes
pay under the mutual services agreement with Charter Invest- The limited liability company agreement of Charter Holdco
ment, Inc. Payment of management fees by Charter’s operating contains special provisions regarding the allocation of tax losses
subsidiaries is subject to certain restrictions under the credit and profits among its members — Vulcan Cable III Inc., Charter
facilities and indentures of such subsidiaries and the indentures Investment, Inc. and us. In some situations, these provisions may
governing the Charter Holdings public debt. If any portion of cause us to pay more tax than would otherwise be due if
the management fee due and payable is not paid, it is deferred Charter Holdco had allocated profits and losses among its
by Charter and accrued as a liability of such subsidiaries. Any members based generally on the number of common member-
deferred amount of the management fee will bear interest at the ship units. See ‘‘Item 7. Management’s Discussion and Analysis
rate of 10% per year, compounded annually, from the date it of Financial Condition and Results of Operations — Critical
was due and payable until the date it is paid. For the year Accounting Policies and Estimates — Income Taxes.’’
ended December 31, 2004, the subsidiaries of Charter Holdings
paid a total of $90 million in management fees to Charter.
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