Charter 2005 Annual Report Download - page 155

CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES 2005 FORM 10-K
Notes to Consolidated Financial Statements (continued)
consolidated statements of operations. Such costs totaled president and a director of Vulcan Ventures until his resignation
$212 million, $202 million and $210 million for the years ended in September 2003 and he resigned as a director of Charter in
December 31, 2005, 2004 and 2003, respectively. All other costs April 2004. The various cable, media, Internet and telephone
incurred on the behalf of Charter’s operating subsidiaries are companies in which Mr. Allen has invested may mutually
considered a part of the management fee and are recorded as a benefit one another. The Company can give no assurance, nor
component of selling, general and administrative expense, in the should you expect, that any of these business relationships will
accompanying consolidated financial statements. For the years be successful, that the Company will realize any benefits from
ended December 31, 2005, 2004 and 2003, the management fee these relationships or that the Company will enter into any
charged to the Company’s operating subsidiaries approximated business relationships in the future with Mr. Allen’s affiliated
the expenses incurred by Charter Holdco and Charter on behalf companies.
of the Company’s operating subsidiaries. The credit facilities of Mr. Allen and his affiliates have made, and in the future
the Company’s operating subsidiaries prohibit payments of likely will make, numerous investments outside of the Company
management fees in excess of 3.5% of revenues until repayment and its business. The Company cannot assure that, in the event
of the outstanding indebtedness. In the event any portion of the that the Company or any of its subsidiaries enter into
management fee due and payable is not paid, it is deferred by transactions in the future with any affiliate of Mr. Allen, such
Charter and accrued as a liability of such subsidiaries. Any transactions will be on terms as favorable to the Company as
deferred amount of the management fee will bear interest at the terms it might have obtained from an unrelated third party.
rate of 10% per year, compounded annually, from the date it Also, conflicts could arise with respect to the allocation of
was due and payable until the date it is paid. corporate opportunities between the Company and Mr. Allen
Mr. Allen, the controlling shareholder of Charter, and a and his affiliates. The Company has not instituted any formal
number of his affiliates have interests in various entities that plan or arrangement to address potential conflicts of interest.
provide services or programming to Charter’s subsidiaries. Given The Company received or receives programming for
the diverse nature of Mr. Allen’s investment activities and broadcast via its cable systems from TechTV (now G4), Oxygen
interests, and to avoid the possibility of future disputes as to Media and Trail Blazers Inc. The Company pays a fee for the
potential business, Charter and Charter Holdco, under the terms programming service generally based on the number of custom-
of their respective organizational documents, may not, and may ers receiving the service. Such fees for the years ended
not allow their subsidiaries to engage in any business transaction December 31, 2005, 2004 and 2003 were each less than 1% of
outside the cable transmission business except for certain total operating expenses.
existing approved investments. Should Charter or Charter Tech TV. The Company received from TechTV programming for
Holdco or any of their subsidiaries wish to pursue, or allow distribution via its cable system pursuant to an affiliation
their subsidiaries to pursue, a business transaction outside of this agreement. The affiliation agreement provided, among other
scope, it must first offer Mr. Allen the opportunity to pursue the things, that TechTV must offer Charter certain terms and
particular business transaction. If he decides not to pursue the conditions that are no less favorable in the affiliation agreement
business transaction and consents to Charter or its subsidiaries than are given to any other distributor that serves the same
engaging in the business transaction, they will be able to do so. number of or fewer TechTV viewing customers. Additionally,
The cable transmission business means the business of transmit- pursuant to the affiliation agreement, the Company was entitled
ting video, audio, including telephone, and data over cable to incentive payments for channel launches through Decem-
systems owned, operated or managed by Charter, Charter ber 31, 2003.
Holdco or any of their subsidiaries from time to time. In March 2004, Charter Holdco entered into agreements
Mr. Allen or his affiliates own or have owned equity with Vulcan Programming and TechTV, which provide for
interests or warrants to purchase equity interests in various (i) Charter Holdco and TechTV to amend the affiliation
entities with which the Company does business or which agreement which, among other things, revises the description of
provides it with products, services or programming. Among the TechTV network content, provides for Charter Holdco to
these entities are TechTV L.L.C. (‘‘TechTV’’), Oxygen Media waive certain claims against TechTV relating to alleged
Corporation (‘‘Oxygen Media’’), Digeo, Inc., Click2learn, Inc., breaches of the affiliation agreement and provides for TechTV
Trail Blazer Inc., Action Sports Cable Network (‘‘Action to make payment of outstanding launch receivables due to
Sports’’) and Microsoft Corporation. In May 2004, TechTV was Charter Holdco under the affiliation agreement, (ii) Vulcan
sold to an unrelated third party. Mr. Allen owns 100% of the Programming to pay approximately $10 million and purchase
equity of Vulcan Ventures Incorporated (‘‘Vulcan Ventures’’) and over a 24-month period, at fair market rates, $2 million of
Vulcan Inc. and is the president of Vulcan Ventures. Ms. Jo advertising time across various cable networks on Charter cable
Allen Patton is a director and the President and Chief Executive systems in consideration of the agreements, obligations, releases
Officer of Vulcan Inc. and is a director and Vice President of and waivers under the agreements and in settlement of the
Vulcan Ventures. Mr. Lance Conn is Executive Vice President of aforementioned claims and (iii) TechTV to be a provider of
Vulcan Inc. and Vulcan Ventures. Mr. Savoy was a vice
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