Charter 2006 Annual Report Download - page 105

CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES 2006 FORM 10-K
Notes to Consolidated Financial Statements (continued)
unpaid dividends of approximately $3 million resulting in a gain The following table summarizes our share activity for the
of approximately $23 million recorded in gain (loss) on three years ended December 31, 2006:
extinguishment of debt and preferred stock. Following the
Class A Class B
repurchase, 36,713 shares of preferred stock remained outstand- Common Common
ing. The remaining Preferred Stock is redeemable by Charter at Stock Stock
its option and must be redeemed by Charter at any time upon a BALANCE, January 1, 2004 295,038,606 50,000
change of control, or if not previously redeemed or converted, Option exercises 839,598 —
on August 31, 2008. The Preferred Stock is convertible, in whole Restricted stock issuances, net of
cancellations 2,072,748 —
or in part, at the option of the holders through August 31, 2008, Issuances in exchange for convertible notes 7,252,818 —
into shares of common stock, at an initial conversion price of BALANCE, December 31, 2004 305,203,770 50,000
$24.71 per share of common stock, subject to certain customary Option exercises 19,717 —
adjustments. Restricted stock issuances, net of
In connection with the repurchase, the holders of the cancellations 2,669,884 —
Issuances pursuant to share lending
Preferred Stock consented to an amendment to the Certificate of agreement 94,911,300 —
Designation governing the Preferred Stock that eliminated the Issuance of shares in Securities Class Action
quarterly dividends on all of the outstanding Preferred Stock and settlement 13,400,000 —
provided that the liquidation preference for the remaining shares BALANCE, December 31, 2005 416,204,671 50,000
outstanding will be $105.4063 per share, which amount shall Option exercises 1,046,540 —
Restricted stock issuances, net of
accrete from September 30, 2005 at an annual rate of 7.75%, cancellations 809,474 —
compounded quarterly. Certain holders of Preferred Stock also Issuances pursuant to share lending
released Charter from various threatened claims relating to their agreement 22,038,000 —
acquisition and ownership of the Preferred Stock, including Returns pursuant to share lending agreement (77,104,100) —
Issuances in exchange for convertible notes 45,000,000 —
threatened claims for breach of contract.
BALANCE, December 31, 2006 407,994,585 50,000
13. COMMON STOCK Charter issued 22.0 million and 94.9 million shares of
The Company’s Class A common stock and Class B common Class A common stock during 2006 and 2005, respectively, in
stock are identical except with respect to certain voting, transfer public offerings. The shares were issued pursuant to the share
and conversion rights. Holders of Class A common stock are lending agreement, pursuant to which Charter had previously
entitled to one vote per share and holder of Class B common agreed to loan up to 150 million shares to Citigroup Global
stock is entitled to ten votes for each share of Class B common Markets Limited (‘‘CGML’’). As of December 31, 2006, 77.1 mil-
stock held and for each Charter Holdco membership unit held. lion shares had been returned under the share lending
The Class B common stock is subject to significant transfer agreement.
restrictions and is convertible on a share for share basis into These offerings of Charter’s Class A common stock were
Class A common stock at the option of the holder. Charter conducted to facilitate transactions by which investors in
Holdco membership units are exchangeable on a one-for-one Charter’s 5.875% convertible senior notes due 2009, issued on
basis for shares of Class B common stock. November 22, 2004, hedged their investments in the convertible
Charter issued 45 million shares of Class A Common Stock senior notes. Charter did not receive any of the proceeds from
in September 2006 in connection with the Charter, CCHC and the sale of this Class A common stock. However, under the
CCH II exchange. See Note 2. share lending agreement, Charter received a loan fee of $.001 for
each share that it lends to CGML.
The issuance of 116.9 million shares pursuant to this share
lending agreement is essentially analogous to a sale of shares
coupled with a forward contract for the reacquisition of the
shares at a future date. An instrument that requires physical
settlement by repurchase of a fixed number of shares in
exchange for cash is considered a forward purchase instrument.
While the share lending agreement does not require a cash
payment upon return of the shares, physical settlement is
required (i.e., the shares borrowed must be returned at the end
of the arrangement). The fair value of the 39.8 million loaned
shares outstanding is approximately $122 million as of Decem-
ber 31, 2006. However, the net effect on shareholders’ deficit of
the shares lent pursuant to the share lending agreement, which
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