Charter 2006 Annual Report Download - page 113

CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES 2006 FORM 10-K
Notes to Consolidated Financial Statements (continued)
Click2learn, Inc., Trail Blazer Inc., Action Sports Cable Network Oxygen. Oxygen Media LLC (‘‘Oxygen’’) provides programming
(‘‘Action Sports’’) and Microsoft Corporation. In May 2004, content to the Company pursuant to a carriage agreement.
TechTV was sold to an unrelated third party. Mr. Allen owns Under the carriage agreement, the Company paid Oxygen
100% of the equity of Vulcan Ventures Incorporated (‘‘Vulcan approximately $8 million, $9 million, and $13 million for the
Ventures’’) and Vulcan Inc. and is the president of Vulcan years ended December 31, 2006, 2005, and 2004, respectively. In
Ventures. Ms. Jo Allen Patton is a director and the President addition, Oxygen paid the Company launch incentives for
and Chief Executive Officer of Vulcan Inc. and is a director and customers launched after the first year of the term of the
Vice President of Vulcan Ventures. Mr. Lance Conn is Executive carriage agreement up to a total of $4 million. The Company
Vice President of Vulcan Inc. and Vulcan Ventures. Mr. Savoy recorded approximately $0, $0.1 million, and $1 million related
was a vice president and a director of Vulcan Ventures until his to these launch incentives as a reduction of programming
resignation in September 2003 and he resigned as a director of expense for the years ended December 31, 2006, 2005 and 2004,
Charter in April 2004. The various cable, media, Internet and respectively.
telephone companies in which Mr. Allen has invested may In 2005, pursuant to an amended equity issuance agree-
mutually benefit one another. The Company can give no ment, Oxygen Media delivered 1 million shares of Oxygen
assurance, nor should you expect, that any of these business Preferred Stock with a liquidation preference of $33.10 per share
relationships will be successful, that the Company will realize plus accrued dividends to Charter Holdco. The preferred stock
any benefits from these relationships or that the Company will is convertible into common stock after December 31, 2007 at a
enter into any business relationships in the future with conversion ratio, the numerator of which is the liquidation
Mr. Allen’s affiliated companies. preference and the denominator which is the fair market value
Mr. Allen and his affiliates have made, and in the future per share of Oxygen Media common stock on the conversion
likely will make, numerous investments outside of the Company date.
and its business. The Company cannot assure that, in the event The Company recognized the guaranteed value of the
that the Company or any of its subsidiaries enter into investment over the life of the initial carriage agreement (which
transactions in the future with any affiliate of Mr. Allen, such expired February 1, 2005) as a reduction of programming
transactions will be on terms as favorable to the Company as expense. For the years ended December 31, 2006, 2005, and
terms it might have obtained from an unrelated third party. 2004, the Company recorded approximately $0, $2 million, and
Also, conflicts could arise with respect to the allocation of $13 million, respectively, as a reduction of programming
corporate opportunities between the Company and Mr. Allen expense. The carrying value of the Company’s investment in
and his affiliates. The Company has not instituted any formal Oxygen was approximately $33 million as of December 31, 2006
plan or arrangement to address potential conflicts of interest. and 2005.
The Company received or receives programming for
Digeo, Inc. In March 2001, Charter Ventures and Vulcan
broadcast via its cable systems from TechTV (now G4), Oxygen
Ventures Incorporated formed DBroadband Holdings, LLC for
Media and Trail Blazers Inc. The Company pays a fee for the
the sole purpose of purchasing equity interests in Digeo. In
programming service generally based on the number of custom-
connection with the execution of the broadband carriage
ers receiving the service. Such fees for the years ended
agreement, DBroadband Holdings, LLC purchased an equity
December 31, 2006, 2005, and 2004 were each less than 1% of
interest in Digeo funded by contributions from Vulcan Ventures
total operating expenses.
Incorporated. At that time, the equity interest was subject to a
TechTV. The Company received from TechTV programming for priority return of capital to Vulcan Ventures up to the amount
distribution via its cable system pursuant to an affiliation contributed by Vulcan Ventures on Charter Ventures’ behalf.
agreement. In March 2004, Charter Holdco entered into After Vulcan Ventures recovered its amount contributed (the
agreements with Vulcan Programming and TechTV, which ‘‘Priority Return’’), Charter Ventures should have had a 100%
provided for, among other things, Vulcan Programming to pay profit interest in DBroadband Holdings, LLC. Charter Ventures
approximately $10 million and purchase over a 24-month was not required to make any capital contributions, including
period, at fair market rates, $2 million of advertising time across capital calls to DBroadband Holdings, LLC. DBroadband
various cable networks on Charter cable systems in considera- Holdings, LLC therefore was not included in the Company’s
tion of the agreements, obligations, releases and waivers under consolidated financial statements. Pursuant to an amended
the agreements and in settlement of certain claims. For the years version of this arrangement, in 2003, Vulcan Ventures contrib-
ended December 31, 2006, 2005, and 2004, the Company uted a total of $29 million to Digeo, $7 million of which was
recognized approximately $1 million, $1 million, and $5 million, contributed on Charter Ventures’ behalf, subject to Vulcan
respectively, of the Vulcan Programming payment as an offset to Ventures’ aforementioned priority return. Since the formation of
programming expense. DBroadband Holdings, LLC, Vulcan Ventures has contributed
approximately $56 million on Charter Ventures’ behalf. On
October 3, 2006, Vulcan Ventures and Digeo recapitalized
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