Charter 2007 Annual Report Download - page 107

adjustment to the accumulated deficit in the first quarter of 2007.
The Company has not taken any significant positions that it
believes would not meet the “more likely than not” criteria and
require disclosure.
23. RELATED PARTY TRANSACTIONS
The following sets forth certain transactions in which the Com-
pany and the directors, executive officers and affiliates of the
Company are involved. Unless otherwise disclosed, management
believes that each of the transactions described below was on
terms no less favorable to the Company than could have been
obtained from independent third parties.
Charter is a holding company and its principal assets are its
equity interest in Charter Holdco and certain mirror notes
payable by Charter Holdco to Charter and mirror preferred units
held by Charter, which have the same principal amount and
terms as those of Charter’s convertible senior notes and Charter’s
outstanding preferred stock. In 2007, 2006, and 2005, Charter
Holdco paid to Charter $51 million, $51 million, and $64 million,
respectively, related to interest on the mirror notes, and Charter
Holdco paid an additional $0, $0, and $3 million, respectively,
related to dividends on the mirror preferred membership units.
Charter is a party to management arrangements with Char-
ter Holdco and certain of its subsidiaries. Under these agree-
ments, Charter and Charter Holdco provide management
services for the cable systems owned or operated by their
subsidiaries. The management services include such services as
centralized customer billing services, data processing and related
support, benefits administration and coordination of insurance
coverage and self-insurance programs for medical, dental and
workers’ compensation claims. Costs associated with providing
these services are charged directly to the Company’s operating
subsidiaries and are included within operating costs in the
accompanying consolidated statements of operations. Such costs
totaled $213 million, $231 million, and $205 million for the years
ended December 31, 2007, 2006, and 2005, respectively. All other
costs incurred on behalf of Charter’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 financial statements. For the years
ended December 31, 2007, 2006, and 2005, 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 Company’s credit
facilities 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 year, 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 affiliates 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 inter-
ests, and to avoid the possibility of future disputes as to potential
business, Charter and Charter Holdco, under the terms of their
respective organizational documents, may not, and may not
allow their subsidiaries to engage in any business transaction
outside the cable transmission business except for certain existing
approved investments. Charter or Charter Holdco or any of their
subsidiaries may not pursue, or allow their subsidiaries to pursue,
a business transaction outside of this scope, unless Mr. Allen
consents to Charter or its subsidiaries engaging in the business
transaction. The cable transmission business means the business
of transmitting video, audio, including telephone, and data over
cable systems owned, operated or managed by Charter, Charter
Holdco or any of their subsidiaries from time to time.
Mr. Allen or his affiliates own or have owned 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 Oxygen Media Corporation (“Oxygen Media”),
Digeo, Inc. (“Digeo”), Click2learn, Inc., Trail Blazer Inc., Action
Sports Cable Network (“Action Sports”) and Microsoft Corpora-
tion. Mr. Allen owns 100% of the equity of Vulcan Ventures
Incorporated (“Vulcan Ventures”) and Vulcan Inc. and is the
president of Vulcan Ventures. Ms. Jo Allen Patton is a director of
the Company and the President and Chief Executive Officer of
Vulcan Inc. and is a director and Vice President of Vulcan
Ventures. Mr. Lance Conn is a director of the Company and is
Executive Vice President of Vulcan Inc. and Vulcan Ventures.
The various cable, media, Internet and telephone companies in
which Mr. Allen has invested may mutually benefit one another.
The Company can give no assurance, nor should you expect,
that any of these business relationships will be successful, that
the Company will realize any benefits from these relationships or
that the Company will enter into any business relationships in
the future with Mr. Allen’s affiliated companies.
Mr. Allen and his affiliates have made, and in the future
likely will make, numerous investments outside of the Company
and its business. The Company cannot provide any assurance
that, in the event that the Company or any of its subsidiaries
enter into transactions in the future with any affiliate 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, conflicts could arise with respect to the allocation of
corporate opportunities between the Company and Mr. Allen
and his affiliates. The Company has not instituted any formal
plan or arrangement to address potential conflicts of interest.
The Company received or receives programming for broad-
cast via its cable systems from Oxygen Media and Trail Blazers
Inc. The Company pays a fee for the programming service
generally based on the number of customers receiving the
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CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES 2007 FORM 10-K
Notes to Consolidated Financial Statements (continued)