Charter 2007 Annual Report Download - page 108

service. Such fees for the years ended December 31, 2007, 2006,
and 2005 were each less than 1% of total operating expenses.
Oxygen. Oxygen Media LLC (“Oxygen”) provides programming
content to the Company pursuant to a carriage agreement.
Under the carriage agreement, the Company paid Oxygen
approximately $8 million, $8 million, and $9 million for the years
ended December 31, 2007, 2006, and 2005, respectively.
In 2005, pursuant to an amended equity issuance agreement,
Oxygen Media delivered 1 million shares of Oxygen Preferred
Stock with a liquidation preference of $33.10 per share plus
accrued dividends to Charter Holdco. In November 2007, Oxy-
gen was sold to an unrelated third party and the Company
received approximately $35 million representing its liquidation
preference on its preferred stock. Mr. Allen and his affiliates also
no longer have an interest in Oxygen.
The Company recognized the guaranteed value of the
investment over the life of the initial carriage agreement (which
expired February 1, 2005) as a reduction of programming
expense. For the year ended December 31, 2005, the Company
recorded approximately $2 million as a reduction of program-
ming expense. The carrying value of the Company’s investment
in Oxygen was approximately $33 million as of December 31,
2006.
Digeo, Inc. In March 2001, Charter Ventures and Vulcan Ventures
Incorporated formed DBroadband Holdings, LLC for the sole
purpose of purchasing equity interests in Digeo. In connection
with the execution of the broadband carriage agreement,
DBroadband Holdings, LLC purchased an equity interest in
Digeo funded by contributions from Vulcan Ventures Incorpo-
rated. At that time, the equity interest was subject to a priority
return of capital to Vulcan Ventures up to the amount contrib-
uted by Vulcan Ventures on Charter Ventures’ behalf. After
Vulcan Ventures recovered its amount contributed (the “Priority
Return”), Charter Ventures should have had a 100% profit
interest in DBroadband Holdings, LLC. Charter Ventures was
not required to make any capital contributions, including capital
calls to DBroadband Holdings, LLC. DBroadband Holdings,
LLC therefore was not included in the Company’s consolidated
financial statements. Pursuant to an amended version of this
arrangement, in 2003, Vulcan Ventures contributed a total of
$29 million to Digeo, $7 million of which was contributed on
Charter Ventures’ behalf, subject to Vulcan Ventures’ aforemen-
tioned priority return. Since the formation of DBroadband Hold-
ings, LLC, Vulcan Ventures has contributed approximately
$56 million on Charter Ventures’ behalf. On October 3, 2006,
Vulcan Ventures and Digeo recapitalized Digeo. In connection
with such recapitalization, DBroadband Holdings, LLC con-
sented to the conversion of its preferred stock holdings in Digeo
to common stock, and Vulcan Ventures surrendered its Priority
Return to Charter Ventures. As a result, DBroadband Holdings,
LLC is now included in the Company’s consolidated financial
statements. Such amounts are immaterial. After the
recapitalization, DBroadband Holdings, LLC owns 1.8% of
Digeo, Inc’s common stock. Digeo, Inc. is therefore not included
in the Company’s consolidated financial statements. In December
2007, the Digeo, Inc. common stock was transferred to Charter
Operating, and DBroadband Holdings, LLC was dissolved.
The Company paid Digeo Interactive approximately $0,
$2 million, and $3 million for the years ended December 31,
2007, 2006, and 2005, respectively, for customized development
of the i-channels and the local content tool kit.
On June 30, 2003, Charter Holdco entered into an agree-
ment with Motorola, Inc. for the purchase of 100,000 digital
video recorder (“DVR”) units. The software for these DVR units
is being supplied by Digeo Interactive, LLC under a license
agreement entered into in April 2004. Pursuant to a software
license agreement with Digeo Interactive for the right to use
Digeo’s proprietary software for DVR units, Charter paid approx-
imately $2 million, $3 million, and $1 million in license and
maintenance fees in 2007, 2006, and 2005, respectively.
Charter paid approximately $10 million, $11 million, and
$10 million for the years ended December 31, 2007, 2006, and
2005, respectively, in capital purchases under an agreement with
Digeo Interactive for the development, testing and purchase of
70,000 Digeo PowerKey DVR units. Total purchase price and
license and maintenance fees during the term of the definitive
agreements are expected to be approximately $41 million. The
definitive agreements are terminable at no penalty to Charter in
certain circumstances.
CC VIII. As part of the acquisition of the cable systems owned by
Bresnan Communications Company Limited Partnership in Feb-
ruary 2000, CC VIII, Charter’s indirect limited liability company
subsidiary, issued, after adjustments, the CC VIII interest with an
initial value and an initial capital account of approximately
$630 million to certain sellers affiliated with AT&T Broadband,
subsequently owned by Comcast Corporation (the “Comcast
sellers”). Mr. Allen granted the Comcast sellers the right to sell
to him the CC VIII interest for approximately $630 million plus
4.5% interest annually from February 2000 (the “Comcast put
right”). In April 2002, the Comcast sellers exercised the Comcast
put right in full, and this transaction was consummated on June 6,
2003. Accordingly, Mr. Allen became the holder of the CC VIII
interest, indirectly through an affiliate.
At such time through 2005, such interest was held at CC
VIII and was subject to a dispute between Mr. Allen and the
Company as to the ultimate ownership of the CC VIII interest.
In 2005, Mr. Allen, a Special Committee of independent direc-
tors, Charter, Charter Holdco and certain of their affiliates,
agreed to settle a dispute related to the CC VIII interest. Pursuant
to the settlement, CII has retained 30% of its CC VIII interest
(the “Remaining Interests”). The Remaining Interests are subject
to certain transfer restrictions, including requirements that the
Remaining Interests participate in a sale with other holders or
that allow other holders to participate in a sale of the Remaining
Interests, as detailed in the revised CC VIII Limited Liability
F-30
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES 2007 FORM 10-K
Notes to Consolidated Financial Statements (continued)