Charter 2007 Annual Report Download - page 99

11. MINORITY INTEREST AND EQUITY INTEREST OF CHARTER HOLDCO
Charter is a holding company whose primary assets are a
controlling equity interest in Charter Holdco, the indirect owner
of the Company’s cable systems, and $528 million and $413 mil-
lion at December 31, 2007 and 2006, respectively, of mirror notes
payable by Charter Holdco to Charter and have the same
principal amount and terms as those of Charter’s 5.875% and
6.50% convertible senior notes. Minority interest on the Compa-
ny’s consolidated balance sheets as of December 31, 2007 and
2006 represents Mr. Allen’s, Charter’s chairman and controlling
shareholder, 5.6% preferred membership interests in CC VIII, an
indirect subsidiary of Charter Holdco, of $199 million and
$192 million, respectively.
Minority interest historically included the portion of Charter
Holdco’s member’s equity not owned by Charter. However,
members’ deficit of Charter Holdco was $7.3 billion, $5.9 billion,
and $4.8 billion as of December 31, 2007, 2006, and 2005,
respectively, thus minority interest in Charter Holdco has been
eliminated. Minority ownership, for accounting purposes, was
48%, 48%, and 52% as of December 31, 2007, 2006, and 2005,
respectively. Because minority interest in Charter Holdco is
substantially eliminated, Charter absorbs all losses of Charter
Holdco. Subject to any changes in Charter Holdco’s capital
structure, future losses will continue to be absorbed by Charter
for GAAP purposes. Changes to minority interest consist of the
following for the periods presented:
Minority
Interest
Balance, December 31, 2004 $ 648
Minority interest in loss of subsidiary (1)
CC VIII settlement – exchange of interests (467)
Changes in fair value of interest rate agreements and other 8
Balance, December 31, 2005 188
Minority interest in income of subsidiary 4
Balance, December 31, 2006 192
Minority interest in income of subsidiary 7
Balance, December 31, 2007 $ 199
In connection with the issuance of the 6.50% convertible
senior notes described in Note 6, Charter entered into certain
agreements with Charter Holdco to provide for the issuance of
$479 million original principal amount of a 6.50% mirror convert-
ible senior note due 2027 of Charter Holdco (the “Mirror Note”)
to Charter. These agreements facilitated compliance with the
certificate of incorporation of Charter and the governing docu-
ments of Charter Holdco regarding the required issuance of
mirror securities by Charter Holdco. The terms of the Mirror
Note mirror the terms of the 6.50% convertible senior notes.
12. PREFERRED STOCK – REDEEMABLE
In November 2005, Charter repurchased 508,546 shares of its
Series A Convertible Redeemable Preferred Stock (the “Preferred
Stock”) for an aggregate purchase price of approximately $31 mil-
lion (or $60 per share). The shares had liquidation preference of
approximately $51 million and had accrued but unpaid dividends
of approximately $3 million resulting in a gain of approximately
$23 million for the year ended December 31, 2005 recorded in
gain (loss) on extinguishment of debt and preferred stock in the
Company’s consolidated statements of operations. Following the
repurchase, 36,713 shares of preferred stock remained outstand-
ing. The remaining Preferred Stock is redeemable by Charter at
its option and must be redeemed by Charter at any time upon a
change of control, or if not previously redeemed or converted,
on August 31, 2008. The Preferred Stock is convertible, in whole
or in part, at the option of the holders through August 31, 2008,
into shares of common stock, at an initial conversion price of
$24.71 per share of common stock, subject to certain customary
adjustments.
In connection with the repurchase, the holders of the
Preferred Stock consented to an amendment to the Certificate of
Designation governing the Preferred Stock that eliminated the
quarterly dividends on all of the outstanding Preferred Stock and
provided that the liquidation preference for the remaining shares
outstanding will be $105.4063 per share, which amount shall
accrete from September 30, 2005 at an annual rate of 7.75%,
compounded quarterly. Certain holders of Preferred Stock also
released Charter from various threatened claims relating to their
acquisition and ownership of the Preferred Stock, including
threatened claims for breach of contract.
13. COMMON STOCK
The Company’s Class A common stock and Class B common
stock are identical except with respect to certain voting, transfer
and conversion rights. Holders of Class A common stock are
entitled to one vote per share and holder of Class B common
stock is entitled to ten votes for each share of Class B common
stock held and for each Charter Holdco membership unit held.
The Class B common stock is subject to significant transfer
restrictions and is convertible on a share for share basis into
Class A common stock at the option of the holder. Charter
Holdco membership units are exchangeable on a one-for-one
basis for shares of Class B common stock.
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CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES 2007 FORM 10-K
Notes to Consolidated Financial Statements (continued)