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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
   FORM 10-Q   (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2004 or [  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the transition period from  to . Commission file numbers:333-75415
333-75415-03 CC V Holdings, LLC* CC V Holdings Finance, Inc.* 
  Delaware
    
    13-4029965Delaware
    
    13-4029969(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification Number)12405 Powerscourt DriveSt. Louis, Missouri
    
    63131(Address of principal executive offices)
    
    (Zip Code)
 (314) 965-0555 
  Indicate by check mark whether the registrants: (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes [X] No [  ] Indicate by check mark whether the registrants are accelerated filers (as
defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X] All of the issued and outstanding shares of capital stock of CC V Holdings
Finance, Inc. are held by CC V Holdings, LLC. All of the limited liability
company membership interests of CC V Holdings, LLC are held indirectly by
Charter Communications Holdings, LLC, a reporting company under the Exchange
Act. There is no public trading market for any of the aforementioned limited
liability company membership interests or shares of capital stock. *Registrants meet the conditions set forth in General Instruction (H)(1)(a) and
(b) to the Form 10-Q and are therefore filing with the reduced disclosure
format.




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CC V HOLDINGS, LLC
CC V HOLDINGS FINANCE, INC. FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2004 TABLE OF CONTENTS PagePart I. FINANCIAL INFORMATIONItem 1. Financial Statements  CC V Holdings, LLC and Subsidiaries
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    16Item 4. Controls and Procedures
    
    
    30Part II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    31Item 6. Exhibits
    
    
    31SIGNATURES
    
    
    32EXHIBIT INDEX
    
    
    33Certification of Chief Executive OfficerCertification of Interim Co-Chief Financial OfficerCertification of Interim Co-Chief Financial OfficerCertification of Chief Executive OfficerCertification of Interim Co-Chief Financial OfficerCertification of Interim Co-Chief Financial Officer
  Note: Separate financial statements of CC V Holdings Finance, Inc. have not
been presented as this entity had no operations and significantly no assets or
equity during the periods reported. Accordingly, management has determined
that such financial statements are not material. This quarterly report on Form 10-Q is for the three and nine months ended
September 30, 2004. The Securities and Exchange Commission (SEC) allows us
to incorporate by reference information that we file with the SEC, which
means that we can disclose important information to you by referring you
directly to those documents. Information incorporated by reference is
considered to be part of this quarterly report. In addition, information that
we file with the SEC in the future will automatically update and supersede
information contained in this quarterly report. In this quarterly report,
we, us and our refer to CC V Holdings, LLC and its subsidiaries.




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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS: This quarterly report includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended (the Securities Act),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
Exchange Act), regarding, among other things, our plans, strategies and
prospects, both business and financial including, without limitation, the
forward-looking statements set forth in the Results of Operations and
Liquidity and Capital Resources sections under Part I, Item 2. Managements
Discussion and Analysis of Financial Condition and Results of Operations in
this quarterly report. Although we believe that our plans, intentions and
expectations reflected in or suggested by these forward-looking statements are
reasonable, we cannot assure you that we will achieve or realize these plans,
intentions or expectations. Forward-looking statements are inherently subject
to risks, uncertainties and assumptions including, without limitation, the
factors described under Certain Trends and Uncertainties under Part I, Item
2. Managements Discussion and Analysis of Financial Condition and Results of
Operations in this quarterly report. Many of the forward-looking statements
contained in this quarterly report may be identified by the use of
forward-looking words such as believe, expect, anticipate, should,
planned, will, may, intend, estimated and potential, among others.
Important factors that could cause actual results to differ materially from the
forward-looking statements we make in this quarterly report are set forth in
this quarterly report and in other reports or documents that we file from time
to time with the SEC, and include, but are not limited to:  
    
    our and our indirect parent companies ability to pay or refinance
debt as it becomes due;  
    
    our ability to sustain and grow revenues and cash flows from
operating activities by offering video, high-speed data, telephony and
other services and to maintain a stable customer base, particularly in
the face of increasingly aggressive competition from other service
providers;  
    
    the availability of funds to meet interest payment obligations under our
and our indirect parent companies debt and to fund our operations and
necessary capital expenditures, either through cash flows from operating
activities, further borrowings or other sources;  
    
    our ability to comply with all covenants in our indentures and
credit facilities, any violation of which would result in a violation
of the applicable facility or indenture and could trigger a default of
other obligations of our affiliates under cross-default provisions;  
    
    any adverse consequences arising out of our and our parent
companies restatements of the respective 2000, 2001 and 2002 financial statements;  
    
    the results of the pending grand jury investigation by the United
States Attorneys Office for the Eastern District of Missouri, and the
ability to reach a final approved settlement with respect to the
putative class action, the unconsolidated state action, and derivative
shareholders litigation against Charter Communications, Inc., our
indirect parent, on the terms of the memoranda of understanding
described herein;  
    
    our ability to obtain programming at reasonable prices or to pass
programming cost increases on to our customers;  
    
    general business conditions, economic uncertainty or slowdown; and  
    
    the effects of governmental regulation, including but not limited
to local franchise taxing authorities, on our business. All forward-looking statements attributable to us or any person acting on our
behalf are expressly qualified in their entirety by this cautionary statement.
We are under no duty or obligation to update any of the forward-looking
statements after the date of this quarterly report. 3




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PART I. FINANCIAL INFORMATION. 
 ITEM 1. FINANCIAL STATEMENTS.
 CC V HOLDINGS, LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS) September 30,
    
    December 31,2004
    
    2003(Unaudited)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    9,529
    
    
    $
    13,915Accounts receivable, less allowance for doubtful
accounts of $1,612 and $2,188, respectively
    
    
    5,620
    
    
    
    10,073Prepaid expenses and other current assets
    
    
    1,421
    
    
    
    1,767Total current assets
    
    
    16,570
    
    
    
    25,755INVESTMENT IN CABLE PROPERTIES:Property, plant and equipment, net of accumulated
depreciation of $516,824 and $388,610, respectively
    
    
    781,620
    
    
    
    842,613Franchises, net of accumulated amortization of
$471,268 and $470,581, respectively
    
    
    1,847,317
    
    
    
    2,124,032Total investment in cable properties, net
    
    
    2,628,937
    
    
    
    2,966,645OTHER NONCURRENT ASSETS
    
    
    524
    
    
    
    6,603Total assets
    
    $
    2,646,031
    
    
    $
    2,999,003LIABILITIES AND MEMBERS EQUITYCURRENT LIABILITIES:Accounts payable and accrued expenses
    
    $
    115,294
    
    
    $
    120,531Payables to manager of cable systems  related parties
    
    
    32,309
    
    
    
    49,135Total current liabilities
    
    
    147,603
    
    
    
    169,666LONG-TERM DEBT:Credit facilities  related party
    
    
    1,038,311
    
    
    
    Credit facilities
    
    
    
    
    
    
    1,044,381Senior discount notes
    
    
    113,281
    
    
    
    113,281Total long-term debt
    
    
    1,151,592
    
    
    
    1,157,662OTHER LONG-TERM LIABILITIES
    
    
    54,897
    
    
    
    84,873MINORITY INTEREST
    
    
    650,303
    
    
    
    694,243MEMBERS EQUITY
    
    
    641,636
    
    
    
    892,559Total liabilities and members equity
    
    $
    2,646,031
    
    
    $
    2,999,003
 The accompanying notes are an integral part of these condensed consolidated financial statements. 4




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CC V HOLDINGS, LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
(UNAUDITED) Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003REVENUES
    
    $
    180,750
    
    
    $
    168,378
    
    
    $
    527,398
    
    
    $
    495,717COSTS AND EXPENSES:Operating (excluding depreciation and amortization)
    
    
    71,426
    
    
    
    63,474
    
    
    
    209,893
    
    
    
    188,632Selling, general and administrative
    
    
    35,490
    
    
    
    31,055
    
    
    
    98,582
    
    
    
    92,732Depreciation and amortization
    
    
    52,104
    
    
    
    39,355
    
    
    
    138,504
    
    
    
    126,126Impairment of franchises
    
    
    180,250
    
    
    
    
    
    
    
    180,250
    
    
    
    (Gain) loss on sale of assets, net
    
    
    78
    
    
    
    (171
    )
    
    
    552
    
    
    
    698Option compensation expense, net
    
    
    1,046
    
    
    
    40
    
    
    
    4,379
    
    
    
    50Special charges, net
    
    
    34
    
    
    
    207
    
    
    
    13,971
    
    
    
    370340,428
    
    
    
    133,960
    
    
    
    646,131
    
    
    
    408,608Income (loss) from operations
    
    
    (159,678
    )
    
    
    34,418
    
    
    
    (118,733
    )
    
    
    87,109OTHER INCOME AND EXPENSE:Interest expense, net
    
    
    (19,973
    )
    
    
    (22,078
    )
    
    
    (58,668
    )
    
    
    (68,394
    )Gain (loss) on derivative instruments and hedging
activities, net
    
    
    (2,890
    )
    
    
    6,007
    
    
    
    11,223
    
    
    
    2,312Loss on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    (5,575
    )
    
    
    Other, net
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    (22,863
    )
    
    
    (16,071
    )
    
    
    ( 53,024
    )
    
    
    (66,082
    )Income (loss) before minority interest,
income taxes and cumulative effect of
accounting change
    
    
    (182,541
    )
    
    
    18,347
    
    
    
    (171,757
    )
    
    
    21,027MINORITY INTEREST
    
    
    32,885
    
    
    
    (3,504
    )
    
    
    24,958
    
    
    
    (10,128
    )Income (loss) before income taxes and
cumulative effect of accounting change
    
    
    (149,656
    )
    
    
    14,843
    
    
    
    (146,799
    )
    
    
    10,899INCOME TAX BENEFIT (EXPENSE)
    
    
    5,613
    
    
    
    (484
    )
    
    
    3,794
    
    
    
    (1,344
    )Income (loss) before cumulative effect of
accounting change
    
    
    (144,043
    )
    
    
    14,359
    
    
    
    (143,005
    )
    
    
    9,555CUMULATIVE EFFECT OF ACCOUNTING CHANGE, NET OF TAX
    
    
    (74,528
    )
    
    
    
    
    
    
    (74,528
    )
    
    
    Net income (loss)
    
    $
    (218,571
    )
    
    $
    14,359
    
    
    $
    (217,533
    )
    
    $
    9,555
 The accompanying notes are an integral part of these condensed consolidated financial statements. 5




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CC V HOLDINGS, LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED) Nine Months EndedSeptember 30,2004
    
    2003CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)
    
    $
    (217,533
    )
    
    $
    9,555Adjustments to reconcile net income (loss) to net cash flows
from operating activities:Minority interest
    
    
    (24,958
    )
    
    
    10,128Depreciation and amortization
    
    
    138,504
    
    
    
    126,126Impairment of franchises
    
    
    180,250
    
    
    
    Option compensation expense, net
    
    
    3,812
    
    
    
    50Special charges, net
    
    
    12,455
    
    
    
    Noncash interest expense
    
    
    518
    
    
    
    14,978Loss on sale of assets, net
    
    
    552
    
    
    
    698Loss on extinguishment of debt
    
    
    5,575
    
    
    
    Deferred income taxes
    
    
    (3,794
    )
    
    
    1,344Cumulative effect of accounting change, net
    
    
    74,528
    
    
    
    Gain on derivative instruments and hedging activities, net
    
    
    (11,223
    )
    
    
    (2,312
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    4,453
    
    
    
    (309
    )Prepaid expenses and other assets
    
    
    (39
    )
    
    
    (291
    )Accounts payable, accrued expenses and other
    
    
    (19,124
    )
    
    
    (32,219
    )Payables to manager of cable systems  related party
    
    
    (39,439
    )
    
    
    (39,403
    )Net cash flows from operating activities
    
    
    104,537
    
    
    
    88,345CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of property, plant and equipment
    
    
    (67,752
    )
    
    
    (48,398
    )Change in accrued expenses related to capital expenditures
    
    
    2,033
    
    
    
    (8,670
    )Proceeds from sale of assets
    
    
    307
    
    
    
    Other, net
    
    
    43
    
    
    
    Net cash flows from investing activities
    
    
    (65,369
    )
    
    
    (57,068
    )CASH FLOWS FROM FINANCING ACTIVITIES:Borrowings of long-term debt
    
    
    15,000
    
    
    
    80,000Repayments of long-term debt
    
    
    (1,059,382
    )
    
    
    (146,559
    )Borrowings from related party
    
    
    1,038,311
    
    
    
    Distributions to managers
    
    
    (37,483
    )
    
    
    (6,000
    )Net cash flows from financing activities
    
    
    (43,554
    )
    
    
    (72,559
    )NET DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (4,386
    )
    
    
    (41,282
    )CASH AND CASH EQUIVALENTS, beginning of period
    
    
    13,915
    
    
    
    50,069CASH AND CASH EQUIVALENTS, end of period
    
    $
    9,529
    
    
    $
    8,787CASH PAID FOR INTEREST
    
    $
    43,842
    
    
    $
    52,231
 The accompanying notes are an integral part of these condensed consolidated financial statements. 6




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CC V HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT WHERE INDICATED) 1. Organization and Basis of Presentation The accompanying condensed consolidated financial statements of CC V Holdings,
LLC include the accounts of CC V Holdings, LLC and all of its wholly owned
subsidiaries including CC VIII Operating, LLC (collectively, the Company).
The Company is an indirect wholly owned subsidiary of Charter Communications
Operating, LLC (Charter Operating), which is an indirect wholly owned
subsidiary of Charter Communications Holdings, LLC (Charter Holdings).
Charter Holdings is a wholly owned subsidiary of Charter Communications Holding
Company, LLC (Charter Holdco), which is a subsidiary of Charter
Communications, Inc. (Charter). All significant intercompany accounts and
transactions among consolidated entities have been eliminated. As of September 30, 2004, the Company owns and operates cable systems serving
approximately 924,600 analog video customers. The Company offers its customers traditional
cable video programming (analog and digital video) as well as high-speed data
services and, in some areas, advanced broadband services such as video on
demand. The Company sells its cable video programming, high-speed data and
advanced broadband services on a subscription basis. The Company operates
primarily in the states of Michigan, Minnesota and Wisconsin. Charter Holdco, the Companys indirect parent, and Charter, the Companys
manager and indirect parent, provide management services for the cable systems
owned or operated by the Company. The management services include such
services as centralized customer billing, 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 billed and charged directly
to the Company and are included within operating costs in the accompanying
condensed consolidated statements of operations. The accompanying condensed consolidated financial statements of the Company
have been prepared in accordance with accounting principles generally accepted
in the United States for interim financial information and the rules and
regulations of the Securities and Exchange Commission (SEC). Accordingly,
certain information and footnote disclosures typically included in the
Companys Annual Report on Form 10-K have been condensed or omitted for this
quarterly report. The accompanying condensed consolidated financial statements
are unaudited and are subject to review by regulatory authorities. However, in
the opinion of management, such financial statements include all adjustments,
which consist of only normal recurring adjustments, necessary for a fair
presentation of the results for the periods presented. Interim results are not
necessarily indicative of results for a full year. The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Areas involving significant judgments and
estimates include capitalization of labor and overhead costs; depreciation and
amortization costs; impairments of property, plant and equipment and franchises
and contingencies. Actual results could differ from those estimates. Reclassifications.Certain 2003 amounts have been reclassified to conform with
the 2004 presentation. 2. Liquidity and Capital Resources The Company recognized a loss from operations of $160 million and $119 million
for the three and nine months ended September 30, 2004, respectively, and
income from operations of $34 million and $87 million for the three and nine
months ended September 30, 2003, respectively. The Companys net cash flows
from operating activities were $105 million and $88 million for the nine months
ended September 30, 2004 and 2003, respectively. The Company has historically
required significant cash to fund capital expenditures and debt service costs.
Historically, the Company has funded these requirements through cash flows from
operating activities, borrowings under the credit facilities of the Companys
subsidiary, equity contributions from its indirect parent companies, borrowings
from related parties and cash on hand. The mix of funding sources changes from
period to period, but for the nine months ended September 30, 2004,
approximately 96% of the Companys funding requirements were from cash flows
from operating activities and 4% were from cash on hand. 7




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CC V HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT WHERE INDICATED) The Company expects that cash on hand and cash flows from operating activities
will be sufficient to satisfy its 2004 cash needs. As of September 30, 2004,
the Company held $10 million in cash and cash equivalents. The Company expects that it will rely on capital contributions from its
indirect parent companies to repay the principal amount of its public notes at
maturity. However, there can be no assurance that its indirect parent
companies will have sufficient liquidity to satisfy this payment when due. The
Companys indirect parent companies have a significant amount of
debt, of which
approximately $618 million will mature in 2005. Currently, the Companys
indirect parent companies do not expect that cash flows from operating
activities and amounts available under their credit facilities will be
sufficient to fund their operations and permit them to satisfy their principal
repayment obligations that come due in 2005 and thereafter. In the event that
the Companys indirect parent companies are not able to demonstrate that they
have access to liquidity in an amount sufficient to fund their
business and to make principal repayment obligations that come due in 2005 and
thereafter, the indirect parent companies and the Companys ability to receive
an unqualified opinion from an independent registered public accounting firm
may be adversely affected. The failure of Charter Operating to receive an
unqualified opinion would constitute a default under its credit facilities.
In addition, an event of default under the Charter Operating credit
facilities would constitute a default under
the CC VIII Operating credit facilities. Any financial or liquidity
problems of the indirect parent companies, including
the inability of any of the Companys indirect parent companies to comply with
the covenants under their indentures or credit facilities, could cause
serious disruption to the Companys business and have a material adverse effect
on its business and results of operations. Any such event could adversely impact the Companys credit rating, and its relations with customers
and suppliers, which could in turn further impair its ability to obtain
financing and operate its business. In addition, a default under the covenants
governing the Companys indenture could result in the acceleration of the
Companys payment obligations under its debt and, under certain circumstances,
in cross-defaults under its affiliates debt obligations, which could adversely
affect its indirect parent companies ability to provide the Company with
funding. If the Companys business does not generate sufficient cash flow from operating
activities, and sufficient future distributions are not available to the
Company from other sources of financing, it may not be able to repay its debt,
grow its business, respond to competitive challenges, or fund its other
liquidity and capital needs. In April 2004, Charter Operating sold senior second lien notes and amended and
restated its credit facilities and used the additional borrowings under the
credit facilities, together with proceeds from the sale of
the notes, to refinance the credit facilities of its subsidiaries, including
the CC VIII Operating credit facilities. The effect of the transaction, among
other things, was to substitute Charter Operating as the lender in place of the
banks under the CC VIII Operating credit facilities. In connection with the
transaction, all principal payments prior to maturity were eliminated from the
CC VIII Operating credit facilities, and all amounts then outstanding
(approximately $1.0 billion principal amount) will become payable at maturity
(extended from June 2007 and February 2008 to October 2011). Outstanding
borrowings under the CC VIII Operating credit facilities bear interest, at CC
VIII Operatings election, at a base rate or the Eurodollar rate, as defined,
plus a margin of 3.0% for Eurodollar loans and 2.0% for base rate loans. CC
VIII Operatings obligations under the credit facilities continue to be
guaranteed by its immediate parent company, CC VIII Holdings, LLC, and by the
subsidiaries of CC VIII Operating other than immaterial subsidiaries, and to be
secured by pledges of equity interests and intercompany notes held by CC VIII
Operating and the guarantors under the CC VIII Operating credit facilities. The CC VIII Operating credit facilities contain typical
representations and warranties, affirmative covenants, reporting requirements,
and negative covenants, but do not contain financial
covenants that measure performance against standards set for leverage, debt
service coverage, or operating cash flow coverage of cash interest expense. In
addition, an event of default under the Charter Operating credit
facilities would constitute a default under the CC VIII
Operating credit facilities. In addition, in connection with the amendment and restatement of the Charter
Operating credit facilities, a requirement was imposed that the CC V Holdings,
LLC senior discount notes be redeemed within 45 days after Charter Holdings
leverage ratio (determined under the indentures governing the senior notes and
senior discount notes issued by Charter Holdings) is determined to be below
8.75 to 1.0, provided the ratio then remains below that level after giving
effect to the redemption. As of September 30, 2004, Charter Holdings leverage
ratio was above 8.75 to 1.0. 8




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CC V HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT WHERE INDICATED) 3. Franchises On January 1, 2002, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 142, which eliminates the amortization of
indefinite-lived intangible assets. Accordingly, beginning January 1, 2002,
all franchises that qualify for indefinite-life treatment under SFAS No. 142
are no longer amortized against earnings but instead are tested for impairment
annually, or more frequently as warranted by events or changes in
circumstances. Based on the guidance prescribed in Emerging Issues Task Force
(EITF) Issue No. 02-7, Unit of Accounting for Testing of Impairment of
Indefinite-Lived Intangible Assets,franchises are aggregated into essentially
inseparable asset groups to conduct the valuations. The asset groups generally
represent geographic clustering of the Companys cable systems into groups by
which such systems are managed. Management believes such grouping represents
the highest and best use of those assets. Fair value is determined based on
estimated discounted future cash flows using assumptions that are consistent
with internal forecasts. The Company has historically followed a residual
method of valuing its franchise assets, which had the effect of including
goodwill with the franchise assets. In September 2004, the SEC staff issued Topic D-108, Use of the Residual Method
to Value Acquired Assets Other than Goodwill, which requires the direct method
of separately valuing all intangible assets. On September 30, 2004, the
Company adopted Topic D-108 which resulted in the Company recording a
cumulative effect of accounting change of $75 million (approximately $96
million before minority interest effects of $19 million and tax effects of $2
million) for the three and nine months ended September 30, 2004. The Company performed an impairment assessment during the third quarter 2004
using an independent third-party appraiser and following the guidance of EITF
Issue 02-17, Recognition of Customer Relationship Intangible Assets Acquired in
a Business Combination, and Topic D-108. The use of lower projected growth
rates and the resulting revised estimates of future cash flows in the Companys
valuation, primarily as a result of increased competition, led to the
recognition of a $180 million impairment charge for the three and nine months
ended September 30, 2004. The valuation completed at October 1, 2003 resulted
in no impairment. As of September 30, 2004 and December 31, 2003, indefinite-lived and
finite-lived intangible assets are presented in the following table: September 30, 2004
    
    December 31, 2003Gross
    
    
    
    
    
    Net
    
    Gross
    
    
    
    
    
    NetCarrying
    
    Accumulated
    
    Carrying
    
    Carrying
    
    Accumulated
    
    CarryingAmount
    
    Amortization
    
    Amount
    
    Amount
    
    Amortization
    
    AmountFranchises with
indefinite lives
    
    $
    2,309,646
    
    
    $
    470,396
    
    
    $
    1,839,250
    
    
    $
    2,568,685
    
    
    $
    462,879
    
    
    $
    2,105,806Franchises with
finite lives
    
    $
    8,939
    
    
    $
    872
    
    
    $
    8,067
    
    
    $
    25,928
    
    
    $
    7,702
    
    
    $
    18,226
 In the first quarter of 2004, approximately $10 million of franchises that were
previously classified as finite-lived were reclassified to indefinite-lived,
based on the Companys renewal of these franchise assets in 2003. Franchise
amortization expense for the three and nine months ended September 30, 2004 was
$0.2 million and $0.7 million, respectively, and franchise amortization expense
for the three and nine months ended September 30, 2003 was $1 million and $2
million, respectively, which represents the amortization relating to franchises
that did not qualify for indefinite-life treatment under SFAS No. 142,
including costs associated with franchise renewals. The Company expects that
amortization expense on franchise assets will be approximately $1 million
annually for each of the next five years. Actual amortization expense in
future periods could differ from these estimates as a result of new intangible
asset acquisitions or divestitures, changes in useful lives and other relevant
factors. 9




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CC V HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT WHERE INDICATED) 4. Accounts Payable and Accrued Expenses Accounts payable and accrued expenses consist of the following as of September
30, 2004 and December 31, 2003: September 30,
    
    December 31,2004
    
    2003Accounts payable  trade
    
    $
    7,061
    
    
    $
    14,164Accrued capital expenditures
    
    
    9,370
    
    
    
    7,337Accrued expenses:Interest
    
    
    28,127
    
    
    
    13,807Programming costs
    
    
    37,033
    
    
    
    42,220Franchise-related fees
    
    
    6,067
    
    
    
    8,005State sales tax
    
    
    6,450
    
    
    
    8,456Other
    
    
    21,186
    
    
    
    26,542$
    115,294
    
    
    $
    120,531
 5. Long-Term Debt Long-term debt consists of the following as of September 30, 2004 and December
31, 2003: September 30,
    
    December 31,2004
    
    2003CC VIII Operating credit facilities  related party
    
    $
    1,038,311
    
    
    $
    CC VIII Operating credit facilities
    
    
    
    
    
    
    1,044,381CC V Holdings senior discount notes
    
    
    113,281
    
    
    
    113,281$
    1,151,592
    
    
    $
    1,157,662
 As described in note 2 above, Charter Operating engaged in a financing
transaction in April 2004, which resulted, among other things, in Charter
Operating being substituted as the lender in place of the banks under the CC
VIII Operating credit facilities. 6. Comprehensive Income (Loss) The Company reports changes in the fair value of interest rate agreements
designated as hedging the variability of cash flows associated with
floating-rate debt obligations, that meet the effectiveness criteria of SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities, in
accumulated other comprehensive income (loss). For the three and nine months
ended September 30, 2004, comprehensive loss was
$219 million and $214 million,
respectively. For the three and nine months ended September 30, 2003,
comprehensive income was $17 million and $10 million, respectively. 7. Accounting for Derivative Instruments and Hedging Activities The Company uses interest rate derivative instruments, such as interest rate
swap agreements and interest rate collar agreements (collectively referred to
herein as interest rate agreements) to manage its interest costs. The
Companys policy is to manage interest costs using a mix of fixed and variable
rate debt. Using interest rate swap agreements, the Company has agreed to
exchange, at specified intervals through 2007, the difference between fixed and
variable interest amounts calculated by reference to an agreed-upon notional
principal amount. Interest rate collar agreements are used to limit the
Companys exposure to and benefits from interest rate fluctuations on variable
rate debt to within a certain range of rates. 10




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CC V HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT WHERE INDICATED) The Company does not hold or issue derivative instruments for trading purposes.
The Company does, however, have certain interest rate derivative instruments
that have been designated as cash flow hedging instruments. Such instruments
are those that effectively convert variable interest payments on certain debt
instruments into fixed payments. For qualifying hedges, SFAS No. 133 allows
derivative gains and losses to offset related results on hedged items in the
condensed consolidated statement of operations. The Company has formally
documented, designated and assessed the effectiveness of transactions that
receive hedge accounting. For the three months ended September 30, 2004 and
2003, net gain (loss) on derivative instruments and hedging activities includes
a loss of $0.2 million and a gain $0.3 million, respectively, and for the nine
months ended September 30, 2004 and 2003, a gain of $0.1 million and $0.5
million, respectively, which represent cash flow hedge ineffectiveness on
interest rate hedge agreements arising from differences between the critical
terms of the agreements and the related hedged obligations. Changes in the
fair value of interest rate agreements designated as hedging instruments of the
variability of cash flows associated with floating-rate debt obligations that
meet the effectiveness criteria of SFAS No. 133 are reported in accumulated
other comprehensive income (loss). For the three and nine months ended
September 30, 2004, a loss of $0.8 million and a gain of $4 million,
respectively, and for the three and nine months ended September 30, 2003, a
gain of $3 million and $20 thousand, respectively, related to derivative
instruments designated as cash flow hedges was recorded in accumulated other
comprehensive income (loss). The amounts are subsequently reclassified into
interest expense as a yield adjustment in the same period in which the related
interest on the floating-rate debt obligations affects earnings (losses). Certain interest rate derivative instruments are not designated as hedges as
they do not meet the effectiveness criteria specified by SFAS No. 133.
However, management believes such instruments are closely correlated with the
respective debt, thus managing associated risk. Interest rate derivative
instruments not designated as hedges are marked to fair value, with the impact
recorded as a gain or loss on interest rate agreements. For the three months
ended September 30, 2004 and 2003, net gain (loss) on derivative instruments
and hedging activities includes losses of $3 million and gains of $6 million,
respectively, and for the nine months ended September 30, 2004 and 2003, gains
of $11 million and $2 million, respectively, for interest rate derivative
instruments not designated as hedges. As of September 30, 2004 and December 31, 2003, the Company had outstanding
$700 million in notional amounts of interest rate swaps. The notional amounts
of interest rate instruments do not represent amounts exchanged by the parties
and, thus, are not a measure of exposure to credit loss. The amounts exchanged
are determined by reference to the notional amount and the other terms of the
contracts. 8. Special Charges In the fourth quarter of 2002, the Company recorded a special charge of $3
million associated with the Companys workforce reduction and the consolidation
of its operations from two divisions and two regions into one operating
division, elimination of redundant practices and streamlining its management
structure. During the year ended December 31, 2003, additional
severance-related costs of $0.3 million were incurred and recorded as a special
charge. During the three and nine months ended September 30, 2004, additional
employees were identified for termination, and severance costs of $0.4 million
and $0.6 million, respectively, were recorded in special charges. Severance
payments are made over a period of up to two years with approximately $0.1
million and $0.6 million paid during the three and nine months ended September
30, 2004, respectively, and $3 million paid during the year ended December 31,
2003. As of September 30, 2004 and December 31, 2003, a liability of
approximately $0.3 million and $0.3 million, respectively, is recorded on the
accompanying condensed consolidated balance sheets related to the
reorganization activities discussed above. For the nine months ended September
30, 2004, special charges also includes approximately $13 million, which
represents the allocation to the Company of expenses for the aggregate value of
the Charter Class A common stock and warrants to purchase Charter Class A
common stock contemplated to be issued as part of a settlement of consolidated
federal and state class actions and federal derivative action lawsuits and
approximately $0.9 million of litigation costs related to the tentative
settlement of a national class action suit, all of which are subject to final
documentation and court approval (see note 10). For the three and nine months
ended September 30, 2004, the severance costs were offset by $0.4 million
received from a third party in settlement of a dispute. For the three and nine months ended September 30, 2003, the Company recorded
severance costs of $0.2 million and $1 million, respectively, in special
charges. For the nine months ended September 30, 2003, the severance costs
were offset by a $0.3 million settlement from the Internet service provider
Excite@Home related to the conversion 11




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CC V HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT WHERE INDICATED) of approximately 145,000 high-speed data customers to our Charter High Speed
service in 2001. In addition, for the nine months ended September 30, 2003,
the Company reversed $0.3 million of the severance accrual that was determined
to be excessive. 9. Income Taxes The Company is a single member limited liability company not subject to income
tax. The Company holds all operations through indirect subsidiaries. The
majority of these indirect subsidiaries are limited liability companies that
are also not subject to income tax. However, certain of the Companys indirect
subsidiaries are corporations and are subject to income tax. As of September 30, 2004 and December 31, 2003, the Company had net deferred
income tax liabilities of approximately $11 million and $20 million,
respectively. These relate to certain of the Companys indirect subsidiaries,
which file separate income tax returns. During the three and nine months ended September 30, 2004, the Company recorded
$7.4 million and $5.6 million of income tax benefit, respectively. The Company
recorded a portion of the income tax benefit associated with the adoption of
Topic D-108 as a $1.8 million reduction of the cumulative effect of accounting
change on the accompanying statement of operations for the three and nine
months ended September 30, 2004. The income tax benefits were realized as a
result of decreases in the deferred tax liabilities of certain of the Companys
indirect corporate subsidiaries. During the three and nine months ended
September 30, 2003, the Company recorded $0.5 million and $1.3 million of
income tax expense, respectively. The income tax expense recognized relates to
increases in the deferred tax liabilities and current federal and state income
tax expenses of certain of the Companys indirect corporate subsidiaries. Charter Holdco is currently under examination by the Internal Revenue Service
for the tax years ending December 31, 1999 and 2000. Management does not
expect the results of this examination to have a material adverse effect on the
Companys condensed consolidated
financial position or results of operations. 10. Contingencies As previously reported in the Companys 2003 Annual Report on Form 10-K and
2004 Quarterly Report on Form 10-Q for the quarter ended June 30, 2004,
fourteen putative federal class action lawsuits (the ''Federal Class Actions)
were filed against Charter and certain of its former and present officers and
directors in various jurisdictions allegedly on behalf of all purchasers of
Charters securities during the period from either November 8 or November 9,
1999 through July 17 or July 18, 2002. In general, the lawsuits alleged that
Charter utilized misleading accounting practices and failed to disclose these
accounting practices and/or issued false and misleading financial statements
and press releases concerning Charters operations and prospects. The Federal
Class Actions were specifically and individually identified in public filings
made by Charter prior to the date of this quarterly report. On September 12, 2002, a shareholders derivative suit (the ''State Derivative
Action) was filed in the Circuit Court of the City of St. Louis, State of
Missouri (the Missouri State Court) against Charter and its then current
directors, as well as its former auditors. A substantively identical
derivative action was later filed and consolidated into the State Derivative
Action. The plaintiffs allege that the individual defendants breached their
fiduciary duties by failing to establish and maintain adequate internal
controls and procedures. An action substantively identical to the State Derivative Action was filed
in March 2004. The State Derivative Actions were specifically and individually
identified in public filings made by Charter prior to the date of this
quarterly report. Separately, on February 12, 2003, a shareholders derivative suit (the ''Federal
Derivative Action) was filed against Charter and its then current directors
in the United States District Court for the Eastern District of Missouri. The
plaintiff in that suit alleged that the individual defendants breached their
fiduciary duties and grossly mismanaged Charter by failing to establish and
maintain adequate internal controls and procedures. The Federal Derivative
Action was identified in public filings made by Charter prior to the date of
this quarterly report. 12




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CC V HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT WHERE INDICATED) On August 5, 2004, Charter entered into Memoranda of Understanding setting
forth agreements in principle regarding settlement of the Federal Class
Actions, the State Derivative Action(s) and the Federal Derivative Action (the
Actions). In exchange for a release of all claims by plaintiffs against
Charter and its former and present officers and directors named in the Actions,
Charter will pay to the plaintiffs a combination of cash and equity
collectively valued at $144 million, which will include the fees and expenses
of plaintiffs counsel. Of this amount, $64 million will be paid in cash (by
Charters insurance carriers) and the balance will be paid in shares of Charter
Class A common stock having an aggregate value of $40 million and ten-year
warrants to purchase shares of Charter Class A common stock having an aggregate
warrant value of $40 million. The warrants would have an exercise price equal
to 150% of the fair market value (as defined) of Charter Class A common stock
as of the date of the entry of the order of final judgment approving the
settlement. In addition, Charter expects to issue additional shares of its
Class A common stock to its insurance carrier having an aggregate value of $5
million. As a result, in the second quarter of 2004, the Company recorded a
$13 million special charge on its consolidated statement of operations for the
nine months ended September 30, 2004 related to its portion of the expense
allocation for the aggregate value of the Charter Class A common stock and
warrants to be issued (see Note 8). The expense was allocated amongst
Charters indirect operating subsidiaries pro rata based on analog video
customers. Additionally, as part of the settlements, Charter will also commit
to a variety of corporate governance changes, internal practices and public
disclosures, some of which have already been undertaken and none of which are
inconsistent with measures Charter is taking in connection with the recent
conclusion of the SEC investigation described below. The settlement of each of
the lawsuits is conditioned upon, among other things, the parties approval and
execution of definitive settlement agreements with respect to the matters
described above, judicial approval of the settlements by the Court following
notice to the class, and dismissal of the consolidated derivative actions now
pending in Missouri State Court, which are related to the Federal Derivative
Action. In August 2002, Charter became aware of a grand jury investigation being
conducted by the U.S. Attorneys Office for the Eastern District of Missouri
into certain of its accounting and reporting practices, focusing on how Charter
reported customer numbers, and its reporting of amounts received from digital
set-top terminal suppliers for advertising. The U.S. Attorneys Office has
publicly stated that Charter is not a target of the investigation. Charter has
also been advised by the U.S. Attorneys office that no member of its board of
directors, including its Chief Executive Officer, is a target of the
investigation. On July 24, 2003, a federal grand jury charged four former
officers of Charter with conspiracy and mail and wire fraud, alleging improper
accounting and reporting practices focusing on revenue from digital set-top
terminal suppliers and inflated customer account numbers. On July 25, 2003,
one of the former officers who was indicted entered a guilty plea. Charter has
advised the Company that it is fully cooperating with the investigation. On November 4, 2002, Charter received an informal, non-public inquiry from the
staff of the SEC. The SEC issued a formal order of investigation dated January
23, 2003, and subsequently served document and testimony subpoenas on Charter
and a number of its former employees. The investigation and subpoenas
generally concerned Charters prior reports with respect to its determination
of the number of customers, and various of its accounting policies and
practices including its capitalization of certain expenses and dealings with
certain vendors, including programmers and digital set-top terminal suppliers.
On July 27, 2004, the SEC and Charter reached a final agreement to settle the
investigation. In the Settlement Agreement and Cease and Desist Order, Charter
agreed to entry of an administrative order prohibiting any future violations of
United States securities laws and requiring certain other remedial internal
practices and public disclosures. Charter neither admitted nor denied any
wrongdoing, and the SEC assessed no fine against Charter. Charter is generally required to indemnify each of the named individual
defendants in connection with the matters described above pursuant to the terms
of its bylaws and (where applicable) such individual defendants employment
agreements. In accordance with these documents, in connection with the pending
grand jury investigation, the now settled SEC investigation and the above
described lawsuits, some of Charters current and former directors and current
and former officers have been advanced certain costs and expenses incurred in
connection with their defense. In October 2001, two customers, Nikki Nicholls and Geraldine M. Barber, filed a
class action suit against Charter Holdco in South Carolina Court of Common
Pleas ( the ''South Carolina Class Action), purportedly on behalf of a class
of Charter Holdcos customers, alleging that Charter Holdco improperly charged
them a wire maintenance fee without request or permission. They also claimed
that Charter Holdco improperly required them to rent analog and/or digital
set-top terminals even though their television sets were ''cable ready. A
substantively identical case 13




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CC V HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT WHERE INDICATED) was filed in the Superior Court of Athens  Clarke County, Georgia by Emma S.
Tobar on March 26, 2002 (the Georgia Class Action), alleging a nationwide
class for these claims. The South Carolina Class Action and the Georgia Class
Action were identified in public filings made by Charter prior to the date of
this quarterly report. In April 2004, the parties to both the Georgia and South Carolina Class Actions
participated in a mediation. The mediator made a proposal to the parties to
settle the lawsuits. In May 2004, the parties accepted the mediators proposal
and reached a tentative settlement, subject to final documentation and court
approval. As a result of the tentative settlement, the Company recorded a
special charge of $0.9 million in its consolidated statement of operations in
the first quarter of 2004 (see Note 8). On July 8, 2004, the Superior Court of
Athens  Clarke County, Georgia granted a motion to amend the Tobar complaint
to add Nicholls, Barber and April Jones as plaintiffs in the Georgia Class
Action and to add any potential class members in South Carolina. The court
also granted preliminary approval of the proposed settlement on that date. A
hearing to consider final approval of the settlement is scheduled to occur on
November 10, 2004. On August 2, 2004, the parties submitted a joint request to
the South Carolina Court of Common Pleas to stay the South Carolina Class
Action pending final approval of the settlement and on August 17, 2004, that
court granted the parties request. In addition to the matters set forth above, Charter is also party to other
lawsuits and claims that arose in the ordinary course of conducting its
business. In the opinion of management, after taking into account recorded
liabilities, the outcome of these other lawsuits and claims are not expected to
have a material adverse effect on the Companys financial condition, results of
operations or its liquidity. 11. Minority Interest  Related Party As part of the acquisition of the cable systems owned by Bresnan Communications
Company Limited Partnership in February 2000, CC VIII, LLC (CC VIII), CC V
Holdings, LLCs indirect limited liability company subsidiary, issued, after
adjustments, 24,273,943 Class A preferred membership units (collectively, the
''CC VIII interest) with a 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). While
held by the Comcast sellers, the CC VIII interest was entitled to a 2% priority
return on its initial capital account and such priority return was entitled to
preferential distributions from available cash and upon liquidation of CC VIII.
While held by the Comcast sellers, the CC VIII interest generally did not
share in the profits and losses of CC VIII. 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 has become the holder of the CC VIII interest, indirectly through an
affiliate. Consequently, subject to the matters referenced in the next
paragraph, Mr. Allen generally thereafter will be allocated his pro rata share
(based on number of membership interests outstanding) of profits or losses of
CC VIII. In the event of a liquidation of CC VIII, Mr. Allen would be entitled
to a priority distribution with respect to the 2% priority return (which will
continue to accrete). Any remaining distributions in liquidation would be
distributed to CC V Holdings, LLC and Mr. Allen in proportion to CC V Holdings,
LLCs capital account and Mr. Allens capital account (which will equal the
initial capital account of the Comcast sellers of approximately $630 million,
increased or decreased by Mr. Allens pro rata share of CC VIIIs profits or
losses (as computed for capital account purposes) after June 6, 2003). The
limited liability company agreement of CC VIII does not provide for a mandatory
redemption of the CC VIII, interest. The CC VIII interest is
recorded as minority interest in the consolidated balance sheets. An issue has arisen as to whether the documentation for the Bresnan transaction
was correct and complete with regard to the ultimate ownership of the CC VIII
interest following consummation of the Comcast put right. Specifically, under
the terms of the Bresnan transaction documents that were entered into in June
1999, the Comcast sellers originally would have received, after adjustments,
24,273,943 Charter Holdco membership units, but due to an FCC regulatory issue
raised by the Comcast sellers shortly before closing, the Bresnan transaction
was modified to provide that the Comcast sellers instead would receive the
preferred equity interests in CC VIII represented by the CC VIII interest. As
part of the last-minute changes to the Bresnan transaction documents, a draft
amended version of the Charter Holdco limited liability company agreement was
prepared, and contract provisions were drafted for that agreement that would
have required an automatic exchange of the CC VIII interest for 24,273,943
Charter Holdco membership units if the Comcast sellers exercised the Comcast
put right and sold the CC VIII interest to Mr. Allen or his affiliates.
However, the provisions that would have required this automatic exchange did
not appear in the final version of the Charter Holdco limited liability company
agreement that was delivered and executed at the 14




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CC V HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT WHERE INDICATED) closing of the Bresnan transaction. The law firm that prepared the documents
for the Bresnan transaction brought this matter to the attention of Charter and
representatives of Mr. Allen in 2002. Thereafter, the board of directors of Charter formed a Special Committee
(currently comprised of Messrs. Merritt, Tory and Wangberg) to investigate the
matter and take any other appropriate action on behalf of Charter with respect
to this matter. After conducting an investigation of the relevant facts and
circumstances, the Special Committee determined that a scriveners error
had occurred in February 2000 in connection with the preparation of the
last-minute revisions to the Bresnan transaction documents and that, as a
result, Charter should seek the reformation of the Charter Holdco limited
liability company agreement, or alternative relief, in order to restore and
ensure the obligation that the CC VIII interest be automatically exchanged for
Charter Holdco units. The Special Committee further determined that, as part
of such contract reformation or alternative relief, Mr. Allen should be
required to contribute the CC VIII interest to Charter Holdco in exchange for
24,273,943 Charter Holdco membership units. The Special Committee also
recommended to the board of directors of Charter that, to the extent the
contract reformation is achieved, the board of directors should consider
whether the CC VIII interest should ultimately be held by Charter Holdco or
Charter Holdings or another entity owned directly or indirectly by them. Mr. Allen disagrees with the Special Committees determinations described above
and has so notified the Special Committee. Mr. Allen contends that the
transaction is accurately reflected in the transaction documentation and
contemporaneous and subsequent company public disclosures. The parties engaged in a process of non-binding mediation to seek to resolve
this matter, without success. The Special Committee is evaluating what further
actions or processes it may undertake to resolve this dispute. To accommodate
further deliberation, each party has agreed to refrain from initiating legal
proceedings over this matter until it has given at least ten days prior notice
to the other. In addition, the Special Committee and Mr. Allen have determined
to utilize the Delaware Court of Chancerys program for mediation of complex
business disputes in an effort to resolve the CC VIII interest dispute. If the
Special Committee and Mr. Allen are unable to reach a resolution through that
mediation process or to agree on an alternative dispute resolution process, the
Special Committee intends to seek resolution of this dispute through judicial
proceedings in an action that would be commenced, after appropriate notice, in
the Delaware Court of Chancery against Mr. Allen and his affiliates seeking
contract reformation, declaratory relief as to the respective rights of the
parties regarding this dispute and alternative forms of legal and equitable
relief. The ultimate resolution and financial impact of the dispute are not
determinable at this time. 15




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS. Reference is made to Certain Trends and Uncertainties of this section and
Cautionary Statement Regarding Forward-Looking Statements, which describe
important factors that could cause actual results to differ from expectations
and non-historical information contained herein. In addition, this section
should be read in conjunction with the annual reports on Form 10-K of CC V
Holdings, LLC (CC V Holdings) and subsidiaries and Charter Communications
Holdings, LLC (Charter Holdings) for the year ended December 31, 2003. We, us and our refer to CC V Holdings and subsidiaries. Our indirect
parent companies refers collectively to CCO NR Holdings, Charter
Communications Operating, LLC (Charter Operating), CCO Holdings, LLC (CCO
Holdings), CCH II, LLC (CCH II), CCH I, LLC (CCH I), Charter Holdings,
Charter Communications Holding Company, LLC (Charter Holdco) and Charter
Communications, Inc. (Charter). INTRODUCTION During 2003, we and our indirect parents, Charter and Charter Holdco, undertook
a number of transition activities including reorganizing our workforce,
adjusting our cable video pricing and packages, completing customer call center
consolidations and implementing billing conversions. Due to the focus on such
activities and certain financial constraints, we reduced spending on marketing
our products and services. We believe the reduced marketing activities and
other necessary operational changes negatively impacted customer growth and
acquisition, primarily during the first half of 2003. For the nine months ended September 30, 2004, our loss from operations, which
includes depreciation and amortization expense and impairment of franchises but
excludes interest expense, was $119 million. For the nine months ended
September 30, 2003, our income from operations was $87 million. We had a
negative operating margin of 23% for the nine months ended September 30, 2004.
For the nine months ended September 30, 2003, we had an operating margin of
18%. The decrease in income from operations and operating margins from 2003 to
2004 was principally due to the impairment of franchises of $180 million
recorded in the third quarter of 2004. Operating margins for the nine months
ended September 30, 2004 compared to the nine months ended September 30, 2003
were also negatively impacted by increases in programming and service costs. We are required to pay interest in cash on our public notes each June and
December. In addition, our outstanding public notes will mature in 2008 and we
have committed to repurchase them if certain conditions are met. See
Liquidity and Capital Resources. We expect that we will rely on loans and
capital contributions from our indirect parent companies to repay our public
notes at maturity or to redeem them. However, there can be no assurance that
our indirect parent companies will have sufficient liquidity to provide funds
to us to satisfy this payment when due. 16




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RESULTS OF OPERATIONS Nine Months Ended September 30, 2004 Compared to Nine Months Ended September
30, 2003 The following table sets forth the percentages of revenues that items in the
accompanying condensed consolidated statements of operations constituted for
the periods presented (dollars in thousands): Nine Months Ended September 30,2004
    
    2003Revenues
    
    $
    527,398
    
    
    
    100
    %
    
    $
    495,717
    
    
    
    100
    %Costs and expenses:Operating (excluding depreciation and amortization)
    
    
    209,893
    
    
    
    40
    %
    
    
    188,632
    
    
    
    38
    %Selling, general and administrative
    
    
    98,582
    
    
    
    19
    %
    
    
    92,732
    
    
    
    19
    %Depreciation and amortization
    
    
    138,504
    
    
    
    26
    %
    
    
    126,126
    
    
    
    25
    %Impairment of franchises
    
    
    180,250
    
    
    
    34
    %
    
    
    
    
    
    
    Loss on sale of assets, net
    
    
    552
    
    
    
    
    
    
    
    698
    
    
    
    Option compensation expense, net
    
    
    4,379
    
    
    
    1
    %
    
    
    50
    
    
    
    Special charges, net
    
    
    13,971
    
    
    
    3
    %
    
    
    370
    
    
    
    646,131
    
    
    
    123
    %
    
    
    408,608
    
    
    
    82
    %Income (loss) from operations
    
    
    (118,733
    )
    
    
    (23
    )%
    
    
    87,109
    
    
    
    18
    %Interest expense, net
    
    
    (58,668
    )
    
    
    
    
    
    
    (68,394
    )Gain on derivative instruments and hedging activities, net
    
    
    11,223
    
    
    
    
    
    
    
    2,312Loss on extinguishment of debt
    
    
    (5,575
    )
    
    
    
    
    
    
    Other, net
    
    
    (4
    )
    
    
    
    
    
    
    (53,024
    )
    
    
    
    
    
    
    (66,082
    )Income (loss) before minority interest, income
taxes and cumulative effect of accounting change
    
    
    (171,757
    )
    
    
    
    
    
    
    21,027Minority interest
    
    
    24,958
    
    
    
    
    
    
    
    (10,128
    )Income (loss) before income taxes and cumulative
effect of accounting change
    
    
    (146,799
    )
    
    
    
    
    
    
    10,899Income tax benefit (expense)
    
    
    3,794
    
    
    
    
    
    
    
    (1,344
    )Income (loss) before cumulative effect of
accounting change
    
    
    (143,005
    )
    
    
    
    
    
    
    9,555Cumulative effect of accounting change, net of tax
    
    
    (74,528
    )
    
    
    
    
    
    
    Net income (loss)
    
    $
    (217,533
    )
    
    
    
    
    
    $
    9,555
 Revenues.Revenues increased by $32 million, or 6%, to $527 million for the
nine months ended September 30, 2004 from $496 million for the nine months
ended September 30, 2003. This increase is principally the result of an
increase in the number of digital video and high-speed data customers, as well
as price increases for video and high-speed data services, and is offset
partially by a decrease in analog video customers. Our goal is to increase
revenues by stabilizing our analog video customer base, implementing price
increases on certain services and packages and increasing revenues from
incremental high-speed data services, digital video and advanced products and
services, such as telephony using voice-over-Internet protocol, video on demand
(VOD), high definition television and digital video recorder service provided
to our customers. 17




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##### Table of Contents



Revenues by service offering were as follows (dollars in thousands): Nine Months Ended September 30,2004
    
    2003
    
    2004 over 2003% of
    
    
    
    
    
    % ofRevenues
    
    Revenues
    
    Revenues
    
    Revenues
    
    Change
    
    % ChangeVideo
    
    $
    347,212
    
    
    
    66
    %
    
    $
    344,630
    
    
    
    70
    %
    
    $
    2,582
    
    
    
    1
    %High-speed data
    
    
    89,180
    
    
    
    17
    %
    
    
    66,975
    
    
    
    13
    %
    
    
    22,205
    
    
    
    33
    %Advertising sales
    
    
    27,148
    
    
    
    5
    %
    
    
    23,524
    
    
    
    5
    %
    
    
    3,624
    
    
    
    15
    %Commercial
    
    
    34,911
    
    
    
    7
    %
    
    
    29,516
    
    
    
    6
    %
    
    
    5,395
    
    
    
    18
    %Other
    
    
    28,947
    
    
    
    5
    %
    
    
    31,072
    
    
    
    6
    %
    
    
    (2,125
    )
    
    
    (7
    )%$
    527,398
    
    
    
    100
    %
    
    $
    495,717
    
    
    
    100
    %
    
    $
    31,681
    
    
    
    6
    %
 Video revenues consist primarily of revenues from analog and digital video
services provided to our non-commercial customers. Video revenues increased by
approximately $3 million, or 1%, to $347 million for the nine months ended
September 30, 2004 as compared to $345 million for the nine months ended
September 30, 2003. The increase was primarily the result of price increases
and an increase in digital video customers, partially offset by a decline in
analog video customers. Revenues from high-speed data services provided to our non-commercial customers
increased $22 million, or 33%, from $67 million for the nine months ended
September 30, 2003 to $89 million for the nine months ended September 30, 2004.
The increase was primarily the result of an increase in high-speed data
customers and an increase in the average price of the service. Advertising sales revenues consist primarily of revenues from commercial
advertising customers, programmers and other vendors. Advertising sales
increased $4 million, or 15%, from $24 million for the nine months ended
September 30, 2003 to $27 million for the nine months ended September 30, 2004,
primarily as a result of an increase in national advertising campaigns and
election related advertising, offset partially by a decrease in advertising
revenue from vendors. For the nine months ended September 30, 2004 and 2003,
we received $0.1 million and $0.8 million, respectively, in advertising revenue
from vendors. Commercial revenues consist primarily of revenues from cable video and
high-speed data services to our commercial customers. Commercial revenues
increased approximately $5 million, or 18%, from $30 million for the nine
months ended September 30, 2003 to $35 million for the nine months ended
September 30, 2004, primarily as a result of an increase in commercial
high-speed data revenues. Other revenues consist of revenues from franchise fees, telephony revenue,
equipment rental, customer installations, home shopping, dial-up Internet
service, late payment fees, wire maintenance fees and other miscellaneous
revenues. Other revenues decreased $2 million, or 7%, from $31 million for the
nine months ended September 30, 2003 to $29 million for the nine months ended
September 30, 2004. The decrease was primarily the result of a decrease in
installation revenue. Operating Expenses.Operating expenses increased $21 million, or 11%, to $210
million for the nine months ended September 30, 2004 from $189 million for the
nine months ended September 30, 2003. Programming costs included in the
accompanying condensed consolidated statements of operations were $138 million
and $125 million, representing 21% and 31% of total costs and expenses for the
nine months ended September 30, 2004 and 2003, respectively. Key expense
components as a percentage of revenues were as follows (dollars in thousands): Nine Months Ended September 30,2004
    
    2003
    
    2004 over 2003% of
    
    
    
    
    
    % ofExpenses
    
    Revenues
    
    Expenses
    
    Revenues
    
    Change
    
    % ChangeProgramming
    
    $
    138,013
    
    
    
    26
    %
    
    $
    124,984
    
    
    
    25
    %
    
    $
    13,029
    
    
    
    10
    %Advertising sales
    
    
    10,603
    
    
    
    2
    %
    
    
    8,940
    
    
    
    2
    %
    
    
    1,663
    
    
    
    19
    %Service
    
    
    61,277
    
    
    
    12
    %
    
    
    54,708
    
    
    
    11
    %
    
    
    6,569
    
    
    
    12
    %$
    209,893
    
    
    
    40
    %
    
    $
    188,632
    
    
    
    38
    %
    
    $
    21,261
    
    
    
    11
    %
 18




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##### Table of Contents



Programming costs consist primarily of costs paid to programmers for analog,
premium and digital channels and pay-per-view programming. The increase in
programming costs of $13 million, or 10%, for the nine months ended September
30, 2004 over the nine months ended September 30, 2003, was a result of price
increases, particularly in sports programming, an increased number of channels
carried on our systems and an increase in digital video customers, partially
offset by decreases in analog video customers. Programming costs were offset
by the amortization of payments received from programmers in support of
launches of new channels of $6 million for each of the nine months ended
September 30, 2004 and 2003, respectively. Programming costs for the nine
months ended September 30, 2003 also include a $1 million reduction related to
changes in estimates of programmer-related disputes, which represented 1% of
the nine months programming costs. Our cable programming costs have increased in every year we have operated in
excess of customary inflationary and cost-of-living type increases, and we
expect them to continue to increase because of a variety of factors, including
additional programming being provided to customers as a result of system
rebuilds that increase channel capacity, increased costs to produce or purchase
programming, increased costs for previously discounted programming and
inflationary or negotiated annual increases. Our increasing programming costs
will result in declining operating margins for our video services to the extent
we are unable to pass on cost increases to our customers. We expect to
partially offset any resulting margin compression from our traditional video
services with revenue from advanced video services, increased high-speed data
revenues, advertising revenues and commercial service revenues. Advertising sales expenses consist of costs related to traditional advertising
services provided to advertising customers, including salaries, benefits and
commissions. Advertising sales expenses increased $2 million, or 19%,
primarily due to increased salary, benefit and commission costs. Service costs
consist primarily of service personnel salaries and benefits, franchise fees,
system utilities, Internet service provider fees, maintenance and pole rent
expense. The increase in service costs of $7 million, or 12%, resulted
primarily from additional activity associated with ongoing infrastructure
maintenance. Selling, General and Administrative Expenses.Selling, general and
administrative expenses increased by $6 million, or 6%, from $93 million for
the nine months ended September 30, 2003 to $99 million for the nine months
ended September 30, 2004. Key components of expense as a percentage of
revenues were as follows (dollars in thousands): Nine Months Ended September 30,2004
    
    2003
    
    2004 over 2003% of
    
    
    
    
    
    % ofExpenses
    
    Revenues
    
    Expenses
    
    Revenues
    
    Change
    
    % ChangeGeneral and administrative
    
    $
    84,346
    
    
    
    16
    %
    
    $
    80,962
    
    
    
    16
    %
    
    $
    3,384
    
    
    
    4
    %Marketing
    
    
    14,236
    
    
    
    3
    %
    
    
    11,770
    
    
    
    3
    %
    
    
    2,466
    
    
    
    21
    %$
    98,582
    
    
    
    19
    %
    
    $
    92,732
    
    
    
    19
    %
    
    $
    5,850
    
    
    
    6
    %
 General and administrative expenses consist primarily of salaries and benefits,
rent expense, billing costs, call center costs, internal network costs, bad
debt expense and property taxes. The increase in general and administrative
expenses of $3 million, or 4%, resulted primarily from increases in insurance
costs, legal costs and third party call center costs. Marketing expenses increased by $2 million, or 21%, as a result of an increased
investment in marketing and branding campaigns. Depreciation and Amortization.Depreciation and amortization expense increased
by $12 million from $126 million for the nine months ended September 30, 2003
to $139 million for the nine months ended September 30, 2004. The increase in
depreciation related to an increase in capital expenditures. Impairment of Franchises.We performed an impairment assessment during the
third quarter 2004 using an independent third-party appraiser. The use of
lower projected growth rates and the resulting revised estimates of future cash
flows in our valuation, primarily as a result of increased competition, led to
the recognition of a $180 million impairment charge for the nine months ended
September 30, 2004. 19




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##### Table of Contents



Loss on Sale of Assets, Net.Loss on sale of assets of $0.6 million and $0.7
million for the nine months ended September 30, 2004 and 2003, respectively,
represents the loss realized on the disposition of fixed assets. Option Compensation Expense, Net. Option compensation expense of $4 million
and $50 thousand for the nine months ended September 30, 2004 and 2003,
respectively, primarily represents the expense related to options granted
following the adoption of Statement of Financial Accounting Standards (SFAS)
No. 123, Accounting for Stock-Based Compensation. Special Charges, Net.Special charges of $14 million for the nine months ended
September 30, 2004 represents approximately $13 million of aggregate value of
the Charter Class A common stock and warrants to purchase Charter Class A
common stock contemplated to be issued as part of a settlement of the
consolidated federal class actions and federal derivative action lawsuits,
approximately $0.9 million of litigation costs related to the tentative
settlement of a South Carolina national class action suit, all of which
settlements are subject to final documentation and court approval and
approximately $0.6 million of severance and related costs of our workforce
reduction. Special charges for the nine months ended September 30, 2004 were
offset by $0.4 million received from a third party in settlement of a dispute.
Special charges of $0.4 million for the nine months ended September 30, 2003
primarily represents approximately $1 million of severance and related costs of
our workforce reduction partially offset by a $0.3 million reversal of the
severance accrual and a $0.3 million credit from a settlement from the Internet
service provider Excite@Home related to the conversion of about 145,000
high-speed data customers to our Charter Pipeline service in 2001. We expect
to continue to record additional special charges in 2004 related to the
continued reorganization of our operations. Interest Expense, Net.Net interest expense decreased by approximately $10
million, or 14%, to $59 million for the nine months ended September 30, 2004
from $68 million for the nine months ended September 30, 2003. The decrease
was primarily the result of a decrease in our weighted average debt outstanding
to $1.2 billion during the nine months ended September 30, 2004 from $1.3
billion during the nine months ended September 30, 2003 offset by an increase
in our average borrowing rate from 6.3% during the nine months ended September 30,
2003 to 6.8% during the nine months ended September 30, 2004. Gain on Derivative Instruments and Hedging Activities, Net.Net gain on
derivative instruments and hedging activities increased $9 million from $2
million for the nine months ended September 30, 2003 to $11 million for the
nine months ended September 30, 2004. The increase is primarily the result of
an increase in gains on interest rate agreements that do not qualify for hedge
accounting under SFAS No. 133, which increased from $2 million for the nine
months ended September 30, 2003 to $11 million for the nine months ended
September 30, 2004. Loss on Extinguishment of Debt.Loss on extinguishment of debt of $6 million
for the nine months ended September 30, 2004 represents the write-off of
deferred financing fees and third party costs related to the
refinancing of our credit facilities in April 2004. Other, net.Net other expense of $4 thousand for the nine months ended
September 30, 2004 primarily represents various miscellaneous expenses. Minority Interest.Minority interest represents the 2% accretion of the
preferred membership interests in CC VIII, LLC, and since June 6, 2003, the pro
rata share of the profits and losses of CC VIII allocated to Mr. Allen. Income Tax Benefit (Expense).Income tax benefit of $4 million and income tax
expense of $1 million was recognized for the nine months ended September 30,
2004 and 2003, respectively. The income tax benefit recognized in the nine months ended September 30, 2004
was directly related to the impairment of franchises as discussed
above. The income tax expense recognized in the nine months ended September 30, 2003
represents increases in the deferred tax liabilities and current federal and
state income tax expenses of certain of CC V Holdings indirect corporate
subsidiaries. Cumulative Effect of Accounting Change, Net of Tax.Cumulative effect of
accounting change of $75 million (net of minority interest effects of $19
million and tax effects of $2 million) in 2004 represents the impairment charge
recorded as a result of our adoption of Topic D-108, Use of the Residual Method
to Value Acquired Assets Other than Goodwill, which requires the direct method
of separately valuing all intangible assets. Net Income (Loss).Net income decreased by $227 million from income of $10
million for the nine months ended September 30, 2003 to a loss of $218 million
for the nine months ended September 30, 2004 as a result of the 20




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combination of factors described above. LIQUIDITY AND CAPITAL RESOURCES Introduction This section contains a discussion of our liquidity and capital resources,
including a discussion of our cash position, sources and uses of cash, access
to credit facilities and other financing sources, historical financing
activities, cash needs, capital expenditures and outstanding debt. Overview Our business requires significant cash to fund capital expenditures, debt
service costs and ongoing operations. We have historically funded our
operating activities and capital requirements through cash flows from operating
activities, borrowings under our credit facilities, equity contributions from
our indirect parent companies, borrowings from related parties and cash on
hand. The mix of funding sources changes from period to period, but for the
nine months ended September 30, 2004, approximately 96% of our funding
requirements were met from cash flows from operating activities and 4% were
from cash on hand. We expect that our mix of sources of funds will continue to
change in the future based on overall needs relative to our ability to generate
cash flows from operating activities and our indirect parent companies
abilities to make additional contributions to us. In April 2004, our indirect parent, Charter Operating sold notes and amended
and restated its credit facilities, and used the proceeds of those
transactions, among other things, to refinance the credit facilities of its
subsidiaries, including our credit facilities, all in one concurrent
transaction. The transaction resulted, among other things, in Charter
Operating being substituted as the lender in place of the banks under the CC
VIII Operating credit facilities. As of September 30, 2004 and December 31, 2003, long-term debt totaled
approximately $1.2 billion. At September 30, 2004 and December 31, 2003, this
debt was comprised of approximately $1.0 billion of debt under the CC VIII
Operating credit facilities and $113 million of high yield debt. As of
September 30, 2004, the weighted average interest rate on the CC VIII Operating
credit facilities was 6.8% and the weighted average interest rate on our high
yield debt was approximately 11.9%, resulting in a blended weighted average
interest rate of 7.3%. As of December 31, 2003, the weighted average interest
rate on the CC VIII Operating credit facilities was approximately 5.6%, and the
weighted average interest rate on our high yield debt was approximately 11.9%,
resulting in a blended weighted average interest rate of 6.2%. As of September
30, 2004, approximately 71% of our debt effectively bore fixed interest rates,
including the effects of our interest rate hedge agreements, as compared to
approximately 70% at December 31, 2003. We expect to remain in compliance with the covenants under our indenture. We
expect that our cash on hand and cash flows from operating activities will be
sufficient to satisfy our liquidity needs through the end of 2004. However, as
the principal amounts owing under our debt obligations become due, sustaining
our liquidity will become more difficult. Cash interest accrues on the CC V
Holdings notes at the annual rate of 11.875% and is payable each June and
December until the CC V Holdings notes mature in December 2008. A
default under the indenture governing the CC V Holdings notes could result in
the acceleration of our payment obligations under that debt and, under certain
circumstances, in cross-defaults under our affiliates other debt obligations.
Cash flows from operating activities and other sources of funds may
not be sufficient, on their own, to permit us to satisfy these obligations.
Traditionally, we have relied on our parents ability to access the public debt
and equity markets, as well as borrowings under our parents credit facilities,
as a source of capital.
There can be no assurance that our indirect parent companies will
have sufficient liquidity to provide funds to us to satisfy this
payment when due. In addition, a default under the covenants
governing our indenture could result in the acceleration of our
payment obligations under our debt and, under certain circumstances,
in cross-defaults under our affiliates debt obligations, which
could adversely affect our indirect parent companies ability to
provide us with funding. Increased funding requirements from customer demand for digital video,
high-speed data or telephony services, or the need to offer other advanced
services in certain of our markets in order to compete effectively could make
us further reliant on our indirect parent companies ability to make loans and
capital contributions to us. If we are unable to receive adequate financing to
fund operations, our financial condition and results of operations could suffer
materially. No assurances can be given that we will not experience liquidity problems
because of adverse market conditions, increased competition or other
unfavorable events, or if we do not obtain sufficient additional financing on a
timely basis as our debt becomes due. If, at any time, additional capital or
borrowing capacity is required beyond amounts internally generated or
available through our indirect parent companies existing credit
facilities or in traditional debt financings, we would consider: 21




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##### Table of Contents




    
    further reducing our expenses and capital expenditures, which would
likely impair our ability to increase revenue;  
    
    selling assets; or  
    
    seeking funding from our indirect parent companies, including from
the issuance of debt or equity by our indirect parent companies,
including Charter, Charter Holdings, CCH II, CCO Holdings or Charter
Operating, the proceeds of which could be loaned or contributed to us. If the above strategies are not successful, ultimately, we could be forced to
restructure our obligations or seek protection under the bankruptcy laws. In
addition, if we need to raise additional capital through the issuance of equity
or find it necessary to engage in a recapitalization or other similar
transaction, our noteholders might not receive all principal and interest
payments to which they are contractually entitled. Although Paul G. Allen, Charters principal shareholder, and his
affiliates have purchased equity from Charter and Charter Holdco in the past,
there is no obligation for Mr. Allen or his affiliates to
purchase equity from or contribute or lend funds to
us or our indirect parent companies or subsidiaries in the future. Changes to CC VIII Operating Credit Facilities In April 2004, Charter Operating sold senior second lien notes and amended and
restated its credit facilities and used the additional borrowings under the
credit facilities, together with proceeds from the sale of
the notes, to refinance the credit facilities of its subsidiaries, including
the CC VIII Operating credit facilities. The effect of the transaction was,
among other things, to substitute Charter Operating as the lender in place of
the banks under the CC VIII Operating credit facilities. In connection with
the transaction, all principal payments prior to maturity were eliminated from
the CC VIII Operating credit facilities, and all amounts then outstanding
(approximately $1.0 billion principal amount) will become payable at maturity
(extended from June 2007 and February 2008 to October 2011). Outstanding
borrowings under the CC VIII Operating credit facilities bear interest, at CC
VIII Operatings election, at a base rate or the Eurodollar rate, as defined,
plus a margin of 3.0% for Eurodollar loans and 2.0% for base rate loans. CC
VIII Operatings obligations under the credit facilities continue to be
guaranteed by its immediate parent company, CC VIII Holdings, LLC, and by the
subsidiaries of CC VIII Operating other than immaterial subsidiaries, and to be
secured by pledges of equity interests and intercompany notes held by CC VIII
Operating and the guarantors under the CC VIII Operating credit facilities. The CC VIII Operating credit facilities contain typical
representations and warranties, affirmative covenants, reporting requirements,
and negative covenants, but do not contain financial
covenants that measure performance against standards set for leverage, debt
service coverage, or operating cash flow coverage of cash interest expense. In
addition, an event of default under the Charter Operating
credit facilities would constitute a default under the CC VIII
Operating credit facilities. Requirement that CC V Holdings Notes be Redeemed Under Certain Circumstances In connection with the amendment and restatement of the Charter
Operating credit facilities, a requirement was imposed that the CC V Holdings,
LLC senior discount notes be redeemed within 45 days after Charter Holdings
leverage ratio (determined under the indentures governing the senior notes and
senior discount notes issued by Charter Holdings) is determined to be below
8.75 to 1.0, provided the ratio then remains below that level. As of September
30, 2004, Charter Holdings leverage ratio was above 8.75 to 1.0. Historical Operating, Financing and Investing Activities We held $10 million in cash and cash equivalents as of September 30, 2004
compared to $14 million as of December 31, 2003. Operating Activities.Net cash provided by operating activities for the nine
months ended September 30, 2004 and 2003 was $105 million and $88 million,
respectively. Net cash flows from operating activities provided approximately
$16 million more cash during the nine months ended September 30, 2004 than the
corresponding period in 2003, primarily as a result of changes in operating
assets and liabilities that used $18 million less cash during the nine months
ended September 30, 2004 compared to the corresponding period in 2003. Investing Activities.Net cash used in investing activities for the nine months
ended September 30, 2004 and 2003 was $65 million and $57 million,
respectively. Investing activities used $8 million more cash during the nine
months ended September 30, 2004 compared to the corresponding period in 2003,
primarily as a result of an 22




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increase in purchases of property, plant and equipment of approximately $19
million partially offset by a decrease of approximately $11 million in our
change in accrued expenses related to capital expenditures. Financing Activities.Net cash used in financing activities for the nine months
ended September 30, 2004 and 2003 was $44 million and $73 million,
respectively. Financing activities used less cash during the nine months ended
September 30, 2004 compared to the corresponding period in 2003, primarily as a
result of a decrease in net repayments of long-term debt of $60 million
partially offset by an increase in distributions to managers of $31 million. Capital Expenditures We have significant ongoing capital expenditure requirements. Capital
expenditures were $68 million and $48 million for the nine months ended
September 30, 2004 and 2003, respectively. The majority of the capital
expenditures for the nine months ended September 30, 2004 and 2003 related to
customer premise equipment costs. Upgrading our cable systems has enabled us to offer digital television,
high-speed data services, VOD, interactive services, additional channels and
tiers, and expanded pay-per-view options to a larger customer base. Our
capital expenditures are funded primarily from cash flows from operating
activities. In addition, during the nine months ended September 30, 2004 and
2003, our liabilities related to capital expenditures increased $2 million and
decreased $9 million, respectively. During 2004, we expect to spend a total of $85 million to $95 million on
capital expenditures. We expect that the nature of these expenditures will
continue to shift from upgrade/rebuild costs to customer premise equipment and
scalable infrastructure costs. We expect to fund capital expenditures for 2004
primarily from cash flows from operating activities. CERTAIN TRENDS AND UNCERTAINTIES The following discussion highlights a number of trends and uncertainties, in
addition to those discussed elsewhere in this quarterly report and in Item 7.
Managements Discussion and Analysis of Financial Condition and Results of
Operations in our 2003 Annual Report on Form 10-K, that could materially
impact our business, results of operations and financial condition. Restrictive Covenants.The indenture governing our publicly held notes contains
a number of significant covenants that could adversely impact our business. In
particular, our indenture restricts our and our subsidiaries ability to:  
    
    pay dividends or make other distributions;  
    
    make certain investments or acquisitions;  
    
    enter into related party transactions;  
    
    dispose of assets or merge;  
    
    incur additional debt;  
    
    issue equity;  
    
    repurchase or redeem equity interests and debt;  
    
    grant liens; and  
    
    pledge assets. Our ability to comply with these provisions may be affected by events beyond
our control. The breach of any of these covenants will result in a default
under the indenture governing our publicly held notes, which could result in
acceleration of such notes and in certain cases, could result in cross-defaults
under our affiliates debt obligations. Any default under our indenture might
adversely affect our growth, our financial condition and our results of
operations and the ability to make payments on our publicly held notes. For
more information, see the section above entitled  Liquidity and Capital
Resources. Liquidity.Our business requires significant cash to fund capital expenditures,
debt service costs and ongoing operations. Our ongoing operations will depend
on our ability to generate cash and to secure financing in the future. We have
historically funded liquidity and capital requirements through cash flows from
operating activities, borrowings under the credit facilities of our
subsidiary, equity contributions from our indirect parent companies,
borrowings from related parties and cash on hand. As the principal amounts of our public notes become due in 2008, it is unclear
whether we will have access to sufficient capital to satisfy these principal
repayment obligations. Cash flows from operating activities and other 23




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existing sources of funds may not be sufficient, on their own, to permit us to
satisfy these obligations. In addition, in connection with the amendment and
restatement of the Charter Operating credit facilities, a requirement was
imposed that the CC V Holdings, LLC senior discount notes be redeemed within 45
days after Charter Holdings leverage ratio (determined under the indentures
governing the senior notes and senior discount notes issued by Charter
Holdings) is determined to be below 8.75 to 1.0, provided the ratio would
remain below that level after giving effect to the redemption. As of September 30, 2004, Charter Holdings leverage
ratio was above 8.75 to 1.0. If our business does not generate sufficient cash flow from operating
activities, and sufficient future contributions are not available to us from
other sources of financing, we may not be able to repay or redeem our debt,
grow our business, respond to competitive challenges, or fund our other
liquidity and capital needs. If we need to seek alternative sources of financing, there can be no assurance
that we will be able to obtain the requisite financing or that such financing,
if available, would not have terms that are materially disadvantageous to our
existing debt holders. Although Mr. Allen and his affiliates have purchased
equity from Charter and Charter Holdco in the past, there is no obligation for
Mr. Allen or his affiliates to purchase equity or contribute or lend funds to
us or to our indirect parent companies or subsidiaries in the future. If we or our indirect parent companies are unable to raise needed capital,
ultimately, we could be forced to restructure our obligations or seek
protection under the bankruptcy laws. In addition, if we find it necessary to
engage in a recapitalization or other similar transaction, our noteholders
might not receive all principal and interest payments to which they are
contractually entitled. For more information, see the section above entitled  Liquidity and Capital
Resources. Parent-Level Liquidity Concerns. Our indirect parent companies have a
significant amount of debt, of which approximately $618 million will
mature in 2005. Currently, our indirect parent companies do not expect that
cash flows from operating activities and amounts available under their credit
facilities will be sufficient to fund their operations and permit them to
satisfy their principal repayment obligations that come due in 2005 and
thereafter. In the event that our indirect parent companies are not able to
demonstrate that they have adequate access to liquidity in an amount sufficient
to fund their business and to make principal repayment obligations that come
due in 2005 and thereafter, our indirect parent companies and our ability to
receive an unqualified opinion from an independent registered public accounting
firm may be adversely affected. The failure of Charter Operating to receive an
unqualified opinion would constitute a default under its credit facilities.
In addition, an event of default under the
Charter Operating credit facilities would constitute a default under
the CC VIII Operating credit facilities.
Any financial or liquidity problems of our indirect parent companies, including
the inability of any of our indirect parent companies to comply with the
covenants under their indentures or credit facilities, could cause
serious disruption to our business and have a material adverse effect on our
business and results of operations. Any such event could adversely
impact our credit rating, and our relations with customers and suppliers, which
could in turn further impair our ability to obtain financing and operate our
business. Further, to the extent that any such event results in a change of
control of Charter (whether through a bankruptcy, receivership or other
reorganization of Charter and/or Charter Holdco, or otherwise), it could
require a change of control repurchase offer under our outstanding notes. Securities Litigation and Government Investigations.A number of putative
federal class action lawsuits have been filed against Charter and certain of
its former and present officers and directors alleging violations of securities
laws, which have been consolidated for pretrial purposes. In addition, a
number of other lawsuits have been filed against Charter in other
jurisdictions. A shareholders derivative suit was filed in the U.S. District
Court for the Eastern District of Missouri against Charter and certain of its
directors and officers. Also, three shareholders derivative suits were filed
in Missouri state court against Charter, its then current directors and its
former independent auditor, which actions have been consolidated. The federal
shareholders derivative suit and the consolidated derivative suit each allege
that the defendants breached their fiduciary duties. In addition, Charter has
recently entered into Memoranda of Understanding setting forth proposed terms
of settlement for the above described class actions and derivative suits.
Settlement of those actions under the terms of the memoranda is subject to a
number of conditions, and there can therefore be no assurance that the actions
will be settled on those terms or at all. For more information, see the
section below entitled  Contingencies. In August 2002, Charter became aware of a grand jury investigation being
conducted by the U.S. Attorneys Office for the Eastern District of Missouri
into certain of its accounting and reporting practices focusing on how it
reported customer numbers, and its reporting of amounts received from digital
set-top terminal suppliers for advertising. The U.S. Attorneys Office has
publicly stated that Charter is not a target of the investigation. Charter has
also been advised by the U.S. Attorneys Office that no member of its board of
directors, including its Chief Executive Officer, is a target of the
investigation. On July 24, 2003, a federal grand jury charged four former
officers of Charter with 24




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conspiracy and mail and wire fraud, alleging improper accounting and reporting
practices focusing on revenue from digital set-top terminal suppliers and
inflated customer account numbers. On July 25, 2003, one of the former
officers who was indicted entered a guilty plea. Charter has advised us that
it is fully cooperating with the investigation. On November 4, 2002, Charter received an informal, non-public inquiry from the
staff of the SEC. The SEC issued a formal order of investigation dated January
23, 2003, and subsequently served document and testimony subpoenas on Charter
and a number of its former employees. The investigation and subpoenas
generally concerned Charters prior reports with respect to its determination
of the number of customers and various of its accounting policies and practices
including its capitalization of certain expenses and dealings with certain
vendors, including programmers and digital set-top terminal suppliers. On July
27, 2004, the SEC and Charter reached a final agreement to settle the
investigation. In the Settlement Agreement and Cease and Desist Order, Charter
agreed to entry of an administrative order prohibiting any future violations of
United States securities laws and requiring certain other remedial internal
practices and public disclosures. Charter neither admitted nor denied any
wrongdoing, and the SEC assessed no fine against Charter. Moreover, due to the inherent uncertainties of litigation and investigations,
and due to the remaining conditions to the finalization of our anticipated
settlements, Charter cannot predict with certainty the ultimate outcome of
these proceedings. An unfavorable outcome in the lawsuits or the government
investigation described above could result in substantial potential liabilities
and have a material adverse effect on our consolidated financial condition and
results of operations or our liquidity. Further, these proceedings, and
Charters actions in response to these proceedings, could result in substantial
additional defense costs and the diversion of managements attention, and could
adversely affect our ability to execute our business and financial strategies. Competition.The industry in which we operate is highly competitive, and has
been more so in recent years. In some instances, we compete against companies
with fewer regulatory burdens, easier access to financing, greater personnel
resources, greater brand name recognition and long-established relationships
with regulatory authorities and customers. Increasing consolidation in the
cable industry and the repeal of certain ownership rules may provide additional
benefits to certain of our competitors, either through access to financing,
resources or efficiencies of scale. Our principal competitor for video services
throughout our territory is direct broadcast satellite television services,
also known as DBS. Competition from DBS, including intensive marketing
efforts, aggressive pricing, and the ability of DBS to provide certain services
that we are in the process of developing, has had an adverse impact on our
ability to retain customers. DBS has grown rapidly over the last several years
and continues to do so. The cable industry, including Charter, has lost a
significant number of subscribers to DBS competition, and we face serious
challenges in this area on a going forward basis. Local telephone companies and electric utilities can offer video and other
services in competition with Charter, and they increasingly may do so in the
future. Certain telephone companies have begun more extensive deployment of
fiber in their networks that will enable them to begin providing video
services, as well as telephony and Internet access services, to residential and
business customers. The subscription television industry also faces
competition from free broadcast television and from other communications and
entertainment media. With respect to our Internet access services, we face
competition, including intensive marketing efforts and aggressive pricing, from
telephone companies and other providers of dial-up and digital subscriber
line technology, also known as DSL. Further loss of customers to DBS or other
alternative video and data services and marketing efforts to retain customers
and combat that loss could have a material negative impact on the value of our
business and its performance. Mergers, joint ventures and alliances among franchised, wireless or private
cable operators, satellite television providers, local exchange carriers and
others, and the repeal of certain ownership rules may provide additional
benefits to some of our competitors, either through access to financing,
resources or efficiencies of scale, or the ability to provide multiple services
in direct competition with us. Long-Term Indebtedness  Change of Control Payments.We may not have the
ability to raise the funds necessary to fulfill our obligations under our
public notes following a change of control. A change of control under our
public notes would require us to make an offer to repurchase our outstanding
public notes. However, a failure by us to make or complete a change of control
offer would place us in default of these agreements. 25




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Variable Interest Rates.At September 30, 2004, excluding the effects of
hedging, approximately 90% of our debt bears interest at variable rates that
are linked to short-term interest rates. In addition, a significant portion of
our existing debt, assumed debt or debt we might arrange in the future will
bear interest at variable rates. If interest rates rise, our costs relative to
those obligations will also rise. As of September 30, 2004, the weighted
average interest rate on the CC VIII Operating credit facilities was 6.8% and
the weighted average interest rate on the high-yield debt was approximately
11.9%, resulting in a blended weighted average interest rate of 7.3%. As of
December 31, 2003, the weighted average interest rate on the bank debt was
approximately 5.6%, and the weighted average interest rate on the high-yield
debt was approximately 11.9%, resulting in a blended weighted average interest
rate of 6.2%. As of September 30, 2004, approximately 71% of our debt was
effectively fixed, including the effects of our interest rate hedge agreements,
as compared to approximately 70% at December 31, 2003. Streamlining of Operations.In the past, Charter (our manager) experienced
rapid growth from acquisitions of a number of smaller cable operators and the
rapid rebuild and rollout of advanced services. Our future success will depend
in part on Charters ability to standardize and streamline our operations. The
failure to implement a consistent corporate culture and management, operating
or financial systems or procedures necessary to standardize and streamline our
operations and effectively operate our enterprise could have a material adverse
effect on our business, results of operations and financial condition. In
addition, Charters ability to properly manage our operations will be impacted
by Charters ability to attract, retain and incentivize experienced, qualified,
professional management. Services.We expect that a substantial portion of our near-term growth will be
achieved through revenues from high-speed data services, digital video, bundled
service packages, and to a lesser extent, various commercial services that take
advantage of cables broadband capacity. The technology involved in our
product and service offerings generally requires that we have permission to use
intellectual property and that such property not infringe on rights claimed by
others. We may not be able to offer these advanced services successfully to
our customers or provide adequate customer service and these advanced services
may not generate adequate revenues. Also, if the vendors we use for these
services are not financially viable over time, we may experience disruption of
service and incur costs to find alternative vendors. In addition, if it is
determined that the product or service being utilized infringes on the rights
of others, we may be sued or be precluded from using the technology. Increasing Programming Costs.Programming has been, and is expected to continue
to be, our largest operating expense item. In recent years, the cable industry
has experienced a rapid escalation in the cost of programming, particularly
sports programming. This escalation may continue, and we may not be able to
pass programming cost increases on to our customers. The inability to fully
pass these programming cost increases on to our customers would have an adverse
impact on our cash flow and operating margins. As measured by programming
costs, and excluding premium services (substantially all of which were
renegotiated and renewed in 2003), as of September 30, 2004, approximately 33%
of Charters current programming contracts have expired or are scheduled to
expire by the end of 2004, and approximately another 12% are scheduled to
expire by the end of 2005. Public Notes Price Volatility.The market price of our and our indirect parent
companies publicly traded notes has been and is likely to continue to be
highly volatile. We expect that the price of these securities may fluctuate in
response to various factors, including the factors described throughout this
section and various other factors which may be beyond our control. These
factors beyond our control could include: financial forecasts by securities
analysts; new conditions or trends in the cable or telecommunications industry;
general economic and market conditions and specifically, conditions related to
the cable or telecommunications industry; any further downgrade of our indirect
parent companies or our debt ratings; announcement of the development of
improved or competitive technologies; the use of new products or promotions by
us or our competitors; changes in accounting rules; and new regulatory
legislation adopted in the United States. In addition, the securities market in general, and the market for cable
television securities in particular, have experienced significant price
fluctuations. Volatility in the market price for companies may often be
unrelated or disproportionate to the operating performance of those companies.
These broad market and industry factors may seriously harm the market price of
our notes, regardless of our operating performance. In the past, securities
litigation has often commenced following periods of volatility in the market
price of a companys securities, and several purported class action lawsuits
were filed against Charter in 2001 and 2002, following a decline in its stock
price. Economic Slowdown; Global Conflict.It is difficult to assess the impact that
the general economic slowdown and global conflict will have on future
operations. However, the economic slowdown has resulted and could continue to
result in reduced spending by customers and advertisers, which could reduce our
revenues, and also could affect our 26




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ability to collect accounts receivable and maintain customers. Reductions in
operating revenues would likely negatively affect our ability to make expected
capital expenditures and could also result in our inability to meet our
obligations under our financing agreements. These developments could also have
a negative impact on our financing and variable interest rate agreements
through disruptions in the market or negative market conditions. Regulation and Legislation.Cable system operations are extensively regulated
at the federal, state, and local level, including rate regulation of basic
service and equipment and municipal approval of franchise agreements and their
terms, such as franchise requirements to upgrade cable plant and meet specified
customer service standards. Additional legislation and regulation is always
possible. For example, there has been considerable legislative interest
recently in requiring cable operators to offer historically bundled programming
services on an à la carte basis. Cable operators also face significant regulation of their channel carriage.
They currently can be required to devote substantial capacity to the carriage
of programming that they would not carry voluntarily, including certain local
broadcast signals, local public, educational and government access programming,
and unaffiliated commercial leased access programming. This carriage burden
could increase in the future, particularly if the FCC were to require cable
systems to carry both the analog and digital versions of local broadcast
signals or multiple channels added by digital broadcasters. The FCC is
currently conducting a proceeding in which it is considering these channel
usage possibilities. In addition, the carriage of new high definition
broadcast and satellite programming services over the next few years may
consume significant amounts of system capacity without contributing to
proportionate increases in system revenue. There is also uncertainty whether
local franchising authorities, state regulators, the FCC, or the U.S. Congress
will impose obligations on cable operators to provide unaffiliated Internet
service providers with regulated access to cable plant. If they were to do so,
and the obligations were found to be lawful, it could complicate our operations
in general, and our Internet operations in particular, from a technical and
marketing standpoint. These open access obligations could adversely impact our
profitability and discourage system upgrades and the introduction of new
products and services. The United States Court of Appeals for the Ninth
Circuit recently vacated in part an FCC ruling defining cable modem service as
an information service and remanded for further proceedings. The Ninth
Circuit held that cable modem service is not cable service but is part
telecommunications service and part information service. The decision has
been appealed to the United States Supreme Court. However, if it is not
reversed, the decision may lead to our having to contribute to the federal
governments universal service fund, to comply with open access requirements,
and to subject our high speed-data operations generally to other common carrier
regulations. As we offer other advanced services over our cable system, we are
likely to face additional calls for regulation of our capacity and operation.
These regulations, if adopted, could adversely affect our operations. CONTINGENCIES Securities Class Actions and Derivative Suits Against Charter.Fourteen
putative federal class action lawsuits (the Federal Class Actions) were filed
against Charter, our manager and indirect parent, and certain of its former and
present officers and directors in various jurisdictions allegedly on behalf of
all purchasers of Charters securities during the period from either November 8
or November 9, 1999 through July 17 or July 18, 2002. Unspecified damages were
sought by the plaintiffs. In general, the lawsuits alleged that Charter
utilized misleading accounting practices and failed to disclose these
accounting practices and/or issued false and misleading financial statements
and press releases concerning Charters operations and prospects. The Federal
Class Actions were specifically and individually identified in public filings
made by Charter prior to the date of this quarterly report. In October 2002, Charter filed a motion with the Judicial Panel on
Multidistrict Litigation (the ''Panel) to transfer the Federal Class Actions
to the Eastern District of Missouri. On March 12, 2003, the Panel transferred
the six Federal Class Actions not filed in the Eastern District of Missouri to
that district for coordinated or consolidated pretrial proceedings with the
eight Federal Class Actions already pending there. The Panels transfer order
assigned the Federal Class Actions to Judge Charles A. Shaw. By virtue of a
prior court order, StoneRidge Investment Partners LLC became lead plaintiff
upon entry of the Panels transfer order. StoneRidge subsequently filed a
Consolidated Amended Complaint. The Court subsequently consolidated the
Federal Class Actions into a single action (the ''Consolidated Federal Class
Action) for pretrial purposes. On June 19, 2003, following a status and
scheduling conference with the parties, the Court issued a Case Management
Order setting forth a schedule for the pretrial phase of the Consolidated
Federal Class Action. Motions to dismiss the Consolidated Amended Complaint
were filed. On February 10, 2004, in response to a joint motion made by
StoneRidge and Defendants Charter, Vogel and Allen, the Court entered an order
providing, among other things, that: (1) the parties who filed such motion,
engage in a mediation within ninety (90) days; and (2) all proceedings in the
Consolidated Federal Class Actions 27




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were stayed until May 10, 2004. On May 11, 2004, the Court extended the stay
in the Consolidated Federal Class Action for an additional sixty (60) days. On
July 12, 2004, the parties submitted a joint motion to again extend the stay,
this time until September 10, 2004. The Court granted that extension on July
20, 2004. On August 5, 2004, Stoneridge, Charter and the individual defendants
who were the subject of the suit entered into a Memorandum of Understanding
(described more fully below) setting forth agreements in principle to settle
the Consolidated Federal Class Action. On September 12, 2002, a shareholders derivative suit (the ''State Derivative
Action) was filed in the Circuit Court of the City of St. Louis, State of
Missouri (the Missouri State Court), against Charter and its then current
directors, as well as its former auditors. A substantively identical
derivative action was later filed and consolidated into the State Derivative
Action. The plaintiffs allege that the individual defendants breached their
fiduciary duties by failing to establish and maintain adequate internal
controls and procedures. Unspecified damages, allegedly on Charters behalf,
are sought by the plaintiffs. On March 12, 2004, an action substantively identical to the State Derivative
Action was filed in the Missouri State Court, against Charter and certain of
its current and former directors, as well as its former auditors. The
plaintiffs in that case alleged that the individual defendants breached their
fiduciary duties by failing to establish and maintain adequate internal
controls and procedures. Unspecified damages, allegedly on Charters behalf,
were sought by plaintiffs. On July 14, 2004, the Court consolidated this case
with the State Derivative Action. Separately, on February 12, 2003, a shareholders derivative suit (the ''Federal
Derivative Action), was filed against Charter and its then current directors
in the United States District Court for the Eastern District of Missouri. The
plaintiff in that suit alleged that the individual defendants breached their
fiduciary duties and grossly mismanaged Charter by failing to establish and
maintain adequate internal controls and procedures. Unspecified damages,
allegedly on Charters behalf, were sought by the plaintiffs. On August 5, 2004, Charter entered into Memoranda of Understanding setting
forth agreements in principle regarding settlement of the Consolidated Federal
Class Action, the State Derivative Action(s) and the Federal Derivative Action
(the Actions). In exchange for a release of all claims by plaintiffs against
Charter and its former and present officers and directors named in the Actions,
Charter will pay to the plaintiffs a combination of cash and equity
collectively valued at $144 million, which will include the fees and expenses
of plaintiffs counsel. Of this amount, $64 million will be paid in cash (by
Charters insurance carriers) and the balance will be paid in shares of Charter
Class A common stock having an aggregate value of $40 million and ten-year
warrants to purchase shares of Charter Class A common stock having an aggregate
warrant value of $40 million. The warrants would have an exercise price equal
to 150% of the fair market value (as defined) of Charter Class A common stock
as of the date of the entry of the order of final judgment approving the
settlement. In addition, Charter expects to issue additional shares of its
Class A common stock to its insurance carrier having an aggregate value of $5
million. As part of the settlements, Charter will also commit to a variety of
corporate governance changes, internal practices and public disclosures, some
of which have already been undertaken and none of which are inconsistent with
measures Charter is taking in connection with the recent conclusion of the SEC
investigation described below. The settlement of each of the lawsuits is
conditioned upon, among other things, the parties approval and execution of
definitive settlement agreements with respect to the matters described above,
judicial approval of the settlements by the Court following notice to the
class, and dismissal of the consolidated derivative actions now pending in
Missouri State Court, which are related to the Federal Derivative Action. In addition to the Federal Class Actions, the State Derivative Action, the new
Missouri State Court derivative action and the Federal Derivative Action, six
putative class action lawsuits were filed against Charter and certain of its
then current directors and officers in the Court of Chancery of the State of
Delaware (the ''Delaware Class Actions). The lawsuits were filed after the
filing of a Schedule 13D amendment by Mr. Allen indicating that he was
exploring a number of possible alternatives with respect to restructuring or
expanding his ownership interest in Charter. Charter believes that the
plaintiffs speculated that Mr. Allen might have been contemplating an unfair
bid for shares of Charter or some other sort of going private transaction on
unfair terms and generally alleged that the defendants breached their fiduciary
duties by participating in or acquiescing to such a transaction. The lawsuits,
which are substantively identical, were brought on behalf of Charters
securities holders as of July 29, 2002, and sought unspecified damages and
possible injunctive relief. However, Charter has informed us that no such
transaction by Mr. Allen has been presented. On April 30, 2004, orders of
dismissal without prejudice were entered in each of the Delaware Class Actions. Government Investigations. In August 2002, Charter became aware of a grand jury
investigation being conducted by the U.S. Attorneys Office for the Eastern
District of Missouri into certain of its accounting and reporting 28




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practices, focusing on how Charter reported customer numbers, and its reporting
of amounts received from digital set-top terminal suppliers for advertising.
The U.S. Attorneys Office has publicly stated that Charter is not a target of
the investigation. Charter has also been advised by the U.S. Attorneys office
that no member of its board of directors, including its Chief Executive
Officer, is a target of the investigation. On July 24, 2003, a federal grand
jury charged four former officers of Charter with conspiracy and mail and wire
fraud, alleging improper accounting and reporting practices focusing on revenue
from digital set-top terminal suppliers and inflated customer account numbers.
On July 25, 2003, one of the former officers who was indicted entered a guilty
plea. Charter has advised us that it is fully cooperating with the
investigation. On November 4, 2002, Charter received an informal, non-public inquiry from the
staff of the SEC. The SEC issued a formal order of investigation dated January
23, 2003, and subsequently served document and testimony subpoenas on Charter
and a number of its former employees. The investigation and subpoenas
generally concerned Charters prior reports with respect to its determination
of the number of customers, and various of its accounting policies and
practices including its capitalization of certain expenses and dealings with
certain vendors, including programmers and digital set-top terminal suppliers.
On July 27, 2004, the SEC and Charter reached a final agreement to settle the
investigation. In the Settlement Agreement and Cease and Desist Order, Charter
agreed to entry of an administrative order prohibiting any future violations of
United States securities laws and requiring certain other remedial internal
practices and public disclosures. Charter neither admitted nor denied any
wrongdoing, and the SEC assessed no fine against Charter. Indemnification.Charter is generally required to indemnify each of the named
individual defendants in connection with the matters described above pursuant
to the terms of its bylaws and (where applicable) such individual defendants
employment agreements. In accordance with these documents, in connection with
the pending grand jury investigation, the now settled SEC investigation and the
above described lawsuits, some of Charters current and former directors and
current and former officers have been advanced certain costs and expenses
incurred in connection with their defense. Other Litigation.In October 2001, two customers, Nikki Nicholls and Geraldine
M. Barber, filed a class action suit against Charter Holdco in South Carolina
Court of Common Pleas (the ''South Carolina Class Action), purportedly on
behalf of a class of Charter Holdcos customers, alleging that Charter Holdco
improperly charged them a wire maintenance fee without request or permission.
They also claimed that Charter Holdco improperly required them to rent analog
and/or digital set-top terminals even though their television sets were ''cable
ready. A substantively identical case was filed in the Superior Court of
Athens  Clarke County, Georgia by Emma S. Tobar on March 26, 2002 (the
Georgia Class Action), alleging a nationwide class for these claims. Charter
Holdco removed the South Carolina Class Action to the United States District
Court for the District of South Carolina in November 2001, and moved to dismiss
the suit in December 2001. The federal judge remanded the case to the South
Carolina Court of Common Pleas in August 2002 without ruling on the motion to
dismiss. The plaintiffs subsequently moved for a default judgment, arguing
that upon return to state court, Charter Holdco should have, but did not file a
new motion to dismiss. The state court judge granted the plaintiffs motion
over Charter Holdcos objection in September 2002. Charter Holdco immediately
appealed that decision to the South Carolina Court of Appeals and the South
Carolina Supreme Court, but those courts ruled that until a final judgment was
entered against Charter Holdco, they lacked jurisdiction to hear the appeal. In January 2003, the Court of Common Pleas granted the plaintiffs motion for
class certification. In October and November 2003, Charter Holdco filed
motions (a) asking that court to set aside the default judgment, and (b)
seeking dismissal of plaintiffs suit for failure to state a claim. In January
2004, the Court of Common Pleas granted in part and denied in part Charter
Holdcos motion to dismiss for failure to state a claim. It also took under
advisement Charter Holdcos motion to set aside the default judgment. In April
2004, the parties to both the Georgia and South Carolina Class Actions
participated in a mediation. The mediator made a proposal to the parties to
settle the lawsuits. In May 2004, the parties accepted the mediators proposal
and reached a tentative settlement, subject to final documentation and court
approval. As a result of the tentative settlement, we recorded a special
charge of $0.9 million in our consolidated statement of operations in the first
quarter of 2004. On July 8, 2004, the Superior Court of Athens  Clarke
County, Georgia granted a motion to amend the Tobar complaint to add Nicholls,
Barber and April Jones as plaintiffs in the Georgia Class Action and to add any
potential class members in South Carolina. The court also granted preliminary
approval of the proposed settlement on that date. A hearing to consider final
approval of the settlement is scheduled to occur on November 10, 2004. On
August 2, 2004, the parties submitted a joint request to the South Carolina
Court of Common Pleas to stay the South Carolina Class Action pending final
approval of the settlement and on August 17, 2004, that court granted the
parties request. 29




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Outcome.In addition to the matters set forth above, Charter is also party to other
lawsuits and claims that arose in the ordinary course of conducting its
business. In the opinion of management, after taking into account recorded
liabilities, the outcome of these other lawsuits and claims are not expected to
have a material adverse effect on our consolidated financial condition, results
of operations or our liquidity. 
 ITEM 4. CONTROLS AND PROCEDURES. As of the end of the period covered by this report, management, including our
Chief Executive Officer and Interim Co-Chief Financial Officers, evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures with respect to the information generated for use in this quarterly
report. The evaluation was based in part upon reports and affidavits provided
by a number of executives. Based upon, and as of the date of that evaluation,
our Chief Executive Officer and Interim Co-Chief Financial Officers concluded
that the disclosure controls and procedures were effective to provide
reasonable assurances that information required to be disclosed in the reports
we file or submit under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
Commissions rules and forms. There was no change in our internal control over financial reporting during the
quarter ended September 30, 2004 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting. In designing and evaluating the disclosure controls and procedures, our
management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable, not absolute, assurance of
achieving the desired control objectives and management necessarily was
required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures. Based upon the above evaluation, our
management believes that our controls do provide such reasonable assurances. 30




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PART II. OTHER INFORMATION. 
 ITEM 1. LEGAL PROCEEDINGS. In addition to those matters disclosed under the heading Contingencies of
Part I, Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations, we are involved from time to time in routine legal
matters and other claims incidental to our business. We believe that the
resolution of such routine matters and other incidental claims, taking into
account established reserves and insurance, will not have a material adverse
impact on our consolidated financial position or results of operations. 
 ITEM 6. EXHIBITS. The index to the exhibits begins on page 33 of this quarterly report. 31




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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrants have duly caused this quarterly report to be signed on
their behalf by the undersigned thereunto duly authorized. CC V HOLDINGS, LLCDated: November 12, 2004
    
    By:
    
    CHARTER COMMUNICATIONS, INC.,
Registrants ManagerBy:
    
    /s/ Derek Chang
Name: Derek Chang
Title: Executive Vice President of Finance and Strategy and
Interim Co-Chief Financial Officer
(Co-Principal Financial Officer) of Charter Communications, Inc.
(Manager) and CC V Holdings, LLCBy:
    
    /s/ Paul E. Martin
Name: Paul E. Martin
Title: Interim Co-Chief Financial Officer,
Senior Vice President and Corporate Controller
(Co-Principal Financial Officer and Principal Accounting Officer)
of Charter Communications, Inc. (Manager) and CC V Holdings,
LLCCC V HOLDINGS FINANCE, INC.Dated: November 12, 2004
    
    By:
    
    /s/ Derek Chang
Name: Derek Chang
Title: Executive Vice President of Finance and Strategy and
Interim Co-Chief Financial Officer
(Co-Principal Financial Officer) of Charter Communications, Inc.
(Manager) and CC V Holdings Finance, Inc.By:
    
    /s/ Paul E. Martin
Name: Paul E. Martin
Title: Interim Co-Chief Financial Officer,
Senior Vice President and Corporate Controller
(Co-Principal Financial Officer and Principal Accounting Officer)
of Charter Communications, Inc. (Manager) and CC V Holdings
Finance, Inc.
 32




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EXHIBIT INDEX ExhibitNumber
    
    Description of Document10.1
    
    Separation Agreement and Release for Margaret A. Bellville dated as of September 16, 2004 (Incorporated by reference to Exhibit 10.1 to Charter Communications, Inc.s quarterly
report on Form 10-Q filed on November 4, 2004).31.1
    
    Certificate of Chief Executive Officer pursuant to Rule
13a-14(a)/Rule 15d-14(a) under the Securities Exchange Act
of 1934.31.2
    
    Certificate of Interim Co-Chief Financial Officer pursuant
to Rule 13a-14(a)/Rule 15d-14(a) under the Securities
Exchange Act of 1934.31.3
    
    Certificate of Interim Co-Chief Financial Officer pursuant
to Rule 13a-14(a)/Rule 15d-14(a) under the Securities
Exchange Act of 1934.32.1
    
    Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 (Chief Executive Officer).32.2
    
    Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 (Interim Co-Chief Financial Officer).32.3
    
    Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 (Interim Co-Chief Financial Officer).
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