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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 March 31, 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 No.)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] The aggregate market value of the voting and non-voting common equity
securities held by non-affiliates as of June 30, 2003 was $0. 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 MARCH 31, 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
    
    
    15Item 3. Quantitative and Qualitative Disclosure About Market Risk
    
    
    27Item 4. Controls and Procedures
    
    
    27Part II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    28Item 6. Exhibits and Reports on Form 8-K
    
    
    28SIGNATURES
    
    
    29EXHIBIT INDEX
    
    
    30Fourth Amended and Restated Credit AgreementCertification of Chief Executive OfficerCertification of Chief Financial OfficerCertification of Chief Executive OfficerCertification of Chief Financial Officer
  Note: Separate financial statements of CC V Holdings Finance, Inc. have not
been presented as this entity had no operations and substantially 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 months ended March 31,
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 ability to sustain and grow revenues and cash flows from
operating activities by offering video, high-speed data and other
services and to maintain a stable customer base, particularly in the
face of increasingly aggressive competition from other service
providers;
    
    our availability of funds to meet interest payment obligations
under our and our parent companies debt and to fund our operations and
necessary capital expenditures, either through cash flows from
operating activities, further borrowings or other sources;
    
    any adverse consequences arising out of our restatement of our
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, the
pending SEC Division of Enforcement investigation, the putative class
action, the unconsolidated state action, and derivative shareholders
litigation against Charter Communications, Inc., our indirect parent;
    
    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 under cross-default provisions;
    
    our and our affiliates ability to pay or refinance debt as it becomes due;
    
    our ability to obtain programming at reasonable prices or to pass 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 a 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) March 31,
    
    December 31,2004
    
    2003(Unaudited)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    5,993
    
    
    $
    13,915Accounts receivable, less allowance for doubtful
accounts of $1,623 and $2,188, respectively
    
    
    5,427
    
    
    
    10,073Prepaid expenses and other current assets
    
    
    1,723
    
    
    
    1,767Total current assets
    
    
    13,143
    
    
    
    25,755INVESTMENT IN CABLE PROPERTIES:Property, plant and equipment, net of accumulated
depreciation of $428,041 and $388,610, respectively
    
    
    818,343
    
    
    
    842,613Franchises, net of accumulated amortization of
$470,815 and $470,581, respectively
    
    
    2,123,751
    
    
    
    2,124,032Total investment in cable properties, net
    
    
    2,942,094
    
    
    
    2,966,645OTHER NONCURRENT ASSETS
    
    
    6,258
    
    
    
    6,603Total assets
    
    $
    2,961,495
    
    
    $
    2,999,003LIABILITIES AND MEMBERS EQUITYCURRENT LIABILITIES:Accounts payable and accrued expenses
    
    $
    105,710
    
    
    $
    120,531Payables to
manager of cable systems - related parties
    
    
    60,699
    
    
    
    49,135Total current liabilities
    
    
    166,409
    
    
    
    169,666LONG-TERM DEBT
    
    
    1,136,593
    
    
    
    1,157,662OTHER LONG-TERM LIABILITIES
    
    
    89,036
    
    
    
    84,873MINORITY INTEREST
    
    
    696,895
    
    
    
    694,243MEMBERS EQUITY
    
    
    872,562
    
    
    
    892,559Total liabilities and members equity
    
    $
    2,961,495
    
    
    $
    2,999,003
 See accompanying notes to the 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 EndedMarch 31,2004
    
    2003REVENUES
    
    $
    168,720
    
    
    $
    158,948COSTS AND EXPENSES:Operating (excluding depreciation and amortization)
    
    
    67,893
    
    
    
    61,840Selling, general and administrative
    
    
    33,936
    
    
    
    31,011Depreciation and amortization
    
    
    42,281
    
    
    
    44,288Loss on sale of assets, net
    
    
    448
    
    
    
    695Special charges, net
    
    
    1,057
    
    
    
    (649
    )145,615
    
    
    
    137,185Income from operations
    
    
    23,105
    
    
    
    21,763OTHER INCOME AND EXPENSE:Interest expense, net
    
    
    (18,850
    )
    
    
    (24,649
    )Loss on derivative instruments and hedging activities, net
    
    
    (6,177
    )
    
    
    (232
    )Other, net
    
    
    (4
    )
    
    
    23(25,031
    )
    
    
    (24,858
    )Loss before minority interest and income taxes
    
    
    (1,926
    )
    
    
    (3,095
    )MINORITY INTEREST
    
    
    (2,652
    )
    
    
    (3,294
    )Loss before income taxes
    
    
    (4,578
    )
    
    
    (6,389
    )INCOME TAX EXPENSE
    
    
    (694
    )
    
    
    (427
    )Net loss
    
    $
    (5,272
    )
    
    $
    (6,816
    )
 See accompanying notes to the 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)
 Three Months EndedMarch 31,2004
    
    2003CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (5,272
    )
    
    $
    (6,816
    )Adjustments to reconcile net loss to net cash flows from operating activities:Minority interest
    
    
    2,652
    
    
    
    3,294Depreciation and amortization
    
    
    42,281
    
    
    
    44,288Noncash interest expense
    
    
    402
    
    
    
    4,886Loss on sale of assets, net
    
    
    448
    
    
    
    695Deferred income taxes
    
    
    694
    
    
    
    427Loss on derivative instruments and hedging instruments, net
    
    
    6,177
    
    
    
    232Other, net
    
    
    1,709
    
    
    
    Changes in operating assets and liabilities, net of effects from acquisitions:Accounts receivable
    
    
    4,647
    
    
    
    4,671Prepaid expenses and other assets
    
    
    (154
    )
    
    
    158Accounts payable, accrued expenses and other
    
    
    (17,573
    )
    
    
    (25,131
    )Receivables from and payables to manager of cable systems  related party
    
    
    8,566
    
    
    
    (8,675
    )Net cash flows from operating activities
    
    
    44,577
    
    
    
    18,029CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of property, plant and equipment
    
    
    (15,736
    )
    
    
    (9,148
    )Change in accrued expenses related to capital expenditures
    
    
    (755
    )
    
    
    (12,001
    )Proceeds from sale of assets
    
    
    5
    
    
    
    Other investing activities
    
    
    56
    
    
    
    Net cash flows from investing activities
    
    
    (16,430
    )
    
    
    (21,149
    )CASH FLOWS FROM FINANCING ACTIVITIES:Borrowings of long-term debt
    
    
    
    
    
    
    45,000Repayments of long-term debt
    
    
    (21,069
    )
    
    
    (20,411
    )Payment of deferred financing costs
    
    
    
    
    
    
    (149
    )Distributions to managers
    
    
    (15,000
    )
    
    
    (6,000
    )Net cash flows from financing activities
    
    
    (36,069
    )
    
    
    18,440NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    (7,922
    )
    
    
    15,320CASH AND CASH EQUIVALENTS, beginning of period
    
    
    13,915
    
    
    
    50,069CASH AND CASH EQUIVALENTS, end of period
    
    $
    5,993
    
    
    $
    65,389CASH PAID FOR INTEREST
    
    $
    15,325
    
    
    $
    17,212
 See accompanying notes to the 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 transactions
and balances have been eliminated in consolidation. As of March 31, 2004, the Company owns and operates cable systems serving
approximately 929,700 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 and in the New
England area. Charter Holdco and Charter, the Companys managers and indirect parents,
provide management services for the cable systems owned or operated by the
Company. The management services include such services as centralized customer
billing services, data processing and related support, benefits administration
and coordination of insurance coverage and self-insurance programs for medical,
dental and workers compensation claims. Costs associated with providing these
services are 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, income taxes 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 income from operations of $23 million and $22 million
for the three months ended March 31, 2004 and 2003, respectively. The
Companys net cash flows from operating activities were $45 million and $18
million for the three months ended March 31, 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
Charter Holdings, borrowings from related parties and cash on hand. The mix of
funding sources changes from period to period, but for the three months ended
March 31, 2004, approximately 85% of our funding requirements were satisfied
from cash flows from operating activities and 15% was 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 adequate to meet its 2004 cash needs. As of March 31, 2004, the
Company held $6 million in cash and cash equivalents. In April 2004, Charter Operating sold senior second lien notes and amended and
restated its own credit facilities and used the additional borrowings under the
amended and restated 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 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.  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
represented geographic clusters of the Companys cable systems, which
management believes 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 following table presents the Companys indefinite-lived and finite-lived
intangible assets as of March 31, 2004 and December 31, 2003 (dollars in
thousands): March 31, 2004
    
    December 31, 2003Gross
    
    
    
    
    
    Net
    
    Gross
    
    
    
    
    
    NetCarrying
    
    Accumulated
    
    Carrying
    
    Carrying
    
    Accumulated
    
    CarryingAmount
    
    Amortization
    
    Amount
    
    Amount
    
    Amortization
    
    AmountFranchises with
indefinite lives
    
    $
    2,585,640
    
    
    $
    470,396
    
    
    $
    2,115,244
    
    
    $
    2,568,685
    
    
    $
    462,879
    
    
    $
    2,105,806Franchises with
finite lives
    
    $
    8,926
    
    
    $
    419
    
    
    $
    8,507
    
    
    $
    25,928
    
    
    $
    7,702
    
    
    $
    18,226
 Approximately $10 million of franchises that were previously classified as
finite-lived were reclassified to indefinite-lived, based on the Companys
ability in 2003 to renew these franchise assets. Franchise amortization
expense for the three months ended March 31, 2004 and 2003 was $0.2 million and
$0.6 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. Franchise renewals
are amortized on a straight-line basis over 10 years. The Company expects
amortization expense on franchise assets will decrease to approximately $1
million annually. Actual amortization expense to be reported 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. 8




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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 March 31,
2004 and December 31, 2003: March 31,
    
    December 31,2004
    
    2003Accounts
payable - trade
    
    $
    8,818
    
    
    $
    14,164Accrued capital expenditures
    
    
    6,582
    
    
    
    7,337Accrued interest
    
    
    16,920
    
    
    
    13,807Programming costs
    
    
    39,218
    
    
    
    42,220Franchise related fees
    
    
    4,532
    
    
    
    8,005State sales tax
    
    
    8,041
    
    
    
    8,456Other accrued expenses
    
    
    21,599
    
    
    
    26,542$
    105,710
    
    
    $
    120,531
  5.
    
    Long-Term Debt Long-term debt consists of the following as of March 31, 2004 and December 31,
2003: March 31,
    
    December 31,2004
    
    2003CC VIII Operating credit facilities
    
    $
    1,023,312
    
    
    $
    1,044,381CC V Holdings senior discount notes
    
    
    113,281
    
    
    
    113,281$
    1,136,593
    
    
    $
    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 Loss The Company reports 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, Accounting for Derivative Instruments and Hedging Activities, in
accumulated other comprehensive loss. Comprehensive loss for the three months
ended March 31, 2004 and 2003 was $5.3 million and $7.3 million, respectively.  7.
    
    Accounting for Derivative Instruments and Hedging Activities The Company uses interest rate risk management 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. 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 9




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CC V HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT WHERE INDICATED) 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 March
31, 2004 and 2003, other expense includes a loss of $1.5 million and $25,
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 loss. For the three months ended March 31, 2004 and 2003, a loss
of $47 and $454, respectively, related to derivative instruments designated as
cash flow hedges was recorded in accumulated other comprehensive loss and
minority interest. 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 March 31, 2004 and 2003, the Company recorded other expense of $4.7
million and $207, respectively, for interest rate derivative instruments not
designated as hedges. As of March 31, 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 program and the
consolidation of its operations from three divisions and ten regions into five
operating divisions, elimination of redundant practices and streamlining its
management structure. During the year ended December 31, 2003, additional
severance related costs were incurred of $0.3 million and recorded as a special
charge. In the first quarter of 2004, additional employees were identified for
termination, and severance costs of $0.1 million were recorded in special
charges. Severance payments are made over a period of up to two years with
approximately $0.3 million paid during the three months ended March 31, 2004
and $3 million paid during the year ended December 31, 2003. As of March 31,
2004 and December 31, 2003, a liability of approximately $0.1 million and $0.3
million, respectively, is recorded on the accompanying condensed consolidated
balance sheet related to the realignment activities. For the three months ended
March 31, 2004, special charges also include approximately $0.9 million, which
represents the Companys portion of litigation costs related to Charters
tentative settlement of the South Carolina national class action suit, subject
to final documentation and court approval (see note 10). During the three months ended March 31, 2003, severance costs included $0.3
million settlement from the Internet service provider Excite@Home related to
the conversion of approximately 145,000 high-speed data customers to our
Charter Pipeline service in 2001.  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 not subject to income tax. However, certain of the Companys indirect
subsidiaries are corporations and are subject to income tax. As of March 31, 2004 and December 31, 2003, the Company had net deferred income
tax liabilities of approximately $20 million. These relate to certain of the
Companys indirect subsidiaries, which file separate income tax returns. 10




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CC V HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT WHERE INDICATED) During the three months ended March 31, 2004 and 2003, the Company recorded
$694 and $427 of income tax expense, respectively. The income tax expense
recognized relates to increases in the deferred tax liabilities and current
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 condensded consolidated financial position or results of operations.  10.
    
    Contingencies Fourteen putative federal class action lawsuits (the Federal Class Actions)
have been 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. Unspecified damages are sought by the
plaintiffs. In general, the lawsuits allege 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 consolidated action (the Consolidated
Federal Class Action) for pretrial purposes. On June 19, 2003, following a
pretrial 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 have been
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 Action 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 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 allege that the individual defendants breached their fiduciary
duties by failing to establish and maintain adequate internal controls and
procedures. This case has not yet been consolidated with the State Derivative
Action, but Charter expects that it will be in the future. Unspecified
damages, allegedly on Charters behalf, are sought by plaintiffs. 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 alleges 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, are sought by the plaintiffs. 11




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CC V HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT WHERE INDICATED) 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 have been 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
were brought on behalf of Charters securities holders as of July 29, 2002, and
seek unspecified damages and possible injunctive relief. The Delaware Class
Actions are substantively identical. Charter has informed the Company that no
such transaction by Mr. Allen has been presented. Orders of dismissal without
prejudice have been entered in each of the Delaware Class Actions. All of the lawsuits discussed above are each in preliminary stages. No
reserves have been established for potential losses or related insurance
recoveries on these matters because Charter is unable to predict the outcome.
Charter has advised the Company that it intends to vigorously defend the
lawsuits. 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 currently 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 has subsequently issued a formal order of
investigation dated January 23, 2003, and subsequent document and testimony
subpoenas. The investigation and subpoenas generally concern 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. Charter has advised the Company that
it is fully cooperating with the SEC staff. 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, SEC investigation and the above described lawsuits,
some of its current and former directors and Charters current and former
officers have been advanced certain costs and expenses incurred in connection
with their defense. Charter has liability insurance coverage that it believes is available for the
matters described above, where applicable, subject to the terms, conditions and
limitations of the respective policies. There is no assurance that current
coverage will be sufficient for all claims described above or any future claims
that may arise. 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 (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.
Charter Holdco removed this case 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, 12




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CC V HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT WHERE INDICATED) but those courts have ruled that until a final judgment is entered against
Charter Holdco, they lack 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 participated in a mediation with respect to this and related
litigation. The mediator made a proposal to the parties. In May 2004, the
parties to this and the related litigation accepted the mediators proposal and
reached a tentative settlement. The tentative settlement remains subject to
final documentation and court approval. As a result of the tentative
settlement, the Company has recorded a special charge of $0.9 million in its
condensed consolidated statement of operations for the three months ended March
31, 2004 related to its portion of the litigation costs (see note 8). Charter is unable to predict the outcome of the lawsuits and the government
investigations described above. An unfavorable outcome in any of these
lawsuits or the government investigations could have a material adverse effect
on the Companys financial condition, results of operations or its liquidity. 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, 24,279,943 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, which is recorded in the accompanying condensed consolidated financial
statements as minority interest. 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. 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 13




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CC V HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT WHERE INDICATED) 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 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. Tory, Wangberg and Merritt) 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. 14




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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 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 managers, Charter and Charter Holdco, undertook a
number of transition activities including reorganizing our workforce, adjusting
our cable video pricing and packages, completing 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 retention and acquisition,
primarily during the first half of 2003. During the second half of 2003 and
the first quarter of 2004, we increased our marketing efforts and implemented
promotional campaigns to slow the loss of analog video customers and to
accelerate advanced service penetration, particularly in high-speed data. 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. We
expect that we will rely on loans and capital contributions from our parent
companies to repay our public notes at maturity. However, there can be no
assurance that our parent companies will have sufficient liquidity to provide
funds to us to satisfy this payment when due. CRITICAL ACCOUNTING POLICIES AND ESTIMATES For a discussion of our critical accounting policies and the means by which we
develop estimates therefor see Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations, in our 2003 Annual Report on
Form 10-K. 15




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RESULTS OF OPERATIONS Three Months Ended March 31, 2004 Compared to Three Months Ended March 31, 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): Three Months Ended March 31,2004
    
    2003Revenues
    
    $
    168,720
    
    
    
    100
    %
    
    $
    158,948
    
    
    
    100
    %Costs and expenses:Operating (excluding depreciation and amortization )
    
    
    67,893
    
    
    
    40
    %
    
    
    61,840
    
    
    
    39
    %Selling, general and administrative
    
    
    33,936
    
    
    
    20
    %
    
    
    31,011
    
    
    
    19
    %Depreciation and amortization
    
    
    42,281
    
    
    
    25
    %
    
    
    44,288
    
    
    
    28
    %Loss on sale of assets, net
    
    
    448
    
    
    
    
    
    
    
    695
    
    
    
    Special charges, net
    
    
    1,057
    
    
    
    1
    %
    
    
    (649
    )
    
    
    145,615
    
    
    
    86
    %
    
    
    137,185
    
    
    
    86
    %Operating income
    
    
    23,105
    
    
    
    14
    %
    
    
    21,763
    
    
    
    14
    %Interest expense, net
    
    
    (18,850
    )
    
    
    
    
    
    
    (24,649
    )Loss on derivative instruments and hedging activities, net
    
    
    (6,177
    )
    
    
    
    
    
    
    (232
    )Other, net
    
    
    (4
    )
    
    
    
    
    
    
    23(25,031
    )
    
    
    
    
    
    
    (24,858
    )Loss before minority interest and income taxes
    
    
    (1,926
    )
    
    
    
    
    
    
    (3,095
    )Minority interest
    
    
    (2,652
    )
    
    
    
    
    
    
    (3,294
    )Loss before income taxes
    
    
    (4,578
    )
    
    
    
    
    
    
    (6,389
    )Income tax expense
    
    
    (694
    )
    
    
    
    
    
    
    (427
    )Net loss
    
    $
    (5,272
    )
    
    
    
    
    
    $
    (6,816
    )
 Revenues.Revenues increased by $9.8 million, or 6%, to $168.7 million for the
three months ended March 31, 2004 from $158.9 million for the three months
ended March 31, 2003. This increase is principally the result of an increase
in the number of 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 recorders, that we provide to our existing
customer base and commercial customers. Revenues by service offering were as follows (dollars in thousands): Three Months Ended March 31,2004
    
    2003
    
    2004 over 2003% of
    
    
    
    
    
    % ofRevenues
    
    Revenues
    
    Revenues
    
    Revenues
    
    Change
    
    % ChangeVideo
    
    $
    112,912
    
    
    
    67
    %
    
    $
    111,885
    
    
    
    70
    %
    
    $
    1,027
    
    
    
    1
    %High-speed data
    
    
    27,358
    
    
    
    16
    %
    
    
    20,670
    
    
    
    13
    %
    
    
    6,688
    
    
    
    32
    %Advertising sales
    
    
    7,781
    
    
    
    5
    %
    
    
    7,054
    
    
    
    5
    %
    
    
    727
    
    
    
    10
    %Commercial
    
    
    11,047
    
    
    
    6
    %
    
    
    9,307
    
    
    
    6
    %
    
    
    1,740
    
    
    
    19
    %Other
    
    
    9,622
    
    
    
    6
    %
    
    
    10,032
    
    
    
    6
    %
    
    
    (410
    )
    
    
    (4
    )%$
    168,720
    
    
    
    100
    %
    
    $
    158,948
    
    
    
    100
    %
    
    $
    9,772
    
    
    
    6
    %
 16




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##### Table of Contents



Video revenues consist primarily of revenues from analog and digital video
services provided to our non-commercial customers. Video revenues increased by
$1.0 million, or 1%, to $112.9 million for the three months ended March 31,
2004 as compared to $111.9 million for the three months ended March 31, 2003.
The increase was primarily a result of price increases and an increase in
digital video customers, offset somewhat by a decrease in analog video
customers. Revenues from high-speed data services provided to our non-commercial customers
increased $6.7 million, or 32%, from $20.7 million for the three months ended
March 31, 2003 to $27.4 million for the three months ended March 31, 2004. The
increase was primarily the result of the addition of high-speed data customers
within our existing service areas. Advertising sales revenues consist primarily of revenues from commercial
advertising customers, programmers and other vendors. Advertising sales
increased $0.7 million, or 10%, from $7.1 million for the three months ended
March 31, 2003 to $7.8 million for the three months ended March 31, 2004
primarily as a result of an increase in local advertising sales revenues offset
partially by a decrease in advertising revenue from vendors. For the three
months ended March 31, 2004 and 2003, we received $39 and $431, 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 $1.7 million, or 19%, from $9.3 million for the three months ended
March 31, 2003 to $11.0 million for the three months ended March 31, 2004
primarily as a result of an increase in commercial high-speed data revenues. Other revenues consist of revenues from franchise fees, equipment rental,
customer installations, home shopping, dial-up Internet service, late payment
fees, wire maintenance fees and other miscellaneous revenues. Other revenues
decreased $0.4 million, or 4%, from $10.0 million for the three months ended
March 31, 2003 to $9.6 million for the three months ended March 31, 2004. The
decrease was primarily the result of a decrease in installation revenue. Operating Expenses.Operating expenses increased $6.1 million, or 10%, to
$67.9 million for the three months ended March 31, 2004 from $61.8 million for
the three months ended March 31, 2003. Programming costs included in the
accompanying condensed consolidated statements of operations were $45.2 million
and $41.4 million, representing 31% and 30%, of total operating costs and
expenses for the three months ended March 31, 2004 and 2003, respectively. Key
expense components as a percentage of revenues were as follows (dollars in
thousands): Three Months Ended March 31,2004
    
    2003
    
    2004 over 2003% of
    
    
    
    
    
    % ofExpenses
    
    Revenues
    
    Expenses
    
    Revenues
    
    Change
    
    % ChangeProgramming
    
    $
    45,207
    
    
    
    27
    %
    
    $
    41,442
    
    
    
    26
    %
    
    $
    3,765
    
    
    
    9
    %Advertising sales
    
    
    3,276
    
    
    
    2
    %
    
    
    2,993
    
    
    
    2
    %
    
    
    283
    
    
    
    9
    %Service costs
    
    
    19,410
    
    
    
    11
    %
    
    
    17,405
    
    
    
    11
    %
    
    
    2,005
    
    
    
    12
    %$
    67,893
    
    
    
    40
    %
    
    $
    61,840
    
    
    
    39
    %
    
    $
    6,053
    
    
    
    10
    %
 Programming costs consist primarily of costs paid to programmers for the
provision of analog, premium and digital channels and pay-per-view programming.
The increase in programming costs of $3.8 million, or 9%, for the three months
ended March 31, 2004 over the three months ended March 31, 2003, was the 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 a decrease in analog video customers. Programming costs
were offset by the amortization of payments received from programmers in
support of launches of new channels of $1.6 million and $2.1 million for the
three months ended March 31, 2004 and 2003, respectively. 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 and inflationary or negotiated annual increases. Our increasing
programming costs will result in declining video product margins 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 17




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video services with revenue from advanced video services, increased incremental
high-speed data revenues, advertising revenues and commercial services
revenues. Advertising sales expenses consist of costs related to traditional advertising
services provided to advertising customers, including salaries and benefits and
commissions. Advertising sales expenses increased $0.3 million primarily as a
result of salary and benefit costs and marketing 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 $2.0 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 $2.9 million, or 9%, from $31.0 million
for the three months ended March 31, 2003 to $33.9 million for the three months
ended March 31, 2004. Key components of expense as a percentage of revenues
were as follows (dollars in thousands): Three Months Ended March 31,2004
    
    2003
    
    2004 over 2003% of
    
    
    
    
    
    % ofExpenses
    
    Revenues
    
    Expenses
    
    Revenues
    
    Change
    
    % ChangeGeneral and administrative
    
    $
    29,060
    
    
    
    17
    %
    
    $
    27,874
    
    
    
    17
    %
    
    $
    1,186
    
    
    
    4
    %Marketing
    
    
    4,876
    
    
    
    3
    %
    
    
    3,137
    
    
    
    2
    %
    
    
    1,739
    
    
    
    55
    %$
    33,936
    
    
    
    20
    %
    
    $
    31,011
    
    
    
    19
    %
    
    $
    2,925
    
    
    
    9
    %
 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 $1.2 million, or 4%, resulted primarily from increases in salary
and benefit costs, internal network costs and billing costs. Marketing expenses increased by $1.7 million, or 55%, as a result of
introducing the Get Hooked national branding campaign related to our service
offerings. Depreciation and Amortization.Depreciation and amortization expense decreased
by $2.0 million, or 5%, from $44.3 million for the three months ended March 31,
2003 to $42.3 million for the three months ended March 31, 2004. In the first
quarter of 2003 depreciation expense included approximately $3.4 million
attributable to accelerated depreciation related to the completion of our
rebuild and upgrade. A corresponding amount is not included in the first
quarter of 2004 because our rebuild and upgrade is substantially complete. Special Charges, Net.Special charges of $1.0 million for the three months
ended March 31, 2004 represents approximately $0.9 million of litigation costs
related to our portion of Charters tentative settlement of the South Carolina
national class action suit, subject to final documentation and court approval
and approximately $0.1 million of severance and related costs of our workforce
reduction. Special charges of $0.6 million for the three months ended March
31, 2003 represents a $0.3 million reversal in the severance accrual coupled
with a $0.3 million credit from a settlement from the Internet service provider
Excite@Home related to the conversion of approximately 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 reorganization of our
operations. Interest Expense, Net.Net interest expense decreased by $5.8 million, or 24%,
to $18.9 million for the three months ended March 31, 2004 from $24.6 million
for the three months ended March 31, 2003. The decrease was primarily the
result of a decrease in our weighted average debt outstanding to $1.2 billion
during the three months ended March 31, 2004 from $1.4 billion during the three
months ended March 31, 2003 coupled with a decrease in our average borrowing
rate from 6.3% during the three months ended March 31, 2003 to 6.1% during the
three months ended March 31, 2004. Loss on Derivative Instruments and Hedging Activities, Net.Net loss on
derivative instruments and hedging activities increased $6.0 million from $0.2
million for the three months ended March 31, 2003 to $6.2 million for the three
months ended March 31, 2004. The increase is primarily the result of an
increase in losses on interest rate agreements, which do not qualify for hedge
accounting under SFAS No. 133, which increased from $0.2 million for the three
months ended March 31, 2003 to $4.7 million for the three months ended March
31, 2004. This was 18




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coupled with an increase in losses on interest rate agreements, as a result of
hedge ineffectiveness, on designated hedges which increased from $25 thousand
for the three months ended March 31, 2003 to $1.5 million for the three months
ended March 31, 2004. Other, Net.Other expense of $4 thousand and other income of $23 thousand for
the three months ended March 31, 2004 and 2003, respectively, represents
various miscellaneous expenses and income. 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 of CC VIII allocated to Mr. Allen. Income Tax Expense.Income tax expense of $0.7 million and $0.4 million was
recognized for the three months ended March 31, 2004 and 2003, respectively,
which represents increases in the deferred tax liabilities and current state
income tax expenses of certain of CC V Holdings indirect corporate
subsidiaries. Net loss.Net loss decreased by $1.5 million from $6.8 million for the three
months ended March 31, 2003 to $5.3 million for the three months ended March
31, 2004 as a result of the combination of factors discussed 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 debt 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 parent companies, borrowings from related parties and cash on hand. The
mix of funding sources changes from period to period, but for the three months
ended March 31, 2004, approximately 85% of our funding requirements were from
cash flows from operating activities and 15% was 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 parent companies abilities to make additional
contributions. In April 2004, our indirect parent, Charter Operating sold notes and amended
and restated its own 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 facility. As of March 31, 2004 and December 31, 2003, long-term debt totaled
approximately $1.1 billion and $1.2 billion, respectively. 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 at March 31, 2004 and
December 31, 2003. As of March 31, 2004 and December 31, 2003, the weighted
average interest rate on our bank debt 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%. Approximately 71% of our
debt effectively bore fixed interest rates, including the effects of our
interest rate hedge agreements, as of March 31, 2004 as compared to
approximately 70% at December 31, 2003. The fair value of our high-yield debt
was $118 million and $119 million at March 31, 2004 and December 31, 2003,
respectively. The fair value of bank debt was $1.0 billion at March 31, 2004
and December 31, 2003. The fair value of high-yield debt is based on quoted
market prices and the fair value of bank debt is based on dealer quotations. We expect that we will remain in compliance with the covenants in our
indenture. We expect that our cash on hand and cash flows from operating
activities should 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
will accrue on the CC V Holdings notes at the annual rate of 11.875% and will
be payable each June and December, commencing June 2004, until the CC V
Holdings notes mature in December 2008. In addition, 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 19




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other debt obligations. Cash flows from operating activities and other
existing sources of funds may not be sufficient, on their own, to permit us to
satisfy these obligations. Traditionally, we have relied on our affiliates
ability to access the public debt and equity markets, as well as borrowings
under our credit facilities, as a source of capital. 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 parent companies ability to make loans and capital
contributions to us. If we are unable to generate or 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 in
traditional debt financings by us, we would consider:  
    
    further reducing our expenses and capital expenditures, which would
likely impair our ability to increase revenue;
    
    selling assets; or
    
    seeking funding from our parent companies through the issuance of
debt or equity by our parent companies, including Charter, Charter
Holdings, CCH II, LLC, CCO Holdings, LLC or Charter Communications
Operating, LLC, 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 in the past, Paul G. Allen, Charters principal shareholder, and his
affiliates have purchased equity from Charter and Charter Holdco for the
purpose of funding capital contributions to us, there is no obligation for Mr.
Allen or his affiliates to purchase equity from or contribute or loan funds to
us or to our subsidiaries in the future. Changes to CC VIII Operating Credit Facility In April 2004, Charter Operating sold senior second lien notes and amended and
restated its own credit facilities and used the additional borrowings under the
amended and restated 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 facility. 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 facility. In connection with the
transaction, all principal payments prior to maturity were eliminated from the
CC VIII Operating credit facility, 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 facility 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 facility 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 facility. The CC VIII Operating credit facility continues to contain typical
representations and warranties, affirmative covenants, reporting requirements,
and negative covenants, except that the facility no longer contains financial
covenants that measure performance against standards set for leverage, debt
service coverage, or operating cash flow coverage of cash interest expense. In
addition, the facility now provides that an event of default under the amended
and restated Charter Operating credit facilities is a default under the CC VIII
Operating credit facility. Requirement that CC V Holdings Notes be Redeemed Under Certain Circumstances 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 20




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notes issued by Charter Holdings) is determined to be below 8.75 to 1.0,
provided the ratio then remains below that level. Historical Operating, Financing and Investing Activities We held $6 million in cash and cash equivalents as of March 31, 2004 compared
to $14 million as of December 31, 2003. Operating Activities.Net cash provided by operating activities for the three
months ended March 31, 2004 and 2003 was $45 million and $18 million,
respectively. Net cash flows from operating activities provided $27 million
more cash during the three months ended March 31, 2004 compared to the
corresponding period in 2003, primarily as a result of changes in operating
assets and liabilities that used $24 million less cash during the three months
ended March 31, 2004 compared to the corresponding period in 2003. Investing Activities.Net cash used in investing activities for the three
months ended March 31, 2004 and 2003 was $16 million and $21 million,
respectively. Investing activities used $5 million less cash during the three
months ended March 31, 2004 compared to the corresponding period in 2003,
primarily as a result of an increase of approximately $11 million in our
liabilities related to capital expenditures, partially offset by an increase in
purchases of property, plant and equipment of approximately $7 million. Financing Activities.Net cash used by financing activities for the three
months ended March 31, 2004 was $36 million and net cash provided by financing
activities for the three months ended March 31, 2003 was $18 million.
Financing activities used more cash during the three months ended March 31,
2004 compared to the corresponding period in 2003, primarily as a result of a
decrease in borrowings of long-term debt. Capital Expenditures We have significant ongoing capital expenditure requirements. Capital
expenditures were $16 million and $9 million for the three months ended March
31, 2004 and 2003, respectively. The majority of the capital expenditures for
the three months ended March 31, 2004 and 2003 related to our customer premise
equipment. 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 three months ended March 31, 2004 and
2003, our liabilities related to capital expenditures decreased by $0.8 million
and $12 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 on hand and 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 the
Critical Accounting Policies and Estimates section of 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 contain
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 21




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
    
    pledge assets. The 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 that could result in
acceleration of our publicly held 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 our 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. We have historically funded liquidity and
capital requirements through cash flows from operating activities, borrowings
under the credit facilities of our subsidiary and capital contributions from
our indirect parent companies. 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 existing
sources of funds may not be sufficient, on their own, to permit us to satisfy
these obligations. 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 our debt, grow our
business, respond to competitive challenges, or to fund our other
liquidity and capital needs. 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
subsidiaries in the future. If we or our parent companies are unable to raise needed capital on a timely
basis, 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
substantial amount of debt. Any financial or liquidity problems of our
indirect parent companies would likely cause serious disruption to our business
and have a material adverse effect on our business and results of operations.
Any such event would likely 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, and several class action lawsuits
were filed in Delaware state court against Charter and certain of its directors
and officers. Finally, two shareholders derivative suits were filed in
Missouri state court against Charter, its then current directors and its former
independent auditor. These actions were consolidated during the fourth quarter
of 2002. Additionally, on March 12, 2004, an action substantively
identical to the Missouri State Court derivative suits was filed in
the Missouri State Court. This case has not yet be consolidated with
the other Missouri state court derivative suits, but Charter expects
that it will be in the future. The federal shareholders derivative suit, the Delaware class actions, the consolidated derivative suit and the new Mission State Court
derivative action each allege that the defendants breached
their fiduciary duties. 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 currently 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 22




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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 subsequently issued a formal order of investigation
dated January 23, 2003, and subsequent related document and testimony
subpoenas. The investigation and subpoenas generally concern 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. Charter has advised us that it is
fully cooperating with the SEC staff. Due to the inherent uncertainties of litigation and investigations, Charter
cannot predict the ultimate outcome of these proceedings. An unfavorable
outcome in the lawsuits or the government investigations described above could
have a material adverse effect on our financial condition and results of
operations or our liquidity. In addition, the restatement of our 2000, 2001 and 2002 financial statements
may lead to additional allegations in the pending securities class and
shareholders derivative actions against Charter, or to additional claims being
filed or to investigations being expanded or commenced. These proceedings, and
Charters actions in response to these proceedings, could result in substantial
costs, substantial potential liabilities 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. 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.
Local telephone companies and electric utilities can compete in this area, and
they increasingly may do so in the future. 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 could have a
material negative impact on our business. Mergers, joint ventures and alliances among franchise, 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. Variable Interest Rates.At March 31, 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 March 31, 2004 and 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%.
Approximately 71% of our debt was effectively fixed, including the effects of
our interest rate hedge agreements, as of March 31, 2004 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 our 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, our ability to properly manage our operations will be impacted by our
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 23




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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 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. Public Notes Price Volatility.The market price of our publicly traded notes
has been and is likely to continue to be highly volatile. We expect that the
price of our 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 Charters (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 public notes, regardless of our operating performance. In the past,
securities litigation has often commenced following periods of volatility in
the market price of our 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 ability to collect accounts receivable and
maintain customers. If we experience reduced operating revenues, it could
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. 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. 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 á 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 this channel usage
possibility, although it previously issued a tentative decision against such
dual carriage. 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. 24




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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 will likely be appealed, but it may
possibly lead to cable operators having to contribute to the federal
governments universal service fund, to open access requirements, and 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) have been
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 are sought by the plaintiffs. In general, the lawsuits allege 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. 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 consolidated action (the Consolidated Federal Class
Action) for pretrial purposes. On June 19, 2003, following a pretrial
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 have been 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 Action 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 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 allege that the individual defendants breached their fiduciary
duties by failing to establish and maintain adequate internal controls and
procedures. This case has not yet been consolidated with the State Derivative
Action, but Charter expects that it will be in the future. Unspecified damages,
allegedly on Charters behalf, are sought by plaintiffs. 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 alleges 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, are sought by the plaintiffs. 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 have been 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 25




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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 were brought on behalf of
Charters securities holders as of July 29, 2002, and seek unspecified damages
and possible injunctive relief. The Delaware Class Actions are substantively
identical. Charter has informed us that no such transaction by Mr. Allen has
been presented. Orders of dismissal without prejudice have been entered in each
of the Delaware Class Actions. All of the lawsuits discussed above are each in preliminary stages. No reserves
have been established for potential losses or related insurance recoveries on
these matters because Charter is unable to predict the outcome. Charter has
advised us that it intends to vigorously defend the lawsuits. 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 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 currently 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 has subsequently issued a formal order of
investigation dated January 23, 2003, and subsequent document and testimony
subpoenas. The investigation and subpoenas generally concern 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. Charter has advised us that it is fully
cooperating with the SEC Staff. 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, SEC investigation and the above described
lawsuits, some of Charters current and former directors and Charters current
and former officers have been advanced certain costs and expenses incurred in
connection with their defense. These amounts have been submitted to Charters
director and officer insurance carrier for reimbursement. The carrier has
raised various objections to portions of these amounts, and Charter is in
negotiations with the carrier regarding their reimbursement. Insurance. Charter has liability insurance coverage that we believe is
available for the matters described above, where applicable, subject to the
terms, conditions and limitations of the respective policies. There is no
assurance that current coverage will be sufficient for all claims described
above or any future claims that may arise. 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 (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. Charter Holdco removed this case 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 have ruled that until a final judgment
is entered against Charter Holdco, they lack jurisdiction to hear the appeal. 26




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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 participated in a mediation with respect to this and related
litigation. The mediator made a proposal to the parties. In May 2004, the
parties to this and the related litigation accepted the mediators proposal and
reached a tentative settlement. The tentative settlement remains subject to
final documentation and court approval. As a result of the tentative
settlement, we have recorded a special charge of $0.9 million in our condensed
consolidated statement of operations for the three months ended March 31, 2004
related to our portion of the litigation costs. Outcome.Charter is unable to predict the outcome of the lawsuits and the
government investigations described above. An unfavorable outcome in any of
these lawsuits or the government investigations could have a material adverse
effect on our financial condition or results of operations. 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 financial condition, results of
operations or our liquidity. 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK No material changes in reported market risks have occurred since the filing of
our December 31, 2003 Annual Report on Form 10-K. 
 ITEM 4. CONTROLS AND PROCEDURES As of the end of the period covered by this report, management, including our
Chief Executive Officer and Chief Financial Officer, 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 Chief Financial Officer 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 March 31, 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. 27




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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 AND REPORTS ON FORM 8-K  (a)
    
    EXHIBITS The index to the exhibits begins on page 30 of this quarterly report.  (b)
    
    REPORTS ON FORM 8-KNone. 28




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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: May 17, 2004
    By:
    CHARTER COMMUNICATIONS, INC.,Registrants Manager By:
    /s/ Michael P. HusebyName:
    Michael P. HusebyTitle:
    Executive Vice President and Chief Financial Officer
(Principal Financial Officer) of Charter Communications, Inc.
(Manager) and CC V Holdings, LLC By:
    /s/ Paul E. MartinName:
    Paul E. MartinTitle:
    Senior Vice President and Corporate Controller
(Principal Accounting Officer) of Charter Communications, Inc.
(Manager) and CC V Holdings, LLC CC V HOLDINGS FINANCE, INC.Dated: May 17, 2004
    By:
    /s/ Michael P. HusebyName:
    Michael P. HusebyTitle:
    Executive Vice President and Chief Financial Officer
(Principal Financial Officer) of Charter Communications, Inc.
(Manager) and CC V Holdings Finance, Inc. By:
    /s/ Paul E. MartinName:
    Paul E. MartinTitle:
    Senior Vice President  Corporate Controller
(Principal Accounting Officer) of Charter Communications, Inc.
(Manager) and CC V Holdings Finance, Inc. 29




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EXHIBIT INDEX ExhibitNumber
    
    Description of Document10.1+
    
    Description of Long-Term Incentive Program to the Charter
Communications, Inc. 2001 Stock Incentive Plan
(Incorporated by reference to Exhibit 10.4 to Charter
Communications Holdings, LLC quarterly report on Form 10-Q
filed on May 17, 2004 (File No. 333-77499)).10.2
    
    Amended and Restated Credit Agreement among Charter
Communications Operating, LLC, CCO Holdings, LLC and
certain lenders and agents named therein dated April 27,
2004 (Incorporated by reference to Exhibit 10.25 to
Amendment No. 2 to the registration statement on Form S-4
of CCH II, LLC filed on May 5, 2004 (File No. 333-111423)).10.3
    
    Fourth Amended and Restated Credit Agreement, dated as of
February 2, 1999, as amended and restated as of April 27,
2004, among CC VIII Holdings, LLC, CC VIII Operating, LLC,
and Charter Communications Operating, LLC, as sole lender
and as administrative agent.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 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 (Chief Financial Officer).
 + Management compensatory plan or arrangement 30