##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-K (Mark One) [X]
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
 For the year ended December 31, 2003
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: 333-77499Commission File
Numbers:      333-77499-01 Charter Communications Holdings, LLC
Charter Communications Holdings Capital Corporation*  (Exact name of registrants as specified in their charters)
 Delaware
    
    43-1843179Delaware
    
    43-1843177(State or other jurisdiction of incorporation or
    
    (I.R.S. Employer Identification Number)organization)
 12405 Powerscourt DriveSt. Louis, Missouri 63131
    
    (314) 965-0555(Address of principal executive offices including zip code)
    
    (Registrants telephone number, including area code)
 Securities registered pursuant to section 12(b) of the Act: None Securities registered pursuant to section 12(g) of the Act: None
 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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [x] Indicate by checkmark 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 at June 30, 2003 was $0. All of the limited
liability company membership interests of Charter Communications Holdings, LLC
are held by Charter Communications Holding Company, LLC. All of the issued and
outstanding shares of capital stock of Charter Communications Holdings Capital
Corporation are held by Charter Communications Holdings, LLC. There is no
public trading market for any of the aforementioned limited liability company
membership interests or shares of capital stock. Number of shares of common stock of Charter Communications Holdings Capital
Corporation outstanding as of February 29, 2004: 100.  *Charter Communications Holdings Capital Corporation meets the conditions set
forth in General Instruction I(1)(a) and (b) to Form 10-K and is therefore
filing with the reduced disclosure format. Documents Incorporated By Reference
The following documents are incorporated into this Report by reference: None




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##### 



CHARTER COMMUNICATIONS HOLDINGS, LLC
CHARTER COMMUNICATIONS HOLDINGS CAPITAL CORPORATION
FORM 10-K  FOR THE YEAR ENDED DECEMBER 31, 2003  
 TABLE OF CONTENTS Page No.PART IItem 1
    
    Business
    
    
    1Item 2
    
    Properties
    
    
    23Item 3
    
    Legal Proceedings
    
    
    24Item 4
    
    Submission of Matters to a Vote of Security Holders
    
    
    27PART IIItem 5
    
    Market for Registrant's Common Equity and Related Stockholder Matters
    
    
    28Item 6
    
    Selected Financial Data
    
    
    29Item 7
    
    Managements Discussion and Analysis of
Financial Condition and Results of Operations
    
    
    30Item 7A
    
    Quantitative and Qualitative Disclosure About Market Risk
    
    
    82Item 8
    
    Financial Statements and Supplementary Data
    
    
    83Item 9
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    83Item 9A
    
    Controls and Procedures
    
    
    83PART IIIItem 10
    
    Directors and Executive Officers of the Registrant
    
    
    85Item 11
    
    Executive Compensation
    
    
    91Item 12
    
    Security Ownership of Certain Beneficial Owners and Management
    
    
    97Item 13
    
    Certain Relationships and Related Transactions
    
    
    100PART IVItem 14
    
    Principal Accounting Fees and Services
    
    
    111Item 15
    
    Exhibits, Financial Statement Schedules, and Reports on Form 8-K
    
    
    111Signatures
    
    
    
    
    113Exhibit Index
    
    
    
    
    114
 This annual report on Form 10-K is for the year ended December 31, 2003. 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 annual report. In addition, information that we file with the SEC in the
future will automatically update and supersede information contained in this
annual report. In this annual report, we, us and our refer to Charter
Communications Holdings, LLC and its subsidiaries. i




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##### 



CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS: This annual report includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, as amended, regarding, among other things, our plans,
strategies and prospects, both business and financial, including, without
limitation, the forward-looking statements set forth in the Focus for 2004
section under Part I, Item 1. Business, Overview of Operations and the
Liquidity and Capital Resources sections under Part II, Item 7.
Managements Discussion and Analysis of Financial Condition and Results of
Operations in this annual 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 II, Item 7 Managements Discussion and Analysis of Financial
Condition and Results of Operations in this annual report. Many of the
forward-looking statements contained in this annual 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 annual report
are set forth in this annual report and in other reports or documents that we
file from time to time with the United States Securities and Exchange
Commission, or 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 and our subsidiaries ability to comply with all covenants in
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 subsidiaries ability to pay or refinance debt as it
becomes due;
    
    availability of funds to meet interest payment obligations under
our 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 and our subsidiaries
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 and the putative
class action and derivative shareholders litigation against Charter
Communications, Inc.;
    
    our ability to obtain programming at reasonable prices or 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 obligation to update any of the forward-looking statements
after the date of this annual report. ii




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PART I 
 Item 1.Business. Introduction Charter Communications Holdings, LLC (Charter Holdings) is a broadband
communications company operating in the United States, with approximately 12.4
million homes passed and approximately 6.54 million customers. Charter
Communications Holdings Capital Corporation (Charter Capital) is a
wholly-owned subsidiary of Charter Holdings and was formed and exists solely as
a co-issuer of the public debt issued with Charter Holdings. Through our
broadband network of coaxial and fiber optic cable, we offer our customers
traditional cable video programming (analog and digital, which we refer to as
video service), high-speed cable Internet access (which we refer to as
high-speed data service), advanced broadband cable services (such as video on
demand (VOD), high definition television service and interactive television)
and, in some of our markets, we offer telephone service (which we refer to as
telephony). (Homes passed represents our estimate of the number of living
units, such as single family homes, apartment units and condominium units
passed by our cable distribution network. Homes passed excludes commercial
units passed by the cable distribution network.) We offer analog video service to all of our homes passed and we offer digital
video service to approximately 99% of our homes passed. At December 31, 2003,
we served approximately 6.43 million analog video customers, of which
approximately 2.67 million are also digital video customers. We offer
high-speed data service to approximately 87% of our homes passed and we serve
approximately 1.57 million high-speed data customers (including approximately
105,800 who receive high-speed data only services). At December 31, 2003, we
offered voice-over-Internet protocol (VOIP) telephony to approximately 33,000
homes passed in one market and traditional switch-based telephony to
approximately 86,600 homes passed in another market. We provided telephony
service to approximately 24,900 customers in these two markets as of that date.
See    Products and Services. At December 31, 2003, our investment in cable properties, long-term debt and
total members equity were $20.5 billion, $17.9 billion and $639 million,
respectively. Our debt to equity ratio and working capital deficit were 28 to
1 and $777 million at December 31, 2003, respectively. For the year ended
December 31, 2003, our revenues and net loss were approximately $4.8 billion
and $770 million, respectively. We have a history of net losses. Further, we expect to continue to report net
losses for the foreseeable future. Our net losses are principally attributable
to insufficient revenue to cover our interest costs we incur because of our
high level of debt, the depreciation expenses that we incur resulting from the
capital investments we have made in our cable properties, and the amortization
and impairment of our franchise intangibles. We expect that these expenses
(other than amortization and impairment of franchises) will remain significant,
and we therefore expect to continue to report net losses for the foreseeable
future. We are wholly owned by our parent company, Charter Communications Holding
Company, LLC (Charter Holdco), and indirectly owned by Charter
Communications, Inc. (Charter). Charter was organized as a Delaware
corporation in 1999 and completed an initial public offering of its Class A
common stock in November 1999. Charter is a holding company whose principal
assets are an approximate 46% equity interest and a 100% voting interest in
Charter Holdco, the direct parent of Charter Holdings. Charters only business
is to act as the manager of Charter Holdco and its subsidiaries, including us.
As manager, Charter controls the affairs of Charter Holdco and its
subsidiaries, including us. Certain of our subsidiaries commenced operations
under the Charter Communications name in 1994, and our growth to date has
been primarily due to acquisitions and business combinations, most notably
acquisitions completed from 1999 through 2001, pursuant to which we acquired a
total of approximately 5.5 million customers. We do not expect to make any
significant acquisitions in the foreseeable future, but plan to evaluate
opportunities to consolidate our operations through exchanges of cable systems
with other cable operators, as they arise. We may also sell certain assets
from time to time. Paul G. Allen controls Charter with an as-converted common
equity interest of 58% and a beneficial voting control interest of 93%. Our principal executive offices are located at Charter Plaza, 12405 Powerscourt
Drive, St. Louis, Missouri 63131. Our telephone number is (314) 965-0555. 1




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Adoption of New Policies Commencing in January 2002 and continuing through the first quarter of 2003,
our management elected to implement a number of new policies described in Item
7. Managements Discussion and Analysis of Financial Condition and Results
of Operations  Adoption of New Policies. Restatement of Prior Results There were no restatements of prior results since those announced in our 2002
annual report on Form 10-K filed April 15, 2003. However, certain
reclassifications have been made to 2002 and 2001 amounts to conform to 2003
presentation. Also, as discussed in our annual report on Form 10-K for the
year ended December 31, 2002, as part of a re-audit performed by KPMG LLP, we
concluded that it was appropriate to make certain adjustments to previously
reported results. In the restatement of our results, adjustments were made,
among other things, to previous interpretations and applications of generally
accepted accounting principles (GAAP) that had been consistently followed by
us since 2000 and throughout the restatement period. These adjustments reduced revenues reported in our 2002 quarterly reports on
Form 10-Q for the first three quarters of 2002 by a total of $38 million, and
in our 2001 annual report on Form 10-K for the years ended December 31, 2001
and 2000 by $146 million and $108 million, respectively. Such adjustments
represent approximately 1%, 4% and 3% of previously reported revenues for the
respective periods in 2002, 2001 and 2000. Our previously reported consolidated
net loss increased by a total of $188 million for the first three quarters of
2002 and decreased by $21 million for the year ended December 31, 2001. Our
previously reported net loss increased by $70 million for the year ended
December 31, 2000, primarily due to adjustments related to the original
accounting for acquisitions and elements of our rebuild and upgrade activities.
See Item 7. Managements Discussion and Analysis of Financial Condition and
Results of Operations  Restatement of Prior Results. Certain Significant Developments in 2003 and Early 2004 In 2003, we substantially completed the upgrade of our cable systems that we
had commenced in 2000. Our systems upgrade increased our bandwidth capacity,
enabling us to offer digital video service, two-way communication capability
and other advanced services. In addition, our upgrade has enabled us to reduce
the number of headend control centers, or headends, which house the equipment
to receive broadcast and satellite signals, transmit signals to customers and
connect customers for data services. In 2003, we invested approximately $132
million to upgrade our systems. At December 31, 2003, approximately 92% of our
customers were served by bandwidth of 550 megahertz or greater, approximately
87% are served by bandwidth of 750 megahertz or greater and approximately 87%
of our plant was two-way enabled. See    Our Network Technology. During 2003, we undertook a number of transition activities including
reorganizing our workforce, adjusting our 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 that the
reduction in marketing activities and other necessary operational changes
negatively impacted customer retention and acquisition, primarily during the
first half of the year. During the second half of 2003, we increased our
marketing efforts and implemented promotional campaigns to slow the loss of
analog video customers, and to accelerate advanced services penetration,
specifically in high-speed data. In 2003, we had a net decline in analog video
customers from approximately 6.58 million to approximately 6.41 million.
During the same period, our number of high-speed data customers increased by
approximately 427,500, contributing to a revenue increase of approximately 6%
in 2003. See Item 7. Managements Discussion and Analysis of Financial
Condition and Results of Operations. At December 31, 2003, we offered digital video service to approximately 99% of
our estimated homes passed and the estimated penetration rate (i.e., the
percentage of digital-enabled estimated homes passed that received the service)
was 22%. We also offered high-speed data service to approximately 923,500
additional homes passed in 2003, bringing estimated high-speed data enabled
homes passed at December 31, 2003, to approximately 10.7 million, and increased
our number of high-speed data customers during 2003 from approximately
1,138,100 to approximately 1,565,600, a penetration rate of 15% of high-speed
data homes passed. In 2003, revenues from high-speed data services increased
65%. See    Products and Services and Item 7. Managements Discussion
and Analysis of Financial Condition and Results of Operations. 2




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Asset Sales On October 1, 2003, our subsidiaries closed the sale of cable systems serving
approximately 25,000 customers in Port Orchard, Washington, for a total price
of approximately $91 million, subject to adjustments. On March 1, 2004, we and several of our subsidiaries closed the sale of cable
systems in Florida, Pennsylvania, Maryland, Delaware and West Virginia with
Atlantic Broadband Finance, LLC. We anticipate that an additional closing for
a cable system in New York will occur during the first half of 2004. After
giving effect to the sale of the New York system, net proceeds will be
approximately $735 million, subject to post-closing adjustments. We will use
these proceeds to repay bank debt. At December 31, 2003, the systems sold in
this transaction, including the New York system, served approximately 230,800
analog video customers, 83,300 digital video customers and 37,800 high-speed
data customers. CCH II Debt Exchanges On September 23, 2003, we, Charter and our subsidiary, CCH II, LLC (CCH II)
purchased, in a non-monetary transaction, a total of approximately $609 million
principal amount of Charters outstanding convertible senior notes and
approximately $1.3 billion principal amount of our senior notes and senior
discount notes from institutional investors in a small number of privately
negotiated transactions. As consideration for these securities, CCH II issued
approximately $1.6 billion principal amount of 10.25% senior notes due 2010,
achieving approximately $294 million of debt discount. CCH II also issued an
additional $30 million principal amount of 10.25% senior notes for an
equivalent amount of cash and used the net proceeds for transaction costs and
general corporate purposes. November 2003 CCO Holdings Sale of Senior Notes In November 2003, our subsidiary, CCO Holdings, LLC (CCO Holdings), sold $500
million total principal amount of 8-3/4% senior notes and used the net proceeds
of such sale to repay approximately $486 million principal amount of bank debt
of our subsidiaries. In November 2003, we terminated our previously announced
commitment for a secured loan facility with Vulcan Inc. as a result of this
transaction. Focus for 2004 Our principal financial goal is to maximize our return on invested capital. To
do so, we will focus on increasing revenues, improving customer retention and
enhancing customer satisfaction by providing reliable, high-quality service
offerings, superior customer service and attractive bundled offerings. Specifically, we are focusing in 2004 on:  
    
    increasing our sales and marketing efforts, especially through our
national Get Hooked campaign, to grow revenues through promoting our
advanced services and emphasizing what we believe to be competitive
advantages over satellite, including one-stop shopping for video,
voice, high-speed data and interactive services;
    
    enhancing our digital service with new content and continued
deployment of advanced products such as digital video recorder (DVR)
service, high definition television service, VOD and subscription video
on demand (SVOD, VOD service for selected programming categories);
    
    implementing what we believe is an attractive and competitive price
point strategy for various levels and bundled packages of digital
services;
    
    continuing to improve customer service and satisfaction;
    
    managing our operating costs by exercising discipline in capital and operational spending; and
    
    identifying opportunities to continue to improve our balance sheet and liquidity. We believe that our high-speed data service has the potential to continue to
provide a substantial portion of our revenue growth in the near future. We
also plan to continue to expand our marketing of our high-speed data service 3




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to the business community, which we believe has shown an increasing interest in
high-speed data service and private network services. We believe we offer our customers an excellent choice of services through an
increased variety of bundled packages, particularly with respect to our digital
video and high-speed data services. Our digital platform enables us to offer a
significant number and variety of channels, and we offer customers the
opportunity to choose among groups of channel offerings, including premium
channels, and to combine chosen programming with other services such as
high-speed data, high definition television (in selected markets) and VOD (in
selected markets). We plan to continue our efforts to improve customer satisfaction through
consolidation of customer contact centers, which we have reduced from over 300
at December 31, 2000 to 53 at December 31, 2003. Our 20 largest customer
contact centers now serve approximately 93% of our customers. We anticipate
that this initiative will assist us in reducing customer contact rates and call
abandonment rates, thereby improving customer satisfaction while reducing
costs. We believe that consolidation and standardization of call centers
enable us to provide a more consistent experience for our customers and to
improve sales through the use of better trained, more efficient and
sales-oriented customer service representatives. 4




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Summary Organizational Chart The chart below sets forth our organizational structure and that of our
principal direct and indirect parents and subsidiaries. Equity ownership and
voting percentages are actual percentages as of December 31, 2003 and do not
give effect to any exercise, conversion or exchange of options, preferred
stock, convertible notes and other convertible or exchangeable securities. (flow chart) 5




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(1)
    
    Charter acts as the sole manager of Charter Holdco and most of its limited liability company subsidiaries.(2)
    
    These membership units are held by Charter Investment, Inc. and Vulcan Cable III, Inc., each of which is
100% owned by Mr. Allen. They are exchangeable at any time on a one-for-one basis for shares of Charter
common stock.(3)
    
    Represents 100% of the preferred membership interests in CC VIII, LLC (CC VIII), a subsidiary of CC V
Holdings. An issue has arisen regarding the ultimate ownership of such CC VIII membership interests
following Mr. Allens acquisition of those interests on June 6, 2003. See Item 13. Certain Relationships
and Related Transactions  Transactions Arising Out of Our Organizational Structure and Mr. Allens
Investment in Charter and Its Subsidiaries  Equity Put Rights  CC VIII.(4)
    
    CC V Holdings, LLC, the issuer of $113 million accreted value of senior discount notes, is a direct
wholly owned subsidiary of CCO NR Holdings, LLC, and holds 100% of the common membership units of CC
VIII. Mr. Allen, through Charter Investment, Inc., holds
100% of the preferred membership units in CC
VIII. CC VIII holds indirectly 100% of the equity of CC VIII Operating, LLC (a borrower of $1.0 billion of bank
debt), which in turn holds 100% of the equity of a number of operating subsidiaries. One such operating
subsidiary (CC Michigan, LLC) is a guarantor of the CC V Holdings senior discount notes. We are an indirect subsidiary of Charter. Charters principal assets are an
approximate 46% common equity interest and a 100% voting interest in our direct
100% parent, Charter Holdco and mirror notes that are
payable by Charter Holdco to Charter which have the same principal
amount and terms as Charters convertible senior notes. Charter provides management services to Charter
Holdco and its subsidiaries, including us. As manager, Charter controls our
affairs and those of our subsidiaries. Charter Communications Holding Company, LLC.Charter Holdco, a Delaware limited
liability company that was formed on May 25, 1999, is our direct 100% parent.
The common membership units of Charter Holdco are owned 46% by Charter, 19% by
Vulcan Cable III, Inc. and 35% by Charter Investment, Inc. All of the
outstanding common membership units in Charter Holdco held by Vulcan Cable III,
Inc. and Charter Investment, Inc. are controlled by Mr. Allen and are
exchangeable on a one-for-one basis at any time for shares of high vote Class B
common stock of Charter, which are in turn convertible into Class A common
stock of Charter. Charter controls 100% of the voting power of Charter Holdco
and is its sole manager. Preferred Equity in CC VIII, LLC.Upon the closing of the acquisition of
certain cable systems by our subsidiary, CC VIII, in 2000, some of the former
owners received a portion of their purchase price in the form of preferred
membership units in CC VIII, which were exchangeable for shares of Charter
Class A common stock. In April 2002, these former owners exercised their right
to put their preferred CC VIII membership interests to Mr. Allen and this
transaction closed on June 6, 2003. An issue has arisen regarding the ultimate
ownership of these CC VIII membership units following the consummation of this
put right. See Item 13. Certain Relationships and Related Transactions 
Transactions Arising Out of Our Organizational Structure and Mr. Allens
Investment in Charter Communications, Inc. and Its Subsidiaries  Equity Put
Rights  CC VIII. Charter Communications Holdings, LLC.We are a Delaware limited liability
company formed on February 9, 1999, and are the co-issuer of the publicly held
Charter Holdings notes that consist of $2.8 billion total principal amount at
maturity of notes issued in March 1999, $1.4 billion total principal amount at
maturity of notes issued in January 2000, $2.0 billion total principal amount
at maturity of notes issued in January 2001, $2.3 billion total principal
amount at maturity of notes issued in May 2001 (includes additional issuance in
January 2002) and $330 million total principal amount at maturity of notes
issued in January 2002. We own 100% of Charter Communications Holdings
Capital, the co-issuer of these notes. We also own CCH II, CCO Holdings and
the subsidiaries that conduct all of our cable operations, including the
Charter Operating, CC V/CC VIII, CC VI and CC VII Companies described below in
Operating Subsidiaries. CCH II, LLC.CCH II, a Delaware limited liability company formed on March 20,
2003, is a co-issuer of the CCH II notes that consist of $1.6 billion principal
amount of notes issued in September 2003. CCH II owns 100% of CCH II Capital
Corp., the co-issuer of these notes. CCH II also owns CCO Holdings and the
subsidiaries that conduct all of our cable operations, including the Charter
Operating, CC V/CC VIII, CC VI and CC VII Companies described below in
Operating Subsidiaries. 6




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CCO Holdings, LLC.CCO Holdings, a Delaware limited liability company formed
on June 12, 2003, is a co-issuer of the CCO Holdings notes that consist of $500
million principal amount of notes issued in November 2003. CCO Holdings owns 100% of CCO Holdings Capital Corp., the co-issuer of these notes.
CCO Holdings also owns the subsidiaries that conduct all of our cable
operations, including the Charter Operating, CC V/CC VIII, CC VI and CC VII
Companies described below in Operating Subsidiaries. Operating Subsidiaries.These companies own or operate all of our cable
systems. There are four groups of these operating subsidiaries, identified as
follows: the Charter Operating companies, the CC V/CC VIII companies, the CC VI
companies, and the CC VII companies. Each group of operating subsidiaries has
a separate credit facility, and the public notes issued by Renaissance Media
Group and CC V Holdings are within two of these subsidiary groups. See Item
7. Managements Discussion and Analysis of Financial Condition and Results of
Operations  Liquidity and Capital Resources. Products and Services We offer our 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 high definition television, VOD and interactive television.
We sell our video programming and high-speed data services on a subscription
basis, with prices and related charges, that vary primarily based on the types
of service selected, whether the services are sold as a bundle versus on an
"à la carte basis, and the equipment necessary to receive the services, with
some variation in prices depending on geographic location. In addition, we
offer telephony service to a limited number of customers. 7




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The following table summarizes our customer statistics for analog and
digital video, high-speed data and telephony as of December 31, 2003 and
December 31, 2002. Approximate as ofDecember 31,
    
    December 31,2003 (a)
    
    2002 (a)Cable Video Services:Analog Video:Estimated homes passed (b)
    
    
    12,406,800
    
    
    
    11,925,000Residential (non-bulk) analog video customers (c)
    
    
    6,173,400
    
    
    
    6,328,900Multi-dwelling (bulk) and commercial unit customers (d)
    
    
    257,900
    
    
    
    249,900Analog video customers (c)(d)
    
    
    6,431,300
    
    
    
    6,578,800Estimated penetration of analog video homes passed (b)(c)(d)(e)
    
    
    52
    %
    
    
    55
    %Average monthly analog revenue per analog video customer (f)
    
    $
    36.72
    
    
    $
    35.46Digital Video:Estimated digital homes passed (b)
    
    
    12,292,300
    
    
    
    11,547,000Digital video customers (g)
    
    
    2,671,900
    
    
    
    2,682,800Estimated penetration of digital homes passed (b)(e)(g)
    
    
    22
    %
    
    
    23
    %Digital percentage of analog video customers (c)(d)(g)(h)
    
    
    42
    %
    
    
    41
    %Digital set-top terminals deployed
    
    
    3,751,600
    
    
    
    3,772,600Average incremental monthly digital revenue per
digital video customer (f)
    
    $
    23.12
    
    
    $
    23.65Estimated video on demand homes passed (b)
    
    
    4,476,000
    
    
    
    3,195,000Non-Video Cable Services:High-Speed Data Services:Estimated high-speed data homes passed (b)
    
    
    10,749,500
    
    
    
    9,826,000Residential high-speed data customers (i)
    
    
    1,565,600
    
    
    
    1,138,100Estimated penetration of high-speed data homes passed (b)(e)(i)
    
    
    15
    %
    
    
    12
    %Average monthly high-speed data revenue per
high-speed data customer (f)
    
    $
    32.67
    
    
    $
    31.55Dial-up customers
    
    
    9,600
    
    
    
    14,200Telephony Customers(j)
    
    
    24,900
    
    
    
    22,800
 Pro forma for the effects of the Port Orchard, Washington sale on October 1,
2003, analog video customers, digital video customers and high-speed data
customers would have been 6,552,200, 2,669,800 and 1,128,200, respectively as
of December 31, 2002. On March 1, 2004, we and several of our subsidiaries closed the sale of cable
systems with Atlantic Broadband Finance, LLC with an anticipated additional
closing in the first half of 2004 for a cable system in New York. At
December 31, 2003, the systems sold in this transaction, including the New York
system, served approximately 230,800 analog video customers, 83,300 digital
video customers and 37,800 high-speed data customers.  (a)
    
    Customers include all persons our corporate billing records show
as receiving service (regardless of their payment status), except for
complimentary accounts (such as our employees). Further, customers
include persons receiving service under promotional programs that
offered up to two months of service for free, some of whom had not
requested to be disconnected, but had not become paying customers as of
December 31, 2003. If such persons do not become paying customers, we
do not believe this would have a material impact on our consolidated
financial condition or consolidated results of operations. In
addition, at December 31, 2003 and 2002, customers include
approximately 6,500 and 5,400 persons, whose accounts were over 90 days
past due in payment and approximately 2,000 and 1,300 of which were
over 120 days past due in payment, respectively. 8




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(b)
    
    Homes passed represent our estimate of the number of living
units, such as single family homes, apartment units and condominium
units passed by the cable distribution network in the areas where we
offer the service indicated. Homes passed exclude commercial units
passed by the cable distribution network.(c)
    
    Analog video customers include all customers who receive video
services, except for complementary accounts (such as our employees).(d)
    
    Included within video customers are those in commercial and
multi-dwelling structures, which are calculated on an equivalent bulk
unit (EBU) basis. EBU is calculated for a system by dividing the
bulk price charged to accounts in an area by the most prevalent price
charged to non-bulk residential customers in that market for the
comparable tier of service. The EBU method of estimating analog video
customers is consistent with the methodology used in determining costs
paid to programmers and has been consistently applied year over year.
As we increase our effective analog prices to residential customers
without a corresponding increase in the prices charged to commercial
service or multi-dwelling customers, our EBU count will decline even if
there is no real loss in commercial service or multi-dwelling
customers.(e)
    
    Penetration represents customers as a percentage of homes passed.(f)
    
    Average monthly revenue represents annual revenue for the service
indicated divided by twelve divided by average number of customers for
the service indicated during the respective year.(g)
    
    Digital video customers include all households that have one or
more digital set-top terminals. Included in digital video customers on
December 31, 2003 and December 31, 2002 are approximately 12,200 and
27,500 customers, respectively, that receive digital video service
directly through satellite transmission.(h)
    
    Represents the number of digital video customers as a percentage of
analog video customers.(i)
    
    All of these customers also receive video service and are included
in the video statistics above, except that the video statistics do not
include approximately 105,800 and 55,900 of these customers at December
31, 2003 and December 31, 2002, respectively, who were high-speed data
only customers. Our September 30, 2003, high-speed data only customer
total was increased by 20,400 from previously reported amounts which
related to additional high-speed data customers who had been
inadvertently excluded.(j)
    
    Telephony customers include all households receiving telephone
service. Video Services Our video service offerings include the following:  
    
    Basic Analog Video.All of our video customers receive a package of
basic programming which generally consists of local broadcast
television, local community programming, including governmental and
public access, and limited satellite-delivered or non-broadcast
channels, such as weather, shopping and religious services. Our basic
channel line-up generally has between 15 and 30 channels.
    
    Expanded Basic Video.This expanded programming level includes a
package of satellite-delivered or non-broadcast channels and generally
has between 30 and 50 channels in addition to the basic channel
line-up.
    
    Premium Channels.These channels provide commercial-free movies,
sports and other special event entertainment programming. Although we
offer subscriptions to premium channels on an individual basis, we
offer an increasing number of premium channel packages and offer
premium channels with our advanced services.
    
    Pay-Per-View.These channels allow customers to pay on a per event
basis to view a single showing of a recently released movie, a
one-time special sporting event or music concert on a commercial-free
basis.
    
    Digital Video.We offer digital video to our customers in several
different service combination packages. All of our digital packages
include a digital set-top terminal, an interactive electronic
programming guide, 9




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up to 45 channels of digital music, an expanded
menu of pay-per-view channels and the option to also receive digital
packages which range from 4 to 30 additional video channels. We also
offer our customers certain digital packages with one or more premium
channels of their choice with multiplexes. Multiplexes give
customers access to several different versions of the same premium
channel, which are varied as to time of airing (such as east and west
coast time slots) or programming content theme (such as westerns or
romance). Some digital tier packages focus on the interests of a
particular customer demographic and emphasize, for example, sports,
movies, family or ethnic programming. In addition to video
programming, digital video service enables customers to receive our
advanced services such as VOD and high definition television. Other
digital packages bundle digital television with our advanced services,
such as high-speed data services. High-Speed Data Services We offer high-speed data services to our residential and commercial customers
primarily via cable modems attached to personal computers. We generally offer
our high-speed data services as Charter High-Speed Internet, although in
certain markets we offer this service in conjunction with a third-party
provider. For our Charter High-Speed Internet service customers, we have a
custom start page that is co-branded with Microsoft Corporations network of
websites, known as MSN®, with content modules that we provide, including,
among other things, movie trailers, previews of movies on pay-per-view and VOD,
and television listings. We also offer traditional dial-up Internet access in
a very limited number of our markets. In the fall of 2003, we re-priced our high-speed data service, offering faster
speed and additional features both as part of a service bundle and as an à la
carte offering. We ended 2003 with 15% penetration of high-speed data homes
passed, up from the 12% penetration of high-speed data homes passed at year-end
2002. This gave us an annual percentage increase in high-speed data customers
of 38% and an increase in high-speed data revenues of 65% in 2003 compared to
year-end 2002. As of September 30, 2003, in most of our systems, we migrated
high-speed data customers to the fastest residential speed available at no
additional charge to our existing high-speed data customers. These customers
will remain at that speed without additional charge through March 2004. At
that time, we expect to begin migrating customers to our two-tier offerings
with new pricing and new choices of connection speed. Advanced Broadband Services We continue to test, evaluate and deploy new advanced services that we believe
will provide new revenue streams to offset overall increasing programming costs
or enhance our appeal to consumers to counter competition. These advanced
services include:  
    
    Video On Demand and Subscription Video on Demand.We offer VOD
service, which allows customers to access hundreds of movies and other
programming at any time with digital picture quality. In some systems
we also offer SVOD for a single monthly fee. As of December 31, 2003,
we offered VOD in systems serving approximately 850,000 digital video
customers. During 2004, we expect to deploy VOD service in additional
systems increasing VOD availability to approximately 1 million digital
video customers, or 40% of our digital video customers at year-end
2003. SVOD service was available in systems serving 680,200 digital
video customers at year-end 2003 and we expect to make it available in
systems serving an additional 421,200 digital video customers in the
first half of 2004.
    
    High Definition Television.High definition television offers our
digital video customers video programming at a higher resolution than
the standard analog or digital video image. As of December 31, 2003,
we offered high definition television in systems serving approximately
1.3 million digital video customers. We anticipate increasing high
definition service availability during 2004 to systems serving nearly
2 million digital video customers, or approximately 75% of our digital
video customers at year-end 2003.Our objective for 2004 is to provide
at least 8-10 broadcast and cable network high definition channels per
system, focusing on providing at least two local high definition
broadcast channels per system.
    
    Telephony Services.We continue to explore development and deployment
of voice communications services using VOIP to transmit digital voice
signals over our systems. At December 31, 2003, our VOIP telephony
service was available to approximately 33,000 homes passed in one
market and traditional switch-based telephony was available to
approximately 86,600 homes passed in another market. We have
identified systems in key markets to expand our VOIP telephony
offerings, and we anticipate a growth in 10




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our telephony service from
just over 120,000 homes passed on January 1, 2004 to nearly 1 million
homes passed by year-end.
    
    i-TV Service.We ended 2003 with interactive television service
(i-TV) available to over 1 million digital video customers. In
2004, we expect to increase availability in strategic competitive
markets and we are working on making our i-TV channels local-content
oriented. Although we do not charge our customers for this service,
we believe our ability to enhance our interactive content with local
information such as local movie times, local sports and local weather
provides us with an important advantage over satellite competition.
    
    Commercial Services.We offer integrated network solutions to
commercial and institutional customers. These solutions include
high-speed data and video services. In addition, we offer high-speed
data services to local businesses. Digital Video Recorder In December 2003, we launched digital video recording capabilities service in
four Los Angeles systems serving 121,000 digital video customers at year-end.
We expect to further expand DVR deployment in 2004 and we expect to end 2004
with DVR deployment in systems serving approximately 1.38 million digital video
customers, which would be approximately 52% of our digital video customers as
of December 31, 2003. Sale of Advertising We receive revenue from the sale of local advertising on satellite-delivered
networks such as MTV®, CNN® and ESPN®. In any particular market, we
generally insert local advertising on a minimum of four networks, and have
covered up to 45 channels. Our system rebuild and digital service launches
have increased the number of available channels on which we are able to insert
local advertising. We also provide cross-channel advertising to some
programmers. From time to time, certain of our equipment vendors have purchased advertising
from us. For the years ending December 31, 2003, 2002 and 2001, advertising
revenue from equipment vendors was recognized in the amounts of $0, $13
million, and $14 million, respectively. These revenues resulted from
purchases at market rates pursuant to executed binding agreements. However, in
connection with our restatement announced in April 2003, we reversed all
advertising revenues, approximately $17 million, from two set-top terminal
manufacturers recognized in 2000. Based on a reassessment of the underlying
structure of the arrangements during 2000, the prices paid for the set-top
terminals and the advertising revenue recognized were determined to be in
excess of fair value. See Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations  Restatement of Prior Results. Pricing for Our Products and Services Our revenues are derived principally from the monthly fees our customers pay
for the services we offer. A one-time installation fee, which is often waived
during certain promotional periods for a standard installation, is charged to
new customers. The prices we charge vary based on the level of service the
customer chooses and the particular geographic market. Most of our pricing is
reviewed and adjusted on an annual basis. In accordance with the Federal Communications Commissions rules, the prices we
charge for cable-related equipment, such as set-top terminals and remote
control devices, and for installation services are based on actual costs plus a
permitted rate of return. 11




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Although our cable service offerings vary across the markets we serve because
of various factors including competition and regulatory factors, our services,
when offered on a stand-alone basis, are typically offered at monthly price
ranges, excluding franchise fees and other taxes, as follows: Price Range as ofService
    
    December 31, 2003Analog video packages
    
    $
    8.00-$54.00Premium channel
    
    $
    10.00-$15.00Pay-per-view (per movie or event)
    
    $
    3.95-$179.00Digital video packages (including high-speed data service for higher tiers)
    
    $
    34.00-$106.00High-speed data service
    
    $
    29.99-$39.99Video on demand (per selection)
    
    $
    0.99-$12.99High definition television
    
    $
    3.99-$6.99
 In addition, from time to time we offer free service or reduced-price service
during promotional periods in order to attract new customers. There is no
assurance that these customers will remain as customers when the period of free
service expires. Our Network Technology We have substantially completed the build-out of our systems to a minimum
bandwidth of 550 megahertz or greater, which enables us to:  
    
    offer digital television, high-speed data services and other advanced services;
    
    offer up to 82 analog channels, and even more channels when our bandwidth is
used for digital signal transmission; and
    
    permit two-way communication for Internet access and interactive services, and
potentially, telephony services. As part of the upgrade of our systems during the last several years, we reduced
the number of headends that serve our customers from 1,138 at January 1, 2001
to 748 at December 31, 2003. Because headends are the control centers of a
cable system, where incoming signals are amplified, converted, processed and
combined for transmission to the customer, reducing the number of headends
reduces related equipment, service personnel and maintenance expenditures. We
expect that headend consolidation, together with our other upgrades, will allow
us to provide enhanced picture quality and greater system reliability. As a
result of the upgrade, approximately 88% of our customers were served by
headends serving at least 10,000 customers as of December 31, 2003. The following table sets forth the technological capacity of our systems as of
December 31, 2003: 550 megahertzLess than 550
    
    to
    
    750
    
    870
    
    Two-way
    
    Two-waymegahertz
    
    660 megahertz
    
    megahertz
    
    megahertz
    
    capability
    
    enabled8%
    
    
    5
    %
    
    
    42
    %
    
    
    45
    %
    
    
    92
    %
    
    
    87
    %
 See    Products and Services for statistics regarding the approximate
number of our customers who purchase the various services enabled by these
upgrades. As of December 31, 2003 our cable systems consisted of approximately 219,400
strand miles, including approximately 48,300 strand miles of fiber optic cable,
passing approximately 12.4 million households and serving
approximately 6.54 million customers. We adopted the hybrid fiber coaxial cable (HFC) architecture as the standard
for our systems upgrades. HFC architecture combines the use of fiber optic
cable with coaxial cable. Fiber optic cable is a communication medium that
uses glass fibers to transmit signals over long distances with minimum signal
loss or distortion. Fiber optic cable has excellent broadband frequency
characteristics, noise immunity and physical durability and can carry 12




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hundreds
of video, data and voice channels over extended distances. Coaxial cable is
less expensive and requires a more extensive signal amplification in order to
obtain the desired transmission levels for delivering channels. In most
systems, we deliver our signals via fiber optic cable from the headend to a
group of nodes, and use coaxial cable to deliver the signal from individual
nodes to the homes passed served by that node. Our system design enables a
maximum of 500 homes passed to be served by a single node. Currently, our
average node serves approximately 385 homes passed. Our system design provides
for six strands of fiber to each node, with two strands activated and four
strands reserved for spares and future services. We believe that this hybrid
network design provides high capacity and superior signal quality. The design
also provides reserve capacity for the addition of future services. The primary advantages of HFC architecture over traditional coaxial-only cable
networks include:  
    
    increased bandwidth capacity, for more channels and other services;
    
    dedicated bandwidth for two-way services, which avoids reverse signal
interference problems that can occur with two-way communication
capability; and
    
    improved picture quality and service reliability. We currently maintain a national network operations center to monitor our data
networks and to further our strategy of providing high quality service.
Monitoring previously done by our regional operations centers has been migrated
to our national network operations center. Centralized monitoring becomes
increasingly important as we increase the number of customers utilizing two-way
high-speed data service. Our local dispatch centers focus primarily on
monitoring the HFC plant, also replacing our existing regional operating
centers. Management of Our Systems Many of the functions associated with our financial management are centralized,
including accounting, billing, finance and acquisitions, payroll and benefit
administration, information system design and support, internal audit,
purchasing, marketing, programming contract administration and Internet
service, network and circuits administration. To improve efficiency and operational consistency throughout our systems, we
have consolidated from three divisions and ten regions to five operating
divisions, eliminating certain layers of middle management. Each division is
supported by operational, financial, marketing and engineering functions. The
reorganization has facilitated the establishment of and adherence to standard
practices, Charter branding throughout our systems and improved internal
communication. We believe these improvements enhance consistency of service
delivery. Customer Care Historically, we have fielded customer service requests, inquiries and
complaints through a large number of small customer service centers throughout
the country. As a consequence of our aggressive acquisition program in 1999
through 2001, the number of these service centers grew rapidly and in 2000 was
in excess of 300 service centers. We believe that maintaining such a large
number of service centers hindered our ability to maximize the consistency of
our service delivery and related customer satisfaction due to the logistical
challenges and poor economies of scale inherent in maintaining and supervising
such a large number of service centers. In an effort to better serve our customers, we are consolidating our local
customer care functions by operating technologically advanced, high-volume
customer contact centers, and as a result we have closed and expect to
continue to close a number of local payment and customer service centers. By
establishing regional customer contact centers, we are able to service our
customers 24 hours a day, seven days a week and utilize technologically
advanced equipment that we believe enhances interactions with our customers.
Our customer care specialists receive specialized training to develop customer
contact skills and product knowledge that are targeted towards prompt and
responsive resolution of customer complaints and customer retention, as well as
towards selling additional and higher levels of service to our customers. As
of December 31, 2003, we had 53 customer service locations, and our 20 largest
customer service locations serviced approximately 93% of our customers. 13




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Sales and Marketing Charter and its subsidiaries have a single team responsible for overseeing the
sales and marketing strategies of our individual systems. For most of our
systems with over 60,000 customers, an assigned marketing manager implements
our marketing decisions, while smaller systems are handled at the divisional
level. Due to our focus in 2003 on certain other operational matters and due
to certain financial constraints, we reduced spending in 2003 on marketing our
products and services. For the year ended December 31, 2003, we had marketing
expenditures of $107 million. We expect to increase our spending on marketing
in 2004. Our marketing efforts are intended to promote good interaction, quick
information flow and sharing of best practices between our corporate office,
which handles programs and administration, and our field offices, which
implement our various marketing programs. We monitor government regulation,
customer perception, competition, pricing and product preferences, among other
factors, to increase our responsiveness to our customers. Our coordinated
marketing techniques include door-to-door solicitation, telemarketing, media
advertising, e-marketing, direct mail solicitation and retail locations. We
also market and sell our services through consumer electronics retailers and
other retailers that sell televisions or cable modems. In January 2004, we introduced the first national branding campaign in
Charters history. The Get Hooked branding initiative will be a key focal
point of our national marketing campaigns throughout the year, designed to
promote our long-term objective of increasing our cash flow through deeper
market penetration and growth in revenue per customer. Our goal for 2004 is
for our corporate team to produce six to eight national marketing campaigns
employing our new national Get Hooked Charter-branding to:  
    
    Promote customer awareness and loyalty;
    
    Attract former customers and households that have never subscribed to our services;
    
    Promote our advanced services (such as DVR, high definition
television, VOD and SVOD) with the goal that our customers will view
their cable connection as one-stop shopping for video, voice,
high-speed data and interactive services;
    
    Promote our bundling of digital video and high-speed data services and pricing strategies; and
    
    Announce the launch of our advanced services as they become available in our systems. Programming General We believe that offering a wide variety of programming is an important factor
that influences a customers decision to subscribe to and retain our cable
services. We rely on market research, customer demographics and local
programming preferences to determine channel offerings in each of our markets.
We obtain basic and premium programming from a number of suppliers, usually
pursuant to a written contract. Our programming contracts generally continue
for a fixed period of time, usually from three to ten years, and are subject to
negotiated renewal. Some program suppliers offer financial incentives to
support the launch of a channel and ongoing marketing support or launch fees.
We also negotiate volume discount pricing structures. Programming costs are
usually payable each month based on calculations performed by us and are
subject to adjustment based on the results of periodic audits by the
programmers. Costs Programming tends to be made available to us for a license fee, which is
generally paid based on the number of customers to whom we make such
programming available. Such license fees may include volume discounts
available for higher numbers of customers, as well as discounts for channel placement or service
penetration. Some channels are available without cost to us for a limited
period of time, after which we pay for the programming. For home shopping
channels, we receive a percentage of the amount our customers spend on home
shopping purchases. Our cable programming costs have increased, in every year we have operated, in
excess of customary inflationary and cost-of-living type increases. We expect
them to continue to increase due to a variety of factors, including:  
    
    annual increases imposed by programmers;
    
    additional programming being provided to customers as a result of
system rebuilds and bandwidth reallocation, both of which increase
channel capacity; and 14




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
    
    increased cost for certain previously discounted programming. In particular, sports programming costs have increased significantly over the
past several years. In addition, contracts to purchase sports programming
sometimes contain built-in cost increases for programming added during the term
of the contract. Historically, we have been able to absorb increased programming costs through
increased prices to our customers. However, with the impact of competition and
other marketplace factors, there is no assurance that we will be able to
continue to do so. In order to maintain margins despite increasing programming
costs, we plan to continue to migrate certain program services from our analog
level of service to our digital tiers. We expect that this migration will
result in enhanced quality of programming offered on digital tiers and provide
our video customers more value and more choice. Additionally, as we migrate
our programming to our digital tier packages, certain programming that was
previously available to all of our customers via an analog signal, may be part
of an elective digital tier package. As a result, the customer base upon which
we pay programming fees will proportionately decrease, and the overall expense
for providing that service would likewise decrease. Reductions in the size of
certain programming customer bases may result in the loss of specific volume
discount benefits. We plan to seek to renegotiate the terms of our agreements
with certain programmers as these agreements come due for renewal. As measured by programming costs, and excluding premium services (substantially
all of which were renegotiated and renewed in 2003), as of February 19, 2004
approximately 34% of our current programming contracts are scheduled to expire
by the end of 2004, and approximately another 11% by the end of 2005. There
can be no assurance that these agreements will be renewed on favorable or
comparable terms. To the extent that we are unable to reach agreement with
certain programmers on terms that we believe are reasonable, we may be forced
to remove such programming channels from our line-up by the programmers, which
could result in a further loss of customers. In addition, our inability to
fully pass these programming cost increases on to our customers would have an
adverse impact on our cash flow and operating margins. Franchises As of December 31, 2003, our systems operated pursuant to a total of
approximately 4,400 franchises, permits and similar authorizations issued by
local and state governmental authorities. Each franchise is awarded by a
governmental authority and such governmental authority often must approve a
transfer to another party. Most franchises are subject to termination
proceedings in the event of a material breach. In addition, most franchises
require us to pay the granting authority a franchise fee of up to 5.0% of
revenues as defined in the various agreements, provided that revenue is derived from a cable service which is the maximum amount that
may be charged under the applicable federal law. We are entitled to and
generally do pass this fee through to the customer. Prior to the scheduled expiration of most franchises, we initiate renewal
proceedings with the granting authorities. This process usually takes three
years but can take a longer period of time. The Communications Act provides
for an orderly franchise renewal process in which granting authorities may not
unreasonably withhold renewals. In connection with the franchise renewal
process, many governmental authorities require the cable operator to make
certain commitments. Historically we have been able to renew our franchises
without incurring significant costs, although any particular franchise may not
be renewed on commercially favorable terms or otherwise. Our failure to obtain
renewals of our franchises, especially those in the major metropolitan areas
where we have the most customers, would have a material adverse effect on our
consolidated financial condition, results of operations or our liquidity,
including our ability to comply with our debt covenants. Approximately 28% of
our franchises covering approximately 26% of our video customers expire on or
before December 31, 2005. We expect to renew substantially all of these
franchises. Under the Telecommunications Act of 1996 (the 1996 Telecom Act), state and
local authorities are prohibited from limiting, restricting or conditioning the
provision of telecommunications services. They may, however, impose
competitively neutral requirements and manage the public rights-of-way.
Granting authorities may not require a cable operator to provide
telecommunications services or facilities, other than institutional networks,
as a condition of an initial franchise grant, a franchise renewal, or a
franchise transfer. The 1996 Telecom Act also limits franchise fees to an
operators cable-related revenues and clarifies that they do not apply to
revenues that a cable operator derives from providing new telecommunications
services. In a March 2002 decision, the Federal Communications Commission
(FCC) held that revenue derived from the provision of cable modem service
should not be added to franchise fee payments already limited by federal law to
5% of traditional cable service revenue. The same decision tentatively limited
local franchising authority regulation of cable modem service. On October 6,
2003, the United States Court of Appeals for the Ninth Circuit vacated in part
the FCCs March 2002 decision and remanded for 15




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further proceedings. The Ninth
Circuit affirmed the portion of the FCCs March 2002 decision holding that
cable modem service is not a cable service. Although the Ninth Circuits
decision should not subject cable operators to additional cable franchise fee
requirements for the provision of cable modem service, it could possibly result
in other telecommunications regulation. Competition We face competition in the areas of price, services, and service reliability.
We compete with other providers of television signals and other sources of home
entertainment. In addition, as we continue to expand into additional services
such as high-speed Internet access and telephony, we face competition from
other providers of each type of service. We operate in a very competitive
business environment, which can adversely affect our business and operations. In terms of competition for customers, we view ourselves as a member of the
broadband communications industry, which encompasses multi-channel video for
television and related broadband services, such as high-speed data and other
interactive video services. In the broadband industry, our principal
competitor for video services throughout our territory is direct broadcast
satellite (DBS), and in markets where it is available, our principal
competitor for data services is digital subscriber line (DSL). We do not
consider other cable operators to be significant one-on-one competitors in the
market overall, as traditional overbuilds are infrequent and spotty
geographically (although in a particular market, a cable operator overbuilder
would likely be a significant competitor at the local level). As of December
31, 2003, we are aware of traditional overbuild situations impacting
approximately 5% of our total homes passed. Although cable operators tend not to be direct competitors for customers, their
relative size may affect the competitive landscape in terms of how a cable
company competes against non-cable competitors in the market place as well as
in relationships with vendors who deal with cable operators. For example, a
larger cable operator might have better access to and pricing for the multiple
types of services cable companies offer. Also, a larger entity might have
different access to financial resources and acquisition opportunities. Our key competitors include: DBS Direct broadcast satellite is a significant competitor to cable systems. The
DBS industry has grown rapidly over the last several years, far exceeding the
growth rate of the cable television industry, and now serves more than 20
million subscribers nationwide. DBS service allows the subscriber to receive
video and high-speed Internet access services directly via satellite using a
relatively small dish antenna. Consistent with increasing consolidation in the
communications industry, News Corp., one of the worlds largest media
companies, recently acquired a controlling interest in DIRECTV, Inc.
(DirecTV), the largest domestic DBS company. This business combination could
significantly strengthen DirecTVs competitive posture, particularly through
favorable programming arrangements with various News Corp. affiliates and
subsidiaries, such as the Fox television network. In addition to the two
established DBS providers, DirecTV and EchoStar Communications Corporation
(EchoStar), Rainbow DBS, a division of Cablevision Systems Corp., a third DBS provider, commenced offering service in the fall of 2003. Additionally, EchoStar
and DirecTV both have entered into joint marketing agreements with major
telecommunications companies to offer bundled packages combining phone service,
DSL and DBS services. Video compression technology and high powered satellites allow DBS providers to
offer more than 200 digital channels from a single 32 transponder satellite,
thereby surpassing the typical analog cable system. In 2003, major DBS
competitors offered a greater variety of channel packages, and were especially
competitive at the lower end pricing, such as a monthly price of approximately
$30 for 75 channels compared to approximately $40 for the closest comparable
package in most of our markets. In addition, while we continue to believe that
the initial investment by a DBS customer exceeds that of a cable customer, the
initial equipment cost for DBS has decreased substantially, as the DBS
providers have aggressively marketed offers to new customers of incentives for
discounted or free equipment, installation and multiple units. DBS providers
are able to offer service nationwide and are able to establish a national image
and branding with standardized offerings, which together with their ability to
avoid franchise fees of up to 5% of revenues and property tax, leads to greater
efficiencies and lower costs in the lower tiers of service. However, we
believe that most consumers continue to prefer our stronger local presence in
our markets. We believe that cable-delivered VOD and SVOD service are superior
to DBS service because cable headends can store thousands of titles which
customers can access and control independently, whereas DBS 16




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technology can only
make available a much smaller number of titles with DVR-like customer control.
We also believe that our higher tier products, particularly our bundled premium
packages, are price-competitive with DBS packages and that many consumers
prefer our ability to economically bundle video packages with data packages.
Further, cable providers have the potential in some areas to provide a more
complete whole house communications package when combining video, high-speed
data and voice. We believe that this, combined with the introduction of more
new products that DBS cannot offer (local high definition television and local
interactive television) differentiates us from DBS competitors and could enable
us to win back some of our former customers who migrated to satellite. Recent
joint marketing arrangements between DBS providers and telecommunications
carriers allow similar bundling of services in certain areas. DBS companies historically were prohibited from retransmitting popular local
broadcast programming. However, a change to the copyright laws in 1999
eliminated this legal impediment. As a result, DBS companies now may
retransmit such programming, once they have secured retransmission consent from
the popular broadcast stations they wish to carry, and honor mandatory carriage
obligations of less popular broadcast stations in the same television markets.
In response to the legislation, DirecTV and EchoStar have begun carrying the
major network stations in the nations top television markets. DBS, however,
is limited in the local programming it can provide because of the current
capacity limitations of satellite technology. DBS companies currently offer
local broadcast programming only in the larger U.S. markets, although the
number of markets covered is increasing. DirecTV is now providing two-way high-speed Internet access services. Another
satellite company called WildBlue Communications, Inc. (formerly iSKY, Inc.)
reports that it plans to deliver two-way high-speed Internet access to
residential and small business markets in the contiguous United States and
portions of Canada sometime in 2004 using the Ka-band and spot beam technology.
EchoStar is offering its video programming services with the Internet services
provided by EarthLink, an Internet service provider, using digital subscriber
line technology. In addition, EchoStar is using a recently launched satellite
to test a dish-based broadband service and Hughes Network Systems is developing
a new Ka-band broadband service for enterprise markets. DSL The deployment of DSL allows Internet access to subscribers at data
transmission speeds greater than those available over conventional telephone
lines. DSL service therefore is competitive with high-speed Internet access
over cable systems. Several telephone companies which already have plant, an
existing customer base, and other operational functions in place (such as,
billing, service personnel, etc.) and other companies offer DSL service. DSL
actively markets its service and many providers have offered promotional
pricing with a one-year service agreement. The FCC has initiated a rulemaking
proceeding that could materially reduce existing regulation of DSL service,
essentially freeing such service from traditional telecommunications
regulation. It is also possible that federal
legislation could reduce regulation of Internet services offered by incumbent
telephone companies. Legislative action and the FCCs decisions and policies
in this area are subject to change. We expect DSL to remain a significant
competitor to our data services. DSL and other forms of high-speed Internet access provide competition to our
own provision of Internet access. For example, as discussed above,
satellite-based delivery options are in development. In addition, local
wireless Internet services have recently begun to operate in many markets using
available unlicensed radio spectrum. This service option, popularly known as
wi-fi, offers another alternative to cable-based Internet access. High-speed Internet access facilitates the streaming of video into homes and
businesses. As the quality and availability of video streaming over the
Internet improves, video streaming may compete with the traditional delivery of
video programming services over cable systems. It is possible that programming
suppliers will consider bypassing cable operators and market their services
directly to the consumer through video streaming over the Internet. We believe that pricing for residential and commercial data services on our
system is generally comparable to that for similar DSL services and that some
residential customers prefer our ability to bundle data services with video
services. However, DSL providers may currently be in a better position to
offer data services to businesses since their networks tend to be more complete
in commercial areas. They also have the ability to bundle telephony with data
services for a higher percentage of their customers, and that ability is
appealing to many consumers. Recent joint marketing arrangements between DSL
providers and DBS providers may allow some additional bundling of services. 17




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Broadcast Television Cable television has long competed with broadcast television, which consists of
television signals that the viewer is able to receive without charge using an
off-air antenna. The extent of such competition is dependent upon the
quality and quantity of broadcast signals available through off-air reception
compared to the services provided by the local cable system. Traditionally,
cable television has provided a higher picture quality and more channel
offerings than broadcast television. However, the recent licensing of digital
spectrum by the FCC will provide traditional broadcasters with the ability to
deliver high definition television pictures and multiple digital-quality
program streams, as well as advanced digital services such as subscription
video and data transmission. Walt Disney Co. recently announced the launching
of a movie service that bypasses cable through direct access to homes by data
streams sent over the television broadcast spectrum. Traditional Overbuilds Cable systems are operated under non-exclusive franchises granted by local
authorities. More than one cable system may legally be built in the same area.
It is possible that a franchising authority might grant a second franchise to
another cable operator and that such a franchise might contain terms and
conditions more favorable than those afforded us. In addition, entities
willing to establish an open video system, under which they offer unaffiliated
programmers non-discriminatory access to a portion of the systems cable
system, may be able to avoid local franchising requirements. Well-financed
businesses from outside the cable industry, such as public utilities that
already possess fiber optic and other transmission lines in the areas they
serve, may over time become competitors. There are a number of cities that
have constructed their own cable systems, in a manner similar to city-provided
utility services. There also has been interest in traditional overbuilds by
private companies. Constructing a competing cable system is a capital
intensive process which involves a high degree of risk. We believe that in
order to be successful, a competitors overbuild would need to be able to serve
the homes and businesses in the overbuilt area on a more cost-effective basis
than we can. Any such overbuild operation would require either significant
access to capital or access to facilities already in place that are capable of
delivering cable television programming. As of December 31, 2003, we are aware of overbuild situations impacting
approximately 5% of our total homes passed and potential overbuild situations
in areas servicing approximately 1% of our total homes passed, together
representing a total of approximately 6% of our homes passed. Additional
overbuild situations may occur in other systems. In response to such
overbuilds, these systems have been designated priorities for the upgrade of
cable plant and the launch of new and enhanced services. As of December 31,
2003, we have upgraded many of these systems to at least 750 megahertz two-way
HFC architecture. Telephone Companies and Utilities The competitive environment has been significantly affected by technological
developments and regulatory changes enacted under the 1996 Telecom Act, which
was designed to enhance competition in the cable television and local telephone
markets. Federal cross-ownership restrictions historically limited entry by
local telephone companies into the cable business. The 1996 Telecom Act
modified this cross-ownership restriction, making it possible for local
exchange carriers, who have considerable resources, to provide a wide variety
of video services competitive with services offered by cable systems. Although telephone companies can lawfully enter the cable television business,
activity in this area is currently quite limited. Local exchange carriers do
provide facilities for the transmission and distribution of voice and data
services, including Internet services, in competition with our existing or
potential interactive services ventures and businesses. We cannot predict the
likelihood of success of the broadband services offered by our competitors or
the impact on us of such competitive ventures. The entry of telephone
companies as direct competitors in the video marketplace may become more
widespread and could adversely affect the profitability and valuation of
established cable systems. As we expand our offerings to include Internet access and other
telecommunications services, we will be subject to competition from other
telecommunications providers. The telecommunications industry is highly
competitive and
includes competitors with greater financial and personnel resources, who have
brand name recognition and long-standing relationships with regulatory
authorities and customers. Moreover, mergers, joint ventures and alliances
among franchise, wireless or private cable operators, local exchange carriers
and others may result in providers capable of offering cable television,
Internet, and telecommunications services in direct competition with us. For
example, major local exchange carriers have entered into arrangements with
EchoStar and DirecTV in which they will market packages combining phone
service, DSL and DBS services. 18




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Additionally, we are subject to competition from utilities which possess fiber
optic transmission lines capable of transmitting signals with minimal signal
distortion. Utilities are also developing broadband over power line
technology, which will allow the provision of Internet and other broadband
services to homes and offices. Private Cable Additional competition is posed by satellite master antenna television systems,
or SMATV systems, serving multiple dwelling units, or MDUs, such as
condominiums, apartment complexes, and private residential communities. These
private cable systems may enter into exclusive agreements with such MDUs, which
may preclude operators of franchise systems from serving residents of such
private complexes. Private cable systems can offer both improved reception of
local television stations and many of the same satellite-delivered program
services that are offered by cable systems. SMATV systems currently benefit
from operating advantages not available to franchised cable systems, including
fewer regulatory burdens and no requirement to service low density or
economically depressed communities. Exemption from regulation may provide a
competitive advantage to certain of our current and potential competitors. The
FCC ruled in 1998 that private cable operators can lease video distribution
capacity from local telephone companies and distribute cable programming
services over public rights-of-way without obtaining a cable franchise. In
1999, both the Fifth and Seventh Circuit Courts of Appeals upheld this FCC
policy. Wireless Distribution Cable systems also compete with wireless program distribution services such as
multi-channel multipoint distribution systems or wireless cable, known as
MMDS, which uses low-power microwave frequencies to transmit television
programming over-the-air to paying customers. Wireless distribution services
generally provide many of the programming services provided by cable systems,
and digital compression technology increases significantly the channel capacity
of their systems. Both analog and digital MMDS services, however, require
unobstructed line of sight transmission paths and MMDS ventures have been
quite limited to date. The FCC recently completed its auction of Multichannel Video Distribution &
Data Service (MVDDS) licenses. MVDDS is a new terrestrial video and data
fixed wireless service that the FCC hopes will spur competition in the cable
and DBS industries. Regulation and Legislation The following summary addresses the key regulatory and legislative developments
affecting the cable industry. Cable system operations are extensively regulated by the FCC, some state
governments and most local governments. A failure to comply with these
regulations could subject us to substantial penalties. Our business can be dramatically impacted by changes to the existing regulatory
framework, whether triggered by legislative, administrative, or judicial
rulings. Congress and the FCC have expressed a particular interest in
increasing competition in the communications field generally and in the cable
television field specifically. The 1996 Telecom Act altered the regulatory
structure governing the nations communications providers. It removed barriers
to competition in both the cable television market and the local telephone
market. At the same time, the FCC has pursued spectrum licensing options
designed to increase competition to the cable industry by wireless multichannel
video programming distributors. We could be materially disadvantaged in the
future if we are subject to new regulations that do not equally impact our key
competitors. Congress and the FCC have frequently revisited the subject of communications
regulation, and they are likely to do so in the future. In addition, franchise
agreements with local governments must be periodically renewed, and new
operating terms may be imposed. Future legislative, regulatory, or judicial
changes could adversely affect our operations. We can provide no assurance
that the already extensive regulation of our business will not be expanded in
the future. Cable Rate Regulation The cable industry has operated under a federal rate regulation regime for more
than a decade. The regulations currently restrict the prices that cable
systems charge for basic service and associated equipment. All other cable
offerings are now universally exempt from rate regulation. Although rate
regulation operates pursuant to a federal formula, local governments, commonly
referred to as local franchising authorities, are primarily responsible for 19




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administering this regulation. The majority of our local franchising
authorities have never certified to regulate basic cable rates, but they retain
the right to do so (and order rate reductions and refunds), except in those
specific communities facing effective competition. Federal law defines
effective competition as existing in a variety of circumstances that
historically were rarely satisfied, but are increasingly likely to be satisfied
with the recent increase in DBS competition. There have been frequent calls to impose expanded rate regulation on the cable
industry. Confronted with rapidly increasing cable programming costs, it is
possible that Congress may adopt new constraints on the retail pricing or
packaging of cable programming. Such constraints could adversely affect our
operations. The federal rate regulations also require cable operators to maintain a
geographically uniform rate within each community, except in those
communities facing effective competition. As we attempt to respond to a
changing marketplace with competitive pricing practices, we may face legal
restraints and challenges that impede our ability to compete. Must Carry/Retransmission Consent Federal law currently includes must carry regulations, which require cable
systems to carry certain local broadcast television stations that the cable
operator would not select voluntarily. Alternatively, popular commercial
television stations can prohibit cable carriage unless the cable operator first
negotiates for retransmission consent, which may be conditioned on
significant payments or other concessions. Either option has a potentially
adverse effect on our business. The burden associated with must carry could
increase significantly if the FCC requires cable systems to simultaneously
carry both the analog and digital signals of each television station, as the
broadcast industry transitions from an analog to a digital format. The burden
could also increase significantly if the FCC requires cable systems to carry
multiple program streams included within a single digital broadcast
transmission. Although the FCC tentatively ruled against this expansion in a
2001 ruling, it is reviewing the issue and could reach a contrary result in the
near future. If these expanded must-carry requirements were adopted, we would
have less freedom over our distribution capacity. Access Channels Local franchise agreements often require cable operators to set aside certain
channels for public, educational and governmental access programming. Federal
law also requires cable systems to designate a portion of their channel
capacity for commercial leased access by unaffiliated third parties. Increased
activity in this area could further burden the channel capacity of our cable
systems. Access to Programming The FCC recently extended a regulation prohibiting video programmers affiliated
with cable companies from favoring cable operators over new competitors and
requiring such programmers to sell their satellite-delivered programming to
other multichannel video distributors. This provision limits the ability of
vertically integrated cable programmers to offer exclusive programming
arrangements to cable companies. DBS providers traditionally had no
similar restriction on exclusive programming, but the FCC recently imposed that
restriction as part of its approval of the DirecTV-News Corp. merger. The FCC has also adopted regulations to avoid unreasonable conduct in
retransmission consent negotiations between broadcasters and multichannel video
programming distributors, including cable and DBS. It recently imposed special
conditions on the DirectTV-News Corp. merger, including a requirement that Fox
affiliated broadcast stations enter into commercial arbitration for disputes
over retransmission consent. Given the heightened competition and media
consolidation that Charter faces, it is possible that we will find it
increasingly difficult to gain access to popular programming at favorable
terms. Such difficulty could adversely impact our business. Ownership Restrictions Federal regulation of the communications field traditionally included a host of
ownership restrictions, which limited the size of certain media entities and
restricted their ability to enter into competing enterprises. Through a series
of legislative, regulatory, and judicial actions, most of these restrictions
recently were eliminated or substantially relaxed. For example, historic
restrictions on local exchange carriers offering cable service within their
telephone service area, as well as those prohibiting broadcast stations from
owning cable systems within their broadcast service area, no longer exist.
Changes in this regulatory area, including some still subject to judicial
review, could 20




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alter the business landscape in which we operate, as formidable
new competitors (including electric utilities, local exchange carriers, and
broadcast/media companies) may increasingly choose to offer cable services.
The relaxation of ownership restrictions could, for example, simplify Comcast
Corporations recent bid for Walt Disney Company, notwithstanding overlapping
cable and broadcast properties. The FCC previously adopted regulations precluding any cable operator from
serving more than 30% of all domestic multichannel video subscribers and from
devoting more than 40% of the activated channel capacity of any cable system to
the carriage of affiliated national video programming services. These cable
ownership restrictions were invalidated by the courts, and the FCC is now
considering adoption of replacement regulations. Internet Service Over the past several years, proposals have been advanced at the FCC and
Congress that would require cable operators offering Internet service to
provide non-discriminatory access to unaffiliated Internet service providers.
Several local franchising authorities actually adopted mandatory open access
requirements, but various federal courts rejected each of these actions,
relying on different legal theories. It remains unclear today precisely what regulatory regime ultimately will be
applied to the cable industrys high-speed Internet service. The FCC has ruled
that cable modem service is an interstate information service, rather than a
cable or telecommunications service. This classification left cable modem
service exempt from the burdens associated with traditional cable and
telecommunications regulation. However, the United States Court of Appeals for
the Ninth Circuit recently vacated in part the FCCs ruling 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. Various parties have sought en banc review of this Ninth Circuit
decision. Although the FCC previously suggested that regulatory forbearance of cable
modem service would be appropriate, regardless of the technical classification
ultimately assigned to it, a number of technology companies continue to press
the FCC to subject cable modem service to certain nondiscrimination
principles. The final regulatory status of cable modem service remains
uncertain. Its outcome could materially affect our business. It could also
affect whether local franchising authorities can collect franchise fees on
cable modem service and whether cable systems will have any payment obligations
to the federal governments universal service fund. As the Internet has matured, it has become the subject of increasing regulatory
interest. There is now a host of federal laws affecting Internet service,
including the Digital Millennium Copyright Act, which affords copyright owners
certain rights against us that could adversely affect our relationship with any
customer accused of violating copyright laws. Recently enacted Anti-Spam
legislation also imposes new obligations on our operations. Moreover, Congress has not yet extended the five-year moratorium on state and local
taxation of Internet access, which expired in late 2003. Taxation of Internet
access or the adoption of new Internet regulations could adversely affect our
business. Phone Service The 1996 Telecom Act created a more favorable regulatory environment for us to
provide telecommunications services. In particular, it limited the regulatory
role of local franchising authorities and established requirements ensuring
that we could interconnect with other telephone companies to provide a viable
service. Many implementation details remain unresolved, and there are
substantial regulatory changes being considered that could impact, in both
positive and negative ways, our primary telecommunications competitors and our
own entry into the field of phone service. The FCC and state regulatory
authorities are considering, for example, whether common carrier regulation
traditionally applied to incumbent local exchange carriers should be modified
and how new alternative technologies, like VOIP, should be regulated. It is
unclear how these proceedings will be resolved and how they will affect our
potential expansion into phone service. Pole Attachments The Communications Act requires most utilities to provide cable systems with
access to poles and conduits and simultaneously regulates the rates charged for
this access. The Act specifies that significantly higher rates apply if the
cable plant is providing telecommunications service, as well as traditional
cable service. The FCC has clarified that a cable operators favorable pole
rates are not endangered by the provision of Internet access. Although that
determination was upheld by the United States Supreme Court, a subsequent
decision by the United States Court of Appeals for the Ninth Circuit regarding
the proper regulatory classification of Internet service has once again 21




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created
controversy in this area. It remains possible that the underlying pole
attachment formula, or its application to Internet and telecommunications
offerings, will be modified in a manner that substantially increases our pole
attachment costs. Cable Equipment The FCC has undertaken several steps to promote competition in the delivery of
cable equipment and compatibility with new digital technology. The FCC has
expressly ruled that cable customers must be allowed to purchase set-top
terminals from third parties and established a multi-year phase-in during which
security functions (which would remain in the operators exclusive control)
would be unbundled from the basic converter functions, which could then be
provided by third party vendors. The first phase of implementation has already
passed. A prohibition on cable operators leasing digital set-top terminals
that integrate security and basic navigation functions is currently scheduled
to go into effect as of July 1, 2006. The FCC recently adopted rules implementing an agreement between major cable
operators and manufacturers of consumer electronics on plug and play
specifications for one-way digital televisions. The rules require cable
operators to provide CableCard security modules and support to customer owned
digital televisions and similar devices already equipped with built-in set-top
terminal functionality. Cable operators must support basic home recording
rights and copy protection rules for digital programming content. The FCC has
adopted companion broadcast flag rules, requiring cable carriage of a code
embedded in digital broadcast programming that will regulate the further use of
copyright programming. The FCC is conducting additional related rulemakings,
and the cable and consumer electronics industries are currently negotiating an
agreement that would establish additional plug and play specifications for
two-way digital televisions. The FCC rules are subject to challenge and inter-industry negotiations are
ongoing. It is unclear how this process will develop and how it will affect
our offering of cable equipment and our relationship with our customers. Other Communications Act Provisions and FCC Regulatory Matters In addition to the Communications Act provisions and FCC regulations noted
above, there are other statutory provisions and FCC regulations affecting our
business. The Communications Act, for example, includes cable-specific privacy
obligations. The Act carefully limits our ability to collect and disclose
personal information. FCC regulations include a variety of additional areas, including, among other
things: (1) equal employment opportunity obligations; (2) customer service
standards; (3) technical service standards; (4) mandatory blackouts of certain
network, syndicated and sports programming; (5) restrictions on political
advertising; (6) restrictions on advertising in childrens programming; (7)
restrictions on origination cablecasting; (8) restrictions on carriage of
lottery programming; (9) sponsorship identification obligations; (10) closed
captioning of video programming; (11) licensing of systems and
facilities; (12) maintenance of public files; and (13) emergency alert
systems. It is possible that the FCC will expand or modify its regulation of cable
systems in the future, and we cannot predict at this time how that might impact
our business. Copyright Cable systems are subject to federal copyright licensing covering carriage of
television and radio broadcast signals. The possible modification or
elimination of this compulsory copyright license is the subject of continuing
legislative review and could adversely affect our ability to obtain desired
broadcast programming. We cannot predict the outcome of this legislative
activity. Moreover, the Copyright Office has not yet provided any guidance as
to the how the compulsory copyright license should apply to newly offered
digital broadcast signals. Copyright clearances for non-broadcast programming services are arranged
through private negotiations. Cable operators also must obtain music rights
for locally originated programming and advertising from the major music
performing rights organizations. These licensing fees have been the source of
litigation in the past, and we cannot predict with certainty whether license
fee disputes may arise in the future. Franchise Matters Cable systems generally are operated pursuant to nonexclusive franchises
granted by a municipality or other state or local government entity in order to
cross public rights-of-way. Cable franchises generally are granted for fixed 22




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terms and in many cases include monetary penalties for noncompliance and may be
terminable if the franchisee fails to comply with material provisions. The specific terms and conditions of cable franchises vary materially between
jurisdictions. Each franchise generally contains provisions governing cable
operations, franchise fees, system construction, maintenance, technical
performance, and customer service standards. A number of states subject cable
systems to the jurisdiction of centralized state government agencies, such as
public utility commissions. Although local franchising authorities have considerable discretion in
establishing franchise terms, there are certain federal protections. For
example, federal law caps local franchise fees and includes renewal procedures
designed to protect incumbent franchisees from arbitrary denials of renewal.
Even if a franchise is renewed, however, the local franchising authority may
seek to impose new and more onerous requirements as a condition of renewal.
Similarly, if a local franchising authoritys consent is required for the
purchase or sale of a cable system, the local franchising authority may attempt
to impose more burdensome requirements as a condition for providing its
consent. Employees As of December 31, 2003, we had approximately 15,500 full-time equivalent
employees, approximately 300 of which were represented by collective bargaining
agreements. We have never experienced a work stoppage. At December 31, 2002,
these numbers were approximately 18,600 and approximately 300, respectively. Pursuant to a mutual services agreement between Charter, Charter Investment,
Inc. and Charter Holdco, Charter Holdco leases the necessary personnel and
provides services to Charter to manage Charter Holdco and its
subsidiaries, including us. The mutual services agreement provides that Charter
Investment, Inc. and Charter Holdco will provide services to Charter on a cost
reimbursement basis. The corporate office includes employees of Charter and
Charter Holdco, which total approximately 400 employees. The corporate office
is responsible for coordinating and overseeing our operations. The corporate
office performs certain financial and administrative functions on a centralized
basis such as accounting, billing, finance and acquisitions, payroll and
benefit administration, information system design and support, internal audit,
purchasing, marketing and programming contract administration. The corporate
office performs these services on a cost reimbursement basis pursuant to a
management services agreement. See Item 13. Certain Relationships and Related
Transactions  Transactions Arising Out of Our Organizational Structure and
Mr. Allens Investment in Charter and Its Subsidiaries  Intercompany
Management Agreements and    Mutual Services Agreements. 
 Item 2.Properties. Our principal physical assets consist of cable distribution plant and
equipment, including signal receiving, encoding and decoding devices, headend
reception facilities, distribution systems and customer drop equipment for each
of our cable systems. Our cable plant and related equipment are generally attached to utility poles
under pole rental agreements with local public utilities and telephone
companies, and in certain locations are buried in underground ducts or
trenches. We own or lease real property for signal reception sites and own
most of our service vehicles. Historically our subsidiaries have owned the real property and buildings for
our data centers, customer contact centers and our divisional administrative
offices. However, for the foreseeable future, we plan to reduce our number of
administrative offices and lease the space, where possible, while attempting to
sell those existing locations that we believe are no longer required. Our
subsidiaries generally have leased space for business offices throughout our
operating divisions. Our headend and tower locations are located on owned or
leased parcels of land, and we generally own the towers on which our equipment
is located. Charter Holdco owns the real property and building for our
principal executive offices. The physical components of our cable systems require maintenance as well as
periodic upgrades to support the new services and products we introduce. See
Item 1. Business  Our Network Technology. We believe that our properties
are generally in good operating condition and are suitable for our business
operations. 23




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Item 3.Legal Proceedings. Securities Class Actions and Derivative Suits 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 annual 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 Actions are stayed
for ninety (90) days. The Consolidated Federal Class Action is entitled:  
    
    In re Charter Communications, Inc. Securities Litigation, MDL
Docket No. 1506 (All Cases), StoneRidge Investments Partners, LLC,
Individually and On Behalf of All Others Similarly Situated, v. Charter
Communications, Inc., Paul Allen, Jerald L. Kent, Carl E. Vogel, Kent
Kalkwarf, David G. Barford, Paul E. Martin, David L. McCall, Bill
Shreffler, Chris Fenger, James H. Smith, III, Scientific-Atlanta, Inc.,
Motorola, Inc. and Arthur Andersen, LLP, Consolidated Case No.
4:02-CV-1186-CAS. On September 12, 2002, a shareholders derivative suit (the State Derivative
Action) was filed in 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. The State Derivative Action is entitled:  
    
    Kenneth Stacey, Derivatively on behalf of Nominal Defendant Charter
Communications, Inc., v. Ronald L. Nelson, Paul G. Allen, Marc B.
Nathanson, Nancy B. Peretsman, William Savoy, John H. Tory, Carl E.
Vogel, Larry W. Wangberg, and Charter Communications, Inc. 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. The Federal Derivative Action is entitled:  
    
    Arthur Cohn, Derivatively on behalf of Nominal Defendant Charter
Communications, Inc., v. Ronald L. Nelson, Paul G. Allen, Marc B.
Nathanson, Nancy B. Peretsman, William Savoy, John H. Tory, Carl E.
Vogel, Larry W. Wangberg, and Charter Communications, Inc. 24




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In addition to the Federal Class Actions, the State 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 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
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. No
such transaction by Mr. Allen has been presented. Plaintiffs counsel has
granted the defendants an indefinite extension of time to respond to the only
complaint that has been served in the Delaware Class Actions. The Delaware Class Actions consist of:  
    
    Eleanor Leonard, v. Paul G. Allen, Larry W. Wangberg, John H. Tory,
Carl E. Vogel, Marc B. Nathanson, Nancy B. Peretsman, Ronald L. Nelson,
William Savoy, and Charter Communications, Inc., filed on August 12,
2002;
    
    Helene Giarraputo, on behalf of herself and all others similarly
situated, v. Paul G. Allen, Carl E. Vogel, Marc B. Nathanson, Ronald L.
Nelson, Nancy B. Peretsman, William Savoy, John H. Tory, Larry W.
Wangberg, and Charter Communications, Inc., filed on August 13, 2002;
    
    Ronald D. Wells, Whitney Counsil and Manny Varghese, on behalf of
themselves and all others similarly situated, v. Charter
Communications, Inc., Ronald L. Nelson, Paul G. Allen, Marc B.
Nathanson, Nancy B. Peretsman, William Savoy, John H. Tory, Carl E.
Vogel, Larry W. Wangberg, filed on August 13, 2002;
    
    Gilbert Herman, on behalf of himself and all others similarly
situated, v. Paul G. Allen, Larry W. Wangberg, John H. Tory, Carl E.
Vogel, Marc B. Nathanson, Nancy B. Peretsman, Ronald L. Nelson, William
Savoy, and Charter Communications, Inc., filed on August 14, 2002;
    
    Stephen Noteboom, on behalf of himself and all others similarly
situated, v. Paul G. Allen, Larry W. Wangberg, John H. Tory, Carl E.
Vogel, Marc B. Nathanson, Nancy B. Peretsman, Ronald L. Nelson, William
Savoy, and Charter Communications, Inc., filed on August 16, 2002; and
    
    John Fillmore on behalf of himself and all others similarly
situated, v. Paul G. Allen, Larry W. Wangberg, John H. Tory, Carl E.
Vogel, Marc B. Nathanson, Nancy B. Peretsman, Ronald L. Nelson, William
Savoy, and Charter Communications, Inc., filed on October 18, 2002. 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 25




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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 its current and former
officers have been advanced certain costs and expenses incurred in connection
with their defense. See Item 13. Certain Relationships and Related
Transactions  Indemnification Advances for greater detail. Insurance 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. 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 customers, alleging that Charter improperly charged them a wire
maintenance fee without request or permission. They also claimed that Charter
improperly required them to rent analog and/or digital set-top terminals even
though their television sets were cable ready. Charter 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 should
have but did not file a new motion to dismiss. The state court judge granted
the plaintiffs motion over Charters objection in September 2002. Charter
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, 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 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s motion to dismiss
for failure to state a claim. It also took under advisement Charters motion
to set aside the default judgment. The South Carolina Class Action is entitled:  
    
    Nikki Nicholls and Geraldine M. Barber, on behalf of themselves and
all others similarly situated v. Charter Communications Holding
Company, LLC and City of Spartanburg filed on October 29, 2001. 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 consolidated financial condition, results of operations or our
liquidity, including our ability to comply with our debt covenants. In addition to the matters set forth above, Charter is also party to other
lawsuits and claims that arose in the ordinary course of conducting its
business. In the opinion of management, after taking into account recorded
liabilities, the outcome of these other lawsuits and claims are not expected to
have a material adverse effect on our consolidated financial condition, results
of operations or our liquidity, including our ability to comply with our debt
covenants. 26




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Item 4.Submission of Matters to a Vote of Security Holders. No matters were submitted to a vote of our sole security holder during the
fourth quarter of the year ended December 31, 2003. 27




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PART II 
 Item 5.Market for Registrants Common Equity and Related Stockholder Matters. (A) Market Information Our membership interests are not publicly traded. (B) Holders All of the membership interests of Charter Holdings are owned by Charter
Holdco. All of the outstanding capital stock of Charter Capital is owned by
Charter Holdings. (C) Dividends None. (D) Recent Sales of Unregistered Securities No unregistered equity securities of Charter Holdings or Charter Capital were
sold by Charter Holdings or Charter Capital during the fourth quarter of the
year ended December 31, 2003. 28




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Item 6.Selected Financial Data. The following table presents selected consolidated financial data for the
periods indicated (dollars in millions): Charter Communications Holdings, LLCYear Ended December 31,2003
    
    2002 (a)
    
    2001 (a)
    
    2000 (a)
    
    1999 (a)Statement of Operations Data:Revenues
    
    $
    4,819
    
    
    $
    4,566
    
    
    $
    3,807
    
    
    $
    3,141
    
    
    $
    1,428Costs and Expenses:Operating (excluding depreciation and amortization)
    
    
    1,952
    
    
    
    1,807
    
    
    
    1,486
    
    
    
    1,187
    
    
    
    461Selling, general and administrative
    
    
    940
    
    
    
    963
    
    
    
    826
    
    
    
    606
    
    
    
    329Depreciation and amortization
    
    
    1,479
    
    
    
    1,439
    
    
    
    2,693
    
    
    
    2,387
    
    
    
    745Impairment of franchises
    
    
    
    
    
    
    4,638
    
    
    
    
    
    
    
    
    
    
    
    Gain on sale of system
    
    
    (21
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Option compensation expense (income), net
    
    
    4
    
    
    
    5
    
    
    
    (5
    )
    
    
    38
    
    
    
    80Special charges, net
    
    
    21
    
    
    
    36
    
    
    
    18
    
    
    
    
    
    
    
    Unfavorable contracts and other settlements
    
    
    (72
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,303
    
    
    
    8,888
    
    
    
    5,018
    
    
    
    4,218
    
    
    
    1,615Income (loss) from operations
    
    
    516
    
    
    
    (4,322
    )
    
    
    (1,211
    )
    
    
    (1,077
    )
    
    
    (187
    )Interest expense, net
    
    
    (1,486
    )
    
    
    (1,425
    )
    
    
    (1,247
    )
    
    
    (1,046
    )
    
    
    (453
    )Gain (loss) on derivative instruments and
hedging activities, net
    
    
    65
    
    
    
    (115
    )
    
    
    (50
    )
    
    
    
    
    
    
    Gain on debt exchange, net
    
    
    187
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Loss on equity investments
    
    
    
    
    
    
    
    
    
    
    (49
    )
    
    
    (11
    )
    
    
    Other, net
    
    
    (10
    )
    
    
    3
    
    
    
    (3
    )
    
    
    5
    
    
    
    (8
    )Loss before minority interest, income taxes and
cumulative effect of accounting change
    
    
    (728
    )
    
    
    (5,859
    )
    
    
    (2,560
    )
    
    
    (2,129
    )
    
    
    (648
    )Minority interest
    
    
    (29
    )
    
    
    (16
    )
    
    
    (16
    )
    
    
    (13
    )
    
    
    Loss before income taxes and cumulative effect
of accounting change
    
    
    (757
    )
    
    
    (5,875
    )
    
    
    (2,576
    )
    
    
    (2,142
    )
    
    
    (648
    )Income tax benefit (expense)
    
    
    (13
    )
    
    
    216
    
    
    
    27
    
    
    
    24
    
    
    
    (1
    )Loss before cumulative effect of accounting change
    
    
    (770
    )
    
    
    (5,659
    )
    
    
    (2,549
    )
    
    
    (2,118
    )
    
    
    (649
    )Cumulative effect of accounting change, net of tax
    
    
    
    
    
    
    (540
    )
    
    
    (24
    )
    
    
    
    
    
    
    Net loss
    
    $
    (770
    )
    
    $
    (6,199
    )
    
    $
    (2,573
    )
    
    $
    (2,118
    )
    
    $
    (649
    )Balance Sheet Data (end of period):Total assets
    
    $
    21,148
    
    
    $
    22,156
    
    
    $
    26,220
    
    
    $
    24,290
    
    
    $
    18,939Long-term debt
    
    
    17,873
    
    
    
    17,288
    
    
    
    14,960
    
    
    
    12,311
    
    
    
    8,936Minority interest
    
    
    719
    
    
    
    693
    
    
    
    680
    
    
    
    666
    
    
    
    Members equity
    
    
    639
    
    
    
    1,906
    
    
    
    8,122
    
    
    
    9,156
    
    
    
    8,048
 (a) Certain prior year amounts have been reclassified to conform with the 2003
presentation. Comparability of the above information from year to year is affected by
acquisitions and dispositions completed by us. See note 4 to our consolidated
financial statements contained in Item 8. Financial Statements and
Supplementary Data and Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations  Acquisitions. 29




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Item 7.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, the following
discussion should be read in conjunction with the audited consolidated
financial statements of Charter Communications Holdings, LLC and subsidiaries
as of and for the years ended December 31, 2003, 2002 and 2001. Introduction During 2003, we undertook a number of transition activities including
reorganizing our workforce, adjusting our 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. The reduced marketing
activities and other necessary operational changes negatively impacted customer
retention and acquisition, primarily during the first half of the year. During
the second half of 2003, we increased our marketing efforts and implemented
promotional campaigns to slow the loss of analog video customers, and to
accelerate advanced service penetration, specifically in high-speed data. In 2003, we took a series of steps intended to improve our balance sheet and
liquidity:  
    
    We, Charter and our subsidiaries exchanged $1.9 billion of
indebtedness for $1.6 billion of indebtedness while extending
maturities and achieving approximately $294 million of debt discount.
    
    Our subsidiary, CCO Holdings, sold $500 million total principal
amount of 8-3/4% senior notes and used the net proceeds to repay
approximately $486 million principal amount of bank debt of our
subsidiaries, providing additional financial flexibility for use of our
subsidiaries credit facilities.
    
    Our subsidiaries completed the sale of cable systems in Port
Orchard, Washington, for a total price of approximately $91 million,
subject to adjustments.
    
    We and several of our subsidiaries closed the sale of cable systems
in Florida, Pennsylvania, Maryland, Delaware and West Virginia with
Atlantic Broadband Finance, LLC. We anticipate that an additional
closing for a cable system in New York will occur during the first
half of 2004. After giving effect to the sale of the New York
system, net proceeds will be approximately $735 million, subject to
post-closing adjustments. We will use these proceeds to repay bank
debt.
    
    We significantly reduced capital spending from approximately $2.1
billion for the year ended December 31, 2002 to approximately $804
million for the year ended December 31, 2003, primarily due to the
substantial completion of our network rebuild and upgrade. During the years 1999 through 2001, we grew significantly, principally through
acquisitions of other cable businesses financed by debt and, to a lesser
extent, equity. We do not anticipate that we will engage in significant merger
or acquisition activity for the foreseeable future other than exchanges of
non-strategic assets or divestitures, such as the sale of cable systems to
Atlantic Broadband Finance, LLC discussed above. We therefore do not believe
that our historical growth rates are accurate indicators of future growth. Historically, our ability to fund operations and investing activities has
depended on our continued access to credit under our subsidiaries credit
facilities. While our use of cash has changed over time such that the
substantial majority of our cash now comes from cash flows from operating
activities, we expect we will continue to borrow under our subsidiaries credit
facilities from time to time to fund cash needs. The occurrence of an event of
default under our subsidiaries credit facilities could result in borrowings
from these facilities being unavailable to us and could, in the event of a
payment default or acceleration, also trigger events of default under our notes
and our subsidiaries outstanding notes and would have a material adverse
effect on us. Approximately $188 million of indebtedness under our
subsidiaries credit facilities is scheduled to mature during 2004. We expect
to fund payment of such indebtedness through availability under our
subsidiaries revolving credit facilities. 30




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Adoption of New Policies Charter is our manager and we have followed and continue to follow Charters
policies and practices. Commencing in January 2002 and continuing through the
first quarter of 2003, Charters management elected to implement a number of
new policies including: Change in Disconnect and Bad Debt Policies.Our estimated customer count is
intended to include those people receiving cable service (regardless of payment
status), except for complementary accounts (such as our employees). Our
disconnect and bad debt guidelines for slow or nonpaying customers provide
that, in general, customers are to be terminated for non-payment after
approximately 60-75 days, and written off/referred to collection at
approximately 90-110 days. We initially began implementing this policy in
January 2002 after we decided to change our past practice under which we did
not promptly disconnect these customers on a uniform basis. Effective year-end
2001, we also increased our allowance for doubtful accounts. The number of our
customers who are presently more than 90 days overdue and our bad debt expense
associated with such customers are lower than they were prior to the
institution of these policies. Procedures to ensure adherence to Disconnect and Customer Count Policies.
During Charters review of its internal audit findings and in the course of
internal investigations, and subsequently in the course of responding to
Charters governmental investigations, we became concerned that certain
employees either were not or had not previously been complying with our
customer count and disconnect policies. We have since announced to our
employees that a failure to follow these polices will be met with disciplinary
action including, in appropriate cases, termination. We have terminated and
disciplined employees who have not followed the policies. We have instituted
regular review of customer reports by senior employees in an effort to ensure
adherence to our policies and consistency of application throughout our various
operating divisions, and we have established a telephone hotline number for
employees to call and report misconduct relating to the reporting of customer
numbers. We have also elected not to provide guidance on expected customer
numbers in our public disclosures. Corporate Compliance Program.Prior to 2002, Charter did not have a formal
compliance program. It has since established a corporate compliance program,
pursuant to which it provides a revised Code of Conduct to Charters employees
that is incorporated into Charters Employee Handbook. The Code and Handbook
require that employees report violations of the Code or other behavior which
they believe might be unethical or illegal. Employees can report matters to
their supervisor, to the Human Resources Department, through a hotline or
through a secure website, and may do so anonymously. The compliance program is
overseen by a compliance committee comprised of high-ranking Charter officers,
which meets on a quarterly basis. The head of the committee in turn reports to
Charters Audit Committee. Treatment of Data Only Customers.Charter has changed its methodology for
reporting analog cable video customers to exclude those customers who receive
high-speed data service only. This represents a change in Charters
methodology from prior reports through September 30, 2002, in which high-speed
data service only customers (which numbered approximately 55,900 at September
30, 2002) were included within our analog cable video customers. Charter made
this change because it determined that a substantial number of those customers
who only received high-speed data service were unable to receive our most basic
level of analog video service because this service was physically secured or
blocked, was unavailable in certain areas or the customers were unaware that
this service was available to them. In addition, in light of Charters
decision to begin marketing our high-speed data services as a separate product,
Charter believed that separate disclosure of this information would assist
investors in understanding our current business and in monitoring what we
expected to be an increasing number of data only customers. See Item 1.
Business  Products and Services. Disclosure Committee.Charter established a Disclosure Committee, consisting
of senior personnel from the business units, Charters internal audit group,
and the finance and legal groups, and Charter now follows an extensive review
and certification process in connection with our filings with the SEC and other
disclosure documents. Audit Committee.Charter modified its Audit Committees charter to expand the
role of the committee and to comply with the Sarbanes-Oxley Act of 2002 and the
rules issued thereunder (including Nasdaq rules). Accounting Policy Changes.Consistent with the description of the restatement,
we have revised a number of our accounting policies, including treatment of
launch incentives received from programmers. For a complete 31




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discussion of
accounting changes and adjustments brought about as a result of the re-audit or
restatement, see    Restatement of Prior Results. Restatement of Prior Results There were no restatements of prior results since those announced in our 2002
annual report on Form 10-K filed April 15, 2003. However, certain
reclassifications have been made to 2002 and 2001 amounts to conform to 2003
presentation. Also, as discussed in our annual report on Form 10-K for the
year ended December 31, 2002, on November 19, 2002, Charter announced that it
had determined that additional franchise costs and deferred income tax
liability should have been recorded for the differences between the financial
statement and tax basis of assets they acquired in connection with certain
cable businesses acquired throughout 1999 and 2000. As a result of this
restatement, Charter engaged KPMG LLP to perform audits as of and for the years
ended December 31, 2001 and 2000 because their former accountants, Arthur
Andersen LLP, were no longer available to provide an opinion as to restated
financial statements. In connection with these audits, Charter concluded that
it was appropriate to make certain additional adjustments to previously
reported results. These adjustments resulted in our need to restate our
previously reported results. Among other things, adjustments were made to
previous interpretations and applications of GAAP that had been consistently
followed by us since 2000 and throughout the restatement period. These adjustments reduced revenues reported in our 2002 quarterly reports on
Form 10-Q for the first three quarters of 2002 by a total of $38 million, and
in our 2001 annual report on Form 10-K for the years ended December 31, 2001
and 2000 by $146 million and $108 million, respectively. Such adjustments
represent approximately 1%, 4% and 3% of previously reported revenues for the
respective periods in 2002, 2001 and 2000. Our previously reported consolidated
net loss increased by a total of $188 million for the first three quarters of
2002 and decreased by $21 million for the year ended December 31, 2001. Our
previously reported net loss increased by $70 million for the year ended
December 31, 2000, primarily due to adjustments related to the original
accounting for acquisitions and elements of our rebuild and upgrade activities.
Net cash flows from operating activities for the years ended December 31, 2001
and 2000 were reduced by $21 million and $302 million, respectively. The most
significant categories of adjustments related to the following items outlined
below. Launch Incentives from Programmers.Amounts previously recognized as
advertising revenue in connection with the launch of new programming channels
have been deferred and recorded in other long-term liabilities in the year such
launch support was provided, and amortized as a reduction of programming costs
based upon the relevant contract term. These adjustments decreased revenue by a
total of $30 million for the first three quarters of 2002, and $118 million and
$76 million for the years ended December 31, 2001 and 2000, respectively.
Additionally, for the year ended December 31, 2000, we increased marketing
expense by $24 million for other promotional activities associated with
launching new programming services previously deferred and subsequently
amortized. The corresponding amortization of such deferred amounts reduced
programming expenses by $36 million for the first three quarters of 2002, and
$27 million and $5 million for the years ended December 31, 2001 and 2000,
respectively. Customer Incentives and Inducements.Marketing inducements paid to encourage
potential customers to switch from satellite providers to Charter-branded
services and enter into multi-period service agreements were previously
deferred and recorded as property, plant and equipment and recognized as
depreciation and amortization expense over the life of customer contracts.
These amounts have been restated as a reduction of revenue in the period such
inducements were paid. Revenues declined a total of $5 million for the first
three quarters of 2002, and $19 million and $2 million for the years ended
December 31, 2001 and 2000, respectively. Substantially all of these amounts
are offset by reduced depreciation and amortization expense. Capitalized Labor and Overhead Costs.Certain elements of labor costs and
related overhead allocations previously capitalized as property, plant and
equipment as part of our rebuild activities, customer installation and new
service introductions have been expensed in the period incurred. Such
adjustments increased operating expenses by a total of $73 million for the
first three quarters of 2002, and $93 million and $52 million for the years
ended December 31, 2001 and 2000, respectively. Customer Acquisition Costs.Certain customer acquisition campaigns were
conducted through third-party contractors in 2000, 2001 and portions of 2002.
The costs of these campaigns were originally deferred and recorded as other
assets and recognized as amortization expense over the average customer
contract life. These amounts have been reported as marketing expense in the
period incurred and totaled $32 million for the first three quarters of 2002,
and $59 million and $4 million and for the years ended December 31, 2001 and
2000, respectively. We 32




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discontinued this program in the third quarter of 2002
as contracts for third-party vendors expired. Substantially all of these
amounts are offset by reduced depreciation and amortization expense. Rebuild and Upgrade of Cable Systems.In 2000, as we were completing our
acquisitions, we initiated a three-year program to replace, upgrade and
integrate a substantial portion of our network (the rebuild program). This
rebuild/upgrade of the cable network infrastructure was envisioned as providing
the platform capacity through which many broadband communication services could
be provided to the marketplace for many years to come. Such a rebuild program
was unprecedented and is not expected to recur. We began implementation of this
three-year rebuild program in January 2000 and adhered to it over the period.
It was expanded in July 2001 to encompass cable system assets acquired in June
2001 from AT&T Broadband. There were no other significant modifications to the
rebuild program over the three-year period. As the rebuild program was beginning in early 2000, we were nearing the end of
a period in which we were acquired by Paul G. Allen and merged with Marcus
Cable and in which we had subsequently completed an initial public offering and
acquired 16 cable businesses adding approximately 5 million additional
customers. We were faced with integrating these acquisitions, administering the
rebuild program and also putting in place processes and new personnel to handle
the increased size and complexity of an operation that had grown exponentially
in a period of about 18 months. During the first quarter of 2000, management
also recognized the need to reassess depreciable lives of the property that was
subject to the three-year rebuild program. Based on a review of the rebuild
program, $3 billion of assets were identified as being subject to replacement,
and accordingly, management reduced the useful lives of those assets. In
connection with the restatement, however, it has been determined that some of
these assets were to be retained and not replaced because sections of the
network were scheduled to be upgraded and not rebuilt. In a cable system
rebuildthere is outright replacement and retirement of substantially all
components of the network, whereas an upgradeinvolves the retention of the
original property, particularly the fiber and coaxial cabling. Presented below is a schedule of the costs of cable distribution system assets
subject to the rebuild program, as originally recorded, reconciled to the final
determinations in the restatement. The depreciation lives were shortened for
this asset pool as discussed previously and supplemented below. (In millions)
    
    TotalTotal asset population subject to rebuild and upgrade, as originally recorded
    
    $
    2,998Assets which were never intended to be replaced but rather were upgraded and remain in
service
    
    
    (946
    )Cost of assets inadvertently excluded from the asset population
    
    
    401Adjustment to record acquired assets at depreciated replacement cost at date of acquisition
    
    
    (1,225
    )Total adjusted asset value subject to replacement and thus shortened depreciation life
    
    $
    1,228
 In connection with the restatement process, we conducted a detailed
system-by-system analysis of the rebuild program to identify those assets which
were intended to be rebuilt versus upgraded and determined that approximately
$844 million of trunk and distribution cabling, and $102 million of headend
equipment (in aggregate,
$946 million) was enhanced and retained in service. Accordingly, an adjustment
was made in the restatement with effect from January 1, 2000 to properly
exclude those assets from the population of assets treated as subject to
replacement and thus for which a shortened depreciation life was previously
assigned. The evaluation conducted in connection with the restatement also revealed the
inadvertent exclusion of $401 million of trunk and distribution cabling and
electronics, which were acquired in 1999, from the population of assets that
were subject to shortened depreciation lives. This group of assets were
misclassified within our fixed assets sub-ledger for one acquisition and thus
omitted from the analysis performed in connection with the preparation of our
historical financial statements. Accordingly, an adjustment was made in the
restatement to properly include these assets as well. Furthermore, we reduced the value of assets subject to replacement by a total
of approximately $1.2 billion to record the assets at estimated depreciated
replacement cost at the date of acquisition. This includes a $598 million
reduction originally recorded in our previously issued financial statements and
a $627 million adjustment identified as part of the restatement. 33




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As a result of the items identified above, we determined that depreciation
expense was overstated by a total of $413 million for the first three quarters
of 2002, and $330 million and $119 million in the years ended 2001 and 2000,
respectively. This resulted in net loss being overstated by a total of $413
million for the first three quarters of 2002, and $330 million and $119 million
for the years ended 2001 and 2000, respectively. Deferred Tax Liabilities/Franchise Assets.Adjustments were made to record
deferred tax liabilities associated with the acquisition of various cable
television businesses. These adjustments increased amounts assigned to
franchise assets by $1.4 billion with a corresponding increase in deferred tax
liabilities of $1.2 billion. The balance of the entry was recorded to members
equity. In addition, as described above, a correction was made to reduce
amounts assigned in purchase accounting to assets identified for replacement
over the three-year period of our rebuild and upgrade of our network. This
reduced the amount assigned to the network assets to be retained and increased
the amount assigned to franchise assets by approximately $627 million with a
resulting increase in amortization expense for the years restated. Such
adjustments increased the impairment of franchises recognized in the first
quarter of 2002 by $199 million and increased amortization expense by $130
million and $121 million for the years ended December 31, 2001 and 2000,
respectively. This resulted in net loss being understated by a total of $199
million for the first three quarters of 2002, and $130 million and $121 million
for the years ended 2001 and 2000, respectively. Other Adjustments.In addition to the items described above, certain other
adjustments were made that increased net loss by $87 million and decreased net
loss by $25 million, respectively, for the years ended December 31, 2001 and
2000. These adjustments were as follows:  
    
    During 2000, advertising revenue was recognized in conjunction with
the promotion of equipment offered by two set-top terminal
manufacturers from which we purchased digital set-top terminals.
However, in connection with our restatement announced in April 2003, we
reversed all advertising revenues from the set-top terminal
manufacturers recognized in 2000. Based on a reassessment of the
underlying structure of the arrangements during 2000, the prices paid
for set-top terminals and the advertising revenues recognized were
determined to be in excess of fair value. We therefore reduced our
advertising revenue and decreased our related property, plant and
equipment associated with the purchase of set-top terminals.
    
    During 2001 and 2000, certain post-acquisition marketing and
customer acquisition costs were charged against purchase accounting
reserves in the financial statements. These costs have been
reclassified to record them as period cost in the appropriate fiscal
year.
    
    During 2002, 2001 and 2000, certain state taxes, which are
equity-based taxes and not based on income, were reclassified as
operating expenses, rather than as taxes recorded in other expenses
on our consolidated statements of operations.
    
    During 2000, we received management fees from a joint venture
pursuant to the terms of the joint venture agreement and recognized
revenue. Based on the limited amount of operational management
activities performed on behalf of the joint venture, we determined this
amount should be reclassified from revenue and recorded as investment
income within other expense on our consolidated statements of
operations.
    
    During 2000 and 2001, we accounted for the outstanding and
unexercised portion of separated employees options by reversing all
(both vested and unvested) previously recorded compensation expense for
separated employees who forfeited stock-based awards. Compensation
related to vested awards should not have been reversed at the time of
separation, as the employee did not fail to fulfill an obligation
associated with such vested awards. Stock compensation expense was
increased to eliminate the effect of such reversal during 2000 and
2001. In addition, the computation of the compensation expense was
adjusted during 2000 to reverse a miscalculation recorded during such
years. The tables below set forth our condensed consolidated balance sheets as of
December 31, 2001 and December 31, 2000, and condensed consolidated statements
of operations and condensed consolidated statements of cash flows information
for the years ended December 31, 2001 and 2000. Controls.The major adjustments discussed above, including for the rebuild and
upgrade of cable systems and deferred tax matters/franchise, generally relate
to non-routine items and did not result from control deficiencies in our core
accounting operations. Since Charters period of rapid growth in 2000 and
early 2001, in which Charter was rapidly acquiring cable systems, Charter has
integrated the various accounting processes of its acquired cable systems.
Charter has also substantially improved the quantity and, we believe, the
quality of its accounting and 34




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internal audit staff. In addition, Charter is
developing better interactions between its accounting and internal audit staff
and the other elements of its organization. These changes in Charters staff
have been supplemented with changes in accounting and internal controls
processes and systems which Charter believes result in an improved ability of
management to understand and analyze underlying business data. As part of its
acquisitions integration process, Charter has, among other things, standardized
its data and put in place a data warehouse, which has enhanced Charters
abilities to analyze its operating data. Budgeting has been integrated into
Charters financial systems, through the use of specialized commercial software
rather than spreadsheet programs. Additionally, Charter has implemented in the
first quarter 2004, a job costing system, that tracks capital at the project
level. These changes have given us the ability to better understand, analyze
and manage our business data. The role of Charters internal audit staff has
also been expanded, particularly with respect to capitalization and
depreciation. We believe that these changes have improved Charters, and
therefore our, controls over both recurring transactions and non-recurring
transactions. The following table sets forth selected consolidated balance sheet information,
showing previously reported and restated amounts, as of December 31, 2001 (in
millions): As previouslyreported
    
    As restatedProperty, plant and equipment, net
    
    $
    6,957
    
    
    $
    6,721Franchises, net
    
    
    17,139
    
    
    
    18,911Total assets
    
    
    24,723
    
    
    
    26,220Long-term debt
    
    
    14,960
    
    
    
    14,960Other long-term liabilities
    
    
    328
    
    
    
    1,041Minority interest
    
    
    676
    
    
    
    680Total members equity
    
    
    7,284
    
    
    
    8,122
 The following table sets forth selected consolidated statement of operations
information, showing previously reported and restated amounts, for the year
ended December 31, 2001 (in millions): As previouslyreported
    
    As restatedRevenues
    
    $
    3,953
    
    
    $
    3,807Costs and expenses:Operating (excluding depreciation and amortization)
    
    
    1,326
    
    
    
    1,486Selling, general and administrative
    
    
    841
    
    
    
    826Depreciation and amortization
    
    
    3,010
    
    
    
    2,693Option compensation income
    
    
    (52
    )
    
    
    (5
    )Special charges
    
    
    18
    
    
    
    185,143
    
    
    
    5,018Loss from operations
    
    
    (1,190
    )
    
    
    (1,211
    )Loss before minority interest, income taxes and
cumulative effect of accounting change
    
    
    (2,581
    )
    
    
    (2,560
    )Loss before cumulative effect of accounting change
    
    
    (2,594
    )
    
    
    (2,549
    )Net loss
    
    $
    (2,594
    )
    
    $
    (2,573
    )
 35




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The following table sets forth selected consolidated balance sheet information,
showing previously reported and restated amounts, as of December 31, 2000 (in
millions): As previouslyreported
    
    As restatedProperty, plant and equipment, net
    
    $
    5,230
    
    
    $
    4,792Franchises, net
    
    
    17,069
    
    
    
    18,835Total assets
    
    
    22,982
    
    
    
    24,290Long-term debt
    
    
    12,311
    
    
    
    12,311Other long-term liabilities
    
    
    274
    
    
    
    886Minority interest
    
    
    641
    
    
    
    666Total members equity
    
    
    8,384
    
    
    
    9,156
 The following table sets forth selected consolidated statement of operations
information, showing previously reported and restated amounts, for the year
ended December 31, 2000 (in millions): As previouslyreported
    
    As restatedRevenues
    
    $
    3,249
    
    
    $
    3,141Costs and expenses:Operating (excluding depreciation and amortization)
    
    
    1,035
    
    
    
    1,187Selling, general and administrative
    
    
    671
    
    
    
    606Depreciation and amortization
    
    
    2,463
    
    
    
    2,387Option compensation expense
    
    
    41
    
    
    
    384,210
    
    
    
    4,218Loss from operations
    
    
    (961
    )
    
    
    (1,077
    )Loss before minority interest and income taxes
    
    
    (2,037
    )
    
    
    (2,129
    )Net loss
    
    $
    (2,048
    )
    
    $
    (2,118
    )
 The following table sets forth selected consolidated cash flow information,
showing previously reported and restated amounts, for the years ended December
31, 2001 and 2000 (in millions): 2001
    
    2000As previously
    
    As
    
    As previously
    
    Asreported
    
    restated
    
    reported
    
    restatedNet cash from operating activities
    
    $
    537
    
    
    $
    516
    
    
    $
    1,126
    
    
    $
    824Net cash from investing activities
    
    
    (4,644
    )
    
    
    (4,632
    )
    
    
    (2,908
    )
    
    
    (2,605
    )Net cash from financing activities
    
    $
    3,978
    
    
    $
    3,987
    
    
    $
    1,798
    
    
    $
    1,798
 36




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Acquisitions The following table sets forth information regarding our acquisitions from
January 1, 2001 to December 31, 2002 (none in 2003): Purchase Price (Dollars in Millions)SecuritiesAcquisition
    
    Cash
    
    Issued/Other
    
    Total
    
    AcquiredDate
    
    Paid
    
    Consideration
    
    Price
    
    CustomersAT&T Systems
    
    
    6/01
    
    
    
    1,711
    
    
    
    25
    
    
    
    1,736
    (a)
    
    
    551,100Cable USA
    
    
    8/01
    
    
    
    45
    
    
    
    55
    (b)
    
    
    100
    
    
    
    30,600Total 2001 Acquisitions
    
    
    
    
    
    
    1,756
    
    
    
    80
    
    
    
    1,836
    
    
    
    581,700High Speed Access Corp.
    
    
    2/02
    
    
    
    78
    
    
    
    
    
    
    
    78
    
    
    
    N/AEnstar Limited Partnership Systems
    
    
    4/02
    
    
    
    48
    
    
    
    
    
    
    
    48
    
    
    
    21,600Enstar Income Program II-1, L.P.
    
    
    9/02
    
    
    
    15
    
    
    
    
    
    
    
    15
    
    
    
    6,400Total 2002 Acquisitions
    
    
    
    
    
    
    141
    
    
    
    
    
    
    
    141
    
    
    
    28,000Total 2001-2002 Acquisitions
    
    
    
    
    
    $
    1,897
    
    
    $
    80
    
    
    $
    1,977
    
    
    
    609,700
   (a)
    
    Comprised of $1.7 billion, as adjusted, in cash and a cable system located in Florida valued at $25 million, as adjusted.(b)
    
    In connection with this transaction, at the closing, Charter and Charter Holdco acquired all of the outstanding stock of Cable
USA and the assets of related affiliates in exchange for cash and 505,664 shares of Charter Series A convertible redeemable
preferred stock. In the first quarter of 2003, an additional $0.34 million in cash was paid and 39,595 additional shares of
Charter Series A convertible redeemable preferred stock were issued to certain sellers. All acquisitions were accounted for under the purchase method of accounting and
results of operations were included in our consolidated financial statements
from their respective dates of acquisition. We have no current plans to pursue any significant acquisitions. However, we
will continue to evaluate opportunities to consolidate our operations through
the sale of cable systems to, or exchange of like-kind assets with, other cable
operators as such opportunities arise, and on a very limited basis, consider
strategic new acquisitions. Our primary criteria in considering these
opportunities are the rationalization of our operations into geographic
clusters and the potential financial benefits we expect to ultimately realize
as a result of the sale, exchange, or acquisition. Overview of Operations Approximately 86% and 84% of our revenues for the years ended December 31, 2003
and 2002, respectively, are attributable to monthly subscription fees charged
to customers for our video, high-speed data, telephone and commercial services
provided by our cable systems. Generally, these customer subscriptions may be
discontinued by the customer at any time. The remaining 14% and 16%,
respectively, of revenue is derived primarily from pay-per-view and VOD
programming where users are charged a fee for individual programs viewed,
advertising revenues, installation or reconnection fees charged to customers to
commence or reinstate
service, commissions related to the sale of merchandise by home shopping
services and franchise fee revenues, which are collected by us but then paid to
local franchising authorities. We have generated increased revenues during the
past three years, primarily through the sale of digital video and high-speed
data services to new and existing customers, price increases on video services
and customer growth from acquisitions. Going forward, our strategy is to grow
revenues and improve margins by seeking to stabilize our analog video customer
base and increase revenues per customer. To accomplish this, we are increasing
prices for certain services and we are offering new bundling of services
combining digital video and our advanced services (such as high-speed data
service and high definition television) at what we believe are attractive price
points. In addition, we are increasing our marketing efforts and budget in
2004 37




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to promote our high-speed data services, digital video services and advanced
products and services such as digital video recorders, high definition
television and telephony using VOIP to our existing customer base and to
commercial customers. See Business  Sales and Marketing for more details. Our success in our efforts to grow revenues and improve margins will be
impacted by our ability to compete against companies with often fewer
regulatory burdens, easier access to financing, greater personnel resources,
greater brand name recognition and long-established relationships with
regulatory authorities and customers. Additionally, controlling our cost of
operations is critical, particularly cable programming costs, which have
historically increased at rates in excess of inflation and are expected to
continue to increase. See Business  Programming for more details. We are
attempting to control our costs of operations by maintaining strict controls on
expenses. More specifically, we are focused on managing our cost structure by
renegotiating programming agreements to reduce the rate of historical increases
in programming cost, managing our workforce to control increases and improve
productivity, and leveraging our size in purchasing activities. Our expenses primarily consist of operating costs, selling, general and
administrative expenses, depreciation and amortization expense and interest
expense. Operating costs primarily include programming costs, the cost of our
workforce, cable service related expenses, advertising sales costs, franchise
fees and expenses related to customer billings. For the year ended December
31, 2003, income from operations was $516 million and for the years ended
December 31, 2002 and 2001, our loss from operations was $4.3 billion and $1.2
billion, respectively. Operating margin, which is defined as income (loss)
from operations divided by revenues, was 11% for the year ended December 31,
2003, whereas for the years ending December 31, 2002 and 2001, we had negative
operating margins of 95% and 32%, respectively. The improvement in income from
operations and operating margin from 2002 to 2003 was principally due to a $4.6
billion franchise impairment charge in the fourth quarter of 2002 which did not
recur in 2003 and the recognition of gains in 2003 of $93 million related to
unfavorable contracts and other settlements and gain on sale of system. The
increase in loss from operations and negative operating margins from 2001 to
2002 was primarily as a result of a $4.6 billion franchise impairment charge in
the fourth quarter of 2002, partially offset by a decrease in amortization
expense of $1.5 billion as a result of the adoption of SFAS No. 142, Goodwill
and Other Intangible Assets,which eliminated the amortization of franchises
determined to have an indefinite life. Although we do not expect charges for
impairment in the future of comparable magnitude to the fourth quarter 2002
impairment charge, potential charges could occur due to changes in market
conditions. We have a history of net losses. Further, we expect to continue to report net
losses for the foreseeable future. Our net losses are principally attributable
to insufficient revenue to cover our interest costs we incur because of our
high level of debt, the depreciation expenses that we incur resulting from the
capital investments we have made in our cable properties, and the amortization
and impairment of our franchise intangibles. We expect that these expenses
(other than amortization and impairment of franchises) will remain significant,
and we therefore expect to continue to report net losses for the foreseeable
future. Critical Accounting Policies and Estimates Certain of our accounting policies require our management to make difficult,
subjective or complex judgments. Management has discussed these policies with
the Audit Committee of Charters board of directors and Charters Audit
Committee has reviewed the following disclosure. We consider the following
policies to be the most critical in understanding the estimates, assumptions
and judgments that are involved in preparing our financial statements and the
uncertainties that could affect our results of operations, financial condition
and cash flows:  
    
    Capitalization of labor and overhead costs;
    
    Useful lives of property, plant and equipment;
    
    Impairment of property, plant, and equipment, franchises, and goodwill;
    
    Income taxes; and
    
    Litigation. In addition, there are other items within our financial statements that require
estimates or judgment but are not deemed critical, such as the allowance for
doubtful accounts, but changes in judgment, or estimates in these other items
could also have a material impact on our financial statements. Capitalization of labor and overhead costs.The cable industry is capital
intensive, and a large portion of our resources are spent on capital activities
associated with extending, rebuilding, and upgrading our cable network. As of
December 31, 2003 and 2002, the net carrying amount of our property, plant and
equipment (consisting primarily 38




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of cable network assets) was approximately $6.8 billion (representing 32% of
total assets) and $7.5 billion
(representing 34% of total assets), respectively. Total capital expenditures
for the years ended December 31, 2003, 2002 and 2001 were approximately $804
million, $2.1 billion and $2.8 billion, respectively. Costs associated with network construction, initial customer installations,
installation refurbishments and the addition of network equipment necessary to
provide advanced services are capitalized. Costs capitalized as part of
initial customer installations include materials, direct labor, and certain
indirect costs. These indirect costs are associated with the activities of
personnel who assist in connecting and activating the new service and consist
of compensation and overhead costs associated with these support functions.
The costs of disconnecting service at a customers dwelling or reconnecting
service to a previously installed dwelling are charged to operating expense in
the period incurred. Costs for repairs and maintenance are charged to
operating expense as incurred, while equipment replacement and betterments,
including replacement of cable drops from the pole to the dwelling, are
capitalized. Direct labor costs directly associated with capital projects are capitalized.
We capitalize direct labor costs associated with personnel based upon the
specific time devoted to network construction and customer installation
activities. Capitalizable activities performed in connection with customer
installations include:  
    
    Scheduling a truck roll to the customers dwelling for service
connection;
    
    Verification of serviceability to the customers dwelling (i.e.,
determining whether the customers dwelling is capable of receiving
service by our cable network and/or receiving advanced or data
services);
    
    Customer premise activities performed by in-house field technicians
and third-party contractors in connection with customer installations,
installation of network equipment in connection with the installation
of expanded services and equipment replacement and betterment; and
    
    Verifying the integrity of the customers network connection by
initiating test signals downstream from the headend to the customers
digital set-top terminal. We capitalized internal direct labor costs of $88 million, $173 million and
$171 million, for the years ended December 31, 2003, 2002 and 2001,
respectively. Capitalized internal direct labor costs decreased in 2003
compared to 2002 primarily due to the substantial completion of the upgrade of
our systems and a decrease in the amount of capitalizable installation costs. Judgment is required to determine the extent to which indirect costs
(overhead) are incurred as a result of specific capital activities, and
therefore should be capitalized. We capitalize overhead using an overhead rate
applied to the amount of direct labor capitalized. We have established the
overhead rates based on an analysis of the nature of costs incurred in support
of capitalizable activities and a determination of the portion of costs that is
directly attributable to capitalizable activities. The primary costs that are
included in the determination of the overhead rate are (i) employee benefits
and payroll taxes associated with capitalized direct labor, (ii) direct
variable costs associated with capitalizable activities, consisting primarily
of installation and construction vehicle costs, (iii) the cost of support
personnel, such as dispatch, that directly assist with capitalizable
installation activities, and (iv) indirect costs directly attributable to
capitalizable activities. While we believe our existing capitalization policies are appropriate, a
significant change in the nature or extent of our system activities could
affect managements judgment about the extent to which we should capitalize
direct labor or overhead in the future. We monitor the appropriateness of our
capitalization policies, and perform updates to our internal overhead study on
a periodic basis to determine whether facts or circumstances warrant a change
to our capitalization policies. We capitalized overhead of $86 million, $162
million and $134 million, respectively, for the years ended December 31, 2003,
2002 and 2001. Useful lives of property, plant and equipment.We evaluate the appropriateness
of estimated useful lives assigned to our property, plant and equipment, and
revise such lives to the extent warranted by changing facts and circumstances.
Beginning in January 2000, we commenced a significant initiative to rebuild and
upgrade portions of our cable network. We reduced the useful lives of certain
assets with a book value of $1.1 billion in 2000 and an additional $125 million
in 2001. These assets were expected to be replaced and retired through that
process in approximately one to three years, representing managements best
estimate of the expected pattern of the retirement from service of such assets.
A significant change in assumptions about the extent or timing of future asset
usage or retirements could materially affect future depreciation expense. 39




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Depreciation expense related to property, plant and equipment totaled $1.5
billion, $1.4 billion and $1.2 billion, representing approximately 34%, 16% and
24% of costs and expenses, for the years ended December 31, 2003, 2002
and 2001, respectively. Of these amounts, approximately $183 million and $352
million for the years ended December 31, 2002 and 2001, respectively, relates
to network assets which were replaced and retired over the three-year period of
the rebuild initiative. Depreciation is recorded using the straight-line
method over managements estimate of the estimated useful lives of the related
assets as follows: Cable distribution systems
    
    7-15 yearsCustomer equipment and installations
    
    3-5 yearsVehicles and equipment
    
    1-5 yearsBuildings and leasehold improvements
    
    5-15 yearsFurniture and fixtures
    
    5 years
 Impairment of property, plant and equipment, franchises and goodwill.As
discussed above, the net carrying value of our property, plant and equipment is
significant. We also have recorded a significant amount of cost related to
franchises, pursuant to which we are granted the right to operate our cable
distribution network throughout our service areas. The net carrying value of
franchises as of December 31, 2003 and 2002 was approximately $13.7 billion
(representing 65% of total assets) and $13.7 billion (representing 62% of total
assets), respectively. Furthermore, we recorded approximately $52 million of
goodwill as a result of the acquisition of High Speed Access in February 2002. We adopted SFAS No. 142 on January 1, 2002. SFAS No. 142 requires that
franchise intangible assets that meet the indefinite life criteria no longer be
amortized against earnings but instead must be tested for impairment annually
or more frequently as warranted by events or changes in circumstances. In
determining whether our franchises have an indefinite life, we considered the
exclusivity of the franchise, the expected costs of franchise renewals, and the
technological state of the associated cable systems with a view to whether or
not we are in compliance with any technology upgrading requirements. We have
concluded that as of January 1, 2002, December 31, 2002 and December 31, 2003
more than 99% of our franchises qualify for indefinite life treatment under
SFAS No. 142, and that less than one percent of our franchises do not qualify
for indefinite-life treatment due to technological or operational factors that
limit their lives. Costs of finite-lived franchises, along with costs
associated with franchise renewals, will be amortized on a straight-line basis
over 10 years, which represents managements best estimate of the average
remaining useful lives of such franchises. Prior to the adoption of SFAS No.
142, our franchises were amortized over an average useful life of 15 years.
Franchise amortization expense related to franchises not qualifying for
indefinite life treatment totaled $9 million for each of the years ended
December 31, 2003 and 2002. Franchise amortization expense was $1.5 billion,
representing approximately 29% of costs and expenses, for the year ended
December 31, 2001. We expect amortization expense on franchise assets will
decrease to approximately $4 million annually based on our ability in 2003 to
renew franchise agreements we previously classified as having finite lives
without substantial costs. 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. Our goodwill is also deemed to have an indefinite life under SFAS No.
142. SFAS No. 144, Accounting for Impairment or Disposal of Long-Lived Assets,
requires that we evaluate the recoverability of our property, plant and
equipment and franchise assets which did not qualify for indefinite life
treatment under SFAS No. 142 upon the occurrence of events or changes in
circumstances which indicate that the carrying amount of an asset may not be
recoverable. Such events or changes in circumstances could include such
factors as changes in technological advances, fluctuations in the fair value of
such assets, adverse changes in relationships with local franchise authorities,
adverse changes in market conditions or poor operating results. Under SFAS No.
144, a long-lived asset is deemed impaired when the carrying amount of the
asset exceeds the projected undiscounted future cash flows associated with the
asset. Furthermore, we were required to evaluate the recoverability of our
indefinite life franchises, as well as goodwill, as of January 1, 2002 upon
adoption of SFAS No. 142, and on an annual basis or more frequently as deemed
necessary. Under both SFAS No. 144 and SFAS No. 142, if an asset is determined to be
impaired, it is required to be written down to its estimated fair market value.
We determine fair market value based on estimated discounted future cash
flows, using reasonable and appropriate assumptions that are consistent with
internal forecasts. Our assumptions include these and other factors:
penetration rates for analog and digital video and high-speed data, revenue
growth rates, expected operating margins and capital expenditures.
Considerable management judgment is necessary to estimate future cash flows,
and such estimates include inherent uncertainties, including those relating to
the timing and amount of future cash flows and the discount rate used in the
calculation. We utilize an independent third-party appraiser with expertise in
the cable industry to assist in the determination of the fair value of
intangible assets. 40




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During the first quarter of 2002, we had an independent appraiser perform
valuations of our franchises as of January 1, 2002. 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 were aggregated into essentially inseparable asset groups to conduct
the valuations. The asset groups generally represent geographic clusters of
our cable systems, which management believes represent the highest and best use
of those assets. We determined that our franchises were impaired and as a
result recorded the cumulative effect of a change in accounting principle of
$540 million (approximately $572 million before tax effects of $32 million).
As required by SFAS No. 142, the standard has not been retroactively applied to
results for the period prior to adoption. We performed our annual impairment assessment as of October 1, 2002 using an
independent third-party appraiser and following the guidance of EITF Issue
02-17, Recognition of Customer Relationship Intangible Assets Acquired in a
Business Combination, which was issued in October 2002 and requires the
consideration of assumptions that marketplace participants would consider, such
as expectations of future contract renewals and other benefits related to the
intangible asset. Revised estimates of future cash flows and the use of a
lower projected long-term growth rate in our valuation, led to recognition of a
$4.6 billion impairment charge in the fourth quarter of 2002. The independent third party appraisers valuations as of January 1, 2002,
October 1, 2002 and October 1, 2003, yielded total enterprise values of
approximately $30 billion, $25 billion and $25 billion, respectively, which
included approximately $2.4 billion, $3.1 billion and $3.2 billion,
respectively, assigned to customer relationships. SFAS No. 142 does not permit
the recognition of intangible assets not previously recognized. Accordingly,
the impairment included approximately $572 million and $3.1 billion, before tax
effects, attributable to customer relationships as of January 1, 2002 and
October 1, 2002, respectively. The valuation completed at October 1, 2003
showed franchise values in excess of book value and thus resulted in no
impairment. Additionally, as a result of the sale of Port Orchard, Washington
cable system on October 1, 2003, net carrying values of franchises were reduced
by $42 million. The valuations involve numerous assumptions as noted above. While the economic
conditions at the time of each valuation indicate that the combination of
assumptions utilized in the appraisals are reasonable, as market conditions
change so will the assumptions with a resulting impact on the valuation. Income Taxes.All operations of Charter are held through Charter Holdco and
its direct and indirect subsidiaries, including us. Charter Holdco and the
majority of its subsidiaries are not subject to income tax. However, certain
of these subsidiaries are corporations and are subject to income tax. All of
the taxable income, gains, losses, deductions and credits of Charter Holdco are
passed through to its members: Charter, Charter Investment, Inc. and Vulcan
Cable III, Inc. Charter is responsible for its share of taxable income or loss
of Charter Holdco allocated to it in accordance with the Charter Holdco limited
liability company agreement (LLC Agreement) and partnership tax rules and
regulations. The LLC Agreement provides for certain special allocations of net tax profits
and net tax losses (such net tax profits and net tax losses being determined
under the applicable federal income tax rules for determining capital
accounts). Pursuant to the LLC Agreement, through the end of 2003, net tax
losses of Charter Holdco that would otherwise have been allocated to Charter
based generally on its percentage ownership of outstanding common units were
allocated instead to membership units held by Vulcan Cable III, Inc. and
Charter Investment, Inc. (the Special Loss Allocations) to the extent of
their respective capital account balances. After 2003, pursuant to the LLC
Agreement, net tax losses of Charter Holdco are to be allocated to Charter,
Vulcan Cable III, Inc. and Charter Investment, Inc. based generally on their
respective percentage ownership of outstanding common units to the extent of
their respective capital account balances. The LLC Agreement further provides
that, beginning at the time Charter Holdco generates net tax profits, the net
tax profits that would otherwise have been allocated to Charter based generally
on its percentage ownership of outstanding common membership units will instead
generally be allocated to Vulcan Cable III, Inc. and Charter Investment, Inc.
(the Special Profit Allocations). The Special Profit Allocations to Vulcan
Cable III, Inc. and Charter Investment, Inc. will generally continue until the
cumulative amount of the Special Profit Allocations offsets the cumulative
amount of the Special Loss Allocations. The amount and timing of the Special
Profit Allocations are subject to the potential application of, and interaction
with, the Curative Allocation Provisions described in the following paragraph.
The LLC Agreement generally provides that any additional net tax profits are to
be allocated among the members of Charter Holdco based generally on their
respective percentage ownership of Charter Holdco common membership units. Because the respective capital account balance of each of Vulcan Cable III,
Inc. and Charter Investment, Inc. was reduced to zero by December 31, 2002,
certain net tax losses of Charter Holdco that were to be allocated for 2002, 41




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##### 



2003 (subject to resolution of the issue described in Certain Relationships
and Related Transactions 
Transactions Arising Out of Our Organizational Structure and Mr. Allens
Investment in Charter and Its Subsidiaries  Equity Put Rights  CC VIII) and
possibly later years to Vulcan Cable III, Inc. and Charter Investment, Inc.
will instead be allocated to Charter (the Regulatory Allocations). The LLC
Agreement further provides that, to the extent possible, the effect of the
Regulatory Allocations is to be offset over time pursuant to certain curative
allocation provisions (the Curative Allocation Provisions) so that, after
certain offsetting adjustments are made, each members capital account balance
is equal to the capital account balance such member would have had if the
Regulatory Allocations had not been part of the LLC Agreement. The cumulative
amount of the actual tax losses allocated to Charter as a result of the
Regulatory Allocations through the year ended December 31, 2003 is
approximately $2.0 billion to $2.6 billion pending the resolution of the issue
described in Item 13. Certain Relationships and Related Transactions 
Transactions Arising Out of Our Organizational Structure and Mr. Allens
Investment in Charter and Its Subsidiaries  Equity Put Rights  CC VIII. As a result of the Special Loss Allocations and the Regulatory Allocations
referred to above, the cumulative amount of losses of Charter Holdco allocated
to Vulcan Cable III, Inc. and Charter Investment, Inc. is in excess of the
amount that would have been allocated to such entities if the losses of Charter
Holdco had been allocated among its members in proportion to their respective
percentage ownership of Charter Holdco common membership units. The cumulative
amount of such excess losses was approximately $3.1 billion through December
31, 2002 and $2.0 billion to $2.5 billion through December 31, 2003, depending
upon the resolution of the issue described in Item 13. Certain Relationships
and Related Transactions  Transactions Arising Out of Our Organizational
Structure and Mr. Allens Investment in Charter and Its Subsidiaries  Equity
Put Rights  CC VIII. In certain situations, the Special Loss Allocations, Special Profit
Allocations, Regulatory Allocations and Curative Allocation Provisions
described above could result in Charter paying taxes in an amount that is more
or less than if Charter Holdco had allocated net tax profits and net tax losses
among its members based generally on the number of common membership units
owned by such members. This could occur due to differences in (i) the
character of the allocated income (e.g., ordinary versus capital), (ii) the
allocated amount and timing of tax depreciation and tax amortization expense
due to the application of section 704(c) under the Internal Revenue Code, (iii)
the potential interaction between the Special Profit Allocations and the
Curative Allocation Provisions, (iv) the amount and timing of alternative
minimum taxes paid by Charter, if any, (v) the apportionment of the allocated
income or loss among the states in which Charter Holdco does business, and (vi)
future federal and state tax laws. Further, in the event of new capital
contributions to Charter Holdco, it is possible that the tax effects of the
Special Profit Allocations, Special Loss Allocations, Regulatory Allocations
and Curative Allocation Provisions will change significantly pursuant to the
provisions of the income tax regulations. Such change could defer the actual
tax benefits to be derived by Charter with respect to the net tax losses
allocated to it or accelerate the actual taxable income to Charter with respect
to the net tax profits allocated to it. As a result, it is possible under
certain circumstances, that Charter could receive future allocations of taxable
income in excess of its currently allocated tax deductions and available tax
loss carryforwards. In addition, under their exchange agreement with Charter, Vulcan Cable III,
Inc. and Charter Investment, Inc. may exchange some or all of their membership
units in Charter Holdco for Charters Class B common stock, be merged with
Charter, or be acquired by Charter in a non-taxable reorganization. If such an
exchange were to take place prior to the date that the Special Profit
Allocation provisions had fully offset the Special Loss Allocations, Vulcan
Cable III, Inc. and Charter Investment, Inc. could elect to cause Charter
Holdco to make the remaining Special Profit Allocations to Vulcan Cable III,
Inc. and Charter Investment, Inc. immediately prior to the consummation of the
exchange. In the event Vulcan Cable III, Inc. and Charter Investment, Inc.
choose not to make such election or to the extent such allocations are not
possible, Charter would then be allocated tax profits attributable to the
membership units received in such exchange pursuant to the Special Profit
Allocation provisions. Mr. Allen has generally agreed to reimburse Charter for
any incremental income taxes that Charter would owe as a result of such an
exchange and any resulting future Special Profit Allocations to Charter. As of December 31, 2003 and 2002, we have recorded net deferred income tax
liabilities of $267 million and $252 million, respectively. Additionally, as of
December 31, 2003 and 2002, we have deferred tax assets of $86 million and $80
million, respectively, which primarily relate to tax net operating loss
carryforwards of certain of our indirect corporate subsidiaries. We are
required to record a valuation allowance when it is more likely than not that
some portion or all of the deferred income tax assets will not be realized.
Given the uncertainty surrounding our ability to utilize our deferred tax
assets, these items have been offset with a corresponding valuation allowance
of $51 million and $25 million at December 31, 2003 and 2002, respectively. 42




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##### 



We are 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 our
consolidated financial condition, results of operations or our liquidity,
including our ability to comply with our debt covenants. Litigation.As described in Item 3. Legal Proceedings, numerous allegations
have been made against Charter. These legal contingencies have a high degree
of uncertainty. No reserves have been established for these matters because
Charter is unable to predict the outcome. When a contingency becomes estimable
and probable, a reserve is established. We have established reserves for
certain other matters. If any of the litigation matters described in Item 3.
Legal Proceedings is resolved unfavorably, such resolution could have a
material adverse effect on our consolidated financial condition, results of
operations or our liquidity, including our ability to comply with our debt
covenants. Results of Operations The following table sets forth the percentages of revenues that items in the
accompanying consolidated statements of operations constitute for the indicated
periods (dollars in millions): Year Ended December 31,2003
    
    2002
    
    2001Revenues
    
    $
    4,819
    
    
    
    100
    %
    
    $
    4,566
    
    
    
    100
    %
    
    $
    3,807
    
    
    
    100
    %Costs and Expenses:Operating (excluding depreciation and
amortization)
    
    
    1,952
    
    
    
    40
    %
    
    
    1,807
    
    
    
    40
    %
    
    
    1,486
    
    
    
    39
    %Selling, general and administrative
    
    
    940
    
    
    
    19
    %
    
    
    963
    
    
    
    21
    %
    
    
    826
    
    
    
    22
    %Depreciation and amortization
    
    
    1,479
    
    
    
    31
    %
    
    
    1,439
    
    
    
    31
    %
    
    
    2,693
    
    
    
    71
    %Impairment of franchises
    
    
    
    
    
    
    
    
    
    
    4,638
    
    
    
    102
    %
    
    
    
    
    
    
    Gain on sale of system
    
    
    (21
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Option compensation expense (income), net
    
    
    4
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    (5
    )
    
    
    Special charges, net
    
    
    21
    
    
    
    
    
    
    
    36
    
    
    
    1
    %
    
    
    18
    
    
    
    Unfavorable contracts and other settlements
    
    
    (72
    )
    
    
    (1
    )%
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,303
    
    
    
    89
    %
    
    
    8,888
    
    
    
    195
    %
    
    
    5,018
    
    
    
    132
    %Income (loss) from operations
    
    
    516
    
    
    
    11
    %
    
    
    (4,322
    )
    
    
    (95
    )%
    
    
    (1,211
    )
    
    
    (32
    )%Interest expense, net
    
    
    (1,486
    )
    
    
    
    
    
    
    (1,425
    )
    
    
    
    
    
    
    (1,247
    )Gain (loss) on derivative instruments and
hedging activities, net
    
    
    65
    
    
    
    
    
    
    
    (115
    )
    
    
    
    
    
    
    (50
    )Gain on debt exchange, net
    
    
    187
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Loss on equity investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (49
    )Other, net
    
    
    (10
    )
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    (3
    )Loss before minority interest, income taxes and
cumulative effect of accounting change
    
    
    (728
    )
    
    
    
    
    
    
    (5,859
    )
    
    
    
    
    
    
    (2,560
    )Minority interest
    
    
    (29
    )
    
    
    
    
    
    
    (16
    )
    
    
    
    
    
    
    (16
    )Loss before income taxes and cumulative effect of
accounting change
    
    
    (757
    )
    
    
    
    
    
    
    (5,875
    )
    
    
    
    
    
    
    (2,576
    )Income tax (expense) benefit
    
    
    (13
    )
    
    
    
    
    
    
    216
    
    
    
    
    
    
    
    27Loss before cumulative effect of
accounting change
    
    
    (770
    )
    
    
    
    
    
    
    (5,659
    )
    
    
    
    
    
    
    (2,549
    )Cumulative effect of accounting change, net of tax
    
    
    
    
    
    
    
    
    
    
    (540
    )
    
    
    
    
    
    
    (24
    )Net loss
    
    $
    (770
    )
    
    
    
    
    
    $
    (6,199
    )
    
    
    
    
    
    $
    (2,573
    )
 43




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##### 



Year Ended December 31, 2003 Compared to Year Ended December 31, 2002 Revenues.Revenues increased by $253 million, or 6%, from $4.6 billion for the
year ended December 31, 2002 to $4.8 billion for the year ended December 31,
2003. This increase is principally the result of an increase of 427,500
high-speed data customers, as well as price increases for video and high-speed
data services, and is offset partially by a decrease of 147,500 and 10,900 in
analog and digital video customers, respectively. Included within the decrease
of analog and digital video customers and reducing the increase of high-speed
data customers are 25,500 analog video customers, 12,500 digital video
customers and 12,200 high-speed data customers sold in the Port Orchard,
Washington sale on October 1, 2003. Our goal is to increase revenues by
mitigating our past analog video customer losses, implementing limited 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 digital video recorders, high definition television, VOD and
telephony using VOIP to our existing customer base and commercial customers. Average monthly revenue per analog video customer increased from $56.91 for the
year ended December 31, 2002 to $61.92 for the year ended December 31, 2003.
Average monthly revenue per analog video customer represents total annual
revenue, divided by twelve, divided by the average number of analog video
customers. Revenues by service offering are as follows (dollars in millions): Year Ended December 31,2003
    
    2002
    
    2003 over 2002Revenues
    
    % of Revenues
    
    Revenues
    
    % of Revenues
    
    Change
    
    % ChangeVideo
    
    $
    3,461
    
    
    
    72
    %
    
    $
    3,420
    
    
    
    75
    %
    
    $
    41
    
    
    
    1
    %High-speed data
    
    
    556
    
    
    
    12
    %
    
    
    337
    
    
    
    7
    %
    
    
    219
    
    
    
    65
    %Advertising sales
    
    
    263
    
    
    
    5
    %
    
    
    302
    
    
    
    7
    %
    
    
    (39
    )
    
    
    (13
    )%Commercial
    
    
    204
    
    
    
    4
    %
    
    
    161
    
    
    
    3
    %
    
    
    43
    
    
    
    27
    %Other
    
    
    335
    
    
    
    7
    %
    
    
    346
    
    
    
    8
    %
    
    
    (11
    )
    
    
    (3
    )%$
    4,819
    
    
    
    100
    %
    
    $
    4,566
    
    
    
    100
    %
    
    $
    253
    
    
    
    6
    %
 Video revenues consist primarily of revenues from analog and digital video
services provided to our non-commercial customers. Video revenues increased by
$41 million, or 1%, for the year ended December 31, 2003 compared to the year
ended December 31, 2002. The increase was primarily due to price increases
partially offset by a decline in analog and digital video customers. Revenues from high-speed data services provided to our non-commercial customers
increased $219 million, or 65%, from $337 million for the year ended December
31, 2002 to $556 million for the year ended December 31, 2003. Approximately
93% of the increase related to the increase in the average number of customers,
whereas approximately 7% related to the increase in average price of the
service. The increase was primarily due to the addition of high-speed data
customers within our existing service areas. We were also able to offer this
service to more of our customers, as the estimated percentage of homes passed
that could receive high-speed data service increased from 82% as of December

31, 2002 to 87% as of December 31, 2003 as a result of our system upgrades. Advertising sales revenues consist primarily of revenues from commercial
advertising customers, programmers and other vendors. Advertising sales
decreased $39 million, or 13%, from $302 million for the year ended December
31, 2002, to $263 million for the year ended December 31, 2003, primarily as a
result of a decrease in advertising from vendors and offset partially by an
increase in local advertising sales revenues. For the years ended December 31,
2003 and 2002, we received $15 million and $79 million, respectively, in
advertising revenue from vendors. Commercial revenues consist primarily of revenues from video and high-speed
data services to our commercial customers. Commercial revenues increased $43
million, or 27%, from $161 million for the year ended December 31, 2002, to
$204 million for the year ended December 31, 2003, primarily due to an increase
in commercial high-speed data revenues. 44




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##### 



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. For the years
ended December 31, 2003 and 2002, franchise fees represented approximately 48%
and 46%, respectively, of total other revenues. Other revenues decreased $11
million, or 3%, from $346 million for the year ended December 31, 2002 to $335
million for the year ended December 31, 2003. The decrease was due primarily
to a decrease in franchise fees after an FCC ruling in March 2002, no longer
requiring the collection of franchise fees for high-speed data services.
Franchise fee revenues are collected from customers and remitted to franchise
authorities. The decrease in accounts receivable of 25% compared to the increase in revenues
of 6% is primarily due to the timing of collection of receivables from
programmers for fees associated with the launching of their networks, coupled
with our tightened credit and collections policy. These fees from programmers
are not recorded as revenue but, rather, are recorded as reductions of
programming expense on a straight-line basis over the term of the contract.
Programmer receivables decreased $40 million, or 57%, from $70 million as of
December 31, 2002 to $30 million as of December 31, 2003. Operating expenses.Operating expenses increased $145 million, or 8%, from $1.8
billion for the year ended December 31, 2002 to $2.0 billion for the year ended
December 31, 2003. Programming costs included in the accompanying consolidated
statements of operations were $1.2 billion and $1.2 billion, representing 64%
and 65% of total operating expenses for the years ended December 31, 2003 and
2002, respectively. Key expense components as a percentage of revenues are as
follows (dollars in millions): Year Ended December 31,2003
    
    2002
    
    2003 over 2002% of
    
    
    
    
    
    % of
    
    
    
    
    
    %Expenses
    
    Revenues
    
    Expenses
    
    Revenues
    
    Change
    
    ChangeProgramming
    
    $
    1,249
    
    
    
    26
    %
    
    $
    1,166
    
    
    
    26
    %
    
    $
    83
    
    
    
    7
    %Advertising sales
    
    
    88
    
    
    
    2
    %
    
    
    87
    
    
    
    2
    %
    
    
    1
    
    
    
    1
    %Service
    
    
    615
    
    
    
    12
    %
    
    
    554
    
    
    
    12
    %
    
    
    61
    
    
    
    11
    %$
    1,952
    
    
    
    40
    %
    
    $
    1,807
    
    
    
    40
    %
    
    $
    145
    
    
    
    8
    %
 Programming costs consist primarily of costs paid to programmers for the
provision of analog, premium and digital channels and pay-per-view programs.
The increase in programming costs of $83 million, or 7%, was due to price
increases, particularly in sports programming, and due to an increased number
of channels carried on our systems, partially offset by decreases in analog and
digital video customers. Programming costs were offset by the amortization of
payments received from programmers in support of launches of new channels
against programming costs of $62 million and $57 million for the year ended
December 31, 2003 and 2002, 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 due to 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
cable 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 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 $1 million, or 1%, primarily
due to increased sales commissions, taxes and benefits. 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 $61 million, or 11%, resulted primarily from
additional activity associated with ongoing infrastructure maintenance and
customer service, including activities associated with our promotional program. 45




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##### 



Selling, general and administrative expenses.Selling, general and
administrative expenses decreased by $23 million, or 2%, from $963 million for
the year ended December 31, 2002 to $940 million for the year ended December
31, 2003. Key components of expense as a percentage of revenues are as follows
(dollars in millions): Year Ended December 31,2003
    
    2002
    
    2003 over 2002% of
    
    
    
    
    
    % of
    
    
    
    
    
    %Expenses
    
    Revenues
    
    Expenses
    
    Revenues
    
    Change
    
    ChangeGeneral and administrative
    
    $
    833
    
    
    
    17
    %
    
    $
    810
    
    
    
    18
    %
    
    $
    23
    
    
    
    3
    %Marketing
    
    
    107
    
    
    
    2
    %
    
    
    153
    
    
    
    3
    %
    
    
    (46
    )
    
    
    (30
    )%$
    940
    
    
    
    19
    %
    
    $
    963
    
    
    
    21
    %
    
    $
    (23
    )
    
    
    (2
    )%
 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 $23 million, or 3%, resulted primarily from increases in salaries
and benefits of $4 million, call center costs of $25 million and internal
network costs of $16 million. These increases were partially offset by a
decrease in bad debt and collection expense of $27 million as we continue to
realize benefits from our strengthened credit policies. Marketing expenses decreased $46 million, or 30%, due to reduced promotional
activity related to our service offerings including reductions in advertising,
telemarketing and direct sales activities. However, we expect marketing
expenses to increase in 2004. Depreciation and amortization.Depreciation and amortization expense increased
by $40 million, or 3%, from $1.4 billion in 2002 to $1.5 billion in 2003 due
primarily to an increase in depreciation expense related to additional capital
expenditures in 2003 and 2002. Impairment of franchises.We performed our annual impairment assessments on
October 1, 2002 and 2003 using an independent third-party appraiser. Revised
estimates of future cash flows and the use of a lower projected long-term
growth rate in our valuation led to a $4.6 billion impairment charge in the
fourth quarter of 2002. Our 2003 assessment performed on October 1, 2003 did
not result in an impairment. We do not expect to incur impairment charges of
comparable magnitude to the 2002 charge in the future. Gain on sale of system.Gain on sale of system of $21 million for the year
ended December 31, 2003 represents the gain recognized on the sale of cable
systems in Port Orchard, Washington which closed on October 1, 2003. Option compensation expense (income), net.Option compensation expense
decreased by $1 million for the year ended December 31, 2003 compared to the
year ended December 31, 2002. Option compensation expense includes expense
related to exercise prices on certain options that were issued prior to our
initial public offering in 1999 that were less than the estimated fair values
of our common stock at the time of grant. Compensation expense is being
recognized over the vesting period of such options and will continue to be
recorded until the last vesting period lapses in April 2004. On January 1,
2003, we adopted SFAS No. 123, Accounting for Stock-Based Compensation,using
the prospective method under which we will recognize compensation expense of a
stock-based award to an employee over the vesting period based on the fair
value of the award on the grant date. Special charges, net.Special charges of $21 million for the year ended
December 31, 2003 represent approximately $26 million of severance and related
costs of our ongoing initiative to reduce our workforce partially offset by a
$5 million credit from a settlement from the Internet service provider
Excite@Home related to the conversion of about 145,000 high-speed data
customers to our Charter Pipeline service in 2001. In the fourth quarter of
2002, we recorded a special charge of $35 million, of which $31 million is
associated with our workforce reduction program. The remaining $4 million is
related to legal and other costs associated with our shareholder lawsuits and
governmental investigations. We expect to continue to record additional
special charges in 2004 related to the reorganization of our operations and
costs of litigation. Unfavorable contracts and other settlements.Unfavorable contracts and other
settlements of $72 million for the year ended December 31, 2003 represents the
settlement of estimated liabilities recorded in connection with prior 46




---



##### 



business combinations. The majority of this benefit (approximately $52
million) is due to the renegotiation in 2003 of a major programming contract,
for which a liability had been recorded for the above market portion of that
agreement in conjunction with the Falcon acquisition in 1999 and the Bresnan
acquisition in 2000. The remaining benefit relates to the reversal of
previously recorded liabilities, which, based on an evaluation of current facts
and circumstances, are no longer required. Interest expense, net.Net interest expense increased by $61 million, or 4%,
from $1.4 billion for the year ended December 31, 2002 to $1.5 billion for the
year ended December 31, 2003. The increase in net interest expense was a
result of increased average debt outstanding in 2003 of $17.9 billion compared
to $16.4 billion in 2002, partially offset by a decrease in our average
borrowing rate from 8.25% in 2002 to 8.17% in 2003. The increased debt was
primarily used for capital expenditures. Gain (loss) on derivative instruments and hedging activities, net.Net gain on
derivative instruments and hedging activities increased $180 million from a
loss of $115 million for the year ended December 31, 2002 to a gain of $65
million for the year ended December 31, 2003. The increase is primarily due to
an increase in gains on interest rate agreements, which do not qualify for
hedge accounting under SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities,which increased from a loss of $101 million for the year
ended December 31, 2002 to a gain of $57 million for the year ended December
31, 2003. Gain on debt exchange, net.Net gain on debt exchange of $187 million for the
year ended December 31, 2003 represents the gain realized on the purchase, in a
non-monetary transaction, of a total of $609 million principal amount of
Charters outstanding convertible senior notes and $1.3 billion principal
amount of our senior notes and senior discount notes in consideration for a
total of $1.6 billion principal amount of 10.25% notes due 2010 issued by our
indirect subsidiary, CCH II. The gain is net of the write-off of deferred
financing costs associated with the retired debt of $27 million. Other, net.Other expense increased by $13 million from income of $3 million in
2002 to expense of $10 million in 2003. This increase is primarily due to
increases in costs associated with amending a revolving credit facility of our
subsidiaries and costs associated with terminated debt transactions. Minority interest.Minority interest expense represents the 10% dividend on
preferred membership units in our indirect subsidiary, Charter Helicon, LLC and
the 2% accretion of the preferred membership interests in CC VIII and, since
June 6, 2003, the pro rata share of the profits of CC VIII. See Item 13.
Certain Relationships and Related Transactions  Transactions Arising Out of
Our Organizational Structure and Mr. Allens Investment in Charter
Communications, Inc. and Its Subsidiaries  Equity Put Rights  CC VIII. Income tax benefit (expense).Income tax expense of $13 million was recognized
for the year ended December 31, 2003. The income tax expense is realized
through increases in deferred tax liabilities and federal and state income
taxes related to our indirect corporate subsidiaries. The income tax benefit
of $216 million recognized for the year ended December 31, 2002 was the result
of changes in deferred tax liabilities of certain of our indirect corporate
subsidiaries related to differences in accounting for franchises. Cumulative effect of accounting change, net of tax.Cumulative effect of
accounting change in 2002 represents the impairment charge recorded as a result
of adopting SFAS No. 142. Net loss.Net loss decreased by $5.4 billion, or 88%, from $6.2 billion in 2002
to $770 million in 2003 as a result of the factors described above. The impact
of the gain on sale of system, unfavorable contracts and settlements and gain
on debt exchange, net of income tax impacts, was to decrease net loss by $276
million in 2003. The impact of the impairment of franchises and the cumulative
effect of accounting change, net of income tax impacts, was to increase net
loss by $5.1 billion in 2002. Year Ended December 31, 2002 Compared to Year Ended December 31, 2001 Revenues.Revenues increased by $759 million, or 20%, from $3.8 billion in
2001 to $4.6 billion in 2002. This increase is principally the result of an
increase of 538,000 and 585,200 in the number of digital video and high-speed
data customers, respectively, as well as price increases, and is offset by a
decrease of 357,400 in analog video customers. Average monthly revenue per
analog video customer increased from $45.68 in 2001 to $56.91 in 2002. Average
monthly revenue per analog video customer represents total annual revenue,
divided by twelve, divided by the average number of analog video customers. 47




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##### 



Revenues by service offering are as follows (dollars in millions): Year Ended December 31,2002
    
    2001
    
    2002 over 2001% of
    
    
    
    
    
    % ofRevenues
    
    Revenues
    
    Revenues
    
    Revenues
    
    Change
    
    % ChangeVideo
    
    $
    3,420
    
    
    
    75
    %
    
    $
    2,971
    
    
    
    78
    %
    
    $
    449
    
    
    
    15
    %High-speed data
    
    
    337
    
    
    
    7
    %
    
    
    148
    
    
    
    4
    %
    
    
    189
    
    
    
    128
    %Advertising sales
    
    
    302
    
    
    
    7
    %
    
    
    197
    
    
    
    5
    %
    
    
    105
    
    
    
    53
    %Commercial
    
    
    161
    
    
    
    3
    %
    
    
    123
    
    
    
    3
    %
    
    
    38
    
    
    
    31
    %Other
    
    
    346
    
    
    
    8
    %
    
    
    368
    
    
    
    10
    %
    
    
    (22
    )
    
    
    (6
    )%$
    4,566
    
    
    
    100
    %
    
    $
    3,807
    
    
    
    100
    %
    
    $
    759
    
    
    
    20
    %
 Video revenues consist primarily of revenues from analog and digital video
services provided to our non-commercial customers. Video revenues increased by
$449 million, or 15%, to $3.4 billion in 2002 compared to $3.0 billion in 2001.
The increase was due to a full year of revenue from the AT&T Broadband systems
acquired in June 2001, general price increases and the addition of
approximately 538,000 digital video customers partially offset by a reduction
of approximately 357,400 analog video customers. Overall, the net increase in
the average number of customers resulted in approximately 7% of the increase in
video revenue, whereas approximately 93% resulted from the increase in average
price of our video products. Revenues from high-speed data services provided to our non-commercial customers
increased $189 million, or 128%, from $148 million for the year ended December
31, 2001 to $337 million for the year ended December 31, 2002. Approximately
73% of the increase related to the increase in the average number of customers,
whereas approximately 27% related to the increase in average price of the
service. The increase was primarily due to the addition of 585,200 high-speed
data customers. Between 2001 and 2002, we were able to offer this service to
more of our customers, as the estimated percentage of homes passed that could
receive high-speed data service increased from 66% to 82% as a result of our
ongoing system upgrades. Advertising sales revenues consist primarily of revenues from commercial
advertising customers, programmers and other vendors. Advertising sales
increased $105 million, or 53%, from $197 million in 2001 to $302 million in
2002. The increase was due to an increase of $53 million, from $13 million in
2001 to $66 million in 2002, in advertising contracts with programmers, $40
million of additional sales primarily due to the increased advertising capacity
as a result of an increased number of channels carried by our systems and $14
million related to the acquisition of AT&T Broadband systems in June 2001. For
the years ended December 31, 2002 and 2001, we received $13 million and $14
million, respectively, in advertising revenues from our two largest suppliers
of digital set-top terminals representing 0.3% and 0.4% of total revenues,
respectively. Revenues from advertising provided to vendors and programmers
are recognized based upon the fair value of advertising. Vendor advertising
purchases are made pursuant to written agreements that are generally consistent
with other third-party commercial advertising agreements and at prices that we
believe approximate fair value. In some cases we purchased equipment from the
vendors at the same time. Commercial revenues consist primarily of revenues from video and high-speed
data services to our commercial customers. Commercial revenues increased $38
million, or 31%, from $123 million for the year ended December 31, 2001, to
$161 million for the year ended December 31, 2002, primarily due to 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. For the years
ended December 31, 2002 and 2001, franchise fees represented approximately 46%
and 39%, respectively, of total other revenues. Other revenues decreased $22
million, or 6%, from $368 million for the year ended December 31, 2001 to $346
million for the year ended December 31, 2002. The decrease was due to
decreases in late payment fees charged to customers and other miscellaneous
revenues. Franchise fee revenues are collected from customers and remitted to
franchise authorities. The decrease in accounts receivable of 8% compared to the increase in revenues
of 20% is primarily due to the timing of collection of receivables from
programmers for fees associated with the launching of their networks, 48




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##### 



coupled with our tightened credit and collections policy. These fees from
programmers are not recorded as revenue but, rather, are recorded as reductions
of programming expense on a straight-line basis over the term of the contract.
Programmer receivables decreased $27 million, or 28%, from $97 million as of
December 31, 2001 to $70 million as of December 31, 2002. Operating expenses.Operating expenses increased $321 million, or 22%, from
$1.5 billion in 2001 to $1.8 billion in 2002. Programming costs included in
the accompanying consolidated statements of operations were $1.2 billion and
$963 million, representing 65% of total operating expenses for the years ended
December 31, 2002 and 2001, respectively. Key expense components as a
percentage of revenues are as follows (dollars in millions): Year Ended December 31,2002
    
    2001
    
    2002 over 2001% of
    
    
    
    
    
    % ofExpenses
    
    Revenues
    
    Expenses
    
    Revenues
    
    Change
    
    % ChangeProgramming
    
    $
    1,166
    
    
    
    26
    %
    
    $
    963
    
    
    
    25
    %
    
    $
    203
    
    
    
    21
    %Advertising sales
    
    
    87
    
    
    
    2
    %
    
    
    64
    
    
    
    2
    %
    
    
    23
    
    
    
    36
    %Service
    
    
    554
    
    
    
    12
    %
    
    
    459
    
    
    
    12
    %
    
    
    95
    
    
    
    21
    %$
    1,807
    
    
    
    40
    %
    
    $
    1,486
    
    
    
    39
    %
    
    $
    321
    
    
    
    22
    %
 Programming costs consist primarily of costs paid to programmers for the
provision of analog, premium and digital channels and pay-per-view programs.
The increase in programming costs of $203 million, or 21%, was primarily due to
price increases, particularly in sports programming, an increased number of
channels carried on our systems and an increase in digital video customers. In
addition, approximately $51 million of the increase results from a full year of
costs related to the acquisition of AT&T Broadband systems in June 2001.
Programming costs were offset by the amortization of payments received from
programmers in support of launches of new channels against programming costs of
$57 million and $35 million for the years ended December 31, 2002 and 2001,
respectively. 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 $23 million, or 36%,
primarily due to increased sales commissions resulting from the increase in
advertising revenues. 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 $95 million, or 21%, resulted primarily from our growth in digital
video and high-speed data services. Selling, general and administrative expenses.Selling, general and
administrative expenses increased by $137 million, or 17%, from $826 million
for the year ended December 31, 2001 to $963 million for the year ended
December 31, 2002. Key components of expense as a percentage of revenues are
as follows (dollars in millions): Year Ended December 31,2002
    
    2001
    
    2002 over 2001% of
    
    
    
    
    
    % of
    
    
    
    
    
    %Expenses
    
    Revenues
    
    Expenses
    
    Revenues
    
    Change
    
    ChangeGeneral and administrative
    
    $
    810
    
    
    
    18
    %
    
    $
    689
    
    
    
    18
    %
    
    $
    121
    
    
    
    18
    %Marketing
    
    
    153
    
    
    
    3
    %
    
    
    137
    
    
    
    4
    %
    
    
    16
    
    
    
    12
    %$
    963
    
    
    
    21
    %
    
    $
    826
    
    
    
    22
    %
    
    $
    137
    
    
    
    17
    %
 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 $121 million, or 18%, resulted primarily from increases in salaries
and benefits of $66 million, bad debt and collection expense of $24 million and
insurance of $13 million. The increase in bad debt expense resulted primarily
from continuing effects of our aggressive discounting of our analog video
service during late 2000 and most of 2001 in an effort to grow our customer
base and respond to price competition from satellite providers. This practice
led to an increase in customers during the discounted period whose service was
subsequently disconnected for non-payment or who subsequently cancelled their
service without payment for services provided. We also lengthened the period
during which we extended credit to customers, which increased exposure to
customers whose 49




---



##### 



accounts were subject to cancellation and increased bad debt expense. These
increases were partially offset by a decrease in billing expenses of $12
million as a result of renegotiated contracts with third-party billing
providers. Marketing expenses increased $16 million, or 12%, due to increased costs
associated with promotions of our service offerings including advertising,
telemarketing and direct sales. Depreciation and amortization.Depreciation and amortization expense decreased
by $1.3 billion, or 47%, from $2.7 billion in 2001 to $1.4 billion in 2002.
This decrease was due primarily to the adoption on January 1, 2002 of SFAS No.
142, which requires that franchise intangible assets that meet the indefinite
life criteria of SFAS No. 142 no longer be amortized against earnings but
instead be tested for impairment on an annual basis. As a result of this
change, total amortization of franchise assets decreased from $1.5 billion in
2001 to $9 million in 2002. The decrease was partially offset by the increase
in depreciation expense related to additional capital expenditures in 2002. Impairment of franchises.We performed our annual impairment assessment on
October 1, 2002 using an independent third-party appraiser. Revised estimates
of future cash flows and the use of a lower projected long-term growth rate in
our valuation led to a $4.6 billion impairment charge in the fourth quarter of
2002. We do not expect to incur impairment charges of comparable magnitude in
the future. Option compensation expense (income), net.Option compensation expense
increased by $10 million from $5 million of net benefit in 2001 to $5 million
of expense in 2002. The net benefit in 2001 was primarily the result of the
reversal of $22 million of expense previously recorded in connection with
approximately 7 million options for which the rights were waived by our former
President and Chief Executive Officer as part of his September 2001 separation
agreement. Option compensation expense was recorded in 2002 because exercise
prices on certain options issued prior to our initial public offering in 1999
were less than the estimated fair values of our common stock at the time of
grant. Compensation expense is being recognized over the vesting period of
such options, which ends in April 2004. On January 1, 2003, we adopted SFAS
No. 123 using the prospective method under which we recognize compensation
expense of a stock-based award to an employee over the vesting period based on
the fair value of the award on the grant date. For more information, see Note
19 to our consolidated financial statements contained in Item 8. Financial
Statements and Supplementary Data. Special charges, net.In the fourth quarter of 2002, we recorded a special
charge of $35 million, of which $31 million is associated with our workforce
reduction program. The remaining $4 million is related to legal and other
costs associated with our shareholder lawsuits and governmental investigations.
Special charges of $18 million in 2001 represent charges associated with the
transition of approximately 145,000 data customers from the Excite@Home
Internet service to our Charter Pipeline service, as well as employee severance
costs. Interest expense, net.Net interest expense increased by $178 million, or 14%,
from $1.2 billion in 2001 to $1.4 billion in 2002. The increase in net
interest expense was a result of increased average debt outstanding in 2002 of
$16.4 billion compared to $14.6 billion in 2001, partially offset by a decrease
in our average borrowing rate from 8.62% in 2001 to 8.25% in 2002. The
increased debt was used for capital expenditures. Gain (loss) on derivative instruments and hedging activities, net.Loss on
derivative instruments and hedging activities increased $65 million from $50
million for the year ended December 31, 2001 to $115 million for the year ended
December 31, 2002. The increase is primarily due to an increase in losses on
interest rate agreements, which do not qualify for hedge accounting under SFAS
No. 133, which increased from $48 million for the year ended December 31, 2001
to $101 million for the year ended December 31, 2002. Loss on equity investments.Loss on equity investments of $49 million for the
year ended December 31, 2001 is primarily due to a decrease of $38 million in
our investment in High Speed Access Corp., a related party until our
acquisition of certain of its assets by Charter, as described more fully in
note 19 to our consolidated financial statements contained in Item 8.
Financial Statements and Supplementary Data. Minority interest.Minority interest expense represents the 10% dividend on
preferred membership units in our indirect subsidiary, Charter Helicon, LLC and
the 2% accretion of the preferred membership interests in CC VIII. See Item
13. Certain Relationships and Related Transactions  Transactions Arising Out
of Our Organizational Structure and Mr. Allens Investment in Charter
Communications, Inc. and Its Subsidiaries  Equity Put Rights  CC VIII. 50




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##### 



Income tax benefit.Income tax benefit of $216 million and $27 million were
recognized for the years ended December 31, 2002 and 2001, respectively. The
income tax benefits were realized as a result of changes in deferred tax
liabilities related to differences in accounting for franchises of certain of
our indirect corporate subsidiaries. Cumulative effect of accounting change, net of tax.Cumulative effect of
accounting change in 2002 represents the impairment charge recorded as a result
of adopting SFAS No. 142. Cumulative effect of accounting change in 2001
represents losses incurred upon adoption of SFAS No. 133. Net loss.Net loss increased by $3.6 billion, or 141%, from $2.6 billion in
2001 to $6.2 billion in 2002 as a result of the combination of factors
described above. The impact of the impairment of franchises and the cumulative
effect of accounting change, net of income tax impacts, was to increase net
loss by $5.1 billion in 2002. This was offset somewhat by the decrease in
amortization expense, net of income tax impacts, in 2002 verses 2001 of $1.5
billion as a result of the adoption of SFAS No. 142 on January 1, 2002. 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 the credit facilities of our subsidiaries,
issuances of debt securities by us and our subsidiaries and capital
contributions from Charter Holdco. The mix of funding sources changes from
period to period, but for the year ended December 31, 2003, approximately 77%
of our funding requirements were from cash flows from operating activities and
23% was from cash on hand. In 2003, net cash flows used in financing
activities were $206 million, reflecting a net repayment of debt. We expect
that our mix of sources of funds will continue to change in the future based on
our overall needs relative to our cash flow and on the availability under the
credit facilities of our subsidiaries, our access to the debt markets and our
ability to generate cash flows from operating activities. We have a significant level of debt. In 2004, $188 million of our debt
matures, and in 2005 and 2006, an additional $426 million and $999 million
matures, respectively. In subsequent years, substantial additional amounts
will become due under our remaining obligations. As the principal amounts
owing under our various debt obligations become due, sustaining our liquidity
will likely depend upon our ability to access additional sources of capital
over time. A default under the covenants governing any of our debt instruments
could result in the acceleration of our payment obligations under that debt
and, under certain circumstances, in cross-defaults under our other debt
obligations, which would have a material adverse effect on our consolidated
financial condition or results of operations. As part of our plan to sell certain non-strategic assets, on October 1, 2003,
we completed the sale of our Port Orchard, Washington system for approximately
$91 million, subject to adjustments. Additionally, on March 1, 2004, we and
several of our subsidiaries closed the sale of cable systems in Florida,
Pennsylvania, Maryland, Delaware and West Virginia. We anticipate that an
additional closing for a cable system in New York will occur during the first
half of 2004. After giving effect to the sale of the New York system, net
proceeds will be approximately $735 million, subject to post-closing
adjustments. We will use these proceeds to repay bank debt. In September 2003, we, CCH II and Charter purchased, in a non-monetary
transaction, a total of approximately $609 million principal amount of
Charters convertible senior notes and approximately $1.3 billion principal
amount of our senior notes and senior discount notes from institutional
investors in a small number of privately negotiated transactions. As
consideration for these securities, CCH II issued approximately $1.6 billion
principal amount of 10.25% senior notes due 2010, achieving approximately $294
million of debt discount. The transactions were effected through a
distribution of equity by CCH II to us and Charter. CCH II also issued an
additional $30 million principal amount of 10.25% senior notes for cash and
used the proceeds for transaction costs and for general corporate purposes. As
a result of the transaction, a $187 million gain was recorded and maturities
were extended for a majority of the debt exchanged. Also, in November 2003,
CCO Holdings sold $500 million total principal 51




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##### 



amount of 8-3/4% senior notes due 2013, the proceeds of which were used to
repay (but not to reduce permanently) amounts outstanding under our
subsidiaries bank credit facilities. We are currently in compliance with the covenants under the credit facilities
of our subsidiaries and our indentures and those of our subsidiaries, and we
expect to remain in compliance with those covenants throughout 2004. If our
actual operating results do not result in compliance with these covenants, or
if other events of noncompliance occur, funding under the credit facilities may
not be available and defaults on some or potentially all debt obligations could
occur. However, we expect that our cash on hand, cash flows from operating
activities, proceeds from the completion of the sale of certain non-strategic
assets in the first half of 2004 and the amounts available under our
subsidiaries credit facilities should be sufficient to satisfy our liquidity
needs through 2004. As of December 31, 2003, we held $85 million in cash and
cash equivalents and we had total potential unused availability of $1.7 billion
under the credit facilities of our subsidiaries, although the actual unused
availability at year-end was $828 million because of limits imposed under
covenant restrictions. However, cash flows from operating activities and
amounts available under credit facilities may not be sufficient to permit us to
satisfy our principal repayment obligations. Our significant amount of debt
may negatively affect our ability to access additional capital in the future.
In addition, the maximum allowable leverage ratios under our credit facilities
will decline over time and the total potential borrowing available under our
subsidiaries current credit facilities (subject to covenant restrictions and
limitations) will decrease from approximately $9.0 billion as of the end of
2003 to approximately $8.7 billion and approximately $7.7 billion by the end of
2004 and 2005, respectively. Continued access to these credit facilities is
subject to our remaining in compliance with the applicable covenants of these
credit facilities, including covenants tied to our operating performance. If
there is an event of default under our subsidiaries credit facilities, such as
the failure to maintain the applicable required financial ratios, we would be
unable to borrow under these credit facilities, which could materially
adversely impact our ability to operate our business and to make payments under
our debt instruments. Although Mr. Allen and his affiliates have purchased equity from Charter and
its subsidiaries in the past, Mr. Allen and his affiliates are not obligated to
purchase equity from, contribute to or loan funds to Charter or to its
subsidiaries in the future. The indentures governing our notes permit us to make distributions up to our
formulaic capacity to Charter Holdco for payment of interest on Charters
convertible senior notes, only if, after giving effect to the distribution, we
can incur additional debt under the leverage ratio of 8.75 to 1.0, there is no
default under the indentures and other specified tests are met. However, in
the event that we could not incur any additional debt under the 8.75 to 1.0
leverage ratio, the indentures governing our notes permit us and our
subsidiaries to make specified investments in Charter Holdco or Charter, up to
its formulaic capacity, if there is no default under the indentures. There
were no defaults under our indentures and other specified tests were met for
the year ending December 31, 2003. However, we did not meet the leverage ratio
test at December 31, 2003, and as a result, distributions from us to Charter
will be restricted until that test is met. As of December 31, 2003, Charter
Holdco had $41 million in cash on hand and is owed $37 million in intercompany
loans, which are available to Charter Holdco to service interest on Charters
convertible senior notes. No assurances can be given that we will not experience liquidity problems
because of adverse market conditions or other unfavorable events or if we do
not obtain sufficient additional financing on a timely basis. If, at any time,
additional capital or borrowing capacity is required beyond amounts internally
generated or available through existing credit facilities or in traditional
debt financings, we would consider:  
    
    requesting waivers or amendments with respect to our credit
facilities, the availability and terms of which would be subject to
market conditions;
    
    further reducing our expenses and capital expenditures, which would
likely impair our ability to increase revenue;
    
    selling assets;
    
    issuing debt securities which may have structural or other priorities over our existing notes; or
    
    issuing equity at the Charter or Charter Holdco level, the proceeds
of which could be loaned or contributed to us. 52




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##### 



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 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. Summary of Outstanding Contractual Obligations The following table summarizes our payment obligations as of December 31, 2003
under our long-term debt and certain other contractual obligations and
commitments (dollars in millions). Payments by PeriodLess than
    
    1-3
    
    3-5
    
    More thanTotal
    
    1 year
    
    years
    
    years
    
    5 yearsContractual ObligationsLong-Term Debt (1)
    
    $
    18,434
    
    
    $
    188
    
    
    $
    1,425
    
    
    $
    6,292
    
    
    $
    10,529Capital and Operating Lease Obligations (1)
    
    
    80
    
    
    
    19
    
    
    
    29
    
    
    
    14
    
    
    
    18Programming Minimum Commitments (2)
    
    
    1,949
    
    
    
    320
    
    
    
    684
    
    
    
    703
    
    
    
    242Other (3)
    
    
    282
    
    
    
    63
    
    
    
    86
    
    
    
    49
    
    
    
    84Total
    
    $
    20,745
    
    
    $
    590
    
    
    $
    2,224
    
    
    $
    7,058
    
    
    $
    10,873
  (1)
    
    The tables present maturities of long-term debt outstanding as of December 31, 2003. Refer to Notes 9 and 20 to our consolidated
financial statements contained in Item 8. Financial Statements and Supplementary Data for a description of our long-term debt and
other contractual obligations and commitments.(2)
    
    We pay programming fees under multi-year contracts ranging from three to six years typically based on a flat fee per customer, which
may be fixed for the term or may in some cases, escalate over the term. Programming costs included in the accompanying statements of
operations were $1.2 billion, $1.2 billion and $963 million for the years ended December 31, 2003, 2002 and 2001, respectively.
Certain of our programming agreements are based on a flat fee per month or have guaranteed minimum payments. The table sets forth the
aggregate guaranteed minimum commitments under our programming contracts.(3)
    
    Other represents other guaranteed minimum commitments, which consist primarily of commitments to our billing services vendors. The following items are not included in the contractual obligations table due
to various factors discussed below. However, we incur these costs as part of
our operations:  
    
    We rent utility poles used in our operations. Generally, pole
rentals are cancelable on short notice, but we anticipate that such
rentals will recur. Rent expense incurred for pole rental attachments
for the years ended December 31, 2003, 2002 and 2001, was $40 million,
$41 million and $33 million, respectively.
    
    We pay franchise fees under multi-year franchise agreements based
on a percentage of revenues earned from video service per year. We
also pay other franchise related costs, such as public education grants
under multi-year agreements. Franchise fees and other
franchise-related costs included in the accompanying statements of
operations were $162 million, $160 million and $144 million for the
years ended December 31, 2003, 2002 and 2001, respectively.
    
    We also have $153 million in letters of credit, primarily to our
various workers compensation, property casualty and general liability
carriers as collateral for reimbursement of claims. These letters of
credit reduce the amount we may borrow under our credit facilities. Historical Operating, Financing and Investing Activities We held $85 million in cash and cash equivalents as of December 31, 2003
compared to $310 million as of December 31, 2002. The decrease in cash and
cash equivalents reflects the use of cash in funding operations, capital
expenditures and debt service cost. 53




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##### 



Operating Activities.Net cash provided by operating activities for the years
ended December 31, 2003, 2002 and 2001 was $746 million, $741 million and $516
million, respectively. Net cash flows from operating activities provided $5
million more cash in 2003 than in 2002 primarily due to an increase in revenue
over cash costs year over year partially offset by changes in operating assets
and liabilities that provided $90 million less cash in 2003 than in 2002. Net cash flows from operating activities provided $225 million more cash in
2002 than in 2001 primarily due to increased revenues of $759 million over 2001
and changes in operating assets and liabilities that provided $15 million more
cash in 2002 than in 2001 offset in part by increases in operating expenses and
cash interest expense. Investing Activities.Net cash used in investing activities for the years ended
December 31, 2003, 2002 and 2001 was $765 million, $2.3 billion and $4.6
billion, respectively. Net cash flows from investing activities used $1.5
billion less cash in 2003 than in 2002 primarily as a result of reductions in
capital expenditures and acquisitions. Purchases of property, plant and
equipment used $1.3 billion less cash in 2003 than in 2002 as a result of
reduced rebuild and upgrade activities and our efforts to reduce capital
expenditures. Payments for acquisitions used $140 million less cash in 2003
than in 2002. Net cash flows from investing activities used $2.3 billion less cash in 2002
than in 2001 primarily as a result of reductions in capital expenditures and
acquisitions. Purchases of property, plant and equipment used $700 million
less cash in 2002 than in 2001 as a result of our efforts to reduce capital
expenditures. Payments for acquisitions used $1.6 billion less cash in 2002
than in 2001. Financing Activities.Net cash used in financing activities was $206 million
for the year ended December 31, 2003, whereas net cash provided by financing
activities for the year ended December 31, 2002 and 2001 was $1.9 billion and
$4.0 billion, respectively. Net cash flows from financing activities provided
$2.1 billion less cash in 2003 than in 2002. The decrease in cash provided in
2003 compared to 2002 was primarily due to a decrease in borrowings of
long-term debt. Net cash flows from financing activities provided $2.1 billion less cash in
2002 than in 2001. The decrease in cash provided in 2002 compared to 2001 was
primarily due to a decrease in borrowings of long-term debt. In addition, in
2001 we received $1.5 billion more from the proceeds of capital contributions
from Charter Holdco than in 2002. These decreases in cash provided were offset
partially by decreases in cash used for repayments of long-term debt. Capital Expenditures We have significant ongoing capital expenditure requirements. However, we
experienced a significant decline in such requirements in 2003, compared to
prior years. This decline in 2003 was primarily the result of a substantial
reduction in rebuild costs as our network had been largely upgraded and rebuilt
in prior years, consumption of inventories, negotiated savings in contract
labor and network components including digital set-top terminals and cable
modems and reduced volume of installation related activities. Capitalized
labor and overhead declined $161 million in 2003 compared to 2002. Capital
expenditures, excluding acquisitions of cable systems, were $804 million, $2.1
billion and $2.8 billion for the years ended December 31, 2003, 2002 and 2001,
respectively. The majority of the capital expenditures in 2003 related to our
customer premise equipment. The majority of the capital expenditures in 2002
related to our rebuild and upgrade program and purchases of customer premise
equipment. See table below for more details. 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, the issuance of debt and borrowings under credit facilities. In
addition, during the years ended December 31, 2003, 2002 and 2001, our
liabilities related to capital expenditures decreased $41 million, $49 million
and $103 million, respectively. During 2004, we expect to spend a total of $850 million to $950 million on
capital expenditures. The nature of these expenditures is expected to continue
to migrate from upgrade/rebuild to customer premise equipment and scalable
infrastructure. Expected capital expenditures for 2004 are consistent with our
total capital expenditures for 2003 and significantly lower than 2002 levels
because our rebuild and upgrade plans are largely completed, a greater portion
of our work force is focused on maintenance and period related activities, our
purchases of digital set-top terminals have declined and the volume of
installation related activities has declined. We expect to fund capital
expenditures for 2004 primarily from cash flows from operating activities and
borrowings under our subsidiaries credit facilities. 54




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##### 



We have adopted capital expenditure disclosure guidance, which was developed by
eleven publicly traded cable system operators, including Charter, with the
support of the National Cable & Telecommunications Association (NCTA). The
new disclosure is intended to provide more consistency in the reporting of
operating statistics in capital expenditures and customers among peer companies
in the cable industry. These disclosure guidelines are not required disclosure
under GAAP, nor do they impact our accounting for capital expenditures under
GAAP. The following table presents our major capital expenditures categories in
accordance with NCTA disclosure guidelines for the years ended December 31,
2003 and 2002 (dollars in millions): For the years ended December 31,2003
    
    2002Customer premise equipment (a)
    
    $
    380
    
    
    $
    740Scalable infrastructure (b)
    
    
    66
    
    
    
    259Line extensions (c)
    
    
    130
    
    
    
    101Upgrade/Rebuild (d)
    
    
    132
    
    
    
    775Support capital (e)
    
    
    96
    
    
    
    220Total capital expenditures (f)
    
    $
    804
    
    
    $
    2,095
   (a)
    
    Customer premise equipment includes costs incurred at the customer
residence to secure new customers, revenue units and additional bandwidth
revenues. It also includes customer installation costs in accordance with
SFAS 51 and customer premise equipment (e.g., set-top terminals and cable
modems, etc.).(b)
    
    Scalable infrastructure includes costs, not related to customer premise
equipment or our network, to secure growth of new customers, revenue units
and additional bandwidth revenues or provide service enhancements (e.g.,
headend equipment).(c)
    
    Line extensions include network costs associated with entering new
service areas (e.g., fiber/coaxial cable, amplifiers, electronic
equipment, make-ready and design engineering).(d)
    
    Upgrade/rebuild includes costs to modify or replace existing
fiber/coaxial cable networks, including betterments.(e)
    
    Support capital includes costs associated with the replacement or
enhancement of non-network assets due to technological and physical
obsolescence (e.g., non-network equipment, land, buildings and vehicles).(f)
    
    Represents all capital expenditures made in 2003 and 2002, respectively. 55




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##### 



Description of Our Outstanding Debt As of December 31, 2003, our total debt was approximately $17.9 billion, as
summarized below (dollars in millions): December 31, 2003
    
    Semi-Annual
    
    Start Date forFace
    
    Accreted
    
    Interest Payment
    
    Interest Payment
    
    MaturityValue
    
    Value(a)
    
    Dates
    
    on Discount Notes
    
    Date(b)Long-Term DebtCharter Holdings:March 19998.250% senior notes due 2007
    
    $
    451
    
    
    $
    450
    
    
    
    4/1&10/1
    
    
    
    
    
    
    
    4/1/078.625% senior notes due 2009
    
    
    1,244
    
    
    
    1,242
    
    
    
    4/1&10/1
    
    
    
    
    
    
    
    4/1/099.920% senior discount notes due 2011
    
    
    1,108
    
    
    
    1,082
    
    
    
    4/1&10/1
    
    
    
    10/1/04
    
    
    
    4/1/11January 200010.000% senior notes due 2009
    
    
    640
    
    
    
    640
    
    
    
    4/1&10/1
    
    
    
    
    
    
    
    4/1/0910.250% senior notes due 2010
    
    
    318
    
    
    
    318
    
    
    
    1/15&7/15
    
    
    
    
    
    
    
    1/15/1011.750% senior discount notes due 2010
    
    
    450
    
    
    
    400
    
    
    
    1/15&7/15
    
    
    
    7/15/05
    
    
    
    1/15/10January 200110.750% senior notes due 2009
    
    
    874
    
    
    
    873
    
    
    
    4/1&10/1
    
    
    
    
    
    
    
    10/1/0911.125% senior notes due 2011
    
    
    500
    
    
    
    500
    
    
    
    1/15&7/15
    
    
    
    
    
    
    
    1/15/1113.500% senior discount notes due 2011
    
    
    675
    
    
    
    517
    
    
    
    1/15&7/15
    
    
    
    7/15/06
    
    
    
    1/15/11May 20019.625% senior notes due 2009 (includes the
January 2002 additional bond issue)
    
    
    640
    
    
    
    638
    
    
    
    5/15&11/15
    
    
    
    
    
    
    
    11/15/0910.000% senior notes due 2011 (includes the
January 2002 additional bond issue)
    
    
    710
    
    
    
    708
    
    
    
    5/15&11/15
    
    
    
    
    
    
    
    5/15/1111.750% senior discount notes due 2011
    
    
    939
    
    
    
    717
    
    
    
    5/15&11/15
    
    
    
    11/15/06
    
    
    
    5/15/11January 200212.125% senior discount notes due 2012
    
    
    330
    
    
    
    231
    
    
    
    1/15&7/15
    
    
    
    7/15/07
    
    
    
    1/15/12CCH II, LLC10.250% senior notes due 2010
    
    
    1,601
    
    
    
    1,601
    
    
    
    3/15&9/15
    
    
    
    
    
    
    
    9/15/10CCO Holdings, LLC8-3/4% senior notes due 2013
    
    
    500
    
    
    
    500
    
    
    
    5/15&11/15
    
    
    
    
    
    
    
    11/15/13Renaissance Media Group LLC:10.000% senior discount notes due 2008
    
    
    114
    
    
    
    116
    
    
    
    4/15&10/15
    
    
    
    10/15/03
    
    
    
    4/15/08CC V Holdings, LLC:11.875% senior discount notes due 2008
    
    
    113
    
    
    
    113
    
    
    
    6/1&12/1
    
    
    
    6/1/04
    
    
    
    12/1/08Credit FacilitiesCharter Operating
    
    
    4,459
    
    
    
    4,459CC VI Operating
    
    
    868
    
    
    
    868Falcon Cable
    
    
    856
    
    
    
    856CC VIII Operating
    
    
    1,044
    
    
    
    1,044$
    18,434
    
    
    $
    17,873
  (a)
    
    The accreted value presented above represents the face value of the
notes less the original issue discount at the time of sale plus the
accretion to the balance sheet date.(b)
    
    In general, the obligors have the right to redeem all of the notes
set forth (except the Charter Holdings notes with terms of eight years)
in the above tables in whole or part at their option, beginning at
various times prior to their stated maturity dates, subject to certain
conditions, upon the payment of the outstanding principal amount (plus
a specified redemption premium) and all accrued and unpaid interest.
We currently have no intention of redeeming any of these notes prior to
their stated maturity dates. For additional information, see Note 9 to
our consolidated financial statements contained in Item 8. Financial
Statements and Supplementary Data. 56




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##### 



As of December 31, 2003, we had unused total potential availability of $1.7
billion under our subsidiaries credit facilities, although our financial
covenants limited our availability to $828 million at December 31, 2003.
Continued access to these credit facilities is subject to our remaining in
compliance with the applicable covenants of these credit facilities. As of December 31, 2003 and 2002, the weighted average interest rate on our
bank debt was approximately 5.4% and the weighted average interest rate on our
high-yield debt was approximately 10.3% and 10.2%, respectively, resulting in a
blended weighted average interest rate of 8.3% and 8.1%, respectively.
Approximately 79% of our debt effectively bore fixed interest rates including
the effects of our interest rate hedge agreements as of December 31, 2003
compared to approximately 77% at December 31, 2002. The fair value of our
high-yield debt was $9.9 billion and $4.1 billion at December 31, 2003 and
2002, respectively. The fair value of bank debt was $6.9 billion and $6.4
billion at December 31, 2003 and 2002, respectively. 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. Credit Facility and Existing Notes Terms, Restrictions and Covenants The following table presents information relative to borrowing and covenant
compliance under our credit facilities as of December 31, 2003 (dollars in
millions): Charter
    
    CC VI
    
    Falcon Cable
    
    CC VIIIOperating
    
    Operating
    
    Communications
    
    Operating
    
    TotalCredit facilities outstanding
    
    $
    4,459
    
    
    $
    868
    
    
    $
    856
    
    
    $
    1,044
    
    
    $
    7,227Other debt (1)
    
    
    233
    
    
    
    21
    
    
    
    
    
    
    
    23
    
    
    
    277Intercompany debt (2)
    
    
    37
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37Total defined bank debt (3)
    
    $
    4,729
    
    
    $
    889
    
    
    $
    856
    
    
    $
    1,067
    
    
    $
    7,541Adjusted EBITDA (4)
    
    $
    1,235
    
    
    $
    183
    
    
    $
    272
    
    
    $
    299
    
    
    
    N/ABank Compliance Leverage Ratio
(Total Debt/Adjusted EBITDA) (5)
    
    
    3.83
    
    
    
    4.85
    
    
    
    3.15
    
    
    
    3.56
    
    
    
    N/AMaximum Allowable Leverage Ratio (6)
    
    
    4.00
    
    
    
    5.50
    
    
    
    4.50
    
    
    
    4.00
    
    
    
    N/ATotal Credit Facilities (7)
    
    $
    5,140
    
    
    $
    1,102
    
    
    $
    1,310
    
    
    $
    1,407
    
    
    $
    8,959Potential Bank Availability (8)
    
    $
    213
    
    
    $
    119
    
    
    $
    366
    
    
    $
    130
    
    
    $
    828
   (1)
    
    Includes other permitted bank level debt, capitalized leases and letters of credit, which are classified as debt by the
respective credit facility agreements for the calculation of maximum allowable leverage. For Charter Operating, this
includes the Renaissance Media Group LLC senior discount notes with an accreted value of $116 million as of December 31,
2003.(2)
    
    Includes permitted intercompany loans between Charter Holdings or Charter Communications Holding Company to the
respective bank group entities. These amounts eliminate in consolidation.(3)
    
    This represents our subsidiaries total debt as defined for purposes of the covenants in their respective credit
agreements.(4)
    
    Adjusted EBITDA in our credit facilities is not defined the same for all of our borrowing entities. Generally, however,
Adjusted EBITDA approximates EBITDA (net income (loss) before interest, taxes, depreciation and amortization and
minority interest) adjusted for certain non-cash items including impairment of franchises, option compensation expense
and gain/loss on derivative instruments and in some cases non-recurring charges such as special charges and certain
other expense or income items. Adjusted EBITDA as defined in our credit facilities also excludes certain corporate
costs, as defined.(5)
    
    Bank Compliance Leverage Ratio represents total debt as of such date determined as defined in the applicable credit
agreement, including intercompany debt, divided by Adjusted EBITDA, annualized. 57




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##### 



(6)
    
    Maximum Allowable Leverage Ratio represents the maximum bank compliance leverage ratio permitted under the respective
bank agreements. This is the most restrictive of the financial covenants.(7)
    
    Total Credit Facilities represents the total borrowing capacity of the credit facilities.(8)
    
    Potential Bank Availability represents the Total Credit Facilities capacity less Credit Facilities Outstanding, adjusted
for any limitations due to covenant restrictions. The maximum allowable leverage ratio declines over the term of each credit
facility before becoming fixed until the credit facility matures as follows: Charter Operating:
    
    CC VI Operating:4.00 until maturity
    
    5.50 through June 30, 20044.50 through June 30, 20054.00 thereafter until maturity
 Falcon Cable Communications:
    
    CC VIII Operating:4.50 through June 29, 2004
    
    4.00 until maturity3.50 through June 29, 20053.00 thereafter until maturity
 Based on outstanding indebtedness as of December 31, 2003, total future
principal payments on borrowings under our credit facilities as of December 31,
2003 are presented below (dollars in millions). While current maturities of
debt in 2004 are presented in the table below, current maturities are not
presented on the balance sheet as we intend to refinance the amounts due in
2004 with availability under the revolving portions of our credit facilities. Charter
    
    CC VI
    
    Falcon Cable
    
    CC VIIIOperating
    
    Operating
    
    Communications
    
    Operating
    
    Total2004
    
    $
    36
    
    
    $
    67
    
    
    $
    5
    
    
    $
    80
    
    
    $
    1882005
    
    
    249
    
    
    
    67
    
    
    
    5
    
    
    
    105
    
    
    
    4262006
    
    
    640
    
    
    
    89
    
    
    
    122
    
    
    
    148
    
    
    
    9992007
    
    
    942
    
    
    
    173
    
    
    
    724
    
    
    
    241
    
    
    
    2,080Thereafter
    
    
    2,592
    
    
    
    472
    
    
    
    
    
    
    
    470
    
    
    
    3,534$
    4,459
    
    
    $
    868
    
    
    $
    856
    
    
    $
    1,044
    
    
    $
    7,227
 The table below presents the total future principal payments on outstanding
borrowings under our subsidiaries bank credit facilities, assuming that the
maximum potential borrowings under such facilities were outstanding as of
December 31, 2003 (dollars in millions): Charter
    
    CC VI
    
    Falcon Cable
    
    CC VIIIOperating
    
    Operating
    
    Communications
    
    Operating
    
    Total2004
    
    $
    43
    
    
    $
    102
    
    
    $
    29
    
    
    $
    84
    
    
    $
    2582005
    
    
    513
    
    
    
    120
    
    
    
    170
    
    
    
    215
    
    
    
    1,0182006
    
    
    1,050
    
    
    
    193
    
    
    
    387
    
    
    
    397
    
    
    
    2,0272007
    
    
    942
    
    
    
    214
    
    
    
    724
    
    
    
    241
    
    
    
    2,121Thereafter
    
    
    2,592
    
    
    
    473
    
    
    
    
    
    
    
    470
    
    
    
    3,535$
    5,140
    
    
    $
    1,102
    
    
    $
    1,310
    
    
    $
    1,407
    
    
    $
    8,959
 The following description is merely a summary of certain material provisions of
our and our subsidiaries existing notes and the credit facilities of our
subsidiaries (collectively, the Debt Agreements). The summary does not
restate the terms of the Debt Agreements in their entirety, nor does it
describe all terms of the Debt Agreements. The agreements and instruments
governing each of the Debt Agreements are complicated and you should consult
such agreements and instruments for more detailed information regarding our
Debt Agreements. Our Debt
Agreements are listed as exhibits to this annual report and are incorporated by
reference to this annual report from other SEC filings of Charter Holdings or
its subsidiaries as indicated in the list of exhibits. 58




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##### 



Charter Operating Credit Facilities The Charter Operating credit facilities were amended and restated as of June
19, 2003 to allow for the insertion of intermediate holding companies between
Charter Holdings and Charter Operating. In exchange for the lenders consent
to the organizational restructuring, Charter Operatings pricing increased by
50 basis points across all levels in the pricing grid then in effect under the
Charter Operating credit facilities. Obligations under the Charter Operating credit facilities are guaranteed by
Charter Holdings, CCO Holdings and by Charter Operatings subsidiaries, other
than the non-recourse subsidiaries, subsidiaries precluded from so guaranteeing
by reason of the provisions of other indebtedness to which they are subject,
and immaterial subsidiaries. The non-recourse subsidiaries include CCO NR
Holdings, LLC, and subsidiaries contributed to CCO NR Holdings, LLC by Charter
Holdings in the recent organizational restructuring that occurred in June and
July of 2003, including the CC V/CC VIII Companies, the CC VI Companies and the
CC VII Companies and their respective subsidiaries. The obligations under the
Charter Operating credit facilities are secured by pledges of all equity
interests in Charter Operatings direct subsidiaries, all equity interests
owned by its guarantor subsidiaries in their respective subsidiaries, and
intercompany obligations owing to Charter Operating and/or its guarantor
subsidiaries by their affiliates. The obligations are also secured by a pledge
of CCO Holdings equity interests in all of its direct subsidiaries (including
Charter Operating) as collateral under these credit facilities. The Charter Operating credit facilities provide for borrowings of up to $5.1
billion and provide for four term facilities: two Term A facilities with a
total principal amount of $1.1 billion that matures in September 2007, each
with different amortization schedules, one that began in June 2002 and one
beginning in September 2005; and two Term B facilities with a total principal
amount of $2.7 billion, of which $1.8 billion matures in March 2008 and $884
million matures in September 2008. The amortization of the principal amount of
the Term B term loan facilities is substantially back-ended, with more than
90% of the principal balance due in the year of maturity. The Charter
Operating credit facilities also provide for two revolving credit facilities,
in a total amount of $1.3 billion, one which will reduce annually beginning in
March 2004 and one which will reduce quarterly beginning in September 2005,
with a maturity date in September 2007. Supplemental credit facilities in the
amount of approximately $100 million may be available from lenders within or
outside the lending group that agree to provide it. Amounts under the Charter
Operating credit facilities bear interest at the Eurodollar rate or the base
rate, each as defined, plus a margin of up to 3.0% for Eurodollar loans (3.15%
to 3.92% as of December 31, 2003) and 2.0% for base rate loans. A quarterly
commitment fee of between 0.25% and 0.375% per annum is payable on the
unborrowed balance of the revolving credit facilities. As of December 31, 2003, outstanding borrowings under the Charter Operating
credit facilities were approximately $4.5 billion and the unused total
potential availability was $681 million, although our financial covenants
limited the availability under these facilities to $213 million as of December
31, 2003. CC VI Operating Credit Facilities The obligations under the CC VI Operating credit facilities are guaranteed by
CC VI Operatings parent, CC VI Holdings, LLC, and by the subsidiaries of CC VI
Operating other than immaterial subsidiaries. The obligations under the CC VI
Operating credit facilities are secured by pledges of all equity interests
owned by CC VI Operating and its guarantor subsidiaries in other persons, and
by intercompany obligations owing CC VI Operating and/or its guarantor
subsidiaries by their affiliates, but are not secured by other assets of CC VI
Operating or its subsidiaries. The obligations under the CC VI Operating
credit facilities are also secured by pledges by CC VI Holdings of all equity
interests it holds in other persons, and intercompany obligations owing to it
by its affiliates, but are not secured by the other assets of CC VI Holdings. The CC VI Operating credit facilities provide for two term facilities, one with
a principal amount of $380 million that matures May 2008 (Term A), and the
other with a principal amount of $372 million that matures November 2008 (Term
B). The CC VI Operating credit facilities also provide for a $350 million
reducing revolving credit facility with a maturity date in May 2008.
Supplemental credit facilities in the amount of approximately $300 million may
be available until December 31, 2004 from lenders within or outside the lending
group that agree to provide it. Amounts under the CC VI Operating credit
facilities bear interest at the Eurodollar rate or the base rate, each as
defined, plus a margin of up to 2.5% for Eurodollar loans (2.40% to 3.66% as of
December 31, 2003)
and 1.5% for base rate loans. A quarterly commitment fee of 0.25% per year is
payable on the unborrowed balance of the Term A facility and the revolving
facility. 59




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##### 



As of December 31, 2003, outstanding borrowings under the CC VI Operating
credit facilities were $868 million and unused availability was $234 million,
although our financial covenants limited the availability under these
facilities to $119 million as of December 31, 2003. Falcon Cable Credit Facilities The obligations under the Falcon credit facilities are guaranteed by the direct
parent of Falcon Cable Communications, Charter Communications VII, LLC, and by
the subsidiaries of Falcon Cable Communications (except for certain excluded
subsidiaries). The obligations under the Falcon credit facilities are secured
by pledges of all of the equity interests in the guarantor subsidiaries of
Falcon Cable Communications, but are not secured by other assets of Falcon
Cable Communications or its subsidiaries. The obligations under the Falcon
credit facilities are also secured by a pledge of the equity interests of
Charter Communications VII in Falcon Cable Communications and intercompany
obligations owing to Charter Communications VII by Falcon Cable Communications
and its guarantor subsidiaries, but are not secured by the other assets of
Charter Communications VII. The Falcon credit facilities provide for two term facilities, one with a
principal amount of $190 million that matures June 2007 (Term B), and the other
with the principal amount of $285 million that matures December 2007 (Term C).
The Falcon credit facilities also provide for a reducing revolving facility of
up to approximately $60 million (maturing in December 2006), a reducing
supplemental facility of up to approximately $105 million (maturing in December
2007) and a second reducing revolving facility of up to $670 million (maturing
in June 2007). Supplemental credit facilities in the amount of up to $486
million may also be available from lenders within or outside the lending group
that agree to provide it. Amounts under the Falcon Cable credit facilities
bear interest at the Eurodollar rate or the base rate, each as defined, plus a
margin of up to 2.25% for Eurodollar loans (2.40% to 3.42% as of December 31,
2003) and up to 1.25% for base rate loans. A quarterly commitment fee of
between 0.25% and 0.375% per year is payable on the unborrowed balance of the
revolving facilities. As of December 31, 2003, outstanding borrowings were $856 million and unused
availability was $454 million, although our financial covenants limited the
availability under these facilities to $366 million as of December 31, 2003. CC VIII Operating Credit Facilities The obligations under the CC VIII Operating credit facilities are guaranteed by
the parent company of CC VIII Operating, CC VIII Holdings, LLC, and by the
subsidiaries of CC VIII Operating other than immaterial subsidiaries. The
obligations under the CC VIII Operating credit facilities are secured by
pledges of all equity interests owned by CC VIII Operating and its guarantor
subsidiaries in other persons, and by intercompany obligations owing to CC VIII
Operating and/or its guarantor subsidiaries by their affiliates, but are not
secured by other assets of CC VIII Operating or its subsidiaries. The
obligations under the CC VIII Operating credit facilities are also secured by
pledges of equity interests owned by CC VIII Holdings in other persons, and by
intercompany obligations owing to CC VIII Holdings by its affiliates, but are
not secured by the other assets of CC VIII Holdings. The CC VIII Operating credit facilities provide for borrowings of up $1.4
billion as of December 31, 2003. The CC VIII Operating credit facilities
provide for two term facilities, a Term A facility with a reduced current total
principal amount of $375 million, that continues reducing quarterly until it
reaches maturity in June 2007, and a Term B facility with a principal amount of
$490 million, that continues reducing quarterly until it reaches maturity in
February 2008. The amortization of the principal amount of the Term B term
loan facilities is substantially back-ended, with more than 90% of the
principal balance due in the year of maturity. The CC VIII Operating credit
facilities also provide for two reducing revolving credit facilities, in the
total amount of $542 million, which reduce quarterly beginning in June 2002 and
September 2005, respectively, with maturity dates in June 2007. Supplemental
facilities in the amount of approximately $300 million may be available from
lenders within or outside the lending group that agree to provide it. Amounts
under the CC VIII Operating credit facilities bear interest at the Eurodollar
rate or the base rate, each as defined, plus a margin of up to 2.50% for
Eurodollar loans (2.15% to 3.66% as of December 31, 2003) and up to 1.50% for
base rate loans. A quarterly commitment fee of 0.25% is payable on the
unborrowed balance of the revolving credit facilities. As of December 31, 2003, outstanding borrowings were $1.0 billion, and unused
availability was $363 million although our financial covenants limited the
availability under these facilities to $130 million. 60




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Credit Facilities  Restrictive Covenants Each of the credit facilities of our subsidiaries contains representations and
warranties, affirmative and negative covenants similar to those described below
with respect to the indentures governing our public notes and the notes of our
subsidiaries, information requirements, events of default and financial
covenants. The financial covenants measure performance against standards set
for leverage, debt service coverage, and operating cash flow coverage of cash
interest expense on a quarterly basis or as applicable. Additionally, the
credit facilities contain provisions requiring mandatory loan prepayments under
specific circumstances, including when significant amounts of assets are sold
and the proceeds are not reinvested in assets useful in the business of the
borrower within a specified period. The Charter Operating credit facility also
provides that in the event that any indebtedness of CCO Holdings remains
outstanding on the date, which is six months prior to its scheduled final
maturity, the term loans under the Charter Operating credit facility will
mature and the revolving credit facilities will terminate on such date. As of
December 31, 2003, we were in compliance with the covenants of our credit
facilities. See  Certain Trends and Uncertainties  Restrictive Covenants. The Charter Operating, CC VIII Operating, Falcon and CC VI Operating credit
facilities generally permit our subsidiaries to make distributions to pay
interest on the CCH II notes, the CCO Holdings notes and the convertible senior
notes of Charter and the senior notes of Charter Holdings, in each case
provided the respective borrowers interest coverage ratio (as defined in the
relevant credit agreement) for the most recent fiscal quarter preceding the
distribution exceeds 1.75, including the amount of such distribution. In
addition, distributions for interest or other purposes are permitted if the
relevant borrower meets specified conditions and financial ratios. In each
case, such distributions are not permitted during the existence of a default
under the related credit facilities. See - Certain Trends and Uncertainties 
Restrictive Covenants. The events of default for these credit facilities include, among other things,
(i) the failure to make payments when due or within the applicable grace
period, (ii) the failure to comply with specified covenants or (iii) the
occurrence of events that cause or permit the acceleration of other
indebtedness owing by the guarantor, borrower or the borrowers restricted
subsidiaries in amounts in excess of the amounts specified below. Guarantor/Borrower
    
    Principal AmountCharter Holdings and CCO Holdings/Charter Operating
    
    $50 millionCC VI Holdings/CC VI Operating
    
    $25 millionCharter Communications VII/Falcon Cable Communications
    
    $10 millionCC VIII Holdings/CC VIII Operating
    
    $25 million
 Although there are no direct cross-defaults between our subsidiaries separate
credit facilities, an event of default resulting in the acceleration of the
debt under any of our subsidiaries credit facilities would cause an event of
default under the indentures governing the Charter Holdings notes, CCH II
notes, CCO Holdings notes and our other notes, which would in turn trigger the
cross-default provision of the Charter Operating credit facilities. See 
Certain Trends and Uncertainties  Acceleration of Indebtedness of
Subsidiaries. Further, while intermediate holding companies between Charter
Holdings and CCO Holdings are not guarantors under the Charter Operating credit
facilities, their defaults on certain indebtedness of $50 million or more is an
event of default under the Charter Operating credit facilities. The credit facilities of our subsidiaries contain change of control provisions,
making it an event of default, and permitting acceleration of the debt, in the
event of certain specified changes of control, including if Mr. Allen, his
estate, heirs and related entities, fails to maintain, directly or indirectly,
at least 51% voting interest in the related borrower, or ceases to own of
record or beneficially, directly or indirectly, at least 25% of the equity
interests in the related borrower. See  Certain Trends and Uncertainties 
Long-Term Indebtedness  Change of Control Payments. Existing Notes On September 23, 2003, we, Charter and our subsidiary, CCH II, purchased, in a
non-monetary transaction, a total of approximately $609 million principal
amount of Charters outstanding convertible senior notes and approximately $1.3
billion principal amount of our senior notes and senior discount notes from
institutional investors in a small number of privately negotiated transactions.
As consideration for these securities, CCH II issued approximately $1.6
billion principal amount of 10.25% senior notes due 2010, achieving
approximately $294 million of debt discount. CCH II also issued an additional
$30 million principal amount of 10.25% senior notes for an equivalent 61




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amount of cash and used the net proceeds for transaction costs and general
corporate purposes. See discussion of the CCH II notes below for more details. March 1999 Charter Holdings Notes The March 1999 Charter Holdings notes were issued under three separate
indentures, each dated as of March 17, 1999, among Charter Holdings and Charter
Capital, as the issuers, and BNY Midwest Trust Company, as trustee. Charter
Holdings and Charter Capital exchanged these notes for new March 1999 Charter
Holdings notes with substantially similar terms, except that the new March 1999
Charter Holdings notes are registered under the Securities Act and, therefore,
do not bear legends restricting their transfer and are not subject to further
registration or special interest obligations. The March 1999 Charter Holdings notes are general unsecured obligations of
Charter Holdings and Charter Capital. Cash interest on the March 1999 9.920%
Charter Holdings notes will not accrue prior to April 1, 2004. The March 1999 Charter Holdings notes are senior debts of Charter Holdings and
Charter Capital. They rank equally with all other current and future
unsubordinated obligations of Charter Holdings and Charter Capital, including
the January 2000, January 2001, May 2001 and January 2002 Charter Holdings
notes. They are structurally subordinated to the obligations of Charter
Holdings subsidiaries, including the CCH II notes, the CCO Holdings notes, and
the credit facilities. Charter Holdings and Charter Capital will not have the right to redeem the
March 1999 8.250% Charter Holdings notes prior to their maturity date on April
1, 2007. On or after April 1, 2004, Charter Holdings and Charter Capital may
redeem some or all of the March 1999 8.625% Charter Holdings notes and the
March 1999 9.920% Charter Holdings notes at any time, in each case, at a
premium. The optional redemption price declines to 100% of the principal
amount of March 1999 Charter Holdings notes redeemed, plus accrued and unpaid
interest, if any, for redemption on or after April 1, 2007. In the event that a specified change of control event occurs, Charter Holdings
and Charter Capital must offer to repurchase any then outstanding March 1999
Charter Holdings notes at 101% of their principal amount or accreted value, as
applicable, plus accrued and unpaid interest, if any. The indentures governing the March 1999 Charter Holdings senior notes contain
restrictive covenants that limit certain transactions or activities by Charter
Holdings and its restricted subsidiaries. See  Summary of Restrictive
Covenants under Charter Holdings High-Yield Note Indentures. All but two of
Charter Holdings direct and indirect subsidiaries are currently restricted
subsidiaries. January 2000 Charter Holdings Notes The January 2000 Charter Holdings notes were issued under three separate
indentures, each dated as of January 12, 2000, among Charter Holdings and
Charter Capital, as the issuers, and BNY Midwest Trust Company, as trustee. In
June 2000, Charter Holdings and Charter Capital exchanged these notes for new
January 2000 Charter Holdings notes, with substantially similar terms, except
that the new January 2000 Charter Holdings notes are registered under the
Securities Act and, therefore, do not bear legends restricting their transfer
and are not subject to further registration or special interest obligations. The January 2000 Charter Holdings notes are general unsecured obligations of
Charter Holdings and Charter Capital. Cash interest on the January 2000 11.75%
Charter Holdings notes will not accrue prior to January 15, 2005. The January 2000 Charter Holdings notes are senior debts of Charter Holdings
and Charter Capital. They rank equally with all other current and future
unsubordinated obligations of Charter Holdings and Charter Capital, including
the March 1999, January 2001, May 2001 and January 2002 Charter Holdings notes.
They are structurally subordinated to the obligations of Charter Holdings
subsidiaries, including the CCH II notes, the CCO Holdings notes, and the
credit facilities. Charter Holdings and Charter Capital will not have the right to redeem the
January 2000 10.00% Charter Holdings notes prior to their maturity date on
April 1, 2009. On or after January 15, 2005, Charter Holdings and Charter
Capital may redeem some or all of the January 2000 10.25% Charter Holdings
notes and the January 2000 11.75% Charter Holdings notes at any time, in each
case, at a premium. The optional redemption price declines to 100% of 62




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the principal amount of the January 2000 Charter Holdings notes redeemed, plus
accrued and unpaid interest, if any, for redemption on or after January 15,
2008. In the event that a specified change of control event occurs, Charter Holdings
and Charter Capital must offer to repurchase any then outstanding January 2000
Charter Holdings notes at 101% of their total principal amount or accreted
value, as applicable, plus accrued and unpaid interest, if any. The indentures governing the January 2000 Charter Holdings notes contain
substantially identical events of default, affirmative covenants and negative
covenants as those contained in the indentures governing the March 1999 Charter
Holdings notes. See  Summary of Restrictive Covenants under Charter Holdings
High-Yield Note Indentures. January 2001 Charter Holdings Notes The January 2001 Charter Holdings notes were issued under three separate
indentures, each dated as of January 10, 2001, each among Charter Holdings and
Charter Capital, as the issuers, and BNY Midwest Trust Company, as trustee. In
March 2001, Charter Holdings and Charter Capital exchanged these notes for new
January 2001 Charter Holdings notes, with substantially similar terms, except
that the new January 2001 Charter Holdings notes are registered under the
Securities Act and, therefore, do not bear legends restricting their transfer,
and are not subject to further registration or special interest obligations. The January 2001 Charter Holdings notes are general unsecured obligations of
Charter Holdings and Charter Capital. Cash interest on the January 2001
13.500% Charter Holdings notes will not accrue prior to January 15, 2006. The January 2001 Charter Holdings notes are senior debts of Charter Holdings
and Charter Capital. They rank equally with all other current and future
unsubordinated obligations of Charter Holdings and Charter Capital, including
the March 1999, January 2000, May 2001 and January 2002 Charter Holdings notes.
They are structurally subordinated to the obligations of Charter Holdings
subsidiaries, including the CCH II notes, the CCO Holdings notes, and the
credit facilities. Charter Holdings and Charter Capital will not have the right to redeem the
January 2001 10.750% Charter Holdings notes prior to their maturity date on
October 1, 2009. On or after January 15, 2006, Charter Holdings and Charter
Capital may redeem some or all of the January 2001 11.125% Charter Holdings
notes and the January 2001 13.500% Charter Holdings notes at any time, in each
case, at a premium. The optional redemption price declines to 100% of the
principal amount of the January 2001 Charter Holdings notes redeemed, plus
accrued and unpaid interest, if any, for redemption on or after January 15,
2009. In the event that a specified change of control event occurs, Charter Holdings
and Charter Capital must offer to repurchase any then outstanding January 2001
Charter Holdings notes at 101% of their total principal amount or accreted
value, as applicable, plus accrued and unpaid interest, if any. The indentures governing the January 2001 Charter Holdings notes contain
substantially identical events of default, affirmative covenants and negative
covenants as those contained in the indentures governing the March 1999 and
January 2000 Charter Holdings notes. See  Summary of Restrictive Covenants
under Charter Holdings High-Yield Note Indentures. May 2001 Charter Holdings Notes The May 2001 Charter Holdings notes were issued under three separate
indentures, each among Charter Holdings and Charter Capital, as the issuers,
and BNY Midwest Trust Company, as trustee. In September 2001, Charter Holdings
and Charter Capital exchanged substantially all of these notes for new May 2001
Charter Holdings notes, with substantially similar terms, except that the new
May 2001 Charter Holdings notes are registered under the Securities Act and,
therefore, do not bear legends restricting their transfer, and are not subject
to further registration or special interest obligations. The May 2001 Charter Holdings notes are general unsecured obligations of
Charter Holdings and Charter Capital. Cash interest on the May 2001 11.750%
Charter Holdings notes will not accrue prior to May 15, 2006. 63




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The May 2001 Charter Holdings notes are senior debts of Charter Holdings and
Charter Capital. They rank equally with all other current and future
unsubordinated obligations of Charter Holdings and Charter Capital, including
the March 1999, January 2000, January 2001 and January 2002 Charter Holdings
notes. They are structurally subordinated to the obligations of Charter
Holdings subsidiaries, including the CCH II notes, the CCO Holdings notes, and
the credit facilities. Charter Holdings and Charter Capital will not have the right to redeem the May
2001 9.625% Charter Holdings notes prior to their maturity date on November 15,
2009. Before May 15, 2004, Charter Holdings and Charter Capital may redeem up
to 35% of the May 2001 10.000% Charter Holdings notes and the May 2001 11.750%
Charter Holdings notes, in each case, at a premium with proceeds of certain
offerings of equity securities. In addition, on or after May 15, 2006, Charter
Holdings and Charter Capital may redeem some or all of the May 2001 10.000%
Charter Holdings notes and the May 2001 11.750% Charter Holdings notes at any
time, in each case, at a premium. The optional redemption price declines to
100% of the principal amount of the May 2001 Charter Holdings notes redeemed,
plus accrued and unpaid interest, if any, for redemption on or after May 15,
2009. In the event that a specified change of control event occurs, Charter Holdings
and Charter Capital must offer to repurchase any then outstanding May 2001
Charter Holdings notes at 101% of their total principal amount or accreted
value, as applicable, plus accrued and unpaid interest, if any. The indentures governing the May 2001 Charter Holdings notes contain
substantially identical events of default, affirmative covenants and negative
covenants as those contained in the indentures governing the March 1999,
January 2000 and January 2001 Charter Holdings notes. See  Summary of
Restrictive Covenants under Charter Holdings High-Yield Note Indentures. January 2002 Charter Holdings Notes The January 2002 Charter Holdings notes were issued under three separate
indentures, each among Charter Holdings and Charter Capital, as the issuers,
and BNY Midwest Trust Company, as trustee, two of which were supplements to the
indentures for the May 2001 Charter Holdings notes. In July 2002, Charter
Holdings and Charter Capital exchanged substantially all of these notes for new
January 2002 Charter Holdings notes, with substantially similar terms, except
that the new January 2002 notes are registered under the Securities Act and,
therefore, do not bear legends restricting their transfer and are not subject
to further registration or special interest obligations. The January 2002 Charter Holdings notes are general unsecured obligations of
Charter Holdings and Charter Capital. Cash interest on the January 2002 12.125%
Charter Holdings notes will not accrue prior to January 15, 2007. The January 2002 Charter Holdings notes are senior debts of Charter Holdings
and Charter Capital. They rank equally with the current and future unsecured
and unsubordinated debt of Charter Holdings, including the March 1999, January
2000, January 2001 and May 2001 Charter Holdings notes. They are structurally
subordinated to the obligations of Charter Holdings subsidiaries, including
the CCH II notes, the CCO Holdings notes, and the credit facilities. The Charter Holdings 12.125% senior discount notes are redeemable at the option
of the issuers at amounts decreasing from 106.063% to 100% of accreted value
beginning January 15, 2007. At any time prior to January 15, 2005, the issuers
may redeem up to 35% of the total principal amount of the 12.125% senior
discount notes at a redemption price of 112.125% of the accreted value under
certain conditions. In the event that a specified change of control event occurs, Charter Holdings
and Charter Capital must offer to repurchase any then outstanding January 2002
Charter Holdings notes at 101% of their total principal amount or accreted
value, as applicable, plus accrued and unpaid interest, if any. The indentures governing the January 2002 Charter Holdings notes contain
substantially identical events of default, affirmative covenants and negative
covenants as those contained in the indentures governing the March 1999,
January 2000, January 2001 and May 2001 Charter Holdings notes. See  Summary
of Restrictive Covenants under Charter Holdings High-Yield Note Indentures. 64




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Summary of Restrictive Covenants under Charter Holdings High-Yield Notes. The limitations on incurrence of debt and issuance of preferred stock contained
in Charter Holdings indentures permit Charter Holdings and its subsidiaries to
incur additional debt or issue preferred stock, so long as there is no default
under the Charter Holdings indentures. Except as provided below, these
limitations restrict the incurrence of debt unless, after giving pro forma
effect to the incurrence, Charter Holdings could meet a leverage ratio (ratio
of consolidated debt to four times EBITDA, as defined, from the most recent
quarter for which internal financial reports are available) of 8.75 to 1.0. In
addition, regardless of whether the leverage ratio could be met, so long as no
default exists or would result from the incurrence or issuance, Charter
Holdings and its restricted subsidiaries are permitted to issue:  
    
    up to $3.5 billion of debt under credit facilities,
    
    up to $75 million of debt incurred to finance the purchase or capital lease of new assets,
    
    up to $300 million of additional debt for any purpose,
    
    additional debt in an amount equal to 200% of proceeds of new cash
equity proceeds received by Charter Holdings and its restricted
subsidiaries since March 1999, the date of our first indenture, and not
allocated for restricted payments or permitted investments, and
    
    other items of indebtedness for specific purposes such as
intercompany debt, refinancing of existing debt, and interest rate
swaps to provide protection against fluctuation in interest rates. The restricted subsidiaries of Charter Holdings are generally not permitted to
issue debt securities contractually subordinated to other debt of the issuing
subsidiary or preferred stock, in either case in any public or Rule 144A
offering. The Charter Holdings indentures permit Charter Holdings and its restricted
subsidiaries to incur debt under one category, and later reclassify that debt
into another category. Our subsidiaries credit agreements generally impose
more restrictive limitations on incurring new debt than Charter Holdings
indentures, so our subsidiaries that are subject to credit agreements are not
permitted to utilize the full debt incurrence that would otherwise be available
under the Charter Holdings indenture covenants. Generally, under Charter Holdings high-yield indentures:  
    
    Charter Holdings and its restricted subsidiaries are generally
permitted to pay dividends on equity interests, repurchase interests,
or make other specified restricted payments only if Charter Holdings
can incur $1.00 of new debt under the leverage ratio test, which
requires that Charter Holdings meet an 8.75 to 1.0 leverage ratio after
giving pro forma effect to the transaction and if no default exists or
would exist as a consequence of such incurrence. If those conditions
are met, restricted payments in a total amount of up to 100% of Charter
Holdings consolidated EBITDA, as defined, minus 1.2 times its
consolidated interest expense, plus 100% of new cash and non-cash
equity proceeds received by Charter Holdings and not allocated to the
debt incurrence covenant or to permitted investments, all cumulatively
from March 1999, the date of the first Charter Holdings indenture, plus
$100 million. In addition, Charter Holdings may make distributions or restricted payments, so
long as no default exists or would be caused by transactions:  
    
    to repurchase management equity interests in amounts not to exceed
$10 million per fiscal year,
    
    regardless of the existence of any default, to pay pass-through tax
liabilities in respect of ownership of equity interests in Charter
Holdings or its restricted subsidiaries, or
    
    to make other specified restricted payments including merger fees
up to 1.25% of the transaction value, repurchases using concurrent new
issuances, and certain dividends on existing subsidiary preferred
equity interests. 65




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
    
    Charter Holdings and its restricted subsidiaries may not make
investments except permitted investments if there is a default under
the indentures or if Charter Holdings could not incur $1.00 of new debt
under the 8.75 to 1.0 leverage ratio test described above after giving
effect to the transaction. Permitted investments include:  
    
    investments by Charter Holdings in restricted subsidiaries or by
restricted subsidiaries in Charter Holdings,
    
    investments in productive assets (including through equity
investments) up to $150 million,
    
    investments aggregating up to 100% of new cash equity proceeds
received by Charter Holdings since March 1999 and not allocated to the
debt incurrence or restricted payments covenant, and
    
    other investments up to $50 million. Charter Holdings is not permitted to grant liens on its assets other than
specified permitted liens. Permitted liens include liens securing debt and
other obligations incurred under our subsidiaries credit facilities, liens
securing the purchase price of new assets, other liens securing indebtedness up
to $50 million and specified liens incurred in the ordinary course of business.
The lien covenant does not restrict liens on assets of subsidiaries of Charter
Holdings. Charter Holdings and Charter Capital, its co-issuer, are generally not
permitted to sell all or substantially all of their assets or merge with or
into other companies unless their leverage ratio after any such transaction
would be no greater than their leverage ratio immediately prior to the
transaction, or unless Charter Holdings and its subsidiaries could incur $1.00
of new debt under the 8.75 to 1.0 leverage ratio test described above after
giving effect to the transaction, no default exists, and the surviving entity
is a U.S. entity that assumes the Charter Holdings notes. Charter Holdings and its restricted subsidiaries may generally not otherwise
sell assets or, in the case of restricted subsidiaries, issue equity interests,
unless they receive consideration at least equal to the fair market value of
the assets or equity interests, consisting of at least 75% in cash, assumption
of liabilities, securities converted into cash within 60 days or productive
assets. Charter Holdings and its restricted subsidiaries are then required
within 365 days after any asset sale either to commit to use the net cash
proceeds over a specified threshold to acquire assets, including current
assets, used or useful in their businesses or use the net cash proceeds to
repay debt, or to offer to repurchase the Charter Holdings notes with any
remaining proceeds. Charter Holdings and its restricted subsidiaries may generally not engage in
sale and leaseback transactions unless, at the time of the transaction, Charter
Holdings could have incurred secured indebtedness in an amount equal to the
present value of the net rental payments to be made under the lease, and the
sale of the assets and application of proceeds is permitted by the covenant
restricting asset sales. Charter Holdings restricted subsidiaries may generally not enter into
restrictions on their ability to make dividends or distributions or transfer
assets to Charter Holdings on terms that are materially more restrictive than
those governing their debt, lien, asset sale, lease and similar agreements
existing when they entered into the indentures, unless those restrictions are
on customary terms that will not materially impair Charter Holdings ability to
repay the high-yield notes. The restricted subsidiaries of Charter Holdings are generally not permitted to
guarantee or pledge assets to secure debt of Charter Holdings, unless the
guarantying subsidiary issues a guarantee of the notes of comparable priority
and tenor, and waives any rights of reimbursement, indemnity or subrogation
arising from the guarantee transaction for at least one year. The indentures also restrict the ability of Charter Holdings and its restricted
subsidiaries to enter into certain transactions with affiliates involving
consideration in excess of $15 million without a determination by the board of
directors of Charter Holdings that the transaction is on terms no less
favorable than arms length, or transactions with affiliates involving over $50
million without receiving an independent opinion as to the fairness of the
transaction to the holders of the Charter Holdings notes. 66




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CCH II Notes In September 2003, CCH II and CCH II Capital Corp. jointly issued approximately
$1.6 billion total principal amount of 10.25% senior notes due 2010. The CCH
II notes are general unsecured obligations of CCH II and CCH II Capital Corp.
They rank equally with all other current or future unsubordinated obligations
of CCH II and CCH II Capital Corp. The CCH II notes are structurally
subordinated to all obligations of subsidiaries of CCH II, including the CCO
Holdings notes and the credit facilities. Interest on the CCH II notes accrues at 10.25% per annum, from September 23,
2003 or, if interest already has been paid, from the date it was most recently
paid. Interest is payable semi-annually in arrears on each March 15 and
September 15, commencing on March 15, 2004. At any time prior to September 15, 2006, the issuers of the CCH II notes may
redeem up to 35% of the total principal amount of the CCH II notes on a pro
rata basis at a redemption price equal to 110.25% of the principal amount of
CCH II notes redeemed, plus any accrued and unpaid interest. On or after September 15, 2008, the issuers of the CCH II notes may redeem all
or a part of the notes at a redemption price that declines ratably from the
initial redemption price of 105.125% to a redemption price on or after
September 15, 2009 of 100.0% of the principal amount of the CCH II notes
redeemed, plus, in each case, any accrued and unpaid interest. In the event of specified change of control events, CCH II must offer to
purchase the outstanding CCH II notes from the holders at a purchase price
equal to 101% of the total principal amount of the notes, plus any accrued and
unpaid interest. The indenture governing the CCH II notes contains restrictive covenants that
limit certain transactions or activities by CCH II and its restricted
subsidiaries, including the covenants summarized below. As of the issue date,
all but two of CCH IIs direct and indirect subsidiaries were restricted
subsidiaries. The covenant in the indenture governing the CCH II notes that restricts
incurrence of debt and issuance of preferred stock permits CCH II and its
subsidiaries to incur or issue specified amounts of debt or preferred stock,
if, after giving effect to the incurrence, CCH II could meet a leverage ratio
(ratio of consolidated debt to four times EBITDA from the most recent fiscal
quarter for which internal financial reports are available) of 5.5 to 1.0. In addition, regardless of whether the leverage ratio could be met, so long as
no default exists or would result from the incurrence or issuance, CCH II and
its restricted subsidiaries are permitted to incur or issue:  
    
    up to $9.75 billion of debt under credit facilities, including debt
under credit facilities outstanding on the issue date of the CCH II
notes,
    
    up to $75 million of debt incurred to finance the purchase or capital lease of new assets,
    
    up to $300 million of additional debt for any purpose, and
    
    other items of indebtedness for specific purposes such as
intercompany debt, refinancing of existing debt, and interest rate
swaps to provide protection against fluctuation in interest rates. The restricted subsidiaries of CCH II are generally not permitted to issue debt
securities contractually subordinated to other debt of the issuing subsidiary
or preferred stock, in either case in any public or Rule 144A offering. The CCH II indenture permits CCH II and its restricted subsidiaries to incur
debt under one category, and later reclassify that debt into another category.
Our subsidiaries credit agreements generally impose more restrictive
limitations on incurring new debt than the CCH II indenture, so our
subsidiaries that are subject to credit agreements are not permitted to utilize
the full debt incurrence that would otherwise be available under the CCH II
indenture covenants. Generally, under the CCH II indenture, CCH II and its restricted subsidiaries
are permitted to pay dividends on equity interests, repurchase interests, or
make other specified restricted payments only if CCH II can incur $1.00 of new
debt under the leverage ratio test, which requires that CCH II meet a 5.5 to
1.0 leverage ratio after giving effect 67




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to the transaction, and if no default exists or would exist as a consequence of
such incurrence. If those conditions are met, restricted payments in a total
amount of up to 100% of CCH IIs consolidated EBITDA, as defined, minus 1.3
times its consolidated interest expense, plus 100% of new cash and non-cash
equity proceeds received by CCH II and not allocated to the debt incurrence
covenant, all cumulatively from the fiscal quarter commenced July 1, 2003, plus
$100 million. In addition, CCH II may make distributions or restricted payments, so long as
no default exists or would be caused by transactions:  
    
    to repurchase management equity interests in amounts not to exceed
$10 million per fiscal year,  
    
    regardless of the existence of any default, to pay pass-through tax
liabilities in respect of ownership of equity interests in CCH II or
its restricted subsidiaries,  
    
    regardless of the existence of any default, to pay interest when
due on Charter Holdings notes, to pay, so long as there is no default,
interest on the convertible senior notes (including the Notes) of
Charter, to purchase, redeem or refinance, so long as CCH II could
incur $1.00 of indebtedness under the 5.5 to 1.0 leverage ratio test
referred to above and there is no default, Charter Holdings notes,
Charter notes, and other direct or indirect parent company notes
(including the CCH II notes),  
    
    to make distributions in connection with the private exchanges
pursuant to which the CCH II notes were issued, and  
    
    other specified restricted payments including merger fees up to
1.25% of the transaction value, repurchases using concurrent new
issuances, and certain dividends on existing subsidiary preferred
equity interests. The indenture governing the CCH II notes restricts CCH II and its restricted
subsidiaries from making investments, except specified permitted investments,
or creating new unrestricted subsidiaries, if there is a default under the
indenture or if CCH II could not incur $1.00 of new debt under the 5.5 to 1.0
leverage ratio test described above after giving effect to the transaction. Permitted investments include:  
    
    investments by CCH II and its restricted subsidiaries in CCH II and
in other restricted subsidiaries, or entities that become restricted
subsidiaries as a result of the investment,
    
    investments aggregating up to 100% of new cash equity proceeds
received by CCH II since September 23, 2003 to the extent the proceeds
have not been allocated to the restricted payments covenant described
above,
    
    investments resulting from the private exchanges pursuant to which the CCH II notes were issued,
    
    other investments up to $750 million outstanding at any time, and
    
    certain specified additional investments, such as investments in
customers and suppliers in the ordinary course of business and
investments received in connection with permitted asset sales. CCH II is not permitted to grant liens on its assets other than specified
permitted liens. Permitted liens include liens securing debt and other
obligations incurred under our subsidiaries credit facilities, liens securing
the purchase price of new assets, other liens securing indebtedness up to $50
million and specified liens incurred in the ordinary course of business. The
lien covenant does not restrict liens on assets of subsidiaries of CCH II. CCH II and CCH II Capital Corp., its co-issuer, are generally not permitted to
sell all or substantially all of their assets or merge with or into other
companies unless their leverage ratio after any such transaction would be no
greater than their leverage ratio immediately prior to the transaction, or
unless CCH II and its subsidiaries could incur $1.00 of new debt under the 5.50
to 1.0 debt incurrence test described above after giving effect to the
transaction, no default exists, and the surviving entity is a U.S. entity that
assumes the CCH II notes. 68




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CCH II and its restricted subsidiaries may generally not otherwise sell assets
or, in the case of restricted subsidiaries, issue equity interests, unless they
receive consideration at least equal to the fair market value of the assets or
equity interests, consisting of at least 75% in cash, assumption of
liabilities, securities converted into cash within 60 days or productive
assets. CCH II and its restricted subsidiaries are then required within 365
days after any asset sale either to commit to use the net cash proceeds over a
specified threshold to acquire assets, including current assets, used or useful
in their businesses or use the net cash proceeds to repay debt, or to offer to
repurchase the CCH II notes with any remaining proceeds. CCH II and its restricted subsidiaries may generally not engage in sale and
leaseback transactions unless, at the time of the transaction, CCH II could
have incurred secured indebtedness in an amount equal to the present value of
the net rental payments to be made under the lease, and the sale of the assets
and application of proceeds is permitted by the covenant restricting asset
sales. CCH IIs restricted subsidiaries may generally not enter into restrictions on
their ability to make dividends or distributions or transfer assets to CCH II
on terms that are materially more restrictive than those governing their debt,
lien, asset sale, lease and similar agreements existing when they entered into
the indentures, unless those restrictions are on customary terms that will not
materially impair CCH IIs ability to repay the CCH II notes. The restricted subsidiaries of CCH II are generally not permitted to guarantee
or pledge assets to secure debt of CCH II, unless the guarantying subsidiary
issues a guarantee of the CCH II notes of comparable priority and tenor, and
waives any rights of reimbursement, indemnity or subrogation arising from the
guarantee transaction for at least one year. The indentures also restrict the ability of CCH II and its restricted
subsidiaries to enter into certain transactions with affiliates involving
consideration in excess of $15 million without a determination by the board of
directors that the transaction is on terms no less favorable than arms length,
or transactions with affiliates involving over $50 million without receiving an
independent opinion as to the fairness of the transaction to the holders of the
CCH II notes. CCO Holdings Senior Notes In November 2003, CCO Holdings and CCO Holdings Capital Corp. jointly issued
$500 million total principal amount of 8 3/4% senior notes due 2013. The CCO
Holdings notes are general unsecured obligations of CCO Holdings and CCO
Holdings Capital Corp. They rank equally with all other current or future
unsubordinated obligations of CCO Holdings and CCO Holdings Capital Corp. The
CCO Holdings notes are structurally subordinated to all obligations of
subsidiaries of CCH II, including the credit facilities. Interest on the CCO Holdings senior notes accrues at 8-3/4% per year, from
November 10, 2003 or, if interest already has been paid, from the date it was
most recently paid. Interest is payable semi-annually in arrears on each May
15 and November 15, commencing on May 15, 2004. At any time prior to November 15, 2006, the issuers of the CCO Holdings senior
notes may redeem up to 35% of the total principal amount of the CCO Holdings
senior notes to the extent of public equity proceeds they have received on a
pro rata basis at a redemption price equal to 108.75% of the principal amount
of CCO Holdings senior notes redeemed, plus any accrued and unpaid interest. On or after November 15, 2008, the issuers of the CCO Holdings senior notes may
redeem all or a part of the notes at a redemption price that declines ratably
from the initial redemption price of 104.375% to a redemption price on or after
November 15, 2011 of 100.0% of the principal amount of the CCO Holdings senior
notes redeemed, plus, in each case, any accrued and unpaid interest. In the event of specified change of control events, CCO Holdings senior must
offer to purchase the outstanding CCO Holdings senior notes from the holders at
a purchase price equal to 101% of the total principal amount of the notes, plus
any accrued and unpaid interest. The indenture governing the CCO Holdings senior notes contains restrictive
covenants that limit certain transactions or activities by CCO Holdings and its
restricted subsidiaries, including the covenants summarized below. As of the
issue date, all but two of CCO Holdings direct and indirect subsidiaries were
restricted subsidiaries. The covenant in the indenture governing the CCO Holdings senior notes that
restricts incurrence of debt and issuance of preferred stock permits CCO
Holdings and its subsidiaries to incur or issue specified amounts of debt or 69




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preferred stock, if, after giving pro forma effect to the incurrence or
issuance, CCO Holdings could meet a leverage ratio (ratio of consolidated debt
to four times EBITDA, as defined, from the most recent fiscal quarter for which
internal financial reports are available) of 4.5 to 1.0. In addition, regardless of whether the leverage ratio could be met, so long as
no default exists or would result from the incurrence or issuance, CCO Holdings
and its restricted subsidiaries are permitted to incur or issue:  
    
    up to $9.75 billion of debt under credit facilities, including debt
under credit facilities outstanding on the issue date of the CCO
Holdings senior notes,  
    
    up to $75 million of debt incurred to finance the purchase or capital lease of new assets,  
    
    up to $300 million of additional debt for any purpose, and  
    
    other items of indebtedness for specific purposes such as
intercompany debt, refinancing of existing debt, and interest rate
swaps to provide protection against fluctuation in interest rates. The restricted subsidiaries of CCO Holdings are generally not permitted to
issue debt securities contractually subordinated to other debt of the issuing
subsidiary or preferred stock, in either case in any public or Rule 144A
offering. The CCO Holdings indenture permits CCO Holdings and its restricted subsidiaries
to incur debt under one category, and later reclassify that debt into another
category. Our subsidiaries credit agreements generally impose more
restrictive limitations on incurring new debt than CCO Holdings indenture, so
our subsidiaries that are subject to credit agreements are not permitted to
utilize the full debt incurrence that would otherwise be available under the
CCO Holdings indenture covenants. Generally, under CCO Holdings indenture:  
    
    CCO Holdings and its restricted subsidiaries are permitted to pay
dividends on equity interests, repurchase interests, or make other
specified restricted payments only if CCO Holdings can incur $1.00 of
new debt under the leverage ratio test, which requires that CCO
Holdings meet a 4.5 to 1.0 leverage ratio after giving effect to the
transaction, and if no default exists or would exist as a consequence
of such incurrence. If those conditions are met, restricted payments
in a total amount of up to 100% of CCO Holdings consolidated EBITDA,
as defined, minus 1.3 times its consolidated interest expense, plus
100% of new cash and appraised non-cash equity proceeds received by CCO
Holdings and not allocated to the debt incurrence covenant, all
cumulatively from the fiscal quarter commenced October 1, 2003, plus
$100 million. In addition, CCO Holdings may make distributions or restricted payments, so
long as no default exists or would be caused by the transaction:  
    
    to repurchase management equity interests in amounts not to exceed
$10 million per fiscal year;  
    
    regardless of the existence of any default, to pay pass-through tax
liabilities in respect of ownership of equity interests in Charter
Holdings or its restricted subsidiaries;  
    
    to pay, regardless of the existence of any default, interest when
due on Charter Holdings notes and CCH II notes;  
    
    to pay, so long as there is no default, interest on the Charter
convertible notes;  
    
    to purchase, redeem or refinance Charter Holdings notes, CCH II
notes, Charter notes, and other direct or indirect parent company
notes, so long as CCO Holdings could incur $1.00 of indebtedness under
the 4.5 to 1.0 leverage ratio test referred to above and there is no
default; or  
    
    to make other specified restricted payments including merger fees
up to 1.25% of the transaction value, repurchases using concurrent new
issuances, and certain dividends on existing subsidiary preferred
equity interests. 70




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The indenture governing the CCO Holdings senior notes restricts CCO Holdings
and its restricted subsidiaries from making investments, except specified
permitted investments, or creating new unrestricted subsidiaries, if there is a
default under the indenture or if CCO Holdings could not incur $1.00 of new
debt under the 4.5 to 1.0 leverage ratio test described above after giving
effect to the transaction. Permitted investments include:  
    
    investments by CCO Holdings and its restricted subsidiaries in CCO
Holdings and in other restricted subsidiaries, or entities that become
restricted subsidiaries as a result of the investment,  
    
    investments aggregating up to 100% of new cash equity proceeds
received by CCO Holdings since November 10, 2003 to the extent the
proceeds have not been allocated to the restricted payments covenant
described above,  
    
    other investments up to $750 million outstanding at any time, and  
    
    certain specified additional investments, such as investments in
customers and suppliers in the ordinary course of business and
investments received in connection with permitted asset sales. CCO Holdings is not permitted to grant liens on its assets other than specified
permitted liens. Permitted liens include liens securing debt and other
obligations incurred under our subsidiaries credit facilities, liens securing
the purchase price of new assets, other liens securing indebtedness up to $50
million and specified liens incurred in the ordinary course of business. The
lien covenant does not restrict liens on assets of subsidiaries of CCO
Holdings. CCO Holdings and CCO Holdings Capital, its co-issuer, are generally not
permitted to sell all or substantially all of their assets or merge with or
into other companies unless their leverage ratio after any such transaction
would be no greater than their leverage ratio immediately prior to the
transaction, or unless CCO Holdings and its subsidiaries could incur $1.00 of
new debt under the 4.50 to 1.0 leverage ratio test described above after giving
effect to the transaction, no default exists, and the surviving entity is a
U.S. entity that assumes the CCO Holdings senior notes. CCO Holdings and its restricted subsidiaries may generally not otherwise sell
assets or, in the case of restricted subsidiaries, issue equity interests,
unless they receive consideration at least equal to the fair market value of
the assets or equity interests, consisting of at least 75% in cash, assumption
of liabilities, securities converted into cash within 60 days or productive
assets. CCO Holdings and its restricted subsidiaries are then required within
365 days after any asset sale either to commit to use the net cash proceeds
over a specified threshold to acquire assets, including current assets, used or
useful in their businesses or use the net cash proceeds to repay debt, or to
offer to repurchase the CCO Holdings senior notes with any remaining proceeds. CCO Holdings and its restricted subsidiaries may generally not engage in sale
and leaseback transactions unless, at the time of the transaction, CCO Holdings
could have incurred secured indebtedness in an amount equal to the present
value of the net rental payments to be made under the lease, and the sale of
the assets and application of proceeds is permitted by the covenant restricting
asset sales. CCO Holdings restricted subsidiaries may generally not enter into restrictions
on their ability to make dividends or distributions or transfer assets to CCO
Holdings on terms that are materially more restrictive than those governing
their debt, lien, asset sale, lease and similar agreements existing when they
entered into the indentures, unless those restrictions are on customary terms
that will not materially impair CCO Holdings ability to repay the high-yield
notes. The restricted subsidiaries of CCO Holdings are generally not permitted to
guarantee or pledge assets to secure debt of CCO Holdings, unless the
guarantying subsidiary issues a guarantee of the notes of comparable priority
and tenor, and waives any rights of reimbursement, indemnity or subrogation
arising from the guarantee transaction for at least one year. The indenture also restricts the ability of CCO Holdings and its restricted
subsidiaries to enter into certain transactions with affiliates involving
consideration in excess of $15 million without a determination by the board of
directors that the transaction is on terms no less favorable than arms length,
or transactions with affiliates involving 71




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over $50 million without receiving an independent opinion as to the fairness of
the transaction to the holders of the CCO Holdings notes. CC V Holdings Notes On December 10, 1998, CC V Holdings, LLC, formerly known as Avalon Cable LLC,
and CC V Holdings Finance, Inc. (formerly Avalon Cable Holdings Finance, Inc.)
jointly issued $196.0 million total principal amount at maturity of 11.875%
senior discount notes due 2008. On July 22, 1999, the issuers exchanged $196.0
million of the original issued and outstanding Avalon notes for an equivalent
amount of new Avalon notes. The form and terms of the new Avalon notes are
substantially identical to the original Avalon notes except that they are
registered under the Securities Act and, therefore, are not subject to the same
transfer restrictions. The Avalon notes are guaranteed by certain subsidiaries of CC V Holdings. In the event of specified change of control events, holders of the Avalon notes
have the right to sell their Avalon notes to the issuers of the Avalon notes at
101% of the total principal amount of the Avalon notes, plus accrued and unpaid
interest, if any, to the date of purchase. Our acquisition of Avalon triggered this right. In January 2000, we completed
change of control offers in which we repurchased $16.3 million total accreted
value of the 11.875% notes at a purchase price of 101% of accreted value as of
January 28, 2000. The repurchase price of $11 million was funded with proceeds
of the sale of the January 2000 Charter Holdings notes. On December 1, 2003, the issuers redeemed at par value an amount equal to
$369.79 per $1,000 in principal amount at maturity of each senior discount note
then outstanding. Based on the amount outstanding on December 1, 2003, the
redemption amount was $67 million. There were no current payments of cash interest on the Avalon notes before
December 1, 2003. The Avalon notes accreted in value at a rate of 11.875% per
year, compounded semi-annually, to a total principal amount of $180 million on
December 1, 2003. At December 31, 2003, after principal repayments in the
fourth quarter of 2003, the total principal amount outstanding was $113
million. Since December 1, 2003, cash interest on the Avalon notes:  
    
    accrues at the rate of 11.875% per year on the principal amount at maturity; and  
    
    is payable semi-annually in arrears on June 1 and December 1 of each year, commencing June 1, 2004. After December 1, 2003, the issuers of the Avalon notes may redeem the Avalon
notes, in whole or in part, at a specified premium. The optional redemption
price declines to 100% of the principal amount of the Avalon notes redeemed,
plus accrued and unpaid interest, if any, for redemptions on or after December
1, 2006. The limitations on incurrence of debt contained in the indenture governing the
CC V notes permit the CC V issuers and their restricted subsidiaries to incur
additional debt or issue shares of preferred stock, so long as we are not in
default under the CC V indenture:  
    
    if, after giving effect to the incurrence, the CC V issuers could
meet a leverage ratio (ratio of consolidated debt to four times
consolidated cash flow from the most recent quarter) of 6.5 to 1.0,
and, regardless of whether the leverage ratio could be met,  
    
    up to approximately $346 million of debt under a credit facility,  
    
    up to $10 million of debt incurred to finance the purchase of new assets,  
    
    up to $15 million of additional debt, and  
    
    other items of indebtedness for specific purposes such as
intercompany debt, refinancing of existing debt and interest rate swaps
to provide protection against fluctuation in interest rates. The indenture governing the CC V notes permits the CC V issuers to incur debt
under one of the categories above, and reclassify the debt into a different
category. The CC VIII credit agreement generally imposes more restrictive 72




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limitations on incurring new debt, so CC VIII Operating and its subsidiaries
are not permitted to utilize the full debt incurrence capability provided by
the indenture covenants provided for in the CC V notes.  
    
    Under the indenture governing the CC V notes, the CC V issuers and
their restricted subsidiaries are permitted to pay dividends on equity
interests, repurchase interests, make restricted investments, or make
other specified restricted payments only if CC V could, after giving
effect thereto, incur $1.00 of additional debt under the leverage ratio
test, which would require that the CC V issuers meet the 6.5 to 1.0
leverage ratio of the indebtedness covenant and no default would exist
or result as a consequence thereof. If those conditions are met, the
CC V issuers and their restricted subsidiaries are permitted to make
restricted payments in a total amount not to exceed the result of 100%
of the CC V issuers consolidated cash flow, minus 1.4 times their
consolidated interest expense, plus 100% of new equity proceeds
received by the CC V issuers, plus returns on certain investments, all
cumulatively from January 1, 1999. The CC V issuers and their
restricted subsidiaries may make permitted investments up to $10
million and other specified permitted investments, restricted payments
up to $5 million, and other specified restricted payments without
meeting the foregoing test.  
    
    The CC V issuers and their restricted subsidiaries are not
permitted to grant liens on their assets other than specified permitted
liens. Permitted liens include liens securing debt permitted by the
covenant limiting incurrence of debt, liens securing amounts up to the
greater of $15 million or 5% of total assets, certain existing liens
and specified liens incurred in the ordinary course of business.  
    
    The CC V issuers are generally not permitted to sell or otherwise
dispose of all or substantially all of their assets or merge with or
into other companies unless the CC V issuers and their subsidiaries
could incur $1.00 of additional debt under the leverage ratio test
described above, after giving effect to the transaction.  
    
    The CC V issuers and their subsidiaries may generally not otherwise
sell assets or, in the case of restricted subsidiaries, equity
interests, unless they receive consideration at least equal to the fair
market value of the assets or equity interests, with at least 75% of
the consideration for such sale consisting of a controlling interest in
a permitted business or assets useful in a permitted business or cash,
assumption of liabilities or securities promptly converted into cash.
The CC V issuers and their restricted subsidiaries are then required
within 360 days after any asset sale either to commit to use the net
cash proceeds over a specified threshold either to acquire assets,
including controlling assets in permitted businesses, make capital
expenditures or use the net cash proceeds to repay debt, or to offer to
repurchase the CC V notes with any remaining proceeds.  
    
    The CC V issuers and their restricted subsidiaries may not engage
in sale and leaseback transactions unless, at the time of the
transaction, the applicable CC V issuer or restricted subsidiary could
have incurred indebtedness under the leverage ratio test described
above in an amount equal to the present value of the net rental
payments to be made under the lease, the gross proceeds of the sale are
at least equal to the fair market value of the subject property, and
the sale of the assets and application of proceeds is permitted by the
covenant restricting asset sales.  
    
    The CC V issuers restricted subsidiaries may not enter into
restrictions on their abilities to make dividends or distributions or
transfer assets to the CC V issuers except under documents governing
debt, asset sales, leases and like transactions permitted by the
indenture.  
    
    The restricted subsidiaries of the CC V issuers are generally not
permitted to guarantee or pledge assets to secure debt of the CC V
issuers, unless the guarantying subsidiary issues a guarantee of the CC
V notes, and waives any rights of reimbursement, indemnity or
subrogation arising from the guarantee transaction for at least one
year.  
    
    The CC V issuers and their restricted subsidiaries are generally
not permitted to transfer equity interests in restricted subsidiaries
unless the transfer is of all of the equity interests in the restricted
subsidiary or the restricted subsidiary remains a restricted subsidiary
and net proceeds of the equity sale are applied in accordance with the
asset sales covenant. Restricted subsidiaries of the CC V issuers are
not permitted to issue equity interests if as a result, the issuing
subsidiary would no longer be a restricted subsidiary.  
    
    The indenture governing the CC V notes also restricts the ability
of the CC V issuers and their restricted subsidiaries to enter into
certain transactions with affiliates involving over $2.5 million
without a 73




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determination by the board of directors that the transaction is on terms
no less favorable than arms length, or transactions with affiliates
involving consideration in excess of $10 million with affiliates without
receiving an independent opinion as to the fairness of the transaction to
the holders of the CC V notes. Renaissance Notes The 10% senior discount notes due 2008 were issued by Renaissance Media
(Louisiana) LLC, Renaissance Media (Tennessee) LLC and Renaissance Media
Holdings Capital Corporation, with Renaissance Media Group LLC as guarantor and
the United States Trust Company of New York as trustee. Renaissance Media Group
LLC, which is the direct or indirect parent company of these issuers, is now a
subsidiary of Charter Operating. The Renaissance 10% notes and the Renaissance
guarantee are unsecured, unsubordinated debt of the issuers and the guarantor,
respectively. In October 1998, the issuers of the Renaissance notes exchanged
$163 million of the original issued and outstanding Renaissance notes for an
equivalent value of new Renaissance notes. The form and terms of the new
Renaissance notes are the same in all material respects as the form and terms
of the original Renaissance notes except that the issuance of the new
Renaissance notes was registered under the Securities Act. There was no payment of any interest in respect of the Renaissance notes prior
to October 15, 2003. Since October 15, 2003, interest on the Renaissance notes
is payable semi-annually in arrears in cash at a rate of 10% per year. On
April 15, 2003, the Renaissance notes became redeemable at the option of the
issuers thereof, in whole or in part, initially at 105% of their principal
amount at maturity, plus accrued interest, declining to 100% of the principal
amount at maturity, plus accrued interest, on or after April 15, 2006. Our acquisition of Renaissance triggered change of control provisions of the
Renaissance notes that required us to offer to purchase the Renaissance notes
at a purchase price equal to 101% of their accreted value on the date of the
purchase, plus accrued interest, if any. In May 1999, we made an offer to
repurchase the Renaissance notes, and holders of Renaissance notes representing
30% of the total principal amount outstanding at maturity tendered their
Renaissance notes for repurchase. The limitations on incurrence of debt contained in the indenture governing the
Renaissance notes permit Renaissance Media Group and its restricted
subsidiaries to incur additional debt, so long as they are not in default under
the indenture:  
    
    if, after giving effect to the incurrence, Renaissance Media Group
could meet a leverage ratio (ratio of consolidated debt to four times
consolidated EBITDA, as defined, from the most recent quarter) of 6.75
to 1.0, and, regardless of whether the leverage ratio could be met,  
    
    up to the greater of $200 million or 4.5 times Renaissance Media
Groups consolidated annualized EBITDA, as defined,  
    
    up to an amount equal to 5% of Renaissance Media Groups
consolidated total assets to finance the purchase of new assets,  
    
    up to two times the sum of (a) the net cash proceeds of new equity
issuances and capital contributions, and (b) 80% of the fair market
value of property received by Renaissance Media Group or an issuer as a
capital contribution, in each case received after the issue date of the
Renaissance notes and not allocated to make restricted payments, and  
    
    other items of indebtedness for specific purposes such as
intercompany debt, refinancing of existing debt and interest rate swaps
to provide protection against fluctuation in interest rates. The indenture governing the Renaissance notes permits us to incur debt under
one of the categories above, and reclassify the debt into a different category.  
    
    Under the indenture governing the Renaissance notes, Renaissance
Media Group and its restricted subsidiaries are permitted to pay
dividends on equity interests, repurchase interests, make restricted
investments, or make other specified restricted payments only if
Renaissance Media Group could incur $1.00 of additional debt under the
debt incurrence test, which requires that Renaissance Media Group meet
the 6.75 to 1.0 leverage ratio after giving effect to the transaction
of the indebtedness covenant and that no default exists or would occur
as a consequence thereof. If those conditions are met, Renaissance
Media 74




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Group and its restricted subsidiaries are permitted to make restricted
payments in a total amount not to exceed the result of 100% of
Renaissance Media Groups consolidated EBITDA, as defined, minus 130% of
its consolidated interest expense, plus 100% of new cash equity proceeds
received by Renaissance Media Group and not allocated to the indebtedness
covenant, plus returns on certain investments, all cumulatively from June
1998. Renaissance Media Group and its restricted subsidiaries may make
permitted investments up to $2 million in related businesses and other
specified permitted investments, restricted payments up to $10 million,
dividends up to 6% each year of the net cash proceeds of public equity
offerings, and other specified restricted payments without meeting the
foregoing test.  
    
    Renaissance Media Group and its restricted subsidiaries are not
permitted to grant liens on their assets other than specified permitted
liens, unless corresponding liens are granted to secure the Renaissance
notes. Permitted liens include liens securing debt permitted to be
incurred under credit facilities, liens securing debt incurred under
the incurrence of indebtedness test, in amounts up to the greater of
$200 million or 4.5 times Renaissance Media Groups consolidated
EBITDA, as defined, liens as deposits for acquisitions up to 10% of the
estimated purchase price, liens securing permitted financings of new
assets, liens securing debt permitted to be incurred by restricted
subsidiaries, and specified liens incurred in the ordinary course of
business.  
    
    Renaissance Media Group and the issuers of the Renaissance notes
are generally not permitted to sell or otherwise dispose of all or
substantially all of their assets or merge with or into other companies
unless their consolidated net worth after any such transaction would be
no greater than their consolidated net worth immediately prior to the
transaction, or unless Renaissance Media Group could incur $1.00 of
additional debt under the debt incurrence test, which would require
them to meet a leverage ratio of 6.75 to 1.00 after giving effect to
the transaction.  
    
    Renaissance Media Group and its subsidiaries may generally not
otherwise sell assets or, in the case of subsidiaries, equity
interests, unless they receive consideration at least equal to the fair
market value of the assets, consisting of at least 75% cash, temporary
cash investments or assumption of debt. Charter Holdings and its
restricted subsidiaries are then required within 12 months after any
asset sale either to commit to use the net cash proceeds over a
specified threshold either to acquire assets used in their own or
related businesses or use the net cash proceeds to repay debt, or to
offer to repurchase the Renaissance notes with any remaining proceeds.  
    
    Renaissance Media Group and its restricted subsidiaries may
generally not engage in sale and leaseback transactions unless the
lease term does not exceed three years or the proceeds are applied in
accordance with the covenant limiting asset sales.  
    
    Renaissance Media Groups restricted subsidiaries may generally not
enter into restrictions on their abilities to make dividends or
distributions or transfer assets to Renaissance Media Group except
those not more restrictive than is customary in comparable financings.  
    
    The restricted subsidiaries of Renaissance Media Group are not
permitted to guarantee or pledge assets to secure debt of the
Renaissance Media Group or its restricted subsidiaries, unless the
guarantying subsidiary issues a guarantee of the Renaissance notes of
comparable priority and tenor, and waives any rights of reimbursement,
indemnity or subrogation arising from the guarantee transaction for at
least one year.  
    
    Renaissance Media Group and its restricted subsidiaries are
generally not permitted to issue or sell equity interests in restricted
subsidiaries, except sales of common stock of restricted subsidiaries
so long as the proceeds of the sale are applied in accordance with the
asset sale covenant, and issuances as a result of which the restricted
subsidiary is no longer a restricted subsidiary and any remaining
investment in that subsidiary is permitted by the covenant limiting
restricted payments.  
    
    The indenture governing the Renaissance Notes also restricts the
ability of Renaissance Media Group and its restricted subsidiaries to
enter into certain transactions with affiliates involving consideration
in excess of $2 million without a determination by the disinterested
members of the board of directors that the transaction is on terms no
less favorable than arms length, or transactions with affiliates
involving over $4 million with affiliates without receiving an
independent opinion as to the fairness of the transaction to
Renaissance Media Group. 75




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All of these covenants are subject to additional specified exceptions. In
general, the covenants of our subsidiaries credit agreements are more
restrictive than those of our indentures. Our indentures include various events of default, including cross-default
provisions. Under these provisions, a failure by any of the issuers or any of
their restricted subsidiaries to pay at the final maturity thereof the
principal amount of other indebtedness having a principal amount of $100
million or more (or any other default under any such indebtedness resulting in
its acceleration) would result in an event of default under the indenture
governing the applicable notes. As a result, an event of default related to
the failure to repay principal at maturity or the acceleration of the
indebtedness under the credit facilities of our subsidiaries or the CC V and
Renaissance indentures could cause a cross-default under our indentures. The Renaissance indenture contains a similar cross-default provision with a $10
million threshold that applies to the issuers of the Renaissance notes and
their restricted subsidiaries. The CC V indenture contains events of default
that include a cross-default to acceleration of, or failure to make payments
when due or within the applicable grace period, by CC V Holdings, CC V Holdings
Finance or any restricted subsidiary, on any indebtedness of $5 million or
more. As a result, an event of default related to the failure to make a
payment when due or the acceleration of the indebtedness under the CC VIII
Operating credit facility could cause a cross-default under the CC V indenture. Related Party Transactions See Item 13. Certain Relationships and Related Transactions  Business
Relationships for information regarding related party transactions and
transactions with other parties with whom we or our related parties may have a
relationship that enables the parties to negotiate terms of material
transactions that may not be available from other, more clearly independent
parties, on an arms length basis. Certain Trends and Uncertainties The following discussion highlights a number of trends and uncertainties, in
addition to those discussed elsewhere in this annual report and in other
documents that we file with the SEC, that could materially impact our business,
results of operations and financial condition. Substantial Leverage.We and our subsidiaries have a significant amount of
debt. As of December 31, 2003, our total debt was approximately $17.9 billion.
In 2004, $188 million of our debt matures, and in 2005 and 2006, an additional
$426 million and $999 million matures, respectively. In subsequent years,
substantial additional amounts will become due under our remaining obligations.
We believe that as a result of our significant levels of debt, our access to
the debt markets could be limited when substantial amounts of our current
indebtedness become due. If our business does not generate sufficient cash
flow from operating activities, and sufficient funds are not available to us
from borrowings under our credit facilities or from other sources, 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. Further, if we
are unable to refinance that debt, ultimately, we could be forced to
restructure our obligations or seek protection under the bankruptcy laws. 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. Restrictive Covenants.The credit facilities of our subsidiaries and the
indentures governing the publicly held notes of our subsidiaries contain a
number of significant covenants that could adversely impact our business. In
particular, the credit facilities and indentures of our subsidiaries restrict
our subsidiaries ability to:  
    
    pay dividends or make other distributions;  
    
    make certain investments or acquisitions;  
    
    enter into related party transactions;  
    
    dispose of assets or merge;  
    
    incur additional debt;  
    
    issue equity;  
    
    repurchase or redeem equity interests and debt;  
    
    grant liens; and  
    
    pledge assets. 76




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Furthermore, our subsidiaries credit facilities require our subsidiaries to
maintain specified financial ratios and meet financial tests. These financial
ratios tighten and may become more difficult to maintain over time. 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 applicable debt agreement or instrument and could trigger acceleration of
the related debt under the applicable agreement, and in certain cases under
other agreements governing our indebtedness. Any default under the credit
facilities or indentures applicable to us or our subsidiaries could adversely
affect our growth, our financial condition and our results of operations and
the ability to make payments on our and our subsidiaries publicly held notes,
and the credit facilities of our subsidiaries. For more information, see the
section above entitled Liquidity and Capital Resources. Liquidity.Our business requires significant cash to fund capital expenditures,
debt service costs and ongoing operations. Our ongoing operations will depend
on our ability to generate cash and to secure financing in the future. We have
historically funded liquidity and capital requirements through cash flows from
operating activities, borrowings under the credit facilities of our
subsidiaries, issuances of debt securities by us or our subsidiaries, loans or
equity contributions from Charter Holdco and cash on hand. Our ability to operate depends on our continued access to credit under our
subsidiaries credit facilities. Our total potential borrowing availability
under the current credit facilities of our subsidiaries totaled $1.7 billion as
of December 31, 2003, although the actual availability under the covenant
restrictions at that time was only $828 million. Our access to those funds is
subject to our satisfaction of the covenants in those credit facilities and the
indentures governing our and our subsidiaries debt. In addition, an event of
default under the credit facilities and indentures, if not waived, could result
in the acceleration of those debt obligations, which would in turn result in
the acceleration of other debt obligations, and could result in exercise of
remedies by our creditors and could force us to seek the protection of the
bankruptcy laws, which could materially adversely impact our ability to operate
our business and to make payments under our debt instruments. If, at any time, additional capital or capacity is required beyond amounts
internally generated or available through existing credit facilities or in
traditional debt financings, we would consider:  
    
    requesting waivers or amendments with respect to our credit
facilities, the availability and terms of which would be subject to
market conditions;  
    
    further reducing our expenses and capital expenditures, which would
likely impair our ability to increase revenue;  
    
    selling assets;  
    
    issuing debt securities which may have structural or other priorities over our existing notes; or  
    
    issuing debt or equity of Charter or Charter Holdco, the proceeds
from which could be loaned or contributed to us. If the above strategies were not successful, ultimately, we could be forced to
restructure our obligations or seek protection under the bankruptcy laws. In
addition, if we find it necessary to engage in a recapitalization or other
similar transaction, our noteholders might not receive all principal and
interest payments to which they are contractually entitled. For more information, see the section above entitled Liquidity and Capital
Resources. Charter Liquidity Concerns.Charter has a substantial amount of debt. At
December 31, 2003, Charter had approximately $774 million aggregate principal
amount of convertible senior notes outstanding, which mature in 2005 and 2006.
Charters ability to make payments on its convertible senior notes is dependent
on its ability to obtain additional financing and on us and its other
subsidiaries making distributions, loans, or payments to Charter Holdco, and on
Charter Holdco paying or distributing such funds to Charter. The indentures
governing our notes permit us to make distributions up to our formulaic
capacity to Charter Holdco only if, after giving effect to the distribution, we
can incur additional debt under the leverage ratio of 8.75 to 1.0, there is no
default under the indentures and other specified tests are met. However, in the
event that we could not incur any additional debt under the 8.75 to 1.0
leverage ratio, the indentures governing our notes permit us and our
subsidiaries to make specified investments in Charter Holdco or Charter, up to
its formulaic capacity, if there is no default under the indentures. There
were no defaults under our indentures and other specified tests were met for
the year ending December 31, 2003. However, we did not meet the leverage ratio
test at December 31, 2003, and as a result, distributions from us to Charter
will be restricted until that test is met. Because Charter is our manager, any
financial or liquidity problems of Charter would be likely to cause serious
disruption to our business and to have a material adverse effect on our 77




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operations and results. Any such event would likely adversely impact our own
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 result in an event of
default under the credit facilities of our subsidiaries and require a change of
control repurchase offer under our outstanding notes. Acceleration of Indebtedness of Our Subsidiaries.In the event of a default
under our subsidiaries credit facilities or notes, our subsidiaries creditors
could elect to declare all amounts borrowed, together with accrued and unpaid
interest and other fees, to be due and payable. In such event, our
subsidiaries credit facilities and indentures will not permit our subsidiaries
to distribute funds to Charter Holdings to pay interest or principal on our
notes. If the amounts outstanding under such credit facilities or notes are
accelerated, all of our subsidiaries debt and liabilities would be payable
from our subsidiaries assets, prior to any distribution of our subsidiaries
assets to pay the interest and principal amounts on our notes. In addition,
the lenders under our subsidiaries credit facilities could foreclose on their
collateral, which includes equity interests in our subsidiaries, and they could
exercise other rights of secured creditors. In any such case, we might not be
able to repay or make any payments on our notes. Additionally, an acceleration
or payment default under our subsidiaries credit facilities would cause a
cross-default in the indentures governing our notes, CCH II notes and CCO
Holdings notes and would trigger the cross-default provision of the Charter
Operating credit agreement. Any default under any of our subsidiaries credit
facilities or notes might adversely affect the holders of our notes and our
growth, financial condition and results of operations and could force us to
examine all options, including seeking the protection of the bankruptcy laws. Our Public Notes are Subordinated in Right of Payment to all Liabilities of our
Subsidiaries.The borrowers and guarantors under the Charter Operating credit
facilities, the CC VI Operating credit facilities, the Falcon credit facilities
and the CC VIII Operating credit facilities are our indirect subsidiaries. A
number of our subsidiaries are also obligors under other debt instruments,
including Charter Holdings, CCH II and CCO Holdings, which are each a co-issuer
of senior notes and/or senior discount notes. As of December 31, 2003, our
total debt was approximately $17.9 billion, $9.6 billion of which would have
been senior in right of payment to our public notes. In a liquidation, the
lenders under all of our subsidiaries credit facilities and the holders of the
other debt instruments and all other creditors of our subsidiaries will have
the right to be paid before us from any of our subsidiaries assets. If we caused a subsidiary to make a distribution to enable us to make payments
in respect of our public notes, and such transfer were deemed a fraudulent
transfer or an unlawful distribution, the holders of our public notes could be
required to return the payment to (or for the benefit of) the creditors of our
subsidiaries. In the event of the bankruptcy, liquidation or dissolution of a
subsidiary, following payment by such subsidiary of its liabilities, such
subsidiary may not have sufficient assets remaining to make any payments to us
as an equity holder or otherwise and may be restricted by bankruptcy and
insolvency laws from making any such payments. This would affect our ability
to make payments to the holders of our public 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. The federal shareholders derivative suit, the Delaware class actions
and the consolidated derivative suit 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 former officers who was indicted entered a guilty plea. Charter has
advised us that it is fully cooperating with the investigation. 78




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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 consolidated financial condition, results
of operations or our liquidity, including our ability to comply with our debt
covenants. 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 and aggressive pricing, 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 franchised, wireless or private
cable operators, satellite television providers, local exchange carriers and
others, and the repeal of certain ownership rules may provide additional
benefits to some of our competitors, either through access to financing,
resources or efficiencies of scale, or the ability to provide multiple services
in direct competition with us. Variable Interest Rates.At December 31, 2003, excluding the effects of
hedging, approximately 39% 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 December 31, 2003 and December 31,
2002, the weighted average interest rate on the bank debt was approximately
5.4% and the weighted average interest rate on the high-yield debt was
approximately 10.3% and 10.2%, respectively, resulting in a blended weighted
average interest rate of 8.3% and 8.1%, respectively. Approximately 79% of our
debt was effectively fixed including the effects of our interest rate hedge
agreements as of December 31, 2003 compared to approximately 77% at December
31, 2002. Streamlining of Operations.In the past, we 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 take
advantage of cables broadband capacity. The technology involved in our
product and service offerings 79




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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. As measured by programming costs, and excluding premium
services (substantially all of which were renegotiated and renewed in 2003), as
of February 18, 2004, approximately 34% of our current programming contracts
are scheduled to expire by the end of 2004, and approximately another 11% by
the end of 2005. There can be no assurance that these agreements will be
renewed on favorable or comparable terms. 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. Notes Price Volatility.The market price
of our publicly-traded notes issued by us and our subsidiaries 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 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 and our subsidiaries notes, regardless
of our operating performance. In the past, securities litigation has often
commenced following periods of volatility in the market price of a companys
securities, and several purported class action lawsuits were filed against
Charter in 2001 and 2002, following a decline in its stock price. Economic
Slowdown; Global Conflict.It is difficult to assess the impact that the
general economic slowdown and global conflict will have on future operations.
However, the economic slowdown has resulted and could continue to result in
reduced spending by customers and advertisers, which could reduce our revenues,
and also could affect our ability to collect accounts receivable and maintain
customers. In addition, any prolonged military conflict would materially and
adversely affect our revenues from our systems providing services to military
installations. 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.Charter may not have the ability to raise the funds
necessary to fulfill its obligations under the Charter convertible senior notes
or the notes and credit facilities of us and our subsidiaries following a
change of control. Under the indentures governing the Charter convertible
senior notes, upon the occurrence of specified change of control events,
including certain specified dispositions of Charters stock by Mr. Allen,
Charter is required to offer to repurchase all of the outstanding Charter
convertible senior notes. However, Charter may not have sufficient funds at
the time of the change of control event to make the required repurchase of the
Charter convertible senior notes and we and our subsidiaries are limited in our
ability to make distributions or other payments to Charter to fund any required
repurchase. In addition, a change of control under our subsidiaries credit
facilities and indentures governing their and our notes would require the
repayment of borrowings under those credit facilities and indentures. Because
such credit facilities and notes are obligations of us and our subsidiaries,
the credit facilities and the notes would have to be repaid by us and our
subsidiaries before their assets could be available to Charter to repurchase
the Charter convertible senior notes. Charters failure to make or complete a
change of control offer would place Charter in default under the Charter
convertible senior notes. The failure of us and our subsidiaries to make a
change of control offer or repay the amounts outstanding under our credit
facilities would place us in default of these agreements and could result in a
default under the 80




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indentures governing the Charter convertible senior notes. Regulation and
Legislation.Cable systems 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. 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. 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 a 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. Interest Rate Risk We use 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) as required under the terms of the
credit facilities of our subsidiaries. Our policy is to manage interest costs
using a mix of fixed and variable rate debt. Using interest rate swap
agreements, we agree to exchange, at specified intervals, 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 our exposure to, and to derive benefits from, interest rate
fluctuations on variable rate debt to within a certain range of rates. At December 31, 2003 and 2002, we had outstanding $3.0 billion and $3.4 billion
and $520 million and $520 million, respectively, in notional amounts of
interest rate swaps and collars, respectively. The notional amounts of
interest rate instruments do not represent amounts exchanged by the parties
and, thus, are not a measure of our exposure to credit loss. See Item 7A.
Quantitative and Qualitative Disclosures About Market Risk, for further
information regarding the fair values and contract terms of our interest rate
agreements. Recently Issued Accounting Standards In December 2003, the FASB issued FASB Interpretation No. 46 (revised December
2003), Consolidation of Variable Interest Entities(FIN 46R), which addresses
how a business enterprise should evaluate whether it has a controlling
financial interest in an entity through means other than voting rights and
accordingly should consolidate the entity. FIN 46R replaces FASB Interpretation
No. 46, Consolidation of Variable Interest Entities, which was issued in
January 2003. We will be required to apply FIN 46R to variable interests in
variable interest entities created after December 31, 2003. For variable
interests in variable interest entities created before December 31, 81




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2003, the FIN 46R will be applied beginning on March 31, 2004. For any
variable interest entities that must be consolidated under FIN 46R that were
created before December 31, 2003, the assets, liabilities and noncontrolling
interests of the variable interest entity initially would be measured at their
carrying amounts with any difference between the net amount added to the
balance sheet and any previously recognized interest being recognized as the
cumulative effect of an accounting change. If determining the carrying amounts
is not practicable, fair value at the date FIN 46R first applies may be used to
measure the assets, liabilities and noncontrolling interest of the variable
interest entity. We have identified DBroadband Holdings, LLC as a variable
interest entity in accordance with FIN 46R. As we are not the primary
beneficiary of the variable interest entity (as defined by FIN 46R), DBroadband
Holdings, LLC has not been included in our consolidated financial statements.
In future periods, we will continue to reassess our relationship with
DBroadband Holdings, LLC to ensure proper recognition of the relationship in
accordance with FIN 46R. See Item 13. Certain Relationships and Related
Transactions  Third Party Business Relationships in which Mr. Allen has an
Interest  Digeo, Inc. In December 2003, the SEC issued Staff Accounting Bulletin (SAB) No. 104,
Revenue Recognition. SAB No. 104 revises or rescinds portions of
interpretative guidance on revenue recognition. SAB No. 104 became effective
immediately upon release and requires registrants to either restate prior
financial statements or report a change in accounting principle. The adoption
of SAB No. 104 did not have a material impact on our consolidated financial
statements. 
 Item 7A.Quantitative and Qualitative Disclosures About Market Risk. Interest Rate Risk We are exposed to various market risks, including fluctuations in interest
rates. We use 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) as required under the terms of
the credit facilities of our subsidiaries. Our policy is to manage interest
costs using a mix of fixed and variable rate debt. Using interest rate swap
agreements, we agree 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 our exposure to, and to derive benefits from, interest rate
fluctuations on variable rate debt to within a certain range of rates.
Interest rate risk management agreements are not held or issued for speculative
or trading purposes. As of December 31, 2003 and 2002, long-term debt totaled approximately $17.9
billion and $17.3 billion, respectively. This debt was comprised of
approximately $7.2 billion and $7.8 billion of debt under our subsidiaries
credit facilities and $10.6 billion and $9.5 billion of high-yield debt at
December 31, 2003 and 2002, respectively. As of December 31, 2003 and 2002,
the weighted average rate on the bank debt was approximately 5.4% and the
weighted average rate on the high-yield debt was approximately 10.3% and 10.2%,
respectively, resulting in a blended weighted average interest rate of 8.3% and
8.1%, respectively. Approximately 79% of our debt was effectively fixed
including the effects of our interest rate hedge agreements as of December 31,
2003 compared to approximately 77% at December 31, 2002. The fair value of our
total high-yield debt was $9.9 billion and $4.1 billion at December 31, 2003
and 2002, respectively. The fair value of bank debt was $6.9 billion and $6.4
billion at December 31, 2003 and 2002, respectively. 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 have certain interest rate derivative instruments that have been designated
as cash flow hedging instruments. Such instruments are those which effectively
convert variable interest payments on certain debt instruments into fixed
payments. For qualifying hedges, SFAS No. 133 allows derivative gains and
losses to offset related results on hedged items in the consolidated statements
of operations. We have formally documented, designated and assessed the
effectiveness of transactions that receive hedge accounting. For the years
ended December 31, 2003, 2002 and 2001, net gain (loss) on derivative
instruments and hedging activities includes gains of $8 million and losses of
$14 million and $2 million, respectively, which represent cash flow hedge
ineffectiveness on interest rate hedge agreements arising from differences
between the critical terms of the agreements and the related hedged
obligations. Changes in the fair value of interest rate agreements designated
as hedging instruments of the variability of cash flows associated with
floating-rate debt obligations are reported in accumulated other comprehensive
loss. For the years ended December 31, 2003, 2002 and 2001, a gain of $48
million and losses of $65 million and $39 million, respectively, related to
derivative instruments designated as cash flow hedges were recorded in
accumulated other comprehensive loss. The amounts are subsequently
reclassified into interest expense as a yield adjustment in the same period in
which the related interest on the floating-rate debt obligations affects
earnings (losses). 82




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Certain interest rate derivative instruments are not designated as hedges,
as they do not meet the effectiveness criteria specified by SFAS No. 133.
However, we believe 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 gain
(loss) on derivative instruments and hedging activities in our statements of
operations. For the years ended December 31, 2003, 2002 and 2001, net gain
(loss) on derivative instruments and hedging activities includes gains of $57
million and losses of $101 million and $48 million, respectively, for interest
rate derivative instruments not designated as hedges. The table set forth below summarizes the fair values and contract terms of
financial instruments subject to interest rate risk maintained by us as of
December 31, 2003 (dollars in millions): Fair Value atDecember 31,2004
    
    2005
    
    2006
    
    2007
    
    2008
    
    Thereafter
    
    Total
    
    2003DebtFixed Rate
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    451
    
    
    $
    227
    
    
    $
    10,529
    
    
    $
    11,207
    
    
    $
    9,859Average Interest Rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8.25
    %
    
    
    10.93
    %
    
    
    10.43
    %
    
    
    10.35
    %Variable Rate
    
    $
    188
    
    
    $
    426
    
    
    $
    999
    
    
    $
    2,080
    
    
    $
    3,534
    
    
    $
    
    
    
    $
    7,227
    
    
    $
    6,949Average Interest Rate
    
    
    3.40
    %
    
    
    4.99
    %
    
    
    6.12
    %
    
    
    6.85
    %
    
    
    7.91
    %
    
    
    
    
    
    
    7.07
    %Interest Rate InstrumentsVariable to Fixed Swaps
    
    $
    715
    
    
    $
    990
    
    
    $
    873
    
    
    $
    400
    
    
    $
    
    
    
    $
    
    
    
    $
    2,978
    
    
    $
    171Average Pay Rate
    
    
    7.36
    %
    
    
    7.10
    %
    
    
    7.30
    %
    
    
    7.35
    %
    
    
    
    
    
    
    
    
    
    
    7.25
    %Average Receive Rate
    
    
    3.68
    %
    
    
    5.28
    %
    
    
    6.43
    %
    
    
    7.00
    %
    
    
    
    
    
    
    
    
    
    
    5.46
    %
 The notional amounts of interest rate instruments do not represent amounts
exchanged by the parties and, thus, are not a measure of our exposure to credit
loss. The amounts exchanged are determined by reference to the notional amount
and the other terms of the contracts. The estimated fair value approximates
the costs (proceeds) to settle the outstanding contracts. Interest rates on
variable debt are estimated using the average implied forward London Interbank
Offering Rate (LIBOR) rates for the year of maturity based on the yield curve
in effect at December 31, 2003. At December 31, 2003 and 2002, we had outstanding $3.0 billion and $3.4 billion
and $520 million and $520 million, respectively, in notional amounts of
interest rate swaps and collars, respectively. The collar agreements are
structured so that if LIBOR falls below 5.3%, we pay 6.7%. If the LIBOR rate
is between 5.3% and 8.0%, we pay LIBOR. If LIBOR falls between 8.0% and 9.9%,
the LIBOR rate is capped at 8.0%. If rates go above 9.9%, the cap is removed.
The fair value of the collar agreements is a liability of $8 million at
December 31, 2003. We do not hold collateral for these instruments and are therefore subject to
credit loss in the event of nonperformance by the counterparty to the interest
rate exchange agreement. However the counterparties are banks and we do not
anticipate nonperformance by any of them on the interest rate exchange
agreement. 
 Item 8.Financial Statements and Supplementary Data. Our consolidated financial statements, the related notes thereto, and the
reports of independent auditors are included in this annual report beginning on
page F-1. 
 Item 9.Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure. Previously reported in our Current Report on Form 8-K, dated April 22, 2002 and
filed on April 26, 2002. 
 Item 9A.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 annual
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 83




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##### 



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
2003 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 its controls do provide such reasonable assurances. 84




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##### 



PART III 
 Item 10.Directors and Executive Officers of the Registrant. Directors Charter Holdings is a holding company with no operations. Charter Capital is a
direct, wholly owned finance subsidiary of Charter Holdings that exists solely
for the purpose of serving as co-obligor of the senior notes and senior
discount notes issued by Charter Holdings. Neither Charter Holdings nor Charter
Capital has any employees. We and our direct and indirect subsidiaries are
managed by Charter. See Item 13. Certain Relationships and Related
Transactions  Transactions Arising Out of Our Organizational Structure and
Mr. Allens Investment in Charter and Its Subsidiaries  Intercompany
Management Arrangements. Charter Holdings has two directors, Carl E. Vogel and William D. Savoy. The
persons listed below are directors of Charter, Charter Holdco, Charter Holdings
or Charter Capital, as indicated. All of our directors are elected annually. Name
    
    Position(s)Paul G. Allen
    
    Chairman of the board of directors of Charter and
Director of Charter HoldcoCharles M. Lillis
    
    Director of CharterDavid C. Merritt
    
    Director of CharterMarc B. Nathanson
    
    Director of CharterNancy B. Peretsman
    
    Director of CharterJohn H. Tory
    
    Director of CharterWilliam D. Savoy
    
    Director of Charter, Charter Holdco and Charter HoldingsCarl E. Vogel
    
    Director of Charter, Charter Holdco, Charter Holdings
and Charter Capital, President and Chief Executive
OfficerLarry W. Wangberg
    
    Director of Charter
 The following sets forth certain biographical information as of December 31,
2003 with respect to the directors listed above. Paul G. Allen,50, has been Chairman of the board of directors of Charter since
July 1999, and Chairman of the board of directors of Charter Investment, Inc.
(a predecessor to, and currently an affiliate of, Charter) since December 1998.
Mr. Allen, co-founder of Microsoft Corporation, has been a private investor
for more than 15 years, with interests in over 50 technology,
telecommunications, content and biotech companies. Mr. Allens investments
include Vulcan Inc., Vulcan Productions, Inc., the Portland Trail Blazers NBA
and Seattle Seahawks NFL franchises, and investments in TechTV Inc.,
DreamWorks LLC, and Oxygen Media. In addition, he is a director of TechTV
Inc., Vulcan Programming Inc., Vulcan Ventures, Vulcan Inc. (f/k/a Vulcan
Northwest), Vulcan Cable III, Inc. and numerous privately held companies. Charles M. Lillis,62, was elected to the board of directors of Charter in
October 2003. Presently, he is the Managing Partner of Lone Tree Capital, which
he co-founded in 2002. Mr. Lillis served as Chairman and Chief Executive
Officer of MediaOne Group, Inc. from June 1998 to May 2000. He served as Chief
Executive Officer of MediaOne while it was a tracking stock company from
November 1995 to May 1997. Prior to that, he held various senior management
positions at US WEST, MediaOnes predecessor. Before joining US WEST, he
served as Dean of the University of Colorados College of Business and as a
professor at Washington State University. In addition, he is a director and
serves on the audit committees of SuperValu, Inc. and Williams Companies. Mr.
Lillis is also Chairman of the University of Washington Business Advisory
Board, a member of the University of Washington Foundation Board, and a former
member of the University of Colorado Foundation Board. Mr. Lillis is a
graduate of the University of Washington, Seattle, with an M.B.A., and he holds
a doctorate of Philosophy in Business from the University of Oregon, in Eugene. David C. Merritt,49, was elected to the board of directors of Charter in July
2003, and was also appointed as Chairman of the Audit Committee at that time.
Since October 2003, Mr. Merritt has been a Managing Director of Salem Partners,
LLC, an investment banking firm. He was a Managing Director in the
Entertainment Media Advisory Group at Gerard Klauer Mattison & Co., Inc., a
company that provides financial advisory services to the entertainment and
media industries from January 2001 through April 2003. Prior to that, he
served as Chief 85




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##### 



Financial Officer of CKE Associates, Ltd., a privately held company with
interests in talent management, film production, television production, music
and new media from July 1999 to November 2001. He also served as a director of
Laser-Pacific Media Corporation from January 2001 until October 2003 and served
as Chairman of its audit committee. During December 2003, he became a director
of Outdoor Channel Holdings, Inc. Mr. Merritt joined KPMG LLP in 1975 and
served in a variety of capacities during his years with the firm, including
national partner in charge of the media and entertainment practice and before
joining CKE Associates, Mr. Merritt was an audit and consulting partner of KPMG
LLP for 14 years. Mr. Merritt holds a B.S. degree in Business and Accounting
from California State University  Northridge. Marc B. Nathanson,58, has been a director of Charter since January 2000. Mr.
Nathanson is the Chairman of Mapleton Investments LLC, an investment vehicle
formed in 1999. He also founded and served as Chairman and Chief Executive
Officer of Falcon Holding Group, Inc., a cable operator, and its predecessors,
from 1975 until 1999. He served as Chairman and Chief Executive Officer of
Enstar Communications Corporation, a cable operator, from 1988 until November
1999. Prior to 1975, Mr. Nathanson held executive positions with Teleprompter
Corporation, Warner Cable and Cypress Communications Corporation. In 1995, he
was appointed by the President of the United States to the Broadcasting Board
of Governors, and from 1998 through September 2002, served as its Chairman.
Mr. Nathanson served as Vice-Chairman and as a director of Charter pursuant to
a letter agreement that expired in November 2002. See Item 11. Executive
Compensation  Employment Arrangements. Nancy B. Peretsman,49, has been a director of Charter since November 1999. Ms.
Peretsman has been a Managing Director and Executive Vice President of Allen &
Company, LLC (formerly known as Allen & Company Incorporated), an investment
bank unrelated to Paul G. Allen, since 1995. From 1983 to 1995, she was an
investment banker at Salomon Brothers Inc., where she was a Managing Director
since 1990. She is a director of Priceline.com Incorporated and several
privately held companies. She has a B.A. degree from Princeton University and
an M.B.A. degree from Yale University. William D. Savoy,39, has been a director of Charter since July 1999 and a
director of Charter Investment, Inc. since December 1998. From 1990 to
September 2003, Mr. Savoy served as an officer and a director of many
affiliates of Mr. Allen, including President and a director of Vulcan Ventures
Incorporated, and President of Vulcan Inc., Vulcan Programming Inc. and Vulcan
Cable III, Inc., each of which is an investment vehicle owned by Mr. Allen. He
currently serves as a consultant to Vulcan Inc. In connection with the
termination of his employment with these affiliates of Mr. Allen, Mr. Savoy
agreed to resign from Charters board of directors if Mr. Allen so requests.
Mr. Savoy holds a B.S. degree in Computer Science, Accounting and Finance from
Atlantic Union College. John H. Tory,49, has been a director of Charter since December 2001. Mr. Tory
served as the Chief Executive Officer of Rogers Cable Inc., Canadas largest
broadband cable operator, from 1999 until 2003. From 1995 to 1999 Mr. Tory was
President and Chief Executive Officer of Rogers Media Inc., a broadcasting and
publishing company. Prior to joining Rogers, Mr. Tory was a Managing Partner
and member of the executive committee at Tory Tory DesLauriers & Binnington,
one of Canadas largest law firms. Mr. Tory serves on the board of directors
of a number of Canadian companies, including Cara Operations Limited. Mr. Tory
was educated at University of Toronto Schools, Trinity College (University of
Toronto) and Osgoode Hall Law School. Carl E. Vogel,46, has been a director, President and Chief Executive Officer
of Charter and Charter Holdings since October 2001. Mr. Vogel has more than 20
years experience in telecommunications and the subscription television
business. Prior to joining Charter, he was a Senior Vice President of Liberty
Media Corp. from November 1999 until October 2001, and Chief Executive Officer
of Liberty Satellite and Technology, a distributor of Internet data and other
content via satellite, from April 2000 until October 2001. Prior to joining
Liberty, Mr. Vogel was an Executive Vice President and Chief Operating Officer
of Field Operations for AT&T Broadband and Internet Services with
responsibility for managing operations of all of AT&Ts cable broadband
properties from June 1999 until November 1999. From June 1998 to June 1999,
when the business of Primestar Inc. was sold, Mr. Vogel served as Chairman and Chief
Executive Officer of Primestar Inc., a national provider of subscription
television services, and from 1997 to 1998, he served as Chief Executive
Officer of Star Choice Communications. From 1994 through 1997, Mr. Vogel
served as the President and Chief Operating Officer of EchoStar Communications.
He began his career at Jones Intercable in 1983. Mr. Vogel serves as a
director and member of the Executive Committee of the National Cable &
Telecommunications Association, CableLabs and Digeo, Inc. and serves as a
director of Women in Cable and Telecommunications. Mr. Vogel holds a B.S.
degree in Finance and Accounting from St. Norbert College. His employment
agreement provides that he will serve on the board of directors of Charter. See
Item 11. Executive Compensation  Employment Arrangements. 86




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##### 



Larry W. Wangberg,61, has been a director of Charter since January 2002. Mr.
Wangberg has been a director of TechTV Inc., a cable television network
controlled by Paul Allen, since August 1997, and also served as its Chairman
and Chief Executive Officer from August 1997 through July 2002. Prior to
joining TechTV Inc., Mr. Wangberg was Chairman and Chief Executive Officer of
StarSight Telecast Inc., an interactive navigation and program guide company
which later merged with Gemstar International, from 1994 to 1997. Mr. Wangberg
was Chairman and Chief Executive Officer of Times Mirror Cable Television and
Senior Vice President of its corporate parent, Times Mirror Co., from 1983 to
1994. He currently serves on the boards of TechTV Inc., Autodesk Inc., and
ADC Telecommunications. Mr. Wangberg holds a bachelors degree in Mechanical
Engineering and a masters degree in Industrial Engineering, both from the
University of Minnesota. Board of Directors and Committees of the Board of Directors Charters board of directors meets regularly throughout the year on a set
schedule. The board may also hold special meetings and act by written consent
from time to time if necessary. Meetings of the independent members of the
board occur on the same day as regularly scheduled meetings of the full board.
Management is not present at these meetings. The board of directors delegates authority to act with respect to certain
matters to board committees whose members are appointed by the board. The
following are the committees of Charters board of directors: Audit Committee,
Financing Committee, Option Plan Committee, Compensation Committee, Executive
Committee and a Special Committee for matters related to the CC VIII put
dispute. In addition, during 2003, there was a Special Committee related to a
financing commitment letter issued by a company controlled by Paul Allen. That
committee ceased to exist when the commitment letter was terminated in November
2003. The Audit Committee, which has a written charter approved by the board,
consists of three directors: Charles Lillis, John Tory and David Merritt, all
of whom are believed to be independent in accordance with the applicable
corporate governance listing standards of the Nasdaq National Market.
Charters board of directors has determined that, in its judgment, David
Merritt is an audit committee financial expert within the meaning of the
applicable federal regulations. Director Compensation Commencing in July 2003, each member of Charters board receives an annual
retainer of $40,000 in cash plus restricted stock vesting one year after date
of grant with a value on the date of grant of $50,000. In addition, Charters
Audit Committee chair receives $25,000, and each chair of each other committee
of Charter receives $10,000 per year. All committee members also receive
$1,000 for attendance at each committee meeting. Each director of Charter is entitled to reimbursement for costs incurred in
connection with attendance at board and committee meetings. Except as set
forth below with respect to Mr. Nathanson, directors who were not employees did
not receive additional compensation in 2002 or the first half of 2003. Mr.
Vogel, who was President and Chief Executive Officer of Charter in 2003, was
the only director who was also an employee during 2003. He did not receive any
additional compensation for serving as a director or attending any meeting of
the board of directors during 2003. Charters bylaws provide that all
directors are entitled to indemnification from Charter to the maximum extent
permitted by law from and against any claims, damages, liabilities, losses,
costs or expenses incurred in connection with or arising out of the performance
by them of their duties for Charter and/or its subsidiaries. Mr. Vogel is party to an employment agreement with Charter, which is summarized
in    Employment Arrangements. Marc B. Nathanson entered into a letter agreement with Charter for a term that
expired in November 2002. Under this agreement, Mr. Nathanson served as
Vice-Chairman and as a director of Charter. During the term of this agreement,
Mr. Nathanson received a benefit equal to approximately $200,000 per year,
which Charter paid to a company controlled by Mr. Nathanson. Mr. Nathanson
continues to hold the title of Vice-Chairman, a non-salaried non-executive
position with Charter. 87




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##### 



Executive Officers The following persons are executive officers of Charter and, other than Mr.
Allen, also held similar positions with Charter Holdco, Charter Holdings and
Charter Capital: Executive Officers
    
    PositionPaul G. Allen
    
    Chairman of the board of directorsCarl E. Vogel
    
    President and Chief Executive OfficerMargaret Maggie A. Bellville
    
    Executive Vice President  Chief Operating OfficerDerek Chang
    
    Executive Vice President of Finance and StrategyThomas A. Cullen
    
    Senior Vice President of Advanced Services and Business DevelopmentWayne H. Davis
    
    Senior Vice President, Engineering and Technical OperationsMichael P. Huseby
    
    Executive Vice President  Chief Financial OfficerMichael J. Lovett
    
    Senior Vice President, Operations SupportPaul E. Martin
    
    Senior Vice President and Principal Accounting OfficerSteven A. Schumm
    
    Executive Vice President  Chief Administrative OfficerCurtis S. Shaw
    
    Executive Vice President, General Counsel and Secretary
 The following sets forth certain biographical information as of December 31,
2003 with respect to the officers listed above (excluding those who also serve
as directors of Charter). Margaret Maggie A. Bellville,50, Executive Vice President and Chief
Operating Officer. Before joining Charter in December, 2002, Ms. Bellville was
President and Chief Executive Officer of Incanta Inc., a technology-based
streaming content company from 2001 to 2002. Incanta Inc. filed for bankruptcy
in April 2002. Prior to that, she worked for six years at Cox Communications,
beginning in 1995 as Vice President of Operations, she advanced to Executive
Vice President of Operations. Ms. Bellville joined Cox from Century
Communications, where she served as Senior Vice President. Before that, Ms.
Bellville served seven years with GTE Wireless in a variety of management and
executive-level roles. A graduate of the State University of New York in
Binghamton, Ms. Bellville is also a graduate of Harvard Business Schools
Advanced Management Program. She currently serves on the Cable and Television
Association for Marketing Education Foundation. Derek Chang,36, Executive Vice President of Finance and Strategy. Prior to
joining Charter, Mr. Chang was Executive Vice President of the Yankees
Entertainment and Sports (YES) Network, a regional sports programming network
in New York where he headed corporate development and financing activities from
the companys inception in 2001 until January 2003. Prior to joining YES, he
was the Chief Financial Officer and Co-Chief Operating Officer of GlobalCenter,
the web hosting subsidiary of Global Crossing. Mr. Chang worked for TCI
Communications/AT&T Broadband in Denver from 1997 to 2000, ultimately as
Executive Vice President of Corporate Development, where he directed mergers
and acquisitions activities and managed a multibillion dollar portfolio of
cable joint ventures. He was with InterMedia Partners in San Francisco from
1994 to 1997 where he held a number of positions and was ultimately Treasurer.
Mr. Chang received a B.A. degree from Yale University and an M.B.A. from the
Stanford University Graduate School of Business. Thomas A. Cullen,44, Senior Vice President of Advanced Services and Business
Development. From January 2001 to October 2002, Mr. Cullen was General Partner
of Lone Tree Capital, a private equity partnership focused on investment
opportunities in the technology and communications sector. From March 1997 to
June 2000, Mr. Cullen was President of MediaOne Ventures. Prior to that, Mr.
Cullen served in several capacities with MediaOne Internet Services including
Vice President from April 1998 to June 2000 and Vice President of Business
Development from September 1995 to March 1997. Mr. Cullen is a member of the
board of directors of SportsLine USA, and a member of the Colorado State
University Global Leadership Council. Mr. Cullen is a graduate of Northern
Arizona University with a B.S. degree in Business Administration. He earned a
Master of Business Administration from the University of Colorado, and he
participated in a University of Pennsylvania, Wharton School Executive Program. Wayne H. Davis,50, Senior Vice President, Engineering and Technical
Operations. Prior to becoming Senior Vice President, Engineering and Technical
Operations, Mr. Davis was Assistant to the President/Vice President of
Management Services since July 2002 and prior to that, he was Vice President of
Engineering/Operations for Charters National Region from December 2001.
Before joining Charter Mr. Davis held the position of Vice President of
Engineering for Comcast Corporation, Inc. Prior to that, the held various
engineering positions including Vice President of Engineering for Jones
Intercable Inc. He began his career in the cable industry in 1980. He attended
the State University of New York at Albany. Mr. Davis serves as an advisory
board member of Cedar 88




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##### 



Point Communications, and as a board member of @Security Broadband Corp., a
company in which Charter owns an equity investment interest. Mr. Davis is also
a member of the Society of Cable Telecommunications Engineers. Michael P. Huseby,49, Executive Vice President and Chief Financial Officer.
Mr. Huseby was Executive Vice President of Finance and Administration and Chief
Financial Officer of AT&T Broadband from 1999 until its merger with Comcast in
2002. Prior to joining Charter in January 2004, he served as a consultant to
Comcast and to Charter as President and founder of MPH Associates Inc., a
privately held management and information technology firm providing consulting
services to broadband industry clients. For ten years prior to joining AT&T,
Mr. Huseby was a partner in the professional services firm of Andersen
Worldwide. Mr. Huseby graduated from the University of Colorado at Boulder
with a degree in Business Administration. Michael J, Lovett,42, Senior Vice President, Operations Support. Mr. Lovett
joined Charter in August of 2003. Prior to joining Charter, Mr. Lovett was
Chief Operating Officer of Voyant Technologies, Inc., a voice conferencing
hardware/software solutions provider, from December 2001 to August 2003. From
November 2000 to December 2001, he was Executive Vice President of Operations
for OneSource, Inc., a startup delivering management/monitoring of firewalls
and virtual private networks. Prior to that, Mr. Lovett was Regional Vice
President at AT&T from June 1999 to November 2000 where he was responsible for
operations. Mr. Lovett was Senior Vice President at Jones Intercable from
October 1989 to June 1999 where he was responsible for operations in nine
states. Mr. Lovett began his career in cable television at Centel Corporation
where he held a number of positions. Paul E. Martin,43, Senior Vice President  Principal Accounting Officer.
Prior to his promotion to his current position in April 2002, Mr. Martin was
Vice President and Corporate Controller of Charter from March 2000. Prior to
joining Charter in March 2000, Mr. Martin was Vice President and Controller for
Operations and Logistics for Fort James Corporation, a manufacturer of paper
products. From 1995 to February 1999, Mr. Martin was Chief Financial Officer
of Rawlings Sporting Goods Company, Inc. Mr. Martin received a B.S. degree
with honors in Accounting from the University of Missouri  St. Louis. Steven A. Schumm,51, Executive Vice President and Chief Administrative
Officer. Prior to joining Charter Investment, Inc. in 1998, Mr. Schumm was a
partner of Ernst & Young LLP for 14 years where he was Managing Partner of
Ernst & Youngs St. Louis office and a member of the Ernst & Young National Tax
Committee. Mr. Schumm joined Ernst & Young in 1974 and served in a variety of
capacities during his years with the firm. Mr. Schumm earned a B.S. degree in
Business Administration from Saint Louis University. Mr. Schumm served as
Interim Chief Financial Officer of Charter from December 2002 to January 2004. Curtis S. Shaw,55, Executive Vice President, General Counsel and Secretary.
Mr. Shaw was promoted to Executive Vice President in October 2003. Prior to
joining Charter Investment as Senior Vice President, General Counsel and
Secretary in 1997, Mr. Shaw served as corporate counsel to NYNEX from 1988
through 1996. Since 1973, Mr. Shaw has practiced as a corporate lawyer,
specializing in mergers and acquisitions, joint ventures, public offerings,
financings, and federal securities and antitrust law. Mr. Shaw received a B.A.
degree with honors in Economics from Trinity College and a J.D. degree from
Columbia University School of Law. Compensation Committee Interlocks and Insider Participation In 2003, the Compensation Committee of Charter was comprised of Messrs. Paul G.
Allen, William D. Savoy, and Marc B. Nathanson. In 2003, Nancy B. Peretsman
and Ronald L. Nelson served as the Option Plan Committee that administered the
1999 Charter Communications Option Plan and the Charter Communications, Inc.
2001 Stock Incentive Plan until July 2003 when Mr. Nelson was replaced by David
C. Merritt. No member of Charters Compensation Committee or Option Plan Committee was an
officer or employee of Charter or any of its subsidiaries during 2003 except
for Mr. Allen, who served as a non-employee chairman. Also, Mr. Nathanson was
an officer of certain subsidiaries of Charter prior to their acquisition by
Charter in 1999 and held the title of Vice-Chairman, a non-executive,
non-salaried position in 2003. Mr. Allen is the 100% owner and a director of
Vulcan Inc. and certain of its affiliates, which have employed Mr. Savoy as an
executive officer in the past. Mr. Allen also is a director of and indirectly
owns 98% of TechTV, of which Mr. Wangberg, one of our directors, is a director.
Transactions between Charter and members of the Compensation Committee are
more fully described in   Director Compensation and in Item 13. Certain
Relationships and Related Transactions  Other Miscellaneous Relationships. 89




---



##### 



During 2003, (1) none of the executive officers of Charter served on the
compensation committee of any other company that has an executive officer
currently serving on the board of directors, Compensation Committee or Option
Plan Committee of Charter and (2) none of the executive officers of Charter
served as a director of another entity, one of whose executive officers served
on the Compensation Committee or Option Plan Committee of Charter. Section 16(a) Beneficial Ownership Reporting Compliance Section 16 of the Exchange Act requires our directors and certain of our
officers, and persons who own more than 10% of our common stock, to file
initial reports of ownership and reports of changes in ownership with the SEC.
Such persons are required by SEC regulation to furnish us with copies of all
Section 16(a) forms they file. Based solely on our review of the copies of
such forms furnished to us and written representations from these officers and
directors, we believe that all Section 16(a) filing requirements were met
during the year ended December 31, 2003. Code of Ethics In January 2003, we adopted a Code of Conduct that constitutes a Code of Ethics
within the meaning of federal securities regulations for our employees,
including all executive officers, and established a hotline and website for
reporting alleged violations of the code of conduct, established procedures for
processing complaints and implemented educational programs to inform our
employees regarding the Code of Conduct. A copy of our Code of Conduct is
attached as Exhibit 14.1 to this annual report. 90




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##### 



Item 11.Executive Compensation. Summary Compensation Table The following table sets forth information regarding the compensation to those
executive officers listed below for services rendered for the fiscal years
ended December 31, 2001, 2002 and 2003. These officers consist of the Chief
Executive Officer, each of the other four most highly compensated executive
officers as of December 31, 2003, and one other highly compensated executive
officer who served during 2003 but was not an executive officer on December 31,
2003. Pursuant to a mutual services agreement, each of Charter and Charter
Holdco, leases its personnel and provides services to the other, including the
knowledge and expertise of their respective officers, that are reasonably
requested to manage Charter Holdco, Charter Holdings and the cable systems
owned by their subsidiaries. See Item 13. Certain Relationships and Related
Transactions  Management and Consulting Agreements. Long-TermAnnual Compensation
    
    Compensation AwardYear
    
    
    
    
    
    
    
    
    
    Other
    
    Restricted
    
    Securities
    
    All OtherEnded
    
    
    
    
    
    
    
    
    
    Annual
    
    Stock
    
    Underlying
    
    CompensationName and Principal Position
    
    Dec. 31
    
    Salary ($)
    
    Bonus ($)(1)
    
    Compensation ($)
    
    Awards ($)(2)
    
    Options (#)
    
    ($)(3)Carl E.
Vogel (4)
    
    
    2003
    
    
    
    1,000,000
    
    
    
    150,000
    
    
    
    30,345
    (14)
    
    
    
    
    
    
    750,000
    
    
    
    12,639
    (16)President
and Chief
    
    
    2002
    
    
    
    980,769
    
    
    
    330,000
    (9)
    
    
    214,961
    (14)
    
    
    
    
    
    
    1,000,000
    
    
    
    10,255
    (16)Executive Officer
    
    
    2001
    
    
    
    207,692
    
    
    
    546,000
    (9)
    
    
    
    
    
    
    513,000
    
    
    
    3,400,000
    
    
    
    8,996
    (16)Margaret A. Bellville (5)
    
    
    2003
    
    
    
    581,730
    
    
    
    203,125
    
    
    
    30,810
    (15)
    
    
    
    
    
    
    
    
    
    
    109,139
    (17)Executive Vice President,
    
    
    2002
    
    
    
    9,615
    
    
    
    150,000
    (10)
    
    
    
    
    
    
    
    
    
    
    500,000Chief Operating OfficerSteven A. Schumm
    
    
    2003
    
    
    
    448,077
    
    
    
    45,000
    
    
    
    
    
    
    
    
    
    
    
    250,000
    
    
    
    9,889Executive Vice President,
    
    
    2002
    
    
    
    436,058
    
    
    
    588,000
    (11)
    
    
    
    
    
    
    
    
    
    
    300,000
    
    
    
    5,255Chief Administrative
    
    
    2001
    
    
    
    435,000
    
    
    
    402,000
    (11)
    
    
    
    
    
    
    
    
    
    
    165,000
    
    
    
    5,250OfficerCurtis S. Shaw (6)
    
    
    2003
    
    
    
    275,782
    
    
    
    37,500
    
    
    
    
    
    
    
    
    
    
    
    250,000
    
    
    
    9,411
    (18)Executive Vice President,
    
    
    2002
    
    
    
    249,711
    
    
    
    281,500
    (12)
    
    
    
    
    
    
    
    
    
    
    100,000
    
    
    
    3,096General Counsel and
    
    
    2001
    
    
    
    245,000
    
    
    
    236,000
    (12)
    
    
    
    
    
    
    
    
    
    
    149,000
    
    
    
    5,250SecretaryWayne H. Davis (7)
    
    
    2003
    
    
    
    212,885
    
    
    
    47,500
    
    
    
    
    
    
    
    
    
    
    
    225,000
    
    
    
    581
    (19)Senior Vice President,
Engineering and Technical
OperationsStephen E. Silva (8)
    
    
    2003
    
    
    
    213,005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    134,345
    (20)Former Executive
    
    
    2002
    
    
    
    294,231
    
    
    
    196,000
    (13)
    
    
    
    
    
    
    
    
    
    
    150,000
    
    
    
    5,255Vice President
    
    
    2001
    
    
    
    235,385
    
    
    
    380,000
    (13)
    
    
    
    
    
    
    347,760
    
    
    
    290,000
    
    
    
    5,250Corporate Development and
Chief Technology Officer
  (1)
    
    Includes senior management bonuses for the year 2003 under the 2003 senior management incentive plan. Mr. Vogels and Ms. Bellvilles bonuses are determined in
accordance with the terms of their respective employment agreements. The bonus amounts for Messrs. Vogel and Silva for 2001 include the value of the vested portion
of grants of restricted stock during 2001 under the Charter Communications 2001 Stock Incentive Plan, calculated based on the fair market values of the vested shares
on the grant date, which pursuant to the terms of the plan is the average of the high and low trading price on the grant date. These restricted stock grants made in
2001 were immediately vested as to twenty-five percent (25%) of the shares, with the remaining shares vesting in 36 equal monthly installments commencing
approximately 15 months from the grant date. Also, where indicated in the footnotes below, the bonuses for 2002 and 2001 include stay bonuses in the form of
principal and interest forgiven under the employees promissory note. In 2002, all the remaining principal and accrued interest on these notes was forgiven as
provided by the terms of the notes, so that at December 31, 2002, these notes were no longer outstanding.(2)
    
    Includes the grants of Charter restricted stock made during 2001 under the Charter Communications 2001 Stock Incentive Plan, calculated based on the closing market
price of the vested shares on the grant date. The total grant amounts, including both vested and unvested portions, were as follows: (i) Carl E. Vogel, 50,000 shares
as of October 8, 2001 and (ii) Stephen E. Silva, 36,000 shares as of October 18, 2001. The 91




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##### 



restricted shares were immediately vested as to twenty-five percent (25%)
of the shares, with the remaining shares vesting in 36 equal monthly installments commencing approximately 15 months from the grant date. Pursuant to the terms of
these employees restricted stock agreement, each is entitled to any cash and/or stock dividends on the unvested restricted shares. The value as of the date of grant
based on the closing market price of those shares that were vested immediately is disclosed in the Bonus column of the table. At December 31, 2003, based on a per
share closing market price of $4.02 for Charter Class A common stock, the total number (and value) of Mr. Vogels outstanding unvested restricted stock was 23,959
shares ($96,315). Mr. Silvas shares of unvested restricted stock were cancelled upon his resignation, effective July 1, 2003.(3)
    
    Except as noted for Mr. Vogel, Ms. Bellville, Mr. Shaw, Mr. Davis and Mr. Silva in notes 16, 17, 18, 19 and 20 below respectively, these amounts consist of matching
contributions under Charters 401(k) plan. The 2002 amounts also include premiums for supplemental life insurance available to executives, and the 2003 amounts
include long-term disability available to executives.(4)
    
    Mr. Vogel became the Chief Executive Officer of Charter in October 2001.(5)
    
    Ms. Bellville became the Chief Operating Officer of Charter in December 2002.(6)
    
    Mr. Shaw was promoted to Executive Vice President in October 2003.(7)
    
    Mr. Davis was promoted to Senior Vice President, Engineering and Technical Operations in March 2003.(8)
    
    Mr. Silva terminated his employment, effective July 1, 2003. See    Employment Arrangements for additional information.(9)
    
    Includes: (i) for 2001, $171,000, representing the value based on the fair market value on October 8, 2001, the original grant date, of 12,500 shares of Charter Class
A common stock, the vested portion of Mr. Vogels restricted stock grant; (ii) for 2001, a one-time signing bonus of $250,000; and (iii) $330,000 and $125,000 awarded
as a bonus for services performed in 2002 and 2001, respectively.(10)
    
    Includes a one-time signing bonus of $150,000 pursuant to an employment agreement.(11)
    
    Includes a stay bonus representing the principal and interest forgiven under employees promissory note, amounting to $363,000 and $342,000, respectively, for 2002
and 2001; and $225,000 and $60,000 awarded as a bonus for services performed in 2002 and 2001, respectively.(12)
    
    Includes a stay bonus representing the principal and interest forgiven under employees promissory note, amounting to $181,500 and $171,000, respectively, for 2002
and 2001; and $100,000 and $65,000 awarded as a bonus for services performed in 2002 and 2001, respectively.(13)
    
    Includes: (i) $116,000 for 2001, representing the value based on the fair market value on October 18, 2001, the original grant date, of 9,000 shares of Charter Class
A common stock, the vested portion of Mr. Silvas restricted stock grant; (ii) a stay bonus representing the principal and interest forgiven under employees
promissory note, amounting to $121,000 and $114,000, respectively for 2002 and 2001; and (iii) $75,000 and $150,000 awarded as a bonus for services performed in 2002
and 2001, respectively.(14)
    
    Amount attributed to personal use of the corporate airplane in 2003 and $100,000 attributed to personal use and commuting in the corporate airplane in 2002 and
$114,961 for purchase of a car in 2002.(15)
    
    Includes $26,010 attributed to personal use of the corporate airplane and $4,800 for car allowance.(16)
    
    Includes (i) for 2003, $2,639 paid as premium for long-term disability available for executives and $10,000 as reimbursement for tax advisory services; (ii) for 2002,
$255 paid as premiums for supplemental life insurance available for executives and $10,000 as reimbursement for tax advisory services; and (iii) for 2001, $7,500 as
reimbursement for legal expenses and $1,496 for COBRA expenses.(17)
    
    Includes for 2003, $2,955 paid as premium for long-term disability insurance available to executives, $5,000 as reimbursement for tax advisory services, $7,500 for
legal services and $93,684 paid in relation to relocation expenses. 92




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##### 



(18)
    
    Includes for 2003, $2,287 attributed to personal use of the corporate airplane.(19)
    
    Includes for 2003, $581 attributed to personal use of the corporate airplane.(20)
    
    Includes for 2003, $128,769 paid in severance, $5,000 paid in matching contributions under Charter 401(k) plan, $576 paid as premium for long-term disability
insurance available to executives. 2003 Aggregated Option Exercises and 2003 Option Value Table The following table sets forth, for the individuals named in the Summary
Compensation Table, (i) information concerning options exercised during 2003,
(ii) the number of shares of Charter Class A common stock underlying
unexercised options at year-end 2003, and (iii) the value of unexercised
in-the-money options (i.e., the positive spread between the exercise price of
outstanding options and the market value of Charter Class A common stock) on
December 31, 2003. Number of SecuritiesUnderlying
    
    Value of UnexercisedUnexercised Options at
    
    In-the-Money Options atShares Acquired on
    
    Value
    
    December 31, 2003 (#)(1)
    
    December 31, 2003 ($)(2)Name
    
    Exercise (#)
    
    Realized ($)
    
    Exercisable
    
    Unexercisable
    
    Exercisable
    
    UnexercisableCarl E. Vogel
    
    
    
    
    
    
    
    
    
    
    1,970,833
    
    
    
    3,179,167
    
    
    
    200,000
    
    
    
    800,000Margaret A. Bellville
    
    
    
    
    
    
    
    
    
    
    250,000
    
    
    
    250,000
    
    
    
    250,000
    
    
    
    250,000Steven A. Schumm
    
    
    
    
    
    
    
    
    
    
    912,136
    
    
    
    585,545
    
    
    
    60,000
    
    
    
    240,000Curtis S. Shaw
    
    
    
    
    
    
    
    
    
    
    310,332
    
    
    
    413,668
    
    
    
    20,000
    
    
    
    80,000Wayne H. Davis
    
    
    
    
    
    
    
    
    
    
    20,000
    
    
    
    295,000
    
    
    
    10,000
    
    
    
    265,000Stephen E. Silva
    
    
    
    
    
    
    
    
    
    
    367,916
    
    
    
    277,084
    
    
    
    30,000
    
    
    
    120,000
   (1)
    
    Options granted prior to 2001 and under the 1999 Charter Communications Option Plan, when vested, are
exercisable for membership units of Charter Holdco, which are immediately exchanged on a one-for-one basis
for shares of Charter Class A common stock upon exercise of the option. Options granted under the 2001 Stock
Incentive Plan and after 2000 are exercisable for shares of Charter Class A common stock.(2)
    
    Based on a per share market value (closing price) of $4.02 as of December 31, 2003, for Charter Class A
common stock. 2003 Option Grants The following table shows individual grants of options made to individuals
named in the Summary Compensation Table during 2003. All such grants were made
under the 2001 Stock Incentive Plan and the exercise price was based upon the
fair market value of Charters Class A common stock. Number of
    
    % of
    
    
    
    
    
    
    
    
    
    Potential Realizable Value atSecurities
    
    Total
    
    
    
    
    
    
    
    
    
    Assumed Annual Rate ofUnderlying
    
    Options
    
    
    
    
    
    
    
    
    
    Stock Price AppreciationOptions
    
    Granted to
    
    Exercise
    
    
    
    
    
    For Option Term (2)Granted
    
    Employees
    
    Price
    
    ExpirationName
    
    (#)(1)
    
    in 2003
    
    ($/Sh)
    
    Date
    
    5% ($)
    
    10% ($)Carl E. Vogel
    
    
    750,000
    
    
    
    9.39
    %
    
    
    4.30
    
    
    
    10/28/13
    
    
    
    2,025,827
    
    
    
    5,133,843Margaret A. Bellville
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Steven A. Schumm
    
    
    250,000
    
    
    
    3.13
    %
    
    
    4.13
    
    
    
    12/19/13
    
    
    
    648,548
    
    
    
    1,643,547Curtis S. Shaw
    
    
    250,000
    
    
    
    3.13
    %
    
    
    4.30
    
    
    
    10/28/13
    
    
    
    675,276
    
    
    
    1,711,281Wayne H. Davis
    
    
    225,000
    
    
    
    2.82
    %
    
    
    1.60
    
    
    
    04/29/13
    
    
    
    225,695
    
    
    
    571,954Stephen E. Silva (3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
   (1)
    
    Options are transferable under limited conditions, primarily to accommodate estate planning purposes. These options
generally vest in four equal installments commencing on the first anniversary following the grant date. 93




---



##### 



(2)
    
    This column shows the hypothetical gains on the options granted based on assumed annual compound price appreciation of
5% and 10% over the full ten-year term of the options. The assumed rates of 5% and 10% appreciation are mandated by the
SEC and do not represent our estimate or projection of future prices.(3)
    
    Mr. Silva terminated employment in 2003 and received no options in 2003. Option/Stock Incentive Plans The Plans.Stock options, restricted stock and other incentive compensation
are granted pursuant to two plans  the 1999 Charter Communications Option
Plan and the 2001 Stock Incentive Plan. The 1999 Charter Communications Option
Plan provided for the grant of options to purchase membership units in Charter
Holdco to current and prospective employees and consultants of Charter Holdco
and its affiliates and current and prospective non-employee directors of
Charter. Membership units received upon exercise of any options are
immediately exchanged for shares of Charter Class A common stock on a
one-for-one basis. The 2001 Stock Incentive Plan provides for the grant of non-qualified stock
options, stock appreciation rights, dividend equivalent rights, performance
units and performance shares, share awards, phantom stock and/or shares of
restricted stock (not to exceed 3,000,000 shares) as each term is defined in
the 2001 Stock Incentive Plan. Employees, officers, consultants and directors
of Charter and its subsidiaries and affiliates are eligible to receive grants
under the 2001 Stock Incentive Plan. Generally, options expire 10 years from
the grant date. Unless sooner terminated by the board of directors of Charter,
the 2001 Stock Incentive Plan will terminate on February 12, 2011, and no
option or award can be granted thereafter. Together, the plans allow for the issuance of up to a total of 90,000,000
shares of Charter Class A common stock (or units exchangeable for Charter Class
A common stock). Any shares covered by options that are terminated under the
1999 Charter Communications Option Plan will be transferred to the 2001 Stock
Incentive Plan, and no new options will be granted under the 1999 Charter
Communications Option Plan. At December 31, 2003, 460,572 shares had been
issued under the plans upon exercise of options, 91,978 had been issued upon
vesting of restricted stock granted under the plans, and 154,562 shares were
subject to future vesting under restricted stock agreements. Of the remaining
89,292,888 shares covered by the plans, as of December 31, 2003, 47,882,365
were subject to outstanding options (22,860,936 of which were vested) and
41,410,523 remain eligible for future grant. In July 2003, Charter amended the plans to authorize the repricing of options,
which could include reducing the exercise price per share of any outstanding
option, permitting the cancellation, forfeiture or tender of outstanding
options in exchange for other awards or for new options with a lower exercise
price per share, or repricing or replacing any outstanding options by any other
method. In January 2004, the Compensation Committee of the board of directors of
Charter approved Charters Long-Term Incentive Program (LTIP), which is a
program administered under the 2001 Stock Incentive Plan. Employees of Charter
and its subsidiaries whose pay classifications exceed a certain level are
eligible to receive stock options, and more senior level employees are eligible
to receive stock options and performance shares. Under the LTIP, the stock
options vest 25% on each of the first four anniversaries of the date of grant.
The performance shares are earned on the third anniversary of the grant date,
conditional upon Charters performance against financial performance measures
and customer growth targets established by Charters management and approved by
its board of directors as of the time of the award. No awards were made under
the LTIP in 2003. The Option Plan Committee of the board of directors of Charter administers and
authorizes grants and awards under the 2001 Stock Incentive Plan to any
eligible individuals. The Option Plan Committee will determine the terms of
each stock option grant, restricted stock grant or other award at the time of
grant, including the exercise price to be paid for the shares, the vesting
schedule for each option, the price, if any, to be paid by the grantee for the
restricted stock, the restrictions placed on the shares, and the time or times
when the restrictions will lapse. The Option Plan Committee also has the power
to accelerate the vesting of any grant or extend the term thereof. Upon a change of control of Charter, the Option Plan Committee can shorten the
exercise period of any option, have the survivor or successor entity assume the
options with appropriate adjustments, or cancel options and pay out in cash.
If an optionees or grantees employment is terminated without cause or for
good reason following a change in control (as those terms are defined in
the plans), unless otherwise provided in an agreement, with respect to such
optionees or grantees awards under the plans, all outstanding options will
become immediately and 94




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##### 



fully exercisable, all outstanding stock appreciation rights will become
immediately and fully exercisable, the restrictions on the outstanding
restricted stock will lapse, and all of the outstanding performance shares will
vest and the restrictions on all of the outstanding performance shares will
lapse as if all performance objectives had been satisfied at the maximum level. February 2004 Option Exchange.In January 2004, Charter commenced an option
exchange program in which employees of Charter and its subsidiaries were
offered the right to exchange all stock options (vested and unvested) under the
1999 Charter Communications Option Plan and 2001 Stock Incentive Plan that had
an exercise price over $10 per share for shares of restricted Charter Class A
common stock or, in some instances, cash. Based on a sliding exchange ratio,
which varied depending on the exercise price of an employees outstanding
options, if an employee would have received more than 400 shares of restricted
stock in exchange for tendered options, Charter issued to that employee shares
of restricted stock in the exchange. If, based on the exchange ratios, an
employee would have received 400 or fewer shares of restricted stock in
exchange for tendered options, Charter instead paid to the employee cash in an
amount equal to the number of shares the employee would have received
multiplied by $5.00. The offer applied to options to purchase a total of
22,929,573 shares of Charter Class A common stock, or approximately 48% of
Charters 47,882,365 total options (vested and unvested) issued and outstanding
as of December 31, 2003. Participation by employees was voluntary. Those
members of Charters board of directors who were not also employees of Charter
or any of its subsidiaries were not eligible to participate in the exchange
offer. In the closing of the exchange offer on February 20, 2004, Charter accepted for
cancellation eligible options to purchase approximately 18,137,664 shares of
its Class A common stock. In exchange, Charter granted approximately 1,966,686
shares of restricted stock, including 460,777 performance shares to eligible
employees of the rank of senior vice president and above, and paid a total cash
amount of approximately $4 million (which amount includes applicable
withholding taxes) to those employees who received cash rather than shares of
restricted stock. The grants of restricted stock will be effective as of
February 25, 2004. Employees tendered approximately 79% of the options
eligible to be exchanged under the program. Based on the results above, the cost to Charter of the Stock Option Exchange
Program was approximately $12 million, with a 2004 cash compensation expense of
approximately $4 million and a non-cash compensation expense of approximately
$8 million to be expensed ratably over the three-year vesting period of the
restricted stock in the exchange. Employment Arrangements Employment Agreements.Mr. Vogel is currently employed by Charter under an
employment agreement that was signed in 2001 and terminates on December 31,
2005. Ms. Bellville is employed by Charter under an employment agreement that
terminates in September 2007. Of the other individuals named in the Summary
Compensation Table, Mr. Silva is no longer an employee of Charter, but served
in 2003 under the terms of an employment agreement signed in 2001. Mr. Vogel is employed as President and Chief Executive Officer, earning a base
annual salary of $1,000,000 and is eligible to receive an annual bonus of up to
$500,000, a portion based on personal performance goals and a portion based on
company performance measured against criteria established by the Board with Mr.
Vogel. Pursuant to his employment agreement, Mr. Vogel was granted 3,400,000
options to purchase Charter Class A common stock and 50,000 shares of
restricted stock under the Charter Communications, Inc. 2001 Stock Incentive
Plan. Both the options and restricted shares vested 25% on the grant date,
with the remainder vesting in 36 equal monthly installments beginning December
2002. Mr. Vogels agreement provides that if Mr. Vogel is terminated without
cause or by Mr. Vogel for good reason (including, in the event Mr. Vogel is
required to report, directly or indirectly, to persons other than the Board),
he is entitled to his aggregate base salary due during the remainder of the
term and full prorated benefits for the year in which termination occurs. Mr.
Vogels agreement includes a covenant not to compete for the balance of the
initial term or any renewal term, but no more than one year in the event of
termination without cause or by employee with good reason. Mr. Vogels
agreement entitles him to participate in any disability insurance, pensions or
other benefit plans afforded to employees generally or to executives of
Charter, including Charters Long-Term Incentive Program. Charter agreed to
reimburse Mr. Vogel annually for the cost of term life insurance in the amount
of $5 million, although he declined this reimbursement in 2001, 2002 and 2003.
Mr. Vogel is entitled to reimbursement of fees and dues for his membership in a
country club of his choice, which he declined in 2001, 2002 and 2003 and
reimbursement for up to $10,000 per year for tax, legal and financial planning
services. His agreement also provides for a car and associated expenses for
Mr. Vogels use. Mr. Vogels agreement provides for automatic one-year
renewals and also provides that Charter will cause him to be elected to the
Charter board of directors without any additional compensation. 95




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##### 



Ms. Bellville is currently employed by Charter under an employment agreement
that was entered into as of April 27, 2003 and terminates on September 1, 2007.
Her annual base salary is $625,000 and she is eligible to receive an annual
bonus in an amount to be determined by the board of directors of Charter, with
a contractual minimum for 2003 of $203,125. Commencing in 2004, Ms. Bellville
is eligible to receive a target annual bonus equal to 100% of her base salary
for the applicable year at the discretion of the board of directors, 50% to be
based on personal performance goals and 50% to be based on overall company
performance. Under a prior offer letter dated December 3, 2002, Ms. Bellville
was granted 500,000 options to purchase share of Charter Class A common stock,
which vested 25% on the date of the grant (December 9, 2002), with the balance
to vest in 36 equal installments commencing January 2003. Ms. Bellvilles
employment agreement provides that if she is terminated by Charter without
cause or if she terminates the agreement for good reason (including due to a
change in control of Charter or if Ms. Bellville is required to report,
directly or indirectly, to persons other than the Chief Executive Officer),
Charter will pay Ms. Bellville an amount equal to the aggregate base salary due
to Ms. Bellville during the remainder of the term, or renewal term and a full
prorated bonus for the year in which the termination occurs, within thirty days
of termination. Ms. Bellvilles agreement includes a covenant not to compete
for the balance of the initial term or any renewal term, but no more than one
year, in the event of termination without cause or by employee with good
reason. Her agreement further provides that she is entitled to participate in
any disability insurance, pension or other benefit plan afforded to employees
generally or to executives of Charter, including Charters Long-Term Incentive
Program. Ms. Bellville is entitled to a monthly car allowance and
reimbursement for all business expenses associated with the use of such car.
Ms. Bellvilles agreement provides that she is entitled to the reimbursement of
dues for her membership in a country club of her choice, and reimbursement for
up to $5,000 per year for tax, legal and financial planning services. Her base
salary may be increased at the discretion of the board of directors of Charter.
Ms. Bellvilles agreement provides for automatic one-year renewals. Mr. Silva was employed as Executive Vice President  Corporate Development and
Chief Technology Officer. Until his resignation in July 2003, he received a
base salary of $300,000 and was eligible to receive an annual bonus of up to
50% of base, according to Charters Executive Bonus Policy in accordance with
past practices, and additional bonuses at the discretion of the Board.
Pursuant to his employment agreement, Mr. Silva received 36,000 shares of
restricted stock under the Charter Communications, Inc. 2001 Stock Incentive
Plan. Under his agreement, Mr. Silvas restricted shares vested 25% on the
grant date, with the remainder to vest in 36 equal monthly installments
beginning December 2002. Mr. Silvas agreement provided that he was eligible
for any disability insurance, pension or other benefit plan offered to
employees generally or to executives of Charter. Mr. Silvas agreement also
provided that, to the extent Charter does not provide life insurance in an
amount at least equal to the unpaid amount of the employees base salary
through the end of the term of his agreement, Charter would continue to pay his
estate an amount equal to his base salary in installments through the end of
the term. In addition to the indemnification provisions which apply to all employees
under Charters bylaws, each of these agreements provides that Charter will
indemnify and hold harmless each employee to the maximum extent permitted by
law from and against any claims, damages, liabilities, losses, costs or
expenses in connection with or arising out of the performance by the applicable
employee of his or her duties. Each of the above agreements also contains
confidentiality and non-solicitation provisions. Mr. Chang and Mr. Huseby are employed by Charter under the terms contained in
offer letters effective December 2, 2003 and January 5, 2004, respectively,
each providing for an annual base salary of $400,000 and eligibility for an
annual incentive target of 100% of the base salary (based on a combination of
personal performance goals and overall company performance). Mr. Chang and Mr.
Huseby are also eligible to participate in the Charter Communications 2001
Stock Incentive Plan. Under this plan, Mr. Chang and Mr. Huseby were each
granted 350,000 options to purchase Class A common stock of Charter in December
and January, respectively, and 50,000 restricted shares on December 9, 2003 and
January 5, 2004, respectively. Mr. Chang and Mr. Huseby are also entitled to
participate in Charters Long-Term Incentive Program. Mr. Husebys and Mr.
Changs agreements provide that one half of each of their unvested restricted
shares would immediately vest, and one half of each of their unvested options
of the initial option grant would vest if (1) there is a change in Charters
current Chief Executive Officer, (2) there is a change in reporting
relationship to anyone other than the Chief Executive Officer, (3) there is a
requirement that the employee relocate, (4) there is a change of control of
Charter or (5) if terminated without cause. In addition, Mr. Chang and Mr.
Huseby would be entitled to eighteen months of full severance benefits at their
current compensation rate, plus the pro rata portion of their bonus amounts
within thirty days after termination because of any of these events. 96




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##### 



Limitation of Directors Liability and Indemnification Matters Charters certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. The Delaware General Corporation Law
provides that a corporation may eliminate or limit the personal liability of a
director for monetary damages for breach of fiduciary duty as a director,
except for liability for: (1) any breach of the directors duty of loyalty to the corporation and its
shareholders; (2) acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law; (3) unlawful payments of dividends or unlawful stock purchases or redemptions;
or (4) any transaction from which the director derived an improper personal
benefit. Charters bylaws provide that it will indemnify all persons whom it may
indemnify pursuant thereto to the fullest extent permitted by law. Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers or persons controlling Charter pursuant to
the foregoing provisions, Charter has been informed that in the opinion of the
SEC, such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable. Charter has reimbursed certain of its current and former directors, officers
and employees in connection with their defense of certain legal actions. See
Item 13. Certain Relationships and Related Transactions  Other Miscellaneous
Relationships  Indemnification Advances. 
 Item 12.Security Ownership of Certain Beneficial Owners and Management. Beneficial Ownership of Securities The following table sets forth certain information regarding beneficial
ownership of Charters Class A common stock as of February 29, 2004 by:  
    
    each person serving as a director of Charter;
    
    the current chief executive officer and the other individuals named in the
Summary Compensation Table;
    
    all persons serving as directors and officers of Charter as a group; and
    
    each person known by us to own beneficially 5% or more of the
outstanding Charter Class A common stock. With respect to the percentage of voting power set forth in the following
table:  
    
    each holder of Charter Class A common stock is entitled to one vote
per share; and
    
    each holder of Charter Class B common stock is entitled to (i) ten
votes per share of Charter Class B common stock held by such holder and
its affiliates and (ii) ten votes per share of Charter Class B Common
Stock for which membership units in Charter Holdco held by such holder
and its affiliates are exchangeable. 97




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##### 



Class ASharesUnvested
    
    Receivable
    
    
    
    
    
    
    
    
    
    Class BNumber of
    
    Restricted
    
    on Exercise
    
    Class A
    
    
    
    
    
    SharesClass A
    
    Class A
    
    of Vested
    
    Shares
    
    
    
    
    
    IssuableShares
    
    Shares
    
    Options or
    
    Receivable on
    
    Number of
    
    upon
    
    
    
    
    
    % of(Voting and
    
    (Voting
    
    Other
    
    Exercise of
    
    Class B
    
    Exchange or
    
    % of
    
    VotingName and Address of
    
    Investment
    
    Power Only)
    
    Convertible
    
    Convertible
    
    Shares
    
    Conversion of
    
    Equity
    
    PowerBeneficial Owner
    
    Power)(1)
    
    (2)
    
    Securities (3)
    
    Sr. Notes
    
    Owned
    
    Units (4)
    
    (4)(5)
    
    (5)(6)Paul G. Allen (7)
    
    
    29,110,640
    
    
    
    9,882
    
    
    
    10,000
    
    
    
    
    
    
    
    50,000
    
    
    
    339,132,031
    
    
    
    58.1
    %
    
    
    92.8
    %Charter Investment, Inc.(8)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    222,818,858
    
    
    
    43.0
    %
    
    
    *Vulcan Cable III, Inc. (9)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    116,313,173
    
    
    
    28.3
    %
    
    
    *Carl E. Vogel
    
    
    80,208
    
    
    
    699,792
    
    
    
    200,000
    
    
    
    34,786
    
    
    
    
    
    
    
    
    
    
    
    *
    
    
    
    *John H. Tory
    
    
    4,300
    
    
    
    9,882
    
    
    
    40,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    *
    
    
    
    *Marc B. Nathanson
    
    
    370,000
    
    
    
    9,882
    
    
    
    50,000
    
    
    
    46,382
    
    
    
    
    
    
    
    
    
    
    
    *
    
    
    
    *Charles M. Lillis (10)
    
    
    
    
    
    
    11,429
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    *
    
    
    
    *David C. Merritt
    
    
    
    
    
    
    9,882
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    *
    
    
    
    *Nancy B. Peretsman
    
    
    60,000
    
    
    
    9,882
    
    
    
    50,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    *
    
    
    
    *William D. Savoy
    
    
    
    
    
    
    9,882
    
    
    
    50,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    *
    
    
    
    *Larry W. Wangberg
    
    
    3,000
    
    
    
    9,882
    
    
    
    40,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    *
    
    
    
    *Margaret A. Bellville
    
    
    
    
    
    
    
    
    
    
    291,666Curtis S. Shaw
    
    
    5,000
    
    
    
    
    
    
    
    331,583Steven A. Schumm (11)
    
    
    12,440
    
    
    
    108,768
    
    
    
    60,000
    
    
    
    4,638
    
    
    
    
    
    
    
    
    
    
    
    *
    
    
    
    *Wayne H. Davis
    
    
    250
    
    
    
    8,000
    
    
    
    66,250
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    *
    
    
    
    *All current directors and
executive officers as a
group (18 persons)
    
    
    29,669,338
    
    
    
    1,014,377
    
    
    
    1,261,999
    
    
    
    88,125
    
    
    
    50,000
    
    
    
    339,132,031
    
    
    
    58.3
    %
    
    
    92.8
    %Stephen E. Silva (12)
    
    
    
    
    
    
    
    
    
    
    395,833
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    *
    
    
    
    *Mark Cuban (13)
    
    
    19,000,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6.4
    %
    
    
    *Wallace R. Weitz &
Company (14)
    
    
    34,100,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11.6
    %
    
    
    *UBS Americas, Inc. (15)
    
    
    19,520,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6.6
    %
    
    
    *
   *
    
    Less than 1%.  (1)
    
    Includes shares for which the named person has:  
    
    sole voting and investment power; or
    
    shared voting and investment power with a spouse.  Does not include shares that may be acquired through exercise of options.(2)
    
    Includes unvested shares of restricted stock issued under the 2001 Stock
Incentive Plan (including those issued in the February 2004 option
exchange for those eligible employees who elected to participate), as to
which the applicable director or employee has sole voting power but not
investment power.(3)
    
    Includes shares of Charter Class A common stock issuable upon exercise of
options that have vested or will vest on or before April 29, 2004 under
the 1999 Charter Communications Option Plan and the 2001 Stock Incentive
Plan.(4)
    
    Beneficial ownership is determined in accordance with Rule 13d-3 under
the Exchange Act. The beneficial owners at February 29, 2004 of Charter
Class B common stock, Charter Holdco membership units and convertible
senior notes of Charter are deemed to be beneficial owners of an equal
number of shares of Charter Class A common stock because such holdings are
either convertible into Charter Class A shares (in the case of Charter
Class B shares and convertible senior notes) or exchangeable (directly or
indirectly) for Charter Class A shares (in the case of the membership
units) on a one-for-one basis. Unless otherwise noted, the named holders
have sole investment and voting power with respect to the shares listed as
beneficially owned. 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 membership interests following the
consummation of the Bresnan put transaction on June 6, 2003. See footnote
(7) below and see Item 13. Certain Relationships and Related Transactions
  Transactions Arising Out of Our Organizational Structure and Mr.
Allens Investment in Charter Communications, Inc. and Its Subsidiaries 
Equity Put Rights  CC VIII. 98




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##### 



(5)
    
    The calculation of this percentage assumes for each person that:  
    
    295,136,831 shares of Charter Class A common stock are issued and
outstanding as of February 29, 2004;
    
    50,000 shares of Charter Class B common stock held by Mr. Allen
have been converted into shares of Charter Class A common stock;
    
    the acquisition by such person of all shares of Charter Class A
common stock that such person or affiliates of such person has the
right to acquire upon exchange of membership units in subsidiaries or
conversion of Series A Convertible Redeemable Preferred Stock or 5.75%
or 4.75% convertible senior notes;
    
    the acquisition by such person of all shares that may be acquired
upon exercise of options to purchase shares or exchangeable membership
units that have vested or will vest by February 29, 2004; and
    
    that none of the other listed persons or entities has received any
shares of Charter Class A common stock that are issuable to any of such
persons pursuant to the exercise of options or otherwise.A person is deemed to have the right to acquire shares of Charter Class A
common stock with respect to options vested under the 1999 Charter
Communications Option Plan. When vested, these options are exercisable
for membership units of Charter Holdco, which are immediately exchanged
on a one-for-one basis for shares of Charter Class A common stock. A
person is also deemed to have the right to acquire shares of Charter
Class A common stock issuable upon the exercise of vested options under
the 2001 Stock Incentive Plan.  (6)
    
    The calculation of this percentage assumes that Mr. Allens equity
interests are retained in the form that maximizes voting power (i.e., the
50,000 shares of Charter Class B common stock held by Mr. Allen have not
been converted into shares of Charter Class A common stock; that the
membership units of Charter Holdco owned by each of Vulcan Cable III, Inc.
and Charter Investment, Inc. have not been exchanged for shares of Charter
Class A common stock).(7)
    
    The total listed includes: 
    
    222,818,858 membership units in Charter Holdco held by Charter Investment, Inc.; and
    
    116,313,173 membership units in Charter Holdco held by Vulcan Cable III, Inc.  The listed total excludes 24,273,943 shares of Charter Class A common stock
issuable upon exchange of units of Charter Holdco, which may be issuable to
Charter Investment, Inc. (which is owned by Mr. Allen) as a consequence of
the closing of its acquisition of the membership interests in CC VIII that
were put to Mr. Allen and were purchased by him on June 6, 2003. An issue
has arisen regarding the ultimate ownership of such CC VIII membership
interests following the consummation of such put transaction. See Item 13.
Certain Relationships and Related Transactions  Transactions Arising Out
of Our Organizational Structure and Mr. Allens Investment in Charter
Communications, Inc. and Its Subsidiaries  Equity Put Rights  CC VIII.The address of this person is: 505 Fifth Avenue South, Suite 900, Seattle,
WA 98104.(8)
    
    Includes 222,818,858 membership units in Charter Holdco, which are
exchangeable for shares of Charter Class B common stock on a one-for-one
basis, which are convertible to shares of Charter Class A common stock on
a one-for-one basis. The address of this person is Charter Plaza, 12405
Powerscourt Drive, St. Louis, MO 63131.(9)
    
    Includes 116,313,173 membership units in Charter Holdco, which are
exchangeable for shares of Charter Class B common stock on a one-for-one basis,
which are convertible to shares of Charter Class A common stock on a
one-for-one basis. The address of this person is: 505 Fifth Avenue South,
Suite 900, Seattle, WA 98104.(10)
    
    Mr. Lillis was granted 11,429 shares of restricted Charter Class A common
stock on October 3, 2003, which shares will vest fully on the one year
anniversary of the grant date.(11)
    
    Includes 1,000 shares for which Mr. Schumm has shared investment and
voting power.(12)
    
    Under the terms of Mr. Silvas severance, his options will continue to
vest until October 15, 2004, and all vested options will be exercisable
until 60 days thereafter. 99




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##### 



(13)
    
    The equity ownership reported in this table is based upon holders Form
13G filed with the SEC May 19, 2003. The address of this person is: 5424
Deloache, Dallas, Texas 75220.(14)
    
    The equity ownership reported in this table, for both the named holder
and its president and primary owner, Wallace R. Weitz, is based upon
holders Form 13G/A filed with the SEC on January 23, 2004, and reflects
the holders ownership in its capacity as an investment advisor and not
ownership for its own account. The address of this person is: 1125 South
103rd Street, Suite 600, Omaha, Nebraska 68124-6008.(15)
    
    The equity ownership reported in this table is based upon holders Form
13G filed with the SEC February 19, 2004. The address of this person is:
677 Washington Blvd., Stamford, Connecticut 06901. Securities authorized for issuance under equity compensation plans The following information is provided as of December 31, 2003 with respect to
equity compensation plans of Charter: Number of securities
    
    
    
    
    
    Number of securitiesto be issued upon
    
    Weighted average
    
    remaining availableexercise of outstanding
    
    exercise price of
    
    for future issuanceoptions, warrants
    
    outstanding options,
    
    under equityPlan Category
    
    and rights
    
    warrants and rights
    
    compensation plansEquity compensation plans
approved by security holders
    
    
    47,882,365
    (1)
    
    $
    12.48
    
    
    
    41,410,523Equity compensation plans not
approved by security holders
    
    
    186,385
    (2)
    
    $
    20.46
    
    
    
    TOTAL
    
    
    48,068,750
    
    
    $
    12.51
    
    
    
    41,410,523
   (1)
    
    This total does not include 154,562 shares issued pursuant to restricted
stock grants made under our 2001 Stock Incentive Plan, which were subject
to vesting based on continued employment.(2)
    
    Includes shares of Charter Class A common stock to be issued upon
exercise of options granted pursuant to an individual compensation
agreement with a consultant. In addition, in December 2003, subject to
certain conditions, Charter agreed (1) to exchange the 186,385 options
listed above for 18,638 shares of Charter Class A common stock, and (2) to
issue to the holder options to purchase an additional 289,268 shares of
Charter Class A common stock for an exercise price of $3.905 per share. 
 Item 13.Certain Relationships and Related Transactions. The following sets forth certain transactions in which we are involved in which
our or Charters directors, executive officers and affiliates have or may have
a material interest. The transactions fall generally into three broad
categories:  
    
    Transactions in which Mr. Allen has an interest that arise directly
out of Mr. Allens investment in Charter Communications, Inc. and
Charter Communications Holding Company, LLC.A large number of the
transactions described below arise out of Mr. Allens direct and
indirect (through Charter Investment Inc., or the Vulcan entities, each
of which Mr. Allen controls) investment in Charter and its subsidiaries
as well as commitments made as consideration for the investments
themselves.
    
    Transactions with third party providers of products, services and
content in which Mr. Allen has a material interest.Mr. Allen has
numerous investments in the areas of technology and media. We have a
number of commercial relationships with third parties in which Mr.
Allen has an interest.
    
    Other Miscellaneous Transactions.We have a limited number of
transactions in which certain of the officers, directors and principal
shareholders of Charter and its subsidiaries, other than Mr. Allen,
have an interest. 100




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##### 



A number of our debt instruments and those of our subsidiaries require delivery
of fairness opinions for transactions with Mr. Allen or his affiliates
involving more than $50 million. Such fairness opinions have been obtained
whenever required. All of our transactions with Mr. Allen or his affiliates
have been considered for approval either by the board of directors of Charter
or a committee of the board of directors and, in compliance with corporate
governance requirements, all related party transactions are considered by the
Audit Committee comprised entirely of independent directors. All of our
transactions with Mr. Allen or his affiliates have been deemed by the board of
directors of Charter or a committee of the board of directors of Charter to be
in our best interest. Except where noted below, we do not believe that these
transactions present any unusual risks for us that would not be present in any
similar commercial transaction. The chart below summarizes certain information with respect to these
transactions. Additional information regarding these transactions is provided
following the chart. InterestedTransaction
    
    Related Party
    
    Description of TransactionIntercompany Management
Arrangements
    
    Paul G. Allen
    
    Our subsidiaries paid
Charter approximately $84
million for management
services rendered in
2003.Mutual Services Agreement
    
    Paul G. Allen
    
    Charter paid Charter
Holdco $73 million for
services rendered in
2003.Management Agreement
    
    Paul G. Allen
    
    No fees were paid in
2003, although total
management fees payable
to Charter Investment,
Inc., exclusive of
interest, were
approximately $14 million
at December 31, 2003.Tax Provisions of
Charter Holdcos
Operating Agreement
    
    Paul G. Allen
    
    In the 2003, the
operating agreement of
Charter Holdco allocated
certain of our tax losses
to entities controlled by
Paul Allen.Channel Access Agreement
    
    Paul G. Allen
    
    At Vulcan Ventures
request, we will provide
Vulcan Ventures with
exclusive rights for
carriage on eight of our
digital cable channels as
partial consideration for
a prior capital
contribution of $1.3
billion.Equity Put Rights
    
    Paul G. Allen
    
    Certain sellers of cable
systems that we acquired
were granted, or
previously had, the
right, as described
below, to put to Paul
Allen equity in us (in
the case of Rifkin and
Falcon), Charter Holdco
(in the case of Rifkin)
and CC VIII (in the case
of Bresnan) issued to
such sellers in
connection with such
acquisitions.Funding Commitment of
Vulcan Inc.
    
    Paul G. Allen
    
    Pursuant to a commitment
letter dated April 14,
2003, Vulcan Inc., which
is an affiliate of Paul
Allen, agreed to lend,
under certain
circumstances, or cause
an affiliate to lend to
Charter Holdings or any
of its subsidiaries a
total amount of up to
$300 million, which
amount included a
subfacility of up to $100
million for the issuance
of letters of credit. In
November 2003, we
terminated the
commitment. We incurred
expenses to Vulcan Inc.
totaling $5 million in
connection with the
commitment prior to
termination.TechTV Carriage Agreement
    
    Paul G. Allen
William D. Savoy
Larry W. Wangberg
    
    We recorded approximately
$1 million from TechTV
under the affiliation
agreement in 2003 related
to launch incentives as a
reduction of programming
expense and paid TechTV
approximately $80,600.Oxygen Media Corporation
    
    Paul G. Allen
    
    We paid Oxygen Media
approximately $9 million
under
 101




---



##### 



InterestedTransaction
    
    Related Party
    
    Description of TransactionCarriage Agreement
    
    
    
    a Carriage
Agreement in exchange for
programming in 2003. We
recorded approximately $1
million in 2003 from
Oxygen Media related to
launch incentives as a
reduction of programming
expense. We hold warrants
to purchase 2.4 million
shares of Oxygen Media
common stock and received
the rights to receive
unregistered shares of
Oxygen Media common stock
to be issued on or prior
to February 2, 2005 at a
guaranteed fair market
value of $34 million. We
recognized approximately
$9 million as a reduction
of programming expense in
2003, in recognition of
the guaranteed value of
the investment.Portland Trail Blazers
Carriage Agreement
    
    Paul G. Allen
    
    We paid approximately
$135,200 for rights to
carry the cable broadcast
of certain Trail Blazers
basketball games in 2003.Click2learn, Inc.
Software License
Agreement
    
    Paul G. Allen
    
    We paid approximately
$57,100 under a Software
License Agreement in
2003.Digeo, Inc. Broadband
Carriage Agreement
    
    Paul G. Allen
William D. Savoy
Carl E. Vogel
    
    We paid Digeo
approximately $4 million
for customized
development of the
i-channels and the local
content tool kit in 2003.HDNet and HDNet Movies
Network
    
    Mark Cuban
    
    We are party to an
agreement to carry two
around-the-clock, high
definition networks,
HDNet and HDNet Movies.
We paid HDNet and HDNet
Movies approximately
$21,900 in 2003.Office lease agreement
    
    David L. McCall
    
    We paid approximately
$189,200 in 2003 under an
office lease agreement to
a partnership controlled
by Mr. McCall.Construction Services
    
    David L. McCall
    
    In 2003, we paid
approximately $381,300 to
a construction company
controlled by Mr.
McCalls brother and
approximately $373,800 to
a construction company
controlled by Mr.
McCalls son.Lease Arrangements
    
    Marc B. Nathanson
    
    We paid approximately
$16,600 in 2003 to
companies controlled by
Mr. Nathanson under a
warehouse lease
agreement.Enstar Limited
Partnership Systems
Purchase and Management
Services
    
    Charter officers
who were appointed
by a Charter
Subsidiary (as
general partner) to
serve as officers
of Enstar limited
partnerships
    
    We earned approximately
$469,300 in 2003 by
providing management
services to the Enstar
limited partnerships.Indemnification Advances
    
    Current and former
directors and
current and former
officers named in
certain legal
proceedings
    
    We reimbursed certain of
Charters current and
former directors and
executive officers a
total of approximately
$8 million and $3 million
for costs incurred in
connection with certain
litigation matters in
2003 and 2002,
respectively.
 The following sets forth more details regarding the transactions summarized
above. 102




---



##### 



Transactions Arising Out of Our Organizational Structure and Mr. Allens
Investment in Charter and Its Subsidiaries As noted above, a number of our related party transactions arise out of Mr.
Allens investment in Charter and its subsidiaries, including us. Some of
these transactions are with Charter Investment, Inc. and Vulcan Ventures (both
owned 100% by Mr. Allen), Charter (controlled by Mr. Allen) and Charter Holdco
(approximately 46% owned by us and 54% owned by other affiliates of Mr. Allen).
See Item 1. Business  Organizational Chart for more information regarding
the ownership by Mr. Allen and certain of his affiliates. Intercompany Management Arrangements. Charter is a party to management arrangements with Charter Holdco and certain
of its subsidiaries, including us. Under these agreements, Charter provides
management services for the cable systems owned or operated by its
subsidiaries, including us. These management agreements provide for
reimbursement to Charter for all costs and expenses incurred by it attributable
to the ownership and operation of the managed cable systems (referred to as
company expenses), plus an additional management fee to cover additional
costs incurred by Charter that are not in the nature of company expenses (such
as corporate overhead, administration and salary expense). The management
agreements covering the CC VI and CC VII companies limit the management fee
portion payable to Charter to 5% of their respective gross revenues. Under the
arrangement covering all of Charters other operating subsidiaries, there is no
limit on the dollar amount or percentage of revenues payable as management
fees, except for CC VIII, where the operating agreement limits management fees
payable to amounts allowed under the CC VIII Credit Agreement. However, the
total amount paid by Charter Holdco and all of its subsidiaries is limited to
the amount necessary to reimburse Charter for all of its expenses, costs,
losses, liabilities and damages paid or incurred by it in connection with the
performance of its services under the various management agreements and in
connection with its corporate overhead, administration, salary expense and
similar items. The expenses subject to reimbursement include fees Charter is
obligated to pay under the mutual services agreement with Charter Investment,
Inc. Payment of management fees by Charters operating subsidiaries is subject
to certain restrictions under the credit facilities and indentures of such
subsidiaries and the indentures governing the Charter Holdings public debt. If
any portion of the management fee due and payable is not paid, it is deferred
by Charter and accrued as a liability of such subsidiaries. Any deferred
amount of the management fee will bear interest at the rate of 10% per year,
compounded annually, from the date it was due and payable until the date it is
paid. For the year ended December 31, 2003, the subsidiaries of Charter
Holdings paid a total of $84 million in management fees to Charter. Mutual Services Agreement Charter, Charter Holdco and Charter Investment, Inc. are parties to a mutual
services agreement whereby each party shall provide rights and services to the
other parties as may be reasonably requested for the management of the entities
involved and their subsidiaries, including the cable systems owned by their
subsidiaries all on a cost-reimbursement basis. The officers and employees of
each party are available to the other parties to provide these rights and
services, and all expenses and costs incurred in providing these rights and
services are paid by Charter. Each of the parties will indemnify and hold
harmless the other parties and their directors, officers and employees from and
against any and all claims that may be made against any of them in connection
with the mutual services agreement except due to its or their gross negligence
or willful misconduct. The mutual services agreement expires on November 12,
2009, and may be terminated at any time by any party upon thirty days written
notice to the other. For the year ended December 31, 2003, Charter paid
approximately $73 million to Charter Holdco for services rendered pursuant to
the mutual services agreement. All such amounts are reimbursable to Charter
pursuant to a management arrangement with our subsidiaries. See  
Intercompany Management Arrangements. The accounts and balances related to
these services eliminate in consolidation. Charter Investment, Inc. no longer
provides services pursuant to this agreement. Previous Management Agreement with Charter Investment, Inc. Prior to November 12, 1999, Charter Investment, Inc. provided management and
consulting services to our operating subsidiaries for a fee equal to 3.5% of
the gross revenues of the systems then owned, plus reimbursement of expenses.
The balance of management fees payable under the previous management agreement
was accrued with payment at the discretion of Charter Investment, Inc., with
interest payable on unpaid amounts. For the year ended December 31, 2003,
Charters subsidiaries did not pay any fees to Charter Investment, Inc. to
reduce management fees payable. As of December 31, 2003, total management fees
payable to Charter Investment, Inc. were approximately $14 million, exclusive
of any interest that may be charged. 103




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Charter Communications Holding Company, LLC Limited Liability Agreement 
Taxes The limited liability company agreement of Charter Holdco contains special
provisions regarding the allocation of tax losses and profits among its members
 Vulcan Cable III, Inc., Charter Investment, Inc. and Charter. In some
situations, these provisions may cause Charter to pay more tax than would
otherwise be due if Charter Holdco had allocated profits and losses among its
members based generally on the number of common membership units. See Item 7.
Managements Discussion and Analysis of Financial Condition and Results of
Operations  Critical Accounting Policies and Estimates  Income Taxes. Vulcan Ventures Channel Access Agreement Vulcan Ventures, an entity controlled by Mr. Allen, Charter, Charter
Investment, Inc. and Charter Holdco are parties to an agreement dated September
21, 1999 granting to Vulcan Ventures the right to use up to eight of our
digital cable channels as partial consideration for a prior capital
contribution of $1.325 billion. Specifically, at Vulcan Ventures request, we
will provide Vulcan Ventures with exclusive rights for carriage of up to eight
digital cable television programming services or channels on each of the
digital cable systems with local and to the extent available, national control
of the digital product owned, operated, controlled or managed by Charter or its
subsidiaries now or in the future of 550 megahertz or more. If the system
offers digital services but has less than 550 megahertz of capacity, then the
programming services will be equitably reduced. Upon request of Vulcan
Ventures, we will attempt to reach a comprehensive programming agreement
pursuant to which it will pay the programmer, if possible, a fee per digital
video customer. If such fee arrangement is not achieved, then we and the
programmer shall enter into a standard programming agreement. The initial term
of the channel access agreement was 10 years, and the term extends by one
additional year (such that the remaining term continues to be 10 years) on each
anniversary date of the agreement unless either party provides the other with
notice to the contrary at least 60 days prior to such anniversary date. To
date, Vulcan Ventures has not requested to use any of these channels. However,
in the future it is possible that Vulcan Ventures could require us to carry
programming that is less profitable to us than the programming that we would
otherwise carry and our results would suffer accordingly. Equity Put Rights CC VIII.As part of our acquisition of the cable systems owned by Bresnan
Communications Company Limited Partnership in February 2000, CC VIII, our
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.
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 104




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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. Rifkin.On September 14, 1999, Mr. Allen and Charter Holdco entered into a put
agreement with certain sellers of the Rifkin cable systems that received a
portion of their purchase price in the form of 3,006,202 Class A preferred
membership units of Charter Holdco. This put agreement allowed these holders
to compel Charter Holdco to redeem their Class A preferred membership units at
any time before September 14, 2004 at $1.00 per unit, plus accretion thereon at
8% per year from September 14, 1999. Mr. Allen had guaranteed the redemption
obligation of Charter Holdco. These units were put to Charter Holdco for
redemption, and were redeemed on April 18, 2003 for a total price of
approximately $3.9 million. Mr. Allen also was a party to a put agreement with certain sellers of the
Rifkin cable systems that received a portion of their purchase price in the
form of shares of Class A common stock of Charter. Under this put agreement,
such holders have the right to sell to Mr. Allen any or all of such shares of
Charter Class A common stock at $19 per share (subject to adjustments for stock
splits, reorganizations and similar events), plus interest at a rate of 4.5%
per year, compounded annually from November 12, 1999. Approximately 4.6
million shares were put to Mr. Allen under these agreements prior to their
expiration on November 12, 2003. Falcon.Mr. Allen also was a party to a put agreement with certain sellers of
the Falcon cable systems (including Mr. Nathanson, one of our directors) that
received a portion of their purchase price in the form of shares of Class A
common stock of Charter. Under the Falcon put agreement, such holders had the
right to sell to Mr. Allen any or all shares of Charter Class A common stock
received in the Falcon acquisition at $25.8548 per share (subject to
adjustments for stock splits, reorganizations and similar events), plus
interest at a rate of 4.5% per year, compounded annually from November 12,
1999. Approximately 19.4 million shares were put to Mr. Allen under these
agreements prior to their expiration on November 12, 2003. 105




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Previous Funding Commitment of Vulcan Inc. Effective April 14, 2003, our subsidiary, Charter Communications VII, LLC,
entered into a commitment letter with Vulcan Inc., which is an affiliate of
Paul Allen, under which Vulcan Inc. agreed to lend, under certain
circumstances, or cause an affiliate to lend initially to Charter
Communications VII, LLC, or another subsidiary of Charter Holdings, up to $300
million, which amount included a subfacility of up to $100 million for the
issuance of letters of credit. No amounts were ever drawn under the commitment
letter. In November 2003, we terminated the commitment. We incurred expenses
to Vulcan Inc. totaling $5 million in connection with the commitment (including
an extension fee) prior to termination. Allocation of Business Opportunities with Mr. Allen As described under    Third Party Business Relationships in which Mr. Allen
has an Interest in this section, Mr. Allen and a number of his affiliates have
interests in various entities that provide services or programming to our
subsidiaries. Given the diverse nature of Mr. Allens investment activities
and interests, and to avoid the possibility of future disputes as to potential
business, Charter and Charter Holdco, under the terms of their respective
organizational documents, may not, and may not allow their subsidiaries, to
engage in any business transaction outside the cable transmission business
except for the Digeo, Inc. joint venture; a joint venture to develop a digital
video recorder set-top terminal; an existing investment in Cable Sports
Southeast, LLC, a provider of regional sports programming; as an owner of the
business of Interactive Broadcaster Services Corporation or, Chat TV, an
investment in @Security Broadband Corp., a company developing broadband
security applications; and incidental businesses engaged in as of the closing
of Charters initial public offering in November 1999. This restriction will
remain in effect until all of the shares of Charters high-vote Class B common
stock have been converted into shares of Charter Class A common stock due to
Mr. Allens equity ownership falling below specified thresholds. Should Charter or Charter Holdco or any of their subsidiaries wish to pursue,
or allow their subsidiaries to pursue, a business transaction outside of this
scope, it must first offer Mr. Allen the opportunity to pursue the particular
business transaction. If he decides not to pursue the business transaction and
consents to Charter or its subsidiaries engaging in the business transaction,
they will be able to do so. In any such case, the restated certificate of
incorporation of Charter and the limited liability company agreement of Charter
Holdco would need to be amended accordingly to modify the current restrictions
on the ability of such entities to engage in any business other than the cable
transmission business. The cable transmission business means the business of
transmitting video, audio, including telephony, and data over cable systems
owned, operated or managed by Charter, Charter Holdco or any of their
subsidiaries from time to time. Under Delaware corporate law, each director of Charter, including Mr. Allen, is
generally required to present to Charter, any opportunity he or she may have to
acquire any cable transmission business or any company whose principal business
is the ownership, operation or management of cable transmission businesses, so
that we may determine whether we wish to pursue such opportunities. However,
Mr. Allen and the other directors generally will not have an obligation to
present other types of business opportunities to Charter and they may exploit
such opportunities for their own account. Also, conflicts could arise with respect to the allocation of corporate
opportunities between us and Mr. Allen and his affiliates in connection with
his investments in businesses in which we are permitted to engage under
Charters restated certificate of incorporation and our subsidiaries limited
liability company agreement. Certain of the indentures of our subsidiaries
require the applicable issuer of notes to obtain, under certain circumstances,
approval of the board of directors of Charter and, where a transaction is
valued at or in excess of $50 million, a fairness opinion with respect to
transactions in which Mr. Allen has an interest. We have not instituted any
other formal plan or arrangement to address potential conflicts of interest. The restrictive provisions of the organizational documents described above may
limit our ability to take advantage of attractive business opportunities.
Consequently, our ability to offer new products and services outside of the
cable transmission business and enter into new businesses could be adversely
affected, resulting in an adverse effect on our growth, financial condition and
results of operations. Third Party Business Relationships in which Mr. Allen has an Interest As previously noted, Mr. Allen has extensive investments in the areas of media
and technology. We have a number of commercial relationships with third
parties in which Mr. Allen has an interest. Mr. Allen or his affiliates own
equity interests or warrants to purchase equity interests in various entities
with which we do business or which 106




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provide us with products, services or programming. Mr. Allen owns 100% of the
equity of Vulcan Ventures Incorporated and Vulcan Inc. and is the president of
Vulcan Ventures. Mr. Savoy serves as a consultant to, and is a former vice
president and director of Vulcan Ventures. The various cable, media, Internet
and telephony companies in which Mr. Allen has invested may mutually benefit
one another. We can give no assurance, nor should you expect, that any of
these business relationships will be successful, that we will realize any
benefits from these relationships or that we will enter into any business
relationships in the future with Mr. Allens affiliated companies. Mr. Allen and his affiliates have made, and in the future likely will make,
numerous investments outside of us and our business. We cannot assure you
that, in the event that we or any of our subsidiaries enter into transactions
in the future with any affiliate of Mr. Allen, such transactions will be on
terms as favorable to us as terms we might have obtained from an unrelated
third party. TechTV,
Inc. TechTV,
Inc. (TechTV) operates a cable television network that offers
programming related to technology. Pursuant to an affiliation agreement that
originated in 1998 and that terminates in 2008, TechTV has provided us with
programming for distribution via our cable systems. The affiliation agreement
provides, among other things, that TechTV must offer Charter certain terms and
conditions that are no less favorable in the affiliation agreement than are
given to any other distributor that serves the same number of or fewer TechTV
viewing customers. Additionally, pursuant to the affiliation agreement, we are
entitled to incentive payments for channel launches through December 31, 2003.
For the year ended December 31, 2003, we recorded approximately $1 million from
TechTV related to launch incentives as a reduction of programming expense and
paid approximately $80,600 to TechTV in license fees under the affiliation
agreement. In
March 2004, Charter Holdco entered into agreements with
Vulcan Programming and TechTV, which provides for (i) Charter Holdco
and TechTV to amend the affiliation agreement
which,
among other things,
revises the description of the TechTV network content, provides for
Charter Holdco to waive certain claims against TechTV relating to
alleged breaches of the affiliation agreement and provides for TechTV
to make payment of outstanding launch receivables due to Charter
Holdco under the affiliation agreement, (ii) Vulcan Programming to
pay approximately $10 million and purchase over a 24-month
period,
at fair market rates,
$2 million of advertising time across various cable networks on
Charter cable systems in consideration of the agreements,
obligations, releases and waivers under the agreements and in settlement of the aforementioned claims and
(iii) TechTV to
be a provider of content relating
to technology and video gaming for Charters interactive television
platforms through December 31, 2006 (exclusive for the first
year). We believe that Vulcan Programming, which is 100% owned by Mr. Allen, owned an
approximate 98% equity interest in TechTV as of December 31, 2003. Until
September 2003, Mr. Savoy was the president and director of Vulcan Programming
and was a director of TechTV. Mr. Wangberg, one of our directors, was the
chairman, chief executive officer and a director of TechTV. Although Mr.
Wangberg resigned as the chief executive officer of TechTV in July 2002, he
remains a director of TechTV. Mr. Allen is a director of TechTV. Oxygen Media Corporation Oxygen Media LLC (Oxygen) provides programming content aimed at the female
audience for distribution over cable systems and satellite. On July 22, 2002,
Charter Holdco entered into a carriage agreement with Oxygen, whereby Charter
Holdco agreed to carry programming content from Oxygen, pursuant to which we
currently make Oxygen programming available to approximately 5 million of our
customers. The term of the carriage agreement is retroactive to February 1,
2000, the date of launch of Oxygen programming by Charter Holdco and runs for a
period of five years from that date. As the number of customers receiving the
Oxygen programming increases, Charter Holdco receives volume discounts. For
the year ended December 31, 2003, we paid Oxygen approximately $9 million for
programming content. In addition, Oxygen pays Charter Holdco marketing support fees for customers
launched after the first year of the term of the carriage agreement up to an
amount of $4 million. We recorded approximately $1 million related to launch
incentives as a reduction of programming expense for the year ended December
31, 2003. Concurrently with the execution of the programming agreement, we entered into
an equity issuance agreement pursuant to which Oxygens parent company, Oxygen
Media Corporation (Oxygen Media), granted a subsidiary of Charter Holdco a
warrant to purchase 2.4 million shares of common stock of Oxygen Media for an
exercise price of $22.00 per share. Charter Holdco will also receive
unregistered shares of Oxygen Media common stock with a guaranteed fair market
value on the date of issuance of $34 million, on or prior to February 2, 2005,
with the exact date to be determined by Oxygen Media. We currently recognize
the guaranteed value of the investment over the life of the programming
agreement as a reduction of programming expense. For the year ended December
31, 2003, we recorded approximately $9 million as a reduction of programming
expense. The carrying value of our investment in Oxygen was approximately $19
million as of December 31, 2003. 107




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Mr. William Savoy, a director of Charter, Charter Holdco, and Charter Holdings,
served on the board of directors of Oxygen until September 2003. As of
December 31, 2003, through Vulcan Programming, Mr. Allen owned an approximate
31% interest in Oxygen assuming no exercises of outstanding warrants. Marc Nathanson has an indirect beneficial interest of less than 1% in Oxygen. Portland Trail Blazers On October 7, 1996, the former owner of our Falcon cable systems entered into a
letter agreement and a cable television agreement with Trail Blazers Inc. for
the cable broadcast in the metropolitan area surrounding Portland, Oregon of
pre-season, regular season and playoff basketball games of the Portland Trail
Blazers, a National Basketball Association basketball team. Mr. Allen is the
100% owner of the Portland Trail Blazers and Trail Blazers Inc. After the
acquisition of the Falcon cable systems in November 1999, we continued to
operate under the terms of these agreements until their termination on
September 30, 2001. Under the letter agreement, Trail Blazers Inc. was paid a
fixed fee for each customer in areas directly served by the Falcon cable
systems. Under the cable television agreement, we shared subscription revenues
with Trail Blazers Inc. We paid approximately $135,200 for the year ended
December 31, 2003 in connection with the cable broadcast of Portland Trail
Blazers basketball games under the October 1996 cable television agreement. Click2learn, Inc. Charter Holdco executed a Software License Agreement with Click2learn, Inc.
(Click2Learn) effective June 30, 2002. Since October 1999 Charter Holdco has
purchased professional services, software and maintenance from Click2learn, a
company which provides enterprise software for organizations seeking to
capture, manage and disseminate knowledge throughout their extended enterprise.
Mr. Allen is the founder of Click2learn. As of December 31, 2003, Mr. Allen
owned an approximate 21% interest in Click2learn through 616,120 shares held of
record by Vulcan Ventures and 387,096 shares issuable upon exercise of a
warrant issued to Vulcan Ventures. Mr. Allen owns 100% of Vulcan Ventures.
For the year ended December 31, 2003, we paid approximately $57,100 to
Click2learn. Digeo, Inc. On March 2, 2001, a subsidiary of Charter, Charter Communications Ventures, LLC
(Charter Ventures) entered into a broadband carriage agreement with Digeo
Interactive, LLC (Digeo Interactive), a wholly owned subsidiary of Digeo,
Inc. (Digeo), an entity controlled by Paul Allen. The carriage agreement
provided that Digeo Interactive would provide to Charter a portal product,
which would function as the television-based Internet portal (the initial point
of entry to the Internet) for Charters customers who received Internet access
from Charter. The agreement term was for 25 years and Charter agreed to use
the Digeo portal exclusively for six years. Before the portal product was
delivered to Charter, Digeo terminated development of the portal product. On September 27, 2001, Charter and Digeo Interactive amended the broadband
carriage agreement. According to the amendment, Digeo Interactive would
provide to Charter the content for enhanced Wink interactive television
services, known as Charter Interactive Channels (i-channels). In order to
provide the i-channels, Digeo Interactive sublicensed certain Wink technologies
to Charter. Charter is entitled to share in the revenues generated by the
i-channels. Currently, our digital video customers who receive i-channels
receive the service at no additional charge. On September 28, 2002, Charter entered into a second amendment to its broadband
carriage agreement with Digeo Interactive. This amendment supersedes the
amendment of September 27, 2001. It provides for the development by Digeo
Interactive of future features to be included in the Basic i-TV service
provided by Digeo and for Digeos development of an interactive toolkit to
enable Charter to develop interactive local content. Furthermore, Charter may
request that Digeo Interactive manage local content for a fee. The amendment
provides for Charter to pay for development of the Basic i-TV service as well
as license fees for customers who receive the service, and for Charter and
Digeo to split certain revenues earned from the service. In 2003, we paid
Digeo Interactive approximately $4 million for customized development of the
i-channels and the local content tool kit. We received no revenues under the
broadband carriage agreement in 2003. We are now working with Digeo Interactive on the deployment of a broadband
media center for our customers that will include an integrated set-top terminal
that includes a cable converter and a DVR hard drive with connectivity to other
consumer electronics devices (such as stereos, MP3 players, and digital
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enable customers to store video and audio files, and to pause, schedule, rewind
and store television programs. We began an initial trial of the first version
of Digeos media center in the third quarter of 2002 in St. Louis. On June 30, 2003, Charter Holdco entered into an agreement with Motorola for
the purchase of 100,000 of these broadband media centers, subject to Charters
testing and approval of product performance and functionality. It is
contemplated that the software for these set-top terminals would be supplied to
Motorola by Digeo. License fees for Digeo to license such software to Charter
and support fees for the broadband media center and relevant content and
support servers are currently under negotiation. In March 2001, Charter Ventures and Vulcan Ventures Incorporated formed
DBroadband Holdings, LLC for the sole purpose of purchasing equity interests in
Digeo. In connection with the execution of the broadband carriage agreement,
DBroadband Holdings, LLC purchased an equity interest in Digeo funded by
contributions from Vulcan Ventures Incorporated. The equity interest is
subject to a priority return of capital to Vulcan Ventures up to the amount
contributed by Vulcan Ventures on Charter Ventures behalf. Charter Ventures
has a 100% profit interest in DBroadband Holdings, LLC. Vulcan Ventures also
agreed to make, through January 24, 2004, certain additional contributions
through DBroadband Holdings, LLC to acquire additional equity in Digeo as
necessary to maintain Charter Ventures pro rata interest in Digeo in the event
of certain future Digeo equity financings by the founders of Digeo. These
additional equity interests are also subject to a priority return of capital to
Vulcan Ventures up to amounts contributed by Vulcan Ventures on Charter
Ventures behalf. DBroadband Holdings, LLC is therefore not included in our
consolidated financial statements. Pursuant to an amended version of this
arrangement, in 2003, Vulcan Ventures contributed a total of $29 million to
Digeo, $7 million of which was contributed on Charter Ventures behalf, subject
to Vulcan Ventures aforementioned priority return. Since the formation of
DBroadband Holdings, LLC, Vulcan Ventures has contributed approximately $224
million to Digeo, of which approximately $56 million was contributed on Charter
Ventures behalf. We believe that Vulcan Ventures, an entity controlled by Mr. Allen, owns an
approximate 60% equity interest in Digeo, Inc. Messrs. Allen and Vogel are
directors of Digeo. Mr. Savoy was a director and served on the compensation
committee of Digeo until September 2003. Mr. Vogel owns options to purchase
10,000 shares of Digeo common stock. Other Miscellaneous Relationships HDNet and HDNet Movies Network On January 10, 2003, Charter Holdco signed an agreement to carry two
around-the-clock, high definition networks, HDNet and HDNet Movies. HDNet
Movies delivers a commercial-free schedule of full-length feature films
converted from 35mm to high definition, including titles from an extensive
library of Warner Bros. Films. HDNet Movies will feature a mix of theatrical
releases, made-for-TV movies, independent films and shorts. The HDNet channel
features a variety of HDTV programming, including live sports, sitcoms, dramas,
action series, documentaries, travel programs, music concerts and shows,
special events, and news features including the popular HDNet World Report.
HDNet also offers a selection of classic and recent television series. We paid
HDNet and HDNet Movies approximately $21,900 in 2003. We believe that entities
controlled by Mark Cuban owned approximately 85% of HDNet as of December 31,
2003. As of December 31, 2003, Mr. Cuban, co-founder and president of HDNet,
owned approximately 6.4% of the outstanding Class A common stock of Charter. Affiliate Leases and Agreements David L. McCall, who served as Senior Vice President  Operations  Eastern
Division during 2002 and through January 2003, is a partner in a partnership
that leases office space to us under a lease agreement, which expires December
31, 2010. The partnership received approximately $189,200 pursuant to such
lease and related agreements for the year ended December 31, 2003. In
addition, during 2003 we paid approximately $381,300 for construction services
to a construction company controlled by Mr. McCalls brother under a
construction agreement, which expired December 31, 2003. We also paid
approximately $373,800 during 2003 for construction services to a construction
company controlled by Mr. McCalls son under several agreements, the last of
which expired January 31, 2004. Companies controlled by Mr. Nathanson, a director of Charter, leased certain
warehouse space in Riverside, California, to our subsidiaries. For the year
ended December 31, 2003, total rent paid for the Riverside warehouse space was
approximately $16,600, under a lease agreement, which expired March 15, 2003. 109




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Management Fees of Enstar Limited Partnerships Enstar Cable Corporation, the manager of the Enstar limited partnerships
through a management agreement, engaged Charter Holdco to manage the Enstar
limited partnerships. Pursuant to the management agreement, Charter Holdco
provides management services to the Enstar limited partnerships in exchange for
management fees. The Enstar limited partnerships also purchase basic and
premium programming for their systems at cost from Charter Holdco. For the
year ended December 31, 2003, Charter Holdco earned approximately $469,300 by
providing management services to the Enstar limited partnerships. All of the executive officers of Charter, Charter Holdco and Charter Holdings
act as officers of Enstar Communications Corporation. Indemnification Advances Pursuant to Charters by-laws (and the employment agreements of certain of our
current and former officers), Charter is obligated (subject to certain
limitations) to indemnify and hold harmless, to the fullest extent permitted by
law, any officer, director or employee against all expense, liability and loss
(including, among other things, attorneys fees) reasonably incurred or
suffered by such officer, director or employee as a result of the fact that he
or she is a party or is threatened to be made a party or is otherwise involved
in any action, suit or proceeding by reason of the fact that he or she is or
was a director, officer or employee of Charter. In addition, Charter is
obligated to pay, as an advancement of its indemnification obligation, the
expenses (including attorneys fees) incurred by any officer, director or
employee in defending any such action, suit or proceeding in advance of its
final disposition, subject to an obligation to repay those amounts under
certain circumstances. Pursuant to these indemnification arrangements and as
an advancement of costs, Charter has reimbursed certain of its current and
former directors and executive officers a total of approximately $8 million and
$3 million in respect of invoices received in 2003 and 2002, respectively, in
connection with their defense of certain legal actions described herein. See
Item 3. Legal Proceedings. Those current and former directors and officers
include: Paul G. Allen, David C. Andersen, David G. Barford, Margaret A.
Bellville, Mary Pat Blake, J. Christian Fenger, Kent D. Kalkwarf, Ralph G.
Kelly, Jerald L. Kent, Paul E. Martin, David L. McCall, Ronald L. Nelson, Nancy
B. Peretsman, John C. Pietri, William D. Savoy, Steven A. Schumm, Curtis S.
Shaw, William J. Shreffler, Stephen E. Silva, James Trey Smith and Carl E.
Vogel. 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. 110




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PART IV 
 Item 14.Principal AccountingFees and Services Audit
fees, audit-related fees and all other fees we incurred related to
services provided by KPMG LLP (KPMG)
and discussed below represent all fees paid as part of the Charter engagement,
including audits performed for Charter. Audit Fees During the years ended December 31, 2003 and 2002, we incurred fees and related
expenses to KPMG for the audits of our and our subsidiaries financial
statements, for the review of our and our subsidiaries interim financial
statements and registration statement filings for the applicable year totaling
approximately $3.2 million and $6.1 million, respectively. Audit-Related Fees We incurred fees to KPMG of approximately $0.4 million and $0.3 million during
the years ended December 31, 2003 and 2002, respectively. In 2003, these
services primarily related to the audit of cable systems sold to Atlantic
Broadband Finance, LLC and advisory services associated with our Sarbanes-Oxley
Section 404 implementation. In 2002, these services primarily related to due
diligence related to acquisitions. All Other Fees We incurred fees for other professional services rendered by KPMG of
approximately $0 and $0.3 million during the years ended December 31, 2003 and
2002, respectively. In 2002, these services primarily related to a review of
the accounts payable process and litigation support. Charters Audit Committee appoints, retains, compensates and oversees the
registered public accountants (subject, if applicable, to board of directors
and/or shareholder ratification), and approves in advance all fees and terms
for the audit engagement and non-audit engagements where non-audit services are
not prohibited by Section 10A of the Securities Exchange Act of 1934, as
amended, with registered public accountants. This authority extends over all
audit and non-audit engagements of Charter and its subsidiaries, including us.
Pre-approvals of non-audit services are sometimes delegated to a single member
of Charters Audit Committee. However, any pre-approvals made by Charters
Audit Committees designee are presented at Charters Audit Committees next
regularly scheduled meeting. Charters Audit Committee has an obligation to
consult with management on these matters. Charters Audit Committee approved
100% of the KPMG fees for the years ended December 31, 2003 and 2002. Each
year, including 2003, with respect to the proposed audit engagement, Charters
Audit Committee reviews the proposed risk assessment process in establishing
the scope of examination and the reports to be rendered. In its capacity as a committee of the Board, Charters Audit Committee oversees
the work of the registered public accounting firm (including resolution of
disagreements between management and the public accounting firm regarding
financial reporting) for the purpose of preparing or issuing an audit report or
performing other audit, review or attest services. The registered public
accounting firm reports directly to Charters Audit Committee. In performing
its functions, Charters Audit Committee undertakes those tasks and
responsibilities that, in its judgment, most effectively contribute to and
implement the purposes of Charters Audit Committee charter. For more detail
on Charters Audit Committees authority and responsibilities, see Charters
Audit Committee charter set forth in Appendix A of Charters 2003 Proxy
Statement filed with the SEC on June 24, 2003. 
 Item 15.Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a) The following documents are filed as part of this annual report:  (1)
    
    Financial Statements.A listing of the financial statements, notes and reports of
independent public accountants required by Item 8 begins on page F-1
of this annual report.(2)
    
    Financial Statement Schedules 111




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##### 



No financial statement schedules are required to be filed by Items 8
and 15(d) because they are not required or are not applicable, or the
required information is set forth in the applicable financial
statements or notes thereto.(3)
    
    The index to the Exhibits begins on page 114 of this annual
report.We agree to furnish to the SEC, upon request, copies of any long-term
debt instruments that authorize an amount of securities constituting
10% or less of the total assets of Charter and its subsidiaries on a
consolidated basis. (b) Reports on Form 8-K None. 112




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##### 



SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Charter Communications Holdings, LLC and Charter Communications
Holdings Capital Corporation have duly caused this annual report to be signed
on their behalf by the undersigned, thereunto duly authorized. CHARTER COMMUNICATIONS HOLDINGS, LLCRegistrantBy: CHARTER COMMUNICATIONS, INC., Sole ManagerDate: March 25, 2004
    
    By:
    
    /s/ Carl E. VogelCarl E. VogelPresident and Chief Executive OfficerCHARTER COMMUNICATIONS HOLDINGS CAPITAL CORPORATIONRegistrantDate: March 25, 2004
    
    By:
    
    /s/ Carl E. VogelCarl E. VogelPresident and Chief Executive Officer
 Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of Charter
Communications, Inc. and in the capacities and on the dates indicated. Signature
    
    Title
    
    Date/s/ Paul G. Allen

Paul G. Allen
    
    Chairman of the Board of Directors,
Charter Communications, Inc.
    
    March 25, 2004/s/ Carl E. Vogel

Carl E. Vogel
    
    President, Chief Executive
Officer, Director (Principal Executive Officer),
Charter Communications, Inc., Charter Communications
Holdings Capital Corporation
    
    March 25, 2004/s/ Michael P. Huseby

Michael P. Huseby
    
    Executive Vice President and
Chief Financial Officer (Principal Financial Officer)
Senior Vice President and Controller
    
    March 25, 2004/s/ Paul E. Martin

Paul E. Martin
    
    (Principal Accounting Officer)
    
    March 25, 2004/s/ Charles M. Lillis

Charles M. Lillis
    
    Director, Charter Communications, Inc.
    
    March 25, 2004/s/ David C. Merritt

David C. Merritt
    
    Director, Charter Communications, Inc.
    
    March 25, 2004/s/ Marc B. Nathanson

Marc B. Nathanson
    
    Director, Charter Communications, Inc.
    
    March 25, 2004/s/ Nancy B. Peretsman

Nancy B. Peretsman
    
    Director, Charter Communications, Inc.
    
    March 25, 2004/s/ William D. Savoy

William D. Savoy
    
    Director, Charter Communications, Inc.
    
    March 25, 2004/s/ John H. Tory

John H. Tory
    
    Director, Charter Communications, Inc.
    
    March 25, 2004/s/ Larry W. Wangberg

Larry W. Wangberg
    
    Director, Charter Communications, Inc.
    
    March 25, 2004
 113




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##### 



Exhibit Index (Exhibits are listed by numbers corresponding to the Exhibit Table of Item 601 in Regulation S-K). Exhibit
    
    Description2.1(a)
    
    Purchase and Contribution Agreement, entered into as
of June 1999, by and among BCI (USA), LLC, William
Bresnan, Blackstone BC Capital Partners L.P.,
Blackstone BC Offshore Capital Partners L.P.,
Blackstone Family Investment Partnership III L.P.,
TCID of Michigan, Inc. and TCI Bresnan LLC and
Charter Communications Holding Company, LLC
(Incorporated by reference to Exhibit 2.11 to
Amendment No. 2 to the registration statement on
Form S-1 of Charter Communications, Inc. filed on
September 28, 1999 (File No. 333-83887)).2.1(b)
    
    First Amendment to Purchase and Contribution
Agreement dated as of February 14, 2000, by and
among BCI (USA), LLC, William J. Bresnan, Blackstone
BC Capital Partners L.P., Blackstone BC Offshore
Capital Partners, L.P., Blackstone Family Media III
L.P. (as assignee of Blackstone Family Investment
III, L.P.), TCID of Michigan, Inc., TCI Bresnan, LLC
and Charter Communications Holding Company, LLC.
(Incorporated by reference to Exhibit 2.11(a) to the
current report on Form 8-K filed by Charter
Communications, Inc. on February 29, 2000 (File No.
000-27927)).2.2(a)
    
    Asset Purchase Agreement, dated as of September 28,
2001, between High Speed Access Corp. and Charter
Communications Holding Company, LLC (including as
Exhibit A, the Form of Voting Agreement, as Exhibit
B, the form of Management Agreement, as Exhibit C,
the form of License Agreement, and as Exhibit D, the
Form of Billing Letter Agreement) (Incorporated by
reference to Exhibit 10.1 to Amendment No. 6 to
Schedule 13D filed by Charter Communications, Inc.
and others with respect to High Speed Access Corp.,
filed on October 1, 2001 (File No. 005-56431)).2.3(a)
    
    Asset Purchase Agreement, dated August 29, 2001, by
and between Charter Communications Entertainment I,
LLC, Interlink Communications Partners, LLC, and
Rifkin Acquisitions Partners, LLC and Enstar Income
Program II-1, L.P., Enstar Income Program II-2,
L.P., Enstar Income Program IV-3, L.P., Enstar
Income/Growth Program Six-A, L.P., Enstar IV/PBD
Systems Venture, and Enstar Cable of Macoupin County
(Incorporated by reference to Exhibit 2.1 to the
current report of Form 8-K filed by Enstar IV-2,
L.P. on September 13, 2001 (File No. 000-15706)).2.3(b)
    
    Letter of Amendment, dated September 10, 2001, by
and between Charter Communications Entertainment I,
LLC, Interlink Communications Partners, LLC, and
Rifkin Acquisitions Partners, LLC and Enstar Income
Program II-1, L.P., Enstar Income Program II-2,
L.P., Enstar Income Program IV-3, L.P., Enstar
Income/Growth Program Six-A, L.P., Enstar IV/PBD
Systems Venture, and Enstar Cable of Macoupin County
(Incorporated by reference to Exhibit 2.1 to the
current report of Form 8-K filed by Enstar IV-2,
L.P. on September 13, 2001 (File No. 000-15706)).2.3(c)
    
    Letter of Amendment, dated April 10, 2002, by and
between Charter Communications Entertainment I, LLC,
Interlink Communications Partners, LLC, and Rifkin
Acquisitions Partners, LLC and Enstar Income Program
II-1, L.P., Enstar Income Program II-2, L.P., Enstar
Income Program IV-3, L.P., Enstar Income/Growth
Program Six-A, L.P., Enstar IV/PBD Systems Venture,
and Enstar Cable of Macoupin County (Incorporated by
reference to Exhibit 2.1 to the current report on
Form 8-K filed by Enstar Income Program IV-1, L.P.
on April 22, 2002 (File No. 000-15705)).2.4
    
    Asset Purchase Agreement, dated April 10, 2002, by
and between Charter Communications Entertainment I,
LLC, and Enstar Income Program II-1, L.P. (Incorporated by reference to Exhibit 2.2 to the
current report on Form 8-K filed by Enstar Income
Program II-1, L.P. on April 26, 2002 (File No.
000-14508)).3.1
    
    Certificate of Formation of Charter Communications
Holdings, LLC (Incorporated by reference to Exhibit
3.3 to Amendment No. 2 to the registration statement
on Form S-4 of Charter Communications Holdings, LLC
and Charter Communications Holdings Capital
Corporation filed on June 22, 1999 (File No.
333-77499)).3.2
    
    Amended and Restated Limited Liability Company
Agreement of Charter Communications Holdings, LLC,
dated as of October 30, 2001 (Incorporated by
reference to Exhibit 3.2 to the annual report on
Form 10-K of Charter Communications Holdings, LLC
and Charter Communications Holding Capital
Corporation on March 29, 2002 (File No. 333-77499)).3.3
    
    Certificate of Incorporation of Charter
Communications Holdings Capital Corporation
(Incorporated by reference to Exhibit 3.1 to
Amendment No. 2 to the registration statement on
Form S-4 of Charter Communications Holdings, LLC and
Charter Communications Holdings Capital Corporation
filed on June 22, 1999 (File No. 333-77499))3.4(a)
    
    By-laws of Charter Communications Holdings Capital
Corporation (Incorporated by reference to Exhibit
3.4 to Amendment No. 2 to the registration statement
on Form S-4 of Charter Communications Holdings, LLC
and Charter Communications Holdings Capital
Corporation filed on June 22, 1999 (File No.
333-77499)).3.4(b)
    
    Amendment to By-Laws of Charter Communications
Holdings Capital Corporation, dated as of October
30,
 114




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##### 



Exhibit
    
    Description2001 (Incorporated by reference to Exhibit
3.4(b) to the annual report on Form 10-K of Charter
Communications Holdings, LLC and Charter
Communications Holdings Capital Corporation on March
29, 2002 (File No. 333-77499)).4.1
    
    Indenture relating to the 8.250% Senior Notes due
2007, dated as of March 17, 1999, between Charter
Communications Holdings, LLC, Charter Communications
Holdings Capital Corporation and Harris Trust and
Savings Bank (Incorporated by reference to Exhibit
4.1(a) to Amendment No. 2 to the registration
statement on Form S-4 of Charter Communications
Holdings, LLC and Charter Communications Holdings
Capital Corporation filed on June 22, 1999 (File No.
333-77499)).4.2
    
    Indenture relating to the 8.625% Senior Notes due
2009, dated as of March 17, 1999, among Charter
Communications Holdings, LLC, Charter Communications
Holdings Capital Corporation and Harris Trust and
Savings Bank (Incorporated by reference to Exhibit
4.2(a) to Amendment No. 2 to the registration
statement on Form S-4 of Charter Communications
Holdings, LLC and Charter Communications Holdings
Capital Corporation filed on June 22, 1999 (File No.
333-77499)).4.3
    
    Indenture relating to the 9.920% Senior Discount
Notes due 2011, dated as of March 17, 1999, among
Charter Communications Holdings, LLC, Charter
Communications Holdings Capital Corporation and
Harris Trust and Savings Bank (Incorporated by
reference to Exhibit 4.3(a) to Amendment No. 2 to
the registration statement on Form S-4 of Charter
Communications Holdings, LLC and Charter
Communications Holdings Capital Corporation filed on
June 22, 1999 (File No. 333-77499)).4.4
    
    Indenture relating to the 10.00% Senior Notes due
2009, dated as of January 12, 2000, between Charter
Communications Holdings, LLC, Charter Communications
Holdings Capital Corporation and Harris Trust and
Savings Bank (Incorporated by reference to Exhibit
4.1(a) to the registration statement on Form S-4 of
Charter Communications Holdings, LLC and Charter
Communications Holdings Capital Corporation filed on
January 25, 2000 (File No. 333-95351)).4.5
    
    Indenture relating to the 10.25% Senior Notes due
2010, dated as of January 12, 2000, among Charter
Communications Holdings, LLC, Charter Communications
Holdings Capital Corporation and Harris Trust and
Savings Bank (Incorporated by reference to Exhibit
4.2(a) to the registration statement on Form S-4 of
Charter Communications Holdings, LLC and Charter
Communications Holdings Capital Corporation filed on
January 25, 2000 (File No. 333-95351)).4.6
    
    Indenture relating to the 11.75% Senior Discount
Notes due 2010, dated as of January 12, 2000, among
Charter Communications Holdings, LLC, Charter
Communications Holdings Capital Corporation and
Harris Trust and Savings Bank (Incorporated by
reference to Exhibit 4.3(a) to the registration
statement on Form S-4 of Charter Communications
Holdings, LLC and Charter Communications Holdings
Capital Corporation filed on January 25, 2000 (File
No. 333-95351)).4.7
    
    Indenture dated as of January 10, 2001 between
Charter Communications Holdings, LLC, Charter
Communications Holdings Capital Corporation and BNY
Midwest Trust Company as Trustee governing 10 3/4%
senior notes due 2009 (Incorporated by reference to
Exhibit 4.2(a) to the registration statement on Form
S-4 of Charter Communications Holdings, LLC and
Charter Communications Holdings Capital Corporation
filed on February 2, 2001 (File No. 333-54902)).4.8
    
    Indenture dated as of January 10, 2001 between
Charter Communications Holdings, LLC, Charter
Communications Holdings Capital Corporation and BNY
Midwest Trust Company as Trustee governing 11 1/8%
senior notes due 2011 (Incorporated by reference to
Exhibit 4.2(b) to the registration statement on Form
S-4 of Charter Communications Holdings, LLC and
Charter Communications Holdings Capital Corporation
filed on February 2, 2001 (File No. 333-54902)).4.9
    
    Indenture dated as of January 10, 2001 between
Charter Communications Holdings, LLC, Charter
Communications Holdings Capital Corporation and BNY
Midwest Trust Company as Trustee governing 13 1/2%
senior discount notes due 2011 (Incorporated by
reference to Exhibit 4.2(c) to the registration
statement on Form S-4 of Charter Communications
Holdings, LLC and Charter Communications Holdings
Capital Corporation filed on February 2, 2001 (File
No. 333-54902)).4.10(a)
    
    Indenture dated as of May 15, 2001 between Charter
Communications Holdings, LLC, Charter Communications
Holdings Capital Corporation and BNY Midwest Trust
Company as Trustee governing 9.625% Senior Notes due
2009. (Incorporated by reference to Exhibit 10.2(a)
to the current report on Form 8-K filed by Charter
Communications, Inc. on June 1, 2001 (File No.
000-27927)).4.10(b)
    
    First Supplemental Indenture dated as of January 14,
2002 between Charter Communications Holdings, LLC,
Charter Communications Holdings Capital Corporation
and BNY Midwest Trust Company as Trustee governing
9.625% Senior Notes due 2009 (Incorporated by
reference to Exhibit 10.2(a) to the current report
on Form 8-K filed by Charter Communications, Inc. on
January 15, 2002 (File No. 000-27927)).4.10(c)
    
    Second Supplemental Indenture dated as of June 25,
2002 between Charter Communications Holdings, LLC,
Charter Communications Holdings Capital Corporation
and BNY Midwest Trust Company as Trustee governing
9.625% Senior Notes due 2009 (Incorporated by
reference to Exhibit 4.1 to the quarterly report on
Form 10-Q filed by Charter Communications, Inc. on
August 6, 2002 (File No. 000-27927)).
 115




---



##### 



Exhibit
    
    Description4.11(a)
    
    Indenture dated as of May 15, 2001 between Charter
Communications Holdings, LLC, Charter Communications
Holdings Capital Corporation and BNY Midwest Trust
Company as Trustee governing 10.000% Senior Notes
due 2011. (Incorporated by reference to Exhibit
10.3(a) to the current report on Form 8-K filed by
Charter Communications, Inc. on June 1, 2001 (File
No. 000-27927)).4.11(b)
    
    First Supplemental Indenture dated as of January 14,
2002 between Charter Communications Holdings, LLC,
Charter Communications Holdings Capital Corporation
and BNY Midwest Trust Company as Trustee governing
10.000% Senior Notes due 2011 (Incorporated by
reference to Exhibit 10.3(a) to the current report
on Form 8-K filed by Charter Communications, Inc. on
January 15, 2002 (File No. 000-27927)).4.11(c)
    
    Second Supplemental Indenture dated as of June 25,
2002 between Charter Communications Holdings, LLC,
Charter Communications Holdings Capital Corporation
and BNY Midwest Trust Company as Trustee governing
10.000% Senior Notes due 2011 (Incorporated by
reference to Exhibit 4.2 to the quarterly report on
Form 10-Q filed by Charter Communications, Inc. on
August 6, 2002 (File No. 000-27927)).4.12
    
    Indenture dated as of May 15, 2001 between Charter
Communications Holdings, LLC, Charter Communications
Holdings Capital Corporation and BNY Midwest Trust
Company as Trustee governing 11.750% Senior Discount
Notes due 2011. (Incorporated by reference to
Exhibit 10.4(a) to the current report on Form 8-K
filed by Charter Communications, Inc. on June 1,
2001 (File No. 000-27927)).4.13(a)
    
    Indenture dated as of January 14, 2002 between
Charter Communications Holdings, LLC, Charter
Communications Holdings Capital Corporation and BNY
Midwest Trust Company as Trustee governing 12.125%
Senior Discount Notes due 2012 (Incorporated by
reference to Exhibit 10.4(a) to the current report
on Form 8-K filed by Charter Communications, Inc. on
January 15, 2002 (File No. 000-27927)).4.13(b)
    
    First Supplemental Indenture dated as of June 25,
2002 between Charter Communications Holdings, LLC,
Charter Communications Holdings Capital Corporation
and BNY Midwest Trust Company as Trustee governing
12.125% Senior Discount Notes due 2012 (Incorporated
by reference to Exhibit 4.3 to the quarterly report
on Form 10-Q filed by Charter Communications, Inc.
on August 6, 2002 (File No. 000-27927)).10.1
    
    Consulting Agreement, dated as of March 10, 1999, by
and between Vulcan Northwest Inc., Charter
Communications, Inc. (now called Charter Investment
Inc.) and Charter Communications Holdings, LLC
(Incorporated by reference to Exhibit 10.3 to
Amendment No. 4 to the registration statement on
Form S-4 of Charter Communications Holdings, LLC and
Charter Communications Holdings Capital Corporation
filed on July 22, 1999 (File No. 333-77499)).10.2
    
    Letter Agreement, dated September 21, 1999, by and
among Charter Communications, Inc., Charter
Investment, Inc., Charter Communications Holding
Company, Inc. and Vulcan Ventures Inc. (Incorporated
by reference to Exhibit 10.22 to Amendment No. 3 to
the registration statement on Form S-1 of Charter
Communications, Inc. filed on October 18, 1999 (File
No. 333-83887)).10.3(a)
    
    First Amended and Restated Mutual Services
Agreement, dated as of December 21, 2000, by and
between Charter Communications, Inc., Charter
Investment, Inc. and Charter Communications Holding
Company, LLC (Incorporated by reference to Exhibit
10.2(b) to the registration statement on Form S-4 of
Charter Communications Holdings, LLC and Charter
Communications Holdings Capital Corporation filed on
February 2, 2001 (File No. 333-54902)).10.3(b)
    
    Letter Agreement, dated June 19, 2003, by and among
Charter Communications, Inc., Charter Communications
Holding Company, LLC and Charter Investment, Inc.
regarding Mutual Services Agreement (Incorporated by
reference to Exhibit No. 10.5(b) to the quarterly
report on Form 10-Q filed by Charter Communications,
Inc. on August 5, 2003 (File No. 000-27927)).10.3(c)
    
    Second Amended and Restated Mutual Services
Agreement, dated as of June 19, 2003 between Charter
Communications, Inc. and Charter Communications
Holding Company, LLC (Incorporated by reference to
Exhibit 10.5(a) to the quarterly report on Form 10-Q
filed by Charter Communications, Inc. on August 5,
2003 (File No. 000-27927)).10.4
    
    Form of Management Agreement, dated as of November
9, 1999, by and between Charter Communications
Holding Company, LLC and Charter Communications,
Inc. (Incorporated by reference to Exhibit 10.2(d)
to Amendment No. 3 to the registration statement on
Form S-1 of Charter Communications, Inc. filed on
October 18, 1999 (File No. 333-83887)).10.5
    
    Management Agreement, dated as of November 12, 1999,
by and between CC VI Operating Company, LLC and
Charter Communications, Inc. (Incorporated by
reference to Exhibit 10.2(d) to Amendment No. 1 to
the registration statement on Form S-4 of Charter
Communications Holdings, LLC and Charter
Communications Holdings Capital Corporation filed on
April 18, 2000 (File No. 333-77499)).10.6
    
    Management Agreement, dated as of November 12, 1999
by and between Falcon Cable Communications, LLC and
Charter Communications, Inc. (Incorporated by
reference to Exhibit 10.2(e) to Amendment No. 1 to
the registration statement on Form S-4 of Charter
Communications Holdings, LLC and Charter
Communications Holdings Capital Corporation filed on
April 18, 2000 (File No. 333-77499)).10.7
    
    Form of Exchange Agreement, dated as of November 12,
1999 by and among Charter Investment, Inc., Charter
Communications, Inc., Vulcan Cable III Inc. and Paul
G. Allen (Incorporated by reference to Exhibit 10.13
to
 116




---



##### 



Exhibit
    
    DescriptionAmendment No. 3 to the registration statement on
Form S-1 of Charter Communications, Inc. filed on
October 18, 1999 (File No. 333-83887)).10.8
    
    Exchange Agreement, dated as of February 14, 2000,
by and among Charter Communications, Inc., BCI
(USA), LLC, William J. Bresnan, Blackstone BC
Capital Partners L.P., Blackstone BC Offshore
Capital Partners L.P., Blackstone Family Media, III
L.P. (as assignee of Blackstone Family Investment
III L.P.), TCID of Michigan, Inc., and TCI Bresnan
LLC (Incorporated by reference to Exhibit 10.40 to
the current report on Form 8-K of Charter
Communications, Inc. filed on February 29, 2000
(File No. 000-27927)).10.9(a)+
    
    Charter Communications Holdings, LLC 1999 Option
Plan (Incorporated by reference to Exhibit 10.4 to
Amendment No. 4 to the registration statement on
Form S-4 of Charter Communications Holdings, LLC and
Charter Communications Holdings Capital Corporation
filed on July 22, 1999 (File No. 333-77499)).10.9(b)+
    
    Assumption Agreement regarding Option Plan, dated as
of May 25, 1999, by and between Charter
Communications Holdings, LLC and Charter
Communications Holding Company, LLC (Incorporated by
reference to Exhibit 10.13 to Amendment No. 6 to the
registration statement on Form S-4 of Charter
Communications Holdings, LLC and Charter
Communications Holdings Capital Corporation filed on
August 27, 1999 (File No. 333-77499)).10.9(c)+
    
    Form of Amendment No. 1 to the Charter
Communications Holdings, LLC 1999 Option Plan
(Incorporated by reference to Exhibit 10.10(c) to
Amendment No. 4 to the registration statement on
Form S-1 of Charter Communications, Inc. filed on
November 1, 1999 (File No. 333-83887)).10.9(d)+
    
    Amendment No. 2 to the Charter Communications
Holdings, LLC 1999 Option Plan (Incorporated by
reference to Exhibit 10.4(c) to the annual report on
Form 10-K filed by Charter Communications, Inc. on
March 30, 2000 (File No. 000-27927)).10.9(e)+
    
    Amendment No. 3 to the Charter Communications 1999
Option Plan (Incorporated by reference to Exhibit
10.14(e) to the annual report of Form 10-K of
Charter Communications, Inc. filed on March 29, 2002
(File No. 000-27927).10.9(f)+
    
    Amendment No. 4 to the Charter Communications 1999
Option Plan (Incorporated by reference to Exhibit
10.10(f) to the annual report on Form 10-K of
Charter Communications, Inc. filed on April 15, 2003
(File No. 000-27927)).10.10(a)+
    
    Charter Communications, Inc. 2001 Stock Incentive
Plan (Incorporated by reference to Exhibit 10.25 to
the quarterly report on Form 10-Q filed by Charter
Communications, Inc. on May 15, 2001 (File No.
000-27927)).10.10(b)+
    
    Amendment No. 1 to the Charter Communications, Inc.
2001 Stock Incentive Plan (Incorporated by reference
to Exhibit 10.11(b) to the annual report on Form
10-K of Charter Communications, Inc. filed on April
15, 2003 (File No. 000-27927)).10.10(c)+
    
    Amendment No. 2 to the Charter Communications, Inc.
2001 Stock Incentive Plan (Incorporated by reference
to Exhibit 10.10 to the quarterly report on Form
10-Q filed by Charter Communications, Inc. on
November 14, 2001 (File No. 000-27927).10.10(d)+
    
    Amendment No. 3 to the Charter Communications, Inc.
2001 Stock Incentive Plan effective January 2, 2002
(Incorporated by reference to Exhibit 10.15(c) to
the annual report of Form 10-K of Charter
Communications, Inc. filed on March 29, 2002 (File
No. 000-27927).10.10(e)+
    
    Amendment No. 4 to the Charter Communications, Inc.
2001 Stock Incentive Plan (Incorporated by reference
to Exhibit 10.11(e) to the annual report on Form
10-K of Charter Communications, Inc. filed on April
15, 2003 (File No. 000-27927)).10.10(f)+
    
    Amendment No. 5 to the Charter Communications, Inc.
2001 Stock Incentive Plan (Incorporated by reference
to Exhibit 10.11(f) to the annual report on Form
10-K of Charter Communications, Inc. filed on April
15, 2003 (File No. 000-27927)).10.10(g)+
    
    Description of Long-Term Incentive Program to the
Charter Communications, Inc. 2001 Stock Incentive
Plan (Incorporated by reference to Exhibit 10.11(g)
to the annual report on Form 10-K of Charter
Communications, Inc. filed on March 15, 2004 (File
No. 000-27927)).10.11(a)+
    
    Letter Agreement, dated May 25, 1999, between
Charter Communications, Inc. and Marc Nathanson
(Incorporated by reference to Exhibit 10.36 to the
registration statement on Form S-4 of Charter
Communications Holdings, LLC and Charter
Communications Holdings Capital Corporation filed on
January 25, 2000 (File No. 333-95351)).10.11(b)+
    
    Letter Agreement, dated March 27, 2000, between CC
VII Holdings, LLC and Marc Nathanson, amending the
Letter Agreement dated May 25, 1999 (Incorporated by
reference to Exhibit 10.13(b) to the annual report
on Form 10-K of Charter Communications, Inc. filed
on April 15, 2003 (File No. 000-27927)).10.12+
    
    Employment Agreement, dated as of October 8, 2001,
by and between Carl E. Vogel and Charter
Communications, Inc. (Incorporated by reference to
Exhibit 10.4 to the quarterly report on Form 10-Q
filed by Charter Communications, Inc. on November
14, 2001 (File No. 000-27927)).10.13+
    
    Employment Agreement, dated as of October 18 2001,
by and between Stephen E. Silva and Charter
Communications, Inc. (Incorporated by reference to
Exhibit 10.5 to the quarterly report on Form 10-Q
filed by Charter Communications, Inc. on November
14, 2001 (File No. 000-27927)).
 117




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##### 



Exhibit
    
    Description10.14+
    
    Employment Offer Letter, dated December 2, 2003 by
and between Charter Communications, Inc. and Derek
Chang (Incorporated by reference to Exhibit 10.24 to
the annual report on Form 10-K of Charter
Communications, Inc. filed on March 15, 2004 (File
No. 000-27927)).10.15+
    
    Employment Offer Letter, dated December 17, 2003 by
and between Charter Communications, Inc. and Michael
Huseby (Incorporated by reference to Exhibit 10.25
to the annual report on Form 10-K of Charter
Communications, Inc. filed on March 15, 2004 (File
No. 000-27927)).10.16+
    
    Employment Agreement between Charter Communications,
Inc. and Margaret A. Maggie Bellville, entered
into as of April 27, 2003 (Incorporated by reference
to Exhibit 10.1 to the quarterly report on Form 10-Q
filed by Charter Communications, Inc. on November 3,
2003 (File No. 000-27927)).10.17(a)
    
    First Amendment to Credit Agreement, among Charter
Communications Operating, LLC, Charter
Communications Holdings LLC and certain lenders and
agents named therein, dated as of June 28, 1999
(Incorporated by reference to Exhibit 10.1(a) to the
registration statement on Form S-4 of Charter
Communications Holdings, LLC and Charter
Communications Holdings Capital Corporation filed on
January 25, 2000 (File No. 333-95351)).10.17(b)
    
    Second Amendment to Credit Agreement, among Charter
Communications Operating, LLC, Charter
Communications Holdings LLC and certain lenders and
agents named therein dated as of December 14, 1999
(Incorporated by reference to Exhibit 10.1(b) to the
registration statement on Form S-4 of Charter
Communications Holdings, LLC and Charter
Communications Holdings Capital Corporation filed on
January 25, 2000 (File No. 333-95351)).10.17(c)
    
    Third Amendment to Credit Agreement, among Charter
Communications Operating, LLC, Charter
Communications Holdings, LLC and certain lenders and
agents named therein, dated as of March 18, 2000
(Incorporated by reference to Exhibit 10.1(c) to the
annual report on Form 10-K filed by Charter
Communications, Inc. on March 30, 2000 (File No.
000-27927)).10.17(d)
    
    Second Amended and Restated Credit Agreement, among
Charter Communications Operating, LLC, Charter
Communications Holdings, LLC and certain lenders and
agents named therein, dated as of June 19, 2003
(Incorporated by reference to Exhibit 10.1 to the
quarterly report on Form 10-Q filed by Charter
Communications, Inc. on August 5, 2003 (File No.
000-27927)).10.18(a)
    
    Form of Credit Agreement, among Falcon Cable
Communications, LLC, certain guarantors and several
financial institutions or entities named therein,
dated as of June 30, 1998, as amended and restated
as of November 12, 1999, (Incorporated by reference
to Exhibit 10.36 to Amendment No. 3 to the
registration statement on Form S-1 of Charter
Communications, Inc. filed on October 18, 1999 (File
No. 333-83887)).10.18(b)
    
    Credit Agreement, dated as of June 30, 1998, as
amended and restated as of November 12, 1999, as
further amended and restated as of September 26,
2001, among Falcon Cable Communications, LLC,
certain guarantors, and several financial
institutions or entities named therein.
(Incorporated by reference to Exhibit 10.8 to the
quarterly report on Form 10-Q filed by Charter
Communications, Inc. on November 14, 2001 (File No.
000-27927)).10.19(a)
    
    Amended and Restated Credit Agreement dated as of
February 2, 1999, as amended and restated as of
February 14, 2000 by and among CC VIII Operating,
LLC, as borrower, CC VIII Holdings, LLC, as
guarantor, and several financial institutions or
entities named therein (Incorporated by reference to
Exhibit 10.18(a) to the annual report on Form 10-K
filed by Charter Communications, Inc. on March 30,
2000 (File No. 000-27927)).10.19(b)
    
    Second Amended and Restated Credit Agreement, among
CC VIII Operating, LLC, as borrower, CC VIII
Holdings, LLC, as guarantor, and several financial
institutions or entities named therein, dated as of
February 2, 1999, as amended and restated as of
January 2, 2001 (Incorporated by reference to
Exhibit 10.17 to the annual report on Form 10-K
filed by Charter Communications Holdings, LLC and
Charter Communications Holdings Capital Corporation
on April 2, 2001 (File No. 333-77499)).10.19(c)
    
    Third Amended and Restated Credit Agreement, among
CC VIII Operating, LLC, as borrower, CC VIII
Holdings, LLC, as guarantor, and certain lenders and
agents named therein, dated as of February 2, 1999,
as amended and restated as of January 3, 2002
(Incorporated by reference to Exhibit 99.2 to the
current report on Form 8-K filed by Charter
Communications, Inc. on January 24, 2002 (File No.
000-27927)).10.20
    
    Credit Agreement, among CC VI Holdings, LLC, CC VI
Operating Company, LLC and several financial
institutions or entities named therein, dated as of
November 12, 1999, (Incorporated by reference to
Exhibit 10.41 to the report on Form 8-K of Charter
Communications, Inc. filed on November 29, 1999
(File No. 000-27927)).10.21
    
    Amended and Restated Limited Liability Company
Agreement for Charter Communications Holding
Company, LLC made as of August 31, 2001
(Incorporated by reference to Exhibit 10.9 to the
quarterly report on Form 10-Q filed by Charter
Communications, Inc. on November 14, 2001 (File No.
000-27927)).10.22
    
    Amended and Restated Limited Liability Company
Agreement for CC VIII, LLC, dated as of March 31,
2003 (Incorporated by reference to Exhibit 10.27 to
the annual report on Form 10-K of Charter
Communications, Inc. filed on April 15, 2003 (File
No. 000-27927)).10.23
    
    Amended and Restated Limited Liability Company
Agreement of Charter Communications Operating, LLC,
 118




---



##### 



Exhibit
    
    Descriptiondated as of June 19, 2003 (Incorporated by reference
to Exhibit No. 10.2 to the quarterly report on Form
10-Q filed by Charter Communications, Inc. on August
5, 2003 (File No. 000-27927)).10.24
    
    Indenture, dated as of April 9, 1998, by and among
Renaissance Media (Louisiana) LLC, Renaissance Media
(Tennessee) LLC, Renaissance Media Capital
Corporation, Renaissance Media Group LLC and United
States Trust Company of New York, as trustee
(Incorporated by reference to Exhibit 4.1 to the
registration statement on Forms S-4 of Renaissance
Media Group LLC, Renaissance Media (Tennessee) LLC,
Renaissance Media (Louisiana) LLC and Renaissance
Media Capital Corporation filed on June 12, 1998
(File No. 333-56679)).10.25(a)
    
    Indenture, dated as of December 10, 1998, by and
among Avalon Cable of Michigan Holdings, Inc.,
Avalon Cable LLC and Avalon Cable Holdings Finance,
Inc., as issuers and The Bank of New York, as
trustee for the Notes (Incorporated by reference to
Exhibit 4.1 to Amendment No. 1 to the registration
statement on Form S-4 of Avalon Cable LLC, Avalon
Cable Holdings Finance, Inc., Avalon Cable of
Michigan Holdings, Inc. and Avalon Cable of
Michigan, Inc. filed on May 28, 1999 (File Nos.
333-75415 and 333-75453)).10.25(b)
    
    Supplemental Indenture, dated as of March 26, 1999,
by and among Avalon Cable of Michigan Holdings,
Inc., Avalon Cable LLC and Avalon Cable Holdings
Finance, Inc., as issuers, Avalon Cable of Michigan,
Inc., as guarantor, and The Bank of New York, as
trustee for the Notes (Incorporated by reference to
Exhibit 4.2 to Amendment No. 1 to the registration
statement on Form S-4 of Avalon Cable LLC, Avalon
Cable Holdings Finance, Inc., Avalon Cable of
Michigan Holdings, Inc. and Avalon Cable of
Michigan, Inc. filed on May 28, 1999 (File No.
333-75415 and 333-75453)).10.26(a)
    
    Commitment letter, dated April 14, 2003, from Vulcan
Inc. to Charter Communications VII, LLC
(Incorporated by reference to Exhibit No. 10.28 to
the annual report on Form 10-K filed by Charter
Communications, Inc. on April 15, 2003 (File No.
000-27927)).10.26(b)
    
    Letter from Vulcan Inc. dated June 30, 2003 amending
the Commitment Letter, dated April 14, 2003
(Incorporated by reference to Exhibit No. 10.3(b) to
the quarterly report on Form 10-Q filed by Charter
Communications, Inc. on August 5, 2003 (File No.
000-27927)).10.26(c)
    
    Notice of Termination of Commitment, dated November
14, 2003 (Incorporated by reference to Exhibit
10.8(c) to the registration statement on Form S-4 of
CCO Holdings, LLC filed on February 6, 2004 (File
No. 333-112593)).14.1
    
    Code of Conduct adopted January 28, 2003
(Incorporated by reference to Exhibit 14.1 to the
annual report on Form 10-K of Charter
Communications, Inc. filed on April 15, 2003 (File
No. 000-27927)).21.1*
    
    Subsidiaries of Charter Communications Holdings, LLC.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).
   *
    
    Document Attached+
    
    Management compensatory plan or arrangement 119




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##### 



INDEX TO FINANCIAL STATEMENTS PageIndependent Auditors Report
    
    
    F-2Consolidated Balance Sheets as of December 31, 2003 and 2002
    
    
    F-3Consolidated Statements of Operations for the Years Ended December 31, 2003, 2002 and 2001
    
    
    F-4Consolidated Statements of Changes in Members Equity for the Years Ended December 31, 2003, 2002 and 2001
    
    
    F-5Consolidated Statements of Cash Flows for the Years Ended December 31, 2003, 2002 and 2001
    
    
    F-6Notes to Consolidated Financial Statements
    
    
    F-7
 F-1




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##### 



Independent Auditors Report To the Board of Directors
Charter Communications Holdings, LLC: We have audited the accompanying consolidated balance sheets of Charter
Communications Holdings, LLC and subsidiaries (the Company) as of December
31, 2003 and 2002, and the related consolidated statements of operations,
changes in members equity, and cash flows for each of the three years in the
period ended December 31, 2003. These consolidated financial statements are
the responsibility of the Companys management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits. We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Charter
Communications Holdings, LLC and subsidiaries as of December 31, 2003 and 2002,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 2003, in conformity with accounting
principles generally accepted in the United States of America. As discussed in Note 3 to the consolidated financial statements, effective
January 1, 2002, the Company adopted Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets. As discussed in Note 16 to the consolidated financial statements, effective
January 1, 2003, the Company adopted Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation, as amended by
Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure  an amendment of FASB Statement No.
123. /s/ KPMG LLP St. Louis, Missouri
March 1, 2004 F-2




---



##### 



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in millions) December 31,2003
    
    2002ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    85
    
    
    $
    310Accounts receivable, less allowance for doubtful accounts of $17 and $19, respectively
    
    
    189
    
    
    
    253Receivables from related party
    
    
    56
    
    
    
    50Prepaid expenses and other current assets
    
    
    21
    
    
    
    40Total current assets
    
    
    351
    
    
    
    653INVESTMENT IN CABLE PROPERTIES:Property, plant and equipment, net of accumulated depreciation of $3,834 and $2,550,
respectively
    
    
    6,808
    
    
    
    7,460Franchises, net of accumulated amortization of $3,445 and $3,452, respectively
    
    
    13,680
    
    
    
    13,727Total investment in cable properties, net
    
    
    20,488
    
    
    
    21,187OTHER NONCURRENT ASSETS
    
    
    309
    
    
    
    316Total assets
    
    $
    21,148
    
    
    $
    22,156LIABILITIES AND MEMBERS EQUITYCURRENT LIABILITIES:Accounts payable and accrued expenses
    
    $
    1,128
    
    
    $
    1,250Total current liabilities
    
    
    1,128
    
    
    
    1,250LONG-TERM DEBT
    
    
    17,873
    
    
    
    17,288LOANS PAYABLE  RELATED PARTIES
    
    
    37
    
    
    
    73DEFERRED MANAGEMENT FEES  RELATED PARTY
    
    
    14
    
    
    
    14OTHER LONG-TERM LIABILITIES
    
    
    738
    
    
    
    932MINORITY INTEREST
    
    
    719
    
    
    
    693MEMBERS EQUITY:Members equity
    
    
    696
    
    
    
    2,011Accumulated other comprehensive loss
    
    
    (57
    )
    
    
    (105
    )Total members equity
    
    
    639
    
    
    
    1,906Total liabilities and members equity
    
    $
    21,148
    
    
    $
    22,156
 The accompanying notes are an integral part of these consolidated financial statements. F-3




---



##### 



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in millions) Year Ended December 31,2003
    
    2002
    
    2001REVENUES
    
    $
    4,819
    
    
    $
    4,566
    
    
    $
    3,807COSTS AND EXPENSES:Operating (excluding depreciation and amortization)
    
    
    1,952
    
    
    
    1,807
    
    
    
    1,486Selling, general and administrative
    
    
    940
    
    
    
    963
    
    
    
    826Depreciation and amortization
    
    
    1,479
    
    
    
    1,439
    
    
    
    2,693Impairment of franchises
    
    
    
    
    
    
    4,638
    
    
    
    Gain on sale of system
    
    
    (21
    )
    
    
    
    
    
    
    Option compensation expense (income), net
    
    
    4
    
    
    
    5
    
    
    
    (5
    )Special charges, net
    
    
    21
    
    
    
    36
    
    
    
    18Unfavorable contracts and other settlements
    
    
    (72
    )
    
    
    
    
    
    
    4,303
    
    
    
    8,888
    
    
    
    5,018Income (loss) from operations
    
    
    516
    
    
    
    (4,322
    )
    
    
    (1,211
    )OTHER INCOME AND EXPENSES:Interest expense, net
    
    
    (1,486
    )
    
    
    (1,425
    )
    
    
    (1,247
    )Gain (loss) on derivative instruments and hedging activities, net
    
    
    65
    
    
    
    (115
    )
    
    
    (50
    )Gain on debt exchange, net
    
    
    187
    
    
    
    
    
    
    
    Loss on equity investments
    
    
    
    
    
    
    
    
    
    
    (49
    )Other, net
    
    
    (10
    )
    
    
    3
    
    
    
    (3
    )(1,244
    )
    
    
    (1,537
    )
    
    
    (1,349
    )Loss before minority interest, income taxes and cumulative
effect of accounting change
    
    
    (728
    )
    
    
    (5,859
    )
    
    
    (2,560
    )MINORITY INTEREST
    
    
    (29
    )
    
    
    (16
    )
    
    
    (16
    )Loss before income taxes and cumulative effect of accounting
change
    
    
    (757
    )
    
    
    (5,875
    )
    
    
    (2,576
    )INCOME TAX (EXPENSE) BENEFIT
    
    
    (13
    )
    
    
    216
    
    
    
    27Loss before cumulative effect of accounting change
    
    
    (770
    )
    
    
    (5,659
    )
    
    
    (2,549
    )CUMULATIVE EFFECT OF ACCOUNTING CHANGE, NET OF TAX
    
    
    
    
    
    
    (540
    )
    
    
    (24
    )Net loss
    
    $
    (770
    )
    
    $
    (6,199
    )
    
    $
    (2,573
    )
 The accompanying notes are an integral part of these consolidated financial statements. F-4




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##### 



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS EQUITY
(dollars in millions) AccumulatedOther
    
    TotalMember's
    
    Comprehensive
    
    Member'sEquity
    
    Income (Loss)
    
    EquityBALANCE, December 31, 2000
    
    $
    9,156
    
    
    $
    
    
    
    $
    9,156Capital contribution
    
    
    1,681
    
    
    
    
    
    
    
    1,681Distributions to parent company
    
    
    (97
    )
    
    
    
    
    
    
    (97
    )Changes in fair value of interest rate agreements
    
    
    
    
    
    
    (39
    )
    
    
    (39
    )Option compensation income
    
    
    (5
    )
    
    
    
    
    
    
    (5
    )Unrealized loss on marketable securities available for sale
    
    
    
    
    
    
    (1
    )
    
    
    (1
    )Net loss
    
    
    (2,573
    )
    
    
    
    
    
    
    (2,573
    )BALANCE, December 31, 2001
    
    
    8,162
    
    
    
    (40
    )
    
    
    8,122Capital contribution
    
    
    95
    
    
    
    
    
    
    
    95Distributions to parent company
    
    
    (52
    )
    
    
    
    
    
    
    (52
    )Changes in fair value of interest rate agreements
    
    
    
    
    
    
    (65
    )
    
    
    (65
    )Option compensation expense
    
    
    5
    
    
    
    
    
    
    
    5Net loss
    
    
    (6,199
    )
    
    
    
    
    
    
    (6,199
    )BALANCE, December 31, 2002
    
    
    2,011
    
    
    
    (105
    )
    
    
    1,906Distributions to parent company
    
    
    (548
    )
    
    
    
    
    
    
    (548
    )Changes in fair value of interest rate agreements
    
    
    
    
    
    
    48
    
    
    
    48Option compensation expense
    
    
    4
    
    
    
    
    
    
    
    4Other, net
    
    
    (1
    )
    
    
    
    
    
    
    (1
    )Net loss
    
    
    (770
    )
    
    
    
    
    
    
    (770
    )BALANCE, December 31, 2003
    
    $
    696
    
    
    $
    (57
    )
    
    $
    639
 The accompanying notes are an integral part of these consolidated financial statements. F-5




---



##### 



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions) Year Ended December 31,2003
    
    2002
    
    2001CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (770
    )
    
    $
    (6,199
    )
    
    $
    (2,573
    )Adjustments to reconcile net loss to net cash flows from operating activities:Minority interest
    
    
    29
    
    
    
    16
    
    
    
    16Depreciation and amortization
    
    
    1,479
    
    
    
    1,439
    
    
    
    2,693Impairment of franchises
    
    
    
    
    
    
    4,638
    
    
    
    Option compensation expense (income), net
    
    
    4
    
    
    
    5
    
    
    
    (5
    )Noncash interest expense
    
    
    410
    
    
    
    387
    
    
    
    288Loss on equity investments
    
    
    
    
    
    
    
    
    
    
    49Loss (gain) on derivative instruments and hedging activities, net
    
    
    (65
    )
    
    
    115
    
    
    
    50Gain on debt exchange, net
    
    
    (187
    )
    
    
    
    
    
    
    Gain on sale of system
    
    
    (21
    )
    
    
    
    
    
    
    Deferred income taxes
    
    
    13
    
    
    
    (216
    )
    
    
    (27
    )Cumulative effect of accounting change, net
    
    
    
    
    
    
    540
    
    
    
    24Unfavorable contracts and other settlements
    
    
    (72
    )
    
    
    
    
    
    
    Changes in operating assets and liabilities, net of effects from acquisitions:Accounts receivable
    
    
    62
    
    
    
    18
    
    
    
    (62
    )Prepaid expenses and other current assets
    
    
    13
    
    
    
    19
    
    
    
    (17
    )Accounts payable and accrued expenses and other
    
    
    (109
    )
    
    
    57
    
    
    
    108Receivables from and payables to related party, including deferred
management fees
    
    
    (40
    )
    
    
    (79
    )
    
    
    (37
    )Other operating activities
    
    
    
    
    
    
    1
    
    
    
    9Net cash flows from operating activities
    
    
    746
    
    
    
    741
    
    
    
    516CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of property, plant and equipment
    
    
    (804
    )
    
    
    (2,095
    )
    
    
    (2,795
    )Change in accounts payable and accrued expenses related to capital expenditures
    
    
    (41
    )
    
    
    (49
    )
    
    
    (103
    )Proceeds from sale of system
    
    
    91
    
    
    
    
    
    
    
    Payments for acquisitions, net of cash acquired
    
    
    
    
    
    
    (140
    )
    
    
    (1,710
    )Purchases of investments
    
    
    (8
    )
    
    
    (10
    )
    
    
    (10
    )Other investing activities
    
    
    (3
    )
    
    
    2
    
    
    
    (14
    )Net cash flows from investing activities
    
    
    (765
    )
    
    
    (2,292
    )
    
    
    (4,632
    )CASH FLOWS FROM FINANCING ACTIVITIES:Borrowings of long-term debt
    
    
    739
    
    
    
    4,107
    
    
    
    6,675Repayments of long-term debt
    
    
    (1,369
    )
    
    
    (2,135
    )
    
    
    (4,290
    )Proceeds from issuance of debt
    
    
    529
    
    
    
    
    
    
    
    Payments for debt issuance costs
    
    
    (42
    )
    
    
    (40
    )
    
    
    (69
    )Repayments to related parties
    
    
    (36
    )
    
    
    (116
    )
    
    
    189Capital contributions
    
    
    
    
    
    
    95
    
    
    
    1,579Distributions
    
    
    (27
    )
    
    
    (52
    )
    
    
    (97
    )Net cash flows from financing activities
    
    
    (206
    )
    
    
    1,859
    
    
    
    3,987NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    (225
    )
    
    
    308
    
    
    
    (129
    )CASH AND CASH EQUIVALENTS, beginning of period
    
    
    310
    
    
    
    2
    
    
    
    131CASH AND CASH EQUIVALENTS, end of period
    
    $
    85
    
    
    $
    310
    
    
    $
    2CASH PAID FOR INTEREST
    
    $
    1,069
    
    
    $
    1,033
    
    
    $
    941NONCASH TRANSACTIONS:Issuance of debt by CCH II, LLC
    
    $
    1,572
    
    
    $
    
    
    
    $
    Retirement of debt
    
    
    1,257
    
    
    
    
    
    
    
    CCH II, LLC notes distributed to retire parenty company debt
    
    
    521
    
    
    
    
    
    
    
    Exchange of assets for acquisition
    
    
    
    
    
    
    
    
    
    
    25Transfer of equity interests to the Company
    
    
    
    
    
    
    
    
    
    
    102
 The accompanying notes are an integral part of these consolidated financial statements. F-6




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##### 



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
(dollars in millions, except where indicated) 1. Organization and Basis of Presentation Charter Communications Holdings, LLC (Charter Holdings) is a holding company
whose primary assets at December 31, 2003 are equity interests in its cable
operating subsidiaries. Charter Holdings is a subsidiary of Charter
Communications Holding Company, LLC (Charter Holdco), which is a subsidiary
of Charter Communications, Inc. (Charter). The consolidated financial
statements include the accounts of Charter Holdings and all of its direct and
indirect subsidiaries. Charter Holdings and its subsidiaries are collectively
referred to herein as the Company. All significant intercompany transactions
and balances have been eliminated in consolidation. The Company is a broadband
communications company operating in the United States. The Company offers its
customers traditional video programming (analog and digital video) as well as
high-speed data services and in some areas advanced broadband services such as
high definition television, video on demand, telephony and interactive
television. The Company sells its video programming, high-speed data and
advanced broadband services on a subscription basis. 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, franchises
and goodwill; income taxes; and contingencies. Actual results could differ
from those estimates. Restatement of 2001 Results.In 2002, the Company restated its consolidated
financial statements for 2001 and prior. The restatements were primarily
related to the following categories: (i) launch incentives from programmers;
(ii) customer incentives and inducements; (iii) capitalized labor and overhead
costs; (iv) customer acquisition costs; (v) rebuild and upgrade of cable
systems; (vi) deferred tax liabilities/franchise assets; and (vii) other
adjustments. These adjustments reduced revenue by $146 million and decreased
consolidated net loss by $21 million for the year ended December 31, 2001 and
increased members equity by $772 million as of January 1, 2001. In addition,
as a result of certain of these adjustments, the Companys statements of cash
flow was also restated at the time. Net cash flows from operating activities
for the year ended December 31, 2001 was reduced by $21 million. Reclassifications.Certain 2002 and 2001 amounts have been reclassified to
conform with the 2003 presentation. 2. Liquidity and Capital Resources The Company recognized income from operations of $516 million in 2003 and
incurred losses from operations of $4.3 billion and $1.2 billion in 2002 and
2001, respectively. The Companys net cash flows from operating activities
were $746 million, $741 million and $516 million for the years ending December
31, 2003, 2002 and 2001, 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, borrowing under the credit facilities of the Companys
subsidiaries, equity contributions from Charter Holdco, by issuances of debt
securities and by cash on hand. The mix of funding sources changes from period
to period, but for the year ended December 31, 2003, approximately 77% of the
Companys funding requirements were satisfied from cash flows from operating
activities and 23% was from cash on hand. For the year ended December 31,
2003, the Company received $91 million from the sale of the Port Orchard,
Washington cable system. Additionally, the Company had net cash flows used in
financing activities of $206 million, reflecting a net repayment of debt, and
reduced cash on hand by $225 million. The Company expects that cash on hand, cash flows from operating activities and
the funds available under its subsidiaries credit facilities will be adequate
to meet its 2004 cash needs. However, these credit facilities are subject to
certain restrictive covenants, portions of which are subject to the operating
results of the Companys
subsidiaries. The Company expects to maintain compliance with these covenants
in 2004. If the Companys actual operating results do not result in compliance
with these covenants, or if other events of noncompliance occur, funding under
the credit facilities may not be available and defaults on some or potentially
all debt obligations could F-7




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##### 



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
(dollars in millions, except where indicated) occur. Additionally, no assurances can be given
that the Company will not experience liquidity problems because of adverse
market conditions or other unfavorable events. Charter, which is the manager of the Company, has a significant amount of debt,
which will mature in 2005 and 2006. Charters ability to make interest
payments, or principal payments at maturity in 2005 and 2006, on its
convertible senior notes is dependent on its ability to obtain additional
financing and on the Companys and its other subsidiaries making distributions,
loans, or payments to Charter Holdco, and on Charter Holdco paying or
distributing such funds to Charter. Because Charter is the Companys manager,
any financial or liquidity problems of Charter would be likely to cause serious
disruption to the Companys business and to have a material adverse effect on
the Companys operations and results. Any such event would likely adversely
impact the Companys credit rating, and its relations with customers and
suppliers, which could in turn further impair its ability to obtain financing
and operate its business. The indentures governing the Companys notes permit the Company to make
distributions up to its formulaic capacity to Charter Holdco for payment of
interest on Charters convertible senior notes, only if, after giving effect to
the distribution, the Company can incur additional debt under the leverage
ratio of 8.75 to 1.0, there is no default under the indentures and other
specified tests are met. However, in the event that the Company could not
incur any additional debt under the 8.75 to 1.0 leverage ratio, the indentures
governing the Company notes permit the Company and its subsidiaries to make
specified investments in Charter Holdco or Charter, up to its formulaic
capacity, if there is no default under the indentures. There were no defaults
under the Companys indentures and other specified tests were met for the year
ending December 31, 2003. However, the Company did not meet the leverage ratio
test at December 31, 2003, and as a result, distributions from the Company to
Charter will be restricted until that test is met. As of December 31, 2003,
Charter Holdco had $41 million in cash on hand and is owed $37 million in
intercompany loans, which are available to Charter Holdco to service interest
on Charters convertible senior notes, which is scheduled to be approximately
$43 million in 2004. On October 1, 2003 the Company closed on the sale of its Port Orchard,
Washington system for approximately $91 million, resulting in a $21 million
gain recorded as gain on sale of system in the Companys consolidated
statements of operations. On March 1, 2004, the Company closed the sale of
cable systems in Florida, Pennsylvania, Maryland, Delaware and West Virginia
with Atlantic Broadband Finance, LLC. The Company anticipates that an
additional closing for a cable system in New York will occur during the first
half of 2004. After giving effect to the sale of the New York system, net
proceeds will be approximately $735 million, subject to post-closing
adjustments. The Company will use these proceeds to repay bank debt. The Companys long-term financing structure as of December 31, 2003 includes
$7.2 billion of credit facility debt and $10.6 billion of high-yield notes.
Approximately $188 million of this financing matures during 2004, and the
Company expects to fund this through availability under its credit facilities.
Note 9 summarizes the Companys current availability under its credit
facilities and its long-term debt. 3. Summary of Significant Accounting Policies Cash Equivalents The Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents. These investments are carried at
cost, which approximates market value. Property, Plant and Equipment Property, plant and equipment are recorded at cost, including all material,
labor and certain indirect costs associated with the construction of cable
transmission and distribution facilities. Costs associated with initial
customer installations and the additions of network equipment necessary to
enable advanced services are capitalized. Costs
capitalized as part of initial customer installations include materials, labor,
and certain indirect costs. These indirect costs are associated with the
activities of the Companys personnel who assist in connecting and activating
the new service and consist of compensation and overhead costs associated with
these support functions. Overhead costs F-8




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##### 



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
(dollars in millions, except where indicated) primarily include employee benefits
and payroll taxes, direct variable costs associated with capitalizable
activities, consisting primarily of installation and construction vehicle
costs, the cost of dispatch personnel and indirect costs directly attributable
to capitalizable activities. The costs of disconnecting service at a
customers dwelling or reconnecting service to a previously installed dwelling
are charged to operating expense in the period incurred. Costs for repairs and
maintenance are charged to operating expense as incurred, while equipment
replacement and betterments, including replacement of cable drops from the pole
to the dwelling, are capitalized. Depreciation is recorded using the straight-line method over managements
estimate of the useful lives of the related assets as follows: Cable distribution systems
    
    7-15 yearsCustomer equipment and installations
    
    3-5 yearsVehicles and equipment
    
    1-5 yearsBuildings and leasehold improvements
    
    5-15 yearsFurniture and fixtures
    
    5 years
 Franchises Franchise rights represent the value attributed to agreements with local
authorities that allow access to homes in cable service areas acquired through
the purchase of cable systems. Management estimates the fair value of
franchise rights at the date of acquisition and determines if the franchise has
a finite life or an indefinite life as defined by Statement of Financial
Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets. On
January 1, 2002, the Company adopted SFAS No. 142, which eliminates the
amortization of goodwill and 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 as of October 1, or more frequently
as warranted by events or changes in circumstances (See Note 7). The Company
concluded that 99% of its franchises qualify for indefinite-life treatment;
however, certain franchises did not qualify for indefinite-life treatment due
to technological or operational factors that limit their lives. These
franchise costs are amortized on a straight-line basis over 10 years. Costs
incurred in renewing cable franchises are deferred and amortized over 10 years. Prior to the adoption of SFAS No. 142, costs incurred in obtaining and renewing
cable franchises were deferred and amortized using the straight-line method
over a period of 15 years. Franchise rights acquired through the purchase of
cable systems were generally amortized using the straight-line method over a
period of 15 years. The period of 15 years was managements best estimate of
the useful lives of the franchises and assumed that substantially all of those
franchises that expired during the period would be renewed but not
indefinitely. The Company evaluated the recoverability of franchises for
impairment when events or changes in circumstances indicated that the carrying
amount of an asset may not be recoverable. Other Noncurrent Assets Other noncurrent assets primarily include goodwill, deferred financing costs
and investments in equity securities. Costs related to borrowings are deferred
and amortized to interest expense using the effective interest method over the
terms of the related borrowings. As of December 31, 2003 and 2002, other
noncurrent assets include $194 million and $205 million of deferred financing
costs, net of accumulated amortization of $113 million and $91 million,
respectively. Investments in equity securities are accounted for at cost, under the equity
method of accounting or in accordance with SFAS No. 115, Accounting for Certain
Investments in Debt and Equity Securities. The Company recognizes losses for
any decline in value considered to be other than temporary. Certain marketable
equity securities are
classified as available-for-sale and reported at market value with unrealized
gains and losses recorded as accumulated other comprehensive income or loss. F-9




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##### 



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
(dollars in millions, except where indicated) The following summarizes investment information as of and for the years ended
December 31, 2003 and 2002: Gain (loss) for theCarrying Value at
    
    Years EndedDecember 31,
    
    December 31,2003
    
    2002
    
    2003
    
    2002Equity investments, under the cost method
    
    $
    30
    
    
    $
    17
    
    
    $
    (2
    )
    
    $
    Equity investments, under the equity method
    
    
    10
    
    
    
    14
    
    
    
    2
    
    
    
    (2
    )Marketable securities, at market value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2$
    40
    
    
    $
    31
    
    
    $
    
    
    
    $
    
 Valuation of Property, Plant and Equipment The Company evaluates the recoverability of property, plant and equipment for
impairment when events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Such events or changes in
circumstances could include such factors as changes in technological advances,
fluctuations in the fair value of such assets, adverse changes in relationships
with local franchise authorities, adverse changes in market conditions or poor
operating results. If a review indicates that the carrying value of such asset
is not recoverable from estimated undiscounted cash flows, the carrying value
of such asset is reduced to its estimated fair value. While the Company
believes that its estimates of future cash flows are reasonable, different
assumptions regarding such cash flows could materially affect its evaluations
of asset recoverability. No impairment of property, plant and equipment
occurred in 2003, 2002 and 2001. Derivative Financial Instruments The Company accounts for derivative financial instruments in accordance with
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as
amended, which became effective for the Company on January 1, 2001. The
Company uses interest rate risk management derivative instruments, such as
interest rate swap agreements, interest rate cap agreements and interest rate
collar agreements (collectively referred to herein as interest rate agreements)
as required under the terms of the credit facilities of the Companys
subsidiaries. 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
agrees to exchange, at specified intervals, the difference between fixed and
variable interest amounts calculated by reference to an agreed-upon notional
principal amount. Interest rate cap agreements are used to lock in a maximum
interest rate should variable rates rise, but enable the Company to otherwise
pay lower market rates. Interest rate collar agreements are used to limit
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 any
derivative financial instruments for trading purposes. Revenue Recognition Revenues from residential and commercial video and high-speed data services are
recognized when the related services are provided. Advertising sales are
recognized at estimated realizable values in the period that the advertisements
are broadcast. Local governmental authorities impose franchise fees on the
Company ranging up to a federally mandated maximum of 5% of gross revenues as
defined in the franchise agreement. Such fees are collected on a monthly basis
from the Companys customers and are periodically remitted to local franchise
authorities. Franchise fees collected and paid are reported as revenues on a
gross basis with a corresponding expense pursuant to Emerging Issues Task Force
(EITF) Issue No. 01-14, Income Statement Characterization of Reimbursements
Received for Out of Pocket Expenses Incurred. F-10




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##### 



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
(dollars in millions, except where indicated) Programming Costs The Company has various contracts to obtain analog, digital and premium video
programming from program suppliers whose compensation is typically based on a
flat fee per customer. The cost of the right to exhibit programming under such
arrangements is recorded in operating expenses in the month the programming is
available for exhibition. Programming costs are paid each month based on
calculations performed by the Company and are subject to adjustment based on
periodic audits performed by the programmers. Additionally, certain
programming contracts contain launch incentives to be paid by the programmers.
The Company receives these payments related to the promotion and activation of
the programmers cable television channel and recognizes the launch incentives
on a straight-line basis over the life of the programming agreement as a
reduction of programming expense. This offset to programming expense was $62
million, $57 million and $35 million for the years ended December 31, 2003,
2002 and 2001, respectively. Programming costs included in the accompanying
statements of operations were $1.2 billion, $1.2 billion and $963 million for
the years ended December 31, 2003, 2002 and 2001, respectively. As of December
31, 2003 and 2002, the deferred amount of launch incentives, included in other
long-term liabilities, totaled $148 million and $210 million, respectively. Advertising Costs Advertising costs associated with marketing the Companys products and services
are generally expensed as costs are incurred. Such advertising expense was $62
million, $60 million and $43 million for the years ended December 31, 2003,
2002 and 2001, respectively. Stock-Based Compensation The Company has historically accounted for stock-based compensation in
accordance with Accounting Principles Board (APB) Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations, as permitted by
SFAS No. 123, Accounting for Stock-Based Compensation. On January 1, 2003, the
Company adopted the fair value measurement provisions of SFAS No. 123 using the
prospective method under which the Company will recognize compensation expense
of a stock-based award to an employee over the vesting period based on the fair
value of the award on the grant date consistent with the method described in
Financial Accounting Standards Board Interpretation (FIN) No. 28, Accounting
for Stock Appreciation Rights and Other Variable Stock Option or Award Plans.
Adoption of these provisions resulted in utilizing a preferable accounting
method as the consolidated financial statements will present the estimated fair
value of stock-based compensation in expense consistently with other forms of
compensation and other expense associated with goods and services received for
equity instruments. In accordance with SFAS No. 148, Accounting for
Stock-Based Compensation  Transition and Disclosure,the fair value method
will be applied only to awards granted or modified after January 1, 2003,
whereas awards granted prior to such date will continue to be accounted for
under APB No. 25, unless they are modified or settled in cash. Management
believes the adoption of these provisions will not have a material impact on
the consolidated results of operations or financial condition of the Company.
The ongoing effect on consolidated results of operations or financial condition
will be dependent upon future stock-based compensation awards granted by the
Company. F-11




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##### 



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
(dollars in millions, except where indicated) SFAS No. 123 requires pro forma disclosure of the impact on earnings as if the
compensation expense for these plans had been determined using the fair value
method. The following table presents the Companys net loss as reported and
the pro forma amounts that would have been reported using the fair value method
under SFAS No. 123 for the years presented: Year Ended December 31,2003
    
    2002
    
    2001Net loss
    
    $
    (770
    )
    
    $
    (6,199
    )
    
    $
    (2,573
    )Add back stock-based compensation expense (income) related to stock
options included in reported net loss
    
    
    4
    
    
    
    5
    
    
    
    (5
    )Less employee stock-based compensation expense determined under fair
value based method for all employee stock option awards
    
    
    (30
    )
    
    
    (105
    )
    
    
    (100
    )Pro forma
    
    $
    (796
    )
    
    $
    (6,299
    )
    
    $
    (2,678
    )
 The fair value of each option granted is estimated on the date of grant using
the Black-Scholes option-pricing model. The following weighted average
assumptions were used for grants during the years ended December 31, 2003, 2002
and 2001, respectively: risk-free interest rates of 3.0%, 3.6%, and 4.7%;
expected volatility of 93.6%, 64.2% and 56.2%; and expected lives of 3.5 years,
3.3 years and 3.7 years, respectively. The valuations assume no dividends are
paid. Unfavorable Contracts and Other Settlements The Company recognized $72 million of benefit for the year ended December 31,
2003 as a result of the settlement of estimated liabilities recorded in
connection with prior business combinations. The majority of this benefit
(approximately $52 million) is due to the renegotiation of a major programming
contract, for which a liability had been recorded for the above market portion
of the agreement in conjunction with the Falcon acquisition in 1999 and the
Bresnan acquisition in 2000. The remaining benefit relates to the reversal of
previously recorded liabilities, which, based on an evaluation of current facts
and circumstances, are no longer required. Income Taxes The Company recognizes deferred tax assets and liabilities for temporary
differences between the financial reporting basis and the tax basis of the
Companys assets and liabilities and expected benefits of utilizing net
operating loss carryforwards. The impact on deferred taxes of changes in tax
rates and tax law, if any, applied to the years during which temporary
differences are expected to be settled, are reflected in the consolidated
financial statements in the period of enactment (see Note 18). Minority Interest Minority interest on the Companys consolidated balance sheets represents $694
million and $668 million of preferred membership interests in CC VIII, LLC (CC
VIII), an indirect subsidiary of Charter Holdings, as of December 31, 2003 and
2002, respectively. The preferred membership interests in CC VIII accrete at
2% per annum and since June 6, 2003, share pro rata in the profits of CC VIII.
As more fully described in Note 19, this preferred interest arises from the
approximately $630 million of preferred membership units issued by CC VIII in
connection with the Bresnan acquisition in February 2000. As of December 31,
2003 and December 31, 2002, minority interest also includes $25 million of
preferred interest in Charter Helicon, LLC issued in connection with the
Helicon acquisition. The preferred interest in Charter Helicon, LLC accrues
interest at 10% per annum. Segments SFAS No. 131, Disclosure about Segments of an Enterprise and Related
Information, established standards for reporting information about operating
segments in annual financial statements and in interim financial reports issued
to shareholders. Operating segments are defined as components of an enterprise
about which separate financial F-12




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##### 



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
(dollars in millions, except where indicated) information is available that is evaluated on a regular basis by the chief
operating decisionmaker, or decision making group, in deciding how to allocate
resources to an individual segment and in assessing performance of the segment. The Companys operations are managed on the basis of geographic divisional
operating segments. The Company has evaluated the criteria for aggregation of
the geographic operating segments under paragraph 17 of SFAS No. 131 and
believes it meets each of the respective criteria set forth. The Company
delivers similar products and services within each of its geographic divisional
operations. Each geographic and divisional service area utilizes similar means
for delivering the programming of the Companys services; have similarity in
the type or class of customer receiving the products and services; distributes
the Companys services over a unified network; and operates within a consistent
regulatory environment. In addition, each of the geographic divisional
operating segments has similar economic characteristics. In light of the
Companys similar services, means for delivery, similarity in type of
customers, the use of a unified network and other considerations across its
geographic divisional operating structure, management has determined that the
Company has one reportable segment, broadband services. 4. Acquisitions On February 28, 2002, CC Systems, LLC, a subsidiary of the Company, and High
Speed Access Corp. (HSA) closed the Companys acquisition from HSA of the
contracts and associated assets, and assumed related liabilities, that served
certain of the Companys high-speed data customers. At closing, the Company
paid approximately $78 million in cash and delivered 37,000 shares of HSAs
Series D convertible preferred stock and all the warrants to buy HSA common
stock owned by the Company. An additional $2 million of purchase price was
retained to secure indemnity claims. The purchase price has been allocated to
assets acquired and liabilities assumed based on fair values as determined in
the fourth quarter of 2002 by a third-party valuation expert, including
approximately $8 million assigned to intangible assets and amortized over an
average useful life of three years and approximately $54 million assigned to
goodwill. In 2003, as part of the finalization of the HSA acquisition,
goodwill was reduced to $52 million. The finalization of the purchase price
did not have a material effect on amortization expense previously reported.
During the period from 1997 to 2000, certain subsidiaries of the Company
entered into Internet-access related service agreements with HSA, and both
Vulcan Ventures and certain of the Companys subsidiaries made equity
investments in HSA. (See Note 19 for additional information). In April 2002, Interlink Communications Partners, LLC, Rifkin Acquisition
Partners, LLC and Charter Communications Entertainment I, LLC, each an
indirect, wholly-owned subsidiary of Charter Holdings, completed the purchase
of certain assets of Enstar Income Program II-2, L.P., Enstar Income Program
IV-3, L.P., Enstar Income/Growth Program Six-A, L.P., Enstar Cable of Macoupin
County and Enstar IV/PBD Systems Venture, serving approximately 21,600
(unaudited) customers, for a total cash purchase price of $48 million. In
September 2002, Charter Communications Entertainment I, LLC purchased all of
Enstar Income Program II-1, L.P.s Illinois cable systems, serving
approximately 6,400 (unaudited) customers, for a cash purchase price of $15
million. Enstar Communications Corporation, a direct subsidiary of Charter
Holdco, is a general partner of the Enstar limited partnerships but does not
exercise control over them. The purchase prices were allocated to assets
acquired based on fair values, including $41 million assigned to franchises and
$4 million assigned to other intangible assets amortized over a useful life of
three years. The 2002 acquisitions were funded primarily from borrowings under the credit
facilities of the Companys subsidiaries. During the second and third quarters in 2001, the Company acquired cable
systems in two separate transactions. In connection with the acquisitions, the
Company paid a total cash consideration of $1.8 billion, transferred a cable
system valued at $25 million, issued 505,664 shares of Charter Series A
Convertible Redeemable Preferred Stock valued at $51 million, and in the first
quarter of 2003 issued 39,595 additional shares of Series A Convertible
Redeemable Preferred Stock to certain sellers subject to certain holdback
provisions of the acquisition agreement valued at $4 million. The purchase
prices were allocated to assets acquired and liabilities assumed based on fair
values, including amounts assigned to franchises of $1.5 billion. F-13




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##### 



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
(dollars in millions, except where indicated) The transactions described above were accounted for using the purchase method
of accounting, and, accordingly, the results of operations of the acquired
assets and assumed liabilities have been included in the consolidated financial
statements from their respective dates of acquisition. The purchase prices
were allocated to assets acquired and liabilities assumed based on fair values. The summarized operating results of the Company that follow are presented on a
pro forma basis as if the following had occurred on January 1, 2001: all
acquisitions and dispositions completed during 2001; the issuance of Charter
Holdings senior notes and senior discount notes in January 2002 and 2001; and
the issuance of Charter Holdings senior notes and senior discount notes in May
2001. Adjustments have been made to give effect to amortization of franchises
acquired prior to July 1, 2001, interest expense, minority interest, and
certain other adjustments. Pro forma results for the year ended December 31,
2003 and 2002 would not differ significantly from historical results. Year Ended December 31, 2001(in millions)Revenues
    
    $
    3,969Loss from operations
    
    
    (1,211
    )Loss before minority interest, income taxes and
cumulative effect of accounting change
    
    
    (2,642
    )Net loss
    
    
    (2,645
    )
 The unaudited pro forma financial information has been presented for
comparative purposes and does not purport to be indicative of the consolidated
results of operations had these transactions been completed as of the assumed
date or which may be obtained in the future. 5. Allowance for Doubtful Accounts Activity in the allowance for doubtful accounts is summarized as follows for
the years presented: Year Ended December 31,2003
    
    2002
    
    2001Balance, beginning of year
    
    $
    19
    
    
    $
    33
    
    
    $
    12Acquisitions of cable systems
    
    
    
    
    
    
    
    
    
    
    1Charged to expense
    
    
    79
    
    
    
    108
    
    
    
    95Uncollected balances written off, net of recoveries
    
    
    (81
    )
    
    
    (122
    )
    
    
    (75
    )Balance, end of year
    
    $
    17
    
    
    $
    19
    
    
    $
    33
 6. Property, Plant and Equipment Property, plant and equipment consists of the following as of December 31, 2003
and 2002: 2003
    
    2002Cable distribution systems
    
    $
    9,461
    
    
    $
    8,910Land, buildings and leasehold improvements
    
    
    524
    
    
    
    521Vehicles and equipment
    
    
    657
    
    
    
    57910,642
    
    
    
    10,010Less: accumulated depreciation
    
    
    (3,834
    )
    
    
    (2,550
    )$
    6,808
    
    
    $
    7,460
 F-14




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##### 



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
(dollars in millions, except where indicated) The Company periodically evaluates the estimated useful lives used to
depreciate its assets and the estimated amount of assets that will be abandoned
or have minimal use in the future. A significant change in assumptions about
the extent or timing of future asset retirements, or in the Companys use of
new technology and upgrade programs, could materially affect future
depreciation expense. Depreciation expense for the years ended December 31, 2003, 2002 and 2001 was
$1.5 billion, $1.4 billion and $1.2 billion, respectively. 7. Franchises and Goodwill The Company constructs and operates its cable systems under non-exclusive
franchises that are granted by state or local government authorities for
varying lengths of time. As of December 31, 2003, the Company had
approximately 4,400 franchises in areas located throughout the United States.
The Company obtained these franchises primarily through acquisitions of cable
systems accounted for as purchase business combinations. These acquisitions
have primarily been for the purpose of acquiring existing franchises and
related infrastructure and, as such, the primary asset acquired by the Company
has historically been cable franchises. On January 1, 2002, the Company adopted 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 will be
tested for impairment annually, or more frequently as warranted by events or
changes in circumstances. During the first quarter of 2002, the Company had an
independent appraiser perform valuations of its franchises as of January 1,
2002. Based on the guidance prescribed in EITF Issue No. 02-7, Unit of
Accounting for Testing of Impairment of Indefinite-Lived Intangible Assets,
franchises were 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 then believed represented the
highest and best use of those assets. Fair value was determined based on
estimated discounted future cash flows using assumptions that are consistent
with internal forecasts. As a result, the Company determined that franchises
were impaired and recorded the cumulative effect of a change in accounting
principle of $540 million (approximately $572 million before tax effects of $32
million). As required by SFAS No. 142, the standard has not been retroactively
applied to the results for the period prior to adoption. The Company performed its annual impairment assessment as of October 1, 2002
using an independent third-party appraiser and following the guidance of EITF
Issue 02-17, Recognition of Customer Relationship Intangible Assets Acquired in
a Business Combination,which was issued in October 2002 and requires the
consideration of assumptions that marketplace participants would consider, such
as expectations of future contract renewals and other benefits related to the
intangible asset. Revised estimates of future cash flows and the use of a
lower projected long-term growth rate in the Companys valuation, led to
recognition of a $4.6 billion impairment charge in the fourth quarter of 2002. The independent third-party appraisers valuations as of January 1, 2002,
October 1, 2002 and October 1, 2003 yielded total enterprise values of
approximately $30 billion, $25 billion and $25 billion, respectively, which
included approximately $2.4 billion, $3.1 billion and $3.2 billion,
respectively, assigned to customer relationships. SFAS No. 142 does not permit
the recognition of intangible assets not previously recognized. Accordingly,
the impairment included approximately $572 million and $3.1 billion, before tax
effects, attributable to customer relationships as of January 1, 2002 and
October 1, 2002, respectively. The valuation completed at October 1, 2003
showed franchise values in excess of book value and thus resulted in no
impairment. Additionally, as a result of the sale of the Port Orchard,
Washington cable system on October 1, 2003, net carrying value of franchises
were reduced by $42 million. In determining whether its franchises have an indefinite life, the Company
considered the exclusivity of the franchise, its expected costs of franchise
renewals, and the technological state of the associated cable systems with a
view to whether or not the Company is in compliance with any technology
upgrading requirements. Certain F-15




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##### 



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
(dollars in millions, except where indicated) franchises did not qualify for indefinite-life
treatment due to technological or operational factors that limit their lives.
These franchise costs will be amortized on a straight-line basis over 10 years. The effect of the adoption of SFAS No. 142 as of December 31, 2003 and 2002 is
presented in the following table: December 31,2003
    
    2002Gross
    
    
    
    
    
    Net
    
    Gross
    
    
    
    
    
    NetCarrying
    
    Accumulated
    
    Carrying
    
    Carrying
    
    Accumulated
    
    CarryingAmount
    
    Amortization
    
    Amount
    
    Amount
    
    Amortization
    
    AmountIndefinite-lived intangible assets:Franchises with indefinite lives
    
    $
    17,018
    
    
    $
    3,412
    
    
    $
    13,606
    
    
    $
    17,076
    
    
    $
    3,428
    
    
    $
    13,648Goodwill
    
    
    52
    
    
    
    
    
    
    
    52
    
    
    
    54
    
    
    
    
    
    
    
    54$
    17,070
    
    
    $
    3,412
    
    
    $
    13,658
    
    
    $
    17,130
    
    
    $
    3,428
    
    
    $
    13,702Finite-lived intangible assets:Franchises with finite lives
    
    $
    107
    
    
    $
    33
    
    
    $
    74
    
    
    $
    103
    
    
    $
    24
    
    
    $
    79
 Franchise amortization expense for each of the years ended December 31, 2003
and 2002 was $9 million which represents the amortization relating to
franchises that did not qualify for indefinite-life treatment under SFAS No.
142, including costs associated with franchise renewals. The Company expects
amortization expense on franchise assets will decrease to approximately $4
million annually based on its ability in 2003 to renew franchise agreements the
Company previously classified as having finite lives without substantial costs.
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. Franchise
amortization expense for the year ended December 31, 2001 was $1.5 billion. As required by SFAS No. 142, the standard has not been retroactively applied to
the results for the period prior to adoption. A reconciliation of net loss for
the years ended December 31, 2003, 2002 and 2001, as if SFAS No. 142 had been
adopted as of January 1, 2001, is presented below: Year Ended December 31,2003
    
    2002
    
    2001NET LOSS:Reported net loss
    
    $
    (770
    )
    
    $
    (6,199
    )
    
    $
    (2,573
    )Add back: amortization of indefinite-lived franchises
    
    
    
    
    
    
    
    
    
    
    1,453Adjusted net loss
    
    $
    (770
    )
    
    $
    (6,199
    )
    
    $
    (1,120
    )
 F-16




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##### 



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
(dollars in millions, except where indicated) 8. Accounts Payable and Accrued Expenses Accounts payable and accrued expenses consist of the following as of December
31, 2003 and 2002: 2003
    
    2002Accounts payable
    
    $
    150
    
    
    $
    182Capital expenditures
    
    
    93
    
    
    
    134Accrued interest
    
    
    270
    
    
    
    234Programming costs
    
    
    268
    
    
    
    282Franchise related fees
    
    
    70
    
    
    
    70State sales tax
    
    
    61
    
    
    
    67Other accrued expenses
    
    
    216
    
    
    
    281$
    1,128
    
    
    $
    1,250
 9. Long-Term Debt Long-term debt consists of the following as of December 31, 2003 and 2002: 2003
    
    2002Face
    
    Accreted
    
    Face
    
    AccretedValue
    
    Value
    
    Value
    
    ValueLong-Term DebtCharter Holdings:March 19998.250% senior notes due 2007
    
    
    451
    
    
    
    450
    
    
    
    600
    
    
    
    5998.625% senior notes due 2009
    
    
    1,244
    
    
    
    1,242
    
    
    
    1,500
    
    
    
    1,4979.920% senior discount notes due 2011
    
    
    1,108
    
    
    
    1,082
    
    
    
    1,475
    
    
    
    1,307January 200010.000% senior notes due 2009
    
    
    640
    
    
    
    640
    
    
    
    675
    
    
    
    67510.250% senior notes due 2010
    
    
    318
    
    
    
    318
    
    
    
    325
    
    
    
    32511.750% senior discount notes due 2010
    
    
    450
    
    
    
    400
    
    
    
    532
    
    
    
    421January 200110.750% senior notes due 2009
    
    
    874
    
    
    
    873
    
    
    
    900
    
    
    
    90011.125% senior notes due 2011
    
    
    500
    
    
    
    500
    
    
    
    500
    
    
    
    50013.500% senior discount notes due 2011
    
    
    675
    
    
    
    517
    
    
    
    675
    
    
    
    454May 20019.625% senior notes due 2009
(includes January 2002 additional
bond issue)
    
    
    640
    
    
    
    638
    
    
    
    700
    
    
    
    69810.000% senior notes due 2011
(includes January 2002 additional
bond issue)
    
    
    710
    
    
    
    708
    
    
    
    875
    
    
    
    87311.750% senior discount notes due 2011
    
    
    939
    
    
    
    717
    
    
    
    1,018
    
    
    
    693January 200212.125% senior discount notes due 2012
    
    
    330
    
    
    
    231
    
    
    
    450
    
    
    
    280CCH II:10.250% senior notes due 2010
    
    
    1,601
    
    
    
    1,601
    
    
    
    
    
    
    
    CCO Holdings:8-3/4% senior notes due 2013
    
    
    500
    
    
    
    500
    
    
    
    
    
    
    
    Renaissance:10.00% senior discount notes due 2008
    
    
    114
    
    
    
    116
    
    
    
    114
    
    
    
    113CC V Holdings:11.875% senior discount notes due 2008
    
    
    113
    
    
    
    113
    
    
    
    180
    
    
    
    163
 F-17




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##### 



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
(dollars in millions, except where indicated) 2003
    
    2002Face
    
    Accreted
    
    Face
    
    AccretedValue
    
    Value
    
    Value
    
    ValueOther long-term debt
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1Credit FacilitiesCharter Operating
    
    
    4,459
    
    
    
    4,459
    
    
    
    4,542
    
    
    
    4,542CC VI
    
    
    868
    
    
    
    868
    
    
    
    926
    
    
    
    926Falcon Cable
    
    
    856
    
    
    
    856
    
    
    
    1,155
    
    
    
    1,155CC VIII Operating
    
    
    1,044
    
    
    
    1,044
    
    
    
    1,166
    
    
    
    1,166$
    18,434
    
    
    $
    17,873
    
    
    $
    18,309
    
    
    $
    17,288
 The accreted values presented above represent the face value of the notes less
the original issue discount at the time of sale plus the accretion to the
balance sheet date. In September 2003, Charter, Charter Holdings and their indirect subsidiary, CCH
II, LLC (CCH II) purchased, in a non-monetary transaction, a total of
approximately $609 million principal amount of Charters outstanding
convertible senior notes and approximately $1.3 billion principal amount of the
senior notes and senior discount notes issued by Charter Holdings from
institutional investors in a small number of privately negotiated transactions.
As consideration for these securities, CCH II issued approximately $1.6
billion principal amount of 10.25% notes due 2010, achieving approximately $294
million of debt discount. CCH II also issued an additional $30 million
principal amount of 10.25% notes for an equivalent amount of cash and used the proceeds for transaction costs and for general corporate purposes. See
discussion of the CCH II notes below for more details. March 1999 Charter Holdings Notes.The March 1999 Charter Holdings notes were
issued under three separate indentures, each dated as of March 17, 1999, among
Charter Holdings and Charter Communications Capital Corporation (Charter
Capital), as the issuers, and BNY Midwest Trust Company, as trustee. Charter
Holdings and Charter Capital exchanged these notes for new March 1999 Charter
Holdings notes with substantially similar terms, except that the new March 1999
Charter Holdings notes are registered under the Securities Act and, therefore,
do not bear legends restricting their transfer and are not subject to further
registration or special interest obligations. The March 1999 Charter Holdings notes are general unsecured obligations of
Charter Holdings and Charter Capital. The March 1999 8.250% Charter Holdings
notes mature on April 1, 2007, and as of December 31, 2003, there was $451
million in total principal amount outstanding. The March 1999 8.625% Charter
Holdings notes mature on April 1, 2009 and as of December 31, 2003, there was
$1.2 billion in total principal amount outstanding. The March 1999 9.920%
Charter Holdings notes mature on April 1, 2011 and as of December 31, 2003, the
total principal amount outstanding and accreted value was $1.1 billion. Cash
interest on the March 1999 9.920% Charter Holdings notes will not accrue prior
to April 1, 2004. The March 1999 Charter Holdings notes are senior debts of Charter Holdings and
Charter Capital. They rank equally with all other current and future
unsubordinated obligations of Charter Holdings and Charter Capital, including
the January 2000, January 2001, May 2001 and January 2002 Charter Holdings
notes. They are structurally subordinated to the obligations of Charter
Holdings subsidiaries, including the CCH II notes, the CCO Holdings, LLC (CCO
Holdings) notes, and the credit facilities. Charter Holdings and Charter Capital will not have the right to redeem the
March 1999 8.250% Charter Holdings notes prior to their maturity date on April
1, 2007. On or after April 1, 2004, Charter Holdings and Charter Capital may
redeem some or all of the March 1999 8.625% Charter Holdings notes and the
March 1999 9.920% Charter Holdings notes at any time, in each case, at a
premium. The optional redemption price declines to 100% of the principal
amount of March 1999 Charter Holdings notes redeemed, plus accrued and unpaid
interest, if any, for redemption on or after April 1, 2007. In the event that a specified change of control event occurs, Charter Holdings
and Charter Capital must offer to repurchase any then outstanding March 1999
Charter Holdings notes at 101% of their principal amount or accreted value, as
applicable, plus accrued and unpaid interest, if any. F-18




---



##### 



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
(dollars in millions, except where indicated) The indentures governing the March 1999 Charter Holdings senior notes contain
restrictive covenants that limit certain transactions or activities by Charter
Holdings and its restricted subsidiaries. All but two of Charter Holdings
direct and indirect subsidiaries are currently restricted subsidiaries. January 2000 Charter Holdings Notes.The January 2000 Charter Holdings notes
were issued under three separate indentures, each dated as of January 12, 2000,
among Charter Holdings and Charter Capital, as the issuers, and BNY Midwest
Trust Company, as trustee. In June 2000, Charter Holdings and Charter Capital
exchanged these notes for new January 2000 Charter Holdings notes, with
substantially similar terms, except that the new January 2000 Charter Holdings
notes are registered under the Securities Act and, therefore, do not bear
legends restricting their transfer and are not subject to further registration
or special interest obligations. The January 2000 Charter Holdings notes are general unsecured obligations of
Charter Holdings and Charter Capital. The January 2000 10.00% Charter Holdings
notes mature on April 1, 2009, and as of December 31, 2003, there was $640
million in total principal amount of these notes outstanding. The January 2000
10.25% Charter Holdings notes mature on January 15, 2010 and as of December 31,
2003, there was $318 million in total principal amount of these notes
outstanding. The January 2000 11.75% Charter Holdings notes mature on January
15, 2010 and as of December 31, 2003, the total principal amount outstanding
was $450 million and the total accreted value of these notes was approximately
$400 million. Cash interest on the January 2000 11.75% Charter Holdings notes
will not accrue prior to January 15, 2005. The January 2000 Charter Holdings notes are senior debts of Charter Holdings
and Charter Capital. They rank equally with all other current and future
unsubordinated obligations of Charter Holdings and Charter Capital, including
the March 1999, January 2001, May 2001 and January 2002 Charter Holdings notes.
They are structurally subordinated to the obligations of Charter Holdings
subsidiaries, including the CCH II notes, the CCO Holdings notes, and the
credit facilities. Charter Holdings and Charter Capital will not have the right to redeem the
January 2000 10.00% Charter Holdings notes prior to their maturity date on
April 1, 2009. On or after January 15, 2005, Charter Holdings and Charter
Capital may redeem some or all of the January 2000 10.25% Charter Holdings
notes and the January 2000 11.75% Charter Holdings notes at any time, in each
case, at a premium. The optional redemption price declines to 100% of the
principal amount of the January 2000 Charter Holdings notes redeemed, plus
accrued and unpaid interest, if any, for redemption on or after January 15,
2008. In the event that a specified change of control event occurs, Charter Holdings
and Charter Capital must offer to repurchase any then outstanding January 2000
Charter Holdings notes at 101% of their total principal amount or accreted
value, as applicable, plus accrued and unpaid interest, if any. The indentures governing the January 2000 Charter Holdings notes contain
substantially identical events of default, affirmative covenants and negative
covenants as those contained in the indentures governing the March 1999 Charter
Holdings notes. January 2001 Charter Holdings Notes.The January 2001 Charter Holdings notes
were issued under three separate indentures, each dated as of January 10, 2001,
each among Charter Holdings and Charter Capital, as the issuers, and
BNY Midwest Trust Company, as trustee. In March 2001, Charter Holdings and
Charter Capital exchanged these notes for new January 2001 Charter Holdings
notes, with substantially similar terms, except that the new January 2001
Charter Holdings notes are registered under the Securities Act and, therefore,
do not bear legends restricting their transfer, and are not subject to further
registration or special interest obligations. The January 2001 Charter Holdings notes are general unsecured obligations of
Charter Holdings and Charter Capital. The January 2001 10.750% Charter Holdings
notes mature on October 1, 2009, and as of December 31, 2003, there was $874
million in total principal amount of these notes outstanding. The January 2001
11.125% Charter Holdings notes mature on January 15, 2011 and as of December
31, 2003, there was $500 million in total principal amount outstanding. The
January 2001 13.500% Charter Holdings notes mature on January 15, 2011 with a
total principal amount at maturity of $675 million. As of December 31, 2003,
the total accreted value of these F-19




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##### 



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
(dollars in millions, except where indicated) 13.500% notes was approximately $517 million.
Cash interest on the January 2001 13.500% Charter Holdings notes will not
accrue prior to January 15, 2006. The January 2001 Charter Holdings notes are senior debts of Charter Holdings
and Charter Capital. They rank equally with all other current and future
unsubordinated obligations of Charter Holdings and Charter Capital, including
the March 1999, January 2000, May 2001 and January 2002 Charter Holdings notes.
They are structurally subordinated to the obligations of Charter Holdings
subsidiaries, including the CCH II notes, the CCO Holdings notes, and the
credit facilities. Charter Holdings and Charter Capital will not have the right to redeem the
January 2001 10.750% Charter Holdings notes prior to their maturity date on
October 1, 2009. On or after January 15, 2006, Charter Holdings and Charter
Capital may redeem some or all of the January 2001 11.125% Charter Holdings
notes and the January 2001 13.500% Charter Holdings notes at any time, in each
case, at a premium. The optional redemption price declines to 100% of the
principal amount of the January 2001 Charter Holdings notes redeemed, plus
accrued and unpaid interest, if any, for redemption on or after January 15,
2009. In the event that a specified change of control event occurs, Charter Holdings
and Charter Capital must offer to repurchase any then outstanding January 2001
Charter Holdings notes at 101% of their total principal amount or accreted
value, as applicable, plus accrued and unpaid interest, if any. The indentures governing the January 2001 Charter Holdings notes contain
substantially identical events of default, affirmative covenants and negative
covenants as those contained in the indentures governing the March 1999 and
January 2000 Charter Holdings notes. May 2001 Charter Holdings Notes.The May 2001 Charter Holdings notes were
issued under three separate indentures, each among Charter Holdings and Charter
Capital, as the issuers, and BNY Midwest Trust Company, as trustee. In
September 2001, Charter Holdings and Charter Capital exchanged substantially
all of these notes for new May 2001 Charter Holdings notes, with substantially
similar terms, except that the new May 2001 Charter Holdings notes are
registered under the Securities Act and, therefore, do not bear legends
restricting their transfer, and are not subject to further registration or
special interest obligations. The May 2001 Charter Holdings notes are general unsecured obligations of
Charter Holdings and Charter Capital. The May 2001 9.625% Charter Holdings
notes mature on November 15, 2009, and as of December 31, 2003, combined with
the January 2002 additional bond issue discussed below, there was $640 million
in total principal amount outstanding. The May 2001 10.000% Charter Holdings
notes mature on May 15, 2011 and as of December 31, 2003, combined with the
January 2002 additional bond issue discussed below, there was $710 million in
total principal amount outstanding. The May 2001 11.750% Charter Holdings
notes issued in the total principal amount at maturity of $1.0 billion mature
on May 15, 2011 and as of December 31, 2003, the total principal amount
outstanding was $939 million and the total accreted value of the 11.750% notes
was approximately $717 million. Cash interest on the May 2001 11.750% Charter
Holdings notes will not accrue prior to May 15, 2006. The May 2001 Charter Holdings notes are senior debts of Charter Holdings and
Charter Capital. They rank equally with all other current and future
unsubordinated obligations of Charter Holdings and Charter Capital, including
the
March 1999, January 2000, January 2001 and January 2002 Charter Holdings notes.
They are structurally subordinated to the obligations of Charter Holdings
subsidiaries, including the CCH II notes, the CCO Holdings notes, and the
credit facilities. Charter Holdings and Charter Capital will not have the right to redeem the May
2001 9.625% Charter Holdings notes prior to their maturity date on November 15,
2009. Before May 15, 2004, Charter Holdings and Charter Capital may redeem up
to 35% of the May 2001 10.000% Charter Holdings notes and the May 2001 11.750%
Charter Holdings notes, in each case, at a premium with proceeds of certain
offerings of equity securities. In addition, on or after May 15, 2006, Charter
Holdings and Charter Capital may redeem some or all of the May 2001 10.000%
Charter Holdings notes and the May 2001 11.750% Charter Holdings notes at any
time, in each case, at a F-20




---



##### 



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
(dollars in millions, except where indicated) premium. The optional redemption price declines to
100% of the principal amount of the May 2001 Charter Holdings notes redeemed,
plus accrued and unpaid interest, if any, for redemption on or after May 15,
2009. In the event that a specified change of control event occurs, Charter Holdings
and Charter Capital must offer to repurchase any then outstanding May 2001
Charter Holdings notes at 101% of their total principal amount or accreted
value, as applicable, plus accrued and unpaid interest, if any. The indentures governing the May 2001 Charter Holdings notes contain
substantially identical events of default, affirmative covenants and negative
covenants as those contained in the indentures governing the March 1999,
January 2000 and January 2001 Charter Holdings notes. January 2002 Charter Holdings Notes.The January 2002 Charter Holdings notes
were issued under three separate indentures, each among Charter Holdings and
Charter Capital, as the issuers, and BNY Midwest Trust Company, as trustee, two
of which were supplements to the indentures for the May 2001 Charter Holdings
notes. In July 2002, Charter Holdings and Charter Capital exchanged
substantially all of these notes for new January 2002 Charter Holdings notes,
with substantially similar terms, except that the new January 2002 notes are
registered under the Securities Act and, therefore, do not bear legends
restricting their transfer and are not subject to further registration or
special interest obligations. The January 2002 Charter Holdings notes are general unsecured obligations of
Charter Holdings and Charter Capital. The January 2002 Charter Holdings notes
consisted of $350 million in total principal amount of 9.625% senior notes due
2009, $300 million in total principal amount of 10.000% senior notes due 2011
(both combined with their respective May 2001 issue in the tabular presentation
above) and $330 million in total principal amount at maturity of 12.125% senior
discount notes due 2012. The January 2002 12.125% senior discount notes mature on January 15, 2012, and
as of December 31, 2003, the total principal amount outstanding was $330
million and the total accreted value of these notes was approximately $231
million. Cash interest on the January 2002 12.125% Charter Holdings notes will
not accrue prior to January 15, 2007. The January 2002 Charter Holdings notes are senior debts of Charter Holdings
and Charter Capital. They rank equally with the current and future unsecured
and unsubordinated debt of Charter Holdings, including the March 1999, January
2000, January 2001 and May 2001 Charter Holdings notes. They are structurally
subordinated to the obligations of Charter Holdings subsidiaries, including
the CCH II notes, the CCO Holdings notes, and the credit facilities. The Charter Holdings 12.125% senior discount notes are redeemable at the option
of the issuers at amounts decreasing from 106.063% to 100% of accreted value
beginning January 15, 2007. At any time prior to January 15, 2005, the issuers
may redeem up to 35% of the total principal amount of the 12.125% senior
discount notes at a redemption price of 112.125% of the accreted value under
certain conditions. In the event that a specified change of control event occurs, Charter Holdings
and Charter Capital must offer to repurchase any then outstanding January 2002
Charter Holdings notes at 101% of their total principal amount or accreted
value, as applicable, plus accrued and unpaid interest, if any. The indentures governing the January 2002 Charter Holdings notes contain
substantially identical events of default, affirmative covenants and negative
covenants as those contained in the indentures governing the March 1999,
January 2000, January 2001 and May 2001 Charter Holdings notes. CCH II Notes.In September 2003, CCH II and CCH II Capital Corp. jointly
issued $1.6 billion total principal amount of 10.25% senior notes due 2010. The
CCH II notes are general unsecured obligations of CCH II and CCH II Capital
Corp. They rank equally with all other current or future unsubordinated
obligations of CCH II and CCH II Capital Corp. The CCH II notes are
structurally subordinated to all obligations of subsidiaries of CCH II,
including the CCO Holdings notes and the credit facilities. F-21




---



##### 



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
(dollars in millions, except where indicated) Interest on the CCH II notes accrues at 10.25% per annum, from September 23,
2003 or, if interest already has been paid, from the date it was most recently
paid. Interest is payable semi-annually in arrears on each March 15 and
September 15, commencing on March 15, 2004. At any time prior to September 15, 2006, the issuers of the CCH II notes may
redeem up to 35% of the total principal amount of the CCH II notes on a pro
rata basis at a redemption price equal to 110.25% of the principal amount of
CCH II notes redeemed, plus any accrued and unpaid interest. On or after September 15, 2008, the issuers of the CCH II notes may redeem all
or a part of the notes at a redemption price that declines ratably from the
initial redemption price of 105.125% to a redemption price on or after
September 15, 2009 of 100.0% of the principal amount of the CCH II notes
redeemed, plus, in each case, any accrued and unpaid interest. In the event of specified change of control events, CCH II must offer to
purchase the outstanding CCH II notes from the holders at a purchase price
equal to 101% of the total principal amount of the notes, plus any accrued and
unpaid interest. CCO Holdings Notes.In November 2003, CCO Holdings and CCO Holdings Capital
Corp. jointly issued $500 million total principal amount of 8-3/4% senior
notes due 2013. The CCO Holdings notes are general unsecured obligations of
CCO Holdings and CCO Holdings Capital Corp. They rank equally with all other
current or future unsubordinated obligations of CCO Holdings and CCO Holdings
Capital Corp. The CCO Holdings notes are structurally subordinated to all
obligations of its subsidiaries, including the credit facilities. Interest
on the CCO Holdings senior notes accrues at 8-3/4% per year, from
November 10, 2003 or, if interest already has been paid, from the date it was
most recently paid. Interest is payable semi-annually in arrears on each May
15 and November 15, commencing on May 15, 2004. At any time prior to November 15, 2006, the issuers of the CCO Holdings senior
notes may redeem up to 35% of the total principal amount of the CCO Holdings
senior notes to the extent of public equity proceeds they have received on a
pro rata basis at a redemption price equal to 108.75% of the principal amount
of CCO Holdings senior notes redeemed, plus any accrued and unpaid interest. On or after November 15, 2008, the issuers of the CCO Holdings senior notes may
redeem all or a part of the notes at a redemption price that declines ratably
from the initial redemption price of 104.375% to a redemption price on or after
November 15, 2011 of 100.0% of the principal amount of the CCO Holdings senior
notes redeemed, plus, in each case, any accrued and unpaid interest. In the event of specified change of control events, CCO Holdings must offer to
purchase the outstanding CCO Holdings senior notes from the holders at a
purchase price equal to 101% of the total principal amount of the notes, plus
any accrued and unpaid interest. Renaissance Notes.In connection with the acquisition of Renaissance in April
1999, the Company assumed $163 million principal amount at maturity of 10.000%
senior discount notes due 2008 of which $49 million was
repurchased in May 1999. The Renaissance notes did not require the payment of
interest until April 15, 2003. From and after April 15, 2003, the Renaissance
notes bear interest, payable semi-annually in cash, on April 15 and October 15,
commencing on October 15, 2003. The Renaissance notes are due on April 15,
2008. CC V Holdings Notes.Charter Holdco acquired CC V Holdings in November 1999 and
assumed CC V Holdings outstanding 11.875% senior discount notes due 2008 with
an accreted value of $113 million as of December 31, 2003. Commencing December
1, 2003, cash interest on the CC V Holdings 11.875% notes will be payable
semi-annually on June 1 and December 1 of each year. F-22




---



##### 



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
(dollars in millions, except where indicated) High-Yield Restrictive Covenants; Limitation on Indebtedness.The indentures
governing the notes of the Companys subsidiaries contain certain covenants
that restrict the ability of Charter Holdings, Charter Capital, CCH II, CCH II
Capital Corp., CCO Holdings, CCO Holdings Capital Corp., the CCV Holdings notes
issuers, Renaissance Media Group, and all of their restricted subsidiaries to:  
    
    incur additional debt;
    
    pay dividends on equity or repurchase equity;
    
    grant liens;
    
    make investments;
    
    sell all or substantially all of their assets or merge with or into other companies;
    
    sell assets;
    
    enter into sale-leasebacks;
    
    in the case of restricted subsidiaries, create or permit to exist
dividend or payment restrictions with respect to the bond issuers,
guarantee their parent companies debt, or issue specified equity
interests; and
    
    engage in certain transactions with affiliates. Charter Operating Credit Facilities.The Charter Communications Operating, LLC
(Charter Operating) credit facilities were amended and restated as of June
19, 2003 to allow for the insertion of intermediate holding companies between
Charter Holdings and Charter Operating. In exchange for the lenders consent
to the organizational restructuring, Charter Operatings pricing increased by
50 basis points across all levels in the pricing grid then in effect under the
Charter Operating credit facilities. Obligations under the Charter Operating credit facilities are guaranteed by
Charter Holdings, CCO Holdings and by Charter Operatings subsidiaries, other
than the non-recourse subsidiaries, subsidiaries precluded from so guaranteeing
by reason of the provisions of other indebtedness to which they are subject,
and immaterial subsidiaries. The non-recourse subsidiaries include CCO NR
Holdings, LLC, and subsidiaries contributed to CCO NR Holdings, LLC by Charter
Holdings in the recent organizational restructuring that occurred in June and
July of 2003, including the CC V/CC VIII Companies, the CC VI Companies and the
CC VII Companies and their respective subsidiaries. The obligations under the
Charter Operating credit facilities are secured by pledges of all equity
interests in Charter Operatings direct subsidiaries, all equity interests
owned by its guarantor subsidiaries in their respective subsidiaries, and
intercompany obligations owing to Charter Operating and/or its guarantor
subsidiaries by their affiliates. The obligations are also secured by a pledge
of CCO Holdings equity interests in all of its direct subsidiaries (including
Charter Operating) as collateral under these credit facilities. The Charter Operating credit facilities provide for borrowings of up to $5.1
billion and provide for four term facilities: two Term A facilities with a
total principal amount of $1.1 billion that matures in September 2007, each
with different amortization schedules, one that began in June 2002 and one
beginning in September 2005; and two Term B facilities with a total principal
amount of $2.7 billion, of which $1.8 billion matures in March 2008 and $884
million matures in September 2008. The amortization of the principal amount of
the Term B term loan facilities is substantially back-ended, with more than
90% of the principal balance due in the year of maturity. The Charter
Operating credit facilities also provide for two revolving credit facilities,
in a total amount of $1.3 billion, one which will reduce annually beginning in
March 2004 and one which will reduce quarterly beginning in September 2005,
with a maturity date in September 2007. Supplemental credit facilities in the
amount of $100 million may be available from lenders within or outside the
lending group that agree to provide it. Amounts
under the Charter Operating credit facilities bear interest at the Eurodollar
rate or the base rate, each as defined, plus a margin of up to 3.0% for
Eurodollar loans (3.15% to 3.92% as of December 31, 2003 and 3.13% to 4.58% as
of December 31, 2002) and 2.0% for base rate loans. A quarterly commitment fee
of between 0.25% and 0.375% per annum is payable on the unborrowed balance of
the revolving credit facilities. As of December 31, 2003, outstanding borrowings under the Charter Operating
credit facilities were approximately $4.5 billion and the unused total
potential availability was $681 million, although financial covenants limited
the availability under these facilities to $213 million as of December 31,
2003. F-23




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##### 



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
(dollars in millions, except where indicated) CC VI Operating Credit Facilities.The obligations under the CC VI Operating
credit facilities are guaranteed by CC VI Operatings parent, CC VI Holdings,
LLC, and by the subsidiaries of CC VI Operating other than immaterial
subsidiaries. The obligations under the CC VI Operating credit facilities are
secured by pledges of all equity interests owned by CC VI Operating and its
guarantor subsidiaries in other persons, and by intercompany obligations owing
CC VI Operating and/or its guarantor subsidiaries by their affiliates, but are
not secured by other assets of CC VI Operating or its subsidiaries. The
obligations under the CC VI Operating credit facilities are also secured by
pledges by CC VI Holdings of all equity interests it holds in other persons,
and intercompany obligations owing to it by its affiliates, but are not secured
by the other assets of CC VI Holdings. The CC VI Operating credit facilities provide for two term facilities, one with
a principal amount of $380 million that matures May 2008 (Term A), and the
other with a principal amount of $372 million that matures November 2008 (Term
B). The CC VI Operating credit facilities also provide for a $350 million
reducing revolving credit facility with a maturity date in May 2008.
Supplemental credit facilities in the amount of approximately $300 million may
be available until December 31, 2004 from lenders within or outside the lending
group that agree to provide it. Amounts under the CC VI Operating credit
facilities bear interest at the Eurodollar rate or the base rate, each as
defined, plus a margin of up to 2.5% for Eurodollar loans (2.40% to 3.66% as of
December 31, 2003 and 2.62% to 4.31% as of December 31, 2002) and 1.5% for base
rate loans. A quarterly commitment fee of 0.25% per year is payable on the
unborrowed balance of the Term A facility and the revolving facility. As of December 31, 2003, outstanding borrowings under the CC VI Operating
credit facilities were $868 million and unused total potential availability was
$234 million, although financial covenants limited the availability under these
facilities to $119 million as of December 31, 2003. Falcon Cable Credit Facilities.The obligations under the Falcon credit
facilities are guaranteed by the direct parent of Falcon Cable Communications,
Charter Communications VII, LLC, and by the subsidiaries of Falcon Cable
Communications (except for certain excluded subsidiaries). The obligations
under the Falcon credit facilities are secured by pledges of all of the equity
interests in the guarantor subsidiaries of Falcon Cable Communications, but are
not secured by other assets of Falcon Cable Communications or its subsidiaries.
The obligations under the Falcon credit facilities are also secured by a
pledge of the equity interests of Charter Communications VII in Falcon Cable
Communications and intercompany obligations owing to Charter Communications VII
by Falcon Cable Communications and its guarantor subsidiaries, but are not
secured by the other assets of Charter Communications VII. The Falcon credit facilities provide for two term facilities, one with a
principal amount of $190 million that matures June 2007 (Term B), and the other
with the principal amount of $285 million that matures December 2007 (Term C).
The Falcon credit facilities also provide for a reducing revolving facility of
up to approximately $60 million (maturing in December 2006), a reducing
supplemental facility of up to approximately $105 million (maturing in December
2007) and a second reducing revolving facility of up to $670 million (maturing
in June 2007). Supplemental credit facilities in the amount of up to $486
million may also be available from lenders within or outside the lending group
that agree to provide it. Amounts under the Falcon Cable credit facilities
bear interest at the Eurodollar rate or the base rate, each as defined, plus a
margin of up to 2.25% for Eurodollar loans (2.40% to 3.42% as of December 31,
2003 and 2.69% to 4.07% as of December 31, 2002) and up to 1.25% for base rate
loans. A quarterly commitment fee of between 0.25% and 0.375% per year is
payable on the unborrowed balance of the revolving facilities. As of December 31, 2003, outstanding borrowings were $856 million and unused
total potential availability was $454 million, although financial covenants
limited the availability under these facilities to $366 million as of December
31, 2003. CC VIII Operating Credit Facilities.The obligations under the CC VIII
Operating credit facilities are guaranteed by the parent company of CC VIII
Operating, CC VIII Holdings, LLC, and by the subsidiaries of CC VIII Operating
other than immaterial subsidiaries. The obligations under the CC VIII
Operating credit facilities are secured by pledges of all equity interests
owned by CC VIII Operating and its guarantor subsidiaries in other persons, and
by intercompany obligations owing to CC VIII Operating and/or its guarantor
subsidiaries by their affiliates, but are not F-24




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##### 



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
(dollars in millions, except where indicated) secured by other assets of CC
VIII Operating or its subsidiaries. The obligations under the CC VIII
Operating credit facilities are also secured by pledges of equity interests
owned by CC VIII Holdings in other persons, and by intercompany obligations
owing to CC VIII Holdings by its affiliates, but are not secured by the other
assets of CC VIII Holdings. The CC VIII Operating credit facilities provide for borrowings of up $1.4
billion as of December 31, 2003. The CC VIII Operating credit facilities
provide for two term facilities, a Term A facility with a reduced current total
principal amount of $375 million, that continues reducing quarterly until it
reaches maturity in June 2007, and a Term B facility with a principal amount of
$490 million, that continues reducing quarterly until it reaches maturity in
February 2008. The amortization of the principal amount of the Term B term
loan facilities is substantially back-ended, with more than 90% of the
principal balance due in the year of maturity. The CC VIII Operating credit
facilities also provide for two reducing revolving credit facilities, in the
total amount of $542 million, which reduce quarterly beginning in June 2002 and
September 2005, respectively, with maturity dates in June 2007. Supplemental
facilities in the amount of approximately $300 million may be available from
lenders within or outside the lending group that agree to provide it. Amounts
under the CC VIII Operating credit facilities bear interest at the Eurodollar
rate or the base rate, each as defined, plus a margin of up to 2.50% for
Eurodollar loans (2.15% to 3.66% as of December 31, 2003 and 2.89% to 4.54% as
of December 31, 2002) and up to 1.50% for base rate loans. A quarterly
commitment fee of 0.25% is payable on the unborrowed balance of the revolving
credit facilities. As of December 31, 2003, outstanding borrowings were $1.0 billion, and unused
total potential availability was $363 million although financial covenants
limited the availability under these facilities to $130 million. Credit Facility Restrictive Covenants.Each of the credit facilities of the
Companys subsidiaries contain representations and warranties, affirmative and
negative covenants similar to those described above with respect to the
indentures governing the Companys notes and the notes of the Companys
subsidiaries, information requirements, events of default and financial
covenants. The financial covenants, as defined, measure performance against
standards set for leverage, debt service coverage, and operating cash flow
coverage of cash interest expense on a quarterly basis or as applicable.
Additionally, the credit facilities contain provisions requiring mandatory loan
prepayments under specific circumstances, including when significant amounts of
assets are sold and the proceeds are not promptly reinvested in assets useful
in the business of the borrower within a specified period. The Charter
Operating credit facility also provides that in the event that any indebtedness
of CCO Holdings remains outstanding on the date, which is six months prior to
the scheduled final maturity, the term loans under the Charter Operating credit
facility will mature and the revolving credit facilities will terminate on such
date. In the event of a default under the Companys subsidiaries credit facilities
or notes, the subsidiaries creditors could elect to declare all amounts
borrowed, together with accrued and unpaid interest and other fees, to be due
and payable. In such event, the subsidiaries credit facilities and indentures
that were so accelerated or were otherwise in default will not permit the
Companys subsidiaries to distribute funds to Charter Holdco or the Company to
pay interest or principal on the notes. A default under the covenants
governing any of the Companys debt instruments could result in the
acceleration of its payment obligations under that debt and, under certain
circumstances, in cross-defaults under the Companys other debt obligations,
which would have a material adverse effect on the Companys consolidated
financial condition or results of operations. In addition, the lenders under
the Companys credit facilities could foreclose on their collateral, which
includes equity interests in the Companys subsidiaries, and exercise other
rights of secured creditors. In any such case, the Company might not be able
to repay or make any
payments on its notes. Additionally, such a default would cause a
cross-default in the indentures governing the Charter Holdings notes and
Charters convertible senior notes and would trigger the cross-default
provision of the Charter Operating Credit Agreement. Any default under any of
the subsidiaries credit facilities or notes might adversely affect the holders
of the Companys notes and the Companys growth, financial condition and
results of operations and could force the Company to examine all options,
including seeking the protection of the bankruptcy laws. Based upon outstanding indebtedness as of December 31, 2003, the amortization
of term loans, scheduled reductions in available borrowings of the revolving
credit facilities, and the maturity dates for all senior and subordinated notes F-25




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##### 



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
(dollars in millions, except where indicated) and debentures, total future principal payments on the total borrowings under
all debt agreements as of December 31, 2003, are as follows: Year
    
    Amount2004
    
    $
    1882005
    
    
    4262006
    
    
    9992007
    
    
    2,5312008
    
    
    3,761Thereafter
    
    
    10,529$
    18,434
 For the amounts of debt scheduled to mature during 2004, it is managements
intent to fund the repayments from borrowings on the Companys revolving credit
facility. The accompanying consolidated balance sheet reflects this intent by
presenting all debt balances as long-term while the table above reflects actual
debt maturities as of the stated date. 10. Comprehensive Loss Certain marketable equity securities are classified as available-for-sale and
reported at market value with unrealized gains and losses recorded as
accumulated other comprehensive loss on the accompanying consolidated balance
sheets. 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 in accumulated other comprehensive loss.
Comprehensive loss for the years ended December 31, 2003, 2002 and 2001 was
$722 million, $6.3 billion and $2.6 billion, respectively. 11. 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) as required under the terms of
its credit facilities. 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 agrees 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. Effective January 1, 2001, the Company adopted SFAS No. 133. Interest rate
agreements are recorded in the consolidated balance sheet at December 31, 2003
and 2002 as either an asset or liability measured at fair value. In connection
with the adoption of SFAS No. 133, the Company recorded a loss of $24 million
as the cumulative effect of change in accounting principle. The Company does not hold or issue derivative instruments for trading purposes.
The Company does however have certain interest rate derivative instruments
that have been designated as cash flow hedging instruments. Such
instruments are those that effectively convert variable interest payments on
certain debt instruments into fixed payments. For qualifying hedges, SFAS No.
133 allows derivative gains and losses to offset related results on hedged
items in the consolidated statements of operations. The Company has formally
documented, designated and assessed the effectiveness of transactions that
receive hedge accounting. For the years ended December 31, 2003, 2002 and
2001, net gain (loss) on derivative instruments and hedging activities includes
gains of $8 million and losses of $14 million and $2 million, respectively,
which represent cash flow hedge ineffectiveness on interest rate hedge
agreements arising from differences between the critical terms of the
agreements and the related hedged obligations. Changes in the fair value of
interest rate agreements designated as hedging instruments of the variability
of cash flows associated with floating-rate debt obligations are reported in
accumulated other F-26




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##### 



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
(dollars in millions, except where indicated) comprehensive loss. For the years ended December 31, 2003,
2002 and 2001, a gain of $48 million and losses of $65 million and $39 million,
respectively, related to derivative instruments designated as cash flow hedges
was recorded in accumulated other comprehensive loss. The amounts are
subsequently reclassified into interest expense as a yield adjustment in the
same period in which the related interest on the floating-rate debt obligations
affects earnings (losses). Certain interest rate derivative instruments are not designated as hedges as
they do not meet the effectiveness criteria specified by SFAS No. 133.
However, management believes such instruments are closely correlated with the
respective debt, thus managing associated risk. Interest rate derivative
instruments not designated as hedges are marked to fair value with the impact
recorded as gain (loss) on derivative instruments and hedging activities in the
Companys statements of operations. For the years ended December 31, 2003,
2002 and 2001, net gain (loss) on derivative instruments and hedging activities
includes gains of $57 million and losses of $101 million and $48 million,
respectively, for interest rate derivative instruments not designated as
hedges. As of December 31, 2003, 2002 and 2001, the Company had outstanding $3.0
billion, $3.4 billion and $3.3 billion and $520 million, $520 million and $520
million, respectively, in notional amounts of interest rate swaps and collars,
respectively. 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. 12. Fair Value of Financial Instruments The Company has estimated the fair value of its financial instruments as of
December 31, 2003 and 2002 using available market information or other
appropriate valuation methodologies. Considerable judgment, however, is
required in interpreting market data to develop the estimates of fair value.
Accordingly, the estimates presented in the accompanying consolidated financial
statements are not necessarily indicative of the amounts the Company would
realize in a current market exchange. The carrying amounts of cash, receivables, payables and other current assets
and liabilities approximate fair value because of the short maturity of those
instruments. The Company is exposed to market price risk volatility with
respect to investments in publicly traded and privately held entities. The fair value of interest rate agreements represents the estimated amount the
Company would receive or pay upon termination of the agreements. Management
believes that the sellers of the interest rate agreements will be able to meet
their obligations under the agreements. In addition, some of the interest rate
agreements are with certain of the participating banks under the Companys
credit facilities, thereby reducing the exposure to credit loss. The Company
has policies regarding the financial stability and credit standing of major
counterparties. Nonperformance by the counterparties is not anticipated nor
would it have a material adverse effect on the Companys consolidated financial
condition or results of operations. The estimated fair value of the Companys notes, credit facilities and interest
rate agreements at December 31, 2003 and 2002 are based on quoted market
prices, dealer quotations and discounted cash flow analysis using an
incremental borrowing rate for similar types of borrowing arrangements,
respectively. F-27




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##### 



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
(dollars in millions, except where indicated) A summary of the carrying value and fair value of the Companys debt and
related interest rate agreements at December 31, 2003 and 2002 is as follows: 2003
    
    2002Carrying
    
    Fair
    
    Carrying
    
    FairValue
    
    Value
    
    Value
    
    ValueDebtCharter Holdings debt
    
    $
    8,316
    
    
    $
    7,431
    
    
    $
    9,222
    
    
    $
    3,867CCH II debt
    
    
    1,601
    
    
    
    1,680
    
    
    
    
    
    
    
    CCO Holdings debt
    
    
    500
    
    
    
    510
    
    
    
    
    
    
    
    Credit facilities
    
    
    7,227
    
    
    
    6,949
    
    
    
    7,789
    
    
    
    6,367Other
    
    
    229
    
    
    
    238
    
    
    
    277
    
    
    
    212Interest Rate AgreementsAssets
(Liabilities)Swaps
    
    
    (171
    )
    
    
    (171
    )
    
    
    (258
    )
    
    
    (258
    )Collars
    
    
    (8
    )
    
    
    (8
    )
    
    
    (34
    )
    
    
    (34
    )
 The weighted average interest pay rate for the Companys interest rate swap
agreements was 7.25% and 7.40% at December 31, 2003 and 2002, respectively.
The Companys interest rate collar agreements are structured so that if LIBOR
falls below 5.3%, the Company pays 6.7%. If the LIBOR rate is between 5.3% and
8.0%, the Company pays LIBOR. The LIBOR rate is capped at 8.0%, if LIBOR is
between 8.0% and 9.9%. If the LIBOR rate rises above 9.9%, the cap is removed. 13. Revenues Revenues consist of the following for the years presented: Year Ended December 31,2003
    
    2002
    
    2001Video
    
    $
    3,461
    
    
    $
    3,420
    
    
    $
    2,971High-speed data
    
    
    556
    
    
    
    337
    
    
    
    148Advertising sales
    
    
    263
    
    
    
    302
    
    
    
    197Commercial
    
    
    204
    
    
    
    161
    
    
    
    123Other
    
    
    335
    
    
    
    346
    
    
    
    368$
    4,819
    
    
    $
    4,566
    
    
    $
    3,807
 14. Operating Expenses Operating expenses consist of the following for the years presented: Year Ended December 31,2003
    
    2002
    
    2001Programming
    
    $
    1,249
    
    
    $
    1,166
    
    
    $
    963Advertising sales
    
    
    88
    
    
    
    87
    
    
    
    64Service
    
    
    615
    
    
    
    554
    
    
    
    459$
    1,952
    
    
    $
    1,807
    
    
    $
    1,486
 F-28




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##### 



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
(dollars in millions, except where indicated) 15. Selling, General and Administrative Expenses Selling, general and administrative expenses consist of the following for the
years presented: Year Ended December 31,2003
    
    2002
    
    2001General and administrative
    
    $
    833
    
    
    $
    810
    
    
    $
    689Marketing
    
    
    107
    
    
    
    153
    
    
    
    137$
    940
    
    
    $
    963
    
    
    $
    826
 16. Stock Compensation Plans Stock options, restricted stock and other incentive compensation are granted
pursuant to the 2001 Stock Incentive Plan of Charter (the 2001 Plan). Prior
to 2001, options were granted under the 1999 Option Plan of Charter Holdco (the
1999 Plan). The 1999 Plan provided for the grant of options to purchase membership units in
Charter Holdco to current and prospective employees and consultants of Charter
Holdco and its affiliates and current and prospective non-employee directors of
Charter. Options granted generally vest over five years from the grant date,
with 25% vesting 15 months after the anniversary of the grant date and ratably
thereafter. Options not exercised accumulate and are exercisable, in whole or
in part, in any subsequent period, but not later than 10 years from the date of
grant. Membership units received upon exercise of the options are
automatically exchanged into Class A common stock of Charter on a one-for-one
basis. The 2001 Plan provides for the grant of non-qualified stock options, stock
appreciation rights, dividend equivalent rights, performance units and
performance shares, share awards, phantom stock and/or shares of restricted
stock (not to exceed 3,000,000), as each term is defined in the 2001 Plan.
Employees, officers, consultants and directors of Charter and its subsidiaries
and affiliates are eligible to receive grants under the 2001 Plan. Options
granted generally vest over four years from the grant date, with 25% vesting on
the anniversary of the grant date and ratably thereafter. Generally, options
expire 10 years from the grant date. The 2001 Plan allows for the issuance of up to a total of 90,000,000 shares of
Charter Class A common stock (or units convertible into Charter Class A common
stock). The total shares available reflect a July 2003 amendment to the 2001
Plan approved by the board of directors and the shareholders of Charter to
increase available shares by 30,000,000 shares. In 2001, any shares covered by
options that terminated under the 1999 Plan were transferred to the 2001 Plan,
and no new options can be granted under the 1999 Plan. During July and October 2003, in connection with new employment agreements and
related option agreements entered into by Charter, certain executives and
directors were awarded a total of 80,603 shares of restricted Charter Class A
common stock. The shares vest monthly over a twelve-month period beginning on
the date of grant. During September and October 2001, in connection with new
employment agreements and related option agreements entered into by Charter,
certain executives of Charter were awarded a total of 256,000 shares of
restricted Charter Class A common stock, of which 140,063 shares had been
cancelled as of December 31, 2003. The shares vested 25% upon grant, with the
remaining shares vesting monthly over a three-year period beginning after the
first anniversary of the date of grant. As of December 31, 2003, deferred
compensation remaining to be recognized in future periods totaled $0.2 million. F-29




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##### 



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
(dollars in millions, except where indicated) A summary of the activity for the stock options, excluding granted shares of
restricted Charter Class A common stock, for the years ended December 31, 2003,
2002 and 2001, is as follows (amounts in thousands, except per share data): 2003
    
    2002

    

    2001Weighted
    
    
    
    
    
    Weighted
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    Average
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    Exercise
    
    
    
    
    
    ExerciseShares
    
    Price
    
    Shares
    

    Price
    
    Shares
    
    PriceOptions outstanding, beginning of period
    
    
    53,632
    
    
    $
    14.22
    
    
    
    46,558
    
    
    $
    17.10
    
    
    
    28,482
    
    
    $
    19.24Granted
    
    
    7,983
    
    
    $
    3.53
    
    
    
    13,122
    
    
    $
    4.88
    
    
    
    29,395
    
    
    $
    16.01Exercised
    
    
    (165
    )
    
    $
    3.96
    
    
    
    

    
    
    $
    
    
    
    
    (278
    )
    
    $
    19.23Cancelled
    
    
    (13,568
    )
    
    $
    14.10
    
    
    
    (6,048
    )
    
    $
    16.32
    
    
    
    (11,041
    )
    
    $
    19.59Options outstanding, end of period
    
    
    47,882
    
    
    $
    12.48
    
    
    
    53,632
    
    
    $
    14.22
    
    
    
    46,558
    
    
    $
    17.10Weighted average remaining contractual life
    
    8 years
    
    
    
    
    
    8 years
    
    
    
    
    
    9 yearsOptions exercisable, end of period
    
    
    22,861
    
    
    $
    16.36
    
    
    
    17,844
    
    
    $
    17.93
    
    
    
    9,994
    
    
    $
    18.51Weighted average fair value of options granted
    
    $
    2.71
    
    
    
    
    
    
    $
    2.89
    
    
    
    
    
    
    $
    9.15
 The following table summarizes information about stock options outstanding and
exercisable as of December 31, 2003: Options Outstanding
    
    Options ExercisableWeighted-
    
    
    
    
    
    
    
    
    
    Weighted-Average
    
    Weighted-
    
    
    
    
    
    Average
    
    Weighted-Remaining
    
    Average
    
    
    
    
    
    Remaining
    
    AverageRange of
    
    Number
    
    Contractual
    
    Exercise
    
    Number
    
    Contractual
    
    ExerciseExercise Prices
    
    Outstanding
    
    Life
    
    Price
    
    Exercisable
    
    Life
    
    Price(in thousands)
    
    
    
    
    
    
    
    
    
    (in thousands)$1.11  $2.85
    
    
    9,809
    
    
    9 years
    
    $
    2.31
    
    
    
    1,718
    
    
    9 years
    
    $
    2.49$3.91  $9.13
    
    
    6,309
    
    
    9 years
    
    $
    5.52
    
    
    
    319
    
    
    8 years
    
    $
    9.13$11.99  $19.47
    
    
    20,243
    
    
    7 years
    
    $
    14.65
    
    
    
    12,191
    
    
    7 years
    
    $
    15.34$20.00  $23.09
    
    
    11,521
    
    
    6 years
    
    $
    21.19
    
    
    
    8,633
    
    
    6 years
    
    $
    20.83
 On January 1, 2003, the Company adopted the fair value measurement provisions
of SFAS No. 123, under which the Company recognizes compensation expense of a
stock-based award to an employee over the vesting period based on the fair
value of the award on the grant date. Adoption of these provisions resulted in
utilizing a preferable accounting method as the consolidated financial
statements present the estimated fair value of stock-based compensation in
expense consistently with other forms of compensation and other expense
associated with goods and services received for equity instruments. In
accordance with SFAS No. 123, the fair value method will be applied only to
awards granted or modified after January 1, 2003, whereas awards granted prior
to such date will continue to be accounted for under APB No. 25, unless they
are modified or settled in cash. The ongoing effect on consolidated results of
operations or financial condition will be dependent upon future stock based
compensation awards granted. The Company recorded $4 million of option
compensation expense for the year ended December 31, 2003. Prior to the adoption of SFAS No. 123, the Company used the intrinsic value
method prescribed by APB No. 25, Accounting for Stock Issued to Employees, to
account for the option plans. Option compensation expense of F-30




---



##### 



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
(dollars in millions, except where indicated) $5 million and net option compensation benefit of $5 million for the years
ended December 31, 2002 and 2001, respectively, was recorded in the
consolidated statements of operations since the exercise prices of certain
options were less than the estimated fair values of the underlying membership
interests on the date of grant. A reversal of previously recognized option
compensation expense of $22 million for the year ended December 31, 2001 was
recorded in the consolidated statements of operations primarily in connection
with the waiver of the right to approximately seven million options by
Charters former President and Chief Executive Officer as part of his September
2001 separation agreement. This was partially offset by expense recorded
because exercise prices on certain options were less than the estimated fair
values of Charters stock at the time of grant. Estimated fair values were
determined by the Company using the valuation inherent in the companies
acquired by Paul G. Allen in 1998 and valuations of public companies in the
cable television industry adjusted for factors specific to the Company.
Compensation expense is being recorded with the method described in FASB
Interpretation No. 28 over the vesting period of the individual options that
varies between four and five years. As of December 31, 2003, no deferred
compensation remained to be recognized in future periods. No stock option
compensation expense was recorded for the options granted after November 8,
1999, since the exercise price was equal to the estimated fair value of the
underlying membership interests or shares of Charter Class A common stock on
the date of grant. Since the membership units are exchangeable into Class A
common stock of Charter on a one-for-one basis, the estimated fair value was
equal to the quoted market values of Charter Class A common stock. In January 2004, Charter commenced an option exchange program in which
employees of Charter and its subsidiaries were offered the right to exchange
all stock options (vested and unvested) issued under the 1999 Charter
Communications Option Plan and 2001 Stock Incentive Plan that had an exercise
price over $10 per share for shares of restricted Charter Class A common stock
or, in some instances, cash. Based on a sliding exchange ratio, which varied
depending on the exercise price of an employees outstanding options, if an
employee would have received more than 400 shares of restricted stock in
exchange for tendered options, Charter issued that employee shares of
restricted stock in the exchange. If, based on the exchange ratios, an
employee would have received 400 or fewer shares of restricted stock in
exchange for tendered options, Charter instead paid the employee cash in an
amount equal to the number of shares the employee would have received
multiplied by $5.00. The offer applied to options (vested and unvested) to
purchase a total of 22,929,573 shares of Charter Class A common stock, or
approximately 48% of Charters 47,882,365 total options issued and outstanding
as of December 31, 2003. Participation by employees was voluntary. Those
members of Charters board of directors who were not also employees of Charter
or any of its subsidiaries were not eligible to participate in the exchange
offer. In the closing of the exchange offer on February 20, 2004, Charter accepted for
cancellation eligible options to purchase approximately 18,137,664 shares of
Charter Class A common stock. In exchange, Charter granted 1,966,686 shares of
restricted stock, including 460,777 performance shares to eligible employees of
the rank of senior vice president and above, and paid a total cash amount of
approximately $4 million (which amount includes applicable withholding taxes)
to those employees who received cash rather than shares of restricted stock.
The grants of restricted stock were effective as of February 25, 2004.
Employees tendered approximately 79% of the options eligible to be exchanged
under the program. Based on the results above, the cost to the Company of the Stock Option
Exchange Program was approximately $12 million, with a 2004 cash compensation
expense of approximately $4 million and a non-cash compensation expense of
approximately $8 million to be expensed ratably over the three-year vesting
period of the restricted stock in the exchange. In January 2004, the Compensation Committee of the board of directors of
Charter approved Charters Long-Term Incentive Program (LTIP), which is a
program administered under the 2001 Stock Incentive Plan. Employees of Charter
and its subsidiaries whose pay classifications exceed a certain level are
eligible to receive stock options, and more senior level employees are eligible
to receive stock options and performance shares. Under the LTIP, the stock
options vest 25% on each of the first four anniversaries of the date of grant.
The performance shares are earned on the third anniversary of the grant date,
conditional upon Charters performance against financial performance measures
and customer growth targets established by Charters management and approved by
its board of directors as of the time of the award. No awards were made under
the LTIP in 2003. F-31




---



##### 



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
(dollars in millions, except where indicated) 17. Special Charges In the fourth quarter of 2002, the Company recorded a special charge of $35
million, of which $31 million was associated with its 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. The remaining $4 million related to
legal and other costs associated with Charters ongoing grand jury
investigation, shareholder lawsuits and SEC investigation. The $31 million
charge related to realignment activities, included severance costs of $28
million related to approximately 1,400 employees identified for termination as
of December 31, 2002 and lease termination costs of $3 million. During the
year ended December 31, 2003, an additional 1,400 employees were identified for
termination and additional severance costs of $20 million and additional lease
costs of $6 million were recorded in special charges. In total, approximately
2,600 employees were terminated during the year ended December 31, 2003.
Severance payments are generally made over a period of up to twelve months with
approximately $39 million paid during the year ended December 31, 2003. The
Company paid $4 million in lease termination costs during the year ended
December 31, 2003. As of December 31, 2003 and December 31, 2002, a liability
of approximately $14 million and $31 million, respectively, is recorded on the
accompanying consolidated balance sheets related to the realignment activities.
For the year ended December 31, 2003, the additional severance costs were
offset by a $5 million settlement from the Internet service provider
Excite@Home related to the conversion of high-speed data customers to Charter
Pipeline service in 2001. During the year ended December 31, 2001, the Company recorded $18 million in
special charges that represent $15 million of costs associated with the
transition of approximately 145,000 (unaudited) data customers from the
Excite@Home Internet service to the Charter Pipeline Internet service. In December 2001, the Company implemented a restructuring plan to reduce its
workforce in certain markets and reorganize its operating divisions from two to
three and operating regions from twelve to ten. The restructuring plan was
completed during the first quarter of 2002, resulting in the termination of
approximately 320 employees and severance costs of $4 million of which $1
million was recorded in the first quarter of 2002 and $3 million was recorded
in the fourth quarter of 2001. 18. 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. For the year ended December 31, 2003, the Company recorded income tax expense
realized through increases in deferred tax liabilities and federal and state
income taxes related to our indirect corporate subsidiaries. For the years
ended December 31, 2002 and 2001 the Company recorded income tax benefit for
its indirect corporate subsidiaries related to differences in accounting for
franchises. F-32




---



##### 



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
(dollars in millions, except where indicated) Current and deferred income tax expense (benefit) is as follows: December 31,2003
    
    2002
    
    2001Current expense:Federal income taxes
    
    $
    1
    
    
    $
    
    
    
    $
    State income taxes
    
    
    1
    
    
    
    2
    
    
    
    Current income tax expense
    
    
    2
    
    
    
    2
    
    
    
    Deferred expense (benefit):Federal income taxes
    
    
    10
    
    
    
    (219
    )
    
    
    (24
    )State income taxes
    
    
    1
    
    
    
    (31
    )
    
    
    (3
    )Deferred income tax expense (benefit)
    
    
    11
    
    
    
    (250
    )
    
    
    (27
    )Total income tax expense (benefit)
    
    $
    13
    
    
    $
    (248
    )
    
    $
    (27
    )
 The Company recorded the portion of the income tax benefit associated with the
adoption of SFAS No.142 as a $32 million reduction of the cumulative effect of
accounting change on the accompanying statement of operations for the year
ended December 31, 2002. The Companys effective tax rate differs from that derived by applying the
applicable federal income tax rate of 35%, and average state income tax rate of
5% for the years ended December 31, 2003, 2002 and 2001 as follows: December 31,2003
    
    2002
    
    2001Statutory federal income taxes
    
    $
    (265
    )
    
    $
    (2,056
    )
    
    $
    (902
    )State income taxes, net of federal benefit
    
    
    (38
    )
    
    
    (294
    )
    
    
    (129
    )Losses allocated to limited liability
companies not subject to income taxes
    
    
    290
    
    
    
    2,105
    
    
    
    1,005Valuation allowance provided
    
    
    26
    
    
    
    (3
    )
    
    
    (1
    )Income tax expense (benefit)
    
    $
    13
    
    
    $
    (248
    )
    
    $
    (27
    )
 F-33




---



##### 



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
(dollars in millions, except where indicated) The tax effects of these temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 2003 and 2002, which are included in long-term liabilities, for the
indirect corporate subsidiaries of the Company are presented below: December 31,2003
    
    2002Deferred tax assets:Net operating loss carryforward
    
    $
    80
    
    
    $
    71Other
    
    
    6
    
    
    
    9Total gross deferred tax assets
    
    
    86
    
    
    
    80Less: valuation allowance
    
    
    (51
    )
    
    
    (25
    )Net deferred tax assets
    
    $
    35
    
    
    $
    55Deferred tax liabilities:Property, plant & equipment
    
    $
    (42
    )
    
    $
    (67
    )Franchises
    
    
    (260
    )
    
    
    (240
    )Gross deferred tax liabilities
    
    
    (302
    )
    
    
    (307
    )Net deferred tax liabilities
    
    $
    (267
    )
    
    $
    (252
    )
 As of December 31, 2003, the Company has deferred tax assets of $86 million,
which primarily relate to tax net operating loss carryforwards of certain of
its indirect corporate subsidiaries. These tax net operating loss
carryforwards (generally expiring in years 2004 through 2023) of $80 million,
are subject to certain return limitations. Valuation allowances of $51 million
and $25 million exist with respect to these carryforwards as of December 31,
2003 and 2002, respectively. In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will be realized. Management considers the scheduled reversal of
deferred tax liabilities, projected future taxable income and tax planning
strategies in making this assessment. Management believes that the deferred
tax assets will be realized prior to the expiration of the tax net operating
loss carryforwards in 2004 through 2023, except for those tax net operating
loss carryforwards that may be subject to certain limitations. Because of the
uncertainty associated in realizing the deferred tax assets associated with the
potentially limited tax net operating loss carryforwards, valuation allowances
have been established except for deferred tax assets available to offset
deferred tax liabilities. Charter 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
financial condition or results of operations. 19. Related Party Transactions The following sets forth certain transactions in which the Company and the
directors, executive officers and affiliates of the Company are involved.
Unless otherwise disclosed, management believes that each of the transactions
described below was on terms no less favorable to the Company than could have
been obtained from independent third parties. Charter has entered into management arrangements with Charter Holdco and
certain of its subsidiaries. Under these agreements, Charter provides
management services for the cable systems owned or operated by its
subsidiaries. The management services include such services as centralized
customer billing services, data processing and related F-34




---



##### 



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
(dollars in millions, except where indicated) 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s operating subsidiaries and are included within operating costs
in the accompanying consolidated statements of operations. Such costs totaled
$210 million, $176 million and $119 million for the years ended December 31,
2003, 2002 and 2001, respectively. All other costs incurred on the behalf of
the Companys operating subsidiaries are considered a part of the management
fee and are recorded as a component of selling, general and administrative
expense, in the accompanying consolidated financial statements. For the years
ended December 31, 2003, 2002 and 2001, the management fee charged to the
Companys operating subsidiaries approximated the expenses incurred by Charter
Holdco and Charter on behalf of the Companys operating subsidiaries. The
credit facilities of the Companys operating subsidiaries prohibit payments of
management fees in excess of 3.5% of revenues until repayment of the
outstanding indebtedness. In the event any portion of the management fee due
and payable is not paid, it is deferred by Charter and accrued as a liability
of such subsidiaries. Any deferred amount of the management fee will bear
interest at the rate of 10% per annum, compounded annually, from the date it
was due and payable until the date it is paid. Mr. Allen, the controlling shareholder of Charter, and a number of his
affiliates have interests in various entities that provide services or
programming to Charters subsidiaries. Given the diverse nature of Mr. Allens
investment activities and interests, and to avoid the possibility of future
disputes as to potential business, Charter may not, and may not allow its
subsidiaries to, engage in any business transaction outside the cable
transmission business except for certain existing approved investments. Should
Charter or its subsidiaries wish to pursue a business transaction outside of
this scope, it must first offer Mr. Allen the opportunity to pursue the
particular business transaction. If he decides not to pursue the business
transaction and consents to Charter or its subsidiaries to engage in the
business transaction, they will be able to do so. The cable transmission
business means the business of transmitting video, audio, including telephony,
and data over cable systems owned, operated or managed by Charter or its
subsidiaries from time to time. Mr. Allen or his affiliates own equity interests or warrants to purchase equity
interests in various entities with which the Company does business or which
provides it with products, services or programming. Among these entities are
TechTV Inc. (TechTV), Oxygen Media Corporation (Oxygen Media), Digeo,
Inc. (Digeo), Click2learn, Inc., Trail Blazer Inc., Action Sports Cable
Network (Action Sports) and Microsoft Corporation. In addition, Mr. Allen
and Mr. Savoy were directors of USA Networks, Inc. (USA Networks), who
operates the USA Network, The Sci-Fi Channel, Trio, World News International
and Home Shopping Network, owning approximately 5% and less than 1%,
respectively, of the common stock of USA Networks. In 2002, Mr. Allen and Mr.
Savoy sold their common stock and are no longer directors of the USA Network.
Mr. Allen owns 100% of the equity of Vulcan Ventures Incorporated (Vulcan
Ventures) and Vulcan Inc. and is the president of Vulcan Ventures. Mr. Savoy
was a vice president and a director of Vulcan Ventures until his resignation in
September 2003. Mr. Savoy will remain as a member of the board of directors of
Charter. The various cable, media, Internet and telephony companies in which
Mr. Allen has invested may mutually benefit one another. The agreements
governing the Companys relationship with Digeo, Inc. are an example of a
cooperative business relationship among Mr. Allens affiliated companies. The
Company can give no assurance that any of these business relationships will be
successful, that the Company will realize any benefits from these relationships
or that the Company will enter into any business relationships in the future
with Mr. Allens affiliated companies. Mr. Allen and his affiliates have made, and in the future likely will make,
numerous investments outside of the Company and its business. The Company
cannot assure that, in the event that the Company or any of its subsidiaries
enter into transactions in the future with any affiliate of Mr. Allen, such
transactions will be on terms as favorable to the Company as terms it might
have obtained from an unrelated third party. Also, conflicts could arise with
respect to the allocation of corporate opportunities between the Company and
Mr. Allen and his affiliates. The Company has not instituted any formal plan
or arrangement to address potential conflicts of interest. High Speed Access Corp. (High Speed Access) was a provider of high-speed
Internet access services over cable modems. During the period from 1997 to
2000, certain Charter entities entered into Internet-access related service
agreements, and both Vulcan Ventures and certain of Charters subsidiaries made
equity investments in High Speed Access. F-35




---



##### 



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
(dollars in millions, except where indicated) On February 28, 2002, Charter Holdings subsidiary, CC Systems, purchased from
High Speed Access the contracts and associated assets, and assumed related
liabilities, that served the Companys customers, including a customer contact
center, network operations center and provisioning software. Immediately prior
to the asset purchase, Vulcan Ventures beneficially owned approximately 37%,
and the Company beneficially owned approximately 13%, of the common stock of
High Speed Access (including the shares of common stock which could be acquired
upon conversion of the Series D preferred stock, and upon exercise of the
warrants owned by Charter Holdco). Following the consummation of the asset
purchase, neither Vulcan Ventures, Charter nor the Company beneficially owned
any securities of, or were otherwise affiliated with, High Speed Access. The Company receives or will receive programming for broadcast via its cable
systems from TechTV, USA Networks, Oxygen Media and Action Sports. The Company
pays a fee for the programming service generally based on the number of
customers receiving the service. Such fees for the years ended December 31,
2003, 2002 and 2001 were each less than 1% of total operating expenses with the
exception of USA Networks which was 2%, 2% and 3% of total operating expenses
for the years ended December 31, 2003, 2002 and 2001, respectively. In
addition, the Company receives commissions from USA Networks for home shopping
sales generated by its customers. Such revenues for the years ended December
31, 2003, 2002 and 2001 were less than 1% of total revenues. On November 5,
2002, Action Sports announced that it was discontinuing its business. The
Company believes that the failure of Action Sports will not materially affect
the Companys business or results of operations. The Company entered into an equity issuance agreement pursuant to which Oxygen
Media granted Charter Holdings a warrant to purchase 2.4 million shares of
common stock of Oxygen Media for an exercise price of $22.00 per share.
Charter Holdco will also receive unregistered shares of Oxygen Media common
stock with a guaranteed fair market value on the date of issuance of $34
million, on or prior to February 2, 2005 with the exact date to be determined
by Oxygen Media. The Company currently recognizes the guaranteed value of the
investment over the life of the programming agreement as a reduction of
programming expense. For the year ended December 31, 2003, the Company
recorded approximately $9 million as a reduction of programming expense. The
carrying value of the Companys investment in Oxygen was approximately $19
million as of December 31, 2003. As discussed in Note 4, in April 2002, Interlink Communications Partners, LLC,
Rifkin Acquisition Partners, LLC and Charter Communications Entertainment I,
LLC, each an indirect, wholly-owned subsidiary of the Company, completed the
cash purchase of certain assets of Enstar Income Program II-2, L.P., Enstar
Income Program IV-3, L.P., Enstar Income/Growth Program Six-A, L.P., Enstar
Cable of Macoupin County and Enstar Income IV/PBD Systems Venture, serving
approximately 21,600 (unaudited) customers, for a total cash sale price of
approximately $48 million. In September 2002, Charter Communications
Entertainment I, LLC purchased all of Enstar Income Program II-1, L.P.s
Illinois cable systems, serving approximately 6,400 (unaudited) customers, for
a cash sale price of $15 million. Enstar Communications Corporation, a direct
subsidiary of Charter Holdco, is a general partner of the Enstar limited
partnerships but does not exercise control over them. All of the executive
officers of Charter and Charter Holdco act as officers of Enstar Communications
Corporation. Charter Holdco entered into various broadband carriage agreements with Digeo
Interactive, LLC (Digeo Interactive), a wholly owned subsidiary of Digeo.
These agreements provide for the development by Digeo Interactive of future
features to be included in the Basic i-TV service provided by Digeo and for
Digeos development of an interactive toolkit to enable the Company to
develop interactive local content. Furthermore, the Company may request that
Digeo Interactive manage local content for a fee. The agreement provides for
the Company to pay for development of the Basic i-TV service as well as license
fees for customers who receive the service, and for the Company and Digeo to
split certain revenues earned from the service. In 2003, the Company paid
Digeo Interactive approximately $4 million for customized development of the
i-channels and the local content tool kit. The Company received no revenues
under the broadband carriage agreement in 2003. On June 30, 2003, Charter Holdco entered into an agreement with Motorola for
the purchase of 100,000 broadband media centers, subject to the Companys
testing and approval of product performance and functionality. It is
contemplated that the software for these broadband media centers would be
supplied to Motorola by Digeo. License F-36




---



##### 



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
(dollars in millions, except where indicated) fees for Digeo to license such software to the Company and support fees for the
broadband media centers and relevant content and support services are currently
under negotiation. In March 2001, Charter Communications Ventures, LLC (Charter Ventures), the
Companys indirect subsidiary, and Vulcan Ventures formed DBroadband Holdings,
LLC (DBroadband) for the sole purpose of purchasing equity interests in
Digeo. In connection with the execution of the broadband carriage agreement,
DBroadband purchased an equity interest in Digeo funded by contributions from
Vulcan Ventures. The equity interest is subject to a priority return of
capital to Vulcan Ventures up to the amount contributed by Vulcan Ventures on
Charter Ventures behalf. Charter Ventures has a 100% profit interest in
DBroadband. Vulcan Ventures also agreed to make, through January 24, 2004,
certain additional contributions through DBroadband to acquire additional
equity in Digeo as necessary to maintain Charter Ventures pro rata interest in
Digeo in the event of certain future Digeo equity financings by the founders of
Digeo. These additional equity interests are also subject to a priority return
of capital to Vulcan Ventures up to amounts contributed by Vulcan Ventures on
Charter Ventures behalf. DBroadband is therefore not included in the
Companys consolidated financial statements. The Company believes that Vulcan Ventures, an entity controlled by Mr. Allen,
owns an approximate 60% equity interest in Digeo, Inc. Messrs. Allen and Vogel
are directors of Digeo. Mr. Savoy was a director and served on the
compensation committee of Digeo until September 2003. Mr. Vogel owns options
to purchase 10,000 shares of Digeo common stock. On January 10, 2003, Charter signed an agreement to carry two around-the-clock,
high definition networks, HDNet and HDNet Movies. The Company believes that
entities controlled by Mr. Mark Cuban, co-founder and president of HDNet, owns
85% of HDNet and HDNet Movies as of December 31, 2003. As of December 31, 2003
Mr. Cuban, owns an approximate 6.4% equity interest in Charter. Certain related parties, including members of Charters board of directors and
management, hold interests in the Companys senior notes and discount notes of
approximately $60 million of face value at December 31, 2003. As part of the acquisition of the cable systems owned by Bresnan Communications
Company Limited Partnership in February 2000, CC VIII, an indirect limited
liability company subsidiary of Charter Holdings, 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.
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 F-37




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##### 



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
(dollars in millions, except where indicated) to provide that the Comcast sellers instead would receive the preferred equity
interests in CC VIII represented by the CC VIII interest. As part of the
last-minute changes to the Bresnan transaction documents, a draft amended
version of the Charter Holdco limited liability company agreement was prepared,
and contract provisions were drafted for that agreement that would have
required an automatic exchange of the CC VIII interest for 24,273,943 Charter
Holdco membership units if the Comcast sellers exercised the Comcast put right
and sold the CC VIII interest to Mr. Allen or his affiliates. However, the
provisions that would have required this automatic exchange did not appear in
the final version of the Charter Holdco limited liability company agreement
that was delivered and executed at the 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. F-38




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##### 



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
(dollars in millions, except where indicated) 20. Commitments and Contingencies Commitments The following table summarizes the Companys payment obligations as of December
31, 2003 for its contractual obligations. Total
    
    2004
    
    2005
    
    2006
    
    2007
    
    2008
    
    ThereafterContractual ObligationsOperating Lease Obligations (1)
    
    $
    70
    
    
    $
    17
    
    
    $
    14
    
    
    $
    11
    
    
    $
    7
    
    
    $
    5
    
    
    $
    16Programming Minimum Commitments (2)
    
    
    1,949
    
    
    
    320
    
    
    
    329
    
    
    
    355
    
    
    
    386
    
    
    
    317
    
    
    
    242Other (3)
    
    
    282
    
    
    
    63
    
    
    
    47
    
    
    
    39
    
    
    
    24
    
    
    
    25
    
    
    
    84Total
    
    $
    2,301
    
    
    $
    400
    
    
    $
    390
    
    
    $
    405
    
    
    $
    417
    
    
    $
    347
    
    
    $
    342
  (1)
    
    The Company leases certain facilities and equipment under noncancellable
operating leases. Leases and rental costs charged to expense for the
years ended December 31, 2003, 2002 and 2001, were $30 million, $31
million and $25 million, respectively.(2)
    
    The Company pays programming fees under multi-year contracts ranging
from three to six years typically based on a flat fee per customer, which
may be fixed for the term or may in some cases, escalate over the term.
Programming costs included in the accompanying statements of operations
were $1.2 billion, $1.2 billion and $963 million for the years ended
December 31, 2003, 2002 and 2001, respectively. Certain of the Companys
programming agreements are based on a flat fee per month or have
guaranteed minimum payments. The table sets forth the aggregate
guaranteed minimum commitments under the Companys programming contracts.(3)
    
    Other represents other guaranteed minimum commitments, which consist
primarily of commitments to the Companys billing services vendors. The following items are not included in the contractual obligation table due to
various factors discussed below. However, the Company incurs these costs as
part of its operations:  
    
    The Company rents utility poles used in its operations. Generally,
pole rentals are cancelable on short notice, but the Company
anticipates that such rentals will recur. Rent expense incurred for
pole rental attachments for the years ended December 31, 2003, 2002 and
2001, was $40 million, $41 million and $33 million, respectively.
    
    The Company pays franchise fees under multi-year franchise
agreements based on a percentage of revenues earned from video service
per year. The Company also pays other franchise related costs, such as
public education grants under multi-year agreements. Franchise fees
and other franchise-related costs included in the accompanying
statements of operations were $162 million, $160 million and $144
million for the years ended December 31, 2003, 2002 and 2001,
respectively.
    
    The Company also has $153 million in letters of credit, primarily
to its various workers compensation, property casualty and general
liability carriers as collateral for reimbursement of claims. These
letters of credit reduce the amount the Company may borrow under its
credit facilities. Litigation 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 F-39




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##### 



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
(dollars in millions, except where indicated) 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 annual 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 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 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 Actions are stayed for ninety (90) days. On September 12, 2002, a shareholders derivative suit (the State Derivative
Action) was filed in 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. 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 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 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
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. No
such transaction by Mr. Allen has been presented. Plaintiffs counsel has
granted the defendants an indefinite extension of time to respond to the only
complaint that has been served in the Delaware Class Actions. 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 Charter intends to vigorously defend the lawsuits. In August of 2002, Charter became aware of a grand jury investigation being
conducted by the United States 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 F-40




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##### 



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
(dollars in millions, except where indicated) 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 Charter 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 other 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 Charter is fully cooperating with the SEC staff. Charter is generally required to indemnify each of the named individual
defendants in connection with these matters pursuant to the terms of its Bylaws
and (where applicable) such individual defendants employment agreements.
Pursuant to the terms of certain employment agreements and in accordance with
the Bylaws of Charter, in connection with the pending grand jury investigation,
SEC investigation and the above described lawsuits, Charters current directors
and its 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
these matters, where applicable, and 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
customers, alleging that Charter improperly charged them a wire maintenance fee
without request or permission. They also claimed that Charter improperly
required them to rent analog and/or digital set-top terminals even though their
television sets were cable ready. Charter 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 should have but did
not file a new motion to dismiss. The state court judge granted the
plaintiffs motion over Charters objection in September 2002. Charter
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, 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 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s motion to dismiss
for failure to state a claim. It also took under advisement Charters motion
to set aside the default judgment. Charter is unable to predict the outcome of the lawsuits and the government
investigations described above. An unfavorable outcome in the lawsuits or the
government investigations described above could have a material adverse effect
on the Companys consolidated financial conditions, results of operations or
its liquidity, including its ability to comply with the Companys debt
covenants. 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 will not have a
material adverse effect on the Companys consolidated financial condition or
results of operations. F-41




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##### 



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
(dollars in millions, except where indicated) Regulation in the Cable Industry The operation of a cable system is extensively regulated by the Federal
Communications Commission (FCC), some state governments and most local
governments. The FCC has the authority to enforce its regulations through the
imposition of substantial fines, the issuance of cease and desist orders and/or
the imposition of other administrative sanctions, such as the revocation of FCC
licenses needed to operate certain transmission facilities used in connection
with cable operations. The 1996 Telecom Act altered the regulatory structure
governing the nations communications providers. It removed barriers to
competition in both the cable television market and the local telephone market.
Among other things, it reduced the scope of cable rate regulation and
encouraged additional competition in the video programming industry by allowing
local telephone companies to provide video programming in their own telephone
service areas. The 1996 Telecom Act required the FCC to undertake a number of implementing
rulemakings. Moreover, Congress and the FCC have frequently revisited the
subject of cable regulation. Future legislative and regulatory changes could
adversely affect the Companys operations. 21. Employee Benefit Plan The Companys employees may participate in the Charter Communications, Inc.
401(k) Plan. Employees that qualify for participation can contribute up to 50%
of their salary, on a pre-tax basis, subject to a maximum contribution limit as
determined by the Internal Revenue Service. The Company matches 50% of the
first 5% of participant contributions. The Company made contributions to the
401(k) plan totaling $7 million, $8 million and $9 million for the years ended
December 31, 2003, 2002 and 2001, respectively. 22. Recently Issued Accounting Standards In December 2003, the FASB issued FASB Interpretation No. 46 (revised December
2003), Consolidation of Variable Interest Entities(FIN 46R), which addresses
how a business enterprise should evaluate whether it has a controlling
financial interest in an entity through means other than voting rights and
accordingly should consolidate the entity. FIN 46R replaces FASB Interpretation
No. 46, Consolidation of Variable Interest Entities, which was issued in
January 2003. The Company will be required to apply FIN 46R to variable
interests in variable interest entities created after December 31, 2003. For
variable interests in variable interest entities created before December 31,
2003, the FIN 46R will be applied beginning on March 31, 2004. For any
variable interest entities that must be consolidated under FIN 46R that were
created before December 31, 2003, the assets, liabilities and noncontrolling
interests of the variable interest entity initially would be measured at their
carrying amounts with any difference between the net amount added to the
balance sheet and any previously recognized interest being recognized as the
cumulative effect of an accounting change. If determining the carrying amounts
is not practicable, fair value at the date FIN 46R first applies may be used to
measure the assets, liabilities and noncontrolling interest of the variable
interest entity. The Company has identified DBroadband Holdings, LLC as a
variable interest entity in accordance with FIN 46R. As the Company is not the
primary beneficiary of the variable interest entity (as defined by FIN 46R),
DBroadband Holdings, LLC has not been included in the Companys consolidated
financial statements. In future periods, the Company will continue to reassess
its relationship with DBroadband Holdings, LLC to ensure proper recognition of
the relationship in accordance with FIN 46R. See Note 19 for additional
information. In December 2003, the SEC issued Staff Accounting Bulletin (SAB)
No. 104, Revenue Recognition. SAB No. 104 revises or rescinds portions of
interpretative guidance on revenue recognition. SAB No. 104 became effective
immediately upon release and requires registrants to either restate prior
financial statements or report a change in accounting principle. The adoption
of SAB No. 104 did not have a material impact on the Companys consolidated
financial statements. 23. Parent Company Only Financial Statements As the result of limitations on, and prohibitions of, distributions,
substantially all of the net assets of the consolidated subsidiaries are
restricted for distribution to the Company. The following condensed
parent-only financial F-42




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##### 



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
(dollars in millions, except where indicated) statements of the Company account for the investment in its subsidiaries under
the equity method of accounting. The financial statements should be read in
conjunction with the consolidated financial statements of the Company and notes
thereto. Charter Communications Holdings, LLC (Parent Company Only)
Condensed Balance Sheet December 31,2003
    
    2002ASSETSReceivable from related party
    
    $
    5
    
    
    $
    121Investment in subsidiaries
    
    
    8,954
    
    
    
    11,040Other assets
    
    
    131
    
    
    
    167$
    9,090
    
    
    $
    11,328LIABILITIES AND MEMBERS EQUITYCurrent liabilities
    
    $
    135
    
    
    $
    151Long-term debt
    
    
    8,316
    
    
    
    9,222Other long-term liabilities
    
    
    
    
    
    
    49Members equity
    
    
    639
    
    
    
    1,906Total liabilities and members equity
    
    $
    9,090
    
    
    $
    11,328
 Condensed Statement of Operations Year Ended December 31,2003
    
    2002
    
    2001Interest expense
    
    $
    (942
    )
    
    $
    (895
    )
    
    $
    (748
    )Interest income
    
    
    
    
    
    
    20
    
    
    
    27Gain on debt exchange, net
    
    
    187
    
    
    
    
    
    
    
    Equity in losses of subsidiaries
    
    
    (15
    )
    
    
    (5,324
    )
    
    
    (1,851
    )Net loss
    
    $
    (770
    )
    
    $
    (6,199
    )
    
    $
    (2,572
    )
 F-43




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##### 



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
(dollars in millions, except where indicated) Condensed Statements of Cash Flows 2003
    
    2002
    
    2001CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (770
    )
    
    $
    (6,199
    )
    
    $
    (2,572
    )Noncash interest expense
    
    
    351
    
    
    
    349
    
    
    
    259Equity in losses of subsidiaries
    
    
    15
    
    
    
    5,324
    
    
    
    1,851Gain on debt exchange, net
    
    
    (187
    )
    
    
    
    
    
    
    Changes in operating assets and liabilities
    
    
    8
    
    
    
    (97
    )
    
    
    7Net cash flows from operating activities
    
    
    (583
    )
    
    
    (623
    )
    
    
    (455
    )CASH FLOWS FROM INVESTING ACTIVITIES:Investments in subsidiaries
    
    
    (10
    )
    
    
    (359
    )
    
    
    (4,266
    )Loans to subsidiaries
    
    
    
    
    
    
    (821
    )
    
    
    (1,649
    )Repayment on loans to subsidiaries
    
    
    59
    
    
    
    447
    
    
    
    1,548Net cash flows from investing activities
    
    
    49
    
    
    
    (733
    )
    
    
    (4,367
    )CASH FLOWS FROM FINANCING ACTIVITIESNet proceeds from debt offering
    
    
    
    
    
    
    895
    
    
    
    3,250Payments for debt issuance costs
    
    
    
    
    
    
    (20
    )
    
    
    (67
    )Repayments of long-term debt
    
    
    
    
    
    
    
    
    
    
    (272
    )Capital contributions
    
    
    
    
    
    
    87
    
    
    
    1,579Distributions from subsidiaries
    
    
    561
    
    
    
    444
    
    
    
    422Distributions
    
    
    (27
    )
    
    
    (52
    )
    
    
    (97
    )Net cash flows from financing activities
    
    
    534
    
    
    
    1,354
    
    
    
    4,815NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS
    
    
    
    
    
    
    (2
    )
    
    
    (7
    )CASH AND CASH EQUIVALENTS, beginning of year
    
    
    
    
    
    
    2
    
    
    
    9CASH AND CASH EQUIVALENTS, end of year
    
    $
    
    
    
    $
    
    
    
    $
    2
 F-44