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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
  FORM 10-K
  (Mark One)þ
    
    ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the year ended December 31, 2004oro
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934For the Transition Period From        toCommission File Number: 333-77499
 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
organization)
    
    (I.R.S. Employer Identification Number)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 þ No o 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. þ Indicate by checkmark whether the registrants are accelerated filers (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ The aggregate market value of the voting and non-voting common equity securities held by
non-affiliates at June 30, 2004 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 March 14, 2005: 100.    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, 2004  
 TABLE OF CONTENTS Page No.PART IItem 1 Business
    
    
    1Item 2 Properties
    
    
    20Item 3 Legal Proceedings
    
    
    21Item 4 Submission of Matters to a Vote of Security Holders
    
    
    25PART IIItem 5 Market for Registrants Common Equity and Related Stockholder Matters
    
    
    26Item 6 Selected Financial Data
    
    
    27Item 7 Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    28Item 7A Quantitative and Qualitative Disclosure About Market Risk
    
    
    76Item 8 Financial Statements and Supplementary Data
    
    
    77Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    77Item 9A Controls and Procedures
    
    
    77Item 9B Other Information
    
    
    78PART IIIItem 10 Directors and Executive Officers of the Registrant
    
    
    79Item 11 Executive Compensation
    
    
    84Item 12 Security Ownership of Certain Beneficial Owners and Management
    
    
    94Item 13 Certain Relationships and Related Transactions
    
    
    97Item 14 Principal Accounting Fees and Services
    
    
    107PART IVItem 15 Exhibits and Financial Statement Schedules
    
    
    109Signatures
    
    
    110Exhibit Index
    
    
    111Description of Long-Term Incentive ProgramSubsidiaries of Charter Communications Holdings, LLCCertificate of Interim Chief Executive Officer to Rule 13a-14(a)Certificate of Interim Co-Chief Financial Officer to Rule 13a-14(a)Certificate of Interim Co-Chief Financial Officer to Rule 13a-14(a)Certificate of Interim Chief Executive Officer to Section 906Certificate of Interim Co-Chief Financial Officer to Section 906Certificate of Interim Co-Chief Financial Officer to Section 906
  This annual report on Form 10-K is for the year ended December 31, 2004. The Securities and
Exchange Commission (SEC) allows us to incorporate by reference information that we file with
the SEC, which means that we can disclose important information to you by referring you directly to
those documents. Information incorporated by reference is considered to be part of this 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, as amended (the Securities Act) and Section 21E of the Securities
Exchange Act of 1934, as amended (the Exchange Act), regarding, among other things, our plans,
strategies and prospects, both business and financial, including, without limitation, the
forward-looking statements set forth in the Focus for 2005 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 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, telephony and other services and to maintain a stable
customer base, particularly in the face of increasingly aggressive competition from other
service providers;
    the availability of funds to meet interest payment obligations under our and our parent
companys debt and to fund our operations and necessary capital expenditures, either
through cash flows from operating activities, further borrowings or other sources;
    our ability to comply with all covenants in our and our parent companys indentures and
our 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 parent companys ability to pay or refinance debt as it becomes due;
    the results of the pending grand jury investigation by the United States Attorneys
Office for the Eastern District of Missouri, and the ability to reach a final approved
settlement with respect to the putative class action, the unconsolidated class action, and
derivative shareholders litigation against Charter Communications, Inc., our indirect
parent, on the terms of the stipulations of settlement described herein;
    our ability to obtain programming at reasonable prices or to pass programming cost
increases on to our customers;
    general business conditions, economic uncertainty or slowdown; and
    the effects of governmental regulation, including but not limited to local franchise
taxing authorities, on our business. All forward-looking statements attributable to us or any person acting on our behalf are expressly
qualified in their entirety by this cautionary statement. We are under no duty or obligation to
update any of the forward-looking statements after the date of this 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 6.22 million customers at December 31, 2004.
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). See Business  Products and Services for further
description of these terms, including customers. At December 31, 2004, we served approximately 5.99 million analog video customers, of which
approximately 2.67 million were also digital video customers. We also served approximately 1.88
million high-speed data customers (including approximately 217,400 who received only high-speed
data services). We also provided telephony service to approximately 45,400 customers as of that
date. At December 31, 2004, our investment in cable properties, long-term debt and total members deficit
were $16.0 billion, $18.5 billion and $3.7 billion, respectively. Our working capital deficit was
$379 million at December 31, 2004. For the year ended December 31, 2004, our revenues and net loss
were approximately $5.0 billion and $4.4 billion, 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
the 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 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 47%
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 owns 53% of Charter Holdco through
affiliated entities. His membership units are convertible at any time for shares of Charters
Class A common stock on a one-for-one basis. Paul G. Allen controls Charter with an as-converted
common equity interest of approximately 57% and a voting control interest of 93% as of December 31,
2004. Our principal executive offices are located at Charter Plaza, 12405 Powerscourt Drive, St. Louis,
Missouri 63131. Our telephone number is (314) 965-0555 and information regarding us is available
on Charters website accessible at www.charter.com. Since January 1, 2002, our annual reports,
quarterly reports and current reports on Form 8-K, and all amendments thereto, have been made
available on Charters website free of charge as soon as reasonably practicable after they have
been filed. The information posted on Charters website is not incorporated into this annual
report. 1




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Certain Significant Developments in 2004 In 2004, we completed several transactions that improved our liquidity. Our efforts in this regard
resulted in the completion of a number of transactions in 2004, as follows:  
    the December 2004 sale by our subsidiaries, CCO Holdings, LLC and CCO Holdings Capital
Corp., of $550 million of senior floating rate notes due 2010;
    the April 2004 sale of $1.5 billion of senior second-lien notes by our subsidiary,
Charter Communications Operating, LLC (Charter Operating), together with the concurrent
refinancing of its credit facilities; and
    the sale in the first half of 2004 of non-core cable systems for a total of $733
million, the proceeds of which were used to reduce indebtedness. Recent Events Issuance of Charter
Operating Notes in Exchange for Charter Holdings Notes In March 2005, our
subsidiary, Charter Operating, consummated exchange transactions with a small number of
institutional holders of Charter Holdings 8.25% Senior Notes due 2007
pursuant to which Charter Operating
issued, in a private placement, approximately $271 million principal amount of new notes with terms
identical to Charter Operatings 8.375% Senior Second Lien Notes due 2014 in exchange for
approximately $284 million of the Charter Holdings 8.25% Senior Notes due 2007. CC V Holdings, LLC Notes In March 2005, CC V Holdings, LLC redeemed all of its outstanding notes, at 103.958% of principal
amount, plus accrued and unpaid interest to the date of redemption. The total cost of redemption
was approximately $122 million and was funded with borrowings under the Charter Operating credit
facilities. Principal Management Changes On January 17, 2005, Robert P. May was appointed as Interim President and Chief Executive Officer
of Charter, replacing Carl E. Vogel who, effective on the same date, resigned his position as
President, Chief Executive Officer and a member of the board of directors of Charter and each of
Charters subsidiaries for which Mr. Vogel served as a director and officer. Additionally, Mr. May
was appointed to the Executive Committee of Charters board of directors and will continue to serve
on the boards Strategic Planning Committee. He was also appointed as an officer and director of
Charters subsidiaries for which Mr. Vogel was an officer and director. Charters board of
directors has formed an Executive Search Committee to oversee Charters search for a permanent
President and Chief Executive Officer. Derek Chang, our Executive Vice President of Finance and Strategy and Interim co-Chief Financial
Officer, has
informed Charter of his intention to resign effective April 15, 2005. Sale of CCO Holdings, LLC Senior Floating Rate Notes On December 15, 2004, our subsidiaries, CCO Holdings, LLC and CCO Holdings Capital Corp., issued
and sold $550 million total principal amount of senior floating rate notes due 2010. The notes
have an annual interest rate of LIBOR plus 4.125%, reset and payable quarterly. The net proceeds
from the sale of the notes were used to pay down bank debt and for general corporate purposes. Focus for 2005 Our principal financial goal is to maximize our return on invested capital. To do so, we will
focus on increasing revenues, growing our customer base, improving customer retention and enhancing
customer satisfaction by providing reliable, high-quality service offerings, superior customer
service and attractive bundled offerings. Specifically, in the near term, we are focusing on: 2




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
    generating improvements in the overall customer experience in such critical areas as
service delivery, customer care, and new product offerings;
    developing more sophisticated customer management capabilities through investment in our
customer care and marketing infrastructure, including targeted marketing capabilities;
    executing growth strategies for new services, including digital simulcast, VOD,
telephony, and digital video recorder service (DVR);
    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 have begun an internal operational improvement initiative aimed at helping us gain new customers
and retain existing customers, which is focused on customer care, technical operations and sales.
We intend to increase efforts to focus management attention on instilling a customer service
oriented culture throughout the company and to give those areas of our operations increased
priority of resources for staffing levels, training budgets and financial incentives for employee
performance in those areas. We believe that our high-speed data service will continue to provide a substantial portion of our
revenue growth in the near future. We also plan to continue to expand our marketing of high-speed
data service to the business community, which we believe has shown an increasing interest in
high-speed data service and private network services. Additionally, we plan to continue to prepare
additional markets for telephony launches in 2005. We believe we offer our customers an excellent choice of services through a variety of bundled
packages, particularly with respect to our digital video and high-speed data services, as well as
telephony in certain markets. 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 selected programming with other services such
as high-speed data, high definition television (in selected markets) and VOD (in selected markets). 3




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Organizational Structure 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, 2004 and do not give effect to any exercise, conversion or exchange of options,
preferred stock, convertible notes or other convertible or exchangeable securities. (FLOW CHART) 4




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(1)
    
    Charter acts as the sole manager of Charter Holdco and its direct and
indirect 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 Paul G. Allen, our
chairman and controlling shareholder. They are exchangeable at any
time on a one-for-one basis for shares of Charter Class A common
stock.(3)
    
    Represents 100% of the preferred membership interests in CC VIII, LLC,
a subsidiary of CC V Holdings, LLC. An issue has arisen regarding the
ultimate ownership of such CC VIII, LLC 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 Communications, Inc. 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, LLC. Mr. Allen, through Charter Investment, Inc., holds 100% of
the preferred membership units in CC VIII, LLC. CC VIII, LLC holds
100% of the equity of CC VIII Operating, LLC, 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. The Charter Operating credit
facilities require us to redeem the CC V Holdings notes within 45 days
after the first date that the Charter Holdings leverage ratio is less
than 8.75 to 1.0. In March 2005, CC V Holdings, LLC redeemed all of
its outstanding notes, at 103.958% of principal amount, plus accrued
and unpaid interest to the date of redemption. We are an indirect subsidiary of Charter. Charters principal assets are an approximate 47% common
equity interest and a 100% voting interest in our direct 100% parent, Charter Holdco. 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
formed on May 25, 1999, is the direct 100% parent of Charter Holdings. The common membership units
of Charter Holdco are owned 47% by Charter, 18% 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. Charter Communications Holdings, LLC.Charter Holdings, a Delaware limited liability company formed
on February 9, 1999, is a co-issuer of the publicly held Charter Holdings notes. These notes
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. Charter Holdings owns
100% of Charter Communications Holdings Capital, the co-issuer of these notes. Charter Holdings
also owns CCH II, CCO Holdings and the subsidiaries that conduct all of our cable operations,
including Charter Operating. CCH II, LLC.CCH II, a Delaware limited liability company formed on March 20, 2003, is a co-issuer
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 Charter Operating. CCO Holdings, LLC.CCO Holdings, a Delaware limited liability company formed on June 12, 2003, is
a co-issuer of $500 million principal amount of notes issued in November 2003 and $550 million
principal amount of notes issued in December 2004. 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 Charter Operating. Charter Operating.Charter Operating owns the subsidiariesthat own or operate all of our cable
systems, subject to a minority interest held by Mr. Allen as described below. There are four
groups of these operating subsidiaries, identified as follows: the Charter Operating subsidiaries,
the CC V/CC VIII companies, the CC VI companies, and the CC VII companies. The public notes
issuers, Renaissance Media Group and CC V Holdings, are within two of 5




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these groups and prior to
April 2004, each group of operating subsidiaries had a separate credit facility. The credit
facilities for the CC V/CC VIII companies, the CC VI companies and the CC VII companies were all
refinanced in April 2004 in connection with the amendment and restatement of the CCO credit
facilities. See Item 7. Managements Discussion and Analysis of Financial Condition and Results
of Operations  Liquidity and Capital Resources. Preferred Equity in CC VIII, LLC.Upon the closing of the acquisition of certain cable systems by
our subsidiary, CC VIII, LLC, in 2000, some of the former owners received a portion of their
purchase price in the form of preferred membership units in CC VIII, LLC, 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. 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. The following table summarizes our customer statistics for analog and digital video, residential
high-speed data and residential telephony as of December 31, 2004 and December 31, 2003. Approximate as ofDecember 31,
    
    
    December 31,2004 (a)
    
    
    2003 (a)Cable Video Services:Analog Video:Residential (non-bulk) analog video customers (b)
    
    
    5,739,900
    
    
    
    6,173,400Multi-dwelling (bulk) and commercial unit customers (c)
    
    
    251,600
    
    
    
    257,900Analog video customers (b)(c)
    
    
    5,991,500
    
    
    
    6,431,300Digital Video:Digital video customers (d)
    
    
    2,674,700
    
    
    
    2,671,900Non-Video Cable Services:Residential high-speed data customers (e)
    
    
    1,884,400
    
    
    
    1,565,600Dial-up customers
    
    
    3,800
    
    
    
    9,600Telephony customers (f)
    
    
    45,400
    
    
    
    24,900
 Pro forma for the sale of systems to Atlantic Broadband Finance, LLC in March and April 2004 as if
these sales had occurred as of December 31, 2003, analog video customers, digital video customers
and residential high-speed data customers would have been 6,200,500, 2,588,600 and 1,527,800,
respectively, as of December 31, 2003.   (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). In addition, at December 31, 2004 and 2003, customers include approximately
44,700 and 72,700 persons whose accounts were over 60 days past due in payment,
approximately 5,200 and 6,500 persons, whose accounts were over 90 days past due in payment
and approximately 2,300 and 2,000 of which were over 120 days past due in payment,
respectively.(b)
    
    Residential (non-bulk) analog video customers include all customers who receive video
services, except for complimentary accounts (such as our employees). 6




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(c)
    
    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.(d)
    
    Digital video customers include all households that have one or more digital set-top
terminals. Included in digital video customers on December 31, 2004 and 2003 are
approximately 10,100 and 12,200 customers, respectively, that receive digital video service
directly through satellite transmission.(e)
    
    All of these customers also receive video service and are included in the video
statistics above, except for approximately 217,400 and 105,700 of these customers at
December 31, 2004 and 2003, respectively, who were residential high-speed data only
customers.(f)
    
    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 we 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, music concert or similar event on a
commercial-free basis.
    Digital Video.We offer digital video service 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, 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 that give customers
access to several different versions of the same premium channel.
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.
    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 subscription VOD (SVOD) for a monthly fee or included in
a digital tier premium channel subscription.
    High Definition Television.High definition television offers our
digital customers video programming at a higher resolution than the
standard analog or digital video image. 7




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
    Digital Video Recorder.DVR service enables customers to digitally
record programming and to pause and rewind live programming. 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 service as Charter
High-Speed InternetTM. We also offer traditional dial-up Internet access in a very
limited number of our markets. We ended 2004 with 18% penetration of high-speed data homes passed, up from the 15% penetration of
high-speed data homes passed at year-end 2003. This gave us an annual percentage increase in
high-speed data customers of 20% and an increase in high-speed data revenues of 33% in the year
ended December 31, 2004. Telephony Services We continue to deploy voice communications services using VOIP to transmit digital voice signals
over our systems. At December 31, 2004, telephone service was available to approximately 900,000
homes, and we were marketing to approximately two-thirds of those homes. We will continue to
prepare additional markets for VOIP launches in 2005. 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
small businesses. Sale of Advertising We receive revenues 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 up to 39
channels. Our system rebuilds 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 vendors, including equipment vendors, have purchased advertising
from us. For the years ending December 31, 2004, 2003 and 2002, we had advertising revenues from
vendors of approximately $16 million, $15 million, and $79 million, respectively. These revenues
resulted from purchases at market rates pursuant to binding agreements. Pricing of 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 sometimes waived or discounted during certain
promotional periods, is charged to new customers. The prices we charge vary based on the level of
service the customer chooses and the 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. 8




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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, 2004Analog video packages
    
    $
    7.00 - $54.00Premium channels
    
    $
    10.00 - $15.00Pay-per-view events
    
    $
    2.99 - $179.00Digital video packages (including high-speed data
service for higher tiers)
    
    $
    34.00 - $112.00High-speed data service
    
    $
    21.95 - $49.99Video on demand (per selection)
    
    $
    0.99 - $29.99High definition television
    
    $
    3.99 - $6.99Digital video recorder (DVR)
    
    $
    6.99 - $9.99
 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 The following table sets forth the technological capacity of our systems as of December 31, 2004
based on a percentage of homes passed: 550 megahertzLess than 550
    
    
    to
    
    
    750
    
    
    870
    
    
    Two-way
    
    
    Two-waymegahertz
    
    
    660 megahertz
    
    
    megahertz
    
    
    megahertz
    
    
    capability
    
    
    enabled8
    %
    
    
    5
    %
    
    
    42
    %
    
    
    45
    %
    
    
    92
    %
    
    
    87
    %
 As a result of the upgrade of our systems over the past several years, approximately 92% of the
homes passed by our systems have bandwidth of 550 megahertz or greater. This bandwidth capacity
enables us to offer digital television, high-speed data services and other advanced services. It
also enables us to offer up to 82 analog channels, and even more channels when our bandwidth is
used for digital signal transmissions. Our increased bandwidth also permits two-way communication
for Internet access, interactive services, and potentially, telephony services. As part of our systems upgrade and partly as a result of system sales, we reduced the number of
headends that serve our customers from 1,138 at January 1, 2001 to 744 at December 31, 2004.
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 believe that the
headend consolidation, together with our other upgrades, allows us to provide enhanced picture
quality and greater system reliability. As a result of the upgrade, approximately 84% of our
customers were served by headends serving at least 10,000 customers as of December 31, 2004. As of December 31, 2004, our cable systems consisted of approximately 222,100 strand miles,
including approximately 53,600 strand miles of fiber optic cable, passing approximately 12.1
million households, and served approximately 6.2 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 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 9




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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. Centralized monitoring is increasingly
important as we increase the number of high-speed data customers utilizing two-way high-speed data
service. Our local dispatch centers focus primarily on monitoring the HFC plant. Management of Our Systems Many of the functions associated with our financial management are centralized, including
accounting, billing, finance and acquisitions, payroll, accounts payable and benefit
administration, information system design and support, internal audit, purchasing, marketing,
programming contract administration and Internet service, network and circuits administration. We
operate with four divisions. Each division is supported by operational, financial, marketing and
engineering functions. Customer Care We have 36 customer service locations, including 14 divisional contact centers that serve
approximately 97% of our customers. Our customer care centers are managed divisionally by a Vice
President of Customer Care and are supported by a corporate care team, which oversees and supports
deployment and execution of care strategies and initiatives on a company-wide basis. This reflects
a substantial consolidation of our customer care function from over 300 service centers in 2001.
We believe that this consolidation will allow us to improve the consistency of our service delivery
and customer satisfaction by reducing or eliminating the logistical challenges and poor economies
of scale inherent in maintaining and supervising a larger number of separately managed service
centers. Specifically, through this consolidation, we are now 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 through more intelligent call routing, data management, and
forecasting and scheduling capabilities. We believe this consolidation also allows us to more
effectively provide our customer care specialists with ongoing training intended to improve
complaint resolution, equipment troubleshooting, sales of new and additional services, and customer
retention. We believe that, despite our consolidation, we have not yet sufficiently improved in the area of
customer care, and that this lack of improvement has in part led to a continued net loss of
customers. Accordingly, we have begun an internal operational improvement initiative aimed at
helping us gain new customers and retain existing customers, which is focused on customer care,
among other areas. We intend to increase our efforts to focus management attention on instilling a
customer service oriented culture throughout the company and to give those areas of our operations
increased priority of resources for staffing levels, training budgets and financial incentives for
employee performance in those areas. In a further effort to better serve our customers, we have also entered into outsource partnership
agreements with two key outsource providers. We believe the establishment of these relationships
expands our ability to achieve our service objectives and increases our ability to support
marketing activities by providing additional capacity available to support customer inquiries. We also utilize our website to enhance customer care by enabling customers to view and pay their
bills online, obtain useful information and perform various equipment troubleshooting procedures. 10




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Sales and Marketing In the third quarter of 2004, Charter shifted primary responsibility for implementing sales and
marketing strategies to the divisional and system level, with a single corporate team to ensure
compliance with guidelines established by the corporate marketing department designed to promote
national branding consistency. Our marketing infrastructure is intended to promote interaction,
information flow and sharing of best practices between our corporate office and our field offices,
which make strategic decisions as to when and how marketing programs will be implemented. 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. Marketing
expenditures increased 14% for the year ended December 31, 2004 to $122 million. We expect to
increase our spending on marketing in 2005. We monitor government regulation, customer perception, competition, pricing and product
preferences, among other factors, to increase our responsiveness to our customers. Our coordinated
marketing strategies include door-to-door solicitation, telemarketing,
media advertising, e-marketing, direct mail solicitation and retail locations. In 2004, we
increased our focus on marketing and selling 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 was a key focal point of our national marketing campaigns in 2004 with
the aim of promoting deeper market penetration and increased revenue per customer. In 2004, our
corporate team produced eight national Get Hooked marketing campaigns designed to:  
    Promote awareness and loyalty among existing customers and attract new customers;
    Announce the availability of our advanced services as we roll them out in our systems;
    Promote our advanced services (such as DVR, high definition television, telephony, 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; and
    Promote our bundling of digital video and high-speed data services and pricing
strategies. 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 and additional programming
being provided to customers as a result of system rebuilds and bandwidth reallocation, both of
which increase channel capacity. 11




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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 absorbed increased programming costs in large part 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 or mitigate
reductions of margins despite increasing programming costs, we plan to continue to migrate certain
program services from our analog level of service to our digital tiers. 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. As measured by programming costs, and excluding premium services (substantially all of which were
renegotiated and renewed in 2003), as of December 31, 2004 approximately 10% of our current
programming contracts were expired, and approximately another 34% are scheduled to expire by the
end of 2005. We plan to seek to renegotiate the terms of our agreements with certain programmers
as these agreements come due for renewal. 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, 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, 2004, our systems operated pursuant to a total of approximately 4,200
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, 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, 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. Approximately 11% of our franchises, covering approximately 10% of our analog
video customers were expired at December 31, 2004. Approximately 8% of additional franchises,
covering approximately 9% of additional analog video customers will expire on or before December
31, 2005, if not renewed prior to expiration. 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
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 12




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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, service offerings, 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 believe that competition from DBS service providers may
present greater challenges in areas of lower population density, and that our systems may service a
higher concentration of such areas than those of other major cable service providers. 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, 2004, we are aware of traditional overbuild situations in service areas covering
approximately 5% of our total homes passed and potential overbuilds in areas servicing
approximately 2% 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 24 million subscribers nationwide. DBS service allows the
subscriber to receive video 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, acquired a controlling interest in DIRECTV, Inc. (DirecTV) in
2003, the largest domestic DBS company. This business combination could further strengthen
DirecTVs competitive posture, particularly through favorable programming arrangements with various
News Corp. affiliates and subsidiaries, such as the Fox television network. 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 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 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 13




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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 readily 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, which was continued in 2004, 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 been carrying the major network stations
in many of the nations television markets. DBS, however, is limited in the local programming it
can provide because of the current capacity limitations of satellite technology. DBS companies do
not offer local broadcast programming in every U.S. market, although the number of markets covered
is increasing. DBS providers have made attempts at widespread deployment of high-speed Internet access services
via satellite but those services have been technically constrained and of limited appeal. However,
DBS providers have entered into joint marketing arrangements with telecommunications carriers
allowing them to offer terrestrial DSL services in many markets. DSL and other Broadband Services Digital subscriber line service 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. Most telephone companies which
already have plant, an existing customer base, and other operational functions in place (such as,
billing, service personnel, etc.) 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. In
addition, the further deployment of fiber by telephone companies into their networks will enable
them to provide higher bandwidth Internet service than provided over traditional DSL lines. DSL and other forms of high-speed Internet access provide competition to our high-speed data
service. 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 likely will
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. Joint marketing
arrangements between DSL providers and DBS providers may allow some additional bundling of
services. Moreover, major telephone companies, such as SBC and Verizon, are now deploying fiber
deep into their networks that will enable them to offer high bandwidth video services over their
networks, in addition to established voice and Internet services. 14




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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. 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, 2004, we are aware of overbuild situations impacting approximately 5% of our
total homes passed and potential overbuild situations in areas servicing approximately 2% of our
total 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, 2004, 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 is 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. Telephone companies can lawfully enter the cable television business, and although activity in this
area historically has been quite limited, recent announcements by telephone companies indicate a
growing interest in offering a video product. Local exchange carriers do already 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. Some telephone companies have begun more extensive deployment of fiber in their
networks that will enable them to begin providing video services, as well as telephony and Internet
access service. At least one major telephone company, SBC, plans to provide Internet protocol
video over its upgraded network. SBC contends that its use of this technology should allow it to
provide video service without a cable franchise as required under Title VI of the Communications
Act. Other telephone companies deploying fiber more extensively are attempting through various
means to weaken or streamline the franchising requirements applicable to them. If telephone
companies are successful in avoiding or weakening the franchise and other regulatory requirements
applicable to Charter, their competitive posture would be enhanced. 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 large scale entry of major telephone companies as direct
competitors in the video marketplace 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- 15




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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. 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. 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 has 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. 16




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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 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 cable systems were required
to simultaneously carry both the analog and digital signals of each television station (dual
carriage), as the broadcast industry transitions from an analog to a digital format. The burden could also increase significantly if cable systems become required to carry multiple
program streams included within a single digital broadcast transmission (multicast carriage).
Additional government-mandated broadcast carriage obligations could disrupt existing programming
commitments, interfere with our preferred use of limited channel capacity and limit our ability to
offer services that would maximize customer appeal and revenue potential. Although the FCC issued
a decision on February 10, 2005, confirming an earlier ruling against mandating either dual
carriage or multicast carriage, that decision could be appealed or Congress could legislate
additional carriage obligations. There are indications that broadcasters involving retransmission consent may be even more forceful
in upcoming negotiations. These negotiations could result in increased broadcast carriage burdens
or the loss of popular programming. 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. 17




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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 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 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 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. The United States Court of
Appeals for the Ninth Circuit however, 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. That decision has been appealed to
the Supreme Court, which has agreed to hear the case. The Ninth Circuit decision, if not
overturned, could potentially result in adverse regulatory treatment, including the imposition of
open access requirements on the cable industrys Internet access service. 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 and be subject
to other common carrier regulations. 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. 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 18




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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.
The FCC recently decided that alternative voice technologies, like certain types of VOIP, should be
regulated only at the federal level, rather than by individual states. As the FCC generally does
not favor extensive regulation of such services, this decision appears to be a positive development
for VOIP offerings. It is unclear how these regulatory matters ultimately 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 created controversy in this area. The U.S. Supreme Court has agreed to hear an
appeal of that decision. 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, although the FCC may extend the deadline. The FCC has 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, although the FCCs jurisdiction to impose broadcast flag rules is
currently being challenged in court. 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; and (12) maintenance of public files; and (13) emergency alert
systems. 19




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It is possible that Congress or 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. For example,
there have been recent discussions about imposing indecency restrictions directly on cable
programming. 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 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, 2004, we had approximately 15,000 full-time equivalent employees, and our parent
companies employed approximately 500 full-time employees to manage our operations. We have never
experienced a work stoppage. 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, which includes employees of Charter and Charter Holdco,
is responsible for coordinating and overseeing our operations. The corporate office performs
certain financial and administrative functions on a centralized basis such as accounting, taxes,
billing, finance and acquisitions, payroll and benefit administration, information system design
and support, internal audit, purchasing, marketing and programming contract administration and
oversight and coordination of external auditors and consultants. 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 Communications, Inc. 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. 20




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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. Since early 2003 we have
reduced our total real estate portfolio square footage by approximately 17% and have decreased our
operating annual lease costs by approximately 30%. We plan to continue reducing 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. 
 Item 3.Legal Proceedings. Securities Class Actions and Derivative Suits Fourteen putative federal class action lawsuits (the Federal Class Actions) were filed against
Charter and certain of its former and present officers and directors in various jurisdictions
allegedly on behalf of all purchasers of Charters securities during the period from either
November 8 or November 9, 1999 through July 17 or July 18, 2002. Unspecified damages were sought
by the plaintiffs. In general, the lawsuits alleged that Charter utilized misleading accounting
practices and failed to disclose these accounting practices and/or issued false and misleading
financial statements and press releases concerning Charters operations and prospects. The Federal
Class Actions were specifically and individually identified in public filings made by Charter prior
to the date of this 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 action (the
Consolidated Federal Class Action) for pretrial purposes. On June 19, 2003, following a status
and scheduling conference with the parties, the Court issued a Case Management Order setting forth
a schedule for the pretrial phase of the Consolidated Federal Class Action. Motions to dismiss the
Consolidated Amended Complaint were filed. On February 10, 2004, in response to a joint motion
made by StoneRidge and defendants Charter, Vogel and Allen, the court entered an order providing,
among other things, that: (1) the parties who filed such motion engage in a mediation within ninety
(90) days; and (2) all proceedings in the Consolidated Federal Class Actions were stayed until May
10, 2004. On May 11, 2004, the Court extended the stay in the Consolidated Federal Class Action
for an additional sixty (60) days. On July 12, 2004, the parties submitted a joint motion to again
extend the stay, this time until September 10, 2004. The Court granted that extension on July 20,
2004. On August 5, 2004, Stoneridge, Charter and the individual defendants who were the subject of
the suit entered into a Memorandum of Understanding setting forth agreements in principle to settle
the Consolidated Federal Class Action. These parties subsequently entered into Stipulations of
Settlement dated as of January 24, 2005 (described more fully below) which incorporate the terms of
the August 5, 2004 Memorandum of Understanding. 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. 21




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On September 12, 2002, a shareholders derivative suit (the State Derivative Action) was filed in
the Circuit Court of the City of St. Louis, State of Missouri (the Missouri State Court), against
Charter and its then current directors, as well as its former auditors. A substantively identical
derivative action was later filed and consolidated into the State Derivative Action. The
plaintiffs allege that the individual defendants breached their fiduciary duties by failing to
establish and maintain adequate internal controls and procedures. Unspecified damages, allegedly
on Charters behalf, are sought by the plaintiffs. The consolidated 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, Arthur Andersen, LLP and Charter
Communications, Inc. On March 12, 2004, an action substantively identical to the State Derivative Action was filed in
the Missouri State Court, against Charter and certain of its current and former directors, as well
as its former auditors. The plaintiffs in that case alleged that the individual defendants
breached their fiduciary duties by failing to establish and maintain adequate internal controls and
procedures. Unspecified damages, allegedly on Charters behalf, were sought by plaintiffs. On
July 14, 2004, the Court consolidated this case with the State Derivative Action. This action is entitled:  
    Thomas Schimmel, Derivatively on behalf on Nominal Defendant Charter Communications,
Inc., v. Ronald L. Nelson, Paul G. Allen, Marc B. Nathanson, Nancy B. Peretsman, William D.
Savoy, John H. Tory, Carl E. Vogel, Larry W. Wangberg, and Arthur Andersen, LLP, 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 in that suit alleged that the individual defendants breached their fiduciary duties and
grossly mismanaged Charter by failing to establish and maintain adequate internal controls and
procedures. Unspecified damages, allegedly on Charters behalf, were sought by the plaintiffs. 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. As noted above, Charter entered into Memoranda of Understanding on August 5, 2004 setting forth
agreements in principle regarding settlement of the Consolidated Federal Class Action, the State
Derivative Action(s) and the Federal Derivative Action (the Actions). Charter and various other
defendants in those actions subsequently entered into Stipulations of Settlement dated as of
January 24, 2005, setting forth a settlement of the Actions in a manner consistent with the terms
of the Memoranda of Understanding. The Stipulations of Settlement, along with various supporting
documentation, were filed with the Court on February 2, 2005. The Stipulations of Settlement
provide that, in exchange for a release of all claims by plaintiffs against Charter and its former
and present officers and directors named in the Actions, Charter will pay to the plaintiffs a
combination of cash and equity collectively valued at $144 million, which will include the fees and
expenses of plaintiffs counsel. Of this amount, $64 million will be paid in cash (by Charters
insurance carriers) and the balance will be paid in shares of Charter Class A common stock having
an aggregate value of $40 million and ten-year warrants to purchase shares of Charter Class A
common stock having an aggregate warrant value of $40 million, with such values in each case being
determined pursuant to formulas set forth in the Stipulations of Settlement. The warrants would
have an exercise price equal to 150% of the fair market value (as defined) of Charter Class A
common stock as of the date of the entry of the order of final judgment approving the settlement.
In addition, Charter expects to issue additional shares of its Class A common stock to its
insurance carrier having an aggregate value of $5 million. In the event that the valuation formula
in the Stipulations provides for a per share value of less than $2.25, Charter may elect to
terminate the settlement. As part of the settlements, Charter will also commit to a variety of
corporate governance changes, internal practices and public disclosures, some of which have already
been undertaken and none of which are inconsistent with measures Charter is taking in connection
with the recent conclusion of the SEC investigation described below. Documents related to the
settlement of the Actions have now been executed and filed. On February 15, 2005, the United
States District Court for the Eastern District of Missouri gave preliminary approval to 22




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the settlement of the Actions. The settlement of each of the lawsuits remains conditioned upon, among
other things, final judicial approval of the settlements following notice to the class, and
dismissal with prejudice of the consolidated derivative actions now pending in Missouri State
Court, which are related to the Federal Derivative Action. In addition to the Federal Class Actions, the State Derivative Action(s), the new Missouri State
Court derivative action and the Federal Derivative Action, six putative class action lawsuits were
filed against Charter and certain of its then current directors and officers in the Court of
Chancery of the State of Delaware (the Delaware Class Actions). The lawsuits were filed after
the filing of a Schedule 13D amendment by Mr. Allen indicating that he was exploring a number of
possible alternatives with respect to restructuring or expanding his ownership interest in Charter.
We believe the plaintiffs speculated that Mr. Allen might have been contemplating an unfair bid
for shares of Charter or some other sort of going private transaction on unfair terms and generally
alleged that the defendants breached their fiduciary duties by participating in or acquiescing to
such a transaction. The lawsuits, which are substantively identical, were brought on behalf of
Charters securities holders as of July 29, 2002, and sought unspecified damages and possible
injunctive relief. However, no such transaction by Mr. Allen has been presented. On April 30,
2004, orders of dismissal without prejudice were entered in each of the Delaware Class Actions. 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. 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 a target of the investigation. Charter was also advised by the U. S.
Attorneys Office that no current officer or member of its board of directors 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. Each of
the indicted former officers pled guilty to single conspiracy counts related to the original mail
and wire fraud charges and are awaiting sentencing. Charter has
informed us that it is fully
cooperating with the investigation. On November 4, 2002, Charter received an informal, non-public inquiry from the staff of the SEC.
The SEC issued a formal order of investigation dated January 23, 2003, and subsequently served
document and testimony subpoenas on Charter and a number of its former employees. The
investigation and subpoenas generally concerned Charters 23




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prior reports with respect to its determination of the number of customers, and various of its accounting policies and practices
including its capitalization of certain expenses and dealings with certain vendors, including
programmers and digital set-top terminal suppliers. On July 27, 2004, the SEC and Charter reached
a final agreement to settle the investigation. In the Settlement Agreement and Cease and Desist
Order, Charter agreed to entry of an administrative order prohibiting any future violations of
United States securities laws and requiring certain other remedial internal practices and public
disclosures. Charter neither admitted nor denied any wrongdoing, and the SEC assessed no fine
against Charter. Indemnification Charter is generally required to indemnify each of the named individual defendants in connection
with the matters described above pursuant to the terms of its bylaws and (where applicable) such
individual defendants employment agreements. In accordance with these documents, in connection
with the pending grand jury investigation, the now settled SEC investigation and the above
described lawsuits, some of Charters current and former directors and current and former officers
have been advanced certain costs and expenses incurred in connection with their defense. See Item
13. Certain Relationships and Related Transactions  Indemnification Advances for greater detail.
On February 22, 2005, Charter filed suit against four of its former officers who were indicted in
the course of the grand jury investigation. These suits seek to recover the legal fees and other related expenses advanced
to these individuals by Charter for the grand jury investigation, SEC investigation and class
action and related lawsuits. Other Litigation In October 2001, two customers, Nikki Nicholls and Geraldine M. Barber, filed a class action suit
against Charter Holdco in South Carolina Court of Common Pleas (the South Carolina Class Action),
purportedly on behalf of a class of Charter Holdcos customers, alleging that Charter Holdco
improperly charged them a wire maintenance fee without request or permission. They also claimed
that Charter Holdco improperly required them to rent analog and/or digital set-top terminals even
though their television sets were cable ready. A substantively identical case was filed in the
Superior Court of Athens  Clarke County, Georgia by Emma S. Tobar on March 26, 2002 (the Georgia
Class Action), alleging a nationwide class for these claims. Charter Holdco removed the South
Carolina Class Action to the United States District Court for the District of South Carolina in
November 2001, and moved to dismiss the suit in December 2001. The federal judge remanded the case
to the South Carolina Court of Common Pleas in August 2002 without ruling on the motion to dismiss.
The plaintiffs subsequently moved for a default judgment, arguing that upon return to state court,
Charter Holdco should have, but did not file a new motion to dismiss. The state court judge
granted the plaintiffs motion over Charter Holdcos objection in September 2002. Charter Holdco
immediately appealed that decision to the South Carolina Court of Appeals and the South Carolina
Supreme Court, but those courts ruled that until a final judgment was entered against Charter
Holdco, they lacked jurisdiction to hear the appeal. In January 2003, the Court of Common Pleas granted the plaintiffs motion for class certification.
In October and November 2003, Charter Holdco filed motions (a) asking that court to set aside the
default judgment, and (b) seeking dismissal of plaintiffs suit for failure to state a claim. In
January 2004, the Court of Common Pleas granted in part and denied in part Charter Holdcos motion
to dismiss for failure to state a claim. It also took under advisement Charter Holdcos motion to
set aside the default judgment. In April 2004, the parties to both the Georgia and South Carolina
Class Actions participated in a mediation. The mediator made a proposal to the parties to settle
the lawsuits. In May 2004, the parties accepted the mediators proposal and reached a tentative
settlement, subject to final documentation and court approval. As a result of the tentative
settlement, we recorded a special charge of $9 million in our consolidated statement of operations
in the first quarter of 2004. On July 8, 2004, the Superior Court of Athens  Clarke County,
Georgia granted a motion to amend the Tobar complaint to add Nicholls, Barber and April Jones as
plaintiffs in the Georgia Class Action and to add any potential class members in South Carolina.
The court also granted preliminary approval of the proposed settlement on that date. On August 2,
2004, the parties submitted a joint request to the South Carolina Court of Common Pleas to stay the
South Carolina Class Action pending final approval of the settlement and on August 17, 2004, that
court granted the parties request. On November 10, 2004, the court granted final approval of the
settlement, rejecting positions advanced by two objectors to the settlement. On December 13, 2004
the court entered a written order formally approving that settlement. On January 11, 2005, certain
class members appealed the order entered by the Georgia court. Those objectors voluntarily
dismissed their appeal with prejudice on February 8, 2005. On February 9, 2005, the South Carolina
Court of Common Pleas entered a court order of dismissal for the South Carolina Class Action.
Additionally, one of the objectors to this settlement recently filed a similar, but not identical,
lawsuit. 24




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The South Carolina Class Action was 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. The Georgia Class Action was entitled:  
    Emma S. Tobar, Nikki Nicholls, Geraldine M. Barber and April Jones, on behalf of
themselves and all others similarly situated v. Charter Communications Holding Company,
LLC, et al, originally filed on March 26, 2002. Outcome In addition to the matters set forth above, Charter is also party to other lawsuits and claims that
arose in the ordinary course of conducting its business. In the opinion of management, after
taking into account recorded liabilities, the outcome of these other lawsuits and claims are not
expected to have a material adverse effect on our consolidated financial condition, results of
operations or our liquidity. 
 Item 4.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, 2004. 25




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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 During 2004, there were no unregistered sales of securities of Charter Holdings or Charter Capital
other than those previously reported on a Form 10-Q or Form 8-K. 26




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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 31,2004
    
    
    2003 (a)
    
    
    2002 (a)
    
    
    2001 (a)(b)
    
    
    2000 (a)(b)Statement of Operations Data:Revenues
    
    $
    4,977
    
    
    $
    4,819
    
    
    $
    4,566
    
    
    $
    3,807
    
    
    $
    3,141Costs and Expenses:Operating (excluding depreciation and amortization)
    
    
    2,080
    
    
    
    1,952
    
    
    
    1,807
    
    
    
    1,486
    
    
    
    1,187Selling, general and administrative
    
    
    971
    
    
    
    940
    
    
    
    963
    
    
    
    826
    
    
    
    606Depreciation and amortization
    
    
    1,495
    
    
    
    1,453
    
    
    
    1,436
    
    
    
    2,683
    
    
    
    2,398Impairment of franchises
    
    
    2,433
    
    
    
    
    
    
    
    4,638
    
    
    
    
    
    
    
    (Gain) loss on sale of fixed assets, net
    
    
    (86
    )
    
    
    5
    
    
    
    3
    
    
    
    10
    
    
    
    Option compensation expense (income), net
    
    
    31
    
    
    
    4
    
    
    
    5
    
    
    
    (5
    )
    
    
    38Special charges, net
    
    
    104
    
    
    
    21
    
    
    
    36
    
    
    
    18
    
    
    
    Unfavorable contracts and other settlements
    
    
    (5
    )
    
    
    (72
    )
    
    
    
    
    
    
    
    
    
    
    7,023
    
    
    
    4,303
    
    
    
    8,888
    
    
    
    5,018
    
    
    
    4,229Income (loss) from operations
    
    
    (2,046
    )
    
    
    516
    
    
    
    (4,322
    )
    
    
    (1,211
    )
    
    
    (1,088
    )Interest expense, net
    
    
    (1,618
    )
    
    
    (1,486
    )
    
    
    (1,425
    )
    
    
    (1,247
    )
    
    
    (1,046
    )Gain (loss) on derivative instruments and
hedging activities, net
    
    
    69
    
    
    
    65
    
    
    
    (115
    )
    
    
    (50
    )
    
    
    Gain (loss) on extinguishment of debt
    
    
    (21
    )
    
    
    187
    
    
    
    
    
    
    
    
    
    
    
    Other, net
    
    
    2
    
    
    
    (10
    )
    
    
    3
    
    
    
    (52
    )
    
    
    5Loss before minority interest, income taxes and
cumulative effect of accounting change
    
    
    (3,614
    )
    
    
    (728
    )
    
    
    (5,859
    )
    
    
    (2,560
    )
    
    
    (2,129
    )Minority interest
    
    
    20
    
    
    
    (29
    )
    
    
    (16
    )
    
    
    (16
    )
    
    
    (13
    )Loss before income taxes and cumulative effect
of accounting change
    
    
    (3,594
    )
    
    
    (757
    )
    
    
    (5,875
    )
    
    
    (2,576
    )
    
    
    (2,142
    )Income tax benefit (expense)
    
    
    35
    
    
    
    (13
    )
    
    
    216
    
    
    
    27
    
    
    
    24Loss before cumulative effect of accounting change
    
    
    (3,559
    )
    
    
    (770
    )
    
    
    (5,659
    )
    
    
    (2,549
    )
    
    
    (2,118
    )Cumulative effect of accounting change, net of tax
    
    
    (840
    )
    
    
    
    
    
    
    (540
    )
    
    
    (24
    )
    
    
    Net loss
    
    $
    (4,399
    )
    
    $
    (770
    )
    
    $
    (6,199
    )
    
    $
    (2,573
    )
    
    $
    (2,118
    )Balance Sheet Data (end of period):Total assets
    
    $
    17,084
    
    
    $
    21,148
    
    
    $
    22,156
    
    
    $
    26,220
    
    
    $
    24,290Long-term debt
    
    
    18,474
    
    
    
    17,873
    
    
    
    17,288
    
    
    
    14,960
    
    
    
    12,311Minority interest
    
    
    656
    
    
    
    719
    
    
    
    693
    
    
    
    680
    
    
    
    666Members equity (deficit)
    
    
    (3,713
    )
    
    
    639
    
    
    
    1,906
    
    
    
    8,122
    
    
    
    9,156
   (a)
    
    Certain prior year amounts have been reclassified to conform with the 2004 presentation.(b)
    
    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 for the years ended December 31, 2001 and 2000
by $146 million and $108 million, respectively. The Companys consolidated net loss decreased
by $21 million for the year ended December 31, 2001. Net loss increased by $70 million for the
year ended December 31, 2000, primarily due to 27




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adjustments related to the original accounting for acquisitions and for elements of the rebuild and upgrade activities. Comparability of the above information from year to year is affected by acquisitions and
dispositions completed by us. See Note 2 and 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  Liquidity and Capital
Resources. 
 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 describes 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, 2004, 2003 and 2002. Introduction In 2004, we completed several transactions that improved our liquidity. Our efforts in this regard
resulted in the completion of a number of transactions in 2004, as follows:  
    the December 2004 sale by our subsidiaries, CCO Holdings, LLC and CCO Holdings Capital
Corp., of $550 million of senior floating rate notes due 2010;
    the April 2004 sale of $1.5 billion of senior second-lien notes by our subsidiary,
Charter Operating, together with the concurrent refinancing of its credit facilities; and
    the sale in the first half of 2004 of non-core cable systems for a total of $733
million, the proceeds of which were used to reduce indebtedness. 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 have no current plans
to pursue any significant acquisitions. However, we may pursue 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. The industrys and our most significant operational challenges in 2004 and 2003 included
competition from DBS providers and DSL service providers. See Business  Competition. We
believe that competition from DBS has resulted in net analog video customer losses and decreased
growth rates for digital video customers. Competition from DSL providers combined with limited
opportunities to expand our customer base now that approximately 28% of our analog video customers
subscribe to our high-speed data services has resulted in decreased growth rates for high-speed
data customers. In the recent past, we have grown revenues by offsetting video customer losses
with price increases and sales of incremental advanced services such as high-speed data, video on
demand, digital video recorders and high definition television. We expect to continue to grow
revenues through continued growth in high-speed data and incremental new services including VOIP
telephony, high definition television, VOD and DVR service. Historically, our ability to fund operations and investing activities has depended on our continued
access to credit under our subsidiaries credit facilities. 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,
trigger events of default under our notes and our subsidiaries outstanding notes and would have a
material adverse effect on us. Approximately $30 million of indebtedness under our subsidiaries
credit facilities is scheduled to mature during 2005. We expect to fund payment of such
indebtedness through borrowings under our subsidiaries revolving credit facilities. Overview of Operations Approximately 86% of our revenues for the each of the years ended December 31, 2004 and 2003 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 28




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time. The remaining 14% of revenue is derived primarily from advertising revenues, franchise fee revenues, which are collected by us but
then paid to local franchising authorities, pay-per-view and VOD programming where users are
charged a fee for individual programs viewed, installation or reconnection fees charged to
customers to commence or reinstate service, and commissions related to the sale of merchandise by
home shopping services. We have increased revenues during the past three years, primarily through
the sale of digital video and high-speed data services to new and existing customers and price
increases on video services offset in part by dispositions of systems. Going forward, our goal is
to increase revenues by stabilizing our analog video customer base, implementing price increases on
certain services and packages and increasing the number of our customers who purchase high-speed
data services, digital video and new products and services such as VOIP telephony, VOD, high
definition television and DVR service. 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. 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. Our income from operations
decreased from $516 million for year ended December 31, 2003 to loss from operations of $2.0
billion for the year ended December 31, 2004. We had a negative operating margin (defined as
income (loss) from operations divided by revenues) of 41% for the year ended December 31, 2004
whereas for the year ended December 31, 2003, we had a positive operating margin of 11%. The
decline in income from operations and operating margin for the year ended December 31, 2004 is
principally due to the impairment of franchises of $2.4 billion recorded in the third quarter of
2004. The year ended December 31, 2004 also includes a gain on the sale of certain cable systems
to Atlantic Broadband Finance, LLC which is substantially offset by an increase in option
compensation expense and special charges when compared to the year ended December 31, 2003. For
the year ended December 31, 2003, income from operations was $516 million and for the year ended
December 31, 2002, our loss from operations was $4.3 billion. Operating margin was 11% for the
year ended December 31, 2003, whereas for the year ending December 31, 2002, we had negative
operating margin of 95%. 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. Although we do not expect
charges for impairment in the future of comparable magnitude, 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
the interest costs on 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 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: 29




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
    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, 2004 and 2003, the net carrying amount of our
property, plant and equipment (consisting primarily of cable network assets) was approximately $6.1
billion (representing 36% of total assets) and $6.8 billion (representing 32% of total assets),
respectively. Total capital expenditures for the years ended December 31, 2004, 2003 and 2002 were
approximately $893 million, $804 million and $2.1 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. We make judgments regarding the installation and construction activities to be capitalized. We
capitalize direct labor and certain indirect costs (overhead) using standards developed from
actual costs and applicable operational data. We calculate standards for items such as the labor
rates, overhead rates and the actual amount of time required to perform a capitalizable activity.
For example, the standard amounts of time required to perform capitalizable activities are based on
studies of the time required to perform such activities. Overhead rates are established 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 impact of changes that resulted from these studies were not significant in the periods
presented. 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 such activities as:  
    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. Judgment is required to determine the extent to which overhead is incurred as a result of specific
capital activities, and therefore should be capitalized. 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 30




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to our internal studies on an ongoing basis to determine whether facts or circumstances warrant a change to our capitalization policies. We
capitalized direct labor and overhead of $164 million, $174 million and $335 million, respectively,
for the years ended December 31, 2004, 2003 and 2002. Capitalized internal direct labor and
overhead costs substantially decreased in 2004 and 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. Useful lives of property, plant and equipment.We evaluate the appropriateness of estimated useful
lives assigned to our property, plant and equipment, based on annual studies of such useful lives,
and revise such lives to the extent warranted by changing facts and circumstances. Any changes in
estimated useful lives as a result of these studies, which were not significant in the periods
presented, will be reflected prospectively beginning in the period in which the study is completed.
The effect of a one-year decrease in the weighted average remaining useful life of our property,
plant and equipment would be an increase in depreciation expense for the year ended December 31,
2004 of approximately $296 million. The effect of a one-year increase in the weighted average
useful life of our property, plant and equipment would be a decrease in depreciation expense for
the year ended December 31, 2004 of approximately $198 million. Depreciation expense related to property, plant and equipment totaled $1.5 billion, $1.5 billion
and $1.4 billion, representing approximately 21%, 34% and 16% of costs and expenses, for the years
ended December 31, 2004, 2003 and 2002, respectively. Depreciation is recorded using the
straight-line composite method over managements estimate of the estimated useful lives of the
related assets as listed below: Cable distribution systems
    
    7-20 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, 2004 and 2003 was approximately $9.9 billion (representing 58% of
total assets) and $13.7 billion (representing 65% of total assets), respectively. Furthermore, our
noncurrent assets include approximately $52 million of goodwill. We adopted SFAS No. 142 on January 1, 2002. SFAS No. 142 requires that franchise intangible assets
that meet specified indefinite-life criteria no longer be amortized against earnings, but instead
must be tested for impairment annually based on valuations, 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 December 31,
2004, 2003 and 2002 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, are amortized on a
straight-line basis over 10 years, which represents managements best estimate of the average
remaining useful lives of such franchises. Franchise amortization expense was $4 million for the
year ended December 31, 2004 and $9 million for each of the years ended December 31, 2003 and 2002.
We expect that amortization expense on franchise assets will be approximately $3 million annually
for each of the next five years. Actual amortization expense in future periods could differ from
these estimates as a result of new intangible asset acquisitions or divestitures, changes in useful
lives and other relevant factors. 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 the impairment of our
indefinite-life franchises under SFAS No. 142, 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. No impairments of long-lived assets were recorded in
the years ended December 31, 2004, 2003 or 2002. We 31




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were also 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. 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 clustering of our cable systems into groups by which such systems
are managed. Management believes such groupings represent the highest and best use of those
assets. We determined that our franchises were impaired upon adoption of SFAS No. 142 on January
1, 2002 and as a result recorded the cumulative effect of a change in accounting principle of $540
million (approximately $572 million before and 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. Our valuations, which are based on the present value of projected after tax cash flows, result in a
value of property, plant and equipment, franchises, customer relationships and our total entity
value. The value of goodwill is the difference between the total entity value and amounts assigned
to the other assets. The use of different valuation assumptions or definitions of franchises or
customer relationships, such as our inclusion of the value of selling additional services to our
current customers within customer relationships versus franchises, could significantly impact our
valuations and any resulting impairment. Franchises, for valuation purposes, are defined as the future economic benefits of the right to
solicit and service potential customers (customer marketing rights), and the right to deploy and
market new services such as interactivity and telephony to the potential customers (service
marketing rights). Fair value is determined based on estimated discounted future cash flows using
assumptions consistent with internal forecasts. The franchise after-tax cash flow is calculated as
the after-tax cash flow generated by the potential customers obtained and the new services added to
those customers in future periods. The sum of the present value of the franchises after-tax cash
flow in years 1 through 10 and the continuing value of the after-tax cash flow beyond year 10
yields the fair value of the franchise. Prior to the adoption of EITF Topic D-108, Use of the
Residual Method to Value Acquired Assets Other than Goodwill, discussed below, we followed a
residual method of valuing our franchise assets, which had the effect of including goodwill with
the franchise assets. We follow the guidance of EITF Issue 02-17, Recognition of Customer Relationship Intangible Assets
Acquired in a Business Combination,in valuing customer relationships. Customer relationships, for
valuation purposes, represent the value of the business relationship with our existing customers
and are calculated by projecting future after-tax cash flows from these customers including the
right to deploy and market additional services such as interactivity and telephony to these
customers. The present value of these after-tax cash flows yields the fair value of the customer
relationships. Substantially all our acquisitions occurred prior to January 1, 2002. We did not
record any value associated with the customer relationship intangibles related to those
acquisitions. For acquisitions subsequent to January 1, 2002, we did assign a value to the
customer relationship intangible, which is amortized over its estimated useful life. In September 2004, EITF Topic D-108, Use of the Residual Method to Value Acquired Assets Other than
Goodwill, was issued, which requires the direct method of separately valuing all intangible assets
and does not permit goodwill to be included in franchise assets. We performed an impairment
assessment as of September 30, 2004, and adopted EITF Topic D-108 in that assessment resulting in a
total franchise impairment of approximately $3.3 billion. We recorded a cumulative effect of
accounting change of $840 million (approximately $875 million before tax effects of $16 million and
minority interest effects of $19 million) for the year ended December 31, 2004 representing the
portion of our total franchise impairment attributable to no longer including goodwill with
franchise assets. The effect of the adoption was to increase net loss by $840 million for the year
ended December 31, 2004. The remaining $2.4 billion of the total franchise impairment was
attributable to the use of lower projected growth rates and the resulting revised estimates of
future cash flows in our valuation and was recorded as impairment of franchises in our consolidated
statements of operations for the year ended December 31, 2004. Sustained analog video customer
losses by us and our industry peers in the third quarter of 2004 primarily as a result of increased 32




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##### Table of Contents



competition from DBS providers and decreased growth rates in our and our industry peers high speed
data customers in the third quarter of 2004, in part as a result of increased competition from DSL
providers, led us to lower our projected growth rates and accordingly revise our estimates of
future cash flows from those used at October 1, 2003. See Business  Competition. The valuation completed at October 1, 2003 showed franchise values in excess of book value and thus
resulted in no impairment. Our annual impairment assessment as of October 1, 2002, based on
revised estimates from January 1, 2002 of future cash flows and projected long-term growth rates in
our valuation, led to the recognition of a $4.6 billion impairment charge in the fourth quarter of
2002. The valuations used in our impairment assessments involve numerous assumptions as noted above.
While economic conditions, applicable at the time of the valuation, indicate the combination of
assumptions utilized in the valuations are reasonable, as market conditions change so will the
assumptions with a resulting impact on the valuation and consequently the potential impairment
charge. Sensitivity Analysis.The effect on the impairment charge recognized in the third quarter of 2004
of the indicated increase/decrease in the selected assumptions is shown below: Percentage/Percentage Point
    
    
    Impairment ChargeAssumption
    
    Change
    
    
    Increase/(Decrease)(Dollars in millions)Annual Operating Cash Flow(1)
    
    
    +/- 5
    %
    
    $
    (890)/$921Long-Term Growth Rate (2)
    
    +/- 1pts
    (3)
    
    
    (1,579)/1,232Discount Rate
    
    +/- 0.5 pts
    (3)
    
    
    1,336/(1,528
    )
   (1)
    
    Operating Cash Flow is defined as revenues less operating expenses and selling general and
administrative expenses.(2)
    
    Long-Term Growth Rate is the rate of cash flow growth beyond year ten.(3)
    
    A percentage point change of one point equates to 100 basis points. Income Taxes.All operations 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 provided 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). Under 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, under the LLC Agreement, net tax losses
of Charter Holdco are 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. 33




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##### Table of Contents



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, 2003, 2004 and possibly later years, 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 Communications, Inc. and Its
Subsidiaries  Equity Put Rights  CC VIII, to Vulcan Cable III Inc. and Charter Investment, Inc.
instead have been and will 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, 2004 is approximately $4.0 billion. 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 $2.1 billion through December
31, 2003 and $1.0 billion through December 31, 2004. 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 or the terms of
a contribution agreement with respect to such contribution. 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. The ability to utilize net operating loss carryforwards is potentially subject to
certain limitations as discussed below. 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
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. The ability of Charter to utilize net
operating loss carryforwards is potentially subject to certain limitations (See Certain Trends
and Uncertainties  Utilization of Net Operating Loss Carryforwards.) If Charter were to become
subject to such limitations (whether as a result of an exchange described above or otherwise), and
as a result were to owe taxes resulting from the Special Profit Allocations, then Mr. Allen may not
be obligated to reimburse Charter for such income taxes. As of December 31, 2004 and 2003, we have recorded net deferred income tax liabilities of $208
million and $267 million, respectively. Additionally, as of December 31, 2004 and 2003, we have
deferred tax assets of $103 million and $86 million, respectively which primarily relate to 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 34




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##### Table of Contents



utilize our deferred tax assets, these items have been offset with a corresponding valuation
allowance of $71 million and $51 million at December 31, 2004 and 2003, respectively. We are currently under examination by the Internal Revenue Service for the tax years ending
December 31, 1999, 2000, 2002 and 2003. Our results (excluding the indirect corporate
subsidiaries) for these years are subject to this examination. 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.Legal contingencies have a high degree of uncertainty. When a loss from a contingency
becomes estimable and probable, a reserve is established. The reserve reflects managements best
estimate of the probable cost of ultimate resolution of the matter and is revised accordingly as facts and circumstances
change and, ultimately when the matter is brought to closure. We have established reserves for
certain matters including those described in Business  Legal Proceedings. If any of the
litigation matters described in Business  Legal Proceedings is resolved unfavorably resulting
in payment obligations in excess of managements best estimate of the outcome, such resolution
could have a material adverse effect on our consolidated financial condition, results of operations
or our liquidity. 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 31,2004
    
    
    2003
    
    
    2002Revenues
    
    $
    4,977
    
    
    
    100
    %
    
    $
    4,819
    
    
    
    100
    %
    
    $
    4,566
    
    
    
    100
    %Costs and Expenses:Operating (excluding depreciation and
amortization)
    
    
    2,080
    
    
    
    42
    %
    
    
    1,952
    
    
    
    40
    %
    
    
    1,807
    
    
    
    40
    %Selling, general and administrative
    
    
    971
    
    
    
    19
    %
    
    
    940
    
    
    
    20
    %
    
    
    963
    
    
    
    21
    %Depreciation and amortization
    
    
    1,495
    
    
    
    30
    %
    
    
    1,453
    
    
    
    30
    %
    
    
    1,436
    
    
    
    31
    %Impairment of franchises
    
    
    2,433
    
    
    
    49
    %
    
    
    
    
    
    
    
    
    
    
    4,638
    
    
    
    102
    %(Gain) loss on sale of fixed assets, net
    
    
    (86
    )
    
    
    (2
    )%
    
    
    5
    
    
    
    
    
    
    
    3
    
    
    
    Option compensation expense, net
    
    
    31
    
    
    
    1
    %
    
    
    4
    
    
    
    
    
    
    
    5
    
    
    
    Special charges, net
    
    
    104
    
    
    
    2
    %
    
    
    21
    
    
    
    
    
    
    
    36
    
    
    
    1
    %Unfavorable contracts and other settlements
    
    
    (5
    )
    
    
    
    
    
    
    (72
    )
    
    
    (1
    )%
    
    
    
    
    
    
    7,023
    
    
    
    141
    %
    
    
    4,303
    
    
    
    89
    %
    
    
    8,888
    
    
    
    195
    %Income (loss) from operations
    
    
    (2,046
    )
    
    
    (41
    )%
    
    
    516
    
    
    
    11
    %
    
    
    (4,322
    )
    
    
    (95
    )%Interest expense, net
    
    
    (1,618
    )
    
    
    
    
    
    
    (1,486
    )
    
    
    
    
    
    
    (1,425
    )Gain (loss) on derivative instruments and
hedging activities, net
    
    
    69
    
    
    
    
    
    
    
    65
    
    
    
    
    
    
    
    (115
    )Gain (loss) on extinguishment of debt
    
    
    (21
    )
    
    
    
    
    
    
    187
    
    
    
    
    
    
    
    Other, net
    
    
    2
    
    
    
    
    
    
    
    (10
    )
    
    
    
    
    
    
    3Loss before minority interest, income taxes and
cumulative effect of accounting change
    
    
    (3,614
    )
    
    
    
    
    
    
    (728
    )
    
    
    
    
    
    
    (5,859
    )Minority interest
    
    
    20
    
    
    
    
    
    
    
    (29
    )
    
    
    
    
    
    
    (16
    )Loss before income taxes and cumulative effect of
accounting change
    
    
    (3,594
    )
    
    
    
    
    
    
    (757
    )
    
    
    
    
    
    
    (5,875
    )Income tax benefit (expense)
    
    
    35
    
    
    
    
    
    
    
    (13
    )
    
    
    
    
    
    
    216Loss before cumulative effect of
accounting change
    
    
    (3,559
    )
    
    
    
    
    
    
    (770
    )
    
    
    
    
    
    
    (5,659
    )Cumulative effect of accounting change, net of tax
    
    
    (840
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (540
    )Net loss
    
    $
    (4,399
    )
    
    
    
    
    
    $
    (770
    )
    
    
    
    
    
    $
    (6,199
    )
 35




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##### Table of Contents



Year Ended December 31, 2004 Compared to Year Ended December 31, 2003 Revenues.Revenues increased by $158 million, or 3%, from $4.8 billion for the year ended December
31, 2003 to $5.0 billion for the year ended December 31, 2004. This increase is principally the
result of an increase of 318,800 and 2,800 high-speed data customers and digital video customers,
respectively, as well as price increases for video and high-speed data services, and is offset
partially by a decrease of 439,800 analog video customers. Included in the reduction in analog
video customers and reducing the increase in digital video and high-speed data customers are
230,800 analog video customers, 83,300 digital video customers and 37,800 high-speed data customers
sold in the cable system sales to Atlantic Broadband Finance, LLC, which closed in March and April
2004 (collectively, with the cable system sale to WaveDivision Holdings, LLC in October 2003,
referred to herein as the Systems Sales). The Systems Sales reduced the increase in revenues by
$160 million. Our goal is to increase revenues by improving customer service which we believe will
stabilize our analog video customer base, implementing price increases on certain services and
packages and increasing the number of our customers who purchase high-speed data services, digital
video and advanced products and services such as VOIP telephony, VOD, high definition television
and DVR service. Average monthly revenue per analog video customer increased from $61.92 for the year ended December
31, 2003 to $68.02 for the year ended December 31, 2004 primarily as a result of price increases
and incremental revenues from advanced services. Average monthly revenue per analog video customer
represents total annual revenue, divided by twelve, divided by the average number of analog video
customers during the respective period. Revenues by service offering were as follows (dollars in millions): Year Ended December 31,2004
    
    
    2003
    
    
    2004 over 2003% of
    
    
    
    
    
    
    % ofRevenues
    
    
    Revenues
    
    
    Revenues
    
    
    Revenues
    
    
    Change
    
    
    % ChangeVideo
    
    $
    3,373
    
    
    
    68
    %
    
    $
    3,461
    
    
    
    72
    %
    
    $
    (88
    )
    
    
    (3
    )%High-speed data
    
    
    741
    
    
    
    15
    %
    
    
    556
    
    
    
    12
    %
    
    
    185
    
    
    
    33
    %Advertising sales
    
    
    289
    
    
    
    6
    %
    
    
    263
    
    
    
    5
    %
    
    
    26
    
    
    
    10
    %Commercial
    
    
    238
    
    
    
    4
    %
    
    
    204
    
    
    
    4
    %
    
    
    34
    
    
    
    17
    %Other
    
    
    336
    
    
    
    7
    %
    
    
    335
    
    
    
    7
    %
    
    
    1
    
    
    
    $
    4,977
    
    
    
    100
    %
    
    $
    4,819
    
    
    
    100
    %
    
    $
    158
    
    
    
    3
    %
 Video revenues consist primarily of revenues from analog and digital video services provided to our
non-commercial customers. Video revenues decreased by $88 million, or 3%, from $3.5 billion for
the year ended December 31, 2003 to $3.4 billion for the year ended December 31, 2004.
Approximately $116 million of the decrease was the result of the Systems Sales and approximately an
additional $65 million related to a decline in analog video customers. These decreases were offset
by increases of approximately $66 million resulting from price increases and incremental video
revenues from existing customers and approximately $27 million resulting from an increase in
digital video customers. Revenues from high-speed data services provided to our non-commercial customers increased $185
million, or 33%, from $556 million for the year ended December 31, 2003 to $741 million for the
year ended December 31, 2004. Approximately $163 million of the increase related to the increase
in the average number of customers receiving high-speed data services, whereas approximately $35
million related to the increase in average price of the service. The increase in high-speed data
revenues was reduced by approximately $12 million as a result of the Systems Sales. Advertising sales revenues consist primarily of revenues from commercial advertising customers,
programmers and other vendors. Advertising sales increased $26 million, or 10%, from $263 million
for the year ended December 31, 2003 to $289 million for the year ended December 31, 2004 primarily as a result of an increase in
national advertising campaigns and election related advertising. The increase was offset by a
decrease of $7 million as a result of the System Sales. For the years ended December 31, 2004 and
2003, we received $16 million and $15 million, respectively, in advertising revenue from vendors. 36




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##### Table of Contents



Commercial revenues consist primarily of revenues from cable video and high-speed data services to
our commercial customers. Commercial revenues increased $34 million, or 17%, from $204 million for
the year ended December 31, 2003, to $238 million for the year ended December 31, 2004, primarily
as a result of an increase in commercial high-speed data revenues. The increase was reduced by
approximately $14 million as a result of the Systems Sales. Other revenues consist of revenues from franchise fees, telephony revenue, equipment rental,
customer installations, home shopping, dial-up Internet service, late payment fees, wire
maintenance fees and other miscellaneous revenues. For the year ended December 31, 2004 and 2003,
franchise fees represented approximately 49% and 48%, respectively, of total other revenues. Other
revenues increased $1 million from $335 million for the year ended December 31, 2003 to $336
million for the year ended December 31, 2004. The increase was primarily the result of an increase
in home shopping and infomercial revenue and was partially offset by approximately $11 million as a
result of the Systems Sales. Operating expenses.Operating expenses increased $128 million, or 7%, from $2.0 billion for the
year ended December 31, 2003 to $2.1 billion for the year ended December 31, 2004. The increase in
operating expenses was reduced by approximately $59 million as a result of the System Sales.
Programming costs included in the accompanying consolidated statements of operations were $1.3
billion and $1.2 billion, representing 63% and 64% of total operating expenses for the years ended
December 31, 2004 and 2003, respectively. Key expense components as a percentage of revenues were
as follows (dollars in millions): Year Ended December 31,2004
    
    
    2003
    
    
    2004 over 2003% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    %Expenses
    
    
    Revenues
    
    
    Expenses
    
    
    Revenues
    
    
    Change
    
    
    ChangeProgramming
    
    $
    1,319
    
    
    
    27
    %
    
    $
    1,249
    
    
    
    26
    %
    
    $
    70
    
    
    
    6
    %Advertising sales
    
    
    98
    
    
    
    2
    %
    
    
    88
    
    
    
    2
    %
    
    
    10
    
    
    
    11
    %Service
    
    
    663
    
    
    
    13
    %
    
    
    615
    
    
    
    12
    %
    
    
    48
    
    
    
    8
    %$
    2,080
    
    
    
    42
    %
    
    $
    1,952
    
    
    
    40
    %
    
    $
    128
    
    
    
    7
    %
 Programming costs consist primarily of costs paid to programmers for analog, premium and digital
channels and pay-per-view programming. The increase in programming costs of $70 million, or 6%,
for the year ended December 31, 2004 over the year ended December 31, 2003 was a result of price
increases, particularly in sports programming, an increased number of channels carried on our
systems, and an increase in digital video customers, partially offset by a decrease in analog video
customers. Additionally, the increase in programming costs was reduced by $42 million as a result
of the Systems Sales. Programming costs were offset by the amortization of payments received from
programmers in support of launches of new channels of $59 million and $62 million for the years
ended December 31, 2004 and 2003, respectively. Programming costs for the year ended December 31,
2004 also include a $5 million reduction related to the settlement of a dispute with TechTV, Inc.,
a related party. See Note 22 to the consolidated financial statements contained in Item 8.
Financial Statements and Supplementary Data. In every year we have operated, our cable programming costs have increased in excess of the U.S.
inflation and cost-of-living increases, and we expect them to continue to increase because of a
variety of factors, including inflationary or negotiated annual increases, additional programming
being provided to customers and increased costs to purchase or produce programming. In 2005, we
expect programming costs to increase at a higher rate than in 2004. These costs will be determined
in part on the outcome of programming negotiations in 2005 and will likely be subject to offsetting events or otherwise affected by factors similar to the ones mentioned in the
preceding paragraph. Our increasing programming costs will result in declining operating margins
for our video services to the extent we are unable to pass on cost increases to our customers. We
expect to partially offset any resulting margin compression from our traditional video services
with revenue from advanced video services, increased high-speed data revenues, advertising revenues
and commercial service revenues. Advertising sales expenses consist of costs related to traditional advertising services
provided to advertising customers, including salaries, benefits and commissions. Advertising sales
expenses increased $10 million, or 11%, primarily as a result of increased salary, benefit and
commission costs. The increase in advertising sales expenses was reduced by $2 million as a result
of the System Sales. Service costs consist primarily of service personnel 37




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##### Table of Contents



salaries and benefits, franchise fees, system utilities, Internet service provider fees,
maintenance and pole rental expense. The increase in service costs of $48 million, or 8%, resulted
primarily from additional activity associated with ongoing infrastructure maintenance. The
increase in service costs was reduced by $15 million as a result of the System Sales. Selling, general and administrative expenses.Selling, general and administrative expenses
increased by $31 million, or 3%, from $940 million for the year ended December 31, 2003 to $971
million for the year ended December 31, 2004. The increase in selling, general and administrative
expenses was reduced by $22 million as a result of the System Sales. Key components of expense as
a percentage of revenues were as follows (dollars in millions): Year Ended December 31,2004
    
    
    2003
    
    
    2004 over 2003% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    %Expenses
    
    
    Revenues
    
    
    Expenses
    
    
    Revenues
    
    
    Change
    
    
    ChangeGeneral and administrative
    
    $
    849
    
    
    
    17
    %
    
    $
    833
    
    
    
    18
    %
    
    $
    16
    
    
    
    2
    %Marketing
    
    
    122
    
    
    
    2
    %
    
    
    107
    
    
    
    2
    %
    
    
    15
    
    
    
    14
    %$
    971
    
    
    
    19
    %
    
    $
    940
    
    
    
    20
    %
    
    $
    31
    
    
    
    3
    %
 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 $16 million, or 2%, resulted primarily from
increases in costs associated with our commercial business of $21 million, third party call center
costs resulting from increased emphasis on customer service of $10 million and bad debt expense of
$10 million offset by decreases in costs associated with salaries and benefits of $21 million and
rent expense of $3 million. Marketing expenses increased $15 million, or 14%, as a result of an increased investment in
marketing and branding campaigns. Depreciation and amortization.Depreciation and amortization expense increased by $42 million, or
3%, to $1.5 billion in 2004. The increase in depreciation related to an increase in capital
expenditures, which was partially offset by lower depreciation as the result of the Systems Sales. Impairment of franchises.We performed an impairment assessment during the third quarter of 2004.
The use of lower projected growth rates and the resulting revised estimates of future cash flows in
our valuation, primarily as a result of increased competition, led to the recognition of a $2.4
billion impairment charge for the year ended December 31, 2004. (Gain) loss on sale of fixed assets, net.Gain on sale of fixed assets of $86 million for the year
ended December 31, 2004 primarily represents the pretax gain of $104 million realized on the sale
of systems to Atlantic Broadband Finance, LLC which closed in March and April 2004 offset by losses
recognized on the disposition of plant and equipment. Loss on sale of fixed assets of $5 million
for the year ended December 31, 2003 represents the loss recognized on the disposition of plant and
equipment offset by a gain of $21 million recognized on the sale of cable systems in Port Orchard,
Washington which closed on October 1, 2003. Option compensation expense, net.Option compensation expense of $31 million for the year ended
December 31, 2004 primarily represents $22 million related to options granted and expensed in
accordance with SFAS No. 123, Accounting for Stock-Based Compensation.Additionally, during the
year ended December 31, 2004, we expensed approximately $8 million related to a stock option
exchange program, under which our employees 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. The exchange offer closed in February 2004.
Option compensation expense of $4 million for the year ended December 31, 2003 primarily represents
options expensed in accordance with SFAS No. 123, Accounting for Stock-Based Compensation.See
Note 19 to our consolidated financial statements contained in Item 8. Financial Statements and
Supplementary Data for more information regarding our option compensation plans. 38




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Special charges, net.Special charges of $104 million for the year ended December 31, 2004
represents approximately $85 million of aggregate value of the Charter Class A common stock and
warrants to purchase Charter Class A common stock contemplated to be issued as part of a settlement
of the consolidated federal class actions, state derivative actions and federal derivative action
lawsuits, approximately $10 million of litigation costs related to the tentative settlement of a
South Carolina national class action suit, all of which settlements are subject to final
documentation and court approval and approximately $12 million of severance and related costs of
our workforce reduction and realignment. Special charges for the year ended December 31, 2004 were
offset by $3 million received from a third party in settlement of a dispute. Special charges of
$21 million for the year ended December 31, 2003 represents approximately $26 million of severance
and related costs of our workforce reduction 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. Unfavorable contracts and other settlements.Unfavorable contracts and other settlements of $5
million for the year ended December 31, 2004 relates to changes in estimated legal reserves
established in connection with prior business combinations, which based on an evaluation of current
facts and circumstances, are no longer required. 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 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 connection with a 1999 and a 2000 acquisition. The remaining
benefit relates to the reversal of previously recorded liabilities, which are no longer required. Interest expense, net.Net interest expense increased by $132 million, or 9%, from $1.5 billion for
the year ended December 31, 2003 to $1.6 billion for the year ended December 31, 2004. The
increase in net interest expense was a result of an increase in our average borrowing rate from
8.17% in the year ended December 31, 2003 to 8.79% in the year ended December 31, 2004 partially
offset by a decrease in average debt outstanding from $17.9 billion in 2003 to $17.8 billion in
2004. Gain (loss) on derivative instruments and hedging activities, net.Net gain on derivative
instruments and hedging activities increased $4 million from a gain of $65 million for the year
ended December 31, 2003 to a gain of $69 million for the year ended December 31, 2004. The
increase is primarily the result of an increase in gains on interest rate agreements that do not
qualify for hedge accounting under SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities,which increased from a gain of $57 million for the year ended December 31, 2003 to a
gain of $65 million for the year ended December 31, 2004. This was coupled with a decrease in
gains on interest rate agreements, as a result of hedge ineffectiveness on designated hedges, which
decreased from $8 million for the year ended December 31, 2003 to $4 million for the year ended
December 31, 2004. Gain (loss) on extinguishment of debt.Loss on extinguishment of debt of $21 million for the year
ended December 31, 2004 represents the write-off of deferred financing fees and third party costs
related to the Charter Operating refinancing in April 2004. Gain on extinguishment of debt of $187
million for the year ended December 31, 2003 represents the gain realized on the purchase of an
aggregate of $1.3 billion principal amount of Charter Holdings senior notes and senior discount
notes in consideration for an aggregate of $1.1 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 $18 million. Other, net.Net other expense decreased by $12 million from $10 million in 2003 to income of $2
million in 2004. Other expense in 2003 included $11 million associated with amending a revolving
credit facility of our subsidiaries and costs associated with terminated debt transactions that did not recur in 2004. In addition,
gains on equity investments increased $3 million in 2004 over 2003. Minority interest.Minority interest represents the 2% accretion of the preferred membership
interests in our indirect subsidiary, CC VIII, LLC, and since June 6, 2003, the pro rata share of
the profits and losses of CC VIII, LLC. 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 benefit of $35 million and income tax expense of $13
million was recognized for the years ended December 31, 2004 and 2003, respectively. 39




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The income tax benefit recognized in the year ended December 31, 2004 was directly related to the
impairment of franchises as discussed above. The deferred tax liabilities of our indirect
corporate subsidiaries decreased as a result of the write-down of franchise assets for financial
statement purposes, but not for tax purposes. We do not expect to recognize a similar benefit
associated with the impairment of franchises in future periods. However, the actual tax provision
calculations in future periods will be the result of current and future temporary differences, as
well as future operating results. The income tax expense recognized in the year ended December 31, 2003 represents increases in the
deferred tax liabilities and current federal and state income tax expenses of certain of our
indirect corporate subsidiaries. Cumulative effect of accounting change, net of tax.Cumulative effect of accounting change of $840
million (net of minority interest effects of $19 million and tax effects of $16 million) in 2004
represents the impairment charge recorded as a result of our adoption of EITF Topic D-108. Net loss.Net loss increased by $3.6 billion from $770 million in 2003 to $4.4 billion in 2004 as a
result of the factors described above. The impact to net loss in 2004 of the impairment of
franchises and cumulative effect of accounting change was to increase net loss by approximately
$3.0 billion. The impact to net loss in 2003 of the gain on sale of systems, unfavorable contracts
and settlements and gain on debt exchange, net of income tax impacts, was to decrease net loss by
$276 million. 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. 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 primarily as a result of price increases
and incremental revenues from advanced services. Average monthly revenue per analog video customer
represents total annual revenue, divided by twelve, divided by the average number of analog video
customers during the respective period. 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. Video revenues increased
approximately $65 million due to price increases and incremental video revenues from existing
customers and $82 million as a result of increases in the average number of digital video
customers, which were partially offset by a decrease of approximately $106 million as a result of a
decline in analog video customers. 40




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##### Table of Contents



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 $206 million of the increase related to the increase
in the average number of customers, whereas approximately $13 million related to the increase in
the average price of the service. The increase in customers was primarily due to the addition of
high-speed data customers in 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 of approximately $64 million offset
partially by an increase in local advertising sales revenues of approximately $25 million. 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. 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 year 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 27% 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 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. 41




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##### Table of Contents



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 rental 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 programs. 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
    
    
    
    18
    %
    
    $
    810
    
    
    
    18
    %
    
    $
    23
    
    
    
    3
    %Marketing
    
    
    107
    
    
    
    2
    %
    
    
    153
    
    
    
    3
    %
    
    
    (46
    )
    
    
    (30
    )%$
    940
    
    
    
    20
    %
    
    $
    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 a result of 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. Depreciation and amortization.Depreciation and amortization expense increased by $17 million, or
1%, 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. 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. Loss on sale of fixed assets, net.Loss on sale of fixed assets for the year ended December 31,
2003 represents $26 million of losses related to the disposition of fixed assets offset by the $21
million gain recognized on the sale of cable systems in Port Orchard, Washington on October 1,
2003. Loss on sale of fixed assets for the year ended December 31, 2002 represents losses related
to the disposition of fixed assets. Option compensation expense, 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 42




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##### Table of Contents



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 was associated with our workforce reduction program. The
remaining $4 million was related to legal and other costs associated with our shareholder lawsuits
and governmental investigations. 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 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
connection with a 1999 and a 2000 acquisition. 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
lnstruments 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 (loss) on extinguishment of debt.Gain on extinguishment of debt of $187 million for the
year ended December 31, 2003 represents the gain realized on the purchase of an aggregate of $1.3
billion principal amount of Charter Holdings senior notes and senior discount notes in
consideration for an aggregate of $1.1 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 $18 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 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 our indirect subsidiary, CC VIII, LLC, and since June 6, 2003, the pro rata share of
the profits of CC VIII, LLC. 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 and income tax benefit of $216
million was recognized for the years ended December 31, 2003 and 2002, respectively. The income tax expense recognized in the year ended December 31, 2003 represents increases in the
deferred tax liabilities and current federal and state income tax expenses of certain of our
indirect corporate subsidiaries. The income tax benefit recognized in 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. 43




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##### Table of Contents



Liquidity and Capital Resources Introduction This section contains a discussion of our liquidity and capital resources, including a discussion
of our cash position, sources and uses of cash, access to credit facilities and other financing
sources, historical financing activities, cash needs, capital expenditures and outstanding debt. Overview We have a significant level of debt. In each of 2005 and 2006, $30 million of our debt matures.
In 2007 and beyond, significant additional amounts will become due under our remaining long-term
debt obligations. Our business requires significant cash to fund debt service costs, capital expenditures and ongoing
operations. We have historically funded these requirements through cash flows from operating
activities, borrowings under our credit facilities, sales of assets, equity contributions from
Charter Holdco, issuances of debt securities and cash on hand. However, the mix of funding sources
changes from period to period. For the year ended December 31, 2004, we generated $431 million of
net cash flows from operating activities after paying cash interest of $1.3 billion. In addition,
we generated approximately $744 million in 2004 from sales of assets, substantially all of which
was used to fund operations, including capital expenditures. Finally, we had net cash flows from
financing activities of $221 million, which included, among other things, the proceeds from the
issuance in December 2004 of $550 million of CCO Holdings notes. This debt issuance and cash flows
from operating activities were the primary reasons cash on hand increased by $461 million to $546
million at December 31, 2004. The cash on hand was used to repay outstanding borrowings under the
Charter Operating revolving credit facility, through a series of transactions executed in February
2005. We expect that our mix of sources of funds will continue to change in the future based on
overall needs relative to our cash flow and on the availability of funds under the credit
facilities of our subsidiaries, our access to the debt markets, the timing of possible asset sales
and our ability to generate cash flows from operating activities. We do not presently consider
future asset sales as a significant source of liquidity. However, we continue to explore asset
dispositions as one of several possible actions that we could take in the future to improve our
liquidity. We expect that cash on hand, cash flows from operating activities and the amounts available under
our credit facilities will be adequate to meet our and Charters cash needs in 2005. Cash flows
from operating activities and amounts available under our credit facilities may not be sufficient
to permit us to fund our operations and satisfy our and Charters principal repayment obligations
that come due in 2006 and, we believe, such amounts will not be sufficient to fund our operations
and satisfy such repayment obligations thereafter. It is likely that Charter and
we will require additional funding to repay debt maturing after 2006.
We have been advised that Charter is working with its financial advisors to address such funding
requirements. However, there can be no assurance that such funding will be available. Although
Mr. Allen and his affiliates have purchased equity from Charter and Charter Holdco in the past, Mr.
Allen and his affiliates are not obligated to purchase equity from, contribute to or loan funds to
Charter, Charter Holdco or us in the future. Credit Facilities and Covenants Our ability to operate depends upon, among other things, our continued access to capital, including
credit under the Charter Operating credit facilities. These credit facilities, along with our and
our subsidiaries indentures, are subject to certain restrictive covenants, some of which require
us to maintain specified financial ratios and meet financial tests and to provide audited financial
statements with an unqualified opinion from our independent auditors. As of December 31, 2004, we
were in compliance with the covenants under our indentures and credit facilities and the indentures
of our subsidiaries, and we expect to remain in compliance with those covenants for the next twelve
months. As of December 31, 2004, we had borrowing availability under our credit facilities of $804
million, none of which was restricted due to covenants. Continued access to our 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 our operating performance results in non-compliance with these
covenants, or if any of certain other events of non-compliance under these credit facilities or
indentures governing our debt occurs, funding under the credit facilities may not be available and
defaults on some or potentially all of our debt obligations could occur. An event of 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 44




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##### Table of Contents



other debt obligations, which could have a material adverse effect on our consolidated financial
condition and results of operations. The Charter Operating credit facilities require us to redeem the CC V Holdings notes within 45 days
after the first date that the Charter Holdings leverage ratio is less than 8.75 to 1.0. In March
2005, CC V Holdings, LLC redeemed all of its outstanding notes, at 103.958% of principal amount,
plus accrued and unpaid interest to the date of redemption. The total cost of the redemption
including accrued and unpaid interest was approximately $122 million. We funded the redemption
with borrowings under the Charter Operating credit facilities. Parent Company Debt Obligations Any financial or liquidity problems of our parent companies could cause serious disruption to our
business and have a material adverse effect on our business and results of operations. Charters ability to make interest payments on its convertible senior notes, and, in 2006 and 2009,
to repay the outstanding principal of its convertible senior notes of $156 million and $863
million, respectively, will depend on its ability to raise additional capital and/or on receipt of
payments or distributions from Charter Holdco or its subsidiaries, including CCH II, CCO Holdings
and Charter Operating. The indentures governing the CCH II notes, CCO Holdings notes, and Charter
Operating notes, however, restrict these entities and their subsidiaries from making distributions
to their parent companies (including Charter, Charter Holdco and Charter Holdings) for payment of
principal on the parent company debt obligations, in each case unless there is no default under the
applicable indenture and a specified leverage ratio test is met at the time of such event. CCH II,
CCO Holdings and Charter Operating meet the applicable leverage ratio test under each of their
respective indentures, and as a result are not prohibited from making any such distributions to
their respective direct parent at this time. Charter is required to
register by April 21, 2005 its recently issued 5.875% convertible
notes due 2009. If these convertible notes are not registered by such date, Charter will incur
liquidated damages as defined in the related indenture. If incurred, these liquidated damages
will accrue at a rate from .25% to .50% per annum of the
accreted principal amount of the convertible notes. Such amounts will accrue so long as the
convertible notes remain unregistered, but not to exceed a maximum
period of two years from the original issuance date and will be
payable monthly in cash. In conjunction with issuing these convertible notes, Charter also filed a
registration statement to sell up to 150 million shares of Charters Class A common stock pursuant
to a share lending agreement. These shares are required to be registered by April
1, 2005. If such shares are not registered by such date, Charter will incur
liquidated damages as defined in the related indenture. If incurred,
these liquidated damages
will accrue and can be paid in cash or additional principal on a monthly basis. These liquidated
damages will accrue at a rate from .25% to .75% per month of
the accreted principal amount of the convertible notes. Such amounts will accrue so long as the
convertible notes remain unregistered, but not to exceed a maximum
period of two years from the original issuance date. Specific Limitations at Charter Holdings The indentures governing the Charter Holdings notes permit Charter Holdings to make distributions
to Charter Holdco for payment of interest or principal on Charters convertible senior notes, only
if, after giving effect to the distribution, Charter Holdings can incur additional debt under the
leverage ratio of 8.75 to 1.0, there is no default under the Charter Holdings indentures and other
specified tests are met. For the quarter ended December 31, 2004, there was no default under
Charter Holdings indentures and other specified tests were met. In addition, Charter Holdings met
the leverage ratio of 8.75 to 1.0 based on December 31, 2004 financial results. As a result,
distributions from Charter Holdings to Charter or Charter Holdco are not currently restricted.
Such distributions will again be restricted, however, if Charter Holdings fails to meet its leverage ratio test at the time
of such event. In the past Charter Holdings has from time to time failed to meet this leverage
ratio test and there can be no assurance that Charter Holdings will satisfy this test in the
future. During periods when such distributions are restricted, the indentures governing the Charter
Holdings notes permit Charter Holdings and its subsidiaries to make specified investments in
Charter Holdco or Charter, up to an amount determined by a formula, as long as there is no default
under the indentures. As of December 31, 2004, Charter Holdco had $106 million in cash on hand and
was owed $29 million in intercompany loans from its subsidiaries, which were available to pay
interest on Charters 4.75% convertible senior notes, which is expected to be approximately $7
million in 2005. In addition, Charter has $144 million of securities pledged as security for the
first six interest payments on Charters 5.875% convertible senior notes. 45




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##### Table of Contents



Our significant amount of debt could negatively affect our ability to access additional capital in
the future. No assurances can be given that we will not experience liquidity problems if we do not
obtain sufficient additional financing on a timely basis as our debt becomes due or because of
adverse market conditions, increased competition or other unfavorable events. If, at any time,
additional capital or borrowing capacity is required beyond amounts internally generated or
available under our credit facilities or through additional debt financings, we would consider:  
    issuing debt or equity at the Charter or Charter Holdco level, the proceeds of which
could be loaned or contributed to us;
    issuing debt securities that may have structural or other priority over our existing
notes;
    further reducing our expenses and capital expenditures, which may impair our ability to
increase revenue;
    selling assets; or
    requesting waivers or amendments with respect to our credit facilities, the availability
and terms of which would be subject to market conditions. If the above strategies are not successful, 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 principal and
interest payments to which they are contractually entitled. Issuance of Charter
Operating Notes in Exchange for Charter Holdings Notes In March 2005, our subsidiary, Charter Operating, consummated exchange transactions
 with a small number of
institutional holders of our 8.25% Senior Notes due 2007 pursuant to which Charter Operating will issue,
in a private placement, approximately $271 million principal amount of new notes with terms
identical to Charter Operatings 8.375% Senior Second Lien Notes due 2014 in exchange for
approximately $284 million of the Charter Holdings 8.25% Senior Notes due 2007. Sale of Assets In March 2004, we closed the sale of certain cable systems in Florida, Pennsylvania, Maryland,
Delaware and West Virginia to Atlantic Broadband Finance, LLC. We closed the sale of an additional
cable system in New York to Atlantic Broadband Finance, LLC in April 2004. Subject to post-closing
contractual adjustments, the total net proceeds from the sale of all of these systems were
approximately $733 million. The proceeds were used to repay a portion of our credit facilities. Summary of Outstanding Contractual Obligations The following table summarizes our payment obligations as of December 31, 2004 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 Principal Payments (1)
    
    $
    18,772
    
    
    $
    30
    
    
    $
    761
    
    
    $
    5,035
    
    
    $
    12,946Long-Term Debt Interest Payments (2)
    
    
    9,845
    
    
    
    1,396
    
    
    
    3,243
    
    
    
    3,231
    
    
    
    1,975Payments on Interest Rate Instruments (3)
    
    
    81
    
    
    
    50
    
    
    
    31
    
    
    
    
    
    
    
    Capital and Operating Lease Obligations (1)
    
    
    88
    
    
    
    23
    
    
    
    30
    
    
    
    17
    
    
    
    18Programming Minimum Commitments (4)
    
    
    1,579
    
    
    
    318
    
    
    
    719
    
    
    
    542
    
    
    
    Other (5)
    
    
    272
    
    
    
    62
    
    
    
    97
    
    
    
    46
    
    
    
    67Total
    
    $
    30,637
    
    
    $
    1,879
    
    
    $
    4,881
    
    
    $
    8,871
    
    
    $
    15,006
   (1)
    
    The table presents maturities of long-term debt outstanding as of
December 31, 2004 and does not reflect the 46




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##### Table of Contents



effects of the March 2005
redemption of the CC V Holdings, LLC notes. 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)
    
    Interest payments on variable debt are estimated using amounts
outstanding at December 31, 2004 and the average implied forward
London Interbank Offering Rate (LIBOR) rates applicable for the
quarter during the interest rate reset based on the yield curve in
effect at December 31, 2004. Actual interest payments will differ
based on actual LIBOR rates and actual amounts outstanding for
applicable periods.(3)
    
    Represents amounts we will be required to pay under our interest rate
hedge agreements estimated using the average implied forward LIBOR
applicable rates for the quarter during the interest rate reset based
on the yield curve in effect at December 31, 2004.(4)
    
    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 $1.3 billion, $1.2 billion and $1.2 billion for the
years ended December 31, 2004, 2003 and 2002, 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.(5)
    
    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 because the obligations
are not fixed and/or determinable due to various factors discussed below. However, we incur these
costs as part of our operations:  
    We also 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, 2004, 2003 and 2002,
was $43 million, $40 million and $41 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 $164
million, $162 million and $160 million for the years ended December 31, 2004, 2003 and
2002, respectively.
    We also have $166 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 $546 million in cash and cash equivalents as of December 31, 2004 compared to $85 million
as of December 31, 2003. The increase in cash and cash equivalents reflects the proceeds of the
sale of the CCO Holdings notes in December 2004. The cash on hand was used to repay outstanding
borrowings under the Charter Operating revolving credit facility through a series of transactions
executed in February 2005. Operating Activities.Net cash provided by operating activities decreased $315 million, or 42%,
from $746 million for the year ended December 31, 2003 to $431 million for the year ended December
31, 2004. For the year ended December 31, 2004, net cash provided by operating activities
decreased primarily as a result of changes in operating assets and liabilities that used $84
million more cash during the year ended December 31, 2004 than the corresponding period in 2003 and
an increase in cash interest expense of $227 million over the corresponding prior period. The
change in operating assets and liabilities is primarily the result of the benefit in the year ended
December 31, 2003 from collection of receivables from programmers related to network launches,
while accounts receivable remained essentially flat in the year ended December 31, 2004. Net cash provided by operating activities for the years ended December 31, 2003 and 2002 was $746
million and $741 million, respectively. Operating activities provided $5 million more cash in 2003
than in 2002 primarily due 47




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##### Table of Contents



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. Investing Activities.Net cash used in investing activities for the years ended December 31, 2004
and 2003 was $191 million and $765 million, respectively. Investing activities used $574 million
less cash during the year ended December 31, 2004 than the corresponding period in 2003 primarily
as a result of cash provided by proceeds from the sale of certain cable systems to Atlantic
Broadband Finance, LLC offset by increased cash used for capital expenditures. Net cash used in investing activities for the years ended December 31, 2003 and 2002 was $765
million and $2.3 billion, respectively. 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. Financing Activities.Net cash provided by financing activities for the year ended December 31,
2004 was $221 million and the net cash used in financing activities for the year ended December 31,
2003 was $206 million. The increase in cash provided during the year ended December 31, 2004, as
compared to the corresponding period in 2003, was primarily the result of an increase in borrowings
of long-term debt and proceeds from issuance of debt reduced by repayments of long-term debt. 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 was $1.9
billion. 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. Capital Expenditures We have significant ongoing capital expenditure requirements. However, we experienced a
significant decline in such requirements starting in 2003. This decline was primarily the result
of a substantial reduction in rebuild costs as our network had been largely upgraded and rebuilt in
prior years. Capital expenditures, excluding acquisitions of cable systems, were $893 million,
$804 million and $2.1 billion for the years ended December 31, 2004, 2003 and
2002, respectively. The majority of the capital expenditures in 2004 and 2003 related to our
customer premise equipment costs. The majority of the capital expenditures in 2002 related to our
rebuild and upgrade program and purchases of customer premise equipment. See the 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, 2004, 2003 and 2002, our liabilities related to capital expenditures
decreased $33 million, $41 million and $49 million, respectively. During 2005, we expect capital expenditures to increase to approximately $1 billion. The increase
in capital expenditures for 2005 compared to 2004 is the result of expected increases in telephony
services and deployment of advanced digital boxes. We expect that the nature of these expenditures
will continue to be composed primarily of purchases of customer premise equipment and for scalable
infrastructure costs. We expect to fund capital expenditures for 2005 primarily from cash flows
from operating activities and borrowings under our credit facilities. 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 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. 48




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##### Table of Contents



The following table presents our major capital expenditures categories in accordance with NCTA
disclosure guidelines for the years ended December 31, 2004, 2003 and 2002 (dollars in millions): For the years ended December 31,2004
    
    
    2003
    
    
    2002Customer premise equipment (a)
    
    $
    451
    
    
    $
    380
    
    
    $
    740Scalable infrastructure (b)
    
    
    108
    
    
    
    66
    
    
    
    259Line extensions (c)
    
    
    131
    
    
    
    130
    
    
    
    101Upgrade/Rebuild (d)
    
    
    49
    
    
    
    132
    
    
    
    775Support capital (e)
    
    
    154
    
    
    
    96
    
    
    
    220Total capital expenditures (f)
    
    $
    893
    
    
    $
    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 2004, 2003 and 2002, respectively. Description of Our Outstanding Debt As of December 31, 2004, our actual total debt was approximately $18.5 billion, as summarized below
(dollars in millions): December 31, 2004
    
    
    Semi-Annual
    
    
    Start Date forFace
    
    
    Accreted
    
    
    Interest Payment
    
    
    Interest Payment
    
    
    MaturityValue
    
    
    Value(a)
    
    
    Dates
    
    
    on Discount Notes
    
    
    Date(b)Charter Holdings:8.250% senior notes due 2007
    
    $
    451
    
    
    $
    451
    
    
    
    4/1 & 10/1
    
    
    
    
    
    
    
    4/1/078.625% senior notes due 2009
    
    
    1,244
    
    
    
    1,243
    
    
    
    4/1 & 10/1
    
    
    
    
    
    
    
    4/1/099.920% senior discount notes due 2011
    
    
    1,108
    
    
    
    1,108
    
    
    
    4/1 & 10/1
    
    
    
    10/1/04
    
    
    
    4/1/1110.000% 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
    
    
    
    448
    
    
    
    1/15 & 7/15
    
    
    
    7/15/05
    
    
    
    1/15/1010.750% senior notes due 2009
    
    
    874
    
    
    
    874
    
    
    
    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
    
    
    
    589
    
    
    
    1/15 & 7/15
    
    
    
    7/15/06
    
    
    
    1/15/119.625% senior notes due 2009
    
    
    640
    
    
    
    638
    
    
    
    5/15 & 11/15
    
    
    
    
    
    
    
    11/15/0910.000% senior notes due 2011
    
    
    710
    
    
    
    708
    
    
    
    5/15 & 11/15
    
    
    
    
    
    
    
    5/15/1111.750% senior discount notes due 2011
    
    
    939
    
    
    
    803
    
    
    
    5/15 & 11/15
    
    
    
    11/15/06
    
    
    
    5/15/1112.125% senior discount notes due 2012
    
    
    330
    
    
    
    259
    
    
    
    1/15 & 7/15
    
    
    
    7/15/07
    
    
    
    1/15/12CCH II, LLC:10.250% senior notes due 2010
    
    
    1,601
    
    
    
    1,601
    
    
    
    3/15 & 9/15
    
    
    
    
    
    
    
    9/15/10CCO Holdings, LLC:8 3/4% senior notes due 2013
    
    
    500
    
    
    
    500
    
    
    
    5/15 & 11/15
    
    
    
    
    
    
    
    11/15/13Senior floating rate notes due 2010
    
    
    550
    
    
    
    550
    
    
    
    3/15, 6/15,
    
    
    
    
    
    
    
    12/15/109/15 & 12/15Charter Operating:
 49




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December 31, 2004
    
    
    Semi-Annual
    
    
    Start Date forFace
    
    
    Accreted
    
    
    Interest Payment
    
    
    Interest Payment
    
    
    MaturityValue
    
    
    Value(a)
    
    
    Dates
    
    
    on Discount Notes
    
    
    Date(b)8% senior second-lien notes due 2012
    
    
    1,100
    
    
    
    1,100
    
    
    
    4/30 & 10/30
    
    
    
    
    
    
    
    4/30/128 3/8% senior second-lien notes due 2014
    
    
    400
    
    
    
    400
    
    
    
    4/30 & 10/30
    
    
    
    
    
    
    
    4/30/14Renaissance 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 (c)
    
    
    113
    
    
    
    113
    
    
    
    6/1 & 12/1
    
    
    
    6/1/04
    
    
    
    12/1/08Credit Facilities:Charter Operating
    
    
    5,515
    
    
    
    5,515$
    18,772
    
    
    $
    18,474
   (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 in the above
table (except with respect to the Charter Holdings notes with terms of eight years) 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. For additional
information, see Note 9 to our consolidated financial statements contained in Item 8.
Financial Statements and Supplementary Data.(c)
    
    The Charter Operating credit facilities required us to redeem the CC V Holdings notes within
45 days after the first date that the Charter Holdings leverage ratio is less than 8.75 to
1.0. In March 2005, CC V Holdings, LLC redeemed all of its outstanding notes, at 103.958% of
principal amount, plus accrued and unpaid interest to the date of redemption. We are not
required to redeem any of the other notes listed above prior to their stated maturity dates. As of December 31, 2004 and 2003, our long-term debt totaled approximately $18.5 billion and $17.9
billion, respectively. This debt was comprised of approximately $5.5 billion and $7.2 billion of
credit facility debt and $13.3 billion and $11.2 billion principal amount of high-yield notes at
December 31, 2004 and 2003, respectively. As of December 31, 2004 and 2003, the weighted average interest rate on the credit facility debt
was approximately 6.8% and 5.4%, respectively, and the weighted average interest rate on the
high-yield notes was approximately 9.9% and 10.3%, respectively, resulting in a blended weighted
average interest rate of 9.0% and 8.3%, respectively. The interest rate on approximately 82% and
79% of the total principal amount of our debt was effectively fixed, including the effects of our
interest rate hedge agreements as of December 31, 2004 and 2003, respectively. The fair value of
our high-yield notes was $12.2 billion and $9.9 billion at December 31, 2004 and 2003,
respectively. The fair value of our credit facilities was $5.5 billion and $6.9 billion at
December 31, 2004 and 2003, respectively. The fair value of high-yield notes is based on quoted
market prices, and the fair value of the credit facilities is based on dealer quotations. The following description is a summary of certain material provisions of the amended and
restated Charter Operating credit facilities and our public notes (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 the Debt Agreements. Charter Operating
Credit Facilities - General The Charter Operating credit facilities were amended and restated concurrently with the sale of
$1.5 billion senior second-lien notes in April 2004, among other things, to defer maturities and
increase availability under these facilities and to enable Charter Operating to acquire the interests of the lenders under the CC VI
Operating, CC VIII Operating and Falcon credit facilities, thereby consolidating all credit
facilities under one amended and restated Charter Operating credit agreement. The Charter Operating credit facilities:  
    provide borrowing availability of up to $6.5 billion;
    provide for two term facilities: 50




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##### Table of Contents



(i)
    a Term A facility with a total principal amount of $2.0 billion, of which 12.5%
matures in 2007, 30% matures in 2008, 37.5% matures in 2009 and 20% matures in 2010;
and(ii)
    a Term B facility with a total principal amount of $3.0 billion, which shall be
repayable in 27 equal quarterly installments aggregating in each loan year to 1% of the
original amount of the Term B facility, with the remaining balance due at final
maturity in 2011; and  
    provide for a revolving credit facility, in a total amount of $1.5 billion, with a
maturity date in 2010. Amounts outstanding under the Charter Operating credit facilities bear interest, at Charter
Operatings election, at a base rate or the Eurodollar rate, as defined, plus a margin for
Eurodollar loans of up to 3.00% for the Term A facility and revolving credit facility, and up to
3.25% for the Term B facility, and for base rate loans of up to 2.00% for the Term A facility and
revolving credit facility, and up to 2.25% for the Term B facility. A quarterly commitment fee of
up to .75% is payable on the average daily unborrowed balance of the revolving credit facilities. The obligations of our subsidiaries under the Charter Operating credit facilities (the
Obligations) are guaranteed by Charter Operatings immediate parent company, CCO Holdings, and
the subsidiaries of Charter Operating, except for immaterial subsidiaries and subsidiaries
precluded from guaranteeing by reason of the provisions of other indebtedness to which they are
subject (the non-guarantor subsidiaries, primarily Renaissance and its subsidiaries). The
Obligations are also secured by (i) a lien on all of the assets of Charter Operating and its
subsidiaries (other than assets of the non-guarantor subsidiaries), to the extent such lien can be
perfected under the Uniform Commercial Code by the filing of a financing statement, and (ii) by a
pledge by CCO Holdings of the equity interests owned by it in Charter Operating or any of Charter
Operatings subsidiaries, as well as intercompany obligations owing to it by any of such entities.
Upon the Charter Holdings Leverage Ratio (as defined in the indenture governing the Charter
Holdings senior notes and senior discount notes) being under 8.75 to 1.0, the Charter Operating
credit facilities require that the 11.875% notes due 2008 issued by CC V Holdings, LLC be redeemed.
Because such Leverage Ratio was determined to be under 8.75 to 1.0, in March 2005, CC V Holdings,
LLC redeemed such notes. Following such redemption, CC V Holdings, LLC and its subsidiaries (other than
non-guarantor subsidiaries) guaranteed the Obligations and granted a lien on all of their assets
as to which a lien can be perfected under the Uniform Commercial Code by the filing of a financing
statement. Charter Operating Credit Facilities  Restrictive Covenants The Charter Operating credit facilities contain representations and warranties, and affirmative and
negative covenants customary for financings of this type. The financial covenants measure
performance against standards set for leverage, debt service coverage, and interest coverage,
tested as of the end of each quarter. The maximum allowable leverage ratio is 4.25 to 1.0 until
maturity, tested as of the end of each quarter beginning September 30, 2004. Additionally, the
Charter Operating 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, and upon
the incurrence of certain indebtedness when the ratio of senior first lien debt to operating cash
flow is greater than 2.0 to 1.0. The Charter Operating credit facilities permit Charter Operating and its subsidiaries to make
distributions to pay interest on the Charter Operating senior second-lien notes, the CCH II senior
notes, the CCO Holdings senior notes, the Charter convertible senior notes and the Charter Holdings senior notes, provided that, among
other things, no default has occurred and is continuing under the Charter Operating credit
facilities. Conditions to future borrowings include absence of a default or an event of default
under the Charter Operating credit facilities and the continued accuracy in all material respects
of the representations and warranties, including the absence since December 31, 2003 of any event,
development or circumstance that has had or could reasonably be expected to have a material adverse
effect on our business. The events of default under the Charter Operating 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, including but not limited to a covenant
to deliver audited financial statements with an unqualified opinion from our independent
auditors,(iii)
    the failure to pay or the occurrence of events that cause or permit the acceleration
of other indebtedness owing by CCO Holdings, Charter Operating or Charter Operatings
subsidiaries in amounts in excess of $50 million in aggregate principal amount, 51




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(iv)
    the failure to pay or the occurrence of events that result in the acceleration of other
indebtedness owing by certain of CCO Holdings direct and indirect parent companies in
amounts in excess of $200 million in aggregate principal amount,(v)
    Paul Allen and/or certain of his family members and/or their exclusively owned entities
(collectively, the Paul Allen Group) ceasing to have the power, directly or indirectly,
to vote at least 35% of the ordinary voting power of Charter Operating,(vi)
    the consummation of any transaction resulting in any person or group (other than the
Paul Allen Group) having power, directly or indirectly, to vote more than 35% of the
ordinary voting power of Charter Operating, unless the Paul Allen Group holds a greater
share of ordinary voting power of Charter Operating,(vii)
    certain of Charter Operatings indirect or direct parent companies having indebtedness
in excess of $500 million aggregate principal amount which remains undefeased three months
prior to the final maturity of such indebtedness, and(viii)
    Charter Operating ceasing to be a wholly-owned direct subsidiary of CCO Holdings, except
in certain very limited circumstances. Outstanding Notes Charter Communications Holdings, LLC Notes 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 notes with
substantially similar terms, except that the new notes are registered under the Securities Act. 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 began to accrue on
April 1, 2004. The March 1999 Charter Holdings notes are senior debt obligations of Charter Holdings and Charter
Capital. They rank equally with all other current and future unsubordinated obligations of Charter
Holdings and Charter Capital. They are structurally subordinated to the obligations of Charter
Holdings subsidiaries, including the CCH II notes, the CCO Holdings notes, the Renaissance notes,
the CC V Holdings notes, the Charter Operating credit facilities and the Charter Operating notes. Charter Holdings and Charter Capital will not have the right to redeem the March 1999 8.250%
Charter Holdings notes prior to their maturity on April 1, 2007. 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 notes contain restrictive covenants that
limit certain transactions or activities by Charter Holdings and its restricted subsidiaries. See
 Summary of Restrictive Covenants Under the Charter Holdings High-Yield Notes. Substantially
all 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 notes with substantially similar terms, except that the new notes are registered
under the Securities Act. 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 began to accrue
on January 15, 2005. 52




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The January 2000 Charter Holdings notes are senior debt obligations of Charter Holdings and Charter
Capital. They rank equally with all other current and future unsubordinated obligations of Charter
Holdings and Charter Capital. They are structurally subordinated to the obligations of Charter
Holdings subsidiaries, including the CCH II notes, the CCO Holdings notes, the Renaissance notes,
the CC V Holdings notes, the Charter Operating credit facilities and the Charter Operating notes. Charter Holdings and Charter Capital will not have the right to redeem the January 2000 10.00%
Charter Holdings notes prior to their maturity on April 1, 2009. 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. See  Summary of Restrictive
Covenants Under the Charter Holdings High-Yield 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 notes, with substantially similar terms, except that the new notes are
registered under the Securities Act. 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 debt obligations of Charter Holdings and Charter
Capital. They rank equally with all other current and future unsubordinated obligations of Charter
Holdings and Charter Capital. They are structurally subordinated to the obligations of Charter
Holdings subsidiaries, including the CCH II notes, the CCO Holdings notes, the Renaissance notes,
the CC V Holdings notes, the Charter Operating credit facilities and the Charter Operating notes. Charter Holdings and Charter Capital will not have the right to redeem the January 2001 10.750%
Charter Holdings notes prior to their maturity 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 Charter Holdings notes. See  Summary of Restrictive
Covenants Under the Charter Holdings High-Yield 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 53




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Holdings and Charter Capital exchanged substantially all of these notes for
new notes with substantially similar terms, except that the new notes are registered under the
Securities Act. 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. The May 2001 Charter Holdings notes are senior debt obligations of Charter Holdings and Charter
Capital. They rank equally with all other current and future unsubordinated obligations of Charter
Holdings and Charter Capital. They are structurally subordinated to the obligations of Charter
Holdings subsidiaries, including the CCH II notes, the CCO Holdings notes, the Renaissance notes,
the CC V Holdings notes, the Charter Operating credit facilities and the Charter Operating notes. Charter Holdings and Charter Capital will not have the right to redeem the May 2001 9.625% Charter
Holdings notes prior to their maturity on November 15, 2009. 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 Charter Holdings notes. See  Summary of Restrictive Covenants Under the
Charter Holdings High-Yield 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
notes, with substantially similar terms, except that the new notes are registered under the
Securities Act. 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 debt obligations of Charter Holdings and Charter
Capital. They rank equally with the current and future unsecured and unsubordinated debt of
Charter Holdings and Charter Capital. They are structurally subordinated to the obligations of
Charter Holdings subsidiaries, including the CCH II notes, the CCO Holdings notes, the Renaissance
notes, the CC V Holdings notes, the Charter Operating credit facilities and the Charter Operating
notes. 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. 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 Charter Holdings notes. See  Summary of Restrictive
Covenants Under the Charter Holdings High-Yield Notes. 54




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Summary of Restrictive Covenants Under the 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. These
limitations restrict the incurrence of debt unless, after giving effect to the incurrence, the
Charter Holdings Leverage Ratio would be below 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 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. Indebtedness under a single facility or agreement may be incurred in part under one of the
categories listed above and in part under another. Accordingly, indebtedness under our credit
facilities is incurred under a combination of the categories of permitted indebtedness listed
above. 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. The Charter
Operating credit facilities generally impose more restrictive limitations on incurring new debt
than Charter Holdings indentures, so our subsidiaries that are subject to the Charter Operating
credit facilities may not be 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, after giving effect to the transaction, the Charter Holdings Leverage
Ratio would be below 8.75 to 1.0 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 Holdings 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. 55




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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, after giving effect to the
transaction, the Charter Holdings Leverage Ratio would be below 8.75 to 1.0. 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) aggregating up
to $150 million since March 1999,
    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 aggregating up to $50 million since March 1999. 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 after giving effect to the transaction, the Charter Holdings Leverage Ratio
would be below 8.75 to 1.0, 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 guaranteeing 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
pillion without receiving an independent opinion as to the fairness of the transaction addressed to
the holders of the Charter Holdings notes. 56




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CCH II, LLC 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, the
Renaissance notes, the CC V Holdings notes, the Charter Operating credit facilities and the Charter
Operating notes. Interest on the CCH II notes accrues at 10.25% per annum and 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% 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. Substantially all of CCH IIs direct and indirect subsidiaries are currently
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
lf 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 and our subsidiaries credit
agreements generally impose more restrictive limitations on incurring new debt than the CCH II
indenture, so we and 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 57




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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. CCO Holdings, LLC Notes 8 3/4% Senior Notes due 2013 In November 2003, CCO Holdings and CCO Holdings Capital Corp. jointly issued $500 million total
principal amount of 83/4% 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 58




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obligations of CCO Holdings and CCO Holdings Capital Corp. The
CCO Holdings notes are structurally subordinated to all obligations of CCO Holdings subsidiaries,
including the Renaissance notes, the CC V Holdings notes, the Charter Operating credit facilities
and the Charter Operating notes. Interest on the CCO Holdings
senior notes accrues at 8 3/4% per year and is payable semi-annually in
arrears on each May 15 and November 15. 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. Senior Floating Rate Notes Due 2010 In December 2004, CCO Holdings and CCO Holdings Capital Corp. jointly issued $550 million total
principal amount of senior floating rate notes due 2010. Interest on the CCO Holdings senior floating rate notes accrues at the LIBOR rate plus 4.125%
annually, from December 15, 2004 or, if interest already has been paid, from the date it was most
recently paid. Interest is reset and payable quarterly in arrears on each March 15, June 15,
September 15 and December 15, commencing on March 15, 2005. At any time prior to December 15, 2006, the issuers of the senior floating rate notes may redeem up
to 35% of the notes in an amount not to exceed the amount of proceeds of one or more public equity
offerings at a redemption price equal to 100% of the principal amount, plus a premium equal to the
interest rate per annum applicable to the notes on the date notice of redemption is given, plus
accrued and unpaid interest, if any, to the redemption date, provided that at least 65% of the
original aggregate principal amount of the notes issued remains outstanding after the redemption. The issuers of the senior floating rate notes may redeem the notes in whole or in part at the
issuers option from December 15, 2006 until December 14, 2007 for 102% of the principal amount,
from December 15, 2007 until December 14, 2008 for 101% of the principal amount and from and after
December 15, 2008, at par, in each case, plus accrued and unpaid interest. Additional terms of the CCO Holdings Senior Notes and Senior Floating Rate Notes 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 CCO Holdings, including the Renaissance notes, the CC V Holdings
notes, the Charter Operating notes and the Charter Operating credit facilities. 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. 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. Substantially all of CCO Holdings direct and indirect subsidiaries
are currently 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 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. 59




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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. The Charter Operating credit
facilities generally impose more restrictive limitations on incurring new debt than CCO Holdings
indenture, so our subsidiaries that are subject to credit facilities 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 on 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;
    to pay, regardless of the existence of any default, 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 our 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. 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 60




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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 its notes. The restricted subsidiaries of CCO Holdings are generally not permitted to guarantee or pledge
assets to secure debt of CCO Holdings, unless the guaranteeing 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 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 over $50 million without receiving an
independent opinion as to the fairness of the transaction to the holders of the CCO Holdings notes. 61




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Charter Communications Operating, LLC Notes On April 27, 2004, Charter Operating and Charter Communications Operating Capital Corp. jointly
issued $1.1 billion of 8% senior second-lien notes due 2012 and $400 million of 8 3/8% senior
second-lien notes due 2014, for total gross proceeds of $1.5 billion. The Charter Operating notes were sold in a private transaction that was not subject to the
registration requirements of the Securities Act of 1933. The Charter Operating notes are not
expected to have the benefit of any exchange or other registration rights, except in specified
limited circumstances. In the first quarter of 2005, as a result of the occurrence of the guarantee and pledge date
(generally, upon the Charter Holdings leverage ratio being below 8.75 to 1.0), CCO Holdings and
those subsidiaries of Charter Operating that are currently guarantors of, or otherwise obligors
with respect to, indebtedness under the Charter Operating credit facilities and related obligations
provided guarantees of the Charter Operating notes. The note guarantee of each such existing
guarantor is, and the note guarantee of any additional future subsidiary guarantor will be:  
    a senior obligation of such guarantor;
    structurally senior to the outstanding senior notes of CCO Holdings and CCO Holdings
Capital Corp. (except in the case of CCO Holdings note guarantee, which is structurally
pari passuwith such senior notes), the outstanding senior notes of CCH II and CCH II
Capital Corp., the outstanding senior notes and senior discount notes of Charter Holdings,
the outstanding convertible senior notes of Charter and any future indebtedness of parent
companies of CCO Holdings (but subject to provisions in the Charter Operating indenture
that permit interest and, subject to meeting the 4.25 to 1.0 leverage ratio test, principal
payments to be made thereon); and
    senior in right of payment to any future subordinated indebtedness of such guarantor. All the subsidiaries of Charter Operating (except CCO NR Sub, LLC, and certain other subsidiaries
that are not deemed material and are designated as nonrecourse subsidiaries under the Charter
Operating credit facilities) are restricted subsidiaries of Charter Operating under the Charter
Operating notes. Unrestricted subsidiaries generally will not be subject to the restrictive
covenants in the Charter Operating indenture. In the event of specified change of control events, Charter Operating must offer to purchase the
Charter Operating notes at a purchase price equal to 101% of the total principal amount of the
Charter Operating notes repurchased plus any accrued and unpaid interest thereon. The limitations on incurrence of debt contained in the indenture governing the Charter Operating
notes permit Charter Operating and its restricted subsidiaries that are guarantors of the Charter
Operating notes to incur additional debt or issue shares of preferred stock if, after giving pro
forma effect to the incurrence, Charter Operating could meet a leverage ratio test (ratio of
consolidated debt to four times EBITDA, as defined, from the most recent fiscal quarter for which
internal financial reports are available) of 4.25 to 1.0. In addition, regardless of whether the leverage ratio test could be met, so long as no default
exists or would result from the incurrence or issuance, Charter Operating and its restricted
subsidiaries are permitted to incur or issue:  
    up to $6.5 billion of debt under credit facilities (but such incurrence is permitted
only by Charter Operating and its restricted subsidiaries that are guarantors of the
Charter Operating notes, so long as there are such guarantors), including debt under credit
facilities outstanding on the issue date of the Charter Operating notes;
    up to $75 million of debt incurred to finance the purchase or capital lease of assets;
    up to $300 million of additional debt for any purpose; and
    other items of indebtedness for specific purposes such as refinancing of existing debt
and interest rate swaps to provide protection against fluctuation in interest rates and,
subject to meeting the leverage ratio test, debt existing at the time of acquisition of a
restricted subsidiary. 62




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The indenture governing the Charter Operating notes permits Charter Operating to incur debt under
one of the categories above, and later reclassify the debt into a different category. The Charter
Operating credit facilities generally impose more restrictive limitations on incurring new debt
than the Charter Operating indenture, so our subsidiaries that are subject to the Charter Operating
credit facilities are not permitted to utilize the full debt incurrence that would otherwise be
available under the Charter Operating indenture covenants. Generally, under Charter Operatings indenture Charter Operating and its restricted subsidiaries
are permitted to pay dividends on equity interests, repurchase interests, or make other specified
restricted payments only if Charter Operating could incur $1.00 of new debt under the leverage
ratio test, which requires that Charter Operating meet a 4.25 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 are permitted in a total amount of up
to 100% of Charter Operatings 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 Charter
Operating and not allocated to the debt incurrence covenant, all cumulatively from the fiscal
quarter commenced April 1, 2004, plus $100 million. In addition, Charter Operating 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 Operating or its restricted
subsidiaries;
    to pay, regardless of the existence of any default, interest when due on the Charter
Holdings notes, CCH II notes, CCO Holdings notes, and our notes;
    to pay, so long as there is no default, interest on the Charter convertible notes;
    to purchase, redeem or refinance the Charter Holdings notes, CCH II notes, the CCO
Holdings notes, the Charter notes, and other direct or indirect parent company notes, so
long as Charter Operating could incur $1.00 of indebtedness under the 4.25 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. The indenture governing the Charter Operating notes restricts Charter Operating 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 Charter Operating could
not incur $1.00 of new debt under the 4.25 to 1.0 leverage ratio test described above after giving
effect to the transaction. Permitted investments include:  
    investments by Charter Operating and its restricted subsidiaries in Charter Operating
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 Charter
Operating since April 27, 2004 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. Charter Operating and its restricted subsidiaries are not permitted to grant liens senior to the
liens securing the Charter Operating notes, other than permitted liens, on their assets to secure
indebtedness or other obligations, if, after giving effect to such incurrence, the senior secured
leverage ratio (generally, the ratio of obligations secured by first priority liens to four times
EBITDA, as defined, from the most recent fiscal quarter for which internal financial reports are
available) would exceed 3.75 to 1.0. Permitted liens include liens securing indebtedness and other
obligations under permitted credit facilities, liens securing the purchase price of new assets,
liens securing indebtedness of up to $50 million and other specified liens incurred in the ordinary
course of business. Charter Operating and Charter Communications Operating 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 Charter 63




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Operating and its
subsidiaries could incur $1.00 of new debt under the 4.25 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 Operating notes. Charter Operating and its restricted subsidiaries generally may 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 Operating 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 Operating notes with any remaining proceeds. Charter Operating and its restricted subsidiaries may generally not engage in sale and leaseback
transactions unless, at the time of the transaction, Charter Operating 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 Operatings restricted subsidiaries may generally not enter into restrictions on their
ability to make dividends or distributions or transfer assets to Charter Operating on terms that
are materially more restrictive than those governing their debt, lien, asset sale, lease and
similar agreements existing when Charter Operating entered into the indenture governing the Charter
Operating senior second-lien notes unless those restrictions are on customary terms that will not
materially impair Charter Operatings ability to repay the Charter Operating notes. The restricted subsidiaries of Charter Operating are generally not permitted to guarantee or pledge
assets to secure debt of Charter Operating, unless the guaranteeing 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 Charter Operating 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 over $50 million without
receiving an independent opinion as to the fairness of the transaction to the holders of the
Charter Operating notes. Charter Operating and its 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. Since the occurrence of the guarantee and pledge date, the collateral for the Charter Operating
notes consists of all of Charter Operatings and its subsidiaries assets that secure the
obligations of Charter Operating or any subsidiary of Charter Operating with respect to the Charter
Operating credit facilities and the related obligations. The collateral currently consists of the
capital stock of Charter Operating held by CCO Holdings, all of the intercompany obligations owing
to CCO Holdings by Charter Operating or any subsidiary of Charter Operating, and substantially all
of Charter Operatings and the guarantors assets (other than the assets of CCO Holdings) in which
security interests may be perfected under the Uniform Commercial Code by filing a financing
statement (including capital stock and intercompany obligations), including, but not limited to:  
    with certain exceptions, all capital stock (limited in the case of capital stock of
foreign subsidiaries, if any, to 66% of the capital stock of first tier foreign
Subsidiaries) held by Charter Operating or any guarantor; and
    with certain exceptions, all intercompany obligations owing to Charter Operating or any
guarantor. In March 2005, CC V Holdings, LLC redeemed in full the notes outstanding under the CC V indenture.
See   CC V Holdings, LLC Notes. Following that redemption, CC V Holdings, LLC and its subsidiaries guaranteed the
Charter Operating credit facilities and the related obligations and secured those guarantees with
first-priority liens, and guaranteed the notes and secured the Charter Operating senior
second-lien notes with second-priority liens, on substantially all of their assets in which
security interests may 64




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be perfected under the Uniform Commercial Code by filing a financing
statement (including capital stock and intercompany obligations). In addition, if Charter
Operating or its subsidiaries exercise any option to redeem in full the notes outstanding under the
Renaissance indenture, then, provided that the Leverage Condition remains satisfied, the
Renaissance entities will be required to provide corresponding guarantees of the Charter Operating
credit facilities and related obligations and note guarantees and to secure the Charter Operating
notes and the Charter Operating credit facilities and related obligations with corresponding liens. In the event that additional liens are granted by Charter Operating or its subsidiaries to secure
obligations under the Charter Operating credit facilities or the related obligations,
second-priority liens on the same assets will be granted to secure the Charter Operating notes,
which liens will be subject to the provisions of an intercreditor agreement (to which none of
Charter Operating or its affiliates are parties). Notwithstanding the foregoing sentence, no such
second-priority liens need be provided if the time such lien would otherwise be granted is not
during a guarantee and pledge availability period (when the Leverage Condition is satisfied), but
such second-priority liens will be required to be provided in accordance with the foregoing
sentence on or prior to the fifth business day of the commencement of the next succeeding guarantee
and pledge availability period. CC V Holdings, LLC Notes These notes were redeemed on
March 14, 2005 and are therefore no longer outstanding. See
Business  Recent Events. 65




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Renaissance Media 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 67




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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 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
guaranteeing 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. 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. 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. 68




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Cross-Defaults Our indentures and those of certain of our subsidiaries 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. 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. As a result, an event of default related to the failure to repay
principal at maturity or the acceleration of the indebtedness under the Charter Holdings notes, CCH
II notes, CCO Holding notes, Charter Operating notes, the Charter Operating credit facilities or
the Renaissance notes could cause cross-defaults under our subsidiaries indentures. 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
arms 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 have a significant amount of debt. As of December 31, 2004, our total
debt was approximately $18.5 billion. In each of 2005 and 2006, $30 million of our debt matures.
In 2007 and beyond, significant additional amounts will become due under our remaining obligations.
We believe that as a result of our significant levels of debt and operating performance, our
access to the debt markets could be limited. 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, fund our other
liquidity and capital needs, grow our business or respond to competitive challenges. Further, if
we are unable to repay or refinance our debt, as it becomes due, we could be forced to restructure
our obligations or seek protection under the bankruptcy laws. If we were to engage in a
recapitalization or other similar transaction, our noteholders might not receive principal and
interest payments to which they are contractually entitled on a timely basis or at all. For more
information, see the section above entitled Liquidity and Capital Resources. Restrictive Covenants.The credit facilities of our subsidiaries and the indentures governing our
and our subsidiaries other debt contain a number of significant covenants that could adversely
affect our ability to operate our business, and therefore could adversely affect our results of
operations. These covenants restrict our and our subsidiaries ability to:  
    incur additional debt;
    repurchase or redeem equity interests and debt;
    issue equity;
    make certain investments or acquisitions;
    pay dividends or make other distributions;
    dispose of assets or merge;
    enter into related party transactions;
    grant liens; and
    pledge assets. Furthermore, our credit facilities require us to, among other things, maintain specified financial
ratios, meet specified financial tests and provide audited financial statements with an unqualified
opinion from our independent auditors. See Description of Our Outstanding Debt for details on
our debt covenants. Our ability to comply with these provisions may be affected by events beyond
our control. 69




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The breach of any covenants or obligations in the foregoing indentures or credit facilities, not
otherwise waived or amended, could result in a default under the applicable debt agreement or
instrument and could trigger acceleration of the related debt, which in turn could trigger defaults
under other agreements governing our long-term indebtedness. In addition, the secured lenders
under the Charter Operating credit facilities and the Charter Operating senior second-lien notes
could foreclose on their collateral, which includes equity interests in our subsidiaries, and
exercise other rights of secured creditors. Any default under those credit facilities, the
indentures governing our subsidiaries debt could adversely affect our growth, our financial
condition and our results of operations and our ability to make payments on our notes and the
credit facilities and other debt 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 our credit facilities, issuances of debt securities, loans or equity contributions
from Charter Holdco and cash on hand. Our ability to operate depends upon, among other things, our continued access to capital, including
credit under the Charter Operating credit facilities. These credit facilities are subject to
certain restrictive covenants, some of which require us to maintain specified financial ratios and
meet financial tests and to provide audited financial statements with an unqualified opinion from
our independent auditors. As of December 31, 2004, we were in compliance with the covenants under
our indentures and under the credit facilities and indentures of our subsidiaries, and we expect to
remain in compliance with those covenants for the next twelve months. If our operating performance
results in non-compliance with these covenants, or if any of certain other events of non-compliance
under these credit facilities or indentures governing our debt occurs, funding under the credit
facilities may not be available and defaults on some or potentially all of our debt obligations
could occur. An event of default under the credit facilities or indentures, if not waived, could
result in the acceleration of those debt obligations and, consequently, other debt obligations.
Such acceleration 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. As of December 31, 2004, we
had borrowing availability under our credit facilities of $804 million, none of which was
restricted due to covenants. If, at any time, additional capital or capacity is required beyond amounts internally generated or
available under our credit facilities or through additional debt financings, we would consider:  
    issuing debt or equity at the Charter or Charter Holdco level, the proceeds of which
could be loaned or contributed to us;
    issuing debt securities that may have structural or other priority over our existing
notes;
    further reducing our expenses and capital expenditures, which may impair our ability to
increase revenue;
    selling assets; or
    requesting waivers or amendments with respect to our credit facilities, the availability
and terms of which would be subject to market conditions. If the above strategies were not successful, 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 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 significant amount of debt and may incur additional debt
in the future. At December 31, 2004, Charter had approximately $156 million and $863 million
aggregate principal amount of convertible senior notes outstanding, which mature in 2006 and 2009,
respectively. Charter will need to raise additional capital or receive distributions or payments
from us in order to satisfy its debt obligations. Charters ability to make interest payments on its convertible senior notes, and, in 2006 and 2009,
to repay the outstanding principal of its convertible senior notes, will depend on its ability to
raise additional capital and/or on receipt of payments or distributions from Charter Holdco or its
subsidiaries, including CCH II, CCO Holdings and Charter Operating. The indentures governing the
CCH II notes, CCO Holdings notes, and Charter Operating notes, however, restrict these entities and
their subsidiaries from making distributions to their parent companies (including Charter, Charter
Holdco and Charter Holdings) for payment of principal on Charters convertible senior notes, in
each case unless there is no default under the applicable indenture and a specified leverage ratio
test is met at the 70




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time of such event. In addition, each of CCH II, CCO Holdings and Charter
Operating must independently assess whether such payments or distributions are advisable. CCH II,
CCO Holdings and Charter Operating meet the applicable leverage ratio test under each of their
respective indentures, and as a result are not prohibited from making any such distributions to
their respective direct parent. The indentures governing the Charter Holdings notes permit Charter Holdings to make distributions
to Charter Holdco for payment of interest or principal on the convertible senior notes, only if,
after giving effect to the
distribution, Charter Holdings can incur additional debt under the leverage ratio of 8.75 to 1.0,
there is no default under the Charter Holdings indentures and other specified tests are met. For
the quarter ended December 31, 2004, there was no default under Charter Holdings indentures and
other specified tests were met. In addition, Charter Holdings met the leverage ratio of 8.75 to
1.0 based on December 31, 2004 financial results. As a result, distributions from Charter Holdings
to Charter or Charter Holdco are not currently restricted. Such distributions will again be
restricted, however, if Charter Holdings fails to meet its leverage ratio test at the time of such
event. In the past Charter Holdings has from time to time failed to meet this leverage ratio test,
and there can be no assurance that Charter Holdings will satisfy this test in the future. Charter
chose not to make the first quarter 2005 dividend payments on
its preferred stock because it was unable to conclude with certainty
that it had an adequate surplus available for the issuance of such
dividends as required under Delaware law. We do not believe this
non-payment of the preferred stock dividend will adversely impact
Charters current liquidity and while Charter may need to
raise additional capital in the future, we cannot predict what impact
any non-payment of dividends will have on Charters ability to do so. Because Charter is our manager, any financial or liquidity problems of Charter could cause serious
disruption to our business and have a material adverse effect on our business and results of
operations. Any such event could adversely impact our 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 our credit facilities
and would 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 credit
facilities or notes, our 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 credit
facilities and indentures would not permit Charter Holdings subsidiaries to distribute funds to
Charter Holdings to pay interest or principal on its notes. If the amounts outstanding under such
credit facilities or notes are accelerated, all of the debt and liabilities of Charter Holdings
subsidiaries would be payable from the subsidiaries assets, prior to any distribution of the
subsidiaries assets to pay the interest and principal amounts on Charter Holdings notes. In
addition, the lenders under our credit facilities could foreclose on their collateral, which
includes equity interests in Charter Holdings 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 credit facilities would cause a
cross-default in the indentures governing the Charter Holdings notes, CCH II notes, CCO Holdings
notes and Charter Operating notes and would trigger the cross-default provision of the Charter
Operating credit agreement. Any default under any of our 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. Charter Holdings Notes are Structurally Subordinated to all Liabilities of its Subsidiaries.The
borrowers and guarantors under the Charter Operating credit facilities and senior second-lien notes
are Charter Holdings indirect subsidiaries. A number of Charter Holdings subsidiaries are also
obligors under other debt instruments, including CCH II, CCO Holdings and Charter Operating, which
are each a co-issuer of senior notes and/or senior discount notes. As of December 31, 2004, our
total debt was approximately $18.5 billion, of which $9.9 billion was structurally senior to
Charter Holdings notes. In a liquidation, the lenders under our credit facilities and the holders
of the other debt instruments and all other creditors of Charter Holdings subsidiaries would have
the right to be paid before holders of Charter Holdings subsidiaries assets. The Charter Operating credit facilities and the indentures governing the senior notes, senior
discount notes and senior second-lien notes issued by subsidiaries of Charter Holdings contain
restrictive covenants that limit the ability of such subsidiaries to make distributions or other
payments to Charter Holdings to enable Charter Holdings to make payments on its notes. In
addition, if Charter Holdings caused a subsidiary to make a distribution to enable it to make
payments on its notes, and such transfer were deemed a fraudulent transfer or an unlawful
distribution, the holders of Charter Holdings notes could be required to return the payment to (or
for the benefit of) the creditors of its 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 71




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payments.
The foregoing contractual and legal restrictions could limit Charter Holdings ability to make
payments of principal and/or interest to the holders of its notes. Securities Litigation and Government Investigations.A number of putative federal class action
lawsuits have been filed in the U.S. District Court for the
Eastern District of Missouri 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 shareholder derivative lawsuits have been filed against Charter in the same and other
jurisdictions. A shareholders derivative suit was filed in the U.S. District Court for the Eastern
District of Missouri against
Charter and its then current directors. Also, three shareholders derivative suits
were filed in Missouri state court against Charter, its then current directors and its former
independent auditor. These state court actions have been consolidated. The federal shareholders derivative
suit and the consolidated derivative suit each alleged that the
defendants breached their fiduciary duties. Charter recently entered into Stipulations of Settlement setting forth proposed terms of settlement
for the above described class actions and derivative suits. The settlement of each of the
lawsuits remains conditioned upon, among other things, final judicial approval of the settlements
following notice to the class, and dismissal with prejudice of the consolidated derivative actions
now pending in Missouri state court, which are related to the Federal Derivative Action.
Additionally, a portion of the settlement is to be paid in shares of Charters Class A common stock
with a value of $45 million (includes shares issuable to insurance carriers) and warrants to
purchase Charters Class A common stock valued at $40 million, with such values in each case
determined by formulas set forth in the Stipulations of Settlement. If the price of Charters
common stock declines, additional shares will be required in order to fulfill this commitment.
Charter has the right but not the obligation to terminate the settlements if the value of its
common stock (under the above-described formula) is less than $2.25. See Part II, Item 1. Legal
Proceedings. In August 2002, Charter became aware of a grand jury investigation being conducted by the U.S.
Attorneys Office for the Eastern District of Missouri into certain of its accounting and reporting
practices focusing on how it reported customer numbers, and its reporting of amounts received from
digital set-top terminal suppliers for advertising. The U.S. Attorneys Office has publicly stated
that Charter is not a target of the investigation. Charter was also advised by the U.S. Attorneys
Office that no current officer or member of its board of directors 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. Each of
the indicted former officers pled guilty to single conspiracy counts related to the original mail
and wire fraud charges and are awaiting sentencing. Charter has
informed us that it is fully
cooperating with the investigation. On November 4, 2002, Charter received an informal, non-public inquiry from the staff of the SEC.
The SEC issued a formal order of investigation dated January 23, 2003, and subsequently served
document and testimony subpoenas on Charter and a number of its former employees. The
investigation and subpoenas generally concerned Charters prior reports with respect to its
determination of the number of customers and various of its accounting policies and practices
including its capitalization of certain expenses and dealings with certain vendors, including
programmers and digital set-top terminal suppliers. On July 27, 2004, the SEC and Charter reached
a final agreement to settle the investigation. In the Settlement Agreement and Cease and Desist
Order, Charter agreed to entry of an administrative order prohibiting any future violations of
United States securities laws and requiring certain other remedial internal practices and public
disclosures. Charter neither admitted nor denied any wrongdoing, and the SEC assessed no fine
against Charter. Moreover, due to the inherent uncertainties of litigation and investigations, and due to the
remaining conditions to the finalization of our anticipated settlements, Charter cannot predict
with certainty the ultimate outcome of these proceedings. An unfavorable outcome in the lawsuits
or the government investigation described above could result in substantial potential liabilities
and have a material adverse effect on our consolidated financial condition and results of
operations or our liquidity. Further, these proceedings, and our actions in response to these
proceedings, could result in substantial additional defense costs and the diversion of managements
attention, and could adversely affect our ability to execute our business and financial strategies. Competition.The industry in which we operate is highly competitive, and has become more so in
recent years. In some instances, we compete against companies with fewer regulatory burdens,
easier access to financing, greater
personnel resources, greater brand name recognition and long-established relationships with
regulatory authorities and customers. Increasing consolidation in the cable industry and the
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additional benefits to certain of our competitors,
either through access to financing, resources or efficiencies of scale. Our principal competitor for video services throughout our territory is direct broadcast satellite
television services, also known as DBS. Competition from DBS, including intensive marketing
efforts, aggressive pricing, and the ability of DBS to provide certain services that we are in the
process of developing, has had an adverse impact on our ability to retain customers. DBS has grown rapidly over the last several years and continues to do so. The cable industry,
including Charter, has lost a significant number of subscribers to DBS competition, and we face
serious challenges in this area in the future. We believe that competition from DBS service
providers may present greater challenges in areas of lower population density, and that our systems
may service a higher concentration of such areas than those of other major cable service providers. Local telephone companies and electric utilities can offer video and other services in competition
with us, and they increasingly may do so in the future. Certain telephone companies have begun
more extensive deployment of fiber in their networks that will enable them to begin providing video
services, as well as telephony and high-bandwidth Internet access services, to residential and
business customers. Some of these telephone companies have obtained, and are now seeking,
franchises that are less burdensome than existing Charter franchises. The subscription television
industry also faces competition from free broadcast television and from other communications and
entertainment media. Further loss of customers to DBS or other alternative video and data services
could have a material negative impact on the value of our business and its performance. 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. DSL service is competitive with high-speed
data service over cable systems. Telephone companies (which already have telephone lines into the
household, an existing customer base and other operational functions in place) and other companies
offer DSL service. In addition, DBS providers have entered into joint marketing arrangements with
Internet access providers to offer bundled video and Internet service, which competes with our
ability to provide bundled services to our customers. In order to attract new customers, from time to time we make promotional offers, including offers
of temporarily reduced-price or free service. These promotional programs result in significant
advertising, programming and operating expenses, and also require us to make capital expenditures
to acquire additional digital set-top terminals. Customers who subscribe to our services as a
result of these offerings may not remain customers for any significant period of time following the
end of the promotional period. A failure to retain existing customers and customers added through
promotional offerings or to collect the amounts they owe us could have an adverse effect on our
business and financial results. Mergers, joint ventures and alliances among franchised, wireless or private cable operators,
satellite television providers, local exchange carriers and others, and the repeal of certain
ownership rules may provide additional benefits to some of our competitors, either through access
to financing, resources or efficiencies of scale, or the ability to provide multiple services in
direct competition with us. Long-Term Indebtedness  Change of Control Payments.We and our parent companies may not have the
ability to raise the funds necessary to fulfill our obligations under our and our parent companies
senior and senior discount notes and our credit facilities following a change of control. Under
the indentures governing our parent companies notes, upon the occurrence of specified change of
control events, including certain specified dispositions of Charters stock by Mr. Allen, each such
issuer is required to offer to repurchase all of its outstanding notes. However, our parent
companies may not have sufficient funds at the time of the change of control event to make the
required repurchase of the applicable notes and all of the notes issuers are limited in their
ability to make distributions or other payments to their respective parent companies to fund any
required repurchase. In addition, a
change of control under our 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 Charter Holdings subsidiaries, the credit
facilities and the notes would have to be repaid by Charter Holdings subsidiaries before their
assets could be available to Charter Holdings or its parent companies to repurchase Charter
Holdings and its parents notes. Any failure to make or complete a change of control offer would
place the applicable issuer or borrower in default under its notes. The failure of Charter
Holdings subsidiaries to make a change of control offer or repay the amounts outstanding under
their credit facilities would place them in default under these agreements and could result in a
default under the indentures governing the 73




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Charter Holdings and its parent companies notes. See  Certain Trends and Uncertainties  Liquidity. Variable Interest Rates.At December 31, 2004, excluding the effects of hedging, approximately 33%
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, 2004 and 2003, the weighted average interest rate
on the credit facility debt was approximately 6.8% and 5.4%, and the weighted average interest rate
on the high-yield notes was approximately 9.9% and 10.3%, resulting in a blended weighted average
interest rate of 9.0% and 8.3%, respectively. Approximately 82% of our debt was effectively fixed
including the effects of our interest rate hedge agreements as of December 31, 2004 compared to
approximately 79% at December 31, 2003. 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. 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, the technology involved in our
product and service offerings generally requires that we have permission to use intellectual
property and that such property not infringe on rights claimed by others. If it is determined that
the product or service being utilized infringes on the rights of others, we may be sued or be
precluded from using the technology. Increasing Programming Costs.Programming has been, and is expected to continue to be, our largest
operating expense item. In recent years, the cable industry has experienced a rapid escalation in
the cost of programming, particularly sports programming. We expect programming costs to continue
to increase because of a variety of factors, including inflationary or negotiated annual increases,
additional programming being provided to customers and increased costs to purchase or produce
programming. The inability to fully pass these programming cost increases on to our customers
would have an adverse impact on our cash flow and operating margins. As measured by programming
costs, and excluding premium services (substantially all of which were renegotiated and renewed in
2003), as of December 31, 2004 approximately 10% of our current programming contracts were expired,
and approximately another 34% are scheduled to expire by the end of 2005. There can be no
assurance that these agreements will be renewed on favorable or comparable terms. Our programming
costs increased by approximately 6% in 2004 and we expect our programming costs in 2005 to increase
at a higher rate than in 2004. 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, 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. Notes Price Volatility.The market price of our publicly traded notes has been and is likely to
continue to be highly volatile. We expect that the price of our securities may fluctuate in
response to various factors, including the factors described in 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 change in our debt ratings; the
development of improved or competitive technologies; the use of new products or promotions by us or
our competitors; changes in accounting rules or interpretations; and new regulatory legislation
adopted in the United States. In addition, the securities market in general, and the market for cable industry securities in
particular, have experienced significant price fluctuations. Volatility in the market price for
companies may often be unrelated or disproportionate to the operating performance of those
companies. These broad market and industry factors may seriously harm the market price of our
notes, regardless of our operating performance. In the past, securities litigation has often
commenced following periods of volatility in the market price of a companys securities, and
several purported class action lawsuits were filed against Charter in 2001 and 2002, following a
decline in its stock price. Economic Slowdown; Global Conflict.It is difficult to assess the impact that the general economic
slowdown and global conflict will have on future operations. However, the economic slowdown has
resulted and could continue to result in reduced spending by customers and advertisers, which could
reduce our revenues, and also could affect our ability to collect accounts receivable and maintain
customers. Reductions in operating revenues would likely negatively affect our ability to make
expected capital expenditures and could also result in our inability to meet our 74




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obligations under
our financing agreements. These developments could also have a negative impact on our financing
and variable interest rate agreements through disruptions in the market or negative market
conditions. Regulation and Legislation.Cable system operations are extensively regulated at the federal,
state, and local level, including rate regulation of basic service and equipment and municipal
approval of franchise agreements and their terms, such as franchise requirements to upgrade cable
plant and meet specified customer service standards. Additional legislation and regulation is
always possible. There have been recent calls to impose indecency restrictions on cable networks. 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 cable systems were required to carry both the analog
and digital versions of local broadcast signals (dual carriage) or to carry multiple program
streams included with a single digital broadcast transmission (multicast carriage). Additional
government mandated broadcast carriage obligations could disrupt existing programming commitments,
interfere with our preferred use of limited channel capacity and limit our ability to offer
services that would maximize customer appeal and revenue potential. Although the FCC issued a
decision on February 10, 2005, confirming an earlier ruling against mandating either dual carriage
or multicast carriage, that decision could be appealed or Congress could legislate additional
carriage obligations. There is also uncertainty whether local franchising authorities, state regulators, the FCC, or the
U.S. Congress will impose obligations on cable operators to provide unaffiliated Internet service
providers with regulated access to cable plant. If they were to do so, and the obligations were
found to be lawful, it could complicate our operations in general, and our Internet operations in
particular, from a technical and marketing standpoint. These open access obligations could
adversely impact our profitability and discourage system upgrades and the introduction of new
products and services. The United States Court of Appeals for the Ninth Circuit recently vacated
in part an FCC ruling defining cable modem service as an information service and remanded for
further proceedings. The Ninth Circuit held that cable modem service is not cable service but is
part telecommunications service and part information service. The decision has been appealed
to the United States Supreme Court. However, if it is not reversed, the decision may lead to our
having to contribute to the federal governments universal service fund, to comply with open access
requirements, and to subject our high-speed data operations generally to other common carrier
regulations. As we offer other advanced services over our cable system, we are likely to face
additional calls for regulation of our capacity and operation. These regulations, if adopted,
could adversely affect our operations. 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 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. At December 31, 2004 and 2003, we had outstanding $2.7 billion and $3.0 billion and $20 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 2004, the Financial Accounting Standards Board issued the revised SFAS No. 123,
Share-Based Payment, which addresses the accounting for share-based payment transactions in which a
company receives employee services in exchange for (a) equity instruments of that company or (b)
liabilities that are based on the fair value of the companys equity instruments or that may be
settled by the issuance of such equity instruments. This statement will be effective for us
beginning July 1, 2005. Because we adopted the fair value recognition provisions 75




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of SFAS No. 123
on January 1, 2003, we do not expect this revised standard to have a material impact on our
financial statements. We do not believe that any other recently issued, but not yet effective accounting pronouncements,
if adopted, would have a material effect on our accompanying 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, 2004 and 2003, our long-term debt totaled approximately $18.5 billion and $17.9
billion, respectively. This debt was comprised of approximately $5.5 billion and $7.2 billion of
credit facilities debt, and $13.3 billion and $11.2 billion principal amount of high-yield notes,
respectively. As of December 31, 2004 and 2003, the weighted average interest rate on the credit facility debt
was approximately 6.8% and 5.4%, and the weighted average interest rate on the high-yield notes was
approximately 9.9% and 10.3%, resulting in a blended weighted average interest rate of 9.0% and
8.3%, respectively. The interest rate on approximately 82% and 79% of the total principal amount
of our debt was effectively fixed, including the effects of our interest rate hedge agreements as
of December 31, 2004 and 2003, respectively. The fair value of our high-yield notes was $12.2
billion and $9.9 billion at December 31, 2004 and 2003, respectively. The fair value of our credit
facilities is $5.5 billion and $6.9 billion at December 31, 2004 and 2003, respectively. The fair
value of high-yield notes is based on quoted market prices, and the fair value of the credit
facilities is based on dealer quotations. We do not hold or issue derivative instruments for trading purposes. We do, however, have certain
interest rate derivative instruments that have been designated as cash flow hedging instruments.
Such instruments 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 statement of operations. We have formally documented, designated and assessed the
effectiveness of transactions that receive hedge accounting. For the years ended December 31,
2004, 2003 and 2002, net gain (loss) on derivative instruments and hedging activities includes
gains of $4 million and $8 million and losses of $14 million, respectively, which represent cash
flow hedge ineffectiveness on interest rate hedge agreements arising from differences between the
critical terms of the agreements and the related hedged obligations. Changes in the fair value of
interest rate agreements designated as hedging instruments of the variability of cash flows
associated with floating-rate debt obligations that meet the effectiveness criteria of SFAS No. 133
are reported in accumulated other comprehensive loss. For the years ended December 31, 2004, 2003
and 2002, a gain of $42 million and $48 million and losses of $65 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 our statements of operations.
For the years ended December 31, 2004, 2003 and 2002, net gain (loss) on derivative instruments and
hedging activities includes gains of $65 million and $57 million and losses of $101 million,
respectively, for interest rate derivative instruments not designated as hedges. 76




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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, 2004 (dollars in millions): Fair Value at2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    Thereafter
    
    
    Total
    
    
    December 31, 2004DebtFixed Rate
    
    $
    
    
    
    $
    
    
    
    $
    451
    
    
    $
    227
    
    
    $
    3,398
    
    
    $
    8,631
    
    
    $
    12,707
    
    
    $
    11,680Average Interest Rate
    
    
    
    
    
    
    
    
    
    
    8.25
    %
    
    
    10.93
    %
    
    
    9.60
    %
    
    
    10.34
    %
    
    
    10.08
    %Variable Rate
    
    $
    30
    
    
    $
    30
    
    
    $
    280
    
    
    $
    630
    
    
    $
    780
    
    
    $
    4,315
    
    
    $
    6,065
    
    
    $
    6,052Average Interest Rate
    
    
    6.47
    %
    
    
    7.08
    %
    
    
    7.17
    %
    
    
    7.45
    %
    
    
    7.73
    %
    
    
    8.40
    %
    
    
    8.14
    %Interest Rate InstrumentsVariable to Fixed Swaps
    
    $
    990
    
    
    $
    873
    
    
    $
    775
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    2,638
    
    
    $
    69Average Pay Rate
    
    
    7.94
    %
    
    
    8.23
    %
    
    
    8.04
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8.07
    %Average Receive Rate
    
    
    6.36
    %
    
    
    7.08
    %
    
    
    7.20
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6.85
    %
 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, 2004. At December 31, 2004 and 2003, we had outstanding $2.7 billion and $3.0 billion and $20 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. 
 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. None. 
 Item 9A.Controls and Procedures. Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures As of the end of the period covered by this report, management, including our Interim Chief
Executive Officer and Interim Co-Chief Financial Officers, evaluated the effectiveness of the
design and operation of our disclosure controls and procedures with respect to the information
generated for use in this 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 Interim Chief Executive Officer and Interim Co-Chief Financial Officers concluded that the
disclosure controls and procedures were effective to provide reasonable assurances that information
required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934
is recorded, processed, summarized and reported within the time periods specified in the
Commissions rules and forms. There was no change in our internal control over financial reporting during 2004 that has
materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting. In designing and evaluating the disclosure controls and procedures, our management recognized that
any controls and procedures, no matter how well designed and operated, can provide only reasonable,
not absolute, assurance of achieving the desired control objectives and management necessarily was
required to apply its judgment in 77




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evaluating the cost-benefit relationship of possible controls and
procedures. Based upon the above evaluation, Charters management believes that its controls do
provide such reasonable assurance. 
 Item 9B.Other Information. None. 78




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PART III 
 Item 10.Directors and Executive Officers of 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, Jo Allen Patton and Robert P. May. The persons listed below are
directors of Charter, Charter Holdco, Charter Holdings or Charter Capital, as indicated. All of
our directors are elected annually. Director
    
    Position(s)Paul G. Allen
    
    Chairman of the board of directors of Charter and
Director of Charter HoldcoW. Lance Conn
    
    Director of CharterJonathan L. Dolgen
    
    Director of CharterCharles M. Lillis
    
    Director of CharterRobert P. May
    
    Director of Charter, Charter Holdco, Charter Holdings
and Charter Capital, Interim President and Chief
Executive OfficerDavid C. Merritt
    
    Director of CharterMarc B. Nathanson
    
    Director of CharterJo Allen Patton
    
    Director of Charter, Charter Holdco, Charter Holdings
and Charter CapitalJohn H. Tory
    
    Director of CharterLarry W. Wangberg
    
    Director of Charter
 The following sets forth certain biographical information with respect to the directors listed
above. Paul G. Allen,52, has been Chairman of our board of directors 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 DreamWorks LLC
and Oxygen Media. In addition, Mr. Allen is a director of Vulcan Programming Inc., Vulcan
Ventures, Vulcan Inc., Vulcan Cable III Inc., numerous privately held companies and, until its sale
in May 2004 to an unrelated third party, TechTV L.L.C. W. Lance Conn, 36, was elected to our board of directors in September 2004. Since July 2004, Mr.
Conn has served as Executive Vice President, Investment Management for Vulcan Inc., the investment
and project management company that oversees a diverse multi-billion dollar portfolio of
investments by Paul G. Allen. Prior to joining Vulcan Inc., Mr. Conn was employed by America
Online, Inc., an interactive online services company, from March 1996 to May 2003. From 1997 to
2000, Mr. Conn served in various senior business development roles at America Online. In 2000, Mr.
Conn began supervising all of America Onlines European investments, alliances and business
initiatives. In 2002, he became Senior Vice President of America Online U.S. where he led a
company-wide effort to restructure and optimize America Onlines operations. From September 1994
until February 1996, Mr. Conn was an attorney with the Shaw Pittman law firm in Washington, D.C.
Mr. Conn holds a J.D. degree from the University of Virginia, a masters degree in history from the
University of Mississippi and an A.B. in history from Princeton University. Jonathan L. Dolgen, 59, was elected to our board of directors in October 2004. Since July 2004,
Mr. Dolgen has also been a Senior Advisor to Viacom, Inc. (Viacom) a worldwide entertainment and
media company, where he provides advisory services to the current Chairman and Chief Executive of
Viacom, or others designated by him, on an as requested basis. Since July 2004, Mr. Dolgen has
been a private investor and since September 2004, Mr. Dolgen has been a principal of Wood River
Ventures, LLC, a private start-up entity that is seeking investment and 79




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other opportunities
primarily in the media sector. From April 1994 to July 2004, Mr. Dolgen served as Chairman and
Chief Executive Officer of the Viacom Entertainment Group, a unit of Viacom, where he oversaw
various operations of Viacoms businesses, which during 2003 and 2004 primarily included the
operations engaged in motion picture production and distribution, television production and
distribution, regional theme parks, theatrical exhibition and publishing. Mr. Dolgen began his
career in the entertainment industry in 1976, and until joining the Viacom Entertainment Group,
served in executive positions at Columbia Pictures Industries, Inc. Twentieth Century Fox and Fox,
Inc., and Sony Pictures Entertainment. Mr. Dolgen holds a B.S. degree from Cornell University and
a J.D. degree from New York University. Charles M. Lillis,63, 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 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. Mr. Lillis recently announced his election as a director of Medco Health Solutions, Inc., and, on
March 28, 2005, Mr. Lillis resigned from Charter's board of directors. Robert P. May, 55, was elected to our board of directors in October 2004 and became our Interim
President and Chief Executive Officer in January 2005. Mr. May has served on the board of
directors of HealthSouth Corporation, a national provider of healthcare services, since October
2002, and has been its Chairman since July 2004. Mr. May also served as HealthSouth Corporations
Interim Chief Executive Officer from March 2003 until May 2004, and as Interim President of its
Outpatient and Diagnostic Division from August 2003 to January 2004. Since March 2001, Mr. May has
been a private investor and principal of RPM Systems, which provides strategic business consulting
services. From March 1999 to March 2001, Mr. May served on the board of directors and was Chief
Executive of PNV Inc., a national telecommunications company. PNV Inc. filed for bankruptcy in
December 2000. Prior to his employment at PNV Inc., Mr. May was Chief Operating Officer and a
member of the board of directors of Cablevision Systems Corporation from October 1996 to February
1998, and from 1973 to 1993 he held several senior executive positions with Federal Express
Corporation, including President, Business Logistics Services. Mr. May was educated at Curry
College and Boston College and attended Harvard Business Schools Program for Management
Development. David C. Merritt,50, was elected to our board of directors 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 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,59, 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 holds a Bachelors degree in Mass Communications from the University of Denver and a
Masters degree in Political Science from University of California/Santa Barbara. 80




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Jo Allen Patton, 47, has been a director of Charter since April 2004. Ms. Patton joined Vulcan
Inc. as Vice President in 1993, and since that time she has served as an officer and director of
many affiliates of Mr. Allen, including her current position as President and Chief Executive
Officer of Vulcan Inc. since July 2001. Ms. Patton is also President of Vulcan Productions, an
independent feature film and documentary production company, Vice Chair of First & Goal, Inc.,
which developed and operated the Seattle Seahawks NFL stadium, and served as Executive Director of
the six Paul G. Allen Foundations. Ms. Patton is a co-founder of the Experience Music Project
museum, as well as the Science Fiction Museum and Hall of Fame. Ms. Patton is the sister of Mr.
Allen. John H. Tory,50, 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. On September 18, 2004, John Tory was
elected Leader of the Ontario Progressive Conservative Party. Larry W. Wangberg,62, has been a director of Charter since January 2002. From August 1997 to May
2004, Mr. Wangberg was a director of TechTV L.L.C., a cable television network controlled by Paul
Allen. He also served as its Chairman and Chief Executive Officer from August 1997 through July
2002. In May 2004, TechTV L.L.C. was sold to an unrelated party. Prior to joining TechTV L.L.C.,
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 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. Charters board of directors delegates authority to act with respect to certain matters to board
committees whose members are appointed by the board. As of December 31, 2004 the following were
the committees of Charters board of directors: Audit Committee, Financing Committee, Option Plan
Committee, Compensation Committee, Executive Committee, Strategic Planning Committee, and a Special
Committee for matters related to the CC VIII put dispute. Charters Audit Committee, which has a written charter approved by the board, consisted in 2004 of three
directors: Charles Lillis, John Tory and David Merritt, all of whom were 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. Since the resignation of Mr. Lillis, effective March 28, 2005, there is a vacancy on the Audit Committee. Director Compensation Each non-employee member of the 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, the Audit Committee chair receives $25,000 per year, and the chair of each
other committee receives $10,000 per year. All committee members also receive $1,000 for
attendance at each committee meeting. Beginning on February 22, 2005 each director also receives
$1,000 for telephonic attendance at each meeting of the full board and $2,000 for in-person
attendance. Each director of Charter is entitled to reimbursement for costs incurred in connection
with attendance at Board and Committee meetings. Directors who were employees did not receive additional compensation in 2003 or 2004. Mr. Vogel,
who was our President and Chief Executive Officer in 2004, was the only director who was also an
employee during 2004. 81




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Our Bylaws provide that all directors are entitled to indemnification 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 us or our
subsidiaries. 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
    
    Position(s)Paul G. Allen
    
    Chairman of Charters Board of DirectorsRobert P. May
    
    Interim President and Chief Executive OfficerDerek Chang
    
    Executive Vice President of Finance and Strategy and Interim co-Chief
Financial OfficerThomas A. Cullen
    
    Executive Vice President of Advanced Services and Business DevelopmentWayne H. Davis
    
    Executive Vice President and Chief Technical OfficerMichael J. Lovett
    
    Executive Vice President, Operations and Customer CarePaul E. Martin
    
    Senior Vice President, Principal Accounting Officer and Interim
co-Chief Financial OfficerCurtis S. Shaw
    
    Executive Vice President, General Counsel and Secretary
 Information regarding our executive officers who do not serve as directors is set forth below. Derek Chang,36, Executive Vice President of Finance and Strategy and Interim co-Chief Financial
Officer. Mr. Chang joined Charter in December 2003 as Executive Vice President of Finance and
Strategy and was also appointed Interim co-Chief Financial Officer in August 2004. Mr. Chang will
resign from all positions with Charter and its subsidiaries effective April 15, 2005. 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
multi-billion 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,45, Executive Vice President of Advanced Services and Business Development. Mr.
Cullen joined Charter as Senior Vice President of Advanced Services and Business Development in
August 2003 and was promoted to Executive Vice President in August 2004. Mr. Cullen will resign
from all positions with Charter and its subsidiaries effective April 30, 2005, or sooner if Charter
and Mr. Cullen agree. 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 Colorado State University Global
Leadership Council. He is also a member of the board of directors of the Cable &
Telecommunications Association for Marketing (CTAM). 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. Wayne H. Davis,51, Executive Vice President and Chief Technical Officer. Prior to his current
position, Mr. Davis served as a Senior Vice President, Engineering and Technical Operations, and as
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, he 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 Point Communications, and as a board member of @Security Broadband Corp., a company 82




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in
which Charter owns an equity investment interest. Mr. Davis is also a member of the Society of
Cable Telecommunications Engineers. Michael J. Lovett,43, Executive Vice President, Operations and Customer Care. Mr. Lovett was
promoted to his current position in September 2004. Prior to that he served as Senior Vice
President, Midwest Division Operations and as Senior Vice President of Operations Support, since
joining Charter in August 2003. 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 OneSecure,
Inc., a startup company 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,44, Senior Vice President, Interim co-Chief Financial Officer and Principal
Accounting Officer. Mr. Martin has been employed by Charter since March 2000, when he joined
Charter as Vice President and Corporate Controller. In April 2002, Mr. Martin was promoted to
Senior Vice President and Principal Accounting Officer and in August 2004 was named interim
co-Chief Financial Officer. Prior to joining Charter, 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. Curtis S. Shaw,56, Executive Vice President, General Counsel and Secretary. Mr. Shaw was promoted
to Executive Vice President in October 2003. Mr. Shaw will resign from all positions with Charter
and its subsidiaries effective April 15, 2005. 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 Until April 2004, when Mr. Savoy resigned from the board, the Compensation Committee of Charter was
comprised of Messrs. Allen, Savoy and Nathanson. In 2004, Nancy Peretsman and David Merritt served
as the Option Plan Committee that administered the 1999 Charter Communications Option Plan and the
Charter Communications, Inc. 2001 Stock Incentive Plan until Mr. Lillis replaced Ms. Peretsman on
the Option Plan Committee in July 2004. No member of the Compensation Committee or the Option Plan Committee was an officer or employee of
Charter or any of its subsidiaries during 2004, except for Mr. Allen, who served as a non-employee
chairman of the Compensation Committee. 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 of
Charters board of directors, a non-executive, non-salaried position in 2004. Mr. Allen is the
100% owner and a director of Vulcan Inc. and certain of its affiliates, which employed Mr. Savoy,
one of our directors until April 27, 2004, as an executive officer in the past and currently
employs Mr. Conn and Jo Allen Patton as an executive officer. Mr. Allen also was a director of and
indirectly owned 98% of TechTV, of which Mr. Wangberg, one of our directors, was a director until
the sale of TechTV to an unrelated third party in May 2004. 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. During 2004, (1) none of our executive officers 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) except for Carl Vogel who served as a
director of Digeo, Inc., an entity of which Paul Allen is a director and by virtue of his position
as Chairman of the board of directors of Digeo, Inc. is also a non-employee executive officer.
None of our executive officers served as a director of another entity, one of whose executive
officers served on the Compensation Committee or Option Plan Committee of Charter. 83




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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 in 2004. 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 filed as Exhibit 14.1 to
this annual report. 
 Item 11.Executive Compensation. Summary Compensation Table The following table sets forth information as of December 31, 2004 regarding the compensation to
those executive officers listed below for services rendered for the fiscal years ended December 31,
2002, 2003 and 2004. These officers consist of the Chief Executive Officer, each of the other four
most highly compensated executive officers as of December 31, 2004, and one other highly
compensated executive officer who served during 2004 but was not an executive officer on December
31, 2004. 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 system owned by their subsidiaries. Long-TermAnnual Compensation
    
    
    Compensation AwardYear
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    Restricted
    
    
    Securities
    
    
    All OtherEnded
    
    
    
    
    
    
    
    
    
    
    Annual
    
    
    Stock
    
    
    Underlying
    
    
    CompensationName and Principal Position
    
    Dec. 31
    
    
    Salary ($)
    
    
    Bonus ($)
    
    
    Compensation ($)
    
    
    Awards ($)
    
    
    Options (#)
    
    
    ($)(1)Carl E. Vogel (2)
    
    
    2004
    
    
    
    1,038,462
    
    
    
    500,000
    (8)
    
    
    
    
    
    
    4,658,000
    (18)
    
    
    580,000
    
    
    
    42,426
    (24)Former President and Chief
    
    
    2003
    
    
    
    1,000,000
    
    
    
    150,000
    (9)
    
    
    30,345
    (15)
    
    
    
    
    
    
    750,000
    
    
    
    12,639
    (24)Executive Officer
    
    
    2002
    
    
    
    980,769
    
    
    
    330,000
    (9)
    
    
    214,961
    (15)
    
    
    
    
    
    
    1,000,000
    
    
    
    10,255
    (24)Margaret A. Bellville (3)
    
    
    2004
    
    
    
    478,366
    
    
    
    
    
    
    
    28,309
    (16)
    
    
    612,000
    (19)
    
    
    200,000
    
    
    
    204,408
    (25)Former Executive Vice
    
    
    2003
    
    
    
    581,730
    
    
    
    203,125
    (9)
    
    
    30,810
    (16)
    
    
    
    
    
    
    
    
    
    
    109,139
    (25)President, Chief Operating
    
    
    2002
    
    
    
    9,615
    
    
    
    150,000
    (9)(10)
    
    
    
    
    
    
    
    
    
    
    500,000
    
    
    
    OfficerDerek Chang (4)
    
    
    2004
    
    
    
    448,077
    
    
    
    85,700
    (11)
    
    
    7,255
    (17)
    
    
    395,250
    (20)
    
    
    135,000
    
    
    
    5,510Executive Vice President of
    
    
    2003
    
    
    
    15,385
    
    
    
    
    
    
    
    
    
    
    
    192,000
    (20)
    
    
    350,000
    
    
    
    Finance and Strategy, Interim
co-Chief Financial OfficerSteven A. Schumm (5)
    
    
    2004
    
    
    
    467,308
    
    
    
    15,815
    (12)
    
    
    
    
    
    
    862,952
    (21)
    
    
    135,000
    
    
    
    12,360Former Executive Vice
    
    
    2003
    
    
    
    448,077
    
    
    
    45,000
    
    
    
    
    
    
    
    
    
    
    
    250,000
    
    
    
    9,889President and Chief
    
    
    2002
    
    
    
    436,058
    
    
    
    588,000
    (13)
    
    
    
    
    
    
    
    
    
    
    300,000
    
    
    
    5,255Administrative OfficerCurtis S. Shaw (6)
    
    
    2004
    
    
    
    422,115
    
    
    
    16,109
    
    
    
    
    
    
    
    395,250
    (22)
    
    
    135,000
    
    
    
    12,592Executive Vice President,
    
    
    2003
    
    
    
    275,782
    
    
    
    37,500
    
    
    
    
    
    
    
    
    
    
    
    250,000
    
    
    
    9,411
    (26)General Counsel and
    
    
    2002
    
    
    
    249,711
    
    
    
    281,500
    (14)
    
    
    
    
    
    
    
    
    
    
    100,000
    
    
    
    3,096SecretaryMichael J. Lovett (7)
    
    
    2004
    
    
    
    291,346
    
    
    
    241,888
    
    
    
    
    
    
    
    351,570
    (23)
    
    
    172,000
    
    
    
    15,150
    (27)Executive Vice President,
    
    
    2003
    
    
    
    81,731
    
    
    
    60,000
    
    
    
    
    
    
    
    
    
    
    
    100,000
    
    
    
    2,400
    (27)Operations and Customer Care
   (1)
    
    Except as noted in notes 24 through 27 below respectively, these amounts consist of matching
contributions under our 401(k) plan, the premiums for supplemental life insurance available to
executives, and long-term disability available to executives. 84




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(2)
    
    Mr. Vogel resigned from all of his positions with Charter and its subsidiaries on January 17, 2005.(3)
    
    Ms. Bellville became the Chief Operating Officer of Charter in December 2002 and terminated her
employment, effective September 30, 2004.(4)
    
    Mr. Chang was hired as Executive Vice President of Finance and Strategy in December 2003, and was
appointed Interim co-Chief Financial Officer in August 2004. Mr. Chang has informed Charter of his
intention to resign effective April, 15, 2005.(5)
    
    Mr. Schumms position with Charter and its subsidiaries was eliminated, resulting in the
termination of his employment on January 28, 2005.(6)
    
    Mr. Shaw has informed Charter of his intention to resign, effective April 15, 2005.(7)
    
    Mr. Lovett joined Charter in August 2003 and was promoted to his current position in September 2004.(8)
    
    Mr. Vogels bonus for 2004 was a mid-year discretionary bonus.(9)
    
    Mr. Vogels and Ms. Bellvilles 2002 and 2003 bonuses were determined in accordance with the terms
of their respective employment agreements.(10)
    
    Includes a one-time signing bonus of $150,000 pursuant to an employment agreement.(11)
    
    Mr. Changs bonus for 2004 represents the 2004 portion of a $150,000 special bonus expected to be
paid for co-Interim Chief Financial Officer service through March 31, 2005. Payment of the bonus
is conditioned on continued service in that capacity until the earlier of the naming of a permanent
replacement or March 31, 2005.(12)
    
    Mr. Schumms bonus for 2004 was determined in accordance with his separation agreement.(13)
    
    Includes a stay bonus representing the principal and interest forgiven under employees
promissory note, amounting to $363,000 for 2002; and $225,000 awarded as a bonus for services
performed in 2002.(14)
    
    Includes a stay bonus representing the principal and interest forgiven under employees
promissory note, amounting to $181,500 for 2002; and $100,000 awarded as a bonus for services
performed in 2002.(15)
    
    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.(16)
    
    Includes (i) for 2004, reimbursement for taxes (on a grossed up basis) paid in respect of prior
reimbursements for relocation expenses, and (ii) for 2003, $26,010 attributed to personal use of
the corporate airplane and $4,800 for car allowance.(17)
    
    Includes reimbursement for taxes (on a grossed up basis) paid in respect of prior reimbursements
for relocation expenses.(18)
    
    Includes 340,000 performance shares granted in January 2004 under our Long-Term Incentive Program
that were to vest on the third anniversary of the grant date only if Charter meets certain
performance criteria. Also includes 680,000 restricted shares issued in exchange for stock options
held by the named officer pursuant to the February 2004 option exchange program described below,
one half of which constituted performance shares which were to vest on the third anniversary of the
grant date only if Charter meets certain performance criteria, and the other half of which were to
vest over three years in equal one-third installments. At December 31, 2004, the value of all of
the named officers unvested restricted stock holdings (including performance shares) was
$2,310,468, based on a per share market value (closing sale price) of $2.24 for Charter Class A
common stock on December 31, 2004. All performance shares were forfeited upon the termination of
employment. The remainder of the restricted shares will vest in part on the terms described below
under Employment Arrangements.(19)
    
    These restricted shares consisted solely of performance shares granted under Charters Long-Term 85




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Incentive Program that were to have vested on the third anniversary of the grant date only if
Charter meets certain performance criteria. At December 31, 2004, the value of all of the named
officers unvested restricted stock holdings (including performance shares) was $0, since all
performance shares were previously forfeited upon the termination of employment.(20)
    
    Restricted shares granted in 2003 vest over four years in equal one-fourth installments.
Restricted shares granted in 2004 represent 77,500 performance shares granted under Charters
Long-Term Incentive Program that were to vest on the third anniversary of the grant date only if
Charter meets certain performance criteria. At December 31, 2004, the value of all of the named
officers unvested restricted stock holdings (including performance shares) was $257,600 based on a
per share market value (closing sale price) of $2.24 for Charters Class A common stock on December
31, 2004. All performance shares will be forfeited upon the termination of employment. The remainder
of restricted shares will vest in part on the terms described below under Employment
Arrangements.(21)
    
    Includes 77,500 performance shares granted in January 2004 under Charters Long-Term Incentive
Program that were to vest on the third anniversary of the grant date only if Charter meets certain
performance criteria. Also includes restricted shares issued in exchange for stock options held by
the named officer pursuant to the February 2004 option exchange program described below. One half
of these restricted shares constitutes performance shares which were to vest on the third
anniversary of the grant date only if Charter meets certain performance criteria and the other half
of which were to vest over three years in equal one-third installments. At December 31, 2004, the
value of all of the named officers unvested restricted stock holdings (including performance
shares) was $417,240, based on a per share market value (closing sale price) of $2.24 for Charters
Class A common stock on December 31, 2004. All performance shares were forfeited upon the
termination of employment. The remainder of the restricted shares will vest in part on the terms
described below under Employment Arrangements.(22)
    
    These restricted shares consist solely of performance shares granted under Charters Long-Term
Incentive Program that will vest on the third anniversary of the grant date only if Charter meets
certain performance criteria. At December 31, 2004, the value of all of the named officers
unvested restricted stock holdings (including performance shares) was $173,600 based on a per share
market value (closing sale price) of $2.24 for Charters Class A common stock on December 31,
2004. All performance shares will be forfeited upon the termination of employment.(23)
    
    These restricted shares consist solely of performance shares granted under Charters Long-Term
Incentive Program that will vest on the third anniversary of the grant date only if Charter meets
certain performance criteria. At December 31, 2004, the value of all of the named officers
unvested restricted stock holdings (including performance shares) was $197,120, based on a per
share market value (closing sale price) of $2.24 for Charters Class A common stock on December 31,
2004.(24)
    
    In addition to items in note 1 above, includes (i) for 2004, $28,977 attributed to personal use of
the corporate airplane, $10,000 as reimbursement for tax advisory services; and (ii) for 2003,
$10,000 as reimbursement for tax advisory services; and (iii) for 2002, $10,000 as reimbursement
for tax advisory services.(25)
    
    In addition to items in note 1 above, includes (i) for 2004, $183,899 for severance and accrued
vacation at termination of employment, $10,299 for COBRA payments following termination, $4,650 for
automobile allowance and $2,831 attributed to personal use of the corporate airplane, and (ii) for
2003, $5,000 as reimbursement for tax advisory services, $7,500 for legal services and $93,684 paid
in relation to relocation expenses.(26)
    
    In addition to items in note 1 above, includes for 2003, $2,287 attributed to personal use of the
corporate airplane.(27)
    
    In addition to items in note 1 above, includes, (i) for 2004, $7,200 for automobile allowance and
$597 attributed to personal use of the corporation aircraft and (ii) for 2003, $2,400 for
automobile allowance. 86




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##### Table of Contents



2004 Option Grants The following table shows individual grants of options made to individuals named in the Summary
Compensation Table during 2004. 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 on the
respective grant dates. Number of
    
    
    % ofSecurities
    
    
    Total
    
    
    
    
    
    
    
    
    
    
    Potential Realizable Value atUnderlying
    
    
    Options
    
    
    
    
    
    
    
    
    
    
    Assumed Annual Rate ofOptions
    
    
    Granted to
    
    
    Exercise
    
    
    
    
    
    
    Stock Price AppreciationGranted
    
    
    Employees
    
    
    Price
    
    
    Expiration
    
    
    For Option Term (2)Name
    
    (#)(1)
    
    
    in 2004
    
    
    ($/Sh)
    
    
    Date
    
    
    5% ($)
    
    
    10% ($)Carl E. Vogel (3)
    
    
    580,000
    
    
    
    6.17
    %
    
    $
    5.17
    
    
    
    1/27/14
    
    
    
    1,885,803
    
    
    
    4,778,996Margaret A.
Bellville (4)
    
    
    200,000
    
    
    
    2.13
    %
    
    
    5.17
    
    
    
    1/27/14
    
    
    
    650,277
    
    
    
    1,647,930Derek Chang (5)
    
    
    135,000
    
    
    
    1.44
    %
    
    
    5.17
    
    
    
    1/27/14
    
    
    
    438,937
    
    
    
    1,112,353Steven A. Schumm (6)
    
    
    135,000
    
    
    
    1.44
    %
    
    
    5.17
    
    
    
    1/27/14
    
    
    
    438,937
    
    
    
    1,112,353Curtis S. Shaw (7)
    
    
    135,000
    
    
    
    1.44
    %
    
    
    5.17
    
    
    
    1/27/14
    
    
    
    438,937
    
    
    
    1,112,353Michael J. Lovett
    
    
    77,000
    
    
    
    0.82
    %
    
    
    5.17
    
    
    
    1/27/14
    
    
    
    251,982
    
    
    
    638,57312,500
    
    
    
    0.13
    %
    
    
    4.555
    
    
    
    4/27/14
    
    
    
    35,808
    
    
    
    90,74482,000
    
    
    
    0.87
    %
    
    
    2.865
    
    
    
    10/26/14
    
    
    
    147,746
    
    
    
    374,418
   (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.(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. Vogels employment terminated on January 17, 2005. Under the terms of the
separation agreement, his options will continue to vest until December 31, 2005,
and all vested options are exercisable until sixty (60) days thereafter.(4)
    
    Ms. Bellville terminated employment on September 30, 2004. Under the terms of the
separation agreement, her options will continue to vest until December 31, 2005,
and all vested options are exercisable until sixty (60) days thereafter.(5)
    
    Mr. Chang has informed Charter of his intention to resign effective April 15, 2005.(6)
    
    Mr. Schumms employment terminated on January 28, 2005. Under the terms of the
separation agreement, his options will continue to vest until April 28, 2006, and
all vested options are exercisable until sixty (60) days thereafter.(7)
    
    Mr. Shaw has informed Charter of his intention to resign effective April 15, 2005. 87




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##### Table of Contents



2004 Aggregated Option Exercises and Option Value The following table sets forth, for the individuals named in the Summary Compensation Table, (i)
information concerning options exercised during 2004, (ii) the number of shares of Charters Class
A common stock underlying unexercised options at year-end 2004, 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s Class A common stock) on December 31, 2004. Number of SecuritiesUnderlying Unexercised
    
    
    Value of Unexercised In-theShares
    
    
    
    
    
    
    Options at December 31,
    
    
    Money Options atAcquired on
    
    
    Value
    
    
    2004 (#) (1)
    
    
    December 31, 2004 ($) (2)Name
    
    Exercise (#)
    
    
    Realized ($)
    
    
    Exercisable
    
    
    Unexercisable
    
    
    Exercisable
    
    
    UnexercisableCarl E. Vogel (3)
    
    
    
    
    
    
    
    
    
    
    2,499,999
    
    
    
    3,230,001
    
    
    
    
    
    
    
    Margaret A.
Bellville (4)
    
    
    
    
    
    
    
    
    
    
    385,416
    
    
    
    314,584
    
    
    
    254,375
    
    
    
    75,625Derek Chang (5)
    
    
    
    
    
    
    
    
    
    
    87,500
    
    
    
    397,500
    
    
    
    
    
    
    
    Steven A. Schumm (6)
    
    
    
    
    
    
    
    
    
    
    182,500
    
    
    
    502,500
    
    
    
    
    
    
    
    Curtis S. Shaw (7)
    
    
    
    
    
    
    
    
    
    
    438,833
    
    
    
    420,167
    
    
    
    
    
    
    
    Michael J. Lovett
    
    
    
    
    
    
    
    
    
    
    25,000
    
    
    
    247,000
    
    
    
    
    
    
    
    
   (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s 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s Class A common stock.(2)
    
    Based on a per share market value (closing price) of $2.24 as of December 31, 2004 for
Charters Class A common stock.(3)
    
    Mr. Vogels employment terminated on January 17, 2005. Under the terms of the separation
agreement, his options will continue to vest until December 31, 2005, and all vested options
are exercisable until sixty (60) days thereafter.(4)
    
    Ms. Bellvilles employment terminated on September 30, 2004. Under the terms of the
separation agreement, her options will continue to vest until December 31, 2005, and all
vested options are exercisable until sixty (60) days thereafter.(5)
    
    Mr. Chang has resigned from Charter effective April 15, 2005. The remainder of his options
will vest in part on the terms described below under Employment Arrangements.(6)
    
    Mr. Schumms employment terminated on January 28, 2005. Under the terms of the separation
agreement, his options will continue to vest until April 28, 2006, and all vested options are
exercisable until sixty (60) days thereafter.(7)
    
    Mr. Shaw has resigned from Charter effective April 15, 2005. Option/Stock Incentive Plans The Plans.Stock options, restricted stock and other incentive compensation are granted under 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 to current and prospective non-employee directors. 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 88




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grants under the 2001 Stock Incentive Plan. Generally, options expire 10 years from the grant
date. Unless sooner terminated by our board of directors, 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s Class
A common stock (or units exchangeable for Charters 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, 2004, 1,004,848 shares had been issued under the plans
upon exercise of options, 187,699 had been issued upon vesting of restricted stock granted under
the plans, and 2,076,860 shares were subject to future vesting under restricted stock agreements.
Of the remaining 86,730,593 shares covered by the plans, as of December 31, 2004, 24,834,513 were
subject to outstanding options (31% of which were vested), and there were 6,899,600 performance
shares granted under Charters Long-Term Incentive Program as of December 31, 2004, to vest on the
third anniversary of the date of grant conditional upon Charters performance against certain
financial targets approved by Charters board of directors at the time of the award. As of
December 31, 2004, 54,996,480 shares remained available for future grants under the plans. The plans 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 Charters board of directors approved its Long-Term
Incentive Program, or LTIP, which is a program administered under the 2001 Stock Incentive Plan.
Under the LTIP, employees of Charter and its subsidiaries whose pay classifications exceed a
certain level are eligible to receive stock options, and more senior level employees were eligible
to receive stock options and performance shares. The stock options vest 25% on each of the first
four anniversaries of the date of grant. The performance shares vest
on the third anniversary of the date of grant. Shares of Charter Class A common stock are issued, conditional upon Charters
performance against financial performance measures established by our management and approved by
Charters board of directors or Compensation Committee as of the time of the award. We granted 6,899,600 performance shares
in January 2004 under this program and recognized expense of $8 million in the first three quarters
of 2004. However, in the fourth quarter of 2004, we reversed the entire $8 million of expense
based on our assessment of the probability of achieving the financial performance measures
established by management and required to be met for the performance shares to vest. The 2001 Stock Incentive Plan must be administered by, and grants and awards to eligible
individuals must be approved by Charters board of directors or a committee thereof consisting
solely of nonemployee directors as defined in Section 16b-3 under the Securities Exchange Act of
1934, as amended. Charters board of directors or such committee determines 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. Charters board of directors or such committee
also has the power to accelerate the vesting of any grant or extend the term thereof. Upon a change of control of Charter, Charters board of directors or the administering 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 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 offered its and its subsidiaries
employees 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, we issued to that employee shares of restricted stock in the exchange. If,
based on 89




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the exchange ratios, an employee would have received 400 or fewer shares of restricted stock in
exchange for tendered options, we 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 our 47,882,365 total options (vested and unvested) issued and outstanding as of December 31,
2003. Participation by employees was voluntary. Non-employee members of the board of directors 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s 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 restricted stock
was granted on February 25, 2004. Employees tendered approximately 79% of the options eligible to
be exchanged under the program. The cost of the stock option exchange program was approximately $10 million, with a 2004 cash
compensation expense of approximately $4 million and a non-cash compensation expense of
approximately $6 million to be expensed ratably over the three-year vesting period of the
restricted stock issued in the exchange. Employment Arrangements Messrs. May and Chang serve pursuant to letter agreements described below. Mr. Vogel and Ms.
Bellville are no longer employees, but served during 2004 pursuant to employment agreements as
described below. Charter entered into an agreement with Robert P. May, effective January 17, 2005, whereby Mr. May
serves as Charters Interim President and Chief Executive Officer (the May Executive Services
Agreement). Under the May Executive Services Agreement, Mr. May receives a $1,250,000 base fee
per year. If Mr. May becomes Charters permanent President and Chief Executive Officer or is
terminated without cause, Mr. May will be eligible to receive a one-time discretionary bonus up to
100% of the actual base fee paid to him for his interim service under the agreement, based on
individual and company performance. Mr. May will continue to receive the compensation and
reimbursement of expenses to which he is entitled in his capacity as a member of the board of
directors. Mr. May may terminate the May Executive Services Agreement on thirty (30) days notice.
Charter may terminate such agreement upon three (3) months notice, and Charter may elect at its
discretion to pay Mr. May the base rate for such period in lieu of all or part of the notice.
Subject to the approval of the board of directors or a suitable committee thereof, Mr. May will be
granted options to purchase shares of Charter Class A common stock and/or receive a grant of
restricted stock pursuant to the Charter Communications, Inc. 2001 Stock Incentive Plan, the number
and terms of which will be determined as soon as practicable. Mr. May serves as an independent
contractor and is not entitled to any vacation or eligible to participate in any employee benefit
programs of Charter. Charter will reimburse Mr. May for reasonable transportation costs from Mr.
Mays residence in Florida or other locations to Charters offices and will provide temporary
living quarters or reimburse expenses related thereto. Mr. Chang is employed under the terms contained in an offer letter effective December 2, 2003
providing for an annual base salary of $400,000 (which has since been increased to $450,000 per
year) 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 is also
eligible to participate in our 2001 Stock Incentive Plan. Under this plan, Mr. Chang was granted
350,000 options to purchase Charter Class A common stock and 50,000 restricted shares on December
9, 2003. Mr. Chang is also entitled to participate in our LTIP. Mr. Changs agreement provides
that one half of each of his unvested restricted shares would immediately vest, and one half of his
unvested options of the initial option grant would vest if he is terminated without cause or if he
elects to terminate his employment due to (1) a change in our Chief Executive Officer, (2) a change
in reporting relationship to anyone other than the Chief Executive Officer, (3) a requirement that
the employee relocate, or (4) a change of control of Charter, if terminated without cause. In
addition, Mr. Chang would be entitled to eighteen months of full severance benefits at his current
compensation rate, plus the pro rata portion of his bonus amounts within thirty days after
termination because of any of these events. In light of Mr. Vogels resignation, Charter and Mr.
Chang have agreed that he will have until April 15, 2005 to exercise his right to terminate his
employment and receive the foregoing vesting, severance and other benefits. In addition, Charter
has agreed that it will pay Mr. Chang a special $150,000 bonus, in addition to any other bonuses to
which he may be otherwise entitled, conditioned on Mr. Changs continued service as Interim
co-Chief Financial Officer through March 31, 2005, or any earlier date on which Charter may appoint
a new permanent Chief Financial Officer, and on his continued employment with Charter when the
bonus is payable in March 2005. Mr. Chang has informed Charter of his intention to resign
effective April 15, 2005. 90




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Until his resignation in January 2005, Mr. Vogel was employed as President and Chief Executive
Officer, earning a base annual salary of $1,000,000 and was eligible to receive an annual bonus of
up to $500,000, a portion of which was based on personal performance goals and a portion of which
was 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 our 2001 Stock Incentive Plan. In
the February 2004 option exchange, Mr. Vogel exchanged his 3,400,000 options for 340,000 shares of
restricted stock and 340,000 performance shares. Mr. Vogels initial 50,000 restricted shares
vested 25% on the grant date, with the remainder vesting in 36 equal monthly installments beginning
December 2002. The 340,000 shares of restricted stock were to vest over a three-year period, with
one-third of the shares vesting on each of the first three anniversaries of the grant date. The
340,000 performance shares were to vest at the end of a three-year period if certain financial
criteria were met. Mr. Vogels agreement provided that, if Mr. Vogel is terminated without cause
or if Mr. Vogel terminated the agreement for good reason, he is entitled to his aggregate base
salary due during the remainder of the term and full prorated benefits and bonus for the year in
which termination occurs. Mr. Vogels agreement included 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 Mr. Vogel with good reason. Mr. Vogels agreement entitled him to participate
in any disability insurance, pensions or other benefit plans afforded to employees generally or to
our executives, including our LTIP. We 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 2002, 2003
and 2004. Mr. Vogel was entitled to reimbursement of fees and dues for his membership in a country
club of his choice, which he declined in 2002, 2003 and 2004, and reimbursement for up to $10,000
per year for tax, legal and financial planning services. His agreement also provided for a car and
associated expenses for Mr. Vogels use. Mr. Vogels agreement provided for automatic one-year
renewals and also provided that we would cause him to be elected to Charters board of directors
without any additional compensation. In February 2005, Charter entered into an agreement with Mr. Vogel setting forth the terms of his
resignation. Under the terms of the agreement, Mr. Vogel received in February 2005 all accrued and
unpaid base salary and vacation pay through the date of resignation and a lump sum payment equal to
the remainder of his base salary during 2005 (totaling $953,425). In addition, he will receive a
lump sum cash payment of $500,000 at December 31, 2005, which is subject to reduction to the extent
of compensation attributable to certain competitive activities. Mr. Vogel will continue to receive
certain health benefits during 2005 and COBRA premiums for such health insurance coverage for 18
months thereafter. All of his outstanding stock options, as well as his restricted stock granted
in 2004 (excluding 340,000 shares of restricted stock granted as performance units, which will
automatically be forfeited), will continue to vest through December 31, 2005. In addition,
one-half of the remaining unvested portion of his 2001 restricted stock grant will vest
immediately, and the other half was forfeited. Mr. Vogel will have 60 days after December 31, 2005
to exercise any outstanding vested stock options. Under the agreement, Mr. Vogel waived any
further right to any bonus or incentive plan participation and provided certain releases of claims
against Charter and its subsidiaries from any claims arising out of or based upon any facts
occurring prior to the date of the agreement, but Charter will continue to provide Mr. Vogel
certain indemnification rights and to include Mr. Vogel in its director and officer liability
insurance for a period of six years. Charter and its subsidiaries also agreed to provide releases
of certain claims against Mr. Vogel with certain exceptions reserved. Mr. Vogel has also agreed,
with limited exceptions that he will continue to be bound by the covenant not to compete,
confidentiality and non-disparagement provisions contained in his 2001 employment agreement. Ms. Bellville was employed as Executive Vice President, Chief Operating Officer. Until her
resignation in September 2004, she was employed under an employment agreement entered into as of
April 27, 2003, that would have terminated on September 1, 2007. Her annual base salary was
$625,000 and she was eligible to receive an annual bonus in an amount to be determined by Charters
board of directors, with a contractual minimum for 2003 of $203,125. Commencing in 2004, Ms.
Bellville would have been 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 shares of
Charters 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 provided that if she was terminated without cause or if she terminated the agreement for
good reason (including due to a change in control or if Ms. Bellville was required to report,
directly or indirectly, to persons other than the Chief Executive Officer), we would 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 included 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 her with good reason. Her 91




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agreement further provided that she was entitled to participate in any disability insurance,
pension or other benefit plan afforded to employees generally or to executives, including Charters
LTIP. Ms. Bellville was entitled to a monthly car allowance and reimbursement for all business
expenses associated with the use of such car. Ms. Bellvilles agreement provided that she was
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 have been increased at the discretion of Charters board of directors. Ms. Bellvilles
agreement provided for automatic one-year renewals. On September 16, 2004, Charter entered into an agreement with Ms. Bellville governing the terms and
conditions of her resignation as an officer and employee of Charter. Under the terms of this
agreement, Ms. Bellville has the right to receive 65 weeks of base pay based on an annual base of
$625,000, plus usual compensation for all accrued vacation and other leave time. Her options to
purchase 700,000 shares of Charter Class A common stock will continue to vest during the salary
continuation period. Ms. Bellville will have 60 days after the expiration of the salary
continuation period to exercise any outstanding vested options at the applicable exercise prices
established at each grant date. To date, Ms. Bellville has exercised her options to purchase
350,000 shares. Ms. Bellville is entitled to receive relocation benefits under Charters current
relocation policy with respect to a move to a specified geographic area and will be provided
outplacement assistance for 6 months following the date of her separation from Charter. Her
resignation was effective September 30, 2004. The agreement provides that the previously existing
employment agreement would terminate, except for certain ongoing obligations on Ms. Bellvilles
part concerning confidentiality, non-solicitation and non-disparagement. The contractual
restriction on her ability to solicit current Charter employees does not apply to persons who, at
the time of solicitation, have not worked for Charter in the prior 6 months and are not receiving
severance from Charter. In addition, the non-competition provisions of her employment agreement
were waived. Under the agreement, Ms. Bellville waived a right to any bonus or incentive plan and
released Charter from any claims arising out of or based upon any facts occurring prior to the date
of the agreement, but Charter will continue to provide Ms. Bellville certain indemnification rights
for that period. In addition to the indemnification provisions which apply to all employees under our bylaws, Mr.
Vogels and Ms. Bellvilles agreements provide that we 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. Effective January 28, 2005, we eliminated the position of Chief Administrative Officer, resulting
in the termination of employment of Steven A. Schumm, Executive Vice President and Chief
Administrative Officer from Charter and each of our subsidiaries for which Mr. Schumm served as an
officer. Pursuant to a Separation Agreement executed on February 8, 2005, we will continue to pay
Mr. Schumms base salary for 65 weeks at an annual rate of $450,000, and Mr. Schumm will be paid a
bonus of $15,815 at such time as other executives receive their bonuses. Mr. Schumms stock
options will continue to vest during the 65-week severance period, and he will have 60 days
thereafter to exercise any vested options. We have established separation guidelines which generally apply to all employees in situations
where management determines that an employee is entitled to severance benefits. Severance benefits
are granted solely in managements discretion and are not an employee entitlement or guaranteed
benefit. The guidelines provide that persons employed at the level of Senior Vice President may be
eligible to receive between six and fifteen months of severance benefits and persons employed at
the level of Executive Vice President may be eligible to receive between nine and eighteen months
of severance benefits in the event of separation under certain circumstances generally including
elimination of a position, work unit or general staff reduction. Separation benefits are
contingent upon the signing of a separation agreement containing certain provisions including a
release of all claims against Charter. Severance amounts paid under these guidelines are distinct
and separate from any one-time, special or enhanced severance programs that may be approved by
Charter from time to time. Our senior executives are eligible to receive bonuses according to Charters 2005 Executive Bonus
Plan. Under this plan, our executive officers and certain other management and professional
employees are eligible to receive an annual bonus. Each participating employee would receive his
or her target bonus if Charter (or such employees division) meets specified performance measures
for revenues, operating cash flow, free cash flow and customer satisfaction. 92




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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 we will indemnify all persons whom we 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 in certain legal actions. See Item 13. Certain Relationships and
Related Transactions  Other Miscellaneous Relationships  Indemnification Advances. 93




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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 Class
A common stock as of January 31, 2005 by:  
    each person currently serving as a director of Charter;
    the current chief executive officer and individuals named in the Summary Compensation Table;
    all persons currently serving as directors and officers of Charter, as a group; and
    each person known by us to own beneficially 5% or more of Charters outstanding 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. Class AUnvested
    
    
    Shares
    
    
    
    
    
    
    Class BNumber of
    
    
    Restricted
    
    
    Receivable
    
    
    
    
    
    
    SharesClass A
    
    
    Class A
    
    
    on Exercise
    
    
    
    
    
    
    IssuableShares
    
    
    Shares
    
    
    of Vested
    
    
    Number of
    
    
    upon
    
    
    
    
    
    
    % of(Voting and
    
    
    (Voting
    
    
    Options or Other
    
    
    Class B
    
    
    Exchange or
    
    
    % of
    
    
    VotingName and Address of
    
    Investment
    
    
    Power Only)
    
    
    Convertible
    
    
    Shares
    
    
    Conversion of
    
    
    Equity
    
    
    PowerBeneficial Owner
    
    Power)(1)
    
    
    (2)
    
    
    Securities (3)
    
    
    Owned
    
    
    Units (4)
    
    
    (4)(5)
    
    
    (5)(6)Paul G. Allen (7)
    
    
    29,126,463
    
    
    
    15,823
    
    
    
    10,000
    
    
    
    50,000
    
    
    
    339,132,031
    
    
    
    57.19
    %
    
    
    92.54
    %Charter Investment, Inc. (8)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    222,818,858
    
    
    
    42.23
    %
    
    
    *Vulcan Cable III Inc. (9)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    116,313,173
    
    
    
    27.62
    %
    
    
    *Robert P. May (10)
    
    
    
    
    
    
    19,685
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    *
    
    
    
    *John H. Tory
    
    
    14,182
    
    
    
    15,823
    
    
    
    40,000
    
    
    
    
    
    
    
    
    
    
    
    *
    
    
    
    *Marc B. Nathanson
    
    
    399,882
    
    
    
    15,823
    
    
    
    50,000
    
    
    
    
    
    
    
    
    
    
    
    *
    
    
    
    *Charles M. Lillis (11)
    
    
    11,429
    
    
    
    18,416
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    *
    
    
    
    *David C. Merritt
    
    
    9,882
    
    
    
    15,823
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    *
    
    
    
    *Jo Allen Patton (12)
    
    
    
    
    
    
    10,977
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    *
    
    
    
    *W. Lance Conn (13)
    
    
    
    
    
    
    19,231
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    *
    
    
    
    *Jonathan L. Dolgen (10)
    
    
    
    
    
    
    19,685
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    *
    
    
    
    *Larry W. Wangberg
    
    
    12,882
    
    
    
    15,823
    
    
    
    40,000
    
    
    
    
    
    
    
    
    
    
    
    *
    
    
    
    *Derek Chang (14)
    
    
    22,500
    
    
    
    37,500
    
    
    
    121,250Curtis S. Shaw (15)
    
    
    5,000
    
    
    
    
    
    
    
    489,250
    
    
    
    
    
    
    
    
    
    
    
    *
    
    
    
    *Michael J. Lovett
    
    
    7,500
    
    
    
    
    
    
    
    44,375
    
    
    
    
    
    
    
    
    
    
    
    *
    
    
    
    *All current directors and
executive officers as a group
(15 persons)
    
    
    29,619,923
    
    
    
    225,620
    
    
    
    1,096,750
    
    
    
    50,000
    
    
    
    339,132,031
    
    
    
    57.32
    %
    
    
    92.56
    %Carl E. Vogel (16)
    
    
    208,126
    
    
    
    226,666
    
    
    
    735,625
    
    
    
    
    
    
    
    
    
    
    
    *
    
    
    
    *Margaret A. Bellville (17)
    
    
    
    
    
    
    
    
    
    
    106,249
    
    
    
    
    
    
    
    
    
    
    
    *
    
    
    
    *Steven A. Schumm (18)
    
    
    23,276
    
    
    
    43,548
    
    
    
    216,250
    
    
    
    
    
    
    
    
    
    
    
    *
    
    
    
    *Mark Cuban (19)
    
    
    19,000,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6.23
    %
    
    
    *Wallace R. Weitz & Company (20)
    
    
    26,000,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8.53
    %
    
    
    *Amaranth L.L.C. (21)
    
    
    
    
    
    
    
    
    
    
    21,322,312
    
    
    
    
    
    
    
    
    
    
    
    6.54
    %
   *
    
    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 Charter Communications, Inc.
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. Excludes certain performance units granted under the Charter 2001 Stock Incentive Plan
with respect to 94




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which shares will not be issued until the third anniversary of the grant date
and then only if Charter meets certain performance criteria (and which consequently do not
provide the holder with any voting rights).(3)
    
    Includes shares of Charter Class A common stock issuable upon exercise of options that have
vested or will vest on or before April 1, 2005 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 December 31, 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 Charters
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, LLC
membership interests following the consummation of the Bresnan put transaction 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 Communications, Inc. and
Its Subsidiaries  Equity Put Rights  CC VIII.(5)
    
    The calculation of this percentage assumes for each person that:  
    304,795,728 shares of Charter Class A common stock are issued and outstanding as of
January 31, 2005;
    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 Charters Series A Convertible Redeemable Preferred
Stock or 5.875% 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 March 1, 2005; 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 his purchase of the membership interests
in CC VIII, LLC 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, LLC 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. 95




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##### Table of Contents



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. May and Mr. Dolgen were elected to the board of directors of Charter on October 21, 2004
and were each granted 19,685 shares on October 21, 2004 which will fully vest on October 21,
2005.(11)
    Mr. Lillis was granted 11,429 shares of restricted Charter Class A common stock on October 3,
2003, which vested fully on October 3, 2004. He was granted 18,416 shares of restricted
Charter Class A common stock on October 3, 2004, which will vest fully on October 3, 2005.(12)
    Ms. Patton was appointed to the board of directors of Charter on April 27, 2004 and was
granted 10,997 shares on that date which will vest fully on April 27, 2005.(13)
    Mr. Conn was elected to the board of directors of Charter on September 24, 2004 and was
granted 19,231 shares on September 30, 2004, which will vest fully on September 30, 2005.(14)
    Mr. Chang resigned from Charter effective April 15, 2005.(15)
    Mr. Shaw resigned from Charter effective April 15, 2005.(16)
    Mr. Vogel terminated his employment effective on January 17, 2005. His stock options and
restricted stock shown in this table continue to vest through December 31, 2005, and his
options will be exercisable for another 60 days thereafter.(17)
    Ms. Bellville resigned from Charter effective September 30, 2004. Under the terms of her
separation agreement, her options will continue to vest until December 31, 2005, and all
vested options are exercisable until sixty (60) days thereafter.(18)
    Includes 1,000 shares for which Mr. Schumm has shared investment and voting power. Mr.
Schumms employment was terminated effective January 28, 2005. His stock options and
restricted stock shown in this table continue to vest for 65 weeks following his termination,
and his options will be exercisable for another 60 days thereafter.(19)
    The equity ownership reported in this table is based upon holders Schedule 13G filed with
the SEC May 21, 2003. The address of this person is: 5424 Deloache, Dallas, Texas 75220.(20)
    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 Schedule 13G filed with the SEC on
January 12, 2005, 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.(21)
    The equity ownership reported in this table is based upon holders Schedule 13G filed with
the SEC February 2, 2005. The address of this person is: c/o Amaranth Advisors L.L.C., One
American Lane, Greenwich, Connecticut, 06831. 96




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Securities authorized for issuance under equity compensation plans The following information is provided as of December 31, 2004 with respect to equity compensation
plans: 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
    
    
    24,834,513
    (1)
    
    $
    6.57
    
    
    
    54,701,158Equity compensation plans not
approved by security holders
    
    
    475,653
    (2)
    
    $
    10.39
    
    
    
    TOTAL
    
    
    25,310,166
    
    
    $
    6.64
    
    
    
    54,701,158
   (1)
    
    This total does not include 2,076,860 shares issued pursuant to restricted stock grants made
under Charters 2001 Stock Incentive Plan, which were subject to vesting based on continued
employment or 6,899,600 performance shares issued under Charters LTIP plan, which are subject
to vesting upon achievement of certain performance criteria.(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. Charter has agreed to
exchange 186,385 of these options for 18,638 shares of Charter Class A common stock. 
 Item 13.Certain Relationships and Related Transactions. The following sets forth certain transactions in which we are involved and in which the directors,
executive officers and affiliates of Charter 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 and Charter Holdco.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 or had a material interest.Mr. Allen has had numerous investments in the areas
of technology and media. We have a number of commercial relationships with third parties
in which Mr. Allen has or had 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. 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. All of our transactions with Mr. Allen or his affiliates have
been deemed by Charters board of directors or a committee of the board of directors 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. 97




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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
    
    Subsidiaries of Charter
Holdco paid Charter
approximately $90 million
for management services
rendered in 2004.Mutual Services Agreement
    
    Paul G. Allen
    
    Charter paid Charter
Holdco $74 million for
services rendered in
2004.Previous Management Agreement
    
    Paul G. Allen
    
    No fees were paid in
2004, although total
management fees accrued
and payable to Charter
Investment, Inc.,
exclusive of interest,
were approximately $14
million at December 31,
2004.Channel Access Agreement
    
    Paul G. Allen
W. Lance Conn
Jo Allen Patton
    
    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 1999 capital
contribution of
approximately $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 Charter and CC VIII,
LLC issued to such
sellers in connection
with such acquisitions.TechTV Carriage Agreement
    
    Paul G. Allen
W. Lance Conn
Jo Allen Patton
William D. Savoy
Larry W. Wangberg
    
    We recorded approximately
$5 million from TechTV
under the affiliation
agreement in 2004 related
to launch incentives as a
reduction of programming
expense and paid TechTV
approximately $2 million.Oxygen Media Corporation
Carriage Agreement
    
    Paul G. Allen
W. Lance Conn
Jo Allen Patton
    
    We paid Oxygen Media
approximately $13 million
under a carriage
agreement in exchange for
programming in 2004. We
recorded approximately $1
million in 2004 from
Oxygen Media related to
launch incentives as a
reduction of programming
expense. We received 1
million shares of Oxygen
Preferred Stock with a
liquidation preference of
$33.10 per share in March
2005. We recognized
approximately $13 million
as a reduction of
programming expense in
2004, in recognition of
the guaranteed value of
the investment.Portland Trail Blazers
Carriage Agreement
    
    Paul G. Allen
    
    We paid approximately
$96,100 for rights to
carry the cable broadcast
of certain Trail Blazers
basketball games in 2004.Digeo, Inc. Broadband Carriage
Agreement
    
    Paul G. Allen
William D. Savoy
Carl E. Vogel
    
    We paid Digeo
approximately $3 million
for customized
development of the
i-channels and the local
content tool kit in 2004.
We entered into a
license agreement in 2004
for the Digeo software
that runs DVR units
purchased from a third
party. Charter paid
approximately $474,400 in
license and maintenance
fees in 2004. In 2004,
we executed a purchase
agreement for the
purchase of up to 70,000
DVR units and a related
software license
agreement, both subject
to satisfaction of
certain conditions.
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InterestedTransaction
    
    Related Party
    
    Description of TransactionViacom Networks
    
    Jonathan L. Dolgen
    
    We are party to certain
affiliation agreements
with networks of Viacom,
pursuant to which Viacom
provides Charter with
programming for
distribution via our
cable systems. For the
year ended December 31,
2004, Charter paid Viacom
approximately $194
million for programming
and Charter recorded as
receivables approximately
$8 million from Viacom
for launch incentives and
marketing support.ADC Telecommunications Inc.
    
    Larry W. Wangberg
    
    We paid $344,800 to
purchase certain
access/network equipment
in 2004.HDNet and HDNet Movies Network
    
    Mark Cuban
    
    Charter Holdco is party
to an agreement to carry
two around-the-clock,
high definition networks,
HDNet and HDNet Movies.
We paid HDNet and HDNet
Movies approximately
$609,100 in 2004.Affiliate lease agreement
    
    David L. McCall
    
    We paid approximately
$43,400 in 2004 under an
office lease agreement to
a partnership controlled
by Mr. McCall, a former
executive officer who
resigned in January 2003.Carriage fees
    
    David C. Merritt
    
    We paid approximately $1
million in 2004 to carry
The Outdoor Channel. Mr.
Merritt is a director of
an affiliate of this
channel.Payment for relatives services
    
    Carl E. Vogel
    
    During all of 2004, Mr.
Vogels brother-in-law
was an employee of
Charter Holdco and was
paid a salary
commensurate with his
position in the
engineering department.Indemnification Advances
    
    Current and former
directors and
current and former
officers named in
certain legal
proceedings
    
    Charter reimbursed
certain of its current
and former directors and
executive officers a
total of approximately
$3 million for costs
incurred in connection
with litigation matters
in 2004.
 The following sets forth additional information regarding the transactions summarized above. Transactions Arising Out of Our Organizational Structure and Mr. Allens Investment in Charter
Communications, Inc. 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. 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 47% owned by Charter and 53% 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.
Under these agreements, Charter provides management services for the cable systems owned or
operated by its subsidiaries. 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 fee to reimburse 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, CC
VII, and CC VIII companies limit the additional fee that is not in respect of company expenses to
5%, 5%, and 3.5%, respectively, of their respective gross revenues. Under the arrangement covering
all of our other operating subsidiaries, there is no limit on the dollar amount or percentage of
revenues payable as this additional fee. 99




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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, 2004, the subsidiaries of Charter
Holdings paid a total of $90 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, 2004, Charter paid approximately $74 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, 2004, Charters subsidiaries
did not pay any fees to Charter Investment, Inc. to reduce management fees payable. As of December
31, 2004, total management fees payable by our subsidiaries to Charter Investment, Inc. were
approximately $14 million, exclusive of any interest that may be charged. 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 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 100




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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 the acquisition of the cable systems owned by Bresnan Communications Company
Limited Partnership in February 2000, CC VIII, Charter Holdings indirect limited liability company
subsidiary, issued, after adjustments, 24,273,943 Class A preferred membership units (collectively,
the CC VIII interest) with a value and an initial capital account of approximately $630 million
to certain sellers affiliated with AT&T Broadband, subsequently owned by Comcast Corporation (the
Comcast sellers). While held by the Comcast sellers, the CC VIII interest was entitled to a 2%
priority return on its initial capital account and such priority return was entitled to
preferential distributions from available cash and upon liquidation of CC VIII. While held by the
Comcast sellers, the CC VIII interest generally did not share in the profits and losses of CC VIII.
Mr. Allen granted the Comcast sellers the right to sell to him the CC VIII interest for
approximately $630 million plus 4.5% interest annually from February 2000 (the Comcast put
right). In April 2002, the Comcast sellers exercised the Comcast put right in full, and this
transaction was consummated on June 6, 2003. Accordingly, Mr. Allen has become the holder of the
CC VIII interest, indirectly through an affiliate. Consequently, subject to the matters referenced
in the next paragraph, Mr. Allen generally thereafter will be allocated his pro rata share (based
on number of membership interests outstanding) of profits or losses of CC VIII. In the event of a
liquidation of CC VIII, Mr. Allen would be entitled to a priority distribution with respect to the
2% priority return (which will continue to accrete). Any remaining distributions in liquidation
would be distributed to CC V Holdings, LLC and Mr. Allen in proportion to CC V Holdings, LLCs
capital account and Mr. Allens capital account (which will equal the initial capital account of
the Comcast sellers of approximately $630 million, increased or decreased by Mr. Allens pro rata
share of CC VIIIs profits or losses (as computed for capital account purposes) after June 6,
2003). The limited liability company agreement of CC VIII does not provide for a mandatory
redemption of the CC VIII interest. An issue has arisen as to whether the documentation for the Bresnan transaction was correct and
complete with regard to the ultimate ownership of the CC VIII interest following consummation of
the Comcast put right. Specifically, under the terms of the Bresnan transaction documents that
were entered into in June 1999, the Comcast sellers originally would have received, after
adjustments, 24,273,943 Charter Holdco membership units, but due to an FCC regulatory issue raised
by the Comcast sellers shortly before closing, the Bresnan transaction was modified to provide that
the Comcast sellers instead would receive the preferred equity interests in CC VIII represented by
the CC VIII interest. As part of the last-minute changes to the Bresnan transaction documents, a
draft amended version of the Charter Holdco limited liability company agreement was prepared, and
contract provisions were drafted for that agreement that would have required an automatic exchange
of the CC VIII interest for 24,273,943 Charter Holdco membership units if the Comcast sellers
exercised the Comcast put right and sold the CC VIII interest to Mr. Allen or his affiliates.
However, the provisions that would have required this automatic exchange did not appear in the
final version of the Charter Holdco limited liability company agreement that was delivered and
executed at the closing of the Bresnan transaction. The law firm that prepared the documents for
the Bresnan transaction brought this matter to the attention of Charter and representatives of Mr.
Allen in 2002. Thereafter, the board of directors of Charter formed a Special Committee (currently comprised of
Messrs. Merritt, Tory and Wangberg) to investigate the matter and take any other appropriate action
on behalf of Charter with respect to this matter. After conducting an investigation of the
relevant facts and circumstances, the Special Committee determined that a scriveners error had
occurred in February 2000 in connection with the preparation of the last-minute revisions to the
Bresnan transaction documents and that, as a result, Charter should seek the reformation of the
Charter Holdco limited liability company agreement, or alternative relief, in order to restore and
ensure the obligation that the CC VIII interest be automatically exchanged for Charter Holdco
units. The Special Committee further determined that, as part of such contract reformation or
alternative relief, Mr. Allen should be required to contribute the CC VIII interest to Charter
Holdco in exchange for 24,273,943 Charter Holdco membership units. The Special Committee also
recommended to the board of directors of Charter that, to the extent the contract reformation is
achieved, the board of directors should consider whether the CC VIII interest should ultimately be
held by Charter Holdco or Charter Holdings or another entity owned directly or indirectly by them. 101




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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. Allocation of Business Opportunities with Mr. Allen As described under  Third Party Business Relationships in which Mr. Allen has or had 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. Certain of the
indentures of Charter and its subsidiaries require the applicable issuer of notes to obtain, under
certain circumstances, approval of the board of directors of Charter and, where a transaction or
series of related transactions is valued at or in excess of $50 million, a fairness opinion with
respect to transactions in which Mr. Allen has an interest. Related party transactions are
approved by our Audit Committee in compliance with the listing requirements applicable to NASDAQ
national market listed companies. We have not instituted any other formal plan or arrangement to
address potential conflicts of interest. 102




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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 or had an Interest As previously noted, Mr. Allen has and has had 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 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. Ms. Jo Allen Patton is a director and the President and
Chief Executive Officer of Vulcan Inc. and is a director and Vice President of Vulcan Ventures.
Mr. Lance Conn is Executive Vice President of Vulcan Inc. and 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) operated a cable television network that offered programming mostly 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 were entitled to incentive payments for channel launches
through December 31, 2003. In March 2004, Charter Holdco entered into agreements with Vulcan Programming and TechTV, which
provide 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). For the year ended December
31, 2004, we recognized approximately $5 million of the Vulcan Programming payment as an offset to
programming expense and paid approximately $2 million to Tech TV under the affiliation agreement. We believe that Vulcan Programming, which is 100% owned by Mr. Allen, owned an approximate 98%
equity interest in TechTV at the time Vulcan Programming sold TechTV to an unrelated third party in
May 2004. Until September 2003, Mr. Savoy, a former Charter director, was the president and
director of Vulcan Programming and was a director of TechTV. Mr. Wangberg, one of Charters
directors, was the chairman, chief executive officer and a director of TechTV. Mr. Wangberg
resigned as the chief executive officer of TechTV in July 2002. He remained a director of TechTV
along with Mr. Allen until Vulcan Programming sold 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 we agreed to carry programming content from Oxygen. Under
the carriage agreement, we currently make Oxygen programming available to approximately 5 million
of our video customers. The term of the carriage 103




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agreement was retroactive to February 1, 2000, the date of launch of Oxygen programming by us, and
was to run for a period of five years from that date. For the year ended December 31, 2004, we
paid Oxygen approximately $13 million for programming content. In addition, Oxygen pays us
marketing support fees for customers launched after the first year of the term of the carriage
agreement up to a total of $4 million. We recorded approximately $1 million related to these
launch incentives as a reduction of programming expense for the year ended December 31, 2004. Concurrently with the execution of the carriage agreement, Charter Holdco 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 Oxygen
Media common stock for an exercise price of $22.00 per share. In February 2005, this warrant
expired unexercised. Charter Holdco was also to 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, but this commitment was
later revised as discussed below. We recognize the guaranteed value of the investment over the life of the carriage agreement as a
reduction of programming expense. For the year ended December 31, 2004, we recorded approximately
$13 million as a reduction of programming expense. The carrying value of our investment in Oxygen
was approximately $32 million as of December 31, 2004. In August 2004, Charter Holdco and Oxygen entered into agreements that amended and renewed the
carriage agreement. The amendment to the carriage agreement (a) revises the number of our
customers to which Oxygen programming must be carried and for which we must pay, (b) releases
Charter Holdco from any claims related to the failure to achieve distribution benchmarks under the
carriage agreement, (c) requires Oxygen to make payment on outstanding receivables for marketing
support fees due to us under the carriage agreement; and (d) requires that Oxygen provide its
programming content to us on economic terms no less favorable than Oxygen provides to any other
cable or satellite operator having fewer subscribers than us. The renewal of the carriage
agreement (a) extends the period that we will carry Oxygen programming to our customers through
January 31, 2008, and (b) requires license fees to be paid based on customers receiving Oxygen
programming, rather than for specific customer benchmarks. In August 2004, Charter Holdco and Oxygen also amended the equity issuance agreement to provide for
the issuance of 1 million shares of Oxygen Preferred Stock with a liquidation preference of $33.10
per share plus accrued dividends to Charter Holdco in place of the $34 million of unregistered
shares of Oxygen Media common stock. Oxygen Media delivered these shares in March 2005. The
preferred stock is convertible into common stock after December 31, 2007 at a conversion ratio, the
numerator of which is the liquidation preference and the denominator which is the fair market value
per share of Oxygen Media common stock on the conversion date. As of December 31, 2004, through Vulcan Programming, Mr. Allen owned an approximate 31% interest in
Oxygen assuming no exercises of outstanding warrants or conversion or exchange of convertible or
exchangeable securities. Ms. Jo Allen Patton is a director and the President of Vulcan
Programming. Mr. Lance Conn is a Vice President of Vulcan Programming. 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 $96,100 for the year ended December 31, 2004 in connection with the
cable broadcast of Portland Trail Blazers basketball games under the October 1996 cable television
agreement and subsequent local cable distribution agreements. 104




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Digeo, Inc. In March 2001, Charter Ventures and Vulcan Ventures Incorporated formed DBroadband Holdings, LLC
for the sole purpose of purchasing equity interests in Digeo. In connection with the execution of
the broadband carriage agreement, DBroadband Holdings, LLC purchased an equity interest in Digeo
funded by contributions from Vulcan Ventures 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. After Vulcan Ventures recovers its amount contributed and any cumulative
loss allocations, Charter Ventures has a 100% profit interest in DBroadband Holdings, LLC. Charter
Ventures is not required to make any capital contributions, including capital calls, and may
require Vulcan Ventures, through January 24, 2004, to make 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 $56 million on Charter
Ventures behalf. 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 2004, we
paid Digeo Interactive approximately $3 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. This amendment expired pursuant to its terms on December 31, 2003. Digeo Interactive is
continuing to provide the Basic i-TV service on a month-to-month basis. On June 30, 2003, Charter Holdco entered into an agreement with Motorola, Inc. for the purchase of
100,000 digital video recorder (DVR) units. The software for these DVR units is being supplied
by Digeo Interactive, LLC under a license agreement entered into in April 2004. Under the license
agreement Digeo Interactive granted to Charter Holdco the right to use Digeos proprietary software
for the number of DVR units that Charter deploys from a maximum of 10 headends through year-end
2004. This maximum number of headends was increased from 10 to 15 pursuant to a letter agreement
executed on June 11, 2004 and the date for entering into license agreements for units deployed was
extended to June 30, 2005. The number of headends was increased from 15 to 20 pursuant to a letter
agreement dated August 4, 2004, from 20 to 30 pursuant to a letter agreement dated September 28,
2004 and from 30 to 50 headends by a letter agreement in February 2005. The license granted for
each unit deployed under the agreement is valid for five years. In addition, Charter will pay
certain other fees including a per-headend license fee and maintenance fees. Maximum license and
maintenance fees during the term of the agreement are expected to be approximately $7 million. The
agreement provides that Charter is entitled to receive contract terms, considered on the whole, and
license fees, considered apart from other contract terms, no less favorable than those accorded to
any other Digeo customer. Charter paid approximately $474,400 in license and maintenance fees in
2004. 105




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In April 2004, we launched DVR service (using units containing the Digeo software) in our
Rochester, Minnesota market using a broadband media center that is an integrated set-top terminal
with a cable converter, DVR hard drive and connectivity to other consumer electronics devices (such
as stereos, MP3 players, and digital cameras). In May 2004, Charter Holdco entered into a binding term sheet with Digeo Interactive for the
development, testing and purchase of 70,000 Digeo PowerKey DVR units. The term sheet provided that
the parties would proceed in good faith to negotiate, prior to year-end 2004, definitive agreements
for the development, testing and purchase of the DVR units and that the parties would enter into a
license agreement for Digeos proprietary software on terms substantially similar to the terms of
the license agreement described above. In November 2004, Charter Holdco and Digeo Interactive
executed the license agreement and in December 2004, the parties executed the purchase agreement,
each on terms substantially similar to the binding term sheet. Product development and testing are
continuing. Total purchase price and license and maintenance fees during the term of the
definitive agreements are expected to be approximately $41 million. The definitive agreements are
terminable at no penalty to Charter in certain circumstances. We believe that Vulcan Ventures, an entity controlled by Mr. Allen, owns an approximate 51% equity
interest in Digeo, Inc., on a fully-converted basis. Mr. Allen is a director of Digeo, and Mr.
Vogel was a director of Digeo in 2004. During 2004, Mr. Vogel held options to purchase 10,000
shares of Digeo common stock. Other Miscellaneous Relationships Viacom Networks Pursuant to certain affiliation agreements with networks of Viacom, Inc. (Viacom), including MTV,
MTV2, Nickelodeon, VH1, TVLand, CMT, Spike TV, Comedy Central, Viacom Digital Suite, CBS-owned and
operated broadcast stations, Showtime, The Movie Channel, and Flix, Viacom provides Charter with
programming for distribution via our cable systems. The affiliation agreements provide for, among
other things, rates and terms of carriage, advertising on the Viacom networks, which Charter can
sell to local advertisers and marketing support. For the year ended December 31, 2004, Charter
paid Viacom approximately $194 million for programming. Charter recorded approximately $8 million
as receivables from Viacom networks related to launch incentives for certain channels and marketing
support, respectively, for the year ended December 31, 2004. From April 1994 to July 2004, Mr.
Dolgen served as Chairman and Chief Executive Officer of the Viacom Entertainment Group. ADC Telecommunications Inc. Charter and Charter Holdco purchase certain equipment for use in our business from ADC
Telecommunications, which provides broadband access and network equipment. Mr. Wangberg serves as
a director for ADC Telecommunications. For the year ended December 31, 2004, we paid $344,800 to
ADC Telecommunications under this arrangement. HDNet and HDNet Movies Network On January 10, 2003, we 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 $609,100 in 2004. We believe that entities controlled by Mr. Cuban owned
approximately 81% of HDNet as of December 31, 2004. As of December 31, 2004, we believe that Mark
Cuban, co-founder and president of HDNet, owned approximately 19,000,000 shares, or 6.2% of the
total common equity in Charter based on a Schedule 13G filed with the SEC on May 21, 2003. Affiliate Lease Agreement David L. McCall, who served as Senior Vice President  Operations  Eastern Division during 2002
and 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 $43,400
pursuant to such lease and related agreements for the year ended December 31, 2004. 106




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Carriage Fees We have carried The Outdoor Channel on a month-to-month basis since the expiration of an
affiliation agreement in July 2002. We paid approximately $1 million to The Outdoor Channel during
2004. In December 2003, Mr. Merritt became director of Outdoor Channel Holdings, Inc., an
affiliate of The Outdoor Channel, Inc. Payment for Relatives Services Since June 2003, Mr. Vogels brother-in-law has been an employee of Charter Holdco and has received
a salary commensurate with his position in the engineering department. Indemnification Advances Pursuant to Charters bylaws (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 $3 million in respect of invoices received in 2004, 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, 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. Shreffer, Stephen E. Silva,
James Trey Smith and Carl E. Vogel. These amounts were submitted to Charters director and officer
insurance carrier and have been reimbursed consistent with the terms of the Securities Class Action
and Derivative Action Settlements described in Item 3. Legal Proceedings. On or about February
22, 2005, Charter filed lawsuits against the four former officers who were indicted and pled guilty
as part of the government investigation conducted by the United States Attorneys Office. These
suits seek to recover fees and related expenses that Charter advanced these former officers under
the indemnification provisions described above. 
 Item 14.Principal Accounting Fees 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, 2004 and 2003, we incurred fees and related expenses for
professional services rendered by KPMG for the audits of our, our parent companys and our
subsidiaries financial statements (including one parent company and three subsidiaries that are
also public registrants), for the review of our and our subsidiaries interim financial statements
and five offering memorandums and registration statement filings in 2004 and two offering
memorandums and registration statement filings in 2003 totaling approximately $6.2 million and $3.2
million, respectively. Included in 2004 are fees and related expenses of $1.9 million for
Charters audit of internal control over financial reporting required under Sarbanes-Oxley Section
404. Audit-Related Fees We incurred fees to KPMG of approximately $0.1 million and $0.4 million during the years ended
December 31, 2004 and 2003, respectively. The services in 2004 primarily related to the audit of
our 401(k) plan and advisory services associated with our Sarbanes-Oxley Section 404
implementation. 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. 107




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All Other Fees None. Charters Audit Committee appoints, retains, compensates and oversees the registered public
accountants (subject, if applicable, to board of director and/or shareholder ratification), and
approves in advance all fees and terms for the audit engagement and non-audit engagements where
nonaudit 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. Preapprovals of non-audit services are
sometimes delegated to a single member of the Audit Committee. However, any pre-approvals made by
Charters Audit Committees designee are presented at its 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,
2004 and 2003. Each year, including 2004, 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 Charters 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 of Charters Audit Committees authority and responsibilities, see Charters Audit
Committee charter set forth in Appendix A of its 2004 Proxy Statement filed with the SEC on June
25, 2004. 108




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PART IV 
 Item 15.Exhibits and Financial Statement Schedules.  (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.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 111 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 Holdings and its subsidiaries on a consolidated basis. 109




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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 31, 2005
    
    By:
    
    /s/ Robert P. MayRobert P. MayInterim President and Chief Executive OfficerCHARTER COMMUNICATIONS HOLDINGS CAPITAL CORPORATIONRegistrantDate: March 31, 2005
    
    By:
    
    /s/ Robert P. MayRobert P. MayInterim President 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
    
    Chairman of the Board of Directors,
    
    March 31, 2005Charter Communications, Inc.Paul G. Allen/s/ Robert P. May
    
    Interim President, Chief Executive
    
    March 31, 2005Officer, Director (Principal Executive Officer)Robert P. May
    
    Charter Communications, Inc., Charter Communications
Holdings Capital Corporation/s/ Derek Chang
    
    Executive Vice President and Interim
    
    March 31, 2005Co-Chief Financial OfficerDerek Chang
    
    (Co-Principal Financial Officer)/s/ Paul E. Martin
    
    Interim Co-Chief Financial Officer, Senior Vice President
    
    March 31, 2005and Corporate Controller (Co-Principal Financial OfficerPaul E. Martin
    
    and Principal Accounting Officer)/s/ W. Lance ConnDirector, Charter Communications, Inc.
    
    March 31, 2005W. Lance Conn/s/Jonathan L. DolgenDirector, Charter Communications, Inc.
    
    March 31, 2005Jonathan L. Dolgen/s/ David C. MerrittDirector, Charter Communications, Inc.
    
    March 31, 2005David C. Merritt/s/ Marc B. NathansonDirector, Charter Communications, Inc.
    
    March 31, 2005Marc B. Nathanson/s/ Jo Allen PattonDirector, Charter Communications, Inc.
    
    March 31, 2005Jo Allen Patton/s/ John H. ToryDirector, Charter Communications, Inc.
    
    March 31, 2005John H. Tory/s/ Larry W. WangbergDirector, Charter Communications, Inc.
    
    March 31, 2005Larry W. Wangberg
 110




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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
    
    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)).2.5
    
    Purchase Agreement, dated May 29, 2003, by and between Falcon
Video Communications, L.P. and WaveDivision Holdings, LLC
(incorporated by reference to Exhibit 2.1 to Charter
Communications, Inc.s current report on Form 8-K filed on May
30, 2003 (File No. 000-27927)).2.6
    
    Asset Purchase Agreement, dated September 3, 2003, by and
between Charter Communications VI, LLC, The Helicon Group, L.P.,
Hornell Television Service, Inc., Interlink Communications
Partners, LLC, Charter Communications Holdings, LLC and Atlantic
Broadband Finance, LLC (incorporated by reference to Exhibit 2.1
to Charter Communications, Inc.s current report on Form 8-K/A
filed on September 3, 2003 (File No. 000-27927)).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
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Exhibit
    
    Descriptionreference 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, 2001 (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,
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Exhibit
    
    DescriptionCharter
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)).4.11(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
    
    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)).10.2
    
    Indenture relating to the 10.25% Senior Notes due 2010, dated as
of September 23, 2003, among CCH II, LLC, CCH II Capital
Corporation and Wells Fargo Bank, National Association
(incorporated by reference to Exhibit 10.1 to the current report
on Form 8-K of Charter Communications Inc. filed on September
26, 2003 (File No. 000-27927)).10.3
    
    Indenture relating to the 83/4%
Senior Notes due 2013, dated as of November 10, 2003, by and
among CCO Holdings, LLC, CCO Holdings Capital Corp. and Wells
Fargo Bank, N.A., as trustee (incorporated by reference to
Exhibit 4.1 to Charter Communications, Inc.s current report on
Form 8-K filed on November 12, 2003 (File No. 000-27927)).10.4
    
    Amended and Restated Credit Agreement among Charter
Communications Operating, LLC, CCO Holdings, LLC and certain
lenders and agents named therein dated April 27, 2004
(incorporated by reference to Exhibit 10.25 to Amendment No. 2
to the registration statement on Form S-4 of CCH II, LLC filed
on May 5, 2004 (File No. 333-111423)).10.5
    
    Indenture relating to the 8% senior second lien notes due 2012
and 8 3/8% senior second lien notes due 2014, dated as of April
27, 2004, by and among Charter Communications Operating, LLC,
Charter Communications Operating Capital Corp. and Wells Fargo
Bank, N.A. as trustee (incorporated by reference to Exhibit
10.32 to Amendment No. 2 to the registration statement on Form
S-4 of CCH II, LLC filed on May 5, 2004 (File No. 333-111423)).10.6
    
    Indenture relating to the Senior Floating Rate Notes due 2010
dated as of December 15, 2004 among CCO Holdings, LLC, CCO
Holdings Capital Corp. and Wells Fargo Bank, N.A., as trustee
(incorporated by reference to Exhibit 10.1 to the current report
on Form 8-K of CCO Holdings, LLC filed on December 21, 2004
(File No. 333-112593)).10.7
    
    Exchange and Registration Rights Agreement dated December 15,
2004 by and among CCO Holdings, LLC, CCO Holdings Capital Corp,
on the one hand, and Credit Suisse First Boston LLC and
Citigroup Global Markets Inc, on the other hand, as
representatives (incorporated by reference to Exhibit 10.2 to
the current
 113




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##### Table of Contents



Exhibit
    
    Descriptionreport on Form 8-K of CCO Holdings, LLC filed on
December 21, 2004 (File No. 333-112593)).10.8
    
    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)).10.9
    
    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)).10.10
    
    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)).10.11
    
    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)).10.12(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)).10.12(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)).10.12(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)).10.13(a)
    
    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)).10.13(b)
    
    Letter Agreement between Charter Communications, Inc. and
Charter Investment Inc. and Vulcan Cable III Inc. amending the
Amended and Restated Limited Liability Company Agreement of
Charter Communications Holding Company, LLC, dated as of
November 22, 2004 (incorporated by reference to Exhibit 10.10 to
the current report on Form 8-K of Charter Communications, Inc.
filed on November 30, 2004 (File No. 000-27927)).10.14
    
    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)).10.15
    
    Amended and Restated Limited Liability Company Agreement of
Charter Communications Operating, LLC, dated 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)).10.16
    
    Amended and Restated Management Agreement, dated as of June 19,
2003, between Charter Communications Operating, LLC 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 August 5, 2003 (File No. 333-83887)).10.17(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)).10.17(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)).10.17(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)).10.17(d)+
    
    Amendment No. 2 to the Charter Communications Holdings, LLC 1999
Option Plan (incorporated by reference
 114




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##### Table of Contents



Exhibit
    
    Descriptionto 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)).10.17(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)).10.17(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)).10.18(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)).10.18(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)).10.18(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)).10.18(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)).10.18(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)).10.18(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)).10.18(g)+*
    
    Description of Long-Term Incentive Program to the Charter
Communications, Inc. 2001 Stock Incentive Plan.10.19(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)).10.19(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)).10.20(a)+
    
    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)).10.20(b)+
    
    Amendment to Employment Offer Letter, dated January 27, 2005, by
and between Charter Communications, Inc. and Derek Chang
(incorporated by reference to Exhibit 99.1 to the current report
on Form 8-K of Charter Communications, Inc. filed January 28,
2005 (File No. 000-27927)).10.21+
    
    Separation Agreement and Release for Margaret A. Bellville,
dated as of September 16, 2004 (incorporated by reference to
Exhibit 10.1 to the quarterly report on Form 10-Q filed by
Charter Communications, Inc. on November 4, 2004 (File No.
000-27927)).10.22+
    
    Executive Services Agreement, dated as of January 17, 2005,
between Charter Communications, Inc. and Robert P. May
(incorporated by reference to Exhibit 99.1 to the current report
on Form 8-K of Charter Communications, Inc. filed on January 21,
2005 (File No. 000-27927)).10.23+
    
    Separation Agreement and Release for Steven A. Schumm, dated as
of February 8, 2005 (incorporated by reference to Exhibit 99.1
to the current report on Form 8-K filed by Charter
Communications, Inc. on February 11, 2005 (File No. 000-27927)).10.24+
    
    Separation Agreement and Release for Carl E. Vogel, dated as of
February 17, 2005 (incorporated by reference to Exhibit 99.1 to
the current report on Form 8-K filed by Charter Communications,
Inc. on February 22, 2005 (File No. 000-27927)).10.25+
    
    Separation Agreement and Release for Thomas A. Cullen, dated as
of March 15, 2005 (incorporated by reference to Exhibit 99.1 to
the current report on Form 8-K filed by Charter Communications,
Inc. on March 16, 2005 (File No. 000-27927)).10.26+
    
    Description of Charter Communications, Inc. 2005 Executive Bonus
Plan (incorporated by reference to Exhibit 10.51 to the annual
report on Form 10-K filed by Charter Communications, Inc. on
March 3, 2005 (File No. 000-27927)).14.1
    
    Code of Conduct adopted January 28, 2003 (incorporated by
reference to Exhibit 14.1 to the annual report on
 115




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##### Table of Contents



Exhibit
    
    DescriptionForm 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 Interim Chief Executive Officer pursuant to Rule
13a-14(a)/Rule 15d-14(a) under the Securities Exchange Act of
1934.31.2*
    
    Certificate of Interim Co-Chief Financial Officer pursuant to
Rule 13a-14(a)/Rule 15d-14(a) under the Securities Exchange Act
of 1934.31.3*
    
    Certificate of Interim Co-Chief Financial Officer pursuant to
Rule 13a-14(a)/Rule 15d-14(a) under the Securities Exchange Act
of 1934.32.1*
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Interim Chief Executive Officer).32.2*
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Interim Co-Chief Financial Officer).32.3*
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Interim Co-Chief Financial Officer).
   *
    
    Document Attached+
    
    Management compensatory plan or arrangement 116




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INDEX TO FINANCIAL STATEMENTS PageAudited Financial StatementsReport of Independent Registered Public Accounting Firm
    
    F-2Consolidated Balance Sheets as of December 31, 2004 and 2003
    
    F-3Consolidated Statements of Operations for the Years Ended December 31, 2004, 2003 and 2002
    
    F-4Consolidated Statements of Changes in Members Equity (Deficit) for the Years Ended December 31, 2004, 2003 and 2002
    
    F-5Consolidated Statements of Cash Flows for the Years Ended December 31, 2004, 2003 and 2002
    
    F-6Notes to Consolidated Financial Statements
    
    F-7
 F-1




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##### Table of Contents



Report of Independent Registered Public Accounting Firm 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, 2004 and 2003, and the related consolidated
statements of operations, changes in members equity (deficit), and cash flows for each of the
years in the three-year period ended December 31, 2004. 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 the standards of the Public Company Accounting Oversight
Board (United States). 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, 2004 and 2003, and the results of their operations and their cash flows for each
of the years in the three-year period ended December 31, 2004, in conformity with U.S. generally
accepted accounting principles. 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 7 to the consolidated financial statements, effective September 30, 2004, the
Company adopted EITF Topic D-108, Use of the Residual Method to Value Acquired Assets Other than
Goodwill. 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, 2005 F-2




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##### Table of Contents



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES 
 CONSOLIDATED BALANCE SHEETS
 (dollars in millions)
 December 31,2004
    
    
    2003ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    546
    
    
    $
    85Accounts receivable, less allowance for doubtful accounts of
$15 and $17, respectively
    
    
    186
    
    
    
    189Receivables from related party
    
    
    
    
    
    
    56Prepaid expenses and other current assets
    
    
    20
    
    
    
    21Total current assets
    
    
    752
    
    
    
    351INVESTMENT IN CABLE PROPERTIES:Property, plant and equipment, net of accumulated
depreciation of $5,142 and $3,834, respectively
    
    
    6,110
    
    
    
    6,808Franchises
    
    
    9,878
    
    
    
    13,680Total investment in cable properties, net
    
    
    15,988
    
    
    
    20,488OTHER NONCURRENT ASSETS
    
    
    344
    
    
    
    309Total assets
    
    $
    17,084
    
    
    $
    21,148LIABILITIES AND MEMBERS EQUITY (DEFICIT)CURRENT LIABILITIES:Accounts payable and accrued expenses
    
    $
    1,112
    
    
    $
    1,179Payables to related party
    
    
    19
    
    
    
    Total current liabilities
    
    
    1,131
    
    
    
    1,179LONG-TERM DEBT
    
    
    18,474
    
    
    
    17,873LOANS PAYABLE  RELATED PARTY
    
    
    29
    
    
    
    37DEFERRED MANAGEMENT FEES  RELATED PARTY
    
    
    14
    
    
    
    14OTHER LONG-TERM LIABILITIES
    
    
    493
    
    
    
    687MINORITY INTEREST
    
    
    656
    
    
    
    719MEMBERS EQUITY (DEFICIT):Members equity (deficit)
    
    
    (3,698
    )
    
    
    696Accumulated other comprehensive loss
    
    
    (15
    )
    
    
    (57
    )Total members equity (deficit)
    
    
    (3,713
    )
    
    
    639Total liabilities and members equity (deficit)
    
    $
    17,084
    
    
    $
    21,148
 The accompanying notes are an integral part of these consolidated financial statements. F-3




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##### Table of Contents



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (dollars in millions)
 Year Ended December 31,2004
    
    
    2003
    
    
    2002REVENUES
    
    $
    4,977
    
    
    $
    4,819
    
    
    $
    4,566COSTS AND EXPENSES:Operating (excluding depreciation and amortization)
    
    
    2,080
    
    
    
    1,952
    
    
    
    1,807Selling, general and administrative
    
    
    971
    
    
    
    940
    
    
    
    963Depreciation and amortization
    
    
    1,495
    
    
    
    1,453
    
    
    
    1,436Impairment of franchises
    
    
    2,433
    
    
    
    
    
    
    
    4,638(Gain) loss on sale of fixed assets
    
    
    (86
    )
    
    
    5
    
    
    
    3Option compensation expense, net
    
    
    31
    
    
    
    4
    
    
    
    5Special charges, net
    
    
    104
    
    
    
    21
    
    
    
    36Unfavorable contracts and other settlements
    
    
    (5
    )
    
    
    (72
    )
    
    
    7,023
    
    
    
    4,303
    
    
    
    8,888Income (loss) from operations
    
    
    (2,046
    )
    
    
    516
    
    
    
    (4,322
    )OTHER INCOME AND EXPENSES:Interest expense, net
    
    
    (1,618
    )
    
    
    (1,486
    )
    
    
    (1,425
    )Gain (loss) on derivative instruments and hedging activities, net
    
    
    69
    
    
    
    65
    
    
    
    (115
    )Gain (loss) on extinguishment of debt
    
    
    (21
    )
    
    
    187
    
    
    
    Other, net
    
    
    2
    
    
    
    (10
    )
    
    
    3(1,568
    )
    
    
    (1,244
    )
    
    
    (1,537
    )Loss before minority interest, income taxes and cumulative
effect of accounting change
    
    
    (3,614
    )
    
    
    (728
    )
    
    
    (5,859
    )MINORITY INTEREST
    
    
    20
    
    
    
    (29
    )
    
    
    (16
    )Loss before income taxes and cumulative effect of accounting
change
    
    
    (3,594
    )
    
    
    (757
    )
    
    
    (5,875
    )INCOME TAX BENEFIT (EXPENSE)
    
    
    35
    
    
    
    (13
    )
    
    
    216Loss before cumulative effect of accounting change
    
    
    (3,559
    )
    
    
    (770
    )
    
    
    (5,659
    )CUMULATIVE EFFECT OF ACCOUNTING CHANGE, NET OF TAX
    
    
    (840
    )
    
    
    
    
    
    
    (540
    )Net loss
    
    $
    (4,399
    )
    
    $
    (770
    )
    
    $
    (6,199
    )
 The accompanying notes are an integral part of these consolidated financial statements. F-4




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##### Table of Contents



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS EQUITY (DEFICIT)
 (dollars in millions)
 Accumulated
    
    
    TotalMembers
    
    
    Other
    
    
    MembersEquity
    
    
    Comprehensive
    
    
    Equity(Deficit)
    
    
    Income (Loss)
    
    
    (Deficit)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
    )Other, net
    
    
    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
    
    
    
    48Other, net
    
    
    3
    
    
    
    
    
    
    
    3Net loss
    
    
    (770
    )
    
    
    
    
    
    
    (770
    )BALANCE, December 31, 2003
    
    
    696
    
    
    
    (57
    )
    
    
    639Changes in fair value of interest rate agreements
    
    
    
    
    
    
    42
    
    
    
    42Other, net
    
    
    5
    
    
    
    
    
    
    
    5Net loss
    
    
    (4,399
    )
    
    
    
    
    
    
    (4,399
    )BALANCE, December 31, 2004
    
    $
    (3,698
    )
    
    $
    (15
    )
    
    $
    (3,713
    )
 The accompanying notes are an integral part of these consolidated financial statements. F-5




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##### Table of Contents



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (dollars in millions)
 Year Ended December 31,2004
    
    
    2003
    
    
    2002CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (4,399
    )
    
    $
    (770
    )
    
    $
    (6,199
    )Adjustments to reconcile net loss to net cash flows from operating activities:Minority interest
    
    
    (20
    )
    
    
    29
    
    
    
    16Depreciation and amortization
    
    
    1,495
    
    
    
    1,453
    
    
    
    1,436Impairment of franchises
    
    
    2,433
    
    
    
    
    
    
    
    4,638Option compensation expense, net
    
    
    27
    
    
    
    4
    
    
    
    5Special charges, net
    
    
    85
    
    
    
    
    
    
    
    Noncash interest expense
    
    
    315
    
    
    
    410
    
    
    
    387(Gain) loss on derivative instruments and hedging activities, net
    
    
    (69
    )
    
    
    (65
    )
    
    
    115(Gain) loss on sale of assets
    
    
    (86
    )
    
    
    5
    
    
    
    3(Gain) loss on extinguishment of debt
    
    
    18
    
    
    
    (187
    )
    
    
    Deferred income taxes
    
    
    (42
    )
    
    
    13
    
    
    
    (216
    )Cumulative effect of accounting change, net
    
    
    840
    
    
    
    
    
    
    
    540Unfavorable contracts and other settlements
    
    
    (5
    )
    
    
    (72
    )
    
    
    Other, net
    
    
    (3
    )
    
    
    
    
    
    
    Changes in operating assets and liabilities, net of effects from acquisitions and
dispositions:Accounts receivable
    
    
    (3
    )
    
    
    62
    
    
    
    18Prepaid expenses and other assets
    
    
    (4
    )
    
    
    13
    
    
    
    19Accounts payable, accrued expenses and other
    
    
    (83
    )
    
    
    (109
    )
    
    
    58Receivables from and payables to related party, including deferred management fees
    
    
    (68
    )
    
    
    (40
    )
    
    
    (79
    )Net cash flows from operating activities
    
    
    431
    
    
    
    746
    
    
    
    741CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of property, plant and equipment
    
    
    (893
    )
    
    
    (804
    )
    
    
    (2,095
    )Change in accrued expenses related to capital expenditures
    
    
    (33
    )
    
    
    (41
    )
    
    
    (49
    )Proceeds from sale of systems
    
    
    744
    
    
    
    91
    
    
    
    Payments for acquisitions, net of cash acquired
    
    
    
    
    
    
    
    
    
    
    (140
    )Purchases of investments
    
    
    (6
    )
    
    
    (8
    )
    
    
    (10
    )Other, net
    
    
    (3
    )
    
    
    (3
    )
    
    
    2Net cash flows from investing activities
    
    
    (191
    )
    
    
    (765
    )
    
    
    (2,292
    )CASH FLOWS FROM FINANCING ACTIVITIES:Borrowings of long-term debt
    
    
    3,147
    
    
    
    739
    
    
    
    4,107Repayments of long-term debt
    
    
    (4,860
    )
    
    
    (1,369
    )
    
    
    (2,135
    )Repayments to parent companies
    
    
    (8
    )
    
    
    (36
    )
    
    
    (116
    )Proceeds from issuance of long-term debt
    
    
    2,050
    
    
    
    529
    
    
    
    Payments for debt issuance costs
    
    
    (108
    )
    
    
    (42
    )
    
    
    (40
    )Capital contributions
    
    
    
    
    
    
    
    
    
    
    95Distributions
    
    
    
    
    
    
    (27
    )
    
    
    (52
    )Net cash flows from financing activities
    
    
    221
    
    
    
    (206
    )
    
    
    1,859NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    461
    
    
    
    (225
    )
    
    
    308CASH AND CASH EQUIVALENTS, beginning of period
    
    
    85
    
    
    
    310
    
    
    
    2CASH AND CASH EQUIVALENTS, end of period
    
    $
    546
    
    
    $
    85
    
    
    $
    310CASH PAID FOR INTEREST
    
    $
    1,264
    
    
    $
    1,069
    
    
    $
    1,033NONCASH TRANSACTIONS:Issuance of debt by CCH II, LLC
    
    $
    
    
    
    $
    1,572
    
    
    $
    Retirement of debt
    
    
    
    
    
    
    1,257
    
    
    
    CCH II, LLC notes distributed to retire parent company debt
    
    
    
    
    
    
    521
    
    
    
    
 The accompanying notes are an integral part of these consolidated financial statements. F-6




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##### Table of Contents



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2004, 2003 AND 2002
 (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, 2004 are equity interests in its 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 wholly owned subsidiaries where the underlying
operations reside, collectively referred to herein as the Company. All significant intercompany
accounts and transactions among consolidated entities have been eliminated. The Company is a
broadband communications company operating in the United States. The Company offers its customers
traditional cable video programming (analog and digital video) as well as high-speed data services
and, in some areas, advanced broadband services such as high definition television, video on demand
and telephony. The Company sells its cable video programming, high-speed data and advanced
broadband services on a subscription basis. The Company also sells local advertising on
satellite-delivered networks. 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. Reclassifications.Certain prior year amounts have been reclassified to conform with the 2004
presentation. 2. Liquidity and Capital Resources The Company incurred net loss of $4.4 billion, $770 million and $6.2 billion in 2004, 2003 and
2002, respectively. The Companys net cash flows from operating activities were $431 million, $746
million and $741 million for the years ending December 31, 2004, 2003 and 2002, respectively. The Company has a significant level of debt. The Companys long-term financing as of December 31,
2004 consists of $5.5 billion of credit facility debt and $13.3 billion principal amount of
high-yield notes. In each of 2005 and 2006, $30 million of the Companys debt will mature. In
2007 and beyond, significant additional amounts will become due under the Companys remaining
long-term debt obligations. The Company has historically required significant cash to fund capital expenditures and debt
service costs. Historically, the Company has funded these requirements through cash flows from
operating activities, borrowings under its credit facilities, equity contributions from Charter
Holdco, sales of assets, issuances of debt securities and cash on hand. However, the mix
of funding sources changes from period to period. For the year ended December 31, 2004, the
Company generated $431 million of net cash flows from operating activities, after paying cash
interest of $1.3 billion. In addition, the Company generated approximately $744 million
from the sale of assets, substantially all of which was used to fund operations, including capital
expenditures. Finally, the Company had net cash flows from financing activities of $221 million,
which included, among other things, the proceeds from the issuance in December 2004 of $550 million
of CCO Holdings, LLC (CCO Holdings) notes. This debt issuance and cash flows from operating
activities were the primary reasons cash on hand increased by $461 million to $546 million at
December 31, 2004. The cash on hand was used to repay outstanding borrowings under the Companys
revolving credit facility, through a series of transactions executed in February 2005. The Company expects that cash on hand, cash flows from operating activities and the amounts
available under its credit facilities will be adequate to meet its and Charters cash needs in
2005. Cash flows from operating activities and amounts available under the Companys credit
facilities may not be sufficient to fund the Companys operations and satisfy its and Charters
principal repayment obligations that come due in 2006 and, the Company believes, will not be
sufficient to fund its operations and satisfy such repayment obligations thereafter. F-7




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##### Table of Contents



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002
(dollars in millions, except where indicated) It is likely that Charter and the Company will require additional funding to repay debt maturing
after 2006. The Company has been advised that Charter is working with its financial advisors to
address such funding requirements. However, there can be no assurance that such funding will be
available. Although Mr. Allen and his affiliates have purchased equity from Charter and Charter
Holdco in the past, Mr. Allen and his affiliates are not obligated to purchase equity from,
contribute to or loan funds to Charter, Charter Holdco or the Company
in the future. Credit Facilities and Covenants The Companys ability to operate depends upon, among other things, its continued access to capital,
including credit under the Charter Operating credit facilities. These credit facilities, along
with the Companys and its subsidiaries indentures, are subject to certain restrictive covenants,
some of which require the Company to maintain specified financial ratios and meet financial tests
and to provide audited financial statements with an unqualified opinion from the Companys
independent auditors. As of December 31, 2004, the Company was in compliance with the covenants
under its indentures and credit facilities and the indentures of its subsidiaries and the Company
expects to remain in compliance with those covenants for the next twelve months. As of December
31, 2004, the Company had borrowing availability under the credit facilities of $804 million, none
of which was restricted due to covenants. Continued access to the Companys credit facilities is
subject to the Company remaining in compliance with the applicable covenants of these credit
facilities, including covenants tied to the Companys operating performance. If the Companys
operating performance results in non-compliance with these covenants, or if any of certain other
events of non-compliance under these credit facilities or indentures governing the Companys debt
occurs, funding under the credit facilities may not be available and defaults on some or
potentially all of the Companys debt obligations could occur. An event of 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 its
other debt obligations, which could have a material adverse effect on the Companys consolidated
financial condition or results of operations. The Charter Operating credit facilities require the Company to redeem the CC V Holdings notes
within 45 days after the first date that the Charter Holdings leverage ratio is less than 8.75 to
1.0. In satisfaction of this requirement, CC V Holdings, LLC has called for redemption all of its
outstanding notes, at 103.958% of principal amount, plus accrued and unpaid interest to the date of
redemption, which is expected to be March 14, 2005. The total cost of the redemption including
accrued and unpaid interest is expected to be approximately $122 million. The Company intends to
fund the redemption with borrowings under the Charter Operating credit facilities. Parent Company Debt Obligations Any financial or liquidity problems of our parent companies could cause serious disruption to the
Companys business and have a material adverse effect on our business and results of
operations. Charters ability to make interest payments on its convertible senior notes, and, in 2006 and
2009, to repay the outstanding principal of its convertible senior notes of $156 million and $863
million, respectively, will depend on its ability to raise additional capital and/or on receipt of
payments or distributions from Charter Holdco or its subsidiaries, including CCH II, LLC (CCH
II), CCO Holdings and Charter Operating. The indentures governing the CCH II notes, CCO Holdings
notes, and Charter Operating notes, however, restrict these entities and their subsidiaries from
making distributions to their parent companies (including Charter, Charter Holdco and Charter
Holdings) for payment of principal on the parent company debt obligations, in each case unless
there is no default under the applicable indenture and a specified leverage ratio test is met at
the time of such event. CCH II, CCO Holdings and Charter Operating meet the applicable leverage
ratio test under each of their respective indentures, and as a result are not prohibited from
making any such distributions to their respective direct parent at this time. Charter is required to
register by April 21, 2005 its recently issued 5.875% convertible
notes due 2009. If these convertible notes are not registered by such date, Charter will incur
liquidated damages as defined in the related indenture. In conjunction with issuing these
convertible notes, Charter also filed a registration statement to sell up to 150 million shares of
Charters Class A common stock pursuant to a share lending
agreement. These shares F-8




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##### Table of Contents



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002
(dollars in millions, except where indicated) are required to be registered by April 1, 2005.
If such shares are not registered by such date, Charter will incur
liquidated damages as defined in the related indenture. Specific Limitations at Charter Holdings The indentures governing the Charter Holdings notes permit Charter Holdings to make distributions
to Charter Holdco for payment of interest or principal on the convertible senior notes, only if,
after giving effect to the distribution, Charter Holdings can incur additional debt under the
leverage ratio of 8.75 to 1.0, there is no default under Charter Holdings indentures and other
specified tests are met. For the quarter ended December 31, 2004, there was no default under
Charter Holdings indentures and other specified tests were met. In addition, Charter Holdings met
the leverage ratio of 8.75 to 1.0 based on December 31, 2004 financial results. As a result,
distributions from Charter Holdings to Charter or Charter Holdco are not currently restricted.
Such distributions will again be restricted, however, if Charter Holdings fails to meet its
leverage ratio test. In the past, Charter Holdings has from time to time failed to meet this
leverage ratio test and there can be no assurance that Charter Holdings will satisfy this test in
the future. During periods when such distributions are restricted, the indentures governing the Charter
Holdings notes permit Charter Holdings and its subsidiaries to make specified investments in
Charter Holdco or Charter, up to an amount determined by a formula, as long as there is no default
under the indentures. As of December 31, 2004, Charter Holdco had $106 million in cash on hand and
was owed $29 million in intercompany loans from its subsidiaries, which were available to pay
interest on Charters 4.75% convertible senior notes, which is expected to be approximately $7
million in 2005. In addition, Charter has $144 million of U.S government securities pledged as
security for the six interest payments on Charters 5.875% convertible senior notes. Sale of Assets In March 2004, the Company closed the sale of certain cable systems in Florida, Pennsylvania,
Maryland, Delaware and West Virginia to Atlantic Broadband Finance, LLC. The Company closed the
sale of an additional cable system in New York to Atlantic Broadband Finance, LLC in April 2004.
These transactions resulted in a $104 million pretax gain recorded as a gain on sale of assets in
the Companys consolidated statements of operations. Subject to post-closing contractual
adjustments, the total net proceeds from the sale of all of these systems were approximately $733
million. The proceeds were used to repay a portion of amounts outstanding under the Companys
credit facilities. 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. 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 indirect costs associated with these support
functions. Indirect costs 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. F-9




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##### Table of Contents



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002
(dollars in millions, except where indicated) Costs for repairs and maintenance are charged to operating expense as incurred, while plant and
equipment replacement and betterments, including replacement of cable drops from the pole to the
dwelling, are capitalized. Depreciation is recorded using the straight-line composite method over managements estimate of the
useful lives of the related assets as follows: Cable distribution systems
    
    7-20 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. Effective 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. 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 over
the terms of the related borrowings. 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. Charter 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. The following summarizes investment information as of and for the years ended December 31, 2004 and
2003: Gain (loss) forCarrying Value at
    
    
    the Years EndedDecember 31,
    
    
    December 31,2004
    
    
    2003
    
    
    2004
    
    
    2003
    
    
    2002Equity investments, under the cost method
    
    $
    8
    
    
    $
    30
    
    
    $
    (3
    )
    
    $
    (2
    )
    
    $
    Equity investments, under the equity method
    
    
    24
    
    
    
    10
    
    
    
    6
    
    
    
    2
    
    
    
    (2
    )Marketable securities, at market value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2$
    32
    
    
    $
    40
    
    
    $
    3
    
    
    $
    
    
    
    $
    
 F-10




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##### Table of Contents



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002
(dollars in millions, except where indicated) 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 impairment of
the Companys indefinite life franchise under SFAS No. 142, 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 2004, 2003 and 2002. 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. For those instruments
which qualify as hedging activities, related gains or losses are recorded in accumulated other
comprehensive income. For all other derivative instruments, the related gains or losses are
recorded in the income statement. 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 are
reported as revenues on a gross basis with a corresponding operating expense. 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 network 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. Certain programming contracts contain launch incentives to be
paid by the programmers. The Company receives these payments related to the 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 $59 million, $62 million and $57 million for the years ended December 31,
2004, 2003 and 2002, respectively. Programming costs included in the accompanying statement of
operations were $1.3 billion, $1.2 billion and $1.2 billion for the years ended December 31, 2004,
2003 and 2002, respectively. As of December 31, 2004 and 2003, the deferred amount of launch
incentives, included in other long-term liabilities, totaled $106 million and $170 million,
respectively. F-11




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##### Table of Contents



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002
(dollars in millions, except where indicated) Advertising Costs Advertising costs associated with marketing the Companys products and services are generally
expensed as costs are incurred. Such advertising expense was $72 million, $62 million and $60
million for the years ended December 31, 2004, 2003 and 2002, 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 was applied only to
awards granted or modified after January 1, 2003, whereas awards granted prior to such date were
accounted for under APB No. 25, unless they were modified or settled in cash. 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 31,2004
    
    
    2003
    
    
    2002Net loss
    
    $
    (4,399
    )
    
    $
    (770
    )
    
    $
    (6,199
    )Add back stock-based compensation expense related to stock
options included in reported net loss
    
    
    31
    
    
    
    4
    
    
    
    5Less employee stock-based compensation expense determined under fair
value based method for all employee stock option awards
    
    
    (33
    )
    
    
    (30
    )
    
    
    (105
    )Effects of unvested options in stock option exchange (see Note 16)
    
    
    48
    
    
    
    
    
    
    
    Pro forma
    
    $
    (4,353
    )
    
    $
    (796
    )
    
    $
    (6,299
    )
 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, 2004, 2003 and 2002, respectively: risk-free interest rates of 3.3%, 3.0%,
and 3.6%; expected volatility of 92.4%, 93.6% and 64.2%; and expected lives of 4.6 years, 4.5 years
and 4.3 years, respectively. The valuations assume no dividends are paid. Unfavorable Contracts and Other Settlements The Company recognized $5 million of benefit for the year ended December 31, 2004 related to
changes in estimated legal reserves established as part of previous business combinations, which,
based on an evaluation of current facts and circumstances, are no longer required. 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 F-12




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##### Table of Contents



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002
(dollars in millions, except where indicated) the Bresnan acquisition in 2000. The remaining benefit relates to the reversal of previously
recorded liabilities, which are no longer required. Income Taxes Charter Holdings is a single member limited liability company not subject to income tax. Charter
Holdings holds all operations through indirect subsidiaries. The majority of these indirect
subsidiaries are limited liability companies that are also not subject to income tax. However,
certain of Charter Holdings indirect subsidiaries are corporations that are subject to income tax.
The Company recognizes deferred tax assets and liabilities for temporary differences between the
financial reporting basis and the tax basis of these indirect corporate subsidiaries 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 $656 million and $694
million of preferred membership interests in CC VIII, LLC (CC VIII), an indirect subsidiary of
Charter Holdings, as of December 31, 2004 and 2003, 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, minority interest also includes $25
million of preferred interest in Charter Helicon, LLC, another indirect subsidiary of Charter
Holdings, issued in connection with the Helicon acquisition. The preferred interest in Charter
Helicon, LLC accrues interest at 10% per annum. As of December 31, 2004, the preferred interest was
reclassified to other long-term liabilities. 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 information is available that is evaluated on a
regular basis by the chief operating decision maker, 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. The purchase price has been allocated to assets acquired and liabilities assumed based on
fair values, including approximately $8 million assigned to intangible F-13




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##### Table of Contents



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002
(dollars in millions, except where indicated) assets and amortized over an average useful life of three years and approximately $52 million
assigned to goodwill. 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. 5. Allowance for Doubtful Accounts Activity in the allowance for doubtful accounts is summarized as follows for the years presented: Year Ended December 31,2004
    
    
    2003
    
    
    2002Balance, beginning of year
    
    $
    17
    
    
    $
    19
    
    
    $
    33Charged to expense
    
    
    92
    
    
    
    79
    
    
    
    108Uncollected balances written off, net of recoveries
    
    
    (94
    )
    
    
    (81
    )
    
    
    (122
    )Balance, end of year
    
    $
    15
    
    
    $
    17
    
    
    $
    19
 6. Property, Plant and Equipment Property, plant and equipment consists of the following as of December 31, 2004 and 2003: 2004
    
    
    2003Cable distribution systems
    
    $
    6,555
    
    
    $
    6,304Customer equipment and installations
    
    
    3,497
    
    
    
    3,157Vehicles and equipment
    
    
    419
    
    
    
    415Buildings and leasehold improvements
    
    
    518
    
    
    
    524Furniture and fixtures
    
    
    263
    
    
    
    24211,252
    
    
    
    10,642Less: accumulated depreciation
    
    
    (5,142
    )
    
    
    (3,834
    )$
    6,110
    
    
    $
    6,808
 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 F-14




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##### Table of Contents



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002
(dollars in millions, except where indicated) 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, 2004, 2003 and 2002 was $1.5 billion, $1.5
billion and $1.4 billion respectively. 7. Franchises and Goodwill 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 are tested for impairment annually based on valuations, or more frequently as warranted
by events or changes in circumstances. Based on the guidance prescribed in Emerging Issues Task
Force (EITF) Issue No. 02-7, Unit of Accounting for Testing of Impairment of Indefinite-Lived
Intangible Assets, franchises are aggregated into essentially inseparable asset groups to conduct
the valuations. The asset groups generally represent geographic clustering of the Companys cable
systems into groups by which such systems are managed. Management believes such grouping
represents the highest and best use of those assets. The Companys valuations, which are based on the present value of projected after tax cash flows,
result in a value of property, plant and equipment, franchises, customer relationships and its
total entity value. The value of goodwill is the difference between the total entity value and
amounts assigned to the other assets. Franchises, for valuation purposes, are defined as the future economic benefits of the right to
solicit and service potential customers (customer marketing rights), and the right to deploy and
market new services such as interactivity and telephony to the potential customers (service
marketing rights). Fair value is determined based on estimated discounted future cash flows using
assumptions consistent with internal forecasts. The franchise after-tax cash flow is calculated as
the after-tax cash flow generated by the potential customers obtained and the new services added to
those customers in future periods. The sum of the present value of the franchises after-tax cash
flow in years 1 through 10 and the continuing value of the after-tax cash flow beyond year 10
yields the fair value of the franchise. Prior to the adoption of EITF Topic D-108, Use of the
Residual Method to Value Acquired Assets Other than Goodwill, discussed below, the Company followed
a residual method of valuing its franchise assets, which had the effect of including goodwill with
the franchise assets. The Company follows the guidance of EITF Issue 02-17, Recognition of Customer Relationship
Intangible Assets Acquired in a Business Combination,in valuing customer relationships. Customer
relationships, for valuation purposes, represent the value of the business relationship with
existing customers and are calculated by projecting future after-tax cash flows from these
customers including the right to deploy and market additional services such as interactivity and
telephony to these customers. The present value of these after-tax cash flows yield the fair value
of the customer relationships. Substantially all acquisitions occurred prior to January 1, 2002.
The Company did not record any value associated with the customer relationship intangibles related
to those acquisitions. For acquisitions subsequent to January 1, 2002 the Company did assign a
value to the customer relationship intangible, which is amortized over its estimated useful life. In September 2004, EITF Topic D-108 was issued which requires the direct method of separately
valuing all intangible assets and does not permit goodwill to be included in franchise assets. The
Company performed an impairment assessment as of September 30, 2004, and adopted EITF Topic D-108
in that assessment resulting in a total franchise impairment of approximately $3.3 billion. The
Company recorded a cumulative effect of accounting change of $840 million (approximately $875
million before tax effects of $16 million and minority interest effects of $19 million) for the
year ended December 31, 2004 representing the portion of the Companys total franchise impairment
attributable to no longer including goodwill with franchise assets. The effect of the adoption was
to increase net loss by $840 million for the year ended December 31, 2004. The remaining $2.4
billion of the total franchise impairment was attributable to the use of lower projected growth
rates and the resulting revised estimates of future cash flows in the Companys valuation, and was
recorded as impairment of franchises in the Companys accompanying consolidated statements of
operations for the year ended December 31, 2004. Sustained analog video F-15




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##### Table of Contents



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002
(dollars in millions, except where indicated) customer losses by the Company in the third quarter of 2004 primarily as a result of increased
competition from direct broadcast satellite providers and decreased growth rates in the Companys
high-speed data customers in the third quarter of 2004, in part, as a result of increased
competition from digital subscriber line service providers led to the lower projected growth rates
and the revised estimates of future cash flows from those used at October 1, 2003. The valuation completed at October 1, 2003 showed franchise values in excess of book value and thus
resulted in no impairment. The Companys annual impairment assessment as of October 1, 2002, based
on revised estimates from January 1, 2002 of future cash flows and projected long-term growth rates
in the Companys valuation, led to the recognition of a $4.6 billion impairment charge in the
fourth quarter of 2002. As of December 31, 2004 and 2003, indefinite-lived and finite-lived intangible assets are presented
in the following table: December 31,2004
    
    
    2003Gross
    
    
    
    
    
    
    Net
    
    
    Gross
    
    
    
    
    
    
    NetCarrying
    
    
    Accumulated
    
    
    Carrying
    
    
    Carrying
    
    
    Accumulated
    
    
    CarryingAmount
    
    
    Amortization
    
    
    Amount
    
    
    Amount
    
    
    Amortization
    
    
    AmountIndefinite-lived intangible assets:Franchises with indefinite lives
    
    $
    9,845
    
    
    $
    
    
    
    $
    9,845
    
    
    $
    13,606
    
    
    $
    
    
    
    $
    13,606Goodwill
    
    
    52
    
    
    
    
    
    
    
    52
    
    
    
    52
    
    
    
    
    
    
    
    52$
    9,897
    
    
    $
    
    
    
    $
    9,897
    
    
    $
    13,658
    
    
    $
    
    
    
    $
    13,658Finite-lived intangible assets:Franchises with finite lives
    
    $
    37
    
    
    $
    4
    
    
    $
    33
    
    
    $
    107
    
    
    $
    33
    
    
    $
    74
 For the year ended December 31, 2004, the net carrying amount of indefinite-lived intangible
assets was reduced by $490 million as a result of the sale of cable systems, primarily the sale to
Atlantic Broadband Finance, LLC, discussed in Note 2. Additionally, in the first and fourth
quarters of 2004, approximately $29 million and $8 million, respectively, of franchises that were
previously classified as finite-lived were reclassified to indefinite-lived, based on the Companys
renewal of these franchise assets in 2003 and 2004. Franchise amortization expense for the years
ended December 31, 2004, 2003 and 2002 was $4 million, $9 million and $9 million, respectively,
which represents the amortization relating to franchises that did not qualify for indefinite-life
treatment under SFAS No. 142, including costs associated with franchise renewals. The Company
expects that amortization expense on franchise assets will be approximately $3 million annually for
each of the next five years. Actual amortization expense in future periods could differ from these
estimates as a result of new intangible asset acquisitions or divestitures, changes in useful lives
and other relevant factors. F-16




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##### Table of Contents



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002
(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, 2004 and 2003: 2004
    
    
    2003Accounts payable  trade
    
    $
    140
    
    
    $
    150Accrued capital expenditures
    
    
    60
    
    
    
    93Accrued expenses:Interest
    
    
    310
    
    
    
    270Programming costs
    
    
    278
    
    
    
    319Franchise related fees
    
    
    67
    
    
    
    70State sales tax
    
    
    47
    
    
    
    61Other
    
    
    210
    
    
    
    216$
    1,112
    
    
    $
    1,179
 9. Long-Term Debt Long-term debt consists of the following as of December 31, 2004 and 2003: 2004
    
    
    2003Face
    
    
    Accreted
    
    
    Face
    
    
    AccretedValue
    
    
    Value
    
    
    Value
    
    
    ValueLong-Term DebtCharter Holdings:8.250% senior notes due 2007
    
    $
    451
    
    
    $
    451
    
    
    $
    451
    
    
    $
    4508.625% senior notes due 2009
    
    
    1,244
    
    
    
    1,243
    
    
    
    1,244
    
    
    
    1,2429.920% senior discount notes due 2011
    
    
    1,108
    
    
    
    1,108
    
    
    
    1,108
    
    
    
    1,08210.000% senior notes due 2009
    
    
    640
    
    
    
    640
    
    
    
    640
    
    
    
    64010.250% senior notes due 2010
    
    
    318
    
    
    
    318
    
    
    
    318
    
    
    
    31811.750% senior discount notes due 2010
    
    
    450
    
    
    
    448
    
    
    
    450
    
    
    
    40010.750% senior notes due 2009
    
    
    874
    
    
    
    874
    
    
    
    874
    
    
    
    87311.125% senior notes due 2011
    
    
    500
    
    
    
    500
    
    
    
    500
    
    
    
    50013.500% senior discount notes due 2011
    
    
    675
    
    
    
    589
    
    
    
    675
    
    
    
    5179.625% senior notes due 2009
    
    
    640
    
    
    
    638
    
    
    
    640
    
    
    
    63810.000% senior notes due 2011
    
    
    710
    
    
    
    708
    
    
    
    710
    
    
    
    70811.750% senior discount notes due 2011
    
    
    939
    
    
    
    803
    
    
    
    939
    
    
    
    71712.125% senior discount notes due 2012
    
    
    330
    
    
    
    259
    
    
    
    330
    
    
    
    231CCH II, LLC:10.250% senior notes due 2010
    
    
    1,601
    
    
    
    1,601
    
    
    
    1,601
    
    
    
    1,601CCO Holdings, LLC:8 3/4% senior notes due 2013
    
    
    500
    
    
    
    500
    
    
    
    500
    
    
    
    500Senior floating rate notes due 2010
    
    
    550
    
    
    
    550
    
    
    
    
    
    
    
    Charter Operating:8% senior second-lien notes due 2012
    
    
    1,100
    
    
    
    1,100
    
    
    
    
    
    
    
    8 3/8% senior second-lien notes due 2014
    
    
    400
    
    
    
    400
    
    
    
    
    
    
    
    Renaissance Media Group LLC:10.000% senior discount notes due 2008
    
    
    114
    
    
    
    116
    
    
    
    114
    
    
    
    116CC V Holdings, LLC:11.875% senior discount notes due 2008
    
    
    113
    
    
    
    113
    
    
    
    113
    
    
    
    113
 F-17




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##### Table of Contents



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002
(dollars in millions, except where indicated) 2004
    
    
    2003Face
    
    
    Accreted
    
    
    Face
    
    
    AccretedValue
    
    
    Value
    
    
    Value
    
    
    ValueCredit FacilitiesCharter Operating
    
    
    5,515
    
    
    
    5,515
    
    
    
    4,459
    
    
    
    4,459CC VI Operating
    
    
    
    
    
    
    
    
    
    
    868
    
    
    
    868Falcon Cable
    
    
    
    
    
    
    
    
    
    
    856
    
    
    
    856CC VIII Operating
    
    
    
    
    
    
    
    
    
    
    1,044
    
    
    
    1,044$
    18,772
    
    
    $
    18,474
    
    
    $
    18,434
    
    
    $
    17,873
 The accreted values 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. In April 2004, the Companys indirect subsidiaries, Charter Operating and Charter Communications
Operating Capital Corp., sold $1.5 billion of senior second-lien notes in a private transaction.
Additionally, Charter Operating amended and restated its $5.1 billion credit facilities, among
other things, to defer maturities and increase availability under those facilities to approximately
$6.5 billion, consisting of a $1.5 billion six-year revolving credit facility, a $2.0 billion
six-year term loan facility and a $3.0 billion seven-year term loan facility. Charter Operating
used the additional borrowings under the amended and restated credit facilities, together with
proceeds from the sale of the Charter Operating senior second-lien notes to refinance the credit
facilities of its subsidiaries, CC VI Operating Company, LLC (CC VI Operating), Falcon Cable
Communications, LLC (Falcon Cable), and CC VIII Operating, LLC (CC VIII Operating), all in
concurrent transactions. In addition, Charter Operating was substituted as the lender in place of
the banks under those subsidiaries credit facilities. These transactions resulted in losses on
extinguishment of debt of $21 million. In September 2003, Charter, Charter Holdings and their indirect 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 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, and realized 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. This transaction resulted in the Company recording a gain on
extinguishment of debt of $187 million for the year ended December 31, 2003. See discussion of the
CCH II notes below for more details. March 1999 Charter Holdings Notes.The March 1999 Charter Holdings notes are general unsecured
obligations of Charter Holdings and Charter Communications Capital Corporation (Charter Capital).
The March 1999 8.250% Charter Holdings notes mature on April 1, 2007, and as of December 31, 2004,
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, 2004, 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, 2004, the total principal amount outstanding and accreted value was $1.1
billion. Cash interest on the March 1999 9.920% Charter Holdings notes began to accrue on April 1,
2004. The March 1999 Charter Holdings notes are senior debt obligations of Charter Holdings and Charter
Capital. They rank equally with all other current and future unsubordinated obligations of Charter
Holdings and Charter Capital. They are structurally subordinated to the obligations of Charter
Holdings subsidiaries, including the CCH II notes, the CCO Holdings notes, the Renaissance notes,
the CC V Holdings notes, the Charter Operating credit facilities and the Charter Operating notes. Charter Holdings and Charter Capital will not have the right to redeem the March 1999 8.250%
Charter Holdings notes prior to their maturity on April 1, 2007. 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. F-18




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##### Table of Contents



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002
(dollars in millions, except where indicated) 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 notes contain restrictive covenants that
limit certain transactions or activities by Charter Holdings and its restricted subsidiaries.
Substantially all of Charter Holdings direct and indirect subsidiaries are currently restricted
subsidiaries. January 2000 Charter Holdings Notes.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, 2004, 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, 2004, 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, 2004, the total principal amount outstanding was $450 million and the
total accreted value of these notes was approximately $448 million. Cash interest on the January
2000 11.75% Charter Holdings notes began to accrue on January 15, 2005. The January 2000 Charter Holdings notes are senior debt obligations of Charter Holdings and Charter
Capital. They rank equally with all other current and future unsubordinated obligations of Charter
Holdings and Charter Capital. They are structurally subordinated to the obligations of Charter
Holdings subsidiaries, including the CCH II notes, the CCO Holdings notes, the Renaissance notes,
the CC V Holdings notes, the Charter Operating credit facilities and the Charter Operating notes. Charter Holdings and Charter Capital will not have the right to redeem the January 2000 10.00%
Charter Holdings notes prior to their maturity on April 1, 2009. 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 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, 2004, 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, 2004, 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, 2004, the total
accreted value of these 13.500% notes was approximately $589 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 debt obligations of Charter Holdings and Charter
Capital. They rank equally with all other current and future unsubordinated obligations of Charter
Holdings and Charter Capital. They are structurally subordinated to the obligations of Charter
Holdings subsidiaries, including the CCH II notes, the CCO Holdings notes, the Renaissance notes,
the CC V Holdings notes, the Charter Operating credit facilities and the Charter Operating notes. F-19




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##### Table of Contents



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002
(dollars in millions, except where indicated) 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 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, 2004, combined with the January 2002 additional
bond issue, 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, 2004, combined with the
January 2002 additional bond issue, there was $710 million in total principal amount outstanding.
The May 2001 11.750% Charter Holdings notes mature on May 15, 2011 and as of December 31, 2004, the
total principal amount outstanding was $939 million and the total accreted value of the 11.750%
notes was approximately $803 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 debt obligations of Charter Holdings and Charter
Capital. They rank equally with all other current and future unsubordinated obligations of Charter
Holdings and Charter Capital. They are structurally subordinated to the obligations of Charter
Holdings subsidiaries, including the CCH II notes, the CCO Holdings notes, the Renaissance notes,
the CC V Holdings notes, the Charter Operating credit facilities and the Charter Operating notes. Charter Holdings and Charter Capital will not have the right to redeem the May 2001 9.625% Charter
Holdings notes prior to their maturity on November 15, 2009. 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. January 2002 Charter Holdings Notes.The January 2002 Charter Holdings notes are general unsecured
obligations of Charter Holdings and Charter Capital. The January 2002 Charter Holdings notes
consist of $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,
2004, the total principal amount outstanding was $330 million and the total accreted value of these
notes was approximately $259 million. Cash interest on the January 2002 12.125% Charter Holdings
notes will not accrue prior to January 15, 2007. F-20




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##### Table of Contents



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002
(dollars in millions, except where indicated) The January 2002 Charter Holdings notes are senior debt obligations of Charter Holdings and Charter
Capital. They rank equally with the current and future unsecured and unsubordinated debt of
Charter Holdings. They are structurally subordinated to the obligations of Charter Holdings
subsidiaries, including the CCH II notes, the CCO Holdings notes, the Renaissance notes, the CC V
Holdings notes, the Charter Operating credit facilities and the Charter Operating notes. 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. 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, the
Renaissance notes, the CC V Holdings notes, the Charter Operating credit facilities and the Charter
Operating notes. Interest on the CCH II notes accrues at 10.25% per annum and 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. Substantially all of CCH
IIs direct and indirect subsidiaries are currently restricted subsidiaries. CCO Holdings Notes. 8 3/4% Senior Notes due 2013 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 F-21




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CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002
(dollars in millions, except where indicated) subordinated to all obligations of CCO Holdings subsidiaries, including the Renaissance notes, the
CC V Holdings notes, the Charter Operating credit facilities and the Charter Operating notes. Interest on the CCO Holdings senior notes accrues at 8 3/4% per year and is payable semi-annually in
arrears on each May 15 and November 15. 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. Senior Floating Rate Notes Due 2010 In December 2004, CCO Holdings and CCO Holdings Capital Corp. jointly issued $550 million total
principal amount of senior floating rate notes due 2010. Interest on the CCO Holdings senior floating rate notes accrues at the LIBOR rate plus 4.125%
annually, from December 15, 2004 or, if interest already has been paid, from the date it was most
recently paid. Interest is reset and payable quarterly in arrears on each March 15, June 15,
September 15 and December 15, commencing on March 15, 2005. At any time prior to December 15, 2006, the issuers of the senior floating rate notes may redeem up
to 35% of the notes in an amount not to exceed the amount of proceeds of one or more public equity
offerings at a redemption price equal to 100% of the principal amount, plus a premium equal to the
interest rate per annum applicable to the notes on the date notice of redemption is given, plus
accrued and unpaid interest, if any, to the redemption date, provided that at least 65% of the
original aggregate principal amount of the notes issued remains outstanding after the redemption. The issuers of the senior floating rate notes may redeem the notes in whole or in part at the
issuers option from December 15, 2006 until December 14, 2007 for 102% of the principal amount,
from December 15, 2007 until December 14, 2008 for 101% of the principal amount and from and after
December 15, 2008, at par, in each case, plus accrued and unpaid interest. The indentures governing the CCO Holdings senior notes contain restrictive covenants that limit
certain transactions or activities by CCO Holdings and its restricted subsidiaries. Substantially
all of CCO Holdings direct and indirect subsidiaries are currently restricted subsidiaries. Charter Operating Notes.On April 27, 2004, Charter Operating and Charter Communications Operating
Capital Corp. jointly issued $1.1 billion of 8% senior second-lien notes due 2012 and $400 million
of 8 3/8% senior second-lien notes due 2014, for total gross proceeds of $1.5 billion. Interest on
the Charter Operating notes is payable semi-annually in arrears on each April 30 and October 30,
commencing on October 30, 2004. The Charter Operating notes were sold in a private transaction that was not subject to the
registration requirements of the Securities Act of 1933. The Charter Operating notes are not
expected to have the benefit of any exchange or other registration rights, except in specified
limited circumstances. On the issue date of the Charter Operating notes, because F-22




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CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002
(dollars in millions, except where indicated) of restrictions contained in the Charter Holdings indentures, there were no Charter Operating note
guarantees, even though Charter Operatings immediate parent, CCO Holdings, and certain of the
Companys subsidiaries were obligors and/or guarantors under the Charter Operating credit
facilities. Upon the occurrence of the guarantee and pledge date (generally, the fifth business day after the
Charter Holdings leverage ratio is certified to be below 8.75 to 1.0), CCO Holdings and those
subsidiaries of Charter Operating that are then guarantors of, or otherwise obligors with respect
to, indebtedness under the Charter Operating credit facilities and related obligations will be
required to guarantee the Charter Operating notes. The note guarantee of each such guarantor will
be:  
    a senior obligation of such guarantor;
    structurally senior to the outstanding senior notes of CCO Holdings and CCO Holdings
Capital Corp. (except in the case of CCO Holdings note guarantee, which ranks equally
with such senior notes), the outstanding senior notes of CCH II and CCH II Capital
Corp., the outstanding senior notes and senior discount notes of Charter Holdings, the
outstanding convertible senior notes of Charter and any future indebtedness of parent
companies of CCO Holdings (but subject to provisions in the Charter Operating indenture
that permit interest and, subject to meeting the 4.25 to 1.0 leverage ratio test,
principal payments to be made thereon); and
    senior in right of payment to any future subordinated indebtedness of such
guarantor. As a result of the above leverage ratio test being met, CCO Holdings and certain of its
subsidiaries provided the additional guarantees described above during the first quarter of 2005. All the subsidiaries of Charter Operating (except CCO NR Sub, LLC, and certain other subsidiaries
that are not deemed material and are designated as nonrecourse subsidiaries under the Charter
Operating credit facilities) are restricted subsidiaries of Charter Operating under the Charter
Operating notes. Unrestricted subsidiaries generally will not be subject to the restrictive
covenants in the Charter Operating indenture. In the event of specified change of control events, Charter Operating must offer to purchase the
Charter Operating notes at a purchase price equal to 101% of the total principal amount of the
Charter Operating notes repurchased plus any accrued and unpaid interest thereon. The indenture governing the Charter Operating senior notes contains restrictive covenants that
limit certain transactions or activities by Charter Operating and its restricted subsidiaries.
Substantially all of Charter Operatings direct and indirect subsidiaries are currently restricted
subsidiaries. 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, 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. In February 2005, these
notes were called with an anticipated redemption date of March 14, 2005. 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., Charter
Operating, Charter Communications Operating Capital Corp., the CC V Holdings notes issuers,
Renaissance Media Group, and all of their restricted subsidiaries to: F-23




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CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002
(dollars in millions, except where indicated)  
    incur additional debt;
    pay dividends on equity or repurchase equity;
    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;
    engage in certain transactions with affiliates; and
    grant liens. Charter Operating Credit Facilities.In April 2004, Charter Operating amended and restated its
$5.1 billion credit facilities, among other things, to defer maturities and increase availability
under those facilities to approximately $6.5 billion, consisting of a $1.5 billion revolving credit
facility with a maturity date in 2010; a $2.0 billion Term A loan facility of which 12.5% matures
in 2007, 30% matures in 2008, 37.5% matures in 2009 and 20% matures in 2010; and a $3.0 billion
Term B loan facility which is repayable in 27 equal quarterly installments aggregating in each loan
year to 1% of the original amount of the Term B facility, with the remaining balance due at final
maturity in 2011. Charter Operating used the additional borrowings under the amended and restated
credit facilities, together with proceeds from the sale of the Charter Operating senior second-lien
notes to refinance the credit facilities of its subsidiaries, CC VI Operating, Falcon Cable, and CC
VIII Operating,, all in concurrent transactions. In addition, Charter Operating was substituted as
the lender in place of the banks under those subsidiaries credit facilities. Amounts outstanding under the Charter Operating credit facilities bear interest, at Charter
Operatings election, at a base rate or the Eurodollar rate (2.07% to 2.28% as of December 31,
2004), as defined, plus a margin for Eurodollar loans of up to 3.00% for the Term A facility and
revolving credit facility, and up to 3.25% for the Term B facility, and for base rate loans of up
to 2.00% for the Term A facility and revolving credit facility, and up to 2.25% for the Term B
facility. A quarterly commitment fee of up to .75% is payable on the average daily unborrowed
balance of the revolving credit facilities. The obligations under the Charter Operating credit facilities (the Obligations) are guaranteed by
Charter Operatings immediate parent company, CCO Holdings, and the subsidiaries of Charter
Operating, except for immaterial subsidiaries and subsidiaries precluded from guaranteeing by
reason of the provisions of other indebtedness to which they are subject (the non-guarantor
subsidiaries, primarily Renaissance and CC V Holdings and their subsidiaries). The Obligations
are also secured by (i) a lien on all of the assets of Charter Operating and its subsidiaries
(other than assets of the non-guarantor subsidiaries), to the extent such lien can be perfected
under the Uniform Commercial Code by the filing of a financing statement, and (ii) by a pledge by
CCO Holdings of the equity interests owned by it in Charter Operating or any of Charter Operatings
subsidiaries, as well as intercompany obligations owing to it by any of such entities. Upon the
Charter Holdings Leverage Ratio (as defined in the indenture governing the Charter Holdings senior
notes and senior discount notes) being under 8.75 to 1.0, the Charter Operating credit facilities
require that the 11.875% notes due 2008 issued by CC V Holdings, LLC be redeemed. Because such
Leverage Ratio was determined to be under 8.75 to 1.0, in February 2005, CC V Holdings has called
for redemption of such notes with an anticipated redemption date of March 14, 2005. Following such
redemption and provided the Leverage Ratio of Charter Holdings remains under 8.75 to 1.0, CC V
Holdings and its subsidiaries (other than non-guarantor subsidiaries) will guarantee the
Obligations and grant a lien on all of their assets as to which a lien can be perfected under the
Uniform Commercial Code by the filing of a financing statement. The Charter Operating credit facilities were amended and restated previously 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. F-24




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##### Table of Contents



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002
(dollars in millions, except where indicated) Amounts under the Charter Operating credit facilities, as amended in 2003, bore 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 was payable on the unborrowed balance of the revolving credit
facilities. As of December 31, 2004, outstanding borrowings under the Charter Operating credit facilities were
approximately $5.5 billion and the unused total potential availability was $804 million. CC VI Operating Credit Facilities.As discussed above, in April 2004, Charter Operating was
substituted as the lender in place of the banks for the CC VI Operating Credit
Facilities. Prior to April 2004, amounts under the CC VI Operating credit facilities bore 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 was payable on the unborrowed balance of the Term A facility and the revolving
facility. Falcon Cable Credit Facilities.As discussed above, in April 2004, Charter Operating was
substituted as the lender in place of the banks for the Falcon Cable Credit Facilities. Prior to April 2004, amounts under the Falcon Cable credit facilities bore 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 was payable on the unborrowed balance of the
revolving facilities. CC VIII Operating Credit Facilities.As discussed above, in April 2004, Charter Operating was
substituted as the lender in place of the banks for the CC VIII Operating Credit
Facilities. Prior to April 2004, 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% was payable on the unborrowed balance of the revolving credit facilities. Charter Operating Credit Facilities Restrictive Covenants.The Charter Operating credit facilities
contain representations and warranties, affirmative and negative covenants similar to those
described above with respect to the indentures governing the Companys notes, 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 facilities also provide 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 facilities will mature and the
revolving credit facilities will terminate on such date. The events of default under the Charter
Operating credit facilities include, among other things:  
    the failure to make payments when due or within the applicable grace period,
    the failure to comply with specified covenants, including but not limited to a covenant
to deliver audited financial statements with an unqualified opinion from the Companys
independent auditors,
    the failure to pay or the occurrence of events that cause or permit the acceleration of
other indebtedness owing by CCO Holdings, Charter Operating or Charter Operatings
subsidiaries in amounts in excess of $50 million in aggregate principal amount,
    the failure to pay or the occurrence of events that result in the acceleration of other
indebtedness owing by certain of CCO Holdings direct and indirect parent companies in
amounts in excess of $200 million in aggregate principal amount, F-25




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CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002
(dollars in millions, except where indicated)  
    Paul Allen and/or certain of his family members and/or their exclusively owned entities
(collectively, the Paul Allen Group) ceasing to have the power, directly or indirectly,
to vote at least 35% of the ordinary voting power of Charter Operating,
    the consummation of any transaction resulting in any person or group (other than the
Paul Allen Group) having power, directly or indirectly, to vote more than 35% of the
ordinary voting power of Charter Operating, unless the Paul Allen Group holds a greater
share of ordinary voting power of Charter Operating,
    certain of Charter Operatings indirect or direct parent companies having indebtedness
in excess of $500 million aggregate principal amount which remains undefeased three months
prior to the final maturity of such indebtedness, and
    Charter Operating ceasing to be a wholly-owned direct subsidiary of CCO Holdings, except
in certain very limited circumstances. 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 would not permit the Companys subsidiaries to distribute funds to the
Company to pay interest or principal on the Companys notes or its parent companies notes. 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 or its parent companies notes. Additionally, an acceleration or payment default under
Charter Operatings credit facilities would cause a cross-default in the indentures governing the
Charter Holdings notes, CCH II notes, CCO Holdings notes, Charter Operating 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, 2004, 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 and debentures, total future principal payments on the
total borrowings under all debt agreements as of December 31, 2004, are as follows: Year
    
    Amount2005
    
    $
    302006
    
    
    302007
    
    
    7312008
    
    
    8572009
    
    
    4,178Thereafter
    
    
    12,946$
    18,772
 For the amounts of debt scheduled to mature during 2005, 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. Additionally, the Company reports changes in the fair
value of interest rate agreements designated as hedging the variability of cash flows associated
with floating-rate debt obligations, that meet the effectiveness F-26




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CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002
(dollars in millions, except where indicated) criteria of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, in
accumulated other comprehensive loss. Comprehensive loss for the years ended December 31, 2004,
2003 and 2002 was $4.4 billion, $722 million and $6.3 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) to manage its interest costs. The Companys policy is to manage interest costs using a
mix of fixed and variable rate debt. Using interest rate swap agreements, the Company has agreed
to exchange, at specified intervals through 2007, the difference between fixed and variable
interest amounts calculated by reference to an agreed-upon notional principal amount. Interest
rate collar agreements are used to limit the Companys exposure to and benefits from interest rate
fluctuations on variable rate debt to within a certain range of rates. The Company does not hold or issue derivative instruments for trading purposes. The Company does,
however, have certain interest rate derivative instruments that have been designated as cash flow
hedging instruments. Such instruments 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 statement of operations.
The Company has formally documented, designated and assessed the effectiveness of transactions that
receive hedge accounting. For the years ended December 31, 2004, 2003 and 2002, net gain (loss) on
derivative instruments and hedging activities includes gains of $4 million and $8 million and
losses of $14 million, respectively, which represent cash flow hedge ineffectiveness on interest
rate hedge agreements arising from differences between the critical terms of the agreements and the
related hedged obligations. Changes in the fair value of interest rate agreements designated as
hedging instruments of the variability of cash flows associated with floating-rate debt obligations
that meet the effectiveness criteria SFAS No. 133 are reported in accumulated other comprehensive
loss. For the years ended December 31, 2004, 2003 and 2002, a gain of $42 million and $48 million
and losses of $65 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 consolidated
statement of operations. For the years ended December 31, 2004, 2003 and 2002, net gain (loss) on
derivative instruments and hedging activities includes gains of $65 million, $57 million and losses
of $101 million, respectively, for interest rate derivative instruments not designated as hedges. As of December 31, 2004, 2003 and 2002, the Company had outstanding $2.7 billion, $3.0 billion and
$3.4 billion and $20 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, 2004 and
2003 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. F-27




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CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002
(dollars in millions, except where indicated) 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 and interest rate agreements at December 31, 2004
and 2003 are based on quoted market prices, and the fair value of the credit facilities is based on
dealer quotations. A summary of the carrying value and fair value of the Companys debt and related interest rate
agreements at December 31, 2004 and 2003 is as follows: 2004
    
    
    2003Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairValue
    
    
    Value
    
    
    Value
    
    
    ValueDebtCharter Holdings debt
    
    $
    8,579
    
    
    $
    7,669
    
    
    $
    8,316
    
    
    $
    7,431CCH II debt
    
    
    1,601
    
    
    
    1,698
    
    
    
    1,601
    
    
    
    1,680CCO Holdings debt
    
    
    1,050
    
    
    
    1,064
    
    
    
    500
    
    
    
    510Charter Operating debt
    
    
    1,500
    
    
    
    1,563
    
    
    
    
    
    
    
    Credit facilities
    
    
    5,515
    
    
    
    5,502
    
    
    
    7,227
    
    
    
    6,949Other
    
    
    229
    
    
    
    236
    
    
    
    229
    
    
    
    238Interest Rate AgreementsLiabilitiesSwaps
    
    
    69
    
    
    
    69
    
    
    
    171
    
    
    
    171Collars
    
    
    1
    
    
    
    1
    
    
    
    8
    
    
    
    8
 The weighted average interest pay rate for the Companys interest rate swap agreements was 8.07%
and 7.25% at December 31, 2004 and 2003, respectively. 13. Revenues Revenues consist of the following for the years presented: Year Ended December 31,2004
    
    
    2003
    
    
    2002Video
    
    $
    3,373
    
    
    $
    3,461
    
    
    $
    3,420High-speed data
    
    
    741
    
    
    
    556
    
    
    
    337Advertising sales
    
    
    289
    
    
    
    263
    
    
    
    302Commercial
    
    
    238
    
    
    
    204
    
    
    
    161Other
    
    
    336
    
    
    
    335
    
    
    
    346$
    4,977
    
    
    $
    4,819
    
    
    $
    4,566
 F-28




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CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002
(dollars in millions, except where indicated) 14. Operating Expenses Operating expenses consist of the following for the years presented: Year Ended December 31,2004
    
    
    2003
    
    
    2002Programming
    
    $
    1,319
    
    
    $
    1,249
    
    
    $
    1,166Advertising sales
    
    
    98
    
    
    
    88
    
    
    
    87Service
    
    
    663
    
    
    
    615
    
    
    
    554$
    2,080
    
    
    $
    1,952
    
    
    $
    1,807
 15. Selling, General and Administrative Expenses Selling, general and administrative expenses consist of the following for the years presented: Year Ended December 31,2004
    
    
    2003
    
    
    2002General and administrative
    
    $
    849
    
    
    $
    833
    
    
    $
    810Marketing
    
    
    122
    
    
    
    107
    
    
    
    153$
    971
    
    
    $
    940
    
    
    $
    963
 Components of selling expense are included in general and administrative and marketing expense. 16. Stock Compensation Plans Charter grants stock options, restricted stock and other incentive compensation 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 the Company 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. F-29




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##### Table of Contents



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002
(dollars in millions, except where indicated) In the years ended December 31, 2004 and 2003, certain directors were awarded a total of 182,932
and 80,603 shares, respectively, of restricted Charter Class A common stock of which 25,705 shares
had been cancelled as of December 31, 2004. The shares vest one year from the date of grant. In
December 2003 and January 2004, in connection with new employment agreements, certain officers were
awarded 50,000 and 50,000 shares, respectively, of restricted Charter Class A common stock of which
50,000 shares had been cancelled as of December 31, 2004. The shares vest annually over a
four-year period beginning from the date of grant. As of December 31, 2004, deferred compensation
remaining to be recognized in future period totaled $0.4 million. A summary of the activity for the Companys stock options, excluding granted shares of restricted
Charter Class A common stock, for the years ended December 31, 2004, 2003 and 2002, is as follows
(amounts in thousands, except per share data): 2004
    
    
    2003
    
    
    2002Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    Exercise
    
    
    
    
    
    
    ExerciseShares
    
    
    Price
    
    
    Shares
    
    
    Price
    
    
    Shares
    
    
    PriceOptions outstanding, beginning of period
    
    
    47,882
    
    
    $
    12.48
    
    
    
    53,632
    
    
    $
    14.22
    
    
    
    46,558
    
    
    $
    17.10Granted
    
    
    9,405
    
    
    
    4.88
    
    
    
    7,983
    
    
    
    3.53
    
    
    
    13,122
    
    
    
    4.88Exercised
    
    
    (839
    )
    
    
    2.02
    
    
    
    (165
    )
    
    
    3.96
    
    
    
    
    
    
    
    Cancelled
    
    
    (31,613
    )
    
    
    15.16
    
    
    
    (13,568
    )
    
    
    14.10
    
    
    
    (6,048
    )
    
    
    16.32Options outstanding, end of period
    
    
    24,835
    
    
    $
    6.57
    
    
    
    47,882
    
    
    $
    12.48
    
    
    
    53,632
    
    
    $
    14.22Weighted average remaining contractual life
    
    
8 years

    
    
    
    
    
    
8 years

    
    
    
    
    
    
8 yearsOptions exercisable, end of period
    
    
    7,731
    
    
    $
    10.77
    
    
    
    22,861
    
    
    $
    16.36
    
    
    
    17,844
    
    
    $
    17.93Weighted average fair value of options granted
    
    $
    3.71
    
    
    
    
    
    
    $
    2.71
    
    
    
    
    
    
    $
    2.89
 The following table summarizes information about stock options outstanding and exercisable as of
December 31, 2004: 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  $1.60
    
    
    3,144
    
    
    8 years
    
    $
    1.52
    
    
    
    782
    
    
    8 years
    
    $
    1.45$2.85  $4.56
    
    
    7,408
    
    
    8 years
    
    
    3.45
    
    
    
    2,080
    
    
    8 years
    
    
    3.28$5.06  $5.17
    
    
    8,857
    
    
    9 years
    
    
    5.14
    
    
    
    533
    
    
    9 years
    
    
    5.06$9.13  $13.68
    
    
    2,264
    
    
    7 years
    
    
    11.08
    
    
    
    1,481
    
    
    7 years
    
    
    11.28$13.96  $23.09
    
    
    3,162
    
    
    5 years
    
    
    19.63
    
    
    
    2,855
    
    
    5 years
    
    
    19.59
 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 F-30




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##### Table of Contents



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002
(dollars in millions, except where indicated) 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 $31 million of option compensation expense for the year ended
December 31, 2004. 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 $5 million for the year ended December 31,
2002, 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. In January 2004, Charter began an option exchange program in which the Company offered its employees 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 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 the
Company 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 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 restricted stock was granted on February 25, 2004. Employees tendered approximately 79% of
the options eligible to be exchanged under the program. The cost to the Company of the stock option exchange program was approximately $10 million, with a 2004 cash compensation expense of
approximately $4 million and a non-cash compensation expense of approximately $6 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. Under the LTIP, 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. The stock options vest 25% on each of the first four anniversaries of
the date of grant. The performance shares vest on the third anniversary of the grant date and shares of Charter Class A common
stock are issued, conditional upon Charters performance against financial performance measures established by Charters management
and approved by its board of directors as of the time of the award. Charter granted 6.9 million shares in January 2004 under this
program and recognized expense of $8 million in the first three quarters of 2004. However, in the fourth quarter of 2004, the
Company reversed the entire $8 million of expense based on the Companys assessment of the probability of achieving the financial
performance measures established by Charter and required to be met for the performance shares to vest. F-31




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##### Table of Contents



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002
(dollars in millions, except where indicated) 17. Special Charges In the fourth quarter of 2002, the Company began a workforce reduction program and consolidation of
its operations from three divisions and ten regions into five operating divisions, eliminating
redundant practices and streamlining its management structure. The Company has recorded special
charges as a result of reducing its workforce and consolidating administrative offices in 2003 and
2004. The activity associated with this initiative is summarized in the table below. TotalSeverance/
    
    
    
    
    
    
    
    
    
    
    SpecialLeases
    
    
    Litigation
    
    
    Other
    
    
    ChargeSpecial Charges
    
    $
    31
    
    
    $
    
    
    
    $
    5
    
    
    $
    36Balance at December 31, 2002
    
    
    31Special Charges
    
    
    26
    
    
    $
    
    
    
    $
    (5
    )
    
    $
    21Payments
    
    
    (43
    )Balance at December 31, 2003
    
    
    14Special Charges
    
    
    12
    
    
    $
    92
    
    
    $
    
    
    
    $
    104Payments
    
    
    (20
    )Balance at December 31, 2004
    
    $
    6
 For the year ended December 31, 2002 special charges include $4 million related to legal and other
costs associated with Charters ongoing grand jury investigation, shareholder lawsuits and
Securities and Exchange Commission (SEC) investigation and $1 million associated with severance
costs related to a 2001 restructuring plan. For the year ended December 31, 2003, the severance
and lease 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. For the year ended December 31, 2004, special charges include approximately $85 million,
representing the aggregate value of the Charter Class A common stock and warrants to purchase
Charter Class A common stock contemplated to be issued as part of a settlement of consolidated
federal and state class actions and federal derivative action lawsuits and approximately $10
million of litigation costs related to the tentative settlement of a national class action suit,
all of which are subject to final documentation and court approval (see Note 20). For the year
ended December 31, 2004, special charges were offset by $3 million received from a third party in
settlement of a dispute. 18. Income Taxes Charter Holdings is a single member limited liability company not subject to income tax. Charter
Holdings holds all operations through indirect subsidiaries. The majority of these indirect
subsidiaries are limited liability companies that are also not subject to income tax. However,
certain of Charter Holdings indirect subsidiaries are corporations that 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, 2004 and 2002, the Company recorded income
tax benefit for its indirect corporate subsidiaries related to differences in accounting for
franchises. F-32




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##### Table of Contents



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002
(dollars in millions, except where indicated) Current and deferred income tax expense (benefit) is as follows: December 31,2004
    
    
    2003
    
    
    2002Current expense:Federal income taxes
    
    $
    2
    
    
    $
    1
    
    
    $
    State income taxes
    
    
    4
    
    
    
    1
    
    
    
    2Current income tax expense
    
    
    6
    
    
    
    2
    
    
    
    2Deferred benefit:Federal income taxes
    
    
    (50
    )
    
    
    10
    
    
    
    (219
    )State income taxes
    
    
    (7
    )
    
    
    1
    
    
    
    (31
    )Deferred income tax (benefit) expense:
    
    
    (57
    )
    
    
    11
    
    
    
    (250
    )Total income (benefit) expense
    
    $
    (51
    )
    
    $
    13
    
    
    $
    (248
    )
 The Company recorded the portion of the income tax benefit associated with the adoption of EITF
Topic D-108 and SFAS No.142 as a $16 million and a $32 million reduction of the cumulative effect
of accounting change on the accompanying statement of operations for the years ended December 31,
2004 and December 31, 2002, respectively. 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,
2004, 2003 and 2002 as follows: December 31,2004
    
    
    2003
    
    
    2002Statutory federal income taxes
    
    $
    (1,258
    )
    
    $
    (265
    )
    
    $
    (2,056
    )State income taxes, net of federal benefit
    
    
    (180
    )
    
    
    (38
    )
    
    
    (294
    )Losses allocated to limited liability companies not subject
to income taxes
    
    
    1,367
    
    
    
    290
    
    
    
    2,105Valuation allowance provided
    
    
    20
    
    
    
    26
    
    
    
    (3
    )Income tax (benefit) expense
    
    
    (51
    )
    
    
    13
    
    
    
    (248
    )Less: cumulative effect of accounting change
    
    
    16
    
    
    
    
    
    
    
    32Income tax (benefit) expense
    
    $
    (35
    )
    
    $
    13
    
    
    $
    (216
    )
 F-33




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##### Table of Contents



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002
(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, 2004 and 2003 for the indirect
corporate subsidiaries of the Company which are included in long-term liabilities are presented
below. December 31,2004
    
    
    2003Deferred tax assets:Net operating loss carryforward
    
    $
    95
    
    
    $
    80Other
    
    
    8
    
    
    
    6Total gross deferred tax assets
    
    
    103
    
    
    
    86Less: valuation allowance
    
    
    (71
    )
    
    
    (51
    )Net deferred tax assets
    
    $
    32
    
    
    $
    35Deferred tax liabilities:Property, plant & equipment
    
    $
    (39
    )
    
    $
    (42
    )Franchises
    
    
    (201
    )
    
    
    (260
    )Gross deferred tax liabilities
    
    
    (240
    )
    
    
    (302
    )Net deferred tax liabilities
    
    $
    (208
    )
    
    $
    (267
    )
 As of December 31, 2004 and 2003, the Company has deferred tax assets of $103 million and $86
million, respectively, which primarily relate to net operating loss carryforwards of certain of its
indirect corporate subsidiaries. These net operating loss carryforwards (generally expiring in
years 2005 through 2024) of $95 million, are subject to certain return limitations. Valuation
allowances of $71 million and $51 million exist with respect to these carryforwards as of December
31, 2004 and 2003, 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 2005
through 2024, 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 Holdco is currently under examination by the Internal Revenue Service for the tax years
ending December 31, 1999, 2000, 2002 and 2003. The results of the Company (excluding the indirect
corporate subsidiaries) for these years are subject to this examination. 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 is a party to 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 support, benefits administration and
coordination of insurance coverage and self-insurance programs for medical, F-34




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##### Table of Contents



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002
(dollars in millions, except where indicated) 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 $202 million,
$210 million and $176 million for the years ended December 31, 2004, 2003 and 2002, 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,
2004, 2003 and 2002, 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 year, 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 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 certain existing approved
investments. 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. 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. Mr. Allen or his affiliates own or have owned 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 L.L.C. (TechTV), Oxygen Media
Corporation (Oxygen Media), Digeo, Inc., Click2learn, Inc., Trail Blazer Inc., Action Sports
Cable Network (Action Sports) and Microsoft Corporation. In addition, Mr. Allen and William
Savoy, a former Charter director, 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. In May 2004, TechTV was sold to an unrelated third party. Mr. Allen owns 100% of
the equity of Vulcan Ventures Incorporated (Vulcan Ventures) and Vulcan Inc. and is the president
of Vulcan Ventures. Ms. Jo Allen Patton is a director and the President and Chief Executive
Officer of Vulcan Inc. and is a director and Vice President of Vulcan Ventures. Mr. Lance Conn is
Executive Vice President of Vulcan Inc. and Vulcan Ventures. Mr. Savoy was a vice president and a
director of Vulcan Ventures until his resignation in September 2003 and he resigned as a director
of Charter in April 2004. The various cable, media, Internet and telephony companies in which Mr.
Allen has invested may mutually benefit one another. The Company can give no assurance, nor should
you expect, 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 F-35




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##### Table of Contents



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002
(dollars in millions, except where indicated) agreements, and both Vulcan Ventures, an entity owned by Mr. Allen, and Charter Holdco made equity
investments in High Speed Access. On February 28, 2002, Charters 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 the Company nor Vulcan Ventures
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
(now G4), USA Networks, Oxygen Media, Trail Blazers Inc. 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, 2004, 2003 and 2002 were each less than 1% of total operating
expenses with the exception of USA Networks which was 2%, 2% and 2% of total operating expenses for
the years ended December 31, 2004, 2003 and 2002, 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, 2004, 2003 and 2002 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. Tech TV.The Company receives from TechTV programming for distribution via its cable system
pursuant to an affiliation agreement. 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, the Company
was entitled to incentive payments for channel launches through December 31, 2003. In March 2004, Charter Holdco entered into agreements with Vulcan Programming and TechTV, which
provide 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). For the year ended December
31, 2004, the Company recognized approximately $5 million of the Vulcan Programming payment as an
offset to programming expense and paid approximately $2 million to Tech TV under the affiliation
agreement. Oxygen.Concurrently with the execution of a carriage agreement, Charter Holdco entered into an
equity issuance agreement pursuant to which Oxygen Media LLCs (Oxygen) 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. In
February 2005, the warrant expired unexercised. Charter Holdco was also to 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,
but this commitment was later revised as discussed below. The Company recognizes the guaranteed value of the investment over the life of the carriage
agreement as a reduction of programming expense. For the years ended December 31, 2004, 2003 and
2002, the Company recorded approximately $13 million, $9 million, and $6 million, respectively, as
a reduction of programming expense. The F-36




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CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002
(dollars in millions, except where indicated) carrying value of the Companys investment in Oxygen was approximately $32 million and $19 million
as of December 31, 2004 and 2003, respectively. In August 2004, Charter Holdco and Oxygen entered into agreements that amended and renewed the
carriage agreement. The amendment to the carriage agreement (a) revises the number of the
Companys customers to which Oxygen programming must be carried and for which the Company must pay,
(b) releases Charter Holdco from any claims related to the failure to achieve distribution
benchmarks under the carriage agreement, (c) requires Oxygen to make payment on outstanding
receivables for marketing support fees due to the Company under the affiliation agreement; and (d)
requires that Oxygen provide its programming content to the Company on economic terms no less
favorable than Oxygen provides to any other cable or satellite operator having fewer subscribers
than the Company. The renewal of the carriage agreement (a) extends the period that the Company
will carry Oxygen programming to its customers through January 31, 2008, and (b) requires license
fees to be paid based on customers receiving Oxygen programming, rather than for specific customer
benchmarks. In August 2004, Charter Holdco and Oxygen also amended the equity issuance agreement to provide for
the issuance of 1 million shares of Oxygen Preferred Stock with a liquidation preference of $33.10
per share plus accrued dividends to Charter Holdco on February 1, 2005 in place of the $34 million
of unregistered shares of Oxygen Media common stock. Oxygen Media will deliver these shares in
March 2005. The preferred stock is convertible into common stock after December 31, 2007 at a
conversion ratio, the numerator of which is the liquidation preference and the denominator which is
the fair market value per share of Oxygen Media common stock on the conversion date. Digeo, Inc. In March 2001, Charter Ventures and Vulcan Ventures Incorporated formed DBroadband
Holdings, LLC for the sole purpose of purchasing equity interests in Digeo. In connection with the
execution of the broadband carriage agreement, DBroadband Holdings, LLC purchased an equity
interest in Digeo funded by contributions from Vulcan Ventures 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. After Vulcan Ventures recovers its amount contributed
and any cumulative loss allocations, Charter Ventures has a 100% profit interest in DBroadband
Holdings, LLC. Charter Ventures is not required to make any capital contributions, including
capital calls, and may require Vulcan Ventures, through January 24, 2004, to make 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 the
Companys consolidated financial statements. Pursuant to an amended version of this arrangement,
in 2003, Vulcan Ventures contributed a total of $29 million to Digeo, $7 million of which was
contributed on Charter Ventures behalf, subject to Vulcan Ventures aforementioned priority
return. Since the formation of DBroadband Holdings, LLC, Vulcan Ventures has contributed
approximately $56 million on Charter Ventures behalf. On June 30, 2003, Charter Holdco entered into an agreement with Motorola, Inc. for the purchase of
100,000 digital video recorder (DVR) units. The software for these DVR units is being supplied
by Digeo Interactive, LLC under a license agreement entered into in April 2004. Under the license
agreement Digeo Interactive granted to Charter Holdco the right to use Digeos proprietary software
for the number of DVR units that Charter deploys from a maximum of 10 headends through year-end
2004. This maximum number of headends was increased from 10 to 15 pursuant to a letter agreement
executed on June 11, 2004 and the date for entering into license agreements for units deployed was
extended to June 30, 2005. The number of headends was increased again from 15 to 20 pursuant to a
letter agreement dated August 4, 2004, from 20 to 30 pursuant to a letter agreement dated September
28, 2004 and from 30 to 50 headends by a letter agreement in February 2005. The license granted
for each unit deployed under the agreement is valid for five years. In addition, Charter will pay
certain other fees including a per-headend license fee and maintenance fees. Maximum license and
maintenance fees during the term of the agreement are expected to be approximately $7 million. The
agreement provides that Charter is entitled to receive contract terms, considered on the whole, and
license fees, considered apart from other contract terms, no less favorable than those accorded to
any other Digeo customer. Charter paid $474,400 in license and maintenance fees in 2004. F-37




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CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002
(dollars in millions, except where indicated) In April 2004, the Company launched DVR service (using units containing the Digeo software) in its
Rochester, Minnesota market using a broadband media center that is an integrated set-top terminal
with a cable converter, DVR hard drive and connectivity to other consumer electronics devices (such
as stereos, MP3 players, and digital cameras). In May 2004, Charter Holdco entered into a binding term sheet with Digeo Interactive for the
development, testing and purchase of 70,000 Digeo PowerKey DVR units. The term sheet provided that
the parties would proceed in good faith to negotiate, prior to year-end 2004, definitive agreements
for the development, testing and purchase of the DVR units and that the parties would enter into a
license agreement for Digeos proprietary software on terms substantially similar to the terms of
the license agreement described above. In November 2004, Charter Holdco and Digeo Interactive
executed the license agreement and in December 2004, the parties executed the purchase agreement,
each on terms substantially similar to the binding term sheet. Product development and testing is
continuing. Total purchase price and license and maintenance fees during the term of the
definitive agreements are expected to be approximately $41 million. The definitive agreements are
terminable at no penalty to Charter in certain circumstances. A wholly owned subsidiary of Digeo, Digeo Interactive, provides interactive channel (i-channel)
service to Charter on a month-to-month basis. In the years ended December 31, 2004, 2003 and 2002,
Charter paid Digeo Interactive $3 million, $4 million and $3 million, respectively, for customized
development of i-channels and an interactive toolkit to enable Charter to develop interactive
local content. On January 10, 2003, the Company 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 HDNet World Report. HDNet also offers a
selection of classic and recent television series. The Company paid HDNet and HDNet Movies
approximately $0.6 million in 2004. The Company believes that entities controlled by Mr. Cuban
owned approximately 81% of HDNet as of December 31, 2004. As of December 31, 2004, the Company
believes that Mark Cuban, co-founder and president of HDNet, owned approximately 6.2% of the total
common equity in Charter based on a Schedule 13G filed with the SEC on May 21, 2003. As part of the acquisition of the cable systems owned by Bresnan Communications Company Limited
Partnership in February 2000, CC VIII, LLC, Charter Holdings indirect limited liability company
subsidiary, issued, after adjustments, 24,273,943 Class A preferred membership units (collectively,
the CC VIII interest) with a value and an initial capital account of approximately $630 million
to certain sellers affiliated with AT&T Broadband, subsequently owned by Comcast Corporation (the
Comcast sellers). While held by the Comcast sellers, the CC VIII interest was entitled to a 2%
priority return on its initial capital account and such priority return was entitled to
preferential distributions from available cash and upon liquidation of CC VIII. While held by the
Comcast sellers, the CC VIII interest generally did not share in the profits and losses of CC VIII.
Mr. Allen granted the Comcast sellers the right to sell to him the CC VIII interest for
approximately $630 million plus 4.5% interest annually from February 2000 (the Comcast put
right). In April 2002, the Comcast sellers exercised the Comcast put right in full, and this
transaction was consummated on June 6, 2003. Accordingly, Mr. Allen has become the holder of the
CC VIII interest, indirectly through an affiliate. Consequently, subject to the matters referenced
in the next paragraph, Mr. Allen generally thereafter will be allocated his pro rata share (based
on number of membership interests outstanding) of profits or losses of CC VIII. In the event of a
liquidation of CC VIII, Mr. Allen would be entitled to a priority distribution with respect to the
2% priority return (which will continue to accrete). Any remaining distributions in liquidation
would be distributed to CC V Holdings, LLC and Mr. Allen in proportion to CC V Holdings, LLCs
capital account and Mr. Allens capital account (which will equal the initial capital account of
the Comcast sellers of approximately $630 million, increased or decreased by Mr. Allens pro rata
share of CC VIIIs profits or losses (as computed for capital account purposes) after June 6,
2003). The limited liability company agreement of CC VIII does not provide for a mandatory
redemption of the CC VIII interest. F-38




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CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002
(dollars in millions, except where indicated) An issue has arisen as to whether the documentation for the Bresnan transaction was correct and
complete with regard to the ultimate ownership of the CC VIII interest following consummation of
the Comcast put right. Specifically, under the terms of the Bresnan transaction documents that
were entered into in June 1999, the Comcast sellers originally would have received, after
adjustments, 24,273,943 Charter Holdco membership units, but due to an FCC regulatory issue raised
by the Comcast sellers shortly before closing, the Bresnan transaction was modified to provide that
the Comcast sellers instead would receive the preferred equity interests in CC VIII represented by
the CC VIII interest. As part of the last-minute changes to the Bresnan transaction documents, a
draft amended version of the Charter Holdco limited liability company agreement was prepared, and
contract provisions were drafted for that agreement that would have required an automatic exchange
of the CC VIII interest for 24,273,943 Charter Holdco membership units if the Comcast sellers
exercised the Comcast put right and sold the CC VIII interest to Mr. Allen or his affiliates.
However, the provisions that would have required this automatic exchange did not appear in the
final version of the Charter Holdco limited liability company agreement that was delivered and
executed at the closing of the Bresnan transaction. The law firm that prepared the documents for
the Bresnan transaction brought this matter to the attention of Charter and representatives of Mr.
Allen in 2002. Thereafter, the board of directors of Charter formed a Special Committee (currently comprised of
Messrs. Merritt, Tory and Wangberg) to investigate the matter and take any other appropriate action
on behalf of Charter with respect to this matter. After conducting an investigation of the
relevant facts and circumstances, the Special Committee determined that a scriveners error had
occurred in February 2000 in connection with the preparation of the last-minute revisions to the
Bresnan transaction documents and that, as a result, Charter should seek the reformation of the
Charter Holdco limited liability company agreement, or alternative relief, in order to restore and
ensure the obligation that the CC VIII interest be automatically exchanged for Charter Holdco
units. The Special Committee further determined that, as part of such contract reformation or
alternative relief, Mr. Allen should be required to contribute the CC VIII interest to Charter
Holdco in exchange for 24,273,943 Charter Holdco membership units. The Special Committee also
recommended to the board of directors of Charter that, to the extent the contract reformation is
achieved, the board of directors should consider whether the CC VIII interest should ultimately be
held by Charter Holdco or Charter Holdings or another entity owned directly or indirectly by them. Mr. Allen disagrees with the Special Committees determinations described above and has so notified
the Special Committee. Mr. Allen contends that the transaction is accurately reflected in the
transaction documentation and contemporaneous and subsequent company public disclosures. The parties engaged in a process of non-binding mediation to seek to resolve this matter, without
success. The Special Committee is evaluating what further actions or processes it may undertake to
resolve this dispute. To accommodate further deliberation, each party has agreed to refrain from
initiating legal proceedings over this matter until it has given at least ten days prior notice to
the other. In addition, the Special Committee and Mr. Allen have determined to utilize the
Delaware Court of Chancerys program for mediation of complex business disputes in an effort to
resolve the CC VIII interest dispute. If the Special Committee and Mr. Allen are unable to reach a
resolution through that mediation process or to agree on an alternative dispute resolution process,
the Special Committee intends to seek resolution of this dispute through judicial proceedings in an
action that would be commenced, after appropriate notice, in the Delaware Court of Chancery against
Mr. Allen and his affiliates seeking contract reformation, declaratory relief as to the respective
rights of the parties regarding this dispute and alternative forms of legal and equitable relief.
The ultimate resolution and financial impact of the dispute are not determinable at this time. F-39




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CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002
(dollars in millions, except where indicated) 20. Commitments and Contingencies Commitments The following table summarizes the Companys payment obligations as of December 31, 2004 for its
contractual obligations. Total
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    ThereafterContractual ObligationsOperating
and Capital Lease Obligations (1)
    
    $
    88
    
    
    $
    23
    
    
    $
    17
    
    
    $
    13
    
    
    $
    10
    
    
    $
    7
    
    
    $
    18Programming Minimum Commitments (2)
    
    
    1,579
    
    
    
    318
    
    
    
    344
    
    
    
    375
    
    
    
    308
    
    
    
    234
    
    
    
    Other (3)
    
    
    272
    
    
    
    62
    
    
    
    50
    
    
    
    47
    
    
    
    25
    
    
    
    21
    
    
    
    67Total
    
    $
    1,939
    
    
    $
    403
    
    
    $
    411
    
    
    $
    435
    
    
    $
    343
    
    
    $
    262
    
    
    $
    85
   (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, 2004, 2003 and
2002, were $23 million, $30 million and $31 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 statement of
operations were $1.3 billion, $1.2 billion and $1.2 billion for the years ended December 31,
2004, 2003 and 2002, 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 also 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, 2004,
2003 and 2002, was $43 million, $40 million and $41 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 statement of
operations were $164 million, $162 million and $160 million for the years ended December
31, 2004, 2003 and 2002, respectively.
    The Company also has $166 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) were filed against
Charter and certain of its former and present officers and directors in various jurisdictions
allegedly on behalf of all purchasers of Charters securities during the period from either
November 8 or November 9, 1999 through July 17 or July 18, 2002. Unspecified damages were sought
by the plaintiffs. In general, the lawsuits alleged that Charter utilized F-40




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CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002
(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
into a single action (the Consolidated Federal Class Action) for pretrial purposes. On June 19,
2003, following a status and scheduling conference with the parties, the Court issued a Case
Management Order setting forth a schedule for the pretrial phase of the Consolidated Class Action.
Motions to dismiss the Consolidated Amended Complaint were filed. On February 10, 2004, in
response to a joint motion made by StoneRidge and defendants, Charter, Vogel and Allen, the court
entered an order providing, among other things, that: (1) the parties who filed such motion engage
in a mediation within ninety (90) days; and (2) all proceedings in the Consolidated Federal Class
Actions were stayed until May 10, 2004. On May 11, 2004, the Court extended the stay in the
Consolidated Federal Class Action for an additional sixty (60) days. On July 12, 2004, the parties
submitted a joint motion to again extend the stay, this time until September 10, 2004. The Court
granted that extension on July 20, 2004. On August 5, 2004, Stoneridge, Charter and the individual
defendants who were the subject of the suit entered into a Memorandum of Understanding setting
forth agreements in principle to settle the Consolidated Federal Class Action. These parties
subsequently entered into Stipulations of Settlement dated as of January 24, 2005 (described more
fully below) which incorporate the terms of the August 5, 2004 Memorandum of Understanding. On September 12, 2002, a shareholders derivative suit (the State Derivative Action) was filed in
the Circuit Court of the City of St. Louis, State of Missouri (the Missouri State Court) against
Charter and its then current directors, as well as its former auditors. A substantively identical
derivative action was later filed and consolidated into the State Derivative Action. The
plaintiffs allege that the individual defendants breached their fiduciary duties by failing to
establish and maintain adequate internal controls and procedures. Unspecified damages, allegedly
on Charters behalf, were sought by the plaintiffs. On March 12, 2004, an action substantively identical to the State Derivative Action was filed in
the Missouri State Court, against Charter and certain of its current and former directors, as well
as its former auditors. The plaintiffs in that case alleged that the individual defendants
breached their fiduciary duties by failing to establish and maintain adequate internal controls and
procedures. Unspecified damages, allegedly on Charters behalf, were sought by plaintiffs. On
July 14, 2004, the Court consolidated this case with the State Derivative Action. Separately, on February 12, 2003, a shareholders derivative suit (the Federal Derivative Action)
was filed against Charter and its then current directors in the United States District Court for
the Eastern District of Missouri. The plaintiff in that suit alleged that the individual
defendants breached their fiduciary duties and grossly mismanaged Charter by failing to establish
and maintain adequate internal controls and procedures. As noted above, Charter entered into Memoranda of Understanding on August 5, 2004 setting forth
agreements in principle regarding settlement of the Consolidated Federal Class Action, the State
Derivative Action(s) and the Federal Derivative Action (the Actions). Charter and various other
defendants in those actions subsequently entered into Stipulations of Settlement dated as of
January 24, 2005, setting forth a settlement of the Actions in a manner consistent with the terms
of the Memorandum of Understanding. The Stipulations of Settlement, along with the various
supporting documentation, were filed with the Court on February 2, 2005. The Settlements provide
that, in exchange for a release of all claims by plaintiffs against Charter and its former and
present officers and directors named in the Actions, Charter will pay to the plaintiffs a
combination of cash and equity collectively valued at $144 million, which will include the fees and
expenses of plaintiffs counsel. Of this amount, $64 million will be paid in cash (by Charters
insurance carriers) and the balance will be paid in shares of Charter Class A common stock having
an aggregate value of $40 million and ten-year warrants to purchase shares of Charter Class A
common stock F-41




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CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002
(dollars in millions, except where indicated) having an aggregate warrant value of $40 million. The warrants would have an exercise price equal
to 150% of the fair market value (as defined) of Charter Class A common stock as of the date of the
entry of the order of final judgment approving the settlement. In addition, Charter expects to
issue additional shares of its Class A common stock to its insurance carrier having an aggregate
value of $5 million. As a result, in the second quarter of 2004, the Company recorded a $149
million litigation liability within other long-term liabilities and a $64 million insurance
receivable as part of other non-current assets on its consolidated balance sheet and an $85 million
special charge on its consolidated statement of operations. Additionally, as part of the
settlements, Charter will also commit to a variety of corporate governance changes, internal
practices and public disclosures, some of which have already been undertaken and none of which are
inconsistent with measures Charter is taking in connection with the recent conclusion of the SEC
investigation described below. Documents related to the settlement of the Actions have now been
executed and filed. On February 15, 2005, the United States District Court for the Eastern
District of Missouri gave preliminary approval to the settlement of the Actions. The settlement of
each of the lawsuits remains conditioned upon, among other things, final judicial approval of the
settlements following notice to the class, and dismissal, with prejudice, of the consolidated
derivative actions now pending in Missouri State Court, which are related to the Federal Derivative
Action. In addition to the Federal Class Actions, the State Derivative Action (s), the new Missouri State
Court derivative action and the Federal Derivative Action, six putative class action lawsuits have
been filed against Charter and certain of its then current directors and officers in the Court of
Chancery of the State of Delaware (the Delaware Class Actions). The lawsuits were filed after
the filing of a Schedule 13D amendment by Mr. Allen indicating that he was exploring a number of
possible alternatives with respect to restructuring or expanding his ownership interest in Charter.
Charter believes the plaintiffs speculated that Mr. Allen might have been contemplating an unfair
bid for shares of Charter or some other sort of going private transaction on unfair terms and
generally alleged that the defendants breached their fiduciary duties by participating in or
acquiescing to such a transaction. The lawsuits, which are substantively identical, were brought
on behalf of Charters securities holders as of July 29, 2002, and sought unspecified damages and
possible injunctive relief. However, no such transaction by Mr. Allen has been presented. On
April 30, 2004, orders of dismissal without prejudice were entered in each of the Delaware Class
Actions. In August 2002, Charter became aware of a grand jury investigation being conducted by the U.S.
Attorneys Office for the Eastern District of Missouri into certain of its accounting and reporting
practices, focusing on how Charter reported customer numbers and its reporting of amounts received
from digital set-top terminal suppliers for advertising. The U.S. Attorneys Office has publicly
stated that Charter is not a target of the investigation. Charter was also advised by the U.S.
Attorneys Office that no current officer or member of its board of directors 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. Each of
the indicted former officers pled guilty to single conspiracy counts related to the original mail
and wire fraud charges and are awaiting sentencing. Charter has advised the Company that it is
fully cooperating with the investigation. On November 4, 2002, Charter received an informal, non-public inquiry from the staff of the SEC.
The SEC issued a formal order of investigation dated January 23, 2003, and subsequently served
document and testimony subpoenas on Charter and a number of its former employees. The
investigation and subpoenas generally concerned Charters prior reports with respect to its
determination of the number of customers, and various of its accounting policies and practices
including its capitalization of certain expenses and dealings with certain vendors, including
programmers and digital set-top terminal suppliers. On July 27, 2004, the SEC and Charter reached
a final agreement to settle the investigation. In the Settlement Agreement and Cease and Desist
Order, Charter agreed to entry of an administrative order prohibiting any future violation of
United States securities laws and requiring certain other remedial internal practices and public
disclosures. Charter neither admitted nor denied any wrongdoing, and the SEC assessed no fine
against Charter. Charter is generally required to indemnify each of the named individual defendants in connection
with the matters described above pursuant to the terms of its bylaws and (where applicable) such
individual defendants employment agreements. In accordance with these documents, in connection
with the pending grand jury investigation, the now F-42




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CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002
(dollars in millions, except where indicated) settled SEC investigation and the above described lawsuits, some of Charters current and former
directors and current and former officers have been advanced certain costs and expenses incurred in
connection with their defense. On February 22, 2005, Charter filed suit against four of its former
officers who were indicted in the course of the grand jury investigation. These suits seek to
recover the legal fees and other related expenses advanced to these individuals by Charter for the
grand jury investigation, SEC investigation and class action and related lawsuits. In October 2001, two customers, Nikki Nicholls and Geraldine M. Barber, filed a class action suit
against Charter Holdco in South Carolina Court of Common Pleas (the South Carolina Class Action),
purportedly on behalf of a class of Charter Holdcos customers, alleging that Charter Holdco
improperly charged them a wire maintenance fee without request or permission. They also claimed
that Charter Holdco improperly required them to rent analog and/or digital set-top terminals even
though their television sets were cable ready. A substantively identical case was filed in the
Superior Court of Athens  Clarke County, Georgia by Emma S. Tobar on March 26, 2002 (the Georgia
Class Action), alleging a nationwide class for these claims. Charter Holdco removed the South
Carolina Class Action to the United States District Court for the District of South Carolina in
November 2001, and moved to dismiss the suit in December 2001. The federal judge remanded the case
to the South Carolina Court of Common Pleas in August 2002 without ruling on the motion to dismiss.
The plaintiffs subsequently moved for a default judgment, arguing that upon return to state court,
Charter Holdco should have, but did not file a new motion to dismiss. The state court judge
granted the plaintiffs motion over Charter Holdcos objection in September 2002. Charter Holdco
immediately appealed that decision to the South Carolina Court of Appeals and the South Carolina
Supreme Court, but those courts ruled that until a final judgment was entered against Charter
Holdco, they lacked jurisdiction to hear the appeal. In January 2003, the Court of Common Pleas granted the plaintiffs motion for class certification.
In October and November 2003, Charter Holdco filed motions (a) asking that court to set aside the
default judgment, and (b) seeking dismissal of plaintiffs suit for failure to state a claim. In
January 2004, the Court of Common Pleas granted in part and denied in part Charter Holdcos motion
to dismiss for failure to state a claim. It also took under advisement Charter Holdcos motion to
set aside the default judgment. In April 2004, the parties to both the Georgia and South Carolina
Class Actions participated in a mediation. The mediator made a proposal to the parties to settle
the lawsuits. In May 2004, the parties accepted the mediators proposal and reached a tentative
settlement, subject to final documentation and court approval. As a result of the tentative
settlement, the Company recorded a special charge of $9 million
in its consolidated statement of operations
in the first quarter of 2004. On July 8, 2004, the Superior Court of Athens  Clarke County,
Georgia granted a motion to amend the Tobar complaint to add Nicholls, Barber and April Jones as
plaintiffs in the Georgia Class Action and to add any potential class members in South Carolina.
The court also granted preliminary approval of the proposed settlement on that date. On August 2,
2004, the parties submitted a joint request to the South Carolina Court of Common Pleas to stay the
South Carolina Class Action pending final approval of the settlement and on August 17, 2004, that
court granted the parties request. On November 10, 2004, the court granted final approval of the
settlement, rejecting positions advanced by two objectors to the settlement. On December 13, 2004
the court entered a written order formally approving that settlement. On January 11, 2005, certain
class members appealed the order entered by the Georgia court. Those objectors voluntarily
dismissed their appeal with prejudice on February 8, 2005. On February 9, 2005, the South Carolina
Court of Common Pleas entered a court order of dismissal for the South Carolina Class Action.
Additionally, one of the objectors to this settlement recently filed a similar, but not identical,
lawsuit. Furthermore, Charter is also party to other lawsuits and claims that arose in the ordinary course
of conducting its business. In the opinion of management, after taking into account recorded
liabilities, the outcome of these other lawsuits and claims are not expected to have a material
adverse effect on the Companys consolidated financial condition, results of operations or its
liquidity. 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 F-43




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##### Table of Contents



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002
(dollars in millions, except where indicated) 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, $7 million and $8 million for the years ended December 31, 2004,
2003 and 2002, respectively. 22. Recently Issued Accounting Standards In December 2004, the Financial Accounting Standards Board issued the revised SFAS No. 123, Share 
Based Payment, which addresses the accounting for share-based payment transactions in which a
company receives employee services in exchange for (a) equity instruments of that company or (b)
liabilities that are based on the fair value of the companys equity instruments or that may be
settled by the issuance of such equity instruments. This statement will be effective for the
Company beginning July 1, 2005. Because the Company adopted the fair value recognition provisions
of SFAS No. 123 on January 1, 2003, the Company does not expect this revised standard to have a
material impact on its financial statements. The Company does not believe that any other recently issued, but not yet effective accounting
pronouncements, if adopted, would have a material effect on the Companys accompanying financial
statements. F-44




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##### Table of Contents



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002
(dollars in millions, except where indicated) 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 from distribution to Charter Holdings, the
parent company (see Note 9). The following condensed parent-only financial statements of Charter
Holdings 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 31,2004
    
    
    2003ASSETSAccounts receivable
    
    $
    11
    
    
    $
    Receivable from related party
    
    
    11
    
    
    
    5Investment in subsidiaries
    
    
    4,913
    
    
    
    8,954Other assets
    
    
    94
    
    
    
    131$
    5,029
    
    
    $
    9,090LIABILITIES AND MEMBERS EQUITY (DEFICIT)Current liabilities
    
    $
    163
    
    
    $
    135Long-term debt
    
    
    8,579
    
    
    
    8,316Members equity (deficit)
    
    
    (3,713
    )
    
    
    639Total liabilities and members equity (deficit)
    
    $
    5,029
    
    
    $
    9,090
 Condensed Statement of Operations Year Ended December 31,2004
    
    
    2003
    
    
    2002Interest expense
    
    $
    (893
    )
    
    $
    (942
    )
    
    $
    (895
    )Interest income
    
    
    
    
    
    
    
    
    
    
    20Gain on debt exchange, net
    
    
    
    
    
    
    187
    
    
    
    Equity in losses in subsidiaries
    
    
    (3,506
    )
    
    
    (15
    )
    
    
    (5,324
    )Net loss
    
    $
    (4,399
    )
    
    $
    (770
    )
    
    $
    (6,199
    )
 F-45




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##### Table of Contents



CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002
(dollars in millions, except where indicated) Condensed Statements of Cash Flows Year Ended December 31,2004
    
    
    2003
    
    
    2002CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (4,399
    )
    
    $
    (770
    )
    
    $
    (6,199
    )Noncash interest expense
    
    
    283
    
    
    
    351
    
    
    
    349Equity in losses of subsidiaries
    
    
    3,506
    
    
    
    15
    
    
    
    5,324Gain on debt exchange, net
    
    
    
    
    
    
    (187
    )
    
    
    Changes in operating assets and liabilities
    
    
    32
    
    
    
    8
    
    
    
    (97
    )Net cash flows from operating activities
    
    
    (578
    )
    
    
    (583
    )
    
    
    (623
    )CASH FLOWS FROM INVESTING ACTIVITIES:Investment in subsidiaries
    
    
    
    
    
    
    (10
    )
    
    
    (359
    )Loans to subsidiaries
    
    
    
    
    
    
    
    
    
    
    (821
    )Repayment on loans to subsidiaries
    
    
    
    
    
    
    59
    
    
    
    447Net cash flows from investing activities
    
    
    
    
    
    
    49
    
    
    
    (733
    )CASH FLOWS FROM FINANCING ACTIVITIESProceeds from issuance of debt
    
    
    
    
    
    
    
    
    
    
    895Payments for debt issuance costs
    
    
    
    
    
    
    
    
    
    
    (20
    )Capital contributions
    
    
    
    
    
    
    
    
    
    
    87Distributions from subsidiaries
    
    
    578
    
    
    
    561
    
    
    
    444Distributions to parent companies
    
    
    
    
    
    
    (27
    )
    
    
    (52
    )Net cash flows from financing activities
    
    
    578
    
    
    
    534
    
    
    
    1,354NET DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    
    
    
    
    
    
    
    
    (2
    )CASH AND CASH EQUIVALENTS, beginning of year
    
    
    
    
    
    
    
    
    
    
    2CASH AND CASH EQUIVALENTS, end of year
    
    $
    
    
    
    $
    
    
    
    $
    
 F-46