**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**





**Washington,
      D.C. 20549**







**FORM
      10-Q**











*(Mark
      One)*


**[X]     
      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT
      OF 1934**





**For
      the quarterly period ended September 30, 2006**





**or**





**[  ]     
      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT
      OF 1934**





**For
      the transition period from ________ to _________**





**Commission
      file number:** **333-112593**


333-112593-01


****





**CCO
      Holdings, LLC ***


**CCO
      Holdings Capital Corp.***


*(Exact
      name of registrants as specified in their charters)*






**Delaware**
              ******Delaware**
            
            **86-1067239**
              **20-0257904***(State
                or other jurisdiction of incorporation or
                organization)*
            
            *(I.R.S.
                Employer Identification
                Number)*





**12405
      Powerscourt Drive**


**St.
      Louis, Missouri   63131**


*(Address
      of principal executive offices including zip code)*





**(314)
      965-0555**


*(Registrants’
      telephone number, including area code)*





Indicate
      by check mark whether the registrants (1) have filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrants were
      required to file such reports), and (2) have been subject to such filing
      requirements for the past 90 days. YES [X] NO [  ]





Indicate
      by check mark whether the registrants are large accelerated filers, accelerated
      filers, or non-accelerated filers. See definition of “accelerated filer and
      large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
      one):





Large
      accelerated filer o  Accelerated
      filer o  Non-accelerated
      filer þ





Indicate
      the number of shares outstanding of each of the issuers’ classes of common
      stock, as of the latest practicable date:





All
      of
      the issued and outstanding shares of capital stock of CCO Holdings Capital
      Corp.
      are held by CCO Holdings, LLC. All of the limited liability company membership
      interests of CCO Holdings, LLC are held by CCH II, LLC (an indirect wholly
      owned
      subsidiary of Charter Communications Holdings, LLC, a reporting company under
      the Exchange Act). There is no public trading market for any of the
      aforementioned limited liability company membership interest on shares of
      capital stock.





*
      CCO
      Holdings, LLC and CCO Holdings Capital Corp. meet the conditions set forth
      in
      General Instruction H(1)(a) and (b) to Form 10-Q and are therefore filing with
      the reduced disclosure format.




















**CCO
      Holdings, LLC**


**CCO
      Holdings Capital Corp.**


**Quarterly
      Report on Form 10-Q for the Period ended September 30,
      2006**





**Table
      of Contents**





PART
                I. FINANCIAL INFORMATION
            **Page**Item
                1.**Financial
                Statements - CCO Holdings, LLC and Subsidiaries**Condensed
                Consolidated Balance Sheets as ofSeptember
                30, 2006and
                December 31, 2005
            4Condensed
                Consolidated Statements of Operations for the three
                and ninemonths
                endedSeptember
                30, 2006and
                2005
            5Condensed
                Consolidated Statements of Cash Flows for thenine
                months endedSeptember
                30, 2006and 2005
            6Notes
                to Condensed Consolidated Financial
                Statements
            7Item
                2.Management's
                Discussion and Analysis of Financial Condition and Results of
                Operations
            20Item
                4.Controls
                and Procedures
            30PART
                II. OTHER INFORMATIONItem
                1.Legal
                Proceedings
            31Item
                1A. Risk Factors
            31Item
                6.Exhibits
            42SIGNATURES
            43EXHIBIT
                INDEX
            44





This
      quarterly report on Form 10-Q is for the three and nine months ended
      September 30, 2006. The Securities and Exchange Commission ("SEC") allows
      us to "incorporate by reference" information that we file with the SEC, which
      means that we can disclose important information to you by referring you
      directly to those documents. Information incorporated by reference is considered
      to be part of this quarterly report. In addition, information that we file
      with
      the SEC in the future will automatically update and supersede information
      contained in this quarterly report. In this quarterly report, "we," "us" and
      "our" refer to CCO Holdings, LLC and its subsidiaries.
















**CAUTIONARY
      STATEMENT REGARDING FORWARD-LOOKING STATEMENTS:**





This quarterly
      report includes
      forward-looking statements within the meaning of Section 27A of the
      Securities Act of 1933, as amended (the " Securities
      Act " ),
      and
      Section 21E of the Securities Exchange Act of 1934, as amended (the " Exchange
      Act " ),
      regarding, among other things, our plans, strategies and prospects, both
      business and financial including, without limitation, the forward-looking
      statements set forth in the " Results
      of Operations " and " Liquidity
      and Capital Resources " sections
      under Part I, Item 2. " Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations " in this quarterly
      report .
      Although we believe that our plans, intentions and expectations reflected in
      or
      suggested by these forward-looking statements are reasonable, we cannot assure
      you that we will achieve or realize these plans, intentions or expectations.
      Forward-looking statements are inherently subject to risks, uncertainties and
      assumptions including, without limitation, the factors described under " Risk
      Factors " under
      Part II, Item 1A. Many of the forward-looking statements contained in this quarterly
      report may
      be
      identified by the use of forward-looking words such as " believe, "  " expect, "  " anticipate, "  " should, "  " planned, "  " will, "  " may, "  " intend, "  " estimated, "  "aim,"
      "on track," "target,"  "opportunity" and " potential " among
      others. Important factors that could cause actual results to differ materially
      from the forward-looking statements we make in this quarterly
      report are
      set
      forth in this quarterly
      report and
      in
      other reports or documents that we file from time to time with the SEC, and
      include, but are not limited to:




·
              the
                  availability, in general, of funds to meet interest payment obligations
                  under our and our parent companies’ debt and to fund our operations and
                  necessary capital expenditures, either through cash flows from
                  operating
                  activities, further borrowings or other sources and, in particular,
                  our
                  and our parent companies’ ability to be able to provide under the
                  applicable debt instruments such funds (by dividend, investment
                  or
                  otherwise) to the applicable obligor of such
                  debt; ·
              our
                  and our parent companies’ ability to comply with all covenants in our and
                  our parent companies’ indentures and credit facilities, any violation of
                  which would result in a violation of the applicable facility or
                  indenture
                  and could trigger a default of other obligations under cross-default
                  provisions; ·
              our
                  and our parent companies’ ability to pay or refinance debt prior to or
                  when it becomes due and/or to take advantage of market opportunities
                  and
                  market windows to refinance that debt through new issuances, exchange
                  offers or otherwise, including restructuring our and our parent
                  companies’
                  balance sheet and leverage
                  position;
 ·
              our
                  ability to sustain and grow revenues and cash flows from operating
                  activities by offering video, high-speed Internet, telephone and
                  other
                  services and to maintain and grow a stable customer base, particularly
                  in
                  the face of increasingly aggressive competition from other service
                  providers;
 ·
              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 authorities, on our business.


All
      forward-looking statements attributable to us or any person acting on our behalf
      are expressly qualified in their entirety by this cautionary statement. We
      are
      under no duty or obligation to update any of the forward-looking statements
      after the date of this quarterly
      report .










3





**PART
      I. FINANCIAL INFORMATION.**








**Item
      1.**  **Financial
      Statements.**





**CCO
      HOLDINGS, LLC AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**


**(** **DOLLARS
      IN MILLIONS** **)**





**September
                30****,**
            
            **December
                31,****2006**
            
            **2005****(Unaudited)****ASSETS**CURRENT
                ASSETS:Cash
                and cash equivalents
            
            $
            65
            
            $
            3Accounts
                receivable, less allowance for doubtful accounts of$17
                and $17, respectively
            
            
            185
            
            
            212Prepaid
                expenses and other current assets
            
            
            31
            
            
            22Total
                current assets
            
            
            281
            
            
            237INVESTMENT
                IN CABLE PROPERTIES:Property,
                plant and equipment, net of accumulateddepreciation
                of $7,285 and $6,712, respectively
            
            
            5,226
            
            
            5,800Franchises,
                net
            
            
            9,221
            
            
            9,826Total
                investment in cable properties, net
            
            
            14,447
            
            
            15,626OTHER
                NONCURRENT ASSETS
            
            
            184
            
            
            224Total
                assets
            
            $
            14,912
            
            $
            16,087**LIABILITIES
                AND MEMBER’S EQUITY**CURRENT
                LIABILITIES:Accounts
                payable and accrued expenses
            
            $
            916
            
            $
            875Payables
                to related party
            
            
            134
            
            
            95Total
                current liabilities
            
            
            1,050
            
            
            970LONG-TERM
                DEBT
            
            
            8,355
            
            
            9,023LOANS
                PAYABLE - RELATED PARTY
            
            
            304
            
            
            22DEFERRED
                MANAGEMENT FEES - RELATED PARTY
            
            
            14
            
            
            14OTHER
                LONG-TERM LIABILITIES
            
            
            352
            
            
            392MINORITY
                INTEREST
            
            
            636
            
            
            622MEMBER’S
                EQUITY:Member’s
                equity
            
            
            4,200
            
            
            5,042Accumulated
                other comprehensive income
            
            
            1
            
            
            2Total
                member’s equity
            
            
            4,201
            
            
            5,044Total
                liabilities and member’s equity
            
            $
            14,912
            
            $
            16,087







The
          accompanying notes are an integral part of these condensed consolidated
          financial statements.
 4




**CCO
      HOLDINGS, LLC AND SUBSIDIARIES**


**CONDENSED****CONSOLIDATED
      STATEMENTS OF OPERATIONS**


**(DOLLARS
      IN MILLIONS)**


**Unaudited**






**Three
                Months Ended September 30,**
            
            **Nine
                Months Ended September 30,****2006**
            
            **2005**
            
            **2006**
            
            **2005**REVENUES
            
            $
            1,388
            
            $
            1,265
            
            $
            4,091
            
            $
            3,746COSTS
                AND EXPENSES:Operating
                (excluding depreciation and amortization)
            
            
            615
            
            
            564
            
            
            1,830
            
            
            1,645Selling,
                general and administrative
            
            
            309
            
            
            263
            
            
            860
            
            
            746Depreciation
                and amortization
            
            
            334
            
            
            362
            
            
            1,024
            
            
            1,092Asset
                impairment charges
            
            
            60
            
            
            --
            
            
            159
            
            
            39Other
                operating expenses, net
            
            
            4
            
            
            22
            
            
            14
            
            
            281,322
            
            
            1,211
            
            
            3,887
            
            
            3,550Operating
                income from continuing operations
            
            
            66
            
            
            54
            
            
            204
            
            
            196OTHER
                INCOME AND (EXPENSES):Interest
                expense, net
            
            
            (184
            )
            
            (178
            )
            
            (574
            )
            
            (502
            )Other
                income (expense), net
            
            
            1
            
            
            14
            
            
            (18
            )
            
            49(183
            )
            
            (164
            )
            
            (592
            )
            
            (453
            )Loss
                from continuing operations before income taxes
            
            
            (117
            )
            
            (110
            )
            
            (388
            )
            
            (257
            )INCOME
                TAX EXPENSE
            
            
            (1
            )
            
            (2
            )
            
            (5
            )
            
            (10
            )Loss
                from continuing operations
            
            
            (118
            )
            
            (112
            )
            
            (393
            )
            
            (267
            )INCOME
                FROM DISCONTINUED OPERATIONS, NET OF TAX
            
            
            200
            
            
            9
            
            
            238
            
            
            28Net
                income (loss)
            
            $
            82
            
            $
            (103
            )
            $
            (155
            )
            $
            (239
            )







The
          accompanying notes are an integral part of these condensed consolidated
          financial statements.
 5


**CCO
      HOLDINGS, LLC AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH
      FLOWS**


**(DOLLARS
      IN MILLIONS)**


**Unaudited**





**Nine
                Months Ended September 30,****2006**
            
            **2005**CASH
                FLOWS FROM OPERATING ACTIVITIES:Net
                loss
            
            $
            (155
            )
            $
            (239
            )Adjustments
                to reconcile net loss to net cash flows from operating
                activities:Depreciation
                and amortization
            
            
            1,032
            
            
            1,134Asset
                impairment charges
            
            
            159
            
            
            39Noncash
                interest expense
            
            
            18
            
            
            21Deferred
                income taxes
            
            
            --
            
            
            6(Gain)
                loss on sale of assets, net
            
            
            (198
            )
            
            5Option
                compensation expense, net
            
            
            10
            
            
            11Gain
                on derivative instruments and hedging activities, net
            
            
            (8
            )
            
            (43
            )(Gain)
                loss on extinguishment of debt
            
            
            27
            
            
            (21
            )Other,
                net
            
            
            (2
            )
            
            28Changes
                in operating assets and liabilities, net of effects from acquisitions
                and
                dispositions:Accounts
                receivable
            
            
            44
            
            
            (15
            )Prepaid
                expenses and other assets
            
            
            (11
            )
            
            (7
            )Accounts
                payable, accrued expenses and other
            
            
            14
            
            
            (28
            )Receivables
                from and payables to a related party, including management
                fees
            
            
            30
            
            
            (68
            )Net
                cash flows from operating activities
            
            
            960
            
            
            823CASH
                FLOWS FROM INVESTING ACTIVITIES:Purchases
                of property, plant and equipment
            
            
            (795
            )
            
            (815
            )Change
                in accrued expenses related to capital expenditures
            
            
            4
            
            
            39Proceeds
                from sales of assets, including cable systems
            
            
            988
            
            
            38Purchase
                of cable system
            
            
            (42
            )
            
            --Purchase
                of investments
            
            
            --
            
            
            (1
            )Proceeds
                from investments
            
            
            42
            
            
            16Other,
                net
            
            
            (1
            )
            
            (2
            )Net
                cash flows from investing activities
            
            
            196
            
            
            (725
            )CASH
                FLOWS FROM FINANCING ACTIVITIES:Borrowings
                of long-term debt
            
            
            5,970
            
            
            897Borrowings
                from related parties
            
            
            300
            
            
            140Repayments
                of long-term debt
            
            
            (6,638
            )
            
            (1,014
            )Repayments
                to related parties
            
            
            (20
            )
            
            (112
            )Proceeds
                from issuance of debt
            
            
            --
            
            
            294Payments
                for debt issuance costs
            
            
            (19
            )
            
            (8
            )Contributions
            
            
            148
            
            
            --Distributions
            
            
            (835
            )
            
            (832
            )Net
                cash flows from financing activities
            
            
            (1,094
            )
            
            (635
            )NET
                INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
            
            
            62
            
            
            (537
            )CASH
                AND CASH EQUIVALENTS, beginning of period
            
            
            3
            
            
            546CASH
                AND CASH EQUIVALENTS, end of period
            
            $
            65
            
            $
            9CASH
                PAID FOR INTEREST
            
            $
            483
            
            $
            415NONCASH
                TRANSACTIONS:Issuance
                of debt by Charter Communications Operating, LLC
            
            $
            37
            
            $
            333Retirement
                of Renaissance Media Group LLC debt
            
            $
            (37
            )
            $
            --Distribution
                of Charter Communications Holdings, LLC notes and accrued
                interest
            
            $
            --
            
            $
            (343
            )Transfer
                of property, plant and equipment from parent company
            
            $
            --
            
            $
            139









The
          accompanying notes are an integral part of these condensed consolidated
          financial statements.
 6
 **CCO
          HOLDINGS, LLC AND SUBSIDIARIES**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL
          STATEMENTS**
 **(UNAUDITED)**
 **(dollars
          in millions, except where indicated)**


1.  ****Organization
      and Basis of Presentation****




CCO
      Holdings, LLC ("CCO Holdings") is a holding company whose principal assets
      at
      September 30, 2006 are the equity interests in its operating subsidiaries.
      CCO
      Holdings is a direct subsidiary of CCH II, LLC (“CCH II”) which is an indirect
      subsidiary of Charter Communications Holdings, LLC ("Charter Holdings”). Charter
      Holdings is an indirect subsidiary of Charter Communications, Inc. (“Charter”).
      The condensed consolidated financial statements include the accounts of CCO
      Holdings and all of its subsidiaries where the underlying operations reside,
      which are 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
      Internet services and, in some areas, advanced broadband services such as high
      definition television, video on demand, and telephone. The Company sells its
      cable video programming, high-speed Internet, telephone and advanced broadband
      services on a subscription basis. The Company also sells local advertising
      on
      satellite-delivered networks.





The
      accompanying condensed consolidated financial statements of the Company have
      been prepared in accordance with accounting principles generally accepted in
      the
      United States for interim financial information and the rules and regulations
      of
      the Securities and Exchange Commission (the "SEC"). Accordingly, certain
      information and footnote disclosures typically included in CCO Holdings’ Annual
      Report on Form 10-K have been condensed or omitted for this quarterly report.
      The accompanying condensed consolidated financial statements are unaudited
      and
      are subject to review by regulatory authorities. However, in the opinion of
      management, such financial statements include all adjustments, which consist
      of
      only normal recurring adjustments, necessary for a fair presentation of the
      results for the periods presented. Interim results are not necessarily
      indicative of results for a full year.




The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States requires management to make estimates
      and assumptions that affect the reported amounts of assets and liabilities
      and
      disclosure of contingent assets and liabilities at the date of the financial
      statements and the reported amounts of revenues and expenses during the
      reporting period. Areas involving significant judgments and estimates include
      capitalization of labor and overhead costs; depreciation and amortization costs;
      impairments of property, plant and equipment, franchises and goodwill; income
      taxes; and contingencies. Actual results could differ from those
      estimates.




*Reclassifications*




Certain
      2005 amounts have been reclassified to conform with the 2006 presentation,
      including discontinued operations as discussed in Note 3.





**2.**  **Liquidity
      and Capital Resources**





The
      Company had net income of $82 million for the three months ended September
      30,
      2006. The Company incurred net loss of $103 million for the three months ended
      September 30, 2005 and $155 million and $239 million for the nine months ended
      September 30, 2006 and 2005, respectively. The Company’s net cash flows from
      operating activities were $960 million and $823 million for the nine months
      ended September 30, 2006 and 2005, respectively.





***Recent
      Financing Transactions***





In
      January 2006, CCH II and CCH II Capital Corp., the Company’s direct parent
      companies, issued $450 million in debt securities, the proceeds of which were
      provided to Charter Communications Operating, LLC ("Charter Operating"), which
      used such funds to reduce borrowings, but not commitments, under the revolving
      portion of its credit facilities.





In
      April
      2006, Charter Operating completed a $6.85 billion refinancing of its credit
      facilities including a new $350 million revolving/term facility (which converts
      to a term loan no later than April 2007), a $5.0 billion term loan due






7
 **CCO
          HOLDINGS, LLC AND SUBSIDIARIES**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
 **(dollars
          in millions, except where indicated)**




in
      2013
      and certain amendments to the existing $1.5 billion revolving credit facility.
      In addition, the refinancing reduced margins on Eurodollar rate term loans
      to
      2.625% from a weighted average of 3.15% previously and margins on base rate
      term
      loans to 1.625% from a weighted average of 2.15% previously. Concurrent with
      this refinancing, the Company’s bridge loan was terminated.





In
      September 2006, Charter Holdings and its wholly owned subsidiaries, CCH I,
      LLC
      (“CCH I”) and CCH II, completed the exchange of approximately $797 million in
      total principal amount of outstanding debt securities of Charter Holdings.
      Holders of Charter Holdings notes due in 2009-2010 tendered $308 million
      principal amount of notes for $250 million principal amount of new 10.25% CCH
      II
      notes due 2013 and $37 million principal amount of 11% CCH I notes due 2015.
      Holders of Charter Holdings notes due 2011-2012 tendered $490 million principal
      amount of notes for $425 million principal amount of 11% CCH I notes due 2015.
      The Charter Holdings notes received in the exchanges were thereafter distributed
      to Charter Holdings and retired. Also in September 2006, CCHC, LLC (“CCHC”) and
      CCH II completed the exchange of $450 million principal amount of Charter’s
      outstanding 5.875% senior convertible notes due 2009 for $188 million in cash,
      45 million shares of Charter’s Class A Common Stock and $146 million principal
      amount of 10.25% CCH II notes due 2010. The convertible notes received in the
      exchange are held by CCHC.





The
      Company's long-term financing as of September 30, 2006 consists of $5.1 billion
      of credit facility debt and $3.2 billion accreted value of high-yield notes.
      For
      the remainder of 2006, none of the Company’s debt matures, and in 2007 and 2008,
      $25 million and $50 million mature, respectively. In 2009 and beyond,
      significant additional amounts will become due under the Company’s remaining
      long-term debt obligations.





The
      Company requires significant cash to fund debt service costs, capital
      expenditures and ongoing operations. The Company has historically funded these
      requirements through cash flows from operating activities, borrowings under
      its
      credit facilities, equity contributions from its parent companies, sales of
      assets, issuances of debt securities and cash on hand. However, the mix of
      funding sources changes from period to period. For the nine months ended
      September 30, 2006, the Company generated $960 million of net cash flows from
      operating activities, after paying cash interest of $483 million. In addition,
      the Company received proceeds from the sale of assets of approximately $988
      million and used approximately $795 million for purchases of property, plant
      and
      equipment. Finally, the Company had net cash flows used in financing activities
      of $1.1 billion.





The
      Company expects that cash on hand, cash flows from operating activities,
      proceeds from sales of assets, and the amounts available under its credit
      facilities will be adequate to meet its and its parent companies’ cash needs
      through 2007. The Company believes that 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 its parent companies’ interest
      and principal repayment obligations in 2008, and will not be sufficient to
      fund
      such needs in 2009 and beyond. The Company has been advised that Charter
      continues to work with its financial advisors in its approach to addressing
      liquidity, debt maturities and its overall balance sheet leverage.





***Debt
      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. The Charter Operating credit facilities, along with the Company’s
      indentures, contain certain restrictive covenants, some of which require the
      Company to maintain specified financial ratios, and meet financial tests and
      to
      provide annual audited financial statements with an unqualified opinion from
      the
      Company’s independent auditors. As of September 30, 2006, the Company is in
      compliance with the covenants under its indentures and credit facilities, and
      the Company expects to remain in compliance with those covenants for the next
      twelve months. As of September 30, 2006, t he Company’s potential availability under its credit facilities totaled
      approximately $1.6 billion, although the actual availability at that time was
      only $695 million because of limits imposed by covenant restrictions . Continued
      access to the Company’s credit facilities is subject to the Company remaining in
      compliance with these covenants, including covenants tied to the Company’s
      operating performance. If any events of non-compliance occur, 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 any of






8
 **CCO
          HOLDINGS, LLC AND SUBSIDIARIES**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
 **(dollars
          in millions, except where indicated)**




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 and results of
      operations.





***Parent
      Company Debt Obligations***





Any
      financial or liquidity problems of the Company’s parent companies could cause
      serious disruption to the Company's business and have a material adverse effect
      on the Company’s business and results of operations. A failure by Charter
      Holdings, CCH I Holdings, LLC (“CIH”), CCH I or CCH II to satisfy their debt
      payment obligations or a bankruptcy filing with respect to Charter Holdings,
      CIH, CCH I or CCH II would give the lenders under the Company’s credit
      facilities the right to accelerate the payment obligations under these
      facilities. Any such acceleration would be a default under the indenture
      governing the Company’s notes. On a consolidated basis, the Company’s parent
      companies have a significant level of debt, which, including the Company’s debt,
      totaled approximately $18.8 billion as of September 30, 2006, as discussed
      below.





Charter’s
      ability to make interest payments on its convertible senior notes, and, in
      2009,
      to repay the outstanding principal of its convertible senior notes of $413
      million, will depend on its ability to raise additional capital and/or on
      receipt of payments or distributions from Charter Communications Holding
      Company, LLC (“Charter Holdco”) and its subsidiaries. As
      of September 30, 2006, Charter Holdco was owed $3 million in intercompany loans
      from its subsidiaries and had $7 million in cash, which were available to pay
      interest and principal on Charter's convertible senior notes.  In
      addition, Charter has $75 million of U.S. government securities pledged as
      security for the semi-annual interest payments on Charter’s convertible senior
      notes scheduled in November 2006 and in 2007.  CCHC also holds $450 million
      of Charter’s convertible senior notes.  As a result, if CCHC continues to
      hold those notes, CCHC will receive interest payments on Charter’s convertible
      senior notes from the pledged government securities.  The cumulative amount
      of interest payments expected to be received by CCHC may be available to be
      distributed to pay interest on the outstanding $413 million of Charter’s
      convertible senior notes due in 2008 and May 2009, although CCHC may use those
      amounts for other purposes.





As
      of
      September 30, 2006, Charter Holdings, CIH, CCH I and CCH II had approximately
      $10.0 billion principal amount of high-yield notes outstanding with
      approximately $105 million, $0 million, $415 million and $9.5 billion maturing
      in 2007, 2008, 2009, and thereafter, respectively. Charter Holdings, CIH, CCH
      I
      and CCH II will need to raise additional capital or receive distributions or
      payments from us in order to satisfy their debt obligations. However, because
      of
      their significant indebtedness, our ability and the ability of the parent
      companies to raise additional capital at reasonable rates or at all is
      uncertain. During the nine months ended September 30, 2006, the Company
      distributed $835 million of cash to its parent company.





Distributions
      by Charter’s subsidiaries to a parent company (including Charter, Charter
      Holdco, CCHC, Charter Holdings, CIH, CCH I and CCH II) for
      payment of principal on parent company notes are
      restricted under the indentures governing the CIH notes, CCH I notes, CCH II
      notes, CCO Holdings notes and Charter Operating notes unless
      there is no default under the applicable indenture and each applicable
      subsidiary’s leverage ratio test is met at the time of such distribution. For
      the
      quarter ended September 30, 2006, there was no default under any of these
      indentures. However, certain of Charter’s subsidiaries did not meet their
      applicable leverage ratio tests based on September 30, 2006 financial results. As
      a
      result, distributions from certain of Charter’s subsidiaries
      to their parent companies would have been restricted at such time and will
      continue to be restricted unless those tests are met. Distributions
      by Charter Operating for payment of principal on parent company notes are
      further restricted by the covenants in the credit facilities.





Distributions
      by CIH, CCH I, CCH II, CCO Holdings and Charter Operating to a parent company
      for payment of parent company interest are permitted if there is no default
      under the aforementioned indentures.





9
 **CCO
          HOLDINGS, LLC AND SUBSIDIARIES**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
 **(dollars
          in millions, except where indicated)**


***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 Charter Holdings’ indentures,
      and other specified tests are met. For the quarter ended September
      30, 2006, there was no default under Charter Holdings’ indentures and the other
      specified tests were met. However, Charter Holdings did not meet the leverage
      ratio test of 8.75 to 1.0 based on September 30, 2006 financial
      results .
      As a
      result, distributions from Charter Holdings to Charter or Charter Holdco would
      have been restricted at such time and will continue to be restricted unless
      that
      test is met. During periods
      in which distributions are restricted, the
      indentures governing the Charter Holdings notes permit Charter Holdings and
      its
      subsidiaries to make specified investments (that are not restricted payments)
      in
      Charter Holdco or Charter up to an amount determined by a formula, as long
      as
      there is no default under the indentures.




3.  **Sale
      of Assets**




In
      2006,
      the Company sold certain cable television systems serving a total of
      approximately 356,000 analog video customers in 1) West Virginia and
      Virginia to
      Cebridge Connections, Inc. (the “Cebridge Transaction”); 2) Illinois and
      Kentucky to Telecommunications Management, LLC, doing business as New Wave
      Communications (the “New Wave Transaction”) and 3) Nevada, Colorado, New Mexico
      and Utah to Orange Broadband Holding Company, LLC (the
“Orange Transaction”) for a total sales price of approximately $971 million. The
      Company used the net proceeds from the asset sales to reduce borrowings, but
      not
      commitments, under the revolving portion of the Company’s credit facilities.
      These cable systems met the criteria for assets held for sale. As such, the
      assets were written down to fair value less estimated costs to sell resulting
      in
      asset impairment charges during the nine months ended September 30, 2006 of
      approximately $99 million related to the New Wave Transaction and the Orange
      Transaction. Also in the third quarter of 2006, the Company recorded asset
      impairment charges of $60 million related to other cable systems meeting the
      criteria of assets held for sale.





During
      the second quarter of 2006, the Company determined, based on changes in the
      Company’s organizational and cost structure, that its asset groupings for long
      lived asset accounting purposes are at the level of their individual market
      areas, which are at a level below the Company’s geographic clustering. As a
      result, the Company has determined that the West Virginia and Virginia cable
      systems comprise operations and cash flows that for financial reporting purposes
      meet the criteria for discontinued operations. Accordingly, the results of
      operations for the West Virginia and Virginia cable systems, including a gain
      of
      $200 million on the closing of the transaction, have been presented as
      discontinued operations, net of tax for the three and nine months ended
      September 30, 2006 and all prior periods presented herein have been reclassified
      to conform to the current presentation.





Summarized
      consolidated financial information for the three and nine months ended September
      30, 2006 and 2005 for the West Virginia and Virginia cable systems is as
      follows:





**Three
                Months**
              **Ended
                September 30,**
            
            **Nine
                Months**
              **Ended
                September 30,****2006**
            
            **2005**
            
            **2006**
            
            **2005**Revenues
            
            $
            --
            
            $
            53
            
            $
            109
            
            $
            166Net
                income
            
            $
            200
            
            $
            9
            
            $
            238
            
            $
            28





In
      2005,
      the Company closed the sale of certain cable systems in Texas, West Virginia
      and
      Nebraska representing a total of approximately 33,000 analog video customers.
      During the nine months ended September 30, 2005, certain of those cable systems
      met the criteria for assets held for sale. As such, the assets were written
      down
      to fair value less estimated costs to sell resulting in asset impairment charges
      during the nine months ended September 30, 2005 of approximately $39
      million.






10
 **CCO
          HOLDINGS, LLC AND SUBSIDIARIES**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
 **(dollars
          in millions, except where indicated)**




**4.******Franchises
      and Goodwill****




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* . Franchises
      that qualify for indefinite-life treatment under SFAS No. 142 are tested
      for impairment annually each October 1 based on valuations, or more frequently
      as warranted by events or changes in circumstances. Franchises are aggregated
      into essentially inseparable asset groups to conduct the valuations. The asset
      groups generally represent geographical 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.





As
      of
      September 30, 2006 and December 31, 2005, indefinite-lived and finite-lived
      intangible assets are presented in the following table:





**September
                30, 2006**
            
            **December 31,
                2005****Gross**
              **Carrying**
              **Amount**
            
            **Accumulated**
              **Amortization**
            
            **Net**
              **Carrying**
              **Amount**
            
            **Gross**
              **Carrying**
              **Amount**
            
            **Accumulated
                Amortization**
            
            **Net**
              **Carrying**
              **Amount****Indefinite-lived
                intangible assets:**Franchises
                with indefinite lives
            
            $
            9,204
            
            $
            --
            
            $
            9,204
            
            $
            9,806
            
            $
            --
            
            $
            9,806Goodwill
            
            
            61
            
            
            --
            
            
            61
            
            
            52
            
            
            --
            
            
            52$
            9,265
            
            $
            --
            
            $
            9,265
            
            $
            9,858
            
            $
            --
            
            $
            9,858**Finite-lived
                intangible assets:**Franchises
                with finite lives
            
            $
            23
            
            $
            6
            
            $
            17
            
            $
            27
            
            $
            7
            
            $
            20





For
      the
      nine months ended September 30, 2006, the net carrying amount of
      indefinite-lived and finite-lived franchises was reduced by $455 million and
      $2
      million, respectively, related to cable asset sales completed in the first
      and
      third quarter of 2006 and $147 million as a result of the asset impairment
      charges recorded related to these cable asset sales (see Note 3). Franchise
      amortization expense represents the amortization relating to franchises that
      did
      not qualify for indefinite-life treatment under SFAS No. 142, including costs
      associated with franchise renewals. Franchise amortization expense for the
      three
      and nine months ended September 30, 2006 was approximately $0 and $1 million,
      respectively, and for the three and nine months ended September 30, 2005 was
      approximately $1 million and $3 million, respectively. The Company expects
      that
      amortization expense on franchise assets will be approximately $2 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.





For
      the
      nine months ended September 30, 2006, the net carrying amount of goodwill
      increased $9 million as a result of the Company’s purchase of certain cable
      systems in Minnesota from Seren Innovations, Inc. in January 2006.





11
 **CCO
          HOLDINGS, LLC AND SUBSIDIARIES**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
 **(dollars
          in millions, except where indicated)**


**5.**  **Accounts
      Payable and Accrued Expenses**





Accounts
      payable and accrued expenses consist of the following as of September 30, 2006
      and December 31, 2005:





**September
                30,**
              **2006**
            
            **December 31,**
              **2005**Accounts
                payable - trade
            
            $
            72
            
            $
            100Accrued
                capital expenditures
            
            
            77
            
            
            73Accrued
                expenses:Interest
            
            
            171
            
            
            118Programming
                costs
            
            
            273
            
            
            269Franchise-related
                fees
            
            
            58
            
            
            67Compensation
            
            
            71
            
            
            60Other
            
            
            194
            
            
            188$
            916
            
            $
            875




6.  **Long-Term
      Debt**




Long-term
      debt consists of the following as of September
      30, 2006 and
      December 31, 2005:





**September
                30, 2006**
            
            **December
                31, 2005****Principal
                Amount**
            
            **Accreted
                Value**
            
            **Principal
                Amount**
            
            **Accreted
                Value****Long-Term
                Debt**CCO
                Holdings, LLC:83⁄4%
                senior notes due 2013
            
            $
            800
            
            $
            795
            
            $
            800
            
            $
            794Senior
                floating notes due 2010
            
            
            550
            
            
            550
            
            
            550
            
            
            550Charter
                Communications Operating, LLC:8.000%
                senior second lien notes due 2012
            
            
            1,100
            
            
            1,100
            
            
            1,100
            
            
            1,1008
                3/8% senior second lien notes due 2014
            
            
            770
            
            
            770
            
            
            733
            
            
            733Renaissance
                Media Group LLC:10.000%
                senior discount notes due 2008
            
            
            --
            
            
            --
            
            
            114
            
            
            115**Credit
                Facilities**Charter
                Operating
            
            
            5,140
            
            
            5,140
            
            
            5,731
            
            
            5,731$
            8,360
            
            $
            8,355
            
            $
            9,028
            
            $
            9,023







The
      accreted values presented above generally represent the principal amount of
      the
      notes less the original issue discount at the time of sale plus the accretion
      to
      the balance sheet date.





In
      January 2006, the Company’s direct parent companies, CCH II and CCH II Capital
      Corp., issued $450 million in debt securities, the proceeds of which were
      provided, directly or indirectly, to Charter Operating, which used such funds
      to
      reduce borrowings, but not commitments, under the revolving portion of its
      credit facilities.





In
      March
      2006, the Company exchanged $37 million of Renaissance Media Group LLC 10%
      senior discount notes due 2008 for $37 million principal amount of new Charter
      Operating 8 3/8% senior second-lien notes due 2014 issued in a private
      transaction. The terms and conditions of the new Charter Operating 8 3/8% senior
      second-lien notes due 2014 are identical to Charter Operating’s currently
      outstanding 8 3/8% senior second-lien notes due 2014. In June 2006, the Company
      retired the remaining $77 million principal amount of Renaissance Media Group
      LLC’s 10% senior discount notes due 2008.






12
 **CCO
          HOLDINGS, LLC AND SUBSIDIARIES**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
 **(dollars
          in millions, except where indicated)**





In
      April
      2006, Charter Operating completed a $6.85 billion refinancing of its credit
      facilities including a new $350 million revolving/term facility (which converts
      to a term loan no later than April 2007), a $5.0 billion term loan due in 2013
      and certain amendments to the existing $1.5 billion revolving credit facility.
      In addition, the refinancing reduced margins on Eurodollar rate term loans
      to
      2.625% from a weighted average of 3.15% previously and margins on base rate
      term
      loans to 1.625% from a weighted average of 2.15% previously. Concurrent with
      this refinancing, the CCO Holdings bridge loan was terminated.





**7.**  **Loans
      Payable-Related Party**





Loans
      payable-related party as of September 30, 2006 consists of loans from Charter
      Holdco, Charter Holdings and CCH II to the Company of $4 million, $105 million
      and $195 million, respectively. Loans payable-related party as of December
      31,
      2005 consists of loans from Charter Holdco to the Company of $22 million. These
      loans bear interest at a rate of LIBOR plus 3.0% reset quarterly. These loans
      are subject to certain limitations and may be repaid with borrowings under
      the
      Company’s revolving credit facility.





**8.**  **Minority
      Interest**





Minority
      interest on the Company’s consolidated balance sheets as of September 30, 2006
      and December 31, 2005 primarily
      represents preferred membership interests in CC VIII, LLC (“CC VIII”), an
      indirect subsidiary of CCO Holdings, of $636 million and $622 million,
      respectively. As
      more
      fully described in Note 19, this preferred interest is held by Mr. Allen,
      Charter’s Chairman and controlling shareholder, and CCH I. Minority interest in
      the accompanying condensed consolidated statements of operations includes the
      2%
      accretion of the preferred membership interests plus approximately 18.6% of
      CC
      VIII’s income, net of accretion.




9. ****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 condensed 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 criteria of SFAS
      No.
      133, *Accounting
      for Derivative Instruments and Hedging Activities* ,
      in
      accumulated other comprehensive loss. Comprehensive income for the three months
      ended September 30, 2006 was $81 million. Comprehensive loss for the three
      months ended September
      30 ,
      2005
      was $98 million and was $156 million and $224 million for the nine months ended
      September 30, 2006 and 2005, respectively.





**10.**  **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 three
      months ended September
      30 ,
      2006
      and 2005, other income (expense), net includes gains of $0 and $1 million,
      respectively, and for each of the nine months






13
 **CCO
          HOLDINGS, LLC AND SUBSIDIARIES**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
 **(dollars
          in millions, except where indicated)**




ended
      September 30, 2006 and 2005, other income (expense), net includes gains of
      $2
      million which represent cash flow hedge ineffectiveness on interest rate hedge
      agreements arising from differences between the critical terms of the agreements
      and the related hedged obligations. Changes in the fair value of interest rate
      agreements designated as hedging instruments of the variability of cash flows
      associated with floating-rate debt obligations that meet the effectiveness
      criteria of SFAS No. 133 are reported in accumulated other comprehensive loss.
      For the three months ended September
      30 ,
      2006
      and 2005, a loss of $1 million and a gain of $5 million, respectively, and
      for
      the nine months ended September 30, 2006 and 2005, a loss of $1 million and
      a
      gain of $14 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 other income
      (expense), net in the Company’s condensed consolidated statements of operations.
      For the three months ended September
      30 ,
      2006
      and 2005, other income (expense), net includes losses of $3 million and gains
      of
      $16 million, respectively, and for the nine months ended September 30, 2006
      and
      2005, other income (expense), net includes gains of $6 million and $41 million,
      respectively, for interest rate derivative instruments not designated as hedges.





As
      of September
      30 ,
      2006
      and December 31, 2005, the Company had outstanding $1.7 billion and $1.8 billion
      and $20 million and $20 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.





**11.**  **Revenues**





Revenues
      consist of the following for the three and nine months ended September 30,
      2006
      and 2005:





**Three
                Months**
              **Ended
                September 30,**
            
            **Nine
                Months**
              **Ended
                September 30,****2006**
            
            **2005**
            
            **2006**
            
            **2005**Video
            
            $
            836
            
            $
            811
            
            $
            2,520
            
            $
            2,434High-speed
                Internet
            
            
            267
            
            
            222
            
            
            773
            
            
            647Telephone
            
            
            37
            
            
            9
            
            
            86
            
            
            23Advertising
                sales
            
            
            81
            
            
            72
            
            
            228
            
            
            207Commercial
            
            
            78
            
            
            68
            
            
            227
            
            
            196Other
            
            
            89
            
            
            83
            
            
            257
            
            
            239$
            1,388
            
            $
            1,265
            
            $
            4,091
            
            $
            3,746





14
 **CCO
          HOLDINGS, LLC AND SUBSIDIARIES**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
 **(dollars
          in millions, except where indicated)**






**12.****Operating
        Expenses**


Operating
      expenses consist of the following for the three and nine months ended September
      30, 2006 and 2005:





**Three
                Months**
              **Ended
                September 30,**
            
            **Nine
                Months**
              **Ended
                September 30,****2006**
            
            **2005**
            
            **2006**
            
            **2005**Programming
            
            $
            371
            
            $
            343
            
            $
            1,126
            
            $
            1,021Service
            
            
            216
            
            
            196
            
            
            624
            
            
            552Advertising
                sales
            
            
            28
            
            
            25
            
            
            80
            
            
            72$
            615
            
            $
            564
            
            $
            1,830
            
            $
            1,645




13.  ****Selling,
      General and Administrative Expenses****




Selling,
      general and administrative expenses consist of the following for the three
      and
      nine months ended September 30, 2006 and 2005:





**Three
                Months**
              **Ended
                September 30,**
            
            **Nine
                Months**
              **Ended
                September 30,****2006**
            
            **2005**
            
            **2006**
            
            **2005**General
                and administrative
            
            $
            253
            
            $
            226
            
            $
            724
            
            $
            644Marketing
            
            
            56
            
            
            37
            
            
            136
            
            
            102$
            309
            
            $
            263
            
            $
            860
            
            $
            746





Components
      of selling expense are included in general and administrative and marketing
      expense.





**14.**  **Other
      Operating Expenses, Net**





Other
      operating expenses, net consist of the following for the three and nine months
      ended September 30, 2006 and 2005:





**Three
                Months**
              **Ended
                September 30,**
            
            **Nine
                Months**
              **Ended
                September 30,****2006**
            
            **2005**
            
            **2006**
            
            **2005**Loss
                on sale of assets, net
            
            $
            2
            
            $
            1
            
            $
            2
            
            $
            5Hurricane
                asset retirement loss
            
            
            --
            
            
            19
            
            
            --
            
            
            19Special
                charges, net
            
            
            2
            
            
            2
            
            
            12
            
            
            4$
            4
            
            $
            22
            
            $
            14
            
            $
            28





Special
      charges, net for the three and nine months ended September 30, 2006 primarily
      represent severance associated with the closing of call centers and divisional
      restructuring. Special charges, net for the three and nine months ended
      September 30, 2005 primarily represent severance costs as a result of reducing
      workforce, consolidating administrative offices and executive severance.






15
 **CCO
          HOLDINGS, LLC AND SUBSIDIARIES**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
 **(dollars
          in millions, except where indicated)**





For
      the
      three and nine months ended September 30, 2005, hurricane asset retirement
      loss
      represents the write off of $19 million of the Company’s plants’ net book value
      as a result of significant plant damage suffered by certain of the Company’s
      cable systems in Louisiana as a result of hurricanes Katrina and Rita.





For
      the
      nine months ended September 30, 2005, special charges, net were offset by
      approximately $2 million related to an agreed upon discount in respect of the
      portion of settlement consideration payable under the settlement terms of class
      action lawsuits.




**15.******Other
        Income (Expense), Net****


Other
      income (expense), net consists of the following for the three and nine months
      ended September 30, 2006 and 2005:





**Three
                Months**
              **Ended
                September 30,**
            
            **Nine
                Months**
              **Ended
                September 30,****2006**
            
            **2005**
            
            **2006**
            
            **2005**Gain
                (loss) on derivative instruments and
              hedging
                activities, net
            
            $
            (3
            )
            $
            17
            
            $
            8
            
            $
            43Loss
                on extinguishment of debt
            
            
            --
            
            
            --
            
            
            (27
            )
            
            (6
            )Minority
                interest
            
            
            (4
            )
            
            (3
            )
            
            (14
            )
            
            (9
            )Gain
                on investments
            
            
            8
            
            
            --
            
            
            12
            
            
            21Other,
                net
            
            
            --
            
            
            --
            
            
            3
            
            
            --$
            1
            
            $
            14
            
            $
            (18
            )
            $
            49





***Loss
      on extinguishment of debt***





The
      Charter Operating refinancing in April 2006 resulted in a loss on extinguishment
      of debt for the nine months ended September 30, 2006 of approximately $27
      million. See Note 6.





In
      March
      2005, CCO Holdings’ subsidiary, CC V Holdings, LLC, redeemed all of its 11.875%
      notes due 2008, 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 through borrowings under the Charter
      Operating credit facilities. The redemption resulted in a loss on extinguishment
      of debt for the nine months ended September
      30, 2005 of
      approximately $5 million .





***Gain
      on investments***





Gain
      on
      investments for the three and nine months ended September 30, 2006 represents
      gains realized on the sale of investments. Gain on investments for the nine
      months ended September 30, 2005 primarily represents a
      gain
      realized on an exchange of the Company’s interest in an equity investee for an
      investment in a larger enterprise.




16.  ****Income
      Taxes****




CCO
      Holdings is a single member limited liability company not subject to income
      tax.
      CCO 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 CCO Holdings’ indirect subsidiaries
      are corporations that are subject to income tax.






16
 **CCO
          HOLDINGS, LLC AND SUBSIDIARIES**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
 **(dollars
          in millions, except where indicated)**





As
      of
      September 30, 2006 and December 31, 2005, the Company had net deferred income
      tax liabilities of approximately $199 million and $213 million, respectively.
      The net deferred tax liabilities relate to certain of the Company’s indirect
      subsidiaries, which file separate income tax returns.





During
      the three and nine months ended September 30, 2006, the Company recorded $1
      million and $5 million of income tax expense, respectively. During the three
      and
      nine months ended September 30, 2005, the Company recorded $2 million and $10
      million of income tax expense, respectively. Income tax
      expense is recognized through current federal and state income tax expense
      as
      well as increases to the deferred tax liabilities of certain of the Company’s
      indirect corporate subsidiaries.





Charter
      Holdco is currently under examination by the Internal Revenue Service for the
      tax years ending December 31, 2003 and 2002. In addition, one of the Company’s
      indirect corporate subsidiaries is under examination by the Internal Revenue
      Service for the tax year ended December 31, 2004. The Company’s results
      (excluding the indirect corporate subsidiaries, with the exception of the
      indirect corporate subsidiary under examination) 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 condensed consolidated financial
      condition or results of operations.




**17.**  **Contingencies**




The
        Company is a defendant or co-defendant in several unrelated lawsuits claiming
        infringement of various patents relating to various aspects of its businesses.
        Other industry participants are also defendants in certain of these cases,
        and,
        in many cases, the Company expects that any potential liability would be
        the
        responsibility of its equipment vendors pursuant to applicable contractual
        indemnification provisions. In the event that a court ultimately determines
        that
        the Company infringes on any intellectual property rights, it may be subject
        to
        substantial damages and/or an injunction that could require the Company or
        its
        vendors to modify certain products and services the Company offers to its
        subscribers. While the Company believes the lawsuits are without merit and
        intends to defend the actions vigorously, the lawsuits could be material
        to the
        Company’s consolidated results of operations of any one period, and no assurance
        can be given that any adverse outcome would not be material to the Company’s
        consolidated financial condition, results of operations or liquidity.


The
      Company is a party to other lawsuits and claims that arise in the ordinary
      course of conducting its business. The ultimate outcome of these other legal
      matters pending against the Company or its subsidiaries cannot be predicted,
      and
      although such lawsuits and claims are not expected individually to have a
      material adverse effect on the Company’s consolidated financial condition,
      results of operations or liquidity, such lawsuits could have, in the aggregate,
      a material adverse effect on the Company’s consolidated financial condition,
      results of operations or liquidity.




18.  ****Stock
      Compensation Plans****




Charter
      has stock option plans (the “Plans”) which provide 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 20,000,000 shares of Charter
      Class A common stock), as each term is defined in the Plans. Employees,
      officers, consultants and directors of Charter and its subsidiaries and
      affiliates are eligible to receive grants under the Plans. Options granted
      generally vest over four to five years from the grant date, with 25% generally
      vesting on the anniversary of the grant date and ratably thereafter. Generally,
      options expire 10 years from the grant date. The Plans allow 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
      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 three months ended September 30, 2006 and 2005,
      respectively: risk-free interest rates of 4.9% and 4.2%; expected volatility
      of
      72.9% and 68.5%; and expected lives of 6.25 years and 4.5 years, respectively.
      The following weighted average assumptions were used for grants during the
      nine
      months ended September 30, 2006 and 2005, respectively: risk-free interest
      rates
      of 4.7% and






17
 **CCO
          HOLDINGS, LLC AND SUBSIDIARIES**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
 **(dollars
          in millions, except where indicated)**




4.0%;
      expected volatility of 86.3% and 69.9%; and expected lives of 6.25 years and
      4.5
      years, respectively. The valuations assume no dividends are paid. During the
      three and nine months ended September 30, 2006, Charter granted 0.6 million
      and
      5.5 million stock options, respectively, with a weighted average exercise price
      of $1.18 and $1.08, respectively. As of September 30, 2006, Charter had 27.5
      million and 11.6 million options outstanding and exercisable, respectively,
      with
      weighted average exercise prices of $3.81 and $6.44, respectively, and weighted
      average remaining contractual lives of 8 years and 6 years,
      respectively.





On
      January 1, 2006, the Company adopted 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. Because the Company adopted the fair value recognition provisions
      of SFAS No. 123 on January 1, 2003, the revised standard did not have a material
      impact on its financial statements. The Company recorded $3 million of option
      compensation expense which is included in general and administrative expense
      for
      each of the three month periods ended September 30, 2006 and 2005 and $10
      million and $11 million for the nine months ended September 30, 2006 and 2005,
      respectively.





In
      February 2006, the Compensation and Benefits Committee of Charter’s Board of
      Directors approved a modification to the financial performance measures under
      Charter's Long-Term Incentive Program ("LTIP") required to be met for the
      performance shares to vest. After the modification, management believes that
      approximately 2.5 million of the performance shares are likely to vest. As
      such,
      expense of approximately $3 million will be amortized over the remaining two
      year service period. During the nine months ended September 30, 2006, Charter
      granted an additional 8.7 million performance shares under the LTIP. The impact
      of such grant and the modification of the 2005 awards was $3 million for the
      nine months ended September 30, 2006.




**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.





***CC
      VIII, LLC***





As
      part
      of the acquisition of the cable systems owned by Bresnan Communications Company
      Limited Partnership in February 2000, CC VIII, CCO Holdings’ indirect limited
      liability company subsidiary, issued, after adjustments, 24,273,943 Class A
      preferred membership units (collectively, the "CC VIII interest") with an
      initial 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"). 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 became the holder of the CC VIII
      interest, indirectly through an affiliate. In
      the
      event of a liquidation of CC VIII, the owners of the CC VIII interest would
      be
      entitled to a priority distribution with respect to a 2% priority return (which
      will continue to accrete). Any remaining distributions in liquidation would
      be
      distributed to CC V Holdings, LLC (“CC V”) and the owners of the CC VIII
      interest in proportion to their capital accounts (which would have equaled
      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).





An
      issue
      arose 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. Thereafter, the board of
      directors of Charter formed a Special Committee of independent directors 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






18
 **CCO
          HOLDINGS, LLC AND SUBSIDIARIES**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
 **(dollars
          in millions, except where indicated)**




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.





As
      of
      October 31, 2005, Mr. Allen, the Special Committee, Charter, Charter Holdco
      and
      certain of their affiliates, agreed to settle the dispute, and execute certain
      permanent and irrevocable releases pursuant to the Settlement Agreement and
      Mutual Release agreement dated October 31, 2005 (the "Settlement"). Pursuant
      to
      the Settlement, Charter Investment, Inc. (“CII”) has retained 30% of its CC VIII
      interest (the "Remaining Interests"). The Remaining Interests are subject to
      certain transfer restrictions, including requirements that the Remaining
      Interests participate in a sale with other holders or that allow other holders
      to participate in a sale of the Remaining Interests, as detailed in the revised
      CC VIII Limited Liability Company Agreement. CII transferred the other 70%
      of
      the CC VIII interest directly and indirectly, through Charter Holdco, to a
      newly
      formed entity, CCHC (a direct subsidiary of Charter Holdco and the direct parent
      of Charter Holdings). Of the 70% of the CC VIII interest, 7.4% has been
      transferred by CII to CCHC for a subordinated exchangeable note with an initial
      accreted value of $48 million, accreting at 14% per annum, compounded quarterly,
      with a 15-year maturity (the "Note"). The remaining 62.6% has been transferred
      by CII to Charter Holdco, in accordance with the terms of the settlement for
      no
      additional monetary consideration. Charter Holdco contributed the 62.6% interest
      to CCHC.





As
      part
      of the Settlement, CC VIII issued approximately 49 million additional Class
      B
      units to CC V in consideration for prior capital contributions to CC VIII by
      CC
      V, with respect to transactions that were unrelated to the dispute in connection
      with CII’s membership units in CC VIII. As a result, Mr. Allen’s pro rata share
      of the profits and losses of CC VIII attributable to the Remaining Interests
      is
      approximately 5.6%.





The
      Note
      is exchangeable, at CII’s option, at any time, for Charter Holdco Class A Common
      units at a rate equal to the then accreted value, divided by $2.00 (the
      "Exchange Rate"). Customary anti-dilution protections have been provided that
      could cause future changes to the Exchange Rate. Additionally, the Charter
      Holdco Class A Common units received will be exchangeable by the holder into
      Charter common stock in accordance with existing agreements between CII, Charter
      and certain other parties signatory thereto. Beginning February 28, 2009, if
      the
      closing price of Charter common stock is at or above the Exchange Rate for
      a
      certain period of time as specified in the Exchange Agreement, Charter Holdco
      may require the exchange of the Note for Charter Holdco Class A Common units
      at
      the Exchange Rate.





CCHC
      has
      the right to redeem the Note under certain circumstances, for cash in an amount
      equal to the then accreted value. Such amount, if redeemed prior to February
      28,
      2009, would also include a make whole provision up to the accreted value through
      February 28, 2009. CCHC must redeem the Note at its maturity for cash in an
      amount equal to the initial stated value plus the accreted return through
      maturity.





As
      part
      of the debt exchange in September 2006 described in Note 2, CCHC contributed
      the
      CC VIII interest in the Class A preferred equity interests of CC VIII to CCH
      I.
      The CC VIII interest was pledged as security for all CCH I notes. The CC VIII
      preferred interests are entitled to a 2% accreting priority return on the
      priority capital.




20.  ******Recently
      Issued Accounting
      Standards******




In
      June
      2006, the Financial Accounting Standards Board (“FASB”) issued FASB
      Interpretation (“FIN”) 48, *Accounting
      for Uncertainty in Income Taxes—an Interpretation of FASB Statement
      No. 109* ,
      which
      provides criteria for the recognition, measurement, presentation and disclosure
      of uncertain tax positions. A tax benefit from an uncertain position may be
      recognized only if it is “more likely than not” that the position is sustainable
      based on its technical merits. FIN 48 is effective for fiscal years beginning
      after December 15, 2006 and the Company
      will adopt FIN 48 effective January 1, 2007. The Company is currently assessing
      the impact of FIN
      48 on
      its financial statements.







19





**Item
      2.****Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations.**





**General**





CCO
      Holdings, LLC ( " CCO
      Holdings " )
      is a
      holding company whose principal assets as of September
      30, 2006 are
      equity interests in its operating subsidiaries. CCO Holdings is a direct
      subsidiary of CCH II, LLC (“CCH II”) which is an indirect subsidiary of Charter
      Communications Holdings, LLC ( " Charter
      Holdings " ).
      Charter Holdings is an indirect subsidiary of Charter Communications, Inc.
      (“Charter”). " We, "  " us " and " our " refer to
      CCO Holdings and/or its subsidiaries.





We
      are a
      broadband communications company operating in the United States. We offer our
      customers traditional cable video programming (analog and digital video) as
      well
      as high-speed Internet services and, in some areas, advanced broadband services
      such as high definition television, video on demand, telephone and interactive
      television. We sell our cable video programming, high-speed Internet, telephone
      and advanced broadband services on a subscription basis.





The
      following table summarizes our customer statistics for analog and digital video,
      residential high-speed Internet and residential telephone as of September
      30, 2006 and 2005 :





**Approximate
                as of****September
                30,**
            
            **September
                30,****2006
                (a)**
            
            **2005
                (a)****Video
                Cable Services:****Analog
                Video:**Residential
                (non-bulk) analog video customers (b)
            
            
            5,216,900
            
            
            5,636,100Multi-dwelling
                (bulk) and commercial unit customers (c)
            
            
            259,700
            
            
            270,200Total
                analog video customers (b)(c)
            
            
            5,476,600
            
            
            5,906,300**Digital
                Video:**Digital
                video customers (d)
            
            
            2,767,900
            
            
            2,749,400**Non-Video
                Cable Services:**Residential
                high-speed Internet customers (e)
            
            
            2,343,200
            
            
            2,120,000Residential
                telephone customers (f)
            
            
            339,600
            
            
            89,900





After
      giving effect to the acquisition of cable systems in January 2006 and the sales
      of certain non-strategic cable systems in the third quarter of 2006, September
      30, 2005 analog video customers, digital video customers, high-speed Internet
      customers and telephone customers would have been 5,523,500, 2,588,700,
      2,023,900 and 104,700, respectively.





(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). At September 30, 2006 and 2005,
                "customers" include approximately 51,200 and 49,300 persons whose
                accounts
                were over 60 days past due in payment, approximately 11,300 and 9,900
                persons whose accounts were over 90 days past due in payment, and
                approximately 6,200 and 6,000 of which were over 120 days past due
                in
                payment, respectively.





(b)
            "Analog
                video customers" include all customers who receive video services
                (including those who also purchase high-speed Internet and telephone
                services) but excludes approximately 289,700 and 261,800 customers
                at
                September 30, 2006 and 2005, respectively, who receive high-speed
                Internet
                service only or telephone service only and who are only counted as
                high-speed Internet customers or telephone
                customers.





(c)
            Included
                within "analog 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






20


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 September
                30,
                2006 and 2005 are approximately 6,700 and 8,900 customers, respectively,
                that receive digital video service directly through satellite
                transmission.





(e)
            "Residential
                high-speed Internet customers" represent those customers who subscribe
                to
                our high-speed Internet service.





(f)
            "Residential
                telephone customers" include all households receiving telephone
                service.





**Overview
      of Operations**





We
      have a
      history of net losses. Our net losses are principally attributable to
      insufficient revenue to cover the combination
      of operating costs and interest
      costs we incur because of our debt and depreciation expenses that we incur
      resulting from the capital investments we have made and continue to make in
      our
      cable properties. We expect that these expenses will remain significant, and
      we
      therefore expect to continue to report net losses for the foreseeable future.
      We
      had net losses of $155 million and $239 million for the nine months ended
      September 30, 2006 and 2005, respectively.




For
      the
      three months ended September 30, 2006 and 2005, our operating income from
      continuing operations was $66 million and $54 million, respectively, and for
      the
      nine months ended September 30, 2006 and 2005, our operating income from
      continuing operations was $204 million and $196 million, respectively. Operating
      income from continuing operations includes depreciation and amortization expense
      and asset impairment charges but excludes interest expense. We had operating
      margins of 5% and 4% for the three months ended September 30, 2006 and 2005,
      respectively, and 5% for each of the nine months ended September 30, 2006 and
      2005. The increase in operating income from continuing operations and operating
      margins for the three months ended September 30, 2006 compared to 2005 was
      principally due to an increase in revenue over expenses as a result of increased
      customers for digital and advanced services as well as overall rate
      increases.




Historically,
      our ability to fund operations and investing activities has depended on our
      continued access to credit under our credit facilities. We expect we will
      continue to borrow under our credit facilities from time to time to fund cash
      needs. The occurrence of an event of default under our credit facilities could
      result in borrowings from these credit facilities being unavailable to us and
      could, in the event of a payment default or acceleration, also trigger events
      of
      default under the indentures governing our outstanding notes and would have
      a
      material adverse effect on us. See "— Liquidity and Capital
      Resources."





**Sale
      of Assets**





In
      2006,
      we sold certain cable television systems serving a total of approximately
      356,000 analog video customers in 1) West Virginia and Virginia to
      Cebridge Connections, Inc. (the “Cebridge Transaction”); 2) Illinois and
      Kentucky to Telecommunications Management, LLC, doing business as New Wave
      Communications (the “New Wave Transaction”) and 3) Nevada, Colorado, New Mexico
      and Utah to Orange Broadband Holding Company, LLC (the
“Orange Transaction”) for a total sales price of approximately $971 million.
      These cable systems met the criteria for assets held for sale. As such, the
      assets were written down to fair value less estimated costs to sell resulting
      in
      asset impairment charges during the nine months ended September 30, 2006 of
      approximately $99 million related to the New Wave Transaction and the Orange
      Transaction. Also, in the third quarter of 2006, we recorded asset impairment
      charges of $60 million related to other cable systems meeting the criteria
      of
      assets held for sale. In the third quarter of 2006 we have also determined
      that
      the West Virginia and Virginia cable systems comprise operations and cash flows
      that for financial reporting purposes meet the criteria for discontinued
      operations. Accordingly, the results of operations for the West Virginia and
      Virginia cable systems, including a gain of approximately $200 million on the
      transaction, have been presented as discontinued operations, net of tax for
      the






21




three
      and
      nine months ended September 30, 2006 and all prior periods presented herein
      have
      been reclassified to conform to the current presentation.





**Critical
      Accounting Policies and Estimates**





For
      a
      discussion of our critical accounting policies and the means by which we develop
      estimates therefore, see "Item 7. Management’s Discussion and Analysis of
      Financial Condition and Results of Operations" in our 2005 Annual Report on
      Form
      10-K.





**RESULTS
      OF OPERATIONS**





***Nine
      Months Ended*** ***September
      30, 2006*** ***Compared to Nine Months Ended*** ***September
      30, 2005***





The
      following table sets forth the percentages of revenues that items in the
      accompanying condensed consolidated statements of operations constituted for
      the
      periods presented (dollars in millions, except per share data):





**Nine
                Months Ended September 30,****2006**
            
            **2005**Revenues
            
            $
            4,091
            
            
            100
            %
            $
            3,746
            
            
            100
            %Costs
                and expenses:Operating
                (excluding depreciation and amortization)
            
            
            1,830
            
            
            45
            %
            
            1,645
            
            
            44
            %Selling,
                general and administrative
            
            
            860
            
            
            21
            %
            
            746
            
            
            20
            %Depreciation
                and amortization
            
            
            1,024
            
            
            25
            %
            
            1,092
            
            
            29
            %Asset
                impairment charges
            
            
            159
            
            
            4
            %
            
            39
            
            
            1
            %Other
                operating expenses, net
            
            
            14
            
            
            --
            
            
            28
            
            
            1
            %3,887
            
            
            95
            %
            
            3,550
            
            
            95
            %Operating
                income from continuing operations
            
            
            204
            
            
            5
            %
            
            196
            
            
            5
            %Interest
                expense, net
            
            
            (574
            )
            
            
            
            
            (502
            )Other
                income (expense), net
            
            
            (18
            )
            
            
            
            
            49(592
            )
            
            
            
            
            (453
            )Loss
                from continuing operations before income taxes
            
            
            (388
            )
            
            
            
            
            (257
            )Income
                tax expense
            
            
            (5
            )
            
            
            
            
            (10
            )Loss
                from continuing operations
            
            
            (393
            )
            
            
            
            
            (267
            )Income
                from discontinued operations, net of tax
            
            
            238
            
            
            
            
            
            28Net
                loss
            
            $
            (155
            )
            
            
            
            $
            (239
            )





***Revenues*** .
      The
      overall increase in revenues from continuing operations in 2006 compared to
      2005
      is principally the result of an increase from September 30, 2005 of 299,100
      high-speed Internet customers, 133,200 digital video customers and 234,900
      telephone customers, as well as price increases for video and high-speed
      Internet services, and is offset partially by a decrease of 189,700 analog
      video
      customers. 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
      customers who purchase high-speed Internet services, digital video and advanced
      products and services such as telephone, VOD, high definition television and
      digital video recorder service.





Average
      monthly revenue per analog video customer increased to $81.21 for the nine months
      ended September
      30, 2006 from
      $72.95 for the nine months ended September
      30, 2005 primarily as a result of incremental revenues from advanced services and price
      increases. Average monthly revenue per analog video customer represents total






22




revenue
      for the nine months ended during the respective period, divided by nine, divided
      by the average number of analog video customers during the respective
      period.





Revenues
      by service offering were as follows (dollars in millions):





**Nine
                Months Ended September 30,****2006**
            
            **2005**
            
            **2006
                over 2005****Revenues**
            
            **%
                of**
              **Revenues**
            
            **Revenues**
            
            **%
                of**
              **Revenues**
            
            **Change**
            
            **%
                Change**Video
            
            $
            2,520
            
            
            62
            %
            $
            2,434
            
            
            65
            %
            $
            86
            
            
            4
            %High-speed
                Internet
            
            
            773
            
            
            19
            %
            
            647
            
            
            17
            %
            
            126
            
            
            19
            %Telephone
            
            
            86
            
            
            2
            %
            
            23
            
            
            1
            %
            
            63
            
            
            274
            %Advertising
                sales
            
            
            228
            
            
            6
            %
            
            207
            
            
            6
            %
            
            21
            
            
            10
            %Commercial
            
            
            227
            
            
            5
            %
            
            196
            
            
            5
            %
            
            31
            
            
            16
            %Other
            
            
            257
            
            
            6
            %
            
            239
            
            
            6
            %
            
            18
            
            
            8
            %$
            4,091
            
            
            100
            %
            $
            3,746
            
            
            100
            %
            $
            345
            
            
            9
            %





Video
      revenues consist primarily of revenues from analog and digital video services
      provided to our non-commercial customers. Approximately $77 million of the
      increase was the result of price increases and incremental video revenues on
      advanced services from existing customers and approximately $41 million was
      the
      result of an increase in digital video customers. The increases were offset
      by
      decreases of approximately $20 million related to a decrease in analog video
      customers and approximately $12 million related to the System
      Sales.





Approximately
      $112 million of the increase in revenues from high-speed Internet services
      provided to our non-commercial customers related to the increase in the average
      number of customers receiving high-speed Internet services, whereas
      approximately $16 million related to the increase in average price of the
      service. The increases were offset by approximately $2 million related to the
      System Sales.





Revenues
      from telephone services increased primarily as a result of an increase of
      234,900 telephone customers in 2006.





Advertising
      sales revenues consist primarily of revenues from commercial advertising
      customers, programmers and other vendors. Advertising sales revenues increased
      primarily as a result of an increase in local and national advertising sales.
      For the nine months ended September 30, 2006 and 2005, we received $13 million
      and $11 million, respectively, in advertising sales revenues from
      programmers.





Commercial
      revenues consist primarily of revenues from video and high-speed Internet
      services provided to our commercial customers. Commercial revenues increased
      primarily as a result of an increase in commercial high-speed Internet 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 nine months ended
      September 30, 2006 and 2005, franchise fees represented approximately 52% and
      53%, respectively, of total other revenues. The increase in other revenues
      was
      primarily the result of an increase in franchise fees of $6 million,
      installation revenue of $6 million and wire maintenance fees of $6
      million.





23


***Operating
      Expenses*** **.** Programming costs represented 62% of operating expenses for each of the nine
      months ended September 30, 2006 and 2005, respectively. Key expense components
      as a percentage of revenues were as follows (dollars in millions):





**Nine
                Months Ended September 30,****2006**
            
            **2005**
            
            **2006
                over 2005****Expenses**
            
            **%
                of**
              **Revenues**
            
            **Expenses**
            
            **%
                of**
              **Revenues**
            
            **Change**
            
            **%
                Change**Programming
            
            $
            1,126
            
            
            28
            %
            $
            1,021
            
            
            27
            %
            $
            105
            
            
            10
            %Service
            
            
            624
            
            
            15
            %
            
            552
            
            
            15
            %
            
            72
            
            
            13
            %Advertising
                sales
            
            
            80
            
            
            2
            %
            
            72
            
            
            2
            %
            
            8
            
            
            11
            %$
            1,830
            
            
            45
            %
            $
            1,645
            
            
            44
            %
            $
            185
            
            
            11
            %





Programming
      costs consist primarily of costs paid to programmers for analog, premium and
      digital channels, VOD and pay-per-view programming. The increase in programming
      costs was primarily a result of rate increases and was offset in part by
      approximately $5 million related to the System Sales. Programming costs were
      offset by the amortization of payments received from programmers in support
      of
      launches of new channels of $12 million and $27 million for the nine months
      ended September 30, 2006 and 2005, respectively.





Our
      cable
      programming costs have increased in every year in excess of customary
      inflationary and cost-of-living 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 bandwidth reallocation, both of which increase channel capacity. In 2006,
      programming costs have increased and we expect will continue to increase at
      a
      higher rate than in 2005. These costs will be determined in part on the outcome
      of programming negotiations in 2006 and may be subject to offsetting events.
      Our
      increasing programming costs have resulted in declining operating margins on
      our
      video services because we have been unable to fully pass on all cost increases
      to our customers. We expect to partially offset the resulting margin compression
      on our traditional video services with revenue from advanced video services,
      increased telephone revenues, high-speed Internet revenues, advertising revenues
      and commercial service revenues.





Service
      costs consist primarily of service personnel salaries and benefits, costs of
      providing high-speed Internet service and telephone service, franchise fees,
      system utilities, maintenance and pole rent expense. The increase in service
      costs resulted primarily from increased costs of providing high-speed Internet
      and telephone service of $22 million, increased labor and maintenance costs
      to
      improve service levels and to support our advanced products of $22 million,
      an
      increase in service personnel salaries and benefits of $13 million, franchise
      fees of $9 million, and higher fuel and utility prices of $4 million. The
      increases in service costs were offset in part by approximately $3 million
      related to the System Sales. Advertising sales expenses consist of costs related
      to traditional advertising services provided to advertising customers, including
      salaries, benefits and commissions. Advertising sales expenses increased
      primarily as a result of increased costs in these areas.




***Selling,
      General and Administrative Expenses.*** Key
      components of expense as a percentage of revenues were as follows (dollars
      in
      millions):





**Nine
                Months Ended September 30,****2006**
            
            **2005**
            
            **2006
                over 2005****Expenses**
            
            **%
                of**
              **Revenues**
            
            **Expenses**
            
            **%
                of**
              **Revenues**
            
            **Change**
            
            **%
                Change**General
                and administrative
            
            $
            724
            
            
            18
            %
            $
            644
            
            
            17
            %
            $
            80
            
            
            12
            %Marketing
            
            
            136
            
            
            3
            %
            
            102
            
            
            3
            %
            
            34
            
            
            33
            %$
            860
            
            
            21
            %
            $
            746
            
            
            20
            %
            $
            114
            
            
            15
            %





24






General
      and administrative expenses consist primarily of salaries and benefits, customer
      care center costs, billing costs, internal network costs, and bad debt expense.
      The increase in general and administrative expenses resulted primarily from
      a
      rise in salaries and benefits of $23 million, an increase in call center costs
      of $44 million, increases in billing costs of $9 million, computer maintenance
      of $7 million, bad debt expense of $8 million and property and casualty losses
      of $8 million partially offset by decreases in consulting services of $18
      million and approximately $2 million related to the System Sales.





Marketing
      expenses increased as a result of increased spending in targeted marketing
      campaigns consistent with management’s strategy to increase revenues.





***Depreciation
      and Amortization.*** ** Depreciation
      and amortization expense decreased by $68 million for
      the nine months
      ended September
      30, 2006 compared to the nine months ended September 30, 2005. The decrease
      in
      depreciation was primarily the result of assets becoming fully depreciated.
      Approximately $7 million of the decrease was related to the System
      Sales.





***Asset
      Impairment Charges.*** Asset
      impairment charges for the nine months ended September 30, 2006 and 2005
      represent the write-down of assets related to cable asset sales to fair value
      less costs to sell .
      See
      Note 3 to the condensed consolidated financial statements .





***Other
      Operating Expenses, Net.*** Other
      operating expenses, net decreased $14 million as a result of a $19 million
      hurricane asset retirement loss recognized during the nine months ended
      September 30, 2005 which did not recur in 2006 partially offset by an $8 million
      increase in special charges related to severance associated with closing call
      centers and divisional restructuring.





***Interest
      Expense, Net*** **.**  Net
      interest expense increased by $72 million, or 14%, for
      the nine months
      ended September
      30, 2006 compared to the
      nine
      months ended September
      30, 2005. The increase in net interest expense was a result of an increase
      in
      our average borrowing rate from 7.5% in the nine months ended September 30,
      2005
      to 8.2% in the nine months ended September 30, 2006 and an increase of $274
      million in average debt outstanding from $8.4 billion for the nine months
      ended September 30, 2005 compared to $8.7 billion for the nine months ended
      September 30, 2006.





***Other
      Income (Expense), Net.*** For the
      nine months ended September 30, 2006, we had other expense of $18 million and
      for the nine months ended September 30, 2005 we had other income of $49 million.
      The change of $67 million is primarily a result of a $21 million increase in
      loss on extinguishment of debt and a $35 million decrease in net gains on
      derivative instruments and hedging activities for the nine months ended
      September 30, 2006 as compared to September 30, 2005. See Note 15 to the
      condensed consolidated financial statements.





***Income
      Tax Expense.*** Income
      tax expense was recognized through increases in deferred tax liabilities and
      current federal and state income tax expenses of certain of our indirect
      corporate subsidiaries.





***Income
      From Discontinued Operations, Net of Tax.*** Income
      from discontinued operations, net of tax increased from $28 million for the
      nine
      months ended September 30, 2005 to $238 million for the nine months ended
      September 30, 2006 due to a gain of $200 million recognized on the sale of
      the
      West Virginia and Virginia systems.





***Net
      Loss*** .
      Net
      loss decreased by $84 million, or 35%, for the nine months ended September
      30, 2006 compared
      to the nine months ended September
      30, 2005 as a
      result of the factors described above.





**Liquidity
      and Capital Resources**




***Introduction*** ****




This
      section contains a discussion of our liquidity and capital resources, including
      a discussion of our cash position, sources and uses of cash, access to credit
      facilities and other financing sources, historical financing activities, cash
      needs, capital expenditures and outstanding debt.


25


***Recent
      Financing Transactions*** ****





In
      January 2006, CCH II and CCH II Capital Corp., our direct parent companies,
      issued $450 million in debt securities, the proceeds of which were provided
      to
      Charter Communications Operating, LLC ("Charter Operating"), which used such
      funds to reduce borrowings, but not commitments, under the revolving portion
      of
      its credit facilities.





In
      April
      2006, Charter Operating completed a $6.85 billion refinancing of its credit
      facilities including a new $350 million revolving/term facility (which converts
      to a term loan no later than April 2007), a $5.0 billion term loan due in 2013
      and certain amendments to the existing $1.5 billion revolving credit facility.
      In addition, the refinancing reduced margins on Eurodollar rate term loans
      to
      2.625% from a weighted average of 3.15% previously and margins on base rate
      term
      loans to 1.625% from a weighted average of 2.15% previously. Concurrent with
      this refinancing, our bridge loan was terminated.





In
      September 2006, Charter Holdings and its wholly owned subsidiaries, CCH I,
      LLC
      (“CCH I”) and CCH II, completed the exchange of approximately $797 million in
      total principal amount of outstanding debt securities of Charter Holdings.
      Holders of Charter Holdings notes due in 2009-2010 tendered $308 million
      principal amount of notes for $250 million principal amount of new 10.25% CCH
      II
      notes due 2013 and $37 million principal amount of 11% CCH I notes due 2015.
      Holders of Charter Holdings notes due 2011-2012 tendered $490 million principal
      amount of notes for $425 million principal amount of 11% CCH I notes due 2015.
      The Charter Holdings notes received in the exchanges were thereafter distributed
      to Charter Holdings and retired. Also in September 2006, CCHC, LLC (“CCHC”) and
      CCH II completed the exchange of $450 million principal amount of Charter’s
      outstanding 5.875% senior convertible notes due 2009 for $188 million in cash,
      45 million shares of Charter’s Class A Common Stock and $146 million principal
      amount of 10.25% CCH II notes due 2010. The convertible notes received in the
      exchange are held by CCHC.





Our
      long-term financing as of September 30, 2006 consists of $5.1 billion of credit
      facility debt and $3.2 billion accreted value of high-yield notes. For the
      remainder of 2006, none of our debt matures, and in 2007 and 2008, $25 million
      and $50 million mature, respectively. In 2009 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, equity contributions from our parent companies, sales of
      assets, issuances of debt securities and cash on hand. However, the mix of
      funding sources changes from period to period. For the nine months ended
      September 30, 2006, we generated $960 million of net cash flows from operating
      activities after paying cash interest of $483 million. In addition, we received
      proceeds from the sale of assets of approximately $988 million and used
      approximately $795 million for purchases of property, plant and equipment.
      Finally, we had net cash flows used in financing activities of $1.1 billion.
      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 our credit facilities, our and our parent companies’ access to the
      debt markets, the timing of possible asset sales and our ability to generate
      cash flows from operating activities. We continue to explore asset dispositions
      as one of several possible actions that we could take in the future to improve
      our liquidity, but we do not presently believe unannounced future asset sales
      to
      be a significant source of liquidity.





We
      expect
      that cash on hand, cash flows from operating activities, proceeds from sale
      of
      assets and the amounts available under our credit facilities will be adequate
      to
      meet our and our parent companies’ cash needs through 2007. We believe that cash
      flows from operating activities and amounts available under our credit
      facilities may not be sufficient to fund our operations and satisfy our and
      our
      parent companies’ interest and principal repayment obligations in 2008 and will
      not be sufficient to fund such needs in 2009 and beyond. We have been advised
      that Charter continues to work with its financial advisors in its approach
      to
      addressing liquidity, debt maturities and its overall balance sheet
      leverage.




***Debt
        Covenants***
 
 Our
        ability to operate depends upon, among other things, our continued access
        to
        capital, including credit under the Charter Operating credit facilities.
        The
        Charter Operating credit facilities, along with our indentures, contain certain






26





restrictive
      covenants, some of which require us to maintain specified financial ratios
      and
      meet financial tests and to provide annual audited financial statements with
      an
      unqualified opinion from our independent auditors. As of September 30, 2006,
      we
      are in compliance with the covenants under our indentures and credit facilities,
      and we expect to remain in compliance with those covenants for the next twelve
      months. As of September 30, 2006, our potential availability under our credit
      facilities totaled approximately $1.6 billion, although the actual availability
      at that time was only $695 million because of limits imposed by covenant
      restrictions. Continued access to our credit facilities is subject to our
      remaining in compliance with these covenants, including covenants tied to our
      operating performance. If any events of non-compliance occur, 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 any of our debt
      instruments could result in the acceleration of our payment obligations under
      that debt and, under certain circumstances, in cross-defaults under our other
      debt obligations, which could have a material adverse effect on our consolidated
      financial condition and results of operations.





***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. A failure by Charter Holdings, CCH I Holdings, LLC
      (“CIH”), CCH I or CCH II to satisfy their debt payment obligations or a
      bankruptcy filing with respect to Charter Holdings, CIH, CCH I or CCH II would
      give the lenders under our credit facilities the right to accelerate the payment
      obligations under these facilities. Any such acceleration would be a default
      under the indenture governing our notes. On a consolidated basis, our parent
      companies have a significant level of debt, which, including our debt, totaled
      approximately $18.8 billion as of September 30, 2006.





Charter’s
      ability to make interest payments on its convertible senior notes, and, in
      2009,
      to repay the outstanding principal of its convertible senior notes of $413
      million, will depend on its ability to raise additional capital and/or on
      receipt of payments or distributions from Charter Communications Holding
      Company, LLC (“Charter Holdco”) and its subsidiaries. As
      of September 30, 2006, Charter Holdco was owed $3 million in intercompany loans
      from its subsidiaries and had $7 million in cash, which were available to pay
      interest and principal on Charter's convertible senior notes.  In
      addition, Charter has $75 million of U.S. government securities pledged as
      security for the semi-annual interest payments on Charter’s convertible senior
      notes scheduled in November 2006 and in 2007.  CCHC also holds $450 million
      of Charter’s convertible senior notes.  As a result, if CCHC continues to
      hold those notes, CCHC will receive interest payments on Charter’s convertible
      senior notes from the pledged government securities.  The cumulative amount
      of interest payments expected to be received by CCHC may be available to be
      distributed to pay interest on the outstanding $413 million of Charter’s
      convertible senior notes due in 2008 and May 2009, although CCHC may use those
      amounts for other purposes.





As
      of
      September 30, 2006, Charter Holdings, CIH, CCH I and CCH II had approximately
      $10.0 billion principal amount of high-yield notes outstanding with
      approximately $105 million, $0 million, $415 million and $9.5 billion maturing
      in 2007, 2008, 2009, and thereafter, respectively. Charter Holdings, CIH, CCH
      I
      and CCH II will need to raise additional capital or receive distributions or
      payments from us in order to satisfy their debt obligations. However, because
      of
      their significant indebtedness, our ability and the ability of the parent
      companies to raise additional capital at reasonable rates or at all is
      uncertain. During the nine months ended September 30, 2006, we distributed
      $835
      million of cash to its parent company.





Distributions
      by Charter’s subsidiaries to a parent company (including Charter, Charter
      Holdco, CCHC and Charter Holdings, CIH, CCH I and CCH II) for
      payment of principal on parent company notes are
      restricted under the indentures governing the CIH notes, CCH I notes, CCH II
      notes, CCO Holdings notes and Charter Operating notes unless
      there is no default under the applicable indenture and each applicable
      subsidiary’s leverage ratio test is met at the time of such distribution. For
      the
      quarter ended September 30, 2006, there was no default under any of these
      indentures. However, certain of Charter’s subsidiaries did not meet their
      applicable leverage ratio tests based on September 30, 2006 financial results. As
      a
      result, distributions from certain of Charter’s subsidiaries
      to their parent companies would have been restricted at such time and will
      continue to be restricted unless those tests are met.Distributions
      by Charter Operating for payment of principal on parent company notes are
      further restricted by the covenants in the credit facilities. 
 Distributions
        by CIH, CCH I, CCH II, CCO Holdings and Charter Operating to a parent company
        for payment of parent company interest are permitted if there is no default
        under the aforementioned indentures.






27





***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 Charter Holdings’ indentures and
      other specified tests are met. For the quarter ended September
      30, 2006, there was no default under Charter Holdings’ indentures and the other
      specified tests were met. However, Charter Holdings did not meet the leverage
      ratio test of 8.75 to 1.0 based on September 30, 2006 financial
      results .
      As a
      result, distributions from Charter Holdings to Charter or Charter Holdco would
      have been restricted at such time and will continue to be restricted unless
      that
      test is met. During periods
      in which distributions are restricted, the
      indentures governing the Charter Holdings notes permit Charter Holdings and
      its
      subsidiaries to make specified investments (that are not restricted payments)
      in
      Charter Holdco or Charter up to an amount determined by a formula, as long
      as
      there is no default under the indentures.





Our
      ability to incur additional debt may be limited by the restrictive covenants
      in
      our indentures and credit facilities. 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
      or
      equity financings, we would consider:





•
            issuing
                equity at a parent company 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.





***Sale
      of Assets***





In
      the
      third quarter of 2006, we closed the Cebridge Transaction, New Wave Transaction
      and Orange Transaction for a total sales price of approximately $971 million.
      We
      used the net proceeds from the asset sales to reduce borrowings, but not
      commitments, under the revolving portion of our credit facilities. Also in
      the
      third quarter of 2006, we recorded asset impairment charges of $60 million
      related to other cable systems meeting the criteria of assets held for
      sale.





In
      July
      2005, we closed the sale of certain cable systems in Texas and West Virginia
      and
      closed the sale of an additional cable system in Nebraska in October 2005 for
      a
      total sales price of approximately $37 million, representing a total of
      approximately 33,000 customers.




***Acquisition***
 
 In
        January 2006, we closed the purchase of certain cable systems in Minnesota
        from
        Seren Innovations, Inc. We acquired approximately 17,500 analog video customers,
        8,000 digital video customers, 13,200 high-speed Internet customers and 14,500
        telephone customers for a total purchase price of approximately $42
        million.






28


**Historical
      Operating, Financing and Investing Activities**





Our
      cash
      flows include the cash flows related to our discontinued operations for all
      periods presented.





We
      held
      $65 million in cash and cash equivalents as of September 30, 2006 compared
      to $3 million as of December 31, 2005. For the nine months ended September
      30, 2006, we generated $960 million of net cash flows from operating activities
      after paying cash interest of $483 million. In addition, we received proceeds
      from the sale of assets of approximately $988 million and used approximately
      $795 million for purchases of property, plant and equipment. Finally, we had
      net
      cash flows used in financing activities of $1.1 billion.




***Operating
      Activities.*** ** Net
      cash
      provided by operating activities increased $137 million, or 17%, from $823
      million for the nine months ended September 30, 2005 to $960 million for the
      nine months ended September 30, 2006. For the nine months ended September 30,
      2006, net cash provided by operating activities increased primarily as a result
      of changes in operating assets and liabilities that provided $195 million more
      cash during the nine months ended September 30, 2006 than the corresponding
      period in 2005. The decrease in the cash used in operating assets and
      liabilities is primarily due to the
      finalization of a class action settlement in the third quarter of
      2005.




***Investing
      Activities.*** ** Net
      cash
      provided by investing activities was $196 million for the nine months ended
      September 30, 2006 compared to net cash used by investing activities of $725
      million for the nine months ended September 30, 2005, which was primarily
      related to $988 million of proceeds received from the sale of assets including
      cable systems.




***Financing
      Activities.*** ** Net
      cash
      used by financing activities was $1.1 billion and $635 million for the nine
      months ended September 30, 2006 and 2005, respectively. The increase in cash
      used during the nine months ended September 30, 2006 as compared to the
      corresponding period in 2005, was primarily the result of an increase in net
      repayments of long-term debt.





***Capital
      Expenditures*** ****





We
      have
      significant ongoing capital expenditure requirements. Capital expenditures
      were
      $795 million and $815 million for the nine months ended September
      30, 2006 and
      2005,
      respectively. Capital expenditures decreased as a result of decreases in
      expenditures related to line extensions and support capital partially offset
      by
      increased spending on customer premise equipment as a result of increases in
      digital video, high-speed Internet and telephone customers. See the table below
      for more details.




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 nine months ended September
      30, 2006 and
      2005, our liabilities related to capital expenditures increased $4 million
      and
      $39 million, respectively.





During
      2006, we expect capital expenditures to be approximately $1.1 billion. We expect
      that the nature of these expenditures will continue to be composed primarily
      of
      purchases of customer premise equipment related to telephone and other advanced
      services, support capital and for scalable infrastructure costs. We have and
      expect to continue to fund capital expenditures for 2006 primarily from cash
      flows from operating activities, proceeds from asset sales 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
      Generally Accepted Accounting Principles ("GAAP"), nor do they impact our
      accounting for capital expenditures under GAAP.


29





The
      following table presents our major capital expenditures categories in accordance
      with NCTA disclosure guidelines for the three and nine months ended September
      30, 2006 and 2005 (dollars in millions):





**Three
                Months Ended September 30,**
            
            **Nine
                Months Ended September 30,****2006**
            
            **2005**
            
            **2006**
            
            **2005**Customer
                premise equipment (a)
            
            $
            120
            
            $
            94
            
            $
            378
            
            $
            322Scalable
                infrastructure (b)
            
            
            49
            
            
            49
            
            
            146
            
            
            138Line
                extensions (c)
            
            
            23
            
            
            37
            
            
            82
            
            
            114Upgrade/Rebuild
                (d)
            
            
            13
            
            
            13
            
            
            36
            
            
            35Support
                capital (e)
            
            
            51
            
            
            80
            
            
            153
            
            
            206Total
                capital expenditures
            
            $
            256
            
            $
            273
            
            $
            795
            
            $
            815





(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
                No. 51,*Financial
                Reporting by Cable Television Companies,*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).




**Item
      4.****Controls
      and
      Procedures.**





As
      of the
      end of the period covered by this report, management, including our Chief
      Executive Officer and Chief Financial Officer, evaluated the effectiveness
      of
      the design and operation of our disclosure controls and procedures with respect
      to the information generated for use in this quarterly report. The evaluation
      was based in part upon reports and affidavits provided by a number of
      executives. Based upon, and as of the date of that evaluation, our Chief
      Executive Officer and Chief Financial Officer concluded that the disclosure
      controls and procedures were effective to provide reasonable assurances that
      information required to be disclosed in the reports we file or submit under
      the
      Securities Exchange Act of 1934 is recorded, processed, summarized and reported
      within the time periods specified in the Commission’s rules and forms.





There
      was
      no change in our internal control over financial reporting during the quarter
      ended September 30, 2006 that has materially affected, or is reasonably likely
      to materially affect, our internal control over financial
      reporting.





In
      designing and evaluating the disclosure controls and procedures, our management
      recognized that any controls and procedures, no matter how well designed and
      operated, can provide only reasonable, not absolute, assurance of achieving
      the
      desired control objectives and management necessarily was required to apply
      its
      judgment in evaluating the cost-benefit relationship of possible controls and
      procedures. Based upon the above evaluation, our management believes that our
      controls provide such reasonable assurances.


30


**PART
      II. OTHER INFORMATION.**





**Item
      1.****Legal
      Proceedings.**





We
      are a
      defendant or co-defendant in several unrelated lawsuits claiming infringement
      of
      various patents relating to various aspects of our businesses. Other industry
      participants are also defendants in certain of these cases, and, in many cases,
      we expect that any potential liability would be the responsibility of our
      equipment vendors pursuant to applicable contractual indemnification provisions.
      In the event that a court ultimately determines that we infringe on any
      intellectual property rights, we may be subject to substantial damages and/or
      an
      injunction that could require us or our vendors to modify certain products
      and
      services we offer to our subscribers. While we believe the lawsuits are without
      merit and intend to defend the actions vigorously, the lawsuits could be
      material to our consolidated results of operations of any one period, and no
      assurance can be given that any adverse outcome would not be material to our
      consolidated financial condition, results of operations or liquidity.





We
      are a
      party to other lawsuits and claims that arise in the ordinary course of
      conducting our business. The ultimate outcome of these other legal matters
      pending against us or our subsidiaries cannot be predicted, and although such
      lawsuits and claims are not expected individually to have a material adverse
      effect on our consolidated financial condition, results of operations or
      liquidity, such lawsuits could have, in the aggregate, a material adverse effect
      on our consolidated financial condition, results of operations or
      liquidity.





**Item
      1A.** **Risk
      Factors.**





**Risks
      Related to Significant Indebtedness of Us and Our Parent
      Companies**





***We
      may not generate (or, in general, we and our parent companies may not have
      available to the applicable obligor) sufficient cash flow or have access to
      additional external liquidity sources to fund our capital expenditures, ongoing
      operations and our and our parent companies’ debt
      obligations.***





Our
      ability to service our and our parent companies’ debt and to fund our planned
      capital expenditures and ongoing operations will depend on both our ability
      to
      generate cash flow and our and our parent companies’ access to additional
      external liquidity sources, and in general our and our parent companies’ ability
      to provide (by dividend or otherwise), such funds to the applicable issuer
      of
      the debt obligation. Our ability to generate cash flow is dependent on many
      factors, including:




·
            our future operating
              performance; ·
            the demand for our products and
              services; ·
            general
                economic conditions and conditions affecting customer and advertiser
                spending;


·
            competition
                and our ability to stabilize customer losses;
                and


·
            legal
                and regulatory factors affecting our
                business.





Some
      of
      these factors are beyond our control. If we and our parent companies are unable
      to generate sufficient cash flow or access additional external liquidity
      sources, we and our parent companies may not be able to service and repay our
      and our parent companies’ debt, operate our business, respond to competitive
      challenges or fund our and our parent companies’ other liquidity and capital
      needs. Although our direct parent companies, CCH II and CCH II Capital Corp.,
      sold $450 million principal amount of 10.250% senior notes due 2010 in January
      2006, our subsidiary, Charter Operating, completed a $6.85 billion refinancing
      of its credit facilities in April 2006 and certain of our parent companies
      completed the exchange offers in September 2006, we may not be able to access
      additional sources of external liquidity on similar terms, if at all. We
      expect
      that cash on hand, cash flows from operating activities, proceeds from sales
      of
      assets and the amounts available under our credit facilities will be adequate
      to
      meet our and our parent companies’ cash needs through 2007. We
      believe that cash flows from operating activities and amounts available under
      our credit facilities may not be sufficient to fund our operations and satisfy
      our and our parent companies’ interest and principal repayment obligations in 2008
      and
      will not be sufficient to fund such needs in 2009
      and
      beyond. See “Part I. Item 2. Management’s Discussion and Analysis of Financial
      Condition and Results of Operations — Liquidity and Capital
      Resources.”






31





***We
      may not be able to access funds under our credit facilities if we fail to
      satisfy the covenant restrictions in our credit facilities, which could
      adversely affect our financial condition and our ability to conduct our
      business.***





We
      have
      historically relied on access to credit facilities in order to fund operations
      and to service our and our parent companies’ debt, and we expect such reliance
      to continue in the future. Our total potential borrowing availability under
      the
      Charter Operating credit facilities was approximately $1.6 billion as of
      September 30, 2006, although the actual availability at that time was only
      $695
      million because of limits imposed by covenant restrictions. There
      can
      be no assurance that our actual availability under our credit facilities will
      not be limited by covenant restrictions in the future.





One
      of
      the conditions to the availability of funding under Charter Operating’s credit
      facilities is the absence of a default under the credit facilities, including
      as
      a result of any failure to comply with the covenants under the facilities.
      Among
      other covenants, the facilities require Charter Operating to maintain specific
      financial ratios. The facilities also provide that Charter Operating has to
      obtain an unqualified audit opinion from its independent accountants for each
      fiscal year. There can be no assurance that Charter Operating will be able
      to
      continue to comply with these or any other of the covenants under the credit
      facilities.





A
      failure
      by Charter Holdings or any parent of CCO Holdings that is a subsidiary of
      Charter Holdings to satisfy certain of its respective debt payment obligations
      or a bankruptcy filing with respect to such parent with respect to indebtedness
      in an outstanding aggregate principal amount which exceeds $200 million would
      give the lenders under the Charter Operating credit facilities the right to
      accelerate the payment obligations under these facilities.  Any such
      acceleration would be a default under the indentures governing our notes.





Furthermore,
      the Charter Operating credit facilities provide that an event of default would
      occur if certain of Charter Operating's parent companies have indebtedness
      in
      excess of $500 million aggregate principal amount which remains undefeased
      three
      months prior to its final maturity.  The parent company indebtedness
      subject to this provision will mature in 2010.  The inability of those
      parent companies to refinance or repay their indebtedness would result in a
      default under those credit facilities.





An
      event
      of default under the credit facilities or indentures, if not waived, could
      result in the acceleration of those debt obligations and, consequently, our
      and
      our parent companies’ 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 and our parent companies’
debt instruments.





***Because
      of our holding company structure, our outstanding notes are structurally
      subordinated in right of payment to all liabilities of our subsidiaries.
      Restrictions in our subsidiary’s debt instruments and under applicable law limit
      its ability to provide funds to us.***





Our
      sole
      assets are our equity interests in our subsidiaries. Our operating subsidiaries
      are separate and distinct legal entities and are not obligated to make funds
      available to us for payments on our notes or other obligations in the form
      of
      loans, distributions or otherwise. Our subsidiary’s ability to make
      distributions to us is subject to its compliance with the terms of its credit
      facilities and indentures and restrictions under applicable law.





There
      can
      be no assurance that our subsidiary will be permitted to make distributions
      in
      the future in compliance with these restrictions in amounts needed to service
      our indebtedness and the indebtedness of our parents. Our direct subsidiary
      is
      the borrower and guarantor under the Charter Operating credit facilities.
      Charter Operating is also an obligor under other senior high yield notes. See
      “Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and
      Results of Operations — Liquidity and Capital Resources — Debt Covenants.” Our
      notes are structurally subordinated in right of payment to all of the debt
      and
      other liabilities of our subsidiaries. As of September 30, 2006, our total
      debt
      was approximately $8.4 billion, of which approximately $7.0 billion was
      structurally senior to the CCO Holdings notes.





In
      the
      event of bankruptcy, liquidation or dissolution of one or more of our
      subsidiaries, that subsidiary’s assets would first be applied to satisfy its own
      obligations, and following such payments, such subsidiary may not have
      sufficient assets remaining to make payments to us as an equity holder or
      otherwise. In that event:






32





·
            the
                lenders under Charter Operating’s credit facilities will have the right to
                be paid in full before us from any of our subsidiaries’ assets;
                and


·
            the
                holders of preferred membership interests in our subsidiary, CC VIII,
                would have a claim on a portion of its assets that may reduce the
                amounts
                available for repayment to holders of our outstanding notes.





In
      addition, our outstanding notes are unsecured and therefore will be effectively
      subordinated in right of payment to all existing and future secured debt we
      may
      incur to the extent of the value of the assets securing such debt.





***We
      and our parent companies have a significant amount of existing debt and may
      incur significant additional debt, including secured debt, in the future, which
      could adversely affect our and our parent companies’ financial health and our
      and their ability to react to changes in our
      business.***





We
      and
      our parent companies have a significant amount of debt and may (subject to
      applicable restrictions in their debt instruments) incur additional debt in
      the
      future. As of September 30, 2006, our total debt was approximately $8.4 billion,
      our member’s equity was approximately $4.2 billion and the deficiency of
      earnings to cover fixed charges was $136 million for the nine months ended
      September 30, 2006. The ratio of earnings to cover fixed charges for the three
      months ended September 30, 2006 was 1:1.5.





As
      of
      September 30, 2006, our parent companies had approximately $10.3 billion
      aggregate principal amount of debt. In addition, $450 million of Charter's
      convertible notes are held by CCHC. We and our parent companies will need
      to raise additional capital and/or receive distributions or payments from
      subsidiaries in order to satisfy our and their respective debt obligations
      in
      2009 and beyond. However, because of our and their significant indebtedness,
      our
      and our parent companies’ ability to raise additional capital at reasonable
      rates or at all is uncertain, and our and our parent companies’ ability to make
      distributions or payments to our and their respective parent companies is
      subject to availability of funds and restrictions under our and our subsidiary’s
      applicable debt instruments.





To
      the
      extent we and our parent companies rely on receiving distributions from their
      subsidiaries, they are subject to compliance with the terms of our credit
      facilities and indentures and restrictions under applicable law.  Under the
      Delaware limited liability company act, these subsidiaries may only pay
      dividends to their parent if they have "surplus" as defined in the act. 
Under fraudulent transfer laws, these subsidiaries may not pay dividends to
      their parent if they are insolvent or are rendered insolvent thereby.  The
      measures of insolvency for purposes of these fraudulent transfer laws vary
      depending upon the law applied in any proceeding to determine whether a
      fraudulent transfer has occurred.  Generally, however, any subsidiary of
      our parent companies would be considered insolvent if:





·
            the
                sum of its debts, including contingent liabilities, was greater than
                the
                fair saleable value of all its
                assets;


·
            the
                present fair saleable value of its assets was less than the amount
                that
                would be required to pay its probable liability on its existing debts,
                including contingent liabilities, as they became absolute and mature;
                or


·
            it
                could not pay its debts as they became
                due.





While
      we
      believe that the relevant Charter subsidiaries currently have surplus and are
      not insolvent, there can be no assurance that these subsidiaries will be
      permitted to make distributions in the future in compliance with these
      restrictions in amounts needed to service parent company
      indebtedness.





Our
      and
      our parent companies’ significant amount of debt could have other important
      consequences. For example, the debt will or could:





·
            require
                us to dedicate a significant portion of our cash flow from operating
                activities to make payments on our and our parent companies’ debt, which
                will reduce our funds available for working capital, capital expenditures
                and other general corporate
                expenses;


·
            limit
                our flexibility in planning for, or reacting to, changes in our business,
                the cable and telecommunications industries and the economy at
                large;


·
            place
                us at a disadvantage as compared to our competitors that have
                proportionately less debt;


·
            make
                us vulnerable to interest rate increases, because a significant portion
                of
                our borrowings are, and will continue to be, at variable rates of
                interest;


·
            expose
                us to increased interest expense as we refinance existing lower interest
                rate instruments;







33







·
              adversely
                  affect our relationship with customers and
                  suppliers;
 ·
              limit
                  our and our parent companies’ ability to borrow additional funds in the
                  future, if we or they need them, due to applicable financial and
                  restrictive covenants in our and our parent companies’ debt;
                  and
 ·
              make
                  it more difficult for us to satisfy our obligations to the holders
                  of our
                  notes and to the lenders under our credit facilities as well as
                  our parent
                  companies’ ability to satisfy their obligations to their
                  noteholders.




A
      default
      by us or one of our parent companies under our or their debt obligations could
      result in the acceleration of those obligations and the obligations under our
      and our parent companies’ other notes. We may not have the ability to fund our
      obligations under our notes in the event of such a default. We and our parent
      companies may incur substantial additional debt in the future. If current debt
      levels increase, the related risks that we now face will intensify.





***The
      agreements and instruments governing our and our parent companies’ debt contain
      restrictions and limitations that could significantly affect our ability to
      operate our business, as well as significantly affect our and our parent
      companies’ liquidity.***





The
      Charter Operating credit facilities and the indentures governing our and our
      parent companies’ debt contain a number of significant covenants that could
      adversely affect our ability to operate our business, as well as significantly
      affect our and our parent companies’ liquidity, and therefore could adversely
      affect our results of operations. These covenants will restrict, among other
      things, our and our parent companies’ ability to:




·
            incur additional debt; ·
            repurchase
                or redeem equity interests and
                debt;


·
            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,
      Charter Operating’s credit facilities require Charter’s subsidiaries to, among
      other things, maintain specified financial ratios, meet specified financial
      tests and provide annual audited financial statements, with an unqualified
      opinion from our independent auditors. Charter Operating’s ability to comply
      with these provisions may be affected by events beyond our control.





The
      breach of any covenants or obligations in our 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 and our parent companies’ long-term indebtedness. In addition, the
      secured lenders under the Charter Operating credit facilities and the holders
      of
      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
      or
      the indentures governing our or our parent companies’ debt could adversely
      affect our growth, our financial condition and our results of operations and
      our
      ability to make payments on our notes and Charter Operating’s credit facilities
      and other debt of our subsidiary.





***All
      of our and our parent companies’ outstanding debt is subject to change of
      control provisions. 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’ indebtedness following a change of control, which would place us and
      our parent companies in default under the applicable debt
      instruments.***




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’ notes and our credit facilities following a change of control. Under
      the indentures governing our and our parent companies’ notes, upon the
      occurrence of specified change of control events, the applicable note issuer
      is
      required to offer to repurchase all of its outstanding notes. However, we and
      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 company to fund any required repurchase.
      In
      addition, a change of control under our credit






34





facilities
      would result in a default under those credit facilities. Because such credit
      facilities and our subsidiary’s notes are obligations of our subsidiary, the
      credit facilities and our subsidiary’s notes would have to be repaid by our
      subsidiary before their assets could be available to us or our parent companies
      to repurchase our and our parent companies’ 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 our subsidiaries to make a change
      of
      control offer or repay the amounts accelerated under their credit facilities
      would place them in default.





***Paul
      G. Allen and his affiliates are not obligated to purchase equity from,
      contribute to or loan funds to us or any of our parent
      companies.***





Paul
      G.
      Allen and his affiliates are not obligated to purchase equity from, contribute
      to or loan funds to us or any of our parent companies.





**Risks
      Related to Our Business**





***We
      operate in a very competitive business environment, which affects our ability
      to
      attract and retain customers and can adversely affect our business and
      operations. We have lost a significant number of video customers to direct
      broadcast satellite competition and further loss of video customers could have
      a
      material negative impact on our business.***





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 repeal of certain ownership rules may provide additional
      benefits to certain of our competitors, either through access to financing,
      resources or efficiencies of scale.





Our
      principal competitor for video services throughout our territory is direct
      broadcast satellite (“DBS”). Competition from DBS, including intensive marketing
      efforts and aggressive pricing 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 us, 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 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 enable them to begin providing video services, as well as
      telephone and high bandwidth Internet access services, to residential and
      business customers and they are now offering such service in limited areas.
      Some
      of these telephone companies have obtained, and are now seeking, franchises
      or
      operating authorizations 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 Internet 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 DSL and “dial-up”. DSL service is competitive with high-speed
      Internet service over cable systems. 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. Moreover, as we expand our telephone offerings, we will face
      considerable competition from established telephone companies and other
      carriers, including VoIP providers. 
 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 boxes.






35




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
      a
      material 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,
      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.





We
      cannot
      assure you that our cable systems will allow us to compete effectively.
      Additionally, as we expand our offerings to include other telecommunications
      services, and to introduce new and enhanced services, we will be subject to
      competition from other providers of the services we offer. We cannot predict
      the
      extent to which competition may affect our business and operations in the
      future.





***We
      have a history of net losses and expect to continue to experience net losses.
      Consequently, we may not have the ability to finance future
      operations.***





We
      have
      had a history of net losses and expect to continue to report net losses for
      the
      foreseeable future. Our net losses are principally attributable to insufficient
      revenue to cover the combination of operating costs and interest costs we incur
      because of our debt and the depreciation expenses that we incur resulting from
      the capital investments we have made in our cable properties. We expect that
      these expenses will remain significant, and we expect to continue to report
      net
      losses for the foreseeable future. We reported net income of $82 million for
      the
      three months ended September 30, 2006. We reported net losses of $103 million,
      $155 million and $239 million for the three months ended September 30, 2005
      and
      for the nine months ended September 30, 2006 and 2005, respectively. Continued
      losses would reduce our cash available from operations to service our
      indebtedness, as well as limit our ability to finance our operations.




***We
        may not have the ability to pass our increasing programming costs on to our
        customers, which would adversely affect our cash flow and operating
        margins.***
 
 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 programming. The inability
        to fully pass these programming cost increases on to our customers has had
        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 October 6, 2006, approximately
        7%
        of our current programming contracts were expired, and approximately another
        4%
        were scheduled to expire at or before the end of 2006. There can be no assurance
        that these agreements will be renewed on favorable or comparable terms. Our
        programming costs increased by approximately 8% and 10% in the three and
        nine
        months ended September 30, 2006 compared to the corresponding periods in
        2005,
        respectively. We expect our programming costs in 2006 to continue to increase
        at
        a higher rate than in 2005. 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.
 
 ***If
        our required capital expenditures*** ***in 2006, 2007 and beyond*** ***exceed our projections, we may not have sufficient funding, which could
        adversely affect our growth, financial condition and results of
        operations.***
 
 During
        the three and nine months ended September 30, 2006, we spent approximately
        $256
        million and $795 million, respectively, on capital expenditures. During 2006,
        we
        expect capital expenditures to be approximately $1.1 billion. The actual
        amount
        of our capital expenditures depends on the level of growth in high-speed
        Internet and telephone customers and in the delivery of other advanced services,
        as well as the cost of introducing any new services. We may need additional
        capital in
        2006,
        2007 and beyond if
        there
        is accelerated growth in high-speed Internet customers, telephone customers
        or
        in the delivery of other advanced services. If we cannot obtain such capital
        from increases in our cash flow from operating activities, additional
        borrowings, proceeds from asset sales or other sources, our growth, financial
        condition and results of operations could suffer materially.






36





***Our
      inability to respond to technological developments and meet customer demand
      for
      new products and services could limit our ability to compete
      effectively.***





Our
      business is characterized by rapid technological change and the introduction
      of
      new products and services. We cannot assure you that we will be able to fund
      the
      capital expenditures necessary to keep pace with unanticipated technological
      developments or that we will successfully anticipate the demand of our customers
      for products and services requiring new technology. Our inability to maintain
      and expand our upgraded systems and provide advanced services in a timely
      manner, or to anticipate the demands of the marketplace, could materially
      adversely affect our ability to attract and retain customers. Consequently,
      our
      growth, financial condition and results of operations could suffer materially.





***Malicious*** ***and
      abusive Internet practices could impair our high-speed Internet
      services.***





Our
      high-speed Internet customers utilize our network to access the Internet and,
      as
      a consequence, we or they may become victim to common malicious and abusive
      Internet activities, such as unsolicited mass advertising (i.e., “spam”) and
      dissemination of viruses, worms and other destructive or disruptive software.
      These activities could have adverse consequences on our network and our
      customers, including degradation of service, excessive call volume to call
      centers and damage to our or our customers’ equipment and data. Significant
      incidents could lead to customer dissatisfaction and, ultimately, loss of
      customers or revenue, in addition to increased costs to us to service our
      customers and protect our network. Any significant loss of high-speed Internet
      customers or revenue or significant increase in costs of serving those customers
      could adversely affect our growth, financial condition and results of
      operations.




**Risks
        Related to Mr. Allen’s Controlling Position**
 
 ***The
        failure by Mr. Allen to maintain a minimum voting and economic interest in
        us
        could trigger a change of control default under our subsidiary’s credit
        facilities.***
 
 The
        Charter Operating credit facilities provide that the failure by (a) Mr. Allen,
        (b) his estate, spouse, immediate family members and heirs and (c) any trust,
        corporation, partnership or other entity, the beneficiaries, stockholders,
        partners or other owners of which consist exclusively of Mr. Allen or such
        other
        persons referred to in (b) above or a combination thereof, to maintain a 35%
        direct or indirect voting interest in the applicable borrower would result
        in a
        change of control default. Such a default could result in the acceleration
        of
        repayment of our and our subsidiary’s indebtedness, including borrowings under
        the Charter Operating credit facilities.
 
 ***Mr.
        Allen controls us and may have interests that conflict with your
        interests.***
 
 Mr.
        Allen
        has the ability to control us. Through his control as of September 30, 2006
        of
        approximately 90% of the voting power of the capital stock of our manager,
        Charter, Mr. Allen is entitled to elect all but one of Charter’s board members
        and effectively has the voting power to elect the remaining board member
        as
        well. Mr. Allen thus has the ability to control fundamental corporate
        transactions requiring equity holder approval, including, but not limited
        to,
        the election of all of Charter’s directors, approval of merger transactions
        involving us and the sale of all or substantially all of our assets.
 
 Mr.
        Allen
        is not restricted from investing in, and has invested in, and engaged in,
        other
        businesses involving or related to the operation of cable television systems,
        video programming, high-speed Internet service, telephone or business and
        financial transactions conducted through broadband interactivity and Internet
        services. Mr. Allen may also engage in other businesses that compete or may
        in
        the future compete with us.
 
 Mr.
        Allen’s control over our management and affairs could create conflicts of
        interest if he is faced with decisions that could have different implications
        for him, us and the holders of our notes. Further, Mr. Allen could effectively
        cause us to enter into contracts with another entity in which he owns an
        interest or to decline a transaction into which he (or another entity in
        which
        he owns an interest) ultimately enters.






37





Current
      and future agreements between us and either Mr. Allen or his affiliates may
      not
      be the result of arm’s-length negotiations. Consequently, such agreements may be
      less favorable to us than agreements that we could otherwise have entered into
      with unaffiliated third parties.





***We
      are not permitted to engage in any business activity other than the cable
      transmission of video, audio and data unless Mr. Allen authorizes us to pursue
      that particular business activity, which could adversely affect our ability
      to
      offer new products and services outside of the cable transmission business
      and
      to enter into new businesses, and could adversely affect our growth, financial
      condition and results of operations.***





Charter’s
      certificate of incorporation and Charter Holdco’s limited liability company
      agreement provide that Charter and Charter Holdco and their subsidiaries,
      including us, cannot engage in any business activity outside the cable
      transmission business except for specified businesses. This will be the case
      unless Mr. Allen consents to our engaging in the business activity. The cable
      transmission business means the business of transmitting video, audio (including
      telephone services), and data over cable television systems owned, operated
      or
      managed by us from time to time. These provisions may limit our ability to
      take
      advantage of attractive business opportunities.





***The
      loss of Mr. Allen’s services could adversely affect our ability to manage our
      business.***





Mr.
      Allen
      is Chairman of Charter’s board of directors and provides strategic guidance and
      other services to Charter. If Charter were to lose his services, our growth,
      financial condition and results of operations could be adversely impacted.




***The
        recent issuance of Charter Class A common stock, as well as possible future
        conversions of Charter convertible notes, significantly increase the risk
        that
        Charter will experience an ownership change in the future for tax purposes,
        resulting in a material limitation on the use of a substantial amount of
        Charter’s existing net operating loss carryforwards.***
 
 As
        of
        September 30, 2006, Charter ** had
        approximately $6.4 billion of tax net operating losses (resulting in a gross
        deferred tax asset of approximately $2.6 billion) expiring in the years 2007
        through 2026. Due to uncertainties in projected future taxable income, valuation
        allowances have been established against the gross deferred tax assets for
        book
        accounting purposes except for deferred benefits available to offset certain
        deferred tax liabilities. Currently, such tax net operating losses can
        accumulate and be used to offset any of Charter’s ** future
        taxable income. An “ownership change” as defined in Section 382 of the Internal
        Revenue Code of 1986, as amended, would place significant limitations, on
        an
        annual basis, on the use of such net operating losses to offset any future
        taxable income Charter ** may
        generate. Such limitations, in conjunction with the net operating loss
        expiration provisions, could effectively eliminate Charter’s ** ability
        to use a substantial portion of its net operating losses to offset future
        taxable income.
 
 The
        issuance of 45 million shares of Charter ** Class
        A
        common stock in connection with the September 2006 exchange offer, up to
        a total
        of 150 million shares of Charter ** Class
        A
        common stock (of which a total of 59.5 million are outstanding as of September
        2006) offered pursuant to a share lending agreement executed by Charter in
        connection with the issuance of the 5.875% convertible senior notes in November
        2004, as well as possible future conversions of Charter ** convertible
        notes, significantly increases the risk that Charter ** will
        experience an ownership change in the future for tax purposes, resulting
        in a
        material limitation on the use of a substantial amount of Charter’s ** existing
        net operating loss carryforwards. As of September 30, 2006, the issuance
        and
        return of shares associated with the share lending agreement did not result
        in
        Charter ** experiencing
        an ownership change. However, future transactions and the timing of such
        transactions could cause an ownership change. Such transactions include
        additional issuances of common stock by Charter ** (including
        but not limited to issuances upon future conversion of Charter’s ** 5.875%
        convertible senior notes), reacquisitions of the borrowed shares by Charter,
        or
        acquisitions or sales of shares by certain holders of Charter ** shares,
        including persons who have held, currently hold, or accumulate in the future
        five percent or more of Charter’s ** outstanding
        stock (including upon an exchange by Mr. Allen or his affiliates, directly
        or
        indirectly, of membership units of Charter Holdco into Charter ** Class
        A
        common stock). Many of the foregoing transactions are beyond our
        control.






38





**Risks
      Related to Regulatory and Legislative Matters**





***Our
      business is subject to extensive governmental legislation and regulation, which
      could adversely affect our business.***





Regulation
      of the cable industry has increased cable operators’ administrative and
      operational expenses and limited their revenues. Cable operators are subject
      to,
      among other things:




·
              rules
                  governing the provision of cable equipment and compatibility with
                  new
                  digital technologies;
 ·
              rules
                  and regulations relating to subscriber
                  privacy;
 ·
              limited
                  rate regulation;
 ·
              requirements
                  governing when a cable system must carry a particular broadcast
                  station
                  and when it must first obtain consent to carry a broadcast
                  station;
 ·
              rules
                  and regulations relating to provision of voice
                  communications; ·
              rules
                  for franchise renewals and transfers;
                  and
 ·
              other
                  requirements covering a variety of operational areas such as equal
                  employment opportunity, technical standards and customer service
                  requirements.




Additionally,
      many aspects of these regulations are currently the subject of judicial
      proceedings and administrative or legislative proposals. There are also ongoing
      efforts to amend or expand the federal, state and local regulation of some
      of
      our cable systems, which may compound the regulatory risks we already face.
      Certain states and localities are considering new telecommunications taxes
      that
      could increase operating expenses.




***Our
        cable systems are operated under franchises that are subject to non-renewal
        or
        termination. The failure to renew a franchise in one or more key markets
        could
        adversely affect our business.***
 
 Our
        cable
        systems generally operate pursuant to franchises, permits and similar
        authorizations issued by a state or local governmental authority controlling
        the
        public rights-of-way. Many franchises establish comprehensive facilities
        and
        service requirements, as well as specific customer service standards and
        monetary penalties for non-compliance. In many cases, franchises are terminable
        if the franchisee fails to comply with significant provisions set forth in
        the
        franchise agreement governing system operations. Franchises are generally
        granted for fixed terms and must be periodically renewed. Local franchising
        authorities may resist granting a renewal if either past performance or the
        prospective operating proposal is considered inadequate. Franchise authorities
        often demand concessions or other commitments as a condition to renewal.
        In some
        instances, franchises have not been renewed at expiration, and we have operated
        and are operating under either temporary operating agreements or without
        a
        license while negotiating renewal terms with the local franchising authorities.
        Approximately 12% of our franchises, covering approximately 14% of our analog
        video customers, were expired as of September 30, 2006. Approximately 2%
        of
        additional franchises, covering approximately an additional 4% of our analog
        video customers, will expire on or before December 31, 2006, if not renewed
        prior to expiration.
 
 We
        cannot
        assure you that we will be able to comply with all significant provisions
        of our
        franchise agreements and certain of our franchisors have from time to time
        alleged that we have not complied with these agreements. Additionally, although
        historically we have renewed our franchises without incurring significant
        costs,
        we cannot assure you that we will be able to renew, or to renew as favorably,
        our franchises in the future. A termination of or a sustained failure to
        renew a
        franchise in one or more key markets could adversely affect our business
        in the
        affected geographic area.
 
 ***Our
        cable systems are operated under franchises that are non-exclusive. Accordingly,
        local franchising authorities can grant additional franchises and create
        competition in market areas where none existed previously, resulting in
        overbuilds, which could adversely affect results of
        operations.***
 
 Our
        cable
        systems are operated under non-exclusive franchises granted by local franchising
        authorities. Consequently, local franchising authorities can grant additional
        franchises to competitors in the same geographic area or operate their own
        cable
        systems. In addition, certain telephone companies are seeking authority to
        operate in local communities without first obtaining a local franchise. As
        a
        result, competing operators may build systems in areas in which we hold
        franchises. In some cases municipal utilities may legally compete with us
        without obtaining a franchise from the local franchising authority.






39





Different
      legislative proposals have been introduced in the United States Congress and
      in
      some state legislatures that would greatly streamline cable franchising. This
      legislation is intended to facilitate entry by new competitors, particularly
      local telephone companies. Such legislation has passed in several states in
      which we have operations and one of these newly enacted statutes is subject
      to
      court challenge. Although various legislative proposals provide some regulatory
      relief for incumbent cable operators, these proposals are generally viewed
      as
      being more favorable to new entrants due to a number of factors, including
      provisions withholding streamlined cable franchising from incumbents until
      after
      the expiration of their existing franchises. To the extent incumbent cable
      operators are not able to avail themselves of this streamlined franchising
      process, such operators may continue to be subject to more onerous franchise
      requirements at the local level than new entrants. A proceeding is pending
      at
      the Federal Communications Commission ("FCC'') to determine whether local
      franchising authorities are impeding the deployment of competitive cable
      services through unreasonable franchising requirements and whether such
      impediments should be preempted. We are not yet able to determine what impact
      such proceeding may have on us.





The
      existence of more than one cable system operating in the same territory is
      referred to as an overbuild. These overbuilds could adversely affect our growth,
      financial condition and results of operations by creating or increasing
      competition. As of September 30, 2006, we are aware of overbuild situations
      impacting approximately 8% of our estimated homes passed, and potential
      overbuild situations in areas servicing approximately an additional 8% of our
      estimated homes passed. Additional overbuild situations may occur in other
      systems.




***Local
        franchise authorities have the ability to impose additional regulatory
        constraints on our business, which could further increase our
        expenses.***
 
 In
        addition to the franchise agreement, cable authorities in some jurisdictions
        have adopted cable regulatory ordinances that further regulate the operation
        of
        cable systems. This additional regulation increases the cost of operating
        our
        business. We cannot assure you that the local franchising authorities will
        not
        impose new and more restrictive requirements. Local franchising authorities
        also
        generally have the power to reduce rates and order refunds on the rates charged
        for basic services.
 
 ***Further
        regulation of the cable industry could cause us to delay or cancel service
        or
        programming enhancements or impair our ability to raise rates to cover our
        increasing costs, resulting in increased losses.***
 
 Currently,
        rate regulation is strictly limited to the basic service tier and associated
        equipment and installation activities. However, the FCC and the U.S. Congress
        continue to be concerned that cable rate increases are exceeding inflation.
        It
        is possible that either the FCC or the U.S. Congress will again restrict
        the
        ability of cable system operators to implement rate increases. Should this
        occur, it would impede our ability to raise our rates. If we are unable to
        raise
        our rates in response to increasing costs, our losses would increase.
 
 There
        has
        been considerable legislative and regulatory interest in requiring cable
        operators to offer historically bundled programming services on an á la carte
        basis or to at least offer a separately available child-friendly “Family Tier.”
It is possible that new marketing restrictions could be adopted in the future.
        Such restrictions could adversely affect our operations.
 
 ***Actions
        by pole owners might subject us to significantly increased pole attachment
        costs.***
 
 Pole
        attachments are cable wires that are attached to poles. Cable system attachments
        to public utility poles historically have been regulated at the federal or
        state
        level, generally resulting in favorable pole attachment rates for attachments
        used to provide cable service. The FCC clarified that a cable operator’s
        favorable pole rates are not endangered by the provision of Internet access,
        and
        that approach ultimately was upheld by the Supreme Court of the United States.
        Despite the existing regulatory regime, utility pole owners in many areas
        are
        attempting to raise pole attachment fees and impose additional costs on cable
        operators and others. The favorable pole attachment rates afforded cable
        operators under federal law can be increased by utility companies if the
        operator provides telecommunications services, in addition to cable service,
        over cable wires attached to utility poles. To date, Voice over Internet
        Protocol or VoIP service has not been classified as either a telecommunications
        service or cable service under the Communications Act. If VoIP were classified
        as a telecommunications service under the Communications Act by the FCC,
        a state
        Public Utility Commission, or an appropriate court, it might result in
        significantly increased pole attachment costs for us, which could adversely
        affect our financial condition and results of operations. Any






40





significant
      increased costs could have a material adverse impact on our profitability and
      discourage system upgrades and the introduction of new products and
      services.





***We
      may be required to provide access to our networks to other Internet service
      providers which could significantly increase our competition and adversely
      affect our ability to provide new products and
      services.***





A
      number
      of companies, including independent Internet service providers, or ISPs, have
      requested local authorities and the FCC to require cable operators to provide
      non-discriminatory access to cable’s broadband infrastructure, so that these
      companies may deliver Internet services directly to customers over cable
      facilities. In a June 2005 ruling, commonly referred to as *Brand
      X* ,
      the
      Supreme Court upheld an FCC decision (and overruled a conflicting Ninth Circuit
      opinion) making it less likely that any nondiscriminatory “open access”
requirements (which are generally associated with common carrier regulation
      of
“telecommunications services”) will be imposed on the cable industry by local,
      state or federal authorities. The Supreme Court held that the FCC was correct
      in
      classifying cable provided Internet service as an “information service,” rather
      than a “telecommunications service.” Notwithstanding *Brand
      X* ,
      there
      has been increasing advocacy by certain internet content providers and consumer
      groups for new federal laws or regulations to limiting the ability of broadband
      network owners (like Charter) to manage and control their own networks. The
      proposals might prevent network owners, for example, from charging bandwidth
      intensive content providers, such as certain online gaming, music, and video
      service providers, an additional fee to ensure quality delivery of the services
      to consumers. If we were required to allocate a portion of our bandwidth
      capacity to other Internet service providers, or were prohibited from charging
      heavy bandwidth intensive services a fee for use of our networks,
      we believe that it could impair our ability to use our bandwidth in ways that
      would generate maximum revenues. 
 ***Changes
        in channel carriage regulations could impose significant additional costs
        on
        us.***
 
 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 in February 2005, confirming
        an
        earlier ruling against mandating either dual carriage or multicast carriage,
        that decision is subject to a petition for reconsideration which is pending.
        In
        addition, the FCC could reverse its own ruling or Congress could legislate
        additional carriage obligations.
 
 ***Offering
        voice communications service may subject us to additional regulatory burdens,
        causing us to incur additional costs.***
 
 In
        2002,
        we began to offer voice communications services on a limited basis over our
        broadband network. We continue to develop and deploy Voice over Internet
        Protocol or VoIP services. The FCC has declared that certain VoIP services
        are
        not subject to traditional state public utility regulation. The full extent
        of
        the FCC preemption of state and local regulation of VoIP services is not
        yet
        clear. Expanding our offering of these services may require us to obtain
        certain
        authorizations, including federal and state licenses. We may not be able
        to
        obtain such authorizations in a timely manner, or conditions could be imposed
        upon such licenses or authorizations that may not be favorable to us. The
        FCC
        has extended certain traditional telecommunications requirements, such as
        E911
        and Universal Service requirements, to many VoIP providers, such as Charter.
        The
        FCC has also required that these VoIP providers comply with obligations applied
        to traditional telecommunications carriers to ensure their networks can
        accommodate law enforcement wiretaps by May 2007, which requirement has been
        affirmed by the Court of Appeals for the D.C. Circuit. Telecommunications
        companies generally are subject to other significant regulation which could
        also
        be extended to VoIP providers. If additional telecommunications regulations
        are
        applied to our VoIP service, it could cause us to incur additional costs.






41




**Item
      6.****Exhibits.**





The
      index
      to the exhibits begins on page 44 of this quarterly report.







42


**SIGNATURES**





Pursuant
      to the requirements of the Securities Exchange Act of 1934, as amended, CCO
      Holdings, LLC and CCO Holdings Capital Corp. have duly caused this quarterly
      report to be signed on its behalf by the undersigned, thereunto duly authorized.





CCO
      HOLDINGS, LLC


Registrant





By:
      CHARTER COMMUNICATIONS, INC., Sole Manager





Dated:
                November 13, 2006
            By:/s/
                Kevin D. HowardName:
            Kevin
                D. HowardTitle:
            *Vice
                President and**Chief
                Accounting Officer*





CCO
      HOLDINGS CAPITAL CORP.


Registrant





Dated:
                November 13, 2006
            By:/s/
                Kevin D. HowardName:
            Kevin
                D. HowardTitle:
            *Vice
                President and**Chief
                Accounting Officer*




















43


**EXHIBIT
      INDEX**








Exhibit
              Number
            Description
                of Document10.1+
            Employment
                Agreement dated as of August 1, 2006 by and between Marwan Fawaz
                and
                Charter Communications, Inc. (incorporated by reference to
                Exhibit 99.1 to the current report on Form 8-K of Charter
                Communications, Inc. filed on August 1, 2006 (File No.
                000-27927)).31.1*
            Certificate
                of Chief Executive Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a)
                under
                the Securities Exchange Act of 1934.31.2*
            Certificate
                of Chief Financial Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a)
                under
                the Securities Exchange Act of 1934.32.1*
            Certification
                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002 (Chief Executive
                Officer).32.2*
            Certification
                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002 (Chief Financial
                Officer).





*
      Document attached





+
      Management compensatory plan or arrangement






44