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, 2009





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)


(Debtors-In-Possession
as of March 27, 2009)





Delaware
            
            86-1067239Delaware
            
            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 have submitted electronically and posted
on their corporate website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrants were required to submit and post such files). YES
[  ]  NO [  ]





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





Large accelerated
filer o                                        Accelerated
filer o                                      Non-accelerated
filer þSmaller
reporting company o





Indicate
by check mark whether the registrants are shell companies (as defined in Rule
12b-2 of the Act). Yes oNo þ





Number of
shares of common stock of CCO Holdings Capital Corporation outstanding as of
November 13, 2009: 1













CCO
Holdings, LLC


CCO
Holdings Capital Corp.


Quarterly
Report on Form 10-Q for the Period ended September 30, 2009





Table
of Contents





PART
      I. FINANCIAL INFORMATION
            PageItem
      1.     Financial Statements - CCO Holdings, LLC
      and SubsidiariesCondensed
      Consolidated Balance Sheets as of September 30, 2009and
      December 31, 2008
            4Condensed
      Consolidated Statements of Operations for the three and
    ninemonths
      ended September 30, 2009 and 2008
            5Condensed
      Consolidated Statements of Cash Flows for thenine
      months ended September 30, 2009 and 2008
            6Notes
      to Condensed Consolidated Financial Statements
            7Item
      2.    Management's Discussion and Analysis of
      Financial Condition and Results of Operations
            22Item
      3.    Quantitative and Qualitative Disclosures about Market
      Risk
            36Item
      4.    Controls and Procedures
            36PART
      II. OTHER INFORMATIONItem
      1.     Legal Proceedings
            37Item
      1A.  Risk Factors
            38Item
      6.     Exhibits
            43SIGNATURES
            S-1EXHIBIT
      INDEX
            E-1





This
quarterly report on Form 10-Q is for the three and nine months ended
September 30, 2009.  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
and the factors described under “Risk Factors” under Part I, Item 1A of our most
recent Form 10-K filed with the SEC.  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
      completion of our and our parent companies’ restructuring including the
      outcome and impact on our business of the proceedings under Chapter 11 of
      the Bankruptcy Code;
 ·
              our
      and our parent companies’ ability to satisfy closing conditions under the
      agreements-in-principle with certain of our parent companies’ bondholders
      and pre-arranged joint plan of reorganization (as amended, “the Plan”) and
      related documents;
 ·
              the
      availability and access, in general, of funds to meet our and our parent
      companies’ debt obligations and to fund our operations and necessary
      capital expenditures, either through cash on hand, cash flows from
      operating activities, further borrowings or other sources and, in
      particular, our  and our parent companies’ ability to fund debt
      obligations (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, if not cured in a timely manner, could trigger a default of our and
      our parent companies’ other obligations under cross-default
      provisions;
 ·
              our
      and our parent companies’ ability to repay debt prior to or when it
      becomes due and/or successfully access the capital or credit markets to
      refinance that debt through new issuances, exchange offers or otherwise,
      especially given recent volatility and disruption in the capital and
      credit markets;
 ·
              the
      impact of competition from other distributors, including but not limited
      to incumbent telephone companies, direct broadcast satellite operators,
      wireless broadband providers, and digital subscriber line (“DSL”)
      providers;
 ·
              difficulties
      in growing and operating our telephone services, while adequately
      meeting  customer expectations for the reliability of voice
      services;
 ·
              our
      ability to adequately meet demand for installations and customer
      service;
 ·
              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 our customer base, particularly in the
      face of increasingly aggressive competition and the weak economic
      conditions in the United States;
 ·
              our
      ability to obtain programming at reasonable prices or to adequately raise
      prices to offset the effects of higher programming
  costs;
 ·
              general
      business conditions, economic uncertainty or downturn, including the
      recent volatility and disruption in the capital and credit markets and the
      significant downturn in the housing sector and overall economy;
      and
 ·
              the
      effects of governmental regulation 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


(DEBTOR-IN-POSSESSION)


CONDENSED
CONSOLIDATED BALANCE SHEETS


(DOLLARS IN
MILLIONS)





September
      30,
            
            
            December
      31,2009
            
            
            2008(Unaudited)ASSETSCURRENT
      ASSETS:Cash
      and cash equivalents
            
            $
            1,057
            
            
            $
            948Accounts
      receivable, less allowance for doubtful accounts of $22 and $18,
      respectively
            
            
            209
            
            
            
            221Prepaid
      expenses and other current assets
            
            
            49
            
            
            
            23Total
      current assets
            
            
            1,315
            
            
            
            1,192INVESTMENT
      IN CABLE PROPERTIES:Property, plant and equipment, net of accumulated
    depreciation
            
            
            4,797
            
            
            
            4,959Franchises,
      net
            
            
            4,520
            
            
            
            7,384Total
      investment in cable properties, net
            
            
            9,317
            
            
            
            12,343OTHER
      NONCURRENT ASSETS
            
            
            204
            
            
            
            211Total
      assets
            
            $
            10,836
            
            
            $
            13,746LIABILITIES
      AND MEMBER’S DEFICITLIABILITIES
      NOT SUBJECT TO COMPROMISE:CURRENT
      LIABILITIES:Accounts
      payable and accrued expenses
            
            $
            1,324
            
            
            $
            909Payables
      to related party
            
            
            220
            
            
            
            236Current
      portion of long-term debt
            
            
            11,740
            
            
            
            70Total
      current liabilities
            
            
            13,284
            
            
            
            1,215LONG-TERM
      DEBT
            
            
            --
            
            
            
            11,719LOANS
      PAYABLE – RELATED PARTY
            
            
            252
            
            
            
            240DEFERRED
      MANAGEMENT FEES – RELATED PARTY
            
            
            --
            
            
            
            14OTHER
      LONG-TERM LIABILITIES
            
            
            152
            
            
            
            695LIABILITIES
      SUBJECT TO COMPROMISE (INCLUDING AMOUNTS DUE TORELATED
      PARTY OF $25 AND $0, RESPECTIVELY)
            
            
            71
            
            
            
            --TEMPORARY
      EQUITY
            
            
            179
            
            
            
            203MEMBER’S
      DEFICIT:Accumulated
      other comprehensive loss
            
            
            (266
            )
            
            
            (303
            )Member’s
      deficit
            
            
            (3,253
            )
            
            
            (510
            )Total
      CCO Holdings member’s deficit
            
            
            (3,519
            )
            
            
            (813
            )Noncontrolling
      interest
            
            
            417
            
            
            
            473Total
      member’s deficit
            
            
            (3,102
            )
            
            
            (340
            )Total
      liabilities and member’s deficit
            
            $
            10,836
            
            
            $
            13,746







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


CCO HOLDINGS, LLC AND SUBSIDIARIES


(DEBTOR-IN-POSSESSION)


CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS


(DOLLARS
IN MILLIONS)


Unaudited









Three
      Months Ended September 30,
            
            
            Nine
      Months Ended September 30,2009
            
            
            2008
            
            
            2009
            
            
            2008REVENUES
            
            $
            1,693
            
            
            $
            1,636
            
            
            $
            5,045
            
            
            $
            4,823COSTS
      AND EXPENSES:Operating
      (excluding depreciation and amortization)
            
            
            736
            
            
            
            710
            
            
            
            2,164
            
            
            
            2,089Selling,
      general and administrative
            
            
            357
            
            
            
            371
            
            
            
            1,044
            
            
            
            1,059Depreciation
      and amortization
            
            
            327
            
            
            
            332
            
            
            
            977
            
            
            
            981Impairment
      of franchises
            
            
            2,854
            
            
            
            --
            
            
            
            2,854
            
            
            
            --Other
      operating (income) expenses, net
            
            
            10
            
            
            
            15
            
            
            
            (38
            )
            
            
            514,284
            
            
            
            1,428
            
            
            
            7,001
            
            
            
            4,180Income
      (loss) from operations
            
            
            (2,591
            )
            
            
            208
            
            
            
            (1,956
            )
            
            
            643OTHER
      INCOME (EXPENSES):Interest
      expense, net
            
            
            (141
            )
            
            
            (204
            )
            
            
            (491
            )
            
            
            (599
            )Change
      in value of derivatives
            
            
            --
            
            
            
            (7
            )
            
            
            (4
            )
            
            
            (1
            )Reorganization
      items, net
            
            
            (181
            )
            
            
            --
            
            
            
            (441
            )
            
            
            --Other
      income (expense), net
            
            
            --
            
            
            
            --
            
            
            
            1
            
            
            
            (2
            )(322
            )
            
            
            (211
            )
            
            
            (935
            )
            
            
            (602
            )Income
      (loss) before income taxes
            
            
            (2,913
            )
            
            
            (3
            )
            
            
            (2,891
            )
            
            
            41INCOME
      TAX BENEFIT
            
            
            75
            
            
            
            14
            
            
            
            68
            
            
            
            12Consolidated
      net income (loss)
            
            
            (2,838
            )
            
            
            11
            
            
            
            (2,823
            )
            
            
            53Less:
      Net (income) loss – noncontrolling interest
            
            
            102
            
            
            
            (6
            )
            
            
            80
            
            
            
            (18
            )Net
      income (loss) – CCO Holdings member
            
            $
            (2,736
            )
            
            $
            5
            
            
            $
            (2,743
            )
            
            $
            35










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


CCO HOLDINGS, LLC AND SUBSIDIARIES


(DEBTOR-IN-POSSESSION)


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(DOLLARS
IN MILLIONS)


Unaudited





Nine
      Months Ended September 30,2009
            
            
            2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income (loss) – CCO Holdings member
            
            $
            (2,743
            )
            
            $
            35Adjustments
      to reconcile net income (loss) to net cash flows from
      operating
              activities:Depreciation
      and amortization
            
            
            977
            
            
            
            981Impairment
      of franchises
            
            
            2,854
            
            
            
            --Noncash
      interest expense
            
            
            18
            
            
            
            15Change
      in value of derivatives
            
            
            4
            
            
            
            1Noncash
      reorganization items, net
            
            
            106
            
            
            
            --Deferred
      income taxes
            
            
            (76
            )
            
            
            (16
            )Noncontrolling
      interest
            
            
            (80
            )
            
            
            18Other,
      net
            
            
            29
            
            
            
            34Changes
      in operating assets and liabilities, net of effects from
      dispositions:Accounts
      receivable
            
            
            12
            
            
            
            (23
            )Prepaid
      expenses and other assets
            
            
            (26
            )
            
            
            (9
            )Accounts
      payable, accrued expenses and other
            
            
            (49
            )
            
            
            70Receivables
      from and payables to related party, including deferred managementfees
            
            
            (24
            )
            
            
            12Net
      cash flows from operating activities
            
            
            1,002
            
            
            
            1,118CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchases
      of property, plant and equipment
            
            
            (819
            )
            
            
            (938
            )Change
      in accrued expenses related to capital expenditures
            
            
            (18
            )
            
            
            (41
            )Other,
      net
            
            
            (4
            )
            
            
            (1
            )Net
      cash flows from investing activities
            
            
            (841
            )
            
            
            (980
            )CASH
      FLOWS FROM FINANCING ACTIVITIES:Borrowings
      of long-term debt
            
            
            --
            
            
            
            2,355Repayments
      of long-term debt
            
            
            (52
            )
            
            
            (1,161
            )Repayments
      to related parties
            
            
            --
            
            
            
            (12
            )Payments
      for debt issuance costs
            
            
            --
            
            
            
            (38
            )Distributions
            
            
            --
            
            
            
            (718
            )Other,
      net
            
            
            --
            
            
            
            (11
            )Net
      cash flows from financing activities
            
            
            (52
            )
            
            
            415NET
      INCREASE IN CASH AND CASH EQUIVALENTS
            
            
            109
            
            
            
            553CASH
      AND CASH EQUIVALENTS, beginning of period
            
            
            948
            
            
            
            2CASH
      AND CASH EQUIVALENTS, end of period
            
            $
            1,057
            
            
            $
            555CASH
      PAID FOR INTEREST
            
            $
            658
            
            
            $
            522







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


1.
            Organization,
      Basis of Presentation and Bankruptcy
Proceedings





Organization





CCO
Holdings, LLC (“CCO Holdings") is a holding company whose principal assets at
September 30, 2009 are the equity interest 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 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 to residential and commercial customers
traditional cable video programming (basic and digital video), high-speed
Internet services, and telephone services, as well as advanced broadband
services such as high definition television, Charter OnDemandTM, and digital
video recorder (“DVR”) service.  The Company sells its cable video
programming, high-speed Internet, telephone, and advanced broadband services
primarily on a subscription basis.  The Company also sells local
advertising on cable networks.





Basis
of Presentation





The
accompanying condensed consolidated financial statements of the Company have
been prepared in accordance with accounting principles generally accepted in the
United States (“GAAP”) 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 the Company’s Annual Report on Form 10-K have been
condensed or omitted for this quarterly report.  The accompanying
condensed consolidated financial statements are unaudited and are subject to
review by regulatory authorities.  However, in the opinion of
management, such financial statements include all adjustments, which consist of
only normal recurring adjustments, necessary for a fair presentation of the
results for the periods presented.  Interim results are not
necessarily indicative of results for a full year.





The
condensed consolidated financial statements have also been prepared in
accordance with Financial Accounting Standards Board (“FASB”) Accounting
Standards Codification (“ASC”) 852-10, Reorganizations – Overall
(“ASC 852-10”), and on a going concern basis, which assumes the continuity of
operations and reflects the realization of assets and satisfaction of
liabilities in the ordinary course of business.  Continuation of the
Company as a going concern is contingent upon, among other things, the Company’s
ability (i) to go effective with the plan of reorganization under the U.S.
Bankruptcy Code; (ii) to generate sufficient cash flow from operations; and
(iii) to obtain financing sources to meet the Company’s future
obligations.  These matters raise substantial doubt about the
Company’s ability to continue as a going concern.  Upon confirmation,
and subsequent effectiveness, of the Company’s plan of reorganization, the
Company anticipates that these matters will no longer raise substantial doubt
about the Company’s ability to continue as a going concern. The condensed consolidated
financial statements reflect adjustments to record amounts in accordance with
ASC 852-10.  However, they do not reflect all adjustments relating to
the recoverability and classification of recorded asset amounts or the amounts
and classification of liabilities that might result from the outcome of these
uncertainties.  Additionally, a plan of reorganization could
materially change amounts reported in the condensed consolidated financial
statements, which do not give effect to all adjustments of the carrying value of
assets and liabilities that are necessary as a consequence of reorganization
under Chapter 11.  Upon the effectiveness of the Company’s
pre-arranged joint plan of reorganization (as amended, the “Plan”), the Company
and its parent companies will apply fresh start accounting in accordance with
ASC 852-10 which requires assets and liabilities to be reflected at fair
value.





The
preparation of financial statements in conformity with GAAP 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


7
 CCO
HOLDINGS, LLC AND SUBSIDIARIES
 (DEBTOR-IN-POSSESSION)
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 (dollars
in millions)


amortization
costs; impairments of property, plant and equipment, franchises and goodwill;
income taxes; and contingencies.  Actual results could differ from
those estimates.





Certain
prior year amounts have been reclassified to conform with the 2009
presentation.





All
subsequent events have been evaluated for disclosure in the financial statements
through November 12, 2009.





Bankruptcy
Proceedings





On March
27, 2009, the Company, its parent companies, and certain affiliates
(collectively, the “Debtors”) filed voluntary petitions in the United States
Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”)
seeking relief under the provisions of Chapter 11 of Title 11 of the United
States Code (the “Bankruptcy Code”).  The Chapter 11 cases are being
jointly administered under the caption In re Charter Communications, Inc.,
et al., Case No. 09-11435 (the “Chapter 11 Cases”).  The
Debtors have continued to operate their businesses and manage their properties
as debtors in possession under the jurisdiction of the Bankruptcy Court and in
accordance with the applicable provisions of the Bankruptcy Code.





The
filing was made to allow the Company and its parent companies to implement a
restructuring pursuant to the Plan aimed at improving the Company’s and its
parent companies’ capital structure.  The Plan essentially provides
for a balance sheet restructuring that will leave intact the Company’s
operations.





Under
Chapter 11, the Company is operating its business as a debtor-in-possession
(“DIP”) under bankruptcy court protection from creditors and
claimants.  The Company and its parent companies have obtained orders
from the Bankruptcy Court, which provide, among other things, flexibility in
cash management, the ability to use cash collateral, and in the normal course,
the ability to pay certain trade creditor balances that are pre-petition
claims.  During these Chapter 11 Cases, all transactions outside the
ordinary course of business will require the prior approval of the Bankruptcy
Court.  As a consequence of the Chapter 11 filing, pending litigation
against the Company and its parent companies arising before March 27, 2009 is
subject to the automatic stay under the Bankruptcy Code, and consequently no
party may take any action to collect pre-petition claims except pursuant to
order of the Bankruptcy Court.





On
October 15, 2009, the Bankruptcy Court provided a preliminary ruling indicating
that the Plan would be confirmed in the next several weeks.  The
Bankruptcy Court also indicated that it would rule in favor of the reinstatement
of certain of the Company’s and its parent companies’ debt.  The
Company expects to cause the Plan to go effective soon after the Bankruptcy
Court enters the confirmation order.





The Plan
is expected to be funded with cash on hand, cash from operations, an exchange of
debt of CCH II for other debt at CCH II (the “Notes Exchange”), and estimated
proceeds of approximately $1.6 billion of an equity rights offering (the “Rights
Offering”).  In addition to separate restructuring agreements entered
into with certain holders of the Company’s parent companies’ notes (the
“Noteholders”) pursuant to which the Company and its parent companies expect to
implement the Plan (as amended, the “Restructuring Agreements”), the Noteholders
have entered into commitment letters with Charter (the “Commitment Letters”)
pursuant to which they have agreed to exchange and/or purchase, as applicable,
certain of the Company’s parent companies’ securities.  The holders of
the CCH II notes have made their elections in the Notes Exchange.  As
a result of the Notes Exchange, CCH II will exchange approximately $1.5 billion
of old CCH II notes for new CCH II notes on the effective date of the Plan
should the Bankruptcy Court ultimately approve the Plan and the Plan becomes
effective.  The Rights Offering has also been concluded resulting in
holders of CCH I, LLC (“CCH I”) notes electing to purchase approximately $1.6
billion of Charter’s new Class A Common Stock and certain of the Noteholders
electing to exercise an overallotment option to purchase an additional
approximately $40 million of Charter’s new Class A Common Stock.  The
Rights Offering will close on the effective date of the Plan should the
Bankruptcy Court ultimately approve the Plan and the Plan becomes effective. The
Plan would result in the reduction of the Company’s parent companies’ debt by
approximately $8 billion.


8
 CCO
HOLDINGS, LLC AND SUBSIDIARIES
 (DEBTOR-IN-POSSESSION)
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 (dollars
in millions)


The
Restructuring Agreements contemplate that upon the effective date of the Plan
(i) the notes and credit facilities of Charter’s subsidiaries, Charter
Communications Operating, LLC (“Charter Operating”) and CCO Holdings will remain
outstanding, (ii) holders of notes issued by CCH II will receive new CCH II
notes and/or cash, (iii) holders of notes issued by CCH I will receive shares of
Charter’s new Class A Common Stock, (iv) holders of notes issued by CCH I
Holdings, LLC (“CIH”) will receive warrants to purchase shares of Charter’s new
Class A Common Stock, (v) holders of notes of Charter Holdings will receive
warrants to purchase shares of Charter’s new Class A Common Stock, (vi) holders
of convertible notes issued by Charter will receive cash and preferred stock to
be issued by Charter,  (vii) holders of existing common stock will not
receive any amounts on account of their common stock, which will be cancelled,
and (viii) trade creditors will continue to be paid in full.  In
addition, as part of the Plan, the holders of CCH I notes will be deemed to have
received and transferred to Mr. Paul G. Allen, Charter’s chairman and primary
shareholder, $85 million of new CCH II notes.





Pursuant
to a separate restructuring agreement among Charter, Mr. Allen and an entity
controlled by Mr. Allen (as amended, the “Allen Agreement”), in settlement and
compromise of their legal, contractual and equitable rights, claims and remedies
against Charter and its subsidiaries, and in addition to any amounts received by
virtue of their holding any claims of the type set forth above, upon the
effective date of the Plan, Mr. Allen or his affiliates will be issued a number
of shares of the new Class B Common Stock of Charter equal to 2% of the equity
value of Charter, after giving effect to the Rights Offering, but prior to
issuance of warrants and equity-based awards provided for by the Plan and 35%
(determined on a fully diluted basis) of the total voting power of all new
capital stock of Charter.  Each share of new Class B Common Stock will be
convertible, at the option of the holder, into one share of new Class A Common
Stock, and will be subject to significant restrictions on
transfer.  Certain holders of new Class A Common Stock and new Class B
Common Stock will receive certain customary registration rights with respect to
their shares.  Upon the effective date of the Plan, Mr. Allen or his
affiliates will also receive (i) warrants to purchase shares of new Class A
Common Stock of Charter in an aggregate amount equal to 4% of the equity value
of reorganized Charter, after giving effect to the Rights Offering, but prior to
the issuance of warrants and equity-based awards provided for by the Plan, (ii)
$85 million principal amount of new CCH II notes, (iii) $25 million in cash for
amounts owing to Charter Investment, Inc. (“CII”) under a management
agreement, (iv) $20 million in cash for reimbursement of fees and expenses in
connection with the Plan, and (v) an additional $150 million in
cash.  The warrants described above shall have an exercise price per
share based on a total equity value equal to the sum of the equity value of
reorganized Charter, plus the gross proceeds of the Rights Offering, and shall
expire seven years after the date of issuance. In addition, on the effective
date of the Plan, CII will retain a 1% equity interest in reorganized Charter
Communications Holding Company, LLC (“Charter Holdco”) and a right to exchange
such interest into new Class A Common Stock of Charter. Further, Mr. Allen will
transfer his preferred equity interest in CC VIII, LLC (“CC VIII”) to
Charter.





The
Restructuring Agreements, Allen Agreement and Commitment Letters are subject to
certain termination events.  There is no assurance that the treatment
of creditors outlined above will not change significantly.   For
example, because the Plan is contingent on reinstatement of the credit
facilities and certain notes of Charter Operating and CCO Holdings, failure to
ultimately reinstate such debt, notwithstanding the Bankruptcy Court’s
indication that it intends to rule in favor of reinstatement, would require the
Company and its parent companies to revise the Plan.  Moreover, if
reinstatement does not ultimately occur and current capital market conditions
persist, the Company and its parent companies may not be able to secure adequate
new financing and the cost of new financing would likely be materially
higher.





Interest
Payments





Two of
the Company’s parent companies, CIH and Charter Holdings, did not make scheduled
payments of interest due on January 15, 2009 (the “January Interest Payment”) on
certain of their outstanding senior notes (the “Overdue Payment Notes”). 
Each of the respective governing indentures (the “Indentures”) for the Overdue
Payment Notes permits a 30-day grace period for such interest payments through
(and including) February 15, 2009.  On February 11, 2009, in connection
with the Commitment Letters and Restructuring Agreements, Charter and certain of
its subsidiaries also entered into an Escrow Agreement with members of the
ad-hoc committee of holders of the Overdue Payment Notes (“Ad-Hoc Holders”) and
Wells Fargo Bank, National Association, as Escrow Agent (the
“Escrow


9
 CCO
HOLDINGS, LLC AND SUBSIDIARIES
 (DEBTOR-IN-POSSESSION)
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 (dollars
in millions)


Agreement”).  On
February 13, 2009, the full amount of the January Interest Payment was paid to
the Paying Agent for the Ad-Hoc Holders on their Overdue Payment Notes, which
constitutes payment under the Indentures.  As required under the
Indentures, Charter set a special record date for payment of such interest
payments of February 28, 2009.  Under the Escrow Agreement, the Ad-Hoc
Holders agreed to deposit into an escrow account the amounts they received in
respect of the January Interest Payment of approximately $47 million (the
"Escrow Amount") and the Escrow Agent will hold such amounts subject to the
terms of the Escrow Agreement.  Under the Escrow Agreement, if the
transactions contemplated by the Restructuring Agreements are consummated on or
before December 15, 2009 or such transactions are not consummated on or before
December 15, 2009 due to material breach of the Restructuring Agreements by
Charter or its direct or indirect subsidiaries, then the Ad-Hoc Holders will be
entitled to receive their pro-rata share of the Escrow Amount.  If the
transactions contemplated by the Restructuring Agreements are not consummated on
or prior to December 15, 2009 for any reason other than material breach of the
Restructuring Agreements by Charter or its direct or indirect subsidiaries, then
Charter, Charter Holdings, CIH or their designee shall be entitled to receive
the Escrow Amount.  No amount has been recorded on the Company’s or
its parent companies’ condensed consolidated balance sheets for the Escrow
Amount.





Charter
Operating Revolving Credit Facility





The
Company has utilized $1.4 billion of the $1.5 billion revolving credit facility
under its Amended and Restated Credit Agreement, dated as of March 18, 1999, as
amended and restated as of March 6, 2007 (the “Credit
Agreement”).  Upon filing bankruptcy, Charter Operating no longer has
access to the revolving feature of its revolving credit
facility.  Reinstatement of the Credit Agreement will result in the
revolving credit facility remaining in place with its original terms except its
revolving feature.





2.           Liabilities
Subject to Compromise and Reorganization Items, Net





Liabilities
Subject to Compromise





Under the
Bankruptcy Code, certain claims against the Company in existence prior to the
filling of the petitions for relief under the federal bankruptcy laws are stayed
while the Company continues business operations as a DIP.  These
estimated claims are reflected in condensed consolidated balance sheets as
liabilities subject to compromise at the expected allowed claim amount as of
September 30, 2009 and are summarized in the table below.  Such claims
remain subject to future adjustments.  Adjustments may result from
actions of the Bankruptcy Court, negotiations, rejection or acceptance of
executory contracts, determination as to the value of any collateral securing
claims, proofs of claim or other events.





As of
September 30, 2009, the amounts subject to compromise consisted of the following
items.





Accrued
      expenses
            
            $
            46Deferred
      management fees – related party
            
            
            25Total
      Liabilities Subject to Compromise
            
            $
            71





Reorganization
Items, Net





Reorganization
items, net is presented separately in the condensed consolidated statements of
operations and represents items of income, expense, gain or loss that are
realized or incurred by the Company because it is in reorganization under
Chapter 11 of the U.S. Bankruptcy Code.





10
 CCO
HOLDINGS, LLC AND SUBSIDIARIES
 (DEBTOR-IN-POSSESSION)
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 (dollars
in millions)


Reorganization
items, net consisted of the following items:





Three
      Months Ended September 30, 2009
            
            
            Nine
      Months Ended September 30, 2009Penalty
      interest, net
            
            $
            119
            
            
            $
            223Loss
      on interest rate swap liabilities at allowed claimamount
            
            
            --
            
            
            
            49Professional
      fees
            
            
            58
            
            
            
            145Paul
      Allen management fee settlement – related party
            
            
            --
            
            
            
            11Other
            
            
            4
            
            
            
            13Total
      Reorganization Items, Net
            
            $
            181
            
            
            $
            441





Reorganization
items, net consist of adjustments to record liabilities at the allowed claim
amount and other expenses directly related to the Company’s bankruptcy
proceedings.  Penalty interest primarily represents the 2% per annum
penalty interest on the Company’s debt and credit facilities, and the
incremental amounts owed on the Company’s credit facilities as a result of the
requirement to pay the prime rate plus the 1% per annum applicable margin
instead of the election to pay the Eurodollar rate. Upon filing bankruptcy, the
Company is not able to elect the Eurodollar rate on credit facilities but must
pay interest at the prime rate plus the 1% per annum applicable margin plus 2%
per annum penalty interest.





3.           Franchises,
Goodwill and Other Intangible Assets





Franchise
rights represent the value attributed to agreements or authorizations with local
and state authorities that allow access to homes in cable service
areas.  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 ASC 350-10, Intangibles – Goodwill and Other -
Overall.  Franchises that qualify for indefinite-life treatment
are tested for impairment annually, or more frequently as warranted by events or
changes in circumstances.  Franchises are aggregated into essentially
inseparable units of accounting to conduct the valuations.  The units
of accounting generally represent 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 a
result of the continued economic pressure on the Company’s customers from the
recent economic downturn along with increased competition, the Company
determined that its projected future growth would be lower than previously
anticipated in its annual impairment testing in December
2008.  Accordingly, the Company determined that sufficient indicators
existed to require it to perform an interim franchise impairment analysis as of
September 30, 2009.  As of the date of the filing of this Quarterly
Report on Form 10-Q, the Company determined that an impairment of franchises is
probable and can be reasonably estimated. Accordingly, for the quarter ended
September 30, 2009, the Company recorded a preliminary non-cash franchise
impairment charge of $2.9 billion which represents the Company’s best estimate
of the impairment of its franchise assets. The Company
currently expects to finalize its franchise impairment analysis during the
quarter ended December 31, 2009, which could result in an impairment charge that
differs from the estimate.  In addition, upon the effectiveness of the
Company’s Plan, the Company and its parent companies will apply fresh start
accounting in accordance with ASC 852-10 and as such will adjust its franchise,
goodwill, and other intangible assets to reflect fair value and will also
establish any previously unrecorded intangible assets at their fair
values.  The Company expects these fresh start adjustments will result
in material increases to total tangible and intangible assets, primarily as a
result of adjustments to property, plant and equipment, goodwill and customer
relationships.





Consistent
with prior impairment tests, the Company determined the estimated fair value of
each unit of accounting utilizing an income approach model based on the present
value of the estimated discrete future cash flows of each unit assuming a
discount rate. This approach makes use of unobservable factors such as projected
revenues, expenses,


11
 CCO
HOLDINGS, LLC AND SUBSIDIARIES
 (DEBTOR-IN-POSSESSION)
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 (dollars
in millions)


capital
expenditures, and a discount rate applied to the estimated cash flows. The
determination of the discount rate was based on a weighted average cost of
capital approach, which uses a market participant’s cost of equity and after-tax
cost of debt and reflects the risks inherent in the cash flows attributable to
the franchises.





The
Company estimated discounted future cash flows using reasonable and appropriate
assumptions including among others, penetration rates for basic and digital
video, high-speed Internet, and telephone; revenue growth rates; and expected
operating margins and capital expenditures.  The assumptions are
derived based on the Company’s and its peers’ historical operating performance
adjusted for current and expected competitive and economic factors surrounding
the cable industry.  The estimates and assumptions made in the
Company’s valuations are inherently subject to significant uncertainties, many
of which are beyond its control, and there is no assurance that these results
can be achieved. The primary assumptions for which there is a reasonable
possibility of the occurrence of a variation that would significantly affect the
measurement value include the assumptions regarding revenue growth, programming
expense growth rates, the amount and timing of capital expenditures and the
discount rate utilized.  The assumptions used are consistent with
internal forecasts, some of which differ from the assumptions used for the
annual impairment testing in December 2008 as a result of the economic and
competitive environment discussed previously.  The change in
assumptions reflects the lower than anticipated growth in revenues experienced
during the first three quarters of 2009 and the expected reduction of future
cash flows as compared to those used in the December 2008
valuations.





As of
September 30, 2009 and December 31, 2008, indefinite-lived and finite-lived
intangible assets are presented in the following table:





September
      30, 2009
            
            
            December 31,
      2008Gross
              Carrying
              Amount
            
            
            Accumulated
              Amortization
            
            
            Net
              Carrying
              Amount
            
            
            Gross
              Carrying
              Amount
            
            
            Accumulated
      Amortization
            
            
            Net
              Carrying
              AmountIndefinite-lived
      intangible assets:Franchises
      with indefinite lives
            
            $
            4,514
            
            
            $
            --
            
            
            $
            4,514
            
            
            $
            7,377
            
            
            $
            --
            
            
            $
            7,377Goodwill
            
            
            68
            
            
            
            --
            
            
            
            68
            
            
            
            68
            
            
            
            --
            
            
            
            68$
            4,582
            
            
            $
            --
            
            
            $
            4,582
            
            
            $
            7,445
            
            
            $
            --
            
            
            $
            7,445Finite-lived
      intangible assets:Franchises
      with finite lives
            
            $
            16
            
            
            $
            10
            
            
            $
            6
            
            
            $
            16
            
            
            $
            9
            
            
            $
            7Other
      intangible assets
            
            
            83
            
            
            
            46
            
            
            
            37
            
            
            
            71
            
            
            
            41
            
            
            
            30$
            99
            
            
            $
            56
            
            
            $
            43
            
            
            $
            87
            
            
            $
            50
            
            
            $
            37





During
the nine months ended September 30, 2009, the net carrying amount of
indefinite-lived franchises was reduced by $2.9 billion related to impairment of
franchises and $9 million related to cable asset sales completed in
2009.





Franchise
amortization expense represents the amortization relating to franchises that did
not qualify for indefinite-life treatment including costs associated with
franchise renewals.  Franchise amortization expense for each of the
three months ended September 30, 2009 and 2008 was approximately $0.4 million
and for each of the nine months ended September 30, 2009 and 2008 was
approximately $1 million.  Other intangible assets amortization
expense for the three months ended September 30, 2009 and 2008 was approximately
$2 million and $1 million, respectively, and for the nine months ended September
30, 2009 and 2008 was approximately $5 million and $3 million,
respectively.  The Company expects that amortization expense on
franchise assets and other intangible assets will be approximately $7 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, the
application of fresh start accounting and other relevant
factors.


12
 CCO
HOLDINGS, LLC AND SUBSIDIARIES
 (DEBTOR-IN-POSSESSION)
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 (dollars
in millions)





4.           Accounts Payable and Accrued
Expenses





Accounts
payable and accrued expenses not subject to compromise consist of the following
as of September 30, 2009 and December 31, 2008:





September
      30,
              2009
            
            
            December 31,
              2008Accounts
      payable – trade
            
            $
            82
            
            
            $
            86Accrued
      capital expenditures
            
            
            38
            
            
            
            56Accrued
      expenses:Terminated
      interest rate swap liability
            
            
            495
            
            
            
            --Interest
            
            
            154
            
            
            
            122Programming
      costs
            
            
            281
            
            
            
            305Compensation
            
            
            72
            
            
            
            80Franchise-related
      fees
            
            
            49
            
            
            
            60Other
            
            
            153
            
            
            
            200$
            1,324
            
            
            $
            909





5.           Debt





Debt
consists of the following as of September 30, 2009 and December 31,
2008:





September
      30, 2009
            
            
            December
      31, 2008Principal
      Amount
            
            
            Accreted
      Value
            
            
            Principal
      Amount
            
            
            Accreted
      ValueCCO
      Holdings, LLC:8
      3⁄4% senior notes due November 15, 2013
            
            $
            800
            
            
            $
            797
            
            
            $
            800
            
            
            $
            796Credit
      facility
            
            
            350
            
            
            
            350
            
            
            
            350
            
            
            
            350Charter
      Communications Operating, LLC:8.000%
      senior second-lien notes due April 30, 2012
            
            
            1,100
            
            
            
            1,100
            
            
            
            1,100
            
            
            
            1,1008
      3/8% senior second-lien notes due April 30, 2014
            
            
            770
            
            
            
            770
            
            
            
            770
            
            
            
            77010.875%
      senior second-lien notes due September 15, 2014
            
            
            546
            
            
            
            529
            
            
            
            546
            
            
            
            527Credit
      facilities
            
            
            8,194
            
            
            
            8,194
            
            
            
            8,246
            
            
            
            8,246Total
      Debt
            
            $
            11,760
            
            
            $
            11,740
            
            
            $
            11,812
            
            
            $
            11,789





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.





Filing
for bankruptcy is an event of default under the Company’s credit facilities and
the indentures governing its debt. Therefore, in accordance with ASC 470-10-45,
Debt – Overall – Other
Presentation Matters, debt has been classified as current as of September
30, 2009.  The Company does not intend to repay the current portion of
long-term debt with current assets but intends to reinstate this debt through
the Plan.  Accordingly, upon the effective date of the Plan, $11.7 billion
of the debt classified as current will be reclassified as
long-term.  See Note 1.





13
 CCO
HOLDINGS, LLC AND SUBSIDIARIES
 (DEBTOR-IN-POSSESSION)
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 (dollars
in millions)


6.           Loans
Payable – Related Party





Loans
payable-related party as of September 30, 2009 consists of loans from Charter
Holdco and CCH II to the Company of $13 million and $239 million, respectively.
Loans payable-related party as of December 31, 2008 consists of loans from
Charter Holdco and CCH II to the Company of $13 million and $227 million,
respectively.





7.           Temporary
Equity





Temporary
equity represents Mr. Allen’s 5.6% membership interests in CC VIII, an indirect
subsidiary of the Company of $179 million and $203 million as of September 30,
2009 and December 31, 2008, respectively.  Mr. Allen’s CC VIII
interest is classified as temporary equity as a result of Mr. Allen’s ability to
put his interest to the Company upon a change in control.





8.           Noncontrolling
Interest





Noncontrolling
interest represents CCH I’s 13% membership interests in CC VIII of $417 million
and $473 million as of September 30, 2009 and December 31, 2008, respectively.
Noncontrolling interest in the accompanying condensed consolidated statements of
operations represents the 2% accretion of the preferred membership interest in
CC VIII plus approximately 18.6% of CC VIII’s income, inclusive of Mr. Allen’s
5.6% membership interest accounted for as temporary equity.





9.
            Comprehensive
      Income (Loss)





The
Company reports changes in the fair value of interest rate agreements designated
as hedging the variability of cash flows associated with floating-rate debt
obligations, that meet the effectiveness criteria as outlined in ASC 815-30,
Derivatives and Hedging – Cash
Flow Hedges (“ASC 815-30”), in accumulated other comprehensive income
(loss) after giving effect to the noncontrolling interest share of gains and
losses.  Comprehensive loss was $2.7 billion and $14 million for the
three months ended September30, 2009
and 2008, respectively, and $2.7 billion for the nine months ended September30, 2009.
Comprehensive income was $34 million for the nine months ended September 30,
2008.





10.           Accounting
for Derivative Instruments and Hedging Activities





The
Company used interest rate swap agreements to manage its interest costs and
reduce the Company’s exposure to increases in floating interest
rates.  The Company’s policy is to manage its exposure to fluctuations
in interest rates by maintaining a mix of fixed and variable rate debt within a
targeted range.  Using interest rate swap agreements, the Company
agreed to exchange, at specified intervals through 2013, the difference between
fixed and variable interest amounts calculated by reference to agreed-upon
notional principal amounts.  At the banks’ option, certain interest
rate swap agreements could have been extended through
2014.





Upon
filing for Chapter 11 bankruptcy, the counterparties to the interest rate swap
agreements terminated the underlying contracts and, upon emergence from
bankruptcy, will receive payment for the market value of the interest rate swap
agreements as measured on the date the counterparties terminated.  At
September30,
2009, the terminated interest rate swap liabilities of $495 million are
reflected at settlement amounts and were recorded in current liabilities in the
condensed consolidated balance sheets.  The terminated interest rate
swap liabilities were classified as not subject to compromise in the condensed
consolidated balance sheets at September30, 2009
as they are fully secured by the Company’s assets.  The amount
remaining in accumulated other comprehensive loss related to these interest rate
swap agreements will be amortized over the original life of the interest rate
agreements until emergence from Chapter 11 bankruptcy.





The
Company’s hedging policy does not permit it to hold or issue derivative
instruments for speculative trading purposes.  The Company did,
however, have certain interest rate derivative instruments that were designated
as cash


14
 CCO
HOLDINGS, LLC AND SUBSIDIARIES
 (DEBTOR-IN-POSSESSION)
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 (dollars
in millions)


flow
hedging instruments.  Such instruments effectively converted variable
interest payments on certain debt instruments into fixed
payments.  For qualifying hedges, ASC 815-30 allows derivative gains
and losses to offset related results on hedged items in the consolidated
statements of operations.  The Company formally documented, designated
and assessed the effectiveness of transactions that received hedge
accounting.





Changes
in the fair value of interest rate agreements that were designated as hedging
instruments of the variability of cash flows associated with floating-rate debt
obligations, and that met the effectiveness criteria specified by ASC 815-30
were reported in accumulated other comprehensive loss.  The amounts
were subsequently reclassified as an increase or decrease to interest expense in
the same periods in which the related interest on the floating-rate debt
obligations affected earnings (losses).





Certain
interest rate derivative instruments were not designated as hedges as they did
not meet the effectiveness criteria specified by ASC 815-30.  However,
management believes such instruments were closely correlated with the respective
debt, thus managing associated risk.  Interest rate derivative
instruments not designated as hedges were marked to fair value, with the impact
recorded as a change in value of derivatives in the Company’s consolidated
statements of operations.





As of
December 31, 2008, the Company had outstanding $4.3 billion in notional amounts
of interest rate swap agreements outstanding.  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 were determined by reference to the notional amount and the other
terms of the contracts.





The
effect of derivative instruments on the Company’s consolidated statement of
operations is presented in the table below.




Three Months EndedSeptember 30,
            
            
            Nine Months EndedSeptember 30,2009
            
            
            2008
            
            
            2009
            
            
            2008Change
      in value of derivatives:Loss
      on interest rate derivatives not
              designated
      as hedges
            
            $
            --
            
            
            $
            (7
            )
            
            $
            (4
            )
            
            $
            (1
            )Accumulated
      other comprehensive loss:Loss
      on interest rate derivatives
              designated
      as hedges (effective portion)
            
            $
            --
            
            
            $
            (19
            )
            
            $
            (9
            )
            
            $
            (1
            )Amount
      of loss reclassified from
              accumulated
      other comprehensive loss
              into
      interest expense or reorganization
              items,
      net
            
            $
            23
            
            
            $
            (23
            )
            
            $
            12
            
            
            $
            (55
            )





11.           Fair
Value





Financial
Assets and Liabilities





The
Company has estimated the fair value of its financial instruments as of
September30, 2009
and December 31, 2008 using available market information or other
appropriate valuation methodologies.  Considerable judgment, however,
is required in interpreting market data to develop the estimates of fair
value.  Accordingly, the estimates presented in the accompanying
consolidated financial statements are not necessarily indicative of the amounts
the Company would realize in a current market exchange.


15
 CCO
HOLDINGS, LLC AND SUBSIDIARIES
 (DEBTOR-IN-POSSESSION)
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 (dollars
in millions)


The
carrying amounts of cash, receivables, payables and other current assets and
liabilities approximate fair value because of the short maturity of those
instruments.





The
estimated fair value of the Company’s notes at September30, 2009 and
December 31, 2008 are based on quoted market prices and the fair value of
the credit facilities is based on dealer quotations.





A summary
of the carrying value and fair value of the Company’s debt at September30, 2009 and
December 31, 2008 is as follows:





September 30, 2009
            
            December
      31, 2008Carrying
            
            Fair
            
            Carrying
            
            FairValue
            
            Value
            
            Value
            
            ValueCCO
      Holdings debt
            
            $
            797
            
            
            $
            817
            
            
            $
            796
            
            
            $
            505Charter
      Operating debt
            
            
            2,399
            
            
            
            2,497
            
            
            
            2,397
            
            
            
            1,923Credit
      facilities
            
            
            8,544
            
            
            
            8,089
            
            
            
            8,596
            
            
            
            6,187





The
Company adopted ASC 820-10, Fair Value Measurements and
Disclosures – Overall(“ASC 820-10”), on its financial assets and
liabilities effective January 1, 2008, and has an established process for
determining fair value.  Fair value is based upon quoted market
prices, where available.  If such valuation methods are not available,
fair value is based on internally or externally developed models using
market-based or independently-sourced market parameters, where
available.  Fair value may be subsequently adjusted to ensure that
those assets and liabilities are recorded at fair value.  The
Company’s methodology may produce a fair value that may not be indicative of net
realizable value or reflective of future fair values, but the Company believes
its methods are appropriate and consistent with other market
peers.  The use of different methodologies or assumptions to determine
the fair value of certain financial instruments could result in a different fair
value estimate as of the Company’s reporting date.





ASC
820-10 establishes a three-level hierarchy for disclosure of fair value
measurements, based upon the transparency of inputs to the valuation of an asset
or liability as of the measurement date, as follows:





·
            Level
      1 – inputs to the valuation methodology are quoted prices (unadjusted) for
      identical assets or liabilities in active
  markets.


·
            Level
      2 – inputs to the valuation methodology include quoted prices for similar
      assets and liabilities in active markets, and inputs that are observable
      for the asset or liability, either directly or indirectly, for
      substantially the full term of the financial
  instrument.


·
            Level
      3 – inputs to the valuation methodology are unobservable and significant
      to the fair value measurement.





Interest
rate derivatives were valued at December 31, 2008 using a present value
calculation based on an implied forward LIBOR curve (adjusted for Charter
Operating’s credit risk) and were classified within level 2 of the valuation
hierarchy.





16
 CCO
HOLDINGS, LLC AND SUBSIDIARIES
 (DEBTOR-IN-POSSESSION)
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 (dollars
in millions)


The
Company has no financial liabilities accounted for at fair value at September
30, 2009 due to the termination of the interest rate swap
agreements.  At December 31, 2008, the Company’s financial liabilities
that were accounted for at fair value on a recurring basis are presented in the
table below:





Fair
      Value as of December 31, 2008Level
      1
            
            
            Level
      2
            
            
            Level
      3
            
            
            TotalOther
      long-term liabilities:Interest
      rate derivatives designated as hedges
            
            $
            --
            
            
            $
            303
            
            
            $
            --
            
            
            $
            303Interest
      rate derivatives not designated as hedges
            
            
            --
            
            
            
            108
            
            
            
            --
            
            
            
            108$
            --
            
            
            $
            411
            
            
            $
            --
            
            
            $
            411





The
weighted average interest pay rate for the Company’s interest rate swap
agreements was 4.93% at December 31, 2008.





Nonfinancial
Assets and Liabilities





As
permitted by ASC 820-10, the Company adopted ASC 820-10 effective January 1,
2009 on its nonfinancial assets and liabilities including fair value
measurements of franchises, property, plant, and equipment, and other intangible
assets.  These assets are not measured at fair value on a recurring basis;
however they are subject to fair value adjustments in certain circumstances,
such as when there is evidence that an impairment may exist.  During the
three months ended September 30, 2009, the Company recorded an impairment on its
franchise assets of $2.9 billion.  The impairment charge was calculated by
comparing the book value of franchise assets to their fair values as of
September 30, 2009 which are determined utilizing an income approach that makes
use of significant unobservable inputs. Such fair value is classified as level 3
in the fair value hierarchy.  See Note 3 for additional
information.





12.           Other
Operating (Income) Expenses, Net





Other
operating (income) expenses, net consist of the following for the three and nine
months ended September 30, 2009 and 2008:





Three
      Months
              Ended September 30,
            
            
            Nine
      Months
              Ended September 30,2009
            
            
            2008
            
            
            2009
            
            
            2008Loss
      on sale of assets, net
            
            $
            3
            
            
            $
            3
            
            
            $
            6
            
            
            $
            7Special
      charges, net
            
            
            7
            
            
            
            12
            
            
            
            (44
            )
            
            
            44$
            10
            
            
            $
            15
            
            
            $
            (38
            )
            
            $
            51





Loss
on sale of assets, net





Loss on
sale of assets represents the loss recognized on the sale of fixed assets and
cable systems.





Special
charges, net





Special
charges, net for the three and nine months ended September 30, 2009 primarily
includes net income or expense from actual or potential litigation
settlements.  Special charges, net for the three and nine months ended
September 30, 2008 primarily represent severance charges and settlement costs
associated with certain litigation, offset by favorable insurance
settlements.


17
 CCO
HOLDINGS, LLC AND SUBSIDIARIES
 (DEBTOR-IN-POSSESSION)
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 (dollars
in millions)


13.           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 generally limited liability
companies that are also not subject to income tax.  However, certain
of the limited liability companies are subject to state income
tax.  In addition, certain of CCO Holdings’ indirect subsidiaries are
corporations that are subject to income tax.





As of
September 30, 2009 and December 31, 2008, the Company had net deferred income
tax liabilities of approximately $104 million and $179 million, respectively.
The deferred tax liabilities relate to certain of the Company’s indirect
subsidiaries, which file separate income tax returns.





The Company recorded $75
million and $14 million of income tax benefit during the three months ended
September 30, 2009 and 2008, respectively and $68 million and $12 million of
income tax benefit during the nine months ended September 30, 2009 and 2008,
respectively. Income tax benefits were realized as a result of decreases
in the deferred tax liabilities of certain of the Company’s indirect corporate
subsidiaries. Income tax benefit for the three and nine months ended September
30, 2009 included $78 million of deferred tax benefit related to the impairment
of franchises.  The income tax benefit recorded in 2008 results from a
change in state income tax laws.





No tax
years for Charter or Charter Holdco are currently under examination by the
Internal Revenue Service.  Tax years ending 2006, 2007 and 2008 remain
subject to examination.





14.           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.  See also Note 6 for information regarding Loans Payable –
Related Party. Unless otherwise disclosed, management believes each of the
transactions described below was on terms no less favorable to the Company than
could have been obtained from independent third parties.





In
connection with the Plan, Charter, Mr. Allen and an entity controlled by Mr.
Allen entered into the Allen Agreement, pursuant to which, among other things,
Mr. Allen and such entity agreed to support the Plan, including the settlement
of their rights, claims and remedies against Charter and its
subsidiaries.  See Note 1.





9
OM, Inc. (formerly known as Digeo, Inc.)





Mr.
Allen, through his 100% ownership of Vulcan Ventures Incorporated (“Vulcan
Ventures”), owned a majority interest in 9 OM, Inc. (formerly known as Digeo,
Inc.) on a fully-converted fully-diluted basis.  However, in October
2009, substantially all of 9 OM, Inc.'s assets were sold to ARRIS Group, Inc.,
an unrelated third party. Ms. Jo Lynn Allen is a director of Charter and a
director and Vice President of Vulcan Ventures.  Mr. Lance Conn is a
director of Charter and was Executive Vice President of Vulcan Ventures until
his resignation in May 2009. Charter Operating owns a small minority percentage
of 9 OM, Inc.'s stock but does not expect to receive any proceeds from the sale
of assets to the ARRIS Group, Inc.





In May
2008, Charter Operating entered into an agreement with 9 OM, LLC (formerly known
as Digeo Interactive, LLC), a subsidiary of 9 OM, Inc., for the minimum purchase
of high-definition DVR units for approximately $21 million.  This
minimum purchase commitment is subject to reduction as a result of certain
specified events such as the failure to deliver units timely and catastrophic
failure.The software for these units is being supplied under a software license
agreement with 9 OM, LLC; the cost of which is expected to be approximately $2
million for the initial licenses and on-going maintenance fees of approximately
$0.3 million annually, subject to reduction to coincide with any reduction in
the minimum purchase commitment.  For the three and nine months ended
September 30, 2009, the Company purchased approximately $4 million and $15
million of DVR units from 9 OM, LLC under these agreements,
respectively.


18
 CCO
HOLDINGS, LLC AND SUBSIDIARIES
 (DEBTOR-IN-POSSESSION)
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 (dollars
in millions)


15.           Contingencies





On August
28, 2008, a complaint, which was subsequently amended, was filed against Charter
and Charter Communications, LLC (“Charter LLC”) in the United States District
Court for the Western District of Wisconsin (now entitled, Marc Goodell et al.  v.
Charter Communications, LLC and Charter Communications, Inc.).  The
plaintiffs seek to represent a class of current and former broadband, system and
other types of technicians who are or were employed by Charter or Charter LLC in
the states of Michigan, Minnesota, Missouri or California.  Plaintiffs
allege that Charter and Charter LLC violated certain wage and hour statutes of
those four states by failing to pay technicians for all hours worked.
  Charter and Charter LLC continue to deny all liability, believe that
they have substantial defenses, and intend, after Charter’s plan of
reorganization, as amended, is approved and becomes effective and the automatic
stay is lifted, to vigorously contest the claims asserted.  The
Company has been subjected, in the normal course of business, to the assertion
of other wage and hour claims and could be subjected to additional such claims
in the future.  The Company cannot predict the outcome of any such
claims.





On March
27, 2009, JPMorgan Chase Bank, N.A., for itself and as Administrative Agent
under the Credit Agreement, filed an adversary proceeding (the “JPMorgan
Adversary Proceeding”) in Bankruptcy Court against Charter Operating and CCO
Holdings seeking a declaration that there have been events of default under the
Credit Agreement.  Such a judgment may prevent Charter Operating and
CCO Holdings from reinstating the terms and provisions of the Credit Agreement
through the bankruptcy proceeding.  On April 10, 2009, Charter
Operating and CCO Holdings filed a motion to dismiss (the “Motion to Dismiss”)
the JPMorgan Adversary Proceeding and argued that dismissal was proper because
the JPMorgan Adversary Proceeding (i) is a core proceeding that is properly
heard by the Bankruptcy Court; and (ii) fails to state a claim for default under
the Credit Agreement.  On May 5, 2009, the Bankruptcy Court ruled that
the JPMorgan Adversary Proceeding is a core proceeding.  The JPMorgan
Adversary Proceeding is being decided by the Bankruptcy Court as a part of the
hearing that began on July 20, 2009 and concluded on October 1, 2009 to consider the
confirmation of the Plan.  On October 15, 2009, the Bankruptcy Court
held a hearing at which the judge read into the record his preliminary ruling in
favor of Charter in the JPMorgan Adversary Proceeding and indicated that a final
order would be entered in the next several weeks.





The
Company and its parent companies are party to 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 parent companies
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.





16.           Stock
Compensation Plans





Charter
has stock compensation plans (the “Equity 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 (shares of restricted stock not to exceed 20.0
million shares of Charter Class A common stock), as each term is defined in the
Equity Plans.  Employees, officers, consultants and directors of
Charter and its subsidiaries and affiliates are eligible to receive grants under
the Equity Plans.  Options granted generally vest over four years from
the grant date, with 25% generally vesting on the first anniversary of the grant
date and ratably thereafter.  Generally, options expire 10 years
from the grant date.  Restricted stock vests annually over a one to
three-year period beginning from the date of grant.  The 2001 Stock
Incentive Plan allows for the issuance of up to a total of 90.0 million shares
of Charter Class A common stock (or units convertible into Charter Class A
common stock).  In March 2008, Charter adopted an incentive program to
allow for performance cash.  Under the incentive program, subject to
meeting performance criteria, performance units under the 2001 Stock Incentive
Plan and performance cash are deposited into a performance bank of which
one-third of the balance is paid out each year.  During the three and
nine months ended September 30, 2009, no equity awards were granted. During the
three and nine months ended September 30, 2009, Charter granted $0.2 million and
$12 million of performance cash and restricted cash, respectively, under
Charter’s 2009 incentive program.  In the first quarter of 2009, the
majority of


19
 CCO
HOLDINGS, LLC AND SUBSIDIARIES
 (DEBTOR-IN-POSSESSION)
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 (dollars
in millions)


restricted
stock and performance units and shares were voluntarily forfeited by
participants without termination of the service period, and the remaining, along
with all stock options, will be cancelled in connection with the
Plan.  The Plan includes an allocation of not less than 3% of new
equity for employee grants with 50% of the allocation to be granted within
thirty days of the Company's emergence from bankruptcy.Such
grant of new awards is deemed to be a modification of old awards and will be
accounted for as a modification of the original awards.





The
Company recorded $6 million and $8 million of stock compensation expense for the
three months ended September 30, 2009 and 2008, respectively, and $23 million
and $24 million for the nine months ended September 30, 2009 and 2008,
respectively, which is included in selling, general, and administrative
expense.





17.           Recently
Issued Accounting Standards





In April
2009, the FASB issued guidance included in ASC 805-20, Business Combinations – Identifiable
Assets, Liabilities and Any Noncontrolling Interest (“ASC 805-20”), which
addresses application issues raised by preparers, auditors, and members of the
legal profession on initial recognition and measurement, subsequent measurement
and accounting, and disclosure of assets and liabilities arising from
contingencies in a business combination.  This guidance included in
ASC 805-20 is effective for assets or liabilities arising from contingencies in
business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after December
15, 2008.The
Company adopted this guidance included in ASC 805-20 effective January 1,
2009.  The adoption of this guidance included in ASC 805-20 did not
have a material impact on the Company’s financial statements.





In April
2009, the FASB issued guidance included in ASC 820-10-65, Fair Value Measurements and
Disclosures – Overall – Transition and Open Effective Date Information(“ASC 820-10-65”), which provides additional guidance for estimating fair
value in accordance with ASC 820-10 when the volume and level of activity for
the asset or liability have significantly decreased. This ASC also includes
guidance on identifying circumstances that indicate a transaction is not
orderly.  This guidance included in ASC 820-10-65 is effective for
reporting periods ending after June 15, 2009.The Company adopted this
guidance included in ASC 820-10-65 effective April 1, 2009.  The
adoption of this guidance included in ASC 820-10-65 did not have a material
impact on the Company’s financial statements.





In April
2009, the FASB issued guidance included in ASC 825-10-65, Financial Instruments – Overall –
Transition and Open Effective Date Information (“ASC 825-10-65”), to
require disclosures about fair value of financial instruments for interim
reporting periods of publicly traded companies as well as in annual financial
statements. This ASC also requires those disclosures in summarized financial
information at interim reporting periods.  This guidance included in
ASC 825-10-65 is effective for reporting periods ending after June 15,
2009.The Company
adopted this guidance included in ASC 825-10-65 effective April 1,
2009.  The adoption of this guidance included in ASC 825-10-65 did not
have a material impact on the Company’s financial statements.





In May
2009, the FASB issued guidance included in ASC 855-10, Subsequent Events – Overall(“ASC 855-10”), to establish principles and requirements for the
evaluation and disclosure of subsequent events.  This guidance
included in ASC 855-10 is effective for interim or annual financial periods
ending after June 15, 2009.  The Company adopted this guidance
included in ASC 855-10 effective April 1, 2009 and has included the appropriate
disclosure in its financial statements.





In
June 2009, the FASB issued guidance included in ASC 105-10, Generally Accepted Accounting
Principles – Overall (“ASC 105-10”).  ASC 105-10 is intended to
be the source of GAAP and reporting standards as issued by the FASB. Its
primary purpose is to improve clarity and use of existing standards by grouping
authoritative literature under common topics. ASC 105-10 is effective for
financial statements issued for interim and annual periods ending after
September 15, 2009.  The Company adopted ASC 105-10 effective
September 30, 2009.  The Codification does not change or alter
existing GAAP and there was no impact on the Company’s financial
statements.


20
 CCO
HOLDINGS, LLC AND SUBSIDIARIES
 (DEBTOR-IN-POSSESSION)
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 (dollars
in millions)


In August
2009, the FASB issued guidance included in ASC 820-10-65 which states companies
determining the fair value of a liability may use the perspective of an investor
that holds the related obligation as an asset.  This guidance included
in ASC 820-10-65 addresses practice difficulties caused by the tension between
fair-value measurements based on the price that would be paid to transfer a
liability to a new obligor and contractual or legal requirements that prevent
such transfers from taking place.  This guidance included in ASC
820-10-65 is effective for interim and annual periods beginning after August 27,
2009, and applies to all fair-value measurements of liabilities required by
GAAP. No new fair-value measurements are required by this guidance. The Company
will adopt this guidance included in ASC 820-10-65 effective October 1,
2009.  The Company is in the process of assessing the impact of the
adoption of this guidance included in ASC 820-10-65 on its financial
statements.





In
October 2009, the FASB issued guidance included in ASC 605-25, Revenue Recognition –
Multiple-Element Arrangements(“ASC 605-25”), which requires entities to
allocate revenue in an arrangement using estimated selling prices of the
delivered goods and services based on a selling price hierarchy.  The
guidance eliminates the residual method of revenue allocation and requires
revenue to be allocated using the relative selling price method.  This
guidance included in ASC 605-25 should be applied on a prospective basis for
revenue arrangements entered into or materially modified in fiscal years
beginning on or after June 15, 2010.  The Company will adopt this
guidance included in ASC 605-25 effective January 1, 2011.  The
Company does not expect the adoption of this guidance included in ASC 605-25
will have a material impact on its financial statements.





The
Company does not believe that any other recently issued, but not yet effective
accounting pronouncements, if adopted, would have a material effect on its
accompanying financial statements.





21


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 at
September 30, 2009 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”).





We are a
broadband communications company operating in the United States with
approximately 5.3 million customers at September 30, 2009.  Through
our hybrid fiber and coaxial cable network, we offer our customers traditional
cable video programming (basic and digital, which we refer to as “video”
services), high-speed Internet services, and telephone services, as well as
advanced broadband services (such as Charter OnDemandTM (“OnDemand”) high
definition television service, and digital video recorder (“DVR”)
service).





The
following table summarizes our customer statistics for basic video, digital
video, residential high-speed Internet, and telephone as of September 30, 2009
and 2008:





Approximate
      as ofSeptember
      30,
            
            
            September
      30,2009
      (a)
            
            
            2008
      (a)Residential
      (non-bulk) basic video customers (b)
            
            
            4,616,100
            
            
            
            4,860,100Multi-dwelling
      (bulk) and commercial unit customers (c)
            
            
            263,000
            
            
            
            263,600Total
      basic video customers (b)(c)
            
            
            4,879,100
            
            
            
            5,123,700Digital
      video customers (d)
            
            
            3,174,800
            
            
            
            3,118,500Residential high-speed Internet customers (e)
            
            
            3,010,100
            
            
            
            2,858,200Telephone customers (f)
            
            
            1,535,300
            
            
            
            1,274,300Total
      Revenue Generating Units (g)
            
            
            12,599,300
            
            
            
            12,374,700





After
giving effect to sales of cable systems in 2008 and 2009, basic video customers,
digital video customers, high-speed Internet customers and telephone customers
would have been approximately 5,094,000, 3,109,700, 2,852,300, and 1,273,600,
respectively, as of September 30, 2008.





(a)
            Our
      billing systems calculate the aging of customer accounts based on the
      monthly billing cycle for each account. On that basis, at September 30,
      2009 and 2008, "customers" include approximately 33,300 and 42,100
      persons, respectively, whose accounts were over 60 days past due in
      payment, approximately 5,700 and 7,700 persons, respectively, whose
      accounts were over 90 days past due in payment, and approximately 2,500
      and 3,800 persons, respectively, of which were over 120 days past due in
      payment.


(b)
              "Basic
      video customers" include all residential customers who receive video cable
      services.


(c)
            Included
      within "basic video customers" are those in commercial and multi-dwelling
      structures, which are calculated on an equivalent bulk unit (“EBU”)
      basis.  In the second quarter of 2009, we began calculating EBUs
      by dividing the bulk price charged to accounts in an area by the published
      rate charged to non-bulk residential customers in that market for the
      comparable tier of service rather than the most prevalent price charged as
      was used previously.  This EBU method of estimating basic video
      customers is consistent with the methodology used in determining costs
      paid to programmers and is consistent with the methodology used by other
      multiple system operators (“MSOs”).  As of September 30, 2008,
      EBUs decreased by 12,400 as a result of the change in
      methodology.  As we increase our published video rates 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 basic video customers that have one or more
      digital set-top boxes or cable cards
deployed.


22





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




(f)
            “Telephone
      customers" include all customers receiving telephone
    service.





(g)
            "Revenue
      generating units" represent the sum total of all basic video, digital
      video, high-speed Internet and telephone customers, not counting
      additional outlets within one household.  For example, a
      customer who receives two types of service (such as basic video and
      digital video) would be treated as two revenue generating units and, if
      that customer added on high-speed Internet service, the customer would be
      treated as three revenue generating units.  This statistic is
      computed in accordance with the guidelines of the National Cable &
      Telecommunications Association
(“NCTA”).





Overview





Charter
and its subsidiaries, including us, filed petitions under Chapter 11 of the
United States Bankruptcy Code on March 27, 2009.  See “—Bankruptcy
Proceedings,” for more information on our financial
restructuring.  Information concerning status of the ongoing
bankruptcy proceedings may be obtained from Charter’s website at www.charter.com
and at www.kccllc.net/charter.





For the
three and nine months ended September 30, 2009, our loss from operations was
$2.6 billion and $2.0 billion, respectively, and for the three and nine months
ended September 30, 2008, our income from operations was $208 million and $643
million, respectively.  We had negative operating margins of 153% and
39% for the three and nine months ended September 30, 2009, respectively, and
positive operating margin of 13% for each of the three and nine months ended
September 30, 2008.  The decrease in income from operations and
operating margins for the three and nine months ended September 30, 2009
compared to the three and nine months ended September 30, 2008 was principally
due to impairment of franchises incurred during the third quarter of 2009 offset
by increased sales of our bundled services, improved cost efficiencies and
favorable litigation settlements in 2009.





We
believe that the weakening economic conditions in the United States, including a
continued downturn in the housing market over the past year and increases in
unemployment, and continued competition have adversely affected consumer demand
for our services, especially premium services, and have contributed to an
increase in the number of homes that replace their traditional telephone service
with wireless service thereby impacting the growth of our telephone business and
also had a negative impact on our advertising revenue.  These
conditions have affected our net customer additions and revenue growth during
the first three quarters of 2009, all of which contributed to the franchise
impairment charge of $2.9 billion incurred in the third quarter of
2009.  If these conditions do not improve, we believe the growth of
our business and results of operations will be adversely affected and additional
impairments may occur.





We have a
history of net losses.  Our net losses are principally attributable to
insufficient revenue to cover the combination of operating expenses and interest
expenses we incur because of our debt, and depreciation expenses resulting from
the capital investments we have made and continue to make in our cable
properties.





Critical
Accounting Policies and Estimates





Impairment of
franchises, goodwill and other intangible assets.We have
recorded a significant amount of cost related to franchises, pursuant to which
we are granted the right to operate our cable distribution network throughout
our service areas.  The net carrying value of franchises as of
September 30, 2009 and December 31, 2008 was approximately $4.5 billion
(representing 42% of total assets) and $7.4 billion (representing 54% of total
assets), respectively.  Furthermore, our noncurrent assets included
approximately $68 million of goodwill as of September 30, 2009 and December
31, 2008.





Accounting
Standards Codification (“ASC”) 350, Intangibles – Goodwill and Other(“ASC 350”),
requires that franchise intangible assets that meet specified indefinite-life
criteria must be tested for impairment annually, or more frequently as warranted
by events or changes in circumstances.  In determining whether our
franchises have an indefinite-life, we considered the likelihood of franchise
renewals, the expected costs of franchise renewals, and the technological state
of the associated cable systems, with a view to whether or not we are in
compliance with any technology upgrading requirements specified in a franchise
agreement.  We have concluded that as of September 30, 2009 and
December 31, 2008 substantially all of our franchises qualify for
indefinite-life treatment under ASC 350.


23


Costs
associated with franchise renewals are amortized on a straight-line basis over
10 years, which represents management’s best estimate of the average term of the
franchises.  Franchise amortization expense for each of the three
months ended September 30, 2009 and 2008 was approximately $0.4 million, and
franchise amortization expense for each of the nine months ended September 30,
2009 and 2008 was approximately $1 million.  Other intangible assets
amortization expense for the three months ended September 30, 2009 and 2008 was
approximately $2 million and $1 million, respectively, and for the nine months
ended September 30, 2009 and 2008 was approximately $5 million and $3 million,
respectively.  The Company expects that amortization expense on
franchise assets and other intangible assets will be approximately $7 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, the
application of fresh start accounting and other relevant factors.





We are
required to evaluate the recoverability of our indefinite-life franchises, as
well as goodwill, on an annual basis or more frequently as deemed necessary.
Under ASC 350, if an asset is determined to be impaired, it is required to be
written down to its estimated fair value as determined in accordance with
accounting principles generally accepted in the United States
(“GAAP”).  We determine estimated fair value utilizing an income
approach model based on the present value of the estimated future cash flows
assuming a discount rate. This approach makes use of unobservable factors such
as projected revenues, expenses, capital expenditures, and a discount rate
applied to the estimated cash flows. The determination of the discount rate is
based on a weighted average cost of capital approach, which uses a market
participant’s cost of equity and after-tax cost of debt and reflects the risks
inherent in the cash flows.


Franchises
are aggregated into essentially inseparable asset groups to conduct the
valuations.  The asset groups generally represent geographic
clustering of our cable systems into groups by which such systems are
managed.  Management believes that such groupings represent the
highest and best use of those assets.





Franchises,
for ASC 350 valuation purposes, are defined as the future economic benefits of
the right to solicit and service potential customers (customer marketing
rights), and the right to deploy and market new services (service marketing
rights).  Fair value is determined based on the discrete estimated
discounted future cash flows of each unit of accounting using assumptions
consistent with internal forecasts.  The franchise after-tax cash flow
is calculated as the after-tax cash flow generated by the potential customers
obtained (less the anticipated customer churn) and the new services added to
those customers in future periods.  The sum of the present value of
the franchises’ after-tax cash flow in years 1 through 10 and the continuing
value of the after-tax cash flow beyond year 10 yields the fair value of the
franchise.





Customer
relationships, for ASC 350 valuation purposes, represent the value of the
business relationship with our existing customers (less the anticipated customer
churn), and are calculated by projecting future after-tax cash flows from these
customers, including the right to deploy and market additional services to these
customers.  The present value of these after-tax cash flows yields the
fair value of the customer relationships.  Substantially all our
acquisitions occurred prior to January 1, 2002.  We did not
record any value associated with the customer relationship intangibles related
to those acquisitions.  For acquisitions subsequent to January 1,
2002, we did assign a value to the customer relationship intangible, which is
amortized over its estimated useful life.  Upon the effectiveness of
our Plan, we will apply fresh start accounting in accordance with ASC 852-10,
Reorganizations –
Overall, and as such will adjust our customer relationships to reflect
fair value and will also establish any previously unrecorded intangible assets
at their fair values.  As such we expect the value of customer
relationships to materially increase from that recorded at September 30,
2009.





Our ASC
350 valuations, which are based on the present value of projected after tax cash
flows, result in a value of property, plant and equipment, franchises, customer
relationships, and our total entity value.  The value of goodwill is
the difference between the total entity value and amounts assigned to the other
assets.  Upon the effectiveness of our Plan, we will apply fresh start
accounting in accordance with ASC 852-10, Reorganizations – Overall,
and as such will adjust our goodwill to reflect fair value. We expect the value
of our goodwill to materially increase from that recorded at September 30,
2009.


The use
of different valuation assumptions or definitions of franchises or customer
relationships, such as our inclusion of the value of selling additional services
to our current customers within customer relationships versus franchises, could
significantly impact our valuations and any resulting
impairment.


24


As a
result of the continued economic pressure on our customers from the recent
economic downturn along with increased competition, we determined that our
projected future growth would be lower than previously anticipated in our annual
impairment testing in December 2008.  Accordingly, we determined that
sufficient indicators existed to require us to perform an interim franchise
impairment analysis as of September 30, 2009.  As of the date of the
filing of this Quarterly Report on Form 10-Q, we determined that an impairment
of franchises is probable and can be reasonably
estimated.  Accordingly, for the quarter ended September 30, 2009, we
recorded a preliminary non-cash franchise impairment charge of $2.9 billion
which represents our best estimate of the impairment of our franchise
assets.  We currently expect to finalize our franchise impairment
analysis during the quarter ended December 31, 2009, which could result in an
impairment charge that differs from the estimate.





We
estimated discounted future cash flows using reasonable and appropriate
assumptions including among others, penetration rates for basic and digital
video, high-speed Internet, and telephone; revenue growth rates; and expected
operating margins and capital expenditures.  The assumptions are
derived based on our and our peers’ historical operating performance adjusted
for current and expected competitive and economic factors surrounding the cable
industry.  The estimates and assumptions made in our valuations are
inherently subject to significant uncertainties, many of which are beyond our
control, and there is no assurance that these results can be achieved. The
primary assumptions for which there is a reasonable possibility of the
occurrence of a variation that would significantly affect the measurement value
include the assumptions regarding revenue growth, programming expense growth
rates, the amount and timing of capital expenditures and the discount rate
utilized.  The assumptions used are consistent with internal
forecasts, some of which differ from the assumptions used for the annual
impairment testing in December 2008 as a result of the economic and
competitive environment discussed previously.  The change in
assumptions reflects the lower than anticipated growth in revenues experienced
during the first three quarters of 2009 and the expected reduction of future
cash flows as compared to those used in the December 2008
valuations.





While
economic conditions applicable at the time of the valuations indicate the
combination of assumptions utilized in the valuations are reasonable, as market
conditions change so will the assumptions, with a resulting impact on the
valuations and consequently the impairment charge.  At September 30,
2009, a 10% and 5% decline in the estimated fair value of our franchise assets
in each of our units of accounting would have increased our impairment charge by
approximately $446 million and $223 million, respectively.  A 10% and
5% increase in the estimated fair value of our franchise assets in each of our
units of accounting would have reduced our impairment charge by approximately
$446 million and $223 million, respectively.





We have
other critical accounting policies which have not changed significantly from
those disclosed in our2008 Annual Report on Form 10-K. For a discussion of those
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 2008 Annual Report on Form
10-K.





25


RESULTS
OF OPERATIONS





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):





Three
      Months Ended September 30,
            
            
            Nine
      Months Ended September 30,2009
            
            
            2008
            
            
            2009
            
            
            2008REVENUES
            
            $
            1,693
            
            
            
            100
            %
            
            $
            1,636
            
            
            
            100
            %
            
            $
            5,045
            
            
            
            100
            %
            
            $
            4,823
            
            
            
            100
            %COSTS
      AND EXPENSES:Operating
      (excluding depreciation and
              amortization)
            
            
            736
            
            
            
            43
            %
            
            
            710
            
            
            
            43
            %
            
            
            2,164
            
            
            
            43
            %
            
            
            2,089
            
            
            
            43
            %Selling,
      general and administrative
            
            
            357
            
            
            
            21
            %
            
            
            371
            
            
            
            23
            %
            
            
            1,044
            
            
            
            21
            %
            
            
            1,059
            
            
            
            22
            %Depreciation
      and amortization
            
            
            327
            
            
            
            19
            %
            
            
            332
            
            
            
            20
            %
            
            
            977
            
            
            
            19
            %
            
            
            981
            
            
            
            21
            %Impairment
      of franchises
            
            
            2,854
            
            
            
            169
            %
            
            
            --
            
            
            
            --
            
            
            
            2,854
            
            
            
            57
            %
            
            
            --
            
            
            
            --Other
      operating (income) expenses, net
            
            
            10
            
            
            
            1
            %
            
            
            15
            
            
            
            1
            %
            
            
            (38
            )
            
            
            (1
            %)
            
            
            51
            
            
            
            1
            %4,284
            
            
            
            253
            %
            
            
            1,428
            
            
            
            87
            %
            
            
            7,001
            
            
            
            139
            %
            
            
            4,180
            
            
            
            87
            %Income
      (loss) from operations
            
            
            (2,591
            )
            
            
            (153
            %)
            
            
            208
            
            
            
            13
            %
            
            
            (1,956
            )
            
            
            (39
            %)
            
            
            643
            
            
            
            13
            %OTHER
      INCOME (EXPENSES):Interest
      expense, net
            
            
            (141
            )
            
            
            
            
            
            
            (204
            )
            
            
            
            
            
            
            (491
            )
            
            
            
            
            
            
            (599
            )Change
      in value of derivatives
            
            
            --
            
            
            
            
            
            
            
            (7
            )
            
            
            
            
            
            
            (4
            )
            
            
            
            
            
            
            (1
            )Reorganization
      items, net
            
            
            (181
            )
            
            
            
            
            
            
            --
            
            
            
            
            
            
            
            (441
            )
            
            
            
            
            
            
            --Other
      income (expense), net
            
            
            --
            
            
            
            
            
            
            
            --
            
            
            
            
            
            
            
            1
            
            
            
            
            
            
            
            (2
            )(322
            )
            
            
            
            
            
            
            (211
            )
            
            
            
            
            
            
            (935
            )
            
            
            
            
            
            
            (602
            )Income
      (loss) before income taxes
            
            
            (2,913
            )
            
            
            
            
            
            
            (3
            )
            
            
            
            
            
            
            (2,891
            )
            
            
            
            
            
            
            41INCOME
      TAX BENEFIT
            
            
            75
            
            
            
            
            
            
            
            14
            
            
            
            
            
            
            
            68
            
            
            
            
            
            
            
            12Consolidated
      net income (loss)
            
            
            (2,838
            )
            
            
            
            
            
            
            11
            
            
            
            
            
            
            
            (2,823
            )
            
            
            
            
            
            
            53Less:
      Net (income) loss
              –  noncontrolling
      interest
            
            
            102
            
            
            
            
            
            
            
            (6
            )
            
            
            
            
            
            
            80
            
            
            
            
            
            
            
            (18
            )Net
      income (loss) – CCO Holdings
              member
            
            $
            (2,736
            )
            
            
            
            
            
            $
            5
            
            
            
            
            
            
            $
            (2,743
            )
            
            
            
            
            
            $
            35





Revenues.  Average
monthly revenue per basic video customer increased to $115 for the three months
ended September 30, 2009 from $106 for the three months ended September 30, 2008
and increased to $113 for the nine months ended September 30, 2009 from $104 for
the nine months ended September 30, 2008.  Average monthly revenue per
basic video customer represents total revenue, divided by the number of
respective months, divided by the average number of basic video customers during
the respective period.  Revenue growth primarily reflects increases in
the number of telephone, high-speed Internet, and digital video customers, price
increases, and incremental video revenues from OnDemand, DVR, and
high-definition television services, offset by a decrease in basic video
customers.  Asset sales in 2008 and 2009 reduced the increase in
revenues for the three and nine months ended September 30, 2009 as compared to
the three and nine months ended September 30, 2008 by approximately $5 million
and $13 million, respectively.





26


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





Three
      Months Ended September 30,2009
            
            
            2008
            
            
            2009
      over 2008Revenues
            
            
            %
      of
              Revenues
            
            
            Revenues
            
            
            %
      of
              Revenues
            
            
            Change
            
            
            %
      ChangeVideo
            
            $
            861
            
            
            
            51
            %
            
            $
            867
            
            
            
            53
            %
            
            $
            (6
            )
            
            
            (1
            %)High-speed
      Internet
            
            
            371
            
            
            
            22
            %
            
            
            342
            
            
            
            21
            %
            
            
            29
            
            
            
            8
            %Telephone
            
            
            183
            
            
            
            11
            %
            
            
            144
            
            
            
            9
            %
            
            
            39
            
            
            
            27
            %Commercial
            
            
            113
            
            
            
            6
            %
            
            
            100
            
            
            
            6
            %
            
            
            13
            
            
            
            13
            %Advertising
      sales
            
            
            64
            
            
            
            4
            %
            
            
            80
            
            
            
            5
            %
            
            
            (16
            )
            
            
            (20
            %)Other
            
            
            101
            
            
            
            6
            %
            
            
            103
            
            
            
            6
            %
            
            
            (2
            )
            
            
            (2
            %)$
            1,693
            
            
            
            100
            %
            
            $
            1,636
            
            
            
            100
            %
            
            $
            57
            
            
            
            3
            %





Nine
      Months Ended September 30,2009
            
            
            2008
            
            
            2009
      over 2008Revenues
            
            
            %
      of
              Revenues
            
            
            Revenues
            
            
            %
      of
              Revenues
            
            
            Change
            
            
            %
      ChangeVideo
            
            $
            2,606
            
            
            
            52
            %
            
            $
            2,599
            
            
            
            54
            %
            
            $
            7
            
            
            
            --High-speed
      Internet
            
            
            1,098
            
            
            
            22
            %
            
            
            1,009
            
            
            
            21
            %
            
            
            89
            
            
            
            9
            %Telephone
            
            
            529
            
            
            
            10
            %
            
            
            399
            
            
            
            8
            %
            
            
            130
            
            
            
            33
            %Commercial
            
            
            330
            
            
            
            6
            %
            
            
            289
            
            
            
            6
            %
            
            
            41
            
            
            
            14
            %Advertising
      sales
            
            
            180
            
            
            
            4
            %
            
            
            223
            
            
            
            5
            %
            
            
            (43
            )
            
            
            (19
            %)Other
            
            
            302
            
            
            
            6
            %
            
            
            304
            
            
            
            6
            %
            
            
            (2
            )
            
            
            (1
            %)$
            5,045
            
            
            
            100
            %
            
            $
            4,823
            
            
            
            100
            %
            
            $
            222
            
            
            
            5
            %





Video
revenues consist primarily of revenues from basic and digital video services
provided to our non-commercial customers.  Basic video customers
decreased by 244,600 customers from September 30, 2008 compared to September 30,
2009, 29,700 of which were related to asset sales.  Digital video
customers increased by 56,300 during the same period, reduced by asset sales
with 8,800 customers.  The increases (decreases) in video revenues are
attributable to the following (dollars in millions):





Three
      months ended
              September
      30, 2009
              compared
      to
              three
      months ended
              September
      30, 2008
              Increase
      / (Decrease)
            
            
            Nine
      months ended
              September
      30, 2009
              compared
      to
              nine
      months ended
              September
      30, 2008
              Increase
      / (Decrease)Incremental
      video services and rate adjustments
            
            $
            15
            
            
            $
            50Increase
      in digital video customers
            
            
            8
            
            
            
            35Decrease
      in basic video customers
            
            
            (26
            )
            
            
            (70
            )Asset
      sales
            
            
            (3
            )
            
            
            (8
            )$
            (6
            )
            
            $
            7





27


Residential
high-speed Internet customers grew by 151,900 customers, reduced by asset sales
with 5,900 customers, from September 30, 2008 to September 30,
2009.  The increase in high-speed Internet revenues from our
residential customers is attributable to the following (dollars in
millions):





Three
      months ended
              September
      30, 2009
              compared
      to
              three
      months ended
              September
      30, 2008
              Increase
      / (Decrease)
            
            
            Nine
      months ended
              September
      30, 2009
              compared
      to
              nine
      months ended
              September
      30, 2008
              Increase
      / (Decrease)Increase
      in high-speed Internet customers
            
            $
            20
            
            
            $
            65Rate
      adjustments and service upgrades
            
            
            9
            
            
            
            25Asset
      sales
            
            
            --
            
            
            
            (1
            )$
            29
            
            
            $
            89





Revenues
from telephone services increased by $39 million and $130 million for the three
and nine months ended September 30, 2009, respectively.  For the three
and nine months ended September 30, 2009, $8 million and $21 million,
respectively, of the increase was the result of higher average
rates.  The remaining increase was the result of an increase of
261,000 telephone customers, reduced by asset sales with 700
customers.





Commercial
revenues consist primarily of revenues from services provided to our commercial
customers.  Commercial revenues increased primarily as a result of
increased sales of the Charter Business Bundle® primarily to small and
medium-sized businesses, as well as growth in our fiber-based data services,
offset by asset sales of $1 million for the nine months ended September 30,
2009.





Advertising
sales revenues consist primarily of revenues from commercial advertising
customers, programmers, and other vendors.  Advertising sales revenues
for the three and nine months ended September 30, 2009 decreased primarily as a
result of significant decreases in revenues from the political, automotive and
retail sectors.  The decrease for the three and nine months ended
September 30, 2009 included $1 million and $2 million, respectively, as a result
of asset sales.  For the three months ended September 30, 2009 and
2008, we received $12 million and $11 million, respectively, and for the nine
months ended September 30, 2009 and 2008, we received $30 million and $25
million, respectively, in advertising sales revenues from vendors.





Other
revenues consist of franchise fees, regulatory fees, customer installations,
home shopping, late payment fees, wire maintenance fees and other miscellaneous
revenues.  For the three months ended September 30, 2009 and 2008,
franchise fees represented approximately 44% and 45%, respectively, of total
other revenues.  For the nine months ended September 30, 2009 and
2008, franchise fees represented approximately 45% and 46%, respectively, of
total other revenues.  The decrease in other revenues for the three
and nine months ended September 30, 2009 as compared to the three and nine
months ended September 30, 2008 was primarily the result of decreases in home
shopping.  The decrease for each of the three and nine months ended
September 30, 2009 included $1 million as a result of asset sales.





28


Operating
expenses.  The increase in
operating expenses is attributable to the following (dollars in
millions):





Three
      months ended
              September
      30, 2009
              compared
      to
              three
      months ended
              September
      30, 2008
              Increase
      / (Decrease)
            
            
            Nine
      months ended
              September
      30, 2009
              compared
      to
              nine
      months ended
              September
      30, 2008
              Increase
      / (Decrease)Programming
      costs
            
            $
            25
            
            
            $
            74Maintenance
      costs
            
            
            4
            
            
            
            13Vehicle
      costs
            
            
            (4
            )
            
            
            (12
            )Franchise
      and regulatory costs
            
            
            3
            
            
            
            7Other,
      net
            
            
            1
            
            
            
            (2
            )Asset
      sales
            
            
            (3
            )
            
            
            (5
            )$
            26
            
            
            $
            75





Programming
costs were approximately $437 million and $413 million, representing 59% and 58%
of total operating expenses for the three months ended September 30, 2009 and
2008, respectively, and were approximately $1.3 billion and $1.2 billion,
representing 60% and 59% of total operating expenses for the nine months ended
September 30, 2009 and 2008, respectively.  Programming costs consist
primarily of costs paid to programmers for basic, premium, digital, OnDemand,
and pay-per-view programming.  The increase in programming costs is
primarily a result of annual contractual rate adjustments and increases in
amounts paid for retransmission consent, offset in part by asset sales and
customer losses.  Programming costs were also offset by the
amortization of payments received from programmers of $6 million and $8 million
for the three months ended September 30, 2009 and 2008, respectively, and $20
million and $25 million for the nine months ended September 30, 2009 and 2008,
respectively.  We expect programming expenses to continue to increase,
and at a higher rate than 2008, due to a variety of factors, including amounts
paid for retransmission consent, annual increases imposed by programmers, and
additional programming, including high-definition, OnDemand, and pay-per-view
programming, being provided to our customers.





Selling, general
and administrative expenses.The decrease in
selling, general and administrative expenses is attributable to the following
(dollars in millions):


Three
      months ended
                September
      30, 2009
                compared
      to
                three
      months ended
                September
      30, 2008
                Increase
      / (Decrease)
              
              
              Nine
      months ended
                September
      30, 2009
                compared
      to
                nine
      months ended
                September
      30, 2008
                Increase
      / (Decrease)Marketing
      costs
              
              $
              (7
              )
              
              $
              --Employee
      costs
              
              
              (4
              )
              
              
              (9
              )Stock
      compensation costs
              
              
              (2
              )
              
              
              (1
              )Other,
      net
              
              
              --
              
              
              
              (1
              )Asset
      sales
              
              
              (1
              )
              
              
              (4
              )$
              (14
              )
              
              $
              (15
              )
 Depreciation and
amortization.Depreciation and
amortization expense decreased by $5 million and $4 million for the three and
nine months ended September 30, 2009 compared to September 30, 2008,
respectively, primarily the result of certain assets becoming fully depreciated,
offset by depreciation on capital expenditures.





Impairment of
franchises.As a result of the continued economic pressure on
our customers from the recent economic downturn along with increased
competition, we determined that our projected future growth would be lower than
previously anticipated in our annual impairment testing in December
2008.  Accordingly, we determined that sufficient indicators existed
to require us to perform an interim franchise impairment analysis as of
September


29


30,
2009.  As of the date of the filing of this Quarterly Report on Form
10-Q, we determined that an impairment of franchises is probable and can be
reasonably estimated.  Accordingly, for the quarter ended September
30, 2009, we recorded a preliminary non-cash franchise impairment charge of $2.9
billion which represents our best estimate of the impairment of our franchise
assets.  We currently expect to finalize our franchise impairment
analysis during the quarter ended December 31, 2009, which could result in an
impairment charge that differs from the estimate.





Other operating
(income) expenses, net.For the three months ended September
30, 2009 compared to September 30, 2008, the decrease in other operating expense
was primarily attributable to a decrease in unfavorable litigation
settlements.  For the nine months ended September 30, 2009 compared to
September 30, 2008, the increase in other operating income was primarily
attributable to favorable litigation settlements in 2009, as opposed to
unfavorable litigation settlements in 2008.  For more information, see
Note 12 to the accompanying condensed consolidated financial statements
contained in “Item 1. Financial Statements.”





Interest expense,
net.For
the three and nine months ended September 30, 2009 compared to September 30,
2008, net interest expense decreased by $63 million and $108 million,
respectively due to a decrease in the weighted average interest rate during the
three and nine months ended September 30, 2009 compared to September 30, 2008,
excluding the effect of interest being calculated at a prime rate compared to
LIBOR and 2% penalty interest, the incremental cost of which is being recorded
in reorganization items, net.





Change
in value of derivatives.Interest rate swaps were
held to manage our interest costs and reduce our exposure to increases in
floating interest rates.  We expensed the change in fair value of
derivatives that did not qualify for hedge accounting and cash flow hedge
ineffectiveness on interest rate swap agreements.Upon filing
for Chapter 11 bankruptcy, the counterparties to the interest rate swap
agreements terminated the underlying contracts and, upon emergence from
bankruptcy, will receive payment for the market value of the interest rate swap
agreement as measured on the date the counterparties terminated.  We
recognized a loss from the change in value of the interest rate swaps of $7
million for the three months ended September 30, 2008, and $4 million and $1
million for the nine months ended September 30, 2009 and 2008,
respectively.





Reorganizations
items, net.Reorganization items, net of $181 million and $441
million for the three and nine months ended September 30, 2009 represent items
of income, expense, gain or loss that we realized or incurred because we are in
reorganization under Chapter 11 of the U.S. Bankruptcy Code.  For more
information, see Note 2 to the accompanying condensed consolidated financial
statements contained in “Item 1. Financial Statements.”





Income tax
benefit.Income tax benefit for
the three and nine months ended September 30, 2009 was realized as a result of
the decreases in certain deferred tax liabilities attributable to the write down
of franchise assets for financial statement purposes and not for tax purposes,
offset by current federal and state income tax expense of certain of our
indirect subsidiaries. However, the actual tax provision calculations in future
periods will be the result of current and future temporary differences, as well
as future operating results. Income tax benefit for the three and nine months
ended September 30, 2009 included $78 million of deferred tax benefit related to
the impairment of franchises. Income tax benefit was recognized for the three
and nine months ended September 30, 2008 through a change in state income tax
laws, offset by current federal and state income tax expense of certain of our
indirect subsidiaries.





Net (income) loss
– noncontrolling interest.Noncontrolling interest includes
the 2% accretion of the preferred membership interests in CC VIII, LLC (“CC
VIII”) plus approximately 18.6% of CC VIII’s income, net of
accretion.





Net income (loss)
– CCO Holdings member.Net loss – CCO Holdings
member increased by $2.7 billion for the three months ended September 30, 2009
compared to the three months ended September 30, 2008, and by $2.8 billion for
the nine months ended September 30, 2009 compared to the nine months ended
September 30, 2008 primarily as a result of the impairment of franchises. The
impact to net loss for the three and nine months ended September 30, 2009 of the
impairment of franchises, net of tax, was to increase net loss by $2.7
billion.





Bankruptcy
Proceedings





On March
27, 2009, we, our parent companies and certain affiliates (collectively, the
“Debtors”) filed voluntary petitions in the United States Bankruptcy Court for
the Southern District of New York (the “Bankruptcy Court”) seeking relief under
the provisions of Chapter 11 of Title 11 of the United States Code (the
“Bankruptcy Code”).  The Chapter 11 cases are being jointly
administered under the caption In re Charter Communications, Inc.,
et al.,


30


Case No.
09-11435 (the “Chapter 11 Cases”).  The Debtors have continued to
operate their businesses and manage their properties as debtors in possession
under the jurisdiction of the Bankruptcy Court and in accordance with the
applicable provisions of the Bankruptcy Code.





The
filing was made to allow us and our parent companies to implement a
restructuring pursuant to a pre-arranged joint plan of reorganization (as
amended, the “Plan”) aimed at improving our and our parent companies’ capital
structure. The Plan essentially provides for a balance sheet restructuring that
will leave intact our operations.





Under
Chapter 11, we are operating our business as a debtor-in-possession (“DIP”)
under bankruptcy court protection from creditors and claimants.  We
have obtained orders from the Bankruptcy Court, which provide, among other
things, flexibility in cash management, the ability to use cash collateral, and
in the normal course, the ability to pay certain trade creditor balances that
are pre-petition claims.  During these Chapter 11 Cases, all
transactions outside the ordinary course of business will require the prior
approval of the Bankruptcy Court.  As a consequence of the Chapter 11
filing, pending litigation against us and our parent companies arising before
March 27, 2009 is subject to the automatic stay under the Bankruptcy Code, and
consequently no party may take any action to collect pre-petition claims except
pursuant to order of the Bankruptcy Court.





On
October 15, 2009, the Bankruptcy Court provided a preliminary ruling indicating
that the Plan would be confirmed in the next several weeks.  The
Bankruptcy Court also indicated that it would rule in favor of the reinstatement
of certain of our debt.  We expect to cause the Plan to go effective
soon after the Bankruptcy Court enters the confirmation order.





The Plan
is expected to be funded with cash on hand, cash from operations, an exchange of
debt of CCH II for other debt at CCH II (the “Notes Exchange”), the issuance of
additional debt (the “New Debt Commitment”), and the proceeds of an equity
offering (the “Rights Offering”).  In addition to separate
restructuring agreements entered into with certain holders of our parent
companies’ notes (the “Noteholders”) pursuant to which we and our parent
companies expect to implement the Plan (as amended, the “Restructuring
Agreements”), the Noteholders have entered into commitment letters (the
“Commitment Letters”), pursuant to which they have agreed to exchange and/or
purchase, as applicable, certain of our parent companies’ securities, as
described in more detail below.  The holders of the CCH II notes have
made their elections in the Notes Exchange.  As a result of the Notes
Exchange, CCH II will exchange approximately $1.5 billion of old CCH II notes
for new CCH II notes on the effective date of the Plan should the Bankruptcy
Court ultimately approve the Plan and the Plan becomes effective.  The
Rights Offering has also been concluded resulting in holders of CCH I, LLC (“CCH
I”) notes electing to purchase approximately $1.6 billion of Charter’s new Class
A Common Stock and certain of the Noteholders electing to exercise an
overallotment option to purchase an additional approximately $40 million of
Charter’s new Class A Common Stock.  The Rights Offering will close on
the effective date of the Plan should the Bankruptcy Court ultimately approve
the Plan and the Plan becomes effective.  The Plan would result in the
reduction of our parent companies’ debt by approximately $8
billion.





Under the
Notes Exchange, existing holders of senior notes of CCH II and CCH II Capital
Corp. (“CCH II Notes”) were entitled to elect to exchange their CCH II Notes for
new 13.5% Senior Notes of CCH II and CCH II Capital Corp. (the “New CCH II
Notes”).  CCH II Notes that are not exchanged in the Notes Exchange
will be paid in cash in an amount equal to the outstanding principal amount of
such CCH II Notes plus accrued but unpaid interest to the bankruptcy petition
date plus post-petition interest, but excluding any call premiums or prepayment
penalties and for the avoidance of doubt, any unmatured interest.  The
aggregate principal amount of New CCH II Notes to be issued pursuant to the Plan
is expected to be approximately $1.5 billion plus accrued but unpaid interest to
the bankruptcy petition date plus post-petition interest, but excluding any call
premiums or prepayment penalties (collectively, the “Target Amount”), plus an
additional $85 million.





Under the
Commitment Letters, certain holders of CCH II Notes committed to exchange,
pursuant to the Notes Exchange, an aggregate of approximately $1.2 billion in
aggregate principal amount of CCH II Notes, plus accrued but unpaid interest to
the bankruptcy petition date plus post-petition interest, but excluding any call
premiums or any prepayment penalties.  Because the aggregate principal
amount of New CCH II Notes to be issued pursuant to the Notes Exchange exceeds
the Target Amount, each Noteholder participating in the Notes Exchange will
receive a pro rata portion of such Target Amount of New CCH II Notes, based upon
the ratio of (i) the aggregate principal amount of CCH II Notes it has tendered
into the Notes Exchange to (ii) the total aggregate principal amount of CCH II
Notes tendered into the Notes Exchange.  Participants in the Notes
Exchange will receive a commitment fee equal to


31


1.5% of
the principal amount plus interest on the CCH II Notes exchanged by such
participant in the Notes Exchange.





Under the
New Debt Commitment, certain holders of CCH II Notes had committed to purchase
an additional amount of New CCH II Notes in an aggregate principal amount of up
to $267 million depending on the outcome of the Notes
Exchange.  Participants in the New Debt Commitment will receive a
commitment fee equal to the greater of (i) 3.0% of their respective portion of
the New Debt Commitment or (ii) 0.83% of its respective portion of the New Debt
Commitment for each month beginning April 1, 2009 during which its New Debt
Commitment remains outstanding.  Because the holders of CCH II Notes
elected to exchange in excess of $1.5 billion of CCH II Notes for New CCH II
Notes, we do not expect to issue any New CCH II Notes for cash under the New
Debt Commitment.





The
period for electing to participate in the Rights Offering has
expired.  Under the Rights Offering, Charter offered to existing
holders of senior notes of CCH I, LLC (“CCH I Notes”) that are accredited
investors (as defined in Regulation D promulgated under the Securities Act) or
qualified institutional buyers (as defined under Rule 144A of the Securities
Act), the right (the “Rights”) to purchase shares of the new Class A Common
Stock of Charter, to be issued upon our and our parent companies’ emergence from
bankruptcy, in exchange for a cash payment at a discount to the equity
value of Charter upon emergence.  Upon emergence from bankruptcy,
Charter’s new Class A Common Stock is not expected to be listed on any public or
over-the-counter exchange or quotation system and will be subject to transfer
restrictions.  It is expected, however, that Charter will thereafter
apply for listing of Charter’s new Class A Common Stock on the NASDAQ Stock
Market as provided in a term sheet describing the Plan (the “Term
Sheet”).  The Rights Offering is expected to generate proceeds of up
to approximately $1.6 billion and will be used to pay holders of CCH II Notes
that do not participate in the Notes Exchange, repayment of certain amounts
relating to the satisfaction of certain swap agreement claims against Charter
Communications Operating, LLC (“Charter Operating”) and for general corporate
purposes.





The
Restructuring Agreements further contemplate that upon the effective date of the
Plan (i) CCO Holdings’ and Charter Operating’s notes and credit facilities will
remain outstanding, (ii) holders of notes issued by CCH II will receive New CCH
II Notes pursuant to the Notes Exchange and/or cash, (iii) holders of notes
issued by CCH I, LLC will receive shares of Charter’s new Class A Common Stock,
(iv) holders of notes issued by CCH I Holdings, LLC (“CIH”) will receive
warrants to purchase shares of Charter’s new Class A Common Stock, (v) holders
of notes of Charter Holdings will receive warrants to purchase shares of
Charter’s new Class A Common Stock, (vi) holders of convertible notes issued by
Charter will receive cash and preferred stock issued by
Charter,  (vii) holders of existing common stock will not receive any
amounts on account of their common stock, which will be cancelled, and (viii)
trade creditors will continue to be paid in full.  In addition, as
part of the Plan, it is expected that consideration will be paid by holders of
CCH I Notes to other entities participating in the financial
restructuring.  The recoveries summarized above are more fully
described in the Plan.





Pursuant
to a separate restructuring agreement among Charter, Mr. Allen, and an entity
controlled by Mr. Allen (as amended, the “Allen Agreement”), in settlement of
their rights, claims and remedies against Charter and its subsidiaries, and in
addition to any amounts received by virtue of their holding any claims of the
type set forth above, upon the effective date of the Plan, Mr. Allen or his
affiliates will be issued a number of shares of the new Class B Common Stock of
Charter equal to 2% of the equity value of Charter, after giving effect to the
Rights Offering, but prior to issuance of warrants and equity-based awards
provided for by the Plan and 35% (determined on a fully diluted basis) of the
total voting power of all new capital stock of Charter.   Each share
of new Class B Common Stock will be convertible, at the option of the holder,
into one share of new Class A Common Stock, and will be subject to significant
restrictions on transfer.  Certain holders of new Class A Common Stock
and new Class B Common Stock will receive certain customary registration rights
with respect to their shares.  Upon the effective date of the Plan,
Mr. Allen or his affiliates will also receive (i) warrants to purchase shares of
new Class A Common Stock of Charter in an aggregate amount equal to 4% of the
equity value of reorganized Charter, after giving effect to the Rights Offering,
but prior to the issuance of warrants and equity-based awards provided for by
the Plan, (ii) $85 million principal amount of New CCH II Notes, (iii) $25
million in cash for amounts owing to Charter Investment, Inc. (“CII”) under a
management agreement, (iv) $20 million in cash for reimbursement of fees and
expenses in connection with the Plan, and (v) an additional $150 million in
cash.  The warrants described above shall have an exercise price per
share based on a total equity value equal to the sum of the equity value of
reorganized Charter, plus the gross proceeds of the Rights Offering, and shall
expire seven years after the date of issuance.  In addition, on the
effective date of the Plan, CII will retain a 1% equity interest in reorganized
Charter Communications Holding Company, LLC (“Charter Holdco”) and a right to
exchange such interest into new Class A Common Stock of Charter. Further, Mr.
Allen will transfer his preferred equity interest in CC VIII to
Charter.


32





The
Restructuring Agreements also contemplate that upon emergence from bankruptcy
each holder of 10% or more of the voting power of Charter will have the right to
nominate one member of the initial board of directors for each 10% of voting
power; and that at least Charter’s current Chief Executive Officer and Chief
Operating Officer will continue in their same positions.  The
Restructuring Agreements require Noteholders to cast their votes in favor of the
Plan and generally support the Plan and contain certain customary restrictions
on the transfer of claims by the Noteholders.





The
Restructuring Agreements and Commitment Letters are subject to certain
termination events, including, among others:





·
            the
      commitments set forth in the respective Noteholder’s Commitment Letter
      shall have expired or been
terminated;


·
            Charter’s
      board of directors shall have been advised in writing by its outside
      counsel that continued pursuit of the Plan is inconsistent with its
      fiduciary duties, and the board of directors determines in good faith
      that, (A) a proposal or offer from a third party is reasonably likely to
      be more favorable to us than is proposed under the Plan, taking into
      account, among other factors, the identity of the third party, the
      likelihood that any such proposal or offer will be negotiated to finality
      within a reasonable time, and the potential loss to us if the proposal or
      offer were not accepted and consummated, or (B) the Plan is no longer
      confirmable or feasible;


·
            the
      Plan or any subsequent plan filed by us with the Bankruptcy Court (or a
      plan supported or endorsed by us) is not reasonably consistent in all
      material respects with the terms of the Restructuring
      Agreements;


·
            a
      confirmation order reasonably acceptable to Charter, the Requisite Holders
      and Mr. Allen is not entered by the Bankruptcy
  Court;


·
            the
      effective date of the Plan (the “Effective Date”) shall not have occurred
      on or before November 27, 2009; except that in the case that certain
      consents, approvals or waivers required to be obtained from governmental
      authorities have not been obtained on or before November 27, 2009, and all
      other conditions precedent to the Effective Date shall have been satisfied
      before November 27, 2009 or waived by the Requisite Holders (other than
      those conditions that by their nature are to be satisfied on the Effective
      Date), the Effective Date shall not have occurred on or before December
      15, 2009;


·
            any
      of our Chapter 11 Cases is converted to cases under Chapter 7 of the
      Bankruptcy Code if as a result of such conversion the Plan is not
      confirmable;


·
            the
      Bankruptcy Court enters an order in any of our Chapter 11 Cases appointing
      (i) a trustee under Chapter 7 or Chapter 11 of the Bankruptcy Code, (ii) a
      responsible officer or (iii) an examiner, in each case with enlarged
      powers relating to the operation of the business under the Bankruptcy
      Code;


·
            any
      of our Chapter 11 Cases are dismissed if, as a result of such dismissal,
      the Plan is not confirmable;


·
            the
      order confirming the Plan is reversed on appeal or
  vacated;


·
            any
      party breaches any material provision of the Restructuring Agreements or
      the Plan and any such breach has not been duly waived or cured after a
      period of five days;


·
            Charter
      withdraws the Plan or publicly announces its intention not to support the
      Plan; and


·
            any
      Restructuring Agreement or the Allen Agreement has terminated or been
      breached in any material respect subject to notice and cure
      provisions.





The Allen
Agreement contains similar provisions to those provisions of the Restructuring
Agreements.  There is no assurance that the treatment of creditors
outlined above will not change significantly.  For example, because
the Plan is contingent on reinstatement of the credit facilities and certain
notes of Charter Operating and CCO Holdings, failure to ultimately reinstate
such debt, notwithstanding the Bankruptcy Court’s indication that it intends to
rule in favor of reinstatement, would require us and our parent companies to
revise the Plan.  Moreover, if reinstatement does not ultimately occur
and current capital market conditions persist, we and our parent companies may
not be able to secure adequate new financing and the cost of new financing would
likely be materially higher.





The above
summary of the Restructuring Agreements, Commitment Letters, Term Sheet and
Allen Agreement is qualified in its entirety by the full text of the
Restructuring Agreements, Commitment Letters, Term Sheet and Allen Agreement
copies of which were originally filed as Exhibits 10.1, 10.2, 10.3 and 10.4,
respectively, to our 2008 Annual Report on Form 10-K.  The Plan was
filed as Exhibit 10.2 to our Quarterly Report on Form 10-Q for the second
quarter ended June 30, 2009.  The form of amendments to the
Restructuring Agreements and Allen


33


Agreement
are filed herewith as Exhibits 10.1 to 10.8 to this Form 10-Q.  See
“Part II. Item 1A - Risk Factors – Risks Relating to Bankruptcy.”





Interest
Payments





Two of
our parent companies, CIH and Charter Holdings, did not make scheduled payments
of interest due on January 15, 2009 (the “January Interest Payment”) on certain
of their outstanding senior notes (the “Overdue Payment Notes”).  Each
of the respective governing indentures (the “Indentures”) for the Overdue
Payment Notes permits a 30-day grace period for such interest payments through
(and including) February 15, 2009.  On February 11, 2009, in
connection with the Commitment Letters and Restructuring Agreements, Charter and
certain of its subsidiaries also entered into an Escrow Agreement with members
of the ad-hoc committee of holders of the Overdue Payment Notes (“Ad-Hoc
Holders”) and Wells Fargo Bank, National Association, as Escrow Agent (the
“Escrow Agreement”).  On February 13, 2009, the full amount of the
January Interest Payment was paid to the Paying Agent for the Ad-Hoc Holders on
their Overdue Payment Notes, which constitutes payment under the
Indentures.  As required under the Indentures, Charter set a special
record date for payment of such interest payments of February 28,
2009.  Under the Escrow Agreement, the Ad-Hoc Holders agreed to
deposit into an escrow account the amounts they received in respect of the
January Interest Payment (the "Escrow Amount") and the Escrow Agent will hold
such amounts subject to the terms of the Escrow Agreement.  Under the
Escrow Agreement, if the transactions contemplated by the Restructuring
Agreements are consummated on or before December 15, 2009 or such transactions
are not consummated on or before December 15, 2009 due to material breach of the
Restructuring Agreements by us or our parent companies, then the Ad-Hoc Holders
will be entitled to receive their pro-rata share of the Escrow
Amount.  If the transactions contemplated by the Restructuring
Agreements are not consummated on or prior to December 15, 2009 for any reason
other than material breach of the Restructuring Agreements by us or our parent
companies, then Charter, Charter Holdings, CIH or their designee shall be
entitled to receive the Escrow Amount.  No amount has been recorded on
our or our parent companies’ condensed consolidated balance sheets for the
Escrow Amount.





Charter
Operating Revolving Credit Facility





We have
utilized $1.4 billion of the $1.5 billion revolving credit facility under our
Amended and Restated Credit Agreement, dated as of March 18, 1999, as amended
and restated as of March 6, 2007 (the “Credit Agreement”).  Upon
filing bankruptcy, Charter Operating no longer has access to the revolving
feature of its revolving credit facility.  Reinstatement of the Credit
Agreement will result in the revolving credit facility remaining in place with
its original terms except its revolving feature.





Historical
Operating, Investing and Financing Activities





Cash and Cash
Equivalents.We held $1.1 billion in cash and cash equivalents
as of September 30, 2009 compared to $948 million as of December 31,
2008.




Operating
Activities.Net cash provided by
operating activities decreased $116 million from $1.1 billion for the nine
months ended September 30, 2008 to $1.0 billion for the nine months ended
September 30, 2009, primarily as a result of cash reorganization items of $335
million for the nine months ended September 30, 2009 offset by a decrease of
$111 million in interest on cash pay obligations, and revenues increasing at a
faster rate than cash expenses.





Investing
Activities.Net cash used in
investing activities was $841 million and $980 million for the nine months ended
September 30, 2009 and 2008, respectively.  The decrease is primarily
due to a decrease of $119 million in purchases of property, plant, and
equipment.




Financing
Activities.Net cash used in
financing activities was $52 million for the nine months ended September 30,
2009 and net cash provided by financing activities was $415 million for the nine
months ended September 30, 2008.  The decrease in cash provided during
the nine months ended September 30, 2009 as compared to the corresponding period
in 2008, was primarily the result of no borrowings of long-term debt in
2009.





34


Capital
Expenditures





We have
significant ongoing capital expenditure requirements.  Capital
expenditures were $819 million and $938 million for the nine months ended
September 30, 2009 and 2008, respectively.  See the table below for
more details.





Our
capital expenditures are funded primarily from cash on hand and cash flows from
operating activities.  In addition, our liabilities related to capital
expenditures decreased $18 million and $41 million for the nine months ended
September 30, 2009 and 2008 compared to year end, respectively.





During
2009, we expect capital expenditures to be approximately $1.2
billion.  We expect 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 scalable
infrastructure.  The actual amount of our capital expenditures
depends, among other things, on the deployment of advanced broadband services
and offerings.  We may need additional capital if there is accelerated
growth in high-speed Internet, telephone or digital customers or there is an
increased need to respond to competitive pressures by expanding the delivery of
other advanced services.




We have
adopted capital expenditure disclosure guidance, which was developed by eleven
then 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 capital expenditures among peer companies in the cable
industry.  These disclosure guidelines are not required disclosures
under GAAP, nor do they impact our accounting for capital expenditures under
GAAP.





The
following table presents our major capital expenditures categories in accordance
with NCTA disclosure guidelines for the three and nine months ended September
30, 2009 and 2008 (dollars in millions):





Three
      Months Ended
              September
      30,
            
            
            Nine
      Months Ended
              September 30,2009
            
            
            2008
            
            
            2009
            
            
            2008Customer
      premise equipment (a)
            
            $
            152
            
            
            $
            157
            
            
            $
            460
            
            
            $
            480Scalable
      infrastructure (b)
            
            
            46
            
            
            
            52
            
            
            
            141
            
            
            
            185Line
      extensions (c)
            
            
            18
            
            
            
            19
            
            
            
            49
            
            
            
            63Upgrade/Rebuild
      (d)
            
            
            6
            
            
            
            8
            
            
            
            20
            
            
            
            37Support
      capital (e)
            
            
            57
            
            
            
            52
            
            
            
            149
            
            
            
            173Total
      capital expenditures
            
            $
            279
            
            
            $
            288
            
            
            $
            819
            
            
            $
            938





(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 and
      customer premise equipment (e.g., set-top boxes 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).





35


Item
3.  Quantitative and Qualitative
Disclosures About Market Risk.





No
material changes in reported market risks have occurred since the filing of our
December 31, 2008 Form 10-K.





As of
September 30, 2009 and December 31, 2008, our total debt was approximately
$11.7 billion and $11.8 billion, respectively.  As of September 30, 2009
and December 31, 2008, the weighted average interest rate on the credit facility
debt was approximately 6.4% and 5.5%, respectively, including 2% penalty
interest as of September 30, 2009.  As of September 30, 2009 and December
31, 2008, the weighted average interest rate on the high-yield notes was
approximately 10.8% and 8.8%, respectively, including 2% penalty interest as of
September 30, 2009.  As of September 30, 2009, the interest rate on
approximately 27% of the total principal amount of our debt was fixed. 
Upon filing for Chapter 11 bankruptcy, the interest rate hedge agreements were
terminated.  For more information, see Note 10 to the accompanying
condensed consolidated financial statements contained in “Item 1. Financial
Statements.”





Item
4.                     Controls
and Procedures.





As of the
end of the period covered by this report, under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief
Financial Officer, we have 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 certifications 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 SEC’s rules and
forms.





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, we believe that our
controls provide such reasonable assurances.





There was
no change in our internal control over financial reporting during the quarter
ended September 30, 2009 that has materially affected, or is reasonably likely
to materially affect, our internal control over financial
reporting.





36


PART
II. OTHER INFORMATION.





Item 1.
            Legal
      Proceedings.





On August
28, 2008, a complaint, which was subsequently amended, was filed against Charter
and Charter Communications, LLC (“Charter LLC”) in the United States District
Court for the Western District of Wisconsin (now entitled, Marc Goodell et al.  v.
Charter Communications, LLC and Charter Communications, Inc.).  The
plaintiffs seek to represent a class of current and former broadband, system and
other types of technicians who are or were employed by Charter or Charter LLC in
the states of Michigan, Minnesota, Missouri or California.  Plaintiffs
allege that Charter and Charter LLC violated certain wage and hour statutes of
those four states by failing to pay technicians for all hours worked.
  Charter and Charter LLC continue to deny all liability, believe that
they have substantial defenses, and intend, after Charter’s plan of
reorganization, as amended, is approved and becomes effective and the automatic
stay is lifted, to vigorously contest the claims asserted.  We have
been subjected, in the normal course of business, to the assertion of other wage
and hour claims and could be subjected to additional such claims in the
future.  We cannot predict the outcome of any such
claims.





On or
about March 16, 2009, Gerald Paul Bodet, Jr. filed, but did not appropriately
serve, a class action against Charter and Charter Holdco (Gerald Paul Bodet, Jr. v. Charter
Communications, Inc. and Charter Communications Holding Company,
LLC).  Plaintiff alleges that the defendants violated the
Sherman Act and Louisiana Unfair Trade Practices Act by tying the provision of
premium cable programming to the purchase or rental of a set top box from
us.  A similar suit, Derrick Lebryk and Nicholas Gladson
v. Charter Communications, Inc., Charter Communications Holding Company, LLC,
CCHC, LLC and Charter Communications Holding, LLC, was filed on June 26,
2009, in the United States District Court for the Southern District of
Illinois.  We understand similar claims have been made against other
multiple system cable operators.  At the appropriate time, Charter and
Charter Holdco intend to deny any liability, are advised that they have
substantial defenses, and intend to vigorously defend this case.





On March
27, 2009, JPMorgan Chase Bank, N.A., for itself and as Administrative Agent
under the Credit Agreement, filed an adversary proceeding (the “JPMorgan
Adversary Proceeding”) in Bankruptcy Court against Charter Operating and CCO
Holdings seeking a declaration that there have been events of default under the
Credit Agreement.  Such a judgment may prevent Charter Operating and
CCO Holdings from reinstating the terms and provisions of the Credit Agreement
through the bankruptcy proceeding.  On April 10, 2009, Charter
Operating and CCO Holdings filed a motion to dismiss (the “Motion to Dismiss”)
the JPMorgan Adversary Proceeding and argued that dismissal was proper because
the JPMorgan Adversary Proceeding (i) is a core proceeding that is properly
heard by the Bankruptcy Court; and (ii) fails to state a claim for default under
the Credit Agreement.  On May 5, 2009, the Bankruptcy Court ruled that
the JPMorgan Adversary Proceeding is a core proceeding.   The
JPMorgan Adversary Proceeding is being decided by the Bankruptcy Court as a part
of the hearing that began on July 20, 2009 and concluded on October 1, 2009 to
consider the confirmation of the Plan.  On October 15, 2009, the
Bankruptcy Court held a hearing at which the judge read into the record his
preliminary ruling in favor of Charter in the JPMorgan Adversary Proceeding and
indicated that a final order would be entered in the next several
weeks.


We are
also aware of three suits filed by holders of securities issued by us or our
parent companies.  Key Colony Fund, LP v. Charter
Communications, Inc and Paul W. Allen(sic), was filed on or about
February 26, 2009 in the Circuit Court of Pulaski County, Arkansas and alleges
violations of the Arkansas Deceptive Trade Practices Act and
fraud.  Similarly, Clifford James Smith v. Charter
Communications, Inc. and Paul Allen, was filed in the United States
District Court for the Central District of California on May 26, 2009.  Mr.
Smith claims to have purchased Charter common stock in late 2007, resulting in
the loss of the value of his stock.  Herb Lair, Iron Workers Local No. 25
Pension Fund, et. al. v. Neil Smit, Eloise Schmitz, and Paul G. Allen was
filed in the United States District Court for the Eastern District of Arkansas
on June 1, 2009.  Mr. Smit and Ms. Schmitz are the Chief Executive Officer
and Chief Financial Officer, respectively, of Charter.  Mr. Lair, who seeks
to represent a class of plaintiffs who acquired Charter stock between October
23, 2006 and February 12, 2009, claims he and others similarly situated were
misled by statements by Ms. Schmitz, Mr. Smit, and/or Mr.
Allen.  Charter denies the allegations made by the plaintiffs in these
matters and intends to vigorously contest these cases.





We and
our parent companies are party to lawsuits and claims that arise in the ordinary
course of conducting their business.  The ultimate outcome of these
other legal matters pending against us cannot be predicted, and although such
lawsuits and claims are not expected individually to have a material adverse
effect on our consolidated


37


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.





Our
Annual Report on Form 10-K for the year ended December 31, 2008 includes “Risk
Factors” under Item 1A of Part I.  Except for the updated risk factors
described below, there have been no material changes from the risk factors
described in our Form 10-K.  The information below updates, and should
be read in conjunction with, the risk factors and information disclosed in our
Form 10-K.





Risks
Relating to Bankruptcy





As
mentioned above, we and our parent companies filed voluntary petitions under
Chapter 11 of the United States Bankruptcy Code on March 27, 2009, in order to
implement what we refer to herein as our Plan with certain of our and our parent
companies’ bondholders.  A Chapter 11 filing involves many risks
including, but not limited to the following.





We
may not be able to obtain confirmation of the Plan.




To emerge
successfully from Chapter 11 bankruptcy protection as a viable entity, we, like
any debtor, must obtain approval of a plan of reorganization from our creditors,
confirmation of the plan through the Bankruptcy Court and successfully implement
this confirmed plan.  The foregoing process requires us to
(a) meet certain statutory requirements with respect to the adequacy of
disclosure with respect to the Plan, (b) solicit and obtain creditor acceptances
of the Plan and (c) fulfill other statutory conditions with respect to plan
confirmation.  The hearing before the Bankruptcy Court concerning
confirmation of the Plan commenced July 20, 2009 and concluded on October 1,
2009.  On October 15, 2009, the Bankruptcy Court announced in open
court that its order to be issued within the next several weeks would provide
for confirmation of the Plan.





In order
to confirm a plan against a dissenting class, the Bankruptcy Court must find
that at least one impaired class has accepted the plan, with such acceptance
being determined without including the acceptance of any “insider” in such
class.  We have filed with the Bankruptcy Court the voting results for
the Plan. The Bankruptcy Court may confirm the Plan pursuant to the “cramdown”
provisions of the Bankruptcy Code, which allow the Bankruptcy Court to confirm a
plan that has been rejected by an impaired class of claims if it determines that
the plan satisfies section 1129(b) of the Bankruptcy Code.





We will
seek under the Plan to reinstate and render unimpaired certain classes of claims
based on notes and credit facilities pursuant to section 1124 of the Bankruptcy
Code.  The creditor banks and/or other interested parties are
challenging reinstatement and unimpairment.  In particular, the
JPMorgan Adversary Proceeding was commenced seeking a declaratory judgment that
certain defaults and events of default have occurred and are continuing under
the Credit Agreement.  JPMorgan, the Administrative Agent under the
Credit Agreement, contends that the alleged existence of such defaults and
events of default prevent reinstatement of the claims arising under the Credit
Agreement, and other parties have asserted that the alleged defaults and events
of default would prevent the notes issued by Charter Operating and CCO Holdings
and CCO Holding’s credit facility from being reinstated.  Such parties
have made additional arguments against reinstatement including that the Plan
results in a change of control as defined in the governing debt
agreements.  Because the Plan is contingent on reinstatement and
unimpairment, failure to reinstate the credit facilities, indentures and certain
notes would require us and our parent companies to revise or abandon the
Plan.  Moreover, if reinstatement and unimpairment does not occur and
current capital market conditions persist, we may not be able to secure adequate
new financing and the cost of any such new financing would likely be materially
higher. On October 15, 2009, the Bankruptcy Court indicated that its order to be
issued within the next several weeks would provide for the reinstatement of the
notes issued by Charter Operating and CCO Holdings, the Credit Agreement and the
CCO Holdings’ credit facility.





If the
Plan is not ultimately confirmed, it is unclear whether we would be able to
reorganize our businesses and what, if any, distributions holders of claims
against or holders of our common stock or other equity interests ultimately
would receive with respect to their claims or equity interests. There also can
be no assurance that we will be able to successfully develop, prosecute,
confirm, and consummate an alternative plan of reorganization with respect to
the Chapter 11 Cases that is acceptable to the Bankruptcy Court and our
creditors, equity holders and other parties in interest. Additionally, it is
possible that third parties may seek and obtain approval to terminate
or


38


shorten
the exclusivity period during which only we may propose and confirm a plan of
reorganization. Finally, our emergence from bankruptcy is not assured. While we
expect to emerge from bankruptcy in the future, there can be no assurance that
we will successfully reorganize or when this reorganization will
occur.





The
Restructuring Agreements and the separate restructuring agreement among Charter,
Mr. Allen and CII may terminate.




Pursuant
to the Restructuring Agreements and the separate restructuring agreement among
Charter, Mr. Allen and CII, the various bondholders and Mr. Allen have agreed to
support the Plan; subject, however to certain termination events not having
occurred, including, without limitation:





·
            the
      commitments set forth in the respective Noteholder’s Commitment Letter
      shall have expired or been
terminated;


·
            Charter’s
      board of directors shall have been advised in writing by its outside
      counsel that continued pursuit of the Plan is inconsistent with its
      fiduciary duties, and the board of directors determines in good faith
      that, (A) a proposal or offer from a third party is reasonably likely to
      be more favorable to us than is proposed under the Plan, taking into
      account, among other factors, the identity of the third party, the
      likelihood that any such proposal or offer will be negotiated to finality
      within a reasonable time, and the potential loss to us if the proposal or
      offer were not accepted and consummated, or (B) the Plan is no longer
      confirmable or feasible;


·
            the
      Plan or any subsequent plan filed by us with the Bankruptcy Court (or a
      plan supported or endorsed by us) is not reasonably consistent in all
      material respects with the terms of the Restructuring
      Agreements;


·
            a
      confirmation order reasonably acceptable to Charter, the Requisite Holders
      and Mr. Allen is not entered by the Bankruptcy
  Court;


·
            the
      Effective Date shall not have occurred on or before November 27, 2009,
      except that in the case that certain consents, approvals or waivers
      required to be obtained from governmental authorities have not been
      obtained on or before November 27, 2009, and all other conditions
      precedent to the Effective Date shall have been satisfied before November
      27, 2009 or waived by the Requisite Holders (other than those conditions
      that by their nature are to be satisfied on the Effective Date), the
      Effective Date shall not have occurred on or before December 15,
      2009;


·
            any
      of our Chapter 11 Cases is converted to cases under Chapter 7 of the
      Bankruptcy Code if as a result of such conversion the Plan is not
      confirmable;


·
            the
      Bankruptcy Court enters an order in any of our Chapter 11 Cases appointing
      (i) a trustee under Chapter 7 or Chapter 11 of the Bankruptcy Code, (ii) a
      responsible officer or (iii) an examiner, in each case with enlarged
      powers relating to the operation of the business under the Bankruptcy
      Code;


·
            any
      of our Chapter 11 Cases are dismissed if, as a result of such dismissal,
      the Plan is not confirmable;


·
            the
      order confirming the Plan is reversed on appeal or
  vacated;


·
            any
      party breaches any material provision of the Restructuring Agreements or
      the Plan and any such breach has not been duly waived or cured after a
      period of five days;


·
            Charter
      withdraws the Plan or publicly announces its intention not to support the
      Plan; and


·
            any
      Restructuring Agreement or the separate restructuring agreement among
      Charter, Mr. Allen and CII has terminated or been breached in any material
      respect, subject to notice and cure
provisions.





To the
extent the terms or conditions of the Restructuring Agreements and the separate
restructuring agreement among Charter, Mr. Allen and CII are not satisfied, or
to the extent events of termination arise under the agreements, the
Restructuring Agreements and the separate restructuring agreement among Charter,
Mr. Allen and CII may terminate prior to the confirmation or effective date of
the Plan, which could result in the loss of support for the Plan by important
creditor constituents.  Any such loss of support could adversely
affect our ability to confirm and consummate the Plan.





Our operations will be subject to the
risks and uncertainties of bankruptcy.





For the
duration of the bankruptcy, our operations will be subject to the risks and
uncertainties associated with bankruptcy which include, among other
things:


39


The
actions and decisions of our and our parent companies’ creditors and other third
parties with interests in our bankruptcy, including official and unofficial
committees of creditors, which may be inconsistent with our plans;




·
            objections
      to or limitations on our ability to obtain Bankruptcy Court approval with
      respect to motions in the bankruptcy that we may seek from time to time or
      potentially adverse decisions by the Bankruptcy Court with respect to such
      motions;


·
            objections
      to or limitations on our ability to avoid or reject contracts or leases
      that are burdensome or
uneconomical;


·
            our
      ability to obtain customers and obtain and maintain normal terms with
      regulators, franchise authorities, vendors and service
      providers;


·
            our
      ability to maintain contracts and leases that are critical to our
      operations; and


·
            our
      ability to retain key employees.





These
risks and uncertainties could negatively affect our business and operations in
various ways. For example, negative events or publicity associated with our
bankruptcy filings and events during the bankruptcy could adversely affect our
relationships with franchise authorities, customers, vendors and employees,
which in turn could adversely affect our operations and financial condition,
particularly if the bankruptcy is protracted. Also, transactions by us and our
parent companies will generally be subject to the prior approval of the
applicable Bankruptcy Court, which may limit our ability to respond on a timely
basis to certain events or take advantage of certain opportunities.





Because
of the risks and uncertainties associated with our and our parent companies’
bankruptcy, the ultimate impact the events that occur during these cases will
have on our business, financial condition and results of operations cannot be
accurately predicted or quantified at this time.





The
bankruptcy may adversely affect our operations going forward. Our seeking
bankruptcy protection may adversely affect our ability to negotiate favorable
terms from suppliers, landlords, contract or trading counterparties and others
and to attract and retain customers and counterparties. For example, certain
competitors have created advertising that attempt to use the bankruptcy to
attract our customers.  The failure to obtain such favorable terms and
to attract and retain customers and employees, as well as other contract or
trading counterparties could adversely affect our financial
performance.  In addition, we expect to incur substantial professional
and other fees related to our restructuring.





Transfers of Charter’s equity, or
issuances of equity by Charter in connection with our restructuring, may impair
Charter’s ability to utilize its federal income tax net operating loss
carryforwards in the future.





Under
federal income tax law, a corporation is generally permitted to deduct from
taxable income in any year net operating losses carried forward from prior
years. Charter has net operating loss carryforwards of approximately $8.9
billion as of September 30, 2009. Charter’s ability to deduct net operating loss
carryforwards will be subject to a significant limitation if it were to undergo
an “ownership change” for purposes of Section 382 of the Internal Revenue Code
of 1986, as amended, during or as a result of the bankruptcy and would be
reduced by the amount of any cancellation of debt income resulting from the Plan
that is allocable to Charter.  See “—For tax purposes, it is
anticipated that Charter will experience a deemed ownership change upon
emergence from Chapter 11 bankruptcy, resulting in a material limitation on
Charter’s future ability to use a substantial amount of Charter’s existing net
operating loss carryforwards.”





Our
successful reorganization will depend on our ability to motivate key
employees.





Our
success is largely dependent on the skills, experience and efforts of our
people. In particular, the successful implementation of our business plan and
our ability to successfully consummate a plan of reorganization will be highly
dependent upon our management. Our ability to attract, motivate and retain key
employees is restricted by provisions of the Bankruptcy Code, which limit or
prevent our ability to implement a retention program or take other measures
intended to motivate key employees to remain with the Company during the
pendency of the bankruptcy. In addition, we must obtain Bankruptcy Court
approval of employment contracts and other employee compensation
programs.  The loss of the services of such individuals or other key
personnel could have a material adverse effect upon the implementation of our
business plan, including our restructuring program, and on our ability to
successfully reorganize and emerge from bankruptcy.





40


The
prices of our debt securities are volatile and, in connection with our
reorganization, holders of our securities may receive no payment, or payment
that is less than the face value or purchase price of such
securities.





Prices
for our debt securities are volatile and prices for such securities have
generally been substantially below par.  We can make no assurance that
the price of our securities will not fluctuate or decrease substantially in the
future.  Trading in our securities is highly speculative and poses
substantial risks to purchasers of such securities, as holders may not be able
to resell such securities or, in connection with our reorganization, may receive
no payment, or a payment or other consideration that is less than the par value
or the purchase price of such securities.





Our
emergence from bankruptcy is not assured, including on what terms we
emerge.





While we
expect the terms of our emergence from bankruptcy will reflect our filed Plan,
there is no assurance that we will be able to consummate the Plan, which is
subject to numerous closing conditions.  For example, because the Plan
is contingent on reinstatement of the credit facilities and certain of CCO
Holdings’ and Charter Operating’s notes, failure to ultimately reinstate such
debt, notwithstanding the Bankruptcy Court’s indication that it intends to rule
in favor of reinstatement, would require us and our parent companies to revise
the Plan.  Moreover, if reinstatement does not ultimately occur and current
capital market conditions persist, we may not be able to secure adequate new
financing and the cost of new financing would likely be materially
higher.  In addition, as set forth above, a Chapter 11 proceeding is
subject to numerous factors which could interfere with our ability to effectuate
the Plan.





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.





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 resources for marketing, greater and more favorable 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 have provided additional benefits to certain
of our competitors, either through access to financing, resources, or
efficiencies of scale.





Our
principal competitors for video services throughout our territory are DBS
providers.  The two largest DBS providers are DirecTV and
Echostar.  Competition from DBS, including intensive marketing efforts
with aggressive pricing, exclusive programming and increased high definition
broadcasting has had an adverse impact on our ability to retain customers. DBS
has grown rapidly over the last several years.  DBS companies have
also recently announced plans and technical actions to expand their activities
in the multi-dwelling unit (“MDU”) market.  The cable industry,
including us, has lost a significant number of video customers to DBS
competition, and we face serious challenges in this area in the
future.





Telephone
companies, including AT&T and Verizon, and utility companies can offer video
and other services in competition with us, and we expect they will increasingly
do so in the future.  Upgraded portions of these networks carry
two-way video and data services and digital voice services that are similar to
ours.  In the case of Verizon, high-speed data services operate at
speeds as high as or higher than ours.  These services are offered at
prices similar to those for comparable Charter services.  Based on our
internal estimates, we believe that AT&T and Verizon are offering these
services in areas serving approximately 24% to 28% of our estimated homes passed
as of September 30, 2009 and we have experienced increased customer losses in
these areas.  AT&T and Verizon have also launched campaigns to
capture more of the MDU market.  Additional upgrades and product
launches are expected in markets in which we operate. 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.  DSL service is competitive with high-speed Internet service and
is often offered at prices lower than our Internet services, although often at
speeds lower than the speeds we offer.  In addition, in many of our
markets, these companies have entered into co-marketing arrangements with DBS
providers to offer service bundles combining video services provided by a DBS
provider with DSL and traditional telephone and wireless services offered by the
telephone companies and their affiliates.  These service bundles
substantially resemble our bundles.  Moreover, as we expand our
telephone offerings, we will face considerable competition from established
telephone companies and other carriers.


41


The
existence of more than one cable system operating in the same territory is
referred to as an overbuild.  Overbuilds could adversely affect our
growth, financial condition, and results of operations, by creating or
increasing competition.  Based on internal estimates and excluding
telephone companies, as of September 30, 2009, we are aware of traditional
overbuild situations impacting approximately 8% to 9% of our estimated homes
passed, and potential traditional overbuild situations in areas servicing
approximately an additional 1% of our estimated homes
passed.  Additional overbuild situations may occur in other
systems.





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
and install customer premise equipment.  Customers who subscribe to
our services as a result of these offerings may not remain customers following
the end of the promotional period.  A failure to retain customers
could have a material adverse effect on our business.





Mergers,
joint ventures, and alliances among franchised, wireless, or private cable
operators, DBS 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.


In
addition to the various competitive factors discussed above, our business is
subject to risks relating to increasing competition for the leisure and
entertainment time of consumers. Our business competes with all other sources of
entertainment and information delivery, including broadcast television, movies,
live events, radio broadcasts, home video products, console games, print media,
and the Internet.  Technological advancements, such as
video-on-demand, new video formats, and Internet streaming and downloading, have
increased the number of entertainment and information delivery choices available
to consumers, and intensified the challenges posed by audience fragmentation.
The increasing number of choices available to audiences could also negatively
impact advertisers’ willingness to purchase advertising from us, as well as the
price they are willing to pay for advertising.  If we do not respond
appropriately to further increases in the leisure and entertainment choices
available to consumers, our competitive position could deteriorate, and our
financial results could suffer.





We cannot
assure you that the services we provide 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.  The impacts of competition to our revenue growth in 2009 along
with its expected impact to future revenue growth contributed to the franchise
impairment charge of $2.9 billion incurred in the third quarter of 2009.
Competition may further reduce our expected growth of future cash flows and
additional impairments may occur.  We cannot predict the extent to
which competition may affect our business and results of
operations.





Economic
conditions in the United States may adversely impact the growth of our
business.





We
believe that the weakening economic conditions in the United States, including a
continued downturn in the housing market over the past year and increases in
unemployment, have adversely affected consumer demand for our services,
especially premium services, and have contributed to an increase in the number
of homes that replace their traditional telephone service with wireless service
thereby impacting the growth of our telephone business and also had a negative
impact on our advertising revenue.  These conditions have affected our
net customer additions and revenue growth during the first three quarters of
2009, all of which contributed to the franchise impairment charge of $2.9
billion incurred in the third quarter of 2009.  If these conditions do
not improve, we believe the growth of our business and results of operations
will be adversely affected and additional impairments may occur.





For
tax purposes, it is anticipated that Charter will experience a deemed ownership
change upon emergence from Chapter 11 bankruptcy, resulting in a material
limitation on Charter’s future ability to use a substantial amount of Charter’s
existing net operating loss carryforwards.





As of
September 30, 2009, Charter had approximately $8.9 billion of federal tax net
operating losses, resulting in a gross deferred tax asset of approximately $3.1
billion, expiring in the years 2009 through 2028.  In addition, Charter
also has state tax net operating losses, resulting in a gross deferred tax asset
(net of federal tax benefit) of approximately $331 million, generally expiring
in years 2009 through 2028.  Due to uncertainties in projected future
taxable income and the bankruptcy filing, 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.


42


Currently,
such tax net operating losses can accumulate and be used to offset most of
Charter’s future taxable income. However, an “ownership change” as defined in
Section 382 of the Internal Revenue Code of 1986, as amended, would place
significant annual limitations on the use of such net operating losses to offset
future taxable income Charter may generate.  Most notably, the
bankruptcy filing will generate an ownership change upon emergence from Chapter
11 for purposes of Section 382 and Charter’s net operating loss carryforwards
will be reduced by the amount of any cancellation of debt income resulting from
the Plan that is allocable to Charter.  A limitation on Charter’s
ability to use its net operating losses, in conjunction with the net operating
loss expiration provisions, could reduce its ability to use a significant
portion of Charter’s net operating losses to offset any future taxable
income.





Risks Related to Regulatory and Legislative Matters





Increasing
regulation of our Internet service product adversely affect our ability to
provide new products and services.





There has
been continued advocacy by certain Internet content providers and consumer
groups for new federal laws or regulations to adopt so-called “net neutrality”
principles limiting the ability of broadband network owners (like us) to manage
and control their own networks.  In August 2005, the FCC issued a
nonbinding policy statement identifying four principles to guide its
policymaking regarding high-speed Internet and related
services.  These principles provide that consumers are entitled
to:  (i) access lawful Internet content of their choice; (ii) run
applications and services of their choice, subject to the needs of law
enforcement; (iii) connect their choice of legal devices that do not harm the
network; and (iv) enjoy competition among network providers, application and
service providers, and content providers.  In August 2008, the FCC
issued an order concerning one Internet network management practice in use by
another cable operator, effectively treating the four principles as rules and
ordering a change in network management practices.  This decision is
on appeal.  In October 2009, the FCC released a Notice of Proposed
Rulemaking seeking additional comment on draft rules to codify these principles
and to consider further network neutrality requirements.  This Rulemaking
and additional proposals for new legislation could impose additional obligations
on high-speed Internet providers.   Any such rules or statutes could
limit our ability to manage our cable systems (including use for other
services), to obtain value for use of our cable systems and respond to
competitive competitions.





Item
      6.
            Exhibits.





The index
to the exhibits begins on page E-1 of this quarterly report.








43


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, LLCRegistrantBy:
      CHARTER COMMUNICATIONS, INC., Sole ManagerRegistrant








Dated:  November
      12, 2009
            By:
      /s/ Kevin D.
      HowardName:
            Kevin
      D. HowardTitle:
            Vice
      President, Controller andChief
      Accounting Officer


CCO
      HOLDINGS CAPITAL CORP.Registrant


Dated:  November
      12, 2009
            By:
      /s/ Kevin D.
      HowardName:
            Kevin
      D. HowardTitle:
            Vice
      President, Controller andChief
      Accounting Officer














S-1


EXHIBIT INDEX





Exhibit
              Number
            
            Description
      of Document10.1
            
            Form
      of Amendment to Restructuring Agreements (incorporated by reference to
      Exhibit 10.1 to the quarterly report on Form 10-Q of Charter
      Communications, Inc. filed on November 9, 2009 (File
      No. 000-27927)).10.2
            
            Amendment
      to Restructuring Agreement by and among Paul G. Allen, Charter Investment,
      Inc. and Charter Communications, Inc. (incorporated by reference to
      Exhibit 10.2 to the quarterly report on Form 10-Q of Charter
      Communications, Inc. filed on November 9, 2009 (File
      No. 000-27927)).10.3
            
            Form
      of Second Amendment to Restructuring Agreements (incorporated by reference
      to Exhibit 10.3 to the quarterly report on Form 10-Q of Charter
      Communications, Inc. filed on November 9, 2009 (File
      No. 000-27927)).10.4
            
            Second
      Amendment to Restructuring Agreement by and among Paul G. Allen, Charter
      Investment, Inc. and Charter Communications, Inc. (incorporated by
      reference to Exhibit 10.4 to the quarterly report on Form 10-Q
      of Charter Communications, Inc. filed on November 9, 2009 (File
      No. 000-27927)).10.5
            
            Form
      of Third Amendment to Restructuring Agreements (incorporated by reference
      to Exhibit 10.5 to the quarterly report on Form 10-Q of Charter
      Communications, Inc. filed on November 9, 2009 (File
      No. 000-27927)).10.6
            
            Third
      Amendment to Restructuring Agreement by and among Paul G. Allen, Charter
      Investment, Inc. and Charter Communications, Inc. (incorporated by
      reference to Exhibit 10.6 to the quarterly report on Form 10-Q
      of Charter Communications, Inc. filed on November 9, 2009 (File
      No. 000-27927)).10.7
            
            Form
      of Fourth Amendment to Restructuring Agreements (incorporated by reference
      to Exhibit 10.7 to the quarterly report on Form 10-Q of Charter
      Communications, Inc. filed on November 9, 2009 (File
      No. 000-27927)).10.8
            
            Fourth
      Amendment to Restructuring Agreement by and among Paul G. Allen, Charter
      Investment, Inc. and Charter Communications, Inc. (incorporated by
      reference to Exhibit 10.8 to the quarterly report on Form 10-Q
      of Charter Communications, Inc. filed on November 9, 2009 (File
      No. 000-27927)).12.1*
            
            CCO
      Holdings, LLC’s Computation of Ratio of Earnings to Fixed
      Charges.31.1*
            
            Certificate
      of Chief Executive Officer of CCO Holdings, LLC pursuant to Rule
      13a-14(a)/Rule 15d-14(a) under the Securities Exchange Act of
      1934.31.2*
            
            Certificate
      of Chief Financial Officer of CCO Holdings, LLC pursuant to Rule
      13a-14(a)/Rule 15d-14(a) under the Securities Exchange Act of
      1934.32.1*
            
            Certification
      of CCO Holdings, LLC 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
      of CCO Holdings, LLC 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





E-1