Certain 2001 amounts have been reclassified to conform with the 2002 presentation.

The accompanying consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and the rules and regulations of the Securities and Exchange Commission. 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 consolidated financial statements are unaudited. However, in the opinion of management, such statements include all adjustments, which consist of only normal recurring adjustments, necessary for a fair presentation of the results for the periods presented. Interim results are not necessarily indicative of results for a full year.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

During the second and third quarters in 2001, the Company acquired cable systems in two separate transactions for an aggregate purchase price of $1.8 billion. In connection with the acquisitions, the Company paid aggregate cash consideration of $1.7 billion, transferred a cable system valued at $25.1 million, Charter Holdco paid $44.6 million in cash and Charter issued 505,664 shares of Charter Series A Convertible Redeemable Preferred Stock valued at $50.6 million (additional shares of Charter Series A Convertible Redeemable Preferred Stock valued at $5.1 million are to be issued to certain sellers subject to certain holdback provisions of the acquisition agreement). Immediately after the acquisitions, Charter and Charter Holdco contributed the assets to Charter Holdings. The purchase prices were allocated to assets acquired and liabilities assumed based on fair values, including amounts assigned to franchises of $1.4 billion.

On February 28, 2002, CC Systems LLC (CC Systems), a subsidiary of Charter Holdings, and High Speed Access Corp. (HSA) closed the Company's acquisition from HSA of the contracts and associated assets, and assumed related liabilities, that served certain of the Company's high-speed data customers. At closing, CC systems paid $77.5 million in cash and delivered 37,000 shares of HSA's Series D convertible preferred stock and all the warrants to buy HSA common stock owned by Charter Holdco. In addition, HSA purchased 38,000 shares of its Series D convertible preferred stock from Vulcan Ventures. An additional $2.0 million of purchase price was retained to secure indemnity claims. The purchase price was allocated to assets acquired and liabilities assumed based on fair values, including $74.9 million assigned to goodwill. During the period from 1997 to 2000, Charter Holdco entered into Internet-access related service agreements with HSA that were performed by the Company, and both Vulcan Ventures and certain of the Company's subsidiaries made equity investments in HSA.

In April 2002, Interlink Communications Partners, LLC, Rifkin Acquisition Partners, LLC and Charter Communications Entertainment I, LLC (CCE I), each an indirect, wholly-owned subsidiary of Charter Holdings, completed the purchase of certain assets of Enstar Income Program II-2, L.P., Enstar Income Program IV-3, L.P., Enstar/Growth Program Six-A, L.P., Enstar Cable of Macoupin County and Enstar IV/PBD Systems Venture, serving in the aggregate approximately 21,600 customers, for a total cash purchase price of approximately $48.3 million. Enstar Communications Corporation, a direct subsidiary of Charter Holdco, is the general partner of the Enstar limited partnerships. The purchase price was allocated to assets acquired based on fair values, including $37.9 million assigned to franchises.

The transactions described above were accounted for using the purchase method of accounting, and, accordingly, the results of operations of the acquired assets and assumed liabilities have been included in the consolidated financial statements from their respective dates of acquisition. The purchase prices were allocated to assets and liabilities assumed based on fair values. The allocation of the purchase price for the 2002 acquisitions is based, in part, on preliminary information, which is subject to adjustment upon obtaining complete valuation information. Management believes that finalization of the allocation of the purchase prices will not have a material impact on the consolidated results of operations or financial position of the Company.

Also, in April 2002, CCE I entered into an agreement to purchase all of Enstar Income Program II-1, L.P.'s Illinois cable television systems, serving approximately 6,400 customers, for a total cash purchase price of approximately $14.7 million. Closing of the purchase is subject to purchase price adjustments, regulatory approvals, customary closing conditions and approval by the limited partners of Enstar Income Program II-1, L.P. It is expected that this acquisition will close in the third quarter of 2002, although no assurance can be given regarding this matter. Enstar Communications Corporation, a direct subsidiary of Charter Holdco, is the general partner of Enstar Income Program II-1, L.P.

The summarized operating results of the Company that follow are presented on a pro forma basis as if the following had occurred on January 1, 2001 (dollars in thousands): all significant acquisitions and dispositions completed during 2001 and the first half of 2002, the issuance of Charter Holdings senior notes and senior discount notes in January 2002 and 2001, the issuance of Charter Holdings senior notes and senior discount notes in May 2001, and contribution of the net proceeds contributed to Charter Holdings from the issuance of and sale by Charter of convertible senior notes and Class A common stock in May 2001. Adjustments have been made to give effect to amortization of franchises acquired prior to July 1, 2001, interest expense, minority interest, and certain other adjustments.

The unaudited pro forma financial information does not purport to be indicative of the consolidated results of operations had these transactions been completed as of the assumed date or which may be obtained in the future. Information regarding debt transactions which occurred during 2001 is included in the Company's 2001 Annual Report on Form 10-K.

In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142, among other things, eliminates the amortization of goodwill and indefinite-lived intangible assets. The Company has sufficiently upgraded the technological state of its cable systems and now has sufficient experience with the local franchise authorities where it acquired franchises to conclude that substantially all of its franchises will be renewed indefinitely.

On January 1, 2002, the Company adopted SFAS No. 142. Accordingly, beginning January 1, 2002, all franchises that qualify for indefinite life treatment under SFAS No. 142 are no longer amortized against earnings and will be tested for impairment annually, or more frequently as warranted by events or changes in circumstances. During the first quarter of 2002, the Company had an independent appraisal performed to determine the valuations of its franchises as of January 1, 2002. Franchises were aggregated into essentially inseparable reporting units to conduct the valuations. The appraisal determined that the fair value of each of the Company's reporting units exceeded their carrying amount. As a result, no impairment charge was recorded upon adoption.

As discussed in Note 3, in February 2002, the Company closed on its asset purchase agreement with HSA to acquire certain contracts and associated assets and assume related liabilities. As a result of this transaction, the Company recorded goodwill totaling $74.9 million, which is reported as a component of other assets on the consolidated balance sheet. Also, in April 2002, the Company closed on its asset purchase agreement to acquire certain assets of Enstar Income Program II-2, L.P., Enstar Income Program IV-3, L.P., Enstar/Growth Program Six-A, L.P., Enstar Cable of Macoupin County and Enstar IV/PBD Systems Venture. As a result of these transactions, the Company recorded franchise costs of $37.9 million.

The effect of the adoption of SFAS No. 142 as of June 30, 2002 and December 31, 2001 is presented in the following table (dollars in thousands):

                                              June 30, 2002                           December 31, 2001
                                ----------------------------------------  ----------------------------------------
                                   Gross                        Net          Gross                        Net
                                  Carrying    Accumulated    Carrying       Carrying    Accumulated     Carrying
                                   Amount     Amortization     Amount        Amount     Amortization     Amount
                                ------------  ------------  ------------  ------------  ------------  ------------
  Indefinite-lived
  intangible assets:
     Franchises with
      indefinite lives........ $ 20,265,994  $  3,173,206  $ 17,092,788  $ 20,228,098  $  3,173,206  $ 17,054,892
     Goodwill.................       74,861            --        74,861            --            --            --
                                ------------  ------------  ------------  ------------  ------------  ------------
                               $ 20,340,855  $  3,173,206  $ 17,167,649  $ 20,228,098  $  3,173,206  $ 17,054,892
                                ============  ============  ============  ============  ============  ============
  Finite-lived
  intangible assets:
     Franchises with
         finite lives......... $    101,701  $     19,404  $     82,297  $     99,060  $     15,178  $     83,882
                                ============  ============  ============  ============  ============  ============

Franchise amortization expense for the six months ended June 30, 2002 was $4.2 million, which represents the amortization relating to franchises that did not qualify for indefinite-life treatment under SFAS No. 142 and costs associated with franchise renewals. Certain franchises did not qualify for indefinite-life treatment due to technological or operational factors that limit their lives. These costs will be amortized on a straight-line basis over 10 years, which represents management's best estimate of the remaining lives of such franchises. For each of the next five years, amortization expense relating to these franchises is expected to be approximately $8.5 million.

As required by SFAS No. 142, the standard has not been retroactively applied to the results for the period prior to adoption. A reconciliation of net loss for the three and six months ended June 30, 2002 and 2001, respectively, as if SFAS No. 142 had been adopted as of January 1, 2001, is presented below (dollars in thousands):

                                                                               Three Months Ended             Six Months Ended
                                                                                    June 30,                      June 30,
                                                                           ----------------------------  ----------------------------
                                                                               2002         2001             2002         2001
                                                                           -----------  ---------------  -----------  ---------------
NET LOSS:
   Reported net loss..................................................... $  (416,958)        (627,345) $  (766,505) $    (1,299,962)
   Add back: amortization of indefinite-lived franchises.................          --          314,334           --          630,115
                                                                           -----------  ---------------  -----------  ---------------
      Adjusted net loss.................................................. $  (416,958)        (313,011) $  (766,505) $      (669,847)
                                                                           ===========  ===============  ===========  ===============

Long-term debt consists of the following as of June 30, 2002 and December 31, 2001 (dollars in thousands):

                                                                                 June 30, 2002               December 31, 2001
                                                                           ----------------------------  ----------------------------
                                                                           Face Value   Accreted Value   Face Value   Accreted Value
                                                                           -----------  ---------------  -----------  ---------------
LONG-TERM DEBT:
   Charter Holdings:
      March 1999
         8.250% senior notes due 2007.................................... $   600,000  $       599,057  $   600,000  $       598,957
         8.625% senior notes due 2009....................................   1,500,000        1,496,931    1,500,000        1,496,702
         9.920% senior discount notes due 2011...........................   1,475,000        1,245,251    1,475,000        1,186,726
      January 2000
         10.000% senior notes due 2009...................................     675,000          675,000      675,000          675,000
         10.250% senior notes due 2010...................................     325,000          325,000      325,000          325,000
         11.750% senior discount notes due 2010..........................     532,000          398,044      532,000          376,073
      January 2001
         10.750% senior notes due 2009...................................     900,000          899,352      900,000          899,307
         11.125% senior notes due 2011...................................     500,000          500,000      500,000          500,000
         13.500% senior discount notes due 2011..........................     675,000          425,044      675,000          398,308
      May 2001
         9.625% senior notes due 2009....................................     350,000          350,000      350,000          350,000
         10.000% senior notes due 2011...................................     575,000          575,000      575,000          575,000
         11.750% senior discount notes due 2011..........................   1,018,000          654,233    1,018,000          618,129
      January 2002
         9.625% senior notes due 2009....................................     350,000          347,697           --               --
         10.000% senior notes due 2011...................................     300,000          297,801           --               --
         12.125% senior discount notes due 2012..........................     450,000          263,683           --               --
   Renaissance Media Group LLC:
      10.000% senior discount notes due 2008.............................     114,413          108,373      114,413          103,566
   CC V Holdings, LLC:
      11.875% senior discount notes due 2008.............................     179,750          154,260      179,750          146,292
   Other long-term debt..................................................       1,144            1,144        1,313            1,313
CREDIT FACILITIES:
   Charter Operating.....................................................   4,273,736        4,273,736    4,145,000        4,145,000
   CC VI Operating.......................................................     875,000          875,000      901,000          901,000
   Falcon Cable Communications...........................................     630,500          630,500      582,000          582,000
   CC VIII Operating.....................................................   1,094,751        1,094,751    1,082,000        1,082,000
                                                                           -----------  ---------------  -----------  ---------------
                                                                          $17,394,294  $    16,189,857  $16,130,476  $    14,960,373
                                                                           ===========  ===============  ===========  ===============

The accreted values presented above represent the face value of the notes less the original issue discount at the time of sale plus the accretion to date of such discount.

The following additions or modifications occurred relative to the Company's long-term debt since January 1, 2002:

JANUARY 2002 CHARTER HOLDINGS NOTES. In January 2002, Charter Holdings and Charter Communications Holding Capital Corporation (Charter Capital), issued $1.1 billion in aggregate principal amount at maturity of senior notes and senior discount notes. The January 2002 Charter Holdings notes consisted of $350.0 million in aggregate principal amount of 9.625% senior notes due 2009, $300.0 million in aggregate principal amount of 10.000% senior notes due 2011 and $450.0 million in aggregate principal amount at maturity of 12.125% senior discount notes due 2012. The net proceeds of approximately $872.8 million were used to repay a portion of the amounts outstanding under the revolving credit facilities of the Company's subsidiaries.

The 9.625% senior notes are not redeemable prior to maturity. Interest is payable semi-annually in arrears on May 15 and November 15, beginning May 15, 2002, until maturity.

The 10.000% senior notes are redeemable at the option of the issuers at amounts decreasing from 105.000% to 100% of par value plus accrued and unpaid interest beginning on May 15, 2006, to the date of redemption. At any time prior to May 15, 2004, the issuers may redeem up to 35% of the aggregate principal amount of the 10.000% senior notes at a redemption price of 110.000% of the principal amount under certain conditions. Interest is payable semi- annually in arrears on May 15 and November 15, beginning May 15, 2002, until maturity.

The 12.125% senior discount notes are redeemable at the option of the issuers at amounts decreasing from 106.063% to 100% of accreted value beginning January 15, 2007. At any time prior to January 15, 2005, the issuers may redeem up to 35% of the aggregate principal amount of the 12.125% senior discount notes at a redemption price of 112.125% of the accreted value under certain conditions. Cash interest is payable semi-annually in arrears on January 15 and July 15 beginning July 15, 2007, until maturity. The discount on the 12.125% senior discount notes is being accreted using the effective interest method.

CC VIII OPERATING CREDIT FACILITIES. The CC VIII Operating, LLC (CC VIII Operating) credit facilities were amended and restated on January 3, 2002 and provided for borrowings of up to $1.55 billion, which were reduced to $1.52 billion as of June 30, 2002. The CC VIII Operating credit facilities provide for three term facilities, two Term A facilities with an aggregate principal amount of $475.0 million, which reduce quarterly beginning March 2002, that mature in June 2007, and a Term B facility with a principal amount of $497.5 million, which reduces quarterly beginning March 2002, that matures in February 2008. The CC VIII Operating credit facilities also provide for two reducing revolving credit facilities, in the aggregate amount of $548.6 million, which reduce quarterly beginning in June 2002 and September 2005, respectively, with maturity dates in June 2007. At the option of the lenders, supplemental facilities in the amount of $300.0 million may be available. Amounts under the CC VIII Operating credit facilities bear interest at the base rate or the Eurodollar rate, as defined, plus a margin of up to 2.75% for Eurodollar loans and up to 1.75% for base rate loans. A quarterly commitment fee of between 0.25% and 0.375% is payable on the unborrowed balance of the revolving credit facilities.

In January 2002, the Company repaid $107.0 million under the revolving portion of the CC VIII Operating credit facilities with proceeds from the issuance of the January 2002 Charter Holdings notes. As of June 30, 2002, outstanding borrowings were $1,094.8 million, and unused availability was $426.3 million.

CHARTER OPERATING CREDIT FACILITIES. The Charter Communications Operating, LLC (Charter Operating) credit facilities were amended and restated on January 3, 2002 to provide for borrowings of up to $5.2 billion and provide for four term facilities: two Term A facilities with an aggregate principal amount of $1.11 billion that mature in September 2007, each with different amortization schedules, one beginning in June 2002 and one beginning in September 2005; and two Term B facilities with an aggregate principal amount of $2.75 billion, of which $1.85 billion matures in March 2008 and $900.0 million matures in September 2008. The Charter Operating credit facilities also provide for two revolving credit facilities, in an aggregate amount of $1.34 billion, which will reduce annually beginning in March 2004 and September 2005, with a maturity date in September 2007. At the option of the lenders, supplemental credit facilities in the amount of $100.0 million may be available. Amounts under the Charter Operating credit facilities bear interest at the Base Rate or the Eurodollar rate, as defined, plus a margin of up to 2.75% for Eurodollar loans and 1.75% for base rate loans. A quarterly commitment fee of between 0.25% and 0.375% per annum is payable on the unborrowed balance of the revolving credit facilities.

In January 2002, the Company repaid $465.0 million under the revolving portion of the Charter Operating credit facilities with proceeds from the issuance of the January 2002 Charter Holdings notes. As of June 30, 2002, outstanding borrowings were approximately $4,273.7 million and unused availability was $918.0 million.

Investments in equity securities are accounted for at cost, under the equity method of accounting or in accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Charter recognizes losses for any decline in value considered to be other than temporary. Certain marketable equity securities are classified as available-for- sale and reported at market value with unrealized gains and losses recorded as accumulated other comprehensive loss on the accompanying consolidated balance sheets. The Company reports changes in the fair value of interest rate agreements designated as hedging instruments of the variability of cash flows associated with floating-rate debt obligations, that meet the effectiveness criteria of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," in accumulated other comprehensive loss. Comprehensive loss for the three months ended June 30, 2002 and 2001 was $445.1 million and $619.6 million, respectively. Comprehensive loss for the six months ended June 30, 2002 and 2001 was $776.9 million and $1.3 billion, respectively.

The Company uses interest rate risk management derivative instruments, such as interest rate swap agreements and interest rate collar agreements (collectively referred to herein as interest rate agreements) as required under the terms of its credit facilities. The Company's policy is to manage interest costs using a mix of fixed and variable rate debt. Using interest rate swap agreements, the Company agrees to exchange, at specified intervals through 2006, the difference between fixed and variable interest amounts calculated by reference to an agreed-upon notional principal amount. Interest rate collar agreements are used to limit the Company's exposure to and benefits from interest rate fluctuations on variable rate debt to within a certain range of rates.

The Company has certain interest rate derivative instruments that have been designated as cash flow hedging instruments. Such instruments are those which effectively convert variable interest payments on debt instruments into fixed payments. For qualifying hedges, derivative gains and losses are offset against related results on hedged items in the consolidated statement of operations. The Company has formally documented, designated and assessed the effectiveness of transactions that receive hedge accounting. For the three and six months ended June 30, 2002, other expense includes losses of $3.6 million and $5.1 million, respectively, which represent cash flow hedge ineffectiveness on interest rate hedge agreements arising from differences between the critical terms of the agreements and the related hedged obligations. For the three and six months ended June 30, 2001, other expense included losses of $2.0 million and $4.3 million, respectively, which represent cash flow hedge ineffectiveness on interest rate hedge agreements arising from differences between the critical terms of the agreements and the related hedged obligations. Changes in the fair value of interest rate agreements designated as hedging instruments of the variability of cash flows associated with floating-rate debt obligations are reported in accumulated other comprehensive loss on the accompanying consolidated balance sheets. As of June 30, 2002 and 2001, a loss of $29.0 million and $4.2 million, respectively, related to derivative instruments designated as cash flow hedges was recorded in accumulated other comprehensive loss and minority interest. The amounts are subsequently reclassified into interest expense as a yield adjustment in the same period in which the related interest on the floating-rate debt obligations affects earnings or losses.

Certain interest rate derivative instruments are not designated as hedges as they do not meet the effectiveness criteria specified by SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities." However, management believes such instruments are closely correlated with the respective debt, thus managing associated risk. Interest rate derivative instruments not designated as hedges are marked to fair value with the impact recorded as other income or expense. For the three and six months ended June 30, 2002, the Company recorded other expense of $59.2 million and $24.5 million, respectively, for interest rate derivative instruments not designated as hedges. For the three and six months ended June 30, 2001, the Company recorded other income of $10.8 million and other expense of $13.3 million (including $23.9 million in the six months ended June 30, 2001 for the loss on cumulative effect of adopting SFAS No. 133), respectively, for interest rate derivative instruments not designated as hedges.

As of June 30, 2002 and December 31, 2001, the Company had outstanding $3.6 billion and $3.3 billion, and $520.0 million and $520.0 million, respectively, in notional amounts of interest rate swaps and collars, respectively. The notional amounts of interest rate instruments do not represent amounts exchanged by the parties and, thus, are not a measure of exposure to credit loss. The amounts exchanged are determined by reference to the notional amount and the other terms of the contracts.

Accounts payable and accrued expenses consist of the following as of June 30, 2002 and December 31, 2001:

                                        June 30, 2002     December 31, 2001
                                      ------------------  ------------------


Accounts payable.................... $           96,190  $          286,800
Capital expenditures................            110,036             177,971
Accrued interest....................            245,583             233,174
Programming costs...................            175,166             133,748
Accrued general and administrative..            173,892              97,672
Franchise fees......................             59,926              61,902
Other accrued expenses..............            208,339             280,619
                                      ------------------  ------------------
                                     $        1,069,132  $        1,271,886
                                      ==================  ==================

Revenues consist of the following for the three and six months ended June 30, 2002 and 2001 (dollars in millions):

                                      Three Months              Six Months
                                    Ended June 30,            Ended June 30
                               ------------------------  ------------------------
                                  2002         2001         2002         2001
                               ------------ -----------  ------------ -----------

Analog video................. $     776.9  $     666.7  $   1,531.5  $   1,316.1
Digital video................       117.6         68.2        221.3        123.2
Cable modem..................        83.4         32.9        150.7         58.0
Advertising sales............        90.4         64.5        149.9        120.2
Other........................        90.1         96.2        183.3        184.8
                               -----------  -----------  -----------  -----------
                              $   1,158.4  $     928.5  $   2,236.7  $   1,802.3
                               ===========  ===========  ===========  ===========

Operating expenses consist of the following for the three and six months ended June 30, 2002 and 2001 (dollars in millions):

                                      Three Months              Six Months
                                    Ended June 30,            Ended June 30
                               ------------------------  ------------------------
                                  2002         2001         2002         2001
                               ------------ -----------  ------------ -----------
Analog video programming..... $     266.0  $     211.8  $     527.6  $     422.2
Digital video................        40.8         24.1         75.9         44.7
Cable modem..................        39.0         20.4         73.9         38.1
Advertising sales............        21.4         13.7         40.6         28.9
Service costs................        53.4         44.1        104.6         86.1
                               -----------  -----------  -----------  -----------
                              $     420.6  $     314.1  $     822.6  $     620.0
                               ===========  ===========  ===========  ===========

Selling, general and administrative expenses consist of the following for the three and six months ended June 30, 2002 and 2001 (dollars in millions):

                                      Three Months              Six Months
                                    Ended June 30,            Ended June 30
                               ------------------------  ------------------------
                                  2002         2001         2002         2001
                               ------------ -----------  ------------ -----------
General and administrative... $     195.0  $     153.7  $     387.8  $     303.3
Marketing....................        25.1         18.6         43.9         35.3
                               -----------  -----------  -----------  -----------
                              $     220.1  $     172.3  $     431.7  $     338.6
                               ===========  ===========  ===========  ===========

The Company is party to lawsuits and claims that arose in the ordinary course of conducting its business. In the opinion of management, after consulting with legal counsel, and taking into account recorded liabilities, the outcome of these lawsuits and claims will not have a material adverse effect on the Company's consolidated financial position or results of operations.

The Company has historically accounted for stock-based compensation in accordance with Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations, as permitted by SFAS No. 123, "Accounting for Stock-Based Compensation." On July 1, 2002, the Company will adopt the fair value measurement provisions of SFAS No. 123 under which the Company will recognize compensation expense of a stock-based award to an employee over the vesting period based on the fair value of the award on the grant date. Adoption of these provisions will result in utilizing a preferable accounting method as the consolidated financial statements will present the estimated fair value of stock-based compensation in expense consistently with other forms of compensation and other expense associated with goods and services received for equity instruments. In accordance with SFAS No. 123, the fair value method will be applied only to awards granted or modified after January 1, 2002, whereas awards granted prior to such date will continue to be accounted for under APB No. 25, unless they are modified or settled in cash. Management believes the adoption of these provisions will not have a material impact on the consolidated results of operations or financial position of the Company.

                                                                                          Pro Forma
                                                                             June 30,      June 30,
                                                                               2002        2001 (a)
                                                                           -----------  ---------------
Video services:
   Basic analog video:
      Basic homes passed  (b)............................................  11,800,700       11,481,500
      Basic customers  (c)...............................................   6,783,900        6,969,900
      Penetration of basic homes passed  (d).............................        57.5%            60.7%
   Digital video:
      Digital homes passed  (b)..........................................  11,222,500       10,042,500
      Digital customers  (e).............................................   2,380,500        1,701,500
      Penetration of digital homes passed  (d)...........................        21.2%            16.9%
      Penetration of basic customers (f).................................        35.1%            24.4%
      Digital converters deployed........................................   3,305,300        2,100,400

Data services:
   Cable modem homes passed  (b).........................................   8,795,200        6,399,000
   Data customers:
      Cable modem customers  (g).........................................     905,500          405,400
      Dial-up customers..................................................      18,600           40,300
                                                                           -----------  ---------------
         Total data customers............................................     924,100          445,700
                                                                           ===========  ===============
   Penetration of cable modem homes passed  (d)..........................        10.3%             6.3%

Revenue Generating Units:
   Basic customers  (c)..................................................   6,783,900        6,969,900
   New services customers (digital video and cable modem) (e) (g)........   3,286,000        2,106,900
                                                                           -----------  ---------------
      Total revenue generating units.....................................  10,069,900        9,076,800
                                                                           ===========  ===============

1. The pro forma statistics reflect all significant acquisitions and dispositions closed during 2002 and 2001 as if such transactions had occurred on January 1, 2001.

2. Homes passed are the number of living units, such as single residence homes, apartments and condominium units, passed by the cable television distribution network in a given cable system service area to which we offer the service indicated.

3. As of June 30, 2002 and 2001, basic customers include: 1) approximately 43,800 and 18,000 (0.6% and 0.3% of total customers), respectively, customers who pay an additional $10 per month over the standard modem retail rate and are entitled to receive "lifeline basic" service as a result of their purchase of cable modem service and 2) approximately 217,800 and 218,500, respectively, commercial customers who are calculated on an equivalent bulk unit ("EBU") basis. EBU is calculated by dividing the bulk rate charged to respective accounts by the most prevalent rate charged in each system for the comparable tier of service to determine the equivalent customers. The EBU method of calculating basic customers is consistent with the methodology used in determining costs paid to programmers and has been consistently applied year over year.

4. Penetration represents the number of customers as a percentage of homes passed.
5. Digital customers include all households that have one or more digital converter boxes. Included in digital customers at June 30, 2002 and 2001 are 11,900 and 0, respectively, customers that receive digital service directly through satellite transmission.
6. Penetration of basic customers represents the number of digital customers as a percentage of basic customers.

7. As of June 30, 2002 and 2001, cable modem customers include approximately 75,300 and 28,000, respectively, commercial customers who are calculated on an equivalent modem unit ("EMU") basis. EMU is calculated by dividing commercial revenue by the average effective rate charged in each system for modem services to determine the equivalent customers. We have utilized this methodology since 1999, as it conforms to the internal practices followed for operating and capital expenditure budgeting.

ACQUISITIONS

The following table presents information on acquisitions since January 1, 2001:

                                                                 Purchase Price         Net
                                                                 Including Debt      Acquired
                                                 Month/Year of      Assumed            Basic
                                                  Acquisition    (in millions)       Customers
                                                 -------------  ----------------    -----------
AT&T Broadband Systems.........................         6/01   $          1,736        551,100
Cable USA......................................         8/01                100 (a)     30,600
                                                                ----------------    -----------
  Total during 2001............................                           1,836        581,700
                                                                ----------------    -----------

High-Speed Access..............................         2/02                 78             --
Enstar Limited Partnership Systems.............         4/02                 48         21,600
                                                                ----------------    -----------
   Total during 2002...........................                             126         21,600
                                                                ----------------    -----------
     Total.....................................                $          1,962        603,300
                                                                ================    ===========

1. In connection with this transaction we acquired all of the outstanding stock of Cable USA and the assets of related affiliates in exchange for 505,664 shares of Charter Communications, Inc. Series A Convertible Redeemable Preferred Stock valued at approximately $50.6 million, additional shares of Charter Communications Inc. Series A Convertible Redeemable Preferred Stock valued at $5.1 million to be issued to certain sellers subject to certain holdback provisions, and approximately $44.6 million in cash paid by Charter Communications Holding Company.

On February 28, 2002, CC Systems LLC, a subsidiary of Charter Communications Holdings, purchased from High Speed Access the contracts and associated assets, and assumed related liabilities, that serve our customers, including a customer contact center, network operations center and provisioning software. At the closing, CC Systems paid $77.5 million to High Speed Access and delivered 37,000 shares of High Speed Access Series D convertible preferred stock and all of the warrants to buy High Speed Access common stock owned by Charter Communications Holding Company. In addition, High Speed Access purchased 38,000 shares of its Series D Preferred Stock from Vulcan Ventures Incorporated for $8.0 million. To secure indemnity claims against High Speed Access under the asset purchase agreement, $2.0 million of the purchase price was retained. Additional purchase price adjustments may be made as provided in the asset purchase agreement. Charter Communications Holding Company obtained a fairness opinion from a qualified investment-banking firm regarding the valuation of the assets purchased by CC Systems pursuant to the asset purchase agreement. Concurrently with the closing of the transaction, High Speed Access purchased all of its common stock held by Vulcan Ventures, and certain of the agreements between Charter Communications Holding Company and High Speed Access, including the programming content agreement, the services agreement, the systems access agreement, the 1998 network services agreement and the May 2000 network services agreement were terminated. The results of operations of the acquired assets and assumed liabilities have been included in the consolidated financial statements from the date of acquisition.

In April 2002, Interlink Communications Partners, LLC, Rifkin Acquisition Partners, LLC and Charter Communications Entertainment I, LLC, each an indirect, wholly-owned subsidiary of Charter Communications Holdings, completed the cash purchase of certain assets of Enstar Income Program II-2, L.P., Enstar Income Program IV-3, L.P., Enstar/Growth Program Six-A, L.P., Enstar Cable of Macoupin County and Enstar IV/PBD Systems Venture, serving in the aggregate approximately 21,600 customers, for a total cash sale price of approximately $48.3 million. Enstar Communications Corporation, a direct subsidiary of Charter Communications Holding Company, is the general partner of the Enstar limited partnerships.

Also, in April 2002, Charter Communications Entertainment I, LLC, an indirect subsidiary of Charter Communications Holdings, entered into an agreement to purchase all of Enstar Income Program II-1, L.P.'s Illinois cable television systems, serving approximately 6,400 customers, for a total sale price of approximately $14.7 million. Closing of the purchase is subject to purchase price adjustments, regulatory approvals, customary closing conditions and approval by the limited partners of Enstar Income Program II-1, L.P. It is expected that this acquisition will close in the third quarter of 2002, although no assurance can be given regarding this matter. Enstar Communications Corporation, a direct subsidiary of Charter Communications Holding Company, is the general partner of Enstar Income Program II-1, L.P.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We evaluate our estimates and assumptions on an ongoing basis based on a combination of historical information and various other assumptions that are believed to be reasonable under the particular circumstances. Actual results may differ from these estimates based on different assumptions or conditions. We believe that certain of the accounting policies that most impact our consolidated financial statements and that require our management to make difficult, subjective or complex judgments are described below. This should be read in conjunction with the Management's Discussion and Analysis of Financial Condition and Results of Operations and footnote 2, "Summary of Significant Accounting Policies", in our consolidated financial statements included in our December 31, 2001 Form 10-K.

INVESTMENT IN CABLE PROPERTIES. Our investment in cable properties represents a significant portion of our total assets. Investment in cable properties totaled $24.3 billion and $24.1 billion, representing approximately 97.4% and 97.5% of total assets, at June 30, 2002 and December 31, 2001, respectively. Investment in cable properties includes property, plant and equipment and franchises. Our investment in cable properties has continued to grow over the past several years as we have completed numerous acquisitions of other cable systems and increased capital expenditures to upgrade, rebuild and expand our cable systems. See "Liquidity and Capital Resources - Capital Expenditures" for details of our capital expenditures.

Property, Plant and Equipment. Property, plant and equipment, net, totaled $7.1 billion and $7.0 billion, representing approximately 28.6% and 28.1% of total assets, at June 30, 2002 and December 31, 2001, respectively. Property, plant and equipment are recorded at cost, including all direct and certain indirect costs associated with the construction of cable transmission and distribution facilities, plant enhancements and the cost of new customer installations. Costs capitalized as part of new customer installations include materials, subcontractor costs, internal direct labor costs, including service technicians and customer care representatives and internal overhead costs incurred to connect the customer to the plant from the time of installation scheduling through the time service is activated and functioning. We capitalize incremental and customer contract acquisition costs to the extent realizable from future revenues. The overhead rates established are based on a combination of internal company-wide overhead analysis and internal time and motion studies of specific activities. These studies are updated to adjust for changes in facts and circumstances. Overhead rates, which include payroll taxes and other employee benefits, range from 45% to 90% of direct costs, which consist primarily of salaries. Capitalized internal payroll costs for the three and six months ended June 30, 2002 and 2001 were $59.7 million and $118.5 million, respectively, and $49.2 million and $95.5 million, respectively. Related capitalized overhead for the three and six months ended June 30, 2002 and 2001 were $50.6 million and $99.2 million, respectively, and $44.3 million and $86.0 million, respectively. The costs of disconnecting and reconnecting a customer are charged to expense in the period incurred. Expenditures for repairs and maintenance are charged to operating expense as incurred, while equipment replacements and betterments, including the replacement of drops, are capitalized.

Depreciation expense related to property, plant and equipment totaled $974.9 million and $762.0 million, representing approximately 43.0% and 31.6% of operating expenses, for the six months ended June 30, 2002 and 2001, respectively. Depreciation is recorded using the straight-line method over management's estimate of the useful lives of the related assets primarily as follows:

Cable distribution systems		10-15 years
Customer equipment and installations		3-5 years
Vehicles and equipment		3-5 years
Buildings and leasehold improvements		5-15 years
Furniture and fixtures		5 years

         

Since January 1, 2000, our practice has been to assess the remaining useful lives of certain depreciable assets scheduled for retirement as part of the rebuild and upgrade of our cable distribution systems and modify or shorten the depreciable lives of the assets as appropriate. Based on these assessments, when appropriate, we reduce the estimated useful lives of certain depreciable assets expected to be abandoned as a result of the rebuild and upgrade. As a result, an additional $267.7 million and $272.7 million of depreciation expense was recorded during the six months ended June 30, 2002 and 2001, respectively. We also periodically evaluate the estimated useful lives used to depreciate our assets and the estimated amount of assets that will be abandoned or have minimal use in the future. While we believe our estimates of useful lives are reasonable, significant differences in actual experience or significant changes in our assumptions may materially affect future depreciation expense.

Franchises. Franchises grant us the right to operate a cable television distribution network in a community. Costs incurred to obtain and renew cable franchises are deferred. The value of the franchise rights acquired through the purchase of cable systems represent management's estimate of fair value of the franchise acquired. Franchises totaled $17.2 billion and $17.1 billion at June 30, 2002 and December 31, 2001, representing approximately 68.8% and 69.3% of total assets, respectively. On January 1, 2002, we adopted Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets." Upon adoption of SFAS No. 142, franchises determined to have indefinite lives are no longer amortized, but instead tested at least annually for impairment. There was no impairment of indefinite-lived franchises upon adoption of SFAS No. 142. We do not believe that any events have occurred or circumstances changed that would cause an impairment. Prior to adoption, franchise costs were amortized using the straight-line method over a period of 15 years which represented management's best estimate of the useful lives of the franchises and assumed that substantially all of those franchises that expired during the period would be renewed, although not indefinitely. Because substantially all of our franchises rights had been acquired in the past several years, we did not have sufficient experience with the local franchise authorities to conclude that renewals of franchises could be accomplished indefinitely. In addition, because the technological state of our cable systems, with many systems with less than 550 megahertz bandwidths, could have resulted in demands from local franchise authorities to upgrade those systems sooner than previously planned, there was a risk that the franchises would not be renewed.

We believe that facts and circumstances have changed to enable us to conclude that substantially all of our franchises will be renewed indefinitely, with some portion of the franchises continuing to be amortized. We have sufficiently upgraded the technological state of our cable systems and now have sufficient experience with the local franchise authorities where we acquired franchises to conclude that substantially all of our franchises will be renewed indefinitely.

Franchise amortization expense for the six months ended June 30, 2002 was $4.2 million, which represents the amortization relating to franchises that did not qualify for indefinite-life treatment under SFAS No. 142 and costs associated with the renewal of franchises. We expect these costs to be approximately $8.5 million annually. Certain franchises, representing less than one percent of total franchises, did not qualify for indefinite-life treatment due to technological or operational factors that limit their lives. These costs will be amortized on a straight-line basis over 10 years, which represents management's best estimate of the remaining lives of such franchises.

VALUATION OF LONG-LIVED ASSETS. We evaluate the recoverability of long-lived assets, including property, plant and equipment and franchises, for impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Such events or changes in circumstances could include such factors as changes in technological advances, fluctuations in the fair value of such assets or adverse changes in relationships with local franchise authorities. If a review indicates that the carrying value of such asset is not recoverable based on projected undiscounted net cash flows related to the asset over its remaining life, the carrying value of such asset is reduced to its estimated fair value. While we believe that our estimates of future cash flows are reasonable, different assumptions regarding such cash flows could materially affect our evaluations.

LAUNCH REVENUES. We receive launch incentives from certain programmers related to the broadcasting of new cable television channels. For the six months ended June 30, 2002 and 2001, launch incentives totaled $20.8 million and $42.2 million, respectively. Launch revenues are recognized to the extent of the fair value of the advertising services provided to promote the new channels. These advertising services are provided through cross-channel advertising. Such revenues are classified as advertising revenues and totaled $15.3 million and $33.9 million for the six months ended June 30, 2002 and 2001, respectively. For the six months ended June 30, 2002 and 2001, we amortized and recorded as a reduction of programming costs $5.1 million and $5.3 million, respectively. As of June 30, 2002 and December 31, 2001, the unamortized portion of the deferred payments from programmers were $74.6 million and $78.9 million, respectively, and is included in other long-term liabilities in the accompanying consolidated balance sheets.

 

RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2002 COMPARED TO THREE MONTHS ENDED JUNE 30, 2001

The following table presents the percentages of revenues that items in the accompanying consolidated statements of operations constitute for the periods presented (dollars in millions) and do not include the operating results of the AT&T Broadband systems acquired on June 30, 2001 for the three months ended June 30, 2001:

                                                                 Three Months Ended June 30,
                                                       --------------------------------------------
                                                                2002                    2001
                                                       ---------------------   --------------------
Revenues............................................. $  1,158.4      100.0 % $   928.5      100.0 %
                                                       ----------  ---------   ---------  ---------
Operating expenses:
  Operating (excluding those items listed below).....      420.6       36.3 %     314.1       33.8 %
  Selling, general and administrative................      220.1       19.0 %     172.3       18.6 %
  Depreciation and amortization......................      492.2       42.5 %     723.0       77.9 %
  Option compensation expense........................        0.5        0.0 %       4.9        0.5 %
  Corporate expenses.................................       16.6        1.4 %      14.0        1.5 %
                                                       ----------  ---------   ---------  ---------
                                                         1,150.0       99.3 %   1,228.3      132.3 %
                                                       ----------  ---------   ---------  ---------
      Income (loss) from operations..................        8.4        0.7 %    (299.8)     (32.3)%
                                                       ----------              ---------
Other income (expense):
  Interest expense, net..............................     (356.8)                (302.1)
  Other expense......................................      (65.3)                 (22.2)
                                                       ----------              ---------
                                                          (422.1)                (324.3)
                                                       ----------              ---------
      Loss before minority interest..................     (413.7)                (624.1)
Minority interest....................................       (3.3)                  (3.2)
                                                       ----------              ---------
      Net loss....................................... $   (417.0)             $  (627.3)
                                                       ==========              =========

REVENUES. Revenues increased by $229.9 million, or 24.8%, from $928.5 million for the three months ended June 30, 2001 to $1,158.4 million for the three months ended June 30, 2002. System operations existing before June 30, 2001 accounted for $128.8 million, or 56.0%, of the increase, while systems acquired after June 30, 2001 accounted for $101.1 million, or 44.0%, of the increase. Revenues by service offering are as follows (dollars in millions):

                                     Three Months Ended June 30,
                           ------------------------------------------
                                   2002                  2001             2002 over 2001
                           --------------------  --------------------  --------------------
                                        % of                  % of                    %
                            Amount    Revenues    Amount    Revenues    Change     Change
                           ---------  ---------  ---------  ---------  ---------  ---------
Analog video............. $   776.9       67.1% $   666.7       71.8% $   110.2       16.5%
Digital video............     117.6       10.2%      68.2        7.3%      49.4       72.4%
Cable modem..............      83.4        7.2%      32.9        3.5%      50.5      153.5%
Advertising sales........      90.4        7.8%      64.5        7.0%      25.9       40.2%
Other....................      90.1        7.7%      96.2       10.4%      (6.1)      -6.3%
                           ---------  ---------  ---------  ---------  ---------
                          $ 1,158.4      100.0% $   928.5      100.0% $   229.9       24.8%
                           =========  =========  =========  =========  =========

Analog video revenues consist primarily of revenues from basic and premium services. Analog video revenues increased by $110.2 million, or 16.5%, from $666.7 million for the three months ended June 30, 2001 to $776.9 million for the three months ended June 30, 2002. Approximately $66.1 million of the increase was due to approximately 551,100 basic customers acquired in the acquisition of the AT&T Broadband systems on June 30, 2001 while approximately $63.7 million of the increase was due to general rate increases. These increases were offset by approximately $19.6 million resulting from the strengthening of our policy of disconnecting marginal customers in the first quarter of 2002.

Digital video revenues consist primarily of revenues related to the provision of digital video service. Digital video revenues increased by $49.4 million, or 72.4%, from $68.2 million for the three months ended June 30, 2001 to $117.6 million for the three months ended June 30, 2002. Approximately $12.5 million of the increase was due to approximately 116,500 digital video customers acquired through acquisitions coupled with an increase of approximately $10.6 million due to general rate increases. The remaining increase of approximately $26.3 million resulted from internal growth of approximately 679,000 digital customers due to the upgrade and expansion of our systems to provide advanced services to a larger customer base. Increased marketing efforts and strong demand for this service have also contributed to internal growth.

Cable modem revenues consist primarily of revenues related to the provision of high-speed Internet service. Cable modem revenues increased by $50.5 million, or 153.5%, from $32.9 million for the three months ended June 30, 2001 to $83.4 million for the three months ended June 30, 2002. Approximately $5.2 million of the increase was due to approximately 19,800 cable modem customers acquired through acquisitions, while the remaining increase of approximately $45.3 million was due to internal growth of approximately 500,100 cable modem customers as our system upgrades and expansion continue to increase our ability to offer high-speed Internet service to a larger customer base. Internal growth in cable modem services was the result of strong marketing efforts coupled with increased demand for such services.

Advertising sales revenues consist primarily of revenues from traditional advertising services as well as advertising related to launch revenues from programming agreements. Advertising sales increased $25.9 million, or 40.2%, from $64.5 million for the three months ended June 30, 2001 to $90.4 million for the three months ended June 30, 2002. The increase was primarily due to acquisitions of new systems, increased advertising capacity as a result of increased channel lineup and improved market conditions offset by a decrease in launch support advertising. For the three months ended June 30, 2002 and 2001, we received $5.4 million and $1.3 million, respectively, of advertising revenue from our two largest equipment vendors. Advertising revenues from vendors and launch contracts are recognized based on the fair value of the cross-channel advertising provided.

Other revenues consist primarily of revenues from franchise fees, customer installations, home shopping, dial-up Internet service and other miscellaneous revenues. Other revenues decreased $6.1 million, or 6.3%, from $96.2 million for the three months ended June 30, 2001 to $90.1 million for the three months ended June 30, 2002. The decrease was partially due to the Federal Communications Commission's (FCC) ruling that collection of franchise fees was no longer required for cable modem service, partially offset by increases in the other aforementioned revenues.

OPERATING EXPENSES. Operating expenses increased by $106.5 million, or 33.9%, from $314.1 million for the three months ended June 30, 2001 to $420.6 million for the three months ended June 30, 2002. Key components of operating expenses as a percentage of revenues are as follows (dollars in millions):

                                                    Three Months Ended June 30,
                                          ------------------------------------------
                                                  2002                  2001             2002 over 2001
                                          --------------------  --------------------  --------------------
                                                       % of                  % of                    %
                                           Amount    Revenues    Amount    Revenues    Change     Change
                                          ---------  ---------  ---------  ---------  ---------  ---------
Analog video programming................ $   266.0       23.0% $   211.8       22.8% $    54.2       25.6%
Digital video...........................      40.8        3.5%      24.1        2.6%      16.7       69.3%
Cable modem.............................      39.0        3.4%      20.4        2.2%      18.6       91.2%
Advertising sales.......................      21.4        1.8%      13.7        1.5%       7.7       56.2%
Service costs...........................      53.4        4.6%      44.1        4.7%       9.3       21.1%
                                          ---------  ---------  ---------  ---------  ---------
                                         $   420.6       36.3% $   314.1       33.8% $   106.5       33.9%
                                          =========  =========  =========  =========  =========

Analog video programming costs consist primarily of costs paid to programmers for the provision of basic and premium channels as well as pay-per-view programs and channel guides. The increase in analog video programming costs of $54.2 million, or 25.6%, was primarily due to the addition of customers in the acquisition of the AT&T Broadband systems, as well as inflationary or negotiated price increases, particularly in sports programming, and increased channel lineup. The increase of $16.7 million, or 69.3%, in direct operating costs to provide digital video services was primarily due to internal growth of these advanced services and increased programming costs. The increase of $18.6 million, or 91.2%, in direct operating costs to provide cable modem services was primarily due to internal growth. Advertising sales costs increased $7.7 million, or 56.2%, primarily due to acquisitions of new systems and increased advertising capacity as a result of increased channel lineup and improved market conditions. Service costs consist primarily of service personnel salaries and benefits, system utilities, maintenance and pole rent expense. The increase in service costs of $9.3 million, or 21.1%, resulted primarily from our acquisition of the AT&T Broadband systems in June 2001 coupled with overall continued internal growth.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased by $47.8 million, or 27.7%, from $172.3 million for the three months ended June 30, 2001 to $220.1 million for the three months ended June 30, 2002. Key components of expense as a percentage of revenues are as follows (dollars in millions):

                                                 Three Months Ended June 30,
                                       ------------------------------------------
                                               2002                  2001             2002 over 2001
                                       --------------------  --------------------  --------------------
                                                    % of                  % of                    %
                                        Amount    Revenues    Amount    Revenues    Change     Change
                                       ---------  ---------  ---------  ---------  ---------  ---------
General and administrative........... $   195.0       16.8% $   153.7       16.6% $    41.3       26.9%
Marketing............................      25.1        2.2%      18.6        2.0%       6.5       34.9%
                                       ---------  ---------  ---------  ---------  ---------
                                      $   220.1       19.0% $   172.3       18.6% $    47.8       27.7%
                                       =========  =========  =========  =========  =========

General and administrative expenses consist primarily of salaries and benefits, franchise fees, rent expense, billing costs, bad debt expense and property taxes. The increase in general and administrative expenses of $41.3 million, or 26.9%, resulted primarily from our acquisition of the AT&T Broadband systems in June 2001, coupled with overall continued internal growth. Marketing expenses increased $6.5 million, or 34.9%, related to an increased level of promotions of our service offerings and the AT&T Broadband systems acquisition.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense decreased by $230.8 million, or 31.9%, from $723.0 million for the three months ended June 30, 2001 to $492.2 million for the three months ended June 30, 2002. This decrease was due primarily to the adoption on January 1, 2002 of SFAS No. 142 which requires that franchise intangible assets that meet the indefinite life criteria of SFAS No. 142 no longer be amortized against earnings but instead be tested annually for impairment. Upon adoption we did not incur an impairment charge and eliminated further amortization of indefinite- lived franchise assets. Amortization of such assets totaled $314.3 million for the three months ended June 30, 2001. This decrease was partially offset by the increase in depreciation expense related to additional capital expenditures in 2002 and 2001 and amortization for franchise renewal costs and franchise assets that did not qualify for indefinite life treatment totaling $2.1 million for the three months ended June 30, 2002.

OPTION COMPENSATION EXPENSE. Option compensation expense decreased by $4.4 million, or 89.8%, from $4.9 million for the three months ended June 30, 2001 to $0.5 million for the three months ended June 30, 2002. Option compensation expense represents expense related to exercise prices on certain options that were issued prior to the initial public offering by Charter Communciations, Inc. in 1999 that were less than the estimated fair values of the common stock of Charter Communications, Inc. at the time of grant. The decrease was primarily the result of the forfeiture of approximately 7 million options by our former President and Chief Executive Officer as part of his September 2001 separation agreement. Option compensation expense is being recorded over the vesting period of such options and will continue to be recorded at a decreasing rate until the last vesting period lapses in April 2004.

CORPORATE EXPENSES. Corporate expenses increased by $2.6 million, or 18.6%, from $14.0 million for the three months ended June 30, 2001 to $16.6 million for the three months ended June 30, 2002. The increase was primarily the result of hiring additional employees.

INTEREST EXPENSE, NET. Interest expense, net increased by $54.7 million, or 18.1%, from $302.1 million for the three months ended June 30, 2001 to $356.8 million for the three months ended June 30, 2002. The increase in net interest expense was a result of an increase in average debt outstanding of $2.3 billion to $16.1 billion for the second quarter of 2002 compared to $13.8 billion for the second quarter of 2001, partially offset by a decline in our weighted average borrowing rate of 0.28% to 8.29% in the second quarter of 2002 from 8.57% in the second quarter of 2001. Our weighted average borrowing rate decreased primarily as a result of a general decline in variable borrowing rates and the effect of the interest rate swap agreements. The increase in outstanding debt primarily relates to the issuance of the January 2002 Charter Holdings notes, the proceeds of which were used to repay a portion of the amounts outstanding under the revolving credit facilities of our subsidiaries.

OTHER EXPENSE. Other expense increased by $43.1 million, or 194.1%, from $22.2 million for the three months ended June 30, 2001 to $65.3 million for the three months ended June 30, 2002. This was primarily due to a loss of $62.8 million on interest rate agreements for the three months ended June 30, 2002 compared with a gain of $9.2 million on interest rate agreements for the three months ended June 30, 2001.

MINORITY INTEREST. Minority interest represents the 2% accretion of the preferred membership units in our indirect subsidiary CC VIII, LLC, issued to certain Bresnan sellers. These membership units are exchangeable on a one-for-one basis for shares of Class A common stock of Charter Communications, Inc.

NET LOSS. Net loss decreased by $210.3 million, or 33.5%, from $627.3 million for the three months ended June 30, 2001 to $417.0 million for the three months ended June 30, 2002 as a result of the factors described above, including the decrease in amortization expense as a result of adoption of SFAS No. 142.

SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO SIX MONTHS ENDED JUNE 30, 2001

The following table presents the percentages of revenues that items in the accompanying consolidated statements of operations constitute for the periods presented (dollars in millions) and do not include the operating results of the AT&T Broadband systems acquired on June 30, 2001 for the six months ended June 30, 2001:

                                                                 Six Months Ended June 30,
                                                       --------------------------------------------
                                                                2002                    2001
                                                       ---------------------   --------------------
Revenues............................................. $  2,236.7      100.0 % $ 1,802.3      100.0 %
                                                       ----------  ---------   ---------  ---------
Operating expenses:
  Operating (excluding those items listed below).....      822.6       36.8 %     620.0       34.4 %
  Selling, general and administrative................      431.7       19.3 %     338.6       18.8 %
  Depreciation and amortization......................      979.1       43.8 %   1,416.8       78.6 %
  Option compensation expense........................        0.9        0.0 %      10.9        0.6 %
  Corporate expenses.................................       32.1        1.4 %      27.7        1.5 %
                                                       ----------  ---------   ---------  ---------
                                                         2,266.4      101.3 %   2,414.0      133.9 %
                                                       ----------  ---------   ---------  ---------
      Loss from operations...........................      (29.7)      (1.3)%    (611.7)     (33.9)%
                                                       ----------              ---------
Other income (expense):
  Interest expense, net..............................     (696.4)                (600.7)
  Other expense......................................      (33.9)                 (81.1)
                                                       ----------              ---------
                                                          (730.3)                (681.8)
                                                       ----------              ---------
      Loss before minority interest..................     (760.0)              (1,293.5)
Minority interest....................................       (6.5)                  (6.4)
                                                       ----------              ---------
      Net loss....................................... $   (766.5)             $(1,299.9)
                                                       ==========              =========

REVENUES. Revenues increased by $434.4 million, or 24.1%, from $1,802.3 million for the six months ended June 30, 2001 to $2,236.7 million for the six months ended June 30, 2002. System operations existing before June 30, 2001 accounted for $235.2 million, or 54.1%, of the increase, while systems acquired after June 30, 2001 accounted for $199.2 million, or 45.9%, of the increase. Revenues by service offering are as follows (dollars in millions):

                                    Six Months Ended June 30,
                           ------------------------------------------
                                   2002                  2001             2002 over 2001
                           --------------------  --------------------  --------------------
                                        % of                  % of                    %
                            Amount    Revenues    Amount    Revenues    Change     Change
                           ---------  ---------  ---------  ---------  ---------  ---------
Analog video............. $ 1,531.5       68.5% $ 1,316.1       73.0% $   215.4       16.4%
Digital video............     221.3        9.9%     123.2        6.8%      98.1       79.6%
Cable modem..............     150.7        6.7%      58.0        3.2%      92.7      159.8%
Advertising sales........     149.9        6.7%     120.2        6.7%      29.7       24.7%
Other....................     183.3        8.2%     184.8       10.3%      (1.5)      -0.8%
                           ---------  ---------  ---------  ---------  ---------
                          $ 2,236.7      100.0% $ 1,802.3      100.0% $   434.4       24.1%
                           =========  =========  =========  =========  =========

Analog video revenues consist primarily of revenues from basic and premium services. Analog video revenues increased by $215.4 million, or 16.4%, from $1,316.1 million for the six months ended June 30, 2001 to $1,531.5 million for the six months ended June 30, 2002. Approximately $133.1 million of the increase was due to approximately 551,100 basic customers acquired in the acquisition of the AT&T Broadband systems on June 30, 2001 while approximately $119.5 million of the increase is due to general rate increases. These increases were offset by approximately $37.2 million resulting from the strengthening of our policy of disconnecting marginal customers in the first quarter of 2002.

Digital video revenues consist primarily of revenues related to the provision of digital video service. Digital video revenues increased by $98.1 million, or 79.6%, from $123.2 million for the six months ended June 30, 2001 to $221.3 million for the six months ended June 30, 2002. Approximately $23.5 million of the increase was due to approximately 116,500 digital video customers acquired through acquisitions coupled with an increase of approximately $22.6 million due to general rate increases. The remaining increase of approximately $52.0 million resulted from internal growth of approximately 679,000 digital customers due to the upgrade and expansion of our systems to provide advanced services to a larger customer base. Increased marketing efforts and strong demand for this service have also contributed to internal growth.

Cable modem revenues consist primarily of revenues related to the provision of high-speed Internet service. Cable modem revenues increased $92.7 million, or 159.8%, from $58.0 million for the six months ended June 30, 2001 to $150.7 million for the six months ended June 30, 2002. Approximately $9.5 million of the increase is due to approximately 19,800 cable modem customers acquired through acquisitions, while the remaining increase of approximately $83.2 million was due to internal growth of approximately 500,100 cable modem customers as our system upgrades and expansion continue to increase our ability to offer high-speed Internet service to a larger customer base. Internal growth in cable modem services was the result of strong marketing efforts coupled with increased demand for such services.

Advertising sales revenues consist primarily of revenues from traditional advertising services as well as advertising related to launch contracts. Advertising sales increased $29.7 million, or 24.7%, from $120.2 million for the six months ended June 30, 2001 to $149.9 million for the six months ended June 30, 2002. The increase was primarily due to acquisitions of new systems and increased advertising capacity as a result of an increase in channel lineup and improved market conditions offset by a decrease in launch support advertising. For the six months ended June 30, 2002 and 2001, we received $6.0 million and $4.0 million, respectively, of advertising revenue from our two largest equipment vendors. Advertising revenues from vendors and launch contracts are recognized based on the fair value of the cross-channel advertising provided.

Other revenues consist primarily of revenues from franchise fees, customer installations, home shopping, dial-up Internet service and other miscellaneous revenues. Other revenues decreased $1.5 million, or 0.8%, from $184.8 million for the six months ended June 30, 2001 to $183.3 million for the six months ended June 30, 2002. The decrease was partially due to the FCC's ruling that collection of franchise fees was no longer required for cable modem service, partially offset by increases in the other aforementioned revenues.

OPERATING EXPENSES. Operating expenses increased by $202.6 million, or 32.7%, from $620.0 million for the six months ended June 30, 2001 to $822.6 million for the six months ended June 30, 2002. Key components of operating expenses as a percentage of revenues are as follows (dollars in millions):

                                                    Six Months Ended June 30,
                                          ------------------------------------------
                                                  2002                  2001             2002 over 2001
                                          --------------------  --------------------  --------------------
                                                       % of                  % of                    %
                                           Amount    Revenues    Amount    Revenues    Change     Change
                                          ---------  ---------  ---------  ---------  ---------  ---------
Analog video programming................ $   527.6       23.6% $   422.2       23.4% $   105.4       25.0%
Digital video...........................      75.9        3.4%      44.7        2.5%      31.2       69.8%
Cable modem.............................      73.9        3.3%      38.1        2.1%      35.8       94.0%
Advertising sales.......................      40.6        1.8%      28.9        1.6%      11.7       40.5%
Service costs...........................     104.6        4.7%      86.1        4.8%      18.5       21.5%
                                          ---------  ---------  ---------  ---------  ---------
                                         $   822.6       36.8% $   620.0       34.4% $   202.6       32.7%
                                          =========  =========  =========  =========  =========

Analog video programming costs consist primarily of costs paid to programmers for the provision of basic and premium channels. The increase in analog video programming costs of $105.4 million, or 25.0%, was primarily due to the addition of customers in the acquisition of the AT&T Broadband systems, as well as inflationary or negotiated price increases, particularly in sports programming, and increased channel lineup. The increase of $31.2 million, or 69.8%, in direct operating costs to provide digital video services was primarily due to internal growth of these advanced services and increased programming costs. The increase of $35.8 million, or 94.0%, in direct operating costs to provide cable modem services was primarily due to internal growth. Advertising sales costs increased $11.7 million, or 40.5%, primarily due to acquisitions of new systems and increased advertising capacity as a result of an increase in channel lineup and improved market conditions. Service costs consist primarily of service personnel salaries and benefits, system utilities, maintenance and pole rent expense. The increase in service costs of $18.6 million, or 21.5%, resulted primarily from our acquisition of the AT&T Broadband systems in June 2001 coupled with overall continued internal growth.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased by $93.1 million, or 27.5%, from $338.6 million for the six months ended June 30, 2001 to $431.7 million for the six months ended June 30, 2002. Key components of expense as a percentage of revenues are as follows (dollars in millions):

                                                 Six Months Ended June 30,
                                       ------------------------------------------
                                               2002                  2001             2002 over 2001
                                       --------------------  --------------------  --------------------
                                                    % of                  % of                    %
                                        Amount    Revenues    Amount    Revenues    Change     Change
                                       ---------  ---------  ---------  ---------  ---------  ---------
General and administrative........... $   387.8       17.3% $   303.4       16.8% $    84.4       27.8%
Marketing............................      43.9        2.0%      35.2        2.0%       8.7       24.7%
                                       ---------  ---------  ---------  ---------  ---------
                                      $   431.7       19.3% $   338.6       18.8% $    93.1       27.5%
                                       =========  =========  =========  =========  =========

General and administrative costs consist primarily of salaries and benefits, franchise fees, rent expense, billing costs, bad debt expense and property taxes. The increase in general and administrative expenses of $84.4 million, or 27.8%, resulted primarily from our acquisition of the AT&T Broadband systems in June 2001 coupled with overall continued internal growth. Marketing expenses increased $8.7 million, or 24.7%, related to an increased level of promotions of our service offerings and the AT&T Braodband systems acquisition.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense decreased by $437.7 million, or 30.9%, from $1,416.8 million for the six months ended June 30, 2001 to $979.1 million for the six months ended June 30, 2002. This decrease was due primarily to the adoption on January 1, 2002 of SFAS No. 142 which requires that franchise intangible assets that meet the indefinite life criteria of SFAS No. 142 no longer be amortized against earnings but instead be tested annually for impairment. Upon adoption we did not incur an impairment charge and eliminated the further amortization of indefinite-lived franchise assets. Amortization of such assets totaled $630.1 million for the six months ended June 30, 2001. This decrease was partially offset by the increase in depreciation expense related to additional capital expenditures in 2001 and 2002 and amortization for franchise renewal costs and franchise assets that did not qualify for indefinite life treatment totaling $4.2 million for the six months ended June 30, 2002.

OPTION COMPENSATION EXPENSE. Option compensation expense decreased by $10.0 million, or 91.7%, from $10.9 million for the six months ended June 30, 2001 to $0.9 million for the six months ended June 30, 2002. Option compensation expense represents expense related to exercise prices on certain options that were issued prior to our initial public offering in 1999 that were less than the estimated fair values of our common stock at the time of grant. The decrease was primarily the result of the forfeiture of approximately 7 million options by our former President and Chief Executive Officer as part of his September 2001 separation agreement. Option compensation expense is being recorded over the vesting period of such options and will continue to be recorded at a decreasing rate until the last vesting period lapses in April 2004.

CORPORATE EXPENSES. Corporate expenses increased by $4.4 million, or 15.9%, from $27.7 million for the six months ended June 30, 2001 to $32.1 million for the six months ended June 30, 2002. The increase was primarily the result of hiring additional employees.

INTEREST EXPENSE, NET. Interest expense, net increased by $95.7 million, or 15.9%, from $600.7 million for the six months ended June 30, 2001 to $696.4 million for the six months ended June 30, 2002. The increase in net interest expense was a result of an increase in average debt outstanding of $2.6 billion to $15.8 billion for the six months ended June 30, 2002 compared to $13.2 billion for the six months ended June 30, 2001, partially offset by a decline in our weighted average borrowing rate of 0.40% to 8.35% in the first half of 2002 from 8.75% in the first half of 2001. Our weighted average borrowing rate decreased primarily as a result of a general decline in variable borrowing rates and the effect of the interest rate swap agreements. The increase in outstanding debt primarily relates to the issuance of the January 2002 Charter Holdings notes, the proceeds of which were used to repay a portion of the amounts outstanding under the revolving credit facilities of our subsidiaries.

OTHER EXPENSE. Other expense decreased by $47.2 million, or 58.2%, from $81.1 million for the six months ended June 30, 2001 to $33.9 million for the six months ended June 30, 2002. This was primarily due to a loss of $29.6 million on interest rate agreements for the six months ended June 30, 2002 compared with a loss of $17.6 million on interest rate agreements, a loss from cumulative effect of change in accounting principle of $23.9 million and losses on investments of $36.1 million for the six months ended June 30, 2001.

MINORITY INTEREST. Minority interest represents the 2% accretion of the preferred membership units in our indirect subsidiary CC VIII, LLC, issued to certain Bresnan sellers. These membership units are exchangeable on a one-for-one basis for shares of Class A common stock of Charter Communications, Inc.

NET LOSS. Net loss decreased by $533.4 million, or 41.0%, from $1,299.9 million for the six months ended June 30, 2001 to $766.5 million for the six months ended June 30, 2002 as a result of the