CHARTER COMMUNICATIONS, INC. General
Charter Communications, Inc. (together with its controlled subsidiaries, "Charter") is a leading broadband connectivity company and cable operator serving more than 32 million customers in 41 states through our Spectrum brand. Over an advanced high-capacity, two-way telecommunications network, we offer a full range of state-of-the-art residential and business services including Spectrum Internet, TV, Mobile and Voice. For small and medium-sized companies, Spectrum Business delivers the same suite of broadband products and services coupled with special features and applications to enhance productivity, while for larger businesses and government entities, Spectrum Enterprise provides highly customized, fiber-based solutions. Spectrum Reach delivers tailored advertising and production for the modern media landscape. We also distribute award-winning news coverage, sports and high-quality original programming to our customers through Spectrum Networks and Spectrum Originals. Charter is a holding company whose principal asset is a controlling equity interest inCharter Communications Holdings, LLC ("Charter Holdings "), an indirect owner ofCharter Communications Operating, LLC ("Charter Operating") under which substantially all of the operations reside. All significant intercompany accounts and transactions among consolidated entities have been eliminated. Overview In 2022, we remain focused on driving customer relationship growth. For the quarter endedJune 30, 2022 , we had a decline of 74,000 residential and small and medium business ("SMB") customer relationships and an increase of 360,000 residential and SMB customer relationships fromJune 30, 2021 toJune 30, 2022 , which excludes mobile only customers. We continue to see lower customer move rates and switching behavior among providers, which has reduced our selling opportunities. In addition, we had approximately 59,000 Internet customer disconnects during the second quarter of 2022 related to the discontinuation of the Emergency Broadband Benefit program and additional requirements of the Affordable Connectivity Program. Our rural construction initiative is underway which we expect will expand our footprint by approximately 1 million homes and businesses over the next six years, and we expect to participate in additional government subsidy programs that would further expand our footprint. We continue to evolve our network to provide increased Internet speeds and reliability, including recently increasing the minimum speed offered to new customers from 200 megabits per second to 300 megabits per second in 100% of our footprint, and continued investment in our products and customer service platforms. We continue to invest in our ability to provide a differentiated Internet connectivity experience for our mobile and fixed Internet customers with the availability of Advanced Home WiFi and over 500,000 out of home WiFi access points across our footprint. In addition, we continue to work towards the construction of our own 5G mobile data-only network leveraging the Citizens Broadband Radio Service ("CBRS") Priority Access Licenses ("PALs") purchased in 2020. By continually improving our product set and offering consumers the opportunity to save money by switching to our services, we believe we can continue to penetrate our expanding footprint and attract more spend on additional products for our existing customers. In the first half of 2022, we added 717,000 mobile lines and 164,000 Internet customers, and for the quarter endedJune 30, 2022 , we added 344,000 mobile lines and had a decline of 21,000 Internet customers. We believe Spectrum-branded mobile services will drive higher sales of our core products, create longer customer lives and increase profitability and cash flow over time. During the three and six months endedJune 30, 2022 , our mobile product line increased revenues by$726 million and$1.4 billion , respectively, reduced Adjusted EBITDA by approximately$71 million and$141 million , respectively, and reduced free cash flow by approximately$270 million and$560 million , respectively. During the three and six months endedJune 30, 2021 , our mobile product line increased revenues by$519 million and$1.0 billion , respectively, reduced Adjusted EBITDA by approximately$67 million and$147 million , respectively, and reduced free cash flow by approximately$277 million and$461 million , respectively. Mobile Adjusted EBITDA may continue to be negative primarily as a result of growth-related sales and marketing and other customer acquisition costs for mobile services, and depending on the pace of that growth. We also expect to continue to see negative free cash flow from the timing of device-related cash flows when we sell devices to customers pursuant to equipment installment plans and capital expenditures related to CBRS build-out. 14 --------------------------------------------------------------------------------
We realized revenue, Adjusted EBITDA and income from operations during the periods presented as follows (in millions; all percentages are calculated using whole numbers; minor differences may exist due to rounding):
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 % Change 2022 2021 % Change
Revenues $ 13,598 $ 12,802 6.2 % $ 26,798 $ 25,324 5.8 %
Adjusted EBITDA $ 5,509 $ 5,020 9.7 % $ 10,722 $ 9,965 7.6 %
Income from operations $ 3,227 $ 2,575 25.3 % $ 5,998 $ 4,643 29.2 %
Adjusted EBITDA is defined as net income attributable to Charter shareholders
plus net income attributable to noncontrolling interest, net interest expense,
income taxes, depreciation and amortization, stock compensation expense, other
income (expenses), net and other operating (income) expenses, net, such as
special charges and (gain) loss on sale or retirement of assets. See "Use of
Adjusted EBITDA and Free Cash Flow" for further information on Adjusted EBITDA
and free cash flow.
Growth in total revenue was primarily due to growth in our residential Internet,
mobile and commercial customers and price adjustments. Adjusted EBITDA and
income from operations growth was impacted by growth in revenue and increases in
operating costs and expenses, primarily mobile, costs to service customers and
marketing.
15-------------------------------------------------------------------------------- The following table summarizes our customer statistics for Internet, video, voice and mobile as ofJune 30, 2022 and 2021 (in thousands except per customer data and footnotes). Approximate as of June 30, 2022 (a) 2021 (a) Customer Relationships (b) Residential 29,942 29,660 SMB 2,182 2,104 Total Customer Relationships 32,124
31,764
Monthly Residential Revenue per Residential Customer (c)
Monthly SMB Revenue per SMB Customer (d)$ 165.66 $ 166.28 Internet Residential 28,259 27,722 SMB 1,994 1,912 Total Internet Customers 30,253 29,634 Video Residential 14,853 15,420 SMB 642 592 Total Video Customers 15,495 16,012 Voice Residential 8,200 9,014 SMB 1,287 1,259 Total Voice Customers 9,487 10,273 Mobile Lines (e) Residential 4,134 2,855 SMB 147 85 Total Mobile Lines 4,281 2,940 Enterprise Primary Service Units ("PSUs") (f) 277
265
(a)We calculate the aging of customer accounts based on the monthly billing cycle for each account. On that basis, as ofJune 30, 2022 and 2021, customers include approximately 154,500 and 162,700 customers, respectively, whose accounts were over 60 days past due, approximately 45,800 and 23,200 customers, respectively, whose accounts were over 90 days past due and approximately 97,200 and 30,400 customers, respectively, whose accounts were over 120 days past due. Bad debt expense associated with these past due accounts has been reflected in our consolidated statements of operations. The increase in past due accounts is predominately due to pre-existing and incremental unsubsidized amounts of customers' bills for those customers participating in government assistance programs. These customers are downgraded to a fully subsidized Internet only service. Included in theJune 30, 2021 aging statistics are approximately 73,500 residential customers that would have been disconnected under our normal collection policies, but were not due to certain state mandates in place. (b)Customer relationships include the number of customers that receive one or more levels of service, encompassing Internet, video and voice services, without regard to which service(s) such customers receive. Customers who reside in residential multiple dwelling units ("MDUs") and that are billed under bulk contracts are counted based on the number of billed units within each bulk MDU. Total customer relationships exclude enterprise and mobile-only customer relationships. (c)Monthly residential revenue per residential customer is calculated as total residential quarterly revenue divided by three divided by average residential customer relationships during the respective quarter and excludes mobile revenue and customers. 16 -------------------------------------------------------------------------------- (d)Monthly SMB revenue per SMB customer is calculated as total SMB quarterly revenue divided by three divided by average SMB customer relationships during the respective quarter and excludes mobile revenue and customers. (e)Mobile lines include phones and tablets which require one of our standard rate plans (e.g., "Unlimited" or "By the Gig"). Mobile lines exclude wearables and other devices that do not require standard phone rate plans. (f)Enterprise PSUs represent the aggregate number of fiber service offerings counting each separate service offering at each customer location as an individual PSU.
Critical Accounting Policies and Estimates
For a discussion of our critical accounting policies and the means by which we develop estimates therefore, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2021 Annual Report on Form 10-K. There have been no material changes from the critical accounting policies described in our Form 10-K.
Results of Operations
The following table sets forth the consolidated statements of operations for the periods presented (dollars in millions, except per share data):
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Revenues $ 13,598 $ 12,802 $ 26,798 $ 25,324
Costs and Expenses:
Operating costs and expenses (exclusive of
items shown separately below) 8,193 7,882 16,327 15,593
Depreciation and amortization 2,240 2,354 4,534 4,795
Other operating (income) expenses, net (62) (9) (61) 293
10,371 10,227 20,800 20,681
Income from operations 3,227 2,575 5,998 4,643
Other Income (Expenses):
Interest expense, net (1,109) (1,004) (2,169) (1,987)
Other income (expenses), net 79 (132) 102 (80)
(1,030) (1,136) (2,067) (2,067)
Income before income taxes 2,197 1,439 3,931 2,576
Income tax expense (489) (281) (834) (497)
Consolidated net income 1,708 1,158 3,097 2,079
Less: Net income attributable to
noncontrolling interests (237) (138) (423) (252)
Net income attributable to Charter
shareholders $ 1,471 $
1,020
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CHARTER SHAREHOLDERS: Basic $ 8.96$ 5.48 $ 15.98 $ 9.69 Diluted $ 8.80$ 5.29 $ 15.66 $ 9.37 Weighted average common shares outstanding, basic 164,049,619 185,916,505 167,350,535 188,645,356 Weighted average common shares outstanding, diluted 167,090,925 199,077,390 170,741,462 202,458,265
Revenues. Total revenues grew
17
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Revenues by service offering were as follows (dollars in millions; all
percentages are calculated using whole numbers; minor differences may exist due
to rounding):
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 % Change 2022 2021 % Change
Internet $ 5,562 $ 5,221 6.5 % $ 11,014 $ 10,307 6.9 %
Video 4,484 4,378 2.4 % 8,830 8,722 1.2 %
Voice 398 394 1.0 % 789 793 (0.5) %
Residential revenue 10,444 9,993 4.5 % 20,633 19,822 4.1 %
Small and medium business 1,080 1,042 3.7 % 2,139 2,054 4.1 %
Enterprise 669 636 4.9 % 1,330 1,274 4.3 %
Commercial revenue 1,749 1,678 4.2 % 3,469 3,328 4.2 %
Advertising sales 460 411 12.0 % 843 755 11.8 %
Mobile 726 519 39.8 % 1,416 1,011 40.0 %
Other 219 201 8.8 % 437 408 7.0 %
$ 13,598 $ 12,802 6.2 % $ 26,798 $ 25,324 5.8 %
The increase in Internet revenues from our residential customers is attributable to the following (dollars in millions):
Three months ended Six months ended
June 30, 2022 June 30, 2022
compared to compared to
three months ended six months ended
June 30, 2021 June 30, 2021
Increase / (Decrease) Increase / (Decrease)
Increase related to rate and product mix changes $ 198 $ 370
Increase in average residential Internet customers 143 337
$ 341 $ 707
The increase related to rate and product mix was primarily due to reduced bundle
discounts and promotional roll-off. Residential Internet customers grew by
537,000 customers from
Video revenues consist primarily of revenues from basic and digital video services provided to our residential customers, as well as franchise fees, equipment service fees and video installation revenue. The increase in video revenues is attributable to the following (dollars in millions):
Three months ended Six months ended
June 30, 2022 June 30, 2022
compared to compared to
three months ended six months ended
June 30, 2021 June 30, 2021
Increase / (Decrease) Increase / (Decrease)
Increase related to rate and product mix changes $ 238 $ 355
Decrease in average residential video customers (132) (247)
$ 106 $ 108
The increase related to rate and product mix was primarily due to price
adjustments and promotional roll-off and was partly offset by a higher mix of
lower cost video packages within our video customer base. Residential video
customers decreased by 567,000 from
18
--------------------------------------------------------------------------------The change in voice revenues from our residential customers is attributable to the following (dollars in millions):
Three months ended Six months ended
June 30, 2022 June 30, 2022
compared to compared to
three months ended six months ended
June 30, 2021 June 30, 2021
Increase / (Decrease) Increase / (Decrease)
Decrease in average residential voice customers $ (32) $ (59)
Increase related to rate 36 55
$ 4 $ (4)
Residential wireline voice customers decreased by 814,000 customers from
The increase in SMB revenues is attributable to the following (dollars in millions):
Three months ended Six months ended
June 30, 2022 June 30, 2022
compared to compared to
three months ended six months ended
June 30, 2021 June 30, 2021
Increase / (Decrease) Increase / (Decrease)
Increase in SMB customers $ 42 $ 88
Decrease related to rate and product mix changes (4) (3)
$ 38 $ 85
SMB customers grew by 78,000 from
Enterprise revenues increased$33 million and$56 million during the three and six months endedJune 30, 2022 , respectively, compared to the corresponding periods in 2021 primarily due to an increase in Internet PSUs offset by lower wholesale PSUs. Enterprise PSUs increased 12,000 fromJune 30, 2021 toJune 30, 2022 . Advertising sales revenues consist primarily of revenues from commercial advertising customers, programmers and other vendors, as well as local cable and advertising on regional sports and news channels. Advertising sales revenues increased$49 million and$88 million during the three and six months endedJune 30, 2022 , respectively, as compared to the corresponding periods in 2021 primarily due to an increase in political revenue. During the three and six months endedJune 30, 2022 , mobile revenues included approximately$299 million and$591 million of device revenues, respectively, and approximately$427 million and$825 million of service revenues, respectively. During the three and six months endedJune 30, 2021 , mobile revenues included approximately$214 million and$442 million of device revenues, respectively, and approximately$305 million and$569 million of service revenues, respectively. The increases in revenues are a result of an increase of 1,341,000 mobile lines fromJune 30, 2021 toJune 30, 2022 . Other revenues consist of revenue from regional sports and news channels (excluding intercompany charges or advertising sales on those channels), home shopping, processing fees, video device sales, wire maintenance fees and other miscellaneous revenues. Other revenues increased$18 million and$29 million during the three and six months endedJune 30, 2022 , respectively, compared to the corresponding periods in 2021 primarily due to subsidy revenue related to our rural construction initiative and an increase in processing fees offset by a decrease in sales of video devices. 19 --------------------------------------------------------------------------------
Operating costs and expenses. The increase in our operating costs and expenses, exclusive of items shown separately in the consolidated statements of operations, are attributable to the following (dollars in millions):
Three months ended Six months ended
June 30, 2022 June 30, 2022
compared to compared to
three months ended six months ended
June 30, 2021 June 30, 2021
Increase / (Decrease) Increase / (Decrease)
Programming $ (6) $ (17)
Regulatory, connectivity and produced content (69) (113)
Costs to service customers 93 188
Marketing 65 140
Mobile 211 399
Other 17 137
$ 311 $ 734
Programming costs were approximately $3.0 billion for each of the three months
ended June 30, 2022 and 2021, representing 36% and 38% of total operating costs
and expenses, respectively, and $5.9 billion and $6.0 billion for the six months
ended June 30, 2022 and 2021, representing 36% and 38% of total operating costs
and expenses, respectively. Programming costs consist primarily of costs paid to
programmers for basic, digital, premium, video on demand, and pay-per-view
programming. Programming costs decreased as a result of fewer customers and a
higher mix of lower cost video packages within our video customer base along
with favorable one-time impacts offset by contractual rate adjustments,
including renewals and increases in amounts paid for retransmission consent. We
expect programming rates per customer will continue to increase due to a variety
of factors, including annual increases imposed by programmers with additional
selling power as a result of media and broadcast station groups consolidation,
increased demands by owners of broadcast stations for payment for retransmission
consent or linking carriage of other services to retransmission consent, and
additional programming. We have been unable to fully pass these increases on to
our customers and do not expect to be able to do so in the future without a
potential loss of customers.
Regulatory, connectivity and produced content decreased $69 million and $113
million during the three and six months ended June 30, 2022 , respectively,
compared to the corresponding periods in 2021 primarily due to lower sports
rights costs as a result of more basketball games during the first half of 2021
as compared to 2022 as the prior period had additional games due to the delayed
start of the 2020 - 2021 NBA season as of result of COVID-19 as well as lower
costs of video devices sold to customers and regulatory pass-through fees.
Costs to service customers increased $93 million and $188 million during the
three and six months ended June 30, 2022 , respectively, compared to the
corresponding periods in 2021 primarily due to higher bad debt and higher fuel
costs offset by lower labor costs as a result of productivity improvements
driven by improved network performance and digital self-service platforms.
Marketing increased $65 million and $140 million during the three and six months
ended June 30, 2022 , respectively, compared to the corresponding periods in 2021
primarily due to higher labor costs associated with our commitment to a minimum
$20 per hour wage in 2022 and insourcing of inbound sales and retention call
centers.
Mobile costs of $797 million and $1.6 billion for the three and six months ended
June 30, 2022 , respectively, and $586 million and $1.2 billion for the three and
six months ended June 30, 2021 , respectively, were comprised of mobile device
costs and mobile service, customer acquisition and operating costs. The increase
is attributable to an increase in the number of mobile lines.
20
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The increase in other expense is attributable to the following (dollars in
millions):
Three months ended Six months ended
June 30, 2022 June 30, 2022
compared to compared to
three months ended six months ended
June 30, 2021 June 30, 2021
Increase / (Decrease) Increase / (Decrease)
Corporate costs $ (10) $ 58
Advertising sales expense 8 27
Stock compensation expense 4
17
Enterprise 6 17
Other 9 18
$ 17 $ 137
Corporate costs increased during the six months ended June 30, 2022 compared to
the corresponding prior period primarily due to higher labor costs and computer
and software expense.
Depreciation and amortization. Depreciation and amortization expense decreased
by $114 million and $261 million during the three and six months ended June 30,
2022 , respectively, compared to the corresponding periods in 2021 primarily due
to certain assets acquired in acquisitions becoming fully depreciated offset by
an increase in depreciation as a result of more recent capital expenditures.
Other operating (income) expenses, net. The change in other operating (income) expenses, net is attributable to the following (dollars in millions):
Three months ended Six months ended
June 30, 2022 June 30, 2022
compared to compared to
three months ended six months ended
June 30, 2021 June 30, 2021
Increase / (Decrease) Increase / (Decrease)
Special charges, net $ (57) $ (313)
(Gain) loss on disposal of assets, net 4 (41)
$ (53) $ (354)
See Note 10 to the accompanying consolidated financial statements contained in "Item 1. Financial Statements" for more information.
Interest expense, net. Net interest expense increased by$105 million and$182 million for the three and six months endedJune 30, 2022 , respectively, compared to the corresponding periods in 2021. The increase in net interest expense is the result of an increase in weighted average debt outstanding of approximately$9.2 billion and$9.3 billion during the three and six months endedJune 30, 2022 , respectively, compared to the corresponding periods in 2021 offset by reductions in weighted average interest rates. The increase in weighted average debt outstanding is primarily due to the issuance of notes throughout 2021 and 2022. 21
--------------------------------------------------------------------------------
Other income (expenses), net. The change in other income (expenses), net is attributable to the following (dollars in millions):
Three months ended Six months ended
June 30, 2022 June 30, 2022
compared to compared to
three months ended six months ended
June 30, 2021 June 30, 2021
Increase / (Decrease) Increase / (Decrease)
Loss on extinguishment of debt (see Note 4) $ 43 $ 72
Gain (loss) on financial instruments, net (see Note 7) 92 58
Net periodic pension benefits (156) (157)
Gain (loss) on equity investments, net 232 209
$ 211 $ 182
See Note 11 and the Notes referenced above to the accompanying consolidated financial statements contained in "Item 1. Financial Statements" for more information.
Income tax expense. We recognized income tax expense of$489 million and$834 million for the three and six months endedJune 30, 2022 , respectively, and$281 million and$497 million for the three and six months endedJune 30, 2021 , respectively. The increase is primarily a result of higher pretax income. Net income attributable to noncontrolling interest. Net income attributable to noncontrolling interest for financial reporting purposes representsAdvance/Newhouse Partnership's ("A/N") portion ofCharter Holdings' net income based on its effective common unit ownership interest and the preferred dividend of$32 million and$70 million for the three and six months endedJune 30, 2021 , respectively. For more information, see Note 6 to the accompanying consolidated financial statements contained in "Item 1. Financial Statements."
Net income attributable to Charter shareholders. Net income attributable to
Charter shareholders increased from
Use of Adjusted EBITDA and Free Cash Flow
We use certain measures that are not defined byU.S. generally accepted accounting principles ("GAAP") to evaluate various aspects of our business. Adjusted EBITDA and free cash flow are non-GAAP financial measures and should be considered in addition to, not as a substitute for, net income attributable to Charter shareholders and net cash flows from operating activities reported in accordance with GAAP. These terms, as defined by us, may not be comparable to similarly titled measures used by other companies. Adjusted EBITDA and free cash flow are reconciled to net income attributable to Charter shareholders and net cash flows from operating activities, respectively, below. Adjusted EBITDA eliminates the significant non-cash depreciation and amortization expense that results from the capital-intensive nature of our businesses as well as other non-cash or special items, and is unaffected by our capital structure or investment activities. However, this measure is limited in that it does not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenues and our cash cost of financing. These costs are evaluated through other financial measures.
Free cash flow is defined as net cash flows from operating activities, less capital expenditures and changes in accrued expenses related to capital expenditures.
Management and Charter's board of directors use Adjusted EBITDA and free cash flow to assess our performance and our ability to service our debt, fund operations and make additional investments with internally generated funds. In addition, Adjusted EBITDA generally correlates to the leverage ratio calculation under our credit facilities or outstanding notes to determine compliance with the covenants contained in the facilities and notes (all such documents have been previously filed with theSecurities and Exchange Commission (the "SEC")). For the purpose of calculating compliance with leverage covenants, we use Adjusted EBITDA, as presented, excluding certain expenses paid by our operating subsidiaries to other Charter entities. Our debt covenants refer to these expenses as management fees, which were$348 million and$690 million for the three and six months endedJune 30, 2022 , respectively, and$365 million and$642 million for the three and six months endedJune 30, 2021 , respectively. 22 --------------------------------------------------------------------------------
A reconciliation of Adjusted EBITDA and free cash flow to net income attributable to Charter shareholders and net cash flows from operating activities, respectively, is as follows (dollars in millions):
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Net income attributable to Charter
shareholders $ 1,471 $ 1,020 $ 2,674 $ 1,827
Plus: Net income attributable to
noncontrolling interest 237 138 423 252
Interest expense, net 1,109 1,004 2,169 1,987
Income tax expense 489 281 834 497
Depreciation and amortization 2,240 2,354 4,534 4,795
Stock compensation expense 104 100 251 234
Other (income) expenses, net (141) 123 (163) 373
Adjusted EBITDA $ 5,509 $
5,020
Net cash flows from operating activities$ 3,734 $ 3,999 $ 7,381 $ 7,750 Less: Purchases of property, plant and equipment (2,193) (1,881) (4,050) (3,702) Change in accrued expenses related to capital expenditures 118 (50) 128 (125) Free cash flow$ 1,659 $ 2,068 $ 3,459 $ 3,923
Liquidity and Capital Resources
Introduction
This section contains a discussion of our liquidity and capital resources, including a discussion of our cash position, sources and uses of cash, access to credit facilities and other financing sources, historical financing activities, cash needs, capital expenditures and outstanding debt.
Recent Events
In May andJune 2022 ,Charter Operating and Charter Communications Operating Capital Corp. redeemed all of their outstanding 4.464% senior notes dueJuly 2022 . InMay 2022 , Charter Operating entered into an amendment to its credit agreement (the "Amendment") to: (i) upsize term A loans by$2.3 billion to$6.05 billion and extend the maturity toAugust 31, 2027 fromMarch 31, 2023 andFebruary 1, 2025 , (ii) create and borrow a new tranche of$500 million of term A-6 loans maturingAugust 31, 2028 , (iii) increase the size of Charter Operating's revolving credit facility and extend the maturity date toAugust 31, 2027 fromMarch 31, 2023 andFebruary 1, 2025 and (iv) make certain other amendments to the credit agreement. We used a portion of the proceeds from the Amendment to repay all of the term A-2 loans, term A-4 loans and borrowings under the revolving credit facility outstanding prior to the effective date of the Amendment. After giving effect to the Amendment: (i) the aggregate principal amount of term A-5 loans outstanding is$6.05 billion with a pricing of Secured Overnight Financing Rate ("SOFR") plus 1.25%, (ii) the aggregate principal amount of term A-6 loans outstanding is$500 million with a pricing of SOFR plus 1.50% and (iii) the aggregate amount of the revolving credit facility increased to a total capacity of$5.5 billion and the interest rate benchmark changed fromLondon Interbank Offering Rate ("LIBOR") to SOFR, with a pricing of SOFR plus 1.25%. The aggregate principal amount of term B-1 loans (maturingApril 30, 2025 ) and term B-2 loans (maturingFebruary 1, 2027 ) outstanding are$2.4 billion and$3.7 billion , respectively, with LIBOR-based pricing unchanged. The Amendment also removed mandatory prepayment requirements upon asset sales and property or casualty insurance recoveries, made changes to the affirmative covenants, including changes to the financial reporting covenants, and made changes to the negative covenants, including removal of certain negative covenants in their entirety. 23 --------------------------------------------------------------------------------
Overview of Our Contractual Obligations and Liquidity
We have significant amounts of debt. The principal amount of our debt as ofJune 30, 2022 was$95.7 billion , consisting of$13.7 billion of credit facility debt,$56.9 billion of investment grade senior secured notes and$25.2 billion of high-yield senior unsecured notes. Our business requires significant cash to fund principal and interest payments on our debt. Our projected cash needs and projected sources of liquidity depend upon, among other things, our actual results, and the timing and amount of our expenditures. As we continue to grow our market penetration of our mobile product, we will continue to experience negative working capital impacts from the timing of device-related cash flows when we sell devices to customers pursuant to equipment installment plans. Further, in 2022, Charter has become a meaningful federal cash tax payer as the majority of our net operating losses have been utilized. Free cash flow was$1.7 billion and$3.5 billion for the three and six months endedJune 30, 2022 , respectively, and$2.1 billion and$3.9 billion for the three and six months endedJune 30, 2021 , respectively. See table below for factors impacting free cash flow during the three and six months endedJune 30, 2022 compared to the corresponding prior periods. As ofJune 30, 2022 , the amount available under our credit facilities was approximately$4.4 billion and cash on hand was approximately$483 million . We expect to utilize free cash flow, cash on hand and availability under our credit facilities as well as future refinancing transactions to further extend the maturities of our obligations. The timing and terms of any refinancing transactions will be subject to market conditions among other considerations. Additionally, we may, from time to time, and depending on market conditions and other factors, use cash on hand and the proceeds from securities offerings or other borrowings to retire our debt through open market purchases, privately negotiated purchases, tender offers or redemption provisions. We believe we have sufficient liquidity from cash on hand, free cash flow and Charter Operating's revolving credit facility as well as access to the capital markets to fund our projected cash needs. We continue to evaluate the deployment of our cash on hand and anticipated future free cash flow including to invest in our business growth and other strategic opportunities, including expanding the capacity of our network, the expansion of our network through our rural broadband construction initiative, the build-out and deployment of our CBRS spectrum, and mergers and acquisitions as well as stock repurchases and dividends. Charter's target leverage of net debt to the last twelve months Adjusted EBITDA remains at 4 to 4.5 times Adjusted EBITDA, and up to 3.5 times Adjusted EBITDA at the Charter Operating first lien level. Our leverage ratio was 4.5 times Adjusted EBITDA as ofJune 30, 2022 . As Adjusted EBITDA grows, we expect to increase the total amount of our indebtedness to maintain leverage within Charter's target leverage range. Excluding purchases from Liberty Broadband Corporation ("Liberty Broadband") discussed below, during the three and six months endedJune 30, 2022 , Charter purchased in the public market approximately 5.0 million and 9.4 million shares of Charter Class A common stock, respectively, for approximately$2.5 billion and$5.0 billion , respectively, and during the three and six months endedJune 30, 2021 , Charter purchased in the public market approximately 3.2 million and 7.9 million shares of Charter Class A common stock, respectively, for approximately$2.1 billion and$5.1 billion , respectively. Since the beginning of its buyback program inSeptember 2016 throughJune 30, 2022 , Charter has purchased approximately 139.9 million shares of Class A common stock andCharter Holdings common units for approximately$64.6 billion , including purchases from Liberty Broadband and A/N discussed below. InFebruary 2021 , Charter and Liberty Broadband entered into a letter agreement (the "LBB Letter Agreement"). The LBB Letter Agreement implements Liberty Broadband's obligations under the Amended and Restated Stockholders Agreement among Charter, Liberty Broadband and A/N, dated as ofMay 23, 2015 (as amended, the "Stockholders Agreement") to participate in share repurchases by Charter. Under the LBB Letter Agreement, Liberty Broadband will sell to Charter, generally on a monthly basis, a number of shares of Charter Class A common stock representing an amount sufficient for Liberty Broadband's ownership of Charter to be reduced such that it does not exceed the ownership cap then applicable to Liberty Broadband under the Stockholders Agreement at a purchase price per share equal to the volume weighted average price per share paid by Charter for shares repurchased during such immediately preceding calendar month other than (i) purchases from A/N, (ii) purchases in privately negotiated transactions or (iii) purchases for the withholding of shares of Charter Class A common stock pursuant to equity compensation programs of Charter. Charter purchased from Liberty Broadband 2.3 million and 3.2 million shares of Charter Class A common stock for approximately$1.2 billion and$1.8 billion during the three and six months endedJune 30, 2022 , respectively, and 1.9 million and 2.8 million shares of Charter Class A common stock for approximately$1.2 billion and$1.8 billion during the three and six months endedJune 30, 2021 , respectively. InJuly 2022 , Charter purchased from Liberty Broadband an additional 0.8 million shares of Charter Class A common stock for approximately$363 million . InDecember 2016 , Charter and A/N entered into a letter agreement, as amended inDecember 2017 (the "A/N Letter Agreement"), that requires A/N to sell to Charter or toCharter Holdings , on a monthly basis, a number of shares of Charter 24 -------------------------------------------------------------------------------- Class A common stock orCharter Holdings common units that represents a pro rata participation by A/N and its affiliates in any repurchases of shares of Charter Class A common stock from persons other than A/N effected by Charter during the immediately preceding calendar month, at a purchase price equal to the average price paid by Charter for the shares repurchased from persons other than A/N during such immediately preceding calendar month. A/N and Charter both have the right to terminate or suspend the pro rata repurchase arrangement on a prospective basis. During the three and six months endedJune 30, 2022 ,Charter Holdings purchased from A/N 1.1 million and 1.7 millionCharter Holdings common units for approximately$578 million and$994 million , respectively, and during the three and six months endedJune 30, 2021 ,Charter Holdings purchased from A/N 0.9 million and 1.7 millionCharter Holdings common units for approximately$583 million and$1.1 billion , respectively. As ofJune 30, 2022 , Charter had remaining board authority to purchase an additional$673 million of Charter's Class A common stock and/orCharter Holdings common units, excluding purchases from Liberty Broadband. Although Charter expects to continue to buy back its common stock consistent with its leverage target range, Charter is not obligated to acquire any particular amount of common stock, and the timing of any purchases that may occur cannot be predicted and will largely depend on market conditions and other potential uses of capital. Purchases may include open market purchases, tender offers or negotiated transactions. As possible acquisitions, swaps or dispositions arise, we actively review them against our objectives including, among other considerations, improving the operational efficiency, geographic clustering of assets, product development or technology capabilities of our business and achieving appropriate return targets, and we may participate to the extent we believe these possibilities present attractive opportunities. However, there can be no assurance that we will actually complete any acquisitions, dispositions or system swaps, or that any such transactions will be material to our operations or results.
Free Cash Flow
Free cash flow decreased$409 million and$464 million during the three and six months endedJune 30, 2022 compared to the corresponding prior periods in 2021 due to the following (dollars in millions): Three months ended Six months ended June 30, 2022 June 30, 2022 compared to compared to three months ended six months ended June 30, 2021 June 30, 2021 Increase / (Decrease) Increase / (Decrease) Increase in cash paid for taxes, net $ (396) $ (406) Increase in capital expenditures (312) (348) Increase in cash paid for interest, net (187) (152) Changes in working capital, excluding change in accrued interest and taxes (6) (134) Increase in Adjusted EBITDA 489 757 Other, net 3 (181) $ (409) $ (464) Free cash flow was reduced by$270 million and$560 million during the three and six months endedJune 30, 2022 , respectively, and$277 million and$461 million during the three and six months endedJune 30, 2021 , respectively, due to mobile impacts negatively affecting working capital, capital expenditures and Adjusted EBITDA. Cash paid for taxes, net increased as Charter has become a meaningful federal cash tax payer in 2022. Other, net for the six months endedJune 30, 2022 includes the payment of a previously recorded litigation settlement withSprint Communications Company L.P. and T-Mobile USA, Inc. See Note 10 to the accompanying consolidated financial statements contained in "Item 1. Financial Statements" for more information.
Limitations on Distributions
Distributions by our subsidiaries to a parent company for payment of principal on parent company notes are restricted underCCO Holdings, LLC ("CCO Holdings ") indentures governingCCO Holdings' indebtedness, unless there is no default under the applicable indenture, and unlessCCO Holdings' leverage ratio test is met at the time of such distribution. As ofJune 30, 2022 , there was no default under any of these indentures, andCCO Holdings met its leverage ratio test based onJune 30, 2022 25 --------------------------------------------------------------------------------
financial results. There can be no assurance that
In addition to the limitation on distributions under the various indentures, distributions by our subsidiaries may be limited by applicable law, including the Delaware Limited Liability Company Act, under which our subsidiaries may only make distributions if they have "surplus" as defined in the act.
Historical Operating, Investing, and Financing Activities
Cash and Cash Equivalents. We held
Operating Activities. Net cash provided by operating activities decreased$369 million during the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 , primarily due to an increase in cash paid for taxes, changes in working capital, the payment of a previously recorded litigation settlement of$220 million and higher cash paid for interest, offset by an increase in Adjusted EBITDA of$757 million . Investing Activities. Net cash used in investing activities was$4.1 billion and$4.0 billion for the six months endedJune 30, 2022 and 2021, respectively. The increase in cash used was primarily due to an increase in capital expenditures, offset by changes in accrued expenses related to capital expenditures that increased by$253 million .
Financing Activities. Net cash used in financing activities increased
Capital Expenditures
We have significant ongoing capital expenditure requirements. Capital expenditures were$2.2 billion and$4.1 billion for the three and six months endedJune 30, 2022 , respectively, and$1.9 billion and$3.7 billion for the three and six months endedJune 30, 2021 , respectively. The increase was primarily due to an increase in line extensions and customer premise equipment, partly offset by decreases in scalable infrastructure and support capital. The increase in line extensions was due to continued network expansion, including to rural areas. See the table below for more details. We currently expect full year 2022 cable capital expenditures, excluding capital expenditures associated with our rural construction initiative, to be between$7.1 billion and$7.3 billion . The actual amount of our capital expenditures in 2022 will depend on a number of factors including further spend related to product development, growth rates of both our residential and commercial businesses, supply chain timing and the pace of rural construction.
Our capital expenditures are funded primarily from cash flows from operating
activities and borrowings on our credit facility. In addition, our accrued
liabilities related to capital expenditures increased by
The following tables present our major capital expenditures categories in
accordance with
26
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These disclosure guidelines are not required disclosures under GAAP, nor do they
impact our accounting for capital expenditures under GAAP (dollars in millions):
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Customer premise equipment (a) $ 560 $ 494 $ 1,029 $ 983
Scalable infrastructure (b) 389 437 760 848
Line extensions (c) 694 400 1,236 799
Upgrade/rebuild (d) 181 161 327 306
Support capital (e) 369 389 698 766
Total capital expenditures $ 2,193 $
1,881
Capital expenditures included in total related to: Commercial services $ 376$ 397 $ 741$ 730 Mobile $ 95$ 124 $ 169$ 236 Rural construction initiative (f) $ 357 $
- $ 589 $ -
(a)Customer premise equipment includes costs incurred at the customer residence to secure new customers and revenue generating units, including customer installation costs and customer premise equipment (e.g., digital receivers and cable modems). (b)Scalable infrastructure includes costs not related to customer premise equipment, to secure growth of new customers and revenue generating units, or provide service enhancements (e.g., headend equipment). (c)Line extensions include network costs associated with entering new service areas (e.g., fiber/coaxial cable, amplifiers, electronic equipment, make-ready and design engineering). (d)Upgrade/rebuild includes costs to modify or replace existing fiber/coaxial cable networks, including betterments. (e)Support capital includes costs associated with the replacement or enhancement of non-network assets due to technological and physical obsolescence (e.g., non-network equipment, land, buildings and vehicles). (f)The rural construction initiative subcategory includes expenditures associated with our Rural Construction Initiative (for which separate reporting was initiated in 2022), excluding customer premise equipment and installation.
Recently Issued Accounting Standards
See Note 24 to the Annual Report on Form 10-K for the year endedDecember 31, 2021 for a discussion of recently issued accounting standards. There have been no material changes from the recently issued accounting standards described in our Form 10-K.
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