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Dynamic quotes 
OFFON

CHARTER COMMUNICATIONS, INC.

(CHTR)
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CHARTER COMMUNICATIONS : MO/ Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

07/30/2021 | 07:07am EDT

General


Charter Communications, Inc. (together with its controlled subsidiaries,
"Charter") is a leading broadband connectivity company and cable operator
serving more than 31 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 in Charter Communications Holdings, LLC ("Charter Holdings"), an
indirect owner of Charter 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 the first half of both 2021 and 2020, the Novel Coronavirus ("COVID-19")
pandemic has significantly impacted how our customers use our products and
services, how they interact with us, and how our employees work and provide
services to our customers. During the first half of 2021, customer activity
levels remained below normal which contributed to lower operating expense from
reduced service transactions and significantly lower bad debt, however, those
trends are slowly returning to pre-COVID-19 levels and we expect that to
continue throughout 2021 as the economy reopens and normal activities resume.

In May 2021, the Federal Communications Commission ("FCC") introduced the
Emergency Broadband Benefit ("EBB") program to help households pay for Internet
service. The EBB program provides eligible low-income households with up to $50
per month toward Internet service. We estimate that the EBB program favorably
impacted our net increase in customer relationships by approximately 60,000 for
the quarter ended June 30, 2021. Additional new and existing customers also
enrolled in the EBB program.

Although the ultimate impact of the COVID-19 pandemic cannot be predicted, we
remain focused on driving customer relationship growth by deploying superior
products and services packaged with attractive pricing. Further, we expect to
continue to drive customer relationship growth through sales of bundled services
and improving customer retention despite the expectation for continued losses of
video and wireline voice customers.

Our Spectrum Mobile service is offered to customers subscribing to our Internet
service and runs on Verizon Communications Inc.'s ("Verizon") mobile network
combined with Spectrum WiFi. We continue to explore ways to drive even more
mobile traffic to our network. We intend to use Citizens Broadband Radio Service
("CBRS") Priority Access Licenses ("PALs") we purchased in 2020, along with
unlicensed CBRS spectrum to build our own 5G mobile network which we plan to use
in combination with our mobile virtual network operator ("MVNO") reseller
agreement with Verizon and WiFi network to enhance the customer's experience and
improve our cost structure.

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. As a result of growth costs associated with our new mobile product
line, we cannot be certain that we will be able to grow revenues or maintain our
margins at recent historical rates. During the three and six months ended
June 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. During the three and six months ended
June 30, 2020, our mobile product line increased revenues by $310 million and
$568 million, respectively, reduced Adjusted EBITDA by approximately $103
million and $219 million, respectively, and reduced free cash flow by
approximately $233 million and $493 million, respectively. 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 expect mobile
Adjusted EBITDA will continue to be negative. 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 retail store and CBRS build-out.

                                       22
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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,
                                           2021                 2020               % Change                 2021                2020               % Change
Revenues                             $       12,802$ 11,696                    9.5  %       $      25,324$ 23,434                    8.1  %
Adjusted EBITDA                      $        5,020$  4,489                   11.8  %       $       9,965$  8,885                   12.2  %
Income from operations               $        2,575$  1,969                   30.7  %       $       4,643$  3,771                   23.1  %



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
and mobile customers, price adjustments and an increase in advertising sales.
Adjusted EBITDA and income from operations growth was impacted by growth in
revenue and increases in operating costs and expenses, primarily regulatory,
connectivity and produced content costs as well as mobile and programming.

                                       23
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The following table summarizes our customer statistics for Internet, video,
voice and mobile as of June 30, 2021 and 2020 (in thousands except per customer
data and footnotes).

                                                                   Approximate as of
                                                                       June 30,
                                                                2021 (a)       2020 (a)
   Customer Relationships (b)
   Residential                                                    29,660        28,496
   Small and Medium Business ("SMB")                               2,104         1,980
   Total Customer Relationships                                   31,764        30,476

   Monthly Residential Revenue per Residential Customer (c)    $  112.85$ 110.82
   Monthly SMB Revenue per SMB Customer (d)                    $  166.28$ 166.06

   Internet
   Residential                                                    27,722        26,313
   SMB                                                             1,912         1,783
   Total Internet Customers                                       29,634        28,096

   Video
   Residential                                                    15,420        15,652
   SMB                                                               592           516
   Total Video Customers                                          16,012        16,168

   Voice
   Residential                                                     9,014         9,398
   SMB                                                             1,259         1,169
   Total Voice Customers                                          10,273        10,567

   Mobile Lines (e)
   Residential                                                     2,855         1,672
   SMB                                                                85            25
   Total Mobile Lines                                              2,940         1,697

   Enterprise Primary Service Units ("PSUs") (f)                       280         270



(a)We calculate the aging of customer accounts based on the monthly billing
cycle for each account. On that basis, as of June 30, 2021 and 2020, customers
include approximately 201,100 and 124,500 customers, respectively, whose
accounts were over 60 days past due, approximately 37,700 and 18,400 customers,
respectively, whose accounts were over 90 days past due and approximately 30,900
and 10,400 customers, respectively, whose accounts were over 120 days past due.
Included in the June 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.
(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.

                                       24
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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 2020 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,
                                                  2021                    2020                   2021                   2020
Revenues                                    $       12,802$      11,696$      25,324$      23,434

Costs and Expenses:
Operating costs and expenses (exclusive of
items shown separately below)                        7,882                  7,297                 15,593                 14,729
Depreciation and amortization                        2,354                  2,428                  4,795                  4,925
Other operating (income) expenses, net                  (9)                     2                    293                      9
                                                    10,227                  9,727                 20,681                 19,663
Income from operations                               2,575                  1,969                  4,643                  3,771

Other Income (Expenses):
Interest expense, net                               (1,004)                  (957)                (1,987)                (1,937)
Other income (expenses), net                          (132)                    30                    (80)                  (296)
                                                    (1,136)                  (927)                (2,067)                (2,233)

Income before income taxes                           1,439                  1,042                  2,576                  1,538
Income tax expense                                    (281)                  (166)                  (497)                  (195)
Consolidated net income                              1,158                    876                  2,079                  1,343
Less: Net income attributable to
noncontrolling interests                              (138)                  (110)                  (252)                  (181)

Net income attributable to Charter
shareholders                                $        1,020          $       

766 $ 1,827$ 1,162


EARNINGS PER COMMON SHARE ATTRIBUTABLE TO
CHARTER SHAREHOLDERS:
Basic                                       $         5.48          $        3.72$        9.69$        5.62
Diluted                                     $         5.29          $        3.63$        9.37$        5.48

Weighted average common shares outstanding,
basic                                          185,916,505            205,777,438            188,645,356            206,804,371
Weighted average common shares outstanding,
diluted                                        199,077,390            210,906,946            202,458,265            212,158,218



Revenues. Total revenues grew $1.1 billion and $1.9 billion for the three and
six months ended June 30, 2021, respectively, compared to the corresponding
periods in 2020 primarily due to increases in the number of residential Internet
and mobile customers, price adjustments and an increase in advertising sales.

                                       25
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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,
                                               2021                 2020               % Change                 2021                2020               % Change
Internet                                 $        5,221$  4,530                   15.2  %       $      10,307$  8,937                   15.3  %
Video                                             4,378             4,371                    0.2  %               8,722             8,793                   (0.8) %
Voice                                               394               451                  (12.7) %                 793               908                  (12.7) %
Residential revenue                               9,993             9,352                    6.8  %              19,822            18,638                    6.3  %

Small and medium business                         1,042               983                    6.0  %               2,054             1,979                    3.8  %
Enterprise                                          636               606                    5.1  %               1,274             1,228                    3.8  %
Commercial revenue                                1,678             1,589                    5.6  %               3,328             3,207                    3.8  %

Advertising sales                                   411               249                   65.1  %                 755               614                   23.0  %
Mobile                                              519               310                   67.5  %               1,011               568                   78.0  %
Other                                               201               196                    2.8  %                 408               407                    0.3  %
                                         $       12,802$ 11,696                    9.5  %       $      25,324$ 23,434                    8.1  %


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, 2021                  June 30, 2021
                                                               compared to                    compared to
                                                           three months ended               six months ended
                                                              June 30, 2020                  June 30, 2020
                                                          Increase / (Decrease)          Increase / (Decrease)
Increase related to rate, product mix and bundle
allocation changes                                      $                  404          $                 728
Increase in average residential Internet customers                         287                            642
                                                        $                  691          $               1,370



The increase related to rate, product mix and bundle allocation changes was
primarily due to price adjustments, promotional roll-off and higher bundled
revenue allocation as well as $29 million of credits related to prior year's
Keep Americans Connected ("KAC") Pledge which reduced revenue during the three
and six months ended June 30, 2020. Residential Internet customers grew by
1,409,000 customers from June 30, 2020 to June 30, 2021.

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 change in video revenues is attributable to the following (dollars in millions):

                                                           Three months ended               Six months ended
                                                              June 30, 2021                   June 30, 2021
                                                               compared to                     compared to
                                                           three months ended               six months ended
                                                              June 30, 2020                   June 30, 2020
                                                          Increase / (Decrease)           Increase / (Decrease)
Decrease in average residential video customers         $                  (39)         $                  (40)
Decrease in video on demand and pay-per-view                               (17)                            (37)
Decrease in installation                                                    (3)                            (13)
Increase related to rate, product mix and bundle
allocation changes                                                          66                              19
                                                        $                    7          $                  (71)




                                       26
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Residential video customers decreased by 232,000 from June 30, 2020 to June 30,
2021. The increase related to rate, product mix and bundle allocation changes
was primarily due to $44 million of credits related to prior year's KAC program
which reduced revenue during the three and six months ended June 30, 2020 as
well as price adjustments and promotional roll-off and was partly offset by a
higher mix of lower cost video packages within our video customer base and lower
bundled revenue allocation.

The decrease in voice revenues from our residential customers is attributable to the following (dollars in millions):

                                                           Three months ended               Six months ended
                                                              June 30, 2021                   June 30, 2021
                                                               compared to                     compared to
                                                           three months ended               six months ended
                                                              June 30, 2020                   June 30, 2020
                                                          Increase / (Decrease)           Increase / (Decrease)
Decrease related to rate and bundle allocation changes  $                  (43)         $                  (90)
Decrease in average residential voice customers                            (14)                            (25)
                                                        $                  (57)         $                 (115)


The decrease related to rate and bundle allocation changes was impacted by value-based pricing and changes in bundled revenue allocations. Residential wireline voice customers decreased by 384,000 customers from June 30, 2020 to June 30, 2021.

The increase in SMB revenues is attributable to the following (dollars in millions):

                                                         Three months ended               Six months ended
                                                            June 30, 2021                   June 30, 2021
                                                             compared to                     compared to
                                                         three months ended               six months ended
                                                            June 30, 2020                   June 30, 2020
                                                        Increase / (Decrease)           Increase / (Decrease)
Increase in SMB customers                             $                   57          $                  106

Increase related to COVID-19 programs which reduced prior year revenue

                                                        17                              13
Decrease related to rate and product mix changes                         (15)                            (44)
                                                      $                   59          $                   75



SMB customers grew by 124,000 from June 30, 2020 to June 30, 2021. The decrease
related to rate and product mix changes during the six months ended June 30,
2021 compared to the corresponding period in 2020 was primarily due to
value-based pricing related to Spectrum pricing and packaging ("SPP") net of
promotional roll-off and price adjustments.

Enterprise revenues increased $30 million and $46 million during the three and
six months ended June 30, 2021, respectively, compared to the corresponding
periods in 2020 primarily due to an increase in Internet PSUs as well as $18
million of impacts from COVID-19 related programs which reduced revenues in the
three and six months ended June 30, 2020 offset by lower wholesale PSUs.
Enterprise PSUs increased 10,000 from June 30, 2020 to June 30, 2021.

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 $162 million and $141 million during the three and six months ended
June 30, 2021, respectively, as compared to the corresponding periods in 2020
primarily due to the impacts of COVID-19 that lowered revenues in 2020 offset by
a decrease in political revenue.

During the three and six months ended June 30, 2021, mobile revenues represented
approximately $214 million and $442 million of device revenues, respectively,
and approximately $305 million and $569 million of service revenues,
respectively. During the three and six months ended June 30, 2020, mobile
revenues represented approximately $158 million and $289 million of device
revenues, respectively, and approximately $152 million and $279 million of
service revenues, respectively. The increases in revenues are a result of an
increase of 1,243,000 mobile lines from June 30, 2020 to June 30, 2021.


                                       27
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Other revenues consist of revenue from regional sports and news channels
(excluding intercompany charges or advertising sales on those channels), home
shopping, late payment fees, video device sales, wire maintenance fees and other
miscellaneous revenues. Other revenues increased $5 million and $1 million
during the three and six months ended June 30, 2021, respectively, compared to
the corresponding periods in 2020.

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, 2021                   June 30, 2021
                                                               compared to                     compared to
                                                           three months ended               six months ended
                                                              June 30, 2020                   June 30, 2020
                                                          Increase / (Decrease)           Increase / (Decrease)
Programming                                             $                  105          $                  201
Regulatory, connectivity and produced content                              180                             229
Costs to service customers                                                 (21)                            (65)
Marketing                                                                   22                               7
Mobile                                                                     173                             371
Other                                                                      126                             121
                                                        $                  585          $                  864



Programming costs were approximately $3.0 billion and $6.0 billion for the three
and six months ended June 30, 2021, respectively, representing 38% of total
operating costs and expense for both time periods, and $2.9 billion and $5.8
billion for the three and six months ended June 30, 2020, respectively,
representing 39% of total operating costs and expense for both time periods.
Programming costs consist primarily of costs paid to programmers for basic,
digital, premium, video on demand, and pay-per-view programming. Programming
costs increased as a result of contractual rate adjustments, including renewals
and increases in amounts paid for retransmission consent offset by a higher mix
of lower cost video packages within our video customer base. 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 increased $180 million and $229
million during the three and six months ended June 30, 2021, respectively,
compared to the corresponding periods in 2020 primarily due to higher sports
rights costs as a result of more basketball and baseball games during the first
half of 2021 as compared to the corresponding period in 2020 as the prior period
had postponement of games and the current period had additional games due to the
delayed start of the 2020 - 2021 NBA season as a result of COVID-19.

Costs to service customers decreased $21 million and $65 million during the three and six months ended June 30, 2021, respectively, compared to the corresponding periods in 2020 despite 4.2% customer growth primarily due to fewer transactions and a decrease in bad debt expense partly driven by government stimulus packages offset by the higher labor costs associated with our commitment to a minimum $20 per hour wage in 2022.


Mobile costs of $586 million and $1.2 billion for the three and six months ended
June 30, 2021, respectively, and $413 million and $787 million for the three and
six months ended June 30, 2020, 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.


                                       28
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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, 2021               June 30, 2021
                                        compared to                 compared to
                                     three months ended           six months ended
                                       June 30, 2020               June 30, 2020
                                   Increase / (Decrease)       Increase / (Decrease)
    Corporate costs               $                   53      $                   26
    Advertising sales expense                         51                          34
    Stock compensation expense                        10                          54
    Enterprise                                         7                           9
    Property tax and insurance                         2                          (4)
    Other                                              3                           2
                                  $                  126      $                  121



Corporate costs increased during the three and six months ended June 30, 2021
compared to the corresponding prior periods primarily due to higher labor costs.
Advertising sales expense increased due to higher cost of sales fees driven by
higher revenue. Stock compensation expense increased during the six months ended
June 30, 2021 compared to the corresponding period in 2020 primarily due to
changes in certain equity award provisions that result in additional expense at
the time of grant.

Depreciation and amortization. Depreciation and amortization expense decreased
by $74 million and $130 million during the three and six months ended June 30,
2021, respectively, compared to the corresponding periods in 2020 primarily due
to a decrease in depreciation and amortization as certain assets acquired in
acquisitions become 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, 2021                   June 30, 2021
                                                             compared to                     compared to
                                                         three months ended               six months ended
                                                            June 30, 2020                   June 30, 2020
                                                        Increase / (Decrease)           Increase / (Decrease)
Special charges, net                                  $                  (12)         $                  227
(Gain) loss on disposal of assets, net                                     1                              57
                                                      $                  (11)         $                  284


See Note 13 to the accompanying consolidated financial statements contained in "Item 1. Financial Statements" for more information.


Interest expense, net. Net interest expense increased by $47 million and $50
million for the three and six months ended June 30, 2021, respectively, compared
to the corresponding periods in 2020. The increase in net interest expense is
the result of an increase in weighted average debt outstanding of approximately
$6.6 billion and $5.6 billion during the three and six months ended June 30,
2021, respectively, compared to the corresponding periods in 2020 offset by
reductions in weighted average interest rates. The increase in weighted average
debt outstanding is primarily due to the issuance of notes throughout 2020 and
2021 for general corporate purposes including stock buybacks and debt
repayments.


                                       29
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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, 2021                   June 30, 2021
                                                                 compared to                     compared to
                                                             three months ended               six months ended
                                                                June 30, 2020                   June 30, 2020
                                                            Increase / (Decrease)           Increase / (Decrease)
Loss on extinguishment of debt (see Note 6)               $                  (10)         $                  (12)
Gain (loss) on financial instruments, net (see Note 9)                      (155)                            211
Other pension benefits, net (see Note 21)                                    162                             170
Loss on equity investments, net (see Note 3)                                (159)                           (153)
                                                          $                 (162)         $                  216


See 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 $281 million and $497
million for the three and six months ended June 30, 2021, respectively, and $166
million and $195 million for the three and six months ended June 30, 2020,
respectively. The increase is primarily a result of higher pretax income. For
more information, see Note 16 to the accompanying consolidated financial
statements contained in "Item 1. Financial Statements."

Net income attributable to noncontrolling interest. Net income attributable to
noncontrolling interest for financial reporting purposes represents A/N's
portion of Charter 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 ended June 30, 2021, respectively, and $37 million and
$75 million for the three and six months ended June 30, 2020, respectively. For
more information, see Note 8 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 $766 million and $1.2 billion for the three and six months ended June 30, 2020, respectively, to $1.0 billion and $1.8 billion for the three and six months ended June 30, 2021, respectively, primarily as a result of the factors described above.

Use of Adjusted EBITDA and Free Cash Flow


We use certain measures that are not defined by U.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 the Securities 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 $365 million and $642 million for

                                       30
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the three and six months ended June 30, 2021, respectively, and $308 million and $619 million for the three and six months ended June 30, 2020, respectively.

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,
                                                  2021                  2020                 2021                 2020
Net income attributable to Charter
shareholders                                $        1,020$     766$       1,827$   1,162
Plus: Net income attributable to
noncontrolling interest                                138                110                    252                181
Interest expense, net                                1,004                957                  1,987              1,937
Income tax expense                                     281                166                    497                195
Depreciation and amortization                        2,354              2,428                  4,795              4,925
Stock compensation expense                             100                 90                    234                180
Other (income) expenses, net                           123                (28)                   373                305
Adjusted EBITDA                             $        5,020          $   

4,489 $ 9,965$ 8,885


Net cash flows from operating activities    $        3,999$   3,529$       7,750$   6,749
Less: Purchases of property, plant and
equipment                                           (1,881)            (1,877)                (3,702)            (3,338)
Change in accrued expenses related to
capital expenditures                                   (50)               214                   (125)              (174)
Free cash flow                              $        2,068$   1,866$       3,923$   3,237

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 March 2021, Charter Operating and Charter Communications Operating Capital
Corp. jointly issued $1.5 billion aggregate principal amount of 3.500% senior
secured notes due June 2041 at a price of 99.544% of the aggregate principal
amount, $1.0 billion aggregate principal amount of 3.900% senior secured notes
due June 2052 at a price of 99.951% of the aggregate principal amount and an
additional $500 million aggregate principal amount of 3.850% senior secured
notes due April 2061 at a price of 94.668% of the aggregate principal amount.
The net proceeds were used to pay related fees and expenses and for general
corporate purposes, including funding buybacks of Charter Class A common stock
and Charter Holdings common units as well as repaying certain indebtedness,
including $750 million of CCO Holdings, LLC's ("CCO Holdings") 5.750% notes due
February 2026.

In April 2021, CCO Holdings and CCO Holdings Capital Corp. jointly issued
$1.0 billion of 4.500% senior unsecured notes due June 2033 at par, and in June
2021, an additional $750 million of the same series of notes was issued at a
price of 99.250% of the aggregate principal amount. The net proceeds were used
for general corporate purposes, including to fund potential buybacks of Charter
Class A common stock and Charter Holdings common units, to repay certain
indebtedness and to pay related fees and expenses.

In June 2021, Charter Operating and Charter Communications Operating Capital
Corp. issued an additional $1.4 billion of 3.900% senior secured notes due June
2052 priced at 95.578% of the aggregate principal amount and $1.4 billion
aggregate principal amount of 4.400% senior secured notes due December 2061 at a
price of 99.906% of the aggregate principal amount. Net proceeds were used to
pay related fees and expenses and for general corporate purposes, including
funding buybacks of Charter Class A common stock and Charter Holdings common
units as well as repaying certain indebtedness, including

                                       31
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$500 million of CCO Holdings' 5.750% notes due February 2026, all of CCO Holdings' 5.875% notes due May 2027, and in July 2021, $1.0 billion of Time Warner Cable, LLC's 4.000% notes due September 2021.

Overview of Our Contractual Obligations and Liquidity


We have significant amounts of debt. The principal amount of our debt as of
June 30, 2021 was $87.5 billion, consisting of $10.0 billion of credit facility
debt, $53.6 billion of investment grade senior secured notes and $24.0 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 mobile services, we expect an initial funding period
to grow a new product as well as 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 expects to become a
meaningful federal cash tax payer as the majority of net operating losses will
have been utilized. Free cash flow was $2.1 billion and $3.9 billion for the
three and six months ended June 30, 2021, respectively, and $1.9 billion and
$3.2 billion for the three and six months ended June 30, 2020, respectively. See
table below for factors impacting free cash flow during the three and six months
ended June 30, 2021 compared to the corresponding prior periods. As of June 30,
2021, the amount available under our credit facilities was approximately $4.7
billion and cash on hand was approximately $1.7 billion. 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 the expansion of our network such as through
our Rural Digital Opportunity Fund ("RDOF") project, 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 4.4 times Adjusted EBITDA as of June 30, 2021. 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 ended June 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, and during the three and six months ended June 30, 2020, Charter
purchased approximately 2.0 million and 6.5 million shares of Charter Class A
common stock, respectively, for approximately $1.0 billion and $3.2 billion,
respectively. Since the beginning of its buyback program in September 2016
through June 30, 2021, Charter has purchased in the public market approximately
95.6 million shares of Class A common stock for approximately $39.7 billion.

In February 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
with Charter, Liberty Broadband and Advance/Newhouse Partnership ("A/N"), dated
as of May 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 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 ended June 30, 2021, respectively. In
July 2021, Charter purchased from Liberty Broadband an additional 0.4 million
shares of Charter Class A common stock for approximately $279 million.

In December 2016, Charter and A/N entered into a letter agreement, as amended in
December 2017 (the "A/N Letter Agreement"), that requires A/N to sell to Charter
or to Charter Holdings, on a monthly basis, a number of shares of Charter
Class A common stock or Charter Holdings common units that represents a pro rata
participation by A/N and its affiliates in

                                       32
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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 ended June 30, 2021, Charter Holdings purchased from A/N 0.9 million and
1.7 million Charter Holdings common units, respectively, for approximately $583
million and $1.1 billion, respectively, and during the three and six months
ended June 30, 2020, Charter Holdings purchased from A/N 0.3 million and 1.1
million Charter Holdings common units, respectively, for approximately $125
million and $518 million, respectively.

As of June 30, 2021, Charter had remaining board authority to purchase an
additional $1.7 billion of Charter's Class A common stock and/or Charter
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 increased $202 million and $686 million during the three and six
months ended June 30, 2021, respectively, compared to the corresponding prior
periods in 2020 due to the following (dollars in millions).

                                                         Three months ended               Six months ended
                                                            June 30, 2021                  June 30, 2021
                                                             compared to                    compared to
                                                         three months ended               six months ended
                                                            June 30, 2020                  June 30, 2020
                                                        Increase / (Decrease)          Increase / (Decrease)
Increase in Adjusted EBITDA                           $                  531          $               1,080
Changes in working capital, excluding change in
accrued interest                                                        (275)                            20
Increase in cash paid for interest, net                                  (47)                           (24)
Increase in capital expenditures                                          (4)                          (364)
Other, net                                                                (3)                           (26)
                                                      $                  202          $                 686



Free cash flow was reduced by $277 million and $461 million during the three and
six months ended June 30, 2021, respectively, and $233 million and $493 million
during the three and six months ended June 30, 2020, respectively, due to mobile
with impacts negatively affecting working capital, capital expenditures and
Adjusted EBITDA.

Limitations on Distributions


Distributions by our subsidiaries to a parent company for payment of principal
on parent company notes are restricted under CCO Holdings indentures and Charter
Operating credit facilities governing our indebtedness, unless there is no
default under the applicable indenture and credit facilities, and unless each
applicable entity's leverage ratio test is met at the time of such distribution.
As of June 30, 2021, there was no default under any of these indentures or
credit facilities, and each applicable entity met its applicable leverage ratio
tests based on June 30, 2021 financial results. There can be no assurance that
they will satisfy these tests at the time of the contemplated distribution.
Distributions by Charter Operating for payment of principal on parent company
(CCO Holdings) notes are further restricted by the covenants in its credit
facilities.

However, without regard to leverage, during any calendar year or any portion
thereof during which the borrower is a flow-through entity for tax purposes, and
so long as no event of default exists, the borrower may make distributions to
the equity interests of the borrower in an amount sufficient to make permitted
tax payments.

                                       33
--------------------------------------------------------------------------------


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 $1.7 billion and $1.0 billion in cash and cash equivalents as of June 30, 2021 and December 31, 2020, respectively.


Operating Activities. Net cash provided by operating activities increased $1.0
billion during the six months ended June 30, 2021 compared to the six months
ended June 30, 2020, primarily due to an increase in Adjusted EBITDA of $1.1
billion.

Investing Activities. Net cash used in investing activities was $4.0 billion and
$3.6 billion for the six months ended June 30, 2021 and 2020, respectively. The
increase in cash used was primarily due to an increase in capital expenditures.

Financing Activities. Net cash used in financing activities decreased $1.5 billion during the six months ended June 30, 2021 compared to the six months ended June 30, 2020 due to an increase in the amount by which borrowings of long-term debt exceeded repayments offset by an increase in the purchase of treasury stock and noncontrolling interest.

Capital Expenditures


We have significant ongoing capital expenditure requirements.  Capital
expenditures were $1.9 billion and $3.7 billion for the three and six months
ended June 30, 2021, respectively, and $1.9 billion and $3.3 billion for the
three and six months ended June 30, 2020, respectively.  The increase during the
six months ended June 30, 2021 compared to the six months ended June 30, 2020
was primarily due to an increase in scalable infrastructure driven by
augmentation of network capacity for customer growth and usage, with incremental
spending to reclaim network headroom maintained prior to COVID-19, and higher
line extensions driven by continued network expansion, including to rural areas.
See the table below for more details.

We currently expect 2021 cable capital expenditures, excluding RDOF investments,
to be relatively consistent as a percentage of cable revenue versus 2020. The
actual amount of our capital expenditures in 2021 will depend on a number of
factors including further spend related to product development and growth rates
of both our residential and commercial businesses.

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 decreased by $125 million and $174
million for the six months ended June 30, 2021 and 2020, respectively.

The following tables present our major capital expenditures categories in
accordance with National Cable and Telecommunications Association ("NCTA")
disclosure guidelines for the three and six months ended June 30, 2021 and 2020.
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,
                                                   2021                  2020                 2021                 2020
Customer premise equipment (a)               $          494          $     518          $         983          $     981
Scalable infrastructure (b)                             437                385                    848                555
Line extensions (c)                                     400                422                    799                765
Upgrade/rebuild (d)                                     161                155                    306                284
Support capital (e)                                     389                397                    766                753
Total capital expenditures                   $        1,881          $   

1,877 $ 3,702$ 3,338


Capital expenditures included in total
related to:
Commercial services                          $          397          $     323          $         730          $     584
Mobile                                       $          124          $     125          $         236          $     212




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(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).

Recently Issued Accounting Standards


See Note 22 to the accompanying consolidated financial statements contained in
"Item 1. Financial Statements" for a discussion of recently issued accounting
standards.

© Edgar Online, source Glimpses

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