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 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 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. InMay 2021 , theFederal 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 endedJune 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 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. During the three and six months endedJune 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$493 million , respectively. Primarily as a result of growth-related sales and marketing and other customer acquisition costs for mobile services, and depending on the pace of that growth, we expect mobile Adjusted EBITDA will continue to be negative. We also expect to continue to see negative free cash flow from the timing of device-related cash flows when we sell devices to customers pursuant to equipment installment plans and capital expenditures related to retail store and CBRS build-out. 22 --------------------------------------------------------------------------------
We realized revenue, Adjusted EBITDA and income from operations during the periods presented as follows (in millions; all percentages are calculated using whole numbers. Minor differences may exist due to rounding):
Three Months Ended June 30, Six Months Ended June 30, 2021 2020 % Change 2021 2020 % Change Revenues$ 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 -------------------------------------------------------------------------------- The following table summarizes our customer statistics for Internet, video, voice and mobile as ofJune 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 ofJune 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 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. (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 --------------------------------------------------------------------------------
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
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$1.9 billion for the three and six months endedJune 30, 2021 , respectively, compared to the corresponding periods in 2020 primarily due to increases in the number of residential Internet and mobile customers, price adjustments and an increase in advertising sales. 25 -------------------------------------------------------------------------------- Revenues by service offering were as follows (dollars in millions; all percentages are calculated using whole numbers. Minor differences may exist due to rounding): Three Months Ended June 30, Six Months Ended June 30, 2021 2020 % Change 2021 2020 % Change Internet$ 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 endedJune 30, 2020 . Residential Internet customers grew by 1,409,000 customers fromJune 30, 2020 toJune 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
-------------------------------------------------------------------------------- Residential video customers decreased by 232,000 fromJune 30, 2020 toJune 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 endedJune 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
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 fromJune 30, 2020 toJune 30, 2021 . The decrease related to rate and product mix changes during the six months endedJune 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 endedJune 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 endedJune 30, 2020 offset by lower wholesale PSUs. Enterprise PSUs increased 10,000 fromJune 30, 2020 toJune 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 endedJune 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 endedJune 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 endedJune 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 fromJune 30, 2020 toJune 30, 2021 . 27 -------------------------------------------------------------------------------- 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 endedJune 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 endedJune 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 endedJune 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 endedJune 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
Mobile costs of$586 million and$1.2 billion for the three and six months endedJune 30, 2021 , respectively, and$413 million and$787 million for the three and six months endedJune 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 -------------------------------------------------------------------------------- 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 endedJune 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 endedJune 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 endedJune 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 endedJune 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 endedJune 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 --------------------------------------------------------------------------------
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 endedJune 30, 2021 , respectively, and$166 million and$195 million for the three and six months endedJune 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 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, and$37 million and$75 million for the three and six months endedJune 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
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$365 million and$642 million for 30 --------------------------------------------------------------------------------
the three and six months ended
A reconciliation of Adjusted EBITDA and free cash flow to net income attributable to Charter shareholders and net cash flows from operating activities, respectively, is as follows (dollars in millions).
Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Net income attributable to Charter shareholders$ 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
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
InMarch 2021 ,Charter Operating and Charter Communications Operating Capital Corp. jointly issued$1.5 billion aggregate principal amount of 3.500% senior secured notes dueJune 2041 at a price of 99.544% of the aggregate principal amount,$1.0 billion aggregate principal amount of 3.900% senior secured notes dueJune 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 dueApril 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 andCharter Holdings common units as well as repaying certain indebtedness, including$750 million ofCCO Holdings, LLC's ("CCO Holdings ") 5.750% notes dueFebruary 2026 . InApril 2021 ,CCO Holdings andCCO Holdings Capital Corp. jointly issued$1.0 billion of 4.500% senior unsecured notes dueJune 2033 at par, and inJune 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 andCharter Holdings common units, to repay certain indebtedness and to pay related fees and expenses. InJune 2021 ,Charter Operating and Charter Communications Operating Capital Corp. issued an additional$1.4 billion of 3.900% senior secured notes dueJune 2052 priced at 95.578% of the aggregate principal amount and$1.4 billion aggregate principal amount of 4.400% senior secured notes dueDecember 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 andCharter Holdings common units as well as repaying certain indebtedness, including 31 --------------------------------------------------------------------------------
Overview of Our Contractual Obligations and Liquidity
We have significant amounts of debt. The principal amount of our debt as ofJune 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 endedJune 30, 2021 , respectively, and$1.9 billion and$3.2 billion for the three and six months endedJune 30, 2020 , respectively. See table below for factors impacting free cash flow during the three and six months endedJune 30, 2021 compared to the corresponding prior periods. As ofJune 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 ourRural 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 ofJune 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 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, and during the three and six months endedJune 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 inSeptember 2016 throughJune 30, 2021 , Charter has purchased in the public market approximately 95.6 million shares of Class A common stock for approximately$39.7 billion . 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 with Charter, Liberty Broadband andAdvance/Newhouse Partnership ("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 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 2021 , Charter purchased from Liberty Broadband an additional 0.4 million shares of Charter Class A common stock for approximately$279 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 Class A common stock orCharter Holdings common units that represents a pro rata participation by A/N and its affiliates in 32 -------------------------------------------------------------------------------- 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, 2021 ,Charter Holdings purchased from A/N 0.9 million and 1.7 millionCharter Holdings common units, respectively, for approximately$583 million and$1.1 billion , respectively, and during the three and six months endedJune 30, 2020 ,Charter Holdings purchased from A/N 0.3 million and 1.1 millionCharter Holdings common units, respectively, for approximately$125 million and$518 million , respectively. As ofJune 30, 2021 , Charter had remaining board authority to purchase an additional$1.7 billion 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 increased$202 million and$686 million during the three and six months endedJune 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 endedJune 30, 2021 , respectively, and$233 million and$493 million during the three and six months endedJune 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 underCCO 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 ofJune 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 onJune 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
Operating Activities. Net cash provided by operating activities increased$1.0 billion during the six months endedJune 30, 2021 compared to the six months endedJune 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 endedJune 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
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 endedJune 30, 2021 , respectively, and$1.9 billion and$3.3 billion for the three and six months endedJune 30, 2020 , respectively. The increase during the six months endedJune 30, 2021 compared to the six months endedJune 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 endedJune 30, 2021 and 2020, respectively. The following tables present our major capital expenditures categories in accordance withNational Cable and Telecommunications Association ("NCTA") disclosure guidelines for the three and six months endedJune 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
Capital expenditures included in total related to: Commercial services $ 397$ 323 $ 730$ 584 Mobile $ 124$ 125 $ 236$ 212 34
-------------------------------------------------------------------------------- (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.
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