What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-07-30 compared with 2021-04-30 · 177 added, 114 removed, 249 unchanged (54% of the section changed)

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All significant intercompany accounts and transactions among consolidated entities have been eliminated.

In the first quarters 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 quarter of 2021, customer activity levels remained below normal which contributed to lower operating expense from reduced service transactions and significantly lower bad debt, however, we expect those trends to slowly return to pre-COVID-19 levels throughout 2021 as the economy reopens and normal activities resume.

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.

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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 months ended March 31, 2021 and 2020, our mobile product line increased revenues by $492 million and $258 million, respectively, reduced Adjusted EBITDA by approximately $80 million and $116 million, respectively, and reduced free cash flow by approximately $184 million and $260 million, respectively.

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.

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Minor differences may exist due to rounding):

Three Months Ended March 31,

2021 2020 % Change

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 %

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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 expenses, net, such as special charges and (gain) loss on sale or retirement of assets.

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.

Adjusted EBITDA and income from operations growth was impacted by growth in revenue and reduced service transactions and lower bad debt.

The following table summarizes our customer statistics for Internet, video, voice and mobile as of March 31, 2021 and 2020 (in thousands except per customer data and footnotes).

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.

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

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Total Voice Customers 10,273 10,567

Mobile Lines (e)

Residential 2,855 1,672

Total Mobile Lines 2,940 1,697

Enterprise Primary Service Units ("PSUs") (e)

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

(a) We calculate the aging of customer accounts based on the monthly billing cycle for each account.

On that basis, as of March 31, 2021 and 2020, customers include approximately 125,100 and 140,800 customers, respectively, whose accounts were over 60 days past due, approximately 26,500 and 12,500 customers, respectively, whose accounts were over 90 days past due and approximately 20,000 and 8,200 customers, respectively, whose accounts were over 120 days past due.

Included in the March 31, 2021 aging statistics are approximately 26,900 residential voice customers that would have been disconnected under our normal collection policies, but were not due to certain state mandates in place.

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.

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(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) Enterprise PSUs represent the aggregate number of fiber service offerings counting each separate service offering at each customer location as an individual PSU.

(e) Mobile lines include phones and tablets which require one of our standard rate plans (e.g., "Unlimited" or "By the Gig").

Mobile lines exclude wearables and other devices that do not require standard phone rate plans.

(f) Enterprise PSUs represent the aggregate number of fiber service offerings counting each separate service offering at each customer location as an individual PSU.

Critical Accounting Policies and Estimates

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The following table sets forth the consolidated statements of operations for the periods presented (dollars in millions, except per share data):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Revenues $ 12,802 $ 11,696 $ 25,324 $ 23,434

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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 expenses, net 302 7

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

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199,077,390 210,906,946 202,458,265 212,158,218

Total revenues grew $784 million for the three months ended March 31, 2021 compared to the corresponding period in 2020 primarily due to increases in the number of residential Internet and mobile customers and price adjustments.

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.

Revenues by service offering were as follows (dollars in millions;

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Minor differences may exist due to rounding):

Three Months Ended March 31,

2021 2020 % Change

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 %

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Increase in average residential Internet customers $ 358

Increase related to rate, product mix and bundle allocation changes $ 404 $ 728

Residential Internet customers grew by 1,886,000 customers from March 31, 2020 to March 31, 2021.

The increase related to rate, product mix and bundle allocation changes was primarily due to price adjustments including annual increases, promotional roll-off and higher bundled revenue allocation.

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

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

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Decrease related to rate, product mix and bundle allocation changes $ (47)

Decrease in average residential video customers $ (39) $ (40)

Decrease in video on demand and pay-per-view (17) (37)

Decrease in installation (3) (13)

Decrease in average residential video customers (1)

The decrease related to rate, product mix and bundle allocation changes was primarily due to a higher mix of lower cost video packages within our video customer base and lower bundled revenue allocation, partly offset by price adjustments including annual increases and promotional roll-off.

Residential video customers decreased by 67,000 from March 31, 2020 to March 31, 2021.

Increase related to rate, product mix and bundle allocation changes 66 19

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):

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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 247,000 customers from March 31, 2020 to March 31, 2021.

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

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):

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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)

SMB customers grew by 95,000 from March 31, 2020 to March 31, 2021.

The decrease related to rate and product mix changes was primarily due to value-based pricing related to Spectrum pricing and packaging ("SPP") and some continuing COVID-19 related seasonal plans, net of promotional roll-off and price adjustments.

Enterprise revenues increased $16 million during the three months ended March 31, 2021, respectively, compared to the corresponding period in 2020 primarily due to an increase in Internet and video enterprise PSUs offset by lower wholesale PSUs.

Enterprise PSUs increased 7,000 from March 31, 2020 to March 31, 2021.

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 decreased $21 million during the three months ended March 31, 2021 as compared to the corresponding period in 2020 primarily due to a decrease in political revenue, partially offset by higher advanced advertising.

During the three months ended March 31, 2021 and 2020, mobile revenues represented approximately $228 million and $131 million of device revenues, respectively, and approximately $264 million and $127 million of service revenues, respectively.

The increases in revenues are a result of increases in the number of mobile lines from 1,372,000 as of March 31, 2020 to 2,675,000 mobile lines as of March 31, 2021.

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.

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 decreased $4 million during the three months ended March 31, 2021 compared to the corresponding period in 2020 primarily due to a decrease in late payment fees offset by an increase in regional sports and news revenue.

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 .

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Marketing 22 7

Programming costs were approximately $3.0 billion and $2.9 billion, representing 39% of total operating costs and expense for the three months ended March 31, 2021 and 2020, respectively.

Mobile 173 371

Other 126 121

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.

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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 $49 million during the three months ended March 31, 2021, respectively, compared to the corresponding period in 2020 primarily due to higher sports rights costs as a result of more basketball games during the three months ended March 31, 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 $44 million during the three months ended March 31, 2021 compared to the corresponding period in 2020 primarily due to a decrease in bad debt expense as a result of lower write-offs and higher recoveries enhanced by the stimulus packages offset by higher labor costs resulting from our commitment to a minimum $20 per hour wage in 2022, along with 5.8% customer growth.

Mobile costs of $572 million and $374 million for the three months ended March 31, 2021 and 2020, respectively, were comprised of mobile device costs and mobile service, customer acquisition and operating costs.

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.

The decrease in other expense is attributable to the following (dollars in millions):

The increase in other expense is attributable to the following (dollars in millions):

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Advertising sales expense 51 34

Property tax and insurance (6)

Stock compensation expense 10 54

Corporate costs decreased during the three months ended March 31, 2021 compared to the corresponding prior period primarily due to a non-recurring adjustment to bonuses related to COVID-19.

Advertising sales expense decreased due to lower cost of sales fees driven by lower revenue, as well as lower bad debt.

Stock compensation expense increased during the three months ended March 31, 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.

Enterprise 7 9

Property tax and insurance 2 (4)

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 $56 million during the three months ended March 31, 2021 compared to the corresponding period 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 expenses, net.

The change in other operating expenses, net is attributable to the following (dollars in millions):

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):

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Interest expense, net.

Net interest expense decreased by $3 million for the three months ended March 31, 2021 compared to the corresponding period in 2020.

The decrease in net interest expense is the result of reductions in weighted average interest rates offset by an increase in weighted average debt outstanding of approximately $4.6 billion during the three months ended March 31, 2021 compared to the corresponding period in 2020.

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.

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Loss on extinguishment of debt $ (2)

Gain (loss) on financial instruments, net 366

Other pension benefits, net 8

Gain on equity investments, net 6

See Note 14 to the accompanying consolidated financial statements contained in “Item 1.

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 $216 million and $29 million for the three months ended March 31, 2021 and 2020, respectively.

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.

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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 $38 million for each of the three months ended March 31, 2021 and 2020.

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.

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Net income attributable to Charter shareholders.

Net income attributable to Charter shareholders increased from $396 million for the three months ended March 31, 2020 to $807 million for the three months ended March 31, 2021 primarily as a result of the factors described above.

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

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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 $277 million and $311 million for the three months ended March 31, 2021 and 2020, respectively.

Our debt covenants refer to these expenses as management fees, which were $365 million and $642 million for

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 March 31,

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

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Stock compensation expense 100 90 234 180

Other expenses, net 250 333

Other (income) expenses, net 123 (28) 373 305

Adjusted EBITDA $ 5,020 $ 4,489 $ 9,965 $ 8,885

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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 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 2033 at par.

The net proceeds will be 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.

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

$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 March 31, 2021 was $84.3 billion, consisting of $10.1 billion of credit facility debt, $50.8 billion of investment grade senior secured notes and $23.5 billion of high-yield senior unsecured notes.

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.

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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.

Free cash flow was $1.9 billion and $1.4 billion for the three months ended March 31, 2021 and 2020, respectively.

See table below for factors impacting free cash flow during the three months ended March 31, 2021 compared to the corresponding prior period.

As of March 31, 2021, the amount available under our credit facilities was approximately $4.7 billion and cash on hand was approximately $772 million.

We expect to utilize free cash

flow, cash on hand and availability under our credit facilities as well as future refinancing transactions to further extend the maturities of our obligations.

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.

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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 March 31, 2021.

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.

During the three months ended March 31, 2021 and 2020, Charter purchased approximately 4.7 million and 4.5 million of Charter Class A common stock, respectively, for approximately $3.0 billion and $2.2 billion, respectively.

Since the beginning of its buyback program in September 2016 through March 31, 2021, Charter has purchased approximately 92.4 million shares of Class A common stock for approximately $37.6 billion, excluding purchases by Liberty Broadband Corporation (“Liberty Broadband”) discussed below.

In December 2016, Charter and Advance/Newhouse Partnership (“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 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 each of the three months ended March 31, 2021 and 2020, Charter Holdings purchased from A/N 0.8 million Charter Holdings common units, respectively, for approximately $507 million and $393 million, respectively.

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 A/N, dated as of May 23, 2015 (as amended, the “Stockholders Agreement”) to participate in share repurchases by Charter.

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.

During the three months ended March 31, 2021, Charter purchased from Liberty Broadband 0.8 million shares of Charter Class A common stock for approximately $518 million.

In April 2021, the Company purchased from Liberty Broadband an additional 0.7 million shares of Charter Class A common stock for approximately $460 million.

As of March 31, 2021, Charter had remaining board authority to purchase an additional $1.2 billion of Charter’s Class A common stock and/or Charter Holdings common units.

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

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.

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Free Cash Flow

Free cash flow increased $484 million during the three months ended March 31, 2021 compared to the corresponding prior period in 2020 due to the following (dollars in millions).

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

March 31, 2021

June 30, 2021

three months ended

March 31, 2020

June 30, 2020

Increase / (Decrease) Six months ended

June 30, 2021

six months ended

June 30, 2020

Increase / (Decrease)

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Changes in working capital, excluding change in accrued interest (275) 20

Decrease in cash paid for interest, net 23

Increase in cash paid for interest, net (47) (24)

Increase in capital expenditures (4) (364)

Other, net (3) (26)

Free cash flow was reduced by $184 million and $260 million during the three months ended March 31, 2021 and 2020, respectively, due to mobile with impacts negatively affecting working capital, capital expenditures and Adjusted EBITDA.

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 March 31, 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 March 31, 2021 financial results.

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.

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Cash and Cash Equivalents.

We held $772 million and $1.0 billion in cash and cash equivalents as of March 31, 2021 and December 31, 2020, respectively.

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 $531 million during the three months ended March 31, 2021 compared to the three months ended March 31, 2020, primarily due to an increase in Adjusted EBITDA of $549 million.

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 $2.0 billion and $1.9 billion for the three months ended March 31, 2021 and 2020, respectively.

The increase in cash used was primarily due to an increase in capital expenditures offset by lower changes in accrued expenses related to capital expenditures.

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 was $2.0 billion for each of the three months ended March 31, 2021 and 2020 as the increase in the purchase of treasury stock and noncontrolling interest was offset by an increase in the amount by which borrowings of long-term debt exceeded repayments.

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 $1.8 billion and $1.5 billion for the three months ended March 31, 2021 and 2020, respectively.

The increase 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.

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 Rural Digital Opportunity Fund ("RDOF") investments which will begin later this year, to be relatively consistent as a percentage of cable revenue versus 2020.

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 $75 million and $388 million for the three months ended March 31, 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 months ended March 31, 2021 and 2020.

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.

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 March 31,

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Customer premise equipment (a) $ 494 $ 518 $ 983 $ 981

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis