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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
FORM 10-Q
______________
(Mark One) | | | | | |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2022
or | | | | | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Transition Period From to
Commission File Number: 001-33664
Charter Communications, Inc.
(Exact name of registrant as specified in its charter)
| | | | | | | | | | | |
Delaware | | 84-1496755 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| |
400 Washington Blvd. | Stamford | Connecticut | 06902 |
(Address of Principal Executive Offices) | (Zip Code) |
(203) 905-7801
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: | | | | | | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Class A Common Stock $.001 Par Value | CHTR | NASDAQ Global Select Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x Accelerated filer o Non-accelerated filer o Smaller reporting company ☐ Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No x
Number of shares of Class A common stock outstanding as of June 30, 2022: 160,654,746
Number of shares of Class B common stock outstanding as of June 30, 2022: 1
CHARTER COMMUNICATIONS, INC.
QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 2022
This quarterly report on Form 10-Q is for the three and six months ended June 30, 2022. The United States Securities and Exchange Commission (“SEC”) allows us to “incorporate by reference” information that we file with the SEC, which means that we can disclose important information to you by referring you directly to those documents. In this quarterly report, “Charter,” “we,” “us” and “our” refer to Charter Communications, Inc. and its subsidiaries.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This quarterly report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, regarding, among other things, our plans, strategies and prospects, both business and financial including, without limitation, the forward-looking statements set forth in Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this quarterly report. Although we believe that our plans, intentions and expectations as reflected in or suggested by these forward-looking statements are reasonable, we cannot assure you that we will achieve or realize these plans, intentions or expectations. Forward-looking statements are inherently subject to risks, uncertainties and assumptions including, without limitation, the factors described under “Risk Factors” in Part I, Item 1A of our most recent Form 10-K filed with the SEC. Many of the forward-looking statements contained in this quarterly report may be identified by the use of forward-looking words such as “believe,” “expect,” “anticipate,” “should,” “planned,” “will,” “may,” “intend,” “estimated,” “aim,” “on track,” “target,” “opportunity,” “tentative,” “positioning,” “designed,” “create,” “predict,” “project,” “initiatives,” “seek,” “would,” “could,” “continue,” “ongoing,” “upside,” “increases,” “grow,” “focused on” and “potential,” among others. Important factors that could cause actual results to differ materially from the forward-looking statements we make in this quarterly report are set forth in this quarterly report on Form 10-Q, in our annual report on Form 10-K, and in other reports or documents that we file from time to time with the SEC, and include, but are not limited to:
•our ability to sustain and grow revenues and cash flow from operations by offering Internet, video, voice, mobile, advertising and other services to residential and commercial customers, to adequately meet the customer experience demands in our service areas and to maintain and grow our customer base, particularly in the face of increasingly aggressive competition, the need for innovation and the related capital expenditures;
•the impact of competition from other market participants, including but not limited to incumbent telephone companies, direct broadcast satellite ("DBS") operators, wireless broadband and telephone providers, digital subscriber line (“DSL”) providers, fiber to the home providers and providers of video content over broadband Internet connections;
•general business conditions, unemployment levels and the level of activity in the housing sector and economic uncertainty or downturn, including the impacts of the Novel Coronavirus (“COVID-19”) pandemic to sales opportunities from residential move activity, our customers, our vendors and local, state and federal governmental responses to the pandemic;
•our ability to obtain programming at reasonable prices or to raise prices to offset, in whole or in part, the effects of higher programming costs (including retransmission consents and distribution requirements);
•our ability to develop and deploy new products and technologies including consumer services and service platforms;
•any events that disrupt our networks, information systems or properties and impair our operating activities or our reputation;
•the effects of governmental regulation on our business including subsidies to consumers, subsidies and incentives for competitors, costs, disruptions and possible limitations on operating flexibility related to, and our ability to comply with, regulatory conditions applicable to us;
•the ability to hire and retain key personnel;
•our ability to procure necessary services and equipment from our vendors in a timely manner and at reasonable costs;
•the availability and access, in general, of funds to meet our debt obligations prior to or when they become due and to fund our operations and necessary capital expenditures, either through (i) cash on hand, (ii) free cash flow, or (iii) access to the capital or credit markets; and
•our ability to comply with all covenants in our indentures and credit facilities, any violation of which, if not cured in a timely manner, could trigger a default of our other obligations under cross-default provisions.
All forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by this cautionary statement. We are under no duty or obligation to update any of the forward-looking statements after the date of this quarterly report.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in millions, except share data)
| | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
| (unaudited) | | |
ASSETS | | | |
CURRENT ASSETS: | | | |
Cash and cash equivalents | $ | 483 | | | $ | 601 | |
Accounts receivable, less allowance for doubtful accounts of $219 and $157, respectively | 2,779 | | | 2,579 | |
Prepaid expenses and other current assets | 476 | | | 386 | |
Total current assets | 3,738 | | | 3,566 | |
| | | |
INVESTMENT IN CABLE PROPERTIES: | | | |
Property, plant and equipment, net of accumulated depreciation of $34,676 and $34,253, respectively | 34,472 | | | 34,310 | |
Customer relationships, net of accumulated amortization of $14,875 and $14,180, respectively | 3,373 | | | 4,060 | |
Franchises | 67,354 | | | 67,346 | |
Goodwill | 29,563 | | | 29,562 | |
Total investment in cable properties, net | 134,762 | | | 135,278 | |
| | | |
OTHER NONCURRENT ASSETS | 4,758 | | | 3,647 | |
| | | |
Total assets | $ | 143,258 | | | $ | 142,491 | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | |
CURRENT LIABILITIES: | | | |
Accounts payable and accrued liabilities | $ | 9,862 | | | $ | 9,461 | |
Current portion of long-term debt | 1,533 | | | 2,997 | |
Total current liabilities | 11,395 | | | 12,458 | |
| | | |
LONG-TERM DEBT | 94,468 | | | 88,564 | |
DEFERRED INCOME TAXES | 19,123 | | | 19,096 | |
OTHER LONG-TERM LIABILITIES | 4,759 | | | 4,217 | |
| | | |
SHAREHOLDERS’ EQUITY: | | | |
Class A common stock; $0.001 par value; 900 million shares authorized; | | | |
173,764,131 and 172,741,236 shares issued, respectively | — | | | — | |
Class B common stock; $0.001 par value; 1,000 shares authorized; | | | |
1 share issued and outstanding | — | | | — | |
Preferred stock; $0.001 par value; 250 million shares authorized; no shares issued and outstanding | — | | | — | |
Additional paid-in capital | 26,900 | | | 26,725 | |
Accumulated deficit | (10,001) | | | (12,675) | |
Treasury stock at cost; 13,109,385 and no shares, respectively | (7,020) | | | — | |
Total Charter shareholders’ equity | 9,879 | | | 14,050 | |
Noncontrolling interests | 3,634 | | | 4,106 | |
Total shareholders’ equity | 13,513 | | | 18,156 | |
| | | |
Total liabilities and shareholders’ equity | $ | 143,258 | | | $ | 142,491 | |
The accompanying notes are an integral part of these consolidated financial statements.
1
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in millions, except per share data)
Unaudited
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
REVENUES | $ | 13,598 | | | $ | 12,802 | | | $ | 26,798 | | | $ | 25,324 | |
| | | | | | | |
COSTS AND EXPENSES: | | | | | | | |
Operating costs and expenses (exclusive of items shown separately below) | 8,193 | | | 7,882 | | | 16,327 | | | 15,593 | |
Depreciation and amortization | 2,240 | | | 2,354 | | | 4,534 | | | 4,795 | |
Other operating (income) expenses, net | (62) | | | (9) | | | (61) | | | 293 | |
| 10,371 | | | 10,227 | | | 20,800 | | | 20,681 | |
Income from operations | 3,227 | | | 2,575 | | | 5,998 | | | 4,643 | |
| | | | | | | |
OTHER INCOME (EXPENSES): | | | | | | | |
Interest expense, net | (1,109) | | | (1,004) | | | (2,169) | | | (1,987) | |
Other income (expenses), net | 79 | | | (132) | | | 102 | | | (80) | |
| (1,030) | | | (1,136) | | | (2,067) | | | (2,067) | |
| | | | | | | |
Income before income taxes | 2,197 | | | 1,439 | | | 3,931 | | | 2,576 | |
Income tax expense | (489) | | | (281) | | | (834) | | | (497) | |
Consolidated net income | 1,708 | | | 1,158 | | | 3,097 | | | 2,079 | |
Less: Net income attributable to noncontrolling interests | (237) | | | (138) | | | (423) | | | (252) | |
Net income attributable to Charter shareholders | $ | 1,471 | | | $ | 1,020 | | | $ | 2,674 | | | $ | 1,827 | |
| | | | | | | |
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CHARTER SHAREHOLDERS: | | | | | | |
Basic | $ | 8.96 | | | $ | 5.48 | | | $ | 15.98 | | | $ | 9.69 | |
Diluted | $ | 8.80 | | | $ | 5.29 | | | $ | 15.66 | | | $ | 9.37 | |
| | | | | | | |
Weighted average common shares outstanding, basic | 164,049,619 | | | 185,916,505 | | | 167,350,535 | | | 188,645,356 | |
Weighted average common shares outstanding, diluted | 167,090,925 | | | 199,077,390 | | | 170,741,462 | | | 202,458,265 | |
The accompanying notes are an integral part of these consolidated financial statements.
2
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(dollars in millions)
Unaudited
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Class A Common Stock | Class B Common Stock | Additional Paid-in Capital | Accumulated Deficit | Treasury Stock | Total Charter Shareholders’ Equity | Non-controlling Interests | Total Shareholders’ Equity |
BALANCE, December 31, 2021 | $ | — | | $ | — | | $ | 26,725 | | $ | (12,675) | | $ | — | | $ | 14,050 | | $ | 4,106 | | $ | 18,156 | |
Consolidated net income | — | | — | | — | | 1,203 | | — | | 1,203 | | 186 | | 1,389 | |
Stock compensation expense | — | | — | | 147 | | — | | — | | 147 | | — | | 147 | |
Exercise of stock options | — | | — | | 1 | | — | | — | | 1 | | — | | 1 | |
Purchases of treasury stock | — | | — | | — | | — | | (3,333) | | (3,333) | | — | | (3,333) | |
Purchase of noncontrolling interest, net of tax | — | | — | | (197) | | — | | — | | (197) | | (156) | | (353) | |
Change in noncontrolling interest ownership, net of tax | — | | — | | 189 | | — | | — | | 189 | | (250) | | (61) | |
Distributions to noncontrolling interest | — | | — | | — | | — | | — | | — | | (2) | | (2) | |
BALANCE, March 31, 2022 | — | | — | | 26,865 | | (11,472) | | (3,333) | | 12,060 | | 3,884 | | 15,944 | |
Consolidated net income | — | | — | | — | | 1,471 | | — | | 1,471 | | 237 | | 1,708 | |
Stock compensation expense | — | | — | | 104 | | — | | — | | 104 | | — | | 104 | |
Exercise of stock options | — | | — | | 4 | | — | | — | | 4 | | — | | 4 | |
Purchases of treasury stock | — | | — | | — | | — | | (3,687) | | (3,687) | | — | | (3,687) | |
Purchase of noncontrolling interest, net of tax | — | | — | | (256) | | — | | — | | (256) | | (238) | | (494) | |
Change in noncontrolling interest ownership, net of tax | — | | — | | 183 | | — | | — | | 183 | | (244) | | (61) | |
Distributions to noncontrolling interest | — | | — | | — | | — | | — | | — | | (5) | | (5) | |
BALANCE, June 30, 2022 | $ | — | | $ | — | | $ | 26,900 | | $ | (10,001) | | $ | (7,020) | | $ | 9,879 | | $ | 3,634 | | $ | 13,513 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Class A Common Stock | Class B Common Stock | Additional Paid-in Capital | Accumulated Deficit | Treasury Stock | Total Charter Shareholders’ Equity | Non-controlling Interests | Total Shareholders’ Equity |
BALANCE, December 31, 2020 | $ | — | | $ | — | | $ | 29,000 | | $ | (5,195) | | $ | — | | $ | 23,805 | | $ | 6,476 | | $ | 30,281 | |
Consolidated net income | — | | — | | — | | 807 | | — | | 807 | | 114 | | 921 | |
Stock compensation expense | — | | — | | 134 | | — | | — | | 134 | | — | | 134 | |
Exercise of stock options | — | | — | | 9 | | — | | — | | 9 | | — | | 9 | |
Purchases of treasury stock | — | | — | | — | | — | | (3,652) | | (3,652) | | — | | (3,652) | |
Purchase of noncontrolling interest, net of tax | — | | — | | (237) | | — | | — | | (237) | | (192) | | (429) | |
Change in noncontrolling interest ownership, net of tax | — | | — | | 131 | | — | | — | | 131 | | (175) | | (44) | |
Distributions to noncontrolling interest | — | | — | | — | | — | | — | | — | | (39) | | (39) | |
BALANCE, March 31, 2021 | — | | — | | 29,037 | | (4,388) | | (3,652) | | 20,997 | | 6,184 | | 27,181 | |
Consolidated net income | — | | — | | — | | 1,020 | | — | | 1,020 | | 138 | | 1,158 | |
Stock compensation expense | — | | — | | 100 | | — | | — | | 100 | | — | | 100 | |
Exercise of stock options | — | | — | | 17 | | — | | — | | 17 | | — | | 17 | |
Purchases of treasury stock | — | | — | | — | | — | | (3,516) | | (3,516) | | — | | (3,516) | |
Purchase of noncontrolling interest, net of tax | — | | — | | (279) | | — | | — | | (279) | | (213) | | (492) | |
Preferred unit conversion and change in noncontrolling interest ownership, net of tax | — | | — | | 1,003 | | — | | — | | 1,003 | | (1,333) | | (330) | |
Distributions to noncontrolling interest | — | | — | | — | | — | | — | | — | | (32) | | (32) | |
BALANCE, June 30, 2021 | $ | — | | $ | — | | $ | 29,878 | | $ | (3,368) | | $ | (7,168) | | $ | 19,342 | | $ | 4,744 | | $ | 24,086 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
3
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
Unaudited
| | | | | | | | | | | |
| Six Months Ended June 30, |
| 2022 | | 2021 |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | |
Consolidated net income | $ | 3,097 | | | $ | 2,079 | |
Adjustments to reconcile consolidated net income to net cash flows from operating activities: | | | |
Depreciation and amortization | 4,534 | | | 4,795 | |
Stock compensation expense | 251 | | | 234 | |
Noncash interest income, net | (7) | | | (15) | |
Deferred income taxes | 115 | | | 371 | |
Other, net | (153) | | | 124 | |
Changes in operating assets and liabilities, net of effects from acquisitions and dispositions: | | | |
Accounts receivable | (200) | | | (44) | |
Prepaid expenses and other assets | (133) | | | (113) | |
Accounts payable, accrued liabilities and other | (123) | | | 319 | |
Net cash flows from operating activities | 7,381 | | | 7,750 | |
| | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | |
Purchases of property, plant and equipment | (4,050) | | | (3,702) | |
Change in accrued expenses related to capital expenditures | 128 | | | (125) | |
Other, net | (160) | | | (145) | |
Net cash flows from investing activities | (4,082) | | | (3,972) | |
| | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | |
Borrowings of long-term debt | 16,631 | | | 10,958 | |
Repayments of long-term debt | (11,947) | | | (5,759) | |
Payments for debt issuance costs | (57) | | | (58) | |
Purchase of treasury stock | (7,020) | | | (7,168) | |
Proceeds from exercise of stock options | 5 | | | 26 | |
Purchase of noncontrolling interest | (994) | | | (1,090) | |
Distributions to noncontrolling interest | (7) | | | (71) | |
Other, net | (28) | | | 94 | |
Net cash flows from financing activities | (3,417) | | | (3,068) | |
| | | |
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | (118) | | | 710 | |
CASH AND CASH EQUIVALENTS, beginning of period | 601 | | | 1,001 | |
CASH AND CASH EQUIVALENTS, end of period | $ | 483 | | | $ | 1,711 | |
| | | |
CASH PAID FOR INTEREST | $ | 2,150 | | | $ | 1,996 | |
CASH PAID FOR TAXES | $ | 470 | | | $ | 69 | |
The accompanying notes are an integral part of these consolidated financial statements.
4
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
1. Organization and Basis of Presentation
Organization
Charter Communications, Inc. (together with its controlled subsidiaries, “Charter,” or the “Company”) is a leading broadband connectivity company and cable operator. Over an advanced high-capacity, two-way telecommunications network, the Company offers 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. The Company also distributes award-winning news coverage, sports and high-quality original programming to its customers through Spectrum Networks and Spectrum Originals.
Charter is a holding company whose principal asset is a controlling equity interest in Charter Communications Holdings, LLC (“Charter Holdings”), an indirect owner of Charter Communications Operating, LLC (“Charter Operating”) under which substantially all of the operations reside. All significant intercompany accounts and transactions among consolidated entities have been eliminated.
The Company’s operations are managed and reported to its Chief Executive Officer (“CEO”), the Company’s chief operating decision maker, on a consolidated basis. The CEO assesses performance and allocates resources based on the consolidated results of operations. Under this organizational and reporting structure, the Company has one reportable segment.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, certain information and footnote disclosures typically included in the Company's Annual Report on Form 10-K have been condensed or omitted for this quarterly report. The accompanying consolidated financial statements are unaudited and are subject to review by regulatory authorities. However, in the opinion of management, such financial statements include all adjustments, which consist of only normal recurring adjustments, necessary for a fair presentation of the results for the periods presented. Interim results are not necessarily indicative of results for a full year.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Areas involving significant judgments and estimates include capitalization of labor and overhead costs, pension benefits and income taxes. Actual results could differ from those estimates.
Comprehensive income equaled net income attributable to Charter shareholders for the three and six months ended June 30, 2022 and 2021.
2. Investments
In June 2022, the Company and Comcast Corporation ("Comcast") entered into a 50/50 joint venture to develop and offer a next-generation streaming platform on a variety of streaming devices and smart TVs. Comcast licensed its streaming platform and hardware to the joint venture and contributed the retail business for XClass TVs and Xumo, a streaming service it acquired in 2020. The Company's initial investment will be approximately $979 million with $175 million paid in June 2022 and with the remaining non-cancelable required contributions to be paid over multiple years and recorded as accrued obligations as of June 30, 2022. The Company accounted for the investment as an equity method investment and will record investment income (loss) on its share of the joint venture income (loss).
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
3. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of the following as of June 30, 2022 and December 31, 2021:
| | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
Accounts payable – trade | $ | 718 | | | $ | 724 | |
Deferred revenue | 533 | | | 461 | |
Accrued liabilities: | | | |
Programming costs | 2,061 | | | 2,036 | |
Labor | 1,128 | | | 1,304 | |
Capital expenditures | 1,400 | | | 1,281 | |
Interest | 1,124 | | | 1,099 | |
Taxes and regulatory fees | 813 | | | 592 | |
Property and casualty | 502 | | | 490 | |
Operating lease liabilities | 281 | | | 269 | |
Other | 1,302 | | | 1,205 | |
| $ | 9,862 | | | $ | 9,461 | |
4. Long-Term Debt
A summary of our debt as of June 30, 2022 and December 31, 2021 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | June 30, 2022 | | | | December 31, 2021 |
| | | Principal Amount | | Carrying Value | | Fair Value | | | | Principal Amount | | Carrying Value | | Fair Value |
Senior unsecured notes | | | $ | 25,150 | | | $ | 25,075 | | | $ | 21,535 | | | | | $ | 23,950 | | | $ | 23,882 | | | $ | 24,630 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Senior secured notes and debentures(a) | | | 56,852 | | | 57,258 | | | 49,843 | | | | | 56,525 | | | 57,011 | | | 64,346 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Credit facilities(b) | | | 13,729 | | | 13,668 | | | 13,026 | | | | | 10,723 | | | 10,668 | | | 10,665 | |
| | | $ | 95,731 | | | $ | 96,001 | | | $ | 84,404 | | | | | $ | 91,198 | | | $ | 91,561 | | | $ | 99,641 | |
(a)Includes the Company's £625 million and £650 million fixed-rate British pound sterling denominated notes (the “Sterling Notes”) remeasured using the exchange rate at the respective dates.
(b)The Company has availability under the Charter Operating credit facilities of approximately $4.4 billion as of June 30, 2022.
The estimated fair value of the Company’s senior unsecured and secured notes and debentures as of June 30, 2022 and December 31, 2021 is based on quoted market prices in active markets and is classified within Level 1 of the valuation hierarchy, while the estimated fair value of the Company’s credit facilities is based on quoted market prices in inactive markets and is classified within Level 2.
In January 2022, CCO Holdings, LLC ("CCO Holdings") and CCO Holdings Capital Corp. jointly issued $1.2 billion of 4.750% senior unsecured notes due February 2032 at par. The net proceeds were used for general corporate purposes, including to fund buybacks of Charter Class A common stock and Charter Holdings common units, to repay certain indebtedness and to pay related fees and expenses.
In March 2022, Charter Operating and Charter Communications Operating Capital Corp. jointly issued $1.0 billion aggregate principal amount of 4.400% senior secured notes due April 2033 at a price of 99.634% of the aggregate principal amount, $1.5 billion aggregate principal amount of 5.250% senior secured notes due April 2053 at a price of 99.300% of the aggregate principal amount and $1.0 billion aggregate principal amount of 5.500% senior secured notes due April 2063 at a price of 99.255% of the aggregate principal amount. The net proceeds were used for general corporate purposes, including to fund
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
buybacks of Charter Class A common stock and Charter Holdings common units, to repay certain indebtedness and to pay related fees and expenses.
In May and June 2022, Charter Operating and Charter Communications Operating Capital Corp. redeemed all of their outstanding 4.464% senior notes due July 2022.
In May 2022, Charter Operating entered into an amendment to its credit agreement (the "Amendment") to: (i) upsize term A loans by $2.3 billion to $6.05 billion and extend the maturity to August 31, 2027 from March 31, 2023 and February 1, 2025, (ii) create and borrow a new tranche of $500 million of term A-6 loans maturing August 31, 2028, (iii) increase the size of Charter Operating's revolving credit facility and extend the maturity date to August 31, 2027 from March 31, 2023 and February 1, 2025 and (iv) make certain other amendments to the credit agreement. The Company used a portion of the proceeds from the Amendment to repay all of the term A-2 loans, term A-4 loans and borrowings under the revolving credit facility outstanding prior to the effective date of the Amendment.
After giving effect to the Amendment: (i) the aggregate principal amount of term A-5 loans outstanding is $6.05 billion with a pricing of Secured Overnight Financing Rate ("SOFR") plus 1.25%, (ii) the aggregate principal amount of term A-6 loans outstanding is $500 million with a pricing of SOFR plus 1.50% and (iii) the aggregate amount of the revolving credit facility increased to a total capacity of $5.5 billion and the interest rate benchmark changed from London Interbank Offering Rate ("LIBOR") to SOFR, with a pricing of SOFR plus 1.25%. The aggregate principal amount of term B-1 loans (maturing April 30, 2025) and term B-2 loans (maturing February 1, 2027) outstanding are $2.4 billion and $3.7 billion, respectively, with LIBOR-based pricing unchanged.
The Amendment also removed mandatory prepayment requirements upon asset sales and property or casualty insurance recoveries, made changes to the affirmative covenants, including changes to the financial reporting covenants, and made changes to the negative covenants, including removal of certain negative covenants in their entirety.
Losses on extinguishment of debt are recorded in other income (expenses), net in the consolidated statements of operations and consisted of the following.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
CCO Holdings notes redemption | $ | — | | | $ | (46) | | | $ | — | | | $ | (75) | |
Charter Operating credit facility refinancing | (2) | | | — | | | (2) | | | — | |
Charter Operating notes redemption | (1) | | | — | | | (1) | | | — | |
| $ | (3) | | | $ | (46) | | | $ | (3) | | | $ | (75) | |
5. Common Stock
The following represents the Company's purchase of Charter Class A common stock and the effect on the consolidated statements of cash flows during the three and six months ended June 30, 2022 and 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Shares | | $ | | Shares | | $ | | Shares | | $ | | Shares | | $ |
Share buybacks | 7,264,833 | | | $ | 3,675 | | | 5,147,257 | | | $ | 3,392 | | | 12,590,427 | | | $ | 6,847 | | | 10,703,575 | | | $ | 6,866 | |
Income tax withholding | 24,630 | | | 12 | | | 183,357 | | | 124 | | | 289,475 | | | 173 | | | 467,920 | | | 302 | |
Exercise cost | 80,826 | | | | | 185,698 | | | | | 229,483 | | | | | 495,513 | | | |
| 7,370,289 | | | $ | 3,687 | | | 5,516,312 | | | $ | 3,516 | | | 13,109,385 | | | $ | 7,020 | | | 11,667,008 | | | $ | 7,168 | |
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
Share buybacks above include shares of Charter Class A common stock purchased from Liberty Broadband Corporation (“Liberty Broadband”) as follows.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Number of shares purchased | 2,257,443 | | | 1,927,032 | | | 3,227,684 | | | 2,761,608 | |
Amount of shares purchased | $ | 1,204 | | | $ | 1,244 | | | $ | 1,806 | | | $ | 1,762 | |
In July 2022, the Company purchased from Liberty Broadband an additional 0.8 million shares of Charter Class A common stock for approximately $363 million.
As of June 30, 2022, Charter had remaining board authority to purchase an additional $673 million of Charter’s Class A common stock and/or Charter Holdings common units, excluding purchases from Liberty Broadband. The Company also withholds shares of its Class A common stock in payment of income tax withholding owed by employees upon vesting of equity awards as well as exercise costs owed by employees upon exercise of stock options.
In 2021, Charter’s board of directors approved the retirement of the then currently held treasury stock and those shares were retired as of December 31, 2021. The Company accounts for treasury stock using the cost method and includes treasury stock as a component of total shareholders’ equity.
6. Noncontrolling Interests
Noncontrolling interests represents consolidated subsidiaries of which the Company owns less than 100%. The Company is a holding company whose principal asset is a controlling equity interest in Charter Holdings, the indirect owner of the Company’s cable systems. Noncontrolling interests on the Company’s balance sheet consist primarily of Advance/Newhouse Partnership's (“A/N”) equity interests in Charter Holdings, which is comprised of a common ownership interest and prior to June 18, 2021, a convertible preferred ownership interest.
Net income of Charter Holdings attributable to A/N’s common noncontrolling interest for financial reporting purposes is based on the weighted average effective common ownership interest of approximately 11% during 2022 and 7% prior to conversion of the preferred units and 11% after conversion during 2021, and was $236 million and $422 million for the three and six months ended June 30, 2022, respectively, and $105 million and $181 million for the three and six months ended June 30, 2021, respectively. Net income of Charter Holdings attributable to A/N's preferred noncontrolling interest for financial reporting purposes is based on the preferred dividend which was $32 million and $70 million for the three and six months ended June 30, 2021, respectively. In June 2021, the Company caused the conversion of all of A/N's Charter Holdings convertible preferred units into Charter Holdings common units.
The following table represents Charter Holdings' purchase of Charter Holdings common units from A/N and the effect on total shareholders' equity during the three and six months ended June 30, 2022 and 2021.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Number of units purchased | 1,063,333 | | | 912,034 | | | 1,720,601 | | | 1,704,688 | |
| | | | | | | |
Amount of units purchased | $ | 578 | | | $ | 583 | | | $ | 994 | | | $ | 1,090 | |
Decrease in noncontrolling interest based on carrying value | $ | (238) | | | $ | (213) | | | $ | (394) | | | $ | (405) | |
Decrease in additional paid-in-capital, net of tax | $ | (256) | | | $ | (279) | | | $ | (453) | | | $ | (516) | |
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
Total shareholders' equity was also adjusted during the three and six months ended June 30, 2022 and 2021 due to the changes in Charter Holdings' ownership including the impact of the preferred unit conversion in June 2021 as follows.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Decrease in noncontrolling interest | $ | (244) | | | $ | (1,333) | | | $ | (494) | | | $ | (1,508) | |
Increase in additional paid-in-capital, net of tax | $ | 183 | | | $ | 1,003 | | | $ | 372 | | | $ | 1,134 | |
7. Accounting for Derivative Instruments and Hedging Activities
Cross-currency derivative instruments are used to manage foreign exchange risk on the Sterling Notes by effectively converting £1.275 billion aggregate principal amount of fixed-rate British pound sterling denominated debt, including annual interest payments and the payment of principal at maturity, to fixed-rate U.S. dollar denominated debt. The fair value of the Company's cross-currency derivatives, which are classified within Level 2 of the valuation hierarchy, was $450 million and $290 million and is included in other long-term liabilities on its consolidated balance sheets as of June 30, 2022 and December 31, 2021, respectively.
The effect of financial instruments are recorded in other income (expenses), net in the consolidated statements of operations and consisted of the following.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Change in fair value of cross-currency derivative instruments | $ | (124) | | | $ | (85) | | | $ | (160) | | | $ | (22) | |
Foreign currency remeasurement of Sterling Notes to U.S. dollars | 125 | | | (6) | | | 175 | | | (21) | |
Gain (loss) on financial instruments, net | $ | 1 | | | $ | (91) | | | $ | 15 | | | $ | (43) | |
8. Revenues
The Company’s revenues by product line are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Internet | $ | 5,562 | | | $ | 5,221 | | | $ | 11,014 | | | $ | 10,307 | |
Video | 4,484 | | | 4,378 | | | 8,830 | | | 8,722 | |
Voice | 398 | | | 394 | | | 789 | | | 793 | |
Residential revenue | 10,444 | | | 9,993 | | | 20,633 | | | 19,822 | |
| | | | | | | |
Small and medium business | 1,080 | | | 1,042 | | | 2,139 | | | 2,054 | |
Enterprise | 669 | | | 636 | | | 1,330 | | | 1,274 | |
Commercial revenue | 1,749 | | | 1,678 | | | 3,469 | | | 3,328 | |
| | | | | | | |
Advertising sales | 460 | | | 411 | | | 843 | | | 755 | |
Mobile | 726 | | | 519 | | | 1,416 | | | 1,011 | |
Other | 219 | | | 201 | | | 437 | | | 408 | |
| $ | 13,598 | | | $ | 12,802 | | | $ | 26,798 | | | $ | 25,324 | |
As of June 30, 2022 and December 31, 2021, accounts receivable, net on the consolidated balance sheets includes approximately $477 million and $391 million of current equipment installment plan receivables, respectively, and other
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
noncurrent assets includes approximately $231 million and $189 million of noncurrent equipment installment plan receivables, respectively.
9. Operating Costs and Expenses
Operating costs and expenses, exclusive of items shown separately in the consolidated statements of operations, consist of the following for the periods presented:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Programming | $ | 2,972 | | | $ | 2,978 | | | $ | 5,949 | | | $ | 5,966 | |
Regulatory, connectivity and produced content | 599 | | | 668 | | | 1,155 | | | 1,268 | |
Costs to service customers | 1,920 | | | 1,827 | | | 3,819 | | | 3,631 | |
Marketing | 806 | | | 741 | | | 1,632 | | | 1,492 | |
Mobile | 797 | | | 586 | | | 1,557 | | | 1,158 | |
Other | 1,099 | | | |