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As filed with the Securities and Exchange Commission on April 11, 2017
Registration No. 333-
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1 REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
Altice USA, Inc. (ExactnameofregistrantasspecifiedinitsCharter)
Delaware (Stateorotherjurisdictionof
incorporationororganization)
4841 (PrimaryStandardIndustrialClassificationCodeNumber)
38-3980194 (I.R.S.EmployerIdentificationNo.)
1111 Stewart Avenue Bethpage, NY 11714
(516) 803-2300 (Address,includingzipcode,andtelephonenumber,includingareacode,ofregistrant'sprincipalexecutiveoffice)
David Connolly Executive Vice President and General Counsel
1111 Stewart Avenue Bethpage, NY 11714
(516) 803-2300 (Name,address,includingzipcode,andtelephonenumber,includingareacode,ofagentforservice)
Richard B. Alsop Kyungwon Lee
Shearman & Sterling LLP 599 Lexington Avenue New York, NY 10022
(212) 848-4000
Craig Marcus Michael Kazakevich Ropes & Gray LLP Prudential Tower
800 Boylston Street Boston, MA 02199
(617) 951-7000
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.
IfanyofthesecuritiesbeingregisteredonthisFormaretobeofferedonadelayedorcontinuousbasispursuanttoRule415undertheSecuritiesActof1933,checkthefollowingbox.o
IfthisFormisfiledtoregisteradditionalsecuritiesforanofferingpursuanttoRule462(b)undertheSecuritiesAct,checkthefollowingboxandlisttheSecuritiesActregistrationstatementnumberoftheearliereffectiveregistrationstatementforthesameoffering.o
IfthisFormisapost-effectiveamendmentfiledpursuanttoRule462(c)undertheSecuritiesAct,checkthefollowingboxandlisttheSecuritiesActregistrationstatementnumberoftheearliereffectiveregistrationstatementforthesameoffering.o
IfthisFormisapost-effectiveamendmentfiledpursuanttoRule462(d)undertheSecuritiesAct,checkthefollowingboxandlisttheSecuritiesActregistrationstatementnumberoftheearliereffectiveregistrationstatementforthesameoffering.o
Indicatebycheckmarkwhethertheregistrantisalargeacceleratedfiler,anacceleratedfiler,anon-acceleratedfiler,orasmallerreportingcompany.Seethedefinitionsof"largeacceleratedfiler,""acceleratedfiler"and"smallerreportingcompany"inRule12b-2oftheExchangeAct.(checkone)
CALCULATION OF REGISTRATION FEE
Title of Each Class of Securities to be Registered
Proposed Maximum Aggregate Offering Price(1)(2)
Amount of Registration Fee
ClassAcommonstock,parvalue$0.01pershare $100,000,000.00 $11,590.00
(1) EstimatedsolelyforthepurposeofcalculatingtheamountoftheregistrationfeepursuanttoRule457(o)undertheSecuritiesActof1933,asamended.
(2) IncludestheofferingpriceofsharesofClassAcommonstockthatmaybesoldiftheunderwritersexercisetheiroptiontopurchaseadditionalsharesofClassAcommonstock.
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrantshall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) ofthe Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission,acting pursuant to Section 8(a), may determine.
Largeacceleratedfilero Acceleratedfilero Non-acceleratedfilerý(Donotcheckifa
smallerreportingcompany)
Smallerreportingcompanyo
TableofContents
The information in this prospectus is not complete and may be changed. We and the selling stockholders may not sell these securities until the registrationstatement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting anoffer to buy these securities in any state where the offer or sale is not permitted.
Subject to Completion Preliminary Prospectus dated April 11, 2017
PROSPECTUS
Shares
Altice USA, Inc.
Class A Common Stock
ThisisAlticeUSA,Inc.'sinitialpublicoffering.WearesellingsharesofourClassAcommonstockandthesellingstockholdersidentifiedinthisprospectusaresellingsharesofourClassAcommonstock.WewillnotreceiveanyoftheproceedsfromthesaleofthesharesofClassAcommonstockbythesellingstockholders.
Followingthisoffering,wewillhavethreeclassesofcommonstock:ClassAcommonstock,ClassBcommonstockandClassCcommonstock.TherightsofholdersofClassAcommonstock,ClassBcommonstockandClassCcommonstockwillbeidenticalexceptwithrespecttovotingandconversionrights.EachshareofClassAcommonstockwillbeentitledtoonevote.EachshareofClassBcommonstockwillbeentitledtotwenty-fivevotesandwillbeconvertibleatanytimeintooneshareofClassAcommonstock.IfweissueanysharesofClassCcommonstock,theywillbenon-voting.TheholdersofouroutstandingClassBcommonstockwillholdapproximately%ofthevotingpowerofouroutstandingcapitalstockimmediatelyfollowingthisoffering.
Weexpectthepublicofferingpricetobebetween$and$.Priortothisoffering,therehasbeennopublicmarketforourClassAcommonstock.WewillapplytolistourClassAcommonstockontheunderthesymbol"."
Afterthecompletionofthisoffering,wewillbea"controlledcompany"withinthemeaningofthecorporategovernancestandardsofthe.See"RiskFactors"beginningonpage17and"Management—ControlledCompany"beginningonpage153foradditionalinformation.
Investing in our Class A common stock involves risks that are described in the "Risk Factors" section beginning onpage 17 of this prospectus.
Per Share Total
Publicofferingprice $ $
Underwritingdiscountandcommissions(1) $ $
Proceeds,beforeexpenses,tous $ $
Proceeds,beforeexpenses,tothesellingstockholders $ $
(1) See"Underwriting"beginningonpage193foradditionalinformationregardingunderwritingcompensation.
TheunderwritersmayalsoexercisetheiroptiontopurchaseuptoanadditionalsharesofClassAcommonstockfrom,atthepublicofferingprice,for30daysafterthedateofthisprospectus.
NeithertheSecuritiesandExchangeCommissionnoranystatesecuritiescommissionhasapprovedordisapprovedofthesesecuritiesordeterminedifthisprospectusistruthfulorcomplete.Anyrepresentationtothecontraryisacriminaloffense.
TheunderwritersexpecttodeliverthesharesofClassAcommonstocktopurchasersonorabout,2017.
Joint Book-Running Managers
J.P. Morgan Morgan Stanley Citigroup Goldman, Sachs & Co.
Thedateofthisprospectusis,2017.
TABLE OF CONTENTS
Youshouldrelyonlyontheinformationcontainedinthisprospectusandinanyfreewritingprospectuspreparedbyoronbehalfofusanddeliveredormadeavailabletoyou.Neitherwe,thesellingstockholdersnoranyoftheunderwritershaveauthorizedanyonetoprovideyouwithadditionalordifferentinformation.Weandthesellingstockholdersareofferingtosell,andseekingofferstobuy,sharesofourClassAcommonstockonlyinjurisdictionswhereoffersandsalesarepermitted.Theinformationcontainedinthisprospectusorafreewritingprospectusisaccurateonlyasofitsdate,regardlessofitstimeofdeliveryorofanysaleofsharesofourClassAcommonstock.Ourbusiness,financialcondition,operatingresultsandprospectsmayhavechangedsincethatdate.
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Page FORINVESTORSOUTSIDETHEUNITEDSTATES iiTRADEMARKS,SERVICEMARKSANDTRADENAMES iiMARKETANDINDUSTRYDATA iiINDUSTRYTERMS iiiPROSPECTUSSUMMARY 1THEOFFERING 12SUMMARYHISTORICALANDPROFORMAFINANCIALDATA 14RISKFACTORS 17CAUTIONARYSTATEMENTREGARDINGFORWARD-LOOKINGSTATEMENTS 45USEOFPROCEEDS 47DIVIDENDPOLICY 48CAPITALIZATION 49DILUTION 50SELECTEDHISTORICALANDPROFORMAFINANCIALDATA 52UNAUDITEDPROFORMACONSOLIDATEDFINANCIALINFORMATION 59MANAGEMENT'SDISCUSSIONANDANALYSISOFFINANCIALCONDITIONANDRESULTSOFOPERATIONS
67
INDUSTRYOVERVIEW 114BUSINESS 120REGULATION 143MANAGEMENT 151EXECUTIVECOMPENSATION 156PRINCIPALANDSELLINGSTOCKHOLDERS 163CERTAINRELATIONSHIPSANDRELATED-PARTYTRANSACTIONS 164DESCRIPTIONOFCAPITALSTOCK 167DESCRIPTIONOFCERTAININDEBTEDNESS 173SHARESELIGIBLEFORFUTURESALE 187MATERIALU.S.FEDERALINCOMETAXCONSEQUENCESTONON-U.S.HOLDERSOFOURCOMMONSTOCK
189
UNDERWRITING 193LEGALMATTERS 199EXPERTS 199WHEREYOUCANFINDMOREINFORMATION 200INDEXTOCONSOLIDATEDFINANCIALSTATEMENTS F-1
Certainnumericalfiguresincludedinthisprospectushavebeensubjecttoroundingadjustments.Accordingly,suchnumericalfiguresshownastotalsinvarioustablesmaynotbearithmeticaggregationsofthefiguresthatprecedethem.
FOR INVESTORS OUTSIDE THE UNITED STATES
We,thesellingstockholdersandtheunderwritersareofferingtosell,andseekingofferstobuy,sharesofourcommonstockonlyinjurisdictionswhereoffersandsalesarepermitted.Neitherwe,thesellingstockholdersnoranyoftheunderwritershavedoneanythingthatwouldpermitthisofferingorpossessionordistributionofthisprospectusinanyjurisdictionwhereactionforthatpurposeisrequired,otherthanintheUnitedStates.PersonsoutsideoftheUnitedStateswhocomeintopossessionofthisprospectusmustinformthemselvesabout,andobserveanyrestrictionsrelatingto,theofferingofthesharesofClassAcommonstockandthedistributionofthisprospectusoutsideoftheUnitedStates.
TRADEMARKS, SERVICE MARKS AND TRADE NAMES
Weownorhaverightstousethetrademarks,servicemarksandtradenamesthatweuseinconnectionwithourbusinesses,suchasAltice,Suddenlink,Optimum,Lightpath,AlticeMediaSolutions,AlticeLabs,AlticeTechnicalServices,News12Networks,News12VarsityandAudiencePartners.Eachtrademark,servicemarkandtradenameofanyothercompanyappearinginthisprospectusis,toourknowledge,ownedbysuchothercompany.Solelyforconvenience,thetrademarks,servicemarksandtradenamesreferredtointhisprospectusarelistedwithoutthe®and™symbols,butsuchreferencesarenotintendedtoindicateinanywaythatwewillnotassert,tothefullestextentunderapplicablelaw,ourrightsortherightsofanyapplicablelicensorstothesetrademarks,servicemarksandtradenames.
MARKET AND INDUSTRY DATA
Marketandindustrydataandforecastsusedinthisprospectushavebeenobtainedfromindependentindustrysources.Somemarketdataandstatisticalinformationcontainedinthisprospectusarealsobasedonmanagement'sestimatesandcalculations,whicharederivedfromourreviewandinterpretationoftheindependentsources,ourinternalmarketandbrandresearch,ourknowledgeoftheindustryandpublicfilings.Althoughwebelievethesesourcestobereliable,wehavenotindependentlyverifiedthedataobtainedfromthesesourcesandwecannotassureyouoftheaccuracyorcompletenessofthedata.Forecastsandotherforward-lookinginformationobtainedfromthesesourcesaresubjecttothesamequalificationsanduncertaintiesastheotherforward-lookingstatementscontainedinthisprospectus.
ii
INDUSTRY TERMS
Thefollowingisaglossaryofcertainindustrytermsusedthroughoutthisprospectus:
iii
ARPU Averagemonthlyrevenueperresidentialcustomer.
B2B Business-to-business,referringtobusinesscustomers.
Churn Customerattritionrate.
CLEC CompetitiveLocalExchangeCarrier.
DBS DirectBroadcastSatellite.
DOCSIS DataOverCableServiceInterfaceSpecification.
DSL Digitalsubscriberline.
DVR Digitalvideorecorder.
FTTH Fiber-to-the-home.
FTTT Fiber-to-the-tower.
Gbps Gigabitspersecond.
GPON GigabitPassiveOpticalNetwork.
HD High-definition.
HFC Hybridfiber-coaxial.
Homes Passed Representstheestimatednumberofsingleresidencehomes,apartmentsandcondominiumunitspassedbythecabledistributionnetworkinareasserviceablewithoutfurtherextendingthetransmissionlines.Inaddition,itincludescommercialestablishmentsthathaveconnectedtoourcabledistributionnetwork.
ILEC IncumbentLocalExchangeCarrier.
Mbps Megabitspersecond.
MDU Multipledwellingunit.
MVPD Multichannelvideoprogrammingdistributor.
Net additions Numberofnewcustomerslessthenumberofcustomerswhodisconnectservice.
OTT Over-the-top.
SIP SessionInitiatedProtocol.
SMATV SatelliteMasterAntennaTelevision.
SMB Smallandmedium-sizedbusiness.
VOD Video-on-demand.
VoIP VoiceoverInternetProtocol.
U.S. industry peers CompaniesthatoperateHFCnetworksintheUnitedStates.
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PROSPECTUS SUMMARY
This summary highlights information about us and this offering presented in greater detail elsewhere in this prospectus. This summary is not completeand does not contain all the information you should consider before investing in our Class A common stock. You should read the entire prospectus carefully,especially the sections titled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and ourconsolidated financial statements and related notes included elsewhere in this prospectus, before investing in our Class A common stock. In this prospectus,the terms "Altice USA," "we," "us," "our" and the "Company" refer to Altice USA, Inc. and its consolidated subsidiaries, "Altice N.V." refers to our parentcompany, Altice N.V., and "Altice Group" refers to Altice N.V. and its consolidated subsidiaries. See "Industry Terms" for a glossary of certain abbreviationsand terms used throughout this prospectus. Unless otherwise indicated, all information in this prospectus assumes no exercise of the underwriters' option topurchase additional shares of our Class A common stock. For more information regarding how we calculate the pro forma financial information presentedin this section, please see "Unaudited Pro Forma Consolidated Financial Information."
Overview
AlticeUSAisoneofthelargestbroadbandcommunicationsandvideoservicesprovidersintheUnitedStates.Wedeliverbroadband,paytelevision,telephonyservices,Wi-Fihotspotaccess,proprietarycontentandadvertisingservicestoapproximately4.9millionresidentialandbusinesscustomers.Ourfootprintextendsacross21statesthroughafiber-richbroadbandnetworkwithmorethan8.5millionhomespassedasofDecember31,2016.AstheU.S.businessofAlticeN.V.,wearedrivenatalllevelsbythe"AlticeWay"—ourfounder-inspiredowner-operatorcultureandstrategyofoperationalefficiency,innovationandlong-termvaluecreationforstockholders.Indevelopingandimplementingourstrategy,wearefocusedonthefollowingprinciples,whicharepartoftheAlticeWay:
• Simplify and optimize our organization throughstreamliningbusinessprocesses,centralizingfunctionsandeliminatingnon-essentialoperatingexpensesandservicearrangements.
• Reinvest in infrastructure and content ,includingupgradingourHFCnetworkandbuildingoutaFTTHnetworktostrengthenourinfrastructurecapabilitiesandcompetitiveness.
• Invest in sales, marketing and innovation ,includingbrand-building,enhancingoursaleschannelsandautomatingprovisioningandinstallationprocesses.
• Enhance the customer experience byofferingatechnologicallyadvancedcustomerplatformcombinedwithsuperiorconnectivityandserviceacrossthecustomerlifecycle.
• Drive revenue and cash flow growth throughcross-selling,marketsharegains,newproductlaunchesandimprovementsinouroperatingandcapitalefficiency.
WebelievetheAlticeWay,whichhasbeensuccessfullyimplementedacrossAlticeGroup,distinguishesusfromourU.S.industrypeersandcompetitors.
WeacquiredCequelCorporation("Suddenlink"or"Cequel")onDecember21,2015andCablevisionSystemsCorporation("Optimum"or"Cablevision")onJune21,2016.Theseacquisitionsarereferredtothroughoutthisprospectusasthe"SuddenlinkAcquisition"(orthe"CequelAcquisition")andthe"OptimumAcquisition(orthe"CablevisionAcquisition"),respectively,andcollectivelyasthe"Acquisitions."Weserveourcustomersthroughtwobusinesssegments:Optimum,whichoperatesintheNewYorkmetropolitanarea,andSuddenlink,whichprincipallyoperatesinmarketsinthesouth-centralUnitedStates.WehavemadesignificantprogressinintegratingtheoperationsofOptimumandSuddenlinkandarealreadyrealizingtheoperationalandcommercialbenefitsofcommonownershipandonemanagementteamasweimplementtheAlticeWaythroughoutourorganization.
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Weareamajority-ownedandcontrolledU.S.subsidiaryofAlticeN.V.,themultinationalcable,fiber,telecommunications,content,mediaandadvertisingcompanyfoundedandcontrolledbycommunicationsandmediaentrepreneurPatrickDrahi.OurmanagementteambenefitsfromAlticeGroup'sexperienceinimplementingtheAlticeWayaroundtheworld.Mr.Drahi,whohasover25yearsofexperienceowningandmanagingcommunicationsandmediaoperations,hasbuiltAlticeGroupfromaregionalFrenchcablecompanyfoundedin2002intooneoftheworld'sleadingbroadbandcommunicationsandvideoservicescompanies.Overthepast15years,hehasledatransformationofthebroadbandcommunicationsandvideoservicesindustrythroughinvestmentinnetworksandimprovementsincustomerexperienceandoperationstoenhancebothservicedeliveryandoperationalefficiency.AsofDecember31,2016,AlticeGroupdeliveredbroadband,paytelevisionandtelephonyservicestomorethan50millioncustomersinWesternEurope,theUnitedStates,IsraelandtheCaribbeanandreportedproformaconsolidatedrevenueof€23.5billionandproformaAdjustedEBITDAof€8.9billionforthefiscalyearendedDecember31,2016.Uponthecompletionofthisoffering,AlticeN.V.andanentitycontrolledbyPatrickDrahiwillown%ofouroutstandingsharesintheformofClassBcommonstock,whichwillrepresent%ofthevotingpowerofourissuedandoutstandingcommonstock.
Inearly2015,AlticeN.V.madethestrategicdecisiontoinvestinoperationsintheUnitedStates,thecountrywiththelargestbroadbandcommunicationsandvideoservicesmarketintheworld.AlticeN.V.believedthatbyemployingtheAlticeWay,itcouldsignificantlyimproveuponthehistoricalgrowthrates,profitabilityandoperationalefficiencyofbroadbandcommunicationsandvideoservicescompaniesoperatinginthismarket.ThefollowingattractivemarketcharacteristicsunderpinnedAlticeN.V.'sU.S.investmentthesis:
• favorabledemographicssupportingunderlyingmarketgrowth;
• demandforhigher-speedbroadbandservices;
• demandformoreadvancedcustomerplatformsanduserinterfaces;
• opportunitiestoenhanceoperationalefficiencyandreduceoverhead;and
• opportunitiesforfurtherindustryconsolidation.
FollowingtheAcquisitions,webeganemployingtheAlticeWaytosimplifyourorganizationalstructure,reducemanagementlayers,streamlinedecision-makingprocessesandredeployresourceswithafocusonnetworkinvestment,customerserviceenhancementsandmarketingsupport.Asaresult,wehavemadesignificantprogressinintegratingtheoperationsofOptimumandSuddenlink,centralizingourbusinessfunctions,reorganizingourprocurementprocesses,eliminatingduplicativemanagementfunctions,terminatinglower-returnprojectsandnon-essentialconsultingandthird-partyservicearrangements,andinvestinginouremployeerelationsandourculture.Improvedoperationalefficiencyhasallowedustoredeployphysical,technicalandfinancialresourcestowardsupgradingournetworkandenhancingthecustomerexperiencetodrivecustomergrowth.ThisfocusisdemonstratedbyreducednetworkoutagessincetheAcquisitions,whichwebelieveimprovestheconsistencyandqualityofthecustomerexperience.Inaddition,wehaveexpanded,andintendtocontinueexpanding,oure-commercechannelsforsalesandmarketing.
SincetheAcquisitions,wehavealsoupgradedournetworkstonearlytriplethemaximumavailablebroadbandspeedsweareofferingtoourOptimumcustomersandexpandedour1Gbpsbroadbandservicetoapproximately60%ofourSuddenlinkfootprint,comparedtoapproximately40%priortotheSuddenlinkAcquisition.Inaddition,wehavecommencedafive-yearplantobuildaFTTHnetwork,whichwillenableustodelivermorethan10GbpsbroadbandspeedsacrossourentireOptimumfootprintandpartofourSuddenlinkfootprint.WebelievethisFTTHnetworkwillbemoreresilientwithreducedmaintenancerequirements,fewerserviceoutagesandlowerpowerusage,whichweexpectwilldrivefurthercostefficienciesinourbusiness.Inordertofurtherenhancethecustomerexperience,weplantointroduceanewhomecommunicationshubduringthesecondquarterof2017.Ournew
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homecommunicationshubwillbeaninnovative,integratedplatformwithadynamicandsophisticateduserinterface,combiningaset-topbox,Internetrouterandcablemodeminonedevice,andwillbethemostadvancedhomecommunicationshubofferedbyanyAlticeGroupbusiness.Wearealsobeginningtooffermanageddataandcommunicationsservicestoourbusinesscustomersandmoreadvancedadvertisingservices,suchastargetedmulti-screenadvertisinganddataanalytics,toouradvertisingandotherbusinessclients.
Manyofourinitiativeshavealreadyresultedinapositiveimpacttoourcustomerrelationships,whichgrewby%fromMarch31,2016(onaproformabasisgivingeffecttotheOptimumAcquisition)toMarch31,2017.
Our Competitive Strengths
Webelievethefollowingcompetitivestrengthshavebeeninstrumentaltooursuccessandpositionusforfuturegrowthandstrongfinancialperformance.
Our Owner-Operator Culture
Wearepartofafounder-controlledorganizationwithanowner-operatorcultureandstrategythatisfocusedonoperationalefficiency,innovationandlong-termvaluecreationforstockholders.Thisfocusisreinforcedbyasystemthatdeliversasubstantialportionofmanagementcompensationintheformoflong-termequityawards.SincetheAcquisitions,ourmanagementteamhasmovedquicklyto,amongotherthings,simplifyandredesignourproductofferings,driveadoptionofhigherbroadbandspeedsandbeginbuildinganewFTTHnetwork.Wecontinuouslychallengeourselvestoimproveouroperationalandfinancialperformance.Weencouragecommunicationacrosstheorganizationwhileempoweringnimble,efficientdecision-makingthatisfocusedateverylevelonenhancingtheoverallcustomerexperience.Webelieveourowner-operatorcultureandtheAlticeWaydifferentiateusandpositionustooutperformourU.S.industrypeers.WefurtherbelievethebenefitsoftheAlticeWayhavebeendemonstratedbyAlticeN.V.'sperformance,whichisreflectedinthe42%averageannualtotalreturnofAlticeN.V.'sClassAordinarysharessinceitsinitialpublicofferinginJanuary2014throughMarch31,2017,comparedtothe5%averageannualtotalreturnoftheSTOXXEurope600TelecommunicationsIndex,ofwhichAlticeN.V.'sClassAordinarysharesisacomponent,duringthesametimeperiod.
Leading Position in Attractive Markets
ThemarketsservedbyourbroadbandnetworkshavegenerallyexperiencedhigherlevelsofdisposableincomeandhouseholddensitycomparedtootherbroadbandcommunicationsandvideoservicesmarketsintheUnitedStates.AsofDecember31,2016,approximately75%ofthehomespassedbyournetworkwereineithertheNewYorkmetropolitanareaorTexas.Thefollowingtableprovidesacomparisonofmanagement'sestimateofincomeanddensitymetricsforourmarketstobothourlargestU.S.publicly-tradedindustrypeersaswellasthenationalaverages.
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Altice USA Charter
Communications Comcast Cable One
U.S. National Median
2016 Household Median Income (in thousands) $ 86 $ 63 $ 72 $ 59 $ 66Housing Units per Square Mile as of April 1, 2010 based on most recent U.S. census
data 668 99 119 24 37
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ThefootprintofourOptimumnetworkincludesNewYorkCity,theworld'slargestmediaandentertainmentmarketasmeasuredby2014revenue.Thisnetworkrepresentsourlargestclusterofcableandfibernetworksystems.AsofDecember31,2016,thisnetworkpassedapproximately5.1millionhomesandprovidedbroadband,paytelevisionandtelephonyservicestoapproximately3.1millionuniqueresidentialandbusinesscustomers,representingapproximately64%ofourentirecustomerbase.WebelieveourleadingmarketdemographicssupportrevenuegrowthpotentialintermsofcustomeradditionsandincreasedARPU.WebelievethemarketdensityoftheNewYorkmetropolitanareaallowsourOptimumsegmenttooperatewithgreatercapitalefficiencyandlowercapitalexpendituresasapercentageofrevenuethanourU.S.industrypeers.Ourpresenceinthismarketanditshigh-profilecustomerbasealsogivesusaccesstoalargeandvaluablebaseofadvertisers,advertisinginventoryandadvertisingdata,eachofwhichsupportsgrowthprospectsforouradvertisingbusiness.
ThefootprintofourSuddenlinknetworkincludesmarketsinTexas,WestVirginia,Louisiana,Arkansas,NorthCarolina,Oklahoma,Arizona,California,Missouriandeightotherstates.AsofDecember31,2016,thisnetworkpassedapproximately3.4millionhomesandprovidedbroadband,paytelevisionandtelephonyservicestoapproximately1.8millionuniqueresidentialandbusinesscustomers,representingapproximately36%ofourcustomerbase.Webelievelessthan15%ofourSuddenlinkfootprintcurrentlyfacescompetitionfrombroadbandcommunicationsandvideoservicesprovidersofferingdownloadspeedscomparabletoourfastestofferedspeeds.Inaddition,householdpenetrationofresidentialbroadbandconnectionswithspeedsofatleast25Mbpsinthesemarketswaslessthan34%in2015comparedtoapproximately44%nationwide,asestimatedbymanagement,providinguswithattractivefuturegrowthopportunities.Asaresult,webelieveSuddenlink'smarketsareamongthemostattractivebroadbandcommunicationsandvideoservicesmarketsintheUnitedStates.
Advanced Network and Customer Platform Technologies
TechnologicalinnovationandnetworkinvestmentsarekeycomponentsoftheAlticeWay.SubstantiallyallofourHFCnetworkisdigitalvideoandDOCSIS3.0compatible,withapproximately300homespernodeandabandwidthcapacityofatleast750MHzthroughout.Thisnetworkallowsustoprovideourcustomerswithadvancedbroadband,paytelevisionandtelephonyservices.Inaddition,webelieveourOptimumfootprintoffersthedensestWi-FinetworkamongourU.S.industrypeersasmeasuredbythenumberofWi-Fihotspotsperbroadbandsubscriber.SincetheAcquisitions,wehavenearlytripledthemaximumavailablebroadbandspeedsweareofferingtoourOptimumcustomersfrom101Mbpsto300Mbpsforresidentialcustomersand350Mbpsforbusinesscustomersandhaveexpandedour1Gbpsbroadbandservicetoapproximately60%ofourSuddenlinkfootprintfromapproximately40%priortotheSuddenlinkAcquisition.
Ouradvancednetworkhascontributedtoourrevenuegrowthbyallowingustomeetmarketdemandforincreasinglyfasterspeeds.Thechartbelowillustratesthesignificantincreaseinthe
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percentageofournewresidentialcustomerschoosingserviceplanswithspeedsgreaterthanorequalto100MbpssincetheAcquisitions.
Topositionustosatisfyanticipatedmarketdemandforincreasingspeedsandsupportevolvingtechnologies,suchastheexpectedtransitionofmobilenetworksto5G,andtoenableustocaptureassociatedrevenuegrowthopportunities,wehavecommencedafive-yearplantobuildaFTTHnetworkthatwillenableustodelivermorethan10GbpsbroadbandspeedsacrossourentireOptimumfootprintandpartofourSuddenlinkfootprint.
Wealsoplantointroduceanewhomecommunicationshubduringthesecondquarterof2017,whichwillbethemostadvancedhomecommunicationshubofferedbyanyAlticeGroupbusiness.Thisnewhubwillbeaninnovative,integratedplatformwithadynamicandsophisticateduserinterface,combiningaset-topbox,Internetrouterandcablemodeminonedevice.ItisbasedonLaBox,ahomecommunicationshubAlticeGrouphassuccessfullydeployedinFrance,theDominicanRepublicandIsrael,andwillbeinitiallyofferedtocustomerssubscribingtoourtripleproductpackages.Itwillbecapableofdeliveringbroadband,Wi-Fi,paytelevisionservices,OTTservicesandfixed-linetelephonyandwillsupport4KvideoandaremoteDVR.Weintendtocontinueenhancingthefeaturesandfunctionalityofournewhomecommunicationshubafteritsinitialintroduction.
Webelievethedevelopmentofouradvancednetworkandnewhomecommunicationshubepitomizestheengineeringandinnovation-centricethoswithinAlticeGroup.
Customer-Centric Operating and Service Model Supported by Technology and Data Analytics
Weseektoprovideourcustomerswiththebestconnectivityandserviceexperienceavailable.Thiscustomer-centricapproachdrivesourdecision-makingprocessesandisanotherkeycomponentoftheAlticeWay.Throughinvestmentsinourinformationtechnology("IT")platformsandafocusonprocessimprovement,wehavesimplifiedandharmonizedourserviceofferingbundles,andimprovedourtechnicalservicedeliveryandourcustomerservice.Weareinvestinginoursaleschannels,includingenhancingoure-commercechannelsinresponsetocustomerbehavior.WhileinboundsalesremainthelargestsaleschannelforeachofOptimumandSuddenlink,oure-commercechannels'shareofnewsaleshasgrownsubstantiallysincetheAcquisitions.Wedevelop,monitorandanalyzedetailedcustomermetricstoidentifyroot-causesofcustomerdissatisfactionandtofurtherimprovethecustomerexperience.Takentogether,webelievetheseinitiativeswillfurtherreducecallsandservicevisits,increasecustomersatisfactionandstrengthenourtop-lineperformanceandcashflowgeneration.
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Benefits of a Global Communications Group
UnlikemostofourU.S.industrypeers,webenefitfrombeingpartofaninternationalmediaandcommunicationsgroup.AstheU.S.businessofAlticeN.V.,wehaveaccesstotheinnovation,managementexpertiseandbestpracticesdevelopedandtestedinotherAlticeGroupmarketssuchasFrance,Portugal,theDominicanRepublicandIsrael.Forexample,ournewhomecommunicationshubwillbebasedonLaBox,whichwasdevelopedbyAlticeLabs,AlticeN.V.'stechnology,servicesandoperationsinnovationcenter,andourFTTHnetworkbuild-outwillleverageAlticeLabs'technologyandexpertisedevelopedforthedeploymentofGPONtechnologyinAlticeGroup'sfibernetworks.OurB2Bserviceofferingsdrawfromplatforms,servicesandexpertisedevelopedbysophisticatedB2BoperatorsacrosstheAlticeGroupfootprintsuchasPortugalTelecominPortugalandSFRinFrance.WealsobenefitfromAlticeGroup'ssignificantscaleadvantages,allowingustodrawoncentralizedfunctions,includingprocurementandtechnicalservices.Inaddition,AlticeGroupoperatesconvergednetworks,includingwirelessoperationsinmarketsoutsidetheUnitedStates.Webelievethesescalebenefitsandoperationalexpertiseassistusinincreasingouroperatingefficiencyandreducingourcapitalexpenditureswhilealsoimprovingthecustomerexperience.
AlticeGroupalsocross-deploystalentandexpertiseacrossitsbusinesses,allowingustobenefitfromourseniormanagement'sexperienceinsuccessfullyimplementingtheAlticeWayaroundtheworld.WebelievethisdiversityofexperiencedifferentiatesusfromourmoretraditionalU.S.-centricindustrypeers.
Strategic Focus on Operational Efficiency
AnimportantprincipleoftheAlticeWayisleveragingoperationalefficiencyinordertoinvestinnetworkimprovementsandincreasereturns.WebelieveourfocusonsimplifyingcustomerserviceofferingsandstreamliningandimprovingouroperationsthroughanintensefocusonefficiencyisunmatchedbyourU.S.industrypeers.Wecontinuouslystrivetoremoveunnecessarymanagementlayers,streamlinedecision-makingprocesses,trimexcesscostsandquestionwhetherourcurrentmethodologiesareindeedthemostefficient.Forexample,thehomeinstallation,repair,outsideplantmaintenanceandnetworkconstructionelementsofourbusinesshavebeenreorganizedunderAlticeTechnicalServices("ATS"),AlticeN.V.'sservicesorganizationintheUnitedStates.Webelievethisreorganizationwillallowustofocusonourcorecompetenciesandrealizeoperationalcostefficiencies.Thefinancialresourcescreatedbythesestrategiesallowustoinvestinnetworkimprovementsandcustomerexperienceenhancements.WebelievetheoperatingandfinancialbenefitsthatresultfromourfocusonoperationalefficiencywillcontinuetogiveusacompetitiveadvantageagainstourcompetitorsandU.S.industrypeers.
Powerful Financial Model Driving Strong Returns
WebelievethebenefitsoftheAlticeWayhavealreadysignificantlystrengthenedourfinancialperformanceandwillcontinuetodoso,allowingustodeliverstrongreturns.
OurrevenuegrowthforthethreemonthsendedMarch31,2017was%ascomparedtoproformarevenueforthethreemonthsendedMarch31,2016.Webelievewecancontinuegrowingourrevenuebyincreasingmarketpenetrationofourservices(particularlybroadband),drivingcontinuedgrowthinB2Bservices,launchingnewservices,gainingmarketsharefromcompetitorsduetothehighqualityandvalueofourservicesandleveragingimprovedcustomersatisfactiontoselladditionalservices.
WebelieveweareoneofthemostprofitableandcashflowgenerativebroadbandcommunicationsandvideoservicesprovidersintheUnitedStates.OurAdjustedEBITDAmarginhasincreasedfrom%forthethreemonthsendedMarch31,2016onaproformabasisgivingeffecttotheOptimumAcquisitionto%forthethreemonthsendedMarch31,2017.Combinedwithourrevenuegrowth,thistranslatesintoa%year-over-yearAdjustedEBITDAgrowth.See"SummaryHistoricaland
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ProFormaFinancialData"foradditionalinformationregardingAdjustedEBITDA,includingareconciliationofAdjustedEBITDAtonetincome.AsofDecember31,2016,wehaverealizedasubstantialportionofthetotal$1.1billioninoperatingcostsavingsweannouncedthatwewouldachieveoverthethree-yearperiodfollowingtheAcquisitions.ForthethreemonthsendedMarch31,2017,ourcapitalexpendituresasapercentageofrevenuewas%,whichwebelieveisoneofthelowestamongourU.S.industrypeers,evenasweincreasedourinvestmentsinnetworkandservicecapabilities.TheratioofourAdjustedEBITDAlesscapitalexpenditurestorevenueforthethreemonthsendedMarch31,2017was%,implyingthatforeachdollarofAdjustedEBITDAthatwerealizedinthatquarterwegeneratedapproximately$ofAdjustedEBITDAlesscapitalexpenditures,whichwebelieveexceedstheperformanceofourU.S.industrypeers.Webelieveourprofitability,capitalefficiencyandcashgenerationprofile,whichisamongthehighestintheindustry,resultsfromanumberoffactors,includingourfocusonoperationalefficiencyderivedfromtheAlticeWay,theadvancedstateofourHFCnetworkinfrastructure,ourhighlyclusterednetworkfootprintandourcustomerbasewithrelativelyhighARPUandlowchurn.
Experienced Management Team Supported by Founder
OurCEOandCo-Presidentshavesubstantialexperienceincommunicationsandmediaoperations,financeandmergersandacquisitions,andaproventrackrecordinexecutingtheAlticeWay.DexterGoei,ourCEOandChairmansince2016,joinedAlticeN.V.in2009,andasitsCEOhespearheadedtherapidexpansionofthecompanyfromaFrenchcableoperatortoamultinationalcommunicationsenterprisewithfixedandmobileassetsacrosssixdifferentcountries.AkeyaspectofMr.Goei'sroleasCEOofAlticeUSAistocarryforwardthesameentrepreneurialandowner-operatorculturethatisatthecoreoftheAlticeWayandAlticeN.V.'ssuccess.HakimBoubazine,ourCo-PresidentandCOOsince2015,waspreviouslytheCEOofAlticeGroup'sDominicanRepublicbusiness,whereheoversawpaytelevision,broadbandandmobileoperationsformorethanfourmillioncustomers.CharlesStewart,ourCo-PresidentandCFOsince2015,previouslyservedasCEOofItauBBAInternationalplc,whereheoversawItau-Unibanco'swholesalebankingactivitiesinEurope,UnitedStatesandAsia.Priortothat,hespentnineteenyearsatMorganStanleyinavarietyofinvestmentbankingrolesincludingnineyearsfocusedontheU.S.cableindustry.OurmanagementteamoperatesinacoordinatedfashionwithAlticeN.V.'smanagementteamandissupportedbyAlticeGroup'sfounderandcontrollingstockholder,PatrickDrahi.Webelievethisfacilitatesaflatcorporatestructure,speedindecisionmakingandafocusonlong-termvaluecreation.
Our Business Strategy
OurbusinessstrategyisbasedonthesuccessfulAlticeWay.Byexecutingontheprinciplesdescribedbelow,weaimtoprovideadvanced,innovativebroadband,paytelevisionandtelephonyservicestoourcustomersanddeliverstrongreturnstoourstockholders.
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The Altice Way
Simplify and Optimize Our Organization
SincetheAcquisitions,wehaveimplementedtheAlticeWayacrossourorganizationtostreamlineprocessesandserviceofferingsandtoimproveproductivitybycentralizingourbusinessfunctions,reorganizingourprocurementprocesses,eliminatingduplicativemanagementfunctionsandoverhead,terminatinglower-returnprojectsandnon-essentialconsultingandthird-partyservicearrangements,andinvestinginouremployeerelationsandourculture.Thishasresultedinarevitalizedorganizationaswellasimprovedfinancialperformance,whichweareleveragingtore-investinourbusiness.Wearealsoreorganizingandsimplifyingourcustomerservice,programminganddataanalytics;usingATStoincreasequality,efficiencyandproductivity;andupdatingandsimplifyingourITinfrastructurethroughfurtherinvestmentsandintegration.
Reinvest in Infrastructure and Content
OurentireOptimumfootprintisupgradedtodeliverbroadbandspeedsofupto300Mbpsforresidentialcustomersandupto350Mbpsforbusinesscustomers,andwehaveexpandedour1Gbpsbroadbandservicetoapproximately60%ofourSuddenlinkfootprint,comparedtoapproximately40%priortotheSuddenlinkAcquisition.Inaddition,wehavecommencedafive-yearplantobuildaFTTHnetwork,whichwillenableustodelivermorethan10GbpsbroadbandspeedsacrossourentireOptimumfootprintandpartofourSuddenlinkfootprint.Webelievewecancarryoutthisnetworkbuild-outefficientlyandwithinourcurrentcapitalexpenditurelevelsbecauseof(i)theproximityoffibertoourendcustomersinourexistingnetwork;(ii)ouraccesstoAlticeLabs'experienceandexpertiseindeployingGPONforitsFTTHprojectsinothermarkets;(iii)ourfavorablenetworktopologythatisover75%aerial;and(iv)thelowerunitconstructioncostsavailabletousthroughATS.WebelieveourFTTHinvestmentwillfurtherprepareusforthefuturebyenablingustoprovideourresidentialandbusinesscustomerswithtechnologicallyadvancedservicesandincreasednetworkreliability,whileprovidinguswithloweroperatingcostsandopportunitiesfornewrevenuesources.Forinstance,webelieveourFTTHinvestmentwilloffersignificantstrategicvalueasthemobileandfixednetworkenvironmentscontinuetoconverge,particularlyasmobileoperatorsdeploy5Gandsubsequentmobilenetworks.
Ourreinvestmentincontenthasfocusedonthenewscategorywithongoinginvestmentsinourhyper-localnewschannelNews12,our25%investmentintheU.S.operationsofi24News,theAlticeGroupglobalnewsnetworkthatwaslaunchedintheUnitedStatesinFebruary2017,andour25%interestinNewsday,adailynewspaperthatprimarilyservesLongIsland.Inaddition,weareevaluatingopportunitiestodeployothercontentassetsownedbyAlticeGroup.
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Invest in Sales, Marketing and Innovation
Wearereinvestinginoursaleschannels,includingenhancingoure-commercechannelssuchasOptimum.comandSuddenlink.com,anddevelopinge-commerce-onlypromotions.WearealsofocusedonbuildingourbrandtoemphasizethequalityofourservicesbydevelopingOptimumExperienceretailstoresinshoppingmallsandotherhigh-trafficlocations.
Weseektoinnovateacrossmanyareasofourbusiness.Forourresidentialcustomers,thisincludesourfocusonnewcustomerplatformsandfasterdataspeeds.Forourbusinesscustomers,weareintroducingnewvalue-addedmanagedserviceswhileforouradvertisingclientsweofferadvanced,targetedandmulti-screenadvertisingservicesanddataanalyticsusingourproprietarydataandtheadvancedtechnologyplatformsthatwehavedevelopedandacquired.
Enhance the Customer Experience
WeintendtodeliverasuperiorcustomerexperiencethroughimplementationoftheAlticeWay.First,weaimtoofferthemosttechnologicallyadvancedcustomerplatforms,includingournewhomecommunicationshub,whichisaninnovative,integratedplatformwithadynamicandsophisticateduserinterfacecombiningaset-topbox,Internetrouterandcablemodeminonedevice.Second,byleveragingouradvancedinfrastructure(withmorethan8.5millionhomespassedandapproximately1.8millionWi-FihotspotsasofDecember31,2016),weseektoprovideourcustomerswithabandwidthandconnectivityexperiencesuperiortowhatourcompetitionoffers.WebelieveourFTTHnetworkbuild-outwillfurtherenhanceourinfrastructureposition,improveservicereliabilityforourcustomersandlowerourmaintenancecosts.Third,westrivetoprovidethebestserviceacrossthecustomerlifecyclefrompointofsaletoinstallationandcustomercare.Akeyaspectofthisinitiativeistolinkinternalsalesincentivestometricstiedtothelengthofanewcustomerrelationshipandproductmix,asopposedtomoretraditionalcriteriaofnewsales,inordertorefocusourorganizationawayfromchurnretentiontochurnprevention.Forexample,thenumberoftechnicalservicecallshandledbyourrepresentativesinMarch2017was23.8%lowercomparedtoMarch2016whilethenumberofcustomerservicecallshandledbyourrepresentativeswas17.3%loweroverthesameperiod.
Drive Revenue and Cash Flow Growth
SincetheAcquisitions,wehavemadesignificantprogressinimprovingourgrowthinrevenue,AdjustedEBITDAandcashflowandbelievewehaveadditionalopportunitiestodrivecontinuedgrowthinthesefinancialmetricsbasedonthefollowingfactors:
• continuedmarketdemandforourbundledservices,particularlybroadbanddrivenbyincreaseddataconsumptionandbandwidthrequirements;
• focusonsellingandcross-sellinghighervalueandmoreenrichedserviceofferingstoourresidentialandbusinesscustomers,aswellastheintroductionofnewservicesleveragingouradvancedHFCandFTTHnetworks;
• marketsharegainsdrivenbyproductinnovationandthequalityandvalueofourservices;
• focusonconnectivity,businessandadvertisingservices;
• improvementsinouroperatingandcapitalefficiencythroughcontinuedimplementationoftheAlticeWay;and
• opportunitiestofurtherimproveourcapitalstructure.
Opportunistically Grow Through Value-Accretive Acquisitions
Weintendtoopportunisticallygrowthroughvalue-accretiveacquisitions.Ourcontrollingstockholder,AlticeN.V.,hasmadeover30acquisitionssinceitsinceptionin2002,includingthe
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Acquisitions.WebelieveAlticeN.V.hasconsistentlydemonstratedanabilitytoacquireandeffectivelyintegratecompanies,realizeefficienciesandcostsynergies,improverevenuetrendsandgrowAdjustedEBITDAandAdjustedEBITDAlesscapitalexpenditures.InthesixlargestacquisitionscompletedbyAlticeN.V.,SFR(formerlyNumericable),PortugalTelecom,HOT,OrangeDominicana,OptimumandSuddenlink,ithasincreasedAdjustedEBITDAmarginonaveragebypercentagepointsandrevenuegrowthonaveragebypercentagepointsbetweenthefirstfullfiscalquarterfollowingthecompletionofeachacquisitionandthethreemonthsendedMarch31,2017.AlticeN.V.'strackrecordofcreatingvaluethroughacquisitionsisalsoreflectedinthe32%averageannualtotalreturnofSFR'sordinarysharessinceitsinitialpublicofferinginNovember2013untilMarch31,2017,comparedtothe5%averageannualtotalreturnoftheSTOXXEurope600TelecommunicationsIndex,ofwhichSFR'sordinarysharesisacomponent,duringthesametimeperiod.WebelievetheU.S.broadbandcommunicationsandvideoservicesmarketoffersanumberofattractiveopportunitiestogrowourbusinessthroughstrategicacquisitions.WebelievetheAlticeWayandourrelatedabilitytoachieveefficienciesandcostsynergiesfollowingacquisitionsprovideuswithacompetitiveadvantageinsuchfutureconsolidationopportunities.However,thereisnoassurancethatwewouldbeabletoachievesimilarresultsorthatanysuchacquisitionswouldhaveasimilarimpactonourstockpriceperformance.
Risks Affecting Our Business
InvestinginourClassAcommonstockinvolvesahighdegreeofrisk.ThereareanumberofrisksyoushouldcarefullyconsiderbeforeinvestinginourClassAcommonstock.Theserisksarediscussedmorefullyunder"RiskFactors"beginningonpage17ofthisprospectus,andinclude,butarenotlimitedto:
• Ifweareunabletosuccessfullycompeteinourhighlycompetitivebusinessenvironment,wherewefacerapidchangesintechnology,consumerexpectationsandbehavior,includingsignificantunanticipatedincreasesintheuseofbandwidth-intensiveInternet-basedservices,ourabilitytoattractnewsubscribers,andretaincurrentsubscribers,maybeadverselyimpacted.
• Programmingandretransmissioncostsareincreasingandwemaynothavetheabilitytopasstheseincreasesontooursubscribers.Disputeswithprogrammersandtheinabilitytoretainorobtainpopularprogrammingcanadverselyaffectourrelationshipwithsubscribersandleadtosubscriberlosses.
• Ifwedonotsuccessfullyimplementourgrowthstrategy,includingcompletingourcapitalinvestmentplansontimeandonbudget,suchasthebuild-outofourFTTHnetwork,andthedeploymentofournewhomecommunicationshub,ourbusiness,financialcondition,resultsofoperationsandliquiditycouldbemateriallyadverselyaffected.
• Wearehighlyleveragedandhavesubstantialindebtedness,andourabilitytoincuradditionalindebtednessanduseourfundsislimitedbysignificantrestrictivecovenantsinfinancingagreements.Wewillneedtoraisesignificantamountsoffundingoverthenextseveralyearstofundcapitalexpenditures,repayexistingobligationsandmeetotherobligations.Wemayalsoengageinextraordinarytransactionsthatinvolvetheincurrenceoflargeamountsofindebtedness.
• Thefinancialmarketsaresubjecttovolatilityanddisruptions,whichhaveinthepast,andmayinthefuture,adverselyaffectourbusiness,includingbyaffectingthecostofnewcapitalandourabilitytofundacquisitionsorotherstrategictransactions.Wehaveinpastperiodsincurredsubstantiallossesfromcontinuingoperations,andwemaydosointhefuture,whichmayreduceourabilitytoraiseneededcapital.
• Werelyonnetworkandinformationsystemsforouroperationsandadisruptionorfailureof,ordefectsin,thosesystemsmaydisruptouroperations,damageourreputationwithcustomersand
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adverselyaffectourresultsofoperations.Ourbusinessdependsonintellectualpropertyrightsandonnotinfringingontheintellectualpropertyrightsofothers.
• Ourbusinessissubjecttoextensivegovernmentallegislationandregulation,whichcouldadverselyaffectourbusiness,increaseouroperationalandadministrativeexpensesandlimitourrevenues.
• Thetri-classstructureofourcommonstockhastheeffectofconcentratingvotingcontrolwithAlticeN.V.anditsaffiliatesandsharesofClassBcommonstockwillnotautomaticallyconverttosharesofClassAcommonstockupontransfertoathirdparty.Holdersofasingleseriesofourcommonstockmaynothaveanyremediesifanactionbyourdirectorshasanadverseeffectononlythatseriesofourcommonstock.
• AlticeN.V.andPatrickDrahiwillcontinuetocontrolusandtheirinterestsmayconflictwithoursoryoursinthefuture.CertainofouroverlappingdirectorsandofficershaverelationshipswithAlticeN.V.,whichmayresultinthediversionofcorporateopportunitiesandotherconflictswithrespecttoourbusinessandexecutives.
• Wewillbea"controlledcompany"withinthemeaningoftherulesofthe,andwillqualifyfor,andintendtorelyon,exemptionsfromcertaincorporategovernancerequirementsthatwouldotherwiseprovideprotectiontostockholdersofothercompanies.
Ownership and Organization
Priortothisoffering,AlticeUSAwasindirectlyowned%byAlticeN.V.and%byanentitycontrolledbyPatrickDrahi;%byfundsadvisedbyBCPartnersLLP("BCP");%byentitiesaffiliatedwiththeCanadaPensionPlanInvestmentBoard("CPPIB")and%byAlticeUSAmanagement,employeesandaffiliates.
BCPartnersisaleadinginternationalprivateequityfirmwithadvisedfundsofover€13billion.Establishedin1986,thefirmoperatesasanintegratedteamthroughofficesinEuropeandNorthAmericatoacquireanddevelopbusinessesandcreatevalueinpartnershipwithmanagement.Sinceinception,BCPartnershascompleted93acquisitionswithatotalenterprisevalueofapproximately€115billion,demonstratingdisciplineinbullmarketsandanabilitytoinvestinattractiveopportunitiesamidstturbulenceandrecession.BCPartnershasalonganddistinguishedhistoryofpartneringwithnumerouscompaniesintheTechnology,Media,andTelecomspaceincludingComHem,Springer,Cartrawler,MergermarketandIntelsat.
CPPIBisasophisticated,globalinstitutionalinvestor,managingafundthatranksamongtheworld's10largestretirementfunds.ItinveststhefundsnotneededbytheCanadaPensionPlantopaycurrentbenefitsonbehalfof19millioncontributorsandbeneficiaries.HeadquarteredinToronto,withofficesinHongKong,London,Luxembourg,Mumbai,NewYork,SãoPauloandSydney,CPPIBisgovernedandmanagedindependentlyoftheCanadaPensionPlanandatarm'slengthfromgovernments.AtDecember31,2016,theFund'sassetstotaledC$298billion,ofwhichapproximatelyC$38billionisinvestedthroughthePrivateInvestmentsgroup.Ateamofapproximately130dedicatedPrivateInvestmentsprofessionalsmanagesinvestmentactivitiesinDirectPrivateEquity,PrincipalCredit,andNaturalResources.DirectPrivateEquitymanagesanapproximatelyC$17billionportfolioofinvestmentsandfocusesonmajority-orshared-controlinvestmentsacrossmultipleindustrysectorsworldwide.CurrentandprevioustechnologyandtelecominvestmentsincludeSuddenlinkCommunications,Informatica,Asurion,IMSHealthandSkype,amongothers.
Company Information
WewereincorporatedinDelawareonSeptember14,2015.Ourprincipalexecutiveofficeislocatedat1111StewartAvenue,Bethpage,NY11714.Ourtelephonenumberatthataddressis(516)803-2300.Ourwebsiteaddressiswww.alticeusa.com.Informationonourandoursubsidiaries'websites,theAlticeN.V.websiteoranyAlticeN.V.filingisdeemednottobeapartofthisprospectus.
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THE OFFERING
Class A common stock offered by us shares.
Class A common stock offered by the sellingstockholders
shares.
Underwriters' optionshares.
Class A common stock outstanding after this offeringshares(sharesiftheunderwritersexercisetheiroptiontopurchaseadditionalsharesofClassAcommonstock).
Class B common stock outstanding after this offeringshares.
Class C common stock outstanding after this offeringNone.
Total Class A and Class B common stock outstandingafter this offering
shares(sharesiftheunderwritersexercisetheiroptiontopurchaseadditionalsharesofClassAcommonstock).
Use of proceedsWeestimatethatthenetproceedstousfromthisoffering,afterdeductingtheunderwritingdiscountandestimatedofferingexpensespayablebyus,willbeapproximately$,basedonanassumedinitialpublicofferingpriceof$pershare,themid-pointofthepricerangesetforthonthecoverpageofthisprospectus.
Wewillnotreceiveanyproceedsfromthesaleofsharesbythesellingstockholders.
Wecurrentlyintendtousethenetproceedsthatwereceivefromthisofferingforgeneralcorporatepurposes.
See"UseofProceeds."
Risk factorsInvestinginourClassAcommonstockinvolvesahighdegreeofrisk.ThereareanumberofrisksyoushouldconsiderbeforeinvestinginourClassAcommonstock.Theserisksarediscussedmorefullyunder"RiskFactors"beginningonpage17ofthisprospectus.
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Dividend policy Wecurrentlyintendtoretainanyfutureearningstofundtheoperation,developmentandexpansionofourbusinessanddonotintendtopayanydividendsonourClassAorClassBcommonstock.Anyfuturedeterminationrelatingtoourdividendpolicywillbemadeinthesoleandabsolutediscretionofourboardofdirectorsandwilldependuponthenexistingconditions,includingourfinancialcondition,resultsofoperations,contractualrestrictions,capitalrequirements,businessprospectsandotherfactorsthatourboardofdirectorsmaydeemrelevant.See"DividendPolicy"and"DescriptionofCertainIndebtedness."
Voting rights
Followingthisoffering,wewillhavethreeclassesofcommonstock:ClassAcommonstock,ClassBcommonstockandClassCcommonstock.EachshareofClassAcommonstockwillbeentitledtoonevote.EachshareofClassBcommonstockwillbeentitledtotwenty-fivevotesandwillbeconvertibleatanytimeintooneshareofClassAcommonstock.IfweissueanysharesofClassCcommonstock,theywillbenon-voting.TheholdersofouroutstandingClassBcommonstockwillholdapproximately%ofthevotingpowerofouroutstandingcapitalstockimmediatelyfollowingthisoffering.
Proposed symbol
WewillapplytolistourClassAcommonstockontheunderthesymbol"."
Unlessotherwiseindicated,theinformationpresentedinthisprospectus:
• assumesthesharesofourClassAcommonstocktobesoldinthisofferingaresoldat$pershare,themid-pointofthepricerangesetforthonthecoverpageofthisprospectus;and
• assumesnoexerciseoftheunderwriters'optiontopurchaseadditionalshares.
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SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
ThesummaryconsolidatedhistoricalbalancesheetandoperatingdataofAlticeUSAasofandfortheyearendedDecember31,2016presentedbelowhavebeenderivedfromtheauditedconsolidatedfinancialstatementsofAlticeUSAincludedelsewhereherein.ThehistoricaloperatingdataofAlticeUSAfortheyearendedDecember31,2016includetheoperatingresultsofCequelfortheyearendedDecember31,2016andtheoperatingresultsofCablevisionfortheperiodfromthedateofacquisition,June21,2016throughDecember31,2016.TheconsolidatedproformaoperatingdataofAlticeUSAfortheyearsendedDecember31,2016and2015havebeenderivedfromtheunauditedproformaconsolidatedstatementsofoperationsincludedinthisprospectusandgiveeffecttotheCablevisonAcquisitionandSuddenlinkAcquisitionasiftheyhadoccurredonJanuary1,2015.
Theselectedhistoricalandproformaresultspresentedbelowarenotnecessarilyindicativeoftheresultstobeexpectedforanyfutureperiod.ThisinformationshouldbereadinconjunctionwiththeauditedconsolidatedfinancialstatementsofAlticeUSA,theunauditedproformaconsolidatedstatementsofoperationsofAlticeUSA,andManagement'sDiscussionandAnalysisofFinancialConditionandResultsofOperationsofAlticeUSAincludedelsewhereherein.
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Altice USA Year ended December 31, 2016 2015 2016 Pro Forma Pro Forma Historical (dollars in thousands) Revenue: Residential: PayTV $ 4,227,222 $ 4,260,631 $ 2,759,216Broadband 2,290,039 2,005,012 1,617,029Telephony 872,115 912,002 529,973
Businessservicesandwholesale 1,230,643 1,158,840 819,541Advertising 365,429 345,498 245,702Other 169,368 283,874 45,751
Total revenue 9,154,816 8,965,857 6,017,212Operating expenses: Programmingandotherdirectcosts 2,988,549 2,982,005 1,899,994Otheroperatingexpenses 2,853,821 3,499,669 1,716,851Restructuringandotherexpense(credits) 229,117 (1,649) 240,395Depreciationandamortization(includingimpairments) 2,345,775 2,442,235 1,700,306
Operating income 737,554 43,597 459,666Othernon-operatingexpenses,net (1,800,583) (1,636,921) (1,550,811)
Lossfromcontinuingoperationsbeforeincometaxes (1,063,029) (1,593,324) (1,091,145)Incometaxbenefit 406,886 498,567 259,666
Lossfromcontinuingoperations,netofincometaxes (656,143) (1,094,757) (831,479)Lossfromdiscontinuedoperations,netofincometaxes — (12,541) —Net loss (656,143) (1,107,298) (831,479)Netloss(income)attributabletononcontrollinginterests (315) 201 (551)Net loss attributable to Altice USA stockholders $ (656,458) $ (1,107,097) $ (832,030)Adjusted EBITDA(a) $ 3,352,045 $ 2,769,520 $ 2,414,735
Adjusted EBITDA margin 36.6% 30.9% 40.1%Capital expenditures $ 955,672 $ 1,294,842 $ 625,541
Capital expenditures as a percentage of revenue 10.4% 14.4% 10.4%
(a) WedefineAdjustedEBITDA,whichisanon-GAAPfinancialmeasure,asnetincome(loss)excludingincometaxes,income(loss)fromdiscontinuedoperations,othernon-operatingincomeorexpenses,lossonextinguishmentofdebtandwrite-offofdeferredfinancingcosts,lossoninterestrateswapcontracts,
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gain(loss)onequityderivativecontracts,gain(loss)oninvestments,interestexpense(includingcashinterestexpense),interestincome,depreciationandamortization(includingimpairments),share-basedcompensationexpenseorbenefit,restructuringexpenseorcreditsandtransactionexpenses.WebelieveAdjustedEBITDAisanappropriatemeasureforevaluatingtheoperatingperformanceoftheCompany.AdjustedEBITDAandsimilarmeasureswithsimilartitlesarecommonperformancemeasuresusedbyinvestors,analystsandpeerstocompareperformanceinourindustry.Internally,weuserevenueandAdjustedEBITDAmeasuresasimportantindicatorsofourbusinessperformance,andevaluatemanagement'seffectivenesswithspecificreferencetotheseindicators.WebelieveAdjustedEBITDAprovidesmanagementandinvestorsausefulmeasureforperiod-to-periodcomparisonsofourcorebusinessandoperatingresultsbyexcludingitemsthatarenotcomparableacrossreportingperiodsorthatdonototherwiserelatetotheCompany'songoingoperatingresults.AdjustedEBITDAshouldbeviewedasasupplementtoandnotasubstituteforoperatingincome(loss),netincome(loss),andothermeasuresofperformancepresentedinaccordancewithU.S.generallyacceptedaccountingprinciples("GAAP").SinceAdjustedEBITDAisnotameasureofperformancecalculatedinaccordancewithGAAP,thismeasuremaynotbecomparabletosimilarmeasureswithsimilartitlesusedbyothercompanies.
ThefollowingisareconciliationofnetlosstoAdjustedEBITDA:
Altice USA Year ended December 31, 2016 2015 2016 Pro Forma Pro Forma Historical (dollars in thousands) Netloss $ (656,143) $ (1,107,298) $ (831,479)Lossfromdiscontinuedoperations,netofincometaxes — 12,541 —Incometaxbenefit (406,886) (498,567) (259,666)Otherincome(a) (9,184) (6,045) (4,329)Lossonextinguishmentofdebtandwrite-offofdeferredfinancingcosts 127,649 1,735 127,649
Lossoninterestrateswapcontracts 72,961 — 72,961Loss(gain)onequityderivativecontracts,net(b) 89,979 (104,927) 53,696Loss(gain)oninvestments,net (271,886) 30,208 (141,896)Interestexpense,net 1,791,064 1,715,950 1,442,730Depreciationandamortization(includingimpairments) 2,345,775 2,442,235 1,700,306Restructuringandotherexpenses(credits) 229,117 (1,649) 240,395Share-basedcompensation 39,599 285,337 14,368AdjustedEBITDA $ 3,352,045 $ 2,769,520 $ 2,414,735
(a) IncludesprimarilydividendsreceivedonComcastcommonstockownedbytheCompany.
(b) Consistsofunrealizedandrealizedlosses(gains)duetothechangeinfairvalueofequityderivativecontractsrelatingtotheComcastcommonstockownedbytheCompany.
Altice USA
As of December 31, 2016
Balance Sheet Data: Actual As
Adjusted (dollars in thousands) Cashandcashequivalents $ 486,792 Totalassets 36,474,249 Totaldebt 24,030,065 Netdebtexcludingcollateralizedindebtednessandnotespayabletoaffiliatesandrelatedparties(1) 20,507,204
(1) Netdebtisdefinedastotaldebtlesscashandcashequivalents.
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Customer Metrics
Thefollowingtablesetsforthcertaincustomermetricsbysegment(unaudited):
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Pro Forma
As of December 31, 2015
As of December 31, 2016
Net Increase
(Decrease)
Cablevision Cequel (g) Total Cablevision Cequel (g) Total (in thousands, except per customer amounts) Homes passed(a) 5,116 3,407 8,523 5,076 3,352 8,428 95Total customer
relationships(b) 3,141 1,751 4,892 3,116 1,712 4,828 64Residential 2,879 1,649 4,528 2,858 1,618 4,476 52SMB 262 102 364 258 94 352 12
Residential customers(c): PayTV 2,428 1,107 3,535 2,487 1,154 3,641 (106)Broadband 2,619 1,344 3,963 2,562 1,276 3,838 125Telephony 1,962 597 2,559 2,007 581 2,588 (29)
Residential triple productcustomer penetration(d): 64.8% 25.5% 50.5% 67.6% 25.4% 52.3% (1.8)%
Penetration of homespassed(e): 61.4% 51.4% 57.4% 61.4% 51.1% 57.3% 0.1%
ARPU(f) $ 154.49 $ 109.30 $ 138.07 $ 150.61 $ 104.04 $ 133.79 $ 4.28
(a) Representstheestimatednumberofsingleresidencehomes,apartmentsandcondominiumunitspassedbythecabledistributionnetworkinareasserviceablewithoutfurtherextendingthetransmissionlines.Inaddition,itincludescommercialestablishmentsthathaveconnectedtoourcabledistributionnetwork.ForCequel,broadbandserviceswerenotavailabletoapproximately100homespassedandtelephonyserviceswerenotavailabletoapproximately500homespassed.
(b) Representsnumberofhouseholds/businessesthatreceiveatleastoneoftheCompany'sservices.
(c) Customersrepresenteachcustomeraccount(setupandsegregatedbycustomernameandaddress),weightedequallyandcountedasonecustomer,regardlessofsize,revenuegenerated,ornumberofboxes,units,oroutlets.Incalculatingthenumberofcustomers,wecountallcustomersotherthaninactive/disconnectedcustomers.Freeaccountsareincludedinthecustomercountsalongwithallactiveaccounts,buttheyarelimitedtoaprescribedgroup.Mostoftheseaccountsarealsonotentirelyfree,astheytypicallygeneraterevenuethroughpay-per-vieworotherpayservices.Freestatusisnotgrantedtoregularcustomersasapromotion.Wecountabulkcommercialcustomer,suchasahotel,asonecustomer,anddonotcountindividualroomunitsatthathotel.Incountingbulkresidentialcustomers,suchasanapartmentbuilding,wecounteachsubscribingfamilyunitwithinthebuildingasonecustomer,butdonotcountthemasteraccountfortheentirebuildingasacustomer.
(d) Representsthenumberofcustomersthatsubscribetothreeofourservicesdividedbytotalresidentialcustomerrelationships.
(e) Representsthenumberoftotalcustomerrelationshipsdividedbyhomespassed.
(f) Calculatedbydividingtheaveragemonthlyrevenueforthefourthquarterofeachyearpresentedderivedfromthesaleofbroadband,paytelevisionandtelephonyservicestoresidentialcustomersfortherespectivequarterbytheaveragenumberoftotalresidentialcustomersforthesameperiod.
(g) ThemetricsforCequelpresentedinthetableabovehavebeenadjustedfrompreviouslyreportedamountstoconformtothemethodologyusedtocalculatetheequivalentCablevisionmetrics.
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RISK FACTORS
Investing in our Class A common stock involves a high degree of risk. You should consider carefully the risks and uncertainties described below, togetherwith all of the other information in this prospectus, including the financial statements and the related notes included elsewhere in this prospectus and theinformation set forth under the caption "Cautionary Statement Regarding Forward-Looking Statements," before deciding whether to invest in shares of our Class Acommon stock. We describe below what we believe are currently the material risks and uncertainties we face, but they are not the only risks and uncertainties weface. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adverselyaffect our business. If any of the following risks actually occur, our business, financial condition, results of operations and future prospects could be materially andadversely affected. In that event, the market price of our Class A common stock could decline and you could lose part or all of your investment.
Risk Factors Relating to Our Business
We operate in a highly competitive business environment which could materially adversely affect our business, financial condition, results of operations andliquidity.
Weoperateinahighlycompetitive,consumer-drivenindustryandwecompeteagainstavarietyofbroadband,paytelevisionandtelephonyprovidersanddeliverysystems,includingbroadbandcommunicationscompanies,wirelessdataandtelephonyproviders,satellite-deliveredvideosignals,Internet-deliveredvideocontentandbroadcasttelevisionsignalsavailabletoresidentialandbusinesscustomersinourserviceareas.SomeofourcompetitorsincludeAT&TanditsDirecTVsubsidiary,CenturyLink,DISHNetwork,FrontierandVerizon.Inaddition,ourpaytelevisionservicescompetewithallothersourcesofleisure,news,informationandentertainment,includingmovies,sportingorotherliveevents,radiobroadcasts,home-videoservices,consolegames,printmediaandtheInternet.
Insomeinstances,ourcompetitorshavefewerregulatoryburdens,easieraccesstofinancing,greaterresources,greateroperatingcapabilitiesandefficienciesofscale,strongerbrand-namerecognition,longstandingrelationshipswithregulatoryauthoritiesandcustomers,moresubscribers,moreflexibilitytoofferpromotionalpackagesatpriceslowerthanoursandgreateraccesstoprogrammingorotherservices.Thiscompetitioncreatespressureonourpricingandhasadverselyaffected,andmaycontinuetoaffect,ourabilitytoaddandretaincustomers,whichinturnadverselyaffectsourbusiness,financialconditionandresultsofoperations.Theeffectsofcompetitionmayalsoadverselyaffectourliquidityandabilitytoserviceourdebt.Forexample,wefaceintensecompetitionfromVerizon,whichhasconstructedFTTHnetworkinfrastructurethatpassesasignificantnumberofhouseholdsinourNewYorkmetropolitanservicearea.WeestimatethatVerizoniscurrentlyabletosellafiber-basedtripleplay,includingbroadband,paytelevisionandtelephonyservices,toatleasthalfofthehouseholdsinourNewYorkmetropolitanserviceareaandmayexpandtheseandotherserviceofferingstomorecustomersinthefuture.AnyestimateofVerizon'sbuild-outandsalesactivityinourNewYorkmetropolitanserviceareaisdifficulttoassessbecauseitisbasedonvisualinspectionsandotherlimitedestimatingtechniquesandthereforeservesonlyasanapproximation.
Ourcompetitiverisksareheightenedbytherapidtechnologicalchangeinherentinourbusiness,evolvingconsumerpreferencesandtheneedtoacquire,developandadoptnewtechnologytodifferentiateourproductsandservicesfromthoseofourcompetitors,andtomeetconsumerdemand.Wemayneedtoanticipatefarinadvancewhichtechnologyweshoulduseforthedevelopmentofnewproductsandservicesortheenhancementofexistingproductsandservices.Thefailuretoaccuratelyanticipatesuchchangesmayadverselyaffectourabilitytoattractandretaincustomers,whichinturncouldadverselyaffectourbusiness,financialconditionandresultsofoperations.Consolidationinourindustrymayallowourcompetitorstoacquireservicecapabilitiesthatarenotavailabletous.In
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addition,changesintheregulatoryandlegislativeenvironmentsmayresultinchangestothecompetitivelandscape.
Inaddition,certainofourcompetitorsowndirectlyorareaffiliatedwithcompaniesthatownprogrammingcontentorhaveexclusivearrangementswithcontentprovidersthatmayenablethemtoobtainlowerprogrammingcostsorofferexclusiveprogrammingthatmaybeattractivetoprospectivesubscribers.Forexample,DirecTVhasexclusivearrangementswiththeNationalFootballLeaguethatgiveitaccesstoprogrammingwecannotoffer.AT&TalsohasanagreementtoacquireTimeWarner,whichownsanumberofcablenetworks,includingTBS,CNNandHBO,aswellasWarnerBros.Entertainment,whichproducestelevision,filmandhome-videocontent.AT&T'sandDirecTV'spotentialaccesstoTimeWarnerprogrammingcouldallowAT&TandDirecTVtooffercompetitiveandpromotionalpackagesthatcouldnegativelyaffectourabilitytomaintainorincreaseourexistingcustomersandrevenues.DBSoperatorssuchasDISHNetworkandDirecTValsohavemarketingarrangementswithcertainphonecompaniesinwhichtheDBSprovider'spaytelevisionservicesaresoldtogetherwiththephonecompany'sbroadbandandmobileandtraditionalphoneservices.
AnothersourceofcompetitionforourpaytelevisionservicesisthedeliveryofvideocontentovertheInternetdirectlytosubscribers,someofwhichisofferedwithoutchargingafeeforaccesstothecontent.Thiscompetitioncomesfromanumberofdifferentsources,includingcompaniesthatdelivermovies,televisionshowsandothervideoprogrammingoverbroadbandInternetconnections,suchasNetflix,Hulu,iTunes,YouTube,AmazonPrime,SlingTV,PlaystationVue,DirecTVNowandGo90.ItispossiblethatadditionalcompetitorswillenterthemarketandbeginprovidingvideocontentovertheInternetdirectlytosubscribers.Increasingly,contentowners,suchasHBOandCBS,aresellingtheirprogrammingdirectlytoconsumersovertheInternetwithoutrequiringapay-televisionsubscription.Theavailabilityoftheseserviceshasandwillcontinuetoadverselyaffectcustomerdemandforourpaytelevisionservices,includingpremiumandon-demandservices.Further,duetoconsumerelectronicsinnovations,consumersareabletowatchsuchInternet-deliveredcontentontelevisionsetsandmobiledevices,suchassmartphonesandtablets.Internetaccessservicesarealsoofferedbyprovidersofwirelessservices,includingtraditionalcellularphonecarriersandothersfocusedsolelyonwirelessdataservices.Allwirelesscarriershavestartedtoofferunlimiteddataplans,whichcould,insomecases,becomeasubstituteforthefixedbroadbandservicesweprovide.TheFederalCommunicationsCommission("FCC")islikelytocontinuetomakeadditionalradiospectrumavailableforthesewirelessInternetaccessservices.
Ourpaytelevisionservicesalsofacecompetitionfrombroadcasttelevisionstations,entitiesthatmakedigitalvideorecordedmoviesandprogramsavailableforhomerentalorsale,SMATVsystems,whichgenerallyservelargeMDUsunderanagreementwiththelandlordandserviceprovidersandopenvideosystemoperators.Privatecablesystemscanofferimprovedreceptionoflocaltelevisionstationsandmanyofthesamesatellite-deliveredprogramservicesthatareofferedbycablesystems.SMATVsystemscurrentlybenefitfromoperatingadvantagesnotavailabletofranchisedcablesystems,includingfewerregulatoryburdens.Cabletelevisionhasalsolongcompetedwithbroadcasttelevision,whichconsistsoftelevisionsignalsthattheviewerisabletoreceivewithoutchargeusingan"off-air"antenna.Theextentofsuchcompetitionisdependentuponthequalityandquantityofbroadcastsignalsavailablethrough"off-air"reception,comparedtotheservicesprovidedbythelocalcablesystem.TheuseofradiospectrumnowprovidestraditionalbroadcasterswiththeabilitytodeliverHDtelevisionpicturesandmultipledigital-qualityprogramstreams.Therecanbenoassurancethatexisting,proposedorasyetundevelopedtechnologieswillnotbecomedominantinthefutureandrenderourvideoserviceofferinglessprofitableorevenobsolete.
Mostbroadbandcommunicationscompanies,whichalreadyhavewirednetworks,anexistingcustomerbaseandotheroperationalfunctionsinplace(suchasbillingandservicepersonnel),offerDSLservices.WebelieveDSLservicecompeteswithourbroadbandserviceandisoftenofferedatpriceslowerthanourInternetservices.However,DSLisoftenofferedatspeedslowerthanthespeeds
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weoffer.Inaddition,DSLprovidersmaycurrentlybeinabetterpositiontoofferInternetservicestobusinessessincetheirnetworkstendtobemorecompleteincommercialareas.TheymayalsoincreasinglyhavetheabilitytocombinevideoserviceswithtelephoneandInternetservicesofferedtotheircustomers,particularlyasbroadbandcommunicationscompaniesenterintoco-marketingagreementswithotherserviceproviders.Inaddition,currentandfuturefixedandwirelessInternetservices,suchas3G,4Gand5GfixedandwirelessbroadbandservicesandWi-Finetworks,anddevicessuchaswirelessdatacards,tabletsandsmartphones,andmobilewirelessroutersthatconnecttosuchdevices,maycompetewithourbroadbandservices.
Ourtelephonyservicescompetedirectlywithestablishedbroadbandcommunicationscompaniesandothercarriers,includingwirelessproviders,asincreasingnumbersofhomesarereplacingtheirtraditionaltelephoneservicewithwirelesstelephoneservice.WealsocompeteagainstVoIPproviderslikeVonage,Skype,GoogleTalk,Facetime,WhatsAppandmagicJackthatdonotownnetworksbutcanprovideservicetoanypersonwithabroadbandconnection,insomecasesfreeofcharge.Inaddition,wecompeteagainstILECs,otherCLECsandlong-distancevoice-servicecompaniesforlargecommercialandenterprisecustomers.WhilewecompetewiththeILECs,wealsoenterintointerconnectionagreementswithILECssothatourcustomerscanmakeandreceivecallstoandfromcustomersservedbytheILECsandothertelecommunicationsproviders.FederalandstatelawandregulationsrequireILECstoenterintosuchagreementsandprovidefacilitiesandservicesnecessaryforconnection,atpricessubjecttoregulation.Thespecificprice,termsandconditionsofeachagreement,however,dependontheoutcomeofnegotiationsbetweenusandeachILEC.Interconnectionagreementsarealsosubjecttoapprovalbythestateregulatorycommissions,whichmayarbitratenegotiationimpasses.WehaveenteredintointerconnectionagreementswithVerizonforNewYork,NewJerseyandportionsofConnecticut,andwithFrontierforportionsofConnecticut,whichhavebeenapprovedbytherespectivestatecommissions.WehavealsoenteredintointerconnectionagreementswithotherILECsinNewYorkandNewJersey.Theseagreements,likeallinterconnectionagreements,areforlimitedtermsanduponexpirationaresubjecttorenegotiation,potentialarbitrationandapprovalunderthelawsineffectatthattime.
Wealsofacecompetitionforouradvertisingsalesfromtraditionalandnon-traditionalmediaoutlets,includingtelevisionandradiostations,traditionalprintmediaandtheInternet.
We face significant risks as a result of rapid changes in technology, consumer expectations and behavior.
Thebroadbandcommunicationsindustryhasundergonesignificanttechnologicaldevelopmentovertimeandthesechangescontinuetoaffectourbusiness,financialconditionandresultsofoperations.Suchchangeshavehad,andwillcontinuetohave,aprofoundimpactonconsumerexpectationsandbehavior.OurvideobusinessfacestechnologicalchangerisksasaresultofthecontinuingdevelopmentofnewandchangingmethodsfordeliveryofprogrammingcontentsuchasInternet-baseddeliveryofmovies,showsandothercontentwhichcanbeviewedontelevisions,wirelessdevicesandotherdevelopingmobiledevices.Consumers'videoconsumptionpatternsarealsoevolving,forexample,withmorecontentbeingdownloadedfortime-shiftedconsumption.Aproliferationofdeliverysystemsforvideocontentcanadverselyaffectourabilitytoattractandretainsubscribersandthedemandforourservicesanditcanalsodecreaseadvertisingdemandonourdeliverysystems.OurbroadbandbusinessfacestechnologicalchallengesfromrapidlyevolvingwirelessInternetsolutions.OurtelephonyserviceofferingsfacetechnologicaldevelopmentsintheproliferationoftelephonydeliverysystemsincludingthosebasedonInternetandwirelessdelivery.Ifwedonotdeveloporacquireandsuccessfullyimplementnewtechnologies,wewilllimitourabilitytocompeteeffectivelyforsubscribers,contentandadvertising.Wecannotprovideanyassurancethatwewillrealize,infullorinpart,theanticipatedbenefitsweexpectfromtheintroductionofournewhomecommunicationshuborthatitwillbeintroducedtothemarketinthetimeframeweanticipateandwithallanticipatedfeaturesandfunctionality.Inaddition,wemayberequiredtomakematerialcapitalandotherinvestmentsto
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anticipateandtokeepupwithtechnologicalchange.Thesechallengescouldadverselyaffectourbusiness,financialconditionandresultsofoperations.
Additionally,ourU.S.industrypeersmightintroducea"quad-play"offeringthatbundlesbroadband,paytelevision,telephonyandmobilecommunicationsservices.Thismightleadourcustomerstoexpectsimilarbundledofferingsfromus,whichinturncouldresultinincreasedcustomerchurnifwedonot,orareunableto,offersimilarquad-playbundles,orcouldrequireadditionalinvestmentsbyustomeetmarketdemand.Therecanbenoassurancethatwecanofferquad-playbundlessuccessfullyorontermsfavorabletous.
Programming and retransmission costs are increasing and we may not have the ability to pass these increases on to our subscribers. Disputes withprogrammers and the inability to retain or obtain popular programming can adversely affect our relationship with subscribers and lead to subscriber losses.
Programmingcostsareoneofourlargestcategoriesofexpenses.Inrecentyears,thecostofprogramminginthecableandsatellitevideoindustrieshasincreasedsignificantlyandisexpectedtocontinuetoincrease,particularlywithrespecttocostsforsportsprogrammingandbroadcastnetworks.Wemaynotbeabletopassprogrammingcostincreasesontooursubscribersduetotheincreasinglycompetitiveenvironment.Ifweareunabletopasstheseincreasedprogrammingcostsontooursubscribers,ourresultsofoperationswouldbeadverselyaffected.Moreover,programmingcostsarerelateddirectlytothenumberofsubscriberstowhomtheprogrammingisprovided.Oursmallersubscriberbaserelativetoourcompetitorsmaylimitourabilitytonegotiatelowerper-subscriberprogrammingcosts,whichcouldresultinreducedoperatingmarginsrelativetoourcompetitorswithalargersubscriberbase.
Theexpirationdatesofourvariousprogrammingcontractsarestaggered,whichresultsintheexpirationofaportionofourprogrammingcontractsthroughouteachyear.Acontractwithoneofourtenlargestprogrammershasexpiredandwearecurrentlyintheprocessofrenegotiatingarenewalofthiscontract.Weattempttocontrolourprogrammingcostsand,therefore,thecostofourvideoservicestoourcustomers,bynegotiatingfavorabletermsfortherenewalofouraffiliationagreementswithprogrammers.Oncertainoccasionsinthepast,suchnegotiationshaveledtodisputeswithprogrammersthathaveresultedintemporaryperiodsduringwhichwedidnotcarryordecidedtostopcarryingaparticularbroadcastnetworkorprogrammingserviceorservices.Additionally,inourSuddenlinksegment,wewereunabletoreachagreementwithViacomonacceptableeconomictermsforalong-termcontractrenewaland,effectiveOctober1,2014,allViacomnetworkswereremovedfromourchannellineupsinourSuddenlinkfootprint.Totheextentweareunabletoreachagreementwithcertainprogrammersontermswebelievearereasonable,wemaybeforcedto,ordetermineforstrategicorbusinessreasonsto,removecertainprogrammingchannelsfromourline-upandmaydecidetoreplacesuchprogrammingchannelswithotherprogrammingchannels,whichmaynotbeavailableonacceptabletermsorbeasattractivetocustomers.Suchdisputes,ortheremovalorreplacementofprogramming,mayinconveniencesomeofoursubscribersandcanleadtocustomerdissatisfactionand,incertaincases,thelossofcustomers,whichcouldhaveamaterialadverseeffectonourbusiness,financialcondition,resultsofoperationsandliquidity.Therecanbenoassurancethatourexistingprogrammingcontractswillberenewedonfavorableorcomparableterms,oratall,orthattherightswenegotiatewillbeadequateforustoexecuteourbusinessstrategy.
Wemayalsobesubjecttoincreasingfinancialandotherdemandsbybroadcaststations.Federallawallowscommercialtelevisionbroadcaststationstomakeanelectionbetween"must-carry"rightsandanalternative"retransmissionconsent"regime.Localstationsthatelect"must-carry"areentitledtomandatorycarriageonoursystems,butatnofee.Whenastationoptsforretransmissionconsent,cableoperatorsnegotiatefortherighttocarrythestation'ssignal,whichtypicallyrequirespaymentofaper-subscriberfee.Ourretransmissionagreementswithstationsexpirefromtimetotime.Uponexpirationoftheseagreements,wemaycarrysomestationsundershort-termarrangementswhilewe
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attempttonegotiatenewlong-termretransmissionagreements.Inconnectionwithanynegotiationofnewretransmissionagreements,wemaybecomesubjecttoincreasedoradditionalcosts,whichwemaynotbeabletopassontoourcustomers.Totheextentthatwecannotpassonsuchincreasedoradditionalcoststocustomersoroffsetsuchincreasedoradditionalcoststhroughthesaleofadditionalservices,ourbusiness,financialcondition,resultsofoperationsandliquiditycouldbemateriallyadverselyaffected.Inaddition,intheeventcontractnegotiationswithstationsareunsuccessful,wecouldberequired,ordetermineforstrategicorbusinessreasons,toceasecarryingsuchstations'signals,possiblyforanindefiniteperiod.Anylossofstationscouldmakeourvideoservicelessattractivetoourcustomers,whichcouldresultinalossofcustomers,whichcouldhaveamaterialadverseeffectonourbusiness,financialcondition,resultsofoperationsandliquidity.Therecanbenoassurancethatanyexpiringretransmissionagreementswillberenewedonfavorableorcomparableterms,oratall.
We may not be able to successfully implement our growth strategy.
Ourfuturegrowth,profitabilityandresultsofoperationsdependuponourabilitytosuccessfullyimplementourbusinessstrategy,which,inturn,isdependentuponanumberoffactors,includingourabilitytocontinueto:
• simplifyandoptimizeourorganization;
• reinvestininfrastructureandcontent;
• investinsales,marketingandinnovation;
• enhancethecustomerexperience;
• driverevenueandcashflowgrowth;and
• opportunisticallygrowthroughvalue-accretiveacquisitions.
Therecanbenoassurancethatwecansuccessfullyachieveanyoralloftheaboveinitiativesinthemannerortimeperiodthatweexpect.Furthermore,achievingtheseobjectiveswillrequireinvestmentswhichmayresultinshort-termcostswithoutgeneratinganycurrentrevenuesandthereforemaybedilutivetoourearnings.Wecannotprovideanyassurancethatwewillrealize,infullorinpart,theanticipatedbenefitsweexpectourstrategywillachieve.Thefailuretorealizethosebenefitscouldhaveamaterialadverseeffectonourbusiness,financialconditionandresultsofoperations.Inaddition,ifweareunabletocontinueimprovingouroperationalperformanceandcustomerexperiencewemayfaceadecreaseinnewsubscribersandanincreaseinsubscriberchurn,whichcouldhaveamaterialadverseeffectonourbusiness,financialconditionandresultsofoperations.Inparticular,therecanbenoassurancethatwewillbeabletosuccessfullyimplementourplantobuildaFTTHnetworkwithintheanticipatedfive-yeartimelineoratallorwithinthecostparameterswecurrentlyexpect.Similarly,wemaynotbesuccessfulindeployingournewhomecommunicationshubonourcurrenttimelineoratallandwemayfacetechnologicalorotherchallengesinpursuingtheseorotherinitiatives.
The financial markets are subject to volatility and disruptions, which have in the past, and may in the future, adversely affect our business, including byaffecting the cost of new capital and our ability to fund acquisitions or other strategic transactions.
Thecapitalmarketsexperiencevolatilityanddisruption.Attimes,themarketshaveexertedextremedownwardpressureonstockpricesandupwardpressureonthecostofnewdebt,whichhasseverelyrestrictedcreditavailabilityformanycompanies.
Historicalmarketdisruptionshavetypicallybeenaccompaniedbyabroadereconomicdownturn,whichhashistoricallyledtolowerdemandforourproducts,suchasvideoservices,aswellaslower
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levelsoftelevisionadvertising,andincreasedincidenceofcustomers'inabilitytopayfortheservicesweprovide.Arecurrenceoftheseconditionsmayfurtheradverselyimpactourbusiness,financialconditionandresultsofoperations.
Werelyonthecapitalmarkets,particularlyforofferingsofdebtsecuritiesandborrowingsundersyndicatedfacilities,tomeetourfinancialcommitmentsandliquidityneedsandtofundacquisitionsorotherstrategictransactions.Disruptionsorvolatilityinthecapitalmarketscouldalsoadverselyaffectourabilitytorefinanceonsatisfactoryterms,oratall,ourscheduleddebtmaturitiesandcouldadverselyaffectourabilitytodrawonourrevolvingcreditfacilities.
Disruptionsinthecapitalmarketsaswellasthebroaderglobalfinancialmarketcanalsoresultinhigherinterestratesonpubliclyissueddebtsecuritiesandincreasedcostsundercreditfacilities.Suchdisruptionscouldincreaseourinterestexpense,adverselyaffectingourbusiness,financialpositionandresultsofoperations.
Ouraccesstofundsunderourrevolvingcreditfacilitiesisdependentontheabilityofthefinancialinstitutionsthatarepartiestothosefacilitiestomeettheirfundingcommitments.Thosefinancialinstitutionsmaynotbeabletomeettheirfundingcommitmentsiftheyexperienceshortagesofcapitalandliquidityoriftheyexperienceexcessivevolumesofborrowingrequestswithinashortperiodoftime.Moreover,theobligationsofthefinancialinstitutionsunderourrevolvingcreditfacilitiesareseveralandnotjointand,asaresult,afundingdefaultbyoneormoreinstitutionsdoesnotneedtobemadeupbytheothers.
Longerterm,volatilityanddisruptionsinthecapitalmarketsandthebroaderglobalfinancialmarketasaresultofuncertainty,changingorincreasedregulationoffinancialinstitutions,reducedalternativesorfailuresofsignificantfinancialinstitutionscouldadverselyaffectouraccesstotheliquidityneededforourbusinesses.Suchdisruptionscouldrequireustotakemeasurestoconservecashorimpedeordelaypotentialacquisitions,strategictransactionsandrefinancingtransactionsuntilthemarketsstabilizeoruntilalternativecreditarrangementsorotherfundingforourbusinessneedscanbearranged.
We are highly leveraged and have substantial indebtedness, which reduces our capability to withstand adverse developments or business conditions.
WehaveincurredsubstantialamountsofindebtednesstofinancetheAcquisitions,ouroperations,upgradestoourcableplantandacquisitionsofothercablesystems,sourcesofprogrammingandotherbusinesses.Wehavealsoincurredsubstantialindebtednessinordertoofferneworupgradedservicestoourcurrentandpotentialcustomers.AtDecember31,2016,ourtotalaggregateindebtednesswasapproximately$22.3billion(excludingnotespayabletoaffiliatesandrelatedparties).Becausewearehighlyleveraged,ourpaymentsonourindebtednessaresignificantinrelationtoourrevenuesandcashflow,whichexposesustosignificantriskintheeventofdownturnsinourbusinesses(whetherthroughcompetitivepressuresorotherwise),ourindustryortheeconomygenerally,sinceourcashflowswoulddecrease,butourrequiredpaymentsunderourindebtednesswouldnot.
Economicdownturnsmayimpactourabilitytocomplywiththecovenantsandrestrictionsinourindentures,creditfacilitiesandagreementsgoverningourotherindebtednessandmayimpactourabilitytopayorrefinanceourindebtednessasitcomesdue.Ifwedonotrepayorrefinanceourdebtobligationswhentheybecomedueanddonototherwisecomplywiththecovenantsandrestrictionsinourindentures,creditfacilitiesandagreementsgoverningourotherindebtedness,wewouldbeindefaultunderthoseagreementsandtheunderlyingdebtcouldbedeclaredimmediatelydueandpayable.Inaddition,anydefaultunderanyofourindentures,creditfacilitiesoragreementsgoverningourotherindebtednesscouldleadtoanaccelerationofdebtunderanyotherdebtinstrumentsoragreementsthatcontaincross-accelerationorcross-defaultprovisions.Iftheindebtednessincurredunderourindentures,creditfacilitiesandagreementsgoverningourotherindebtednesswere
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accelerated,wewouldnothavesufficientcashtorepayamountsduethereunder.Toavoidadefault,wecouldberequiredtodefercapitalexpenditures,sellassets,seekstrategicinvestmentsfromthirdpartiesorotherwisereduceoreliminatediscretionaryusesofcash.However,ifsuchmeasuresweretobecomenecessary,therecanbenoassurancethatwewouldbeabletosellsufficientassetsorraisestrategicinvestmentcapitalsufficienttomeetourscheduleddebtmaturitiesastheycomedue.Inaddition,anysignificantreductioninnecessarycapitalexpenditurescouldadverselyaffectourabilitytoretainourexistingcustomerbaseandobtainnewcustomers,whichwouldadverselyaffectourbusiness,financialpositionandresultsofoperations.
Ouroverallleverageandthetermsofourfinancingarrangementscouldalso:
• makeitmoredifficultforustosatisfyobligationsunderouroutstandingindebtedness;
• limitourabilitytoobtainadditionalfinancinginthefutureforworkingcapital,capitalexpendituresoracquisitions;
• limitourabilitytorefinanceourindebtednessontermsacceptabletousoratall;
• limitourabilitytoadapttochangingmarketconditions;
• restrictusfrommakingstrategicacquisitionsorcauseustomakenon-strategicdivestitures;
• requireustodedicateasignificantportionofourcashflowfromoperationstopayingtheprincipalofandinterestonourindebtedness,therebylimitingtheavailabilityofourcashflowtofundfuturecapitalexpenditures,workingcapitalandothercorporatepurposes;
• limitourflexibilityinplanningfor,orreactingto,changesinourbusinessandthebroadbandcommunicationsindustrygenerally;and
• placeusatacompetitivedisadvantagecomparedwithcompetitorsthathavealesssignificantdebtburden.
Inaddition,asubstantialportionofourindebtednessbearsinterestatvariablerates.Ifmarketinterestratesincrease,ourvariable-ratedebtwillhavehigherdebtservicerequirements,whichcouldadverselyaffectourcashflowsandfinancialcondition.Formoreinformation,see"Management'sDiscussionandAnalysisofFinancialConditionandResultsofOperations—QuantitativeandQualitativeDisclosuresAboutMarketRisk—InterestRateRisk."Althoughwehavehistoricallyenteredinto,andmayinthefutureenterinto,hedgingarrangementstolimitourexposuretoanincreaseininterestrates,sucharrangementsmaynotoffercompleteprotectionfromthisrisk.
If we incur additional indebtedness, such indebtedness could further exacerbate the risks associated with our substantial indebtedness.
Ifweincuradditionalindebtedness,suchindebtednesswillbeaddedtoourcurrentdebtlevelsandtherelatedriskswecurrentlyfacecouldbemagnified.Anydecreaseinourrevenuesoranincreaseinoperatingcosts(andcorrespondingreductioninourcashflows)wouldalsoadverselyaffectourabilitytopayourindebtednessasitcomesdue.
We have in past periods incurred substantial losses from continuing operations, and we may do so in the future, which may reduce our ability to raise neededcapital.
Wehaveinthepastreportedsubstantiallossesfromcontinuingoperationsandwemaydosointhefuture.Significantlossesfromcontinuingoperationscouldlimitourabilitytoraiseanyneededfinancing,ortodosoonfavorableterms,assuchlossescouldbetakenintoaccountbypotentialinvestors,lendersandtheorganizationsthatissueinvestmentratingsonourindebtedness.
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A lowering or withdrawal of the ratings assigned to our subsidiaries' debt securities and credit facilities by ratings agencies may further increase our futureborrowing costs and reduce our access to capital.
Creditratingagenciescontinuallyrevisetheirratingsforcompaniestheyfollow.Theconditionofthefinancialandcreditmarketsandprevailinginterestrateshavefluctuatedinthepastandarelikelytofluctuateinthefuture.Inaddition,developmentsinourbusinessandoperationsortheamountofindebtednesscouldleadtoaratingsdowngradeonouroroursubsidiaries'indebtedness.Thedebtratingsforoursubsidiaries'debtsecuritiesandcreditfacilitiesarecurrentlybelowthe"investmentgrade"category,whichresultsinhigherborrowingcostsaswellasareducedpoolofpotentialinvestorsofthatdebtassomeinvestorswillnotpurchasedebtsecuritiesorbecomelendersundercreditfacilitiesthatarenotratedinaninvestmentgraderatingcategory.Inaddition,therecanbenoassurancethatanyratingassignedwillremainforanygivenperiodoftimeorthataratingwillnotbeloweredorwithdrawnentirelybyaratingagency,ifinthatratingagency'sjudgment,futurecircumstancesrelatingtothebasisoftherating,suchasadversechanges,sowarrant.Anysuchfluctuationintheratingofusoroursubsidiariesmayimpactourabilitytoaccessdebtmarketsinthefutureorincreaseourcostoffuturedebtwhichcouldhaveamaterialadverseeffectonourbusiness,financialconditionandresultsofoperations,whichinreturnmayadverselyaffectthetradingpriceofsharesofourClassAcommonstock.
Our subsidiaries' ability to meet obligations under their indebtedness may be restricted by limitations on our other subsidiaries' ability to send funds.
Oursubsidiariesthathaveincurredindebtednessunderindenturesandcreditfacilitiesareprimarilyholdingcompanieswhoseabilitytopayinterestandprincipalonsuchindebtednessiswhollyorpartiallydependentupontheoperationsoftheirrespectivesubsidiariesandthedistributionsorotherpaymentsofcash,intheformofdistributions,loansoradvances,thoseothersubsidiariesdelivertoourindebtedsubsidiaries.Oursubsidiariesareseparateanddistinctlegalentitiesand,unlessanysuchsubsidiarieshasguaranteedtheunderlyingindebtedness,havenoobligation,contingentorotherwise,topayanyamountsdueonourindebtedsubsidiaries'indebtednessortomakeanyfundsavailabletoourindebtedsubsidiariestodoso.Thesesubsidiariesmaynotgenerateenoughcashtomakesuchfundsavailabletoourindebtedsubsidiariesandincertaincircumstanceslegalandcontractualrestrictionsmayalsolimittheirabilitytodoso.Also,oursubsidiaries'creditors,includingtradecreditors,intheeventofaliquidationorreorganizationofanysubsidiary,wouldbeentitledtoaclaimontheassetsofsuchsubsidiaries,includinganyassetstransferredtothosesubsidiaries,priortoanyofourclaimsasastockholderandthosecreditorsarelikelytobepaidinfullbeforeanydistributionismadetous.Totheextentthatweareacreditorofasubsidiary,ourclaimscouldbesubordinatedtoanysecurityinterestintheassetsofthatsubsidiaryand/oranyindebtednessofthatsubsidiaryseniortothatheldbyus.
Inaddition,ourOptimumandSuddenlinkbusinessesareeachcurrentlyfinancedonastandalonebasisandconstituteseparatefinancinggroups,whicharesubjecttocovenantsthatrestricttheuseoftheirrespectivecashflowsoutsidetheirrespectiverestrictedgroups.Consequently,cashflowsfromoperationsofOptimumanditssubsidiariesmaynotbeabletobeappliedtomeettheobligationsorotherexpensesofSuddenlinkanditssubsidiariesandcashflowsfromoperationsofSuddenlinkmaynotbeabletobeappliedtomeettheobligationsorotherexpensesofOptimumanditssubsidiaries,excepttotheextentthattherelevantrestrictedgroupisabletopayadividendundertheagreementsgoverningtheirrespectiveindebtedness.
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Our ability to incur additional indebtedness and use our funds is limited by significant restrictive covenants in financing agreements.
Theindentures,creditfacilitiesandagreementsgoverningtheindebtednessofoursubsidiariescontainvariousnegativecovenantsthatrestrictoursubsidiaries'(andtheirrespectivesubsidiaries')abilityto,amongotherthings:
• incuradditionalindebtednessandguaranteeindebtedness;
• paydividendsormakeotherdistributions,orrepurchaseorredeemcapitalstock;
• prepay,redeemorrepurchasesubordinateddebtorequity;
• issuecertainpreferredstock;
• makeloansandinvestments;
• sellassets;
• incurliens;
• enterintotransactionswithaffiliates;
• createorpermitanyencumbrancesorrestrictionsontheabilityoftheirrespectivesubsidiariestopaydividendsormakeotherdistributions,makeloansoradvancesortransferassets,ineachcasetosuchsubsidiary,oritsotherrestrictedsubsidiaries;and
• consolidate,mergeorsellallorsubstantiallyalloftheirassets.
Wearealsosubjecttocertainaffirmativecovenantsunderoursubsidiaries'revolvingcreditfacilities,which,amongotherthings,requiretherelevantOptimumandSuddenlinksubsidiariestoeachmaintainaspecifiedfinancialratioifthereareanyoutstandingutilizations.Ourabilitytomeetthesefinancialratiosmaybeaffectedbyeventsbeyondourcontroland,asaresult,wecannotassureyouthatwewillbeabletomeettheseratios.
Violationofthesecovenantscouldresultinadefaultthatwouldpermittherelevantcreditorstorequiretheimmediaterepaymentoftheborrowingsthereunder,whichcouldresultinadefaultunderotherdebtinstrumentsandagreementsthatcontaincross-defaultprovisionsand,inthecaseofrevolvingcreditfacilities,permittherelevantlenderstorestricttherelevantborrower'sabilitytoborrowundrawnfundsundersuchrevolvingcreditfacilities.Adefaultunderanyoftheagreementsgoverningourindebtednesscouldmateriallyadverselyaffectourgrowth,financialconditionandresultsofoperations.
Asaresult,wemaybe:
• limitedinhowweconductourbusiness;
• unabletoraiseadditionaldebtorequityfinancingtooperateduringgeneraleconomicorbusinessdownturns;or
• unabletocompeteeffectivelyortotakeadvantageofnewbusinessopportunities.
Theserestrictionscouldhaveamaterialadverseeffectonourabilitytogrowinaccordancewithourstrategyandonthevalueofourdebtandequitysecurities.Inaddition,ourfinancialresults,substantialindebtednessandcreditratingscouldmateriallyadverselyaffecttheavailabilityandtermsofourfinancing.
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We will need to raise significant amounts of funding over the next several years to fund capital expenditures, repay existing obligations and meet otherobligations and the failure to do so successfully could adversely affect our business. We may also engage in extraordinary transactions that involve theincurrence of large amounts of indebtedness.
Ourbusinessiscapitalintensive.Operatingandmaintainingourcablesystemsrequiressignificantamountsofcashpaymentstothirdparties.Capitalexpenditureswere$625.5millionin2016andonaproformabasiswere$956.0millionand$1,294.8millionin2016and2015,respectively,andprimarilyincludedpaymentsforcustomerpremiseequipment,suchasnewdigitalvideocableboxesandmodems,aswellasinfrastructureandcapitalexpendituresrelatedtoournetworks,inadditiontothecapitalrequirementsofourotherbusinesses.
Wehavecommencedafive-yearplantobuildaFTTHnetwork,whichwillenableustodelivermorethan10GbpsbroadbandspeedsacrossourentireOptimumfootprintandpartofourSuddenlinkfootprint.Wealsoplantointroduceanewhomecommunicationshubduringthesecondquarterof2017,whichwillbethemostadvancedhomecommunicationshubofferedbyanyAlticeGroupbusiness.Wemaynotbeabletoexecutetheseinitiativeswithintheanticipatedtimelinesandwemayincurgreaterthananticipatedcostsandcapitalexpendituresinconnectiontherewith,failtorealizeanticipatedbenefits,experiencebusinessdisruptionsorencounterotherchallengestoexecutingeitherasplanned.Thefailuretorealizetheanticipatedbenefitsoftheseinitiativescouldhaveamaterialadverseeffectonourbusiness,financialconditionandresultsofoperations.
Weexpectthesecapitalexpenditurestocontinuetobesignificantaswefurtherenhanceourserviceofferings.Wemayhavesubstantialfuturecapitalcommitmentsintheformoflong-termcontractsthatrequiresubstantialpaymentsoveraperiodoftime.Wemaynotbeabletogeneratesufficientcashinternallytofundanticipatedcapitalexpenditures,meettheseobligationsandrepayourindebtednessatmaturity.Accordingly,wemayhavetodooneormoreofthefollowing:
• refinanceexistingobligationstoextendmaturities;
• raiseadditionalcapital,throughdebtorequityissuancesorboth;
• cancelorscalebackcurrentandfuturespendingprograms;or
• sellassetsorinterestsinoneormoreofourbusinesses.
However,wemaynotbeabletorefinanceexistingobligationsorraiseanyrequiredadditionalcapitalortodosoonfavorableterms.Borrowingcostsrelatedtofuturecapitalraisingactivitiesmaybesignificantlyhigherthanourcurrentborrowingcostsandwemaynotbeabletoraiseadditionalcapitalonfavorableterms,oratall,iffinancialmarketsexperiencevolatility.Ifweareunabletopursueourcurrentandfuturespendingprograms,wemaybeforcedtocancelorscalebackthoseprograms.Ourchoiceofwhichspendingprogramstocancelorreducemaybelimited.Failuretosuccessfullypursueourcapitalexpenditureandotherspendingplanscouldmateriallyandadverselyaffectourabilitytocompeteeffectively.Itispossiblethatinthefuturewemayalsoengageinextraordinarytransactionsandsuchtransactionscouldresultintheincurrenceofsubstantialadditionalindebtedness.
We rely on network and information systems for our operations and a disruption or failure of, or defects in, those systems may disrupt our operations, damageour reputation with customers and adversely affect our results of operations.
Networkandinformationsystemsareessentialtoourabilitytodeliverourservicestoourcustomers.Whilewehaveinplacemultiplesecuritysystemsdesignedtoprotectagainstintentionalorunintentionaldisruption,failure,misappropriationorcorruptionofournetworkandinformationsystems,therecanbenoassurancethatoureffortstoprotectournetworkandinformationsystemswillpreventanyoftheproblemsidentifiedabove.Aproblemofthistypemightbecausedbyeventssuchas
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computerhacking,computerviruses,wormsandotherdestructiveordisruptivesoftware,"cyber-attacks"andothermaliciousactivity,defectsinthehardwareandsoftwarecomprisingournetworkandinformationsystems,aswellasnaturaldisasters,poweroutages,terroristattacksandsimilarevents.Sucheventscouldhaveanadverseimpactonusandourcustomers,includingdegradationofservice,servicedisruption,excessivecallvolumetocallcentersanddamagetoourplant,equipmentanddata.Operationalorbusinessdelaysmayresultfromthedisruptionofnetworkorinformationsystemsandthesubsequentremediationactivities.Moreover,theseeventsmaycreatenegativepublicityresultinginreputationorbranddamagewithcustomersandourresultsofoperationscouldsuffer.
Wealsousecertainvendorstosupplysomeofthehardware,softwareandsupportofournetwork,someofwhichhavebeencustomizedoralteredtofitourbusinessneeds.Certainofthesevendorsandsuppliersmayhaveleverageoverusconsideringthattherearelimitedsuppliersofcertainproductsandservices,orthatthereisalongleadtimeand/orsignificantexpenserequiredtotransitiontoanotherprovider.Inaddition,someofthesevendorsandsuppliersdonothavealongoperatinghistoryormaynotbeabletocontinuetosupplytheequipmentandserviceswedesire.Someofourhardware,softwareandoperationalsupportvendorsandsomeofourserviceprovidersrepresentoursolesourceofsupplyorhave,eitherthroughcontractorasaresultofintellectualpropertyrights,apositionofsomeexclusivity.Inaddition,becauseofthepaceatwhichtechnologicalinnovationsoccurinourindustry,wemaynotbeabletoobtainaccesstothelatesttechnologyonreasonableterms.Anydelaysortheterminationordisruptionintheserelationshipsasaresultofcontractualdisagreements,operationalorfinancialfailuresonthepartofourvendorsandsuppliers,orotheradverseeventsthatpreventsuchvendorsandsuppliersfromprovidingtheequipmentorservicesweneed,withthelevelofqualitywerequire,inatimelymannerandatreasonableprices,couldresultinsignificantcoststousandhaveanegativeeffectonourabilitytoprovideservicesandrolloutadvancedservices.Ourabilitytoreplacesuchvendorsandsuppliersmaybelimitedand,asaresult,ourbusiness,financialcondition,resultsofoperationsandliquiditycouldbemateriallyadverselyaffected.
If we experience a significant data security breach or fail to detect and appropriately respond to a significant data security breach, our results of operations andreputation could suffer.
Thenatureofourbusinessinvolvesthereceiptandstorageofinformationaboutourcustomersandemployees.Wehaveproceduresinplacetodetectandrespondtodatasecurityincidents.However,becausethetechniquesusedtoobtainunauthorizedaccess,disableordegradeservice,orsabotagesystemschangefrequentlyandmaybedifficulttodetectforlongperiodsoftime,wemaybeunabletoanticipatethesetechniquesorimplementadequatepreventivemeasures.Inaddition,hardware,softwareorapplicationswedeveloporprocurefromthirdpartiesmaycontaindefectsindesignormanufactureorotherproblemsthatcouldunexpectedlycompromiseinformationsecurity.Unauthorizedpartiesmayalsoattempttogainaccesstooursystemsorfacilitiesandtoourproprietarybusinessinformation.Ifoureffortstoprotectthesecurityofinformationaboutourcustomersandemployeesareunsuccessful,asignificantdatasecuritybreachmayresultincostlygovernmentenforcementactions,privatelitigationandnegativepublicityresultinginreputationorbranddamagewithcustomers,andourfinancialconditionandresultsofoperationscouldsuffer.
A portion of our workforce is represented by labor unions. Collective bargaining agreements can increase our expenses. Labor disruptions could adverselyaffect our business, financial condition and results of operations.
AsofDecember31,2016,227ofourfull-timeemployeeswerecoveredbycollectivebargainingagreements(primarilytechniciansinBrooklyn,NewYork)withtheCommunicationWorkersofAmerica("CWA").OptimumandtheCWAenteredintoacollectivebargainingagreementin2015.ThisagreementwasrenewedinJune2016foranadditionalthree-yearterm.OnMarch10,2017,theInternationalBrotherhoodofElectricalWorkers("IBEW")wascertifiedtorepresent100employeesinOakland,NewJersey.WehavenotyetnegotiatedacollectivebargainingagreementwiththeIBEWrelatingtotheseemployeesandtherecanbenoassurancethatwewillbeabletodosoonterms
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acceptabletous.ThecollectivebargainingagreementswiththeCWAandIBEWcoveringthesegroupsofemployeesoranyotheragreementswithotherunionsmayincreaseourexpenses.Inaddition,anydisruptionstoouroperationsduetolaborrelatedproblemscouldhaveanadverseeffectonourbusiness,financialconditionandresultsofoperations.
A significant amount of our book value consists of intangible assets that may not generate cash in the event of a voluntary or involuntary sale.
AtDecember31,2016,wereportedapproximately$36.5billionofconsolidatedtotalassets,ofwhichapproximately$27.4billionwereintangible.Intangibleassetsprimarilyincludedfranchisesfromcityandcountygovernmentstooperatecablesystems,goodwill,customerrelationshipsandtradenames.Whilewebelievethecarryingvaluesofourintangibleassetsarerecoverable,wemaynotreceiveanycashintheeventofavoluntaryorinvoluntarysaleoftheseintangibleassets,particularlyifwewerenotcontinuingasanoperatingbusiness.Weurgeyoutoreadcarefullyourconsolidatedfinancialstatementscontainedherein,whichprovidemoredetailedinformationabouttheseintangibleassets.
We may engage in acquisitions and other strategic transactions and the integration of such acquisitions and other strategic transactions could materiallyadversely affect our business, financial condition and results of operations.
Ourbusinesshasgrownsignificantlyasaresultofacquisitions,includingtheAcquisitions,whichentailnumerousrisksincluding:
• distractionofourmanagementteaminidentifyingpotentialacquisitiontargets,conductingduediligenceandnegotiatingacquisitionagreements;
• difficultiesinintegratingtheoperations,personnel,products,technologiesandsystemsofacquiredbusinesses;
• difficultiesinenhancingourcustomersupportresourcestoadequatelyserviceourexistingcustomersandthecustomersofacquiredbusinesses;
• thepotentiallossofkeyemployeesorcustomersoftheacquiredbusinesses;
• unanticipatedliabilitiesorcontingenciesofacquiredbusinesses;
• unbudgetedcostswhichwemayincurinconnectionwithpursuingpotentialacquisitionswhicharenotconsummated;
• failuretoachieveprojectedcostsavingsorcashflowfromacquiredbusinesses,whicharebasedonprojectionsthatareinherentlyuncertain;
• fluctuationsinouroperatingresultscausedbyincurringconsiderableexpensestoacquireandintegratebusinessesbeforereceivingtheanticipatedrevenuesexpectedtoresultfromtheacquisitions;and
• difficultiesinobtainingregulatoryapprovalsrequiredtoconsummateacquisitions.
Wealsoparticipateincompetitivebiddingprocesses,someofwhichmayinvolvesignificantcablesystems.Ifwearethewinningbidderinanysuchprocessinvolvingsignificantcablesystemsorweotherwiseengageinacquisitionsorotherstrategictransactionsinthefuture,wemayincuradditionaldebt,contingentliabilitiesandamortizationexpenses,whichcouldmateriallyadverselyaffectourbusiness,financialconditionandresultsofoperations.Wecouldalsoissuesubstantialadditionalequitywhichcoulddiluteexistingstockholders.
Ifouracquisitions,includingtheAcquisitionsandtheintegrationoftheOptimumandSuddenlinkbusinesses,donotresultintheanticipatedoperatingefficiencies,arenoteffectivelyintegrated,or
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resultincostswhichexceedourexpectations,ourbusiness,financialconditionandresultsofoperationscouldbemateriallyadverselyaffected.
Certain of our overlapping directors and officers have relationships with Altice N.V., which may result in the diversion of corporate opportunities and otherconflicts with respect to our business and executives.
Followingthisoffering,fourofourdirectors,includingourChiefExecutiveOfficer,willbeemployedbyoraffiliatedwithAlticeN.V.Thesedirectorshavefiduciarydutiestousand,inaddition,havedutiestoAlticeN.V.Asaresult,thesedirectorsandofficersmayfacerealorapparentconflictsofinterestwithrespecttomattersaffectingbothusandAlticeN.V.,whoseinterestsmaybeadversetooursinsomecircumstances.
Priortothecompletionofthisoffering,ourboardofdirectorswilladoptapolicythatacknowledgesthatdirectorsandofficersoftheCompanymayalsobeservingasdirectors,officers,employeesoragentsofAlticeN.V.anditssubsidiariesotherthanusandthatwemayengageinmaterialbusinesstransactionswithsuchentities.TheCompanyrenounceditsrightstocertainbusinessopportunitiesandthenewpolicyprovidesthatnodirectororofficeroftheCompanywhoisalsoservingasadirector,officer,employeeoragentofAlticeN.V.anditsothersubsidiarieswillbeliabletotheCompanyforbreachofanyfiduciarydutythatwouldotherwiseexistbyreasonofthefactthatanysuchindividualdirectsacorporateopportunity(otherthancertainlimitedtypesofopportunitiessetforthinthepolicy)toAlticeN.V.anditsothersubsidiariesinsteadoftheCompany,ordoesnotreferorcommunicateinformationregardingsuchcorporateopportunitiestotheCompany.Thepolicyexpresslyvalidatescertaincontracts,agreements,assignmentsandtransactions(andamendments,modificationsorterminationsthereof)betweentheCompanyandAlticeN.V.and/oranyofitsothersubsidiariesand,tothefullestextentpermittedbylaw,providesthattheactionsoftheoverlappingdirectorsorofficersinconnectiontherewitharenotbreachesoffiduciarydutiesowedtotheCompanyoranyofitssubsidiaries.
Significant unanticipated increases in the use of bandwidth-intensive Internet-based services could increase our costs.
Therisingpopularityofbandwidth-intensiveInternet-basedservicesposesrisksforourbroadbandservices.Examplesofsuchservicesincludepeer-to-peerfilesharingservices,gamingservicesandthedeliveryofvideoviastreamingtechnologyandbydownload.Ifheavyusageofbandwidth-intensivebroadbandservicesgrowsbeyondourcurrentexpectations,wemayneedtoincurmoreexpensesthancurrentlyanticipatedtoexpandthebandwidthcapacityofoursystemsorourcustomerscouldhaveasuboptimalexperiencewhenusingourbroadbandservice.Inordertocontinuetoprovidequalityserviceatattractiveprices,weneedthecontinuedflexibilitytodevelopandrefinebusinessmodelsthatrespondtochangingconsumerusesanddemandsandtomanagebandwidthusageefficiently.Ourabilitytoundertakesuchactionscouldberestrictedbyregulatoryandlegislativeeffortstoimposeso-called"netneutrality"requirementsonbroadbandcommunicationproviderslikeusthatprovidebroadbandservices.Formoreinformation,see"Regulation—Broadband."
Our business depends on intellectual property rights and on not infringing on the intellectual property rights of others.
Werelyonourpatents,copyrights,trademarksandtradesecrets,aswellaslicensesandotheragreementswithourvendorsandotherparties,touseourtechnologies,conductouroperationsandsellourproductsandservices.Ourintellectualpropertyrightsmaybechallengedandinvalidatedbythirdpartiesandmaynotbestrongenoughtoprovidemeaningfulcommercialcompetitiveadvantage.Thirdpartieshaveinthepast,andmayinthefuture,assertclaimsorinitiatelitigationrelatedtoexclusivepatent,copyright,trademarkandotherintellectualpropertyrightstotechnologiesandrelatedstandardsthatarerelevanttous.Theseassertionshaveincreasedovertimeasaresultofourgrowth
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andthegeneralincreaseinthepaceofpatentclaimsassertions,particularlyintheUnitedStates.Becauseoftheexistenceofalargenumberofpatentsinthenetworkingfield,thesecrecyofsomependingpatentsandtherapidrateofissuanceofnewpatents,webelieveitisnotpossibletodetermineinadvancewhetheraproductoranyofitscomponentsinfringesorwillinfringeonthepatentrightsofothers.Assertedclaimsand/orinitiatedlitigationcanincludeclaimsagainstusorourmanufacturers,suppliersorcustomers,alleginginfringementoftheirproprietaryrightswithrespecttoourexistingorfutureproductsand/orservicesorcomponentsofthoseproductsand/orservices.
Regardlessofthemeritoftheseclaims,theycanbetime-consuming,resultincostlylitigationanddiversionoftechnicalandmanagementpersonnel,orrequireustomodifyourbusiness,developanon-infringingtechnology,beenjoinedfromuseofcertainintellectualproperty,usealternatetechnologyorenterintolicenseagreements.Therecanbenoassurancethatlicenseswillbeavailableonacceptabletermsandconditions,ifatall,orthatourindemnificationbyoursupplierswillbeadequatetocoverourcostsifaclaimwerebroughtdirectlyagainstusorourcustomers.Furthermore,becauseofthepotentialforhighcourtawardsthatarenotnecessarilypredictable,itisnotunusualtofindevenarguablyunmeritoriousclaimssettledforsignificantamounts.Ifanyinfringementorotherintellectualpropertyclaimmadeagainstusbyanythirdpartyissuccessful,ifwearerequiredtoindemnifyacustomerwithrespecttoaclaimagainstthecustomer,orifwefailtomodifyourbusiness,developnon-infringingtechnology,usealternatetechnologyorlicensetheproprietaryrightsoncommerciallyreasonabletermsandconditions,ourbusiness,financialconditionandresultsofoperationscouldbemateriallyadverselyaffected.
We may be liable for the material that content providers distribute over our networks.
Thelawrelatingtotheliabilityofprivatenetworkoperatorsforinformationcarriedon,storedordisseminatedthroughtheirnetworksisstillunsettled.Assuch,wecouldbeexposedtolegalclaimsrelatingtocontentdisseminatedonournetworks.Claimscouldchallengetheaccuracyofmaterialsonournetworkorcouldinvolvematterssuchasdefamation,invasionofprivacyorcopyrightinfringement.Ifweneedtotakecostlymeasurestoreduceourexposuretotheserisksorarerequiredtodefendourselvesagainstsuchclaims,ourbusiness,reputation,financialconditionandresultsofoperationscouldbemateriallyadverselyaffected.
If we are unable to retain key employees, our ability to manage our business could be adversely affected.
Ouroperationalresultshavedepended,andourfutureresultswilldepend,upontheretentionandcontinuedperformanceofourmanagementteam.Thecompetitiveenvironmentformanagementtalentinthebroadbandcommunicationsindustrycouldadverselyimpactourabilitytoretainandhirenewkeyemployeesformanagementpositions.Thelossoftheservicesofkeymembersofmanagementandtheinabilityordelayinhiringnewkeyemployeescouldadverselyaffectourabilitytomanageourbusinessandourfutureoperationalandfinancialresults.
Impairment of Altice Group's reputation could adversely affect current and future customers' perception of Altice USA.
Ourabilitytoattractandretaincustomersdepends,inpart,upontheexternalperceptionsofAlticeGroup'sreputation,thequalityofitsproductsanditscorporateandmanagementintegrity.Thebroadbandcommunicationsandvideoservicesindustryisbyitsnaturemorepronetoreputationalrisksthanotherindustries.ThishasbeencompoundedinrecentyearsbythefreeflowofunverifiedinformationontheInternetand,inparticular,onsocialmedia.Impairment,includinganylossofgoodwillorreputationaladvantages,ofAlticeGroup'sreputationinmarketsinwhichwedonotoperatecouldadverselyaffectcurrentandfuturecustomers'perceptionofAlticeUSA.
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Macroeconomic developments may adversely affect our business.
Ourperformanceissubjecttoglobaleconomicconditionsandtherelatedimpactonconsumerspendinglevels.Continueduncertaintyaboutglobaleconomicconditionsposesariskasconsumersandbusinessesmaypostponespendinginresponsetotightercredit,unemployment,negativefinancialnews,and/ordeclinesinincomeorassetvalues,whichcouldhaveamaterialnegativeeffectondemandforourproductsandservices.Asourbusinessdependsonconsumerdiscretionaryspending,ourresultsofoperationsaresensitivetochangesinmacroeconomicconditions.Ourcustomersmayhavelessmoneyfordiscretionarypurchasesasaresultofjoblosses,foreclosures,bankruptcies,increasedfuelandenergycosts,higherinterestrates,highertaxes,reducedaccesstocredit,andlowerhomevalues.Theseandothereconomicfactorscouldadverselyaffectdemandforourproducts,whichinturncouldadverselyaffectourfinancialconditionandresultsofoperations.
Online piracy of entertainment and media content could result in reduced revenues and increased expenditures which could materially harm our business,financial condition and results of operations.
Onlineentertainmentandmediacontentpiracyisextensiveinmanypartsoftheworldandismadeeasierbytechnologicaladvances.Thistrendfacilitatesthecreation,transmissionandsharingofhighqualityunauthorizedcopiesofentertainmentandmediacontent.Theproliferationofunauthorizedcopiesofthiscontentwilllikelycontinue,andifitdoes,couldhaveanadverseeffectonourbusiness,financialconditionandresultsofoperationsbecausetheseproductscouldreducetherevenuewereceiveforourproducts.Additionally,inordertocontainthisproblem,wemayhavetoimplementelaborateandcostlysecurityandantipiracymeasures,whichcouldresultinsignificantexpensesandlossesofrevenue.Therecanbenoassurancethateventhehighestlevelsofsecurityandanti-piracymeasureswillpreventpiracy.
The MSG Distribution and the AMC Networks Distribution could result in significant tax liability.
WehavereceivedprivateletterrulingsfromtheInternalRevenueService(the"IRS")totheeffectthat,amongotherthings,theMSGDistribution(wherebyOptimumdistributedtoitsstockholdersalloftheoutstandingcommonstockofTheMadisonSquareGardenCompany("MadisonSquareGarden"),acompanywhichownsthesports,entertainmentandmediabusinessespreviouslyownedandoperatedbyOptimum)andtheAMCNetworksDistribution(wherebyOptimumdistributedtoitsstockholdersalloftheoutstandingcommonstockofAMCNetworks,acompanywhichconsistedprincipallyofnationalprogrammingnetworks,includingAMC,WEtv,IFCandSundanceChannel,previouslyownedandoperatedbyOptimum)andcertainrelatedtransactions,willqualifyfortax-freetreatmentundertheCode.
AlthoughaprivateletterrulingfromtheIRSgenerallyisbindingontheIRS,ifthefactualrepresentationsorassumptionsmadeintheletterrulingrequestareuntrueorincompleteinanymaterialrespect,wewillnotbeabletorelyontheruling.Furthermore,theIRSwillnotruleonwhetheradistributionsatisfiescertainrequirementsnecessarytoobtaintax-freetreatmentundertheCode.Rather,therulingisbaseduponourrepresentationsthattheseconditionshavebeensatisfied,andanyinaccuracyinsuchrepresentationscouldinvalidatetheruling.
IftheMSGDistributionortheAMCNetworksDistributiondoesnotqualifyfortax-freetreatmentforU.S.federalincometaxpurposes,then,ingeneral,wewouldbesubjecttotaxasifwehadsoldtheMadisonSquareGardencommonstockorAMCNetworkscommonstock,asthecasemaybe,inataxablesaleforitsfairvalue.OptimumstockholdersatthetimeofthedistributionswouldbesubjecttotaxasiftheyhadreceivedadistributionequaltothefairvalueofMadisonSquareGardencommonstockorAMCNetworkscommonstock,asthecasemaybe,thatwasdistributedtothem,whichgenerallywouldbetreatedasataxabledividend.ItisexpectedthattheamountofanysuchtaxestoOptimum'sstockholdersanduswouldbesubstantial.
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Risk Factors Relating to Regulatory and Legislative Matters
Our business is subject to extensive governmental legislation and regulation, which could adversely affect our business, increase our operational andadministrative expenses and limit our revenues.
Regulationofourindustryhasincreasedbroadbandcommunicationscompanies'operationalandadministrativeexpensesandlimitedtheirrevenues.Broadbandcommunicationscompaniesaresubjectto,amongotherthings:
• rulesgoverningtheprovisioningandmarketingofcableequipmentandcompatibilitywithnewdigitaltechnologies;
• rulesandregulationsrelatingtodataprotectionandcustomerandemployeeprivacy;
• rulesestablishinglimitedrateregulationofvideoservice;
• rulesgoverningthecopyrightroyaltiesthatmustbepaidforretransmittingbroadcastsignals;
• rulesgoverningwhenacablesystemmustcarryaparticularbroadcaststationandwhenitmustfirstobtainretransmissionconsenttocarryabroadcaststation;
• rulesgoverningtheprovisionofchannelcapacitytounaffiliatedcommercialleasedaccessprogrammers;
• ruleslimitingtheabilitytoenterintoexclusiveagreementswithMDUsandcontrolinsidewiring;
• rules,regulationsandregulatorypoliciesrelatingtotheprovisionofbroadbandservice,includingnew"netneutrality"requirements;
• rules,regulationsandregulatorypoliciesrelatingtotheprovisionoftelephonyservices;
• rulesforfranchiserenewalsandtransfers;and
• otherrequirementscoveringavarietyofoperationalareassuchasequalemploymentopportunity,emergencyalertsystems,disabilityaccess,technicalstandardsandcustomerserviceandconsumerprotectionrequirements.
Manyaspectsoftheseregulationsarecurrentlythesubjectofjudicialproceedingsandadministrativeorlegislativeproposals.Therearealsoongoingeffortstoamendorexpandthefederal,stateandlocalregulationofsomeofourcablesystems,whichmaycompoundtheregulatoryriskswealreadyface,andproposalsthatmightmakeiteasierforouremployeestounionize.ThefederalInternetTaxFreedomAct,whichprohibitedmanytaxesonInternetaccessservice,butwassubjecttoperiodicrenewals,wasrecentlymodifiedsothatthecollectionoftaxesonInternetserviceisnowpermanentlyprohibited.Certainstatesandlocalitiesareconsideringnewcableandtelecommunicationstaxesthatcouldincreaseoperatingexpenses.Certainstatesarealsoconsideringadoptingenergyefficiencyregulationsgoverningtheoperationofequipmentthatweuse,whichcouldconstraininnovation.CongresshasrecentlyconsideredwhethertorewritetheentireCommunicationsActof1934,asamended(the"CommunicationsAct")toaccountforchangesinthecommunicationsmarketplaceortoadoptmorefocusedchanges.Inresponsetorecentdatabreachesandincreasingconcernsregardingtheprotectionofconsumers'personalinformation,Congressandregulatoryagenciesareconsideringtheadoptionofnewprivacyanddatasecuritylawsandregulationsthatcouldresultinadditionalprivacy,aswellasnetworkandinformationsecurity,requirementsforourbusiness.Thesenewlaws,aswellasexistinglegalandregulatoryobligations,couldrequiresignificantexpenditures.
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Additionally,therehavebeenstatementsbyfederalgovernmentofficialsindicatingthatsomelawsandregulationsapplicabletoourindustrymayberepealedormodifiedinawaythatcouldbefavorabletousandourcompetitors.Therecanbenoassurancethatanysuchrepealormodificationwillbebeneficialtousorwillnotbemorebeneficialtoourcurrentandfuturecompetitors.
Our cable system franchises are subject to non-renewal or termination. The failure to renew a franchise in one or more key markets could adversely affect ourbusiness.
Ourcablesystemsgenerallyoperatepursuanttofranchises,permitsandsimilarauthorizationsissuedbyastateorlocalgovernmentalauthoritycontrollingthepublicrights-of-way.Somefranchisesestablishcomprehensivefacilitiesandservicerequirements,aswellasspecificcustomerservicestandardsandmonetarypenaltiesfornon-compliance.Inmanycases,franchisesareterminableifthefranchiseefailstocomplywithsignificantprovisionssetforthinthefranchiseagreementgoverningsystemoperations.Franchisesaregenerallygrantedforfixedtermsandmustbeperiodicallyrenewed.Franchisingauthoritiesmayresistgrantingarenewalifeitherpastperformanceortheprospectiveoperatingproposalisconsideredinadequate.Franchiseauthoritiesoftendemandconcessionsorothercommitmentsasaconditiontorenewal.Insomeinstances,localfranchiseshavenotbeenrenewedatexpiration,andwehaveoperatedandareoperatingundereithertemporaryoperatingagreementsorwithoutafranchisewhilenegotiatingrenewaltermswiththelocalfranchisingauthorities.
AsofDecember31,2016,oneofourlargestfranchises,theTownofHempstead,NewYork,comprisinganaggregateofapproximately85,000paytelevisioncustomers,wasexpired.WearecurrentlylawfullyoperatingintheTownofHempstead,NewYorkfranchiseareaundertemporaryauthorityrecognizedbytheStateofNewYork.LightpathholdsafranchisefromNewYorkCitythatexpiredonDecember20,2008andtherenewalprocessisongoing.WebelieveNewYorkCityistreatingtheexpirationdateofthisfranchiseasextendeduntilaformaldeterminationonrenewalismade,buttherecanbenoassurancethatwewillbesuccessfulinrenewingthisfranchiseonanticipatedtermsoratall.Weexpecttoreneworcontinuetooperateunderallorsubstantiallyallofourfranchises.
Thetraditionalcablefranchisingregimeiscurrentlyundergoingsignificantchangeasaresultofvariousfederalandstateactions.Somestatefranchisinglawsdonotallowincumbentoperatorslikeustoimmediatelyoptintofavorablestatewidefranchisingasquicklyasnewentrants,andoftenrequireustoretaincertainfranchiseobligationsthataremoreburdensomethanthoseappliedtonewentrants.
Wecannotassureyouthatwewillbeabletocomplywithallsignificantprovisionsofourfranchiseagreementsandcertainofourfranchisorshavefromtimetotimeallegedthatwehavenotcompliedwiththeseagreements.Additionally,althoughhistoricallywehaverenewedourfranchiseswithoutincurringsignificantcosts,wecannotassureyouthatwewillbeabletorenew,ortorenewontermsasfavorable,ourfranchisesinthefuture.Aterminationoforasustainedfailuretorenewafranchiseinoneormorekeymarketscouldadverselyaffectourbusinessintheaffectedgeographicarea.
Our cable system franchises are non-exclusive. Accordingly, local and state franchising authorities can grant additional franchises and create competition inmarket areas where none existed previously, resulting in overbuilds, which could adversely affect our results of operations.
Cablesystemsareoperatedundernon-exclusivefranchiseshistoricallygrantedbylocalauthorities.Morethanonecablesystemmaylegallybebuiltinthesamearea,whichisreferredtoasanoverbuild.Itispossiblethatafranchisingauthoritymightgrantasecondfranchisetoanothercableoperatorandthatsuchfranchisemightcontaintermsandconditionsmorefavorablethanthoseaffordedtous.Althoughentryintothecableindustryinvolvessignificantcostbarriersandrisks,well-financedbusinessesfromoutsidethecableindustry,suchaspublicutilitiesthatalreadypossessfiberopticandothertransmissionlinesintheareastheyserve,mayovertimebecomecompetitors.Inaddition,there
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areafewcitiesthathaveconstructedtheirowncablesystems,inamannersimilartocity-providedutilityservices,andprivatecablecompaniesnotaffiliatedwithestablishedlocalexchangecarriershavealsodemonstratedaninterestinconstructingoverbuilds.Webelievethatforanypotentialcompetitortobesuccessful,suchcompetitor'soverbuildwouldneedtobeabletoservethehomesandbusinessesintheoverbuiltareawithequalorbetterservicequality,onamorecost-effectivebasisthanwecan.
Insomecases,localgovernmententitiesandmunicipalutilitiesmaylegallycompetewithuswithoutsecuringalocalfranchiseoronmorefavorablefranchiseterms.Therearefederallegislativeandregulatoryproposalsnowpendingregardingtheabilityofmunicipalitiestoconstructanddeploybroadbandfacilitiesthatcouldcompetewithourcablesystems.Inaddition,certaintelephonecompaniesareseekingauthoritytooperateincommunitieswithoutfirstobtainingalocalfranchise.Asaresult,competingoperatorsmaybuildsystemsinareasinwhichweholdfranchises.TheFCChasadoptedrulesthatstreamlineentryfornewcompetitors(includingthoseaffiliatedwithtelephonecompanies)andreducefranchisingburdensforthesenewentrants.Atthesametime,asubstantialnumberofstateshaveadoptednewfranchisinglaws.Again,theselawswereprincipallydesignedtostreamlineentryfornewcompetitors,andtheyoftenprovideadvantagesforthesenewentrantsthatarenotimmediatelyavailabletoexistingoperators.Asaresultofthesenewfranchisinglawsandregulations,wehaveseenanincreaseinthenumberofcompetitivecablefranchisesoroperatingcertificatesbeingissued,andweanticipatethattrendtocontinue.
Webelievethemarketsweservearenotsignificantlyoverbuilt.However,theFCCandsomestateregulatorycommissionsdirectcertainsubsidiestoentitiesdeployingbroadbandtoareasdeemedtobe"unserved"or"underserved."Manyotherorganizationshaveappliedforandreceivedthesefunds,includingbroadbandservicescompetitorsandnewentrantsintosuchservices.Wehavegenerallyopposedsuchsubsidieswhendirectedtoareasthatweserveandhavedeployedbroadbandcapablenetworks.Despitethoseefforts,wecouldbeplacedatacompetitivedisadvantageifrecipientsusethesefundstosubsidizeservicesthatcompetewithourbroadbandservices.
Local franchising authorities have the ability to impose additional regulatory constraints on our business, which could reduce our revenues or increase ourexpenses.
Inadditiontothefranchiseagreement,localfranchisingauthoritiesinsomejurisdictionshaveadoptedcableregulatoryordinancesthatfurtherregulatetheoperationofcablesystems.Thisadditionalregulationincreasesthecostofoperatingourbusiness.Forexample,somelocalfranchisingauthoritiesimposeminimumcustomerservicestandardsonouroperations.Therearenoassurancesthatthelocalfranchisingauthoritieswillnotimposenewandmorerestrictiverequirements.Localfranchisingauthoritieswhoarecertifiedtoregulateratesgenerallyhavethepowertoreduceratesandorderrefundsontherateschargedforbasicserviceandequipment,whichcouldreduceourrevenues.
Further regulation of the cable industry could restrict our marketing options or impair our ability to raise rates to cover our increasing costs.
Thecableindustryhasoperatedunderafederalrateregulationregimeforapproximatelytwodecades.Currently,rateregulationisstrictlylimitedtothebasicservicetierandassociatedequipmentandinstallationactivities.Ourfranchiseauthoritieshavenotcertifiedtoexercisethislimitedrateregulationauthority,andtheywouldnowneedtodemonstratetheabsenceof"effectivecompetition"(asdefinedunderfederallaw)aspartofanyrateregulationcertification.However,theFCCandCongresscontinuetobeconcernedthatcablerateincreasesareexceedinginflation.ItispossiblethateithertheFCCorCongresswilladoptmoreextensiverateregulationforourpaytelevisionservicesorregulateourotherservices,suchasbroadbandandtelephonyservices,whichcouldimpedeourabilitytoraiserates,orrequireratereductions.Totheextentweareunabletoraiseourratesinresponsetoincreasingcosts,orarerequiredtoreduceourrates,ourbusiness,financialcondition,resultsofoperationsandliquiditywillbemateriallyadverselyaffected.Therehasbeenlegislativeandregulatory
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interestinrequiringcableoperatorstoofferhistoricallybundledprogrammingservicesonanàlacartebasis.Itispossiblethatnewmarketingrestrictionscouldbeadoptedinthefuture.Theserestrictionscouldaffecthowweprovide,andlimit,customerequipmentusedinconnectionwithourservicesandhowweprovideaccesstovideoprogrammingbeyondconventionalcabledelivery.ArecentFCCproposalthatwouldrequireMVPDstoaccommodatethird-partydevicesthroughtheprovisionofmultiple"informationflows"tothird-partydevicescould,ifadopted,adverselyaffectourrelationshipwithourcustomersandprogrammersandouroperations.ItisalsopossiblethatregulationswillbeadoptedaffectingthenegotiationsbetweenMVPDs(likeus)andprogrammers.Whiletheseregulationsmightprovideuswithadditionalrightsandprotectionsinourprogrammingnegotiations,theymightalsolimitourflexibilityinwaysthatadverselyaffectouroperations.
We may be materially adversely affected by regulatory changes related to pole attachment costs.
Poleattachmentsarecablewiresthatareattachedtoutilitypoles.Cablesystempoleattachmentstoutilitypoleshistoricallyhavebeenregulatedatthefederalorstatelevel,generallyresultinginfavorablepoleattachmentratesforattachmentsusedtoprovidecableservice.Anychangesinthecurrentpoleattachmentapproachcouldresultinasubstantialincreaseinourpoleattachmentcosts.
Changes in channel carriage regulations could impose significant additional costs on us.
Cableoperatorsalsofacesignificantregulationaffectingthecarriageofbroadcastandotherprogrammingchannels.Wecanberequiredtodevotesubstantialcapacitytothecarriageofprogrammingthatwemightnototherwisecarryvoluntarily,includingcertainlocalbroadcastsignals;localpublic,educationalandgovernmentalaccessprogramming;andunaffiliated,commercialleasedaccessprogramming(channelcapacitydesignatedforusebyprogrammersunaffiliatedwiththecableoperator).Regulatorychangesinthisareacoulddisruptexistingprogrammingcommitments,interferewithourpreferreduseoflimitedchannelcapacityandlimitourabilitytoofferservicesthatwouldmaximizeourrevenuepotential.Itispossiblethatotherlegalrestraintswillbeadoptedlimitingourdiscretionoverprogrammingdecisions.
Increasing regulation of our Internet-based products and services could adversely affect our ability to provide new products and services.
OnFebruary26,2015,theFCCadoptedanew"networkneutrality"orOpenInternetorder(the"2015Order")that:(1)reclassifiedbroadbandInternetaccessserviceasaTitleIIcommoncarrierservice,(2)appliedcertainexistingTitleIIprovisionsandassociatedregulations;(3)forborefromapplyingarangeofotherexistingTitleIIprovisionsandassociatedregulations,buttovaryingdegreesindicatedthatthisforbearancemaybeonlytemporaryand(4)issuednewrulesexpandingdisclosurerequirementsandprohibitingblocking,throttling,paidprioritizationandunreasonableinterferencewiththeabilityofendusersandedgeproviderstoreacheachother.The2015Orderalsosubjectedbroadbandproviders'InternettrafficexchangeratesandpracticestopotentialFCCoversightandcreatedamechanismforthirdpartiestofilecomplaintsregardingthesematters.The2015Orderhasbeenappealedbymultipleparties,buttherulesarecurrentlyineffect.The2015Ordercouldlimitourabilitytoefficientlymanageourcablesystemsandrespondtooperationalandcompetitivechallenges.
Offering telephone services may subject us to additional regulatory burdens, causing us to incur additional costs.
WeoffertelephoneservicesoverourbroadbandnetworkandcontinuetodevelopanddeployinterconnectedVoIPservices.TheFCChasruledthatcompetitivetelephonecompaniesthatsupportVoIPservices,suchasthosethatweoffertoourcustomers,areentitledtointerconnectwithincumbentprovidersoftraditionaltelecommunicationsservices,whichensuresthatourVoIPservicescanoperateinthemarket.However,thescopeoftheseinterconnectionrightsarebeingreviewedinacurrent
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FCCproceeding,whichmayaffectourabilitytocompeteintheprovisionoftelephonyservicesorresultinadditionalcosts.ItremainsunclearpreciselytowhatextentfederalandstateregulatorswillsubjectVoIPservicestotraditionaltelephoneserviceregulation.Expandingourofferingoftheseservicesmayrequireustoobtaincertainauthorizations,includingfederalandstatelicenses.Wemaynotbeabletoobtainsuchauthorizationsinatimelymanner,orconditionscouldbeimposeduponsuchlicensesorauthorizationsthatmaynotbefavorabletous.TheFCChasalreadyextendedcertaintraditionaltelecommunicationsrequirements,suchasE911capabilities,UniversalServiceFundcontribution,CommunicationsAssistanceforLawEnforcementAct("CALEA"),measurestoprotectCustomerProprietaryNetworkInformation,customerprivacy,disabilityaccess,numberporting,batteryback-up,networkoutagereporting,ruralcallcompletionreportingandotherregulatoryrequirementstomanyVoIPproviderssuchasus.IfadditionaltelecommunicationsregulationsareappliedtoourVoIPservice,itcouldcauseustoincuradditionalcostsandmayotherwisemateriallyadverselyimpactouroperations.In2011,theFCCreleasedanordersignificantlychangingtherulesgoverningintercarriercompensationfortheoriginationandterminationoftelephonetrafficbetweeninterconnectedcarriers.Theseruleshaveresultedinasubstantialdecreaseininterstatecompensationpaymentsoveramulti-yearperiod.Further,theFCC'sinitiativetocollectdataconcerningcertainpointtopointtransport("specialaccess")servicesweprovidecouldresultinadditionalregulatoryburdensandadditionalcosts.
We may be materially adversely affected by regulatory, legal and economic changes relating to our physical plant.
Oursystemsdependonphysicalfacilities,includingtransmissionequipmentandmilesoffiberandcoaxialcable.Significantportionsofthosephysicalfacilitiesoccupypublicrights-of-wayandaresubjecttolocalordinancesandgovernmentalregulations.Otherportionsoccupyprivatepropertyunderexpressorimpliedeasements,andmanymilesofthecableareattachedtoutilitypolesgovernedbypoleattachmentagreements.Noassurancescanbegiventhatwewillbeabletomaintainanduseourfacilitiesintheircurrentlocationsandattheircurrentcosts.Changesingovernmentalregulationsorchangesintheserelationshipscouldhaveamaterialadverseeffectonourbusinessandourresultsofoperations.
Changes in tax legislation could adversely affect our business, financial condition and results of operations.
ThecurrentadministrationandtheRepublicanmembersoftheU.S.HouseofRepresentativeshavepubliclystatedthatoneoftheirtoplegislativeprioritiesissignificantreformoftheU.S.federalincometaxlegislation,includingsignificantchangestothetaxationofbusinessentities.ChangesinU.S.federalincometaxlegislationmayadverselyaffectourbusiness,financialconditionandresultsofoperations.Thetiminganddetailsofanytaxreform,aswellastheimpactitmayhaveonus,remainunclear.
Risk Factors Relating to This Offering and Ownership of Our Class A Common Stock
Prior to this offering, no market existed for our Class A common stock and we cannot assure you that an active, liquid trading market will develop for ourClass A common stock.
Priortothisoffering,therehasbeennopublicmarketforsharesofourClassAcommonstock.WecannotpredicttheextenttowhichinvestorinterestinourCompanywillleadtothedevelopmentandsustainmentofanactivetradingmarketontheorotherwise,orhowliquidthatmarketmightbecome.Apublictradingmarkethavingthedesirablecharacteristicsofdepth,liquidityandorderlinessdependsupontheexistenceofwillingbuyersandsellersatanygiventime,suchexistencebeingdependentupontheindividualdecisionsofbuyersandsellersoverwhichneitherwenoranymarketmakerhascontrol.Ifanactiveandliquidtradingmarketdoesnotdevelop,youmayhavedifficultysellinganysharesofourClassAcommonstockthatyoupurchaseinthisinitialpublic
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offeringandthevalueofourClassAcommonstockmaybemateriallyadverselyaffected.TheinitialpublicofferingpriceforthesharesofourClassAcommonstockwasdeterminedbynegotiationsbetweenus,thesellingstockholdersandtherepresentativesoftheunderwriters,andmaynotbeindicativeofpricesthatwillprevailintheopenmarketfollowingthisoffering.ThemarketpriceofourClassAcommonstockmaydeclinebelowtheinitialpublicofferingprice,andyoumaynotbeabletosellyoursharesofourClassAcommonstockatorabovethepriceyoupaidinthisoffering,oratall.AninactiveandilliquidtradingmarketmayalsoimpairourabilitytoraisecapitaltocontinuetofundoperationsbysellingsharesofourClassAcommonstockandmayimpairourabilitytoacquireothercompaniesortechnologiesbyusingourClassAcommonstockasconsideration.
You will experience immediate and substantial dilution in the net tangible book value of the shares you purchase in this offering, and you will suffer additionaldilution if the underwriters exercise their option to purchase additional shares of Class A common stock.
IfyoupurchasesharesofourClassAcommonstockinthisofferingyouwillexperienceimmediateandsubstantialdilution,astheinitialpublicofferingpriceofourClassAcommonstockwillbesubstantiallygreaterthantheproformanettangiblebookvaluepershareofourClassAcommonstock.IfyoupurchaseourClassAcommonstockinthisoffering,youwillsufferimmediateandsubstantialdilutionofapproximately$pershare,representingthedifferencebetweenourproformanettangiblebookdeficitpershareaftergivingeffecttothisofferingandtheinitialpublicofferingprice.
Your percentage ownership in us may be diluted by future issuances of capital stock, which could reduce your influence over matters on which stockholdersvote.
Pursuanttoouramendedandrestatedcertificateofincorporationandamendedandrestatedbylaws,ourboardofdirectorswillhavetheauthority,withoutactionorvoteofourstockholders,toissuealloranypartofourauthorizedbutunissuedsharesofClassAcommonstock,includingsharesissuableupontheexerciseofoptions,ClassBcommonstock,ClassCcommonstockorsharesofourauthorizedbutunissuedpreferredstock.Wemayissuesuchcapitalstocktomeetanumberofourbusinessneeds,includingfundinganypotentialacquisitionsorotherstrategictransactions.IssuancesofClassAcommonstock,ClassBcommonstockorvotingpreferredstockwouldreduceyourinfluenceovermattersonwhichourstockholdersvoteand,inthecaseofissuancesofpreferredstock,wouldlikelyresultinyourinterestinusbeingsubjecttothepriorrightsofholdersofthatpreferredstock.
If the market price of our Class A common stock is volatile after this offering, you could lose a significant part of your investment.
Securitiesmarketsoftenexperiencesignificantpriceandvolumefluctuations,soevenifatradingmarketdevelops,themarketpriceofourClassAcommonstockmaybehighlyvolatileandcouldbesubjecttowidefluctuations.ThemarketpriceofourClassAcommonstockwillbeinfluencedbymanyfactors,someofwhicharebeyondourcontrol,includingthosedescribedabovein"—RiskFactorsRelatingtoOurBusiness"andincluding,butnotlimitedto,thefollowing:
• thefailureofsecuritiesanalyststocoverourClassAcommonstockafterthisofferingorchangesinfinancialestimatesbyanalysts;
• theinabilitytomeetthefinancialestimatesofanalystswhofollowourClassAcommonstock;
• strategicactionsbyusorourcompetitors;
• announcementsbyusorourcompetitorsofsignificantcontracts,acquisitions,jointmarketingrelationships,jointventuresorcapitalcommitments;
• introductionofnewproductsorservicesbyusorourcompetitors;
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• variationsinourquarterlyoperatingresultsandthoseofourcompetitors;
• variationsinAlticeN.V.'soperatingresultsandthemarketpriceofitsshares;
• additionsordeparturesofkeypersonnel;
• generaleconomicandstockmarketconditions;
• risksrelatedtoourbusinessandourindustry,includingthosediscussedabove;
• changesinconditionsortrendsinourindustry,marketsorcustomers;
• regulatory,legalorpoliticaldevelopments;
• changesinaccountingprinciples;
• changesintaxlegislationandregulations;
• litigationandgovernmentalinvestigations;
• terroristacts;
• futuresalesofourClassAcommonstockorothersecurities;
• defaultunderagreementsgoverningourindebtedness;and
• investorperceptionsoftheinvestmentopportunityassociatedwithourClassAcommonstockrelativetootherinvestmentalternatives.
Asaresultoftheseandotherfactors,investorsinourClassAcommonstockmaynotbeabletoreselltheirsharesatorabovetheinitialofferingpriceormaynotbeabletoresellthematall.ThesebroadmarketandindustryfactorsmaymateriallyreducethemarketpriceofourClassAcommonstock,regardlessofouroperatingperformance.Inaddition,pricevolatilitymaybegreaterifthepublicfloatandtradingvolumeofourClassAcommonstockislow.
Because we have no current plans to pay cash dividends on our Class A common stock for the foreseeable future, you may not receive any return on investmentunless you sell your Class A common stock for a price greater than that which you paid for it.
Weintendtoretainfutureearnings,ifany,forfutureoperations,expansionanddebtrepaymentandhavenocurrentplanstopayanycashdividendsfortheforeseeablefuture.Thedeclaration,amountandpaymentofanyfuturedividendsonsharesofClassAcommonstockwillbeatthesolediscretionofourboardofdirectors.Ourboardofdirectorsmaytakeintoaccountgeneralandeconomicconditions,ourfinancialconditionandresultsofoperations,ouravailablecashandcurrentandanticipatedcashneeds,capitalrequirements,contractual,legal,taxandregulatoryrestrictionsandimplicationsonthepaymentofdividendsbyustoourstockholdersorbyoursubsidiariestousandsuchotherfactorsasourboardofdirectorsmaydeemrelevant.Inaddition,ourabilitytopaydividendsislimitedbycovenantscontainedintheagreementsgoverningourexistingindebtednessandmaybelimitedbycovenantscontainedinanyfutureindebtednessweoroursubsidiariesincur.Asaresult,youmaynotreceiveanyreturnonaninvestmentinourClassAcommonstockunlessyousellourClassAcommonstockforapricegreaterthanthatwhichyoupaidforit.Formoreinformation,see"DividendPolicy."
Future sales, or the perception of future sales, by us or our existing stockholders in the public market following this offering could cause the market price forour Class A common stock to decline.
Afterthisoffering,thesaleofsubstantialamountsofsharesofourClassAcommonstockinthepublicmarket,ortheperceptionthatsuchsalescouldoccur,couldcausetheprevailingmarketpriceofsharesofourClassAcommonstocktodecline.Thesesales,orthepossibilitythatthesesalesmay
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occur,alsomightmakeitmoredifficultforustosellequitysecuritiesinthefutureatatimeandatapricethatwedeemappropriate.
UponconsummationofthisofferingwewillhaveatotalofsharesofClassAcommonstockoutstanding.AllofthesharesofClassAcommonstocksoldinthisofferingwillbefreelytradablewithoutrestrictionorfurtherregistrationundertheSecuritiesActof1933,asamended(the"SecuritiesAct").
Anysharesheldbyouraffiliates,asthattermisdefinedunderRule144oftheSecuritiesAct("Rule144"),includingAlticeN.V.anditsaffiliates,maybesoldonlyincompliancewiththelimitationsdescribedin"SharesEligibleforFutureSale."
Theremainingshareswillbe"restrictedsecurities"withinthemeaningofRule144andsubjecttocertainrestrictionsonresalefollowingtheconsummationofthisoffering.RestrictedsecuritiesmaybesoldinthepublicmarketonlyiftheyareregisteredundertheSecuritiesActoraresoldpursuanttoanexemptionfromregistrationsuchasRule144,asdescribedin"SharesEligibleforFutureSale."
Weandourofficers,directors,andholdersofsubstantiallyallofourcommonstockhaveagreedwiththeunderwriters,subjecttocertainexceptions,nottodisposeoforhedgeanyofourortheircommonstockorsecuritiesconvertibleintoorexchangeableforsharesofcommonstockduringtheperiodfromthedateofthisprospectuscontinuingthroughthedate180daysafterthedateofthisprospectus,exceptwiththepriorwrittenconsentof.
Upontheexpirationofthelock-upagreements,theremainingshareswillbeeligibleforresale,whichwouldbesubjecttovolume,mannerofsaleandotherlimitationsunderRule144.Inaddition,pursuanttoaregistrationrightsagreement,ourexistingownershavetheright,subjecttocertainconditions,torequireustoregisterthesaleoftheirsharesofourClassAcommonstock,orsharesofClassAcommonstockissuableonconversionofsharesofClassBcommonstockundertheSecuritiesAct.Byexercisingtheirregistrationrightsandsellingalargenumberofshares,ourexistingownerscouldcausetheprevailingmarketpriceofourClassAcommonstocktodecline.Followingcompletionofthisoffering,thesharescoveredbyregistrationrightswouldrepresentapproximately%ofouroutstandingClassAcommonstock(or%,iftheunderwritersexerciseinfulltheiroptiontopurchaseadditionalshares).RegistrationofanyoftheseoutstandingsharesofClassAcommonstockwouldresultinsuchsharesbecomingfreelytradablewithoutcompliancewithRule144uponeffectivenessoftheregistrationstatement.See"SharesEligibleforFutureSale."
Inaddition,weintendtofileoneormoreregistrationstatementsonFormS-8undertheSecuritiesActtoregistersharesofourClassAcommonstockorsecuritiesconvertibleintoorexchangeableforsharesofourClassAcommonstockissuedpursuanttotheAlticeUSA2017LongTermIncentivePlan.AnysuchFormS-8registrationstatementswillautomaticallybecomeeffectiveuponfiling.Sharesregisteredunderanysuchregistrationstatementwouldbeavailableforsaleinthepublicmarketfollowingtheeffectivedate,unlesssuchsharesaresubjecttovestingrestrictionswithus,Rule144restrictionsapplicabletoouraffiliatesorthelock-upagreementsdescribedelsewhereinthisprospectus.
Asrestrictionsonresaleendorifthesestockholdersexercisetheirregistrationrights,themarketpriceofourClassAcommonstockcoulddropsignificantlyiftheholdersofClassAcommonstocksellthemorareperceivedbythemarketasintendingtosellthem.ThesefactorscouldalsomakeitmoredifficultforustoraiseadditionalfundsthroughfutureofferingsofourClassAcommonstockorothersecurities.Inthefuture,wemayalsoissueoursecuritiesinconnectionwithinvestmentsoracquisitions.TheamountofsharesofourClassAcommonstockorClassCcommonstockissuedinconnectionwithaninvestmentoracquisitioncouldconstituteamaterialportionofthen-outstandingsharesofourClassAcommonstock.Anyissuanceofadditionalsecuritiesinconnectionwithinvestmentsoracquisitionsmayresultinadditionaldilutiontoyou.
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The tri-class structure of our common stock has the effect of concentrating voting control with Altice N.V. and its affiliates. This will limit or preclude yourability to influence corporate matters, including the election of directors, amendments of our organizational documents and any merger, consolidation, sale ofall or substantially all of our assets or other major corporate transaction requiring stockholder approval. Shares of Class B common stock will notautomatically convert to shares of Class A common stock upon transfer to a third party.
Followingthisoffering,ourClassBcommonstockwillhavetwenty-fivevotespershareandourClassAcommonstock,whichisthestockweareofferinginthisoffering,willhaveonevotepershare.IfweissueanysharesofClassCcommonstock,theywillbenon-voting.Immediatelyfollowingthecompletionofthisoffering,AlticeN.V.anditsaffiliateswillindirectlyholdintheaggregate%ofthevotingpowerofourcapitalstock.
Becauseofthetwenty-fivetoonevotingratiobetweenourClassBcommonstockandClassAcommonstock,AlticeN.V.anditsaffiliateswillcontinuetocontrolamajorityofthecombinedvotingpowerofourcapitalstockandthereforebeabletocontrolallmatterssubmittedtoourstockholdersforapprovaluntilsuchdateastheholdersofamajorityofourClassBcommonstockchoosetovoluntarilyconverttheirsharesintosharesofClassAcommonstockandceasetoownsharesofourcapitalstockentitlingthemtocastamajorityoftheoutstandingvotes.Thisconcentratedcontrolwilllimitorprecludeyourabilitytoinfluencecorporatemattersfortheforeseeablefuture,includingtheelectionofdirectors,amendmentsofourorganizationaldocumentsandanymerger,consolidation,saleofallorsubstantiallyallofourassetsorothermajorcorporatetransactionrequiringstockholderapproval.Thedisparatevotingrightsofourcommonstockmayalsopreventordiscourageunsolicitedacquisitionproposalsoroffersforourcapitalstockthatyoumayfeelareinyourbestinterestasoneofourstockholders.Foradditionalinformation,see"DescriptionofCapitalStock."
SharesofourClassBcommonstockwillbeconvertibleintosharesofourClassAcommonstockattheoptionoftheholderatanytime.OuramendedandrestatedcertificateofincorporationwillnotprovidefortheautomaticconversionofsharesofClassBcommonstockupontransferunderanycircumstances.TheholdersofClassBcommonstockthuswillbefreetotransferthemwithoutconvertingthemintosharesofClassAcommonstock.
Altice N.V. and Patrick Drahi will continue to control us and their interests may conflict with ours or yours in the future.
ThebeneficialownershipinterestsofAlticeN.V.followingtheofferingwilldependonthepriceofthesharesoffered,thenumberofsharessoldandtheunderwriters'exerciseoftheiroptiontopurchaseadditionalshares.Immediatelyfollowingthisoffering,AlticeN.V.willown%ofourClassBcommonstockwhichwillrepresentapproximately%ofthevotingpowerofourcapitalstock,or%iftheunderwritersexerciseinfulltheiroptiontopurchaseadditionalshares.SolongasAlticeN.V.continuestoowncommonstockrepresentingasubstantialportionofthevotingpowerofourcapitalstock,AlticeN.V.and,throughhiscontrolofAlticeN.V.,PatrickDrahi,willbeabletosignificantlyinfluencethecompositionofourboardofdirectorsandtherebyinfluenceourpoliciesandoperations,includingtheappointmentofmanagement,futureissuancesofourcommonstockorothersecurities,thepaymentofdividends,ifany,onourcommonstock,theincurrenceormodificationofdebtbyus,amendmentstoouramendedandrestatedcertificateofincorporationandamendedandrestatedbylawsandtheenteringintoofextraordinarytransactions,andtheirinterestsmaynotinallcasesbealignedwithyourinterests.Inaddition,AlticeN.V.mayhaveaninterestinpursuingacquisitions,divestituresandothertransactionsthat,initsjudgment,couldenhanceitsinvestmentorimproveitsfinancialcondition,eventhoughsuchtransactionsmightinvolveriskstoyou.Forexample,AlticeN.V.couldcauseustomakeacquisitionsthatincreaseourindebtednessorcauseustosellrevenue-generatingassets.
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SolongasAlticeN.V.continuestoholdasubstantialportionofthevotingpowerofourcapitalstock,AlticeN.V.and,throughhiscontrolofAlticeN.V.,PatrickDrahi,willcontinuetobeabletosignificantlyinfluenceoreffectivelycontrolourdecisions.Inaddition,AlticeN.V.willbeabletodeterminetheoutcomeofallmattersrequiringstockholderapprovalandwillbeabletocauseorpreventachangeofcontroloftheCompanyorachangeinthecompositionofourboardofdirectorsandcouldprecludeanyunsolicitedacquisitionoftheCompany.TheconcentrationofownershipcoulddepriveyouofanopportunitytoreceiveapremiumforyoursharesofourClassAcommonstockaspartofasaleoftheCompanyandultimatelymightaffectthemarketpriceofourClassAcommonstock.
Inaddition,wehaveenteredintoagreementswithaffiliatesofAlticeN.V.pursuanttowhichtheyprovideussoftwareandnetworkequipment,designanddevelopmentservices,technicalservicesandsupportforourcustomersandproprietarycontent,forwhichwecompensatethemonaregularbasis.IfconflictsarisebetweenusandAlticeN.V.,theseconflictscouldberesolvedinamannerthatisunfavorabletousandasaresult,ourbusiness,financialconditionandresultsofoperationscouldbemateriallyadverselyaffected.See"CertainRelationshipsandRelatedPartyTransactions."Inaddition,ifAlticeN.V.ceasestocontrolusorweotherwiseloseaccesstotheservicesandexpertiseavailabletousthroughAlticeN.V.,includingforexampleATSandAlticeLabs,ourbusiness,financialconditionandresultsofoperationscouldbeadverselyaffected.
Anti-takeover provisions in our organizational documents could delay or prevent a change of control transaction.
Certainprovisionsofouramendedandrestatedcertificateofincorporationandamendedandrestatedbylawsthatwillbeineffectontheclosingofthisofferingmayhaveananti-takeovereffectandmaydelay,deferorpreventamerger,acquisition,tenderoffer,takeoverattemptorotherchangeofcontroltransactionthatastockholdermightconsiderinitsbestinterest,includingthoseattemptsthatmightresultinapremiumoverthemarketpriceforthesharesheldbyourstockholders.
Theseprovisionswillprovidefor,amongotherthings:
• atri-classcommonstockstructure,asaresultofwhichAlticeN.V.generallywillbeabletocontroltheoutcomeofallmattersrequiringstockholderapproval,includingtheelectionofdirectorsandsignificantcorporatetransactions,suchasamergerorothersaleofourcompanyoritsassets;
• theabilityofourboardofdirectorsto,withoutfurtheractionbyourstockholders,fixtherights,preferences,privilegesandrestrictionsofuptoanaggregateofsharesofpreferredstockinoneormoreseriesandauthorizetheirissuance;and
• theabilityofstockholdersholdingamajorityofthevotingpowerofourcapitalstocktocallaspecialmeetingofstockholders.
Theseanti-takeoverprovisionscouldmakeitmoredifficultforathirdpartytoacquireus,evenifthethird-party'soffermaybeconsideredbeneficialbymanyofourstockholders.Asaresult,ourstockholdersmaybelimitedintheirabilitytoobtainapremiumfortheirsharesofourClassAcommonstock.See"DescriptionofCapitalStock."Inaddition,solongasAlticeN.V.continuestoholdasignificantamountofourcombinedvotingpoweritwillbeabletopreventachangeofcontroloftheCompany.
Holders of a single series of our common stock may not have any remedies if an action by our directors has an adverse effect on only that series of our commonstock.
PrinciplesofDelawarelawandtheprovisionsofouramendedandrestatedcertificateofincorporationmayprotectdecisionsofourboardofdirectorsthathaveadisparateimpactupon
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holdersofanysingleseriesofourcommonstock.UnderDelawarelaw,theboardofdirectorshasadutytoactwithduecareandinthebestinterestsofallofourstockholders,includingtheholdersofallseriesofourcommonstock.PrinciplesofDelawarelawestablishedincasesinvolvingdifferingtreatmentofmultipleclassesorseriesofstockprovidethataboardofdirectorsowesanequaldutytoallcommonstockholdersregardlessofclassorseriesanddoesnothaveseparateoradditionaldutiestoanygroupofstockholders.Asaresult,insomecircumstances,ourdirectorsmayberequiredtomakeadecisionthatisviewedasadversetotheholdersofoneseriesofourcommonstock.UndertheprinciplesofDelawarelawandthebusinessjudgmentrule,holdersmaynotbeabletosuccessfullychallengedecisionsthattheybelievehaveadisparateimpactupontheholdersofoneseriesofourstockifourboardofdirectorsisdisinterestedandindependentwithrespecttotheactiontaken,isadequatelyinformedwithrespecttotheactiontakenandactsingoodfaithandinthehonestbeliefthattheboardisactinginthebestinterestofallofourstockholders.
We will continue to be a "controlled company" within the meaning of the rules of the . As a result, we will qualify for, and intend to rely on, exemptionsfrom certain corporate governance requirements that would otherwise provide protection to stockholders of other companies.
Aftercompletionofthisoffering,AlticeN.V.willcontinuetocontrolamajorityofthevotingpowerofourcapitalstock.Asaresult,wewillbea"controlledcompany"withinthemeaningofthecorporategovernancestandardsofthe.Undertheserules,acompanyofwhichmorethan50%ofthevotingpowerisheldbyanindividual,grouporanothercompanyisa"controlledcompany"andmayelectnottocomplywithcertaincorporategovernancerequirements,including:
• therequirementthatamajorityofourboardofdirectorsconsistsof"independentdirectors"asdefinedundertherulesofthe;
• therequirementthatourdirectornomineesbeselected,orrecommendedforourboardofdirectors'selectionbyanominating/governancecommitteecomprisedsolelyofindependentdirectorswithawrittencharteraddressingthecommittees'purposeandresponsibilities;
• therequirementthatthecompensationofourexecutiveofficersbedetermined,orrecommendedtoourboardofdirectorsfordetermination,byacompensationcommitteecomprisedsolelyofindependentdirectorswithawrittencharteraddressingthecommittees'purposeandresponsibilities;and
• therequirementforanannualperformanceevaluationofthenominating/corporategovernanceandcompensationcommittees.
Followingthecompletionofthisofferingandforsolongaswearea"controlledcompany,"weintendtoutilizetheseexemptions.Asaresult,wewillnothaveamajorityofindependentdirectors,ournominating/corporategovernancecommitteeandcompensationcommitteewillnotconsistentirelyofindependentdirectorsandsuchcommitteeswillnotbesubjecttoannualperformanceevaluations.Accordingly,youwillnothavethesameprotectionsaffordedtostockholdersofcompaniesthataresubjecttoallofthecorporategovernancerequirementsofthe.
We will incur increased costs as a result of becoming a public company and in the administration of our organizational structure.
Asapubliccompany,wewillincursignificantlegal,accounting,insuranceandotherexpensesthatwehavenotincurredasaprivatecompany,includingcostsassociatedwithpubliccompanyreportingrequirementsoftheSecuritiesExchangeActof1934,asamended(the"ExchangeAct"),theSarbanes-OxleyActof2002(the"Sarbanes-OxleyAct"),theDodd-FrankWallStreetReformandConsumerProtectionActof2010,thelistingrequirementsoftheandotherapplicablesecuritieslawsandregulations.WealsohaveincurredandwillincurcostsassociatedwiththeSarbanes-OxleyActand
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relatedrulesimplementedbytheSEC.Followingthecompletionofthisoffering,wewillincurongoingperiodicexpensesinconnectionwiththeadministrationofourorganizationalstructure.Theexpensesincurredbypubliccompaniesgenerallyforreportingandcorporategovernancepurposeshavebeenincreasing.Weexpecttheserulesandregulationstoincreaseourlegalandfinancialcompliancecostsandtomakesomeactivitiesmoretime-consumingandcostly,althoughwearecurrentlyunabletoestimatethesecostswithanydegreeofcertainty.Theselawsandregulationscouldalsomakeitmoredifficultorcostlyforustoobtaincertaintypesofinsurance,includingdirectorandofficerliabilityinsurance,andwemaybeforcedtoacceptreducedpolicylimitsandcoverageorincursubstantiallyhighercoststoobtainthesameorsimilarcoverage.Iftheserequirementsdiverttheattentionofourmanagementandpersonnelfromotherbusinessconcerns,theycouldhaveamaterialadverseeffectonourbusiness,financialconditionandresultsofoperations.Theselawsandregulationscouldalsomakeitmoredifficultforustoattractandretainqualifiedpersonstoserveonourboardofdirectors,ourboardcommitteesorasourexecutiveofficers.Furthermore,ifweareunabletosatisfyourobligationsasapubliccompany,wecouldbesubjecttodelistingofourClassAcommonstock,fines,sanctionsandotherregulatoryactionandpotentiallycivillitigation.
Failure to achieve and maintain effective internal controls in accordance with Section 404 of Sarbanes-Oxley could have a material adverse effect on ourbusiness and stock price.
WearenotcurrentlyrequiredtocomplywiththerulesoftheSECimplementingSection404oftheSarbanes-OxleyActandthereforearenotrequiredtomakeaformalassessmentoftheeffectivenessofourinternalcontroloverfinancialreportingforthatpurpose.Asapubliccompany,wewillberequiredtodocumentandtestourinternalcontrolproceduresinordertosatisfytherequirementsofSection404ofSarbanes-Oxley,whichwillrequireannualmanagementassessmentsoftheeffectivenessofourinternalcontroloverfinancialreportingandareportbyourindependentregisteredpublicaccountingfirmthataddressestheeffectivenessofinternalcontroloverfinancialreporting.Duringthecourseofourtesting,wemayidentifydeficiencieswhichwemaynotbeabletoremediateintimetomeetourdeadlineforcompliancewithSection404.Ifourmanagementcannotfavorablyassesstheeffectivenessofourinternalcontroloverfinancialreportingorourauditorsidentifymaterialweaknessesinourinternalcontrols,investorconfidenceinourfinancialresultsmayweaken,andourstockpricemaysuffer,andwecouldbecomesubjecttoinvestigationsby,theSECorotherregulatoryauthorities,whichcouldrequireadditionalfinancialandmanagementresources.
If securities or industry analysts do not publish research or reports about our business, if they adversely change their recommendations regarding our Class Acommon stock or if our operating results do not meet their expectations, the market price of our Class A common stock could decline.
ThetradingmarketforourClassAcommonstockwillbeinfluencedbytheresearchandreportsthatindustryorsecuritiesanalystspublishaboutusorourbusiness.Wedonothaveanycontrolovertheseanalysts.Ifoneormoreoftheseanalystsceasecoverageofourcompanyorfailtopublishreportsonusregularly,wecouldlosevisibilityinthefinancialmarkets,whichinturncouldcauseourstockpriceortradingvolumetodecline.Moreover,ifoneormoreoftheanalystswhocoverourcompanydowngradesourClassAcommonstockorifouroperatingresultsdonotmeettheirexpectations,themarketpriceofourClassAcommonstockcoulddecline.
Inaddition,AlticeN.V.isapubliclylistedcompanytradedontheEuronextandissubjecttoequitymarketvolatility,generaleconomicconditionsandregulatorychangeswhichmayadverselyaffectthemarketpriceoftheAlticeN.V.ordinaryshares.AlticeN.V.iscurrentlycontrolledbyNextAltS.ár.l.,acompanythatiscontrolledbyPatrickDrahi.NextAltS.ár.l.couldsellasubstantialnumberofordinarysharesofAlticeN.V.inthepublicmarketandsuchsales,ortheperceptionthatsuchsalescouldoccur,maymateriallyandadverselyaffectthemarketpriceofAlticeN.V.'sordinaryshares.A
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decreaseinAlticeN.V.sharepricecouldnegativelyaffectthemarketpriceofourClassAcommonstock.
We could be subject to securities class action litigation.
Inthepast,securitiesclassactionlitigationhasoftenbeeninstitutedagainstcompanieswhosesecuritieshaveexperiencedperiodsofvolatilityinmarketprice.SecuritieslitigationbroughtagainstusfollowingvolatilityinthepriceofourClassAcommonstock,regardlessofthemeritorultimateresultsofsuchlitigation,couldresultinsubstantialcosts,whichwouldhurtourfinancialconditionandresultsofoperationsanddivertmanagement'sattentionandresourcesfromourbusiness.
We will have broad discretion in the use of the net proceeds to us from this offering and may not use them effectively.
Wewillhavebroaddiscretionintheapplicationofthenetproceedstousfromthisoffering,includingforanyofthepurposesdescribedinthesectiontitled"UseofProceeds,"andyouwillnothavetheopportunityaspartofyourinvestmentdecisiontoassesswhetherthenetproceedsarebeingusedappropriately.Becauseofthenumberandvariabilityoffactorsthatwilldetermineouruseofthenetproceedsfromthisoffering,theirultimateusemayvarysubstantiallyfromtheircurrentlyintendeduse.Thefailurebyourmanagementtoapplythesefundseffectivelycouldharmourbusiness.Pendingtheiruse,wemayinvestthenetproceedsfromthisofferinginshort-term,investment-gradeinterest-bearingsecuritiessuchasmoneymarketaccounts,certificatesofdeposit,commercialpaper,andguaranteedobligationsoftheU.S.governmentthatmaynotgenerateahighyieldtoourstockholders.Theseinvestmentsmaynotyieldafavorablereturntoourinvestors.
Our amended and restated bylaws will provide that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputesbetween us and our stockholders, which could limit our stockholders' ability to obtain a favorable judicial forum for disputes with us or our directors, officersor other employees.
OuramendedandrestatedbylawswillprovidethattheCourtofChanceryoftheStateofDelawarewillbetheexclusiveforumfor:(i)anyderivativeactionorproceedingbroughtonourbehalf;(ii)anyactionassertingabreachoffiduciaryduty;(iii)anyactionassertingaclaimagainstusarisingundertheGeneralCorporationLawoftheStateofDelaware("DGCL");(iv)anyactionregardingouramendedandrestatedcertificateofincorporationorouramendedandrestatedbylaws;or(v)anyactionassertingaclaimagainstusthatisgovernedbytheinternalaffairsdoctrine.Ouramendedandrestatedbylawspermitourboardofdirectorstowaivetheexclusiveforumprovisionandconsenttosuitinotherjurisdictions.Unlesswaived,thisexclusiveforumprovisionmaylimitastockholder'sabilitytobringaclaiminajudicialforumthatitfindsfavorablefordisputeswithusorourdirectors,officersorotheremployees,whichmaydiscouragesuchlawsuitsagainstusandourdirectors,officersandotheremployees.Alternatively,ifacourtweretofindthisprovisioninouramendedandrestatedbylawstobeinapplicableorunenforceableinanaction,wemayincuradditionalcostsassociatedwithresolvingsuchactioninotherjurisdictions,whichcouldadverselyaffectourbusiness,financialconditionandresultsofoperations.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Thisprospectusincludesstatementsthatexpressouropinions,expectations,beliefs,plans,objectives,assumptionsorprojectionsregardingfutureeventsorfutureresultsandthereforeare,ormaybedeemedtobe,"forward-lookingstatements."These"forward-lookingstatements"appearthroughoutthisprospectus,includinginsectionsentitled"ProspectusSummary,"RiskFactors,""Management'sDiscussionofAnalysisofFinancialConditionandResultsofOperations"and"Business"andrelatetomatterssuchasanticipatedfuturegrowthinrevenues,operatingincome,cashprovidedbyoperatingactivitiesandotherfinancialmeasures.Wordssuchas"expects,""anticipates,""believes,""estimates,""may,""will,""should,""could,""seeks,""potential,""continue,""intends,""plans"andsimilarwordsandtermsusedinthediscussionoffutureoperatingresults,futurefinancialperformanceandfutureeventsidentifyforward-lookingstatementsinthisprospectus.Alloftheseforward-lookingstatementsarebasedonmanagement'scurrentexpectationsandbeliefsaboutfutureevents.Aswithanyprojectionorforecast,theyaresusceptibletouncertaintyandchangesincircumstances.
Weoperateinahighlycompetitive,consumerandtechnologydrivenandrapidlychangingbusinessthatisaffectedbygovernmentregulationandeconomic,strategic,technological,politicalandsocialconditions.Variousfactorscouldadverselyaffectouroperations,businessorfinancialresultsinthefutureandcauseouractualresultstodiffermateriallyfromthosecontainedintheforward-lookingstatements,includingthosefactorsdiscussedunder"RiskFactors"inthisprospectus.Inaddition,importantfactorsthatcouldcauseouractualresultstodiffermateriallyfromthoseinourforward-lookingstatementsinclude:
• competitionforbroadband,paytelevisionandtelephonycustomersfromexistingcompetitors(suchasbroadbandcommunicationscompanies,DBSprovidersandInternet-basedproviders)andnewcompetitorsenteringourfootprint;
• changesinconsumerpreferences,lawsandregulationsortechnologythatmaycauseustochangeouroperationalstrategies;
• increaseddifficultynegotiatingprogrammingandretransmissionagreementsonfavorableterms,ifatall,resultinginincreasedcoststousand/orthelossofpopularprogramming;
• increasingprogrammingcostsanddeliveryexpensesrelatedtoourproductsandservices;
• ourabilitytoachieveanticipatedcustomerandrevenuegrowth,tosuccessfullyintroducenewproductsandservicesandtoimplementourgrowthstrategy;
• ourabilitytocompleteourcapitalinvestmentplansontimeandonbudget,includingourfive-yearplantobuildaFTTHnetworkanddeployournewhomecommunicationshub;
• theeffectsofeconomicconditionsorotherfactorswhichmaynegativelyaffectourcustomers'demandforourproductsandservices;
• theeffectsofindustryconditions;
• demandforadvertisingonourcablesystems;
• oursubstantialindebtednessanddebtserviceobligations;
• adversechangesinthecreditmarket;
• financialcommunityandratingagencyperceptionsofourbusiness,operations,financialconditionandtheindustriesinwhichweoperate;
• therestrictionscontainedinourfinancingagreements;
• ourabilitytogeneratesufficientcashflowtomeetourdebtserviceobligations;
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• fluctuationsininterestrateswhichmaycauseourinterestexpensetovaryfromquartertoquarter;
• technicalfailures,equipmentdefects,physicalorelectronicbreak-instoourservices,computervirusesandsimilarproblems;
• thedisruptionorfailureofournetwork,informationsystemsortechnologiesasaresultofcomputerhacking,computerviruses,"cyber-attacks,"misappropriationofdata,outages,naturaldisastersandothermaterialevents;
• ourabilitytoobtainnecessaryhardware,software,communicationsequipmentandservicesandotheritemsfromourvendorsatreasonablecosts;
• ourabilitytoeffectivelyintegrateacquisitionsandtomaximizeexpectedoperatingefficienciesfromouracquisitionsorasaresultofthetransactionscontemplatedhereby;
• significantunanticipatedincreasesintheuseofbandwidth-intensiveInternet-basedservices;
• theoutcomeoflitigationandotherproceedings;and
• otherrisksanduncertaintiesinherentinourcableandotherbroadbandcommunicationsbusinessesandourotherbusinesses,includingthoselistedunderthecaption"RiskFactors"inthisprospectus.
Additionalrisks,uncertaintiesandotherfactorsthatmaycauseouractualresults,performanceorachievementstobedifferentfromthoseexpressedorimpliedinourforward-lookingstatementsmaybefoundunder"RiskFactors"containedinthisprospectus.Thesefactorsandotherriskfactorsdisclosedinthisprospectusarenotnecessarilyalloftheimportantfactorsthatcouldcauseouractualresultstodiffermateriallyfromthoseexpressedinanyofourforward-lookingstatements.Otherunknownorunpredictablefactorscouldcauseouractualresultstodiffermateriallyfromthoseexpressedinanyofourforward-lookingstatements.
Giventheseuncertainties,youarecautionednottoplaceunduerelianceonsuchforward-lookingstatements.Theforward-lookingstatementscontainedinthisprospectusaremadeonlyasofthedateofthisprospectus.Excepttotheextentrequiredbylaw,wedonotundertake,andspecificallydeclineanyobligation,toupdateanyforward-lookingstatementsortopubliclyannouncetheresultsofanyrevisionstoanyofsuchstatementstoreflectfutureeventsordevelopments.Comparisonsofresultsforcurrentandanypriorperiodsarenotintendedtoexpressanyfuturetrendsorindicationsoffutureperformance,unlessexpressedassuch,andshouldonlybeviewedashistoricaldata.
YoushouldreadthisprospectusandthedocumentsthatwereferenceinthisprospectusandhavefiledwiththeSECasexhibitstotheregistrationstatementofwhichthisprospectusisapartwiththeunderstandingthatouractualfutureresults,levelsofactivity,performanceandeventsandcircumstancesmaybemateriallydifferentfromwhatweexpect.Wequalifyallforward-lookingstatementsbythesecautionarystatements.
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USE OF PROCEEDS
Weestimatethatthenetproceedstousfromthisoffering,afterdeductingtheunderwritingdiscountandestimatedofferingexpensespayablebyus,willbeapproximately$,basedonanassumedinitialpublicofferingpriceof$pershare,themid-pointofthepricerangesetforthonthecoverpageofthisprospectus.Anincreaseordecreaseintheinitialpublicofferingpriceby$pershareaboveorbelowthemid-pointoftheproposedrangewouldresultinanincreaseordecreaseofapproximately$,asapplicable,innetproceedstousassumingthenumberofsharesofferedbyusstaysconstant.Wewillnotreceiveanyproceedsfromthesaleofsharesbythesellingstockholders.
Wecurrentlyintendtousethenetproceedsthatwereceivefromthisofferingforgeneralcorporatepurposes.
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DIVIDEND POLICY
Duringfiscalyear2015,Cablevision,ourpredecessorcompany,paidaregularquarterlycashdividendof$0.15persharetoholdersofbothCablevision'sClassAcommonstockandClassBcommonstockonApril3,2015,June12,2015andSeptember10,2015.Inthefourthquarterof2016,wedeclaredcombinedcashdividendsofapproximately$445milliontoourstockholdersofwhichapproximately$365millionwaspaidinthefourthquarterof2016andapproximately$80millionwaspaidinthefirstquarterof2017.Inaddition,inApril2017,wedeclaredandpaidacashdividendofapproximately$170milliontoourstockholders.
Wecurrentlyintendtoretainanyfutureearningstofundtheoperation,developmentandexpansionofourbusinessanddonotintendtopayanydividendsonourClassAcommonstock.Anyfuturedeterminationrelatingtoourdividendpolicywillbemadeinthesoleandabsolutediscretionofourboardofdirectorsandwilldependuponthenexistingconditions,includingourfinancialcondition,resultsofoperations,contractualrestrictions,capitalrequirements,businessprospectsandotherfactorsthatourboardofdirectorsmaydeemrelevant.See"RiskFactors—RiskFactorsRelatingtoThisOfferingandOwnershipofOurClassACommonStock—BecausewehavenocurrentplanstopaycashdividendsonourClassAcommonstockfortheforeseeablefuture,youmaynotreceiveanyreturnoninvestmentunlessyousellyourClassAcommonstockforapricegreaterthanthatwhichyoupaidforit."
Inaddition,weareaholdingcompanywhichdoesnotconductanybusinessoperationsofourown.Asaresult,ourabilitytopaycashdividendsonourClassAcommonstockisdependentuponcashdividendsanddistributionsandothertransfersfromoursubsidiaries.Thetermsofcertaindebtinstrumentstowhichoursubsidiariesareapartycurrentlylimit,subjecttocertainexceptionsandqualifications,theirabilityandtheabilityoftheirrestrictedsubsidiariesto:(i)paydividendsormakeotherdistributionsorrepurchaseorredeemourcapitalstockorsubordinateddebt,(ii)engageincertaintransactionswithaffiliatesand(iii)enterintoagreementsthatrestrictthepaymentofdividendsbysubsidiariesortherepaymentofintercompanyloansandadvances.See"DescriptionofCertainIndebtedness."
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CAPITALIZATION
ThefollowingtablesetsforthourcashandcashequivalentsandcapitalizationasofDecember31,2016:
• onanactualbasisfromcontinuingoperations;and
• onanasadjustedbasistogiveeffecttothesalebyusofsharesofourClassAcommonstockinthisoffering,basedonapublicofferingpriceof$pershare,themid-pointofthepricerangesetforthonthecoverpageofthisprospectus,andafterdeductingtheunderwritingdiscountandtheestimatedofferingexpensespayablebyus,andtheuseofthenetproceedstherefromasdescribedin"UseofProceeds."
Theasadjustedinformationbelowisillustrativeonlyandourcapitalizationfollowingthecompletionofthisofferingwillbeadjustedbasedontheactualofferingpriceandothertermsofthisofferingdeterminedatpricing.Theinformationsetforthbelowshouldbereadinconjunctionwith"SelectedHistoricalandProFormaFinancialData,""UnauditedProFormaConsolidatedFinancialInformation,""Management'sDiscussionandAnalysisofFinancialConditionandResultsofOperations,"thefinancialstatementsandrelatednotesandthefinancialinformationincludedelsewhereinthisprospectus.TheasadjustedcolumnassumesthattheunderwritersdonotexercisetheiroptiontopurchaseadditionalsharesofourClassAcommonstock.
(1) Netdebtistotaldebtlesscashandcashequivalents.
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As of
December 31, 2016
(Dollars in thousands, except share data) Actual As
Adjusted (Unaudited) Cashandcashequivalents $ 486,792 $Debt: Short-termdebt: Creditfacilitydebt,seniornotesanddebentures,capitalleaseobligationsandnotespayable 979,635 Collateralizedindebtedness 622,332
Long-termdebt: Creditfacilitydebt,seniornotesanddebentures,capitalleaseobligationsandnotespayable 20,014,361 Collateralizedindebtedness 663,737 Notespayabletoaffiliatesandrelatedparties 1,750,000 Totaldebt 24,030,065
Redeemableequity 68,147 Equity: ClassAcommonstock:$0.01parvalue,sharesauthorized,issuedandoutstanding ClassBcommonstock:$0.01parvalue,sharesauthorized,issuedandoutstanding ClassCcommonstock:$0.01parvalue,sharesauthorized,nosharesissuedandoutstanding
Commonstock:$0.01parvalue,1,000sharesauthorized,100sharesissuedandoutstanding Additionalpaid-incapital 3,003,554 Accumulateddeficit (975,978) Accumulatedothercomprehensiveincome 1,979 Non-controllinginterest 287 Totalequity 2,029,842
Total capitalization $ 26,128,054 $
Totaldebtexcludingcollateralizedindebtedness 22,743,996 Netdebtexcludingcollateralizedindebtednessandnotespayabletoaffiliatesandrelatedparties(1) $ 20,507,204 $
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DILUTION
IfyouinvestinsharesofourClassAcommonstockinthisoffering,yourinvestmentwillbeimmediatelydilutedtotheextentofthedifferencebetweentheinitialpublicofferingpricepershareofourClassAcommonstockandthenettangiblebookdeficitpershareofourcommonstockimmediatelyafterthisoffering.DilutionresultsfromthefactthatthepershareofferingpriceofthesharesofClassAcommonstockissubstantiallyinexcessofthenettangiblebookvaluepershareattributabletothesharesofourcommonstockheldbyexistingowners.
OurnettangiblebookdeficitasofDecember31,2016wasapproximately$,or$pershareofcommonstock.Wecalculatenettangiblebookdeficitpersharebytakingtheamountofourtotaltangibleassets,reducedbytheamountofourtotalliabilitiesandthendividingthatamountbythetotalnumberofsharesofClassAandClassBcommonstockoutstandingaftergivingeffecttothisoffering.
AftergivingeffecttothesaleofsharesofourClassAcommonstockinthisofferingatanassumedinitialpublicofferingpriceof$pershare,themid-pointofthepricerangesetforthonthecoverpageofthisprospectus,andafterdeductingunderwritingdiscountsandestimatedofferingexpensespayablebyus,ournettangiblebookdeficitasofDecember31,2016wouldhavebeen$,or$pershareofcommonstock.Thisrepresentsanimmediatedecreaseinnettangiblebookdeficitof$pershareofcommonstocktoourexistingownersandanimmediateandsubstantialdilutionof$pershareofClassAcommonstocktoinvestorsinthisofferingattheassumedinitialpublicofferingprice.
ThefollowingtableillustratesthisdilutiononapershareofcommonstockbasistonewinvestorsassumingtheunderwritersdonotexercisetheiroptiontopurchaseadditionalsharesofClassAcommonstock:
A$1.00decreaseintheassumedinitialpublicofferingpriceof$pershare,themid-pointofthepricerangesetforthonthecoverpageofthisprospectus,wouldincreaseournettangiblebookdeficitpershareofourcommonstockby$,assumingthatthenumberofsharesoffered,assetforthonthecoverofthisprospectus,remainsthesame,afterdeductingtheunderwritingdiscountandestimatedofferingexpensespayablebyus.
WewillnotreceiveanyproceedsfromanysaleofsharesofourClassAcommonstockbythesellingstockholders.IftheunderwritersexercisetheiroptiontopurchaseadditionalsharesofourClassAcommonstockinfull,theproformaasadjustednettangiblebookdeficitpersharewillbe$pershare,thedecreaseinproformanettangiblebookdeficitpershareattributabletonewinvestorsinthisofferingwillbe$pershareandthedilutionpersharetonewinvestorspurchasingsharesinthisofferingwillbe$pershare.See"UseofProceeds."
ThetablebelowsummarizesasofDecember31,2016,onaproformaasadjustedbasisdescribedabove,thenumberofsharesofourcommonstock,thetotalconsiderationandtheaveragepricepershare(i)paidtousbyourexistingstockholders(determinedbasedonouradditionalpaid-incapital)and(ii)tobepaidbynewinvestorspurchasingourClassAcommonstockinthisoffering(assumingnoexerciseoftheunderwriters'optiontopurchaseadditionalsharesofClassAcommonstock),before
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Initialpublicofferingpricepershare $ NettangiblebookdeficitpershareasofDecember31,2016 $ Decreaseinnettangiblebookdeficitpershareattributabletonewinvestorsinthisoffering $
Asadjustednettangiblebookdeficitpershareaftergivingeffecttothisoffering $ Dilutionpersharetonewinvestorspurchasingsharesinthisoffering $
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deductingtheunderwritingdiscountandestimatedofferingexpensespayablebyusandassuminganinitialpublicofferingpriceof$pershare,themid-pointofthepricerangesetforthonthecoverpageofthisprospectus.
Iftheunderwriters'optiontopurchaseadditionalsharesofClassAcommonstockisexercisedinfull,thepercentageofsharesofourcommonstockheldbyexistingstockholderswillbereducedto%ofthetotalnumberofsharesofourcommonstockoutstandingafterthisoffering,andthenumberofsharesheldbynewinvestorswillincreasetoshares,or%ofthetotalnumberofsharesofourClassAcommonstockoutstandingafterthisoffering.
TheshareinformationasofDecember31,2016showninthetableaboveexcludesanysharestobereservedforissuanceunderourstockoptionplansthatmaybeadoptedpriortothecompletionofthisoffering.
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Total Consideration (in thousands)
Shares Purchased
Average Price Per
Share
Number Percent Amount Percent Existingstockholders %$ %$ Newinvestors % %
Total 100.0%$ 100.0%
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SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
ThesummaryconsolidatedhistoricalbalancesheetandoperatingdataofAlticeUSAasofandfortheyearendedDecember31,2016presentedbelowhavebeenderivedfromtheauditedconsolidatedfinancialstatementsofAlticeUSAincludedelsewhereherein.TheoperatingdataofAlticeUSAfortheyearendedDecember31,2016includetheoperatingresultsofCequelfortheyearendedDecember31,2016andtheoperatingresultsofCablevisionfortheperiodfromthedateofacquisition,June21,2016,throughDecember31,2016.
TheconsolidatedproformaoperatingdataofAlticeUSAfortheyearsendedDecember31,2016and2015havebeenderivedfromtheunauditedproformaconsolidatedstatementsofoperationsincludedelsewherehereinandgiveeffecttotheCablevisionAcquisitionandCequelAcquisitionasiftheyoccurredonJanuary1,2015.
ThesummaryconsolidatedhistoricalbalancesheetandoperatingdataofCablevisionhasbeenpresentedfortheperiodspriortotheCablevisionAcquisitionasCablevisionisdeemedtobethepredecessorentity.ThesummaryconsolidatedhistoricaloperatingdataofCablevisionpresentedbelowhavebeenderivedfromtheauditedconsolidatedfinancialstatementsofCablevisionincludedelsewhereherein.
ThehistoricalquarterlybalancesheetandoperatingdataofCablevisionareunauditedandhavebeenpresentedforeachofthequarterlyperiodsin2015(Predecessorperiod)andthreemonthsendedMarch31,2016(Predecessorperiod),periodApril1,2016toJune20,2016(Predecessorperiod),periodJune21,2016toJune30,2016(Successorperiod)andthreemonthsendedSeptember30,2016(Successorperiod)andDecember31,2016(Successorperiod).
Theselectedhistoricalandproformaresultspresentedbelowarenotnecessarilyindicativeoftheresultstobeexpectedforanyfutureperiod.ThisinformationshouldbereadinconjunctionwiththeauditedconsolidatedfinancialstatementsofAlticeUSAandCablevisionandthenotesthereto,theunauditedproformaconsolidatedstatementsofoperationsofAlticeUSA,Management'sDiscussion
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andAnalysisofFinancialConditionandResultsofOperationsofAlticeUSAandCablevisionincludedelsewhereherein.
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Altice USA Cablevision(a) Year ended December 31,
2016 2015 2016
Years Ended December 31,
January 1, 2016 to June 20,
2016
Pro Forma Pro Forma Historical 2015 2014 2013 2012(b) (dollars in thousands) Revenue $ 9,154,816 $ 8,965,857 $ 6,017,212 $ 3,137,604 $ 6,545,545 $ 6,508,557 $ 6,287,383 $ 6,180,677Operatingexpenses 8,417,262 8,922,260 5,557,546 2,662,298 5,697,074 5,587,299 5,588,159 5,411,629Operatingincome 737,554 43,597 459,666 475,306 848,471 921,258 699,224 769,048Otherincome(expense): Interestexpense,net (1,791,064) (1,715,950) (1,442,730) (285,508) (584,839) (575,580) (600,637) (660,074)Gain(loss)oninvestments,net 271,886 (30,208) 141,896 129,990 (30,208) 129,659 313,167 294,235
Gain(loss)onequityderivativecontracts,net (89,979) 104,927 (53,696) (36,283) 104,927 (45,055) (198,688) (211,335)
Lossoninterestrateswapcontracts,net (72,961) — (72,961) — — — — (1,828)
Lossonextinguishmentofdebtandwrite-offofdeferredfinancingcosts (127,649) (1,735) (127,649) — (1,735) (10,120) (22,542) (66,213)
Otherincome,net 9,184 6,045 4,329 4,855 6,045 4,988 2,436 2,486Income(loss)fromcontinuingoperationsbeforeincometaxes (1,063,029) (1,593,324) (1,091,145) 288,360 342,661 425,150 192,960 126,319
Incometaxbenefit(expense) 406,886 498,567 259,666 (124,848) (154,872) (115,768) (65,635) (51,994)
Income(loss)fromcontinuingoperations,netofincometaxes (656,143) (1,094,757) (831,479) 163,512 187,789 309,382 127,325 74,325
Income(loss)fromdiscontinuedoperations,netofincometaxes(c) — (12,541) — — (12,541) 2,822 338,316 159,288
Netincome(loss) (656,143) (1,107,298) (831,479) 163,512 175,248 312,204 465,641 233,613Netloss(income)attributabletononcontrollinginterests (315) 201 (551) 236 201 (765) 20 (90)
Netincome(loss)attributabletoAlticeUSA/Cablevisionstockholders $ (656,458) $ (1,107,097) $ (832,030) $ 163,748 $ 175,449 $ 311,439 $ 465,661 $ 233,523
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Altice USA Cablevision(a) Year ended December 31,
2016 2015 2016
Years Ended December 31,
January 1, 2016 to June 20,
2016
Pro Forma Pro Forma Historical 2015 2014 2013 2012(b) (dollars in thousands) INCOME (LOSS) PER
SHARE: Basic income (loss) per share
attributable to Altice USA /Cablevision stockholders: Incomefromcontinuingoperations,netofincometaxes $ (8,320) $ 0.60 $ 0.70 $ 1.17 $ 0.49 $ 0.28
Income(loss)fromdiscontinuedoperations,netofincometaxes $ — $ — $ (0.05) $ 0.01 $ 1.30 $ 0.61
Netincome $ (8,320) $ 0.60 $ 0.65 $ 1.18 $ 1.79 $ 0.89Basicweightedaveragecommonshares(inthousands) 0.1 272,035 269,388 264,623 260,763 262,258
Diluted income (loss) per shareattributable to Altice USA /Cablevision stockholders: Incomefromcontinuingoperations,netofincometaxes $ (8,320) $ 0.58 $ 0.68 $ 1.14 $ 0.48 $ 0.28
Income(loss)fromdiscontinuedoperations,netofincometaxes $ — $ — $ (0.05) $ 0.01 $ 1.27 $ 0.60
Netincome $ (8,320) $ 0.58 $ 0.63 $ 1.15 $ 1.75 $ 0.87Dilutedweightedaveragecommonshares(inthousands) 0.1 280,199 276,339 270,703 265,935 267,330
Cash dividends declared andpaid per common share $ — $ — $ 0.45 $ 0.60 $ 0.60 $ 0.60
Amounts attributable to AlticeUSA / Cablevisionstockholders: Income(loss)fromcontinuingoperations,netofincometaxes $ (656,458) $ (1,094,556) $ (832,030) $ 163,748 $ 187,990 $ 308,617 $ 127,345 $ 74,235
Income(loss)fromdiscontinuedoperations,netofincometaxes(c) — (12,541) — — (12,541) 2,822 338,316 159,288
Netincome(loss) $ (656,458) $ (1,107,097) $ (832,030) $ 163,748 $ 175,449 $ 311,439 $ 465,661 $ 233,523
(a) RepresentstheoperatingresultsofCablevisionfortheperiodpriortotheCablevisionAcquisition(Predecessorperiod).
(b) Includesserviceoutagecreditsof$33,156(reductiontorevenue)andoperatingexpensesof$73,832relatedtoSuperstormSandy.
(c) SeeNote6totheconsolidatedfinancialstatementsofCablevisionforadditionalinformationregardingdiscontinuedoperations.
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Balance Sheet Data:
Thefollowingtablesetsforthcertaincustomermetricsbysegment(unaudited):
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Altice USA Cablevision December 31, 2016 2015 2014 2013 2012 (dollars in thousands) Totalassets(a) $ 36,474,249 $ 6,800,174 $ 6,682,021 $ 6,500,967 $ 7,155,058Notespayabletoaffiliatesandrelatedparties 1,750,000 — — — —Creditfacilitydebt(a) 3,444,790 2,514,454 2,769,153 3,745,625 3,900,218Collateralizedindebtedness 1,286,069 1,191,324 986,183 817,950 556,152Seniornotesanddebentures(a) 17,507,325 5,801,011 5,784,213 5,068,926 5,406,771Notespayable 13,726 14,544 23,911 5,334 12,585Capitalleasesandotherobligations 28,155 45,966 46,412 31,290 56,569Totaldebt(a) 24,030,065 9,567,299 9,609,872 9,669,125 9,932,295Redeemableequity 68,147 — 8,676 9,294 11,999Stockholders'equity(deficiency) 2,029,555 (4,911,316) (5,041,469) (5,284,330) (5,639,164)Noncontrollinginterest 287 (268) 779 786 1,158Totalequity(deficiency) 2,029,842 (4,911,584) (5,040,690) (5,283,544) (5,638,006)
(a) YearsendedDecember31,2015,2014,2013and2012havebeenrestatedtoreflecttheadoptionofAccountingStandardsUpdate("ASU")2015-03,SimplifyingthePresentationofDebtIssuanceCosts.
As of December 31, 2016
Pro Forma As of December 31, 2015
Net Increase
(Decrease)
Cablevision Cequel(g) Total Cablevision Cequel(g) Total (in thousands, except per customer amounts) Homes passed(a) 5,116 3,407 8,523 5,076 3,352 8,428 95Total customer relationships(b) 3,141 1,751 4,892 3,116 1,712 4,828 64Residential 2,879 1,649 4,528 2,858 1,618 4,476 52SMB 262 102 364 258 94 352 12
Residential customers(c): PayTV 2,428 1,107 3,535 2,487 1,154 3,641 (106)Broadband 2,619 1,344 3,963 2,562 1,276 3,838 125Telephony 1,962 597 2,559 2,007 581 2,588 (29)
Residential triple product customerpenetration(d): 64.8% 25.5% 50.5% 67.6% 25.4% 52.3% (1.8)%
Penetration of homes passed(e): 61.4% 51.4% 57.4% 61.4% 51.1% 57.3% 0.1%ARPU(f) $ 154.49 $ 109.30 $ 138.07 $ 150.61 $ 104.04 $ 133.79 $ 4.28
(a) Representstheestimatednumberofsingleresidencehomes,apartmentsandcondominiumunitspassedbythecabledistributionnetworkinareasserviceablewithoutfurtherextendingthetransmissionlines.Inaddition,itincludescommercialestablishmentsthathaveconnectedtoourcabledistributionnetwork.ForCequel,broadbandserviceswerenotavailabletoapproximately100homespassedandtelephonyserviceswerenotavailabletoapproximately500homespassed.
(b) Representsnumberofhouseholds/businessesthatreceiveatleastoneoftheCompany'sservices.
(c) Customersrepresenteachcustomeraccount(setupandsegregatedbycustomernameandaddress),weightedequallyandcountedasonecustomer,regardlessofsize,revenuegenerated,ornumberofboxes,units,oroutlets.Incalculatingthenumberofcustomers,wecountallcustomersotherthaninactive/disconnectedcustomers.Freeaccountsareincludedinthecustomercountsalongwithallactiveaccounts,buttheyarelimitedtoaprescribedgroup.Mostoftheseaccountsarealsonotentirelyfree,astheytypicallygeneraterevenuethroughpay-per-vieworotherpayservices.Freestatusisnotgrantedtoregularcustomersasapromotion.Wecountabulkcommercialcustomer,suchasahotel,asonecustomer,anddonotcountindividualroomunitsatthathotel.Incountingbulkresidentialcustomers,suchasanapartmentbuilding,we
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SELECTED QUARTERLY DATA—CABLEVISION
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counteachsubscribingfamilyunitwithinthebuildingasonecustomer,butdonotcountthemasteraccountfortheentirebuildingasacustomer.
(d) Representsthenumberofcustomersthatsubscribetothreeofourservicesdividedbytotalresidentialcustomerrelationships.
(e) Representsthenumberoftotalcustomerrelationshipsdividedbyhomespassed.
(f) Calculatedbydividingtheaveragemonthlyrevenueforthefourthquarterofeachyearpresentedderivedfromthesaleofbroadband,paytelevisionandtelephonyservicestoresidentialcustomersfortherespectivequarterbytheaveragenumberoftotalresidentialcustomersforthesameperiod.
(g) ThemetricsforCequelpresentedinthetableabovehavebeenadjustedfrompreviouslyreportedamountstoalignwiththeCablevisionmetricsdefinitions.
Cablevision Successor Predecessor
Three Months Ended
December 31, 2016
Three Months Ended
September 30, 2016
Three Months Ended
March 31, 2016
June 21 to June 30,
2016
April 1 to June 20,
2016
(dollars in thousands) Revenue $ 1,645,493 $ 1,614,699 $ 183,860 $ 1,491,714 $ 1,645,890Net income (loss) $ (160,842) $ (132,392) $ (35,548) $ 69,201 $ 94,311Share-basedcompensation 8,073 1,091 — 10,534 14,697Restructuringandotherexpenses(credits) 80,650 42,264 89,236 19,770 2,453Depreciationandamortization(includingimpairments) 437,608 481,497 44,560 202,097 212,453
Interestexpense,net 285,460 292,544 28,343 137,026 148,482Loss(gain)oninvestments,net (58,429) (24,833) (58,634) (29,625) (100,365)Loss(gain)onequityderivativecontracts,net(b) 27,124 (773) 27,345 (11,729) 48,012
Lossonextinguishmentofdebtandwrite-offofdeferredfinancingcosts 102,894 — — — —
Otherincome,net (1,793) (2,530) (6) (2,884) (1,971)Incometax(benefit)expense (99,807) (89,157) (24,101) 62,062 62,786Lossfromdiscontinuedoperations,netofincometaxes — — — —
Adjusted EBITDA $ 620,938 $ 567,711 $ 71,195 $ 456,452 $ 480,858Capital expenditures 147,392 150,815 150 181,479 $ 148,652Total assets $ 26,176,709 $ 27,636,010 $ 26,965,633 N/A $ 6,732,386Total debt $ 15,721,417 $ 17,125,118 $ 15,757,623 N/A $ 9,548,076
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Thefollowingtablesetsforthcertainquarterlycustomermetricsbysegment(unaudited):
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Cablevision Predecessor Three Months Ended
December 31,
2015 September 30,
2015 June 30,
2015 March 31,
2015 (dollars in thousands) Revenue $ 1,636,425 $ 1,624,828 $ 1,661,940 $ 1,622,352Net income (loss) $ 32,148 $ 23,025 $ 75,676 $ 44,399Share-basedcompensation 20,014 17,422 15,939 11,911Restructuringandotherexpenses(credits) 7,521 9,228 (4) (532)Depreciationandamortization(includingimpairments) 215,135 217,288 213,929 218,900Interestexpense,net 147,252 146,699 145,876 145,012Loss(gain)oninvestments,net 9,567 66,388 (78,818) 33,071Loss(gain)onequityderivativecontracts,net (15,311) (66,143) 22,693 (46,166)Lossonextinguishmentofdebtandwrite-offofdeferredfinancingcosts — — 1,735 —
Otherincome (1,931) (1,800) (1,307) (1,007)Incometax(benefit)expense 23,782 14,541 78,609 37,940Lossfromdiscontinuedoperations,netofincometaxes 1,633 406 — 10,502Adjusted EBITDA $ 439,810 $ 427,054 $ 474,328 $ 454,030Capital expenditures $ 212,427 $ 222,664 $ 214,674 $ 166,631Total assets $ 6,800,174 $ 6,674,785 $ 6,637,348 $ 6,621,748Total debt $ 9,567,299 $ 9,560,265 $ 9,530,801 $ 9,639,923
Cablevision Cequel(g)
September 30,
2016 June 30,
2016 March 31,
2016 September 30,
2016 June 30,
2016 March 31,
2016 (in thousands, except per customer amounts) Homes passed(a) 5,105 5,093 5,086 3,389 3,374 3,362Total customer relationships(b) 3,135 3,143 3,125 1,736 1,726 1,734Residential 2,873 2,882 2,866 1,636 1,628 1,638SMB 262 261 259 100 98 96
Residential customers(c): PayTV 2,443 2,470 2,473 1,113 1,126 1,150Broadband 2,603 2,604 2,580 1,324 1,306 1,308Telephony 1,969 1,994 1,999 594 596 597
Residential triple product customerpenetration(d): 65.3% 66.1% 66.9% 25.6% 25.8% 25.8%
Penetration of homes passed(e): 61.4% 61.7% 61.4% 51.2% 51.2% 51.6%ARPU(f) $ 152.55 $ 153.52 $ 152.18 $ 108.19 $ 107.03 $ 105.68
(a) Representstheestimatednumberofsingleresidencehomes,apartmentsandcondominiumunitspassedbythecabledistributionnetworkinareasserviceablewithoutfurtherextendingthetransmissionlines.Inaddition,itincludescommercialestablishmentsthathaveconnectedtoourcabledistributionnetwork.ForCequel,broadbandserviceswerenotavailabletoapproximately100homespassedandtelephonyserviceswerenotavailabletoapproximately500homespassed.
(b) Representsnumberofhouseholds/businessesthatreceiveatleastoneoftheCompany'sservices.
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(c) Customersrepresenteachcustomeraccount(setupandsegregatedbycustomernameandaddress),weightedequallyandcountedasonecustomer,regardlessofsize,revenuegenerated,ornumberofboxes,units,oroutlets.Incalculatingthenumberofcustomers,wecountallcustomersotherthaninactive/disconnectedcustomers.Freeaccountsareincludedinthecustomercountsalongwithallactiveaccounts,buttheyarelimitedtoaprescribedgroup.Mostoftheseaccountsarealsonotentirelyfree,astheytypicallygeneraterevenuethroughpay-per-vieworotherpayservices.Freestatusisnotgrantedtoregularcustomersasapromotion.Wecountabulkcommercialcustomer,suchasahotel,asonecustomer,anddonotcountindividualroomunitsatthathotel.Incountingbulkresidentialcustomers,suchasanapartmentbuilding,wecounteachsubscribingfamilyunitwithinthebuildingasonecustomer,butdonotcountthemasteraccountfortheentirebuildingasacustomer.
(d) Representsthenumberofcustomersthatsubscribetothreeofourservicesdividedbytotalresidentialcustomerrelationships.
(e) Representsthenumberoftotalcustomerrelationshipsdividedbyhomespassed.
(f) Calculatedbydividingtheaveragemonthlyrevenueforthefourthquarterofeachyearpresentedderivedfromthesaleofbroadband,paytelevisionandtelephonyservicestoresidentialcustomersfortherespectivequarterbytheaveragenumberoftotalresidentialcustomersforthesameperiod.
(g) ThemetricsforCequelpresentedinthetableabovehavebeenadjustedfrompreviouslyreportedamountstoconformtothemethodologyusedtocalculatetheequivalentCablevisionmetrics.
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UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
ThefollowingunauditedproformaconsolidatedstatementsofoperationsofAlticeUSA,Inc.("AlticeUSA"orthe"Company")fortheyearsendedDecember31,2016andDecember31,2015isbasedontheauditedhistoricalconsolidatedfinancialstatementsoftheCompanyandgiveseffecttotheCequelAcquisitionandCablevisionAcquisition(eachasdefinedbelow)asiftheyhadoccurredonJanuary1,2015.TheCompany'shistoricalconsolidatedresultsofoperationsfortheyearendedDecember31,2016includetheoperatingresultsofCequelfortheyearendedDecember31,2016andCablevisionfortheperiodsubsequenttotheCablevisionAcquisition,June21,2016toDecember31,2016(the"CablevisionSuccessor"period).TheCompany'shistoricalconsolidatedresultsofoperationsfortheyearendedDecember31,2015includetheoperatingresultsofCequelfortheperiodsubsequenttotheCequelAcquisition,December21,2015toDecember31,2015(the"CequelSuccessor"period).
TheaccompanyingunauditedproformaconsolidatedstatementsofoperationsofAlticeUSAincludetheaccountsofAlticeUSAanditswholly-ownedsubsidiaries.Allsignificantintercompanytransactionsandbalancesareeliminatedintheconsolidatedfinancialstatements.
TheaccompanyingunauditedproformaconsolidatedstatementsofoperationshavebeenpreparedbasedonassumptionsdeemedappropriatebytheCompany.Theproformaadjustmentsaredescribedintheaccompanyingnotes.Theunauditedproformaconsolidatedstatementsofoperationsareforinformationalpurposesonly.TheproformastatementsofoperationsareunauditedanddonotpurporttoreflecttheresultsofoperationsthatwouldhaveoccurrediftheCequelAcquisitionandCablevisionAcquisitionhadbeenconsummatedonthedatesindicatedabove,nordoesitpurporttorepresenttheresultsofoperationsoftheCompanyforanyfuturedatesorperiods.
FutureresultsmayvarysignificantlyfromtheinformationreflectedintheunauditedproformaconsolidatedstatementsofoperationssetforthbelowduetofactorsbeyondthecontroloftheCompany.
Theunauditedproformaconsolidatedstatementsofoperationsdonotincludeanyadjustmentforcoststhatmayresultfromintegrationactivitiesorforsynergiesresultingfromtheacquisitions.In2016,theCompanyrecordedrestructuringexpensesresultingfrominitiativesthatareintendedtosimplifytheCompany'sorganizationalstructure.Noadjustmentshavebeenmadetotheproformastatementsofoperationsfortheserestructuringexpenses.Theunauditedproformastatementsofoperationsdonotincludeanestimated$33,501and$112,177oftransactioncostsincurredinconnectionwiththeacquisitions.
Optimum Acquisition
OnJune21,2016(the"CablevisionAcquisitionDate"),pursuanttotheAgreementandPlanofMerger(the"MergerAgreement"),datedasofSeptember16,2015,byandamongCablevision,AlticeN.V.,NeptuneMergerSubCorp.,awholly-ownedsubsidiaryofAltice("MergerSub"),MergerSubmergedwithandintoCablevision,withCablevisionsurvivingthemerger(the"CablevisionAcquisition").
InconnectionwiththeCablevisionAcquisition,eachoutstandingshareoftheCablevisionNYGroupClassAcommonstock,parvalue$0.01pershare,andCablevisionNYGroupClassBcommonstock,parvalue$0.01pershare,andtogetherwiththeCablevisionNYGroupClassAcommonstock,the"Shares")otherthan(i)SharesownedbyCablevision,AlticeN.V.oranyoftheirrespectivewholly-ownedsubsidiaries,ineachcasenotheldonbehalfofthirdpartiesinafiduciarycapacity,received$34.90incashwithoutinterest,lessapplicabletaxwithholdings(the"OptimumAcquisitionConsideration").
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AlsoinconnectionwiththeCablevisionAcquisition,outstandingequity-basedawardsgrantedunderCablevision'sequityplanswerecancelledandconvertedintocashbaseduponthe$34.90perShareCablevisionAcquisitionpriceinaccordancewiththeoriginaltermsoftheawards.ThetotalconsiderationfortheoutstandingCNYGClassAShares,theoutstandingCNYGClassBShares,andtheequity-basedawardsamountedto$9,958,323.
InconnectionwiththeCablevisionAcquisition,inOctober2015,NeptuneFincoCorp.("Finco"),anindirectwholly-ownedsubsidiaryofAlticeformedtocompletethefinancingdescribedhereinandthemergerwithCSCHoldings,LLC("CSCHoldings"),awholly-ownedsubsidiaryofCablevision,borrowedanaggregateprincipalamountof$3,800,000underatermloanfacility(the"TermCreditFacility")andenteredintorevolvingloancommitmentsinanaggregateprincipalamountof$2,000,000(the"RevolvingCreditFacility"and,togetherwiththeTermCreditFacility,the"CreditFacilities").
Fincoalsoissued$1,800,000aggregateprincipalamountof10.125%seniornotesdue2023(the"2023Notes"),$2,000,000aggregateprincipalamountof10.875%seniornotesdue2025(the"2025Notes"),and$1,000,000aggregateprincipalamountof6.625%seniorguaranteednotesdue2025(the"2025GuaranteedNotes")(collectivelythe"CablevisionAcquisitionNotes").OnJune21,2016,immediatelyfollowingtheCablevisionAcquisition,FincomergedwithandintoCSCHoldings,withCSCHoldingssurvivingthemerger(the"CSCHoldingsMerger"),andtheCablevisionAcquisitionNotesandtheCreditFacilitiesbecameobligationsofCSCHoldings.
OnJune21,2016,inconnectionwiththeCablevisionAcquisition,theCompanyissuednotespayabletoaffiliatesandrelatedpartiesaggregating$1,750,000,ofwhich$875,000bearinterestat10.75%and$875,000bearinterestat11%.
Cequel Acquisition
OnDecember21,2015,AlticeN.V.acquiredapproximately70%ofthetotaloutstandingequityinterestsinCequelfromitsdirectandindirectstockholders(the"Sellers").Theconsiderationfortheacquiredequityinterestswasbasedonatotalequityvaluationfor100%ofthecapitalandvotingrightsofCequelof$3,973,528whichincludes$2,797,928ofcashconsideration,$675,600ofretainedequityheldbyentitiesaffiliatedwithBCPartnersandCPPIBand$500,000fundedbytheissuancebyanaffiliateofAlticeofaseniorvendornotethatwassubscribedbyentitiesaffiliatedwithBCPartnersandCPPIB.FollowingtheclosingoftheCequelAcquisition,entitiesaffiliatedwithBCPartnersandCPPIBretainedindirectequityinterestsinCequelrepresenting,intheaggregate,30%ofCequel'soutstandingcapitalstockonapost-closingbasis.
InconnectionwiththeCequelAcquisition,certainAlticewholly-ownedsubsidiariesweretransferredtoCequel.Thecarryingvalueofthenetliabilitiesassumedandaccumulateddeficitwasreportedintheconsolidatedfinancialstatementsintheamountof$27,962.
InJune2016,CequelwascontributedtoAlticeUSA.
Thefollowingtableprovidesthepreliminaryallocationofthetotalpurchasepriceof$9,958,323totheidentifiabletangibleandintangibleassetsandliabilitiesofCablevisionbasedonpreliminaryfairvalueinformationcurrentlyavailable,whichissubjecttochangewithinthemeasurementperiod(uptooneyearfromtheacquisitiondate).Thetablealsosummarizestheallocationofthetotalpurchase
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priceof$3,973,528totheidentifiabletangibleandintangibleassetsandliabilitiesbasedonfairvalueinformationinconnectionwiththeCequelAcquisition:
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Cablevision
Cequel
Preliminary Fair Values
Fair Values (dollars in thousands) Currentassets $ 1,923,071 $ 161,874Accountsreceivable 271,305 180,422Property,plantandequipment 4,864,621 2,107,220Goodwill 5,838,959 2,153,741Cabletelevisionfranchiserights 8,113,575 4,906,506Customerrelationships 4,850,000 1,075,884Tradenames 1,010,000 56,782Amortizableintangibleassets 23,296 3,356Othernon-currentassets 748,998 73,811Currentliabilities (2,305,954) (534,662)Long-termdebt (8,355,386) (4,717,305)Deferredincometaxes (6,834,807) (1,492,017)Othernon-currentliabilities (189,355) (2,084)Total $ 9,958,323 $ 3,973,528
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ALTICE USA, INC. UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2016 (dollars in thousands)
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Historical(1) Cablevision(2) Pro Forma
Adjustments Pro forma Revenue $ 6,017,212 $ 3,137,604 $ — $ 9,154,816Operatingexpenses: Programmingandotherdirectcosts 1,899,994 1,088,555 — 2,988,549Otheroperatingexpenses 1,716,851 1,136,970 — 2,853,821
Restructuringandotherexpense 240,395 22,223 (33,501)(3) 229,117
Depreciationandamortization(includingimpairments) 1,700,306 414,550 230,919(4) 2,345,775 5,557,546 2,662,298 197,418 8,417,262
Operatingincome 459,666 475,306 (197,418) 737,554Otherincome(expense):
Interestexpense (1,456,541) (287,098) (50,675)(5) (1,794,314)
Interestincome 13,811 1,590 (12,151)(6) 3,250
Gainoninvestments,net 141,896 129,990 — 271,886Lossonequityderivativecontracts,net (53,696) (36,283) — (89,979)Lossoninterestrateswapcontracts (72,961) — — (72,961)Lossonextinguishmentofdebtandwrite-offofdeferredfinancingcosts (127,649) — — (127,649)
Otherincome,net 4,329 4,855 — 9,184 (1,550,811) (186,946) (62,826) (1,800,583)
Income(loss)fromcontinuingoperationsbeforeincometaxes (1,091,145) 288,360 (260,244) (1,063,029)Incometaxbenefit(expense) 259,666 (124,848) 272,068(7) 406,886
Netincome(loss) (831,479) 163,512 11,824 (656,143)Netloss(income)attributabletononcontrollinginterests (551) 236 — (315)Netincome(loss)attributabletoAlticeUSAstockholders $ (832,030) $ 163,748 $ 11,824 $ (656,458)
Notes to Unaudited Pro Forma Consolidated Statement of Operations for the Year Ended December 31, 2016
(1) TheCompany'shistoricalconsolidatedresultsofoperationsfortheyearendedDecember31,2016includetheoperatingresultsofCablevisionfortheperiodsubsequenttotheCablevisionAcquisition,June21,2016toDecember31,2016(Successorperiod),andtheoperatingresultsofCequelfortheyearendedDecember31,2016.
(2) RepresentstheresultsofoperationsofCablevisionfortheperiodpriortotheCablevisionAcquisition,January1,2016toJune20,2016(Predecessorperiod),basedontheauditedhistoricalstatementofoperations.
(3) Restructuring and other expense. Representstheeliminationoftransactioncostsof$32,844and$657relatedtotheCablevisionAcquisitionandCequelAcquisition,respectively.
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(4) Depreciation and amortization. RepresentsincrementaldepreciationandamortizationthatwouldhavebeenrecognizediftheCablevisionAcquisitionwascompletedonJanuary1,2015resultingfromthestepupinfairvalueofCablevision'sproperty,plantandequipmentandidentifiableintangibleassetsresultingfromtheapplicationofbusinesscombinationsaccounting.
Proformadepreciationandamortizationbasedonfairvalue $ 2,345,775Historicalexpense (2,114,856)Totaladjustment $ 230,919
Theadjustmentfordepreciationwasestimatedusinganaverageusefullifeofapproximatelysevenyearscalculatedonastraightlinebasisforproperty,plantandequipmentofbothCablevisionandCequel.
Customerrelationshipsareamortizedusinganacceleratedmethod(sumoftheyears'digits)toreflecttheperiodoverwhichtherelationshipsareexpectedtogeneratecashflows.Thefollowingtablesummarizestheamortizationexpenserelatedtocustomerrelationshipsof$4,850,000and$1,075,884forCablevisionandCequel,respectively:
Cablevision Cequel Total ProformaAmortizationofCustomerRelationships: Year1 $ 636,043 $ 239,085 $ 875,128Year2 590,163 209,200 799,363Year3 544,284 179,314 723,598Year4 498,404 149,428 647,832Year5 452,524 119,543 572,067Thereafter 2,128,582 179,314 2,307,896
TheamortizationoftradenamesrelatedtoCablevisionandCequelreflectanaverageusefullifeof12yearsand2years,respectively,calculatedonastraightlinebasis.
(5) Interest expense. Primarilyrepresentsthefollowingadjustments:
(i) theincrementalincreaseininterestexpenseof$87,755fortheperiodJanuary1,2016throughJune20,2016relatedtoloanstoaffiliatesaggregating$1,750,000($875,000at10.75%and$875,000at11.0%)tofinancetheCablevisionAcquisition.
(ii) thereversalof$37,407ofinterestexpenseand$3,194ofamortizationofdeferredfinancingcostsassociatedwiththeCSCHoldingsandNewsdaycreditfacilitiesthatwererepaidontheCablevisionAcquisitiondate.
(iii) theincreaseof$772intheamortizationofdeferredfinancingcostsandthefairvalueadjustmentsassociatedwiththelong-termdebtassumedinconnectionwiththeCablevisionAcquisitionresultingfromtheapplicationofbusinesscombinationsaccounting.Thelong-termdebtassumedwasadjustedtofairvaluebasedonquotedmarketprices.Thedifferencebetweenthefairvalueandthefaceamountofeachborrowingisamortizedovertheremainingtermofeachborrowing.Thisadjustmentresultsininterestexpensethateffectivelyreflectscurrentmarketinterestratesratherthanthestatedinterestrates.
(6) Interest income. RepresentstheeliminationofinterestincomeontheproceedsoftheCablevisionAcquisitionNotesthatwereheldinescrowfromthedateofissuancetotheCablevisionAcquisitionDate.
(7) Income tax expense. Theproformaincometaxadjustmentsrepresent(i)theincometaximpactrelatedtotheproformaadjustmentdiscussedaboveof$117,947,(ii)areversaloftaxexpenseof$153,660resultingfromadjustingtheapplicabletaxratetoremeasureCequel'sdeferredtaxliabilitiespursuanttoCequelmergingintotheAlticeUSAconsolidatedtaxgroupalongwithCablevisionand(ii)taxbenefitof$461associatedwiththeCompanynotbeingsubjecttoSection162(m)oftheInternalRevenueCode.
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ALTICE USA, INC. UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2015 (dollars in thousands)
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Historical(1) Cequel(2) Cablevision(3) Pro Forma
Adjustments Pro forma Revenue $ 72,943 $ 2,347,369 $ 6,545,545 $ — $ 8,965,857Operatingexpenses: Programmingandotherdirectcosts 20,728 691,987 2,269,290 — 2,982,005Otheroperatingexpenses 18,526 1,002,464 2,546,319 (67,640)(4) 3,499,669Restructuringandotherexpense 26,498 67,817 16,213 (112,177)(5) (1,649)Depreciationandamortization(includingimpairments) 23,574 533,357 865,252 1,020,052(6) 2,442,235
89,326 2,295,625 5,697,074 840,235 8,922,260Operatingincome (16,383) 51,744 848,471 (840,235) 43,597Otherincome(expense): Interestexpense (168,687) (237,576) (585,764) (725,105)(7) (1,717,132)Interestincome 5,860 257 925 (5,860)(8) 1,182Lossoninvestments,net — — (30,208) — (30,208)Gainonequityderivativecontracts,net — — 104,927 — 104,927Lossonextinguishmentofdebtandwrite-offofdeferredfinancingcosts — — (1,735) — (1,735)
Otherincome,net — — 6,045 — 6,045 (162,827) (237,319) (505,810) (730,965) (1,636,921)
Income(loss)fromcontinuingoperationsbeforeincometaxes (179,210) (185,575) 342,661 (1,571,200) (1,593,324)Incometaxbenefit(expense) 63,231 (29,301) (154,872) 619,509(9) 498,567
Income(loss)forcontinuingoperations,netofincometaxes (115,979) (214,876) 187,789 (951,691) (1,094,757)
Lossfromdiscontinuedoperations,netofincometaxes — (12,541) — (12,541)
Netincome(loss) (115,979) (214,876) 175,248 (951,691) (1,107,298)Netlossattributabletononcontrollinginterests — — 201 — 201Netincome(loss)attributabletoCablevisionstockholders $ (115,979) $ (214,876) $ 175,449 $ (951,691) $ (1,107,097)
Notes to Unaudited Pro Forma Consolidated Statement of Operations for the Year Ended December 31, 2015
(1) TheCompany'shistoricalconsolidatedresultsofoperationsfortheyearendedDecember31,2015includetheoperatingresultsofCequelfortheperiodsubsequenttotheCequelAcquisition,December21,2015toDecember31,2015(Successorperiod).
(2) RepresenttheresultsofoperationsofCequelfortheperiodpriortotheCequelAcquisition,January1,2015toDecember20,2015(Predecessorperiod),basedontheauditedhistorical
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statementofoperations.CertainreclassificationshavebeenmadewithinoperatingexpensestoconformtotheAlticeUSApresentation.
(3) RepresenttheresultsofoperationsofCablevisionfortheyearendedDecember31,2015,basedontheauditedhistoricalstatementofoperations.
(4) Other operating expenses. RepresentstheeliminationofsharebasedcompensationwhichwasrecordedinthePredecessorperiodandincludedinNote2resultingfromtheaccelerationofvestingofCequel'sequity-basedawardspursuanttoachangeincontrolprovisionoftheawards.
(5) Restructuring and other expense. Representstheeliminationoftransactioncostsof$17,862and$94,315relatedtotheCablevisionAcquisitionandCequelAcquisition,respectively.
(6) Depreciation and amortization. RepresentsincrementaldepreciationandamortizationthatwouldhavebeenrecognizediftheCequelAcquisitionandCablevisionAcquisitionwerecompletedonJanuary1,2015resultingfromthestepupinfairvalueoftheCompany'sproperty,plantandequipmentandidentifiableintangibleassetsresultingfromtheapplicationofbusinesscombinationsaccounting.Thefollowingtableprovidesdetailsoftheadjustment:
Year Ended December 31, 2015 Cablevision Cequel Total Proformadepreciationandamortizationbasedonfairvalue $ 1,740,996 $ 701,239 $ 2,442,235Historicalexpense (865,252) (556,931) (1,422,183)Totaladjustment $ 875,744 $ 144,308 $ 1,020,052
Theadjustmentfordepreciationwasestimatedusinganaverageusefullifeofapproximately7yearscalculatedonastraightlinebasisforproperty,plantandequipmentofbothCablevisionandCequel.
Customerrelationshipsareamortizedusinganacceleratedmethod(sumoftheyears'digits)toreflecttheperiodoverwhichtherelationshipsareexpectedtogeneratecashflows.Thefollowingtablesummarizestheamortizationexpenserelatedtocustomerrelationshipsof$4,850,000and$1,075,884forCablevisionandCequel,respectively:
Cablevision Cequel Total ProformaAmortizationofCustomerRelationships: Year1 $ 636,043 $ 239,085 $ 875,128Year2 590,163 209,200 799,363Year3 544,284 179,314 723,598Year4 498,404 149,428 647,832Year5 452,524 119,543 572,067Thereafter 2,128,582 179,314 2,307,896
TheamortizationoftradenamesrelatedtoCablevisionandCequelreflectanaverageusefullifeof12yearsand2years,respectively,calculatedonastraightlinebasis.
(7) Interest expense. Representsthefollowingadjustments:
(i) theincrementalincreaseininterestexpenseaggregating$515,280relatedtothe$3,800,000CVCTermLoansatanassumedrateof5.0%,$1,800,000principalamountoftheCSC2023SeniorNotes,$2,000,000principalamountoftheCSC2025SeniorNotes,and$1,000,000
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principalamountoftheCSC2025SeniorGuaranteedNotesissuedtofinancetheCablevisionAcquisition.
(ii) theincrementalincreaseininterestexpenseof$190,313relatedtoloanstoaffiliatesaggregating$1,750,000($875,000at10.75%and$875,000at11.0%)tofinancetheCablevisionAcquisition.
(iii) theincrementalincreaseininterestexpenseof$104,198relatedtothe$1,100,000principalamountof5.375%seniorsecurednotesduein2023andthe$620,000principalamountof7.75%seniornotesduein2025issuedtofinancetheCequelAcquisition.
(iv) thereversalof$75,563ofinterestexpenseand$6,988ofamortizationofdeferredfinancingcostsandoriginalissuediscountassociatedwiththeCSCHoldingsandNewsdaycreditfacilitiesthatwererepaidontheCablevisionAcquisitiondate.
(v) thedecreaseof$27,357intheamortizationofdeferredfinancingcostsandthefairvalueadjustmentsassociatedwiththelong-termdebtassumedinconnectionwiththeCablevisionAcquisitionandCequelAcquisitionresultingfromtheapplicationofbusinesscombinationsaccounting.Thelong-termdebtassumedwasadjustedtofairvaluebasedonquotedmarketprices.Thedifferencebetweenthefairvalueandthefaceamountofeachborrowingisamortizedovertheremainingtermofeachborrowing.Thisadjustmentresultsininterestexpensethateffectivelyreflectscurrentmarketinterestratesratherthanthestatedinterestrates.
(vi) theincreaseof$25,222inamortizationofdeferredfinancingcostsandoriginalissuediscountrelatedtonotesissuedtofinancetheCablevisionAcquisitionandtheCequelAcquisition.
(8) Interest income. RepresentstheeliminationofinterestincomeontheproceedsoftheCablevisionAcquisitionNotesthatwereheldinescrowfromthedateofissuancetoDecember31,2015.
(9) Income tax expense. Theproformaincometaxexpenseadjustmentsrepresent(i)theincometaximpactrelatedtotheproformaadjustmentsdiscussedaboveof$622,742,(ii)taxexpenseof$4,229toremeasuretheincometaxexpenseofCequeltoreflecttheapplicabletaxrateineffectfortheAlticeUSAconsolidatedtaxgroup,includingCablevision,and(iii)thetaxbenefitassociatedwiththeCompanynotbeingsubjecttoSection162(m)oftheInternalRevenueCodeintheamountof$996.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
All dollar amounts, except per customer and per share data, included in the following discussion are presented in thousands.
Overview
Our Business
Wedeliverbroadband,paytelevision,telephonyservices,Wi-Fihotspotaccess,proprietarycontentandadvertisingservicestoapproximately4.9millionresidentialandbusinesscustomers.Ourfootprintextendsacross21statesthroughafiber-richbroadbandnetworkwithmorethan8.5millionhomespassedasofDecember31,2016.Wehavetworeportablesegments:CablevisionandCequel.Cablevisionprovidesbroadband,paytelevisionandtelephonyservicestoresidentialandbusinesscustomersinandaroundtheNewYorkmetropolitanarea.Cequelprovidesbroadband,paytelevisionandtelephonyservicestoresidentialandbusinesscustomersinthesouth-centralUnitedStates,withapproximately97%ofitscustomerslocatedinthetenstatesofTexas,WestVirginia,Louisiana,Arkansas,NorthCarolina,Oklahoma,Arizona,California,MissouriandOhio.
Recent Transactions
OnDecember21,2015,AlticeN.V.acquiredapproximately70%ofthetotaloutstandingequityinterestsinCequel.Theconsiderationfortheacquiredequityinterestswas$3,973,528.FollowingtheclosingoftheCequelAcquisition,BCPandCPPIBretained30%ofCequel'soutstandingcapitalstock.InJune2016,CequelwascontributedtoAlticeUSA.
OnJune21,2016,asubsidiaryofAlticeN.V.mergedwithandintoCablevision,withCablevisionasthesurvivingentityandwholly-ownedsubsidiaryofAlticeUSA.Inconnectionwiththemerger,eachoutstandingshareofCablevisionNYGroupClassAcommonstock,parvalue$0.01pershare,andCablevisionNYGroupClassBcommonstock,parvalue$0.01pershare(together,the"CNYGShares"),received$34.90incashwithoutinterest,lessapplicabletaxwithholdings.ThetotalconsiderationfortheCNYGSharesandequity-basedawardsamountedtoapproximately$9,958,323.
InJuly2016,wecompletedthesaleofa75%interestinNewsdayLLCandretainedtheremaining25%ownershipinterest.EffectiveJuly7,2016,theoperatingresultsofNewsdayarenolongerconsolidatedwithourresultsandour25%interestintheoperatingresultsofNewsdayisrecordedontheequitybasis.
Key Factors Impacting Operating Results and Financial Condition
Ourfutureperformanceisdependent,toalargeextent,ontheimpactofdirectcompetition,generaleconomicconditions(includingcapitalandcreditmarketconditions),ourabilitytomanageourbusinesseseffectively,andourrelativestrengthandleverageinthemarketplace,bothwithsuppliersandcustomers.See"RiskFactors,""IndustryOverview,"and"Business"formoreinformation.
Wederiverevenueprincipallythroughmonthlychargestoresidentialsubscribersofourbroadband,paytelevisionandtelephonyservices.Wealsoderiverevenuefromequipmentrental,DVR,VOD,pay-per-view,installationandhomeshoppingcommissions.Ourresidentialbroadband,paytelevisionandtelephonyservicesaccountedfor45%,27%and9%,respectively,ofourconsolidatedrevenuefortheyearendedDecember31,2016.WealsoderiverevenuefromthesaleofawideandgrowingvarietyofproductsandservicestobothlargeenterpriseandSMBcustomers,includingbroadband,telephony,networkingandpaytelevisionservices.FortheyearendedDecember31,2016,14%ofourconsolidatedrevenuewasderivedfromthesebusinessservices.Inaddition,wederiverevenuesfromthesaleofadvertisingtimeavailableontheprogrammingcarriedonourcabletelevisionsystems,which
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accountedfor4%ofourconsolidatedrevenuefortheyearendedDecember31,2016.OurotherrevenuefortheyearendedDecember31,2016accountedforapproximately1%ofourconsolidatedrevenue.
Revenueincreasesarederivedfromrateincreases,increasesinthenumberofsubscriberstoourservices,includingadditionalservicessoldtoourexistingsubscribers,programmingpackageupgradesbyourpaytelevisioncustomers,speedtierupgradesbyourbroadbandcustomers,andacquisitionsofcablesystemsthatresultintheadditionofnewsubscribers.
Ourabilitytoincreasethenumberofsubscriberstoourservicesissignificantlyrelatedtoourpenetrationrates.
Weoperateinahighlycompetitiveconsumer-drivenindustryandwecompeteagainstavarietyofbroadband,paytelevisionandtelephonyprovidersanddeliverysystems,includingbroadbandcommunicationscompanies,wirelessdataandtelephonyproviders,satellite-deliveredvideosignals,Internet-deliveredvideocontent,andbroadcasttelevisionsignalsavailabletoresidentialandbusinesscustomersinourserviceareas.OurcompetitorsincludeAT&TanditsDirecTVsubsidiary,CenturyLink,DISHNetworkandFrontierandVerizon.Consumers'selectionofanalternatesourceofservice,whetherduetoeconomicconstraints,technologicaladvancesorpreference,negativelyimpactsthedemandforourservices.Formoreinformationonourcompetitivelandscape,see"RiskFactors,""IndustryOverview"and"Business—Competition."
Ourprogrammingcosts,whicharethemostsignificantcomponentofouroperatingexpenses,haveincreasedandareexpectedtocontinuetoincreaseprimarilyasaresultofcontractualrateincreasesandnewchannellaunches.See"—ResultsofOperations"belowformoreinformationregardingourkeyfactorsimpactingourrevenuesandoperatingexpenses.
Historically,wehavemadesubstantialinvestmentsinournetworkandthedevelopmentofnewandinnovativeproductsandotherserviceofferingsforourcustomersasawayofdifferentiatingourselvesfromourcompetitorsandmaycontinuetodosointhefuture.Wehavecommencedafive-yearplantobuildaFTTHnetwork,whichwillenableustodelivermorethan10GbpsbroadbandspeedsacrossourentireCablevisionfootprintandpartofourCequelfootprint.Wemayincurgreaterthananticipatedcapitalexpendituresinconnectionwiththisinitiative,failtorealizeanticipatedbenefits,experiencedelaysandbusinessdisruptionsorencounterotherchallengestoexecutingitasplanned.See"—LiquidityandCapitalResources—CapitalExpenditures"foradditionalinformationregardingourcapitalexpenditures.
Basis of Presentation
Thefollowingdiscussionsarepresentedbelow:
• Altice USA—Comparison of Actual Results for the Year Ended December 31, 2016 and Pro Forma Results for the Year EndedDecember 31, 2016 to Pro Forma Results for the Year Ended December 31, 2015.
TheactualresultsofAlticeUSAfortheyearendedDecember31,2016includetheoperatingresultsofCequelfortheyearendedDecember31,2016andtheoperatingresultsofCablevisionfortheperiodfromthedateoftheCablevisionAcquisition,June21,2016throughDecember31,2016.TheconsolidatedproformaresultsofAlticeUSAfortheyearsendedDecember31,2016and2015havebeenderivedfromtheunauditedproformaconsolidatedstatementsofoperationsincludedelsewherehereinandgiveeffecttotheCablevisionAcquisitionasifithadoccurredonJanuary1,2015.
• Cablevision (predecessor to Altice USA)—Comparison of Actual Results for the Periods June 21, 2016 through December 31, 2016 andJanuary 1, 2016 through June 20, 2016 to Actual
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Results for the Year Ended December 31, 2015 and Actual Results for the Year Ended December 31, 2015 to December 31, 2014.
TheperiodJune21,2016throughDecember31,2016reflectsoperatingresultssubsequenttotheCablevisionAcquisitionandislabeled"Successor."TheresultsfortheperiodJanuary1,2016throughJune20,2016andtheyearsendedDecember31,2015and2014reflectoperatingresultsforperiodspriortotheCablevisionAcquisitionandarelabeled"Predecessor."TheaccompanyingfinancialdataofCablevisionincludeablacklinedivisiontoindicatetheapplicationofthedifferentbasesofaccountingutilizedbythePredecessorandSuccessorreportingentitiesasaresultofpushdownaccounting.Asaresult,thefinancialstatementsforthePredecessorperiodsandfortheSuccessorperiodarenotcomparable.Theoperatingresultsforthe2016SuccessorperiodareincludedintheAlticeUSAconsolidatedresultsfortheyearendedDecember31,2016.
• Cequel—Comparison of Actual Results for the Period December 21, 2015 through December 31, 2015 and January 1, 2015 throughDecember 20, 2015 to Actual Results for the Year Ended December 31, 2014.
TheperiodDecember21,2015throughDecember31,2015reflectsoperatingresultssubsequenttotheCequelAcquisitionandislabeled"Successor."TheresultsfortheperiodJanuary1,2015throughDecember20,2015andtheyearendedDecember31,2014reflectoperatingresultsforperiodspriortotheCequelAcquisitionandarelabeled"Predecessor."TheaccompanyingfinancialdataofCequelincludeablacklinedivisiontoindicatetheapplicationofthedifferentbasesofaccountingutilizedbythePredecessorandSuccessorreportingentitiesasaresultofpushdownaccounting.Asaresult,thefinancialstatementsforthePredecessorperiodsandfortheSuccessorperiodarenotcomparable.
Non-GAAP Financial Measures
RefertothedefinitionofAdjustedEBITDAandthereconciliationofAdjustedEBITDAtonetincome(loss)in"SelectedHistoricalandProFormaFinancialData"includedherein.
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Results of Operations—Altice USA
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Altice USA Historical Pro Forma (Unaudited)
Year Ended December 31,
2016
Year Ended December 31,
2016
Year Ended December 31,
2015 Revenue: Residential: PayTV $ 2,759,216 $ 4,227,222 $ 4,260,631Broadband 1,617,029 2,290,039 2,005,012Telephony 529,973 872,115 912,002
Businessservicesandwholesale 819,541 1,230,643 1,158,840Advertising 245,702 365,429 345,498Other 45,751 169,368 283,874
Total revenue 6,017,212 9,154,816 8,965,857Operating expenses: Programmingandotherdirectcosts 1,899,994 2,988,549 2,982,005Otheroperatingexpenses 1,716,851 2,853,821 3,499,669Restructuringandotherexpense(credits) 240,395 229,117 (1,649)Depreciationandamortization(includingimpairments) 1,700,306 2,345,775 2,442,235
Operating income 459,666 737,554 43,597Otherincome(expense): Interestexpense,net (1,442,730) (1,791,064) (1,715,950)Gain(loss)oninvestments,net 141,896 271,886 (30,208)Gain(loss)onequityderivativecontracts,net (53,696) (89,979) 104,927Lossoninterestrateswapcontracts (72,961) (72,961) —Lossonextinguishmentofdebtandwrite-offofdeferredfinancingcosts (127,649) (127,649) (1,735)Otherincome,net 4,329 9,184 6,045
Loss from continuing operations before income taxes (1,091,145) (1,063,029) (1,593,324)Incometaxbenefit 259,666 406,886 498,567Loss from continuing operations, net of income taxes (831,479) (656,143) (1,094,757)Lossfromdiscontinuedoperations,netofincometaxes — — (12,541)Net loss (831,479) (656,143) (1,107,298)Netincomeattributabletononcontrollinginterests (551) (315) 201Net loss attributable to Altice USA stockholders $ (832,030) $ (656,458) $ (1,107,097)
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The following is a reconciliation of net loss to Adjusted EBITDA:
Thefollowingtablesetsforthcertaincustomermetricsbysegment(unaudited):
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Altice USA Historical Pro Forma (Unaudited)
Year Ended December 31,
2016
Year Ended December 31,
2016
Year Ended December 31,
2015 Netloss $ (831,479) $ (656,143) $ (1,107,298)Lossfromdiscontinuedoperations,netofincometaxes — — 12,541Incometaxbenefit (259,666) (406,886) (498,567)Otherincome,net(a) (4,329) (9,184) (6,045)Lossonextinguishmentofdebtandwrite-offofdeferredfinancingcosts 127,649 127,649 1,735Lossoninterestrateswapcontracts 72,961 72,961 —Loss(gain)onequityderivativecontracts,net(b) 53,696 89,979 (104,927)Loss(gain)oninvestments,net (141,896) (271,886) 30,208Interestexpense,net 1,442,730 1,791,064 1,715,950Depreciationandamortization(includingimpairments) 1,700,306 2,345,775 2,442,235Restructuringandotherexpenses(credits) 240,395 229,117 (1,649)Share-basedcompensation 14,368 39,599 285,337AdjustedEBITDA $ 2,414,735 $ 3,352,045 $ 2,769,520
(a) IncludesprimarilydividendsreceivedonComcastcommonstockownedbytheCompany.
(b) Consistsofunrealizedandrealizedlosses(gains)duetothechangeinfairvalueofequityderivativecontractsrelatingtotheComcastcommonstockownedbytheCompany.
As of December 31, 2016 Pro Forma as of December 31, 2015
Net Increase
(Decrease)
Cablevision Cequel (g) Total Cablevision Cequel (g) Total Homes passed(a) 5,116 3,407 8,523 5,076 3,352 8,428 95Total customer relationships(b) 3,141 1,751 4,892 3,116 1,712 4,828 64Residential 2,879 1,649 4,528 2,858 1,618 4,476 52SMB 262 102 364 258 94 352 12
Residential customers(c): PayTV 2,428 1,107 3,535 2,487 1,154 3,641 (106)Broadband 2,619 1,344 3,963 2,562 1,276 3,838 125Telephony 1,962 597 2,559 2,007 581 2,588 (29)
Residential triple productcustomer penetration(d): 64.8% 25.5% 50.5% 67.6% 25.4% 52.3% (1.8)%
Penetration of homes passed(e): 61.4% 51.4% 57.4% 61.4% 51.1% 57.3% 0.1%ARPU(f) $ 154.49 $ 109.30 $ 138.07 $ 150.61 $ 104.04 $ 133.79 $ 4.28
(a) Representstheestimatednumberofsingleresidencehomes,apartmentsandcondominiumunitspassedbythecabledistributionnetworkinareasserviceablewithoutfurtherextendingthetransmissionlines.Inaddition,itincludescommercialestablishmentsthathaveconnectedtoourcabledistributionnetwork.ForCequel,broadbandserviceswerenotavailabletoapproximately100homespassedandtelephonyserviceswerenotavailabletoapproximately500homespassed.
(b) Representsnumberofhouseholds/businessesthatreceiveatleastoneoftheCompany'sservices.
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(c) Customersrepresenteachcustomeraccount(setupandsegregatedbycustomernameandaddress),weightedequallyandcountedasonecustomer,regardlessofsize,revenuegenerated,ornumberofboxes,units,oroutlets.Incalculatingthenumberofcustomers,wecountallcustomersotherthaninactive/disconnectedcustomers.Freeaccountsareincludedinthecustomercountsalongwithallactiveaccounts,buttheyarelimitedtoaprescribedgroup.Mostoftheseaccountsarealsonotentirelyfree,astheytypicallygeneraterevenuethroughpay-per-vieworotherpayservices.Freestatusisnotgrantedtoregularcustomersasapromotion.Wecountabulkcommercialcustomer,suchasahotel,asonecustomer,anddonotcountindividualroomunitsatthathotel.Incountingbulkresidentialcustomers,suchasanapartmentbuilding,wecounteachsubscribingfamilyunitwithinthebuildingasonecustomer,butdonotcountthemasteraccountfortheentirebuildingasacustomer.
(d) Representsthenumberofcustomersthatsubscribetothreeofourservicesdividedbytotalresidentialcustomerrelationships.
(e) Representsthenumberoftotalcustomerrelationshipsdividedbyhomespassed.
(f) Calculatedbydividingtheaveragemonthlyrevenueforthefourthquarterofeachyearpresentedderivedfromthesaleofbroadband,paytelevisionandtelephonyservicestoresidentialcustomersfortherespectivequarterbytheaveragenumberoftotalresidentialcustomersforthesameperiod.
(g) ThemetricsforCequelpresentedinthetableabovehavebeenadjustedfrompreviouslyreportedamountstoconformtothemethodologyusedtocalculatetheequivalentCablevisionmetrics.
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ThefollowingtablesetsforthcertainoperatinginformationbysegmentfortheyearendedDecember31,2016:
Thefollowingtablesetsforthcertainoperatinginformationbysegmentonaproformabasis(unaudited):
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December 31, 2016 Cablevision Cequel Total Revenue(a): Residential: PayTV $ 1,638,691 $ 1,120,525 $ 2,759,216Broadband 782,615 834,414 1,617,029Telephony 376,034 153,939 529,973
Businessservicesandwholesale 468,632 350,909 819,541Advertising 157,331 88,371 245,702Other 20,749 25,002 45,751
Total revenue 3,444,052 2,573,160 6,017,212Operating expenses: Programmingandotherdirectcosts 1,164,925 735,069 1,899,994Otheroperatingexpenses 1,028,447 688,404 1,716,851Restructuringandotherexpense(credits) 212,150 28,245 240,395Depreciationandamortization(includingimpairments) 963,665 736,641 1,700,306
Operating income $ 74,865 $ 384,801 $ 459,666
(a) Certainreclassificationshavebeenmadetopreviouslyreportedamountsbyproducttoreflectthecurrentpresentation.
Pro forma
December 31, 2016 Pro forma
December 31, 2015 Cablevision Cequel Total Cablevision Cequel Total Revenue: Residential: PayTV $ 3,106,697 $ 1,120,525 $ 4,227,222 $ 3,142,991 $ 1,117,640 $ 4,260,631Broadband 1,455,625 834,414 2,290,039 1,303,918 701,094 2,005,012Telephony 718,176 153,939 872,115 748,181 163,821 912,002
Businessservicesandwholesale 879,734 350,909 1,230,643 834,154 324,686 1,158,840Advertising 277,058 88,371 365,429 257,832 87,666 345,498Other 144,366 25,002 169,368 258,469 25,405 283,874
Total revenue 6,581,656 2,573,160 9,154,816 6,545,545 2,420,312 8,965,857Operating expenses: Programmingandotherdirectcosts 2,253,480 735,069 2,988,549 2,269,290 712,715 2,982,005Otheroperatingexpenses 2,165,417 688,404 2,853,821 2,546,319 953,350 3,499,669Restructuringandotherexpense(credits) 201,529 27,588 229,117 (1,649) — (1,649)
Depreciationandamortization(includingimpairments) 1,701,763 644,012 2,345,775 1,740,996 701,239 2,442,235
Operating income (loss) $ 259,467 $ 478,087 $ 737,554 $ (9,411) $ 53,008 $ 43,597
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Altice USA—Comparison of Actual Results for the Year Ended December 31, 2016 and Pro Forma Results for the Year Ended December 31, 2016 to ProForma Results for the Year Ended December 31, 2015
Pay Television Revenue
Actual 2016
PaytelevisionrevenuefortheyearendedDecember31,2016was$2,759,216,ofwhich$1,638,691wasderivedfromtheCablevisionsegmentfromthedateofitsacquisitionand$1,120,525relatestoourCequelsegment.Paytelevisionisderivedprincipallythroughmonthlychargestoresidentialsubscribersofourpaytelevisionservices.Revenueincreasesarederivedprimarilyfromrateincreases,increasesinthenumberofsubscribers,includingadditionalservicessoldtoourexistingsubscribers,andprogrammingpackageupgrades.
Pro Forma 2016 Compared to Pro Forma 2015
Onaproformabasis,paytelevisionrevenueamountedto$4,227,222and$4,260,631fortheyearendedDecember31,2016and2015,respectively.Thedecreaseof$33,409(1%)iscomprisedofaproformadecreaseof$36,294(1%)forourCablevisionsegment,partiallyoffsetbyaproformaincreaseof$2,885forourCequelsegment.
Onaproformabasis,paytelevisionrevenueforourCablevisionsegmentamountedto$3,106,697and$3,142,991fortheyearsendedDecember31,2016and2015,respectively.Theproformadecreaseof$36,294(1%)wasdueprimarilytoadeclineinpaytelevisioncustomersandadecreaseduetoapay-per-viewboxingeventthattookplacein2015.Partiallyoffsettingthesedecreaseswereincreasesinrevenueascomparedtotheprioryeardueprimarilytorateincreasesforcertainpaytelevisionservicesimplementedduringthefirstquarterof2016andanincreaseinfeeschargedtorestoresuspendedservices.
Onaproformabasis,paytelevisionrevenueforourCequelsegmentamountedto$1,120,525and$1,117,640fortheyearsendedDecember31,2016and2015,respectively.Theproformaincreaseof$2,885wasdueprimarilytoincreasesinrevenueresultingfromcertainrateincreases(includinganincreaseforretransmissionprogrammingandsportsprogrammingcharges),theimpactofincrementalpaytelevisionservicelevelchangesandanincreaseinHD/DVRservicerevenue,partiallyoffsetbyadeclineinpaytelevisioncustomers,adecreaseinpremium,pay-per-viewandVODpurchases,andadecreaseinconverterrentalrevenueascomparedtothe2015period.
Webelieveourpaytelevisioncustomerdeclinesnotedinthetableabovearelargelyattributabletocompetition,particularlyfromVerizoninourCablevisionfootprintandDBSprovidersinourCequelfootprint,aswellascompetitionfromcompaniesthatdelivervideocontentovertheInternetdirectlytocustomers.Thesefactorsareexpectedtocontinuetoimpactourabilitytomaintainorincreaseourexistingcustomersandrevenueinthefuture.
Broadband Revenue
Actual 2016
BroadbandrevenuefortheyearendedDecember31,2016was$1,617,029ofwhich$782,615wasderivedfromtheCablevisionsegmentfromthedateofitsacquisitionand$834,414relatestoCequel.Broadbandrevenueisderivedprincipallythroughmonthlychargestoresidentialsubscribersofourbroadbandservices.Revenueincreasesarederivedprimarilyfromrateincreases,increasesinthenumberofsubscribers,includingadditionalservicessoldtoourexistingsubscribers,andspeedtierupgrades.
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Pro Forma 2016 Compared to Pro Forma 2015
Onaproformabasis,broadbandrevenueamountedto$2,290,039and$2,005,012fortheyearsendedDecember31,2016and2015,respectively.Onaproformabasis,broadbandrevenueincreased$285,027(14%)fortheyearendedDecember31,2016ascomparedtheprioryearandiscomprisedofaproformaincreaseof$151,707(12%)forourCablevisionsegmentandaproformaincreaseof$133,320(19%)forourCequelsegment.
Onaproformabasis,broadbandrevenueforourCablevisionsegmentamountedto$1,455,625and$1,303,918fortheyearsendedDecember31,2016and2015,respectively.Theproformaincreaseof$151,707(12%)wasduetorateincreasesforcertainbroadbandservicesimplementedduringthefirstquarterof2016,anincreaseinbroadbandcustomers,andanincreaseinfeeschargedtorestoresuspendedservices.
Onaproformabasis,broadbandrevenueforourCequelsegmentamountedto$834,414and$701,094fortheyearsendedDecember31,2016and2015,respectively.Theproformaincreaseof$133,320(19%)wasdueprimarilytoanincreaseinbroadbandcustomers,anincreaseinrates,anincreaseresultingfromtheimpactofservicelevelchangesandanincreaseinresidentialhomenetworkingrevenue.
Telephony Revenue
Actual 2016
TelephonyrevenuefortheyearendedDecember31,2016was$529,973ofwhich$376,034wasderivedfromtheCablevisionsegmentfromthedateofitsacquisitionand$153,939relatestoCequel.Telephonyrevenueisderivedprincipallythroughmonthlychargestoresidentialsubscribersofourtelephonyservices.Revenueincreasesarederivedprimarilyfromrateincreases,increasesinthenumberofsubscribers,andadditionalservicessoldtoourexistingsubscribers.
Pro Forma 2016 Compared to Pro Forma 2015
Onaproformabasis,telephonyrevenueamountedto$872,115and$912,002fortheyearsendedDecember31,2016and2015,respectively.Onaproformabasis,telephonyrevenuedecreased$39,887(4%)fortheyearendedDecember31,2016ascomparedto2015andiscomprisedofaproformadecreaseof$30,005(4%)and$9,882(6%)forourCablevisionandCequelsegment,respectively.
Onaproformabasis,telephonyrevenueforourCablevisionsegmentamountedto$718,176and$748,181fortheyearsendedDecember31,2016and2015,respectively.Theproformadecreaseof$30,005(4%)wasdueprimarilytoadeclineintelephonycustomersandadeclineininternationalcalling.
Onaproformabasis,telephonyrevenueforourCequelsegmentamountedto$153,939and$163,821fortheyearsendedDecember31,2016and2015,respectively.Theproformadecreaseof$9,882(6%)wasdueprimarilytolowerratesofferedtocustomers.
Business Services and Wholesale Revenue
Actual 2016
BusinessservicesandwholesalerevenuefortheyearendedDecember31,2016was$819,541ofwhich$468,632wasderivedfromtheCablevisionsegmentfromthedateofitsacquisitionand$350,909relatestoCequel.Businessservicesandwholesalerevenueisderivedprimarilyfromthesaleoffiberbasedtelecommunicationsservicestothebusinessmarket,andthesaleofbroadband,paytelevisionandtelephonyservicestoSMBs.
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Pro Forma 2016 Compared to Pro Forma 2015
Onaproformabasis,businessservicesandwholesalerevenueamountedto$1,230,643and$1,158,840fortheyearsendedDecember31,2016and2015,respectively.Onaproformabasis,businessservicesandwholesalerevenueincreased$71,803(6%)foryearendedDecember31,2016ascomparedto2015andiscomprisedofaproformaincreaseof$45,580(5%)forourCablevisionsegmentandaproformaincreaseof$26,223(8%)forourCequelsegment.
Onaproformabasis,businessservicesandwholesalerevenueforourCablevisionsegmentamountedto$879,734and$834,154fortheyearsendedDecember31,2016and2015,respectively.Theproformaincreaseof$45,580(5%)wasdueprimarilytorateincreasesforcertainbroadbandservicesimplementedduringthefirstquarterof2016,andincreaseinbroadbandcustomersandanincreaseinEthernetrevenueresultingfromalargernumberofservicesinstalled,partiallyoffsetbyreducedtraditionalvoiceanddataservices.
Onaproformabasis,businessservicesandwholesalerevenueforourCequelsegmentamountedto$350,909and$324,686fortheyearsendedDecember31,2016and2015,respectively.Theproformaincreaseof$26,223(8%)wasprimarilyduetohigherratesandalargernumberofcustomersforbroadbandservices,higherratesandalargernumberofcustomersfortelephonyservices,anincreaseincertainvideorates(includinganincreaseforretransmissionprogrammingcharges),andanincreaseinrevenuefrompremium,pay-per-viewandVODpurchases.Offsettingtheseincreaseswasadecreaseinhigh-speedcommercialcarrierservices.
Advertising Revenue
Actual 2016
AdvertisingservicesrevenuefortheyearendedDecember31,2016was$245,702ofwhich$157,331wasderivedfromtheCablevisionsegmentfromthedateofitsacquisitionand$88,371wasderivedfromourCequelsegment.Advertisingservicesrevenueisprimarilyderivedfromthesaleofadvertisingtimeavailableontheprogrammingcarriedonourcabletelevisionsystems.
Pro Forma 2016 Compared to Pro Forma 2015
Onaproformabasis,advertisingrevenueamountedto$365,429and$345,498fortheyearsendedDecember31,2016and2015,respectively.Onaproformabasis,advertisingrevenueincreased$19,931(6%)fortheyearendedDecember31,2016ascomparedto2015andiscomprisedofaproformaincreaseof$19,226(7%)forourCablevisionsegmentandaproformaincreaseof$705(1%)forourCequelsegment.
Onaproformabasis,advertisingrevenueforourCablevisionsegmentamountedto$277,058and$257,832fortheyearsendedDecember31,2016and2015,respectively.Theproformaincreaseinadvertisingrevenueof$19,226(7%)forourCablevisionsegmentwasdueprimarilytoanincreaseinadvertisingsalestothepoliticalsector.
Onaproformabasis,advertisingrevenueforourCequelsegmentamountedto$88,371and$87,666fortheyearsendedDecember31,2016and2015,respectively,aproformaincreaseof$705(1%).
Other Revenue
Actual 2016
OtherrevenuefortheyearendedDecember31,2016was$45,751ofwhich$20,749wasderivedfromtheCablevisionsegmentfromthedateofitsacquisitionand$25,002wasderivedfromourCequelsegment.OtherrevenueprimarilyincludesrevenuerecognizedbyNewsday,whichwasconsolidated
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throughJuly7,2016,affiliationfeespaidbycableoperatorsforcarriageofourNews12Networks,andothermiscellaneousrevenuestreams.
Pro Forma 2016 Compared to Pro Forma 2015
Onaproformabasis,otherrevenueamountedto$169,368and$283,874fortheyearsendedDecember31,2016and2015,respectively.Onaproformabasis,otherrevenuedecreased$114,506(40%)fortheyearendedDecember31,2016ascomparedto2015andiscomprisedofaproformadecreaseof$114,103(44%)forourCablevisionsegmentandaproformadecreaseof$403(2%)forourCequelsegment.
OnaproformabasisotherrevenueforourCablevisionsegmentamountedto$144,366and$258,469fortheyearsendedDecember31,2016and2015,respectively.Theproformadecreaseof$114,103(44%)wasprimarilyduetoCablevisionnolongerconsolidatingtheoperatingresultsofNewsdayasaresultofthesaleofa75%interestinNewsday,effectiveJuly7,2016.TheCompany's25%interestintheoperatingresultsofNewsdayisrecordedontheequitybasis.
Onaproformabasis,otherrevenueforourCequelsegmentamountedto$25,002and$25,405fortheyearsendedDecember31,2016and2015,respectively,aproformadecreaseof$403(2%).
Programming and Other Direct Costs
Actual 2016
ProgrammingandotherdirectcostsfortheyearendedDecember31,2016amountedto$1,899,994ofwhich$1,164,925relatetoourCablevisionsegmentfromthedateofacquisitionand$735,069relatetoourCequelsegment.Programmingandotherdirectcostsincludecableprogrammingcosts,whicharecostspaidtoprogrammers(netofamortizationofanyincentivesreceivedfromprogrammersforcarriage)forcablecontent(includingcostsofVODandpay-per-view)andaregenerallypaidonaper-subscriberbasis.Thesecoststypicallyriseduetoincreasesincontractualratesandnewchannellaunchesandarealsoimpactedbychangesinthenumberofcustomersreceivingcertainprogrammingservices.Thesecostsalsoincludeinterconnection,callcompletion,circuitandtransportfeespaidtoothertelecommunicationcompaniesforthetransportandterminationofvoiceanddataservices,whichtypicallyvarybasedonratechangesandthelevelofusagebyourcustomers.Thesecostsalsoincludefranchisefeeswhicharepayabletothestategovernmentsandlocalmunicipalitieswhereweoperateandareprimarilybasedonapercentageofcertaincategoriesofrevenuederivedfromtheprovisionofpaytelevisionserviceoverourcablesystems,whichvarybystateandmunicipality.Thesecostschangeinrelationtochangesinsuchcategoriesofrevenuesorratechanges.
Pro Forma 2016 Compared to Pro Forma 2015
Onaproformabasis,programmingandotherdirectcostsamountedto$2,988,549and$2,982,005fortheyearsendedDecember31,2016and2015,respectively.Programmingandotherdirectcostsonaproformabasisamountedto$2,253,480and$2,269,290forourCablevisionsegmentandamounted
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to$735,069and$712,715forourCequelsegmentfortheyearsendedDecember31,2016and2015,respectively.Theproformaincreaseof$6,544isattributabletothefollowing:
Programming costs
Programmingcostsaggregated$1,576,519fortheyearendedDecember31,2016onanactualbasisandonaproformabasisaggregated$2,468,273and$2,370,860fortheyearsendedDecember31,2016and2015,respectively.Ourprogrammingcostsincreased4%onaproformabasisfortheyearendedDecember31,2016dueprimarilytoanincreaseincontractualprogrammingrates,partiallyoffsetbyadecreaseinpaytelevisioncustomers.Ourprogrammingcostsin2017willcontinuetobeimpactedbychangesinprogrammingrates,whichweexpecttoincreasebyhighsingledigits,andbychangesinthenumberofpaytelevisioncustomers.
Other Operating Expenses
Actual 2016
OtheroperatingexpensesfortheyearendedDecember31,2016were$1,716,851,ofwhich$1,028,447relatetoourCablevisionsegmentfromthedateofacquisitionand$688,404relatetoourCequelsegment.Otheroperatingexpensesincludestaffcostsandemployeebenefitsincludingsalariesofcompanyemployeesandrelatedtaxes,benefitsandotheremployeerelatedexpenses.Otheroperatingexpensesalsoincludenetworkmanagementandfieldservicecosts,whichrepresentcostsassociatedwiththemaintenanceofourbroadbandnetwork,includingcostsofcertaincustomerconnectionsandothercostsassociatedwithprovidingandmaintainingservicestoourcustomerswhichareimpactedbygeneralcostincreasesforcontractors,insuranceandothervariousexpenses.
Customerinstallationandrepairandmaintenancecostsmayfluctuateasaresultofchangesinthelevelofactivitiesandtheutilizationofcontractorsascomparedtoemployees.Also,customerinstallationcostsfluctuateastheportionofourexpensesthatweareabletocapitalizechanges.
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Cablevision segment: DecreaseincostsprimarilyrelatedtothesaleofNewsdayinJuly2016 $ (54,133)Decreaseincallcompletionandtransportcostsprimarilyduetolowerlevelofactivity (20,443)Decreaseincostofsales(whichincludesalowercostormarketvaluationadjustmentof$17,382relatedtowirelesshandsetinventoryfrom2015,partiallyoffsetbythebulksaleofhandsetinventoryof$5,445duringthefirstquarterof2016) (10,238)
Increaseinfranchiseandotherfeesdueprimarilytoincreasesinratesincertainareas,partiallyoffsetbylowervideocustomers 3,140
Increaseinprogrammingcostsdueprimarilytocontractualrateincreases,partiallyoffsetbylowervideocustomers 65,760
Othernetincreases 104 (15,810)
Cequel segment: Increaseinprogrammingcostsdueprimarilytocontractualrateincreases,partiallyoffsetbylowervideocustomers. 42,325
Decreaseindigitalprogramming,premiumchannelsandpay-per-view (8,932)Decreaseincostsassociatedwithcarriercircuitsandlocalexchangecarriercosts (7,015)DecreaseinsubscriberlinecostsassociatedwithOperationReliant(aslaterdefined) (330)Othernetdecreases (3,694)
22,354 $ 6,544
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Networkrepairandmaintenanceandutilitycostsalsofluctuateascapitalizablenetworkupgradeandenhancementactivitychanges.
Otheroperatingexpensesalsoincludecostsrelatedtotheoperationandmaintenanceofourcallcenterfacilitiesthathandlecustomerinquiriesandbillingandcollectionactivitiesandsalesandmarketingcosts,whichincludeadvertisingproductionandplacementcostsassociatedwithacquiringandretainingcustomers.Thesecostsvaryperiodtoperiodandcertainofthesecosts,suchassalesandmarketing,mayincreasewithintensecompetition.Additionally,otheroperatingexpensesincludevariousotheradministrativecosts,includinglegalfees,andproductdevelopmentcosts.
Pro Forma 2016 Compared to Pro Forma 2015
Onaproformabasis,otheroperatingexpensesamountedto$2,853,821and$3,499,669fortheyearsendedDecember31,2016and2015,respectively.Otheroperatingexpensesonaproformabasisamountedto$2,165,417and$2,546,319forourCablevisionsegmentandamountedto$688,404and$953,350forourCequelsegmentfortheyearsendedDecember31,2016and2015,respectively.Theproformadecreaseof$645,848(18%)fortheyearendedDecember31,2016isattributabletothefollowing:
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Cablevision segment: Decreaseprimarilyinemployeerelatedcostsrelatedtotheeliminationofcertainpositions,lowernetbenefitsandanincreaseincapitalizableactivity,partiallyoffsetbymeritincreases $ (190,274)
DecreaseincostsprimarilyrelatedtothesaleofNewsdayinJuly2016 (73,650)Decreaseinshare-basedcompensation (26,788)Decreaseinexpensesrelatedtolong-termincentiveplanawards (14,827)Decreaseinlegalcosts (23,878)Decreaseinsalesandmarketingcosts (20,875)Decreaseinrepairsandmaintenancecostsrelatingtoouroperationsandfacilities (17,153)Decreaseincontractorcostsdueprimarilytolowertruckrolls (10,611)Settlementofaclassactionlegalmatterin2015 (9,500)Decreaseinproductdevelopmentcostsandproductconsultingfees (4,215)IncreaseinAlticemanagementfeeforcertainexecutiveservices 10,556Othernetincreases 313
(380,902)Cequel segment: Decreaseinshare-basedcompensation (214,848)Decreaseinemployeesalariesandbenefitsincludingbonus,overtimeandotheremployeerelatedcostsprimarilyrelatingtothedecreaseinheadcountoccurringsubsequenttotheCequelAcquisition (17,984)
Decreaseinthecostofresidentialcustomerinstallations (10,120)Decreaseinconsultingandprofessionalfees (9,847)Decreaseinmanagementfeerelatingtocertainexecutive,administrativeandmanagerialservicesprovidedtotheCompanypriortotheCequelAcquisition (9,987)
Decreaseinmarketingcosts (9,424)Decreaseingeneralandadministrativecosts (8,194)Decreaseinfleetoperatingcosts (2,261)Increaseingrouphealthinsurancecosts 9,829IncreaseinAlticemanagementfeeforcertainexecutiveservices 9,704Othernetdecreases (1,814)
(264,946) $ (645,848)
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Restructuring and Other Expense (Credits)
Actual 2016
RestructuringandotherexpensefortheyearendedDecember31,2016of$240,395($212,150forourCablevisionsegmentand$28,245forourCequelsegment)primarilyrelatetoseveranceandotheremployeerelatedcostsresultingfromheadcountreductionsrelatedtoinitiativeswhichcommencedin2016thatareintendedtosimplifytheCompany'sorganizationalstructure.Wecurrentlyanticipatethatadditionalrestructuringexpenseswillberecognizedaswecontinuetoanalyzeourorganizationalstructure.
Pro Forma 2016 Compared to Pro Forma 2015
Onaproformabasis,restructuringandotherexpense(credits)fortheyearsendedDecember31,2016and2015amountedto$229,117($201,529forourCablevisionsegmentand$27,588forourCequelsegment)and$(1,649)forourCablevisionsegment,respectively.
Theproformarestructuringexpensefor2016isprimarilyrelatedtoseveranceandotheremployeerelatedcostsresultingfromheadcountreductionsrelatedtoinitiativeswhichcommencedin2016thatareintendedtosimplifytheCompany'sorganizationalstructureatbothCablevisionandCequel.Therestructuringcreditfor2015relatedtopriorrestructuringplansatCablevision.
Depreciation and Amortization
Actual 2016
Depreciationandamortization(includingimpairments)fortheyearendedDecember31,2016of$1,700,306,ofwhich$963,665relatetoourCablevisionsegmentfromthedateofacquisitionand$736,641relatetoourCequelsegment.Depreciationandamortizationfor2016includesdepreciationandamortizationrelatedtothestep-upinthecarryingvalueofproperty,plantandequipmentandamortizableintangibleassetsrecordedinconnectionwiththeCablevisionAcquisitiononJune21,2016andtheCequelAcquisitiononDecember21,2015,partiallyoffsetbycertainassetsbeingretiredorbecomingfullydepreciated.
AlticeN.V.iscurrentlyevaluatingtheadoptionofaglobalbrandwhich,ifadopted,couldreducetheremainingusefullivesofourtradenameintangibles,whichwouldincreaseamortizationexpense.
Pro Forma 2016 Compared to Pro Forma 2015
Onaproformabasis,depreciationandamortization(includingimpairments)amountedto$2,345,775and$2,442,235fortheyearsendedDecember31,2016and2015,respectively.Theproformadecreaseof$96,460(4%)fortheyearendedDecember31,2016iscomprisedofa$39,233(2%)proformadecreaseforourCablevisionsegmentandaproformadecreaseof$57,227(8%)forourCequelsegment.Theproformadecreaseforbothsegmentsisprimarilyduetoloweramortizationexpenseforcertainintangibleassetsthatarebeingamortizedusinganacceleratedmethodandlowerdepreciationforcertainassetsbeingretiredorbecomingfullydepreciated,partiallyoffsetbydepreciationonnewassetadditions.
Adjusted EBITDA
Actual 2016
AdjustedEBITDAfortheyearendedDecember31,2016amountedto$2,414,735.AdjustedEBITDAisanon-GAAPmeasurethatisdefinedasnetlossexcludingincometaxes,lossfromdiscontinuedoperations,othernon-operatingincomeorexpenses,lossonextinguishmentofdebtandwrite-offofdeferredfinancingcosts,lossoninterestrateswapcontracts,gain(loss)onequityderivativecontracts,gain(loss)oninvestments,interestexpense(includingcashinterestexpense),
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interestincome,depreciationandamortization(includingimpairments),share-basedcompensationexpense,restructuringexpenseorcreditsandtransactionexpenses.SeereconciliationofnetlosstoadjustedEBITDAabove.
Pro Forma 2016 Compared to Pro Forma 2015
Onaproformabasis,adjustedEBITDAamountedto$3,352,045and$2,769,520fortheyearsendedDecember31,2016and2015,respectively.Theproformaincreaseof$582,525(21%)consistsofaproformaincreaseof$376,701(21%)forourCablevisionsegmentandaproformaincreaseof$205,824(21%)forourCequelsegment.Theproformaincreasewasdueprimarilytoanincreaseinrevenue,andadecreaseinoperatingexpenses(excludingdepreciationandamortization,restructuringandotherexpenseandshare-basedcompensation),asdiscussedabove.
Interest Expense, net
Actual 2016
Interestexpense,netwas$1,442,730fortheyearendedDecember31,2016andincludesinterestondebtissuedtofinancetheCablevisionAcquisitionandCequelAcquisition,aswellasinterestondebtassumedinconnectionwiththeseacquisitions.
Pro Forma 2016 Compared to Pro Forma 2015
Onaproformabasis,interestexpense,netamountedto$1,791,064and$1,715,950fortheyearsendedDecember31,2016and2015,respectively.Theproformaincreaseof$75,114(4%)isprimarilyattributabletoanincreaseof$33,549duetothechangeinaveragedebtbalances,$31,436dueprimarilytoanincreaseintheamortizationofdeferredfinancingcostsanddiscounts/premiumsresultingrecordingdebtatfairvalueinconnectionwiththeCablevisionandCequelAcquisitions,partiallyoffsetbyanincreaseininterestincomeof$2,068.
See"LiquidityandCapitalResources"discussionbelowforadetailofourborrowergroups.
Gain on Investments, net
Actual 2016
Gainoninvestments,netfortheyearendedDecember31,2016of$141,896consistsprimarilyoftheincreaseinthefairvalueofComcastcommonstockownedbytheCompanyfortheperiodfromthedateoftheCablevisionAcquisition.Theeffectsofthesegainsarepartiallyoffsetbythelossesontherelatedequityderivativecontracts,netdescribedbelow.
Pro Forma 2016 Compared to Pro Forma 2015
Onaproformabasis,gain(loss)oninvestments,netfortheyearsendedDecember31,2016and2015amountedto$271,886and$(30,208),respectively,assumingtheCablevisionAcquisitionoccurredonJanuary1,2015andconsistsprimarilyoftheincreaseordecreaseinthefairvalueofComcastcommonstockownedbytheCompany.Theeffectsofthesegains(losses)arepartiallyoffsetbythe(losses)gainsontherelatedequityderivativecontracts,netdescribedbelow.
Gain (Loss) on Equity Derivative Contracts, net
Actual 2016
Lossonequityderivativecontracts,netfortheyearendedDecember31,2016of$(53,696)consistsofunrealizedandrealizedgains(losses)duetothechangeinfairvalueofequityderivativecontractsrelatingtotheComcastcommonstockownedbytheCompanyfortheperiodfromthedateofthe
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CablevisionAcquisition.Theeffectsoftheselossareoffsetbythegainoninvestmentsecuritiespledgedascollateral,whichareincludedingain(loss)oninvestments,netdiscussedabove.
Pro Forma 2016 Compared to Pro Forma 2015
Onaproformabasis,gain(loss)onequityderivativecontracts,netfortheyearsendedDecember31,2016and2015amountedto$(89,979)and$104,927,respectively,assumingtheCablevisionAcquisitionoccurredonJanuary1,2015andconsistsofunrealizedandrealizedgains(losses)duetothechangeinfairvalueofequityderivativecontractsrelatingtotheComcastcommonstockownedbytheCompany.
Loss on interest rate swap contracts
Lossoninterestrateswapcontractswas$72,961fortheyearendedDecember31,2016onanactualandproformabasisandrepresentsthedecreaseinfairvalueofthefixedtofloatinginterestrateswapsenteredintobyourCequelsegmentinJune2016.Theobjectiveoftheseswapsistocovertheexposuretochangesinthemarketinterestrateofthe$1,500,000principalamountoftheCequel2026SeniorSecuredNotes.Theseswapcontractsarenotdesignatedashedgesforaccountingpurposes.
Loss on Extinguishment of Debt and Write-off of Deferred Financing Costs
Lossonextinguishmentofdebtandwrite-offofdeferredfinancingcostsfortheyearendedDecember31,2016of$127,649includesprimarilythewrite-offofunamortizeddeferredfinancingcostsandtheunamortizeddiscountrelatedtotheprepaymentof$1,290,500outstandingunderthetermcreditfacilityatCablevision.Onaproformabasis,lossonextinguishmentofdebtandwrite-offofdeferredfinancingcostsfortheyearendedDecember31,2015was$1,735.
Income Tax Expense
Actual 2016
IncometaxbenefitfortheyearendedDecember31,2016amountedto$259,666.InconnectionwiththecontributionofCequeltotheCompanyinJune2016,theCompanywasrequiredtore-measuredeferredtaxesofCequelatahigheroverallrate,resultinginadditionaldeferredtaxexpenseof$153,660.Theimpactofthenondeductibleshare-basedcompensationrelatedtotheCompany'scarriedunitplanresultedinadditionaltaxexpenseof$5,029.Absenttheseitems,theeffectivetaxratewouldhavebeen38%.
Pro Forma 2016 Compared to Pro Forma 2015
Onaproformabasis,incometaxbenefitfortheyearendedDecember31,2016amountedto$406,886.Excludingtheimpactofthenondeductibleshare-basedcompensationrelatedtotheCompany'scarriedunitplanof$5,029,theeffectivetaxratewouldhavebeen39%.
Onaproformabasis,incometaxbenefitfortheyearendedDecember31,2015amountedto$498,567.InApril2015,corporateincometaxchangeswereenactedforbothNewYorkStateandtheCityofNewYork.Thosechangesincludedaprovisionwherebyinvestmentincomewillbesubjecttohighertaxes.Accordingly,inthesecondquarterof2015,Cablevisionrecordeddeferredtaxexpenseof$16,334toremeasurethedeferredtaxliabilityfortheinvestmentinComcastcommonstockandassociatedderivativesecurities.During2015,Cequelrecordedtaxexpenserelatedtonon-cashequitycompensationof$107,143.Absenttheseitems,theeffectivetaxratewouldhavebeen39%.
Loss From Discontinued Operations
Pro Forma 2016 Compared to Pro Forma 2015
Onaproformabasis,lossfromdiscontinuedoperationsfortheyearendedDecember31,2015amountedto$12,541,netofincometaxes,andprimarilyreflectsanexpenserelatedtothesettlementofalegalmatterrelatingtoRainbowMediaHoldingsLLC,abusinesswhoseoperationswerepreviouslydiscontinued.
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Results of Operations—Cablevision
ThefollowingdiscussionregardingCablevisionresultsofoperationshasbeenpresentedfortheperiodspriortotheCablevisionAcquisitionasCablevisionisthepredecessorentity.
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Cablevision Successor Predecessor
June 21, 2016 to
December 31, 2016
January 1, 2016 to June 20,
2016
Year Ended December 31,
2015
Year Ended December 31,
2014
Revenue(a): Residential: PayTV $ 1,638,691 $ 1,468,006 $ 3,142,991 $ 3,151,872Broadband 782,615 673,010 1,303,918 1,248,708Telephony 376,034 342,142 748,181 743,967
BusinessServices 468,632 411,102 834,154 811,926Advertising 157,331 119,727 257,832 285,284Other 20,749 123,617 258,469 266,800
Total revenue 3,444,052 3,137,604 6,545,545 6,508,557Operating expenses: Programmingandotherdirectcosts 1,164,925 1,088,555 2,269,290 2,197,735Otheroperatingexpenses 1,028,447 1,136,970 2,546,319 2,520,582Restructuringandotherexpense 212,150 22,223 16,213 2,480Depreciationandamortization(includingimpairments) 963,665 414,550 865,252 866,502
Operating income 74,865 475,306 848,471 921,258Otherincome(expense): Interestexpense,net (606,347) (285,508) (584,839) (575,580)Gain(loss)oninvestments,net 141,896 129,990 (30,208) 129,659Gain(loss)onequityderivativecontracts,net (53,696) (36,283) 104,927 (45,055)Lossonextinguishmentofdebtandwrite-offofdeferredfinancingcosts (102,894) — (1,735) (10,120)
Otherincome(expense),net 4,329 4,855 6,045 4,988Income (loss) from continuing operations before income
taxes (541,847) 288,360 342,661 425,150Incometaxbenefit(expense) 213,065 (124,848) (154,872) (115,768)Income (loss) from continuing operations, net of income
taxes (328,782) 163,512 187,789 309,382Income(loss)fromdiscontinuedoperations,netofincometaxes — — (12,541) 2,822
Net income (loss) (328,782) 163,512 175,248 312,204Netloss(income)attributabletononcontrollinginterests (551) 236 201 (765)Net income (loss) attributable to Cablevision
stockholder(s) $ (329,333) $ 163,748 $ 175,449 $ 311,439
(a) Certainreclassificationshavebeenmadetopreviouslyreportedamountsbyproducttoreflectthecurrentpresentation.
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The following is a reconciliation of net income (loss) to Adjusted EBITDA:
ThefollowingtablesetsforthcertaincustomermetricsforCablevision:
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Cablevision Successor Predecessor
June 21, 2016 to
December 31, 2016
January 1, 2016 to June 20,
2016
Year Ended December 31,
2015
Year Ended December 31,
2014
Netincome(loss) (328,782) 163,512 175,248 312,204(Income)lossfromdiscontinuedoperations,netofincometaxes — — 12,541 (2,822)
Incometax(benefit)expense (213,065) 124,848 154,872 115,768Otherincome(a) (4,329) (4,855) (6,045) (4,988)Lossonextinguishmentofdebtandwrite-offofdeferredfinancingcosts 102,894 — 1,735 10,120
Loss(gain)onequityderivativecontracts,net(b) 53,696 36,283 (104,927) 45,055Loss(gain)oninvestments,net (141,896) (129,990) 30,208 (129,659)Interestexpense,net 606,347 285,508 584,839 575,580Depreciationandamortization(includingimpairments) 963,665 414,550 865,252 866,502Restructuringandotherexpenses 212,150 22,223 16,213 2,480Share-basedcompensation 9,164 25,231 65,286 43,984AdjustedEBITDA $ 1,259,844 $ 937,310 $ 1,795,222 $ 1,834,224
(a) IncludesprimarilydividendsreceivedonComcastcommonstockownedbytheCompany.
(b) Consistsofunrealizedandrealizedlosses(gains)duetothechangeinfairvalueofequityderivativecontractsrelatingtotheComcastcommonstockownedbytheCompany.
Cablevision
Years Ended December 31, Net Increase
(Decrease) 2016 2015 2014 2016 2015 (in thousands, except per customer amounts) Homes passed(a) 5,116 5,076 5,041 40 35Total customer relationships(b) 3,141 3,116 3,113 25 3Residential 2,879 2,858 2,861 21 (3)SMB 262 258 252 4 6
Residential customers(c): PayTV 2,428 2,487 2,574 (59) (87)Broadband 2,619 2,562 2,518 57 44Telephony 1,962 2,007 2,047 (45) (40)
Residential triple product customer penetration(d): 64.8% 67.6% 69.2% (2.8)% (1.6)%Penetration of homes passed(e): 61.4% 61.4% 61.8% —% (0.4)%ARPU(f) $ 154.49 $ 150.61 $ 149.10 $ 3.88 $ 1.51
(a) Representstheestimatednumberofsingleresidencehomes,apartmentsandcondominiumunitspassedbythecabledistributionnetworkinareasserviceablewithoutfurtherextendingthetransmissionlines.Inaddition,itincludescommercialestablishmentsthathaveconnectedtoourcabledistributionnetwork.
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Cablevision—Comparison of Actual Results for the Periods June 21, 2016 through December 31, 2016 and January 1, 2016 through June 20, 2016 toActual Results for the Year Ended December 31, 2015 and Actual Results for the Year Ended December 31, 2015 to December 31, 2014
Pay Television Revenue
Successor and Predecessor 2016 compared to Predecessor 2015
Paytelevisionrevenueamountedto$1,638,691and$1,468,006fortheperiodJune21,2016throughDecember31,2016andJanuary1,2016throughJune20,2016,respectively,comparedto$3,142,991fortheyearendedDecember31,2015.PaytelevisionrevenuefortheSuccessorandPredecessorperiodsin2016wasimpactedbyadeclineinpaytelevisioncustomers,adecreaseduetoapay-per-viewboxingeventthattookplacein2015,partiallyoffsetbyincreasesinrevenuedueprimarilytorateincreasesforcertainpaytelevisionservicesimplementedduringthefirstquarterof2016andanincreaseinfeeschargedtorestoresuspendedservices.
Predecessor 2015 compared to Predecessor 2014
Paytelevisionrevenueamountedto$3,142,991and$3,151,872fortheyearsendedDecember31,2015and2014,respectively.Thedecreaseof$8,881wasdueprimarilytorateincreasesforcertainpaytelevisionservicesimplementedduringthesecondquarterof2014andthefirstquarterof2015,andlowernetpromotionalactivityasaresultofcontinueddisciplinedpricingpolicies.Inaddition,pay-per-viewrevenueincreasedprimarilyduetoaboxingeventin2015.Offsettingtheseincreaseswasadecreaseinrevenuedueprimarilytoadeclineinpaytelevisioncustomers.
Webelieveourpaytelevisioncustomerdeclinesnotedinthetableabovearelargelyattributabletointensecompetition,particularlyfromVerizon,aswellascompetitionfromcompaniesthatdelivervideocontentovertheInternetdirectlytocustomers.Also,thedeclinesareattributabletoourdisciplinedpricingandcreditpolicies.Thesefactorsareexpectedtocontinuetoimpactourabilitytomaintainorincreaseourexistingcustomersandrevenueinthefuture.
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(b) Representsnumberofhouseholds/businessesthatreceiveatleastoneoftheCompany'sservices.
(c) Customersrepresenteachcustomeraccount(setupandsegregatedbycustomernameandaddress),weightedequallyandcountedasonecustomer,regardlessofsize,revenuegenerated,ornumberofboxes,units,oroutlets.Incalculatingthenumberofcustomers,wecountallcustomersotherthaninactive/disconnectedcustomers.Freeaccountsareincludedinthecustomercountsalongwithallactiveaccounts,buttheyarelimitedtoaprescribedgroup.Mostoftheseaccountsarealsonotentirelyfree,astheytypicallygeneraterevenuethroughpay-per-vieworotherpayservices.Freestatusisnotgrantedtoregularcustomersasapromotion.Wecountabulkcommercialcustomer,suchasahotel,asonecustomer,anddonotcountindividualroomunitsatthathotel.Incountingbulkresidentialcustomers,suchasanapartmentbuilding,wecounteachsubscribingfamilyunitwithinthebuildingasonecustomer,butdonotcountthemasteraccountfortheentirebuildingasacustomer.
(d) Representsthenumberofcustomersthatsubscribetothreeofourservicesdividedbytotalresidentialcustomerrelationships.
(e) Representsthenumberoftotalcustomerrelationshipsdividedbyhomespassed.
(f) Calculatedbydividingtheaveragemonthlyrevenueforthefourthquarterofeachyearpresentedderivedfromthesaleofbroadband,paytelevisionandtelephonyservicestoresidentialcustomersfortherespectivequarterbytheaveragenumberoftotalresidentialcustomersforthesameperiod.
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Broadband Revenue
Successor and Predecessor 2016 compared to Predecessor 2015
Broadbandrevenueamountedto$782,615and$673,010fortheperiodJune21,2016throughDecember31,2016andJanuary1,2016throughJune20,2016,respectively,comparedto$1,303,918fortheyearendedDecember31,2015.BroadbandrevenuefortheSuccessorandPredecessorperiodsin2016wasimpactedbyrateincreasesforcertainbroadbandservicesimplementedduringthefirstquarterof2016,anincreaseinbroadbandcustomers,andanincreaseinfeeschargedtorestoresuspendedservices.
Predecessor 2015 compared to Predecessor 2014
Broadbandrevenueamountedto$1,303,918and$1,248,708fortheyearsendedDecember31,2015and2014,respectively.Theincreaseof$55,210(4%)wasduetorateincreasesforcertainbroadbandservicesimplementedduringthefourthquarterof2014andlowernetpromotionalactivityasaresultofcontinueddisciplinedpricingpolicies.Broadbandrevenuealsoincreasedduetoanincreaseinbroadbandcustomers.
Telephony Revenue
Successor and Predecessor 2016 compared to Predecessor 2015
Telephonyrevenueamountedto$376,034and$342,142fortheperiodJune21,2016throughDecember31,2016andJanuary1,2016throughJune20,2016,respectively,comparedto$748,181fortheyearendedDecember31,2015.TelephonyrevenuefortheSuccessorandPredecessorperiodsin2016wasimpactedbyadeclineintelephonycustomersandadeclineininternationalcalling.
Predecessor 2015 compared to Predecessor 2014
Telephonyrevenueamountedto$748,181and$743,967fortheyearsendedDecember31,2015and2014,respectively.Theincreaseof$4,214(1%)wasdueprimarilytorateincreasesforcertaintelephonyservicesimplementedduringthesecondquarterof2014andlowernetpromotionalactivityasaresultofcontinueddisciplinedpricingpolicies.Offsettingtheseincreaseswasadecreaseinrevenuedueprimarilytoadeclineintelephonycustomers.
Business Services Revenue
Successor and Predecessor 2016 compared to Predecessor 2015
Businessservicesandwholesalerevenueamountedto$468,632and$411,102fortheperiodJune21,2016throughDecember31,2016andJanuary1,2016throughJune20,2016,respectively,comparedto$834,154fortheyearendedDecember31,2015.BusinessservicesandwholesalerevenuefortheSuccessorandPredecessorperiodsin2016wasimpactedbyrateincreasesforcertainbroadbandservicesimplementedduringthefirstquarterof2016,anincreaseinbroadbandcustomersandanincreaseinEthernetrevenuefromanincreaseinservicesinstalled,partiallyoffsetbyreducedtraditionalvoiceanddataservices.
Predecessor 2015 compared to Predecessor 2014
Businessservicesandwholesalerevenueamountedto$834,154and$811,926fortheyearsendedDecember31,2015and2014,respectively.Theincreaseof$22,228(3%)wasprimarilyduetorateincreasesforcertainbroadbandservicesimplementedduringthefourthquarterof2014andanincreaseinEthernetrevenuefromanincreaseinservicesinstalled,partiallyoffsetbyreducedtraditionalvoiceanddataservices.
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Advertising Revenue
Successor and Predecessor 2016 compared to Predecessor 2015
Advertisingrevenueamountedto$157,331and$119,727fortheperiodJune21,2016throughDecember31,2016andJanuary1,2016throughJune20,2016,respectively,comparedto$257,832fortheyearendedDecember31,2015.AdvertisingrevenuefortheSuccessorandPredecessorperiodsin2016wasimpactedbyanincreaseinadvertisingsalestothepoliticalsector.
Predecessor 2015 compared to Predecessor 2014
Advertisingrevenueamountedto$257,832and$285,284fortheyearsendedDecember31,2015and2014,respectively.Thedecreaseof$27,452(10%)wasprimarilyduetoadeclineinadvertisingsalestothepoliticalandgamingsectors.
Other Revenue
Successor and Predecessor 2016 compared to Predecessor 2015
Otherrevenueamountedto$20,749and$123,617fortheperiodJune21,2016throughDecember31,2016andJanuary1,2016throughJune20,2016,respectively,comparedto$258,469fortheyearendedDecember31,2015.OtherrevenuefortheSuccessorandPredecessorperiodsin2016includesrevenuerecognizedbyNewsdaythroughJuly7,2016,affiliationfeespaidbycableoperatorsforcarriageofourNews12Networksandotherrevenuesources.OnJuly7,2016,theCompanysolda75%interestinNewsdayandasaresultnolongerconsolidatesitsoperatingresults.AsofJuly7,2016,theCompany's25%interestintheoperatingresultsofNewsdayisrecordedontheequitybasis.
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Predecessor 2015 compared to Predecessor 2014
Otherrevenueamountedto$258,469and$266,800fortheyearsendedDecember31,2015and2014,respectively.Thedecreaseof$8,331(3%)wasprimarilyduetoadecreaseinrevenuesatNewsdaydueprimarilytodecreasesinadvertisingrevenuesdrivenprimarilybycompetitionfromothermedia,partiallyoffsetbyanincreaseincirculationrevenues.
Programming and Other Direct Costs
Programmingandotherdirectcostsincludecableprogrammingcosts,whicharecostspaidtoprogrammers(netofamortizationofanyincentivesreceivedfromprogrammersforcarriage)forcablecontent(includingcostsofVODandpay-per-view)andaregenerallypaidonaper-subscriberbasis.Thesecoststypicallyriseduetoincreasesincontractualratesandnewchannellaunchesandarealsoimpactedbychangesinthenumberofcustomersreceivingcertainprogrammingservices.Thesecostsalsoincludeinterconnection,callcompletion,circuitandtransportfeespaidtoothertelecommunicationcompaniesforthetransportandterminationofvoiceanddataservices,whichtypicallyvarybasedonratechangesandthelevelofusagebyourcustomers.Thesecostsalsoincludefranchisefeeswhicharepayabletothestategovernmentsandlocalmunicipalitieswhereweoperateandareprimarilybasedonapercentageofcertaincategoriesofrevenuederivedfromtheprovisionofpaytelevisionserviceoverourcablesystems,whichvarybystateandmunicipality.Thesecostschangeinrelationtochangesinsuchcategoriesofrevenuesorratechanges.ThroughJuly7,2016,thesecostsalsoincludedcontent,productionanddistributioncostsoftheNewsdaybusiness.
Successor and Predecessor 2016 compared to Predecessor 2015
Programmingandotherdirectcostsamountedto$1,164,925and$1,088,555fortheperiodJune21,2016throughDecember31,2016andJanuary1,2016throughJune20,2016,respectively,comparedto$2,269,290fortheyearendedDecember31,2015.ProgrammingandotherdirectcostsfortheSuccessorandPredecessorperiodsin2016wereimpactedbyanincreaseinprogrammingcostsdueprimarilytocontractualrateincreases,partiallyoffsetbylowervideocustomers.ThesecostswerealsoimpactedbythelowercostsrelatedtoNewsday(duetothesaleofour75%interestinNewsdayinJuly2016),lowercallcompletionandtransportcostsprimarilyduetolowerlevelofactivity,lowercostofsalesrelatedtowirelesshandsetinventoryandhigherfranchiseandotherfeesdueprimarilytoincreasesinratesincertainareas,partiallyoffsetbylowerpaytelevisioncustomers.
Predecessor 2015 compared to Predecessor 2014
Programmingandotherdirectcostsamountedto$2,269,290and$2,197,735fortheyearendedDecember31,2015and2014,respectively.Theincreaseof$71,555(3%)isattributabletothefollowing:
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2015 DecreaseincostsprimarilyrelatedNewsday $ (10,143)Decreaseincallcompletionandtransportcostsprimarilyduetolowerlevelofactivity (14,184)Increaseincostofsales(whichincludesalowercostormarketvaluationadjustmentof$17,382relatedtowirelesshandsetinventoryfrom2015) 20,373
Increaseinfranchiseandotherfeesdueprimarilytoincreasesinratesincertainareas,partiallyoffsetbylowervideocustomers 4,307
Increaseinprogrammingcostsdueprimarilytocontractualrateincreasesandapay-per-viewboxingeventin2015,partiallyoffsetbylowervideocustomers 66,942
Othernetincreases 4,260 $ 71,555
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Programming Costs
Programmingcostsaggregated$986,951and$891,754fortheperiodJune21,2016throughDecember31,2016andJanuary1,2016throughJune20,2016,respectively,comparedto$1,812,945and$1,746,003fortheyearendedDecember31,2015and2014,respectively.Ourprogrammingcostsincreased4%forthe2016periodsand4%in2015dueprimarilytoanincreaseincontractualprogrammingratesandapay-per-viewboxingeventin2015,partiallyoffsetbyadecreaseintelephonycustomers.Ourprogrammingcostsin2017willcontinuetobeimpactedbychangesinprogrammingrates,whichweexpecttoincreasebyhighsingledigits,andbychangesinthenumberofpaytelevisioncustomers.
Other Operating Expenses
Otheroperatingexpensesincludestaffcostsandemployeebenefitsincludingsalariesofcompanyemployeesandrelatedtaxes,benefitsandotheremployee-relatedexpenses.Otheroperatingexpensesalsoincludenetworkmanagementandfieldservicecosts,whichrepresentcostsassociatedwiththemaintenanceofourbroadbandnetwork,includingcostsofcertaincustomerconnectionsandothercostsassociatedwithprovidingandmaintainingservicestoourcustomerswhichareimpactedbygeneralcostincreasesforcontractors,insuranceandothervariousexpenses.
Customerinstallationandrepairandmaintenancecostsmayfluctuateasaresultofchangesinthelevelofactivitiesandtheutilizationofcontractorsascomparedtoemployees.Also,customerinstallationcostsfluctuateastheportionofourexpensesthatweareabletocapitalizechanges.Networkrepairandmaintenanceandutilitycostsalsofluctuateascapitalizablenetworkupgradeandenhancementactivitychanges.
Otheroperatingexpensesalsoincludecostsrelatedtotheoperationandmaintenanceofourcallcenterfacilitiesthathandlecustomerinquiriesandbillingandcollectionactivitiesandsalesandmarketingcosts,whichincludeadvertisingproductionandplacementcostsassociatedwithacquiringandretainingcustomers.Thesecostsvaryperiodtoperiodandcertaincosts,suchassalesandmarketing,mayincreasewithintensecompetition.Additionally,otheroperatingexpensesincludevariousotheradministrativecosts,includinglegalfees,andproductdevelopmentcosts.
Successor and Predecessor 2016 compared to Predecessor 2015
Otheroperatingexpensesamountedto$1,028,447and$1,136,970fortheperiodJune21,2016throughDecember31,2016andJanuary1,2016throughJune20,2016,respectively,comparedto$2,546,319fortheyearendedDecember31,2015.OtheroperatingexpensesfortheSuccessorandPredecessorperiodsin2016wereimpactedbyadecreaseinemployee-relatedcostsrelatedtotheeliminationofcertainpositions,lowerbenefitsandanincreaseincapitalizableactivity,partiallyoffsetbymeritincreases.ThesecostswerealsoimpactedbythelowercostsrelatedtoNewsday(duetothesaleofour75%interestinNewsdayinJuly2016),adecreaseinsharebasedcompensation,adecreaseinlong-termincentiveplanawards,lowerlegalcosts,lowersalesandmarketingcosts,lowerrepairandmaintenanceexpenses,lowercontractorcosts,asettlementofaclassactionlegalmatterin2015,partiallyoffsetbyanincreaseinthemanagementfeetoAlticeN.V.
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Predecessor 2015 compared to Predecessor 2014
Otheroperatingexpensesamountedto$2,546,319and$2,520,582fortheyearsendedDecember31,2015and2014,respectively.Theincreaseof$25,737(1%)isattributabletothefollowing:
Restructuring and Other Expense
Restructuringandotherexpenseamountedto$212,150and$22,223fortheperiodJune21,2016throughDecember31,2016andJanuary1,2016throughJune20,2016,respectively,comparedto$16,213fortheyearendedDecember31,2015and$2,480fortheyearendedDecember31,2014.RestructuringandotherexpensefortheSuccessor2016periodisprimarilyrelatedtoseveranceandotheremployeerelatedcostsresultingfromheadcountreductionsrelatedtoinitiativeswhichcommencedintheSuccessorperiodthatareintendedtosimplifytheCompany'sorganizationalstructure.ItiscurrentlyanticipatedthatadditionalrestructuringexpenseswillberecognizedastheCompanycontinuestoanalyzetheorganizationalstructure.
TherestructuringandotherexpenseforthePredecessor2016periodisprimarilyrelatedtotransactioncostsof$19,924incurredinconnectionwiththeCablevisionAcquisitionandadjustmentsrelatedtopriorrestructuringplansof$2,299.Restructuringandotherexpensefor2015includestransactioncostsincurredinconnectionwiththeCablevisionAcquisitionof$17,862,netofadjustmentsrelatedtopriorrestructuringplansof$1,649.Therestructuringandotherexpenseof$2,480for2014reflectsadjustmentsrelatedtopriorrestructuringplans.
Depreciation and Amortization
Depreciationandamortization(includingimpairments)amountedto$963,665and$414,550fortheperiodJune21,2016throughDecember31,2016andJanuary1,2016throughJune20,2016,respectively,comparedto$865,252fortheyearendedDecember31,2015and$866,502fortheyearendedDecember31,2014.DepreciationandamortizationfortheSuccessorperiodin2016wasimpactedbyanincreaseinrelatedtothestep-upinthecarryingvalueofproperty,plantandequipmentandamortizableintangibleassetsrecordedinconnectionwiththeCablevisionAcquisitiononJune21,2016,partiallyoffsetbycertainassetsbeingretiredorbecomingfullydepreciated.
AlticeN.V.iscurrentlyevaluatingtheadoptionofaglobalbrandwhichifadoptedcouldreducetheremainingusefullifeofourtradenameintangible,whichwouldincreaseamortizationexpense.
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2015 Decreaseprimarilyinemployeerelatedcostsrelatedtotheeliminationofcertainpositions,lowernetbenefitsandanincreaseincapitalizableactivity,partiallyoffsetbymeritincreases $ (21,169)
DecreaseincostsprimarilyrelatedtoNewsday (5,294)Decreaseinexpensesrelatedtolong-termincentiveplanawards (15,120)Increaseinshare-basedcompensation 18,963Increaseinlegalcosts 17,548Increaseinsalesandmarketingcosts 9,962Decreaseinrepairsandmaintenancecostsrelatingtoouroperationsandfacilities (1,714)Decreaseincontractorcostsdueprimarilytolowertruckrolls (18,514)Settlementofaclassactionlegalmatterin2015 9,500Increaseinproductdevelopmentcostsandproductconsultingfees 29,785Othernetincreases 1,790
$ 25,737
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Depreciationandamortizationdecreased$1,250in2015ascomparedtotheprioryeardueprimarilytocertainassetsbecomingfullydepreciated,partiallyoffsetbydepreciationofnewassetpurchases.
Adjusted EBITDA
Successor and Predecessor 2016 compared to Predecessor 2015
AdjustedEBITDAamountedto$1,259,844and$937,310fortheperiodJune21,2016throughDecember31,2016andJanuary1,2016throughJune20,2016,respectively,comparedto$1,795,222fortheyearendedDecember31,2015.AdjustedEBITDAforthe2016periodswasimpactedbyanincreaseinrevenue,andadecreaseinoperatingexpenses(excludingdepreciationandamortization,restructuringandotherexpenseandshare-basedcompensation),asdiscussedabove.
Predecessor 2015 compared to Predecessor 2014
AdjustedEBITDAamountedto$1,795,222and$1,834,224fortheyearsendedDecember31,2015and2014,respectively.Thedecreaseof$39,002(2%)for2015ascompared2014wasdueprimarilytoanincreaseinoperatingexpenses(excludingdepreciationandamortizationexpense,restructuringandotherexpenseandshare-basedcompensation),partiallyoffsetbyanincreaseinrevenueasdiscussedabove.
Interest Expense, net
Successor and Predecessor 2016 compared to Predecessor 2015
Interestexpenseamountedto$606,347and$285,508fortheperiodJune21,2016throughDecember31,2016andJanuary1,2016throughJune20,2016,respectively,comparedto$584,839fortheyearendedDecember31,2015.InterestexpensefortheSuccessor2016periodincludesadditionalinterestrelatedtothedebtincurredtofinancetheCablevisionAcquisition.
Predecessor 2015 compared to Predecessor 2014
Interestexpense,netamountedto$584,839and$575,580fortheyearsendedDecember31,2015and2014,respectively.Theincreaseof$9,259(2%)for2015andascomparedto2014isattributabletothefollowing:
See"LiquidityandCapitalResources"discussionbelowforadetailofourborrowergroups.
Gain (Loss) on Investments, net
Gain(loss)oninvestments,netamountedto$141,896and$129,990fortheperiodJune21,2016throughDecember31,2016andJanuary1,2016throughJune20,2016,respectively,and$(30,208)and$129,659fortheyearendedDecember31,2015and2014,respectively,andreflecttheincreaseordecreaseinthefairvalueofComcastcommonstockownedbytheCompany.Theeffectsofthesegains(losses)arepartiallyoffsetbythe(losses)gainsontherelatedequityderivativecontracts,netdescribedbelow.
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2015 Decreaseduetochangeinaveragedebtbalances $ (7,941)Increaseduetochangeinaverageinterestratesonourindebtedness 16,918Higherinterestincome (505)Othernetincreases,primarilyamortizationofdeferredfinancingcosts 787
$ 9,259
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Gain (Loss) on Equity Derivative Contracts, net
Gain(loss)onequityderivativecontracts,netamountedto$(53,696)and$(36,283)fortheperiodJune21,2016throughDecember31,2016andJanuary1,2016throughJune20,2016,respectively,and$104,927and$(45,055)fortheyearendedDecember31,2015and2014,respectively.
Gain(loss)onequityderivativecontracts,netconsistsofunrealizedandrealizedgains(losses)duetothechangeinfairvalueoftheCompany'sequityderivativecontractsrelatingtotheComcastcommonstockownedbytheCompany.Theeffectsofthesegains(losses)areoffsetbythe(losses)gainsoninvestmentsecuritiespledgedascollateral,whichareincludedingain(loss)oninvestments,netdiscussedabove.
Loss on Extinguishment of Debt and Write-off of Deferred Financing Costs
Lossonextinguishmentofdebtandwrite-offofdeferredfinancingcostsamountedto$102,894fortheperiodJune21,2016throughDecember31,2016and$1,735and$10,120fortheyearsendedDecember31,2015and2014,respectively.TheSuccessor2016amountincludesthewrite-offofunamortizeddeferredfinancingcostsandtheunamortizeddiscountrelatedtotheprepaymentof$1,290,500outstandingundertheCSCHoldings,awholly-ownedsubsidiaryofCablevision,termcreditfacility.The2015amountincludesthewrite-offofunamortizeddeferredfinancingcostsandtheunamortizeddiscountrelatedtothe$200,000repaymentofCSCHoldingstermBloanfacility.
The2014amountincludes$9,618,relatedtothe$750,000repaymentofCSCHoldings'outstandingtermBloanfacilityinMay2014andthe$200,000repaymentinSeptember2014.Inaddition,the2014amountincludesthewrite-offofunamortizeddeferredfinancingcostsof$1,436andanetgainof$934,netoffees,recognizedinconnectionwiththerepurchaseofCablevision'soutstanding5.875%seniornotesdueSeptember2022.
Income Tax Expense
Incometaxbenefit(expense)amountedto$213,065fortheperiodfromJune21,2016throughDecember31,2016and$(124,848)fortheperiodfromJanuary1,2016throughJune20,2016.IntheSuccessorperiod,excludingtheimpactofthenondeductibleshare-basedcompensationof$3,208,theeffectivetaxratewouldhavebeen40%.InthePredecessorperiod,certainacquisition-relatedcostsweredeterminedtobenondeductible,resultinginadditionaldeferredtaxexpenseof$9,392.Absentthisitem,theeffectivetaxratewouldhavebeen40%.
Incometaxexpenseof$154,872fortheyearendedDecember31,2015,reflectedaneffectivetaxrateof45%.InApril2015,corporateincometaxchangeswereenactedforbothNewYorkStateandtheCityofNewYork.Thosechangesincludedaprovisionwherebyinvestmentincomewillbesubjecttohighertaxes.Accordingly,inthesecondquarterof2015,Cablevisionrecordeddeferredtaxexpenseof$16,334toremeasurethedeferredtaxliabilityfortheinvestmentinComcastcommonstockandassociatedderivativesecurities.Alsoin2015,Cablevisionrecordedtaxbenefitof$2,630relatedtoresearchcredits.Absenttheseitems,theeffectivetaxratefortheyearendedDecember31,2015wouldhavebeen41%.
Incometaxexpenseof$115,768fortheyearendedDecember31,2014,reflectedaneffectivetaxrateof27%.InJanuary2014,theInternalRevenueServiceinformedtheCompanythattheconsolidatedfederalincometaxreturnsfor2009and2010werenolongerunderexamination.Accordingly,inthefirstquarterof2014,Cablevisionrecordedataxbenefitof$53,132associatedwiththereversalofanoncurrentliabilityrelatingtoanuncertaintaxposition.NewYorkStatecorporatetaxreformlegislationenactedonMarch31,2014resultedintaxbenefitof$2,050.Alsoin2014,Cablevisionrecordedtaxbenefitof$2,634relatedtoresearchcredits.Absenttheseitems,theeffectivetaxratefortheyearendedDecember31,2014wouldhavebeen41%.
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Loss From Discontinued Operations
LossfromdiscontinuedoperationsfortheyearendedDecember31,2015amountedto$12,541,netofincometaxes,andprimarilyreflectsanexpenserelatedtothesettlementofalegalmatterrelatingtoRainbowMediaHoldingsLLC,abusinesswhoseoperationswerepreviouslydiscontinued.
IncomefromdiscontinuedoperationsfortheyearendedDecember31,2014amountedto$2,822,netofincometaxesandresultedprimarilyfromthesettlementofacontingencyrelatedtoMontanapropertytaxesrelatedtoBresnanCable.
Results of Operations—Cequel
Thecolumnlabeled"Successor"reflectsresultsofoperationsfortheperiodsubsequenttotheCequelAcquisitionandthecolumnslabeled"Predecessor"reflectresultsofoperationspriortotheCequelAcquisition.
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Cequel Successor Predecessor
December 21, 2015 to
December 31, 2015
January 1, 2015 to
December 20, 2015
Year Ended December 31,
2014
Revenue: Residential: PayTV $ 33,715 $ 1,083,925 $ 1,147,455Broadband 21,133 679,961 601,801Telephony 4,905 158,916 167,838
BusinessServices 9,783 314,903 288,386Advertising 2,642 85,024 101,197Other 765 24,640 24,020
Total revenue 72,943 2,347,369 2,330,697Operating expenses: Operating(excludingdepreciationandamortization) 26,586 872,308 930,085Selling,generalandadministrative 39,166 889,960 546,386Depreciationandamortization 23,533 531,561 594,459Lossondisposalofcableassets 41 1,796 4,277
Operating income (16,383) 51,744 255,490Otherincome(expense): Interestexpense,net (11,491) (237,319) (230,146)
Income (loss) before income taxes (27,874) (185,575) 25,344Incometaxbenefit(expense) 10,263 (29,301) (8,095)Net income (loss) $ (17,611) $ (214,876) $ 17,249
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The following is a reconciliation of net income (loss) to Adjusted EBITDA:
ThefollowingtablesetsforthcertaincustomermetricsforourCequelsegment:
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Cequel Successor Predecessor
December 21, 2015 to
December 31, 2015
January 1, 2015 to
December 20, 2015
Year Ended December 31,
2014
Netincome(loss) $ (17,611) $ (214,876) $ 17,249Incometax(benefit)expense (10,263) 29,301 8,095Interestexpense,net 11,491 237,319 230,146Depreciationandamortization(includingimpairments) 23,574 533,357 598,736Restructuringandotherexpense(a) 26,498 67,817 16,641Share-basedcompensation — 287,691 30,681AdjustedEBITDA $ 33,689 $ 940,609 $ 901,548
(a) Includestransactioncostsof$26,498,$67,817and$16,641fortheperiodDecember21,2015toDecember31,2015(Successor),fortheperiodJanuary1,2015toDecember20,2015(Predecessor)andfortheyearendedDecember31,2014(Predecessor),respectively.
Cequel(g)
December 31, Net Increase(Decrease)
2015 2014 2015 (in thousands, except per customer amounts) Homes passed(a) 3,352 3,289 63Total customer relationships(b) 1,712 1,664 48Residential 1,618 1,579 39SMB 94 85 9
Residential customers(c): PayTV 1,154 1,200 (46)Broadband 1,276 1,199 77Telephony 581 553 28
Residential triple product customer penetration(d): 25.4% 25.1% 0.3%Penetration of homes passed(e): 51.1% 50.6% 0.5%ARPU(f) $ 104.04 $ 101.05 $ 2.99
(a) Representstheestimatednumberofsingleresidencehomes,apartmentsandcondominiumunitspassedbythecabledistributionnetworkinareasserviceablewithoutfurtherextendingthetransmissionlines.Inaddition,itincludescommercialestablishmentsthathaveconnectedtoourcabledistributionnetwork.ForCequel,broadbandserviceswerenotavailabletoapproximately100homespassedandtelephonyserviceswerenotavailabletoapproximately500homespassed.
(b) Representsnumberofhouseholds/businessesthatreceiveatleastoneoftheCompany'sservices.
(c) Customersrepresenteachcustomeraccount(setupandsegregatedbycustomernameandaddress),weightedequallyandcountedasonecustomer,regardlessofsize,revenuegenerated,ornumberofboxes,units,oroutlets.Incalculatingthenumberofcustomers,wecountallcustomersotherthaninactive/disconnectedcustomers.Freeaccountsareincludedinthecustomercountsalongwithallactiveaccounts,buttheyarelimitedtoaprescribedgroup.Mostoftheseaccounts
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Cequel—Comparison of Actual Results for the Period December 21, 2015 through December 31, 2015 and January 1, 2015 through December 20, 2015 toActual Results for the Year Ended December 31, 2014
Pay Television Revenue
Paytelevisionrevenueamountedto$33,715and$1,083,925fortheperiodDecember21,2015throughDecember31,2015andJanuary1,2015throughDecember20,2015,respectively,comparedto$1,147,455fortheyearendedDecember31,2014.Paytelevisionrevenueforthe2015periodswasimpactedbyadeclineinpaytelevisioncustomers,decreasesinpremiumandVODpurchasesandadecreaseinconverterrentalrevenueascomparedtotheyearendedDecember31,2014.Offsettingthesedecreaseswereincreasesinrevenueresultingfromcertainrateincreases(includinganincreaseforretransmissionprogrammingandsportsprogrammingcharges),theimpactofincrementalpaytelevisionservicelevelchangesandanincreaseinHD/DVRservicerevenue.
WebelieveourvideocustomerdeclinesnotedinthetableabovearelargelyattributabletocompetitionfromDBSprovidersandfromcompaniesthatdelivervideocontentovertheInternetdirectlytocustomers.
Broadband Revenue
Broadbandrevenueamountedto$21,133and$679,961fortheperiodDecember21,2015throughDecember31,2015andJanuary1,2015throughDecember20,2015,respectively,comparedto$601,801fortheyearendedDecember31,2014.Broadbandrevenueforthe2015periodswasimpactedbyacontinuedincreaseinbroadbandcustomers,anincreaseinrates,anincreaseresultingfromtheimpactofservicelevelchangesandanincreaseinresidentialhomenetworkingrevenue.
Telephony Revenue
Telephonyrevenueamountedto$4,905and$158,916fortheperiodDecember21,2015throughDecember31,2015andJanuary1,2015throughDecember20,2015,respectively,comparedto$167,838fortheyearendedDecember31,2014.Telephonyrevenueforthe2015periodswasimpactedbylowerratesofferedtocustomers.
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arealsonotentirelyfree,astheytypicallygeneraterevenuethroughpay-per-vieworotherpayservices.Freestatusisnotgrantedtoregularcustomersasapromotion.Wecountabulkcommercialcustomer,suchasahotel,asonecustomer,anddonotcountindividualroomunitsatthathotel.Incountingbulkresidentialcustomers,suchasanapartmentbuilding,wecounteachsubscribingfamilyunitwithinthebuildingasonecustomer,butdonotcountthemasteraccountfortheentirebuildingasacustomer.
(d) Representsthenumberofcustomersthatsubscribetothreeofourservicesdividedbytotalresidentialcustomerrelationships.
(e) Representsthenumberoftotalcustomerrelationshipsdividedbyhomespassed.
(f) Calculatedbydividingtheaveragemonthlyrevenueforthefourthquarterofeachyearpresentedderivedfromthesaleofbroadband,paytelevisionandtelephonyservicestoresidentialcustomersfortherespectivequarterbytheaveragenumberoftotalresidentialcustomersforthesameperiod.
(g) ThemetricsforCequelpresentedinthetableabovehavebeenadjustedfrompreviouslyreportedamountstoconformtothemethodologyusedtocalculatetheequivalentCablevisionmetrics.
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Business Services Revenue
Businessservicesandwholesalerevenueamountedto$9,783and$314,903fortheperiodDecember21,2015throughDecember31,2015(SuccessorPeriod)andJanuary1,2015throughDecember20,2015,respectively,comparedto$288,386fortheyearendedDecember31,2014.Businessservicesandwholesalerevenuewasimpactedbyhighercommercialratesforbroadbandservices,highercommercialratesandcustomersfortelephonyservices,anincreaseinhigh-speedcommercialcarrierservicesrevenue,anincreaseincertainpaytelevisionratesincludinganincreaseforretransmissionprogrammingchargesandanincreaseinrevenuefrompremium,pay-per-viewandVODpurchases.
Advertising Revenue
Advertisingrevenueamountedto$2,642and$85,024fortheperiodDecember21,2015throughDecember31,2015andJanuary1,2015throughDecember20,2015,respectively,comparedto$101,197fortheyearendedDecember31,2014.Advertisingrevenuewasimpactedbyadeclineinnationaladvertisingsalesprimarilyfrompoliticaladvertising,localadsales,andlowerinterconnectrevenue.
Other Revenue
Otherrevenueamountedto$765and$24,640fortheperiodDecember21,2015throughDecember31,2015andJanuary1,2015throughDecember20,2015,respectively,comparedto$24,020fortheyearendedDecember31,2014.Otherrevenueincludesequipmentsales,wiremaintenancecharges,securityrevenuesandothermiscellaneousrevenuestreams.Otherrevenueforthe2015periodswasimpactedbyanincreaseintowerconstructionmanagementservicesandequipmentsalesrevenues,partiallyoffsetbyadecreaseinsitedevelopmentrevenue.
Operating expenses (excluding depreciation and amortization)
Operatingexpenses(excludingdepreciationandamortization)were$26,586,$872,308and$930,085fortheperiodDecember21,2015throughDecember31,2015,January1,2015throughDecember20,2015,andfortheyearendedDecember31,2014,respectively.Operatingexpensesincludeprogrammingcosts,broadbandcosts,telephonyservicescosts,andplantandoperatingcosts.
Programmingcostsconsistprimarilyofcostspaidtoprogrammersforbasic,digital,premium,VODandpay-per-viewprogramming.Programmingcostsforthe2015periodswereimpactedbyadecreaseinthenumberofpaytelevisioncustomersandtheremovalofViacomprogrammingfromourchannelline-up,offsetinpartbyhighercontractualrateschargedbyourprogrammingandbroadcastvendorsandthecostsofnewchannelslaunched.
Broadbandcostsprimarilyconsistofcostsforbandwidthconnectivity.Broadbandcostswereimpactedbyincreasesincircuitcoststosupportgrowthinourresidentialandcommercialbroadbandbusiness,butwereoffsetinpartbydecreasesinbackbonecostsandbroadbandcontentcosts.
Telephonyservicecosts,includingdeliveryandothercosts,forthe2015periodswereimpactedbythedecreaseinsubscriberlinecostsassociatedwithOperationReliant,describedbelow.
Plantandoperatingcostsconsistprimarilyofemployeecostsrelatedtowagesandbenefitsoftechnicalpersonnelwhomaintainourcablenetworkandprovidecustomersupport,outsidelaborcosts,vehicle,utilitiesandpolerentalexpenses.Plantandoperatingcostswereimpactedbyanincreaseinheadcount,annualsalaryincreasesandincreasedovertimelevels,anincreaseintechnicalcosts,andanincreaseincontractlabor,partiallyoffsetbyadecreaseincostsassociatedwithOperationReliant,aninitiativetoreplaceouruseofthethird-partyproviderwithourowninternalplatformandresourceswhichwascompletedin2014.
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Selling, general and administrative expenses
Selling,generalandadministrativeexpenseswere$39,166,$889,960and$546,386fortheperiodDecember21,2015throughDecember31,2015,January1,2015throughDecember20,2015,andfortheyearendedDecember31,2014,respectively.
Generalandadministrativeexpensesconsistprimarilyofwagesandbenefitsforourcallcenters,customerserviceandsupportandadministrativepersonnel;baddebtandcollectionexpenses;billing;advertising;facilitiescosts;non-cashstockcompensationexpensesandothernon-recurringexpenses.Generalandadministrativeexpensesforthe2015Predecessorperiodincluded$287,691ofshare-basedcompensationexpensesrelatedtotheprofitsinterestplan.The2015Successorperiodincluded$26,498oftransactionexpensesassociatedwiththeCequelAcquisition.Inaddition,generalandadministrativeexpensewereimpactedbysalaryandcommissionandbenefitexpenseincreases,increasesinconsultingfeesresultingfromsubscribergrowthrelatedinitiativesandanincreaseinbaddebtexpense,offsetinpartbyadecreaseinadvertisingexpense.
Marketingandsalesexpensesprimarilyconsistofwagesandbenefitsforoursalesforceandcostsformarketingandpromotionalmaterials.Marketingandsalesexpensesforthe2015periodswereimpactedbyanincreaseindirectmailadvertisingande-marketingcosts,aswellasincreasesinsalaryandcommissionexpenseincreasesforourdoortodoorsalesforce.
Corporateoverheadandmanagementfeesprimarilyconsistofwagesandbenefitsforourcorporatepersonnel,legalfees,accountingandauditfeesandothercorporateexpenses,andtransactionandacquisitionduediligenceexpenses.Corporateoverheadandmanagementfeesforthe2015Predecessorperiodswereimpactedby$67,817ofcostsrelatedtotheCequelAcquisition,aswellasincreasesincompensationandpublicrelationsexpenses.
Depreciation and Amortization
Depreciationandamortization(includingimpairments)amountedto$23,574and$533,357fortheperiodDecember21,2015throughDecember31,2015andJanuary1,2015throughDecember20,2015,respectively,comparedto$598,736fortheyearendedDecember31,2014.Depreciationandamortization(includingimpairments)forthe2015Successorperiodincludesdepreciationandamortizationrelatedtothestep-upinthecarryingvalueofproperty,plantandequipmentandamortizableintangibleassetsrecordedinconnectionwiththeCequelAcquisition.Thedecreaseindepreciationandamortizationforthe2015Predecessorperiodascomparedto2014wasprimarilyasaresultofdecreasedamortizationexpensesforcustomerrelationships,aswellasadecreaseindepreciationresultingfromassetsbeingfullydepreciated.
Adjusted EBITDA
AdjustedEBITDAamountedto$33,689and$940,609fortheperiodDecember21,2015throughDecember31,2015andJanuary1,2015throughDecember20,2015,respectively,comparedto$901,548fortheyearendedDecember31,2014.AdjustedEBITDAin2015wasimpactedbyanincreaseinrevenue,partiallyoffsetbyanincreaseinoperatingexpenses(excludingdepreciationandamortization,restructuringexpenseandotherexpensesandshare-basedcompensation),asdiscussedabove.
Interest Expense, net
Interestexpense,netamountedto$11,491and$237,319fortheperiodDecember21,2015throughDecember31,2015andJanuary1,2015throughDecember20,2015,respectively,comparedto$230,146fortheyearendedDecember31,2014.InterestexpensefortheSuccessor2015periodincludesadditionalinterestrelatedtotheindebtednessissuedtofundtheCequelAcquisition.Theinterestexpenseforthe2015Predecessorperiodascomparedtothe2014Predecessorperiodincreased
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primarilyduetoanincreaseinaveragedebtoutstandingandanincreaseinamortizationofdebtissuancecostsanddiscounts.
Income Tax Expense
Incometaxbenefit(expense)amountedto$10,263and$(29,301)fortheperiodDecember21,2015throughDecember31,2015andJanuary1,2015throughDecember20,2015,respectively,reflectinganeffectivetaxrateof37%and(16)%,respectively.Incometaxexpenseamountedto$8,095fortheyearendedDecember31,2014,reflectinganeffectivetaxrateof32%.Excludingtheimpactofnon-cashequitycompensationexpenseof$11,556andtheincometaxbenefittoeliminatetheCompany'suncertaintaxpositionof$12,984,theeffectiveratewouldhavebeen38%.
Liquidity and Capital Resources
AlticeUSAhasnooperationsindependentofitssubsidiaries,CablevisionandCequel,whicharefundedseparately.Fundingforoursubsidiarieshasgenerallybeenprovidedbycashflowfromtheirrespectiveoperations,cashonhandandborrowingsundertheirrevolvingcreditfacilitiesandtheproceedsfromtheissuanceofsecuritiesandborrowingsundersyndicatedtermloansinthecapitalmarkets.Ourdecisionastotheuseofcashgeneratedfromoperatingactivities,cashonhand,borrowingsundertherevolvingcreditfacilitiesoraccessingthecapitalmarketshasbeenbaseduponanongoingreviewofthefundingneedsofthebusiness,theoptimalallocationofcashresources,thetimingofcashflowgenerationandthecostofborrowingundertherevolvingcreditfacilities,debtsecuritiesandsyndicatedtermloans.
Weexpecttoutilizefreecashflowandavailabilityundertherevolvingcreditfacilities,aswellasfuturerefinancingtransactionstofurtherextendthematuritiesof,orreducetheprincipalon,ourdebtobligations.Thetimingandtermsofanyrefinancingtransactionswillbesubjectto,amongotherfactors,marketconditions.Additionally,wemay,fromtimetotime,dependingonmarketconditionsandotherfactors,usecashonhandandtheproceedsfromotherborrowingstorepaytheoutstandingdebtsecuritiesthroughopenmarketpurchases,privatelynegotiatedpurchases,tenderoffers,orredemptionprovisions.
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Webelieveexistingcashbalances,operatingcashflowsandavailabilityunderourrevolvingcreditfacilitieswillprovideadequatefundstosupportourcurrentoperatingplan,makeplannedcapitalexpendituresandfulfillourdebtservicerequirementsforthenexttwelvemonths.However,ourabilitytofundouroperations,makeplannedcapitalexpenditures,makescheduledpaymentsonourindebtednessandrepayourindebtednessdependsonourfutureoperatingperformanceandcashflowsandourabilitytoaccessthecapitalmarkets,which,inturn,aresubjecttoprevailingeconomicconditionsandtofinancial,businessandotherfactors,someofwhicharebeyondourcontrol.Ourcollateralizeddebtmaturinginthenext12monthswillbesettledeitherbydeliveringsharesofComcastcommonstockorbydeliveringcashfromthenetproceedsofnewmonetizationtransactions.However,competition,marketdisruptionsoradeteriorationineconomicconditionscouldleadtolowerdemandforourproducts,aswellaslowerlevelsofadvertising,andincreasedincidenceofcustomers'inabilitytopayfortheservicesweprovide.Theseeventswouldadverselyimpactourresultsofoperations,cashflowsandfinancialposition.Althoughwecurrentlybelievethatamountsavailableundertherevolvingcreditfacilitieswillbeavailablewhen,andifneeded,wecanprovidenoassurancethataccesstosuchfundswillnotbeimpactedbyadverseconditionsinthefinancialmarketsorotherconditions.Theobligationsofthefinancialinstitutionsundertherevolvingcreditfacilitiesareseveralandnotjointand,asaresult,afundingdefaultbyoneormoreinstitutionsdoesnotneedtobemadeupbytheothers.
Inthelongerterm,wedonotexpecttobeabletogeneratesufficientcashfromoperationstofundanticipatedcapitalexpenditures,meetallexistingfuturecontractualpaymentobligationsandrepayourdebtatmaturity.Asaresult,wewillbedependentuponourabilitytoaccessthecapitalandcreditmarkets.Wewillneedtoraisesignificantamountsoffundingoverthenextseveralyearstofundcapitalexpenditures,repayexistingobligationsandmeetotherobligations,andthefailuretodososuccessfullycouldadverselyaffectourbusiness.Ifweareunabletodoso,wewillneedtotakeotheractionsincludingdeferringcapitalexpenditures,sellingassets,seekingstrategicinvestmentsfromthirdpartiesorreducingoreliminatingdiscretionaryusesofcash.
Debt Outstanding
Thefollowingtablessummarizethecarryingvalueofouroutstandingdebt,netofdeferredfinancingcosts,discountsandpremiums(excludingaccruedinterest),aswellasinterestexpenseandproformainterestexpense.
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As of December 31, 2016
Cablevision Cequel Altice USA Total Altice
USA, Inc. Debt outstanding: Creditfacilitydebt $ 2,631,887 $ 812,903 $ — $ 3,444,790Seniorguaranteednotes 2,289,494 — — 2,289,494Seniorsecurednotes — 2,566,802 — 2,566,802Seniornotesanddebentures(a) 9,474,898 3,176,131 — 12,651,029Capitalleaseobligations 25,343 2,812 — 28,155Notespayable 13,726 — — 13,726Subtotal $ 14,435,348 $ 6,558,648 $ — $ 20,993,996
Notespayabletoaffiliatesandrelatedparties — — 1,750,000 1,750,000Collateralizedindebtednessrelatingtostockmonetizations(b) 1,286,069 — — 1,286,069Totaldebt $ 15,721,417 $ 6,558,648 $ 1,750,000 $ 24,030,065
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ThefollowingtableprovidesdetailsofouroutstandingcreditfacilitydebtasofDecember31,2016:
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For the year ended December 31, 2016 Cablevision Cequel Altice USA Total Interest expense: Creditfacilitydebt,seniornotes,capitalleasesandnotespayable(a) $ 534,388 $ 417,310 $ 329,050 $ 1,280,748
Notespayabletoaffiliatesandrelatedparties — — 102,557 102,557Collateralizedindebtednessrelatingtostockmonetizations(b) 73,236 — — 73,236Totalinterestexpense $ 607,624 $ 417,310 $ 431,607 $ 1,456,541
Pro forma interest expense(c): Creditfacilitydebt,seniornotes,capitalleasesandnotespayable $ 1,114,745 $ 417,531 $ — $ 1,532,276
Notespayabletoaffiliatesandrelatedparties — — 190,313 190,313Collateralizedindebtednessrelatingtostockmonetizations 71,725 — — 71,725Proformainterestexpense $ 1,186,470 $ 417,531 $ 190,313 $ 1,794,314
(a) ThetotalcarryingvalueoftheCablevisionseniornotesanddebenturesincludesareductionof$52,788toreflecttheirfairvalueonthedateoftheCablevisionAcquisition.
(b) Thecarryingvalueofthecollateralizedindebtednessincludesareductionof$9,142toreflectitsfairvalueonthedateoftheCablevisionAcquisition.ThisindebtednessiscollateralizedbysharesofComcastcommonstock.WeintendtosettlethisdebtbyeitherdeliveringsharesoftheComcastcommonstockandtherelatedequityderivativecontractsorbydeliveringcashfromthenetproceedsofnewmonetizationtransactions.
(c) Referto"UnauditedProFormaConsolidatedFinancialInformation"forproformaadjustmentsmadetointerestexpense.
Maturity Date Interest
Rate Principal Carrying Value(a) Cablevision: CSCHoldingsRevolvingCreditFacility(b) November30,2021 4.07%$ 175,256 $ 145,013CSCHoldingsTermCreditFacility(c) October11,2024 3.88% 2,500,000 2,486,874
Cequel: RevolvingCreditFacility(d) November30,2021 — — —TermCreditFacility January15,2025 3.88% 815,000 812,903
$ 3,444,790
(a) Theunamortizeddiscountsanddeferredfinancingcostsamountedto$45,466atDecember31,2016.
(b) Includes$100,256ofcreditfacilitydebtincurredtofinancetheCablevisionAcquisition.
(c) Represents$3,800,000principalamountofdebtincurredtofinancetheCablevisionAcquisition,netofprincipalrepaymentsmade.
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TheCompanyisrequiredtomakeprincipalpaymentsof$25,000undertheCSCHoldingsCreditFacilitiesand$8,150undertheCequelCreditAgreementin2017.
Payment Obligations Related to Debt
Totalamountspayablebyusinconnectionwithouroutstandingobligations(givingeffecttotheExtensionAmendmentdiscussedbelow)duringthefiveyearssubsequenttoDecember31,2016andthereafter,includingrelatedinterest,aswellasnotespayabletoaffiliatesandrelatedparties,capitalleaseobligations,notespayable,andthevaluedeliverableatmaturityundermonetizationcontractsareasfollows:
CSC Holdings Restricted Group
CSCHoldingsandthoseofitssubsidiarieswhichconductourbroadband,paytelevisionandtelephonyservicesoperations,aswellasLightpath,whichprovidesEthernet-baseddata,Internet,voiceandvideotransportandmanagedservicestothebusinessmarket,comprisethe"RestrictedGroup"astheyaresubjecttothecovenantsandrestrictionsofthecreditfacilityandindenturesgoverningthenotesanddebenturesissuedbyCSCHoldings.Inaddition,theRestrictedGroupisalsosubjecttothecovenantsofthedebtissuedbyCablevision.
SourcesofcashfortheRestrictedGroupincludeprimarilycashflowfromtheoperationsofthebusinessesintheRestrictedGroup,borrowingsunderitscreditfacilityandissuanceofsecuritiesinthecapitalmarketsand,fromtimetotime,distributionsorloansfromitssubsidiaries.TheRestrictedGroup'sprincipalusesofcashinclude:capitalspending,inparticular,thecapitalrequirementsassociatedwiththeupgradeofitsdigitalbroadband,paytelevisionandtelephonyservices(includingenhancementstoitsserviceofferingssuchasabroadbandwirelessnetwork(WiFi));debtservice,includingdistributionsmadetoCablevisiontoserviceinterestexpenseandprincipalrepaymentsonitsdebtsecurities;othercorporateexpensesandchangesinworkingcapital;andinvestmentsthatitmayfundfromtimetotime.
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(d) AtDecember31,2016,$17,031oftherevolvingcreditfacilitywasrestrictedforcertainlettersofcreditissuedonbehalfoftheCompanyand$332,969ofthefacilitywasundrawnandavailable,subjecttocovenantlimitations.
Cablevision
(a) Cequel Altice USA Total 2017 $ 2,850,745 $ 396,675 $ 286,563 $ 3,533,9832018 3,071,000 389,880 192,500 3,653,3802019 1,406,341 389,147 192,500 1,987,9882020 1,331,848 1,888,778 192,500 3,413,1262021 1,985,103 1,542,747 192,500 3,720,350Thereafter 12,063,061 4,768,747 2,231,250 19,063,058Total $ 22,708,098 $ 9,375,974 $ 3,287,813 $ 35,371,885
(a) Includedinthe2017and2018amountsis$828,759and$532,492,respectively,relatedtotheCompany'sobligationsinconnectionwithmonetizationcontractsithasenteredinto.TheCompanyhastheoption,atmaturity,todeliverthesharesofcommonstockunderlyingthemonetizationcontractsinfullsatisfactionofthematuringcollateralizedindebtednessandtherelatedderivativecontractsorobtaintherequiredcashequivalentofthecommonstockthroughnewmonetizationandderivativecontracts.
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Cablevision Credit Facilities
OnOctober9,2015,Finco,whichmergedwithandintoCSCHoldingsonJune21,2016,enteredintoaseniorsecuredcreditfacility,whichcurrentlyprovidesU.S.dollartermloanscurrentlyinanaggregateprincipalamountof$3,000,000(the"CVCTermLoanFacility",andthetermloansextendedundertheCVCTermLoanFacility,the"CVCTermLoans")andU.S.dollarrevolvingloancommitmentsinanaggregateprincipalamountof$2,300,000(the"CVCRevolvingCreditFacility"and,togetherwiththeCVCTermLoanFacility,the"CVCCreditFacilities"),whicharegovernedbyacreditfacilitiesagreemententeredintoby,interalios ,CSCHoldingscertainlenderspartytheretoandJPMorganChaseBank,N.A.asadministrativeagentandsecurityagent(asamended,restated,supplementedorotherwisemodifiedonJune20,2016,June21,2016,July21,2016,September9,2016,December9,2016andMarch15,2017,respectively,andasfurtheramended,restated,supplementedorotherwisemodifiedfromtimetotime,the"CVCCreditFacilitiesAgreement").
CSCHoldingswasincompliancewithallofitsfinancialcovenantsundertheCVCCreditFacilitiesAgreementasofDecember31,2016.InJanuary2017,CSCHoldingsborrowed$225,000underitsrevolvingcreditfacilityandinFebruary2017,madearepaymentof$175,000withcashonhand.
ForadescriptionofthetermsoftheCVCCreditFacilitiesAgreement,see"DescriptionofCertainIndebtedness"elsewhereinthisprospectus.
Cequel Credit Facilities
OnJune12,2015,AlticeUSFinanceICorporationenteredintoaseniorsecuredcreditfacilitywhichcurrentlyprovidesU.S.dollartermloansinanaggregateprincipalamountof$1,265,000(the"CequelTermLoanFacility"andthetermloansextendedundertheCequelTermLoanFacility,the"CequelTermLoans")andU.S.dollarrevolvingloancommitmentsinanaggregateprincipalamountof$350,000(the"CequelRevolvingCreditFacility"and,togetherwiththeCequelTermLoanFacility,the"CequelCreditFacilities")whicharegovernedbyacreditfacilitiesagreemententeredintoby,interalios,AlticeUSFinanceICorporation,certainlenderspartytheretoandJPMorganChaseBank,N.A.asadministrativeagentandsecurityagent(asamended,restated,supplementedorotherwisemodifiedonOctober25,2016,December9,2016andMarch15,2017,andasfurtheramended,restated,supplementedormodifiedfromtimetotime,the"CequelCreditFacilitiesAgreement").
CequelwasincompliancewithallofitsfinancialcovenantsundertheCequelCreditFacilitiesAgreementasofDecember31,2016.
ForadescriptionofthetermsoftheCequelCreditFacilitiesAgreement,see"DescriptionofCertainIndebtedness"elsewhereinthisprospectus.
Cablevision Bonds
Cablevision Notes
OnSeptember23,2009,Cablevisionissued$900,000aggregateprincipalamountofits85/8%SeniorNotesdue2017and85/8%SeriesBSeniorNotesdue2017(together,the"Cablevision2017SeniorNotes").OnApril17,2017,Cablevisionwillredeem$500,000aggregateprincipalamountofitsCablevision2017SeniorNoteswithcertainoftheproceedsofthetermloansincurredundertheCVCCreditFacilitiesAgreement,reducingtheaggregateprincipalamountofoutstandingCablevision2017SeniorNotesto$400,000.
OnApril15,2010,Cablevisionissued$750,000aggregateprincipalamountofits73/4%SeniorNotesdue2018(the"Cablevision2018SeniorNotes")and$500,000aggregateprincipalamountofits8%SeniorNotesdue2020(the"Cablevision2020SeniorNotes").OnSeptember27,2012,Cablevisionissued$750,000aggregateprincipalamountofits57/8%SeniorNotesdue2022(the"Cablevision2022
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SeniorNotes"and,togetherwiththeCablevision2017SeniorNotes,theCablevision2018SeniorNotesandtheCablevision2020SeniorNotes,the"CablevisionLegacyNotes").
AsofDecember31,2016,CablevisionwasincompliancewithallofitsfinancialcovenantsundertheindenturesunderwhichtheCablevisionLegacyNoteswereissued.
ForadescriptionofthetermsoftheCablevisionLegacyNotes,see"DescriptionofCertainIndebtedness"elsewhereinthisprospectus.
CSC Holdings, LLC Notes
CSC Holdings, LLC Senior Guaranteed Notes
OnOctober9,2015,Fincoissued$1,000,000aggregateprincipalamountofits65/8%SeniorGuaranteedNotesdue2025(the"CSC2025SeniorGuaranteedNotes").CSCHoldingsassumedtheobligationsasissueroftheCSC2025SeniorGuaranteedNotesuponthemergerofFincoandCSCHoldingsonJune21,2016.OnSeptember23,2016,CSCHoldingsissued$1,310,000aggregateprincipalamountofits51/2%SeniorGuaranteedNotesdue2027(the"CSC2027SeniorGuaranteedNotes"and,togetherwiththeCSC2025SeniorGuaranteedNotes,the"CSCSeniorGuaranteedNotes").
AsofDecember31,2016,CSCHoldingswasincompliancewithallofitsfinancialcovenantsundertheindenturesunderwhichtheCSCSeniorGuaranteesNoteswereissued.
ForadescriptionofthetermsoftheCSCSeniorGuaranteedNotes,see"DescriptionofCertainIndebtedness"elsewhereinthisprospectus.
CSC Holdings Senior Notes
OnFebruary6,1998,CSCHoldings,asasuccessorissuer,issued$300,000aggregateprincipalamountofits77/8%SeniorDebenturesdue2018(the"CSC77/8%2018SeniorDebentures").OnJuly21,1998,CSCHoldings,assuccessorissuer,issued$500,000aggregateprincipalamountofits75/8%SeniorDebenturesdue2018(the"CSC75/8%2018SeniorDebentures").OnFebruary12,2009,CSCHoldings,asasuccessorissuer,issued$526,000aggregateprincipalamountofits85/8%SeniorNotesdue2019and85/8%SeriesBSeniorNotesdue2019(together,the"CSC2019SeniorNotes").OnNovember15,2011,CSCHoldingsissued$1,000,000aggregateprincipalamountofits63/4%SeniorNotesdue2021and63/4%SeriesBSeniorNotesdue2021(together,the"CSC2021SeniorNotes").OnMay23,2014,CSCHoldingsissued$750,000aggregateprincipalamountofits51/4%SeniorNotesdue2024and51/4%SeriesBSeniorNotesdue2024(together,the"CSC2024SeniorNotes"and,togetherwiththeCSC77/8%2018SeniorDebentures,theCSC75/8%2018SeniorDebentures,theCSC2019SeniorNotesandtheCSC2021SeniorNotes,the"CSCLegacyNotes").
OnOctober9,2015,Finco,issued$1,800,000aggregateprincipalamountofits101/8%SeniorNotesdue2023(the"CSC2023SeniorNotes")and$2,000,000107/8%SeniorNotesdue2025(the"CSC2025SeniorNotes"and,togetherwiththeCSC2023SeniorNotes,the"CSCNewSeniorNotes",andtheCSCLegacyNotesandtheCSCNewSeniorNotes,collectively,the"CSCSeniorNotes").CSCHoldingsassumedtheobligationsasissueroftheCSC2023SeniorNotesuponthemergerofFincoandCSCHoldingsonJune21,2016.
AsofDecember31,2016,CSCHoldingswasincompliancewithallofitsfinancialcovenantsundertheindenturesunderwhichtheCSCSeniorNoteswereissued.
ForadescriptionofthetermsoftheCSCSeniorNotes,see"DescriptionofCertainIndebtedness"elsewhereinthisprospectus.
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Cequel Bonds
Cequel Senior Secured Notes
OnJune12,2015,AlticeUSFinanceICorporationissued$1,100,000aggregateprincipalamountofits53/8%SeniorSecuredNotesdue2023(the"Cequel2023SeniorSecuredNotes").OnApril26,2016,AlticeUSFinanceICorporationissued$1,500,000aggregateprincipalamountofits51/2%SeniorSecuredNotesdue2026(the"Cequel2026SeniorSecuredNotes"and,togetherwiththeCequel2023SeniorSecuredNotes,the"CequelSeniorSecuredNotes").
AsofDecember31,2016,CequelwasincompliancewithallofitsfinancialcovenantsundertheindenturesunderwhichtheCequelSeniorSecuredNoteswereissued.
ForadescriptionofthetermsoftheCequelSeniorSecuredNotes,see"DescriptionofCertainIndebtedness"elsewhereinthisprospectus.
Cequel Senior Notes
OnOctober25,2012,CequelCapitalCorporationandCequelCommunicationsHoldingsI,LLC(collectively,the"CequelSeniorNotesCo-Issuers")issued$500,000aggregateprincipalamountoftheir63/8%SeniorNotesdue2020(the"Cequel2020SeniorNotes").OnDecember28,2012,theCequelSeniorNotesIssuersissuedanadditional$1,000,000aggregateprincipalamountoftheirCequel2020SeniorNotes.OnApril14,2017,theCequelSeniorNotesCo-Issuerswillredeem$450,000aggregateprincipalamountoftheirCequel2020SeniorNoteswithcertainoftheproceedsofthetermloansincurredundertheCequelCreditFacilitiesAgreement,reducingtheaggregateprincipalamountofoutstandingCequel2020SeniorNotesto$1,050,000.
OnMay16,2013,theCequelSeniorNotesCo-Issuersissued$750,000aggregateprincipalamountoftheir51/8%SeniorNotesdue2021(the"Cequel2021SeniorNotes").OnSeptember9,2014,theCequelSeniorNotesCo-Issuersissued$500,000aggregateprincipalamountoftheir51/8%SeniorNotesdue2021(the"Cequel2021MirrorNotes"and,togetherwiththeCequel2020SeniorNotesandtheCequel2021SeniorNotes,the"CequelLegacyNotes").
OnJune12,2015,AlticeUSFinanceIICorporationissued$300,000aggregateprincipalamountofits73/4%SeniorNotesdue2025(the"Cequel2025SeniorNotes"and,togetherwiththeCequelLegacyNotes,the"CequelSeniorNotes").
AsofDecember31,2016,CequelwasincompliancewithallofitsfinancialcovenantsundertheindenturesunderwhichtheCequelSeniorNoteswereissued.
ForadescriptionofthetermsoftheCequelSeniorNotes,see"DescriptionofCertainIndebtedness"elsewhereinthisprospectus.
Capital Expenditures
ThefollowingtableprovidesdetailsoftheCompany'scapitalexpendituresfortheyearendedDecember31,2016(reflectingcapitalexpendituresforCablevisionfromthedateofacquisition):
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Capital Expenditures Cablevision Cequel Total Customerpremiseequipment $ 77,536 $ 85,129 $ 162,665Networkinfrastructure 91,952 83,565 175,517Supportandother 83,153 124,040 207,193Businessservices 45,716 34,450 80,166
$ 298,357 $ 327,184 $ 625,541
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ThefollowingtableprovidesdetailsoftheCompany'scapitalexpendituresonaproformabasisfortheyearsendedDecember31,2016and2015asiftheCablevisionandCequelacquisitionsoccurredasofJanuary1,2015:
Customerpremiseequipmentincludesexpendituresforset-topboxes,cablemodemsandotherequipmentthatisplacedinacustomer'shome,aswellascustomerinstallationcosts.Networkinfrastructureincludes:(i)scalableinfrastructure,suchasheadendequipment,(ii)lineextensions,suchasfiber/coaxialcable,amplifiers,electronicequipment,make-readyanddesignengineering,and(iii)upgradeandrebuild,includingcoststomodifyorreplaceexistingfiber/coaxialcablenetworks,includingenhancements.Supportandothercapitalexpendituresincludescostsassociatedwiththereplacementorenhancementofnon-networkassets,suchasofficeequipment,buildingsandvehicles.Businessservicescapitalexpendituresincludeprimarilyequipment,installation,support,andothercostsrelatedtoourfiberbasedtelecommunicationsbusiness.
Cash Flow Discussion
Continuing Operations—Altice USA
Operating Activities
Netcashprovidedbyoperatingactivitiesamountedto$1,184,455fortheyearendedDecember31,2016.Thecashprovidedbyoperatingactivitiesresultedfrom$868,827ofincomebeforedepreciationandamortization,$310,892asaresultofanincreaseinaccountspayableandotherliabilities,$78,823resultingfromanincreaseinliabilitiesrelatedtointerestrateswapcontractsand$48,399resultingfromanincreaseincurrentandotherassets,partiallyoffsetby$122,486ofnon-cashitems.
Investing Activities
NetcashusedininvestingactivitiesfortheyearendedDecember31,2016was$9,599,319.Theinvestingactivitiesconsistedprimarilyof$8,988,774paymentfortheCablevisionAcquisition,netofcashacquired,$625,541ofcapitalexpenditures,netpaymentsrelatedtootherinvestmentsof$4,608,andadditionstootherintangibleassetsof$106,partiallyoffsetbyothernetcashreceiptsof$19,710,including$13,825fromthesaleofanaffiliateinterest.
Financing Activities
NetcashprovidedbyfinancingactivitiesfortheyearendedDecember31,2016was$131,421.In2016,theCompany'sfinancingactivitiesconsistedofproceedsof$1,750,000fromtheissuanceofnotestoanaffiliatesandrelatedparties,$1,310,000fromtheissuanceofseniornotes,contributionfromstockholderof$1,246,499,netproceedsfromcollateralizedindebtednessof$36,286,andanexcesstaxbenefitrelatedtoshare-basedawardsof$31.Partiallyoffsettingtheseincreaseswerenetrepaymentsofcreditfacilitydebtof$3,623,287,distributionstoparentof$365,559,paymentsofdeferredfinancingcostsof$203,712,andprincipalpaymentsoncapitalleaseobligationsof$18,837.
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Pro Forma Capital Expenditures Year Ended December 31, 2016 Year Ended December 31, 2015 Cablevision Cequel Total Cablevision Cequel Total Customerpremiseequipment $ 145,954 $ 85,129 $ 231,083 $ 212,350 $ 105,859 $ 318,209Networkinfrastructure 241,204 83,565 324,769 312,711 127,533 440,244Supportandother 151,477 124,040 275,517 194,930 211,827 406,757Businessservices 89,853 34,450 124,303 96,405 33,227 129,632
$ 628,488 $ 327,184 $ 955,672 $ 816,396 $ 478,446 $ 1,294,842
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Monetization Contract Maturities
Monetizationcontractsrelatingto5,338,750shares(adjustedforthe2for1stocksplitinFebruary2017)ofourComcastcommonstockmaturedinAugust2016.WesettledourobligationsundertherelatedcollateralizedindebtednessbydeliveringcashfromthenetproceedsofanewmonetizationtransactionsonourComcastcommonstockthatwillmatureinAugust2018.
During2017,monetizationcontractscovering26,815,368shares(adjustedforthe2for1stocksplitinFebruary2017)ofComcastcommonstockheldbyuswillmature.WeintendtosettlesuchtransactionsbyeitherdeliveringsharesoftheComcastcommonstockandtherelatedequityderivativecontractsorbydeliveringcashfromthenetproceedsofnewmonetizationtransactions.
See"QuantitativeandQualitativeDisclosuresAboutMarketRisk"foradiscussionofourmonetizationcontracts.
Contractual Obligations and Off Balance Sheet Commitments
OurcontractualobligationsasofDecember31,2016,whichconsistprimarilyofourdebtobligationsandtheeffectsuchobligationsareexpectedtohaveonourliquidityandcashflowinfutureperiods,aresummarizedinthefollowingtable:
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Payments Due by Period
Total Year
1 Years 2 - 3
Years 4 - 5
More than 5 years Other
Offbalancesheetarrangements: Purchaseobligations(a) $ 7,136,605 $ 2,396,634 $ 3,307,915 $ 1,394,318 $ 37,738 $ —Operatingleaseobligations(b) 462,007 76,513 132,228 110,611 142,655 —Guarantees(c) 19,793 3,909 15,884 — — —Lettersofcredit(d) 114,251 220 14,297 99,734 — —
7,732,656 2,477,276 3,470,324 1,604,663 180,393 —Contractualobligationsreflectedonthebalancesheet:
Debtobligations(e) 35,341,751 3,518,226 5,630,130 7,131,749 19,061,646 —Capitalleaseobligations(f) 30,134 15,757 11,238 1,727 1,412 —Taxes(g) 7,809 — — — — 7,809
35,379,694 3,533,983 5,641,368 7,133,476 19,063,058 7,809Total $ 43,112,350 $ 6,011,259 $ 9,111,692 $ 8,738,139 $ 19,243,451 $ 7,809
(a) Purchaseobligationsprimarilyincludecontractualcommitmentswithvariousprogrammingvendorstoprovidevideoservicestoourcustomersandminimumpurchaseobligationstopurchasegoodsorservices.Futurefeespayableundercontractswithprogrammingvendorsarebasedonnumerousfactors,includingthenumberofsubscribersreceivingtheprogramming.AmountsreflectedaboverelatedtoprogrammingagreementsarebasedonthenumberofsubscribersreceivingtheprogrammingasofDecember31,2016multipliedbythepersubscriberratesorthestatedannualfee,asapplicable,containedintheexecutedagreementsineffectasofDecember31,2016.SeeNote2totheAlticeUSA,Inc.consolidatedfinancialstatementsforadiscussionofourprogramrightsobligations.
(b) Operatingleaseobligationsrepresentprimarilyfutureminimumpaymentcommitmentsonvariouslong-term,noncancelableleases,atratesnowinforce,foroffice,productionandstoragespace,
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Thetableabovedoesnotincludeobligationsforpaymentsrequiredtobemadeundermulti-yearfranchiseagreementsbasedonapercentageofrevenuesgeneratedfromvideoserviceperyear.FortheyearendedDecember31,2016,theamountoffranchisefeesandcertainothertaxesandfeesincludedasacomponentofrevenueaggregated$154,732.
Other Events
Dividends and Distributions
PursuanttothetermsoftheMergerAgreement,Cablevisionwasnotpermittedtodeclareandpaydividendsorrepurchasestock,ineachcase,withoutthepriorwrittenconsentofAlticeN.V.Inaccordancewiththeseterms,CablevisiondidnotdeclaredividendsduringtheperiodJanuary1,2016throughJune20,2016(Predecessor).
Inthefourthquarterof2016,theCompanydeclareddistributionsaggregating$445,176totheCompany'sstockholdersofwhich$365,559waspaidinthefourthquarterof2016and$79,617waspaidinthefirstquarterof2017.Thesedistributionswereusedtoredeemcertaindebtoutstandingattheparententities.InApril2017,theCompanymadeacashdistributionof$169,950totheCompany'sstockholders.
Quantitative and Qualitative Disclosures About Market Risk
Equity Price Risk
Weareexposedtomarketrisksfromchangesincertainequitysecurityprices.OurexposuretochangesinequitysecuritypricesstemsprimarilyfromthesharesofComcastcommonstockwehold.Wehaveenteredintoequityderivativecontractsconsistingofacollateralizedloanandanequitycollartohedgeourequitypriceriskandtomonetizethevalueofthesesecurities.Thesecontracts,atmaturity,areexpectedtooffsetdeclinesinthefairvalueofthesesecuritiesbelowthehedgepricepersharewhileallowingustoretainupsideappreciationfromthehedgepricepersharetotherelevantcapprice.Thecontracts'actualhedgepricespersharevarydependingonaveragestockpricesineffectatthetimethecontractswereexecuted.Thecontracts'actualcappricesvarydependingonthematurityandtermsofeachcontract,amongotherfactors.Ifanyoneofthesecontractsisterminatedpriortoitsscheduledmaturitydateduetotheoccurrenceofaneventspecifiedinthecontract,we
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andrentalspaceonutilitypoles.SeeNote7totheAlticeUSA,Inc.consolidatedfinancialstatementsforadiscussionofouroperatingleases.
(c) Includesfranchiseandperformancesuretybondsprimarilyforourcabletelevisionsystems.AlsoincludesoutstandingguaranteesprimarilybyCSCHoldingsinfavorofcertainfinancialinstitutionsinrespectofongoinginterestexpenseobligationsinconnectionwiththemonetizationofourholdingsofsharesofComcastcommonstock.Paymentsduebyperiodforthesearrangementsrepresenttheyearinwhichthecommitmentexpires.
(d) ConsistsprimarilyoflettersofcreditobtainedbyCSCHoldingsinfavorofinsuranceprovidersandcertaingovernmentalauthorities.Paymentsduebyperiodforthesearrangementsrepresenttheyearinwhichthecommitmentexpires.
(e) Includesinterestandprincipalpaymentsdueonour(i)creditfacilitydebt,(ii)seniorguaranteednotes,seniorsecurednotesandseniornotesanddebentures,(iii)notespayableand(iv)collateralizedindebtedness.SeeNotes9and10totheAlticeUSA,Inc.consolidatedfinancialstatementsforadiscussionofourlong-termdebt.
(f) Reflectstheprincipalamountofcapitalleaseobligations,includingrelatedinterest.
(g) Representstaxliabilities,includingaccruedinterest,relatingtouncertaintaxpositions.SeeNote12totheAlticeUSA,Inc.consolidatedfinancialstatementsforadiscussionofourincometaxes.
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wouldbeobligatedtorepaythefairvalueofthecollateralizedindebtednesslessthesumofthefairvaluesoftheunderlyingstockandequitycollar,calculatedattheterminationdate.AsofDecember31,2016,wedidnothaveanearlyterminationshortfallrelatingtoanyofthesecontracts.
Allofourmonetizationtransactionsareobligationsofourwholly-ownedsubsidiariesthatarenotpartoftheRestrictedGroup;however,CSCHoldingsprovidesguaranteesofthesubsidiaries'ongoingcontractpaymentexpenseobligationsandpotentialpaymentsthatcouldbedueasaresultofanearlyterminationevent(asdefinedintheagreements).Theguaranteeexposureapproximatesthenetsumofthefairvalueofthecollateralizedindebtednesslessthesumofthefairvaluesoftheunderlyingstockandtheequitycollar.Allofourequityderivativecontractsarecarriedattheircurrentfairvalueinourconsolidatedbalancesheetswithchangesinvaluereflectedinourconsolidatedstatementofoperations,andallofthecounterpartiestosuchtransactionscurrentlycarryinvestmentgradecreditratings.
Theunderlyingstockandtheequitycollarsarecarriedatfairvalueonourconsolidatedbalancesheetandthecollateralizedindebtednessiscarriedatitsprincipalvalue,netoftheunamortizedfairvalueadjustment.Thefairvalueadjustmentisbeingamortizedoverthetermoftherelatedindebtedness.Thecarryingvalueofourcollateralizedindebtednessamountedto$1,286,069atDecember31,2016.Atmaturity,thecontractsprovidefortheoptiontodelivercashorsharesofComcastcommonstock,withavaluedeterminedbyreferencetotheapplicablestockpriceatmaturity.
AsofDecember31,2016,thefairvalueandthecarryingvalueofourholdingsofComcastcommonstockaggregated$1,483,030.Assuminga10%changeinprice,thepotentialchangeinthefairvalueoftheseinvestmentswouldbeapproximately$148,303.AsofDecember31,2016,thenetfairvalueandthecarryingvalueoftheequitycollarcomponentoftheequityderivativecontractsenteredintotopartiallyhedgetheequitypriceriskofourholdingsofComcastcommonstockaggregated$2,202,anetliabilityposition.FortheyearendedDecember31,2016,werecordedanetlossof$53,696relatedtoouroutstandingequityderivativecontractsandrecordedanunrealizedgainof$141,538relatedtotheComcastcommonstockthatweheld.
Thematurity,numberofsharesdeliverableattherelevantmaturity,hedgepricepershare,andthelowestandhighestcappricesreceivedfortheComcastcommonstockmonetizedviaanequityderivativeprepaidforwardcontractaresummarizedinthefollowingtable:
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Fair Value of Equity Derivative Contracts FairvalueasofJune21,2016,netassetposition(CablevisionAcquisition) $ 51,494Changeinfairvalue,net (53,696)
FairvalueasofDecember31,2016,netliabilityposition $ (2,202)
Cap Price(c)
Hedge Price per Share(b)
# of Shares Deliverable(a) Maturity Low High 26,815,368(d) 2017 $27.98-$29.56 $ 35.42 $ 38.4316,139,868 2018 $30.84-$33.61 $ 37.01 $ 40.33
(a) Shareamountshavebeenadjustedforthe2for1stocksplitinFebruary2017.
(b) Representsthepricebelowwhichweareprovidedwithdownsideprotectionandabovewhichweretainupsideappreciation.Alsorepresentsthepriceusedindeterminingthecashproceedspayabletousatinceptionofthecontracts.
(c) Representsthepriceuptowhichwereceivethebenefitofstockpriceappreciation.
(d) Includesanequityderivativecontractrelatingto5,337,750sharesthatmaturedandwassettledinJanuary2017fromproceedsofanewmonetizationcontractcoveringanequivalentnumberofshares.
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FairValueofDebt:AtDecember31,2016,thefairvalueofourfixedratedebtof$22,405,790washigherthanitscarryingvalueof$20,557,120by$1,848,670.Thefairvalueofthesefinancialinstrumentsisestimatedbasedonreferencetoquotedmarketpricesfortheseorcomparablesecurities.OurfloatingrateborrowingsbearinterestinreferencetocurrentLIBOR-basedmarketratesandthustheirprincipalvaluesapproximatefairvalue.Theeffectofahypothetical100basispointdecreaseininterestratesprevailingatDecember31,2016wouldincreasetheestimatedfairvalueofourfixedratedebtby$1,963,908to$24,369,698.Thisestimateisbasedontheassumptionofanimmediateandparallelshiftininterestratesacrossallmaturities.
Interest Rate Risk
Interestrateriskisprimarilyaresultofexposurestochangesinthelevel,slopeandcurvatureoftheyieldcurve,thevolatilityofinterestratesandcreditspreads.Ourexposuretointerestrateriskresultsfromchangesinshort-terminterestrates.Interestrateriskexistsprimarilywithrespecttoourcreditfacilitydebt,whichbearsinterestatvariablerates.ThecarryingvalueofouroutstandingcreditfacilitydebtatDecember31,2016amountedto$3,444,790.Tomanageinterestraterisk,wehaveenteredintointerestrateswapcontractstoadjusttheproportionoftotaldebtthatissubjecttovariableandfixedinterestrates.Suchcontractseffectivelyfixtheborrowingratesonfloatingratedebttoprovideaneconomichedgeagainsttheriskofrisingratesand/oreffectivelyconvertfixedrateborrowingstovariableratestopermittheCompanytorealizelowerinterestexpenseinadeclininginterestrateenvironment.Wemonitorthefinancialinstitutionsthatarecounterpartiestoourinterestrateswapcontractsandweonlyenterintointerestrateswapcontractswithfinancialinstitutionsthatareratedinvestmentgrade.Allsuchcontractsarecarriedattheirfairmarketvaluesonourconsolidatedbalancesheet,withchangesinfairvaluereflectedintheconsolidatedstatementofoperations.
InJune2016,AlticeUSFinanceICorporationenteredintotwonewfixedtofloatinginterestrateswaps.Onefixedtofloatinginterestrateswapisconverting$750,000fromafixedrateof1.6655%tosix-monthLIBORandasecondtrancheof$750,000fromafixedrateof1.68%tosix-monthLIBOR.Theobjectiveoftheseswapsistocovertheexposureofthe2026SeniorSecuredNotestochangesinthemarketinterestrate.
Theseswapcontractsarenotdesignatedashedgesforaccountingpurposes.Accordingly,thechangesinthefairvalueoftheseinterestrateswapcontractsarerecordedthroughthestatementofoperations.FortheyearendedDecember31,2016,theCompanyrecordedalossoninterestrateswapcontractsof$72,961.
AsofDecember31,2016,ouroutstandinginterestrateswapcontractshadanaggregatefairvalueandcarryingvalueof$78,823reflectedin"liabilitiesunderderivativecontracts"inourconsolidatedbalancesheet.
Wedonotholdorissuederivativeinstrumentsfortradingorspeculativepurposes.
Critical Accounting Policies
Inpreparingitsfinancialstatements,theCompanyisrequiredtomakecertainestimates,judgmentsandassumptionsthatitbelievesarereasonablebasedupontheinformationavailable.Theseestimatesandassumptionsaffectthereportedamountsofassetsandliabilitiesatthedateofthefinancialstatementsandthereportedamountsofrevenuesandexpensesduringtheperiodspresented.Thesignificantaccountingpolicies,whichwebelievearethemostcriticaltoaidinfullyunderstandingandevaluatingourreportedfinancialresults,includethefollowing:
Business Combinations
TheCompanyappliedbusinesscombinationaccountingfortheCablevisionAcquisitionandtheCequelAcquisition.Businesscombinationaccountingrequiresthattheassetsacquiredandliabilities
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assumedberecordedattheirrespectiveestimatedfairvaluesatthedateofacquisition.Theexcesspurchasepriceoverfairvalueofthenetassetsacquiredisrecordedasgoodwill.Indeterminingestimatedfairvalues,wearerequiredtomakeestimatesandassumptionsthataffecttherecordedamounts,including,butnotlimitedto,expectedfuturecashflows,discountrates,remainingusefullivesoflong-livedassets,usefullivesofidentifiedintangibleassets,replacementorreproductioncostsofpropertyandequipmentandtheamountstoberecoveredinfutureperiodsfromacquirednetoperatinglossesandotherdeferredtaxassets.Ourestimatesinthisareaimpact,amongotheritems,theamountofdepreciationandamortization,impairmentchargesincertaininstancesiftheassetbecomesimpaired,andincometaxexpenseorbenefitthatwereport.Ourestimatesoffairvaluearebaseduponassumptionsbelievedtobereasonable,butwhichareinherentlyuncertain.SeeNote3forasummaryoftheapplicationofbusinesscombinationaccounting.
Impairment of Long-Lived and Indefinite-Lived Assets
TheCompany'slong-livedandindefinite-livedassetsatDecember31,2016includegoodwillof$7,992,700,otherintangibleassetsof$19,372,725($13,020,081ofwhichareindefinite-livedintangibleassets),and$6,597,635ofproperty,plantandequipment.Suchassetsaccountedforapproximately93%oftheCompany'sconsolidatedtotalassets.Goodwillandidentifiableindefinite-livedintangibleassets,whichprimarilyrepresenttheCompany'scabletelevisionfranchisesaretestedannuallyforimpairmentduringthefourthquarter("annualimpairmenttestdate")andupontheoccurrenceofcertaineventsorsubstantivechangesincircumstances.
TheCompanyisoperatedastworeportingunitsforthegoodwillimpairmenttestandtwounitsofaccountingfortheindefinite-livedassetimpairmenttest.Weassessqualitativefactorsandotherrelevanteventsandcircumstancesthataffectthefairvalueofthereportingunitanditsidentifiableindefinite-livedintangibleassets,suchas:
• macroeconomicconditions;
• industryandmarketconditions;
• costfactors;
• overallfinancialperformance;
• changesinmanagement,strategyorcustomers;
• relevantspecificeventssuchasachangeinthecarryingamountofnetassets,amore-likely-than-notexpectationofsellingordisposingall,oraportion,ofareportingunitorunitofaccounting;and
• sustaineddecreaseinshareprice,asapplicable.
TheCompanyassessesthesequalitativefactorstodeterminewhetheritisnecessarytoperformthetwo-stepquantitativegoodwillimpairmenttest.ThisquantitativetestisrequiredonlyiftheCompanyconcludesthatitismorelikelythannotthatthereportingunit'sfairvalueislessthanitscarryingamount.
Whenthequalitativeassessmentisnotused,orifthequalitativeassessmentisnotconclusive,theCompanyisrequiredtodeterminegoodwillimpairmentusingatwo-stepprocess.Thefirststepofthegoodwillimpairmenttestisusedtoidentifypotentialimpairmentbycomparingthefairvalueofthereportingunitwithitscarryingamount,includinggoodwillutilizinganenterprise-valuebasedpremiseapproach.Ifthecarryingamountofthereportingunitexceedsitsfairvalue,thesecondstepofthegoodwillimpairmenttestisperformedtomeasuretheamountofimpairmentloss,ifany.Thesecondstepofthegoodwillimpairmenttestcomparestheimpliedfairvalueofthereportingunit'sgoodwillwiththecarryingamountofthatgoodwill.Ifthecarryingamountofthereportingunit'sgoodwillexceedstheimpliedfairvalueofthatgoodwill,animpairmentlossisrecognizedinanamountequalto
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thatexcess.Theimpliedfairvalueofgoodwillisdeterminedinthesamemannerastheamountofgoodwillthatwouldberecognizedinabusinesscombination.
TheCompanyassessesthequalitativefactorsdiscussedabovetodeterminewhetheritisnecessarytoperformtheone-stepquantitativeidentifiableindefinite-livedintangibleassetsimpairmenttest.ThisquantitativetestisrequiredonlyiftheCompanyconcludesthatitismorelikelythannotthataunitofaccounting'sfairvalueislessthanitscarryingamount.Whenthequalitativeassessmentisnotused,orifthequalitativeassessmentisnotconclusive,theimpairmenttestforidentifiableindefinite-livedintangibleassetsrequiresacomparisonoftheestimatedfairvalueoftheintangibleassetwithitscarryingvalue.Ifthecarryingvalueoftheintangibleassetexceedsitsfairvalue,animpairmentlossisrecognizedinanamountequaltothatexcess.AtDecember31,2016theCompanyhadindefinite-livedcabletelevisionfranchisesof$13,020,081($8,113,575atCablevisionand$4,906,506atCequel),reflectingagreementswehavewithstateandlocalgovernmentsthatallowustoconstructandoperateacablebusinesswithinaspecifiedgeographicareaandallowustosolicitandservicepotentialcustomersintheserviceareasdefinedbythefranchiserightscurrentlyheldbytheCompany.
Forotherlong-livedassets,includingintangibleassetsthatareamortizedsuchascustomerrelationshipsandtradenames,theCompanyevaluatesassetsforrecoverabilitywhenthereisanindicationofpotentialimpairment.Iftheundiscountedcashflowsfromagroupofassetsbeingevaluatedislessthanthecarryingvalueofthatgroupofassets,thefairvalueoftheassetgroupisdeterminedandthecarryingvalueoftheassetgroupiswrittendowntofairvalue.
InassessingtherecoverabilityoftheCompany'sgoodwillandotherlong-livedassets,theCompanymustmakeassumptionsregardingestimatedfuturecashflowsandotherfactorstodeterminethefairvalueoftherespectiveassets.Theseestimatesandassumptionscouldhaveasignificantimpactonwhetheranimpairmentchargeisrecognizedandalsothemagnitudeofanysuchcharge.Fairvalueestimatesaremadeataspecificpointintime,basedonrelevantinformation.Theseestimatesaresubjectiveinnatureandinvolveuncertaintiesandmattersofsignificantjudgmentsandthereforecannotbedeterminedwithprecision.Changesinassumptionscouldsignificantlyaffecttheestimates.Estimatesoffairvalueareprimarilydeterminedusingdiscountedcashflowsandcomparablemarkettransactions.Thesevaluationsarebasedonestimatesandassumptionsincludingprojectedfuturecashflows,discountrate,determinationofappropriatemarketcomparablesanddeterminationofwhetherapremiumordiscountshouldbeappliedtocomparables.Thesevaluationsalsoincludeassumptionsforaverageannualrevenuepercustomer,numberofhomespassed,operatingmarginandmarketpenetrationasapercentageofhomespassed,amongotherassumptions.Further,theprojectedcashflowassumptionsconsidercontractualrelationships,customerattrition,eventualdevelopmentofnewtechnologiesandmarketcompetition.Iftheseestimatesormaterialrelatedassumptionschangeinthefuture,theCompanymayberequiredtorecordimpairmentchargesrelatedtoitslong-livedassets.
Duringthefourthquarterof2016,theCompanyassessedthequalitativefactorsdescribedabovetodeterminewhetheritwasnecessarytoperformthetwo-stepquantitativegoodwillimpairmenttestandconcludedthatitwasnotmorelikelythannotthatthereportingunit'sfairvaluewaslessthanitscarryingamount.TheCompanyalsoassessedthesequalitativefactorstodeterminewhetheritwasnecessarytoperformtheone-stepquantitativeidentifiableindefinite-livedintangibleassetsimpairmenttestandconcludedthatitwasnotmorelikelythannotthattheunitofaccounting'sfairvaluewaslessthanitscarryingamount.
Valuation of Deferred Tax Assets
DeferredtaxassetshaveresultedprimarilyfromtheCompany'sfuturedeductibletemporarydifferencesandnetoperatinglosscarryforwards("NOLs").Inassessingtherealizabilityofdeferredtaxassets,managementconsiderswhetheritismorelikelythannotthatsomeportionorallofthedeferredtaxassetwillnotberealized.Inevaluatingtheneedforavaluationallowance,managementtakesintoaccountvariousfactors,includingtheexpectedleveloffuturetaxableincome,availabletax
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planningstrategiesandreversalsofexistingtaxabletemporarydifferences.Ifsuchestimatesandrelatedassumptionschangeinthefuture,theCompanymayberequiredtorecordadditionalvaluationallowancesagainstitsdeferredtaxassets,resultinginadditionalincometaxexpenseintheCompany'sconsolidatedstatementofoperations.Managementevaluatestherealizabilityofthedeferredtaxassetsandtheneedforadditionalvaluationallowancesquarterly.PursuanttotheCablevisionAcquisitionandCequelAcquisition,deferredtaxliabilitiesresultingfromthebookfairvalueadjustmentincreasedsignificantlyandfuturetaxableincomethatwillresultfromthereversalofexistingtaxabletemporarydifferencesforwhichdeferredtaxliabilitiesarerecognizedissufficienttoconcludeitismorelikelythannotthattheCompanywillrealizeallofitsgrossdeferredtax,exceptthosedeferredtaxassetsagainstwhichavaluationallowancehasbeenrecordedwhichrelatetocertainstateNOLs.TheCompanyincreasedthevaluationallowanceby$86fortheperiodJanuary1,2016throughJune20,2016andincreasedthevaluationallowanceby$297fortheperiodJune21,2016throughDecember31,2016.During2016,certainstateNOLseitherexpiredorcouldnotbeutilizedinthefuture.ThedeferredtaxassetcorrespondingtotheexpiredNOLshadbeenfullyoffsetbyavaluationallowance.Theassociateddeferredtaxassetandvaluationallowancewerebothreducedby$3,368in2016.
Plant and Equipment
CostsincurredintheconstructionoftheCompany'scablesystems,includinglineextensionsto,andupgradeof,theCompany'sHFCinfrastructure,initialplacementofthefeedercabletoconnectacustomerthathadnotbeenpreviouslyconnected,andheadendfacilitiesarecapitalized.Thesecostsconsistofmaterials,subcontractorlabor,directconsultingfees,andinternallaborandrelatedcostsassociatedwiththeconstructionactivities.TheinternalcoststhatarecapitalizedconsistofsalariesandbenefitsoftheCompany'semployeesandtheportionoffacilitycosts,includingrent,taxes,insuranceandutilities,thatsupportstheconstructionactivities.Thesecostsaredepreciatedovertheestimatedlifeoftheplant(10to25years)andheadendfacilities(4to25years).Costsofoperatingtheplantandthetechnicalfacilities,includingrepairsandmaintenance,areexpensedasincurred.
Costsassociatedwiththeinitialdeploymentofnewcustomerpremiseequipmentnecessarytoprovidebroadband,paytelevisionandtelephonyservicesarealsocapitalized.Thesecostsincludematerials,subcontractorlabor,internallabor,andotherrelatedcostsassociatedwiththeconnectionactivities.Thedepartmentalactivitiessupportingtheconnectionprocessaretrackedthroughspecificmetrics,andtheportionofdepartmentalcoststhatiscapitalizedisdeterminedthroughatimeweightedactivityallocationofcostsincurredbasedontimestudiesusedtoestimatetheaveragetimespentoneachactivity.TheseinstallationcostsareamortizedovertheestimatedusefullivesoftheCPEnecessarytoprovidebroadband,paytelevisionandtelephonyservices.IncircumstanceswhereCPEtrackingisnotavailable,theCompanyestimatestheamountofcapitalizedinstallationcostsbasedonwhetherornotthebusinessorresidencehadbeenpreviouslyconnectedtothenetwork.Theseinstallationcostsaredepreciatedovertheirestimatedusefullifeof4-8years.TheportionofdepartmentalcostsrelatedtodisconnectingservicesandremovingCPEfromacustomer,costsrelatedtoconnectingCPEthathasbeenpreviouslyconnectedtothenetworkandrepairandmaintenanceareexpensedasincurred.
Theestimatedusefullivesassignedtoourproperty,plantandequipmentarereviewedonanannualbasisormorefrequentlyifcircumstanceswarrantandsuchlivesarerevisedtotheextentnecessaryduetochangingfactsandcircumstances.Anychangesinestimatedusefullivesarereflectedprospectively.
RefertoNote2toourconsolidatedfinancialstatementsforadiscussionofouraccountingpolicies.
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Legal Contingencies
TheCompanyispartytovariouslawsuitsandproceedingsandissubjecttootherclaimsthatariseintheordinarycourseofbusiness,someinvolvingclaimsforsubstantialdamages.TheCompanyrecordsanestimatedliabilityfortheseclaimswhenmanagementbelievesthelossfromsuchmattersisprobableandreasonablyestimable.TheCompanyreassessestheriskoflossasnewinformationbecomesavailableandadjustsliabilitiesasnecessary.Theactualcostofresolvingaclaimmaybesubstantiallydifferentfromtheamountoftheliabilityrecorded.RefertoNote16toourconsolidatedfinancialstatementsforadiscussionofourlegalcontingencies.
Equity Awards
CertainemployeesoftheCompanyanditsaffiliatesreceivedawardsofunitsinacarriedunitplanofanentitywhichhasanownershipinterestintheCompany.TheCompanymeasuresthecostofemployeeservicesreceivedinexchangeforcarriedunitsbasedonthefairvalueoftheawardatgrantdate.Inadditionthecarriedunitsarepresentedastemporaryequityonourconsolidatedbalancesheetatfairvalue.Anoptionpricingmodelisusedtocalculatethefairvalueofcarriedunitswhichrequiressubjectiveassumptionsforwhichchangesintheseassumptionscouldmateriallyaffectthefairvalueofthecarriedunitsoutstanding.Significantassumptionsincludeequityvolatility,riskfreerate,timetoliquidityevent,anddiscountforlackofmarketability.Theweightedaveragegrantdatefairvalueoftheoutstandingunitsis$0.37pershareandthefairvaluewas$1.76pershareasofDecember31,2016.FortheyearendedDecember31,2016,theCompanyrecognizedanexpenseof$14,368relatedtothepushdownofshare-basedcompensationrelatedtothecarriedunitplanandtheredeemableequityonourbalancesheetatDecember31,2016was$68,147.SeeNote14toourconsolidatedfinancialstatementsforafurtherdiscussionofourcarriedunitplanawards.
Recently Issued But Not Yet Adopted Accounting Pronouncements
InJanuary2017,theFinancialAccountingStandardsBoard("FASB")issuedAccountingStandardsUpdate("ASU")No.2017-04,Intangibles—GoodwillandOther(Topic350).ASUNo.2017-04simplifiesthesubsequentmeasurementofgoodwillbyremovingthesecondstepofthetwo-stepimpairmenttest.Theamendmentrequiresanentitytoperformitsannual,orinterimgoodwillimpairmenttestbycomparingthefairvalueofareportingunitwithitscarryingamount.Anentitystillhastheoptiontoperformthequalitativeassessmentforareportingunittodetermineifthequantitativeimpairmenttestisnecessary.ASUNo.2017-04becomeseffectiveforusonJanuary1,2020withearlyadoptionpermittedandwillbeappliedprospectively.
InJanuary2017,theFASBissuedASUNo.2017-01,BusinessCombinations(Topic805),ClarifyingtheDefinitionofaBusiness,whichamendsTopic805tointerpretthedefinitionofabusinessbyaddingguidancetoassistinevaluatingwhethertransactionsshouldbeaccountedforasacquisitions(ordisposals)ofassetsorbusinesses.ThenewguidancebecomeseffectiveforusonJanuary1,2019withearlyadoptionpermittedandwillbeappliedprospectively.
InJanuary2016,theFASBissuedASUNo.2016-01,FinancialInstruments—Overall(Subtopic825-10),RecognitionandMeasurementofFinancialAssetsandFinancialLiabilities.ASUNo.2016-01modifieshowentitiesmeasurecertainequityinvestmentsandalsomodifiestherecognitionofchangesinthefairvalueoffinancialliabilitiesmeasuredunderthefairvalueoption.Entitieswillberequiredtomeasureequityinvestmentsthatdonotresultinconsolidationandarenotaccountedforundertheequitymethodatfairvalueandrecognizeanychangesinfairvalueinnetincome.Forfinancialliabilitiesmeasuredusingthefairvalueoption,entitieswillberequiredtorecordchangesinfairvaluecausedbyachangeininstrument-specificcreditrisk(owncreditrisk)separatelyinothercomprehensiveincome.ASUNo.2016-01becomeseffectiveforusonJanuary1,2018.WehavenotyetcompletedtheevaluationoftheeffectthatASUNo.2016-01willhaveonourconsolidatedfinancialstatements.
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INDUSTRY OVERVIEW
BroadbandcommunicationsandvideoservicescompaniesintheUnitedStatesaretypicallyfullyintegratedprovidersofcabletelevision,broadbandInternetaccessandtelephonyservicestoresidentialandB2Bcustomers.ThesecompaniesalsoprovideadditionalservicestotheirB2Bcustomers,includingvalue-addedmanagedservicesforSMBsandwholesaledataaccessandtransportforlargerenterprisecustomers.
Key Industry Trends
Demand for Broadband
Increasingusageofbandwidth-intensivedevicesandapplicationssuchasHDtelevision,onlinevideostreaming,contentdownloadingfortime-shiftedvideoconsumptionandcontentdeliveredOTThasbeendrivingdemandforhigh-speedbroadbandInternet.Asaresult,broadbandcommunicationsandvideoservicesprovidershavebeenfocusingonprovidinggreaterspeeds,networkcapacityandnetworkreliabilitytotheircustomersinordertocapturetherevenueopportunityassociatedwithprovidinghigh-speedbroadbandaccess.Thisisdrivinggreaterinvestmentsinnext-generationnetworktechnologiessuchasFTTHandDOCSIS3.1.
Therapidadoptionofsmartphones,Wi-Fienabledlaptopsandotherconnecteddevicesisdrivingdemandforfixedwirelessbroadband.Inordertofacilitateaccesstovideoanddatacontentfortheircustomers,broadbandcommunicationsandvideoservicesprovidersarealsodeployingWi-Fihotspotsacrosstheirnetworkfootprint,enablingtheseoperatorstoleveragetheirwirelinefootprinttoprovidefixedwirelessbroadbandaccesstosubscribers.
Mobilenetworkoperatorsarecurrentlyplanningondeployingnext-generation"5G"wirelessnetworksthatwillenabletheirsubscriberstodownloaddataatspeedscloseto1Gbpsandpotentiallycreateabroadbandcompetitortofixedwirelinenetworks.However,these5Gnetworksareexpectedtorequireafixedwirelineinfrastructurethatcaneffectivelybackhauldataaswellasoffloadasubstantialamountofdatathatcurrentlygoesovermobilenetworks.Thisprovidesbroadbandcommunicationsandvideoservicesproviderstheopportunitytousetheirwirelineandfibernetworkstoofferbackhaulanddataoffloadingformobileoperators.Giventhis"fixed-mobile"convergence,aFTTHnetworkmayenableabroadbandcommunicationsandvideoservicesprovidertosupporta5Gwirelessnetwork.
Thecontinuouslygrowingdemandforbroadbandaccess,importanceofWi-Fihotspotsandexpectedneedforafiberfootprintfor5GnetworkdeploymentsallhighlightthebenefitsofaFTTHnetworktobroadbandcommunicationsandvideoservicesprovidersseekingtocapitalizeonthesetrends.
Programming Cost Increases and Greater Quality and Availability of Content
Inrecentyears,thecostofprogramminginthecableandsatellitevideosectorshasincreasedsignificantlyandisexpectedtocontinuetoincrease,particularlywithrespecttocostsforsportsprogrammingandbroadcastnetworks.Thisisduetoavarietyoffactorsincludingannualincreasesimposedbyprogrammersandstationsandadditionalprogrammingbeingprovidedtocustomers,includingHD,digital,andVODprogramming.Additionally,thishascoincidedwithasignificantincreaseinthequalityofprogrammingfromhighproductionvalueoriginalcableseriestoenhancedcameraandstatisticaldatatechnologyinsportsbroadcasts.Customersalsohaveaccesstosignificantlymoreandincreasinglydiversecontentthroughthevariouspackagesandbundles,someofwhichareofferedthroughdigitalInternet-baseddeliveryplatforms(e.g.,OTT)and/ordirectlyfromcontentowners,suchasHBO,CBSandNickelodeon.Theproliferationofcontentavailablefromnewsourcesthroughconnecteddevicesandthechangingconsumptionpatternsofconsumershashadanumberofeffects,suchascausingsomeuserstomoveintosmallerbundles(eveninsomecasesawayfrompay
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televisionto"data-only"plans)andcreatingadditionalopportunitiesforbroadbandcommunicationsandvideoservicesproviderstosellthesenewproducts.
Paytelevisionisalowermarginbusinessthanbroadbandduetothehighcostofprogramming,theneedforset-topboxes,higherinstallationcostsrelativetootherservicesandthedisproportionatelyhighcontributionofpaytelevisiontototalcustomerservicecalls.Theseeffectscanbemitigatedifasubscribermovestoadata-onlyplanatahigher-pricedbroadbandtierinordertoaccommodatetheshifttomoreInternet-basedconsumptionofvideo.Asaresult,broadbandcommunicationsandvideoservicesprovidershavebeenfocusingonbroadbandcustomersandhavestartedtosellsuchsubscribersmoreInternet-basedvideoservices.Thishasresultedinrecentincreasesindatasubscribersevenaspaytelevisionsubscriptionshavebeendeclining.
Move Towards IP-Based Delivery of Content
Duetotherapidlyincreasingadoptionofmobile,tablet,andPCdevicesforcontentconsumptionbysubscribers,broadbandcommunicationsandvideoservicesprovidersarelookingtomakevideocontentavailableforconsumptionacrosssuchconnecteddevices.Thisdistributionmodel,called"TVEverywhere,"necessitatesanIP-baseddeliveryofvideo.ThemovetowardsIP-baseddeliveryofvideohasalsobeendrivenbytheemergenceofOTTplatformsthatleverageIP-baseddeliveryofcontenttocustomers.Availabilityofvideocontentacrossanymobile,tablet,andPCdevicehighlightstheimportanceofawidespreadWi-Finetworkthatwillallowcustomerstoefficientlyaccessdata-intensivevideocontentfrommultiplelocations.
IP-basedcontentdeliveryisallowingbroadbandcommunicationsandvideoservicesproviderstoinnovateandprovideintuitive,easy-to-accessuserinterfacesaswellasmoreadvancedcustomer-premiseequipment.
Consolidation in the Cable Sector
Cablenetworkshaveahighcostofdeployment,makingitnecessarytoachieveeconomiesofscaletocreatelowercostspercustomerandincreaseoperatingmargins.Giventhiscoststructureevolutionandthesimilarlycapitalintensivenatureofbroadbandnetworks,scaleisalsoimportantforbroadbandcommunicationsproviders.Asaresult,therehasbeensignificantconsolidationamongbroadbandcommunicationsproviderswithmorethan15transactionswithinthepasttenyears.AsofDecember31,2016,thetopfourbroadbandcommunicationsprovidershadagreaterthan85%marketshareintheUnitedStatesacrosspaytelevision,broadbandandtelephonyservices.
U.S. MVPDs segment market shares
Source:S&PGlobalMarketIntelligence,2016
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Trends Across Key Product Segments
Broadband
Broadbandhasbecomeoneofthefastestgrowingproductsincommunicationsservices,drivenbyincreasingdemandfromresidentialcustomersforfasterInternetaccessandforbandwidth-intensiveservicessuchasvideostreaming,contentdownloadingfortime-shiftedvideoconsumptionandotherapplicationsdeliveredoverOTTplatformssuchasAmazon,Hulu,NetflixandYouTube.TheU.S.residentialbroadbandmarkethadanestimatedtotalsizeof$35billionasofMay2016,withanestimatedpenetrationof76%oftotalU.S.householdsasofthefourthquarterof2016.Weexpectthisgrowingbroadbandadoptionandthemigrationofcustomerstohigher-priced,higher-speedtierstocontinue.
Residential wireline broadband penetration of U.S. households units
Source:S&PGlobalMarketIntelligence,2016
DemandforbroadbandbyB2Bcustomersisgrowingrapidlyaswell,duetoseculartrendssuchascloudcomputing,e-commerce,theincreasingimportanceof"BigData"andthe"InternetofThings".TheU.S.commercialbroadbandmarkethasanestimatedtotalsizeof$8billionandisexpectedtogrowatacompoundannualgrowthrate("CAGR")of7.3%from2016to2026,fasterthantheprojectedgrowthrateforresidentialbroadbandInternet,whichisexpectedtogrowataCAGRof2.9%from2016to2026.
TheprimarybroadbandInternetaccesstechnologiesareFTTH,HFCandDSL,withHFCbeingtheleadingplatformrepresentingapproximately63%ofthemarketasofNovember2016.Webelieveincreasingdemandforhigher-speedbroadbandInternettosupportadvancedapplicationsrequiringhigherbandwidthandgreaterdownloadspeedsoffersasizablegrowthopportunityforcableandfiber-basedtechnologiesinthenearterm.
U.S. broadband subscribers by technology and service provider (Share of total subscribers)
Source:S&PGlobalMarketIntelligence,2016
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ThestronggrowthincablebroadbandsubscribershaslargelybeenattheexpenseoftheDSLsector,whichhaslostsubscriberstocableasthesubscribersseekfasterdownloadspeeds.BroadbandcommunicationsandvideoservicesprovidersarenowupgradingtothenewDOCSIS3.1standard,enablinghigherspectralefficiencyandsupportingupto10Gbpsdownloadand1Gbpsuploadspeeds.
Broadband net subscriber additions (thousands)
ExistingDSLinfrastructureoffersconsumersmaximumspeedsof45Mbps.ThespeedsactuallyprovidedbyDSLare,formostusers,lowerthantheheadlinemaximumspeedpossibleduetothedistancebetweentheendusers'premisesandDSLhubs.MostDSL-basedoperatorswilllikelyneedtomakesubstantialinvestmentsinfibertechnologiestobeabletosupportfuturedemand.
Giventhecontinuedgrowthindataconsumptionandincreasesinbroadbandpenetration,webelieveowningaFTTHnetworkwillbeastrategicdifferentiatorforbroadbandcommunicationsandvideoservicesproviderssinceFTTHiscapableofcost-efficientlyscalingtosupportdatademandoverthelongerterm.WhileFTTHcommonlysupportsspeedsofbetween100Mbpsand1Gbpsitiscapableofsupportingmorethan10Gbps.FTTHiscurrentlyprimarilyofferedbyVerizonaspartofitsFiOSofferingandAT&TthroughitsU-Verseoffering.
ForSMBcustomers,providerstypicallyofferbroadbandaswellasEthernet,datatransportandIP-basedvirtualprivatenetworks.Forlargerenterprisecustomers,thesecompaniestypicallyofferhighercapacitydataservices,includingwideareanetworkinganddedicateddataaccess,andadvancedservicessuchaswirelessmeshnetworks.Broadbandcommunicationsandvideoservicesprovidersalsoofferwholesaletransportservicestomobilenetworkoperatorsforcelltowerbackhaulandtocommunicationscompaniestoconnecttocustomersthattheirownnetworksdonotreach.
Pay Television
CableistheleadingplatformtodistributepaytelevisionintheUnitedStates,serving77%oftotalU.S.householdsasofDecember31,2016.CompetingtechnologiesanddeliverysystemsincludeDBSoperators,videodeliveredbycommunicationscompaniesandvideodelivereddirectlyovertheInternet.Webelievecablehascertainadvantagesoverthesetechnologies,notablyintermsofavailabilityofinteractivefeatures,imagequalityandnumberofchannels.
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Q4'14 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Q3'16 Q4'16 Netadditionsbycablecompanies 888 1,183 493 897 1,219 1,279 620 934 1,003Netadditionsbycommunicationcompanies 7 314 (147) (131) (41) 16 (338) (195) (150)
Combinednetadditions 945 1,497 346 766 1,178 1,294 282 740 853
Source:S&PGlobalMarketIntelligence,2016
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Residential multi-channel penetration of U.S. occupied household units
Source:S&PGlobalMarketIntelligence,2016
2016 U.S. pay television by technology and provider ( Share of total pay television subscribers )
Source:Management'sestimates
Servicesprovidedviacablenetworksarecharacterizedbyeasy-to-usetechnology,efficientinstallationofcustomerequipmentandthereliabilityofaprotectedsignaldelivereddirectlytothehome.Giventhetrendtowardsofferingbundledpaytelevision,broadbandandtelephonyservices,broadbandcommunicationsandvideoservicesproviders'marketshareisexpectedtobenefitfromtheirabilitytodeliverhigh-bandwidth,triple-playservices.
DBSoperatorsdistributedigitalsignalsnationallyviasatellitedirectlytotelevisionviewers.Toreceiveprogrammingdistributedviasatellite,viewersrequireasatellitedish,asatellitereceiverandaset-topbox.Satellitedistributionhasseveralcompetitiveadvantagesovercabletelevisionservicesincertaingeographicareas,particularlyinruralareas.However,giventhelackofanintegratedreturnpath,DBSoperatorshavestruggledtodelivereasy-to-handleinteractivetelevisionservices,includingVODservices,tosubscriberswhodonothaveabroadbandInternetconnection.
VideoservicesdeliveredoverDSLnetworkspresentanumberofdisadvantagescomparedtocable.Inparticular,addingtelevisionservicesoveraDSLnetworkstrainsthenetworkanddecreasestheamountofcapacityavailableforotherserviceofferings,particularlybandwidth-intensivebroadbandInternet.Givencurrentlyavailabletechnology,webelieveDSL-basedtriple-playproviderswillhavedifficultyprovidingthesamelevelofservicesthatcanbeprovidedoverHFCorfibernetworks(inparticular,forHDTV,viewingoftelevisionandVODonmultiplescreens,televisionandVODsimultaneousviewingandrecording).
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Telephony Services
TraditionalswitchedvoicelineshavebeendecliningsteadilyinrecentyearsastheyarereplacedbyVoIPlines.Thistrendhasbeenmorepronouncedforcommunicationscompanieswhilecableoperatorshavebeenabletomaintaintheirsubscriberbasebybundlingthefixed-lineserviceintobundledservicepackages.
U.S. telephony net subscribers additions (thousands)
BroadbandcommunicationsandvideoservicesprovidersofferB2Bcustomersenterpriseclasstelephoneserviceswhichincludetraditionalmulti-linephoneserviceoverDOCSISandtrunkingsolutionsaswellasoptionaladd-onservices,suchasinternationalcalling,tollfreecallingandvirtualreceptionists.
B2B Trends in Other Services
Value-added,managedservicesprovidedbybroadbandcommunicationsandvideoservicesproviderstoB2Bcustomersincludebusinesse-mail,hostedprivatebranchexchange,webspacestorage,networksecuritymonitoring,managedWi-Fi,manageddesktopandserverbackupandmanagedcollaborationservicesincludingaudioandwebconferencing.
WithdeploymentsofDOCSIS3.1andPassiveOpticalNetworks,broadbandcommunicationsandvideoservicesprovidersareabletodeliverbroadbandservicesatspeedsofupto1Gbpstovirtuallyanybusinessormulti-tenantofficebuildingandupto100Gbpswithservicelevelagreementsforenterpriseclasscustomers.SuchcapabilitiescreateopportunitiesinvirtuallytheentireU.S.managedservicesmarketforbroadbandcommunicationsandvideoservicesproviders.Overthelastfewyears,broadbandcommunicationsandvideoservicesprovidershavesuccessfullytakenmarketshareintheSMBsegmentfromcommunicationscompaniesandarenowlookingtocompeteforlargerenterprisecustomersbyprovidingaportfolioofservicesthatincludebroadband,Ethernet,telephony,networksecurity,businesscontinuityandWi-Fi.
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Q4'14 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Q3'16 Q4'16 Telephonynetadditionsbycablecompanies 532 449 275 298 660 427 151 26 160
Telephonynetadditionsbycommunicationcompanies (1,011) (941) (817) (1,062) (987) (970) (956) (884) (799)
Combinednetadditions (480) (482) (542) (764) (327) (543) (805) (859) (639)
Source:S&PGlobalMarketIntelligence,2016
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BUSINESS
Overview
AlticeUSAisoneofthelargestbroadbandcommunicationsandvideoservicesprovidersintheUnitedStates.Wedeliverbroadband,paytelevision,telephonyservices,Wi-Fihotspotaccess,proprietarycontentandadvertisingservicestoapproximately4.9millionresidentialandbusinesscustomers.Ourfootprintextendsacross21statesthroughafiber-richbroadbandnetworkwithmorethan8.5millionhomespassedasofDecember31,2016.AstheU.S.businessofAlticeN.V.,wearedrivenatalllevelsbythe"AlticeWay"—ourfounder-inspiredowner-operatorcultureandstrategyofoperationalefficiency,innovationandlong-termvaluecreationforstockholders.Indevelopingandimplementingourstrategy,wearefocusedonthefollowingprinciples,whicharepartoftheAlticeWay:
• Simplify and optimize our organization throughstreamliningbusinessprocesses,centralizingfunctionsandeliminatingnon-essentialoperatingexpensesandservicearrangements.
• Reinvest in infrastructure and content ,includingupgradingourHFCnetworkandbuildingoutaFTTHnetworktostrengthenourinfrastructurecapabilitiesandcompetitiveness.
• Invest in sales, marketing and innovation ,includingbrand-building,enhancingoursaleschannelsandautomatingprovisioningandinstallationprocesses.
• Enhance the customer experience byofferingatechnologicallyadvancedcustomerplatformcombinedwithsuperiorconnectivityandserviceacrossthecustomerlifecycle.
• Drive revenue and cash flow growth throughcross-selling,marketsharegains,newproductlaunchesandimprovementsinouroperatingandcapitalefficiency.
WebelievetheAlticeWay,whichhasbeensuccessfullyimplementedacrossAlticeGroup,distinguishesusfromourU.S.industrypeersandcompetitors.
WeacquiredCequelCorporation("Suddenlink"or"Cequel")onDecember21,2015andCablevisionSystemsCorporation("Optimum"or"Cablevision")onJune21,2016.Theseacquisitionsarereferredtothroughoutthisprospectusasthe"SuddenlinkAcquisition"(orthe"CequelAcquisition")andthe"OptimumAcquisition(orthe"CablevisionAcquisition"),respectively,andcollectivelyasthe"Acquisitions."Weserveourcustomersthroughtwobusinesssegments:Optimum,whichoperatesintheNewYorkmetropolitanarea,andSuddenlink,whichprincipallyoperatesinmarketsinthesouth-centralUnitedStates.WehavemadesignificantprogressinintegratingtheoperationsofOptimumandSuddenlinkandarealreadyrealizingtheoperationalandcommercialbenefitsofcommonownershipandonemanagementteamasweimplementtheAlticeWaythroughoutourorganization.
Weareamajority-ownedandcontrolledU.S.subsidiaryofAlticeN.V.,themultinationalcable,fiber,telecommunications,content,mediaandadvertisingcompanyfoundedandcontrolledbycommunicationsandmediaentrepreneurPatrickDrahi.OurmanagementteambenefitsfromAlticeGroup'sexperienceinimplementingtheAlticeWayaroundtheworld.Mr.Drahi,whohasover25yearsofexperienceowningandmanagingcommunicationsandmediaoperations,hasbuiltAlticeGroupfromaregionalFrenchcablecompanyfoundedin2002intooneoftheworld'sleadingbroadbandcommunicationsandvideoservicescompanies.Overthepast15years,hehasledatransformationofthebroadbandcommunicationsandvideoservicesindustrythroughinvestmentinnetworksandimprovementsincustomerexperienceandoperationstoenhancebothservicedeliveryandoperationalefficiency.AsofDecember31,2016,AlticeGroupdeliveredbroadband,paytelevisionandtelephonyservicestomorethan50millioncustomersinWesternEurope,theUnitedStates,IsraelandtheCaribbeanandreportedproformaconsolidatedrevenueof€23.5billionandproformaAdjustedEBITDAof€8.9billionforthefiscalyearendedDecember31,2016.Uponthecompletionof
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thisoffering,AlticeN.V.andanentitycontrolledbyPatrickDrahiwillown%ofouroutstandingsharesintheformofClassBcommonstock,whichwillrepresent%ofthevotingpowerofourissuedandoutstandingcommonstock.
Inearly2015,AlticeN.V.madethestrategicdecisiontoinvestinoperationsintheUnitedStates,thecountrywiththelargestbroadbandcommunicationsandvideoservicesmarketintheworld.AlticeN.V.believedthatbyemployingtheAlticeWay,itcouldsignificantlyimproveuponthehistoricalgrowthrates,profitabilityandoperationalefficiencyofbroadbandcommunicationsandvideoservicescompaniesoperatinginthismarket.ThefollowingattractivemarketcharacteristicsunderpinnedAlticeN.V.'sU.S.investmentthesis:
• favorabledemographicssupportingunderlyingmarketgrowth;
• demandforhigher-speedbroadbandservices;
• demandformoreadvancedcustomerplatformsanduserinterfaces;
• opportunitiestoenhanceoperationalefficiencyandreduceoverhead;and
• opportunitiesforfurtherindustryconsolidation.
FollowingtheAcquisitions,webeganemployingtheAlticeWaytosimplifyourorganizationalstructure,reducemanagementlayers,streamlinedecision-makingprocessesandredeployresourceswithafocusonnetworkinvestment,customerserviceenhancementsandmarketingsupport.Asaresult,wehavemadesignificantprogressinintegratingtheoperationsofOptimumandSuddenlink,centralizingourbusinessfunctions,reorganizingourprocurementprocesses,eliminatingduplicativemanagementfunctions,terminatinglower-returnprojectsandnon-essentialconsultingandthird-partyservicearrangements,andinvestinginouremployeerelationsandourculture.Improvedoperationalefficiencyhasallowedustoredeployphysical,technicalandfinancialresourcestowardsupgradingournetworkandenhancingthecustomerexperiencetodrivecustomergrowth.ThisfocusisdemonstratedbyreducednetworkoutagessincetheAcquisitions,whichwebelieveimprovestheconsistencyandqualityofthecustomerexperience.Inaddition,wehaveexpanded,andintendtocontinueexpanding,oure-commercechannelsforsalesandmarketing.
SincetheAcquisitions,wehavealsoupgradedournetworkstonearlytriplethemaximumavailablebroadbandspeedsweareofferingtoourOptimumcustomersandexpandedour1Gbpsbroadbandservicetoapproximately60%ofourSuddenlinkfootprint,comparedtoapproximately40%priortotheSuddenlinkAcquisition.Inaddition,wehavecommencedafive-yearplantobuildaFTTHnetwork,whichwillenableustodelivermorethan10GbpsbroadbandspeedsacrossourentireOptimumfootprintandpartofourSuddenlinkfootprint.WebelievethisFTTHnetworkwillbemoreresilientwithreducedmaintenancerequirements,fewerserviceoutagesandlowerpowerusage,whichweexpectwilldrivefurthercostefficienciesinourbusiness.Inordertofurtherenhancethecustomerexperience,weplantointroduceanewhomecommunicationshubduringthesecondquarterof2017.Ournewhomecommunicationshubwillbeaninnovative,integratedplatformwithadynamicandsophisticateduserinterface,combiningaset-topbox,Internetrouterandcablemodeminonedevice,andwillbethemostadvancedhomecommunicationshubofferedbyanyAlticeGroupbusiness.Wearealsobeginningtooffermanageddataandcommunicationsservicestoourbusinesscustomersandmoreadvancedadvertisingservices,suchastargetedmulti-screenadvertisinganddataanalytics,toouradvertisingandotherbusinessclients.
Manyofourinitiativeshavealreadyresultedinapositiveimpacttoourcustomerrelationships,whichgrewby%fromMarch31,2016(onaproformabasisgivingeffecttotheOptimumAcquisition)toMarch31,2017.
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Our Competitive Strengths
Webelievethefollowingcompetitivestrengthshavebeeninstrumentaltooursuccessandpositionusforfuturegrowthandstrongfinancialperformance.
Our Owner-Operator Culture
Wearepartofafounder-controlledorganizationwithanowner-operatorcultureandstrategythatisfocusedonoperationalefficiency,innovationandlong-termvaluecreationforstockholders.Thisfocusisreinforcedbyasystemthatdeliversasubstantialportionofmanagementcompensationintheformoflong-termequityawards.SincetheAcquisitions,ourmanagementteamhasmovedquicklyto,amongotherthings,simplifyandredesignourproductofferings,driveadoptionofhigherbroadbandspeedsandbeginbuildinganewFTTHnetwork.Wecontinuouslychallengeourselvestoimproveouroperationalandfinancialperformance.Weencouragecommunicationacrosstheorganizationwhileempoweringnimble,efficientdecision-makingthatisfocusedateverylevelonenhancingtheoverallcustomerexperience.Webelieveourowner-operatorcultureandtheAlticeWaydifferentiateusandpositionustooutperformourU.S.industrypeers.WefurtherbelievethebenefitsoftheAlticeWayhavebeendemonstratedbyAlticeN.V.'sperformance,whichisreflectedinthe42%averageannualtotalreturnofAlticeN.V.'sClassAordinarysharessinceitsinitialpublicofferinginJanuary2014throughMarch31,2017,comparedtothe5%averageannualtotalreturnoftheSTOXXEurope600TelecommunicationsIndex,ofwhichAlticeN.V.'sClassAordinarysharesisacomponent,duringthesametimeperiod.
Leading Position in Attractive Markets
ThemarketsservedbyourbroadbandnetworkshavegenerallyexperiencedhigherlevelsofdisposableincomeandhouseholddensitycomparedtootherbroadbandcommunicationsandvideoservicesmarketsintheUnitedStates.AsofDecember31,2016,approximately75%ofthehomespassedbyournetworkwereineithertheNewYorkmetropolitanareaorTexas.Thefollowingtableprovidesacomparisonofmanagement'sestimateofincomeanddensitymetricsforourmarketstobothourlargestU.S.publicly-tradedindustrypeersaswellasthenationalaverages.
ThefootprintofourOptimumnetworkincludesNewYorkCity,theworld'slargestmediaandentertainmentmarketasmeasuredby2014revenue.Thisnetworkrepresentsourlargestclusterofcableandfibernetworksystems.AsofDecember31,2016,thisnetworkpassedapproximately5.1millionhomesandprovidedbroadband,paytelevisionandtelephonyservicestoapproximately3.1millionuniqueresidentialandbusinesscustomers,representingapproximately64%ofourentirecustomerbase.WebelieveourleadingmarketdemographicssupportrevenuegrowthpotentialintermsofcustomeradditionsandincreasedARPU.WebelievethemarketdensityoftheNewYorkmetropolitanareaallowsourOptimumsegmenttooperatewithgreatercapitalefficiencyandlowercapitalexpendituresasapercentageofrevenuethanourU.S.industrypeers.Ourpresenceinthismarketanditshigh-profilecustomerbasealsogivesusaccesstoalargeandvaluablebaseofadvertisers,advertisinginventoryandadvertisingdata,eachofwhichsupportsgrowthprospectsforouradvertisingbusiness.
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Altice USA Charter
Communications Comcast Cable One
U.S. National Median
2016 Household Median Income (in thousands) $ 86 $ 63 $ 72 $ 59 $ 66Housing Units per Square Mile as of April 1, 2010 based on most recent U.S. census data 668 99 119 24 37
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ThefootprintofourSuddenlinknetworkincludesmarketsinTexas,WestVirginia,Louisiana,Arkansas,NorthCarolina,Oklahoma,Arizona,California,Missouriandeightotherstates.AsofDecember31,2016,thisnetworkpassedapproximately3.4millionhomesandprovidedbroadband,paytelevisionandtelephonyservicestoapproximately1.8millionuniqueresidentialandbusinesscustomers,representingapproximately36%ofourcustomerbase.Webelievelessthan15%ofourSuddenlinkfootprintcurrentlyfacescompetitionfrombroadbandcommunicationsandvideoservicesprovidersofferingdownloadspeedscomparabletoourfastestofferedspeeds.Inaddition,householdpenetrationofresidentialbroadbandconnectionswithspeedsofatleast25Mbpsinthesemarketswaslessthan34%in2015comparedtoapproximately44%nationwide,asestimatedbymanagement,providinguswithattractivefuturegrowthopportunities.Asaresult,webelieveSuddenlink'smarketsareamongthemostattractivebroadbandcommunicationsandvideoservicesmarketsintheUnitedStates.
Advanced Network and Customer Platform Technologies
TechnologicalinnovationandnetworkinvestmentsarekeycomponentsoftheAlticeWay.SubstantiallyallofourHFCnetworkisdigitalvideoandDOCSIS3.0compatible,withapproximately300homespernodeandabandwidthcapacityofatleast750MHzthroughout.Thisnetworkallowsustoprovideourcustomerswithadvancedbroadband,paytelevisionandtelephonyservices.Inaddition,webelieveourOptimumfootprintoffersthedensestWi-FinetworkamongourU.S.industrypeersasmeasuredbythenumberofWi-Fihotspotsperbroadbandsubscriber.SincetheAcquisitions,wehavenearlytripledthemaximumavailablebroadbandspeedsweareofferingtoourOptimumcustomersfrom101Mbpsto300Mbpsforresidentialcustomersand350Mbpsforbusinesscustomersandhaveexpandedour1Gbpsbroadbandservicetoapproximately60%ofourSuddenlinkfootprintfromapproximately40%priortotheSuddenlinkAcquisition.
Ouradvancednetworkhascontributedtoourrevenuegrowthbyallowingustomeetmarketdemandforincreasinglyfasterspeeds.Thechartbelowillustratesthesignificantincreaseinthepercentageofournewresidentialcustomerschoosingserviceplanswithspeedsgreaterthanorequalto100MbpssincetheAcquisitions.
Topositionustosatisfyanticipatedmarketdemandforincreasingspeedsandsupportevolvingtechnologies,suchastheexpectedtransitionofmobilenetworksto5G,andtoenableustocaptureassociatedrevenuegrowthopportunities,wehavecommencedafive-yearplantobuildaFTTH
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networkthatwillenableustodelivermorethan10GbpsbroadbandspeedsacrossourentireOptimumfootprintandpartofourSuddenlinkfootprint.
Wealsoplantointroduceanewhomecommunicationshubduringthesecondquarterof2017,whichwillbethemostadvancedhomecommunicationshubofferedbyanyAlticeGroupbusiness.Thisnewhubwillbeaninnovative,integratedplatformwithadynamicandsophisticateduserinterface,combiningaset-topbox,Internetrouterandcablemodeminonedevice.ItisbasedonLaBox,ahomecommunicationshubAlticeGrouphassuccessfullydeployedinFrance,theDominicanRepublicandIsrael,andwillbeinitiallyofferedtocustomerssubscribingtoourtripleproductpackages.Itwillbecapableofdeliveringbroadband,Wi-Fi,paytelevisionservices,OTTservicesandfixed-linetelephonyandwillsupport4KvideoandaremoteDVR.Weintendtocontinueenhancingthefeaturesandfunctionalityofournewhomecommunicationshubafteritsinitialintroduction.
Webelievethedevelopmentofouradvancednetworkandnewhomecommunicationshubepitomizestheengineeringandinnovation-centricethoswithinAlticeGroup.
Customer-Centric Operating and Service Model Supported by Technology and Data Analytics
Weseektoprovideourcustomerswiththebestconnectivityandserviceexperienceavailable.Thiscustomer-centricapproachdrivesourdecision-makingprocessesandisanotherkeycomponentoftheAlticeWay.Throughinvestmentsinourinformationtechnology("IT")platformsandafocusonprocessimprovement,wehavesimplifiedandharmonizedourserviceofferingbundles,andimprovedourtechnicalservicedeliveryandourcustomerservice.Weareinvestinginoursaleschannels,includingenhancingoure-commercechannelsinresponsetocustomerbehavior.WhileinboundsalesremainthelargestsaleschannelforeachofOptimumandSuddenlink,oure-commercechannels'shareofnewsaleshasgrownsubstantiallysincetheAcquisitions.Wedevelop,monitorandanalyzedetailedcustomermetricstoidentifyroot-causesofcustomerdissatisfactionandtofurtherimprovethecustomerexperience.Takentogether,webelievetheseinitiativeswillfurtherreducecallsandservicevisits,increasecustomersatisfactionandstrengthenourtop-lineperformanceandcashflowgeneration.
Benefits of a Global Communications Group
UnlikemostofourU.S.industrypeers,webenefitfrombeingpartofaninternationalmediaandcommunicationsgroup.AstheU.S.businessofAlticeN.V.,wehaveaccesstotheinnovation,managementexpertiseandbestpracticesdevelopedandtestedinotherAlticeGroupmarketssuchasFrance,Portugal,theDominicanRepublicandIsrael.Forexample,ournewhomecommunicationshubwillbebasedonLaBox,whichwasdevelopedbyAlticeLabs,AlticeN.V.'stechnology,servicesandoperationsinnovationcenter,andourFTTHnetworkbuild-outwillleverageAlticeLabs'technologyandexpertisedevelopedforthedeploymentofGPONtechnologyinAlticeGroup'sfibernetworks.OurB2Bserviceofferingsdrawfromplatforms,servicesandexpertisedevelopedbysophisticatedB2BoperatorsacrosstheAlticeGroupfootprintsuchasPortugalTelecominPortugalandSFRinFrance.WealsobenefitfromAlticeGroup'ssignificantscaleadvantages,allowingustodrawoncentralizedfunctions,includingprocurementandtechnicalservices.Inaddition,AlticeGroupoperatesconvergednetworks,includingwirelessoperationsinmarketsoutsidetheUnitedStates.Webelievethesescalebenefitsandoperationalexpertiseassistusinincreasingouroperatingefficiencyandreducingourcapitalexpenditureswhilealsoimprovingthecustomerexperience.
AlticeGroupalsocross-deploystalentandexpertiseacrossitsbusinesses,allowingustobenefitfromourseniormanagement'sexperienceinsuccessfullyimplementingtheAlticeWayaroundtheworld.WebelievethisdiversityofexperiencedifferentiatesusfromourmoretraditionalU.S.-centricindustrypeers.
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Strategic Focus on Operational Efficiency
AnimportantprincipleoftheAlticeWayisleveragingoperationalefficiencyinordertoinvestinnetworkimprovementsandincreasereturns.WebelieveourfocusonsimplifyingcustomerserviceofferingsandstreamliningandimprovingouroperationsthroughanintensefocusonefficiencyisunmatchedbyourU.S.industrypeers.Wecontinuouslystrivetoremoveunnecessarymanagementlayers,streamlinedecision-makingprocesses,trimexcesscostsandquestionwhetherourcurrentmethodologiesareindeedthemostefficient.Forexample,thehomeinstallation,repair,outsideplantmaintenanceandnetworkconstructionelementsofourbusinesshavebeenreorganizedunderAlticeTechnicalServices("ATS"),AlticeN.V.'sservicesorganizationintheUnitedStates.Webelievethisreorganizationwillallowustofocusonourcorecompetenciesandrealizeoperationalcostefficiencies.Thefinancialresourcescreatedbythesestrategiesallowustoinvestinnetworkimprovementsandcustomerexperienceenhancements.WebelievetheoperatingandfinancialbenefitsthatresultfromourfocusonoperationalefficiencywillcontinuetogiveusacompetitiveadvantageagainstourcompetitorsandU.S.industrypeers.
Powerful Financial Model Driving Strong Returns
WebelievethebenefitsoftheAlticeWayhavealreadysignificantlystrengthenedourfinancialperformanceandwillcontinuetodoso,allowingustodeliverstrongreturns.
OurrevenuegrowthforthethreemonthsendedMarch31,2017was%ascomparedtoproformarevenueforthethreemonthsendedMarch31,2016.Webelievewecancontinuegrowingourrevenuebyincreasingmarketpenetrationofourservices(particularlybroadband),drivingcontinuedgrowthinB2Bservices,launchingnewservices,gainingmarketsharefromcompetitorsduetothehighqualityandvalueofourservicesandleveragingimprovedcustomersatisfactiontoselladditionalservices.
WebelieveweareoneofthemostprofitableandcashflowgenerativebroadbandcommunicationsandvideoservicesprovidersintheUnitedStates.OurAdjustedEBITDAmarginhasincreasedfrom%forthethreemonthsendedMarch31,2016onaproformabasisgivingeffecttotheOptimumAcquisitionto%forthethreemonthsendedMarch31,2017.Combinedwithourrevenuegrowth,thistranslatesintoa%year-over-yearAdjustedEBITDAgrowth.See"SummaryHistoricalandProFormaFinancialData"foradditionalinformationregardingAdjustedEBITDA,includingareconciliationofAdjustedEBITDAtonetincome.AsofDecember31,2016,wehaverealizedasubstantialportionofthetotal$1.1billioninoperatingcostsavingsweannouncedthatwewouldachieveoverthethree-yearperiodfollowingtheAcquisitions.ForthethreemonthsendedMarch31,2017,ourcapitalexpendituresasapercentageofrevenuewas%,whichwebelieveisoneofthelowestamongourU.S.industrypeers,evenasweincreasedourinvestmentsinnetworkandservicecapabilities.TheratioofourAdjustedEBITDAlesscapitalexpenditurestorevenueforthethreemonthsendedMarch31,2017was%,implyingthatforeachdollarofAdjustedEBITDAthatwerealizedinthatquarterwegeneratedapproximately$ofAdjustedEBITDAlesscapitalexpenditures,whichwebelieveexceedstheperformanceofourU.S.industrypeers.Webelieveourprofitability,capitalefficiencyandcashgenerationprofile,whichisamongthehighestintheindustry,resultsfromanumberoffactors,includingourfocusonoperationalefficiencyderivedfromtheAlticeWay,theadvancedstateofourHFCnetworkinfrastructure,ourhighlyclusterednetworkfootprintandourcustomerbasewithrelativelyhighARPUandlowchurn.
Experienced Management Team Supported by Founder
OurCEOandCo-Presidentshavesubstantialexperienceincommunicationsandmediaoperations,financeandmergersandacquisitions,andaproventrackrecordinexecutingtheAlticeWay.DexterGoei,ourCEOandChairmansince2016,joinedAlticeN.V.in2009,andasitsCEOhespearheaded
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therapidexpansionofthecompanyfromaFrenchcableoperatortoamultinationalcommunicationsenterprisewithfixedandmobileassetsacrosssixdifferentcountries.AkeyaspectofMr.Goei'sroleasCEOofAlticeUSAistocarryforwardthesameentrepreneurialandowner-operatorculturethatisatthecoreoftheAlticeWayandAlticeN.V.'ssuccess.HakimBoubazine,ourCo-PresidentandCOOsince2015,waspreviouslytheCEOofAlticeGroup'sDominicanRepublicbusiness,whereheoversawpaytelevision,broadbandandmobileoperationsformorethanfourmillioncustomers.CharlesStewart,ourCo-PresidentandCFOsince2015,previouslyservedasCEOofItauBBAInternationalplc,whereheoversawItau-Unibanco'swholesalebankingactivitiesinEurope,UnitedStatesandAsia.Priortothat,hespentnineteenyearsatMorganStanleyinavarietyofinvestmentbankingrolesincludingnineyearsfocusedontheU.S.cableindustry.OurmanagementteamoperatesinacoordinatedfashionwithAlticeN.V.'smanagementteamandissupportedbyAlticeGroup'sfounderandcontrollingstockholder,PatrickDrahi.Webelievethisfacilitatesaflatcorporatestructure,speedindecisionmakingandafocusonlong-termvaluecreation.
Our Business Strategy
OurbusinessstrategyisbasedonthesuccessfulAlticeWay.Byexecutingontheprinciplesdescribedbelow,weaimtoprovideadvanced,innovativebroadband,paytelevisionandtelephonyservicestoourcustomersanddeliverstrongreturnstoourstockholders.
The Altice Way
Simplify and Optimize Our Organization
SincetheAcquisitions,wehaveimplementedtheAlticeWayacrossourorganizationtostreamlineprocessesandserviceofferingsandtoimproveproductivitybycentralizingourbusinessfunctions,reorganizingourprocurementprocesses,eliminatingduplicativemanagementfunctionsandoverhead,terminatinglower-returnprojectsandnon-essentialconsultingandthird-partyservicearrangements,andinvestinginouremployeerelationsandourculture.Thishasresultedinarevitalizedorganizationaswellasimprovedfinancialperformance,whichweareleveragingtore-investinourbusiness.Wearealsoreorganizingandsimplifyingourcustomerservice,programminganddataanalytics;usingATStoincreasequality,efficiencyandproductivity;andupdatingandsimplifyingourITinfrastructurethroughfurtherinvestmentsandintegration.
Reinvest in Infrastructure and Content
OurentireOptimumfootprintisupgradedtodeliverbroadbandspeedsofupto300Mbpsforresidentialcustomersandupto350Mbpsforbusinesscustomers,andwehaveexpandedour1Gbpsbroadbandservicetoapproximately60%ofourSuddenlinkfootprint,comparedtoapproximately40%
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priortotheSuddenlinkAcquisition.Inaddition,wehavecommencedafive-yearplantobuildaFTTHnetwork,whichwillenableustodelivermorethan10GbpsbroadbandspeedsacrossourentireOptimumfootprintandpartofourSuddenlinkfootprint.Webelievewecancarryoutthisnetworkbuild-outefficientlyandwithinourcurrentcapitalexpenditurelevelsbecauseof(i)theproximityoffibertoourendcustomersinourexistingnetwork;(ii)ouraccesstoAlticeLabs'experienceandexpertiseindeployingGPONforitsFTTHprojectsinothermarkets;(iii)ourfavorablenetworktopologythatisover75%aerial;and(iv)thelowerunitconstructioncostsavailabletousthroughATS.WebelieveourFTTHinvestmentwillfurtherprepareusforthefuturebyenablingustoprovideourresidentialandbusinesscustomerswithtechnologicallyadvancedservicesandincreasednetworkreliability,whileprovidinguswithloweroperatingcostsandopportunitiesfornewrevenuesources.Forinstance,webelieveourFTTHinvestmentwilloffersignificantstrategicvalueasthemobileandfixednetworkenvironmentscontinuetoconverge,particularlyasmobileoperatorsdeploy5Gandsubsequentmobilenetworks.
Ourreinvestmentincontenthasfocusedonthenewscategorywithongoinginvestmentsinourhyper-localnewschannelNews12,our25%investmentintheU.S.operationsofi24News,theAlticeGroupglobalnewsnetworkthatwaslaunchedintheUnitedStatesinFebruary2017,andour25%interestinNewsday,adailynewspaperthatprimarilyservesLongIsland.Inaddition,weareevaluatingopportunitiestodeployothercontentassetsownedbyAlticeGroup.
Invest in Sales, Marketing and Innovation
Wearereinvestinginoursaleschannels,includingenhancingoure-commercechannelssuchasOptimum.comandSuddenlink.com,anddevelopinge-commerce-onlypromotions.WearealsofocusedonbuildingourbrandtoemphasizethequalityofourservicesbydevelopingOptimumExperienceretailstoresinshoppingmallsandotherhigh-trafficlocations.
Weseektoinnovateacrossmanyareasofourbusiness.Forourresidentialcustomers,thisincludesourfocusonnewcustomerplatformsandfasterdataspeeds.Forourbusinesscustomers,weareintroducingnewvalue-addedmanagedserviceswhileforouradvertisingclientsweofferadvanced,targetedandmulti-screenadvertisingservicesanddataanalyticsusingourproprietarydataandtheadvancedtechnologyplatformsthatwehavedevelopedandacquired.
Enhance the Customer Experience
WeintendtodeliverasuperiorcustomerexperiencethroughimplementationoftheAlticeWay.First,weaimtoofferthemosttechnologicallyadvancedcustomerplatforms,includingournewhomecommunicationshub,whichisaninnovative,integratedplatformwithadynamicandsophisticateduserinterfacecombiningaset-topbox,Internetrouterandcablemodeminonedevice.Second,byleveragingouradvancedinfrastructure(withmorethan8.5millionhomespassedandapproximately1.8millionWi-FihotspotsasofDecember31,2016),weseektoprovideourcustomerswithabandwidthandconnectivityexperiencesuperiortowhatourcompetitionoffers.WebelieveourFTTHnetworkbuild-outwillfurtherenhanceourinfrastructureposition,improveservicereliabilityforourcustomersandlowerourmaintenancecosts.Third,westrivetoprovidethebestserviceacrossthecustomerlifecyclefrompointofsaletoinstallationandcustomercare.Akeyaspectofthisinitiativeistolinkinternalsalesincentivestometricstiedtothelengthofanewcustomerrelationshipandproductmix,asopposedtomoretraditionalcriteriaofnewsales,inordertorefocusourorganizationawayfromchurnretentiontochurnprevention.Forexample,thenumberoftechnicalservicecallshandledbyourrepresentativesinMarch2017was23.8%lowercomparedtoMarch2016whilethenumberofcustomerservicecallshandledbyourrepresentativeswas17.3%loweroverthesameperiod.
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Drive Revenue and Cash Flow Growth
SincetheAcquisitions,wehavemadesignificantprogressinimprovingourgrowthinrevenue,AdjustedEBITDAandcashflowandbelievewehaveadditionalopportunitiestodrivecontinuedgrowthinthesefinancialmetricsbasedonthefollowingfactors:
• continuedmarketdemandforourbundledservices,particularlybroadbanddrivenbyincreaseddataconsumptionandbandwidthrequirements;
• focusonsellingandcross-sellinghighervalueandmoreenrichedserviceofferingstoourresidentialandbusinesscustomers,aswellastheintroductionofnewservicesleveragingouradvancedHFCandFTTHnetworks;
• marketsharegainsdrivenbyproductinnovationandthequalityandvalueofourservices;
• focusonconnectivity,businessandadvertisingservices;
• improvementsinouroperatingandcapitalefficiencythroughcontinuedimplementationoftheAlticeWay;and
• opportunitiestofurtherimproveourcapitalstructure.
Opportunistically Grow Through Value-Accretive Acquisitions
Weintendtoopportunisticallygrowthroughvalue-accretiveacquisitions.Ourcontrollingstockholder,AlticeN.V.,hasmadeover30acquisitionssinceitsinceptionin2002,includingtheAcquisitions.WebelieveAlticeN.V.hasconsistentlydemonstratedanabilitytoacquireandeffectivelyintegratecompanies,realizeefficienciesandcostsynergies,improverevenuetrendsandgrowAdjustedEBITDAandAdjustedEBITDAlesscapitalexpenditures.InthesixlargestacquisitionscompletedbyAlticeN.V.,SFR(formerlyNumericable),PortugalTelecom,HOT,OrangeDominicana,OptimumandSuddenlink,ithasincreasedAdjustedEBITDAmarginonaveragebypercentagepointsandrevenuegrowthonaveragebypercentagepointsbetweenthefirstfullfiscalquarterfollowingthecompletionofeachacquisitionandthethreemonthsendedMarch31,2017.AlticeN.V.'strackrecordofcreatingvaluethroughacquisitionsisalsoreflectedinthe32%averageannualtotalreturnofSFR'sordinarysharessinceitsinitialpublicofferinginNovember2013untilMarch31,2017,comparedtothe5%averageannualtotalreturnoftheSTOXXEurope600TelecommunicationsIndex,ofwhichSFR'sordinarysharesisacomponent,duringthesametimeperiod.WebelievetheU.S.broadbandcommunicationsandvideoservicesmarketoffersanumberofattractiveopportunitiestogrowourbusinessthroughstrategicacquisitions.WebelievetheAlticeWayandourrelatedabilitytoachieveefficienciesandcostsynergiesfollowingacquisitionsprovideuswithacompetitiveadvantageinsuchfutureconsolidationopportunities.However,thereisnoassurancethatwewouldbeabletoachievesimilarresultsorthatanysuchacquisitionswouldhaveasimilarimpactonourstockpriceperformance.
Our Products and Services
Weprovidebroadband,paytelevisionandtelephonyservicestobothresidentialandbusinesscustomers.Wealsoprovideenterprise-gradefiberconnectivity,bandwidthandmanagedservicestoenterprisecustomersthroughOptimum'sLightpathbusinessandadvertisingtimetoadvertisers.
Thepriceswechargeforourservicesvarybasedonthenumberofservicesandassociatedservicelevelortierourcustomerschoose,coupledwithanypromotionswemayoffer.Aspartofourmarketingstrategyourcustomersareincreasinglychoosingtobundletheirsubscriptionstotwo("doubleproduct")orthree("tripleproduct")ofourservicesatthesametime.Customerswhosubscribetoabundlegenerallyreceiveadiscountfromthepriceofbuyingeachoftheseservicesseparately,aswellastheconvenienceofreceivingmultipleservicesfromasingleprovider,allona
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singlemonthlybill.Forexample,weofferan"OptimumTriplePlay"packagethatisaspecialpromotionfornewcustomersoreligiblecurrentcustomerswhereOptimumbroadband,paytelevisionandtelephonyservicesareeachavailableatareducedrateforaspecifiedperiodwhenpurchasedtogether.Approximately50%ofourresidentialcustomersweretripleproductcustomersasoftheyearendedDecember31,2016.
Residential Services
Weofferbroadband,paytelevisionandtelephonyservicestoresidentialcustomersthroughbothourOptimumandSuddenlinksegments.ThefollowingtablesshowourresidentialcustomerrelationshipsandrevenuesbyserviceofferingsforeachofourOptimumandSuddenlinksegmentsaswellasonacombinedbasis.
Broadband Services
Weofferavarietyofbroadbandservicetierstailoredtomeetthedifferentneedsofourresidentialsubscribers.Currentcustomeroffersincludefourtierswithdownloadspeedsrangingfrom60Mbpsto300MbpsforourOptimumresidentialcustomersand50Mbpsto1GbpsforourSuddenlinkresidentialcustomers.Ourbroadbandservicesalsoincludeaccesstocomplimentaryfeaturessuchasourfree-to-useOptimumwireless"smartrouter,"aswellasInternetsecuritysoftware,includinganti-virus,anti-spyware,personalfirewallandanti-spamprotection.SubstantiallyallofourHFCnetworkisdigitalandDOCSIS3.0compatible,withapproximately300homespernodeandabandwidthcapacityofatleast750MHzthroughout.Thisnetworkallowsustoprovideourcustomerswithadvancedbroadband,paytelevisionandtelephonyservices.SincetheAcquisitions,wehavenearlytripledthemaximumavailablebroadbandspeedsweareofferingtoourOptimumcustomersfrom101Mbpsto300Mbpsforresidentialcustomersand350Mbpsforbusinesscustomersandexpandedour1Gbpsbroadbandservicetoapproximately60%ofourSuddenlinkfootprintfromapproximately40%priortotheSuddenlinkAcquisition.Wehavealsocommencedafive-yearplantobuildaFTTHnetwork,whichwillenableustodelivermorethan10GbpsbroadbandspeedsacrossourentireOptimumfootprintandpartofourSuddenlinkfootprint.See"—OurCompetitiveStrengths—AdvancedNetworkandCustomerPlatformTechnologies."
Inaddition,wehavedeployedWi-FiacrossourOptimumserviceareawithapproximately1.8millionWi-FihotspotsasofDecember31,2016.TheOptimumWi-FinetworkallowsOptimumbroadbandcustomerstoaccesstheservicewhiletheyareawayfromtheirhomeoroffice.Wi-Fiis
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As of December 31, 2016 As of
Pro Forma December 31, 2015 Optimum Suddenlink Total Optimum Suddenlink Total (in thousands) Total residential customer relationships 2,879 1,649 4,528 2,858 1,618 4,476PayTVcustomers 2,428 1,107 3,535 2,487 1,154 3,641Broadbandcustomers 2,619 1,344 3,963 2,562 1,276 3,838Telephonycustomers 1,962 597 2,559 2,007 581 2,588
For the year ended
Pro forma December 31, 2016 For the year ended
Pro forma December 31, 2015 Optimum Suddenlink Total Optimum Suddenlink Total (dollars in thousands)
Residential revenue: PayTV $ 3,106,697 $ 1,120,525 $ 4,227,222 $ 3,142,991 $ 1,117,640 $ 4,260,631Broadband 1,455,625 834,414 2,290,039 1,303,918 701,094 2,005,012Telephony 718,176 153,939 872,115 748,181 163,821 912,002
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deliveredviawirelessaccesspointsmountedonourOptimumbroadbandnetwork,incertainretailpartnerlocations,certainNJTransitrailstations,NewYorkCityparksandotherpublicvenues.Similarly,our"smartrouter"productincludesasecondnetworkthatenablesallOptimumbroadbandcustomerstoaccesstheOptimumWi-Finetwork.AccesstotheOptimumWi-Finetworkisofferedasafreevalue-addedbenefittoOptimumbroadbandcustomersandforafeetonon-customersincertainlocations.OurWi-FiservicealsoallowsourOptimumbroadbandcustomerstoaccesstheWi-FinetworksofComcast,CharterCommunications(withinthelegacyTimeWarnerCableandBrightHouseNetworksfootprints)andCoxCommunications.ThroughtheserelationshipsweofferourOptimumcustomersaccesstoapproximately350,000additionalhotspotsnationwide.
Pay Television Services
Wecurrentlyofferavarietyofpaytelevisionservices,whichincludedeliveryofbroadcaststationsandcablenetworks,andadvanceddigitalpaytelevisionservices,suchasVOD,HDchannels,DVRandpay-per-view,toourresidentialmarkets.Dependingonthemarketandlevelofservice,ourpaytelevisionservicesinclude,amongotherprogramming,localbroadcastnetworksandindependenttelevisionstations,news,information,sportsandentertainmentchannels,regionalsportsnetworks,internationalchannelsandpremiumservicessuchasHBO,Showtime,CinemaxandStarz.Ourresidentialsubscriberspayamonthlychargebasedonthepaytelevisionprogramminglevelofservice,tierorpackagetheyreceiveandthetypeofequipmenttheyselect.Customerswhosubscribetoseasonalsportspackages,internationalchannelsandpremiumservicesmaybechargedanadditionalmonthlyamount.Wemayalsochargeadditionalfeesforpay-per-viewprogramming,DVRandcertainVODservices.
AsofDecember31,2016,Optimumresidentialcustomerswereabletoreceiveupto619digitalchannelsandSuddenlinkresidentialcustomerswereabletoreceiveup303digitalchannelsdependingontheirmarketandlevelofservice.Optimumoffersupto171HDchannelsandSuddenlinkchannellineupsincludeanaverageof110HDchannels,whichrepresentthemostwidelywatchedprogramming,includingallmajorbroadcastnetworks,aswellasmostleadingnationalcablenetworks,premiumchannelsandregionalsportsnetworks.HDTVfeatureshigh-resolutionpicturequality,digitalsoundqualityandawide-screen,theater-likedisplaywhenusinganHDTVsetandanHD-capableconverter.WealsocontinuetolaunchadditionalHDchannelstocontinuouslyimproveourcustomer'sviewingexperience.AsofDecember31,2016,approximately95%ofourresidentialOptimumpaytelevisioncustomerssubscribetoHDTVservices.AsofDecember31,2016,approximately79%ofSuddenlinkpaytelevisioncustomersweredigitalpaytelevisioncustomersandapproximately93%ofthosedigitalpaytelevisioncustomerssubscribetoHDTVservices.
Wealsoprovideadvancedservices,suchaspay-per-viewandVOD,thatgiveresidentialpaytelevisionsubscriberscontroloverwhentheywatchtheirfavoriteprogramming.Ourpay-per-viewserviceallowscustomerstopaytoviewsingleshowingsofprogrammingonanunedited,commercial-freebasis,includingfeaturefilms,livesportingevents,concertsandotherspecialevents.OurVODserviceprovideson-demandaccesstomovies,specialevents,freeprimetimecontentandgeneralinteresttitles.Subscription-basedVODpremiumcontentsuchasHBOandShowtimeismadeavailabletocustomerswhosubscribetooneofourpremiumprogrammingpackages.Ourcustomershavetheabilitytostarttheprogramsatwhatevertimeisconvenient,aswellaspause,rewindand(formostcontent)fastforwardbothstandarddefinitionandHDVODprogramming.AsofDecember31,2016,pay-per-viewserviceswereavailableforallOptimumand99%ofSuddenlinkpaytelevisioncustomersandVODserviceswereavailabletoallofourOptimumpaytelevisioncustomersand95%ofourSuddenlinkpaytelevisioncustomers,andweofferedthousandsofHDtitleson-demandforOptimumandSuddenlinkcustomers,respectively.
Foramonthlyfee,weofferDVRservicesthroughtheuseofdigitalconverters,themajorityofwhichareHDTV-capableandhavevideorecordingcapability.AsofDecember31,2016,approximately
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49%ofourresidentialOptimumpaytelevisioncustomersand36%ofourSuddenlinkpaytelevisioncustomersutilizedDVRservices.Optimumcustomerscanchooseeitheraset-topboxDVRwiththeabilitytorecord,pauseandrewindlivetelevisionortheMulti-RoomDVRPluswithremote-storagecapabilitytorecord15showssimultaneouslywhilewatchinganyliveorpre-recordedshow,andpauseandrewindlivetelevision.Dependingonthemarket,Suddenlinkcustomershavetheoptiontouseaset-topboxDVRoraTiVoHD/DVRconverter,whichdeliversmulti-roomDVRcapabilityusingTiVoMinidevicesthatallowcustomerstopauseandrewindlivetelevision,managerecordingsfromdifferenttelevisionlocationsandplaythembackthroughoutthehome.Inaddition,TiVoStreamservice,whichallowscustomerstostreamlivetelevisionchannelsandrecordedprogrammingwirelesslythroughouttheirhometoAndroidandiOSdevices,and,subjecttocopyrightrestrictions,downloadpreviouslyrecordedcontenttothesedevicessothatitcanbeviewedoutsidethehome,isprovidedtocurrentTiVoDVRsubscribers.
Wealsoplantointroduceanewhomecommunicationshubduringthesecondquarterof2017,whichwillbethemostadvancedhomecommunicationshubofferedbyanyAlticeGroupbusiness.Thisnewhubwillbeaninnovative,integratedplatformwithadynamicandsophisticateduserinterface,combiningaset-topbox,Internetrouterandcablemodeminonedevice.ItisbasedonLaBox,whichAlticeN.V.hassuccessfullydeployedinFrance,theDominicanRepublicandIsrael,andwillbeinitiallyofferedtocustomerssubscribingtoourtriple-productpackages.ItwillbecapableofdeliveringbroadbandInternet,Wi-Fi,digitaltelevisionservices,OTTservicesandfixed-linetelephonyandwillsupport4Kvideoandaremote-storageDVRwiththecapacitytorecord15televisionprogramssimultaneouslyandtheabilitytorewindlivetelevisiononthelasttwochannelswatched.Additionalfeatureswillincludemultiplestoragetiers,apoint-anywherevoice-commandremotecontrolandacompanionmobileappthatallowsviewingofalltelevisioncontentincludingDVRstreaming.Additionaltelevisionswillbepairedwith"minis,"whichwillalsoactasWi-FiextendersforanadvancedWi-Fiexperiencethroughoutthehome.Additionally,ournewhomecommunicationshubandthe"minis"willoffersimpletouch-to-paircapabilityforselectmobiledevicesvianear-fieldcommunicationstechnology.
Wealsoofferalternativeviewingplatformsforourpaytelevisionprogrammingthroughmobileapplications.OurOptimumcustomershaveaccesstoOptimumApp,availablefortheiPad,iPhone,iPodtouch,personalcomputers,KindleFireandselectAndroidphonesandtablets,andourSuddenlinkcustomershaveaccesstoSuddenlink2GO,availableforpersonalcomputersandselectphonesandtablets.Dependingontheplatform,theOptimumAppfeaturesincludetheabilitytowatchlivetelevision,streamon-demandtitlesfromvariousnetworksandusethedeviceasaremotetocontrolthecustomer'sdigitalset-topboxwhileinsidethehome.Suddenlink2GOenablesSuddenlinkcustomerstowatchover400,000movies,showsandclipsfromover380networksonapersonalcomputeronceauthenticatedviatheSuddenlinkcustomerportalandselecttelevisionshowsandmoviesontheirmobiledevices.
Telephony Services
ThroughVoIPtelephoneservicewealsoofferunlimitedlocal,regionalandlong-distancecallingwithintheUnitedStates,PuertoRico,VirginIslandsandCanadaforaflatmonthlyrate,includingpopularcallingfeaturessuchascallerIDwithnameandnumber,callwaiting,three-waycalling,enhancedemergency911dialingandtelevisioncallerID.Wealsoofferadditionaloptionsdesignedtomeetourcustomers'needs,includingdirectoryassistance,voicemailservicesandinternationalcalling.Discountandpromotionalpricingareavailablewhenourtelephonyservicesarecombinedwithourotherserviceofferings.
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Business Services
BothourOptimumandSuddenlinksegmentsofferawideandgrowingvarietyofproductsandservicestobothlargeenterpriseandSMBcustomers,includingbroadband,telephony,networkingandpaytelevisionservices.FortheyearendedDecember31,2016,businessservicesaccountedforapproximately14%oftherevenueforbothourOptimumandSuddenlinksegments,respectively,andonaproformabasisaccountedforapproximately14%ofourconsolidatedrevenue.Asoftheendofthatperiodweservedapproximately365,000SMBcustomers.WeserveenterprisecustomersprimarilythroughourLightpathbusiness,asubsidiaryofOptimum.
Enterprise Customers
LightpathprovidesEthernet,datatransport,IP-basedvirtualprivatenetworks,Internetaccess,telephonyservices,includingSIPtrunkingandVoIPservicestothebusinessmarket.OurLightpathbandwidthconnectivityserviceoffersdownloadspeedsupto100Gbps.Lightpathalsoprovidesmanagedservicestobusinesses,includinghostedtelephonyservices(cloudbasedSIP-basedprivatebranchexchange),managedWi-Fi,manageddesktopandserverbackupandmanagedcollaborationservicesincludingaudioandwebconferencing.ThroughLightpath,wealsoofferFTTTservicestowirelesscarriersforcelltowerbackhaulandenablewirelinecommunicationsserviceproviderstoconnecttocustomersthattheirownnetworksdonotreach.Lightpath'scustomersincludecompaniesinhealthcare,financial,education,legalandprofessionalservices,andotherindustries,aswellasthepublicsectorandcommunicationproviders(ILECsandCLECs).AsofDecember31,2016,Lightpathhadover8,300locationsconnectedtoitsfibernetwork.OurLightpathadvancedfiberopticnetworkextendsmorethan6,700routemiles,whichincludesapproximately338,000milesoffiber,throughouttheNewYorkmetropolitanarea.
Forenterpriseandlargercommercialcustomers,Suddenlinkoffershighcapacitydataservices,includingwideareanetworkinganddedicateddataaccessandadvancedservicessuchaswirelessmeshnetworks.Suddenlinkalsooffersenterpriseclasstelephoneserviceswhichincludetraditionalmulti-linephoneserviceoverDOCSISandtrunkingsolutionsviaSIPforourPrimaryRateInterfaceandSIPtrunkingapplications.SimilartoLightpath,SuddenlinkalsooffersFTTTservices.TheseSuddenlinkservicesareofferedonastandalonebasisorinbundlesthataredevelopedspecificallyforourcommercialcustomers.
SMB Customers
BothourOptimumandSuddenlinksegmentsprovidebroadband,paytelevisionandtelephonyservicestoSMBcustimers.Inadditiontotheseservices,wealsooffermanagedservices,includingbusinesse-mail,hostedprivatebranchexchange,webspacestorageandnetworksecuritymonitoringforSMBcustomers.WealsoofferOptimumVoiceforBusiness,providingforupto24voicelinesforSMBcustomersand20businesscallingfeaturesatnoadditionalcharge.OptimumVoiceforBusinessoffersbusinesstrunkingserviceswithsupportforapplicationprogramminginterfaces.Optionaladd-onservices,suchasinternationalcalling,tollfreecallingandvirtualreceptionists,arealsoavailableforbusinesscustomers.
Advertising Sales
Aspartoftheagreementsunderwhichweacquirepaytelevisionprogramming,wetypicallyreceiveanallocationofscheduledadvertisingtimeduringsuchprogramming,generallytwominutesperhour,intowhichoursystemscaninsertcommercials,subject,insomeinstances,tocertainsubjectmatterlimitations.Ouradvertisingsalesinfrastructureincludesin-houseproductionfacilities,productionandadministrativeemployeesandalocally-basedsalesforce,andispartofAlticeMediaSolutions("AMS"),theadvertisingsalesdivisionofAlticeUSA.
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AMSoffersdata-driventelevision,digitalandothermulti-platformadvertisingtoclientsrangingfromFortune500brandstolocalbusinesses.AMSprovidesnationalandlocalbusinesseswithtelevisionanddigitaladvertisingopportunitiestargetedwithinspecificgeographies,includinginNewYorkCity,theworld'slargestmediaandentertainmentmarketasmeasuredby2014revenue,andthroughouttheSuddenlinkfootprint.AMSoffersclientsopportunitiestouseinteractivetelevisionproductstoreachtheircustomersandprovideadeeperlevelofaudienceengagement.
Inseveralofthemarketsinwhichweoperate,wehaveenteredintoagreementscommonlyreferredtoasinterconnectswithothercableoperatorstojointlyselllocaladvertising,simplifyingourclients'purchaseoflocaladvertisingandexpandingtheirgeographicreach.Insomeofthesemarkets,werepresenttheadvertisingsaleseffortsofothercableoperators;inothermarkets,othercableoperatorsrepresentus.Forinstance,AMSmanagestheNewYorkInterconnect,apartnershipbetweenAMSandComcastthatprovidesnationalbrandswithtelevisionanddigitaladvertisingopportunitiesoverabroaderportionoftheNewYorkDMAthanAMS'slocalofferings.NewYorkInterconnectisthelargestinterconnectinthecountry,withafootprintofover3.2millionhouseholds.InthelargerDMAsintheSuddenlinkfootprint,weparticipateinanumberofinterconnectsmanagedbyothers,suchastheHoustonandDallasinterconnects.
FortheyearendedDecember31,2016,advertisingsalesaccountedforapproximately5%and3%oftherevenueforourOptimumandSuddenlinksegments,respectively,andonaproformabasisaccountedforapproximately4%ofourconsolidatedrevenue.
Data Analytics
TheAdvancedDataAnalyticsbusiness,whichwaslaunchedbyOptimumin2013,providesdata-driven,audience-basedadvertisingsolutionstothemediaindustry,includingAMS,programmersandMVPDs.TotalAudienceData,itsflagshipportfolioofproducts,consistsofadvancedanalyticstoolsprovidinggranularmeasurementofconsumergroups,accuratehyper-localratingsandotherinsightsintotargetaudiencebehaviornotavailablethroughtraditionalsample-basedmeasurementservices.Thesetoolsallowusandourclientstomorepreciselyoptimizeourproductofferings,targetanddeliveradsmoreefficiently,andprovideaccuratemeasurementtoourclientsandpartners.
OurMarch2017acquisitionofAudiencePartners,aleadingproviderofdata-driven,audience-baseddigitaladvertisingsolutions,expandsthescopeoftargetedadvertisingsolutionsweofferfromtelevisiontoincludedigital,mobileandtablets.Inaddition,theacquisitionexpandsouraudience-basedadvertisingservicestoincludefurtheradvancedanalyticstoolswithinkeyandgrowingsegments,includingpolitical,advocacy,healthcare,automotive,andprogramming.AlticeN.V.recentlyannouncedanagreementtoacquireTeads,aleadingonlinevideoadvertisingmarketplace,whichwebelievewillfurtherenhanceourabilitytoofferdataanalyticsandadvertisingsolutionstoourclients.
News 12 Networks
News12Networksisthelargestandoneofthemost-watched24-hourlocalnewsnetworksintheNewYorkmediamarket.Ownedexclusivelybyus,thenetworkconsistsofsevenlocalnewschannelsintheNewYorkmetropolitanarea—theBronx,Brooklyn,Connecticut,HudsonValley,LongIsland,NewJerseyandWestchester—providingeachwithcompleteaccesstohyper-localbreakingnews,traffic,weather,sports,andmore.Inaddition,News12Networksalsoincludesfivetrafficandweatherchannelsthatofferconstantlyupdatedinformation;theaward-winningNews12.com,thepremierdestinationforlocalnewsontheweb;News12Interactive,channel612onOptimumTV,providinglocalnewsondemand;andNews12ToGo,thenetwork'smobileappforphonesandtablets.Sincelaunchingin1986,News12Networkshasbeenwidelyrecognizedbythenewsindustrywithnumerousprestigioushonorsandawards,includingover230EmmyAwards,plusmultipleEdwardR.MurrowAwards,NYPressClubAwards,andmore.WederiverevenuefromourNews12Networksforthesale
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ofadvertisingandaffiliationfeespaidbycableoperators.Advertisingrevenueisincludedin"Advertising"andaffiliationfeeschargedfortheprogrammingareincludedin"Other."
Franchises
AsofDecember31,2016,oursystemsoperatedinmorethan1,300communitiespursuanttofranchises,permitsandsimilarauthorizationsissuedbystateandlocalgovernmentalauthorities.Franchiseagreementstypicallyrequirethepaymentoffranchisefeesandcontainregulatoryprovisionsaddressing,amongotherthings,servicequality,cableservicetoschoolsandotherpublicinstitutions,insuranceandindemnity.Franchiseauthoritiesgenerallychargeafranchisefeeofnotmorethan5%ofcertainofourcableservicerevenuesthatarederivedfromtheoperationofthesystemwithinsuchlocality.Wegenerallypassthefranchisefeeontooursubscribers.
Franchiseagreementsareusuallyforatermoffiveto15yearsfromthedateofgrantandmostare10years.Franchiseagreementsareusuallyterminableonlyifthecableoperatorfailstocomplywithmaterialprovisionsandthenonlyafterthefranchisingauthoritycomplieswithsubstantiveandproceduralprotectionsaffordedbythefranchiseagreementandfederalandstatelaw.Priortothescheduledexpirationofmostfranchises,wegenerallyinitiaterenewalproceedingswiththegrantingauthorities.Thisprocessusuallytakeslessthanthreeyearsbutcantakealongerperiodoftime.TheCommunicationsActof1934,asamended(the"CommunicationsAct"),whichistheprimaryfederalstatuteregulatinginterstatecommunications,providesforanorderlyfranchiserenewalprocessinwhichgrantingauthoritiesmaynotunreasonablywithholdrenewals.See"Regulation—CableTelevision—Franchising."Inconnectionwiththefranchiserenewalprocess,manygovernmentalauthoritiesrequirethecableoperatortomakecertaincommitments,suchasbuildingoutcertainfranchiseareas,meetingcustomerservicerequirementsandsupportingandcarryingpublicaccesschannels.
Historically,wehavebeenabletorenewourfranchiseswithoutincurringsignificantcosts,althoughanyparticularfranchisemaynotberenewedoncommerciallyfavorabletermsorotherwise.Weexpecttoreneworcontinuetooperateunderallorsubstantiallyallofthesefranchises.Formoreinformationregardingrisksrelatedtoourfranchises,see"RiskFactors—RiskFactorsRelatingtoRegulatoryandLegislativeMatters—Ourcablesystemfranchisesaresubjecttonon-renewalortermination.Thefailuretorenewafranchiseinoneormorekeymarketscouldadverselyaffectourbusiness."Proposalstostreamlinecablefranchisingrecentlyhavebeenadoptedatboththefederalandstatelevels.Formoreinformationsee"Regulation—CableTelevision—Franchising."
Programming
Wedesignourchannelline-upsforeachsystemaccordingtodemographics,programmingcontractrequirements,marketresearch,viewership,localprogrammingpreferences,channelcapacity,competition,pricesensitivityandlocalregulation.Webelieveofferingawidevarietyofprogramminginfluencesacustomer'sdecisiontosubscribetoandretainourpaytelevisionservices.Weobtainprogramming,includingbasic,expandedbasic,digital,HD,VODandbroadbandcontent,fromanumberofsuppliers,includingbroadcastandcablenetworks.
Wegenerallycarrycablenetworkspursuanttowrittenprogrammingcontracts,whichcontinueforafixedperiodoftime,usuallyfromthreetofiveyears,andaresubjecttonegotiatedrenewal.Cablenetworkprogrammingisusuallymadeavailabletousforalicensefee,whichisgenerallypaidbasedonthenumberofcustomerswhosubscribetothelevelofservicethatprovidessuchprogramming.Suchlicensefeesmayinclude"volume"discountsavailableforhighernumbersofcustomers,aswellasdiscountsforchannelplacementorservicepenetration.Wherepossible,wenegotiatevolumediscountpricingstructures.Forhomeshoppingchannels,wereceiveapercentageoftherevenueattributabletoourcustomers'purchases,aswellas,insomeinstances,incentivesforchannelplacement.
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Wetypicallyseekflexibledistributiontermsthatwouldpermitservicestobemadeavailableinavarietyofretailpackagesandonavarietyofplatformsanddevicesinordertomaximizeconsumerchoice.Supplierstypicallyinsistthattheirmostpopularandattractiveservicesbedistributedtoaminimumnumberorpercentageofsubscribers,whichlimitsourabilitytoprovideconsumersfullpurchasingflexibility.Suppliersalsotypicallyseektocontrolorlimitthetermsonwhichweareabletomaketheirservicesavailableonvariousplatformsanddevicesyetthishasbecomemoreflexibleeachyear.
Ourcableprogrammingcostshaveincreasedinexcessofcustomaryinflationaryandcost-of-livingtypeincreases.Weexpectprogrammingcoststocontinuetoincreaseduetoavarietyoffactorsincludingannualincreasesimposedbystationsandprogrammersandadditionalprogrammingbeingprovidedtocustomers,includingHD,digitalandVODprogramming.Inparticular,broadcastandsportsprogrammingcostshaveincreasedsignificantlyoverthepastseveralyears.Inaddition,contractstopurchasesportsprogrammingsometimesprovideforoptionaladditionalprogrammingtobeavailableonasurchargebasisduringthetermofthecontract.Theseincreaseshavecoincidedwithasignificantincreaseinthequalityoftheprogramming,fromhighproductionvalueoriginalcableseriestoenhancedcameraandstatisticaldatatechnologyinsportsbroadcasts,andmoreflexiblerightstomakethecontentavailableonvariousplatformsanddevices.
Wehaveprogrammingcontractsthathaveexpiredandothersthatwillexpireatorbeforetheendof2017.Wewillseektorenegotiatethetermsoftheseagreements,buttherecanbenoassurancethattheseagreementswillberenewedonfavorableorcomparableterms.Totheextentthatweareunabletoreachagreementwithcertainprogrammersontermsthatwebelievearereasonable,wehavebeen,andmayinthefuturebe,forcedtoremovesuchprogrammingchannelsfromourline-up,whichmayresultinalossofcustomers.InourSuddenlinksegment,wewereunabletoreachagreementwithViacomonacceptableeconomictermsforalong-termcontractrenewal,andeffectiveOctober1,2014,allViacomnetworkswereremovedfromourchannellineupsinourSuddenlinksegment,andwelaunchedalternativenetworksofferedbyotherprogrammersundernewlong-termcontracts.Formoreinformation,see"RiskFactors—RiskFactorsRelatingtoOurBusiness—Programmingandretransmissioncostsareincreasingandwemaynothavetheabilitytopasstheseincreasesontooursubscribers.Disputeswithprogrammersandtheinabilitytoretainorobtainpopularprogrammingcanadverselyaffectourrelationshipwithsubscribersandleadtosubscriberlosses."
Sales and Marketing
Salesaremanagedcentrallyandmultiplesaleschannelsareleveragedtoreachcurrentandpotentialcustomers,includingin-boundcustomercarecenters,outboundtelemarketing,stores,fieldtechniciansalesanddoor-to-doorsales.E-commerceisalsomanagedcentrallyonbehalfoftheorganizationandisagrowinganddynamicpartofourbusinessandisourfastestgrowingsaleschannel.Weusemassmedia,includingbroadcasttelevision,digitalmedia,radio,newspaperandoutdooradvertising,toattractcustomersanddirectthemtoourin-boundcustomercarecentersorwebsite.Oursalesandserviceemployeesuseavarietyofsalestoolsastheyworktomatchcustomers'needswithourbest-in-classproducts,withafocusonbuildingandenhancingcustomerrelationships.
Becauseofourlocalpresenceandmarketknowledge,weinvestheavilyintargetedmarketing.Ourstrategicfocusisonbuildingnewcustomerrelationshipsandbundlingbroadband,paytelevisionandtelephonyservices.Ourpromotionalmaterialsandmessagefocusontheeasewithwhichacustomercanorderourproductsandservices,andhighlightthedifferentiatedconnectivityandentertainmentexperienceandtheconvenienceofonecall,oneconnectionandonebill.Muchofouradvertisingisdevelopedcentrallyandcustomizedforourregions.Amongotherfactors,wemonitorcustomerperceptions,marketingeffortsandcompetition,toincreaseourresponsivenessandtheeffectivenessofourefforts.OurfootprinthasseverallargecollegemarketswherewemarketspecializedproductsandservicestostudentsforMDUs,suchasdormitoriesandapartmentcomplexes.
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WehaveseparatededicatedsalesteamsforourSMBandenterpriseofferingsanddedicatedserviceteamstosupportSMBandenterpriseclients.
Altice Technical Services
ThereorganizationofourtechnicalworkforceintoATS,whichisownedbyAlticeN.V.andATSmanagement,ismodeledonAlticeN.V.'ssuccessfulimplementationofasimilarstrategyinitsotheroperations.InmostothermarketsinwhichAlticeN.V.operates,itseparateshomeinstallation,repair,outsideplantmaintenanceandnetworkconstructionelementsofitsoperatingcompaniesintostandaloneservicescompaniesthatprovidetheseservicestoitsoperatingcompaniesand,insomecases,thirdparties.WeandAlticeN.V.believethisseparationenablesbothbusinessestobemorefocusedandefficientintheircorecompetencies,withAlticeN.V.'soperatingbusinessenjoyingfinancialsavingsandhigherlevelsofcustomersatisfactionasaresultofthetailoredfocusofthetechnicalservicesbusinessanditsowner-operatorculture.Inaddition,webelievetheinstallation,repair,outsideplantmaintenanceandnetworkconstructionserviceswereceivefromATSwillbeofhigherqualityandatalowercostthanwecouldachievewithoutATS,includingfortheconstructionofournewFTTHnetwork.
Customer Experience
Webelievecustomerserviceisthecornerstoneofourbusiness.Accordingly,wemakeaconcertedefforttocontinuallyimproveeachcustomer'sexperienceandhavemadesignificantinvestmentsinourpeople,processesandtechnologytoenhanceourcustomers'experienceandtoreducethenumberoftimescustomersneedtocontactus.Theinsightsfromoperationalmetricshelpusfocusourimprovementefforts.Forexample,welinkinternalsalesincentivestoearlychurnandproductmixasopposedtomoretraditionalcriteriaofnewsales,inordertorefocusourorganizationawayfromchurnretentiontochurnprevention.ThenumberoftechnicalservicecallshandledbyourrepresentativesinMarch2017was23.8%lowercomparedtoMarch2016whilethenumberofcustomerservicecallshandledbyourrepresentativeswas17.3%loweroverthesameperiod.See"Business—OurBusinessStrategy—EnhancetheCustomerExperience."
Ourcustomercarecentersaremanagedandoperatedlocally,withthedeploymentandexecutionofend-to-endcarestrategiesandinitiativesconductedonasite-by-sitebasis.WehaveresidentialandcommercialcustomercarecenterslocatedinNewark,NJ;Jericho,NY;Bronx,NY;Melville,NY;Tyler,TX;Lubbock,TX;Parkersburg,WV;andLakeHavasu,AZ.Ourcustomercarecentersfunctionasanintegratedsystemandutilizesoftwareprogramsthatprovideincreasedefficienciesandlimitedwait-timesforcustomersrequiringsupport.
ATS'fieldtechniciansandschedulersutilizethesamesoftwareprogramsforcustomersrequiringin-personsupport.Weprovideservicetoourcustomers24hoursaday,sevendaysaweek,andwehavesystemsthatallowourcustomercarecenterstobeaccessedandmanagedremotelyintheeventthatsystemsfunctionalityistemporarilylost,whichprovidesourcustomersaccesstocustomerservicewithlimiteddisruption.
Wealsoutilizeourcustomerportaltoenableourcustomerstoviewandpaytheirbillsonline,obtainusefulinformationandperformvariousequipmenttroubleshootingprocedures.Ourcustomersmayalsoobtainsupportthroughouronlinechat,e-mailfunctionalityandsocialmediawebsites,includingTwitterandFacebook.
Network Management
OurcablesystemsaregenerallydesignedwithanHFCarchitecturethathasproventobehighlyflexibleinmeetingtheincreasingneedsofourcustomers.Wedeliveroursignalsvialaser-fedfiberopticcablefromcontrolcentersknownasheadendsandhubstoindividualnodes.Eachnodeis
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connectedtotheindividualhomesservedbyus.Aprimarybenefitofthisdesignisthatitpushesfiberopticsclosertoourcustomers'homes,whichallowsustosubdivideoursystemsintosmallerservicegroupsandmakecapitalinvestmentsonlyinservicegroupsexperiencinghigherthanaverageservicegrowth.
AsofDecember31,2016,approximately96%ofourbasicpaytelevisioncustomerswereservedbysystemswithacapacityofatleast750MHzandapproximately300homespernode.OurOptimumnetworkhasbeenupgratedtonearlytriplethemaximumavailablebroadbandspeedsandwehaveexpandedourGbpsbroadbandservicetoapproximately60%ofourSuddenlinkfootprint,comparedtoapproximately40%priortotheSuddenlinkAcquisition.Morethan99%ofourresidentialbroadbandInternetcustomersareconnectedtoournationalbackbonewithapresenceinmajorcarrieraccesspointsinNewYork,Dallas,Chicago,SanJose,WashingtonD.C.andPhoenix.ThispresenceallowsustoavoidsignificantInternettransitcostsbyestablishingpeeringrelationshipswithmajorInternetserviceandcontentprovidersenablingdirectconnectivitywiththemattheseaccesspoints.
ALTICE USA NATIONAL NETWORK MAP
WealsohaveanetworkingcachingarchitecturethatplaceshighlyviewedInternettrafficfromthelargestInternet-basedcontentprovidersattheedgeofthenetworkclosesttothecustomertoreducebandwidthrequirementsacrossournationalbackbone,thusreducingoperatingexpense.ThiscollectivenetworkarchitecturealsoprovidesuswiththecapabilitytomanagetrafficacrossseveralInternetaccesspoints,thushelpingtoensureInternetaccessredundancyandqualityofserviceforourcustomers.Additionally,ournationalbackboneconnectsmostofoursystems,whichallowsforanefficientandeconomicaldeploymentofservicesfromourcentralizedplatformsthatincludetelephone,VOD,networkDVR,commonpaytelevisioncontent,broadbandInternet,hostedbusinesssolutions,provisioning,e-mailandotherrelatedservices.
Wehavealsocommencedafive-yearplantobuildaFTTHnetwork,whichwillenableustodelivermorethan10GbpsbroadbandspeedsacrossourentireOptimumfootprintandpartofour
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Suddenlinkfootprint.WebelievethisFTTHnetworkwillbemoreresilientwithreducedmaintenancerequirements,fewerserviceoutagesandlowerpowerusage,whichweexpectwilldrivefurtherstructuralcostefficiencies.
Wehavealsofocusedonsystemreliabilityanddisasterrecoveryaspartofournationalbackboneandprimarysystemstrategy.Forexample,tohelpensureahighlevelofreliabilityofourservices,weimplementedredundantpowercapability,aswellasfiberrouteandcarrierdiversityinournetworksservingmostofourcustomers.Withrespecttodisasterrecovery,weinvestedinourtelephoneplatformarchitectureforgeo-redundancytominimizedowntimeintheeventofadisastertoanysinglefacility.Additionally,weareworkingtoimplementageo-redundantdisasterrecoveryenvironmentforournetworkoperationscentersupportingbothresidentialandbusinesscustomers.
Inaddition,wehaveexpandedandrefinedourbandwidthutilizationincapacityconstrainedsystemsinordertomeetdemandfornewandimprovedadvancedservices.Akeycomponenttoreclaimbandwidthwasthedigitaldeliveryofpaytelevisionchannelsthatwerepreviouslydistributedinanalogthroughthelaunchofdigitalsimulcast,whichduplicatesanalogchannelsasdigitalchannels.Additionally,thedeploymentoflower-costdigitalcustomerpremisesequipment,suchasHDdigitaltransportadapters,enabledtheuseofmoreefficientdigitalchannelsinsteadofanalogchannels,thusallowingthereclamationofexpandedbasicanalogbandwidthinthetargetedsystems.ThisreclaimedanalogbandwidthcouldthenberepurposedforotheradvancedservicessuchasadditionalHDTVservicesandfasterInternetaccessspeeds.Thistechnologyhastheaddedbenefitofprovidingimprovedpictureandsoundqualitytocustomersformostoftheirpaytelevisionprogramming.
Information Technology
OurITsystemsconsistofbilling,customerrelationshipmanagement,businessandoperationalsupportandsalesforcemanagementsystems.WeareupdatingandsimplifyingourITinfrastructurethroughfurtherinvestments,focusingoncostefficiencies,improvedsystemreliability,functionalityandscalabilityandenhancingtheabilityofourITinfrastructuretomeetourongoingbusinessobjectives.Further,wehavemadesignificantprogressinintegratingandconsolidatingtheITplatformsandsystemsandstreamliningtheprocessesofOptimumandSuddenlink,whichhasdrivenoperatingefficiencies.Additionally,throughinvestmentinourITplatformsandfocusonprocessimprovement,wehavesimplifiedandharmonizedourserviceofferingbundles,optimizedourtechnicalservicedeliveryandimprovedcustomerservice.
Suppliers
Customer Premise and Network Equipment
Wepurchaseset-topboxesandothercustomerpremiseequipmentfromalimitednumberofvendorsbecauseeachofourcablesystemsusesoneortwoproprietarytechnologyarchitectures.WealsobuyHD,HD/DVRsandVODequipment,routers,includingthecomponentsofournewhomecommunicationshub,andothernetworkequipmentfromalimitednumberofsuppliers,includingAlticeLabs.See"RiskFactors—RiskFactorsRelatingtoOurBusiness—Werelyonnetworkandinformationsystemsforouroperationsandadisruptionorfailureof,ordefectsin,thosesystemsmaydisruptouroperations,damageourreputationwithcustomersandadverselyaffectourresultsofoperations."
Broadband and Telephone Connectivity
WedeliverbroadbandandtelephonyservicesthroughourHFCnetwork.WeusecircuitsthatareeitherownedbyusorleasedfromthirdpartiestoconnecttotheInternetandthepublicswitchedtelephonenetwork.Wepayfeesforleasedcircuitsbasedontheamountofcapacityavailabletoitand
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payforInternetconnectivitybasedontheamountofIP-basedtrafficreceivedfromandsentovertheothercarrier'snetwork.
Competition
Weoperateinahighlycompetitive,consumer-drivenindustryandwecompeteagainstavarietyofbroadband,paytelevisionandtelephonyprovidersanddeliverysystems,includingbroadbandcommunicationscompanies,wirelessdataandtelephonyproviders,satellitedeliveredvideosignals,Internet-deliveredvideocontentandbroadcasttelevisionsignalsavailabletoresidentialandbusinesscustomersinourserviceareas.Webelieveourleadingmarketpositionsinourfootprint,technologicallyadvancednetworkinfrastructure,includingourFTTHbuild-out,ournewhomecommunicationshubandourfocusonenhancingthecustomerexperience,consistentwiththeAlticeWay,favorablypositionustocompeteinourindustry.Seealso"RiskFactors—RiskFactorsRelatingtoOurBusiness—Weoperateinahighlycompetitivebusinessenvironmentwhichcouldmateriallyadverselyaffectourbusiness,financialcondition,resultsofoperationsandliquidity."
Broadband Services Competition
Ourbroadbandservicesfacecompetitionfrombroadbandcommunicationscompanies'DSL,FTTHandwirelessbroadbandofferingsaswellasfromavarietyofcompaniesthatofferotherformsofonlineservices,includingsatellite-basedbroadbandservices.CurrentandfuturefixedandwirelessInternetservices,suchas3G,4Gand5GfixedandwirelessbroadbandservicesandWi-Finetworks,anddevicessuchaswirelessdatacards,tabletsandsmartphones,andmobilewirelessroutersthatconnecttosuchdevices,maycompetewithourbroadbandservices.
Pay Television Services Competition
Wefaceintensecompetitionfrombroadbandcommunicationscompanieswithfiber-basednetworks,primarilyVerizon,whichhasconstructedaFTTHnetworkplantthatpassesasignificantnumberofhouseholdsinourOptimumservicearea.WeestimatethatVerizoniscurrentlyabletosellafiber-basedpaytelevisionservice,aswellasbroadbandandVoIPservices,toatleasthalfofthehouseholdsinourOptimumservicearea.Inaddition,FrontierofferspaytelevisionserviceincompetitionwithusinmostofourConnecticutservicearea.
WealsocompetewithDBSproviders,suchasDirecTV(asubsidiaryofAT&TInc.)andDISH.DirecTVandDISHofferone-waysatellite-deliveredpre-packagedprogrammingservicesthatarereceivedbyrelativelysmallandinexpensivereceivingdishes.DirecTVhasexclusivearrangementswiththeNationalFootballLeaguethatgiveitaccesstoprogrammingthatwecannotoffer.AT&TalsohasanagreementtoacquireTimeWarnerInc.,whichownsanumberofcablenetworks,includingTBS,CNNandHBO,andWarnerBros.Entertainment,whichproducestelevision,filmandhome-videocontent.However,webelievecable-deliveredVODservices,whichincludeHDprogramming,offeracompetitiveadvantagetoDBSservicebecausecableheadendscanprovidetwo-waycommunicationtodeliveralargevolumeofprogrammingwhichcustomerscanaccessandcontrolindependently,whereasDBStechnologycanonlymakeavailableamuchsmalleramountofprogrammingwithDVR-likecustomercontrol.
Ourpaytelevisionservicesalsofacecompetitionfromanumberofothersources,includingcompaniesthatdelivermovies,televisionshowsandotherpaytelevisionprogrammingoverbroadbandInternetconnectionstotelevisions,computers,tabletsandmobiledevices,suchasHulu,iTunes,AmazonPrime,Netflix,YouTube,PlaystationVue,DirecTVNowandSlingTV.
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Telephony Services Competition
Ourtelephonyservicecompeteswithwireline,wirelessandOTTphoneproviders,suchasVonage,Skype,GoogleTalk,Facetime,WhatsAppandmagicJack,aswellascompaniesthatsellphonecardsatacostperminuteforbothnationalandinternationalservice.Inaddition,wecompetewithotherformsofcommunication,suchastextmessagingoncellularphones,instantmessaging,socialnetworkingservices,videoconferencingandemail.Theincreaseinthenumberofdifferenttechnologiescapableofcarryingtelephonyservicesandthenumberofalternativecommunicationoptionsavailabletocustomersaswellasthereplacementofwirelineservicesbywirelesshaveintensifiedthecompetitiveenvironmentinwhichweoperateourtelephonyservices.
Business Services Competition
Weoperateinhighlycompetitivebusinesstelecommunicationsmarketandcompeteprimarilywithlocalincumbenttelephonecompanies,especiallyAT&T,CenturyLink,FrontierandVerizon,aswellasfromavarietyofothernationalandregionalbusinessservicescompetitors.
Advertising Sales Competition
Wefaceintensecompetitionforadvertisingrevenueacrossmanydifferentplatformsandfromawiderangeoflocalandnationalcompetitors.Advertisingcompetitionhasincreasedandwilllikelycontinuetoincreaseasnewformatsseektoattractthesameadvertisers.Wecompeteforadvertisingrevenueagainst,amongothers,localbroadcaststations,nationalcableandbroadcastnetworks,radiostations,printmediaandonlineadvertisingcompaniesandcontentproviders.
Properties
WeownourheadquartersbuildinglocatedinBethpage,NewYorkwithapproximately558,000squarefeetofspace.Inaddition,weownorleaserealestatethroughoutouroperatingareaswherecertainofourcallcenters,corporatefacilities,businessoffices,earthstations,transponders,microwavetowers,warehouses,headendequipment,hubsites,accessstudiosandmicrowavereceivingantennaearelocated.
Ourprincipalphysicalassetsconsistofcableoperatingplantandequipment,includingsignalreceiving,encodinganddecodingdevices,headendfacilities,fiberoptictransportnetworks,coaxialanddistributionsystemsandequipmentatornearcustomers'homesorplacesofbusinessforeachofthesystems.Thesignalreceivingapparatustypicallyincludesatower,antenna,ancillaryelectronicequipmentandearthstationsforreceptionofsatellitesignals.Headendfacilitiesarelocatednearthereceivingdevices.Ourdistributionsystemconsistsprimarilyofcoaxialandfiberopticcablesandrelatedelectronicequipment.Customerpremiseequipmentconsistsofset-topdevices,cablemodems,Internetrouters,wirelessdevicesandmediaterminaladaptersfortelephone.Ourcableplantandrelatedequipmentgenerallyareattachedtoutilitypolesunderpolerentalagreementswithlocalpublicutilities;althoughinsomeareasthedistributioncableisburiedinundergroundductsordirectlyintrenches.Thephysicalcomponentsofthecablesystemsrequiremaintenanceandperiodicupgradingtoimprovesystemperformanceandcapacity.Inaddition,weoperateanetworkoperationscenterthatmonitorsournetwork24hoursaday,sevendaysaweek,helpingtoensureahighqualityofserviceandreliabilityforbothourresidentialandcommercialcustomers.Weownmostofourservicevehicles.
Webelieveourproperties,bothownedandleased,areingoodconditionandaresuitableandadequateforouroperations.
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Intellectual Property
Werelyonourpatents,copyrights,trademarksandtradesecrets,aswellaslicensesandotheragreementswithourvendorsandotherparties,touseourtechnologies,conductouroperationsandsellourproductsandservices.WealsorelyonouraccesstotheproprietarytechnologyofAlticeN.V.,includingAlticeLabs.Webelieveweownorhavetherighttousealloftheintellectualpropertythatisnecessaryfortheoperationofourbusinessaswecurrentlyconductit.
Employees and Labor Relations
AsofDecember31,2016,wehadapproximately16,000employeesofwhich227werecoveredundercollectivebargainingagreements.OnMarch10,2017,anadditional100employeesbecamerepresentedbyaunion.Webelieveourrelationswithemployeesaresatisfactory.
Legal Proceedings
Cable Operations Litigation
In re Cablevision Consumer Litigation. FollowingexpirationoftheaffiliationagreementsforcarriageofcertainFoxbroadcaststationsandcablenetworksonOctober16,2010,NewsCorporationterminateddeliveryoftheprogrammingfeedstoOptimum,andasaresult,thosestationsandnetworkswereunavailableonOptimum'scabletelevisionsystems.OnOctober30,2010,OptimumandFoxreachedanagreementonnewaffiliationagreementsforthesestationsandnetworks,andcarriagewasrestored.SeveralpurportedclassactionlawsuitsweresubsequentlyfiledonbehalfofOptimum'scustomersseekingrecoveryforthelackofFoxprogramming.ThoselawsuitswereconsolidatedinanactionbeforetheU.S.DistrictCourtfortheEasternDistrictofNewYork,andaconsolidatedcomplaintwasfiledinthatcourtonFebruary22,2011.Plaintiffsassertedclaimsforbreachofcontract,unjustenrichment,andconsumerfraud,seekingunspecifiedcompensatorydamages,punitivedamagesandattorneys'fees.OnMarch28,2012,theCourtruledonOptimum'smotiontodismiss,denyingthemotionwithregardtoplaintiffs'breachofcontractclaim,butgrantingitwithregardtotheremainingclaims,whichweredismissed.OnApril16,2012,plaintiffsfiledasecondconsolidatedamendedcomplaint,whichassertsaclaimonlyforbreachofcontract.Optimum'sanswerwasfiledonMay2,2012.OnOctober10,2012,plaintiffsfiledamotionforclasscertificationandonDecember13,2012,amotionforpartialsummaryjudgment.OnMarch31,2014,theCourtgrantedplaintiffs'motionforclasscertification,anddeniedwithoutprejudiceplaintiffs'motionforsummaryjudgment.OnMay30,2014,theCourtapprovedtheformofclassnotice,andonOctober7,2014,approvedtheclassnoticedistributionplan.Theclassnoticedistributionhasbeencompleted,andtheopt-outperiodexpiredonFebruary27,2015.ExpertdiscoverycommencedonMay5,2014andconcludedonDecember8and28,2015,whentheCourtruledonthependingexpertdiscoverymotions.OnJanuary26,2016,theCourtapprovedascheduleforfilingofsummaryjudgmentmotions.PlaintiffsfiledamotionforsummaryjudgmentonMarch31,2016.OptimumfileditsownsummaryjudgmentmotiononJune13,2016.Thepartiesareactivelyengagedinsettlementdiscussionsalthoughfinancialtermshavenotyetbeenfinalized.Themotionsforsummaryjudgmenthavebeendeniedwithleavetore-fileintheeventthediscussionsbetweenthepartiesarenotsuccessful.IntheperiodendedJune21,2016toDecember31,2016,Optimumrecordedanestimatedliabilityassociatedwithapotentialsettlementtotaling$5.2million.Theamountultimatelypaidinconnectionwithapossiblesettlementcouldexceedtheamountrecorded.
Patent Litigation
CertainsubsidiariesoftheCompanyarenamedasdefendantsincertainlawsuitsclaiminginfringementofvariouspatentsrelatingtovariousaspectsoftheCompany'sbusinesses.Incertainofthesecasesotherindustryparticipantsarealsodefendants.IncertainofthesecasestheCompany
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expectsthatanypotentialliabilitywouldbetheresponsibilityoftheCompany'sanditssubsidiaries'equipmentvendorspursuanttoapplicablecontractualindemnificationprovisions.TheCompanybelievesthattheclaimsarewithoutmeritandintendstodefendtheactionsvigorously,butisunabletopredicttheoutcomeoftheselawsuitsorreasonablyestimatearangeofpossibleloss.
Other Litigation
Inadditiontothemattersdiscussedabove,theCompanyispartytovariouslawsuits,someinvolvingclaimsforsubstantialdamages,intheordinarycourseofbusiness.AlthoughtheoutcomeoftheseothermatterscannotbepredictedandtheimpactofthefinalresolutionoftheseothermattersontheCompany'sresultsofoperationsinaparticularsubsequentreportingperiodisnotknown,managementdoesnotbelievethattheresolutionoftheseotherlawsuitswillintheaggregatehaveamaterialadverseeffectonthefinancialpositionoftheCompanyortheabilityoftheCompanytomeetitsfinancialobligationsastheybecomedue.
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REGULATION
Ourcableandrelatedservicesaresubjecttoavarietyoffederal,stateandlocallawandregulations.TheCommunicationsAct,andtherules,regulationsandpoliciesoftheFCC,aswellasotherfederalandstatelawsgoverningcabletelevision,communications,consumerprotection,privacyandrelatedmatters,affectsignificantaspectsofourcablesystemandservicesoperations.
Thefollowingparagraphsdescribetheexistinglegalandregulatoryrequirementswebelievearemostsignificanttoourcablesystemoperationstoday.Ourbusinesscanbedramaticallyimpactedbychangestotheexistingregulatoryframework,whethertriggeredbylegislative,administrativeorjudicialrulings.
Cable Television
Franchising. TheCommunicationsActrequirescableoperatorstoobtainanon-exclusivefranchisefromstateorlocalfranchisingauthoritiestoprovidecableservice.Althoughthetermsoffranchiseagreementsdifferfromjurisdictiontojurisdiction,theytypicallyrequirepaymentoffranchisefeesandcontainregulatoryprovisionsaddressing,amongotherthings,useoftherightofway,servicequality,cableservicetoschoolsandotherpublicinstitutions,insurance,indemnityandsalesofassetsorchangesinownership.Stateandlocalfranchisingauthority,however,mustbeexercisedconsistentwiththeCommunicationsAct,whichsetslimitsonfranchisingauthorities'powers,includinglimitingfranchisefeestonomorethan5%ofgrossrevenuesfromtheprovisionofcableservice,prohibitingfranchisingauthoritiesfromrequiringustocarryspecificprogrammingservices,andprotectingtherenewalexpectationoffranchiseesbylimitingthefactorsafranchisingauthoritymayconsiderandrequiringadueprocesshearingbeforedenyingrenewal.Evenwhenfranchisesarerenewed,however,thefranchiseauthoritymay,exceptwhereprohibitedbyapplicablelaw,seektoimposenewandmoreonerousrequirementsasaconditionofrenewal.Similarly,ifafranchisingauthority'sconsentisrequiredforthepurchaseorsaleofacablesystem,thefranchisingauthoritymayattempttoimposemoreburdensomerequirementsasaconditionforprovidingitsconsent.Cablefranchisesgenerallyaregrantedforfixedtermsandinmanycasesincludemonetarypenaltiesfornoncompliance.Theymayalsobeterminableifthefranchiseefailstocomplywithmaterialprovisions.
Thetraditionalcablefranchisingregimeisundergoingsignificantchangeasaresultofvariousfederalandstateactions.Severalstateshavereducedoreliminatedtheroleoflocal,municipalgovernmentinfranchisinginfavorofstateorsystem-widefranchises,andthetrendhasbeentowardconsolidationoffranchisingauthorityatthestatelevel,inparttoaccommodatetheinterestsofnewbroadbandandcableentrantsoverthelastdecade.Atthesametime,theFCChasadoptedrulesthatstreamlineentryfornewcompetitors(suchasthoseaffiliatedwithbroadbandcommunicationscompanies)andreducecertainfranchisingburdensforthesenewentrants.TheFCCadoptedmoremodestreliefforexistingcableoperators.
Pricing and Packaging. TheCommunicationsActandtheFCC'sruleslimitthescopeofpriceregulationforcabletelevisionservices.Amongotherlimitations,franchisingauthoritiesmayregulateratesforonly"basic"cableservice.In2015,theFCCadoptedanorder(whichisnowunderappeal)reversingitshistoricapproachtothislocalrateregulation.Previously,rateregulationwasineffectinacommunityunlessanduntilacableoperatorsuccessfullypetitionedtheFCCforreliefbyshowingtheexistenceof"effectivecompetition"(asdefinedunderfederallaw)inthecommunity.TheFCC's2015Orderreversedthatpresumption,barringfranchiseauthorityrateregulationabsentanaffirmativeshowingbythefranchisingauthoritythatthereisanabsenceofeffectivecompetition.Asnoneofourfranchiseauthoritieshavefiledthenecessaryrateregulationcertification,noneofourpaytelevisioncustomersarecurrentlysubjecttorateregulation.Ourfranchiseauthoritiesgenerallyretaintherighttocertifyanabsenceofeffectivecompetitioninthefuture,butthe2015Order(unlessoverturned)shouldmakeitmoredifficultforthefranchiseauthoritiestodoso.
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Therehavebeenfrequentcallstoimposefurtherrateregulationonthecableindustry.ItispossiblethatCongressortheFCCmayadoptnewconstraintsontheretailpricingorpackagingofcableprogramming.Forexample,therehasbeenlegislativeandregulatoryinterestinrequiringcableoperatorstoofferhistoricallybundledprogrammingservicesonanàlacartebasis.Inaddition,theFCCrecentlyinitiatedaproceedingexploringhowprogrammingpracticesinvolvingMVPDsaffecttheavailabilityofdiverseandindependentprogramming.Asweattempttorespondtoachangingmarketplacewithcompetitivemarketingandpricingpractices,wemayfaceregulationsthatimpedeourabilitytocompete.
Must-Carry/Retransmission Consent. Cableoperatorsarerequiredtocarry,withoutcompensation,programmingtransmittedbymostlocalcommercialandnoncommercialbroadcasttelevisionstationsthatelect"mustcarry"status.
Alternatively,localcommercialbroadcasttelevisionstationsmayelect"retransmissionconsent,"givinguptheirmust-carryrightandinsteadnegotiatingwithcablesystemsthetermsonwhichthecablesystemsmaycarrythestation'sprogrammingcontent.Cablesystemsgenerallymaynotcarryabroadcaststationthathaselectedretransmissionconsentwithoutthestation'sconsent.Thetermsofretransmissionconsentagreementsfrequentlyincludethepaymentofcompensationtothestation.
Broadcaststationsmustelect"mustcarry"orretransmissionconsenteverythreeyears.Asubstantialnumberoflocalbroadcaststationscurrentlycarriedbyourcablesystemshaveelectedtonegotiateforretransmissionconsent.Inthemostrecentretransmissionconsentnegotiations,populartelevisionstationshavedemandedsubstantialcompensationincreases,therebyincreasingouroperatingcosts.
Ownership Limitations. Federalregulationofthecommunicationsfieldtraditionallyincludedahostofownershiprestrictions,whichlimitedthesizeofcertainmediaentitiesandrestrictedtheirabilitytoenterintocompetingenterprises.Throughaseriesoflegislative,regulatory,andjudicialactions,mostoftheserestrictionshavebeeneithereliminatedorsubstantiallyrelaxed.Changesinthisregulatoryareacouldalterthebusinessenvironmentinwhichweoperate.
Set-Top Boxes. TheCommunicationsActincludesaprovisionthatrequirestheFCCtotakecertainstepstosupportthedevelopmentofaretailmarketfor"navigationdevices,"suchascableset-topboxes.Asaresult,theFCChasadoptedcertainmandates,fromtimetotime,torequirecableoperatorstoaccommodatethirdpartynavigationdevices,sometimesimposingsubstantialdevelopmentandoperatingrequirementsontheindustry.In2016,theFCCundertookanadditionalrulemakingaimedatextendingsomeofthesemandatestorequirethatMVPDsaccommodatethirdpartyapplicationswouldallowaccessMVPDvideocontentwithouttheneedforaset-topboxandwithoutusingoraccessinganMVPDsuserinterface.Whilethatefforthasnotadvanced,theFCCmayinthefutureconsiderimplementingsimilarmeasurestopromotethecompetitiveavailabilityofretailset-topboxesorthirdpartynavigationoptionsthatcouldimpactourcustomers'experience,ourabilitytocaptureuserinteractionstorefineandenhanceourservices,andourabilitytoprovideaconsistentcustomersupportenvironment.
PEG and Leased Access. Franchisingauthoritiesmayrequirethatwesupportthedeliveryandsupportforpublic,educational,orgovernmental("PEG")channelsonourcablesystems.InadditiontoprovidingPEGchannels,wemustmakealimitednumberofcommercialleasedaccesschannelsavailabletothirdparties(includingpartieswithpotentiallycompetitivepaytelevisionservices)atregulatedrates.TheFCCadoptedrevisedrulesseveralyearsagomandatingasignificantreductionintheratesthatoperatorscanchargecommercialleasedaccessusers.Theseruleswerestayed,however,byafederalcourt,pendingacableindustryappeal.Thismattercurrentlyremainspending,andtherevisedrulesarenotyetineffect.Althoughcommercialleasedaccessactivityhistoricallyhasbeen
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relativelylimited,increasedactivityinthisareacouldfurtherburdenthechannelcapacityofourcablesystems.
Pole Attachments. Thecompanymakesextensiveuseofutilitypolesandconduitownedbyotherutilitiestoattachandinstallthefacilitiesthatareintegraltoournetworkandservices.TheCommunicationsActrequiresmostutilitiestoprovidecablesystemswithaccesstopolesandconduitsforaccesstoattachsuchfacilitiesatregulatedrates.States(or,wherestateschoosenottoregulate,theFCC)regulateutilitycompanyratesfortherentalofpoleandconduitspaceusedbycompanies,includingoperatorslikeus,toprovidecable,telecommunicationsservices,andInternetaccessservices,unlessstatesestablishtheirownregulationsinthisarea.Manystatesinwhichweoperatehaveelectedtosettheirownpoleattachmentrules.
In2011andagainin2015,theFCCamendeditspoleattachmentrulestopromotebroadbanddeployment.The2011orderallowsfornewpenaltiesincertaincasesinvolvingunauthorizedattachments,butgenerallystrengthensthecableindustry'sabilitytoaccessinvestor-ownedutilitypolesonreasonablerates,termsandconditions.Additionally,the2011orderreducesthefederalrateformulapreviouslyapplicableto"telecommunications"attachmentstocloselyapproximatethemorefavorablerateformulaapplicableto"cable"attachments.The2015Order(whichisnowunderappeal)continuesthisratereconciliation,effectivelyclosingaremaining"loophole"thatpotentiallyallowedforsignificantlyhigherratesfortelecommunicationsattachmentsincertainscenarios.Neitherthe2011ordernorthe2015Orderdirectlyaffectstherateinstatesthatself-regulate(ratherthanallowingtheFCCtoregulate)polerates,butmanyofthosestateshavesubstantiallythesamerateforcableandtelecommunicationsattachments.Adversechangestothepoleattachmentratestructure,rate,andclassificationscouldsignificantlyincreaseourannualpoleattachmentcosts.
Program Access. Theprogramaccessrulesgenerallyprohibitacableoperatorfromimproperlyinfluencinganaffiliatedsatellite-deliveredcableprogrammingservicetodiscriminateunfairlyagainstanunaffiliateddistributorwherethepurposeoreffectofsuchinfluenceistosignificantlyhinderorpreventthecompetitorfromprovidingsatellite-deliveredcableprogramming.FCCrulesalsoallowacompetingdistributortobringacomplaintagainstacable-affiliatedterrestrially-deliveredprogrammeroritsaffiliatedcableoperatorforallegedviolationsofthisrule,andseekreformedtermsofcarriageasremedy.
Program Carriage. TheFCC'sprogramcarriagerulesprohibitusfromrequiringthatanunaffiliatedprogrammergrantusafinancialinterestorexclusivecarriagerightsasaconditionofitscarriageonourcablesystemsandprohibitusfromunfairlydiscriminatingagainstunaffiliatedprogrammersinthetermsandconditionsofcarriageonthebasisoftheirnonaffiliation.
OnOctober12,2011,GameShowNetwork("GSN")filedaprogramcarriagecomplaintagainstOptimum,allegingthatwediscriminatedagainstitinthetermsandconditionsofcarriagebasedonGSN'slackofaffiliationwithus.AlthoughtheEnforcementBureauoftheFCCrecommendedonOctober15,2015,thattheadministrativelawjudgeadjudicatingthisdisputefindinourfavorbecauseGSNhadnotsatisfieditsburdenofprovingthatwediscriminatedagainstitonthebasisofaffiliation,theadministrativelawjudgeissuedhisinitialdecisioninGSN'sfavoronNovember23,2016,requiringthatwerestoreGSNtotheexpandedbasictier.WehaveappealedthisdecisiontotheFCCandareseekingtodelayimplementationoftheremedyorderedbytheadministrativelawjudgependingresolutionoftheappeal.WebelieveGSN'sclaimsarewithoutmeritandwearedefendingourselvesvigorously.
Exclusive Access to Multitenant Buildings. TheFCChasprohibitedcableoperatorsfromenteringintoorenforcingexclusiveagreementswithownersofmultitenantbuildingsunderwhichtheoperatoristheonlyMVPDwithaccesstothebuilding.
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CALM Act. TheFCC'srulesrequireustoensurethatallcommercialscarriedonourcableservicecomplywithspecifiedvolumestandards.
Privacy and Data Security. Inthecourseofprovidingourservices,wecollectcertaininformationaboutoursubscribersandtheiruseofourservices.Wealsocollectcertaininformationregardingpotentialsubscribersandotherindividuals.Ourcollection,use,disclosureandotherhandlingofinformationissubjecttoavarietyoffederalandstateprivacyrequirements,includingthoseimposedspecificallyoncableoperatorsandtelecommunicationsserviceprovidersbytheCommunicationsAct.Wearealsosubjecttodatasecurityobligations,aswellasrequirementstoprovidenoticetoindividualsandgovernmentalentitiesintheeventofcertaindatasecuritybreaches,andsuchbreaches,dependingontheirscopeandconsequences,mayleadtolitigationandenforcementactionswiththepotentialofsubstantialmonetaryforfeituresortoadverselyaffectourbrand.
Ascableoperatorsprovideinteractiveandotheradvancedservices,additionalprivacyanddatasecurityrequirementsmayarisethroughlegislation,regulationorjudicialdecisions.Forexample,theVideoPrivacyProtectionActof1988hasbeenextendedtocoveronlineinteractiveservicesthroughwhichcustomerscanbuyorrentmovies.Inaddition,Congress,theFTC,andotherlawmakersandregulatorsareallconsideringwhethertoadoptadditionalmeasuresthatcouldimpactthecollection,use,anddisclosureofsubscriberinformationinconnectionwiththedeliveryofadvertisingandotherservicestoconsumerscustomizedtotheirinterests.InOctober2016,theFCCadoptednewprivacyanddatasecurityrulesgoverningtheuseofcustomerinformationbybroadbandISPs,includingcableISPsandprovidersofVoIP.Thesenewrulespermitthecollectionanduseofnon-sensitivecustomerinformationsubjecttothecustomers'abilitytooptout,butrequirethecustomers'opt-inbeforeaccess,useordisclosureofsensitiveproprietaryinformation.ThesenewrulesaremorestringentthantheFTC'sprivacystandards.TheFCCsuspendedthedatasecurityportionoftheserulesinFebruary.InMarch,bothhousesofCongressvotedtooverturnalloftherules.ThislegislationwassignedbythePresidentinAprilanditisnoweffective.
Federal Copyright Regulation. Wearerequiredtopaycopyrightroyaltyfeesonasemi-annualbasistoreceiveastatutorycompulsorylicensetocarrybroadcasttelevisioncontent.Thesefeesaresubjecttoperiodicauditbythecontentowners.Theamountofacableoperator'sroyaltyfeepaymentsaredeterminedbyastatutoryformulathattakesintoaccountvariousfactors,includingtheamountof"grossreceipts"receivedfromsubscribersfor"basic"service,thenumberof"distant"broadcastsignalscarriedandthecharacteristicsofthosedistantsignals(e.g.,network,independentornoncommercial).Certainelementsoftheroyaltyformulaaresubjecttoadjustmentfromtimetotime,whichcanleadtoincreasesintheamountofoursemi-annualroyaltypayments.TheU.S.CopyrightOffice,whichadministersthecollectionofroyaltyfees,hasmaderecommendationstoCongressforchangesinoreliminationofthestatutorycompulsorylicensesforcabletelevisioncarriageofbroadcastsignalsandtheU.S.GovernmentAccountabilityOfficeisconductingastatutorily-mandatedinquiryintowhetherthecablecompulsorylicenseshouldbephasedout.Changestocopyrightregulationscouldadverselyaffecttheabilityofourcablesystemstoobtainsuchprogramming,andcouldincreasethecostofsuchprogramming.Similarly,wemustobtainmusicrightsforlocallyoriginatedprogrammingandadvertisingfromthemajormusicperformingrightsorganizations.Theselicensingfeeshavebeenthesourceoflitigationinthepast,andwecannotpredictwithcertaintywhetherlicensefeedisputesmayariseinthefuture.
Access for Persons with Disabilities. TheFCC'srulesrequireustoensurethatpersonswithdisabilitiescanmorefullyaccesstheprogrammingwecarry.Wearerequiredtoprovideclosedcaptionsandpassthroughvideodescriptiontosubscribersonsomenetworkswecarry,andtoprovideaneasymeansofactivatingclosedcaptioningandtoensuretheaudioaccessibilityofemergencyinformationnavigationcapabilitiesofourvideoofferings.
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Other Regulation. Wearesubjecttovariousotherregulations,includingthoserelatedtopoliticalbroadcasting;homewiring;theblackoutofcertainnetworkandsyndicatedprogramming;prohibitionsontransmittingobsceneprogramming;limitationsonadvertisinginchildren'sprogramming;andstandardsforemergencyalerts,aswellastelemarketingandgeneralconsumerprotectionlawsandequalemploymentopportunityobligations.TheFCCalsoimposesvarioustechnicalstandardsonouroperations.IntheaftermathofSuperstormSandy,theFCCandthestatesareexaminingwhethernewrequirementsarenecessarytoimprovetheresiliencyofcommunicationsnetworks,potentiallyincludingcablenetworks.Eachoftheseregulationsrestrictsourbusinesspracticestovaryingdegrees.TheFCCcanaggressivelyenforcecompliancewithitsregulationsandconsumerprotectionpolicies,includingtheimpositionofsubstantialmonetarysanctions.ItispossiblethatCongressortheFCCwillexpandormodifyitsregulationsofcablesystemsinthefuture,andwecannotpredictatthistimehowthatmightimpactourbusiness.
Broadband
Regulatory Classification. BroadbandInternetaccessservicesweretraditionallyclassifiedbytheFCCas"informationservices"forregulatorypurposes,atypeofservicethatissubjecttoalesserdegreeofregulationthan"telecommunicationsservices."In2015,theFCCreversedthisdeterminationandclassifiedbroadbandInternetaccessservicesas"telecommunicationsservices."ThisreclassificationhassubjectedourbroadbandInternetaccessservicetogreaterregulation,althoughtheFCCdidnotapplyalltelecommunicationsserviceobligationstobroadbandInternetaccessservice.The2015OrderhasbeenupheldbyapanelofUnitedStatesCourtofAppealsfortheDistrictofColumbia,althoughtheorderremainsonappealbeforethatcourtsittingenbanc.The2015OrdercouldhaveamaterialadverseimpactonourbusinessasitmayjustifyadditionalFCCregulationorsupporteffortsbyStatestojustifyadditionalregulationofbroadbandInternetaccessservices.
Net Neutrality. OnFebruary26,2015,theFCCadoptedanew"OpenInternet"frameworkthatexpandeddisclosurerequirementsonISPs,prohibitedblocking,throttling,andpaidprioritizationofInternettrafficonthebasisofthecontent,andimposeda"generalconductstandard"thatprohibitsunreasonableinterferencewiththeabilityofendusersandedgeproviderstoreacheachother.
Access for Persons with Disabilities. TheFCC'srulesrequireustoensurethatpersonswithdisabilitieshaveaccessto"advancedcommunicationsservices"("ACS"),suchaselectronicmessagingandinteroperablevideoconferencing.TheyalsorequirethatcertainpaytelevisionprogrammingdeliveredviaInternetProtocolincludeclosedcaptioningandrequireentitiesdistributingsuchprogrammingtoenduserstopassthroughsuchcaptionsandidentifyprogrammingthatshouldbecaptioned.
Other Regulation. The2015Orderalsosubjectedbroadbandproviders'InternettrafficexchangeratesandpracticestopotentialFCCoversightandcreatedamechanismforthirdpartiestofilecomplaintsregardingthesematters.Inaddition,ourprovisionofInternetservicesalsosubjectsustothelimitationsonuseanddisclosureofusercommunicationsandrecordscontainedintheElectronicCommunicationsPrivacyActof1986.BroadbandInternetaccessserviceisalsosubjecttootherfederalandstateprivacylawsapplicabletoelectroniccommunications.
Additionally,providersofbroadbandInternetaccessservicesmustcomplywithCALEA,whichrequiresproviderstomaketheirservicesandfacilitiesaccessibleforlawenforcementinterceptrequests.VariousotherfederalandstatelawsapplytoprovidersofservicesthatareaccessiblethroughbroadbandInternetaccessservice,includingcopyrightlaws,telemarketinglaws,prohibitionsonobscenity,andabanonunsolicitedcommerciale-mail,andprivacyanddatasecuritylaws.Onlinecontentweprovideisalsosubjecttosomeoftheselaws.
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OtherformsofregulationofbroadbandInternetaccessservicecurrentlybeingconsideredbytheFCC,Congressorstatelegislaturesincludeconsumerprotectionrequirements,cybersecurityrequirements,consumerservicestandards,requirementstocontributetouniversalserviceprogramsandrequirementstoprotectpersonallyidentifiablecustomerdatafromtheft.PendingandfuturelegislationinthisareacouldadverselyaffectouroperationsasanInternetserviceproviderandourrelationshipwithourInternetcustomers.
Additionally,fromtimetotimetheFCCandCongresshaveconsideredwhethertosubjectbroadbandInternetaccessservicestothefederalUniversalServiceFund("USF")contributionrequirements.AnycontributionrequirementsadoptedforInternetaccessserviceswouldimposesignificantnewcostsonourbroadbandInternetservice.Atthesametime,theFCCischangingthemannerinwhichUniversalServicefundsaredistributed.Byfocusingonbroadbandandwirelessdeployment,ratherthantraditionaltelephoneservice,thechangescouldassistsomeofourcompetitorsinmoreeffectivelycompetingwithourserviceofferings
VoIP Services
WeprovidetelephonyservicesusingVoIPtechnology("interconnectedVoIP").TheFCChasadoptedseveralregulationsforinterconnectedVoIPservices,ashaveseveralstates,especiallyasitrelatestocorecustomerandsafetyissuessuchase911,localnumberportability,disabilityaccess,outagereporting,universalservicecontributions,andregulatoryreportingrequirements.TheFCChasnot,however,formallyclassifiedinterconnectedVoIPservicesaseitherinformationservicesortelecommunicationsservices.Inthisvacuum,somestateshaveassertedmoreexpansiverightstoregulateinterconnectedVoIPservices,whileothershaveadoptedlawsthatbarthestatecommissionfromregulatingVoIPservice.
Universal Service. InterconnectedVoIPservicesmustcontributetotheUSFusedtosubsidizecommunicationservicesprovidedtolowincomehouseholds,tocustomersinruralandhighcostareas,andtoschools,libraries,andruralhealthcareproviders.TheamountofuniversalservicecontributionrequiredofinterconnectedVoIPserviceprovidersisbasedonapercentageofrevenuesearnedfrominterstateandinternationalservicesprovidedtoendusers.WeallocateourenduserrevenuesandremitpaymentstotheuniversalservicefundinaccordancewithFCCrules.TheFCChasruledthatstatesmayimposestateuniversalservicefeesoninterconnectedVoIPproviders.
Local Number Portability. TheFCCrequiresinterconnectedVoIPserviceprovidersandtheir"numberingpartners"toensurethattheircustomershavetheabilitytoporttheirtelephonenumberswhenchangingproviders.WealsocontributetofederalfundstomeetthesharedcostsoflocalnumberportabilityandthecostsofNorthAmericanNumberingPlanAdministration.
Intercarrier Compensation. InanOctober2011reformorderandsubsequentclarifyingorders,theFCCrevisedtheregimegoverningpaymentsamongprovidersoftelephonyservicesfortheexchangeofcallsbetweenandamongdifferentnetworks("intercarriercompensation")to,amongotherthings,explicitlyincludeinterconnectedVoIP.InthatOrder,theFCCdeterminedthatintercarriercompensationforallterminatingtraffic,includingVoIPtrafficexchangedinTDMformat,willbephaseddownoverseveralyearstoa"bill-and-keep"regime,withnocompensationbetweencarriersformostterminatingtrafficby2018.
Other Regulation. InterconnectedVoIPserviceprovidersarerequiredtoprovideenhanced911emergencyservicestotheircustomers;protectcustomerproprietarynetworkinformationfromunauthorizeddisclosuretothirdparties;reporttotheFCConserviceoutages;complywithtelemarketingregulationsandotherprivacyanddatasecurityrequirements;complywithdisabilitiesaccessrequirementsandservicediscontinuanceobligations;complywithcallsignalingrequirements;andcomplywithCALEAstandards.InAugust2015,theFCCadoptednewrulestoimprovethe
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resiliencyofthecommunicationsnetwork.Underthenewrules,providersoftelephonyservices,includinginterconnectedVoIPserviceproviders,mustmakeavailableeighthoursofstandbybackuppowerforconsumerstopurchaseatthepointofsale.Therulesalsorequirethatprovidersinformnewandcurrentcustomersaboutservicelimitationsduringpoweroutagesandstepsthatconsumerscantaketoaddressthoserisks.
Telephony Services
WeoperatetraditionaltelecommunicationsservicesunderthetradenameOptimumLightpathinvariousstatesubsidiaries,andthoseservicesarelargelygovernedunderrulesestablishedforCLECsundertheCommunicationsAct.TheCommunicationsActentitlesourCLECsubsidiariestocertainrights,butastelecommunicationscarriers,italsosubjectsthemtoregulationbytheFCCandthestates.Theirdesignationastelecommunicationscarriersalsoresultsinotherregulationsthatmayaffectthemandtheservicestheyoffer.
Interconnection and Intercarrier Compensation. TheCommunicationsActrequirestelecommunicationscarrierstointerconnectdirectlyorindirectlywithothertelecommunicationscarriers.UndertheFCC'sintercarriercompensationrules,weareentitled,insomecases,tocompensationfromcarrierswhentheyuseournetworktoterminateororiginatecallsandinothercasesarerequiredtocompensateanothercarrierforusingitsnetworktooriginateorterminatetraffic.TheFCCandstateregulatorycommissions,includingthoseinthestatesinwhichweoperate,haveadoptedlimitsontheamountsofcompensationthatmaybechargedforcertaintypesoftraffic.Asnotedabove,theFCChasdeterminedthatintercarriercompensationforallterminatingtrafficwillbephaseddownoverseveralyearstoa"bill-and-keep"regime,withnocompensationbetweencarriersformostterminatingtrafficby2018.
Universal Service. OurCLECsubsidiariesarerequiredtocontributetotheUSF.Theamountofuniversalservicecontributionrequiredofusisbasedonapercentageofrevenuesearnedfrominterstateandinternationalservicesprovidedtoendusers.WeallocateourenduserrevenuesandremitpaymentstotheuniversalservicefundinaccordancewithFCCrules.TheFCChasruledthatstatesmayimposestateuniversalservicefeesonCLECtelecommunicationsservices.
Other Regulation. OurCLECsubsidiaries'telecommunicationsservicesaresubjecttootherFCCrequirements,includingprotectingtheuseanddisclosureofcustomerproprietarynetworkinformation;meetingcertainnoticerequirementsintheeventofservicetermination;compliancewithdisabilitiesaccessrequirements;compliancewithCALEAstandards;outagereporting;andthepaymentoffeestofundlocalnumberportabilityadministrationandtheNorthAmericanNumberingPlan.Asnotedabove,theFCCandstatesareexaminingwhethernewrequirementsarenecessarytoimprovetheresiliencyofcommunicationsnetworks.CommunicationswithourcustomersarealsosubjecttoFCC,FTCandstateregulationsontelemarketingandthesendingofunsolicitedcommerciale-mailandfaxmessages,aswellasadditionalprivacyanddatasecurityrequirements.
State Regulation. OurCLECsubsidiaries'telecommunicationsservicesaresubjecttoregulationbystatecommissionsineachstatewhereweprovideservices.Inordertoprovideourservices,wemustseekapprovalfromthestateregulatorycommissionorberegisteredtoprovideservicesineachstatewhereweoperateandmayattimesrequirelocalapprovaltoconstructfacilities.Regulatoryobligationsvaryfromstatetostateandincludesomeorallofthefollowingrequirements:filingtariffs(rates,termsandconditions);filingoperational,financial,andcustomerservicereports;seekingapprovaltotransfertheassetsorcapitalstockofthebroadbandcommunicationscompany;seekingapprovaltoissuestocks,bondsandotherformsofindebtednessofthebroadbandcommunicationscompany;reportingcustomerserviceandqualityofservicerequirements;outagereporting;makingcontributionstostateuniversalservicesupportprograms;payingregulatoryandstateTelecommunicationsRelayServiceandE911fees;geographicbuild-out;andothermattersrelatingtocompetition.
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Other Services
Wemayprovideotherservicesandfeaturesoverourcablesystem,suchasgamesandinteractiveadvertisingthatmaybesubjecttoarangeoffederal,stateandlocallawssuchasprivacyandconsumerprotectionregulations.Wealsomaintainvariouswebsitesthatprovideinformationandcontentregardingourbusinesses.Theoperationofthesewebsitesisalsosubjecttoasimilarrangeofregulations.
Environmental Regulations
Ourbusinessoperationsaresubjecttoenvironmentallawsandregulations,includingregulationsgoverningtheuse,storage,disposalof,andexposureto,hazardousmaterials,thereleaseofpollutantsintotheenvironmentandtheremediationofcontamination.Inpartasaresultoftheincreasingpublicawarenessconcerningtheimportanceofenvironmentalregulations,theseregulationshavebecomemorestringentovertime.Amendedornewregulationscouldimpactouroperationsandcosts.
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MANAGEMENT
Thefollowingtablesetsforththenames,agesasofMarch31,2017,andpositionsoftheindividualswhoareexpectedtoconstituteourdirectorsandexecutiveofficersimmediatelypriortothecompletionofthisoffering.
DexterGoeihasservedasChairmanandChiefExecutiveOfficerofAlticeUSAsince2016andPresidentoftheBoardofDirectorsofAlticeN.V.since2016.Mr.GoeijoinedAlticeN.V.asChiefExecutiveOfficerin2009,helpingtoleaditsdevelopmentandgrowthfromaFrenchcableoperatortoamultinationaltelecomsoperatorwithfixedandmobileassetsacross6differentterritoriesservingbothresidentialandenterpriseclients.PriortojoiningAltice,Mr.Goeispent15yearsininvestmentbankingfirstwithJPMorganandthenMorganStanleyintheirMedia&CommunicationsGroupinNewYork,LosAngelesandLondon.Priortothat,hewasCo-HeadofMorganStanley'sEuropeanMedia&CommunicationsGroupwhenhelefttojoinAltice.Mr.GoeiisagraduateofGeorgetownUniversity'sSchoolofForeignServicewithcumlaudehonors.
MichelCombesisexpectedtojoinAlticeUSAasadirectorpriortothecompletionofthisoffering.Mr.CombeshasservedasCEOofAlticeGroupsince2016,havingrejoinedAlticeGroupinAugust2015asCOOaftersteppingdownasaNon-ExecutiveBoardMemberinMay2015.Previously,Mr.CombeswasCEOofAlcatel-Lucent,EuropeanCEOofVodafoneandanon-executivedirectoratVodafonePLC,ChairmanandCEOofTDF,CFOandSeniorExecutiveVicePresidentofFranceTelecom,non-executivedirectorandlaterchairmanofthesupervisoryboardofASSYSTEManddirectorofISS.Currently,Mr.CombesholdsapositionasmemberoftheboardofdirectorsatMobileTeleSystemsPJSCandasnon-executivedirectoratHDLDevelopment.Mr.Combeshasmorethan25yearsofexperienceinthetelecommunicationindustry.HeisagraduateoftheEcolePolytechniqueandtheParisTelecomsSchool.
DennisOkhuijsenisexpectedtojoinAlticeUSAasadirectorpriortothecompletionofthisoffering.HejoinedtheAlticeGroupinSeptember2012astheCFO.BeforejoiningtheAlticeGroup,hewasaTreasurerforLibertyGlobalsince2005.From1993until1996hewasasenioraccountantatArthurAndersen.Mr.OkhuijsenjoinedUPCin1996wherehewasresponsibleforaccounting,treasuryandinvestorrelationsupto2005.Hisexperienceincludesraisingandmaintainingnon-investmentgradecapitalacrossboththeloanmarketsaswellasthebond/equitycapitalmarket.Inhispreviouscapacitieshewasalsoresponsibleforfinancialriskmanagement,treasuryandoperationalfinancing.HeholdsaMasterofBusinessEconomicsoftheErasmusUniversityRotterdam.
JérémieBonninisexpectedtojoinAlticeUSAasadirectorpriortothecompletionofthisoffering.HeistherepresentativeofA4S.A.ontheAlticeN.V.boardofdirectorsandheisGeneralSecretaryofAlticeN.V.,whichhejoinedinMay2005asCorporateFinancedirector.BeforejoiningAlticeN.V.,hewasaManagerintheTransactionServicesdepartmentatKPMG,whichhejoinedin1998.SincehisappointmentatAlticeN.V.,hehasbeeninvolvedinalloftheAlticeGroup'sacquisitionswhichhaveincreaseditsfootprint(inFrance,Belgium,Luxembourg,Switzerland,Israel,theFrenchOverseasTerritories,theDominicanRepublic,PortugalandtheUnitedStates).Hehasa
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Name Age PositionDexterGoei 45 ChairmanandChiefExecutiveOfficerMichelCombes 55 DirectornomineeDennisOkhuijsen 46 DirectornomineeJérémieBonnin 42 DirectornomineeCharlesStewart 47 Co-PresidentandChiefFinancialOfficerHakimBoubazine 41 Co-PresidentandChiefOperatingOfficerLisaRosenblum 62 ViceChairmanDavidConnolly 45 ExecutiveVicePresidentandGeneralCounsel
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longtrackrecordofsuccessfulcross-bordertransactions,andinfinancialmanagementwithinthetelecomsector.MrBonninreceivedhisengineeringdegreefromtheInstitutd'Informatiqued'EntreprisesinFrancein1998.HealsograduatedfromtheDECFinFrance(anequivalenttotheCPA)in1998.
CharlesStewarthasservedasco-PresidentandChiefFinancialOfficerofAlticeUSAsince2015.Mr.StewartjoinedAlticeUSAafter21yearsofcorporate,financeandinvestmentbankingexperienceintheUnitedStates,LatinAmericaandEurope.Mostrecently,Mr.StewartservedasChiefExecutiveOfficerofItauBBAInternationalplcfrom2013to2015,whereheoversawItau-Unibanco'swholesalebankingactivitiesinEurope,theUnitedStatesandAsia.Priortothat,hespentnineteenyearsatMorganStanleyasaninvestmentbankerinvariousroles,including9yearsfocusingontheU.S.cable,broadcastandpublishingindustries.Mr.StewartalsoactedasDeputyHeadofInvestmentBankingforEMEAandwasamemberoftheglobalinvestmentbankingmanagementcommittee.Mr.StewartisagraduateofYaleUniversity.
HakimBoubazinehasservedasco-PresidentandChiefOperatingOfficerofAlticeUSAsince2015.HejoinedAlticeGroupin2014asCEOofAlticeintheDominicanRepublic.Thereheoversawcabletelevision,broadbandandmobileoperations,servingmorethan4millioncustomers.PriortoAltice,Mr.BoubazinewasCEOofERT,acompanyspecializinginthedesign,constructionandoperationofthelatest-generationcableandfibernetworksinFrance,Belgium,LuxembourgandtheFrenchWestIndiesandwhichwasoneofthemainsub-contractorsofAlticeintheseregions.Priortojoiningthetelecommunicationsindustry,hehadaninternationalcareerofmorethan10yearsintheoilandgasindustry,whereheoccupiedvariousoperations,businessandseniormanagementrolesinEurope,Asia,NorthAmerica,AfricaandtheMiddleEast.Mr.BoubazineholdsanengineeringdegreefromtheÉcoleCentraledeLyonandamaster'sdegreeinTheoreticalPhysicsfromtheUniversityofStrasbourg.Heisalsoapost-graduateinPetroleumEngineering&ManagementfromImperialCollegeofLondon.
LisaRosenblumisViceChairmanofAlticeUSA.Inthisrole,sheisresponsibleforhelpingtoshapecorporatestrategyonalllegislative,regulatoryandpublicpolicyactivitiesandrelatedbusinessmatters,aswellasforestablishingourpresencewithgovernment,inthemarketplaceandthecommunitiesweserve.Mostrecently,Ms.RosenblumservedasExecutiveVicePresidentandGeneralCounsel,withresponsibilityforalllegal,governmentrelationsandpublicandcommunityaffairsforAlticeUSA.ShejoinedOptimumin1996,andpriortotheOptimumAcquisitionsheheldthepositionofExecutiveVicePresident,GovernmentandPublicAffairs,whereshewasresponsiblefordirectingthecompany'slocal,stateandfederalgovernmentrelations,aswellasalllegislative,regulatoryandpolicymatters.Ms.RosenblumcurrentlyservesontheBoardofDirectorsofCitymeals-on-WheelsinNewYorkCity,anorganizationdevotedtoservingtheelderly.Ms.RosenblumholdsaB.A.,cumlaude,fromYaleUniversityandaJ.D.fromtheConnecticutSchoolofLaw,wheresheservedasaneditoroftheLawReview.
DavidConnollyisExecutiveVicePresidentandGeneralCounselofAlticeUSA.InthisroleheisresponsibleforalllegalaffairsforAlticeUSA.Previously,Mr.ConnollywasaMergers&AcquisitionspartneratShearman&SterlingLLP,whereheadvisedAlticeN.V.ontheOptimumAcquisition.WhileatShearman&SterlingLLP,herepresentedmultinationalcorporations,financialinstitutionsandprofessionalsportsfranchisesinawidevarietyofmatters.Mr.ConnollyholdsaB.A.fromtheCollegeoftheHolyCrossandaJ.D.fromFordhamUniversitySchoolofLaw.
Background and Experience of Nominated Directors
Whenconsideringwhethereachofourdirectornomineeshastheexperience,qualifications,attributesandskills,takenasawhole,toassistourboardofdirectorsinsatisfyingitsoversightresponsibilitieseffectivelyinlightofourbusinessandstructure,ourboardofdirectorsfocusedprimarilyontheinformationdiscussedinMessrs.Combes',Okhuijsen'sandBonnin'sbiographical
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informationsetforthabove.Additionally,ourboardofdirectorsconsideredeachofournominateddirectors'experienceinsuccessfullyimplementingandexecutingontheprinciplesoftheAlticeWaycoupledwiththeirextensiveindustryexpertise.OurboardofdirectorsalsoconsideredMessrs.Okhuijsen'sandBonnin'saccountingandfinancialbackgrounds.Eachofourdirectornomineespossesseshighethicalstandards,actswithintegrityandexercisescareful,maturejudgment.Eachofthemiscommittedtoemployinghisskillsandabilitiestoaidthelong-terminterestsofourstakeholdersandhaveeachdisplayedleadershipthatisemblematicoftheexperience,qualificationsandskillsthatwelookforinourdirectors.
Composition and Meetings of our Board of Directors
Uponthecompletionofthisofferingourboardofdirectorswillconsistofmembers,ofwhomqualifyas"independent"underrules.Ouramendedandrestatedcertificateofincorporationprovidesthatourboardofdirectorsmustconsistofnolessthansevenmembersandnomorethantwelve.Ouramendedandrestatedcertificateofincorporationgivesourboardofdirectorstheabilitytoincreaseordecreasethenumberofsittingdirectorswithinthisrangeandtofillanyvacancies,includingvacanciescreatedifthenumberofdirectorsisexpandedorifadirectorresigns.Anyincreaseordecreaseintheouterlimitsofthisrangerequiresapprovalbyourstockholders.
Ouramendedandrestatedbylawswillrequireamajorityofourdirectors,thedirectornominatedbyanentitycontrolledbyPatrickDrahipursuanttothestockholders'agreementandthePresidentoftheAlticeN.V.boardofdirectorstoconstituteaquorumforourboardmeetings.OuramendedandrestatedbylawswillfurtherprovidethatourboardofdirectorswillberequiredtoinviteamemberoftheGroupAdvisoryCouncilofAlticeN.V.,tobedesignatedbytheGroupAdvisoryCouncilofAlticeN.V.,toeachboardmeetinginanobservercapacity.See"CertainRelationshipsandRelated-PartyTransactions—Stockholders'Agreement."
Controlled Company
WehaveappliedtolistourClassAcommonstockonthe.BecausefollowingthisofferingAlticeN.V.willcontrolsharesrepresentingamajorityofthevotingpowerofouroutstandingcommonstock,wewillbea"controlledcompany"underthecorporategovernancerules.Asacontrolledcompany,weareeligibleforexemptionsfromsomeoftherequirementsoftheserules,including:
• therequirementthatamajorityofourboardofdirectorsconsistofindependentdirectors;
• therequirementthatourgovernanceandnominatingcommitteebecomposedentirelyofindependentdirectorswithawrittencharteraddressingthecommittee'spurposeandresponsibilities;
• therequirementthatourcompensationcommitteebecomposedentirelyofindependentdirectorswithawrittencharteraddressingthecommittee'spurposeandresponsibilities;and
• therequirementforanannualperformanceevaluationofournominatingandgovernanceandcompensationcommittees.
Consistentwiththeseexemptions,uponlistingwiththewedonotintendtohave(i)amajorityofindependentdirectorsonourboardofdirectors;(ii)afullyindependentcompensationcommittee;or(iii)afullyindependentnominatingandgovernancecommittee.
Committees of the Board of Directors
Thestandingcommitteesofourboardofdirectorsareasdescribedbelow.
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Audit Committee
TheAuditCommitteewillinitiallybecomposedof,and.TheAuditCommitteewillperformthedutiessetforthinitswrittencharter,whichwillbeavailableatourwebsiteuponconsummationofthisoffering.TheprimaryresponsibilitiesoftheAuditCommitteewillinclude:
• overseeingmanagement'sestablishmentandmaintenanceofadequatesystemsofinternalaccounting,auditingandfinancialcontrols;
• reviewingtheeffectivenessofourlegal,regulatorycomplianceandriskmanagementprograms;
• reviewcertainrelated-partytransactionsinaccordancewiththeCompany'sRelated-PartyTransactionApprovalPolicy;
• overseeingourfinancialreportingprocess,includingthefilingoffinancialreports;and
• selectingindependentauditors,evaluatingtheirindependenceandperformanceandapprovingauditfeesandservicesperformedbythem.
TheAuditCommitteewillbecomprisedofdirectors,ofwhomwillbe"independent"underthelistingstandardsoftheandtherequirementsofRule10A-3undertheExchangeAct.AtleastonememberofourAuditCommitteewillbea"financialexpert"withinthemeaningofSECrulesandregulations.
Compensation Committee
TheCompensationCommitteewillinitiallybecomposedof,and.TheCompensationCommitteewillperformthedutiessetforthinitswrittencharter,whichwillbeavailableatourwebsiteuponconsummationofthisoffering.TheprimaryresponsibilitiesoftheCompensationCommitteewillinclude:
• ensuringourexecutivecompensationprogramsareappropriatelycompetitive,supportorganizationalobjectivesandstockholderinterestsandemphasizepayforperformancelinkage;
• evaluatingandapprovingcompensationandsettingperformancecriteriaforcompensationprogramsforourchiefexecutiveofficerandotherexecutiveofficers;and
• overseeingtheimplementationandadministrationofourcompensationplans.
Asa"controlledcompany,"wewillnotberequiredtohaveacompensationcommitteecomprisedentirelyofindependentdirectors.
Governance and Nominating Committee
TheGovernanceandNominatingCommitteewillinitiallybecomposedof,and.TheGovernanceandNominatingCommitteewillperformthedutiessetforthinitswrittencharter,whichwillbeavailableatourwebsiteuponconsummationofthisoffering.TheprimaryresponsibilitiesoftheGovernanceandNominatingCommitteewillinclude:
• recommendingnomineesforourboardofdirectorsanditscommittees;
• recommendingthesizeandcompositionofourboardofdirectorsanditscommittees;
• reviewingourcorporategovernanceguidelines,corporatechartersandproposedamendmentstoourcertificateofincorporationandbylaws;and
• reviewingandmakingrecommendationstoaddressstockholderproposals.
Asa"controlledcompany,"wewillnotberequiredtohaveagovernanceandnominatingcommitteecomprisedentirelyofindependentdirectors.
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Compensation Committee Interlocks and Insider Participation
Weexpectthat,atthetimeoftheoffering,otherthanDexterGoei,whoservesontheBoardofAlticeN.V.,noneofourexecutiveofficerswillcurrentlyserve,orinthepastyearhaveserved,asamemberoftheboardofdirectorsorcompensationcommitteeofanyentitythathasoneormoreexecutiveofficersservingonourboardofdirectorsorcompensationcommittee.
Role of Our Board of Directors in Risk Oversight
Oneofthekeyfunctionsofourboardofdirectorsisinformedoversightofourriskmanagementprocess.Ourboardofdirectorsadministersthisoversightfunctiondirectly,withsupportfromthethreestandingcommitteestobeestablisheduponthecompletionofthisoffering,ourauditcommittee,ourcompensationcommitteeandournominatingandcorporategovernancecommittee,eachofwhichwilladdressrisksspecifictoitsrespectiveareasofoversight.Inparticular,ourauditcommitteewillhavetheresponsibilitytoconsideranddiscussourmajorfinancialriskexposuresandthestepsourmanagementtakestomonitorandcontroltheseexposures,includingguidelinesandpoliciestogoverntheprocessbywhichriskassessmentandmanagementisundertaken.Ourauditcommitteewillalsomonitorcompliancewithlegalandregulatoryrequirements,inadditiontooversightoftheperformanceofourinternalauditfunction.Ourcompensationcommitteewillassessandmonitorwhetheranyofourcompensationpoliciesandprogramshasthepotentialtoencourageexcessiverisk-taking.Ournominatingandcorporategovernancecommitteewillprovideoversightwithrespecttocorporategovernanceandethicalconductandwillmonitortheeffectivenessofourcorporategovernanceguidelines,includingwhethersuchguidelinesaresuccessfulinpreventingillegalorimproperliability-creatingconduct.Allcommitteesreporttothefullboardasappropriate,includingwhenamatterrisestothelevelofamaterialorenterprise-levelrisk.Inaddition,theboardofdirectorsreceivesdetailedregularreportsfrommembersofourseniormanagementandotherpersonnelthatincludeassessmentsandpotentialmitigationoftherisksandexposuresinvolvedwiththeirrespectiveareasofresponsibility.
Code of Ethics
WehaveadoptedStandardsofBusinessConductforallofouremployees,includingourprincipalexecutiveofficer,principalfinancialofficer,principalaccountingofficerorcontroller,orpersonsperformingsimilarfunctions.AcopyofourStandardsofBusinessConductwillbeavailableonourwebsiteuponconsummationofthisoffering.OurStandardsofBusinessConductisa"codeofethics"asdefinedinItem406(b)ofRegulationS-K.Wewillmakeanylegallyrequireddisclosuresregardingamendmentstoorwaiversofprovisionsofourcodeofethicsonourwebsite.Theinformationonourwebsiteisnotapartofthisprospectus.
Corporate Governance Guidelines
Ourboardofdirectorshasadoptedcorporategovernanceguidelinesthatserveasaflexibleframeworkwithinwhichourboardofdirectorsanditscommitteesoperate.Theseguidelinescoveranumberofareasincludingthesizeandcompositionoftheboard,boardmembershipcriteriaanddirectorqualifications,directorresponsibilities,boardagenda,roleofthechiefexecutiveofficer,meetingsofindependentdirectors,committeeresponsibilitiesandassignments,boardmemberaccesstomanagementandindependentadvisors,directorcommunicationswiththirdparties,directorcompensation,directororientationandcontinuingeducation,evaluationofseniormanagementandmanagementsuccessionplanning.Ournominatingandcorporategovernancecommitteewillreviewourcorporategovernanceguidelinesatleastonceayearand,ifnecessary,recommendchangestoourboardofdirectors.Acopyofourcorporategovernanceguidelineswillbeavailableonourwebsiteuponconsummationofthisoffering.Theinformationonourwebsiteisnotpartofthisprospectus.
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EXECUTIVE COMPENSATION
Compensation Discussion & Analysis
Overview
Thissectiondiscussesthematerialcomponentsofourexecutivecompensationprogramforeachofournamedexecutiveofficers.Ournamedexecutiveofficers("NEOs")consistoftheexecutiveofficerswhoappearinthe"SummaryCompensationTable"below:
• DexterGoei,ChairmanandChiefExecutiveOfficer(CEO);
• CharlesStewart,Co-PresidentandChiefFinancialOfficer(CFO);
• HakimBoubazine,Co-PresidentandChiefOperatingOfficer(COO);
• DavidConnolly,ExecutiveVicePresident,GeneralCounsel;and
• LisaRosenblum,ViceChairman
Messrs.Goei,StewartandBoubazinearecurrentlyemployedbyAlticeManagementAmericas,asubsidiaryofAlticeN.V.,andprovideservicestoAlticeUSAunderamanagementagreement.Immediatelypriortothecompletionofthisoffering,Messrs.Goei,StewartandBoubazinewillbecomeemployeesoftheCompany.
Executive Compensation Philosophy
TheCompany'sexecutivecompensationphilosophyisbasedonthefollowingprinciples:
• providetotalcompensationthatattracts,motivatesandretainscandidateswiththeknowledge,expertiseandexperiencerequiredforeachspecificrole;
• anappropriateproportionoftheoverallpackageshouldbedeliveredthroughvariablepayelementslinkedtoperformanceovertheshort-andlong-term;
• encourageandrewardperformancethatwillleadtolong-termenhancementofstockholdervalue;and
• takeintoaccountcompensationpracticesinthemarketsinwhichweoperateandcompetefortalent.
Elements of Compensation
Base Salary
Thenamedexecutiveofficersreceivedabasesalarytocompensatethemforservicestothecompany.Thebasesalaryisintendedtoprovideafixedcomponentofcompensationreflectingvariousfactorssuchasthenatureoftherole,theexperienceandperformanceoftheindividual.
Annual Bonus
For2016,eachofournamedexecutiveofficerswaseligibletoearnanannualperformance-basedcashbonusfromtheCompany.
Foreachofournamedexecutiveofficers,otherthanourCEO,ourboardofdirectorsestablishedmanagementbonusperformancemetricsthatvarieddependingupontheeligibleemployee'sspecificbusinessunit.TheseperformanceobjectivesincludedacombinationofrevenueandAdjustedEBITDAtargets.ForemployeeswhojoinedtheCompanyaspartoftheOptimumAcquisitionorwerehiredafterJune2016intothecorporatebusinessunit,performanceisbasedonOptimum'sfinancialandoperationalresultsduringthethirdandfourthquarterof2016.
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Carried Unit Plan
OnJuly13,2016,theNeptuneManagementLimitedPartnershipCarryUnitPlanwascreatedtoprovideparticipants,includingournamedexecutiveofficers,withanopportunitytoparticipateinthelong-termgrowthandfinancialsuccessofouroperationsintheformofunitsofownership("profitsinterest")inNeptuneManagementLimitedPartnership,aparentofAlticeUSA(the"Units").
Aprofitsinterestgivestheparticipanttherighttoshareinspecifiedfutureprofitsandappreciationinvaluethattheinvestorsofthelimitedpartnershipmayreceive,includingprofitspaiduponasaleoftheinvestors'interests.
Economically,aprofitsinterestisgenerallyequivalenttoastockoptiongrantedonthestockofacorporation.Insofarasaprofitsinterestshasnovalueatgrantandonlyrealizesvalueifthelimitedpartnershipfromwhichitisgrantedappreciatesinvalueand/orhasprofits,participantsareeligibleforappreciationfollowingthegrantdate.
AllnamedexecutiveofficersreceivedUnitsthatvestasfollows:50%oftheUnitsvestonthesecondanniversaryofthevestingstartdate;25%oftheUnitsvestonthethirdanniversaryofthevestingstartdate;and25%oftheUnitswillvestonthefourthanniversaryofthevestingstartdate.
AllunvestedUnitsautomaticallyvestinthecaseofachangeofcontrolofAlticeUSA,Inc.IntheeventofanIPOofAltice'sUSoperations,vestedUnitsmaybeexchangedforClassAcommonstockinthenewlylistedentity,butwillnotresultinacceleratedvestingoftheUnits.
Benefits
ThetransferofanyitemofvaluebyNeptuneManagementLimitedPartnershiptoparticipantswithrespecttoUnitsgrantedtosuchparticipantsdoesnotresultinataxdeductionforAlticeUSA.Thenamedexecutiveofficersareeligibletoparticipateinthehealthandwelfarebenefitplansmadeavailabletotheotherbenefits-eligibleemployeesoftheCompany,including,forexample,medical,dental,vision,lifeinsuranceanddisabilitycoverage.ThenamedexecutiveofficersarealsoeligibletoparticipateintheCompany'sCablevision401(k)Planandmaycontributeintotheirplanaccountsapercentageoftheireligiblepayonabefore-taxbasisandafter-taxbasis.TheCompanymatches100%ofthefirst4%ofeligiblepaycontributedbyparticipatingemployees.Inaddition,theCompanymaymakeanadditionaldiscretionaryyear-endcontribution.Anydiscretionaryyear-endcontribution,ifapprovedbytheCompany,willbeprovidedtoalleligibleparticipantswhoareactiveonthelastdayoftheplanyearandwhocomplete1,000hoursofserviceinsuchplanyear.In2016,theCompanymadeadiscretionaryyear-endcontributionof2%ofeligiblepaywithrespecttothe2016planyear.TheCompanyalsosponsorsaSuddenlink401(k)PlanforlegacySuddenlinkemployees,pursuanttowhichtheCompanymatches50%ofthefirst6%ofeligiblepaycontributed.NonamedexecutiveofficerparticipatedintheSuddenlinkPlanin2016.
Employment and Termination Agreements
NoneoftheNEOshaveanemploymentagreementrelatedtotheirservicewithAlticeUSA.
Tax Deductibility of Compensation
Section162(m)oftheInternalRevenueCode,asamended,establishesa$1millionlimitontheamountthatapubliclyheldcorporationmaydeductforcompensationpaidtothechiefexecutiveofficerandthenextthreemosthighlypaidnamedexecutiveofficers(otherthanthechieffinancialofficer)inataxableyear.Thislimitationdoesnotapplytoanycompensationthatis"qualifiedperformance-basedcompensation"underSection162(m),whichisdefinedascompensationpaidinconnectionwithcertainstockoptionsorthatispaidonlyiftheindividual'sperformancemeetspre-establishedobjectivegoalsbasedonperformancecriteriaestablishedunderaplanapprovedby
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stockholders.Becausewedonotcurrentlyhaveanypubliclyheldcommonstock,therestrictionsofSection162(m)donotcurrentlyapplytous.
Summary Compensation Table
Grants of Plan-Based Awards
Outstanding Equity Awards at Fiscal Year-End
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Summary Compensation Table
Name and principal position Year Salary
($) Bonus
($)
Equity awards
($)
Option awards
($)
Non-equity incentive plancompensation
($)
Change in pension
value and nonqualified
deferred compensation
earnings ($)
All other compensation
($) Total
($) DexterGoeiChairman&CEO
CharlesStewartCo-President&CFO
HakimBoubazineCo-President&COO
DavidConnollyEVP—GeneralCounsel
LisaRosenblumViceChairman
Grants of Plan-Based Awards
Estimated future payouts under
non-equity incentive plan awards
Estimated future payouts under
equity incentive plan awards
All other equity
awards: Number
of shares of stock or
units (#)
All other option
awards: Number ofsecurities underlying
options (#)
Exercise or base price of option awards ($/Sh)
Grantdate
fair value of equity
and option awards
($)
Name Grant Date
Threshold($)
Target ($)
Maximum($)
Threshold(#)
Target (#)
Maximum(#)
DexterGoei CharlesStewart HakimBoubazine DavidConnolly LisaRosenblum
Outstanding Equity Awards At Fiscal Year-End Option Awards Stock Awards
Name
Number of securities
underlying unexercisedoptions (#) exercisable
Number of securities
underlying unexercised options (#)
unexercisable
Equity incentive
plan awards:
Number of securities
underlying unexercisedunearned options (#)
Option exercise
price ($)
Option expiration
date (#)
Numberof
shares or units of
stock thathave not vested
($)
Market value of
shares or units of
stock thathave not vested
($)
Equity inventive
plan awards:
Number of unearned
shares,units
or otherrights
that havenot
vested (#)
Equity incentive
plan awards:
Market or payout value of
unearned shares, units or
otherrights
that have not vested
DexterGoei CharlesStewart HakimBoubazine DavidConnolly LisaRosenblum
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Pension Benefits Table
Cablevision Cash Balance Pension Plan
TheCablevisionCashBalancePensionPlanisatax-qualifieddefinedbenefitplanthatwasamendedeffectiveDecember31,2013tofreezeparticipationandbenefitaccrualsforalllegacyCablevisionemployeesexceptthosecoveredbyacollectivebargainingrelationship.EffectiveApril15,2015,thePlanwasfurtheramendedtofreezeparticipationandbenefitaccrualsfortheremainingemployeescoveredbyacollectivebargainingrelationship.
Anotionalaccountismaintainedforeachparticipantundertheplan(includingonenamedexecutiveofficer),whichiscreditedwithmonthlyinterestcreditsbasedontheaverageoftheannualrateofinterestonthe30-yearU.S.TreasuryBondsforthemonthsofSeptember,OctoberandNovemberoftheprioryear.Monthlyinterestcreditscontinuetobemadetoparticipantaccountsuntildistributionoftheaccountsfollowingterminationofemployment.Allactiveparticipantsarefullyvestedintheircashbalanceaccount.UponretirementorotherterminationofemploymentwiththeCompany,theparticipantmayelectadistributionofthevestedportionofthecashbalanceaccount.Thenormalformofbenefitpaymentforanunmarriedparticipantisasinglelifeannuityandthenormalformofbenefitpaymentforamarriedparticipantisa50%jointandsurvivorannuity.Theparticipant,withspousalconsentifapplicable,canwaivethenormalformandelectasinglelifeannuityoralumpsum.
Cablevision Excess Cash Balance Pension Plan
TheCompany'sExcessCashBalancePlanisanon-qualifieddeferredcompensationplanthatisintendedtoprovideeligibleparticipants,includingonenamedexecutiveofficer,withtheportionoftheirbenefitthatcannotbepaidtothemundertheCashBalancePensionPlanduetoInternalRevenueCodelimitsapplicabletotax-qualifiedplans.EffectiveDecember31,2013,theExcessCashBalancePlanwasamendedtofreezeparticipationandfuturebenefitaccrualsforallCompanyemployees.
TheCompanymaintainsanotionalexcesscashbalanceaccountforeacheligibleparticipant,and,creditseachexcesscashbalanceaccountmonthlywithinterestatthesamerateusedundertheCashBalancePensionPlan.Monthlyinterestcreditscontinuetobemadetoparticipantaccountsuntildistributionoftheaccountsfollowingterminationofemployment.Allactiveparticipantsarefullyvestedintheirexcesscashbalanceaccount.Theexcesscashbalanceaccount,totheextentvested,ispaidinalumpsumtotheparticipantassoonaspracticablefollowinghisorherretirementorotherterminationofemploymentwiththeCompany.
Nonqualified Deferred Compensation Table
TheCablevisionExcessSavingsPlanisanon-qualifieddeferredcompensationplanthatoperatesinconjunctionwiththeCablevision401(k)SavingsPlan.EffectiveDecember31,2016,theExcess
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Name Plan
Number of Years Credited Service
(#)
Present Value of Accumulated
Benefit ($)
Payments During Last Fiscal Year
($) LisaRosenblum
Name Plan
Executive Contributions
in Last FY ($)
Registrant Contributions
in Last FY ($)
Aggregate Earnings
in Last FY ($)
Aggregate Withdrawals/
($)
Aggregate Balance
at Last FYE ($)
LisaRosenblum
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SavingsPlanwasfrozen(i.e.,nofutureemployeeandCompanycontributionsarepermittedunderthePlanfor2017andthereafter).ParticipantnotionalaccountbalancescontinuetobecreditedmonthlywiththerateofreturnearnedbythestablevalueinvestmentoptionavailableundertheCablevision401(k)SavingsPlan.
For2016,Ms.Rosenblum,whosecontributionstothe401(k)PlanwerelimitedasaresultoftheInternalRevenueCodecompensationlimitorasaresultofreachingthemaximum401(k)deferrallimit($24,000,ifage50orover)continuedtomakepre-taxcontributionsundertheExcessSavingsPlanequalto6%ofhereligiblepay.TheCompanymadematchingcontributionsequalto100%ofthefirst4%ofeligiblepaycontributed.Inaddition,for2016,theCompanymadeitsfinaldiscretionarycontributionequalto2%ofeligiblepayinexcessoftheInternalRevenueCodecompensationlimitinthefirstquarterof2017;suchcontributionisnotreflectedintheNonqualifiedDeferredCompensationtableabove.
Aparticipantisalwaysfullyvestedintheparticipant'sowncontributionsandvestsintheCompanycontributionsoverthreeyearsfromdateofhire(subjecttofullvestingupondeath,disabilityorretirementafterattainingage65).Distributionsaremadeinalumpsumassoonaspracticableaftertheparticipant'sterminationofemploymentwiththeCompany.
Post-Termination Compensation
OurexecutiveshavehelpedbuildtheCompanyintothesuccessfulenterprisethatitistodayandwebelievethatpost-terminationbenefitsareintegraltotheCompany'sabilitytoattractandretainqualifiedexecutives.ThefollowingtablessummarizetheestimatedamountspayabletoeachnamedexecutiveofficerintheeventofaterminationfromemploymentorchangeincontrolasofDecember31,2016.Anarrativedescriptionfollowsthetable.
Benefits Payable as a Result of Termination of Employment by the Company Without Cause
Benefits Payable as a Result of Termination of Employment in connection with a Change of Control Transaction
New Incentive Plan
Inconnectionwiththeoffering,weintendtoadopttheAlticeUSA2017LongTermIncentivePlan,subjecttoapprovalbyourboardofdirectors.Undertheplanwemaygrantawardsofoptions,restrictedshares,restrictedshareunits,stockappreciationrights,performancestock,performancestock
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Name Severance
($) Bonus
($) DexterGoei CharlesStewart HakimBoubazine DavidConnolly LisaRosenblum
Name Severance
($) Bonus
($)
Unvested Carry Units
($) DexterGoei CharlesStewart HakimBoubazine DavidConnolly LisaRosenblum
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units,cashperformanceunitsandotherawards.Thepurposesoftheplanaretopromotethelong-termsuccessofAlticeUSA,anditsaffiliatesandtoincreasestockholdervaluebyprovidingeligibleindividualswithincentivestocontributetothelong-termgrowthandprofitabilityoftheCompany,andtoassisttheCompanyinattractingandretainingthebestavailablepersonnelforpositionsofsubstantialresponsibility.
Eligibility and Administration
Awardsmaybegrantedtoofficers,employeesanddirectorsoftheCompanyoranyofitsaffiliates.TheplanshallbeadministeredbytheCompensationCommitteeoftheBoard.TheCompensationCommitteeshallhavefullpowerandauthority,subjecttoapplicablelawtoselecteligibleparticipants,grantawardsinaccordancewiththeplan,anddeterminethenumberofsharessubjecttoeachawardorthecashamountpayableinconnectionwithanaward.TheCompensationCommitteeshalldeterminethetermsandconditionsofeachaward,including,withoutlimitation,thoserelatedtoterm,permissiblemethodsofexercise,vesting,cancellation,forfeiture,payment,settlement,exercisability,performanceperiods,performancetargets,andtheeffectoroccurrence,ifany,ofaparticipant'sterminationofemployment,separationfromserviceorleaveofabsencewiththeCompanyoranyofitsaffiliates.
Limitation on Awards and Shares Available.
Themaximumaggregatenumberofsharesthatmaybeissuedforallpurposesundertheplanshallbeshares.SharesissuedpursuanttoawardsundertheplanmaybeeitherauthorizedandunissuedsharesorsharesheldbytheCompanyinitstreasury,oracombinationthereof.Thenumberofsharesremainingavailableforissuanceshallbereducedbythenumberofsharessubjecttooutstandingawardsand,forawardsthatarenotdenominatedbyshares,bythenumberofsharesactuallydelivereduponsettlementorpaymentoftheaward.Forpurposesofdeterminingthenumberofsharesthatremainavailableforissuanceundertheplan,thenumberofsharescorrespondingtoawardsundertheplanthatareforfeitedorcancelledorotherwiseexpireforanyreasonwithouthavingbeenexercisedorsettledorthataresettledthroughtheissuanceofconsiderationotherthanshares(including,withoutlimitation,cash)shallbeaddedbacktotheplanlimitandagainbeavailableforthegrantofawards;provided ,however ,thatthisprovisionshallnotbeapplicablewithrespectto(i)thecancellationofastockappreciationrightgrantedintandemwithanoptionupontheexerciseoftheoptionor(ii)thecancellationofanoptiongrantedintandemwithastockappreciationrightupontheexerciseofthestockappreciationright.Inaddition,(i)thenumberofsharesthataretenderedbyaparticipantorwithheldbytheCompanytopaytheexercisepriceofanawardortosatisfytheparticipant'staxwithholdingobligationsinconnectionwiththevesting,exerciseorsettlementofanawardand(ii)thenumberofsharessubjecttoanoptionorstockappreciationrightbutnotissuedordeliveredasaresultofthenetsettlementofsuchoptionorSARshallbeaddedbacktotheplanlimitandagainbeavailableforthegrantofawards.NoParticipantmaybegrantedunderthePlaninanycalendaryearawardscoveringmorethanshares;andthemaximumaggregatecashpaymentwithrespecttocash-basedawards(includingcashperformanceunits)grantedinanyonefiscalyearthatmaybemadetoanyParticipantshallbe$.NoNonemployeeDirectorshallreceiveregularannualawardsforanycalendaryearhavingagrantdatefairvalue,determinedusingassumptionsandmethodsthatareconsistentinallmaterialrespectswiththeassumptionsusedtodisclosesuchgrantsintheCompany'sproxystatementfortheyeartowhichsuchgrantsrelate,thatexceeds$,oranyspecialorone-timeawarduponelectionorappointmenttotheBoardhavingagrantdatefairvalue,thatexceeds$.
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Awards
Awardsundertheplanmayconsistofoptions,restrictedshares,restrictedshareunits,stockappreciationrights,performancestock,performancestockunits,cashperformanceunitsandotherawards.Anyawardmaybegrantedsinglyorincombinationortandemwithanyotheraward,astheCompensationCommitteemaydetermine.TheCompensationCommitteeshallsetthevestingcriteriaapplicabletoanaward,which,dependingontheextenttowhichthecriteriaaremet,willdeterminetheextenttowhichtheawardbecomesexercisableorthenumberofsharesortheamountofcashthatwillbedistributedorpaidouttotheparticipantwithrespecttotheaward.TheCompensationCommitteemaysetvestingcriteriabasedupontheachievementofCompany-wide,businessunit,orindividualgoals(including,butnotlimitedto,continuedemploymentorprovisionofservices),oranyotherbasisdeterminedbytheCompensationCommitteeinitsdiscretion.ThetermsandconditionsofeachawardshallbesetforthinanawarddocumentinaformapprovedbytheCompensationCommittee.Theawarddocumentshallcontaintermsandconditionsnotinconsistentwiththeplan.TheCompensationCommitteemayatanytimefollowinggrant(i)acceleratethevesting,exercisability,lapseofrestrictions,settlementorpaymentofanyaward,(ii)eliminatetherestrictionsandconditionsapplicabletoanawardor(iii)extendthepost-terminationexerciseperiodofanoutstandingaward(subjecttothelimitationsofSection409A).
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PRINCIPAL AND SELLING STOCKHOLDERS
Thefollowingtablepresentscertaininformationwithrespecttothebeneficialownershipofourcommonstockasof,andasadjustedtoreflectthesaleofClassAcommonstockofferedbyusandthesellingstockholdersinthisofferingassumingnoexerciseandfullexerciseoftheunderwriters'optiontopurchaseadditionalsharesofClassAcommonstock,by:
• eachofourcurrentdirectors;
• eachofournamedexecutiveofficers;
• allofourdirectorsandexecutiveofficersasagroup;
• eachstockholderknownbyustobethebeneficialownerofmorethan5%ofouroutstandingsharesofourClassAcommonstockandClassBcommonstock;and
• eachsellingstockholder.
BeneficialownershipforthepurposesofthefollowingtableisdeterminedinaccordancewiththerulesandregulationsoftheSEC.Theserulesgenerallyprovidethatapersonisthebeneficialownerofsecuritiesifsuchpersonhasorsharesthepowertovoteordirectthevotingthereof,ortodisposeordirectthedispositionthereoforhastherighttoacquiresuchpowerswithin60days.Allamountsinthefollowingtable,exceptforthesharestobesoldinthisoffering,areestimatedassuminganinitialpublicofferingpriceatthemid-pointofthepricerangesetforthonthecoverpageofthisprospectus.Exceptasdisclosedinthefootnotestothistableandsubjecttoapplicablecommunitypropertylaws,webelievethateachstockholderidentifiedinthetablepossessessolevotingandinvestmentpoweroverallsharesofcommonstockshownasbeneficiallyownedbythestockholder.Unlessotherwiseindicatedinthetableorfootnotesbelow,theaddressforeachbeneficialownerisc/oAlticeUSA,Inc.,1111StewartAvenue,Bethpage,NewYork11714.
WehavebasedpercentageownershipofourcommonstockbeforethisofferingonsharesofourClassAcommonstockandsharesofourClassBcommonstockoutstandingon.Percentageownershipofourcommonstockafterthisoffering(assumingnoexerciseoftheunderwriters'optiontopurchaseadditionalsharesofClassAcommonstock)alsoassumesthesalebyusandthesellingstockholdersofsharesofClassAcommonstockinthisoffering.Percentageownershipofourcommonstockafterthisoffering(assumingfullexerciseoftheunderwriters'optiontopurchaseadditionalsharesofClassAcommonstock)alsoassumesthesalebyofanadditionalsharesofClassAcommonstock.
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Shares Beneficially Owned After this Offering
(Assuming No Exercise of Option)
Shares Beneficially Owned After this Offering
(Assuming Full Exercise of Option)
Shares Beneficially Owned Before this Offering
SharesBeing
Offered (Assuming
No Exercise of
Option)
VotingPower
After this Offering
(Assuming No
Exercise ofOption)
Number of SharesBeing
Offered (Assuming
FullExercise
of Option)
VotingPower
After this Offering
(Assuming Full
Exercise of Option)
% TotalVoting Power Before
this Offering
Class A Class B Class A Class B Class A Class B
Name of Beneficial Owner
Number % Number % Number % Number % Number % Number % 5%
Stockholders
NamedExecutiveOfficers andDirectors DexterGoei CharlesStewart
HakimBoubazine
LisaRosenblum
DavidConnolly
Allexecutiveofficersanddirectorsasagroup(persons)
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CERTAIN RELATIONSHIPS AND RELATED-PARTY TRANSACTIONS
Our Relationship with Altice N.V.
AlticeN.V.,throughdedicatedaffiliates,appliesacommonapproach,referredtoastheAlticeWay,toleveragingtheAlticeGroup'scorestrategic,operationalandtechnicalcapabilitiesinacoordinated,centralizedmannerforthebenefitofitsoperatingsubsidiariesandtoreorganizetheirprocessesandredeploytheirresourcesinordertoimproveoperationalefficiency,fosterinnovationandcreatelong-termvalueforstockholders.
Thisapproachencompassesknow-how,methodologies,bestpracticesandservices,developedbyateamofspecialistsinaffiliatesofAlticeN.V.,tosimplifyorganizations,streamlinedecision-makingandredeployphysical,technicalandfinancialresourcesfornetworkinvestmentandcustomerservice,allowingitsoperatingsubsidiariestofocusonnetworkimprovementsandcustomerexperienceenhancements.AlticeN.V.implementsthisapproachbyfocusingonanumberofcoreprinciples,including:(1)improvingnetworkquality,upgradingandbuildinghighspeedcommunicationsnetworkstoensurethereliabilityandflexibilityoftheservicesprovided;(2)improvingcustomerrelationshipmanagementandmaximizingcustomerexperience,notablybyleveragingefficientITplatforms,focusingondigitalizationandsimplifyingprocesses;(3)leveragingtheAlticeGroup'sinternationalmediaandcontentorganizationaspartofAlticeN.V.'sglobalambitionofconvergence;(4)developing,launchingandintegratingnewproducts,servicesandbusinessmodels,includingthecreationofthenextgenerationcommunicationsaccessandcontentconvergenceplatformswithmarket-leadinghomehubs;(5)deliveringtoourcustomersthebestnewschannels,thebestsportcontent,thebestdocumentaryprogramsandcreatingthebestseriesandmovies;(6)deliveringkeytechnologyservicesandmarket-leadingresearchanddevelopmentthroughAlticeLabs,theGroup'sglobalresearchanddevelopmentarm,promotinginnovationandtransformingtechnicalknowledgeintomarketablecompetitiveadvantages(includingthecreationandmonetizationofworld-classdataanalytics);(7)leveragingbranding,salesandmarketingstrategiesandsynergies;and(8)selectingstrategicsuppliersandimprovingtechnicalandcommercialnegotiationsthroughcentralizedprocurementleveragingtheAlticeGroup'sglobalscale.
InconnectionwithAlticeN.V.'simplementationofthisapproachatAlticeUSA,wehaveenteredinto,andwillinthefutureenterinto,transactionsandagreementswithouraffiliatesintheordinarycourseofbusiness,subjecttocompliancewithourpolicyregardingrelated-partytransactions,includingrelatingto:
• Ouracquisitionofsoftwareandnetworkequipmentsuchasrouters,powersupplyandtransceivermodules,includingequipmenttobeusedinournewhomecommunicationshub;
• Ourprocurementofservices,suchasforthedesign,development,integration,supportandmaintenanceoftheuserinterfacesoftwareforournewhomecommunicationshub;accesstoaninternationalcommunicationsbackbone;internationalcarrierservicesandcallterminationservices;
• Ourpurchaseofcustomerandtechnicalservicesupportandservicesandlicensingofintellectualproperty,includingpatents,trademarksandotherrights;and
• Ouracquisitionofcontent,suchaspursuanttoouragreementtodistributei24News,aninternationalnewschannelmajorityownedbyAlticeN.V.inwhichwehavea25%investmentinitsU.S.business.
Altice Technical Services
ATSisasubsidiaryofAlticeN.V.specializingintheengineering,supply,constructionanddeploymentofnetworks,inparticularFTTHbroadbandnetworks,andtheprovisionofnetwork
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upgradeandmaintenanceservices.ATShasdevelopedend-to-endnetworkconstructionandmaintenancecontrolprocessesenablingnetworkoperatorstooptimizetheiroperationalrisksandcosts.PriortotheconsummationoftheOffering,wewillenterintoanagreementpursuanttowhichATS,throughitsU.S.affiliate,willprovideafullrangeofservicestoAlticeUSA,includingconstructionandmaintenanceofitsnetworks,equipmentsaleandcommercialandresidentialaccessinstallationwithassociatedservicessuchas,networkaccesspointsinstallation,disconnectionandmaintenance,equipmentwarehousing,equipmentwarrantyandrepairandsecurityservices.ATSwillselltoAlticeUSAtheproductsrelatedtosuchservices,includingopticallinksfromthenetworkhead-endtothehousehold,opticalnode,opticalfiberandcoaxialcables,distributionframesandconnectionsandset-topboxes.
Management Advisory and Consulting Services
AlticeN.V.,throughadedicatedaffiliate,providesconsulting,advisoryandotherservicestousinconnectionwithouracquisitions,divestitures,investments,capitalraising,financialandbusinessaffairsforaquarterlyfee.
Stockholders' Agreement
Inconnectionwiththisoffering,wewilltoenterintoastockholders'agreementwithAlticeN.V.andanentitycontrolledbyPatrickDrahi.Pursuanttothisagreement,AlticeN.V.willhavetherighttonominateamajorityofthemembersofourboardofdirectors,oneofwhichwillbeanindividualdesignatedbytheentitycontrolledbyPatrickDrahi.AlticeN.V.willagreetovoteitssharesinfavorofelectingtheindividualdesignatedbytheentitycontrolledbyPatrickDrahi.IfthedirectordesignatedbytheentitycontrolledbyPatrickDrahiresignsorisremovedfromtheboardofdirectors,onlyanotherdirectordesignatedbytheentitycontrolledbyPatrickDrahimayfillthevacancy.Thestockholders'agreementrequiresustoobtaintheconsentofAlticeN.V.beforewemaytakecertainactionsspecifiedtherein.
Registration Rights Agreement
Inconnectionwiththisoffering,weexpecttoenterintoaregistrationrightsagreementwithAlticeN.V.,BCP,CPPIBandNeptuneHoldingUSLP.ThisagreementwillprovidetoAlticeN.V.anunlimitednumberof"demand"registrationsfortheregistrationofthesaleofourcommonstockinaminimumaggregateamountof$million.Additionally,theagreementwillprovideBCPandCPPIBwith"demand"registrationsonFormS-1and"demand"registrationsonFormS-3,andcustomary"piggyback"registrationrightstoAlticeN.V.,BCPandCPPIB.TheregistrationrightsagreementwillalsoprovidethatwewillpaycertainexpensesrelatingtosuchregistrationsandindemnifyAlticeN.V.,BCPandCPPIBagainstcertainliabilitieswhichmayariseundertheSecuritiesAct.
Right of First Refusal
AnyproposedsaleofsharesofcommonstockheldbycertainmembersofourmanagementwillbesubjecttoarightoffirstrefusalbyanentitycontrolledbyPatrickDrahi.
Our Policy Regarding Related-Party Transactions
Allagreementsandtransactionsbetweenus,ontheonehand,andaffiliatesofAlticeN.V.ontheotherhand,willbesubjecttotheRelated-PartyTransactionApprovalPolicythatourboardofdirectorswilladoptpriortothecompletionofthisoffering.Underthispolicy,theAuditCommitteeoftheboardconsistingentirelyofdirectorswhohavebeendeterminedbytheboardtobeindependentdirectorsforpurposesofthecorporategovernancestandardsreviewsandapprovesortakessuchotheraction
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asitmaydeemappropriatewithrespecttotransactionsinvolvingtheCompanyanditssubsidiaries,ontheonehand,andinwhichanydirector,officer,greaterthan5%stockholderoftheCompanyoranyother"relatedperson"asdefinedinItem404ofRegulationS-KundertheSecuritiesAct("Item404")hasorwillhaveadirectorindirectmaterialinterest.Thisapprovalrequirementcoversanytransactionthatmeetstherelated-partydisclosurerequirementsoftheSECassetforthinItem404.UndertheRelated-PartyTransactionApprovalPolicy,theAuditCommitteesimilarlyoverseesapprovaloftransactionsandarrangementsbetweentheCompanyanditssubsidiaries,ontheonehand,andAlticeN.V.anditsothersubsidiaries,ontheotherhand,totheextentinvolvingamountsinexcessofthedollarthresholdsetforthinItem404(the"Item404Threshold").
TheRelated-PartyTransactionApprovalPolicyprovidesthattosimplifytheadministrationoftheapprovalprocessundertheRelated-PartyTransactionApprovalPolicy,theAuditCommitteemay,whereitdeemsittobeappropriate,establishguidelinesforcertaintypesofthesetransactions.TheapprovalrequirementwillnotapplytotheimplementationandadministrationofintercompanyarrangementsundertheRelated-PartyTransactionApprovalPolicy,butcoversanyamendments,modifications,terminationsorextensionsinvolvingamountsinexcessoftheItem404Threshold,aswellasthehandlingandresolutionofanydisputesinvolvingamountsinexcessoftheItem404Threshold.TheCompany'sexecutiveofficersanddirectorswhoarealsoseniorexecutivesordirectorsofAlticeN.V.,asthecasemaybe,mayparticipateinthenegotiation,execution,amendment,modification,orterminationofintercompanyarrangementssubjecttotheRelated-PartyTransactionApprovalPolicy,aswellasinanyresolutionofdisputesunderintercompanyarrangements,onbehalfofeitherorbothoftheCompanyandAlticeN.V.,asthecasemaybe,underthedirectionoftheAuditCommitteewhenactingonbehalfoftheCompany.
TheRelated-PartyTransactionApprovalPolicycannotbeamendedorterminatedwithoutthepriorapprovalofamajorityoftheAuditCommitteeandbyamajorityofthedirectorselectedbytheholdersofClassBcommonstock.
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DESCRIPTION OF CAPITAL STOCK
General
Thefollowingdescriptionofourcapitalstockandcertainprovisionsofouramendedandrestatedcertificateofincorporationandamendedandrestatedbylawsaresummariesandarequalifiedbyreferencetotheamendedandrestatedcertificateofincorporationandtheamendedandrestatedbylawsthatwillbeineffectontheclosingofthisoffering.CopiesofthesedocumentswillbefiledwiththeSECasexhibitstoourregistrationstatement,ofwhichthisprospectusformsapart.Thedescriptionsofthecommonstockandpreferredstockreflectchangestoourcapitalstructurethatwillbeineffectontheclosingofthisoffering.
Ontheclosingofthisoffering,ouramendedandrestatedcertificateofincorporationwillprovideforthreeclassesofcommonstock:ClassAcommonstock,ClassBcommonstockandClassCcommonstock.Inaddition,ouramendedandrestatedcertificateofincorporationwillauthorizesharesofundesignatedpreferredstock,therights,preferencesandprivilegesofwhichmaybedesignatedfromtimetotimebyourboardofdirectors.
Ontheclosingofthisoffering,ourauthorizedcapitalstockwillconsistofshares,allwithaparvalueof$0.01pershare,ofwhich:
• sharesaredesignatedClassAcommonstock;
• sharesaredesignatedClassBcommonstock;
• sharesaredesignatedClassCcommonstock;and
• sharesaredesignatedpreferredstock.
Uponconsummationofthisoffering,therewillbesharesofourClassAcommonstockissuedandoutstandingandsharesofourClassBcommonstockissuedandoutstanding.
Class A Common Stock, Class B Common Stock and Class C Common Stock
Voting Rights
HoldersofourClassAcommonstockareentitledtoonevotepershareandholdersofourClassBcommonstockareentitledtotwenty-fivevotespershareonanymattersubmittedtoavoteofourstockholders.ExceptassetforthbeloworasrequiredbyDelawarelaw,holdersofsharesofClassAcommonstockandClassBcommonstockwillvotetogetherasasingleclassonallmatters(includingtheelectionofdirectors)submittedtoavoteofourstockholders.
IfweissueanysharesofClassCcommonstock,theywillnotbeentitledtoanyvotesonanymatterthatissubmittedtoavoteofourstockholders,exceptasprovidedinourcertificateofincorporationorasrequiredbyDelawarelaw.DelawarelawwouldrequiretheholdersofClassAcommonstock,ClassBcommonstockorClassCcommonstocktovoteseparatelyasasingleclassonamatterifweweretoseekto:
• amendourcertificateofincorporationtoincreasetheauthorizednumberofsharesofaclassofstock(exceptasotherwiseprovidedinthecertificateofincorporation)orincreaseordecreasetheparvalueofaclassofstock;or
• amendourcertificateofincorporationinamannerthatalteredorchangedthepowers,preferences,orspecialrightsofaclassofstockinamannerthataffectedthemadversely.
AspermittedbyDelawarelaw,ouramendedandrestatedcertificateofincorporationprovidesthatthenumberofauthorizedsharesofcommonstockoranyclassofcommonstockmaybeincreasedordecreased(butnotbelowthenumberofsharesofcommonstockthenoutstanding)bytheaffirmative
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voteoftheholdersofamajorityoftheClassAcommonstockandClassBcommonstock,votingtogetherasasingleclass.
Eachofourdirectorsanddirectornomineeswillstandforelectionateachofourannualmeetingsofstockholders.Ouramendedandrestatedcertificateofincorporationdoesnotprovideforcumulativevotingfortheelectionofdirectors.Rather,amajorityofthevotescastisrequiredforadirectorordirectornomineetobedulyelectedinanyuncontestedelection.Becauseourstockholdersdonothavecumulativevotingrights,stockholdersholdingamajorityofthevotingpowerofourcapitalstockwillbeabletoelectallofourdirectors.Stockholdersholdingamajorityofthevotingpowerofourcapitalstockalsowillbeabletoremoveeachofourdirectorswithorwithoutcause.Pursuanttothestockholders'agreementwewillenterintowithAlticeN.V.andanentitycontrolledbyPatrickDrahiinconnectionwiththisoffering,AlticeN.V.willhavetherighttonominateamajorityofthemembersofourboardofdirectors,oneofwhichwillbeanindividualdesignatedbytheentitycontrolledbyPatrickDrahiandAlticeN.V.willagreetovoteitssharesinfavorofelectingtheindividualdesignatedbytheentitycontrolledbyPatrickDrahi.IfthedirectordesignatedbytheentitycontrolledbyPatrickDrahiresignsorisremovedfromtheboardofdirectors,onlyanotherdirectordesignatedbythetheentitycontrolledbyPatrickDrahimayfillthevacancy.See"—Stockholders'Agreement."
Ouramendedandrestatedcertificateofincorporationalsogivestheholdersofatleastamajorityofthevotingpowerofourcapitalstocktherighttoactbywrittenconsentinlieuofameetingandwithoutnotice.
Economic Rights
ExceptasotherwiseexpresslyprovidedinouramendedandrestatedcertificateofincorporationorrequiredbyDelawarelaw,allsharesofClassAcommonstock,ClassBcommonstockandClassCcommonstockwillhavethesamerightsandprivilegesandrankequally,shareratablyandbeidenticalinallrespectsforallmatters,includingthosedescribedbelow.
Dividends and Distributions. Subjecttopreferencesthatmayapplytoanysharesofpreferredstockoutstandingatthetime,theholdersofoutstandingsharesofClassAcommonstock,ClassBcommonstockandClassCcommonstockwillbeentitledtoshareequally,onapersharebasis,inanydividendordistributionoffundslegallyavailableifourboardofdirectors,initsdiscretion,determinestodeclareandpaydividendsandonlythenatthetimesandintheamountsthatourboardofdirectorsmaydetermine.Intheeventthatadividendispaidintheformofsharesofourcapitalstockorrightstoacquireorsecuritiesconvertibleintoorexchangeableforsharesofourcapitalstockeither(A)theholdersofsharesofClassAcommonstock,ClassBcommonstockandClassCcommonstockshallreceivetheidenticalclassofsecuritiesonanequalpersharebasis,or(B)(i)theholdersofsharesofClassAcommonstockshallreceiveClassAcommonstock,orsecuritiesconvertibleintoorexchangeableforsharesofClassAcommonstockorrightstoacquiresuchsecurities,asthecasemaybe;(ii)theholdersofsharesofClassBcommonstockshallreceiveClassBcommonstock,orsecuritiesconvertibleintoorexchangeableforsharesofClassBcommonstockorrightstoacquiresuchsecurities,asthecasemaybe;and(iii)theholdersofsharesofClassCcommonstockshallreceiveClassCcommonstock,orsecuritiesconvertibleintoorexchangeableforsharesofClassCcommonstockorrightstoacquiresuchsecurities,asthecasemaybe.However,theboardofdirectorsmaypayormakeadisparatedividendordistributionpershareofClassAcommonstock,ClassBcommonstockorClassCcommonstock(whetherintheamountofsuchdividendordistributionpayablepershare,theforminwhichsuchdividendordistributionispayable,thetimingofthepaymentorotherwise)ifsuchdisparatedividendordistributionisapprovedinadvancebytheaffirmativevoteoftheholdersofamajorityoftheoutstandingsharesofClassAcommonstock,ClassBcommonstockandClassCcommonstock,eachvotingseparatelyasaclass.
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Liquidation Rights. Uponourdissolution,liquidationorwindingup,theassetslegallyavailablefordistributiontoourstockholderswillbedistributableratablyamongtheholdersofourClassAcommonstockandClassBcommonstock,subjecttopriorsatisfactionofalloutstandingdebtandliabilitiesandthepreferentialrightsandpaymentofliquidationpreferences,ifany,onanyoutstandingsharesofpreferredstockunlessdifferenttreatmentofsuchclasswithrespecttodistributionsuponanysuchliquidation,dissolutionorwindingupisapprovedinadvancebytheaffirmativevoteoftheholdersofamajorityoftheoutstandingsharesofClassAcommonstockandClassBcommonstock,eachvotingseparatelyasaclass.Immediatelypriortotheearlierof(i)anydistributionofourassetsinconnectionwithaliquidation,dissolutionorwindingup;or(ii)anyrecorddateestablishedtodeterminetheholdersofourcapitalstockentitledtoreceivesuchdistribution,eachshareofoutstandingClassCcommonstockshallbeautomaticallyconvertedintooneshareofClassAcommonstock.
Equal Status. Exceptasexpresslyprovidedinouramendedandrestatedcertificateofincorporation,sharesofClassAcommonstock,ClassBcommonstockandClassCcommonstockhavethesamerightsandprivilegesandrankequally,shareratablyandareidenticalinallrespectsastoallmatters.Intheeventof(i)aconsolidationormergerofuswithorintoanyotherentity;(ii)anytenderofferorexchangeofferbyanypersonorentitypursuanttoanagreementtowhichweareapartyorthatwerecommend,or(iii)asalebyAlticeN.V.oranyofitssubsidiariesthatholdssharesofourClassBcommonstockor,solelyintheeventsharesofourClassBcommonstockhavebeendistributedtoPatrickDrahiorentitiesunderhiscontrol,PatrickDrahiorsuchentities(togetherwithAlticeN.V.andanyofitssubsidiariesthatholdsuchshares,the"AlticeHolders"),inoneoraseriesofrelatedtransactions,whethertoasinglepurchaserorpurchasersconstitutinga"group"asdefinedinSection13(d)oftheSecuritiesExchangeActof1934,ofsharesofClassBcommonstockrepresenting(a)atleast40%ofthevotesentitledtobecastbyallstockholdersentitledtovoteinanelectionofdirectorsand(b)agreaternumberofvotesthantheAlticeHoldersandtheiraffiliatescollectivelyareentitledtocastimmediatelyfollowingsuchsale,theholdersofClassAcommonstock,ClassBcommonstockandClassCcommonstockshallbeentitledtoparticipateproportionatelyandtoreceive,ortoelecttoreceive,thesameformofconsiderationandthesameamountofconsiderationonapersharebasis.
Notwithstandingtheforegoing,ifanysecuritiesconsiderationispaid,distributedorofferedtoholdersofsharesofClassAcommonstock,ClassBcommonstockorClassCcommonstockinanysuchtransaction,suchconsiderationmaydifferonlyintermsofvotingrightssuchthattheholderofashareofClassBcommonstockshallreceiveorhavetherighttoelecttoreceivesecuritieshavingtwenty-fivetimesthevotingpowerofanysecuritiesthattheholderofashareofClassAcommonstockshallreceiveorhavetherighttoelecttoreceive,andanysecuritiesthattheholderofashareofClassCcommonstockshallreceiveorhavetherighttoelecttoreceiveshalleitherhavenovotingrightsorthesamevotingrightsasthesecuritiesthataholderofClassAcommonstockshallreceiveorhavetherighttoelecttoreceive.
Subdivisions and Combinations. IfwesubdivideorcombineinanymanneroutstandingsharesofClassAcommonstock,ClassBcommonstock,orClassCcommonstock,theoutstandingsharesoftheotherclasseswillbesubdividedorcombinedinthesamemanner.
No Preemptive or Similar Rights
OurClassAcommonstock,ClassBcommonstockandClassCcommonstockarenotentitledtopreemptiverightsandarenotsubjecttoconversion,redemptionorsinkingfundprovisions,exceptfortheconversionprovisionswithrespecttotheClassBcommonstockdescribedbelow.
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Conversion and Transfers
EachshareofClassBcommonstockisconvertibleatanytimeattheoptionoftheholderintooneshareofClassAcommonstock.AllsharesofClassBcommonstockwillautomaticallyconvertintoClassAcommonupontheelectionoftheholdersofamajorityofthethenoutstandingsharesofClassBcommonstock.
OuramendedandrestatedcertificateofincorporationdoesnotprovidefortheautomaticconversionofsharesofourClassBcommonstockupontransferunderanycircumstances.Asaresult,theholdersofClassBcommonstockarefreetotransferthemwithoutconvertingthemintosharesofourClassAcommonstock.AnysharesofClassBcommonstockthatareconvertedintoClassAcommonstockmaynotbereissued.ThedisparatevotingrightsofthesharesofourClassBcommonstockwillnotchangeupontransferunlessfirstconvertedintosharesofClassAcommonstock.
UpontheconversionofalloutstandingsharesofClassBcommonstockintoClassAcommonstock,theholdersofmajorityofthethenoutstandingsharesofClassBcommonstockatthetimeofsuchfinalconversion,may,inconnectionwithsuchfinalconversion,requirethateachshareofClassCcommonstockshallautomaticallybeconvertedintooneshareofClassAcommonstockonadatefixedbyourboardofdirectors,whichdateshallbenolessthan61daysandnomorethan180daysfollowingtheconversionofalloutstandingsharesofClassBcommonstock.Inaddition,asdescribedabove,uponourdissolution,liquidationorwindingup,eachshareofClassCcommonstockwillautomaticallybeconvertedintooneshareofClassAcommonstock.
Preferred Stock
Ontheclosingofthisofferingandunderouramendedandrestatedcertificateofincorporation,ourboardofdirectorsmay,withoutfurtheractionbyourstockholders,fixtherights,preferences,privilegesandrestrictionsofuptoanaggregateofsharesofpreferredstockinoneormoreseriesandauthorizetheirissuance.Theserights,preferencesandprivilegescouldincludedividendrights,conversionrights,votingrights,termsofredemption,liquidationpreferencesandthenumberofsharesconstitutinganyseriesorthedesignationofsuchseries,anyorallofwhichmaybegreaterthantherightsofourClassAcommonstock,ClassBcommonstockorClassCcommonstock.AnyissuanceofourpreferredstockcouldadverselyaffectthevotingpowerofholdersofourClassAcommonstockorClassBcommonstock,andthelikelihoodthatsuchholderswouldreceivedividendpaymentsandpaymentsonliquidation.Inaddition,theissuanceofpreferredstockcouldhavetheeffectofdelaying,deferring,orpreventingachangeofcontrolorothercorporateaction.Ontheclosingofthisoffering,nosharesofpreferredstockwillbeoutstanding.Wehavenopresentplantoissueanysharesofpreferredstock.
Stockholders' Agreement
Inconnectionwiththisoffering,wewilltoenterintoastockholders'agreementwithAlticeN.V.andanentitycontrolledbyPatrickDrahi.Pursuanttothisagreement,AlticeN.V.willhavetherighttonominateamajorityofthemembersofourboardofdirectors,oneofwhichwillbeanindividualdesignatedbytheentitycontrolledbyPatrickDrahiandAlticeN.V.willagreetovoteitssharesinfavorofelectingtheindividualdesignatedbytheentitycontrolledbyPatrickDrahi.IfthedirectordesignatedbytheentitycontrolledbyPatrickDrahiresignsorisremovedfromtheboardofdirectors,onlyanotherdirectordesignatedbytheentitycontrolledbyPatrickDrahimayfillthevacancy.Thestockholders'agreementrequiresustoobtaintheconsentofAlticeN.V.beforewemaytakecertainactionsspecifiedtherein.
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Anti-Takeover Provisions
Certificate of Incorporation and Bylaws to be in Effect on the Closing of this Offering
Aspecialmeetingofstockholdersmaybecalledbyamajorityofourboardofdirectors,thechairofourboardofdirectors,stockholdersholdingamajorityofthevotingpowerofourcapitalstockorthedirectornominatedbyanentitycontrolledbyPatrickDrahi.Asdescribedabovein"ClassACommonStock,ClassBCommonStockandClassCCommonStock—VotingRights,"ouramendedandrestatedcertificateofincorporationwillfurtherprovideforatri-classcommonstockstructure,asaresultofwhichAlticeN.V.generallywillbeabletocontroltheoutcomeofallmattersrequiringstockholderapproval,includingtheelectionofdirectorsandsignificantcorporatetransactions,suchasamergerorothersaleofourcompanyoritsassets.
Theforegoingprovisionswillmakeitmoredifficultforourexistingstockholders,otherthanAlticeN.V.,toreplaceourboardofdirectorsaswellasforanotherpartytoobtaincontrolofusbyreplacingourboardofdirectors.Becauseourboardofdirectorshasthepowertoretainanddischargeourofficers,theseprovisionscouldalsomakeitmoredifficultforexistingstockholdersoranotherpartytoeffectachangeinmanagement.Inaddition,theauthorizationofundesignatedpreferredstockmakesitpossibleforourboardofdirectorstoissuepreferredstockwithvotingorotherrightsorpreferencesthatcouldimpedethesuccessofanyattempttochangeourcontrol.
Authorized but Unissued Shares
Theauthorizedbutunissuedsharesofcommonstockandpreferredstockareavailableforfutureissuancewithoutstockholderapproval,subjecttoanylimitationsimposedbythelistingstandardsofthe.Theseadditionalsharesmaybeusedforavarietyofcorporatefinancetransactions,acquisitionsandemployeebenefitplans.Theexistenceofauthorizedbutunissuedandunreservedcommonstockandpreferredstockcouldmakemoredifficultordiscourageanattempttoobtaincontrolofusbymeansofaproxycontest,tenderoffer,mergerorotherwise.
Section 203 of the DGCL
Section203oftheDGCLgenerallyprohibitsapublicly-heldDelawarecorporationfromengaginginamerger,assetsaleorothertransactionresultinginafinancialbenefitwithanypersonwho,togetherwithaffiliationandassociation,owns,orwithinthepriorthreeyears,didown,15%ormoreofacorporation'svotingstock.Theprohibitioncontinuesforaperiodofthreeyearsafterthedateofthetransactioninwhichthepersonbecameanownerof15%ormoreofthecorporation'svotingstockunlessthetransactionorthebusinesscombinationisapprovedinaprescribedmanner.Thestatutecouldprohibitordelay,deferorpreventachangeincontrolwithrespecttoAlticeUSA.However,byactionofourboardofdirectorswehavewaivedtheprovisionsofSection203.
Choice of Forum
OuramendedandrestatedbylawswillprovidethattheCourtofChanceryoftheStateofDelawarewillbetheexclusiveforumfor:(i)anyderivativeactionorproceedingbroughtonourbehalf;(ii)anyactionassertingabreachoffiduciaryduty;(iii)anyactionassertingaclaimagainstusarisingundertheDGCL;(iv)anyactionregardingouramendedandrestatedcertificateofincorporationorouramendedandrestatedbylaws;or(v)anyactionassertingaclaimagainstusthatisgovernedbytheinternalaffairsdoctrine.Ouramendedandrestatedbylawspermitourboardofdirectorstowaivetheexclusiveforumprovisionandconsenttosuitinotherjurisdictions.
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Limitations of Liability and Indemnification
Ouramendedandrestatedcertificateofincorporationandbylawscontainprovisionsindemnifyingourdirectorsandofficerstothefullestextentpermittedbylaw.Priortothecompletionofthisoffering,wewillenterintoindemnificationagreementswitheachofourdirectorswhich,insomecases,arebroaderthanthespecificindemnificationprovisionscontainedunderDelawarelaw.
Inaddition,aspermittedbyDelawarelaw,ouramendedandrestatedcertificateofincorporationprovidesthatnodirectorwillbeliabletousorourstockholdersformonetarydamagesforbreachoffiduciarydutyasadirector.Theeffectofthisprovisionistorestrictourrightsandtherightsofourstockholdersinderivativesuitstorecovermonetarydamagesagainstadirectorforbreachoffiduciarydutyasadirector,exceptthatadirectorwillbepersonallyliablefor:
• anybreachofhisorherdutyofloyaltytousorourstockholders;
• actsoromissionsnotingoodfaithwhichinvolveintentionalmisconductoraknowingviolationoflaw;
• thepaymentofdividendsortheredemptionorpurchaseofstockinviolationofDelawarelaw;or
• anytransactionfromwhichthedirectorderivedanimproperpersonalbenefit.
Thisprovisiondoesnotaffectadirector'sliabilityunderthefederalsecuritieslaws.
Totheextentourdirectors,officersandcontrollingpersonsareindemnifiedundertheprovisionscontainedinouramendedandrestatedcertificateofincorporation,ourbylaws,DelawarelaworcontractualarrangementsagainstliabilitiesarisingundertheSecuritiesAct,wehavebeenadvisedthatintheopinionoftheSECsuchindemnificationisagainstpublicpolicyasexpressedintheSecuritiesActandisthereforeunenforceable.
Corporate Opportunities
TheDGCLpermitscorporationstoadoptprovisionsthatrenounceanyinterestorexpectancyin,oranyofferofanopportunitytoparticipatein,specifiedbusinessopportunitiesthatarepresentedtothecorporationoroneormoreofitsofficers,directorsorstockholders.Inrecognitionthatourdirectorsandofficersmayserveasdirectors,officersand/oremployeesofAlticeN.V.("DualRolePersons"),ouramendedandrestatedcertificateofincorporationwillprovidefortheallocationofcertaincorporateopportunitiesbetweenusandtheDualRolePersonsforthebenefitofAlticeN.V.Specifically,unlessanopportunityarisesinorispredominantlyrelatedtoNorthAmerica,noneoftheDualRolePersonswillhaveanydutytorefrainfromengagingdirectlyorindirectlyinthesameorsimilarbusinessactivitiesorlinesofbusinessthatwedoforthebenefitofAlticeN.V.
Exchange Listing
WehaveappliedtolistourClassAcommonstockontheunderthesymbol"."
Transfer Agent and Registrar
Ontheclosingofthisoffering,thetransferagentandregistrarforourClassAcommonstockandClassBcommonstockwillbe.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
ThefollowingtablessummarizescertainindebtednessoftheCompanyasofDecember31,2016:
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Maturity Date Interest
Rate Principal Carrying Value(a)
CSC Holdings Restricted Group: RevolvingCreditFacility(b) November30,2021 4.07%$ 175,256 $ 145,013TermCreditFacility(c) October11,2024 3.88% 2,500,000 2,486,874
Cequel: RevolvingCreditFacility November30,2021 — — —TermCreditFacility(d) January15,2025 3.88% 815,000 812,903
$ 3,490,256 3,444,790
Less:Currentportion 33,150
Long-termdebt $ 3,411,640
Issuer Date Issued Maturity Date Interest
Rate Principal Amount
Carrying Amount(e)
CSCHoldings(f)(i) February6,1998 February15,2018 7.875%$ 300,000 $ 310,334CSCHoldings(f)(i) July21,1998 July15,2018 7.625% 500,000 521,654CSCHoldings(g)(i) February12,2009 February15,2019 8.625% 526,000 553,804CSCHoldings(g)(i) November15,2011 November15,2021 6.750% 1,000,000 951,702CSCHoldings(g)(i) May23,2014 June1,2024 5.250% 750,000 650,193CSCHoldings(h) October9,2015 January15,2023 10.125% 1,800,000 1,774,750CSCHoldings(h) October9,2015 October15,2025 10.875% 2,000,000 1,970,379CSCHoldings(h) October9,2015 October15,2025 6.625% 1,000,000 985,469CSCHoldings(j) September23,2016 April15,2027 5.500% 1,310,000 1,304,025Cablevision(g)(i) September23,2009 September15,2017 8.625% 900,000 926,045Cablevision(g)(i) April15,2010 April15,2018 7.750% 750,000 767,545Cablevision(g)(i) April15,2010 April15,2020 8.000% 500,000 488,992Cablevision(g)(i) September27,2012 September15,2022 5.875% 649,024 559,500CequelCommunicationsHoldingsILLCandCequelCapitalCorporation(g)
Oct.25,2012Dec.28,2012 September15,2020 6.375% 1,500,000 1,457,439
CequelCommunicationsHoldingsILLCandCequelCapitalCorporation(g)
May16,2013Sept.9,2014 December15,2021 5.125% 1,250,000 1,115,767
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Issuer Date Issued Maturity Date Interest
Rate Principal Amount
Carrying Amount(e)
AlticeUSFinanceICorporation(k) June12,2015 July15,2023 5.375% 1,100,000 1,079,869CequelCommunicationsHoldingsILLCandCequelCapitalCorporation(l) June12,2015 July15,2025 7.750% 620,000 602,925
AlticeUSFinanceICorporation(m) April26,2016 May15,2026 5.500% 1,500,000 1,486,933 $ 17,955,024 17,507,325
Less:Currentportion 926,045Long-termdebt $ 16,581,280
(a) Theunamortizeddiscountsanddeferredfinancingcostsamountedto$45,466atDecember31,2016.
(b) Includes$100,256ofcreditfacilitydebtincurredtofinancetheCablevisionAcquisition.SeediscussionregardingtheamendmenttotherevolvingcreditfacilityenteredintoDecember2016inNote9totheAlticeUSA,Inc.consolidatedfinancialstatementsincludedelsewhereinthisprospectus.
(c) Represents$3,800,000principalamountofdebtincurredtofinancetheCablevisionAcquisition,netofprincipalrepaymentsmade.SeediscussionregardingtheextensionamendmententeredintoSeptember2016inNote9totheAlticeUSA,Inc.consolidatedfinancialstatementsincludedelsewhereinthisprospectus.
(d) AtDecember31,2016,$17,031oftherevolvingcreditfacilitywasrestrictedforcertainlettersofcreditissuedonbehalfofCequeland$332,969ofthefacilitywasundrawnandavailable,subjecttocovenantlimitations.
(e) Thecarryingamountofthenotesisnetoftheunamortizeddeferredfinancingcostsand/ordiscounts/premiumsof$447,699.
(f) ThedebenturesarenotredeemablebyCSCHoldingspriortomaturity.
(g) Notesareredeemableatanytimeataspecified"make-whole"priceplusaccruedandunpaidinteresttotheredemptiondate.
(h) TheCompanymayredeemsomeoralloftheCSC2023SeniorNotesatanytimeonorafterJanuary15,2019,andsomeoralloftheCSC2025SeniorNotesandCSC2025SeniorGuaranteedNotesatanytimeonorafterOctober15,2020,attheredemptionpricessetforthintherelevantindenture,plusaccruedandunpaidinterest,ifany.TheCompanymayalsoredeemupto40%ofeachseriesoftheCablevisionNotesusingtheproceedsofcertainequityofferingsbeforeOctober15,2018,ataredemptionpriceequalto110.125%fortheCSC2023SeniorNotes,110.875%fortheCSC2025SeniorNotesand106.625%fortheCSC2025SeniorGuaranteedNotes,ineachcaseplusaccruedandunpaidinterest.Inaddition,atanytimepriortoJanuary15,2019,CSCHoldingsmayredeemsomeoralloftheCSC2023SeniorNotes,andatanytimepriortoOctober15,2020,theCompanymayredeemsomeoralloftheCSC2025SeniorNotesandtheCSC2025SeniorGuaranteedNotes,atapriceequalto100%oftheprincipalamountthereof,plusa"makewhole"premiumspecifiedintherelevantindentureplusaccruedandunpaidinterest.
(i) ThecarryingvalueofthenoteswasadjustedtoreflecttheirfairvalueonthedateofacquisitionforCablevision(aggregatereductionof$52,788).
(j) TheCSC2027SeniorGuaranteedNotesareredeemableatanytimeonorafterApril15,2022attheredemptionpricessetforthintheindenture,plusaccruedandunpaidinterest,ifany.Inaddition,upto40%mayberedeemedforeachseriesoftheCSC2027SeniorGuaranteedNotesusingtheproceedsof
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Cablevision Credit Facilities
Overview
OnOctober9,2015,Finco,whichmergedwithandintoCSCHoldingsonJune21,2016,enteredintoaseniorsecuredcreditfacility,whichcurrentlyprovidesU.S.dollartermloansinanaggregateprincipalamountof$3,000millionandU.S.dollarrevolvingloancommitmentsinanaggregateprincipalamountof$2,300million,whicharegovernedbyacreditfacilitiesagreemententeredintoby,inter alios ,CSCHoldings,certainlenderspartytheretoandJPMorganChaseBank,N.A.asadministrativeagentandsecurityagent(asamended,restated,supplementedorotherwisemodifiedonJune20,2016,June21,2016,July21,2016,September9,2016,December9,2016andMarch15,2017,respectively,andasfurtheramended,restated,supplementedorotherwisemodifiedfromtimetotime(the"CVCCreditFacilitiesAgreement")).
Interest Rate and Fees
Loanscomprisingeacheurodollarborrowingoralternatebaserateborrowing,asapplicable,bearinterestatarateperannumequaltotheadjustedLIBOrateorthealternatebaserate,asapplicable,plustheapplicablemargin,wheretheapplicablemarginis:
• inrespectoftheCVCTermLoans,(i)withrespecttoanyalternatebaserateloan,1.25%perannumand(ii)withrespecttoanyeurodollarloan,2.25%perannum,and
• inrespectofCVCRevolvingCreditFacilityloans(i)withrespecttoanyalternatebaserateloan,2.25%perannumand(ii)withrespecttoanyeurodollarloan,3.25%perannum.
Mandatory Prepayments
TheCVCCreditFacilitiesAgreementrequiresCSCHoldings,LLCtoprepayoutstandingCVCTermLoans,subjecttocertainexceptionsanddeductions,with(i)100%ofthenetcashproceedsofcertainassetsales,subjecttoreinvestmentrightsandcertainotherexceptions;and(ii)commencingwiththefiscalyearendingDecember31,2017,apariratableshare(basedontheoutstandingprincipalamountoftheCVCTermLoansdividedbythesumoftheoutstandingprincipalamountofallpari
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certainequityofferingsbeforeOctober15,2019,ataredemptionpriceequalto105.500%,plusaccruedandunpaidinterest.
(k) SomeorallofthesenotesmayberedeemedatanytimeonorafterJuly15,2018,plusaccruedandunpaidinterest,ifany.Upto40%ofthenotesmayberedeemedusingtheproceedsofcertainequityofferingsbeforeJuly15,2018,ataredemptionpriceequalto105.375%.
(l) SomeorallofthesenotesmayberedeemedatanytimeonorafterJuly15,2020,plusaccruedandunpaidinterest,ifany.Upto40%ofthenotesmayberedeemedusingtheproceedsofcertainequityofferingsbeforeJuly15,2018,ataredemptionpriceequalto107.750%.
(m) SomeorallofthesenotesmayberedeemedatanytimeonorafterMay15,2021,plusaccruedandunpaidinterest,ifany.Upto40%ofthenotesmayberedeemedusingtheproceedsofcertainequityofferingsbeforeMay15,2019,ataredemptionpriceequalto105.500%.
Thefollowingisasummaryofprovisionsrelatingtoourmaterialindebtedness.Thefollowingsummarydoesnotpurporttobecompleteandissubjectto,andqualifiedinitsentiretybyreferenceto,theprovisionsofthecorrespondingagreements,includingthedefinitionsofcertaintermsthereinthatarenototherwisedefinedinthisprospectus.OurCablevisionandCequelbusinessesareeachcurrentlyfinancedonastandalonebasisandtherelevantCablevisionandCequelsubsidiariesconstituteseparaterestrictedgroupsforthesedebtfinancingpurposes.WewereincompliancewithourdebtcovenantsasofDecember31,2016.
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passuindebtednessandtheCVCTermLoans)of50%ofannualexcesscashflow(inexcessof$15,000,000),whichwillbereducedto0%iftheconsolidatednetseniorsecuredleverageratioofCSCHoldings,LLCislessthanorequalto4.5to1.
Voluntary Prepayments
VoluntaryprepaymentsoftheCVCTermLoansonorpriortoOctober17,2017whichareeither(x)inconnectionwitharepricingtransactionor(y)effectinganyamendmentoftheCVCTermLoansresultinginarepricingtransaction,aresubjecttoacallpremiumpayabletotheadministrativeagentonbehalfofthelendersof,inthecaseof(x)1.00%oftheprincipalamountoftheCVCTermLoanssorepaidandinthecaseof(y)apaymentequalto1.00%oftheaggregateamountoftheCVCTermLoanssubjecttosuchrepricingtransaction.
Amortization and Final Maturity
ThematuritydateoftheCVCTermLoansisJuly17,2025.CSCHoldings,LLCisrequiredtomakescheduledquarterlypaymentseachequalto0.25%oftheoriginalprincipalamountoftheCVCTermLoans,withthebalancedueonthematuritydate.Thematuritydatefor$2,280millionoftheCVCRevolvingCreditFacilitycommitmentsisNovember30,2021.Thematuritydatefortheremaining$20millionofCVCRevolvingCreditFacilitycommitmentsisOctober9,2020.
Guarantees; Security
TheobligationsofCSCHoldingsundertheCVCCreditFacilitiesareguaranteedonaseniorbasisbyeachrestrictedsubsidiaryofCSCHoldings(otherthanCSCTKR,LLCanditssubsidiaries,whichownandoperateourNewJerseycablesystems)andwillalsobeguaranteedbyeachfuturewholly-ownedrestrictedsubsidiaryofCSCHoldings(otherthanimmaterialsubsidiaries),subjecttocertainlimitationssetforthintheCVCCreditFacilitiesdocumentation.TheobligationsundertheCVCCreditFacilities(includinganyguaranteesthereof)aresecuredonafirstprioritybasis,subjecttoanylienspermittedbytheCVCCreditFacilities,bycapitalstockheldbyCSCHoldingsoranyguarantorinrestrictedsubsidiariesofCSCHoldings,subjecttocertainexclusionsandlimitationsasagreedwiththeagent.
Certain Covenants and Events of Default
TheCVCCreditFacilitiesAgreementincludescertainnegativecovenantswhich,amongotherthingsandsubjecttocertainsignificantexceptionsandqualifications,limitCSCHoldings,LLC'sabilityandtheabilityofitsrestrictedsubsidiariesto:(i)incurorguaranteeadditionalindebtedness,(ii)makeinvestments,(iii)createliens,(iv)sellassetsandsubsidiarystock,(v)paydividendsormakeotherdistributionsorrepurchaseorredeemourcapitalstockorsubordinateddebt,(vi)engageincertaintransactionswithaffiliates,(vii)enterintoagreementsthatrestrictthepaymentofdividendsbysubsidiariesortherepaymentofintercompanyloansandadvances;and(viii)engageinmergersorconsolidations.Inaddition,theCVCRevolvingCreditFacilityincludesafinancialmaintenancecovenantsolelyforthebenefitofthelendersundertheCVCRevolvingCreditFacilityconsistingofamaximumconsolidatednetseniorsecuredleverageratioofCSCHoldingsanditsrestrictedsubsidiariesof5.0to1.0.Thefinancialcovenantwillbetestedonthelastdayofanyfiscalquarter(commencingonDecember31,2016)butonlyifonsuchdaythereareoutstandingborrowingsundertheCVCRevolvingCreditFacility(includingswinglineloansbutexcludinganycashcollateralizedlettersofcreditandundrawnlettersofcreditnottoexceed$15million).
TheCVCCreditFacilitiesAgreementalsocontainscertaincustomaryrepresentationsandwarranties,affirmativecovenantsandeventsofdefault(including,amongothers,aneventofdefaultuponachangeofcontrol).Ifaneventofdefaultoccurs,thelendersundertheCVCCreditFacilities
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willbeentitledtotakevariousactions,includingtheaccelerationofamountsdueundertheCVCCreditFacilitiesandallactionspermittedtobetakenbyasecuredcreditor.
Cequel Credit Facilities
Overview
OnJune12,2015,AlticeUSFinanceICorporationenteredintoaseniorsecuredcreditfacilitywhichcurrentlyprovidesU.S.dollartermloansinanaggregateprincipalamountof$1,265millionandU.S.dollarrevolvingloancommitmentsinanaggregateprincipalamountof$350millionwhicharegovernedbyacreditfacilitiesagreemententeredintoby,inter alios ,AlticeUSFinanceICorporation,certainlenderspartytheretoandJPMorganChaseBank,N.A.asadministrativeagentandsecurityagent(asamended,restated,supplementedorotherwisemodifiedonOctober25,2016,December9,2016andMarch15,2017,andasfurtheramended,restated,supplementedormodifiedfromtimetotime,the"CequelCreditFacilitiesAgreement").
Interest Rate and Fees
Loanscomprisingeacheurodollarborrowingoralternatebaserateborrowing,asapplicable,bearinterestatarateperannumequaltotheadjustedLIBOrateorthealternatebaserate,asapplicable,plustheapplicablemargin,wheretheapplicablemarginis:
• inrespectoftheCequelTermLoans,(i)withrespecttoanyalternatebaserateloan,1.25%perannumand(ii)withrespecttoanyeurodollarloan,2.25%perannum,and
• inrespectofCequelRevolvingCreditFacilityloans(i)withrespecttoanyalternatebaserateloan,2.25%perannumand(ii)withrespecttoanyeurodollarloan,3.25%perannum.
Mandatory Prepayments
TheCequelCreditFacilitiesAgreementrequiresAlticeUSFinanceICorporationtoprepayoutstandingCequelTermLoans,subjecttocertainexceptionsanddeductions,with(i)100%ofthenetcashproceedsofcertainassetsales,subjecttoreinvestmentrightsandcertainotherexceptions;and(ii)apariratableshare(basedontheoutstandingprincipalamountoftheCequelTermLoansdividedbythesumoftheoutstandingprincipalamountofallparipassuindebtednessandtheCequelTermLoans)of50%ofannualexcesscashflow(inexcessof$15,000,000),whichwillbereducedto0%iftheconsolidatednetseniorsecuredleverageratioislessthanorequalto4.5:1.
Voluntary Prepayments
VoluntaryprepaymentsoftheCequelTermLoansonorpriortoOctober28,2017whichareeither(x)inconnectionwitharepricingtransactionor(y)effectinganyamendmentoftheCequelTermLoansresultinginarepricingtransaction,aresubjecttoacallpremiumpayabletotheadministrativeagentonbehalfofthelendersof,inthecaseof(x)1.00%oftheprincipalamountoftheCequelTermLoanssorepaidandinthecaseof(y)apaymentequalto1.00%oftheaggregateamountoftheCequelTermLoanssubjecttosuchrepricingtransaction.
Amortization and Final Maturity
ThematuritydateoftheCequelTermLoansisJuly28,2025.AlticeUSFinanceICorporationisrequiredtomakescheduledquarterlypaymentseachequalto0.25%oftheoriginalprincipalamountoftheCequelTermLoans,withthebalancedueonthematuritydate.ThematuritydateoftheCequelRevolvingCreditFacilityisNovember30,2021.
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Guarantees; Security
TheobligationsofAlticeUSFinanceICorporationundertheCequelCreditFacilitiesareguaranteedonaseniorbasisbyCequelCommunicationsHoldingsII,LLC,CequelandcertainofthesubsidiariesofCequelandwillalsobeguaranteedbyeachfuturewholly-ownedsubsidiaryofCequel(otherthanimmaterialsubsidiaries),subjecttoapplicableguaranteelimitationsspecifiedtherein.TheobligationsundertheCequelCreditFacilities(includinganyguaranteesthereof)andaresecuredbycertainassetsofCequelCommunicationsHoldingsII,LLCandCequel,includingasharepledgeoverthesharecapitalofCequelandAlticeUSFinanceICorporationandsubstantiallyalloftheassetsofCequelandthesubsidiaryguarantors(excludingrealpropertyandsubjecttocertainotherexceptions).
Certain Covenants and Events of Default
TheCequelCreditFacilitiesAgreementincludescertainnegativecovenantsthat,amongotherthingsandsubjecttocertainsignificantexceptionsandqualifications,limitCequel'sabilityandtheabilityofitsrestrictedsubsidiariesto:(i)incurorguaranteeadditionalindebtedness,(ii)makeinvestments,(iii)createliens,(iv)sellassetsandsubsidiarystock,(v)paydividendsormakeotherdistributionsorrepurchaseorredeemourcapitalstockorsubordinateddebt,(vi)engageincertaintransactionswithaffiliates,(vii)enterintoagreementsthatrestrictthepaymentofdividendsbysubsidiariesortherepaymentofintercompanyloansandadvances;and(viii)engageinmergersorconsolidations.Inaddition,theCequelCreditFacilitiesAgreementincludesafinancialmaintenancecovenantsolelyforthebenefitoftherevolvinglendersundertheCequelCreditFacilitiesAgreementconsistingofamaximumconsolidatednetseniorsecuredleverageratioofCequelanditsrestrictedsubsidiariesof5.0to1.0.ThefinancialcovenantwillbetestedonthelastdayofanyfiscalquarterbutonlyifonsuchdaythereareoutstandingborrowingsundertheCequelRevolvingCreditFacility(excludinganycashcollateralizedlettersofcredit).
TheCequelCreditFacilitiesAgreementalsocontainscertaincustomaryrepresentationsandwarranties,affirmativecovenantsandeventsofdefault(including,amongothers,aneventofdefaultuponachangeofcontroltriggerevent).Ifaneventofdefaultoccurs,thelendersundertheCequelCreditFacilitieswillbeentitledtotakevariousactions,includingtheaccelerationofamountsdueundertheCequelCreditFacilitiesandallactionspermittedtobetakenbyasecuredcreditor,subjecttotheCequelFirstLienIntercreditorAgreement.
Cablevision Bonds
Cablevision Notes
OnSeptember23,2009,Cablevisionissued$900millionaggregateprincipalamountofits85/8%SeniorNotesdue2017and85/8%SeriesBSeniorNotesdue2017(together,the"Cablevision2017SeniorNotes").OnApril17,2017,Cablevisionwillredeem$500millionaggregateprincipalamountofitsCablevision2017SeniorNoteswithcertainoftheproceedsofthetermloansincurredundertheCVCCreditFacilitiesAgreement,reducingtheaggregateprincipalamountofoutstandingCablevision2017SeniorNotesto$400million.TheCablevision2017SeniorNotesmatureonSeptember15,2017.InterestontheCablevision2017SeniorNotesispayablesemi-annuallyincashoneachMarch15andSeptember15.
OnApril15,2010,Cablevisionissued$750millionaggregateprincipalamountofits73/4%SeniorNotesdue2018.TheCablevision2018SeniorNotesmatureonApril15,2018.InterestontheCablevision2018SeniorNotesispayablesemi-annuallyincashoneachApril15andOctober15.
OnApril15,2010,Cablevisionissued$500millionaggregateprincipalamountofits8%SeniorNotesdue2020.TheCablevision2020SeniorNotesmatureonApril15,2020.InterestontheCablevision2020SeniorNotesispayablesemi-annuallyincashoneachApril15andOctober15.
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OnSeptember27,2012,Cablevisionissued$750millionaggregateprincipalamountofits57/8%SeniorNotesdue2022.TheCablevision2022SeniorNotesmatureonSeptember15,2022.InterestontheCablevision2022SeniorNotesispayablesemi-annuallyincashoneachMarch15andSeptember15.
Atanytimepriortotheirrespectivematuritydates,CablevisionmayredeemsomeoralloftheCablevisionLegacyNotesatapriceequalto100%oftheprincipalamountoftheCablevisionLegacyNotesplusa"make-whole"premium,togetherwithaccruedandunpaidinterest,ifany,tothedateofredemption.
TheCablevisionLegacyNotesareunsecuredobligationsofCablevisionandarenotguaranteedbyanyofitssubsidiariesoranyotherentity.
TheindenturesgoverningtheCablevisionLegacyNotescontaincertainnegativecovenants,agreementsandeventsofdefault,including,amongotherthingsandsubjecttocertainsignificantexceptionsandqualifications,limitationsontheabilityofCablevisionanditsrestrictedsubsidiariesto(i)incurorguaranteeadditionalindebtedness,(ii)makeinvestmentsorotherrestrictedpayments,(iii)createliens,(iv)paydividendsormakeotherdistributionsorrepurchaseorredeemourcapitalstockorsubordinateddebt,(v)engageincertaintransactionswithaffiliates,(vi)enterintoagreementsthatrestrictthepaymentofdividendsbysubsidiariesortherepaymentofintercompanyloansandadvances;and(vii)engageinmergersorconsolidations.
CSC Holdings Notes
CSC Holdings Senior Guaranteed Notes
OnOctober9,2015,Fincoissued$1,000millionaggregateprincipalamountofits65/8%SeniorGuaranteedNotesdue2025.CSCHoldingsassumedtheobligationsasissueroftheCSC2025SeniorGuaranteedNotesuponthemergerofFincoandCSCHoldingsonJune21,2016.TheCSC2025SeniorGuaranteedNotesmatureonOctober15,2025.InterestontheCSC2025SeniorGuaranteedNotesispayablesemi-annuallyincashoneachJanuary15andJuly15.TheCSC2025SeniorGuaranteedNotesareredeemable,inwholeorinpart,atanytimeonorafterOctober15,2020,attheapplicableredemptionpricesspecifiedintheindenturegoverningtheCSC2025SeniorGuaranteedNotes,togetherwithaccruedandunpaidinterest,ifany,to,butexcluding,thedateofredemption.AtanytimepriortoOctober15,2018,CSCHoldingsmayredeemupto40%oftheoriginalaggregateprincipalamountoftheCSC2025SeniorGuaranteedNoteswiththeproceedsofcertainequityofferingsataredemptionpriceof106.625%oftheprincipalamountoftheCSC2025SeniorGuaranteedNotes,togetherwithaccruedandunpaidinterest,ifany,to,butexcluding,thedateofredemption.AtanytimepriortoOctober15,2020,CSCHoldingsmayalsoredeemsomeoralloftheCSC2025SeniorGuaranteedNotesatapriceequalto100%oftheprincipalamountoftheCSC2025SeniorGuaranteedNotesplusa"make-whole"premium,togetherwithaccruedandunpaidinterest,ifany,to,butexcluding,thedateofredemption.
OnSeptember23,2016,CSCHoldingsissued$1,310millionaggregateprincipalamountofits51/2%SeniorGuaranteedNotesdue2027.TheCSC2027SeniorGuaranteedNotesmatureonApril15,2027.InterestontheCSC2027SeniorGuaranteedNotesispayablesemi-annuallyincashoneachApril15andOctober15.TheCSC2027SeniorGuaranteedNotesareredeemable,inwholeorinpart,atanytimeonorafterApril15,2022,attheapplicableredemptionpricesspecifiedintheindenturegoverningtheCSC2027SeniorGuaranteedNotes,togetherwithaccruedandunpaidinterest,ifany,to,butexcluding,thedateofredemption.AtanytimepriortoOctober15,2019,CSCHoldingsmayredeemupto40%oftheoriginalaggregateprincipalamountoftheCSC2027SeniorGuaranteedNoteswiththeproceedsofcertainequityofferingsataredemptionpriceof105.500%oftheprincipalamountoftheCSC2027SeniorGuaranteedNotes,togetherwithaccruedandunpaidinterest,ifany,to,butexcluding,thedateofredemption.AtanytimepriortoApril15,2022,CSCHoldingsmayalso
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redeemsomeoralloftheCSC2027SeniorGuaranteedNotesatapriceequalto100%oftheprincipalamountoftheNotesplusa"make-whole"premium,togetherwithaccruedandunpaidinterest,ifany,to,butexcluding,thedateofredemption.
TheCSCSeniorGuaranteedNotesareunsecuredobligationsofCSCHoldingsandareguaranteedonaseniorunsecuredbasisbyeachrestrictedsubsidiaryofCSCHoldings(otherthanCSCTKR,LLCanditssubsidiaries,whichownandoperateourNewJerseycablesystems)andwillalsobeguaranteedbyeachfuturewholly-ownedrestrictedsubsidiaryofCSCHoldings(otherthanimmaterialsubsidiaries),subjecttocertainlimitationssetforthintheindenturesgoverningtheCSCSeniorGuaranteedNotes.
TheindenturesgoverningtheCSCSeniorGuaranteedNotescontaincertainnegativecovenants,agreementsandeventsofdefault,including,subjecttocertainsignificantexceptionsandqualifications,limitationsontheabilityofCSCHoldingsanditsrestrictedsubsidiariesto(i)incurorguaranteeadditionalindebtedness,(ii)makeinvestments,(iii)createliens,(iv)sellassetsandsubsidiarystock,(v)paydividendsormakeotherdistributionsorrepurchaseorredeemourcapitalstockorsubordinateddebt,(vi)engageincertaintransactionswithaffiliates,(vii)enterintoagreementsthatrestrictthepaymentofdividendsbysubsidiariesortherepaymentofintercompanyloansandadvances,and(viii)engageinmergersorconsolidations.
UpontheoccurrenceofaneventconstitutingachangeofcontrolundertheindenturesgoverningtheCSCSeniorGuaranteedNotes,CSCHoldingsmustoffertorepurchasealloftheCSCSeniorGuaranteedNotesatapriceequalto101%oftheirprincipalamount,plusaccruedandunpaidinterest,ifany,totherepurchasedate.
Incertaininstancesinaccordancewiththetermsoftherespectiveindentures,CSCHoldingsmayberequiredtomakeanoffertorepurchasetheCSCSeniorGuaranteedNotesatapurchasepriceequalto100%oftheprincipalamountthereof,plusaccruedandunpaidinterest,ifany,withtheexcessproceedsfromassetsales.
CSC Holdings Senior Notes
OnFebruary6,1998,CSCHoldings,asasuccessorissuer,issued$300millionaggregateprincipalamountofits77/8%SeniorDebenturesdue2018.TheCSC77/8%2018SeniorDebenturesmatureonFebruary15,2018.InterestontheCSC77/8%2018SeniorDebenturesispayablesemi-annuallyincashoneachFebruary15andAugust15.
OnJuly21,1998,CSCHoldings,assuccessorissuer,issued$500millionaggregateprincipalamountofits75/8%SeniorDebenturesdue2018.TheCSC75/8%2018SeniorDebenturesmatureonJuly15,2018.InterestontheCSC75/8%2018SeniorDebenturesispayablesemi-annuallyincashoneachJanuary15andJuly15.
OnFebruary12,2009,CSCHoldings,asasuccessorissuer,issued$526millionaggregateprincipalamountofits85/8%SeniorNotesdue2019and85/8%SeriesBSeniorNotesdue2019.TheCSC2019SeniorNotesmatureonFebruary15,2019.InterestontheCSC2019SeniorNotesispayablesemi-annuallyincashoneachFebruary15andAugust15.
OnNovember15,2011,CSCHoldingsissued$1,000millionaggregateprincipalamountofits63/4%SeniorNotesdue2021and63/4%SeriesBSeniorNotesdue2021.TheCSC2021SeniorNotesmatureonNovember15,2021.InterestontheCSC2021SeniorNotesispayablesemi-annuallyincashoneachMay15andNovember15.
OnMay23,2014,CSCHoldingsissued$750millionaggregateprincipalamountofits51/4%SeniorNotesdue2024and51/4%SeriesBSeniorNotesdue2024.TheCSC2024SeniorNotesmatureonJune1,2024.InterestontheCSC2024SeniorNotesispayablesemi-annuallyincashoneachJune1andDecember1.
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Atanytimepriortotheirrespectivematuritydates,CSCHoldingsmayredeemsomeoralloftheCSCLegacyNotesatapriceequalto100%oftheprincipalamountoftheCSCLegacyNotesplusa"make-whole"premium,togetherwithaccruedandunpaidinterest,ifany,tothedateofredemption.
OnOctober9,2015,Finco,issued$1,800millionaggregateprincipalamountofits101/8%SeniorNotesdue2023and$2,000million107/8%SeniorNotesdue2025.CSCHoldingsassumedtheobligationsasissueroftheCSC2023SeniorNotesuponthemergerofFincoandCSCHoldingsonJune21,2016.TheCSC2023SeniorNotesmatureonJanuary15,2023andtheCSC2025SeniorNotesmatureonOctober15,2025.InterestontheCSCNewSeniorNotesispayablesemi-annuallyincashoneachJanuary15andJuly15.
TheCSC2023SeniorNotesareredeemable,inwholeorinpart,atanytimeonorafterJanuary15,2019,attheapplicableredemptionpricesspecifiedintheindenturegoverningtheCSC2023SeniorNotes,togetherwithaccruedandunpaidinterest,ifany,to,butexcluding,thedateofredemption.AtanytimepriortoOctober15,2018,CSCHoldingsmayredeemupto40%oftheoriginalaggregateprincipalamountoftheCSC2023SeniorNoteswiththeproceedsofcertainequityofferingsataredemptionpriceof110.125%oftheprincipalamountoftheCSC2023SeniorNotes,togetherwithaccruedandunpaidinterest,ifany,to,butexcluding,thedateofredemption.AtanytimepriortoJanuary15,2019,CSCHoldingsmayalsoredeemsomeoralloftheCSC2023SeniorNotesatapriceequalto100%oftheprincipalamountoftheCSC2023SeniorNotesplusa"make-whole"premium,togetherwithaccruedandunpaidinterest,ifany,to,butexcluding,thedateofredemption.
TheCSC2025SeniorNotesareredeemable,inwholeorinpart,atanytimeonorafterOctober15,2020,attheapplicableredemptionpricesspecifiedintheindenturegoverningtheCSC2025SeniorNotes,togetherwithaccruedandunpaidinterest,ifany,to,butexcluding,thedateofredemption.AtanytimepriortoOctober15,2018,CSCHoldingsmayredeemupto40%oftheoriginalaggregateprincipalamountoftheCSC2025SeniorNoteswiththeproceedsofcertainequityofferingsataredemptionpriceof110.875%oftheprincipalamountoftheCSC2025SeniorNotes,togetherwithaccruedandunpaidinterest,ifany,to,butexcluding,thedateofredemption.AtanytimepriortoOctober15,2020,CSCHoldingsmayalsoredeemsomeoralloftheCSC2025SeniorNotesatapriceequalto100%oftheprincipalamountoftheCSC2025SeniorNotesplusa"make-whole"premium,togetherwithaccruedandunpaidinterest,ifany,to,butexcluding,thedateofredemption.
TheCSCSeniorNotesareunsecuredobligationsofCSCHoldingsandarenotguaranteedbyanyofitssubsidiariesoranyotherentity.
TheindenturesgoverningtheCSCSeniorNotescontaincertainnegativecovenants,agreementsandeventsofdefault,including,subjecttocertainsignificantexceptionsandqualifications,limitationsontheabilityofCSCHoldingsanditsrestrictedsubsidiariesto(i)incurorguaranteeadditionalindebtedness,(ii)makeinvestments,(iii)createliens,(iv)sellassetsandsubsidiarystock,(v)paydividendsormakeotherdistributionsorrepurchaseorredeemourcapitalstockorsubordinateddebt,(vi)engageincertaintransactionswithaffiliates,(vii)enterintoagreementsthatrestrictthepaymentofdividendsbysubsidiariesortherepaymentofintercompanyloansandadvances;and(viii)engageinmergersorconsolidations.
UpontheoccurrenceofaneventconstitutingachangeofcontrolundertheindenturegoverningtheCSCNewSeniorNotes,CSCHoldingsmustoffertorepurchasealloftheCSCNewSeniorNotesatapriceequalto101%oftheirprincipalamount,plusaccruedandunpaidinterest,ifany,totherepurchasedate.
Incertaininstancesinaccordancewiththetermsoftheindenture,CSCHoldings,LLCmayberequiredtomakeanoffertorepurchasetheCSCNewSeniorNotesatapurchasepriceequalto100%
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oftheprincipalamountthereof,plusaccruedandunpaidinterest,ifany,withtheexcessproceedsfromassetsales.
Cequel Bonds
Cequel Senior Secured Notes
OnJune12,2015,AlticeUSFinanceICorporationissued$1,100millionaggregateprincipalamountofits53/8%SeniorSecuredNotesdue2023(the"Cequel2023SeniorSecuredNotes").TheCequel2023SeniorSecuredNotesmatureonJuly15,2023.InterestontheCequel2023SeniorSecuredNotesispayablesemi-annuallyincashoneachJanuary15andJuly15.TheCequel2023SeniorSecuredNotesareredeemable,inwholeorinpart,atanytimeonorafterJuly15,2018,attheapplicableredemptionpricesspecifiedintheindenturegoverningthe2023SeniorSecuredNotes,togetherwithaccruedandunpaidinterest,ifany,to,butexcluding,thedateofredemption.AtanytimepriortoJuly15,2018,AlticeUSFinanceICorporationmayredeemupto40%oftheoriginalaggregateprincipalamountoftheCequel2023SeniorSecuredNoteswiththeproceedsofcertainequityofferingsataredemptionpriceof105.375%oftheprincipalamountoftheCequel2023SeniorSecuredNotes,togetherwithaccruedandunpaidinterest,ifany,to,butexcluding,thedateofredemption.AtanytimepriortoJuly15,2018,AlticeUSFinanceICorporationmayalsoredeemsomeoralloftheCequel2023SeniorSecuredNotesatapriceequalto100%oftheprincipalamountoftheCequel2023SeniorSecuredNotesplusa"make-whole"premium,togetherwithaccruedandunpaidinterest,ifany,to,butexcluding,thedateofredemption.
OnApril26,2016,AlticeUSFinanceICorporationissued$1,500millionaggregateprincipalamountofits51/2%SeniorSecuredNotesdue2026(the"Cequel2026SeniorSecuredNotes"and,togetherwiththeCequel2023SeniorSecuredNotes,the"CequelSeniorSecuredNotes").TheCequel2026SeniorSecuredNotesmatureonMay15,2026.InterestontheCequel2026SeniorSecuredNotesispayablesemi-annuallyincashoneachMay15andNovember15.TheCequel2026SeniorSecuredNotesareredeemable,inwholeorinpart,atanytimeonorafterMay15,2021,attheapplicableredemptionpricesspecifiedintheindenturegoverningthe2026SeniorSecuredNotes,togetherwithaccruedandunpaidinterest,ifany,to,butexcluding,thedateofredemption.AtanytimepriortoMay15,2019,AlticeUSFinanceICorporationmayredeemupto40%oftheoriginalaggregateprincipalamountoftheCequel2026SeniorSecuredNoteswiththeproceedsofcertainequityofferingsataredemptionpriceof105.5%oftheprincipalamountoftheCequel2026SeniorSecuredNotes,togetherwithaccruedandunpaidinterest,ifany,to,butexcluding,thedateofredemption.AtanytimepriortoMay15,2021,AlticeUSFinanceICorporationmayalsoredeemsomeoralloftheCequel2026SeniorSecuredNotesatapriceequalto100%oftheprincipalamountoftheCequel2026SeniorSecuredNotesplusa"make-whole"premium,togetherwithaccruedandunpaidinterest,ifany,to,butexcluding,thedateofredemption.
TheobligationsofAlticeUSFinanceICorporationundertheCequelSeniorSecuredNotesareguaranteedonaseniorbasisbyCequelCommunicationsHoldingsII,LLC,CequelandcertainsubsidiariesofCequelandaresecuredbycertainassetsofCequelCommunicationsHoldingsII,LLCandCequel,includingasharepledgeoverthesharecapitalofCequelandAlticeUSFinanceICorporation,andsubstantiallyalloftheassetsofCequelandthesubsidiaryguarantors(excludingrealpropertyandsubjecttocertainotherexceptions).
TheindenturesgoverningtheCequelSeniorSecuredNotescontaincertainnegativecovenants,agreementsandeventsofdefault,including,subjecttocertainsignificantexceptionsandqualifications,limitationsontheabilityofCequelanditsrestrictedsubsidiariesto(i)incurorguaranteeadditionalindebtedness,(ii)makeinvestments,(iii)createliens,(iv)sellassetsandsubsidiarystock,(v)paydividendsormakeotherdistributionsorrepurchaseorredeemourcapitalstockorsubordinateddebt,(vi)engageincertaintransactionswithaffiliates,(vii)enterintoagreementsthatrestrictthepayment
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ofdividendsbysubsidiariesortherepaymentofintercompanyloansandadvances,and(viii)engageinmergersorconsolidations.
UpontheoccurrenceofaneventconstitutingachangeofcontrolundertheindenturesgoverningtheCequelSeniorSecuredNotes,AlticeUSFinanceICorporationmustoffertorepurchasealloftheCequelSeniorSecuredNotesatapriceequalto101%oftheirprincipalamount,plusaccruedandunpaidinterest,ifany,totherepurchasedate.
Incertaininstancesinaccordancewiththetermsoftherespectiveindentures,AlticeUSFinanceICorporationmayberequiredtomakeanoffertorepurchasetheCequelSeniorSecuredNotesatapurchasepriceequalto100%oftheprincipalamountthereof,plusaccruedandunpaidinterest,ifany,withtheexcessproceedsfromassetsales.
Cequel Senior Notes
OnOctober25,2012,CequelCapitalCorporationandCequelCommunicationsHoldingsI,LLCissued$500millionaggregateprincipalamountoftheir63/8%SeniorNotesdue2020(the"Cequel2020SeniorNotes").OnDecember28,2012,theCequelSeniorNotesIssuersissuedanadditional$1,000millionaggregateprincipalamountoftheirCequel2020SeniorNotes.OnApril14,2017,theCequelSeniorNotesCo-Issuerswillredeem$450millionaggregateprincipalamountoftheirCequel2020SeniorNoteswithcertainoftheproceedsofthetermloansincurredundertheCequelCreditFacilitiesAgreement,reducingtheaggregateprincipalamountofoutstandingCequel2020SeniorNotesto$1,050million.TheCequel2020SeniorNotesmatureonSeptember15,2020.InterestontheCequel2020SeniorNotesispayablesemi-annuallyincashoneachMarch15andSeptember15.TheCequel2020SeniorNotesareredeemable,inwholeorinpart,atanytimeonorafterSeptember15,2015,attheapplicableredemptionpricesspecifiedintheindenturegoverningtheCequel2020SeniorNotes,togetherwithaccruedandunpaidinterest,ifany,tothedateofredemption.AtanytimepriortoSeptember15,2015,theCequelSeniorNotesCo-Issuersmayredeemupto40%oftheoriginalaggregateprincipalamountoftheCequel2020SeniorNoteswiththeproceedsofcertainequityofferingsataredemptionpriceof106.375%oftheprincipalamountoftheCequel2020SeniorNotes,togetherwithaccruedandunpaidinterest,ifany,tothedateofredemption.AtanytimepriortoSeptember15,2015,theCequelSeniorNotesCo-IssuersmayalsoredeemsomeoralloftheCequel2020SeniorNotesatapriceequalto100%oftheprincipalamountoftheCequel2020SeniorNotesplusa"make-whole"premium,togetherwithaccruedandunpaidinterest,ifany,tothedateofredemption.
OnMay16,2013,theCequelSeniorNotesCo-Issuersissued$750millionaggregateprincipalamountoftheir51/8%SeniorNotesdue2021.TheCequel2021SeniorNotesmatureonDecember15,2021.InterestontheCequel2021SeniorNotesispayablesemi-annuallyincashoneachJune15andDecember15.TheCequel2021SeniorNotesareredeemable,inwholeorinpart,atanytimeonorafterJune15,2016,attheapplicableredemptionpricesspecifiedintheindenturegoverningtheCequel2021SeniorNotes,togetherwithaccruedandunpaidinterest,ifany,to,butexcluding,thedateofredemption.AtanytimepriortoJune15,2016,theCequelSeniorNotesCo-Issuersmayredeemupto40%oftheoriginalaggregateprincipalamountoftheCequel2021SeniorNoteswiththeproceedsofcertainequityofferingsataredemptionpriceof105.125%oftheprincipalamountoftheCequel2021SeniorNotes,togetherwithaccruedandunpaidinterest,ifany,tothedateofredemption.AtanytimepriortoJune15,2016,theCequelSeniorNotesCo-IssuersmayalsoredeemsomeoralloftheCequel2021SeniorNotesatapriceequalto100%oftheprincipalamountoftheCequel2021SeniorNotesplusa"make-whole"premium,togetherwithaccruedandunpaidinterest,ifany,tothedateofredemption.
OnSeptember9,2014,theCequelSeniorNotesCo-Issuersissued$500millionaggregateprincipalamountoftheir51/8%SeniorNotesdue2021.TheCequel2021MirrorNotesmatureonDecember15,
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2021.InterestontheCequel2021MirrorNotesispayablesemi-annuallyincashoneachJune15andDecember15.TheCequel2021MirrorNotesareredeemable,inwholeorinpart,atanytimeonorafterJune15,2016,attheapplicableredemptionpricesspecifiedintheindenturegoverningtheCequel2021MirrorNotes,togetherwithaccruedandunpaidinterest,ifany,tothedateofredemption.AtanytimepriortoJune15,2016,theCequelSeniorNotesCo-Issuersmayredeemupto40%oftheoriginalaggregateprincipalamountoftheCequel2021MirrorNoteswiththeproceedsofcertainequityofferingsataredemptionpriceof105.125%oftheprincipalamountoftheCequel2021MirrorNotes,togetherwithaccruedandunpaidinterest,ifany,tothedateofredemption.AtanytimepriortoJune15,2016,theCequelSeniorNotesCo-IssuersmayalsoredeemsomeoralloftheCequel2021MirrorNotesatapriceequalto100%oftheprincipalamountoftheCequel2021MirrorNotesplusa"make-whole"premium,togetherwithaccruedandunpaidinterest,ifany,tothedateofredemption.
OnJune12,2015,AlticeUSFinanceIICorporationissued$300millionaggregateprincipalamountofits73/4%SeniorNotesdue2025.TheCequelSeniorNotesCo-IssuersassumedtheobligationsasissueroftheCequel2025SeniorNotesonDecember21,2015.OnMay23,2016,theCequelSeniorNotesCo-Issuersissuedanadditional$320millionaggregateprincipalamountoftheCequel2025SeniorNotesinexchangefordebtsecuritiesoriginallyissuedbyAlticeUSFinanceS.A.TheCequel2025SeniorNotesmatureonJuly15,2025.InterestontheCequel2025SeniorNotesispayablesemi-annuallyincashoneachJanuary15andJuly15.TheCequel2025SeniorNotesareredeemable,inwholeorinpart,atanytimeonorafterJuly15,2020,attheapplicableredemptionpricesspecifiedintheindenturegoverningtheCequel2025SeniorNotes,togetherwithaccruedandunpaidinterest,ifany,to,butexcluding,thedateofredemption.AtanytimepriortoJuly15,2018,theCequelSeniorNotesCo-Issuersmayredeemupto40%oftheoriginalaggregateprincipalamountoftheCequel2025SeniorNoteswiththeproceedsofcertainequityofferingsataredemptionpriceof107.750%oftheprincipalamountoftheCequel2025SeniorNotes,togetherwithaccruedandunpaidinterest,ifany,to,butexcluding,thedateofredemption.AtanytimepriortoJuly15,2020,theCequelSeniorNotesCo-IssuersmayalsoredeemsomeoralloftheCequel2025SeniorNotesatapriceequalto100%oftheprincipalamountoftheCequel2025SeniorNotesplusa"make-whole"premium,togetherwithaccruedandunpaidinterest,ifany,to,butexcluding,thedateofredemption.
TheCequelSeniorNotesareunsecuredobligationsoftheCequelSeniorNotesCo-Issuersandarenotguaranteedbyanyoftheirsubsidiariesoranyotherentity.
TheindenturesgoverningtheCequelSeniorNotescontaincertainnegativecovenants,agreementsandeventsofdefault,including,subjecttocertainsignificantexceptionsandqualifications,limitationsontheabilityoftheCequelSeniorNotesCo-Issuersandtheirrestrictedsubsidiariesto(i)incurorguaranteeadditionalindebtedness,(ii)makeinvestments,(iii)createliens,(iv)sellassetsandsubsidiarystock,(v)paydividendsormakeotherdistributionsorrepurchaseorredeemourcapitalstockorsubordinateddebt,(vi)engageincertaintransactionswithaffiliates,(vii)enterintoagreementsthatrestrictthepaymentofdividendsbysubsidiariesortherepaymentofintercompanyloansandadvances,and(viii)engageinmergersorconsolidations,ineachcasesubjecttocertainexceptions.
UpontheoccurrenceofaneventconstitutingachangeofcontrolundertherespectiveindenturesgoverningtheCequelSeniorNotes,theCequelSeniorNotesCo-IssuersmustoffertorepurchasealloftheCequelSeniorNotesatapriceequalto101%oftheirprincipalamount,plusaccruedandunpaidinterest,ifany,totherepurchasedate.
Incertaininstancesinaccordancewiththetermsoftherespectiveindentures,theCequelSeniorNotesCo-IssuersmayberequiredtomakeanoffertorepurchasetheCequelSeniorNotesatapurchasepriceequalto100%oftheprincipalamountthereof,plusaccruedandunpaidinterest,ifany,withtheexcessproceedsfromassetsales.
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Cequel Intercreditor Agreement
OnDecember21,2015,JPMorganChaseBank,N.A.,assecurityagentandauthorizedrepresentativeofthesecuredpartiesundertheCequelCreditFacilities,andDeutscheBankTrustCompanyAmericas,asauthorizedrepresentativeoftheholdersoftheCequel2023SeniorSecuredNotes,enteredintoafirstlienintercreditoragreement(the"CequelFirstLienIntercreditorAgreement")astotherelativeprioritiesoftheirrespectivesecurityinterestsinthesharedcollateralsecuringtheindebtednessofAlticeUSFinanceICorporation.OnMay20,2016,DeutscheBankTrustCompanyAmericasaccededtotheCequelFirstLienIntercreditorAgreementinitscapacityasauthorizedrepresentativeoftheholdersoftheCequel2026SeniorSecuredNotes.TheCequelFirstLienIntercreditorAgreementprovidesthatnotwithstandingthedate,time,method,mannerororderofgrant,attachmentorperfectionofanyliensonthesharedcollateralsecuringtheCequelCreditFacilities,Cequel2023SeniorSecuredNotesorCequel2026SeniorSecuredNotes(orfuturefirstlienobligationsthatbecomesubjecttotheCequelFirstLienIntercreditorAgreement),thelienssecuringallsuchfirstlienobligationsshallbeofequalpriority.TheCequelFirstLienIntecreditorAgreementalsoprovidesforcertainmattersrelatingtotheadministrationofsecurityinterestsincluding,amongstotherthings,specifyingtheapplicableauthorizedrepresentativewhohastherighttodirectthecontrollingsecurityagenttotake,orrefrainfromtaking,certainactionswithrespecttothesharedcollateral,theautomaticreleaseofliensinfavorofeachseriesoffirstlienobligationsintheeventthecontrollingsecurityagentexercisesremediesagainstanysharedcollateralandcertainagreementsrelatingtodebtor-in-possessionfinancings(andliensonthesharedcollateralinconnectionwithsuchfinancings)ortheuseofcashcollateralconstitutingsharedcollateralintheeventtheissuerorapledgorbecomessubjecttoabankruptcycase.
Other
Cablevision Collateralized Indebtedness Relating to Stock Monetizations
CSCHoldingsanditsconsolidatedsubsidiarieshaveenteredintoderivativecontractstohedgetheirequitypriceriskandmonetizethevalueoftheirsharesofcommonstockofComcast.Thesecontracts,atmaturity,areexpectedtooffsetdeclinesinthefairvalueofthesesecuritiesbelowthehedgepricepersharewhileallowingCSCHoldingsanditsconsolidatedsubsidiariestoretainupsideappreciationfromthehedgepricepersharetotherelevantcapprice.Ifanyoneofthesecontractsisterminatedpriortoitsscheduledmaturitydateduetotheoccurrenceofaneventspecifiedinthecontract,CSCHoldingsanditsconsolidatedsubsidiarieswouldbeobligatedtorepaythefairvalueofthecollateralizedindebtednesslessthesumofthefairvaluesoftheunderlyingstockandequitycollar,calculatedattheterminationdate.AsofMarch31,2017,CSCHoldingsanditsconsolidatedsubsidiariesdidnothaveanearlyterminationshortfallrelatingtoanyofthesecontracts.TheunderlyingstockandtheequitycollarsarecarriedatfairvalueonCSCHoldingsconsolidatedbalancesheetsandthecollateralizedindebtednessiscarriedatitsprincipalvalue.See"Management'sDiscussionandAnalysisofFinancialConditionandResultsofOperations—QuantitativeandQualitativeDisclosuresAboutMarketRisk"forinformationonhowCSCHoldingsanditsconsolidatedsubsidiariesparticipateinchangesinthemarketpriceofthestocksunderlyingthesederivativecontracts.
AllofCSCHoldingsmonetizationtransactionsareobligationsofCSCHoldingswholly-ownedsubsidiaries.CSCHoldingsprovidesguaranteesofthesubsidiaries'ongoingcontractpaymentexpenseobligationsandpotentialpaymentsthatcouldbedueasaresultofanearlyterminationevent.Theguaranteeexposureapproximatesthenetsumofthefairvalueofthecollateralizedindebtednesslessthesumofthefairvaluesoftheunderlyingstockandtheequitycollar.Thesederivativecontractswerenotdesignatedashedgesforaccountingpurposes.AllofCSCHoldingsequityderivativecontractsarecarriedattheircurrentfairvalueonourconsolidatedbalancesheetswithchangesinvaluereflectedin
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ourconsolidatedstatementsofincome,andallofthecounterpartiestosuchtransactionscurrentlycarryinvestmentgradecreditratings.
Cequel Derivative Instruments
InJune2016,asubsidiaryofCequelenteredintotwofixedtofloatinginterestrateswaps.Onefixedtofloatinginterestrateswapisconverting$750,000fromafixedrateof1.6655%tosix-monthLIBORandasecondtrancheof$750,000fromafixedrateof1.68%tosix-monthLIBOR.TheobjectiveoftheseswapsistocovertheexposureoftheCequel2026SeniorSecuredNotestochangesinthemarketinterestrate.Theseswapcontractswerenotdesignatedashedgesforaccountingpurposes.Accordingly,thechangesinthefairvalueoftheseinterestrateswapcontractsarerecordedthroughthestatementofoperations.
Letters of Credit
Certainlendershaveissuedstandbyandbackstoplettersofcreditthatareusedbycertainofoursubsidiariestoguaranteetheirobligationsintheordinarycourseofbusiness.AsofDecember31,2016,wehadapproximately$114millionofoutstandinglettersofcredit.
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SHARES ELIGIBLE FOR FUTURE SALE
Priortothisoffering,therehasnotbeenanypublicmarketforourClassAcommonstockandasignificantpublicmarketforourClassAcommonstockmaynotdeveloporbesustainedafterthisoffering.Wecannotpredictwhateffect,ifany,salesofsharesofourClassAcommonstockortheavailabilityofsharesofourClassAcommonstockforsalewillhaveontheprevailingmarketpriceofourClassAcommonstockfromtimetotime.ThenumberofsharesofourClassAcommonstockavailableforfuturesaleintothepublicmarketsissubjecttolegalandcontractualrestrictions,someofwhicharedescribedbelow.TheexpirationoftheserestrictionswillpermitsalesofsubstantialamountsofourClassAcommonstockinthepublicmarketorcouldcreatetheperceptionthatthesesalescouldoccur,whichcouldadverselyaffectthemarketpriceforourClassAcommonstockandcouldmakeitmoredifficultforustoraisecapitalthroughthesaleofourequityorequity-relatedsecuritiesatatimeandpricethatwedeemacceptable.
Uponthecompletionofthisoffering,weexpecttohaveatotalofsharesofourClassAcommonstockoutstanding,assumingnoexerciseoftheunderwriters'optiontopurchaseadditionalsharesofClassAcommonstockfrom,andsharesofourClassBcommonstockoutstanding.AllofthesharesofourClassAcommonstocksoldinthisofferingwillbefreelytradablewithoutrestrictionorfurtherregistrationundertheSecuritiesAct,exceptforsharesheldbypersonswhomaybedeemedour"affiliates,"asthattermisdefinedunderRule144oftheSecuritiesAct.An"affiliate"isapersonthatdirectlyorindirectlythroughoneormoreintermediaries,controlsoriscontrolledbyusorisundercommoncontrolwithus.TheremainingoutstandingsharesofourClassAcommonstockandClassBcommonstockwillbe"restrictedsecurities"withinthemeaningofRule144andsubjecttocertainrestrictionsonresalefollowingtheconsummationofthisoffering.RestrictedsecuritiesmaybesoldinthepublicmarketonlyiftheyareregisteredundertheSecuritiesActoraresoldpursuanttoanexemptionfromregistrationsuchasRule144orRule701,whicharesummarizedbelow.SharesofourClassBcommonstockareconvertibleintoanequivalentnumberofsharesofourClassAcommonstockattheoptionoftheholderatanytime.
Rule 144
Ingeneral,pursuanttoRule144undertheSecuritiesActineffectonthedateofthisprospectus,oncewehavebeensubjecttopubliccompanyreportingrequirementsforatleast90days,apersonwhoisnotoneofouraffiliatesatanytimeduringthe90daysprecedingasaleandwhohasbeneficiallyownedthesharesofourClassAcommonstocktobesoldforatleastsixmonths,includingtheholdingperiodofanypriorownerotherthanouraffiliates,wouldbeentitledtosellthoseshareswithoutcomplyingwiththemannerofsale,volumelimitationornoticeprovisionsofRule144,subjecttocompliancewiththepublicinformationrequirementsofRule144.Inaddition,underRule144,apersonwhoisnotoneofouraffiliatesatanytimeduringthe90daysprecedingasale,andwhohasbeneficiallyownedthesharesofourClassAcommonstocktobesoldforatleastoneyear,includingtheholdingperiodofanypriorownerotherthanouraffiliates,wouldbeentitledtosellthoseshareswithoutregardtotherequirementsofRule144.Ouraffiliatesorpersonssellingonbehalfofouraffiliatesareentitledtosell,uponexpirationofthelock-upagreementsdescribedbelow,withinanythree-monthperiodbeginning90daysafterthedateofthisprospectus,anumberofsharesthatdoesnotexceedthegreaterof:
• 1.0%ofthenumberofsharesofClassAcommonstockthenoutstanding,whichisapproximatelysharesofClassAcommonstockuponthecompletionofthisofferingassumingtheunderwritersdonotexercisetheiroptiontopurchaseadditionalsharesofClassAcommonstock;and
• theaverageweeklytradingvolumeofourClassAcommonstockontheduringthefourcalendarweeksprecedingeachsuchsale,subjecttocertainrestrictions.
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SalesunderRule144byouraffiliatesorpersonssellingonbehalfofouraffiliatesarealsosubjecttomannerofsaleprovisionsandnoticerequirementsandtotheavailabilityofcurrentpublicinformationaboutus.Rule144alsoprovidesthataffiliatesrelyingonRule144tosellsharesofourClassAcommonstockthatarenotrestrictedsharesmustnonethelesscomplywiththesamerestrictionsapplicabletorestrictedshares,otherthantheholdingperiodrequirement.
Rule 701
Rule701generallyallowsastockholderwhopurchasedsharesofourcapitalstockpursuanttoawrittencompensatoryplanorcontractandwhoisnotdeemedtohavebeenanaffiliateofourcompanyduringtheimmediatelypreceding90daystosellthesesharesinrelianceuponRule144,butwithoutbeingrequiredtocomplywiththepublicinformation,holdingperiod,volumelimitation,ornoticeprovisionsofRule144.Rule701alsopermitsaffiliatesofourcompanytoselltheirRule701sharesunderRule144withoutcomplyingwiththeholdingperiodrequirementsofRule144.AllholdersofRule701shares,however,arerequiredbythatruletowaituntil90daysafterthedateofthisprospectusbeforesellingthosesharespursuanttoRule701.Moreover,allRule701sharesaresubjecttolock-upagreementsasdescribedbelowandunderthesectiontitled"Underwriting"andwillnotbecomeeligibleforsaleuntiltheexpirationofthoseagreements.
Lock-up Agreements
Weandourofficers,directors,andholdersofsubstantiallyallofourcommonstockhaveagreedwiththeunderwriters,subjecttocertainexceptions,nottodisposeoforhedgeanyofourortheircommonstockorsecuritiesconvertibleintoorexchangeableforsharesofcommonstockduringtheperiodfromthedateofthisprospectuscontinuingthroughthedate180daysafterthedateofthisprospectus,exceptwiththepriorwrittenconsentof.Thisagreementdoesnotapplytoanyexistingemployeebenefitplans.See"SharesEligibleforFutureSale"foradiscussionofcertaintransferrestrictions.
Shares Issued Under Future Plans
WewillfilearegistrationstatementonFormS-8undertheSecuritiesActtoregisterClassAcommonstockissuableunderourAlticeUSA2017LongTermIncentivePlan.Sharesregisteredunderanysuchregistrationstatementwouldbeavailableforsaleinthepublicmarketfollowingtheeffectivedate,unlesssuchsharesaresubjecttovestingrestrictionswithus,Rule144restrictionsapplicabletoouraffiliatesorthelock-upagreementsdescribedabove.
Registration Rights
Inconnectionwiththisoffering,weexpecttoenterintoaregistrationrightsagreementwithAlticeN.V.,BCP,CPPIBandNeptuneHoldingUSLP.ThisagreementwillprovidetoAlticeN.V.anunlimitednumberof"demand"registrationsfortheregistrationofthesaleofourcommonstockinaminimumaggregateamountof$million.Additionally,theagreementwillprovideBCPandCPPIBwith"demand"registrationsonFormS-1and"demand"registrationsonFormS-3,andcustomary"piggyback"registrationrightstoAlticeN.V.,BCPandCPPIB.TheregistrationrightsagreementwillalsoprovidethatwewillpaycertainexpensesrelatingtosuchregistrationsandindemnifyAlticeN.V.,BCPandCPPIBagainstcertainliabilitieswhichmayariseundertheSecuritiesAct.
Right of First Refusal
AnyproposedsaleofsharesofcommonstockheldbycertainmembersofourmanagementwillbesubjecttoarightoffirstrefusalinfavorofanentitycontrolledbyPatrickDrahi.
Equity Incentive Plans
Foradescriptionofourequityincentiveplans,see"ExecutiveCompensation."
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MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS OF OUR COMMON STOCK
ThefollowingisasummaryofthematerialU.S.federalincometaxconsequencestoNon-U.S.Holders(asdefinedbelow)associatedwiththepurchase,ownershipanddispositionofourClassAcommonstock,butdoesnotpurporttobeacompleteanalysisofallthepotentialtaxconsiderationsrelatingthereto.ThissummaryisbasedupontheprovisionsoftheInternalRevenueCodeof1986,asamended(the"Code"),Treasuryregulationspromulgatedthereunder("TreasuryRegulations"),administrativerulingsandjudicialdecisions,allasofthedatehereof.Theseauthoritiesmaybechanged,possiblyretroactively,andanychangesmayresultinU.S.federalincometaxconsequencesdifferentfromthosesetforthbelow.WehavenotsoughtanyrulingfromtheInternalRevenueService(the"IRS")withrespecttothestatementsmadeandtheconclusionsreachedinthefollowingsummary.TheauthoritiesonwhichthisdiscussionisbasedaresubjecttovariousinterpretationsandtherecanbenoassurancethattheIRSorthecourtswillagreewithsuchstatementsandconclusions.
Thissummaryalsodoesnotaddressthetaxconsiderationsarisingunderthelawsofanystate,localornon-U.S.jurisdictionorunderU.S.federalgiftandestatetaxlaws,excepttothelimitedextentsetforthbelow.ThissummaryislimitedtopersonswhoholdourClassAcommonstockasacapitalassetforU.S.federalincometaxpurposes(withinthemeaningofsection1221oftheCode).Inaddition,becausethissectionisageneralsummary,itdoesnotaddressallaspectsoftaxationthatmayberelevanttoparticularstockholdersinlightoftheirpersonalinvestmentortaxcircumstances,ortocertaintypesofstockholdersthataresubjecttospecialtreatmentundertheU.S.federalincometaxlaws,including,withoutlimitation,brokersordealersinsecurities,insurancecompanies,banksorotherfinancialinstitutions,hybridentities,regulatedinvestmentcompanies,realestateinvestmenttrusts,tax-exemptorganizationsoraccounts,personsholdingClassAcommonstockasapartofahedging,integrated,conversiontransaction,straddleorotherriskreductiontransaction,tradersinsecuritiesthatelecttouseamark-to-marketmethodofaccountingfortheirsecuritiesholdings,personssubjecttothealternativeminimumtaxortheMedicaretaxonnetinvestmentincome,entitiesorarrangementstreatedaspartnershipsforU.S.federalincometaxpurposesorinvestorsinsuchentities,personswhoacquiredourClassAcommonstockthroughtheexerciseofemployeestockoptionsorotherwiseascompensationforservices,certainformerU.S.citizensorlong-termresidents,U.S.expatriates,"controlledforeigncorporations"or"passiveforeigninvestmentcompanies"withinthemeaningoftheCode,andpersonsdeemedtosellourClassAcommonstockundertheconstructivesaleprovisionsoftheCode.Ifapartnership,includinganyentityorarrangementtreatedasapartnershipforU.S.federalincometaxpurposes,holdssharesofourClassAcommonstock,theU.S.federalincometaxtreatmentofapartnerinsuchpartnershipwillgenerallydependuponthestatusofthepartnerandtheactivitiesofthepartnership.Suchpartnersandpartnershipsshouldconsulttheirtaxadvisorsregardingthetaxconsequencesofthepurchase,ownershipordispositionofourClassAcommonstock.
Non-U.S. Holders are urged to consult their tax advisors with respect to the application of the U.S. federal income tax laws to their particular situations, as wellas any tax consequences of the purchase, ownership and disposition of our Class A common stock arising under the U.S. federal estate or gift tax rules orunder the laws of any state, local, non-U.S. or other taxing jurisdiction or under any applicable tax treaty.
Non-U.S. Holder Defined
Asusedinthisdiscussion,theterm"Non-U.S.Holder"meansabeneficialownerofourClassAcommonstockthat,forU.S.federalincometaxpurposes,isanindividual,corporation,estateortrustandisnotanyofthefollowingforU.S.federalincometaxpurposes:
• anentityorarrangementtreatedasapartnership;
• anindividualwhoisacitizenortaxresidentoftheUnitedStates;
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• acorporationcreatedororganizedintheUnitedStatesorunderthelawsoftheUnitedStatesoranystatethereofortheDistrictofColumbia;
• anestatewhoseincomeissubjecttoU.S.federalincometaxregardlessofitssource;or
• atrust(i)theadministrationofwhichissubjecttotheprimarysupervisionofaU.S.courtandthathasoneormoreU.S.personswhohavetheauthoritytocontrolallsubstantialdecisionsofthetrustor(ii)thathasavalidelectionineffectunderapplicableTreasuryRegulationstobetreatedasaU.S.person.
Distributions
Wedonotanticipatemakingdistributionsonourcommonstockintheforeseeablefuture.However,ifdistributionsofcashorproperty(otherthancertainproratastockdistributions)aremadetoNon-U.S.HoldersonsharesofourClassAcommonstock,suchdistributionsgenerallywillconstitutedividendsforU.S.federalincometaxpurposestotheextentpaidfromourcurrentoraccumulatedearningsandprofits,asdeterminedunderU.S.federalincometaxprinciples.Totheextentthosedistributionsexceedbothourcurrentandouraccumulatedearningsandprofits,theywillconstituteareturnofcapitalandwillfirstreduceaNon-U.S.Holder'sbasisinourClassAcommonstock(determinedseparatelywithrespecttoeachshareofourClassAcommonstock),butnotbelowzero,andthenwillbetreatedasgainfromthesaleofthatClassAcommonstockasdescribedbelowunder"—GainonDispositionofOurClassACommonStock."
ExceptasdescribedinthenextparagraphandsubjecttothediscussionofFATCA,anydividendpaidtoaNon-U.S.HoldergenerallywillbesubjecttoU.S.federalwithholdingtaxeitheratarateof30%ofthegrossamountofthedividendorsuchlowerrateasmaybespecifiedbyanapplicableincometaxtreaty.Inordertoreceiveareducedtreatyrate,theNon-U.S.HoldermustprovidetheapplicablewithholdingagentinatimelymanneraproperlycompletedIRSFormW-8BENorW-8BEN-E,whicheverisapplicable,orotherappropriateversionofIRSFormW-8,certifyingqualificationforthereducedrate.ANon-U.S.HolderofsharesofourClassAcommonstockeligibleforareducedrateofU.S.federalwithholdingtaxpursuanttoanincometaxtreatymayobtainarefundofanyexcessamountswithheldbyfilinganappropriateclaimforrefundwiththeIRSinatimelymanner.IftheNon-U.S.HolderholdstheClassAcommonstockthroughafinancialinstitutionorotheragentactingontheNon-U.S.Holder'sbehalf,theNon-U.S.Holderwillberequiredtoprovideappropriatedocumentationtotheagent,whichthenwillberequiredtoprovidecertificationtotheapplicablewithholdingagent,eitherdirectlyorthroughotherintermediaries.
ThewithholdingtaxshallnotapplytoanydividendpaidtoaNon-U.S.HolderifsuchdividendiseffectivelyconnectedwithaU.S.tradeorbusinessconductedbysuchnon-U.S.Holder.Inordertoclaimthisexemption,theNon-U.S.HoldermustprovidetheapplicablewithholdingagentwithaproperlycompletedIRSFormW-8ECIorotherapplicableIRSFormW-8properlycertifyingsuchexemption.Sucheffectivelyconnecteddividends,althoughnotsubjecttoU.S.federalwithholdingtax,willgenerallybesubjecttoU.S.federalincometaxonanetincomebasisatapplicablegraduatedU.S.federalincometaxrates,subjecttoanapplicableincometaxtreatyprovidingotherwise.Inaddition,dividendsreceivedbyaNon-U.S.HolderthatistreatedasacorporationforU.S.federalincometaxpurposesthatareeffectivelyconnectedwithsuchNon-U.S.Holder'sconductofaU.S.tradeorbusinessmayalsobesubjecttoa"branchprofitstax"atarateof30%orsuchlowerrateasmaybespecifiedbyanapplicableincometaxtreaty.
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Gain on Disposition of Our Class A Common Stock
SubjecttothediscussionofFATCAandbackupwithholding,Non-U.S.HoldersgenerallywillnotberequiredtopayU.S.federalincometax,includingbywayofwithholding,onanygainrealizeduponthesaleorotherdispositionofourClassAcommonstockunless:
• thegainiseffectivelyconnectedwiththeNon-U.S.Holder'sconductofaU.S.tradeorbusiness,andifanapplicableincometaxtreatyrequires,isattributabletoaU.S.permanentestablishmentmaintainedbytheNon-U.S.HolderintheUnitedStates;
• theNon-U.S.HolderisanindividualnotentitledtothebenefitsofanincometaxtreatywhoispresentintheUnitedStatesforaperiodorperiodsaggregating183daysormoreduringthecalendaryearinwhichthesaleordispositionoccursandcertainotherconditionsaremet;
• ourClassAcommonstockconstitutesaU.S.realpropertyinterestbyreasonofourstatusasa"UnitedStatesrealpropertyholdingcorporation"(a"USRPHC")forU.S.federalincometaxpurposesatanytimeduringtheshorterofthefive-yearperiodprecedingtheNon-U.S.Holder'sdispositionof,ortheNon-U.S.Holder'sholdingperiodfor,ourClassAcommonstock.
Generally,acorporationisaUSRPHCifthefairmarketvalueofitsU.S.realpropertyinterests(withinthemeaningoftheCodeandapplicableTreasuryRegulations)equalsorexceeds50%ofthesumofthefairmarketvalueofitsworldwiderealpropertyinterestsplusitsotherassetsusedorheldforuseinatradeorbusiness.WebelievethatwearenotcurrentlyaUSRPHCand,basedonourbusinessplanandanticipatedoperations,donotexpecttobecomeaUSRPHCinthefuture.HoweverUSRPHCstatusisaninherentlyfactualdeterminationthatinvolvescomplexlegalconsiderations.WehavenotsoughtanIRSrulingwithrespecttowhetherweareaUSRPHCandwecannotgivedefinitiveassuranceregardingournon-USRPHCstatus.Additionally,becausethedeterminationofwhetherweareaUSRPHCdependsonthefairmarketvalueofourU.S.realpropertyinterestsrelativetothefairmarketvalueofourotherbusinessassets,therecanbenoassurancethatwewillnotbecomeaUSRPHCinthefuture.EvenifweareorbecomeaUSRPHC,aslongasourClassAcommonstockisregularlytradedonanestablishedsecuritiesmarket(withinthemeaningoftheCodeandapplicableTreasuryRegulations),suchClassAcommonstockwillnotbetreatedasaU.S.realpropertyinterestinthehandsofanyNon-U.S.Holderwhodoesnothold(actuallyorconstructively)morethan5%ofourClassAcommonstockatanytimeduringtheshorterofthefive-yearperiodprecedingtheNon-U.S.Holder'sdispositionof,ortheNon-U.S.Holder'sholdingperiodfor,ourClassAcommonstock.Non-U.S.HoldersshouldbeawarethatnopredictioncanbemadeastowhetherourClassAcommonstockwillberegularlytradedonanestablishedsecuritiesmarket(withinthemeaningoftheCodeandapplicableTreasuryRegulations).
Non-U.S.HoldersdescribedinthefirstbulletabovewillberequiredtopaytaxonthenetgainderivedfromthesaleunderregulargraduatedU.S.federalincometaxrates,andacorporateNon-U.S.Holderdescribedinthefirstbulletabovealsomaybesubjecttothebranchprofitstaxata30%rate,orsuchlowerrateasmaybespecifiedbyanapplicableincometaxtreaty.IndividualNon-U.S.Holdersdescribedinthesecondbulletabovewillberequiredtopayaflat30%taxonthegainderivedfromthesale,whichgainmaybeoffsetbyU.S.-sourcecapitallossesforthatyear.
U.S. Federal Estate Taxes
OurClassAcommonstockbeneficiallyownedortreatedasbeneficiallyownedbyanindividualwhoatthetimeofdeathisnotacitizenorresidentoftheUnitedStates(asspecificallydefinedforU.S.federalestatetaxpurposes),andcertainlifetimetransfersofaninterestinClassAcommonstockmadebysuchanindividual,willbeincludedinhisorhergrossestateforU.S.federalestatetaxpurposesand,therefore,maybesubjecttoU.S.federalestatetax,unlessanapplicableestatetaxtreatyprovidesotherwise.
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Backup Withholding and Information Reporting
Generally,wemustreportannuallytotheIRStheamountofdividendspaidtoaNon-U.S.Holder,theNon-U.S.Holder'snameandaddress,andtheamountofU.S.federalincometaxwithheld,ifany.AsimilarreportwillbesenttotheNon-U.S.Holder.TheseinformationreportingrequirementsapplyevenifwithholdingwasnotrequiredbecausethedividendswereeffectivelyconnectedtotheconductofaNon-U.S.Holder'stradeorbusinesswithintheUnitedStatesorwithholdingwasreducedbyanapplicableincometaxtreaty.Pursuanttoapplicableincometaxtreatiesorotheragreements,theIRSmaymakethesereportsavailabletotaxauthoritiesintheNon-U.S.Holder'scountryofresidence.
Paymentsofdividendson,orofproceedsfromthedispositionof,ourClassAcommonstockmadetoNon-U.S.HoldersmaybesubjecttoadditionalinformationreportingandbackupwithholdingunlesstheNon-U.S.Holderestablishesanexemption,forexample,byproperlycertifyingitsnon-U.S.statusonanIRSFormW-8BENorW-8BEN-E,whicheverisapplicable,oranotherappropriateversionofIRSFormW-8.Notwithstandingtheforegoing,backupwithholdingandinformationreportingmayapplyiftheapplicablewithholdingagenthasactualknowledge,orreasontoknow,thataholderclaimingtobeaNon-U.S.HolderisaU.S.person.
U.S.informationreportingandbackupwithholdinggenerallywillnotapplytoapaymentofproceedsofadispositionofClassAcommonstockwherethetransactioniseffectedoutsidetheUnitedStatesthroughanon-U.S.officeofanon-U.S.broker.However,informationreportingrequirements,butnotbackupwithholding,generallywillapplytosuchapaymentifthebrokeris(i)aU.S.person;or(ii)aforeignpersonwithcertainU.S.connections,unlessthebrokerhasdocumentaryevidenceinitsrecordsthattheholderisaNon-U.S.Holderandcertainconditionsaremetortheholderotherwiseestablishesanexemption.Backupwithholdingisnotanadditionaltax;rather,theU.S.federalincometaxliabilityofpersonssubjecttobackupwithholdingwillbereducedbytheamountoftaxwithheld.Ifwithholdingresultsinanoverpaymentoftaxes,arefundorcreditmaygenerallybeobtainedfromtheIRS,providedthattherequiredinformationisfurnishedtotheIRSinatimelymanner.Non-U.S.HoldersshouldconsulttheirowntaxadvisorsregardingtheapplicationofbackupwithholdingintheirparticularcircumstancesandtheavailabilityofandprocedureforobtaininganexemptionfrombackupwithholdingundercurrentTreasuryRegulations.
FATCA
LegislationcommonlyknownasFATCA(underSections1471to1474oftheCode)generallywillimposeaU.S.federalwithholdingtaxof30%ondividendsonandthegrossproceedsofadispositionofourClassAcommonstockpaidtoa"foreignfinancialinstitution"(asdefinedunderFATCAandtheapplicableTreasuryRegulations),unlesssuchinstitutionentersintoanagreementwiththeU.S.governmenttowithholdoncertainpaymentsandtocollectandprovidetotheU.S.taxauthoritiessubstantialinformationregardingtheU.S.accountholdersofsuchinstitution(whichincludescertainequityanddebtholdersofsuchinstitution,aswellascertainaccountholdersthatareforeignentitieswithU.S.owners)orotherwiseestablishesanexemption.ThelegislationalsogenerallywillimposeaU.S.federalwithholdingtaxof30%ondividendsonandthegrossproceedsofadispositionofourClassAcommonstockpaidtoanon-financialforeignentityunlesssuchentityprovidestheapplicablewithholdingagentwithacertificationidentifyingcertainsubstantialdirectandindirectU.S.ownersoftheentity,certifiesthattherearenoneorotherwiseestablishesanexemption.ThewithholdingtaxesdescribedabovewillapplytoanydividendpaymentsonourClassAcommonstockand,afterDecember31,2018,topaymentsofgrossproceedsfromdispositionsofourClassAcommonstock.Undercertaincircumstances,aNon-U.S.Holdermightbeeligibleforrefundsorcreditsofsuchtaxes.AnintergovernmentalagreementbetweentheUnitedStatesandanapplicableforeigncountrymaymodifytherequirementsdescribedinthisparagraph.ProspectiveinvestorsareurgedtoconsultwiththeirowntaxadvisorsregardingthepossibleimplicationsofthislegislationontheirinvestmentinourClassAcommonstock.
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UNDERWRITING
WeandthesellingstockholdersareofferingthesharesofClassAcommonstockdescribedinthisprospectusthroughanumberofunderwriters.J.P.MorganSecuritiesLLC,MorganStanley&Co.LLC,CitigroupGlobalMarketsInc.andGoldman,Sachs&Co.areactingasjointbook-runningmanagersoftheofferingandasrepresentativesoftheunderwriters.Weandthesellingstockholdershaveenteredintoanunderwritingagreementwiththeunderwriters.Subjecttothetermsandconditionsoftheunderwritingagreement,weandthesellingstockholdershaveagreedtoselltotheunderwriters,andeachunderwriterhasseverallyagreedtopurchase,atthepublicofferingpricelesstheunderwritingdiscountsandcommissionssetforthonthecoverpageofthisprospectus,thenumberofsharesofClassAcommonstocklistednexttoitsnameinthefollowingtable:
TheunderwritersarecommittedtopurchaseallthesharesofClassAcommonstockofferedbyusandthesellingstockholdersiftheypurchaseanysharesofClassAcommonstock.Theunderwritingagreementalsoprovidesthatifanunderwriterdefaults,thepurchasecommitmentsofnon-defaultingunderwritersmayalsobeincreasedortheofferingmaybeterminated.Theofferingofthesharesbytheunderwritersissubjecttoreceiptandacceptanceandsubjecttotheunderwriters'righttorejectanyorderinwholeorinpart.
TheunderwritersproposetoofferthesharesofClassAcommonstockdirectlytothepublicattheinitialpublicofferingpricesetforthonthecoverpageofthisprospectusandtocertaindealersatthatpricelessaconcessionnotinexcessof$pershare.AftertheinitialpublicofferingofthesharesofClassAcommonstock,theofferingpriceandothersellingtermsmaybechangedbytheunderwriters.SalesofthesharesofClassAcommonstockmadeoutsideoftheUnitedStatesmaybemadebyaffiliatesoftheunderwriters.
TheunderwritershaveanoptiontobuyuptoadditionalsharesofClassAcommonstockfromtocoversalesofClassAcommonstockbytheunderwriterswhichexceedthenumberofsharesspecifiedinthetableabove.Theunderwritershave30daysfromthedateofthisprospectustoexercisethisoption.IfanysharesofClassAcommonstockarepurchasedwiththisoption,theunderwriterswillpurchasesharesofClassAcommonstockinapproximatelythesameproportionasshowninthetableabove.IfanyadditionalsharesofClassAcommonstockarepurchased,theunderwriterswilloffertheadditionalsharesofClassAcommonstockonthesametermsasthoseonwhichthesharesofClassAcommonstockarebeingoffered.
TheunderwritingfeeisequaltothepublicofferingpricepershareofClassAcommonstocklesstheamountpaidbytheunderwriterstousandthesellingstockholderspershareofClassAcommonstock.Theunderwritingfeeis$pershare.Thefollowingtableshowsthepershareandtotalunderwritingdiscountsandcommissionstobepaidtotheunderwritersassumingbothnoexerciseandfullexerciseoftheunderwriters'optiontopurchaseadditionalsharesofClassAcommonstock.
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Name Number of
sharesJ.P.MorganSecuritiesLLC MorganStanley&Co.LLC CitigroupGlobalMarketsInc. Goldman,Sachs&Co. Total
Without option exercise
With full option exercise
PerShare $ $ Total $ $
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Weestimatethatthetotalexpensesofthisoffering,includingregistration,filingandlistingfees,printingfeesandlegalandaccountingexpenses,butexcludingtheunderwritingdiscountsandcommissions,willbeapproximately$.WehaveagreedtoreimbursetheunderwritersforcertainFINRA-relatedandotherexpensesincurredbytheminconnectionwiththisofferinginanamountupto$.
Aprospectusinelectronicformatmaybemadeavailableonthewebsitesmaintainedbyoneormoreunderwriters,orsellinggroupmembers,ifany,participatingintheoffering.TheunderwritersmayagreetoallocateanumberofsharesofClassAcommonstocktounderwritersandsellinggroupmembersforsaletotheironlinebrokerageaccountholders.InternetdistributionswillbeallocatedbytherepresentativestounderwritersandsellinggroupmembersthatmaymakeInternetdistributionsonthesamebasisasotherallocations.
Weandourofficers,directors,andholdersofsubstantiallyallofourcommonstockhaveagreedwiththeunderwriters,subjecttocertainexceptions,nottodisposeoforhedgeanyofourortheircommonstockorsecuritiesconvertibleintoorexchangeableforsharesofcommonstockduringtheperiodfromthedateofthisprospectuscontinuingthroughthedate180daysafterthedateofthisprospectus,exceptwiththepriorwrittenconsentof.Thisagreementdoesnotapplytoanyexistingemployeebenefitplans.See"SharesEligibleforFutureSale"foradiscussionofcertaintransferrestrictions.
Weandthesellingstockholdershaveagreedtoindemnifytheseveralunderwritersagainstcertainliabilities,includingliabilitiesundertheSecuritiesAct.
WewillapplytolistourClassAcommonstockontheunderthesymbol"."
Inconnectionwiththisoffering,theunderwritersmayengageinstabilizingtransactions,whichinvolvesmakingbidsfor,purchasingandsellingsharesofClassAcommonstockintheopenmarketforthepurposeofpreventingorretardingadeclineinthemarketpriceofourClassAcommonstockwhilethisofferingisinprogress.ThesestabilizingtransactionsmayincludemakingshortsalesofourClassAcommonstock,whichinvolvesthesalebytheunderwritersofagreaternumberofsharesofClassAcommonstockthantheyarerequiredtopurchaseinthisoffering,andpurchasingsharesofClassAcommonstockontheopenmarkettocoverpositionscreatedbyshortsales.Shortsalesmaybe"covered"shorts,whichareshortpositionsinanamountnotgreaterthantheunderwriters'optionreferredtoabove,ormaybe"naked"shorts,whichareshortpositionsinexcessofthatamount.Theunderwritersmaycloseoutanycoveredshortpositioneitherbyexercisingtheiroption,inwholeorinpart,orbypurchasingsharesofClassAcommonstockintheopenmarket.Inmakingthisdetermination,theunderwriterswillconsider,amongotherthings,thepriceofsharesofClassAcommonstockavailableforpurchaseintheopenmarketcomparedtothepriceatwhichtheunderwritersmaypurchasesharesofClassAcommonstockthroughtheoptiontopurchaseadditionalsharesofClassAcommonstock.AnakedshortpositionismorelikelytobecreatediftheunderwritersareconcernedthattheremaybedownwardpressureonthepriceofourClassAcommonstockintheopenmarketthatcouldadverselyaffectinvestorswhopurchaseinthisoffering.Totheextentthattheunderwriterscreateanakedshortposition,theywillpurchasesharesofClassAcommonstockintheopenmarkettocovertheposition.
Theunderwritershaveadvisedusandthesellingstockholdersthat,pursuanttoRegulationMoftheSecuritiesAct,theymayalsoengageinotheractivitiesthatstabilize,maintainorotherwiseaffectthepriceofourClassAcommonstock,includingtheimpositionofpenaltybids.ThismeansthatiftherepresentativesoftheunderwriterspurchaseClassAcommonstockintheopenmarketinstabilizingtransactionsortocovershortsales,therepresentativescanrequiretheunderwritersthatsoldthosesharesofClassAcommonstockaspartofthisofferingtorepaytheunderwritingdiscountreceivedbythem.
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TheseactivitiesmayhavetheeffectofraisingormaintainingthemarketpriceoftheClassAcommonstockorpreventingorretardingadeclineinthemarketpriceoftheClassAcommonstock,and,asaresult,thepriceoftheClassAcommonstockmaybehigherthanthepricethatotherwisemightexistintheopenmarket.Iftheunderwriterscommencetheseactivities,theymaydiscontinuethematanytime.Theunderwritersmaycarryoutthesetransactionson,intheOTCmarketorotherwise.
Priortothisoffering,therehasbeennopublicmarketfortheClassAcommonstock.Theinitialpublicofferingpricewasdeterminedbynegotiationsamongus,thesellingstockholdersandtherepresentativesoftheunderwriters.Indeterminingtheinitialpublicofferingprice,we,thesellingstockholdersandtherepresentativesoftheunderwritersconsideredanumberoffactorsincluding:
• theinformationsetforthinthisprospectusandotherwiseavailabletotherepresentatives;
• ourprospectsandthehistoryandprospectsfortheindustryinwhichwecompete;
• anassessmentofourmanagement;
• ourprospectsforfutureearnings;
• thegeneralconditionofthesecuritiesmarketsatthetimeofthisoffering;
• therecentmarketpricesof,anddemandfor,publiclytradedcommonstockofgenerallycomparablecompanies;and
• otherfactorsdeemedrelevantbytheunderwritersandus.
Neitherwe,thesellingstockholdersnortheunderwriterscanassureinvestorsthatanactivetradingmarketwilldevelopforourClassAcommonstock,orthatourClassAcommonstockwilltradeinthepublicmarketatorabovetheinitialpublicofferingprice.
Theunderwritersandtheirrespectiveaffiliatesarefullservicefinancialinstitutionsengagedinvariousactivities,whichmayinclude,amongstotherthings,securitiestrading,commercialandinvestmentbanking,financialadvisory,investmentmanagement,investmentresearch,principalinvestment,hedging,financingandbrokerageactivities.Certainoftheunderwritersandtheirrespectiveaffiliateshave,fromtimetotime,performed,andmayinthefutureperform,variousfinancialadvisory,investmentbankingandrelatedservices(includingasinitialpurchasersofdebtsecuritiesand/orarrangersofcreditfacilities)fortheAlticeGroup,includingtheCompanyanditssubsidiaries,forwhichtheyreceivedorwillreceivecustomaryfeesandexpenses.Affiliatesofcertainoftheunderwritersareagentsand/orlendersundertheCVCCreditFacilitiesAgreementandtheSuddenlinkCreditFacilitiesAgreement,asapplicable,eachasamended,restated,supplementedorotherwisemodifiedfromtimetotime.See"DescriptionofCertainIndebtedness."
Ifanyoftheunderwritersortheiraffiliateshasalendingrelationshipwithus,certainofthoseunderwritersortheiraffiliatesroutinelyhedge,certainotherofthoseunderwritersortheiraffiliatesmayhedge,andcertainotherofthoseunderwritersortheiraffiliatesarelikelytohedge,theircreditexposuretousconsistentwiththeircustomaryriskmanagementpolicies.Typically,theseunderwritersandtheiraffiliateswouldhedgesuchexposurebyenteringintotransactionswhichconsistofeitherthepurchaseofcreditdefaultswapsorthecreationofshortpositionsinoursecurities.
Intheordinarycourseoftheirvariousbusinessactivities,theunderwritersandtheirrespectiveaffiliatesmaymakeorholdabroadarrayofinvestmentsandactivelytradedebtandequitysecurities(orrelatedderivativesecurities)andfinancialinstruments(includingbankloans)fortheirownaccountandfortheaccountsoftheircustomers,andsuchinvestmentsandsecuritiesactivitiesmayinvolvesecuritiesand/orinstrumentsoftheCompanyoritsaffiliates.Inconnectionwiththisoffering,anyoftheunderwritersortheirrespectiveaffiliatesactingasinvestorsfortheirownaccountmaytakeupthesharesand,insuchcapacity,mayretain,purchaseorsellsuchsharesfortheirownaccounts.The
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underwritersandtheirrespectiveaffiliatesmayalsomakeinvestmentrecommendationsand/orpublishorexpressindependentresearchviewsinrespectofsuchsecuritiesorinstrumentsandmayatanytimehold,orrecommendtoclientsthattheyacquire,longand/orshortpositionsinsuchsecuritiesandinstruments.
Selling Restrictions
General
OtherthanintheUnitedStates,noactionhasbeentakenbyusortheunderwritersthatwouldpermitapublicofferingofthesecuritiesofferedbythisprospectusinanyjurisdictionwhereactionforthatpurposeisrequired.Thesecuritiesofferedbythisprospectusmaynotbeofferedorsold,directlyorindirectly,normaythisprospectusoranyotherofferingmaterialoradvertisementsinconnectionwiththeofferandsaleofanysuchsecuritiesbedistributedorpublishedinanyjurisdiction,exceptundercircumstancesthatwillresultincompliancewiththeapplicablerulesandregulationsofthatjurisdiction.OutsideoftheUnitedStates,personsintowhosepossessionthisprospectuscomesareadvisedtoinformthemselvesaboutandtoobserveanyrestrictionsimposedbyanyapplicablelawsandregulationsoutsideoftheUnitedStatesrelatingtotheofferingandthedistributionofthisprospectus.
Thisprospectusdoesnotconstituteanoffertosellorasolicitationofanoffertobuyanysecuritiesofferedbythisprospectusinanyjurisdictioninwhichsuchanofferorasolicitationisunlawful.
United Kingdom
Thisdocumentisonlybeingdistributedtoandisonlydirectedat(i)personswhoareoutsidetheUnitedKingdomor(ii)toinvestmentprofessionalsfallingwithinArticle19(5)oftheFinancialServicesandMarketsAct2000(FinancialPromotion)Order2005(the"FSMAOrder")or(iii)highnetworthentities,andotherpersonstowhomitmaylawfullybecommunicated,fallingwithArticle49(2)(a)to(d)oftheFSMAOrder(allsuchpersonstogetherbeingreferredtoas"relevantpersons").Thesecuritiesareonlyavailableto,andanyinvitation,offeroragreementtosubscribe,purchaseorotherwiseacquiresuchsecuritieswillbeengagedinonlywith,relevantpersons.Anypersonwhoisnotarelevantpersonshouldnotactorrelyonthisdocumentoranyofitscontents.
European Economic Area
InrelationtoeachMemberStateoftheEuropeanEconomicAreawhichhasimplementedtheProspectusDirective(each,a"RelevantMemberState"),fromandincludingthedateonwhichtheEuropeanUnionProspectusDirective(the"EUProspectusDirective")wasimplementedinthatRelevantMemberState(the"RelevantImplementationDate")anofferofsecuritiesdescribedinthisprospectusmaynotbemadetothepublicinthatRelevantMemberStatepriortothepublicationofaprospectusinrelationtotheshareswhichhasbeenapprovedbythecompetentauthorityinthatRelevantMemberStateor,whereappropriate,approvedinanotherRelevantMemberStateandnotifiedtothecompetentauthorityinthatRelevantMemberState,allinaccordancewiththeEUProspectusDirective,exceptthat,witheffectfromandincludingtheRelevantImplementationDate,anofferofsecuritiesdescribedinthisprospectusmaybemadetothepublicinthatRelevantMemberStateatanytime:
• toanylegalentitywhichisaqualifiedinvestorasdefinedundertheEUProspectusDirective;
• tofewerthan100or,iftheRelevantMemberStatehasimplementedtherelevantprovisionofthe2010PDAmendingDirective,150naturalorlegalpersons(otherthanqualifiedinvestorsasdefinedintheEUProspectusDirective);or
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• inanyothercircumstancesfallingwithinArticle3(2)oftheEUProspectusDirective,providedthatnosuchofferofsecuritiesdescribedinthisprospectusshallresultinarequirementforthepublicationbyusofaprospectuspursuanttoArticle3oftheEUProspectusDirective.
Forthepurposesofthisprovision,theexpressionan"offerofsecuritiestothepublic"inrelationtoanysecuritiesinanyRelevantMemberStatemeansthecommunicationinanyformandbyanymeansofsufficientinformationonthetermsoftheofferandthesecuritiestobeofferedsoastoenableaninvestortodecidetopurchaseorsubscribeforthesecurities,asthesamemaybevariedinthatMemberStatebyanymeasureimplementingtheEUProspectusDirectiveinthatMemberState.Theexpression"EUProspectusDirective"meansDirective2003/71/EC(andanyamendmentsthereto,includingthe2010PDAmendingDirective,totheextentimplementedintheRelevantMemberState)andincludesanyrelevantimplementingmeasureineachRelevantMemberState,andtheexpression"2010PDAmendingDirective"meansDirective2010/73/EU.
Canada
TheClassAcommonstockmaybesoldonlytopurchaserspurchasing,ordeemedtobepurchasing,asprincipalthatareaccreditedinvestors,asdefinedinNationalInstrument45-106ProspectusExemptionsorsubsection73.3(1)oftheSecuritiesAct(Ontario),andarepermittedclients,asdefinedinNationalInstrument31-103RegistrationRequirements,ExemptionsandOngoingRegistrantObligations.AnyresaleofsharesoftheClassAcommonstockmustbemadeinaccordancewithanexemptionfrom,orinatransactionnotsubjectto,theprospectusrequirementsofapplicablesecuritieslaws.
SecuritieslegislationincertainprovincesorterritoriesofCanadamayprovideapurchaserwithremediesforrescissionordamagesifthisprospectus(includinganyamendmentthereto)containsamisrepresentation,providedthattheremediesforrescissionordamagesareexercisedbythepurchaserwithinthetimelimitprescribedbythesecuritieslegislationofthepurchaser'sprovinceorterritory.Thepurchasershouldrefertoanyapplicableprovisionsofthesecuritieslegislationofthepurchaser'sprovinceorterritoryforparticularsoftheserightsorconsultwithalegaladvisor.
Japan
NoregistrationpursuanttoArticle4,paragraph1oftheFinancialInstrumentsandExchangeLawofJapan(LawNo.25of1948,asamended),ortheFIEL,hasbeenmadeorwillbemadewithrespecttothesolicitationoftheapplicationfortheacquisitionofthesharesofClassAcommonstock.
Accordingly,thesharesofClassAcommonstockhavenotbeen,directlyorindirectly,offeredorsoldandwillnotbe,directlyorindirectly,offeredorsoldinJapanorto,orforthebenefitof,anyresidentofJapan(whichtermasusedhereinmeansanypersonresidentinJapan,includinganycorporationorotherentityorganizedunderthelawsofJapan)ortoothersforre-offeringorre-sale,directlyorindirectly,inJapanorto,orforthebenefitof,anyresidentofJapanexceptpursuanttoanexemptionfromtheregistrationrequirements,andotherwiseincompliancewith,theFIELandtheotherapplicablelawsandregulationsofJapan.
Hong Kong
Eachunderwriterhasrepresentedandagreedthat:
• ithasnotofferedorsoldandwillnotofferorsellinHongKong,bymeansofanydocument,anyofourClassAcommonstockotherthan(i)to"professionalinvestors"asdefinedintheSecuritiesandFuturesOrdinance(Cap.571)ofHongKongandanyrulesmadeunderthatOrdinance;or(ii)inothercircumstanceswhichdonotresultinthedocumentbeinga
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"prospectus"asdefinedintheCompaniesOrdinance(Cap.32)ofHongKongorwhichdonotconstituteanoffertothepublicwithinthemeaningofthatOrdinance;and
• ithasnotissuedorhadinitspossessionforthepurposesofissue,andwillnotissueorhaveinitspossessionforthepurposesofissue,whetherinHongKongorelsewhere,anyadvertisement,invitationordocumentrelatingtoourClassAcommonstock,whichisdirectedat,orthecontentsofwhicharelikelytobeaccessedorreadby,thepublicofHongKong(exceptifpermittedtodosounderthesecuritieslawsofHongKong)otherthanwithrespecttosharesofourClassAcommonstockwhichareorareintendedtobedisposedofonlytopersonsoutsideHongKongoronlyto"professionalinvestors"asdefinedintheSecuritiesandFuturesOrdinanceandanyrulesmadeunderthatOrdinance.
Singapore
ThisprospectushasnotbeenregisteredasaprospectuswiththeMonetaryAuthorityofSingapore.Accordingly,thisprospectusandanyotherdocumentormaterialinconnectionwiththeofferorsale,orinvitationforsubscriptionorpurchase,ofthesharesmaynotbecirculatedordistributed,normaythesharesbeofferedorsold,orbemadethesubjectofaninvitationforsubscriptionorpurchase,whetherdirectlyorindirectly,topersonsinSingaporeotherthan(i)toaninstitutionalinvestorunderSection274oftheSecuritiesandFuturesAct,Chapter289ofSingapore,ortheSFA,(ii)toarelevantpersonpursuanttoSection275(1),oranypersonpursuanttoSection275(1A),andinaccordancewiththeconditionsspecifiedinSection275oftheSFAor(iii)otherwisepursuantto,andinaccordancewiththeconditionsof,anyotherapplicableprovisionoftheSFA,ineachcasesubjecttocompliancewithconditionssetforthintheSFA.
WherethesharesaresubscribedorpurchasedunderSection275oftheSFAbyarelevantpersonwhichis:
• acorporation(whichisnotanaccreditedinvestor(asdefinedinSection4AoftheSFA))thesolebusinessofwhichistoholdinvestmentsandtheentiresharecapitalofwhichisownedbyoneormoreindividuals,eachofwhomisanaccreditedinvestor;or
• atrust(wherethetrusteeisnotanaccreditedinvestor)whosesolepurposeistoholdinvestmentsandeachbeneficiaryofthetrustisanindividualwhoisanaccreditedinvestor,
• shares,debenturesandunitsofsharesanddebenturesofthatcorporationorthebeneficiaries'rightsandinterest(howsoeverdescribed)inthattrustshallnotbetransferredwithinsixmonthsafterthatcorporationorthattrusthasacquiredthesharespursuanttoanoffermadeunderSection275oftheSFAexcept:
• toaninstitutionalinvestor(forcorporations,underSection274oftheSFA)ortoarelevantpersondefinedinSection275(2)oftheSFA,ortoanypersonpursuanttoanofferthatismadeontermsthatsuchshares,debenturesandunitsofsharesanddebenturesofthatcorporationorsuchrightsandinterestinthattrustareacquiredataconsiderationofnotlessthan$200,000(oritsequivalentinaforeigncurrency)foreachtransaction,whethersuchamountistobepaidforincashorbyexchangeofsecuritiesorotherassets,andfurtherforcorporations,inaccordancewiththeconditionsspecifiedinSection275oftheSFA;
• wherenoconsiderationisorwillbegivenforthetransfer;or
• wherethetransferisbyoperationoflaw.
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LEGAL MATTERS
ThevalidityofthecommonstockofferedherebywillbepasseduponforusbyShearman&SterlingLLP,NewYork,NewYork.CertainlegalmatterswillbepasseduponforusbyJenner&BlockLLP,NewYork,NewYorkandMayerBrownLLP,NewYork,NewYork.CertainlegalmatterswillbepasseduponfortheunderwritersbyRopes&GrayLLP,Boston,Massachusetts.
EXPERTS
TheconsolidatedfinancialstatementsofAlticeUSA,Inc.asofDecember31,2016,andfortheyearendedDecember31,2016,havebeenincludedinthisprospectusandtheregistrationstatement,ofwhichthisprospectusformsapart,inrelianceuponthereport(whichcontainsemphasisofamatterparagraphrelatingtotheformationofAlticeUSAandtheinclusionofCequelCorporationoperatingresultsforthefullyearof2016)ofKPMGLLP,anindependentregisteredpublicaccountingfirm,appearingelsewhereherein,andupontheauthorityofsaidfirmasexpertsinaccountingandauditing.
TheconsolidatedfinancialstatementsofCablevisionSystemsCorporationasofDecember31,2015andfortheyearsendedDecember31,2015and2014andtheperiodfromJanuary1,2016throughJune20,2016havebeenincludedinthisprospectusandtheregistrationstatement,ofwhichthisprospectusformsapart,inrelianceuponthereportofKPMGLLP,anindependentregisteredpublicaccountingfirm,appearingelsewhereherein,andupontheauthorityofsaidfirmasexpertsinaccountingandauditing.
TheconsolidatedfinancialstatementsofCequelCorporationasofDecember31,2015("Successor")and2014("Predecessor")andtherelatedconsolidatedstatementsofoperationsandcomprehensive(loss)/income,changesinstockholders'equityandofcashflowsfortheperiodfromDecember21,2015toDecember31,2015("Successor")andfortheperiodfromJanuary1,2015toDecember20,2015andtheyearendedDecember31,2014("Predecessor")includedinthisprospectushavebeensoincludedinrelianceonthereportsofPricewaterhouseCoopersLLP,independentaccountants,givenontheauthorityofsuchfirmasexpertsinaccountingandauditing.
Independence
InconnectionwithAlticeUSA'sfilingforaninitialpublicofferingofitscommonstock,werequestedourindependentauditortoaffirmitsindependencerelativetotherulesandregulationsofthePublicCompanyAccountingOversightBoard(PCAOB)andtheU.S.SecuritiesandExchangeCommission(SEC).
KPMGLLP's(KPMG),ourregisteredindependentpublicaccountants,independenceevaluationproceduresidentifiedanengagementbyaKPMGmemberfirmthatconsistedofaserviceprovidedtoanaffiliateofAlticeUSAbyamemberfirmofKPMGInternationalCooperativewhereinthememberfirmperformedabookkeepingservice,whichincludedelementsthatareconsideredmanagementfunctionsundertheSECindependencerules.ThisengagementwasterminatedinOctober,2016.TheKPMGmemberfirmreferencedabovedoesnotparticipateintheauditengagementandtheservicesdidnothaveanyimpactontheCompany.
KPMGconsideredwhetherthemattersnotedaboveimpacteditsobjectivityandabilitytoexerciseimpartialjudgmentwithregardtoitsengagementasourauditorsandhaveconcludedthattherehasbeennoimpairmentofKPMG'sobjectivityandabilitytoexerciseimpartialjudgmentonallmattersencompassedwithinitsaudits.AftertakingintoconsiderationthefactsandcircumstancesoftheabovematterandKPMG'sdetermination,ourauditcommitteealsoconcludedthatKPMG'sobjectivityandabilitytoexerciseimpartialjudgmenthasnotbeenimpaired.
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WHERE YOU CAN FIND MORE INFORMATION
WehavefiledaRegistrationStatementonFormS-1withtheSECregardingthisoffering.Thisprospectus,whichispartoftheregistrationstatement,doesnotcontainalloftheinformationincludedintheregistrationstatementandyoushouldrefertotheregistrationstatementanditsexhibitstoreadthatinformation.Referencesinthisprospectustoanyofourcontractsorotherdocumentsarenotnecessarilycompleteandyoushouldrefertotheexhibitsattachedtotheregistrationstatementforcopiesoftheactualcontractordocument.Followingthecompletionofthisoffering,wewillbesubjecttotheinformationreportingrequirementsoftheExchangeActandwewillfilereports,proxystatementsandotherinformationwiththeSEC.
Youmayreadandcopytheregistrationstatementandtherelatedexhibits,andthereports,proxystatementsandotherinformationwewillfilewiththeSEC,attheSEC'spublicreferenceroommaintainedat100FStreetN.E.,Room1580,Washington,D.C.20549.Youcanalsorequestcopiesofthosedocuments,uponpaymentofaduplicatingfee,bywritingtotheSEC.PleasecalltheSECat1-800-SEC-0330forfurtherinformationontheoperationofthepublicreferenceroom.TheSECalsomaintainsanInternetsitethatcontainsreports,proxyandinformationstatementsandotherinformationregardingissuersthatfilewiththeSEC.Thesite'sInternetaddressiswww.sec.gov.
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INDEX TO FINANCIAL STATEMENTS
F-1
Page ALTICE USA, INC. AND SUBSIDIARIES
Report of Independent Registered Public Accounting Firm F-2
Consolidated Financial Statements
ConsolidatedBalanceSheet—December31,2016 F-3
ConsolidatedStatementofOperations—YearendedDecember31,2016 F-5
ConsolidatedStatementofComprehensiveLoss—YearendedDecember31,2016 F-6
ConsolidatedStatementofStockholders'Equity—YearendedDecember31,2016 F-7
ConsolidatedStatementofCashFlows—YearendedDecember31,2016 F-8
Notes to Consolidated Financial Statements F-9
CABLEVISION SYSTEMS CORPORATION
Report of Independent Registered Public Accounting Firm F-54
Consolidated Financial Statements
ConsolidatedBalanceSheet—December31,2015 F-55
ConsolidatedStatementsofOperations—periodendedJanuary1,2016toJune20,2016andyearsendedDecember31,2015and2014
F-57
ConsolidatedStatementsofComprehensiveIncome(Loss)—periodendedJanuary1,2016toJune20,2016andyearsendedDecember31,2015and2014
F-58
ConsolidatedStatementsofStockholders'Equity(Deficiency)—periodendedJanuary1,2016toJune20,2016andyearsendedDecember31,2015and2014
F-59
ConsolidatedStatementsofCashFlows—periodendedJanuary1,2016toJune20,2016andyearsendedDecember31,2015and2014
F-62
Notes to Consolidated Financial Statements F-63
CEQUEL CORPORATION
Independent Auditor's Report (Predecessor) F-107
Independent Auditor's Report (Successor) F-108
Consolidated Financial Statements
ConsolidatedBalanceSheets—December31,2015and2014 F-109
ConsolidatedStatementsofOperationsandComprehensive(Loss)/Income—periodsendedDecember21,2015toDecember31,2015,January1,2015toDecember20,2015andyearendedDecember31,2014
F-110
ConsolidatedStatementsofCashFlows—periodsendedDecember21,2015toDecember31,2015,January1,2015toDecember20,2015andyearendedDecember31,2014
F-111
ConsolidatedStatementsofChangesinStockholders'Equity—periodsendedDecember21,2015toDecember31,2015andJanuary1,2015toDecember20,2015
F-112
Notes to Consolidated Financial Statements F-113
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Report of Independent Registered Public Accounting Firm
TheBoardofDirectorsandStockholdersAlticeUSA,Inc.:
WehaveauditedtheaccompanyingconsolidatedbalancesheetofAlticeUSA,Inc.andsubsidiaries(theCompany)asofDecember31,2016andtherelatedconsolidatedstatementsofoperationsandcomprehensiveloss,stockholders'equity,andcashflowsfortheyearendedDecember31,2016.TheseconsolidatedfinancialstatementsaretheresponsibilityoftheCompany'smanagement.Ourresponsibilityistoexpressanopinionontheseconsolidatedfinancialstatementsbasedonouraudit.
WeconductedourauditinaccordancewiththestandardsofthePublicCompanyAccountingOversightBoard(UnitedStates).Thosestandardsrequirethatweplanandperformtheaudittoobtainreasonableassuranceaboutwhetherthefinancialstatementsarefreeofmaterialmisstatement.Anauditincludesexamining,onatestbasis,evidencesupportingtheamountsanddisclosuresinthefinancialstatements.Anauditalsoincludesassessingtheaccountingprinciplesusedandsignificantestimatesmadebymanagement,aswellasevaluatingtheoverallfinancialstatementpresentation.Webelievethatourauditprovidesareasonablebasisforouropinion.
Inouropinion,theconsolidatedfinancialstatementsreferredtoabovepresentfairly,inallmaterialrespects,thefinancialpositionoftheCompanyasofDecember31,2016,andtheresultsoftheiroperationsandtheircashflowsfortheyearendedDecember31,2016,inconformitywithU.S.generallyacceptedaccountingprinciples.
AsdiscussedinNote1totheconsolidatedfinancialstatements,theCompanywasincorporatedonSeptember14,2015andhadnooperationsofitsownotherthantheissuanceofdebtpriortothecontributionofCequelCorporationonJune9,2016byAlticeN.V.TheresultsofoperationsofCequelCorporationfortheyearendedDecember31,2016havebeenincludedintheresultsofoperationsoftheCompanyforthesameperiodasCequelCorporationwasundercommoncontrolwiththeCompanythroughout2016.
/s/KPMGLLP
NewYork,NewYorkApril10,2017
F-2
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ALTICE USA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands)
Seeaccompanyingnotestoconsolidatedfinancialstatements.
F-3
ASSETS December 31,
2016 CurrentAssets: Cashandcashequivalents $ 486,792Restrictedcash 16,301Accountsreceivable,trade(lessallowancefordoubtfulaccountsof$11,677) 349,626Prepaidexpensesandothercurrentassets 88,151Amountsduefromaffiliates 22,182Investmentsecuritiespledgedascollateral 741,515Derivativecontracts 352Totalcurrentassets 1,704,919
Property,plantandequipment,netofaccumulateddepreciationof$1,039,297 6,597,635Investmentinaffiliates 5,606Investmentsecuritiespledgedascollateral 741,515Derivativecontracts 10,604Otherassets 48,545Amortizablecustomerrelationships,netofaccumulatedamortizationof$580,276 5,345,608Amortizabletradenames,netofaccumulatedamortizationof$83,397 983,386Otheramortizableintangibles,netofaccumulatedamortizationof$3,093 23,650Indefinite-livedcabletelevisionfranchises 13,020,081Goodwill 7,992,700TotalAssets $ 36,474,249
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ALTICE USA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (Continued)
(In thousands, except share and per share amounts)
Seeaccompanyingnotestoconsolidatedfinancialstatements.
F-4
LIABILITIES AND STOCKHOLDERS' EQUITY December 31,
2016 CurrentLiabilities: Accountspayable $ 697,310Accruedliabilities: Interest 576,778Employeerelatedcosts 260,019Otheraccruedexpenses 333,522
Amountsduetoaffiliates 127,363Deferredrevenue 94,816Liabilitiesunderderivativecontracts 13,158Collateralizedindebtedness 622,332Creditfacilitydebt 33,150Seniornotesanddebentures 926,045Capitalleaseobligations 15,013Notespayable 5,427Totalcurrentliabilities 3,704,933
Definedbenefitplanobligations 84,106Notespayabletoaffiliates 1,750,000Otherliabilities 113,485Deferredtaxliability 7,966,815Liabilitiesunderderivativecontracts 78,823Collateralizedindebtedness 663,737Creditfacilitydebt 3,411,640Seniornotesanddebentures 16,581,280Capitalleaseobligations 13,142Notespayable 8,299Totalliabilities 34,376,260
Commitmentsandcontingencies Redeemableequity 68,147Stockholders'Equity: CommonStock,$.01parvalue,1,000sharesauthorized,100sharesissuedandoutstanding —Paid-incapital 3,003,554Accumulateddeficit (975,978)
2,027,576Accumulatedothercomprehensiveincome 1,979Totalstockholders'equity 2,029,555
Noncontrollinginterest 287Totalequity 2,029,842
$ 36,474,249
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ALTICE USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2016
(In thousands, except per share amounts)
Seeaccompanyingnotestoconsolidatedfinancialstatements.
F-5
Revenue(includingrevenuefromaffiliatesof$1,086)(SeeNote15) $ 6,017,212Operatingexpenses: Programmingandotherdirectcosts(includingchargesfromaffiliatesof$1,947)(SeeNote15) 1,899,994Otheroperatingexpenses(includingchargesfromaffiliatesof$18,854)(SeeNote15) 1,716,851Restructuringandotherexpense 240,395Depreciationandamortization(includingimpairments) 1,700,306
5,557,546Operatingincome 459,666Otherincome(expense): Interestexpense(includinginterestexpensetoaffiliatesandrelatedpartiesof$112,712)(SeeNote15) (1,456,541)Interestincome 13,811Gainoninvestments,net 141,896Lossonequityderivativecontracts,net (53,696)Lossoninterestrateswapcontracts (72,961)Lossonextinguishmentofdebtandwrite-offofdeferredfinancingcosts (127,649)Otherincome,net 4,329
(1,550,811)Lossbeforeincometaxes (1,091,145)Incometaxbenefit 259,666
Netloss (831,479)Netincomeattributabletononcontrollinginterests (551)NetlossattributabletoAlticeUSA,Inc.stockholders $ (832,030)Basic and diluted net loss per share $ (8,320)Basic and diluted weighted average common shares 100
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ALTICE USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE LOSS
FOR THE YEAR ENDED DECEMBER 31, 2016
(In thousands)
Seeaccompanyingnotestoconsolidatedfinancialstatements.
F-6
Netloss $ (831,479)Othercomprehensiveincome(loss): Definedbenefitpensionandpostretirementplans(seeNote13): Unrecognizedactuarialgain 3,452Applicableincometaxes (1,381)Unrecognizedincomearisingduringperiod,netofincometaxes 2,071Settlementincomeincludedinnetperiodicbenefitcost (154)Applicableincometaxes 62Settlementincomeincludedinnetperiodicbenefitcost,netofincometaxes (92)
Othercomprehensiveincome 1,979Comprehensiveloss (829,500)Comprehensiveincomeattributabletononcontrollinginterests (551)ComprehensivelossattributabletoAlticeUSA,Inc.stockholders $ (830,051)
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ALTICE USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands)
Seeaccompanyingnotestoconsolidatedfinancialstatements.
F-7
Class A Common
Stock Paid-in Capital
Accumulated Deficit
Treasury Stock
Accumulated Other
Comprehensive Income
Total Stockholders'
Equity (Deficiency)
Non- controlling
Interest
Total Equity
(Deficiency) BalanceatJanuary1,2016 $ — $ 2,252,028 $ (143,948) $ — $ — $ 2,108,080 $ — $ 2,108,080
Netlossattributabletostockholders — — (832,030) — — (832,030) — (832,030)
Noncontrollinginterestsacquired — — — — — — (264) (264)
Netlossattributabletononcontrollinginterests — — — — — — 551 551
Pensionliabilityadjustments,netofincometaxes — — — — 1,979 1,979 — 1,979
Share-basedcompensationexpense — 14,368 — — — 14,368 — 14,368
Changeinfairvalueofredeemableequity — (68,148) — — — (68,148) — (68,148)
Contributionfromstockholders — 1,246,499 — — — 1,246,499 — 1,246,499
Distributionstostockholders — (445,176) — — — (445,176) — (445,176)
Excesstaxbenefitonshare-basedawards — 31 — — — 31 — 31
TaximpactrelatedtotheNewsdayHoldings,LLCtransactions — 3,952 — — — 3,952 — 3,952
BalanceatDecember31,2016 $ — $ 3,003,554 $ (975,978) $ — $ 1,979 $ 2,029,555 $ 287 $ 2,029,842
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ALTICE USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2016
(In thousands)
Seeaccompanyingnotestoconsolidatedfinancialstatements.
F-8
Cashflowsfromoperatingactivities: Netloss $ (831,479)Adjustmentstoreconcilenetlosstonetcashprovidedbyoperatingactivities: Depreciationandamortization(includingimpairments) 1,700,306Impairmentofassetsincludedinrestructuringcharges 2,445Equityinnetlossofaffiliates 1,132Gainonsaleofaffiliateinterests (206)Gainoninvestments,net (141,896)Lossonequityderivativecontracts,net 53,696Lossonextinguishmentofdebtandwrite-offofdeferredfinancingcosts 127,649Amortizationofdeferredfinancingcostsanddiscounts(premiums)onindebtedness 27,799Share-basedcompensationexpense 14,368Amortizationofactuariallosses,netofsettlementgains,relatedtopensionandpostretirementplans 3,298Deferredincometaxes (263,989)Provisionfordoubtfulaccounts 53,249Excesstaxbenefitsrelatedtoshare-basedawards (31)
Changeinassetsandliabilities,netofeffectsofacquisitionsanddispositions: Accountsreceivable,trade (58,760)Prepaidexpensesandotherassets 65,808Amountsduefromandduetoaffiliates 41,351Accountspayable (11,814)Accruedliabilities 312,871Deferredrevenue 9,835Liabilitiesrelatedtointerestrateswapcontracts 78,823
Netcashprovidedbyoperatingactivities 1,184,455Cashflowsfrominvestingactivities: PaymentforOptimumAcquisition,netofcashacquiredof$969,549 (8,988,774)Capitalexpenditures (625,541)Proceedsrelatedtosaleofequipment,includingcostsofdisposal 5,885Proceedsfromsaleofaffiliateinterests 13,825Increaseinotherinvestments (4,608)Additionstootherintangibleassets (106)Netcashusedininvestingactivities (9,599,319)
Cashflowsfromfinancingactivities: Proceedsfromcreditfacilitydebt 5,510,256Repaymentofcreditfacilitydebt (9,133,543)Proceedsfromissuanceofnotespayabletoaffiliatesandrelatedparties 1,750,000Proceedsfromissuanceofseniornotes 1,310,000Proceedsfromcollateralizedindebtedness 179,388Repaymentofcollateralizedindebtednessandrelatedderivativecontracts (143,102)Dividenddistributionstostockholders (365,559)Principalpaymentsoncapitalleaseobligations (18,837)Contributionsfromstockholders 1,246,499Additionstodeferredfinancingcosts (203,712)Excesstaxbenefitrelatedtoshare-basedawards 31Netcashprovidedbyfinancingactivities 131,421
Netincreaseincash,cashequivalentsandrestrictedcash (8,283,443)Cash,cashequivalentsandrestrictedcashatbeginningofyear (8,786,536)Cash,cashequivalentsandrestrictedcashatendofyear $ 503,093
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
NOTE 1. DESCRIPTION OF BUSINESS, RELATED MATTERS AND BASIS OF PRESENTATION
The Company and Related Matters
AlticeUSA,Inc.("AlticeUSA"orthe"Company")wasincorporatedinDelawareonSeptember14,2015.AsofDecember31,2016,AlticeUSAismajority-ownedbyAlticeN.V.,apubliccompanywithlimitedliability(naamloze vennootshcap )underDutchlaw("AlticeN.V.").
AlticeN.V.acquiredCequelCorporation("Cequel"or"Suddenlink")onDecember21,2015andCequelwascontributedtoAlticeUSAonJune9,2016.AlticeUSAhadnooperationsofitsownotherthantheissuanceofdebtpriortothecontributionofCequelonJune9,2016byAlticeN.V.TheresultsofoperationsofCequelfortheyearendedDecember31,2016havebeenincludedintheresultsofoperationsofAlticeUSAforthesameperiod,asCequelwasundercommoncontrolwithAlticeUSAthroughout2016.AlticeUSAacquiredCablevisionSystemsCorporation("Cablevision"or"Optimum")onJune21,2016.
InadditiontotheoperatingresultsofCequelfortheyearendedDecember31,2016,theoperatingresultsofAlticeUSAincludetheoperatingresultsofCablevisionfortheperiodfromthedateofacquisition,June21,2016throughDecember31,2016.InadditiontotheoperatingresultsofCequelandCablevisiondescribedabove,AlticeUSAincurrednetinterestexpenseof$419,456.FortheperiodfrominceptionofAlticeUSAthroughDecember31,2015,theoperatingresultsofAlticeUSAinclude$157,192ofinterestexpenserelatedtotheindebtednessissuedtofundtheacquisitionofCablevision,discussedbelow,andtheoperatingresultsofCequelforthe10dayperiod,December21,2015throughDecember31,2015.TheCompanyclassifiesitsoperationsintotworeportablesegments:Optimum,whichoperatesintheNewYorkmetropolitanarea,andSuddenlink,whichprincipallyoperatesinmarketsinthesouth-centralUnitedStates.
Acquisition of Cablevision Systems Corporation
OnJune21,2016(the"OptimumAcquisitionDate"),pursuanttotheAgreementandPlanofMerger(the"MergerAgreement"),datedasofSeptember16,2015,byandamongCablevision,AlticeN.V.,NeptuneMergerSubCorp.,awholly-ownedsubsidiaryofAlticeN.V.("MergerSub"),MergerSubmergedwithandintoCablevision,withCablevisionsurvivingthemerger(the"OptimumAcquisition").
InconnectionwiththeOptimumAcquisition,eachoutstandingshareoftheCablevisionNYGroupClassAcommonstock,parvalue$0.01pershare,andCablevisionNYGroupClassBcommonstock,parvalue$0.01pershare,andtogetherwiththeCablevisionNYGroupClassAcommonstock,the"Shares")otherthan(i)SharesownedbyCablevision,AlticeN.V.oranyoftheirrespectivewholly-ownedsubsidiaries,ineachcasenotheldonbehalfofthirdpartiesinafiduciarycapacity,received$34.90incashwithoutinterest,lessapplicabletaxwithholdings(the"OptimumAcquisitionConsideration").
Pursuanttoanagreement,datedDecember21,2015,byandamongCVC2B.V.,CIEManagementIXLimited,forandonbehalfofthelimitedpartnershipsBCEuropeanCapitalIX-1through11andCanadaPensionPlanInvestmentBoard,certainaffiliatesofBCPandCPPIB(the"Co-Investors")fundedapproximately$1,000,000towardthepaymentoftheaggregatePerShareOptimumAcquisitionConsideration,andindirectlyacquiredapproximately30%oftheSharesofCablevision.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 1. DESCRIPTION OF BUSINESS, RELATED MATTERS AND BASIS OF PRESENTATION (Continued)
AlsoinconnectionwiththeCablevisionAcquisition,outstandingequity-basedawardsgrantedunderCablevision'sequityplanswerecancelledandconvertedintocashbaseduponthe$34.90perShareOptimumAcquisitionpriceinaccordancewiththeoriginaltermsoftheawards.ThetotalconsiderationfortheoutstandingCNYGClassAShares,theoutstandingCNYGClassBShares,andtheequity-basedawardsamountedto$9,958,323.
InconnectionwiththeOptimumAcquisition,inOctober2015,NeptuneFincoCorp.("Finco"),anindirectwholly-ownedsubsidiaryofAlticeN.V.formedtocompletethefinancingdescribedhereinandthemergerwithCSCHoldings,LLC("CSCHoldings"),awholly-ownedsubsidiaryofCablevision,borrowedanaggregateprincipalamountof$3,800,000underatermloanfacility(the"TermCreditFacility")andenteredintorevolvingloancommitmentsinanaggregateprincipalamountof$2,000,000(the"RevolvingCreditFacility"and,togetherwiththeTermCreditFacility,the"CreditFacilities").
Fincoalsoissued$1,800,000aggregateprincipalamountof10.125%seniornotesdue2023(the"2023Notes"),$2,000,000aggregateprincipalamountof10.875%seniornotesdue2025(the"2025Notes"),and$1,000,000aggregateprincipalamountof6.625%seniorguaranteednotesdue2025(the"2025GuaranteedNotes")(collectivelythe"OptimumAcquisitionNotes").
OnJune21,2016,immediatelyfollowingtheOptimumAcquisition,FincomergedwithandintoCSCHoldings,withCSCHoldingssurvivingthemerger(the"CSCHoldingsMerger"),andtheOptimumAcquisitionNotesandtheCreditFacilitiesbecameobligationsofCSCHoldings.
OnJune21,2016,inconnectionwiththeOptimumAcquisition,theCompanyissuednotespayabletoaffiliatesandrelatedpartiesaggregating$1,750,000,ofwhich$875,000bearinterestat10.75%and$875,000bearinterestat11%.
Acquisition of Cequel Corporation
OnDecember21,2015,AlticeN.V.acquiredapproximately70%ofthetotaloutstandingequityinterestsinCequelCorporation(the"SuddenlinkAcquisition")fromthedirectandindirectstockholdersofCequelCorporation(the"Sellers").Theconsiderationfortheacquiredequityinterestswasbasedonatotalequityvaluationfor100%ofthecapitalandvotingrightsofCequelof$3,973,528whichincludes$2,797,928ofcashconsideration,$675,600ofretainedequityheldbyentitiesaffiliatedwithBCPartnersandCPPIBand$500,000fundedbytheissuancebyanaffiliateofAlticeN.V.ofaseniorvendornotethatwassubscribedbyentitiesaffiliatedwithBCPartnersandCPPIB.FollowingtheclosingoftheSuddenlinkAcquisition,entitiesaffiliatedwithBCPartnersandCPPIBretainedindirectequityinterestsinCequelrepresenting,intheaggregate,30%ofCequel'soutstandingcapitalstockonapost-closingbasis.Inaddition,thecarriedinterestplansoftheStockholderswerecashedoutwherebypaymentsweremadetoparticipantsinsuchcarriedinterestplans,includingcertainofficersanddirectorsofCequel.
InJune2016,CequelwascontributedtoAlticeUSA.TheaccompanyingconsolidatedfinancialstatementsincludetheoperatingresultsofCequelfromJanuary1,2016throughDecember31,2016andtheoperatingresultsofCablevisionfromtheOptimumAcquisitionDatethroughDecember31,2016.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 1. DESCRIPTION OF BUSINESS, RELATED MATTERS AND BASIS OF PRESENTATION (Continued)
Basis of Presentation
Principles of Consolidation
TheaccompanyingconsolidatedfinancialstatementsincludetheaccountsoftheCompanyanditssubsidiaries.Allsignificantintercompanytransactionsandbalanceshavebeeneliminatedinconsolidation.
Use of Estimates in Preparation of Financial Statements
ThepreparationoffinancialstatementsinconformitywithU.S.generallyacceptedaccountingprinciples("GAAP")requiresmanagementtomakeestimatesandassumptionsthataffectthereportedamountsofassetsandliabilitiesanddisclosureofcontingentliabilitiesatthedateofthefinancialstatementsandthereportedamountsofrevenuesandexpensesduringthereportingperiod.Actualresultscoulddifferfromthoseestimates.SeeNote11foradiscussionoffairvalueestimates.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Summary of Significant Accounting Policies
Revenue Recognition
TheCompanyrecognizesvideo,high-speeddata,andvoiceservicesrevenuesastheservicesareprovidedtocustomers.Revenuereceivedfromcustomerswhopurchasebundledservicesatadiscountedrateisallocatedtoeachproductinapro-ratamannerbasedontheindividualproduct'ssellingprice(generally,thepriceatwhichtheproductisregularlysoldonastandalonebasis).InstallationrevenuefortheCompany'svideo,consumerhigh-speeddataandVoIPservicesisrecognizedasinstallationsarecompleted,asdirectsellingcostshaveexceededthisrevenueinallperiodsreported.Advertisingrevenuesarerecognizedwhencommercialsareaired.
Revenuesderivedfromothersourcesarerecognizedwhenservicesareprovidedoreventsoccur.
Multiple-Element Transactions
Inthenormalcourseofbusiness,theCompanymayenterintomultiple-elementtransactionswhereitissimultaneouslybothacustomerandavendorwiththesamecounterpartyorinwhichitpurchasesmultipleproductsand/orservices,orsettlesoutstandingitemscontemporaneouswiththepurchaseofaproductorservicefromasinglecounterparty.TheCompany'spolicyforaccountingforeachtransactionnegotiatedcontemporaneouslyistorecordeachdeliverableofthetransactionbasedonitsbestestimateofsellingpriceinamannerconsistentwiththatusedtodeterminethepricetoselleachdeliverableonastandalonebasis.Indeterminingthefairvalueoftherespectivedeliverable,theCompanywillutilizequotedmarketprices(asavailable),historicaltransactionsorcomparabletransactions.
Gross Versus Net Revenue Recognition
Inthenormalcourseofbusiness,theCompanyisassessednon-incomerelatedtaxesbygovernmentalauthorities,includingfranchisingauthorities(generallyundermulti-yearagreements),andcollectssuchtaxesfromitscustomers.TheCompany'spolicyisthat,ininstanceswherethetaxisbeing
F-11
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
assesseddirectlyontheCompany,amountspaidtothegovernmentalauthoritiesandamountsreceivedfromthecustomersarerecordedonagrossbasis.Thatis,amountspaidtothegovernmentalauthoritiesarerecordedasprogrammingandotherdirectcostsandamountsreceivedfromthecustomerarerecordedasrevenue.FortheyearendedDecember31,2016,theamountoffranchisefeesandcertainothertaxesandfeesincludedasacomponentofrevenueaggregated$154,732.
Technical and Operating Expenses
Costsofrevenuerelatedtosalesofservicesareclassifiedas"programmingandotherdirectcosts"intheaccompanyingconsolidatedstatementofoperations.
Programming Costs
ProgrammingexpensesrelatedtotheCompany'svideoservicerepresentfeespaidtoprogrammingdistributorstolicensetheprogrammingdistributedtosubscribers.Thisprogrammingisacquiredgenerallyundermulti-yeardistributionagreements,withratesusuallybasedonthenumberofsubscribersthatreceivetheprogramming.Ifthereareperiodswhenanexistingdistributionagreementhasexpiredandthepartieshavenotfinalizednegotiationsofeitherarenewalofthatagreementoranewagreementforcertainperiodsoftime,theCompanycontinuestocarryandpayfortheseservicesuntilexecutionofdefinitivereplacementagreementsorrenewals.TheamountofprogrammingexpenserecordedduringtheinterimperiodisbasedontheCompany'sestimatesoftheultimatecontractualagreementexpectedtobereached,whichisbasedonseveralfactors,includingpreviouscontractualrates,customaryrateincreasesandthecurrentstatusofnegotiations.Suchestimatesareadjustedasnegotiationsprogressuntilnewprogrammingtermsarefinalized.
Inaddition,theCompanyhasreceived,ormayreceive,incentivesfromprogrammingdistributorsforcarriageofthedistributors'programming.TheCompanygenerallyrecognizestheseincentivesasareductionofprogrammingcostsin"programmingandotherdirectcosts",generallyoverthetermofthedistributionagreement.
Advertising Expenses
Advertisingcostsarechargedtoexpensewhenincurredandarereflectedin"otheroperatingexpenses"intheaccompanyingconsolidatedstatementofoperations.Advertisingcostsamountedto$135,513fortheyearendedDecember31,2016.
Share-Based Compensation
Share-basedcompensationcostrelatestoawardsofunitsinacarriedunitplan.Forcarriedinterestunits,theCompanymeasuresshare-basedcompensationcostatthegrantdatefairvalueandrecognizestheexpenseovertherequisiteserviceperiodorwhenitisprobableanyrelatedperformanceconditionwillbemet.Forcarriedinterestunitswithgradedvestingrequirement,compensationcostisrecognizedonanacceleratedmethodunderthegradedvestingmethodovertherequisiteserviceperiodforthecarriedinterestunit.Carriedinterestunitsthatvestentirelyattheendofthevestingrequirementareexpensedonastraight-linebasis.
TheCompanyestimatesthefairvalueofcarriedinterestunitsusinganoptionpricingmodel.Keyinputsthatareusedinapplyingtheoptionpricingmethodaretotalequityvalue,equityvolatility,risk
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
freerateandtimetoliquidityevent.Theestimateoftotalequityvalueisdeterminedusingacombinationoftheincomeapproach,whichincorporatescashflowprojectionsthatarediscountedatanappropriaterate,andthemarketapproach,whichinvolvesapplyingamarketmultipletotheCompany'sprojectedoperatingresults.TheCompanyestimatesvolatilitybasedonthehistoricalequityvolatilityofcomparablepublicly-tradedcompanies.Becausetherehasbeennopublicmarketforourequitypriortothisoffering,theestimatesandassumptionstheCompanyusesintheshare-basedcompensationvaluationsarehighlycomplexandsubjective.Followingtheoffering,suchsubjectivevaluationsandestimateswillnolongerbenecessarybecausewewillrelyonthemarketpriceoftheCompany'scommonstocktodeterminethefairvalueofshare-basedcompensationawards.SeeNote14totheconsolidatedfinancialstatementsforadditionalinformationaboutourshare-basedcompensation.
Income Taxes
TheCompany'sprovisionforincometaxesisbasedoncurrentperiodincome,changesindeferredtaxassetsandliabilitiesandchangesinestimateswithregardtouncertaintaxpositions.Deferredtaxassetsaresubjecttoanongoingassessmentofrealizability.TheCompanyprovidesdeferredtaxesfortheoutsidebasisdifferenceofitsinvestmentinpartnerships.
Cash and Cash Equivalents
TheCompany'scashinvestmentsareplacedwithmoneymarketfundsandfinancialinstitutionsthatareinvestmentgradeasratedbyStandard&Poor'sandMoody'sInvestorsService.TheCompanyselectsmoneymarketfundsthatpredominantlyinvestinmarketable,directobligationsissuedorguaranteedbytheUnitedStatesgovernmentoritsagencies,commercialpaper,fullycollateralizedrepurchaseagreements,certificatesofdeposit,andtimedeposits.
TheCompanyconsidersthebalanceofitsinvestmentinfundsthatsubstantiallyholdsecuritiesthatmaturewithinthreemonthsorlessfromthedatethefundpurchasesthesesecuritiestobecashequivalents.Thecarryingamountofcashandcashequivalentseitherapproximatesfairvalueduetotheshort-termmaturityoftheseinstrumentsorareatfairvalue.
Accounts Receivable
Accountsreceivablearerecordedatnetrealizablevalue.TheCompanyperiodicallyassessestheadequacyofvaluationallowancesforuncollectibleaccountsreceivablebyevaluatingthecollectabilityofoutstandingreceivablesandgeneralfactorssuchashistoricalcollectionexperience,lengthoftimeindividualreceivablesarepastdue,andtheeconomicandcompetitiveenvironment.
Investments
Investmentsecuritiesandinvestmentsecuritiespledgedascollateralareclassifiedastradingsecuritiesandarestatedatfairvaluewithrealizedandunrealizedholdinggainsandlossesincludedinnetincome.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Long-Lived Assets and Amortizable Intangible Assets
Property,plantandequipment,includingconstructionmaterials,arecarriedatcost,andincludealldirectcostsandcertainindirectcostsassociatedwiththeconstructionofcablesystems,andthecostsofnewequipmentinstallations.Equipmentundercapitalleasesisrecordedatthepresentvalueofthetotalminimumleasepayments.Depreciationonequipmentiscalculatedonthestraight-linebasisovertheestimatedusefullivesoftheassetsor,withrespecttoequipmentundercapitalleasesandleaseholdimprovements,amortizedovertheshorteroftheleasetermortheassets'usefullivesandreportedindepreciationandamortization(includingimpairments)intheconsolidatedstatementsofoperations.
TheCompanycapitalizescertaininternalandexternalcostsincurredtoacquireordevelopinternal-usesoftware.Capitalizedsoftwarecostsareamortizedovertheestimatedusefullifeofthesoftwareandreportedindepreciationandamortization(includingimpairments).
Customerrelationships,tradenamesandotherintangiblesestablishedinconnectionwithacquisitionsthatarefinite-livedareamortizedinamannerthatreflectsthepatterninwhichtheprojectednetcashinflowstotheCompanyareexpectedtooccur,suchasthesumoftheyears'digitsmethod,orwhensuchpatterndoesnotexist,usingthestraight-linebasisovertheirrespectiveestimatedusefullives.
TheCompanyreviewsitslong-livedassets(property,plantandequipment,andintangibleassetssubjecttoamortizationthatarosefromacquisitions)forimpairmentwhenevereventsorcircumstancesindicatethatthecarryingamountofanassetmaynotberecoverable.Ifthesumoftheexpectedcashflows,undiscountedandwithoutinterest,islessthanthecarryingamountoftheasset,animpairmentlossisrecognizedastheamountbywhichthecarryingamountoftheassetexceedsitsfairvalue.
Goodwill and Indefinite-Lived Intangible Assets
Goodwillandthevalueoffranchises,trademarks,andcertainotherintangiblesacquiredinpurchasebusinesscombinationswhichhaveindefiniteusefullivesarenotamortized.Rather,suchassetsaretestedforimpairmentannuallyorupontheoccurrenceofatriggeringevent.
TheCompanyassessesqualitativefactorsforitsreportingunitsthatcarrygoodwill.Ifthequalitativeassessmentresultsinaconclusionthatitismorelikelythannotthatthefairvalueofareportingunitexceedsthecarryingvalue,thennofurthertestingisperformedforthatreportingunit.
Whenthequalitativeassessmentisnotused,orifthequalitativeassessmentisnotconclusiveanditisnecessarytocalculatethefairvalueofareportingunit,thentheimpairmentanalysisforgoodwillisperformedatthereportingunitlevelusingatwo-stepapproach.Thefirststepofthegoodwillimpairmenttestisusedtoidentifypotentialimpairmentbycomparingthefairvalueofthereportingunitwithitscarryingamount,includinggoodwillutilizinganenterprise-valuebasedpremiseapproach.Ifthecarryingamountofthereportingunitexceedsitsfairvalue,thesecondstepofthegoodwillimpairmenttestisperformedtomeasuretheamountofgoodwillimpairmentloss,ifany.Thesecondstepofthegoodwillimpairmenttestcomparestheimpliedfairvalueofthereportingunit'sgoodwillwiththecarryingamountofthatgoodwill.Ifthecarryingamountofthereportingunit'sgoodwillexceedstheimpliedfairvalueofthatgoodwill,animpairmentlossisrecognizedinanamountequaltothatexcess.Theimpliedfairvalueofgoodwillisdeterminedinthesamemannerastheamountofgoodwillwhichwouldberecognizedinabusinesscombination.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
TheCompanyassessesqualitativefactorstodeterminewhetheritisnecessarytoperformtheone-stepquantitativeidentifiableindefinite-livedintangibleassetsimpairmenttest.ThisquantitativetestisrequiredonlyiftheCompanyconcludesthatitismorelikelythannotthataunitofaccounting'sfairvalueislessthanitscarryingamount.Whenthequalitativeassessmentisnotused,orifthequalitativeassessmentisnotconclusive,theimpairmenttestforotherintangibleassetsnotsubjecttoamortizationrequiresacomparisonofthefairvalueoftheintangibleassetwithitscarryingvalue.Ifthecarryingvalueoftheindefinite-livedintangibleassetexceedsitsfairvalue,animpairmentlossisrecognizedinanamountequaltothatexcess.
Deferred Financing Costs
Deferredfinancingcostsarebeingamortizedtointerestexpenseusingtheeffectiveinterestmethodoverthetermsoftherelateddebt.
Derivative Financial Instruments
TheCompanyaccountsforderivativefinancialinstrumentsaseitherassetsorliabilitiesmeasuredatfairvalue.TheCompanyusesderivativeinstrumentstomanageitsexposuretomarketrisksfromchangesincertainequitypricesandinterestratesanddoesnotholdorissuederivativeinstrumentsforspeculativeortradingpurposes.Thesederivativeinstrumentsarenotdesignatedashedges,andchangesinthefairvaluesofthesederivativesarerecognizedinthestatementofoperationsasgains(losses)onderivativecontracts.
Commitments and Contingencies
Liabilitiesforlosscontingenciesarisingfromclaims,assessments,litigation,finesandpenaltiesandothersourcesarerecordedwhentheCompanybelievesitisprobablethataliabilityhasbeenincurredandtheamountofthecontingencycanbereasonablyestimated.
Recently Adopted Accounting Pronouncements
InNovember2016,theFASBissuedASUNo.2016-18,StatementofCashFlows(Topic230):RestrictedCash,whichrequiresthatthestatementofcashflowsdisclosethechangeduringtheperiodinthetotalofcash,cashequivalents,restrictedcashandrestrictedcashequivalents.Restrictedcashshouldbeincludedwithcashandcashequivalentswhenreconcilingthebeginning-of-periodandend-ofperiodtotalamountsshownonthestatementofcashflows.ASUNo.2016-18providesspecificguidanceonthepresentationofrestrictedcashinthestatementofcashflows.ThenewguidancewasadoptedasofDecember31,2016.
InNovember2015,theFinancialAccountingStandardsBoard("FASB")issuedAccountingStandardsUpdate("ASU")No.2015-17(Topic740),BalanceSheetClassificationofDeferredTaxes.ThisASUamendsexistingguidancetorequirethepresentationofdeferredtaxliabilitiesandassetsasnoncurrentwithinaclassifiedstatementoffinancialposition.ASUNo.2015-17wasadoptedbytheCompanyinthefourthquarter2016andwasappliedprospectivelytoalldeferredtaxliabilitiesandassets.
InSeptember2015,theFASBissuedASUNo.2015-16,SimplifyingtheAccountingforMeasurement-PeriodAdjustments,whichrequiresthatanacquirerrecognizeadjustmentstoprovisional
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
amountsthatareidentifiedduringthemeasurementperiodinthereportingperiodinwhichtheadjustmentamountsaredetermined.Priortotheissuanceofthestandard,entitieswererequiredtoretrospectivelyapplyadjustmentsmadetoprovisionalamountsrecognizedinabusinesscombination.ASUNo.2015-16wasadoptedbytheCompanyonJanuary1,2016.
InApril2015,theFASBissuedASUNo.2015-05,Intangibles—GoodwillandOther—Internal-UseSoftware(Subtopic350-40):Customer'sAccountingforFeesPaidinaCloudComputingArrangement.ASUNo.2015-05providesguidancetocustomersaboutwhetheracloudcomputingarrangementincludesasoftwarelicense.Ifacloudcomputingarrangementincludesasoftwarelicense,thenthecustomershouldaccountforthesoftwarelicenseelementofthearrangementconsistentwiththeacquisitionofothersoftwarelicenses.Ifacloudcomputingarrangementdoesnotincludeasoftwarelicense,thecustomershouldaccountforthearrangementasaservicecontract.ASUNo.2015-05wasadoptedbytheCompanyonJanuary1,2016anddidnothaveamaterialimpactontheCompany'sconsolidatedfinancialstatements.
InApril2015,theFASBissuedASUNo.2015-03,SimplifyingthePresentationofDebtIssuanceCosts,whichrequiresdebtissuancecoststobepresentedinthebalancesheetasadirectdeductionfromthecarryingvalueoftheassociateddebtliability,consistentwiththepresentationofadebtdiscount.InAugust2015,theFASBissuedASUNo.2015-15,PresentationandSubsequentMeasurementofDebtIssuanceCostsAssociatedwithLine-of-CreditArrangements,whichclarifiesthetreatmentofdebtissuancecostsfromline-of-creditarrangementsafteradoptionofASUNo.2015-03.ASUNo.2015-15clarifiesthattheSecuritiesandExchangeCommissionstaffwouldnotobjecttoanentitydeferringandpresentingdebtissuancecostsasanassetandsubsequentlyamortizingthedeferreddebtissuancecostsratablyoverthetermoftheline-of-creditarrangement,regardlessofwhetherthereareanyoutstandingborrowingsontheline-of-creditarrangement.ASUNo.2015-03wasadoptedbytheCompanyonJanuary1,2016.
InAugust2014,theFASBissuedASUNo.2014-15,DisclosuresofUncertaintiesaboutanEntity'sAbilitytoContinueasaGoingConcern,whichrequiresmanagementtoevaluatewhetherthereareconditionsoreventsthatraisesubstantialdoubtabouttheentity'sabilitytocontinueasagoingconcern,andtoprovidecertaindisclosureswhenitisprobablethattheentitywillbeunabletomeetitsobligationsastheybecomeduewithinoneyearafterthedatethatthefinancialstatementsareissued.ASUNo.2014-15wasadoptedbytheCompanyfortheannualperiodendedDecember31,2016.
InJune2014,theFASBissuedASUNo.2014-12,Compensation—StockCompensation(Topic718):AccountingforShare-BasedPaymentsWhentheTermsofanAwardProvideThataPerformanceTargetCouldBeAchievedAftertheRequisiteServicePeriod.ASUNo.2014-12requiresthataperformancetargetthataffectsvestingandthatcouldbeachievedaftertherequisiteserviceperiodbetreatedasaperformancecondition.EntitiesmayapplytheamendmentsinthisASUeither:(a)prospectivelytoallawardsgrantedormodifiedaftertheeffectivedate;or(b)retrospectivelytoallawardswithperformancetargetsthatareoutstandingasofthebeginningoftheearliestannualperiodpresentedinthefinancialstatementsandtoallnewormodifiedawardsthereafter.ASUNo.2014-12wasadoptedbytheCompanyonJanuary1,2016onaprospectivebasisanddidnothaveanyimpactontheCompany'sconsolidatedfinancialstatements.
F-16
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recently Issued But Not Yet Adopted Accounting Pronouncements
InMay2014,theFASBissuedASUNo.2014-09,RevenuefromContractswithCustomers,requiringanentitytorecognizetheamountofrevenuetowhichitexpectstobeentitledforthetransferofpromisedgoodsorservicestocustomers.ASUNo.2014-09willreplacemostexistingrevenuerecognitionguidanceinGAAPwhenitbecomeseffectiveandallowstheuseofeithertheretrospectiveorcumulativeeffecttransitionmethod.InAugust2015,theFASBissuedASUNo.2015-14thatapproveddeferringtheeffectivedatebyoneyearsothatASUNo.2014-09wouldbecomeeffectivefortheCompanyonJanuary1,2018.TheFASBalsoapproved,inJuly2015,permittingtheearlyadoptionofASUNo.2014-09,butnotbeforetheoriginaleffectivedatefortheCompanyofJanuary1,2017.
InDecember2016,theFASBissuedASUNo.2016-20,TechnicalCorrectionsandImprovementstoTopic606,RevenuefromContractswithCustomers,inordertoclarifytheCodificationandtocorrectanyunintendedapplicationoftheguidance.Theseitemsarenotexpectedtohaveasignificanteffectonthecurrentaccountingstandard.TheamendmentsinthisupdateaffecttheguidanceinASUNo.2014-09,whichisnotyeteffective.ASUNo.2014-09willbeeffective,reflectingtheone-yeardeferral,forinterimandannualperiodsbeginningafterDecember15,2017(January1,2018fortheCompany).Earlyadoptionofthestandardispermittedbutnotbeforetheoriginaleffectivedate.Companiescantransitiontothestandardeitherretrospectivelyorasacumulative-effectadjustmentasofthedateofadoption.TheCompanyisintheprocessofevaluatingtheimpactthattheadoptionofASUNo.2014-09willhaveonitsconsolidatedfinancialstatementsandselectingthemethodoftransitiontothenewstandard.Wecurrentlyexpecttheadoptiontoimpactthetimingoftherecognitionofresidentialinstallationrevenueandtherecognitionofcommissionexpenses.
InAugust2016,theFASBissuedASUNo.2016-15,StatementofCashFlows(Topic230):ClassificationofCertainCashReceiptsandCashPaymentswhichclarifieshowentitiesshouldclassifycertaincashreceiptsandcashpaymentsonthestatementofcashflows.ASUNo.2016-15alsoclarifieshowthepredominanceprincipleshouldbeappliedwhencashreceiptsandcashpaymentshaveaspectsofmorethanoneclassofcashflows.ThenewguidancebecomeseffectivefortheCompanyonJanuary1,2018withearlyadoptionpermittedandwillbeappliedretrospectively.TheCompanyhasnotyetcompletedtheevaluationoftheeffectthatASUNo.2016-15willhaveonitsconsolidatedfinancialstatements.
InMarch2016,theFASBissuedASU2016-09,Compensation—StockCompensation:ImprovementstoEmployeeShare-BasedPaymentAccounting,whichprovidessimplificationofincometaxaccountingforshare-basedpaymentawards.ThenewguidancebecomeseffectivefortheCompanyonJanuary1,2017withearlyadoptionpermitted.Amendmentsrelatedtothetimingofwhenexcesstaxbenefitsarerecognized,minimumstatutorywithholdingrequirements,forfeitures,andintrinsicvaluewillbeappliedusingthemodifiedretrospectivetransitionmethod.Amendmentsrequiringrecognitionofexcesstaxbenefitsandtaxdeficienciesintheincomestatementandthepracticalexpedientforestimatingexpectedtermwillbeappliedprospectively.TheCompanymayelecttoapplytheamendmentsrelatedtothepresentationofexcesstaxbenefitsonthestatementofcashflowsusingeitheraprospectivetransitionmethodoraretrospectivetransitionmethod.InconnectionwiththeadoptiononJanuary1,2017,adeferredtaxassetofapproximately$309,000forpreviouslyunrealizedexcesstaxbenefitswillberecognizedwiththeoffsetrecordedtoaccumulateddeficit.
F-17
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
InFebruary2016,theFASBissuedASU2016-02,Leases,whichincreasestransparencyandcomparabilitybyrecognizingalessee'srightsandobligationsresultingfromleasesbyrecordingthemonthebalancesheetasleaseassetsandleaseliabilities.ThenewguidancebecomeseffectivefortheCompanyonJanuary1,2019withearlyadoptionpermittedandwillbeappliedusingthemodifiedretrospectivemethod.TheCompanyhasnotyetcompletedtheevaluationoftheeffectthatASUNo.2016-02willhaveonitsconsolidatedfinancialstatements.
InMarch2017,theFASBissuedASUNo.2017-07Compensation—RetirementBenefits(Topic715).ASUNo.2017-07requiresthatanemployerdisaggregatetheservicecostcomponentfromtheothercomponentsofnetbenefitcost.Italsoprovidesguidanceonhowtopresenttheservicecostcomponentandtheothercomponentsofnetbenefitcostintheincomestatementandwhatcomponentofnetbenefitcostiseligibleforcapitalization.ASUNo.2017-07becomeseffectivefortheCompanyonJanuary1,2018withearlyadoptionpermittedandwillbeappliedretrospectively.TheCompanyhasnotyetcompletedtheevaluationoftheeffectthatASUNo.2017-07willhaveonitsconsolidatedfinancialstatements.
Common Stock
AtDecember31,2016,theCompanyhad100sharesofcommonstockwithaparvalueof$.01issuedandoutstanding.
Net Loss Per Share
Basicanddilutednetlosspersharehavebeencomputedbydividingthenetlossbytheweighted-averagenumberofsharesofcommonstockoutstandingduringtheperiod.Dilutednetlosspershareexcludestheeffectsofcommonstockequivalentsastheyareanti-dilutive.
Concentrations of Credit Risk
FinancialinstrumentsthatmaypotentiallysubjecttheCompanytoaconcentrationofcreditriskconsistprimarilyofcashandcashequivalentsandtradeaccountreceivables.TheCompanymonitorsthefinancialinstitutionsandmoneymarketfundswhereitinvestsitscashandcashequivalentswithdiversificationamongcounterpartiestomitigateexposuretoanysinglefinancialinstitution.TheCompany'semphasisisprimarilyonsafetyofprincipalandliquidityandsecondarilyonmaximizingtheyieldonitsinvestments.Managementbelievesthatnosignificantconcentrationofcreditriskexistswithrespecttoitscashandcashequivalentsbalancesbecauseofitsassessmentofthecreditworthinessandfinancialviabilityoftherespectivefinancialinstitutions.
TheCompanydidnothaveasinglecustomerthatrepresented10%ormoreofitsconsolidatedrevenuesfortheyearendedDecember31,2016,or10%ormoreofitsconsolidatednettradereceivablesatDecember31,2016.
NOTE 3. BUSINESS COMBINATION
AsdiscussedinNote1,theCompanycompletedtheOptimumAcquisitiononJune21,2016andtheSuddenlinkAcquisitiononDecember21,2015.TheacquisitionswereaccountedforasabusinesscombinationsinaccordancewithASCTopic805.Accordingly,theCompanyrecordedthefairvalueoftheassetsandliabilitiesassumedatthedateoftheacquisitions.
F-18
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 3. BUSINESS COMBINATION (Continued)
Thefollowingtableprovidesthepreliminaryallocationofthetotalpurchasepriceof$9,958,323totheidentifiabletangibleandintangibleassetsandliabilitiesofCablevisionbasedonpreliminaryfairvalueinformationcurrentlyavailable,whichissubjecttochangewithinthemeasurementperiod(uptooneyearfromtheacquisitiondate).Thetablealsosummarizestheallocationofthetotalpurchasepriceof$3,973,528totheidentifiabletangibleandintangibleassetsandliabilitiesbasedonfairvalueinformationinconnectionwiththeSuddenlinkAcquisition:
Thefairvalueofcustomerrelationshipsandcabletelevisionfranchiseswerevaluedusingderivationsofthe"income"approach.Thefutureexpectedearningsfromtheseassetswerediscountedtotheirpresentvalueequivalent.
Tradenameswerevaluedusingtherelieffromroyaltymethod,whichisbasedonthepresentvalueoftheroyaltypaymentsavoidedasaresultofthecompanyowningtheintangibleasset.
ThebasisforthevaluationmethodswastheCompany'sprojections.Theseprojectionswerebasedonmanagement'sassumptionsincludingamongothers,penetrationratesforvideo,highspeeddata,andvoice;revenuegrowthrates;operatingmargins;andcapitalexpenditures.TheassumptionsarederivedbasedontheCompany'sanditspeers'historicaloperatingperformanceadjustedforcurrentandexpectedcompetitiveandeconomicfactorssurroundingthecableindustry.Thediscountratesusedintheanalysisareintendedtoreflecttheriskinherentintheprojectedfuturecashflowsgeneratedbytherespectiveintangibleasset.Thevalueishighlydependentontheachievementofthefuturefinancialresultscontemplatedintheprojections.Theestimatesandassumptionsmadeinthevaluationareinherentlysubjecttosignificantuncertainties,manyofwhicharebeyondtheCompany'scontrol,andthereisnoassurancethattheseresultscanbeachieved.Theprimaryassumptionsforwhichthereisareasonablepossibilityoftheoccurrenceofavariationthatwouldhavesignificantlyaffectedthevalueincludetheassumptionsregardingrevenuegrowth,programmingexpensegrowthrates,theamountandtimingofcapitalexpendituresandthediscountrateutilized.
F-19
Cablevision Cequel
Preliminary Fair Values
Estimated Useful Lives Fair Values
Estimated Useful Lives
Currentassets $ 1,923,071 $ 161,874 Accountsreceivable 271,305 180,422 Property,plantandequipment 4,864,621 2-18years 2,107,220 3-13yearsGoodwill 5,838,959 2,153,741 Cabletelevisionfranchiserights 8,113,575 Indefinite-lived 4,906,506 Indefinite-livedCustomerrelationships 4,850,000 8to18years 1,075,884 8yearsTradenames 1,010,000 12years 56,782 2yearsAmortizableintangibleassets 23,296 1-15years 3,356 11yearsOthernon-currentassets 748,998 73,811 Currentliabilities (2,305,954) (534,662) Long-termdebt (8,355,386) (4,717,305) Deferredincometaxes (6,834,807) (1,492,017) Othernon-currentliabilities (189,355) (2,084)
Total $ 9,958,323 $ 3,973,528
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 3. BUSINESS COMBINATION (Continued)
Inestablishingfairvalueforthevastmajorityoftheacquiredproperty,plantandequipment,thecostapproachwasutilized.Thecostapproachconsiderstheamountrequiredtoreplaceanassetbyconstructingorpurchasinganewassetwithsimilarutility,thenadjuststhevalueinconsiderationofphysicaldepreciation,andfunctionalandeconomicobsolescenceasoftheappraisaldate.Thecostapproachreliesonmanagement'sassumptionsregardingcurrentmaterialandlaborcostsrequiredtorebuildandrepurchasesignificantcomponentsofourproperty,plantandequipmentalongwithassumptionsregardingtheageandestimatedusefullivesofourproperty,plantandequipment.
Theestimatesofexpectedusefullivestakeintoconsiderationtheeffectsofcontractualrelationships,customerattrition,eventualdevelopmentofnewtechnologiesandmarketcompetition.
Long-termdebtassumedwasvaluedusingquotedmarketprices(Level2).Thecarryingvalueofmostotherassetsandliabilitiesapproximatedfairvalueasoftheacquisitiondates.
Asaresultofapplyingbusinesscombinationaccounting,theCompanyrecordedgoodwill,whichrepresentedtheexcessoforganizationvalueoveramountsassignedtotheotheridentifiabletangibleandintangibleassetsarisingfromexpectationsoffutureoperationalperformanceandcashgeneration.
Thefollowingtablepresentstheunauditedproformarevenue,lossfromcontinuingoperationsandnetlossfortheyearendedDecember31,2016asiftheOptimumAcquisitionhadoccurredonJanuary1,2016:
TheproformaresultspresentedaboveincludetheimpactofadditionalamortizationexpenserelatedtotheidentifiableintangibleassetsrecordedinconnectionwiththeOptimumAcquisitionandadditionaldepreciationexpenserelatedtothefairvalueadjustmenttoproperty,plantandequipment.
NOTE 4. SUPPLEMENTAL CASH FLOW INFORMATION
During2016,theCompany'snon-cashinvestingandfinancingactivitiesandothersupplementaldatawereasfollows:
F-20
Revenue $ 9,154,816Lossfromcontinuingoperations $ (691,606)Netloss $ (691,606)
Non-CashInvestingandFinancingActivities: Continuing Operations: Propertyandequipmentaccruedbutunpaid $ 155,653Dividenddistributionsdeclaredbutnotpaid 79,617Notespayabletovendor 12,449Deferredfinancingcostsaccruedbutunpaid 2,570
SupplementalData: Cashinterestpaid 1,092,114Incometaxespaid,net 1,538
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 5. RESTRUCTURING AND OTHER EXPENSE
Restructuring
During2016,theCompanycommenceditsrestructuringinitiatives(the"2016RestructuringPlan")thatareintendedtosimplifytheCompany'sorganizationalstructure.The2016RestructuringPlanresultedinchargesof$215,420associatedwiththeeliminationofpositionsprimarilyincorporate,administrativeandinfrastructurefunctionsacrosstheOptimumandSuddenlinkbusinesssegmentsandestimatedchargesof$11,157associatedwithfacilityrealignmentandothercosts.
Thefollowingtablesummarizestheactivityforthe2016RestructuringPlan:
Inadditiontothechargesincludedinthetableabove,theCompanyrecordednetrestructuringcreditsof$27relatingtochangestotheCompany'spreviousestimatesrecordedinconnectionwiththeCompany'spriorrestructuringplans.
Other Expense
TheCompanyincurredtransactioncostsof$13,845fortheyearendedDecember31,2016relatedtotheOptimumAcquisitionandSuddenlinkAcquisitionwhicharereflectedinrestructuringandotherexpenseintheconsolidatedstatementofoperations.
NOTE 6. PROPERTY, PLANT AND EQUIPMENT
CostsincurredintheconstructionoftheCompany'scablesystems,includinglineextensionsto,andupgradeof,theCompany'shybridfiber/coaxialinfrastructure,initialplacementofthefeedercabletoconnectacustomerthathadnotbeenpreviouslyconnected,andheadendfacilitiesarecapitalized.Thesecostsconsistofmaterials,subcontractorlabor,directconsultingfees,andinternallaborandrelatedcostsassociatedwiththeconstructionactivities.TheinternalcoststhatarecapitalizedconsistofsalariesandbenefitsoftheCompany'semployeesandtheportionoffacilitycosts,includingrent,taxes,insuranceandutilities,thatsupportstheconstructionactivities.Thesecostsaredepreciatedovertheestimatedlifeoftheplant(10to25years)andheadendfacilities(4to25years).Costsofoperatingtheplantandthetechnicalfacilities,includingrepairsandmaintenance,areexpensedasincurred.
Installationcostsassociatedwiththeinitialdeploymentofnewcustomerpremiseequipment("CPE")necessarytoprovidevideo,high-speeddataorvoiceservicesarealsocapitalized.Thesecostsincludematerials,subcontractorlabor,internallabor,andotherrelatedcostsassociatedwiththeconnectionactivities.Thedepartmentalactivitiessupportingtheconnectionprocessaretrackedthroughspecificmetrics,andtheportionofdepartmentalcoststhatiscapitalizedisdeterminedthroughatimeweightedactivityallocationofcostsincurredbasedontimestudiesusedtoestimatetheaveragetimespentoneachactivity.TheseinstallationcostsareamortizedovertheestimatedusefullivesoftheCPEnecessarytoprovidevideo,high-speeddataorvoiceservices.IncircumstanceswhereCPEtrackingisnotavailable,theCompanyestimatestheamountofcapitalizedinstallationcostsbasedonwhetheror
F-21
Severance and Other Employee
Related Costs
Facility Realignment and
Other Costs Total Restructuringcharges $ 215,420 $ 11,157 $ 226,577Paymentsandother (113,301) (2,760) (116,061)AccrualbalanceatDecember31,2016 $ 102,119 $ 8,397 $ 110,516
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 6. PROPERTY, PLANT AND EQUIPMENT (Continued)
notthebusinessorresidencehadbeenpreviouslyconnectedtothenetwork.Theseinstallationcostsaredepreciatedovertheirestimatedusefullifeof4-8years.TheportionofdepartmentalcostsrelatedtodisconnectingservicesandremovingCPEfromacustomer,costsrelatedtoconnectingCPEthathasbeenpreviouslyconnectedtothenetworkandrepairandmaintenanceareexpensedasincurred.
Theestimatedusefullivesassignedtoourproperty,plantandequipmentarereviewedonanannualbasisormorefrequentlyifcircumstanceswarrantandsuchlivesarerevisedtotheextentnecessaryduetochangingfactsandcircumstances.Anychangesinestimatedusefullivesarereflectedprospectively.
Property,plantandequipment(includingequipmentundercapitalleases)asofDecember31,2016consistofthefollowingassets,whicharedepreciatedoramortizedonastraight-linebasisovertheestimatedusefullivesshownbelow:
FortheyearendedDecember31,2016,theCompanycapitalizedcertaincostsaggregating$75,804,relatedtotheacquisitionanddevelopmentofinternalusesoftware,whichareincludedinthetableabove.
Depreciationexpenseonproperty,plantandequipment(includingcapitalleases)fortheyearendedDecember31,2016amountedto$1,046,896.
AtDecember31,2016,thegrossamountofbuildingsandequipmentandrelatedaccumulatedamortizationrecordedundercapitalleaseswereasfollows:
F-22
Estimated
Useful LivesCustomerequipment $ 871,049 3to5yearsHeadendsandrelatedequipment 1,482,631 4to25yearsInfrastructure 3,740,494 3to25yearsEquipmentandsoftware 735,012 3to10yearsConstructioninprogress(includingmaterialsandsupplies) 84,321 Furnitureandfixtures 45,576 5to12yearsTransportationequipment 135,488 5to10yearsBuildingsandbuildingimprovements 390,337 10to40yearsLeaseholdimprovements 104,309 TermofleaseLand 47,715
7,636,932 Lessaccumulateddepreciationandamortization (1,039,297)
$ 6,597,635
Buildingsandequipment $ 53,833Lessaccumulatedamortization (6,306)
$ 47,527
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 7. OPERATING LEASES
TheCompanyleasescertainoffice,production,andtransmissionfacilitiesundertermsofleasesexpiringatvariousdatesthrough2035.Theleasesgenerallyprovideforescalatingrentalsoverthetermoftheleasepluscertainrealestatetaxesandothercostsorcredits.Costsassociatedwithsuchoperatingleasesarerecognizedonastraight-linebasisovertheinitialleaseterm.Thedifferencebetweenrentexpenseandrentpaidisrecordedasdeferredrent.Inaddition,theCompanyrentsspaceonutilitypolesforitsoperations.TheCompany'spolerentalagreementsareforvaryingterms,andmanagementanticipatesrenewalsastheyexpire.Rentexpense,includingpolerentals,fortheyearendedDecember31,2016amountedto$65,881.
Theminimumfutureannualpaymentsforalloperatingleases(withinitialorremainingtermsinexcessofoneyear)duringthenextfiveyearsandthereafter,includingpolerentalsfromJanuary1,2017throughDecember31,2021,atratesnowinforceareasfollows:
NOTE 8. INTANGIBLE ASSETS
ThefollowingtablesummarizesinformationrelatingtotheCompany'sacquiredintangibleassetsasofDecember31,2016:
AmortizationexpensefortheyearendedDecember31,2016aggregated$653,410.
Thefollowingtablesetsforththeestimatedamortizationexpenseonintangibleassetsfortheperiodspresented:
F-23
2017 $ 76,5132018 70,2422019 61,9862020 56,9532021 53,658Thereafter 142,655
Amortizable Intangible Assets
Gross Carrying
Amount Accumulated Amortization
Net Carrying Amount
Estimated Useful Lives
Customerrelationships $ 5,925,884 $ (580,276) $ 5,345,608 8to18yearsTradenames 1,066,783 (83,397) 983,386 2to12yearsOtheramortizableintangibles 26,743 (3,093) 23,650 1to15years
$ 7,019,410 $ (666,766) $ 6,352,644
Estimatedamortizationexpense YearEndingDecember31,2017 $ 928,597YearEndingDecember31,2018 834,312YearEndingDecember31,2019 758,189YearEndingDecember31,2020 681,610YearEndingDecember31,2021 604,456
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 8. INTANGIBLE ASSETS (Continued)
ThefollowingtablesummarizesinformationrelatingtotheCompany'sacquiredindefinite-livedintangibleassetsasofDecember31,2016:
Thecarryingamountofgoodwillispresentedbelow:
NOTE 9. DEBT
CSC Holdings Credit Facilities
InconnectionwiththeOptimumAcquisition,inOctober2015,NeptuneFincoCorp.("Finco"),awholly-ownedsubsidiaryoftheCompanyformedtocompletethefinancingdescribedhereinandthemergerwithCSCHoldings,borrowedanaggregateprincipalamountof$3,800,000underatermloanfacility(the"TermCreditFacility")andenteredintorevolvingloancommitmentsinanaggregateprincipalamountof$2,000,000(the"RevolvingCreditFacility"and,togetherwiththeTermCreditFacility,the"CreditFacilities").TheTermCreditFacilitywastomatureonOctober9,2022andtheRevolvingCreditFacilitywastomatureonOctober9,2020(seediscussionbelowregardingtheextensionamendments).Inaddition,onJune21,2016andJuly21,2016,theCompanyenteredintoincrementalloanassumptionagreementswherebytheRevolvingCreditFacilitywasincreasedby$70,000and$35,000,respectively,to$2,105,000.
Fincoalsoissued$1,800,000aggregateprincipalamountof10.125%seniornotesdue2023(the"2023Notes"),$2,000,000aggregateprincipalamountof10.875%seniornotesdue2025(the"2025Notes"),and$1,000,000aggregateprincipalamountof6.625%seniorguaranteednotesdue2025(the"2025GuaranteedNotes")(collectivelythe"OptimumAcquisitionNotes").
OnJune21,2016,immediatelyfollowingtheOptimumAcquisition,FincomergedwithandintoCSCHoldings,withCSCHoldingssurvivingthemerger(the"CSCHoldingsMerger"),andtheOptimumAcquisitionNotesandtheCreditFacilitiesbecameobligationsofCSCHoldings.The2025GuaranteedNotesareguaranteedonaseniorbasisbyeachrestrictedsubsidiaryofCSCHoldings(otherthanCSCTKR,LLCanditssubsidiaries,whichownandoperatetheNewJerseycabletelevisionsystems,CablevisionLightpath,Inc.andanysubsidiariesofCSCHoldingsthatare"ExcludedSubsidiaries"undertheindenturegoverningthe2025GuaranteedNotes)(suchsubsidiaries,the"InitialGuarantors")andtheobligationsundertheCreditFacilitiesare(i)guaranteedonaseniorbasisbyeachInitialGuarantorand(ii)securedonafirstprioritybasisbycapitalstockheldbyCSCHoldingsandtheguarantorsincertainsubsidiariesofCSCHoldings,subjecttocertainexclusionsandlimitations.
F-24
Optimum Suddenlink Total Cabletelevisionfranchises $ 8,113,575 $ 4,906,506 $ 13,020,081Goodwill 5,838,959 2,153,741 7,992,700Total $ 13,952,534 $ 7,060,247 $ 21,012,781
GrossgoodwillasofJanuary1,2016 $ 2,040,402GoodwillrecordedinconnectionwithOptimumAcquisition 5,838,959AdjustmentstopurchaseaccountingrelatingtoSuddenlinkAcquisition 113,339NetgoodwillasofDecember31,2016 $ 7,992,700
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 9. DEBT (Continued)
AlticeUSAusedtheproceedsfromtheTermCreditFacilityandtheOptimumAcquisitionNotes,togetherwithanequitycontributionfromAlticeN.V.anditsCo-InvestorsandexistingcashatCablevision,to(a)financetheOptimumAcquisition,(b)refinancethecreditagreement,datedasofApril17,2013(the"PreviousCreditFacility"),amongCSCHoldings,certainsubsidiariesofCSCHoldingsandthelenderspartythereto($2,030,699outstandingatthedateoftheOptimumAcquisition),(c)repaytheseniorsecuredcreditagreement,datedasofOctober12,2012,amongNewsdayLLC,CSCHoldings,andthelenderspartythereto(the"PreviousNewsdayCreditFacility")of$480,000,and(d)payrelatedfeesandexpenses.
TheCreditFacilitiespermitCSCHoldingstorequestrevolvingloans,swinglineloansorlettersofcreditfromtherevolvinglenders,swinglinelendersorissuingbanks,asapplicable,thereunder,fromtimetotimepriortoOctober9,2020,unlessthecommitmentsundertheRevolvingCreditFacilityhavebeenpreviouslyterminated.
Thereisalsoacommitmentfeeof0.375%onundrawnamountsundertherevolvingcreditfacility.
OnSeptember9,2016,CSCHoldingsenteredintoanamendment(the"ExtensionAmendment")totheCreditFacilitiesandtheincrementalloanassumptionagreementsdatedJune21,2016andJuly21,2016betweenCSCHoldingsandcertainlenderspartythereto(the"ExtendingLenders")pursuanttowhicheachExtendingLenderagreedtoextendthematurityofitsTermCreditFacilityundertheCreditFacilitiestoOctober11,2024andtocertainotheramendmentstotheCreditFacilities.InOctober2016,CSCHoldingsusedthenetproceedsfromthesaleof$1,310,000aggregateprincipalamountof5.5%seniorguaranteednotesdue2027(the"2027GuaranteedNotes")(afterthedeductionoffeesandexpenses)toprepayoutstandingloansundertheCSCHoldingsTermCreditFacilitythatwerenotextendedpursuanttotheExtensionAmendment.ThetotalaggregateprincipalamountoftheTermCreditFacility,aftergivingeffecttotheuseofproceedsofthe2027GuaranteedNotes,is$2,500,000(the"ExtendedTermLoan").TheExtendedTermLoanwaseffectiveonOctober11,2016.InconnectionwiththeprepaymentoftheTermCreditFacility,theCompanywrote-offthedeferredfinancingcostsandtheunamortizeddiscountrelatedtotheexistingtermloanaggregating$102,894.Additionally,theCompanyrecordeddeferredfinancingcostsandanoriginalissuediscountof$7,249and$6,250,respectively,whicharebothbeingamortizedtointerestexpenseoverthetermoftheExtendedTermLoan.
OnDecember9,2016,theCreditFacilitieswereamendedtoincreasetheavailabilityundertheRevolvingCreditFacilityfrom$2,105,000to$2,300,000andextendthematurityon$2,280,000ofthisfacilitytoNovember30,2021.Theremaining$20,000willmatureonOctober9,2020.
TheCreditFacilitiesrequireCSCHoldingstoprepayoutstandingtermloans,subjecttocertainexceptionsanddeductions,with(i)100%ofthenetcashproceedsofcertainassetsales,subjecttoreinvestmentrightsandcertainotherexceptions,and(ii)commencingwiththefirstfullfiscalyearaftertheconsummationoftheOptimumAcquisition,aratableshare(basedontheoutstandingprincipalamountoftheExtendedTermLoandividedbythesumoftheoutstandingprincipalamountofallparipassuindebtednessandtheExtendedTermLoan)of50%oftheannualexcesscashflowofCSCHoldingsanditsrestrictedsubsidiaries,whichwillbereducedto0%iftheConsolidatedNetSeniorSecuredLeverageRatioofCSCHoldingsislessthanorequalto4.5to1.
UndertheTermCreditFacility,CSCHoldingswasrequiredtomakeandmadescheduledquarterlypaymentof$9,500beginningwiththefiscalquarterendingSeptember30,2016.Underthe
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 9. DEBT (Continued)
ExtendedTermLoan,CSCHoldingsisrequiredtomakescheduledquarterlypaymentsequalto0.25%oftheprincipalamountoftheExtendedTermLoan,withtheremainingbalancescheduledtobepaidonOctober11,2024,beginningwiththefiscalquarterendingMarch31,2017.
TheCSCHoldingsCreditFacilitiesincludenegativecovenantsthataresubstantiallysimilartothenegativecovenantscontainedintheindenturesunderwhichtheOptimumAcquisitionNoteswereissued(seediscussionbelow).TheCreditFacilitiesincludeonefinancialmaintenancecovenant(solelyforthebenefitoftheRevolvingCreditFacility),consistingofamaximumConsolidatedNetSeniorSecuredLeverageRatioof5.0to1,whichwillbetestedonthelastdayofanyfiscalquarterbutonlyifonsuchdaythereareoutstandingborrowingsundertheCSCHoldingsRevolvingCreditFacility(includingswinglineloansbutexcludinganycashcollateralizedlettersofcreditandundrawnlettersofcreditnottoexceed$15,000).TheCSCHoldingsCreditFacilitiescontaincustomaryrepresentations,warrantiesandaffirmativecovenants.Inaddition,theCSCHoldingsCreditFacilitiescontainsrestrictivecovenantsthatlimit,amongotherthings,theabilityofCSCHoldingsanditssubsidiariestoincurindebtedness,createliens,engageinmergers,consolidationsandotherfundamentalchanges,makeinvestmentsorloans,engageintransactionswithaffiliates,paydividends,andmakeacquisitionsanddisposeofassets.Ifaneventofdefaultoccurs,theobligationsundertheCSCHoldingsCreditFacilitiesmaybeaccelerated.
CSCHoldingswasincompliancewithallofitsfinancialcovenantsundertheCSCHoldingsCreditFacilitiesasofDecember31,2016.
Cequel Credit Facilities
InconnectionwiththeSuddenlinkAcquisition,lendersholding(a)$290,000ofloansandcommitmentsundertherevolvingcreditfacilityundertheoldcreditfacilityand(b)approximately$815,400ofloansunderthetermloanfacilityundertheoldcreditfacilityconsentedtorollover,onacashlessbasis,suchlenders'loansandcommitmentsundertheoldcreditfacilityintoloansandcommitmentsofthesameamountunderanewcreditfacility(the"CequelCreditFacility")madeavailabletoasubsidiaryofCequeleffectiveupontheconsummationoftheSuddenlinkAcquisition(the'CequelCreditAgreement").UpontheclosingoftheSuddenlinkAcquisition,the$290,000ofloansandcommitmentsundertherevolvingcreditfacilityundertheoldcreditfacilitythatlenderselectedtorolloverintotheCequelCreditFacility,plus$60,000ofnewrevolvingcommitmentsfromotherlenders,formedanew$350,000revolvingcreditfacilityundertheCequelCreditFacility,andallremainingcommitmentsunderthethenexisting$500,000revolvingcreditfacilityundertheoldcreditfacilitywereterminated.
TheinterestrateonthetermloansoutstandingundertheCequelCreditFacilityequaltheprimerateplus2.25%ortheLIBOrateplus3.25%,withaLIBOratefloorof1.00%,whiletheinterestrateontherevolverloansequaltheprimerateplus2.25%ortheLIBOrateplus3.25%.Thetermloanfacilityrequiresquarterlyrepaymentsinannualamountsequalto1.00%oftheoriginalprincipalamount,whichcommencedonMarch31,2016,withtheremainderdueatmaturity.Thereisacommitmentfeeof0.5%onundrawnamountsundertherevolvingcreditfacility.
ThedebtundertheCequelCreditAgreementissecuredbyafirstprioritysecurityinterestinthecapitalstockofSuddenlink,anindirectwholly-ownedsubsidiaryofCequelandsubstantiallyallofthepresentandfutureassetsofSuddenlinkanditsrestrictedsubsidiaries,andisguaranteedbytheCequelCommunicationsHoldingsII,LLC,anindirectwholly-ownedsubsidiaryofCequel(the"Parent
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 9. DEBT (Continued)
Guarantor")aswellasallofSuddenlink'sexistingandfuturedirectandindirectsubsidiaries,subjecttocertainexceptionssetforthintheCequelCreditAgreement.
TheCequelCreditAgreementcontainscustomaryrepresentations,warrantiesandaffirmativecovenants.Inaddition,theCequelCreditAgreementcontainsrestrictivecovenantsthatlimit,amongotherthings,theabilityofSuddenlinkanditssubsidiariestoincurindebtedness,createliens,engageinmergers,consolidationsandotherfundamentalchanges,makeinvestmentsorloans,engageintransactionswithaffiliates,paydividends,andmakeacquisitionsanddisposeofassets.TheCequelCreditAgreementalsocontainsamaximumseniorsecuredleveragemaintenancecovenantof5.0timesEBITDAasdefinedintheCequelCreditAgreement.Additionally,theCequelCreditAgreementcontainscustomaryeventsofdefault,includingfailuretomakepayments,breachesofcovenantsandrepresentations,crossdefaultstootherindebtedness,unpaidjudgments,changesofcontrolandbankruptcyevents.Thelenders'commitmentstofundamountsundertherevolvingcreditfacilityaresubjecttocertaincustomaryconditions.
Amendments to Cequel Credit Agreement
OnOctober25,2016,anindirectwholly-ownedsubsidiaryofCequelenteredintotheFirstAmendmenttotheCequelCreditAgreement,amendingthecreditagreementdatedJune12,2015,betweentheCompanyandcertainlenderspartytheretopursuanttowhichtheapplicablemarginforthetermloansoutstandingundertheCequelCreditFacilitywasloweredby25basispoints,theLIBOratefloorforthetermloansoutstandingundertheCequelCreditFacilitywasloweredby25basispointsto0.75%andthematuritydateforthetermloansoutstandingundertheCequelCreditFacilitywasextendedtoJanuary15,2025.Theproceedsof$815,000fromthenewtermloanwereusedtorepaytheamountoutstandingundertheexistingtermloanof$809,327andrelatedfeesandexpenses.Inconnectionwiththeextinguishmentoftheexistingtermloan,theCompanyrecordedalossonextinguishmentofdebtof$4,807,representingprimarilythewrite-offofdeferredfinancingcostsrelatedtothetermloan.InconnectionwiththeFirstAmendmenttotheCequelCreditAgreement,theCompanyrecordeddeferredfinancingcostsof$2,092,whicharebeingamortizedtointerestexpenseoverthetermoftheloan.
OnDecember9,2016,theCompanyenteredintotheSecondAmendmenttotheCequelCreditAgreementwhichextendedthematurityontherevolvertoNovember30,2021.
AsofDecember31,2016,CequelwasincompliancewithallofitsfinancialcovenantsundertheCequelCreditAgreement.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 9. DEBT (Continued)
ThefollowingtableprovidesdetailsoftheCompany'soutstandingcreditfacilitydebt(netofunamortizedfinancingcostsandunamortizeddiscounts):
DuringthetwelvemonthsendingDecember31,2017,theCompanyisrequiredtomakeprincipalpaymentsaggregating$25,000undertheCSCHoldingsTermCreditFacilityand$8,150undertheCequelTermCreditFacility.
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Maturity Date Interest
Rate Principal Carrying Value(a) CSC Holdings Restricted Group: RevolvingCreditFacility(b) November30,2021 4.07%$ 175,256 $ 145,013TermCreditFacility(c) October11,2024 3.88% 2,500,000 2,486,874
Cequel: RevolvingCreditFacility(d) November30,2021 — — —TermCreditFacility January15,2025 3.88% 815,000 812,903
$ 3,490,256 3,444,790
Less:Currentportion 33,150
Long-termdebt $ 3,411,640
(a) Theunamortizeddiscountsanddeferredfinancingcostsamountedto$45,466atDecember31,2016.
(b) Includes$100,256ofcreditfacilitydebtincurredtofinancetheOptimumAcquisition.SeediscussionaboveregardingtheamendmenttotherevolvingcreditfacilityenteredintoDecember2016.
(c) Represents$3,800,000principalamountofdebtincurredtofinancetheOptimumAcquisition,netofprincipalrepaymentsmade.SeediscussionaboveregardingtheExtensionAmendmententeredintoSeptember2016.
(d) AtDecember31,2016,$17,031oftherevolvingcreditfacilitywasrestrictedforcertainlettersofcreditissuedonbehalfoftheCompanyand$332,969ofthefacilitywasundrawnandavailable,subjecttocovenantlimitations.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 9. DEBT (Continued)
Senior Guaranteed Notes and Senior Notes and Debentures
ThefollowingtablesummarizestheCompany'sseniorguaranteednotes,seniorsecurednotesandseniornotesanddebenturesasofDecember31,2016:
F-29
Issuer Date Issued Maturity Date Interest
Rate Principal Amount
Carrying Amount(a)
CSCHoldings(b)(e) February6,1998 February15,2018 7.875% $ 300,000 $ 310,334CSCHoldings(b)(e) July21,1998 July15,2018 7.625% 500,000 521,654CSCHoldings(c)(e) February12,2009 February15,2019 8.625% 526,000 553,804CSCHoldings(c)(e) November15,2011 November15,2021 6.750% 1,000,000 951,702CSCHoldings(c)(e) May23,2014 June1,2024 5.250% 750,000 650,193CSCHoldings(d) October9,2015 January15,2023 10.125% 1,800,000 1,774,750CSCHoldings(d) October9,2015 October15,2025 10.875% 2,000,000 1,970,379CSCHoldings(d) October9,2015 October15,2025 6.625% 1,000,000 985,469CSCHoldings(f) September23,2016 April15,2027 5.500% 1,310,000 1,304,025Cablevision(c)(e) September23,2009 September15,2017 8.625% 900,000 926,045Cablevision(c)(e) April15,2010 April15,2018 7.750% 750,000 767,545Cablevision(c)(e) April15,2010 April15,2020 8.000% 500,000 488,992Cablevision(c)(e) September27,2012 September15,2022 5.875% 649,024 559,500CequelCommunicationsHoldingsILLCandCequelCapitalCorporation(c)
October25,2012December28,2012
September15,2020 6.375% 1,500,000 1,457,439
CequelCommunicationsHoldingsILLCandCequelCapitalCorporation(c)
May16,2013September9,2014
December15,2021 5.125% 1,250,000 1,115,767
AlticeUSFinanceICorporation(g) June12,2015 July15,2023 5.375% 1,100,000 1,079,869CequelCommunicationsHoldingsILLCandCequelCapitalCorporation(h)
June12,2015 July15,2025 7.750% 620,000 602,925
AlticeUSFinanceICorporation(i) April26,2016 May15,2026 5.500% 1,500,000 1,486,933 $ 17,955,024 17,507,325
Less:Currentportion 926,045Long-termdebt $ 16,581,280
(a) Thecarryingamountofthenotesisnetoftheunamortizeddeferredfinancingcostsand/ordiscounts/premiumsof$447,699.
(b) ThedebenturesarenotredeemablebyCSCHoldingspriortomaturity.
(c) Notesareredeemableatanytimeataspecified"make-whole"priceplusaccruedandunpaidinteresttotheredemptiondate.
(d) TheCompanymayredeemsomeorallofthe2023NotesatanytimeonorafterJanuary15,2019,andsomeorallofthe2025Notesand2025GuaranteedNotesatanytimeonorafterOctober15,2020,attheredemptionpricessetforthintherelevantindenture,plusaccruedandunpaidinterest,ifany.TheCompanymayalsoredeemupto40%ofeachseriesoftheOptimumAcquisitionNotesusingthe
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 9. DEBT (Continued)
Theindenturesunderwhichtheseniornotesanddebentureswereissuedcontainvariouscovenants,whicharegenerallylessrestrictivethanthosecontainedintheCreditAgreement.TheCompanywasincompliancewithallofitsfinancialcovenantsundertheseindenturesasofDecember31,2016.
CSC Holdings 5.5% Senior Guaranteed Notes due 2027
InSeptember2016,CSCHoldingsissued$1,310,000aggregateprincipalamountof5.50%seniorguaranteednotesdueApril15,2027.The2027GuaranteedNotesareseniorunsecuredobligationsandrankparipassuinrightofpaymentwithalloftheexistingandfutureseniorindebtedness,includingtheexistingseniornotesandtheCreditFacilitiesandrankseniorinrightofpaymenttoallofexistingandfuturesubordinatedindebtedness.
Asdiscussedabove,inOctober2016,CSCHoldingsusedtheproceedsfromtheissuanceofthe2027GuaranteedNotes(afterthedeductionoffeesandexpenses)toprepaytheoutstandingloansundertheTermCreditFacilitythatwerenotextendedpursuanttotheExtensionAmendment.Inconnectionwiththeissuanceofthe2027GuaranteedNotes,theCompanyincurreddeferredfinancingcostsofapproximately$5,575,whicharebeingamortizedtointerestexpenseoverthetermofthe2027GuaranteedNotes.
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proceedsofcertainequityofferingsbeforeOctober15,2018,ataredemptionpriceequalto110.125%forthe2023Notes,110.875%forthe2025Notesand106.625%forthe2025GuaranteedNotes,ineachcaseplusaccruedandunpaidinterest.Inaddition,atanytimepriortoJanuary15,2019,CSCHoldingsmayredeemsomeorallofthe2023Notes,andatanytimepriortoOctober15,2020,theCompanymayredeemsomeorallofthe2025Notesandthe2025GuaranteedNotes,atapriceequalto100%oftheprincipalamountthereof,plusa"makewhole"premiumspecifiedintherelevantindentureplusaccruedandunpaidinterest.
(e) ThecarryingvalueofthenoteswasadjustedtoreflecttheirfairvalueontheOptimumAcquisitionDate(aggregatereductionof$52,788).
(f) The2027GuaranteedNotesareredeemableatanytimeonorafterApril15,2022attheredemptionpricessetforthintheindenture,plusaccruedandunpaidinterest,ifany.Inaddition,upto40%mayberedeemedforeachseriesofthe2027GuaranteedNotesusingtheproceedsofcertainequityofferingsbeforeOctober15,2019,ataredemptionpriceequalto105.500%,plusaccruedandunpaidinterest.
(g) SomeorallofthesenotesmayberedeemedatanytimeonorafterJuly15,2018,plusaccruedandunpaidinterest,ifany.Upto40%ofthenotesmayberedeemedusingtheproceedsofcertainequityofferingsbeforeJuly15,2018,ataredemptionpriceequalto105.375%.
(h) SomeorallofthesenotesmayberedeemedatanytimeonorafterJuly15,2020,plusaccruedandunpaidinterest,ifany.Upto40%ofthenotesmayberedeemedusingtheproceedsofcertainequityofferingsbeforeJuly15,2018,ataredemptionpriceequalto107.750%.
(i) SomeorallofthesenotesmayberedeemedatanytimeonorafterMay15,2021,plusaccruedandunpaidinterest,ifany.Upto40%ofthenotesmayberedeemedusingtheproceedsofcertainequityofferingsbeforeMay15,2019,ataredemptionpriceequalto105.500%.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 9. DEBT (Continued)
Optimum Acquisition Notes
The$1,000,000principalamountofthe2025GuaranteedNotesbearinterestatarateof6.625%perannumandwereissuedatapriceof100.00%.Interestonthe2025GuaranteedNotesispayablesemi-annuallyonJanuary15andJuly15,commencingonJuly15,2016.These2025GuaranteedNotesareguaranteedonaseniorbasisbytheInitialGuarantors.
The$1,800,000principalamountofthe2023Notesand$2,000,000principalamountofthe2025Notes,bearinterestatarateof10.125%and10.875%,respectively,perannumandwereissuedatpricesof100.00%.Interestonthe2023Notesand2025Notesispayablesemi-annuallyonJanuary15andJuly15,whichbeganonJuly15,2016.
Deferredfinancingcostsofapproximately$76,579incurredinconnectionwiththeissuanceoftheOptimumAcquisitionNotesarebeingamortizedtointerestexpenseoverthetermoftheOptimumAcquisitionNotes.
TheindenturesunderwhichtheCablevisionandCSCHoldingsSeniorGuaranteedNotesandSeniorNotesandDebentureswereissuedcontaincertaincovenantsandagreementswithrespecttoinvestmentgradedebtsecurities,includinglimitationsontheabilityofCSCHoldingsanditsrestrictedsubsidiariesto(i)incurorguaranteeadditionalindebtedness,(ii)makeinvestmentsorotherrestrictedpayments,(iii)createliens,(iv)sellassetsandsubsidiarystock,(v)paydividendsormakeotherdistributionsorrepurchaseorredeemourcapitalstockorsubordinateddebt,(vi)engageincertaintransactionswithaffiliates,(vii)enterintoagreementsthatrestrictthepaymentofdividendsbysubsidiariesortherepaymentofintercompanyloansandadvances,and(viii)engageinmergersorconsolidations,ineachcasesubjecttocertainexceptions.Theindenturesalsocontaincertaincustomaryeventsofdefault.Ifaneventofdefaultoccurs,theobligationsundertheOptimumAcquisitionNotesmaybeaccelerated.AsofDecember31,2016,Cablevisionwasincompliancewithallofitsfinancialcovenantsundertheindenturesunderwhichtheseniornotesanddebenturesandguaranteednoteswereissued.
Cequel Senior Secured Notes
OnJune12,2015,AlticeUSFinanceICorporation,anindirectsubsidiaryofAlticeN.V.,issued$1,100,000principalamountofseniorsecurednotes(the"2023SeniorSecuredNotes"),theproceedsfromwhichwereplacedinescrowtofinanceaportionofthepurchasepricefortheSuddenlinkAcquisition.The2023SeniorSecuredNotesbearinterestatarateof5.375%perannumandwereissuedatapriceof100.00%.Interestonthe2023SeniorSecuredNotesispayablesemi-annuallyonJanuary15andJuly15ofeachyear.FollowingtheconsummationoftheSuddenlinkAcquisitionandrelatedtransactionstheequityinterestsinAlticeUSFinanceICorporationwerecontributedthroughoneormoreintermediarystepstoSuddenlink,andtheSeniorSecuredNoteswereguaranteedbyCequelCommunicationsHoldingsIILLC,SuddenlinkandcertainofthesubsidiariesofSuddenlinkandaresecuredbycertainassetsofCequelCommunicationsHoldingsIILLC,Suddenlinkanditssubsidiaries.
OnApril26,2016,AlticeUSFinanceICorporationissued$1,500,000aggregateprincipalamountofseniorsecurednotes(the"2026SeniorSecuredNotes").Theproceedsfromthesalewereusedtorepaythe$1,477,200remainingbalanceundertheOldCreditFacilityandtopayrelatedfeesandexpenses(seediscussionabove).The2026SeniorSecuredNotesmatureonMay15,2026andbear
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 9. DEBT (Continued)
interestatarateof5.50%annually.Interestonthe2026SeniorSecuredNotesispayablesemi-annuallyonMay15andNovember15ofeachyear,commencingonNovember15,2016.Deferredfinancingcostsrecordedinconnectionwiththeissuanceofthesenotesamountedto$13,773andarebeingamortizedoverthetermofthenotes.
Cequel Senior Notes
OnJune12,2015,AlticeUSFinanceIICorporation,anindirectsubsidiaryofAlticeN.V.,issued$300,000principalamountofthe2025SeniorNotes,theproceedsfromwhichwereplacedinescrow,tofinanceaportionofthepurchasepricefortheSuddenlinkAcquisition.The2025SeniorNoteswereissuedbythe2025SeniorNotesIssuer,anindirectsubsidiaryofAlticeN.V.,bearinterestatarateof7.75%perannumandwereissuedatapriceof100.00%.Interestonthe2025SeniorNotesispayablesemi-annuallyonJanuary15andJuly15ofeachyear.FollowingtheconsummationoftheSuddenlinkAcquisitionandrelatedtransactions,the2025SeniorNotesIssuermergedintoCequel,the2025SeniorNotesbecametheobligationsofCequelandCequelCapitalCorporationbecametheco-issuerofthe2025SeniorNotes.
OnJune12,2015,AlticeUSFinanceS.A.,anindirectsubsidiaryofAlticeN.V.issued$320,000principalamountofthe7.75%SeniorNotesdue2025(the"HoldcoNotes"),theproceedsfromwhichwereplacedinescrow,tofinanceaportionofthepurchasepricefortheSuddenlinkAcquisition.TheHoldcoNotesbearinterestatarateof7.75%perannumandwereissuedatapriceof98.275%.InterestontheHoldcoNotesispayablesemi-annuallyonJanuary15andJuly15ofeachyear.TheHoldcoNoteswereautomaticallyexchangedintoanequalaggregateprincipalamountof2025SeniorNotesatCequelduringthesecondquarterof2016.Theexchangeresultedinadecreasetomember'sequityofapproximately$315,352.
TheIssuershavenoabilitytoserviceinterestorprincipalontheNotes,otherthanthroughanydividendsordistributionsreceivedfromSuddenlink.Suddenlinkisrestrictedincertaincircumstances,frompayingdividendsordistributionstotheIssuersbythetermsoftheNewCreditAgreement.However,theCequelCreditAgreementpermitsSuddenlinktomakedividendsanddistributionssubjecttosatisfactionofcertainconditions,includingproformacompliancewithamaximumseniorsecuredleverageratio,andthatnoeventofdefaulthasoccurredandiscontinuing,orwouldbecausedbythemakingofsuchdividendsorotherdistributions,andbasedon,amongotherthings,availabilityunderarestrictedpaymentbasket.The2020Notes,the2021Notesandthe2025SeniorNotesareunsecuredandarenotguaranteedbyanysubsidiariesoftheOriginalIssuers,includingSuddenlink.
TheCequelIndenturescontaincertaincovenants,agreementsandeventsofdefaultwhicharecustomarywithrespecttonon-investmentgradedebtsecurities,includinglimitationsontheCompany'sabilitytoincuradditionalindebtedness,paydividendsonormakeotherdistributionsorrepurchasetheCompany'scapitalstock,makecertaininvestments,enterintocertaintypesoftransactionswithaffiliates,createliensandsellcertainassetsormergewithorintoothercompanies.
Notes Payable to Affiliates
OnJune21,2016,inconnectionwiththeOptimumAcquisition,theCompanyissuednotespayabletoaffiliatesaggregating$1,750,000,ofwhich$875,000bearinterestat10.75%andaredueonDecember20,2023and$875,000bearinterestat11%andaredueonDecember20,2024.TheCompanymayredeemallor,partofthenotesataredemptionpriceequalto100%oftheprincipal
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 9. DEBT (Continued)
amountthereofplustheapplicablepremium,asdefinedinthenotesagreement,andaccruedandunpaidinterest.FortheyearendedDecember31,2016,theCompanyrecognizedinterestexpenseof$102,557relatedtothesenotespayable.
Summary of Debt Maturities
TotalamountspayablebytheCompanyunderitsvariousdebtobligationsoutstandingasofDecember31,2016,includingnotespayable,collateralizedindebtedness(seeNote10),andcapitalleases,duringthenextfiveyearsandthereafter,areasfollows:
NOTE 10. DERIVATIVE CONTRACTS AND COLLATERALIZED INDEBTEDNESS
Prepaid Forward Contracts
TheCompanyhasenteredintovarioustransactionstolimittheexposureagainstequitypriceriskonitssharesofComcastCorporation("Comcast")commonstock.TheCompanyhasmonetizedallofitsstockholdingsinComcastthroughtheexecutionofprepaidforwardcontracts,collateralizedbyanequivalentamountoftherespectiveunderlyingstock.Atmaturity,thecontractsprovidefortheoptiontodelivercashorsharesofComcaststockwithavaluedeterminedbyreferencetotheapplicablestockpriceatmaturity.Thesecontracts,atmaturity,areexpectedtooffsetdeclinesinthefairvalueofthesesecuritiesbelowthehedgepricepersharewhileallowingtheCompanytoretainupsideappreciationfromthehedgepricepersharetotherelevantcapprice.
TheCompanyreceivedcashproceedsuponexecutionoftheprepaidforwardcontractsdiscussedabovewhichhasbeenreflectedascollateralizedindebtednessintheaccompanyingconsolidatedbalancesheets.Inaddition,theCompanyseparatelyaccountsfortheequityderivativecomponentoftheprepaidforwardcontracts.Theseequityderivativeshavenotbeendesignatedashedgesforaccountingpurposes.Therefore,thenetfairvaluesoftheequityderivativeshavebeenreflectedintheaccompanyingconsolidatedbalancesheetsasanassetorliabilityandthenetincreasesordecreasesinthefairvalueoftheequityderivativecomponentoftheprepaidforwardcontractsareincludedingain(loss)onderivativecontractsintheaccompanyingconsolidatedstatementofoperations.
AlloftheCompany'smonetizationtransactionsareobligationsofitswholly-ownedsubsidiariesthatarenotpartoftheRestrictedGroup;however,CSCHoldingshasprovidedguaranteesofthesubsidiaries'ongoingcontractpaymentexpenseobligationsandpotentialpaymentsthatcouldbedueasaresultofanearlyterminationevent(asdefinedintheagreements).Ifanyoneofthesecontractswereterminatedpriortoitsscheduledmaturitydate,theCompanywouldbeobligatedtorepaythefairvalueofthecollateralizedindebtednesslessthesumofthefairvaluesoftheunderlyingstockandequitycollar,calculatedattheterminationdate.AsofDecember31,2016,theCompanydidnothaveanearlyterminationshortfallrelatingtoanyofthesecontracts.
F-33
Years Ending December 31, Cablevision Cequel Altice USA Total 2017 $ 1,719,180 $ 9,113 $ — 1,728,2932018 2,103,441 8,652 — 2,112,0932019 557,348 8,330 — 565,6782020 526,340 1,508,213 — 2,034,5532021 1,200,256 1,258,223 — 2,458,479Thereafter 9,884,024 3,995,280 1,750,000 15,629,304
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 10. DERIVATIVE CONTRACTS AND COLLATERALIZED INDEBTEDNESS (Continued)
TheCompanymonitorsthefinancialinstitutionsthatarecounterpartiestoitsequityderivativecontractsanditdiversifiesitsequityderivativecontractsamongvariouscounterpartiestomitigateexposuretoanysinglefinancialinstitution.AllofthecounterpartiestosuchtransactionscarryinvestmentgradecreditratingsasofDecember31,2016.
Interest Rate Swap Contracts
InJune2016,theCompanyenteredintotwonewfixedtofloatinginterestrateswapcontracts.Onefixedtofloatinginterestrateswapisconverting$750,000fromafixedrateof1.6655%tosix-monthLIBOrateandasecondtrancheof$750,000fromafixedrateof1.68%tosix-monthLIBOrate.Theobjectiveoftheseswapsistocovertheexposureofthe2026SeniorSecuredNotestochangesinthemarketinterestrate.Theseswapcontractswerenotdesignatedashedgesforaccountingpurposes.Accordingly,thechangesinthefairvalueoftheseinterestrateswapcontractsarerecordedthroughthestatementofoperations.
TheCompanydoesnotholdorissuederivativeinstrumentsfortradingorspeculativepurposes.
ThefollowingrepresentsthelocationoftheassetsandliabilitiesassociatedwiththeCompany'sderivativeinstrumentswithintheconsolidatedbalancesheets:
UnrealizedandrealizedlossesrelatedtoCompany'sequityderivativecontractsrelatedtotheComcastcommonstockfortheyearendedDecember31,2016of$53,696,arereflectedinlossonequityderivativecontracts,netintheCompany'sconsolidatedstatementofoperations.
FortheyearendedDecember31,2016,theCompanyrecordedagainoninvestmentsof$141,538,representingthenetincreaseinthefairvaluesofallinvestmentsecuritiespledgedascollateral.
FortheyearendedDecember31,2016,theCompanyrecordedanetlossoninterestrateswapcontractsof$72,961.
F-34
Asset
Derivatives Liability
Derivatives
Derivatives Not Designated as Hedging Instruments Balance Sheet Location
Fair Value at December 31,
2016
Fair Value at December 31,
2016 Prepaidforwardcontracts Derivativecontracts,current $ 352 $ 13,158Prepaidforwardcontracts Derivativecontracts,long-term 10,604 —Interestrateswapcontracts Liabilitiesunderderivativecontracts,long-
term — 78,823
$ 10,956 $ 91,981
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 10. DERIVATIVE CONTRACTS AND COLLATERALIZED INDEBTEDNESS (Continued)
Settlements of Collateralized Indebtedness
ThefollowingtablesummarizesthesettlementoftheCompany'scollateralizedindebtednessrelatingtoComcastsharesthatweresettledbydeliveringcashequaltothecollateralizedloanvalue,netofthevalueoftherelatedequityderivativecontracts.
ThecashwasobtainedfromtheproceedsofnewmonetizationcontractscoveringanequivalentnumberofComcastshares.ThetermsofthenewcontractsallowtheCompanytoretainupsideparticipationinComcastsharesuptoeachrespectivecontract'supsideappreciationlimitwithdownsideexposurelimitedtotherespectivehedgeprice.
InJanuary2017,theCompanysettledcollateralizedindebtednessrelatingto5,337,750Comcastshares(adjustedforthe2for1stocksplitinFebruary2017)bydeliveringcashequaltothecollateralizedloanvalueobtainedfromtheproceedsofanewmonetizationcontractcoveringanequivalentnumberofComcastshares.Accordingly,theconsolidatedbalancesheetoftheCompanyasofDecember31,2016reflectthereclassificationof$184,286ofinvestmentsecuritiespledgedascollateralfromacurrentassettoalong-termassetand$150,036ofcollateralizedindebtednessfromacurrentliabilitytoalong-termliability.
NOTE 11. FAIR VALUE MEASUREMENT
Thefairvaluehierarchyisbasedoninputstovaluationtechniquesthatareusedtomeasurefairvaluethatareeitherobservableorunobservable.Observableinputsreflectassumptionsmarketparticipantswoulduseinpricinganassetorliabilitybasedonmarketdataobtainedfromindependentsourceswhileunobservableinputsreflectareportingentity'spricingbasedupontheirownmarketassumptions.Thefairvaluehierarchyconsistsofthefollowingthreelevels:
• LevelI—Quotedpricesforidenticalinstrumentsinactivemarkets.
• LevelII—Quotedpricesforsimilarinstrumentsinactivemarkets;quotedpricesforidenticalorsimilarinstrumentsinmarketsthatarenotactive;andmodel-derivedvaluationswhoseinputsareobservableorwhosesignificantvaluedriversareobservable.
• LevelIII—Instrumentswhosesignificantvaluedriversareunobservable.
F-35
Numberofshares(a) 5,337,750Collateralizedindebtednesssettled $ (143,102)Derivativecontractssettled —
(143,102)Proceedsfromnewmonetizationcontracts 179,388Netcashreceipt $ 36,286
(a) Shareamountswereadjustedforthe2for1stocksplitinFebruary2017.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 11. FAIR VALUE MEASUREMENT (Continued)
Thefollowingtablepresentsforeachofthesehierarchylevels,theCompany'sfinancialassetsandfinancialliabilitiesthataremeasuredatfairvalueonarecurringbasis:
TheCompany'scashequivalents,investmentsecuritiesandinvestmentsecuritiespledgedascollateralareclassifiedwithinLevelIofthefairvaluehierarchybecausetheyarevaluedusingquotedmarketprices.
TheCompany'sderivativecontractsandliabilitiesunderderivativecontractsontheCompany'sbalancesheetsarevaluedusingmarket-basedinputstovaluationmodels.Thesevaluationmodelsrequireavarietyofinputs,includingcontractualterms,marketprices,yieldcurves,andmeasuresofvolatility.Whenappropriate,valuationsareadjustedforvariousfactorssuchasliquidity,bid/offerspreadsandcreditriskconsiderations.Suchadjustmentsaregenerallybasedonavailablemarketevidence.Sincemodelinputscangenerallybeverifiedanddonotinvolvesignificantmanagementjudgment,theCompanyhasconcludedthattheseinstrumentsshouldbeclassifiedwithinLevelIIofthefairvaluehierarchy.
Fair Value of Financial Instruments
Thefollowingmethodsandassumptionswereusedtoestimatefairvalueofeachclassoffinancialinstrumentsforwhichitispracticabletoestimate:
Credit Facility Debt, Collateralized Indebtedness, Senior Notes and Debentures, Senior Secured Notes, Senior Guaranteed Notes, Notes Payable to Affiliates andNotes Payable
ThefairvaluesofeachoftheCompany'sdebtinstrumentsarebasedonquotedmarketpricesforthesameorsimilarissuesoronthecurrentratesofferedtotheCompanyforinstrumentsofthesameremainingmaturities.Thefairvalueofnotespayableisbasedprimarilyonthepresentvalueoftheremainingpaymentsdiscountedattheborrowingcost.
F-36
At December 31, 2016 (Successor) Level I Level II Level III Total Assets: Moneymarketfunds $ 100,139 $ — $ — $ 100,139Investmentsecuritiespledgedascollateral 1,483,030 — — 1,483,030Prepaidforwardcontracts — 10,956 — 10,956
Liabilities: Prepaidforwardcontracts — 13,158 — 13,158Interestrateswapcontracts 78,823 78,823
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 11. FAIR VALUE MEASUREMENT (Continued)
Thecarryingvalues,estimatedfairvalues,andclassificationunderthefairvaluehierarchyoftheCompany'sfinancialinstruments,excludingthosethatarecarriedatfairvalueintheaccompanyingconsolidatedbalancesheets,aresummarizedasfollows:
ThefairvalueestimatesrelatedtotheCompany'sdebtinstrumentspresentedabovearemadeataspecificpointintime,basedonrelevantmarketinformationandinformationaboutthefinancialinstrument.Theseestimatesaresubjectiveinnatureandinvolveuncertaintiesandmattersofsignificantjudgmentsandthereforecannotbedeterminedwithprecision.Changesinassumptionscouldsignificantlyaffecttheestimates.
NOTE 12. INCOME TAXES
TheCompanyfilesafederalconsolidatedandcertainstatecombinedincometaxreturnswithits80%ormoreownedsubsidiaries.InconnectionwiththecontributionofcommonstockofCequeltotheCompany,CequeljoinedtheCompany'sfederalconsolidatedgroup.CablevisionjoinedtheCompany'sfederalconsolidatedgroupontheCablevisionAcquisitionDate.
F-37
December 31, 2016
Fair Value Hierarchy
Carrying Amount(a)
Estimated Fair Value
AlticeUSAdebtinstruments: Notespayabletoaffiliates LevelII $ 1,750,000 1,837,876
CSCHoldingsdebtinstruments: Creditfacilitydebt LevelII 2,631,887 2,675,256Collateralizedindebtedness(b) LevelII 1,286,069 1,280,048Seniorguaranteednotes LevelII 2,289,494 2,416,375Seniornotesanddebentures(c) LevelII 6,732,816 7,731,150Notespayable LevelII 13,726 13,260
Cablevisionseniornotes(d) LevelII 2,742,082 2,920,056Cequeldebtinstruments: Cequelcreditfacility LevelII 812,903 815,000SeniorSecuredNotes LevelII 1,079,869 1,152,250SeniorNotes LevelII 4,663,064 5,054,775
$ 24,001,910 $ 25,896,046
(a) Amountsarenetofunamortizeddeferredfinancingcostsanddiscounts.
(b) Thetotalcarryingvalueofthecollateralizeddebtwasreducedby$9,142toreflectitsfairvalueontheOptimumAcquisitionDate.
(c) ThetotalcarryingvalueoftheseniornotesanddebenturesassumedinconnectionwiththeOptimumAcquisitionwasreducedby$39,713toreflectthefairvalueofthenotesontheOptimumAcquisitionDate.
(d) ThetotalcarryingvalueoftheseniornotesanddebenturesassumedinconnectionwiththeOptimumAcquisitionwasreducedby$13,075toreflectthefairvalueofthenotesontheOptimumAcquisitionDate.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 12. INCOME TAXES (Continued)
IncometaxbenefitattributabletotheCompany'scontinuingoperationsfortheyearendedDecember31,2016consistofthefollowingcomponents:
TheincometaxbenefitattributabletotheCompany'scontinuingoperationsdiffersfromtheamountderivedbyapplyingthestatutoryfederalratetopretaxincomeprincipallyduetotheeffectofthefollowingitems:
AsdescribedinNote1,inJune,2016,(i)CequelwascontributedtoAlticeUSAand(ii)AlticeUSAcompletedtheCablevisionAcquisition.Accordingly,inthesecondquarterof2016,CequelandCablevisionjoinedthefederalconsolidatedandcertainstatecombinedincometaxreturnsofAlticeUSA.Asaresult,theapplicatetaxrateusedtomeasuredeferredtaxassetsandliabilitiesofCequelincreased,resultinginanon-cashdeferredincometaxchargeof$153,660.
Inthefourthquarterof2016,ASU2015-17wasadoptedwithprospectiveapplication.Accordingly,alldeferredtaxassetsandliabilitiesarepresentedasnoncurrentintheconsolidatedbalancesheetasofDecember31,2016.
F-38
Currentexpense(benefit): Federal $ (981)State 5,310
4,329Deferredbenefit: Federal (223,159)State (40,830)
(263,989)Taxbenefitrelatingtouncertaintaxpositions (6)Incometaxbenefit $ (259,666)
December 31,
2016 Federaltaxbenefitatstatutoryrate $ (381,901)Stateincometaxes,netoffederalimpact (39,336)Changesinthevaluationallowance 297Changesinthestateratesusedtomeasuredeferredtaxes,netoffederalimpact 153,239Taxbenefitrelatingtouncertaintaxpositions (120)Non-deductibleshare-basedcompensationrelatedtothecarriedunitplan 5,029Non-deductibleOptimumAcquisitiontransactioncosts 4,457Othernon-deductibleexpenses 1,551Researchcredit (400)Other,net (2,482)Incometaxbenefit $ (259,666)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 12. INCOME TAXES (Continued)
ThetaxeffectsoftemporarydifferenceswhichgiverisetosignificantportionsofdeferredtaxassetsorliabilitiesandthecorrespondingvaluationallowanceatDecember31,2016areasfollows.
TheCablevisionAcquisitionresultedinanownershipchangeunderInternalRevenueCode("IRC")Section382andcertainstatetaxingauthoritieswherebyCablevision'sfederalnetoperatinglosses("NOLs")immediatelypriortotheCablevisionAcquisitionof$877,975willbesubjecttocertainlimitations.TheSuddenlinkAcquisitionresultedinathirdownershipchangewithregardtoCequelNOLs.UtilizationofCequelNOLsof$1,709,263arelimitedunderIRCSection382.TheutilizationoftheNOLswillbedeterminedbasedontheorderingrulesrequiredbytheapplicabletaxingjurisdiction.Sincethelimitationamountsaccumulateforfutureusetotheextenttheyarenotutilizedinanygivenyear,theCompanybelievesitslosscarryforwardsshouldbecomefullyavailabletooffsetfuturetaxableincome.
AtDecember31,2016,theCompanyhadconsolidatedfederalNOLsof$3,078,119expiringonvariousdatesfrom2019through2036.TheCompanyhasrecordedadeferredtaxassetrelatedto$2,302,619ofsuchNOLs.AdeferredtaxassethasnotbeenrecordedfortheremainingNOLof$775,500asthisportionrelatesto'windfall'deductionsonshare-basedawardsthathavenotyetbeenrealized.InconnectionwiththeadoptionofASU2016-09inthefirstquarterof2017,thedeferredtaxassetforsuchwindfalldeductionswillberecordedtoaccumulateddeficitintheamountofapproximately$309,000.
AsofDecember31,2016,theCompanyhas$43,215offederalalternativeminimumtaxcreditcarryforwardswhichdonotexpireand$18,672ofresearchcredits,expiringinvaryingamountsfrom2023through2036.
F-39
December 31,
2016 NOLsandtaxcreditcarryforwards $ 971,728Compensationandbenefitplans 93,939Partnershipinvestments 113,473Restructuringliability 37,393Otherliabilities 45,561Liabilitiesunderderivativecontracts 31,529Interestdeferredfortaxpurposes 39,633Other 6,615Deferredtaxasset 1,339,871
Valuationallowance (3,125)Netdeferredtaxasset,noncurrent 1,336,746
Fixedassetsandintangibles (9,065,635)Investments (187,795)Prepaidexpenses (10,172)Fairvalueadjustment-debtanddeferredfinancecosts (30,535)Other (9,424)Deferredtaxliability,noncurrent (9,303,561)
Totalnetdeferredtaxliability $ (7,966,815)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 12. INCOME TAXES (Continued)
DeferredtaxassetshaveresultedprimarilyfromtheCompany'sfuturedeductibletemporarydifferencesandNOLs.Inassessingtherealizabilityofdeferredtaxassets,managementconsiderswhetheritismorelikelythannotthatsomeportionorallofthedeferredtaxassetwillnotberealized.Inevaluatingtheneedforavaluationallowance,managementtakesintoaccountvariousfactors,includingtheexpectedleveloffuturetaxableincome,availabletaxplanningstrategiesandreversalsofexistingtaxabletemporarydifferences.Ifsuchestimatesandrelatedassumptionschangeinthefuture,theCompanymayberequiredtorecordadditionalvaluationallowancesagainstitsdeferredtaxassets,resultinginadditionalincometaxexpenseintheCompany'sconsolidatedstatementsofincome.Managementevaluatestherealizabilityofthedeferredtaxassetsandtheneedforadditionalvaluationallowancesquarterly.PursuanttotheCablevisionAcquisitionandCequelAcquisition,deferredtaxliabilitiesresultingfromthebookfairvalueadjustmentincreasedsignificantlyandfuturetaxableincomethatwillresultfromthereversalofexistingtaxabletemporarydifferencesforwhichdeferredtaxliabilitiesarerecognizedissufficienttoconcludeitismorelikelythannotthattheCompanywillrealizeallofitsgrossdeferredtaxassets,exceptthosedeferredtaxassetsagainstwhichavaluationallowancehasbeenrecordedwhichrelatetocertainstateNOLs.
Inthenormalcourseofbusiness,theCompanyengagesintransactionsinwhichtheincometaxconsequencesmaybeuncertain.TheCompany'sincometaxreturnsarefiledbasedoninterpretationoftaxlawsandregulations.Suchincometaxreturnsaresubjecttoexaminationbytaxingauthorities.Forfinancialstatementpurposes,theCompanyonlyrecognizestaxpositionsthatitbelievesaremorelikelythannotofbeingsustained.Thereisconsiderablejudgmentinvolvedindeterminingwhetherpositionstakenorexpectedtobetakenonthetaxreturnaremorelikelythannotofbeingsustained.
Areconciliationofthebeginningandendingamountofunrecognizedtaxbenefitsassociatedwithuncertaintaxpositions,excludingassociateddeferredtaxbenefitsandaccruedinterest,isasfollows:
AsofDecember31,2016,ifalluncertaintaxpositionsweresustainedattheamountsreportedorexpectedtobereportedintheCompany'staxreturns,theeliminationoftheCompany'sunrecognizedtaxbenefits,netofthedeferredtaximpact,woulddecreaseincometaxexpenseby$5,185.
Inthesecondquarterof2016,theCompanychangeditsaccountingpolicyonaprospectivebasistopresentinterestexpenserelatingtouncertaintaxpositionsasadditionalinterestexpense.IntheperiodendedDecember31,2016,$309ofinterestexpenserelatingtouncertaintaxpositionwasrecordedtointerestexpense.
ThemostsignificantjurisdictionsinwhichtheCompanyisrequiredtofileincometaxreturnsincludethestatesofNewYork,NewJerseyandConnecticutandtheCityofNewYork,TexasandWestVirginia.TheStateofNewYorkispresentlyauditingincometaxreturnsforyears2009through2011.
ManagementdoesnotbelievethattheresolutionoftheongoingincometaxexaminationdescribedabovewillhaveamaterialadverseimpactonthefinancialpositionoftheCompany.Changesinthe
F-40
BalanceatJanuary1,2016 $ —IncreasetotaxpositioninconnectionwiththeCablevisionAcquisition 4,031Decreasesrelatedtoprioryeartaxpositions (6)
BalanceatDecember31,2016 $ 4,025
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 12. INCOME TAXES (Continued)
liabilitiesforuncertaintaxpositionswillberecognizedintheinterimperiodinwhichthepositionsareeffectivelysettledorthereisachangeinfactualcircumstances.
NOTE 13. BENEFIT PLANS
Qualified and Non-qualified Defined Benefit Plans
RetirementPlans(collectively,the"DefinedBenefitPlans")
TheCompanysponsorsanon-contributoryqualifieddefinedbenefitcashbalanceretirementplan(the"PensionPlan")forthebenefitofnon-unionemployeesofCablevision,aswellascertainemployeescoveredbyacollectivebargainingagreementinBrooklyn.
TheCompanymaintainsanunfundednon-contributorynon-qualifieddefinedbenefitexcesscashbalanceplan("ExcessCashBalancePlan")coveringcertaincurrentandformeremployeesofCablevisionwhoparticipateinthePensionPlan,aswellasanadditionalunfundednon-contributory,non-qualifieddefinedbenefitplan("CSCSupplementalBenefitPlan")forthebenefitofcertainformerofficersandemployeesofCablevisionwhichprovidedthat,uponretiringonorafternormalretirementage,aparticipantreceivesabenefitequaltoaspecifiedpercentageoftheparticipant'saveragecompensation,asdefined.Allparticipantswere100%vestedintheCSCSupplementalBenefitPlan.ThebenefitsrelatedtotheCSCSupplementalPlanwerepaidtoparticipantsinJanuary2017andtheplanwasterminated.
Cablevision'sPensionPlanandtheExcessCashBalancePlanarefrozenandnoemployeeofCablevisionwhowasnotalreadyaparticipantcouldparticipateintheplansandnofurtherannualPayCredits(acertainpercentageofemployees'eligiblepay)aremade.Existingaccountbalancesundertheplanscontinuetobecreditedwithmonthlyinterestinaccordancewiththetermsoftheplans.
Plan Results for Defined Benefit Plans
SummarizedbelowisthefundedstatusandtheamountsrecordedontheCompany'sconsolidatedbalancesheetsforalloftheCompany'sDefinedBenefitPlansatDecember31,2016:
F-41
Changeinprojectedbenefitobligation: Projectedbenefitobligationatbeginningofyear $ 403,963Servicecost —Interestcost 14,077Actuarialgain (11,429)Curtailments 3,968Benefitspaid (28,062)Projectedbenefitobligationatendofyear 382,517
Changeinplanassets: Fairvalueofplanassetsatbeginningofyear 297,846Actualreturnonplanassets,net 5,829Employercontributions 8,505Benefitspaid (28,062)Fairvalueofplanassetsatendofyear 284,118
Unfundedstatusatendofyear $ (98,399)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 13. BENEFIT PLANS (Continued)
TheaccumulatedbenefitobligationfortheCompany'sDefinedBenefitPlansaggregated$382,517atDecember31,2016.
TheCompany'snetfundedstatusrelatingtoitsDefinedBenefitPlansatDecember31,2016,isasfollows:
Componentsofthenetperiodicbenefitcost,recordedinotheroperatingexpenses,fortheDefinedBenefitPlansfortheyearendedDecember31,2016,isasfollows:
Plan Assumptions for Defined Benefit Plans
Weighted-averageassumptionsusedtodeterminenetperiodiccost(madeatthebeginningoftheyear)andbenefitobligations(madeattheendoftheyear)fortheDefinedBenefitPlansareasfollows:
F-42
DefinedBenefitPlans $ (98,399)Less:Currentportionrelatedtononqualifiedplans 14,293Long-termdefinedbenefitplanobligations $ (84,106)
Servicecost $ —Interestcost 6,946Expectedreturnonplanassets,net (4,022)Curtailmentloss 231Settlementincome(reclassifiedfromaccumulatedothercomprehensiveloss)(a) (154)Netperiodicbenefitcost $ 3,001
(a) AsaresultofbenefitpaymentstoterminatedorretiredindividualsexceedingtheserviceandinterestcostsforthePensionPlanandtheExcessCashBalancePensionPlanduringtheperiodJune21,2016throughDecember31,2016,theCompanyrecognizedanon-cashsettlementlossthatrepresentedtheaccelerationoftherecognitionofaportionofthepreviouslyunrecognizedactuariallossesrecordedinaccumulatedothercomprehensivelossontheCompany'sconsolidatedbalancesheetrelatingtotheseplans.
Net Periodic Benefit Cost Benefit Obligations
June 21, 2016 to
December 31, 2016 December 31, 2016 Discountrate(a) 3.53% 3.81%Rateofincreaseinfuturecompensationlevels —% —%Expectedrateofreturnonplanassets(PensionPlanonly) 3.97% N/A
(a) Thediscountrateof3.53%fortheperiodJune21,2016throughDecember31,2016,representstheaverageofthequarterlydiscountratesusedtoremeasuretheCompany'sprojectedbenefitobligationandnetperiodicbenefitcostinconnectionwiththerecognitionofsettlementlossesdiscussedabove.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 13. BENEFIT PLANS (Continued)
ThediscountrateusedbytheCompanyincalculatingthenetperiodicbenefitcostfortheCashBalancePlanandtheExcessCashBalancePlanwasdeterminedbasedontheexpectedfuturebenefitpaymentsfortheplansandfromtheTowersWatsonU.S.RateLink:40-90DiscountRateModel.Themodelwasdevelopedbyexaminingtheyieldsonselectedhighlyratedcorporatebonds.
TheCompany'sexpectedlong-termreturnonPensionPlanassetsisbasedonaperiodicreviewandmodelingoftheplan'sassetallocationstructureoveralong-termhorizon.Expectationsofreturnsandriskforeachassetclassarethemostimportantoftheassumptionsusedinthereviewandmodelingandarebasedoncomprehensivereviewsofhistoricaldata,forwardlookingeconomicoutlook,andeconomic/financialmarkettheory.Theexpectedlong-termrateofreturnwaschosenasabestestimateandwasdeterminedby(a)historicalrealreturns,netofinflation,fortheassetclassescoveredbytheinvestmentpolicy,and(b)projectionsofinflationoverthelong-termperiodduringwhichbenefitsarepayabletoplanparticipants.
Pension Plan Assets and Investment Policy
TheweightedaverageassetallocationsofthePensionPlanatDecember31,2016isasfollows:
ThePensionPlan'sinvestmentobjectivesreflectanoveralllowrisktolerancetostockmarketvolatility.ThisstrategyallowsforthePensionPlantoinvestinportfoliosthatwouldobtainarateofreturnthroughouteconomiccycles,commensuratewiththeinvestmentriskandcashflowneedsofthePensionPlan.TheinvestmentsheldinthePensionPlanarereadilymarketableandcanbesoldtofundbenefitpaymentobligationsoftheplanastheybecomepayable.
InvestmentallocationdecisionsareformallymadebytheCompany'sBenefitCommittee,whichtakesintoaccountinvestmentadviceprovidedbyitsexternalinvestmentconsultant.Theinvestmentconsultanttakesintoaccountexpectedlong-termrisk,return,correlation,andotherprudentinvestmentassumptionswhenrecommendingassetclassesandinvestmentmanagerstotheCompany'sInvestmentandBenefitCommittee.ThemajorcategoriesofthePensionPlanassetsarecashequivalentsandbondswhicharemarked-to-marketonadailybasis.DuetothePensionPlan'ssignificantholdingsinlong-termgovernmentandnon-governmentfixedincomesecurities,thePensionPlan'sassetsaresubjectedtointerestraterisk;specifically,arisinginterestrateenvironment.Consequently,anincreaseininterestratesmaycauseadecreasetotheoverallliabilityofthePensionPlanthuscreatingahedgeagainstrisinginterestrates.Inaddition,aportionofthePensionPlan'sbondportfolioisinvestedinforeigndebtsecuritieswheretherecouldbeforeigncurrencyrisksassociatedwiththem,aswellasinnon-governmentsecuritieswhicharesubjecttocreditriskofthebondissuerdefaultingoninterestand/orprincipalpayments.
F-43
Plan Assets AssetClass: Mutualfunds 43%Fixedincomesecurities 55Cashequivalentsandother 2
100%
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 13. BENEFIT PLANS (Continued)
Investments at Estimated Fair Value
ThefairvaluesoftheassetsofthePensionPlanatDecember31,2016byassetclassareasfollows:
ThefairvaluesofmutualfundsandcashequivalentswerederivedfromquotedmarketpricesthatthePensionPlanadministratorhastheabilitytoaccess.
Thefairvaluesofcorporateandgovernmentdebt,treasurysecuritiesandasset-backsecuritieswerederivedfrombidsreceivedfromavendororbrokernotavailableinanactivemarketthatthePensionPlanadministratorhastheabilitytoaccess.
Benefit Payments and Contributions for Defined Benefit Plans
Thefollowingbenefitpaymentsareexpectedtobepaid:
TheCompanycurrentlyexpectstocontributeapproximately$12,700tothePensionPlanin2017.
Defined Contribution Plans
TheCompanymaintainstheCablevision401(k)SavingsPlan,acontributoryqualifieddefinedcontributionplanforthebenefitofnon-unionemployeesofCablevision.ParticipantscancontributeapercentageofeligibleannualcompensationandtheCompanywillmakeamatchingcashcontribution
F-44
Asset Class Level I Level II Level III Total Mutualfunds $ 121,356 $ — $ — $ 121,356Fixedincomesecuritiesheldinaportfolio: Foreignissuedcorporatedebt — 13,583 — 13,583U.S.corporatedebt — 48,046 — 48,046Governmentdebt — 4,810 — 4,810U.S.Treasurysecurities — 77,285 — 77,285Asset-backedsecurities — 14,065 — 14,065Other — 247 — 247
Cashequivalents(a) 2,593 3,089 — 5,682Total(b) $ 123,949 $ 161,125 $ — $ 285,074
(a) Asignificantportionrepresentsaninvestmentinashort-terminvestmentfundthatinvestsprimarilyinsecuritiesofhighqualityandlowrisk.
(b) ExcludescashandnetpayablesrelatingtothepurchaseofsecuritiesthatwerenotsettledasofDecember31,2016.
2017 $ 45,8992018 28,8122019 27,5652020 28,3992021 25,6922022-2026 120,664
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 13. BENEFIT PLANS (Continued)
ordiscretionarycontribution,asdefinedintheplan.Inaddition,theCompanymaintainsanunfundednon-qualifiedexcesssavingsplanforwhichtheCompanyprovidesamatchingcontributionsimilartotheCablevision401(k)SavingsPlan.ApplicableemployeesoftheCompanyareeligibleforanenhancedemployermatchingcontribution,aswellasayear-endemployerdiscretionarycontributiontotheCablevision401(k)SavingsPlanandtheCablevisionExcessSavingsPlan.
TheCompanyalsomaintainsa401(k)planforemployeesofCequel.CequelemployeesthatqualifyforparticipationcancontributeapercentageofeligibleannualcompensationandtheCompanywillmakeamatchingcashcontribution,asdefinedintheplan.
Thecostassociatedwiththeseplans(includingtheenhancedemployermatchinganddiscretionarycontributions)was$28,501fortheyearendedDecember31,2016.
NOTE 14. EQUITY AND LONG-TERM INCENTIVE PLANS
Equity Plans
InJuly2016,certainemployeesoftheCompanyanditsaffiliatesreceivedawardsofunitsinacarriedunitplanofanentitywhichhasanownershipinterestintheCompany.Theawardsgenerallywillvestasfollows:50%onthesecondanniversaryofJune21,2016forCablevisionemployeesorDecember21,2015forCequelemployees("BaseDate"),25%onthethirdanniversaryoftheBaseDate,and25%onthefourthanniversaryoftheBaseDate.Priortothefourthanniversary,theCompanyhastherighttorepurchasevestedawardsheldbyemployeesupontheirtermination.Fortheperformance-basedawards,vestingoccursuponachievementorsatisfactionofaspecifiedperformancecondition.TheCompanyconsideredtheprobabilityofachievingtheestablishedperformancetargetsindeterminingtheequity-basedcompensationwithrespecttotheseawardsattheendofeachreportingperiod.Thecarriedunitplanhas259,442,785unitsauthorizedforissuance,ofwhich147,700,000havebeenissuedtoemployeesoftheCompanyand55,100,000havebeenissuedtoemployeesofAlticeN.V.andaffiliatedcompanies.
TheCompanymeasuresthecostofemployeeservicesreceivedinexchangeforcarriedunitsbasedonthefairvalueoftheawardatgrantdate.Anoptionpricingmodelwasusedwhichrequiressubjectiveassumptionsforwhichchangesintheseassumptionscouldmateriallyaffectthefairvalueofthecarriedunitsoutstanding.Thetimetoliquidityeventassumptionwasbasedonmanagement'sjudgment.Theequityvolatilityassumptionof60%wasestimatedusingthehistoricalweeklyvolatilityofpubliclytradedcomparablecompanies.Therisk-freerateof0.74%assumedinvaluingtheunitswasbasedontheU.S.ConstantMaturityTreasuryRatesforaperiodmatchingtheexpectedtimetoliquidityevent.Thediscountforlackofmarketabilityof20%wasbasedonFinnerty's(2012)average-strikeputoptionmodel.Theweightedaveragegrantdatefairvalueoftheoutstandingunitsis$0.37pershareandthefairvaluewas$1.76pershareasofDecember31,2016.FortheyearendedDecember31,2016,theCompanyrecognizedanexpenseof$14,368relatedtothepushdownofshare-basedcompensationrelatedtothecarriedunitplanofwhichapproximately$9,849relatedtounitsgrantedtoemployeesoftheCompanyand$4,519relatedtoemployeesofAlticeN.V.andaffiliatedcompaniesallocatedtotheCompany.
BeginningonthefourthanniversaryoftheBaseDate,theholdersofcarriedunitshaveanannualopportunity(asixtydayperioddeterminedbytheadministratoroftheplan)toselltheirunitsbackto
F-45
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 14. EQUITY AND LONG-TERM INCENTIVE PLANS (Continued)
theCompany.Accordingly,thecarriedunitsarepresentedastemporaryequityontheconsolidatedbalanceatfairvalue.Adjustmentstofairvalueateachreportingperiodarerecordedinpaidincapital.
NOTE 15. AFFILIATE AND RELATED PARTY TRANSACTIONS
Equity Method Investments
InJuly2016,theCompanycompletedthesaleofa75%interestinNewsdayLLCtoanemployeeoftheCompany.TheCompanyretainedtheremaining25%ownershipinterest.EffectiveJuly7,2016,theoperatingresultsofNewsdayarenolongerconsolidatedwiththoseoftheCompanyandtheCompany's25%interestintheoperatingresultsofNewsdayisrecordedontheequitybasis.
AtDecember31,2016,theCompany'sinvestmentinNewsdaywas$3,640andisincludedininvestmentsinaffiliatesonourconsolidatedbalancesheet.FortheperiodJuly8,2016toDecember31,2016,theCompanyrecordedequityinnetlossofNewsdayof$1,132.
InDecember2016,theCompanymadeaninvestmentof$1,966inI24NEWS,AlticeN.V.'s24/7internationalnewsandcurrentaffairschannel,representinga25%ownershipinterest,whichisincludedininvestmentsinaffiliatesonourconsolidatedbalancesheetatDecember31,2016.The75%interestisownedbyasubsidiaryofAlticeN.V.TheoperatingresultsofI24NEWSwillberecordedonanequitybasisuponcommencementofoperationsin2017.
Affiliate and Related Party Transactions
Asthetransactionsdiscussedbelowwereconductedbetweensubsidiariesundercommoncontrol,amountschargedforcertainservicesmaynothaverepresentedamountsthatmighthavebeenreceivedorincurredifthetransactionswerebaseduponarm'slengthnegotiations.
ThefollowingtablesummarizestherevenueandchargesrelatedtoservicesprovidedtoorreceivedfromsubsidiariesofAlticeN.V.andNewsdayfortheyearendedDecember31,2016:
F-46
Revenue $ 1,086Operatingexpenses: Programmingandotherdirectcosts $ (1,947)Otheroperatingexpenses (18,854)Operatingexpenses,net (20,801)
Interestexpense(a) (112,712)Netcharges $ (132,427)CapitalExpenditures $ 45,886
(a) SeeNote9foradiscussionofinterestexpenserelatedtonotespayabletoaffiliatesandrelatedpartiesof$102,557,aswellasforinterestexpenseof$10,155relatedtotheHoldcoNotespriortotheexchange.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 15. AFFILIATE AND RELATED PARTY TRANSACTIONS (Continued)
Revenue
TheCompanyrecognizedrevenueinconnectionwithsaleofadvertisingtoNewsday.
Programming and other direct costs
ProgrammingandotherdirectcostsincludescostsincurredbytheCompanyforthetransportandterminationofvoiceanddataservicesprovidedbyasubsidiaryofAlticeN.V.
Other operating expenses
AsubsidiaryofAlticeN.V.providescertainexecutiveservices,includingCEO,CFOandCOOservices,totheCompany.Compensationunderthetermsoftheagreementisanannualfeeof$30,000tobepaidbytheCompany.FeesassociatedwiththisagreementrecordedbytheCompanyamountedtoapproximately$20,556fortheyearendedDecember31,2016.
OtheroperatingexpensesincludesadvertisingpurchasedfromNewsdayof$705andITconsultingservicesof$182providedbyanAlticeN.V.subsidiary,partiallyoffsetbyacreditof$2,589fortransitionservicesprovidedtoNewsday.
Capital expenditures
TheCompanypurchasedequipmentof$44,121fromAlticeManagementInternationaland$1,025fromanotherAlticeN.V.subsidiary.Inaddition,theCompanyacquiredcertainsoftwaredevelopmentservicesthatwerecapitalizedfromAlticeLabsS.A.aggregating$740.
AggregateamountsthatwereduefromandduetorelatedpartiesatDecember31,2016issummarizedbelow:
F-47
Duefrom: AlticeUSFinanceS.A.(a) $ 12,951Newsday(b) 6,114AlticeManagementAmericas(b) 3,117
$ 22,182Dueto: CVC3BV(c) 71,655NeptuneHoldingsUSLP(c) 7,962AlticeManagementInternational(d) 44,121Newsday(b) 275OtherAlticesubsidiaries(b) 3,350
$ 127,363
(a) RepresentsinterestonseniornotespaidbytheCompanyonbehalfoftheaffiliate.
(b) RepresentsamountspaidbytheCompanyonbehalfoftherespectiverelatedpartyand/orthenetamountsduefromtherelatedpartyforservicesprovided.
(c) Representsdividendspayabletoshareholders.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 15. AFFILIATE AND RELATED PARTY TRANSACTIONS (Continued)
SeeNote9foradiscussionofnotespayabletoaffiliates.
NOTE 16. COMMITMENTS AND CONTINGENCIES
Commitments
FuturecashpaymentsandcommitmentsrequiredunderarrangementspursuanttocontractsenteredintobytheCompanyinthenormalcourseofbusinessasofDecember31,2016areasfollows:
Thetableabovedoesnotincludeobligationsforpaymentsrequiredtobemadeundermulti-yearfranchiseagreementsbasedonapercentageofrevenuesgeneratedfromvideoserviceperyear.
ManyoftheCompany'sfranchiseagreementsandutilitypoleleasesrequiretheCompanytoremoveitscablewiresandotherequipmentuponterminationoftherespectiveagreements.TheCompanyhasconcludedthatthefairvalueoftheseassetretirementobligationscannotbereasonablyestimatedsincetherangeofpotentialsettlementdatesisnotdeterminable.
F-48
(d) Representsamountsdueforequipmentpurchasesandsoftwaredevelopmentservicesdiscussedabove.
Payments Due by Period
Total Year 1 Years 2 - 3 Years 4 - 5 More than
5 years Offbalancesheetarrangements: Purchaseobligations(a) $ 7,136,605 $ 2,396,634 $ 3,307,915 $ 1,394,318 $ 37,738Guarantees(b) 19,793 3,909 15,884 — —Lettersofcredit(c) 114,251 220 14,297 99,734 —Total $ 7,270,649 $ 2,400,763 $ 3,338,096 $ 1,494,052 $ 37,738
(a) Purchaseobligationsprimarilyincludecontractualcommitmentswithvariousprogrammingvendorstoprovidevideoservicestocustomersandminimumpurchaseobligationstopurchasegoodsorservices.Futurefeespayableundercontractswithprogrammingvendorsarebasedonnumerousfactors,includingthenumberofsubscribersreceivingtheprogramming.AmountsreflectedaboverelatedtoprogrammingagreementsarebasedonthenumberofsubscribersreceivingtheprogrammingasofDecember2016multipliedbythepersubscriberratesorthestatedannualfee,asapplicable,containedintheexecutedagreementsineffectasofDecember31,2016.
(b) IncludesfranchiseandperformancesuretybondsprimarilyfortheCompany'scabletelevisionsystems.
(c) Representlettersofcreditguaranteeingperformancetomunicipalitiesandpublicutilitiesandpaymentofinsurancepremiums.Paymentsduebyperiodforthesearrangementsrepresenttheyearinwhichthecommitmentexpiresalthoughpaymentsunderthesearrangementsarerequiredonlyintheeventofnonperformance.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 16. COMMITMENTS AND CONTINGENCIES (Continued)
Legal Matters
CableOperationsLitigation
Marchese, et al. v. Cablevision Systems Corporation and CSC Holdings, LLC:
TheCompanyisadefendantinalawsuitfiledintheU.S.DistrictCourtfortheDistrictofNewJerseybyseveralpresentandformerCablevisionsubscribers,purportedlyonbehalfofaclassofiOvideosubscribersinNewJersey,ConnecticutandNewYork.AfterthreeversionsofthecomplaintweredismissedwithoutprejudicebytheDistrictCourt,plaintiffsfiledtheirthirdamendedcomplaintonAugust22,2011,allegingthattheCompanyviolatedSection1oftheShermanAntitrustActbyallegedlytyingthesaleofinteractiveservicesofferedaspartofiOtelevisionpackagestotherentalanduseofset-topboxesdistributedbyCablevision,andviolatedSection2oftheShermanAntitrustActbyallegedlyseekingtomonopolizethedistributionofCablevisioncompatibleset-topboxes.Plaintiffsseekunspecifiedtreblemonetarydamages,attorney'sfees,aswellasinjunctiveanddeclaratoryrelief.OnSeptember23,2011,theCompanyfiledamotiontodismissthethirdamendedcomplaint.OnJanuary10,2012,theDistrictCourtissuedadecisiondismissingwithprejudicetheSection2monopolizationclaim,butallowingtheSection1tyingclaimandrelatedstatecommonlawclaimstoproceed.Cablevision'sanswertothethirdamendedcomplaintwasfiledonFebruary13,2012.OnDecember7,2015,thepartiesenteredintoasettlementagreement,whichissubjecttoapprovalbytheCourt.OnDecember11,2015,plaintiffsfiledamotionforpreliminaryapprovalofthesettlement,conditionalcertificationofthesettlementclass,andapprovalofaclassnoticedistributionplan.OnMarch10,2016theCourtgrantedpreliminaryapprovalofthesettlementandapprovedtheclassnoticedistributionplan.Classnoticedistributionandtheclaimssubmissionprocesshavenowconcluded.TheCourtgrantedfinalapprovalofthesettlementonSeptember12,2016,andtheeffectivedateofthesettlementwasOctober24,2016.TheCompanyrecordedanexpenseof$15,600inconnectionwithsettlement.AsofDecember31,2016,theCompanyhasanestimatedliabilityassociatedwiththesettlementof$6,100representingthecostofbenefitstoclassmembersthatarereasonablyexpectedtobeprovidedandhaspaidout$9,500inattorneys'fees.
In re Cablevision Consumer Litigation:
FollowingexpirationoftheaffiliationagreementsforcarriageofcertainFoxbroadcaststationsandcablenetworksonOctober16,2010,NewsCorporationterminateddeliveryoftheprogrammingfeedstotheCompany,andasaresult,thosestationsandnetworkswereunavailableontheCompany'scabletelevisionsystems.OnOctober30,2010,theCompanyandFoxreachedanagreementonnewaffiliationagreementsforthesestationsandnetworks,andcarriagewasrestored.SeveralpurportedclassactionlawsuitsweresubsequentlyfiledonbehalfoftheCompany'scustomersseekingrecoveryforthelackofFoxprogramming.ThoselawsuitswereconsolidatedinanactionbeforetheU.S.DistrictCourtfortheEasternDistrictofNewYork,andaconsolidatedcomplaintwasfiledinthatcourtonFebruary22,2011.Plaintiffsassertedclaimsforbreachofcontract,unjustenrichment,andconsumerfraud,seekingunspecifiedcompensatorydamages,punitivedamagesandattorneys'fees.OnMarch28,2012,theCourtruledontheCompany'smotiontodismiss,denyingthemotionwithregardtoplaintiffs'breachofcontractclaim,butgrantingitwithregardtotheremainingclaims,whichweredismissed.OnApril16,2012,plaintiffsfiledasecondconsolidatedamendedcomplaint,whichassertsaclaimonlyforbreachofcontract.TheCompany'sanswerwasfiledonMay2,2012.OnOctober10,2012,plaintiffsfiledamotionforclasscertificationandonDecember13,2012,amotionforpartial
F-49
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 16. COMMITMENTS AND CONTINGENCIES (Continued)
summaryjudgment.OnMarch31,2014,theCourtgrantedplaintiffs'motionforclasscertification,anddeniedwithoutprejudiceplaintiffs'motionforsummaryjudgment.OnMay30,2014,theCourtapprovedtheformofclassnotice,andonOctober7,2014,approvedtheclassnoticedistributionplan.Theclassnoticedistributionhasbeencompleted,andtheopt-outperiodexpiredonFebruary27,2015.ExpertdiscoverycommencedonMay5,2014,andconcludedonDecember8and28,2015,whentheCourtruledonthependingexpertdiscoverymotions.OnJanuary26,2016,theCourtapprovedascheduleforfilingofsummaryjudgmentmotions.PlaintiffsfiledamotionforsummaryjudgmentonMarch31,2016.TheCompanyfileditsownsummaryjudgmentmotiononJune13,2016.Thepartiesareactivelyengagedinsettlementdiscussionsalthoughfinancialtermshavenotyetbeenfinalized.Themotionsforsummaryjudgmenthavebeendeniedwithleavetore-fileintheeventthediscussionsbetweenthepartiesarenotsuccessful.IntheperiodendedJune21,2016toDecember31,2016,theCompanyrecordedanestimatedliabilityassociatedwithapotentialsettlementtotaling$5,200.Theamountultimatelypaidinconnectionwithapossiblesettlementcouldexceedtheamountrecorded.
PatentLitigation
CablevisionisnamedasadefendantincertainlawsuitsclaiminginfringementofvariouspatentsrelatingtovariousaspectsoftheCompany'sbusinesses.Incertainofthesecasesotherindustryparticipantsarealsodefendants.IncertainofthesecasestheCompanyexpectsthatanypotentialliabilitywouldbetheresponsibilityoftheCompany'sequipmentvendorspursuanttoapplicablecontractualindemnificationprovisions.TheCompanybelievesthattheclaimsarewithoutmeritandintendstodefendtheactionsvigorously,butisunabletopredicttheoutcomeoftheselawsuitsorreasonablyestimatearangeofpossibleloss.
Inadditiontothemattersdiscussedabove,theCompanyispartytovariouslawsuits,someinvolvingclaimsforsubstantialdamages.AlthoughtheoutcomeoftheseothermatterscannotbepredictedandtheimpactofthefinalresolutionoftheseothermattersontheCompany'sresultsofoperationsinaparticularsubsequentreportingperiodisnotknown,managementdoesnotbelievethattheresolutionoftheseotherlawsuitswillhaveamaterialadverseeffectonthefinancialpositionoftheCompanyortheabilityoftheCompanytomeetitsfinancialobligationsastheybecomedue.
NOTE 17. ALLOWANCE FOR DOUBTFUL ACCOUNTS
ActivityrelatedtotheallowancefordoubtfulaccountsfortheyearendedDecember31,2016:
NOTE 18. SEGMENT INFORMATION
TheCompanyclassifiesitsoperationsintotworeportablesegments:CablevisionandCequel.TheCompany'sreportablesegmentsarestrategicbusinessunitsthataremanagedseparately.TheCompanyevaluatessegmentperformancebasedonseveralfactors,ofwhichtheprimaryfinancialmeasureisbusinesssegmentAdjustedEBITDA,anon-GAAPmeasure.TheCompanydefinesAdjustedEBITDA
F-50
Balance at Beginning of Period
Provision for Bad Debt
Deductions/ Write-Offs and Other
Charges
Balance at End
of Period Allowancefordoubtfulaccounts $ 1,051 $ 53,249 $ (42,623) $ 11,677
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 18. SEGMENT INFORMATION (Continued)
asnetincome(loss)excludingincometaxes,income(loss)fromdiscontinuedoperations,non-operatingotherincomeorexpenses,lossonextinguishmentofdebtandwrite-offofdeferredfinancingcosts,gain(loss)onequityderivativecontracts,gain(loss)oninvestments,interestexpense(includingcashinterestexpense),interestincome,depreciationandamortization(includingimpairments),share-basedcompensationexpenseorbenefit,restructuringexpenseorcreditsandtransactionexpenses.TheCompanyhaspresentedthecomponentsthatreconcileAdjustedEBITDAtooperatingincome,anacceptedGAAPmeasurefortheyearendedDecember31,2016.
AreconciliationofreportablesegmentamountstotheCompany'sconsolidatedbalancesfortheyearendedDecember31,2016isasfollows:
F-51
Cablevision Cequel Total Operatingincome $ 74,865 $ 384,801 $ 459,666Share-basedcompensation 9,164 5,204 14,368Restructuringandotherexpense 212,150 28,245 240,395Depreciationandamortization(includingimpairments) 963,665 736,641 1,700,306AdjustedEBITDA $ 1,259,844 $ 1,154,891 $ 2,414,735
Operatingincomeforreportablesegments $ 459,666Itemsexcludedfromoperatingincome: Interestexpense (1,456,541)Interestincome 13,811Gainoninvestments,net 141,896Lossonequityderivativecontracts,net (53,696)Lossoninterestrateswapcontracts (72,961)Lossonextinguishmentofdebtandwrite-offofdeferredfinancingcosts (127,649)Otherincome,net 4,329
Lossbeforeincometaxes $ (1,091,145)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 18. SEGMENT INFORMATION (Continued)
ThefollowingtablepresentsthecompositionofrevenuebysegmentfortheyearendedDecember31,2016:
CapitalexpendituresfortheyearendedDecember31,2016byreportablesegmentarepresentedbelow:
AllrevenuesandassetsoftheCompany'sreportablesegmentsareattributedtoorlocatedintheUnitedStates.
NOTE 19. UNAUDITED PRO FORMA NET LOSS PER SHARE
TheproformalosspersharedatafortheyearendedDecember31,2016isbasedonourhistoricalstatementofoperationsaftergivingeffecttotheissuanceandsaleofthesharesofcommonstocktobeissuedintheofferingasiftheyoccurredatthebeginningoftheperiod.
F-52
Cablevision Cequel Total Revenue: Residential: Video $ 1,638,691 $ 1,120,525 $ 2,759,216High-speeddata 782,615 834,414 1,617,029Voice 376,034 153,939 529,973
BusinessServices 468,632 350,909 819,541Advertising 157,331 88,371 245,702Other 20,749 25,002 45,751
TotalRevenue $ 3,444,052 $ 2,573,160 $ 6,017,212
Cablevision $ 298,357Cequel 327,184
$ 625,541
Year Ended December 31,
Basic Diluted (Unaudited) Numerator NetlossattributabletoAlticeUSA,Inc. Denominator Weightedaveragesharesofcommonstockoutstanding-basicanddiluted Proformaadjustmenttoreflecttheassumedcontribution Weightedaveragesharesofcommonstockoutstandingusedincomputingtheproformanetincomepershare-basicanddiluted
Proformanetincomepershare-basicanddiluted
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 20. SUBSEQUENT EVENTS
InJanuary2017,CSCHoldingsborrowed$225,000underitsrevolvingcreditfacilityandinFebruary2017,madearepaymentof$175,000withcashonhand.
OnMarch15,2017,CSCHoldingspriced$3,000,000of8.25-yearseniorsecuredtermloanswithinstitutionalinvestors.Thenewseniorsecuredtermloanswillbearinterestat2.25%overLIBOrate.Theclosingofthenewfinancingissubjecttoclosingconditionsandtheproceedswillbeusedtorefinancetheentire$2,500,000principalamountofloansunderCSCHoldingsTermCreditFacilitythatmaturesinOctober2024andredeem$500,000ofthe8.625%SeniorNotesdueSeptember2017issuedbyCablevision.
OnMarch15,2017,AlticeUSFinanceICorporationpriced$1,265,000of8.25-yearseniorsecuredtermloanswithinstitutionalinvestors.Thenewseniorsecuredtermloanswillbearinterestat2.25%overLIBOrate.Theclosingofthenewfinancingissubjecttoclosingconditionsandtheproceedswillbeusedtorefinancethe$815,000principalamountofloansunderthetermloanfacilitythatmaturesinJanuary2025andredeem$450,000ofthe2020Notes.
InApril2017,theCompanymadeacashdistributionof$169,950totheCompany'sstockholders.
F-53
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Report of Independent Registered Public Accounting Firm
TheBoardofDirectorsCablevisionSystemsCorporation:
WehaveauditedtheaccompanyingconsolidatedbalancesheetofCablevisionSystemsCorporationandsubsidiaries(theCompany)asofDecember31,2015andtherelatedconsolidatedstatementsofoperationsandcomprehensiveincome(loss),stockholders'equity(deficiency),andcashflowsfortheperiodfromJanuary1,2016toJune20,2016,andtheyearsendedDecember31,2015and2014.TheseconsolidatedfinancialstatementsaretheresponsibilityoftheCompany'smanagement.Ourresponsibilityistoexpressanopinionontheseconsolidatedfinancialstatementsbasedonouraudits.
WeconductedourauditsinaccordancewiththestandardsofthePublicCompanyAccountingOversightBoard(UnitedStates).Thosestandardsrequirethatweplanandperformtheaudittoobtainreasonableassuranceaboutwhetherthefinancialstatementsarefreeofmaterialmisstatement.Anauditincludesexamining,onatestbasis,evidencesupportingtheamountsanddisclosuresinthefinancialstatements.Anauditalsoincludesassessingtheaccountingprinciplesusedandsignificantestimatesmadebymanagement,aswellasevaluatingtheoverallfinancialstatementpresentation.Webelievethatourauditsprovideareasonablebasisforouropinion.
Inouropinion,theconsolidatedfinancialstatementsreferredtoabovepresentfairly,inallmaterialrespects,thefinancialpositionofCablevisionSystemsCorporationandsubsidiariesasofDecember31,2015,andtheresultsoftheiroperationsandtheircashflowsfortheperiodfromJanuary1,2016toJune20,2016,andtheyearsendedDecember31,2015and2014,inconformitywithU.S.generallyacceptedaccountingprinciples.
F-54
/s/KPMGLLP
NewYork,NewYorkApril10,2017
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CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 2015
(In thousands)
Seeaccompanyingnotestoconsolidatedfinancialstatements.
F-55
ASSETS December 31,
2015 CurrentAssets: Cashandcashequivalents $ 1,003,279Restrictedcash 1,600Accountsreceivable,trade(lessallowancefordoubtfulaccountsof$6,039) 266,383Prepaidexpensesandothercurrentassets 123,242Amountsduefromaffiliates 767Deferredtaxasset 14,596Investmentsecuritiespledgedascollateral 455,386Derivativecontracts 10,333Totalcurrentassets 1,875,586
Property,plantandequipment,netofaccumulateddepreciationof$9,625,348 3,017,015Investmentsecuritiespledgedascollateral 756,596Derivativecontracts 72,075Otherassets 32,920Amortizablecustomerrelationships,netofaccumulatedamortizationof$27,778 11,636Otheramortizableintangibles,netofaccumulatedamortizationof$32,532 25,315Trademarksandotherindefinite-livedintangibleassets 7,250Indefinite-livedcabletelevisionfranchises 731,848Goodwill 262,345Deferredfinancingcosts,netofaccumulatedamortizationof$8,150 7,588
$ 6,800,174
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CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (Continued)
(In thousands, except share and per share amounts)
Seeaccompanyingnotestoconsolidatedfinancialstatements.
F-56
LIABILITIES AND STOCKHOLDERS' DEFICIENCY December 31,
2015 CurrentLiabilities: Accountspayable $ 453,653Accruedliabilities: Interest 119,005Employeerelatedcosts 344,091Otheraccruedexpenses 169,899
Amountsduetoaffiliates 29,729Deferredrevenue 55,545Liabilitiesunderderivativecontracts 2,706Creditfacilitydebt 562,898Collateralizedindebtedness 416,621Capitalleaseobligations 20,350Notespayable 13,267Totalcurrentliabilities 2,187,764
Definedbenefitplanobligations 99,228Otherliabilities 165,768Deferredtaxliability 704,835Creditfacilitydebt 1,951,556Collateralizedindebtedness 774,703Seniornotesanddebentures 5,801,011Capitalleaseobligations 25,616Notespayable 1,277Totalliabilities 11,711,758
Commitmentsandcontingencies
Stockholders'Deficiency: PreferredStock,$.01parvalue,50,000,000sharesauthorized,noneissued —CNYGClassAcommonstock,$.01parvalue,800,000,000sharesauthorized,304,196,703sharesissuedand222,572,210sharesoutstanding 3,042
CNYGClassBcommonstock,$.01parvalue,320,000,000sharesauthorized,54,137,673sharesissuedandoutstanding 541
RMGClassAcommonstock,$.01parvalue,600,000,000sharesauthorized,noneissued —RMGClassBcommonstock,$.01parvalue,160,000,000sharesauthorized,noneissued —Paid-incapital 792,351Accumulateddeficit (4,059,411)
(3,263,477)Treasurystock,atcost(81,624,493CNYGClassAcommonshares) (1,610,167)Accumulatedothercomprehensiveloss (37,672)Totalstockholders'deficiency (4,911,316)
Noncontrollinginterest (268)Totaldeficiency (4,911,584)
$ 6,800,174
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CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Seeaccompanyingnotestoconsolidatedfinancialstatements.
F-57
January 1, 2016 to
June 20, 2016
Year ended December 31,
2015
Year ended December 31,
2014 Revenue(includingrevenuefromaffiliatesof$2,088,$5,343and$5,075,respectively)(SeeNote16) $ 3,137,604 $ 6,545,545 $ 6,508,557Operatingexpenses: Programmingandotherdirectcosts(includingchargesfromaffiliatesof$84,636,$176,909and$179,144,respectively)(SeeNote16) 1,088,555 2,269,290 2,197,735
Otheroperatingexpenses(includingcharges(credits)fromaffiliatesof$2,182,$5,372and$3,878,respectively)(SeeNote16) 1,136,970 2,546,319 2,520,582
Restructuringandotherexpense 22,223 16,213 2,480Depreciationandamortization(includingimpairments) 414,550 865,252 866,502
2,662,298 5,697,074 5,587,299Operatingincome 475,306 848,471 921,258Otherincome(expense): Interestexpense (287,098) (585,764) (576,000)Interestincome 1,590 925 420Gain(loss)oninvestments,net 129,990 (30,208) 129,659Gain(loss)onequityderivativecontracts,net (36,283) 104,927 (45,055)Lossonextinguishmentofdebtandwrite-offofdeferredfinancingcosts — (1,735) (10,120)Otherexpense,net 4,855 6,045 4,988
(186,946) (505,810) (496,108)Incomefromcontinuingoperationsbeforeincometaxes 288,360 342,661 425,150Incometaxexpense (124,848) (154,872) (115,768)
Incomefromcontinuingoperations,netofincometaxes 163,512 187,789 309,382Income(loss)fromdiscontinuedoperations,netofincometaxes — (12,541) 2,822Netincome 163,512 175,248 312,204Netloss(income)attributabletononcontrollinginterests 236 201 (765)NetincomeattributabletoCablevisionSystemsCorporationstockholders $ 163,748 $ 175,449 $ 311,439INCOME PER SHARE: Basic income (loss) per share attributable to Cablevision Systems Corporation stockholder(s): Incomefromcontinuingoperations,netofincometaxes $ 0.60 $ 0.70 $ 1.17Income(loss)fromdiscontinuedoperations,netofincometaxes $ — $ (0.05) $ 0.01Netincome $ 0.60 $ 0.65 $ 1.18Basicweightedaveragecommonshares(inthousands) 272,035 269,388 264,623
Diluted income (loss) per share attributable to Cablevision Systems Corporation stockholder(s): Incomefromcontinuingoperations,netofincometaxes $ 0.58 $ 0.68 $ 1.14Income(loss)fromdiscontinuedoperations,netofincometaxes $ — $ (0.05) $ 0.01Netincome $ 0.58 $ 0.63 $ 1.15Dilutedweightedaveragecommonshares(inthousands) 280,199 276,339 270,703
Amounts attributable to Cablevision Systems Corporation stockholder(s): Incomefromcontinuingoperations,netofincometaxes $ 163,748 $ 187,990 $ 308,617Income(loss)fromdiscontinuedoperations,netofincometaxes — (12,541) 2,822Netincome $ 163,748 $ 175,449 $ 311,439
Cash dividends declared and paid per share of common stock $ — $ 0.45 $ 0.60
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CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
Seeaccompanyingnotestoconsolidatedfinancialstatements.
F-58
January 1, 2016 to
June 20, 2016
Year ended December 31,
2015
Year ended December 31,
2014 Netincome $ 163,512 $ 175,248 $ 312,204Othercomprehensiveincome(loss): Definedbenefitpensionandpostretirementplans(seeNote14): Unrecognizedactuarialgain(loss) 68 2,694 (6,866)Applicableincometaxes (28) (1,106) 2,815Unrecognizedincome(loss)arisingduringperiod,netofincometaxes 40 1,588 (4,051)Amortizationofactuariallosses,netincludedinnetperiodicbenefitcost 929 1,224 2,296Applicableincometaxes (388) (502) (941)Amortizationofactuariallosses,netincludedinnetperiodicbenefitcost,netofincometaxes 541 722 1,355
Settlementlossincludedinnetperiodicbenefitcost 1,655 3,822 5,347Applicableincometaxes (679) (1,569) (2,192)Settlementlossincludedinnetperiodicbenefitcost,netofincometaxes 976 2,253 3,155
Othercomprehensiveincome 1,557 4,563 459Comprehensiveincome 165,069 179,811 312,663Comprehensiveloss(income)attributabletononcontrollinginterests 236 201 (765)ComprehensiveincomeattributabletoCablevisionSystemsCorporationstockholder(s) $ 165,305 $ 180,012 $ 311,898
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(In thousands)
Seeaccompanyingnotestoconsolidatedfinancialstatements.
F-59
CNYG Class A
Common Stock
CNYG Class B
Common Stock
Paid-in Capital
AccumulatedDeficit
Treasury Stock
Accumulated Other
ComprehensiveIncome (Loss)
Total Stockholders'
Equity (Deficiency)
Non- controlling
Interest
Total Equity
(Deficiency) BalanceatJanuary1,2014 $ 2,925 $ 541 $ 885,601 $ (4,546,299) $ (1,584,404) $ (42,694) $ (5,284,330) $ 786 $ (5,283,544)
NetincomeattributabletoCablevisionSystemsCorporationstockholders — — — 311,439 — — 311,439 — 311,439
Netincomeattributabletononcontrollinginterests — — — — — — — 1,007 1,007
Pensionandpostretirementplanliabilityadjustments,netofincometaxes — — — — — 459 459 — 459
Proceedsfromexerciseofoptionsandissuanceofrestrictedshares 78 — 55,252 — — — 55,330 — 55,330
Recognitionofequity-basedstockcompensationarrangements — — 44,335 — — — 44,335 — 44,335
Treasurystockacquiredfromforfeitureandacquisitionofrestrictedshares — — 9 — (6,617) — (6,608) — (6,608)
Excesstaxbenefitonshare-basedawards — — 336 — — — 336 — 336
DividendsonCNYGClassAandCNYGClassBcommonstock — — (162,806) — — — (162,806) — (162,806)
Adjustmentstononcontrollinginterests — — 376 — — — 376 (1,014) (638)
BalanceatDecember31,2014 $ 3,003 $ 541 $ 823,103 $ (4,234,860) $ (1,591,021) $ (42,235) $ (5,041,469) $ 779 $ (5,040,690)
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) (Continued)
(In thousands)
Seeaccompanyingnotestoconsolidatedfinancialstatements.
F-60
CNYG Class A
Common Stock
CNYG Class B
Common Stock
Paid-in Capital
AccumulatedDeficit
Treasury Stock
Accumulated Other
ComprehensiveIncome (Loss)
Total Stockholders'
Equity (Deficiency)
Non- controlling
Interest
Total Equity
(Deficiency) BalanceatJanuary1,2015 $ 3,003 $ 541 $ 823,103 $ (4,234,860) $ (1,591,021) $ (42,235) $ (5,041,469) $ 779 $ (5,040,690)
NetincomeattributabletoCablevisionSystemsCorporationstockholders — — — 175,449 — — 175,449 — 175,449
Netlossattributabletononcontrollinginterests — — — — — — — (146) (146)
Pensionandpostretirementplanliabilityadjustments,netofincometaxes — — — — — 4,563 4,563 — 4,563
Proceedsfromexerciseofoptionsandissuanceofrestrictedshares 39 — 18,648 — — — 18,687 — 18,687
Recognitionofequity-basedstockcompensationarrangements — — 60,817 — — — 60,817 — 60,817
Treasurystockacquiredfromforfeitureandacquisitionofrestrictedshares — — 5 — (19,146) — (19,141) — (19,141)
Excesstaxbenefitonshare-basedawards — — 5,694 — — — 5,694 — 5,694
DividendsonCNYGClassAandCNYGClassBcommonstock — — (124,752) — — — (124,752) — (124,752)
Adjustmentstononcontrollinginterests — — 8,836 — — — 8,836 (901) 7,935
BalanceatDecember31,2015 $ 3,042 $ 541 $ 792,351 $ (4,059,411) $ (1,610,167) $ (37,672) $ (4,911,316) $ (268) $ (4,911,584)
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) (Continued)
(In thousands)
Seeaccompanyingnotestoconsolidatedfinancialstatements.
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CNYG Class A
Common Stock
CNYG Class B
Common Stock
Paid-in Capital
AccumulatedDeficit
Treasury Stock
Accumulated Other
ComprehensiveIncome (Loss)
Total Stockholders'
Equity (Deficiency)
Non- controlling
Interest
Total Equity
(Deficiency) BalanceatJanuary1,2016 $ 3,042 $ 541 $ 792,351 $ (4,059,411) $ (1,610,167) $ (37,672) $ (4,911,316) $ (268) $ (4,911,584)
NetincomeattributabletoCablevisionSystemsCorporationstockholders — — — 163,748 — — 163,748 — 163,748
Netlossattributabletononcontrollinginterests — — — — — — — (236) (236)
Pensionandpostretirementplanliabilityadjustments,netofincometaxes — — — — — 1,557 1,557 — 1,557
Proceedsfromexerciseofoptionsandissuanceofrestrictedshares 15 — 14,544 — — — 14,559 — 14,559
Recognitionofequity-basedstockcompensationarrangements — — 24,997 — — — 24,997 — 24,997
Treasurystockacquiredfromforfeitureandacquisitionofrestrictedshares — — 1 — (41,470) — (41,469) — (41,469)
Taxwithholdingassociatedwithsharesissuedforequity-basedcompensation (4) — (6,030) — — — (6,034) — (6,034)
Excesstaxbenefitonshare-basedawards — — 82 — — — 82 — 82
Contributionsfromnoncontrollinginterests — — — — — — — 240 240
BalanceatJune20,2016 $ 3,053 $ 541 $ 825,945 $ (3,895,663) $ (1,651,637) $ (36,115) $ (4,753,876) $ (264) $ (4,754,140)
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CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Seeaccompanyingnotestoconsolidatedfinancialstatements.
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January 1, 2016 to June 20,
2016
Year ended December 31,
2015
Year ended December 31,
2014 Cashflowsfromoperatingactivities: Netincome $ 163,512 $ 175,248 $ 312,204Adjustmentstoreconcilenetincometonetcashprovidedby(usedin)operatingactivities: Loss(income)fromdiscontinuedoperations,netofincometaxes — 12,541 (2,822)Depreciationandamortization(includingimpairments) 414,550 865,252 866,502Loss(gain)oninvestments,net (129,990) 30,208 (129,659)Loss(gain)onequityderivativecontracts,net 36,283 (104,927) 45,055Lossonextinguishmentofdebtandwrite-offofdeferredfinancingcosts — 1,735 10,120Amortizationofdeferredfinancingcostsanddiscounts(premiums)onindebtedness 11,673 23,764 22,887Share-basedcompensationexpense 24,778 60,321 43,984Settlementlossandamortizationofactuariallossesrelatedtopensionandpostretirementplans 2,584 5,046 7,643
Deferredincometaxes 116,150 133,396 159,779Provisionfordoubtfulaccounts 13,240 35,802 47,611Excesstaxbenefitsrelatedtoshare-basedawards (82) (5,694) (336)
Changeinassetsandliabilities,netofeffectsofacquisitionsanddispositions: Accountsreceivable,trade (18,162) (24,760) (42,446)Prepaidexpensesandotherassets (844) 38,860 44,488Amountsduefromandduetoaffiliates,net (5,082) 1,043 (1,463)Accountspayable 36,147 6,896 25,486Accruedliabilities (160,937) 1,200 (35,931)Deferredrevenue (9,726) 2,156 5,169
Netcashprovidedbyoperatingactivities 494,094 1,258,087 1,378,271Cashflowsfrominvestingactivities: Capitalexpenditures (330,131) (816,396) (891,678)Proceedsrelatedtosaleofequipment,includingcostsofdisposal 1,106 4,407 6,178Decrease(increase)inotherinvestments 610 (7,779) (1,369)Additionstootherintangibleassets (1,709) (8,035) (1,193)Netcashusedininvestingactivities (330,124) (827,803) (888,062)
Cashflowsfromfinancingactivities: Repaymentofcreditfacilitydebt (14,953) (260,321) (990,785)Proceedsfromissuanceofseniornotes — — 750,000Proceedsfromcollateralizedindebtedness 337,149 774,703 416,621Repaymentofcollateralizedindebtednessandrelatedderivativecontracts (281,594) (639,237) (342,105)Redemptionandrepurchaseofseniornotes,includingpremiumsandfees — — (36,097)Repaymentofnotespayable (1,291) (2,458) (2,306)Proceedsfromstockoptionexercises 14,411 18,727 55,355Taxwithholdingassociatedwithsharesissuedforequity-basedawards (6,034) — —Dividenddistributionstocommonstockholders (4,066) (125,170) (160,545)Principalpaymentsoncapitalleaseobligations (11,552) (20,250) (15,481)Deemedrepurchasesofrestrictedstock (41,469) (19,141) (6,608)Additionstodeferredfinancingcosts — (250) (14,273)Paymentforpurchaseofnoncontrollinginterest — (8,300) —Contributionsfrom(distributionsto)noncontrollinginterests,net 240 (901) (1,014)Excesstaxbenefitrelatedtoshare-basedawards 82 5,694 336Netcashusedinfinancingactivities (9,077) (276,904) (346,902)
Netincreaseincashandcashequivalentsfromcontinuingoperations 154,893 153,380 143,307Cashflowsofdiscontinuedoperations: Netcashusedinoperatingactivities (21,000) (484) (1,199)Netcashprovidedby(usedin)investingactivities — (30) 6,081Netincrease(decrease)incashandcashequivalentsfromdiscontinuedoperations (21,000) (514) 4,882
Cashandcashequivalentsatbeginningofperiod 1,003,279 850,413 702,224Cashandcashequivalentsatendofperiod $ 1,137,172 $ 1,003,279 $ 850,413
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
NOTE 1. DESCRIPTION OF BUSINESS, RELATED MATTERS AND BASIS OF PRESENTATION
The Company and Related Matters
CablevisionSystemsCorporation("Cablevision"),throughitswholly-ownedsubsidiaryCSCHoldings,LLC("CSCHoldings,")andcollectivelywithCablevision,the"Company"),ownsandoperatescablesystemsandownscompaniesthatprovideregionalnews,localprogrammingandadvertisingsalesservicesforthecabletelevisionindustryandEthernet-baseddata,Internet,voiceandvideotransportandmanagedservicestothebusinessmarket.TheCompanyoperatesandreportsfinancialinformationinonesegment.Priortothesaleofa75%interestinNewsdayLLConJuly7,2016,theCompanyconsolidatingtheoperatingresultsofNewsday.EffectiveJuly7,2016,theoperatingresultsofNewsdayarenolongerconsolidatedwiththoseoftheCompanyandtheCompany's25%interestintheoperatingresultsofNewsdayisrecordedontheequitybasis(seeNote16).
Altice Merger
OnJune21,2016(the"MergerDate"),pursuanttotheAgreementandPlanofMerger(the"MergerAgreement"),datedasofSeptember16,2015,byandamongCablevision,AlticeN.V.("Altice"),NeptuneMergerSubCorp.,awholly-ownedsubsidiaryofAltice("MergerSub"),MergerSubmergedwithandintoCablevision,withCablevisionsurvivingthemerger(the"Merger").
InconnectionwiththeMerger,eachoutstandingshareoftheCablevisionNYGroupClassAcommonstock,parvalue$0.01pershare("CNYGClassAShares"),andCablevisionNYGroupClassBcommonstock,parvalue$0.01pershare("CNYGClassBShares",andtogetherwiththeCNYGClassAShares,the"Shares")otherthan(i)SharesownedbyCablevision,Alticeoranyoftheirrespectivewholly-ownedsubsidiaries,ineachcasenotheldonbehalfofthirdpartiesinafiduciarycapacity,received$34.90incashwithoutinterest,lessapplicabletaxwithholdings(the"MergerConsideration").
Pursuanttoanagreement,datedDecember21,2015,byandamongCVC2B.V.,CIEManagementIXLimited,forandonbehalfofthelimitedpartnershipsBCEuropeanCapitalIX-1through11andCanadaPensionPlanInvestmentBoard,certainaffiliatesofBCPandCPPIB(the"Co-Investors")fundedapproximately$1,000,000towardthepaymentoftheaggregateMergerConsideration,andindirectlyacquiredapproximately30%oftheSharesofCablevision.
AlsoinconnectionwiththeMerger,outstandingequity-basedawardsgrantedunderCablevision'sequityplanswerecancelledandconvertedintocashbaseduponthe$34.90perSharemergerpriceinaccordancewiththeoriginaltermsoftheawards.ThetotalconsiderationfortheoutstandingCNYGClassAShares,theoutstandingCNYGClassBShares,andtheequity-basedawardsamountedto$9,958,323.
InconnectionwiththeMerger,inOctober2015,NeptuneFincoCorp.("Finco"),anindirectwholly-ownedsubsidiaryofAlticeformedtocompletethefinancingdescribedhereinandthemergerwithCSCHoldings,borrowedanaggregateprincipalamountof$3,800,000underatermloanfacility(the"TermCreditFacility")andenteredintorevolvingloancommitmentsinanaggregateprincipalamountof$2,000,000(the"RevolvingCreditFacility"and,togetherwiththeTermCreditFacility,the"CreditFacilities").
Fincoalsoissued$1,800,000aggregateprincipalamountof10.125%seniornotesdue2023(the"2023Notes"),$2,000,000aggregateprincipalamountof10.875%seniornotesdue2025(the"2025
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(Dollars in thousands, except share and per share amounts)
NOTE 1. DESCRIPTION OF BUSINESS, RELATED MATTERS AND BASIS OF PRESENTATION (Continued)
Notes"),and$1,000,000aggregateprincipalamountof6.625%seniorguaranteednotesdue2025(the"2025GuaranteedNotes")(collectivelythe"MergerNotes").
OnJune21,2016,immediatelyfollowingtheMerger,FincomergedwithandintoCSCHoldings,withCSCHoldingssurvivingthemerger(the"CSCHoldingsMerger"),andtheMergerNotesandtheCreditFacilitiesbecameobligationsofCSCHoldings.
TheaccompanyingfinancialstatementsrepresenttheoperatingresultsandcashflowsoftheCompanyfortheperiodJanuary1,2016toJune20,2016(Predecessor)andfortheyearsendedDecember31,2015and2014.TheoperatingresultsoftheCompanyfortheperiodJune21,2016toDecember31,2016(Successor)areincorporatedintheconsolidatedfinancialstatementsofAlticeUSA,Inc.
Basis of Presentation
Principles of Consolidation
TheaccompanyingconsolidatedfinancialstatementsofCablevisionincludetheaccountsofCablevisionanditsmajority-ownedsubsidiaries.CablevisionhasnobusinessoperationsindependentofCSCHoldings,whoseoperatingresultsandfinancialpositionareconsolidatedintoCablevision.AllsignificantintercompanytransactionsandbalancesbetweenCablevisionandCSCHoldingsandtheirrespectiveconsolidatedsubsidiariesareeliminatedinconsolidation.
Use of Estimates in Preparation of Financial Statements
ThepreparationoffinancialstatementsinconformitywithU.S.generallyacceptedaccountingprinciples("GAAP")requiresmanagementtomakeestimatesandassumptionsthataffectthereportedamountsofassetsandliabilitiesanddisclosureofcontingentliabilitiesatthedateofthefinancialstatementsandthereportedamountsofrevenuesandexpensesduringthereportingperiod.Actualresultscoulddifferfromthoseestimates.SeeNote12foradiscussionoffairvalueestimates.
Reclassifications
Certainreclassificationshavebeenmadeintheconsolidatedfinancialstatementsinthe2014and2015financialstatementstoconformtothe2016presentation.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Summary of Significant Accounting Policies
Revenue Recognition
TheCompanyrecognizesvideo,high-speeddata,andvoiceservicesrevenuesastheservicesareprovidedtocustomers.Revenuereceivedfromcustomerswhopurchasebundledservicesatadiscountedrateisallocatedtoeachproductinapro-ratamannerbasedontheindividualproduct'ssellingprice(generally,thepriceatwhichtheproductisregularlysoldonastandalonebasis).InstallationrevenuefortheCompany'svideo,consumerhigh-speeddataandVoIPservicesisrecognizedasinstallationsarecompleted,asdirectsellingcostshaveexceededthisrevenueinallperiodsreported.Advertisingrevenuesarerecognizedwhencommercialsareaired.
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(Dollars in thousands, except share and per share amounts)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenuesderivedfromothersourcesarerecognizedwhenservicesareprovidedoreventsoccur.
Multiple-Element Transactions
Inthenormalcourseofbusiness,theCompanymayenterintomultiple-elementtransactionswhereitissimultaneouslybothacustomerandavendorwiththesamecounterpartyorinwhichitpurchasesmultipleproductsand/orservices,orsettlesoutstandingitemscontemporaneouswiththepurchaseofaproductorservicefromasinglecounterparty.TheCompany'spolicyforaccountingforeachtransactionnegotiatedcontemporaneouslyistorecordeachdeliverableofthetransactionbasedonitsbestestimateofsellingpriceinamannerconsistentwiththatusedtodeterminethepricetoselleachdeliverableonastandalonebasis.Indeterminingthefairvalueoftherespectivedeliverable,theCompanywillutilizequotedmarketprices(asavailable),historicaltransactionsorcomparabletransactions.
Gross Versus Net Revenue Recognition
Inthenormalcourseofbusiness,theCompanyisassessednon-incomerelatedtaxesbygovernmentalauthorities,includingfranchisingauthorities(generallyundermulti-yearagreements),andcollectssuchtaxesfromitscustomers.TheCompany'spolicyisthat,ininstanceswherethetaxisbeingassesseddirectlyontheCompany,amountspaidtothegovernmentalauthoritiesandamountsreceivedfromthecustomersarerecordedonagrossbasis.Thatis,amountspaidtothegovernmentalauthoritiesarerecordedasprogrammingandotherdirectcostsandamountsreceivedfromthecustomerarerecordedasrevenue.FortheperiodJanuary1,2016throughJune20,2016andfortheyearsendedDecember31,2015and2014,theamountoffranchisefeesandcertainothertaxesandfeesincludedasacomponentofrevenueaggregated$95,432,$199,701and$178,630,respectively.
Technical and Operating Expenses
Costsofrevenuerelatedtosalesofservicesareclassifiedas"programmingandotherdirectcosts"intheaccompanyingconsolidatedstatementsofoperations.
Programming Costs
ProgrammingexpensesrelatedtotheCompany'svideoservicerepresentfeespaidtoprogrammingdistributorstolicensetheprogrammingdistributedtosubscribers.Thisprogrammingisacquiredgenerallyundermulti-yeardistributionagreements,withratesusuallybasedonthenumberofsubscribersthatreceivetheprogramming.Therehavebeenperiodswhenanexistingdistributionagreementhasexpiredandthepartieshavenotfinalizednegotiationsofeitherarenewalofthatagreementoranewagreementforcertainperiodsoftime.Insubstantiallyalltheseinstances,theCompanycontinuestocarryandpayfortheseservicesuntilexecutionofdefinitivereplacementagreementsorrenewals.TheamountofprogrammingexpenserecordedduringtheinterimperiodisbasedontheCompany'sestimatesoftheultimatecontractualagreementexpectedtobereached,whichisbasedonseveralfactors,includingpreviouscontractualrates,customaryrateincreasesandthecurrentstatusofnegotiations.Suchestimatesareadjustedasnegotiationsprogressuntilnewprogrammingtermsarefinalized.
Inaddition,theCompanyhasreceived,ormayreceive,incentivesfromprogrammingdistributorsforcarriageofthedistributors'programming.TheCompanygenerallyrecognizestheseincentivesasa
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(Dollars in thousands, except share and per share amounts)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
reductionofprogrammingcostsin"programmingandotherdirectcosts",generallyoverthetermofthedistributionagreement.
Advertising Expenses
Advertisingcostsarechargedtoexpensewhenincurredandarereflectedin"otheroperatingexpenses"intheaccompanyingconsolidatedstatementsofoperations.Advertisingcostsamountedto$62,760,$160,671,and$156,228fortheperiodJanuary1,2016throughJune20,2016andfortheyearsendedDecember31,2015and2014,respectively.
Share-Based Compensation
Share-basedcompensationexpenseisbasedonthefairvalueoftheportionofshare-basedpaymentawardsthatareultimatelyexpectedtovest.Forshare-basedcompensationawardsthatcanbesettledincash,theCompanyrecognizescompensationexpensebasedontheestimatedfairvalueoftheawardateachreportingperiod.
Foroptionsandperformancebasedoptionawards,CablevisionrecognizedcompensationexpensebasedontheestimatedgrantdatefairvalueusingtheBlack-Scholesvaluationmodel.Foroptionsnotsubjecttoperformancebasedvestingconditions,Cablevisionrecognizedthecompensationexpenseusingastraight-lineamortizationmethod.Foroptionssubjecttoperformancebasedvestingconditions,Cablevisionrecognizedcompensationexpensebasedontheprobableoutcomeoftheperformancecriteriaovertherequisiteserviceperiodforeachtrancheofawards.
Forrestrictedshares,Cablevisionrecognizedcompensationexpenseusingastraight-lineamortizationmethodbasedonthegrantdatepriceofCNYGClassAcommonstockoverthevestingperiod.Forrestrictedstockunitsgrantedtonon-employeedirectorwhichvested100%onthedateofgrant,compensationexpensewasrecognizedonthedateofgrantbasedonthegrantdatepriceofCNYGClassAcommonstock.
Forperformancebasedrestrictedstockunits("PSUs")whichcliffvestedinthreeyears,Cablevisionrecognizedcompensationexpenseonastraight-linebasisoverthevestingperiodbasedontheestimatednumberofsharesofCNYGClassAcommonstockexpectedtobeissued.
Income Taxes
TheCompany'sprovisionforincometaxesisbasedoncurrentperiodincome,changesindeferredtaxassetsandliabilitiesandchangesinestimateswithregardtouncertaintaxpositions.Deferredtaxassetsaresubjecttoanongoingassessmentofrealizability.TheCompanyprovidesdeferredtaxesfortheoutsidebasisdifferenceofitsinvestmentinpartnerships.Inthesecondquarterof2016,theCompanychangeditsaccountingpolicyonaprospectivebasistopresentinterestexpenserelatingtouncertaintaxpositionasadditionalinterestexpense.
Cash and Cash Equivalents
TheCompany'scashinvestmentsareplacedwithmoneymarketfundsandfinancialinstitutionsthatareinvestmentgradeasratedbyStandard&Poor'sandMoody'sInvestorsService.TheCompanyselectsmoneymarketfundsthatpredominantlyinvestinmarketable,directobligationsissuedor
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(Dollars in thousands, except share and per share amounts)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
guaranteedbytheUnitedStatesgovernmentoritsagencies,commercialpaper,fullycollateralizedrepurchaseagreements,certificatesofdeposit,andtimedeposits.
TheCompanyconsidersthebalanceofitsinvestmentinfundsthatsubstantiallyholdsecuritiesthatmaturewithinthreemonthsorlessfromthedatethefundpurchasesthesesecuritiestobecashequivalents.Thecarryingamountofcashandcashequivalentseitherapproximatesfairvalueduetotheshort-termmaturityoftheseinstrumentsorareatfairvalue.
Accounts Receivable
Accountsreceivablearerecordedatnetrealizablevalue.TheCompanyperiodicallyassessestheadequacyofvaluationallowancesforuncollectibleaccountsreceivablebyevaluatingthecollectabilityofoutstandingreceivablesandgeneralfactorssuchashistoricalcollectionexperience,lengthoftimeindividualreceivablesarepastdue,andtheeconomicandcompetitiveenvironment.
Investments
Investmentsecuritiesandinvestmentsecuritiespledgedascollateralareclassifiedastradingsecuritiesandarestatedatfairvaluewithrealizedandunrealizedholdinggainsandlossesincludedinnetincome.
Long-Lived Assets and Amortizable Intangible Assets
Property,plantandequipment,includingconstructionmaterials,arecarriedatcost,andincludealldirectcostsandcertainindirectcostsassociatedwiththeconstructionofcablesystems,andthecostsofnewequipmentinstallations.Equipmentundercapitalleasesisrecordedatthepresentvalueofthetotalminimumleasepayments.Depreciationonequipmentiscalculatedonthestraight-linebasisovertheestimatedusefullivesoftheassetsor,withrespecttoequipmentundercapitalleasesandleaseholdimprovements,amortizedovertheshorteroftheleasetermortheassets'usefullivesandreportedindepreciationandamortization(includingimpairments)intheconsolidatedstatementsofoperations.
TheCompanycapitalizescertaininternalandexternalcostsincurredtoacquireordevelopinternal-usesoftware.Capitalizedsoftwarecostsareamortizedovertheestimatedusefullifeofthesoftwareandreportedindepreciationandamortization(includingimpairments).
Customerrelationships,tradenamesandotherintangiblesestablishedinconnectionwithacquisitionsthatarefinite-livedareamortizedinamannerthatreflectsthepatterninwhichtheprojectednetcashinflowstotheCompanyareexpectedtooccur,suchasthesumoftheyears'digitsmethod,orwhensuchpatterndoesnotexist,usingthestraight-linebasisovertheirrespectiveestimatedusefullives.
TheCompanyreviewsitslong-livedassets(property,plantandequipment,andintangibleassetssubjecttoamortizationthatarosefromacquisitions)forimpairmentwhenevereventsorcircumstancesindicatethatthecarryingamountofanassetmaynotberecoverable.Ifthesumoftheexpectedcashflows,undiscountedandwithoutinterest,islessthanthecarryingamountoftheasset,animpairmentlossisrecognizedastheamountbywhichthecarryingamountoftheassetexceedsitsfairvalue.
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(Dollars in thousands, except share and per share amounts)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Goodwill and Indefinite-Lived Intangible Assets
Goodwillandthevalueoffranchises,trademarks,andcertainotherintangiblesacquiredinpurchasebusinesscombinationswhichhaveindefiniteusefullivesarenotamortized.Rather,suchassetsaretestedforimpairmentannuallyorupontheoccurrenceofatriggeringevent.
TheCompanyassessesqualitativefactorsforitsreportingunitsthatcarrygoodwill.Ifthequalitativeassessmentresultsinaconclusionthatitismorelikelythannotthatthefairvalueofareportingunitexceedsthecarryingvalue,thennofurthertestingisperformedforthatreportingunit.
Whenthequalitativeassessmentisnotused,orifthequalitativeassessmentisnotconclusiveanditisnecessarytocalculatethefairvalueofareportingunit,thentheimpairmentanalysisforgoodwillisperformedatthereportingunitlevelusingatwo-stepapproach.Thefirststepofthegoodwillimpairmenttestisusedtoidentifypotentialimpairmentbycomparingthefairvalueofthereportingunitwithitscarryingamount,includinggoodwillutilizinganenterprise-valuebasedpremiseapproach.Ifthecarryingamountofthereportingunitexceedsitsfairvalue,thesecondstepofthegoodwillimpairmenttestisperformedtomeasuretheamountofgoodwillimpairmentloss,ifany.Thesecondstepofthegoodwillimpairmenttestcomparestheimpliedfairvalueofthereportingunit'sgoodwillwiththecarryingamountofthatgoodwill.Ifthecarryingamountofthereportingunit'sgoodwillexceedstheimpliedfairvalueofthatgoodwill,animpairmentlossisrecognizedinanamountequaltothatexcess.Theimpliedfairvalueofgoodwillisdeterminedinthesamemannerastheamountofgoodwillwhichwouldberecognizedinabusinesscombination.
TheCompanyassessesqualitativefactorstodeterminewhetheritisnecessarytoperformtheone-stepquantitativeidentifiableindefinite-livedintangibleassetsimpairmenttest.ThisquantitativetestisrequiredonlyiftheCompanyconcludesthatitismorelikelythannotthataunitofaccounting'sfairvalueislessthanitscarryingamount.Whenthequalitativeassessmentisnotused,orifthequalitativeassessmentisnotconclusive,theimpairmenttestforotherintangibleassetsnotsubjecttoamortizationrequiresacomparisonofthefairvalueoftheintangibleassetwithitscarryingvalue.Ifthecarryingvalueoftheindefinite-livedintangibleassetexceedsitsfairvalue,animpairmentlossisrecognizedinanamountequaltothatexcess.
Deferred Financing Costs
Deferredfinancingcostsarebeingamortizedtointerestexpenseusingtheeffectiveinterestmethodoverthetermsoftherelateddebt.
Derivative Financial Instruments
TheCompanyaccountsforderivativefinancialinstrumentsaseitherassetsorliabilitiesmeasuredatfairvalue.TheCompanyusesderivativeinstrumentstomanageitsexposuretomarketrisksfromchangesincertainequitypricesandinterestratesanddoesnotholdorissuederivativeinstrumentsforspeculativeortradingpurposes.Thesederivativeinstrumentsarenotdesignatedashedges,andchangesinthefairvaluesofthesederivativesarerecognizedinthestatementsofincomeasgains(losses)onderivativecontracts.
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(Dollars in thousands, except share and per share amounts)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Commitments and Contingencies
Liabilitiesforlosscontingenciesarisingfromclaims,assessments,litigation,finesandpenaltiesandothersourcesarerecordedwhentheCompanybelievesitisprobablethataliabilityhasbeenincurredandtheamountofthecontingencycanbereasonablyestimated.
Recently Adopted Accounting Pronouncements
InNovember2015,theFinancialAccountingStandardsBoard("FASB")issuedAccountingStandardsUpdate("ASU")No.2015-17(Topic740),BalanceSheetClassificationofDeferredTaxes.ThisASUamendsexistingguidancetorequirethepresentationofdeferredtaxliabilitiesandassetsasnoncurrentwithinaclassifiedstatementoffinancialposition.ASUNo.2015-17wasadoptedbytheCompanyasofJune30,2016andwasappliedprospectivelytoalldeferredtaxliabilitiesandassets.
InSeptember2015,theFASBissuedASUNo.2015-16,SimplifyingtheAccountingforMeasurement-PeriodAdjustments,whichrequiresthatanacquirerrecognizeadjustmentstoprovisionalamountsthatareidentifiedduringthemeasurementperiodinthereportingperiodinwhichtheadjustmentamountsaredetermined.Priortotheissuanceofthestandard,entitieswererequiredtoretrospectivelyapplyadjustmentsmadetoprovisionalamountsrecognizedinabusinesscombination.ASUNo.2015-16wasadoptedbytheCompanyonJanuary1,2016.
InApril2015,theFASBissuedASUNo.2015-05,Intangibles—GoodwillandOther—Internal-UseSoftware(Subtopic350-40):Customer'sAccountingforFeesPaidinaCloudComputingArrangement.ASUNo.2015-05providesguidancetocustomersaboutwhetheracloudcomputingarrangementincludesasoftwarelicense.Ifacloudcomputingarrangementincludesasoftwarelicense,thenthecustomershouldaccountforthesoftwarelicenseelementofthearrangementconsistentwiththeacquisitionofothersoftwarelicenses.Ifacloudcomputingarrangementdoesnotincludeasoftwarelicense,thecustomershouldaccountforthearrangementasaservicecontract.ASUNo.2015-05wasadoptedbytheCompanyonJanuary1,2016anddidnothaveamaterialimpactontheCompany'sconsolidatedfinancialstatements.
InApril2015,theFASBissuedASUNo.2015-03,SimplifyingthePresentationofDebtIssuanceCosts,whichrequiresdebtissuancecoststobepresentedinthebalancesheetasadirectdeductionfromthecarryingvalueoftheassociateddebtliability,consistentwiththepresentationofadebtdiscount.InAugust2015,theFASBissuedASUNo.2015-15,PresentationandSubsequentMeasurementofDebtIssuanceCostsAssociatedwithLine-of-CreditArrangements,whichclarifiesthetreatmentofdebtissuancecostsfromline-of-creditarrangementsafteradoptionofASUNo.2015-03.ASUNo.2015-15clarifiesthattheSecuritiesandExchangeCommissionstaffwouldnotobjecttoanentitydeferringandpresentingdebtissuancecostsasanassetandsubsequentlyamortizingthedeferreddebtissuancecostsratablyoverthetermoftheline-of-creditarrangement,regardlessofwhetherthereareanyoutstandingborrowingsontheline-of-creditarrangement.ASUNo.2015-03wasadoptedbytheCompanyonJanuary1,2016representingachangeinaccountingprincipleandwasappliedretrospectivelytoallperiodspresented.Debtissuancecosts,netfortheCompanyof$67,119,asofDecember31,2015werereclassifiedfromdeferredfinancingcostsandpresentedasareductiontodebtintheconsolidatedbalancesheets.
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NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Debtissuancecosts,netfortheCompanyof$7,588asofDecember31,2015relatingtoitsrevolvingcreditfacilitywerenotimpactedbytheadoptionofASUNo.2015-03andarereflectedaslong-termassetsintheaccompanyingconsolidatedbalancesheets.
InAugust2014,theFASBissuedASUNo.2014-15,DisclosuresofUncertaintiesaboutanEntity'sAbilitytoContinueasaGoingConcern,whichrequiresmanagementtoevaluatewhetherthereareconditionsoreventsthatraisesubstantialdoubtabouttheentity'sabilitytocontinueasagoingconcern,andtoprovidecertaindisclosureswhenitisprobablethattheentitywillbeunabletomeetitsobligationsastheybecomeduewithinoneyearafterthedatethatthefinancialstatementsareissued.ASUNo.2014-15wasadoptedbytheCompanyonJanuary1,2016.
InJune2014,theFASBissuedASUNo.2014-12,Compensation—StockCompensation(Topic718):AccountingforShare-BasedPaymentsWhentheTermsofanAwardProvideThataPerformanceTargetCouldBeAchievedAftertheRequisiteServicePeriod.ASUNo.2014-12requiresthataperformancetargetthataffectsvestingandthatcouldbeachievedaftertherequisiteserviceperiodbetreatedasaperformancecondition.EntitiesmayapplytheamendmentsinthisASUeither:(a)prospectivelytoallawardsgrantedormodifiedaftertheeffectivedate;or(b)retrospectivelytoallawardswithperformancetargetsthatareoutstandingasofthebeginningoftheearliestannualperiodpresentedinthefinancialstatementsandtoallnewormodifiedawardsthereafter.ASUNo.2014-12wasadoptedbytheCompanyonJanuary1,2016onaprospectivebasisanddidnothaveanyimpactontheCompany'sconsolidatedfinancialstatements.
Recently Issued But Not Yet Adopted Accounting Pronouncements
InMay2014,theFASBissuedASUNo.2014-09,RevenuefromContractswithCustomers,requiringanentitytorecognizetheamountofrevenuetowhichitexpectstobeentitledforthetransferofpromisedgoodsorservicestocustomers.ASUNo.2014-09willreplacemostexistingrevenuerecognitionguidanceinGAAPwhenitbecomeseffectiveandallowstheuseofeithertheretrospectiveorcumulativeeffecttransitionmethod.InAugust2015,theFASBissuedASUNo.2015-14thatapproveddeferringtheeffectivedatebyoneyearsothatASUNo.2014-09wouldbecomeeffectivefortheCompanyonJanuary1,2018.TheFASBalsoapproved,inJuly2015,permittingtheearlyadoptionofASUNo.2014-09,butnotbeforetheoriginaleffectivedatefortheCompanyofJanuary1,2017.
InDecember2016,theFASBissuedASUNo.2016-20,TechnicalCorrectionsandImprovementstoTopic606,RevenuefromContractswithCustomers,inordertoclarifytheCodificationandtocorrectanyunintendedapplicationoftheguidance.Theseitemsarenotexpectedtohaveasignificanteffectonthecurrentaccountingstandard.TheamendmentsinthisupdateaffecttheguidanceinASUNo.2014-09,whichisnotyeteffective.ASUNo.2014-09willbeeffective,reflectingtheone-yeardeferral,forinterimandannualperiodsbeginningafterDecember15,2017(January1,2018fortheCompany).Earlyadoptionofthestandardispermittedbutnotbeforetheoriginaleffectivedate.Companiescantransitiontothestandardeitherretrospectivelyorasacumulative-effectadjustmentasofthedateofadoption.TheCompanyisintheprocessofevaluatingtheimpactthattheadoptionofASUNo.2014-09willhaveonitsconsolidatedfinancialstatementsandselectingthemethodoftransitiontothenewstandard.Wecurrentlyexpecttheadoptiontoimpactthetimingoftherecognitionofresidentialinstallationrevenueandtherecognitionofcommissionexpenses.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
InNovember2016,theFASBissuedASUNo.2016-18,StatementofCashFlows(Topic230):RestrictedCash,whichrequiresthatthestatementofcashflowsdisclosethechangeduringtheperiodinthetotalofcash,cashequivalents,restrictedcashandrestrictedcashequivalents.Restrictedcashshouldbeincludedwithcashandcashequivalentswhenreconcilingthebeginning-of-periodandend-ofperiodtotalamountsshownonthestatementofcashflows.ASUNo.2016-18providesspecificguidanceonthepresentationofrestrictedcashinthestatementofcashflows.ThenewguidancebecomeseffectivefortheCompanyonJanuary1,2019withearlyadoptionpermittedandwillbeappliedretrospectively.
InAugust2016,theFASBissuedASUNo.2016-15,StatementofCashFlows(Topic230):ClassificationofCertainCashReceiptsandCashPaymentswhichclarifieshowentitiesshouldclassifycertaincashreceiptsandcashpaymentsonthestatementofcashflows.ASUNo.2016-15alsoclarifieshowthepredominanceprincipleshouldbeappliedwhencashreceiptsandcashpaymentshaveaspectsofmorethanoneclassofcashflows.ThenewguidancebecomeseffectivefortheCompanyonJanuary1,2018withearlyadoptionpermittedandwillbeappliedretrospectively.TheCompanyhasnotyetcompletedtheevaluationoftheeffectthatASUNo.2016-15willhaveonitsconsolidatedfinancialstatements.
InMarch2016,theFASBissuedASU2016-09,Compensation—StockCompensation:ImprovementstoEmployeeShare-BasedPaymentAccounting,whichprovidessimplificationofincometaxaccountingforshare-basedpaymentawards.ThenewguidancebecomeseffectivefortheCompanyonJanuary1,2017withearlyadoptionpermitted.Amendmentsrelatedtothetimingofwhenexcesstaxbenefitsarerecognized,minimumstatutorywithholdingrequirements,forfeitures,andintrinsicvaluewillbeappliedusingthemodifiedretrospectivetransitionmethod.Amendmentsrequiringrecognitionofexcesstaxbenefitsandtaxdeficienciesintheincomestatementandthepracticalexpedientforestimatingexpectedtermwillbeappliedprospectively.TheCompanymayelecttoapplytheamendmentsrelatedtothepresentationofexcesstaxbenefitsonthestatementofcashflowsusingeitheraprospectivetransitionmethodoraretrospectivetransitionmethod.InconnectionwiththeadoptiononJanuary1,2017,adeferredtaxassetofapproximately$309,000forpreviouslyunrealizedexcesstaxbenefitswillberecognizedwiththeoffsetrecordedtoaccumulateddeficit.
InFebruary2016,theFASBissuedASU2016-02,Leases,whichincreasestransparencyandcomparabilitybyrecognizingalessee'srightsandobligationsresultingfromleasesbyrecordingthemonthebalancesheetasleaseassetsandleaseliabilities.ThenewguidancebecomeseffectivefortheCompanyonJanuary1,2019withearlyadoptionpermittedandwillbeappliedusingthemodifiedretrospectivemethod.TheCompanyhasnotyetcompletedtheevaluationoftheeffectthatASUNo.2016-02willhaveonitsconsolidatedfinancialstatements.
Common Stock of Cablevision
PriortotheMerger,eachholderofCNYGClassAcommonstockhadonevotepersharewhileholdersofCNYGClassBcommonstockhadtenvotespershare.CNYGClassBsharescouldbeconvertedtoCNYGClassAcommonstockatanytimewithaconversionratioofoneCNYGClassAcommonshareforoneCNYGClassBcommonshare.CNYGClassAstockholderswereentitledtoelect25%ofCablevision'sBoardofDirectors.CNYGClassBstockholdershadtherighttoelecttheremainingmembersofCablevision'sBoardofDirectors.Inaddition,CNYGClassBstockholderswere
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
partiestoanagreementwhichhadtheeffectofcausingthevotingpoweroftheseCNYGClassBstockholderstobecastasablock.
ThefollowingtableprovidesdetailsofCablevision'ssharesofcommonstockthroughtheMergerDate:
Dividends
PursuanttothetermsoftheMergerAgreement,Cablevisionwasnotpermittedtodeclareandpaydividendsorrepurchasestock,ineachcase,withoutthepriorwrittenconsentofAltice.Inaccordancewiththeseterms,CablevisiondidnotdeclaredividendsduringtheperiodJanuary1,2016throughJune20,2016.
DuringtheperiodJanuary1,2016throughJune20,2016,Cablevisionpaid$4,066relatedtorestrictedsharesthatvestedinrespectofdividendsdeclaredandaccruedontheCNYGcommonstockinpriorperiods.
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Shares of Common Stock
Outstanding
Class A Common
Stock
Class B Common
Stock BalanceatDecember31,2013 213,598,590 54,137,673Employeeandnon-employeedirectorstocktransactions(a) 6,621,345 —
BalanceatDecember31,2014 220,219,935 54,137,673Employeeandnon-employeedirectorstocktransactions(a) 2,352,275 —
BalanceatDecember31,2015 222,572,210 54,137,673Employeeandnon-employeedirectorstocktransactions(a) (185,276) —
BalanceatJune20,2016 222,386,934 54,137,673
(a) Primarilyincludedissuancesofcommonstockinconnectionwithemployeeandnon-employeedirectorexercisesofstockoptionsandrestrictedsharesgrantedtoemployees,offsetbysharesacquiredbytheCompanyinconnectionwiththefulfillmentofemployees'statutorytaxwithholdingobligationforapplicableincomeandotheremploymenttaxesandforfeitedemployeerestrictedshares.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
PriortotheMerger,theBoardofDirectorsofCablevisionhaddeclaredandpaidthefollowingcashdividendstostockholdersofrecordonbothitsCNYGClassAcommonstockandCNYGClassBcommonstock:
Cablevisionpaiddividendsaggregating$125,170and$160,545duringtheyearsendedDecember31,2015and2014,respectively,includingaccrueddividendsonvestedrestrictedsharesof$3,935and$1,548,respectively.
Cablevision'sandCSCHoldings'indenturesandCSCHoldings'creditagreementrestricttheamountofdividendsanddistributionsinrespectofanyequityinterestthatcanbemade.
Income (Loss) Per Share
BasicincomepercommonshareattributabletoCablevisionstockholderswascomputedbydividingnetincomeattributabletoCablevisionstockholdersbytheweightedaveragenumberofcommonsharesoutstandingduringtheperiod.DilutedincomepercommonshareattributabletoCablevisionstockholdersreflectedthedilutiveeffectsofstockoptions,restrictedstockandrestrictedstockunits.Forsuchawardsthatwereperformancebased,thedilutedeffectwasreflectedupontheachievementoftheperformancecriteria.
ThefollowingtablepresentsareconciliationofweightedaveragesharesusedinthecalculationsofthebasicanddilutednetincomepershareattributabletoCablevisionstockholders:
Anti-dilutiveshares(optionswhoseexercisepriceexceedstheaveragemarketpriceofCablevision'scommonstockduringtheperiodandcertainrestrictedshares)totalingapproximately1,160,000,and1,760,000shares,wereexcludedfromdilutedweightedaveragesharesoutstandingfortheyearsended2015and2014,respectively.Therewerenoanti-dilutivesharesexcludedfromdilutedweightedaveragesharesoutstandingfortheperiodJanuary1,2016toJune20,2016.Inaddition,
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Declaration Date Dividend per Share Record Date Payment Date
August6,2015 $ 0.15 August21,2015 September10,2015May1,2015 $ 0.15 May22,2015 June12,2015February24,2015 $ 0.15 March16,2015 April3,2015November5,2014 $ 0.15 November21,2014 December12,2014July29,2014 $ 0.15 August15,2014 September5,2014May6,2014 $ 0.15 May23,2014 June13,2014February25,2014 $ 0.15 March14,2014 April3,2014
Years Ended December 31,
January 1, 2016 to
June 20, 2016
2015 2014 Basicweightedaveragesharesoutstanding 272,035 269,388 264,623Effectofdilution: Stockoptions 4,444 3,532 3,247Restrictedstock 3,720 3,419 2,833
Dilutedweightedaveragesharesoutstanding 280,199 276,339 270,703
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
approximately1,772,000performancebasedrestrictedstockunitsfortheyearendedDecember31,2015,andapproximately45,000restrictedsharesfortheyearendedDecember31,2014,issuedpursuanttotheCompany'sformeremployeestockplanwerealsoexcludedfromthedilutedweightedaveragesharesoutstandingastheperformancecriteriaontheseawardshadnotyetbeensatisfiedfortherespectiveperiod.
Netincome(loss)pershareforCablevisionsubsequenttothemergerisnotpresentedsinceCablevision'scommonstockisnolongerpubliclytraded.
Concentrations of Credit Risk
FinancialinstrumentsthatmaypotentiallysubjecttheCompanytoaconcentrationofcreditriskconsistprimarilyofcashandcashequivalentsandtradeaccountreceivables.TheCompanymonitorsthefinancialinstitutionsandmoneymarketfundswhereitinvestsitscashandcashequivalentswithdiversificationamongcounterpartiestomitigateexposuretoanysinglefinancialinstitution.TheCompany'semphasisisprimarilyonsafetyofprincipalandliquidityandsecondarilyonmaximizingtheyieldonitsinvestments.Managementbelievesthatnosignificantconcentrationofcreditriskexistswithrespecttoitscashandcashequivalentsbalancesbecauseofitsassessmentofthecreditworthinessandfinancialviabilityoftherespectivefinancialinstitutions.
TheCompanydidnothaveasinglecustomerthatrepresented10%ormoreofitsconsolidatedrevenuesfortheperiodJanuary1,2016throughJune20,2016andtheyearsendedDecember31,2015and2014,or10%ormoreofitsconsolidatednettradereceivablesatDecember31,2015.
NOTE 3. ALLOWANCE FOR DOUBTFUL ACCOUNTS
Activityrelatedtotheallowancefordoubtfulaccounts:
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Balance at
Beginning of Period Provision for
Bad Debt
Deductions/ Write- Offs and Other
Charges Balance at End
of Period Period from January 1, 2016 through June 20,
2016 Allowancefordoubtfulaccounts $ 6,039 $ 13,240 $ (12,378) $ 6,901Year Ended December 31, 2015 Allowancefordoubtfulaccounts $ 12,112 $ 35,802 $ (41,875) $ 6,039Year Ended December 31, 2014 Allowancefordoubtfulaccounts $ 14,614 $ 47,611 $ (50,113) $ 12,112
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 4. SUPPLEMENTAL CASH FLOW INFORMATION
TheCompany'snon-cashinvestingandfinancingactivitiesandothersupplementaldatawereasfollows:
NOTE 5. RESTRUCTURING AND OTHER EXPENSE
Restructuring
TheCompanyrecordednetrestructuringcharges(credits)of$2,299,$(1,649),and$2,480,fortheperiodJanuary1,2016throughJune20,2016andfortheyearsendedDecember31,2015and2014,respectively.The2014restructuringexpenseincludeda$3,280chargerelatingtotheeliminationofcertainpositionsatNewsday.The2016and2015restructuringexpense(credit)primarilyrelatedtochangestotheCompany'spreviousestimatesrecordedinconnectionwiththeCompany'spriorrestructuringplans.
SubsequenttotheAlticeMerger,theCompanycommenceditsrestructuringinitiatives(the"2016RestructuringPlan")thatareintendedtosimplifytheCompany'sorganizationalstructure.The2016RestructuringPlanresultedinchargesof$188,847associatedwiththeeliminationofpositionsprimarilyincorporate,administrativeandinfrastructurefunctionsacrosstheCompanyandestimatedchargesof$10,410associatedwithfacilityrealignmentandothercosts.
Other Expense
InconnectionwiththeAlticeMerger,theCompanyincurredtransactioncostsof$19,924and$17,862fortheperiodJanuary1,2016throughJune20,2016andfortheyearendedDecember31,2015,respectively,whicharereflectedinrestructuringandotherexpenseintheconsolidatedstatementsofoperations.SubsequenttotheAlticeMerger,theCompanyincurredtransactioncostsof$12,920.
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Years Ended December 31,
January 1, 2016 to
June 20, 2016
2015 2014 Non-CashInvestingandFinancingActivities: Continuing Operations: Propertyandequipmentaccruedbutunpaid $ 68,356 $ 63,843 $ 48,824Notespayabletovendor — 8,318 34,522Capitalleaseobligations — 19,987 30,603Intangibleassetobligations 290 1,121 525
Non-CashInvestingandFinancingActivities: Dividendspayableonunvestedrestrictedshareawards — 3,517 3,809
SupplementalData: Continuing Operations: Cashinterestpaid 258,940 560,361 550,241Incometaxespaid,net 7,082 3,849 10,598
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 6. DISCONTINUED OPERATIONS
LossfromdiscontinuedoperationsfortheyearendedDecember31,2015amountedto$21,272($12,541,netofincometaxes)andprimarilyreflectsanexpenseof$21,000($12,380,netofincometaxes)relatedtothesettlementofalegalmatterrelatingtoRainbowMediaHoldingsLLC,abusinesswhoseoperationswerepreviouslydiscontinued(seeNote17).
IncomefromdiscontinuedoperationsfortheyearendedDecember31,2014amountedto$5,028($2,822,netofincometaxes)andresultedprimarilyfromthesettlementofacontingencyrelatedtoMontanapropertytaxesrelatedtoBresnanCable,abusinesswhichwassoldin2013.
NOTE 7. PROPERTY, PLANT AND EQUIPMENT
CostsincurredintheconstructionoftheCompany'scablesystems,includinglineextensionsto,andupgradeof,theCompany'shybridfiber/coaxialinfrastructure,initialplacementofthefeedercabletoconnectacustomerthathadnotbeenpreviouslyconnected,andheadendfacilitiesarecapitalized.Thesecostsconsistofmaterials,subcontractorlabor,directconsultingfees,andinternallaborandrelatedcostsassociatedwiththeconstructionactivities.TheinternalcoststhatarecapitalizedconsistofsalariesandbenefitsoftheCompany'semployeesandtheportionoffacilitycosts,includingrent,taxes,insuranceandutilities,thatsupportstheconstructionactivities.Thesecostsaredepreciatedovertheestimatedlifeoftheplant(10to25years)andheadendfacilities(4to25years).Costsofoperatingtheplantandthetechnicalfacilities,includingrepairsandmaintenance,areexpensedasincurred.
Costsassociatedwithinitialcustomerinstallationsandtheadditionsofnetworkequipmentnecessarytoenableadvancedservicesarealsocapitalized.Costscapitalizedaspartofnewcustomerinstallationsincludematerials,subcontractorcostsandinternaldirectlaborcosts,includingservicetechniciansandinternaloverheadcostsincurredtoconnectthecustomertotheplantfromthetimeofinstallationschedulingthroughthetimeserviceisactivatedandfunctioning.Theinternaldirectlaborcostcapitalizedisbasedonacombinationoftheactualandestimatedtimetocompletetheinstallation.Overheadcapitalizedconsistsmainlyofemployeebenefits,suchaspayrolltaxesandhealthinsurance,directlyassociatedwiththatportionofthecapitalizedlaborandvehicleoperatingcostsrelatedtocapitalizableactivities.Newconnectionsareamortizedovertheestimatedusefullifeof5yearsforcustomerwiringandfeedercabletothehome.Theportionofdepartmentalcostsrelatedtodisconnectingservices,reconnectionofacustomer,andrepairandmaintenanceareexpensedasincurred.
Theestimatedusefullivesassignedtoourproperty,plantandequipmentarereviewedonanannualbasisormorefrequentlyifcircumstanceswarrantandsuchlivesarerevisedtotheextentnecessaryduetochangingfactsandcircumstances.Anychangesinestimatedusefullivesarereflectedprospectively.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 7. PROPERTY, PLANT AND EQUIPMENT (Continued)
Property,plantandequipment(includingequipmentundercapitalleases)consistofthefollowingassets,whicharedepreciatedoramortizedonastraight-linebasisovertheestimatedusefullivesshownbelow:
DuringtheperiodJanuary1,2016throughJune20,2016andtheyearsendedDecember31,2015and2014,theCompanycapitalizedcertaincostsaggregating$58,409,$144,349,and$153,675respectively,relatedtotheacquisitionanddevelopmentofinternalusesoftware,whichareincludedinthetableabove.
Depreciationexpenseonproperty,plantandequipment(includingcapitalleases)fortheperiodJanuary1,2016throughJune20,2016andtheyearsendedDecember31,2015and2014amountedto$404,234,$857,440and$852,451,respectively,(includingimpairmentchargesof$425in2014).
AtDecember31,2015,thegrossamountofequipmentandrelatedaccumulatedamortizationrecordedundercapitalleaseswasasfollows:
NOTE 8. OPERATING LEASES
TheCompanyleasescertainoffice,production,andtransmissionfacilitiesundertermsofleasesexpiringatvariousdatesthrough2035.Theleasesgenerallyprovideforescalatingrentalsoverthetermoftheleasepluscertainrealestatetaxesandothercostsorcredits.Costsassociatedwithsuchoperatingleasesarerecognizedonastraight-linebasisovertheinitialleaseterm.Thedifference
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December 31,
2015 Estimated
Useful LivesCustomerequipment $ 1,952,336 3to5yearsHeadendsandrelatedequipment 2,388,289 4to25yearsInfrastructure 5,639,226 3to25yearsEquipmentandsoftware 1,577,616 3to10yearsConstructioninprogress(includingmaterialsandsupplies) 87,412 Furnitureandfixtures 96,561 5to12yearsTransportationequipment 210,013 5to18yearsBuildingsandbuildingimprovements 322,267 10to40yearsLeaseholdimprovements 354,136 TermofleaseLand 14,507
12,642,363 Lessaccumulateddepreciationandamortization (9,625,348)
$ 3,017,015
December 31,
2015 Equipment $ 90,099Lessaccumulatedamortization (28,119)
$ 61,980
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 8. OPERATING LEASES (Continued)
betweenrentexpenseandrentpaidisrecordedasdeferredrent.Inaddition,theCompanyrentsspaceonutilitypolesforitsoperations.TheCompany'spolerentalagreementsareforvaryingterms,andmanagementanticipatesrenewalsastheyexpire.Rentexpense,includingpolerentals,fortheperiodJanuary1,2016throughJune20,2016andtheyearsendedDecember31,2015and2014amountedto$41,573,$82,704and$77,769,respectively.
Theminimumfutureannualpaymentsforalloperatingleases(withinitialorremainingtermsinexcessofoneyear)duringthenextfiveyearsandthereafter,includingpolerentalsfromJanuary1,2017throughDecember31,2021,areasfollows:
NOTE 9. INTANGIBLE ASSETS
ThefollowingtablesummarizesinformationrelatingtotheCompany'sacquiredintangibleassets:
AmortizationexpensefortheperiodJanuary1,2016throughJune20,2016andtheyearsendedDecember31,2015and2014amountedto$10,316,$7,812and$8,220,respectively,excludingimpairmentchargesof$5,831in2014.
ThefollowingtablesummarizesinformationrelatingtotheCompany'sacquiredindefinite-livedintangibleassets:
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2017 $ 57,8532018 52,2062019 44,9082020 41,2212021 38,697Thereafter 141,063
December 31, 2015
Gross Carrying Amount
Accumulated Amortization
Net Carrying Amount
Estimated Useful Lives
Customerrelationships $ 39,414 $ (27,778) $ 11,636 10to18yearsTradenames — — — Otheramortizableintangibles 57,847 (32,532) 25,315 3to28years
$ 97,261 $ (60,310) $ 36,951
December 31,
2015 Cabletelevisionfranchises $ 731,848Trademarksandotherassets 7,250Goodwill 262,345Total $ 1,001,443
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 9. INTANGIBLE ASSETS (Continued)
Thecarryingamountofgoodwillispresentedbelow:
Impairment Charges
Goodwillandindefinite-livedintangibleassetsaretestedannuallyforimpairmentorearlierupontheoccurrenceofcertaineventsorsubstantivechangesincircumstances.
TheCompany'simpairmentanalysisasofDecember31,2014resultedinpre-taximpairmentchargesof$200,relatedtotheexcessofthecarryingvalueovertheestimatedfairvalueoftheNewsdaytrademarks.Additionally,in2014,theCompanyrecordedimpairmentchargesof$5,631,relatingtotheexcessofthecarryingvalueovertheestimatedfairvaluesofNewsday'samortizingsubscriberrelationshipsandadvertiserrelationships,respectively.Thedecreaseinfairvalues,whichweredeterminedbasedondiscountedcashflows,resultedprimarilyfromthedeclineinprojectedcashflowsrelatedtotheseassets.Thesepre-taximpairmentchargesareincludedindepreciationandamortization(includingimpairments).
NogoodwillimpairmentswererecordedfortheperiodJanuary1,2016throughJune20,2016andfortheyearsendedDecember31,2015and2014,respectively.
NOTE 10. DEBT
Restricted Group Credit Facility
PriortotheMerger,CSCHoldingsandcertainofitssubsidiaries(the"RestrictedSubsidiaries")hadacreditagreement(the"PreviousCreditFacility")thatprovidedfor(1)arevolvingcreditfacilityof$1,500,000,(2)aTermAfacilityof$958,510,and(3)aTermBfacilityof$1,200,000.
LoansunderthePreviousCreditFacilityboreinterestasfollows:
• RevolvingcreditloansandTermAloans,either(i)theEurodollarrate(asdefined)plusaspreadrangingfrom1.50%to2.25%basedonthecashflowratio(asdefined),or(ii)thebaserate(asdefined)plusaspreadrangingfrom0.50%to1.25%basedonthecashflowratio;
• TermBloans,either(i)theEurodollarrateplusaspreadof2.50%or(ii)thebaserateplusaspreadof1.50%.
Therewasacommitmentfeeof0.30%onundrawnamountsundertherevolvingcreditfacilityinconnectionwiththePreviousCreditFacility.
Repayment of Restricted Group Credit Facility Debt
InMay2014,CSCHoldingsusedthenetproceedsfromtheissuanceofthe2024Notes(discussedbelow),aswellascashonhand,tomakea$750,000repaymentonitsoutstandingTermBloanfacility.InSeptember2014,CSCHoldingsmadearepaymentof$200,000onitsoutstandingTermBloanfacilitywithcashonhand.Inconnectionwiththeserepayments,theCompanyrecognizedalosson
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GrossgoodwillasofDecember31,2015(Predecessor) $ 596,403Accumulatedimpairmentlosses (334,058)NetgoodwillasofJune20,2016 $ 262,345
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 10. DEBT (Continued)
extinguishmentofdebtofapproximately$4,054andwrote-offunamortizeddeferredfinancingcostsrelatedtothisloanfacilityofapproximately$5,564fortheyearendedDecember31,2014.
InApril2015,CSCHoldingsmadearepaymentof$200,000onitsoutstandingTermBloanfacilitywithcashonhand.Inconnectionwiththerepayment,theCompanyrecognizedalossonextinguishmentofdebtof$731andwrote-offunamortizeddeferredfinancingcostsrelatedtothisloanfacilityof$1,004fortheyearendedDecember31,2015.
OnJune21,2016,inconnectionwiththeMerger,thePreviousCreditFacilitywasrepaid.
Newsday LLC Credit Facility
NewsdayLLC("Newsday")hadaseniorsecuredcreditagreement(the"NewsdayCreditAgreement"),whichconsistedofa$480,000floatingratetermloan.InterestundertheNewsdayCreditAgreementwascalculated,attheelectionofNewsday,ateithertheEurodollarrateorthebaserate,plus3.50%or2.50%,respectively,asspecifiedintheNewsdayCreditAgreement.BorrowingsundertheNewsdayCreditAgreementwereguaranteedbyCSCHoldingsonaseniorunsecuredbasisandcertainofitssubsidiariesthatowninterestsinNewsdayonaseniorsecuredbasis.TheNewsdayCreditAgreementwassecuredbyalienontheassetsofNewsdayandCablevisionseniornoteswithanaggregateprincipalamountof$611,455ownedbyNewsdayHoldings.
OnJune21,2016,inconnectionwiththeMerger,NewsdayLLCrepaiditsoutstandingindebtednessundertheNewsdayCreditAgreement.
ThefollowingtableprovidesdetailsoftheCompany'soutstandingcreditfacilitydebt(netofunamortizedfinancingcostsandunamortizeddiscounts):
F-80
Maturity Date Interest
Rate Principal December 31,
2015(a) Restricted Group: TermAloanfacility(b) April17,2018 2.17%$ 886,621 885,105TermBloanfacility(b) April17,2020 2.92% 1,159,031 1,150,227RestrictedGroupCreditFacilitiesdebt $ 2,035,332
(a) Theunamortizeddiscountsanddeferredfinancingcostsamountedto$11,200atDecember31,2015,
(b) InconnectionwiththeMerger,theCompanyrepaidthethenoutstandingTermAandTermBloanfacilities(seediscussionabove).
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 10. DEBT (Continued)
Senior Notes and Debentures
ThefollowingtablesummarizestheCompany'sseniornotesanddebenturesasofDecember31,2015:
Thetableaboveexcludes(i)theprincipalamountofCablevision7.75%seniornotesdue2018of$345,238andtheprincipalamountofCablevision8.00%seniornotesdue2020of$266,217heldbyNewsdayatDecember31,2015whichareeliminatedintheconsolidatedbalancesheetsofCablevision.
Issuance of Debt Securities
InMay2014,CSCHoldingsissued$750,000aggregateprincipalamountof5.25%seniornotesdueJune1,2024(the"2024Notes").The2024NotesareseniorunsecuredobligationsandrankequallyinrightofpaymentwithallofCSCHoldings'otherexistingandfutureunsecuredandunsubordinatedindebtedness.CSCHoldingsusedthenetproceedsfromtheissuanceofthe2024Notes,aswellascashonhand,tomakea$750,000repaymentonitsoutstandingTermBloanfacility.Inconnectionwiththeissuanceofthe2024Notes,theCompanyincurreddeferredfinancingcostsofapproximately$14,273.
TheindenturesunderwhichtheSeniorNotesandDebentureswereissuedcontaincertaincovenantsandagreements,includinglimitationsontheabilityofCSCHoldingsanditsrestrictedsubsidiariesto(i)incurorguaranteeadditionalindebtedness,(ii)makeinvestmentsorotherrestrictedpayments,(iii)createliens,(iv)sellassetsandsubsidiarystock,(v)paydividendsormakeotherdistributionsorrepurchaseorredeemourcapitalstockorsubordinateddebt,(vi)engageincertaintransactionswithaffiliates,(vii)enterintoagreementsthatrestrictthepaymentofdividendsbysubsidiariesortherepaymentofintercompanyloansandadvances,and(viii)engageinmergersor
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Issuer Date Issued Maturity Date Interest
Rate Principal Amount
Carrying Amount(c)
CSCHoldings(a) February6,1998 February15,2018 7.875%$ 300,000 $ 299,091CSCHoldings(a) July21,1998 July15,2018 7.625% 500,000 498,942CSCHoldings(b) February12,2009 February15,2019 8.625% 526,000 511,079CSCHoldings(b) November15,2011 November15,2021 6.750% 1,000,000 985,640CSCHoldings(b) May23,2014 June1,2024 5.250% 750,000 737,500Cablevision(b) September23,2009 September15,2017 8.625% 900,000 891,238Cablevision(b) April15,2010 April15,2018 7.750% 750,000 744,402Cablevision(b) April15,2010 April15,2020 8.000% 500,000 494,410Cablevision(b) September27,2012 September15,2022 5.875% 649,024 638,709Total $ 5,801,011
(a) ThedebenturesarenotredeemablebytheCompanypriortomaturity.
(b) TheCompanymayredeemsomeorallofthenotesatanytimeataspecified"make-whole"priceplusaccruedandunpaidinteresttotheredemptiondate.
(c) Thecarryingamountofthenotesisnetoftheunamortizeddeferredfinancingcostsand/ordiscounts/premiums.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 10. DEBT (Continued)
consolidations,ineachcasesubjecttocertainexceptions.Theindenturesalsocontaincertaincustomaryeventsofdefault.
Repurchases of Cablevision Senior Notes
InJanuary2014,Cablevisionrepurchasedwithcashonhand$27,831aggregateprincipalamountofitsthenoutstanding5.875%seniornotesdueSeptember15,2022(the"2022Notes").InOctober2014,Cablevisionrepurchasedwithcashonhandanadditional$9,200aggregateprincipalamountofthe2022Notes.Inconnectionwiththeserepurchases,Cablevisionrecordedagainfromtheextinguishmentofdebtof$934,netoffees,andawrite-offofapproximately$1,436ofunamortizeddeferredfinancingcostsassociatedwiththesenotes.
Debt Transaction Subsequent to Merger
InconnectionwiththeMerger,inOctober2015,Fincoborrowedanaggregateprincipalamountof$3,800,000undertheTermCreditFacilityandenteredintorevolvingloancommitmentsinanaggregateprincipalamountof$2,000,000.TheTermCreditFacilitywastomatureonOctober9,2022andtheRevolvingCreditFacilitywastomatureonOctober9,2020(seediscussionbelowregardingtheextensionamendments).Inaddition,onJune21,2016andJuly21,2016,theCompanyenteredintoincrementalloanassumptionagreementswherebytheRevolvingCreditFacilitywasincreasedby$70,000and$35,000,respectively,to$2,105,000.
Fincoalsoissued$1,800,000aggregateprincipalamountofthe2023Notes,$2,000,000aggregateprincipalamountofthe2025Notes,and$1,000,000aggregateprincipalamountofthe2025GuaranteedNotes.
OnJune21,2016,immediatelyfollowingtheMerger,FincomergedwithandintoCSCHoldings,withCSCHoldingssurvivingthemerger(the"CSCHoldingsMerger"),andtheMergerNotesandtheCreditFacilitiesbecameobligationsofCSCHoldings.The2025GuaranteedNotesareguaranteedonaseniorbasisbyeachrestrictedsubsidiaryofCSCHoldings(otherthanCSCTKR,LLCanditssubsidiaries,whichownandoperatetheNewJerseycabletelevisionsystems,CablevisionLightpath,Inc.andanysubsidiariesofCSCHoldingsthatare"ExcludedSubsidiaries"undertheindenturegoverningthe2025GuaranteedNotes)(suchsubsidiaries,the"InitialGuarantors")andtheobligationsundertheCreditFacilitiesare(i)guaranteedonaseniorbasisbyeachInitialGuarantorand(ii)securedonafirstprioritybasisbycapitalstockheldbyCSCHoldingsandtheguarantorsincertainsubsidiariesofCSCHoldings,subjecttocertainexclusionsandlimitations.
AlticeusedtheproceedsfromtheTermCreditFacilityandtheMergerNotes,togetherwithanequitycontributionfromAlticeanditsCo-InvestorsandexistingcashatCablevision,to(a)financetheMerger,(b)refinancethecreditagreement,datedasofApril17,2013(the"PreviousCreditFacility"),amongCSCHoldings,certainsubsidiariesofCSCHoldingsandthelenderspartythereto($2,030,699outstandingatMergerDate),(c)repaytheseniorsecuredcreditagreement,datedasofOctober12,2012,amongNewsdayLLC,CSCHoldings,andthelenderspartythereto(the"PreviousNewsdayCreditFacility")of$480,000atMergerDebt,and(d)payrelatedfeesandexpenses.
TheCreditFacilitiespermitCSCHoldingstorequestrevolvingloans,swinglineloansorlettersofcreditfromtherevolvinglenders,swinglinelendersorissuingbanks,asapplicable,thereunder,from
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 10. DEBT (Continued)
timetotimepriortoOctober9,2020,unlessthecommitmentsundertheRevolvingCreditFacilityhavebeenpreviouslyterminated.
LoanscomprisingeachEurodollarBorrowingorABRBorrowing,asapplicable,bearinterestatarateperannumequaltotheAdjustedLIBORateortheAlternateBaseRate,asapplicable,plustheApplicableMargin,wheretheApplicableMarginmeans:inrespectofrevolvingcreditloanswithrespecttoanyEurodollarLoan,3.25%perannumand(ii)withrespecttoanyABRLoan,2.25%perannum.
OnSeptember9,2016,CSCHoldingsenteredintoanamendment(the"ExtensionAmendment")totheCreditFacilitiesandtheincrementalloanassumptionagreementsdatedJune21,2016andJuly21,2016betweenCSCHoldingsandcertainlenderspartythereto(the"ExtendingLenders")pursuanttowhicheachExtendingLenderagreedtoextendthematurityofitsTermCreditFacilityundertheCreditFacilitiestoOctober11,2024andtocertainotheramendmentstotheCreditFacilities.InOctober2016,CSCHoldingsusedthenetproceedsfromthesaleof$1,310,000aggregateprincipalamountof5.5%seniorguaranteednotesdue2027(the"2027GuaranteedNotes")(afterthedeductionoffeesandexpenses)toprepayoutstandingloansundertheTermCreditFacilitythatwerenotextendedpursuanttotheExtensionAmendment.ThetotalaggregateprincipalamountoftheTermCreditFacility,aftergivingeffecttotheuseofproceedsofthe2027GuaranteedNotes,is$2,500,000(the"ExtendedTermLoan").TheExtendedTermLoanwaseffectiveonOctober11,2016.InconnectionwiththeprepaymentoftheTermCreditFacility,theCompanywrote-offthedeferredfinancingcostsandtheunamortizeddiscountrelatedtotheexistingtermloanaggregating$102,894.Additionally,theCompanyrecordeddeferredfinancingcostsandanoriginalissuediscountof$7,249and$6,250,respectively,whicharebothbeingamortizedtointerestexpenseoverthetermoftheExtendedTermLoan.
OnDecember9,2016,theCreditFacilitieswereamendedtoincreasetheavailabilityundertheRevolvingCreditFacilityfrom$2,105,000to$2,300,000andextendthematurityon$2,280,000ofthisfacilitytoNovember30,2021.Theremaining$20,000willmatureonOctober9,2020.TheCreditFacilitiesrequireCSCHoldingstoprepayoutstandingtermloans,subjecttocertainexceptionsanddeductions,with(i)100%ofthenetcashproceedsofcertainassetsales,subjecttoreinvestmentrightsandcertainotherexceptions,and(ii)commencingwiththefirstfullfiscalyearaftertheconsummationoftheMerger,aratableshare(basedontheoutstandingprincipalamountoftheExtendedTermLoandividedbythesumoftheoutstandingprincipalamountofallparipassuindebtednessandtheExtendedTermLoan)of50%oftheannualexcesscashflowofCSCHoldingsanditsrestrictedsubsidiaries,whichwillbereducedto0%iftheConsolidatedNetSeniorSecuredLeverageRatioofCSCHoldingsislessthanorequalto4.5to1.
UndertheTermCreditFacility,CSCHoldingswasrequiredtomakeandmadescheduledquarterlypaymentof$9,500beginningwiththefiscalquarterendingSeptember30,2016.UndertheExtendedTermLoan,CSCHoldingsisrequiredtomakescheduledquarterlypaymentsequalto0.25%oftheprincipalamountoftheExtendedTermLoan,withtheremainingbalancescheduledtobepaidonOctober11,2024,beginningwiththefiscalquarterendingMarch31,2017.
InterestwillbecalculatedundertheExtendedTermLoansubjecttoa"floor"applicabletotheAdjustedLIBORateof0.75%perannum,andtheApplicableMarginis(1)withrespecttoanyABRLoan,2.00%perannumand(2)withrespecttoanyEurodollarLoan,3.00%perannum.Ifthe
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 10. DEBT (Continued)
AdjustedLIBORatefortheExtendedTermLoanislessthan0.75%foranygivenperiod,theinterestrateisfixedat3.75%perannum.
TheCreditFacilitiesincludenegativecovenantsthataresubstantiallysimilartothenegativecovenantscontainedintheindenturesunderwhichtheMergerNoteswereissued(seediscussionbelow).TheCreditFacilitiesincludeonefinancialmaintenancecovenant(solelyforthebenefitoftheRevolvingCreditFacility),consistingofamaximumConsolidatedNetSeniorSecuredLeverageRatioof5.0to1,whichwillbetestedonthelastdayofanyfiscalquarterbutonlyifonsuchdaythereareoutstandingborrowingsundertheRevolvingCreditFacility(includingswinglineloansbutexcludinganycashcollateralizedlettersofcreditandundrawnlettersofcreditnottoexceed$15,000).TheCreditFacilitiesalsocontaincertaincustomaryrepresentationsandwarranties,affirmativecovenantsandeventsofdefault(including,amongothers,aneventofdefaultuponachangeofcontrol).Ifaneventofdefaultoccurs,theobligationsundertheCreditFacilitiesmaybeaccelerated.
TotalamountspayablebytheCompanyunderitsvariousdebtobligationsoutstanding,includingthedebttransactionsubsequenttothemergerdiscussedaboveandincludingnotespayable,collateralizedindebtedness,andcapitalleases,duringtheperiodsshownbelow,areasfollows:
NOTE 11. DERIVATIVE CONTRACTS AND COLLATERALIZED INDEBTEDNESS
TheCompanyhasenteredintovarioustransactionstolimittheexposureagainstequitypriceriskonitssharesofComcastCorporation("Comcast")commonstock.TheCompanyhasmonetizedallofitsstockholdingsinComcastthroughtheexecutionofprepaidforwardcontracts,collateralizedbyanequivalentamountoftherespectiveunderlyingstock.Atmaturity,thecontractsprovidefortheoptiontodelivercashorsharesofComcaststockwithavaluedeterminedbyreferencetotheapplicablestockpriceatmaturity.Thesecontracts,atmaturity,areexpectedtooffsetdeclinesinthefairvalueofthesesecuritiesbelowthehedgepricepersharewhileallowingtheCompanytoretainupsideappreciationfromthehedgepricepersharetotherelevantcapprice.
TheCompanyreceivedcashproceedsuponexecutionoftheprepaidforwardcontractsdiscussedabovewhichhasbeenreflectedascollateralizedindebtednessintheaccompanyingconsolidatedbalancesheets.Inaddition,theCompanyseparatelyaccountsfortheequityderivativecomponentoftheprepaidforwardcontracts.Theseequityderivativeshavenotbeendesignatedashedgesforaccountingpurposes.Therefore,thenetfairvaluesoftheequityderivativeshavebeenreflectedintheaccompanyingconsolidatedbalancesheetsasanassetorliabilityandthenetincreasesordecreasesinthefairvalueoftheequityderivativecomponentoftheprepaidforwardcontractsareincludedingain(loss)onderivativecontractsintheaccompanyingconsolidatedstatementsofoperations.
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Years Ending December 31, 2017 $ 1,719,1802018 2,103,4412019 557,3482020 526,3402021 1,200,256Thereafter 9,884,024
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 11. DERIVATIVE CONTRACTS AND COLLATERALIZED INDEBTEDNESS (Continued)
AlloftheCompany'smonetizationtransactionsareobligationsofitswholly-ownedsubsidiariesthatarenotpartoftheRestrictedGroup;however,CSCHoldingshasprovidedguaranteesofthesubsidiaries'ongoingcontractpaymentexpenseobligationsandpotentialpaymentsthatcouldbedueasaresultofanearlyterminationevent(asdefinedintheagreements).Ifanyoneofthesecontractswereterminatedpriortoitsscheduledmaturitydate,theCompanywouldbeobligatedtorepaythefairvalueofthecollateralizedindebtednesslessthesumofthefairvaluesoftheunderlyingstockandequitycollar,calculatedattheterminationdate.
TheCompanymonitorsthefinancialinstitutionsthatarecounterpartiestoitsequityderivativecontractsanditdiversifiesitsequityderivativecontractsamongvariouscounterpartiestomitigateexposuretoanysinglefinancialinstitution.
ThefollowingrepresentsthelocationoftheassetsandliabilitiesassociatedwiththeCompany'sderivativeinstrumentswithintheconsolidatedbalancesheets:
Unrealizedandrealizedgains(losses)relatedtoCompany'sequityderivativecontractsrelatedtotheComcastcommonstockfortheperiodJanuary1,2016throughJune20,2016andtheyearsendedDecember31,2015and2014of$(36,283),$104,927,and$(45,055),respectively,arereflectedingain(loss)onequityderivativecontracts,netintheCompany'sconsolidatedstatementsofoperations.
FortheperiodJanuary1,2016throughJune20,2016andtheyearsendedDecember31,2015and2014,theCompanyrecordedagain(loss)oninvestmentsof$129,510,$(33,935)and$129,832,respectively,representingthenetincrease(decrease)inthefairvaluesofallinvestmentsecuritiespledgedascollateral.
F-85
Asset
Derivatives Liability
Derivatives Derivatives Not Designated as Hedging Instruments Balance Sheet Location
Fair Value at December 31, 2015
Prepaidforwardcontracts Currentderivativecontracts $ 10,333 $ 2,706Prepaidforwardcontracts Long-termderivativecontracts 72,075 —
$ 82,408 $ 2,706
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 11. DERIVATIVE CONTRACTS AND COLLATERALIZED INDEBTEDNESS (Continued)
Settlements of Collateralized Indebtedness
ThefollowingtablesummarizesthesettlementoftheCompany'scollateralizedindebtednessrelatingtoComcastsharesthatweresettledbydeliveringcashequaltothecollateralizedloanvalue,netofthevalueoftherelatedequityderivativecontracts.
ThecashwasobtainedfromtheproceedsofnewmonetizationcontractscoveringanequivalentnumberofComcastshares.ThetermsofthenewcontractsallowtheCompanytoretainupsideparticipationinComcastsharesuptoeachrespectivecontract'supsideappreciationlimitwithdownsideexposurelimitedtotherespectivehedgeprice.
NOTE 12. FAIR VALUE MEASUREMENT
Thefairvaluehierarchyisbasedoninputstovaluationtechniquesthatareusedtomeasurefairvaluethatareeitherobservableorunobservable.Observableinputsreflectassumptionsmarketparticipantswoulduseinpricinganassetorliabilitybasedonmarketdataobtainedfromindependentsourceswhileunobservableinputsreflectareportingentity'spricingbasedupontheirownmarketassumptions.Thefairvaluehierarchyconsistsofthefollowingthreelevels:
• LevelI—Quotedpricesforidenticalinstrumentsinactivemarkets.
• LevelII—Quotedpricesforsimilarinstrumentsinactivemarkets;quotedpricesforidenticalorsimilarinstrumentsinmarketsthatarenotactive;andmodel-derivedvaluationswhoseinputsareobservableorwhosesignificantvaluedriversareobservable.
• LevelIII—Instrumentswhosesignificantvaluedriversareunobservable.
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January 1 to June 20, 2016
Year Ended December 31,
2015 Numberofshares(a) 10,802,118 26,815,368Collateralizedindebtednesssettled $ (273,519) $ (569,562)Derivativecontractssettled (8,075) (69,675)
(281,594) (639,237)Proceedsfromnewmonetizationcontracts 337,149 774,703Netcashreceipt $ 55,555 $ 135,466
(a) Shareamountsadjustedforthe2for1stocksplitinFebruary2017.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 12. FAIR VALUE MEASUREMENT (Continued)
Thefollowingtablepresentsforeachofthesehierarchylevels,theCompany'sfinancialassetsandfinancialliabilitiesthataremeasuredatfairvalueonarecurringbasis:
TheCompany'scashequivalents,investmentsecuritiesandinvestmentsecuritiespledgedascollateralareclassifiedwithinLevelIofthefairvaluehierarchybecausetheyarevaluedusingquotedmarketprices.
TheCompany'sprepaidforwardcontractsreflectedasderivativecontractsandliabilitiesunderderivativecontractsontheCompany'sbalancesheetsarevaluedusingmarket-basedinputstovaluationmodels.Thesevaluationmodelsrequireavarietyofinputs,includingcontractualterms,marketprices,yieldcurves,andmeasuresofvolatility.Whenappropriate,valuationsareadjustedforvariousfactorssuchasliquidity,bid/offerspreadsandcreditriskconsiderations.Suchadjustmentsaregenerallybasedonavailablemarketevidence.Sincemodelinputscangenerallybeverifiedanddonotinvolvesignificantmanagementjudgment,theCompanyhasconcludedthattheseinstrumentsshouldbeclassifiedwithinLevelIIofthefairvaluehierarchy.
Inaddition,seeNote9foradiscussionofimpairmentchargesrelatedtononfinancialassetsnotmeasuredatfairvalueonarecurringbasis.
Fair Value of Financial Instruments
Thefollowingmethodsandassumptionswereusedtoestimatefairvalueofeachclassoffinancialinstrumentsforwhichitispracticabletoestimate:
Credit Facility Debt, Collateralized Indebtedness, Senior Notes and Debentures, Senior Guaranteed Notes and Notes Payable
ThefairvaluesofeachoftheCompany'sdebtinstrumentsarebasedonquotedmarketpricesforthesameorsimilarissuesoronthecurrentratesofferedtotheCompanyforinstrumentsofthesameremainingmaturities.Thefairvalueofnotespayableisbasedprimarilyonthepresentvalueoftheremainingpaymentsdiscountedattheborrowingcost.
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At December 31, 2015 Level I Level II Level III Total Assets: Moneymarketfunds $ 922,765 $ — $ — $ 922,765Investmentsecurities 130 — — 130Investmentsecuritiespledgedascollateral 1,211,982 — — 1,211,982Prepaidforwardcontracts — 82,408 — 82,408
Liabilities: Prepaidforwardcontracts — 2,706 — 2,706
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 12. FAIR VALUE MEASUREMENT (Continued)
Thecarryingvalues,estimatedfairvalues,andclassificationunderthefairvaluehierarchyoftheCompany'sfinancialinstruments,excludingthosethatarecarriedatfairvalueintheaccompanyingconsolidatedbalancesheets,aresummarizedasfollows:
ThefairvalueestimatesrelatedtotheCompany'sdebtinstrumentsandseniornotesreceivablepresentedabovearemadeataspecificpointintime,basedonrelevantmarketinformationandinformationaboutthefinancialinstrument.Theseestimatesaresubjectiveinnatureandinvolveuncertaintiesandmattersofsignificantjudgmentsandthereforecannotbedeterminedwithprecision.Changesinassumptionscouldsignificantlyaffecttheestimates.
NOTE 13. INCOME TAXES
IncometaxexpenseattributabletotheCompany'scontinuingoperationsconsistsofthefollowingcomponents:
IncometaxbenefitattributabletodiscontinuedoperationsfortheyearendedDecember31,2015of$8,731iscomprisedofcurrentanddeferredincometaxbenefitof$111and$8,620,respectively.IncometaxexpenseattributabletodiscontinuedoperationsfortheyearendedDecember31,2014of$2,206iscomprisedofcurrentanddeferredincometaxexpenseof$108and$2,098,respectively.
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December 31, 2015
Fair Value Hierarchy
Carrying Amount
Estimated Fair Value
Debtinstruments: Creditfacilitydebt LevelII $ 2,514,454 $ 2,525,654Collateralizedindebtedness LevelII 1,191,324 1,176,396Seniornotesanddebentures LevelII 5,801,011 5,756,608Notespayable LevelII 14,544 14,483
Totaldebtinstruments $ 9,521,333 $ 9,473,141
January 1 to June 20, 2016
Year Ended December 31,
2015
Year Ended December 31,
2014 Currentexpense: Federal $ 6,473 $ 4,844 $ 6,122State 1,917 15,869 2,788
8,390 20,713 8,910Deferred(benefit)expense: Federal 93,253 97,927 135,873State 22,897 35,469 23,906
116,150 133,396 159,779Tax(benefit)expenserelatingtouncertaintaxpositions 308 763 (52,921)Incometaxexpense $ 124,848 $ 154,872 $ 115,768
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 13. INCOME TAXES (Continued)
Theincometax(benefit)expenseattributabletotheCompany'scontinuingoperationsdiffersfromtheamountderivedbyapplyingthestatutoryfederalratetopretaxincomeprincipallyduetotheeffectofthefollowingitems:
ThetaxeffectsoftemporarydifferenceswhichgiverisetosignificantportionsofdeferredtaxassetsorliabilitiesandthecorrespondingvaluationallowanceatDecember31,2015areasfollows.
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January 1 to June 20, 2016
Year Ended December 31,
2015
Year Ended December 31,
2014 Federaltaxexpenseatstatutoryrate $ 100,926 $ 119,931 $ 148,803Stateincometaxes,netoffederalimpact 14,825 18,874 19,059Changesinthevaluationallowance 86 (902) (344)Changesinthestateratesusedtomeasuredeferredtaxes,netoffederalimpact — (1,006) (322)Taxexpense(benefit)relatingtouncertaintaxpositions 178 574 (52,914)NewYorktaxreform — 16,334 (2,050)Non-deductibleofficers'compensation 462 846 1,532Non-deductiblemergertransactioncosts 9,392 — —Othernon-deductibleexpenses 1,337 3,099 3,697Researchcredit (850) (2,630) (2,634)Adjustmenttoprioryeartaxexpense — (515) (192)Other,net (1,508) 267 1,133Incometaxexpense $ 124,848 $ 154,872 $ 115,768
DeferredTaxAsset(Liability) Current NOLsandtaxcreditcarryforwards $ 76,007Compensationandbenefitplans 80,831Allowancefordoubtfulaccounts 2,196Mergertransactioncosts 7,332Inventory 7,135Other 26,216Deferredtaxasset 199,717
Valuationallowance (2,098)Netdeferredtaxasset,current 197,619
Investments (163,396)Prepaidexpenses (19,627)Deferredtaxliability,current (183,023)
Netdeferredtaxasset,current $ 14,596
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 13. INCOME TAXES (Continued)
TheCompanyusedthe'with-and-without'approachtodeterminetherecognitionandmeasurementofexcesstaxbenefits.Cashflowsresultingfromexcesstaxbenefitswereclassifiedascashflowsfromfinancingactivities.Excesstaxbenefitsarerealizedtaxbenefitsfromtaxdeductionsforoptionsexercisedandrestrictedsharesissuedinexcessofthedeferredtaxassetattributabletoshare-basedcompensationexpenseforsuchawards.TheCompanyrealizedexcesstaxbenefitof$82,$5,694and$336fortheperiodJanuary1,2016throughJune20,2016,andfortheyearsendedDecember31,2015and2014,respectively,resultinginanincreasetopaid-in-capital.
DeferredtaxassetshaveresultedprimarilyfromtheCompany'sfuturedeductibletemporarydifferencesandNOLs.Inassessingtherealizabilityofdeferredtaxassets,managementconsiderswhetheritismorelikelythannotthatsomeportionorallofthedeferredtaxassetwillnotberealized.TheCompany'sabilitytorealizeitsdeferredtaxassetsdependsuponthegenerationofsufficientfuturetaxableincomeandtaxplanningstrategiestoallowfortheutilizationofitsNOLsanddeductibletemporarydifferences.Ifsuchestimatesandrelatedassumptionschangeinthefuture,theCompanymayberequiredtorecordadditionalvaluationallowancesagainstitsdeferredtaxassets,resultinginadditionalincometaxexpenseintheCompany'sconsolidatedstatementsofincome.Managementevaluatestherealizabilityofthedeferredtaxassetsandtheneedforadditionalvaluationallowancesquarterly.Atthistime,basedoncurrentfactsandcircumstances,managementbelievesthatitismorelikelythannotthattheCompanywillrealizebenefitforitsgrossdeferredtaxassets,exceptthosedeferredtaxassetsagainstwhichavaluationallowancehasbeenrecordedwhichrelatetocertainstateNOLs.
Inthenormalcourseofbusiness,theCompanyengagesintransactionsinwhichtheincometaxconsequencesmaybeuncertain.TheCompany'sincometaxreturnsarefiledbasedoninterpretationoftaxlawsandregulations.Suchincometaxreturnsaresubjecttoexaminationbytaxingauthorities.Forfinancialstatementpurposes,theCompanyonlyrecognizestaxpositionsthatitbelievesaremorelikelythannotofbeingsustained.Thereisconsiderablejudgmentinvolvedindeterminingwhetherpositionstakenorexpectedtobetakenonthetaxreturnaremorelikelythannotofbeingsustained.
F-90
Noncurrent NOLsandtaxcreditcarryforwards $ 36,866Compensationandbenefitplans 97,005Partnershipinvestments 123,529Investments 9,798Other 9,201Deferredtaxasset 276,399
Valuationallowance (2,816)Netdeferredtaxasset,noncurrent 273,583
Fixedassetsandintangibles (978,418)Deferredtaxliability,noncurrent (978,418)Netdeferredtaxliability,noncurrent (704,835)
Totalnetdeferredtaxliability $ (690,239)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 13. INCOME TAXES (Continued)
Areconciliationofthebeginningandendingamountofunrecognizedtaxbenefitsassociatedwithuncertaintaxpositions,excludingassociateddeferredtaxbenefitsandaccruedinterest,isasfollows:
Inthesecondquarterof2016,theCompanychangeditsaccountingpolicyonaprospectivebasistopresentinterestexpenserelatingtouncertaintaxpositionsasadditionalinterestexpense.DuringtheperiodendedJune20,2016andDecember31,2015,interestexpenseof$209and$314wasincludedinincometaxexpense,respectively.
ThemostsignificantjurisdictionsinwhichtheCompanyisrequiredtofileincometaxreturnsincludethestatesofNewYork,NewJerseyandConnecticutandtheCityofNewYork.TheStateofNewYorkispresentlyauditingincometaxreturnsforyears2009through2011.
ManagementdoesnotbelievethattheresolutionoftheongoingincometaxexaminationdescribedabovewillhaveamaterialadverseimpactonthefinancialpositionoftheCompany.Changesintheliabilitiesforuncertaintaxpositionswillberecognizedintheinterimperiodinwhichthepositionsareeffectivelysettledorthereisachangeinfactualcircumstances.
NOTE 14. BENEFIT PLANS
Qualified and Non-qualified Defined Benefit Plans
CablevisionRetirementPlans(collectively,the"DefinedBenefitPlans")
TheCompanysponsorsanon-contributoryqualifieddefinedbenefitcashbalanceretirementplan(the"PensionPlan")forthebenefitofnon-unionemployeesotherthanthoseofNewsday,aswellascertainemployeescoveredbyacollectivebargainingagreementinBrooklyn.
TheCompanymaintainsanunfundednon-contributorynon-qualifieddefinedbenefitexcesscashbalanceplan("ExcessCashBalancePlan")coveringcertaincurrentandformeremployeesoftheCompanywhoparticipateinthePensionPlan,aswellasanadditionalunfundednon-contributory,non-qualifieddefinedbenefitplan("CSCSupplementalBenefitPlan")forthebenefitofcertainformerofficersandemployeesoftheCompanywhichprovidedthat,uponretiringonorafternormalretirementage,aparticipantreceivesabenefitequaltoaspecifiedpercentageoftheparticipant'saveragecompensation,asdefined.Allparticipantswere100%vestedintheCSCSupplementalBenefitPlan.ThebenefitsrelatedtotheCSCSupplementalPlanwerepaidtoparticipantsinJanuary2017andtheplanwasterminated.
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Balance at December 31, 2014 $ 4,011Increasesrelatedtoprioryeartaxpositions 316Increasesrelatedtoprioryeartaxpositions (88)Increasesrelatedtocurrentyeartaxpositions 3Settlementspaidincash (220)
Balance at December 31, 2015 4,022Increasesrelatedtoprioryeartaxpositions 3Increasesrelatedtocurrentyeartaxpositions 6
Balance at June 20, 2016 $ 4,031
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 14. BENEFIT PLANS (Continued)
TheCompanyamendedthePensionPlanandtheExcessCashBalancePlantofreezeparticipationandfuturebenefitaccrualseffectiveDecember31,2013forallCompanyemployeesexceptthosecoveredbyacollectivebargainingagreementinBrooklyn.EffectiveApril1,2015,participationwasfrozenandfuturebenefitaccrualsceasedforemployeescoveredbyacollectivebargainingagreementinBrooklyn.Therefore,afterApril1,2015,noemployeeoftheCompanywhowasnotalreadyaparticipantcouldparticipateintheplansandnofurtherannualPayCredits(acertainpercentageofemployees'eligiblepay)weremade.Existingaccountbalancesundertheplanscontinuetobecreditedwithmonthlyinterestinaccordancewiththetermsoftheplans.
Plan Results for Defined Benefit Plans
SummarizedbelowisthefundedstatusandtheamountsrecordedontheCompany'sconsolidatedbalancesheetsforalloftheCompany'sDefinedBenefitPlansatDecember31,2015:
TheaccumulatedbenefitobligationfortheCompany'sDefinedBenefitPlansaggregated$403,963atDecember31,2015.
TheCompany'snetfundedstatusrelatingtoitsDefinedBenefitPlansatDecember31,2015areasfollows:
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Changeinprojectedbenefitobligation: Projectedbenefitobligationatbeginningofyear $ 430,846Servicecost 344Interestcost 15,523Actuarial(gain)loss (14,912)Curtailments —Benefitspaid (27,838)Projectedbenefitobligationatendofyear 403,963
Changeinplanassets: Fairvalueofplanassetsatbeginningofyear 303,676Actualreturn(loss)onplanassets,net (3,921)Employercontributions 25,929Benefitspaid (27,838)Fairvalueofplanassetsatendofyear 297,846
Unfundedstatusatendofyear $ (106,117)
DefinedBenefitPlans $ (106,117)Less:Currentportionrelatedtononqualifiedplans 6,889Long-termdefinedbenefitplanobligations $ (99,228)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 14. BENEFIT PLANS (Continued)
Componentsofthenetperiodicbenefitcost,recordedinotheroperatingexpenses,fortheDefinedBenefitPlansfortheperiodJanuary1,2016toJune20,2016andfortheyearsendedDecember31,2015and2014,areasfollows:
Plan Assumptions for Defined Benefit Plans
Weighted-averageassumptionsusedtodeterminenetperiodiccost(madeatthebeginningoftheyear)andbenefitobligations(madeattheendoftheyear)fortheDefinedBenefitPlansareasfollows:
ThediscountrateusedbytheCompanyincalculatingthenetperiodicbenefitcostfortheCashBalancePlanandtheExcessCashBalancePlanwasdeterminedbasedontheexpectedfuturebenefit
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January 1, 2016 to
June 20, 2016
Year ended December 31,
2015
Year ended December 31,
2014 Servicecost $ — $ 344 $ 774Interestcost 7,130 15,523 18,040Expectedreturnonplanassets,net (3,565) (8,297) (9,548)Recognizedactuarialloss(reclassifiedfromaccumulatedothercomprehensiveloss) (1,446) 1,294 2,364
Settlement(income)loss(reclassifiedfromaccumulatedothercomprehensiveloss)(a) 1,655 3,822 5,348
Netperiodicbenefitcost $ 3,774 $ 12,686 $ 16,978
(a) AsaresultofbenefitpaymentstoterminatedorretiredindividualsexceedingtheserviceandinterestcostsforthePensionPlanandtheExcessCashBalancePensionPlanduringtheperiodJanuary1,2016throughJune20,2016,andyearsendedDecember31,2015and2014,theCompanyrecognizedanon-cashsettlementlossthatrepresentedtheaccelerationoftherecognitionofaportionofthepreviouslyunrecognizedactuariallossesrecordedinaccumulatedothercomprehensivelossontheCompany'sconsolidatedbalancesheetsrelatingtotheseplans.
Weighted-Average Assumptions
Net Periodic Benefit Cost
Benefit Obligations
December 31, 2015
January 1, 2016 to
June 20, 2016
Year ended December 31,
2015
Year ended December 31,
2014 Discountrate(a) 3.76% 3.83% 4.24% 3.94%Rateofincreaseinfuturecompensationlevels —% —% 3.50% —%Expectedrateofreturnonplanassets(PensionPlanonly) 3.97% 4.03% 4.53% N/A
(a) Thediscountratesof3.76%,3.83%,and4.24%fortheperiodJanuary1,2016throughJune20,2016,andyearsendedDecember31,2015and2014,respectively,representtheaverageofthequarterlydiscountratesusedtoremeasuretheCompany'sprojectedbenefitobligationandnetperiodicbenefitcostinconnectionwiththerecognitionofsettlementlossesdiscussedabove.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 14. BENEFIT PLANS (Continued)
paymentsfortheplansandfromtheTowersWatsonU.S.RateLink:40-90DiscountRateModel.Themodelwasdevelopedbyexaminingtheyieldsonselectedhighlyratedcorporatebonds.
TheCompany'sexpectedlong-termreturnonPensionPlanassetsisbasedonaperiodicreviewandmodelingoftheplan'sassetallocationstructureoveralong-termhorizon.Expectationsofreturnsandriskforeachassetclassarethemostimportantoftheassumptionsusedinthereviewandmodelingandarebasedoncomprehensivereviewsofhistoricaldata,forwardlookingeconomicoutlook,andeconomic/financialmarkettheory.Theexpectedlong-termrateofreturnwaschosenasabestestimateandwasdeterminedby(a)historicalrealreturns,netofinflation,fortheassetclassescoveredbytheinvestmentpolicy,and(b)projectionsofinflationoverthelong-termperiodduringwhichbenefitsarepayabletoplanparticipants.
Pension Plan Assets and Investment Policy
TheweightedaverageassetallocationsofthePensionPlanatDecember31,2015areasfollows:
ThePensionPlan'sinvestmentobjectivesreflectanoveralllowrisktolerancetostockmarketvolatility.ThisstrategyallowsforthePensionPlantoinvestinportfoliosthatwouldobtainarateofreturnthroughouteconomiccycles,commensuratewiththeinvestmentriskandcashflowneedsofthePensionPlan.TheinvestmentsheldinthePensionPlanarereadilymarketableandcanbesoldtofundbenefitpaymentobligationsoftheplanastheybecomepayable.
InvestmentallocationdecisionsareformallymadebytheAlticeUSABenefitsCommittee,whichtakesintoaccountinvestmentadviceprovidedbyitsexternalinvestmentconsultant.Theinvestmentconsultanttakesintoaccountexpectedlong-termrisk,return,correlation,andotherprudentinvestmentassumptionswhenrecommendingassetclassesandinvestmentmanagerstotheCompany'sInvestmentandBenefitCommittee.ThemajorcategoriesofthePensionPlanassetsarecashequivalentsandbondswhicharemarked-to-marketonadailybasis.DuetothePensionPlan'ssignificantholdingsinlong-termgovernmentandnon-governmentfixedincomesecurities,thePensionPlan'sassetsaresubjectedtointerestraterisk;specifically,arisinginterestrateenvironment.Consequently,anincreaseininterestratesmaycauseadecreasetotheoverallliabilityofthePensionPlanthuscreatingahedgeagainstrisinginterestrates.Inaddition,aportionofthePensionPlan'sbondportfolioisinvestedinforeigndebtsecuritieswheretherecouldbeforeigncurrencyrisksassociatedwiththem,aswellasinnon-governmentsecuritieswhicharesubjecttocreditriskofthebondissuerdefaultingoninterestand/orprincipalpayments.
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Plan Assets at December 31,
2015 AssetClass: Mutualfunds 39%Fixedincomesecurities 61Cashequivalentsandother —
100%
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 14. BENEFIT PLANS (Continued)
Investments at Estimated Fair Value
ThefairvaluesoftheassetsofthePensionPlanatDecember31,2015byassetclassareasfollows:
ThefairvaluesofmutualfundsandcashequivalentswerederivedfromquotedmarketpricesthatthePensionPlanadministratorhastheabilitytoaccess.
Thefairvaluesofcorporateandgovernmentdebt,treasurysecuritiesandasset-backsecuritieswerederivedfrombidsreceivedfromavendororbrokernotavailableinanactivemarketthatthePensionPlanadministratorhastheabilitytoaccess.
Defined Contribution Plans
TheCompanyalsomaintainstheCablevision401(k)SavingsPlan,acontributoryqualifieddefinedcontributionplanforthebenefitofnon-unionemployeesoftheCompany.EmployeescancontributeapercentageofeligibleannualcompensationandtheCompanywillmakeamatchingcashcontributionordiscretionarycontribution,asdefinedintheplan.Inaddition,theCompanymaintainsanunfundednon-qualifiedexcesssavingsplanforwhichtheCompanyprovidesamatchingcontributionsimilartotheCablevision401(k)SavingsPlan.
ApplicableemployeesoftheCompanyareeligibleforanenhancedemployermatchingcontribution,aswellasayear-endemployerdiscretionarycontributiontotheCablevision401(k)SavingsPlanandtheCablevisionExcessSavingsPlan.
Thecostassociatedwiththeseplans(includingtheenhancedemployermatchinganddiscretionarycontributions)was$26,964,$61,343and$65,725fortheperiodJanuary1,2016throughJune20,2016,andyearsendedDecember31,2015and2014,respectively.
F-95
Asset Class Level I Level II Level III Total Mutualfunds $ 117,174 $ — $ — $ 117,174Fixedincomesecuritiesheldinaportfolio: Foreignissuedcorporatedebt — 12,825 — 12,825U.S.corporatedebt — 54,005 — 54,005Governmentdebt — 8,273 — 8,273U.S.Treasurysecurities — 90,414 — 90,414Asset-backedsecurities — 18,563 — 18,563
Cashequivalents(a) 893 — — 893Total(b) $ 118,067 $ 184,080 $ — $ 302,147
(a) Representsaninvestmentinamoneymarketfund.
(b) ExcludescashandnetpayablesrelatingtothesaleofsecuritiesthatwerenotsettledasofDecember31,2015.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 15. EQUITY AND LONG-TERM INCENTIVE PLANS
Equity Plans
InconnectionwiththeMerger,outstandingequity-basedawardsgrantedundertheCompany'sequityplanswerecancelledandconvertedintoarighttoreceivecashbaseduponthe$34.90perSharemergerpriceinaccordancewiththeoriginaltermsoftheawards.OntheMergerDate,theCompanyhad11,880,700stockoptions,3,769,485restrictedshares,1,724,940restrictedstockunitsissuedtoemployeesand466,283restrictedstockunitsissuedtonon-employeedirectorsoutstanding.Theaggregatepaymentwas$439,167andrepresentsaportionofthemergerconsideration.Approximately$63,484ofcompensationcostsrelatedtotheaccelerationofthevestingoftheseawardsinconnectionwiththeMergerandtherelatedemployerpayrolltaxesof$7,929wererecordedontheblacklineandthereforearenotreflectedineitherthePredecessororSuccessorperiods.
InMarch2015,theCompany'sBoardofDirectorsapprovedtheCablevisionSystemsCorporation2015EmployeeStockPlan("2015Plan"),whichwasapprovedbyCablevision'sstockholdersatitsannualstockholdersmeetingonMay21,2015.Underthe2015Plan,theCompanywasauthorizedtograntstockoptions,restrictedshares,restrictedstockunits,stockappreciationrights,andotherequity-basedawards.AsofDecember31,2015,79,780equitybasedawardshadbeengrantedunderthe2015Plan.
TheCompanyalsohadanemployeestockplan("2006Plan")underwhichitwasauthorizedtograntincentivestockoptions,nonqualifiedstockoptions,restrictedshares,restrictedstockunits,stockappreciationrightsandotherequity-basedawardsanda2006StockPlanforNon-EmployeeDirectors,wherebytheCompanywasauthorizedtograntnonqualifiedstockoptions,restrictedstockunitsandotherequity-basedawards.In2015and2014,theCompanygranteditsnon-employeedirectorsanaggregateof73,056and66,421restrictedstockunits,respectively.Totalnon-employeedirectorrestrictedstockunitsoutstandingasofDecember31,2015were466,283.
Sinceshare-basedcompensationexpenseisbasedonawardsthatareultimatelyexpectedtovest,suchcompensationexpensewasreducedforestimatedforfeitures.Forfeitureswereestimatedbasedprimarilyonhistoricalexperience.
Thefollowingtablepresentstheshare-basedcompensationexpenserecognizedbytheCompanyasotheroperatingexpenses:
Anincometaxbenefitof$10,357,$26,718and$17,801wasrecognizedincontinuingoperationsresultingfromshare-basedcompensationexpensefortheperiodfromJanuary1,2016throughJune20,2016andyearsendedDecember31,2015and2014,respectively.
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January 1, 2016 to
June 20, 2016
Year ended December 31,
2015
Year ended December 31,
2014 Stockoptions $ 3,848 $ 9,159 $ 7,573Restrictedsharesandrestrictedstockunits 20,930 51,162 36,411Share-basedcompensationrelatedtoequityclassifiedawards 24,778 60,321 43,984
Othershare-basedcompensation 453 4,965 —Totalshare-basedcompensation $ 25,231 $ 65,286 $ 43,984
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 15. EQUITY AND LONG-TERM INCENTIVE PLANS (Continued)
CashreceivedfromstockoptionexercisesfortheperiodJanuary1,2016throughJune20,2016,andyearsendedDecember31,2015and2014,respectivelywas$14,411,$18,727and$55,355,respectively.
Valuation Assumptions—Stock Options
TheCompanycalculatedthefairvalueofeachoptionawardonthedateofgrant.TheCompany'scomputationofexpectedlifewasdeterminedbasedonhistoricalexperienceofsimilarawards,givingconsiderationtothecontractualtermsoftheshare-basedawardsandvestingschedules,orbyusingthesimplifiedmethod(theaverageofthevestingperiodandoptionterm),ifapplicable.TheinterestrateforperiodswithinthecontractuallifeofthestockoptionwasbasedoninterestyieldsforU.S.Treasuryinstrumentsineffectatthetimeofgrant.TheCompany'scomputationofexpectedvolatilitywasbasedonhistoricalvolatilityofitscommonstock.
Thefollowingassumptionswereusedtocalculatethefairvaluesofstockoptionawardsgrantedinthefirstquarterof2015and2014:
Share-Based Payment Award Activity
ThefollowingtablesummarizesactivityrelatingtoCompanyemployeeswhoheldCablevisionstockoptionsfortheperiodJanuary1,2016toJune20,2016andfortheyearendedDecember31,2015:
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2015 2014 Risk-freeinterestrate 1.82% 2.12%Expectedlife(inyears) 8 6.5Dividendyield 3.63% 3.79%Volatility 39.98% 42.80%Grantdatefairvalue $ 5.45 $ 5.27
Weighted Average
Remaining Contractual
Term (in years)
Shares Under Option
Weighted Average Exercise
Price Per Share
Time Vesting Options
Performance Based Vesting
Options
Aggregate Intrinsic Value(a)
Balance,December31,2014 5,097,666 7,633,500 $ 14.41 7.17 $ 79,347Granted 2,000,000 — 19.17 Exercised (353,666) (1,024,283) 12.84
Balance,December31,2015 6,744,000 6,609,217 15.28 6.80 221,900Exercised (744,000) (728,517) 13.97
Balance,June20,2016 6,000,000 5,880,700 $ 15.45
(a) Theaggregateintrinsicvalueiscalculatedasthedifferencebetween(i)theexercisepriceoftheunderlyingawardand(ii)thequotedpriceofCNYGClassAcommonstockonDecember31,2015,asindicated.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 15. EQUITY AND LONG-TERM INCENTIVE PLANS (Continued)
Restricted Stock Award Activity
ThefollowingtablesummarizesactivityrelatingtoCompanyemployeeswhoheldCablevisionrestrictedsharesandrestrictedstockunitsfortheperiodJanuary1,2016toJune20,2016andfortheyearendedDecember31,2015:
Duringthefirstquarterof2016,2,992,463CablevisionrestrictedsharesissuedtoemployeesoftheCompanyvested.Tofulfilltheemployees'statutoryminimumtaxwithholdingobligationsfortheapplicableincomeandotheremploymenttaxes,1,248,875oftheseshares,withanaggregatevalueof$41,469,weresurrenderedtotheCompany.DuringtheyearendedDecember31,2015,2,337,963CablevisionrestrictedsharesissuedtoemployeesoftheCompanyvested.Tofulfilltheemployees'statutoryminimumtaxwithholdingobligationsfortheapplicableincomeandotheremploymenttaxes,1,004,950oftheseshares,withanaggregatevalueof$19,141weresurrenderedtotheCompany.Theseacquiredshareshadbeenclassifiedastreasurystock.
Long-Term Incentive Plan Awards
InMarch2011,theCompany'sBoardofDirectorsapprovedtheCablevisionSystemsCorporation2011CashIncentivePlan,whichwasapprovedbytheCompany'sstockholdersatitsannualstockholdersmeetinginMay2011.TheCompanyrecordedexpensesof$9,169,$27,170and$43,892fortheperiodJanuary1,2016throughJune20,2016,andyearsendedDecember31,2015and2014,respectively,relatedtothisplan.
Carried Unit Plan
Subsequenttothemerger,inJuly2016,certainemployeesoftheCompanyanditsaffiliatesreceivedawardsofunitsinaCarryUnitPlanofanentitywhichhasanownershipinterestinthe
F-98
Number of Restricted
Shares
Number of Performance
Restricted Shares
Number of Performance
Based Restricted
Stock Units ("PSU")(a)
Weighted Average Fair
Value Per Share at Date
of Grant Unvestedawardbalance,December31,2014 5,314,870 2,035,300 — $ 15.46Granted 1,747,870 584,400 1,851,700 19.43Vested (1,598,363) (739,600) — 14.48Awardsforfeited (496,629) — (79,270) 17.28
Unvestedawardbalance,December31,2015 4,967,748 1,880,100 1,772,430 17.53Vested (2,239,167) (753,296) — 15.35Awardsforfeited (85,900) — (47,490) 18.38
Unvestedawardbalance,June20,2016 2,642,681 1,126,804 1,724,940
(a) ThePSUsentitledtheemployeetosharesofCNYGcommonstockupto150%ofthenumberofPSUsgranteddependingonthelevelofachievementofthespecifiedperformancecriteria.Iftheminimumperformancethresholdwasnotmet,noshareswereissued.AccrueddividendswerepaidtotheextentthataPSUvestedandtherelatedstockwasissued.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 15. EQUITY AND LONG-TERM INCENTIVE PLANS (Continued)
Company'sparent,NeptuneHolding.Theawardsgenerallywillvestasfollows:50%onthesecondanniversaryofJune21,2016("BaseDate"),25%onthethirdanniversaryoftheBaseDate,and25%onthefourthanniversaryoftheBaseDate.Priortothefourthanniversary,theCompanyhastherighttorepurchasevestedawardsheldbyemployeesupontheirtermination.TheCarryUnitPlanhas259,442,785unitsauthorizedforissuance,ofwhich102,500,000havebeenissuedtoemployeesoftheCompanyand100,300,000havebeenissuedtoemployeesofAlticeandaffiliatedcompanies.
NOTE 16. AFFILIATE AND RELATED PARTY TRANSACTIONS
Equity Method Investments
InSeptember2015,theCompanypurchasedtheminorityinterestinNewsdayHoldingsLLC("NewsdayHoldings")heldbyTribuneMediaCompany("Tribune")forapproximately$8,300.Asaresultofthistransaction,NewsdayHoldingsbecameawholly-ownedsubsidiaryoftheCompany.Inaddition,theindemnityprovidedbytheCompanytoTribuneforcertaintaxesincurredbyTribuneifNewsdayHoldingsoritssubsidiarysoldorotherwisedisposedofNewsdayassetsinataxabletransactionorfailedtomaintainspecifiedminimumoutstandingindebtedness,wasamendedsothattherestrictionperiodlapsedonSeptember2,2015.
SubsequenttotheMerger,inJuly2016,theCompanycompletedthesaleofa75%interestinNewsdayLLC.TheCompanyretainedtheremaining25%ownershipinterest.
InDecember2016,theCompanymadeaninvestmentof$1,966inI24NEWS,Altice's24/7internationalnewsandcurrentaffairschannel,representinga25%ownershipinterestandthe75%interestisownedbyasubsidiaryofAltice.
Related Party Transactions
Asthetransactionsdiscussedbelowwereconductedbetweensubsidiariesundercommoncontrol,amountschargedforcertainservicesmaynothaverepresentedamountsthatmighthavebeenreceivedorincurredifthetransactionswerebaseduponarm'slengthnegotiations.
CablevisioniscontrolledbyCharlesF.Dolan,certainmembersofhisimmediatefamilyandcertainfamilyrelatedentities(collectivelythe"DolanFamily").MembersoftheDolanFamilyarealsothecontrollingstockholdersofAMCNetworks,TheMadisonSquareGardenCompanyandMSGNetworksInc.("MSGNetworks").
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 16. AFFILIATE AND RELATED PARTY TRANSACTIONS (Continued)
Thefollowingtablesummarizestherevenueandcharges(credits)relatedtoservicesprovidedtoorreceivedfromAMCNetworks,MadisonSquareGardenCompanyandMSGNetworksforthePredecessorperiods:
Revenue
TheCompanyrecognizedrevenueinconnectionwithtelevisionadvertisementsandprintadvertising,aswellascertaintelecommunicationserviceschargedbyitssubsidiariestoAMCNetworks,MadisonSquareGardenandMSGNetworks.TheCompanyanditssubsidiaries,togetherwithAMCNetworks,MadisonSquareGardenandMSGNetworksmayhaveenteredintoagreementswiththirdpartiesinwhichtheamountspaid/receivedbyAMCNetworks,MadisonSquareGardenandMSGNetworks,theirsubsidiaries,ortheCompanymayhavedifferedfromtheamountsthatwouldhavebeenpaid/receivedifsucharrangementswerenegotiatedseparately.WheresubsidiariesoftheCompanyhaveincurredacostincrementaltofairvalueandAMCNetworks,MadisonSquareGardenandMSGNetworkshavereceivedabenefitincrementaltofairvaluefromthesenegotiations,theCompanyanditssubsidiarieschargedAMCNetworks,MadisonSquareGardenandMSGNetworksfortheincrementalamount.
Programming and other direct costs
ProgrammingandotherdirectcostsincludedcostsincurredbytheCompanyforthecarriageoftheMSGNetworksandFuseprogramservices(2014periodonly),aswellasforAMC,WEtv,IFC,SundanceChannelandBBCAmerica(2015periodonly)ontheCompany'scablesystems.TheCompanyalsopurchasedcertainprogrammingsignaltransmissionandproductionservicesfromAMCNetworks.
Other operating expenses (credits)
TheCompany,AMCNetworks,MadisonSquareGardenandMSGNetworksroutinelyenteredintotransactionswitheachotherintheordinarycourseofbusiness.Suchtransactionsincluded,butwerenotlimitedto,sponsorshipagreementsandcross-promotionarrangements.Additionally,amountsreflectedinthetableswerenetofallocationstoAMCNetworks,MadisonSquareGardenandMSGNetworksforservicesperformedbytheCompanyontheirbehalf.AmountsalsoincludedchargestotheCompanyforservicesperformedorpaidbytheaffiliateontheCompany'sbehalf.
F-100
Years Ended December 31,
January 1, 2016 to
June 20, 2016
2015 2014 Revenue $ 2,088 $ 5,343 $ 5,075Operatingexpenses: Programmingandotherdirectcosts,netofcredits $ 84,636 $ 176,909 $ 179,144Otheroperatingexpenses,netofcredits 2,182 5,372 3,878Operatingexpenses,net 86,818 182,281 183,022Netcharges $ 84,730 $ 176,938 $ 177,947
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 16. AFFILIATE AND RELATED PARTY TRANSACTIONS (Continued)
SubsequenttotheMerger,theCompanycontinuestoreceiveorprovideservicestotheseentities,buttheseentitiesarenolongerrelatedparties.
Transactions with Other Affiliates
DuringtheperiodendedJanuary1,2016toJune20,2016andtheyearsendedDecember31,2015and2014,theCompanyprovidedservicestoorincurredcostsonbehalfofcertainrelatedparties,includingfromtimetotime,theDolanFamily.AllcostsincurredonbehalfoftheserelatedpartieswerereimbursedtotheCompany.AggregateamountsthatwereduefromandduetoAMCNetworks,MadisonSquareGardenandMSGNetworksandotheraffiliatesatDecember31,2015(Predecessor)issummarizedbelow:
NOTE 17. COMMITMENTS AND CONTINGENCIES
Legal Matters
CableOperationsLitigation
Marchese, et al. v. Cablevision Systems Corporation and CSC Holdings, LLC:
TheCompanyisadefendantinalawsuitfiledintheU.S.DistrictCourtfortheDistrictofNewJerseybyseveralpresentandformerCablevisionsubscribers,purportedlyonbehalfofaclassofiOvideosubscribersinNewJersey,ConnecticutandNewYork.AfterthreeversionsofthecomplaintweredismissedwithoutprejudicebytheDistrictCourt,plaintiffsfiledtheirthirdamendedcomplaintonAugust22,2011,allegingthattheCompanyviolatedSection1oftheShermanAntitrustActbyallegedlytyingthesaleofinteractiveservicesofferedaspartofiOtelevisionpackagestotherentalanduseofset-topboxesdistributedbyCablevision,andviolatedSection2oftheShermanAntitrustActbyallegedlyseekingtomonopolizethedistributionofCablevisioncompatibleset-topboxes.Plaintiffsseekunspecifiedtreblemonetarydamages,attorney'sfees,aswellasinjunctiveanddeclaratoryrelief.OnSeptember23,2011,theCompanyfiledamotiontodismissthethirdamendedcomplaint.OnJanuary10,2012,theDistrictCourtissuedadecisiondismissingwithprejudicetheSection2monopolizationclaim,butallowingtheSection1tyingclaimandrelatedstatecommonlawclaimstoproceed.Cablevision'sanswertothethirdamendedcomplaintwasfiledonFebruary13,2012.OnDecember7,2015,thepartiesenteredintoasettlementagreement,whichissubjecttoapprovalbytheCourt.OnDecember11,2015,plaintiffsfiledamotionforpreliminaryapprovalofthesettlement,conditionalcertificationofthesettlementclass,andapprovalofaclassnoticedistributionplan.OnMarch10,2016theCourtgrantedpreliminaryapprovalofthesettlementandapprovedtheclassnoticedistributionplan.
SubsequenttotheMerger,theclassnoticedistributionandtheclaimssubmissionprocesshavenowconcluded.TheCourtgrantedfinalapprovalofthesettlementonSeptember12,2016intheamountof$15,600,andtheeffectivedateofthesettlementwasOctober24,2016.
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December 31,
2015 Amountsduefromaffiliates $ 767Amountsduetoaffiliates 29,729
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 17. COMMITMENTS AND CONTINGENCIES (Continued)
In re Cablevision Consumer Litigation:
FollowingexpirationoftheaffiliationagreementsforcarriageofcertainFoxbroadcaststationsandcablenetworksonOctober16,2010,NewsCorporationterminateddeliveryoftheprogrammingfeedstotheCompany,andasaresult,thosestationsandnetworkswereunavailableontheCompany'scabletelevisionsystems.OnOctober30,2010,theCompanyandFoxreachedanagreementonnewaffiliationagreementsforthesestationsandnetworks,andcarriagewasrestored.SeveralpurportedclassactionlawsuitsweresubsequentlyfiledonbehalfoftheCompany'scustomersseekingrecoveryforthelackofFoxprogramming.ThoselawsuitswereconsolidatedinanactionbeforetheU.S.DistrictCourtfortheEasternDistrictofNewYork,andaconsolidatedcomplaintwasfiledinthatcourtonFebruary22,2011.Plaintiffsassertedclaimsforbreachofcontract,unjustenrichment,andconsumerfraud,seekingunspecifiedcompensatorydamages,punitivedamagesandattorneys'fees.OnMarch28,2012,theCourtruledontheCompany'smotiontodismiss,denyingthemotionwithregardtoplaintiffs'breachofcontractclaim,butgrantingitwithregardtotheremainingclaims,whichweredismissed.OnApril16,2012,plaintiffsfiledasecondconsolidatedamendedcomplaint,whichassertsaclaimonlyforbreachofcontract.TheCompany'sanswerwasfiledonMay2,2012.OnOctober10,2012,plaintiffsfiledamotionforclasscertificationandonDecember13,2012,amotionforpartialsummaryjudgment.OnMarch31,2014,theCourtgrantedplaintiffs'motionforclasscertification,anddeniedwithoutprejudiceplaintiffs'motionforsummaryjudgment.OnMay30,2014,theCourtapprovedtheformofclassnotice,andonOctober7,2014,approvedtheclassnoticedistributionplan.Theclassnoticedistributionhasbeencompleted,andtheopt-outperiodexpiredonFebruary27,2015.ExpertdiscoverycommencedonMay5,2014,andconcludedonDecember8and28,2015,whentheCourtruledonthependingexpertdiscoverymotions.OnJanuary26,2016,theCourtapprovedascheduleforfilingofsummaryjudgmentmotions.PlaintiffsfiledamotionforsummaryjudgmentonMarch31,2016.TheCompanyfileditsownsummaryjudgmentmotiononJune13,2016.Thepartiesareactivelyengagedinsettlementdiscussionsalthoughfinancialtermshavenotyetbeenfinalized.
PatentLitigation
CablevisionisnamedasadefendantincertainlawsuitsclaiminginfringementofvariouspatentsrelatingtovariousaspectsoftheCompany'sbusinesses.Incertainofthesecasesotherindustryparticipantsarealsodefendants.IncertainofthesecasestheCompanyexpectsthatanypotentialliabilitywouldbetheresponsibilityoftheCompany'sequipmentvendorspursuanttoapplicablecontractualindemnificationprovisions.TheCompanybelievesthattheclaimsarewithoutmeritandintendstodefendtheactionsvigorously,butisunabletopredicttheoutcomeoftheselawsuitsorreasonablyestimatearangeofpossibleloss.
Inadditiontothemattersdiscussedabove,theCompanyispartytovariouslawsuits,someinvolvingclaimsforsubstantialdamages.AlthoughtheoutcomeoftheseothermatterscannotbepredictedandtheimpactofthefinalresolutionoftheseothermattersontheCompany'sresultsofoperationsinaparticularsubsequentreportingperiodisnotknown,managementdoesnotbelievethattheresolutionoftheseotherlawsuitswillhaveamaterialadverseeffectonthefinancialpositionoftheCompanyortheabilityoftheCompanytomeetitsfinancialobligationsastheybecomedue.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 17. COMMITMENTS AND CONTINGENCIES (Continued)
OtherLitigation
InApril2011,ThomasC.Dolan,adirectorandExecutiveVicePresident,StrategyandDevelopment,intheOfficeoftheChairmanatCablevision,filedalawsuitagainstCablevisionandRainbowMediaHoldingsLLC(whichwassubsequentlydismissedasaparty)inNewYorkStateSupremeCourt.Thelawsuitraisedcompensation-relatedclaimsrelatedtoeventslargelyfrom2005to2008.ThematterwashandledunderthedirectionofanindependentcommitteeoftheBoardofDirectorsofCablevision.InApril2015,theCourtgrantedsummaryjudgmentinfavoroftheplaintiffonliability,withdamagestobedetermined.OnJune18,2015,theCompanyfiledanoticeofappeal.OnFebruary8,2016,CablevisionandThomasC.DolanenteredintoasettlementpursuanttowhichtheCompanyagreedtopayplaintiff$21,000andplaintiffreleasedallclaims.AstipulationofdismissalwithprejudicewasapprovedandenteredbytheCourtonFebruary8,2016,andpaymentwasmadethesameday.Theappealhasalsobeenwithdrawn.TheCompanyrecordedanexpenseof$21,000whichisreflectedindiscontinuedoperationsintheaccompanyingconsolidatedstatementsofoperationsfortheyearendedDecember31,2015(seeNote6).
NOTE 18. INTERIM FINANCIAL INFORMATION (Unaudited)
ThefollowingisasummaryoftheCompany'sselectedquarterlyfinancialdatafortheyearsendedDecember31,2016and2015:
F-103
2016: March 31,
2016 April 1 to
June 20, 2016 Revenue $ 1,645,890 $ 1,491,714Operatingexpenses (1,394,635) (1,267,663)Operatingincome $ 251,255 $ 224,051Netincome $ 94,311 $ 69,201Netlossattributabletononcontrollinginterests 66 170NetincomeattributabletoCablevisionSystemsCorporationstockholders $ 94,377 $ 69,371Basic income per share attributable to Cablevision Systems Corporation stockholders: Incomefromcontinuingoperations,netofincometaxes $ 0.35 $ 0.25Lossfromdiscontinuedoperations,netofincometaxes $ — $ —Netincome $ 0.35 $ 0.25
Diluted income per share attributable to Cablevision Systems Corporation stockholders: Incomefromcontinuingoperations,netofincometaxes $ 0.34 $ 0.25Lossfromdiscontinuedoperations,netofincometaxes $ — $ —Netincome $ 0.34 $ 0.25
Amounts attributable to Cablevision Systems Corporation stockholders: Incomefromcontinuingoperations,netofincometaxes $ 94,377 $ 69,371Lossfromdiscontinuedoperations,netofincometaxes — —Netincome $ 94,377 $ 69,371
TableofContents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 18. INTERIM FINANCIAL INFORMATION (Unaudited) (Continued)
NOTE 19. BUSINESS COMBINATION
AsdiscussedinNote1,CablevisioncompletedtheMergeronJune21,2016.TheMergerwasaccountedforasabusinesscombinationinaccordancewithASCTopic805.Thefollowingtableprovidesthepreliminaryallocationofthetotalpurchasepriceof$9,958,323totheidentifiabletangible
F-104
Predecessor
2015: March 31,
2015 June 30,
2015 September 30,
2015 December 31,
2015 Total 2015
Revenue $ 1,622,352 $ 1,661,940 $ 1,624,828 $ 1,636,425 $ 6,545,545Operatingexpenses (1,398,601) (1,417,476) (1,441,712) (1,439,285) (5,697,074)Operatingincome $ 223,751 $ 244,464 $ 183,116 $ 197,140 $ 848,471Incomefromcontinuingoperations,netofincometaxes $ 54,901 $ 75,676 $ 23,431 $ 33,781 $ 187,789
Income(loss)fromdiscontinuedoperations,netofincometaxes (10,502) — (406) (1,633) (12,541)
Netincome 44,399 75,676 23,025 32,148 175,248Netloss(income)attributabletononcontrollinginterests 234 (81) 78 (30) 201
NetincomeattributabletoCablevisionSystemsCorporationstockholders $ 44,633 $ 75,595 $ 23,103 $ 32,118 $ 175,449
Basic income per share attributable toCablevision Systems Corporationstockholders: Incomefromcontinuingoperations,netofincometaxes $ 0.21 $ 0.28 $ 0.09 $ 0.12 $ 0.70
Income(loss)fromdiscontinuedoperations,netofincometaxes $ (0.04) $ — $ — $ (0.01) $ (0.05)
Netincome $ 0.17 $ 0.28 $ 0.09 $ 0.12 $ 0.65Diluted income per share attributable to
Cablevision Systems Corporationstockholders: Incomefromcontinuingoperations,netofincometaxes $ 0.20 $ 0.27 $ 0.08 $ 0.12 $ 0.68
Income(loss)fromdiscontinuedoperations,netofincometaxes $ (0.04) $ — $ — $ (0.01) $ (0.05)
Netincome $ 0.16 $ 0.27 $ 0.08 $ 0.12 $ 0.63Amounts attributable to Cablevision Systems
Corporation stockholders: Incomefromcontinuingoperations,netofincometaxes $ 55,135 $ 75,595 $ 23,509 $ 33,751 $ 187,990
Income(loss)fromdiscontinuedoperations,netofincometaxes (10,502) — (406) (1,633) (12,541)
Netincome $ 44,633 $ 75,595 $ 23,103 $ 32,118 $ 175,449
TableofContents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 19. BUSINESS COMBINATION (Continued)
andintangibleassetsandliabilitiesofCablevisionbasedonpreliminaryfairvalueinformationcurrentlyavailable,whichissubjecttochangewithinthemeasurementperiod(uptooneyearfromtheacquisitiondate).
Thefairvalueofidentifiedintangibleassetswasestimatedusingderivationsofthe"income"approach.Customerrelationshipsandcabletelevisionfranchiseswerevaluedusingthemultipleperiodexcessearningsmethod("MPEEM")approach.TheMPEEMapproachquantifiestheexpectedearningsofanassetbyisolatingearningsattributabletotheassetfromtheoverallbusinessenterpriseearningsandthenremovingachargeforthoseassetsthatcontributetothegenerationoftheisolatedearnings.Thefutureexpectedearningsarediscountedtotheirpresentvalueequivalent.
Tradenameswerevaluedusingtherelieffromroyaltymethod,whichisbasedonthepresentvalueoftheroyaltypaymentsavoidedasaresultofthecompanyowningtheintangibleasset.
ThebasisforthevaluationmethodswastheCompany'sprojections.Theseprojectionswerebasedonmanagement'sassumptionsincludingamongothers,penetrationratesforvideo,highspeeddata,andvoice;revenuegrowthrates;operatingmargins;andcapitalexpenditures.TheassumptionsarederivedbasedontheCompany'sanditspeers'historicaloperatingperformanceadjustedforcurrentandexpectedcompetitiveandeconomicfactorssurroundingthecableindustry.Thediscountratesusedintheanalysisareintendedtoreflecttheriskinherentintheprojectedfuturecashflowsgeneratedbytherespectiveintangibleasset.Thevalueishighlydependentontheachievementofthefuturefinancialresultscontemplatedintheprojections.Theestimatesandassumptionsmadeinthevaluationareinherentlysubjecttosignificantuncertainties,manyofwhicharebeyondtheCompany'scontrol,andthereisnoassurancethattheseresultscanbeachieved.Theprimaryassumptionsforwhichthereisareasonablepossibilityoftheoccurrenceofavariationthatwouldhavesignificantlyaffectedthevalueincludetheassumptionsregardingrevenuegrowth,programmingexpensegrowthrates,theamountandtimingofcapitalexpendituresandthediscountrateutilized.
F-105
Estimates of Fair Values (As of December 31,
2016) Estimated Useful
LivesCurrentassets $ 1,923,071 Accountsreceivable 271,305 Property,plantandequipment 4,864,621 2-18yearsGoodwill 5,838,959 Indefinite-livedcabletelevisionfranchises 8,113,575 Indefinite-livedCustomerrelationships 4,850,000 8to18yearsTradenames 1,010,000 12yearsAmortizableintangibleassets 23,296 1-15yearsOthernon-currentassets 748,998 Currentliabilities (2,305,954) Long-termdebt (8,355,386) Deferredincometaxes. (6,834,807) Othernon-currentliabilities (189,355)
Total $ 9,958,323
TableofContents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 19. BUSINESS COMBINATION (Continued)
InestablishingfairvalueforthevastmajorityoftheCompany'sproperty,plantandequipment,thecostapproachwasutilized.Thecostapproachconsiderstheamountrequiredtoreplaceanassetbyconstructingorpurchasinganewassetwithsimilarutility,thenadjuststhevalueinconsiderationofphysicaldepreciation,andfunctionalandeconomicobsolescenceasoftheappraisaldate.Thecostapproachreliesonmanagement'sassumptionsregardingcurrentmaterialandlaborcostsrequiredtorebuildandrepurchasesignificantcomponentsofourproperty,plantandequipmentalongwithassumptionsregardingtheageandestimatedusefullivesofourproperty,plantandequipment.
Theestimatesofexpectedusefullivestakeintoconsiderationtheeffectsofcontractualrelationships,customerattrition,eventualdevelopmentofnewtechnologiesandmarketcompetition.
Asaresultofapplyingbusinesscombinationaccounting,theCompanyrecordedgoodwill,whichrepresentedtheexcessoforganizationvalueoveramountsassignedtotheotheridentifiabletangibleandintangibleassetsarisingfromexpectationsoffutureoperationalperformanceandcashgeneration.
ThefollowingtablesetsforththeestimatedamortizationexpenseontheintangibleassetsrecordedintheconnectionwiththeMergerfortheyearsendingDecember31:
Theunauditedproformarevenue,lossfromcontinuingoperationsandnetlossfortheyearsendedDecember31,2015,asiftheMergerhadoccurredonJanuary1,2015,areasfollows:
TheproformaresultspresentedaboveincludetheimpactofadditionalinterestexpenserelatedtothedebtissuedtofinancetheMerger.TheproformaresultsalsoreflectadditionalamortizationexpenserelatedtotheidentifiableintangibleassetsrecordedinconnectionwiththeMergerandadditionaldepreciationexpenserelatedtothefairvalueadjustmenttoproperty,plantandequipment.
F-106
Estimatedamortizationexpense YearEndingDecember31,2017 $ 701,908YearEndingDecember31,2018 655,409YearEndingDecember31,2019 609,245YearEndingDecember31,2020 562,613YearEndingDecember31,2021 515,430
Revenue $ 6,545,545Lossfromcontinuingoperations $ (740,115)Netloss $ (752,656)
TableofContents
Report of Independent Auditors
TotheBoardofDirectorsofCequelCorporation
WehaveauditedtheaccompanyingconsolidatedfinancialstatementsofCequelCorporationanditssubsidiaries(Predecessor),whichcomprisetheconsolidatedbalancesheetasofDecember31,2014,andtherelatedconsolidatedstatementsofoperationsandcomprehensive(loss)/income,ofchangesinstockholders'equityandofcashflowsfortheperiodfromJanuary1,2015toDecember20,2015andfortheyearendedDecember31,2014.
Management's Responsibility for the Consolidated Financial Statements
ManagementisresponsibleforthepreparationandfairpresentationoftheconsolidatedfinancialstatementsinaccordancewithaccountingprinciplesgenerallyacceptedintheUnitedStatesofAmerica;thisincludesthedesign,implementation,andmaintenanceofinternalcontrolrelevanttothepreparationandfairpresentationofconsolidatedfinancialstatementsthatarefreefrommaterialmisstatement,whetherduetofraudorerror.
Auditors' Responsibility
Ourresponsibilityistoexpressanopinionontheconsolidatedfinancialstatementsbasedonouraudit.WeconductedourauditinaccordancewithauditingstandardsgenerallyacceptedintheUnitedStatesofAmerica.Thosestandardsrequirethatweplanandperformtheaudittoobtainreasonableassuranceaboutwhethertheconsolidatedfinancialstatementsarefreefrommaterialmisstatement.
Anauditinvolvesperformingprocedurestoobtainauditevidenceabouttheamountsanddisclosuresintheconsolidatedfinancialstatements.Theproceduresselecteddependonourjudgment,includingtheassessmentoftherisksofmaterialmisstatementoftheconsolidatedfinancialstatements,whetherduetofraudorerror.Inmakingthoseriskassessments,weconsiderinternalcontrolrelevanttotheCompany'spreparationandfairpresentationoftheconsolidatedfinancialstatementsinordertodesignauditproceduresthatareappropriateinthecircumstances,butnotforthepurposeofexpressinganopinionontheeffectivenessoftheCompany'sinternalcontrol.Accordingly,weexpressnosuchopinion.Anauditalsoincludesevaluatingtheappropriatenessofaccountingpoliciesusedandthereasonablenessofsignificantaccountingestimatesmadebymanagement,aswellasevaluatingtheoverallpresentationoftheconsolidatedfinancialstatements.Webelievethattheauditevidencewehaveobtainedissufficientandappropriatetoprovideabasisforourauditopinion.
Opinion
Inouropinion,theconsolidatedfinancialstatementsreferredtoabovepresentfairly,inallmaterialrespects,thefinancialpositionofCequelCorporationanditssubsidiaries(Predecessor)asofDecember31,2014,andresultsofoperationsandcashflowsfortheperiodfromJanuary1,2015toDecember20,2015andfortheyearendedDecember31,2014inaccordancewithaccountingprinciplesgenerallyacceptedintheUnitedStatesofAmerica.
F-107
/s/PricewaterhouseCoopersLLP
St.Louis,MissouriMarch30,2016
TableofContents
Report of Independent Auditors
TotheBoardofDirectorsofCequelCorporation
WehaveauditedtheaccompanyingconsolidatedfinancialstatementsofCequelCorporationanditssubsidiaries(Successor),whichcomprisetheconsolidatedbalancesheetasofDecember31,2015,andtherelatedconsolidatedstatementsofoperationsandcomprehensive(loss)/income,ofchangesinstockholders'equityandofcashflowsfortheperiodfromDecember21,2015toDecember31,2015.
Management's Responsibility for the Consolidated Financial Statements
ManagementisresponsibleforthepreparationandfairpresentationoftheconsolidatedfinancialstatementsinaccordancewithaccountingprinciplesgenerallyacceptedintheUnitedStatesofAmerica;thisincludesthedesign,implementation,andmaintenanceofinternalcontrolrelevanttothepreparationandfairpresentationofconsolidatedfinancialstatementsthatarefreefrommaterialmisstatement,whetherduetofraudorerror.
Auditors' Responsibility
Ourresponsibilityistoexpressanopinionontheconsolidatedfinancialstatementsbasedonouraudit.WeconductedourauditinaccordancewithauditingstandardsgenerallyacceptedintheUnitedStatesofAmerica.Thosestandardsrequirethatweplanandperformtheaudittoobtainreasonableassuranceaboutwhethertheconsolidatedfinancialstatementsarefreefrommaterialmisstatement.
Anauditinvolvesperformingprocedurestoobtainauditevidenceabouttheamountsanddisclosuresintheconsolidatedfinancialstatements.Theproceduresselecteddependonourjudgment,includingtheassessmentoftherisksofmaterialmisstatementoftheconsolidatedfinancialstatements,whetherduetofraudorerror.Inmakingthoseriskassessments,weconsiderinternalcontrolrelevanttotheCompany'spreparationandfairpresentationoftheconsolidatedfinancialstatementsinordertodesignauditproceduresthatareappropriateinthecircumstances,butnotforthepurposeofexpressinganopinionontheeffectivenessoftheCompany'sinternalcontrol.Accordingly,weexpressnosuchopinion.Anauditalsoincludesevaluatingtheappropriatenessofaccountingpoliciesusedandthereasonablenessofsignificantaccountingestimatesmadebymanagement,aswellasevaluatingtheoverallpresentationoftheconsolidatedfinancialstatements.Webelievethattheauditevidencewehaveobtainedissufficientandappropriatetoprovideabasisforourauditopinion.
Opinion
Inouropinion,theconsolidatedfinancialstatementsreferredtoabovepresentfairly,inallmaterialrespects,thefinancialpositionofCequelCorporationanditssubsidiaries(Successor)asofDecember31,2015,andtheresultsoftheiroperationsandtheircashflowsfortheperiodfromDecember21,2015toDecember31,2015inaccordancewithaccountingprinciplesgenerallyacceptedintheUnitedStatesofAmerica.
F-108
/s/PricewaterhouseCoopersLLP
St.Louis,MissouriMarch30,2016
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Cequel Corporation
Consolidated Balance Sheets
(in thousands)
Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.
F-109
Successor
December 31, 2015 Predecessor
December 31, 2014 ASSETS Cashandcashequivalents $ 86,065 $ 154,931Accountsreceivable,netofallowancesof$1,051and$15,567,respectively 192,667 190,063Deferredtaxasset 20,866 14,021Prepaidexpensesandotherassets 23,549 26,078Totalcurrentassets 323,147 385,093
Property,plantandequipment 2,234,274 2,744,328Less—accumulateddepreciation (10,162) (967,156)Property,plantandequipment,net 2,224,112 1,777,172
Deferredfinancingcosts,net 39,876 25,681Intangibleassets: Subscriberrelationships,net 1,054,728 164,073Franchiserights,net 4,984,589 3,068,543TradeNames 37,109 188,676Goodwill 2,040,402 1,543,103Totalintangibleassets,net 8,116,828 4,964,395
Otherlong-termassets 10,468 12,019Totalassets $ 10,714,431 $ 7,164,360LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Accountspayableandaccruedexpenses $ 217,781 $ 231,697Duetoaffiliates 296 3,523Deferredrevenue 157,764 148,251Accruedinterest 93,594 48,429Currentportionofcapitalleasesandotherobligations 10,126 13,169Currentportionoflong-termdebt 105,129 24,422Totalcurrentliabilities 584,690 469,491
Long-termdeferredrevenue 623 1,381Long-termdeferredtaxliability 1,546,301 286,430Long-termportionofcapitalleasesandotherobligations 2,813 13,372Duetoparent 291,277 —Long-termdebt 6,054,063 5,067,588Otherlong-termliabilities 247 278Totalliabilities $ 8,480,014 $ 5,838,540
Commitmentsandcontingencies(Note12) Stockholders'equity: Stockholders'equity 2,252,028 1,430,848Accumulateddeficit (17,611) (105,028)Totalstockholders'equity 2,234,417 1,325,820Totalliabilitiesandstockholders'equity $ 10,714,431 $ 7,164,360
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Cequel Corporation
Consolidated Statements of Operations and Comprehensive (Loss)/Income
(in thousands)
Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.
F-110
Successor Period from
December 21, 2015 to
December 31, 2015
Predecessor Period from January 1,
2015 to December 20,
2015
Predecessor Year Ended
December 31, 2014
Revenues $ 72,943 $ 2,347,369 $ 2,330,697
Costsandexpenses: Operating(excludingdepreciationandamortization) 26,586 872,308 930,085Selling,generalandadministrative 39,166 889,960 546,386Depreciationandamortization 23,533 531,561 594,459Lossondisposalofcableassets 41 1,796 4,277
Totalcostsandexpenses 89,326 2,295,625 2,075,207
(Loss)/incomefromoperations (16,383) 51,744 255,490Interestexpense,net (11,491) (237,319) (230,146)
(Loss)/incomebeforeincometaxes (27,874) (185,575) 25,344Benefit/(provision)forincometaxes 10,263 (29,301) (8,095)
Net(loss)/income $ (17,611) $ (214,876) $ 17,249
Comprehensive(loss)/income $ (17,611) $ (214,876) $ 17,249
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Cequel Corporation
Consolidated Statements of Cash Flows
(in thousands)
Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.
F-111
Successor Period from
December 21, 2015 to
December 31, 2015
Predecessor Period from January 1,
2015 to December 20,
2015
Predecessor Year Ended
December 31, 2014
Cash flows from operating activities: Net(loss)/income $ (17,611) $ (214,876) $ 17,249Adjustmentstoreconcilenetincome(loss)tocashflowsfromoperatingactivities:
Lossondisposalofcableassets 41 1,766 4,277Depreciationandamortization 23,533 531,562 594,459Non-cashinterestexpense 1,444 (1,184) (2,813)Non-cashequitycompensationexpense — 287,691 30,681Deferredincometax(benefit)/provision (10,418) 24,866 2,677Changesinassetsandliabilities: Accountsreceivable,net (13,291) 31,508 (945)Prepaidexpenses 965 3,115 6,884Accountspayableandaccruedexpenses (23,080) 20,845 31,287Deferredrevenue 11,584 (2,829) 1,598Accruedinterest 9,855 (20,660) 945
Netcashprovidedby(usedin)operatingactivities (16,978) 661,804 686,299Cash flows from investing activities: Purchasesofproperty,plantandequipment(Note7) (30,582) (447,864) (420,605)Acquisitionofcablesystems — — (46,720)Netproceedsfromdisposalofassets 25 2,137 1,713Purchaseofpatentrights — (4,003) —Other — — (21)
Netcashusedininvestingactivities (30,557) (449,730) (465,633)Cash flows from financing activities: Issuanceoflong-termdebt — — 486,250Repaymentsoflong-termdebt (3,941) (18,317) (140,375)Repaymentsofcapitalleaseobligations (30) (13,065) (9,756)Equitycontributions — 32,187 —Equitydistributions — (218) (600,319)Cashpaidforfinancingcosts — — (6,241)
Netcashprovidedby(usedin)financingactivities (3,971) 587 (270,441)(Decrease)/Increaseincashandcashequivalents (51,506) 212,661 (49,775)Cashandcashequivalents,beginningofperiod 137,571 154,931 204,706
Cashandcashequivalents,endofperiod $ 86,065 $ 367,592 $ 154,931
Supplemental cash flow disclosures: Cashpaidforinterest $ 884 $ 259,417 $ 232,248
Cashpaidfortaxes $ — $ 6,137 $ 5,851
Non-cashtransactions: Otherobligations(Note9) $ — $ — $ 14,876
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Cequel Corporation
Consolidated Statements of Changes in Stockholders' Equity
(in thousands)
Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.
F-112
Stockholders'
Equity Accumulated
Deficit
Total Stockholders'
Equity PREDECESSOR: Balance,December31,2014 $ 1,430,848 $ (105,028) $ 1,325,820Netloss — (214,876) (214,876)Non-cashequitycompensation 287,691 — 287,691Equitycontribution 32,187 — 32,187Equitydistribution (218) — (218)Balance,December20,2015 $ 1,750,508 $ (319,904) $ 1,430,604
SUCCESSOR: Balance,December21,2015 $ 2,252,028 $ — $ 2,252,028Netloss — (17,611) (17,611)Balance,December31,2015 $ 2,252,028 $ (17,611) $ 2,234,417
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Cequel Corporation
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
(dollars in thousands, except where otherwise indicated)
1. Organization
CequelCorporation,aDelawareCorporation("CequelCorporation"),throughitssubsidiaries(together,the"Company")isaleadingowner,operatorandacquirerofbroadbandcommunicationsystemsservingadiversifiedmixofmarkets.CequelCommunicationsHoldingsI,LLC("Cequel")isawhollyownedsubsidiaryofCequelCommunicationsHoldings,LLC,aDelawarelimitedliabilitycompany("CequelHoldings"),whichisawhollyownedsubsidiaryofCequelCorporation.CequelCapitalCorporationisawhollyownedsubsidiaryofCequel(andtogetherwithCequel,the"Issuers").CequelCommunications,LLC,aDelawarelimitedliabilitycompany,doingbusinessasSuddenlinkCommunications("Suddenlink"),isanindirectwhollyownedsubsidiaryofCequel.
TheIssuersareholdingcompaniesandconductnooperations.Accordingly,theIssuersdependonthecashflowoftheirsubsidiariesinordertomakepaymentson,orrepayorrefinance,theNotes,asdefinedherein.ThetermsoftheCreditAgreementgenerallyrestrictSuddenlinkanditsrestrictedsubsidiariesfrommakingdividendsandotherdistributionstotheIssuerssubjecttosatisfactionofcertainconditions,includingproformacompliancewithmaximumseniorsecuredleverageratio,andthatnoeventofdefaulthasoccurredandiscontinuing,orwouldbecausedbythemakingofsuchdividendsorotherdistributions,andbasedon,amongotherthings,availabilityunderarestrictedpaymentbasket.However,theCreditAgreementpermitsSuddenlinktomakedividendsanddistributionstoCequelforpaymentofregularlyscheduledinterestpaymentsthroughmaturityonindebtednesswhichwasincurredbyCequeltorefinancetheIssuers'8.625%SeniorNotesdue2017(the"2017Notes").TheIssuers'6.375%SeniorNotesdue2020(the"2020Notes"),theIssuers'5.125%SeniorNotesdue2021,issuedonMay16,2013(the"Initial2021Notes")andtheIssuers'5.125%SeniorNotesdue2021,issuedonSeptember9,2014(the"2021MirrorNotes,")andthe2025SeniorNotes,asdefinedherein(collectivelythe2020Notes,the2021Notesandthe2025SeniorNotes,the"SeniorNotes"),areunsecuredandarenotguaranteedbyanysubsidiariesoftheIssuers,includingSuddenlink.
OnDecember21,2015,AlticeN.V.,apubliccompanywithlimitedliability(naamloze vennootshcap )underDutchlaw("Altice"),assuccessorininteresttoAlticeS.A.,certainotherdirectorindirectwholly-ownedsubsidiariesofAltice(the"Purchasers"),acquiredapproximately70%ofthetotaloutstandingequityinterestsinCequelCorporation(the"AlticeAcquisition")fromthedirectandindirectstockholdersofCequelCorporation(the"Sellers").Priortothedatehereof,CequelCorporationwasdirectlyorindirectlyownedbyinvestmentfundsadvisedbyBCPartnersLimited("BCP"),CPPIB-SuddenlinkLP,awhollyownedsubsidiaryofCanadaPensionPlanInvestmentBoard("CPPIB"andtogetherwithBCP,the"Sponsors"),andIW4MKCarryPartnershipLP(the"ManagementHolder"andtogetherwiththeSponsors,the"Stockholders").Theconsiderationfortheacquiredequityinterestswasbasedonatotalequityvaluationfor100%ofthecapitalandvotingrightsofCequelCorporationof$4,132.0million,whichincludes$2,956.4millionofcashconsideration,$675.6millionofretainedequityheldbytheSponsorsand$500millionfundedbytheissuancebyanaffiliateofAlticeofaseniorvendornotethatissubscribedbytheSponsors.FollowingtheclosingoftheAlticeAcquisition,theSponsorsretainedequityinterestsinCequelCorporationrepresenting,intheaggregate,30%ofCequelCorporation'soutstandingcapitalstockonapost-closingbasis.Inaddition,thecarryinterestplansoftheStockholderswerecashedoutbasedonanagreementbetween
F-113
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Cequel Corporation
Notes to Consolidated Financial Statements (Continued)
December 31, 2015 and 2014
(dollars in thousands, except where otherwise indicated)
1. Organization (Continued)
theSponsorsandtheManagementHolderwherebypaymentsweremadetoparticipantsinsuchcarryinterestplans,includingcertainofficersanddirectorsofCequelandCequelCorporation.
2. Liquidity and Capital Resources
TheCompanyhassignificantindebtednessandincurrednetlossesof$17.6millionand$214.9millionforthesuccessorperiodfromDecember21,2015throughDecember31,2015andthepredecessorperiodfromJanuary1,2015throughDecember20,2015,respectively,andgeneratednetincomeof$17.2millionforthepredecessoryearendedDecember31,2014.TheCompany'snetcashflowsusedinoperatingactivitieswere$17.0millionforthesuccessorperiodfromDecember21,2015throughDecember31,2015,andnetcashflowsprovidedbyoperatingactivitieswere$661.8millionand$686.3millionforthepredecessorperiodfromJanuary1,2015throughDecember20,2015andthepredecessoryearendedDecember31,2014,respectively.
TheCompanyrequiressignificantcashtofunddebtservicerequirements,capitalexpendituresandongoingoperations.TheCompanyalsohasnegativeworkingcapital,whichisprimarilyduetothepaymenttermsithaswithitsvendors.TheCompanyhashistoricallyfundedtheserequirementsthroughcashflowsfromoperatingactivities,borrowingsunderits$2.7billioncreditfacility(the"CreditFacility"),salesofassets,issuancesofdebt,andcashonhand.However,themixoffundingsourceschangesfromperiodtoperiod.ForthecombinedyearendedDecember31,2015,theCompanygenerated$627.5millionofcashflowsfromoperatingactivitiesafterpayingcashinterestof$260.3million.Inaddition,theCompanyused$478.4millionforpurchasesofproperty,plantandequipment.FortheyearendedDecember31,2014,theCompanygenerated$686.3millionofcashflowsfromoperatingactivitiesafterpayingcashinterestof$232.2million.Inaddition,theCompanyused$420.6millionforpurchasesofproperty,plantandequipmentintheyearendedDecember31,2014.
TheCompanyexpectsthatcashonhand,cashflowsfromoperatingactivitiesandavailablecreditunderitsrevolvingcreditfacilitywillbeadequatetomeetitscashflowneedsin2016.
3. Summary of Significant Accounting Policies
Basis of Preparation of Consolidated Financial Statements
TheconsolidatedfinancialstatementshavebeenpreparedinaccordancewithgenerallyacceptedaccountingprinciplesintheUnitedStatesofAmerica("GAAP").ThepreparationoffinancialstatementsinconformitywithGAAPrequiresmanagementtomakeestimatesandassumptionsthataffecttheamountsreportedintheconsolidatedfinancialstatementsandaccompanyingnotes.Allsignificantintercompanyaccountsandtransactionshavebeeneliminatedinconsolidation.However,intheopinionofmanagement,suchfinancialstatementsincludealladjustments,whichconsistofonlynormalrecurringadjustments,necessaryforthefairstatementoftheresultsoftheperiodspresented.Certainestimatesandassumptionhavebeenmadethataffecttheamountsreportedintheconsolidatedfinancialstatementsandaccompanyingnotes.Actualresultscoulddifferfromthoseestimates.
F-114
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Cequel Corporation
Notes to Consolidated Financial Statements (Continued)
December 31, 2015 and 2014
(dollars in thousands, except where otherwise indicated)
3. Summary of Significant Accounting Policies (Continued)
Thefinancialinformationsetforthinthisreport,unlessotherwisesetforthorasthecontextotherwiseindicates,includestheaccountsofCequelanditssubsidiariesfortheperiodfromDecember21,2015toDecember31,2015("Successor"),andofCequelanditssubsidiariesfortheperiodfromJanuary1,2015throughDecember20,2015("Predecessor").EffectiveDecember21,2015,theCompanyappliedbusinesscombinationaccountingwhichrequirescertainassetsandliabilitiestobereflectedatfairvalue.Forasummaryoftheapplicationandvaluationofbusinesscombinationaccounting,seeFootnote4.
Revenue Recognition
Revenuebyserviceofferingconsistedofthefollowing:
VideorevenueincludessubscriberfeesreceivedfromresidentialandcommercialcustomersfortheCompany'svarioustiersorpackagesofvideoprogrammingservices,relatedequipmentandrentalcharges,feescollectedonbehalfoflocalfranchisingauthoritiesandtheFederalCommunicationsCommission,aswellasrevenuefromthesaleofpremiumnetworks,transactionalVOD(e.g.,eventsandmovies)anddigitalvideorecorderservice.High-speedInternetrevenueincludessubscriberfeesreceivedfromresidentialandcommercialcustomersfortheCompany'shigh-speedInternetservicesandrelatedequipmentrentalcharges,andwholesaletransportrevenue,includingamountsgeneratedbythesaleofpoint-to-pointtransportservicesofferedtowirelesstelephoneproviders(i.e.celltowerbackhaul)andothercarriers.TelephonerevenueincludessubscriberfeesreceivedfromresidentialandcommercialcustomersfortheCompany'stelephoneservices,aswellasfeescollectedonbehalfofgovernmentalauthorities.Advertisingsalesincludesrevenuegeneratedfromthesaleofadvertisingtimetonational,regionalandlocalcustomers.OtherrevenueincludesrevenuefromtheCompany'ssecurityservices,installationcharges,revenuefromtowerservices,includingsitedevelopmentandconstruction,andotherresidentialandcommercialsubscriber-relatedfees.
Revenuefromvideo,high-speedInternet,telephoneandsecurityservicesarerecognizedintheperiodduringwhichtherelatedservicesareprovided.Revenuereceivedfromcustomerswhopurchasebundledservicesatadiscountedrateisallocatedtoeachproductinapro-ratamannerbasedontheindividualproduct'ssellingprice(generally,thepriceatwhichtheproductisregularlysoldonastandalonebasis).Installationrevenueisrecognizedintheperiodtheserviceisperformedtotheextent
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Successor Period from
December 21, 2015 to
December 31, 2015
Predecessor Period from January 1,
2015 to December 20,
2015
Predecessor Year Ended
December 31, 2014
Video $ 33,690 $ 1,107,718 $ 1,163,892High-speedInternet 27,789 845,514 748,842Telephone 6,209 201,377 204,693Advertisingsales 2,079 85,587 101,197Other 3,176 107,173 112,073Totalrevenues $ 72,943 $ 2,347,369 $ 2,330,697
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Cequel Corporation
Notes to Consolidated Financial Statements (Continued)
December 31, 2015 and 2014
(dollars in thousands, except where otherwise indicated)
3. Summary of Significant Accounting Policies (Continued)
ofdirectsellingcosts,withtheremainingamountdeferredoverthelifeofthecustomerrelationship.TheCompanygenerallybillscustomersinadvancefortheservicestheyhavechosentouseandrecordsuchamountsasdeferredrevenueuntiltheservicesareprovided.Customerservicespaidforinadvancearerecordedasincomewhenearned.Advertisingsalesarerecognizedintheperiodthattheadvertisementsarebroadcast.
LocalorstategovernmentauthoritiesimposefranchisefeesonthemajorityoftheCompany'ssystemsranginguptoafederallymandatedmaximumof5%ofgrossrevenuesasdefinedinthefranchiseagreements.SuchfeesarecollectedonamonthlybasisfromtheCompany'scustomersandareperiodicallyremittedtofranchiseauthorities.BecausefranchisefeesaretheCompany'sobligation,theCompanypresentsthemonagrossbasisinrevenuewithacorrespondingoperatingexpense.Franchisefeesreportedonagrossbasisinrevenueamountedtoapproximately$1.4million,$46.3millionand$47.8millionforthesuccessorperiodfromDecember21,2015throughDecember31,2015,thepredecessorperiodfromJanuary1,2015throughDecember20,2015,andthepredecessoryearendedDecember31,2014,respectively.
Allowance for Doubtful Accounts
TheallowancefordoubtfulaccountsrepresentstheCompany'sbestestimateofuncollectiblebalancesintheaccountsreceivablebalance.Theallowanceisbasedonthenumberofdaysoutstanding,customerbalances,historicalexperienceandothercurrentlyavailableinformation.
Concentrations of Credit Risk
FinancialinstrumentsthatpotentiallysubjecttheCompanytoconcentrationsofcreditriskareprimarilycashandaccountsreceivable.ConcentrationofcreditriskwithrespecttotheCompany'scashbalanceislimited.TheCompanymaintainsorinvestsitscashwithhighlyqualifiedfinancialinstitutions.WithrespecttotheCompany'sreceivables,creditriskislimitedduetothelargenumberofcustomers,individuallysmallbalancesandshortpaymentterms.
Programming Costs
TheCompanypurchasescertainanalog,digitalandpremiumprogrammingprovidedbyprogramsupplierswhosecompensationistypicallybasedonaflatfeepercustomeratthenegotiatedratesincludedintheprogrammingcontracts.Thecostoftherighttoprovidenetworkprogrammingundersucharrangementsisrecordedinoperatingexpensesinthemonththeprogrammingisdistributed.ProgrammingcostsarepaideachmonthbasedoncalculationsperformedbytheCompanyandaresubjecttoadjustmentbasedonperiodicauditsperformedbytheprogrammers.Netprogrammingcostsincludedintheoperatingcostslineitemintheaccompanyingconsolidatedstatementsofoperationswas$17.9million,$594.2millionand$617.4millionforthesuccessorperiodfromDecember21,2015throughDecember31,2015,thepredecessorperiodfromJanuary1,2015throughDecember20,2015,andthepredecessoryearendedDecember31,2014,respectively.
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Notes to Consolidated Financial Statements (Continued)
December 31, 2015 and 2014
(dollars in thousands, except where otherwise indicated)
3. Summary of Significant Accounting Policies (Continued)
Advertising Costs
TheCompanyexpensesadvertisingcostsasincurred.Advertisingexpense,includedintheselling,generalandadministrativeexpenselineitemintheaccompanyingconsolidatedstatementsofoperations,wasapproximately$1.9million,$62.7millionand$58.7millionforthesuccessorperiodfromDecember21,2015throughDecember31,2015,thepredecessorperiodfromJanuary1,2015throughDecember20,2015,andthepredecessoryearendedDecember31,2014,respectively.
Equity Based Compensation
PriortotheAlticeAcquisition,thegeneralpartnersofthepartnershipsthatheldthesharesofCequelCorporation(collectively,the"CarryInterestPartnerships"),eachadoptedaseparatecarriedinterestplan(seeFootnote19).TheCompanymeasuredthecostofemployeeservicesreceivedinexchangeforcarriedinterestunitsbasedonthefairvalueoftheawardateachreportingperiod.TheCompanyusedtheMonteCarloSimulationMethodtoestimatethefairvalueoftheawards.BecausetheMonteCarloSimulationMethodrequiredtheuseofsubjectiveassumptions,changesintheseassumptionscanmateriallyaffectthefairvalueofthecarriedinterestunitsgranted.Thetimetoliquidityeventassumptionisbasedonmanagement'sjudgment.Theequityvolatilityassumptionwasestimatedusingthehistoricalweeklyvolatilityofpubliclytradedcomparablecompanies.Therisk-freerateassumedinvaluingtheunitswasbasedontheU.S.ConstantMaturityTreasuryRatesforaperiodmatchingtheexpectedtimetoliquidityevent.TheCompany'stotalequityvaluewasestimatedbyathirdpartyusingarangeofindicatedbusinessenterprisevalues.TheplanwasterminatedonDecember21,2015,concurrentwiththeAlticeAcquisition.
Income Taxes
TheCompanyprovidesforestimatedincometaxesforamountspayableorrefundableoncurrentyearincometaxreturns,aswellastheestimatedfuturetaxeffectsattributabletotemporarydifferencesandcarryforwardsusingexistingguidancefromtheFASB.Thisguidancealsorequiresthatavaluationallowanceberecordedagainstdeferredtaxassetswhenitismorelikelythannotthatallorsomeportionofthedeferredincometaxassetwillnotberealizedinthefuture.Significantmanagementjudgmentisrequiredindeterminingtheprovisionforincometaxes,deferredtaxassetsandliabilitiesandanyvaluationallowancesrecorded(SeeFootnote16).
OnSeptember15,2014,theCompanyfileditsU.S.CorporationIncomeTaxReturnforthecalendaryear2013reflectinganadjustmenttoapreviouslyfiledpositionwhicheffectivelyeliminatedtheCompany'suncertaintaxposition.TheeliminationoftheuncertaintaxpositionresultedinacorrespondingadjustmenttotheCompany'snetdeferredtaxliabilitiesanddeferredtaxassetswhichresultedinanetbenefittoincometaxesof$13.0millionfortheperiod.
Cash and Cash Equivalents
Forfinancialreportingpurposes,theCompanyconsidersallhighlyliquidinvestmentswithoriginalmaturitiesatpurchaseofthreemonthsorlesstobecashequivalents.Theseinvestmentsarecarriedatcost,whichapproximatesmarketvalue.
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Cequel Corporation
Notes to Consolidated Financial Statements (Continued)
December 31, 2015 and 2014
(dollars in thousands, except where otherwise indicated)
3. Summary of Significant Accounting Policies (Continued)
Property, Plant and Equipment
Property,plantandequipmentarerecordedatcost,includingallmaterial,laborandcertainindirectcostsassociatedwiththeconstructionofcabletransmissionanddistributionfacilities(orfairvalueatdateofAcquisition).WhiletheCompany'scapitalizationisbasedonspecificactivities,oncecapitalized,costsaretrackedbyfixedassetcategoryatthecablesystemlevelandnotonaspecificassetbasis.Forassetsthataresoldorretired,theestimatedhistoricalcostandrelatedaccumulateddepreciationisremoved.Costsassociatedwithinitialcustomerinstallationsandtheadditionsofnetworkequipmentnecessarytoenableadvancedservicesarecapitalized.Costscapitalizedaspartofinitialcustomerinstallationsincludematerials,laborandcertainindirectcosts.IndirectcostsareassociatedwiththeactivitiesoftheCompany'spersonnelwhoassistinconnectingandactivatingthenewservice.Indirectcostsincludeemployeebenefitsandpayrolltaxes,directvariablecostsassociatedwithcapitalizableactivities,consistingofinstallationandconstructionvehiclecosts,thecostofdispatchpersonnelandindirectcostsdirectlyattributabletocapitalizableactivities.Leaseholdimprovementsareamortizedovertheshorteroftheirestimatedlifeorthetermoftherelatedleases.Costsforrepairsandmaintenancearechargedtooperatingexpenseasincurred,whileplantandequipmentreplacements,includingreplacementofcabledrops,arecapitalized.
Depreciationiscomputedusingthestraight-linemethodoverthefollowingestimatedusefullivesoftheassets:
Capitalized Internal Costs
Costscapitalizedaspartofnewcustomerinstallationsincludematerials,subcontractorcostsandinternaldirectlaborcosts,includingservicetechniciansandinternaloverheadcostsincurredtoconnectthecustomertotheplantfromthetimeofinstallationschedulingthroughthetimeserviceisactivatedandfunctioning.Theinternaldirectlaborcostcapitalizedisbasedonacombinationoftheactualandestimatedtimetocompletetheinstallation.Overheadcapitalizedconsistsmainlyofemployeebenefits,suchaspayrolltaxesandhealthinsurance,directlyassociatedwiththatportionofthecapitalizedlaborandvehicleoperatingcostsrelatedtocapitalizableactivities.Capitalizedinternalpayrollcostswereapproximately$1.2million,$49.2millionand$46.2millionforthesuccessorperiodfromDecember21,2015throughDecember31,2015,thepredecessorperiodfromJanuary1,2015throughDecember20,2015,andthepredecessoryearsendedDecember31,2014,respectively.Relatedcapitalizedoverheadwereapproximately$0.7million,$28.7millionand$29.0millionforthesuccessorperiodfromDecember21,2015throughDecember31,2015,thepredecessorperiodfromJanuary1,2015throughDecember20,2015,andthepredecessoryearsendedDecember31,2014,respectively.
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Buildingsandimprovements 3-20yearsCustomerequipmentandinstallations 4-7yearsCapitalizedleases 3-15yearsVehicles 3-5yearsBroadbanddistributionsystems 4-25yearsOfficefurniture,toolsandequipment 2-7years
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Cequel Corporation
Notes to Consolidated Financial Statements (Continued)
December 31, 2015 and 2014
(dollars in thousands, except where otherwise indicated)
3. Summary of Significant Accounting Policies (Continued)
Deferred Financing Costs
Deferredfinancingcostsarebeingamortizedtointerestexpenseusingtheeffectiveinterestmethodoverthetermsoftherelateddebt.
Franchises
Franchiserightsareperiodicallyreviewedtodetermineifeachfranchisehasafinitelifeoranindefinitelifeinaccordancewithgoodwillandotherintangibleassetfinancialaccountingstandards.Accordingly,theCompanybelievesitsfranchisesqualifyforindefinitelifetreatmentandarenotamortizedagainstearningsbutinsteadaretestedforimpairmentannuallyormorefrequentlyaswarrantedbyeventsorchangesincircumstances(seeFootnote13).Costsincurredinnegotiatingandrenewingbroadbandfranchisesareamortizedonastraight-linebasisoverthelifeoftherenewalperiod.
Accounting for Long-Lived and Intangible Assets
Long-lived Assets
Long-livedassets(e.g.,property,plantandequipment)donotrequirethatanannualimpairmenttestbeperformed;instead,long-livedassetsaretestedforimpairmentupontheoccurrenceofatriggeringevent.Triggeringeventsincludethemorelikelythannotdisposalofaportionofsuchassetsortheoccurrenceofanadversechangeinthemarketinvolvingthebusinessemployingtherelatedassets.Onceatriggeringeventhasoccurred,theimpairmenttestisbasedonwhethertheintentistoholdtheassetforcontinueduseortoholdtheassetforsale.Iftheintentistoholdtheassetforcontinueduse,theimpairmenttestfirstrequiresacomparisonofestimatedundiscountedfuturecashflowsgeneratedbytheassetgroupagainstthecarryingvalueoftheassetgroup.Ifthecarryingvalueoftheassetgroupexceedstheestimatedundiscountedfuturecashflows,theassetwouldbedeemedtobeimpaired.Theimpairmentchargewouldthenbemeasuredasthedifferencebetweentheestimatedfairvalueoftheassetanditscarryingvalue.Fairvalueisgenerallydeterminedbydiscountingthefuturecashflowsassociatedwiththatasset.Iftheintentistoholdtheassetforsaleandcertainothercriteriaaremet(e.g.,theassetcanbedisposedofcurrently,appropriatelevelsofauthorityhaveapprovedthesale,andthereisanactiveprogramtolocateabuyer),theimpairmenttestinvolvescomparingtheasset'scarryingvaluetoitsestimatedfairvalue.Totheextentthecarryingvalueisgreaterthantheasset'sestimatedfairvalue,animpairmentchargeisrecognizedforthedifference.Significantjudgmentsinthisareainvolvedeterminingwhetheratriggeringeventhasoccurred,determiningthefuturecashflowsfortheassetsinvolvedandselectingtheappropriatediscountratetobeappliedindeterminingestimatedfairvalue.FortheyearsendedDecember31,2015and2014,notriggeringeventshaveoccurredandnoimpairmenttestswereperformed.
Goodwill and Indefinite-lived Intangible Assets
Goodwillistestedannuallyforimpairmentduringthefourthquarterorearlieruponoccurrenceofatriggeringevent.Accountingguidancerelatedtogoodwillimpairmenttestingprovidesanoptiontofirstassessqualitativefactorstodeterminewhetheritismorelikelythannotthatthefairvalueofa
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Notes to Consolidated Financial Statements (Continued)
December 31, 2015 and 2014
(dollars in thousands, except where otherwise indicated)
3. Summary of Significant Accounting Policies (Continued)
reportingunitislessthanitscarryingamount.IftheCompanyperformsaqualitativeassessment,variouseventsandcircumstancesareconsideredwhenevaluatingwhetheritismorelikelythannotthatthefairvalueofareportingunitislessthanitscarryingamountandwhetherthefirststepofthegoodwillimpairmenttestisnecessary.If,afterthisqualitativeassessment,theCompanydeterminesthatitisnotmorelikelythannotthatthefairvalueofareportingunitislessthanitscarryingamount,thennofurtherquantitativetestingwouldbenecessary.
Ifdeterminednecessaryasaresultofthequalitativeassessmentdescribedabove,orifwedonotperformthequalitativeassessmentasallowedunderauthoritativeguidancefromtheFASB,goodwillimpairmentisdeterminedusingatwo-stepprocess.ThefirststepinvolvesacomparisonoftheestimatedfairvalueoftheCompanytoitscarryingamount,includinggoodwill.Inperformingthefirststep,theCompanydeterminesthefairvalueusingadiscountedcashflow("DCF")analysiscorroboratedbyamarket-basedapproach.Determiningfairvaluerequirestheexerciseofsignificantjudgment,includingjudgmentaboutappropriatediscountrates,perpetualgrowthrates,theamountandtimingofexpectedfuturecashflows,aswellasrelevantcomparablecompanyearningsmultiplesforthemarket-basedapproach.ThecashflowsemployedintheDCFanalysesarebasedontheCompany'smostrecentbudgetand,foryearsbeyondthebudget,theCompany'sestimates,whicharebasedonassumedgrowthrates.ThediscountratesusedintheDCFanalysesareintendedtoreflecttherisksinherentinthefuturecashflowsoftheCompany.IftheestimatedfairvalueoftheCompanyexceedsitscarryingamount,goodwillofthereportingunitisnotimpairedandthesecondstepoftheimpairmenttestisnotnecessary.IfthecarryingamountoftheCompanyexceedsitsestimatedfairvalue,thenthesecondstepofthegoodwillimpairmenttestmustbeperformed.Thesecondstepofthegoodwillimpairmenttestcomparestheimpliedfairvalueofthegoodwillwiththegoodwillcarryingamounttomeasuretheamountofimpairment,ifany.Theimpliedfairvalueofgoodwillisdeterminedinthesamemannerastheamountofgoodwillrecognizedinabusinesscombination.Inotherwords,theestimatedfairvalueoftheCompanyisallocatedtoalloftheassetsandliabilitiesoftheCompany(includinganyunrecognizedintangibleassets)asiftheCompanyhadbeenacquiredinabusinesscombinationandthefairvalueoftheCompanywasthepurchasepricepaid.IfthecarryingamountoftheCompany'sgoodwillexceedstheimpliedfairvalueofthatgoodwill,animpairmentchargeisrecognizedinanamountequaltothatexcess.
Otherintangibleassetsnotsubjecttoamortization,primarilycablefranchiserights,aretestedannuallyforimpairmentduringthefourthquarterorearlierupontheoccurrenceofatriggeringevent.Theimpairmenttestforotherintangibleassetsnotsubjecttoamortizationinvolvesacomparisonoftheestimatedfairvalueoftheintangibleassetwithitscarryingvalue.Ifthecarryingvalueoftheassetgroupexceedstheestimatedundiscountedcashflows,theassetwouldbedeemedtobeimpaired.Theimpairmentchargewouldthenbemeasuredasthedifferencebetweentheestimatedfairvalueoftheassetanditscarryingvalue.TheestimatesoffairvalueofintangibleassetsnotsubjecttoamortizationaredeterminedusingGreenfieldDiscountedCashFlowMethod("GreenfieldMethod"),whichentailsidentifyingtheprojecteddiscretecashflowsrelatedtosuchcablefranchiserightsanddiscountingthembacktothevaluationdate.Significantjudgmentsinherentinthisanalysisincludetheselectionofappropriatediscountrates,estimatingtheamountandtimingofestimatedfuturecashflowsattributabletocablefranchiserightsandidentificationofappropriateterminalgrowthrateassumptions.
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Cequel Corporation
Notes to Consolidated Financial Statements (Continued)
December 31, 2015 and 2014
(dollars in thousands, except where otherwise indicated)
3. Summary of Significant Accounting Policies (Continued)
ThediscountratesusedintheGreenfieldMethodareintendedtoreflecttheriskinherentintheprojectedfuturecashflowsgeneratedbytherespectiveintangibleassets.
FortheCompany'simpairmentanalysescompletedinthefourthquartersof2015and2014theCompanydidnotperformaqualitativeassessmentforanyofitssixreportingunitsandinsteadbeganwiththefirststepofthegoodwillimpairmentanalysis.TheCompany'simpairmentanalysesfor2015and2014indicatednoimpairmentofitsgoodwillandotherintangibleassetsnotsubjecttoamortization.
Asset Retirement Obligations
Accountingforassetretirementobligationsrequiresthataliabilityberecognizedforanassetretirementobligationintheperiodinwhichitisincurredifareasonableestimateoffairvaluecanbemade.Ifaleaseorfranchiseagreementisnotrenewed,certainoftheCompany'sfranchiseagreementsandleasescontainprovisionsrequiringtheCompanytoremoveequipmentorrestorefacilities.TheCompanyexpectstocontinuallyrenewitsfranchiseagreementsandhasconcludedthattherelatedfranchiserightisanindefinitelivedintangibleasset.TheCompanycouldberequiredtoincursubstantialrestorationorremovalcostsrelatedtothesefranchiseagreementsintheunlikelyeventafranchiseagreementcontainingsuchaprovisionwerenolongerexpectedtoberenewed.TheCompanywouldrecordanestimatedliabilityatthetimethatitbecameprobablethatafranchiseagreementwouldnotberenewed.TheobligationsrelatedtotheremovalprovisionscontainedintheCompany'sleaseagreementsoranydisposalobligationsrelatedtotheCompany'soperatingassetsarenotmaterialtotheCompany'sconsolidatedfinancialconditionorresultsofoperationorarenotestimable.
Fair Value of Financial Instruments
ThecarryingamountsofcertainoftheCompany'sfinancialinstruments,includingcashandcashequivalents,accountsreceivable,accountspayableandotheraccruedliabilities,approximatefairvaluebecauseoftheirshortmaturities(seeFootnote11).
Derivative Financial Instruments
Accountingforderivativefinancialinstrumentsrequiresthatallderivativeinstrumentsberecognizedonthebalancesheetatfairvalue.TheCompany'spolicyistomanageinterestcostsusingamixoffixedandvariableratedebt.TheCompanydoesnotholdorissuederivativeinstrumentsfortradingorspeculativepurposes.
Recently Issued Accounting Pronouncements
InMay2014,theFASBissuedAccountingStandardsUpdateNo.2014-09,RevenuefromContractswithCustomers("ASU2014-09"),whichsupersedestherevenuerecognitionrequirementsinASC605,RevenueRecognition.Thenewguidancestipulatesthatanentityshouldrecognizerevenuetodepictthetransferofpromisedgoodsorservicestocustomersinanamountthatreflectstheconsiderationtowhichtheentityexpectstobeentitledinexchangeforthosegoodsorservices.ASU2014-09iseffectiveforannualreportingperiods(includinginterimreportingperiodswithinthose
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Cequel Corporation
Notes to Consolidated Financial Statements (Continued)
December 31, 2015 and 2014
(dollars in thousands, except where otherwise indicated)
3. Summary of Significant Accounting Policies (Continued)
periods)beginningafterDecember15,2016.Earlyapplicationisnotpermitted,andthestandardpermitstheuseofeithertheretrospectiveorcumulativeeffecttransitionmethod.TheCompanyisevaluatingtheeffectthatASU2014-09willhaveonitsconsolidatedfinancialstatementsandrelateddisclosures.InAugust2015,theFASBissuedAccountingStandardsupdateNo.2015-14,DeferralofEffectiveDate,whichdeferredtheeffectivedateofASU2014-09byoneyeartoDecember15,2017forinterimandannualreportingperiodsbeginningafterthatdate.TheFASBpermittedearlyadoptionofthestandard,butnotbeforetheoriginaleffectivedateofDecember15,2016.TheCompanyhasnotyetselectedatransitionmethodnorhasitdeterminedtheeffectofthesestandardsonitsongoingoperationsorfinancialreporting.
InAugust2014,theFASBissuedAccountingStandardsUpdateNo.2014-15,DisclosuresofUncertaintiesaboutanEntity'sAbilitytoContinueasaGoingConcern("ASU2014-15"),whichrequiresmanagementtoevaluatewhetherthereareconditionsoreventsthatraisesubstantialdoubtabouttheentity'sabilitytocontinueasagoingconcern,andtoprovidecertaindisclosureswhenitisprobablethattheentitywillbeunabletomeetitsobligationsastheybecomeduewithinoneyearafterthedatethatthefinancialstatementsareissued.ASU2014-15iseffectivefortheannualperiodendedDecember31,2016andforannualperiodsandinterimperiodsthereafter,withearlyadoptionpermitted.TheadoptionofASU2014-15isnotexpectedtomateriallyimpacttheCompany'sconsolidatedfinancialstatements.
InApril2015,theFASBissuedAccountingStandardsUpdateNo.2015-03,SimplifyingthePresentationofDebtIssuanceCosts("ASU2015-03").Thenewguidancestipulatesthatanentityshouldpresentdebtissuancecostsinthebalancesheetasadirectdeductionfromtherelateddebtliabilityratherthanasanasset,andamortizationofthecostsshouldbereportedasinterestexpense.ASU2015-03iseffectiveforannualreportingperiods(includinginterimreportingperiodswithinthoseperiods)beginningafterDecember15,2015.Earlyapplicationispermitted,andentitieswouldapplythenewguidanceretrospectivelytoallpriorperiods.InAugust2015,theFASBissuedAccountingStandardsUpdateNo.2015-15,PresentationandSubsequentMeasurementofDebtIssuanceCostsAssociatedwithline-of-CreditArrangements("ASU2015-15"),whichprovidesadditionalguidancetoASU2015-03toaddressthepresentationorsubsequentmeasurementofdebtissuancecostsrelatedtoline-of-creditarrangements.ASU2015-15notedthattheSECstaffwouldnotobjecttoanentitydeferringandpresentingdebtissuancecostsasanassetandsubsequentlyamortizingthedeferreddebtissuancecostsratablyoverthetermoftheline-of-creditarrangement,regardlessofwhetherthereareanyoutstandingborrowingsonthearrangement.TheadoptionofASU2015-03andASU2015-15isnotexpectedtohaveamaterialimpactontheCompany'sconsolidatedfinancialstatementsandrelateddisclosures.
InSeptember2015,theFASBissuedAccountingStandardsUpdateNo.2015-16,SimplifyingtheAccountingforMeasurement-PeriodAdjustments("ASU2015-16"),whichrequiresthatanacquirerrecognizeadjustmentstoprovisionalamountsthatareidentifiedduringthemeasurementperiodinthereportingperiodinwhichtheadjustmentamountsaredetermined.Priortotheissuanceofthestandard,entitieswererequiredtoretrospectivelyapplyadjustmentsmadetoprovisionalamountrecognizedinabusinesscombination.ASU2015-16iseffectiveforfiscalyears,andinterimperiods
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Notes to Consolidated Financial Statements (Continued)
December 31, 2015 and 2014
(dollars in thousands, except where otherwise indicated)
3. Summary of Significant Accounting Policies (Continued)
withinthoseyears,beginningafterDecember15,2015,andearlyadoptionispermitted.TheadoptionofASU2015-16isnotexpectedtomateriallyimpacttheCompany'sconsolidatedfinancialstatements.
InNovember2015,theFASBissuedAccountingStandardsUpdateNo.2015-17,BalanceSheetClassificationofDeferredTaxes("ASU2015-17"),whichrequiresthatalldeferredtaxassetsandliabilities,alongwithanyrelatedvaluationallowance,beclassifiedasnoncurrentonthebalancesheet.ASU2015-17iseffectiveforfiscalyears,andinterimperiodswithinthoseyears,beginningafterDecember15,2016,andearlyadoptionispermitted.TheadoptionofASU2015-17isnotexpectedtomateriallyimpacttheCompany'sconsolidatedfinancialstatements.
4. Altice Acquisition
OnDecember21,2015,AlticeN.V.,apubliccompanywithlimitedliability(naamloze vennootshcap )underDutchlaw("Altice"),assuccessorininteresttoAlticeS.A.,certainotherdirectorindirectwholly-ownedsubsidiariesofAltice(the"Purchasers"),acquiredapproximately70%ofthetotaloutstandingequityinterestsinCequelCorporation(the"AlticeAcquisition")fromthedirectandindirectstockholdersofCequelCorporation(the"Sellers").Priortothedatehereof,CequelCorporationwasdirectlyorindirectlyownedbyinvestmentfundsadvisedbyBCPartnersLimited("BCP"),CPPIB-SuddenlinkLP,awhollyownedsubsidiaryofCanadaPensionPlanInvestmentBoard("CPPIB"andtogetherwithBCP,the"Sponsors"),andIW4MKCarryPartnershipLP(the"ManagementHolder"andtogetherwiththeSponsors,the"Stockholders").Theconsiderationfortheacquiredequityinterestswasbasedonatotalequityvaluationfor100%ofthecapitalandvotingrightsofCequelCorporationof$4,132.0million,whichincludes$2,956.4millionofcashconsideration,$675.6millionofretainedequityheldbytheSponsorsand$500millionfundedbytheissuancebyanaffiliateofAlticeofaseniorvendornotethatissubscribedbytheSponsors.FollowingtheclosingoftheAlticeAcquisition,theSponsorsretainedequityinterestsinCequelCorporationrepresenting,intheaggregate,30%ofCequelCorporation'soutstandingcapitalstockonapost-closingbasis.Inaddition,thecarryinterestplansoftheStockholderswerecashedoutbasedonanagreementbetweentheSponsorsandtheManagementHolderwherebypaymentsweremadetoparticipantsinsuchcarryinterestplans,includingcertainofficersanddirectorsofCequelandCequelCorporation.
InconnectionwiththeAlticeAcquisition,onJune12,2015,affiliatesofAlticeissued(i)$320millionprincipalamountofseniorholdconotesdue2025(the"HoldcoNotes"),(ii)$300millionprincipalamountofseniornotesdue2025(the"2025SeniorNotes")and(iii)$1.1billionprincipalamountofseniorsecurednotesdue2023(the"SeniorSecuredNotes"),theproceedsfromwhichwereplacedinescrow,tofinanceaportionofthepurchasepricefortheAlticeAcquisition.TheHoldcoNoteswereissuedbyAlticeUSFinanceS.A.(the"HoldcoNotesIssuer"),anindirectsubsidiaryofAltice,bearinterestatarateof7.75%perannumandwereissuedatapriceof98.275%.The2025SeniorNoteswereissuedbyAlticeUSFinanceIICorporation(the"SeniorNotesIssuer"),anindirectsubsidiaryofAltice,bearinterestatarateof7.75%perannumandwereissuedatapriceof100.00%.TheSeniorSecuredNoteswereissuedbyAlticeUSFinanceICorporation(the"SeniorSecuredNotesIssuer"),anindirectsubsidiaryofAltice,bearinterestatarateof5.375%perannumandwereissuedatapriceof100.00%.InterestontheHoldcoNotes,the2025SeniorNotesandtheSeniorSecuredNotesispayablesemi-annuallyonJanuary15andJuly15.TheHoldcoNotes
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Notes to Consolidated Financial Statements (Continued)
December 31, 2015 and 2014
(dollars in thousands, except where otherwise indicated)
4. Altice Acquisition (Continued)
willautomaticallyexchangeintoanequalaggregateprincipalamountof2025SeniorNotesoncethe2025SeniorNotesIssuerbuildssufficientrestrictedpaymentcapacityandtheabilitytoincuradditionalindebtednessinexcessoftheaggregateamountoftheHoldcoNotes.FollowingtheconsummationoftheAlticeAcquisitionandrelatedtransactions,(i)theindirectparentoftheHoldcoNotesIssuerowned70%ofCequelCorporation,(ii)the2025SeniorNotesIssuermergedintoCequel,theSeniorNotesbecametheobligationsofCequelandCequelCapitalCorporationbecametheco-issuerofthe2025SeniorNotes,and(iii)theequityinterestsintheSeniorSecuredNotesIssuerwerecontributedthroughoneormoreintermediarystepstoSuddenlink,andtheSeniorSecuredNoteswereguaranteedbyCequelCommunicationsHoldingsIILLC,SuddenlinkandcertainofthesubsidiariesofSuddenlinkandaresecuredbycertainassetsofCequelCommunicationsHoldingsIILLC,Suddenlinkanditssubsidiaries.
InconnectionwiththeAlticeAcquisition,wereceivedconsentfromholdersofthe2020Notesto,amongotherthings,waiveanyobligationthattheIssuersmayhaveunderthe2020Indenturetorepurchasethe2020NotesasaresultoftheconsummationoftheAlticeAcquisitionandmakecertainrelatedchangestothe2020Indenture(the"IndentureAmendments"),andtheIssuersenteredintoafirstsupplementalindenturetothe2020IndenturewithU.S.BankNationalAssociation,astrustee(the"FirstSupplementalIndenture"),containingtheIndentureAmendments.Inexchangeforthisconsent,wepaidholderswhoconsentedtotheseamendmentsanaggregatefeeofapproximately$26.3millionattheclosingoftheAlticeAcquisition,atwhichtimetheIndentureAmendmentsbecomeeffective.
InconnectionwiththeAlticeAcquisition,wereceivedconsentfromlendersunderthecreditandguarantyagreement,datedFebruary14,2012,enteredintobyCequelCommunications,LLC,CequelCommunicationsHoldingsII,LLC,certainsubsidiariesofCequelCommunications,LLCandasyndicateoflenders,asamended,whichprovidesforupto$2.7billionofloansintheaggregate,consistingofa$2.2billiontermloanfacilityanda$500.0millionrevolvingcreditfacility(collectively,the"ExistingCreditFacility"),toamendthedefinitionofchangeofcontrolandcertainotherrelateddefinitionsthereinsothattheconsummationoftheAlticeAcquisitiondidnotconstituteachangeofcontrolandcorrespondingeventofdefaultthereunder(the"ExistingCreditFacilityAmendments"),andweenteredintoaSecondAmendmentandConsenttotheExistingCreditFacility(the"SecondAmendmentandConsent")withthelendersthereunder,containing,amongotherthings,theExistingCreditFacilityAmendments.Inexchangeforthisconsent,wepaidlenderswhoconsentedtotheseamendmentsanaggregatefeeofapproximately$6.8million.
Inaddition,lendersholding(a)$290.0millionofloansandcommitmentsundertheexistingrevolvingcreditfacilityundertheExistingCreditFacilityand(b)approximately$815.4millionofloansundertheexistingtermloanfacilityundertheExistingCreditFacilityconsentedtorollover,onacashlessbasis,suchlenders'loansandcommitmentsundertheExistingCreditFacilityintoloansandcommitmentsofthesameamountunderanewcreditfacility(the"NewCreditFacility")madeavailabletoAlticeUSFinanceICorporationeffectiveupontheconsummationoftheAlticeAcquisition(the"RollConsents").TheNewCreditFacilitywillmatureonDecember21,2022,orsoonerifcertainamountsofthe2020Notes,the2021NotesortheSeniorSecuredNotesremainoutstandingatcertainfuturedates.UpontheclosingoftheAlticeAcquisition,the$290.0millionofloansandcommitmentsundertheexistingrevolvingcreditfacilityundertheExistingCreditFacility
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Cequel Corporation
Notes to Consolidated Financial Statements (Continued)
December 31, 2015 and 2014
(dollars in thousands, except where otherwise indicated)
4. Altice Acquisition (Continued)
thatlenderselectedtorolloverintotheNewCreditFacility,plus$60.0millionofnewrevolvingcommitmentsfromotherlenders,formedanew$350millionrevolvingcreditfacilityundertheNewCreditFacility,andallremainingcommitmentsunderthethenexisting$500millionrevolvingcreditfacilityundertheExistingCreditFacilitywereterminated.
WeappliedbusinesscombinationaccountingfortheAlticeAcquisition.ThisresultedintheCompanyhavinganewaccountingbasisintheidentifiableassetsandliabilitiesandnoretainedearningsoraccumulatedlosses.Accordingly,theconsolidatedfinancialstatementsonorafterDecember21,2015arenotcomparabletotheconsolidatedfinancialstatementspriortothatdate.ThefinancialstatementsfortheperiodsendedpriortoDecember20,2015donotincludetheeffectofanychangesinourcorporatestructureorchangesinthefairvalueofassetsandliabilitiesasaresultofbusinesscombinationaccounting.
Businesscombinationaccountingprovides,amongotherthings,foradeterminationofthevaluetobeassignedtotheequityofthecompanyasofadateselectedforfinancialreportingpurposes.ThevalueoftheCompanywassetforthatapproximately$9.1billion.ThevaluewasbaseduponthepurchasepricethatthePurchaserspaidtoacquiretheCompanyonDecember21,2015,andincludingliabilitiesassumed.Further,DCFanalysiswascompletedforpurchasepriceallocationpurposes.AmoredetailedexplanationoftheDCFanalysisisdiscussedbelow.
ThebasisfortheDCFanalysiswastheCompany'sprojections.Theseseven-yearprojectionswerebasedonmanagement'sassumptionsincludingamongothers,penetrationratesforbasicanddigitalvideo,highspeedInternet,andtelephone;revenuegrowthrates;operatingmargins;andcapitalexpenditures.TheassumptionsarederivedbasedontheCompany'sanditspeers'historicaloperatingperformanceadjustedforcurrentandexpectedcompetitiveandeconomicfactorssurroundingthecableindustry.TheDCFanalysiswascompletedusingadiscountrateofapproximately9.0%basedontheCompany'scostofequityandafter-taxcostofdebtandaperpetuitygrowthrateof2.5%.Thevalueishighlydependentontheachievementofthefuturefinancialresultscontemplatedintheprojections.Theestimatesandassumptionsmadeinthevaluationareinherentlysubjecttosignificantuncertainties,manyofwhicharebeyondourcontrol,andthereisnoassurancethattheseresultscanbeachieved.Theprimaryassumptionsforwhichthereisareasonablepossibilityoftheoccurrenceofavariationthatwouldhavesignificantlyaffectedthevalueincludetheassumptionsregardingrevenuegrowth,programmingexpensegrowthrates,theamountandtimingofcapitalexpendituresandthediscount
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Cequel Corporation
Notes to Consolidated Financial Statements (Continued)
December 31, 2015 and 2014
(dollars in thousands, except where otherwise indicated)
4. Altice Acquisition (Continued)
rateutilized.ThefollowingtablesummarizestheestimatesofthefairvaluesoftheassetsacquiredandliabilitiesassumedintheAlticeAcquisition(dollarsinmillions):
Thesignificantassumptionsrelatedtothevaluationsofourassetsandliabilitiesinconnectionwithbusinesscombinationaccountingincludethefollowing:
Property,plantandequipmentwasgivenapreliminaryfairvalueof$2.2billionasofDecember21,2015.InestablishingfairvalueforthevastmajorityoftheCompany'sproperty,plantandequipment,thecostapproachwasutilized.Thecostapproachconsiderstheamountrequiredtoreplaceanassetbyconstructingorpurchasinganewassetwithsimilarutility,thenadjuststhevalueinconsiderationofphysicaldepreciation,andfunctionalandeconomicobsolescenceasoftheappraisaldate.Thecostapproachreliesonmanagement'sassumptionsregardingcurrentmaterialandlaborcostsrequiredtorebuildandrepurchasesignificantcomponentsofourproperty,plantandequipmentalongwithassumptionsregardingtheageandestimatedusefullivesofourproperty,plantandequipment.
TheCompanyidentifiedthefollowingintangibleassetstobevalued:franchiseandpatentrights,tradenamesandsubscriberrelationships.Franchiserightswerevaluedusingthegreenfieldmethodandweregivenapreliminaryvalueof$4,984.6millionasofDecember21,2015.Tradenameswerevaluedusingadeviationoftheincomeapproach,knownastheroyaltysavingsmethod,andweregivenapreliminaryvalueof$37.9millionasofDecember21,2015.Subscriberrelationshipswerevaluedusingadeviationoftheexcessearningsmethodandweregivenapreliminaryvalueof$1,067.4millionasofDecember21,2015.(SeeFootnote13)
Long-termdebtwasvaluedatfairvalueasofDecember21,2015usingquotedmarketprices(Level2).
ThecarryingvalueofmostotherassetsandliabilitiesapproximatedfairvalueasofDecember21,2015.ThecontractualvalueofaccountsreceivableasofDecember21,2015isapproximately$191.2million,comparedtoapreliminaryfairvalueof$179.4million.
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Amount Recognized as of December 21,
2015 CurrentAssets $ 156.2AccountsReceivable 179.4Property,plantandequipment 2,208.3Goodwill($538.9milliontaxdeductible) 2,040.4Intangibleassets 6,089.8Othernon-currentassets 62.1Currentliabilities (571.4)Long-termdebt (6,056.7)Deferredincometaxes (1,944.8)Othernon-currentliabilities (4.0)Total $ 2,159.3
TableofContents
Cequel Corporation
Notes to Consolidated Financial Statements (Continued)
December 31, 2015 and 2014
(dollars in thousands, except where otherwise indicated)
4. Altice Acquisition (Continued)
Asaresultofapplyingbusinesscombinationaccounting,theCompanyrecordedpreliminarygoodwillof$2.0billion,whichrepresentedtheexcessoforganizationvalueoveramountsassignedtotheotheridentifiabletangibleandintangibleassets,arisingfromexpectationsoffutureoperationalperformanceandcashgeneration.
5. Acquisitions of Broadband Systems
OnJanuary2,2014,theCompanyconsummateditsacquisitionofthreecablesystemsfromNorthlandCommunications("Northland"),forapurchasepriceof$40.6million(the"NorthlandAcquisition").TheNorthlandAcquisitionwasfundedbycashonhand.TheCompanyincurrednoacquisitionrelatedcostsforthesuccessorperiodfromDecember21,2015throughDecember31,2015andthepredecessorperiodfromJanuary1,2015throughDecember20,2015,andincurredacquisitionrelatedcostsofapproximately$0.2millionforthepredecessoryearendedDecember31,2014,whichareincludedinselling,generalandadministrativeexpenseintheconsolidatedstatementsofoperations.
TheCompanyaccountedfortheNorthlandAcquisitioninaccordancewithASCTopic805,andtheoperatingresultsofNorthlandhavebeenconsolidatedfromthedateofacquisition.ThetotalestimatedpurchasepricewasallocatedtotheidentifiabletangibleandintangibleassetsacquiredbasedontheirfairvaluesusingLevel3inputs(seeFootnote11).Theexcessoftheestimatedpurchasepriceoverthosefairvalueswasrecordedasgoodwill,whichrepresentsthevalueofexpectedsynergiesandotherintangibleassetsthatdonotqualifyforseparaterecognition.Thefairvalueassignedtotheidentifiabletangibleandintangibleassetsacquiredarebaseduponathirdpartyvaluationusingtheassumptionsdevelopedbymanagementandotherinformationcompiledbymanagement.
Thetablebelowpresentsthefinalallocationofthepurchasepricetotheassetsacquired(inmillions):
OnOctober1,2014,theCompanyconsummateditsacquisitionoftwocablesystemsinNevadafromNewWaveCommunications("NewWave")for$6.1millionusingcashonhand.
TheCompany'sconsolidatedstatementofoperationsfortheyearendedDecember31,2014includes$15.3millionofrevenueand$3.1millionofnetincome,fromtheacquisitionofNorthland.Inaddition,theCompany'sconsolidatedstatementofoperationsfortheyearendedDecember31,2014includes$0.8millionofrevenueandlessthan$0.1millionofnetincomefromtheacquisitionofNewWave,whichareconsideredtobeimmaterialtotheCompany'sconsolidatedfinancialstatements.
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Totalpurchaseprice $ 40.6
Estimated Useful Life Property,plantandequipment 1-15years $ 11.3Subscriberrelationships 7years 5.7Franchiserights Indefinite-lived 16.7Goodwill(taxdeductible) Indefinite-lived 6.8Currentassets 0.1
Totalallocatedpurchaseprice $ 40.6
TableofContents
Cequel Corporation
Notes to Consolidated Financial Statements (Continued)
December 31, 2015 and 2014
(dollars in thousands, except where otherwise indicated)
6. Allowance for Doubtful Accounts
Allowancefordoubtfulaccountsconsistedofthefollowing:
7. Property, Plant and Equipment
Property,plantandequipmentconsistedofthefollowingasofDecember31:
Depreciationexpensewas$10.2million,$465.2million,and$480.3millionforthesuccessorperiodfromDecember21,2015throughDecember31,2015,thepredecessorperiodfromJanuary1,2015throughDecember20,2015,andthepredecessoryearendedDecember31,2014,respectively.
DuringthesuccessorperiodfromDecember21,2015throughDecember31,2015,weacquired$26.0millionofproperty,plantandequipment.Asreflectedinourconsolidatedstatementofcashflows,$30.6millionrepresentscapitalexpendituresforwhichcashwaspaidduringtheyearendedDecember31,2015.Thisamountincludes$4.6millionofcashoutflowsrelatedtothedecreaseinaccountspayableandaccruedexpensesrelatedtocapitalexpendituresfrom$16.9millionasofDecember20,2015to$12.3millionasofDecember31,2015.
DuringthepredecessorperiodfromJanuary1,2015throughDecember20,2015,weacquired$444.0millionofproperty,plantandequipment.Asreflectedinourconsolidatedstatementofcashflows,$447.9millionrepresentscapitalexpendituresforwhichcashwaspaidduringtheyearendedDecember31,2015.Thisamountincludes$3.9millionofcashoutflowsrelatedtothedecreaseinaccountspayableandaccruedexpensesrelatedtocapitalexpendituresfrom$20.8millionasofDecember31,2014to$16.9millionasofDecember20,2015.
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Successor
2015 Predecessor
2015 Predecessor
2014 Balance,beginningofperiod $ — $ 15,567 $ 13,323Chargedtoexpense 1,051 29,144 28,283Uncollectedbalanceswrittenoff,netofrecoveries — (33,106) (26,039)Balance,endofperiod $ 1,051 $ 11,605 $ 15,567
Successor
2015 Predecessor
2014 Land $ 44,666 $ 24,396Buildingsandimprovements 112,085 99,933Capitalizedleases 2,547 17,605Vehicles 25,324 58,523Broadbanddistributionsystems 2,005,783 2,415,462Officefurniture,toolsandequipment 43,869 128,409TotalProperty,plantandequipment 2,234,274 2,744,328Less:accumulateddepreciation (10,162) (967,156)Property,plantandequipment,net $ 2,224,112 $ 1,777,172
TableofContents
Cequel Corporation
Notes to Consolidated Financial Statements (Continued)
December 31, 2015 and 2014
(dollars in thousands, except where otherwise indicated)
7. Property, Plant and Equipment (Continued)
DuringthepredecessoryearendedDecember31,2014,weacquired$417.3millionofproperty,plantandequipment.Asreflectedinourconsolidatedstatementofcashflows,$420.6millionrepresentscapitalexpendituresforwhichcashwaspaidduringthepredecessoryearendedDecember31,2014.Thisamountincludes$3.3millionofcashoutflowsrelatedtothedecreaseinaccountspayableandaccruedexpensesrelatedtocapitalexpendituresfrom$24.1millionasofDecember31,2013to$20.8millionasofDecember31,2014.
ForthesuccessorperiodfromDecember21,2015throughDecember31,2015,thepredecessorperiodfromJanuary1,2015throughDecember20,2015,andthepredecessoryearendedDecember31,2014,theCompanyrecordedalossonthedisposalofcableassetsoflessthan$0.1million,$1.8millionand$4.3million,respectively.
8. Accounts Payable and Accrued Expenses
AccountspayableandaccruedexpensesasofDecember31,2015and2014consistofthefollowing:
9. Capital Lease and Other Obligations
Capitalleaseandotherobligationsconsistofcapitalleasesrelatedtoassets,facilitiesandmulti-yearvendorserviceagreements.TheCompanyhasfinancingagreementswithoriginalobligationstotaling$43.0million,ofwhich$12.9millionwasoutstandingatDecember31,2015,thatexpirebetweenDecember2015andJanuary2028.
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December 31,
Successor
2015 Predecessor
2014 Accountspayable—trade $ 17,497 $ 20,265Accountspayableandaccruedexpensesrelatedtocapitalexpenditures 12,329 20,785Accruedliabilities: Programmingcosts 54,047 52,241Compensationandbenefits 43,498 40,048Taxesandinsurance 23,851 31,737Telephoneandcircuitcosts 7,271 15,907Franchiserelatedfees 15,399 15,789Polerentals 9,441 6,508Other 34,448 28,417
Total $ 217,781 $ 231,697
TableofContents
Cequel Corporation
Notes to Consolidated Financial Statements (Continued)
December 31, 2015 and 2014
(dollars in thousands, except where otherwise indicated)
9. Capital Lease and Other Obligations (Continued)
ThefutureprincipalpaymentsoftheCompany'scapitalleaseobligationsasofDecember31,2015areasfollows(dollarsinthousands):
In2014,theCompanyenteredintoathreeyearcapitalleasecommitmenttotalingapproximately$14.1million,ofwhich$4.1millionwasoutstandingatDecember31,2015,andafiveyearcapitalleasecommitmenttotalingapproximately$0.8million,ofwhich$0.6millionwasoutstandingatDecember31,2015.
10. Long-Term Debt
OutstandingdebtconsistedofthefollowingatDecember31:
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Year Amount 2016 $ 10,1272017 8652018 5032019 1802020 266Thereafter 1,001Total $ 12,942
Successor
2015(a) Predecessor
2014 Existingcreditfacility $ 1,459,077 $ 2,327,948Newcreditfacility 795,138 —6.375%SeniorNotesdue2020 1,447,659 1,527,3315.125%SeniorNotesdue2021(b) 1,094,461 1,236,7315.375%SeniorSecuredNotesdue2023 1,089,036 —7.750%SeniorNotesdue2025 273,821 —TotalDebt 6,159,192 5,092,010Less:Currentportion (105,129) (24,422)Long-TermDebt $ 6,054,063 $ 5,067,588
(a) OnDecember21,2015,weappliedbusinesscombinationaccountingtoadjustourdebttoreflectfairvalue.Therefore,asofDecember31,2015,theaccretedvaluespresentedabovegenerallyrepresentthefairvalueatDecember21,2015,plusorminustheaccretionstothebalancesheetdateofDecember31,2015.
(b) IncludestheInitial2021Notesandthe2021MirrorNotes.
TableofContents
Cequel Corporation
Notes to Consolidated Financial Statements (Continued)
December 31, 2015 and 2014
(dollars in thousands, except where otherwise indicated)
10. Long-Term Debt (Continued)
Existing Credit Facility
OnFebruary14,2012,Suddenlink,CequelCommunicationsHoldingsII,LLC("HoldingsII"),Cequel'sdirectsubsidiaryandthedirectparentofSuddenlink,certainsubsidiariesofSuddenlinkandasyndicateoflendersenteredintoaCreditandGuarantyAgreement,(the"ExistingCreditAgreement"),whichprovidesforupto$2.7billionofloansintheaggregate,consistingofa$2.2billiontermloanfacilityfundedatclosinganda$500.0millionrevolvingcreditfacility(collectively,the"ExistingCreditFacility").TherevolvingcreditfacilitywasscheduledtomatureonFebruary14,2017.ThetermloanfacilityisscheduledtomatureonFebruary14,2019.TheinterestrateonthetermloansoutstandingundertheExistingCreditAgreementinitiallyequaledtheprimerateplus1.75%ortheLIBORrateplus2.75%,withaLIBORfloorof0.75%,whiletheinterestrateontherevolverloansinitiallyequaledtheprimerateplus1.50%ortheLIBORrateplus2.50%.Thetermloanfacilityrequiresquarterlyrepaymentsinannualamountsequalto1.00%oftheoriginalprincipalamount,withtheremainderdueatmaturity.ThedebtundertheExistingCreditAgreementissecuredbyafirstprioritysecurityinterestinthecapitalstockofSuddenlinkandsubstantiallyallofthepresentandfutureassetsofSuddenlinkanditsrestrictedsubsidiaries,andisguaranteedbyHoldingsII,aswellasallofSuddenlink'sexistingandfuturedirectandindirectsubsidiaries,subjecttocertainexceptionssetforthintheExistingCreditAgreement.TheExistingCreditAgreementcontainscustomaryrepresentations,warrantiesandaffirmativecovenants.Inaddition,theExistingCreditAgreementcontainsrestrictivecovenantsthatlimit,amongotherthings,theabilityofSuddenlinkanditssubsidiariestoincurindebtedness,createliens,engageinmergers,consolidationsandotherfundamentalchanges,makeinvestmentsorloans,engageintransactionswithaffiliates,paydividends,andmakeacquisitionsanddisposeofassets.TheExistingCreditAgreementalsocontainsamaximumseniorsecuredleveragemaintenancecovenant.Additionally,theExistingCreditAgreementcontainscustomaryeventsofdefault,includingfailuretomakepayments,breachesofcovenantsandrepresentations,crossdefaultstootherindebtedness,unpaidjudgments,changesofcontrolandbankruptcyevents.Thelenders'commitmentstofundamountsundertherevolvingcreditfacilityaresubjecttocertaincustomaryconditions.
OnApril30,2014,theCompanywasrequiredtomakeanexcesscashflowrecapturepaymentof$72.7millioninaccordancewiththetermsoftheExistingCreditAgreement.Lendersholdingapproximately16.4%oftheoutstandingtermloansundertheExistingCreditFacilitywaivedtheirrighttoreceivethispayment.Accordingly,theCompanymadeanexcesscashflowrecapturepaymentof$60.8milliontotheotherlendersundertheExistingCreditFacilityandretained$11.9millionrelatedtothewaivedexcesscashflowrecapturepayment.
OnDecember29,2014,theCompanymadeavoluntaryprincipalprepaymentintheamountof$55.0million,usingcashonhand.
InconnectionwiththeAlticeAcquisition,wereceivedconsentfromlendersundertheExistingCreditFacilitytoamendthedefinitionofchangeofcontrolandcertainotherrelateddefinitionsthereinsothattheconsummationoftheAlticeAcquisitiondidnotconstituteachangeofcontrolandcorrespondingeventofdefaultthereunder(the"ExistingCreditFacilityAmendments"),andweenteredintoaSecondAmendmentandConsenttotheExistingCreditFacility(the"Second
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Cequel Corporation
Notes to Consolidated Financial Statements (Continued)
December 31, 2015 and 2014
(dollars in thousands, except where otherwise indicated)
10. Long-Term Debt (Continued)
AmendmentandConsent")withthelendersthereunder,containing,amongotherthings,theExistingCreditFacilityAmendments.Inexchangeforthisconsent,wepaidlenderswhoconsentedtotheseamendmentsanaggregatefeeofapproximately$6.8million.
Additionally,asofDecember21,2015,inconnectionwiththeformationoftheNewCreditFacility(asdescribedbelow)theinterestrateonthetermloansoutstandingundertheExistingCreditAgreementwasincreasedtotheprimerateplus1.8125%ortheLIBORrateplus2.8125%,withaLIBORfloorof1.00%,andthecommitmentsunderthethenexisting$500millionrevolvingcreditfacilityundertheExistingCreditFacilitywereterminated.
OnApril29,2016,theCompanywillberequiredtomakeanexcesscashflowrecapturepaymentof$80.7millioninaccordancewiththetermsoftheExistingCreditAgreement.
New Credit Facility
InconnectionwiththeAlticeAcquisition,lendersholding(a)$290.0millionofloansandcommitmentsundertheexistingrevolvingcreditfacilityundertheExistingCreditFacilityand(b)approximately$815.4millionofloansundertheexistingtermloanfacilityundertheExistingCreditFacilityconsentedtorollover,onacashlessbasis,suchlenders'loansandcommitmentsundertheExistingCreditFacilityintoloansandcommitmentsofthesameamountundertheNewCreditFacilitymadeavailabletoAlticeUSFinanceICorporationeffectiveupontheconsummationoftheAlticeAcquisition.TheNewCreditFacilitywillmatureonDecember21,2022,orsoonerifcertainamountsofthe2020Notes,the2021NotesortheSeniorSecuredNotesremainoutstandingatcertainfuturedates.UpontheclosingoftheAlticeAcquisition,the$290.0millionofloansandcommitmentsundertheexistingrevolvingcreditfacilityundertheExistingCreditFacilitythatlenderselectedtorolloverintotheNewCreditFacility,plus$60.0millionofnewrevolvingcommitmentsfromotherlenders,formedanew$350millionrevolvingcreditfacilityundertheNewCreditFacility,andallremainingcommitmentsunderthethenexisting$500millionrevolvingcreditfacilityundertheExistingCreditFacilitywereterminated.
TherevolvingcreditfacilityundertheNewCreditFacilityisscheduledtomatureonDecember21,2020.TheNewCreditFacilitywillmatureonDecember21,2022,orsoonerifcertainamountsofthe2020Notes,the2021NotesortheSeniorSecuredNotesremainoutstandingatcertainfuturedates.TheinterestrateonthetermloansoutstandingundertheNewCreditAgreementequaltheprimerateplus2.25%ortheLIBORrateplus3.25%,withaLIBORfloorof1.00%,whiletheinterestrateontherevolverloansequaltheprimerateplus2.25%ortheLIBORrateplus3.25%.Thetermloanfacilityrequiresquarterlyrepaymentsinannualamountsequalto1.00%oftheoriginalprincipalamount,commencingonMarch31,2016,withtheremainderdueatmaturity.ThedebtundertheNewCreditAgreementissecuredbyafirstprioritysecurityinterestinthecapitalstockofSuddenlinkandsubstantiallyallofthepresentandfutureassetsofSuddenlinkanditsrestrictedsubsidiaries,andisguaranteedbyHoldingsII,aswellasallofSuddenlink'sexistingandfuturedirectandindirectsubsidiaries,subjecttocertainexceptionssetforthintheNewCreditAgreement.TheNewCreditAgreementcontainscustomaryrepresentations,warrantiesandaffirmativecovenants.Inaddition,theNewCreditAgreementcontainsrestrictivecovenantsthatlimit,amongotherthings,theabilityof
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Cequel Corporation
Notes to Consolidated Financial Statements (Continued)
December 31, 2015 and 2014
(dollars in thousands, except where otherwise indicated)
10. Long-Term Debt (Continued)
Suddenlinkanditssubsidiariestoincurindebtedness,createliens,engageinmergers,consolidationsandotherfundamentalchanges,makeinvestmentsorloans,engageintransactionswithaffiliates,paydividends,andmakeacquisitionsanddisposeofassets.TheNewCreditAgreementalsocontainsamaximumseniorsecuredleveragemaintenancecovenant.Additionally,theNewCreditAgreementcontainscustomaryeventsofdefault,includingfailuretomakepayments,breachesofcovenantsandrepresentations,crossdefaultstootherindebtedness,unpaidjudgments,changesofcontrolandbankruptcyevents.Thelenders'commitmentstofundamountsundertherevolvingcreditfacilityaresubjecttocertaincustomaryconditions.
Senior Secured Notes
OnJune12,2015,affiliatesofAlticeissued$1.1billionprincipalamountofSeniorSecuredNotes,theproceedsfromwhichwereplacedinescrowtofinanceaportionofthepurchasepricefortheAlticeAcquisition.TheSeniorSecuredNoteswereissuedbytheSeniorSecuredNotesIssuer,anindirectsubsidiaryofAltice,bearinterestatarateof5.375%perannumandwereissuedatapriceof100.00%.InterestontheSeniorSecuredNotesispayablesemi-annuallyonJanuary15andJuly15.FollowingtheconsummationoftheAlticeAcquisitionandrelatedtransactionstheequityinterestsintheSeniorSecuredNotesIssuerwerecontributedthroughoneormoreintermediarystepstoSuddenlink,andtheSeniorSecuredNoteswereguaranteedbyCequelCommunicationsHoldingsIILLC,SuddenlinkandcertainofthesubsidiariesofSuddenlinkandaresecuredbycertainassetsofCequelCommunicationsHoldingsIILLC,Suddenlinkanditssubsidiaries.
Senior Notes
OnSeptember9,2014,theIssuersissued$500.0millionaggregateprincipalamountofthe2021MirrorNotes.Theproceedsfromthesale,pluscashonhand,wereusedtomakeadistributionintheamountof$600milliontoourparent(seeFootnote20)andpayrelatedfeesandexpenses.The2021MirrorNotesmatureonDecember15,2021.Interestispayableonthe2021MirrorNotessemi-annuallyincashonJune15andDecember15ofeachyear.The2021MirrorNoteshavesubstantiallythesametermsastheInitial2021Notes.
OnJune12,2015,affiliatesofAlticeissued$300millionprincipalamountofthe2025SeniorNotes,theproceedsfromwhichwereplacedinescrow,tofinanceaportionofthepurchasepricefortheAlticeAcquisition.The2025SeniorNoteswereissuedbythe2025SeniorNotesIssuer,anindirectsubsidiaryofAltice,bearinterestatarateof7.75%perannumandwereissuedatapriceof100.00%.Interestonthe2025SeniorNotesispayablesemi-annuallyonJanuary15andJuly15.FollowingtheconsummationoftheAlticeAcquisitionandrelatedtransactions,the2025SeniorNotesIssuermergedintoCequel,the2025SeniorNotesbecametheobligationsofCequelandCequelCapitalCorporationbecametheco-issuerofthe2025SeniorNotes.
OnJune12,2015,affiliatesofAlticeissued$320millionprincipalamountoftheHoldcoNotes,theproceedsfromwhichwereplacedinescrow,tofinanceaportionofthepurchasepricefortheAlticeAcquisition.TheHoldcoNoteswereissuedbytheHoldcoNotesIssuer,anindirectsubsidiaryofAltice,bearinterestatarateof7.75%perannumandwereissuedatapriceof100.00%.Intereston
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Cequel Corporation
Notes to Consolidated Financial Statements (Continued)
December 31, 2015 and 2014
(dollars in thousands, except where otherwise indicated)
10. Long-Term Debt (Continued)
theHoldcoNotesispayablesemi-annuallyonJanuary15andJuly15(SeeFootnote17).TheHoldcoNoteswillautomaticallyexchangeintoanequalaggregateprincipalamountof2025SeniorNotesoncethe2025SeniorNotesIssuerbuildssufficientrestrictedpaymentcapacityandtheabilitytoincuradditionalindebtednessinexcessoftheaggregateamountoftheHoldcoNotes.Thisautomaticexchangeisexpectedtotakeplaceduringthesecondquarterof2016.
TheIssuershavenoabilitytoserviceinterestorprincipalontheSeniorNotes,otherthanthroughanydividendsordistributionsreceivedfromSuddenlink.Suddenlinkisrestrictedincertaincircumstances,frompayingdividendsordistributionstotheIssuersbythetermsoftheCreditAgreements.However,theCreditAgreementspermitSuddenlinktomakedividendsanddistributionssubjecttosatisfactionofcertainconditions,includingproformacompliancewithamaximumseniorsecuredleverageratio,andthatnoeventofdefaulthasoccurredandiscontinuing,orwouldbecausedbythemakingofsuchdividendsorotherdistributions,andbasedon,amongotherthings,availabilityunderarestrictedpaymentbasket.TheSeniorNotesareunsecuredandarenotguaranteedbyanysubsidiariesoftheIssuers,includingSuddenlink.
TheIndenturescontaincertaincovenants,agreementsandeventsofdefaultwhicharecustomarywithrespecttonon-investmentgradedebtsecurities,includinglimitationsonourabilitytoincuradditionalindebtedness,paydividendsonormakeotherdistributionsorrepurchaseourcapitalstock,makecertaininvestments,enterintocertaintypesoftransactionswithaffiliates,createliensandsellcertainassetsormergewithorintoothercompanies.
TheCompany'sdebtagreementsincluderestrictivecovenantssuchasrestrictionsonadditionalindebtedness.TheCreditAgreementsalsorequiretheCompanytosatisfyafinancialmaintenancecovenant.TheCompanywasincompliancewiththosecovenantsasofDecember31,2015.
Loss on Extinguishment of Debt
TheCompanydidnotincuranylossesonextinguishmentofdebtforthesuccessorperiodfromDecember21,2015throughDecember31,2015,thepredecessorperiodfromJanuary1,2015throughDecember20,2015andthepredecessoryearendedDecember31,2014.
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Cequel Corporation
Notes to Consolidated Financial Statements (Continued)
December 31, 2015 and 2014
(dollars in thousands, except where otherwise indicated)
10. Long-Term Debt (Continued)
Future Principal Payments
Thefuturematuritiesoflong-termdebt,excludingpremiumsanddiscounts,asofDecember31,2015areasfollows(dollarsinthousands):
11. Fair Value of Financial Instruments
TheCompanyhasestablishedaprocessfordeterminingfairvalueofitsfinancialassetsandliabilitiesusingavailablemarketinformationorotherappropriatevaluationmethodologies.Fairvalueisbaseduponquotedmarketprices,whereavailable.Ifsuchvaluationmethodsarenotavailable,fairvalueisbasedoninternallyorexternallydevelopedmodelsusingmarket-basedorindependently-sourcedmarketparameters,whereavailable.Fairvaluemaybesubsequentlyadjustedtoensurethatthoseassetsandliabilitiesarerecordedatfairvalue.TheuseofdifferentmethodologiesorassumptionstodeterminethefairvalueofcertainfinancialinstrumentscouldresultinadifferentfairvalueestimateasoftheCompany'sreportingdate.
Fairvalueguidanceestablishesathree-levelhierarchyfordisclosureoffairvaluemeasurements,baseduponthetransparencyofinputstothevaluationofanassetorliabilityasofthemeasurementdate,asfollows:
• Level1—inputstothevaluationmethodologyarequotedprices(unadjusted)foridenticalassetsorliabilitiesinactivemarkets.
• Level2—inputstothevaluationmethodologyincludequotedpricesforsimilarassetsandliabilitiesinactivemarkets,andinputsthatareobservablefortheassetandliability,eitherdirectlyorindirectly,forsubstantiallythefulltermofthefinancialinstrument.
• Level3—inputstothevaluationmethodologyareunobservableandsignificanttothefairvaluemeasurement.
Financial Assets and Liabilities
TheCompanyhasestimatedthefairvalueofitsfinancialinstrumentsasofDecember31,2015and2014usingavailablemarketinformationorotherappropriatevaluationmethodologies.Considerablejudgment,however,isrequiredininterpretingmarketdatatodeveloptheestimatesof
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Year Amount 2016 $ 105,1292017 24,4222018 24,4222019 1,361,8042020 1,508,657Thereafter 3,422,160Totaldebt $ 6,446,594
TableofContents
Cequel Corporation
Notes to Consolidated Financial Statements (Continued)
December 31, 2015 and 2014
(dollars in thousands, except where otherwise indicated)
11. Fair Value of Financial Instruments (Continued)
fairvalue.AccordinglytheestimatespresentedintheaccompanyingconsolidatedfinancialstatementsarenotnecessarilyindicativeoftheamountstheCompanywouldrealizeinacurrentmarketexchange.
Thecarryingamountsofcashandcashequivalents,receivables,payablesandothercurrentassetsandliabilitiesapproximatefairvaluebecauseoftheshortmaturityofthoseinstruments.
TheestimatedfairvalueoftheCompany'sdebtatDecember31,2015and2014isbasedonquotedmarketpricesforthedebtandisclassifiedwithinLevel2ofthevaluationhierarchy.Unrealizedgainsorlossesondebtdonotresultintherealizationorexpenditureofcashandarenotrecognizedforfinancialreportingpurposes.
AsummaryofthecarryingvalueandfairvalueoftheCompany'sdebtatDecember31,2015and2014isasfollows:
Non-financial Assets and Liabilities
TheCompany'snon-financialassetssuchasfranchises,property,plantandequipment,andotherintangibleassetsarenotmeasuredatfairvalueonarecurringbasis;however,theyaresubjecttofairvalueadjustmentsincertaincircumstances,suchaswhenthereisevidencethatanimpairmentmayexist.NoimpairmentswererecordedforthesuccessorperiodfromDecember21,2015throughDecember31,2015,thepredecessorperiodfromJanuary1,2015throughDecember20,2015,andthepredecessoryearendedDecember31,2014.
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Successor December 31, 2015
Predecessor
December 31, 2014
Carrying Value(a)
Fair Value Carrying Value Fair Value Existingcreditfacility $ 1,459,077 $ 1,455,231 $ 2,327,948 2,289,866Newcreditfacility 795,138 797,096 — —6.375%SeniorNotesdue2020 1,447,659 1,451,250 1,527,331 1,560,0005.125%SeniorNotesdue2021(b) 1,094,461 1,118,750 1,236,731 1,225,0005.375%SeniorNotesdue2023 1,089,036 1,102,750 — —7.750%SeniorNotesdue2025 273,821 276,000 — —Total $ 6,159,192 $ 6,201,077 $ 5,092,010 $ 5,074,866
(a) OnDecember21,2015,weappliedbusinesscombinationaccountingtoadjustourdebttoreflectfairvalue.Therefore,asofDecember31,2015,theaccretedvaluespresentedabovegenerallyrepresentthefairvalueatDecember21,2015,plusorminustheaccretionstothebalancesheetdateofDecember31,2015.
(b) IncludestheInitial2021Notesandthe2021MirrorNotes.
TableofContents
Cequel Corporation
Notes to Consolidated Financial Statements (Continued)
December 31, 2015 and 2014
(dollars in thousands, except where otherwise indicated)
12. Commitments and Contingencies
Contractual Obligations
TheCompanyhasobligationstomakefuturepaymentsforgoodsandservicesundercertaincontractualarrangements.ThesecontractualobligationssecurefuturerightstovariousassetsandservicestobeusedinthenormalcourseoftheCompany'soperations.Forexample,theCompanyiscontractuallycommittedtomakeminimumleasepaymentsfortheuseofpropertyunderoperatingleaseagreements.inaccordancewithapplicableaccountingrules,thefuturerightsandobligationspertainingtofirmcommitments,suchasoperatingleaseobligationsandcertainpurchaseobligationsundercontracts,arenotreflectedasassetsorliabilitiesintheconsolidatedbalancesheet.
ThefollowingtablesummarizestheestimatedtimingandeffectoftheCompany'spaymentobligationsasofDecember31,2015ontheCompany'sliquidityandcashflowsinfutureperiods(dollarsinmillions):
Thefollowingitemsarenotincludedascontractualobligationsduetovariousfactorsdiscussedbelow.However,theCompanyincursthesecostsaspartofitsoperations:
• TheCompanyrentsutilitypolesusedinitsoperations.Generally,polerentalsarecancelableonshortnotice,buttheCompanyanticipatesthatsuchrentalswillrecur.Rentexpenseforpolerentalattachmentswasapproximately$0.4million,$13.9millionand$12.9millionforthesuccessorperiodfromDecember21,2015throughDecember31,2015,thepredecessorperiodfromJanuary1,2015throughDecember20,2015,andthepredecessoryearendedDecember31,2014,respectively.
• TheCompanypaysfranchisefeesundermulti-yearfranchiseagreementsbasedonapercentageofrevenuesgeneratedfromvideoserviceperyear.Franchisefeesandotherfranchise-relatedcostsincludedintheaccompanyingconsolidatedstatementsofoperationswere$1.4million,$46.2millionand$48.2millionforthesuccessorperiodfromDecember21,2015through
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Total 2016 2017 2018 2019 2020 Thereafter Contractual Obligations: Operatingleaseobligations(1) $ 27.9 $ 7.9 $ 6.0 $ 4.4 $ 3.6 $ 2.9 $ 3.1Othercommitments(2) 26.4 26.0 0.4 — — — —Totalcontractualobligation $ 54.3 $ 33.9 $ 6.4 $ 4.4 $ 3.6 $ 2.9 $ 3.1
(1) TheCompanyleasescertainsiteandofficespaceundernon-cancelableoperatingleases.Rentexpenseforsiteleasesandofficespacewasapproximately$0.2million,$8.1millionand$7.6millionforthesuccessorperiodfromDecember21,2015throughDecember31,2015,thepredecessorperiodfromJanuary1,2015throughDecember20,2015,andthepredecessoryearendedDecember31,2014,respectively.
(2) Representscontractualobligationsunderprogrammingandcontentpurchaseagreementsandvariousothercontractualobligations.
TableofContents
Cequel Corporation
Notes to Consolidated Financial Statements (Continued)
December 31, 2015 and 2014
(dollars in thousands, except where otherwise indicated)
12. Commitments and Contingencies (Continued)
December31,2015,thepredecessorperiodfromJanuary1,2015throughDecember20,2015,andthepredecessoryearendedDecember31,2014,respectively.
• TheCompanyhascablefranchiseagreementscontainingprovisionsrequiringtheconstructionofcableplantandtheprovisionofservicestocustomerswithinthefranchiseareas.Inconnectionwiththeseobligationsunderexistingfranchiseagreements,theCompanyobtainslettersofcreditguaranteeingperformancetomunicipalitiesandpublicutilitiesandpaymentofinsurancepremiums.SuchlettersofcreditasofDecember31,2015and2014totaled$21.2millionand$18.0million,respectively,whichreducedtheavailabilityunderthe$350.0millionand$500.0millionrevolvingcreditfacility,respectively,toapproximately$328.8millionand$482.0million,respectively.Paymentsunderthesearrangementsarerequiredonlyintheeventofnonperformance.TheCompanydoesnotexpectthatthesecontingentcommitmentswillresultinanyamountsbeingpaidwithinatleastthenexttwelvemonths.
Litigation
TheCompanyisadefendantoraco-defendantinseverallawsuitsinvolvingallegedinfringementofvariouspatentsrelatingtovariousaspectsofitsbusinesses.Otherindustryparticipantsarealsodefendantsincertainofthesecases,and,inmanycases,theCompanyexpectsthatanypotentialliabilitywouldbetheresponsibilityoftheCompany'sequipmentvendorspursuanttoapplicablecontractualindemnificationprovisions.
IntheeventthatacourtultimatelydeterminesthattheCompanyinfringedonanyintellectualpropertyrights,theCompanymaybesubjecttosubstantialdamagesand/oraninjunctionthatcouldrequiretheCompanyortheCompany'svendorstomodifycertainproductsandservicestheCompanyofferstoitscustomers,aswellasnegotiateroyaltyorlicenseagreementswithrespecttothepatentsatissue.WhiletheCompanybelievesthelawsuitsarewithoutmeritandintendstodefendtheactionsvigorously,noassurancecanbegiventhatanyadverseoutcomewouldnotbematerialtotheCompany'sconsolidatedfinancialcondition,resultsofoperations,orliquidity.TheCompanycannotpredicttheoutcomeofanysuchclaimsnorcanitreasonablyestimatetherangeofpossibleloss.
Fromtimetotime,theCompanyisinvolvedinotherlitigationandregulatoryproceedingsarisingoutoftheCompany'soperations.ManagementbelievesthattheCompanyisnotcurrentlyapartytoanyotherlegalorregulatoryproceedings,theadverseoutcomeofwhich,individuallyorintheaggregate,wouldmateriallyadverselyaffecttheCompany'sbusiness,financialposition,resultsofoperations,orliquidity.
13. Intangible Assets
TheCompanydoesnotamortizeindefinitelivedintangibleassets.Accordingly,allfranchisesthatqualifyforindefinitelifetreatmentarenotamortizedagainstearningsbutinsteadaretestedforimpairmentannually,ormorefrequentlyaswarrantedbyeventsorchangesincircumstances.Basedontestingofimpairmentofindefinitelivedintangibleassetguidance,franchisesareaggregatedintoessentiallyinseparableassetgroupstoconductthevaluations.TheassetgroupsgenerallyrepresentgeographicclusteringoftheCompany'sbroadbandsystemsintogroupsbywhichsuchsystemsare
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Cequel Corporation
Notes to Consolidated Financial Statements (Continued)
December 31, 2015 and 2014
(dollars in thousands, except where otherwise indicated)
13. Intangible Assets (Continued)
managedandbywhichthefranchiserightsareassociatedandtracked.Managementbelievessuchgroupingrepresentsthehighestandbestuseofthoseassetsforpurposesofevaluatingimpairmentofitsfranchises.Theimpairmenttestforintangibleassetsnotsubjecttoamortizationinvolvesacomparisonoftheestimatedfairvalueoftheintangibleassetwithitscarryingvalue.TheCompanydeterminesthefairvalueoftheintangibleassetusingaDCFanalysis,whichutilizessignificantunobservableinputs(Level3)withinthefairvaluehierarchy.Determiningfairvaluerequirestheexerciseofsignificantjudgment,includingjudgmentaboutappropriatediscountrates,perpetualgrowthrates,theamountandtimingofexpectedfuturecashflows,aswellasrelevantcomparablecompanyearningsmultiplesforthemarket-basedapproach.
TheCompanyperformsitsimpairmentassessmentofitsgoodwillatthesameinseparableassetgrouplevelasfranchisesdiscussedabove.TheassetgroupsgenerallyrepresentgeographicclusteringoftheCompany'sbroadbandsystemsintogroupsbywhichsuchsystemsaremanagedandbywhichgoodwillistracked.Theimpairmenttestforgoodwillinvolvesacomparisonoftheestimatedfairvaluetoitscarryingamount,includinggoodwill.TheCompanydeterminesitsfairvalueusingaDCFanalysiscorroboratedbyamarket-basedapproach,whichutilizesignificantunobservableinputs(Level3)withinthefairvaluehierarchy.
OnDecember21,2015,theCompanyappliedbusinesscombinationaccountingandadjusteditsfranchise,goodwillandotherintangibleassetsincludingtrademarksandcustomerrelationshipstoreflectfairvalue.Asaresultofapplyingbusinesscombinationaccounting,theCompanyrecordedgoodwill,whichistaxdeductible,of$2.04billion,whichrepresentstheexcessoforganizationvalueoveramountsassignedtotheotherassetsandliabilities(seeFootnote4).
TheCompanydeterminedtheestimatedfairvalueutilizinganincomeapproachmodelbasedonthepresentvalueoftheestimateddiscretefuturecashflowsattributabletoeachoftheintangibleassetsidentifiedforeachunitassumingadiscountrate.Thisapproachmakesuseofunobservablefactorssuchasprojectedrevenues,expenses,capitalexpenditures,andadiscountrateappliedtotheestimatedcashflows.Thedeterminationofthediscountratewasbasedonaweightedaveragecostofcapitalapproach,whichusesamarketparticipant'scostofequityandafter-taxcostofdebtandreflectstherisksinherentinthecashflows.
TheCompanyestimateddiscountedfuturecashflowsusingreasonableandappropriateassumptionsincludingamongothers,penetrationratesforbasicanddigitalvideo,highspeedInternet,andtelephone,revenuegrowthrates,operatingmarginsandcapitalexpenditures.TheassumptionsarederivedbasedontheCompany'sanditspeers'historicaloperatingperformanceadjustedforcurrentandexpectedcompetitiveandeconomicfactorssurroundingthecableindustry.TheestimatesandassumptionsmadeintheCompany'svaluationsareinherentlysubjecttosignificantuncertainties,manyofwhicharebeyonditscontrol,andthereisnoassurancethattheseresultscanbeachieved.Theprimaryassumptionsforwhichthereisareasonablepossibilityoftheoccurrenceofavariationthatwouldsignificantlyaffectthemeasurementvalueincludetheassumptionsregardingrevenuegrowth,programmingexpensegrowthrates,theamountandtimingofcapitalexpendituresandthediscountrateutilized.
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Cequel Corporation
Notes to Consolidated Financial Statements (Continued)
December 31, 2015 and 2014
(dollars in thousands, except where otherwise indicated)
13. Intangible Assets (Continued)
Franchises,forvaluationpurposes,aredefinedasthefutureeconomicbenefitsoftherighttosolicitandservicepotentialcustomers(customermarketingrights),andtherighttodeployandmarketnewservices,suchasinteractivityandtelephone,topotentialcustomers(servicemarketingrights).Franchisesrightsof$4.98billionwererecordedasaresultoftheapplicationofbusinesscombinationaccounting.Franchisesareexpectedtogeneratecashflowsindefinitelyandassuchwillcontinuetobetestedforimpairmentannually.
Subscriberrelationships,forvaluationpurposes,representthevalueofthebusinessrelationshipwithexistingcustomers(lesstheanticipatedcustomerchurn),andarecalculatedbyprojectingthediscretefutureafter-taxcashflowsfromthesecustomers,includingtherighttodeployandmarketadditionalservicestothesecustomers.TheCompanyrecorded$1.07billionofcustomerrelationshipsinconnectionwiththeapplicationofbusinesscombinationaccounting.Subscriberrelationshipswillbeamortizedonanacceleratedmethodoverausefullifeoffouryearsbasedontheperiodoverwhichcurrentcustomersareexpectedtogeneratecashflows.
TheCompanyrecorded$37.9millionintradenamesinconnectionwiththeapplicationofbusinesscombinationaccounting.Thefairvalueoftradenameswasdeterminedusingtherelieffromroyaltymethodwhichappliesafairroyaltyratiotoestimatedrevenue.Tradenameswillbeamortizedonanacceleratedmethodoverausefullifeof2yearsbasedontheperiodoverwhichtheCompanyexpectstocontinuetouseeachtradename.
TheresultsoftheCompany'sanalysisofindefinite-livedintangibleassetsasofDecember31,2015and2014indicatednoimpairmentofthecarryingvalueofthoseassetsandnoaccumulatedimpairmentofgoodwillexisted.
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Cequel Corporation
Notes to Consolidated Financial Statements (Continued)
December 31, 2015 and 2014
(dollars in thousands, except where otherwise indicated)
13. Intangible Assets (Continued)
Indefinite-livedandfinite-livedintangibleassetsarepresentedinthefollowingtableasofDecember31:
Amortizationexpenseforfranchiseandpatentrightsrepresentstheamortizationrelatedtopatentsrightsandamortizationrelatedtofranchisesthatdidnotqualifyforindefinite-lifetreatment,includingcostsassociatedwithfranchiserenewals.FranchiseamortizationexpenseforthesuccessorperiodfromDecember21,2015throughDecember31,2015waslessthan$0.1million.FranchiseamortizationexpenseforthepredecessorperiodfromJanuary1,2015throughDecember20,2015was$0.7million,andfranchiseamortizationexpenseforthepredecessoryearendedDecember31,2014,waslessthan$0.1million.Tradenamesamortizationexpensewas$0.7millionforthesuccessorperiodfromDecember21,2015throughDecember31,2015,andwaszeroforthepredecessorperiodfromJanuary1,2015throughDecember20,2015,andthepredecessoryearendedDecember31,2014.Subscriberrelationshipsamortizationexpensewas$12.6million,$65.7million,$114.2millionforthesuccessorperiodfromDecember21,2015throughDecember31,2015,thepredecessorperiodfromJanuary1,2015throughDecember20,2015,andthepredecessoryearendedDecember31,2014,respectively.
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Successor 2015 Predecessor 2014
Gross Carrying Amount
Accumulated Amortization
Net Carrying Amount
Gross Carrying Amount
Accumulated Amortization
Net Carrying Amount
Indefinite-lived FranchiseandPatentrights $ 4,981,233 $ — $ 4,981,233 $ 3,068,487 $ — $ 3,068,487TradeNames — — $ — 188,676 — $ 188,676Goodwill 2,040,402 — 2,040,402 1,543,103 — 1,543,103Total $ 7,021,635 $ — $ 7,021,635 $ 4,800,266 $ — $ 4,800,266Finite-lived FranchiseandPatentrights $ 3,356 $ — $ 3,356 $ 60 $ (4) $ 56TradeNames 37,856 (746) 37,110 — — —Subscriberrelationships 1,067,353 (12,625) 1,054,728 499,076 (335,003) 164,073Total $ 1,108,565 $ (13,371) $ 1,095,194 $ 499,136 $ (335,007) $ 164,129
TableofContents
Cequel Corporation
Notes to Consolidated Financial Statements (Continued)
December 31, 2015 and 2014
(dollars in thousands, except where otherwise indicated)
13. Intangible Assets (Continued)
BelowisasummaryofthechangesinthecarryingvalueoftheCompany'sgoodwillfortheyearsendedDecember31,2015and2014:
TheCompanyhasupgradedthetechnologicalstateofmanyofitsbroadbandsystemssincethecommencementofoperationsandhasexperiencewithlocalfranchiseauthoritieswherethefranchisesexistandbelievesallfranchiseswillberenewedindefinitely.
ThefollowingtablesetsforththeestimatedamortizationexpenseonintangibleassetsforthefiscalyearsendingDecember31:
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Predecessor 2015 Predecessor 2014
Gross
Amount
Accumulated Impairment
Charge Carrying
Value Gross
Amount
Accumulated Impairment
Charge Carrying
Value Balance,beginningofyear $ 1,543,103 $ — $ 1,543,103 $ 1,535,072 $ — $ 1,535,072Goodwillrecognized(a) — — — 8,031 — 8,031Balance,endofperiod $ 1,543,103 $ — $ 1,543,103 $ 1,543,103 $ — $ 1,543,103
(a) IncludesGoodwillrecognizedfromtheacquisitions
Successor 2015
Gross
Amount
Accumulated Impairment
Charge Carrying
Value Balance,beginningofperiod $ 2,040,402 $ — $ 2,040,402Balance,endofperiod $ 2,040,402 $ — $ 2,040,402
Year Amount 2016 $ 93,5772017 65,5642018 30,4202019 13,4722020 273Thereafter 1,230Total $ 204,536
TableofContents
Cequel Corporation
Notes to Consolidated Financial Statements (Continued)
December 31, 2015 and 2014
(dollars in thousands, except where otherwise indicated)
14. Operating Expenses
Operatingexpensesbykeyexpensecomponentsconsistedofthefollowing:
Programmingcostsconsistprimarilyofcostspaidforprogrammersforbasic,digital,premium,VODandpay-per-viewprogramming.High-speedInternetcostsprimarilyconsistofcostsforbandwidthconnectivity.Telephonecostsprimarilyconsistofcostsfordeliveringtelephoneservicetocustomers,suchassubscriberlinecostsandregulatoryfees.Plantandoperatingcostsconsistprimarilyofemployeecostsrelatedtowagesandbenefitsoftechnicalpersonnelwhomaintainourcablenetworkandprovidecustomersupport,outsidelaborcosts,vehicle,utilitiesandpolerentalexpenses.
15. Selling, General and Administrative Expenses
Selling,generalandadministrativeexpensesbykeyexpensecomponentsconsistedofthefollowing:
Generalandadministrativeexpensesconsistprimarilyofwagesandbenefitsforourcallcenters,customerserviceandsupportandadministrativepersonnel;baddebt;billing;advertising;facilitiescosts;non-cashstockcompensationexpensesandotheradministrativeexpenses.Marketingcostsrepresentthecostsofmarketingtoourcurrentandpotentialcommercialandresidentialcustomers,includingwagesandbenefitsforourmarketingdepartmentsandotherlaborcosts.Corporateoverheadandmanagementfeesprimarilyconsistofwagesandbenefitsforourcorporatepersonnel,legalfees,accountingandauditfeesandothercorporateexpenses.
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Successor Period from
December 21, 2015 through December 31,
2015
Predecessor Period from
January 1, 2015 through
December 20, 2015
Predecessor Year Ended
December 31,
2014
Programming 17,943 594,152 617,410High-speedInternet 1,559 54,177 52,716Telephone 823 26,934 54,295PlantandOperating 6,261 197,045 205,664TotalOperatingExpenses $ 26,586 $ 872,308 $ 930,085
Successor Period from
December 21, 2015 through December 31,
2015
Predecessor Period from
January 1, 2015 through
December 20, 2015
Predecessor Year Ended
December 31, 2014
GeneralandAdministrative 7,982 687,802 393,135Marketing 2,873 95,547 91,237CorporateOverheadandManagementFees 28,311 106,611 62,014TotalSelling,GeneralandAdministrative $ 39,166 $ 889,960 $ 546,386
TableofContents
Cequel Corporation
Notes to Consolidated Financial Statements (Continued)
December 31, 2015 and 2014
(dollars in thousands, except where otherwise indicated)
16. Income and Other Taxes
ComponentsoftheCompany'scurrentanddeferredincometax(benefit)/provisionfortheyearsendedDecember31,2015and2014wereasfollows:
TheCompany's(benefit)/provisionforincometaxesdiffersfromtheexpectedtaxexpenseamountcomputedbyapplyingthestatutoryfederalincometaxratetotheincome/(loss)beforeincometaxesasaresultofthefollowing:
Deferredincometaxesreflectthenettaxeffectsoftemporarydifferencesbetweenthecarryingamountsofassetsandliabilitiesforfinancialreportingpurposesandtheamountsusedforincometax
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Successor Period from
December 21, 2015 through December 31,
2015
Predecessor Period from
January 1, 2015 through
December 20, 2015
Predecessor Year Ended
December 31, 2014
CurrentTaxExpense: Federal $ — $ — $ —State 155 4,435 5,418TotalCurrent 155 4,435 5,418
DeferredTax(Benefit)/Expense: Federal (9,794) 30,116 5,138State (624) (5,250) (2,461)TotalDeferred (10,418) 24,866 2,677
Net(Benefit)/ProvisionforIncomeTaxes $ (10,263) $ 29,301 $ 8,095
Successor Period from
December 21, 2015 through December 31,
2015
Predecessor Period from
January 1, 2015 through
December 20, 2015
Predecessor Year Ended
December 31, 2014
TaxatU.S.statutoryrate 35.0% 35.0% 35.0%Statetaxes,netofbenefit 1.9 (1.2) 17.1Uncertaintaxposition — — (51.2)Changeinvaluationallowance — 0.4 (1.3)Non-cashstockoptionexpense — (57.7) 45.6Returntoprovision — — (0.4)Changeinstateeffectivetaxrate — 5.4 —Stateincometaxcredits — (0.1) (15.4)Other,net (0.1) 2.4 2.5Effectivetaxrate 36.8% (15.8)% 31.9%
TableofContents
Cequel Corporation
Notes to Consolidated Financial Statements (Continued)
December 31, 2015 and 2014
(dollars in thousands, except where otherwise indicated)
16. Income and Other Taxes (Continued)
purposes.SignificantcomponentsoftheCompany'sdeferredtaxassetsandliabilitiesareasfollowsasofDecember31:
TheCompanyhasapproximately$1,709.0millionand$1,653.8millionoffederalnetoperatinglosscarryforwardsin2015and2014,respectively,whichwillexpireatvariousdatesthrough2035.Inaddition,theCompanyhasstatenetoperatinglosscarryforwards,netofUSFederalincometaxes,ofapproximately$33.1millionand$36.2millionin2015and2014,respectively,whichwillexpireatvariousdatesthrough2035.AtDecember31,2015and2014,theCompanyhasa$1.3millionand$2.0million,respectively,valuationallowanceonstatenetoperatinglosscarryforwardsasitismorelikelythannotthataportionofthedeferredtaxassetwillnotberealizedinthefuture.ThenetoperatinglosscarryforwardsaresubjecttocertainlimitationsarisingfromchangesinownershiprulesundertheInternalRevenueCodeandstatetaxingauthorities.TheCompanydoesnotexpectthelimitationstoimpacttheabilitytoutilizethelossespriortotheirexpiration.Theutilizationofthenetoperatinglossesandtheacquirednetoperatinglosseswillbedeterminedbasedontheorderingrulesrequiredbytheapplicabletaxingjurisdiction.
TheCompanyaccountsforuncertaintaxpositionsinaccordancewiththeaccountingguidanceforsuchitems.Thisguidanceprescribesarecognitionthresholdthatataxpositionisrequiredtomeetbeforebeingrecognizedinthefinancialstatementsandprovidesguidanceonde-recognition,measurement,classification,interestandpenalties,accountingininterimperiods,disclosureandtransitionissues.TheCompanyrecognizesincometaxbenefitsforthoseincometaxprovisionsdeterminedmorelikelythannottobesustaineduponexamination,basedonthetechnicalmeritsofthepositions.OnSeptember15,2014,theCompanyfileditsconsolidatedUSCorporateIncomeTaxReturnforthecalendaryear2013reflectinganadjustmenttoapreviouslyfiledpositionwhicheffectivelyeliminatedtheCompany'suncertaintaxposition.TheeliminationoftheuncertaintaxpositionresultedinacorrespondingadjustmenttotheCompany'snetdeferredtaxliabilitiesand
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Successor
2015 Predecessor
2014 Deferredtaxassets: Netoperatinglosscarryforwards $ 631,216 $ 615,015Stateincometaxcredits 3,809 3,908Accruedexpenses 20,634 13,901Other 888 1,058
Totalgrossdeferredtaxassets 656,547 633,882Less:valuationallowance (1,283) (2,042)Netdeferredtaxasset 655,264 631,840Deferredtaxliabilities: Bookovertaxbasisofdepreciableassets (385,437) (234,342)Bookovertaxbasisofamortizableassets (1,795,262) (669,907)
Grossdeferredtaxliabilities (2,180,699) (904,249)Netdeferredtaxliabilities $ (1,525,435) $ (272,409)
TableofContents
Cequel Corporation
Notes to Consolidated Financial Statements (Continued)
December 31, 2015 and 2014
(dollars in thousands, except where otherwise indicated)
16. Income and Other Taxes (Continued)
deferredtaxassetswhichresultedinanetbenefittoincometaxesof$13.0millionfortheyear.Theeliminationoftheuncertaintaxpositionrecognizedin2014reducedtheCompany'seffectivetaxrateby51.2%.ChangesintheCompany'sreserveforuncertainincometaxpositions,excludingtherelatedaccrualforinterestandpenaltiesarepresentedbelow:
Taxyearsending2011through2014remainsubjecttoexaminationandassessment.Bystatute,theCompany'suseofcertaincarryforwardattributesthatweregeneratedpriorto2010willallowtheInternalRevenueService("IRS")tosubsequentlyexaminethoseperiods.During2014,theIRSconcludeditsexaminationoftheincometaxreturnforasubsidiaryoftheCompany,CequelHoldings,forthetaxyearsendingDecember31,2011andNovember15,2012,resultinginnoadjustments.In2015,theCompanyreachedasettlementwiththeIRSontheauditoftheincometaxreturnforthesuccessortaxperiodendingDecember31,2012,resultinginnomaterialadjustmentstotheCompany'sfinancialstatements.
Weadjustourtaxreserveestimatesperiodicallybecauseofongoingexaminationsby,andsettlementswith,thevarioustaxingauthorities,aswellaschangesintaxlaws,regulationsandprecedent.Werecognizeinterestandpenaltiesrelatedtouncertaintaxpositionsinincometaxexpense.AsofDecember31,2015,wehavenoaccruedinterestorpenaltiesrelatedtouncertaintaxpositions.
AsofDecember31,2015,theCompanydoesnotcurrentlyhaveanyuncertaintaxpositions,nordoesitbelievethatanyeventsorrulingswillcauseone,withinthenexttwelvemonths.However,variouseventscouldcausetheCompany'scurrentexpectationstochangeinthefuture.
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Successor Period from
December 21, 2015 through December 31,
2015
Predecessor Period from
January 1, 2015 through
December 20, 2015
Predecessor Year Ended
December 31, 2014
Balance,beginningofperiod $ — $ — $ 33,127Additionsfortaxpositionsrelatedtoprioryears — — —Reductionsfortaxpositionsrelatedtoprioryears — — (33,127)Additionsfortaxpositionsrelatedtocurrentyear — — —Reductionsfortaxpositionsrelatedtocurrentyear — — —Reductionsduetosettlementswithtaxingauthorities — — —Reductionsduetoexpirationofstatuteoflimitations — — —Balance,endofperiod $ — $ — $ —
TableofContents
Cequel Corporation
Notes to Consolidated Financial Statements (Continued)
December 31, 2015 and 2014
(dollars in thousands, except where otherwise indicated)
17. Related Party Transactions
PriortotheconsummationoftheAlticeAcquisition,pursuanttotheAmendedandRestatedCequelCommunicationsManagementAgreement,datedasofFebruary14,2012,asamended(the"ManagementAgreement"),CequelIII,LLC("CequelIII")providedcertainexecutive,administrativeandmanagerialservicestothebroadbandsystemsownedbyCequelHoldingsanditssubsidiaries.Compensationunderthetermsoftheagreementwasanannualbasefeeof$5.3million,setin2006,paidquarterlyinarrears.Thebasefeeincreased5%annuallyoneachanniversarydateoftheManagementAgreement.TheCequelHoldingsBoardofDirectorsapprovedanadditionalincentivefeeof$3.2millionand$1.4milliontoCequelIII,LLCforthepredecessorperiodfromJanuary1,2015throughDecember20,2015,andthepredecessoryearendedDecember31,2014,respectively.TheManagementAgreementwasterminateduponconsummationoftheAlticeAcquisition,sonoincentivefeeswereapprovedduringthesuccessorperiodfromDecember21,2015throughDecember31,2015.
TotalcompensationpaidtoCequelIII,LLCundertheManagementAgreement,whichisincludedintheselling,generalandadministrativelineintheaccompanyingconsolidatedstatementsofoperations,was$11.0millionand$9.1millionforthepredecessorperiodfromJanuary1,2015throughDecember20,2015,andthepredecessoryearendedDecember31,2014,respectively.TheManagementAgreementwasterminateduponconsummationoftheAlticeAcquisition,sonofeeswerepaidtoCequelIIIduringthesuccessorperiodfromDecember21,2015throughDecember31,2015.AtDecember31,2014,theCompanyhadapproximately$4.8millionrecordedasapayabletoCequelIII,LLC,primarilyrelatedtomanagementandincentivefees.NopayablestoCequelIII,LLCwererecordedatDecember31,2015.
PursuanttotheStockholdersAgreementofCVC2B.V.,asubsidiaryofAlticeandindirectownerofCequelCorporation,datedasofDecember21,2015,Alticeprovidescertainexecutiveservices,includingCEO,CFOandCOOservices,totheCompany.Compensationunderthetermsoftheagreementisanannualfeeof$10.0million.AtDecember31,2015,theCompanyhadapproximately$0.3millionrecordedasapayabletoAltice,relatedtoservicesprovidedforthesuccessorperiodfromDecember21,2015throughDecember31,2015.
OnDecember21,theHoldcoNotesIssuerloanedtheproceedsoftheHoldcoNotestotheCompanytoconsummatetheAlticeAcquisition.TheintercompanyloanwasrecordedasDuetoParentatthefairvalueoftherelateddebtatthetimeofthetransaction.OncetheSeniorNotesIssuerbuildssufficientrestrictedpaymentcapacityandtheabilitytoincuradditionalindebtednessinexcessoftheaggregateamountoftheHoldcoNotes,theHoldcoNoteswillautomaticallyexchangeintoanequalaggregateprincipalamountof2025SeniorNotesandtheintercompanyloanwillbeeliminated.
18. Employee Benefit Plan
TheCompany'semployeesmayparticipateina401(k)plan.Employeesthatqualifyforparticipationcancontributeupto15%oftheirsalary,onapre-taxbasis,subjecttoamaximumcontributionlimitasdeterminedbytheInternalRevenueService.TheCompanymatches50%ofthefirst6%ofparticipantcontributions.TheCompanycontributedapproximately$0.2million,$6.6millionand$5.9million,tothe401(k)planforsuccessorperiodfromDecember21,2015through
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Cequel Corporation
Notes to Consolidated Financial Statements (Continued)
December 31, 2015 and 2014
(dollars in thousands, except where otherwise indicated)
18. Employee Benefit Plan (Continued)
December31,2015,thepredecessorperiodfromJanuary1,2015throughDecember20,2015,andthepredecessoryearendedDecember31,2014,respectively.
19. Equity Based Compensation
Carried Interest Plan
PriortotheAlticeAcquisition,thegeneralpartnersofthepartnershipsthatheldthesharesofCequelCorporation(collectively,the"CarryInterestPartnerships"),eachadoptedseparatecarriedinterestplans(collectively,the"CarriedInterestPlan"),pursuanttowhichparticipantswereawardedprofitinterestunitsinthosepartnerships.ThepurposeoftheCarriedInterestPlanwastoprovideparticipationinCequelCorporation'slong-termsuccessandgrowthasanincentivetoourexecutives,keyemployees,directorsandotherindividualswhowereresponsibleforandcontributedtoourmanagement,growthandprofitability,andtoattract,retainandrewardsuchparticipants.
PursuanttotheCarriedInterestPlan,eachCarryInterestPartnershipwaspermittedtoissuenomorethan1,000,000carryunits.TheCarryInterestPartnershipsissuedanaggregateofapproximately996,500carryunits.TheawardedcarryunitsthatwereforfeitedorcanceledinaccordancewiththeCarriedInterestPlanwereavailable,undercertaintermsandconditions,forreissueinsubsequentawards.Incertaininstancesfollowingcessationoftheirservicesonbehalfofus,theparticipantshadputrightsortheCarryInterestPartnershipshadcallrights,withrespecttosuchparticipants'carryunits.
Thecarryunitsweretovestinquarterlyinstallmentsoverfouryears.Certainadjustmentstothevestingschedulesand/orcertaindistributionscouldoccurinrespectofcertainspecifiedeventsinconnectionwiththeCarriedInterestPlan,whichincluded:(i)asaleorseriesofsalesbyoneoftheSponsorstotheotherresultinginthetransferringSponsorowninglessthan35%ofitsoriginaltotalSponsorownershipinterestfollowingsuchtransaction,(ii)asaleorseriesofsalesbytheSponsorstothirdpartiesresultingintheSponsorstogetherowninglessthan35%oftheiraggregateoriginalSponsorownershipinterests,(iii)asaleorseriesofsalesbyeitherBCPartnersorCPPIBtothirdpartiesresultinginsuchSponsorowninglessthan35%ofitsoriginaltotalSponsorownershipinterest,or(iv)asaleofsubstantiallyalloftheassetsofCequelCorporationorasaleofsubstantiallyallofitsshares.
TheCarriedInterestPlanentitledparticipantstoreceivecertainpercentagesofnetcashproceedsreceivedbytheCarryInterestPartnershipsinconnectionwithsalesbytheCarryInterestPartnershipsofcommonstockofCequelCorporation,distributionsfromCequelCorporationoramountsreceiveduponliquidationordissolutionofCequelCorporation.TheamountswerepaidtoparticipantsoncethresholdamountshadbeenreceivedbytheCarryInterestPartnershipsandpaidtotheSponsorsandManagementInvestorsinCequelCorporation,andthepercentageofcashproceedstowhichtheparticipantsareentitledincreasedasthereturntotheSponsorsandsuchManagementInvestorsincreased.
TheCompanymeasuredthecostofemployeeservicesreceivedinexchangeforcarryunitsbasedonthefairvalueoftheawardateachreportingperiod.TheCompanyusedtheMonteCarlo
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Cequel Corporation
Notes to Consolidated Financial Statements (Continued)
December 31, 2015 and 2014
(dollars in thousands, except where otherwise indicated)
19. Equity Based Compensation (Continued)
SimulationMethodtoestimatethefairvalueoftheawards.BecausetheMonteCarloSimulationMethodrequiredtheuseofsubjectiveassumptions,changesintheseassumptionscouldhavemateriallyaffectedthefairvalueofthecarriedinterestunitsgranted.Thetimetoliquidityeventassumptionwasbasedonmanagement'sjudgment.Theequityvolatilityassumptionwereestimatedusingthehistoricalweeklyvolatilityofpubliclytradedcomparablecompanies.Therisk-freerateassumedinvaluingtheunitswasbasedontheU.S.ConstantMaturityTreasuryRatesforaperiodmatchingtheexpectedtimetoliquidityevent.TheCompany'stotalequityvaluewasestimatedbyathirdpartyusingarangeofindicatedbusinessenterprisevalues.FortheyearsendedDecember31,2015and2014,theCompanyrecognizedapproximately$287.7millionand$30.7million,respectively,relatedtothepushdownofnon-cashcompensationexpenseforemployeesofCequel.
ConcurrentwiththeAlticeAcquisition,theCarriedInterestPlanwascashedoutbasedonanagreementbetweentheSponsorsandtheManagementHolderwherebypaymentsweremadetoparticipantsinsuchCarriedInterestPlan,includingcertainofficersanddirectorsofCequelandCequelCorporation,andtheCarriedInterestPlanwasterminated.
20. Equity Distributions
OnSeptember10,2014,theIssuersusedtheproceedsfromthesaleofthe2021MirrorNotes,plus$120.5millionofcashonhand,tomakeadistributiontoCequelHoldingsintheamountof$600.0million.CequelHoldingsthenmadeadistributiontoCequelCorporationintheamountof$600.0million.CequelCorporationusedthisdistributiontomakeadistributionintheamountof$600.0milliontoholdersofequityinterestsinCequelCorporation.
InDecember2015,$32.2millionwascontributedtotheCompanytopaycertaintransactionfeesandexpensesrelatedtotheAlticeAcquisition.
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Cequel Corporation
Notes to Consolidated Financial Statements (Continued)
December 31, 2015 and 2014
(dollars in thousands, except where otherwise indicated)
21. Unaudited Quarterly Financial Data
Thefollowingtablepresentsquarterlydatafortheperiodspresentedontheconsolidatedstatementsofoperations(unaudited):
22. Subsequent Events
TheCompanyhasupdateditsreviewofsubsequenteventsasofMarch30,2016(thedateavailableforissuance)notingnoeventsthatrequiredisclosure.
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Quarter Ended March 31, June 30, September 30, December 31, Successor 2015(1) Revenues $ — $ — $ — $ 72,943Lossfromoperations — — — (16,383)Netloss — — — (17,611)
Predecessor 2015(2) Revenues $ 588,250 $ 608,016 $ 605,112 $ 545,991Income/(loss)fromoperations 79,029 (19,792) 62,196 (69,689)Netincome/(loss) 8,994 (277,397) 35,326 18,201
Predecessor 2014 Revenues $ 575,025 $ 579,942 $ 583,606 $ 592,124Incomefromoperations 68,249 55,394 57,259 74,588Netincome/(loss) 4,334 (2,714) 9,671 5,958
(1) Successor2015consistsoftheperiodfromDecember21,2015throughDecember31,2015.
(2) Predecessor2015consistsoftheperiodfromJanuary1,2015throughDecember20,2015.
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Throughandincluding,2017(the25thdayafterthedateofthisprospectus),alldealerseffectingtransactionsinthesesecurities,whetherornotparticipatinginthisoffering,mayberequiredtodeliveraprospectus.Thisisinadditiontoadealer'sobligationtodeliveraprospectuswhenactingasanunderwriterandwithrespecttoanunsoldallotmentorsubscription.
Shares
Altice USA, Inc.
Class A Common Stock
PROSPECTUS
Joint Book-Running Managers
Thedateofthisprospectusis,2017.
J.P. Morgan Morgan Stanley Citigroup Goldman, Sachs & Co.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance.
Thefollowingtablesetsforththevariousexpenses,otherthanunderwritingdiscountsandcommissions,payableinconnectionwiththeofferingcontemplatedbythisregistrationstatement.AllofthefeessetforthbelowareestimatesexceptfortheSECregistrationfee,theFINRAfeeandthestockexchangelistingfee.
Item 14. Indemnification of Directors and Officers.
WeareincorporatedunderthelawsofthestateofDelaware.
Section145(a)oftheDGCLprovidesthatacorporationmayindemnifyanypersonwhowasorisapartyoristhreatenedtobemadeapartytoanythreatened,pendingorcompletedaction,suitorproceeding,whethercivil,criminal,administrativeorinvestigative(otherthananactionbyorintherightofthecorporation)byreasonofthefactthatthepersonisorwasadirector,officer,employeeoragentofthecorporation,orisorwasservingattherequestofthecorporationasadirector,officer,employeeoragentofanothercorporation,partnership,jointventure,trustorotherenterprise,againstexpenses(includingattorneys'fees),judgments,finesandamountspaidinsettlementactuallyandreasonablyincurredbythepersoninconnectionwithsuchaction,suitorproceedingifthepersonactedingoodfaithandinamannerthepersonreasonablybelievedtobeinornotopposedtothebestinterestsofthecorporation,and,withrespecttoanycriminalactionorproceeding,hadnoreasonablecausetobelievetheperson'sconductwasunlawful.
Section145(b)oftheDGCLprovidesthatacorporationmayindemnifyanypersonwhowasorisapartyoristhreatenedtobemadeapartytoanythreatened,pendingorcompletedactionorsuitbyorintherightofthecorporationtoprocureajudgmentinitsfavorbyreasonofthefactthatthepersonisorwasadirector,officer,employeeoragentofthecorporation,orisorwasservingattherequestofthecorporationasadirector,officer,employeeoragentofanothercorporation,partnership,jointventure,trustorotherenterprise,againstexpenses(includingattorneys'fees)actuallyandreasonablyincurredbythepersoninconnectionwiththedefenseorsettlementofsuchactionorsuitifthepersonactedingoodfaithandinamannerthepersonreasonablybelievedtobeinornotopposedtothebestinterestsofthecorporationandexceptthatnoindemnificationshallbemadeinrespectofanyclaim,issueormatterastowhichsuchpersonshallhavebeenadjudgedtobeliabletothecorporationunlessandonlytotheextentthattheDelawareCourtofChanceryorthecourtinwhichsuchactionorsuitwasbroughtshalldetermineuponapplicationthat,despitetheadjudicationof
II-1
Payable by the registrant SECregistrationfee $ 11,590FINRAfee 15,500Stockexchangelistingfee *BlueSkyfeesandexpenses *Printingexpenses *Legalfeesandexpenses *Accountingfeesandexpenses *TransferAgentandRegistrarfees *Miscellaneousfeesandexpenses *Total $
* Tobefiledbyamendment
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liabilitybutinviewofallofthecircumstancesofthecase,suchpersonisfairlyandreasonablyentitledtoindemnityforsuchexpenseswhichtheDelawareCourtofChanceryorsuchothercourtshalldeemproper.
Section145(c)oftheDGCLprovidesthattotheextentthatapresentorformerdirectororofficerofacorporationhasbeensuccessfulonthemeritsorotherwiseindefenseofanyaction,suitorproceedingreferredtoinsubsections(a)and(b)ofSection145oftheDGCL,orindefenseofanyclaim,issueormattertherein,suchpersonshallbeindemnifiedagainstexpenses(includingattorneys'fees)actuallyandreasonablyincurredbysuchpersoninconnectiontherewith.
Section145(e)oftheDGCLprovidesthatexpenses,includingattorneys'fees,incurredbyanofficerordirectorofthecorporationindefendinganycivil,criminal,administrativeorinvestigativeaction,suitorproceedingmaybepaidbythecorporationinadvanceofthefinaldispositionofsuchaction,suitorproceedinguponreceiptofanundertakingbyoronbehalfofsuchdirectororofficertorepaysuchamountifitshallultimatelybedeterminedthatsuchpersonisnotentitledtobeindemnifiedbythecorporationasauthorizedinSection145oftheDGCL.Suchexpenses,includingattorneys'fees,incurredbyformerdirectorsandofficersorotherpersonsservingattherequestofthecorporationasdirectors,officers,employeesoragentsofanothercorporation,partnership,jointventure,trustorotherenterprisemaybesopaiduponsuchtermsandconditions,ifany,asthecorporationdeemsappropriate.
Section145(g)oftheDGCLspecificallyallowsaDelawarecorporationtopurchaseliabilityinsuranceonbehalfofitsdirectorsandofficersandtoinsureagainstpotentialliabilityofsuchdirectorsandofficersregardlessofwhetherthecorporationwouldhavethepowertoindemnifysuchdirectorsandofficersunderSection145oftheDGCL.
Section102(b)(7)oftheDGCLpermitsaDelawarecorporationtoincludeaprovisioninitscertificateofincorporationeliminatingorlimitingthepersonalliabilityofdirectorstothecorporationoritsstockholdersformonetarydamagesforbreachoffiduciarydutyasadirector.Thisprovision,however,maynoteliminateorlimitadirector'sliability(1)forbreachofthedirector'sdutyofloyaltytothecorporationoritsstockholders,(2)foractsoromissionsnotingoodfaithorinvolvingintentionalmisconductoraknowingviolationoflaw,(3)underSection174oftheDGCL,or(4)foranytransactionfromwhichthedirectorderivedanimproperpersonalbenefit.
Item 15. Recent Sales of Unregistered Securities.
Inthethreeyearsprecedingthefilingofthisregistrationstatement,theregistranthasissuedthefollowingsecuritiesthatwerenotregisteredundertheSecuritiesAct:
OnSeptember16,2015,inconnectionwiththeOptimumAcquisition,AlticeUSA,Inc.(formerlyknownasNeptuneHoldingUSCorp.)issued100sharesofitscommonstock,parvalue$0.01pershare,toCVC3B.V.,aDutchprivatecompanywithlimitedliability(besloten vennootschap ),inaprivateplacementunderSection4(a)(2)oftheSecuritiesAct,andinconsiderationfor$1.00paidtoAlticeUSA,Inc.byCVC3B.V.forsuchshares.
Item 16. Exhibits and Financial Statement Schedules.
(a)Exhibits :
Theexhibitindexattachedheretoisincorporatedhereinbyreference.
(b)Financial statement schedules :
Nofinancialstatementschedulesareprovidedbecausetheinformationcalledforisnotrequiredorisshowninthefinancialstatementsorthenotesthereto.
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Item 17. Undertakings.
Theundersignedherebyundertakesasfollows:
(a)toprovidetotheunderwritersattheclosingspecifiedintheunderwritingagreementcertificatesinsuchdenominationsandregisteredinsuchnamesasrequiredbytheunderwriterstopermitpromptdeliverytoeachpurchaser.
(b)InsofarasindemnificationforliabilitiesarisingundertheSecuritiesActof1933maybepermittedtodirectors,officersandcontrollingpersonsoftheregistrantpursuanttotheforegoingprovisionsorotherwise,theregistranthasbeenadvisedthatintheopinionoftheSecuritiesandExchangeCommissionsuchindemnificationisagainstpublicpolicyasexpressedintheActandis,therefore,unenforceable.Intheeventthataclaimforindemnificationagainstsuchliabilities(otherthanthepaymentbytheregistrantofexpensesincurredorpaidbyadirector,officerorcontrollingpersonoftheregistrantinthesuccessfuldefenseofanyaction,suitorproceeding)isassertedbysuchdirector,officerorcontrollingpersoninconnectionwiththesecuritiesbeingregistered,theregistrantwill,unlessintheopinionofitscounselthematterhasbeensettledbycontrollingprecedent,submittoacourtofappropriatejurisdictionthequestionofwhethersuchindemnificationbyitisagainstpublicpolicyasexpressedintheAct,andwillbegovernedbythefinaladjudicationofsuchissue.
(c)(1)ForpurposesofdetermininganyliabilityundertheSecuritiesActof1933,theinformationomittedfromtheformofprospectusfiledaspartofthisregistrationstatementinrelianceuponRule430AandcontainedinaformofprospectusfiledbyuspursuanttoRule424(b)(1)or(4)or497(h)undertheSecuritiesActshallbedeemedtobepartofthisregistrationstatementasofthetimeitwasdeclaredeffective.
(2)ForthepurposeofdetermininganyliabilityundertheSecuritiesActof1933,eachpost-effectiveamendmentthatcontainsaformofprospectusshallbedeemedtobeanewregistrationstatementrelatingtothesecuritiesofferedthereinandtheofferingofsuchsecuritiesatthattimeshallbedeemedtobetheinitialbona fide offeringthereof.
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SIGNATURES
PursuanttotherequirementsoftheSecuritiesActof1933,theregistranthasdulycausedthisregistrationstatementtobesignedonitsbehalfbytheundersigned,thereuntodulyauthorized,inthecityofBethpage,StateofNewYork,onApril11,2017.
POWER OF ATTORNEY
KNOWALLMENBYTHESEPRESENTS,thateachpersonwhosesignatureappearsbelowconstitutesandappointsCharlesStewartandDavidConnolly,andeachofthem,histrueandlawfulattorneys-in-factandagents,withfullpowertoactseparatelyandfullpowerofsubstitutionandresubstitution,forhimandinhisname,placeandstead,inanyandallcapacities,tosignanyandallamendments(includingpost-effectiveamendments)tothisregistrationstatementandalladditionalregistrationstatementspursuanttoRule462(b)oftheSecuritiesActof1933,asamended,andallpost-effectiveamendmentsthereto,andtofilethesame,withallexhibitsthereto,andallotherdocumentsinconnectiontherewith,withtheSecuritiesandExchangeCommission,grantinguntosaidattorney-in-factsandagents,andeachofthem,fullpowerandauthoritytodoandperformeachandeveryactandthingrequisiteandnecessarytobedoneinandaboutthepremises,asfullytoallintentsandpurposesastheyorhemightorcoulddoinperson,herebyratifyingandconfirmingallthatsaidattorneys-in-factandagentsoreitherofthemorhisortheirsubstituteorsubstitutesmaylawfullydoorcausetobedonebyvirtuehereof.
ThisPowerofAttorneyshallnotrevokeanypowersofattorneypreviouslyexecutedbytheundersigned.ThisPowerofAttorneyshallnotberevokedbyanysubsequentpowerofattorneythattheundersignedmayexecute,unlesssuchsubsequentpowerofattorneyspecificallyprovidesthatitrevokesthisPowerofAttorneybyreferringtothedateoftheundersigned'sexecutionofthisPowerofAttorney.Fortheavoidanceofdoubt,whenevertwoormorepowersofattorneygrantingthepowersspecifiedhereinarevalid,theagentsappointedoneachshallactseparatelyunlessotherwisespecified.
PursuanttotherequirementsoftheSecuritiesActof1933,thisregistrationstatementhasbeensignedonApril11,2017bythefollowingpersonsinthecapacitiesindicated.
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ALTICE USA, INC.
By:/s/DAVIDCONNOLLY
Name: DavidConnolly Title: Executive Vice President and General Counsel
Signature Title
/s/DEXTERGOEI
DexterGoei
ChairmanandChiefExecutiveOfficer(PrincipalExecutiveOfficer)
/s/CHARLESSTEWART
CharlesStewart
Director,Co-PresidentandChiefFinancialOfficer(PrincipalFinancialOfficer)
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II-5
Signature Title
/s/VICTORIAMINK
VictoriaMink
SeniorVicePresidentandChiefAccountingOfficer(PrincipalAccountingOfficer)
/s/HAKIMBOUBAZINE
HakimBoubazine
Director,Co-PresidentandChiefOperatingOfficer
/s/LISAROSENBLUM
LisaRosenblum
ViceChairman
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EXHIBIT INDEX
II-6
Exhibit No. Exhibit Description 1.1* FormofUnderwritingAgreement 3.1* FormofAmendedandRestatedCertificateofIncorporation 3.2* FormofAmendedandRestatedBylawsoftheRegistrant 4.1* SpecimenCommonStockCertificate 4.2* FormofRegistrationRightsAgreement 4.3* Indenture,datedasofSeptember23,2009,relatingtoOptimum's85/8%SeniorNotesdue2017and85/8%
SeriesBSeniorNotesdue2017 4.4* Indenture,datedasofApril2,2010,relatingtoOptimum's73/4%SeniorNotesdue2018and8%SeniorNotes
due2020 4.5* FirstSupplementalIndenture,datedasofApril15,2010,totheIndenture,datedasofApril2,2010,relatingto
Optimum's73/4%SeniorNotesdue2018and8%SeniorNotesdue2020 4.6* SecondSupplementalIndenture,datedasofSeptember27,2012,totheIndenturedatedasofApril2,2010,relating
toOptimum's57/8%SeniorNotesdue2022 4.7* Indenture,datedasofDecember1,1997,relatingtoCSCHoldings,LLC's77/8%SeniorDebenturesdue2018 4.8* Indenture,datedasofJuly1,1998,relatingtoCSCHoldings,LLC's75/8%SeniorDebenturesdue2018 4.9* Indenture,datedasofFebruary12,2009,relatingtoCSCHoldings,LLC's85/8%SeniorNotesdue2019and85/
8%SeriesBSeniorNotesdue2019 4.10* Indenture,datedasofNovember15,2011,relatingtoCSCHoldings,LLC's63/4%SeniorNotesdue2021and63
/4%SeriesBSeniorNotesdue2021 4.11* Indenture,datedasofMay23,2014,relatingtoCSCHoldings,LLC's51/4%SeniorNotesdue2024and51/4%
SeriesBSeniorNotesdue2024 4.12* Indenture,datedasofOctober9,2015,relatingtoCSCHoldings,LLC's101/8%SeniorNotesdue2023and107/
8%SeniorNotesdue2025 4.13* SupplementalIndenture,datedasofJune21,2016,toIndenturedatedasofOctober9,2015,relatingtoCSC
Holdings,LLC's101/8%SeniorNotesdue2023and107/8%SeniorNotesdue2025 4.14* Indenture,datedasofOctober9,2015,relatingtoCSCHoldings,LLC's65/8%SeniorGuaranteedNotesdue2025 4.15* SupplementalIndenture,datedasofJune21,2016,totheIndenturedatedasofOctober9,2015,relatingtoCSC
Holdings,LLC's65/8%SeniorGuaranteedNotesdue2025 4.16* Indenture,datedasofSeptember23,2016,relatingtoCSCHoldings,LLC's51/2%SeniorGuaranteedNotesdue
2027 4.17* Indenture,datedasofJune12,2015,relatingtoAlticeFinanceICorporation's53/8%SeniorSecuredNotesdue
2023
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II-7
Exhibit No. Exhibit Description 4.18* SupplementalIndenture,datedasofDecember21,2015,totheIndenture,datedasofJune12,2015,relatingto
AlticeFinanceICorporation's53/8%SeniorSecuredNotesdue2023 4.19* NotesPledgeandSecurityAgreement,datedasofDecember21,2015,byandamongCequelCommunications
HoldingsII,LLCandJPMorganChaseBank,N.A. 4.20* NotesPledgeandSecurityAgreement,datedasofDecember21,2015,byandamongthegrantorspartytheretoand
JPMorganChaseBank,N.A. 4.21* TrademarkSecurityAgreement,datedasofDecember21,2015,byandamongthegrantorspartytheretoand
JPMorganChaseBank,N.A. 4.22* CopyrightSecurityAgreement,datedasofDecember21,2015,byandamongthegrantorspartytheretoand
JPMorganChaseBankN.A. 4.23* Indenture,datedasofApril26,2016,relatingtoAlticeFinanceICorporation's51/2%SeniorSecuredNotesdue
2026 4.24* NotesPledgeandSecurityAgreement,datedMay20,2016,byandamongCequelCommunicationsHoldings
II,LLCandJPMorganChaseBank,N.A. 4.25* NotesPledgeandSecurityAgreement,datedMay20,2016,byandamongeachofthegrantorspartytheretoand
JPMorganChaseBank,N.A. 4.26* TrademarkSecurityAgreement,datedasofMay20,2016,byandamongthegrantorspartytheretoandJPMorgan
ChaseBankN.A. 4.27* CopyrightSecurityAgreement,datedasofMay20,2016,byandamongthegrantorspartytheretoandJPMorgan
ChaseBankN.A. 4.28* Indenture,datedasofOctober25,2012relatingtoCequelCommunicationsHoldingsI,LLC'sandCequelCapital
Corporation's63/8%SeniorNotesdue2020 4.29* Indenture,datedasofMay16,2013,relatingtoCequelCommunicationsHoldingsI,LLC'sandCequelCapital
Corporation's51/8%SeniorNotesdue2021 4.30* Indenture,datedasofSeptember9,2014,relatingtoCequelCommunicationsHoldingsI,LLC'sandCequelCapital
Corporation's51/8%SeniorNotesdue2021 4.31* Indenture,datedasofJune12,2015,relatingtoCequelCommunicationsHoldingsI,LLC'sandCequelCapital
Corporation's73/4%SeniorNotesdue2025 4.32* SupplementalIndenture,datedasofDecember21,2015,totheIndenture,datedasofJune12,2015,relatingto
CequelCommunicationsHoldingsI,LLC'sandCequelCapitalCorporation's73/4%SeniorNotesdue2025 5.1* OpinionofShearman&SterlingLLP
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II-8
Exhibit No. Exhibit Description 10.1* CreditAgreement,datedasofOctober9,2015,amongCSCHoldings,LLC(assuccessorbymergertoNeptune
FincoCorp.),asborrower,certainlenderspartythereto,JPMorganChaseBank,N.A.,asadministrativeagentandsecurityagent,BarclaysBankplcandBNPPARIBASSecuritiesCorp.,asco-syndicationagents,CreditAgricoleCorporateandInvestmentBank,DeutscheBankSecuritiesInc.,RoyalBankofCanada,SocieteGenerale,TDSecurities(USA)LLCandtheBankofNovaScotia,asco-documentationagents,andJ.P.MorganSecuritiesLLC,BarclaysBankplc,BNPPARIBASSecuritiesCorp.,CreditAgricoleCorporateandInvestmentBank,DeutscheBankSecuritiesInc.,RoyalBankofCanada,SocieteGenerale,TDSecurities(USA)LLCandTheBankofNovaScotia,asjointbookrunnersandleadarrangers
10.2* FirstAmendmenttoCreditAgreement(ExtensionAmendment),datedasofJune20,2016 10.3* IncrementalLoanAssumptionAgreement,datedasofJune21,2016 10.4* IncrementalLoanAssumptionAgreement,datedasofJuly21,2016 10.5* SecondAmendmenttoCreditAgreement(ExtensionAmendment),datedasofSeptember9,2016 10.6* ThirdAmendmenttoCreditAgreement(ExtensionAmendment),datedasofDecember9,2016 10.7* FourthAmendmenttoCreditAgreement(IncrementalLoanAssumptionAgreement&RefinancingAmendment),
datedasofMarch15,2017 10.8* FacilityGuaranty,datedasofJune21,2016,byandamongtheguarantorspartytheretoandJPMorganChaseBank,
N.A. 10.9* PledgeAgreement,datedasofJune21,2016,byandamongCSCHoldings,LLC,certainpledgorspartytheretoand
JPMorganChaseBank,N.A. 10.10* CreditAgreement,datedasofJune12,2015,byandamongAlticeUSFinanceICorporation,asborrower,certain
lenderspartythereto,JPMorganChaseBank,N.A.,asadministrativeagentandsecurityagent,andJ.P.MorganSecuritiesLLCandBNPPARIBAS,asjointbookrunnersandleadarrangers
10.11* FirstAmendmenttoCreditAgreement(RefinancingAmendment),datedasofOctober25,2016 10.12* SecondAmendmenttoCreditAgreement(ExtensionAmendment),datedasofDecember9,2016 10.13* ThirdAmendmenttoCreditAgreement(IncrementalLoanAssumptionAgreement&RefinancingAmendment),
datedasofMarch15,2017 10.14* LoansPledgeandSecurityAgreement,datedasofDecember21,2015,byandamongthegrantorspartytheretoand
JPMorganChaseBank,N.A. 10.15* FacilityGuaranty,datedasofDecember21,2015,byandamongtheguarantorspartytheretoandJPMorganChase
BankN.A. 10.16* TrademarkSecurityAgreement,datedasofDecember21,2015,byandamongcertaingrantorsthereunderand
JPMorganChaseBank,N.A. 10.17* CopyrightSecurityAgreement,datedasofDecember21,2015,byandamongCequelCommunications,LLCand
JPMorganChaseBank,N.A.
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Exhibit No. Exhibit Description 10.18* FormofStockholders'AgreementbyandamongAlticeUSA,Inc.,AlticeN.V.andanentitycontrolledbyPatrick
Drahi. 21.1* ListofsubsidiariesoftheRegistrant 23.1 ConsentofKPMGLLP 23.2 ConsentofPricewaterhouseCoopersLLP 23.3* ConsentofShearman&SterlingLLP(containedinitsopinionfiledasExhibit5.1hereto) 24.1 PowerofAttorney(containedinsignaturepagestothisregistrationstatement) 99.1 Rule438ConsentofMichelCombes 99.2 Rule438ConsentofDennisOkhuijsen 99.3 Rule438ConsentofJérémieBonnin
* Tobefiledbyamendment
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Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
TheBoardofDirectorsAlticeUSA,Inc.andCablevisionSystemsCorporation:
WeconsenttotheuseofourreportsdatedApril10,2017,withrespecttotheconsolidatedbalancesheetofAlticeUSA,Inc.andsubsidiaries(theCompany)asofDecember31,2016andtherelatedconsolidatedstatementsofoperationsandcomprehensiveloss,stockholders'equity,andcashflowsfortheyearendedDecember31,2016,andtheconsolidatedbalancesheetofCablevisionSystemsCorporationandsubsidiariesasofDecember31,2015andtherelatedconsolidatedstatementsofoperationsandcomprehensiveincome(loss),stockholders'equity(deficiency),andcashflowsfortheperiodfromJanuary1,2016toJune20,2016,andtheyearsendedDecember31,2015and2014,includedherein,andtothereferencetoourfirmundertheheading"Experts"intheRegistrationStatementonFormS-1andrelatedProspectus.
OurreportontheconsolidatedfinancialstatementsoftheCompanycontainsanemphasisofmatterparagraphthatstatesthattheCompanywasincorporatedonSeptember14,2015andhadnooperationsofitsownotherthantheissuanceofdebtpriortothecontributionofCequelCorporationonJune9,2016byAlticeN.V.TheresultsofoperationsofCequelCorporationfortheyearendedDecember31,2016havebeenincludedintheresultsofoperationsoftheCompanyforthesameperiodasCequelCorporationwasundercommoncontrolwiththeCompanythroughout2016.
/s/KPMGLLP
NewYork,NewYorkApril10,2017
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Exhibit23.1
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in this Registration Statement on Form S-1 of Altice USA, Inc. of our report dated March 30, 2016 relating to the financial statementsof Cequel Corporation (Predecessor), which appears in such Registration Statement. We also consent to the reference to us under the heading “Experts” in suchRegistration Statement. /s/ PricewaterhouseCoopers LLP St. Louis, Missouri April 10, 2017
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of Altice USA, Inc. of our report dated March 30, 2016 relating to the financial statementsof Cequel Corporation (Successor), which appears in such Registration Statement. We also consent to the reference to us under the heading “Experts” in suchRegistration Statement. /s/ PricewaterhouseCoopers LLP St. Louis, Missouri April 10, 2017
Exhibit 99.1
Consent of Director Nominee
Altice USA, Inc. (the “ Company ”) is filing a Registration Statement on Form S-1 (Registration No. 333- ) with the Securities and ExchangeCommission under the Securities Act of 1933, as amended (the “ Securities Act ”), in connection with the Company’s initial public offering of Class A commonstock. In connection therewith, I hereby consent, pursuant to Rule 438 of the Securities Act, to being named as a nominee to the board of directors of the Companyin the Registration Statement, as may be amended from time to time. I also consent to the filing of this consent as an exhibit to such Registration Statement andany amendments thereto.
/s/ Michel CombesName: Michel Combes
Exhibit 99.2
Consent of Director Nominee
Altice USA, Inc. (the “ Company ”) is filing a Registration Statement on Form S-1 (Registration No. 333- ) with the Securities and ExchangeCommission under the Securities Act of 1933, as amended (the “ Securities Act ”), in connection with the Company’s initial public offering of Class A commonstock. In connection therewith, I hereby consent, pursuant to Rule 438 of the Securities Act, to being named as a nominee to the board of directors of the Companyin the Registration Statement, as may be amended from time to time. I also consent to the filing of this consent as an exhibit to such Registration Statement andany amendments thereto.
/s/ Dennis OkhuijsenName: Dennis Okhuijsen
Exhibit 99.3
Consent of Director Nominee
Altice USA, Inc. (the “ Company ”) is filing a Registration Statement on Form S-1 (Registration No. 333- ) with the Securities and ExchangeCommission under the Securities Act of 1933, as amended (the “ Securities Act ”), in connection with the Company’s initial public offering of Class A commonstock. In connection therewith, I hereby consent, pursuant to Rule 438 of the Securities Act, to being named as a nominee to the board of directors of the Companyin the Registration Statement, as may be amended from time to time. I also consent to the filing of this consent as an exhibit to such Registration Statement andany amendments thereto.
/s/ Jérémie BonninName: Jérémie Bonnin
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