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Use these links to rapidly review the document TABLE OF CONTENTS INDEX TO FINANCIAL STATEMENTS
TableofContents
As filed with the Securities and Exchange Commission on June 21, 2017
Registration No. 333-217240
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 5 to
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,""smallerreportingcompany"and"emerginggrowthcompany"inRule12b-2oftheExchangeAct.(checkone)
Ifanemerginggrowthcompany,indicatebycheckmarkiftheregistranthaselectednottousetheextendedtransitionperiodforcomplyingwithanyneworrevisedfinancialaccountingstandardsprovidedpursuanttoSection7(a)(2)(B)oftheSecuritiesAct.o
CALCULATION OF REGISTRATION FEE
Title of Each Class of Securities to be Registered
Amount to be Registered(1)
Proposed Maximum Offering Price
Per Share
Proposed Maximum Aggregate Offering
Price(2) Amount of
Registration Fee(3)
ClassAcommonstock,parvalue$0.01pershare 71,724,139 $31.00 $2,223,448,309 $257,698
(1) Includes7,781,110sharesofClassAcommonstockthattheunderwritershavetheoptiontopurchase.
Largeacceleratedfilero Acceleratedfilero Non-acceleratedfilerý(Donotcheckifa
smallerreportingcompany)
SmallerreportingcompanyoEmerginggrowthcompanyo
(2) EstimatedsolelyforthepurposesofcalculatingtheregistrationfeeinaccordancewithRule457(a)undertheSecuritiesActof1933.
(3) Theregistrantpreviouslypaid$185,840ofthisamountinconnectionwiththeinitialfilingoftheregistrationstatementonApril11,2017andthefilingofAmendmentNo.3totheregistrationstatementonJune12,2017.
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registrationstatement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Securities and ExchangeCommission, acting pursuant to Section 8(a), may determine.
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The information in this prospectus is not complete and may be changed. We and the selling stockholders may not sell these securities until the registration statement filed withthe Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any statewhere the offer or sale is not permitted.
Subject to Completion Preliminary Prospectus dated June 21, 2017
PROSPECTUS
63,943,029 Shares
Altice USA, Inc.
Class A Common Stock
ThisisAlticeUSA,Inc.'sinitialpublicoffering.Weareselling12,068,966sharesofourClassAcommonstockandthesellingstockholdersidentifiedinthisprospectusareselling51,874,063sharesofourClassAcommonstock.WewillnotreceiveanyoftheproceedsfromthesaleofthesharesofClassAcommonstockbythesellingstockholders.
Followingthisoffering,wewillhavethreeclassesofcommonstock:ClassAcommonstock,ClassBcommonstockandClassCcommonstock.TherightsofholdersofClassAcommonstock,ClassBcommonstockandClassCcommonstockwillbeidenticalexceptwithrespecttovotingandconversionrights.EachshareofClassAcommonstockwillbeentitledtoonevote.EachshareofClassBcommonstockwillbeentitledtotwenty-fivevotesandwillbeconvertibleatanytimeintooneshareofClassAcommonstock.IfweissueanysharesofClassCcommonstock,theywillbenon-voting.TheholdersofouroutstandingClassBcommonstockwillholdapproximately98.0%ofthevotingpowerofouroutstandingcapitalstockimmediatelyfollowingthisoffering.
Weexpectthepublicofferingpricetobebetween$27.00and$31.00.Priortothisoffering,therehasbeennopublicmarketforourClassAcommonstock.OurClassAcommonstockhasbeenapprovedforlistingontheNewYorkStockExchangeunderthesymbol"ATUS."
Afterthecompletionofthisoffering,wewillbea"controlledcompany"withinthemeaningofthecorporategovernancestandardsoftheNewYorkStockExchange.See"RiskFactors"beginningonpage20and"Management—ControlledCompany"beginningonpage179foradditionalinformation.
Investing in our Class A common stock involves risks that are described in the "Risk Factors" section beginning on page 20 of thisprospectus.
Theunderwritersmayalsoexercisetheiroptiontopurchaseuptoanadditional7,781,110sharesofClassAcommonstockfromthesellingstockholders,atthepublicofferingprice,for30daysafterthedateofthisprospectus.
NeithertheSecuritiesandExchangeCommissionnoranystatesecuritiescommissionhasapprovedordisapprovedofthesesecuritiesordeterminedifthisprospectusistruthfulorcomplete.Anyrepresentationtothecontraryisacriminaloffense.
TheunderwritersexpecttodeliverthesharesofClassAcommonstocktopurchasersonorabout,2017.
Per Share Total
Publicofferingprice $ $Underwritingdiscountandcommissions(1) $ $Proceeds,beforeexpenses,tous $ $Proceeds,beforeexpenses,tothesellingstockholders $ $
(1) See"Underwriting"beginningonpage235foradditionalinformationregardingunderwritingcompensation.
Joint Book-Running Managers
J.P. Morgan Morgan Stanley Citigroup Goldman Sachs & Co. LLC
BofA Merrill Lynch Barclays BNP PARIBAS
Credit Agricole CIB Deutsche Bank Securities RBC Capital Markets
Co-Managers
Scotiabank SOCIETE GENERALE TD Securities
Thedateofthisprospectusis,2017.
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Youshouldrelyonlyontheinformationcontainedinthisprospectusandinanyfreewritingprospectuspreparedbyoronbehalfofusanddeliveredormadeavailabletoyou.Neitherwe,thesellingstockholdersnoranyoftheunderwritershaveauthorizedanyonetoprovideyouwithadditionalordifferentinformation.Weandthesellingstockholdersareofferingtosell,andseekingofferstobuy,sharesofourClassAcommonstockonlyinjurisdictionswhereoffersandsalesarepermitted.Theinformationcontainedinthisprospectusorafreewritingprospectusisaccurateonlyasofitsdate,regardlessofitstimeofdeliveryorofanysaleofsharesofourClassAcommonstock.Ourbusiness,financialcondition,operatingresultsandprospectsmayhavechangedsincethatdate.
Throughandincluding,2017(the25thdayafterthedateofthisprospectus),alldealerseffectingtransactionsinthesesecurities,whetherornotparticipatinginthisoffering,mayberequiredtodeliveraprospectus.Thisisinadditiontoadealer'sobligationtodeliveraprospectuswhenactingasanunderwriterandwithrespecttoanunsoldallotmentorsubscription.
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Page FORINVESTORSOUTSIDETHEUNITEDSTATES iiTRADEMARKS,SERVICEMARKSANDTRADENAMES iiMARKETANDINDUSTRYDATA iiINDUSTRYTERMS iiiPROSPECTUSSUMMARY 1THEOFFERING 15SUMMARYHISTORICALANDPROFORMAFINANCIALDATA 17RISKFACTORS 20CAUTIONARYSTATEMENTREGARDINGFORWARD-LOOKINGSTATEMENTS 48USEOFPROCEEDS 50DIVIDENDPOLICY 51CAPITALIZATION 52DILUTION 55SELECTEDHISTORICALANDPROFORMAFINANCIALDATA 57UNAUDITEDPROFORMACONSOLIDATEDFINANCIALINFORMATION 67MANAGEMENT'SDISCUSSIONANDANALYSISOFFINANCIALCONDITIONANDRESULTSOFOPERATIONS 75INDUSTRYOVERVIEW 138BUSINESS 144REGULATION 168MANAGEMENT 176EXECUTIVECOMPENSATION 182PRINCIPALANDSELLINGSTOCKHOLDERS 201CERTAINRELATIONSHIPSANDRELATED-PARTYTRANSACTIONS 203DESCRIPTIONOFCAPITALSTOCK 206DESCRIPTIONOFCERTAININDEBTEDNESS 215SHARESELIGIBLEFORFUTURESALE 228MATERIALU.S.FEDERALINCOMETAXCONSEQUENCESTONON-U.S.HOLDERSOFOURCOMMONSTOCK 231UNDERWRITING 235LEGALMATTERS 242EXPERTS 242WHEREYOUCANFINDMOREINFORMATION 243INDEXTOCONSOLIDATEDFINANCIALSTATEMENTS F-1
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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.
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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;videoprogrammingandothercontenttransmittedovertheInternet.
SIP SessionInitiatedProtocol.
SMATV SatelliteMasterAntennaTelevision.
SMB Smallandmedium-sizedbusiness.
VOD Video-on-demand.
VoIP VoiceoverInternetProtocol.
U.S. industry peers CompaniesthatoperateincumbentHFCnetworksintheUnitedStates.
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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 complete and does not contain allthe 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 our consolidated financial statements and related notes included elsewhere in thisprospectus, 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 itsconsolidated subsidiaries, "Altice N.V." refers to our parent company, Altice N.V., and "Altice Group" refers to Altice N.V. and its consolidated subsidiaries. See "Industry Terms"for a glossary of certain abbreviations and terms used throughout this prospectus. Unless otherwise indicated, all information in this prospectus assumes no exercise of theunderwriters' option to purchase additional shares of our Class A common stock. For more information regarding how we calculate the pro forma financial information presented inthis section, please see "Unaudited Pro Forma Consolidated Financial Information."
Overview
AlticeUSAisoneofthelargestbroadbandcommunicationsandvideoservicesprovidersintheUnitedStates.Wedeliverbroadband,paytelevision,telephonyservices,Wi-Fihotspotaccess,proprietarycontentandadvertisingservicestoapproximately4.9millionresidentialandbusinesscustomers.Ourfootprintextendsacross21statesthroughafiber-richbroadbandnetworkwithmorethan8.5millionhomespassedasofMarch31,2017.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."Weareaholdingcompanythatdoesnotconductanybusinessoperationsofourown.Weserveourcustomersthroughtwobusinesssegments:Optimum,whichoperatesintheNewYorkmetropolitanarea,andSuddenlink,whichprincipallyoperatesinmarketsinthesouth-centralUnitedStates.WehavemadesignificantprogressinintegratingtheoperationsofOptimumandSuddenlinkandarealreadyrealizingtheoperationalandcommercialbenefitsof
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commonownershipandonemanagementteamasweimplementtheAlticeWaythroughoutourorganization.
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.(indirectlythroughCVC3B.V.("CVC3"),anindirectsubsidiaryofAlticeN.V.),NeptuneHoldingUSLP("HoldingLP"),aDelawarelimitedpartnershipcontrolledbyCVC3,UppernextS.C.S.p.("Uppernext"),anentitycontrolledbyMr.Drahi,andA4S.A.,anentitycontrolledbythefamilyofMr.Drahi,onacombinedbasiswillown75.2%ofourissuedandoutstandingsharesofcommonstock,whichwillrepresent98.5%ofthevotingpowerofouroutstandingcapitalstock.AlticeN.V.anditssubsidiaries,includingCVC3andHoldingLP,UppernextandA4S.A.arecollectivelyreferredtohereinasthe"AlticeParties."
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.
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SincetheAcquisitions,wehavealsoupgradedournetworkstonearlytriplethemaximumavailablebroadbandspeedsweareofferingtoourOptimumcustomersandexpandedour1Gbpsbroadbandservicetoapproximately60%ofourSuddenlinkfootprint,comparedtoapproximately40%priortotheSuddenlinkAcquisition.Inaddition,wehavecommencedafive-yearplantobuildaFTTHnetwork,whichwillenableustodelivermorethan10GbpsbroadbandspeedsacrossourentireOptimumfootprintandpartofourSuddenlinkfootprint.WebelievethisFTTHnetworkwillbemoreresilientwithreducedmaintenancerequirements,fewerserviceoutagesandlowerpowerusage,whichweexpectwilldrivefurthercostefficienciesinourbusiness.Inordertofurtherenhancethecustomerexperience,weplantointroduceanewhomecommunicationshubduringthesecondquarterof2017.Ournewhomecommunicationshubwillbeaninnovative,integratedplatformwithadynamicandsophisticateduserinterface,combiningaset-topbox,Internetrouterandcablemodeminonedevice,andwillbethemostadvancedhomecommunicationshubofferedbyanyAlticeGroupbusiness.Wearealsobeginningtooffermanageddataandcommunicationsservicestoourbusinesscustomersandmoreadvancedadvertisingservices,suchastargetedmulti-screenadvertisinganddataanalytics,toouradvertisingandotherbusinessclients.
ManyofourinitiativeshavealreadyresultedinapositiveimpacttoourcustomerrelationshipsandfinancialresultssincetheAcquisitions,asreflectedintheyear-over-yeargrowthacrossthemetricsinthefollowingtable:
Our Competitive Strengths
Webelievethefollowingcompetitivestrengthshavebeeninstrumentaltooursuccessandpositionusforfuturegrowthandstrongfinancialperformance.
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Three months ended March 31,
Altice USA
Cablevision Cequel
Pro Forma
2016(a)
(in thousands except percentage data) 2017 2017 2016(a) 2017 2016 CustomerRelationships 4,913 4,859 3,148 3,125 1,765 1,734% growth 1.1% 0.7% 1.8% Revenue 2,305,676 2,273,479 1,644,801 1,645,890 660,875 627,589% growth 1.4% (0.1)% 5.3% AdjustedEBITDA(b) 941,736 743,588 627,073 480,859 314,662 262,729% growth 26.6% 30.4% 19.8% % of Revenue 40.8% 32.7% 38.1% 29.2% 47.6% 41.9%AdjustedEBITDAlesscapitalexpenditures(b) 684,309 528,732 442,674 332,207 241,634 196,525% growth 29.4% 33.3% 23.0% % of Revenue 29.7% 23.3% 26.9% 20.2% 36.6% 31.3%Netlossattributabletostockholders (76,425) (190,075) (60,808) 94,377 14,739 (32,329)% growth 59.8% (164.4)% 145.6%
(a) IncludesresultsforNewsdayMediaGroup("Newsday").AlticeUSAsolda75%stakeinNewsdayinJuly2016.Newsday'srevenueforthethreemonthsendedMarch31,2016wasapproximately$52million.
(b) ForadditionalinformationregardingAdjustedEBITDA,includingareconciliationofAdjustedEBITDAtoNetLoss,pleasereferto"ProspectusSummary—SummaryHistoricalandProFormaCombinedFinancialData."
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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.'sClassAordinarysharesareacomponent,duringthesametimeperiod.
Leading Position in Attractive Markets
ThemarketsservedbyourbroadbandnetworkshavegenerallyexperiencedhigherlevelsofdisposableincomeandhouseholddensitycomparedtootherbroadbandcommunicationsandvideoservicesmarketsintheUnitedStates.AsofMarch31,2017,approximately75%ofthehomespassedbyournetworkwereineithertheNewYorkmetropolitanareaorTexas.Thefollowingtableprovidesacomparisonofmanagement'sestimateofincomeanddensitymetricsforourmarketstobothourlargestU.S.publicly-tradedindustrypeersaswellasthenationalaverages.
ThefootprintofourOptimumnetworkincludesNewYorkCity,theworld'slargestmediaandentertainmentmarketasmeasuredby2014revenue.Thisnetworkrepresentsourlargestclusterofcableandfibernetworksystems.AsofMarch31,2017,thisnetworkpassedapproximately5.1millionhomesandprovidedbroadband,paytelevisionandtelephonyservicestoapproximately3.1millionuniqueresidentialandbusinesscustomers,representingapproximately64%ofourentirecustomerbase.WebelieveourleadingmarketdemographicssupportrevenuegrowthpotentialintermsofcustomeradditionsandincreasedARPU.WebelievethemarketdensityoftheNewYorkmetropolitanareaallowsourOptimumsegmenttooperatewithgreatercapitalefficiencyandlowercapitalexpendituresasapercentageofrevenuethanourU.S.industrypeers.Ourpresenceinthismarketanditshigh-profilecustomerbasealsogivesusaccesstoalargeandvaluablebaseofadvertisers,advertisinginventoryandadvertisingdata,eachofwhichsupportsgrowthprospectsforouradvertisingbusiness.
ThefootprintofourSuddenlinknetworkincludesmarketsinTexas,WestVirginia,Louisiana,Arkansas,NorthCarolina,Oklahoma,Arizona,California,Missouriandeightotherstates.AsofMarch31,2017,thisnetworkpassedapproximately3.4millionhomesandprovidedbroadband,paytelevisionandtelephonyservicestoapproximately1.8millionuniqueresidentialandbusinesscustomers,representingapproximately36%ofourcustomerbase.Webelievelessthan15%ofour
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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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Suddenlinkfootprintcurrentlyfacescompetitionfrombroadbandcommunicationsandvideoservicesprovidersofferingdownloadspeedscomparabletoourfastestofferedspeeds.Inaddition,householdpenetrationofresidentialbroadbandconnectionswithspeedsofatleast25Mbpsinthesemarketswaslessthan37%asofJune30,2016comparedtoapproximately48%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-yearplantobuildaFTTHnetworkthatwillenableustodelivermorethan10GbpsbroadbandspeedsacrossourentireOptimumfootprintandpartofourSuddenlinkfootprint.
Wealsoplantointroduceanewhomecommunicationshubduringthesecondquarterof2017,whichwillbethemostadvancedhomecommunicationshubofferedbyanyAlticeGroupbusiness.Thisnewhubwillbeaninnovative,integratedplatformwithadynamicandsophisticateduserinterface,
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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.
Strategic Focus on Operational Efficiency
AnimportantprincipleoftheAlticeWayisleveragingoperationalefficiencyinordertoinvestinnetworkimprovementsandincreasereturns.WebelieveourfocusonsimplifyingcustomerserviceofferingsandstreamliningandimprovingouroperationsthroughanintensefocusonefficiencyisunmatchedbyourU.S.industrypeers.Wecontinuouslystrivetoremoveunnecessarymanagementlayers,streamlinedecision-makingprocesses,trimexcesscostsandquestionwhetherourcurrent
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methodologiesareindeedthemostefficient.Forexample,thehomeinstallation,repair,outsideplantmaintenanceandnetworkconstructionelementsofourbusinesshavebeenreorganizedunderAlticeTechnicalServices("ATS"),AlticeN.V.'sservicesorganizationintheUnitedStates.Webelievethisreorganizationwillallowustofocusonourcorecompetenciesandrealizeoperationalcostefficiencies.Thefinancialresourcescreatedbythesestrategiesallowustoinvestinnetworkimprovementsandcustomerexperienceenhancements.WebelievetheoperatingandfinancialbenefitsthatresultfromourfocusonoperationalefficiencywillcontinuetogiveusacompetitiveadvantageagainstourcompetitorsandU.S.industrypeers.
Powerful Financial Model Driving Strong Returns
WebelievethebenefitsoftheAlticeWayhavealreadysignificantlystrengthenedourfinancialperformanceandwillcontinuetodoso,allowingustodeliverstrongreturns.
OurrevenuegrowthforthethreemonthsendedMarch31,2017was1.4%ascomparedtoproformarevenueforthethreemonthsendedMarch31,2016.ExcludingNewsday,ouryear-over-yearrevenuegrowthforthethreemonthsendedMarch31,2017was3.8%.Webelievewecancontinuegrowingourrevenuebyincreasingmarketpenetrationofourservices(particularlybroadband),drivingcontinuedgrowthinB2Bservices,launchingnewservices,gainingmarketsharefromcompetitorsduetothehighqualityandvalueofourservicesandleveragingimprovedcustomersatisfactiontoselladditionalservices.
WebelieveweareoneofthemostprofitableandcashflowgenerativebroadbandcommunicationsandvideoservicesprovidersintheUnitedStates.OurAdjustedEBITDAmarginhasincreasedfrom32.7%forthethreemonthsendedMarch31,2016onaproformabasisgivingeffecttotheOptimumAcquisitionto40.8%forthethreemonthsendedMarch31,2017.Combinedwithourrevenuegrowth,thistranslatesintoa27%year-over-yearAdjustedEBITDAgrowth.See"SummaryHistoricalandProFormaFinancialData"foradditionalinformationregardingAdjustedEBITDA,includingareconciliationofAdjustedEBITDAtonetincome.
AsofMarch31,2017,basedonananalysisofourcurrentoperatingexpenses,webelievewehaverealizedasubstantialportionofthetotal$1.1billioninoperatingcostsavingsweannouncedthatwewouldachieveoverthethree-yearperiodfollowingtheAcquisitions.Ouranalysiscomparesthefullyear2015combinedoperatingexpensesofCablevisionandCequeltotheoperatingexpensesoftheCompanyforthequarterendedMarch31,2017,annualized.Webelievewehavebeensuccessfulinachievingthesecostsavingsonanexpeditedbasisbydelayeringmanagement,eliminatingnon-essentialoperatingexpensesandservicearrangementsandrationalizingoursupplierrelationships.Management'sfocusontheseinitiativeshasresultedincostsavingsthatareprimarilyreflectedinourOtherOperatingExpenseslineitem.See"Management'sDiscussionandAnalysisofFinancialConditionandResultsofOperations"formoreinformation.
ForthethreemonthsendedMarch31,2017,ourcapitalexpendituresasapercentageofrevenuewas11.2%,whichwebelieveisoneofthelowestamongourU.S.industrypeers,evenasweincreasedourinvestmentsinnetworkandservicecapabilities.TheratioofourAdjustedEBITDAlesscapitalexpenditurestorevenueforthethreemonthsendedMarch31,2017was30%,implyingthatforeachdollarofrevenuethatwerealizedinthatquarterwegeneratedapproximately$0.30ofAdjustedEBITDAlesscapitalexpenditures,whichwebelieveexceedstheperformanceofourU.S.industrypeers.Webelieveourprofitability,capitalefficiencyandcashgenerationprofile,whichisamongthehighestintheindustry,resultsfromanumberoffactors,includingourfocusonoperationalefficiencyderivedfromtheAlticeWay,theadvancedstateofourHFCnetworkinfrastructure,ourhighlyclusterednetworkfootprintandourcustomerbasewithrelativelyhighARPUandlowchurn.
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Experienced Management Team Supported by Founder
OurCEOandCo-Presidentshavesubstantialexperienceincommunicationsandmediaoperations,financeandmergersandacquisitions,andaproventrackrecordinexecutingtheAlticeWay.DexterGoei,ourCEOandChairmansince2016,joinedAlticeN.V.in2009,andasitsCEOhespearheadedtherapidexpansionofthecompanyfromaFrenchcableoperatortoamultinationalcommunicationsenterprisewithfixedandmobileassetsacrosssixdifferentcountries.AkeyaspectofMr.Goei'sroleasCEOofAlticeUSAistocarryforwardthesameentrepreneurialandowner-operatorculturethatisatthecoreoftheAlticeWayandAlticeN.V.'ssuccess.AbdelhakimBoubazine,ourCo-PresidentandCOOsince2015,waspreviouslytheCEOofAlticeGroup'sDominicanRepublicbusiness,whereheoversawpaytelevision,broadbandandmobileoperationsformorethanfourmillioncustomers.CharlesStewart,ourCo-PresidentandCFOsince2015,previouslyservedasCEOofItauBBAInternationalplc,whereheoversawItau-Unibanco'swholesalebankingactivitiesinEurope,UnitedStatesandAsia.Priortothat,hespentnineteenyearsatMorganStanleyinavarietyofinvestmentbankingrolesincludingnineyearsfocusedontheU.S.cableindustry.OurmanagementteamoperatesinacoordinatedfashionwithAlticeN.V.'smanagementteamandissupportedbyAlticeGroup'sfounderandcontrollingstockholder,Mr.Drahi.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.
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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.
Invest in Sales, Marketing and Innovation
Wearereinvestinginoursaleschannels,includingenhancingoure-commercechannelssuchasOptimum.comandSuddenlink.com,anddevelopinge-commerce-onlypromotions.ForthethreemonthsendedMarch31,2017,26%and14%ofourgrossaddswereviaouronlinesaleschannelforSuddenlinkandOptimum,respectively,comparedto16%and4%forthethreemonthsendedMarch31,2016.WearealsofocusedonbuildingourbrandtoemphasizethequalityofourservicesbydevelopingOptimumExperienceretailstoresinshoppingmallsandotherhigh-trafficlocations.
Weseektoinnovateacrossmanyareasofourbusiness.Forourresidentialcustomers,thisincludesourfocusonnewcustomerplatformsandfasterdataspeeds.Forourbusinesscustomers,weareintroducingnewvalue-addedmanagedserviceswhileforouradvertisingclientsweofferadvanced,targetedandmulti-screenadvertisingservicesanddataanalyticsusingourproprietarydataandtheadvancedtechnologyplatformsthatwehavedevelopedandacquired.
Wearealsofocusedonsimplifyingourbundledofferingsandstandardizingourpricingstructures.SincetheOptimumAcquisitionwehavereducedthenumberofOptimumbundlesbyapproximately50%andsincetheSuddenlinkAcquisitionwehavereducedthenumberofSuddenlinkpricingstructuresbyapproximately80%.
Enhance the Customer Experience
WeintendtodeliverasuperiorcustomerexperiencethroughimplementationoftheAlticeWay.First,weaimtoofferthemosttechnologicallyadvancedcustomerplatforms,includingournewhomecommunicationshub,whichisaninnovative,integratedplatformwithadynamicandsophisticateduserinterfacecombiningaset-topbox,Internetrouterandcablemodeminonedevice.Second,byleveragingouradvancedinfrastructure(withmorethan8.5millionhomespassedandapproximately1.8millionWi-FihotspotsasofMarch31,2017),weseektoprovideourcustomerswithabandwidthandconnectivityexperiencesuperiortowhatourcompetitionoffers.WebelieveourFTTHnetwork
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build-outwillfurtherenhanceourinfrastructureposition,improveservicereliabilityforourcustomersandlowerourmaintenancecosts.Third,westrivetoprovidethebestserviceacrossthecustomerlifecyclefrompointofsaletoinstallationandcustomercare.Akeyaspectofthisinitiativeistolinkinternalsalesincentivestometricstiedtothelengthofanewcustomerrelationshipandproductmix,asopposedtomoretraditionalcriteriaofnewsales,inordertorefocusourorganizationawayfromchurnretentiontochurnprevention.Forexample,thenumberoftechnicalservicecallshandledbyourrepresentativesinMarch2017was27%lowercomparedtoMarch2016whilethenumberofcustomerservicecallsandthenumberofservicevisitshandledbyourrepresentativeswas23%and20%lower,respectively,overthesameperiod.
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.InthefivelargestacquisitionscompletedbyAlticeN.V.overthelastfiveyears,SFR,PortugalTelecom,OrangeDominicana,OptimumandSuddenlink,ithasincreasedAdjustedEBITDAmarginonaveragebyapproximately7percentagepointsbetweenthequarterimmediatelyprecedingtheclosingoftheapplicableacquisitionandthethreemonthsendedMarch31,2017.AlticeN.V.'strackrecordofcreatingvaluethroughacquisitionsisalsoreflectedinthe32%averageannualtotalreturnofSFR'sordinarysharessinceitsinitialpublicofferinginNovember2013untilMarch31,2017,comparedtothe5%averageannualtotalreturnoftheSTOXXEurope600TelecommunicationsIndex,ofwhichSFR'sordinarysharesareacomponent,duringthesametimeperiod.WebelievetheU.S.broadbandcommunicationsandvideoservicesmarketoffersanumberofattractiveopportunitiestogrowourbusinessthroughstrategicacquisitions.WebelievetheAlticeWayandourrelatedabilitytoachieveefficienciesandcostsynergiesfollowingacquisitionsprovideuswithacompetitiveadvantageinsuchfutureconsolidationopportunities.However,thereisnoassurancethatwewouldbeabletoachievesimilarresultsorthatanysuchacquisitionswouldhaveasimilarimpactonourstockpriceperformance.
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Risks Affecting Our Business
InvestinginourClassAcommonstockinvolvesahighdegreeofrisk.ThereareanumberofrisksyoushouldcarefullyconsiderbeforeinvestinginourClassAcommonstock.Theserisksarediscussedmorefullyunder"RiskFactors"beginningonpage20ofthisprospectus,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,damageourreputationwithcustomersandadverselyaffectourresultsofoperations.Ourbusinessdependsonintellectualpropertyrightsandonnotinfringingontheintellectualpropertyrightsofothers.
• Ourbusinessissubjecttoextensivegovernmentallegislationandregulation,whichcouldadverselyaffectourbusiness,increaseouroperationalandadministrativeexpensesandlimitourrevenues.
• Thetri-classstructureofourcommonstockhastheeffectofconcentratingvotingcontrolwithAlticeN.V.anditsaffiliatesandsharesofClassBcommonstockwillnotautomaticallyconverttosharesofClassAcommonstockupontransfertoathirdparty.Holdersofasingleseriesofourcommonstockmaynothaveanyremediesifanactionbyourdirectorshasanadverseeffectononlythatseriesofourcommonstock.
• AlticeN.V.andMr.Drahiwillcontinuetocontrolusandtheirinterestsmayconflictwithoursoryoursinthefuture.CertainofouroverlappingdirectorsandofficershaverelationshipswithAlticeN.V.,whichmayresultinthediversionofcorporateopportunitiesandotherconflictswithrespecttoourbusinessandexecutives.
• Wewillbea"controlledcompany"withinthemeaningoftherulesoftheNewYorkStockExchange("NYSE"),andwillqualifyfor,andintendtorelyon,exemptionsfromcertain
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corporategovernancerequirementsthatwouldotherwiseprovideprotectiontostockholdersofothercompanies.
Ownership and Organization
Priortothisoffering,AlticeUSAwasowned90%byCVC3and10%byHoldingLP.Asdescribedbelowunder"OrganizationalTransactions,"inconnectionwiththisoffering,anumberoftransactionswillbeundertaken.Asaresultoftheseorganizationaltransactions,immediatelypriortothecompletionofthisoffering,AlticeUSAwillbeowned67.6%byAlticeN.V.(indirectlythroughCVC3);1.0%byUppernext;lessthan0.01%byA4S.A.;7.8%byHoldingLP(4.05%isattributabletoNeptuneManagementLP("ManagementLP")inconnectionwiththeCarryUnitPlan(asdefinedherein)and3.78%isattributabletoAlticeN.V.(indirectlythroughCVC3));14.0%byfundsadvisedbyBCPartnersLLP("BCP");9.1%byentitiesaffiliatedwiththeCanadaPensionPlanInvestmentBoard("CPPIB"andtogetherwithBCP,the"Sponsors");and0.4%byAlticeUSAexecutiveofficersanddirectorsand0.1%byotherAlticeUSAmanagement.
BCPisaleadinginternationalprivateequityfirmwithadvisedfundsofover€12billion.Establishedin1986,thefirmoperatesasanintegratedteamthroughofficesinEuropeandNorthAmericatoacquireanddevelopbusinessesandcreatevalueinpartnershipwithmanagement.Sinceinception,BCPhascompleted93acquisitionswithatotalenterprisevalueofapproximately€115billion,demonstratingdisciplineinbullmarketsandanabilitytoinvestinattractiveopportunitiesamidstturbulenceandrecession.BCPhasalonganddistinguishedhistoryofpartneringwithnumerouscompaniesintheTechnology,Media,andTelecomspaceincludingComHem,Springer,Cartrawler,MergermarketandIntelsat.
CPPIBisasophisticated,globalinstitutionalinvestor,managingafundthatranksamongtheworld's10largestretirementfunds.ItinveststhefundsnotneededbytheCanadaPensionPlantopaycurrentbenefitsonbehalfof20millioncontributorsandbeneficiaries.HeadquarteredinToronto,withofficesinHongKong,London,Luxembourg,Mumbai,NewYork,SãoPauloandSydney,CPPIBisgovernedandmanagedindependentlyoftheCanadaPensionPlanandatarm'slengthfromgovernments.AtMarch31,2017,theFund'sassetstotaledC$317billion,ofwhichapproximatelyC$39billionisinvestedthroughthePrivateInvestmentsgroup.CPPIB'sPrivateInvestmentsteammanagesinvestmentactivitiesinDirectPrivateEquity,PrincipalCredit,andNaturalResources.DirectPrivateEquitymanagesanapproximatelyC$18billionportfolioofinvestmentsandfocusesonmajority-orshared-controlinvestmentsacrossmultipleindustrysectorsworldwide.CurrentandprevioustechnologyandtelecominvestmentsincludeSuddenlinkCommunications,Informatica,Asurion,IMSHealthandSkype,amongothers.
Organizational Transactions
Priortotheclosingofthisoffering,thefollowingorganizationaltransactionswillbeconsummated:
• wewillamendandrestateourcertificateofincorporationto,amongotherthings,provideforClassAcommonstock,ClassBcommonstockandClassCcommonstock;
• theSponsorsandUppernextwillexchangetheirindirectownershipinterestintheCompanyforsharesoftheCompany'scommonstock;
• ManagementLPwillredeemitsClassBunitsforsharesoftheCompany'scommonstockthatitreceivesfromtheredemptionofitsClassBunitsinHoldingLP;
• UppernextwillsellsharesoftheCompany'scommonstocktoA4S.A.;
• $525millionaggregateprincipalamountofnotesissuedbytheCompanytotheSponsors(togetherwithaccruedandunpaidinterestandapplicablepremium)willbeconvertedintosharesoftheCompany'scommonstockattheinitialpublicofferingprice;
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• $1,225millionaggregateprincipalamountofnotesissuedbytheCompanytoasubsidiaryofAlticeN.V.(togetherwithaccruedandunpaidinterestandapplicablepremium)willbetransferredtoCVC3andthenconvertedintosharesoftheCompany'scommonstockattheinitialpublicofferingprice;
• theSponsorswilltransferaportionoftheirsharesoftheCompany'scommonstocktoanaffiliateofAlticeN.V.aspaymentinconnectionwithcertaincarriedinterestsintheSponsor'sinvestmentsintheCompany(suchaffiliateofAlticeN.V.willsubsequentlytransferthesharesoftheCompany'scommonstocktoCVC3);
• theSponsors,HoldingLP,A4S.A.andformerClassBunitholdersofManagementLP(includingUppernext)willexchangesharesoftheCompany'scommonstockforsharesoftheCompany'sClassAcommonstock;and
• CVC3andA4S.A.willexchangesharesoftheCompany'scommonstockforsharesoftheCompany'sClassBcommonstock.
Theabovetransactionswilloccurafterthedateofthisprospectusandpriortotheclosingofthisofferingandarecollectivelyreferredtoasthe"OrganizationalTransactions."
ThefollowingdiagramshowsourorganizationalstructureaftergivingeffecttotheOrganizationalTransactionsandthisoffering,assumingnoexercisebytheunderwritersoftheiroptiontopurchaseadditionalsharesofClassAcommonstock.
* AlticeN.V.(indirectlythroughCVC3andHoldingLP),UppernextandA4S.A.
Company Information
WewereincorporatedinDelawareonSeptember14,2015.Ourprincipalexecutiveofficeislocatedat1111StewartAvenue,Bethpage,NY11714.Ourtelephonenumberatthataddressis(516)803-2300.Ourwebsiteaddressiswww.alticeusa.com.Informationonourandoursubsidiaries'websitesorTwitterfeeds,theAlticeN.V.websiteorTwitterfeed,oranyAlticeN.V.filing,isdeemed
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nottobeapartofthisprospectusandinclusionsofwebsitesandTwitterfeedsareinactivetextualreferencesonly.
Pre-IPO Distribution
Priortotheclosingofthisoffering,wewillmakeacashdistributionofapproximately$670milliontoourstockholders,whichwillbefundedbyborrowingsof$500millionundertheCVCRevolvingCreditFacility(asdefinedherein)andapproximately$170millionofcashonhand(collectively,the"Pre-IPODistribution").
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THE OFFERING
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Class A common stock offered by us 12,068,966shares.
Class A common stock offered by theselling stockholders
51,874,063shares.
Underwriters' option
7,781,110shares.
Class A common stock outstanding afterthis offering *
246,750,944shares.
Class B common stock outstanding afterthis offering *
490,318,022shares.
Class C common stock outstanding afterthis offering
None.
Total Class A and Class B common stockoutstanding after this offering
737,068,966shares.
Use of proceeds
Weestimatethatthenetproceedstousfromthisoffering,afterdeductingtheunderwritingdiscountandestimatedofferingexpensespayablebyus,willbeapproximately$330.95million,basedonanassumedinitialpublicofferingpriceof$29.00pershare,themid-pointofthepricerangesetforthonthecoverpageofthisprospectus.
Wewillnotreceiveanyproceedsfromthesaleofsharesbythesellingstockholders.
Wecurrentlyintendtousethenetproceedsthatwereceivefromthisofferingtoredeemaportionofthe$2billionaggregateprincipalamountoutstandingofthe10.875%SeniorNotesdue2025("CSC2025SeniorNotes")issuedbyCSCHoldings,LLC("CSCHoldings"),ourwholly-ownedsubsidiary.AtanytimepriortoOctober15,2018,CSCHoldingsmayredeemupto40%oftheoriginalaggregateprincipalamountoftheCSC2025SeniorNoteswiththeproceedsofcertainequityofferingsataredemptionpriceof110.875%oftheprincipalamount,togetherwithaccruedandunpaidinterest,ifany,to,butexcluding,thedateofredemption.See"DescriptionofCertainIndebtedness—CablevisionBonds—CSCHoldingsNotes."
See"UseofProceeds."
Directed share program
Atourrequest,theunderwritershavereservedupto5%ofthecommonstockbeingofferedbythisprospectusforsaleattheinitialpublicofferingpricetoourdirectorsandofficers,ouremployees,employeesofATSandcertainemployeesofAlticeN.V.anditssubsidiaries.ThesaleswillbemadebyMorganStanley&Co.LLC,anunderwriterofthisoffering,anditsaffiliatesthroughadirectedshareprogram.Wedonotknowifthesepersonswillchoosetopurchasealloranyportionofthesereservedshares,butanypurchasestheydomakewillreducethenumberofsharesavailabletothegeneralpublic.Anyreservedsharesnotsopurchasedwillbeofferedbytheunderwriterstothegeneralpubliconthesametermsastheothersharesofcommonstockofferedbythisprospectus.Anysharespurchasedbyourdirectorsandofficersinthedirectedshareprogramwillbesubjecttoa180-daylock-upperiod,andanysharespurchasedbyotherpersonsinourdirectedshareprogramwillbesubjecttoa35-daylock-upperiod.
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Unlessotherwiseindicated,theinformationpresentedinthisprospectus:
• assumesthesharesofourClassAcommonstocktobesoldinthisofferingaresoldat$29.00pershare,themid-pointofthepricerangesetforthonthecoverpageofthisprospectus;
• assumesnoexerciseoftheunderwriters'optiontopurchaseadditionalshares;and
• allsharenumbersreflecttheOrganizationalTransactions,asdefinedin"Summary—OwnershipandOrganization—OrganizationalTransactions."
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Risk factors InvestinginourClassAcommonstockinvolvesahighdegreeofrisk.ThereareanumberofrisksyoushouldconsiderbeforeinvestinginourClassAcommonstock.Theserisksarediscussedmorefullyunder"RiskFactors"beginningonpage20ofthisprospectus.
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.TheholdersofouroutstandingClassBcommonstockwillholdapproximately98.0%ofthevotingpowerofouroutstandingcapitalstockimmediatelyfollowingthisoffering.
NYSE symbol
OurClassAcommonstockhasbeenapprovedforlistingontheNYSEunderthesymbol"ATUS."
* Basedonanassumedinitialpublicofferingpriceof$29.00,themid-pointofthepricerangesetforthonthecoverpageofthisprospectus.Iftheinitialpublicofferingis$27.00,thelowendofthepricerangesetforthonthecoverpageofthisprospectus,theClassAcommonstockandClassBcommonstockoutstandingafterthisofferingwouldbe247,163,184and489,905,782,respectively.Iftheinitialpublicofferingis$31.00,thehighendofthepricerangesetforthonthecoverpageofthisprospectus,theClassAcommonstockandClassBcommonstockoutstandingafterthisofferingwouldbe246,391,895and490,677,071,respectively.
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SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
ThesummaryconsolidatedhistoricalbalancesheetandoperatingdataofAlticeUSAfortheyearendedDecember31,2016presentedbelowhavebeenderivedfromtheauditedconsolidatedfinancialstatementsofAlticeUSAincludedelsewhereherein.ThesummaryconsolidatedhistoricalbalancesheetandoperatingdataofAlticeUSAasofandforthethreemonthsendedMarch31,2017and2016presentedbelowhavebeenderivedfromtheunauditedcondensedconsolidatedfinancialstatementsofAlticeUSAincludedelsewhereherein.ThehistoricaloperatingdataofAlticeUSAfortheyearendedDecember31,2016includetheoperatingresultsofCequelfortheyearendedDecember31,2016andtheoperatingresultsofCablevisionfortheperiodfromthedateofacquisition,June21,2016,throughDecember31,2016.TheconsolidatedproformaoperatingdataofAlticeUSAfortheyearendedDecember31,2016andthethreemonthsendedMarch31,2016havebeenderivedfromtheunauditedproformaconsolidatedstatementsofoperationsincludedinthisprospectusandgiveeffecttotheCablevisonAcquisitionasifithadoccurredonJanuary1,2016.
Thesummaryhistoricalandproformaresultspresentedbelowarenotnecessarilyindicativeoftheresultstobeexpectedforanyfutureperiod.ThisinformationshouldbereadinconjunctionwiththeauditedconsolidatedfinancialstatementsofAlticeUSA,theunauditedproformaconsolidatedstatementsofoperationsofAlticeUSA,andManagement'sDiscussionandAnalysisofFinancialConditionandResultsofOperationsofAlticeUSAincludedelsewhereherein.
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Altice USA Altice USA Three months ended March 31, Year ended December 31, 2017 2016 2016 2016 2016 Historical Pro Forma Historical Pro Forma Historical (dollars in thousands) Revenue: Residential: PayTV $ 1,071,361 $ 1,054,058 $ 279,737 $ 4,227,222 $ 2,759,216Broadband 611,769 547,680 196,690 2,290,039 1,617,029Telephony 210,873 221,012 39,735 872,115 529,973
Businessservicesandwholesale 319,591 300,855 84,404 1,230,643 819,541Advertising 79,968 79,364 20,887 365,429 245,702Other(a) 12,114 70,510 6,136 169,368 45,751
Total revenue 2,305,676 2,273,479 627,589 9,154,816 6,017,212Operating expenses: Programmingandotherdirectcosts 758,352 767,825 189,595 2,988,549 1,899,994Otheroperatingexpenses 613,437 776,764 175,265 2,853,821 1,716,851Restructuringandotherexpense(credits) 76,929 8,606 7,569 229,774 240,395Depreciationandamortization 608,724 636,061 200,900 2,484,284 1,700,306
Operating income 248,234 84,223 54,260 598,388 459,666Othernon-operatingexpenses,net (370,330) (382,203) (269,403) (1,769,940) (1,550,811)
Lossfromcontinuingoperationsbeforeincometaxes (122,096) (297,980) (215,143) (1,171,552) (1,091,145)Incometaxbenefit 45,908 107,839 74,395 450,295 259,666
Lossfromcontinuingoperations,netofincometaxes (76,188) (190,141) (140,748) (721,257) (831,479)Lossfromdiscontinuedoperations,netofincometaxes — — — — —Net loss (76,188) (190,141) (140,748) (721,257) (831,479)Netincomeattributabletononcontrollinginterests (237) 66 — (315) (551)Net loss attributable to Altice USA stockholders $ (76,425) $ (190,075) $ (140,748) $ (721,572) $ (832,030)Adjusted EBITDA(b) $ 941,735 $ 743,588 262,729 $ 3,352,045 $ 2,414,735
Adjusted EBITDA margin 40.8% 32.7% 41.9% 36.6% 40.1%Capital Expenditures $ 257,427 $ 214,856 $ 66,204 $ 955,672 $ 625,541
Capital expenditures as a percentage of revenue 11.2% 9.5% 10.5% 10.4% 10.4%Adjusted EBITDA less capital expenditures $ 684,308 $ 528,732 196,525 $ 2,396,373 $ 1,789,194
Adjusted EBITDA less capital expenditures as a percentage of revenue 29.7% 23.3% 31.3% 26.2% 29.7%
(a) Otherrevenue,onaproformabasis,forthethreemonthsendedMarch31,2016andfortheyearendedDecember31,2016includesrevenuerecognizedbyNewsday(throughJuly7,2016,fortheannualperiod).Otherrevenue,onanactualbasis,fortheyearendedDecember31,2016includesrevenuerecognizedbyNewsdayfortheperiodJune21,2016,theCablevisionAcquisitionDate,throughJuly7,2016,thedatetheCompanysolda75%interestinNewsdayandceasedconsolidatingitsoperatingresults.
(b) WedefineAdjustedEBITDA,whichisanon-GAAPfinancialmeasure,asnetincome(loss)excludingincometaxes,income(loss)fromdiscontinuedoperations,othernon-operatingincomeorexpenses,lossonextinguishmentofdebtandwrite-offofdeferredfinancingcosts,
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lossoninterestrateswapcontracts,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.
WealsouseAdjustedEBITDAlessCapitalExpendituresasanindicatoroftheCompany'sfinancialperformance.Webelievethismeasureisoneofseveralbenchmarksusedbyinvestors,analystsandpeersforcomparisonofperformanceintheCompany'sindustry,althoughitmaynotbedirectlycomparabletosimilarmeasuresreportedbyothercompanies.
ThefollowingisareconciliationofnetlosstoAdjustedEBITDA:
Altice USA Altice USA Three Months Ended March 31 Year ended December 31, 2017 2016 2016 2016 2016 Historical Pro Forma Historical Pro Forma Historical (dollars in thousands) (dollars in thousands) Netloss $ (76,188) $ (190,141) $ (140,748) $ (721,257) $ (831,479)Incometaxbenefit (45,908) (107,839) (74,395) (450,295) (259,666)Otherexpense(income)(a) 224 (2,045) (11) (9,184) (4,329)Lossonextinguishmentofdebtandwrite-offofdeferredfinancingcosts — — — 127,649 127,649Gainoninterestrateswapcontracts (2,342) — — 72,961 72,961Lossonequityderivativecontracts,net(b) 71,044 48,012 — 89,979 53,696Gainoninvestments,net (131,658) (100,365) — (271,886) (141,896)Interestexpense,net 433,062 436,601 269,414 1,760,421 1,442,730Depreciationandamortization 608,724 636,061 200,900 2,484,284 1,700,306Restructuringandotherexpenses 76,929 8,606 7,569 229,774 240,395Share-basedcompensation 7,848 14,698 — 39,599 14,368AdjustedEBITDA $ 941,735 $ 743,588 $ 262,729 $ 3,352,045 $ 2,414,735
(a) IncludesprimarilydividendsreceivedonComcastcommonstockownedbytheCompany.
(b) Consistsofunrealizedandrealizedlosses(gains)duetothechangeinfairvalueofequityderivativecontractsrelatingtotheComcastcommonstockownedbytheCompany.
Altice USA As of March 31, 2017 As of Dec. 31, 2016
Balance Sheet Data: Actual
Pro Forma As
Adjusted(1) Actual (dollars in thousands) Cashandcashequivalents $ 463,882 $ 248,599 $ 486,792Totalassets 36,179,281 35,963,998 36,474,249Totaldebt 24,072,758 22,477,855 24,030,065Netdebtexcludingcollateralizedindebtednessandnotespayabletoaffiliatesandrelatedpartiesplusaccrueddistributions(2) 20,565,174 21,275,254 20,507,204
(1) OnaproformaasadjustedbasistogiveeffecttothePre-IPODistribution,theOrganizationalTransactions,theaccrualof$169,950ofcashdistributionsmadetotheCompany'sstockholdersinApril2017,andthesalebyusofsharesofourClassAcommonstockinthisoffering,basedonanassumedinitialpublicofferingpriceof$29.00pershare,themid-pointofthepricerangesetforthonthecoverpageofthisprospectus,andafterdeductingtheunderwritingdiscountandtheestimatedofferingexpenses
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Customer Metrics
Thefollowingtablesetsforthcertaincustomermetricsbysegment(unaudited):
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payablebyus,andtheapplicationofthenetproceedstherefromasdescribedin"UseofProceeds."
(2) Netdebtexcludingcollateralizedindebtednessandnotespayabletoaffiliatesandrelatedpartiesplusaccrueddistributionsisnetofcashandcashequivalents.Theproformaandproformaasadjustedamountsreflecttheaccrualofcashdistributionsof$169,950and$169,750madeinApril2017andtobemadebeforethepricingofthisoffering,respectively.
As of March 31, 2017 As of December 31, 2016 Pro Forma
As of March 31, 2016 Cablevision Cequel (g) Total Cablevision Cequel (g) Total Cablevision Cequel (g) Total (in thousands, except per customer amounts) Homes passed(a) 5,128 3,419 8,547 5,116 3,407 8,524 5,086 3,362 8,448Total customer relationships(b) 3,148 1,765 4,913 3,141 1,751 4,892 3,125 1,734 4,859Residential 2,887 1,661 4,548 2,879 1,649 4,528 2,866 1,638 4,504SMB 261 103 365 262 102 364 258 96 354
Residential customers(c): PayTV 2,413 1,087 3,500 2,428 1,107 3,535 2,473 1,150 3,623Broadband 2,636 1,366 4,003 2,619 1,344 3,963 2,580 1,308 3,888Telephony 1,955 596 2,551 1,962 597 2,559 1,999 597 2,596
Residential triple product customer penetration(d): 64.4% 25.4% 50.2% 64.8% 25.5% 50.5% 66.9% 25.8% 52.0%Penetration of homes passed(e): 61.4% 51.6% 57.5% 61.4% 51.4% 57.4% 61.4% 51.6% 57.5%ARPU(f) $ 155.83 $ 110.00 $ 139.11 $ 154.49 $ 109.30 $ 138.07 $ 152.18 $ 105.68 $ 135.32
(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.Incountingbulkresidentialcustomers,suchasanapartmentbuilding,wecounteachsubscribingfamilyunitwithinthebuildingasonecustomer,butdonotcountthemasteraccountfortheentirebuildingasacustomer.Wecountabulkcommercialcustomer,suchasahotel,asonecustomer,anddonotcountindividualroomunitsatthathotel.
(d) Representsthenumberofcustomersthatsubscribetothreeofourservicesdividedbytotalresidentialcustomerrelationships.
(e) Representsthenumberoftotalcustomerrelationshipsdividedbyhomespassed.
(f) Calculatedbydividingtheaveragemonthlyrevenuefortherespectivequarter(fourthquarterforannualperiods)presentedderivedfromthesaleofbroadband,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, together with all of the otherinformation in this prospectus, including the financial statements and the related notes included elsewhere in this prospectus and the information set forth under the caption "CautionaryStatement Regarding Forward-Looking Statements," before deciding whether to invest in shares of our Class A common stock. We describe below what we believe are currently thematerial risks and uncertainties we face, but they are not the only risks and uncertainties we face. Additional risks and uncertainties that we are unaware of, or that we currently believeare not material, may also become important factors that adversely affect our business. If any of the following risks actually occur, our business, financial condition, results of operationsand future prospects could be materially and adversely affected. In that event, the market price of our Class A common stock could decline and you could lose part or all of yourinvestment.
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 and liquidity.
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.Consolidationandcooperationinourindustrymayallowourcompetitorstoacquireservicecapabilitiesorofferproductsthatarenotavailabletousoroffersimilarproductsandservicesatpriceslowerthanours.For
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example,ComcastandCharterCommunicationshaveagreedtojointlyexploreoperationalefficienciestospeedtheirrespectiveentriesintothewirelessmarket,includingintheareasofcreatingcommonoperatingplatformsandemergingwirelesstechnologyplatforms.Inaddition,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),offer
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DSLservices.WebelieveDSLservicecompeteswithourbroadbandserviceandisoftenofferedatpriceslowerthanourInternetservices.However,DSLisoftenofferedatspeedslowerthanthespeedsweoffer.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,theanticipatedbenefitsweexpectfromtheintroductionofournewhomecommunicationshuborthatitwillbe
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introducedtothemarketinthetimeframeweanticipateandwithallanticipatedfeaturesandfunctionality.Inaddition,wemayberequiredtomakematerialcapitalandotherinvestmentstoanticipateandtokeepupwithtechnologicalchange.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 with programmers and the inability toretain 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.WeandViacomdidnotreachanewagreementtoincludecertainViacomnetworksintheSuddenlinkchannellineupuntilMay2017.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"areentitled
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tomandatorycarriageonoursystems,butatnofee.Whenastationoptsforretransmissionconsent,cableoperatorsnegotiatefortherighttocarrythestation'ssignal,whichtypicallyrequirespaymentofaper-subscriberfee.Ourretransmissionagreementswithstationsexpirefromtimetotime.Uponexpirationoftheseagreements,wemaycarrysomestationsundershort-termarrangementswhileweattempttonegotiatenewlong-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.
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The financial markets are subject to volatility and disruptions, which have in the past, and may in the future, adversely affect our business, including by affecting the cost of newcapital and our ability to fund acquisitions or other strategic transactions.
Thecapitalmarketsexperiencevolatilityanddisruption.Attimes,themarketshaveexertedextremedownwardpressureonstockpricesandupwardpressureonthecostofnewdebt,whichhasseverelyrestrictedcreditavailabilityformanycompanies.
Historicalmarketdisruptionshavetypicallybeenaccompaniedbyabroadereconomicdownturn,whichhashistoricallyledtolowerdemandforourproducts,suchasvideoservices,aswellaslowerlevelsoftelevisionadvertising,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.AtMarch31,2017,ourtotalaggregateindebtednesswasapproximately$22.3billion(excludingnotespayabletoaffiliatesandrelatedparties).Becausewearehighlyleveraged,ourpaymentsonourindebtednessaresignificantinrelationtoourrevenuesandcashflow,whichexposesustosignificantriskintheeventofdownturnsinourbusinesses(whetherthroughcompetitivepressuresorotherwise),ourindustryortheeconomygenerally,sinceourcashflowswoulddecrease,butourrequiredpaymentsunderourindebtednesswouldnot.
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Economicdownturnsmayimpactourabilitytocomplywiththecovenantsandrestrictionsinourindentures,creditfacilitiesandagreementsgoverningourotherindebtednessandmayimpactourabilitytopayorrefinanceourindebtednessasitcomesdue.Ifwedonotrepayorrefinanceourdebtobligationswhentheybecomedueanddonototherwisecomplywiththecovenantsandrestrictionsinourindentures,creditfacilitiesandagreementsgoverningourotherindebtedness,wewouldbeindefaultunderthoseagreementsandtheunderlyingdebtcouldbedeclaredimmediatelydueandpayable.Inaddition,anydefaultunderanyofourindentures,creditfacilitiesoragreementsgoverningourotherindebtednesscouldleadtoanaccelerationofdebtunderanyotherdebtinstrumentsoragreementsthatcontaincross-accelerationorcross-defaultprovisions.Iftheindebtednessincurredunderourindentures,creditfacilitiesandagreementsgoverningourotherindebtednesswereaccelerated,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.
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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 needed capital.
Wehaveinthepastreportedsubstantiallossesfromcontinuingoperationsandwemaydosointhefuture.Significantlossesfromcontinuingoperationscouldlimitourabilitytoraiseanyneededfinancing,ortodosoonfavorableterms,assuchlossescouldbetakenintoaccountbypotentialinvestors,lendersandtheorganizationsthatissueinvestmentratingsonourindebtedness.
A lowering or withdrawal of the ratings assigned to our subsidiaries' debt securities and credit facilities by ratings agencies may further increase our future borrowing costs andreduce 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 other obligations and the failure to doso successfully could adversely affect our business. We may also engage in extraordinary transactions that involve the incurrence of large amounts of indebtedness.
Ourbusinessiscapitalintensive.Operatingandmaintainingourcablesystemsrequiressignificantamountsofcashpaymentstothirdparties.Capitalexpenditureswere$625.5millionin2016andprimarilyincludedpaymentsforcustomerpremiseequipment,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, damage our reputation withcustomers and adversely affect our results of operations.
Networkandinformationsystemsareessentialtoourabilitytodeliverourservicestoourcustomers.Whilewehaveinplacemultiplesecuritysystemsdesignedtoprotectagainstintentionalorunintentionaldisruption,failure,misappropriationorcorruptionofournetworkandinformationsystems,therecanbenoassurancethatoureffortstoprotectournetworkandinformationsystemswillpreventanyoftheproblemsidentifiedabove.Aproblemofthistypemightbecausedbyeventssuchascomputerhacking,computerviruses,wormsandotherdestructiveordisruptivesoftware,"cyber-
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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 and reputation couldsuffer.
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 adversely affect our business,financial condition and results of operations.
AsofMarch31,2017,217ofourfull-timeemployeeswerecoveredbycollectivebargainingagreements(primarilytechniciansinBrooklyn,NewYork)withtheCommunicationWorkersofAmerica("CWA").OptimumandtheCWAenteredintoacollectivebargainingagreementin2015.ThisagreementwasrenewedinJune2016foranadditionalthree-yearterm.OnMarch10,2017,theInternationalBrotherhoodofElectricalWorkers("IBEW")wascertifiedtorepresent100employeesinOakland,NewJersey.WehavenotyetnegotiatedacollectivebargainingagreementwiththeIBEWrelatingtotheseemployeesandtherecanbenoassurancethatwewillbeabletodosoontermsacceptabletous.ThecollectivebargainingagreementswiththeCWAandIBEWcoveringthesegroups
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ofemployeesoranyotheragreementswithotherunionsmayincreaseourexpenses.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.
AtMarch31,2017,wereportedapproximately$36.2billionofconsolidatedtotalassets,ofwhichapproximately$27.2billionwereintangible.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 materially adversely 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,orresultincostswhichexceedourexpectations,ourbusiness,financialconditionandresultsofoperationscouldbemateriallyadverselyaffected.
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Certain of our overlapping directors and officers have relationships with Altice N.V., which may result in the diversion of corporate opportunities and other conflicts with respect toour business and executives.
Followingthisoffering,fourofourdirectors,includingourChiefExecutiveOfficer,willbeemployedbyoraffiliatedwithAlticeN.V.andA4S.A.Thesedirectorshavefiduciarydutiestousand,inaddition,havedutiestoAlticeN.V.andA4S.A.Asaresult,thesedirectorsandofficersmayfacerealorapparentconflictsofinterestwithrespecttomattersaffectingbothusandAlticeN.V.orA4S.A.,whoseinterestsmaybeadversetooursinsomecircumstances.
OuramendedandrestatedcertificateofincorporationthatwillbeineffectontheclosingofthisofferingrecognizesthatMr.Drahiandcertaindirectors,principals,officers,employeesand/orotherrepresentativesofAlticeN.V.,A4S.A.andtheiraffiliates(eachsuchdirector,principal,officer,employeeand/orotherrepresentative,an"AlticeGroupRepresentative"andcollectively,the"AlticeGroupRepresentatives")mayserveasourdirectors,officersoragentsandthatMr.Drahi,AlticeN.V.,A4S.A.,theAlticeGroupRepresentativesandtheirrespectiveaffiliates,andmembersofourboardofdirectorsdesignatedbyAlticeN.V.andA4S.A.pursuanttothestockholders'agreement(the"DesignatedDirectors"),maynowengage,maycontinuetoengageandmayinthefutureengageinthesameorsimilaractivitiesorrelatedlinesofbusinessasthoseinwhichwe,directlyorindirectly,mayengageand/orotherbusinessactivitiesthatoverlapwithorcompetewiththoseinwhichwe,directlyorindirectly,mayengage.IntheamendedandrestatedcertificateofincorporationwehaverenouncedourrightstocertainbusinessopportunitiesandtheamendedandrestatedcertificateofincorporationprovidesthatnoneofMr.Drahi,AlticeN.V.,A4S.A.,anyAlticeGroupRepresentative,anyDesignatedDirector,ortheirrespectiveaffiliates,haveanydutytorefrainfrom,directlyorindirectly,engaginginthesameorsimilarbusinessactivitiesorlinesofbusinessesinwhichweoranyofouraffiliatesengageorarereasonablylikelytoengage,orotherwisecompetingwithusoranyofouraffiliates,orhaveanydutytocommunicatesuchopportunitiestous,unlesssuchopportunitiesariseinorarepredominantlyrelatedtoNorthAmerica.Theamendedandrestatedcertificateofincorporationfurtherprovidesthat,tothefullestextentpermittedbylaw,noneofMr.Drahi,AlticeN.V.,A4S.A.,anyAlticeGroupRepresentative,anyDesignatedDirector(includinganyDesignatedDirectorwhoservesasoneofourofficers)oranyoftheforegoingpersons'affiliatesshallbeliabletousorourstockholdersforbreachofanyfiduciarydutysolelybecausetheyengageinsuchactivities.
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,conductouroperationsand
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sellourproductsandservices.Ourintellectualpropertyrightsmaybechallengedandinvalidatedbythirdpartiesandmaynotbestrongenoughtoprovidemeaningfulcommercialcompetitiveadvantage.Thirdpartieshaveinthepast,andmayinthefuture,assertclaimsorinitiatelitigationrelatedtoexclusivepatent,copyright,trademarkandotherintellectualpropertyrightstotechnologiesandrelatedstandardsthatarerelevanttous.Theseassertionshaveincreasedovertimeasaresultofourgrowthandthegeneralincreaseinthepaceofpatentclaimsassertions,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.Thishasbeencompoundedinrecentyearsbythefreeflowofunverified
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informationontheInternetand,inparticular,onsocialmedia.Impairment,includinganylossofgoodwillorreputationaladvantages,ofAlticeGroup'sreputationinmarketsinwhichwedonotoperatecouldadverselyaffectcurrentandfuturecustomers'perceptionofAlticeUSA.
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 andresults 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.OptimumstockholdersatthetimeofthedistributionswouldbesubjecttotaxasiftheyhadreceivedadistributionequaltothefairvalueofMadisonSquareGardencommon
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stockorAMCNetworkscommonstock,asthecasemaybe,thatwasdistributedtothem,whichgenerallywouldbetreatedasataxabledividend.ItisexpectedthattheamountofanysuchtaxestoOptimum'sstockholdersanduswouldbesubstantial.
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 and administrative expenses and limitour 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 our business.
Ourcablesystemsgenerallyoperatepursuanttofranchises,permitsandsimilarauthorizationsissuedbyastateorlocalgovernmentalauthoritycontrollingthepublicrights-of-way.Somefranchisesestablishcomprehensivefacilitiesandservicerequirements,aswellasspecificcustomerservicestandardsandmonetarypenaltiesfornon-compliance.Inmanycases,franchisesareterminableifthefranchiseefailstocomplywithsignificantprovisionssetforthinthefranchiseagreementgoverningsystemoperations.Franchisesaregenerallygrantedforfixedtermsandmustbeperiodicallyrenewed.Franchisingauthoritiesmayresistgrantingarenewalifeitherpastperformanceortheprospectiveoperatingproposalisconsideredinadequate.Franchiseauthoritiesoftendemandconcessionsorothercommitmentsasaconditiontorenewal.Insomeinstances,localfranchiseshavenotbeenrenewedatexpiration,andwehaveoperatedandareoperatingundereithertemporaryoperatingagreementsorwithoutafranchisewhilenegotiatingrenewaltermswiththelocalfranchisingauthorities.
AsofMarch31,2017,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 in market areas where noneexisted 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 our expenses.
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 our Class A common stock.
Priortothisoffering,therehasbeennopublicmarketforsharesofourClassAcommonstock.WecannotpredicttheextenttowhichinvestorinterestinourCompanywillleadtothedevelopmentandsustainmentofanactivetradingmarketontheNYSEorotherwise,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 of Class A common stock you purchase in this offering.
IfyoupurchasesharesofourClassAcommonstockinthisofferingyouwillexperienceimmediateandsubstantialdilution,astheinitialpublicofferingpriceofourClassAcommonstockwillbesubstantiallygreaterthantheproformanettangiblebookvaluepershareofourClassAcommonstock.IfyoupurchaseourClassAcommonstockinthisoffering,youwillsufferimmediateandsubstantialdilutionofapproximately$61.11pershare,representingthedifferencebetweenourproformanettangiblebookdeficitpershareaftergivingeffecttothisofferingandtheinitialpublicofferingprice.
Your percentage ownership in us may be diluted by future issuances of capital stock, which could reduce your influence over matters on which stockholders vote.
Pursuanttoouramendedandrestatedcertificateofincorporation,ourboardofdirectorswillhavetheauthority,withoutactionorvoteofourstockholders,toissuealloranypartofourauthorizedbutunissuedsharesofClassAcommonstock,includingsharesissuableupontheexerciseofoptions,ClassBcommonstock,ClassCcommonstockorsharesofourauthorizedbutunissuedpreferredstock.Wemayissuesuchcapitalstocktomeetanumberofourbusinessneeds,includingfundinganypotentialacquisitionsorotherstrategictransactions.IssuancesofClassAcommonstock,ClassBcommonstockorvotingpreferredstockcouldreduceyourinfluenceovermattersonwhichourstockholdersvoteand,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 investment unless you sell yourClass 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 for our Class A commonstock to decline.
Afterthisoffering,thesaleofsubstantialamountsofsharesofourClassAcommonstockinthepublicmarket,ortheperceptionthatsuchsalescouldoccur,couldcausetheprevailingmarketpriceofsharesofourClassAcommonstocktodecline.Thesesales,orthepossibilitythatthesesalesmay
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occur,alsomightmakeitmoredifficultforustosellequitysecuritiesinthefutureatatimeandatapricethatwedeemappropriate.
Uponconsummationofthisofferingwewillhaveatotalof737,068,966sharesofClassAcommonstockoutstanding.AllofthesharesofClassAcommonstocksoldinthisofferingwillbefreelytradablewithoutrestrictionorfurtherregistrationundertheSecuritiesActof1933,asamended(the"SecuritiesAct").
Anysharesheldbyouraffiliates,asthattermisdefinedunderRule144oftheSecuritiesAct("Rule144"),includingAlticeN.V.anditsaffiliates,maybesoldonlyincompliancewiththelimitationsdescribedin"SharesEligibleforFutureSale."
Theremainingshareswillbe"restrictedsecurities"withinthemeaningofRule144andsubjecttocertainrestrictionsonresalefollowingtheconsummationofthisoffering.RestrictedsecuritiesmaybesoldinthepublicmarketonlyiftheyareregisteredundertheSecuritiesActoraresoldpursuanttoanexemptionfromregistrationsuchasRule144,asdescribedin"SharesEligibleforFutureSale."
Weandourexecutiveofficers,directors,andholdersofsubstantiallyallofourcommonstockhaveagreedwiththeunderwriters,subjecttocertainexceptions,nottodisposeoforhedgeanyofourortheircommonstockorsecuritiesconvertibleintoorexchangeableforsharesofcommonstockduringtheperiodfromthedateofthisprospectuscontinuingthroughthedate180daysafterthedateofthisprospectus,exceptwiththepriorwrittenconsentofJ.P.MorganSecuritiesLLCandMorganStanley&Co.LLC.
Upontheexpirationofthelock-upagreements,theremainingshareswillbeeligibleforresale,whichwouldbesubjecttovolume,mannerofsaleandotherlimitationsunderRule144.Inaddition,pursuanttoastockholdersandregistrationrightsagreement,ourexistingownershavetheright,subjecttocertainconditions,torequireustoregisterthesaleoftheirsharesofourClassAcommonstock,orsharesofClassAcommonstockissuableonconversionofsharesofClassBcommonstockundertheSecuritiesAct.Byexercisingtheirregistrationrightsandsellingalargenumberofshares,ourexistingownerscouldcausetheprevailingmarketpriceofourClassAcommonstocktodecline.Followingcompletionofthisoffering,thesharescoveredbyregistrationrightswouldrepresentapproximately90.8%ofouroutstandingcapitalstock(or89.7%,iftheunderwritersexerciseinfulltheiroptiontopurchaseadditionalshares).RegistrationofanyoftheseoutstandingsharesofcapitalstockwouldresultinsuchsharesbecomingfreelytradablewithoutcompliancewithRule144uponeffectivenessoftheregistrationstatement.See"SharesEligibleforFutureSale."
Inaddition,weintendtofileoneormoreregistrationstatementsonFormS-8undertheSecuritiesActtoregistersharesofourClassAcommonstockorsecuritiesconvertibleintoorexchangeableforsharesofourClassAcommonstockissuedpursuanttotheAlticeUSA2017LongTermIncentivePlan.AnysuchFormS-8registrationstatementswillautomaticallybecomeeffectiveuponfiling.Sharesregisteredunderanysuchregistrationstatementwouldbeavailableforsaleinthepublicmarketfollowingtheeffectivedate,unlesssuchsharesaresubjecttovestingrestrictionswithus,Rule144restrictionsapplicabletoouraffiliatesorthelock-upagreementsdescribedelsewhereinthisprospectus.
Asrestrictionsonresaleendorifthesestockholdersexercisetheirregistrationrights,themarketpriceofourClassAcommonstockcoulddropsignificantlyiftheholdersofClassAcommonstocksellthemorareperceivedbythemarketasintendingtosellthem.ThesefactorscouldalsomakeitmoredifficultforustoraiseadditionalfundsthroughfutureofferingsofourClassAcommonstockorothersecurities.Inthefuture,wemayalsoissueoursecuritiesinconnectionwithinvestmentsoracquisitions.TheamountofsharesofourClassAcommonstockorClassCcommonstockissuedinconnectionwithaninvestmentoracquisitioncouldconstituteamaterialportionofthen-outstandingsharesofour
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ClassAcommonstock.Anyissuanceofadditionalsecuritiesinconnectionwithinvestmentsoracquisitionsmayresultinadditionaldilutiontoyou.
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 your ability to influencecorporate matters, including the election of directors, amendments of our organizational documents and any merger, consolidation, sale of all or substantially all of our assets or othermajor corporate transaction requiring stockholder approval. Shares of Class B common stock will not automatically convert to shares of Class A common stock upon transfer to a thirdparty.
Followingthisoffering,ourClassBcommonstockwillhavetwenty-fivevotespershareandourClassAcommonstock,whichisthestockweareofferinginthisoffering,willhaveonevotepershare.IfweissueanysharesofClassCcommonstock,theywillbenon-voting.Immediatelyfollowingthecompletionofthisoffering,AlticePartieswillindirectlyholdintheaggregate98.5%ofthevotingpowerofourcapitalstock.
Becauseofthetwenty-fivetoonevotingratiobetweenourClassBcommonstockandClassAcommonstock,AlticeN.V.anditsaffiliateswillcontinuetocontrolamajorityofthecombinedvotingpowerofourcapitalstockandthereforebeabletocontrolallmatterssubmittedtoourstockholdersforapprovaluntilsuchdateastheholdersofamajorityofourClassBcommonstockchoosetovoluntarilyconverttheirsharesintosharesofClassAcommonstockandceasetoownsharesofourcapitalstockentitlingthemtocastamajorityoftheoutstandingvotes.Thisconcentratedcontrolwilllimitorprecludeyourabilitytoinfluencecorporatemattersfortheforeseeablefuture,includingtheelectionofdirectors,amendmentsofourorganizationaldocumentsandanymerger,consolidation,saleofallorsubstantiallyallofourassetsorothermajorcorporatetransactionrequiringstockholderapproval.Thedisparatevotingrightsofourcommonstockmayalsopreventordiscourageunsolicitedacquisitionproposalsoroffersforourcapitalstockthatyoumayfeelareinyourbestinterestasoneofourstockholders.Foradditionalinformation,see"DescriptionofCapitalStock."
SharesofourClassBcommonstockwillbeconvertibleintosharesofourClassAcommonstockattheoptionoftheholderatanytime.OuramendedandrestatedcertificateofincorporationwillnotprovidefortheautomaticconversionofsharesofClassBcommonstockupontransferunderanycircumstances.TheholdersofClassBcommonstockthuswillbefreetotransferthemwithoutconvertingthemintosharesofClassAcommonstock.
Altice N.V. and Mr. Drahi will continue to control us and their interests may conflict with ours or yours in the future.
ThebeneficialownershipinterestsofAlticePartiesfollowingtheofferingwilldependonthepriceofthesharesofferedandthenumberofsharessold.Immediatelyfollowingthisoffering,AlticePartieswillown75.2%ofourissuedandoutstandingClassAandClassBcommonstockwhichwillrepresentapproximately98.5%ofthevotingpowerofouroutstandingcapitalstock.SolongasAlticeN.V.continuestoowncommonstockrepresentingasubstantialportionofthevotingpowerofourcapitalstock,AlticeN.V.and,throughhiscontrolofAlticeN.V.,Mr.Drahi,willbeabletosignificantlyinfluencethecompositionofourboardofdirectorsandtherebyinfluenceourpoliciesandoperations,includingtheappointmentofmanagement,futureissuancesofourcommonstockorothersecurities,thepaymentofdividends,ifany,onourcommonstock,theincurrenceormodificationofdebtbyus,amendmentstoouramendedandrestatedcertificateofincorporationandamendedandrestatedbylawsandtheenteringintoofextraordinarytransactions,andtheirinterestsmaynotinallcasesbealignedwithyourinterests.Inaddition,AlticeN.V.mayhaveaninterestinpursuingacquisitions,divestituresandothertransactionsthat,initsjudgment,couldenhanceitsinvestmentorimproveitsfinancialcondition,eventhoughsuchtransactionsmightinvolveriskstoyou.Forexample,AlticeN.V.
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couldcauseustomakeacquisitionsthatincreaseourindebtednessorcauseustosellrevenue-generatingassets.
SolongasAlticeN.V.continuestoholdasubstantialportionofthevotingpowerofourcapitalstock,AlticeN.V.and,throughhiscontrolofAlticeN.V.,Mr.Drahi,willcontinuetobeabletosignificantlyinfluenceoreffectivelycontrolourdecisions.Inaddition,AlticeN.V.willbeabletodeterminetheoutcomeofallmattersrequiringstockholderapprovalandwillbeabletocauseorpreventachangeofcontroloftheCompanyorachangeinthecompositionofourboardofdirectorsandcouldprecludeanyunsolicitedacquisitionoftheCompany.TheconcentrationofownershipcoulddepriveyouofanopportunitytoreceiveapremiumforyoursharesofourClassAcommonstockaspartofasaleoftheCompanyandultimatelymightaffectthemarketpriceofourClassAcommonstock.
Inaddition,wehaveenteredintoagreementswithaffiliatesofAlticeN.V.pursuanttowhichtheyprovideussoftwareandnetworkequipment,designanddevelopmentservices,technicalservicesandsupportforourcustomersandproprietarycontent,forwhichwecompensatethemonaregularbasis.AsubsidiaryofAlticeN.V.alsoprovidesconsulting,advisoryandotherservicestousinconnectionwithouracquisitions,divestitures,investments,capitalraising,financialandbusinessaffairsforaquarterlyfee.ThesubsidiarywillassigntheagreementunderwhichitprovidestheseservicestoustoAlticeN.V.priortotheclosingofthisoffering.IfconflictsarisebetweenusandAlticeN.V.,theseconflictscouldberesolvedinamannerthatisunfavorabletousandasaresult,ourbusiness,financialconditionandresultsofoperationscouldbemateriallyadverselyaffected.See"CertainRelationshipsandRelatedPartyTransactions."Inaddition,ifAlticeN.V.ceasestocontrolusorweotherwiseloseaccesstotheservicesandexpertiseavailabletousthroughAlticeN.V.,including,forexample,ATSandAlticeLabs,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,privilegesandrestrictionsofuptoanaggregateof100,000,000sharesofpreferredstockinoneormoreseriesandauthorizetheirissuance;and
• theabilityofstockholdersholdingamajorityofthevotingpowerofourcapitalstocktocallaspecialmeetingofstockholders.
Theseanti-takeoverprovisionscouldmakeitmoredifficultforathirdpartytoacquireus,evenifthethird-party'soffermaybeconsideredbeneficialbymanyofourstockholders.Asaresult,ourstockholdersmaybelimitedintheirabilitytoobtainapremiumfortheirsharesofourClassAcommonstock.See"DescriptionofCapitalStock."Inaddition,solongasAlticeN.V.continuestoholdasignificantamountofourcombinedvotingpoweritwillbeabletopreventachangeofcontroloftheCompany.
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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 common stock.
UnderDelawarelaw,theboardofdirectorshasadutytoactwithduecareandinthebestinterestsofallofourstockholders,includingtheholdersofallseriesofourcommonstock.PrinciplesofDelawarelawestablishedincasesinvolvingdifferingtreatmentofmultipleclassesorseriesofstockprovidethataboardofdirectorsowesanequaldutytoallcommonstockholdersregardlessofclassorseriesanddoesnothaveseparateoradditionaldutiestoanygroupofstockholders.Asaresult,insomecircumstances,ourdirectorsmayberequiredtomakeadecisionthatcouldbeviewedasadversetotheholdersofoneseriesofourcommonstock.UndertheprinciplesofDelawarelawandthebusinessjudgmentrule,holdersmaynotbeabletosuccessfullychallengedecisionsthattheybelievehaveadisparateimpactupontheholdersofoneseriesofourstockifourboardofdirectorsisdisinterestedandindependentwithrespecttotheactiontaken,isadequatelyinformedwithrespecttotheactiontakenandactsingoodfaithandinthehonestbeliefthattheboardisactinginthebestinterestofallofourstockholders.
We will continue to be a "controlled company" within the meaning of the rules of the NYSE. As a result, we will qualify for, and intend to rely on, exemptions from certain corporategovernance requirements that would otherwise provide protection to stockholders of other companies.
Aftercompletionofthisoffering,AlticeN.V.willcontinuetocontrolamajorityofthevotingpowerofourcapitalstock.Asaresult,wewillbea"controlledcompany"withinthemeaningofthecorporategovernancestandardsoftheNYSE.Undertheserules,acompanyofwhichmorethan50%ofthevotingpowerisheldbyanindividual,grouporanothercompanyisa"controlledcompany"andmayelectnottocomplywithcertaincorporategovernancerequirements,including:
• therequirementthatamajorityofourboardofdirectorsconsistsof"independentdirectors"asdefinedundertherulesoftheNYSE;
• therequirementthatwehaveagovernanceandnominatingcommittee;and
• therequirementthatthecompensationofourexecutiveofficersbedetermined,orrecommendedtoourboardofdirectorsfordetermination,byacompensationcommitteecomprisedsolelyofindependentdirectorswithawrittencharteraddressingthecommittees'purposeandresponsibilities.
Consistentwiththeseexemptions,uponlistingwiththeNYSEwedonotintendtohave(i)amajorityofindependentdirectorsonourboardofdirectors;(ii)afullyindependentcompensationcommittee;or(iii)anominatingandgovernancecommittee.Accordingly,youwillnothavethesameprotectionsaffordedtostockholdersofcompaniesthataresubjecttoallofthecorporategovernancerequirementsoftheNYSE.
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,thelistingrequirementsoftheNYSEandotherapplicablesecuritieslawsandregulations.WealsohaveincurredandwillincurcostsassociatedwiththeSarbanes-OxleyActandrelatedrulesimplementedbytheSEC.Followingthecompletionofthisoffering,wewillincurongoingperiodicexpensesinconnectionwiththeadministrationofourorganizationalstructure.Theexpensesincurredbypubliccompaniesgenerallyforreportingandcorporategovernancepurposeshavebeen
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increasing.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 our business and stock price.
WearenotcurrentlyrequiredtocomplywiththerulesoftheSECimplementingSection404oftheSarbanes-OxleyActandthereforearenotrequiredtomakeaformalassessmentoftheeffectivenessofourinternalcontroloverfinancialreportingforthatpurpose.Asapubliccompany,wewillberequiredtodocumentandtestourinternalcontrolproceduresinordertosatisfytherequirementsofSection404ofSarbanes-Oxley,whichwillrequireannualmanagementassessmentsoftheeffectivenessofourinternalcontroloverfinancialreportingandareportbyourindependentregisteredpublicaccountingfirmthataddressestheeffectivenessofinternalcontroloverfinancialreporting.Duringthecourseofourtesting,wemayidentifydeficiencieswhichwemaynotbeabletoremediateintimetomeetourdeadlineforcompliancewithSection404.Ifourmanagementcannotfavorablyassesstheeffectivenessofourinternalcontroloverfinancialreportingorourauditorsidentifymaterialweaknessesinourinternalcontrols,investorconfidenceinourfinancialresultsmayweaken,andourstockpricemaysuffer,andwecouldbecomesubjecttoinvestigationsbytheNYSE,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 A common stock or if ouroperating 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.,acompanythatiscontrolledbyMr.Drahi.NextAltS.ár.l.couldsellasubstantialnumberofordinarysharesofAlticeN.V.inthepublicmarketandsuchsales,ortheperceptionthatsuchsalescouldoccur,maymateriallyandadverselyaffectthemarketpriceofAlticeN.V.'sordinaryshares.AdecreaseinAlticeN.V.sharepricecouldnegativelyaffectthemarketpriceofourClassAcommonstock.
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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 disputes between us and ourstockholders, which could limit our stockholders' ability to obtain a favorable judicial forum for disputes with us or our directors, officers or other stockholders.
OuramendedandrestatedbylawsthatwillbeineffectontheclosingofthisofferingwillprovidethattheCourtofChanceryoftheStateofDelaware(or,iftheCourtofChancerydoesnothavejurisdiction,anotherstateorfederalcourtlocatedintheStateofDelaware)shallbetheexclusiveforumfor:(i)anyderivativeactionorproceedingbroughtinournameoronourbehalf;(ii)anyactionassertingabreachoffiduciaryduty;(iii)anyactionassertingaclaimagainstusarisingundertheGeneralCorporationLawoftheStateofDelaware("DGCL");(iv)anyactionregardingouramendedandrestatedcertificateofincorporationorouramendedandrestatedbylaws;or(v)anyactionassertingaclaimagainstusthatisgovernedbytheinternalaffairsdoctrine.Ouramendedandrestatedbylawswillpermitourboardofdirectorstoapprovetheselectionofanalternativeforum.Unlesswaived,thisexclusiveforumprovisionmaylimitastockholder'sabilitytobringaclaiminajudicialforumthatitfindsfavorablefordisputeswithusorourdirectors,officersorotherstockholders,whichmaydiscouragesuchlawsuitsagainstusandourdirectors,officersandotherstockholders.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;
• increaseddifficultynegotiatingprogrammingagreementsonfavorableterms,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$330,950,000,basedonanassumedinitialpublicofferingpriceof$29.00pershare,themid-pointofthepricerangesetforthonthecoverpageofthisprospectus.Anincreaseordecreaseintheinitialpublicofferingpriceby$1.00pershareaboveorbelowthemid-pointoftheproposedrangewouldresultinanincreaseordecreaseofapproximately$11,670,690,asapplicable,innetproceedstousassumingthenumberofsharesofferedbyusstaysconstant.Wewillnotreceiveanyproceedsfromthesaleofsharesbythesellingstockholders.
Wecurrentlyintendtousethenetproceedsthatwereceivefromthisofferingtoredeemaportionofthe$2billionaggregateprincipalamountoutstandingoftheCSC2025SeniorNotesissuedbyCSCHoldings,ourwholly-ownedsubsidiary.AtanytimepriortoOctober15,2018,CSCHoldingsmayredeemupto40%oftheoriginalaggregateprincipalamountoftheCSC2025SeniorNoteswiththeproceedsofcertainequityofferingsataredemptionpriceof110.875%oftheprincipalamount,togetherwithaccruedandunpaidinterest,ifany,to,butexcluding,thedateofredemption.See"DescriptionofCertainIndebtedness—CablevisionBonds—CSCHoldingsNotes."
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DIVIDEND POLICY
Duringfiscalyear2015,Cablevision,ourpredecessorcompany,paidaregularquarterlycashdividendof$0.15persharetoholdersofbothCablevision'sClassAcommonstockandClassBcommonstockonApril3,2015,June12,2015andSeptember10,2015.Inthefourthquarterof2016,wedeclaredcombinedcashdividendsofapproximately$445milliontoourstockholdersofwhichapproximately$365millionwaspaidinthefourthquarterof2016andapproximately$80millionwaspaidinthefirstquarterof2017.Inaddition,inApril2017,wemadeacashdistributionofapproximately$170milliontoourstockholders.Priortotheclosingofthisoffering,wewillmakeacashdistributionofapproximately$670milliontoourstockholders,whichwillbefundedbyborrowingsofapproximately$500millionundertheCVCRevolvingCreditFacilityandapproximately$170millionofcashonhand.
Wecurrentlyintendtoretainanyfutureearningstofundtheoperation,developmentandexpansionofourbusinessanddonotintendtopayanydividendsonourClassAcommonstock.Anyfuturedeterminationrelatingtoourdividendpolicywillbemadeinthesoleandabsolutediscretionofourboardofdirectorsandwilldependuponthenexistingconditions,includingourfinancialcondition,resultsofoperations,contractualrestrictions,capitalrequirements,businessprospectsandotherfactorsthatourboardofdirectorsmaydeemrelevant.See"RiskFactors—RiskFactorsRelatingtoThisOfferingandOwnershipofOurClassACommonStock—BecausewehavenocurrentplanstopaycashdividendsonourClassAcommonstockfortheforeseeablefuture,youmaynotreceiveanyreturnoninvestmentunlessyousellyourClassAcommonstockforapricegreaterthanthatwhichyoupaidforit."
Inaddition,weareaholdingcompanythatdoesnotconductanybusinessoperationsofourown.Asaresult,ourabilitytopaycashdividendsonourClassAcommonstockisdependentuponcashdividendsanddistributionsandothertransfersfromoursubsidiaries.Thetermsofcertaindebtinstrumentstowhichoursubsidiariesareapartycurrentlylimit,subjecttocertainexceptionsandqualifications,theirabilityandtheabilityoftheirrestrictedsubsidiariesto:(i)paydividendsormakeotherdistributionsorrepurchaseorredeemourcapitalstockorsubordinateddebt,(ii)engageincertaintransactionswithaffiliatesand(iii)enterintoagreementsthatrestrictthepaymentofdividendsbysubsidiariesortherepaymentofintercompanyloansandadvances.See"DescriptionofCertainIndebtedness."
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CAPITALIZATION
ThefollowingtablesetsforthourcashandcashequivalentsandcapitalizationasofMarch31,2017(dollarsinthousands):
• onanactualbasis;
• onaproformabasistogiveeffecttothePre-IPODistributionandtheOrganizationalTransactions,asdefinedin"Summary—OwnershipandOrganization—OrganizationalTransactions,"theaccrualof$169,950ofcashdistributionsmadetotheCompany'sstockholdersinApril2017,and
• onaproformaasadjustedbasistogiveeffecttothesalebyusof12,068,966sharesofourClassAcommonstockinthisoffering,basedonanassumedpublicofferingpriceof$29.00pershare,themid-pointofthepricerangesetforthonthecoverpageofthisprospectus,andafterdeductingtheunderwritingdiscountandtheestimatedofferingexpensespayablebyus,andtheintendeduseofthenetproceedstherefromasdescribedin"UseofProceeds."
Theasadjustedinformationbelowisillustrativeonlyandourcapitalizationfollowingthecompletionofthisofferingwillbeadjustedbasedontheactualofferingpriceandothertermsofthisofferingdeterminedatpricing.Theinformationsetforthbelowshouldbereadinconjunctionwith"SelectedHistoricalandProFormaFinancialData,""UnauditedProFormaConsolidatedFinancialInformation,""Management'sDiscussionandAnalysisofFinancialConditionandResultsofOperations,"thefinancialstatementsandrelatednotesandthefinancialinformationincludedelsewhereinthisprospectus.
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As of
March 31, 2017
(Dollars in thousands, except share data) Actual Pro forma Pro forma
As Adjusted (Unaudited) (Unaudited) Cashandcashequivalents(1) $ 463,882 $ 313,747 $ 248,599Debt: Short-termdebt: Creditfacilitydebt,seniornotesanddebentures,capitalleaseobligationsandnotespayable 774,659 774,659 774,659Collateralizedindebtedness 461,946 461,946 461,946
Long-termdebt: Creditfacilitydebt,seniornotesanddebentures,capitalleaseobligationsandnotespayable(2) 20,254,397 20,754,397 20,409,494
Collateralizedindebtedness 831,756 831,756 831,756Notespayabletoaffiliatesandrelatedparties(3) 1,750,000 — —Totaldebt 24,072,758 22,822,758 22,477,855
Redeemableequity 211,687 211,687 211,687
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As of
March 31, 2017
(Dollars in thousands, except share data) Actual Pro forma Pro forma
As Adjusted (Unaudited) (Unaudited) Equity: PreferredStock:$0.01parvalue,100,000,000authorized,nosharesissuedandoutstandingonaproformaandproformaasadjustedbasis — — —
ClassAcommonstock:$0.01parvalue,4,000,000,000sharesauthorized,234,681,978issuedandoutstandingonaproformabasisand246,750,944issuedandoutstandingonaproformaasadjustedbasis(4) — 2,347 2,468
ClassBcommonstock:$0.01parvalue,1,000,000,000sharesauthorized,490,318,022issuedandoutstandingonaproformabasisandproformaasadjustedbasis(4) — 4,903 4,903
ClassCcommonstock:$0.01parvalue,4,000,000,000sharesauthorized,nosharesissuedandoutstandingonaproformaandproformaasadjustedbasis — — —
Commonstock:$0.01parvalue,1,000sharesauthorized,100sharesissuedandoutstandingonactualbasis — — —
Paid-incapital(5) 2,867,863 4,287,833 4,618,662Accumulateddeficit(6) (744,172) (1,261,092) (1,304,251)Accumulatedothercomprehensiveincome 1,979 1,979 1,979Noncontrollinginterest 524 524 524Totalequity 2,126,194 3,036,494 3,324,285
Total capitalization $ 26,410,639 $ 26,070,939 $ 26,013,827Totaldebtexcludingcollateralizedindebtedness $ 22,779,056 $ 21,529,056 $ 21,184,153Netdebtexcludingcollateralizedindebtednessandnotespayabletoaffiliatesandrelatedpartiesplusaccrueddistributions(7) $ 20,565,174 $ 21,555,009 $ 21,275,254
(1) Theproformaandproformaasadjustedamountsreflectthepaymentofinterestonthenotespayabletoaffiliatesandrelatedpartiesof$150,135accruedthroughMarch31,2017.Theproformaasadjustedamountfurtherreflectstheestimatednetproceedsof$330,950fromthisofferingandtheanticipatedredemptionof$350,000principalamountoftheCSC2025SeniorNotesandpaymentoftherelatedredemptionpremiumof$38,063andaccruedinterestof$8,035throughMarch31,2017.Theproformaandproformaasadjustedamountsdonotreflectthepaymentofdistributionsof$169,950and$169,750madeinApril2017andtobemadepriortotheclosingofthisoffering,respectively.Theaccrualforthesedistributionsisreflectedinnetdebtexcludingcollateralizedindebtednessandnotespayabletoaffiliatesandrelatedpartiesplusaccrueddistributions.
(2) Theproformaamountreflectsborrowingsof$500,000undertheCVCRevolvingCreditFacilitytofundaportionofthePre-IPODistribution.Theproformaasadjustedamountfurtherreflectstheanticipatedredemptionof$350,000principalamountoftheCSC2025SeniorNotes,netofdeferredfinancingcostsof$5,097.
(3) Theproformaandproformaasadjustedamountsreflecttheconversionofnotespayabletoaffiliatesandrelatedpartiesof$1,750,000tosharesofcommonstockoftheCompany.
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(4) TheproformaamountreflectstheissuanceofsharesofClassAandClassBcommonstockinconnectionwiththeOrganizationalTransactionsandtheClassAcommonstockproformaasadjustedamountgiveseffecttothesaleofourClassAcommonstockinthisoffering.
(5) Theproformaandproformaasadjustedamountsreflecttheconversionofnotespayabletoaffiliatesandrelatedpartiesof$1,750,000,aswellastheapplicablepremiumof$516,920,tosharesofClassAandClassBcommonstockoftheCompany,netoftheparvalueofcommonstockissued.Theapplicablepremiumof$516,920isestimatedasofanexpectedconversiondateofJune21,2017usingcurrentriskfreeinterestrates.Suchamountissubjecttochangeasaresultofachangeintheconversiondateand/orchangesinriskfreeinterestrates.Inaddition,theproformaandproformaasadjustedamountsreflectthecashdistributionof$169,950totheCompany'sstockholdersmadeinApril2017,thePre-IPODistributionof$669,750and$6,469relatedtotheissuanceofClassAandClassBcommonstockinconnectionwiththeOrganizationalTransactions.Theproformaasadjustedamountfurtherreflectstheestimatednetproceedsof$330,950fromthisoffering,netoftheparvalueofcommonstockissued.
(6) Theproformaandproformaasadjustedamountsreflecttheapplicablepremiumof$516,920relatedtotheconversionofnotespayabletoaffiliatesandrelatedpartiesof$1,750,000.Theapplicablepremiumof$516,920isestimatedasofanexpectedconversiondateofJune21,2017usingcurrentriskfreeinterestrates.Suchamountissubjecttochangeasaresultofachangeintheconversiondateand/orchangesinriskfreeinterestrates.Theproformaasadjustedamountfurtherreflectsthepremiumof$38,063andthewrite-offofdeferredfinancingcostsof$5,097relatedtotheanticipatedredemptionof$350,000principalamountoftheCSC2025SeniorNotes.
(7) Netdebtexcludingcollateralizedindebtednessandnotespayabletoaffiliatesandrelatedpartiesplusaccrueddistributionsisnetofcashandcashequivalents.Theproformaandproformaasadjustedamountsreflecttheaccrualofcashdistributionsof$169,950and$169,750madeinApril2017andtobemadebeforethepricingofthisoffering,respectively.
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DILUTION
IfyouinvestinsharesofourClassAcommonstockinthisoffering,yourinvestmentwillbeimmediatelydilutedtotheextentofthedifferencebetweentheinitialpublicofferingpricepershareofourClassAcommonstockandthenettangiblebookdeficitpershareofourcommonstockimmediatelyafterthisoffering.DilutionresultsfromthefactthatthepershareofferingpriceofthesharesofClassAcommonstockissubstantiallyinexcessofthenettangiblebookvaluepershareattributabletothesharesofourcommonstockheldbyexistingowners.
OurnettangiblebookdeficitasofMarch31,2017wasapproximately$(24,864.5)million,or$(34.30)pershareofcommonstock(basedonanadjustedpre-offeringsharecountof725millionsharesofClassAandClassBcommonstock).Wecalculatenettangiblebookdeficitpersharebytakingtheamountofourtotaltangibleassets,reducedbytheamountofourtotalliabilitiesandthendividingthatamountbythetotalnumberofsharesofClassAandClassBcommonstockoutstandingaftergivingeffecttothisofferingandtheOrganizationalTransactions.
AftergivingeffecttotheOrganizationalTransactionsandthesaleofsharesofourClassAcommonstockinthisofferingatanassumedinitialpublicofferingpriceof$29.00pershare,themid-pointofthepricerangesetforthonthecoverpageofthisprospectus,andafterdeductingunderwritingdiscountsandestimatedofferingexpensespayablebyus,ournettangiblebookdeficitasofMarch31,2017wouldhavebeen$(23,666.4)million,or$(32.11)pershareofcommonstock.Thisrepresentsanimmediatedecreaseinnettangiblebookdeficitof$2.19pershareofcommonstocktoourexistingownersandanimmediateandsubstantialdilutionof$(61.11)pershareofClassAcommonstocktoinvestorsinthisofferingattheassumedinitialpublicofferingprice.
ThefollowingtableillustratesthisdilutiononapershareofcommonstockbasistonewinvestorsassumingtheunderwritersdonotexercisetheiroptiontopurchaseadditionalsharesofClassAcommonstock:
A$1.00decreaseintheassumedinitialpublicofferingpriceof$29.00pershare,themid-pointofthepricerangesetforthonthecoverpageofthisprospectus,woulddecreaseournettangiblebookdeficitpershareofourcommonstockby$0.02,assumingthatthenumberofsharesoffered,assetforthonthecoverofthisprospectus,remainsthesame,afterdeductingtheunderwritingdiscountandestimatedofferingexpensespayablebyus.
WewillnotreceiveanyproceedsfromanysaleofsharesofourClassAcommonstockbythesellingstockholders.IftheunderwritersexercisetheiroptiontopurchaseadditionalsharesofourClassAcommonstockinfull,theproformaasadjustednettangiblebookdeficitpersharewouldbe$(32.11)pershare,thedecreaseinproformanettangiblebookdeficitpershareattributabletonewinvestorsinthisofferingwouldbe$2.19pershareandthedilutionpersharetonewinvestorspurchasingsharesinthisofferingwouldbe$(61.11)pershare.See"UseofProceeds."
ThetablebelowsummarizesasofMarch31,2017,onaproformaasadjustedbasisdescribedabove,thenumberofsharesofourcommonstock,thetotalconsiderationandtheaveragepricepershare(i)paidtousbyourexistingstockholders(determinedbasedonourpaid-incapital)and(ii)tobepaidbynewinvestorspurchasingourClassAcommonstockinthisoffering,beforedeductingthe
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Initialpublicofferingpricepershare $ 29.00NettangiblebookdeficitpershareasofMarch31,2017 $ (34.30) Decreaseinnettangiblebookdeficitpershareattributabletonewinvestorsinthisoffering $ 2.19 Asadjustednettangiblebookdeficitpershareaftergivingeffecttothisoffering $ (32.11)Dilutionpersharetonewinvestorspurchasingsharesinthisoffering $ (61.11)
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underwritingdiscountandestimatedofferingexpensespayablebyusandassuminganinitialpublicofferingpriceof$29.00pershare,themid-pointofthepricerangesetforthonthecoverpageofthisprospectus.
Iftheunderwriters'optiontopurchaseadditionalsharesofClassAcommonstockisexercisedinfull,thepercentageofsharesofourcommonstockheldbyexistingstockholderswillbereducedto90.3%ofthetotalnumberofsharesofourcommonstockoutstandingafterthisoffering,andthenumberofsharesheldbynewinvestorswillincreaseto71,724,139shares(including59,655,173sharesofferedbythesellingstockholders),or29.1%ofthetotalnumberofsharesofourClassAcommonstockoutstandingafterthisoffering.
TheshareinformationasofMarch31,2017showninthetableaboveexcludesanysharestobereservedforissuanceunderourstockoptionplansthatmaybeadoptedpriortothecompletionofthisoffering.
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Total Consideration (in thousands)
Shares Purchased
Average Price Per
Share
Number Percent Amount Percent Existingstockholders 725,000,000 98.4%$ 4,268,662 92.4%$ 5.89Newinvestors 12,068,966 1.6% 350,000 7.6% 29.00
Total 737,068,966 100.0%$ 4,618,662 100.0%
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SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
TheselectedconsolidatedhistoricalbalancesheetandoperatingdataofAlticeUSAasofandfortheyearendedDecember31,2016presentedbelowhavebeenderivedfromtheauditedconsolidatedfinancialstatementsofAlticeUSAincludedelsewhereherein.TheselectedconsolidatedhistoricalbalancesheetdataofAlticeUSAasofMarch31,2017andtheoperatingdataofAlticeUSAforthethreemonthsendedMarch31,2017and2016presentedbelowhavebeenderivedfromtheunauditedcondensedconsolidatedfinancialstatementsofAlticeUSAincludedelsewhereherein.TheoperatingdataofAlticeUSAfortheyearendedDecember31,2016includetheoperatingresultsofCequelfortheyearendedDecember31,2016andtheoperatingresultsofCablevisionfortheperiodfromthedateofacquisition,June21,2016,throughDecember31,2016.TheoperatingdataofAlticeUSAforthethreemonthsendedMarch31,2016includetheoperatingresultsofCequelforthethreemonthsendedMarch31,2016.
TheconsolidatedproformaoperatingdataofAlticeUSAfortheyearendedDecember31,2016andthethreemonthsendedMarch31,2016havebeenderivedfromtheunauditedproformaconsolidatedstatementsofoperationsincludedelsewherehereinandgiveeffecttotheCablevisionAcquisitionasifithadoccurredonJanuary1,2016.
TheselectedconsolidatedhistoricalbalancesheetandoperatingdataofCablevisionhavebeenpresentedfortheperiodspriortotheCablevisionAcquisitionasCablevisionisdeemedtobethepredecessorentity.TheselectedconsolidatedhistoricaloperatingdataofCablevisionfortheperiodJanuary1,2016toJune20,2016andyearsendedDecember31,2015and2014presentedbelowhavebeenderivedfromtheauditedconsolidatedfinancialstatementsofCablevisionincludedelsewhereherein.TheselectedconsolidatedhistoricaloperatingdataofCablevisionfortheyearsendedDecember31,2013and2012arederivedfromCablevision'sauditedconsolidatedfinancialstatementswhicharenotincludedinthisprospectus.
ThehistoricalquarterlybalancesheetandoperatingdataofCablevisionareunauditedandhavebeenpresentedforeachofthequarterlyperiodsin2015(Predecessorperiod)andthreemonthsendedMarch31,2016(Predecessorperiod),periodApril1,2016toJune20,2016(Predecessorperiod),periodJune21,2016toJune30,2016(Successorperiod)andthreemonthsendedSeptember30,2016(Successorperiod)andDecember31,2016(Successorperiod).
ThehistoricalquarterlybalancesheetandoperatingdataofCequelareunauditedandhavebeenpresentedforthethreemonthsendedMarch31,2015(Predecessorperiod),June30,2015(Predecessorperiod)andSeptember30,2015(Predecessorperiod)andfortheperiodOctober1,2015throughDecember20,2015(Predecessorperiod)andtheperiodDecember21,2015throughDecember31,2015(Successorperiod)andeachofthequarterlyperiodsin2016(Successorperiods).
Theselectedhistoricalandproformaresultspresentedbelowarenotnecessarilyindicativeoftheresultstobeexpectedforanyfutureperiod.ThisinformationshouldbereadinconjunctionwiththeauditedconsolidatedfinancialstatementsofAlticeUSAandCablevisionandthenotesthereto,theunauditedproformaconsolidatedstatementsofoperationsofAlticeUSA,Management'sDiscussion
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andAnalysisofFinancialConditionandResultsofOperationsofAlticeUSAandCablevisionincludedelsewhereherein.
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Altice USA Three Months Ended March 31, 2017 2016 2016 Historical Pro Forma Historical (dollars in thousands) Revenue $ 2,305,676 $ 2,273,479 $ 627,589
Operatingexpenses 2,057,442 2,189,256 573,329Operatingincome 248,234 84,223 54,260
Otherincome(expense): Interestexpense,net (433,062) (436,601) (269,414)Gainoninvestments,net 131,658 100,365 —Lossonequityderivativecontracts,net (71,044) (48,012) —Gainoninterestrateswapcontracts,net 2,342 — —
Otherincome(expense),net (224) 2,045 11Lossfromcontinuingoperationsbeforeincometaxes (122,096) (297,980) (215,143)Incometaxbenefit 45,908 107,839 74,395
Netloss (76,188) (190,141) (140,748)Netincomeattributabletononcontrollinginterests (237) 66 —NetlossattributabletoAlticeUSAstockholders $ (76,425) $ (190,075) $ (140,748)INCOME (LOSS) PER SHARE:
Basic and diluted loss per share attributable to Altice USA stockholders: Netloss $ (764) $ (1,901) $ (1,407)Basicanddilutedweightedaveragecommonshares(inthousands) 0.1 0.1 0.1Cash dividends declared and paid per common share $ — $ — $ —
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Altice USA Cablevision(a)
Years ended December 31,
2016 2016
Years Ended December 31,
January 1, 2016 to June 20,
2016
Pro Forma Historical 2015 2014 2013 2012(b) (dollars in thousands) Revenue $ 9,154,816 $ 6,017,212 $ 3,137,604 $ 6,545,545 $ 6,508,557 $ 6,287,383 $ 6,180,677Operatingexpenses 8,556,428 5,557,546 2,662,298 5,697,074 5,587,299 5,588,159 5,411,629Operatingincome 598,388 459,666 475,306 848,471 921,258 699,224 769,048Otherincome(expense): Interestexpense,net (1,760,421) (1,442,730) (285,508) (584,839) (575,580) (600,637) (660,074)Gain(loss)oninvestments,net 271,886 141,896 129,990 (30,208) 129,659 313,167 294,235Gain(loss)onequityderivativecontracts,net (89,979) (53,696) (36,283) 104,927 (45,055) (198,688) (211,335)Lossoninterestrateswapcontracts,net (72,961) (72,961) — — — — (1,828)Lossonextinguishmentofdebtandwrite-offofdeferredfinancingcosts (127,649) (127,649) — (1,735) (10,120) (22,542) (66,213)
Otherincome,net 9,184 4,329 4,855 6,045 4,988 2,436 2,486Income(loss)fromcontinuingoperationsbeforeincometaxes (1,171,552) (1,091,145) 288,360 342,661 425,150 192,960 126,319Incometaxbenefit(expense) 450,295 259,666 (124,848) (154,872) (115,768) (65,635) (51,994)Income(loss)fromcontinuingoperations,netofincometaxes (721,257) (831,479) 163,512 187,789 309,382 127,325 74,325Income(loss)fromdiscontinuedoperations,netofincometaxes(c) — — — (12,541) 2,822 338,316 159,288
Netincome(loss) (721,257) (831,479) 163,512 175,248 312,204 465,641 233,613Netloss(income)attributabletononcontrollinginterests (315) (551) 236 201 (765) 20 (90)Netincome(loss)attributabletoAlticeUSA/Cablevisionstockholders $ (721,572) $ (832,030) $ 163,748 $ 175,449 $ 311,439 $ 465,661 $ 233,523
(a) RepresentstheoperatingresultsofCablevisionfortheperiodpriortotheCablevisionAcquisition(Predecessorperiod).
(b) Includesserviceoutagecreditsof$33,156(reductiontorevenue)andoperatingexpensesof$73,832relatedtoSuperstormSandy.
(c) SeeNote6totheconsolidatedfinancialstatementsofCablevisionfortheyearendedDecember31,2016foradditionalinformationregardingdiscontinuedoperations.
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Altice USA Cablevision(a)
Years ended December 31,
2016 2016
Years Ended December 31,
January 1, 2016 to June 20,
2016
Pro Forma Historical 2015 2014 2013 2012(b) (dollars in thousands, except per share data for Cablevision) INCOME (LOSS) PER SHARE: Basic income (loss) per share attributable to Altice USA / Cablevision
stockholders: Income(loss)fromcontinuingoperations,netofincometaxes $ (7,216) $ (8,320) $ 0.60 $ 0.70 $ 1.17 $ 0.49 $ 0.28Income(loss)fromdiscontinuedoperations,netofincometaxes $ — $ — $ — $ (0.05) $ 0.01 $ 1.30 $ 0.61Netincome(loss) $ (7,216) $ (8,320) $ 0.60 $ 0.65 $ 1.18 $ 1.79 $ 0.89Basicweightedaveragecommonshares(inthousands) 0.1 0.1 272,035 269,388 264,623 260,763 262,258
Diluted income (loss) per share attributable to Altice USA / Cablevisionstockholders: Income(loss)fromcontinuingoperations,netofincometaxes $ (7,216) $ (8,320) $ 0.58 $ 0.68 $ 1.14 $ 0.48 $ 0.28Income(loss)fromdiscontinuedoperations,netofincometaxes $ — $ — $ — $ (0.05) $ 0.01 $ 1.27 $ 0.60Netincome(loss) $ (7,216) $ (8,320) $ 0.58 $ 0.63 $ 1.15 $ 1.75 $ 0.87Dilutedweightedaveragecommonshares(inthousands) 0.1 0.1 280,199 276,339 270,703 265,935 267,330
Cash dividends declared and paid per common share $ — $ — $ — $ 0.45 $ 0.60 $ 0.60 $ 0.60Amounts attributable to Altice USA / Cablevision stockholders: Income(loss)fromcontinuingoperations,netofincometaxes $ (721,572) $ (832,030) $ 163,748 $ 187,990 $ 308,617 $ 127,345 $ 74,235Income(loss)fromdiscontinuedoperations,netofincometaxes(c) — — — (12,541) 2,822 338,316 159,288Netincome(loss) $ (721,572) $ (832,030) $ 163,748 $ 175,449 $ 311,439 $ 465,661 $ 233,523
(a) RepresentstheoperatingresultsofCablevisionfortheperiodpriortotheCablevisionAcquisition(Predecessorperiod).
(b) Includesserviceoutagecreditsof$33,156(reductiontorevenue)andoperatingexpensesof$73,832relatedtoSuperstormSandy.
(c) SeeNote6totheconsolidatedfinancialstatementsofCablevisionfortheyearendedDecember31,2016foradditionalinformationregardingdiscontinuedoperations.
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Balance Sheet Data:
Thefollowingtablesetsforthcertaincustomermetricsbysegment(unaudited):
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Altice USA Altice USA Cablevision March 31, December 31, 2017 2016 2015 2014 2013 2012 (dollars in thousands) Totalassets(a) $ 36,179,281 $ 36,474,249 $ 6,800,174 $ 6,682,021 $ 6,500,967 $ 7,155,058Notespayabletoaffiliatesandrelatedparties 1,750,000 1,750,000 — — — —Creditfacilitydebt(a) 3,488,341 3,444,790 2,514,454 2,769,153 3,745,625 3,900,218Collateralizedindebtedness 1,293,702 1,286,069 1,191,324 986,183 817,950 556,152Seniornotesanddebentures(a) 17,505,718 17,507,325 5,801,011 5,784,213 5,068,926 5,406,771Notespayable 11,453 13,726 14,544 23,911 5,334 12,585Capitalleasesandotherobligations 23,544 28,155 45,966 46,412 31,290 56,569Totaldebt(a) 24,072,758 24,030,065 9,567,299 9,609,872 9,669,125 9,932,295Redeemableequity 211,687 68,147 — 8,676 9,294 11,999Stockholders'equity(deficiency) 2,125,670 2,029,555 (4,911,316) (5,041,469) (5,284,330) (5,639,164)Noncontrollinginterest 524 287 (268) 779 786 1,158Totalequity(deficiency) 2,126,194 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
March 31, 2017 As of
December 31, 2016 Pro Forma
As of March 31, 2016 Cablevision Cequel(g) Total Cablevision Cequel(g) Total Cablevision Cequel(g) Total (in thousands, except per customer amounts) Homes passed(a) 5,128 3,419 8,547 5,116 3,407 8,524 5,086 3,362 8,448Total customer relationships(b) 3,148 1,765 4,913 3,141 1,751 4,892 3,125 1,734 4,859Residential 2,887 1,661 4,548 2,879 1,649 4,528 2,866 1,638 4,504SMB 261 103 365 262 102 364 258 96 354
Residential customers(c): PayTV 2,413 1,087 3,500 2,428 1,107 3,535 2,473 1,150 3,623Broadband 2,636 1,366 4,003 2,619 1,344 3,963 2,580 1,308 3,888Telephony 1,955 596 2,551 1,962 597 2,559 1,999 597 2,596
Residential triple product customerpenetration(d): 64.4% 25.4% 50.2% 64.8% 25.5% 50.5% 66.9% 25.8% 52.0%
Penetration of homes passed(e): 61.4% 51.6% 57.5% 61.4% 51.4% 57.4% 61.4% 51.6% 57.5%ARPU(f) $ 155.83 $ 110.00 $ 139.11 $ 154.49 $ 109.30 $ 138.07 $ 152.18 $ 105.68 $ 135.32
(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.Incountingbulkresidentialcustomers,suchasanapartmentbuilding,wecounteach
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SELECTED QUARTERLY DATA
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subscribingfamilyunitwithinthebuildingasonecustomer,butdonotcountthemasteraccountfortheentirebuildingasacustomer.Wecountabulkcommercialcustomer,suchasahotel,asonecustomer,anddonotcountindividualroomunitsatthathotel.
(d) Representsthenumberofcustomersthatsubscribetothreeofourservicesdividedbytotalresidentialcustomerrelationships.
(e) Representsthenumberoftotalcustomerrelationshipsdividedbyhomespassed.
(f) Calculatedbydividingtheaveragemonthlyrevenuefortherespectivequarter(fourthquarterforannualperiods)presentedderivedfromthesaleofbroadband,paytelevisionandtelephonyservicestoresidentialcustomersfortherespectivequarterbytheaveragenumberoftotalresidentialcustomersforthesameperiod.
(g) ThemetricsforCequelpresentedinthetableabovehavebeenadjustedfrompreviouslyreportedamountstoalignwiththeCablevisionmetricsdefinitions.
Cablevision Successor Predecessor
Three Months Ended
March 31, 2017
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(i) $ 1,644,801 $ 1,645,493 $ 1,614,699 $ 183,860 $ 1,491,714 $ 1,645,890Net income (loss) $ (60,571) $ (160,842) $ (132,392) $ (35,548) $ 69,201 $ 94,311Share-basedcompensation 5,082 8,073 1,091 — 10,534 14,698Restructuringandotherexpenses(credits) 58,647 80,650 42,264 89,236 19,770 2,453Depreciationandamortization(includingimpairments) 443,176 437,608 481,497 44,560 202,097 212,453
Interestexpense,net 280,091 285,460 292,544 28,343 137,026 148,482Loss(gain)oninvestments,net (131,658) (58,429) (24,833) (58,634) (29,625) (100,365)Loss(gain)onequityderivativecontracts,net 71,044 27,124 (773) 27,345 (11,729) 48,012Lossonextinguishmentofdebtandwrite-offofdeferredfinancingcosts — 102,894 — — — —
Otherincome,net 224 (1,793) (2,530) (6) (2,884) (1,971)Incometax(benefit)expense (38,962) (99,807) (89,157) (24,101) 62,062 62,786Adjusted EBITDA(a) $ 627,073 $ 620,938 $ 567,711 $ 71,195 $ 456,452 $ 480,859Capital expenditures $ 184,399 $ 147,392 $ 150,815 $ 150 $ 181,479 $ 148,652
March 31,
2017 December 31,
2016 September 30,
2016 June 30,
2016 June 20,
2016 March 31,
2016 Cash & cash equivalents $ 146,269 $ 216,625 $ 114,436 265,955 N/A $ 933,457Total assets 25,965,105 26,176,709 27,636,010 26,965,633 N/A 6,732,386Collateralized indebtedness 1,293,702 1,286,069 1,284,234 1,246,017 N/A 1,191,324Total debt (including collateralized
indebtedness) 15,757,281 15,721,417 17,125,118 15,757,623 N/A 9,548,076
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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(j) $ 1,636,425 $ 1,624,828 $ 1,661,940 $ 1,622,352Net income $ 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(a) $ 439,810 $ 427,054 $ 474,328 $ 454,030Capital expenditures $ 212,427 $ 222,664 $ 214,674 $ 166,631
Cequel Corporation Three Months Ended
March 31,
2017 December 31,
2016 September 30,
2016 June 30,
2016 March 31,
2016 (dollars in thousands) Revenue $ 660,875 $ 660,408 $ 645,522 $ 639,641 $ 627,589Net income (loss) 14,739 (59,741) $ (5,646) $ (136,079) $ (32,329)Share-basedcompensation 2,766 4,625 579 — —Restructuringandotherexpenses(credits) 18,282 16,997 2,741 939 7,569Depreciationandamortization 165,548 176,779 189,433 169,540 200,900Interestexpense,net 103,492 105,578 104,674 104,059 102,615Loss(gain)oninterestrateswapcontracts (2,342) 97,340 15,862 (40,241) —Lossonextinguishmentofdebtandwrite-offofdeferredfinancingcosts — 4,807 — 19,948 —
Otherincome — — — — (11)Incometaxbenefit(expense) 12,177 (37,767) (12,057) 169,791 (16,015)Adjusted EBITDA(a) $ 314,662 $ 308,618 $ 295,586 $ 287,957 $ 262,729Capital expenditures $ 73,028 $ 100,423 $ 97,341 $ 63,216 $ 66,204
March 31,
2017 December 31,
2016 September 30,
2016 June 30,
2016 March 31,
2016 Cash & cash equivalents $ 317,555 $ 190,535 $ 431,630 $ 331,599 $ 159,549Total assets 10,330,234 10,338,309 10,555,770 10,566,952 10,503,226Total debt (including collateralized indebtedness) 6,565,477 6,558,648 6,545,273 6,521,857 6,425,512
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Thefollowingtablesetsforthcertainquarterlycustomermetricsbysegment(unaudited):
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Cequel Corporation
December 21, to December 31,
2015
October 1, to December 20,
2015
Three Months Ended
September 30, 2015
Three Months Ended
June 30, 2015
Three Months Ended
March 31, 2015
(dollars in thousands) Revenue $ 72,943 $ 545,991 $ 605,112 $ 608,016 $ 588,250Net income (loss) $ (17,611) $ 18,201 $ 35,326 $ (277,397) $ 8,994Share-basedcompensation — 109,545 41,905 125,662 10,579Restructuringandotherexpenses(credits) 26,498 65,620 318 649 1,230Depreciationandamortization 23,574 122,428 141,418 137,834 131,677Interestexpense,net 11,491 54,000 61,158 61,256 60,905Incometaxbenefit(expense) (10,263) (141,890) (34,288) 196,349 9,130Adjusted EBITDA(a) $ 33,689 $ 227,904 $ 245,837 $ 244,353 $ 222,515Capital expenditures $ 30,582 $ 84,481 $ 112,369 $ 118,881 $ 132,133
Cablevision
March 31,
2017 December 31,
2016 September 30,
2016 June 30,
2016 March 31,
2016 (in thousands, except per customer amounts) Homes passed(b) 5,128 5,116 5,105 5,094 5,086Total customer relationships(c) 3,148 3,141 3,135 3,143 3,125Residential 2,887 2,879 2,873 2,882 2,866SMB 261 262 261 261 258
Residential customers(d): PayTV 2,413 2,428 2,443 2,470 2,473Broadband 2,636 2,619 2,603 2,604 2,580Telephony 1,955 1,962 1,969 1,994 1,999
Residential triple product customer penetration(e): 64.4% 64.8% 65.3% 66.1% 66.9%Penetration of homes passed(f): 61.4% 61.4% 61.4% 61.7% 61.4%ARPU(g) $ 155.83 $ 154.49 $ 152.55 $ 153.52 $ 152.18
Cablevision
December 31,
2015 September 30,
2015 June 30,
2015 March 31,
2015 Homes passed(b) 5,076 5,070 5,062 5,050
Total customer relationships(c) 3,115 3,102 3,113 3,107Residential 2,858 2,846 2,858 2,855SMB 258 257 254 252
Residential customers(d): PayTV 2,487 2,496 2,529 2,546Broadband 2,562 2,538 2,537 2,525Telephony 2,007 2,003 2,024 2,032
Residential triple product customer penetration(e): 67.6% 67.8% 68.3% 68.7%Penetration of homes passed(f): 61.4% 61.2% 61.5% 61.5%ARPU(g) $ 150.61 $ 151.09 $ 153.88 $ 151.05
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Cequel(h)
March 31,
2017 December 31,
2016 September 30,
2016 June 30,
2016 March 31,
2016 (in thousands, except per customer amounts) Homes passed(b) 3,419 3,407 3,389 3,374 3,362Total customer relationships(c) 1,765 1,751 1,736 1,726 1,734Residential 1,661 1,649 1,636 1,628 1,638SMB 103 102 100 98 96
Residential customers(d): PayTV 1,087 1,107 1,113 1,126 1,150Broadband 1,366 1,344 1,324 1,306 1,308Telephony 596 597 594 596 597
Residential triple product customer penetration(e): 25.4% 25.5% 25.6% 25.8% 25.8%Penetration of homes passed(f): 51.6% 51.4% 51.2% 51.2% 51.6%ARPU(g) $ 110.00 $ 109.30 $ 108.19 $ 107.03 $ 105.68
Cequel Corporation
December 31,
2015 September 30,
2015 June 30,
2015 March 31,
2015 Homes passed(b) 3,352 3,339 3,320 3,304Total customer relationships(c) 1,712 1,696 1,680 1,691Residential 1,618 1,605 1,591 1,604SMB 94 92 89 87
Residential customers(d): PayTV 1,154 1,155 1,163 1,194Broadband 1,276 1,255 1,232 1,233Telephony 581 566 563 562
Residential triple product customer penetration(e): 25.4% 24.8% 25.0% 25.1%Penetration of homes passed(f): 51.1% 50.8% 50.6% 51.2%ARPU(g) $ 104.04 $ 103.50 $ 104.35 $ 101.28
(a) WedefineAdjustedEBITDA,whichisanon-GAAPfinancialmeasure,asnetincome(loss)excludingincometaxes,income(loss)fromdiscontinuedoperations,othernon-operatingincomeorexpenses,lossonextinguishmentofdebtandwrite-offofdeferredfinancingcosts,lossoninterestrateswapcontracts,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),andothermeasuresofperformancepresentedinaccordancewithGAAP.SinceAdjustedEBITDAisnotameasureofperformancecalculatedinaccordancewithGAAP,thismeasuremaynotbecomparabletosimilarmeasureswithsimilartitlesusedbyothercompanies.Refertothe
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reconciliationofAdjustedEBITDAtonetincome(loss)in"SummaryHistoricalandProFormaFinancialData."
(b) Representstheestimatednumberofsingleresidencehomes,apartmentsandcondominiumunitspassedbythecabledistributionnetworkinareasserviceablewithoutfurtherextendingthetransmissionlines.Inaddition,itincludescommercialestablishmentsthathaveconnectedtoourcabledistributionnetwork.ForCequel,broadbandserviceswerenotavailabletoapproximately100homespassedandtelephonyserviceswerenotavailabletoapproximately500homespassed.
(c) Representsnumberofhouseholds/businessesthatreceiveatleastoneoftheCompany'sservices.
(d) Customersrepresenteachcustomeraccount(setupandsegregatedbycustomernameandaddress),weightedequallyandcountedasonecustomer,regardlessofsize,revenuegenerated,ornumberofboxes,units,oroutlets.Incalculatingthenumberofcustomers,wecountallcustomersotherthaninactive/disconnectedcustomers.Freeaccountsareincludedinthecustomercountsalongwithallactiveaccounts,buttheyarelimitedtoaprescribedgroup.Mostoftheseaccountsarealsonotentirelyfree,astheytypicallygeneraterevenuethroughpay-per-vieworotherpayservices.Freestatusisnotgrantedtoregularcustomersasapromotion.Incountingbulkresidentialcustomers,suchasanapartmentbuilding,wecounteachsubscribingfamilyunitwithinthebuildingasonecustomer,butdonotcountthemasteraccountfortheentirebuildingasacustomer.Wecountabulkcommercialcustomer,suchasahotel,asonecustomer,anddonotcountindividualroomunitsatthathotel.
(e) Representsthenumberofcustomersthatsubscribetothreeofourservicesdividedbytotalresidentialcustomerrelationships.
(f) Representsthenumberoftotalcustomerrelationshipsdividedbyhomespassed.
(g) Calculatedbydividingtheaveragemonthlyrevenuefortherespectivequarter(fourthquarterforannualperiod)presentedderivedfromthesaleofbroadband,paytelevisionandtelephonyservicestoresidentialcustomersfortherespectivequarterbytheaveragenumberoftotalresidentialcustomersforthesameperiod.
(h) ThemetricsforCequelpresentedinthetableabovehavebeenadjustedfrompreviouslyreportedamountstoconformtothemethodologyusedtocalculatetheequivalentCablevisionmetrics.
(i) IncludesNewsdayrevenueof$5,008,$3,811,$54,604,and$51,966forthethreemonthsendedSeptember30,2016,theperiodJune21toJune30,2016,theperiodApril1toJune20,2016andthethreemonthsendedMarch31,2016,respectively.
(j) IncludesNewsdayrevenueof$61,018,$57,570,$61,735,and$56,913forthethreemonthsendedDecember31,2015,September30,2015,June30,2015andMarch31,2015.
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UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
ThefollowingunauditedproformaconsolidatedstatementofoperationsofAlticeUSA,Inc.("AlticeUSA"orthe"Company")fortheyearendedDecember31,2016isbasedontheauditedhistoricalconsolidatedfinancialstatementsoftheCompanyandgiveseffecttotheCablevisionAcquisition(definedbelow)asifithadoccurredonJanuary1,2016.TheunauditedproformaconsolidatedstatementofoperationsoftheCompanyforthethreemonthsendedMarch31,2016isbasedontheunauditedhistoricalcondensedconsolidatedfinancialstatementsoftheCompanyandgiveseffecttotheCablevisionAcquisition(definedbelow)asifithadoccurredonJanuary1,2016.TheunauditedproformanetlosspersharedatafortheyearendedDecember31,2016andthethreemonthsendedMarch31,2017giveseffecttotheissuancesofcommonstockinconnectionwiththeOrganizationalTransactionsdiscussedherein,asiftheyoccurredatthebeginningoftherespectiveperiod.TheCompany'shistoricalconsolidatedresultsofoperationsforthethreemonthsendedMarch31,2016includetheoperatingresultsofCequelforthethreemonthsendedMarch31,2016.TheCompany'shistoricalconsolidatedresultsofoperationsfortheyearendedDecember31,2016includetheoperatingresultsofCequelfortheyearendedDecember31,2016andCablevisionfortheperiodsubsequenttotheCablevisionAcquisition,June21,2016toDecember31,2016(the"CablevisionSuccessor"period).
TheaccompanyingunauditedproformaconsolidatedstatementsofoperationsofAlticeUSAincludetheaccountsofAlticeUSAanditswholly-ownedsubsidiaries.Allsignificantintercompanytransactionsandbalancesareeliminatedintheconsolidatedfinancialstatements.
TheaccompanyingunauditedproformaconsolidatedstatementsofoperationshavebeenpreparedbasedonassumptionsdeemedappropriatebytheCompany.Theproformaadjustmentsaredescribedintheaccompanyingnotes.Theunauditedproformaconsolidatedstatementsofoperationsareforinformationalpurposesonly.TheproformastatementsofoperationsareunauditedanddonotpurporttoreflecttheresultsofoperationsthatwouldhaveoccurrediftheCablevisionAcquisitionhadbeenconsummatedonthedateindicatedabove,nordoesitpurporttorepresenttheresultsofoperationsoftheCompanyforanyfuturedatesorperiods.
FutureresultsmayvarysignificantlyfromtheinformationreflectedintheunauditedproformaconsolidatedstatementsofoperationssetforthbelowduetofactorsbeyondthecontroloftheCompany.
Theunauditedproformaconsolidatedstatementsofoperationsdonotincludeanyadjustmentforcoststhatmayresultfromintegrationactivitiesorforsynergiesresultingfromtheacquisitions.In2016,theCompanyrecordedrestructuringexpensesresultingfrominitiativesthatareintendedtosimplifytheCompany'sorganizationalstructure.Noadjustmentshavebeenmadetotheproformastatementsofoperationsfortheserestructuringexpenses.TheunauditedproformastatementofoperationsfortheyearendedDecember31,2016doesnotincludeanestimated$33,501oftransactioncostsincurredinconnectionwiththeCablevisionAcquisition.
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,
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the"Shares")otherthan(i)SharesownedbyCablevision,AlticeN.V.oranyoftheirrespectivewholly-ownedsubsidiaries,ineachcasenotheldonbehalfofthirdpartiesinafiduciarycapacity,received$34.90incashwithoutinterest,lessapplicabletaxwithholdings(the"OptimumAcquisitionConsideration").
AlsoinconnectionwiththeCablevisionAcquisition,outstandingequity-basedawardsgrantedunderCablevision'sequityplanswerecancelledandconvertedintocashbaseduponthe$34.90perShareCablevisionAcquisitionpriceinaccordancewiththeoriginaltermsoftheawards.ThetotalconsiderationfortheoutstandingCNYGClassAShares,theoutstandingCNYGClassBShares,andtheequity-basedawardsamountedto$9,958,323.
InconnectionwiththeCablevisionAcquisition,inOctober2015,NeptuneFincoCorp.("Finco"),anindirectwholly-ownedsubsidiaryofAlticeformedtocompletethefinancingdescribedhereinandthemergerwithCSCHoldings,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%.
Thefollowingtableprovidesthepreliminaryallocationofthetotalpurchasepriceof$9,958,323totheidentifiabletangibleandintangibleassetsandliabilitiesofCablevisionbasedonpreliminaryfairvalueinformationcurrentlyavailable,whichissubjecttochangewithinthemeasurementperiod(uptooneyearfromtheacquisitiondate).
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Cablevision
Preliminary Fair Values
(dollars in
thousands) Currentassets $ 1,923,071Accountsreceivable 271,305Property,plantandequipment 4,864,621Goodwill 5,839,016Cabletelevisionfranchiserights 8,113,575Customerrelationships 4,850,000Tradenames 1,010,000Amortizableintangibleassets 23,296Othernon-currentassets 748,998Currentliabilities (2,306,049)Long-termdebt (8,355,386)Deferredincometaxes (6,834,769)Othernon-currentliabilities (189,355)Total $ 9,958,323
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ALTICE USA, INC. UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2016 (dollars in thousands, except per share amounts)
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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 — 2,853,821Restructuringandotherexpense 240,395 22,223 (32,844)(3) 229,774Depreciationandamortization(includingimpairments) 1,700,306 414,550 369,428(4) 2,484,284
5,557,546 2,662,298 336,584 8,556,428Operatingincome 459,666 475,306 (336,584) 598,388Otherincome(expense): Interestexpense (1,456,541) (287,098) (20,032)(5) (1,763,671)Interestincome 13,811 1,590 (12,151)(6) 3,250Gainoninvestments,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) (32,183) (1,769,940)Income(loss)fromcontinuingoperationsbeforeincometaxes (1,091,145) 288,360 (368,767) (1,171,552)Incometaxbenefit(expense) 259,666 (124,848) 315,477(7) 450,295
Netincome(loss) (831,479) 163,512 (53,290) (721,257)Netloss(income)attributabletononcontrollinginterests (551) 236 — (315)Netincome(loss)attributabletoAlticeUSAstockholders $ (832,030) $ 163,748 $ (53,290) $ (721,572)ProformabasicanddilutednetlosspershareattributabletoAlticeUSAstockholders(8) $ (1.00)
Proformabasicanddilutedweightedaveragecommonsharesinthousands(8) 725,000
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.
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(2) RepresentstheresultsofoperationsofCablevisionfortheperiodpriortotheCablevisionAcquisition,January1,2016toJune20,2016(Predecessorperiod),basedontheauditedhistoricalstatementofoperations.
(3) Restructuring and other expense. Representstheeliminationofincrementaltransactioncostsof$32,844whichweredirectlyrelatedtotheCablevisionAcquisition.
(4) Depreciation and amortization. RepresentsincrementaldepreciationandamortizationthatwouldhavebeenrecognizediftheCablevisionAcquisitionwascompletedonJanuary1,2016resultingfromthestepupinfairvalueofCablevision'sproperty,plantandequipmentandidentifiableintangibleassetsresultingfromtheapplicationofbusinesscombinationsaccounting.
Fullyear2016proformadepreciationandamortizationbasedonfairvaluerelatedtotheCablevisionAcquisition $ 1,747,643HistoricalexpenseforperiodJanuary1toJune20,2016 (414,550)HistoricalexpenseforJune21toDecember31,2016includedin"Historical"column(basedonfairvalue) (963,665)Totaladjustment $ 369,428
Theadjustmentfordepreciationwasestimatedusinganaverageusefullifeofapproximatelysevenyearscalculatedonastraightlinebasisforproperty,plantandequipment.
Customerrelationshipsareamortizedusinganacceleratedmethod(sumoftheyears'digits)toreflecttheperiodoverwhichtherelationshipsareexpectedtogeneratecashflows.Thefollowingtablesummarizestheamortizationexpenserelatedtocustomerrelationshipsof$4,850,000forCablevision.
Cablevision ProformaAmortizationofCustomerRelationships: Year1 $ 636,043Year2 590,163Year3 544,284Year4 498,404Year5 452,524Thereafter 2,128,582
TheamortizationoftradenamesrelatedtoCablevisionreflectanaverageusefullifeof12years,calculatedonastraightlinebasis.
(5) Interest expense. Primarilyrepresentsthefollowingadjustments:
(i) theincrementalincreaseininterestexpenseof$87,755fortheperiodJanuary1,2016throughJune20,2016relatedtonotespayabletoaffiliatesaggregating$1,750,000($875,000at10.75%and$875,000at11.0%)tofinancetheCablevisionAcquisition.
(ii) thereversalof$37,407ofinterestexpenseand$3,194ofamortizationofdeferredfinancingcostsassociatedwiththeCSCHoldingsandNewsdaycreditfacilitiesthatwererepaidontheCablevisionAcquisitiondate.
(iii) thedecreaseof$32,502reflectingtheaccretion/amortizationoffairvalueadjustmentsassociatedwiththelong-termdebtassumedinconnectionwiththeCablevisionAcquisitionresultingfromtheapplicationofbusinesscombinationsaccountingandthereversalofamortizationofdeferredfinancingcostassociatedwiththelong-termdebtassumed.Thelong-termdebtassumedwasadjustedtofairvaluebasedonquotedmarketprices.Thedifferencebetweenthefairvalueandthefaceamountofeachborrowingisaccreted/amortizedovertheremainingtermofeach
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borrowing.Thisadjustmentresultsininterestexpensethateffectivelyreflectscurrentmarketinterestratesratherthanthestatedinterestrates.
(6) Interest income. RepresentstheeliminationofinterestincomeontheproceedsoftheCablevisionAcquisitionNotesthatwereheldinescrowfromthedateofissuancetotheCablevisionAcquisitionDate.
(7) Income tax expense. Theproformaincometaxadjustmentsrepresent(i)theincometaximpactrelatedtotheproformaadjustmentdiscussedaboveof$147,507atthecombinedfederalandstatestatutoryrateineffectduringtheperiodof40%,(ii)theeliminationoftheone-timedeferredtaxexpenseof$153,660,includedinthehistoricalresultsresultingfromtheremeasurementofCequel'sdeferredtaxliabilitiesasaresultofCablevisionjoiningtheAlticeUSAconsolidatedtaxgroup,(iii)theeliminationoftheone-timetaximpactof$13,849associatedwiththenon-deductibletransactioncosts,includedinthehistoricalresultsand(iv)taxbenefitof$461associatedwiththeCompanynotbeingsubjecttoSection162(m)oftheInternalRevenueCode.
(8) TheproformanetlosspersharedatafortheyearendedDecember31,2016giveseffecttotheissuancesofcommonstockinconnectionwiththeOrganizationalTransactionsdiscussedherein,asiftheyoccurredatthebeginningoftheperiod.Priortothecompletionoftheoffering,thepre-offeringnumberofsharesofcommonstockoutstandingwillbeincreasedtoreflecttheissuanceofsharestocapitalizethenotespayabletoaffiliatesandrelatedpartiesbasedontheinitialpublicofferingprice,followingwhichsharesoftheCompany'sClassAcommonstockandClassBcommonstockwillissuedtoshareholdersinarecapitalizationsuchthattherewillbeapproximately725millionsharesofClassAcommonstockandClassBcommonstockoutstandingpriortothisoffering.SharesofClassBcommonstockwillonlybeissuedtoCVC3andA4S.A.intheOrganizationalTransactions.AllotherexistingshareholderswillreceivesharesofClassAcommonstock.Thecomputationforproformanetlosspershareisprovidedbelow:
ProformanetlossattributabletoAlticeUSA,Inc.stockholders $ (721,572)Historicalweightedaveragesharesofcommonstockoutstanding—basicanddiluted(inthousands) 0.1Proformaadjustmenttoreflecttheassumedissuanceofcommonstock(inthousands) 725,000Weightedaveragesharesofcommonstockoutstandingusedincomputingtheproformanetlosspershare(inthousands)—basicanddiluted 725,000
Proformanetlosspershare—basicanddiluted $ (1.00)
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ALTICE USA, INC UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2016 (dollars in thousands, except per share amounts)
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Historical(1) Cablevision(2) Pro Forma
Adjustments Pro forma Revenue $ 627,589 $ 1,645,890 $ — $ 2,273,479Operatingexpenses: Programmingandotherdirectcosts 189,595 578,230 — 767,825Otheroperatingexpenses 175,265 601,499 — 776,764Restructuringandotherexpense 7,569 2,453 (1,416)(3) 8,606Depreciationandamortization(includingimpairments) 200,900 212,453 222,708(4) 636,061
573,329 1,394,635 221,292 2,189,256Operatingincome(loss) 54,260 251,255 (221,292) 84,223Otherincome(expense): Interestexpense (275,829) (149,367) (12,255)(5) (437,451)Interestincome 6,415 822 (6,387)(6) 850Gainoninvestments,net — 100,365 — 100,365Lossonequityderivativecontracts,net — (48,012) — (48,012)Otherincome,net 11 2,034 — 2,045
(269,403) (94,158) (18,642) (382,203)Income(loss)fromcontinuingoperationsbeforeincometaxes (215,143) 157,097 (239,934) (297,980)Incometaxbenefit(expense) 74,395 (62,786) 96,230(7) 107,839
Netincome(loss) (140,748) 94,311 (143,704) (190,141)Netlossattributabletononcontrollinginterests — 66 — 66Netincome(loss)attributabletoAlticeUSAstockholders $ (140,748) $ 94,377 $ (143,704) $ (190,075)ProformabasicanddilutednetlosspershareattributabletoAlticeUSAstockholders(8) $ (0.26)
Proformabasicanddilutedweightedaveragecommonshares(inthousands)(8) 725,000
Notes to Unaudited Pro Forma Consolidated Statement of Operations for the Three Months Ended March 31, 2016
(1) TheCompany'shistoricalconsolidatedresultsofoperationsforthethreemonthsendedMarch31,2016includetheoperatingresultsofCequel.
(2) RepresentstheresultsofoperationsofCablevisionfortheperiodpriortotheCablevisionAcquisition,January1,2016toMarch31,2016(Predecessorperiod),basedonthehistoricalstatementofoperations.
(3) Restructuring and other expense. Representstheeliminationofincrementaltransactioncostsof$1,416whichweredirectlyrelatedtotheCablevisionAcquisition.
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(4) Depreciation and amortization. RepresentsincrementaldepreciationandamortizationthatwouldhavebeenrecognizediftheCablevisionAcquisitionwascompletedonJanuary1,2016resultingfromthestepupinfairvalueofCablevision'sproperty,plantandequipmentandidentifiableintangibleassetsresultingfromtheapplicationofbusinesscombinationsaccounting.
Proformadepreciationandamortizationbasedonfairvalue $ 435,161Historicalexpense (212,453)Totaladjustment $ 222,708
Theadjustmentfordepreciationwasestimatedusinganaverageusefullifeofapproximatelysevenyearscalculatedonastraightlinebasisforproperty,plantandequipment.
Customerrelationshipsareamortizedusinganacceleratedmethod(sumoftheyears'digits)toreflecttheperiodoverwhichtherelationshipsareexpectedtogeneratecashflows.Thefollowingtablesummarizestheamortizationexpenserelatedtocustomerrelationshipsof$4,850,000relatingtoCablevision:
ProformaAmortizationofCustomerRelationships: Year1 $ 636,043Year2 590,163Year3 544,284Year4 498,404Year5 452,524Thereafter 2,128,582
Theamortizationoftradenamesreflectanaverageusefullifeof12yearscalculatedonastraightlinebasis.
(5) Interest expense. Primarilyrepresentsthefollowingadjustments:
(i) theincrementalincreaseininterestexpenseof$47,578forthethreemonthsendedMarch31,2016relatedtonotespayabletoaffiliatesaggregating$1,750,000($875,000at10.75%and$875,000at11.0%)tofinancetheCablevisionAcquisition.
(ii) thereversalof$19,716ofinterestexpenseand$1,732ofamortizationofdeferredfinancingcostsassociatedwiththeCSCHoldingsandNewsdaycreditfacilitiesthatwererepaidontheCablevisionAcquisitiondate.
(iii) thedecreaseof$16,713reflectingtheaccretion/amortizationoffairvalueadjustmentsassociatedwiththelong-termdebtassumedinconnectionwiththeCablevisionAcquisitionresultingfromtheapplicationofbusinesscombinationsaccountingandthereversalofamortizationofdeferredfinancingcostassociatedwiththelong-termdebtassumed.Thelong-termdebtassumedwasadjustedtofairvaluebasedonquotedmarketprices.Thedifferencebetweenthefairvalueandthefaceamountofeachborrowingisaccreted/amortizedovertheremainingtermofeachborrowing.Thisadjustmentresultsininterestexpensethateffectivelyreflectscurrentmarketinterestratesratherthanthestatedinterestrates.
(6) Interest income. RepresentstheeliminationofinterestincomeontheproceedsoftheCablevisionAcquisitionNotesthatwereheldinescrowfromthedateofissuancetotheCablevisionAcquisitionDate.
(7) Income tax expense. Theproformaincometaxadjustmentsrepresent(i)theincometaximpactrelatedtotheproformaadjustmentdiscussedaboveof$95,973atthecombinedfederalandstatestatutoryrateineffectduringtheperiodof40%,and(ii)taxbenefitof$257associatedwiththeCompanynotbeingsubjecttoSection162(m)oftheInternalRevenueCode.
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(8) TheproformanetlosspersharedataforthethreemonthsendedMarch31,2017giveseffecttotheissuancesofcommonstockinconnectionwiththeOrganizationalTransactionsdiscussedherein,asiftheyoccurredatthebeginningoftheperiod.Priortothecompletionoftheoffering,thepre-offeringnumberofsharesofcommonstockoutstandingwillbeincreasedtoreflecttheissuanceofsharestocapitalizethenotespayabletoaffiliatesandrelatedpartiesbasedontheinitialpublicofferingprice,followingwhichsharesoftheCompany'sClassAcommonstockandClassBcommonstockwillissuedtoshareholdersinarecapitalizationsuchthattherewillbeapproximately725millionsharesofClassAcommonstockandClassBcommonstockoutstandingpriortothisoffering.SharesofClassBcommonstockwillonlybeissuedtoCVC3andA4S.A.intheOrganizationalTransactions.AllotherexistingshareholderswillreceivesharesofClassAcommonstock.Thecomputationforproformanetlosspershareisprovidedbelow:
ProformanetlossattributabletoAlticeUSA,Inc.stockholders $ (190,075)Historicalweightedaveragesharesofcommonstockoutstanding—basicanddiluted(inthousands) 0.1Proformaadjustmenttoreflecttheassumedissuanceofcommonstock(inthousands) 725,000Weightedaveragesharesofcommonstockoutstandingusedincomputingtheproformanetlosspershare(inthousands)—basicanddiluted 725,000
Proformanetlosspershare—basicanddiluted $ (0.26)
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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-richbroadbandnetworkwithmorethan8.5millionhomespassedasofMarch31,2017.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%interestinNewsdayandretainedtheremaining25%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.Ourresidentialpaytelevision,broadbandandtelephonyservicesaccountedforapproximately45%,27%and9%,respectively,ofourconsolidatedrevenueforthethreemonthsendedMarch31,2017andfortheyearendedDecember31,2016.WealsoderiverevenuefromthesaleofawideandgrowingvarietyofproductsandservicestobothlargeenterpriseandSMBcustomers,includingbroadband,telephony,networkingandpaytelevisionservices.ForthethreemonthsendedMarch31,2017andfortheyearendedDecember31,2016,14%ofourconsolidatedrevenuewasderivedfromthesebusinessservices.Inaddition,wederive
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revenuesfromthesaleofadvertisingtimeavailableontheprogrammingcarriedonourcabletelevisionsystems,whichaccountedforapproximately4%ofourconsolidatedrevenueforthethreemonthsendedMarch31,2017andfortheyearendedDecember31,2016.OurotherrevenueforthethreemonthsendedMarch31,2017andfortheyearendedDecember31,2016accountedforapproximately1%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 Three Months Ended March 31, 2017 to the Actual Results for the Three Months Ended March 31, 2016 andPro Forma Results for the Three Months Ended March 31, 2016.
TheactualresultsofAlticeUSAforthethreemonthsendedMarch31,2016includetheoperatingresultsofCequelforthethreemonthsendedMarch31,2016.TheconsolidatedproformaresultsofAlticeUSAforthethreemonthsendedMarch31,2016havebeenderivedfromtheunauditedproformaconsolidatedstatementofoperationsincludedelsewherehereinandgiveeffecttotheCablevisionAcquisitionasifithadoccurredonJanuary1,2016.
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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 Pro FormaResults for the Year Ended December 31, 2015.
TheactualresultsofAlticeUSAfortheyearendedDecember31,2016includetheoperatingresultsofCequelfortheyearendedDecember31,2016andtheoperatingresultsofCablevisionfortheperiodfromthedateoftheCablevisionAcquisition,June21,2016throughDecember31,2016.TheconsolidatedproformaresultsofAlticeUSAfortheyearendedDecember31,2016havebeenderivedfromtheunauditedproformaconsolidatedstatementsofoperationsincludedelsewherehereinandgiveeffecttotheCablevisionAcquisitionasifithadoccurredonJanuary1,2016.TheconsolidatedproformaresultsofAlticeUSAfortheyearendedDecember31,2015giveeffecttotheCablevisionAcquisitionasifithadoccurredonJanuary1,2015.
• Cablevision (predecessor to Altice USA)—Comparison of Actual Results for the Periods June 21, 2016 through December 31, 2016 and January 1, 2016 throughJune 20, 2016 to Actual 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 through December 20, 2015 to ActualResults for the Year Ended December 31, 2014.
TheperiodDecember21,2015throughDecember31,2015reflectsoperatingresultssubsequenttotheCequelAcquisitionandislabeled"Successor."TheresultsfortheperiodJanuary1,2015throughDecember20,2015andtheyearendedDecember31,2014reflectoperatingresultsforperiodspriortotheCequelAcquisitionandarelabeled"Predecessor."TheaccompanyingfinancialdataofCequelincludeablacklinedivisiontoindicatetheapplicationofthedifferentbasesofaccountingutilizedbythePredecessorandSuccessorreportingentitiesasaresultofpushdownaccounting.Asaresult,thefinancialstatementsforthePredecessorperiodsandfortheSuccessorperiodarenotcomparable.
TheunauditedproformaconsolidatedstatementsofoperationsfortheyearendedDecember31,2016andthethreemonthsendedMarch31,2016presentedhereinreflecttheCablevisionAcquisitionasifithadoccurredonJanuary1,2016.TheunauditedproformaconsolidatedstatementofoperationsfortheyearendedDecember31,2015presentedhereinreflectstheCablevisionAcquisitionandCequelAcquisitionasiftheyhadoccurredonJanuary1,2015.TheproformaresultshavebeenpreparedbasedonassumptionsdeemedappropriatebytheCompany.Theproformaadjustmentsinclude(i)theeliminationofincrementalcoststhatweredirectlyrelatedtotheCablevisionAcquisitionforthe2016periodsandtheCequelAcquisitionfor2015,(ii)theincrementaldepreciationandamortizationthatwouldhavebeenrecognizediftheCablevisionAcquisitionwascompletedonJanuary1,2016forthe2016periodsandiftheCablevisionAcquisitionandCequelAcquisitionhadoccurredonJanuary1,2015for2015resultingfromthestepupinfairvalueoftheirproperty,plantandequipmentandidentifiableintangibleassetsresultingfromtheapplicationofbusinesscombinations
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accounting,(iii)theeliminationofshare-basedcompensationwhichwasrecordedinthe2015PredecessorperiodresultingfromtheaccelerationofvestingofCequel'sequity-basedawardspursuanttoachangeincontrolprovisionoftheawards,(iv)theincrementalinterestresultingfromtheissuanceofdebttofundtheacquisitions,netofthereversalofinterestandamortizationofdeferredfinancingcostsrelatedtocreditfacilitiesthatwererepaidonthedateofacquisitionandtheaccretion/amortizationoffairvalueadjustmentsassociatedwiththelong-termdebtacquired,(v)theeliminationofinterestincomeearnedoncashproceedsfromtheissuanceofdebtpriortotheCablevisionAcquisitionand(vi)theincometaximpactoftheseproformaadjustmentsandtheCablevisionAcquisition.
Theunauditedproformaconsolidatedstatementsofoperationsareforinformationalpurposesonly.Webelievethattheproformainformationisusefulasitprovidesadditionalinformationgiventhesignificantimpactoftheacquisitionsandareflectionofhowthecombinedbusinessperformedyearoveryearthatisnotreadilydiscerniblefromtheactualyearoveryearcomparison.WebelievethatacomparisonoftheactualresultsforthethreemonthsendedMarch31,2017totheproformaresultsforthethreemonthsendedMarch31,2016providesusefulinformationbecauseitreflectsthebusinessoperationsonamorecomparablebasis.TheproformastatementsofoperationsareunauditedanddonotpurporttoreflecttheresultsofoperationsthatwouldhaveoccurrediftheCequelAcquisitionandCablevisionAcquisitionhadbeenconsummatedonthedatesindicatedabove,nordoesitpurporttorepresenttheresultsofoperationsoftheCompanyforanyfuturedatesorperiods.
Non-GAAP Financial Measures
WedefineAdjustedEBITDA,whichisanon-GAAPfinancialmeasure,asnetincome(loss)excludingincometaxes,income(loss)fromdiscontinuedoperations,othernon-operatingincomeorexpenses,lossonextinguishmentofdebtandwrite-offofdeferredfinancingcosts,lossoninterestrateswapcontracts,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),andothermeasuresofperformancepresentedinaccordancewithGAAP.SinceAdjustedEBITDAisnotameasureofperformancecalculatedinaccordancewithGAAP,thismeasuremaynotbecomparabletosimilarmeasureswithsimilartitlesusedbyothercompanies.RefertothereconciliationofAdjustedEBITDAtonetincome(loss)in"SummaryHistoricalandProFormaFinancialData."
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Results of Operations for the Three Months Ended March 31, 2017 and 2016—Altice USA
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Altice USA Historical Pro Forma Historical Three Months Ended March 31, 2017 2016 2016 Revenue: Residential: PayTV $ 1,071,361 $ 1,054,058 $ 279,737Broadband 611,769 547,680 196,690Telephony 210,873 221,012 39,735
Businessservicesandwholesale 319,591 300,855 84,404Advertising 79,968 79,364 20,887Other 12,114 70,510 6,136
Total revenue 2,305,676 2,273,479 627,589Operating expenses: Programmingandotherdirectcosts 758,352 767,825 189,595Otheroperatingexpenses 613,437 776,764 175,265Restructuringandotherexpense 76,929 8,606 7,569Depreciationandamortization 608,724 636,061 200,900
Operating income 248,234 84,223 54,260Otherincome(expense): Interestexpense,net (433,062) (436,601) (269,414)Gainoninvestments,net 131,658 100,365 —Lossonequityderivativecontracts,net (71,044) (48,012) —Gainoninterestrateswapcontracts 2,342 — —Otherincome(expense),net (224) 2,045 11
Loss before income taxes (122,096) (297,980) (215,143)Incometaxbenefit 45,908 107,839 74,395Net loss (76,188) (190,141) (140,748)Netloss(income)attributabletononcontrollinginterests (237) 66 —Net loss attributable to Altice USA stockholders $ (76,425) $ (190,075) $ (140,748)
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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) Historical
Three Months Ended March 31, 2017 2016 2016 Netloss $ (76,188) (190,141) (140,748)Incometaxbenefit (45,908) (107,839) (74,395)Otherexpense(income) 224 (2,045) (11)Gainoninterestrateswapcontracts (2,342) — —Lossonequityderivativecontracts,net(a) 71,044 48,012 —Gainoninvestments,net (131,658) (100,365) —Interestexpense,net 433,062 436,601 269,414Depreciationandamortization 608,724 636,061 200,900Restructuringandotherexpenses 76,929 8,606 7,569Share-basedcompensation 7,848 14,698 —AdjustedEBITDA $ 941,735 $ 743,588 $ 262,729
(a) Consistsofunrealizedandrealizedlosses(gains)duetothechangeinfairvalueofequityderivativecontractsrelatingtotheComcastcommonstockownedbytheCompany.
December 31, 2016 March 31, 2016
March 31, 2017
Cequel (g)
Cequel (g)
Cablevision Cequel Total Cablevision Total Cablevision Total (in thousands, except per customer amounts) Homes passed(a) 5,128 3,419 8,547 5,116 3,407 8,524 5,086 3,362 8,448Total customers relationships(b) 3,148 1,765 4,913 3,141 1,751 4,892 3,125 1,734 4,859Residential 2,887 1,661 4,548 2,879 1,649 4,528 2,866 1,638 4,504SMB 261 103 365 262 102 364 258 96 354
Residential customers(c): PayTV 2,413 1,087 3,500 2,428 1,107 3,535 2,473 1,150 3,623Broadband 2,636 1,366 4,003 2,619 1,344 3,963 2,580 1,308 3,888Telephony 1,955 596 2,551 1,962 597 2,559 1,999 597 2,596
Residential triple product customerpenetration(d): 64.4% 25.4% 50.2% 64.8% 25.5% 50.5% 66.9% 25.8% 52.0%
Penetration (total customerrelationships to homes passed)(e): 61.4% 51.6% 57.5% 61.4% 51.4% 57.4% 61.4% 51.6% 57.5%
ARPU(f) $ 155.83 $ 110.00 $ 139.11 $ 154.49 $ 109.30 $ 138.07 $ 152.18 $ 105.68 $ 135.32
(a) Representstheestimatednumberofsingleresidencehomes,apartmentsandcondominiumunitspassedbythecabledistributionnetworkinareasserviceablewithoutfurtherextendingthetransmissionlines.Inaddition,itincludescommercialestablishmentsthathaveconnectedtoourcabledistributionnetwork.ForCequel,broadbandserviceswerenotavailabletoapproximately100homespassedandtelephonyserviceswerenotavailabletoapproximately500homespassed.
(b) Representsnumberofhouseholds/businessesthatreceiveatleastoneoftheCompany'sservices.
(c) Customersrepresenteachcustomeraccount(setupandsegregatedbycustomernameandaddress),weightedequallyandcountedasonecustomer,regardlessofsize,revenuegenerated,ornumberofboxes,units,oroutlets.Incalculatingthenumberofcustomers,wecountallcustomersotherthaninactive/disconnectedcustomers.Freeaccountsareincludedinthecustomercountsalongwithallactiveaccounts,buttheyare
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limitedtoaprescribedgroup.Mostoftheseaccountsarealsonotentirelyfree,astheytypicallygeneraterevenuethroughpay-per-vieworotherpayservices.Freestatusisnotgrantedtoregularcustomersasapromotion.Incountingbulkresidentialcustomers,suchasanapartmentbuilding,wecounteachsubscribingfamilyunitwithinthebuildingasonecustomer,butdonotcountthemasteraccountfortheentirebuildingasacustomer.Wecountabulkcommercialcustomer,suchasahotel,asonecustomer,anddonotcountindividualroomunitsatthathotel.
(d) Representsthenumberofcustomersthatsubscribetothreeofourservicesdividedbytotalresidentialcustomerrelationships.
(e) Representsthenumberoftotalcustomerrelationshipsdividedbyhomespassed.
(f) Calculatedbydividingtheaveragemonthlyrevenuefortherespectivequarter(fourthquarterforannualperiods)derivedfromthesaleofbroadband,paytelevisionandtelephonyservicestoresidentialcustomersfortherespectivequarterbytheaveragenumberoftotalresidentialcustomersforthesameperiod.
(g) ThemetricsforCequelpresentedinthetableabovehavebeenadjustedfrompreviouslyreportedamountstoalignwiththeCablevisionmetricsdefinitions.
Historical
Historical
Three Months Ended
March 31, 2016
Three Months Ended March 31, 2017 Cablevision Cequel Total Cequel(a) Revenue: Residential: PayTV $ 789,387 $ 281,974 $ 1,071,361 $ 279,737Broadband 381,969 229,800 611,769 196,690Telephony 176,401 34,472 210,873 39,735
Businessservicesandwholesale 228,685 90,906 319,591 84,404Advertising 61,739 18,229 79,968 20,887Other 6,620 5,494 12,114 6,136
Total revenue 1,644,801 660,875 2,305,676 627,589Operating expenses:
Programmingandotherdirectcosts 568,311 190,041 758,352 189,595Otheroperatingexpenses 454,499 158,938 613,437 175,265Restructuringandotherexpense 58,647 18,282 76,929 7,569Depreciationandamortization 443,176 165,548 608,724 200,900
Operating income $ 120,168 $ 128,066 $ 248,234 $ 54,260
(a) Certainreclassificationshavebeenmadetopreviouslyreportedamountsbyproducttoreflectthecurrentpresentation.
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Thefollowingtablesetsforthcertainoperatinginformationbysegmentonaproformabasis:
Altice USA—Comparison of Actual Results for the Three Months Ended March 31, 2017 compared to Three Months Ended March 31, 2016 and Comparison of Actual Resultsfor the Three Months Ended March 31, 2017 compared to Pro Forma Results for the Three Months Ended March 31, 2016
Pleasesee"—BasisofPresentation"foranexplanationofwhywebelievethatacomparisonoftheactualresultsforthethreemonthsendedMarch31,2017totheproformaresultsforthethreemonthsendedMarch31,2016providesusefulinformation.
Pay Television Revenue
Actual Three Months Ended March 31, 2017 Compared to Actual Three Months Ended March 31, 2016
PaytelevisionrevenueforthethreemonthsendedMarch31,2017was$1,071,361,ofwhich$789,387relatestoourCablevisionsegmentand$281,974relatestoourCequelsegment.PaytelevisionrevenueforthethreemonthsendedMarch31,2016was$279,737andwasderivedfromourCequelsegment.Paytelevisionisderivedprincipallythroughmonthlychargestoresidentialsubscribersofourpaytelevisionservices.Revenueincreasesarederivedprimarilyfromrateincreases,increasesinthenumberofsubscribers,includingadditionalservicessoldtoourexistingsubscribers,andprogrammingpackageupgrades.
Actual Three Months Ended March 31, 2017 Compared to Pro Forma Three Months Ended March 31, 2016
PaytelevisionrevenueforthethreemonthsendedMarch31,2017was$1,071,361comparedto$1,054,058forthethreemonthsendedMarch31,2016,onaproformabasis.Theincreaseof$17,303(2%)iscomprisedofaproformaincreaseof$15,066(2%)forourCablevisionsegmentandaproformaincreaseof$2,237(1%)forourCequelsegment.
Onaproformabasis,paytelevisionrevenueforourCablevisionsegmentamountedto$789,387and$774,321forthethreemonthsendedMarch31,2017and2016,respectively.Theproformaincreaseof$15,066(2%)wasdueprimarilytorateincreasesforcertainvideoservicesimplemented
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Pro Forma Three Months Ended March 31, 2016 Cablevision Cequel Total Revenue: Residential: PayTV $ 774,321 $ 279,737 $ 1,054,058Broadband 350,990 196,690 547,680Telephony 181,277 39,735 221,012
Businessservicesandwholesale 216,451 84,404 300,855Advertising 58,477 20,887 79,364Other 64,374 6,136 70,510
Total revenue 1,645,890 627,589 2,273,479Operating expenses: Programmingandotherdirectcosts 578,230 189,595 767,825Otheroperatingexpenses 601,499 175,265 776,764Restructuringandotherexpense 1,037 7,569 8,606Depreciationandamortization 435,161 200,900 636,061
Operating income $ 29,963 $ 54,260 $ 84,223
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neartheendofthefourthquarterof2016andanincreaseinlatefees.Partiallyoffsettingtheseincreaseswasadecreaseinrevenueascomparedtotheprioryearduetoadeclineinpaytelevisioncustomers.
Onaproformabasis,paytelevisionrevenueforourCequelsegmentamountedto$281,974and$279,737forthethreemonthsendedMarch31,2017and2016,respectively.Theproformaincreaseof$2,237wasdueprimarilytocertainrateincreases(includinganincreaseforretransmissionprogrammingandsportsprogrammingcharges)andanincreaseininstallationservicesrevenue,partiallyoffsetbyadeclineinthenumberofpaytelevisioncustomersandadecreaseinpremium,pay-per-viewandVODpurchasesascomparedtotheprioryearperiod.
Webelieveourpaytelevisioncustomerdeclinesnotedinthetableabovearelargelyattributabletocompetition,particularlyfromVerizoninourCablevisionfootprintandDBSprovidersinourCequelfootprint,aswellascompetitionfromcompaniesthatdelivervideocontentovertheInternetdirectlytocustomers.Thesefactorsareexpectedtocontinuetoimpactourabilitytomaintainorincreaseourexistingcustomersandrevenueinthefuture.
Broadband Revenue
Actual Three Months Ended March 31, 2017 Compared to Actual Three Months Ended March 31, 2016
BroadbandrevenueforthethreemonthsendedMarch31,2017was$611,769ofwhich$381,969wasderivedfromourCablevisionsegmentand$229,800wasderivedfromourCequelsegment.BroadbandrevenueforthethreemonthsendedMarch31,2016was$196,690andwasderivedfromourCequelsegment.Broadbandrevenueisderivedprincipallythroughmonthlychargestoresidentialsubscribersofourbroadbandservices.Revenueincreasesarederivedprimarilyfromrateincreases,increasesinthenumberofsubscribers,includingadditionalservicessoldtoourexistingsubscribers,andspeedtierupgrades.
Actual Three Months Ended March 31, 2017 Compared to Pro Forma Three Months Ended March 31, 2016
BroadbandrevenueforthethreemonthsendedMarch31,2017was$611,769comparedto$547,680forthethreemonthsendedMarch31,2016,onaproformabasis.Onaproformabasis,broadbandrevenueincreased$64,089(12%)andiscomprisedofaproformaincreaseof$30,979(9%)forourCablevisionsegmentandaproformaincreaseof$33,110(17%)forourCequelsegment.
Onaproformabasis,broadbandrevenueforourCablevisionsegmentamountedto$381,969and$350,990forthethreemonthsendedMarch31,2017and2016,respectively.Theproformaincreaseof$30,979(9%)wasduetohigheraveragerecurringbroadbandrevenueperbroadbandcustomer,anincreaseinhigh-speeddatacustomers,andanincreaseinlatefees.
Onaproformabasis,broadbandrevenueforourCequelsegmentamountedto$229,800and$196,690forthethreemonthsendedMarch31,2017and2016,respectively.Theproformaincreaseof$33,110(17%)wasdueprimarilytoanincreaseinbroadbandcustomers,anincreaseinrates,anincreaseresultingfromtheimpactofservicelevelchangesandanincreaseinresidentialhomenetworkingrevenue.
Telephony Revenue
Actual Three Months Ended March 31, 2017 Compared to Actual Three Months Ended March 31, 2016
TelephonyrevenueforthethreemonthsendedMarch31,2017was$210,873ofwhich$176,401wasderivedfromtheCablevisionsegmentand$34,472wasderivedfromourCequelsegment.TelephonyrevenueforthethreemonthsendedMarch31,2016was$39,735andwasderivedfromour
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Cequelsegment.Telephonyrevenueisderivedprincipallythroughmonthlychargestoresidentialsubscribersofourtelephonyservices.Revenueincreasesarederivedprimarilyfromrateincreases,increasesinthenumberofsubscribers,andadditionalservicessoldtoourexistingsubscribers.
Actual Three Months Ended March 31, 2017 Compared to Pro Forma Three Months Ended March 31, 2016
TelephonyrevenueforthethreemonthsendedMarch31,2017was$210,873comparedto$221,012forthethreemonthsendedMarch31,2016,onaproformabasis.Theproformadecreaseof$10,139(5%)iscomprisedofaproformadecreaseof$4,876(3%)and$5,263(13%)forourCablevisionandCequelsegment,respectively.
Onaproformabasis,telephonyrevenueforourCablevisionsegmentamountedto$176,401and$181,277forthethreemonthsendedMarch31,2017and2016,respectively.Theproformadecreaseof$4,876(3%)wasdueprimarilytoadeclineininternationalcallingandadeclineintelephonycustomers.
Onaproformabasis,telephonyrevenueforourCequelsegmentamountedto$34,472and$39,735forthethreemonthsendedMarch31,2017and2016,respectively,aproformadecreaseof$5,263(13%)whichwasdueprimarilytolowerratesofferedtocustomers.
Business Services and Wholesale Revenue
Actual Three Months Ended March 31, 2017 Compared to Actual Three Months Ended March 31, 2016
BusinessservicesandwholesalerevenueforthethreemonthsendedMarch31,2017was$319,591ofwhich$228,685wasderivedfromtheCablevisionsegmentand$90,906wasderivedfromourCequelsegment.BusinessservicesandwholesalerevenueforthethreemonthsendedMarch31,2016was$84,404andwasderivedfromourCequelsegment.Businessservicesandwholesalerevenueisderivedprimarilyfromthesaleoffiberbasedtelecommunicationsservicestothebusinessmarket,andthesaleofbroadband,paytelevisionandtelephonyservicestoSMBs.
Actual Three Months Ended March 31, 2017 Compared to Pro Forma Three Months Ended March 31, 2016
BusinessservicesandwholesalerevenueforthethreemonthsendedMarch31,2017was$319,591comparedto$300,855forthethreemonthsendedMarch31,2016,onaproformabasis.Theproformaincreaseof$18,736(6%)iscomprisedofaproformaincreaseof$12,234(6%)forourCablevisionsegmentandaproformaincreaseof$6,502(8%)forourCequelsegment.
Onaproformabasis,businessservicesandwholesalerevenueforourCablevisionsegmentamountedto$228,685and$216,451forthethreemonthsendedMarch31,2017and2016,respectively.Theproformaincreaseof$12,234(6%)wasprimarilyduetohigheraveragerecurringtelephonyandbroadbandrevenueperSMBcustomerandanincreaseinEthernetrevenueresultingfromalargernumberofservicesinstalled,partiallyoffsetbyreducedtraditionalvoiceanddataservicesforcommercialcustomers.
Onaproformabasis,businessservicesandwholesalerevenueforourCequelsegmentamountedto$90,906and$84,404forthethreemonthsendedMarch31,2017and2016,respectively.Theproformaincreaseof$6,502(8%)wasprimarilyduetohighercommercialratesandcustomersforhigh-speedInternetservices,anincreaseincertainpaytelevisionrates(includinganincreaseforretransmissionprogrammingcharges)andincreasesincommercialcarrierservices.
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Advertising Revenue
Actual Three Months Ended March 31, 2017 Compared to Actual Three Months Ended March 31, 2016
AdvertisingservicesrevenueforthethreemonthsendedMarch31,2017was$79,968ofwhich$61,739wasderivedfromourCablevisionsegmentand$18,229wasderivedfromourCequelsegment.AdvertisingrevenueforthethreemonthsendedMarch31,2016was$20,887andwasderivedfromourCequelsegment.Advertisingservicesrevenueisprimarilyderivedfromthesaleofadvertisingtimeavailableontheprogrammingcarriedonourcabletelevisionsystems.
Actual Three Months Ended March 31, 2017 Compared to Pro Forma Three Months Ended March 31, 2016
AdvertisingservicesrevenueforthethreemonthsendedMarch31,2017was$79,968comparedto$79,364forthethreemonthsendedMarch31,2016,onaproformabasis.Theproformaincreaseof$604iscomprisedofaproformaincreaseof$3,262(6%)forourCablevisionsegment,partiallyoffsetbayaproformadecreaseof$2,658(13%)forourCequelsegment.
Onaproformabasis,advertisingservicesrevenueforourCablevisionsegmentamountedto$61,739and$58,477forthethreemonthsendedMarch31,2017and2016,respectively,aproformaincreaseof$3,262(6%).
Onaproformabasis,advertisingservicesrevenueforourCequelsegmentamountedto$18,229and$20,887forthethreemonthsendedMarch31,2017and2016,respectively,aproformadecreaseof$2,658(13%).
Other Revenue
Actual Three Months Ended March 31, 2017 Compared to Actual Three Months Ended March 31, 2016
OtherrevenueforthethreemonthsendedMarch31,2017was$12,114ofwhich$6,620wasderivedfromourCablevisionsegmentand$5,494wasderivedfromourCequelsegment.OtherrevenueforthethreemonthsendedMarch31,2016was$6,136andwasderivedfromourCequelsegment.Otherrevenueincludesothermiscellaneousrevenuestreams.
Actual Three Months Ended March 31, 2017 Compared to Pro Forma Three Months Ended March 31, 2016
OtherrevenueforthethreemonthsendedMarch31,2017was$12,114comparedto$70,510forthethreemonthsendedMarch31,2016,onaproformabasis.Theproformadecreaseof$58,396(83%)iscomprisedofaproformadecreaseof$57,754(90%)forourCablevisionsegmentandaproformadecreaseof$642(10%)forourCequelsegment.
Onaproformabasis,otherrevenueforourCablevisionsegmentamountedto$6,620and$64,374forthethreemonthsendedMarch31,2017and2016,respectively.Theproformadecreaseof$57,754(90%)wasprimarilyduetoCablevisionnolongerconsolidatingtheoperatingresultsofNewsdayasaresultofthesaleofa75%interestinNewsday,effectiveJuly7,2016.TheCompany's25%interestintheoperatingresultsofNewsdayisrecordedontheequitybasis.
OnaproformabasisotherrevenueforourCequelsegmentamountedto$5,494and$6,136forthethreemonthsendedMarch31,2017and2016,respectively,aproformadecreaseof$642(10%).
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Programming and Other Direct Costs
Actual Three Months Ended March 31, 2017 Compared to Actual Three Months Ended March 31, 2016
ProgrammingandotherdirectcostsforthethreemonthsendedMarch31,2017amountedto$758,352,ofwhich$568,311relatetoourCablevisionsegmentand$190,041relatetoourCequelsegment.ProgrammingandotherdirectcostsforthethreemonthsendedMarch31,2016was$189,595andrelatetoourCequelsegment.Programmingandotherdirectcostsincludecableprogrammingcosts,whicharecostspaidtoprogrammers(netofamortizationofanyincentivesreceivedfromprogrammersforcarriage)forcablecontent(includingcostsofVODandpay-per-view)andaregenerallypaidonaper-subscriberbasis.Thesecoststypicallyriseduetoincreasesincontractualratesandnewchannellaunchesandarealsoimpactedbychangesinthenumberofcustomersreceivingcertainprogrammingservices.Thesecostsalsoincludeinterconnection,callcompletion,circuitandtransportfeespaidtoothertelecommunicationcompaniesforthetransportandterminationofvoiceanddataservices,whichtypicallyvarybasedonratechangesandthelevelofusagebyourcustomers.Thesecostsalsoincludefranchisefeeswhicharepayabletothestategovernmentsandlocalmunicipalitieswhereweoperateandareprimarilybasedonapercentageofcertaincategoriesofrevenuederivedfromtheprovisionofpaytelevisionserviceoverourcablesystems,whichvarybystateandmunicipality.Thesecostschangeinrelationtochangesinsuchcategoriesofrevenuesorratechanges.
Actual Three Months Ended March 31, 2017 Compared to Pro Forma Three Months Ended March 31, 2016
ProgrammingandotherdirectcostsforthethreemonthsendedMarch31,2017amountedto$758,352comparedto$767,825forthethreemonthsendedMarch31,2016,onaproformabasis.Programmingandotherdirectcostsonaproformabasisamountedto$568,311and$578,230forourCablevisionsegmentandamountedto$190,041and$189,595forourCequelsegmentforthethreemonthsendedMarch31,2017and2016,respectively.Theproformadecreaseof$9,473isattributabletothefollowing:
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Cablevision segment: DecreaseincostsprimarilyrelatedtothesaleofNewsdayinJuly2016 $ (15,622)Decreaseincallcompletionandtransportcostsprimarilyduetolowerlevelofactivity (5,263)Decreaseincostofsales(whichincludesthebulksaleofhandsetinventoryof$5,445duringthefirstquarterof2016) (4,831)Increaseinprogrammingcostsdueprimarilytocontractualrateincreases,partiallyoffsetbylowercostsresultingfromlowerpaytelevisioncustomers 16,638
Othernetdecreases (841) (9,919)
Cequel segment: Increaseinprogrammingcostsdueprimarilytocontractualrateincreases,partiallyoffsetbylowerpaytelevisioncustomersandlowerpay-per-viewandvideo-on-demandcosts 2,214
Decreaseinfranchisecostsduetolowerpaytelevisioncustomers (810)Netdecreaseincallcompletionandinterconnectioncostsduetolowerlevelofactivity (426)Othernetdecreases (532)
446 $ (9,473)
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Programming costs
Programmingcostsaggregated$636,232forthethreemonthsendedMarch31,2017onanactualbasisandonaproformabasisaggregated$617,055forthethreemonthsendedMarch31,2016.Ourprogrammingcostsincreased3%onaproformabasisforthethreemonthsendedMarch31,2017ascomparedtotheproformabasisforthethreemonthsendedMarch31,2016dueprimarilytoanincreaseincontractualprogrammingrates,partiallyoffsetbyadecreaseinpaytelevisioncustomers.Ourprogrammingcostsin2017willcontinuetobeimpactedbychangesinprogrammingrates,whichweexpecttoincreasebyhighsingledigits,andbychangesinthenumberofpaytelevisioncustomers.
Other Operating Expenses
Actual Three Months Ended March 31, 2017 Compared to Actual Three Months Ended March 31, 2016
OtheroperatingexpensesforthethreemonthsendedMarch31,2017amountedto$613,437,ofwhich$454,499relatedtoourCablevisionsegmentand$158,938relatedtoourCequelsegment.OtheroperatingexpensesforthethreemonthsendedMarch31,2016amountedto$175,265andrelatetoourCequelsegment.Otheroperatingexpensesincludestaffcostsandemployeebenefitsincludingsalariesofcompanyemployeesandrelatedtaxes,benefitsandotheremployeerelatedexpenses.Otheroperatingexpensesalsoincludenetworkmanagementandfieldservicecosts,whichrepresentcostsassociatedwiththemaintenanceofourbroadbandnetwork,includingcostsofcertaincustomerconnectionsandothercostsassociatedwithprovidingandmaintainingservicestoourcustomerswhichareimpactedbygeneralcostincreasesforcontractors,insuranceandothervariousexpenses.
Customerinstallationandrepairandmaintenancecostsmayfluctuateasaresultofchangesinthelevelofactivitiesandtheutilizationofcontractorsascomparedtoemployees.Also,customerinstallationcostsfluctuateastheportionofourexpensesthatweareabletocapitalizechanges.Networkrepairandmaintenanceandutilitycostsalsofluctuateascapitalizablenetworkupgradeandenhancementactivitychanges.
Otheroperatingexpensesalsoincludecostsrelatedtotheoperationandmaintenanceofourcallcenterfacilitiesthathandlecustomerinquiriesandbillingandcollectionactivitiesandsalesandmarketingcosts,whichincludeadvertisingproductionandplacementcostsassociatedwithacquiringandretainingcustomers.Thesecostsvaryperiodtoperiodandcertainofthesecosts,suchassalesandmarketing,mayincreasewithintensecompetition.Additionally,otheroperatingexpensesincludevariousotheradministrativecosts,includinglegalfees,andproductdevelopmentcosts.
Actual Three Months Ended March 31, 2017 Compared to Pro Forma Three Months Ended March 31, 2016
OtheroperatingexpensesforthethreemonthsendedMarch31,2017amountedto$613,437comparedto$776,764forthethreemonthsendedMarch31,2016,onaproformabasis.Otheroperatingexpensesonaproformabasisamountedto$454,499and$601,499forourCablevisionsegmentandamountedto$158,938and$175,265forourCequelsegmentforthethreemonthsended
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March,31,2017and2016,respectively.Theproformadecreaseof$163,327(21%)isattributabletothefollowing:
Restructuring and Other Expense
Actual Three Months Ended March 31, 2017 Compared to Actual Three Months Ended March 31, 2016
RestructuringandotherexpenseforthethreemonthsendedMarch31,2017of$76,929($58,647forourCablevisionsegmentand$18,282forourCequelsegment)and$7,569forthethreemonthsendedMarch31,2016relatedtoourCequelsegmentprimarilyrelatetoseveranceandotheremployeerelatedcostsresultingfromheadcountreductionsrelatedtoinitiativeswhichcommencedin2016thatareintendedtosimplifytheCompany'sorganizationalstructure.Wecurrentlyanticipatethatadditionalrestructuringexpenseswillberecognizedaswecontinuetoanalyzeourorganizationalstructure.
Actual Three Months Ended March 31, 2017 Compared to Pro Forma Three Months Ended March 31, 2016
RestructuringandotherexpenseforthethreemonthsendedMarch31,2017was$76,929comparedto$8,606($1,037forourCablevisionsegmentand$7,569forourCequelsegment)forthethreemonthsendedMarch31,2016,onaproformabasis.
RestructuringandotherexpenseforthethreemonthsendedMarch31,2017periodprimarilyrelatetoseveranceandotheremployeerelatedcostsresultingfromheadcountreductionsrelatedtoinitiativeswhichcommencedin2016thatareintendedtosimplifytheCompany'sorganizationalstructure.
TheproformarestructuringexpenseforthethreemonthsendedMarch31,2016relatedtoCequelisprimarilyrelatedtoseveranceandotheremployeerelatedcostsresultingfromheadcountreductions
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Cablevision segment: Decreaseprimarilyinemployeerelatedcostsrelatedtotheeliminationofcertainpositions,lowernetbenefits,includinglowerbonusexpense,andanincreaseincapitalizableactivity,partiallyoffsetbymeritincreases $ (83,109)
DecreaseincostsprimarilyrelatedtothesaleofNewsdayinJuly2016 (45,678)Decreaseinshare-basedcompensationandlong-termincentiveplanawardsexpense (10,432)Decreaseinproductdevelopmentcostsandproductconsultingfees (8,153)Decreaseinrepairsandmaintenancecostsrelatingtoouroperations (7,757)Increaseinsalesandmarketingcosts 7,628IncreaseduetoAlticemanagementfeeforcertainexecutiveservices 5,000Othernetdecreases (4,499)
(147,000)Cequel segment: Decreaseprimarilyinsalariesandbenefitsrelatedtotheeliminationofcertainpositions,inconnectionwiththeinitiativestosimplifytheCompany'sorganizationalstructure,partiallyoffsetbyadecreaseincapitalizableactivity (16,753)
Decreaseincontractlaborcosts (2,053)Decreaseininsurancecosts (1,706)Increaseinconsultingandprofessionalfees 2,139Increaseinproperty,generalandsalesandusetaxes 1,303Othernetincreases 743
(16,327) $ (163,327)
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relatedtoinitiativeswhichcommencedin2016thatareintendedtosimplifytheCompany'sorganizationalstructureatCequel.RestructuringandotherexpenseforthethreemonthsendedMarch31,2016relatedtoCablevisionincludesadjustmentsrelatedtopriorrestructuringplansof$1,037.
Depreciation and Amortization
Actual Three Months Ended March 31, 2017 Compared to Actual Three Months Ended March 31, 2016
DepreciationandamortizationforthethreemonthsendedMarch31,2017amountedto$608,724,ofwhich$443,176relatestoourCablevisionsegmentand$165,548relatestoourCequelsegment.DepreciationandamortizationforthethreemonthsendedMarch31,2016of$200,900relatestoourCequelsegment.
Thedecreaseof$35,352(18%)relatedtoourCequelsegmentisprimarilyduetoadecreaseofapproximately$13,000resultingfromacceleratedamortizationmethodsusedforthestep-uprelatedtocertainintangibleassets,adecreaseofapproximately$12,800resultingfromrevisionsmadetothefairvalueofassetsacquiredandtheirremainingusefullivesresultingfromthefinalizationinthefourthquarterof2016ofthepurchasepriceallocationinconnectionwiththeCequelAcquisition,andlowerdepreciationduetocertainassetsbeingretiredorbecomingfullydepreciated.
OnMay23,2017,AlticeN.V.announcedtheadoptionofaglobalbrandwhichwillreplacetheOptimumandSuddenlinkbrandsinthefuture,reducingtheremainingusefullivesofourtradenameintangibles,whichwillincreaseamortizationexpense.
Actual Three Months Ended March 31, 2017 Compared to Pro Forma Three Months Ended March 31, 2016
DepreciationandamortizationforthethreemonthsendedMarch31,2017was$608,724comparedto$636,061forthethreemonthsendedMarch31,2016,onaproformabasis.Theproformadecreaseof$27,337(4%)iscomprisedofa$8,015(2%)proformaincreaseforourCablevisionsegmentandaproformadecreaseof$35,352(18%)forourCequelsegment.TheproformaincreaseforourCablevisionsegmentisprimarilyduetodepreciationonnewassetsadditions.ForCequel,thedecreaseisdueprimarilytoloweramortizationexpenseforcertainintangibleassetsthatarebeingamortizedusinganacceleratedmethod,offsetbydepreciationonnewassetsadditions.
Adjusted EBITDA
Actual Three Months Ended March 31, 2017 Compared to Actual Three Months Ended March 31, 2016
AdjustedEBITDAamountedto$941,735forthethreemonthsendedMarch31,2017,ofwhich$627,073relatestoourCablevisionsegmentand$314,662relatestoourCequelsegment,AdjustedEBITDAof$262,729forthethreemonthsendedMarch31,2016,relatestoourCequelsegment.AdjustedEBITDAisanon-GAAPmeasurethatisdefinedasnetlossexcludingincometaxes,lossfromdiscontinuedoperations,othernon-operatingincomeorexpenses,lossonextinguishmentofdebtandwrite-offofdeferredfinancingcosts,lossoninterestrateswapcontracts,gain(loss)onequityderivativecontracts,gain(loss)oninvestments,interestexpense(includingcashinterestexpense),interestincome,depreciationandamortization(includingimpairments),share-basedcompensationexpense,restructuringexpenseorcreditsandtransactionexpenses.SeereconciliationofnetlosstoadjustedEBITDAabove.
ForourCequelsegment,adjustedEBITDAincreased$51,933(20%)forthethreemonthsendedMarch31,2017ascomparedtothesameperiodintheprioryear.Theincreaseisdueprimarilytoanincreaseinrevenueandadecreaseinoperatingexpenses(excludingdepreciationandamortization,restructuringexpenseandotherexpensesandshare-basedcompensation).
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Actual Three Months Ended March 31, 2017 Compared to Pro Forma Three Months Ended March 31, 2016
AdjustedEBITDAforthethreemonthsendedMarch31,2017was$941,735comparedto$743,588forthethreemonthsendedMarch31,2016,onaproformabasis.Theproformaincreaseof$198,147(27%)consistsofaproformaincreaseof$146,215(30%)forourCablevisionsegmentandaproformaincreaseof$51,932(20%)forourCequelsegment.Theproformaincreasewasdueprimarilytoanincreaseinrevenue,andadecreaseinoperatingexpenses(excludingdepreciationandamortization,restructuringandotherexpenseandshare-basedcompensation),asdiscussedabove.
Interest Expense, net
Actual Three Months Ended March 31, 2017 Compared to Actual Three Months Ended March 31, 2016
Interestexpense,netwas$433,062and$269,414forthethreemonthsendedMarch31,2017and2016,respectively,andincludesinterestondebtissuedtofinancetheCablevisionAcquisitionandCequelAcquisition,aswellasinterestondebtassumedinconnectionwiththeseacquisitions.
Actual Three Months Ended March 31, 2017 Compared to Pro Forma Three Months Ended March 31, 2016
Interestexpense,netamountedto$433,062forthethreemonthsendedMarch31,2017and$436,601forthethreemonthsendedMarch31,2016,onaproformabasis.Theproformadecreaseof$3,539isprimarilyattributabletoa$6,320decreaseintheamortizationofdeferredfinancingcostsanddiscounts/premiumsresultingfromrecordingdebtatfairvalueinconnectionwiththeCablevisionandCequelAcquisitions,partiallyoffsetbyanincreaseof$1,256duetothechangeinaveragedebtbalances.
See"LiquidityandCapitalResources"discussionbelowforadetailofourborrowergroups.
Gain on Investments, net
Actual Three Months Ended March 31, 2017 Compared to Actual Three Months Ended March 31, 2016
Gainoninvestments,netforthethreemonthsendedMarch31,2017of$131,658consistsprimarilyoftheincreaseinthefairvalueofComcastcommonstockownedbytheCompanyfortheperiod.Theeffectsofthesegainsarepartiallyoffsetbythelossesontherelatedequityderivativecontracts,netdescribedbelow.
Actual Three Months Ended March 31, 2017 Compared to Pro Forma Three Months Ended March 31, 2016
Gainoninvestments,netforthethreemonthsendedMarch31,2017amountedto$131,658andforthethreemonthsendedMarch31,2016amountedto$100,365,onaproformabasis,assumingtheCablevisionAcquisitionoccurredonJanuary1,2016andconsistsprimarilyoftheincreaseinthefairvalueofComcastcommonstockownedbytheCompany.Theeffectsofthesegainsarepartiallyoffsetbythelossesontherelatedequityderivativecontracts,netdescribedbelow.
Loss on Equity Derivative Contracts, net
Actual Three Months Ended March 31, 2017 Compared to Actual Three Months Ended March 31, 2016
Lossonequityderivativecontracts,netforthethreemonthsendedMarch31,2017of$71,044consistsofunrealizedandrealizedlosses,netduetothechangeinfairvalueofequityderivativecontractsrelatingtotheComcastcommonstockownedbytheCompany.Theeffectsoftheselossesare
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offsetbythegainoninvestmentsecuritiespledgedascollateral,whichareincludedingain(loss)oninvestments,netdiscussedabove.
Actual Three Months Ended March 31, 2017 Compared to Pro Forma Three Months Ended March 31, 2016
Lossonequityderivativecontracts,netforthethreemonthsendedMarch31,2017was$71,044comparedto$48,012forthethreemonthsendedMarch31,2016,onaproformabasis,assumingtheCablevisionAcquisitionoccurredonJanuary1,2016andconsistsofunrealizedandrealizedlossesduetothechangeinfairvalueofequityderivativecontractsrelatingtotheComcastcommonstockownedbytheCompany.
Gain on interest rate swap contracts
Gainoninterestrateswapcontractswas$2,342forthethreemonthsendedMarch31,2017andrepresentstheincreaseinfairvalueofthefixedtofloatinginterestrateswapsenteredintobyourCequelsegmentinJune2016.Theobjectiveoftheseswapsistocovertheexposuretochangesinthemarketinterestrateofthe$1,500,000principalamountoftheCequel2026SeniorSecuredNotes.Theseswapcontractsarenotdesignatedashedgesforaccountingpurposes.
Income Tax Expense
Actual Three Months Ended March 31, 2017 Compared to Actual Three Months Ended March 31, 2016
IncometaxbenefitforthethreemonthsendedMarch31,2017amountedto$45,908comparedto$74,395forthethreemonthsendedMarch31,2016.Nondeductiblecarryunitplanexpenseresultedintaxexpenseof$3,140forthethreemonthsendedMarch31,2017.Therewasnostateincometaxbenefitassociatedwithpre-mergeraccruedinterestatFinco.Thisresultedinreducingincometaxbenefitby$8,340forthethreemonthsendedMarch31,2016.Absenttheseitems,theeffectivetaxrateforthethreemonthsendedMarch31,2017and2016wouldhavebeen40%and38%,respectively.
Actual Three Months Ended March 31, 2017 Compared to Pro Forma Three Months Ended March 31, 2016
IncometaxbenefitforthethreemonthsendedMarch31,2017was$45,908comparedto$107,839forthethreemonthsendedMarch31,2016,onaproformabasis.Nondeductiblecarryunitplanexpenseresultedintaxexpenseof$3,140forthethreemonthsendedMarch31,2017.Therewasnostateincometaxbenefitassociatedwithpre-mergeraccruedinterestatFinco.Thisresultedinreducingincometaxbenefitby$8,340forthethreemonthsendedMarch31,2016,onaproformabasis.Absenttheseitems,theeffectivetaxrateforthethreemonthsendedMarch31,2017and2016,onaproformabasis,wouldhavebeen40%and39%,respectively.
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Results of Operations for the Year Ended December 31, 2016 and 2015—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) 240,395 229,774 (1,649)Depreciationandamortization(includingimpairments) 1,700,306 2,484,284 2,442,235
Operating income 459,666 598,388 43,597Otherincome(expense): Interestexpense,net (1,442,730) (1,760,421) (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) (1,171,552) (1,593,324)Incometaxbenefit 259,666 450,295 498,567Loss from continuing operations, net of income taxes (831,479) (721,257) (1,094,757)Lossfromdiscontinuedoperations,netofincometaxes — — (12,541)Net loss (831,479) (721,257) (1,107,298)Netloss(income)attributabletononcontrollinginterests (551) (315) 201Net loss attributable to Altice USA stockholders $ (832,030) $ (721,572) $ (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) $ (721,257) $ (1,107,298)Lossfromdiscontinuedoperations,netofincometaxes — — 12,541Incometaxbenefit (259,666) (450,295) (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 1,760,421 1,715,950Depreciationandamortization(includingimpairments) 1,700,306 2,484,284 2,442,235Restructuringandotherexpenses(credits) 240,395 229,774 (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 8,524 5,076 3,352 8,428 96Total customer relationships(b) 3,141 1,751 4,892 3,115 1,712 4,827 65Residential 2,879 1,649 4,528 2,858 1,618 4,475 53SMB 262 102 364 258 94 352 12
Residential customers(c): PayTV 2,428 1,107 3,535 2,487 1,154 3,640 (105)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 customer 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.
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ThefollowingtablesetsforthcertainoperatinginformationbysegmentfortheyearendedDecember31,2016:
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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.Incountingbulkresidentialcustomers,suchasanapartmentbuilding,wecounteachsubscribingfamilyunitwithinthebuildingasonecustomer,butdonotcountthemasteraccountfortheentirebuildingasacustomer.Wecountabulkcommercialcustomer,suchasahotel,asonecustomer,anddonotcountindividualroomunitsatthathotel.
(d) Representsthenumberofcustomersthatsubscribetothreeofourservicesdividedbytotalresidentialcustomerrelationships.
(e) Representsthenumberoftotalcustomerrelationshipsdividedbyhomespassed.
(f) Calculatedbydividingtheaveragemonthlyrevenuefortherespectivequarter(fourthquarterforannualperiods)presentedderivedfromthesaleofbroadband,paytelevisionandtelephonyservicestoresidentialcustomersfortherespectivequarterbytheaveragenumberoftotalresidentialcustomersforthesameperiod.
(g) ThemetricsforCequelpresentedinthetableabovehavebeenadjustedfrompreviouslyreportedamountstoconformtothemethodologyusedtocalculatetheequivalentCablevisionmetrics.
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 212,150 28,245 240,395Depreciationandamortization(includingimpairments) 963,665 736,641 1,700,306
Operating income $ 74,865 $ 384,801 $ 459,666
(a) Certainreclassificationshavebeenmadetopreviouslyreportedamountsbyproducttoreflectthecurrentpresentation.
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Thefollowingtablesetsforthcertainoperatinginformationbysegmentonaproformabasis(unaudited):
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 Pro Forma Results for theYear 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.Partiallyoffsettingthesedecreaseswereincreasesinrevenueascomparedtotheprioryeardueprimarilytorateincreasesforcertainpaytelevisionservices
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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 28,245 229,774 (1,649) — (1,649)Depreciationandamortization(includingimpairments) 1,747,643 736,641 2,484,284 1,740,996 701,239 2,442,235
Operating income (loss) $ 213,587 $ 384,801 $ 598,388 $ (9,411) $ 53,008 $ 43,597
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implementedduringthefirstquarterof2016andanincreaseinfeeschargedtorestoresuspendedservices.
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.
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.Telephonyrevenueisderivedprincipallythroughmonthlychargestoresidentialsubscribersofour
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telephonyservices.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.
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.
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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,whichwasconsolidatedthroughJuly7,2016,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%).
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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$2,269,290forourCablevisionsegmentandamountedto$735,069and$712,715forourCequelsegmentfortheyearsendedDecember31,2016and2015,respectively.Theproformaincreaseof$6,544isattributabletothefollowing:
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Cablevision segment: DecreaseincostsprimarilyrelatedtothesaleofNewsdayinJuly2016 $ (54,133)Decreaseincallcompletionandtransportcostsprimarilyduetolowerlevelofactivity (20,443)Decreaseincostofsales(whichincludesalowercostormarketvaluationadjustmentof$17,382relatedtowirelesshandsetinventoryfrom2015,partiallyoffsetbythebulksaleofhandsetinventoryof$5,445duringthefirstquarterof2016) (10,238)
Increaseinfranchiseandotherfeesdueprimarilytoincreasesinratesincertainareas,partiallyoffsetbylowervideocustomers 3,140Increaseinprogrammingcostsdueprimarilytocontractualrateincreases,partiallyoffsetbylowervideocustomers 65,760Othernetincreases 104
(15,810)Cequel segment: Increaseinprogrammingcostsdueprimarilytocontractualrateincreases,partiallyoffsetbylowervideocustomers. 42,325Decreaseindigitalprogramming,premiumchannelsandpay-per-view (8,932)Decreaseincostsassociatedwithcarriercircuitsandlocalexchangecarriercosts (7,015)DecreaseinsubscriberlinecostsassociatedwithOperationReliant(aslaterdefined) (330)Othernetdecreases (3,694)
22,354 $ 6,544
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Programming costs
Programmingcostsaggregated$1,567,688fortheyearendedDecember31,2016onanactualbasisandonaproformabasisaggregated$2,451,480and$2,353,936fortheyearsendedDecember31,2016and2015,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.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.The
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proformadecreaseof$645,848(18%)fortheyearendedDecember31,2016isattributabletothefollowing:
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$229,774($201,529forourCablevisionsegmentand$28,245forourCequelsegment)and$(1,649)forourCablevisionsegment,respectively.
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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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Theproformarestructuringexpensefor2016isprimarilyrelatedtoseveranceandotheremployeerelatedcostsresultingfromheadcountreductionsrelatedtoinitiativeswhichcommencedin2016thatareintendedtosimplifytheCompany'sorganizationalstructureatbothCablevisionandCequel.Therestructuringcreditfor2015relatedtopriorrestructuringplansatCablevision.
Depreciation and Amortization
Actual 2016
Depreciationandamortization(includingimpairments)fortheyearendedDecember31,2016amountedto$1,700,306,ofwhich$963,665relatedtoourCablevisionsegmentfromthedateofacquisitionand$736,641relatedtoourCequelsegment.Depreciationandamortizationfor2016includesdepreciationandamortizationrelatedtothestep-upinthecarryingvalueofproperty,plantandequipmentandamortizableintangibleassetsrecordedinconnectionwiththeCablevisionAcquisitiononJune21,2016andtheCequelAcquisitiononDecember21,2015,partiallyoffsetbycertainassetsbeingretiredorbecomingfullydepreciated.
OnMay23,2017,AlticeN.V.announcedtheadoptionofaglobalbrandwhichwillreplacetheOptimumandSuddenlinkbrandsinthefuture,reducingtheremainingusefullivesofourtradenameintangibles,whichwillincreaseamortizationexpense.
Pro Forma 2016 Compared to Pro Forma 2015
Onaproformabasis,depreciationandamortization(includingimpairments)amountedto$2,484,284and$2,442,235fortheyearsendedDecember31,2016and2015,respectively.Theproformaincreaseof$42,049(2%)fortheyearendedDecember31,2016iscomprisedofa$6,647proformaincreaseforourCablevisionsegmentandaproformaincreaseof$35,402(5%)forourCequelsegment.Theproformaincreaseforbothsegmentsisprimarilyduetodepreciationonnewassetadditions,partiallyoffsetbylowerdepreciationforcertainassetsbeingretiredorbecomingfullydepreciated.
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),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.
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Interest Expense, net
Actual 2016
Interestexpense,netwas$1,442,730fortheyearendedDecember31,2016andincludesinterestondebtissuedtofinancetheCablevisionAcquisitionandCequelAcquisition,aswellasinterestondebtassumedinconnectionwiththeseacquisitions.
Pro Forma 2016 Compared to Pro Forma 2015
Onaproformabasis,interestexpense,netamountedto$1,760,421and$1,715,950fortheyearsendedDecember31,2016and2015,respectively.Theproformaincreaseof$44,471(3%)isprimarilyattributabletoanincreaseof$33,549duetothechangeinaveragedebtbalances,$792dueprimarilytoanincreaseintheamortizationofdeferredfinancingcostsanddiscounts/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$(53,696)consistsofunrealizedandrealizedgains(losses)duetothechangeinfairvalueofequityderivativecontractsrelatingtotheComcastcommonstockownedbytheCompanyfortheperiodfromthedateoftheCablevisionAcquisition.Theeffectsoftheselossareoffsetbythegainoninvestmentsecuritiespledgedascollateral,whichareincludedingain(loss)oninvestments,netdiscussedabove.
Pro Forma 2016 Compared to Pro Forma 2015
Onaproformabasis,gain(loss)onequityderivativecontracts,netfortheyearsendedDecember31,2016and2015amountedto$(89,979)and$104,927,respectively,assumingtheCablevisionAcquisitionoccurredonJanuary1,2015andconsistsofunrealizedandrealizedgains(losses)duetothechangeinfairvalueofequityderivativecontractsrelatingtotheComcastcommonstockownedbytheCompany.
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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.InconnectionwiththeacquisitionofCablevisioninJune2016,theCompanywasrequiredtore-measuredeferredtaxesofCequelatahigheroverallrate,resultinginadditionaldeferredtaxexpenseof$153,660.Theimpactofthenondeductibleshare-basedcompensationrelatedtotheCompany'scarriedunitplanresultedinadditionaltaxexpenseof$5,029.Absenttheseitems,theeffectivetaxratewouldhavebeen38%.
Pro Forma 2016 Compared to Pro Forma 2015
Onaproformabasis,incometaxbenefitfortheyearendedDecember31,2016amountedto$450,295.Theimpactofthenondeductibleshare-basedcompensationrelatedtotheCompany'scarriedunitplanresultedinadditionaltaxexpenseof$5,029.Absentthisitem,theeffectivetaxratewouldhavebeen39%.
Onaproformabasis,incometaxbenefitfortheyearendedDecember31,2015amountedto$498,567.InApril2015,corporateincometaxchangeswereenactedforbothNewYorkStateandtheCityofNewYork.Thosechangesincludedaprovisionwherebyinvestmentincomewillbesubjecttohighertaxes.Accordingly,inthesecondquarterof2015,Cablevisionrecordeddeferredtaxexpenseof$16,334toremeasurethedeferredtaxliabilityfortheinvestmentinComcastcommonstockandassociatedderivativesecurities.During2015,Cequelrecordedtaxexpenserelatedtoequitycompensationof$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 4,988
Income (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) 2,822Net 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 10,120Loss(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 3,115 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% 61.7% —% (0.3)%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 to Actual Results for the YearEnded 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.Incountingbulkresidentialcustomers,suchasanapartmentbuilding,wecounteachsubscribingfamilyunitwithinthebuildingasonecustomer,butdonotcountthemasteraccountfortheentirebuildingasacustomer.Wecountabulkcommercialcustomer,suchasahotel,asonecustomer,anddonotcountindividualroomunitsatthathotel.
(d) Representsthenumberofcustomersthatsubscribetothreeofourservicesdividedbytotalresidentialcustomerrelationships.
(e) Representsthenumberoftotalcustomerrelationshipsdividedbyhomespassed.
(f) Calculatedbydividingtheaveragemonthlyrevenuefortherespectivequarter(fourthquarterforannualperiods)presentedderivedfromthesaleofbroadband,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.
Predecessor 2015 compared to Predecessor 2014
Otherrevenueamountedto$258,469and$266,800fortheyearsendedDecember31,2015and2014,respectively.Thedecreaseof$8,331(3%)wasprimarilyduetoadecreaseinrevenuesatNewsdayfrom$252,405to$237,236dueprimarilytodecreasesinadvertisingrevenuesdrivenprimarilybycompetitionfromothermedia,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.Programmingandotherdirectcostsfor
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theSuccessorandPredecessorperiodsin2016wereimpactedbyanincreaseinprogrammingcostsdueprimarilytocontractualrateincreases,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:
Programming Costs
Programmingcostsaggregated$978,120and$883,792fortheperiodJune21,2016throughDecember31,2016andJanuary1,2016throughJune20,2016,respectively,comparedto$1,796,021and$1,728,847fortheyearendedDecember31,2015and2014,respectively.Ourprogrammingcostsincreased4%forthe2016periodsand4%in2015dueprimarilytoanincreaseincontractualprogrammingratesandapay-per-viewboxingeventin2015,partiallyoffsetbyadecreaseintelephonycustomers.Ourprogrammingcostsin2017willcontinuetobeimpactedbychangesinprogrammingrates,whichweexpecttoincreasebyhighsingledigits,andbychangesinthenumberofpaytelevisioncustomers.
Other Operating Expenses
Otheroperatingexpensesincludestaffcostsandemployeebenefitsincludingsalariesofcompanyemployeesandrelatedtaxes,benefitsandotheremployee-relatedexpenses.Otheroperatingexpensesalsoincludenetworkmanagementandfieldservicecosts,whichrepresentcostsassociatedwiththemaintenanceofourbroadbandnetwork,includingcostsofcertaincustomerconnectionsandothercostsassociatedwithprovidingandmaintainingservicestoourcustomerswhichareimpactedbygeneralcostincreasesforcontractors,insuranceandothervariousexpenses.
Customerinstallationandrepairandmaintenancecostsmayfluctuateasaresultofchangesinthelevelofactivitiesandtheutilizationofcontractorsascomparedtoemployees.Also,customerinstallationcostsfluctuateastheportionofourexpensesthatweareabletocapitalizechanges.Networkrepairandmaintenanceandutilitycostsalsofluctuateascapitalizablenetworkupgradeandenhancementactivitychanges.
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2015 DecreaseincostsprimarilyrelatedNewsday $ (10,143)Decreaseincallcompletionandtransportcostsprimarilyduetolowerlevelofactivity (14,184)Increaseincostofsales(whichincludesalowercostormarketvaluationadjustmentof$17,382relatedtowirelesshandsetinventoryfrom2015) 20,373
Increaseinfranchiseandotherfeesdueprimarilytoincreasesinratesincertainareas,partiallyoffsetbylowervideocustomers 4,307Increaseinprogrammingcostsdueprimarilytocontractualrateincreasesandapay-per-viewboxingeventin2015,partiallyoffsetbylowervideocustomers 66,942
Othernetincreases 4,260 $ 71,555
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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.
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'sorganizational
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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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structure.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.
OnMay23,2017,AlticeN.V.announcedtheadoptionofaglobalbrandwhichwillreplacetheOptimumbrandinthefuture,reducingtheremainingusefullifeofourtradenameintangible,whichwillincreaseamortizationexpense.
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.
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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$129,659fortheyearendedDecember31,2015and2014,respectively,andreflecttheincreaseordecreaseinthefairvalueofComcastcommonstockownedbytheCompany.Theeffectsofthesegains(losses)arepartiallyoffsetbythe(losses)gainsontherelatedequityderivativecontracts,netdescribedbelow.
Gain (Loss) on Equity Derivative Contracts, net
Gain(loss)onequityderivativecontracts,netamountedto$(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.
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2015 Decreaseduetochangeinaveragedebtbalances $ (7,941)Increaseduetochangeinaverageinterestratesonourindebtedness 16,918Higherinterestincome (505)Othernetincreases,primarilyamortizationofdeferredfinancingcosts 787
$ 9,259
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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%.
Loss From Discontinued Operations
LossfromdiscontinuedoperationsfortheyearendedDecember31,2015amountedto$12,541,netofincometaxes,andprimarilyreflectsanexpenserelatedtothesettlementofalegalmatterrelatingtoRainbowMediaHoldingsLLC,abusinesswhoseoperationswerepreviouslydiscontinued.
IncomefromdiscontinuedoperationsfortheyearendedDecember31,2014amountedto$2,822,netofincometaxesandresultedprimarilyfromthesettlementofacontingencyrelatedtoMontanapropertytaxesrelatedtoBresnanCable.
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Results of Operations—Cequel
Thecolumnlabeled"Successor"reflectsresultsofoperationsfortheperiodsubsequenttotheCequelAcquisitionandthecolumnslabeled"Predecessor"reflectresultsofoperationspriortotheCequelAcquisition.
The following is a reconciliation of net income (loss) to Adjusted EBITDA:
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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
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.
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ThefollowingtablesetsforthcertaincustomermetricsforourCequelsegment:
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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.Mostoftheseaccountsarealsonotentirelyfree,astheytypicallygeneraterevenuethroughpay-per-vieworotherpayservices.Freestatusisnotgrantedtoregularcustomersasapromotion.Incountingbulkresidentialcustomers,suchasanapartmentbuilding,wecounteachsubscribingfamilyunitwithinthebuildingasonecustomer,butdonotcountthemasteraccountfortheentirebuildingasacustomer.Wecountabulkcommercialcustomer,suchasahotel,asonecustomer,anddonotcountindividualroomunitsatthathotel.
(d) Representsthenumberofcustomersthatsubscribetothreeofourservicesdividedbytotalresidentialcustomerrelationships.
(e) Representsthenumberoftotalcustomerrelationshipsdividedbyhomespassed.
(f) Calculatedbydividingtheaveragemonthlyrevenuefortherespectivequarter(fourthquarterforannualperiods)presentedderivedfromthesaleofbroadband,paytelevisionandtelephonyservicestoresidentialcustomersfortherespectivequarterbytheaveragenumberoftotalresidentialcustomersforthesameperiod.
(g) ThemetricsforCequelpresentedinthetableabovehavebeenadjustedfrompreviouslyreportedamountstoconformtothemethodologyusedtocalculatetheequivalentCablevisionmetrics.
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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 to Actual Results for theYear 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.
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.
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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.
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.Marketingandsalesexpensesforthe2015periodswere
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impactedbyanincreaseindirectmailadvertisingande-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.Theinterestexpenseforthe2015Predecessorperiodascomparedtothe2014Predecessorperiodincreasedprimarilyduetoanincreaseinaveragedebtoutstandingandanincreaseinamortizationofdebtissuancecostsanddiscounts.
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%.
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Liquidity and Capital Resources
AlticeUSAhasnooperationsindependentofitssubsidiaries,CablevisionandCequel,whicharefundedseparately.Fundingforoursubsidiarieshasgenerallybeenprovidedbycashflowfromtheirrespectiveoperations,cashonhandandborrowingsundertheirrevolvingcreditfacilitiesandtheproceedsfromtheissuanceofsecuritiesandborrowingsundersyndicatedtermloansinthecapitalmarkets.Ourdecisionastotheuseofcashgeneratedfromoperatingactivities,cashonhand,borrowingsundertherevolvingcreditfacilitiesoraccessingthecapitalmarketshasbeenbaseduponanongoingreviewofthefundingneedsofthebusiness,theoptimalallocationofcashresources,thetimingofcashflowgenerationandthecostofborrowingundertherevolvingcreditfacilities,debtsecuritiesandsyndicatedtermloans.Wemanageourbusinesstoalong-termnetleverageratiotargetof5.0x.WecalculateourconsolidatednetleverageratioasnetdebttoL2QAEBITDA(AdjustedEBITDAforthetwomostrecentconsecutivefiscalquartersmultipliedby2.0).
Weexpecttoutilizefreecashflowandavailabilityundertherevolvingcreditfacilities,aswellasfuturerefinancingtransactionstofurtherextendthematuritiesof,orreducetheprincipalon,ourdebtobligations.Thetimingandtermsofanyrefinancingtransactionswillbesubjectto,amongotherfactors,marketconditions.Additionally,wemay,fromtimetotime,dependingonmarketconditionsandotherfactors,usecashonhandandtheproceedsfromotherborrowingstorepaytheoutstandingdebtsecuritiesthroughopenmarketpurchases,privatelynegotiatedpurchases,tenderoffers,orredemptionprovisions.
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,wewillbedependentuponourcontinuedaccesstothecapitalandcreditmarketstoissueadditionaldebtorequityorrefinanceexistingdebtobligations.Wewillneedtoraisesignificantamountsoffundingoverthenextseveralyearstofundcapitalexpenditures,repayexistingobligationsandmeetotherobligations,andthefailuretodososuccessfullycouldadverselyaffectourbusiness.Ifweareunabletodoso,wewillneedtotakeotheractionsincludingdeferringcapitalexpenditures,sellingassets,seekingstrategicinvestmentsfromthirdpartiesorreducingoreliminatingdiscretionaryusesofcash.
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Debt Outstanding
Thefollowingtablessummarizethecarryingvalueofouroutstandingdebt,netofdeferredfinancingcosts,discountsandpremiums(excludingaccruedinterest),aswellasinterestexpenseandproformainterestexpense.
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As of March 31, 2017
Cablevision Cequel Altice USA Eliminations Total Altice
USA, Inc. Debt outstanding: Creditfacilitydebt $ 2,677,412 $ 810,929 $ — $ — $ 3,488,341Seniorguaranteednotes 2,289,901 — — — 2,289,901Seniorsecurednotes 2,567,708 — — 2,567,708Seniornotesanddebentures 9,463,492 3,184,617 — — 12,648,109Capitalleaseobligations 21,321 2,223 — — 23,544Notespayable 11,453 — — — 11,453Subtotal $ 14,463,579 $ 6,565,477 $ — $ — $ 21,029,056
Notespayabletoaffiliatesandrelatedparties — — 1,750,000 — 1,750,000Collateralizedindebtednessrelatingtostockmonetizations(a) 1,293,702 — — — 1,293,702Totaldebt $ 15,757,281 $ 6,565,477 $ 1,750,000 $ — $ 24,072,758
Interest expense: Creditfacilitydebt,seniornotes,capitalleasesandnotespayable $ 261,953 $ 105,500 1,942 $ (1,942) $ 367,453Notespayabletoaffiliatesandrelatedparties — — 47,588 — 47,588Collateralizedindebtednessrelatingtostockmonetizations(a) 18,253 — $ — — 18,253Totalinterestexpense $ 280,206 $ 105,500 $ 49,530 $ (1,942) $ 433,294
(a) ThisindebtednessiscollateralizedbysharesofComcastcommonstock.WeintendtosettlethisdebtbyeitherdeliveringsharesoftheComcastcommonstockandtherelatedequityderivativecontractsorbydeliveringcashfromthenetproceedsofnewmonetizationtransactions.
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ThefollowingtableprovidesdetailsofouroutstandingcreditfacilitydebtasofMarch31,2017:
Pre-IPO Distribution
Priortotheclosingofthisoffering,theCompanywilldeclareandpayacashdividendof$669,750toitsstockholders,whichwillbefundedbyborrowingsof$500,000undertheCVCRevolvingCreditFacilityand$169,750ofcashonhand.
Payment Obligations Related to Debt
AsofMarch31,2017,totalamountspayablebyusinconnectionwithouroutstandingobligations(givingeffecttotheExtensionAmendmentdiscussedbelow)duringtheperiodbelowandthereafter,includingrelatedinterest,aswellasnotespayabletoaffiliatesandrelatedparties,capitallease
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Maturity Date Interest
Rate Principal Carrying Value(a) Cablevision: CSCHoldingsRevolvingCreditFacility(b)
$20,000onOctober9,2020,remainingonNovember30,2021 4.16%$ 225,256 $ 196,407
CSCHoldingsTermCreditFacility(c) July17,2025 3.94% 2,493,750 2,481,005Cequel: RevolvingCreditFacility November30,2021 — — —TermCreditFacility(d) July28,2025 3.98% 812,963 810,929
$ 3,488,341
(a) Theunamortizeddiscountsanddeferredfinancingcostsamountedto$43,628atMarch31,2017.
(b) Includes$100,256ofcreditfacilitydebtincurredtofinancetheCablevisionAcquisition.SeediscussionaboveregardingtheamendmenttotherevolvingcreditfacilityenteredintoDecember2016.AtMarch31,2017,$1,984,721,ofthefacilitywasundrawnandavailable,subjecttocovenantlimitations.
(c) Represents$3,800,000principalamountofdebtincurredtofinancetheCablevisionAcquisition,netofprincipalrepaymentsmade.
(d) AtMarch31,2017,$17,031oftherevolvingcreditfacilitywasrestrictedforcertainlettersofcreditissuedonbehalfoftheCompanyand$332,969ofthefacilitywasundrawnandavailable,subjecttocovenantlimitations.
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obligations,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.
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,inter alios ,CSCHoldingscertainlenderspartytheretoandJPMorganChaseBank,N.A.asadministrativeagentandsecurityagent(asamended,restated,supplementedorotherwisemodifiedonJune20,2016,June21,2016,July21,2016,September9,2016,December9,2016andMarch15,2017,respectively,andasfurtheramended,restated,supplementedorotherwisemodifiedfromtimetotime,the"CVCCreditFacilitiesAgreement").Priortotheclosingof
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Cablevision
(a) Cequel Altice USA Total 2017 $ 1,605,515 $ 272,251 $ 286,563 $ 2,164,3292018 3,079,614 375,095 192,500 3,647,2092019 1,416,752 374,367 192,500 1,983,6192020 1,341,908 1,423,927 192,500 2,958,3352021 2,361,704 1,556,463 192,500 4,110,667Thereafter 12,619,295 5,226,772 2,231,250 20,077,317Total $ 22,424,788 $ 9,228,875 $ 3,287,813 $ 34,941,476
(a) Includedinthe2017and2018amountsis$500,934and$534,884,respectively,relatedtotheCompany'sobligations(includingrelatedinterest)inconnectionwithmonetizationcontractsithasenteredinto.TheCompanyhastheoption,atmaturity,todeliverthesharesofcommonstockunderlyingthemonetizationcontractsinfullsatisfactionofthematuringcollateralizedindebtednessandtherelatedderivativecontractsorobtaintherequiredcashequivalentofthecommonstockthroughnewmonetizationandderivativecontracts.
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thisoffering,weintendtoborrow$500,000undertheCVCRevolvingCreditFacilitytopartiallyfundthePre-IPODistribution.
CSCHoldingswasincompliancewithallofitsfinancialcovenantsundertheCVCCreditFacilitiesAgreementasofMarch31,2017.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").
CequelwasincompliancewithallofitsfinancialcovenantsundertheCequelCreditFacilitiesAgreementasofMarch31,2017.
ForadescriptionofthetermsoftheCequelCreditFacilitiesAgreement,see"DescriptionofCertainIndebtedness"elsewhereinthisprospectus.
Cablevision Bonds
Cablevision Notes
OnSeptember23,2009,Cablevisionissued$900,000aggregateprincipalamountofits85/8%SeniorNotesdue2017and85/8%SeriesBSeniorNotesdue2017(together,the"Cablevision2017SeniorNotes").OnApril17,2017,Cablevisionredeemed$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"Cablevision2022SeniorNotes"and,togetherwiththeCablevision2017SeniorNotes,theCablevision2018SeniorNotesandtheCablevision2020SeniorNotes,the"CablevisionLegacyNotes").
AsofMarch31,2017,CablevisionwasincompliancewithallofitsfinancialcovenantsundertheindenturesunderwhichtheCablevisionLegacyNoteswereissued.
ForadescriptionofthetermsoftheCablevisionLegacyNotes,see"DescriptionofCertainIndebtedness"elsewhereinthisprospectus.
CSC Holdings Notes
CSC Holdings Senior Guaranteed Notes
OnOctober9,2015,Fincoissued$1,000,000aggregateprincipalamountofits65/8%SeniorGuaranteedNotesdue2025(the"CSC2025SeniorGuaranteedNotes").CSCHoldingsassumedthe
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obligationsasissueroftheCSC2025SeniorGuaranteedNotesuponthemergerofFincoandCSCHoldingsonJune21,2016.OnSeptember23,2016,CSCHoldingsissued$1,310,000aggregateprincipalamountofits51/2%SeniorGuaranteedNotesdue2027(the"CSC2027SeniorGuaranteedNotes"and,togetherwiththeCSC2025SeniorGuaranteedNotes,the"CSCSeniorGuaranteedNotes").
AsofMarch31,2017,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%SeniorNotesdue2025togetherwiththeCSC2023SeniorNotes,the"CSCNewSeniorNotes",andtheCSCLegacyNotesandtheCSCNewSeniorNotes,collectively,the"CSCSeniorNotes").CSCHoldingsassumedtheobligationsasissueroftheCSC2023SeniorNotesuponthemergerofFincoandCSCHoldingsonJune21,2016.Weintendtoredeem$350,000principalamountoftheCSC2025SeniorNoteswiththenetproceedsfromthisofferingandcashonhand.See"UseofProceeds"elsewhereinthisprospectus.
AsofMarch31,2017,CSCHoldingswasincompliancewithallofitsfinancialcovenantsundertheindenturesunderwhichtheCSCSeniorNoteswereissued.
ForadescriptionofthetermsoftheCSCSeniorNotes,see"DescriptionofCertainIndebtedness"elsewhereinthisprospectus.
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").
AsofMarch31,2017,CequelwasincompliancewithallofitsfinancialcovenantsundertheindenturesunderwhichtheCequelSeniorSecuredNoteswereissued.
ForadescriptionofthetermsoftheCequelSeniorSecuredNotes,see"DescriptionofCertainIndebtedness"elsewhereinthisprospectus.
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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-Issuersredeemed$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").
AsofMarch31,2017,CequelwasincompliancewithallofitsfinancialcovenantsundertheindenturesunderwhichtheCequelSeniorNoteswereissued.
ForadescriptionofthetermsoftheCequelSeniorNotes,see"DescriptionofCertainIndebtedness"elsewhereinthisprospectus.
Capital Expenditures
ThefollowingtableprovidesdetailsoftheCompany'scapitalexpendituresforthethreemonthsendedMarch31,2017:
ThefollowingtableprovidesdetailsoftheCompany'scapitalexpendituresonaproformabasisforthethreemonthsendedMarch31,2016asiftheCablevisionAcquisitionhadoccurredasofJanuary1,2016:
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Capital Expenditures Cablevision Cequel Total Customerpremiseequipment $ 47,675 $ 28,279 $ 75,954Networkinfrastructure 74,948 26,028 100,976Supportandother 38,198 8,454 46,652Businessservices 23,578 10,267 33,845
$ 184,399 $ 73,028 $ 257,427
Pro Forma Capital Expenditures Cablevision Cequel Total Customerpremiseequipment $ 34,750 $ 42,537 $ 77,287Networkinfrastructure 59,609 10,163 69,772Supportandother 33,136 4,926 38,062Businessservices 21,157 8,578 29,735
$ 148,652 $ 66,204 $ 214,856
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ThefollowingtableprovidesdetailsoftheCompany'scapitalexpendituresfortheyearendedDecember31,2016(reflectingcapitalexpendituresforCablevisionfromthedateofacquisition):
ThefollowingtableprovidesdetailsoftheCompany'scapitalexpendituresonaproformabasisfortheyearendedDecember31,2016asiftheCablevisionacquisitionhadoccurredonJanuary1,2016:
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
Three Months Ended March 31, 2017 and 2016
Operating Activities
Netcashprovidedbyoperatingactivitiesamountedto$234,645forthethreemonthsendedMarch31,2017comparedto$155,622forthethreemonthsendedMarch31,2016.The2017cashprovidedbyoperatingactivitiesresultedfrom$447,849ofincomefrombeforedepreciationandamortizationandnon-cashitems,a$34,707decreaseinaccountsreceivable,anincreaseindeferredrevenueof$11,257,partiallyoffsetby$105,314resultingfromadecreaseinaccountspayableandaccruedexpenses,anetdecreaseof$131,958inamountsduetoaffiliates,anincreaseincurrentandotherassetsof$19,554,andadecreaseinliabilityrelatedtointerestrateswapcontractsof$2,342.
The2016cashprovidedbyoperatingactivitiesresultedfrom$6,560ofincomefrombeforedepreciationandamortizationandnon-cashitemsandanincreaseinaccountspayableandaccruedexpensesof$145,421andanincreaseof$3,641inotherworkingcapitalitems.
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Capital Expenditures Cablevision Cequel Total Customerpremiseequipment $ 77,536 $ 154,718 $ 232,254Networkinfrastructure 91,952 76,926 168,878Supportandother 83,153 45,336 128,489Businessservices 45,716 50,204 95,920
$ 298,357 $ 327,184 $ 625,541
Pro Forma Capital Expenditures Year Ended December 31, 2016 Cablevision Cequel Total Customerpremiseequipment $ 145,954 $ 154,718 $ 300,672Networkinfrastructure 241,204 76,926 318,130Supportandother 151,477 45,336 196,813Businessservices 89,853 50,204 140,057
$ 628,488 $ 327,184 $ 955,672
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Investing Activities
NetcashusedininvestingactivitiesforthethreemonthsendedMarch31,2017was$301,172comparedto$65,806forthethreemonthsendedMarch31,2016.The2017investingactivitiesconsistedprimarilyofcapitalexpendituresof$257,427,paymentsforacquisitions,netofcashacquiredof$43,608,and$137inothercashpayments.
The2016investingactivitiesconsistedprimarilyof$66,204ofcapitalexpenditures,partiallyoffsetbynetproceedsfromthedisposalofassetsof$398.
Financing Activities
Netcashprovidedbyfinancingactivitiesamountedto$42,267forthethreemonthsendedMarch31,2017comparedtonetcashusedof$9,945forthethreemonthsendedMarch31,2016.In2017,theCompany'sfinancingactivitiesconsistedprimarilyofproceedsfromcreditfacilitydebtof$225,000andcollateralizedindebtednessof$156,136,partiallyoffsetbyrepaymentsofcreditfacilitydebtof$183,288,paymentsofcollateralizedindebtednessandrelatedderivativecontractsof$150,084,principalpaymentsoncapitalleaseobligationsof$4,207andadditionstodeferredfinancingcostsof$1,290.
In2016,theCompany'sfinancingactivitiesconsistedofrepaymentsonlong-termdebtof$5,980andprincipalpaymentsoncapitalleaseobligationsof$3,965.
For the Year Ended December 31, 2016
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.
Monetization Contract Maturities
Monetizationcontractsrelatingto5,338,750shares(adjustedforthe2for1stocksplitinFebruary2017)ofourComcastcommonstockmaturedinAugust2016.Wesettledourobligationsunderthe
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relatedcollateralizedindebtednessbydeliveringcashfromthenetproceedsofanewmonetizationtransactionsonourComcastcommonstockthatwillmatureinAugust2018.
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,andrentalspaceonutilitypoles.SeeNote7totheAlticeUSA,Inc.consolidatedfinancialstatementsforadiscussionofouroperatingleases.
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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,wewouldbeobligatedtorepaythefairvalueofthecollateralizedindebtednesslessthesumofthefair
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(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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valuesoftheunderlyingstockandequitycollar,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.
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Thesignificantaccountingpolicies,whichwebelievearethemostcriticaltoaidinfullyunderstandingandevaluatingourreportedfinancialresults,includethefollowing:
Business Combinations
TheCompanyappliedbusinesscombinationaccountingfortheCablevisionAcquisitionandtheCequelAcquisition.Businesscombinationaccountingrequiresthattheassetsacquiredandliabilitiesassumedberecordedattheirrespectiveestimatedfairvaluesatthedateofacquisition.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.Thefirststepofthe
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goodwillimpairmenttestisusedtoidentifypotentialimpairmentbycomparingthefairvalueofthereportingunitwithitscarryingamount,includinggoodwillutilizinganenterprise-valuebasedpremiseapproach.Ifthecarryingamountofthereportingunitexceedsitsfairvalue,thesecondstepofthegoodwillimpairmenttestisperformedtomeasuretheamountofimpairmentloss,ifany.Thesecondstepofthegoodwillimpairmenttestcomparestheimpliedfairvalueofthereportingunit'sgoodwillwiththecarryingamountofthatgoodwill.Ifthecarryingamountofthereportingunit'sgoodwillexceedstheimpliedfairvalueofthatgoodwill,animpairmentlossisrecognizedinanamountequaltothatexcess.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.
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Valuation of Deferred Tax Assets
DeferredtaxassetshaveresultedprimarilyfromtheCompany'sfuturedeductibletemporarydifferencesandnetoperatinglosscarryforwards("NOLs").Inassessingtherealizabilityofdeferredtaxassets,managementconsiderswhetheritismorelikelythannotthatsomeportionorallofthedeferredtaxassetwillnotberealized.Inevaluatingtheneedforavaluationallowance,managementtakesintoaccountvariousfactors,includingtheexpectedleveloffuturetaxableincome,availabletaxplanningstrategiesandreversalsofexistingtaxabletemporarydifferences.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,plantandequipmentarereviewedonanannualbasisormorefrequentlyifcircumstanceswarrantandsuchlivesarerevisedtotheextent
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necessaryduetochangingfactsandcircumstances.Anychangesinestimatedusefullivesarereflectedprospectively.
RefertoNote2toourconsolidatedfinancialstatementsforadiscussionofouraccountingpolicies.
Legal Contingencies
TheCompanyispartytovariouslawsuitsandproceedingsandissubjecttootherclaimsthatariseintheordinarycourseofbusiness,someinvolvingclaimsforsubstantialdamages.TheCompanyrecordsanestimatedliabilityfortheseclaimswhenmanagementbelievesthelossfromsuchmattersisprobableandreasonablyestimable.TheCompanyreassessestheriskoflossasnewinformationbecomesavailableandadjustsliabilitiesasnecessary.Theactualcostofresolvingaclaimmaybesubstantiallydifferentfromtheamountoftheliabilityrecorded.RefertoNote16toourconsolidatedfinancialstatementsforadiscussionofourlegalcontingencies.
Equity Awards
CertainemployeesoftheCompanyanditsaffiliatesreceivedawardsofunitsinacarryunitplanofanentitywhichhasanownershipinterestintheCompany.TheCompanymeasuresthecostofemployeeservicesreceivedinexchangeforcarriedunitsbasedonthefairvalueoftheawardatgrantdate.Inadditiontheseunitsarepresentedastemporaryequityonourconsolidatedbalancesheetatfairvalue.Anoptionpricingmodelisusedtocalculatethefairvalueoftheseunits,whichrequiressubjectiveassumptionsforwhichchangesintheseassumptionscouldmateriallyaffectthefairvalueoftheunitsoutstanding.Significantassumptionsincludeequityvolatility,riskfreerate,timetoliquidityevent,anddiscountforlackofmarketability.Theweightedaveragegrantdatefairvalueoftheoutstandingunitsis$0.37perunitandthefairvaluewas$1.76perunitasofDecember31,2016.FortheyearendedDecember31,2016,theCompanyrecognizedanexpenseof$14,368relatedtothepushdownofshare-basedcompensationrelatedtothecarryplanandtheredeemableequityonourbalancesheetatDecember31,2016was$68,147.SeeNote14toourconsolidatedfinancialstatementsforafurtherdiscussionofourcarryunitplanawards.
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.Entitieswillberequiredtomeasureequityinvestmentsthatdonotresultinconsolidationandarenot
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accountedforundertheequitymethodatfairvalueandrecognizeanychangesinfairvalueinnetincome.Forfinancialliabilitiesmeasuredusingthefairvalueoption,entitieswillberequiredtorecordchangesinfairvaluecausedbyachangeininstrument-specificcreditrisk(owncreditrisk)separatelyinothercomprehensiveincome.ASUNo.2016-01becomeseffectiveforusonJanuary1,2018.WehavenotyetcompletedtheevaluationoftheeffectthatASUNo.2016-01willhaveonourconsolidatedfinancialstatements.
InMay2014,theFASBissuedASUNo.2014-09,RevenuefromContractswithCustomers,requiringanentitytorecognizetheamountofrevenuetowhichitexpectstobeentitledforthetransferofpromisedgoodsorservicestocustomers.ASUNo.2014-09willreplacemostexistingrevenuerecognitionguidanceinGAAPwhenitbecomeseffectiveandallowstheuseofeithertheretrospectiveorcumulativeeffecttransitionmethod.InAugust2015,theFASBissuedASUNo.2015-14thatapproveddeferringtheeffectivedatebyoneyearsothatASUNo.2014-09wouldbecomeeffectiveforusonJanuary1,2018.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.WeareintheprocessofevaluatingtheimpactthattheadoptionofASUNo.2014-09willhaveonourconsolidatedfinancialstatementsandselectingthemethodoftransitiontothenewstandard.Wecurrentlyexpecttheadoptiontoimpactthetimingoftherecognitionofresidentialinstallationrevenueandtherecognitionofcommissionexpenses.
InAugust2016,theFASBissuedASUNo.2016-15,StatementofCashFlows(Topic230):ClassificationofCertainCashReceiptsandCashPaymentswhichclarifieshowentitiesshouldclassifycertaincashreceiptsandcashpaymentsonthestatementofcashflows.ASUNo.2016-15alsoclarifieshowthepredominanceprincipleshouldbeappliedwhencashreceiptsandcashpaymentshaveaspectsofmorethanoneclassofcashflows.ThenewguidancebecomeseffectiveforusonJanuary1,2018withearlyadoptionpermittedandwillbeappliedretrospectively.WehavenotyetcompletedtheevaluationoftheeffectthatASUNo.2016-15willhaveonourconsolidatedfinancialstatements.
InFebruary2016,theFASBissuedASUNo.2016-02,Leases,whichincreasestransparencyandcomparabilitybyrecognizingalessee'srightsandobligationsresultingfromleasesbyrecordingthemonthebalancesheetasleaseassetsandleaseliabilities.ThenewguidancebecomeseffectiveforusonJanuary1,2019withearlyadoptionpermittedandwillbeappliedusingthemodifiedretrospectivemethod.WearecurrentlyintheprocessofdeterminingtheimpactthatASUNo.2016-02willhaveonourconsolidatedfinancialstatements.
InMarch2017,theFASBissuedASUNo.2017-07Compensation-RetirementBenefits(Topic715).ASUNo.2017-07requiresthatanemployerdisaggregatetheservicecostcomponentfromtheothercomponentsofnetbenefitcost.Italsoprovidesguidanceonhowtopresenttheservicecostcomponentandtheothercomponentsofnetbenefitcostintheincomestatementandwhatcomponentofnetbenefitcostiseligibleforcapitalization.ASUNo.2017-07becomeseffectiveforusonJanuary1,2018withearlyadoptionpermittedandwillbeappliedretrospectively.WehavenotyetcompletedtheevaluationoftheeffectthatASUNo.2017-07willhaveonourconsolidatedfinancialstatements.
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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(eveninsomecasesawayfrompaytelevisionto"data-only"plans)andcreatingadditionalopportunitiesforbroadbandcommunicationsandvideoservicesproviderstosellthesenewproducts.
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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.AsofMarch31,2017,thetopfourbroadbandcommunicationsprovidershadagreaterthan85%marketshareintheUnitedStatesacrosspaytelevision,broadbandandtelephonyservices.
U.S. MVPDs segment market shares
Source:S&PGlobalMarketIntelligence,2017
Trends Across Key Product Segments
Broadband
Broadbandhasbecomeoneofthefastestgrowingproductsincommunicationsservices,drivenbyincreasingdemandfromresidentialcustomersforfasterInternetaccessandforbandwidth-intensiveservicessuchasvideostreaming,contentdownloadingfortime-shiftedvideoconsumptionandotherapplicationsdeliveredoverOTTplatformssuchasAmazon,Hulu,NetflixandYouTube.TheU.S.
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residentialbroadbandmarkethadanestimatedtotalsizeofapproximately$35billionasofMay2016,withanestimatedpenetrationof77%oftotalU.S.householdsasofthefirstquarterof2017.Weexpectthisgrowingbroadbandadoptionandthemigrationofcustomerstohigher-priced,higher-speedtierstocontinue.
Residential wireline broadband penetration of U.S. households units
Source:S&PGlobalMarketIntelligence,2017
DemandforbroadbandbyB2Bcustomersisgrowingrapidlyaswell,duetoseculartrendssuchascloudcomputing,e-commerce,theincreasingimportanceof"BigData"andthe"InternetofThings".TheU.S.commercialbroadbandmarkethasanestimatedtotalsizeof$8billionandisexpectedtogrowatacompoundannualgrowthrate("CAGR")of7.3%from2016to2026,fasterthantheprojectedgrowthrateforresidentialbroadbandInternet,whichisexpectedtogrowataCAGRof2.9%from2016to2026.
TheprimarybroadbandInternetaccesstechnologiesareFTTH,HFCandDSL,withHFCbeingtheleadingplatformrepresentingapproximately64%ofthemarketasofMarch2017.Webelieveincreasingdemandforhigher-speedbroadbandInternettosupportadvancedapplicationsrequiringhigherbandwidthandgreaterdownloadspeedsoffersasizablegrowthopportunityforcableandfiber-basedtechnologiesinthenearterm.
U.S. broadband subscribers by technology and service provider (Share of total subscribers)
Source:S&PGlobalMarketIntelligence,2017
ThestronggrowthincablebroadbandsubscribershaslargelybeenattheexpenseoftheDSLsector,whichhaslostsubscriberstocableasthesubscribersseekfasterdownloadspeeds.BroadbandcommunicationsandvideoservicesprovidersarenowupgradingtothenewDOCSIS3.1standard,enablinghigherspectralefficiencyandsupportingupto10Gbpsdownloadand1Gbpsuploadspeeds.
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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.householdsasofMarch31,2017.CompetingtechnologiesanddeliverysystemsincludeDBSoperators,videodeliveredbycommunicationscompaniesandvideodelivereddirectlyovertheInternet.Webelievecablehascertainadvantagesoverthesetechnologies,notablyintermsofavailabilityofinteractivefeatures,imagequalityandnumberofchannels.
Residential multi-channel penetration of U.S. occupied household units
Source:S&PGlobalMarketIntelligence,2017
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Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Netadditionsbycablecompanies 1,186 495 899 1,219 1,280 615 935 917 1,102Netadditionsbycommunicationcompanies 331 (142) (128) (35) 64 (364) (205) (150) (51)Combinednetadditions 1,517 353 771 1,185 1,344 251 730 767 1,051
Source:S&PGlobalMarketIntelligence,2017
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2017 U.S. pay television by technology and provider ( Share of total pay television subscribers )
Source:S&PGlobalMarketIntelligence,2017
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).
Telephony Services
TraditionalswitchedvoicelineshavebeendecliningsteadilyinrecentyearsastheyarereplacedbyVoIPlines.Thistrendhasbeenmorepronouncedforcommunicationscompanieswhilecableoperatorshavebeenabletomaintaintheirsubscriberbasebybundlingthefixed-lineserviceintobundledservicepackages.
U.S. telephony net subscribers additions (thousands)
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Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Telephonynetadditionsbycablecompanies 450 276 297 660 427 151 26 160 79Telephonynetadditionsbycommunicationcompanies (941) (817) (1,062) (987) (970) (956) (884) (799) (842)Combinednetadditions (491) (541) (765) (327) (543) (806) (859) (639) (763)
Source:S&PGlobalMarketIntelligence,2017
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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.
Basedonmanagementestimates,AlticeUSA'saddressablemarketsizeforB2Bservices,includingdata,videoandmanagedservices,was$6.4billionasofAugust2016.
Industry benchmark
AlticeUSAbelievesthattheU.S.cableoperatorshaveahigherrevenuepotentialrelativetotheirEuropeanpeers,butalsohighermonthlyoperatingcostsexcludingprogrammingcostspercustomer.ThetablebelowcomparestheARPUandoperatingexpensesexcludingprogrammingcostspercustomerforAlticeUSAandtheirEuropeanpeers.
Altice USA benchmarking vs. European peers 1
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Altice USA Q1-16 Q1-17 ARPU $ 135.32 $ 139.11Monthlyoperatingcostperuniquecustomer(excl.programmingcost) $ 62.83 $ 49.48
European Peers ARPU $ 47.53Monthlyoperatingcostperuniquecustomer(excl.programmingcost)2 $ 21.37
1 EuropeanpeersforARPUincludesTelenet,Ziggo,VMED,ComHemandUPCHolding.EuropeanpeersformonthlyoperatingcostperuniquecustomerexcludingprogrammingexpensesincludeZiggo,VMEDandUPCHolding(neitherTelenetnorComHempubliclyreporttheirprogrammingexpenses;andEuropeanpeersforaveragecapitalexpenditureperuniquecustomerincludesTelenet,Ziggo,VMED,ComHemandUPCHolding.
2 AverageoperatingcostperuniquecustomerexcludingprogrammingexpensesforEuropeanpeersreflectsfullyear2016datainsteadoffirstquarter2017dataduetothelimiteddisclosureofprogrammingexpensesonaquarterlybasisbyEuropeanpeers.
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BUSINESS
Overview
AlticeUSAisoneofthelargestbroadbandcommunicationsandvideoservicesprovidersintheUnitedStates.Wedeliverbroadband,paytelevision,telephonyservices,Wi-Fihotspotaccess,proprietarycontentandadvertisingservicestoapproximately4.9millionresidentialandbusinesscustomers.Ourfootprintextendsacross21statesthroughafiber-richbroadbandnetworkwithmorethan8.5millionhomespassedasofMarch31,2017.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.
WeacquiredSuddenlinkonDecember21,2015andOptimumonJune21,2016.Weareaholdingcompanythatdoesnotconductanybusinessoperationsofourown.Weserveourcustomersthroughtwobusinesssegments:Optimum,whichoperatesintheNewYorkmetropolitanarea,andSuddenlink,whichprincipallyoperatesinmarketsinthesouth-centralUnitedStates.WehavemadesignificantprogressinintegratingtheoperationsofOptimumandSuddenlinkandarealreadyrealizingtheoperationalandcommercialbenefitsofcommonownershipandonemanagementteamasweimplementtheAlticeWaythroughoutourorganization.
Weareamajority-ownedandcontrolledU.S.subsidiaryofAlticeN.V.,themultinationalcable,fiber,telecommunications,content,mediaandadvertisingcompanyfoundedandcontrolledbycommunicationsandmediaentrepreneurMr.Drahi.OurmanagementteambenefitsfromAlticeGroup'sexperienceinimplementingtheAlticeWayaroundtheworld.Mr.Drahi,whohasover25yearsofexperienceowningandmanagingcommunicationsandmediaoperations,hasbuiltAlticeGroupfromaregionalFrenchcablecompanyfoundedin2002intooneoftheworld'sleadingbroadbandcommunicationsandvideoservicescompanies.Overthepast15years,hehasledatransformationofthebroadbandcommunicationsandvideoservicesindustrythroughinvestmentinnetworksandimprovementsincustomerexperienceandoperationstoenhancebothservicedeliveryandoperationalefficiency.AsofDecember31,2016,AlticeGroupdeliveredbroadband,paytelevisionandtelephonyservicestomorethan50millioncustomersinWesternEurope,theUnitedStates,IsraelandtheCaribbeanandreportedproformaconsolidatedrevenueof€23.5billionandproformaAdjustedEBITDAof€8.9billionforthefiscalyearendedDecember31,2016.Uponthecompletionofthisoffering,AlticePartiesonacombinedbasiswillown75.2%oftheoutstandingsharesofourClassAandClassBcommonstock,whichwillrepresent98.5%ofthevotingpowerofouroutstandingcapitalstock.
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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.
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ManyofourinitiativeshavealreadyresultedinapositiveimpacttoourcustomerrelationshipsandfinancialresultssincetheAcquisitions,asreflectedintheyear-over-yeargrowthacrossthemetricsinthefollowingtable:
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.'sClassAordinarysharesareacomponent,duringthesametimeperiod.
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Three months ended March 31,
Altice USA
Cablevision Cequel
Pro Forma
2016(a)
(in thousands except percentage data) 2017 2017 2016(a) 2017 2016 CustomerRelationships 4,913 4,859 3,148 3,125 1,765 1,734% growth 1.1% 0.7% 1.8% Revenue 2,305,676 2,273,479 1,644,801 1,645,890 660,875 627,589% growth 1.4% (0.1)% 5.3% AdjustedEBITDA(b) 941,736 743,588 627,073 480,859 314,662 262,729% growth 26.6% 30.4% 19.8% % of Revenue 40.8% 32.7% 38.1% 29.2% 47.6% 41.9%AdjustedEBITDAlesscapitalexpenditures(b) 684,309 528,732 442,674 332,207 241,634 196,525% growth 29.4% 33.3% 23.0% % of Revenue 29.7% 23.3% 26.9% 20.2% 36.6% 31.3%Netlossattributabletostockholders (76,425) (190,075) (60,808) 94,377 14,739 (32,329)% growth 59.8% (164.4)% 145.6%
(a) IncludesresultsforNewsdayMediaGroup("Newsday").AlticeUSAsolda75%stakeinNewsdayinJuly2016.Newsday'srevenueforthethreemonthsendedMarch31,2016wasapproximately$52million.
(b) ForadditionalinformationregardingAdjustedEBITDA,includingareconciliationofAdjustedEBITDAtoNetLoss,pleasereferto"ProspectusSummary—SummaryHistoricalandProFormaCombinedFinancialData."
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Leading Position in Attractive Markets
ThemarketsservedbyourbroadbandnetworkshavegenerallyexperiencedhigherlevelsofdisposableincomeandhouseholddensitycomparedtootherbroadbandcommunicationsandvideoservicesmarketsintheUnitedStates.AsofMarch31,2017,approximately75%ofthehomespassedbyournetworkwereineithertheNewYorkmetropolitanareaorTexas.Thefollowingtableprovidesacomparisonofmanagement'sestimateofincomeanddensitymetricsforourmarketstobothourlargestU.S.publicly-tradedindustrypeersaswellasthenationalaverages.
ThefootprintofourOptimumnetworkincludesNewYorkCity,theworld'slargestmediaandentertainmentmarketasmeasuredby2014revenue.Thisnetworkrepresentsourlargestclusterofcableandfibernetworksystems.AsofMarch31,2017,thisnetworkpassedapproximately5.1millionhomesandprovidedbroadband,paytelevisionandtelephonyservicestoapproximately3.1millionuniqueresidentialandbusinesscustomers,representingapproximately64%ofourentirecustomerbase.WebelieveourleadingmarketdemographicssupportrevenuegrowthpotentialintermsofcustomeradditionsandincreasedARPU.WebelievethemarketdensityoftheNewYorkmetropolitanareaallowsourOptimumsegmenttooperatewithgreatercapitalefficiencyandlowercapitalexpendituresasapercentageofrevenuethanourU.S.industrypeers.Ourpresenceinthismarketanditshigh-profilecustomerbasealsogivesusaccesstoalargeandvaluablebaseofadvertisers,advertisinginventoryandadvertisingdata,eachofwhichsupportsgrowthprospectsforouradvertisingbusiness.
ThefootprintofourSuddenlinknetworkincludesmarketsinTexas,WestVirginia,Louisiana,Arkansas,NorthCarolina,Oklahoma,Arizona,California,Missouriandeightotherstates.AsofMarch31,2017,thisnetworkpassedapproximately3.4millionhomesandprovidedbroadband,paytelevisionandtelephonyservicestoapproximately1.8millionuniqueresidentialandbusinesscustomers,representingapproximately36%ofourcustomerbase.Webelievelessthan15%ofourSuddenlinkfootprintcurrentlyfacescompetitionfrombroadbandcommunicationsandvideoservicesprovidersofferingdownloadspeedscomparabletoourfastestofferedspeeds.Inaddition,householdpenetrationofresidentialbroadbandconnectionswithspeedsofatleast25Mbpsinthesemarketswaslessthan37%asofJune30,2016comparedtoapproximately48%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,wehavenearlytripledthemaximumavailablebroadbandspeedsweareofferingtoourOptimumcustomersfrom101Mbpsto300Mbpsforresidentialcustomersand350Mbpsforbusinesscustomersandhave
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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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expandedour1Gbpsbroadbandservicetoapproximately60%ofourSuddenlinkfootprintfromapproximately40%priortotheSuddenlinkAcquisition.
Ouradvancednetworkhascontributedtoourrevenuegrowthbyallowingustomeetmarketdemandforincreasinglyfasterspeeds.Thechartbelowillustratesthesignificantincreaseinthepercentageofournewresidentialcustomerschoosingserviceplanswithspeedsgreaterthanorequalto100MbpssincetheAcquisitions.
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.Whileinboundsales
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remainthelargestsaleschannelforeachofOptimumandSuddenlink,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.
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.
OurrevenuegrowthforthethreemonthsendedMarch31,2017was1.4%ascomparedtoproformarevenueforthethreemonthsendedMarch31,2016.ExcludingNewsday,ouryear-over-yearrevenuegrowthforthethreemonthsendedMarch31,2017was3.8%.Webelievewecancontinuegrowingourrevenuebyincreasingmarketpenetrationofourservices(particularlybroadband),driving
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continuedgrowthinB2Bservices,launchingnewservices,gainingmarketsharefromcompetitorsduetothehighqualityandvalueofourservicesandleveragingimprovedcustomersatisfactiontoselladditionalservices.
WebelieveweareoneofthemostprofitableandcashflowgenerativebroadbandcommunicationsandvideoservicesprovidersintheUnitedStates.OurAdjustedEBITDAmarginhasincreasedfrom32.7%forthethreemonthsendedMarch31,2016onaproformabasisgivingeffecttotheOptimumAcquisitionto40.8%forthethreemonthsendedMarch31,2017.Combinedwithourrevenuegrowth,thistranslatesintoa27%year-over-yearAdjustedEBITDAgrowth.See"SummaryHistoricalandProFormaFinancialData"foradditionalinformationregardingAdjustedEBITDA,includingareconciliationofAdjustedEBITDAtonetincome.
AsofMarch31,2017,basedonananalysisofourcurrentoperatingexpenses,webelievewehaverealizedasubstantialportionofthetotal$1.1billioninoperatingcostsavingsweannouncedthatwewouldachieveoverthethree-yearperiodfollowingtheAcquisitions.Ouranalysiscomparesthefullyear2015combinedoperatingexpensesofCablevisionandCequeltotheoperatingexpensesoftheCompanyforthequarterendedMarch31,2017,annualized.Webelievewehavebeensuccessfulinachievingthesecostsavingsonanexpeditedbasisbydelayeringmanagement,eliminatingnon-essentialoperatingexpensesandservicearrangementsandrationalizingoursupplierrelationships.Management'sfocusontheseinitiativeshasresultedincostsavingsthatareprimarilyreflectedinourOtherOperatingExpenseslineitem.See"Management'sDiscussionandAnalysisofFinancialConditionandResultsofOperations"formoreinformation.
ForthethreemonthsendedMarch31,2017,ourcapitalexpendituresasapercentageofrevenuewas11.2%,whichwebelieveisoneofthelowestamongourU.S.industrypeers,evenasweincreasedourinvestmentsinnetworkandservicecapabilities.TheratioofourAdjustedEBITDAlesscapitalexpenditurestorevenueforthethreemonthsendedMarch31,2017was30%,implyingthatforeachdollarofrevenuethatwerealizedinthatquarterwegeneratedapproximately$0.30ofAdjustedEBITDAlesscapitalexpenditures,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.AbdelhakimBoubazine,ourCo-PresidentandCOOsince2015,waspreviouslytheCEOofAlticeGroup'sDominicanRepublicbusiness,whereheoversawpaytelevision,broadbandandmobileoperationsformorethanfourmillioncustomers.CharlesStewart,ourCo-PresidentandCFOsince2015,previouslyservedasCEOofItauBBAInternationalplc,whereheoversawItau-Unibanco'swholesalebankingactivitiesinEurope,UnitedStatesandAsia.Priortothat,hespentnineteenyearsatMorganStanleyinavarietyofinvestmentbankingrolesincludingnineyearsfocusedontheU.S.cableindustry.OurmanagementteamoperatesinacoordinatedfashionwithAlticeN.V.'smanagementteamandissupportedbyAlticeGroup'sfounderandcontrollingstockholder,Mr.Drahi.Webelievethisfacilitatesaflatcorporatestructure,speedindecisionmakingandafocusonlong-termvaluecreation.
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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%priortotheSuddenlinkAcquisition.Inaddition,wehavecommencedafive-yearplantobuildaFTTHnetwork,whichwillenableustodelivermorethan10GbpsbroadbandspeedsacrossourentireOptimumfootprintandpartofourSuddenlinkfootprint.Webelievewecancarryoutthisnetworkbuild-outefficientlyandwithinourcurrentcapitalexpenditurelevelsbecauseof(i)theproximityoffibertoourendcustomersinourexistingnetwork;(ii)ouraccesstoAlticeLabs'experienceandexpertiseindeployingGPONforitsFTTHprojectsinothermarkets;(iii)ourfavorablenetworktopologythatisover75%aerial;and(iv)thelowerunitconstructioncostsavailabletousthroughATS.WebelieveourFTTHinvestmentwillfurtherprepareusforthefuturebyenablingustoprovideourresidentialandbusinesscustomerswithtechnologicallyadvancedservicesandincreasednetworkreliability,whileprovidinguswithloweroperatingcostsandopportunitiesfornewrevenuesources.Forinstance,webelieveourFTTHinvestmentwilloffersignificantstrategicvalueasthemobileandfixednetworkenvironmentscontinuetoconverge,particularlyasmobileoperatorsdeploy5Gandsubsequentmobilenetworks.
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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.ForthethreemonthsendedMarch31,2017,26%and14%ofourgrossaddswereviaouronlinesaleschannelforSuddenlinkandOptimum,respectively,comparedto16%and4%forthethreemonthsendedMarch31,2016.WearealsofocusedonbuildingourbrandtoemphasizethequalityofourservicesbydevelopingOptimumExperienceretailstoresinshoppingmallsandotherhigh-trafficlocations.
Weseektoinnovateacrossmanyareasofourbusiness.Forourresidentialcustomers,thisincludesourfocusonnewcustomerplatformsandfasterdataspeeds.Forourbusinesscustomers,weareintroducingnewvalue-addedmanagedserviceswhileforouradvertisingclientsweofferadvanced,targetedandmulti-screenadvertisingservicesanddataanalyticsusingourproprietarydataandtheadvancedtechnologyplatformsthatwehavedevelopedandacquired.
Wearealsofocusedonsimplifyingourbundledofferingsandstandardizingourpricingstructures.SincetheOptimumAcquisitionwehavereducedthenumberofOptimumbundlesbyapproximately50%andsincetheSuddenlinkAcquisitionwehavereducedthenumberofSuddenlinkpricingstructuresbyapproximately80%.
Enhance the Customer Experience
WeintendtodeliverasuperiorcustomerexperiencethroughimplementationoftheAlticeWay.First,weaimtoofferthemosttechnologicallyadvancedcustomerplatforms,includingournewhomecommunicationshub,whichisaninnovative,integratedplatformwithadynamicandsophisticateduserinterfacecombiningaset-topbox,Internetrouterandcablemodeminonedevice.Second,byleveragingouradvancedinfrastructure(withmorethan8.5millionhomespassedandapproximately1.8millionWi-FihotspotsasofMarch31,2017),weseektoprovideourcustomerswithabandwidthandconnectivityexperiencesuperiortowhatourcompetitionoffers.WebelieveourFTTHnetworkbuild-outwillfurtherenhanceourinfrastructureposition,improveservicereliabilityforourcustomersandlowerourmaintenancecosts.Third,westrivetoprovidethebestserviceacrossthecustomerlifecyclefrompointofsaletoinstallationandcustomercare.Akeyaspectofthisinitiativeistolinkinternalsalesincentivestometricstiedtothelengthofanewcustomerrelationshipandproductmix,asopposedtomoretraditionalcriteriaofnewsales,inordertorefocusourorganizationawayfromchurnretentiontochurnprevention.Forexample,thenumberoftechnicalservicecallshandledbyourrepresentativesinMarch2017was27%lowercomparedtoMarch2016whilethenumberofcustomerservicecallsandthenumberofservicevisitshandledbyourrepresentativeswas23%and20%lower,respectively,overthesameperiod.
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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.InthefivelargestacquisitionscompletedbyAlticeN.V.overthelastfiveyears,SFR,PortugalTelecom,OrangeDominicana,OptimumandSuddenlink,ithasincreasedAdjustedEBITDAmarginonaveragebyapproximately7percentagepointsbetweenthequarterimmediatelyprecedingtheclosingoftheapplicableacquisitionandthethreemonthsendedMarch31,2017.AlticeN.V.'strackrecordofcreatingvaluethroughacquisitionsisalsoreflectedinthe32%averageannualtotalreturnofSFR'sordinarysharessinceitsinitialpublicofferinginNovember2013untilMarch31,2017,comparedtothe5%averageannualtotalreturnoftheSTOXXEurope600TelecommunicationsIndex,ofwhichSFR'sordinarysharesareacomponent,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,allonasinglemonthlybill.Forexample,weofferan"OptimumTriplePlay"packagethatisaspecial
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promotionfornewcustomersoreligiblecurrentcustomerswhereOptimumbroadband,paytelevisionandtelephonyservicesareeachavailableatareducedrateforaspecifiedperiodwhenpurchasedtogether.Approximately50%ofourresidentialcustomersweretripleproductcustomersasofMarch31,2017.
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-FihotspotsasofMarch31,2017.TheOptimumWi-FinetworkallowsOptimumbroadbandcustomerstoaccesstheservicewhiletheyareawayfromtheirhomeoroffice.Wi-FiisdeliveredviawirelessaccesspointsmountedonourOptimumbroadbandnetwork,incertainretail
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As of March 31, 2017 As of December 31, 2016 Pro Forma
As of March 31, 2016 Optimum Suddenlink Total Optimum Suddenlink Total Optimum Suddenlink Total (in thousands) Total residential customer relationships 2,887 1,661 4,548 2,879 1,649 4,528 2,866 1,638 4,504PayTV 2,413 1,087 3,500 2,428 1,107 3,535 2,473 1,150 3,623Broadband 2,636 1,366 4,003 2,619 1,344 3,963 2,580 1,308 3,888Telephony 1,955 596 2,551 1,962 597 2,559 1,999 597 2,596
Historical
Historical
Three Months Ended
March 31, 2016
Three Months Ended March 31, 2017 Optimum Suddenlink Total Suddenlink (dollars in thousands)
Residential revenue: PayTV $ 789,387 $ 281,974 $ 1,071,361 $ 279,737Broadband 381,969 229,800 611,769 196,690Telephony 176,401 34,472 210,873 39,735
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partnerlocations,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.
AsofMarch31,2017,Optimumresidentialcustomerswereabletoreceiveupto608digitalchannelsandSuddenlinkresidentialcustomerswereabletoreceiveupto309digitalchannelsdependingontheirmarketandlevelofservice.Optimumoffersupto171HDchannelsandSuddenlinkchannellineupsincludeanaverageof110HDchannels,whichrepresentthemostwidelywatchedprogramming,includingallmajorbroadcastnetworks,aswellasmostleadingnationalcablenetworks,premiumchannelsandregionalsportsnetworks.HDTVfeatureshigh-resolutionpicturequality,digitalsoundqualityandawide-screen,theater-likedisplaywhenusinganHDTVsetandanHD-capableconverter.WealsocontinuetolaunchadditionalHDchannelstocontinuouslyimproveourcustomer'sviewingexperience.AsofMarch31,2017,approximately95%ofourresidentialOptimumpaytelevisioncustomerssubscribetoHDTVservices.AsofMarch31,2017,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.AsofMarch31,2017,pay-per-viewserviceswereavailableforallOptimumand99%ofSuddenlinkpaytelevisioncustomersandVODserviceswereavailabletoallofourOptimumpaytelevisioncustomersand95%ofourSuddenlinkpaytelevisioncustomers,andweofferedthousandsofHDtitleson-demandforOptimumandSuddenlinkcustomers,respectively.
Foramonthlyfee,weofferDVRservicesthroughtheuseofdigitalconverters,themajorityofwhichareHDTV-capableandhavevideorecordingcapability.AsofMarch31,2017,approximately49%ofourresidentialOptimumpaytelevisioncustomersand36%ofourSuddenlinkpaytelevision
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customersutilizedDVRservices.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.
Business Services
BothourOptimumandSuddenlinksegmentsofferawideandgrowingvarietyofproductsandservicestobothlargeenterpriseandSMBcustomers,includingbroadband,telephony,networkingand
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paytelevisionservices.ForthethreemonthsendedMarch31,2017,businessservicesaccountedforapproximately14%oftherevenueforbothourOptimumandSuddenlinksegments,respectively,andaccountedforapproximately14%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).AsofMarch31,2017,Lightpathhadover8,500locationsconnectedtoitsfibernetwork.OurLightpathadvancedfiberopticnetworkextendsmorethan6,800routemiles,whichincludesapproximately338,000milesoffiber,throughouttheNewYorkmetropolitanarea.
Forenterpriseandlargercommercialcustomers,Suddenlinkoffershighcapacitydataservices,includingwideareanetworkinganddedicateddataaccessandadvancedservicessuchaswirelessmeshnetworks.Suddenlinkalsooffersenterpriseclasstelephoneserviceswhichincludetraditionalmulti-linephoneserviceoverDOCSISandtrunkingsolutionsviaSIPforourPrimaryRateInterfaceandSIPtrunkingapplications.SimilartoLightpath,SuddenlinkalsooffersFTTTservices.TheseSuddenlinkservicesareofferedonastandalonebasisorinbundlesthataredevelopedspecificallyforourcommercialcustomers.
SMB Customers
BothourOptimumandSuddenlinksegmentsprovidebroadband,paytelevisionandtelephonyservicestoSMBcustomers.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.
AMSoffersdata-driventelevision,digitalandothermulti-platformadvertisingtoclientsrangingfromFortune500brandstolocalbusinesses.AMSprovidesnationalandlocalbusinesseswithtelevisionanddigitaladvertisingopportunitiestargetedwithinspecificgeographies,includinginNew
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YorkCity,theworld'slargestmediaandentertainmentmarketasmeasuredby2014revenue,andthroughouttheSuddenlinkfootprint.AMSoffersclientsopportunitiestouseinteractivetelevisionproductstoreachtheircustomersandprovideadeeperlevelofaudienceengagement.
Inseveralofthemarketsinwhichweoperate,wehaveenteredintoagreementscommonlyreferredtoasinterconnectswithothercableoperatorstojointlyselllocaladvertising,simplifyingourclients'purchaseoflocaladvertisingandexpandingtheirgeographicreach.Insomeofthesemarkets,werepresenttheadvertisingsaleseffortsofothercableoperators;inothermarkets,othercableoperatorsrepresentus.Forinstance,AMSmanagestheNewYorkInterconnect,apartnershipbetweenAMSandComcastthatprovidesnationalbrandswithtelevisionanddigitaladvertisingopportunitiesoverabroaderportionoftheNewYorkDMAthanAMS'slocalofferings.NewYorkInterconnectisthelargestinterconnectinthecountry,withafootprintofover3.2millionhouseholds.InthelargerDMAsintheSuddenlinkfootprint,weparticipateinanumberofinterconnectsmanagedbyothers,suchastheHoustonandDallasinterconnects.
ForthethreemonthsendedMarch31,2017,advertisingsalesaccountedforapproximately4%and3%oftherevenueforourOptimumandSuddenlinksegments,respectively,andaccountedforapproximately4%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.WederiverevenuefromourNews12Networksforthesaleofadvertisingandaffiliationfeespaidbycableoperators.Advertisingrevenueisincludedin"Advertising"andaffiliationfeeschargedfortheprogrammingareincludedin"Other."
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Franchises
AsofMarch31,2017,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.
Wetypicallyseekflexibledistributiontermsthatwouldpermitservicestobemadeavailableinavarietyofretailpackagesandonavarietyofplatformsanddevicesinordertomaximizeconsumerchoice.Supplierstypicallyinsistthattheirmostpopularandattractiveservicesbedistributedtoaminimumnumberorpercentageofsubscribers,whichlimitsourabilitytoprovideconsumersfull
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purchasingflexibility.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.WeandViacomdidnotreachanewagreementtoincludecertainViacomnetworksintheSuddenlinkchannellineupuntilMay2017.Formoreinformation,see"RiskFactors—RiskFactorsRelatingtoOurBusiness—Programmingandretransmissioncostsareincreasingandwemaynothavetheabilitytopasstheseincreasesontooursubscribers.Disputeswithprogrammersandtheinabilitytoretainorobtainpopularprogrammingcanadverselyaffectourrelationshipwithsubscribersandleadtosubscriberlosses."
Sales and Marketing
Salesaremanagedcentrallyandmultiplesaleschannelsareleveragedtoreachcurrentandpotentialcustomers,includingin-boundcustomercarecenters,outboundtelemarketing,stores,fieldtechniciansalesanddoor-to-doorsales.E-commerceisalsomanagedcentrallyonbehalfoftheorganizationandisagrowinganddynamicpartofourbusinessandisourfastestgrowingsaleschannel.ForthethreemonthsendedMarch31,2017,26%and14%ofourgrossaddswereviaouronlinesaleschannelforSuddenlinkandOptimum,respectively,comparedto16%and4%forthethreemonthsendedMarch31,2016.Wealsousemassmedia,includingbroadcasttelevision,digitalmedia,radio,newspaperandoutdooradvertising,toattractcustomersanddirectthemtoourin-boundcustomercarecentersorwebsite.Oursalesandserviceemployeesuseavarietyofsalestoolsastheyworktomatchcustomers'needswithourbest-in-classproducts,withafocusonbuildingandenhancingcustomerrelationships.
Becauseofourlocalpresenceandmarketknowledge,weinvestheavilyintargetedmarketing.Ourstrategicfocusisonbuildingnewcustomerrelationshipsandbundlingbroadband,paytelevisionandtelephonyservices.Ourpromotionalmaterialsandmessagefocusontheeasewithwhichacustomercanorderourproductsandservices,andhighlightthedifferentiatedconnectivityandentertainmentexperienceandtheconvenienceofonecall,oneconnectionandonebill.Muchofouradvertisingisdevelopedcentrallyandcustomizedforourregions.Amongotherfactors,wemonitorcustomerperceptions,marketingeffortsandcompetition,toincreaseourresponsivenessandtheeffectivenessof
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ourefforts.OurfootprinthasseverallargecollegemarketswherewemarketspecializedproductsandservicestostudentsforMDUs,suchasdormitoriesandapartmentcomplexes.
WehaveseparatededicatedsalesteamsforourSMBandenterpriseofferingsanddedicatedserviceteamstosupportSMBandenterpriseclients.
Altice Technical Services
ThereorganizationofourtechnicalworkforceintoATS,whichisownedbyAlticeN.V.,ismodeledonAlticeN.V.'ssuccessfulimplementationofasimilarstrategyinitsotheroperations.InmostothermarketsinwhichAlticeN.V.operates,itseparateshomeinstallation,repair,outsideplantmaintenanceandnetworkconstructionelementsofitsoperatingcompaniesintostandaloneservicescompaniesthatprovidetheseservicestoitsoperatingcompaniesand,insomecases,thirdparties.WeandAlticeN.V.believethisseparationenablesbothbusinessestobemorefocusedandefficientintheircorecompetencies,withAlticeN.V.'soperatingbusinessenjoyingfinancialsavingsandhigherlevelsofcustomersatisfactionasaresultofthetailoredfocusofthetechnicalservicesbusiness.Inaddition,webelievetheinstallation,repair,outsideplantmaintenanceandnetworkconstructionserviceswereceivefromATSwillbeofhigherqualityandatalowercostthanwecouldachievewithoutATS,includingfortheconstructionofournewFTTHnetwork.
Customer Experience
Webelievecustomerserviceisthecornerstoneofourbusiness.Accordingly,wemakeaconcertedefforttocontinuallyimproveeachcustomer'sexperienceandhavemadesignificantinvestmentsinourpeople,processesandtechnologytoenhanceourcustomers'experienceandtoreducethenumberoftimescustomersneedtocontactus.Theinsightsfromoperationalmetricshelpusfocusourimprovementefforts.Forexample,welinkinternalsalesincentivestoearlychurnandproductmixasopposedtomoretraditionalcriteriaofnewsales,inordertorefocusourorganizationawayfromchurnretentiontochurnprevention.ThenumberoftechnicalservicecallshandledbyourrepresentativesinMarch2017was27%lowercomparedtoMarch2016whilethenumberofcustomerservicecallsandthenumberofservicevisitshandledbyourrepresentativeswas23%and20%lower,respectively,overthesameperiod.See"Business—OurBusinessStrategy—EnhancetheCustomerExperience."
Ourcustomercarecentersaremanagedandoperatedlocally,withthedeploymentandexecutionofend-to-endcarestrategiesandinitiativesconductedonasite-by-sitebasis.Wehaveresidentialandcommercialcustomercarecenterslocatedthroughoutourfootprint,includinginNewark,NJ;Jericho,NY;Bronx,NY;Melville,NY;Tyler,TX;Lubbock,TX;andLakeHavasu,AZ.Ourcustomercarecentersfunctionasanintegratedsystemandutilizesoftwareprogramsthatprovideincreasedefficienciesandlimitedwait-timesforcustomersrequiringsupport.
ATS'fieldtechniciansandschedulersutilizethesamesoftwareprogramsforcustomersrequiringin-personsupport.Weprovideservicetoourcustomers24hoursaday,sevendaysaweek,andwehavesystemsthatallowourcustomercarecenterstobeaccessedandmanagedremotelyintheeventthatsystemsfunctionalityistemporarilylost,whichprovidesourcustomersaccesstocustomerservicewithlimiteddisruption.
Wealsoutilizeourcustomerportaltoenableourcustomerstoviewandpaytheirbillsonline,obtainusefulinformationandperformvariousequipmenttroubleshootingprocedures.Ourcustomersmayalsoobtainsupportthroughouronlinechat,e-mailfunctionalityandsocialmediawebsites,includingTwitterandFacebook.
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Network Management
OurcablesystemsaregenerallydesignedwithanHFCarchitecturethathasproventobehighlyflexibleinmeetingtheincreasingneedsofourcustomers.Wedeliveroursignalsvialaser-fedfiberopticcablefromcontrolcentersknownasheadendsandhubstoindividualnodes.Eachnodeisconnectedtotheindividualhomesservedbyus.Aprimarybenefitofthisdesignisthatitpushesfiberopticsclosertoourcustomers'homes,whichallowsustosubdivideoursystemsintosmallerservicegroupsandmakecapitalinvestmentsonlyinservicegroupsexperiencinghigherthanaverageservicegrowth.
AsofMarch31,2017,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,
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networkDVR,commonpaytelevisioncontent,broadbandInternet,hostedbusinesssolutions,provisioning,e-mailandotherrelatedservices.
Wehavealsocommencedafive-yearplantobuildaFTTHnetwork,whichwillenableustodelivermorethan10GbpsbroadbandspeedsacrossourentireOptimumfootprintandpartofourSuddenlinkfootprint.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."
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Broadband and Telephone Connectivity
WedeliverbroadbandandtelephonyservicesthroughourHFCnetwork.WeusecircuitsthatareeitherownedbyusorleasedfromthirdpartiestoconnecttotheInternetandthepublicswitchedtelephonenetwork.WepayfeesforleasedcircuitsbasedontheamountofcapacityavailabletoitandpayforInternetconnectivitybasedontheamountofIP-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,televisionshowsandotherpaytelevisionprogrammingoverbroadband
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Internetconnectionstotelevisions,computers,tabletsandmobiledevices,suchasHulu,iTunes,AmazonPrime,Netflix,YouTube,PlaystationVue,DirecTVNowandSlingTV.
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
AsofMarch31,2017,wehadapproximately15,300employeesofwhich217werecoveredundercollectivebargainingagreementsandanadditional96wererepresentedbyaunion.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.AsofDecember31,2016,Optimumhadanestimatedliabilityassociatedwithapotentialsettlementtotaling$5.2million.DuringthethreemonthsendedMarch31,2017,theCompanyrecordedanadditionalliabilityof$0.8millionbasedontheongoingnegotiationswiththeplaintiffs.Thepartieshaveexecutedabindingtermsheetmemorializingasettlementagreement,includingattorneys'fees,subjecttoenteringintoalongformagreementandCourtapproval.Theamountultimatelypaidinconnectionwithapossiblesettlementcouldexceedtheamountrecorded.
Patent Litigation
CertainsubsidiariesoftheCompanyarenamedasdefendantsincertainlawsuitsclaiminginfringementofvariouspatentsrelatingtovariousaspectsoftheCompany'sbusinesses.Incertainofthesecasesotherindustryparticipantsarealsodefendants.IncertainofthesecasestheCompany
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expectsthatanypotentialliabilitywouldbetheresponsibilityoftheCompany'sanditssubsidiaries'equipmentvendorspursuanttoapplicablecontractualindemnificationprovisions.TheCompanybelievesthattheclaimsarewithoutmeritandintendstodefendtheactionsvigorously,butisunabletopredicttheoutcomeoftheselawsuitsorreasonablyestimatearangeofpossibleloss.
Other Litigation
Inadditiontothemattersdiscussedaboveandelsewhereintheprospectus,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
OurcurrentdirectorsareDexterGoei,CharlesStewart,AbdelhakimBoubazineandLisaRosenblum.Thefollowingtablesetsforththenames,agesasofMarch31,2017,andpositionsoftheindividualswhoareexpectedtoconstituteourdirectorsandexecutiveofficersasofourlistingontheNYSE.
Dexter Goei hasservedasChairmanandChiefExecutiveOfficerofAlticeUSAsince2016andPresidentoftheBoardofDirectorsofAlticeN.V.since2016.Mr.GoeijoinedtheAlticeGroupasChiefExecutiveOfficerin2009,helpingtoleaditsdevelopmentandgrowthfromaFrenchcableoperatortoamultinationaltelecomsoperatorwithfixedandmobileassetsacross6differentterritoriesservingbothresidentialandenterpriseclients.PriortojoiningtheAlticeGroup,Mr.Goeispent15yearsininvestmentbankingfirstwithJPMorganandthenMorganStanleyintheirMedia&CommunicationsGroupinNewYork,LosAngelesandLondon.Priortothat,hewasCo-HeadofMorganStanley'sEuropeanMedia&CommunicationsGroupwhenhelefttojoinAltice.Mr.GoeiisagraduateofGeorgetownUniversity'sSchoolofForeignServicewithcumlaudehonors.
Michel Combes isexpectedtojoinAlticeUSAasadirectorimmediatelypriortoourlistingdateontheNYSE.Mr.CombeshasservedasCEOoftheAlticeGroupsince2016,havingrejoinedtheAlticeGroupinAugust2015asCOOaftersteppingdownasaNon-ExecutiveBoardMemberinMay2015.Previously,Mr.CombeswasCEOofAlcatel-Lucent,EuropeanCEOofVodafoneandanon-executivedirectoratVodafonePLC,ChairmanandCEOofTDF,CFOandSeniorExecutiveVicePresidentofFranceTelecom,non-executivedirectorandlaterchairmanofthesupervisoryboardofASSYSTEManddirectorofISS.Currently,Mr.CombesholdsapositionasmemberoftheboardofdirectorsatMobileTeleSystemsPJSCandasnon-executivedirectoratHDLDevelopment.Mr.Combeshasmorethan25yearsofexperienceinthetelecommunicationindustry.HeisagraduateoftheEcolePolytechniqueandtheParisTelecomsSchool.
Dennis Okhuijsen isexpectedtojoinAlticeUSAasadirectorimmediatelypriortoourlistingdateontheNYSE.HejoinedtheAlticeGroupinSeptember2012astheCFO.BeforejoiningtheAlticeGroup,hewasaTreasurerforLibertyGlobalsince2005.From1993until1996hewasasenioraccountantatArthurAndersen.Mr.OkhuijsenjoinedUPCin1996wherehewasresponsibleforaccounting,treasuryandinvestorrelationsupto2005.Hisexperienceincludesraisingandmaintainingnon-investmentgradecapitalacrossboththeloanmarketsaswellasthebond/equitycapitalmarket.Inhispreviouscapacitieshewasalsoresponsibleforfinancialriskmanagement,treasuryandoperationalfinancing.HeholdsaMasterofBusinessEconomicsoftheErasmusUniversityRotterdam.
Jérémie Bonnin isexpectedtojoinAlticeUSAasadirectorimmediatelypriortoourlistingdateontheNYSE.HeistherepresentativeofA4S.A.ontheAlticeN.V.boardofdirectorsandheisGeneralSecretaryofAlticeN.V.,whichhejoinedinMay2005asCorporateFinancedirector.BeforejoiningAlticeN.V.,hewasaManagerintheTransactionServicesdepartmentatKPMG,whichhe
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Name Age PositionDexterGoei 45 Chairman,ChiefExecutiveOfficerandDirectorMichelCombes 55 DirectornomineeDennisOkhuijsen 46 DirectornomineeJérémieBonnin 42 DirectornomineeRaymondSvider 54 DirectornomineeMarkMullen 52 DirectornomineeCharlesStewart 47 Co-PresidentandChiefFinancialOfficerAbdelhakimBoubazine 41 Co-PresidentandChiefOperatingOfficerLisaRosenblum 62 ViceChairmanDavidConnolly 45 ExecutiveVicePresidentandGeneralCounsel
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joinedin1998.SincehisappointmentatAlticeN.V.,hehasbeeninvolvedinalloftheAlticeGroup'sacquisitionswhichhaveincreaseditsfootprint(inFrance,Belgium,Luxembourg,Switzerland,Israel,theFrenchOverseasTerritories,theDominicanRepublic,PortugalandtheUnitedStates).Hehasalongtrackrecordofsuccessfulcross-bordertransactions,andinfinancialmanagementwithinthetelecomsector.MrBonninreceivedhisengineeringdegreefromtheInstitutd'Informatiqued'EntreprisesinFrancein1998.HealsograduatedfromtheDECFinFrance(anequivalenttotheCPA)in1998.
Raymond Svider isexpectedtojoinAlticeUSAasadirectorimmediatelypriortoourlistingdateontheNYSE.Mr.SvideristheCo-ChairmanandaManagingPartnerofBCPartners.Hejoinedthefirmin1992andiscurrentlybasedinNewYork.Overtheyears,Mr.SviderhasparticipatedandledinvestmentsinanumberofsectorsincludingTMT,healthcare,industrials,businessservices,consumerandretail.HeiscurrentlyNon-ExecutiveChairmanofPetSmart,ChairmanoftheBoardofAccudyneIndustries,andalsoservesontheboardsofIntelsat(NYSE"I")andTeneoGlobal.Mr.SviderpreviouslyservedasaDirectorofOfficeDepot,Multiplan,UnityMedia,NeufCegetel,Polyconcept,Neopost,Nutreco,UTLandChantemur.Mr.SviderreceivedanMBAfromtheUniversityofChicagoandanMSinEngineeringfrombothEcolePolytechniqueandEcoleNationaleSuperieuredesTelecommunicationsinFrance.
Mark Mullen isexpectedtojoinAlticeUSAasadirectorimmediatelypriortoourlistingdateontheNYSE.Mr.Mullenisco-founderandManagingDirectorofBonfireVentures,foundedin2017.Mr.MullenalsofoundedDoubleMPartnersin2012andhassinceservedasManagingPartner.BothBonfireandDoubleMmanageearlystagecapitalfundsinLosAngeles.Mr.MullenalsofoundedMullCapitalin2005,anevergreenfundthatinvestsdirectlyinstartupsandinotherinvestmentfunds.Allofthefundsfocusoninvestingininternet,mediaandtechnologywithprimaryemphasisonbusinesstobusinesssolutions,securityandsoftware.PriortoDoubleMPartners,Mr.MullenservedasCOOoftheCityofLosAngeles(EconomicPolicy)andSeniorAdvisortothethen-MayorAntonioVillaraigosawhereheoversawseveraloftheCity'sassetsincludingtheLAInternationalAirport(LAX),LAConventionCenter,thePlanningandBuilding&SafetyDepartments,aswellastheOfficeofSmallBusinessServices.From1993-2007,Mr.MullenrantheinternationalM&AandprivateequitygroupforDaniels&Associates,aninvestmentbankfocusedonthecableTVandbroadbandindustry.Mr.MullenwasaseniorpartnerofDanielswhenitwasacquiredbyRBCCapitalMarketsin2007wherehestayeduntil2010asManagingDirector.Mr.MullenearnedhisBSBAwithcumlaudehonorsfromtheUniversityofDenverin1986andearnedhisMBAininternationalbusinessfromtheThunderbirdSchoolofGlobalManagementin1992.
Charles Stewart hasservedasco-PresidentandChiefFinancialOfficerofAlticeUSAsince2015.Mr.StewartjoinedAlticeUSAafter21yearsofcorporate,financeandinvestmentbankingexperienceintheUnitedStates,LatinAmericaandEurope.Mostrecently,Mr.StewartservedasChiefExecutiveOfficerofItauBBAInternationalplcfrom2013to2015,whereheoversawItau-Unibanco'swholesalebankingactivitiesinEurope,theUnitedStatesandAsia.Priortothat,hespentnineteenyearsatMorganStanleyasaninvestmentbankerinvariousroles,including9yearsfocusingontheU.S.cable,broadcastandpublishingindustries.Mr.StewartalsoactedasDeputyHeadofInvestmentBankingforEMEAandwasamemberoftheglobalinvestmentbankingmanagementcommittee.Mr.StewartisagraduateofYaleUniversity.
Abdelhakim Boubazine hasservedasco-PresidentandChiefOperatingOfficerofAlticeUSAsince2016.HejoinedtheAlticeGroupin2014asCEOofAlticeintheDominicanRepublic.Thereheoversawcabletelevision,broadbandandmobileoperations,servingmorethan4millioncustomers.PriortoAltice,Mr.BoubazinewasCEOofERT,acompanyspecializinginthedesign,constructionandoperationofthelatest-generationcableandfibernetworksinFrance,Belgium,LuxembourgandtheFrenchWestIndiesandwhichwasoneofthemainsub-contractorsofAlticeintheseregions.Priortojoiningthetelecommunicationsindustry,hehadaninternationalcareerofmorethan10yearsinthe
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oilandgasindustry,whereheoccupiedvariousoperations,businessandseniormanagementrolesinEurope,Asia,NorthAmerica,AfricaandtheMiddleEast.Mr.BoubazineholdsanengineeringdegreefromtheÉcoleCentraledeLyonandamaster'sdegreeinTheoreticalPhysicsfromtheUniversityofStrasbourg.Heisalsoapost-graduateinPetroleumEngineering&ManagementfromImperialCollegeofLondon.
Lisa Rosenblum isViceChairmanofAlticeUSA.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.
David Connolly isExecutiveVicePresidentandGeneralCounselofAlticeUSA.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,ourboardofdirectorsfocusedprimarilyonthebiographicalinformationforMessrs.Combes,Okhuijsen,Bonnin,SviderandMullensetforthabove.Additionally,ourboardofdirectorsconsideredeachofournominateddirectors'experienceinsuccessfullyimplementingandexecutingontheprinciplesoftheAlticeWaycoupledwiththeirextensiveindustryexpertise.OurboardofdirectorsalsoconsideredtheaccountingandfinancialbackgroundsofMessrs.Combes,Okhuijsen,Bonnin,SviderandMullen.Eachofourdirectornomineespossesseshighethicalstandards,actswithintegrityandexercisescareful,maturejudgment.Eachofthemiscommittedtoemployinghisskillsandabilitiestoaidthelong-terminterestsofourstakeholdersandhaveeachdisplayedleadershipthatisemblematicoftheexperience,qualificationsandskillsthatwelookforinourdirectors.
Composition and Meetings of our Board of Directors
Uponthecompletionofthisofferingourboardofdirectorswillconsistofsixmembers,twoofwhomqualifyas"independent"underNYSErules.WewillhaveonevacancyonourboardofdirectorsuponthecompletionofthisofferingandintendtofillsuchvacancywithanindependentdirectorwithinoneyearofourlistingdateontheNYSE.Ouramendedandrestatedcertificateofincorporationthatwillbeineffectontheclosingofthisofferingwillprovidethatourboardofdirectorsmustconsistofnolessthansevenmembersandnomorethantwelve.Ouramendedandrestatedcertificateofincorporationwillgiveourboardofdirectorstheabilitytoincreaseordecreasethenumberofsittingdirectorswithinthisrangeandtofillanyvacanciesornewlycreateddirectorshipscreatedifthenumberofdirectorsisexpanded.Anyincreaseordecreaseintheouterlimitsofthisrangerequiresapprovalbyourstockholders.
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Ouramendedandrestatedcertificateofincorporationwillrequireamajorityofthenumberofdirectorstheninofficebutnotlessthanonethirdofthethenauthorizednumberofdirectorscomprisingtheentireboardtoconstituteaquorum,andsuchmajoritymustincludethedirectordesignatedpursuanttothestockholders'agreementbyA4S.A.andthePresidentoftheAlticeN.V.boardofdirectorsdesignatedtoourboardofdirectorspursuanttothestockholders'agreementbyAlticeN.V.Thestockholders'agreementwillfurtherprovidethatourboardofdirectorswillberequiredtoinviteamemberoftheGroupAdvisoryCouncilofAlticeN.V.,tobedesignatedbytheGroupAdvisoryCouncilofAlticeN.V.,toeachboardmeetinginanobservercapacity.ThestockholdersandregistrationrightsagreementthatweexpecttoenterintowithAlticeN.V.,BCPandCPPIBinconnectionwiththisofferingwillalsogiveeachoftheSponsorstherighttodesignateonenon-votingboardobserverforsolongassuchSponsorandcertainofitsaffiliatesownacertainpercentageoftheissuedandoutstandingsharesofClassAandClassBcommonstockandthereisnodirectorwhoisadesigneeofsuchSponsoronourboardofdirectors.See"CertainRelationshipsandRelated-PartyTransactions—Stockholders'Agreement"and"—StockholdersandRegistrationRightsAgreement."
Controlled Company
WehavebeenapprovedtolistourClassAcommonstockontheNYSE.BecausefollowingthisofferingAlticeN.V.willcontrolsharesrepresentingamajorityofthevotingpowerofouroutstandingcommonstock,wewillbea"controlledcompany"undertheNYSEcorporategovernancerules.Asacontrolledcompany,weareeligibleforexemptionsfromsomeoftherequirementsoftheserules,including:
• therequirementthatamajorityofourboardofdirectorsconsistofindependentdirectors;
• therequirementthatwehaveagovernanceandnominatingcommittee;and
• therequirementthatthecompensationofourexecutiveofficersbedetermined,orrecommendedtoourboardofdirectorsfordetermination,byacompensationcommitteecomprisedsolelyofindependentdirectorswithawrittencharteraddressingthecommittees'purposeandresponsibilities.
Consistentwiththeseexemptions,uponlistingwiththeNYSEwedonotintendtohave(i)amajorityofindependentdirectorsonourboardofdirectors;(ii)afullyindependentcompensationcommittee;or(iii)anominatingandgovernancecommittee.Theresponsibilitiesthatwouldotherwisebeundertakenbyanominatingandgovernancecommitteewillbeundertakenbythefullboardofdirectors,oratitsdiscretion,byaspecialcommitteeestablishedunderthedirectionofthefullboardofdirectors.
Committees of the Board of Directors
Thestandingcommitteesofourboardofdirectorsareasdescribedbelow.
Audit Committee
TheAuditCommitteewillinitiallybecomposedofMr.SviderandMr.Mullen.TheAuditCommitteewillperformthedutiessetforthinitswrittencharter,whichwillbeavailableatourwebsiteuponconsummationofthisoffering.TheprimaryresponsibilitiesoftheAuditCommitteewillinclude:
• overseeingmanagement'sestablishmentandmaintenanceofadequatesystemsofinternalaccounting,auditingandfinancialcontrols;
• reviewingtheeffectivenessofourlegal,regulatorycomplianceandriskmanagementprograms;
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• reviewcertainrelated-partytransactionsinaccordancewiththeCompany'sRelated-PartyTransactionApprovalPolicy;
• overseeingourfinancialreportingprocess,includingthefilingoffinancialreports;and
• selectingindependentauditors,evaluatingtheirindependenceandperformanceandapprovingauditfeesandservicesperformedbythem.
TheAuditCommitteewillinitiallybecomprisedoftwodirectors,bothofwhomwillbe"independent"underthelistingstandardsoftheNYSEandtherequirementsofRule10A-3undertheExchangeAct.AtleastonememberofourAuditCommitteewillbea"financialexpert"withinthemeaningofSECrulesandregulations.
Compensation Committee
TheCompensationCommitteewillinitiallybecomposedofMr.SviderandMr.Mullen.TheCompensationCommitteewillperformthedutiessetforthinitswrittencharter,whichwillbeavailableatourwebsiteuponconsummationofthisoffering.TheprimaryresponsibilitiesoftheCompensationCommitteewillinclude:
• ensuringourexecutivecompensationprogramsareappropriatelycompetitive,supportorganizationalobjectivesandstockholderinterestsandemphasizepayforperformancelinkage;
• evaluatingandapprovingcompensationandsettingperformancecriteriaforcompensationprogramsforourchiefexecutiveofficerandotherexecutiveofficers;and
• overseeingtheimplementationandadministrationofourcompensationplans.
Asa"controlledcompany,"wewillnotberequiredtohaveacompensationcommitteecomprisedentirelyofindependentdirectors.
Director Compensation
Followingthecompletionofthisoffering,compensationforournon-employeedirectorswillbedeterminedbyourboardofdirectorswiththeassistanceoftheCompensationCommittee.ThecompensationofMr.SviderwillbepaidtoBCP.DirectorswhoarealsoemployeesoftheCompanywillnotreceiveanycompensationfortheirserviceasdirectors.
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,withsupportfromtheauditandcompensationcommitteestobeestablisheduponthecompletionofthisoffering,eachofwhichwilladdressrisksspecifictoitsrespectiveareasofoversight.Inparticular,ourauditcommitteewillhavetheresponsibilitytoconsideranddiscussourmajorfinancialriskexposuresandthestepsourmanagementtakestomonitorandcontroltheseexposures,includingguidelinesandpoliciestogoverntheprocessbywhichriskassessmentandmanagementisundertaken.Ourauditcommitteewillalsomonitorcompliancewithlegalandregulatoryrequirements,inadditiontooversightoftheperformanceofourinternalauditfunction.Ourcompensationcommitteewillassessandmonitorwhetheranyofour
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compensationpoliciesandprogramshasthepotentialtoencourageexcessiverisk-taking.Boardcommitteesreporttothefullboardasappropriate,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.Acopyofourcorporategovernanceguidelineswillbeavailableonourwebsiteuponconsummationofthisoffering.Theinformationonourwebsiteisnotpartofthisprospectus.
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EXECUTIVE COMPENSATION
Compensation Discussion & Analysis
Overview
Thissectiondiscussesthematerialcomponentsofourexecutivecompensationprogramforeachofournamedexecutiveofficers.Ournamedexecutiveofficersare:
• DexterGoei,ChairmanandChiefExecutiveOfficer(CEO);
• CharlesStewart,Co-PresidentandChiefFinancialOfficer(CFO);
• AbdelhakimBoubazine,Co-PresidentandChiefOperatingOfficer(COO);
• DavidConnolly,ExecutiveVicePresident,GeneralCounsel;and
• LisaRosenblum,ViceChairman.
Messrs.Goei,StewartandBoubazinearecurrentlyemployedbyAlticeManagementAmericas,asubsidiaryofAlticeN.V.,andprovideservicestoAlticeUSAunderamanagementagreement.Immediatelypriortothecompletionofthisoffering,Messrs.Goei,StewartandBoubazinewillbecomeemployeesoftheCompany.ThecompensationdiscussedinthissectionisthecompensationpaidtothenamedexecutiveofficerswithrespecttotheirservicetoAlticeUSA.
Executive Compensation Philosophy
TheCompany'sexecutivecompensationphilosophyisbasedonthefollowingprinciples:
• providetotalcompensationthatattracts,motivatesandretainsindividualswiththeknowledge,expertiseandexperiencerequiredforeachspecificrole;
• deliveranappropriateproportionofthetotalcompensationpackagethroughvariablepayelementslinkedtoperformanceovertheshort-andlong-term;
• encourageandrewardperformancethatwillleadtolong-termenhancementofstockholdervalue;and
• takeintoaccountcompensationpracticesinthemarketsinwhichweoperateandcompetefortalent.
Determination of Compensation
Chief Executive Officer
TheCEO's2016compensationwasdeterminedbytheAlticeN.V.boardofdirectors,aboardconsistingoffourexecutiveboardmembersandthreenon-executiveboardmembersandapprovedbyAlticeN.V.stockholders.TheAlticeN.V.boardiscounseledbytheAlticeN.V.RemunerationCommittee,whichconsistsofnon-executiveboardmembersandischairedbyanindependentnon-executiveboardmember.TheAlticeN.V.boardgenerallysetselementsofpayatlevelsitconsidersappropriate,takingintoaccountvariousfactorssuchasthenatureoftherole,theexperienceandperformanceoftheindividual,andlocalandsectormarketpracticeamongstpeersofasimilarsizeandscopetotheGroup.
Other Named Executive Officers
ThecompensationforallothernamedexecutiveofficerswassetbyMr.GoeibasedonthecompensationofindividualsemployedintheAlticeGroupincomparablepositionsandvalidatedbytheAlticeGroupManagementBoard.
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Elements of Compensation
Base Salary
ThenamedexecutiveofficersreceiveabasesalarytocompensatethemforservicesprovidedtotheCompany.Basesalaryisintendedtoprovideafixedcomponentofcompensationreflectingvariousfactors,suchasthenatureoftheroleandtheexperienceandperformanceoftheindividual.AsofDecember31,2016,Mr.Goei'sannualizedbasesalarywas$471,900(basedonaSwissFranctoU.S.Dollarconversionrateof1.0187asofDecember31,2016),Mr.Stewart'sandMr.Boubazine'sannualizedbasesalarywas$500,000each,andMr.Connolly'sandMs.Rosenblum'sannualizedbasesalarywas$400,000each.
Annual Bonus
For2016,eachofournamedexecutiveofficerswaseligibletoearnanannualperformance-basedcashbonus.InthecaseofMr.Goei,50%ofhis2016annualincentivewasattributabletohisAlticeUSAservice.Inthecaseofeachoftheothernamedexecutiveofficers,alloftheirrespective2016annualincentivewasattributabletoAlticeUSAservice.
Mr.Goei's2016annualincentivewascomprisedoftwocomponents:aformula-basedawardandadiscretionaryaward.FortheportionofMr.Goei'sannualincentiveattributabletohisAlticeUSAservice,the2016formula-basedtargetwas$632,235,withamaximumpayoutopportunityequalto$948,353.Basedonthemetricsusedtodeterminehisannualincentive,whicharesetforthbelow,theresulting2016AlticeUSAannualformula-basedincentiveawardforMr.Goeiwas$792,823:
Inaddition,Mr.Goeireceivedadiscretionaryawardequalto$707,177inrecognitionofhisexceptionalleadershipincreatingAlticeUSAthroughtheintegrationofSuddenlinkandOptimumandforhisroleinintroducingthe"AlticeWay"(describedbelow).Mr.Goei'saggregate2016annualincentiveassociatedwithhisAlticeUSAservicewas$1,500,000.
Mr.StewartandMr.Boubazine's2016annualincentivewascomprisedoftwocomponents:aformula-basedawardandadiscretionaryaward.The2016AlticeUSAannualincentiveformula-basedbonustargetforMr.StewartandMr.Boubazinewasequalto60%ofannualizedbasesalary(targetequalto$300,000each)withamaximumpayoutopportunityequalto120%ofannualizedbasesalary(maximumpayoutof$600,000each).Basedonthemetricsusedtodetermineeachoftheirannual
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Performance Area Weight Performance Metrics
2016 Performance
Factor* Financial 66.66% AlticeN.V.Revenue 113.1%
AlticeN.V.AdjustedEBITDA AlticeN.V.AdjustedEBITDA–Capex+changeinworkingcapital
PersonalGoals 33.33% 150.0%Total 100.00% 125.4%
* Theperformancefactoristheaverageoftheactualresultsofthethreefinancialmetricsagainstestablishedtargets.Adescriptionoftheperformancemetricsthatarenon-GAAPmetricsaresetforthin"—DescriptionofNon-GAAPFinancialMeasures."
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incentives,whicharesetforthbelow,theresulting2016AlticeUSAannualformula-basedincentiveawardforeachofMr.StewartandMr.Boubazinewas$428,400:
Inaddition,Mr.StewartandMr.Boubazineeachreceivedadiscretionarybonusequalto100%oftheiraforementionedcalculatedannualincentivebonuses($428,400)inrecognitionoftheextraordinarycontributioneachmadetointegratingthetwolegacyorganizations,SuddenlinkandOptimum,toformAlticeUSAandtheirsuccessfulintroductionofthe"AlticeWay"throughtheintroductionofoperationalefficienciesfocusedontheprinciplesofsimplifyingandoptimizingtheorganization,reinvestingininfrastructureandcontent,investinginsalesandmarketinginitiatives,enhancingthecustomerexperienceanddrivingrevenueandcashflowgrowthforAlticeUSA.Intotal,Mr.Boubazine'sandMr.Stewart'stotal2016annualincentiveawardwas$856,800each.
The2016AlticeUSAannualincentivebonustargetforMr.Connollywasequalto60%ofannualizedbasesalary(targetequalto$240,000),withamaximumpayoutopportunityequalto120%ofannualizedbasesalary(maximumpayoutequalto$480,000).TheannualincentivebonustargetforMs.Rosenblumwasequalto60%ofbasesalarypaidfromJune21,2016(thedateonwhichAltice'sacquisitionofOptimumoccurred)throughDecember31,2016(targetequalto$126,923),withamaximumpayoutopportunityequalto120%ofbasesalarypaidduringthisperiod(maximumpayoutequalto$253,846).Basedonthemetricsusedtodetermineeachoftheirannualincentives,whicharesetforthbelow,theresulting2016AlticeUSAannualformula-basedincentiveawardforMr.Connollywas$315,360andforMs.Rosenblumwas$166,777:
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Performance Area Weight Performance Metrics
2016 Performance
Factor* Financial 26.25% CequelRevenue 116.0%
26.25% CequelAdjustedEBITDA 232.3% 25.00% CequelCorporateExpense 125.0%
Operational 22.50% MeasurementofBusinessKPIs 89.6%Total 100.00% 142.8%
* Theperformancefactorisbasedonactualresultsofeachfinancialmetricagainstanestablishedtarget.CorporateExpensereferstotheportionofotherOperatingExpensesrelatedtocertainpredefineddepartmentswhichprovideenterprise-wideadministrativesupporttobusinessoperations(e.g. ,executive,legal,humanresources,accounting,etc.).Adescriptionoftheotherfinancialmetricsthatarenon-GAAPmetricsissetforthin"—DescriptionofNon-GAAPFinancialMeasures."
Performance Area Weight Performance Metrics
2016 Performance
Factor* Financial 20% SecondHalfCablevisionRevenue 109.1%
20% SecondHalfCablevisionAdjusted 180.3% EBITDA–Capex 40% SecondHalfCablevisionCorporateExpense 125.0%
Operational 20% SecondHalfCablevisionWeightedAverageof 117.5% Non-corporateBusinessResults
Total 100% 131.4%
* Theperformancefactorisbasedonactualresultsofeachfinancialmetricagainstanestablishedtarget.CorporateExpensereferstotheportionofotherOperatingExpensesrelatedtocertainpredefineddepartmentswhichprovideenterprise-wideadministrativesupporttobusinessoperations(e.g. ,executive,legal,humanresources,accounting,etc.).Adescriptionoftheotherfinancialmetricsthatarenon-GAAPmetricsissetforthin"—DescriptionofNon-GAAPFinancialMeasures."
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Inaddition,Mr.Connollyreceivedaone-timesign-onpaymentof$500,000tobepaidintwoinstallments.Thefirstpaymentof$250,000wasmadeinDecember2016andthefinalpaymentistobemadeinDecember2017subjecttoMr.Connolly'scontinuedemploymentwiththeCompany.
Carry Unit Plan
OnJuly13,2016,theNeptuneManagementLimitedPartnershipCarryUnitPlan(the"CarryUnitPlan")wascreatedtoprovideparticipants,includingournamedexecutiveofficers,withanopportunitytoparticipateinthelong-termgrowthandfinancialsuccessofouroperations.UndertheCarryUnitPlan,profitsinterestsdenominatedinunitsofownership(the"Units")ofNeptuneManagementLimitedPartnership(the"Partnership")weregrantedtoparticipants.Approximately260millionUnitsareauthorized.AsofApril30,2017,thePartnershiphadgranted,subjecttovesting,approximately230millionUnits.
AprofitsinterestgivestheparticipanttherighttoshareinspecifiedfutureprofitsandappreciationinvaluethattheparticipantsofthePartnershipmayreceive,includingprofitspaiduponasaleoftheinvestors'interests.
Economically,aprofitsinterestissimilartoastockoptiongrantedonthestockofacorporationinsofarasaparticipantrealizesvalueonlyifthePartnershipfromwhichtheprofitsinterestisgrantedappreciatesinvalueand/orhasprofitsafterthegrantdate.
AllnamedexecutiveofficersholdUnitsintheamountssetforthbelow:
TheseUnitsvestasfollows:50%oftheUnitsvestonthesecondanniversaryofthevestingstartdate;25%oftheUnitsvestonthethirdanniversaryofthevestingstartdate;and25%oftheUnitsvestonthefourthanniversaryofthevestingstartdate,ineachcase,generallysubjecttothenamedexecutiveofficer'scontinuedemploymentwiththeCompanyoranyofitsaffiliates.
Additionally,Mr.Goeireceived10,000,000performance-vestingUnitsthatwillvestbasedontheachievementof2019AlticeUSAfinancialtargetsof(x)consolidatednetrevenueand(y)(1)AdjustedEBITDAor(2)AdjustedEBITDAlesscapex(see"SummaryHistoricalandProFormaFinancialData"forareconciliationofAdjustedEBITDAand"—DescriptionofNon-GAAPFinancialMeasures"forAdjustedEBITDAlesscapex).Mr.Goei'sperformance-vestingUnitswillbeforfeitedifperformanceisnotmet,unlessotherwisedeterminedbytheAlticeN.V.boardofdirectorsinitsdiscretion.In2017,Mr.Goeiwasgranted10,600,000time-vestingUnits,whicharescheduledtocliffvestonJanuary31,2020,generallysubjecttohiscontinuedemploymentwiththeCompanyoranyofitsaffiliates.TheseUnitsarenotincludedintheSummaryCompensationTableorothertablespresentedbelowbecausetheyweregrantedin2017.
AnIPOofAlticeUSAwillnotresultinacceleratedvestingoftheUnits.FollowingtheIPO,holdersofvestedUnitsmayreceiveClassAcommonstockofAlticeUSAatthediscretionofthePartnership.TheamountreceivedisexpectedtobecalculatedusingthefairmarketvalueofUnitsandbasedonthethentradingpriceofClassAcommonstockofAlticeUSA.
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Name # Units Vesting Start DateDexterGoei 11,300,000 12/21/2015(thedateonwhichAltice'sacquisitionofSuddenlinkoccurred)CharlesStewart 10,000,000 12/21/2015(thedateonwhichAltice'sacquisitionofSuddenlinkoccurred)AbdelhakimBoubazine 10,000,000 12/21/2015(thedateonwhichAltice'sacquisitionofSuddenlinkoccurred)DavidConnolly 4,250,000 8/22/2016(thedateonwhichMr.Connollywashired)LisaRosenblum 6,000,000 6/21/2016(thedateonwhichAltice'sacquisitionofOptimumoccurred)
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Benefits
Thenamedexecutiveofficersareeligibletoparticipateinthehealthandwelfarebenefitplansmadeavailabletotheotherbenefits-eligibleemployeesoftheCompany,includingmedical,dental,vision,lifeinsuranceanddisabilitycoverage.
ThenamedexecutiveofficersareeligibletoparticipateintheCompany'sCablevision401(k)Planandmaycontributeintotheirplanaccountsapercentageoftheireligiblepayonabefore-taxbasisandafter-taxbasis.TheCompanymatches100%ofthefirst4%ofeligiblepaycontributedbyparticipatingemployees.Inaddition,theCompanymaymakeanadditionaldiscretionaryyear-endcontribution.Anydiscretionaryyear-endcontribution,ifapprovedbytheCompany,willbeprovidedtoalleligibleparticipantswhoareactiveonthelastdayoftheplanyearandwhocomplete1,000hoursofserviceinsuchplanyear.In2016,theCompanymadeadiscretionaryyear-endcontributionof2%ofeligiblepaywithrespecttothe2016planyear.CompanycontributionstotheCablevision401(k)Planaresubjecttovestinglimitationsforthefirstthreeyearsofemployment.
TheCompanyalsosponsorstheCablevisionExcessSavingsPlan,anon-qualifieddeferredcompensationplan.EffectiveDecember31,2016,theExcessSavingsPlanwasfrozentonewparticipantsandCompanycontributions.TheCompanymaintainstheCablevisionCashBalancePensionPlan,atax-qualifieddefinedbenefitplan,andtheCablevisionExcessCashBalancePlan,anon-qualifieddeferredcompensationplanforparticipantswhosebenefitsinthequalifiedplanarelimitedbyapplicableIRSlimitations.EffectiveDecember31,2013,theCablevisionCashBalancePensionPlanandtheCablevisionExcessCashBalancePlanwerefrozentonewparticipantsandfuturebenefitaccruals,exceptforcertainemployeescoveredbyacollectivebargainingagreementforwhomaccrualswerefrozenasofApril15,2015.Monthlyinterestcreditscontinuetobemadetoparticipantaccountsuntildistributionoftheaccountsfollowingterminationofemployment.Ms.RosenblumistheonlynamedexecutiveofficerwithanaccountbalanceintheCablevisionExcessSavingsPlanorwithanaccruedbenefitintheCablevisionCashBalancePensionPlanortheCablevisionExcessCashBalancePensionPlan.Seethe"NonqualifiedDeferredCompensationTable"belowforfurtherinformationontheCablevisionExcessSavingsPlanandthe"PensionBenefitsTable"belowforfurtherinformationontheCablevisionCashBalancePensionPlanandtheCablevisionExcessCashBalancePensionPlan.
Perquisites
TheCompanyprovidescertainperquisitestoexecutiveofficers,whichithasdeterminedareappropriateforrecruitmentandretention,includingpersonaluseofCompany-providedgroundtransportationandaircraft,primarilyforcommutingtoandfromtheCompany'sBethpage,NYheadquarters.TotheextentouremployeesuseCompany-providedtransportationforcommutingandotherpersonaltravel,theyareimputedcompensationfortaxpurposes.For2016,theCompanyprovidedataxgrossuponimputedincomerelatedtocommutingusage.TheCompanyownsandoperatestwopassengerhelicopterstofacilitatebusinesstravelofseniorexecutivesandhadaleaseforafixedwingaircrafttofacilitateinternationaltravelforMr.Goei.ThefixedwingaircraftleaseendedinFebruary2017.
TheCompanyprovidedreimbursementorpaymentofcertainexpensesincurredbyMessrs.Goei,BoubazineandStewartassociatedwiththeirrelocationtotheUnitedStates,aswellascertainexpensesforMr.BoubazinewhilehewasanexpatriateintheDominicanRepublic.Mr.StewartisreceivingamonthlyhousingallowanceduringtheperiodfromJanuary2016throughDecember2017.TheCompanypurchasesticketsforsportingandentertainmenteventsforbusinessuse;ontheoccasiontheticketsareunused,theyareavailableforpersonalusebyouremployees,includingthenamedexecutiveofficers.ThenamedexecutiveofficersarealsoeligibletoparticipateintheAlticeUSAEmployeeProductBenefitprogram,whichprovidesallbenefits-eligibleemployeeswhoresideintheSuddenlinkorOptimumfootprintwithdiscountedcabletelevision,high-speeddataandvoiceservices.See"SummaryCompensationTable"belowforfurtherinformationontheperquisitesprovidedtoournamedexecutiveofficersduring2016.
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Post-Termination Compensation
OurnamedexecutiveofficershavehelpedbuildtheCompanyintothesuccessfulenterprisethatitistodayandwebelievethatpost-terminationbenefitsareintegraltotheCompany'sabilitytoattractandretainqualifiedexecutives.Ournamedexecutiveofficerswereeligibleforseverancebenefitsin2016undertheCablevision's2016SeverancePolicy.AllseverancebenefitspayableundertheseverancepolicywouldbeconditionedontheemployeeexecutingaseparationagreementwiththeCompany,including,areleaseofclaimsandanyothertermsandconditionsthattheCompanymayrequire.Foradescriptionandquantificationoftheseveranceandotherbenefitspayabletoeachofthenamedexecutiveofficersunderthedifferentcircumstancesoftermination,pleasesee"SeveranceBenefits"and"PaymentsonTerminationorChangeofControl"below.
Employment Agreements
NoneofthenamedexecutiveofficershaveanemploymentagreementrelatedtotheirservicewithAlticeUSA.
Tax Deductibility of Compensation
Section162(m)oftheInternalRevenueCode,asamended("Section162(m)"),establishesa$1millionlimitontheamountthatapubliclyheldcorporationmaydeductforcompensationpaidtothechiefexecutiveofficerandthenextthreemosthighlypaidnamedexecutiveofficers(otherthanthechieffinancialofficer)inataxableyear.Thislimitationdoesnotapplytoanycompensationthatisconsidered"qualifiedperformance-basedcompensation"("QPBC")underSection162(m),whichisdefinedascompensationpaidinconnectionwithcertainstockoptionsorthatispaidonlyiftheindividual'sperformancemeetspre-establishedobjectivegoalsbasedonperformancecriteriaestablishedunderaplanapprovedbystockholders.Becausewedonotcurrentlyhaveanypubliclyheldcommonstock,therestrictionsofSection162(m)donotcurrentlyapplytous.
Summary Compensation Table
ThetablebelowsummarizesthetotalcompensationpaidtoorearnedbyeachofournamedexecutiveofficersforservicestoAlticeUSAfortheyearendingDecember31,2016.
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Name and principal position Year
(1) Salary
($)
Bonus ($) (3)
Stock awards
($) (4)
Non-equity incentive plancompensation
($) (5)
Change in pension
value and nonqualified
deferred compensation
earnings ($)
All other compensation
($) (6)
Total ($)
DexterGoeiChairman&CEO
2016 235,950 707,177 7,881,000 792,823 — 417,920 10,034,870
CharlesStewartCo-President&CFO
2016 490,385 428,400 3,700,000 428,400 — 830,028 5,877,213
AbdelhakimBoubazineCo-President&COO
2016 417,262 428,400 3,700,000 428,400 — 464,382 5,438,444
DavidConnollyEVP—GeneralCounsel
2016 138,462 250,000 1,572,500 315,360 — 4,308 2,280,630
LisaRosenblumViceChairman
2016 238,462 — 2,220,000 166,777 10,780 98,410 2,734,429
(1) AllamountscoverAlticeUSAserviceonly.ForMr.GoeiAlticeUSAservicebeganonJune28,2016(hisappointmentasCEOofAlticeUSA).Mr.BoubazinebeganprovidingservicestoAlticeUSAonFebruary1,2016.ForFebruaryandMarch,50%ofMr.Boubazine'sserviceswereallocatedtoAlticeUSA.FromApril1,2016throughDecember31,2016,100%ofMr.Boubazine'sserviceswereallocatedtoAlticeUSA.
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Mr.Connolly'sservicebeganonAugust22,2016(hishiredate)andforMs.Rosenblum,servicebeganonJune21,2016(thedateonwhichAltice'sacquisitionofOptimumoccurred).MrStewartprovidedserviceforthefullyear.
(2) Mr.GoeireceivedallsalaryinSwissFrancs.ASwissFranctoU.S.Dollarconversionrateof1.0187asofDecember31,2016wasused.
(3) Mr.Goei($707,177),Mr.Stewart($428,400)andMr.Boubazine($428,400)eachreceivedaspecialbonusinrecognitionoftheextraordinarycontributioneachmadetotheformationofAlticeUSAandtheintroductionoftheAlticeWay,asdescribedinthesectiontitled"AnnualBonus"intheCompensationDiscussion&Analysis.Mr.Connollyreceivedaone-timesign-onpayment($250,000).
(4) RepresentsthegrantdatefairvalueofUnitsgrantedin2016,asdescribedinthesectiontitled"CarryUnitPlan"intheCompensationDiscussion&Analysis,computedinaccordancewithFASBASCTopic718,excludingforfeitureassumptions.AnoptionpricingmodelwasusedtodeterminethegrantdatefairvalueoftheUnits,whichrequiredtheuseofcertainsubjectiveassumptions.Anychangestotheseassumptionscouldmateriallyaffectthegrantdatefairvaluecomputation.Thetimetoliquidityeventassumption(2.5years)wasbasedonmanagement'sjudgment.Theequityvolatilityassumptionof60%wasestimatedusingthehistoricalweeklyvolatilityofpubliclytradedcomparablecompanies.Therisk-freerateof0.74%assumedinvaluingtheUnitswasbasedontheU.S.ConstantMaturityTreasuryRatesforaperiodmatchingtheexpectedtimetoliquidityevent.Thediscountforlackofmarketabilityof20%wasbasedonFinnerty's(2012)average-strikeputoptionmodel.NoadditionaldiscountwasappliedtoMr.Goei'sperformance-vestingUnits.Theweightedaveragegrantdatefairvalueoftheoutstandingunitsis$0.37perUnit.
(5) Theamountsreflectannualincentiveawardspaidin2017forperformancein2016,asdescribedinthesectiontitled"AnnualBonus"intheCompensationDiscussion&Analysis.
(6) Thistablebelowshowsthecomponentsofthiscolumn.
Name
401(k) Company
Contribution (1)
ExcessSavings
PlanContribution
(1)
TransportationTax
gross up payment
(2) Perquisites
(3) Total DexterGoei — — 3,583 414,337 417,920CharlesStewart 3,461 — 8,882 817,685 830,028AbdelhakimBoubazine 7,000 — 8,308 449,074 464,382DavidConnolly 4,308 — — — 4,308LisaRosenblum 5,300 14,854 10,759 67,497 98,410
(1) Thiscolumnrepresents,foreachindividual,amatchingcontributionand/orCompanydiscretionarycontributionmadebytheCompanyonbehalfofsuchindividualundertheCompany's401(k)PlanorExcessSavingsPlan,asapplicable.
(2) Thiscolumnrepresentsamountspaidtoexecutivestooffsetimputedincomeoncommutertravel.
(3) Thiscolumnrepresentsforeachindividualthefollowingaggregateperquisitesasdescribedinthetablebelow.Inaddition,thenamedexecutiveofficersareeligibletoparticipateintheAlticeUSAEmployeeProductBenefitprogram,whichprovidesallbenefits-eligibleemployeeswhoresideintheSuddenlinkorOptimumfootprintwithdiscountedcabletelevision,high-speeddataandvoiceservices.TheCompanypurchasesticketsforsportingandentertainmenteventsforbusinessuse;ontheoccasiontheticketsare
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unused,theyareavailableforpersonalusebyouremployees,includingthenamedexecutiveofficers.ThereisnoincrementalcosttotheCompanyforthesebenefits.
Name
Aircraft ($) (1)
Housing Allowance
($) (2)
Global Mobility and Relocation
($) (3)
Ground Transportation
($) (4) Total
DexterGoei 223,231 — 160,862 * 414,337CharlesStewart 103,932 500,005 185,123 * 817,685AbdelhakimBoubazine 67,477 — 291,836 89,761 449,074DavidConnolly — — — — —LisaRosenblum 47,552 — — * 67,497
* Doesnotexceedthegreaterof$25,000or10%ofthetotalamountofperquisitesofnamedexecutiveofficers.
(1) ThiscolumnrepresentstheincrementalcosttothecompanyforpersonaluseoftheCompany'saircraft,primarilyassociatedwithcommutingtoandfromtheCompany'sBethpage,NYheadquarters,andforaleasedfixedwingaircraftforMr.Goei'sinternationalbusinesstravel.TheleaseendedinFebruary2017.Forthepurposesofthisdisclosure,incrementalcostisvaluedbasedonthevariablecostsincurredbytheCompanyanddoesnotincludecoststhatwouldhavebeenincurredbytheCompanywhetherornotaparticulartripwastaken,suchasleaseandinsurancepayments,pilotsalaries,ordinarycoursemaintenanceandotheroverheadcosts.Theincrementalcostofthepersonaluseofthefixedwingaircraft,applicablesolelytoMr.Goei,isbasedonthevariablehourlycostoftheleaseappliedtothenumberofpersonalhoursofusage.
(2) ThiscolumnrepresentsMr.Stewart'shousingallowance,whichispaidonamonthlybasis.
(3) Thiscolumnrepresentsassistanceprovidedtosupportglobalmobility(includingexpatriateandrelocationbenefits).Benefitsincludetemporaryhousing,visaexpenses,movingexpensereimbursement,realestatebrokerfees,privatehealthinsurance,tuition,personaltravelandsocialclubcosts.Thefollowingamountsincludedinthiscolumnwerepaidinnon-U.S.currencyandwereconvertedtoU.S.DollarsatthefollowingDecember31,2016rates:$45,524forMr.Goei,convertedfromSwissFrancsusingaSwissFranctoU.S.Dollarconversionrateof1.0187;$66,346forMr.Stewart,convertedfromBritishPoundsusingaBritishPoundtoU.S.Dollarconversionrateof0.81;and$77,389forMr.Boubazine,convertedfromDominicanPesosusingaDominicanPesotoU.S.Dollarconversionrateof46.6895.
(4) Thiscolumnreflectstheincrementalcostofprovidingourexecutiveofficersgroundtransportationforpersonaluse,primarilyforcommutingtoandfromtheCompany'sBethpage,NYheadquarters.Forthepurposesofthisdisclosure,incrementalcostisvalued,forthecompanyvehicles,asaportionofthecostofthedriverpluscarlease,maintenance,fuelandotherrelatedcosts,basedonanestimatedpercentageofuse,andforthirdpartycarservicesbytheamountpaidtothethirdparty.
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Grants of Plan-Based Awards
Thetablebelowpresentsinformationregardingawardsgrantedin2016toeachnamedexecutiveofficerundertheCarryUnitPlanandthe2016annualincentiveprogramsinwhichthenamedexecutiveofficersparticipated.
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All other equity
awards: Number of shares of stock or
units (#) (3)
Estimated future payouts under
equity incentive plan awards
Grant date fair value of equity
and option awards
($) (4)
Estimated future payoutsunder
non-equity incentive planawards(1)
Name Grant Date
Target ($)
Maximum ($)
Target (#) (2)
DexterGoei — 632,235 948,353 — — — 07/13/16 — — 10,000,000 — 3,700,000 07/13/16 — — — 11,300,000 4,181,000
CharlesStewart — 300,000 600,000 — — — 07/13/16 — — — 10,000,000 3,700,000
AbdelhakimBoubazine — 300,000 600,000 — — — 07/13/16 — — — 10,000,000 3,700,000
DavidConnolly — 240,000 480,000 — — — 08/26/16 — — — 4,250,000 1,572,500
LisaRosenblum — 120,000 240,000 — — — 07/13/16 — — — 6,000,000 2,220,000
(1) Thesecolumnsshowthetargetandmaximumpayoutsunderthe2016bonusplanbasedon2016metricsandperformancecriteriadescribedinthesectiontitled"AnnualBonus"intheCompensationDiscussion&Analysis.Thisplandoesnothaveathresholdpayout.Paymentsweremadein2017for2016performanceandactualpaymentsarereflectedintheNon-EquityIncentivePlanColumnintheSummaryCompensationTable.
(2) Mr.Goeireceived10,000,000performance-vestingUnitsthatwillvestsixtydaysaftercompletionofthe2019AuditedFinancialStatementsbasedonmeetingorexceedingasetof2019financialperformancecriteriadescribedinthesectiontitled"CarryUnitPlan"intheCompensationDiscussion&Analysis.Thisawarddoesnothaveathresholdormaximumpayout.Thecalculationoftheperformancetargetwillbebasedon2019AuditedFinancialStatements.
(3) AllnamedexecutiveofficersreceivedUnitsthatvestasfollows:50%oftheUnitsvestonthesecondanniversaryofthevestingstartdate;25%oftheUnitsvestonthethirdanniversaryofthevestingstartdate;and25%oftheUnitswillvestonthefourthanniversaryofthevestingstartdate.ForgrantsmadetoMr.Goei,Mr.Stewart,andMr.Boubazine,thevestingstartdateisDecember21,2015(thedateonwhichAltice'sacquisitionofSuddenlinkoccurred).ForMs.Rosenblum,thevestingstartdateisJune21,2016(thedateonwhichAltice'sacquisitionofOptimumoccurred).ForMr.Connolly,thevestingstartdateisAugust22,2016(hisdateofhire).
(4) RepresentsthegrantdatefairvalueofUnitsgrantedin2016,computedinaccordancewithFASBASCTopic718,excludingforfeitureassumptions.AnoptionpricingmodelwasusedwhichrequiressubjectiveassumptionsforwhichchangesintheseassumptionscouldmateriallyaffectthefairvalueoftheUnitsoutstanding.Thetimetoliquidityeventassumption(2.5years)wasbasedonmanagement'sjudgment.Theequityvolatilityassumptionof60%wasestimatedusingthehistoricalweeklyvolatilityofpubliclytradedcomparablecompanies.Therisk-freerateof0.74%assumedinvaluingtheUnitswasbasedontheU.S.ConstantMaturityTreasuryRatesforaperiodmatchingtheexpectedtimetoliquidityevent.Thediscountforlackofmarketabilityof20%wasbasedon
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Outstanding Equity Awards at Fiscal Year-End
Thetablebelowpresents(i)thenumberofUnitsgrantedundertheCarryUnitPlanthathavenotyetvestedand(ii)themarketvalueoftheseUnitsforeachnamedexecutiveofficer,ineachcaseasofDecember31,2016.NoneofthenamedexecutiveofficersheldoptionswithrespecttoAlticeUSAasofDecember31,2016.
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Finnerty's(2012)average-strikeputoptionmodel.NoadditionaldiscountwasappliedtoMr.Goei'sperformance-vestingUnits.TheweightedaveragegrantdatefairvalueoftheoutstandingUnitsis$0.37pershare.
Stock Awards
Name
Number of shares or units of stock that
have not vested (#) (1)
Market value of shares or units of stock that
have not vested ($) (2)
Equity inventive plan awards:
Number of unearned shares, units or other rights that have not vested
(#) (3)
Equity incentive plan awards:
Market or payout value of unearned
shares, units or other rights that have not vested
DexterGoei 11,300,000 19,888,000 10,000,000 17,600,000CharlesStewart 10,000,000 17,600,000 — —AbdelhakimBoubazine 10,000,000 17,600,000 — —DavidConnolly 4,250,000 7,480,000 — —LisaRosenblum 6,000,000 10,560,000 — —
(1) AllnamedexecutiveofficersreceivedUnitsthatvestasfollows:50%oftheUnitswillvestonthesecondanniversaryofthevestingstartdate;25%oftheUnitswillvestonthethirdanniversaryofthevestingstartdate;and25%oftheUnitswillvestonthefourthanniversaryofthevestingstartdate.ForgrantsmadetoMr.Goei,Mr.Stewart,andMr.Boubazine,thevestingstartdateisDecember21,2015(thedateonwhichAltice'sacquisitionofSuddenlinkoccurred).ForMs.Rosenblum,thevestingstartdateisJune21,2016(thedateonwhichAltice'sacquisitionofOptimumoccurred).ForMr.Connolly,thevestingstartdateisAugust22,2016(hisdateofhire).
(2) TheDecember31,2016marketvalueofUnitsisequaltothefairvaluecomputedinaccordancewithFASBASCTopic718,excludingforfeitureassumptions.AnoptionpricingmodelwasusedwhichrequiressubjectiveassumptionsforwhichchangesintheseassumptionscouldmateriallyaffectthefairvalueoftheUnitsoutstanding.Thetimetoliquidityeventassumption(1.3years)wasbasedonmanagement'sjudgment.Theequityvolatilityassumptionof45%wasestimatedusingthehistoricalweeklyvolatilityofpubliclytradedcomparablecompanies.Therisk-freerateof0.95%assumedinvaluingtheUnitswasbasedontheU.S.ConstantMaturityTreasuryRatesforaperiodmatchingtheexpectedtimetoliquidityevent.Thediscountforlackofmarketabilityof10%wasbasedonFinnerty's(2012)average-strikeputoptionmodel.NoadditionaldiscountwasappliedtoMr.Goei'sperformance-vestingUnits.TheweightedaveragefairvalueoftheoutstandingUnitsasofDecember31,2016is$1.76perUnit.
(3) Mr.Goeireceived10,000,000Unitsthatwillvestsixtydaysaftercompletionofthe2019AuditedFinancialStatementsbasedonmeetingorexceedingasetof2019financialperformancecriteriadescribedinthesectiontitled"CarryUnitPlan"intheCompensationDiscussion&Analysis.Thecalculationoftheperformancetargetwillbebasedon2019AuditedFinancialStatements.
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Pension Benefits Table
ThetablebelowshowstheactuarialpresentvalueofaccumulatedbenefitspayableunderourqualifiedandnonqualifieddefinedbenefitpensionplansasofDecember31,2016forMs.Rosenblum,whoisthesolenamedexecutiveofficerwhoiseligibletoparticipateinsuchplans.
Cablevision Cash Balance Pension Plan
TheCablevisionCashBalancePensionPlanisatax-qualifieddefinedbenefitplanthatwasamendedeffectiveDecember31,2013tofreezeparticipationandbenefitaccrualsforalllegacyCablevisionemployeesexceptcertainemployeescoveredbyacollectivebargainingagreement.EffectiveApril15,2015,theplanwasfurtheramendedtofreezeparticipationandbenefitaccrualsfortheremainingemployeescoveredbythecollectivebargainingagreement.Ms.RosenblumistheonlynamedexecutiveofficerwithanaccruedbenefitundertheCablevisionCashBalancePensionPlan.
Anotionalaccountismaintainedforeachparticipantundertheplan,whichiscreditedwithmonthlyinterestcreditsbasedontheaverageoftheannualrateofinterestonthe30-yearU.S.TreasuryBondsforthemonthsofSeptember,OctoberandNovemberoftheprioryear.Monthlyinterestcreditscontinuetobemadetoparticipantaccountsuntildistributionoftheaccountsfollowingterminationofemployment.Allactiveparticipantsarefullyvestedintheiraccounts.UponretirementorotherterminationofemploymentwiththeCompany,theparticipantmayelectadistributionofthevestedportionoftheaccount.Thenormalformofbenefitpaymentforanunmarriedparticipantisasinglelifeannuityandthenormalformofbenefitpaymentforamarriedparticipantisa50%jointandsurvivorannuity.Theparticipant,withspousalconsentifapplicable,canwaivethenormalformandelecttoreceiveasinglelifeannuityoralumpsuminanamountequaltothecashbalanceaccount.
Cablevision Excess Cash Balance Pension Plan
TheCablevisionExcessCashBalancePlanisanonqualifieddeferredcompensationplanthatisintendedtoprovideeligibleparticipants,includingMs.Rosenblum,withtheportionoftheirbenefitthatcannotbepaidtothemundertheCablevisionCashBalancePensionPlanduetoInternalRevenueCodelimitsapplicabletotax-qualifiedplans.EffectiveDecember31,2013,theExcessCashBalancePlanwasamendedtofreezeparticipationandfuturebenefitaccrualsforallemployees.Ms.RosenblumistheonlynamedexecutiveofficerwithanaccruedbenefitundertheCablevisionExcessCashBalancePensionPlan.
TheCompanymaintainsanotionalexcesscashbalanceaccountforeacheligibleparticipantandcreditseachexcesscashbalanceaccountmonthlywithinterestatthesamerateusedundertheCablevisionCashBalancePensionPlan.Monthlyinterestcreditscontinuetobemadetoparticipant
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Name Plan
Number of Years Credited Service
(#) (1)
Present Value of Accumulated Benefit
($) (2)
Payments During Last Fiscal Year
($) LisaRosenblum CablevisionCashBalancePensionPlan 20 301,890 —
CablevisionExcessCashBalancePlan 20 357,910 —
(1) Yearsofservicearecalculatedbasedonelapsedtimewhileamemberoftheplan.ActualelapsedtimeasanemployeeofCablevisionandAlticeUSAforMs.Rosenblumis22years.
(2) AssumesMs.Rosenblumwilltakealumpsumpaymentofbenefitsatretirement.ThelumpsumpaymentwasdeterminedbycreditingtheDecember31,2016accountbalanceswithanassumedinterestcreditingrateof2.57%untilanassumedretirementageof65.Thepresentvalueofaccumulatedbenefitswascalculatedusingadiscountrateof3.85%.
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accountsuntildistributionoftheaccountsfollowingterminationofemployment.Allactiveparticipantsarefullyvestedintheirexcesscashbalanceaccount.Theexcesscashbalanceaccount,totheextentvested,ispaidinalumpsumtotheparticipantassoonaspracticablefollowinghisorherretirementorotherterminationofemploymentwiththeCompany.
Nonqualified Deferred Compensation Table
Thetablebelowshowsthecontributionsmade,aggregateearnings,andaccountbalanceinformationundernonqualifieddeferredcompensationplansforMs.Rosenblum,whoisthesolenamedexecutiveofficerwhoiseligibletoparticipateinsuchplan.
Cablevision Excess Savings Plan
TheCablevisionExcessSavingsPlanisanonqualifieddeferredcompensationplanthatoperatesinconjunctionwiththeCablevision401(k)SavingsPlan.EffectiveDecember31,2016,theExcessSavingsPlanwasfrozen(i.e.,nofutureemployeeorCompanycontributionsarepermittedunderthePlanfor2017andthereafter).ParticipantnotionalaccountbalancescontinuetobecreditedmonthlywiththerateofreturnearnedbythestablevalueinvestmentoptionavailableundertheCablevision401(k)SavingsPlan.
Ms.RosenblumistheonlynamedexecutiveofficerwithanaccountbalanceintheCablevisionExcessSavingsPlan.For2016,Ms.Rosenblum,whosecontributionstothe401(k)PlanwerelimitedasaresultoftheInternalRevenueCodecompensationlimitorasaresultofreachingthemaximum401(k)deferrallimit($24,000,ifage50orover),continuedtomakepre-taxcontributionsundertheExcessSavingsPlanequalto6%ofhereligiblepay.TheCompanymadematchingcontributionsequalto100%ofthefirst4%ofeligiblepaycontributed.Inaddition,for2016,theCompanymadeitsfinaldiscretionarycontributionequalto2%ofeligiblepayinexcessoftheInternalRevenueCodecompensationlimitinthefirstquarterof2017.
Aparticipantisalwaysfullyvestedintheparticipant'sowncontributionsandvestsintheCompanycontributionsoverthreeyearsfromdateofhire(subjecttofullvestingupondeath,disabilityorretirementafterattainingage65).Distributionsaremadeinalumpsumassoonaspracticableaftertheparticipant'sterminationofemploymentwiththeCompany.
Severance Benefits
Intheeventofcertainterminationeventsduring2016,eligibleemployees,includingournamedexecutiveofficers,wouldhavebeeneligibletoreceivecertainseverancebenefitsunderCablevision's2016SeverancePolicy,whichprovidedforseverancebenefitswhenapositionwaseliminatedduetorestructuringorreorganization.Severanceamountswerebasedontwoweeksofbasesalaryforeverycompletedyearofservicewithaminimum52weeksofbasesalaryforseniorvicepresidentsandabove.
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Name Plan
Executive Contributions
in Last FY ($) (1)
Registrant Contributions
in Last FY ($)(2)
Aggregate Earnings
in Last FY ($)
Aggregate Withdrawals/ Distributions
($)
Aggregate Balance
at Last FYE ($)
LisaRosenblum CablevisionExcessSavingsPlan 13,385 14,854 4,848 — 569,134
(1) ThisamountrepresentsaportionofMs.Rosenblum'ssalary,whichisincludedintheamountreportedinthe"Salary"columnoftheSummaryCompensationTable,thatMs.Rosenblumcontributedtotheplan.
(2) TheseamountsarereportedintheAllOtherCompensationColumnintheSummaryCompensationTable.
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Vicepresidentsandabovewhowereaged55andover,hadcompleted10yearsofserviceormoreandwereenrolledintheCompany'shealthplanswereeligibletoreceiveanadditionalpaymentintheamountof18timesthemonthlyCOBRArateforcurrentcoverageelectedthroughtheCompany'shealthplans,grossedupfortaxes.Bonus-eligibleexemptemployees,includingthenamedexecutiveofficerswouldhavebeeneligibletoreceiveaprorated2016annualbonusbasedonactual2016planperformanceifaqualifyingterminationofemploymentoccurredafterJune30,2016.
Payments on Termination or Change of Control
ThefollowingtablessummarizetheestimatedamountspayabletoeachnamedexecutiveofficerintheeventofaterminationfromemploymentwithoutcauseoruponachangeofcontrolasofDecember31,2016.
Intheeventofterminationforcause,voluntarytermination,retirement,deathordisability,noneofthenamedexecutiveofficerswouldhavebeenentitledtoanyseverancepaymentsasofDecember31,2016.
Benefits Payable as a Result of Termination of Employment by the Company without Cause
Benefits Payable upon a Change of Control Transaction
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Name
Severance ($) (1)
Benefit Continuation
Payments ($) (2)
Most Recent Bonus
($) (3) Total
DexterGoei 471,900 — 792,823 1,264,723CharlesStewart 500,000 — 428,400 928,400AbdelhakimBoubazine 500,000 — 428,400 928,400DavidConnolly 400,000 — 315,360 715,360LisaRosenblum 400,000 31,800 489,915 921,715
(1) PursuanttoCablevision's2016SeverancePolicy,eachnamedexecutiveofficerisentitledtotwoweeks'basesalaryforeachcompletedyearofservice,withaminimumseveranceamountequaltooneyear'sbasesalary.
(2) AccordingtoCablevision's2016SeverancePolicy,basedonyearsofserviceandage,Ms.Rosenblumwouldalsohavebeenentitledtoalumpsumpaymentequalto18timesthemonthlyCOBRAratesformedical,dentalandvisioncoverage,grossedupfortaxes,basedonthelevelsofcoverageshereceivedasofDecember31,2016.
(3) Theamountsinthiscolumnreflectannualincentiveawardsforperformancein2016.Ms.Rosenblum'samountalsoincludesher2016Cablevisionbonus.
Name
Unvested Units ($) (1)
DexterGoei 37,488,000CharlesStewart 17,600,000AbdelhakimBoubazine 17,600,000DavidConnolly 7,480,000LisaRosenblum 10,560,000
(1) TheamountsinthiscolumnrepresentthevalueoftheunvestedUnitsheldbyeachnamedexecutiveofficerasofDecember31,2016,withthevaluecalculatedasdescribedinfootnote2of
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2017 Short Term Incentive Plan
For2017,ourofficers,includingournamedexecutiveofficers,areeligibletoreceiveanannualcashbonusawardfor2017performanceunderour2017annualincentiveprogram(the"2017Bonus").The2017BonuswasestablishedbytheRemunerationCommitteeoftheAlticeN.V.boardofdirectors.Uponcompletionofthisoffering,theAlticeUSACompensationCommitteeofourBoard(the"CompensationCommittee")willassumeresponsibilityofadministrationofthe2017Bonusandmayamend,suspendorterminatethe2017Bonusinwholeorinpartatanytime.TheCompensationCommitteewillmakealldeterminationswithrespecttothe2017Bonusawards,subjecttoAlticeN.V.boardofdirector'srighttoconsentunderthestockholders'agreement.
2017BonusawardsaresubjecttotheachievementofperformancemetricsestablishedbytheRemunerationCommitteeoftheAlticeN.V.board.The2017performancemetricsareweightedone-thirdAlticeN.V.performanceandtwo-thirdsAlticeUSAperformance.Thekeyperformancemetricsfor2017areAlticeN.V.Revenue,AdjustedEBITDAandAdjustedEBITDAlessCapexandworkingcapitalandAlticeUSARevenue,AdjustedEBITDAandAdjustedEBITDAlessCapexandworkingcapital(adescriptionofthefinancialmetricsthatarenon-GAAPmetricsissetforthin"—DescriptionofNon-GAAPFinancialMeasures"),corporateexpenseandtheaverageofnon-corporatebusinessunitresults.2017Bonusawardswillbepaidin2018afterdeterminationoftheachievementofperformancemetrics.Themaximum2017Bonuspayabletoanyparticipantis150%oftheparticipant'stargetbonusandtheCompensationCommitteehasthediscretiontopaylessthanthemaximumamount.TheCompensationCommitteehastheauthority,aspartofthe2017Bonusprogram,toprovideforadiscretionarybonus(nomaximum)inadditiontothe2017Bonusinitssolediscretion.
Theamountspayablewithrespecttothe2017Bonusarenotdeterminablebecausetheperformanceyearhasnotyetendedand,eveniftheperformancemetricachievementwasdeterminable,theCompensationCommitteeispermittedtouseitsdiscretiontodetermineeachparticipant'sannualbonus.
New Short Term Incentive Plan
Inconnectionwiththeoffering,weintendtoadopttheAlticeUSAShortTermIncentiveCompensationPlan(the"STIP"),subjecttoapprovalbyourBoard.UndertheSTIP,wemayrewardeligibleemployeesbymakingaportionoftheircashcompensationdependentontheachievementofcertainCompany,AlticeN.V.,corporate,businessunitandindividualperformancegoals.GoalsmaybedefinedatthelevelofAlticeUSAorAlticeN.V.AcopyoftheSTIPisattachedasanexhibitheretoandthefollowingsummaryisqualifiedinitsentiretybyreferencethereto.
Eligibility and Administration
TheSTIPprovidesforthegrantofshort-termcashincentivecompensationawardstoofficersoftheCompanyselectedbyourBoard(orifdelegatedbyourBoard,theCompensationCommittee;referencestoourBoardinthis"NewShortTermIncentivePlan"sectionandin"—NewLongTermIncentivePlan"includetheCompensationCommitteetotheextenttheyhavebeendelegatedauthoritybyourBoard).Themaximumawardthatmaybegrantedtoanyparticipantinaplanyearis$3million.
TheSTIPwillbeadministeredbyourBoard,subjecttotheprovisionofthestockholders'agreementthatrequirespriorwrittenapprovalofAlticeN.V.fortheestablishmentandmodificationofcertainremunerationarrangements.Subjecttoapplicablelaw,thetermsoftheSTIPandthe
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the"OutstandingEquityAwardsatFiscalYear-End"table.PursuanttothetermsoftheUnitsasofDecember31,2016,allunvestedUnitsautomaticallyvestuponaCompanySale(asdefinedintheUnitawardagreement).
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stockholders'agreement,ourBoardhasthepowerto,amongotherthings,selectparticipants,grantawardsinaccordancewiththeSTIP,determinethetermsandconditionsofanyaward,andmakeanyotherdeterminationandtakeanyotheractionthatitdeemsnecessaryordesirablefortheadministrationoftheSTIP.OurBoardalsohasthepowertodelegateitsadministrativeduties.
Section 162(m)
Asdescribedbelowunder"NewLongTermIncentivePlan—SummaryofFederalU.S.IncomeTaxConsequences—ImpactofSection162(m)DeductionLimitation",wedonotexpectSection162(m)toapplytoawardsundertheSTIPuntiltheearliesttooccurof(1)ourannualstockholders'meetingatwhichmembersofourBoardaretobeelectedthatoccursafterthecloseofthethirdcalendaryearfollowingtheyearofthisoffering;(2)amaterialmodificationoftheSTIP;or(3)theexpirationoftheSTIP.However,performancecriteriamaybeusedwithrespecttoperformanceawardsthatarenotintendedtoconstituteQPBC.TheperformancecriteriasetforthintheSTIParethesameasthosesetforthinthe2017LTIP,asdescribedbelowunder"NewLongTermIncentivePlan—SummaryofFederalU.S.IncomeTaxConsequences—ImpactofSection162(m)DeductionLimitation."InordertoconstituteQPBC,inadditiontocertainotherrequirements,therelevantamountsmustbepayableonlyupontheattainmentofpre-established,objectiveperformancegoalssetbytheCompensationCommitteeandlinkedtostockholder-approvedperformancecriteria.TheSTIPsetsforththeapplicableperformancecriteriathatmaybeusedinmakingsuchawards,andtheobjectivelydeterminableadjustmentstotheapplicableperformancecriteriathatmaybeused.Followingthecompletionofeachperformanceperiod,forQPBC,theCompensationCommitteewilldeterminetheextenttowhichtheperformancetargetshavebeenachievedorexceeded.Iftheminimumperformancetargetsarenotachieved,nopaymentwillbemadewithrespecttoawardsintendedtoconstituteQPBC.
Plan Amendment or Termination
OurBoardmay,atanytime,amend,suspendorterminatetheSTIPinwholeorinpart,providedthatnoamendmentthatrequiresstockholderapprovalinorderfortheSTIPtocontinuetocomplywithSection162(m)willbeeffectiveunlessapprovedbytherequisitevoteofourstockholders.
New Plan Benefits.
ThebenefitsthatwillbeawardedorpaidundertheSTIParenotcurrentlydeterminable.AwardsgrantedundertheSTIParewithinthediscretionofourBoard(subjecttothepriorwrittenapprovalofAlticeN.V.underthestockholders'agreement),andourBoardhasnotdeterminedfutureawardsorwhomightreceivethem.
New Long Term Incentive Plan
Inconnectionwiththeoffering,weintendtoadopttheAlticeUSA2017LongTermIncentivePlan(the"2017LTIP"),subjecttoapprovalbyourBoard.Underthe2017LTIP,wemaygrantawardsofoptions,restrictedshares,restrictedshareunits,stockappreciationrights,performancestock,performancestockunitsandotherawards.Thepurposesofthe2017LTIParetopromotethelongtermsuccessofAlticeUSAanditsaffiliates,AlticeUSA'sintegrationwithintheAlticeGroupandtoincreasestockholdervaluebyprovidingeligibleindividualswithincentivestocontributetothelongtermgrowthandprofitabilityoftheCompanyandtheAlticeGroupandtoassisttheCompanyinattractingandretainingthebestavailablepersonnelforpositionsofsubstantialresponsibility.Acopyofthe2017LTIPisattachedasanexhibitheretoandthefollowingsummaryisqualifiedinitsentiretybyreferencethereto.
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Eligibility and Administration
Awardsmaybegrantedtoofficers,employeesandconsultantsoftheCompanyoranyofitsaffiliates.The2017LTIPwillbeadministeredbyourBoard,subjecttotheprovisionofthestockholders'agreementthatrequirespriorwrittenapprovalofAlticeN.V.fortheestablishmentandmodificationofcertainremunerationarrangements.Subjecttoapplicablelaw,thetermsofthe2017LTIPandthestockholders'agreement,ourBoardwillhavefullpowerandauthorityto,amongotherthings,selecteligibleparticipants,tograntawardsinaccordancewiththe2017LTIP,todeterminethenumberofsharessubjecttoeachawardorthecashamountpayableinconnectionwithanawardanddeterminethetermsandconditionsofeachaward,including,withoutlimitation,thoserelatedtoterm,permissiblemethodsofexercise,vesting,cancellation,forfeiture,payment,settlement,exercisability,performanceperiods,performancetargets,andtheeffectoroccurrence,ifany,ofaparticipant'sterminationofemployment,separationfromserviceorleaveofabsencewiththeCompanyoranyofitsaffiliatesorofachangeofcontrol.
Limitation on Awards and Shares Available.
Themaximumaggregatenumberofsharesthatmaybeissuedforallpurposesunderthe2017LTIPwillbe4%oftheoutstandingsharesofClassAcommonstockimmediatelyfollowingtheIPO(the"PlanLimit").Sharesissuedpursuanttoawardsunderthe2017LTIPmaybeeitherauthorizedandunissuedshares,sharesheldbytheCompanyinitstreasury,oracombinationthereof.Thenumberofsharesremainingavailableforissuanceshallbereducedbythenumberofsharessubjecttooutstandingawardsand,forawardsthatarenotdenominatedbyshares,bythenumberofsharesactuallydelivereduponsettlementorpaymentoftheaward.Forpurposesofdeterminingthenumberofsharesthatremainavailableforissuanceunderthe2017LTIP,thenumberofsharescorrespondingtoawardsunderthe2017LTIPthatareforfeitedorcancelledorotherwiseexpireforanyreasonwithouthavingbeenexercisedorsettledorthataresettledthroughtheissuanceofconsiderationotherthanshares(including,withoutlimitation,cash)shallbeaddedbacktothePlanLimitandagainbeavailableforthegrantofawards;provided ,however ,thatthisprovisionwillnotbeapplicablewithrespectto(i)thecancellationofastockappreciationrightgrantedintandemwithanoptionupontheexerciseoftheoptionor(ii)thecancellationofanoptiongrantedintandemwithastockappreciationrightupontheexerciseofthestockappreciationright.Inaddition,(i)thenumberofsharesthataretenderedbyaparticipantorwithheldbytheCompanytopaytheexercisepriceofanawardortosatisfythetaxwithholdingobligationsinconnectionwiththevesting,exerciseorsettlementofanawardand(ii)thenumberofsharessubjecttoanoptionorstockappreciationrightbutnotissuedordeliveredasaresultofthenetsettlementofsuchoptionorstockappreciationrightshallbeaddedbacktothePlanLimitandagainbeavailableforthegrantofawards.Noparticipantmaybegrantedunderthe2017LTIPinanyfiscalyearawardscoveringmorethanthenumberofsharesequalto50%ofthePlanLimit.
Awards
Awardsunderthe2017LTIPmayconsistofoptions,restrictedshares,restrictedshareunits,stockappreciationrights,performancestock,performancestockunitsandotherawards.Anyawardmaybegrantedsinglyorincombinationortandemwithanyotheraward,asourBoardmaydetermine.OurBoardwillsetthevestingcriteriaapplicabletoanaward,which,dependingontheextenttowhichthecriteriaaremet,willdeterminetheextenttowhichtheawardbecomesexercisableorthenumberofsharesortheamountofcashthatwillbedistributedorpaidouttotheparticipantwithrespecttotheaward.OurBoardmaysetvestingcriteriabasedupontheachievementofCompany-wide,AlticeN.V.,businessunit,orindividualgoals(including,butnotlimitedto,continuedemploymentorprovisionofservices),oranyotherbasisdeterminedbyourBoardinitsdiscretion.ThetermsandconditionsofeachawardwillbesetforthinanawarddocumentinaformapprovedbyourBoard.Theaward
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documentwillcontaintermsandconditionsnotinconsistentwiththe2017LTIP.OurBoardmayatanytimefollowinggrant(i)acceleratethevesting,exercisability,lapseofrestrictions,settlementorpaymentofanyaward,(ii)eliminatetherestrictionsandconditionsapplicabletoanawardor(iii)extendthepost-terminationexerciseperiodofanoutstandingaward(subjecttothelimitationsofSection409A).
Summary of U.S. Federal Income Tax Consequences
ThefollowingsummaryoftaxconsequencestotheCompanyandto2017LTIPparticipantsisnotintendedtobeusedastaxguidancetoparticipantsinthe2017LTIP.ItrelatesonlytoU.S.federalincometaxanddoesnotaddressstate,localorforeignincometaxrulesorotherU.S.taxprovisions,suchasestateorgifttaxes.Differenttaxrulesmayapplytospecificparticipantsandtransactionsunderthe2017LTIP,particularlyinjurisdictionsoutsidetheUnitedStates.Inaddition,thissummaryisasofthedateofthisprospectus;federalincometaxlawsandregulationsarefrequentlyrevisedandmaybechangedagainatanytime.Therefore,eachparticipantisurgedtoconsultataxadvisorbeforeexercisinganyawardorbeforedisposingofanysharesacquiredunderthe2017LTIP.
• Stock Options and Stock Appreciation Rights. ThegrantofanoptionorstockappreciationrightwillcreatenotaxconsequencesfortheparticipantortheCompany.Aparticipantwillhavenotaxableincomeuponexerciseofanincentivestockoption,exceptthatthealternativeminimumtaxmayapply.Uponexerciseofanoptionotherthananincentivestockoption,aparticipantgenerallymustrecognizeordinaryincomeequaltothefairmarketvalueofthesharesacquiredminustheexerciseprice.Whendisposingofsharesacquiredbyexerciseofanincentivestockoptionbeforetheendofthestatutoryincentivestockoptionholdingperiods,theparticipantgenerallymustrecognizeordinaryincomeequaltothelesserof(1)thefairmarketvalueofthesharesatthedateofexerciseminustheexercisepriceor(2)theamountrealizeduponthedispositionofthesharesminustheexerciseprice.Otherwise,aparticipant'sdispositionofsharesacquiredupontheexerciseofanoption(includinganincentivestockoptionforwhichtheincentivestockoptionholdingperiodsaremet)generallywillresultinonlycapitalgainorloss.
• Other Awards. Otherawardsunderthe2017LTIPgenerallywillresultinordinaryincometotheparticipantatthelaterofthetimeofdeliveryofcash,shares,orotherawards,orthetimethattheriskofforfeiturelapses.
• Company Deduction. Exceptasdiscussedbelow,theCompanyisgenerallyentitledtoataxdeductionequaltotheamountrecognizedasordinaryincomebytheparticipantinconnectionwithoptions,stockappreciationrightsorotherawards,butnotforamountstheparticipantrecognizesascapitalgain.Thus,theCompanywillnotbeentitledtoanytaxdeductionwithrespecttoanincentivestockoptioniftheparticipantholdsthesharesfortheincentivestockoptionstatutoryholdingperiods.
• Impact of Section 162(m) Deduction Limitation. Section162(m)imposesa$1,000,000caponthecompensationdeductionthatapubliccompanymaytakeinrespectofcompensationpaidtoits"coveredemployees"(whichincludesitschiefexecutiveofficeranditsnextthreemosthighlycompensatedemployeesotherthanitschieffinancialofficer),butexcludesfromthecalculationofamountssubjecttothislimitationanyamountsthatconstituteQPBC.Undercurrenttaxlaw,wedonotexpectSection162(m)toapplytoawardsunderthe2017LTIPuntiltheearliesttooccurof(1)ourannualstockholdersmeetingatwhichmembersofourBoardaretobeelectedthatoccursafterthecloseofthethirdcalendaryearfollowingtheyearofthisoffering;(2)amaterialmodificationofthe2017LTIP;(3)anexhaustionofthesharesupplyunderthe2017LTIP;or(4)theexpirationofthe2017LTIP.However,performancecriteriamaystillbeusedwithrespecttoperformance-basedawardsthatarenotintendedtoconstituteQPBC.
InordertoconstituteQPBC,inadditiontocertainotherrequirements,therelevantamountsmustbepayableonlyupontheattainmentofpre-established,objectiveperformancegoalssetby
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theCompensationCommitteeandlinkedtostockholder-approvedperformancecriteria.The2017LTIPsetsforththeapplicableperformancecriteriathatmaybeusedinmakingsuchawards,andtheobjectivelydeterminableadjustmentstotheapplicableperformancecriteriathatmaybeused.PerformancetargetsapplicabletoawardsintendedtoconstituteQPBCwillberelatedtomeasuresofoneormoreofthecriterialistedbelow.SuchcriteriamaybedeterminedbyreferencetotheperformanceoftheCompany,AlticeN.V.,anaffiliateorabusinessunit,productorservicethereoforanycombinationoftheforegoing.Suchcriteriamayalsobemeasuredonapercustomer,subscriber,homespassed,basicordilutedsharebasisoranycombinationoftheforegoingandmayreflectabsoluteperformance,incrementalperformanceorcomparativeperformancetoothercompanies(ortheirproductsorservices)determinedonagross,net,GAAPornon-GAAPbasis,withrespecttooneormoreofthefollowing:netoroperatingincomeorothermeasuresofprofit;measuresofrevenue;earningsbeforeinterest,taxes,depreciationandamortization(EBITDA);cashflow,freecashflow,adjustedoperatingcashflowandsimilarmeasures;returnonequity,investment,assetsorcapital;grossoroperatingmarginsorsavings;performancerelativetobudget,forecastormarketexpectations;marketshareorpenetration,subscriberorcustomeracquisitionorretention,ratingsorviewership;operatingmetricsrelatingtosales,installationsorcustomerserviceorsatisfaction;capitalspendingmanagement,networkupgradesorproductorservicedeployments;aspecifiedincreaseinthefairmarketvalueoftheCompany'scommonstockorthatofAlticeN.V.;aspecifiedincreaseintheprivatemarketvalueoftheCompany;thepriceoftheCompany'scommonstockorthatofAlticeN.V.;earningspershare;and/ortotalshareholderreturn.
Followingthecompletionofeachperformanceperiod,forQPBC,theCompensationCommitteewilldeterminetheextenttowhichtheperformancetargetshavebeenachievedorexceeded.IftheminimumperformancetargetsforawardsintendedtoconstituteQPBCarenotachieved,nopaymentwillbemade.
Changes in Capitalization
Intheeventofcertainspecifiedchangesincapitalizationsetforthinthe2017LTIP,thenumberandkindofsharesofClassAcommonstockauthorizedforissuanceunderthe2017LTIPandtheindividuallimitsdescribedabovein"LimitationonAwardsandSharesAvailable"willbeequitablyadjustedinthemannerdeemednecessarybyourBoardtopreserve,butnotincrease,thebenefitsorpotentialbenefitsintendedtobemadeavailableunderthe2017LTIP.UnlessotherwisedeterminedbyourBoard,suchadjustedawardswillbesubjecttothesamerestrictionsandvestingorsettlementschedulestowhichtheunderlyingawardsaresubject(subjecttothelimitationsofSection409AoftheInternalRevenueCode).
Plan Amendment or Termination
OurBoardhastheauthoritytoamend,suspend,orterminatethe2017LTIP.Furthermore,noamendment,suspensionorterminationwillbeeffectivewithouttheapprovaloftheCompany'sstockholdersifsuchapprovalisrequiredunderapplicablelaws,rulesandregulations.
New Plan Benefits
Thebenefitsthatwillbeawardedorpaidunderthe2017LTIParenotcurrentlydeterminable.Awardsgrantedunderthe2017LTIParewithinthediscretionofourBoard(subjecttothepriorwrittenapprovalofAlticeN.V.underthestockholders'agreement),andourBoardhasnotdeterminedfutureawardsorwhomightreceivethem.
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Description of Non-GAAP Financial Measures
TheNon-GAAPfinancialmeasuresdisclosedherearemeasuresusedasperformancetargetsin2016compensationprogramsinwhichthenamedexecutiveofficersoftheCompanyparticipate.ThemeasuresundertheheadingAlticeN.V.relatetotheperformanceofAlticeN.V.,whichreportsonanInternationalFinancialReportingStandardsbasis.
Altice N.V. Measures
Adjusted EBITDA —operatingincomebeforeinterest,taxes,depreciationandamortization,non-recurringitemsandotheradjustments(equity-basedcompensationexpenses).
Adjusted EBITDA – Capex – change in working capital —AdjustedEBITDAasdefinedabovelesscapitalexpendituresandchangeinworkingcapital.
Altice USA, Cequel and Cablevision
Adjusted EBITDA —netincome(loss)excludingincometaxes,income(loss)fromdiscontinuedoperations,othernon-operatingincomeorexpenses,lossonextinguishmentofdebtandwrite-offofdeferredfinancingcosts,gain(loss)oninterestrateswapcontracts,gain(loss)onequityderivativecontracts,gain(loss)oninvestments,interestexpense(includingcashinterestexpense),interestincome,depreciationandamortization(includingimpairments),share-basedcompensationexpenseorbenefit,restructuringexpenseorcreditsandtransactionexpenses.
Adjusted EBITDA – Capex —AdjustedEBITDAasdefinedabovelesscapitalexpenditures.
Adjusted EBITDA – Capex – change in working capital —AdjustedEBITDAasdefinedabovelesscapitalexpendituresandchangeinworkingcapital.
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PRINCIPAL AND SELLING STOCKHOLDERS
ThefollowingtablepresentscertaininformationasofMay31,2017withrespecttothebeneficialownershipofourcommonstock,andasadjustedtogiveeffecttotheOrganizationalTransactionsandsaleofClassAcommonstockofferedbyusandthesellingstockholdersinthisoffering,assumingnoexerciseandfullexerciseoftheunderwriters'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.
Wehavebasedthepercentageownershipofourcommonstockbeforethisofferingon234,681,978sharesofourClassAcommonstockand490,318,022sharesofourClassBcommonstockoutstandingbasedonanassumedinitialpublicofferingpriceof$29.00andcompletionoftheOrganizationalTransactions.Formoreinformation,see"Summary—OwnershipandOrganization—OrganizationalTransactions."Percentageownershipofourcommonstockafterthisoffering(assumingnoexerciseoftheunderwriters'optiontopurchaseadditionalsharesofClassAcommonstock)alsoassumesthesalebyusandthesellingstockholdersof51,874,063sharesofClassAcommonstockinthisoffering.Percentageownershipofourcommonstockafterthisoffering(assumingfullexerciseoftheunderwriters'optiontopurchaseadditionalsharesofClassAcommonstock)alsoassumesthesalebytheSellingStockholdersofanadditional7,781,110sharesofClassAcommonstock.
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202
Shares Beneficially Owned
Before this Offering(1)
Shares Beneficially Owned After this Offering
(Assuming No Exercise of Option)
Shares Beneficially Owned After this Offering
(Assuming Full Exercise of Option)
% TotalVoting Power Before
this Offering
% Total VotingPower
After this Offering(2)(Assuming
NoExercise
of Option)
Number ofSharesBeing
Offered (Assuming
FullExercise
of Option)
% Total VotingPower
After this Offering
(AssumingFull
Exercise of Option)
SharesBeing
Offered (Assuming
NoExercise
of Option)
Class A Class B Class A Class B Class A Class B
Name of Beneficial Owner Number % Number % Number % Number % Number % Number % 5% Stockholders AlticeParties(1)(2)(6) 63,661,06427.1%490,318,022100.0% 98.6% -63,661,06425.8%490,318,022100.0% 98.5% -63,661,06425.8%490,318,022100.0% 98.5%CPPIB(4)(6) 65,742,34628.0% — 0.0% 20,398,09845,344,24818.4% — 0.0% 0.4%23,457,81342,284,53317.1% — 0.0% 0.3%BCPartners(3)(6) 101,445,91943.2% — 0.0% 31,475,96569,969,95428.4% — 0.0% 0.6%36,197,36065,248,55926.4% — 0.0% 0.5%
Named ExecutiveOfficers, Directors andnominees(5)(6) DexterGoei(7) 1,864,209 0.7% — 0.0% 0.0% — 1,864,209 0.7% — 0.0% 0.0% — 1,864,209 0.7% — 0.0% 0.0%CharlesStewart 18,643 0.0% — 0.0% 0.0% — 18,643 0.0% — 0.0% 0.0% — 18,643 0.0% — 0.0% 0.0%AbdelhakimBoubazine 932,105 0.3% — 0.0% 0.0% — 932,105 0.3% — 0.0% 0.0% — 932,105 0.3% — 0.0% 0.0%LisaRosenblum 18,643 0.0% — 0.0% 0.0% — 18,643 0.0% — 0.0% 0.0% — 18,643 0.0% — 0.0% 0.0%DavidConnolly — 0.0% — 0.0% 0.0% — — 0.0% — 0.0% 0.0% — — 0.0% — 0.0% 0.0%MichelCombes — 0.0% — 0.0% 0.0% — — 0.0% — 0.0% 0.0% — — 0.0% — 0.0% 0.0%DennisOkhuijsen — 0.0% — 0.0% 0.0% — — 0.0% — 0.0% 0.0% — — 0.0% — 0.0% 0.0%
JérémieBonnin — 0.0% — 0.0% 0.0% — — 0.0% — 0.0% 0.0% — — 0.0% — 0.0% 0.0%RaymondSvider — 0.0% — 0.0% 0.0% — — 0.0% — 0.0% 0.0% — — 0.0% — 0.0% 0.0%MarkMullen — 0.0% — 0.0% 0.0% — — 0.0% — 0.0% 0.0% — — 0.0% — 0.0% 0.0%
Allexecutiveofficersanddirectorsasagroup(10persons)(6) 2,833,600 1.0% — 0.0% — 2,833,600 1.0% — 0.0% 0.0% — 2,833,600 1.0% — 0.0% 0.0%
* Lessthan0.1%
(1) Mr.DrahiisthesoleindirectcontrollingshareholderofNextAltS.àr.l.("NextAlt"),apersonalholdingcompany.AsofMay31,2017,NextAltisholderof59.37%ofthesharecapitalandvotingrightsofAlticeN.V.AlticeN.V.maintainsaone-tierboardoffourexecutiveboardmembersandthreenon-executiveboardmembers.TheexecutiveboardmembersareappointedbyshareholdersatthegeneralmeetingatthebindingnominationofNextAlt.A4S.A.,whichiscontrolledbythefamilyofMr.Drahi,isanexecutiveboardmemberofAlticeN.V.AlticeN.V.ownsanindirectcontrollinginterestinCVC3.Mr.DrahiandAlticeN.V.mayeachbedeemedtobeneficiallyownthe490,317,022sharesofClassBcommonstockownedbyCVC3.CVC3isalsothesolememberofNeptuneHoldingUSGPLLC,whichisthesolegeneralpartnerofHoldingLP.Assuch,Mr.DrahiandAlticeN.V.mayeachbedeemedtobeneficiallyown56,879,232sharesofClassAcommonstockheldbyHoldingLP.A4S.A.owns1,000sharesofClassAcommonstockand1,000sharesofClassBcommonstock.Inaddition,Mr.DrahiisthesolecontrollingshareholderofUppernext,whichowns6,780,831sharesofClassAcommonstock.AlticeN.V.andA4S.A.arepartiestoastockholdersagreementwiththeCompanytobeenteredintoattheclosingoftheIPO.Formoreinformation,see"RelatedPartyTransactions."
(2) TheprincipaladdressforNextAlt,UppernextandA4S.A.is3boulevardRoyal,L-2449Luxembourg,GrandDuchyofLuxembourg;theprincipaladdressforAlticeN.V.andCVC3isPrinsBernhardplein200,1097JBAmsterdam,TheNetherlands;theprincipaladdressforNeptuneHoldingUSGPLLCandHoldingLPisc/oAlticeUSA,Inc.,1111StewartAvenue,Bethpage,NY11714.
(3) CIEManagementIXLimited,whichisanentityundercommoncontrolwithBCPartnersLLP,istheultimategeneralpartnerof,andhasinvestmentcontrolovertheClassAcommonstockheldbythefundscommonlyknownasBCEuropeanCapitalIX—1LPthrough11LPandBCEuropeanCapital—SuddenlinkCo-Investment1through6LP,andhasinvestmentcontrolovertheClassAcommonstockheldbyBCEuropeanCapitalIXLimited.CIEManagementIXLimitedisalsotheultimatecontrolpartyofSuddenVisionS.a.r.l.,whichwillholdthesesharesaftertheconsummationoftheoffering.CIEManagementIXLimitedmay,therefore,bedeemedtohavesharedvotingandinvestmentpoweroverClassAcommonstockbeneficiallyownedbyeachoftheseentities.BecauseCIEManagementIXLimitedismanagedbyaboardofdirectors,noindividualshaveultimatevotingorinvestmentcontrol(asdeterminedbyRule13d-3)overthesharesthatmaybedeemedbeneficiallyownedbyCIEManagementIXLimited.TheprincipaladdressofCIEManagementIXLimitedisHeritageHall,LeMarchantStreet,St.PeterPort,Guernsey,GY14HY,ChannelIslands.
(4) CPPIBisoverseenbyaboardofdirectors.NoneofthedirectorsoftheboardofdirectorshassolevotingordispositivepowerwithrespecttothesharesofourcommonstockbeneficiallyownedbyCPPIB.TheaddressofCPPIBisOneQueenStreetEast,Suite2500,Toronto,ON,M5C2W5.
(5) Theaddressforthesepersonsisc/oAlticeUSA,Inc.,1111StewartAvenue,Bethpage,NY11714.
(6) SharenumbersforClassAandClassBcommonstockarebasedonanassumedinitialpublicofferingpriceof$29.00pershare,themid-pointofthepricerangesetforthonthecoverofthisprospectus.Iftheinitialpublicofferingpriceis$27.00pershare,thelowendofthepricerangesetforthonthecoverofthisprospectus,thesharesbeneficiallyownedbeforethisofferingwouldbethefollowing:AlticePartieswouldbeneficiallyown63,132,716sharesofClassAcommonstockand489,905,782sharesofClassBcommonstock,BCPwouldbeneficiallyown102,063,102sharesofClassAcommonstock,CPPIBwouldbeneficiallyown66,142,314sharesofClassAcommonstockandallexecutiveofficersanddirectorsasagroupwouldbeneficiallyown2,808,234sharesofClassAcommonstock.Iftheinitialpublicofferingpriceis$31.00pershare,thehighendofthepricerangesetforthonthecoverofthisprospectus,thesharesbeneficiallyownedbeforethisofferingwouldbethefollowing:AlticePartieswouldbeneficiallyown64,121,237sharesofClassAcommonstockand490,677,071sharesofClassBcommonstock,BCPwouldbeneficiallyown100,908,372sharesofClassAcommonstock,CPPIBwouldbeneficiallyown65,393,987sharesofClassAcommonstockandallexecutiveofficersanddirectorsasagroupwouldbeneficiallyown2,855,692sharesofClassAcommonstock.
(7) Mr.GoeiholdshissharesofClassAcommonstockthroughVinluamS.a.r.l.,SPF.TheprincipaladdressforVinluamS.a.r.l.,SPFis3,boulevardRoyal,L-2449Luxembourg,GrandDuchyofLuxembourg.
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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;andrealestateandrealestateservices;
• Ourpurchaseofcustomerandtechnicalservicesupportandservicesandlicensingofintellectualproperty,includingpatents,trademarksandotherrights;and
• Ouracquisitionofcontent,includingouragreementrelatingtoi24News,aninternationalnewschannelmajorityownedbyAlticeN.V.inwhichwehavea25%investmentinitsU.S.business.
Altice Technical Services
ATSisasubsidiaryofAlticeN.V.specializingintheengineering,supply,constructionanddeploymentofnetworks,inparticularFTTHbroadbandnetworks,andtheprovisionofnetworkupgradeandmaintenanceservices.ATShasdevelopedend-to-endnetworkconstructionand
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maintenancecontrolprocessesenablingnetworkoperatorstooptimizetheiroperationalrisksandcosts.Priortotheconsummationoftheoffering,wewillenterintoanagreementpursuanttowhichATS,throughitsU.S.affiliate,willprovideafullrangeofservicestoAlticeUSA,includingconstructionandmaintenanceofitsnetworks,equipmentsaleandcommercialandresidentialaccessinstallationwithassociatedservicessuchas,networkaccesspointsinstallation,disconnectionandmaintenance,equipmentwarehousing,equipmentwarrantyandrepairandsecurityservices.ATSwillselltoAlticeUSAtheproductsrelatedtosuchservices,includingopticallinksfromthenetworkhead-endtothehousehold,opticalnode,opticalfiberandcoaxialcables,distributionframesandconnectionsandset-topboxes.
Management Advisory and Consulting Services
AsubsidiaryofAlticeN.V.providesconsulting,advisoryandotherservicestousinconnectionwithouracquisitions,divestitures,investments,capitalraising,financialandbusinessaffairsforaquarterlyfee.SeeNote13toourunauditedconsolidatedfinancialstatementsandNote15toourauditedconsolidatedfinancialstatementsincludedelsewherehereinformoreinformation.ThesubsidiarywillassigntheagreementunderwhichitprovidestheseservicestoustoAlticeN.V.priortotheclosingofthisoffering.
Stockholders' Agreement
Inconnectionwiththisoffering,wewilltoenterintoastockholders'agreementwithAlticeN.V.andA4S.A.Pursuanttothisagreement,AlticeN.V.willhavetherighttonominateamajorityofthemembersofourboardofdirectors,oneofwhichwillbeanindividualdesignatedbyA4S.A.,andAlticeN.V.willagreetovoteitssharesinfavorofelectingtheindividualdesignatedbyA4S.A.IfadirectordesignatedbyAlticeN.V.orbyA4S.A.resignsorisremovedfromtheboardofdirectors,asthecasemaybe,onlyanotherdirectordesignatedbyAlticeN.V.orbyA4S.A.,asthecasemaybe,mayfillthevacancy.Thestockholders'agreementwillrequireustoobtaintheconsentofAlticeN.V.beforewemaytakecertainactionsspecifiedtherein.See"DescriptionofCapitalStock—Stockholders'Agreement."
Stockholders and Registration Rights Agreement
Inconnectionwiththisoffering,weexpecttoenterintoastockholdersandregistrationrightsagreementwithAlticeN.V.,BCPandCPPIB.ThisagreementwillprovidetoAlticeN.V.anunlimitednumberof"demand"registrationsfortheregistrationofthesaleofourcommonstockinaminimumaggregateamount(the"MinimumAmount"),whichisthelowestof(i)$100,000,000,(ii)onepercent(1%)ofthevalueofShares(asdefinedinthestockholdersandregistrationrightsagreement)thatarepubliclytradedasofthecloseofbusinessonthemostrecentbusinessdayor(iii)suchlesseramountasagreedbytheSponsorsandAlticeN.V.Additionally,theagreementwillprovideBCPandCPPIBeachwithone"demand"registrationeverytwelvemonths,subjecttoanexception,andcustomary"piggyback"registrationrightstoAlticeN.V.,BCPandCPPIB.ThestockholdersandregistrationrightsagreementwillalsoprovidethatwewillpaycertainexpensesrelatingtosuchregistrationsandindemnifyAlticeN.V.,BCPandCPPIBagainstcertainliabilitieswhichmayariseundertheSecuritiesAct.EachSponsorwillalsohavetherightto,amongotherthings,designateonenon-votingobservertoourboardofdirectorsforsolongassuchSponsorandcertainofitsaffiliatesownatleast4%oftheissuedandoutstandingsharesofClassAandClassBcommonstockandthereisnodirectorwhoisadesigneeofsuchSponsoronourboardofdirectors.Subjecttocertainexceptions,eachnon-votingobserverwillbepermittedtoattendallmeetingsofourboardofdirectorsandthecommitteesthereof.
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Right of First Refusal
AnyproposedsaleofsharesofcommonstockheldbycertainmembersofourmanagementwillbesubjecttoarightoffirstrefusalinfavorofAlticeN.V.
Notes Payable to Affiliates and Related Parties
InJune2016,inconnectionwithCablevisionAcquisition,affiliatesoftheSponsorsandAlticeN.V.purchased$875millionaggregateprincipalamountofAlticeUSA's10.75%notesdue2023and$875millionaggregateprincipalamountofAlticeUSA's11.00%notesdue2024.Priortotheconsummationofthisoffering,thenotesheldbytheaffiliatesoftheSponsors(togetherwithaccruedandunpaidinterestandapplicablepremium)willbeconvertedintosharesoftheCompany'sClassAcommonstockandthenotesheldbyanaffiliateofAlticeN.V.(togetherwithaccruedandunpaidinterestandapplicablepremium)willbeconvertedintosharesoftheCompany'sClassBcommonstock.See"Summary—OwnershipandOrganization—OrganizationalTransactions"formoreinformation.
Our Policy Regarding Related-Party Transactions
Allagreementsandtransactionsbetweenus,ontheonehand,andaffiliatesofAlticeN.V.ontheotherhand,willbesubjecttotheRelated-PartyTransactionApprovalPolicythatourboardofdirectorswilladoptpriortothecompletionofthisoffering.Underthispolicy,theAuditCommitteeoftheboardconsistingentirelyofdirectorswhohavebeendeterminedbytheboardtobeindependentdirectorsforpurposesoftheNYSEcorporategovernancestandardsreviewsandapprovesortakessuchotheractionasitmaydeemappropriatewithrespecttotransactionsinvolvingtheCompanyanditssubsidiaries,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-PartyTransactionApprovalPolicycannotbeamendedorterminatedwithoutthepriorapprovalofamajorityoftheAuditCommittee.
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DESCRIPTION OF CAPITAL STOCK
General
Thefollowingdescriptionofourcapitalstockandcertainprovisionsofouramendedandrestatedcertificateofincorporationandamendedandrestatedbylawsaresummariesandarequalifiedbyreferencetotheamendedandrestatedcertificateofincorporationandtheamendedandrestatedbylawsthatwillbeineffectontheclosingofthisoffering.CopiesofthesedocumentswillbefiledwiththeSECasexhibitstoourregistrationstatement,ofwhichthisprospectusformsapart.Thedescriptionsofthecommonstockandpreferredstockreflectchangestoourcapitalstructurethatwillbeineffectontheclosingofthisoffering.
Ontheclosingofthisoffering,ouramendedandrestatedcertificateofincorporationwillprovideforthreeclassesofcommonstock:ClassAcommonstock,ClassBcommonstockandClassCcommonstock.Inaddition,ouramendedandrestatedcertificateofincorporationwillauthorizesharesofundesignatedpreferredstock,therights,preferencesandprivilegesofwhichmaybedesignatedfromtimetotimebyourboardofdirectors.
Ontheclosingofthisoffering,ourauthorizedcapitalstockwillconsistof9,100,000,000shares,allwithaparvalueof$0.01pershare,ofwhich:
• 4,000,000,000sharesaredesignatedClassAcommonstock;
• 1,000,000,000sharesaredesignatedClassBcommonstock;
• 4,000,000,000sharesaredesignatedClassCcommonstock;and
• 100,000,000sharesaredesignatedpreferredstock.
ImmediatelyfollowingtheOrganizationalTransactionsbutpriortothecompletionofthisoffering,wewillhaveoutstanding725,000,000sharesofcommonstock.Uponconsummationofthisoffering,therewillbe246,750,944sharesofourClassAcommonstockissuedandoutstandingand490,318,022sharesofourClassBcommonstockissuedandoutstanding.
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.
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AspermittedbyDelawarelaw,ouramendedandrestatedcertificateofincorporationprovidesthatthenumberofauthorizedsharesofcommonstockoranyclassofcommonstockmaybeincreasedordecreased(butnotbelowthenumberofsharesofcommonstockthenoutstanding)bytheaffirmativevoteoftheholdersofamajorityofthevotingpoweroftheClassAcommonstockandClassBcommonstock,votingtogetherasasingleclass.
Eachofourdirectorsanddirectornomineeswillstandforelectionateachofourannualmeetingsofstockholders.Ouramendedandrestatedcertificateofincorporationdoesnotprovideforcumulativevotingfortheelectionofdirectors.Rather,amajorityofthevotescastisrequiredforadirectorordirectornomineetobedulyelectedinanyuncontestedelection.Becauseourstockholdersdonothavecumulativevotingrights,stockholdersholdingamajorityofthevotingpowerofourcapitalstockwillbeabletoelectallofourdirectors.Stockholdersholdingamajorityofthevotingpowerofourcapitalstockalsowillbeabletoremoveeachofourdirectorswithorwithoutcause.Pursuanttothestockholders'agreementwewillenterintowithAlticeN.V.andA4S.A.inconnectionwiththisoffering,AlticeN.V.willhavetherighttonominateamajorityofthemembersofourboardofdirectors,oneofwhichwillbeanindividualdesignatedbyA4S.A.,andAlticeN.V.willagreetovoteitssharesinfavorofelectingtheindividualdesignatedbyA4S.A.IfadirectordesignatedbyAlticeN.V.orbyA4S.A.resignsorisremovedfromtheboardofdirectors,asthecasemaybe,onlyanotherdirectordesignatedbyAlticeN.V.orbyA4S.A.,asthecasemaybe,mayfillthevacancy.See"—Stockholders'Agreement."
Ouramendedandrestatedcertificateofincorporationalsogivestheholdersofatleastamajorityofthevotingpowerofourcapitalstocktherighttoactbywrittenconsentinlieuofameetingandwithoutnotice.
Economic Rights
ExceptasotherwiseexpresslyprovidedinouramendedandrestatedcertificateofincorporationorrequiredbyDelawarelaw,allsharesofClassAcommonstock,ClassBcommonstockandClassCcommonstockwillhavethesamerightsandprivilegesandrankequally,shareratablyandbeidenticalinallrespectsforallmatters,includingthosedescribedbelow.
Dividends and Distributions. Subjecttopreferencesthatmayapplytoanysharesofpreferredstockoutstandingatthetime,theholdersofoutstandingsharesofClassAcommonstock,ClassBcommonstockandClassCcommonstockwillbeentitledtoshareequally,onapersharebasis,inanydividendordistributionoffundslegallyavailableifourboardofdirectors,initsdiscretion,determinestodeclareandpaydividendsandonlythenatthetimesandintheamountsthatourboardofdirectorsmaydetermine.Intheeventthatadividendispaidintheformofsharesofourcapitalstockorrightstoacquireorsecuritiesconvertibleintoorexchangeableforsharesofourcapitalstock,then,inthediscretionofourboardofdirectors,either(A)theholdersofsharesofClassAcommonstock,ClassBcommonstockandClassCcommonstockshallreceivetheidenticalclassofsecuritiesonanequalpersharebasis,or(B)(i)theholdersofsharesofClassAcommonstockshallreceiveClassAcommonstock,orsecuritiesconvertibleintoorexchangeableforsharesofClassAcommonstockorrightstoacquiresuchsecurities,asthecasemaybe;(ii)theholdersofsharesofClassBcommonstockshallreceiveClassBcommonstock,orsecuritiesconvertibleintoorexchangeableforsharesofClassBcommonstockorrightstoacquiresuchsecurities,asthecasemaybe;and(iii)theholdersofsharesofClassCcommonstockshallreceiveClassCcommonstock,orsecuritiesconvertibleintoorexchangeableforsharesofClassCcommonstockorrightstoacquiresuchsecurities,asthecasemaybe;ineachsuchcaseinclause(B),inanequalamountpershare.
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Distributions of Another Corporation's Securities. Unlessotherwiseapprovedbytheboardofdirectors,wherethesecuritiesofanothercorporationaredistributed,theymustonlybedistributedtoholdersofClassAcommonstock,ClassBcommonstockandClassCcommonstockonthebasisthat:
(a) theholdersofClassAcommonstock,ClassBcommonstockandClassCcommonstockreceivetheidenticalclassofsecurities;or
(b) subjecttotheremainderofthisparagraph,theholdersofClassAcommonstock,ClassBcommonstockandClassCcommonstockeachreceivedifferentclassesofsecurities;or
(c) subjecttotheremainderofthisparagraph,theholdersofoneormoreclassofcommonstockreceiveadifferentclassofsecuritiesthantheholdersofallotherclassesofcommonstock,
ineachcase,onanequalpersharebasisandtoholdersofanysharesofpreferredstockoutstandingatthetimeinaccordancewiththetermsthereof.
Totheextentthatadividendisdeclaredandpaidpursuanttoparagraph(b)or(c),thentheholdersofClassBcommonstockshallreceivethesecuritieshavingthehighestnumberofvotespershare(or,inthecaseofconvertiblesecurities,thesecuritiesconvertibleinto,exchangeablefororevidencingtherighttopurchase,thesecuritieswiththehighestnumberofvotespershare)andtheholdersofeachotherclassofcommonstockshallreceivethesecuritieshavingthelessernumberofvotespershare(or,inthecaseofconvertiblesecurities,thesecuritiesconvertibleinto,exchangeablefororevidencingtherighttopurchase,thesecuritieswiththelessernumberofvotespershare):(A)ineachcase,withoutregardtowhethersuchvotingrightsdiffertoagreaterorlesserextentthanthecorrespondingdifferencesinvotingrights(andrelateddifferencesindesignation,conversionandrightstodistributions)betweentheClassAcommonstock,theClassBcommonstockandtheClassCcommonstock;and(B)providedthatthedifferentclassesofsecurities(and,inthecaseofsecuritiesconvertibleinto,exchangeablefororevidencingtherighttopurchasesecurities,thesecuritiesresultingfromsuchconversion,exchangeorpurchase)donotdifferinanyrespectotherthanwithrespecttotheirrelativevotingrights(andrelateddifferencesindesignation,conversion,redemptionandrightstodistributions).
Totheextentthatadividendisdeclaredandpaidpursuanttoparagraph(b)or(c),andintheeventthattheholdersofClassAcommonstockreceiveaclassofsecuritieshavingdifferentrightsthanthosereceivedbytheholdersofClassCcommonstock,then:(A)therightsofthedifferentclassesofsecurities(and,inthecaseofsecuritiesconvertibleinto,exchangeablefororevidencingtherighttopurchasesecurities,thesecuritiesresultingfromsuchconversion,exchangeorpurchase)maynotdifferinanyrespectotherthanwithrespecttotheirrelativevotingrights(andrelateddifferencesindesignation,conversion,redemptionandrightstodistributions);and(B)therelevantclassesofsecuritiesshallbedistributedtotheholdersofClassAcommonstockandClassCcommonstocksuchthattherelativevotingrights(andrelateddifferencesindesignation,conversion,redemption,rightstodividendsinspeciecomprisingsecuritiesandrightstodistributions)oftheclassofsecurities(or,inthecaseofconvertiblesecurities,thesecuritiesconvertibleinto,exchangeablefororevidencingtherighttopurchase,thesecuritiesresultingfromsuchconversion,exchangeorpurchase)tobereceivedbytheholdersofClassAcommonstockontheonehandandClassCcommonstockontheotherhandcorrespondstotheextentpracticabletotherelativevotingrights(andrelateddifferencesindesignation,conversion,redemptionandrightstodistributions)oftheClassAcommonstockascomparedtotheClassCcommonstock.
Liquidation Rights. Uponourdissolution,liquidationorwindingup,theassetslegallyavailablefordistributiontoourstockholderswillbedistributableratablyamongtheholdersofourClassAcommonstock,ClassBcommonstockandClassCcommonstocksubjecttopriorsatisfactionofalloutstandingdebtandliabilitiesandthepreferentialrightsandpaymentofliquidationpreferences,ifany,onanyoutstandingsharesofpreferredstockunlessdifferenttreatmentofsuchclasswithrespectto
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distributionsuponanysuchliquidation,dissolutionorwindingupisapprovedinadvancebytheaffirmativevoteoftheholdersofamajorityofthevotingpoweroftheClassAcommonstockandClassBcommonstock,eachvotingseparatelyasaclass.
Equal Status. Exceptasexpresslyprovidedinouramendedandrestatedcertificateofincorporationorrequiredbyapplicablelaw,sharesofClassAcommonstock,ClassBcommonstockandClassCcommonstockhavethesamerightsandprivilegesandrankequally,shareratablyandareidenticalinallrespectsastoallmatters.Intheeventof(i)aconsolidationormergerofuswithorintoanyotherentity;(ii)anytenderofferorexchangeofferbyanypersonorentitypursuanttoanagreementtowhichweareapartyorthatourboardofdirectorsrecommends;or(iii)asalebyAlticeN.V.oranyofitssubsidiariesthatholdssharesofourClassBcommonstockor,solelyintheeventsharesofourClassBcommonstockhavebeendistributedtoMr.Drahi,hisheirsorentitiesortrustsdirectlyorindirectlyunderhisortheircontrolorformedforhisortheirbenefitoranyaffiliateofMr.Drahi,hisheirsorentitiesortrustsdirectlyorindirectlyunderhisortheircontrolorformedforhisortheirbenefit(togetherwithAlticeN.V.andanyofitssubsidiariesthatholdsuchshares,the"AlticeHolders"),asalebyMr.Drahi,suchheirsorsuchtrustsorentitiesorsuchAffiliates,inoneoraseriesofrelatedtransactions,whethertoasinglepurchaserorpurchasersconstitutinga"group"asdefinedinSection13(d)oftheSecuritiesExchangeActof1934,ofsharesofClassBcommonstockrepresenting(a)atleast40%ofthevotesentitledtobecastbyallstockholdersentitledtovoteinanelectionofdirectorsand(b)agreaternumberofvotesthantheAlticeHolderscollectivelyareentitledtocastimmediatelyfollowingsuchsale,theholdersofClassAcommonstock,ClassBcommonstockandClassCcommonstockshallbeentitledtoparticipateproportionatelyandtoreceive,ortoelecttoreceive,thesameformofconsiderationandthesameamountofconsiderationonapersharebasis.Notwithstandingtheforegoing,ifanysecuritiesconsiderationispaid,distributedorofferedtoholdersofsharesofClassAcommonstock,ClassBcommonstockorClassCcommonstockinanysuchtransaction,suchconsiderationmaydifferonlyintermsofvotingrightssuchthattheholderofashareofClassBcommonstockshallreceiveorhavetherighttoelecttoreceivethesecuritieshavingthehighestnumberofvotespershare(or,inthecaseofconvertiblesecurities,thesecuritiesconvertibleinto,exchangeablefororevidencingtherighttopurchase,thesecuritieswiththehighestnumberofvotespershare)andtheholdersofeachotherclassofCommonStockshallreceiveorhavetherighttoelecttoreceivethesecuritieshavingthelessernumberofvotespershare(or,inthecaseofconvertiblesecurities,thesecuritiesconvertibleinto,exchangeablefororevidencingtherighttopurchase,thesecuritieswiththelessernumberofvotespershare),andanysecuritiesthattheholderofashareofClassCcommonstockshallreceiveorhavetherighttoelecttoreceiveshalleitherhavenovotingrightsorthesamevotingrightsasthesecuritiesthataholderofClassAcommonstockshallreceiveorhavetherighttoelecttoreceive.
Subdivisions and Combinations. IfwesubdivideorcombineinanymanneroutstandingsharesofClassAcommonstock,ClassBcommonstock,orClassCcommonstock,theoutstandingsharesoftheotherclasseswillbesubdividedorcombinedinthesamemannerconcurrently.
No Preemptive or Similar Rights
OurClassAcommonstock,ClassBcommonstockandClassCcommonstockarenotentitledtopreemptiverightsandarenotsubjecttoconversionorredemptionprovisions,exceptfortheconversionprovisionswithrespecttotheClassBcommonstockandClassCcommonstockdescribedbelow.AnyoneormoreseriesofPreferredStockwillhaveonlysuchpreemptiveorsimilarrightsgrantedtotheholdersthereofbyourboardofdirectors.
Conversion and Transfers
EachshareofClassBcommonstockisconvertibleatanytimeattheoptionoftheholderintooneshareofClassAcommonstock.
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OuramendedandrestatedcertificateofincorporationwillnotprovidefortheautomaticconversionofsharesofourClassBcommonstockupontransferunderanycircumstances.Asaresult,theholdersofClassBcommonstockwillbefreetotransferthemwithoutconvertingthemintosharesofourClassAcommonstock.AnysharesofClassBcommonstockthatareconvertedintoClassAcommonstockmaynotbereissued.ThedisparatevotingrightsofthesharesofourClassBcommonstockwillnotchangeupontransferunlessfirstconvertedintosharesofClassAcommonstock.
ImmediatelypriortoanyconversionofalloutstandingsharesofClassBcommonstockintoClassAcommonstock,theholdersofmajorityofthevotingpoweroftheClassBcommonstockatthetimeofsuchconversion,may,inconnectionwithsuchconversion,requirethateachshareofClassCcommonstockshallautomaticallybeconvertedintooneshareofClassAcommonstockonadatefixedbyourboardofdirectors,whichdateshallbenolessthan61daysandnomorethan180daysfollowingtheconversionofalloutstandingsharesofClassBcommonstock.
Preferred Stock
Ontheclosingofthisofferingandunderouramendedandrestatedcertificateofincorporation,ourboardofdirectorsmay,withoutfurtheractionbyourstockholders,fixtherights,preferences,privilegesandrestrictionsofuptoanaggregateof100,000,000sharesofpreferredstockinoneormoreseriesandauthorizetheirissuance.Theserights,preferencesandprivilegescouldincludedividendrights,conversionrights,votingrights,termsofredemption,liquidationpreferencesandthenumberofsharesconstitutinganyseriesorthedesignationofsuchseries,anyorallofwhichmaybegreaterthantherightsofourClassAcommonstock,ClassBcommonstockorClassCcommonstock.AnyissuanceofourpreferredstockcouldadverselyaffectthevotingpowerofholdersofourClassAcommonstockorClassBcommonstock,andthelikelihoodthatsuchholderswouldreceivedividendpaymentsandpaymentsonliquidation.Inaddition,theissuanceofpreferredstockcouldhavetheeffectofdelaying,deferring,orpreventingachangeofcontrolorothercorporateaction.Ontheclosingofthisoffering,nosharesofpreferredstockwillbeoutstanding.Wehavenopresentplantoissueanysharesofpreferredstock.
Stockholders' Agreement
Inconnectionwiththisoffering,wewilltoenterintoastockholders'agreementwithAlticeN.V.andA4S.A.Pursuanttothisagreement,AlticeN.V.willhavetherighttonominateamajorityofthemembersofourboardofdirectors,oneofwhichwillbeanindividualdesignatedbyA4S.A.,andAlticeN.V.willagreetovoteitssharesinfavorofelectingtheindividualdesignatedbyA4S.A.IfadirectordesignatedbyAlticeN.V.orbyA4S.A.resignsorisremovedfromtheboardofdirectors,asthecasemaybe,onlyanotherdirectordesignatedbyAlticeN.V.orbyA4S.A.,asthecasemaybe,mayfillthevacancy.UntilthefirstdateonwhichAlticeN.V.anditsaffiliatesotherthanusceasetobeneficiallyownatleast20%ofthevotingpowerofouroutstandingcommonstock,notwithstandinganythingtothecontraryinouramendedandrestatedcertificateofincorporationorbylaws,orinthegoverningdocumentsofanyofoursubsidiaries,withoutthepriorwrittenapprovalofAlticeN.V.,weshallnot(eitherdirectlyorindirectlythroughanaffiliateorotherwiseorthroughoneoraseriesofrelatedtransactions)take,orpermitoneofoursubsidiariestotake,anyofthefollowingactions:
(a) effectorconsummateaChangeofControl(asdefinedinthestockholders'agreement)orpubliclyendorseaChangeofControl(includingbyrecommendinganytenderorexchangeofferthatwouldresultinaChangeofControl)orenterintoanyagreementorarrangementtoeffectorconsummateaChangeofControl;
(b) makeanymaterialchangeinthescopeofouroroursubsidiaries'businessfromthescopeofouroroursubsidiaries'businessimmediatelypriortothecompletionofthisoffering;
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(c) acquire,disposeoforspinoffanysecurities,assetsorliabilitiesotherthanacquisitionsordispositionsofassetsorliabilitiesintheordinarycourseofbusinessconsistentwithpastpractice;
(d) enterintoanyjointventure,recapitalization,reorganizationorotherstrategicalliancewithanyotherPerson(asdefinedinthestockholders'agreement);
(e) issueanyCompanySecurities(asdefinedinthestockholders'agreement),exceptissuancespursuanttoacompensationorsimilarplanapprovedbyourboardofdirectorsoradulyauthorizedcommitteethereof;
(f) incur,guarantee,assume,orrefinanceanyindebtednessforborrowedmoneyhavingaprincipalamountgreaterthan$10million(includingdebtobligationsofanyotherPersonexistingatthetimesuchotherPersonmergedwithorintoorbecameasubsidiaryof,orsubstantiallyallofitsbusinessandassetswereacquiredby,byusoroursubsidiary,anddebtobligationssecuredbyalienencumberinganyassetacquiredbyusoranysuchsubsidiaryandincludingdebtsecurities),orpledgeorgrantasecurityinterestinanyofouroroursubsidiaries'assetshavingavalueofmorethan$10million(otherthandebtobligationsincurredintheordinarycourseofbusinessbyusandoursubsidiaries),orenterintoanyderivativetransactionsinvolvinganotionalamountgreaterthan$10million;
(g) redeem,repurchaseorotherwiseacquireCompanyCommonStock(asdefinedinthestockholders'agreement)oranywarrants,options,rightsorsecuritiesconvertibleinto,exchangeablefororexercisablefor,CompanyCommonStock,orredeem,repurchaseorotherwiseacquireormakeanypaymentwithrespecttoanyshareappreciationrightsorphantomshareplans(otherthanrepurchasesofCompanyCommonStockfromemployeesuponterminationofemploymentpursuanttotermsofdulyapprovedequitygrantsorpursuanttoacashlessexerciseofequitygrants)oranyre-pricingofdulyapprovedequityawards;
(h) amend(orapproveorrecommendamendmentof)ouroranyofoursubsidiaries'certificatesofincorporationorbylaws(orothersimilarorganizationaldocuments);
(i) elect,hire,replaceordismiss,orestablishormodifytheremunerationof,ourChiefExecutiveOfficer(ortheequivalentsuccessorposition)(suchperson,the"CEO"),ChiefFinancialOfficer(ortheequivalentsuccessorposition)(suchperson,the"CFO"),orChiefOperatingOfficer(ortheequivalentsuccessorposition)(suchperson,the"COO"),ineachcase,aselectedorappointedbyourboardofdirectors;
(j) elect,hire,replaceordismiss,orestablishormodifytheremunerationof,anyofficeroftheCompanythatdirectlyreportstotheCEO,CFOorCOO;
(k) establishormodifytheremunerationofdirectorsonourboardofdirectors;
(l) decreaseorincreasethenumberofdirectorsservingonourboardofdirectors;
(m) approve(oradopt)anyofouroperatingandcapitalbudgetsforeachfiscalyearcommencingwiththefiscalyearendedDecember31,2018,oranymaterialamendmentstheretoordeviationstherefrom;
(n) pay,declareorsetasideanysumsorotherpropertyforthepaymentofdividendsonanyCompanyCommonStockormakeanyotherdistributionsinrespectofanyCompanyCommonStockoranywarrants,options,rightsorsecuritiesconvertibleinto,exchangeablefororexercisablefor,CompanyCommonStock;
(o) otherthanasrequiredbyapplicablelaw,form,ordelegateauthorityto,anynewcommitteeorsubcommitteethereof,ofourboardofdirectors,ordelegateauthoritytoanyexisting
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committeeorsubcommitteethereofnotsetforthinthecommittee'scharterorauthorizedbyourboardofdirectorspriortothecompletionofthisoffering;
(p) commenceanyliquidation,dissolutionorvoluntarybankruptcy,administration,recapitalizationorreorganizationinanyformoftransaction,makearrangementswithcreditors,orconsenttotheentryofanorderforreliefinanyinvoluntarycase,ortaketheconversionofaninvoluntarycasetoavoluntarycase,orconsenttotheappointmentofortakepossessionbyareceiver,trusteeorothercustodianforallorsubstantiallyallofouroroursubsidiaries'property,orotherwiseseektheprotectionofanyapplicablebankruptcyorinsolvencylaw;
(q) amend,modifyorsupplement(orapproveorrecommendamendment,modificationorsupplementof)theRelatedPartyTransactionsPolicy;and
(r) enterintoanyagreementorarrangementtodoanyoftheforegoing.
OuramendedandrestatedcertificateofincorporationwillalsorequirethewrittenapprovalofAlticeN.V.beforewemaytaketheactionsspecifiedinparagraphs(a),(h)and(p).
Anti-Takeover Provisions
Certificate of Incorporation and Bylaws to be in Effect on the Closing of this Offering
Aspecialmeetingofstockholdersmaybecalledbyamajorityofourboardofdirectors,thechairofourboardofdirectors,stockholdersholdingamajorityofthevotingpowerofourcapitalstockorthedirectordesignatedbyA4S.A.Asdescribedabovein"ClassACommonStock,ClassBCommonStockandClassCCommonStock—VotingRights,"ouramendedandrestatedcertificateofincorporationwillfurtherprovideforatri-classcommonstockstructure,asaresultofwhichAlticeN.V.generallywillbeabletocontroltheoutcomeofallmattersrequiringstockholderapproval,includingtheelectionofdirectorsandsignificantcorporatetransactions,suchasamergerorothersaleofourcompanyoritsassets.
Theforegoingprovisionswillmakeitmoredifficultforourexistingstockholders,otherthanAlticeN.V.,toreplaceourboardofdirectorsaswellasforanotherpartytoobtaincontrolofusbyreplacingourboardofdirectors.Becauseourboardofdirectorswillhavethepowertoretainanddischargeourofficers,theseprovisionscouldalsomakeitmoredifficultforexistingstockholdersoranotherpartytoeffectachangeinmanagement.Inaddition,theauthorizationofundesignatedpreferredstockwillmakeitpossibleforourboardofdirectorstoissuepreferredstockwithvotingorotherrightsorpreferencesthatcouldimpedethesuccessofanyattempttochangeourcontrol.
Authorized but Unissued Shares
Theauthorizedbutunissuedsharesofcommonstockandpreferredstockareavailableforfutureissuancewithoutstockholderapproval,subjecttoanylimitationsimposedbythelistingstandardsoftheNYSE.Theseadditionalsharesmaybeusedforavarietyofcorporatefinancetransactions,acquisitionsandemployeebenefitplans.Theexistenceofauthorizedbutunissuedandunreservedcommonstockandpreferredstockcouldmakemoredifficultordiscourageanattempttoobtaincontrolofusbymeansofaproxycontest,tenderoffer,mergerorotherwise.
Section 203 of the DGCL
Section203oftheDGCLgenerallyprohibitsapublicly-heldDelawarecorporationfromengaginginamerger,assetsaleorothertransactionresultinginafinancialbenefitwithanypersonwho,togetherwithaffiliationandassociation,owns,orwithinthepriorthreeyears,didown,15%ormoreofacorporation'svotingstock.Theprohibitioncontinuesforaperiodofthreeyearsafterthedateofthetransactioninwhichthepersonbecameanownerof15%ormoreofthecorporation'svotingstock
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unlessthetransactionorthebusinesscombinationisapprovedinaprescribedmanner.Thestatutecouldprohibitordelay,deferorpreventachangeincontrolwithrespecttoAlticeUSA.However,byactionofourboardofdirectorswehavewaivedtheprovisionsofSection203.
Choice of Forum
OuramendedandrestatedbylawswillprovidethattheCourtofChanceryoftheStateofDelaware(or,iftheCourtofChancerydoesnothavejurisdiction,anotherstateorfederalcourtlocatedintheStateofDelaware)shallbetheexclusiveforumfor:(i)anyderivativeactionorproceedingbroughtinournameoronourbehalf;(ii)anyactionassertingabreachoffiduciaryduty;(iii)anyactionassertingaclaimagainstusarisingundertheDGCL;(iv)anyactionregardingouramendedandrestatedcertificateofincorporationorouramendedandrestatedbylaws;or(v)anyactionassertingaclaimagainstusthatisgovernedbytheinternalaffairsdoctrine.Ouramendedandrestatedbylawswillpermitourboardofdirectorstoapprovetheselectionofanalternativeforum.
Limitations of Liability and Indemnification
Ouramendedandrestatedcertificateofincorporationwillcontainprovisionsindemnifyingourdirectorsandofficerstothefullestextentpermittedbylaw.Inaddition,aspermittedbyDelawarelaw,ouramendedandrestatedcertificateofincorporationwillprovidethatnodirectorwillbeliabletousorourstockholdersformonetarydamagesforbreachoffiduciarydutyasadirector.Theeffectofthisprovisionistorestrictourrightsandtherightsofourstockholdersinderivativesuitstorecovermonetarydamagesagainstadirectorforbreachoffiduciarydutyasadirector,exceptfor:
• anybreachofhisorherdutyofloyaltytousorourstockholders;
• actsoromissionsnotingoodfaithwhichinvolveintentionalmisconductoraknowingviolationoflaw;
• thepaymentofdividendsortheredemptionorpurchaseofstockinviolationofDelawarelaw;or
• anytransactionfromwhichthedirectorderivedanimproperpersonalbenefit.
Thisprovisiondoesnotaffectadirector'sliabilityunderthefederalsecuritieslaws.
Totheextentourdirectors,officersandcontrollingpersonswillbeindemnifiedundertheprovisionscontainedinouramendedandrestatedcertificateofincorporation,DelawarelaworcontractualarrangementsagainstliabilitiesarisingundertheSecuritiesAct,wehavebeenadvisedthatintheopinionoftheSECsuchindemnificationisagainstpublicpolicyasexpressedintheSecuritiesActandisthereforeunenforceable.
Corporate Opportunities
TheDGCLpermitscorporationstoadoptprovisionsthatrenounceanyinterestorexpectancyin,oranyofferofanopportunitytoparticipatein,specifiedbusinessopportunitiesthatarepresentedtothecorporationoroneormoreofitsofficers,directorsorstockholders.OuramendedandrestatedcertificateofincorporationthatwillbeineffectontheclosingofthisofferingrecognizesthatMr.Drahiandcertaindirectors,principals,officers,employeesand/orotherrepresentativesofAlticeN.V.,A4S.A.andtheiraffiliates(eachsuchdirector,principal,officer,employeeand/orotherrepresentative,an"AlticeGroupRepresentative"andcollectively,the"AlticeGroupRepresentatives")mayserveasourdirectors,officersoragentsandthatMr.Drahi,AlticeN.V.,A4S.A.,theAlticeGroupRepresentativesandtheirrespectiveaffiliates,andmembersofourboardofdirectorsdesignatedbyAlticeN.V.andA4S.A.pursuanttothestockholders'agreement(the"DesignatedDirectors"),maynowengage,maycontinuetoengageandmayinthefutureengageinthesameor
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similaractivitiesorrelatedlinesofbusinessasthoseinwhichwe,directlyorindirectly,mayengageand/orotherbusinessactivitiesthatoverlapwithorcompetewiththoseinwhichwe,directlyorindirectly,mayengage.IntheamendedandrestatedcertificateofincorporationwehaverenouncedourrightstocertainbusinessopportunitiesandtheamendedandrestatedcertificateofincorporationprovidesthatnoneofMr.Drahi,AlticeN.V.,A4S.A.,anyAlticeGroupRepresentative,anyDesignatedDirector,ortheirrespectiveaffiliates,haveanydutytorefrainfrom,directlyorindirectly,engaginginthesameorsimilarbusinessactivitiesorlinesofbusinessesinwhichweoranyofouraffiliatesengageorarereasonablylikelytoengage,orotherwisecompetingwithusoranyofouraffiliates,orhaveanydutytocommunicatesuchopportunitiestous,unlesssuchopportunitiesariseinorarepredominantlyrelatedtoNorthAmerica.Theamendedandrestatedcertificateofincorporationfurtherprovidesthat,tothefullestextentpermittedbylaw,noneofMr.Drahi,AlticeN.V.,A4S.A.,anyAlticeGroupRepresentative,anyDesignatedDirector(includinganyDesignatedDirectorwhoservesasoneofourofficers)oranyoftheforegoingpersons'affilatesshallbeliabletousorourstockholdersforbreachofanyfiduciarydutysolelybecausetheyengageinsuchactivities.
Exchange Listing
OurClassAcommonstockhasbeenapprovedforlistingontheNYSEunderthesymbol"ATUS."
Transfer Agent and Registrar
Ontheclosingofthisoffering,thetransferagentandregistrarforourClassAcommonstockandClassBcommonstockwillbeAmericanStockTransfer&TrustCompany,LLC.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
ThefollowingtablessummarizecertainindebtednessoftheCompany(dollarsinthousands):
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Carrying Value
Maturity Date Interest
Rate Principal March 31,
2017 December 31,
2016 CSC Holdings Restricted Group: RevolvingCreditFacility(a) $20,000onOctober9,2020,
remainingonNovember30,2021 4.16%$ 225,256 $ 196,407 $ 145,013TermLoanFacility July17,2025 3.94% 2,493,750 2,481,005 2,486,874
Cequel: RevolvingCreditFacility(b) November30,2021 — — — —TermLoanFacility July28,2025 3.98% 812,963 810,929 812,903
$ 3,531,969 3,488,341 3,444,790Less:Currentportion 31,988 33,150Long-termdebt $ 3,456,353 $ 3,411,640
(a) AtMarch31,2017,$90,023oftherevolvingcreditfacilitywasrestrictedforcertainlettersofcreditissuedonbehalfoftheCompanyand$1,984,721ofthefacilitywasundrawnandavailable,subjecttocovenantlimitations.Priortothecompletionofthisoffering,weintendtoborrow$500,000undertheCVCRevolvingCreditFacilitytopartiallyfundthePre-IPODistribution.
(b) AtMarch31,2017,$17,031oftherevolvingcreditfacilitywasrestrictedforcertainlettersofcreditissuedonbehalfoftheCompanyand$332,969ofthefacilitywasundrawnandavailable,subjecttocovenantlimitations.
Carrying Amount(a)
Issuer Date Issued Maturity Date Interest
Rate Principal Amount
March 31, 2017
December 31, 2016
CSCHoldings(b)(e) February6,1998 February15,2018 7.875%$ 300,000 $ 308,118 $ 310,334CSCHoldings(b)(e) July21,1998 July15,2018 7.625% 500,000 518,284 521,654CSCHoldings(c)(e) February12,2009 February15,2019 8.625% 526,000 550,757 553,804CSCHoldings(c)(e) November15,2011 November15,2021 6.750% 1,000,000 953,722 951,702CSCHoldings(c)(e) May23,2014 June1,2024 5.250% 750,000 652,687 650,193CSCHoldings(d) October9,2015 January15,2023 10.125% 1,800,000 1,775,500 1,774,750CSCHoldings(d) October9,2015 October15,2025 10.875% 2,000,000 1,970,876 1,970,379CSCHoldings(d) October9,2015 October15,2025 6.625% 1,000,000 985,769 985,469CSCHoldings(f) September23,2016 April15,2027 5.500% 1,310,000 1,304,132 1,304,025Cablevision(c)(e) September23,2009 September15,2017 8.625% 900,000 917,053 926,045Cablevision(c)(e) April15,2010 April15,2018 7.750% 750,000 764,287 767,545Cablevision(c)(e) April15,2010 April15,2020 8.000% 500,000 489,712 488,992Cablevision(c)(e) September27,2012 September15,2022 5.875% 649,024 562,496 559,500CequelandCequelCapitalSeniorNotes(a)(e) Oct.25,2012
Dec.28,2012 September15,2020 6.375% 1,500,000 1,459,964 1,457,439CequelandCequelCapitalSeniorNotes(a) May16,2013
Sept.9,2014 December15,2021 5.125% 1,250,000 1,121,377 1,115,767
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Thefollowingisasummaryofprovisionsrelatingtoourmaterialindebtedness.Thefollowingsummarydoesnotpurporttobecompleteandissubjectto,andqualifiedinitsentiretybyreferenceto,theprovisionsofthecorrespondingagreements,includingthedefinitionsofcertaintermsthereinthatarenototherwisedefinedinthisprospectus.OurCablevisionandCequelbusinessesareeachcurrentlyfinancedonastandalonebasisandtherelevantCablevisionandCequelsubsidiariesconstitute
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Carrying Amount(a)
Issuer Date Issued Maturity Date Interest
Rate Principal Amount
March 31, 2017
December 31, 2016
AlticeUSFinanceICorporationSeniorSecuredNotes(b)
June12,2015 July15,2023 5.375% 1,100,000 1,080,508 1,079,869
CequelandCequelCapitalSeniorNotes(c) June12,2015 July15,2025 7.750% 620,000 603,276 602,925AlticeUSFinanceICorporationSeniorNotes(d) April26,2016 May15,2026 5.500% 1,500,000 1,487,200 1,486,933
$17,955,024 17,505,718 17,507,325Less:Currentportion 725,171 926,045Long-termdebt $16,780,547 $ 16,581,280
(a) Thecarryingamountofthenotesisnetoftheunamortizeddeferredfinancingcostsand/ordiscounts/premiums.
(b) ThedebenturesarenotredeemablebyCSCHoldingspriortomaturity.
(c) Notesareredeemableatanytimeataspecified"make-whole"priceplusaccruedandunpaidinteresttotheredemptiondate.
(d) TheCompanymayredeemsomeorallofthe2023NotesatanytimeonorafterJanuary15,2019,andsomeorallofthe2025Notesand2025GuaranteedNotesatanytimeonorafterOctober15,2020,attheredemptionpricessetforthintherelevantindenture,plusaccruedandunpaidinterest,ifany.TheCompanymayalsoredeemupto40%ofeachseriesoftheCablevisionAcquisitionNotesusingtheproceedsofcertainequityofferingsbeforeOctober15,2018,ataredemptionpriceequalto110.125%forthe2023Notes,110.875%forthe2025Notesand106.625%forthe2025GuaranteedNotes,ineachcaseplusaccruedandunpaidinterest.Inaddition,atanytimepriortoJanuary15,2019,CSCHoldingsmayredeemsomeorallofthe2023Notes,andatanytimepriortoOctober15,2020,theCompanymayredeemsomeorallofthe2025Notesandthe2025GuaranteedNotes,atapriceequalto100%oftheprincipalamountthereof,plusa"makewhole"premiumspecifiedintherelevantindentureplusaccruedandunpaidinterest.
(e) ThecarryingvalueofthenoteswasadjustedtoreflecttheirfairvalueontheCablevisionAcquisitionDate(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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separaterestrictedgroupsforthesedebtfinancingpurposes.WewereincompliancewithourdebtcovenantsasofMarch31,2017.
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
TheCVCCreditFacilitiesAgreementrequiresCSCHoldingstoprepayoutstandingCVCTermLoans,subjecttocertainexceptionsanddeductions,with(i)100%ofthenetcashproceedsofcertainassetsales,subjecttoreinvestmentrightsandcertainotherexceptions;and(ii)commencingwiththefiscalyearendingDecember31,2017,apariratableshare(basedontheoutstandingprincipalamountoftheCVCTermLoansdividedbythesumoftheoutstandingprincipalamountofallparipassuindebtednessandtheCVCTermLoans)of50%ofannualexcesscashflow,whichwillbereducedto0%iftheconsolidatednetseniorsecuredleverageratioofCSCHoldingsislessthanorequalto4.5to1.
Voluntary Prepayments
VoluntaryprepaymentsoftheCVCTermLoansonorpriortoOctober17,2017whichareeither(x)inconnectionwitharepricingtransactionor(y)effectinganyamendmentoftheCVCTermLoansresultinginarepricingtransaction,aresubjecttoacallpremiumpayabletotheadministrativeagentonbehalfofthelendersof,inthecaseof(x)1.00%oftheprincipalamountoftheCVCTermLoanssorepaidandinthecaseof(y)apaymentequalto1.00%oftheaggregateamountoftheCVCTermLoanssubjecttosuchrepricingtransaction.
Amortization and Final Maturity
ThematuritydateoftheCVCTermLoansisJuly17,2025.CSCHoldingsisrequiredtomakescheduledquarterlypaymentseachequalto0.25%oftheoriginalprincipalamountoftheCVCTermLoans,withthebalancedueonthematuritydate.Thematuritydatefor$2,280millionoftheCVC
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RevolvingCreditFacilitycommitmentsisNovember30,2021.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'abilityandtheabilityofitsrestrictedsubsidiariesto:(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(excludinganycashcollateralizedlettersofcreditandundrawnlettersofcreditnottoexceed$15million).
TheCVCCreditFacilitiesAgreementalsocontainscertaincustomaryrepresentationsandwarranties,affirmativecovenantsandeventsofdefault(including,amongothers,aneventofdefaultuponachangeofcontrol).Ifaneventofdefaultoccurs,thelendersundertheCVCCreditFacilitieswillbeentitledtotakevariousactions,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").
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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,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.
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)paydividendsormakeother
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distributionsorrepurchaseorredeemourcapitalstockorsubordinateddebt,(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,Cablevisionredeemed$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.
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,
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(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,CSCHoldingsmayalsoredeemsomeoralloftheCSC2027SeniorGuaranteedNotesatapriceequalto100%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)enterintoagreementsthat
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restrictthepaymentofdividendsbysubsidiariesortherepaymentofintercompanyloansandadvances,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.
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.Weintendtoredeem$350millionprincipalamountoftheCSC2025SeniorNoteswiththenetproceedsfromthisofferingandcashonhand.
TheCSC2023SeniorNotesareredeemable,inwholeorinpart,atanytimeonorafterJanuary15,2019,attheapplicableredemptionpricesspecifiedintheindenturegoverningtheCSC2023SeniorNotes,togetherwithaccruedandunpaidinterest,ifany,to,butexcluding,thedateofredemption.AtanytimepriortoOctober15,2018,CSCHoldingsmayredeemupto40%ofthe
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originalaggregateprincipalamountoftheCSC2023SeniorNoteswiththeproceedsofcertainequityofferingsataredemptionpriceof110.125%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,CSCHoldingsmayberequiredtomakeanoffertorepurchasetheCSCNewSeniorNotesatapurchasepriceequalto100%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%oftheoriginal
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aggregateprincipalamountoftheCequel2023SeniorSecuredNoteswiththeproceedsofcertainequityofferingsataredemptionpriceof105.375%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)enterintoagreementsthatrestrictthepaymentofdividendsbysubsidiariesortherepaymentofintercompanyloansandadvances,and(viii)engageinmergersorconsolidations.
UpontheoccurrenceofaneventconstitutingachangeofcontrolundertheindenturesgoverningtheCequelSeniorSecuredNotes,AlticeUSFinanceICorporationmustoffertorepurchasealloftheCequelSeniorSecuredNotesatapriceequalto101%oftheirprincipalamount,plusaccruedandunpaidinterest,ifany,totherepurchasedate.
Incertaininstancesinaccordancewiththetermsoftherespectiveindentures,AlticeUSFinanceICorporationmayberequiredtomakeanoffertorepurchasetheCequelSeniorSecuredNotesatapurchasepriceequalto100%oftheprincipalamountthereof,plusaccruedandunpaidinterest,ifany,withtheexcessproceedsfromassetsales.
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Cequel Senior Notes
OnOctober25,2012,CequelCapitalCorporationandCequelCommunicationsHoldingsI,LLCissued$500millionaggregateprincipalamountoftheir63/8%SeniorNotesdue2020(the"Cequel2020SeniorNotes").OnDecember28,2012,theCequelSeniorNotesIssuersissuedanadditional$1,000millionaggregateprincipalamountoftheirCequel2020SeniorNotes.OnApril14,2017,theCequelSeniorNotesCo-Issuersredeemed$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.TheCequel2021MirrorNotesmatureonDecember15,2021.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.
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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.
Cequel Intercreditor Agreement
OnDecember21,2015,JPMorganChaseBank,N.A.,assecurityagentandauthorizedrepresentativeofthesecuredpartiesundertheCequelCreditFacilities,andDeutscheBankTrustCompanyAmericas,asauthorizedrepresentativeoftheholdersoftheCequel2023SeniorSecuredNotes,enteredintoafirstlienintercreditoragreement(the"CequelFirstLienIntercreditorAgreement")astotherelativeprioritiesoftheirrespectivesecurityinterestsinthesharedcollateralsecuringtheindebtednessofAlticeUSFinanceICorporation.OnMay20,2016,DeutscheBankTrustCompanyAmericasaccededtotheCequelFirstLienIntercreditorAgreementinitscapacityasauthorizedrepresentativeoftheholdersoftheCequel2026SeniorSecuredNotes.TheCequelFirstLienIntercreditorAgreementprovidesthatnotwithstandingthedate,time,method,mannerororderofgrant,attachmentorperfectionofanyliensonthesharedcollateralsecuringtheCequelCreditFacilities,Cequel2023SeniorSecuredNotesorCequel2026SeniorSecuredNotes(orfuturefirstlien
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obligationsthatbecomesubjecttotheCequelFirstLienIntercreditorAgreement),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.AllofCSCHoldingsequityderivativecontractsarecarriedattheircurrentfairvalueonourconsolidatedbalancesheetswithchangesinvaluereflectedinourconsolidatedstatementsofincome,andallofthecounterpartiestosuchtransactionscurrentlycarryinvestmentgradecreditratings.
Cequel Derivative Instruments
InJune2016,asubsidiaryofCequelenteredintotwofixedtofloatinginterestrateswaps.Onefixedtofloatinginterestrateswapisconverting$750millionfromafixedrateof1.6655%tosix-monthLIBORandasecondtrancheof$750millionfromafixedrateof1.68%tosix-monthLIBOR.TheobjectiveoftheseswapsistocovertheexposureoftheCequel2026SeniorSecuredNotestochangesinthemarketinterestrate.Theseswapcontractswerenotdesignatedashedgesforaccountingpurposes.Accordingly,thechangesinthefairvalueoftheseinterestrateswapcontractsarerecordedthroughthestatementofoperations.
Letters of Credit
Certainlendershaveissuedstandbyandbackstoplettersofcreditthatareusedbycertainofoursubsidiariestoguaranteetheirobligationsintheordinarycourseofbusiness.AsofMarch31,2017,wehadapproximately$107millionofoutstandinglettersofcredit.
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SHARES ELIGIBLE FOR FUTURE SALE
Priortothisoffering,therehasnotbeenanypublicmarketforourClassAcommonstockandasignificantpublicmarketforourClassAcommonstockmaynotdeveloporbesustainedafterthisoffering.Wecannotpredictwhateffect,ifany,salesofsharesofourClassAcommonstockortheavailabilityofsharesofourClassAcommonstockforsalewillhaveontheprevailingmarketpriceofourClassAcommonstockfromtimetotime.ThenumberofsharesofourClassAcommonstockavailableforfuturesaleintothepublicmarketsissubjecttolegalandcontractualrestrictions,someofwhicharedescribedbelow.TheexpirationoftheserestrictionswillpermitsalesofsubstantialamountsofourClassAcommonstockinthepublicmarketorcouldcreatetheperceptionthatthesesalescouldoccur,whichcouldadverselyaffectthemarketpriceforourClassAcommonstockandcouldmakeitmoredifficultforustoraisecapitalthroughthesaleofourequityorequity-relatedsecuritiesatatimeandpricethatwedeemacceptable.
Uponthecompletionofthisoffering,weexpecttohaveatotalof246,750,944sharesofourClassAcommonstockoutstanding,and490,318,022sharesofourClassBcommonstockoutstanding.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,whichisapproximately2,467,509sharesofClassAcommonstockuponthecompletionofthisofferingassumingtheunderwritersdonotexercisetheiroptiontopurchaseadditionalsharesofClassAcommonstock;and
• theaverageweeklytradingvolumeofourClassAcommonstockontheNYSEduringthefourcalendarweeksprecedingeachsuchsale,subjecttocertainrestrictions.
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SalesunderRule144byouraffiliatesorpersonssellingonbehalfofouraffiliatesarealsosubjecttomannerofsaleprovisionsandnoticerequirementsandtotheavailabilityofcurrentpublicinformationaboutus.Rule144alsoprovidesthataffiliatesrelyingonRule144tosellsharesofourClassAcommonstockthatarenotrestrictedsharesmustnonethelesscomplywiththesamerestrictionsapplicabletorestrictedshares,otherthantheholdingperiodrequirement.
Rule 701
Rule701generallyallowsastockholderwhopurchasedsharesofourcapitalstockpursuanttoawrittencompensatoryplanorcontractandwhoisnotdeemedtohavebeenanaffiliateofourcompanyduringtheimmediatelypreceding90daystosellthesesharesinrelianceuponRule144,butwithoutbeingrequiredtocomplywiththepublicinformation,holdingperiod,volumelimitation,ornoticeprovisionsofRule144.Rule701alsopermitsaffiliatesofourcompanytoselltheirRule701sharesunderRule144withoutcomplyingwiththeholdingperiodrequirementsofRule144.AllholdersofRule701shares,however,arerequiredbythatruletowaituntil90daysafterthedateofthisprospectusbeforesellingthosesharespursuanttoRule701.Moreover,certainRule701sharesmaybesubjecttolock-upagreementsasdescribedbelowandunderthesectiontitled"Underwriting"andwillnotbecomeeligibleforsaleuntiltheexpirationofthoseagreements.
Directed Share Program
Atourrequest,theunderwritershavereservedupto5%ofthecommonstockbeingofferedbythisprospectusforsaleattheinitialpublicofferingpricetoourdirectorsandofficers,ouremployees,employeesofATSandcertainemployeesofAlticeN.V.anditssubsidiaries.ThesaleswillbemadebyMorganStanley&Co.LLC,anunderwriterofthisoffering,anditsaffiliatesthroughadirectedshareprogram.Wedonotknowifthesepersonswillchoosetopurchasealloranyportionofthesereservedshares,butanypurchasestheydomakewillreducethenumberofsharesavailabletothegeneralpublic.Anyreservedsharesnotsopurchasedwillbeofferedbytheunderwriterstothegeneralpubliconthesametermsastheothersharesofcommonstockofferedbythisprospectus.Anysharespurchasedbyourdirectorsandofficersinthedirectedshareprogramwillbesubjecttoa180-daylock-upperiod,andanysharespurchasedbyotherpersonsinourdirectedshareprogramwillbesubjecttoa35-daylock-upperiod.
Lock-up Agreements
Weandourexecutiveofficers,directors,andholdersofsubstantiallyallofourcommonstockhaveagreedwiththeunderwriters,subjecttocertainexceptions,nottodisposeoforhedgeanyofourortheircommonstockorsecuritiesconvertibleintoorexchangeableforsharesofcommonstockduringtheperiodfromthedateofthisprospectuscontinuingthroughthedate180daysafterthedateofthisprospectus,exceptwiththepriorwrittenconsentofJ.P.MorganSecuritiesLLCandMorganStanley&Co.LLC.Thisagreementdoesnotapplytoanyexistingemployeebenefitplans.See"SharesEligibleforFutureSale"foradiscussionofcertaintransferrestrictions.
Shares Issued Under Future Plans
WewillfilearegistrationstatementonFormS-8undertheSecuritiesActtoregisterClassAcommonstockissuableunderour2017LTIP.Sharesregisteredunderanysuchregistrationstatementwouldbeavailableforsaleinthepublicmarketfollowingtheeffectivedate,unlesssuchsharesaresubjecttovestingrestrictionswithus,Rule144restrictionsapplicabletoouraffiliatesorthelock-upagreementsdescribedabove.
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Stockholders and Registration Rights Agreement
Inconnectionwiththisoffering,weexpecttoenterintoastockholdersandregistrationrightsagreementwithAlticeN.V.,BCPandCPPIB.ThisagreementwillprovidetoAlticeN.V.anunlimitednumberof"demand"registrationsfortheregistrationofthesaleofourcommonstockinaMinimumAmount.Additionally,theagreementwillprovideBCPandCPPIBeachwithone"demand"registrationeverytwelvemonths,subjecttoanexception,andcustomary"piggyback"registrationrightstoAlticeN.V.,BCPandCPPIB.ThestockholdersandregistrationrightsagreementwillalsoprovidethatwewillpaycertainexpensesrelatingtosuchregistrationsandindemnifyAlticeN.V.,BCPandCPPIBagainstcertainliabilitieswhichmayariseundertheSecuritiesAct.See"CertainRelationshipsandRelated-PartyTransactions—StockholdersandRegistrationRightsAgreement."
Right of First Refusal
AnyproposedsaleofsharesofcommonstockheldbycertainmembersofourmanagementwillbesubjecttoarightoffirstrefusalinfavorofAlticeN.V.
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 well as any taxconsequences of the purchase, ownership and disposition of our Class A common stock arising under the U.S. federal estate or gift tax rules or under 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.andGoldmanSachs&Co.LLCareactingasrepresentativesoftheunderwriters.Weandthesellingstockholdershaveenteredintoanunderwritingagreementwiththeunderwriters.Subjecttothetermsandconditionsoftheunderwritingagreement,weandthesellingstockholdershaveagreedtoselltotheunderwriters,andeachunderwriterhasseverallyagreedtopurchase,atthepublicofferingpricelesstheunderwritingdiscountsandcommissionssetforthonthecoverpageofthisprospectus,thenumberofsharesofClassAcommonstocklistednexttoitsnameinthefollowingtable:
TheunderwritersarecommittedtopurchaseallthesharesofClassAcommonstockofferedbyusandthesellingstockholdersiftheypurchaseanysharesofClassAcommonstock.Theunderwritingagreementalsoprovidesthatifanunderwriterdefaults,thepurchasecommitmentsofnon-defaultingunderwritersmayalsobeincreasedortheofferingmaybeterminated.Theofferingofthesharesbytheunderwritersissubjecttoreceiptandacceptanceandsubjecttotheunderwriters'righttorejectanyorderinwholeorinpart.
TheunderwritersproposetoofferthesharesofClassAcommonstockdirectlytothepublicattheinitialpublicofferingpricesetforthonthecoverpageofthisprospectusandtocertaindealersatthatpricelessaconcessionnotinexcessof$pershare.AftertheinitialpublicofferingofthesharesofClassAcommonstock,theofferingpriceandothersellingtermsmaybechangedbytheunderwriters.SalesofthesharesofClassAcommonstockmadeoutsideoftheUnitedStatesmaybemadebyaffiliatesoftheunderwriters.
Theunderwritershaveanoptiontobuyupto7,781,110additionalsharesofClassAcommonstockfromthesellingstockholderstocoversalesofClassAcommonstockbytheunderwriterswhichexceedthenumberofsharesspecifiedinthetableabove.Theunderwritershave30daysfromthedateofthisprospectustoexercisethisoption.IfanysharesofClassAcommonstockarepurchasedwiththisoption,theunderwriterswillpurchasesharesofClassAcommonstockinapproximatelythesameproportionasshowninthetableabove.IfanyadditionalsharesofClassAcommonstockarepurchased,theunderwriterswilloffertheadditionalsharesofClassAcommonstockonthesametermsasthoseonwhichthesharesofClassAcommonstockarebeingoffered.
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Name Number of
shares J.P.MorganSecuritiesLLC MorganStanley&Co.LLC CitigroupGlobalMarketsInc. GoldmanSachs&Co.LLC MerrillLynch,Pierce,Fenner&SmithIncorporated BarclaysCapitalInc. BNPParibasSecuritiesCorp. CreditAgricoleSecurities(USA)Inc. DeutscheBankSecuritiesInc. RBCCapitalMarkets,LLC ScotiaCapital(USA)Inc. SGAmericasSecuritiesLLC TDSecurities(USA)LLC Total 63,943,029
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Atourrequest,theunderwritershavereservedupto5%ofthecommonstockbeingofferedbythisprospectusforsaleattheinitialpublicofferingpricetoourdirectorsandofficers,ouremployees,employeesofATSandcertainemployeesofAlticeN.V.anditssubsidiaries.ThesaleswillbemadebyMorganStanley&Co.LLC,anunderwriterofthisoffering,anditsaffiliatesthroughadirectedshareprogram.Wedonotknowifthesepersonswillchoosetopurchasealloranyportionofthesereservedshares,butanypurchasestheydomakewillreducethenumberofsharesavailabletothegeneralpublic.Anyreservedsharesnotsopurchasedwillbeofferedbytheunderwriterstothegeneralpubliconthesametermsastheothersharesofcommonstockofferedbythisprospectus.Anysharespurchasedbyourdirectorsandofficersinthedirectedshareprogramwillbesubjecttoa180-daylock-upperiod,andanysharespurchasedbyotherpersonsinourdirectedshareprogramwillbesubjecttoa35-daylock-upperiod.
TheunderwritingfeeisequaltothepublicofferingpricepershareofClassAcommonstocklesstheamountpaidbytheunderwriterstousandthesellingstockholderspershareofClassAcommonstock.Theunderwritingfeeis$pershare.Thefollowingtableshowsthepershareandtotalunderwritingdiscountsandcommissionstobepaidtotheunderwritersassumingbothnoexerciseandfullexerciseoftheunderwriters'optiontopurchaseadditionalsharesofClassAcommonstock.
Weestimatethatthetotalexpensesofthisoffering,includingregistration,filingandlistingfees,printingfeesandlegalandaccountingexpenses,butexcludingtheunderwritingdiscountsandcommissions,willbeapproximately$7.5million.TheunderwritershaveagreedtoreimbursetheCompanyforcertainexpensesrelatedtotheoffering.
Aprospectusinelectronicformatmaybemadeavailableonthewebsitesmaintainedbyoneormoreunderwriters,orsellinggroupmembers,ifany,participatingintheoffering.TheunderwritersmayagreetoallocateanumberofsharesofClassAcommonstocktounderwritersandsellinggroupmembersforsaletotheironlinebrokerageaccountholders.InternetdistributionswillbeallocatedbytherepresentativestounderwritersandsellinggroupmembersthatmaymakeInternetdistributionsonthesamebasisasotherallocations.
Weandourexecutiveofficers,directors,andholdersofsubstantiallyallofourcommonstockhaveagreedwiththeunderwriters,subjecttocertainexceptions,nottodisposeoforhedgeanyofourortheircommonstockorsecuritiesconvertibleintoorexchangeableforsharesofcommonstockduringtheperiodfromthedateofthisprospectuscontinuingthroughthedate180daysafterthedateofthisprospectus,exceptwiththepriorwrittenconsentofJ.P.MorganSecuritiesLLCandMorganStanley&Co.LLC.Thisagreementdoesnotapplytoanyexistingemployeebenefitplans.See"SharesEligibleforFutureSale"foradiscussionofcertaintransferrestrictions.
Weandthesellingstockholdershaveagreedtoindemnifytheseveralunderwritersagainstcertainliabilities,includingliabilitiesundertheSecuritiesAct.
OurClassAcommonstockhasbeenapprovedforlistingontheNYSEunderthesymbol"ATUS."
Inconnectionwiththisoffering,theunderwritersmayengageinstabilizingtransactions,whichinvolvesmakingbidsfor,purchasingandsellingsharesofClassAcommonstockintheopenmarketforthepurposeofpreventingorretardingadeclineinthemarketpriceofourClassAcommonstockwhilethisofferingisinprogress.ThesestabilizingtransactionsmayincludemakingshortsalesofourClassAcommonstock,whichinvolvesthesalebytheunderwritersofagreaternumberofsharesof
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Without option exercise
With full option exercise
PerShare $ $ Total $ $
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ClassAcommonstockthantheyarerequiredtopurchaseinthisoffering,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.
TheseactivitiesmayhavetheeffectofraisingormaintainingthemarketpriceoftheClassAcommonstockorpreventingorretardingadeclineinthemarketpriceoftheClassAcommonstock,and,asaresult,thepriceoftheClassAcommonstockmaybehigherthanthepricethatotherwisemightexistintheopenmarket.Iftheunderwriterscommencetheseactivities,theymaydiscontinuethematanytime.TheunderwritersmaycarryoutthesetransactionsontheNYSE,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,principal
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investment,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.Theunderwritersandtheirrespectiveaffiliatesmayalsomakeinvestmentrecommendationsand/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,purchaseor
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otherwiseacquiresuchsecuritieswillbeengagedinonlywith,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
• inanyothercircumstancesfallingwithinArticle3(2)oftheEUProspectusDirective,providedthatnosuchofferofsecuritiesdescribedinthisprospectusshallresultinarequirementforthepublicationbyusofaprospectuspursuanttoArticle3oftheEUProspectusDirective.
Forthepurposesofthisprovision,theexpressionan"offerofsecuritiestothepublic"inrelationtoanysecuritiesinanyRelevantMemberStatemeansthecommunicationinanyformandbyanymeansofsufficientinformationonthetermsoftheofferandthesecuritiestobeofferedsoastoenableaninvestortodecidetopurchaseorsubscribeforthesecurities,asthesamemaybevariedinthatMemberStatebyanymeasureimplementingtheEUProspectusDirectiveinthatMemberState.Theexpression"EUProspectusDirective"meansDirective2003/71/EC(andanyamendmentsthereto,includingthe2010PDAmendingDirective,totheextentimplementedintheRelevantMemberState)andincludesanyrelevantimplementingmeasureineachRelevantMemberState,andtheexpression"2010PDAmendingDirective"meansDirective2010/73/EU.
Switzerland
ThesharesmaynotbepubliclyofferedinSwitzerlandandwillnotbelistedontheSIXSwissExchange("SIX")oronanyotherstockexchangeorregulatedtradingfacilityinSwitzerland.Thisdocumenthasbeenpreparedwithoutregardtothedisclosurestandardsforissuanceprospectusesunderarticle.652aorarticle.1156oftheSwissCodeofObligationsorthedisclosurestandardsforlistingprospectusesunderarticle.27ff.oftheSIXListingRulesorthelistingrulesofanyotherstockexchangeorregulatedtradingvenueinSwitzerland.
NeitherthisdocumentnoranyotherofferingormarketingmaterialrelatingtothesharesortheofferingmaybepubliclydistributedorotherwisemadepubliclyavailableinSwitzerland.Neitherthisdocumentnoranyotherofferingormarketingmaterialrelatingtotheoffering,theCompanyortheshareshavebeenorwillbefiledwithorapprovedbyanySwissregulatoryauthority.Inparticular,thisdocumentwillnotbefiledwith,andtheofferofshareswillnotbesupervisedby,theSwissFinancialMarketSupervisoryAuthorityFINMA("FINMA"),andtheofferofshareshasnotbeenandwillnotbeauthorizedundertheSwissFederalActonCollectiveInvestmentSchemes("CISA").Theinvestor
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protectionaffordedtoacquirersofinterestsincollectiveinvestmentschemesundertheCISAdoesnotextendtoacquirersofshares.
IfyouarelocatedinSwitzerland,1)youunderstandthattheinvestmentinthesharesisaprivateplacement,2)youmaynotandwillnot(i)publiclyoffer,sell,advertise,distributeorre-distribute,directlyorindirectly,inorfromSwitzerlandthesharesand(ii)communicate,distributeorotherwisemakeavailableinSwitzerlandanysolicitationforinvestmentsinthesharesinanywaythatcouldconstituteapublicofferingwithinthemeaningofarticles1156or652aoftheSwissCodeofObligations("CO")orofarticle3oftheFederalActonCollectiveInvestmentSchemes("CISA"),3)youhavehadaccesstoallrelevantinformationtomakeafairinvestmentdecisionand4)youareawareoftherisksrelatedtoaninvestmentintheshares.
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
Consolidated Financial Statements
ConsolidatedBalanceSheet-March31,2017(Unaudited)andDecember31,2016 F-3
ConsolidatedStatementofOperationsandComprehensiveLoss-ThreemonthsendedMarch31,2017and2016(Unaudited) F-5
ConsolidatedStatementofStockholders'Equity-ThreemonthsendedMarch31,2017(Unaudited) F-6
ConsolidatedStatementofCashFlows-ThreemonthendedMarch31,2017and2016(Unaudited) F-7
Notes to Consolidated Financial Statements F-8
Report of Independent Registered Public Accounting Firm F-37
Consolidated Financial Statements
ConsolidatedBalanceSheet—December31,2016 F-38
ConsolidatedStatementofOperations—YearendedDecember31,2016 F-40
ConsolidatedStatementofComprehensiveLoss—YearendedDecember31,2016 F-41
ConsolidatedStatementofStockholders'Equity—YearendedDecember31,2016 F-42
ConsolidatedStatementofCashFlows—YearendedDecember31,2016 F-43
Notes to Consolidated Financial Statements F-44
CABLEVISION SYSTEMS CORPORATION
Report of Independent Registered Public Accounting Firm F-90
Consolidated Financial Statements
ConsolidatedBalanceSheet—December31,2015 F-91
ConsolidatedStatementsofOperations—periodendedJanuary1,2016toJune20,2016andyearsendedDecember31,2015and2014 F-93
ConsolidatedStatementsofComprehensiveIncome(Loss)—periodendedJanuary1,2016toJune20,2016andyearsendedDecember31,2015and2014
F-94
ConsolidatedStatementsofStockholders'Equity(Deficiency)—periodendedJanuary1,2016toJune20,2016andyearsendedDecember31,2015and2014
F-95
ConsolidatedStatementsofCashFlows—periodendedJanuary1,2016toJune20,2016andyearsendedDecember31,2015and2014 F-98
Notes to Consolidated Financial Statements F-99
CEQUEL CORPORATION
Independent Auditor's Report (Predecessor) F-143
Independent Auditor's Report (Successor) F-144
TableofContents
F-2
Page Consolidated Financial Statements
ConsolidatedBalanceSheets—December31,2015and2014 F-145
ConsolidatedStatementsofOperationsandComprehensive(Loss)/Income—periodsendedDecember21,2015toDecember31,2015,January1,2015toDecember20,2015andyearendedDecember31,2014
F-146
ConsolidatedStatementsofCashFlows—periodsendedDecember21,2015toDecember31,2015,January1,2015toDecember20,2015andyearendedDecember31,2014
F-147
ConsolidatedStatementsofChangesinStockholders'Equity—periodsendedDecember21,2015toDecember31,2015andJanuary1,2015toDecember20,2015
F-148
Notes to Consolidated Financial Statements F-149
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ALTICE USA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
Seeaccompanyingnotestoconsolidatedfinancialstatements
F-3
Pro forma (See Note 1)
Historical
December 31, 2016
ASSETS March 31, 2017 (Unaudited) CurrentAssets: Cashandcashequivalents $ 313,747 $ 463,882 $ 486,792Restrictedcash 14,951 14,951 16,301Accountsreceivable,trade(lessallowancefordoubtfulaccountsof$9,717and$11,677) 307,080 307,080 349,626Prepaidexpensesandothercurrentassets(includingaprepaymenttoanaffiliateof$9,441in2017)(SeeNote13) 104,163 104,163 88,151
Amountsduefromaffiliates 28,384 28,384 22,182Investmentsecuritiespledgedascollateral 601,938 601,938 741,515Derivativecontracts — — 352Totalcurrentassets 1,370,263 1,520,398 1,704,919
Property,plantandequipment,netofaccumulateddepreciationof$1,405,384and$1,039,297 6,391,270 6,391,270 6,597,635Investmentinaffiliates 3,384 3,384 5,606Investmentsecuritiespledgedascollateral 1,012,750 1,012,750 741,515Derivativecontracts — — 10,604Otherassets 49,073 49,073 48,545Amortizablecustomerrelationships,netofaccumulatedamortizationof$791,505and$580,276 5,134,379 5,134,379 5,345,608Amortizabletradenames,netofaccumulatedamortizationof$108,883and$83,397 957,900 957,900 983,386Otheramortizableintangibles,netofaccumulatedamortizationof$4,397and$3,093 22,435 22,435 23,650Indefinite-livedcabletelevisionfranchises 13,020,081 13,020,081 13,020,081Goodwill 8,067,611 8,067,611 7,992,700TotalAssets $ 36,029,146 $ 36,179,281 $ 36,474,249
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ALTICE USA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
(In thousands)
Seeaccompanyingnotestoconsolidatedfinancialstatements.
F-4
Pro forma (See Note 1)
Historical
December 31, 2016
LIABILITIES AND STOCKHOLDERS' EQUITY March 31, 2017 (Unaudited) CurrentLiabilities: Accountspayable $ 660,374 $ 660,374 $ 697,310Accruedliabilities: Interest 331,309 481,444 576,778Employeerelatedcosts 247,565 247,565 260,019Otheraccruedexpenses 257,422 257,422 333,522
Amountsduetoaffiliates 350,855 11,155 127,363Deferredrevenue 109,224 109,224 94,816Liabilitiesunderderivativecontracts 36,073 36,073 13,158Collateralizedindebtedness 461,946 461,946 622,332Creditfacilitydebt 31,988 31,988 33,150Seniornotesanddebentures 725,171 725,171 926,045Capitalleaseobligations 13,350 13,350 15,013Notespayable 4,150 4,150 5,427Totalcurrentliabilities 3,229,427 3,039,862 3,704,933
Definedbenefitplanobligations 84,296 84,296 84,106Notespayabletoaffiliatesandrelatedparties — 1,750,000 1,750,000Otherliabilities 161,076 161,076 113,485Deferredtaxliability 7,606,359 7,606,359 7,966,815Liabilitiesunderderivativecontracts 113,654 113,654 78,823Collateralizedindebtedness 831,756 831,756 663,737Creditfacilitydebt 3,956,353 3,456,353 3,411,640Seniornotesanddebentures 16,780,547 16,780,547 16,581,280Capitalleaseobligations 10,194 10,194 13,142Notespayable 7,303 7,303 8,299Totalliabilities 32,780,965 33,841,400 34,376,260
Commitmentsandcontingencies Redeemableequity 211,687 211,687 68,147Stockholders'Equity: PreferredStock,$0.01parvalue,100,000,000sharesauthorized,nosharesissuedandoutstandingonaproformabasis(unaudited) — — —
ClassAcommonstock:$0.01parvalue,4,000,000,000sharesauthorized,234,681,978issuedandoutstandingonaproformabasis(unaudited) 2,347 — —
ClassBcommonstock:$0.01parvalue,1,000,000,000sharesauthorized,490,318,022issuedandoutstandingonaproformabasis(unaudited) 4,903 — —
ClassCcommonstock:$0.01parvalue,4,000,000,000sharesauthorized,nosharesissuedandoutstandingonaproformabasis(unaudited) — — —
CommonStock,$.01parvalue,1,000sharesauthorized,100sharesissuedandoutstandingasofMarch31,2017andDecember31,2016 — — —
Paid-incapital 4,287,833 2,867,863 3,003,554Accumulateddeficit (1,261,092) (744,172) (975,978)
3,033,991 2,123,691 2,027,576Accumulatedothercomprehensiveincome 1,979 1,979 1,979Totalstockholders'equity 3,035,970 2,125,670 2,029,555
Noncontrollinginterest 524 524 287Totalequity 3,036,494 2,126,194 2,029,842
$36,029,146 $36,179,281 $ 36,474,249
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ALTICE USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except weighted average common share amounts)
Seeaccompanyingnotestoconsolidatedfinancialstatements.
F-5
Three Months Ended
March 31,
2017 March 31,
2016 Revenue(includingrevenuefromaffiliatesof$141in2017)(SeeNote13) $ 2,305,676 $ 627,589Operatingexpenses: Programmingandotherdirectcosts(includingchargesfromaffiliatesof$735in2017)(SeeNote13) 758,352 189,595Otheroperatingexpenses(includingchargesfromaffiliatesof$7,298and$2,500)(SeeNote13) 613,437 175,265Restructuringandotherexpense 76,929 7,569Depreciationandamortization(includingimpairments) 608,724 200,900
2,057,442 573,329Operatingincome 248,234 54,260Otherincome(expense): Interestexpense(includinginteresttoaffiliatesof$47,588in2017)(SeeNote13) (433,294) (275,829)Interestincome 232 6,415Gainoninvestments,net 131,658 —Lossonequityderivativecontracts,net (71,044) —Gainoninterestrateswapcontracts 2,342 —Otherexpense,net (224) 11
(370,330) (269,403)Lossbeforeincometaxes (122,096) (215,143)Incometaxbenefit 45,908 74,395
Netloss (76,188) (140,748)Netincomeattributabletononcontrollinginterests (237) —NetlossattributabletoAlticeUSA,Inc.stockholders $ (76,425) $ (140,748)Comprehensiveloss $ (76,425) $ (140,748)Basic and diluted net loss per share $ (764) $ (1,407)Basic and diluted weighted average common shares 100 100
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ALTICE USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands)
Seeaccompanyingnotestoconsolidatedfinancialstatements.
F-6
Class A Common
Stock Paid-in Capital
Accumulated Deficit
Accumulated Other
Comprehensive Income
Total Stockholders'
Equity (Deficiency)
Non- controlling
Interest Total Equity (Deficiency)
BalanceatJanuary1,2017 $ — $ 3,003,554 $ (975,978) $ 1,979 $ 2,029,555 $ 287 $ 2,029,842Netlossattributabletostockholders — — (76,425) — (76,425) — (76,425)Netincomeattributabletononcontrollinginterests — — — — — 237 237Share-basedcompensationexpense — 7,848 — — 7,848 — 7,848Changeinfairvalueofredeemableequity — (143,539) — — (143,539) — (143,539)Recognitionofpreviouslyunrealizedexcesstaxbenefitsrelatedtoshare-basedawardsinconnectionwiththeadoptionASU2016-09 — — 308,231 — 308,231 — 308,231
BalanceatMarch31,2017 $ — $ 2,867,863 $ (744,172) $ 1,979 $ 2,125,670 $ 524 $ 2,126,194
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ALTICE USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
Seeaccompanyingnotestoconsolidatedfinancialstatements.
F-7
Three Months Ended
March 31, 2017 2016 Cashflowsfromoperatingactivities: Netloss $ (76,188) $ (140,748)Adjustmentstoreconcilenetlosstonetcashprovidedbyoperatingactivities: Depreciationandamortization(includingimpairments) 608,724 200,889Equityinnetlossofaffiliates 2,757 —Gainoninvestments,net (131,658) —Lossonequityderivativecontracts,net 71,044 —Amortizationofdeferredfinancingcostsanddiscounts(premiums)onindebtedness 1,812 18,549Share-basedcompensationexpense 7,848 —Deferredincometaxes (52,184) (76,941)Provisionfordoubtfulaccounts 15,694 4,811
Changeinassetsandliabilities,netofeffectsofacquisitionsanddispositions: Accountsreceivable,trade 34,707 913Prepaidexpensesandotherassets (19,554) 1,703Amountsduefromandduetoaffiliates (131,958) 2,479Accountspayable 147,999 4,931Accruedliabilities (253,313) 138,011Deferredrevenue 11,257 1,025Liabilitiesrelatedtointerestrateswapcontracts (2,342) —
Netcashprovidedbyoperatingactivities 234,645 155,622Cashflowsfrominvestingactivities: Paymentforacquisition,netofcashacquired (43,608) —Capitalexpenditures (257,427) (66,204)Proceedsrelatedtosaleofequipment,includingcostsofdisposal 596 398Increaseinotherinvestments (550) —Additionstootherintangibleassets (183) —
Netcashusedininvestingactivities (301,172) (65,806)Cashflowsfromfinancingactivities: Proceedsfromcreditfacilitydebt $ 225,000 $ —Repaymentofcreditfacilitydebt (183,288) (5,980)Proceedsfromcollateralizedindebtedness 156,136 —Repaymentofcollateralizedindebtednessandrelatedderivativecontracts (150,084) —Principalpaymentsoncapitalleaseobligations (4,207) (3,965)Additionstodeferredfinancingcosts (1,290) —
Netcashprovidedbyfinancingactivities 42,267 (9,945)Netincreaseincashandcashequivalents (24,260) 79,871Cash,cashequivalentsandrestrictedcashatbeginningofyear 503,093 8,634,921Cash,cashequivalentsandrestrictedcashatendofyear $ 478,833 $ 8,714,792
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ALTICE USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
NOTE 1. DESCRIPTION OF BUSINESS AND RELATED MATTERS
The Company and Related Matters
AlticeUSA,Inc.("AlticeUSA"orthe"Company")wasincorporatedinDelawareonSeptember14,2015.AsofMarch31,2017,AlticeUSAismajority-ownedbyAlticeN.V.,apubliccompanywithlimitedliability(naamlozevennootshcap)underDutchlaw("AlticeN.V.").
AlticeN.V.acquiredCequelCorporation("Cequel"or"Suddenlink")onDecember21,2015andCequelwascontributedtoAlticeUSAonJune9,2016.AlticeUSAhadnooperationsofitsownotherthantheissuanceofdebtpriortothecontributionofCequelonJune9,2016byAlticeN.V.TheresultsofoperationsofCequelforthethreemonthsendedMarch31,2016havebeenincludedintheresultsofoperationsofAlticeUSAforthesameperiod,asCequelwasundercommoncontrolwithAlticeUSA.AlticeUSAacquiredCablevisionSystemsCorporation("Cablevision"or"Optimum")onJune21,2016andtheresultsofoperationsofCablevisionareincludedwiththeresultsofoperationsofCequelforthethreemonthsendedMarch31,2017.
TheCompanyclassifiesitsoperationsintotworeportablesegments:Cablevision,whichoperatesintheNewYorkmetropolitanarea,andCequel,whichprincipallyoperatesinmarketsinthesouth-centralUnitedStates.
Acquisition of Cablevision Systems Corporation
OnJune21,2016(the"CablevisionAcquisitionDate"),pursuanttotheAgreementandPlanofMerger(the"MergerAgreement"),datedasofSeptember16,2015,byandamongCablevision,AlticeN.V.,NeptuneMergerSubCorp.,awholly-ownedsubsidiaryofAlticeN.V.("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"CablevisionAcquisitionConsideration").
Pursuanttoanagreement,datedDecember21,2015,byandamongCVC2B.V.,CIEManagementIXLimited,forandonbehalfofthelimitedpartnershipsBCEuropeanCapitalIX-1through11andCanadaPensionPlanInvestmentBoard,certainaffiliatesofBCPandCPPIB(the"Co-Investors")fundedapproximately$1,000,000towardthepaymentoftheaggregatePerShareCablevisionAcquisitionConsideration,andindirectlyacquiredapproximately30%oftheSharesofCablevision.
AlsoinconnectionwiththeCablevisionAcquisition,outstandingequity-basedawardsgrantedunderCablevision'sequityplanswerecancelledandconvertedintocashbaseduponthe$34.90perShareCablevisionAcquisitionpriceinaccordancewiththeoriginaltermsoftheawards.ThetotalconsiderationfortheoutstandingCNYGClassAShares,theoutstandingCNYGClassBShares,andtheequity-basedawardsamountedto$9,958,323.
F-8
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ALTICE USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
NOTE 1. DESCRIPTION OF BUSINESS AND RELATED MATTERS (Continued)
InconnectionwiththeCablevisionAcquisition,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"CablevisionAcquisitionNotes").
OnJune21,2016,immediatelyfollowingtheCablevisionAcquisition,FincomergedwithandintoCSCHoldings,withCSCHoldingssurvivingthemerger(the"CSCHoldingsMerger"),andtheCablevisionAcquisitionNotesandtheCreditFacilitiesbecameobligationsofCSCHoldings.
OnJune21,2016,inconnectionwiththeCablevisionAcquisition,theCompanyissuednotespayabletoaffiliatesandrelatedpartiesaggregating$1,750,000,ofwhich$875,000bearinterestat10.75%and$875,000bearinterestat11%.
TheCablevisionAcquisitionwasaccountedforasabusinesscombinationinaccordancewithASCTopic805.Accordingly,theCompanysteppedup100%oftheassetsandliabilitiesassumedtotheirfairvalueattheCablevisionAcquisitionDate.SeeNote3forfurtherdetails.
Acquisition of Cequel Corporation
OnDecember21,2015,AlticeN.V.acquiredapproximately70%ofthetotaloutstandingequityinterestsinCequel(the"CequelAcquisition")fromthedirectandindirectstockholdersofCequelCorporation(the"Sellers").Theconsiderationfortheacquiredequityinterestswasbasedonatotalequityvaluationfor100%ofthecapitalandvotingrightsofCequelwas$3,973,528whichincludes$2,797,928ofcashconsideration,$675,600ofretainedequityheldbyentitiesaffiliatedwithBCPartnersandCPPIBand$500,000fundedbytheissuancebyanaffiliateofAlticeN.V.ofaseniorvendornotethatwassubscribedbyentitiesaffiliatedwithBCPartnersandCPPIB.FollowingtheclosingoftheCequelAcquisition,entitiesaffiliatedwithBCPartnersandCPPIBretaineda30%equityinterestinaparententityoftheCompany.Inaddition,thecarriedinterestplansoftheStockholderswerecashedoutwherebypaymentsweremadetoparticipantsinsuchcarriedinterestplans,includingcertainofficersanddirectorsofCequel.
InJune2016,CequelwascontributedtoAlticeUSA.TheaccompanyingconsolidatedfinancialstatementsincludetheoperatingresultsofCequelforthethreemonthsendedMarch31,2017and2016andtheoperatingresultsofCablevisionforthethreemonthsendedMarch31,2017.
Pro forma Balance Sheet (unaudited)
TheproformabalancesheetasofMarch31,2017reflectstheaccrualof$169,950relatedtothecashdistributiontotheCompany'sstockholdersmadeinApril2017,theaccrualof$169,750ofthecashdistributionandthepaymentofthe$500,000cashdistributiontotheCompany'sstockholderstobemadepriortothepricingoftheCompany'sinitialofferingofequitysecuritiestothepublic
F-9
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ALTICE USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
NOTE 1. DESCRIPTION OF BUSINESS AND RELATED MATTERS (Continued)
("IPO"),whichwillbefundedbyborrowingsof$500,000undertheCSCHoldingsRevolvingCreditFacility(asdefinedinNote8)and$169,750ofcashonhand,andgiveseffecttothefollowingorganizationaltransactionsthathavenotyetoccurredandwillbeconsummatedinconnectionwiththeIPO:
• theCompanywillamendandrestateitscertificateofincorporationto,amongotherthings,provideforClassAcommonstock,ClassBcommonstockandClassCcommonstock;
• theCo-InvestorsandanentitycontrolledbyMr.DrahiwillexchangetheirindirectownershipinterestintheCompanyforsharesoftheCompany'scommonstock;
• NeptuneManagementLP("ManagementLP")willredeemitsClassBunitsforsharesoftheCompany'scommonstockthatitreceivesfromtheredemptionofitsClassBunitsinNeptuneHoldingUSLP;
• theCompanywillconvert$525,000aggregateprincipalamountofnotesissuedbytheCompanytotheCo-Investors(togetherwithaccruedandunpaidinterestandapplicablepremium)intosharesoftheCompany'scommonstockattheinitialpublicofferingprice;
• $1,225millionaggregateprincipalamountofnotesissuedbytheCompanytoasubsidiaryofAlticeN.V.(togetherwithaccruedandunpaidinterestandapplicablepremium)willbetransferredtoCVC3andthentheCompanywillconvertsuchnotesintosharesoftheCompany'scommonstockattheinitialpublicofferingprice;
• theCo-Investors,NeptuneHoldingUSLP,anentitycontrolledbythefamilyofMr.DrahiandformerClassBunitholdersofManagementLP(includinganentitycontrolledbyMr.Drahi)willexchangesharesoftheCompany'scommonstockfornewsharesoftheCompany'sClassAcommonstock;and
• CVC3B.V.,anindirectsubsidiaryofAlticeN.V.,andanentitycontrolledbythefamilyofMr.DrahiwillexchangesharesoftheCompany'scommonstockfornewsharesoftheCompany'sClassBcommonstock.
TheimpactofthetransactionsdiscussedabovetotheproformabalancesheetasofMarch31,2017aredetailedbelow:
Cash and cash equivalents
Theproformaamountreflectsthepaymentofinterestonthenotespayabletoaffiliatesandrelatedpartiesof$150,135accruedthroughMarch31,2017.
Credit facility debt
Theproformaamountreflectsborrowingsof$500,000undertheCSCHoldingsrevolvingcreditfacilitytofundthe$500,000cashdistributiontobemadepriortothepricingoftheIPO.
Notes payable to affiliates and related parties
Theproformaamountreflectstheconversionofnotespayabletoaffiliatesandrelatedpartiesof$1,750,000tosharesofcommonstockoftheCompany.
F-10
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ALTICE USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
NOTE 1. DESCRIPTION OF BUSINESS AND RELATED MATTERS (Continued)
Accrued Interest
Theproformaamountreflectsthepaymentofinterestonthenotespayabletoaffiliatesandrelatedpartiesof$150,135accruedthroughMarch31,2017
Amounts due to affiliates
TheproformaamountreflectstheaccrualofthecashdistributiontotheCompany'sstockholdersof$169,950madeinApril2017andthe$169,750cashdistributiontobemadetotheCompany'sstockholderspriortothepricingoftheIPO.
Class A and Class B common stock
Theproformaamountreflectstheissuanceofsharesofcommonstockinconnectionwiththeorganizationaltransactions.
Paid in Capital
Theproformaamountreflectstheconversionofnotespayabletoaffiliatesandrelatedpartiesof$1,750,000,aswellastheapplicablepremiumof$516,920,tosharesofcommonstockoftheCompany,netoftheparvalueofcommonstockissued.Theapplicablepremiumof$516,920isestimatedasoftheexpectedconversiondateofJune21,2017usingcurrentriskfreeinterestrates.Suchamountissubjecttochangeasaresultofachangeintheconversiondateand/orchangesinriskfreeinterestrates.Inaddition,theproformaamountreflectsthecashdistributionof$169,950totheCompany'sstockholdersmadeinApril2017,thecashdistributionof$169,750andthecashdistributionof$500,000tobemadepriortothepricingoftheIPO,and$6,469relatedtotheissuanceofClassAandClassBcommonstockinconnectionwiththeorganizationaltransactions.
Accumulated deficit
Theproformaamountreflectstheapplicablepremiumof$516,920relatedtotheconversionofnotespayabletoaffiliatesandrelatedpartiesof$1,750,000.Theapplicablepremiumof$516,920isestimatedasoftheexpectedconversiondateofJune21,2017usingcurrentriskfreeinterestrates.Suchamountissubjecttochangeasaresultofachangeintheconversiondateand/orchangesinriskfreeinterestrates.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
TheaccompanyingunauditedconsolidatedfinancialstatementsoftheCompanyhavebeenpreparedinaccordancewithU.S.generallyacceptedaccountingprinciples("GAAP")andwiththeinstructionstoForm10-QandArticle10ofRegulationS-Xforinterimfinancialinformation.Accordingly,thesefinancialstatementsdonotincludealltheinformationandnotesrequiredforcompleteannualfinancialstatements.
TheinterimcondensedconsolidatedfinancialstatementsshouldbereadinconjunctionwiththeauditedconsolidatedfinancialstatementsandnotestheretoincludedintheCompany'sAnnualReportfortheyearendedDecember31,2016.
F-11
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ALTICE USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Thefinancialstatementspresentedinthisreportareunaudited;however,intheopinionofmanagement,suchfinancialstatementsincludealladjustments,consistingsolelyofnormalrecurringadjustments,necessaryforafairpresentationoftheresultsfortheperiodspresented.
TheresultsofoperationsfortheinterimperiodsarenotnecessarilyindicativeoftheresultsthatmightbeexpectedforfutureinterimperiodsorforthefullyearendingDecember31,2017.
ThepreparationoffinancialstatementsinconformitywithGAAPrequiresmanagementtomakeestimatesandassumptionsthataffectthereportedamountsofassetsandliabilitiesanddisclosureofcontingentliabilitiesatthedateofthefinancialstatementsandthereportedamountsofrevenueandexpensesduringthereportingperiod.Actualresultscoulddifferfromthoseestimates.
Recently Adopted Accounting Pronouncement
InMarch2016,theFASBissuedASU2016-09,Compensation—StockCompensation:ImprovementstoEmployeeShare-BasedPaymentAccounting,whichprovidessimplificationofincometaxaccountingforshare-basedpaymentawards.ThenewguidancebecameeffectivefortheCompanyonJanuary1,2017.Amendmentsrelatedtothetimingofwhenexcesstaxbenefitsarerecognized,minimumstatutorywithholdingrequirements,forfeitures,andintrinsicvaluewillbeappliedusingthemodifiedretrospectivetransitionmethod.Amendmentsrequiringrecognitionofexcesstaxbenefitsandtaxdeficienciesintheincomestatementandthepracticalexpedientforestimatingexpectedtermwereappliedprospectively.TheCompanyelectedtoapplytheamendmentsrelatedtothepresentationofexcesstaxbenefitsonthestatementofcashflowsusingtheprospectivetransitionmethod.InconnectionwiththeadoptiononJanuary1,2017,adeferredtaxassetofapproximately$308,231forpreviouslyunrealizedexcesstaxbenefitswasrecognizedwiththeoffsetrecordedtoaccumulateddeficit.
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.TheCompanyisintheprocessofevaluatingtheimpactthattheadoptionof
F-12
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ALTICE USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
ASUNo.2014-09willhaveonitsconsolidatedfinancialstatementsandselectingthemethodoftransitiontothenewstandard.Wecurrentlyexpecttheadoptiontoimpactthetimingoftherecognitionofresidentialinstallationrevenueandtherecognitionofcommissionexpenses.
InAugust2016,theFASBissuedASUNo.2016-15,StatementofCashFlows(Topic230):ClassificationofCertainCashReceiptsandCashPaymentswhichclarifieshowentitiesshouldclassifycertaincashreceiptsandcashpaymentsonthestatementofcashflows.ASUNo.2016-15alsoclarifieshowthepredominanceprincipleshouldbeappliedwhencashreceiptsandcashpaymentshaveaspectsofmorethanoneclassofcashflows.ThenewguidancebecomeseffectivefortheCompanyonJanuary1,2018withearlyadoptionpermittedandwillbeappliedretrospectively.TheCompanyhasnotyetcompletedtheevaluationoftheeffectthatASUNo.2016-15willhaveonitsconsolidatedfinancialstatements.
InFebruary2016,theFASBissuedASUNo.2016-02,Leases,whichincreasestransparencyandcomparabilitybyrecognizingalessee'srightsandobligationsresultingfromleasesbyrecordingthemonthebalancesheetasleaseassetsandleaseliabilities.ThenewguidancebecomeseffectivefortheCompanyonJanuary1,2019withearlyadoptionpermittedandwillbeappliedusingthemodifiedretrospectivemethod.TheCompanyiscurrentlyintheprocessofdeterminingtheimpactthatASUNo.2016-02willhaveonitsconsolidatedfinancialstatements.
InMarch2017,theFASBissuedASUNo.2017-07Compensation-RetirementBenefits(Topic715).ASUNo.2017-07requiresthatanemployerdisaggregatetheservicecostcomponentfromtheothercomponentsofnetbenefitcost.Italsoprovidesguidanceonhowtopresenttheservicecostcomponentandtheothercomponentsofnetbenefitcostintheincomestatementandwhatcomponentofnetbenefitcostiseligibleforcapitalization.ASUNo.2017-07becomeseffectivefortheCompanyonJanuary1,2018withearlyadoptionpermittedandwillbeappliedretrospectively.TheCompanyhasnotyetcompletedtheevaluationoftheeffectthatASUNo.2017-07willhaveonitsconsolidatedfinancialstatements.
Reclassifications
Certainreclassificationshavebeenmadetothe2016financialstatementstoconformtothe2017presentation.
Common Stock
TheCompanyhad100sharesofcommonstockwithaparvalueof$.01issuedandoutstandingatMarch31,2017andDecember31,2016.
Net Loss Per Share
Basicanddilutednetlosspersharehavebeencomputedbydividingthenetlossbytheweighted-averagenumberofsharesofcommonstockoutstandingduringtheperiod.Dilutednetlosspershareexcludestheeffectsofcommonstockequivalentsastheyareanti-dilutive.
F-13
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ALTICE USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
NOTE 3. BUSINESS COMBINATION
Altice Merger
AsdiscussedinNote1,theCompanycompletedtheCablevisionAcquisitiononJune21,2016.TheacquisitionwasaccountedforasabusinesscombinationinaccordancewithASCTopic805.Accordingly,theCompanyrecordedthefairvalueoftheassetsandliabilitiesassumedatthedateofacquisition.
Thefollowingtableprovidesthepreliminaryallocationofthetotalpurchasepriceof$9,958,323totheidentifiabletangibleandintangibleassetsandliabilitiesofCablevisionbasedonpreliminaryfairvalueinformationcurrentlyavailable,whichissubjecttochangewithinthemeasurementperiod(uptooneyearfromtheacquisitiondate).Theremainingusefullivesrepresenttheperiodoverwhichacquiredtangibleandintangibleassetswithafinitelifearebeingdepreciatedoramortized.
Thefairvalueofcustomerrelationshipsandcabletelevisionfranchiseswerevaluedusingderivationsofthe"income"approach.Thefutureexpectedearningsfromtheseassetswerediscountedtotheirpresentvalueequivalent.
Tradenameswerevaluedusingtherelieffromroyaltymethod,whichisbasedonthepresentvalueoftheroyaltypaymentsavoidedasaresultofthecompanyowningtheintangibleasset.
ThebasisforthevaluationmethodswastheCompany'sprojections.Theseprojectionswerebasedonmanagement'sassumptionsincludingamongothers,penetrationratesforvideo,highspeeddata,andvoice;revenuegrowthrates;operatingmargins;andcapitalexpenditures.TheassumptionsarederivedbasedontheCompany'sanditspeers'historicaloperatingperformanceadjustedforcurrentandexpectedcompetitiveandeconomicfactorssurroundingthecableindustry.Thediscountratesusedintheanalysisareintendedtoreflecttheriskinherentintheprojectedfuturecashflowsgeneratedbytherespectiveintangibleasset.Thevalueishighlydependentontheachievementofthefuturefinancialresultscontemplatedintheprojections.Theestimatesandassumptionsmadeinthevaluationareinherentlysubjecttosignificantuncertainties,manyofwhicharebeyondtheCompany'scontrol,and
F-14
Estimates of Fair
Values Estimated Useful
LivesCurrentassets $ 1,923,071 Accountsreceivable 271,305 Property,plantandequipment 4,864,621 2-18yearsGoodwill 5,839,016 Indefinite-livedcabletelevisionfranchises 8,113,575 Indefinite-livedCustomerrelationships 4,850,000 8to18yearsTradenames 1,010,000 12yearsAmortizableintangibleassets 23,296 1-15yearsOthernon-currentassets 748,998 Currentliabilities (2,306,049) Long-termdebt (8,355,386) Deferredincometaxes. (6,834,769) Othernon-currentliabilities (189,355)
Total $ 9,958,323
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ALTICE USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
NOTE 3. BUSINESS COMBINATION (Continued)
thereisnoassurancethattheseresultscanbeachieved.Theprimaryassumptionsforwhichthereisareasonablepossibilityoftheoccurrenceofavariationthatwouldhavesignificantlyaffectedthevalueincludetheassumptionsregardingrevenuegrowth,programmingexpensegrowthrates,theamountandtimingofcapitalexpendituresandthediscountrateutilized.
Inestablishingfairvalueforthevastmajorityoftheacquiredproperty,plantandequipment,thecostapproachwasutilized.Thecostapproachconsiderstheamountrequiredtoreplaceanassetbyconstructingorpurchasinganewassetwithsimilarutility,thenadjuststhevalueinconsiderationofphysicaldepreciation,andfunctionalandeconomicobsolescenceasoftheappraisaldate.Thecostapproachreliesonmanagement'sassumptionsregardingcurrentmaterialandlaborcostsrequiredtorebuildandrepurchasesignificantcomponentsofourproperty,plantandequipmentalongwithassumptionsregardingtheageandestimatedusefullivesofourproperty,plantandequipment.
Theestimatesofexpectedusefullivestakeintoconsiderationtheeffectsofcontractualrelationships,customerattrition,eventualdevelopmentofnewtechnologiesandmarketcompetition.
Long-termdebtassumedwasvaluedusingquotedmarketprices(Level2).Thecarryingvalueofmostotherassetsandliabilitiesapproximatedfairvalueasoftheacquisitiondates.
Asaresultofapplyingbusinesscombinationaccounting,theCompanyrecordedgoodwill,whichrepresentedtheexcessoforganizationvalueoveramountsassignedtotheotheridentifiabletangibleandintangibleassetsarisingfromexpectationsoffutureoperationalperformanceandcashgeneration.
ThefollowingtablepresentstheunauditedproformarevenueandnetlossforthethreemonthsendedMarch31,2016asiftheCablevisionAcquisitionhadoccurredonJanuary1,2016:
TheproformaresultspresentedaboveincludetheimpactofadditionalamortizationexpenserelatedtotheidentifiableintangibleassetsrecordedinconnectionwiththeCablevisionAcquisition,additionaldepreciationexpenserelatedtothefairvalueadjustmenttoproperty,plantandequipmentandtheincrementalinterestresultingfromtheissuanceofdebttofundtheacquisitions,netofthereversalofinterestandamortizationofdeferredfinancingcostsrelatedtocreditfacilitiesthatwererepaidonthedateoftheCablevisionAcquisitionandtheaccretion/amortizationoffairvalueadjustmentsassociatedwiththelong-termdebtacquired.
Acquisition
Inconnectionwiththeacquisitionofanentityinthefirstquarterof2017,theCompanyrecordedgoodwillof$74,854,whichrepresentstheexcessofthepurchasepriceofapproximately$75,000overthenetbookvalueofassetsacquired,asthecompanyhasnotyetcompleteditspreliminaryallocationofthepurchaseprice.Thesevaluesaresubjecttochangewithinthemeasurementperiod(uptooneyearfromtheacquisitiondate).
F-15
Revenue $ 2,273,479Netloss $ (190,141)
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ALTICE USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
NOTE 4. GROSS VERSUS NET REVENUE RECOGNITION
Inthenormalcourseofbusiness,theCompanyisassessednon-incomerelatedtaxesbygovernmentalauthorities,includingfranchisingauthorities(generallyundermulti-yearagreements),andcollectssuchtaxesfromitscustomers.TheCompany'spolicyisthat,ininstanceswherethetaxisbeingassesseddirectlyontheCompany,amountspaidtothegovernmentalauthoritiesandamountsreceivedfromthecustomersarerecordedonagrossbasis.Thatis,amountspaidtothegovernmentalauthoritiesarerecordedasprogrammingandotherdirectcostsandamountsreceivedfromthecustomerarerecordedasrevenue.ForthethreemonthsendedMarch31,2017and2016,theamountoffranchisefeesandcertainothertaxesandfeesincludedasacomponentofrevenueaggregated$64,986and$12,088,respectively.
NOTE 5. SUPPLEMENTAL CASH FLOW INFORMATION
TheCompanyconsidersthebalanceofitsinvestmentinfundsthatsubstantiallyholdsecuritiesthatmaturewithinthreemonthsorlessfromthedatethefundpurchasesthesesecuritiestobecashequivalents.Thecarryingamountofcashandcashequivalentseitherapproximatesfairvalueduetotheshort-termmaturityoftheseinstrumentsorareatfairvalue.
TheCompany'snon-cashinvestingandfinancingactivitiesandothersupplementaldatawereasfollows:
NOTE 6. RESTRUCTURING COSTS
Restructuring
Beginninginthefirstquarterof2016,theCompanycommenceditsrestructuringinitiatives(the"2016RestructuringPlan")thatareintendedtosimplifytheCompany'sorganizationalstructure.
Thefollowingtablesummarizestheactivityforthe2016RestructuringPlanduring2017:
Inadditiontothechargesincludedinthetableabove,theCompanyrecordedrestructuringchargesof$7,440relatingtothe2016RestructuringPlan.
F-16
Three Months Ended
March 31,
2017 March 31,
2016 Non-CashInvestingandFinancingActivities: Continuing Operations: Propertyandequipmentaccruedbutunpaid $ 61,170 $ 20,041
SupplementalData: Cashinterestpaid 524,864 128,141Incometaxespaid,net 1,553 —
Severance and Other Employee
Related Costs
Facility Realignment and
Other Costs Total AccrualbalanceatDecember31,2016 $ 102,119 $ 8,397 $ 110,516Restructuringcharges 76,440 311 76,751Paymentsandother (25,354) (1,215) (26,569)AccrualbalanceatMarch31,2017 $ 153,205 $ 7,493 $ 160,698
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ALTICE USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
NOTE 7. INTANGIBLE ASSETS
ThefollowingtablesummarizesinformationrelatingtotheCompany'sacquiredintangibleassetsasofMarch31,2017:
AmortizationexpenseforthethreemonthsendedMarch31,2017and2016aggregated$238,019and$111,935,respectively.
ThefollowingtablesummarizesinformationrelatingtotheCompany'sacquiredindefinite-livedintangibleassetsasofMarch31,2017:
Thecarryingamountofgoodwillispresentedbelow:
NOTE 8. DEBT
CSC Holdings Credit Facilities
InconnectionwiththeCablevisionAcquisition,inOctober2015,NeptuneFincoCorp.("Finco"),awholly-ownedsubsidiaryoftheCompany,whichmergedwithandintoCSCHoldingsonJune21,2016,enteredintoaseniorsecuredcreditfacility,whichcurrentlyprovidesU.S.dollartermloanscurrentlyinanaggregateprincipalamountof$3,000,000(the"TermLoanFacility",andthetermloansextendedundertheTermLoanFacility,the"CSCHoldingsTermLoans")andU.S.dollarrevolvingloancommitmentsinanaggregateprincipalamountof$2,300,000(the"RevolvingCreditFacility"and,togetherwiththeTermLoanFacility,the"CreditFacilities"),whicharegovernedbyacreditfacilitiesagreemententeredintoby,inter alios ,CSCHoldingscertainlenderspartytheretoandJPMorganChaseBank,N.A.asadministrativeagentandsecurityagent(asamended,restated,supplementedorotherwisemodifiedonJune20,2016,June21,2016,July21,2016,September9,2016,December9,
F-17
Amortizable Intangible Assets
Gross Carrying
Amount Accumulated Amortization
Net Carrying Amount
Estimated Useful Lives
Customerrelationships $ 5,925,884 $ (791,505) $ 5,134,379 8to18yearsTradenames 1,066,783 (108,883) 957,900 2to12yearsOtheramortizableintangibles 26,832 (4,397) 22,435 1to15years
$ 7,019,499 $ (904,785) $ 6,114,714
Cablevision Cequel Total Cabletelevisionfranchises $ 8,113,575 $ 4,906,506 $ 13,020,081Goodwill 5,913,870 2,153,741 8,067,611Total $ 14,027,445 $ 7,060,247 $ 21,087,692
GrossgoodwillasofJanuary1,2017 $ 7,992,700Goodwillrecordedinconnectionwithacquisitioninfirstquarter2017 74,854AdjustmentstopurchaseaccountingrelatingtoCablevisionAcquisition 57NetgoodwillasofMarch31,2017 $ 8,067,611
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ALTICE USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
NOTE 8. DEBT (Continued)
2016andMarch15,2017,respectively,andasfurtheramended,restated,supplementedorotherwisemodifiedfromtimetotime,the"CreditFacilitiesAgreement").
TheamendmenttotheCSCHoldingsCreditFacilitiesAgreemententeredintoonMarch15,2017("ExtensionAmendment")increasedtheTermLoanby$500,000to$3,000,000andthematuritydateforthisfacilitywasextendedtoJuly17,2025.TheclosingoftheExtensionAmendmentoccurredinApril2017andtheproceedswereusedtorefinancetheentire$2,493,750principalamountofexistingTermLoansandredeem$500,000ofthe8.625%SeniorNotesdueSeptember2017issuedbyCablevision.Asaresultoftherefinancing,$500,000oftheseSeniorNoteswasreclassifiedfromcurrenttolong-termdebt.
InJanuary2017,CSCHoldingsborrowed$225,000underitsrevolvingcreditfacilityandinFebruary2017itmadearepaymentof$175,000withcashonhand.
UndertheExtensionAmendment,theCompanyisrequiredtomakescheduledquarterlypaymentsequalto0.25%(or$7,500oftheprincipalamountoftheTermLoan,withtheremainingbalancescheduledtobepaidonJuly17,2025,beginningwiththefiscalquarterendingSeptember30,2017.
TheCreditFacilitiespermitCSCHoldingstorequestrevolvingloans,swinglineloansorlettersofcreditfromtherevolvinglenders,swinglinelendersorissuingbanks,asapplicable,thereunder,fromtimetotimepriortoOctober9,2020,unlessthecommitmentsundertheRevolvingCreditFacilityhavebeenpreviouslyterminated.
Loanscomprisingeacheurodollarborrowingoralternatebaserateborrowing,asapplicable,bearinterestatarateperannumequaltotheadjustedLIBOrateorthealternatebaserate,asapplicable,plustheapplicablemargin,wheretheapplicablemarginis:
• inrespectoftheTermLoans,(i)withrespecttoanyalternatebaserateloan,1.25%perannumand(ii)withrespecttoanyeurodollarloan,2.25%perannum,and
• inrespectofRevolvingCreditFacilityloans(i)withrespecttoanyalternatebaserateloan,2.25%perannumand(ii)withrespecttoanyeurodollarloan,3.25%perannum.
TheCreditFacilitiesAgreementrequiresCSCHoldingstoprepayoutstandingTermLoans,subjecttocertainexceptionsanddeductions,with(i)100%ofthenetcashproceedsofcertainassetsales,subjecttoreinvestmentrightsandcertainotherexceptions;and(ii)commencingwiththefiscalyearendingDecember31,2017,apariratableshare(basedontheoutstandingprincipalamountoftheTermLoansdividedbythesumoftheoutstandingprincipalamountofallparipassuindebtednessandtheTermLoans)of50%ofannualexcesscashflow,whichwillbereducedto0%iftheconsolidatednetseniorsecuredleverageratioofCSCHoldingsislessthanorequalto4.5to1.
TheobligationsundertheCreditFacilitiesareguaranteedbyeachrestrictedsubsidiaryofCSCHoldings(otherthanCSCTKR,LLCanditssubsidiariesandcertainexcludedsubsidiaries)(the"InitialGuarantors")and,subjecttocertainlimitations,willbeguaranteedbyeachfuturematerialwholly-ownedrestrictedsubsidiaryofCSCHoldings.TheobligationsundertheCreditFacilities(includinganyguaranteesthereof)aresecuredonafirstprioritybasis,subjecttoanylienspermittedby
F-18
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ALTICE USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
NOTE 8. DEBT (Continued)
theCreditFacilities,bycapitalstockheldbyCSCHoldingsoranyguarantorincertainsubsidiariesofCSCHoldings,subjecttocertainexclusionsandlimitations.
TheCreditFacilitiesAgreementincludescertainnegativecovenantswhich,amongotherthingsandsubjecttocertainsignificantexceptionsandqualifications,limitCSCHoldings'abilityandtheabilityofitsrestrictedsubsidiariesto:(i)incurorguaranteeadditionalindebtedness,(ii)makeinvestments,(iii)createliens,(iv)sellassetsandsubsidiarystock,(v)paydividendsormakeotherdistributionsorrepurchaseorredeemourcapitalstockorsubordinateddebt,(vi)engageincertaintransactionswithaffiliates,(vii)enterintoagreementsthatrestrictthepaymentofdividendsbysubsidiariesortherepaymentofintercompanyloansandadvances;and(viii)engageinmergersorconsolidations.Inaddition,theRevolvingCreditFacilityincludesafinancialmaintenancecovenantsolelyforthebenefitofthelendersundertheRevolvingCreditFacilityconsistingofamaximumconsolidatednetseniorsecuredleverageratioofCSCHoldingsanditsrestrictedsubsidiariesof5.0to1.0.Thefinancialcovenantwillbetestedonthelastdayofanyfiscalquarter(commencingonDecember31,2016)butonlyifonsuchdaythereareoutstandingborrowingsundertheRevolvingCreditFacility(includingswinglineloansbutexcludinganycashcollateralizedlettersofcreditandundrawnlettersofcreditnottoexceed$15,000).
TheCreditFacilitiesAgreementalsocontainscertaincustomaryrepresentationsandwarranties,affirmativecovenantsandeventsofdefault(including,amongothers,aneventofdefaultuponachangeofcontrol).Ifaneventofdefaultoccurs,thelendersundertheCreditFacilitieswillbeentitledtotakevariousactions,includingtheaccelerationofamountsdueundertheCreditFacilitiesandallactionspermittedtobetakenbyasecuredcreditor.
CSCHoldingswasincompliancewithallofitsfinancialcovenantsundertheCreditFacilitiesasofMarch31,2017.
Cequel Credit Facilities
OnJune12,2015,AlticeUSFinanceICorporationenteredintoaseniorsecuredcreditfacilitywhichcurrentlyprovidestermloansinanaggregateprincipalamountof$1,265,000(the"TermLoanFacility"andthetermloansextendedundertheTermLoanFacility,the"TermLoans")andrevolvingloancommitmentsinanaggregateprincipalamountof$350,000(the"RevolvingCreditFacility"and,togetherwiththeTermLoanFacility,the"CreditFacilities")whicharegovernedbyacreditfacilitiesagreemententeredintoby,interalios,AlticeUSFinanceICorporation,certainlenderspartytheretoandJPMorganChaseBank,N.A.(asamended,restated,supplementedorotherwisemodifiedonOctober25,2016,December9,2016andMarch15,2017,andasfurtheramended,restated,supplementedormodifiedfromtimetotime,the"CreditFacilitiesAgreement").
TheamendmenttotheCreditFacilitiesAgreemententeredintoonMarch15,2017("ExtensionAmendment")increasedtheTermLoanby$450,000to$1,265,000andthematuritydateforthisfacilitywasextendedtoJuly28,2025.TheclosingoftheExtensionAmendmentoccurredinApril2017andtheproceedswereusedtorefinancetheentire$812,963principalamountofloansundertheTermLoanandredeem$450,000ofthe6.375%SeniorNotesdueSeptember15,2020.
F-19
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ALTICE USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
NOTE 8. DEBT (Continued)
UndertheExtensionAmendment,theCompanyisrequiredtomakescheduledquarterlypaymentsequalto0.25%(or$3,163)oftheprincipalamountoftheTermLoan,withtheremainingbalancescheduledtobepaidonJuly28,2025,beginningwiththefiscalquarterendingSeptember30,2017.
Loanscomprisingeacheurodollarborrowingoralternatebaserateborrowing,asapplicable,bearinterestatarateperannumequaltotheadjustedLIBOrateorthealternatebaserate,asapplicable,plustheapplicablemargin,wheretheapplicablemarginis:
• inrespectoftheTermLoans,(i)withrespecttoanyalternatebaserateloan,1.25%perannumand(ii)withrespecttoanyeurodollarloan,2.25%perannum,and
• inrespectofRevolvingCreditFacilityloans(i)withrespecttoanyalternatebaserateloan,2.25%perannumand(ii)withrespecttoanyeurodollarloan,3.25%perannum.
TheCreditFacilitiesAgreementrequiresAlticeUSFinanceICorporationtoprepayoutstandingTermLoans,subjecttocertainexceptionsanddeductions,with(i)100%ofthenetcashproceedsofcertainassetsales,subjecttoreinvestmentrightsandcertainotherexceptions;and(ii)apariratableshare(basedontheoutstandingprincipalamountoftheTermLoansdividedbythesumoftheoutstandingprincipalamountofallparipassuindebtednessandtheTermLoans)of50%ofannualexcesscashflow,whichwillbereducedto0%iftheconsolidatednetseniorsecuredleverageratioislessthanorequalto4.5:1.
ThedebtundertheCreditFacilityissecuredbyafirstprioritysecurityinterestinthecapitalstockofSuddenlinkandsubstantiallyallofthepresentandfutureassetsofSuddenlinkanditsrestrictedsubsidiaries,andisguaranteedbytheParentGuarantor,aswellasallofSuddenlink'sexistingandfuturedirectandindirectsubsidiaries,subjecttocertainexceptionssetforthintheCreditFacilitiesAgreement.TheCreditFacilitiesAgreementcontainscustomaryrepresentations,warrantiesandaffirmativecovenants.Inaddition,theCreditFacilitiesAgreementcontainsrestrictivecovenantsthatlimit,amongotherthings,theabilityofSuddenlinkanditssubsidiariestoincurindebtedness,createliens,engageinmergers,consolidationsandotherfundamentalchanges,makeinvestmentsorloans,engageintransactionswithaffiliates,paydividends,andmakeacquisitionsanddisposeofassets.TheCreditFacilitiesAgreementalsocontainsamaximumseniorsecuredleveragemaintenancecovenantof5.0timesEBITDAasdefinedintheCreditFacilitiesAgreement.Additionally,theCreditFacilitiesAgreementcontainscustomaryeventsofdefault,includingfailuretomakepayments,breachesofcovenantsandrepresentations,crossdefaultstootherindebtedness,unpaidjudgments,changesofcontrolandbankruptcyevents.Thelenders'commitmentstofundamountsundertherevolvingcreditfacilityaresubjecttocertaincustomaryconditions.
AsofMarch31,2017,CequelwasincompliancewithallofitsfinancialcovenantsundertheCequelCreditFacilitiesAgreement.
F-20
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ALTICE USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
NOTE 8. DEBT (Continued)
ThefollowingtableprovidesdetailsoftheCompany'soutstandingcreditfacilitydebt(netofunamortizedfinancingcostsandunamortizeddiscounts):
F-21
Carrying Value
Maturity Date Interest
Rate Principal March 31,
2017 December 31,
2016 CSC Holdings Restricted Group: RevolvingCreditFacility(a) $20,000onOctober9,2020,
remainingonNovember30,2021 4.16%$ 225,256 $ 196,407 $ 145,013TermLoanFacility July17,2025 3.94% 2,493,750 2,481,005 2,486,874
Cequel: RevolvingCreditFacility(b) November30,2021 — — — —TermLoanFacility July28,2025 3.98% 812,963 810,929 812,903
$ 3,531,969 3,488,341 3,444,790Less:Currentportion 31,988 33,150Long-termdebt $ 3,456,353 $ 3,411,640
(a) AtMarch31,2017,$90,023oftherevolvingcreditfacilitywasrestrictedforcertainlettersofcreditissuedonbehalfoftheCompanyand$1,984,721ofthefacilitywasundrawnandavailable,subjecttocovenantlimitations.
(b) AtMarch31,2017,$17,031oftherevolvingcreditfacilitywasrestrictedforcertainlettersofcreditissuedonbehalfoftheCompanyand$332,969ofthefacilitywasundrawnandavailable,subjecttocovenantlimitations.
TableofContents
ALTICE USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
NOTE 8. DEBT (Continued)
Senior Guaranteed Notes and Senior Notes and Debentures
ThefollowingtablesummarizestheCompany'sseniorguaranteednotes,seniorsecurednotesandseniornotesanddebentures:
F-22
Carrying Amount(a)
Issuer Date Issued Maturity Date Interest
Rate Principal Amount
March 31, 2017
December 31, 2016
CSCHoldings(b)(e) February6,1998 February15,2018 7.875%$ 300,000 $ 308,118 $ 310,334CSCHoldings(b)(e) July21,1998 July15,2018 7.625% 500,000 518,284 521,654CSCHoldings(c)(e) February12,2009 February15,2019 8.625% 526,000 550,757 553,804CSCHoldings(c)(e) November15,
2011 November15,2021 6.750% 1,000,000 953,722 951,702
CSCHoldings(c)(e) May23,2014 June1,2024 5.250% 750,000 652,687 650,193CSCHoldings(d) October9,2015 January15,2023 10.125% 1,800,000 1,775,500 1,774,750CSCHoldings(d) October9,2015 October15,2025 10.875% 2,000,000 1,970,876 1,970,379CSCHoldings(d) October9,2015 October15,2025 6.625% 1,000,000 985,769 985,469CSCHoldings(f) September23,
2016 April15,2027 5.500% 1,310,000 1,304,132 1,304,025Cablevision(c)(e) September23,
2009 September15,2017 8.625% 900,000 917,053 926,045
Cablevision(c)(e) April15,2010 April15,2018 7.750% 750,000 764,287 767,545Cablevision(c)(e) April15,2010 April15,2020 8.000% 500,000 489,712 488,992Cablevision(c)(e) September27,
2012 September15,2022 5.875% 649,024 562,496 559,500
CequelandCequelCapitalSeniorNotes(a)(e) Oct.25,2012Dec.28,2012
September15,2020 6.375% 1,500,000 1,459,964 1,457,439
CequelandCequelCapitalSeniorNotes(a) May16,2013Sept.9,2014
December15,2021 5.125% 1,250,000 1,121,377 1,115,767
AlticeUSFinanceICorporationSeniorSecuredNotes(b)
June12,2015 July15,2023 5.375% 1,100,000 1,080,508 1,079,869
CequelandCequelCapitalSeniorNotes(c) June12,2015 July15,2025 7.750% 620,000 603,276 602,925AlticeUSFinanceICorporationSeniorNotes(d) April26,2016 May15,2026 5.500% 1,500,000 1,487,200 1,486,933
$17,955,024 17,505,718 17,507,325Less:Currentportion 725,171 926,045Long-termdebt $16,780,547 $ 16,581,280
(a) Thecarryingamountofthenotesisnetoftheunamortizeddeferredfinancingcostsand/ordiscounts/premiums.
(b) ThedebenturesarenotredeemablebyCSCHoldingspriortomaturity.
(c) Notesareredeemableatanytimeataspecified"make-whole"priceplusaccruedandunpaidinteresttotheredemptiondate.
(d) TheCompanymayredeemsomeorallofthe2023NotesatanytimeonorafterJanuary15,2019,andsomeorallofthe2025Notesand2025GuaranteedNotesatanytimeonorafterOctober15,2020,attheredemptionprices
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ALTICE USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
NOTE 8. DEBT (Continued)
Theindenturesunderwhichtheseniornotesanddebentureswereissuedcontainvariouscovenants.TheCompanywasincompliancewithallofitsfinancialcovenantsundertheseindenturesasofMarch31,2017
Notes Payable to Affiliates and Related Parties
OnJune21,2016,inconnectionwiththeCablevisionAcquisition,theCompanyissuednotespayabletoaffiliatesandrelatedpartiesaggregating$1,750,000,ofwhich$875,000bearinterestat10.75%andaredueonDecember20,2023and$875,000bearinterestat11%andaredueonDecember20,2024.TheCompanymayredeemallor,partofthenotesataredemptionpriceequalto100%oftheprincipalamountthereofplustheapplicablepremium,asdefinedinthenotesagreement,andaccruedandunpaidinterest.ForthethreemonthsendedMarch31,2017,theCompanyrecognizedinterestexpenseof$47,588relatedtothesenotespayableandasofMarch31,2017andDecember31,2016,theCompanyhadaccruedinterestof$150,135and$102,557,respectively,whichisreflectedinaccruedinterestintheCompany'sbalancesheets.
F-23
setforthintherelevantindenture,plusaccruedandunpaidinterest,ifany.TheCompanymayalsoredeemupto40%ofeachseriesoftheCablevisionAcquisitionNotesusingtheproceedsofcertainequityofferingsbeforeOctober15,2018,ataredemptionpriceequalto110.125%forthe2023Notes,110.875%forthe2025Notesand106.625%forthe2025GuaranteedNotes,ineachcaseplusaccruedandunpaidinterest.Inaddition,atanytimepriortoJanuary15,2019,CSCHoldingsmayredeemsomeorallofthe2023Notes,andatanytimepriortoOctober15,2020,theCompanymayredeemsomeorallofthe2025Notesandthe2025GuaranteedNotes,atapriceequalto100%oftheprincipalamountthereof,plusa"makewhole"premiumspecifiedintherelevantindentureplusaccruedandunpaidinterest.
(e) ThecarryingvalueofthenoteswasadjustedtoreflecttheirfairvalueontheCablevisionAcquisitionDate(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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ALTICE USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
NOTE 8. DEBT (Continued)
Summary of Debt Maturities
ThefuturematuritiesofdebtpayablebytheCompanyunderitsvariousdebtobligationsoutstandingasofMarch31,2017,includingnotespayable,collateralizedindebtedness(seeNote9),andcapitalleases,areasfollows:
NOTE 9. 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.AsofMarch31,2017,theCompanydidnothaveanearlyterminationshortfallrelatingtoanyofthesecontracts.
F-24
Years Ending December 31, Cablevision Cequel Altice USA Total 2017 $ 893,914 $ 6,905 $ — 900,8192018 2,106,493 13,040 — 2,119,5332019 562,194 12,830 — 575,0242020 530,824 1,512,713 — 2,043,5372021 1,572,897 1,262,723 — 2,835,620Thereafter 10,367,774 3,976,975 1,750,000 16,094,749
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ALTICE USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
NOTE 9. DERIVATIVE CONTRACTS AND COLLATERALIZED INDEBTEDNESS (Continued)
TheCompanymonitorsthefinancialinstitutionsthatarecounterpartiestoitsequityderivativecontractsanditdiversifiesitsequityderivativecontractsamongvariouscounterpartiestomitigateexposuretoanysinglefinancialinstitution.AllofthecounterpartiestosuchtransactionscarryinvestmentgradecreditratingsasofMarch31,2017.
Interest Rate Swap Contracts
InJune2016,theCompanyenteredintotwonewfixedtofloatinginterestrateswapcontracts.Onefixedtofloatinginterestrateswapisconverting$750,000fromafixedrateof1.6655%tosix-monthLIBOrateandasecondtrancheof$750,000fromafixedrateof1.68%tosix-monthLIBOrate.Theobjectiveoftheseswapsistocovertheexposureofthe2026SeniorSecuredNotestochangesinthemarketinterestrate.Theseswapcontractswerenotdesignatedashedgesforaccountingpurposes.Accordingly,thechangesinthefairvalueoftheseinterestrateswapcontractsarerecordedthroughthestatementofoperations.
TheCompanydoesnotholdorissuederivativeinstrumentsfortradingorspeculativepurposes.
ThefollowingrepresentsthelocationoftheassetsandliabilitiesassociatedwiththeCompany'sderivativeinstrumentswithintheconsolidatedbalancesheets:
LossesrelatedtotheCompany'sequityderivativecontractsrelatedtotheComcastcommonstockforthethreemonthsendedMarch31,2017of$71,044,arereflectedinlossonequityderivativecontracts,netintheCompany'sconsolidatedstatementofoperations.
ForthethreemonthsendedMarch31,2017,theCompanyrecordedagainoninvestmentsof$131,658,representingthenetincreaseinthefairvaluesoftheinvestmentsecuritiespledgedascollateral.
ForthethreemonthsendedMarch31,2017,theCompanyrecordedagainoninterestrateswapcontractsof$2,342.
F-25
Asset Derivatives Liability Derivatives
Derivatives Not Designated as Hedging Instruments
Balance Sheet Location
Fair Value at March 31,
2017
Fair Value at December 31,
2016
Fair Value at March 31,
2017
Fair Value at December 31,
2016 Prepaidforwardcontracts Derivativecontracts,current $ — $ 352 $ 36,073 $ 13,158Prepaidforwardcontracts Derivativecontracts,long-term — 10,604 37,173 —Interestrateswapcontracts Liabilitiesunderderivativecontracts,long-term — — 76,481 78,823
$ — $ 10,956 $ 149,727 $ 91,981
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ALTICE USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
NOTE 9. DERIVATIVE CONTRACTS AND COLLATERALIZED INDEBTEDNESS (Continued)
Settlements of Collateralized Indebtedness
ThefollowingtablesummarizesthesettlementoftheCompany'scollateralizedindebtednessrelatingtoComcastsharesthatweresettledbydeliveringcashequaltothecollateralizedloanvalue,netofthevalueoftherelatedequityderivativecontractsduringthethreemonthsendedMarch31,2017:
ThecashtosettlethecollateralizedindebtednesswasobtainedfromtheproceedsofnewmonetizationcontractscoveringanequivalentnumberofComcastshares.ThetermsofthenewcontractsallowtheCompanytoretainupsideparticipationinComcastsharesuptoeachrespectivecontract'supsideappreciationlimitwithdownsideexposurelimitedtotherespectivehedgeprice.
InApril2017,theCompanysettledcollateralizedindebtednessrelatingto5,464,368ComcastsharesbydeliveringcashequaltothecollateralizedloanvalueobtainedfromtheproceedsofanewmonetizationcontractcoveringanequivalentnumberofComcastshares.Accordingly,theconsolidatedbalancesheetoftheCompanyasofMarch31,2017reflectsthereclassificationof$205,406ofinvestmentsecuritiespledgedascollateralfromacurrentassettoalong-termassetand$161,438ofcollateralizedindebtednessfromacurrentliabilitytoalong-termliability.
NOTE 10. FAIR VALUE MEASUREMENT
Thefairvaluehierarchyisbasedoninputstovaluationtechniquesthatareusedtomeasurefairvaluethatareeitherobservableorunobservable.Observableinputsreflectassumptionsmarketparticipantswoulduseinpricinganassetorliabilitybasedonmarketdataobtainedfromindependentsourceswhileunobservableinputsreflectareportingentity'spricingbasedupontheirownmarketassumptions.Thefairvaluehierarchyconsistsofthefollowingthreelevels:
• LevelI—Quotedpricesforidenticalinstrumentsinactivemarkets.
• LevelII—Quotedpricesforsimilarinstrumentsinactivemarkets;quotedpricesforidenticalorsimilarinstrumentsinmarketsthatarenotactive;andmodel-derivedvaluationswhoseinputsareobservableorwhosesignificantvaluedriversareobservable.
• LevelIII—Instrumentswhosesignificantvaluedriversareunobservable.
F-26
Numberofshares(a) 5,337,750Collateralizedindebtednesssettled $ (150,084)Derivativecontractssettled —
(150,084)Proceedsfromnewmonetizationcontracts 156,136Netcashreceipt $ 6,052
(a) Shareamountsareadjustedforthe2for1stocksplitinFebruary2017.
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ALTICE USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
NOTE 10. 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 and Related Parties, andNotes Payable
ThefairvaluesofeachoftheCompany'sdebtinstrumentsarebasedonquotedmarketpricesforthesameorsimilarissuesoronthecurrentratesofferedtotheCompanyforinstrumentsofthesameremainingmaturities.Thefairvalueofnotespayableisbasedprimarilyonthepresentvalueoftheremainingpaymentsdiscountedattheborrowingcost.
F-27
Fair Value Hierarchy
March 31, 2017
December 31, 2016
Assets: Moneymarketfunds LevelI $ 40,251 $ 100,139Investmentsecuritiespledgedascollateral LevelI 1,614,688 1,483,030Prepaidforwardcontracts LevelII — 10,956
Liabilities: Prepaidforwardcontracts LevelII 73,246 13,158Interestrateswapcontracts LevelII 76,481 78,823
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ALTICE USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
NOTE 10. FAIR VALUE MEASUREMENT (Continued)
Thecarryingvalues,estimatedfairvalues,andclassificationunderthefairvaluehierarchyoftheCompany'sfinancialinstruments,excludingthosethatarecarriedatfairvalueintheaccompanyingconsolidatedbalancesheets,aresummarizedasfollows:
ThefairvalueestimatesrelatedtotheCompany'sdebtinstrumentspresentedabovearemadeataspecificpointintime,basedonrelevantmarketinformationandinformationaboutthefinancialinstrument.Theseestimatesaresubjectiveinnatureandinvolveuncertaintiesandmattersofsignificantjudgmentsandthereforecannotbedeterminedwithprecision.Changesinassumptionscouldsignificantlyaffecttheestimates.
NOTE 11. INCOME TAXES
TheCompanyfilesafederalconsolidatedandcertainstatecombinedincometaxreturnswithits80%ormoreownedsubsidiaries.InconnectionwiththecontributionofcommonstockofCequeltotheCompanyin2015,CequeljoinedtheCompany'sfederalconsolidatedgroup.CablevisionjoinedtheCompany'sfederalconsolidatedgroupontheCablevisionAcquisitionDate.
TheCompanyrecordedincometaxbenefitof$45,908forthethreemonthsendedMarch31,2017,reflectinganeffectivetaxrateof38%.Nondeductibleshare-basedcompensationexpenseresultedintaxexpenseof$3,140.Absentthisitem,theeffectivetaxrateforthethreemonthsendedMarch31,2017wouldhavebeen40%.
F-28
March 31, 2017 December 31, 2016
Fair Value Hierarchy
Carrying Amount(a)
Estimated Fair Value
Carrying Amount(a)
Estimated Fair Value
AlticeUSAdebtinstruments: Notespayabletoaffiliatesandrelatedparties LevelII $ 1,750,000 1,849,190 $ 1,750,000 $ 1,837,876
CSCHoldingsdebtinstruments: Creditfacilitydebt LevelII 2,677,412 2,719,006 2,631,887 2,675,256Collateralizedindebtedness LevelII 1,293,702 1,277,718 1,286,069 1,280,048Seniorguaranteednotes LevelII 2,289,901 2,408,603 2,289,494 2,416,375Seniornotesanddebentures LevelII 6,729,944 7,722,769 6,732,816 7,731,150Notespayable LevelII 11,453 11,039 13,726 13,260
Cablevisionseniornotes LevelII 2,733,548 2,912,588 2,742,082 2,920,056Cequeldebtinstruments: Cequelcreditfacility LevelII 810,929 812,963 812,903 815,000SeniorSecuredNotes LevelII 2,567,708 2,673,250 2,566,802 2,689,750SeniorNotes LevelII 3,184,617 3,491,425 3,176,131 3,517,275
$ 24,049,214 $ 25,878,551 $ 24,001,910 $ 25,896,046
(a) Amountsarenetofunamortizeddeferredfinancingcostsanddiscounts.
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ALTICE USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
NOTE 11. INCOME TAXES (Continued)
TheCompanyrecordedincometaxbenefitof$74,395forthethreemonthsendedMarch31,2016,reflectinganeffectivetaxrateof35%.TheeffectivetaxrateforthethreemonthsendedMarch31,2016waslowerthanexpectedprimarilybecausetherewasnostateincometaxbenefitonthepre-mergeraccruedinterestatFinco.Thisresultedinreducingtheincometaxbenefitrecordedby$8,340.
OnJanuary1,2017,theCompanyadoptedASU2016-09usingtheprospectivetransitionmethodwithrespecttothepresentationofexcesstaxbenefitsinthestatementofcashflows.Inconnectionwiththeadoption,adeferredtaxassetof$308,231forpreviouslyunrealizedexcesstaxbenefitsrelatedtoshare-basedpaymentawardswasrecognizedwiththeoffsetrecordedtoaccumulateddeficit.
AsofMarch31,2017,theCompany'sfederalnetoperatinglosses("NOLs")wereapproximately$2,986,000.Theutilizationofcertainpre-mergerNOLsofCablevisionandCequelarelimitedpursuanttoInternalRevenueCodeSection382.TheCompanydoesnotexpectsuchlimitationstoimpacttheabilitytoutilizetheNOLspriortotheirexpiration.
NOTE 12. SHARE-BASED COMPENSATION
CertainemployeesoftheCompanyanditsaffiliatesreceivedawardsofunitsinacarryunitplanofNeptuneManagementLP,anentitywhichhasanownershipinterestintheCompany.Theawardsgenerallyvestasfollows:50%onthesecondanniversaryofJune21,2016forCablevisionemployeesorDecember21,2015forCequelemployees("BaseDate"),25%onthethirdanniversaryoftheBaseDate,and25%onthefourthanniversaryoftheBaseDate.NeptuneHoldingUSGPLLC,thegeneralpartnerofNeptuneManagementLP,hastherighttorepurchase(ortoassigntoanaffiliate,includingtheCompany,therighttorepurchase)vestedawardsheldbyemployeesforsixtydaysfollowingtheirtermination.Forperformance-basedawardsundertheplan,vestingoccursuponachievementorsatisfactionofaspecifiedperformancecondition.TheCompanyconsideredtheprobabilityofachievingtheestablishedperformancetargetsindeterminingtheshare-basedcompensationwithrespecttotheseawardsattheendofeachreportingperiod.Thecarryunitplanhas259,442,785unitsauthorizedforissuance,ofwhich153,950,000havebeenissuedtoemployeesoftheCompanyand65,700,000havebeenissuedtoemployeesofAlticeN.V.andaffiliatedcompaniesasofMarch31,2017.
TheCompanymeasuresthecostofemployeeservicesreceivedinexchangeforcarryunitsbasedonthefairvalueoftheawardatgrantdate.Anoptionpricingmodelwasusedwhichrequiressubjectiveassumptionsforwhichchangesintheseassumptionscouldmateriallyaffectthefairvalueofthecarryunitsoutstanding.Thetimetoliquidityeventassumptionwasbasedonmanagement'sjudgment.Theequityvolatilityassumptionof60%wasestimatedusingthehistoricalweeklyvolatilityofpubliclytradedcomparablecompanies.Therisk-freerateof0.74%assumedinvaluingtheunitswasbasedontheU.S.ConstantMaturityTreasuryRatesforaperiodmatchingtheexpectedtimetoliquidityevent.Thediscountforlackofmarketabilityof20%wasbasedonFinnerty's(2012)average-strikeputoptionmodel.Theweightedaveragegrantdatefairvalueoftheoutstandingunitsis$0.37perunitandthefairvaluewas$1.76perunitasofDecember31,2016.FortheyearendedDecember31,2016,theCompanyrecognizedanexpenseof$14,368relatedtothepushdownofshare-basedcompensationrelatedtothecarryunitplanofwhichapproximately$9,849relatedtounits
F-29
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ALTICE USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
NOTE 12. SHARE-BASED COMPENSATION (Continued)
grantedtoemployeesoftheCompanyand$4,519relatedtoemployeesofAlticeN.V.andaffiliatedcompaniesallocatedtotheCompany.
BeginningonthefourthanniversaryoftheBaseDate,theholdersofcarryunitshaveanannualopportunity(asixtydayperioddeterminedbytheadministratoroftheplan)toselltheirunitsbacktoNeptuneHoldingUSGPLLC(oraffiliate,includingtheCompany,designatedbyNeptuneHoldingUSGP).Accordingly,thecarryunitsarepresentedastemporaryequityontheconsolidatedbalanceatfairvalue.Adjustmentstofairvalueateachreportingperiodarerecordedinpaidincapital.
TherightofNeptuneHoldingUSGPLLCtoassigntoanaffiliate,includingtheCompany,therighttorepurchaseanemployee'svestedunitsduringthesixty-dayperiodfollowingtermination,ortosatisfyitsobligationtorepurchaseanemployee'svestedunitsduringannualsixty-dayperiodsfollowingthefourthanniversaryoftheBaseDate,maybeexercisedbyNeptuneHoldingUSGPLLCinitsdiscretionatthetimearepurchaserightorobligationarises.Thecarryunitplanrequiresthepurchasepricepayabletotheemployeeorformeremployee,asthecasemaybe,tobepaidincash,apromissorynote(withatermofnotmorethan3yearsandbearinginterestatthelong-termapplicablefederalrateunderSection1274(d)oftheInternalRevenueCode)orcombinationthereof,ineachcaseasdeterminedbyNeptuneHoldingUSGPLLCinitsdiscretionatthetimeoftherepurchase.NeptuneHoldingUSGPLLCexpectsthatvestedunitswillberedeemedforsharesofClassAcommonstockuponvesting.
Thefollowingassumptionswereusedtocalculatethefairvaluesofthecarryunitawardsgrantedinthefirstquarterof2017:
Thefollowingtablesummarizesactivityrelatingtocarryunits:
F-30
Timetoliquidityevent 0.3yearsDiscountforlackofmarketability 5%Risk-freerate 0.76%Equityvolatilityassumption 30%
Number of Time
Vesting Awards
Number of Performance Based Vesting
Awards
Weighted Average
Grant Date Fair Value
Balance,December31,2016 192,800,000 10,000,000 $ 0.37Granted 17,850,000 — 0.55Forfeited (1,000,000) — 0.37
Balance,March31,2017 209,650,000 10,000,000 0.39AwardsvestedatMarch31,2017 — —
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ALTICE USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
NOTE 13. AFFILIATE AND RELATED PARTY TRANSACTIONS
Equity Method Investments
InJuly2016,theCompanycompletedthesaleofa75%interestinNewsdayLLCtoanemployeeoftheCompany.TheCompanyretainedtheremaining25%ownershipinterest.EffectiveJuly7,2016,theoperatingresultsofNewsdayarenolongerconsolidatedwiththoseoftheCompanyandtheCompany's25%interestintheoperatingresultsofNewsdayisrecordedontheequitybasis.
AtMarch31,2017,theCompany's25%investmentinNewsdayHoldingsLLC("NewsdayHoldings")andits25%interestinI24NEWS,AlticeN.V.'s24/7internationalnewsandcurrentaffairschannel,was$2,130and$1,254,respectively,andareincludedininvestmentsinaffiliatesonourconsolidatedbalancesheet.TheoperatingresultsofNewsdayHoldingsandI24NEWSarerecordedontheequitybasis.ForthethreemonthsendedMarch31,2017,theCompanyrecordedequityinnetlossofNewsdayandI24NEWSof$1,510and$1,247,respectively.
Affiliate and Related Party Transactions
Asthetransactionsdiscussedbelowwereconductedbetweensubsidiariesundercommoncontrol,amountschargedforcertainservicesmaynothaverepresentedamountsthatmighthavebeenreceivedorincurredifthetransactionswerebaseduponarm'slengthnegotiations.
ThefollowingtablesummarizestherevenueandchargesrelatedtoservicesprovidedtoorreceivedfromsubsidiariesofAlticeN.V.andNewsday:
Revenue
TheCompanyrecognizedrevenueinconnectionwithsaleofadvertisingtoNewsday.
F-31
Three Months
Ended March 31, 2017 2016 Revenue $ 141 $ —Operatingexpenses: Programmingandotherdirectcosts $ (735) $ —Otheroperatingexpenses (7,298) (2,500)Operatingexpenses,net (8,033) (2,500)
Interestexpense(a) (47,588) —Netcharges $ (55,480) $ (2,500)CapitalExpenditures $ 892 $ —
(a) SeeNote8foradiscussionofinterestexpenserelatedtonotespayabletoaffiliatesandrelatedpartiesof$47,588.
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ALTICE USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
NOTE 13. AFFILIATE AND RELATED PARTY TRANSACTIONS (Continued)
Programming and other direct costs
ProgrammingandotherdirectcostsincludecostsincurredbytheCompanyforthetransportandterminationofvoiceanddataservicesprovidedbyasubsidiaryofAlticeN.V.
Other operating expenses
AsubsidiaryofAlticeN.V.providescertainexecutiveservices,includingCEO,CFOandCOOservices,totheCompany.Compensationunderthetermsoftheagreementisanannualfeeof$30,000tobepaidbytheCompany.FeesassociatedwiththisagreementrecordedbytheCompanyamountedtoapproximately$7,500and$2,500forthethreemonthsendedMarch31,2017and2016,respectively.
Otheroperatingexpensesincludesacreditof$482fortransitionservicesprovidedtoNewsday.
Aggregateamountsthatwereduefromandduetorelatedpartiesaresummarizedbelow:
F-32
March 31,
2017 December 31,
2016 Duefrom: AlticeUSFinanceS.A.(a) $ 12,951 $ 12,951Newsday(b) 4,696 6,114AlticeManagementAmericas(b) 8,944 3,117AlticeTechnicalServices(b) 393 —I24(b) 1,369 —OtherAlticeN.V.subsidiaries(b) 31 —
$ 28,384 $ 22,182Dueto: CVC3BV(c) — 71,655NeptuneHoldingsUSLP(c) — 7,962AlticeManagementInternational(d) 7,500 44,121Newsday(b) 185 275OtherAlticeN.V.subsidiaries(b) 3,470 3,350
$ 11,155 $ 127,363
(a) RepresentsinterestonseniornotespaidbytheCompanyonbehalfoftheaffiliate.
(b) RepresentsamountspaidbytheCompanyonbehalfoftherespectiverelatedpartyandthenetamountsduefromtherelatedpartyforcertaintransitionservicesprovided.
(c) Representsdistributionspayabletoshareholders.
(d) Representsamountsdueforequipmentpurchasesandsoftwaredevelopmentservicesdiscussedabove.
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ALTICE USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
NOTE 13. AFFILIATE AND RELATED PARTY TRANSACTIONS (Continued)
Thetableabovedoesnotincludenotespayabletoaffiliatesandrelatedpartiesof$1,750,000andtherelatedaccruedinterestof$150,135and$102,557,asofMarch31,2017andDecember31,2016,respectively,whichisreflectedinaccruedinterestintheCompany'sbalancesheets.SeediscussioninNote8.
DuringthethreemonthsendedMarch31,2017,theCompanymadeaprepaymentof$9,441toAlticeTechnicalServicesforplantmaintenanceandisreflectedinprepaidexpensesandothercurrentassetsontheCompany'sbalancesheetatMarch31,2017.
NOTE 14. COMMITMENTS AND CONTINGENCIES
Legal Matters
CableOperationsLitigation
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.Themotionsforsummaryjudgmenthavebeendeniedwithleavetore-fileintheeventthediscussionsbetweenthepartiesarenotsuccessful.AsofDecember31,2016,theCompanyhadanestimatedliabilityassociatedwithapotentialsettlementtotaling$5,200.DuringthethreemonthsendedMarch31,2017,theCompanyrecordedanadditionalliabilityof$800basedontheongoingnegotiationswiththeplaintiffs.Thepartieshaveexecutedabindingtermsheetmemorializingasettlementagreement,including
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ALTICE USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
NOTE 14. COMMITMENTS AND CONTINGENCIES (Continued)
attorneys'fees,subjecttoenteringintoalongformagreementandCourtapproval.Theamountultimatelypaidinconnectionwithapossiblesettlementcouldexceedtheamountrecorded.
PatentLitigation
CablevisionisnamedasadefendantincertainlawsuitsclaiminginfringementofvariouspatentsrelatingtovariousaspectsoftheCompany'sbusinesses.Incertainofthesecasesotherindustryparticipantsarealsodefendants.IncertainofthesecasestheCompanyexpectsthatanypotentialliabilitywouldbetheresponsibilityoftheCompany'sequipmentvendorspursuanttoapplicablecontractualindemnificationprovisions.TheCompanybelievesthattheclaimsarewithoutmeritandintendstodefendtheactionsvigorously,butisunabletopredicttheoutcomeoftheselawsuitsorreasonablyestimatearangeofpossibleloss.
Inadditiontothemattersdiscussedabove,theCompanyispartytovariouslawsuits,someinvolvingclaimsforsubstantialdamages.AlthoughtheoutcomeoftheseothermatterscannotbepredictedandtheimpactofthefinalresolutionoftheseothermattersontheCompany'sresultsofoperationsinaparticularsubsequentreportingperiodisnotknown,managementdoesnotbelievethattheresolutionoftheseotherlawsuitswillhaveamaterialadverseeffectonthefinancialpositionoftheCompanyortheabilityoftheCompanytomeetitsfinancialobligationsastheybecomedue.
NOTE 15. SEGMENT INFORMATION
TheCompanyclassifiesitsoperationsintotworeportablesegments:CablevisionandCequel.TheCompany'sreportablesegmentsarestrategicbusinessunitsthataremanagedseparately.TheCompanyevaluatessegmentperformancebasedonseveralfactors,ofwhichtheprimaryfinancialmeasureisbusinesssegmentAdjustedEBITDA,anon-GAAPmeasure.TheCompanydefinesAdjustedEBITDAasnetincome(loss)excludingincometaxes,income(loss)fromdiscontinuedoperations,non-operatingotherincomeorexpenses,lossonextinguishmentofdebtandwrite-offofdeferredfinancingcosts,gain(loss)onequityderivativecontracts,gain(loss)oninvestments,interestexpense(includingcashinterestexpense),interestincome,depreciationandamortization,share-basedcompensationexpenseorbenefit,restructuringexpenseorcreditsandtransactionexpenses.TheCompanyhaspresentedthecomponentsthatreconcileAdjustedEBITDAtooperatingincome,anacceptedGAAPmeasureforthethreemonthsendedMarch31,2017and2016asfollows:
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Three months ended March 31, 2017
Three months ended
March 31, 2016 Cablevision Cequel Total Cequel Operatingincome $ 120,168 $ 128,066 $ 248,234 $ 54,260Share-basedcompensation 5,082 2,766 7,848 —Restructuringandotherexpense 58,647 18,282 76,929 7,569Depreciationandamortization 443,176 165,548 608,724 200,900AdjustedEBITDA $ 627,073 $ 314,662 $ 941,735 $ 262,729
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ALTICE USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
NOTE 15. SEGMENT INFORMATION (Continued)
AreconciliationofreportablesegmentamountstotheCompany'sconsolidatedbalancesareasfollows:
ThefollowingtablespresentthecompositionofrevenuebysegmentforthethreemonthsendedMarch31,2017and2016:
CapitalexpendituresforthethreemonthsendedMarch31,2017and2016byreportablesegmentarepresentedbelow:
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Three Months Ended
March 31, 2017 2016 Operatingincomeforreportablesegments $ 248,234 $ 54,260Itemsexcludedfromoperatingincome: Interestexpense (433,294) (275,829)Interestincome 232 6,415Gainoninvestments,net 131,658 —Lossonequityderivativecontracts,net (71,044) —Gainoninterestrateswapcontracts 2,342 —Otherincome(expense),net (224) 11
Lossbeforeincometaxes $ (122,096) $ (215,143)
Three Months Ended March 31, 2017
Three Months Ended
March 31, 2016 Cablevision Cequel Total Cequel Residential: PayTV $ 789,387 $ 281,974 $ 1,071,361 $ 279,737Broadband 381,969 229,800 611,769 196,690Telephony 176,401 34,472 210,873 39,735
Businessservicesandwholesale 228,685 90,906 319,591 84,404Advertising 61,739 18,229 79,968 20,887Other 6,620 5,494 12,114 6,136
TotalRevenue $ 1,644,801 $ 660,875 $ 2,305,676 $ 627,589
Three Months
Ended March 31, 2017 2016 Cablevision $ 184,399 $ —Cequel 73,028 66,204
$ 257,427 $ 66,204
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ALTICE USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
NOTE 15. SEGMENT INFORMATION (Continued)
AllrevenuesandassetsoftheCompany'sreportablesegmentsareattributedtoorlocatedintheUnitedStates.
Totalassetsbysegmentarenotprovidedassuchamountsarenotregularlyreviewedbythechiefoperatingdecisionmakerforpurposesofdecisionmakingregardingresourceallocations.
NOTE 16. UNAUDITED PRO FORMA NET LOSS PER SHARE
TheproformanetlosspersharedataforthethreemonthsendedMarch31,2017and2016isbasedonourhistoricalstatementofoperationsaftergivingeffecttotheissuanceandsaleofthesharesofcommonstockinconnectionwiththeIPO,aswellasthecommonstocktobeissuedintheorganizationaltransactionsdiscussedinNote1,asiftheyoccurredatthebeginningoftheperiod.
NOTE 17. SUBSEQUENT EVENTS
InApril2017,theCompanymadeacashdistributionof$169,950totheCompany'sstockholders.
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Three Months Ended
March 31, 2017
Three Months Ended
March 31, 2016 Basic and Diluted Basic and Diluted Numerator: NetlossattributabletoAlticeUSA,Inc.stockholders $ (76,425) $ (140,748)Denominator: Weightedaveragesharesofcommonstockoutstanding—basicanddiluted(inthousands) 0.1 0.1Proformaadjustmenttoreflecttheassumedissuanceofcommonstock(inthousands) 737,069 737,069Weightedaveragesharesofcommonstockoutstandingusedincomputingtheproformanetincomepershare—basicanddiluted(inthousands) 737,069 737,069
Proformanetlosspershare $ (0.10) $ (0.19)
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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
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ALTICE USA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands)
Seeaccompanyingnotestoconsolidatedfinancialstatements.
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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.
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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 84,106Notespayabletoaffiliatesandrelatedparties 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.
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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.
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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.
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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 $ — $ 2,108,080Netlossattributabletostockholders — — (832,030) — — (832,030) — (832,030)Noncontrollinginterestsacquired — — — — — — (264) (264)Netlossattributabletononcontrollinginterests — — — — — — 551 551Pensionliabilityadjustments,netofincometaxes — — — — 1,979 1,979 — 1,979Share-basedcompensationexpense — 14,368 — — — 14,368 — 14,368Changeinfairvalueofredeemableequity — (68,148) — — — (68,148) — (68,148)Contributionfromstockholders — 1,246,499 — — — 1,246,499 — 1,246,499Distributionstostockholders — (445,176) — — — (445,176) — (445,176)Excesstaxbenefitonshare-basedawards — 31 — — — 31 — 31TaximpactrelatedtotheNewsdayHoldings,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.
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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: PaymentforCablevisionAcquisition,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)Distributionstostockholders (365,559)Principalpaymentsoncapitalleaseobligations (18,837)Contributionsfromstockholders 1,246,499Additionstodeferredfinancingcosts (203,712)Excesstaxbenefitrelatedtoshare-basedawards 31Netcashprovidedbyfinancingactivities 131,421
Netincreaseincash,cashequivalentsandrestrictedcash (8,283,443)Cash,cashequivalentsandrestrictedcashatbeginningofyear 8,786,536Cash,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:Cablevision,whichoperatesintheNewYorkmetropolitanarea,andCequel,whichprincipallyoperatesinmarketsinthesouth-centralUnitedStates.
Acquisition of Cablevision Systems Corporation
OnJune21,2016(the"CablevisionAcquisitionDate"),pursuanttotheAgreementandPlanofMerger(the"MergerAgreement"),datedasofSeptember16,2015,byandamongCablevision,AlticeN.V.,NeptuneMergerSubCorp.,awholly-ownedsubsidiaryofAlticeN.V.("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"CablevisionAcquisitionConsideration").
Pursuanttoanagreement,datedDecember21,2015,byandamongCVC2B.V.,CIEManagementIXLimited,forandonbehalfofthelimitedpartnershipsBCEuropeanCapitalIX-1through11andCanadaPensionPlanInvestmentBoard,certainaffiliatesofBCPandCPPIB(the"Co-Investors")fundedapproximately$1,000,000towardthepaymentoftheaggregatePerShareCablevisionAcquisitionConsideration,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$34.90perShareCablevisionAcquisitionpriceinaccordancewiththeoriginaltermsoftheawards.ThetotalconsiderationfortheoutstandingCNYGClassAShares,theoutstandingCNYGClassBShares,andtheequity-basedawardsamountedto$9,958,323.
InconnectionwiththeCablevisionAcquisition,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"CablevisionAcquisitionNotes").
OnJune21,2016,immediatelyfollowingtheCablevisionAcquisition,FincomergedwithandintoCSCHoldings,withCSCHoldingssurvivingthemerger(the"CSCHoldingsMerger"),andtheCablevisionAcquisitionNotesandtheCreditFacilitiesbecameobligationsofCSCHoldings.
OnJune21,2016,inconnectionwiththeCablevisionAcquisition,theCompanyissuednotespayabletoaffiliatesandrelatedpartiesaggregating$1,750,000,ofwhich$875,000bearinterestat10.75%and$875,000bearinterestat11%.
TheCablevisionAcquisitionwasaccountedforasabusinesscombinationinaccordancewithASCTopic805.Accordingly,theCompanysteppedup100%oftheassetsandliabilitiesassumedtotheirfairvalueattheCablevisionAcquisitionDate.SeeNote3forfurtherdetails.
Acquisition of Cequel Corporation
OnDecember21,2015,AlticeN.V.acquiredapproximately70%ofthetotaloutstandingequityinterestsinCequelCorporation(the"CequelAcquisition")fromthedirectandindirectstockholdersofCequelCorporation(the"Sellers").Theconsiderationfortheacquiredequityinterestswasbasedonatotalequityvaluationfor100%ofthecapitalandvotingrightsofCequelof$3,973,528whichincludes$2,797,928ofcashconsideration,$675,600ofretainedequityheldbyentitiesaffiliatedwithBCPartnersandCPPIBand$500,000fundedbytheissuancebyanaffiliateofAlticeN.V.ofaseniorvendornotethatwassubscribedbyentitiesaffiliatedwithBCPartnersandCPPIB.FollowingtheclosingoftheCequelAcquisition,entitiesaffiliatedwithBCPartnersandCPPIBretaineda30%equityinterestinaparententityoftheCompany.Inaddition,thecarriedinterestplansoftheStockholderswerecashedoutwherebypaymentsweremadetoparticipantsinsuchcarriedinterestplans,includingcertainofficersanddirectorsofCequel.
TheCequelAcquisitionwasaccountedforasabusinesscombinationinaccordancewithASCTopic805.Accordingly,theCompanysteppedup100%oftheassetsandliabilitiesassumedtotheirfairvalueattheCequelAcquisitionDate.SeeNote3forfurtherdetails.
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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)
InJune2016,CequelwascontributedtoAlticeUSA.TheaccompanyingconsolidatedfinancialstatementsincludetheoperatingresultsofCequelfromJanuary1,2016throughDecember31,2016andtheoperatingresultsofCablevisionfromtheCablevisionAcquisitionDatethroughDecember31,2016.
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.
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(Dollars in thousands, except share and per share amounts)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Gross Versus Net Revenue Recognition
Inthenormalcourseofbusiness,theCompanyisassessednon-incomerelatedtaxesbygovernmentalauthorities,includingfranchisingauthorities(generallyundermulti-yearagreements),andcollectssuchtaxesfromitscustomers.TheCompany'spolicyisthat,ininstanceswherethetaxisbeingassesseddirectlyontheCompany,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,compensationcostisrecognizedonanacceleratedmethodunderthegradedvestingmethodovertherequisiteserviceperiod
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(Dollars in thousands, except share and per share amounts)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
forthecarriedinterestunit.Carriedinterestunitsthatvestentirelyattheendofthevestingrequirementareexpensedonastraight-linebasis.
TheCompanyestimatesthefairvalueofcarriedinterestunitsusinganoptionpricingmodel.Keyinputsthatareusedinapplyingtheoptionpricingmethodaretotalequityvalue,equityvolatility,riskfreerateandtimetoliquidityevent.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.
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(Dollars in thousands, except share and per share amounts)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
Goodwill and Indefinite-Lived Intangible Assets
Goodwillandthevalueoffranchises,trademarks,andcertainotherintangiblesacquiredinpurchasebusinesscombinationswhichhaveindefiniteusefullivesarenotamortized.Rather,suchassetsaretestedforimpairmentannuallyorupontheoccurrenceofatriggeringevent.
TheCompanyassessesqualitativefactorsforitsreportingunitsthatcarrygoodwill.Ifthequalitativeassessmentresultsinaconclusionthatitismorelikelythannotthatthefairvalueofareportingunitexceedsthecarryingvalue,thennofurthertestingisperformedforthatreportingunit.
Whenthequalitativeassessmentisnotused,orifthequalitativeassessmentisnotconclusiveanditisnecessarytocalculatethefairvalueofareportingunit,thentheimpairmentanalysisforgoodwillisperformedatthereportingunitlevelusingatwo-stepapproach.Thefirststepofthegoodwillimpairmenttestisusedtoidentifypotentialimpairmentbycomparingthefairvalueofthereportingunitwithitscarryingamount,includinggoodwillutilizinganenterprise-valuebasedpremiseapproach.Ifthecarryingamountofthereportingunitexceedsitsfairvalue,thesecondstepofthegoodwillimpairmenttestisperformedtomeasuretheamountofgoodwillimpairmentloss,ifany.Thesecond
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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)
stepofthegoodwillimpairmenttestcomparestheimpliedfairvalueofthereportingunit'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,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.ThisASUamendsexistingguidancetorequirethepresentationofdeferredtaxliabilitiesandassetsas
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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)
noncurrentwithinaclassifiedstatementoffinancialposition.ASUNo.2015-17wasadoptedbytheCompanyinthefourthquarter2016andwasappliedprospectivelytoalldeferredtaxliabilitiesandassets.
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.2015-03wasadoptedbytheCompanyonJanuary1,2016.
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.2014-12
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(Dollars in thousands, except share and per share amounts)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
wasadoptedbytheCompanyonJanuary1,2016onaprospectivebasisanddidnothaveanyimpactontheCompany'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.
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.Inconnectionwiththe
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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)
adoptiononJanuary1,2017,adeferredtaxassetofapproximately$309,000forpreviouslyunrealizedexcesstaxbenefitswillberecognizedwiththeoffsetrecordedtoaccumulateddeficit.
InFebruary2016,theFASBissuedASU2016-02,Leases,whichincreasestransparencyandcomparabilitybyrecognizingalessee'srightsandobligationsresultingfromleasesbyrecordingthemonthebalancesheetasleaseassetsandleaseliabilities.ThenewguidancebecomeseffectivefortheCompanyonJanuary1,2019withearlyadoptionpermittedandwillbeappliedusingthemodifiedretrospectivemethod.TheCompanyhasnotyetcompletedtheevaluationoftheeffectthatASUNo.2016-02willhaveonitsconsolidatedfinancialstatements.
InMarch2017,theFASBissuedASUNo.2017-07Compensation—RetirementBenefits(Topic715).ASUNo.2017-07requiresthatanemployerdisaggregatetheservicecostcomponentfromtheothercomponentsofnetbenefitcost.Italsoprovidesguidanceonhowtopresenttheservicecostcomponentandtheothercomponentsofnetbenefitcostintheincomestatementandwhatcomponentofnetbenefitcostiseligibleforcapitalization.ASUNo.2017-07becomeseffectivefortheCompanyonJanuary1,2018withearlyadoptionpermittedandwillbeappliedretrospectively.TheCompanyhasnotyetcompletedtheevaluationoftheeffectthatASUNo.2017-07willhaveonitsconsolidatedfinancialstatements.
Common Stock
AtDecember31,2016,theCompanyhad100sharesofcommonstockwithaparvalueof$.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,theCompanycompletedtheCablevisionAcquisitiononJune21,2016andtheCequelAcquisitiononDecember21,2015.TheacquisitionswereaccountedforasabusinesscombinationsinaccordancewithASCTopic805.Accordingly,theCompanyrecordedthefairvalueoftheassetsandliabilitiesassumedatthedateoftheacquisitions.
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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$3,973,528totheidentifiabletangibleandintangibleassetsandliabilitiesbasedonfairvalueinformationinconnectionwiththeCequelAcquisition.Theremainingusefullivesrepresenttheperiodoverwhichacquiredtangibleandintangibleassetswithafinitelifearebeingdepreciatedoramortized.
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.
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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,lossfromcontinuingoperationsandnetlossfortheyearendedDecember31,2016asiftheCablevisionAcquisitionhadoccurredonJanuary1,2016:
TheproformaresultspresentedaboveincludetheimpactofadditionalamortizationexpenserelatedtotheidentifiableintangibleassetsrecordedinconnectionwiththeCablevisionAcquisition,additionaldepreciationexpenserelatedtothefairvalueadjustmenttoproperty,plantandequipmentandtheincrementalinterestresultingfromtheissuanceofdebttofundtheacquisitions,netofthereversalofinterestandamortizationofdeferredfinancingcostsrelatedtocreditfacilitiesthatwererepaidonthedateoftheCablevisionAcquisition,theaccretion/amortizationoffairvalueadjustmentsassociatedwiththelong-termdebtacquiredandtheremeasurementofdeferredtaxesassociatedwiththeacquisitionofCablevision.
NOTE 4. SUPPLEMENTAL CASH FLOW INFORMATION
During2016,theCompany'snon-cashinvestingandfinancingactivitiesandothersupplementaldatawereasfollows:
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Revenue $ 9,154,816Netloss $ (721,257)
Non-CashInvestingandFinancingActivities: Continuing Operations: Propertyandequipmentaccruedbutunpaid $ 155,653Distributionsdeclaredbutnotpaid 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$13,845fortheyearendedDecember31,2016relatedtotheCablevisionAcquisitionandCequelAcquisitionwhicharereflectedinrestructuringandotherexpenseintheconsolidatedstatementofoperations.
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
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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-linebasisovertheirestimatedusefullives.
FortheyearendedDecember31,2016,theCompanycapitalizedcertaincostsaggregating$75,804,relatedtotheacquisitionanddevelopmentofinternalusesoftware,whichareincludedinthetableabove.
Depreciationexpenseonproperty,plantandequipment(includingcapitalleases)fortheyearendedDecember31,2016amountedto$1,046,896.
AtDecember31,2016,thegrossamountofbuildingsandequipmentandrelatedaccumulatedamortizationrecordedundercapitalleaseswereasfollows:
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Estimated
Useful Lives(a)Customerequipment $ 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
(a) TheestimatedusefullivespresentedreflecttheperiodofdepreciationandamortizationforthepurchaseofassetsinnewconditionanddonotreflecttheremainingusefullivesoftheassetsatDecember31,2016.
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:
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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
InconnectionwiththeCablevisionAcquisition,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"CablevisionAcquisitionNotes").
OnJune21,2016,immediatelyfollowingtheCablevisionAcquisition,FincomergedwithandintoCSCHoldings,withCSCHoldingssurvivingthemerger(the"CSCHoldingsMerger"),andtheCablevisionAcquisitionNotesandtheCreditFacilitiesbecameobligationsofCSCHoldings.The2025GuaranteedNotesareguaranteedonaseniorbasisbyeachrestrictedsubsidiaryofCSCHoldings(otherthanCSCTKR,LLCanditssubsidiaries,whichownandoperatetheNewJerseycabletelevisionsystems,CablevisionLightpath,Inc.andanysubsidiariesofCSCHoldingsthatare"ExcludedSubsidiaries"undertheindenturegoverningthe2025GuaranteedNotes)(suchsubsidiaries,the"InitialGuarantors")andtheobligationsundertheCreditFacilitiesare(i)guaranteedonaseniorbasisbyeachInitialGuarantorand(ii)securedonafirstprioritybasisbycapitalstockheldbyCSCHoldingsandtheguarantorsincertainsubsidiariesofCSCHoldings,subjecttocertainexclusionsandlimitations.
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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 $ 2,040,402GoodwillrecordedinconnectionwithCablevisionAcquisition 5,838,959AdjustmentstopurchaseaccountingrelatingtoCequelAcquisition 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)
AlticeUSAusedtheproceedsfromtheTermCreditFacilityandtheCablevisionAcquisitionNotes,togetherwithanequitycontributionfromAlticeN.V.anditsCo-InvestorsandexistingcashatCablevision,to(a)financetheCablevisionAcquisition,(b)refinancethecreditagreement,datedasofApril17,2013(the"PreviousCreditFacility"),amongCSCHoldings,certainsubsidiariesofCSCHoldingsandthelenderspartythereto($2,030,699outstandingatthedateoftheCablevisionAcquisition),(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)commencingwiththefirstfullfiscalyearaftertheconsummationoftheCablevisionAcquisition,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.
TheCSCHoldingsCreditFacilitiesincludenegativecovenantsthataresubstantiallysimilartothenegativecovenantscontainedintheindenturesunderwhichtheCablevisionAcquisitionNoteswereissued(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
InconnectionwiththeCequelAcquisition,lendersholding(a)$290,000ofloansandcommitmentsundertherevolvingcreditfacilityundertheoldcreditfacilityand(b)approximately$815,400ofloansunderthetermloanfacilityundertheoldcreditfacilityconsentedtorollover,onacashlessbasis,suchlenders'loansandcommitmentsundertheoldcreditfacilityintoloansandcommitmentsofthesameamountunderanewcreditfacility(the"CequelCreditFacility")madeavailabletoasubsidiaryofCequeleffectiveupontheconsummationoftheCequelAcquisition(the'CequelCreditAgreement").UpontheclosingoftheCequelAcquisition,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
F-61
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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$8,150undertheCequelTermCreditFacility.
F-63
Maturity Date Interest
Rate Principal Carrying Value(a) CSC Holdings Restricted Group: RevolvingCreditFacility(b) November30,2021 4.07%$ 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$100,256ofcreditfacilitydebtincurredtofinancetheCablevisionAcquisition.SeediscussionaboveregardingtheamendmenttotherevolvingcreditfacilityenteredintoDecember2016.
(c) Represents$3,800,000principalamountofdebtincurredtofinancetheCablevisionAcquisition,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-64
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%ofeachseriesoftheCablevisionAcquisitionNotesusingthe
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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.
Cablevision Acquisition Notes
The$1,000,000principalamountofthe2025GuaranteedNotesbearinterestatarateof6.625%perannumandwereissuedatapriceof100.00%.Interestonthe2025GuaranteedNotesispayable
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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) ThecarryingvalueofthenoteswasadjustedtoreflecttheirfairvalueontheCablevisionAcquisitionDate(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)
semi-annuallyonJanuary15andJuly15,commencingonJuly15,2016.These2025GuaranteedNotesareguaranteedonaseniorbasisbytheInitialGuarantors.
The$1,800,000principalamountofthe2023Notesand$2,000,000principalamountofthe2025Notes,bearinterestatarateof10.125%and10.875%,respectively,perannumandwereissuedatpricesof100.00%.Interestonthe2023Notesand2025Notesispayablesemi-annuallyonJanuary15andJuly15,whichbeganonJuly15,2016.
Deferredfinancingcostsofapproximately$76,579incurredinconnectionwiththeissuanceoftheCablevisionAcquisitionNotesarebeingamortizedtointerestexpenseoverthetermoftheCablevisionAcquisitionNotes.
TheindenturesunderwhichtheCablevisionandCSCHoldingsSeniorGuaranteedNotesandSeniorNotesandDebentureswereissuedcontaincertaincovenantsandagreementswithrespecttoinvestmentgradedebtsecurities,includinglimitationsontheabilityofCSCHoldingsanditsrestrictedsubsidiariesto(i)incurorguaranteeadditionalindebtedness,(ii)makeinvestmentsorotherrestrictedpayments,(iii)createliens,(iv)sellassetsandsubsidiarystock,(v)paydividendsormakeotherdistributionsorrepurchaseorredeemourcapitalstockorsubordinateddebt,(vi)engageincertaintransactionswithaffiliates,(vii)enterintoagreementsthatrestrictthepaymentofdividendsbysubsidiariesortherepaymentofintercompanyloansandadvances,and(viii)engageinmergersorconsolidations,ineachcasesubjecttocertainexceptions.Theindenturesalsocontaincertaincustomaryeventsofdefault.Ifaneventofdefaultoccurs,theobligationsundertheCablevisionAcquisitionNotesmaybeaccelerated.AsofDecember31,2016,Cablevisionwasincompliancewithallofitsfinancialcovenantsundertheindenturesunderwhichtheseniornotesanddebenturesandguaranteednoteswereissued.
Cequel Senior Secured Notes
OnJune12,2015,AlticeUSFinanceICorporation,anindirectsubsidiaryofAlticeN.V.,issued$1,100,000principalamountofseniorsecurednotes(the"2023SeniorSecuredNotes"),theproceedsfromwhichwereplacedinescrowtofinanceaportionofthepurchasepricefortheCequelAcquisition.The2023SeniorSecuredNotesbearinterestatarateof5.375%perannumandwereissuedatapriceof100.00%.Interestonthe2023SeniorSecuredNotesispayablesemi-annuallyonJanuary15andJuly15ofeachyear.FollowingtheconsummationoftheCequelAcquisitionandrelatedtransactionstheequityinterestsinAlticeUSFinanceICorporationwerecontributedthroughoneormoreintermediarystepstoSuddenlink,andtheSeniorSecuredNoteswereguaranteedbyCequelCommunicationsHoldingsIILLC,SuddenlinkandcertainofthesubsidiariesofSuddenlinkandaresecuredbycertainassetsofCequelCommunicationsHoldingsIILLC,Suddenlinkanditssubsidiaries.
OnApril26,2016,AlticeUSFinanceICorporationissued$1,500,000aggregateprincipalamountofseniorsecurednotes(the"2026SeniorSecuredNotes").Theproceedsfromthesalewereusedtorepaythe$1,477,200remainingbalanceundertheOldCreditFacilityandtopayrelatedfeesandexpenses(seediscussionabove).The2026SeniorSecuredNotesmatureonMay15,2026andbearinterestatarateof5.50%annually.Interestonthe2026SeniorSecuredNotesispayablesemi-annuallyonMay15andNovember15ofeachyear,commencingonNovember15,2016.Deferredfinancingcostsrecordedinconnectionwiththeissuanceofthesenotesamountedto$13,773andarebeingamortizedoverthetermofthenotes.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 9. DEBT (Continued)
Cequel Senior Notes
OnJune12,2015,AlticeUSFinanceIICorporation,anindirectsubsidiaryofAlticeN.V.,issued$300,000principalamountofthe2025SeniorNotes,theproceedsfromwhichwereplacedinescrow,tofinanceaportionofthepurchasepricefortheCequelAcquisition.The2025SeniorNoteswereissuedbythe2025SeniorNotesIssuer,anindirectsubsidiaryofAlticeN.V.,bearinterestatarateof7.75%perannumandwereissuedatapriceof100.00%.Interestonthe2025SeniorNotesispayablesemi-annuallyonJanuary15andJuly15ofeachyear.FollowingtheconsummationoftheCequelAcquisitionandrelatedtransactions,the2025SeniorNotesIssuermergedintoCequel,the2025SeniorNotesbecametheobligationsofCequelandCequelCapitalCorporationbecametheco-issuerofthe2025SeniorNotes.
OnJune12,2015,AlticeUSFinanceS.A.,anindirectsubsidiaryofAlticeN.V.issued$320,000principalamountofthe7.75%SeniorNotesdue2025(the"HoldcoNotes"),theproceedsfromwhichwereplacedinescrow,tofinanceaportionofthepurchasepricefortheCequelAcquisition.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 and Related Parties
OnJune21,2016,inconnectionwiththeCablevisionAcquisition,theCompanyissuednotespayabletoaffiliatesaggregating$1,750,000,ofwhich$875,000bearinterestat10.75%andaredueonDecember20,2023and$875,000bearinterestat11%andaredueonDecember20,2024.TheCompanymayredeemallor,partofthenotesataredemptionpriceequalto100%oftheprincipalamountthereofplustheapplicablepremium,asdefinedinthenotesagreement,andaccruedandunpaidinterest.FortheyearendedDecember31,2016,theCompanyrecognizedinterestexpenseof$102,557relatedtothesenotespayable.AsofDecember31,2016,theaccruedinterestrelatedtothesenotesof$102,557isreflectedinaccruedinterestintheCompany'sbalancesheet.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 9. DEBT (Continued)
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.
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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.
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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.
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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 and Related Parties, andNotes Payable
ThefairvaluesofeachoftheCompany'sdebtinstrumentsarebasedonquotedmarketpricesforthesameorsimilarissuesoronthecurrentratesofferedtotheCompanyforinstrumentsofthesameremainingmaturities.Thefairvalueofnotespayableisbasedprimarilyonthepresentvalueoftheremainingpaymentsdiscountedattheborrowingcost.
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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.
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December 31, 2016
Fair Value Hierarchy
Carrying Amount(a)
Estimated Fair Value
AlticeUSAdebtinstruments: Notespayabletoaffiliatesandrelatedparties 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$9,142toreflectitsfairvalueontheCablevisionAcquisitionDate.
(c) ThetotalcarryingvalueoftheseniornotesanddebenturesassumedinconnectionwiththeCablevisionAcquisitionwasreducedby$39,713toreflectthefairvalueofthenotesontheCablevisionAcquisitionDate.
(d) ThetotalcarryingvalueoftheseniornotesanddebenturesassumedinconnectionwiththeCablevisionAcquisitionwasreducedby$13,075toreflectthefairvalueofthenotesontheCablevisionAcquisitionDate.
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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.
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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-deductibleCablevisionAcquisitiontransactioncosts 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.TheCequelAcquisitionresultedinathirdownershipchangewithregardtoCequelNOLs.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.
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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.Changesintheliabilitiesforuncertaintaxpositionswillberecognizedintheinterimperiodinwhichthepositionsareeffectivelysettledorthereisachangeinfactualcircumstances.
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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 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:
TheaccumulatedbenefitobligationfortheCompany'sDefinedBenefitPlansaggregated$382,517atDecember31,2016.
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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)
TheCompany'snetfundedstatusrelatingtoitsDefinedBenefitPlansatDecember31,2016,isasfollows:
Componentsofthenetperiodicbenefitcost,recordedinotheroperatingexpenses,fortheDefinedBenefitPlansfortheyearendedDecember31,2016,isasfollows:
Plan Assumptions for Defined Benefit Plans
Weighted-averageassumptionsusedtodeterminenetperiodiccost(madeatthebeginningoftheyear)andbenefitobligations(madeattheendoftheyear)fortheDefinedBenefitPlansareasfollows:
ThediscountrateusedbytheCompanyincalculatingthenetperiodicbenefitcostfortheCashBalancePlanandtheExcessCashBalancePlanwasdeterminedbasedontheexpectedfuturebenefit
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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)
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
TheweightedaverageassetallocationsofthePensionPlanatDecember31,2016isasfollows:
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.
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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
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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,certainemployeesoftheCompanyanditsaffiliatesreceivedawardsofunitsinacarryunitplanofNeptuneManagementLP,anentitywhichhasanownershipinterestintheCompany.Theawardsgenerallywillvestasfollows:50%onthesecondanniversaryofJune21,2016forCablevisionemployeesorDecember21,2015forCequelemployees("BaseDate"),25%onthethirdanniversaryoftheBaseDate,and25%onthefourthanniversaryoftheBaseDate.NeptuneHoldingUSGPLLC,thegeneralpartnerofNeptuneManagementLP,hastherighttorepurchase(ortoassigntoanaffiliate,includingtheCompany,therighttorepurchase)vestedawardsheldbyemployeesforsixtydaysfollowingtheirtermination.Fortheperformance-basedawards,vestingoccursuponachievementorsatisfactionofaspecifiedperformancecondition.TheCompanyconsideredtheprobabilityofachievingtheestablishedperformancetargetsindeterminingtheequity-basedcompensationwithrespecttotheseawardsattheendofeachreportingperiod.Thecarriedunitplanhas259,442,785unitsauthorizedforissuance,ofwhich147,700,000havebeenissuedtoemployeesoftheCompanyand55,100,000havebeenissuedtoemployeesofAlticeN.V.andaffiliatedcompanies.
TheCompanymeasuresthecostofemployeeservicesreceivedinexchangeforcarryunitsbasedonthefairvalueoftheawardatgrantdate.Anoptionpricingmodelwasusedwhichrequiressubjectiveassumptionsforwhichchangesintheseassumptionscouldmateriallyaffectthefairvalueofthecarryunitsoutstanding.Thetimetoliquidityeventassumptionwasbasedonmanagement'sjudgment.Theequityvolatilityassumptionof60%wasestimatedusingthehistoricalweeklyvolatilityofpubliclytradedcomparablecompanies.Therisk-freerateof0.74%assumedinvaluingtheunitswasbasedontheU.S.ConstantMaturityTreasuryRatesforaperiodmatchingtheexpectedtimetoliquidityevent.Thediscountforlackofmarketabilityof20%wasbasedonFinnerty's(2012)average-strikeputoptionmodel.Theweightedaveragegrantdatefairvalueoftheoutstandingunitsis$0.37perunitandthefairvaluewas$1.76perunitasofDecember31,2016.FortheyearendedDecember31,2016,theCompanyrecognizedanexpenseof$14,368relatedtothepushdownofshare-basedcompensationrelatedtothecarryunitplanofwhichapproximately$9,849relatedtounitsgrantedtoemployeesoftheCompanyand$4,519relatedtoemployeesofAlticeN.V.andaffiliatedcompaniesallocatedtotheCompany.
BeginningonthefourthanniversaryoftheBaseDate,theholdersofcarryunitshaveanannualopportunity(asixtydayperioddeterminedbytheadministratoroftheplan)toselltheirunitsbackto
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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)
NeptuneHoldingUSGPLLC(oraffiliate,includingtheCompany,designatedbyNeptuneHoldingUSGP).Accordingly,thecarriedunitsarepresentedastemporaryequityontheconsolidatedbalancesheetatfairvalue.Adjustmentstofairvalueateachreportingperiodarerecordedinpaidincapital.
TherightofNeptuneHoldingUSGPLLCtoassigntoanaffiliate,includingtheCompany,therighttorepurchaseanemployee'svestedunitsduringthesixty-dayperiodfollowingtermination,ortosatisfyitsobligationtorepurchaseanemployee'svestedunitsduringannualsixty-dayperiodsfollowingthefourthanniversaryoftheBaseDate,maybeexercisedbyNeptuneHoldingUSGPLLCinitsdiscretionatthetimearepurchaserightorobligationarises.Thecarryunitplanrequiresthepurchasepricepayabletotheemployeeorformeremployee,asthecasemaybe,tobepaidincash,apromissorynote(withatermofnotmorethan3yearsandbearinginterestatthelong-termapplicablefederalrateunderSection1274(d)oftheInternalRevenueCode)orcombinationthereof,ineachcaseasdeterminedbyNeptuneHoldingUSGPLLCinitsdiscretionatthetimeoftherepurchase.NeptuneHoldingUSGPLLCexpectsthatvestedunitswillberedeemedforsharesofClassAcommonstockuponvesting.
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.
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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)
ThefollowingtablesummarizestherevenueandchargesrelatedtoservicesprovidedtoorreceivedfromsubsidiariesofAlticeN.V.andNewsdayfortheyearendedDecember31,2016:
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.
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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)
AggregateamountsthatwereduefromandduetorelatedpartiesatDecember31,2016issummarizedbelow:
Thetableabovedoesnotincludenotespayabletoaffiliatesandrelatedpartiesof$1,750,000andtherelatedaccruedinterestof$102,557asDecember31,2016whichisreflectedinaccruedinterestintheCompany'sbalancesheet.SeediscussioninNote9.
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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) Representsdistributionspayabletoshareholders.
(d) Representsamountsdueforequipmentpurchasesandsoftwaredevelopmentservicesdiscussedabove.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 16. COMMITMENTS AND CONTINGENCIES
Commitments
FuturecashpaymentsandcommitmentsrequiredunderarrangementspursuanttocontractsenteredintobytheCompanyinthenormalcourseofbusinessasofDecember31,2016areasfollows:
Thetableabovedoesnotincludeobligationsforpaymentsrequiredtobemadeundermulti-yearfranchiseagreementsbasedonapercentageofrevenuesgeneratedfromvideoserviceperyear.
ManyoftheCompany'sfranchiseagreementsandutilitypoleleasesrequiretheCompanytoremoveitscablewiresandotherequipmentuponterminationoftherespectiveagreements.TheCompanyhasconcludedthatthefairvalueoftheseassetretirementobligationscannotbereasonablyestimatedsincetherangeofpotentialsettlementdatesisnotdeterminable.
Legal Matters
CableOperationsLitigation
Marchese, et al. v. Cablevision Systems Corporation and CSC Holdings, LLC:
TheCompanyisadefendantinalawsuitfiledintheU.S.DistrictCourtfortheDistrictofNewJerseybyseveralpresentandformerCablevisionsubscribers,purportedlyonbehalfofaclassofiOvideosubscribersinNewJersey,ConnecticutandNewYork.AfterthreeversionsofthecomplaintweredismissedwithoutprejudicebytheDistrictCourt,plaintiffsfiledtheirthirdamendedcomplainton
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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)
August22,2011,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,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.The
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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)
motionsforsummaryjudgmenthavebeendeniedwithleavetore-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.TheCompanydefinesAdjustedEBITDAasnetincome(loss)excludingincometaxes,income(loss)fromdiscontinuedoperations,non-operatingotherincomeorexpenses,lossonextinguishmentofdebtandwrite-offofdeferredfinancingcosts,gain(loss)onequityderivativecontracts,gain(loss)oninvestments,interestexpense(includingcashinterestexpense),interestincome,depreciationandamortization(includingimpairments),share-basedcompensationexpenseorbenefit,restructuringexpenseorcreditsandtransactionexpenses.The
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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)
CompanyhaspresentedthecomponentsthatreconcileAdjustedEBITDAtooperatingincome,anacceptedGAAPmeasurefortheyearendedDecember31,2016.
AreconciliationofreportablesegmentamountstotheCompany'sconsolidatedbalancesfortheyearendedDecember31,2016isasfollows:
ThefollowingtablepresentsthecompositionofrevenuebysegmentfortheyearendedDecember31,2016:
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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)
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
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 18. SEGMENT INFORMATION (Continued)
CapitalexpendituresfortheyearendedDecember31,2016byreportablesegmentarepresentedbelow:
AllrevenuesandassetsoftheCompany'sreportablesegmentsareattributedtoorlocatedintheUnitedStates.
Totalassetsbysegmentarenotprovidedassuchamountsarenotregularlyreviewedbythechiefoperatingdecisionmakerforpurposesofdecisionmakingregardingresourceallocations.
NOTE 19. UNAUDITED PRO FORMA NET LOSS PER SHARE
TheproformanetlosspersharedatafortheyearendedDecember31,2016isbasedonourhistoricalstatementofoperationsaftergivingeffecttotheissuanceandsaleofthesharesofcommonstockinconnectionwiththeCompany'sinitialofferingofequitysecuritiestothepublic("IPO"),aswellasthecommonstocktobeissuedintheorganizationaltransactionsdiscussedbelow,asiftheyoccurredatthebeginningoftheperiod.
ThefollowingorganizationaltransactionswillbeconsummatedinconnectionwiththeCompany'sIPO:
• theCompanywillamendandrestateitscertificateofincorporationto,amongotherthings,provideforClassAcommonstock,ClassBcommonstockandClassCcommonstock;
• theCo-InvestorsandanentitycontrolledbyMr.DrahiwillexchangetheirindirectownershipinterestintheCompanyforsharesoftheCompany'scommonstock;
F-88
Cablevision $ 298,357Cequel 327,184
$ 625,541
Year Ended December 31,
Basic and Diluted (Unaudited) Numerator: NetlossattributabletoAlticeUSA,Inc.stockholders $ (832,030)Denominator: Weightedaveragesharesofcommonstockoutstanding—basicanddiluted(inthousands) 0.1Proformaadjustmenttoreflecttheissuanceofcommonstock(inthousands) 737,069Weightedaveragesharesofcommonstockoutstandingusedincomputingtheproformanetincomepershare—basicanddiluted(inthousands) 737,069
Proformanetlosspershare—basicanddiluted $ (1.13)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except share and per share amounts)
NOTE 19. UNAUDITED PRO FORMA NET LOSS PER SHARE (Continued)
• NeptuneManagementLP("ManagementLP")willredeemitsClassBunitsforsharesoftheCompany'scommonstockthatitreceivesfromtheredemptionofitsClassBunitsinNeptuneHoldingUSLP;
• theCompanywillconvert$525,000aggregateprincipalamountofnotesissuedbytheCompanytotheCo-Investors(togetherwithaccruedandunpaidinterestandapplicablepremium)intosharesoftheCompany'scommonstockattheinitialpublicofferingprice;
• $1,225millionaggregateprincipalamountofnotesissuedbytheCompanytoasubsidiaryofAlticeN.V.(togetherwithaccruedandunpaidinterestandapplicablepremium)willbetransferredtoCVC3andthentheCompanywillconvertsuchnotesintosharesoftheCompany'scommonstockattheinitialpublicofferingprice;
• theCo-Investors,NeptuneHoldingUSLP,anentitycontrolledbythefamilyofMr.DrahiandformerClassBunitholdersofManagementLP(includinganentitycontrolledbyMr.Drahi)willexchangesharesoftheCompany'scommonstockfornewsharesoftheCompany'sClassAcommonstock;and
• CVC3B.V.,anindirectsubsidiaryofAlticeN.V.,andanentitycontrolledbythefamilyofMr.DrahiwillexchangesharesoftheCompany'scommonstockfornewsharesoftheCompany'sClassBcommonstock.
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-89
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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-90
/s/KPMGLLP
NewYork,NewYorkApril10,2017
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CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 2015
(In thousands)
Seeaccompanyingnotestoconsolidatedfinancialstatements.
F-91
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-92
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,$.01parvalue,320,000,000sharesauthorized,54,137,673sharesissuedandoutstanding 541RMGClassAcommonstock,$.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-93
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 2,520,582Restructuringandotherexpense 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-94
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 1,355Settlementlossincludedinnetperiodicbenefitcost 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
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CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(In thousands)
Seeaccompanyingnotestoconsolidatedfinancialstatements.
F-95
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 — 336DividendsonCNYGClassAandCNYGClassBcommonstock — — (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)
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CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) (Continued)
(In thousands)
Seeaccompanyingnotestoconsolidatedfinancialstatements.
F-96
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 — 5,694DividendsonCNYGClassAandCNYGClassBcommonstock — — (124,752) — — — (124,752) — (124,752)
Adjustmentstononcontrollinginterests — — 8,836 — — — 8,836 (901) 7,935BalanceatDecember31,2015 $ 3,042 $ 541 $ 792,351 $ (4,059,411) $ (1,610,167) $ (37,672) $ (4,911,316) $ (268) $ (4,911,584)
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CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) (Continued)
(In thousands)
Seeaccompanyingnotestoconsolidatedfinancialstatements.
F-97
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 — 82Contributionsfromnoncontrollinginterests — — — — — — — 240 240BalanceatJune20,2016 $ 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.
F-98
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 7,643Deferredincometaxes 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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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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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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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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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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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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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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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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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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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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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:
F-110
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$611,455ownedbyNewsdayHoldings.
OnJune21,2016,inconnectionwiththeMerger,NewsdayLLCrepaiditsoutstandingindebtednessundertheNewsdayCreditAgreement.
ThefollowingtableprovidesdetailsoftheCompany'soutstandingcreditfacilitydebt(netofunamortizedfinancingcostsandunamortizeddiscounts):
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Maturity Date Interest
Rate Principal December 31,
2015(a) Restricted Group: TermAloanfacility(b) April17,2018 2.17%$ 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.
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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.
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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.
F-127
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:
F-128
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 2,364Settlement(income)loss(reclassifiedfromaccumulatedothercomprehensiveloss)(a) 1,655 3,822 5,348Netperiodicbenefitcost $ 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.
F-130
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-131
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
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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.
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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:
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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
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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
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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 $ 187,789Income(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) 201NetincomeattributabletoCablevisionSystemsCorporationstockholders $ 44,633 $ 75,595 $ 23,103 $ 32,118 $ 175,449
Basic income per share attributable to Cablevision SystemsCorporation stockholders: Incomefromcontinuingoperations,netofincometaxes $ 0.21 $ 0.28 $ 0.09 $ 0.12 $ 0.70Income(loss)fromdiscontinuedoperations,netofincometaxes $ (0.04) $ — $ — $ (0.01) $ (0.05)Netincome $ 0.17 $ 0.28 $ 0.09 $ 0.12 $ 0.65
Diluted income per share attributable to Cablevision SystemsCorporation stockholders: Incomefromcontinuingoperations,netofincometaxes $ 0.20 $ 0.27 $ 0.08 $ 0.12 $ 0.68Income(loss)fromdiscontinuedoperations,netofincometaxes $ (0.04) $ — $ — $ (0.01) $ (0.05)Netincome $ 0.16 $ 0.27 $ 0.08 $ 0.12 $ 0.63
Amounts attributable to Cablevision Systems Corporationstockholders: Incomefromcontinuingoperations,netofincometaxes $ 55,135 $ 75,595 $ 23,509 $ 33,751 $ 187,990Income(loss)fromdiscontinuedoperations,netofincometaxes (10,502) — (406) (1,633) (12,541)Netincome $ 44,633 $ 75,595 $ 23,103 $ 32,118 $ 175,449
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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.
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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
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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.
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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)
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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.
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/s/PricewaterhouseCoopersLLP
St.Louis,MissouriMarch30,2016
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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.
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/s/PricewaterhouseCoopersLLP
St.Louis,MissouriMarch30,2016
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Cequel Corporation
Consolidated Balance Sheets
(in thousands)
Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.
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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.
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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
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.
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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
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.
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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
TableofContents
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
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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.
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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
TableofContents
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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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)
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
TableofContents
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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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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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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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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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
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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)
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
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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
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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.
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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)
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
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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.
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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.
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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.
F-177
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:
F-178
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.
F-179
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
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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
F-180
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.Theeliminationoftheuncertaintax
F-181
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)
positionresultedinacorrespondingadjustmenttotheCompany'snetdeferredtaxliabilitiesanddeferredtaxassetswhichresultedinanetbenefittoincometaxesof$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.
F-182
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)planforsuccessorperiodfromDecember21,2015throughDecember31,2015,thepredecessorperiodfromJanuary1,2015throughDecember20,2015,andthepredecessoryearendedDecember31,2014,respectively.
F-183
TableofContents
Cequel Corporation
Notes to Consolidated Financial Statements (Continued)
December 31, 2015 and 2014
(dollars in thousands, except where otherwise indicated)
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.TheCompanyusedtheMonteCarloSimulationMethodtoestimatethefairvalueoftheawards.BecausetheMonteCarloSimulationMethodrequiredtheuseofsubjectiveassumptions,changesintheseassumptionscouldhavemateriallyaffectedthefairvalueofthecarriedinterestunitsgranted.Thetimetoliquidityeventassumptionwasbasedonmanagement'sjudgment.Theequityvolatilityassumptionwereestimatedusingthehistorical
F-184
TableofContents
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)
weeklyvolatilityofpubliclytradedcomparablecompanies.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.
F-185
TableofContents
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.
F-186
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.
TableofContents
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,despitetheadjudicationofliabilitybutinviewofallofthecircumstancesofthecase,suchpersonisfairlyandreasonablyentitledtoindemnityforsuchexpenseswhichtheDelawareCourtofChanceryorsuchothercourtshalldeemproper.
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Payable by the registrant SECregistrationfee $ 185,840FINRAfee 225,500Stockexchangelistingfee 25,000Printingexpenses 350,000Legalfeesandexpenses 3,500,000Accountingfeesandexpenses 2,500,000TransferAgentandRegistrarfees 11,000Miscellaneousfeesandexpenses 727,660Total $ 7,500,000
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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.
Section145oftheDGCLmakesprovisionfortheindemnificationofofficersanddirectorsintermssufficientlybroadtoindemnifyourofficersanddirectorsundercertaincircumstancesfromliabilities(includingreimbursementforexpensesincurred)arisingundertheSecuritiesAct.Ouramendedandrestatedcertificateofincorporationwillprovide,ineffect,that,tothefullestextentandunderthecircumstancespermittedbySection145oftheDGCL,wewillindemnifyanyandallofourofficersanddirectors.Ourcertificateofincorporationalsowillrelieveourdirectorsfrommonetarydamagestousorourstockholdersforbreachofsuchdirector'sfiduciarydutyasadirectortothefullestextentpermittedbytheDGCL.
Wehavepurchasedinsurancepolicieswhich,withinthelimitsandsubjecttothetermsandconditionsthereof,covercertainexpensesandliabilitiesthatmaybeincurredbydirectorsandofficersinconnectionwithproceedingsthatmaybebroughtagainstthemasaresultofanactoromissioncommittedorsufferedwhileactingasourdirectororofficer.
TheformofUnderwritingAgreement,tobeenteredintoinconnectionwiththisofferingandattachedasExhibit1.1hereto,providesfortheindemnificationbytheUnderwritersofusandourofficersanddirectorsforcertainliabilities,includingliabilitiesarisingundertheSecuritiesAct,andaffordscertainrightsofcontributionwithrespectthereto.
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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.
OnJune21,2016,AlticeUSAissued$875millionaggregateprincipalamountof10.75%notesdue2023and$875millionaggregateprincipalamountofAlticeUSA's11.00%notesdue2024.Thetransactiondidnotinvolveanyunderwritersoranypublicoffering.ThetransactionwasexemptfromregistrationundertheSecuritiesAct,pursuanttoSection4(a)(2)oftheSecuritiesAct,asatransactionbyanissuernotinvolvingapublicoffering.NogeneralsolicitationwasmadebyeitherAlticeUSAoranypersonactingonitsbehalf.Thepurchasersofthenotesagreedthatthesecuritieswouldbesubjecttostandardrestrictionsapplicabletoaprivateplacementofsecuritiesunderapplicablestateandfederalsecuritieslawsandappropriatelegendswereaffixedtotheissuednotes.
Priortothecompletionofthisoffering,inconnectionwiththeOrganizationalTransactions,weareissuingsharesofClassAcommonstockandClassBcommonstockinexchangeforoutstandingsharesoftheCompanyandinconnectionwiththeconversionofthenotespayabletoaffiliatesandrelatedpartiesintosharesofClassAcommonstockandClassBcommonstock.TheissuanceofsuchsharesofcommonstockisnotandwillnotberegisteredundertheSecuritiesActandthesharesarebeingissuedtoinvestorsinrelianceupontheexemptionfromtheregistrationrequirementsoftheSecuritiesAct,assetforthinSection4(a)(2)undertheSecuritiesAct.
Item 16. Exhibits and Financial Statement Schedules.
(a)Exhibits :
Theexhibitindexattachedheretoisincorporatedhereinbyreference.
(b)Financial statement schedules :
Nofinancialstatementschedulesareprovidedbecausetheinformationcalledforisnotrequiredorisshowninthefinancialstatementsorthenotesthereto.
Item 17. Undertakings.
Theundersignedherebyundertakesasfollows:
(a)toprovidetotheunderwritersattheclosingspecifiedintheunderwritingagreementcertificatesinsuchdenominationsandregisteredinsuchnamesasrequiredbytheunderwriterstopermitpromptdeliverytoeachpurchaser.
(b)InsofarasindemnificationforliabilitiesarisingundertheSecuritiesActof1933maybepermittedtodirectors,officersandcontrollingpersonsoftheregistrantpursuanttotheforegoingprovisionsorotherwise,theregistranthasbeenadvisedthatintheopinionoftheSecuritiesandExchangeCommissionsuchindemnificationisagainstpublicpolicyasexpressedintheActandis,therefore,unenforceable.Intheeventthataclaimforindemnificationagainstsuchliabilities(otherthanthepaymentbytheregistrantofexpensesincurredorpaidbyadirector,officerorcontrollingpersonoftheregistrantinthesuccessfuldefenseofanyaction,suitorproceeding)isassertedbysuchdirector,officerorcontrollingpersoninconnectionwiththesecuritiesbeingregistered,theregistrantwill,unlessintheopinionofitscounselthematterhasbeensettledby
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controllingprecedent,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,onJune21,2017.
PursuanttotherequirementsoftheSecuritiesActof1933,thisregistrationstatementhasbeensignedonJune21,2017bythefollowingpersonsinthecapacitiesindicated.
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ALTICE USA, INC.
By:/s/DAVIDCONNOLLY
Name: DavidConnolly Title: Executive Vice President and General Counsel
Signature Title
*
DexterGoei
ChairmanandChiefExecutiveOfficer(PrincipalExecutiveOfficer)
*
CharlesStewart
Director,Co-PresidentandChiefFinancialOfficer(PrincipalFinancialOfficer)
*
VictoriaMink
SeniorVicePresidentandChiefAccountingOfficer(PrincipalAccountingOfficer)
*
AbdelhakimBoubazine
Director,Co-PresidentandChiefOperatingOfficer
*
LisaRosenblum
ViceChairman
*By: /s/DAVIDCONNOLLY
DavidConnollyasAttorney-in-Fact
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EXHIBIT INDEX
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Exhibit No. Exhibit Description 1.1**FormofUnderwritingAgreement 3.1**FormofAmendedandRestatedCertificateofIncorporation 3.2**FormofAmendedandRestatedBylawsoftheRegistrant 4.1† SpecimenClassACommonStockCertificate 4.2**FormofStockholdersandRegistrationRightsAgreementbyandamongAlticeUSA,Inc.andthestockholderspartythereto 4.3**Indenture,datedasofSeptember23,2009,relatingtoCablevision's85/8%SeniorNotesdue2017and85/8%SeriesBSeniorNotes
due2017 4.4**Indenture,datedasofApril2,2010,relatingtoCablevision's73/4%SeniorNotesdue2018and8%SeniorNotesdue2020 4.5**FirstSupplementalIndenture,datedasofApril15,2010,totheIndenture,datedasofApril2,2010,relatingtoCablevision's73/4%
SeniorNotesdue2018and8%SeniorNotesdue2020 4.6**SecondSupplementalIndenture,datedasofSeptember27,2012,totheIndenturedatedasofApril2,2010,relatingtoCablevision's57
/8%SeniorNotesdue2022 4.7**Indenture,datedasofDecember1,1997,relatingtoCSCHoldings'77/8%SeniorDebenturesdue2018 4.8**Indenture,datedasofJuly1,1998,relatingtoCSCHoldings'75/8%SeniorDebenturesdue2018 4.9**Indenture,datedasofFebruary12,2009,relatingtoCSCHoldings'85/8%SeniorNotesdue2019and85/8%SeriesBSeniorNotes
due2019 4.10**Indenture,datedasofNovember15,2011,relatingtoCSCHoldings'63/4%SeniorNotesdue2021and63/4%SeriesBSenior
Notesdue2021 4.11**Indenture,datedasofMay23,2014,relatingtoCSCHoldings'51/4%SeniorNotesdue2024and51/4%SeriesBSeniorNotesdue
2024 4.12**Indenture,datedasofOctober9,2015,relatingtoCSCHoldings'101/8%SeniorNotesdue2023and107/8%SeniorNotesdue
2025 4.13**SupplementalIndenture,datedasofJune21,2016,toIndenturedatedasofOctober9,2015,relatingtoCSCHoldings'101/8%
SeniorNotesdue2023and107/8%SeniorNotesdue2025 4.14**Indenture,datedasofOctober9,2015,relatingtoCSCHoldings'65/8%SeniorGuaranteedNotesdue2025 4.15**SupplementalIndenture,datedasofJune21,2016,totheIndenturedatedasofOctober9,2015,relatingtoCSCHoldings'65/8%
SeniorGuaranteedNotesdue2025 4.16**Indenture,datedasofSeptember23,2016,relatingtoCSCHoldings'51/2%SeniorGuaranteedNotesdue2027 4.17**Indenture,datedasofJune12,2015,relatingtoAlticeUSFinanceICorporation's53/8%SeniorSecuredNotesdue2023
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Exhibit No. Exhibit Description 4.18**SupplementalIndenture,datedasofDecember21,2015,totheIndenture,datedasofJune12,2015,relatingtoAlticeUSFinanceI
Corporation's53/8%SeniorSecuredNotesdue2023 4.19**NotesPledgeandSecurityAgreement,datedasofDecember21,2015,byandbetweenCequelCommunicationsHoldingsII,LLCand
JPMorganChaseBank,N.A. 4.20**NotesPledgeandSecurityAgreement,datedasofDecember21,2015,byandamongthegrantorspartytheretoandJPMorganChase
Bank,N.A. 4.21**TrademarkSecurityAgreement,datedasofDecember21,2015,byandamongthegrantorspartytheretoandJPMorganChaseBank,
N.A. 4.22**CopyrightSecurityAgreement,datedasofDecember21,2015,byandamongthegrantorspartytheretoandJPMorganChaseBank,
N.A. 4.23**Indenture,datedasofApril26,2016,relatingtoAlticeUSFinanceICorporation's51/2%SeniorSecuredNotesdue2026 4.24**NotesPledgeandSecurityAgreement,datedMay20,2016,byandbetweenCequelCommunicationsHoldingsII,LLCandJPMorgan
ChaseBank,N.A. 4.25**NotesPledgeandSecurityAgreement,datedMay20,2016,byandamongeachofthegrantorspartytheretoandJPMorganChase
Bank,N.A. 4.26**TrademarkSecurityAgreement,datedasofMay20,2016,byandamongthegrantorspartytheretoandJPMorganChaseBank,N.A. 4.27**CopyrightSecurityAgreement,datedasofMay20,2016,byandamongthegrantorspartytheretoandJPMorganChaseBank,N.A. 4.28**Indenture,datedasofOctober25,2012relatingtoCequelCommunicationsHoldingsI,LLC'sandCequelCapitalCorporation's63/8
%SeniorNotesdue2020 4.29**Indenture,datedasofMay16,2013,relatingtoCequelCommunicationsHoldingsI,LLC'sandCequelCapitalCorporation's51/8%
SeniorNotesdue2021 4.30**Indenture,datedasofSeptember9,2014,relatingtoCequelCommunicationsHoldingsI,LLC'sandCequelCapitalCorporation's51/
8%SeniorNotesdue2021 4.31**Indenture,datedasofJune12,2015,relatingtoCequelCommunicationsHoldingsI,LLC'sandCequelCapitalCorporation's73/4%
SeniorNotesdue2025 4.32**SupplementalIndenture,datedasofDecember21,2015,totheIndenture,datedasofJune12,2015,relatingtoCequel
CommunicationsHoldingsI,LLC'sandCequelCapitalCorporation's73/4%SeniorNotesdue2025 5.1 OpinionofShearman&SterlingLLP
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Exhibit No. Exhibit Description 10.1**CreditAgreement,datedasofOctober9,2015,byandamongCSCHoldings,LLC(assuccessorbymergertoNeptuneFincoCorp.),as
borrower,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,datedasofJune20,2016 10.3**IncrementalLoanAssumptionAgreement,datedasofJune21,2016 10.4**IncrementalLoanAssumptionAgreement,datedasofJuly21,2016 10.5**SecondAmendmenttoCreditAgreement(ExtensionAmendment),datedasofSeptember9,2016 10.6**ThirdAmendmenttoCreditAgreement(ExtensionAmendment,IncrementalLoanAssumptionAgreement&Assignmentand
Acceptance),datedasofDecember9,2016 10.7**FourthAmendmenttoCreditAgreement(IncrementalLoanAssumptionAgreement&RefinancingAmendment),datedasof
March15,2017 10.8**FacilityGuaranty,datedasofJune21,2016,byandamongtheguarantorspartytheretoandJPMorganChaseBank,N.A. 10.9**PledgeAgreement,datedasofJune21,2016,byandamongCSCHoldings,LLC,certainpledgorspartytheretoandJPMorganChase
Bank,N.A. 10.10**CreditAgreement,datedasofJune12,2015,byandamongAlticeUSFinanceICorporation,asborrower,certainlenderspartythereto,
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,byandbetweenCequelCommunicationsHoldingsII,LLCand
JPMorganChaseBank,N.A. 10.15**LoansPledgeandSecurityAgreement,datedasofDecember21,2015,byandamongthegrantorspartytheretoandJPMorganChase
Bank,N.A. 10.16**FacilityGuaranty,datedasofDecember21,2015,byandamongtheguarantorspartytheretoandJPMorganChaseBank,N.A. 10.17**TrademarkSecurityAgreement,datedasofDecember21,2015,byandamongcertaingrantorsthereunderandJPMorganChaseBank,
N.A.
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Exhibit No. Exhibit Description 10.18**CopyrightSecurityAgreement,datedasofDecember21,2015,byandbetweenCequelCommunications,LLCandJPMorganChase
Bank,N.A. 10.19**FormofStockholders'AgreementbyandamongAlticeUSA,Inc.,AlticeN.V.andA4S.A. 10.20**AlticeUSA2017LongTermIncentivePlan 10.21**AlticeUSAShortTermIncentiveCompensationPlan 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 99.4**Rule438ConsentofRaymondSvider 99.5**Rule438ConsentofMarkMullen
** Previouslyfiled.
† SharesofClassAcommonstockoftheCompanywillbeinanuncertificatedform.Therefore,theCompanyisnotfilingaspecimenClassAcommonstockcertificate.ReferenceismadetoExhibits3.1and3.2hereto.
Exhibit 5.1
599 LEXINGTON AVENUE | NEW YORK | NY | 10022-6069
WWW.SHEARMAN.COM | T +1.212.848.4000 | F +1.212.848.7179
June 21, 2017
Altice USA, Inc. 1111 Stewart Avenue Bethpage, NY 11714
Altice USA, Inc. Ladies and Gentlemen:
We have acted as counsel to Altice USA, Inc., a Delaware corporation (the “ Company ”), in connection with the registration statement on Form S-1 (Registration No. 333-217240) filed with the Securities and Exchange Commission (the “ Commission ”) on April 11, 2017, and each amendment thereto (the “ Registration Statement ”), relating to theregistration under the Securities Act of 1933, as amended (the “ Securities Act ”), of 71,724,139 shares of the Company’s Class A common stock, par value $0.01 per share (the “ Shares ”),which includes 12,068,966 Shares to be sold by the Company (the “ Company Shares ”), 51,874,063 Shares to be sold by the selling stockholders identified in the Registration Statement(the “ Secondary Shares ”) and up to 7,781,110 Shares that may be sold by the selling stockholders upon the exercise of an option to purchase additional Shares granted to the underwriters(the “ Additional Shares ”). The Shares are to be sold by the Company pursuant to the terms of an underwriting agreement to be entered into between the Company and the underwritersnamed therein (the “ Underwriting Agreement ”). The offering of the Shares will be as set forth in the prospectus contained in the Registration Statement (the “ Prospectus ”).
In that connection, we have reviewed originals or copies of the following documents:
(a) The Registration Statement.
(b) The Prospectus.
(c) The Amended and Restated Certificate of Incorporation, a form of which is included as Exhibit 3.1 to the Registration Statement (the “ Amended Certificate ”).
(d) The Amended and Restated Bylaws of the Company, a form of which is included as Exhibit 3.2 to the Registration Statement.
(e) The Underwriting Agreement, a form of which is included as Exhibit 1.1 to the Registration Statement. ABU DHABI | BEIJING | BRUSSELS | DUBAI | FRANKFURT | HONG KONG | LONDON | MENLO PARK | MILAN | NEW YORK PARIS | ROME | SAN FRANCISCO | SÃO PAULO | SAUDI ARABIA* | SHANGHAI | SINGAPORE | TOKYO | TORONTO | WASHINGTON, DC
SHEARMAN & STERLING LLP IS A LIMITED LIABILITY PARTNERSHIP ORGANIZED IN THE UNITED STATES UNDER THE LAWS OF THE STATE OF DELAWARE,WHICH LAWS LIMIT THE PERSONAL LIABILITY OF PARTNERS.
*DR. SULTAN ALMASOUD & PARTNERS IN ASSOCIATION WITH SHEARMAN & STERLING LLP
(f) The originals or copies of such other corporate records of the Company, certificates of public officials and officers of the Company and such other documents and
instruments as we have deemed necessary as a basis for the opinions expressed below.
For the purposes of this opinion letter, we have assumed:
(a) The genuineness of all signatures.
(b) The authenticity of the originals of the documents submitted to us.
(c) The conformity to authentic originals of any documents submitted to us as copies.
(d) As to matters of fact, the truthfulness of the representations made in certificates of public officials and officers of the Company. We have not independently established the validity of the foregoing assumptions. Based upon the foregoing and upon such other investigation as we have deemed necessary and subject to the qualifications set forth below, we are of the opinion that when (i) the AmendedCertificate has been filed with the Secretary of State of the State of Delaware, (ii) the Company’s board of directors or the pricing committee of the Company’s board of directors has takenthe necessary action to set the price for the Shares and (iii) the Shares have been issued, delivered and paid for as contemplated in the Registration Statement and in accordance with theUnderwriting Agreement, the Company Shares, Secondary Shares and Additional Shares will be duly authorized by all necessary corporate action on the part of the Company and will bevalidly issued, fully paid and non-assessable. Our opinion set forth above is limited to the General Corporation Law of the State of Delaware and we do not express any opinion herein concerning any other law. This opinion letter is provided solely in connection with the issuance and sale of the Shares pursuant to the Registration Statement and is not to be relied upon for any other purpose. We hereby consent to the filing of this opinion letter as an exhibit to the Registration Statement and to the use of our name therein and in the Prospectus under the caption “Legal Matters.” In giving this consent, we do not hereby admit that we come within the category of persons whose consent is required under Section 7 of the Securities Act, or the rules and regulations ofthe Commission thereunder.
Very truly yours,
/s/ Shearman & Sterling LLP RA/RB/VN/CZ
KWL
2
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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,NewYorkJune21,2017
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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 statements of Cequel Corporation(Predecessor), which appears in such Registration Statement. We also consent to the reference to us under the heading “Experts” in such Registration Statement. /s/ PricewaterhouseCoopers LLP St. Louis, Missouri June 21, 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 statements of Cequel Corporation(Successor), which appears in such Registration Statement. We also consent to the reference to us under the heading “Experts” in such Registration Statement. /s/ PricewaterhouseCoopers LLP St. Louis, Missouri June 21, 2017