UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549
FORM 10-Q
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the quarterly period ended
June 30, 2018
 
 
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the transition period from
 
to
 
 
 
Commission File Number
 
Registrant; State of Incorporation; Address and Telephone Number
 
IRS Employer Identification No.
 
 
 
 
 
001-38126
 
alticelogoa16.jpg
 
38-3980194
 
 
Altice USA, Inc.
 
 
 
 
Delaware
 
 
 
 
1 Court Square West
 
 
 
 
Long Island City, New York  11101
 
 
 
 
(516) 803-2300
 
 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes    ý    No o

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrants were required to submit and post such files). Yes   ý    No o
Indicate by check mark whether each Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company", and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
o
 
Accelerated filer
o
Non-accelerated filer
ý
 
Smaller reporting company
o
(Do not check if a smaller reporting company)
 
 
Emerging growth company
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes
o
No
ý
Number of shares of common stock outstanding as of August 3, 2018:
737,068,966

 
 
 
 
 
 
 
 
 
 






ALTICE USA, INC. AND SUBSIDIARIES
 
FORM 10-Q
 
TABLE OF CONTENTS
 
 
 
PART I. FINANCIAL INFORMATION
 
 
Page
Item 1. Financial Statements of Altice USA, Inc. and Subsidiaries
 
 
Condensed Consolidated Balance Sheets - June 30, 2018 (Unaudited) and December 31, 2017
 
Condensed Consolidated Statements of Operations - Three and six months ended June 30, 2018 and 2017 (Unaudited)
 
Condensed Consolidated Statements of Comprehensive Loss - Three and six months ended June 30, 2018 and 2017 (Unaudited)
 
Condensed Consolidated Statements of Stockholders’ Equity - Six months ended June 30, 2018 (Unaudited)
 
Condensed Consolidated Statements of Cash Flows - Six months ended June 30, 2018 and 2017 (Unaudited)
 
 
 
 
Notes to Condensed Consolidated Financial Statements (Unaudited)
 
 
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
 
 
Item 3. Quantitative and Qualitative Disclosures About Market Risk
 
 
Item 4. Controls and Procedures
 
 
PART II. OTHER INFORMATION
 
 
 
Item 1. Legal Proceedings
 
 
Item 6. Exhibits
 
 
SIGNATURES





PART I.     FINANCIAL INFORMATION
This Quarterly Report includes statements that express our opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results and therefore are, or may be deemed to be, “forward‑looking statements.” These “forward‑looking statements” appear throughout this Quarterly Report and relate to matters such as anticipated future growth in revenues, operating income, cash provided by operating activities and other financial measures. Words such as “expects,” “anticipates,” “believes,” “estimates,” “may,” “will,” “should,” “could,” “seeks,” “potential,” “continue,” “intends,” “plans” and similar words and terms used in the discussion of future operating results, future financial performance and future events identify forward‑looking statements. All of these forward‑looking statements are based on management’s current expectations and beliefs about future events. As with any projection or forecast, they are susceptible to uncertainty and changes in circumstances.
We operate in a highly competitive, consumer and technology driven and rapidly changing business that is affected by government regulation and economic, strategic, technological, political and social conditions. Various factors could adversely affect our operations, business or financial results in the future and cause our actual results to differ materially from those contained in the forward‑looking statements. In addition, important factors that could cause our actual results to differ materially from those in our forward‑looking statements include:
competition for broadband, pay television and telephony customers from existing competitors (such as broadband communications companies, direct broadcast satellite ("DBS") providers and Internet‑based providers) and new competitors entering our footprint;
changes in consumer preferences, laws and regulations or technology that may cause us to change our operational strategies;
increased difficulty negotiating programming agreements on favorable terms, if at all, resulting in increased costs to us and/or the loss of popular programming;
increasing programming costs and delivery expenses related to our products and services;
our ability to achieve anticipated customer and revenue growth, to successfully introduce new products and services and to implement our growth strategy;
our ability to complete our capital investment plans on time and on budget, including our plan to build a fiber-to-the-home ("FTTH") network, and deploy Altice One, our new home communications hub;
our ability to develop and deploy mobile voice and data services pursuant to the agreement we entered into with Sprint in the fourth quarter of 2017;
the effects of economic conditions or other factors which may negatively affect our customers’ demand for our products and services;
the effects of industry conditions;
demand for advertising on our cable systems;
our substantial indebtedness and debt service obligations;
adverse changes in the credit market;
changes as a result of any tax reforms that may affect our business;
financial community and rating agency perceptions of our business, operations, financial condition and the industries in which we operate;
the restrictions contained in our financing agreements;
our ability to generate sufficient cash flow to meet our debt service obligations;
fluctuations in interest rates which may cause our interest expense to vary from quarter to quarter;
technical failures, equipment defects, physical or electronic break‑ins to our services, computer viruses and similar problems;



1




the disruption or failure of our network, information systems or technologies as a result of computer hacking, computer viruses, “cyber‑attacks,” misappropriation of data, outages, natural disasters and other material events;
our ability to obtain necessary hardware, software, communications equipment and services and other items from our vendors at reasonable costs;
our ability to effectively integrate acquisitions and to maximize expected operating efficiencies from our acquisitions or as a result of the transactions, if any;
significant unanticipated increases in the use of bandwidth‑intensive Internet‑based services;
the outcome of litigation, government investigations and other proceedings;
our ability to successfully operate our business following the completion of our separation from Altice N.V.;and
other risks and uncertainties inherent in our cable and other broadband communications businesses and our other businesses, including those listed under the caption “Risk Factors” in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on March 6, 2018 (the "Annual Report").
These factors are not necessarily all of the important factors that could cause our actual results to differ materially from those expressed in any of our forward‑looking statements. Other unknown or unpredictable factors could cause our actual results to differ materially from those expressed in any of our forward‑looking statements.
Given these uncertainties, you are cautioned not to place undue reliance on such forward‑looking statements. The forward‑looking statements are made only as of the date of this Quarterly Report. Except to the extent required by law, we do not undertake, and specifically decline any obligation, to update any forward‑looking statements or to publicly announce the results of any revisions to any of such statements to reflect future events or developments. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless expressed as such, and should only be viewed as historical data.
You should read this Quarterly Report with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect. We qualify all forward‑looking statements by these cautionary statements.
Certain numerical figures included in this quarterly report have been subject to rounding adjustments. Accordingly, such numerical figures shown as totals in various tables may not be arithmetic aggregations of the figures that precede them.





2




Item 1. Financial Statements
ALTICE USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
 
 
 
 
ASSETS
June 30, 2018
(Unaudited)
 
December 31, 2017
Current Assets:
 
 
 
Cash and cash equivalents
$
381,140

 
$
329,848

Restricted cash
253

 
252

Accounts receivable, trade (less allowance for doubtful accounts of $12,737 and $13,420)
382,207

 
370,765

Prepaid expenses and other current assets
166,963

 
130,425

Amounts due from affiliates
17,612

 
19,764

Derivative contracts
9,992

 
52,545

Total current assets
958,167

 
903,599

Property, plant and equipment, net of accumulated depreciation of $3,393,628 and $2,599,579
5,694,812

 
6,023,826

Investment securities pledged as collateral
1,409,361

 
1,720,357

Derivative contracts
101,007

 

Other assets
117,696

 
57,904

Amortizable customer relationships, net of accumulated amortization of $1,797,079 and $1,409,021
4,173,805

 
4,561,863

Amortizable trade names, net of accumulated amortization of $654,498 and $588,574
412,585

 
478,509

Other amortizable intangibles, net of accumulated amortization of $14,865 and $10,978
22,195

 
26,082

Indefinite-lived cable television franchises
13,020,081

 
13,020,081

Goodwill
8,004,808

 
8,019,861

Total assets
$
33,914,517

 
$
34,812,082


See accompanying notes to condensed consolidated financial statements.



3





ALTICE USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
(In thousands, except share and per share amounts)   
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, 2018
(Unaudited)
 
December 31, 2017
 
 
 
 
Current Liabilities:
 
 
 
Accounts payable
$
801,448

 
$
795,128

Accrued liabilities:
 
 
 

Interest
398,024

 
397,422

Employee related costs
122,404

 
147,727

Other accrued expenses
317,270

 
411,988

Amounts due to affiliates
24,392

 
10,998

Deferred revenue
121,913

 
111,197

Liabilities under derivative contracts
9,623

 
52,545

Credit facility debt
53,900

 
42,650

Senior notes and debentures
1,035,212

 
507,744

Capital lease obligations
5,561

 
9,539

Notes payable
67,109

 
33,424

Total current liabilities
2,956,856

 
2,520,362

Defined benefit plan obligations
97,518

 
103,163

Other liabilities
141,939

 
144,289

Deferred tax liability
4,716,681

 
4,769,286

Liabilities under derivative contracts
123,470

 
187,406

Collateralized indebtedness
1,392,648

 
1,349,474

Credit facility debt
5,625,732

 
4,600,873

Senior notes and debentures
14,805,268

 
15,352,688

Capital lease obligations
11,639

 
12,441

Notes payable
5,408

 
32,478

Deficit investment in affiliates

 
3,579

Total liabilities
29,877,159

 
29,076,039

Commitments and contingencies (Note 15)


 


Redeemable equity
170,165

 
231,290

Stockholders' Equity:
 
 
 

Preferred Stock, $.01 par value, 100,000,000 shares authorized, no shares issued and outstanding

 

Class A common stock: $0.01 par value, 4,000,000,000 shares authorized, 492,812,285 and 246,982,292 issued and outstanding
4,928

 
2,470

Class B common stock: $0.01 par value, 1,000,000,000 shares authorized, 490,086,674 issued and 244,256,681 and 490,086,674 outstanding
2,443

 
4,901

Class C common stock: $0.01 par value, 4,000,000,000 shares authorized, no shares issued and outstanding

 

Paid-in capital
3,856,682

 
4,665,229

Retained earnings
6,191

 
840,636

 
3,870,244

 
5,513,236

Accumulated other comprehensive loss
(10,438
)
 
(10,022
)
Total stockholders' equity
3,859,806

 
5,503,214

Noncontrolling interest
7,387

 
1,539

Total stockholders' equity
3,867,193

 
5,504,753

 
$
33,914,517

 
$
34,812,082

See accompanying notes to condensed consolidated financial statements.


4





ALTICE USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Revenue (including revenue from affiliates of $727, $253, $852 and $394, respectively) (See Note 14)
$
2,364,153

 
$
2,322,362

 
$
4,693,867

 
$
4,624,621

Operating expenses:
 
 
 
 
 
 
 
Programming and other direct costs (including charges from affiliates of $3,865, $1,095, $5,019 and $1,830, respectively) (See Note 14)
795,127

 
758,694

 
1,582,488

 
1,517,046

Other operating expenses (including charges from affiliates of $6,255, $8,666, $14,249 and $15,964, respectively) (See Note 14)
575,749

 
591,222

 
1,158,772

 
1,199,366

Restructuring and other expense
9,691

 
12,388

 
13,278

 
89,317

Depreciation and amortization (including impairments)
648,527

 
706,790

 
1,291,232

 
1,315,514

 
2,029,094

 
2,069,094

 
4,045,770

 
4,121,243

Operating income
335,059

 
253,268

 
648,097

 
503,378

Other income (expense):
 
 
 
 
 
 
 
Interest expense (including $42,817 and $90,405 related to affiliates and related parties in 2017) (See Note 9)
(390,543
)
 
(420,370
)
 
(767,801
)
 
(853,664
)
Interest income
5,313

 
180

 
8,416

 
412

Gain (loss) on investments and sale of affiliate interests, net
(45,113
)
 
57,130

 
(293,715
)
 
188,788

Gain (loss) on derivative contracts, net
42,159

 
(66,463
)
 
210,511

 
(137,507
)
Gain (loss) on interest rate swap contracts
(12,929
)
 
9,146

 
(44,851
)
 
11,488

Loss on extinguishment of debt and write-off of deferred financing costs (including $513,723 related to affiliates and related parties in 2017) (See Note 10)
(36,911
)
 
(561,382
)
 
(41,616
)
 
(561,382
)
Other expense, net
(629
)
 
(3,935
)
 
(12,287
)
 
(6,035
)
 
(438,653
)
 
(985,694
)
 
(941,343
)
 
(1,357,900
)
Loss before income taxes
(103,594
)
 
(732,426
)
 
(293,246
)
 
(854,522
)
Income tax benefit
5,590

 
252,487

 
66,293

 
298,395

Net loss
(98,004
)
 
(479,939
)
 
(226,953
)

(556,127
)
Net loss (income) attributable to noncontrolling interests
149

 
(365
)
 
147

 
(602
)
Net loss attributable to Altice USA, Inc. stockholders
$
(97,855
)
 
$
(480,304
)
 
$
(226,806
)
 
$
(556,729
)
Basic and diluted net loss per share
$
(0.13
)
 
$
(0.73
)
 
$
(0.31
)
 
$
(0.85
)
Basic and diluted weighted average common shares (in thousands)
737,069

 
659,145

 
737,069

 
654,362


See accompanying notes to condensed consolidated financial statements.


5





ALTICE USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(Unaudited)

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
Net loss
$
(98,004
)
 
$
(479,939
)
 
$
(226,953
)
 
$
(556,127
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
Defined benefit pension plans:
 
 
 
 
 
 
 
Unrecognized actuarial gain (loss)
(359
)
 
(4,333
)
 
4,192

 
(4,333
)
Applicable income taxes
97

 
1,733

 
(1,131
)
 
1,733

Unrecognized gain (loss) arising during period, net of income taxes
(262
)
 
(2,600
)
 
3,061

 
(2,600
)
Settlement loss included in other expense, net
258

 
389

 
864

 
389

Applicable income taxes
(70
)
 
(156
)
 
(234
)
 
(156
)
Settlement loss included in other expense, net, net of income taxes
188

 
233

 
630

 
233

Curtailment loss


(3,195
)



(3,195
)
Applicable income taxes


1,278




1,278

Curtailment loss, net of income taxes


(1,917
)



(1,917
)
Foreign currency translation adjustment
914




914



Applicable income taxes
(338
)



(338
)


Foreign currency translation adjustment, net
576




576



Other comprehensive gain (loss)
502

 
(4,284
)
 
4,267

 
(4,284
)
Comprehensive loss
(97,502
)
 
(484,223
)
 
(222,686
)
 
(560,411
)
Comprehensive loss (income) attributable to noncontrolling interests
149

 
(365
)
 
147

 
(602
)
Comprehensive loss attributable to Altice USA, Inc. stockholders
$
(97,353
)
 
$
(484,588
)
 
$
(222,539
)
 
$
(561,013
)

See accompanying notes to condensed consolidated financial statements.



6








ALTICE USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands)
(Unaudited)
 

Class A
Common
Stock
 

Class B
Common
Stock
 
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Total
Stockholders'
Equity
 
Non-controlling
Interest
 
Total
Equity
Balance at January 1, 2018, as reported
$
2,470

 
$
4,901

 
$
4,642,128

 
$
854,824

 
$
(10,022
)
 
$
5,494,301

 
$
1,539

 
$
5,495,840

Impact of change in accounting policies (See Note 3)

 

 

 
12,666

 

 
12,666

 

 
12,666

Impact of ATS Acquisition (See Note 3)

 

 
23,101

 
(26,854
)
 

 
(3,753
)
 

 
(3,753
)
Balance at January 1, 2018, as adjusted
2,470

 
4,901

 
4,665,229

 
840,636

 
(10,022
)
 
5,503,214

 
1,539

 
5,504,753

Net loss attributable to stockholders

 

 

 
(226,806
)
 

 
(226,806
)
 

 
(226,806
)
Net loss attributable to noncontrolling interests

 

 

 

 

 

 
(147
)
 
(147
)
Contributions from noncontrolling interests

 

 

 

 

 

 
5,995

 
5,995

Pension liability adjustments, net of income taxes

 

 

 

 
3,691

 
3,691

 

 
3,691

Foreign currency translation adjustment

 

 

 

 
576

 
576

 

 
576

Share-based compensation expense

 

 
33,849

 

 

 
33,849

 

 
33,849

Redeemable equity vested

 

 
111,521

 

 

 
111,521

 

 
111,521

Change in redeemable equity
 
 
 
 
(50,396
)
 
 
 
 
 
(50,396
)
 
 
 
(50,396
)
Dividend payment

 

 
(963,711
)
 
(536,224
)
 

 
(1,499,935
)
 

 
(1,499,935
)
Conversion of Class B to Class A shares, including $2,424 in connection with the Distribution
2,458

 
(2,458
)
 

 

 

 

 

 

Impact of i24 Acquisition

 

 
61,049

 
(73,578
)
 
(2,520
)
 
(15,049
)
 

 
(15,049
)
Other changes to equity

 

 
(859
)
 

 

 
(859
)
 

 
(859
)
Adoption of ASU No. 2018-02

 

 

 
2,163

 
(2,163
)
 

 

 

Balance at June 30, 2018
$
4,928

 
$
2,443

 
$
3,856,682

 
$
6,191

 
$
(10,438
)
 
$
3,859,806

 
$
7,387

 
$
3,867,193


See accompanying notes to condensed consolidated financial statements.


7





ALTICE USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
Six Months Ended June 30,
 
2018
 
2017
Cash flows from operating activities:
 
 
 
Net loss
$
(226,953
)
 
$
(556,127
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Depreciation and amortization (including impairments)
1,291,232

 
1,315,514

Equity in net loss of affiliates
10,849

 
4,122

Loss (gain) on investments and sale of affiliate interests, net
293,715

 
(188,788
)
Loss (gain) on derivative contracts, net
(210,511
)
 
137,507

Loss on extinguishment of debt and write-off of deferred financing costs
41,616

 
561,382

Amortization of deferred financing costs and discounts (premiums) on indebtedness
36,971

 
7,214

Settlement loss related to pension plan
864

 
389

Share-based compensation expense
33,849

 
25,927

Deferred income taxes
(80,280
)
 
(311,809
)
Provision for doubtful accounts
29,462

 
32,918

Change in assets and liabilities, net of effects of acquisitions and dispositions:
 
 
 
Accounts receivable, trade
(37,224
)
 
(8,006
)
Other receivables
(5,926
)
 
7,949

Prepaid expenses and other assets
(31,951
)
 
(2,015
)
Amounts due from and due to affiliates
8,573

 
(28,005
)
Accounts payable
49,449

 
67,482

Accrued liabilities
(110,227
)
 
(256,661
)
Deferred revenue
20,536

 
10,614

Liabilities related to interest rate swap contracts
45,199

 
(8,500
)
Net cash provided by operating activities
1,159,243

 
811,107

Cash flows from investing activities:
 
 
 

Payments for acquisitions, net of cash acquired
(5,308
)
 
(43,608
)
Sale of affiliate interests
(3,537
)
 

Capital expenditures
(498,297
)
 
(463,590
)
Proceeds related to sale of equipment, including costs of disposal
6,858

 
1,536

Increase in other investments
(2,500
)
 
(3,550
)
Additions to other intangible assets

 
(744
)
Net cash used in investing activities
(502,784
)
 
(509,956
)
 
 
 
 
See accompanying notes to condensed consolidated financial statements.


8





ALTICE USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(In thousands)
 
Six Months Ended June 30,
 
2018
 
2017
Cash flows from financing activities:
 
 
 
Proceeds from credit facility debt, net of discounts
$
1,642,500

 
$
4,977,425

Repayment of credit facility debt
(621,325
)
 
(3,573,750
)
Issuance of senior notes and debentures
2,050,000

 

Proceeds from collateralized indebtedness, net
337,124

 
490,816

Repayment of collateralized indebtedness and related derivative contracts, net
(337,124
)
 
(483,081
)
Dividends to stockholders
(1,499,935
)
 
(919,317
)
Redemption of senior notes, including premiums and fees
(2,123,756
)
 
(979,280
)
Repayment of notes payable
(446
)
 

Principal payments on capital lease obligations
(6,019
)
 
(8,061
)
Additions to deferred financing costs
(22,277
)
 
(7,352
)
Other
(859
)
 

Contingent payment for acquisition
(28,940
)
 

Contributions from noncontrolling interests
5,995

 
51,135

Proceeds from IPO, net of fees

 
349,156

Net cash provided by (used in) financing activities
(605,062
)
 
(102,309
)
Net increase in cash and cash equivalents
51,397

 
198,842

 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
(104
)
 

Net increase in cash and cash equivalents
51,293

 
198,842

Cash, cash equivalents and restricted cash at beginning of year
330,100

 
503,093

Cash, cash equivalents and restricted cash at end of period
$
381,393

 
$
701,935


See accompanying notes to condensed consolidated financial statements.



9



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(Unaudited)




NOTE 1.    DESCRIPTION OF BUSINESS AND RELATED MATTERS
The Company and Related Matters
Altice USA, Inc. ("Altice USA" or the "Company") was incorporated in Delaware on September 14, 2015. Prior to the Altice N.V. distribution discussed below, Altice USA was majority‑owned by Altice N.V., a public company with limited liability (naamloze vennootshcap) under Dutch law. Since the completion of the Altice N.V. distribution discussed below, the Company is no longer majority-owned by Altice N.V.
The Company provides broadband communications and video services in the United States. It delivers broadband, pay television, telephony services, proprietary content and advertising services to residential and business customers.
Altice N.V., through a subsidiary, acquired Cequel Corporation ("Cequel" or "Suddenlink") on December 21, 2015 (the "Cequel Acquisition") and Cequel was contributed to Altice USA on June 9, 2016. Altice USA acquired Cablevision Systems Corporation ("Cablevision" or "Optimum") on June 21, 2016 (the "Cablevision Acquisition").
The Company classifies its operations into two reportable segments: Cablevision, which operates in the New York metropolitan area, and Cequel, which principally operates in markets in the south‑central United States.
The accompanying condensed combined consolidated financial statements ("condensed consolidated financial statements") include the accounts of the Company and all subsidiaries in which the Company has a controlling interest and gives effect to the ATS Acquisition and the i24 Acquisition discussed below on a combined basis. All significant inter-company accounts and transactions have been eliminated in consolidation.
The accompanying condensed consolidated operating results for the three and six months ended June 30, 2017 reflect the retrospective adoption of Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers and ASU No. 2017‑07 Compensation-Retirement Benefits (Topic 715). See Note 3 for further details of the impact on the Company's historical financial statements.
In June 2017, the Company completed its initial public offering ("IPO") of 71,724,139 shares of its Class A common stock. The Company’s Class A common stock began trading on June 22, 2017, on the New York Stock Exchange under the symbol "ATUS".
Acquisition of Altice Technical Services US Corp
ATS was formed in 2017 to provide network construction and maintenance services and commercial and residential installations, disconnections, and maintenance. During the second quarter of 2017, a substantial portion of the Company's technical workforce at the Cablevision segment either accepted employment with ATS or became employees of ATS and ATS commenced operations and began to perform services for the Company. A substantial portion of the Cequel segment technical workforce became employees of ATS in December 2017.
In January 2018, the Company acquired 70% of the equity interests in Altice Technical Services US Corp. ("ATS") for $1.00 (the "ATS Acquisition") and the Company became the owner of 100% of the equity interests in ATS in March 2018. ATS was previously owned by Altice N.V. and a member of ATS's management through a holding company. As the acquisition was a combination of businesses under common control, the Company combined the results of operations and related assets and liabilities of ATS for all periods since its formation. See Note 3 for the impact of the ATS Acquisition on the Company's condensed consolidated balance sheet as of December 31, 2017 and on the Company's statement of operations for the three and six months ended June 30, 2017.
Acquisition of i24NEWS
In April 2018, Altice N.V. transferred its ownership of i24 US and i24 Europe ("i24NEWS"), Altice N.V.'s 24/7 international news and current affairs channels to the Company for minimal consideration (the "i24 Acquisition"). As the acquisition was a combination of businesses under common control, the Company combined the results of operations and related assets and liabilities of i24NEWS as of April 1, 2018. Operating results for periods prior to April 1, 2018 and the balance sheet as of December 31, 2017 have not been revised to reflect the i24 Acquisition as the impact was deemed immaterial.


10



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except share and per share amounts)
(Unaudited)

Altice N.V. Distribution
On June 8, 2018, Altice N.V. distributed substantially all of its equity interest in the Company through a distribution in kind to holders of Altice N.V.'s common shares A and common shares B (the “Distribution”). The Distribution took place by way of a special distribution in kind by Altice N.V. of its 67.2% interest in the Company to Altice N.V. shareholders. Each shareholder of Altice N.V. on May 23, 2018, the Distribution record date, received 0.4163 shares of the Company's common stock for every share held by such shareholder in Altice N.V. Between May 24, 2018 and June 4, 2018, each Altice N.V. shareholder was given the opportunity to elect the percentage of shares of the Company's Class A common stock and shares of the Company's Class B common stock such shareholder would receive in the Distribution, whereby the number of shares of the Company's Class B common stock to be distributed was subject to a cap of 50% of the total shares of the Company's common stock being distributed (the “Class B Cap”). Because the Class B Cap had been exceeded, the shares of the Company's Class B common stock delivered to Altice N.V.’s shareholders of record who elected to receive them were subject to proration, and such shareholders received shares of the Company's Class A common stock.
Immediately following the Distribution, there were 489,384,523 shares of Altice USA Class A common stock and 247,684,443 shares of Altice USA Class B common stock outstanding.
Prior to Altice N.V.'s announcement of the Distribution, the Board of Directors of Altice USA, acting through its independent directors, approved the payment of a $2.035 dividend to all shareholders of record on May 22, 2018. The payment of the dividend, aggregating $1,499,935, was made on June 6, 2018, and was funded with cash at CSC Holdings LLC, a wholly-owned subsidiary of Cablevision, from financings completed in January 2018 and cash generated from operations at Cequel. In connection with the payment of the dividend, the Company recorded a decrease in retained earnings of $536,224, representing the cumulative earnings through the payment date, and a decrease in paid in capital of $963,711.
In addition, the Board of Directors of Altice USA also authorized a share repurchase program of $2.0 billion, effective June 8, 2018.
In connection with the Distribution, the Management Advisory and Consulting Services Agreement with Altice N.V. which provided certain consulting, advisory and other services was terminated. Compensation under the terms of the agreement was an annual fee of $30,000 paid by the Company.
NOTE 2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") and with the instructions to Form 10-Q and Article 10 of Regulation S-X for interim financial information.  Accordingly, these financial statements do not include all the information and notes required for complete annual financial statements.
The interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2017 and the Company's financial statements and notes thereto included on Form 8-K filed on May 21, 2018.
The financial statements presented in this report are unaudited; however, in the opinion of management, such financial statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the results for the periods presented.
The results of operations for the interim periods are not necessarily indicative of the results that might be expected for future interim periods or for the full year ending December 31, 2018.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period.  Actual results could differ from those estimates.


11



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except share and per share amounts)
(Unaudited)

Recently Adopted Accounting Pronouncements
In February 2018, the FASB issued ASU No. 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220) Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The primary provision of ASU No. 2018-02 allows for the reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. ASU No. 2018-02 also requires certain disclosures about stranded tax effects. ASU No. 2018‑02 is effective for the Company on January 1, 2019, with early adoption permitted and will be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. The Company elected to adopt ASU No. 2018-02 during the first quarter of 2018. The adoption resulted in the reclassification of stranded tax amounts of $2,163 associated with net unrecognized losses from the Company's pension plans from accumulated other comprehensive loss to retained earnings.
In May 2017, the FASB issued ASU No. 2017-09, Compensation- Stock Compensation (Topic 718). ASU No. 2017‑09 provides clarity and guidance on which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. ASU No. 2017‑09 was adopted by the Company on January 1, 2018 and it had no impact to the Company's condensed consolidated financial statements.
In March 2017, the FASB issued ASU No. 2017-07, Compensation-Retirement Benefits (Topic 715). ASU No. 2017‑07 requires that an employer disaggregate the service cost component from the other components of net benefit cost. It also provides guidance on how to present the service cost component and the other components of net benefit cost in the income statement and what component of net benefit cost is eligible for capitalization. ASU No. 2017‑07 was adopted by the Company on January 1, 2018 and was applied retrospectively. As a result of the adoption, the Company reclassified the non-service cost components of the Company's pension expense for the three and six months ended March 31, 2017 from other operating expenses to other income (expense), net. The Company elected to apply the practical expedient which allowed it to reclassify amounts disclosed previously in the benefits plan note as the basis for applying retrospective presentation for comparative periods, as the Company determined it was impracticable to disaggregate the cost components for amounts capitalized and amortized in those periods. See Note 3 for information on the impact of the adoption of ASU No. 2017-07.
In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805), Clarifying the Definition of a Business, which amends Topic 805 to interpret the definition of a business by adding guidance to assist in evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The Company adopted the new guidance on January 1, 2018 and it had no impact to the Company's condensed consolidated financial statements.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities.  ASU No. 2016-01 modifies how entities measure certain equity investments and also modifies the recognition of changes in the fair value of financial liabilities measured under the fair value option. Entities will be required to measure equity investments that do not result in consolidation and are not accounted for under the equity method at fair value and recognize any changes in fair value in net income. For financial liabilities measured using the fair value option, entities will be required to record changes in fair value caused by a change in instrument-specific credit risk (own credit risk) separately in other comprehensive income. ASU No. 2016-01 was adopted by the Company on January 1, 2018 and it had no impact to the Company's condensed consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers ("ASC 606"), requiring an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASC 606 replaced most existing revenue recognition guidance in GAAP and allowed the use of either the retrospective or cumulative effect transition method.
In December 2016, the FASB issued ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, in order to clarify the Codification and to correct any unintended application of the guidance. The amendments in this update affected the guidance in ASC 606. ASC 606 was adopted by the Company on January 1, 2018 on a full retrospective basis, which required the Company to reflect the impact of the updated guidance for all periods presented. The adoption of ASC 606 did not have a material impact on the Company’s financial position or results of operations. See Note 3 for information on the impact of the adoption of ASC 606.


12



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except share and per share amounts)
(Unaudited)

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments which clarifies how entities should classify certain cash receipts and cash payments on the statement of cash flows. ASU No. 2016-15 also clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows. The Company adopted the new guidance on January 1, 2018 and it had no impact to the Company's condensed consolidated financial statements.
Recently Issued But Not Yet Adopted Accounting Pronouncements
In January 2017, the FASB issued ASU No. 2017‑04, Intangibles-Goodwill and Other (Topic 350). ASU No. 2017‑04 simplifies the subsequent measurement of goodwill by removing the second step of the two‑step impairment test. The amendment requires an entity to perform its annual, or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. ASU No. 2017‑04 becomes effective for the Company on January 1, 2020 with early adoption permitted and will be applied prospectively.
In February 2016, the FASB issued ASU No. 2016-02, Leases, which increases transparency and comparability by recognizing a lessee’s rights and obligations resulting from leases by recording them on the balance sheet as lease assets and lease liabilities. The new guidance becomes effective for the Company on January 1, 2019. Although, the Company has not yet completed the evaluation of the effect that ASU No. 2016-02 will have on its consolidated financial statements, upon adoption, the Company expects to recognize a right of use asset and liability related to substantially all operating lease arrangements on the Company's consolidated balance sheet.
Reclassifications
Certain reclassifications have been made to the 2017 financial statements to conform to the 2018 presentation.
NOTE 3.    CHANGE IN ACCOUNTING POLICIES AND ATS ACQUISITION
Adoption of ASC 606 - Revenue from Contracts with Customers
On January 1, 2018, the Company adopted the guidance pursuant to ASC 606. The Company elected to apply the guidance on a full retrospective basis, which required the Company to reflect the impact of the updated guidance for all periods presented. The adoption of the guidance resulted in the deferral of certain installation revenue, the deferral of certain commission expenses, and a reduction of revenue due to the reclassification of certain third party giveaways and incentives from operating expense. Additionally, the Company made changes in the composition of revenue resulting from the allocation of value related to bundled services sold to residential customers at a discount.
Installation Services Revenue
Pursuant to ASC 606, the Company's installation services revenue is deferred and recognized over the benefit period. For residential customers, the benefit period is less than one year. For business and wholesale customers, the benefit period is the contract term. Prior to the adoption of ASC 606, the Company recognized installation services revenue for residential and small and medium-sized business ("SMB") customers when installations were completed. As a result of the deferral of installation services revenue for residential and SMB customers, the Company recognized contract liabilities of $6,978 and recorded a cumulative effect adjustment of $5,093 (net of tax of $1,885) to retained earnings. The accounting for installation services revenue related to business and wholesale customers has not changed.
Commission Expenses
Pursuant to ASC 606, the Company defers commission expenses related to obtaining a contract with a customer when the expected period of benefit is greater than one year and amortizes these costs over the average contract term. For commission expenses related to customer contracts with a term of one year or less, the Company is utilizing the practical expedient and is recognizing the costs when incurred.  Prior to the adoption of ASC 606, the Company recognized commission expenses related to the sale of its services when incurred. As a result of the change in the timing of recognition of these commission expenses, the Company recognized contract assets of $24,329 and recorded a cumulative effect adjustment of $17,759 (net of tax of $6,570) to retained earnings.


13



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except share and per share amounts)
(Unaudited)

Third Party Product Giveaways and Incentives
When the Company acts as the agent in providing certain product giveaways or incentives, revenue is recorded net of the costs of the giveaways and incentives. For the three and six months ended June 30, 2017, costs of $5,979 and $9,396, respectively for the giveaways and incentives recorded in other operating expense have been reclassified to revenue.
Bundled Services
The Company provides bundled services at a discounted rate to its customers. Under ASC 606, revenue should be allocated to separate performance obligations within a bundled offering based on the relative stand-alone selling price of each service within the bundle. In connection with the adoption of ASC 606, the Company revised the amounts allocated to each performance obligation within its bundled offerings which reduced previously reported revenue for telephony services and increased previously reported revenue allocated to pay television and broadband services.
Adoption of ASU No. 2017-07 - Compensation-Retirement Benefits (Topic 715)
On January 1, 2018, the Company adopted the guidance pursuant to ASU No. 2017‑07. ASU No. 2017‑07 requires that an employer disaggregate the service cost component from the other components of net benefit cost. In connection with the adoption of ASU No. 2017‑07, the Company retroactively reclassified certain pension costs from other operating expenses to other income (expense), net. The adoption of ASU No. 2017-07 had no impact on the Company's condensed consolidated balance sheet.
Acquisition of ATS
As discussed in Note 1, the Company completed the ATS Acquisition in the first quarter of 2018. ATS was previously owned by Altice N.V. and a member of ATS's management through a holding company. As the acquisition is a combination of businesses under common control, the Company combined the results of operations and related assets and liabilities of ATS for all periods since the formation of ATS, including goodwill of $23,101, representing the amount previously transferred to ATS.
The following table summarizes the impact of adopting ASC 606 and the impact of the ATS Acquisition on the Company's condensed consolidated balance sheet: 
 
December 31, 2017
 
As Reported
 
Impact of ASC 606
 
Impact of ATS Acquisition
 
As Adjusted
Cash and cash equivalents
$
273,329

 
$

 
$
56,519

 
$
329,848

Other current assets
580,231

 
14,068

 
(20,548
)
 
573,751

Property, plant and equipment, net
6,063,829

 

 
(40,003
)
 
6,023,826

Goodwill
7,996,760

 

 
23,101

 
8,019,861

Other assets, long-term
19,861,076

 
10,261

 
(6,541
)
 
19,864,796

Total assets
$
34,775,225

 
$
24,329

 
$
12,528

 
$
34,812,082

Current liabilities
$
2,492,983

 
$
6,978

 
$
20,401

 
$
2,520,362

Deferred tax liability, long-term
4,775,115

 
4,685

 
(10,514
)
 
4,769,286

Liabilities, long-term
21,779,997

 

 
6,394

 
21,786,391

Total liabilities
29,048,095

 
11,663

 
16,281

 
29,076,039

Redeemable equity
231,290

 

 

 
231,290

Paid-in capital
4,642,128

 

 
23,101

 
4,665,229

Retained earnings
854,824

 
12,666

 
(26,854
)
 
840,636

Total stockholders' equity
5,495,840

 
12,666

 
(3,753
)
 
5,504,753

Total liabilities and stockholders' equity
$
34,775,225

 
$
24,329

 
$
12,528

 
$
34,812,082



14



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except share and per share amounts)
(Unaudited)

The following table summarizes the impact of adopting ASC 606 and ASU No. 2017-07 and the impact of the ATS Acquisition on the Company's condensed consolidated statements of operations:
 
Three Months Ended June 30, 2017
 
As Reported
 
Impact of ASC 606
 
Impact of ASU No. 2017-07
 
Impact of ATS Acquisition
 
As Adjusted
Residential:
 
 
 
 
 
 
 
 
 
Pay TV
$
1,059,857

 
$
11,306

 
$

 
$

 
$
1,071,163

Broadband
629,416

 
13,204

 

 

 
642,620

Telephony
208,451

 
(30,190
)
 

 

 
178,261

Business services and wholesale
323,940

 
(299
)
 

 

 
323,641

Advertising
97,501

 

 

 

 
97,501

Other
9,176

 

 

 

 
9,176

Total revenue
2,328,341

 
(5,979
)
 

 

 
2,322,362

 
 
 
 
 

 
 
 

Programming and other direct costs
758,694

 

 

 

 
758,694

Other operating expenses
593,690

 
(5,979
)
 
(5,055
)
 
8,566

 
591,222

Restructuring and other expense
12,388

 

 

 

 
12,388

Depreciation and amortization
706,787

 

 

 
3

 
706,790

Operating income
256,782

 

 
5,055

 
(8,569
)
 
253,268

Other expense, net
(980,640
)
 

 
(5,055
)
 
1

 
(985,694
)
Loss before income taxes
(723,858
)
 

 

 
(8,568
)
 
(732,426
)
Income tax benefit
249,068

 

 

 
3,419

 
252,487

Net loss
$
(474,790
)
 
$

 
$

 
$
(5,149
)
 
$
(479,939
)

 
Six Months Ended June 30, 2017
 
As Reported
 
Impact of ASC 606
 
Impact of ASU No. 2017-07
 
Impact of ATS Acquisition
 
As Adjusted
Residential:
 
 
 
 
 
 
 
 
 
Pay TV
$
2,131,218

 
$
23,823

 
$

 
$

 
$
2,155,041

Broadband
1,241,185

 
27,353

 

 

 
1,268,538

Telephony
419,324

 
(60,102
)
 

 

 
359,222

Business services and wholesale
643,531

 
(470
)
 

 

 
643,061

Advertising
180,862

 

 

 

 
180,862

Other
17,897

 

 

 

 
17,897

Total revenue
4,634,017

 
(9,396
)
 

 

 
4,624,621

 
 
 
 
 
 
 
 
 
 
Programming and other direct costs
1,517,046

 

 

 

 
1,517,046

Other operating expenses
1,207,127

 
(9,396
)
 
(6,931
)
 
8,566

 
1,199,366

Restructuring and other expense
89,317

 

 

 

 
89,317

Depreciation and amortization
1,315,511

 

 

 
3

 
1,315,514

Operating income
505,016

 

 
6,931

 
(8,569
)
 
503,378

Other expense, net
(1,350,970
)
 

 
(6,931
)
 
1

 
(1,357,900
)
Loss before income taxes
(845,954
)
 

 

 
(8,568
)
 
(854,522
)
Income tax benefit
294,976

 

 

 
3,419

 
298,395

Net loss
$
(550,978
)
 
$

 
$

 
$
(5,149
)
 
$
(556,127
)


15



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except share and per share amounts)
(Unaudited)


NOTE 4.    NET LOSS PER SHARE ATTRIBUTABLE TO STOCKHOLDERS
Basic net loss per common share attributable to Altice USA stockholders is computed by dividing net loss attributable to Altice USA stockholders by the weighted average number of common shares outstanding during the period.  Diluted net loss per common share attributable to Altice USA stockholders excludes the effects of common stock equivalents as they are anti-dilutive.
The weighted average number of shares used to compute basic and diluted net loss per share for the three and six months ended June 30, 2017 reflect the retroactive impact of certain organizational transactions that occurred prior to the Company's IPO.
NOTE 5.    REVENUE AND CONTRACT ASSETS
Revenue Recognition
Residential Services
The Company derives revenue through monthly charges to residential customers of its pay television, broadband, and telephony services, including installation services. In addition, the Company derives revenue from digital video recorder ("DVR"), video-on-demand ("VOD"), pay‑per‑view, and home shopping commissions which are reflected in "Residential pay TV" revenues. The Company recognizes pay television, broadband, and telephony revenues as the services are provided to a customer on a monthly basis. Revenue from the sale of bundled services at a discounted rate is allocated to each product based on the standalone selling price of each performance obligation within the bundled offer. The standalone selling price requires judgment and is typically determined based on the current prices at which the separate services are sold by the Company. Installation revenue for the Company's residential services is deferred and recognized over the benefit period, which is estimated to be less than one year. The estimated benefit period takes into account both quantitative and qualitative factors including the significance of average installation fees to total recurring revenue per customer.
The Company is assessed non-income related taxes by governmental authorities, including franchising authorities (generally under multi-year agreements), and collects such taxes from its customers.  In instances where the tax is being assessed directly on the Company, amounts paid to the governmental authorities are recorded as programming and other direct costs and amounts received from the customers are recorded as revenue. For the three and six months ended June 30, 2018 the amount of franchise fees and certain other taxes and fees included as a component of revenue aggregated $63,362 and $127,192, respectively. For the three and six months ended June 30, 2017 the amount of franchise fees and certain other taxes and fees included as a component of revenue aggregated $64,804 and $129,790, respectively.
Business and Wholesale Services
The Company derives revenue from the sale of products and services to both large enterprise and SMB customers, including broadband, telephony, networking, and pay television services reflected in "Business services and wholesale" revenues. The Company's business services also include Ethernet, data transport, and IP-based virtual private networks. The Company also provides managed services to businesses, including hosted telephony services (cloud based SIP-based private branch exchange), managed Wi-Fi, managed desktop and server backup and managed collaboration services including audio and web conferencing. The Company also offers fiber-to-the-tower services to wireless carriers for cell tower backhaul and enable wireline communications service providers to connect to customers that their own networks do not reach. The Company recognizes revenues for these services as the services are provided to a customer on a monthly basis.
Substantially all of our SMB customers are billed monthly and large enterprise customers are billed in accordance with the terms of their contracts which is typically also on a monthly basis. Contracts with large enterprise customers typically range from three to five years. Installation revenue related to our large enterprise customers is deferred and recognized over the average contract term. Installation revenue related to SMB customers is deferred and recognized over the benefit period, which is less than a year. The estimated benefit period for SMB customers takes into account both quantitative and qualitative factors including the significance of average installation fees to total recurring revenue per customer.


16



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except share and per share amounts)
(Unaudited)

Advertising
As part of the agreements under which the Company acquires pay television programming, the Company typically receives an allocation of scheduled advertising time during such programming into which the Company's cable systems can insert commercials. In several of the markets in which the Company operates, it has entered into agreements commonly referred to as interconnects with other cable operators to jointly sell local advertising. In some of these markets, the Company represents the advertising sales efforts of other cable operators; in other markets, other cable operators represent the Company. Advertising revenues are recognized when commercials are aired. Arrangements in which the Company controls the sale of advertising and acts as the principal to the transaction, the Company recognizes revenue earned from the advertising customer on a gross basis and the amount remitted to the distributor as an operating expense. Arrangements in which the Company does not control the sale of advertising and acts as an agent to the transaction, the Company recognizes revenue net of any fee remitted to the distributor.
The Company's advanced advertising businesses provide data-driven, audience-based advertising solutions using advanced analytics tools that provide granular measurement of consumer groups, accurate hyper-local ratings and other insights into target audience behavior not available through traditional sample-based measurement services. Revenue earned from the Company's advanced advertising businesses are recognized when services are provided.
Other
Revenues derived from other sources are recognized when services are provided or events occur.
Contract Assets
Incremental costs incurred in obtaining a contract with a customer are deferred and recorded as a contract asset if the period of benefit is expected to be greater than one year. Sales commissions for enterprise and certain SMB customers are deferred and amortized over the average contract term. For sales commission expenses related to residential and SMB customers with a term of one year or less, the Company is utilizing the practical expedient and is recognizing the costs when incurred.  Cost of fulfilling a contract with a customer are deferred and recorded as a contract asset if they generate or enhance resources of the Company that will be used in satisfying future performance obligations and are expected to be recovered. Installation costs related to residential and SMB customers that are not capitalized as part of the initial deployment of new customer premise equipment are expensed as incurred pursuant to industry-specific guidance.
The following table provides information about contracts assets and contract liabilities related to contracts with customers:
 
June 30, 2018
 
December 31, 2017,
as adjusted
Contract assets (a)
$
24,358

 
$
24,329

Deferred revenue (b)
138,165

 
117,679

 
(a)
Contract assets include primarily sales commissions for enterprise customers that are deferred and amortized over the average contract term.
(b)
Deferred revenue represents payments received from customers for services that have yet to be provided and installation revenue which is deferred and recognized over the benefit period. The majority of the Company's deferred revenue represents payments for services for up to one month in advance from residential and SMB customers which is realized within the following month as services are performed.
A significant portion of our revenue is derived from residential and SMB customer contracts which are month-to month. As such, the amount of revenue related to unsatisfied performance obligations is not necessarily indicative of the future revenue to be recognized from our existing customer base. Contracts with enterprise customers generally range from three to five years, and services may only be terminated in accordance with the contractual terms.
NOTE 6.    SUPPLEMENTAL CASH FLOW INFORMATION
The Company considers the balance of its investment in funds that substantially hold securities that mature within three months or less from the date the fund purchases these securities to be cash equivalents.  The carrying amount of cash


17



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except share and per share amounts)
(Unaudited)

and cash equivalents either approximates fair value due to the short-term maturity of these instruments or are at fair value.
The Company's non-cash investing and financing activities and other supplemental data were as follows:
 
Six Months Ended June 30,
 
2018
 
2017
Non-Cash Investing and Financing Activities:
 
 
 
Continuing Operations:
 
 
 
Conversion of notes payable to affiliates and related parties of $1,750,000 (together with accrued and unpaid interest and applicable premium) to common stock (See Note 9)
$

 
$
2,264,252

Property and equipment accrued but unpaid
120,958

 
87,003

Notes payable issued to vendor for the purchase of equipment
44,466

 

Capital lease obligations
1,349

 

Leasehold improvements paid by landlord
350

 

Supplemental Data:
 
 
 
Cash interest paid
732,231

 
1,000,276

Income taxes paid, net
8,940

 
19,442

 
The Company’s previously reported statement of cash flows for the three months ended March 31, 2017 reflected distributions to stockholders of $79,617 in cash flows from operating activities. These distributions should have been reflected in cash flows from financing activities.
NOTE 7.    RESTRUCTURING COSTS AND OTHER EXPENSE
Restructuring
Beginning in the first quarter of 2016, the Company commenced its restructuring initiatives (the "2016 Restructuring Plan") that are intended to simplify the Company's organizational structure.
The following table summarizes the activity for the 2016 Restructuring Plan during 2018:
 
 
 
Severance and Other Employee Related Costs
 
Facility Realignment and Other Costs
 
Total
Accrual balance at December 31, 2017
$
113,474

 
$
9,626

 
$
123,100

Restructuring charges
4,182

 
3,334

 
7,516

Payments and other
(65,692
)
 
(5,853
)
 
(71,545
)
Accrual balance at June 30, 2018
$
51,964

 
$
7,107

 
$
59,071

The Company recorded restructuring charges of $12,246 and $88,997 for the three and six months ended June 30, 2017 relating to the 2016 Restructuring Plan.
Cumulative costs through June 30, 2018 relating to the 2016 Restructuring Plan amounted to $315,319 and $68,696 for our Cablevision and Cequel segments, respectively.
Transaction Costs
The Company incurred transaction costs of $3,496 and $5,762 for the three and six months ended June 30, 2018 relating to the Distribution discussed in Note 1 and $142 and $320 for the three and six months ended June 30, 2017 related to the acquisition of a business.



18


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except share and per share amounts)
(Unaudited)

NOTE 8.    INTANGIBLE ASSETS
The following table summarizes information relating to the Company's acquired amortizable intangible assets: 
 
June 30, 2018
 
December 31, 2017
 
 
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
Estimated Useful Lives
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Customer relationships
$
5,970,884

 
$
(1,797,079
)
 
$
4,173,805

 
$
5,970,884

 
$
(1,409,021
)
 
$
4,561,863

 
8 to 18 years
Trade names
1,067,083

 
(654,498
)
 
412,585

 
1,067,083

 
(588,574
)
 
478,509

 
2 to 5 years
Other amortizable intangibles
37,060

 
(14,865
)
 
22,195

 
37,060

 
(10,978
)
 
26,082

 
1 to 15 years
 
$
7,075,027

 
$
(2,466,442
)
 
$
4,608,585

 
$
7,075,027

 
$
(2,008,573
)
 
$
5,066,454

 
 
Amortization expense for the three and six months ended June 30, 2018 aggregated to $226,052 and $457,869, respectively, and for the three and six months ended June 30, 2017 aggregated $317,219 and $555,238, respectively.
The following table summarizes information relating to the Company's acquired indefinite-lived intangible assets:
 
June 30, 2018
 
December 31, 2017
 
Cablevision
 
Cequel
 
Total
 
Cablevision
 
Cequel
 
Total
Cable television franchises
$
8,113,575

 
$
4,906,506

 
$
13,020,081

 
$
8,113,575

 
$
4,906,506

 
$
13,020,081

Goodwill
5,866,108

 
2,138,700

 
8,004,808

 
5,866,120

 
2,153,741

 
8,019,861

Total
$
13,979,683

 
$
7,045,206

 
$
21,024,889

 
$
13,979,695

 
$
7,060,247

 
$
21,039,942

The carrying amount of goodwill is presented below:
Gross goodwill as of December 31, 2017, as reported
$
7,996,760

ATS goodwill included in Cablevision segment (See Note 3 for further details)
23,101

Gross goodwill as of December 31, 2017, as adjusted
8,019,861

Adjustment to purchase accounting relating to business acquired in fourth quarter of 2017
(12
)
Reclassification of Cequel segment goodwill to property, plant and equipment
(15,041
)
Net goodwill as of June 30, 2018
$
8,004,808



19



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except share and per share amounts)
(Unaudited)

NOTE 9.    DEBT
The following table provides details of the Company's outstanding credit facility debt:
 
 
 
 
 
June 30, 2018
 
December 31, 2017
 
Maturity Date
 
Interest Rate
 
Principal Amount
 
Carrying Amount (a)
 
Principal Amount
 
Carrying Amount (a)
CSC Holdings Restricted Group:
 
 
 
 
 
 
 
 
 
 
Revolving Credit Facility (b)
$20,000 on October 9, 2020, remaining balance on November 30, 2021
 
—%
 
$

 
$

 
$
450,000

 
$
425,488

Term Loan Facility
July 17, 2025
 
4.32%
 
2,970,000

 
2,953,265

 
2,985,000

 
2,967,818

Incremental Term Loan Facility
January 25, 2026
 
4.57%
 
1,500,000

 
1,482,214

 

 

Cequel:
 
 
 
 
 
 
 
 
 
 
 
Revolving Credit Facility (c)
$65,000 on November 30, 2021, and remaining balance on April 5, 2023
 
—%
 

 

 

 

Term Loan Facility
July 28, 2025
 
4.34%
 
1,252,350

 
1,244,153

 
1,258,675

 
1,250,217

 
 
 
 
 
$
5,722,350

 
5,679,632

 
$
4,693,675

 
4,643,523

Less: Current portion
 
 
 
53,900

 
 
 
42,650

Long-term debt
 
 
 
$
5,625,732

 
 
 
$
4,600,873


(a)
The carrying amount is net of the unamortized deferred financing costs and/or discounts/premiums.
(b)
At June 30, 2018, $138,323 of the revolving credit facility was restricted for certain letters of credit issued on behalf of the Company and $2,161,677 of the facility was undrawn and available, subject to covenant limitations.
(c)
At June 30, 2018, $7,636 of the revolving credit facility was restricted for certain letters of credit issued on behalf of the Company and $342,364 of the facility was undrawn and available, subject to covenant limitations.
In January 2018, CSC Holdings borrowed $150,000 under its revolving credit facility and entered into a new $1,500,000 incremental term loan facility (the "Incremental Term Loan") under its existing credit facilities agreement. The Incremental Term Loan was priced at 99.5% and will mature on January 25, 2026. The Incremental Term Loan is comprised of eurodollar borrowings or alternate base rate borrowings, and bears interest at a rate per annum equal to the adjusted LIBO rate or the alternate base rate, as applicable, plus the applicable margin, where the applicable margin is (i) with respect to any alternate base rate loan, 1.50% per annum and (ii) with respect to any eurodollar loan, 2.50% per annum.
The Company made a voluntary repayment of $600,000 under the CSC Holdings revolving credit facility in January 2018.
On March 22, 2018, Altice US Finance I Corporation, an indirect wholly-owned subsidiary of the Company, entered into a Fourth Amendment to Cequel Credit Agreement (Extension Amendment), by and among the borrower, the Revolving Consent Lenders (as defined in the Fourth Amendment) and JPMorgan Chase Bank, N.A., as administrative agent for the lenders (the “Fourth Amendment”).  The Fourth Amendment amends and supplements the Borrower’s credit agreement, dated as of June 12, 2015, as amended by the first amendment (refinancing amendment), dated as of October 25, 2016, the second amendment (extension amendment), dated as of December 9, 2016, and the third amendment (incremental loan assumption agreement and refinancing amendment), dated as of March 15, 2017, (as so amended and as may be further amended, restated, modified or supplemented from time to time and as further amended by the Fourth Amendment among, inter alios, the borrower, the lenders party thereto and the administrative agent.
The Fourth Amendment extends the maturity date of the revolving loans and/or commitments of the Revolving Consent Lenders to April 5, 2023. The Fourth Amendment and the extended maturity date will not apply to the revolving loans and/or commitments of revolving lenders under the Cequel Credit Agreement that are not Revolving Consent Lenders.
As of June 30, 2018, the Company was in compliance with all of its financial covenants under the CSC Holdings credit facilities agreement and the Cequel credit facilities agreement.


20



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except share and per share amounts)
(Unaudited)

Senior Guaranteed Notes, Senior Secured Notes and Senior Notes and Debentures
The following table summarizes the Company's senior guaranteed notes, senior secured notes and senior notes and debentures:
 
 
 
 
 
 
 
 
June 30, 2018
 
December 31, 2017
Date Issued
 
Maturity Date
 
Interest Rate
 
 
 
Principal Amount
 
Carrying Amount (a)
 
Principal Amount
 
Carrying Amount (a)
CSC Holdings Senior Notes:
 
 
 
 
 
 
 
 
 
February 6, 1998
 
February 15, 2018
 
7.875
%
(b)
(f)
(o)
$

 
$

 
$
300,000

 
$
301,184

July 21, 1998
 
July 15, 2018
 
7.625
%
(b)
(f)
(q)
500,000

 
500,600

 
500,000

 
507,744

February 12, 2009
 
February 15, 2019
 
8.625
%
(c)
(f)
 
526,000

 
534,611

 
526,000

 
541,165

November 15, 2011
 
November 15, 2021
 
6.750
%
(c)
(f)
 
1,000,000

 
964,587

 
1,000,000

 
960,146

May 23, 2014
 
June 1, 2024
 
5.250
%
(c)
(f)
 
750,000

 
666,063

 
750,000

 
660,601

October 9, 2015
 
January 15, 2023
 
10.125
%
(e)
 
 
1,800,000

 
1,779,609

 
1,800,000

 
1,777,914

October 9, 2015
 
October 15, 2025
 
10.875
%
(e)
(l)
 
1,684,221

 
1,662,002

 
1,684,221

 
1,661,135

CSC Holdings Senior Guaranteed Notes:
 
 
 
 
 
 
 
 
 
October 9, 2015

October 15, 2025

6.625
%
(e)


1,000,000


987,368


1,000,000


986,717

September 23, 2016

April 15, 2027

5.500
%
(g)


1,310,000


1,304,697


1,310,000


1,304,468

January 29, 2018

February 1, 2028

5.375
%
(n)


1,000,000


991,730





Cablevision Senior Notes (k):
 
 
 
 
 
 
 
 
 
April 15, 2010

April 15, 2018

7.750
%
(c)
(f)
(o)




750,000


754,035

April 15, 2010

April 15, 2020

8.000
%
(c)
(f)
 
500,000


493,606


500,000


492,009

September 27, 2012

September 15, 2022

5.875
%
(c)
(f)
 
649,024


578,734


649,024


572,071

Cequel and Cequel Capital Senior Notes (l):
 
 
 
 
 
 
 
 
 
Oct. 25, 2012 Dec. 28, 2012
 
September 15, 2020
 
6.375
%
(d)
(m)
 

 

 
1,050,000

 
1,027,493

May 16, 2013 Sept. 9, 2014
 
December 15, 2021
 
5.125
%
(d)
 
 
1,250,000

 
1,151,107

 
1,250,000

 
1,138,870

June 12, 2015
 
July 15, 2025
 
7.750
%
(i)
 
 
620,000

 
605,143

 
620,000

 
604,374

April 5, 2018

April 1, 2028

7.500
%
(p)


1,050,000


1,048,185





Altice US Finance I Corporation Senior Secured Notes (l):
 
 
 
 
 
 
 
June 12, 2015
 
July 15, 2023
 
5.375
%
(h)
 
 
1,100,000

 
1,083,846

 
1,100,000

 
1,082,482

April 26, 2016
 
May 15, 2026
 
5.500
%
(j)
 
 
1,500,000

 
1,488,592

 
1,500,000

 
1,488,024

 
 
 
 
 
 
 
 
$
16,239,245

 
15,840,480

 
$
16,289,245

 
15,860,432

Less: current portion
 
 
1,035,212

 
 
 
507,744

Long-term debt
 
 
$
14,805,268

 
 
 
$
15,352,688

 
(a)
The carrying amount is net of the unamortized deferred financing costs and/or discounts/premiums.
(b)
The debentures are not redeemable by CSC Holdings prior to maturity.
(c)
Notes are redeemable at any time at a specified "make-whole" price plus accrued and unpaid interest to the redemption date.
(d)
The Company may redeem some or more of all the notes at the redemption price set forth in the relevant indenture, plus accrued and unpaid interest.
(e)
The Company may redeem some or all of the 2023 Notes at any time on or after January 15, 2019, and some or all of the 2025 Notes and 2025 Guaranteed Notes at any time on or after October 15, 2020, at the redemption prices set forth in the relevant indenture, plus accrued and unpaid interest, if any.  The Company may also redeem up to 40% of each series of


21



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except share and per share amounts)
(Unaudited)

the notes using the proceeds of certain equity offerings before October 15, 2018, at a redemption price equal to 110.125% for the 2023 Notes, 110.875% for the 2025 Notes and 106.625% for the 2025 Guaranteed Notes, in each case plus accrued and unpaid interest. In addition, at any time prior to January 15, 2019, CSC Holdings may redeem some or all of the 2023 Notes, and at any time prior to October 15, 2020, the Company may redeem some or all of the 2025 Notes and the 2025 Guaranteed Notes, at a price equal to 100% of the principal amount thereof, plus a “make whole” premium specified in the relevant indenture plus accrued and unpaid interest.
(f)
The carrying value of the notes was adjusted to reflect their fair value on the date of the Cablevision Acquisition (aggregate reduction of $52,788).
(g)
The 2027 Guaranteed Notes are redeemable at any time on or after April 15, 2022 at the redemption prices set forth in the indenture, plus accrued and unpaid interest, if any.  In addition, up to 40% may be redeemed for each series of the 2027 Guaranteed Notes using the proceeds of certain equity offerings before October 15, 2019, at a redemption price equal to 105.500%, plus accrued and unpaid interest.
(h)
Some or all of these notes may be redeemed at any time on or after July 15, 2018, plus accrued and unpaid interest, if any. Up to 40% of the notes may be redeemed using the proceeds of certain equity offerings before July 15, 2018, at a redemption price equal to 105.375%.
(i)
Some or all of these notes may be redeemed at any time on or after July 15, 2020, plus accrued and unpaid interest, if any. Up to 40% of the notes may be redeemed using the proceeds of certain equity offerings before July 15, 2018, at a redemption price equal to 107.750%.
(j)
Some or all of these notes may be redeemed at any time on or after May 15, 2021, plus accrued and unpaid interest, if any. Up to 40% of the notes may be redeemed using the proceeds of certain equity offerings before May 15, 2019, at a redemption price equal to 105.500%.
(k)
The issuers of these notes have no ability to service interest or principal on the notes, other than through any dividends or distributions received from CSC Holdings. CSC Holdings is restricted, in certain circumstances, from paying dividends or distributions to the issuers by the terms of the CSC Holdings credit facilities agreement.
(l)
The issuers of these notes have no ability to service interest or principal on the notes, other than through any contributions/distributions from Cequel Communications, LLC (an indirect subsidiary of Cequel and the parent of Altice US Finance I). Cequel Communications, LLC is restricted in certain circumstances, from paying dividends or distributions to the issuers by the terms of the Cequel credit facilities agreement.
(m)
These notes were repaid in April 2018 with the proceeds from the issuance of new senior notes.
(n)
The 2028 Guaranteed Notes are redeemable at any time on or after February 1, 2023 at the redemption prices set forth in the indenture, plus accrued and unpaid interest, if any.  In addition, up to 40% of the original aggregate principal amount of the notes may be redeemed using the proceeds of certain equity offerings before February 1, 2021, at a redemption price equal to 105.375%, plus accrued and unpaid interest.
(o)
These notes were repaid in February 2018 with the proceeds from the 2028 Guaranteed Notes (defined below) and with the proceeds from the Incremental Term Loan.
(p)
The 2028 Senior Notes are redeemable at any time prior to April 1, 2023 at a redemption price equal to 100% of the principal amount thereof plus the applicable premium plus accrued and unpaid interest, if any. Up to 40% of the original aggregate principal amount of the 2028 Senior Notes may be redeemed using the proceeds of certain equity offerings before April 1, 2021, at a redemption price equal to 107.50% of the principal amount, plus accrued and unpaid interest. In addition, the 2028 Senior Notes are redeemable at any time on or after April 1, 2023 at the redemption prices set forth in indenture, plus accrued and unpaid interest.
(q)
These notes were repaid in July 2018 with borrowings under CSC Holdings revolving credit facility agreement (see Note 17).
In January 2018, CSC Holdings issued $1,000,000 aggregate principal amount of 5.375% senior guaranteed notes due February 1, 2028 (the "2028 Guaranteed Notes"). The 2028 Guaranteed Notes are senior unsecured obligations and rank pari passu in right of payment with all of the existing and future senior indebtedness, including the existing senior notes and the CVC Credit Facilities and rank senior in right of payment to all of existing and future subordinated indebtedness.
The proceeds from the 2028 Guaranteed Notes, together with proceeds from the Incremental Term Loan (discussed above), borrowings under the CVC revolving credit facility and cash on hand, were used in February 2018 to repay $300,000 principal amount of CSC Holdings' senior notes due in February 2018 and $750,000 principal amount of Cablevision senior notes due in April 2018 and a portion was used to fund the dividend of $1,499,935 to the Company's stockholders immediately prior to and in connection with the Distribution discussed in Note 1. In connection with the redemption of Cablevision senior notes, the Company paid a call premium of approximately $7,019, which was recorded as a loss on extinguishment of debt and also recorded a write-off of the unamortized premium of $2,314.


22



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except share and per share amounts)
(Unaudited)

In April 2018, Cequel Communications Holdings I, LLC and Cequel Capital Corporation each an indirect, wholly owned subsidiary of the Company, issued $1,050,000 aggregate principal amount of 7.50% senior notes due April 1, 2028 (the "2028 Senior Notes"). The proceeds of these notes were used in April 2018 to redeem the $1,050,000 aggregate principal amount 6 3/8% senior notes due September 15, 2020. In connection with the redemption of these notes, the Company paid a call premium of approximately $16,737, which was recorded as a loss on extinguishment of debt and also recorded a write-off of deferred financings costs aggregating $20,173.
The indentures under which the senior notes and debentures were issued contain various covenants.  The Company was in compliance with all of its financial covenants under these indentures as of June 30, 2018.
Notes Payable to Affiliates and Related Parties
On June 21, 2016, in connection with the Cablevision acquisition, the Company issued notes payable to affiliates and related parties aggregating $1,750,000, of which $875,000 bore interest at 10.75% and matured on December 20, 2023 and $875,000 bore interest at 11% and matured on December 20, 2024.
In connection with the Company's IPO in June 2017, the Company converted the notes payable to affiliates and related parties (together with accrued and unpaid interest of $529 and applicable premium of $513,723) into shares of the Company’s common stock at the IPO price. The premium was recorded as a loss on extinguishment of debt on the Company's statement of operations in the second quarter of 2017. In connection with the conversion of the notes, the Company recorded a credit to paid in capital of $2,264,252 in the second quarter of 2017.
For the three and six months ended June 30, 2017, the Company recognized $42,817 and $90,405 of interest expense related to these notes prior to their conversion.
Summary of Debt Maturities
The future maturities of debt payable by the Company under its various debt obligations outstanding as of June 30, 2018, including notes payable, collateralized indebtedness (see Note 10), and capital leases, are as follows:
Years Ending December 31,
Cablevision
 
Cequel
 
Total
2018
$
540,854

 
$
11,657

 
$
552,511

2019
595,243

 
43,984

 
639,227

2020
548,570

 
12,705

 
561,275

2021
2,506,990

 
1,262,715

 
3,769,705

2022
695,917

 
12,726

 
708,643

Thereafter
11,813,209

 
5,466,380

 
17,279,589

NOTE 10.    DERIVATIVE CONTRACTS AND COLLATERALIZED INDEBTEDNESS
Prepaid Forward Contracts
The Company has entered into various transactions to limit the exposure against equity price risk on its shares of Comcast Corporation ("Comcast") common stock.  The Company has monetized all of its stock holdings in Comcast through the execution of prepaid forward contracts, collateralized by an equivalent amount of the respective underlying stock.  At maturity, the contracts provide for the option to deliver cash or shares of Comcast stock with a value determined by reference to the applicable stock price at maturity.  These contracts, at maturity, are expected to offset declines in the fair value of these securities below the hedge price per share while allowing the Company to retain upside appreciation from the hedge price per share to the relevant cap price.  
The Company received cash proceeds upon execution of the prepaid forward contracts discussed above which has been reflected as collateralized indebtedness in the accompanying condensed consolidated balance sheets.  In addition, the Company separately accounts for the equity derivative component of the prepaid forward contracts.  These equity derivatives have not been designated as hedges for accounting purposes.  Therefore, the net fair values of the equity derivatives have been reflected in the accompanying condensed consolidated balance sheets as an asset or liability and the net increases or decreases in the fair value of the equity derivative component of the prepaid forward contracts are included in gain (loss) on derivative contracts in the accompanying condensed consolidated statements of operations.


23



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except share and per share amounts)
(Unaudited)

All of the Company's monetization transactions are obligations of its wholly-owned subsidiaries that are not part of the Restricted Group; however, CSC Holdings has provided guarantees of the subsidiaries' ongoing contract payment expense obligations and potential payments that could be due as a result of an early termination event (as defined in the agreements).  If any one of these contracts were terminated prior to its scheduled maturity date, the Company would be obligated to repay the fair value of the collateralized indebtedness less the sum of the fair values of the underlying stock and equity collar, calculated at the termination date.  As of June 30, 2018, the Company did not have an early termination shortfall relating to any of these contracts.
The Company monitors the financial institutions that are counterparties to its equity derivative contracts.  All of the counterparties to such transactions carry investment grade credit ratings as of June 30, 2018.
Interest Rate Swap Contracts
In May 2018, the Company entered into two interest rate swap contracts whereby one contract converts the interest rate on $2,970,000 of the CSC Holdings Term Loan Facility from a one-month LIBO rate to a three-month LIBO rate minus 0.226% and the second contract converts the interest rate on $1,496,250 of the CSC Holdings Incremental Term Loan from a one-month LIBO rate to a three-month LIBO rate minus 0.226%. The objective of these swaps is to potentially pay a lower interest rate than what the Company can elect under the terms of the CSC Holdings credit facilities agreement.
In April 2018, the Company entered into an interest rate swap contract which converts the interest rate on $1,255,513 of the Cequel Term Loan B from a one-month LIBO rate to a three-month LIBO rate minus 0.225%. The objective of this swap is to potentially pay a lower interest rate than what the Company can elect under the terms of the Cequel credit facilities agreement.
In June 2016, the Company entered into two fixed to floating interest rate swap contracts. One fixed to floating interest rate swap is converting $750,000 from a fixed rate of 1.6655% to a six-month LIBO rate and a second tranche of $750,000 from a fixed rate of 1.68% to a six-month LIBO rate. The objective of these swaps is to adjust the proportion of total debt that is subject to fixed and variable interest rates.
These swap contracts were not designated as hedges for accounting purposes. Accordingly, the changes in the fair value of these interest rate swap contracts are recorded through the statements of operations.
The Company does not hold or issue derivative instruments for trading or speculative purposes.
The following represents the location of the assets and liabilities associated with the Company's derivative instruments within the condensed consolidated balance sheets:
 
 
 
 
Asset Derivatives
 
Liability Derivatives
Derivatives Not Designated as Hedging Instruments
 
Balance Sheet
Location
 
Fair Value at June 30, 2018
 
Fair Value at December 31, 2017
 
Fair Value at June 30, 2018
 
Fair Value at December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
Interest rate swap contracts
 
Derivative contracts, current
 
$
369

 
$

 
$

 
$