Document

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



	For the quarterly period ended	June 30, 2019



☐	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				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	☒	No	☐



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	☒	No	☐



	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	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
(Do not check if a smaller reporting company)		Emerging growth company	☐



If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐



Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act).	Yes	☐	No	☒

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol	Name of each exchange on which registered
Class A Common Stock, par value $0.01 per share	ATUS	New York Stock Exchange



Number of shares of common stock outstanding as of July 26, 2019:	647,731,515



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
	Consolidated Balance Sheets - June 30, 2019 (Unaudited) and December 31, 2018	4
	Consolidated Statements of Operations - Three and six months ended June 30, 2019 and 2018 (Unaudited)	6
	Consolidated Statements of Comprehensive Income (Loss) - Three and six months ended June 30, 2019 and 2018 (Unaudited)	7
	Consolidated Statements of Stockholders’ Equity - Three and six months ended June 30, 2019 and 2018 (Unaudited)	8
	Consolidated Statements of Cash Flows - Six months ended June 30, 2019 and 2018 (Unaudited)	11

	Notes to Consolidated Financial Statements (Unaudited)	13

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		32

Item 3. Quantitative and Qualitative Disclosures About Market Risk		46

Item 4. Controls and Procedures		48

PART II. OTHER INFORMATION

Item 1. Legal Proceedings		48

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		49

Item 6. Exhibits		50

SIGNATURES		51

PART I. FINANCIAL INFORMATION

This Form 10-Q contains statements that constitute forward-looking information within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act and Section 21E of the Securities Act of 1934, as amended. In this Form 10-Q there are statements concerning our future operating results and future financial performance. Words such as "expects", "anticipates", "believes", "estimates", "may", "will", "should", "could", "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. Investors are cautioned that such forward-looking statements are not guarantees of future performance, results or events and involve risks and uncertainties and that actual results or developments may differ materially from the forward-looking statements as a result of various factors.

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, video and telephony customers from existing competitors (such as broadband communications companies, wireless data and telephony providers, 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 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, and our ability to attract customers to these services;


•	the effects of economic conditions or other factors which may negatively affect our customers’ demand for our current and future products and services;


•	the effects of industry conditions;


•	demand for digital and linear advertising products and services;


•	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;


•	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 Europe; 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" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") filed on March 1, 2019 (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 Annual 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.

Item 1. Financial Statements



ALTICE USA, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands)
ASSETS	June 30, 2019 (Unaudited)		December 31, 2018
Current Assets:
Cash and cash equivalents	$	138,715	$	298,781
Restricted cash	260		257
Accounts receivable, trade (less allowance for doubtful accounts of $15,881 and $13,520)	420,321		448,399
Prepaid expenses and other current assets	182,401		136,285
Amounts due from affiliates	1,222		17,557
Derivative contracts	—		1,975
Total current assets	742,919		903,254
Property, plant and equipment, net of accumulated depreciation of $4,704,512 and $4,044,671	5,814,965		5,828,881
Right-of-use operating lease assets	289,932		—
Investment securities pledged as collateral	1,816,147		1,462,626
Derivative contracts	—		109,344
Other assets	92,518		84,382
Amortizable intangibles, net of accumulated amortization of $3,284,685 and $2,882,787	3,865,003		4,192,824
Indefinite-lived cable television franchises	13,020,081		13,020,081
Goodwill	8,138,086		8,012,416
Total assets	$	33,779,651	$	33,613,808

See accompanying notes to consolidated financial statements.

ALTICE USA, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (continued) (In thousands, except share and per share amounts)

LIABILITIES AND STOCKHOLDERS' EQUITY	June 30, 2019 (Unaudited)			December 31, 2018
Current Liabilities:
Accounts payable	$	909,120		$	857,502
Interest payable	335,063			386,475
Accrued employee related costs	133,817			139,806
Amounts due to affiliates	6,479			26,096
Deferred revenue	141,546			140,053
Debt	660,223			158,625
Other current liabilities	332,692			312,634
Total current liabilities	2,518,940			2,021,191
Other liabilities	238,872			271,554
Deferred tax liability	4,765,958			4,723,937
Liabilities under derivative contracts	289,156			132,908
Right-of-use operating lease liability	277,744			—
Long-term debt, net of current maturities	22,980,286			22,653,975
Total liabilities	31,070,956			29,803,565
Commitments and contingencies (Note 16)
Redeemable equity	174,931			130,007
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, 468,084,705 shares issued and 468,068,226 shares outstanding as of June 30, 2019 and 496,064,027 shares issued and outstanding as of December 31, 2018	4,681			4,961
Class B common stock: $0.01 par value, 1,000,000,000 shares authorized, 490,086,674 shares issued and 187,157,804 shares outstanding as of June 30, 2019 and 212,976,259 shares outstanding as of December 31, 2018	1,872			2,130
Class C common stock: $0.01 par value, 4,000,000,000 shares authorized, no shares issued and outstanding	—			—
Paid-in capital	2,220,348			3,423,803
Retained earnings	313,198			251,830
	2,540,099			3,682,724
Treasury stock, at cost (16,479 Altice USA Class A common shares)	—			—
Accumulated other comprehensive loss	(14,474		)	(11,783		)
Total stockholders' equity	2,525,625			3,670,941
Noncontrolling interest	8,139			9,295
Total stockholders' equity	2,533,764			3,680,236
	$	33,779,651		$	33,613,808

See accompanying notes to consolidated financial statements.

ALTICE USA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Revenue (including revenue from affiliates of $496, $727, $1,088 and $852, respectively) (See Note 15)	$	2,451,081		$	2,364,153		$	4,847,648		$	4,693,867
Operating expenses:
Programming and other direct costs (including charges from affiliates of $2,087, $3,865, $3,774 and $5,019 respectively) (See Note 15)	818,994			795,127			1,631,979			1,582,488
Other operating expenses (including charges from affiliates of $2,020, $6,255, $4,266 and $14,249, respectively) (See Note 15)	569,459			575,749			1,133,891			1,158,772
Restructuring and other expense	11,465			9,691			26,709			13,278
Depreciation and amortization (including impairments)	568,620			648,527			1,130,048			1,291,232
	1,968,538			2,029,094			3,922,627			4,045,770
Operating income	482,543			335,059			925,021			648,097
Other income (expense):
Interest expense	(381,218		)	(390,543		)	(769,501		)	(767,801		)
Interest income	605			5,313			2,424			8,416
Gain (loss) on investments and sale of affiliate interests, net	103,146			(45,113		)	357,871			(293,715		)
Gain (loss) on derivative contracts, net	(49,624		)	42,159			(226,653		)	210,511
Loss on interest rate swap contracts	(26,900		)	(12,929		)	(50,572		)	(44,851		)
Loss on extinguishment of debt and write-off of deferred financing costs	(1,194		)	(36,911		)	(159,096		)	(41,616		)
Other income (expense), net	212			(629		)	292			(12,287		)
	(354,973		)	(438,653		)	(845,235		)	(941,343		)
Income (loss) before income taxes	127,570			(103,594		)	79,786			(293,246		)
Income tax benefit (expense)	(41,160		)	5,590			(18,574		)	66,293
Net income (loss)	86,410			(98,004		)	61,212			(226,953		)
Net loss (income) attributable to noncontrolling interests	(43		)	149			156			147
Net income (loss) attributable to Altice USA, Inc. stockholders	$	86,367		$	(97,855	)	$	61,368		$	(226,806	)
Income (loss) per share:
Basic income (loss) per share	$	0.13		$	(0.13	)	$	0.09		$	(0.31	)
Basic weighted average common shares (in thousands)	668,031			737,069			681,703			737,069

Diluted income (loss) per share:	$	0.13		$	(0.13	)	$	0.09		$	(0.31	)
Diluted weighted average common shares (in thousands)	668,648			737,069			682,014			737,069
Cash dividends declared per common share	$	—		$	—		$	—		$	—

See accompanying notes to consolidated financial statements.

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

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Net income (loss)	$	86,410		$	(98,004	)	$	61,212		$	(226,953	)
Other comprehensive income (loss):
Defined benefit pension plans:
Unrecognized actuarial gain (loss)	(8,567		)	(359		)	(3,648		)	4,192
Applicable income taxes	2,282			97			989			(1,131		)
Unrecognized actuarial gain (loss) arising during period, net of income taxes	(6,285		)	(262		)	(2,659		)	3,061
Settlement loss included in other expense, net	367			258			538			864
Applicable income taxes	(101		)	(70		)	(147		)	(234		)
Settlement loss included in other expense, net, net of income taxes	266			188			391			630
Foreign currency translation adjustment	(336		)	914			(580		)	914
Applicable income taxes	93			(338		)	157			(338		)
Foreign currency translation adjustment, net	(243		)	576			(423		)	576
Other comprehensive income (loss)	(6,262		)	502			(2,691		)	4,267
Comprehensive income (loss)	80,148			(97,502		)	58,521			(222,686		)
Comprehensive loss (income) attributable to noncontrolling interests	(43		)	149			156			147
Comprehensive income (loss) attributable to Altice USA, Inc. stockholders	$	80,105		$	(97,353	)	$	58,677		$	(222,539	)

See accompanying notes to consolidated financial statements.



ALTICE USA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (In thousands) (Unaudited)
	Class A Common Stock			Class B Common Stock			Paid-in Capital			Retained Earnings			Treasury Stock		Accumulated Other Comprehensive Loss			Total Stockholders' Equity			Non-controlling Interest			Total Equity
Balance at January 1, 2019	$	4,961		$	2,130		$	3,423,803		$	251,830		$	—	$	(11,783	)	$	3,670,941		$	9,295		$	3,680,236
Net loss attributable to stockholders	—			—			—			(24,999		)	—		—			(24,999		)	—			(24,999		)
Net loss attributable to noncontrolling interests	—			—			—			—			—		—			—			(199		)	(199		)
Distributions from noncontrolling interests	—			—			—			—			—		—			—			(1,000		)	(1,000		)
Pension liability adjustments, net of income taxes	—			—			—			—			—		3,752			3,752			—			3,752
Foreign currency translation adjustment, net of income taxes	—			—			—			—			—		(181		)	(181		)	—			(181		)
Share-based compensation expense	—			—			13,790			—			—		—			13,790			—			13,790
Redeemable equity vested	—			—			1,364			—			—		—			1,364			—			1,364
Change in redeemable equity	—			—			(61,696		)	—			—		—			(61,696		)	—			(61,696		)
Class A shares acquired through share repurchase program and retired	(294		)	—			(599,707		)	—			—		—			(600,001		)	—			(600,001		)
Conversion of Class B to Class A shares	242			(242		)	—			—			—		—			—			—			—
Balance at March 31, 2019	$	4,909		$	1,888		$	2,777,554		$	226,831		$	—	$	(8,212	)	$	3,002,970		$	8,096		$	3,011,066
See accompanying notes to consolidated financial statements.



ALTICE USA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (In thousands) (Unaudited)
	Class A Common Stock			Class B Common Stock			Paid-in Capital			Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Loss			Total Stockholders' Equity			Non-controlling Interest		Total Equity
Balance at March 31, 2019	$	4,909		$	1,888		$	2,777,554		$	226,831	$	—	$	(8,212	)	$	3,002,970		$	8,096	$	3,011,066
Net income attributable to stockholders	—			—			—			86,367		—		—			86,367			—		86,367
Net income attributable to noncontrolling interests	—			—			—			—		—		—			—			43		43
Pension liability adjustments, net of income taxes	—			—			—			—		—		(6,019		)	(6,019		)	—		(6,019		)
Foreign currency translation adjustment, net of income taxes	—			—			—			—		—		(243		)	(243		)	—		(243		)
Share-based compensation expense (equity classified)	—			—			16,077			—		—		—			16,077			—		16,077
Redeemable equity vested	—			—			61,702			—		—		—			61,702			—		61,702
Change in redeemable equity	—			—			(46,294		)	—		—		—			(46,294		)	—		(46,294		)
Class A shares acquired through share repurchase program and retired	(249		)	—			(599,703		)	—		—		—			(599,952		)	—		(599,952		)
Conversion of Class B to Class A shares	16			(16		)	—			—		—		—			—			—		—
Issuance of common shares pursuant to employee long term incentive plan	—			—			244			—		—		—			244			—		244
Class A shares issued in connection with acquisition	5			—			10,768			—		—		—			10,773			—		10,773
Balance at June 30, 2019	$	4,681		$	1,872		$	2,220,348		$	313,198	$	—	$	(14,474	)	$	2,525,625		$	8,139	$	2,533,764

See accompanying notes to consolidated financial statements.



ALTICE USA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Continued) (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 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	—		—			—			(128,951		)	—			(128,951		)	—			(128,951		)
Net income attributable to noncontrolling interests	—		—			—			—			—			—			2			2
Pension liability adjustments, net of income taxes	—		—			—			—			3,765			3,765			—			3,765
Share-based compensation expense	—		—			21,623			—			—			21,623			—			21,623
Change in redeemable equity	—		—			(3,347		)	—			—			(3,347		)	—			(3,347		)
Other changes to equity	—		—			(859		)	—			—			(859		)	—			(859		)
Adoption of ASU No. 2018-02	—		—			—			2,163			(2,163		)	—			—			—
Balance at March 31, 2018	2,470		4,901			4,682,646			713,848			(8,420		)	5,395,445			1,541			5,396,986
Net loss attributable to stockholders	—		—			—			(97,855		)	—			(97,855		)	—			(97,855		)
Net income attributable to noncontrolling interests	—		—			—			—			—			—			(149		)	(149		)
Contributions from noncontrolling interests	—		—			—			—			—			—			5,995			5,995
Pension liability adjustments, net of income taxes	—		—			—			—			(74		)	(74		)	—			(74		)
Foreign currency translation adjustment	—		—			—			—			576			576			—			576
Share-based compensation expense	—		—			12,226			—			—			12,226			—			12,226
Redeemable equity vested	—		—			111,521			—			—			111,521			—			111,521
Change in redeemable equity	—		—			(47,049		)	—			—			(47,049		)	—			(47,049		)
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		)
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 consolidated financial statements.

ALTICE USA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)

	Six Months Ended June 30,
	2019			2018
Cash flows from operating activities:
Net income (loss)	$	61,212		$	(226,953	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization (including impairments)	1,130,048			1,291,232
Equity in net loss of affiliates	—			10,849
Loss (gain) on investments and sale of affiliate interests, net	(357,871		)	293,715
Loss (gain) on derivative contracts, net	226,653			(210,511		)
Loss on extinguishment of debt and write-off of deferred financing costs	159,096			41,616
Amortization of deferred financing costs and discounts (premiums) on indebtedness	53,876			36,971
Settlement loss related to pension plan	538			864
Share-based compensation expense related to equity classified awards	29,867			33,849
Deferred income taxes	19,604			(80,280		)
Provision for doubtful accounts	34,814			29,462
Change in assets and liabilities, net of effects of acquisitions and dispositions:
Accounts receivable, trade	1,804			(37,224		)
Other receivables	2,740			(5,926		)
Prepaid expenses and other assets	(39,477		)	(31,951		)
Amounts due from and due to affiliates	(3,282		)	8,573
Accounts payable	18,549			49,449
Interest payable, accrued employee related costs and other liabilities	(98,551		)	(110,227		)
Deferred revenue	12,022			20,536
Liabilities related to interest rate swap and derivative contracts	41,322			45,199
Net cash provided by operating activities	1,292,964			1,159,243
Cash flows from investing activities:
Capital expenditures	(657,253		)	(498,297		)
Payment for acquisitions, net of cash acquired	(172,659		)	(5,308		)
Sale of affiliate interest	—			(3,537		)
Proceeds related to sale of equipment, including costs of disposal	898			6,858
Increase in other investments	—			(2,500		)
Additions to other intangible assets	(867		)	—
Net cash used in investing activities	(829,881		)	(502,784		)

ALTICE USA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (In thousands) (Unaudited)

	Six Months Ended June 30,