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	September 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 November 1, 2019:	636,831,534



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 - September 30, 2019 (Unaudited) and December 31, 2018	4
	Consolidated Statements of Operations - Three and nine months ended September 30, 2019 and 2018 (Unaudited)	6
	Consolidated Statements of Comprehensive Income (Loss) - Three and nine months ended September 30, 2019 and 2018 (Unaudited)	7
	Consolidated Statements of Stockholders’ Equity - Three and nine months ended September 30, 2019 and 2018 (Unaudited)	8
	Consolidated Statements of Cash Flows - Nine months ended September 30, 2019 and 2018 (Unaudited)	13

	Notes to Consolidated Financial Statements (Unaudited)	15

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		35

Item 3. Quantitative and Qualitative Disclosures About Market Risk		51

Item 4. Controls and Procedures		52

PART II. OTHER INFORMATION

Item 1. Legal Proceedings		54

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		54

Item 6. Exhibits		55

SIGNATURES		56

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 mobile voice and data services and our ability to attract customers to these services;


•	the effects of economic conditions or other factors that 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 that 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, power loss, system outages, natural disasters and other 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)
	September 30, 2019		December 31, 2018
ASSETS	(Unaudited)
Current Assets:
Cash and cash equivalents	$	175,091	$	298,781
Restricted cash	261		257
Accounts receivable, trade (less allowance for doubtful accounts of $13,694 and $13,520)	442,710		448,399
Prepaid expenses and other current assets	195,163		136,285
Amounts due from affiliates	4,554		17,557
Derivative contracts	—		1,975
Total current assets	817,779		903,254
Property, plant and equipment, net of accumulated depreciation of $5,058,198 and $4,044,671	5,797,059		5,828,881
Right-of-use operating lease assets	282,746		—
Investment securities pledged as collateral	1,936,422		1,462,626
Derivative contracts	2,634		109,344
Other assets	102,322		84,382
Amortizable intangibles, net of accumulated amortization of $3,476,043 and $2,882,787	3,675,954		4,192,824
Indefinite-lived cable television franchises	13,020,081		13,020,081
Goodwill	8,138,511		8,012,416
Total assets	$	33,773,508	$	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)

	September 30, 2019			December 31, 2018
LIABILITIES AND STOCKHOLDERS' EQUITY	(Unaudited)
Current Liabilities:
Accounts payable	$	878,518		$	857,502
Interest payable	278,506			386,475
Accrued employee related costs	128,914			139,806
Amounts due to affiliates	6,904			26,096
Deferred revenue	108,070			140,053
Debt	161,701			158,625
Other current liabilities	316,734			312,634
Total current liabilities	1,879,347			2,021,191
Other liabilities	245,885			271,554
Deferred tax liability	4,797,941			4,723,937
Liabilities under derivative contracts	377,613			132,908
Right-of-use operating lease liability	270,564			—
Long-term debt, net of current maturities	23,895,580			22,653,975
Total liabilities	31,466,930			29,803,565
Commitments and contingencies (Note 16)
Redeemable equity	217,311			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, 450,565,544 shares issued and 450,564,558 shares outstanding as of September 30, 2019 and 496,064,027 shares issued and outstanding as of December 31, 2018	4,506			4,961
Class B common stock: $0.01 par value, 1,000,000,000 shares authorized, 490,086,674 shares issued,186,262,928 shares outstanding as of September 30, 2019 and 212,976,259 shares outstanding as of December 31, 2018	1,863			2,130
Class C common stock: $0.01 par value, 4,000,000,000 shares authorized, no shares issued and outstanding	—			—
Paid-in capital	1,709,685			3,423,803
Retained earnings	390,437			251,830
	2,106,491			3,682,724
Treasury stock, at cost (986 Class A common shares at September 30, 2019)	—			—
Accumulated other comprehensive loss	(25,520		)	(11,783		)
Total stockholders' equity	2,080,971			3,670,941
Noncontrolling interest	8,296			9,295
Total stockholders' equity	2,089,267			3,680,236
	$	33,773,508		$	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 September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Revenue (including revenue from affiliates of $70, $545, $1,158 and $1,397, respectively) (See Note 15)	$	2,438,662		$	2,417,801		$	7,286,310		$	7,111,668
Operating expenses:
Programming and other direct costs (including charges from affiliates of $3,508, $1,671, $7,282 and $6,690 respectively) (See Note 15)	820,896			790,533			2,452,875			2,373,021
Other operating expenses (including charges from affiliates of $1,602, $905, $5,868, and $15,154, respectively) (See Note 15)	568,233			569,070			1,702,124			1,727,842
Restructuring and other expense	12,381			16,587			39,090			29,865
Depreciation and amortization (including impairments)	565,637			536,053			1,695,685			1,827,285
	1,967,147			1,912,243			5,889,774			5,958,013
Operating income	471,515			505,558			1,396,536			1,153,655
Other income (expense):
Interest expense	(388,800		)	(389,594		)	(1,158,301		)	(1,157,395		)
Interest income	1,524			1,427			3,948			9,843
Gain (loss) on investments and sale of affiliate interests, net	120,253			111,684			478,124			(182,031		)
Gain (loss) on derivative contracts, net	(77,333		)	(79,628		)	(303,986		)	130,883
Loss on interest rate swap contracts	(11,163		)	(19,554		)	(61,735		)	(64,405		)
Loss on extinguishment of debt and write-off of deferred financing costs	(503		)	—			(159,599		)	(41,616		)
Other income (expense), net	(226		)	(186		)	66			(12,473		)
	(356,248		)	(375,851		)	(1,201,483		)	(1,317,194		)
Income (loss) before income taxes	115,267			129,707			195,053			(163,539		)
Income tax expense	(37,871		)	(95,968		)	(56,445		)	(29,675		)
Net income (loss)	77,396			33,739			138,608			(193,214		)
Net income attributable to noncontrolling interests	(157		)	(1,186		)	(1		)	(1,039		)
Net income (loss) attributable to Altice USA, Inc. stockholders	$	77,239		$	32,553		$	138,607		$	(194,253	)
Income (loss) per share:
Basic income (loss) per share	$	0.12		$	0.04		$	0.21		$	(0.26	)
Basic weighted average common shares (in thousands)	643,797			732,963			668,929			735,685

Diluted income (loss) per share:	$	0.12		$	0.04		$	0.21		$	(0.26	)
Diluted weighted average common shares (in thousands)	646,006			732,963			669,855			735,685
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 September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Net income (loss)	$	77,396		$	33,739		$	138,608		$	(193,214	)
Other comprehensive income (loss):
Defined benefit pension plans:
Unrecognized actuarial gain (loss)	(15,860		)	9,602			(19,508		)	13,794
Applicable income taxes	4,298			(2,592		)	5,287			(3,723		)
Unrecognized actuarial gain (loss) arising during period, net of income taxes	(11,562		)	7,010			(14,221		)	10,071
Settlement loss included in other expense, net	1,091			65			1,629			929
Applicable income taxes	(295		)	(18		)	(441		)	(252		)
Settlement loss included in other expense, net, net of income taxes	796			47			1,188			677
Foreign currency translation adjustment	(385		)	437			(965		)	1,351
Applicable income taxes	105			(27		)	261			(365		)
Foreign currency translation adjustment, net	(280		)	410			(704		)	986
Other comprehensive income (loss)	(11,046		)	7,467			(13,737		)	11,734
Comprehensive income (loss)	66,350			41,206			124,871			(181,480		)
Comprehensive income attributable to noncontrolling interests	(157		)	(1,186		)	(1		)	(1,039		)
Comprehensive income (loss) attributable to Altice USA, Inc. stockholders	$	66,193		$	40,020		$	124,870		$	(182,519	)

See accompanying notes to consolidated financial statements.



ALTICE USA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS 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 STATEMENTS OF STOCKHOLDERS' EQUITY (Continued) (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 STATEMENTS OF STOCKHOLDERS' EQUITY (Continued) (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 June 30, 2019	$	4,681		$	1,872		$	2,220,348		$	313,198	$	—	$	(14,474	)	$	2,525,625		$	8,139	$	2,533,764
Net income attributable to stockholders	—			—			—			77,239		—		—			77,239			—		77,239
Net income attributable to noncontrolling interests	—			—			—			—		—		—			—			157		157
Pension liability adjustments, net of income taxes	—			—			—			—		—		(10,766		)	(10,766		)	—		(10,766		)
Foreign currency translation adjustment, net of income taxes	—			—			—			—		—		(280		)	(280		)	—		(280		)
Share-based compensation expense	—			—			18,023			—		—		—			18,023			—		18,023
Redeemable equity vested	—			—			9,071			—		—		—			9,071			—		9,071
Change in redeemable equity	—			—			(51,450		)	—		—		—			(51,450		)	—		(51,450		)
Class A shares acquired through share repurchase program and retired	(184		)	—			(486,736		)	—		—		—			(486,920		)	—		(486,920		)
Conversion of Class B to Class A shares	9			(9		)	—			—		—		—			—			—		—
Issuance of common shares pursuant to employee long term incentive plan	—			—			429			—		—		—			429			—		429
Balance at September 30, 2019	$	4,506		$	1,863		$	1,709,685		$	390,437	$	—	$	(25,520	)	$	2,080,971		$	8,296	$	2,089,267

See accompanying notes to consolidated financial statements.



ALTICE USA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS 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