ALTICE USA, INC. This Form 10-K 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-K 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, 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 FTTH network, and deployAltice 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 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; 48 -------------------------------------------------------------------------------- •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 fromAltice 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 herein. 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 Annual 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 Annual 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. Overview All dollar amounts, except per customer and per share data, included in the following discussion, are presented in thousands. Our Business We principally provide broadband communications and video services inthe United States and market our services primarily under two brands: Optimum, in theNew York metropolitan area, andSuddenlink , principally in markets in the south-centralUnited States . We deliver broadband, video, and telephony services to approximately 4.9 million residential and business customers. Our footprint extends across 21 states through a fiber-rich broadband network with more than 8.8 million homes passed as ofDecember 31, 2019 . Additionally, we offer news programming and content, and advertising services. InSeptember 2019 , the Company launched Altice Mobile, a full service mobile offering, to consumers across its footprint. Key Factors Impacting Operating Results and Financial Condition Our future performance is dependent, to a large extent, on the impact of direct competition, general economic conditions (including capital and credit market conditions), our ability to manage our businesses effectively, and our relative strength and leverage in the marketplace, both with suppliers and customers. For more information, see "Risk Factors" and "Business-Competition" included herein. We derive revenue principally through monthly charges to residential customers of our broadband, video, and telephony services. We also derive revenue from DVR, VOD, pay-per-view, installation and home shopping commissions. Our residential broadband, video, and telephony services accounted for approximately 33%, 41%, and 6%, respectively, of our consolidated revenue for the year endedDecember 31, 2019 . We also derive revenue from the sale of a wide and growing variety of products and services to both large enterprise and SMB customers, including broadband, telephony, networking and video services. For the year endedDecember 31, 2019 , 15% of our 49 -------------------------------------------------------------------------------- consolidated revenue was derived from these business services. In addition, we derive revenues from the sale of advertising time available on the programming carried on our cable television systems, digital advertising and data analytics, and affiliation fees for news programming, which accounted for approximately 5% of our consolidated revenue for the year endedDecember 31, 2019 . Our mobile and other revenue for the year endedDecember 31, 2019 accounted for less than 1% of our consolidated revenue. Revenue is impacted by rate increases, changes in the number of customers to our services, including additional services sold to our existing customers, programming package changes by our video customers, speed tier changes by our broadband customers, and acquisitions and construction of cable systems that result in the addition of new customers. Our ability to increase the number of customers to our services is significantly related to our penetration rates. We operate in a highly competitive consumer-driven industry and we compete against a variety of broadband, video and telephony providers and delivery systems, including broadband communications companies, wireless data and telephony providers, satellite-delivered video signals, Internet-delivered video content and broadcast television signals available to residential and business customers in our service areas. Our competitors include AT&T and its DirecTV subsidiary, CenturyLink, DISH, Frontier and Verizon. Consumers' selection of an alternate source of service, whether due to economic constraints, technological advances or preference, negatively impacts the demand for our services. For more information on our competitive landscape, see "Risk Factors" and "Business-Competition" included herein. Our programming costs, which are the most significant component of our operating expenses, have increased and are expected to continue to increase primarily as a result of contractual rate increases and new channel launches. See "Results of Operations" below for more information regarding our key factors impacting our revenues and operating expenses. Historically, we have made substantial investments in our network and the development of new and innovative products and other service offerings for our customers as a way of differentiating ourselves from our competitors and may continue to do so in the future. We are constructing a FTTH network, which will enable us to deliver more than 10 Gbps broadband speeds across our entire Optimum footprint and part of ourSuddenlink footprint. In addition, we launched Altice Mobile to consumers across our footprint inSeptember 2019 . We may incur greater than anticipated capital expenditures in connection with these initiatives, fail to realize anticipated benefits, experience delays and business disruptions or encounter other challenges to executing them as planned. See "Liquidity and Capital Resources-Capital Expenditures" for additional information regarding our capital expenditures. Certain Transactions The following transactions occurred during the periods covered by this Management's Discussion and Analysis of Financial Condition and Results of Operations: InJune 2019 , the Company completed the acquisition ofCheddar Inc. , a digital-first news company and the operating results of Cheddar were consolidated as ofJune 1, 2019 . See Note 10 to the consolidated financial statements for further details. As discussed in Note 1 of the Company's consolidated financial statements, the Company completed the ATS Acquisition inJanuary 2018 . ATS was previously owned byAltice Europe 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. InApril 2018 ,Altice Europe transferred its ownership of i24NEWS, a 24/7 international news and current affairs channels, to the Company for minimal consideration. 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 ofApril 1, 2018 . Operating results for periods prior toApril 1, 2018 and the balance sheet as ofDecember 31, 2017 have not been revised to reflect the combination of i24NEWS as the impact was deemed immaterial. InApril 2018 , the Company redeemed a 24% interest in Newsday. 50 -------------------------------------------------------------------------------- Non-GAAP Financial Measures We define Adjusted EBITDA, which is a non-GAAP financial measure, as net income (loss) excluding income taxes, income (loss) from discontinued operations, non-operating income or expenses, loss on extinguishment of debt and write-off of deferred financing costs, gain (loss) on interest rate swap contracts, gain (loss) on derivative contracts, gain (loss) on investments and sale of affiliate interests, net, interest expense (including cash interest expense), interest income, depreciation and amortization (including impairments), share-based compensation expense or benefit, restructuring expense or credits and transaction expenses. We believe Adjusted EBITDA is an appropriate measure for evaluating the operating performance of the Company. Adjusted EBITDA and similar measures with similar titles are common performance measures used by investors, analysts and peers to compare performance in our industry. Internally, we use revenue and Adjusted EBITDA measures as important indicators of our business performance, and evaluate management's effectiveness with specific reference to these indicators. We believe Adjusted EBITDA provides management and investors a useful measure for period-to-period comparisons of our core business and operating results by excluding items that are not comparable across reporting periods or that do not otherwise relate to the Company's ongoing operating results. Adjusted EBITDA should be viewed as a supplement to and not a substitute for operating income (loss), net income (loss), and other measures of performance presented in accordance with GAAP. Since Adjusted EBITDA is not a measure of performance calculated in accordance with GAAP, this measure may not be comparable to similar measures with similar titles used by other companies. We also use Operating Free Cash Flow (defined as Adjusted EBITDA less cash capital expenditures), and Free Cash Flow (defined as net cash flows from operating activities less cash capital expenditures) as indicators of the Company's financial performance. We believe these measures are one of several benchmarks used by investors, analysts and peers for comparison of performance in the Company's industry, although they may not be directly comparable to similar measures reported by other companies. 51 --------------------------------------------------------------------------------
Results of Operations -
Altice USA
Years Ended December 31,
2019 2018 2017
Revenue:
Residential:
Broadband $ 3,222,605 $ 2,887,455 $ 2,608,595
Video 3,997,873 4,156,428 4,274,122
Telephony 598,694 652,895 700,765
Business services and wholesale 1,428,532 1,362,758 1,298,213
News and advertising 475,904 487,264 396,187
Mobile 21,264 - -
Other 15,987 19,808 29,068
Total revenue 9,760,859 9,566,608 9,306,950
Operating expenses:
Programming and other direct costs 3,300,528 3,173,076 3,035,655
Other operating expenses 2,300,398 2,290,266 2,347,315
Restructuring and other expense 72,978 38,548 152,401
Depreciation and amortization (including impairments) 2,263,144
2,382,339 2,930,571
Operating income 1,823,811 1,682,379 841,008
Other income (expense):
Interest expense, net (1,530,850) (1,545,426) (1,601,211) Gain (loss) on investments and sale of affiliate interests, net
473,406 (250,877) 237,354
Gain (loss) on derivative contracts, net (282,713) 218,848 (236,330)
Gain (loss) on interest rate swap contracts (53,902) (61,697) 5,482
Loss on extinguishment of debt and write-off of deferred financing costs
(243,806) (48,804) (600,240)
Other income (expense), net 1,183 (12,484) (13,651)
Income (loss) before income taxes 187,129 (18,061) (1,367,588)
Income tax benefit (expense) (47,190) 38,655 2,862,352
Net income 139,939 20,594 1,494,764
Net income attributable to noncontrolling interests (1,003) (1,761) (1,587)
Net income attributable to
$ 18,833 $ 1,493,177 52
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The following is a reconciliation of net income to Adjusted EBITDA:
Altice USA
Years Ended December 31,
2019 2018 2017
Net income $ 139,939 $ 20,594 $ 1,494,764
Income tax expense (benefit) 47,190 (38,655) (2,862,352)
Other expense (income), net (a) (1,183) 12,484 13,651
Loss (gain) on interest rate swap contracts 53,902 61,697 (5,482)
Loss (gain) on derivative contracts, net 282,713 (218,848) 236,330
Loss (gain) on investments and sales of affiliate
interests, net (473,406) 250,877 (237,354)
Loss on extinguishment of debt and write-off of deferred financing costs
243,806 48,804 600,240
Interest expense, net 1,530,850 1,545,426 1,601,211
Depreciation and amortization 2,263,144 2,382,339 2,930,571
Restructuring and other expense 72,978 38,548 152,401
Share-based compensation 105,538 59,812 57,430
Adjusted EBITDA 4,265,471 4,163,078 3,981,410
Capital Expenditures (cash) 1,355,350 1,153,589 951,349
Operating Free Cash Flow $ 2,910,121 Net cash flows from operating activities$ 2,554,169 $ 2,508,317 $ 2,018,247 Capital Expenditures (cash) 1,355,350 1,153,589 951,349 Free Cash Flow$ 1,198,819 $ 1,354,728 $ 1,066,898
(a)Includes the non-service cost components of the Company's pension expense, net of dividends received on Comcast common stock owned by the Company. The following table sets forth certain customer metrics for the Company (unaudited):
December 31, Increase December 31, Increase
2019 (h) 2018 (g) (Decrease) 2017 (g) (Decrease)
Homes passed (a) 8,833.7 8,714.9 118.8 8,598.9 116.0 Total customer relationships (b)(c) 4,931.5 4,914.7 16.8 4,898.5 16.2 Residential 4,533.3 4,518.1 15.2 4,509.0 9.1 SMB 398.2 396.6 1.6 389.6 7.0 Residential customers: Broadband 4,187.3 4,115.4 71.9 4,043.2 72.2 Video 3,179.2 3,286.1 (106.9) 3,382.6 (96.5) Telephony 2,398.8 2,530.1 (131.3) 2,556.3 (26.2) Residential triple product customer penetration (d) 46.8 % 49.8 % 50.5 % Penetration of homes passed (e) 55.8 % 56.4 % 57.0 % ARPU(f)$ 142.65 $ 143.22 $ 140.56 (a)Represents the estimated number of single residence homes, apartments and condominium units passed by the broadband network in areas serviceable without further extending the transmission lines. In addition, it includes commercial establishments that have connected to our broadband network. Broadband services were not available to approximately 30 homes passed and telephony services were not available to approximately 500 homes passed. (b)Represents number of households/businesses that receive at least one of the Company's fixed-line services. (c)Customers represent each customer account (set up and segregated by customer name and address), weighted equally and counted as one customer, regardless of size, revenue generated, or number of boxes, units, or outlets. In calculating the number of customers, we count all customers other than inactive/disconnected customers. Free accounts are 53
-------------------------------------------------------------------------------- included in the customer counts along with all active accounts, but they are limited to a prescribed group. Most of these accounts are also not entirely free, as they typically generate revenue through pay-per-view or other pay services and certain equipment fees. Free status is not granted to regular customers as a promotion. In counting bulk residential customers, such as an apartment building, we count each subscribing family unit within the building as one customer, but do not count the master account for the entire building as a customer. We count a bulk commercial customer, such as a hotel, as one customer, and do not count individual room units at that hotel. (d)Represents the number of customers that subscribe to three of our services divided by total residential customer relationships. (e)Represents the number of total customer relationships divided by homes passed. (f)Calculated by dividing the average monthly revenue for the respective quarter (fourth quarter for annual periods) derived from the sale of broadband, video and telephony services to residential customers for the respective quarter by the average number of total residential customers for the same period. (g)Customer metrics for prior periods have been adjusted to conform definitions betweenSuddenlink and Optimum in connection with the migration ofSuddenlink customers to the Optimum billing system in 2019. The following table summarizes the adjustments made to previously reported amounts. As of As of December 31, 2018 December 31, 2017 increase (decrease) Homes passed (22.4) (22.0) Total customer relationships (4.9) (7.7) Residential (24.0) (26.0) SMB 19.1 18.3 Residential customers: Broadband (2.8) (3.0) Video (21.4) (22.9) Telephony (1.1) (1.1) ARPU $ 0.78 $ 0.81
(h)Customer metrics do not include Altice Mobile customers.
54
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Comparison of Results for the Year Ended December 31, 2019 compared to the Year
Ended December 31, 2018 and for the Year Ended December 31, 2018 compared to the
Year Ended December 31, 2017
Broadband Revenue
Broadband revenue for the years ended December 31, 2019 , 2018 and 2017 was
$3,222,605 , $2,887,455 and $2,608,595 , respectively. Broadband revenue is
derived principally through monthly charges to residential subscribers of our
broadband services. Revenue is impacted by rate increases, changes in the number
of customers, including additional services sold to our existing subscribers,
and changes in speed tiers.
Broadband revenue increased $335,150 (12%) for the year ended December 31, 2019
compared to the year ended December 31, 2018 . The increase was due primarily to
higher average recurring broadband revenue per broadband customer, primarily
driven by certain rate increases and service level changes, and an increase in
broadband customers.
Broadband revenue increased $278,860 (11%) for the year ended December 31, 2018
compared to the year ended December 31, 2017 . The increase was due primarily to
higher average recurring broadband revenue per broadband customer, primarily
driven by certain rate increases and service level changes, and an increase in
broadband customers.
Video Revenue
Video revenue for the years ended December 31, 2019 , 2018 and 2017 was
$3,997,873 , $4,156,428 and $4,274,122 , respectively. Video revenue is derived
principally through monthly charges to residential customers of our video
services. Revenue is impacted by rate increases, changes in the number of
customers, including additional services sold to our existing customers, and
changes in programming packages.
Video revenue decreased $158,555 (4%) for the year ended December 31, 2019
compared to the year ended December 31, 2018 . The decrease was due primarily to
a decline in video customers and lower average revenue per video customer.
Video revenue decreased $117,694 (3%) for the year ended December 31, 2018
compared to the year ended December 31, 2017 . The decrease was due primarily to
a decline in video customers, partially offset by higher average revenue per
video customer primarily due to rate increases.
We believe our video customer declines noted in the table above are largely
attributable to competition, particularly from Verizon in our Optimum footprint
and DBS providers in our Suddenlink footprint, as well as competition from
companies that deliver video content over the Internet directly to customers.
These factors are expected to continue to impact our ability to maintain or
increase our existing customers and revenue in the future.
Telephony Revenue
Telephony revenue for the years ended December 31, 2019 , 2018 and 2017 was
$598,694 , $652,895 and $700,765 , respectively. Telephony revenue is derived
principally through monthly charges to residential customers of our telephony
services. Revenue is impacted by changes in rates for services, changes in the
number of customers, and additional services sold to our existing customers.
Telephony revenue decreased $54,201 (8%) for the year ended December 31, 2019
compared to the year ended December 31, 2018 . The decrease was due to lower
average revenue per telephony customer and a decline in telephony customers.
Telephony revenue decreased $47,870 (7%) for the year ended December 31, 2018
compared to the year ended December 31, 2017 . The decrease was due to lower
average revenue per telephony customer and a decline in telephony customers.
Business Services and Wholesale Revenue
Business services and wholesale revenue for the years ended December 31, 2019 ,
2018 and 2017 was $1,428,532 , $1,362,758 , and $1,298,213 , respectively. Business
services and wholesale revenue is derived primarily from the sale of fiber based
telecommunications services to the business market, and the sale of broadband,
video and telephony services to SMB customers.
Business services and wholesale revenue increased $65,774 (5%) for the year
ended December 31, 2019 compared to the year ended December 31, 2018 . The
increase was primarily due to higher average recurring broadband revenue
55
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per SMB customer, primarily driven by certain rate increases and service level
changes, an increase in revenue from the backhaul of carrier data and an
increase in installation revenue.
Business services and wholesale revenue increased $64,545 (5%) for the year
ended December 31, 2018 compared to the year ended December 31, 2017 . The
increase was primarily due to higher average recurring broadband revenue per SMB
customer, higher Ethernet and managed services revenue and an increase in the
number of customers, partially offset by reduced traditional voice and data
services for commercial customers.
News and Advertising Revenue
News and advertising revenue for the years ended December 31, 2019 , 2018 and
2017, was $475,904 , $487,264 , and $396,187 , respectively. News and advertising
revenue is primarily derived from the sale of advertising time available on the
programming carried on our cable television systems, OTT distribution partners,
digital advertising and data analytics revenue and affiliation fees for news
programming.
News and advertising revenue decreased $11,360 (2%) for the year ended
December 31, 2019 compared to the year ended December 31, 2018 . The decrease was
primarily due to lower political revenue, partially offset by an increase in
digital advertising, and strong national sales.
News and advertising revenue increased $91,077 (23%) for the year ended
December 31, 2018 compared to the year ended December 31, 2017 . The increase was
primarily due to an increase in digital advertising, higher political spending,
and an increase in data analytics revenue.
Mobile Revenue
Mobile revenue for the year ended December 31, 2019 was $21,264 and relates to
sales of devices and mobile services that were launched to consumers in
September 2019 . As of December 31, 2019 , we had approximately 69,000 mobile
lines.
Other Revenue
Other revenue for the years ended December 31, 2019 , 2018 and 2017 was $15,987 ,
$19,808 , and $29,068 , respectively. Other revenue includes revenue from other
miscellaneous revenue streams.
Programming and Other Direct Costs
Programming and other direct costs for the years ended December 31, 2019 , 2018
and 2017 amounted to $3,300,528 , $3,173,076 and $3,035,655 , respectively.
Programming and other direct costs include cable programming costs, which are
costs paid to programmers (net of amortization of any incentives received from
programmers for carriage) for cable content (including costs of VOD and
pay-per-view) and are generally paid on a per-customer basis. These costs
typically rise due to increases in contractual rates and new channel launches
and are also impacted by changes in the number of customers receiving certain
programming services. These costs also include interconnection, call completion,
circuit and transport fees paid to other telecommunication companies for the
transport and termination of voice and data services, which typically vary based
on rate changes and the level of usage by our customers. These costs also
include franchise fees which are payable to the state governments and local
municipalities where we operate and are primarily based on a percentage of
certain categories of revenue derived from the provision of video service over
our cable systems, which vary by state and municipality. These costs change in
relation to changes in such categories of revenues or rate changes.
Additionally, these costs include the costs of mobile devices sold to our
customers and direct costs of providing mobile services.
The increase of $127,452 (4%) for the year ended December 31, 2019 , as compared
to the prior year was primarily attributable to the following:
Increase in programming costs due primarily to contractual rate increases,
partially offset by lower video customers and lower video-on-demand and
pay-per-view costs $ 102,071
Costs of mobile devices 22,379
Increase in costs of digital media and linear advertising spots for resale
9,488
Decrease in call completion and transfer costs primarily due to lower level of activity related to our telephony service, partially offset by an increase in costs related to our mobile service of$3,890 (9,975) Other net increases 3,489$ 127,452 56
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The increase of
$ 87,341 Increase primarily in costs of digital media and linear advertising spots for resale
42,635
Other net increases (including an increase of$4,201 in costs related to i24NEWS) 7,445$ 137,421 Programming costs Programming costs aggregated$2,722,656 ,$2,620,585 , and$2,533,244 for the years endedDecember 31, 2019 , 2018 and 2017, respectively. Our programming costs in 2020 will continue to be impacted by changes in programming rates, which we expect to increase, and by changes in the number of video customers. Other Operating Expenses Other operating expenses for the years endedDecember 31, 2019 , 2018 and 2017 amounted to$2,300,398 ,$2,290,266 , and$2,347,315 , respectively. Other operating expenses include staff costs and employee benefits including salaries of company employees and related taxes, benefits and other employee related expenses, as well as third-party labor costs. Other operating expenses also include network management and field service costs, which represent costs associated with the maintenance of our broadband network, including costs of certain customer connections and other costs associated with providing and maintaining services to our customers. Customer installation and network repair and maintenance costs may fluctuate as a result of changes in the level of activities and the utilization of contractors as compared to employees. Also, customer installation costs fluctuate as the portion of our expenses that we are able to capitalize changes. Costs associated with the initial deployment of new customer premise equipment necessary to provide broadband, video and telephony services are capitalized (asset-based). The redeployment of customer premise equipment is expensed as incurred. Other operating expenses also include costs related to the operation and maintenance of our call center facilities that handle customer inquiries and billing and collection activities and sales and marketing costs, which include advertising production and placement costs associated with acquiring and retaining customers. These costs vary period to period and certain of these costs, such as sales and marketing, may increase with intense competition. Additionally, other operating expenses include various other administrative costs, including legal fees, and product development costs. The increase in other operating expenses of$10,132 , including an increase of$32,458 relating to our mobile service, for the year endedDecember 31, 2019 as compared to the prior year was attributable to the following: Increase in share-based compensation, including charges related to modifications of awards$ 45,725 Increase in bad debt 20,095
Net decrease in labor costs and benefits (partially offset by an increase in
costs related to i24NEWS of
(33,431)
Decrease in management fee relating to certain executive, administrative and
managerial services provided to the Company from
(13,250)
Net decrease in marketing costs
(7,457)
Other net decreases (partially offset by an increase in costs of
(1,550)
$ 10,132
57
-------------------------------------------------------------------------------- The decrease in other operating expenses of$57,049 (2%) for the year endedDecember 31, 2018 as compared toDecember 31, 2017 was attributable to the following: Decrease in labor costs and benefits (net of an increase in costs related to i24NEWS of$18,786 ), and an increase in capitalizable activity$ (84,118) Decrease in management fee relating to certain executive, administrative and managerial services provided to the Company fromAltice Europe prior to separation inJune 2018
(16,750)
Decrease in legal fees
(6,495)
Decrease in share-based compensation and long-term incentive plan awards expense (2,548) Increase in marketing costs
34,683
Increase in commissions primarily relating to the NY Interconnect business
10,438
Increase in insurance costs
1,740
Other net increases (includes an increase in costs related to i24NEWS of$9,936 ) 6,001$ (57,049) Restructuring and Other Expense Restructuring and other expense for the year endedDecember 31, 2019 amounted to$72,978 , as compared to$38,548 for the year endedDecember 31, 2018 and$152,401 for the year endedDecember 31, 2017 . These amounts primarily related to severance and other employee related costs resulting from headcount reductions, facility realignment costs and impairments of certain ROU assets, related to initiatives which commenced in 2016 and 2019 that are intended to simplify the Company's organizational structure. We currently anticipate that additional restructuring expenses will be recognized as we continue to analyze our organizational structure. Depreciation and Amortization Depreciation and amortization for the years endedDecember 31, 2019 , 2018 and 2017 amounted to$2,263,144 ,$2,382,339 and$2,930,571 , respectively. The decrease in depreciation and amortization of$119,195 (5%) for the year endedDecember 31, 2019 as compared to the prior year is due to certain fixed assets and intangible assets becoming fully depreciated or amortized, partially offset by an increase in depreciation as a result of asset additions. The decrease in depreciation and amortization of$548,232 (19%) in 2018 as compared to 2017 was due primarily to certain fixed assets and intangible assets becoming fully depreciated or amortized. These decreases were partially offset by depreciation of new asset additions. Adjusted EBITDA Adjusted EBITDA amounted to$4,265,471 ,$4,163,078 , and$3,981,410 for the years endedDecember 31, 2019 , 2018 and 2017, respectively. Adjusted EBITDA is a non-GAAP measure that is defined as net income (loss) excluding income taxes, income (loss) from discontinued operations, non-operating income or expenses, loss on extinguishment of debt and write-off of deferred financing costs, gain (loss) on interest rate swap contracts, gain (loss) on derivative contracts, gain (loss) on investments and sale of affiliate interests, net, interest expense (including cash interest expense), interest income, depreciation and amortization (including impairments), share-based compensation expense or benefit, restructuring expense or credits and transaction expenses. See reconciliation of net income to adjusted EBITDA above. The increase in adjusted EBITDA for the years endedDecember 31, 2019 and 2018 as compared to the prior years were due to the increases in revenue, net of increases in operating expenses (excluding depreciation and amortization, restructuring and other expense and share-based compensation), as discussed above. Operating Free Cash Flow Operating free cash flow was$2,910,121 ,$3,009,489 and$3,030,061 for the years endedDecember 31, 2019 , 2018 and 2017, respectively. The decrease in operating free cash flow in 2019 as compared to 2018 and 2018 as compared to 2017 are both due to an increase in capital expenditures, partially offset by an increase in adjusted EBITDA. Free Cash Flow Free cash flow was$1,198,819 ,$1,354,728 and$1,066,898 for the years endedDecember 31, 2019 , 2018 and 2017, respectively. The decrease in free cash flow in 2019 as compared to 2018 is primarily due to an increase in capital 58 -------------------------------------------------------------------------------- expenditures. The increase in free cash flow in 2018 as compared to 2017 is primarily due to a an increase in net cash provided by operating activities, partially offset by an increase in capital expenditures. Interest expense Interest expense, net was$1,530,850 ,$1,545,426 , and$1,601,211 for the years endedDecember 31, 2019 , 2018 and 2017, respectively, and includes interest on debt issued to finance the Cablevision Acquisition and Cequel Acquisition, as well as interest on debt assumed in connection with these acquisitions. The decrease of$14,576 for the year endedDecember 31, 2019 as compared to the year endedDecember 31, 2018 and the decrease of$55,785 for the year endedDecember 31, 2018 as compared to the year endedDecember 31, 2017 were attributable to the following: 2019 2018
Decrease due to changes in average debt balances and interest rates on our indebtedness and
collateralized debt$ (44,492) $ (101,740) Lower (higher) interest income 5,147 (8,935) Other net increases, primarily amortization of deferred financing costs and original issue discounts 24,769 54,890$ (14,576) $ (55,785) Gain (Loss) on Investments and Sale of Affiliate Interests, net Gain (loss) on investments, net for the years endedDecember 31, 2019 , 2018 and 2017, of$473,406 ,$(250,877) and$237,354 consists primarily of the increase (decrease) in the fair value of Comcast common stock owned by the Company for the periods. The effects of these gains (losses) are partially offset by the losses (gains) on the related equity derivative contracts, net described below. Gain (Loss) on Derivative Contracts, net Gain (loss) on derivative contracts, net for the year endedDecember 31, 2019 amounted to$(282,713) ,$218,848 and$(236,330) for the years endedDecember 31, 2019 , 2018 and 2017, respectively, and includes realized and unrealized gains or losses due to the change in fair value of equity derivative contracts relating to the Comcast common stock owned by the Company. The effects of these gains (losses) are offset by losses (gains) on investment securities pledged as collateral, which are included in gain (loss) on investments, net discussed above. The loss for the year endedDecember 31, 2017 also includes the realized loss on the settlement of certain put-call options of$97,410 . Gain (loss) on Interest Rate Swap Contracts Gain (loss) on interest rate swap contracts was$(53,902) ,$(61,697) and$5,482 for the years endedDecember 31, 2019 , 2018 and 2017, respectively. These amounts represent the increase or decrease in the fair value of interest rate swap contracts. These swap contracts are not designated as hedges for accounting purposes. Loss on Extinguishment of Debt and Write-off of Deferred Financing Costs Loss on extinguishment of debt and write-off of deferred financing costs amounted to$243,806 ,$48,804 and$600,240 for the years endedDecember 31, 2019 , 2018 and 2017, respectively. 59 --------------------------------------------------------------------------------
The following table provides a summary of the loss on extinguishment of debt and the write-off of deferred financing costs recorded by the Company upon the redemption of senior notes and the refinancing of credit facilities:
2019 2018 2017
Cablevision 8.625% Senior Notes due 2017 $ - $
- $ 6,300
Cablevision 7.75% Senior Notes due 2018 - 4,706 -
Cequel 6.375% Senior Notes due 2020 - 36,910 26,229
Cablevision 8.000% Senior Notes due 2020 15,176 - -
Cablevision 5.125% Senior Notes due 2021 500 - -
CSC Holdings 5.125% Senior Notes due 2021 65,151 - -
CSC Holdings 10.125% Senior Notes due 2023 154,666 - -
Cablevision 10.875% Senior Notes due 2025 - - 38,858
Cequel senior and senior secured notes pursuant
to an exchange
offer - (545) -
Refinancing and subsequent amendment to CSC
Holdings credit
facility 8,313 - 12,675
Cequel Term Loan Facility - 7,733 2,455
Notes payable to affiliates - - 513,723
$ 243,806 $ 48,804 $ 600,240
Other Income (Expense), Net
Other income (expense), net amounted to $1,183 , $(12,484) and $(13,651) , for the
years ended December 31, 2019 , 2018 and 2017, respectively. These amounts
include the non-service cost components of the Company's pension expense of
$8,274 , $9,529 and $11,863 , net of dividends received on Comcast common stock
owned by the Company. The 2018 amounts also include the equity in the net losses
of Newsday through April 2018 and i24NEWS through March 31, 2018 .
Income Tax Benefit (Expense)
The Company recorded income tax expense of $47,190 for the year ended
December 31, 2019 , resulting in an effective tax rate of 25% which is higher
than the U.S. federal statutory tax rate of 21%. The primary difference between
the effective tax rate and the statutory tax rate is due to nondeductible
share-based compensation expense, a revaluation of state deferred taxes
primarily due to certain changes to the state tax rates used to measure the
Company's deferred tax liabilities and certain other non-deductible expenses.
The Company recorded income tax benefit of $38,655 for the year ended December
31, 2018 . During 2018, the Company determined that it met the definition of a
Qualified Technology Company for New York State tax purposes and thereby was
eligible for the reduced tax rate. Additionally, during 2018, the state of New
Jersey enacted significant tax law changes imposing a 2.5% surtax for tax years
beginning January 1, 2018 and mandating combined return filing requirements for
unitary corporations for tax years beginning January 1, 2019 . Accordingly, the
Company recorded a net non-cash deferred tax benefit of $52,915 based on a
remeasurement of the net deferred tax liability.
The Company recorded income tax benefit of $2,862,352 for the year ended
December 31, 2017 . Pursuant to the enactment of Tax Cuts and Jobs Act on
December 22, 2017 , the Company recorded a non-cash deferred tax benefit of
$2,332,677 to remeasure the net deferred tax liability to adjust for the
reduction in the corporate federal income tax rate from 35% to 21% which is
effective on January 1, 2018 . Nondeductible share-based compensation expense for
the year ended December 31, 2017 reduced income tax benefit by $22,938 .
60
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CSC HOLDINGS, LLC
The consolidated statements of operations of CSC Holdings are essentially
identical to the consolidated statements of operations of Altice USA , except for
the following:
Years ended December 31,
2019 2018 2017
(in thousands)
Net income attributable to Altice USA shareholders $ 138,936 $ 18,833 $ 1,493,177
Less: items included in Altice USA's
consolidated
statements of operations:
Income tax benefit (24,053) (96,218) (34,601)
Interest expense relating to Cablevision senior
notes 81,257 303,106 377,908
Interest expense relating to Altice USA notes
payable to
affiliates and related parties - - 90,405
Gain (loss) on investments and sale of
affiliate interests, net - (10,659) -
Interest expense on intercompany loan due to
CSC
Holdings - - 6,502
Interest income related to cash held by
Cablevision and
Altice USA - 2,372 (882)
Loss on derivative contracts - - 97,410
Other expense (income) (2) 210 -
Loss on extinguishment of debt and write-off of
deferred financing costs 15,676 40,921 546,252
Restructuring and other expense - - 118
Net income attributable to CSC Holdings' sole member $ 211,814 $ 258,565
Refer to
61
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LIQUIDITY AND CAPITAL RESOURCES
Altice USA has no operations independent of its subsidiaries. Funding for our
subsidiaries has generally been provided by cash flow from their respective
operations, cash on hand and borrowings under their revolving credit facilities
and the proceeds from the issuance of securities and borrowings under syndicated
term loans in the capital markets. Our decision as to the use of cash generated
from operating activities, cash on hand, borrowings under the revolving credit
facility or accessing the capital markets has been based upon an ongoing review
of the funding needs of the business, the optimal allocation of cash resources,
the timing of cash flow generation and the cost of borrowing under the revolving
credit facility, debt securities and syndicated term loans. We target a year-end
leverage ratio of 4.5x to 5.0x. We calculate our consolidated net leverage ratio
as net debt to L2QA EBITDA (Adjusted EBITDA for the two most recent consecutive
fiscal quarters multiplied by 2.0).
We expect to utilize free cash flow and availability under the revolving credit
facility, as well as future refinancing transactions, to further extend the
maturities of, or reduce the principal on, our debt obligations. The timing and
terms of any refinancing transactions will be subject to, among other factors,
market conditions. Additionally, we may, from time to time, depending on market
conditions and other factors, use cash on hand and the proceeds from other
borrowings to repay the outstanding debt securities through open market
purchases, privately negotiated purchases, tender offers, or redemptions.
We believe existing cash balances, operating cash flows and availability under
our revolving credit facility will provide adequate funds to support our current
operating plan, make planned capital expenditures and fulfill our debt service
requirements for the next twelve months. However, our ability to fund our
operations, make planned capital expenditures, make scheduled payments on our
indebtedness and repay our indebtedness depends on our future operating
performance and cash flows and our ability to access the capital markets, which,
in turn, are subject to prevailing economic conditions and to financial,
business and other factors, some of which are beyond our control. However,
competition, market disruptions or a deterioration in economic conditions could
lead to lower demand for our products, as well as lower levels of advertising,
and increased incidence of customers' inability to pay for the services we
provide. These events would adversely impact our results of operations, cash
flows and financial position. Although we currently believe amounts available
under the revolving credit facility will be available when, and if, needed, we
can provide no assurance that access to such funds will not be impacted by
adverse conditions in the financial markets or other conditions. The
obligations of the financial institutions under the revolving credit facility
are several and not joint and, as a result, a funding default by one or more
institutions does not need to be made up by the others.
In the longer term, we may not be able to generate sufficient cash from
operations to fund anticipated capital expenditures, meet all existing future
contractual payment obligations and repay our debt at maturity. As a result, we
could be dependent upon our continued access to the capital and credit markets
to issue additional debt or equity or refinance existing debt obligations. We
intend to raise significant amounts of funding over the next several years to
fund capital expenditures, repay existing obligations and meet other
obligations, and the failure to do so successfully could adversely affect our
business. If we are unable to do so, we will need to take other actions
including deferring capital expenditures, selling assets, seeking strategic
investments from third parties or reducing or eliminating stock repurchases and
discretionary uses of cash.
62
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Debt Outstanding
The following tables summarize the carrying value of our outstanding debt, net
of unamortized deferred financing costs, discounts and premiums (excluding
accrued interest), as well as interest expense.
As of December 31, 2019
CSC Holdings Altice USA
Debt outstanding:
Credit facility debt $ 7,148,287 $ 7,148,287
Senior guaranteed notes 7,602,456 7,602,456
Senior notes 7,874,040 7,874,040
Subtotal 22,624,783 22,624,783
Finance lease obligations 69,420 69,420
Notes payable and supply chain financing 140,994 140,994
Subtotal 22,835,197 22,835,197
Collateralized indebtedness relating to stock monetizations (a) 1,585,088 1,585,088 Total debt$ 24,420,285 $ 24,420,285 Interest expense: Credit facility debt, senior notes, finance leases, notes payable and supply chain financing$ 1,392,277 $ 1,473,534 Collateralized indebtedness relating to stock monetizations (a) 63,025 63,025 Total interest expense$ 1,455,302 $ 1,536,559 (a)This indebtedness is collateralized by shares of Comcast common stock. We intend to settle this debt by (i) delivering shares of Comcast common stock and the related equity contracts, or (ii) delivering cash from the net proceeds from new monetization contracts. The following table provides details of our outstanding credit facility debt, net of unamortized discounts and deferred financing costs as ofDecember 31, 2019 : Maturity Date Interest Rate Principal Carrying Value Revolving Credit Facility (a) (b) -% $ - $ - Term Loan B July 17, 2025 3.99% 2,925,000 2,911,729 Incremental Term Loan B-3 January 15, 2026 3.99% 1,265,438 1,260,200 Incremental Term Loan B-5 April 15, 2027 4.24% 3,000,000 2,976,358$ 7,190,438 $ 7,148,287 (a)AtDecember 31, 2019 ,$178,014 of the revolving credit facility was restricted for certain letters of credit issued on behalf of the Company and$2,296,986 of the facility was undrawn and available, subject to covenant limitations. (b)The revolving credit facility matures onJanuary 31, 2024 , however$200,000 matures onNovember 30, 2021 . Payment Obligations Related to Debt As ofDecember 31, 2019 , total amounts payable by us in connection with our outstanding obligations, including related interest, as well as notes payable and supply chain financing, and the value deliverable at maturity under monetization contracts, but excluding finance lease obligations (see Note 9 to our consolidated financial statements) are as follows: 63 --------------------------------------------------------------------------------
2020$ 1,549,109 2021 2,469,607 2022 2,036,906 2023 (a) 4,183,667 2024 1,976,193 Thereafter 21,829,511 Total$ 34,044,993 (a)Includes$1,776,378 related to the Company's collateralized indebtedness (including related interest). This indebtedness is collateralized by shares of Comcast common stock. We intend to settle this debt by (i) delivering shares of Comcast common stock and the related equity contracts or (ii) delivering cash from the net proceeds on new monetization contracts.CSC Holdings Restricted Group For financing purposes, the Company is structured as a restricted group (the "Restricted Group ") and an unrestricted group, which includes certain designated subsidiaries and investments (the "Unrestricted Group ").The Restricted Group is comprised of CSC Holdings and substantially all of its wholly-owned operating subsidiaries. These subsidiaries are subject to the covenants and restrictions of the credit facility and indentures governing the notes issued by CSC Holdings. Sources of cash for theRestricted Group include primarily cash flow from the operations of the businesses in theRestricted Group , borrowings under its credit facility and issuance of securities in the capital markets, contributions from its parent, and, from time to time, distributions or loans from its subsidiaries.The Restricted Group's principal uses of cash include: capital spending, in particular, the capital requirements associated with the upgrade of its digital broadband, video and telephony services, including costs to build a FTTH network and enhancements to its service offerings such as WiFi; debt service, including distributions made to Cablevision to service interest expense and principal repayments on its debt securities prior to the Assumption of the Cablevision Senior Notes discussed below; other corporate expenses and changes in working capital; and investments that it may fund from time to time. CSC Holdings Credit Facility InOctober 2015 , a wholly-owned subsidiary ofAltice USA , which merged with and into CSC Holdings onJune 21, 2016 , entered into a senior secured credit facility, which currently providesU.S. dollar term loans currently in an aggregate principal amount of$3,000,000 ($2,925,000 outstanding atDecember 31, 2019 ) (the "CSC Term Loan Facility", and the term loans extended under the CSC Term Loan Facility, the "CSC Term Loans") andU.S. dollar revolving loan commitments in an aggregate principal amount of$2,475,000 atDecember 31, 2019 (the "CSC Revolving Credit Facility" and, together with the CSC Term Loan Facility, the "CSC Credit Facilities"), which are governed by a credit facilities agreement entered into by, inter alios, CSC Holdings certain lenders party thereto andJPMorgan Chase Bank, N.A . as administrative agent and security agent (as amended, restated, supplemented or otherwise modified onJune 20, 2016 ,June 21, 2016 ,July 21, 2016 ,September 9, 2016 ,December 9, 2016 ,March 15, 2017 ,January 12, 2018 ,October 15, 2018 ,January 24, 2019 ,February 7, 2019 ,May 14, 2019 , andOctober 3, 2019 , respectively, and as further amended, restated, supplemented or otherwise modified from time to time, the "CSC Credit Facilities Agreement"). The revolving credit facility of an aggregate principal amount of$2,275,000 matures inJanuary 2024 and priced at LIBOR plus 2.25%. The remaining revolving credit facility of an aggregate principal amount of$200,000 matures inNovember 2021 and priced at LIBOR plus 3.25%. InJanuary 2018 , CSC Holdings entered into a$1,500,000 incremental term loan facility (the "Incremental Term Loan B-2") under its existing credit facilities agreement. The Incremental Term Loan B-2 was priced at 99.5% and was due to mature onJanuary 25, 2026 . The Incremental Term Loan B-2 was comprised of eurodollar borrowings or alternate base rate borrowings, and bore interest at a rate per annum equal to the adjusted LIBOR or the alternate base rate, as applicable, plus the applicable margin, where the applicable margin was (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 was required to make scheduled quarterly payments equal to 0.25% (or$3,750 ) of the principal amount of the Incremental Term Loan B-2, beginning with the fiscal quarter endedSeptember 30, 2018 , with the remaining balance scheduled to be paid onJanuary 25, 2026 . The Incremental Term Loan B-2 was repaid in full inOctober 2019 with proceeds from the Incremental Term Loan B-5 discussed below. InOctober 2018 , CSC Holdings entered into a$1,275,000 ($1,265,438 outstanding atDecember 31, 2019 ) incremental term loan facility (the "Incremental Term Loan B-3") under its existing credit facilities agreement. The 64 -------------------------------------------------------------------------------- proceeds from the Incremental Term Loan B-3 were used to repay the entire principal amount of loans under Cequel's then existing Term Loan Facility and certain transaction costs. The Incremental Term Loan B-3 is comprised of eurodollar borrowings or alternative base rate borrowings, and will bear interest at a rate per annum equal to the Adjusted LIBOR 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, 1.25% per annum and (ii) with respect to any eurodollar loan, 2.25% per annum. The Company is required to make scheduled quarterly payments equal to 0.25% (or$3,188 ) of the principal amount of the Incremental Term Loan B-3, beginning with the fiscal quarter endedJune 30, 2019 , with the remaining balance scheduled to be paid onJanuary 15, 2026 . InFebruary 2019 , CSC Holdings entered into a$1,000,000 incremental term loan facility ("Incremental Term Loan B-4") under its existing credit facilities agreement. The proceeds from the Incremental Term Loan B-4 were used to redeem$894,700 in aggregate principal amount of CSC Holdings' 10.125% senior notes due 2023, representing the entire aggregate principal amount outstanding, and paying related fees, costs and expenses. The Incremental Term Loan B-4 was due to mature onApril 15, 2027 and was issued with an original issue discount of 1.0%. The Incremental Term Loan B-4 bore interest at a rate per annum equal to the adjusted LIBOR or the alternate base rate, as applicable, plus the applicable margin, where the applicable margin was (i) with respect to any alternate base rate loan, 2.00% per annum and (ii) with respect to any eurodollar loan, 3.0%. The Incremental Term Loan B-4 was repaid in full inOctober 2019 with proceeds from Incremental Term Loan B-5 discussed below. InOctober 2019 , CSC Holdings entered into a new$3,000,000 , incremental term loan facility ("Incremental Term Loan B-5") under its existing credit facilities agreement, out of which$500,000 was available on a delayed draw basis. The Incremental Term Loan B-5 matures onApril 15, 2027 and was issued at par. The Incremental Term Loan B-5 may be comprised of eurodollar borrowings or alternative base rate borrowings, and will bear interest at a rate per annum equal to the Adjusted LIBOR 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 is required to make scheduled quarterly payments equal to 0.25% (or$7,500 ) of the principal amount of the Incremental Term Loan B-5, beginning with the fiscal quarter endedJune 30, 2020 . Voluntary prepayments of the Incremental Term Loan B-5 in connection with certain repricing transactions on or prior to the date that is six months after the draw date will be subject to a call premium of 1.00%. The initial proceeds of the Incremental Term Loan B-5 were used to repay approximately$2,500,000 of the outstanding term loans (Incremental Term Loan B-2 and Incremental Term Loan B-4) under the credit agreement, and the proceeds of the delayed draw tranche of the Incremental Term Loan B-5 were used to distribute$500,000 in cash to Cablevision, the proceeds of which were used to redeem Cablevision's 8.00% senior notes due 2020, representing the entire aggregate principal amount outstanding, and in each case, paying related fees, costs and expenses in connection with such transactions, with the remainder being used to fund cash on the balance sheet. In connection with the repayment of approximately$2,500,000 of the outstanding term loans, a portion of the unamortized discount and unamortized deferred financing costs aggregating$3,879 was written-off and recorded as a loss on extinguishment of debt in the fourth quarter of 2019. During the year endedDecember 31, 2019 , CSC Holdings borrowed$1,050,000 under its revolving credit facility and repaid$1,300,000 of amounts outstanding under its revolving credit facility. The Company was in compliance with all of its financial covenants under the CSC Credit Facilities Agreement as ofDecember 31, 2019 . See Note 11 to our consolidated financial statements for further information regarding the CSC Credit Facilities Agreement. Senior Guaranteed Notes and Senior Notes InJanuary 2019 , CSC Holdings issued$1,500,000 in aggregate principal amount of senior guaranteed notes due 2029 ("CSC Holdings 2029 Guaranteed Notes"). The notes bear interest at a rate of 6.50% and will mature onFebruary 1, 2029 . The net proceeds from the sale of the notes were used to repay certain indebtedness, including to repay at maturity$526,000 aggregate principal amount of CSC Holdings' 8.625% senior notes dueFebruary 2019 plus accrued interest, redeem approximately$905,300 of the aggregate outstanding amount of CSC Holdings' 10.125% senior notes due 2023 at a redemption price of 107.594% plus accrued interest, and paid fees and expenses associated with the transactions. 65 -------------------------------------------------------------------------------- InFebruary 2019 , CSC Holdings issued an additional$250,000 CSC Holdings 2029 Guaranteed Notes at a price of 101.75% of the principal amount, plus accrued interest fromJanuary 31, 2019 . The proceeds of these notes were used to repay the outstanding balance under the CSC Revolving Credit Facility. InJuly 2019 , CSC Holdings issued$1,000,000 in aggregate principal amount of senior notes which bear interest at a rate of 5.75% and will mature onJanuary 15, 2030 ("2030 Senior Notes"). The net proceeds from the sale of the notes were used to repay outstanding borrowings under the CSC Revolving Credit Facility of approximately$622,857 , along with accrued interest and pay fees associated with the transactions. The remaining proceeds were used for general corporate purposes. InJuly 2019 , CSC Holdings distributed cash on hand to Cablevision, the proceeds of which were used to redeem in full$8,886 of outstanding principal amount of 5.125% senior notes due 2021 that were not exchanged in connection with the Exchange Offer. InOctober 2019 , CSC Holdings issued an additional$1,250,000 aggregate principal amount of its 2030 Senior Notes at a price of 104.00% of the principal amount plus accrued interest fromJuly 10, 2019 untilOctober 7, 2019 . The proceeds of these notes were used to redeem$1,240,762 aggregate outstanding principal amount of CSC Holdings 5.125% senior notes due 2021 in full and to pay accrued interest, fees, costs and expenses associated with these transactions. In connection with the redemption, the Company recorded a loss on extinguishment of debt of$65,151 , representing the unamortized discount and deferred financing costs as of the redemption date. See Note 11 of our consolidated financial statements for further details of the Company's outstanding senior guaranteed notes and senior notes. As ofDecember 31, 2019 , the Company was in compliance with all of its financial covenants under the indentures under which our senior guaranteed notes and senior notes were issued. Assumption of Cablevision Senior Notes InNovember 2019 , pursuant to an asset contribution agreement (the "Asset Contribution"), Cablevision contributed to CSC Holdings substantially all of its assets and CSC Holdings assumed all of Cablevision's liabilities, including Cablevision's 5.875% senior notes dueSeptember 2022 with an aggregate outstanding principal amount of$649,024 , Cablevision's 7.750% senior notes dueJuly 2025 with an aggregate outstanding principal amount of$1,740 , and Cablevision's 7.500% senior notes dueApril 2028 with an aggregate outstanding principal amount of$4,118 (the "Assumption of Cablevision Senior Notes"). Other Events InJune 2019 , the Company completed the acquisition ofCheddar Inc. , a digital-first news company, for approximately$198,754 in cash and stock. See Note 10 to the consolidated financial statements for further details. InDecember 2019 ,Altice USA entered into an agreement with CVC 3 B.V., an indirect subsidiary ofAltice Europe ("CVC 3"), whereby CVC 3 assigned all of its interest (the "Partnership Interest") inNeptune Holding US Limited Partnership ("Neptune LP ") toAltice USA in exchange for 6,290,292 shares of Class A common stock ofAltice USA with an aggregate value of$163,862 . At the time of the assignment, the Partnership Interest represented 6,290,292 shares of Class A common stock ofAltice USA held byNeptune LP . As a result of this transaction,Altice USA obtained control ofNeptune LP and accordingly,Neptune LP is consolidated within theAltice USA financial statements. The assets ofNeptune LP which consisted solely of shares of class A common stock ofAltice USA are presented as treasury stock in the consolidated balance sheet ofAltice USA atDecember 31, 2019 . Capital Expenditures The following table presents the Company's capital expenditures:
Years Ended
2019 2018 2017
Customer premise equipment $ 309,413 $ 369,236 $ 308,500
Network infrastructure 619,525 395,074 311,730
Support and other 259,997 226,409 189,209
Business services 166,415 162,870 141,910
Capital purchases (cash basis) $ 1,355,350 $ 1,153,589 $ 951,349
Capital purchases (including accrued not paid and financed
capital) $ 1,397,977 $ 1,305,104 $ 1,020,761
66
-------------------------------------------------------------------------------- Customer premise equipment includes expenditures for set-top boxes, cable modems, routers and other equipment that is placed in a customer's home, as well as installation costs for placing assets into service. Network infrastructure includes: (i) scalable infrastructure, such as headend equipment, (ii) line extensions, such as FTTH and fiber/coaxial cable, amplifiers, electronic equipment, make-ready and design engineering, and (iii) upgrade and rebuild, including costs to modify or replace existing fiber/coaxial cable networks, including enhancements. Support and other capital expenditures includes costs associated with the replacement or enhancement of non-network assets, such as office equipment, buildings and vehicles. Business services capital expenditures include primarily equipment, installation, support, and other costs related to our fiber based telecommunications business serving SMB and enterprise customers. Cash Flow DiscussionAltice USA Operating Activities Net cash provided by operating activities amounted to$2,554,169 ,$2,508,317 and$2,018,247 for the years endedDecember 31, 2019 , 2018 and 2017, respectively. The 2019 cash provided by operating activities resulted from$2,833,078 of income before depreciation and amortization and non-cash items, an increase in liabilities related to interest rate swap contracts of$30,338 , partially offset by increases in accounts receivable of$91,718 , other receivables of$21,755 , and prepaid expenses and other assets of$100,343 , a net decrease in amounts due to affiliates of$7,857 , and decreases in accounts payable of$33,107 , accrued expenses of$44,083 and deferred revenue of$10,384 . The 2018 cash provided by operating activities resulted from$2,644,639 of income before depreciation and amortization and non-cash items, an increase in deferred revenue of$72,426 , an increase in liabilities related to interest rate swap contracts of$53,101 , and a net increase in amounts due to affiliates of$11,049 , partially offset by an increase in accounts receivable of$144,079 , a decrease in accounts payable and accrued expenses of$118,176 , and an increase in current and other assets of$10,643 . The 2017 cash provided by operating activities resulted from$2,318,941 of income before depreciation and amortization and non-cash items and an increase in deferred revenue of$12,310 , partially offset by a decrease in accounts payable and accrued expenses of$167,813 , a net increase in current and other assets of$109,944 , a net decrease in amounts due to affiliates of$34,326 , and a decrease in liabilities related to interest rate swap contracts of$921 . Investing Activities Net cash used in investing activities for the years endedDecember 31, 2019 , 2018 and 2017 was$1,525,469 ,$1,148,357 and$1,092,199 , respectively. The 2019 investing activities consisted primarily of primarily of capital expenditures of$1,355,350 and payments for acquisitions, net of cash acquired of$172,269 , partially offset by other net cash receipts of$2,150 . The 2018 investing activities consisted primarily of capital expenditures of$1,153,589 , partially offset by other net cash receipts of$5,232 . The 2017 investing activities consisted primarily of capital expenditures of$951,349 , payments of$97,410 related to the settlement of put-call options, and payments for acquisitions, net of cash acquired of$46,703 , partially offset by$3,263 in other net cash proceeds. Financing Activities Net cash used in financing activities amounted to$624,412 ,$1,390,996 , and$1,099,041 for the years endedDecember 31, 2019 , 2018 and 2017. In 2019, the Company's financing activities consisted primarily of the redemption and repurchase of senior notes, including premiums and fees of$4,225,786 , the repayment of credit facility debt of$3,832,062 , the purchase of common stock pursuant to a share repurchase program of$1,686,873 , additions to deferred financing costs of$23,583 , net repayment of notes payable of$36,212 , and other net cash payments of$10,480 , partially offset by net proceeds from credit facility debt, net of discounts of$5,040,000 , proceeds from the issuance of senior notes, including premiums and fees of$4,054,375 , proceeds from collateralized indebtedness of$93,000 , and proceeds from stock option exercises of$3,209 . 67
-------------------------------------------------------------------------------- In 2018, the Company's financing activities consisted primarily of the redemption and repurchase of senior notes, including premiums and fees of$2,628,962 , dividends to stockholders of$1,499,935 , the purchase of common stock pursuant to a share repurchase program of$500,000 , payments of collateralized indebtedness and related derivatives of$516,513 , contingent payment for acquisition of$30,000 , additions to deferred financing costs of$28,468 , net repayment of notes payable of$16,677 , and other net cash payments of$11,087 , partially offset by net proceeds from credit facility debt of$1,268,138 , proceeds from the issuance of senior notes of$2,050,000 , proceeds from collateralized indebtedness of$516,513 , and contributions from noncontrolling interests of$5,995 . In 2017, the Company's financing activities consisted primarily of the repayment of senior notes, including premiums and fees, of$1,729,400 , cash distributions paid to stockholders of$919,317 , principal payments on finance lease obligations of$15,157 , and additions to deferred financing costs of$8,600 , partially offset by net proceeds from credit facility debt of$1,182,094 , net proceeds from collateralized indebtedness and related derivative contracts of$7,735 , net proceeds from the Company's IPO of$349,071 , proceeds from notes payable of$33,733 , and other net cash receipt of$800 . CSC Holdings Operating Activities Net cash provided by operating activities amounted to$2,623,742 ,$2,766,075 , and$2,061,935 for the years endedDecember 31, 2019 , 2018 and 2017, respectively. The 2019 cash provided by operating activities resulted from$2,621,132 of income before depreciation and amortization and non-cash items, a net increase in amounts due to affiliates of$247,917 and an increase in liabilities related to interest rate swap contracts of$30,338 , partially offset by increases in accounts receivable of$91,718 , other receivables of$12,512 , and prepaid expenses and other assets of$100,343 , and decreases in accounts payable of$33,107 , accrued expenses of$27,581 and deferred revenue of$10,384 . The 2018 cash provided by operating activities resulted from$2,628,133 of income before depreciation and amortization and non-cash items, an increase in deferred revenue of$72,426 , an increase in liabilities related to interest rate swap contracts of$53,101 , a net increase in amounts due from affiliates of$175,159 , and an increase in accounts payable and accrued expenses of$5,273 , partially offset by an increase in accounts receivable of$144,079 and an increase in current and other assets of$23,938 . The 2017 cash provided by operating activities resulted from$2,593,943 of income before depreciation and amortization and non-cash items and an increase in deferred revenue of$20,634 , offset by a net decrease in amounts due to affiliates of$413,930 , an increase in accounts receivable of$89,683 , a decrease in accounts payable and accrued expenses of$23,266 , a net decrease in current and other assets of$24,842 , and a decrease in liabilities related to interest rate swap contracts of$921 . Investing Activities Net cash used in investing activities for the years endedDecember 31, 2019 , 2018 and 2017 was$1,525,469 ,$1,160,184 , and$994,789 , respectively. The 2019 investing activities consisted primarily of primarily of capital expenditures of$1,355,350 and payments for acquisitions, net of cash acquired of$172,269 , partially offset by other net cash receipts of$2,150 . The 2018 investing activities consisted primarily of capital expenditures of$1,153,589 and other net cash receipts of$6,595 . The 2017 investing activities consisted primarily of capital expenditures of$951,349 , payments for acquisitions, net of cash acquired of$46,703 , partially offset by$3,263 in other net cash proceeds. Financing Activities Net cash used in financing activities amounted to$697,888 ,$1,625,199 , and$1,166,402 for the years endedDecember 31, 2019 , 2018 and 2017, respectively. In 2019, the Company's financing activities consisted primarily of the redemption and repurchase of senior notes, including premiums and fees of$3,703,454 , the repayment of credit facility debt of$3,832,062 , distributions to its parent of$2,279,472 , additions to deferred financing costs of$23,583 , net repayment of notes payable of$36,212 , and other net cash payments of$10,480 , partially offset by net proceeds from credit facility debt, net of discounts of$5,040,000 , proceeds from the issuance of senior notes, including premiums and fees of$4,054,375 and proceeds from collateralized indebtedness of$93,000 . 68
-------------------------------------------------------------------------------- In 2018, the Company's financing activities consisted primarily of distributions to its parent of$3,058,750 , the redemption and repurchase of senior notes, including premiums and fees of$805,206 , payments of collateralized indebtedness and related derivatives of$516,513 , net repayment of notes payable of$32,632 , contingent payment for acquisition of$30,000 , additions to deferred financing costs of$28,471 , and principal payments on finance lease obligations of$10,228 , partially offset by net proceeds from credit facility debt of$1,268,138 , proceeds from the issuance of senior notes of$1,000,000 , proceeds from collateralized indebtedness of$516,513 , proceeds from contributions from parent of$50,000 , proceeds from notes payable of$15,955 , and contributions from noncontrolling interests of$5,995 . In 2017, the Company's financing activities consisted primarily of cash distributions paid to its parent of$2,777,497 , the repayment of senior notes, including premiums and fees, of$350,120 , principal payments on finance lease obligations of$15,157 , additions to deferred financing costs of$8,171 and distributions to noncontrolling interests of$335 , partially offset by net proceeds from credit facility debt of$1,182,094 , contributions from parent of$761,316 , proceeds from notes payable of$33,733 , and net proceeds from collateralized indebtedness and related derivative contracts of$7,735 . Equity Derivative Contracts and Collateralized Debt InNovember 2019 , the Company entered into a new monetization contract related to 5,337,750 shares of Comcast common stock held by us, which synthetically reversed the existing contract related to these shares. In addition, the Company entered into amendments to monetization contracts related to 37,617,486 shares of Comcast common stock held by us. The new and amended monetization contracts extended the maturity date toApril 28, 2023 and provide the Company with downside protection below the hedge price of$40.95 per share and upside benefit of stock price appreciation up to$49.55 per share. Contractual Obligations and Off Balance Sheet Commitments Our contractual obligations as ofDecember 31, 2019 , which consist primarily of our debt obligations and the effect such obligations are expected to have on our liquidity and cash flow in future periods, are summarized in the following table: Payments Due by Period Year Years Years More than Total 1 2-3 4-5 5 years Other Off balance sheet arrangements: Purchase obligations (a)$ 8,238,465 $ 3,547,239 $ 3,685,145 $ 837,711 $ 168,370 $ - Guarantees (b) 37,930 37,870 60 - - - Letters of credit (c) 178,014 1,620 7,360 169,034 - - 8,454,409 3,586,729 3,692,565 1,006,745 168,370 - Contractual obligations reflected on the balance sheet: Debt obligations (d) 34,044,993 1,549,109 4,506,513 6,159,860 21,829,511 - Finance lease obligations (e) 75,701 25,500 40,787 9,131 283 - Operating lease obligations (e) 410,875 48,899 96,403 72,555 193,018 - Taxes (f) 4,027 - - - - 4,027 34,535,596 1,623,508 4,643,703 6,241,546 22,022,812 4,027 Total$ 42,990,005 $ 5,210,237 $ 8,336,268 $ 7,248,291 $ 22,191,182 $ 4,027 (a)Purchase obligations primarily include contractual commitments with various programming vendors to provide video services to our customers and minimum purchase obligations to purchase goods or services, including contracts to acquire handsets and other equipment. Future fees payable under contracts with programming vendors are based on numerous factors, including the number of customers receiving the programming. Amounts reflected above related to programming agreements are based on the number of customers receiving the programming as ofDecember 31, 2019 multiplied by the per customer rates or the stated annual fee, as applicable, contained in the executed agreements in effect as ofDecember 31, 2019 . See Note 17 to our consolidated financial statements for a discussion of our program rights obligations. 69 -------------------------------------------------------------------------------- (b)Includes franchise and performance surety bonds primarily for our cable television systems. Also includes outstanding guarantees primarily by CSC Holdings in favor of certain financial institutions in respect of ongoing interest expense obligations in connection with the monetization of our holdings of shares of Comcast common stock. Payments due by period for these arrangements represent the year in which the commitment expires. (c)Consists primarily of letters of credit issued by the Company in favor of insurance providers and certain governmental authorities. Payments due by period for these arrangements represent the year in which the commitment expires. (d)Includes interest and principal payments due on our (i) credit facility debt, (ii) senior guaranteed notes, senior secured notes, and senior notes, (iii) notes payable and supply chain financing and (iv) collateralized indebtedness. See Notes 11 and 12 to our consolidated financial statements for a discussion of our long-term debt. (e)Reflects the principal amount of operating and finance lease obligations, including related interest. Lease obligations presented in the table above do not include rent related to utility poles used in our operations. The Company's pole rental agreements are for varying terms, and management anticipates renewals as they expire. Rent expense incurred for pole rental attachments for the years endedDecember 31, 2019 , 2018 and 2017 was$31,903 ,$33,082 , and$31,308 , respectively. See Note 9 to our consolidated financial statements for a discussion of our operating and finance leases. (f)Represents tax liabilities, including accrued interest, relating to uncertain tax positions. See Note 14 to our consolidated financial statements for a discussion of our income taxes. The table above does not include obligations for payments required to be made under multi-year franchise agreements based on a percentage of revenues generated from video services per year. For the years endedDecember 31, 2019 , 2018 and 2017, the amount of franchise fees and certain other taxes and fees included as a component of revenue aggregated$254,227 ,$257,467 and$259,075 , respectively. Dividends and Distributions In the second quarter of 2017, prior to the Company's IPO, the Company declared and paid cash distributions aggregating$839,700 ,$500,000 of which were funded with proceeds from borrowings under CSC Holdings' revolving credit facility. In 2016, the Company declared cash distributions of$445,176 , of which$365,559 were paid in 2016 and$79,617 were paid in the first quarter of 2017. Prior toAltice Europe's announcement of the Distribution, the Board of Directors ofAltice USA , acting through its independent directors, approved the payment of a$2.035 per share dividend to all shareholders of record onMay 22, 2018 . The payment of the dividend, aggregating$1,499,935 , was made onJune 6, 2018 , and was funded with cash at CSC Holdings from financings completed inJanuary 2018 , and cash generated from operations. Share Repurchase Program InJune 2018 , the Board of Directors ofAltice USA authorized a share repurchase program of$2.0 billion , and onJuly 30, 2019 , the Board of Directors authorized a new incremental three-year share repurchase program of$5.0 billion that took effect following the completion inAugust 2019 of the$2.0 billion repurchase program. Under these repurchase programs, shares of AlticeUSA Class A common stock may be purchased from time to time in the open market and may include trading plans entered into with one or more brokerage firms in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934. Size and timing of these purchases will be determined based on market conditions and other factors. Funding for the repurchase program will be met with cash on hand and/or borrowings under the Company's revolving credit facilities. For the year endedDecember 31, 2019 , the Company repurchased 72,668,712 shares for a total purchase price of approximately$1,686,873 . From the inception of the repurchase program, the Company acquired 100,697,392 for a total purchase price of approximately$2,186,874 . These acquired shares have been retired and the associated cost was recorded in paid-in capital in the Company's consolidated balance sheet. Managing our Interest Rate and Equity Price Risk Interest Rate Risk Interest rate risk is primarily a result of exposures to changes in the level, slope and curvature of the yield curve, the volatility of interest rates and credit spreads. Our exposure to interest rate risk results from changes in short-term interest rates. Interest rate risk exists primarily with respect to our credit facility debt, which bears interest at variable rates. 70 -------------------------------------------------------------------------------- To manage interest rate risk, we have from time to time entered into interest rate swap contracts to adjust the proportion of total debt that is subject to variable and fixed interest rates. Such contracts effectively fix the borrowing rates on floating rate debt to provide an economic hedge against the risk of rising rates and/or effectively convert fixed rate borrowings to variable rates to permit the Company to realize lower interest expense in a declining interest rate environment. We monitor the financial institutions that are counterparties to our interest rate swap contracts and we only enter into interest rate swap contracts with financial institutions that are rated investment grade. All such contracts are carried at their fair market values on our consolidated balance sheet, with changes in fair value reflected in the consolidated statement of operations. See "Item 7A. Quantitative and Qualitative Disclosures About Market Risk" for a summary of interest rate swap contracts outstanding atDecember 31, 2019 . As ofDecember 31, 2019 , our outstanding interest rate swap contracts in a liability position had an aggregate fair value and carrying value of$160,871 reflected in "Liabilities under derivative contracts, long term" and$469 reflected in "Other current liabilities" on our consolidated balance sheet. These outstanding swap contracts are not designated as hedges for accounting purposes. Accordingly, the changes in the fair value of these interest rate swap contracts are recorded through the statement of operations. For the year endedDecember 31, 2019 , the Company recorded a loss on interest rate swap contracts of$53,902 . As ofDecember 31, 2019 , we did not hold and have not issued derivative instruments for trading or speculative purposes. See discussion above for further details of our credit facility debt and See "Item 7A. Quantitative and Qualitative Disclosures About Market Risk" below for a discussion regarding the fair value of our debt. Equity Price Risk We have entered into derivative contracts to hedge our equity price risk and monetize the value of our shares of common stock of Comcast. These contracts, at maturity, are expected to offset declines in the fair value of these securities below the hedge price per share while allowing us to retain upside appreciation from the hedge price per share to the relevant cap price. If any one of these contracts is terminated prior to its scheduled maturity date due to the occurrence of an event specified in the contract, we 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 ofDecember 31, 2019 we did not have an early termination shortfall relating to any of these contracts. The underlying stock and the equity collars are carried at fair value in our consolidated balance sheets and the collateralized indebtedness is carried at its principal value, net of discounts and the unamortized fair value adjustment for contracts that existed at the date of the Cablevision Acquisition. See "Item 7A. Quantitative and Qualitative Disclosures About Market Risk" for information on how we participate in changes in the market price of the stocks underlying these derivative contracts. All of our monetization transactions are obligations of our wholly-owned subsidiaries that are not part of theRestricted Group ; however, CSC Holdings provides 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). The guarantee exposure approximates the net sum of the fair value of the collateralized indebtedness less the sum of the fair values of the underlying stock and the equity collar. All of our equity derivative contracts are carried at their current fair value in our consolidated balance sheets with changes in value reflected in our consolidated statements of operations, and all of the counterparties to such transactions currently carry investment grade credit ratings. Critical Accounting Policies In preparing its financial statements, the Company is required to make certain estimates, judgments and assumptions that it believes are reasonable based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. The significant accounting policy, which we believe is the most critical to aid in fully understanding and evaluating our reported financial results, is the following: Plant and Equipment Costs incurred in the construction of the Company's cable systems, including line extensions to, and upgrade of, the Company's HFC infrastructure and construction of the parallel FTTH infrastructure, are capitalized. This includes initial placement of the feeder cable to connect a customer that had not been previously connected, and headend facilities are capitalized. These costs consist of materials, subcontractor labor, direct consulting fees, and internal labor and related costs associated with the construction activities. The internal costs that are capitalized consist of 71 -------------------------------------------------------------------------------- salaries and benefits of the Company's employees and the portion of facility costs, including rent, taxes, insurance and utilities, that supports the construction activities. These costs are depreciated over the estimated life of the plant (10 to 25 years) and headend facilities (5 to 25 years). Costs of operating the plant and the technical facilities, including repairs and maintenance, are expensed as incurred. Costs associated with the initial deployment of new customer premise equipment necessary to provide broadband, video and telephony services are also capitalized. These costs include materials, subcontractor labor, internal labor, and other related costs associated with the connection activities. The departmental activities supporting the connection process are tracked through specific metrics, and the portion of departmental costs that is capitalized is determined through a time weighted activity allocation of costs incurred based on time studies used to estimate the average time spent on each activity. These installation costs are amortized over the estimated useful lives of the CPE necessary to provide broadband, video and telephony services. The portion of departmental costs related to disconnecting services and removing CPE from a customer, costs related to connecting CPE that has been previously connected to the network, and repair and maintenance are expensed as incurred. The estimated useful lives assigned to our property, plant and equipment are reviewed on an annual basis or more frequently if circumstances warrant and such lives are revised to the extent necessary due to changing facts and circumstances. Any changes in estimated useful lives are reflected prospectively. Refer to Note 2 to our consolidated financial statements for a discussion of our accounting policies. Recently Issued But Not Yet Adopted Accounting Pronouncements See Note 3 to the accompanying consolidated financial statements contained in "Part II. Item 8. Financial Statements and Supplementary Data" for a discussion of recently issued accounting standards. 72
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