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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2000
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ________ to _______
Commission File Registrant; State of Incorporation; IRS Employer
Number Address and Telephone Number Identification No.
- ------ ---------------------------- ------------------
1-14764 Cablevision Systems Corporation 11-3415180
Delaware
1111 Stewart Avenue
Bethpage, NY 11714
(516) 803-2300
1-9046 CSC Holdings, Inc. 11-2776686
Delaware
1111 Stewart Avenue
Bethpage, NY 11714
(516) 803-2300
Securities registered pursuant to Section 12(b) of the Act:
Name of each Exchange
Title of each class: on which Registered:
Cablevision Systems Corporation
Cablevision NY Group Class A Common Stock New York Stock Exchange
Rainbow Media Group Class A Common Stock New York Stock Exchange
CSC Holdings, Inc. None
Securities registered pursuant to Section 12(g) of the Act:
Cablevision Systems Corporation None
CSC Holdings, Inc. None
Indicate by check mark whether the registrants (1) have 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
registrants were required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Cablevision Systems Corporation Yes |X| No |_|
CSC Holdings, Inc. Yes |X| No |_|
Indicate by a check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrants' knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. _____
Aggregate market value of voting stock held by nonaffiliates of Cablevision
Systems Corporation based on the closing price at which such stock was sold on
the New York Stock Exchange on March 16, 2001: $11,198,925,004.
Number of shares of common stock outstanding as of March 16, 2001:
Cablevision Systems Corporation Class A Common Stock - 132,994,246
Cablevision Systems Corporation Class B Common Stock - 42,145,986
CSC Holdings, Inc. Common Stock - 1,000
Documents incorporated by reference - The Registrants intend to file with the
Securities and Exchange Commission, not later than 120 days after the close of
their fiscal year, a definitive proxy statement or an amendment to this report
containing the information required to be disclosed under Part III of Form 10-K
under cover of Form 10-K/A.
TABLE OF CONTENTS
Page
----
Part I
Item 1. Business. 1
2. Properties. 31
3. Legal Proceedings. 31
4. Submission of Matters to a Vote of
Security Holders. 32
Part II
5. Market for the Registrants' Common Equity
and Related Stockholder Matters. 33
6. Selected Financial Data. 35
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 39
7A. Quantitative and Qualitative Disclosures About
Market Risk. 40
8. Financial Statements and Supplementary Data. 41
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure. 41
Part III*
10. Directors and Executive Officers of the
Registrant. *
11. Executive Compensation. *
12. Security Ownership of Certain Beneficial
Owners and Management. *
13. Certain Relationships and Related
Transactions. *
Part IV
14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K. 41
* These items are omitted because the registrant intends to file with the
Securities and Exchange Commission, not later than 120 days after the
close of its fiscal year, a definitive proxy statement or an amendment to
this report containing the information required to be disclosed under Part
III of Form 10-K under cover of Form 10-K/A.
PART I
Item 1. Business
This combined Annual Report on Form 10-K is separately filed by Cablevision
Systems Corporation ("Cablevision Parent" or the "Company") and CSC Holdings,
Inc. ("CSC Holdings").
Cablevision Parent
Cablevision Parent is a Delaware corporation which was organized in 1997.
Cablevision Parent's only asset is all of the outstanding common stock of CSC
Holdings. In 1999, all of the ownership interests Cablevision Parent held in the
entities that own certain cable television systems acquired from
Tele-Communications, Inc. ("TCI") in 1998 (the "TCI Systems") and the interest
it held in CCG Holdings, Inc., which owns the Company's motion picture theater
assets, were contributed to CSC Holdings. References herein to the "Systems"
refer to the cable television systems owned by CSC Holdings.
CSC Holdings
CSC Holdings is a Delaware corporation which was organized in 1985 and, adjusted
for the January 5, 2001 sale of its cable television systems in Massachusetts
(which had 362,000 subscribers at December 31, 2000) and the associated
acquisition of cable systems in certain northern New York suburbs (which had
130,000 subscribers at December 31, 2000), owns and operates cable television
systems in 4 states with approximately 2,961,000 subscribers at December 31,
2000. Through Rainbow Media Holdings, Inc. ("Rainbow Media Holdings"), a company
owned 74% by CSC Holdings and 26% by NBC-Rainbow Holding, Inc., a subsidiary of
National Broadcasting Company, Inc. ("NBC"), CSC Holdings owns interests in and
manages numerous national and regional programming networks, the Madison Square
Garden sports and entertainment business and cable television advertising sales
companies. CSC Holdings, through Cablevision Lightpath, Inc. ("Lightpath"), a
wholly-owned subsidiary of CSC Holdings, provides switched telephone service.
CSC Holdings also owns Cablevision Electronics Investments, Inc. ("Cablevision
Electronics"), doing business as The WIZ, an electronics retailer operating 42
retail locations in the New York metropolitan area and CCG Holdings, Inc., doing
business as Clearview Cinemas, which owns 65 motion picture theaters containing
a total of 297 screens in the New York metropolitan area.
Tracking Stock
In March 2001, Cablevision Parent amended its certificate of incorporation to,
among other things, (i) authorize the creation and distribution of a new class
of common stock, to be designated as its Rainbow Media Group ("RMG") tracking
stock which is intended to reflect the performance of the assets and businesses
of Cablevision Parent attributed to RMG, (ii) increase the aggregate number of
authorized shares of common stock that Cablevision Parent may issue from 560
million to 1.88 billion, and (iii) redesignate each share of Cablevision Parent
common stock into a share of its Cablevision NY Group ("CNYG") common stock,
which is intended to reflect the performance of all of Cablevision Parent's
assets and businesses which have not been attributed to RMG. The RMG tracking
stock was distributed on March 29, 2001 to holders of Cablevision Parent common
stock at a ratio of one share of RMG for every two shares of
(1)
Cablevision Parent stock held. The RMG tracking stock began trading on the New
York Stock Exchange ("NYSE") under the symbol RMG on March 30, 2001 and the
redesignated CNYG common stock continues trading on the NYSE under the symbol
"CVC."
CNYG includes the following businesses and interests:
o the cable television business, including the residential telephone
and high-speed modem businesses,
o the commercial telephone and internet operations of Lightpath,
o the New York metropolitan area sports and entertainment business,
including Madison Square Garden, professional sports teams, Radio
City Music Hall, MSG Network and Fox Sports Net New York,
o the electronics retail operations of Cablevision Electronics, doing
business as The WIZ,
o the motion picture theater business, doing business as Clearview
Cinemas,
o the MetroChannels and the regional news businesses, doing business
as News 12 Networks, in the New York metropolitan area,
o the advertising sales representation business,
o equity interests in At Home Corporation, a provider of multimedia
internet services,
o the common stock of Charter Communications, Inc. ("Charter")
received in September 2000 upon the sale of the Kalamazoo, Michigan
cable television systems,
o the common stock of Adelphia Communications Corporation ("Adelphia")
received in November 2000 upon the sale of the cable television
systems in the greater Cleveland, Ohio metropolitan area,
o the AT&T Corp. ("AT&T") common stock received in January 2001 upon
the sale of cable television systems in Boston and Eastern
Massachusetts,
o the interest in certain direct broadcast satellite assets, and
o the interest in Northcoast Communications, LLC, a wireless personal
communications services business.
The Company has a 74% interest in Rainbow Media Holdings. Certain of Rainbow
Media Holdings' national programming assets and investments are attributed to
RMG and include:
o Rainbow Media Holdings' 100% ownership interest in five nationally
distributed 24-hour entertainment programming networks:
o American Movie Classics,
o Bravo,
o The Independent Film Channel,
(2)
o WE: Women's Entertainment, and
o MuchMusic USA,
o Rainbow Media Holdings' 60% ownership interest in the following
regional sports networks owned by Regional Programming Partners,
both of which Rainbow Media Holdings manages under the Fox Sports
Net name:
o Fox Sports Net Florida, and
o Fox Sports Net Ohio,
o Rainbow Media Holdings' 30% ownership interest in the following
regional sports networks owned by Regional Programming Partners, all
of which Rainbow Media Holdings manages under the Fox Sports Net
name:
o Fox Sports Net Chicago,
o Fox Sports Net Bay Area, and
o Fox Sports Net New England,
o Rainbow Media Holdings' 50% ownership interest in National Sports
Partners, which owns and distributes Fox Sports Net,
o Rainbow Media Holdings' 50% interest in National Advertising
Partners, which provides national advertising representation
services to all of the Fox Sports Net regional sports networks,
o Rainbow Network Communications, a full service network programming
origination and distribution company,
o Sterling Digital LLC, a company designed to develop new niche
audience programming, and
o Rainbow Media Holdings' 48% interest in a regional sports news
business.
See discussion below under "Arrangements with NBC" for the Company's agreement
with NBC to permit NBC to exchange its 26% interest in Rainbow Media Holdings
for 34% of the Rainbow Media Group tracking stock.
The Holding Company Reorganization and TCI Transactions
Until March 4, 1998, CSC Holdings was known as Cablevision Systems Corporation.
On that date, CSC Holdings completed a reorganization whereby it formed a
holding company (now named Cablevision Systems Corporation) and CSC Holdings
became a subsidiary of Cablevision Systems Corporation. This transaction is
referred to herein as the "Reorganization".
Prior to the Reorganization, CSC Holdings had two outstanding classes of common
stock. Its Class A Common Stock was publicly traded on the American Stock
Exchange (the "ASE") and its Class B Common Stock was privately held. In the
Reorganization, the Class A Common Stock and Class B Common Stock of CSC
Holdings were converted into identical securities of Cablevision Parent and the
Class A Common Stock of Cablevision Parent became listed on the ASE and traded
under the symbol "CVC". On December 7, 1999, the Company's Class A Common Stock
began trading on the NYSE. Cablevision Parent owns all of the common stock of
CSC Holdings.
(3)
CSC Holdings' outstanding preferred stock and debt was unaffected by the
Reorganization except that CSC Holdings' 8-1/2% Series I Cumulative Convertible
Exchangeable Preferred Stock was convertible into Cablevision Parent's Class A
Common Stock rather than CSC Holdings' Class A Common Stock. As of December 31,
1999, all shares of the Series I Preferred Stock had been converted into
Cablevision Parent's Class A Common Stock or redeemed for cash.
TCI Transactions
On March 4, 1998, Cablevision Parent completed transactions with TCI ("TCI
Transactions") pursuant to which Cablevision Parent acquired the TCI Systems
located in New Jersey, on Long Island and in New York's Rockland and Westchester
counties. Cablevision Parent issued to certain TCI entities an aggregate of
48,942,172 shares of Cablevision Parent's Class A Common Stock (See "The Holding
Company Reorganization and TCI Transactions"). In addition, Cablevision Parent
assumed certain related liabilities, including an aggregate amount of
indebtedness for borrowed money equal to $669 million (the "Assumed Debt"). The
Assumed Debt was refinanced immediately following the closing of the
transactions with borrowings under a new $800 million bridge revolving credit
facility entered into by wholly-owned subsidiaries of Cablevision Parent that
were acquired from TCI or that hold assets contributed by TCI (the "Contributed
Business Subsidiaries"). The Contributed Business Subsidiaries were wholly-owned
(directly or indirectly) by Cablevision Parent until April 1999 when Cablevision
Parent contributed these entities to CSC Holdings.
Contemporaneous with the Reorganization, CSC Holdings acquired the remaining 1%
interest in Cablevision of New York City, L.P. of Mr. Charles F. Dolan ("Mr.
Dolan"), the Chairman of the Company's Board of Directors, and satisfied certain
payment obligations for a cash payment of approximately $194 million. This
transaction was effected pursuant to the provisions of agreements entered into
in 1992, as amended in 1997 to delay the exercise date to coincide with the
consummation of the Reorganization and related transactions.
Cablevision Parent contributed the Contributed Business Subsidiaries to CSC
Holdings in April 1999.
In connection with the TCI Transactions, Cablevision Parent, TCI and certain
holders of Cablevision Parent Class B Common Stock entered into a Stockholders
Agreement providing, among other things, for TCI's right to designate two Class
B directors to Cablevision Parent's Board of Directors, limits on TCI's ability
to buy more than an additional 10% of Cablevision Parent Class A Common Stock
and limitations on TCI's ability to transfer Cablevision Parent common stock.
On March 9, 1999, TCI merged with a subsidiary of AT&T and became a wholly-owned
subsidiary of AT&T.
(4)
Cable Television Operations
The Company's cable television operations are wholly attributed to CNYG.
General.
Cable television is a service that delivers multiple channels of television
programming to subscribers who pay a monthly fee for the services they receive.
Television signals are received over-the-air or via satellite delivery by
antennas, microwave relay stations and satellite earth stations and are
modulated, amplified and distributed over a network of coaxial and fiber optic
cable to the subscribers' television sets. Cable television systems typically
are constructed and operated pursuant to non-exclusive franchises awarded by
local governmental authorities for specified periods of time.
The Company's cable television systems offer varying levels of service which may
include, among other programming, local broadcast network affiliates and
independent television stations, certain other news, information and
entertainment channels such as CNN, CNBC, ESPN, and MTV, and certain premium
services such as HBO, Showtime, The Movie Channel, Starz and Cinemax.
The Company's cable television revenues are derived principally from monthly
fees paid by subscribers. In addition to recurring subscriber revenues, the
Company derives revenues from the sales of pay-per-view movies and events, from
the sale of advertising time on advertiser supported programming and from
installation charges. Certain services and equipment provided by substantially
all of the Company's cable television systems are subject to regulation.
As of December 31, 2000, the Company's cable television systems served
approximately 3,193,000 subscribers, primarily in the greater New York and
Boston metropolitan areas. See "Cable System Sales" below.
The following table sets forth certain statistical data regarding the Company's
cable television operations as of the dates indicated.
As of December 31,
-------------------------------------------
2000 1999 1998
-------------------------------------------
Homes passed by cable (1) ...................... 4,698,000 5,200,000 5,115,000
Basic service subscribers ...................... 3,193,000 3,492,000 3,412,000
Basic service subscribers as a percentage of
homes passed .............................. 68.0% 67.2% 66.7%
Number of premium television units (3) ......... 7,767,000 7,715,000 6,754,000
Average number of premium units per basic
subscriber at period end (3) .............. 2.4 2.2 2.0
Average monthly revenue per basic subscriber (2) $46.57 $44.38 $42.56
- ----------
(1) Homes passed is based upon homes actually marketed and does not include
multiple dwelling units passed by the cable plant that are not connected
to it.
(2) Based on recurring service revenues for the last month of the period,
excluding installation charges and certain other non-recurring revenues
such as pay-per-view, advertising and home shopping revenues. See
"Subscriber Rates and Services; Marketing and Sales."
(3) Restated for 1998 to conform to 1999's definition.
(5)
Effective January 5, 2001, with the sale of the Company's Massachusetts systems,
the Company's cable television systems are concentrated in the New York City
greater metropolitan area. Giving effect to the sale of the cable television
systems in Massachusetts and the associated acquisition of cable television
systems in certain northern New York suburbs, the Company would have served
2,961,000 subscribers at December 31, 2000. The Company believes that its cable
systems in the New York City greater metropolitan area comprise the largest
metropolitan cluster of cable television systems under common ownership in the
United States (measured by number of subscribers).
Cable Television System Sales.
In 1997 and 1998, the Company completed the sale or transfer of cable television
systems in Alabama, Florida, Illinois, Kentucky, Maine, Missouri, upstate New
York, North Carolina, Toledo, Ohio and neighboring states, representing
approximately 440,000 subscribers for an aggregate sales price of $514.7 million
in cash.
In addition, in October 1998, the Company transferred its cable television
system in Rensselaer, New York (which served approximately 29,600 subscribers at
September 30, 1998), plus approximately $16 million in cash to Time Warner
Entertainment Company, L.P. in exchange for Time Warner's Litchfield,
Connecticut system (which served approximately 28,400 subscribers at the date of
transfer).
In September 2000, the Company completed the sale of its cable television system
serving Kalamazoo, Michigan (which served approximately 49,500 subscribers on
the closing date) to Charter in exchange for 11,173,376 shares of Charter common
stock valued at approximately $165.5 million at closing.
In November 2000, the Company completed the sale of its cable television systems
in the greater Cleveland, Ohio metropolitan area (which served approximately
312,700 subscribers on the closing date) to Adelphia for total consideration of
$1.35 billion ($991 million in cash and 10,800,000 shares of Adelphia class A
common stock valued at approximately $359.1 million at closing).
In January 2001, the Company completed the sale of its cable television systems
in Boston and Eastern Massachusetts (which served approximately 362,000
subscribers on the closing date) to AT&T in exchange for AT&T's cable systems in
certain northern New York suburbs (which served approximately 130,000
subscribers on the closing date), 44,260,932 shares of AT&T stock valued at
approximately $893.5 million at closing and approximately $289.9 million in
cash.
Subscriber Rates and Services; Marketing and Sales.
The Company's cable television systems offer a package of services, generally
marketed as "Family Cable", which includes, among other programming, broadcast
network local affiliates and independent television stations and certain other
news, information and entertainment channels such as CNN, CNBC, ESPN and MTV.
For additional charges, the Company's cable television systems provide certain
premium services such as HBO, Showtime, The Movie Channel, Starz and Cinemax,
which may be purchased either individually (in conjunction with Family Cable) or
in combinations or in tiers.
(6)
In addition, the Company's cable television systems offer a basic package which
includes broadcast network local affiliates and public, educational or
governmental channels and certain leased access channels.
The Company has a branded product offering called "Optimum TV", which packages
all of the premium networks available on its cable systems at discounted prices.
Optimum TV includes the Family and basic services noted above, as well as all of
the premium a la carte programming available on the cable system, grouped into
three premium packages. Optimum TV also includes additional pay-per-view
channels that offer movies and sporting events on a transactional basis.
In other areas, the Company offers premium services on an individual basis and
as components of different "tiers". Successive tiers include additional premium
services for additional charges that reflect discounts from the charges for such
services if purchased individually. For example, in most of the Company's cable
systems, subscribers may elect to purchase Family Cable plus one, two or three
premium services with declining incremental costs for each successive tier.
Since its existing cable television systems are substantially fully built, the
Company's sales efforts are primarily directed toward increasing penetration and
revenues in its franchise areas. The Company markets its cable television
services through in person selling, as well as telemarketing, direct mail
advertising, promotional campaigns and local media and newspaper advertising.
Certain services and equipment (converters supplied to subscribers) provided by
substantially all of the Company's cable television systems are subject to
regulation. See "Regulation - Cable Television - 1992 Cable Act."
System Capacity.
The Company is engaged in an ongoing effort to upgrade the technical
capabilities of its cable plant and to increase channel capacity for the
delivery of additional programming and new services. The Company's cable
television systems have a minimum capacity of 42 channels. Currently 95% of its
homes are served by at least 77 channels and 71% of the total plant is 750 MHz
capable two-way interactive. As a result of ongoing upgrades, the Company
expects that by December 2001 approximately 97% of its subscribers will be
served by systems having a capacity of at least 77 channels and 84% of the total
plant will be 750 MHz capable two-way interactive. All of the system upgrades
either completed or underway will utilize fiber optic cable.
Programming.
Adequate programming is available to the Systems from a variety of sources
including that available from Rainbow Media Holdings and affiliates of AT&T, Fox
Entertainment Group, Inc. and NBC. Program suppliers' compensation is typically
a fixed, per subscriber monthly fee based, in most cases, either on the total
number of subscribers of the cable systems and certain of its affiliates, or on
the number of subscribers subscribing to the particular service. The programming
contracts are generally for a fixed period of time and are subject to negotiated
renewal. Cable programming costs have increased in recent years and are expected
to continue to increase due to additional programming being provided to most
subscribers, increased costs to produce or purchase cable programming and other
factors. The Company believes that the Systems will continue to have access to
programming services at reasonable price levels.
(7)
Franchises.
The cable systems are operated primarily in New York, New Jersey and Connecticut
under non-exclusive franchise agreements with franchising authorities. Franchise
authorities generally charge a franchise fee of up to 5% of certain revenues of
the Company derived from the operation of the system within such locality. As
permitted by law, these fees are generally collected from subscribers and
remitted to the local franchising authority.
Franchise agreements are usually for a term of ten to fifteen years from the
date of grant, although some renewals have been for shorter terms, generally
between five and ten years in length. Some of the franchises grant the Company
an option to renew upon expiration of the initial term. With the exception of
one franchise that expires in 2002, the remainder of the Company's ten largest
franchises expire between 2007 and 2010.
In situations where franchises have expired or not been renewed, the Company
operates under temporary authority granted by the state cable television
regulatory agencies, while negotiating renewal terms with franchising
authorities. The Cable Communications Policy Act of 1984 (the "1984 Cable Act")
and the Cable Television Consumer Protection and Competition Act of 1992 (the
"1992 Cable Act") provide significant procedural protections for cable operators
seeking renewal of their franchises. See "Regulation - Cable Television." In
connection with a renewal, a franchise authority may impose different and more
stringent terms.
Franchises usually require the consent of franchising authorities prior to the
sale, assignment, transfer or change in ownership or control. Federal law
generally provides localities with 120 days to consider such requests.
Telephone and Modem Services
The Company's telephone and modem operations are attributed to CNYG.
The Company, through Lightpath, a Competitive Local Exchange Carrier, provides
basic and advanced local telecommunications services to the business market.
Lightpath provides a full range of local dial tone, switched services, private
line and advanced networking features on the local and long distance levels on
its own facilities and network. As of December 31, 2000, Lightpath serviced over
1,780 industrial, commercial and institutional accounts on Long Island.
In addition, the Company provides residential telephone and cable modem internet
access service in portions of the greater New York City metropolitan area and
parts of southern Connecticut. High speed internet access is provided to
customers through a cable modem device that the Company sells at a discount,
either directly or through certain of its The WIZ retail locations, to customers
who agree to subscribe to the service for a specified period. At December 31,
2000, the Company served approximately 239,000 modem subscribers and
approximately 12,000 residential telephone subscribers.
(8)
The WIZ
The Company's retail electronics operations are attributed to CNYG.
In February 1998, Cablevision Electronics acquired substantially all of the
assets associated with 40 The WIZ consumer electronics store locations from The
Wiz, Inc. and certain of its subsidiaries and affiliates (collectively, "TWI").
The WIZ is an electronics retailer selling primarily video and audio equipment,
home office equipment, compact disks and other pre-recorded music, digital video
disks, and VHS video and other pre-recorded movies. TWI had filed for bankruptcy
protection on December 16, 1997. Cablevision Electronics paid approximately $93
million, including transaction costs, for the assets. In addition, prior to
closing, Cablevision Electronics provided approximately $8 million for TWI to
meet certain operating costs.
Theaters
The Company's theater operations are attributed to CNYG.
In December 1998, a subsidiary of the Company acquired all of the outstanding
shares of stock of Clearview Cinema Group, Inc. ("Clearview") which operated
a chain of movie theaters in the New York metropolitan area. The total purchase
price amounted to approximately $158.7 million (including assumed debt of $80
million) of which approximately $33.4 million was paid in shares of
Cablevision Parent's Class A Common Stock.
From December 1998 through February 1999, a subsidiary of the Company acquired a
total of 16 movie theaters from Loews Cineplex Entertainment Corporation
("Loews"), for an aggregate purchase price of approximately $89.8 million. These
theaters are located in the New York metropolitan area.
Additionally, in 1999, a subsidiary of the Company acquired a total of 7 movie
theaters in New York and New Jersey for an aggregate purchase price of $7.2
million.
PCS
The Company's investment in PCS licenses is attributed to CNYG.
CSC Holdings holds a 49.9% interest, and certain preferential distribution
rights, in Northcoast Communications, LLC ("Northcoast"). Northcoast holds
certain licenses to conduct a personal communications service ("PCS") business.
CSC Holdings has contributed an aggregate of approximately $114.6 million as of
December 31, 2000 to Northcoast (either directly or through a loan to Northcoast
Operating Co., Inc., the other member in Northcoast).
Other Investments
The Company's investment in a DBS business is attributed to CNYG.
Rainbow Media Holdings holds a 50% interest in R/L DBS Company LLC ("R/L DBS"),
a joint venture with Loral Space and Communications, Ltd. ("Loral"). R/L DBS
holds certain frequencies granted by the FCC for the operation of a direct
broadcast satellite business. CSC Holdings has
(9)
contributed an aggregate of approximately $16.3 million through December 31,
2000 to R/L DBS or its predecessor businesses.
On December 29, 2000, the Federal Communications Commission granted an extension
to R/L DBS' construction permit relating to the DBS frequencies held by R/L DBS.
The extension requires the launch of a satellite and commencement of service
offerings by not later than December 29, 2003, with specified six month interim
construction milestones, non-compliance with which will result in the forfeiture
of the construction permit. R/L DBS has entered into preliminary design and
construction agreements with two satellite manufacturers permitting it to
maintain compliance with the FCC milestones while it continues to evaluate its
options.
In March 2001, subject to the receipt of regulatory and other necessary
approvals, Rainbow Media Holdings and Loral entered into an agreement for
Rainbow Media Holdings to acquire Loral's 50% interest in R/L DBS for a
purchase price of up to a present value of $40 million payable only from
revenues of R/L DBS' business, if any, or from any future sale of all or part
of the interests in or assets of R/L DBS.
Other Assets
The Company's investment in equity securities is attributed to CNYG.
The Company owns 11,173,376 shares of Charter common stock, 10,800,000 shares of
Adelphia class A common stock and 44,260,932 shares of AT&T common stock
acquired in connection with the sale of certain cable television systems. See
"Cable Television System Sales".
In addition, the Company owns warrants to acquire 20,462,596 shares of common
stock of At Home Corporation for $0.25 per share. At Home Corporation
distributes high-speed interactive services to residences and businesses using
its own network architecture and a variety of transport options, including the
cable industry's hybrid fiber coaxial infrastructure and offers media services
through the Excite Network. These warrants were issued to the Company in
exchange for certain agreements of the Company with respect to the distribution
of the At Home internet access service to cable subscribers. In certain areas,
the Company also agreed to distribute the At Home service exclusively.
There have been a number of performance issues associated with the At Home
service. The Company is continuing to use its Optimum Online service for new
internet installations in order to take full advantage of the current market
opportunity while these performance issues are addressed by At Home Corporation.
In 2000, the Company recorded an asset impairment write-down of $139.7 million
related to these warrants.
(10)
Programming and Entertainment Operations
The Company attributes certain of its programming and entertainment operations
to CNYG and others to RMG (see "Tracking Stock" above).
General.
The Company conducts its programming activities through Rainbow Media Holdings,
a company currently 74% owned by CSC Holdings and 26% by NBC.
Rainbow Media Holdings' businesses include national and regional programming
networks and the Madison Square Garden sports and entertainment business.
Rainbow Media Holdings also owns interests in cable television advertising
businesses.
Rainbow Media Holdings' national entertainment programming networks include
American Movie Classics, Bravo, WE: Women's Entertainment, MuchMusic USA and The
Independent Film Channel.
In February 2001, the Company entered into an agreement with Metro-Goldwyn-Mayer
Inc. ("MGM") for MGM to acquire a 20% interest in four programming services of
Rainbow Media Holdings (American Movie Classics, Bravo, The Independent Film
Channel, and WE: Women's Entertainment) for $825 million in cash. The
transaction is expected to close in April 2001.
Rainbow Media Holdings owns a 60% interest in, and manages, Regional Programming
Partners, a partnership with Fox Sports Networks, LLC ("Fox"). Regional
Programming Partners ("RPP") owns Madison Square Garden, a sports and
entertainment company that owns and operates the Madison Square Garden Arena and
the adjoining Theater at Madison Square Garden, the New York Knickerbockers
professional basketball team, the New York Rangers professional hockey team, the
New York Liberty professional women's basketball team, the Hartford Wolf Pack
professional hockey team, the Madison Square Garden Network, Fox Sports Net New
York and Radio City Entertainment (which operates Radio City Music Hall in New
York City). Additionally, Madison Square Garden manages and operates the
Hartford Civic Center in Connecticut. Regional Programming Partners also owns
interests in regional sports networks that provide regional sports programming
to the New England, Chicago, Cincinnati, Cleveland, San Francisco and Florida
areas, in addition to Madison Square Garden Network and Fox Sports Net New York
which provide regional sports programming to the New York City metropolitan
area, as well as MetroChannels which provide regional and local sports, news,
educational and other programming to the New York metropolitan area.
National Sports Partners is a national sports network featuring Fox Sports Net,
which provides national sports programming to regional sports networks. National
Sports Partners is 50% owned by Rainbow Media Holdings and is managed and 50%
owned by Fox.
Rainbow Media Holdings owns Rainbow News 12 which operates regional news
networks servicing suburban areas surrounding New York City. Rainbow Media
Holdings also owns and operates Rainbow Advertising Sales Corporation, a cable
television advertising company, and owns a 50% interest in National Advertising
Partners, which sells national advertising for regional sports networks and is
managed and 50% owned by Fox.
(11)
The following table sets forth ownership information and estimated subscriber
information as of December 31, 2000 for each of the programming and related
businesses whose ownership interest is held directly or indirectly by Rainbow
Media Holdings. Rainbow Media Holdings is a 74% owned subsidiary of CSC
Holdings. NBC owns the remaining 26% interest. RPP is a 60% owned subsidiary of
Rainbow Media Holdings, with the remaining 40% interest owned by Fox. See
"Arrangements with NBC" below for a discussion of NBC's agreement to exchange
its 26% interest in Rainbow Media Holdings for 34% of the RMG tracking stock.
(12)
Affiliated
Programming Viewing Basic
Businesses Subscribers (1) Subscribers (2) Ownership (3)
- ---------- --------------- --------------- -------------
(In Millions)
Rainbow Media Group
National Entertainment Programming Networks:
American Movie Classics 68.4 74.8 Rainbow Media Holdings - 100% (4)
WE: Women's Entertainment 22.7 37.4 Rainbow Media Holdings - 100% (4)
Bravo 45.2 60.0 Rainbow Media Holdings - 100% (4)
The Independent Film Channel 12.8 43.7 Rainbow Media Holdings - 100% (4)
MuchMusic USA 11.4 23.6 Rainbow Media Holdings - 100%
Regional Sports Networks:
Fox Sports Net Bay Area 3.1 3.4 RPP and Fox - 50% each
Fox Sports Net Chicago 3.4 3.6 RPP and Fox - 50% each
Fox Sports Net New England 3.6 4.0 RPP and AT&T - 50% each
Fox Sports Net Ohio 4.2 4.5 RPP - 100%
Fox Sports Net Florida 3.1 3.3 RPP - 100%
Other:
National Sports Partners 71.5 79.8 Rainbow Media Holdings
and Fox - 50% each
National Advertising Partners -- -- Rainbow Media Holdings
and Fox - 50% each
Sterling Digital -- -- Rainbow Media Holdings - 100%
Rainbow Network Communications -- -- Rainbow Media Holdings - 100%
Cablevision NY Group
Regional Sports Networks:
Madison Square Garden Network/
Fox Sports Net New York 11.4 14.7 RPP - 100%
News Services:
News12 Long Island .8 .8 Rainbow Media Holdings - 100%
News12 Connecticut .2 .2 Rainbow Media Holdings - 100%
News12 New Jersey 1.7 1.8 Rainbow Media Holdings - 100%
News12 Westchester .2 .3 Rainbow Media Holdings - 100%
News12 Bronx .3 .3 Rainbow Media Holdings - 100%
News12.com -- -- Rainbow Media Holdings - 100%
Other:
Metro Guide 3.8 4.2 RPP - 100%
Metro Traffic and Weather 2.5 2.8 RPP - 100%
Metro Learning 2.5 2.8 RPP - 100%
Rainbow Advertising Sales Company -- -- Rainbow Media Holdings - 100%
- ----------
(1) Represents the number of subscribers to distributors' systems that receive
the referenced programming network.
(2) Represents the total number of basic subscribers available in systems that
carry the service.
(3) Various of these programming businesses, other than those which are
wholly-owned by Rainbow Media Holdings, are subject to puts, calls, rights
of first refusal and restrictions on transfer.
(4) The Company has entered into an agreement with MGM for MGM to acquire a
20% interest in these entities.
(13)
National Entertainment Programming Networks
The following nationally distributed entertainment networks which acquire,
produce and license programming throughout the United States are attributed to
RMG.
American Movie Classics
American Movie Classics, or AMC, is a 24-hour movie network featuring
award-winning original productions about the world of American film. With
contractual rights to one of the most comprehensive libraries of classic films
from the 1930s through the 1980s and a diverse blend of original series,
documentaries and interstitials, the service offers in-depth information on
timeless and contemporary Hollywood classics that enhances passionate movie
fans' appreciation of classic movies.
AMC is available on cable television and other distribution platforms such as
direct broadcast satellite, or DBS. It is carried on basic or expanded basic
where subscribers do not have to pay a premium to receive the network. Affiliate
revenues, which in 2000 accounted for over 93% of AMC's revenues, are based on
fees paid by the distributors for the right to carry the programming.
Distributors generally pay the network according to the number of basic
subscribers rather than the number of subscribers actually receiving AMC. The
network generally enters into five- to seven-year distribution contracts with
its distributors. Affiliation agreements covering about 7% of AMC's basic
subscribers expire prior to the end of 2001. There can be no assurances that
these affiliation agreements will be renewed on similar terms or at all.
AMC's film library consists of films that are licensed from major studios such
as Columbia TriStar, Twentieth Century Fox, Paramount, Warner Brothers,
Universal, MGM/UA and RKO under long-term contracts. As of December 31, 2000,
AMC had about 3,600 licenses covering films available to it with enough films
under contract to program the channel fully through 2005. AMC generally
structures its contracts for the exclusive cable television right to carry the
films during identified windows.
Bravo
Bravo premiered in December 1980 as the first national cable network for the
performing arts. Bravo features films and performing arts programming including
jazz, classical music, ballet, opera, dance, and theatrical performances, as
well as original programs on the arts that profile the creative process and the
creative culture around us.
Bravo is generally carried on basic or expanded basic where subscribers do not
have to pay a premium fee to receive the network. Affiliate revenues, which
accounted for approximately 62% of total revenues in 2000, are based on fees
paid by the distributors for the right to carry the programming. Distributors
generally pay the network according to the number of subscribers actually
receiving Bravo. Bravo generally enters into five- to ten-year distribution
contracts with its distributors. Affiliation agreements covering about 8% of
Bravo's basic subscribers expire prior to the end of 2001. There can be no
assurances that these affiliation agreements will be renewed on similar terms or
at all.
(14)
Bravo's film library consists of films that are licensed from major studios such
as Universal, Disney, Twentieth Century Fox, Paramount, Sony and Warner Bros.
and smaller studios such as Artisan, New Line, USA, Lion's Gate and Miramax
under long-term contracts. As of December 31, 2000, Bravo had about 1,500
licenses covering films available to it with enough films under contract to
program the channel fully through 2003, with significant product volume through
2005. Bravo generally structures its contracts for the exclusive cable
television rights to carry the films during identified window periods.
Beginning in 1998, Bravo launched a traditional format of advertising with
commercial program interruptions and the utilization of Nielsen ratings to gauge
viewership. Advertising revenue represented about 36% of Bravo's revenues for
2000.
The Independent Film Channel
The Independent Film Channel, or IFC, was launched in 1994 and is the first
network dedicated to independent films and related features and programming. IFC
presents feature-length films (domestically and internationally produced),
documentaries, shorts, animation, new works, "cult classics" and originally
produced programs which chronicle independent film trends.
WE: Women's Entertainment
Launched in 1997 as Romance Classics, WE: Women's Entertainment is a 24-hour
entertainment service for women. It is designed to be "time-out TV" to help
women disconnect from the stresses of the everyday world. WE: Women's
Entertainment features recent hit movies, original biographies of inspiring
women and lifestyle programs on subjects like travel, beauty, home,
entertaining and relationships.
Affiliation agreements covering about 14% of WE: Women's Entertainment's
basic subscribers are unexecuted. There can be no assurances that these
affiliation agreements will be renewed on similar terms or at all.
WE: Women's Entertainment has licensed exclusive film titles to supplement
its slate of original programming, providing significant product volume
through 2005. Exclusive deals have been concluded with major Hollywood
studios such as Twentieth Century Fox, Universal and Columbia as well as
independents like Castle Hill and Artisan.
MuchMusic USA
MuchMusic USA is a 24-hour, all-music entertainment programming network which
was launched in the United States in July 1994 and currently features the
MuchMusic programming feed produced by Chum Limited, a Canadian programmer,
under a long-term programming license agreement with Chum Limited. The Chum
Limited license provides an average of 13 hours of live programming every day,
including musical series and concerts, as well as music videos featuring rock,
pop, alternative, blues, metal and rap.
(15)
Regional Sports Networks - attributed to RMG
Rainbow Media Holdings has a 60% interest in two regional sports networks, in
Ohio and Florida, operating under the Fox Sports Net name and has a 30% interest
in three other regional sports networks, in Chicago, New England and the Bay
Area, also operating under the Fox Sports Net name. Rainbow Media Holdings
manages each of these regional sports networks, which are distributed in their
respective region in the United States as well as nationally through DBS and
TVRO distributors.
National Sports Partners - attributed to RMG
Fox Sports Net is distributed by National Sports Partners, a 50%/50% partnership
between Rainbow Media Holdings and Fox that was formed in December 1997 and is
managed by Fox. Fox Sports Net was launched during January 1998 under Fox's
management and links 22 regional sports networks under the Fox Sports Net name,
including the five Fox Sports Net networks in which Rainbow Media Holdings owns
an interest described above, and delivers local, regional and national sports
programming.
Other Services - attributed to RMG
National Advertising Partners
National Advertising Partners is a 50%/50% partnership between Rainbow Media
Holdings and Fox that was formed in December 1997 and began operations under the
management of Fox in January 1998. National Advertising Partners provides
national advertising representation services for Fox Sports Net and the Fox
Sports Net regional programming networks, offering advertisers access to
millions of sports fans in the nation's top television markets and covering most
of the Major League Baseball, National Basketball Association and National
Hockey League teams.
Rainbow Network Communications
Rainbow Network Communications, which is wholly owned by Rainbow Media Holdings,
is a full service network programming origination and distribution company. Its
services include origination, transmission, video engineering, uplinking,
encryption, affiliate engineering, technology consulting, transponder
negotiation, content ordering, quality control and editing.
Sterling Digital LLC
Sterling Digital LLC is a company established by Charles F. Dolan and acquired
by the Company in August 2000, which is designed to develop new niche audience
programming to be distributed and marketed using new media platforms, including
digital video channels.
(16)
Arrangements with NBC
NBC owns 26% of the common stock of Rainbow Media Holdings and therefore has a
26% interest in all of Rainbow Media Holdings' businesses and interests. The
Company owns the remaining 74% of Rainbow Media Holdings.
In connection with the distribution of the Rainbow Media Group tracking stock,
NBC was given the right to exchange its 26% interest in Rainbow Media Holdings
common stock over a period of up to 9 years for a 34% interest in Rainbow Media
Group tracking stock, based on the number of shares of Rainbow Media Group
tracking stock outstanding on the date of the tracking stock distribution. NBC's
exchange occurs on a deferred basis in the following steps:
o First, the Company has effected a recapitalization of Rainbow Media
Holdings and created a new class of Rainbow Media Holdings preferred
stock which is held by the Company that is entitled to receive any
and all dividends and distributions on, and carries a liquidation
preference with respect to, CNYG businesses and interests owned by
Rainbow Media Holdings. NBC has converted all of its Rainbow Media
Holdings common stock into Rainbow Media Holdings Class A common
stock and has the right to exchange its Rainbow Media Holdings Class
A common stock, representing 26% of the outstanding equity
securities of Rainbow Media Holdings, for 34% of the Rainbow Media
Group Class A tracking stock.
o Second, NBC may exchange each share of Rainbow Media Holdings common
stock held by it for approximately 16,868 shares of Rainbow Media
Group Class A tracking stock, for an aggregate of approximately 44.7
million shares. NBC can make this exchange, in whole or in part, at
its election, each calendar quarter prior to December 31, 2009, and
any shares not exchanged prior to December 31, 2009 will be
exchanged then.
o NBC has agreed not to transfer any shares of Rainbow Media Group
tracking stock received upon an exchange for Rainbow Media Holdings
common stock (other than to other wholly-owned subsidiaries of NBC)
during the 12-month period commencing on the date of the initial
tracking stock distribution. After such 12-month period has elapsed,
NBC will be entitled to transfer any shares of Rainbow Media Group
tracking stock subject to certain limitations.
o NBC has demand registration rights with respect to shares of its
Rainbow Media Group Class A tracking stock.
(17)
Competition
Cable Television
The Systems generally compete with the direct reception of broadcast television
signals by antenna and with other methods of delivering television signals to
the home for a fee. The extent of such competition depends upon the number and
quality of the signals available by broadcast antenna reception as compared to
the number and quality of signals distributed by the cable system. The Systems
also compete to varying degrees with other communications and entertainment
media, including movies, theater and other entertainment activities. The primary
current competitor to cable television systems is from direct broadcast
satellite ("DBS").
The 1984 Cable Act specifically legalized, under certain circumstances,
reception by private home earth stations of satellite-delivered cable
programming services. DBS systems permit satellite transmissions from the
low-power C-Band to be received by antennae approximately 60 to 72 inches in
diameter at the viewer's home. Higher power DBS systems providing transmissions
over the Ku-Band permit the use of smaller receiver antennae and thus are more
appealing to customers.
Two DBS systems are now operational in the United States, with investments by
companies with substantial resources such as Hughes Electronics Corp. Both
C-Band and Ku-Band DBS delivery of television signals are competitive
alternatives to cable television. Legislation was recently enacted to change the
federal copyright laws to permit DBS systems to retransmit local broadcast
television signals to DBS customers. This has enhanced the competitive position
of DBS systems.
The Telecommunications Act of 1996 ("1996 Telecom Act") repealed the 1984 Act
prohibition against telco-cable cross-ownership and provides that a local
exchange telephone company may provide video programming directly to subscribers
through a variety of means, including (1) as a radio-based (MMDS or DBS)
multichannel video programming distributor; (2) as a cable operator, fully
subject to the franchising, rate regulation and other provisions of the 1984 and
1992 Cable Acts; and (3) through an "open video system" ("OVS") that is
certified by the Federal Communications Commission ("FCC") to be offering
nondiscriminatory access to a portion of its channel capacity for unaffiliated
program distributors, subject only to selected portions of the regulations
applicable to cable operators. Non-telephone companies may also become an OVS
and provide video competition to cable systems, although a recent court decision
has restored certain municipal franchising powers over OVS, making OVS a less
attractive alternative. A local telephone company also may provide the
"transmission of video programming" on a common carrier basis. Companies have
sought to become an OVS in areas in which the Company operates cable systems in
New York City, Westchester County, New York and northern New Jersey. One, RCN
Corporation ("RCN") is currently operating OVS or franchised cable systems in
New York City and New Jersey communities where the Company operates cable
systems.
The 1996 Telecom Act also prohibits a telephone company or a cable system
operator in the same market from acquiring each other, except in limited
circumstances, such as in areas of smaller population.
Cable television also competes with the home video industry. Owners of
videocassette recorders are able to rent many of the same movies, special events
and music videos that are available on certain premium services. The
availability of videocassettes has affected the degree to which the
(18)
Systems are able to sell premium service units and pay-per-view offerings to
some of its subscribers.
Multipoint distribution services ("MDS"), which deliver premium television
programming over microwave superhigh frequency channels received by subscribers
with a special antenna, and multichannel multipoint distribution service
("MMDS"), which is capable of carrying four channels of television programming,
also compete with certain services provided by the Systems. By acquiring several
MMDS licenses or subleasing from several MMDS operators and holders of other
types of microwave licenses, a single entity can increase channel capacity to a
level more competitive with cable systems. MDS and MMDS systems are not required
to obtain a municipal franchise, are less capital intensive, require lower
up-front capital expenditures and are subject to fewer local and FCC regulatory
requirements than cable systems. The ability of MDS and MMDS systems to serve
homes and to appeal to consumers is affected by their less extensive channel
capacity and the need for unobstructed line of sight over-the-air transmission.
The Systems compete with MDS and MMDS operators generally in its New York City
metropolitan service area.
Satellite master antenna systems ("SMATV") generally serve large multiple
dwelling units. The FCC has preempted all state and local regulation of SMATV
operations. SMATV is limited to the buildings within which the operator has
received permission from the building owner to provide service. The Systems
compete with SMATV operators in the New York City metropolitan area. The 1996
Telecom Act amends the definition of cable system to exclude facilities that do
not use public rights-of-way (e.g., SMATV operators serving multiple buildings
not under common ownership or control), thus exempting such facilities from
franchise and other requirements applicable to cable operators.
The FCC has established a new local multipoint distribution service ("LMDS",
sometimes referred to as "cellular cable") in the higher bands of the
electromagnetic spectrum that could be used to offer multichannel video in
competition with cable systems, as well as two-way communications services. The
FCC has held auctions to select licensees. The FCC barred both telephone and
cable companies from initially bidding for LMDS frequencies in their own service
areas. The legal restriction on cable ownership interests in overlapping LMDS
licenses ended in June 2000.
The full extent to which developing media will compete with cable television
systems may not be known for several years. There can be no assurance that
existing, proposed or as yet undeveloped technologies, including technologies
that provide video over the internet, will not become dominant in the future and
render cable television systems less profitable or even obsolete.
Although substantially all the franchises of the Systems are non-exclusive,
most franchising authorities have granted only one franchise in an area.
Other cable television operators could receive franchises for areas in which
the Systems are operated or a municipality could build a competing cable
system. Southern New England Telephone ("SNET"), the dominant telephone
company in Connecticut, obtained a statewide franchise to build and operate a
competing cable television system in the communities in Connecticut in which
the Systems are operating pursuant to cable franchises but successfully
petitioned the Connecticut DPUC to discontinue operations this year. The 1992
Cable Act described below prohibits municipalities from unreasonably refusing
to grant competitive franchises and facilitates the franchising of second
cable systems or municipally-owned cable systems. See "Regulation - 1992
Cable Act," below.
(19)
Programming and Entertainment
Rainbow Media Holdings' programming networks compete in two basic markets, each
of which is highly competitive. First, Rainbow Media Holdings' programming
networks compete in the market for distribution of programming networks to cable
television systems and other distributors of video services, such as DBS
services. For example, AMC and Fox Sports Net Chicago compete with other
networks for the right to be carried on cable systems and ultimately for viewing
by each system's subscribers. Second, Rainbow Media Holdings' programming
networks compete with other networks that sell to cable systems and other video
service distributors as well as and with broadcast and other programming
entities to secure desired entertainment and sports programming. In each of
these markets, some of Rainbow Media Holdings' competitors are large publicly
held companies that have greater financial resources than the Company, Rainbow
Media Holdings and the Rainbow Media Group.
Distribution of Programming Networks
The business of distributing programming networks to cable television systems
and other video service distributors is highly competitive, and most existing
channel capacity is in use. In distributing a programming network, Rainbow Media
Holdings faces competition with other providers of programming networks for the
right to be carried by a particular cable system and for the right to be carried
by that cable system on a preferential "tier". Once Rainbow Media Holdings'
network is selected by a cable system or satellite distributor, that network
competes not only with the other channels available on the cable network for
viewers, but also with off-air broadcast television, pay-per-view and
video-on-demand networks, online, radio, print, media, motion picture theaters,
video cassettes and other sources of information, sporting events, and
entertainment.
Important to Rainbow Media Holdings' success in each area of competition it
faces are the prices it charges for its programming network, the quantity,
quality and variety of the programming offered on its network, and the
effectiveness of the networks' marketing efforts. The competition for viewers in
the context of non-premium programming networks is directly correlated with the
competition for advertising revenues with each of the competitors discussed
above.
Competition with other programming networks may be hampered because the cable
television systems through which distribution is sought may be affiliated with
other programming networks. In addition, because such affiliated cable
television systems may have a substantial number of subscribers, the ability of
such programming networks to obtain distribution on affiliated cable television
operators may lead to increased subscriber and advertising revenue for such
networks because of their increased penetration compared to Rainbow Media
Holdings' programming networks. Even if such affiliated cable television
operators were to continue to carry Rainbow Media Holdings' programming
networks, there is no assurance that such cable television operators would not
move Rainbow Media Holdings' networks to less desirable tiers in the operator's
services offering while moving the affiliated programming network to a more
desirable tier, thereby giving the affiliated programming network a competitive
advantage.
(20)
New programming networks with affiliations to desired broadcasting networks may
also have a competitive advantage over Rainbow Media Holdings' new networks in
obtaining distribution through the "bundling" of affiliation agreements with the
right to carry the broadcasting network.
An important part of our strategy involves exploiting identified niches of the
cable television viewing audience that are generally well-defined and limited in
size. Rainbow Media Holdings has faced and will continue to face increasing
competition as other programming networks are launched that seek to serve the
same or similar niches.
Sources of Programming
Rainbow Media Holdings also competes with other programming networks to secure
desired programming. Although some of this programming is generated internally
through Rainbow Media Holdings' efforts in original programming, most of Rainbow
Media Holdings' programming is obtained through agreements with other parties
that have produced or own the rights to such programming. Competition for such
programming will increase as the number of programming networks increases. Other
programming networks that are affiliated with programming sources such as movie
or television studios, film libraries, or sports teams may have a competitive
advantage over Rainbow Media Holdings in this area.
Competition for Entertainment Programming Sources. With respect to the
acquisition of entertainment programming, such as syndicated programs and
movies, which are not produced by or specifically for programming networks,
competitors include:
o national commercial broadcast television networks,
o local commercial broadcast television stations,
o the Public Broadcasting Service and local public television
stations,
o pay-per-view programs
o other cable program networks
Some of these competitors have exclusive contracts with motion picture studios
or independent motion picture distributors or own film libraries.
Competition for Sports Programming Sources. Because the loyalty of the sports
viewing audience to a sports programming network is driven by loyalty to a
particular team or teams, access to adequate sources of sports programming is
particularly critical to Rainbow Media Holdings' sports networks. Our sports
networks compete for national rights for teams or events principally with:
o national cable networks that specialize in or carry sports
programming,
o television "superstations" which distribute sports and other
programming by satellite,
o the national commercial broadcast television networks,
(21)
o independent syndicators that acquire and resell such rights
nationally, regionally and locally, and
o DBS operators.
Rainbow Media Holdings' sports networks also compete for local and regional
rights with the same group of competitors, with local commercial broadcast
television stations and with other local commercial and regional sports
networks.
The owners of distribution outlets such as cable television systems may also
contract directly with the sports teams in their local service areas for the
right to distribute a number of such teams' games on their systems. Some of
these competitors may also have ownership interests in sports teams or sports
promoters, which may give them an advantage in obtaining broadcast rights for
such teams or the sports promoted by such promoters.
In order to remain competitive in the acquisition and retention of rights to
sports programming, Rainbow Media Holdings' sports networks attempt to secure
long-term rights agreements with teams and athletic conferences. Rainbow Media
Holdings also attempts to include in rights agreements with teams terms that
provide Rainbow Media Holdings' sports networks with exclusive negotiation
periods prior to the scheduled expiration of the term of such agreements and/or
which provide Rainbow Media Holdings' sports networks with the right to match an
offer made by a competing distributor of sports programming. Rainbow Media
Holdings' sports networks, however, are not always successful in attaining these
objectives, and Rainbow Media Holdings cannot be assured that its strategy will
enable its sports networks to offer sports programming of the type and in the
quantity or quality necessary for such networks to remain competitive.
In addition to the above considerations, Rainbow Media Holdings operates in an
environment that is affected by changes in technology. It is difficult to
predict the future effect of technology on many of the factors affecting Rainbow
Media Holdings' competitive position. For example, data compression technology
may make it possible for most video programming distributors to increase their
channel capacity, thereby reducing the competition among programming networks
and broadcasters for channel space. As more channel space becomes available, the
position of Rainbow Media Holdings' programming networks in the most favorable
tiers of these distributors would be an important goal. Likewise, Rainbow Media
Holdings' inability to place its programming networks on distributors' favorable
tiers would be a competitive disadvantage.
Numerous businesses compete with Madison Square Garden, Radio City Entertainment
and CCG Holdings, Inc. for the entertainment expenditures of consumers.
Telephone Services
Lightpath faces substantial competition from incumbent local exchange carriers
("ILECs"), such as Verizon, which are the dominant providers of local telephone
services in their respective service areas. ILECs have significant advantages
over Lightpath, including greater capital resources, an existing fully
operational local network, and long-standing relationships with customers.
While Lightpath and the ILECs are competitors, Lightpath must enter into
interconnection agreements with each ILEC so that Lightpath's customers can make
and receive calls from
(22)
customers served by the ILEC. Federal and State law and regulations require
ILECs to enter into such agreements and provide such facilities and services,
and establish the price for these facilities and services. The specific price,
terms and conditions of each agreement, however, depends on the outcome of
negotiations between Lightpath and an ILEC. Agreements are also subject to
approval by the state public service commission. Lightpath has entered into
interconnection agreements with Verizon for New York, New Jersey, Connecticut
and Massachusetts which have been approved by the respective state commissions.
In addition, it has reached an agreement with SNET, now SBC Communications,
Inc., covering SNET's service area in Connecticut, which has been approved by
the Connecticut Department of Public Utility Control.
Lightpath also faces competition from one or more competitive access providers
("CAPs") and other new entrants in the local telecommunications marketplace,
such as Teleport Communications Group, Inc. ("Teleport"), now part of AT&T, and
MFS Communications Company, Inc. ("MFS"), now part of MCI/Worldcom. In addition
to the ILECs and competitive service providers, other potential competitors
capable of offering private line and special access services include electric
utilities, long distance carriers, microwave carriers, wireless telephone system
operators (such as cellular, PCS, and specialized mobile radio), and private
networks built by large end users. A continuing trend toward business
combinations and alliances in the telecommunications industry may create
significant new competitors to Lightpath.
Many ILECs and certain of Lightpath's other potential competitors have
financial, personnel and other resources significantly greater than those of
Lightpath. Some of these competitors have existing networks or conduits that
could be adapted to provide local exchange services. There can be no assurance
that Lightpath will be able to compete effectively against these competitors.
Lightpath may also face competition from new technologies and services
introduced in the future.
Retail Electronics
The consumer retail electronics business is highly competitive. The WIZ competes
with national and regional retail electronics chains which continue to expand in
the New York metropolitan area, as well as with computer, office product and
entertainment superstores, general merchandise retailers, discount stores and
mail order and e-commerce services. Some of these competitors operate on a
significantly larger scale than Cablevision Electronics and are able to
translate their scale to purchasing and pricing advantage in the New York
marketplace. Competition is primarily based on price, service and selection of
merchandise. The WIZ competes on the basis of these factors, with special
emphasis placed on the quality of the customer experience in the stores and on
selling and bundling merchandise that supports the in-home connectivity of the
Company's high speed data, video and telephony services.
Regulation
Cable Television
1984 Cable Act. The 1984 Cable Act set uniform national guidelines for cable
regulation under the Communications Act of 1934. While several of the provisions
of the 1984 Cable Act have been amended or superseded by the 1992 Cable Act
and/or the 1996 Telecom Act, each described below, other provisions of the 1984
Act, including the principal provisions relating to the franchising of cable
television systems, remain in place. The 1984 Cable Act authorizes states or
localities to franchise cable television systems but sets limits on their
franchising powers. It sets a ceiling on
(23)
cable franchise fees of 5% of gross revenues and prohibits localities from
requiring cable operators to carry specific programming services. The 1984 Cable
Act protects cable operators seeking franchise renewals by limiting the factors
a locality may consider and requiring a due process hearing before denial. The
1984 Cable Act does not, however, prevent another cable operator from being
authorized to build a competing system. The 1992 Cable Act prohibits franchising
authorities from granting exclusive cable franchises and from unreasonably
refusing to award an additional competitive franchise.
The 1984 Cable Act allows localities to require free access to public,
educational or governmental channels, but sets limits on the number of
commercial leased access channels cable television operators must make available
for potentially competitive services. The 1984 Cable Act prohibits obscene
programming and requires the sale or lease of devices to block programming
considered offensive.
1992 Cable Act. The 1992 Cable Act represented a significant change in the
regulatory framework under which cable television systems operate.
After the effective date of the 1984 Cable Act, and prior to the enactment of
the 1992 Cable Act, rates for cable services were unregulated for substantially
all of the Systems. The 1992 Cable Act reintroduced rate regulation for certain
services and equipment provided by most cable systems in the United States,
including substantially all of the Company's systems. While several of the
provisions of the 1992 Cable Act have been amended or superseded by the 1996
Telecom Act, other provisions remain in place.
The 1992 Cable Act requires each cable system to establish a basic service
package consisting, at a minimum, of all local broadcast signals and all
non-satellite delivered distant broadcast signals that the cable system wishes
to carry, and all public, educational and governmental access programming. The
rates for the basic service package are subject to regulation by local
franchising authorities. Under the FCC's 1993 rate regulation rules, a cable
operator whose per channel rates exceeded an FCC established benchmark was
required to reduce its per channel rates for the basic service package by up to
10% unless it could justify higher rates on the basis of its costs. In 1994,
after reconsideration, the FCC ordered a further reduction of 7% in rates for
the basic service tier, for an overall reduction of 17%.
Franchise authorities (local municipalities or state cable television
regulators) are also empowered to regulate the rates charged for the
installation and lease of the equipment used by subscribers to receive the basic
service package (including a converter box, a remote control unit and, if
requested by a subscriber, an addressable converter box or other equipment
required to access programming offered on a per channel or per program basis),
including equipment that may also be used to receive other packages of
programming, and the installation and monthly use of connections for additional
television sets. The FCC's rules require franchise authorities to regulate rates
for equipment and connections for additional television sets on the basis of an
actual cost formula developed by the FCC, plus a return of 11.25%. No additional
charge is permitted for the delivery of regulated services to additional sets
unless the operator incurs additional programming costs in connection with the
delivery of such services to multiple sets.
The FCC's rules provide that, unless a cable operator can justify higher rates
on the basis of its costs, increases in the rates charged by the operator for
the basic service package may not exceed an inflation indexed amount, plus
increases in certain costs beyond the cable operator's control, such as
(24)
taxes, franchise fees and increased programming costs that exceed the inflation
index. Increases in fees paid to broadcast stations for the retransmission of
their signals above those in effect on October 6, 1994 may be passed through to
subscribers.
In 1994 the FCC also adopted guidelines for cost-of-service showings that
establish a regulatory framework pursuant to which a cable television operator
may attempt to justify rates in excess of the benchmarks. In addition, the FCC
has adopted guidelines that permit rate adjustments attributed to the cost of a
rebuild or substantial upgrade of a cable system to be added to the operator's
benchmark rate.
The FCC, prior to March 31, 1999, could in response to complaints by a
franchising authority, reduce the rates for service packages other than the
basic service package if it found that such rates were unreasonable. The FCC
would in response to complaints also regulate, on the basis of actual cost, the
rates for equipment used only to receive these higher packages. This authority
has now sunset. Services offered on a per channel or per program basis were
never subject to rate regulation by either municipalities or the FCC.
Under the 1992 Cable Act, systems may not require subscribers to purchase any
cable programming service tier other than the basic service package as a
condition of access to video programming offered on a per channel or per program
basis. Cable systems are allowed up to ten years to the extent necessary to
implement the necessary technology to facilitate this access. It is expected
that the Systems will be capable of implementing the technology mandated by the
1992 Cable Act by the Act's deadline.
In addition, the 1992 Cable Act:
(i) requires cable programmers under certain circumstances to offer their
programming to present and future competitors of cable television such as
MMDS, SMATV and DBS, and prohibits new exclusive contracts with program
suppliers without FCC approval,
(ii) directs the FCC to set standards for limiting the number of channels that
a cable television system operator could program with programming services
controlled by such operator and a national limit on the number of
subscribers any single cable company can serve,
(iii) bars municipalities from unreasonably refusing to grant additional
competitive franchises,
(iv) requires cable television operators to carry ("must carry") all local
broadcast stations (including home shopping broadcast stations), or, at
the option of a local broadcaster, to obtain the broadcaster's prior
consent for retransmission of its signal ("retransmission consent"),
(v) requires cable television operators to obtain the consent of any non-local
broadcast station prior to retransmitting its signal, and
(vi) regulates the ownership by cable operators of other media such as MMDS and
SMATV.
In connection with clause (ii) of the immediate preceding paragraph concerning
limitations on affiliated programming, the FCC established a 40% limit on the
number of channels of a cable television system that can be occupied by
programming services in which the system operator has an attributable interest
and a national limit of 30% on the number of multichannel video households that
any cable company can serve. The FCC recently revised its rules to consider the
presence in the national market of all multichannel video programming providers
rather than cable operators alone in applying its national percentage limit. The
FCC also modified its cable ownership attribution rules, maintaining its 5%
voting stock benchmark, but attributing cable subscribers if held by a
partnership if a limited partner is involved in the partnership's "video
programming"
(25)
activities. These rule modifications affected the Company because of AT&T's
investment in the Company. In March 2001, a federal appellate court held
unconstitutional the FCC's rules establishing the 30% national limit and the 40%
channel occupancy limit, upheld the 5% voting stock benchmark, but eliminated
the attribution of cable subscribers if held by a partnership if a limited
partner is involved in the partnership's "video programming" activities.
In connection with clause (iv) above concerning retransmission of a local
broadcaster's signals, a substantial number of local broadcast stations are
currently carried by the Systems and have elected to negotiate for
retransmission consent. The Systems have retransmission consent agreements with
most broadcast stations they currently carry, but the potential remains for
discontinuation of carriage if an agreement is not renewed following their
expiration. The FCC is currently considering whether to adopt similar "must
carry" rules for broadcasters' new digital TV channels. The FCC recently reached
the tentative conclusion that "dual must carry" rules would be unconstitutional,
if cable systems were required to carry these digital channels, in addition to
broadcasters' existing analog broadcast channels, before the statutorily
required transition from analog to digital broadcasting in 2006. But the FCC has
asked for additional information to help it finally resolve this issue.
In connection with clause (i) above the 1992 Cable Act prohibits a cable
programmer that is owned by or affiliated with a cable operator (such as Rainbow
Media Holdings) from unreasonably discriminating among or between cable
operators and other multichannel video distribution systems with respect to the
price, terms and conditions of sale or distribution of the programmer's
satellite-delivered services and from unreasonably refusing to sell any such
service to any multichannel video programming distributor. In several instances,
Rainbow Media Holdings has been ordered by the FCC to provide
satellite-delivered programming to multi-channel video programmers after such
multi-channel video programmers have filed complaints pursuant to these
program-access rules. The FCC has declined to extend these program-access rules
to cover some terrestrial-delivered programming by programmers such as Rainbow
Media Holdings, but proposals have been made to Congress in support of such
extensions. It is not possible to predict whether such an extension might in the
future be adopted by the FCC or Congress and, if so, what effect it might have
on the Company.
The FCC adopted or imposed new regulations under the 1992 Cable Act in the areas
of customer service, technical standards, equal employment opportunity, privacy,
rates for leased access channels, obscenity and indecency, disposition of a
customer's home wiring and compatibility between cable systems and other
consumer electronic equipment such as "cable ready" television sets and
videocassette recorders.
1996 Telecom Act. The 1996 Telecom Act deregulated the rates for non-basic tiers
of service provided by all cable operators after March 31, 1999. It permitted
regulated equipment rates to be computed by aggregating costs of broad
categories of equipment at the franchise, system, regional or company level. It
also eliminated the right of individual subscribers to file rate complaints with
the FCC concerning certain non-basic cable programming service tiers, and
required such complaints to be filed by franchising authorities following
receipt of at least two subscriber complaints.
The 1992 Cable Act provided that all rate regulation, for both the upper tiers
and for basic service, is eliminated when a cable system is subject to
"effective competition" from another multichannel video programming provider
such as MMDS, DBS, a telephone company, or a combination of all of
(26)
these. The 1996 Telecom Act expanded the definition of "effective competition"
to include instances in which a local telephone company or its affiliate (or a
multichannel video programming distributor using the facilities of a telephone
company or its affiliates) offers comparable video programming directly to
subscribers by any means (other than DBS) in the cable operator's franchise
area. This provision will allow the Systems greater flexibility in packaging and
pricing if the FCC makes a finding of "effective competition" in certain markets
based on telephone company competition. The Company has been successful in
obtaining such an FCC finding in certain markets.
The 1996 Telecom Act also eliminated the uniform rate structure requirements of
the 1992 Cable Act for cable operators in areas subject to effective competition
or for video programming offered on a per channel or per program basis, and
allowed non-uniform bulk discount rates to be offered to multiple dwelling
units.
The 1996 Telecom Act also directed the FCC to initiate a process through which
the cable industry would develop standards such that subscribers can use set top
boxes purchased or leased from any distributor.
Other FCC Regulation. In addition to the rules and regulations promulgated by
the FCC under the 1984 Cable Act, the 1992 Cable Act and the 1996 Telecom Act,
the FCC has promulgated other rules affecting the Company. FCC rules require
that cable systems black out certain network and sports programming on imported
distant broadcast signals upon request. The FCC also requires that cable systems
delete syndicated programming carried on distant signals upon the request of any
local station holding the exclusive right to broadcast the same program within
the local television market and, in certain cases, upon the request of the
copyright owner of such programs. These rules affect the diversity and cost of
the programming options for the Systems.
FCC regulation also includes matters regarding restrictions on origination and
cablecasting by cable system operators; application of the rules governing
political broadcasts; customer service; ownership and control of cable home
wiring in single family residences and multiple dwelling units and limitations
on advertising contained in nonbroadcast children's programming.
The FCC requires payment by the Company of annual "regulatory fees" which may be
passed on to subscribers as "external cost" adjustments to basic cable service.
Fees are also assessed for specific FCC licenses held by cable operators,
including licenses for business radio, cable television relay systems (CARS) and
earth stations, which, however, may not be collected directly from subscribers.
The FCC has the authority to regulate utility company rates for cable rental of
pole and conduit space. States can establish preemptive regulations in this
area, and the states in which the Systems operate have done so. The 1996 Telecom
Act modified the pole attachment provisions of the Communications Act by
requiring that utilities provide cable systems and telecommunications carriers
with nondiscriminatory access to any pole, conduit or right-of-way controlled by
the utility. The FCC has adopted regulations to govern the charges for pole
attachments used by companies providing telecommunications services, including
cable operators. These regulations are likely to increase significantly the
rates charged to cable companies providing voice and data, in addition to video
services. These new pole attachment regulations did not become effective,
however, until 2001, and subsequent increases in attachment rates resulting from
the FCC's new regulations will be phased in equal annual increments over a
subsequent period of five years, until 2006.
(27)
The FCC has technical guidelines for signal leakage that became substantially
more stringent in 1990. Two-way radio stations, microwave-relay stations and
satellite earth stations used by the Systems are licensed by the FCC.
Federal Copyright Regulation. There are no restrictions on the number of distant
broadcast television signals that cable television systems can import, but cable
systems are required to pay copyright royalty fees to receive a compulsory
license to carry them. The United States Copyright Office has increased the
royalty fee from time to time. The FCC and the Copyright Office have, at
different times, recommended to Congress changes in the compulsory licenses for
cable television carriage of broadcast signals. This could adversely affect the
ability of the Systems to obtain such programming and could increase the cost of
such programming. No prediction can be made as to whether Congress will enact
any such changes to the copyright laws.
Cable Television Cross-Media Ownership Limitations. In addition to the
prohibition on telephone company-cable cross-ownership, now removed by the 1996
Telecom Act, the 1984 Cable Act prohibited any person or entity from owning
broadcast television and cable properties in the same market. The 1992 Cable Act
imposed limits on new acquisitions of SMATV or MMDS systems by cable operators
in their franchise areas. The 1996 Telecom Act repealed the statutory ban on
cable-broadcast station cross-ownership to permit common ownership or control of
a television station and a cable system with overlapping service areas, but left
in place the cable system-television station cross-ownership restriction
contained in the FCC's rules. The FCC has eliminated its regulations concerning
broadcast network-cable cross-ownership to permit common control of both a
television network and a cable system, as required by the 1996 Telecom Act. The
1996 Telecom Act removes the statutory ban on cable-MMDS cross-ownership on any
cable operator in a franchise area where one cable operator is subject to
effective competition.
State and Municipal Regulation of Cable Television. Regulatory responsibility
for essentially local aspects of the cable business such as franchisee
selection, system design and construction, safety, and consumer services remains
with either state or local officials and, in some jurisdictions, with both. The
1992 Cable Act expanded the factors that a franchising authority can consider in
deciding whether to renew a franchise and limits the damages for certain
constitutional claims against franchising authorities for their franchising
activities. New York law provides for comprehensive state-wide regulation,
including approval of transfers of cable franchises and consumer protection
legislation. New Jersey and Connecticut also have substantial cable regulatory
authority at the state level. State and local franchising jurisdiction is not
unlimited, however, and must be exercised consistently with the provisions of
the 1984 Cable Act and the 1992 Cable Act. Among the more significant
restrictions that the 1984 Cable Act imposes on the regulatory jurisdiction of
local franchising authorities is a 5% ceiling on franchise fees and mandatory
renegotiation of certain franchise requirements if warranted by changed
circumstances.
Telecommunications Regulation. The 1996 Telecom Act removes barriers to entry in
the local telephone market that is now monopolized by the Bell Operating
Companies ("BOCs") and other incumbent local exchange carriers by preempting
state and local laws that restrict competition and by requiring ILECs to provide
nondiscriminatory access and interconnection to potential competitors, such as
cable operators and long distance companies. At the same time, the law
eliminated the Modified Final Judgment and permits the BOCs to enter the market
for long distance service (through a separate subsidiary), on a state-by-state
basis, after they satisfy a "competitive checklist." The 1996 Telecom Act also
facilitates the entry of utility companies into the telecommunications market.
(28)
The 1996 Telecom Act also eliminates or streamlines many of the requirements
applicable to local exchange carriers, and requires the FCC and states to review
universal service programs and encourage access to advanced telecommunications
services provided by all entities, including cable companies, by schools,
libraries and other public institutions. The FCC and, in some cases, states have
conducted numerous rulemaking proceedings to implement these provisions.
Programming and Entertainment
Cable television program distributors, such as Rainbow Media Holdings, and
including the Rainbow Media Group, are not directly regulated by the FCC under
the Communications Act of 1934, but they are regulated indirectly when they are
affiliated with a cable television system operation like Cablevision. Moreover,
to the extent that regulations and laws, either presently in force or proposed,
hinder or stimulate the growth of the cable television and satellite industries,
which are directly regulated by the FCC, the business of Rainbow Media Holdings
will be directly affected.
The 1992 Cable Act limits in certain ways our ability to freely manage Rainbow
Media Holdings' services or carry its services on affiliated cable systems, and
imposes or could impose other regulations on Rainbow Media Holdings' services.
The "program access" provisions of the 1992 Cable Act require that Rainbow Media
Holdings' services be sold, under certain circumstances, to other multichannel
video programming providers such as DBS companies that compete with the
Company's local cable systems. The 1996 Telecom Act extends the program access
requirements of the 1992 Cable Act to a telephone company that provides video
programming by any means directly to subscribers, and to programming in which
such a company holds an attributable ownership interest, thus allowing the
Company's cable systems similar access to any programming that may be developed
by their telephone company competitors. Such telephone company competitors have
not, as yet, developed such programming.
Under a mandate in the 1996 Telecom Act, the FCC has also imposed requirements
on cable operators that, in effect, require certain of Rainbow Media Holdings'
services to provide closed captioning for the hearing-impaired.
The 1984 Cable Act limits the number of commercial leased access channels that a
cable television operator must make available for potentially competitive
services to any of Rainbow Media Holdings' networks it carries. The 1992 Cable
Act, however, empowered the FCC to set the rates and conditions for such leased
access channels, which it has done in a manner designed to increase use of such
channels.
The 1992 Cable Act also guarantees broadcast stations the right to be carried on
cable systems under the so-called "must carry" rules. This reduces significantly
the amount of channel space that is available for cable system carriage of
networks, such as those distributed by Rainbow Media Holdings. The FCC is
currently considering whether to require cable systems to carry each broadcast
station's digital broadcast signal, as well as its existing analog broadcast
signal, during the transition period to complete conversion of all broadcast
television stations from analog technology to digital technology, scheduled to
occur by December 31, 2006. If the FCC decides to require such "dual must
carry," this would even more significantly reduce the amount of channel
(29)
space available for our networks on cable systems. As noted above, the FCC has
recently tentatively determined that such "dual must carry" obligations would be
unconstitutional, but is continuing to study the issue.
Satellite common carriers, from which Rainbow Media Holdings and its affiliates
obtain transponder channel time to distribute their programming, are directly
regulated by the FCC. All common carriers must obtain from the FCC a certificate
for the construction and operation of their interstate communications
facilities. Satellite common carriers must also obtain FCC authorization to
utilize satellite orbital slots assigned to the United States by the World
Administrative Radio Conference. Such slots are finite in number, thus limiting
the number of carriers that can provide satellite service and the number of
channels available for program producers and distributors such as Rainbow Media
Holdings and its affiliates. Nevertheless, there are at present numerous
competing satellite services that provide transponders for video services to the
cable industry.
All common carriers must offer their communications service to Rainbow Media
Holdings and others on a nondiscriminatory basis (including by means of a
lottery). A satellite carrier cannot unreasonably discriminate against any
customer in its charges or conditions of carriage.
The operations of the professional sports franchises owned by Madison Square
Garden, L.P., are regulated by the leagues in which the teams participate. Both
the NBA and the NHL have regulations governing, among other things, player
matters and transfers of ownership interests and licensing matters.
Telephone Services
As a telecommunications carrier, Lightpath is subject to regulation by the FCC
and by the state public service commission in each state in which it provides
service. In order to provide service, moreover, Lightpath must seek approval
from each such state commission. Lightpath has obtained this approval from the
state commissions in New York, Connecticut, Massachusetts, New Jersey and Ohio.
Lightpath's regulatory obligations vary from state to state and include some or
all of the following requirements: filing tariffs (rates, terms and conditions);
filing operational, financial, and customer service reports; seeking approval to
transfer the assets or capital stock of the telephone company; seeking approval
to issue stocks, bonds, and other forms of indebtedness of the telephone
company; and filing all contracts or other documentation involving transactions
between the telephone company and its affiliates. States may also impose
requirements on competitive carriers to contribute to the funding of discounted
"universal" telecommunications services for educational institutions, low income
persons, and persons in rural areas.
As Lightpath offers interstate long distance services, it is subject to various
FCC requirements, including the payment of regulatory fees, Telecommunication
Relay Services funding, and the contributions to the maintenance of "universal
service" as required by the 1996 Telecom Act. Also under the 1996 Telecom Act,
Lightpath must compensate carriers that terminate calls originating on
Lightpath's network (Lightpath is likewise entitled to compensation from
carriers when it terminates these other carriers' calls); interconnect directly
or indirectly with other carriers; make its telecommunications services
available for resale; and provide number portability, dialing parity, and
access-to-rights-of-way.
(30)
Employees and Labor Relations
As of December 31, 2000, the Company had 14,578 full-time, 3,530 part-time and
6,355 temporary employees of which 491, 1,039 and 3,281, respectively, were
covered under collective bargaining agreements. The Company believes that its
relations with its employees are satisfactory.
Item 2. Properties
The Company leases certain real estate where its business offices, microwave
receiving antennae, earth stations, transponders, microwave towers, warehouses,
headend equipment, hub sites, program production studios and access studios are
located. The Company occupies several leased business offices in Woodbury, New
York with an aggregate of approximately 277,000 square feet of space and
business offices in Jericho, New York with approximately 621,000 square feet of
space. Other significant leasehold properties include approximately 276,000
square feet housing Madison Square Garden's office operations and approximately
571,000 square feet comprising Radio City Music Hall. Cablevision Electronics
leases 42 retail store locations, a warehouse and a corporate office aggregating
approximately 1,770,000 square feet.
The Company owns its headquarters building located in Bethpage, New York with
approximately 536,000 square feet of space and through Madison Square Garden,
also owns the Madison Square Garden arena and theater complex in New York City
comprising approximately 1,016,000 square feet. The Company generally owns all
assets (other than real property) related to its cable television operations,
including its program production equipment, headend equipment (towers, antennae,
electronic equipment and satellite earth stations), cable system plant
(distribution equipment, amplifiers, subscriber drops and hardware), converters,
test equipment, tools and maintenance equipment.
CCG Holdings, Inc. leases 52 theaters with approximately 46,900 seats and owns
an additional 13 theaters with approximately 10,900 seats.
The Company generally leases its service and other vehicles.
The Company believes its properties are adequate for its use.
Item 3. Legal Proceedings
The Company is party to various lawsuits, some involving substantial amounts.
Management does not believe that the resolution of such lawsuits will have a
material adverse impact on the financial position of the Company.
(31)
Item 4. Submission of Matters to a Vote of Security Holders
On October 10, 2000, the Company distributed a proxy statement to stockholders
in connection with a special stockholders meeting to approve the creation and
issuance of a new class of common stock to be designated as Rainbow Media Group
tracking stock (the "Proxy Statement"). At the special meeting, held on February
16, 2001, the Company's stockholders approved the following items related to the
tracking stock:
1. Authorization and approval of an amendment to Cablevision Systems
Corporation's Amended and Restated Certificate of Incorporation to
authorize the creation of a series of Cablevision common stock to be
called Rainbow Media Group tracking stock in the manner described in the
Proxy Statement.
Class A Common Stock Votes for: 102,495,441
Votes against: 6,020,126
Abstentions: 1,695,035
Class B Common Stock Votes for: 421,545,360
Votes against: 0
Abstentions: 0
2. Approval of amendments to Cablevision Systems Corporation's stock option
plan for employees in the manner described in the Proxy Statement.
Class A Common Stock Votes for: 82,237,936
Votes against: 27,352,891
Abstentions: 619,775
Class B Common Stock Votes for: 421,545,360
Votes against: 0
Abstentions: 0
3. Approval of amendments to Cablevision System Corporation's stock option
plan for non-employee directors in the manner described in the Proxy
Statement.
Class A Common Stock Votes for: 91,640,404
Votes against: 17,930,320
Abstentions: 639,881
Class B Common Stock Votes for: 421,545,360
Votes against: 0
Abstentions: 0
(32)
PART II
Item 5. Market for the Registrants' Common Equity and Related Stockholder
Matters
Cablevision Systems Corporation's Class A Common Stock and CSC Holdings, Inc.'s
Class A Common Stock prior to the consummation of the Reorganization on March 4,
1998, was traded on the American Stock Exchange. On December 7, 1999,
Cablevision Systems Corporation's Class A Common Stock began trading on the New
York Stock Exchange, under the symbol "CVC". The following table sets forth the
high and low sales prices for the last two years of Class A Common Stock as
reported by the American Stock Exchange or the New York Stock Exchange, as
applicable, for the periods indicated.
2000 1999
--------------------- --------------------
Quarter High Low High Low
- ------- ---- --- ---- ---
First 86-7/8 55 77-7/16 49-7/8
Second 72-5/8 57-9/16 91-7/8 60-1/2
Third 72-5/8 62-5/16 79-3/8 67-1/4
Fourth 85-3/16 66-1/4 80-1/8 58-7/8
As of March 16, 2001, there were 1,006 holders of record of Cablevision Systems
Corporation Class A Common Stock.
See Item 1. "Business - Tracking Stock" for a description of the tracking stock
distributed to the Company's stockholders on March 29, 2001.
There is no public trading market for the Cablevision NY Group Class B Common
Stock, par value $.01 per share ("CNYG Class B Common Stock") or the Rainbow
Media Group Class B Common Stock, par value $.01 per share. As of March 16,
2001, there were 25 holders of record of Cablevision Systems Corporation
Class B Common Stock.
All outstanding shares of common stock of CSC Holdings are held by Cablevision
Systems Corporation.
See Item 1. "Business - The Holding Company Reorganization and TCI Transactions"
for a description of the changes to the Company's capitalization as a result of
the Reorganization.
Dividends. Neither CSC Holdings (prior to the Reorganization) nor Cablevision
Systems Corporation (after the Reorganization) have paid any dividends on shares
of Class A or Class B Common Stock. Cablevision Systems Corporation does not
anticipate paying any cash dividends on shares of Cablevision NY Group Class A
or Class B Common Stock or Rainbow Media Group Class A or Class B Common Stock
in the foreseeable future.
Cablevision Systems Corporation and CSC Holdings may pay cash dividends on their
capital stock only from surplus as determined under Delaware law. If dividends
are paid on the Cablevision NY Group common stock, holders of the Cablevision NY
Group Class A common stock or Cablevision NY Group Class B common stock are
entitled to receive dividends, and other distributions in cash, stock or
property, equally on a per share basis, except that stock dividends with respect
to Cablevision NY Group Class A common stock may be paid only with shares of
Cablevision NY
(33)
Group Class A common stock and stock dividends with respect to Cablevision NY
Group Class B common stock may be paid only with shares of Cablevision NY
Group Class B common stock. If dividends are paid on the Rainbow Media Group
common stock, holders of the Rainbow Media Group Class A common stock and
Rainbow Media Group Class B common stock are entitled to receive dividends,
and other distributions in cash, stock or property, equally on a per share
basis, except that stock dividends with respect to Rainbow Media Group Class
A common stock may be paid only with shares of Rainbow Media Group Class A
common stock and stock dividends with respect to Rainbow Media Group Class B
common stock may be paid only with shares of Rainbow Media Group Class B
common stock.
Subject to the above, dividends may be declared and paid on Cablevision NY Group
common stock and/or Rainbow Media Group common stock in equal or unequal
amounts.
CSC Holdings paid $25.5 million of cash dividends on the Series H Preferred
Stock and $139.8 million of dividends in additional shares of Series H and M
Preferred Stock in 2000. CSC Holdings is restricted from paying dividends on its
preferred stock under the provisions of its senior credit agreement if a default
has occurred and is continuing under such agreement. Additionally, CSC Holdings'
senior credit agreement, senior debentures and senior subordinated debt
instruments may restrict the payment of dividends in respect of any shares of
capital stock in certain circumstances.
Dividends may not be paid in respect of shares of the Company's common stock
unless all dividends due and payable in respect of the preferred stock of CSC
Holdings have been paid or provided for. See Item 7. - "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources."
(34)
Item 6. Selected Financial Data
SELECTED FINANCIAL AND STATISTICAL DATA
The operating and balance sheet data included in the following selected
financial data have been derived from the consolidated financial statements of
Cablevision Systems Corporation and CSC Holdings, Inc. Acquisitions made by
these companies were accounted for under the purchase method of accounting and,
accordingly, the acquisition costs were allocated to the net assets acquired
based on their fair value, except for assets previously owned by Mr. Dolan or
affiliates of Mr. Dolan which were recorded at historical cost. Acquisitions are
reflected in operating, balance sheet and statistical data from the time of
acquisition. CSC Holdings, Inc.'s operating, balance sheet and statistical data
prior to April 5, 1999 has been restated to include the financial position,
results of operations and statistical information of the TCI Systems from March
4, 1998, the date of acquisition by the Company. The selected financial data
presented below should be read in conjunction with the consolidated financial
statements of Cablevision Systems Corporation and CSC Holdings, Inc. and the
notes thereto included in Item 8 of this Report.
Cablevision Systems Corporation
-------------------------------------------------------------------
December 31,
-------------------------------------------------------------------
2000 1999 1998 1997 1996
(Dollars in thousands, except per share data)
Operating Data:
Revenues, net .................................................. $4,411,048 $3,942,985 $3,265,143 $1,949,358 $1,315,142
Operating expenses:
Technical and operating .................................. 1,696,907 1,535,423 1,268,786 853,800 538,272
Retail electronics cost of sales ......................... 549,978 484,760 367,102 -- --
Selling, general and administrative ...................... 1,178,934 1,203,119 906,465 514,574 313,476
Depreciation and amortization ............................ 1,018,246 893,797 734,107 499,809 388,982
---------- ---------- ---------- ---------- ----------
Operating income (loss) ........................................ (33,017) (174,114) (11,317) 81,175 74,412
Other income (expense):
Interest expense, net .................................... (562,615) (465,740) (402,374) (363,208) (265,015)
Equity in net loss of affiliates ......................... (16,685) (19,234) (37,368) (27,165) (82,028)
Gain on sale of cable assets and programming interests,
net .................................................... 1,209,865 -- 170,912 372,053 --
Impairment charges on investments ........................ (146,429) (15,100) -- -- --
Gain on redemption of subsidiary preferred stock ......... -- -- -- 181,738 --
Write off of deferred interest and financing costs ....... (5,209) (4,425) (23,482) (24,547) (37,784)
Provision for preferential payment to related party ...... -- -- (980) (10,083) (5,600)
Minority interests ....................................... (164,679) (120,524) (124,677) (209,461) (137,197)
Miscellaneous, net ....................................... (51,978) (1,470) (19,218) (12,606) (6,647)
---------- ---------- ---------- ---------- ----------
Net income (loss) .............................................. $ 229,253 $ (800,607) $ (448,504) $ (12,104) $ (459,859)
========== ========== ========== ========== ==========
Basic net income (loss) per common share ....................... $ 1.32 $ (5.12) $ (3.16) $ (.12) $ (4.63)
========== ========== ========== ========== ==========
Diluted net income (loss) per common share ..................... $ 1.29 $ (5.12) $ (3.16) $ (.12) $ (4.63)
========== ========== ========== ========== ==========
Average number of common shares outstanding (in thousands) ..... 173,913 156,503 142,016 99,608 99,308
========== ========== ========== ========== ==========
(35)
Cablevision Systems Corporation
-------------------------------------------------------------------
December 31,
-------------------------------------------------------------------
2000 1999 1998 1997 1996
(Dollars in thousands)
Balance Sheet Data:
Total assets ................................................. $8,273,290 $7,130,308 $7,061,062 $5,614,788 $3,034,725
Total debt ................................................... 6,539,461 6,094,701 5,357,608 4,694,062 3,334,701
Minority interests ........................................... 587,985 592,583 719,007 821,782 --
Deficit investment in affiliates ............................. -- -- -- -- 512,800
Preferred stock of CSC Holdings, Inc. ........................ 1,544,294 1,404,511 1,579,670 1,456,549 1,338,006
Stockholders' deficiency ..................................... (2,529,879) (3,067,083) (2,611,685) (2,711,514) (2,707,026)
Cablevision Systems Corporation
-------------------------------------------------------------------
December 31,
-------------------------------------------------------------------
2000 1999 1998 1997 1996
(Dollars in thousands, except per subscriber data)
Statistical Data:
Homes passed by cable ........................................ 4,698,000 5,200,000 5,115,000 4,398,000 3,858,000
Basic service subscribers .................................... 3,193,000 3,492,000 3,412,000 2,844,000 2,445,000
Basic service subscribers as a percentage of
homes passed ............................................ 68.0% 67.2% 66.7% 64.7% 63.4%
Number of premium television units (1) ....................... 7,767,000 7,715,000 6,754,000 4,471,000 4,221,000
Average number of premium units per basic
subscriber at period end (1) ............................ 2.4 2.2 2.0 1.6 1.7
Average monthly revenue per basic subscriber (2) ............. $ 46.57 $ 44.38 $ 42.56 $ 38.53 $ 36.71
- ----------
(1) Restated for 1996 through 1998 to conform to 1999's definition and
reflects in 1996 and 1997 the operations of certain cable television
systems which had relatively lower premium unit penetration and were sold
by December 1998.
(2) Based on recurring service revenues divided by average subscribers for the
month of December.
(36)
CSC Holdings, Inc.
-------------------------------------------------------------------
December 31,
-------------------------------------------------------------------
2000 1999 1998 1997 1996
(Dollars in thousands, except per share data)
Operating Data:
Revenues, net ................................................ $4,411,048 $3,942,985 $3,265,143 $1,949,358 $1,315,142
Operating expenses:
Technical and operating ................................ 1,696,907 1,535,423 1,268,786 853,800 538,272
Retail electronics cost of sales ....................... 549,978 484,760 367,102 -- --
Selling, general and administrative .................... 1,178,934 1,203,119 906,465 514,574 313,476
Depreciation and amortization .......................... 1,018,246 893,797 734,107 499,809 388,982
---------- ---------- ---------- ---------- ----------
Operating income (loss) ...................................... (33,017) (174,114) (11,317) 81,175 74,412
Other income (expense):
Interest expense, net .................................. (562,615) (465,740) (402,374) (363,208) (265,015)
Equity in net loss of affiliates ....................... (16,685) (19,234) (37,368) (27,165) (82,028)
Gain on sale of cable assets and programming
interests, net ....................................... 1,209,865 -- 170,912 372,053 --
Impairment charges on investments ...................... (146,429) (15,100) -- -- --
Gain on redemption of subsidiary preferred stock ....... -- -- -- 181,738 --
Write off of deferred interest and financing costs ..... (5,209) (4,425) (23,482) (24,547) (37,784)
Provision for preferential payment to related party .... -- -- (980) (10,083) (5,600)
Minority interests ..................................... 625 49,563 37,195 (60,694) (9,417)
Miscellaneous, net ..................................... (51,978) (1,470) (19,218) (12,606) (6,647)
---------- ---------- ---------- ---------- ----------
Net income (loss) ............................................ 394,557 (630,520) (286,632) 136,663 (332,079)
Dividend requirements applicable to preferred stock .......... (165,304) (170,087) (161,872) (148,767) (127,780)
---------- ---------- ---------- ---------- ----------
Net income (loss) applicable to common shareholder ........... $ 229,253 $ (800,607) $ (448,504) $ (12,104) $ (459,859)
========== ========== ========== ========== ==========
Basic and diluted net loss per common share* ................. $ (.12) $ (4.63)
========== ==========
Average number of common shares outstanding (in thousands)* .. 99,608 99,308
========== ==========
Cash dividends declared per common share* .................... $ -- $ --
========== ==========
- ----------
* Per share information for the years ended December 31, 2000, 1999 and 1998
are not presented since CSC Holdings became a wholly-owned subsidiary of
Cablevision Parent in 1998.
(37)
CSC Holdings, Inc.
-------------------------------------------------------------------
December 31,
-------------------------------------------------------------------
2000 1999 1998 1997 1996
(Dollars in thousands)
Balance Sheet Data:
Total assets ................................................. $8,273,290 $7,130,308 $7,061,025 $5,614,788 $3,034,725
Total debt ................................................... 6,539,461 6,094,701 5,357,608 4,694,062 3,334,701
Minority interests ........................................... 587,985 592,583 719,007 821,782 --
Deficit investment in affiliates ............................. -- -- -- -- 512,800
Redeemable preferred stock ................................... 1,544,294 1,404,511 1,256,339 1,123,808 1,005,265
Stockholder's deficiency ..................................... (2,566,803) (3,078,413) (2,286,744) (2,711,514) (2,707,026)
CSC Holdings, Inc.
-------------------------------------------------------------------
December 31,
-------------------------------------------------------------------
2000 1999 1998 1997 1996
(Dollars in thousands, except per Subscriber data)
Statistical Data:
Homes passed by cable ........................................ 4,698,000 5,200,000 5,115,000 4,398,000 3,858,000
Basic service subscribers .................................... 3,193,000 3,492,000 3,412,000 2,844,000 2,445,000
Basic service subscribers as a percentage of
homes passed ............................................ 68.0% 67.2% 66.7% 64.7% 63.4%
Number of premium television units (1) ....................... 7,767,000 7,715,000 6,754,000 4,471,000 4,221,000
Average number of premium units per basic
subscriber at period end (1) ............................ 2.4 2.2 2.0 1.6 1.7
Average monthly revenue per basic subscriber (2) ............. $ 46.57 $ 44.38 $ 42.56 $ 38.53 $ 36.71
- ----------
(1) Restated for 1996 through 1998 to conform to 1999's definition and
reflects in 1996 and 1997 the operations of certain cable television
systems which had relatively lower premium unit penetration and were sold
by December 1998.
(2) Based on recurring service revenues divided by average subscribers for the
month of December.
(38)
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Annual Report contains or incorporates by reference statements that
constitute forward looking information within the meaning of the Private
Securities Litigation Reform Act of 1995. Investors are cautioned that such
forward looking statements are not guarantees of future performance or results
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. Factors that may cause such differences to occur include but are not
limited to:
(i) the level of the Company's revenues;
(ii) subscriber demand, competition, the cost of programming and industry
conditions;
(iii) the regulatory environment in which the Company operates;
(iv) the level of capital expenditures and whether expenses of the Company
increase as expected;
(v) pending and future acquisitions and dispositions of assets;
(vi) market demand for new services;
(vii) whether any pending uncompleted transactions are completed on the terms
and at the times set forth (if at all);
(viii) new competitors entering the Company's franchise areas;
(ix) other risks and uncertainties inherent in the cable television business,
the programming and entertainment businesses and the Company's other
businesses;
(x) financial community and rating agency perceptions of the Company's
business, operations, financial condition and the industry in which it
operates; and
(xi) the factors described in CSC Holdings, Inc.'s most recent registration
statement on Form S-3 and Cablevision Systems Corporation's Proxy
Statement dated October 10, 2000, as supplemented ("Proxy"), including
the sections entitled "Risk Factors" contained therein.
The Company disclaims any obligation to update the forward-looking statements
contained or incorporated by reference herein.
The "Management's Discussion and Analysis of Financial Condition and Results of
Operations" for each of Cablevision Parent, CSC Holdings, Cablevision NY Group
and Rainbow Media Group are included with the Financial Statements for each
filed as part of this document.
(39)
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risks from changes in interest rates and
certain equity security prices. The Company's exposure to interest rate
movements results from its use of floating and fixed rate debt to fund its
working capital, capital expenditures, and other operational and investment
requirements. To manage interest rate risk, the Company has 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 fix the
borrowing rates on floating rate debt to hedge against the risk of rising rates
and/or convert fixed rate borrowings to variable rate to hedge against the risk
of higher borrowing costs in a declining interest rate environment. The Company
does not enter into interest rate swap contracts for speculative or trading
purposes. The Company's exposure to changes in equity security prices stems
primarily from its investments in At Home Corporation common stock warrants (the
value of which fluctuates based on changes in the stock price of the underlying
security) and the Charter and Adelphia common stock held by the Company.
Fair Value of Debt: Based on the level of interest rates prevailing at December
31, 2000, the fair value of the Company's fixed-rate debt and redeemable
preferred stock exceeded its carrying cost of $5,286.2 million by approximately
$90.5 million. The fair value of these financial instruments is estimated based
on reference to quoted market prices for these or comparable securities. The
Company's floating rate borrowings bear interest at current market rates and
thus approximate fair value. The effect of a hypothetical 100 basis point
decrease in interest rates prevailing at December 31, 2000 would increase the
estimated fair value of debt and redeemable preferred stock instruments by
approximately $277.0 million. This estimate is based on the assumption of an
immediate and parallel shift in interest rates across all maturities.
Interest Rate Hedge Contracts: As of December 31, 2000, the Company had
outstanding interest rate swap contracts to pay variable rates of interest
(based upon LIBOR with the latest maturity in 2002) covering a total notional
principal amount of $250.0 million. As of December 31, 2000, the fair market
value of all interest rate hedge contracts was approximately $2.0 million.
Assuming an immediate and parallel shift in interest rates across the yield
curve, a 100 basis point increase in interest rates from December 31, 2000
prevailing levels would decrease the fair market value of all hedge contracts by
$5.1 million to a liability of $3.1 million.
Equity Price Risk: As of December 31, 2000, the fair market value and the
carrying value (after an impairment charge of $139.7 million) of the Company's
warrants to acquire At Home Corporation's common stock was $108.5 million. The
potential change in the fair value of this investment, assuming a 10% change in
price, would be approximately $10.8 million.
As of December 31, 2000, the fair market value and the carrying value of the
Company's holdings of Charter and Adelphia common stock aggregated $811.0
million. Assuming a 10% change in price, the potential change in the fair value
of these investments would be approximately $81.1 million.
(40)
Item 8. Financial Statements and Supplementary Data.
For information required by Item 8, refer to the Index to Financial Statements
on page 52.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
The information called for by Item 401 of Regulation S-K under Item 10,
Directors and Executive Officers of the Registrant, Item 11, Executive
Compensation, Item 12, Security Ownership of Certain Beneficial Owners and
Management and Item 13, Certain Relationships and Related Transactions, is
hereby incorporated by reference to Cablevision Parent's definitive proxy
statement for its Annual Meeting of Shareholders anticipated to be held in June
2001 or if such definitive proxy statement is not filed with the Commission
prior to April 30, 2000, to an amendment to this report on Form 10-K filed under
cover of Form 10-K/A.
Compliance with Section 16(a) of the Securities Exchange Act of 1934.
Pursuant to regulations promulgated by the Securities and Exchange Commission,
the Company is required to identify, based solely on a review of reports filed
under Section 16(a) of the Securities Exchange Act of 1934, each person who, at
any time during its fiscal year ended December 31, 2000, was a director, officer
or beneficial owner of more than ten percent of the Company's Class A Common
Stock that failed to file on a timely basis any such reports. Based on such
review, the Company is aware of no such failure other than a report on Form 5
filed by Margaret Albergo in February 2001 with respect to the purchase of the
Company's Class A Common Stock in June 2000.
PART IV
Item 14. Exhibits, Financial Statements, Financial Statement Schedule, and
Reports on Form 8-K.
(a) The following documents are filed as part of this report:
1. The financial statements as indicated in the index set forth on page
52.
2. Financial statement schedule:
Page No.
--------
Schedule supporting consolidated financial statements:
Schedule II - Valuation and Qualifying Accounts.......... 42
Schedules other than that listed above have been omitted, since they are either
not applicable, not required or the information is included elsewhere herein.
3. The Index to Exhibits is on page 45.
(b) Reports on Form 8-K:
Cablevision Systems Corporation filed current reports on Form 8-K with the
Commission on December 4, 2000, December 6, 2000 and December 11, 2000 during
the last quarter of the fiscal period covered by this report.
CSC Holdings, Inc. has not filed any current reports on Form 8-K with the
Commission during the last quarter of the fiscal period covered by this report.
(41)
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
Cablevision Systems Corporation
Balance at
Beginning Charged to Costs Charged to Deductions Balance at
of Period and Expenses Other Accounts Write-Offs End of Period
--------- ------------ -------------- ---------- -------------
Year Ended December 31, 2000
Allowance for doubtful
accounts ................................. $35,357 $34,858 $2,860 $(34,197) $38,878
======= ======= ====== ======== =======
Year Ended December 31, 1999
Allowance for doubtful
accounts ................................. $34,377 $29,775 $2,429 $(31,224) $35,357
======= ======= ====== ======== =======
Year Ended December 31, 1998
Allowance for doubtful
accounts ................................. $29,584 $32,110 $ -- $(27,317) $34,377
======= ======= ====== ======== =======
CSC Holdings, Inc.
Balance at
Beginning Charged to Costs Charged to Deductions Balance at
of Period and Expenses Other Accounts Write-Offs End of Period
--------- ------------ -------------- ---------- -------------
Year Ended December 31, 2000
Allowance for doubtful
accounts ............................... $35,357 $34,858 $2,860 $(34,197) $38,878
======= ======= ====== ======== =======
Year Ended December 31, 1999
Allowance for doubtful
accounts ............................... $34,377 $29,775 $2,429 $(31,224) $35,357
======= ======= ====== ======== =======
Year Ended December 31, 1998
Allowance for doubtful
accounts ............................... $29,584 $32,110 $ -- $(27,317) $34,377
======= ======= ====== ======== =======
(42)
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized on the 30th day of
March, 2001.
Cablevision Systems Corporation
CSC Holdings, Inc.
By: /s/ William J. Bell
----------------------------
Name: William J. Bell
Title: Vice Chairman
(Cablevision Systems
Corporation and CSC
Holdings, Inc.)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints William J. Bell and Robert S. Lemle, and each of them,
his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him in his name, place and stead, in any
and all capacities, to sign this report, and file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents or any of them may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this report has been signed below by the following persons in the capacities and
on the dates indicated on behalf of each of the Registrants.
Name Title Date
---- ----- ----
/s/ James L. Dolan Chief Executive Officer and Director March 30, 2001
- ------------------------- (Principal Executive Officer)
James L. Dolan
/s/ William J. Bell Vice Chairman and Director March 30, 2001
- ------------------------- (Principal Financial Officer)
William J. Bell
/s/ Andrew B. Rosengard Executive Vice President March 30, 2001
- ------------------------- Finance and Controller
Andrew B. Rosengard (Principal Accounting Officer)
(43)
SIGNATURES
(continued)
/s/ Charles F. Dolan Chairman of the Board of Directors March 30, 2001
- -------------------------
Charles F. Dolan
/s/ Robert S. Lemle Vice Chairman, General March 30, 2001
- ------------------------- Counsel, Secretary and Director
Robert S. Lemle
/s/ Sheila A. Mahony Executive Vice President and March 30, 2001
- ------------------------- Director
Sheila A. Mahony
/s/ Thomas C. Dolan Senior Vice President and March 30, 2001
- ------------------------- Chief Information Officer and
Thomas C. Dolan Director
/s/ John Tatta Director and Chairman of the March 30, 2001
- ------------------------- Executive Committee
John Tatta
/s/ Patrick F. Dolan Director March 30, 2001
- -------------------------
Patrick F. Dolan
/s/ Charles D. Ferris Director March 30, 2001
- -------------------------
Charles D. Ferris
Director March 30, 2001
- -------------------------
Richard H. Hochman
/s/ Victor Oristano Director March 30, 2001
- -------------------------
Victor Oristano
/s/ Vincent Tese Director March 30, 2001
- -------------------------
Vincent Tese
/s/ Michael P. Huseby Director March 30, 2001
- -------------------------
Michael P. Huseby
/s/ Daniel E. Somers Director March 30, 2001
- -------------------------
Daniel E. Somers
(44)
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION
- ------- -----------
3.1 Amended and Restated Certificate of Incorporation of Cablevision
Systems Corporation (incorporated herein by reference to Annex II to
Cablevision Systems Corporation's Proxy Statement, dated October 10,
2000, as supplemented, (the "2000 Proxy Statement")).
3.2 Bylaws of Cablevision Systems Corporation (incorporated herein by
reference to Exhibit 3.2 to Cablevision Systems Corporation's
Registration Statement on Form S-4, dated January 20, 1998, File No.
333-44547 (the "S-4")).
3.3 Certificate of Incorporation of CSC Holdings, Inc. (incorporated
herein by reference to Exhibits 3.1A(i) and 3.1A(ii) to CSC
Holdings' Annual Report on Form 10-K for the fiscal year ended
December 31, 1989 (the "1989 10-K")).
3.4 Amendment to By-laws and complete copy of amended and restated
By-laws of CSC Holdings, Inc. (incorporated herein by reference to
Exhibit 3.2D to CSC Holdings' Registration Statement on Form S-4,
File No. 33-62717).
3.5 Certificate of Amendment of Certificate of Incorporation of CSC
Holdings, Inc., dated April 1, 1999 (incorporated herein by
reference to Exhibit 3.1 of CSC Holdings' Quarterly Report on Form
10-Q for the fiscal quarter ended March 31, 1999).
3.6 Certificate of Amendment of Certificate of Incorporation of CSC
Holdings, Inc., dated April 1, 1999 (incorporated herein by
reference to Exhibit 3.2 of CSC Holdings' Quarterly Report on Form
10-Q for the fiscal quarter ended March 31, 1999).
4.1 Certificate of Designations for CSC Holdings' Series H Redeemable
Exchangeable Preferred Stock (incorporated by reference to Exhibit
4.1E to CSC Holdings' Registration Statement on Form S-4,
Registration No. 33-63691).
4.2 Certificate of Designations for CSC Holdings' Series M Redeemable
Exchangeable Preferred Stock (incorporated by reference to Exhibit
4.1(f) to CSC Holdings' Registration Statement on Form S-4,
Registration No. 333-00527).
4.3 Indenture dated as of December 1, 1997 relating to CSC Holdings'
$500,000,000 7 7/8% Senior Notes due 2007 (incorporated herein by
reference to Exhibit 4.4 to the S-4).
4.4 Indenture dated as of February 15, 1993 relating to CSC Holdings'
$200,000,000 9 7/8% Senior Subordinated Debentures due 2013
(incorporated herein by reference to Exhibit 4.3 to Cablevision
Systems Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992 (the "1992 10-K")).
4.5 Indenture dated as of April 1, 1993 relating to CSC Holdings'
$150,000,000 9 7/8% Senior Subordinated Debentures due 2023
(incorporated by reference to CSC Holdings' Registration Statement
on Form S-4, Registration No. 33-61814).
(45)
INDEX TO EXHIBITS
(continued)
EXHIBIT
NO. DESCRIPTION
- ------- -----------
4.6 Supplemental Indenture dated as of November 1, 1995 between CSC
Holdings and the Bank of New York, Trustee to the Indenture dated
November 1, 1995 (incorporated by reference to Exhibit 99.6 to CSC
Holdings' Current Report on Form 8-K (File No. 1-9046), filed
November 1, 1995).
4.7 Indenture dated August 15, 1997 relating to CSC Holdings'
$400,000,000 8 1/8% Senior Debentures due 2009 (incorporated herein
by reference to CSC Holdings' Registration Statement on Form S-4,
Registration No. 333-38013).
4.8 Indenture dated as of November 1, 1995 relating to CSC Holdings'
$150,000,000 9 7/8% Senior Subordinated Notes due 2006, $300,000,000
9 1/4% Senior Subordinated Notes due 2005 and $250,000,000 10 1/2%
Senior Subordinated Debentures due 2016 (incorporated by reference
to Exhibit 99.6 to CSC Holdings' Current Report on Form 8-K filed
November 1, 1995).
4.9 Senior Indenture (incorporated by reference to Exhibit 4.1 to CSC
Holdings' Registration Statement on Form S-3, Registration No.
333-57407).
4.10 Subordinated Indenture (incorporated by reference to Exhibit 4.2 to
CSC Holdings' Registration Statement on Form S-3, Registration No.
333-57407).
4.11 Indenture dated as of March 22, 2001 relating to CSC Holdings
$1,000,000,000 7-5/8% Senior Notes due 2011.
10.1 Registration Rights Agreement between CSC Systems Company and CSC
Holdings (incorporated herein by reference to Exhibit 10.1 of CSC
Holdings' Registration Statement on Form S-1, Registration No.
033-01936 ("CSC Holdings' Form S-1")).
10.2 Registration Rights Agreement between Cablevision Company and CSC
Holdings (incorporated herein by reference to Exhibit 10.2 to CSC
Holdings' Form S-1).
10.3 Form of Right of First Refusal Agreement between Dolan and CSC
Holdings (incorporated herein by reference to Exhibit 10.4 to CSC
Holdings' Form S-1).
10.4 Supplemental Benefit Plan of CSC Holdings (incorporated herein by
reference to Exhibit 10.7 to CSC Holdings' Form S-1).
10.5 Cablevision Money Purchase Pension Plan, and Trust Agreement dated
as of December 1, 1983 between Cablevision Systems Development
Company and Dolan and Tatta, as Trustees (incorporated herein by
reference to Exhibit 10.8 to CSC Holdings' Form S-1).
10.6 Amendment to the Cablevision Money Purchase Pension Plan adopted
November 6, 1992 (incorporated herein by reference to Exhibit 10.6A
to the 1992 10-K).
(46)
INDEX TO EXHIBITS
(continued)
EXHIBIT
NO. DESCRIPTION
- ------- -----------
10.7 Employment Agreement between Charles F. Dolan and CSC Holdings dated
January 27, 1986 (incorporated herein by reference to Exhibit 10.9
to CSC Holdings' Form S-1).
10.8 Cablevision 401(k) Savings Plan (incorporated herein by reference to
Exhibit 10.47 to the 1992 10-K).
10.9 Employment Agreement, dated as of March 11, 1998, between CSC
Holdings and William J. Bell.
10.10 Employment Agreement, dated as of March 11, 1998, between CSC
Holdings and Robert S. Lemle.
10.11 Employment Agreement, dated as of January 1, 1999, between CSC
Holdings and James L. Dolan.
10.12 Cablevision Systems Corporation Amended and Restated Employee Stock
Plan (incorporated herein by reference to Annex III to the 2000
Proxy Statement).
10.13 Cablevision Systems Corporation Long-Term Incentive Plan
(incorporated herein by reference to Exhibit 10.41 to the S-4).
10.14 Cablevision Systems Corporation 1996 Non-Employee Directors Stock
Option Plan (incorporated by reference to CSC Holdings' 1996
Definitive Proxy Statement).
10.15 Letter, dated November 25, 1997, from CSC Holdings to Charles F.
Dolan (incorporated herein by reference to Exhibit 10.49 to the
S-4).
10.16 Form of Guarantee and Indemnification Agreement among Charles F.
Dolan, CSC Holdings and officers and directors of CSC Holdings
(incorporated herein by reference to Exhibit 28 to CSC Holdings'
Form S-1).
10.17 Partnership Interest Transfer Agreement, among ITT Corporation, ITT
Eden Corporation, ITT MSG, Inc., CSC Holdings, Rainbow Media
Holdings, Inc., Rainbow Garden Corp., Garden L.P. Holding Corp., MSG
Eden Corporation and Madison Square Garden, L.P., dated as of April
15, 1997. (incorporated by reference to Exhibit 2(a) of CSC
Holdings' Current Report on Form 8-K (File No. 1-9046) dated April
18, 1997 (the "April 1997 8-K")).
10.18 Amendment No. 1 to Partnership Interest Transfer Agreement, dated as
of March 16, 1999 (incorporated herein by reference to Exhibit 10.26
to Cablevision Systems Corporation's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998 (the "1998 10-K")).
(47)
INDEX TO EXHIBITS
(continued)
EXHIBIT
NO. DESCRIPTION
- ------- -----------
10.19 Amended and Restated Agreement of Limited Partnership of Madison
Square Garden, L.P., among MSG Eden Corporation, ITT MSG Inc. and
Garden L.P. Holding Corp., dated as of April 15, 1997. (incorporated
by reference to Exhibit 2(b) of the April 1997 8-K).
10.20 Formation Agreement, dated as of June 22, 1997, among Rainbow Media
Sports Holdings, Inc. and Fox Sports Net, LLC, attaching Partners)
and Annex B (Partnership Agreement of National Sports Partners)
(incorporated by reference to Exhibit 99.1 of the April 1997 8-K).
10.21 Lease Agreement between Nassau Cable Business Trust, as Landlord and
CSC Holdings, as Tenant, dated as of November 1, 1997 (incorporated
herein by reference to Exhibit 10.56 to the S-4).
10.22 Letter Agreement and Term Sheet, dated October 2, 1997 among CSC
Holdings, At Home Corporation ("At Home"), Comcast Corporation, Cox
Enterprises, Inc., Kleiner, Perkins, Caufield & Byers and
Tele-Communications, Inc., as amended October 10, 1997 (incorporated
by reference to Exhibit 10.01 of the Current Report on Form 8-K
filed by At Home (File No. 000-22697) on October 22, 1997 (the "At
Home October 8-K")).
10.23 Warrant to purchase shares of Series A Common Stock of At Home
issued to CSC Holdings (incorporated by reference to Exhibit 10.03
of the At Home October 8-K).
10.24 Contingent Warrant to purchase shares of Series A Common Stock of At
Home issued to CSC Holdings (incorporated by reference to Exhibit
10.04 of the At Home October 8-K).
10.25 Warrant Purchase Agreement, dated October 10, 1997, between At Home
and CSC Holdings (incorporated by reference to Exhibit 10.02 of the
At Home October 8-K).
10.26 Amended and Restated Stockholders Agreement, dated August 1, 1996,
as amended in May, 1997 (incorporated by reference to Exhibit 4.04
of the Registration Statement on Form S-1 of At Home (File No.
333-27323) (the "At Home S-1")).
10.27 Letter Agreement dated May 15, 1997 among At Home and the parties
thereto, including as exhibits the Master Distribution Agreement
Term Sheet and the Term Sheet for Form of LCO Agreement
(incorporated by reference to Exhibit 10.20 of the At Home S-1).
10.28 Credit Agreement, dated as of June 6, 1997, among Madison Square
Garden, L.P., the several lenders from time to time parties thereto,
the Chase Manhattan Bank, as Administrative Agent, Toronto Dominion
(New York), Inc., as Documentation Agent, and The Bank of Nova
Scotia, as Syndication Agent (incorporated herein by reference to
Exhibit 10.63 to the S-4).
(48)
INDEX TO EXHIBITS
(continued)
EXHIBIT
NO. DESCRIPTION
- ------- -----------
10.29 First Amendment, dated November 5, 1997 to the Credit Agreement,
dated as of June 6, 1997, among Madison Square Garden, L.P., the
several lenders from time to time parties thereto, the Chase
Manhattan Bank, as Administrative Agent, Toronto Dominion (New
York), Inc., as Documentation Agent, and The Bank of Nova Scotia, as
Syndication Agent (incorporated herein by reference to Exhibit 10.66
to the S-4).
10.30 Second Amendment, dated December 10, 1997, to the Credit Agreement,
dated as of June 6, 1997, among Madison Square Garden, L.P., the
several lenders from time to time parties thereto, the Chase
Manhattan Bank, as Administrative Agent, Toronto Dominion (New
York), Inc., as Documentation Agent, and The Bank of Nova Scotia, as
Syndication Agent (incorporated herein by reference to Exhibit 10.67
to the S-4).
10.31 Cablevision Systems Corporation Stock Option Plan for Non-Employee
Directors (incorporated herein by reference to Exhibit 10.68 to the
S-4).
10.32 Asset Purchase Agreement, dated as of January 29, 1998, between The
Wiz, Inc. and each of its subsidiaries and affiliates listed on the
signature pages thereto and Cablevision Electronics Investments,
Inc. (incorporated by reference to Exhibit 99.1 of CSC Holdings'
report on Form 8-K (file no. 1-9046) dated February 5, 1998).
10.33 Amended and Restated Contribution and Merger Agreement, dated as of
June 6, 1997, among Cablevision Systems Corporation, CSC Holdings,
CSC Merger Corporation and TCI Communications, Inc. (incorporated
herein by reference to Exhibit 2.1 to the S-4).
10.34 Stockholders Agreement, dated as of March 4, 1998, by and among CSC
Holdings, Tele-Communications, Inc., a Delaware corporation, the
Class B Entities (as defined in the Stockholders Agreement) and the
Investors (as defined in the Stockholders Agreement) (incorporated
herein by reference to Exhibit 4.1 to CSC Holdings' Current Report
on Form 8-K (File No. 1-9046) dated March 4, 1998).
10.35 Sixth Amended and Restated Credit Agreement, dated as of May 28,
1998, among CSC Holdings, Inc., the Restricted Subsidiaries which
are parties thereto, the lenders which are parties thereto (the
"Banks"). Toronto Dominion (Texas), Inc., as Arranging Agent and as
Administrative Agent, The Bank of New York, The Bank of Nova Scotia,
The Canadian Imperial Bank of Commerce, NationsBank, N.A., and The
Chase Manhattan Bank, as Managing Agents, Bank of Montreal, Chicago
Branch, Barclays Bank, PLC, Fleet Bank, N.A., and Royal Bank of
Canada, as agents, Banque Paribas, Credit Lyonnais, BankBoston,
N.A., The First National Bank of Chicago, Mellon Bank, N.A. and
Societe Generale, New York Branch, as Co-Agents, and The Canadian
Imperial Bank of Commerce, The Chase Manhattan Bank and NationsBank,
N.A., as Co-Syndication Agents (incorporated herein by reference to
Exhibit 10.47 to the 1998 10-K).
(49)
INDEX TO EXHIBITS
(continued)
EXHIBIT
NO. DESCRIPTION
- ------- -----------
10.36 First Amended and Restated Credit Agreement, dated as of May 28,
1998, among Cablevision MFR, Inc. ("MFR"), CSC Holdings, Inc., the
Guarantors which are parties thereto, the lenders which are parties
thereto (the "Banks"), Toronto Dominion (Texas), Inc., as Arranging
Agent and as Administrative Agent, The Bank of New York, The Bank of
Nova Scotia, The Canadian Imperial Bank of Commerce, NationsBank,
N.A., and The Chase Manhattan Bank, as Managing Agents, Bank of
Montreal, Chicago Branch, Barclays Bank, PLC, Fleet Bank, N.A., and
Royal Bank of Canada, as Agents, Banque Paribas, Credit Lyonnais,
BankBoston, N.A., The First National Bank of Chicago, Mellon Bank,
N.A. and Societe Generale, New York Branch, as Co-Agents, and The
Bank of New York and The Bank of Nova Scotia as Co Syndication
Agents (incorporated herein by reference to Exhibit 10.48 to the
1998 10-K).
10.37 Asset Purchase Agreement, dated as of December 8, 1999, by and among
Telerama, Inc., Cablevision of Cleveland, L.P., and Adelphia
Communications Corporation (incorporated herein by reference to
Exhibit 99.1 of Cablevision Systems Corporation's Current Report on
Form 8-K filed on December 17, 1999 (the "December 1999 8-K")).
10.38 Agreement and Plan of Reorganization, dated as of December 8, 1999,
by and among Cablevision of the Midwest, Inc., Cablevision of the
Midwest Holding Co., Inc., Adelphia General Holdings II, Inc. and
Adelphia Communications Corporation (incorporated herein by
reference to Exhibit 99.2 of the December 1999 8-K).
10.39 Agreement and Plan of Merger, dated as of April 18, 2000, by and
among CSC Holdings, Inc., Cablevision of Massachusetts, Inc., AT&T
Corp. and AT&T CSC, Inc. (incorporated herein by reference to
Exhibit 99.1 of Cablevision Systems Corporation's Current Report on
Form 8-K filed on May 5, 2000 (the "May 2000 8-K")).
10.40 Asset Exchange Agreement, dated as of April 18, 2000, by and among
CSC Holdings, Inc., Cablevision of Brookline, L.P., Cablevision of
Boston, Inc. and AT&T Corp. (incorporated herein by reference to
Exhibit 99.2 of the May 2000 8-K).
10.41 Letter Agreement dated January 31, 2001, among Cablevision Systems
Corporation, Rainbow Media Holdings, Inc., Metro-Goldwyn-Mayer Inc.,
American Movie Classics Holding Corporation, AMC II Holding
Corporation, Bravo Holding Corporation, and Bravo II Holding
Corporation (incorporated herein by reference to Exhibit 99.1 of
Cablevision Systems Corporation's Current Report on Form 8-K filed
on February 5, 2001).
10.42 Stockholders Agreement, dated as of October 6, 2000, among
Cablevision Systems Corporation, CSC Holdings, Inc., National
Broadcasting Company, Inc., and NBC-Rainbow Holding, Inc.
(50)
INDEX TO EXHIBITS
(continued)
EXHIBIT
NO. DESCRIPTION
- ------- -----------
10.43 Registration Rights Agreement, dated as of October 6, 2000, between
Cablevision Systems Corporation and NBC-Rainbow Holding, Inc.
21 Subsidiaries of the Registrants.
23.1 Consent of Independent Auditors.
23.2 Consent of Independent Auditors.
(51)
INDEX TO FINANCIAL STATEMENTS
Page
----
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations .......................................... I-1
Consolidated Financial Statements
Independent Auditors' Report ....................................... I-24
Consolidated Balance Sheets - December 31, 2000 and 1999 ........... I-25
Consolidated Statements of Operations - years
ended December 31, 2000, 1999 and 1998 ......................... I-27
Consolidated Statements of Stockholders' Deficiency - years ended
December 31, 2000, 1999 and 1998 ............................... I-28
Consolidated Statements of Cash Flows - years ended
December 31, 2000, 1999 and 1998 ............................... I-29
Notes to Consolidated Financial Statements ......................... I-31
CSC HOLDINGS, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations .......................................... II-1
Consolidated Financial Statements
Independent Auditors' Report ....................................... II-2
Consolidated Balance Sheets - December 31, 2000 and 1999 ........... II-3
Consolidated Statements of Operations - years
ended December 31, 2000, 1999 and 1998 ......................... II-5
Consolidated Statements of Stockholder's Deficiency - years ended
December 31, 2000, 1999 and 1998 ............................... II-6
Consolidated Statements of Cash Flows - years ended
December 31, 2000, 1999 and 1998 ............................... II-7
Notes to Consolidated Financial Statements ......................... II-9
(52)
INDEX TO FINANCIAL STATEMENTS (cont'd.)
Page
----
RAINBOW MEDIA GROUP
Management's Discussion and Analysis of Financial Condition
and Results of Operations ..........................................III-1
Combined Financial Statements
Independent Auditors' Report .......................................III-7
Combined Balance Sheets - December 31, 2000 and 1999 ...............III-8
Combined Statements of Operations - years
ended December 31, 2000, 1999 and 1998 .........................III-10
Combined Statements of Group Deficiency - years
ended December 31, 2000, 1999 and 1998 .........................III-11
Combined Statements of Cash Flows - years ended
December 31, 2000, 1999 and 1998 ...............................III-12
Notes to Combined Financial Statements .............................III-13
CABLEVISION NY GROUP
Management's Discussion and Analysis of Financial Condition
and Results of Operations ..........................................IV-1
Combined Financial Statements
Independent Auditors' Report .......................................IV-11
Combined Balance Sheets - December 31, 2000 and 1999 ...............IV-12
Combined Statements of Operations - years
ended December 31, 2000, 1999 and 1998 .........................IV-13
Combined Statements of Group Deficiency - years
ended December 31, 2000, 1999 and 1998 .........................IV-14
Combined Statements of Cash Flows - years ended
December 31, 2000, 1999 and 1998 ...............................IV-15
Notes to Combined Financial Statements .............................IV-17
(53)
CABLEVISION SYSTEMS CORPORATION
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Recent Transactions
2000 Acquisitions. In August 2000, Rainbow Media Holdings, Inc. ("Rainbow Media
Holdings") purchased the remaining interests in News 12 New Jersey LLC that it
did not already own from the Newark Morning Ledger Co. In May 2000, Rainbow
Media Holdings acquired the 50% interest in MuchMusic USA held by Chum, Ltd.,
increasing Rainbow Media Holdings' ownership to 100%. In January 2000, Regional
Programming Partners ("RPP") acquired the 70% interest in SportsChannel Florida
Associates held by Front Row Communications, Inc., increasing RPP's ownership to
100%.
2000 Dispositions. In September 2000, CSC Holdings, Inc. ("CSC Holdings")
completed the sale of its cable television system serving Kalamazoo, Michigan
and in November 2000, CSC Holdings completed the sale of cable television
systems in the greater Cleveland, Ohio metropolitan area.
1999 Acquisitions. In April 1999, CSC Holdings purchased ITT Corporation's
("ITT") remaining minority interest in Madison Square Garden. In 1999, CSC
Holdings acquired interests in the real property and assets related to certain
movie theaters.
1998 Acquisitions. In December 1998, CSC Holdings acquired the net assets of
Clearview Cinema Group, Inc. ("Clearview") and certain assets from Loews
Cineplex Entertainment Corporation ("Loews"). In June 1998, CSC Holdings
purchased 50% of ITT's then remaining minority interest in Madison Square
Garden. In March 1998, Cablevision Systems Corporation ("Company" or
"Cablevision Parent") acquired certain cable television systems in New York and
New Jersey from Tele-Communications, Inc. ("TCI"). In addition, in February
1998, Cablevision Electronics Investments, Inc. ("Cablevision Electronics")
acquired substantially all of the assets associated with 40 The WIZ consumer
electronics store locations (the "WIZ Transaction").
1998 Dispositions. In 1998, CSC Holdings completed the sale of substantially all
of the assets of U.S. Cable Television Group, L.P. and the sale of several
smaller cable television systems. Also in 1998, CSC Holdings transferred its
cable television system in Rensselaer, New York plus approximately $16 million
in cash to Time Warner Entertainment Company, L.P. ("Time Warner") in exchange
for Time Warner's Litchfield, Connecticut system. In addition, in January 1998,
Rainbow Media Holdings completed the sale of an interest in a regional sports
programming business.
The above transactions completed in 2000, 1999 and 1998 are collectively
referred to as the "Transactions."
I-1
Results of Operations - Cablevision Systems Corporation
The following table sets forth on a historical basis certain items related to
operations as a percentage of net revenues for the periods indicated.
STATEMENT OF OPERATIONS DATA
Years Ended December 31,
------------------------------------------------
2000 1999
---------------------- ----------------------
(Increase)
% of Net % of Net Decrease
Amount Revenues Amount Revenues in Net loss
--------- -------- ------ -------- -----------
(Dollars in thousands)
Revenues, net .................................................. $ 4,411,048 100% $ 3,942,985 100% $ 468,063
Operating expenses:
Technical and operating ..................................... 1,696,907 39 1,535,423 39 (161,484)
Retail electronics cost of sales ............................ 549,978 13 484,760 12 (65,218)
Selling, general & administrative ........................... 1,178,934 27 1,203,119 31 24,185
Depreciation and amortization ............................... 1,018,246 23 893,797 23 (124,449)
----------- ----------- -----------
Operating loss ................................................. (33,017) (1) (174,114) (4) 141,097
Other income (expense):
Interest expense, net ....................................... (562,615) (13) (465,740) (12) (96,875)
Equity in net loss of affiliates ............................ (16,685) -- (19,234) (1) 2,549
Gain on sale of cable assets and
programming interests, net .............................. 1,209,865 27 -- -- 1,209,865
Impairment charges on investments ........................... (146,429) (3) (15,100) -- (131,329)
Write off of deferred interest and financing costs .......... (5,209) -- (4,425) -- (784)
Minority interests .......................................... (164,679) (4) (120,524) (3) (44,155)
Miscellaneous, net .......................................... (51,978) (1) (1,470) -- (50,508)
----------- ----------- -----------
Net income (loss) .............................................. $ 229,253 5% $ (800,607) (20)% $ 1,029,860
=========== =========== ===========
Years Ended December 31,
------------------------------------------------
1999 1998
---------------------- ----------------------
(Increase)
% of Net % of Net Decrease
Amount Revenues Amount Revenues in Net loss
--------- -------- ------ -------- -----------
(Dollars in thousands)
Revenues, net .................................................. $ 3,942,985 100% $ 3,265,143 100% $ 677,842
Operating expenses:
Technical and operating ..................................... 1,535,423 39 1,268,786 39 (266,637)
Retail electronics cost of sales ............................ 484,760 12 367,102 11 (117,658)
Selling, general & administrative ........................... 1,203,119 31 906,465 28 (296,654)
Depreciation and amortization ............................... 893,797 23 734,107 22 (159,690)
----------- ----------- -----------
Operating loss ................................................. (174,114) (4) (11,317) -- (162,797)
Other income (expense):
Interest expense, net ....................................... (465,740) (12) (402,374) (12) (63,366)
Equity in net loss of affiliates ............................ (19,234) (1) (37,368) (1) 18,134
Gain on sale of cable assets and
programming interests, net .............................. -- -- 170,912 5 (170,912)
Impairment charges on investments ........................... (15,100) -- -- -- (15,100)
Write off of deferred interest and financing costs .......... (4,425) -- (23,482) (1) 19,057
Provision for preferential payment to related party ......... -- -- (980) -- 980
Minority interests .......................................... (120,524) (3) (124,677) (4) 4,153
Miscellaneous, net .......................................... (1,470) -- (19,218) (1) 17,748
----------- ----------- -----------
Net loss ....................................................... $ (800,607) (20)% $ (448,504) (14)% $ (352,103)
=========== =========== ===========
I-2
Comparison of Year Ended December 31, 2000 Versus Year Ended December 31, 1999.
Consolidated Results - Cablevision Systems Corporation
Revenues for the year ended December 31, 2000 increased $468.1 million (12%) as
compared to revenues for the prior year. Approximately $236.1 million (6%) was
from increases in revenue sources such as Rainbow Media Holdings' programming
and entertainment services, advertising on the Company's cable television
systems, revenue derived from the developing modem and telephone businesses and
deferred revenue recognized in connection with the warrants previously received
from At Home; approximately $81.5 million (2%) resulted from higher revenue per
subscriber; approximately $78.8 million (2%) resulted from higher retail
electronics revenue and approximately $36.4 million (1%) of the increase was
attributable to the Transactions. The remaining increase of $35.3 million (1%)
was attributable to internal growth of 65,800 in the average number of
subscribers during the year.
Technical and operating expenses for 2000 increased $161.5 million (11%) over
the 1999 amount. Approximately $135.4 million (9%) reflected increased costs
directly associated with the growth in revenues and subscribers discussed above,
as well as increases in programming costs for cable television services, with
the remaining $26.1 million (2%) attributable to the Transactions. As a
percentage of revenues, technical and operating expenses remained relatively
constant during 2000 as compared to 1999.
Retail electronics cost of sales amounted to approximately $550.0 million (81%
of retail electronics sales) for 2000, compared to approximately $484.8 million
(80% of retail electronics sales) for 1999. Cost of sales includes the cost of
merchandise sold, including freight costs incurred, as well as store occupancy
and buying costs for the retail electronics segment.
Selling, general and administrative expenses decreased $24.2 million (2%) for
2000 as compared to the 1999 level. The change from the prior year resulted from
decreases of approximately $159.5 million (13%) reflecting lower charges related
to an incentive stock plan and approximately $37.2 million (3%) due to lower
Year 2000 remediation costs. Partially offsetting these decreases were net
increases of approximately $129.4 million (11%) resulting from higher
administrative, sales and marketing and customer service costs, approximately
$38.5 million (3%) to expense the unamortized portion of deferred acquisition
costs related to the Company's consumer modem program and approximately $4.6
million directly attributable to the Transactions. As a percentage of revenues,
selling, general and administrative expenses decreased 4% in 2000 compared to
1999. Excluding the effects of the incentive stock plan and Year 2000
remediation costs, as a percentage of revenues such costs increased 2% during
2000 as compared to 1999.
Operating profit before depreciation and amortization increased $265.5 million
(37%) to $985.2 million for the year ended December 31, 2000 from $719.7 million
for the comparable period in 1999. Approximately $159.5 million (22%) resulted
from lower costs related to an incentive stock plan and approximately $106.0
million (15%) resulted from the combined effect of the revenue and expense
changes discussed above. On a pro forma basis, giving effect to the Transactions
as if they had occurred on January 1, 1999 and excluding the Company's systems
held for sale, the incentive stock plan costs referred to above, the charge
related to consumer modems discussed above, and the costs of Year 2000
remediation, operating profit before depreciation and amortization would have
increased 12.0% in 2000. Operating profit before depreciation and
I-3
amortization is presented here to provide additional information about the
Company's ability to meet future debt service, capital expenditures and working
capital requirements. Operating profit before depreciation and amortization
should be considered in addition to and not as a substitute for net income
(loss) and cash flows as indicators of financial performance and liquidity as
reported in accordance with generally accepted accounting principles.
Depreciation and amortization expense increased $124.4 million (14%) during 2000
as compared to 1999. Approximately $22.3 million (3%) resulted from higher
impairment charges related to goodwill and capitalized software costs. (The 2000
amount included a $47.5 million write-off of goodwill which resulted from the
Clearview acquisition and $10.3 million from the write-off of capitalized
software costs. The 1999 amount included a $35.5 million write-off of goodwill
related to the WIZ Transaction). Approximately $83.0 million (9%) resulted
primarily from depreciation on new plant assets. The remaining $19.1 million
(2%) of the increase was directly attributable to the Transactions.
Net interest expense increased $96.9 million (21%) during 2000 compared to 1999.
The net increase is primarily attributable to higher debt incurred to fund
acquisitions and capital expenditures and higher interest rates.
Equity in net loss of affiliates decreased to $16.7 million in 2000 from $19.2
million in 1999. Such amounts consist of the Company's share of the net profits
and losses of certain programming businesses and a personal communication
services business in which the Company has varying minority ownership interests.
Gain on sale of cable assets and programming interests for the year ended
December 31, 2000 consists of a gain of $1,203.6 million from the disposition of
the Company's cable television systems in Kalamazoo and Ohio and $6.3 million
from the sale of certain programming assets.
Write off of deferred interest and financing costs of $5.2 million in 2000 and
$4.4 million in 1999 consist principally of the write off of deferred financing
costs in connection with amendments to or termination of the Company's credit
agreements.
Impairment charges on investments for the year ended December 31, 2000 consists
of a charge of $139.7 million relating to an other-than-temporary decline in the
fair value of the Company's At Home warrants and a charge of $6.7 million
relating to an other-than-temporary decline in the fair value of the Company's
investment in Salon.com. The 1999 impairment charge of $15.1 million resulted
from the write-off of an investment held by Rainbow Media Holdings.
Minority interests for the years ended December 31, 2000 and 1999 include CSC
Holdings' preferred stock dividend requirements, Fox's 40% share of the net
income of Regional Programming Partners, ITT's share of the net loss of Madison
Square Garden through April 8, 1999 and NBC's share of the net loss of Rainbow
Media Holdings.
Net miscellaneous expense increased to $52.0 million for the year ended December
31, 2000 compared to $1.5 million for the prior year. In 2000, miscellaneous
expense included a $42.5 million income tax provision resulting from the
Transactions and $9.5 million relates to various other items. In 1999,
miscellaneous expense included $6.7 million related to federal, state
I-4
and local income taxes and $5.7 million related to various other items,
partially offset by a gain of $10.9 million which resulted from the sale of
certain investments.
Business Segments Results - Cablevision Systems Corporation
The Company classifies its business interests into four segments:
Telecommunication Services, consisting principally of its cable television,
telephone and modem services operations; Rainbow Media Group, consisting
principally of interests in national and regional cable television programming
networks; MSG, which owns and operates professional sports teams, regional cable
television networks, live productions and entertainment venues; and Retail
Electronics, which represents the operations of Cablevision Electronics' retail
electronics stores. The Company allocates certain costs to each segment based
upon their proportionate estimated usage of services. The financial information
for the segments does not include inter-segment eliminations.
Telecommunication Services
The table below sets forth, for the periods presented, certain historical
financial information and the percentage that those items bear to revenue for
the Company's telecommunication services segment.
Years Ended December 31,
-------------------------------------------------------------------------
2000 1999
----------------------------------- ----------------------------------
% of Net % of Net
Amount Revenues Amount Revenues
------------------ --------------- ------------------ --------------
(dollars in thousands)
Revenues, net................................. $2,328,194 100% $2,151,308 100%
Technical and operating expenses.............. 929,531 40 866,739 40
Selling, general and administrative expenses.. 508,761 22 508,499 24
Depreciation and amortization................. 644,485 28 616,795 29
---------- ----------
Operating income........................ $ 245,417 11% $ 159,275 7%
========== ==========
Revenues for the year ended December 31, 2000 increased $176.9 million (8%) as
compared to revenues for the prior year. Approximately $81.5 million (4%)
resulted from higher revenue per subscriber and approximately $66.8 million (3%)
was attributable to revenues from the Company's developing modem and telephone
businesses and deferred revenue recognized in connection with warrants
previously received from At Home. Approximately $35.3 million (2%) of the
increase was attributable to internal growth of 65,800 in the average number of
subscribers during the year and $21.5 million resulted from increases in other
revenue sources including advertising on the Company's cable television systems.
Partially offsetting these increases was a decrease of approximately $28.2
million (1%) resulting from the Transactions.
Technical and operating expenses for 2000 increased $62.8 million (7%) over the
1999 amount. Approximately $75.8 million (9%) was attributable to increased
costs directly associated with the growth in subscribers and revenues discussed
above, as well as to increases in programming costs for cable television
services. This increase was partially offset by a decrease of approximately
$13.0 million (2%) attributable to the Transactions. As a percentage of
revenues, technical and operating expenses remained constant during 2000 as
compared to 1999.
Selling, general and administrative expenses increased $.3 million in 2000 as
compared to the 1999 level. The net change from the prior year consisted of a
net increase of approximately $65.7 million
I-5
(13%) attributable to increases in sales and marketing and customer service
costs and approximately $38.5 million (7%) to expense the unamortized portion of
deferred acquisition costs related to the Company's consumer modem program,
partially offset by decreases of approximately $77.6 million (15%) due to lower
charges related to an incentive stock plan, approximately $20.3 million (4%)
directly attributable to the Transactions and approximately $6.0 million (1%)
attributable to lower Year 2000 remediation costs. As a percentage of revenues,
selling, general and administrative expenses decreased 2% in 2000 compared to
1999. Excluding the effects of the incentive stock plan and Year 2000
remediation costs, as a percentage of revenues such costs increased 3%.
Depreciation and amortization expense increased $27.7 million (4%) during 2000
as compared to 1999. Approximately $36.1 million (5%) of the increase resulted
primarily from depreciation on new plant assets, partially offset by a decrease
of $8.4 million (1%) attributable to the Transactions.
Rainbow Media Group
The table below sets forth, for the periods presented, certain historical
financial information and the percentage that those items bear to revenue for
the Rainbow Media Group.
Years Ended December 31,
-------------------------------------------------------------------------
2000 1999
----------------------------------- ----------------------------------
% of Net % of Net
Amount Revenues Amount Revenues
------------------ --------------- ------------------ --------------
(dollars in thousands)
Revenues, net.................................. $484,816 100% $361,756 100%
Operating expenses:
Technical and operating..................... 187,436 39 146,378 40
Selling, general & administrative........... 193,344 40 152,416 42
Depreciation and amortization............... 44,911 9 39,902 11
--------- ---------
Operating income............................... $ 59,125 12 $ 23,060 6
========= =========
Revenues for the year ended December 31, 2000 increased $123.1 million (34%) as
compared to revenues for the prior year. Approximately $56.3 million (16%) of
the increase was a direct result of the Transactions, approximately $46.8
million (13%) of the increase was attributable to growth in programming network
subscribers and rate increases and approximately $20.0 million (5%) of the
increase was attributable to higher advertising and other revenues.
Technical and operating expenses increased $41.1 million (28%) for the year
ended December 31, 2000 over the same 1999 period. Approximately $36.1 million
(25%) of the increase was directly attributable to the Transactions. The
remaining $5.0 million (3%) increase was related to those costs directly
associated with the increases in revenues discussed above. As a percentage of
revenues, technical and operating expenses decreased 1% during 2000 compared to
1999.
Selling, general and administrative expenses increased $40.9 million (27%) for
2000 as compared to the 1999 level. Approximately $34.5 million (23%) of the
increase was attributable to increases in sales and marketing initiatives and
other general cost increases and approximately $15.0 million (10%) was a direct
result of the Transactions. Partially offsetting these increases were decreases
of $5.8 million (4%) from lower charges attributed to Rainbow Media Group
("RMG") related to Cablevision Parent's incentive stock plan with the remaining
decrease of $2.8 million (2%) resulting from lower Year 2000 remediation costs.
As a percentage of revenues, selling, general and administrative expenses
decreased 2% in 2000 compared to 1999. Excluding the effects of the
I-6
incentive stock plan charges and Year 2000 remediation costs, as a percentage of
revenues such costs increased 1%.
Depreciation and amortization expense increased $5.0 million (13%) during 2000
as compared to 1999. Increases of $11.2 million (28%) as a result of the
Transactions were partially offset by net decreases of approximately $6.2
million (15%) due primarily to lower amortization expense as certain intangible
assets became fully amortized during the period.
Madison Square Garden
The table below sets forth, for the periods presented, certain historical
financial information and the percentage that those items bear to revenue for
Madison Square Garden.
Years Ended December 31,
-------------------------------------------------------------------------
2000 1999
----------------------------------- ----------------------------------
% of Net % of Net
Amount Revenues Amount Revenues
------------------ --------------- ------------------ --------------
(dollars in thousands)
Revenues, net................................... $876,397 100% $785,234 100%
Technical and operating expenses................ 579,417 66 531,156 68
Selling, general and administrative expenses.... 140,390 16 116,734 15
Depreciation and amortization................... 114,537 13 112,410 14
-------- --------
Operating income.......................... $ 42,053 5% $ 24,934 3%
======== ========
Revenues for the year ended December 31, 2000 increased $91.2 million (12%) as
compared to revenues for the prior year. Approximately $38.2 million (5%) of the
increase was attributable to internal growth in subscribers and rate increases
in MSG's programming services and approximately $18.0 million (2%) of the
increase was due to higher advertising revenues. The remaining increase of
approximately $35.0 million (5%) was primarily attributable to a greater number
of concerts, sporting and other special events at Madison Square Garden and
Radio City Music Hall which was temporarily closed for restoration in 1999.
Technical and operating expenses increased $48.3 million (9%) for the year
ended December 31, 2000 over the same 1999 period due primarily to increased
team compensation costs as well as increased costs directly associated with
the increases in revenues discussed above. As a percentage of revenues,
technical and operating expenses decreased 2% in 2000 over the 1999 period.
Selling, general and administrative expenses increased $23.7 million (20%) for
2000 as compared to the 1999 level. Approximately $14.9 million (13%) of the
increase resulted from an allocation of its proportionate share of expenses
related to Cablevision Parent's incentive stock plan. The remaining increase was
primarily associated with the support for the higher levels of revenues,
severance expense and general cost increases.
Depreciation and amortization expense increased $2.1 million (2%) during 2000 as
compared to 1999 due primarily to depreciation on fixed asset additions.
I-7
Retail Electronics
The table below sets forth, for the periods presented, certain historical
financial information and the percentage that those items bear to revenue for
the Company's retail electronics segment, Cablevision Electronics.
Years Ended December 31,
-------------------------------------------------------------------------
2000 1999
----------------------------------- ----------------------------------
% of Net % of Net
Amount Revenues Amount Revenues
------------------ --------------- ------------------ --------------
(dollars in thousands)
Revenues, net.................................. $693,354 100% $603,294 100%
Cost of sales.................................. 565,643 82 484,760 80
Selling, general and administrative expenses... 186,452 27 160,597 27
Depreciation and amortization.................. 29,729 4 44,940 7
--------- ---------
Operating loss........................... $ (88,470) (13)% $ (87,003) (14)%
========= =========
Revenues for the year ended December 31, 2000 increased $90.1 million (15%) to
approximately $693.4 million compared to revenues of approximately $603.3
million for the year ended December 31, 1999. Comparable store sales accounted
for $50.7 million (8%) of the increase in revenue, while new and relocated
stores contributed $16.4 million (3%) of the increase. Sales of cable modems
accounted for the remaining increase of $23.0 million (4%).
Cost of sales amounted to approximately $565.6 million (82% of revenues) for the
year ended December 31, 2000 compared to $484.8 million (80% of revenues) for
the year ended December 31, 1999. Cost of sales includes the cost of merchandise
sold, including freight costs incurred, as well as store occupancy and buying
costs. The increase in cost of sales, as a percentage of revenues, is primarily
attributable to changes in the sales mix and inventory provisions.
Selling, general and administrative expenses amounted to approximately $186.5
million (27% of revenues) for the year ended December 31, 2000 and approximately
$160.6 million (27% of revenues) for the year ended December 31, 1999. Selling,
general and administrative expenses consist of all retail store expenses
(excluding store occupancy costs), the salaries and commissions of sales
personnel, the costs of advertising, the costs of operating the distribution
center and corporate support functions other than buying.
Depreciation and amortization expense amounted to approximately $29.7 million
(4% of revenues) for the year ended December 31, 2000 and includes approximately
$10.3 million relating to the write-off of certain capitalized software costs.
For the year ended December 31, 1999 depreciation and amortization amounted to
approximately $44.9 million (7% of revenues) and included approximately $35.5
million related to the write off of goodwill which resulted from the WIZ
Transaction.
I-8
Comparison of Year Ended December 31, 1999 Versus Year Ended December 31, 1998.
Consolidated Results - Cablevision Systems Corporation
Revenues for the year ended December 31, 1999 increased $677.8 million (21%) as
compared to revenues for the prior year. Approximately $306.6 million (9%) of
the increase was attributable to the Transactions; approximately $279.1 million
(9%) was from increases in other revenue sources such as Rainbow Media Holdings'
programming and entertainment services, advertising on the Company's cable
television systems, revenue derived from the developing commercial telephone
business and deferred revenue recognized in connection with the warrants
previously received from At Home; and approximately $58.6 million (2%) resulted
from higher revenue per subscriber. The remaining increase of $33.5 million (1%)
was attributable to internal growth of 65,700 in the average number of
subscribers during the year.
Technical and operating expenses for 1999 increased $266.6 million (21%) over
the 1998 amount. Approximately $177.3 million (14%) reflected increased costs
directly associated with the growth in revenues and subscribers discussed above,
as well as increases in programming costs for cable television services, with
the remaining $89.3 million (7%) attributable to the Transactions. As a
percentage of revenues, technical and operating expenses remained relatively
constant during 1999 as compared to 1998.
Retail electronics cost of sales amounted to approximately $484.8 million (80%
of retail electronics sales) for the year ended December 31, 1999, compared to
approximately $367.1 million (79% of retail electronics sales) from the date of
the WIZ Transaction through December 31, 1998. Cost of sales includes the cost
of merchandise sold, including freight costs incurred, as well as store
occupancy and buying costs for the Company's retail electronics segment.
Selling, general and administrative expenses increased $296.7 million (33%) for
1999 as compared to the 1998 level. Approximately $110.9 million (12%) was due
to charges related to an incentive stock plan and approximately $97.1 million
(11%) resulted from higher administrative, sales and marketing and customer
service costs. Approximately $59.4 million (7%) was directly attributable to the
Transactions with the remaining $29.3 million (3%) due to Year 2000 remediation
costs. As a percentage of revenues, selling, general and administrative expenses
increased 3% in 1999 compared to 1998. Excluding the effects of the incentive
stock plan and Year 2000 remediation costs, as a percentage of revenues such
costs remained relatively constant during 1999 as compared to 1998.
Operating profit before depreciation and amortization decreased $3.1 million to
$719.7 million for 1999 from $722.8 million for 1998. The decrease resulted from
the $110.9 million (15%) increase in charges related to an incentive stock plan,
partially offset by an increase of $67.4 million (9%) resulting from the
combined effect of the revenue and other expense changes discussed above, with
an increase of approximately $40.4 million (6%) attributable to the
Transactions. On a pro forma basis, giving effect to the Transactions as if they
had occurred on January 1, 1998 and excluding the incentive stock plan charges
referred to above and the costs of Year 2000 remediation, operating profit
before depreciation and amortization would have increased 11.7% in 1999.
Operating profit before depreciation and amortization is presented here to
provide additional information about the Company's ability to meet future debt
service, capital expenditures and working capital requirements. Operating profit
before depreciation and amortization should be considered in
I-9
addition to and not as a substitute for net income (loss) and cash flows as
indicators of financial performance and liquidity as reported in accordance with
generally accepted accounting principles.
Depreciation and amortization expense increased $159.7 million (22%) during 1999
as compared to 1998. Approximately $103.2 million (14%) of the increase was
directly attributable to the Transactions (including approximately $35.5 million
relating to the write off of goodwill related to the WIZ Transaction). The
remaining $56.5 million (8%) increase resulted primarily from depreciation on
new plant assets, partially offset by a decrease in amortization expense
resulting from certain intangible assets becoming fully amortized during 1999.
Net interest expense increased $63.4 million (16%) during 1999 compared to 1998.
The net increase is primarily attributable to debt incurred to fund acquisitions
and capital expenditures, partly offset by generally lower interest rates.
Equity in net loss of affiliates decreased to $19.2 million in 1999 from $37.4
million in 1998. Such amounts consist of the Company's share of the net profits
and losses of certain programming businesses and a personal communication
services business in which the Company has varying minority ownership interests.
Gain on sale of cable assets and programming interests for the year ended
December 31, 1998 consists primarily of a gain of $153.3 million from the
disposition of certain cable television systems and $17.7 million from the sale
of an interest in a regional sports programming business.
Write off of deferred interest and financing costs of $4.4 million in 1999
consists principally of the write off of deferred financing costs in connection
with amendments to the Company's credit agreements. The write off of deferred
interest and financing costs of $23.5 million in 1998 consists principally of
the $14.9 million premium paid to redeem Clearview's senior notes payable and
the write off of deferred financing costs of $4.7 million in connection with
amendments to the Company's credit agreements.
Impairment charges on investments for the year ended December 31, 1999 of $15.1
million resulted from the write-off of an investment held by Rainbow Media
Holdings.
Provision for preferential payment to related party consists of the expensing of
the proportionate amount due with respect to an annual payment to Charles F.
Dolan made in connection with the acquisition of Cablevision of New York City.
Effective March 4, 1998 these preferential payments were terminated upon the
retirement of Mr. Dolan's preferred interest.
Minority interests for the years ended December 31, 1999 and 1998 include CSC
Holdings' preferred stock dividend requirements, Fox's 40% share of the net
income of Regional Programming Partners, ITT's share of the net loss of Madison
Square Garden through April 8, 1999 and NBC's share of the net loss of Rainbow
Media Holdings.
Net miscellaneous expense decreased to $1.5 million for the year ended December
31, 1999 compared to $19.2 million for the prior year. In 1999, miscellaneous
expense included $6.7 million related to federal, state and local income taxes
and $5.7 million related to various other items, partially offset by a gain of
$10.9 million which resulted from the sale of certain investments. In
I-10
1998, miscellaneous expense included $13.5 million relating to federal, state
and local income taxes and $5.7 million related to various other items.
Business Segments Results - Cablevision Systems Corporation
Telecommunication Services
The table below sets forth, for the periods presented, certain historical
financial information and the percentage that those items bear to revenue for
the Company's telecommunication services segment.
Years Ended December 31,
-------------------------------------------------------------------------
1999 1998
----------------------------------- ----------------------------------
% of Net % of Net
Amount Revenues Amount Revenues
------------------ --------------- ------------------ --------------
(dollars in thousands)
Revenues, net.................................. $2,151,308 100% $1,886,190 100%
Technical and operating expenses............... 866,739 40 767,177 41
Selling, general and administrative expenses... 508,499 24 432,435 23
Depreciation and amortization.................. 616,795 29 547,629 29
---------- ----------
Operating profit......................... $ 159,275 7% $ 138,949 7%
========== ==========
Revenues for the year ended December 31, 1999 increased $265.1 million (14%) as
compared to revenues for the prior year. Approximately $103.7 million (5%) of
the increase was attributable to the Transactions; approximately $58.6 million
(3%) resulted from higher revenue per subscriber; and approximately $43.0
million (2%) was attributable to revenues from the Company's developing
telephone business and deferred revenue recognized in connection with the
warrants previously received from At Home. Approximately $33.5 million (2%) of
the increase was attributable to internal growth of 65,700 in the average number
of subscribers during the year. The remaining increase of approximately $26.3
million (2%) resulted from increases in other revenue sources, such as
advertising and pay-per-view.
Technical and operating expenses for 1999 increased $99.6 million (13%) over the
1998 amount. Approximately $59.2 million (8%) was attributable to increased
costs directly associated with the growth in subscribers and revenues discussed
above, as well as to increases in programming costs for cable television
services. Approximately $40.4 million (5%) was attributable to the Transactions.
As a percentage of revenues, operating expenses decreased 1% during 1999 as
compared to 1998.
Selling, general and administrative expenses increased $76.1 million (18%) in
1999 as compared to the 1998 level. Approximately $59.6 million (14%) was due to
charges related to an incentive stock plan. Approximately $5.9 million (1%) was
attributable to Year 2000 remediation costs and approximately $6.4 million (2%)
was directly attributable to the Transactions. The remaining $4.2 million (1%)
increase was attributable to increases in sales and marketing, customer service
and subscriber billing costs. As a percentage of revenues, selling, general and
administrative expenses increased 1% in 1999 compared to 1998. Excluding the
effects of the incentive stock plan and Year 2000 remediation costs, as a
percentage of revenues such costs decreased 2%.
I-11
Depreciation and amortization expense increased $69.2 million (13%) during 1999
as compared to 1998. Approximately $42.7 million (8%) of the increase was
directly attributable to the Transactions. The remaining $26.5 million (5%)
increase resulted primarily from depreciation on new plant assets, partially
offset by a decrease in amortization expense resulting from certain intangible
assets becoming fully amortized during 1999.
Rainbow Media Group
The table below sets forth, for the periods presented, certain historical
financial information and the percentage that those items bear to revenue for
the Rainbow Media Group.
Years Ended December 31,
-------------------------------------------------------------------------
1999 1998
----------------------------------- ----------------------------------
% of Net % of Net
Amount Revenues Amount Revenues
------------------ --------------- ------------------ --------------
(dollars in thousands)
Revenues, net.................................. $361,756 100% $283,546 100%
Operating expenses:
Technical and operating..................... 146,378 40 123,804 44
Selling, general & administrative........... 152,416 42 120,307 42
Depreciation and amortization............... 39,902 11 34,424 12
-------- --------
Operating income............................... $ 23,060 6 $ 5,011 2
======== ========
Revenues for the year ended December 31, 1999 increased $78.2 million (28%) as
compared to revenues for the prior year. Approximately $55.7 million (20%) of
the increase was attributable to growth in programming network subscribers and
rate increases. Approximately $19.9 million (7%) of the increase was
attributable to higher advertising revenues. The remaining $2.6 million (1%)
increase was derived from increases in other revenue sources.
Technical and operating expenses increased $22.6 million (18%) for the year
ended December 31, 1999 over the same 1998 period due primarily to increases in
those costs directly associated with the increases in revenues discussed above.
As a percentage of revenues, technical and operating expenses decreased 4%
during 1999 compared to 1998.
Selling, general and administrative expenses increased $32.1 million (27%) for
1999 as compared to the 1998 level. Approximately $20.9 million (18%) was
attributable to increases in sales and marketing initiatives and other general
cost increases, approximately $8.4 million (7%) of the increase was due to
charges attributed to RMG related to Cablevision Parent's incentive stock plan,
with the remaining $2.8 million (2%) increase a result of Year 2000 remediation
costs. As a percentage of revenues, selling, general and administrative expenses
remained relatively constant in 1999 compared to 1998. Excluding the effects of
the incentive stock plan charges and Year 2000 remediation costs, as a
percentage of revenues such costs decreased 4%.
Depreciation and amortization expense increased $5.5 million (16%) during 1999
as compared to 1998 as a result of depreciation on fixed asset additions made
during the year, as well as additional amortization expense.
I-12
Madison Square Garden
The table below sets forth, for the periods presented, certain historical
financial information and the percentage that those items bear to revenue for
Madison Square Garden.
Years Ended December 31,
-------------------------------------------------------------------------
1999 1998
----------------------------------- ----------------------------------
% of Net % of Net
Amount Revenues Amount Revenues
------------------ --------------- ------------------ --------------
(dollars in thousands)
Revenues, net.................................. $785,234 100% $662,080 100%
Technical and operating expenses............... 531,156 68 437,716 66
Selling, general and administrative expenses... 116,734 15 101,752 15
Depreciation and amortization.................. 112,410 14 110,813 17
-------- --------
Operating income......................... $ 24,934 3% $ 11,799 2%
======== ========
Revenues for the year ended December 31, 1999 increased $123.2 million (19%)
as compared to revenues for the prior year. Approximately $97.0 million (15%)
of the increase was attributable to a greater number of events at Madison
Square Garden including Knicks and Rangers games and certain special events
during the 1999 period, partially offset by a decrease of approximately $29.8
million (5%) resulting from fewer performances at Radio City Music Hall due
to its temporary closing in 1999 for restoration. Approximately $33.0 million
(5%) of the increase was attributable to rate increases in MSG's programming
networks, higher broadcast rights fees and internal growth in subscribers.
The remaining $23.0 million (4%) increase was attributable to higher
advertising revenues.
Technical and operating expenses increased $93.4 million (21%) for the year
ended December 31, 1999 over the same 1998 period due primarily to increased
costs directly associated with the increases in revenues discussed above. As a
percentage of revenues, technical and operating expenses increased 2% in 1999
over the 1998 period.
Selling, general and administrative expenses increased $15.0 million (15%) for
1999 as compared to the 1998 level. Approximately $9.7 million (10%) of the
increase was attributable to general administrative cost increases. The
remaining $5.3 million (5%) increase was a result of Year 2000 remediation
costs. As a percentage of revenues, selling, general and administrative expenses
remained relatively constant in 1999 compared to 1998.
Depreciation and amortization expense increased $1.6 million (1%) during 1999 as
compared to 1998 due primarily to depreciation on fixed asset additions.
I-13
Retail Electronics
The table below sets forth, for the periods presented, certain historical
financial information and the percentage that those items bear to revenue for
the Company's retail electronics segment, Cablevision Electronics. The
information presented is for the year ended December 31, 1999 and for the period
from the date of acquisition, February 9, 1998, through December 31, 1998.
Year Ended Period Ended
December 31, 1999 December 31, 1998
----------------------------------- ----------------------------------
% of Net % of Net
Amount Revenues Amount Revenues
------------------ --------------- ------------------ --------------
(dollars in thousands)
Revenues, net.................................. $603,294 100% $464,388 100%
Retail electronics cost of sales............... 484,760 80 367,102 79
Selling, general and administrative expenses... 160,597 27 117,452 25
Depreciation and amortization.................. 44,940 7 4,293 1
-------- --------
Operating loss........................... $(87,003) (14)% $(24,459) (5)%
======== ========
Revenues for the year ended December 31, 1999 amounted to approximately $603.3
million compared to revenues of approximately $464.4 million for the period
ended December 31, 1998. The revenues for the period ended December 31, 1998
include operations of Cablevision Electronics from the date of the WIZ
Transaction, February 9, 1998, through December 31, 1998.
Retail electronics cost of sales amounted to approximately $484.8 million (80%
of revenues) for the year ended December 31, 1999 compared to $367.1 million
(79% of revenues) for the period ended December 31, 1998. Cost of sales includes
the cost of merchandise sold, including freight costs incurred, as well as store
occupancy and buying costs.
Selling, general and administrative expenses amounted to approximately $160.6
million (27% of revenues) for the year ended December 31, 1999 and approximately
$117.5 million (25% of revenues) from the date of acquisition through December
31, 1998. Selling, general and administrative expenses consist of all retail
store expenses (excluding store occupancy costs), the salaries and commissions
of sales personnel, the costs of advertising, the costs of operating the
distribution center and corporate support functions other than buying.
Depreciation and amortization expense amounted to approximately $44.9 million
(7% of revenues) for the year ended December 31, 1999 and includes approximately
$35.5 million relating to the write off of goodwill resulting from the WIZ
Transaction. For the period ended December 31, 1998, depreciation and
amortization expense amounted to $4.3 million (1% of revenues). Depreciation and
amortization expense includes the depreciation of all property and equipment and
the amortization of intangible assets which resulted from the WIZ Transaction.
I-14
Liquidity and Capital Resources
Cablevision Systems Corporation ("Cablevision Parent" or the "Company") does not
have any operations independent of its subsidiaries. In addition, Cablevision
Parent has no borrowings and did not have any securities outstanding other than
its Class A common stock and Class B common stock through March 28, 2001 and
since that date, the Class A common stock and Class B common stock redesignated
as Cablevision NY Group Class A and Cablevision NY Group Class B common stock
and the Rainbow Media Group Class A common stock and Rainbow Media Group Class B
common stock. The Company does not intend to pay any dividends on any of its
common stock in the foreseeable future. Accordingly, Cablevision Parent does not
have cash needs independent of the needs of its subsidiaries.
Following the Company's distribution of the Rainbow Media Group Class A and
Class B tracking stock on March 29, 2001, Cablevision Parent intends to
maintain, wherever possible, separate financial arrangements for the Cablevision
NY Group and the Rainbow Media Group. The Cablevision NY Group, which consists
primarily of the Company's cable television, telephony, and cable modem
operations, its retail electronics and theater operations, and the New York
metropolitan area programming and entertainment assets owned by Rainbow Media
Holdings but not included as part of the Rainbow Media Group, including its
interest in Madison Square Garden (referred to as the "Rainbow NY Group"), is
currently funded primarily through separate financial arrangements made
available to the Company's traditional "Restricted Group" subsidiaries, to
Madison Square Garden, and to Cablevision Electronics, as described in more
detail below. The Rainbow Media Group is currently funded through a credit
facility made available to American Movie Classics and through an intercompany
loan, also described in more detail below.
2001 Outlook
The Company forecasts capital investment between $1.0 billion and $1.1 billion
in its cable, commercial telephone and New Media businesses in 2001. This
includes investments for its continued cable network rebuild, digital set-top
boxes, related digital equipment and services as well as consumer and commercial
cable modem services. Capital investments for all other Cablevision NY Group
entities, including the Rainbow NY Group businesses, Cablevision Electronics,
theatres, and corporate activities are estimated to be between $225 million and
$250 million in 2001.
Rainbow Media Group's capital expenditures are expected to range between $30 and
$35 million in 2001.
In addition, the Company plans to invest in several start up activities and
developing businesses, which will require significant funding. See "Liquidity
and Capital Resources - Cablevision NY Group - Restricted Group."
I-15
The following table presents selected historical results of operations and
other financial information related to the captioned groups or entities as of
and for the year ended December 31, 2000. For purposes of this discussion,
the Company's borrowing structure is segregated between those facilities
attributed to CNYG and RMG.
Interest Capital
Revenues AOCF* Expense Expenditures
-------- ----- ------- ------------
(dollars in thousands)
Cablevision NY Group:
Restricted Group** ............................ $ 2,201,946 $ 990,146 $ 474,983 $1,013,932
New Media*** .................................. 126,248 (110,612) 2 207,413
Rainbow NY Group .............................. 994,562 132,637 33,457 43,126
Retail Electronics ............................ 693,354 (56,520) 15,831 39,410
Other (including eliminations) ................ (69,680) (3,207) (5,243) 2,334
----------- --------- --------- ----------
Cablevision NY Group ....................... $ 3,946,430 $ 952,444 $ 519,030 $1,306,215
=========== ========= ========= ==========
Rainbow Media Group ............................. $ 484,816 $ 120,453 $ 51,572 $ 19,753
=========== ========= ========= ==========
- ----------
* Defined as operating income (loss) before depreciation and amortization
and excluding incentive stock plan expense of $67,827 and $16,368 and the
costs of Year 2000 remediation of $3,424 and $49 for Cablevision NY Group
and Rainbow Media Group, respectively.
** Includes results of the Kalamazoo, MI system through September 6, 2000 and
the Cleveland, Ohio area system through October 31, 2000, as well as full
year results of the Massachusetts systems which were sold in January 2001.
*** Consists of developmental operations, including those of systems held for
sale through the dates indicated above.
Liquidity and Capital Resources - Cablevision NY Group
Funding for Cablevision NY Group's ongoing capital investment and operational
requirements is generally provided through separate financial arrangements made
available to the Restricted Group, Madison Square Garden and Cablevision
Electronics. Debt and redeemable preferred stock of CSC Holdings attributable to
the Cablevision NY Group, as of December 31, 2000, are outlined in the table
below.
Restricted Other
Group Entities Total
----- -------- -----
(dollars in thousands)
Senior Debt:
Restricted Group senior debt ..................................... $1,996,913 $ -- $1,996,913
MSG senior debt .................................................. -- 319,187 319,187
Retail Electronics senior debt ................................... -- 73,409 73,409
Other senior debt and capital leases ............................. -- 14,660 14,660
Senior notes and debentures ...................................... 2,693,208 -- 2,693,208
Subordinated notes and debentures .................................. 1,048,648 -- 1,048,648
---------- -------- ----------
Total debt ......................................................... 5,738,769 407,256 6,146,025
Redeemable preferred stock of CSC Holdings ......................... 1,544,294 -- 1,544,294
---------- -------- ----------
Total debt and redeemable preferred stock .......................... $7,283,063 $407,256 $7,690,319
========== ======== ==========
I-16
Restricted Group
Cablevision NY Group's Restricted Group currently consists of the cable
operations in and around the greater New York City metropolitan area of CSC
Holdings and certain subsidiaries, as well as the commercial telephone
operations of Cablevision Lightpath, Inc. on Long Island, New York. At December
31, 2000, the Restricted Group encompassed approximately 3,193,000 cable
television subscribers, including approximately 362,000 subscribers in its
Massachusetts systems, which were sold in January 2001.
During 2000, CSC Holdings completed the sale of its cable systems in Kalamazoo,
Michigan and in and around Cleveland, Ohio. The Kalamazoo system was sold to
Charter Communications, Inc. ("Charter) in September 2000 in exchange for
approximately 11.2 million shares of Charter Class A common stock, and the
Cleveland, Ohio area system was sold in November 2000 to Adelphia Communications
Corporation ("Adelphia") in exchange for $991.0 million in cash and 10.8 million
shares of Adelphia Class A common stock. The cash proceeds received in the Ohio
transaction were used to repay outstanding bank debt under CSC Holdings'
revolving credit facility and to retire a temporary $450.0 million bridge loan
facility established in July 2000. In January 2001, the sale of CSC Holdings'
Massachusetts cable properties to AT&T Corp. ("AT&T") was completed in exchange
for approximately 44.3 million shares of AT&T Class A common stock,
approximately $289.9 million in cash, and cable systems in certain New York
suburbs serving approximately 130,000 subscribers at December 31, 2000. The cash
proceeds received were utilized to repay outstanding bank debt under CSC
Holdings' revolving credit facility.
In January 2001, the Company began a program to monetize the value of the stock
received in the above transactions. As of March 22, 2001, all of the Company's
Charter stock holdings and 7.2 million of the Company's Adelphia stock holdings
had been monetized through the execution of prepaid forward contracts,
collateralized by an equivalent amount of the respective underlying stock. Such
contracts set a floor and ceiling on the Company's participation in the changes
in the underlying stock prices, thus eliminating the Company's downside exposure
to market risk while providing for upside appreciation potential to the
respective ceiling price. At maturity, the contracts provide for the option to
deliver cash or shares of Charter or Adelphia stock (as the case may be), with a
value determined by reference to the applicable stock price at maturity. These
transactions are obligations of subsidiaries that are not part of the CSC
Holdings Restricted Group; however, CSC Holdings has provided guarantees of the
subsidiaries' ongoing interest expense obligations and certain other contingent
obligations. As of March 22, 2001, approximately $531.3 million in cash has been
received from financial institutions in these transactions, which has been
applied towards the repayment of outstanding bank debt under CSC Holdings'
revolving credit facility.
In March 2001, CSC Holdings issued $1 billion face amount of 7-5/8% senior notes
due 2011. The net proceeds of $984 million were used to repay outstanding
borrowings under both the CSC Holdings and the Cablevision MFR, Inc. revolving
credit facilities.
The Restricted Group's plant upgrade, combined with additional amounts required
for the start up and operation of new businesses such as high speed internet
access, digital video services, the expansion of telephone services and the roll
out of non-Long Island based commercial telephone business (collectively, "New
Media"), as well as additional investments or acquisitions,
I-17
including potential investments in the Rainbow NY Group programming entities,
will require significant additional funding. Also, depending on the scope of the
Company's pursuit of a direct broadcast satellite business, significant
additional funding may be required. The Restricted Group expects to obtain the
requisite funds through internally generated cash, amounts available under
existing or new credit facilities, proceeds from additional monetization
activity, and/or additional issuances of debt, preferred stock and/or equity
securities.
As of March 22, 2001, the Restricted Group had in total $2.2 billion in reducing
revolving credit facilities, consisting of a $1.2 billion facility available to
Cablevision MFR, Inc. and certain of CSC Holdings' New Jersey subsidiaries and a
$1.0 billion facility available to CSC Holdings and other Restricted Group
subsidiaries. The Cablevision MFR, Inc., credit facility, as amended, restricts
the amount of direct borrowings by the outstanding amount of any intercompany
loans made by CSC Holdings to Cablevision MFR, Inc. As of March 22, 2001, CSC
Holdings had advanced $380 million to Cablevision MFR, Inc., the proceeds of
which repaid borrowings under its revolving credit facility. Both facilities
mature in March 2007, with commitments beginning to reduce in June 2001. As of
March 22, 2001, the Restricted Group had outstanding borrowings under its credit
facilities of $602.5 million and letters of credit of $46.3 million.
Unrestricted and undrawn funds available to the Restricted Group amounted to
approximately $1,551.2 million as of the same date.
As of March 22, 2001
-------------------------------------------------------
CSC Holdings MFR Total
------------ --- -----
(in thousands)
Total revolving credit facility ........ $1,000,000 $1,200,000 $2,200,000
Outstanding debt ....................... -- 602,500 602,500
Outstanding letters of credit .......... 46,257 -- 46,257
---------- ---------- ----------
Availability ........................ $ 953,743 $ 597,500 $1,551,243
========== ========== ==========
The Restricted Group's credit facilities contain certain financial covenants
that may limit its ability to utilize all of the undrawn funds available
thereunder, including covenants requiring the Restricted Group to maintain
certain financial ratios and restricting the permitted uses of borrowed funds.
As of March 22, 2001, CSC Holdings had entered into interest exchange (swap)
agreements with several of its banks covering a notional principal amount of
$250 million requiring CSC Holdings to pay a floating rate of interest. These
swaps mature in 2001 and 2002.
On December 22, 2000, CSC Holdings made an intercompany loan to Rainbow Media
Holdings in the amount of $254.8 million, the proceeds of which were used to
repay its maturing bank credit facility. Terms of the intercompany loan are
substantially similar to those in effect under the bank credit facility at the
time of repayment. As of March 22, 2001, the outstanding intercompany loan
balance was $318 million (including accrued interest), approximately $289
million of which is attributable to RMG and approximately $29 million of which
is
I-18
attributed to CNYG. The intercompany loan balance due from RMG is expected to be
repaid with proceeds from the pending MGM transaction as described below.
In November 1999, CSC Holdings entered into an interest rate cap agreement with
American Movie Classics, a Rainbow Media Group entity, in a notional principal
amount of $105 million. The agreement caps American Movie Classics' floating
interest costs paid on the basis of LIBOR at 7.0% through May 2001 and at 7.5%
from May 2001 through May 2002 in exchange for a cash payment made to CSC
Holdings.
Madison Square Garden
Madison Square Garden ("MSG") has a $500 million revolving credit facility
maturing on December 31, 2004. As of March 22, 2001, outstanding debt under this
facility was $325 million. In addition, MSG had outstanding letters of credit of
$12.9 million, resulting in unrestricted and undrawn funds available of $162.1
million. The MSG credit facility contains certain financial covenants that may
limit MSG's ability to utilize all of the undrawn funds available thereunder,
including covenants requiring MSG to maintain certain financial ratios.
The Company believes that for MSG, internally generated funds, together with
funds available under its existing credit agreement, will be sufficient to meet
its projected funding requirements for the next twelve months, including
requirements of certain of Rainbow NY Group's programming entities.
Garden Programming LLC, an unrestricted subsidiary of MSG, had a $20 million
term loan maturing on July 11, 2002. The loan was replaced with borrowings under
the MSG credit facility and was cancelled on September 29, 2000.
Retail Electronics
Cablevision Electronics has a $130 million stand alone credit facility, which
matures in April 2001, as amended. Under the terms of the credit facility, the
total amount of borrowing available to Cablevision Electronics is subject to an
availability calculation based on a percentage of eligible inventory. On March
22, 2001, total outstanding debt under the credit facility was $105.8 million
with available funds of $8.9 million.
CSC Holdings' cash investment, including intercompany advances, in Cablevision
Electronics was approximately $327.7 million at December 31, 2000. Through March
22, 2001, Cablevision Electronics received other financial support in the form
of guarantees and letters of credit of approximately $41.8 million.
The Company believes that Cablevision Electronics will require additional
financial support from CSC Holdings in respect of planned increases in
inventory, capital expenditures and other operating requirements and that funds
available under Cablevision Electronics' credit agreement, assuming the credit
facility can be renewed at its amended maturity date, together with this
additional financial support, will be sufficient to meet its projected funding
requirements for the next twelve months; however, no assurances can be given as
to Cablevision Electronics' ability to renew the credit facility at maturity on
acceptable terms and conditions, or at all.
I-19
Liquidity and Capital Resources - Rainbow Media Group
Financing for the Rainbow Media Group, which consists primarily of the
Company's five nationally distributed entertainment programming networks
(American Movie Classics, Bravo, the International Film Channel ("IFC"), WE:
Women's Entertainment (formerly Romance Classics), and MuchMusic), interests
in certain regional sports networks, and Sterling Digital, has historically
been provided by a combination of bank credit facilities, intercompany
borrowings, sales of interests in programming entities, and, from time to
time, by equity contributions from partners.
Through December 21, 2000, both American Movie Classics and Rainbow Media
Holdings maintained separate bank credit facilities. On December 22, 2000, all
outstanding borrowings under the Rainbow Media Holdings bank credit facility
were repaid with funds provided by an intercompany loan from CSC Holdings, on
terms and conditions substantially similar to those in effect under the bank
credit facility at the time the advance was made. The bank credit facility,
which matured on December 31, 2000, was subsequently terminated. As of March 22,
2001, the intercompany loan balance due from Rainbow Media Holdings to CSC
Holdings totaled $318 million. Of this balance, approximately $289 million was
attributed to RMG.
On February 1, 2001, the Company announced an agreement with
Metro-Goldwyn-Mayer Inc. ("MGM") for MGM to purchase a 20% interest in four
of the Rainbow Media Group's programming businesses: American Movie Classics,
Bravo, IFC, and WE: Women's Entertainment. MGM will contribute $825 million
in cash, which will be utilized to repay up to $295.5 million in intercompany
indebtedness owed by Rainbow Media Holdings to CSC Holdings and to repay up
to $365 million of outstanding debt under the American Movie Classics credit
facility. The remaining cash proceeds will remain on hand to fund working
capital and other cash requirements. The transaction is expected to close in
April 2001.
The Rainbow Media Group's potential future investments in new programming
content and services, such as new digital channel programming services,
including those being developed by Sterling Digital, will require additional
funding. For the next 12 months, the Company believes that cash on hand,
including cash received in the MGM transaction, cash generated from
operations, and amounts available under the existing American Movie Classics
credit facility will be sufficient to meet the cash requirements of the
Rainbow Media Group.
American Movie Classics
As of March 22, 2001, American Movie Classics, had a $425 million credit
facility consisting of a $200 million reducing revolving credit facility and a
$225 million amortizing term loan, both of which mature on March 31, 2006. The
amount of the available commitment does not begin to reduce until June 2004. As
of March 22, 2001, American Movie Classics had outstanding borrowings of $362
million and unrestricted funds available of $63 million. The American Movie
Classics credit facilities contain certain financial covenants that may limit
the ability to utilize all of the undrawn funds available, including covenants
requiring that certain financial ratios be maintained.
In November 1999, CSC Holdings entered into an interest rate cap agreement with
American Movie Classics in a notional principal amount of $105 million. The
agreement caps American
I-20
Movie Classics' floating interest costs paid on the basis of LIBOR at 7.0%
through May 2001 and at 7.5% from May 2001 through May 2002 in exchange for a
cash payment made to CSC Holdings.
Financial Instruments
In July 1999, the Company entered into a $100 million facility with a third
party for the Company to acquire a beneficial interest in shares of its Class A
Common Stock through a forward swap contract facility. In August 2000, the
availability of this facility was extended to June 2001 with a final maturity
for any swaps executed of February 2002. The terms of this facility provide for
the settlement of any obligations of the Company thereunder either in cash or
the Company's Class A Common Stock. The Company's obligation is guaranteed by
CSC Holdings. Currently there are no outstanding contracts under this facility.
I-21
Cablevision Systems Corporation
Operating Activities
Cash provided by operating activities amounted to $124.6 million for the year
ended December 31, 2000 compared to $274.1 million for the year ended December
31, 1999. The 2000 cash provided by operating activities consisted primarily of
$354.6 million of income before depreciation, amortization and other non-cash
items, partially offset by a decrease in cash resulting from changes in assets
and liabilities of $230.0 million.
Cash provided by operating activities amounted to $274.1 million for the year
ended December 31, 1999 compared to $400.1 million for the year ended December
31, 1998. The 1999 cash provided by operating activities consisted primarily of
$238.9 million of income before depreciation, amortization and other non-cash
items and a net increase in cash resulting from changes in assets and
liabilities of $35.2 million.
Cash provided by operating activities amounted to $400.1 million for the year
ended December 31, 1998. The 1998 cash provided by operating activities
consisted primarily of $278.8 million of income before depreciation,
amortization and other non-cash items and a net increase in cash resulting from
changes in assets and liabilities of $121.3 million.
Investing Activities
Net cash used in investing activities for the year ended December 31, 2000 was
$524.0 million compared to $1,031.5 million for the year ended December 31,
1999. The 2000 investing activities consisted of $1,326.0 million of capital
expenditures, $128.8 million of payments for acquisitions and other items of
$60.2 million, partially offset by net proceeds of $991.0 million from the sale
of cable assets and a programming interest.
Net cash used in investing activities for the year ended December 31, 1999 was
$1,031.5 million compared to $468.4 million for the year ended December 31,
1998. The 1999 investing activities consisted of $871.2 million of capital
expenditures, $117.7 million of payments for acquisitions and other items of
$53.5 million, partially offset by net proceeds of $10.9 million from the sale
of investments.
Net cash used in investing activities for the year ended December 31, 1998 was
$468.4 million. The 1998 investing activities consisted of $561.6 million of
capital expenditures, $317.6 million of payments for acquisitions and other
items of $35.5 million, partially offset by net proceeds of $446.3 million from
the sale of programming interests and cable assets.
Financing Activities
Cash provided by financing activities amounted to $374.6 million for the year
ended December 31, 2000 compared to $646.2 million for the year ended December
31, 1999. In 2000 the Company's financing activities consisted primarily of
$408.9 million of net proceeds from bank debt and $25.6 million from the
issuance of common stock, partially offset by other net cash payments
aggregating $59.9 million.
I-22
Cash provided by financing activities amounted to $646.2 million for the year
ended December 31, 1999 compared to net cash used in financing activities of
$168.0 million for the year ended December 31, 1998. In 1999 the Company's
financing activities consisted primarily of $497.7 million derived from the
issuance of senior notes and $202.9 million from the net proceeds from bank
debt, partially offset by other net cash payments aggregating $54.4 million.
Cash used in financing activities amounted to $168.0 million for the year ended
December 31, 1998. In 1998 the Company's financing activities consisted
primarily of the net repayment of bank debt, subordinated notes payable, senior
notes payable and senior debt of $1,221.0 million, the repayment of an
obligation to a related party of $197.2 million and other net cash payments
aggregating $45.9 million, partially offset by $1,296.1 million derived from the
issuance of senior notes and debentures.
Year 2000
The Year 2000 issue ("Y2K") refers to the inability of certain computerized
systems and technologies to recognize and/or correctly process dates beyond
December 31, 1999. For the years ended December 31, 2000, 1999 and 1998, the
Company recorded approximately $3.5 million, $41.5 million and $7.6 million,
respectively, of expenses relating to Y2K remediation.
Accounting Standards Issued But Not Yet Adopted
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities", as amended, ("SFAS 133"), requires that all
derivative financial instruments, such as interest rate swap contracts, be
recognized in the financial statements and measured at fair value regardless of
the purpose or intent for holding them. Changes in the fair value of derivative
financial instruments are either recognized periodically in income or
stockholders' equity (as a component of comprehensive income), depending on
whether the derivative is being used to hedge changes in fair value or cash
flows. SFAS 133, as amended, is effective for fiscal years beginning after June
15, 2000. The Company does not expect that the adoption of SFAS 133 will have a
material effect on the Company's financial condition or results of operations.
I-23
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Cablevision Systems Corporation
We have audited the accompanying consolidated balance sheets of Cablevision
Systems Corporation and subsidiaries as of December 31, 2000 and 1999, and the
related consolidated statements of operations, stockholders' deficiency and cash
flows for each of the years in the three-year period ended December 31, 2000. In
connection with our audits of the consolidated financial statements, we also
audited the financial statement schedule listed in Item 14(a)(2). These
consolidated financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and the financial statement
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Cablevision Systems
Corporation and subsidiaries at December 31, 2000 and 1999, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States of America. Also, in our opinion, the
related financial statement schedule referred to above, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
/s/ KPMG LLP
Melville, New York
March 29, 2001
I-24
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2000 and 1999
(Dollars in thousands)
ASSETS 2000 1999
---- ----
Cash and cash equivalents ................................................... $ 37,940 $ 62,665
Accounts receivable trade (less allowance for doubtful accounts of
$38,878 and $35,357) ..................................................... 304,413 226,304
Notes and other receivables ................................................. 149,366 129,596
Inventory, prepaid expenses and other assets ................................ 296,388 211,179
Property, plant and equipment, net .......................................... 3,285,674 2,752,495
Investments in affiliates ................................................... 97,224 58,423
Investment securities available-for-sale .................................... 811,618 --
Other investments ........................................................... 116,940 256,442
Advances to affiliates ...................................................... 96,519 46,685
Feature film inventory ...................................................... 347,208 335,826
Net assets held for sale .................................................... 309,423 269,349
Franchises, net of accumulated amortization of
$777,526 and $703,237 .................................................... 422,900 651,777
Affiliation and other agreements, net of accumulated amortization of
$307,028 and $244,249 .................................................... 199,352 173,250
Excess costs over fair value of net assets acquired and other
intangible assets, net of accumulated amortization of
$853,493 and $727,134 .................................................... 1,665,318 1,816,030
Deferred financing, acquisition and other costs, net of
accumulated amortization of $72,962 and $51,063 .......................... 133,007 140,287
---------- ----------
$8,273,290 $7,130,308
========== ==========
See accompanying notes to consolidated financial statements.
I-25
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2000 and 1999
(Dollars in thousands, except per share amounts)
2000 1999
---- ----
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Accounts payable ................................................................ $ 484,611 $ 411,804
Accrued liabilities:
Interest .................................................................... 120,032 117,854
Employee related costs ...................................................... 426,471 463,925
Other ....................................................................... 539,506 466,844
Feature film and contract obligations ........................................... 331,483 371,126
Deferred revenue ................................................................ 229,326 274,043
Bank debt ....................................................................... 2,683,432 2,254,487
Senior notes and debentures ..................................................... 2,693,208 2,692,602
Subordinated notes and debentures ............................................... 1,048,648 1,048,513
Capital lease obligations and other debt ........................................ 114,173 99,099
---------- ----------
Total liabilities ........................................................... 8,670,890 8,200,297
---------- ----------
Minority interests .............................................................. 587,985 592,583
---------- ----------
Preferred Stock of CSC Holdings, Inc. ........................................... 1,544,294 1,404,511
---------- ----------
Commitments and contingencies
Stockholders' deficiency:
Preferred Stock, $.01 par value, 10,000,000 shares authorized,
none issued .............................................................. -- --
Class A Common Stock, $.01 par value, 400,000,000 shares authorized,
132,775,988 and 130,091,237 shares issued and outstanding ................ 1,328 1,301
Class B Common Stock, $.01 par value, 160,000,000 shares authorized,
42,145,986 and 43,126,836 shares issued and outstanding .................. 421 431
Paid-in capital ............................................................. 752,981 731,986
Accumulated deficit ......................................................... (3,571,049) (3,800,302)
---------- ----------
(2,816,319) (3,066,584)
Accumulated other comprehensive income ...................................... 286,440 --
Treasury stock, at cost (7,118 shares in 1999) .............................. -- (499)
---------- ----------
Total stockholders' deficiency .............................................. (2,529,879) (3,067,083)
---------- ----------
$8,273,290 $7,130,308
========== ==========
See accompanying notes to consolidated financial statements.
I-26
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 2000, 1999 and 1998
(Dollars in thousands, except per share amounts)
2000 1999 1998
---- ---- ----
Revenues, net (including retail electronics sales of
$682,109, $603,294 and $464,388) .......................... $ 4,411,048 $3,942,985 $3,265,143
Operating expenses:
Technical and operating ................................... 1,696,907 1,535,423 1,268,786
Retail electronics cost of sales .......................... 549,978 484,760 367,102
Selling, general and administrative ....................... 1,178,934 1,203,119 906,465
Depreciation and amortization ............................. 1,018,246 893,797 734,107
----------- ---------- ----------
4,444,065 4,117,099 3,276,460
----------- ---------- ----------
Operating loss .............................................. (33,017) (174,114) (11,317)
----------- ---------- ----------
Other income (expense):
Interest expense .......................................... (569,251) (470,549) (426,402)
Interest income ........................................... 6,636 4,809 24,028
Equity in net loss of affiliates .......................... (16,685) (19,234) (37,368)
Gain on sale of cable assets and programming interests, net 1,209,865 -- 170,912
Impairment charges on investments ......................... (146,429) (15,100) --
Write off of deferred interest and financing costs ........ (5,209) (4,425) (23,482)
Provision for preferential payment to related party ....... -- -- (980)
Minority interests ........................................ (164,679) (120,524) (124,677)
Miscellaneous, net ........................................ (51,978) (1,470) (19,218)
----------- ---------- ----------
262,270 (626,493) (437,187)
----------- ---------- ----------
Net income (loss) ........................................... $ 229,253 $ (800,607) $ (448,504)
=========== ========== ==========
Basic net income (loss) per common share .................... $ 1.32 $ (5.12) $ (3.16)
=========== ========== ==========
Diluted net income (loss) per common share .................. $ 1.29 $ (5.12) $ (3.16)
=========== ========== ==========
Average number of common shares outstanding (in thousands) .. 173,913 156,503 142,016
=========== ========== ==========
See accompanying notes to consolidated financial statements.
I-27
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
Years ended December 31, 2000, 1999 and 1998
(Dollars in thousands)
Accumulated
Class A Class B Other
Common Common Paid-in Accumulated Comprehensive Treasury
Stock Stock Capital Deficit Income Stock Total
----- ----- ------- ------- ------ ----- -----
Balance December 31, 1997 ............ $ 560 $ 444 $(161,327) $(2,551,191) $ -- $ -- $(2,711,514)
Net loss ......................... -- -- -- (448,504) -- -- (448,504)
Employee stock transactions ...... 12 -- 12,071 -- -- -- 12,083
Issuance of common stock ......... 499 -- 535,751 -- -- -- 536,250
Conversion of Class B
to Class A .................. 12 (12) -- -- -- -- --
-------- ----- --------- ----------- --------- --------- -----------
Balance December 31, 1998 ............ 1,083 432 386,495 (2,999,695) -- -- (2,611,685)
Net loss ......................... -- -- -- (800,607) -- -- (800,607)
Employee stock transactions ...... 11 -- 15,159 -- -- -- 15,170
Conversion of Class B
to Class A .................. 1 (1) -- -- -- -- --
Issuance of common stock ......... 1 -- 7,304 -- -- -- 7,305
Conversion of CSC Holdings'
Series I preferred to Class A 205 -- 323,028 -- -- -- 323,233
Purchase of treasury stock ....... -- -- -- -- -- (499) (499)
-------- ----- --------- ----------- --------- --------- -----------
Balance December 31, 1999 ............ 1,301 431 731,986 (3,800,302) -- (499) (3,067,083)
Net income ....................... -- -- -- 229,253 -- -- 229,253
Unrealized gains on available-
for-sale securities ......... -- -- -- -- 286,440 -- 286,440
-----------
Comprehensive income ........ 515,693
Employee stock transactions ...... 17 -- 25,577 -- -- -- 25,594
Conversion of Class B
to Class A .................. 10 (10) -- -- -- -- --
Distribution to shareholder ...... -- -- (4,083) -- -- -- (4,083)
Retirement of treasury stock ..... -- -- (499) -- -- 499 --
-------- ----- --------- ----------- --------- --------- -----------
Balance December 31, 2000 ............ $ 1,328 $ 421 $ 752,981 $(3,571,049) $ 286,440 $ -- $(2,529,879)
======== ===== ========= =========== ========= ========= ===========
See accompanying notes to consolidated financial statements.
I-28
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2000, 1999 and 1998
(Dollars in thousands)
2000 1999 1998
---- ---- ----
Cash flows from operating activities:
Net income (loss) .................................................... $ 229,253 $ (800,607) $(448,504)
----------- ----------- ---------
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization .................................. 1,018,246 893,797 734,107
Equity in net loss of affiliates ............................... 16,685 19,234 37,368
Minority interests ............................................. 139,158 98,609 95,336
Gain on sale of cable assets and programming interests , net ... (1,209,865) -- (170,912)
(Gain) loss on investments ..................................... 146,429 (10,861) --
Write off of investment in affiliate ........................... -- 15,100 --
Write off of deferred interest and financing costs ............. 5,209 4,425 23,482
(Gain) loss on sale of equipment, net .......................... (803) 9,811 (604)
Amortization of deferred financing and debenture discount ...... 10,329 9,407 8,532
Change in assets and liabilities, net of effects of acquisitions and
dispositions:
Accounts receivable trade ................................ (73,407) (31,419) 19,007
Notes and other receivables .............................. (18,919) 33,961 (94,164)
Inventory, prepaid expenses and other assets ............. (71,002) (23,243) (51,425)
Advances to affiliates ................................... (50,458) (10,461) (21,701)
Feature film inventory ................................... (13,538) (42,516) (112,734)
Other deferred costs ..................................... 2,824 955 11,689
Accounts payable ......................................... 74,043 3,952 133,891
Accrued liabilities ...................................... 35,835 165,645 174,557
Feature film and contract obligations .................... (45,140) (2,596) 81,376
Deferred revenue ......................................... (52,036) (60,170) (18,268)
Minority interests ....................................... (18,255) 1,094 (961)
----------- ----------- ---------
Net cash provided by operating activities .......................... 124,588 274,117 400,072
----------- ----------- ---------
Cash flows from investing activities:
Capital expenditures ................................................. (1,325,968) (871,166) (561,642)
Payments for acquisitions, net of cash acquired ...................... (128,784) (117,660) (317,594)
Net proceeds from sale of cable assets and programming interests ..... 991,000 -- 446,284
Proceeds from sale of equipment ...................................... 776 1,467 8,817
Proceeds from sale of investments .................................... -- 10,861 --
Increase in investments in affiliates, net ........................... (60,709) (49,938) (31,035)
Increase in other investments ........................................ (180) -- --
Additions to other intangible assets ................................. (94) (5,076) (13,253)
----------- ----------- ---------
Net cash used in investing activities .............................. $ (523,959) $(1,031,512) $(468,423)
=========== =========== =========
See accompanying notes to consolidated financial statements.
I-29
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2000, 1999 and 1998
(Dollars in thousands)
(continued)
2000 1999 1998
---- ---- ----
Cash flows from financing activities:
Proceeds from bank debt ............................. $ 4,615,326 $ 3,791,073 $ 5,442,101
Repayment of bank debt .............................. (4,206,381) (3,588,135) (6,304,757)
Repayment of senior debt ............................ -- -- (112,500)
Repayment of subordinated notes payable ............. -- -- (151,000)
Redemption of senior notes payable .................. -- -- (94,848)
Issuance of senior notes and debentures ............. -- 497,670 1,296,076
Redemption of subsidiary preferred stock ............ -- (98) (9,409)
Issuance of common stock ............................ 25,594 15,170 12,082
Obligation to related party ......................... -- -- (197,183)
Payments on capital lease obligations and other debt (40,718) (22,036) (12,306)
Additions to deferred financing and other costs ..... (19,175) (46,911) (36,220)
Purchase of treasury stock .......................... -- (499) --
----------- ----------- -----------
Net cash provided by (used in) financing activities 374,646 646,234 (167,964)
----------- ----------- -----------
Net decrease in cash and cash equivalents .............. (24,725) (111,161) (236,315)
Cash and cash equivalents at beginning of year ......... 62,665 173,826 410,141
----------- ----------- -----------
Cash and cash equivalents at end of year ............... $ 37,940 $ 62,665 $ 173,826
=========== =========== ===========
See accompanying notes to consolidated financial statements.
I-30
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company and Related Matters
CSC Parent Corporation ("Parent") was formed on November 21, 1997 as a
wholly-owned subsidiary of Cablevision Systems Corporation ("Cablevision").
Parent did not conduct any business activities prior to March 4, 1998, other
than those incident to its formation and the execution of certain documents in
connection with contributions to Parent of certain partnership interests and
assets of TCI Communications, Inc. (see Note 2).
In connection with the Contribution and Merger Agreement described in Note 2, a
wholly-owned subsidiary of Parent was merged with and into Cablevision and
Cablevision became a wholly-owned subsidiary of Parent (the "Merger"). In the
Merger, each outstanding share of Cablevision Class A Common Stock and
Cablevision Class B Common Stock was converted into one share of Parent Class A
Common Stock and Parent Class B Common Stock, respectively. Subsequent to the
Merger, Cablevision changed its name to CSC Holdings, Inc. ("CSC Holdings") and
Parent changed its name to Cablevision Systems Corporation (the "Company"). The
Merger was accounted for in a manner similar to a pooling of interests, whereby
the assets and liabilities of CSC Holdings have been recorded at historical book
value. Cablevision Systems Corporation's historical financial information
represents the historical financial information of CSC Holdings. References to
the "Company" refer to Cablevision Systems Corporation or CSC Holdings, Inc. as
the context may require.
The Company owns and operates cable television systems and has ownership
interests in companies that produce and distribute national and regional
entertainment and sports programming services, including Madison Square Garden,
L.P. ("MSG"). The Company also owns companies that provide advertising sales
services for the cable television industry, provide switched telephone service,
operate a retail electronics chain and operate motion picture theaters. The
Company classifies its business interests into four segments: Telecommunication
Services, consisting principally of its cable television, telephone and modem
services operations; Rainbow Media Group, consisting principally of interests in
national and regional cable television programming networks; MSG, which owns and
operates professional sports teams, regional cable television networks, live
productions and entertainment venues; and Retail Electronics, which represents
the operations of its retail electronics stores.
Authorized Common Stock
In 1999, the shareholders of the Company authorized an amendment to the
Certificate of Incorporation to increase the number of authorized shares of
Class A Common Stock from 200 million to 400 million and the Class B Common
Stock from 80 million to 160 million. See Note 16 for a discussion of a March
2001 amendment to the Certificate of Incorporation authorizing the creation and
distribution of the Rainbow Media Group tracking stock and the
I-31
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
redesignation of the Class A and Class B Common Stock as Cablevision NY Group
Class A and Class B Common Stock and increasing the authorized shares of common
stock.
Two-for-One Stock Splits
On March 4, 1998 and July 22, 1998, the Company's Board of Directors declared a
two-for-one stock split to be effected in the form of a common stock dividend of
one share of Class A Common Stock for each share of Class A Common Stock issued
and outstanding and one share of Class B Common Stock for each share of Class B
Common Stock issued and outstanding. The stock dividends were paid on March 30,
1998 and August 21, 1998 to stockholders of record on March 19, 1998 and August
10, 1998, respectively. All share and per share information has been adjusted to
reflect the two-for-one stock splits described above.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the
Company and its majority-owned subsidiaries. The Company's interests in less
than majority-owned entities are carried on the equity method. All significant
intercompany transactions and balances are eliminated in consolidation.
Revenue Recognition
The Company recognizes cable television, internet access, telephony and
programming revenues as services are provided to subscribers. Advertising
revenues are recognized when commercials are telecast. Revenue from retail
electronic sales is recognized upon delivery, with an appropriate provision for
returned merchandise based upon historical experience. Revenues derived from
other sources are recognized when services are provided or events occur.
Investments in Marketable Securities
The Company accounts for its investments in marketable securities in accordance
with Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." The Company has classified
such investments as available-for-sale. Accordingly, these investments are
stated at fair value and unrealized holding gains and losses are included in
accumulated other comprehensive income as a separate component of stockholders'
deficiency.
Long-Lived Assets
Property, plant and equipment, including construction materials, are carried at
cost, and includes all direct costs and certain indirect costs associated with
the construction of cable television transmission and distribution systems, and
the costs of new subscriber installations. Franchises are amortized on the
straight-line basis over the average remaining terms (5 to 12 years) of the
franchises at the time of acquisition. Affiliation and other agreements
(primarily cable television
I-32
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
system programming agreements) are amortized on a straight-line basis over
periods ranging from 8 to 10 years. Other intangible assets are amortized on the
straight-line basis over the periods benefited (1 to 15 years), except that
excess costs over fair value of net assets acquired are being amortized on the
straight-line basis over periods ranging from 6 to 40 years. The Company reviews
its long-lived assets (property, plant and equipment, and related intangible
assets that arose from business combinations accounted for under the purchase
method) for impairment whenever events or circumstances indicate that the
carrying amount of an asset may not be recoverable. If the sum of the expected
cash flows, undiscounted and without interest, is less than the carrying amount
of the asset, an impairment loss is recognized as the amount by which the
carrying amount of the asset exceeds its fair value.
Feature Film Inventory
Rights to feature film inventory acquired under license agreements along with
the related obligations are recorded at the contract value. Costs are charged to
technical and operating expense on a straight-line basis over the respective
contract periods. Amounts payable during the five years subsequent to December
31, 2000 related to feature film telecast rights are $51,626 in 2001, $44,116 in
2002, $41,554 in 2003, $35,052 in 2004 and $17,776 in 2005.
Inventory
Carrying amounts of retail merchandise are determined on an average cost basis
and are stated at the lower of cost or market.
Deferred Financing Costs
Costs incurred to obtain debt are deferred and amortized, on a straight-line
basis, over the life of the related debt.
Income Taxes
Income taxes are provided based upon the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes", which requires the
asset/liability method of accounting for deferred income taxes and permits the
recognition of deferred tax assets, subject to an ongoing assessment of
realizability.
Income (Loss) Per Common Share
Basic and diluted net loss per common share is computed by dividing net loss by
the weighted average number of common shares outstanding. Potential dilutive
common shares were not included in the computation as their effect would be
antidilutive.
I-33
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
Basic net income per share is computed by dividing net income by the weighted
average common stock outstanding during the period. Diluted net income per share
is computed by dividing net income by the weighted average common stock and
common stock equivalents outstanding during the period.
A reconciliation of the numerator and denominator of the basic and diluted net
income per share calculation for the year ended December 31, 2000 follows:
Net Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
(in thousands)
Basic income per share ................ $229,253 173,913 $ 1.32
Effect of dilution:
Stock options ................... -- 3,278 --
-------- ------- --------
Diluted income per share .............. $229,253 177,191 $ 1.29
======== ======= ========
All per share amounts have been adjusted, for all years presented, to reflect
the two-for-one stock splits of the Company's common stock effective March 30,
1998 and August 21, 1998 (see discussion above).
Reclassifications
Certain reclassifications have been made in the 1999 and 1998 financial
statements to conform to the 2000 presentation.
Cash Flows
For purposes of the consolidated statements of cash flows, the Company considers
short-term investments with a maturity at date of purchase of three months or
less to be cash equivalents. The Company paid cash interest of approximately
$556,744, $432,086 and $383,179 during 2000, 1999 and 1998, respectively.
I-34
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
During 2000, 1999 and 1998, the Company's noncash investing and financing
activities were as follows:
Years Ended December 31,
------------------------
2000 1999 1998
---- ---- ----
Capital lease obligations ..................... $ 60,111 $ 57,919 $ 28,795
Issuance of common stock in connection
with the redemption of CSC Holdings'
preferred stock .......................... -- 323,233 --
Issuance of common stock in connection
with acquisitions and redemption
of partnership interests ................. -- 7,305 536,250
Receipt of warrants from At Home
Corporation .............................. -- -- 74,788
Receipt of marketable securities in
connection with the sale of cable assets . 524,606 -- --
Comprehensive Income
Other comprehensive income for the year ended December 31, 2000 of $286,440
represents unrealized net gains on available-for-sale securities.
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
NOTE 2. ACQUISITIONS AND DISPOSITIONS
Acquisitions
2000 Acquisition
In January 2000, Regional Programming Partners, a subsidiary of Rainbow Media
Holdings, Inc. ("Rainbow Media Holdings") acquired the 70% interest in
SportsChannel Florida Associates held by Front Row Communications for
approximately $130,600 (including the repayment of $20,000 in debt) increasing
its ownership to 100%. The acquisition was accounted for as a purchase with the
operations of the acquired business being consolidated with those of the Company
as of the acquisition date. The purchase price was allocated to the specific
assets acquired based upon an independent appraisal as follows:
I-35
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
Property, plant and equipment ................................. $ 2,200
Other assets .................................................. 26,400
Liabilities ................................................... (9,900)
Excess cost over fair value of net assets acquired ............ 111,900
---------
$ 130,600
=========
1999 Acquisitions
At various times during 1999, the Company acquired interests in the real
property and assets specifically related to certain movie theaters for an
aggregate purchase price of approximately $29,700. The acquisitions were
accounted for as purchases with the operations of the acquired theaters being
consolidated with those of the Company as of the acquisition dates. The purchase
price was allocated to the specific assets acquired based upon an independent
appraisal as follows:
Property, plant and equipment .................................. $ 13,700
Other assets ................................................... 200
Liabilities .................................................... (2,500)
Excess cost over fair value of net assets acquired ............. 18,300
--------
$ 29,700
========
In December 1999, the Company acquired cable television systems with
approximately 4,500 subscribers located in the Port Jervis, New York area for
approximately $7,400, $7,300 of which was paid in shares of the Company's Class
A Common Stock.
In April 1999, ITT Corporation ("ITT") exercised its second put option for the
remainder of its interest in MSG and concurrently settled certain matters
between the parties for an aggregate payment of $87,000.
See also "Dispositions" for a discussion of an exchange of cable television
assets.
1998 Acquisitions
The WIZ
On February 9, 1998, Cablevision Electronics Investments, Inc. ("Cablevision
Electronics"), a wholly-owned subsidiary of CSC Holdings, acquired substantially
all of the assets associated with 40 The WIZ consumer electronics store
locations from The Wiz, Inc. and certain of its subsidiaries and affiliates
(collectively, "TWI"). TWI had filed for bankruptcy protection on December 16,
1997. Cablevision Electronics paid approximately $101,300 for the assets
(including transaction costs and pre-closing operating costs).
I-36
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
The acquisition was accounted for as a purchase with the operations of
Cablevision Electronics being consolidated with the operations of the Company as
of the date of acquisition. The purchase price was allocated to the specific
assets acquired based upon independent appraisals as follows:
Inventory ..................................................... $ 66,200
Property and equipment ........................................ 16,800
Other assets .................................................. 4,000
Liabilities ................................................... (24,000)
Excess cost over fair value of net assets acquired ............ 38,300
---------
$ 101,300
=========
In 1999, the Company recorded an impairment loss of $35,490, included in
depreciation and amortization, representing the balance of unamortized goodwill
recorded on the TWI acquisition. Current losses and projected future operating
losses caused the Company to reassess the recoverability of the goodwill. The
impairment loss resulted from the carrying amount of this asset exceeding its
estimated fair value based on discounted estimated future cash flows.
TCI Systems
On March 4, 1998, the Company completed a holding company reorganization
pursuant to an Amended and Restated Contribution and Merger Agreement, dated
June 6, 1997 (the "Contribution and Merger Agreement"), by and among the
Company, CSC Holdings and TCI Communications, Inc. ("TCI").
Pursuant to the Contribution and Merger Agreement, TCI caused to be contributed
to the Company or its designees all of the partnership interests and capital
stock of certain entities owned directly or indirectly by TCI and all the assets
related to the businesses of certain cable television systems owned and operated
directly or indirectly by TCI ("TCI Systems"). In consideration for those cable
television systems, the Company issued to certain TCI entities an aggregate of
48,942,172 shares (after adjusting for the March 1998 and August 1998
two-for-one stock splits discussed in Note 1) of the Company's Class A Common
Stock, valued for accounting purposes at approximately $498,000, and assumed
certain liabilities related to such systems (including an aggregate amount of
indebtedness for borrowed money equal to $669,000).
The acquisition was accounted for as a purchase with the operations of the
acquired systems being consolidated with those of the Company as of the
acquisition date. The excess of the purchase price over the net book value of
assets acquired of approximately $746,769 was allocated to the specific assets
acquired based upon independent appraisals as follows:
I-37
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
Property, plant and equipment ................................. $ (17,133)
Franchises .................................................... 594,921
Excess cost over fair value of net assets acquired ............ 168,981
---------
$ 746,769
=========
In April 1999, the Company contributed the TCI Systems to CSC Holdings.
Madison Square Garden
In June 1998, the Company purchased 50% of ITT's then remaining interest in MSG
for $94,000 pursuant to ITT's exercise of its first put option, increasing
Regional Programming Partners' interest in MSG to 96.3% (see "1999 Acquisitions"
above).
Clearview
In December 1998, the Company acquired all of the outstanding shares of stock of
Clearview Cinema Group, Inc. ("Clearview") for approximately $158,700 (including
assumed debt of $80,000), of which approximately $33,400 was paid in shares of
the Company's Class A Common Stock.
The acquisition was accounted for as a purchase with the operations of the
acquired business being consolidated with those of the Company as of the
acquisition date. The purchase price was allocated to the specific assets
acquired based upon independent appraisals as follows.
Property, plant and equipment ................................. $ 34,787
Other assets .................................................. 21,518
Liabilities ................................................... (16,433)
Excess cost over fair value of net assets acquired ............ 118,851
---------
$ 158,723
=========
In April 1999, the Company contributed its interest in the subsidiary formed to
purchase Clearview to CSC Holdings.
In 2000, the Company recorded an impairment loss of approximately $47,500,
included in depreciation and amortization, representing the balance of
unamortized goodwill related to certain theaters in which the carrying value of
the asset exceeded the estimated fair value based on discounted estimated future
cash flows.
Loews
In December 1998, the Company acquired interests in the real property and assets
specifically related to 15 movie theaters from Loews Cineplex Entertainment
Corporation ("Loews") for an aggregate purchase price of approximately $67,300.
I-38
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
The acquisition was accounted for as a purchase with the operations of the
acquired assets being consolidated with those of the Company as of the
acquisition date. The purchase price was allocated to the specific assets
acquired based upon independent appraisals as follows:
Property and equipment .......................................... $ 9,700
Other assets .................................................... 2,200
Excess cost over fair value of net assets acquired .............. 55,400
-------
$67,300
=======
Dispositions
Cable Systems
In November 2000, the Company completed the sale of its cable television systems
in the greater Cleveland, Ohio metropolitan area to Adelphia Communications
Corporation for $991,000 in cash and 10,800,000 shares, valued at closing at
$359,100, in Adelphia Communications Corporation common stock. The Company
recorded a gain of approximately $1,075,400 in connection with the transaction.
In September 2000, the Company completed the sale of its cable television system
serving Kalamazoo, Michigan, for 11,173,376 shares of Charter Communications,
Inc.'s common stock, valued at approximately $165,500 at closing, and recognized
a gain of approximately $128,800.
In October 1998, a subsidiary of the Company transferred its cable television
system in Rensselaer, New York plus approximately $16,000 in cash to Time Warner
Entertainment Company, L.P. ("Time Warner") in exchange for Time Warner's
Litchfield, Connecticut system. The Company recognized a gain of approximately
$15,500 in connection with this transaction.
In 1998, the Company completed the sale of cable television systems for
aggregate sales prices of approximately $426,500 and recognized aggregate gains
of approximately $137,700.
Other
In 2000, Rainbow Media Holdings recognized a gain of approximately $5,700 in
connection with the sale of certain programming assets.
In 1998, Regional Programming Partners completed the sale of an interest in a
sports programming business and recognized a gain of $17,700.
I-39
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
Pro Forma Results of Operations (Unaudited)
The following unaudited pro forma condensed consolidated results of operations
are presented for the year ended December 31, 1998 as if the acquisition of the
TCI Systems and the sale of assets of certain cable systems had occurred on
January 1, 1998. The effect of acquisitions and dispositions made in 2000 and
1999 were not material.
Year Ended
December 31, 1998
Net revenues ................................... $ 3,329,627
===========
Net loss ....................................... $ (520,968)
===========
Net loss per common share ...................... $ (3.47)
===========
The unaudited pro forma information presented above gives effect to certain
adjustments, including the amortization of acquired intangible assets and
increased interest expense on acquisition debt. The pro forma information has
been prepared for comparative purposes only and does not purport to indicate the
results of operations which would actually have occurred had the transactions
been made at the beginning of the period indicated or which may occur in the
future.
NOTE 3. NET ASSETS HELD FOR SALE
The Company had entered into definitive agreements covering the sale of certain
cable television systems as of December 31, 2000 and 1999.
For financial reporting purposes, the assets and liabilities attributable to
cable systems whose sale or transfer was pending at December 31, 2000 and 1999
have been classified in the consolidated balance sheet as net assets held for
sale and are included in the telecommunications segment. Such net assets consist
of the following:
December 31,
------------------------
2000 1999
---- ----
Property, plant and equipment, net ............... $ 238,739 $ 222,695
Intangible assets, net ........................... 98,526 73,055
Other assets (including trade
receivables, prepaid expenses, etc.) ........ 11,311 9,796
--------- ---------
Total assets ..................................... 348,576 305,546
Total liabilities ................................ (39,153) (36,197)
--------- ---------
Net assets ....................................... $ 309,423 $ 269,349
========= =========
The accompanying consolidated statements of operations for the years ended
December 31, 2000, 1999 and 1998 include net revenues aggregating approximately
$190,449, $177,904 and $18,937,
I-40
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
respectively, and net income (loss) aggregating approximately $6,140, $(4,109)
and $9,095, respectively, relating to the cable systems held for sale.
NOTE 4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following assets, which are
depreciated or amortized primarily on a straight-line basis over the estimated
useful lives shown below:
December 31,
----------------- Estimated
2000 1999 Useful Lives
---- ---- ------------
Communication transmission and distribution systems:
Customer equipment ............................ $ 601,082 $ 600,271 3 to 8 years
Headends ...................................... 171,735 118,311 7 to 15 years
Multimedia .................................... 45,521 18,732 4 years
Central office equipment ...................... 180,950 132,191 10 years
Infrastructure ................................ 2,441,374 2,189,863 5 to 12 years
Program, service and data processing equipment 948,142 669,908 2 to 9 years
Microwave equipment ........................... 28,806 19,957 2 to 9 years
Construction in progress (including
materials and supplies) ..................... 247,743 227,991 --
Furniture and fixtures ............................. 171,523 134,531 1 to 8 years
Transportation equipment ........................... 159,101 143,511 4 to 15 years
Buildings and building improvements ................ 250,236 185,118 20 to 40 years
Leasehold improvements ............................. 391,581 276,015 Term of lease
Land ............................................... 47,842 47,914 --
---------- ----------
5,685,636 4,764,313
Less accumulated depreciation and amortization ..... 2,399,962 2,011,818
---------- ----------
$3,285,674 $2,752,495
========== ==========
At December 31, 2000 and 1999, the gross amount of equipment and related
accumulated amortization recorded under capital leases were as follows:
2000 1999
---- ----
Equipment .................................... $174,061 $120,802
Less accumulated depreciation ................ 50,728 27,763
-------- --------
$123,333 $ 93,039
======== ========
NOTE 5. DEBT
Bank Debt
Restricted Group
For financing purposes, CSC Holdings and certain of its subsidiaries are
collectively referred to as the "Restricted Group." The Restricted Group has a
$2.2 billion reducing revolving credit facility, as amended (the "Credit
Agreement") with a group of banks led by Toronto-Dominion (Texas), Inc.
I-41
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
("Toronto-Dominion"), as administrative and arranging agent. The credit facility
matures in March 2007 and consists of a $1.0 billion CSC Holdings credit
facility and a $1.2 billion Cablevision MFR, Inc. credit facility.
The total amount of bank debt outstanding under the Credit Agreement at December
31, 2000 and 1999 was $1,942,759 and $1,454,206 (including $16,259 and $12,706,
respectively, outstanding under a separate overdraft facility), respectively. At
December 31, 2000, $887,500 and $1,039,000 was outstanding under the CSC
Holdings facility and the Cablevision MFR, Inc. credit facility, respectively.
As of December 31, 2000, approximately $49,808 was restricted for certain
letters of credit issued on behalf of CSC Holdings. Interest on outstanding
amounts may be paid, at the option of the Company, based on the prime rate or a
Eurodollar rate.
Unrestricted and undrawn funds available to the Restricted Group under the
Credit Agreement amounted to approximately $223,692 at December 31, 2000. The
Credit Agreement contains certain financial covenants that may limit the
Restricted Group's ability to utilize all of the undrawn funds available
thereunder. The Credit Agreement contains various restrictive covenants, among
which are the maintenance of various financial ratios and tests, and limitations
on various payments, including preferred dividends and dividends on its common
stock. The Company was in compliance with the covenants of its Credit Agreement
at December 31, 2000.
As of December 31, 2000, CSC Holdings had outstanding interest exchange (swap)
agreements with several of its banks with a total notional value of $250,000.
The swaps require CSC Holdings to pay a floating rate of interest based on LIBOR
in exchange for fixed rate payments ranging from 6.125% to 6.76% and have a
maturity of 9 to 22 months. CSC Holdings enters into interest rate swap
agreements to hedge against interest rate risk and accounts for these agreements
as hedges whereby interest expense is recorded using the revised rate with any
fees or other payments amortized as yield adjustments. The Company is exposed to
credit loss in the event of nonperformance by the other parties to the interest
rate swap agreements; however, the Company does not anticipate nonperformance by
the counterparties.
The weighted average interest rate on all bank indebtedness of the Restricted
Group was 8.03% and 7.11% on December 31, 2000 and 1999, respectively. The
Company is also obligated to pay fees ranging from .1875% to .25% per annum on
the unused loan commitment and from .4% to 2.0% per annum on letters of credit
issued under the Credit Agreement.
Unrestricted Group
Rainbow Media Holdings
Rainbow Media Holdings had a $300,000, three year credit facility which was
repaid on December 22, 2000 with funds borrowed from CSC Holdings. At December
31, 1999, Rainbow Media Holdings had outstanding borrowings under its credit
facility of $52,317, including $3,317
I-42
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
outstanding under a separate overdraft facility. The weighted average interest
rate on Rainbow Media Holdings' bank debt was 8.9% on December 31, 1999.
At December 31, 2000, Rainbow Media Holdings had $270,475 outstanding (including
interest of $631) pursuant to a demand note payable to CSC Holdings which bears
interest at three month LIBOR plus 2.25% and $4,449 outstanding under an
overdraft facility with a bank. The interest rate on the demand note was 8.75%
at December 31, 2000. The intercompany loan together with interest thereon has
been eliminated in consolidation.
American Movie Classics Company
American Movie Classics Company ("AMC"), a wholly-owned subsidiary of Rainbow
Media Holdings, has a $425,000 credit facility consisting of a $200,000 reducing
revolving credit facility and a $225,000 amortizing term loan, both of which
mature on March 31, 2006 ("AMC Credit Facility"). The amount of the available
commitment under the revolver will not begin to be reduced until June 2004. The
term loan will begin amortizing on March 31, 2001 and requires quarterly
payments. Borrowings under the AMC Credit Facility bear interest at current
market rates plus a margin based on the ratio of debt to cash flow, as defined
in the AMC Credit Facility. At December 31, 2000 and 1999, the weighted average
interest rate on bank indebtedness was 8.0% and 7.6%, respectively. As of
December 31, 2000 and 1999, AMC had outstanding borrowings of $359,322 and
$309,456 (including $4,322 and $1,456, respectively, outstanding under a
separate overdraft facility), respectively. Unrestricted funds available to AMC
under the AMC Credit Facility amounted to approximately $70,000 at December 31,
2000.
Substantially all of the assets of AMC, amounting to approximately $383,000 at
December 31, 2000, have been pledged to secure the borrowings under the AMC
Credit Facility. The AMC Credit Facility contains various restrictive covenants
with which AMC was in compliance at December 31, 2000.
Madison Square Garden
MSG has a $500,000 revolving credit facility (the "MSG Credit Facility") with a
group of banks led by Chase Manhattan Bank, as agent, which expires on December
31, 2004. Loans under the MSG Credit Facility bear interest at current market
rates plus a margin based upon MSG's consolidated leverage ratio. At December
31, 2000 and 1999, loans outstanding amounted to $310,000 and $335,000,
respectively, and bore interest at a weighted average rate of 7.2% and 7.0%,
respectively. The MSG Credit Facility contains certain financial covenants with
which MSG was in compliance at December 31, 2000. The MSG Credit Facility also
contains certain covenants that may limit MSG's ability to utilize all of the
undrawn funds available thereunder.
In July 1997, a wholly-owned subsidiary of MSG borrowed $20,000 under promissory
notes with various lending institutions which bore interest at LIBOR plus a
margin and matured in July 2002. In September 2000, these notes were repaid with
borrowings under the MSG Credit Facility.
I-43
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
Cablevision Electronics
Cablevision Electronics has a $130,000 revolving credit facility maturing on
April 9, 2001, as amended. Under the terms of the credit facility, the total
amount of borrowings available to Cablevision Electronics is subject to an
availability calculation based on a percentage of eligible inventory. The total
amount outstanding under the credit agreement at December 31, 2000 and 1999 was
approximately $66,902 and $73,817, respectively, and bore interest at 8.6% and
7.8%, respectively. As of December 31, 2000, $24,010 was restricted for certain
letters of credit issued on behalf of Cablevision Electronics. Unrestricted and
undrawn funds available amounted to $37,745 on December 31, 2000 based on the
level of inventory as of that date.
Borrowings under the credit agreement are secured by Cablevision Electronics'
assets. The credit agreement contains various restrictive covenants with which
Cablevision Electronics was in compliance at December 31, 2000.
CCG Holdings, Inc.
CCG Holdings, Inc., a wholly-owned subsidiary of CSC Holdings, had a $15,000
revolving credit bank facility maturing on June 30, 2003 which was repaid and
retired in September 2000 with funds made available by CSC Holdings. As of
December 31, 1999, there was $9,691 outstanding under this bank facility.
Senior Notes and Debentures
The following table summarizes CSC Holdings' senior notes and debentures:
Original
Face Issue Carrying Amount
Amount Discount December 31,
------ -------- -------------------------------
2000 1999
---- ----
8-1/8% Senior Notes
due July 2009, issued July 1999.............. $ 500,000 $ 2,330 $ 498,026 $ 497,786
7-1/4% Senior Notes
due July 2008, issued July 1998.............. 500,000 - 500,000 500,000
7-5/8% Senior Debentures
due July 2018, issued July 1998.............. 500,000 495 499,565 499,541
7-7/8% Senior Debentures
due February 2018, issued February 1998...... 300,000 3,429 297,061 296,893
7-7/8% Senior Notes
due December 2007, issued December 1997...... 500,000 525 499,632 499,584
8-1/8% Senior Debentures
due August 2009, issued August 1997.......... 400,000 1,492 398,924 398,798
---------- ---------- ---------- ----------
$2,700,000 $ 8,271 $2,693,208 $2,692,602
========== ========== ========== ==========
I-44
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
The senior notes and debentures are not redeemable by CSC Holdings prior to
maturity. The indentures under which the senior notes and debentures were issued
contain various convenants, which are generally less restrictive than those
contained in the Company's Credit Agreement, with which the Company was in
compliance at December 31, 2000.
Subordinated Notes and Debentures
The following table summarizes CSC Holdings' senior subordinated notes and
debentures:
Carrying Amount
December 31, Redemption
Principal ---------------------------- ------------------------------
Amount 2000 1999 Date* Price
------ ---- ---- ----- -----
9-7/8% Senior Subordinated
Notes due 2006,
issued 1996.................. $ 150,000 $ 149,618 $ 149,558 May 15, 2001 104.938%
May 15, 2002 103.292%
May 15, 2003 101.646%
10-1/2% Senior Subordinated
Debentures due 2016,
issued 1996.................. 250,000 250,000 250,000 May 15, 2006 105.250%
May 15, 2007 103.938%
May 15, 2008 102.625%
May 15, 2009 101.313%
9-1/4% Senior Subordinated
Notes due 2005,
issued 1995.................. 300,000 300,000 300,000 November 1, 2000 104.625%
November 1, 2001 103.1%
November 1, 2002 101.5%
9-7/8% Senior Subordinated
Debentures due 2013,
issued 1993.................. 200,000 199,243 199,180 February 15, 2003 104.8%
February 15, 2004 103.6%
February 15, 2005 102.4%
February 15, 2006 101.2%
9-7/8% Senior Subordinated
Debentures due 2023,
issued 1993.................. 150,000 149,787 149,775 ** **
---------- ---------- ----------
$1,050,000 $1,048,648 $1,048,513
========== ========== ==========
- ----------
* The notes/debentures are redeemable, at CSC Holdings' option, in whole or
in part, on the redemption dates listed at the respective percentage of
the principal amount and thereafter at 100% of the aggregate principal
amount, in each case together with accrued interest to the redemption
date.
** The debentures are redeemable, at CSC Holdings' option, on and after April
1, 2003 at the redemption price of 104.938% reducing ratably to 100% of
the principal amount on and after April 1, 2010, in each case together
with accrued interest to the redemption date.
I-45
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
The indentures under which the subordinated notes and debentures were issued
contain various covenants, which are generally less restrictive than those
contained in the Company's Credit Agreement and with which the Company was in
compliance at December 31, 2000.
Summary of Five Year Debt Maturities
Total amounts payable by the Company and its subsidiaries under its various debt
obligations outstanding as of December 31, 2000, including capital leases,
during the five years subsequent to December 31, 2000 are as follows:
2001 $165,000
2002 119,000
2003 383,000
2004 713,000
2005 498,000
NOTE 6. PREFERRED STOCK OF CSC HOLDINGS, INC.
The following summarizes the changes in each series of CSC Holdings' preferred
stock:
Series I Preferred Series M Preferred Series H Preferred Total
Shares Balance Shares Balance Shares Balance Balance
----------- --------- ---------- ---------- --------- -------- ----------
December 31, 1997 ............ 13,800,000 $ 323,331 7,987,603 $ 798,760 3,250,478 $325,048 $1,447,139
Dividends paid in
additional shares ....... -- -- 926,260 92,626 399,050 39,905 132,531
----------- --------- ---------- ---------- --------- -------- ----------
December 31, 1998 ............ 13,800,000 323,331 8,913,863 891,386 3,649,528 364,953 1,579,670
Dividend paid in
additional shares ....... -- -- 1,033,678 103,368 448,042 44,804 148,172
Redemption ................... (13,800,000) (323,331) -- -- -- -- (323,331)
----------- --------- ---------- ---------- --------- -------- ----------
December 31, 1999 ............ -- -- 9,947,541 994,754 4,097,570 409,757 1,404,511
Dividend paid in
additional shares ....... -- -- 1,153,585 115,359 244,243 24,424 139,783
----------- --------- ---------- ---------- --------- -------- ----------
December 31, 2000 ............ -- $ -- 11,101,126 $1,110,113 4,341,813 $434,181 $1,544,294
=========== ========= ========== ========== ========= ======== ==========
In September 1999, CSC Holdings exercised its right to redeem all of its
outstanding shares of 8-1/2% Series I Cumulative Convertible Exchangeable
Preferred Stock ("Series I Preferred"). The redemption occurred on November 2,
1999, at a price equal to 102.8% of the liquidation preference, plus accrued
dividends. Investors held the Series I Preferred through interests in depositary
shares (each of which represented a 1/10th interest in a share of the Series I
Preferred) which were redeemable simultaneously. Each depositary share was
convertible into approximately 1.4828 shares of the Company's Class A Common
Stock. As of December 31, 1999, 13,797,625 depositary shares out of 13,800,000
depositary shares outstanding had been converted into 20,458,925 shares of the
Company's Class A Common Stock, with the remaining 2,375 depositary shares being
redeemed for cash. CSC Holdings paid a cash dividend on the Series I Preferred
of approximately $21,898 in 1999 and $29,325 in 1998.
I-46
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
In February 1996, CSC Holdings issued 6,500,000 depositary shares, representing
65,000 shares of 11-1/8% Series L Redeemable Exchangeable Preferred Stock (the
"Series L Preferred Stock"), which were subsequently exchanged for Series M
Redeemable Exchangeable Preferred Stock (the "Series M Preferred Stock") in
August 1996 with terms identical to the Series L Preferred Stock. The depositary
shares are exchangeable, in whole but not in part, at the option of CSC
Holdings, for CSC Holdings' 11-1/8% Senior Subordinated Debentures due 2008. CSC
Holdings is required to redeem the Series M Preferred Stock on April 1, 2008 at
a redemption price equal to the liquidation preference of $10,000 per share plus
accumulated and unpaid dividends. The Series M Preferred Stock is redeemable at
various redemption prices beginning at 105.563% at any time on or after April 1,
2003, at the option of CSC Holdings, with accumulated and unpaid dividends
thereon to the date of redemption. Before April 1, 2001, dividends may, at the
option of CSC Holdings, be paid in cash or by issuing fully paid and
nonassessable shares of Series M Preferred Stock with an aggregate liquidation
preference equal to the amount of such dividends. On and after April 1, 2001,
dividends must be paid in cash.
In September 1995, CSC Holdings issued 2,500,000 shares of its $.01 par value
11-3/4% Series H Redeemable Exchangeable Preferred Stock (the "Series H
Preferred Stock") with an aggregate liquidation preference of $100 per share.
CSC Holdings is required to redeem the Series H Preferred Stock on October 1,
2007 at a redemption price per share equal to the liquidation preference of $100
per share, plus accrued and unpaid dividends thereon. Before October 1, 2000,
dividends could, at the option of CSC Holdings, be paid in cash or by issuing
fully paid and nonassessable shares of Series H Preferred Stock with an
aggregate liquidation preference equal to the amount of such dividends. On and
after October 1, 2000, dividends must be paid in cash. The terms of the Series H
Preferred Stock permit CSC Holdings, at its option, to exchange the Series H
Preferred Stock for CSC Holdings' 11-3/4% Senior Subordinated Debentures due
2007 in an aggregate principal amount equal to the aggregate liquidation
preference of the shares of Series H Preferred Stock. CSC Holdings paid a cash
dividend on the Series H Preferred Stock of approximately $25,511 in 2000.
Preferred stock dividend requirements of CSC Holdings are included in minority
interests in the accompanying consolidated statements of operations.
NOTE 7. INCOME TAXES
The Company files a consolidated federal income tax return with its more than
80% owned subsidiaries. Rainbow Media Holdings files a separate consolidated
federal income tax return with its subsidiaries. At December 31, 2000, the
Company had consolidated net operating loss carry forwards of approximately
$1,039,792 and Rainbow Media Holdings had consolidated federal net operating
loss carry forwards of approximately $757,033 expiring on various dates through
2020. These net operating loss carry forwards reflect approximately $220,305 in
stock compensation deductions which would result in an adjustment to paid-in
capital upon realization of such net operating loss carry forward. As a result
of certain ownership changes, a portion of Rainbow Media Holdings' pre-1999 loss
carry forwards may be subject to annual limitations on deductions.
I-47
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
The tax effects of temporary differences which give rise to significant portions
of deferred tax assets or liabilities and the corresponding valuation allowance
at December 31, 2000 and 1999 are as follows:
2000 1999
---- ----
Deferred Asset (Liability)
Depreciation and amortization .......................... $ 34,780 $(104,495)
Investments ............................................ (39,408) (98,074)
Benefit plans .......................................... 100,520 126,458
Allowance for doubtful accounts ........................ 15,382 10,526
Deferred gains ......................................... (199,274) (40,997)
Benefits of tax loss carry forwards .................... 754,666 886,286
Unrealized gains on available-for-sale securities ...... (120,305) --
Other .................................................. 355 9,411
--------- ---------
Net deferred tax assets ........................... 546,716 789,115
Valuation allowance .................................... (546,716) (789,115)
--------- ---------
$ -- $ --
========= =========
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
asset will be realized. The ultimate realization of the deferred tax asset is
dependent upon the generation of future taxable income during the periods in
which temporary differences or net operating loss carry forwards become
deductible. Management considers scheduled reversals of deferred tax
liabilities, projected future taxable income, and tax planning strategies which
can be implemented by the Company in making this assessment.
Although, as a result of the cable systems sales in 2001, the Company may
realize the benefit of certain net operating loss carry forwards, it has
provided a valuation allowance for the full amount of its net deferred tax
assets principally as a result of the Company's history of operating losses.
In 2000 and 1999, the Company recorded approximately $42,500 and $6,700,
respectively, principally of state and local income taxes as a result of the
sale of certain cable assets and are included in miscellaneous expenses. This
expense differs from the statutory tax rate primarily due to a $104,000
benefit due to the Company's net operating loss carry forwards.
NOTE 8. OPERATING LEASES
The Company leases certain office, production, transmission, theater, event, and
retail store facilities under terms of leases expiring at various dates through
2027. The leases generally provide for fixed annual rentals plus certain real
estate taxes and other costs. Rent expense for the years ended December 31,
2000, 1999 and 1998 amounted to $99,638, $97,300 and $83,003, respectively.
In addition, the Company rents space on utility poles for its operations. The
Company's pole rental agreements are for varying terms, and management
anticipates renewals as they expire. Pole rental expense for the years ended
December 31, 2000, 1999 and 1998 amounted to approximately $12,237, $13,081 and
$12,490, respectively.
I-48
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
The minimum future annual rentals for all operating leases during the next five
years, including pole rentals from January 1, 2001 through December 31, 2005,
and thereafter, at rates now in force are approximately: 2001, $95,335; 2002,
$91,824; 2003, $88,946; 2004, $87,047; 2005, $78,432; thereafter, $546,081.
NOTE 9. AFFILIATE TRANSACTIONS
The Company purchases services from certain cable television programming and
advertising companies in which Rainbow Media Holdings directly or indirectly
held varying ownership interests during the three years ended December 31, 2000.
Costs incurred by the Company for programming and advertising services provided
by these non-consolidated affiliates and included in operating expense for the
years ended December 31, 2000, 1999 and 1998 amounted to approximately $2,320,
$4,691 and $2,942, respectively. At December 31, 2000 and 1999 amounts due to
certain of these affiliates, primarily for programming services provided to the
Company, aggregated $3,904 and $1,391, respectively, and are included in
accounts payable. At December 31, 2000 and 1999, amounts due from certain of
these programming and advertising affiliates aggregated $6,033 and $801,
respectively, and are included in advances to affiliates.
The Company's equity in the net losses of these affiliates was approximately
$20,681, $11,318 and $31,851 in 2000, 1999 and 1998, respectively. At December
31, 2000 and 1999, the Company's investment in these programming and advertising
companies amounted to approximately $54,825 and $46,420, respectively.
During 2000, 1999 and 1998, the Company provided programming services to or
incurred costs on behalf of other affiliates engaged in providing cable
television, cable television programming, and related services. Amounts due from
these affiliates amounted to $15,726 and $16,518 at December 31, 2000 and 1999,
respectively and are included in advances to affiliates.
In October 1997, the Company entered into an agreement with At Home Corporation
("Excite@Home") and certain of its shareholders, pursuant to which the Company
agreed to enter into agreements for the distribution of the Excite@Home service
over certain of the Company's cable television systems on the same terms and
conditions as Excite@Home's founding partners, TCI, Comcast Corporation and Cox
Communications, Inc. The Company received a warrant to purchase 15,751,568
shares of Excite@Home's Series A Common Stock at an exercise price of $.25 per
share. Additionally, in 1998 a warrant to purchase 4,711,028 shares of
Excite@Home's Series A Common Stock at $.25 per share was received in connection
with the acquisition of the TCI Systems (see Note 2). The Excite@Home network
distributes high-speed interactive services to residences and businesses using
its own network architecture and a variety of transport options, including the
cable industry's hybrid fiber coaxial infrastructure.
The original aggregate fair market value of the warrants received of $248,134,
as determined by independent appraisals, has been recorded in other investments
in the accompanying consolidated
I-49
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
balance sheets and is accounted for under the cost method. The fair market value
of the warrants was recorded as deferred revenue and is being amortized to
income over the period in which the Company is obligated to provide the
necessary services to Excite@Home. In 2000, 1999 and 1998 the Company recorded
$60,000, $50,136 and $35,821, respectively, of revenue relating to this
transaction. In 2000, the Company recognized a loss on investments of
approximately $139,682 reflecting the decline in the fair value of the warrants.
In August 1996, the Company entered into an agreement with Northcoast PCS, LLC
("Northcoast") and certain of its affiliates, to form a limited liability
company (the "LLC") to participate in the auctions conducted by the Federal
Communications Commission ("FCC") for certain licenses to conduct a personal
communications service ("PCS") business. The Company has contributed an
aggregate of approximately $114,560 to the LLC (either directly or through a
loan to Northcoast) and holds a 49.9% interest in the LLC and certain
preferential distribution rights. The Company recorded a loss of $2,524, $7,916
and $5,517 in 2000, 1999 and 1998, respectively, representing its share of the
losses of the LLC. Northcoast is a Delaware corporation controlled by John
Dolan, who is a nephew of Charles F. Dolan and a cousin of James L. Dolan, the
Company's Chairman and Chief Executive Officer, respectively.
In 1996, Rainbow Media Holdings invested in a joint venture formed with a
subsidiary of Loral Space and Communications, Ltd. for the purpose of exploiting
certain direct broadcast satellite ("DBS") frequencies. Rainbow Media Holdings
also contributed to the joint venture its interest in certain agreements with
the licensee of such frequencies. Rainbow Media Holdings' investment amounted to
$1,188 and $386 at December 31, 2000 and 1999, respectively. Earlier in 1999,
based upon its then current business plans, the Company determined that it could
no longer recover its initial investment in the joint venture and wrote down its
investment by $15,100.
NOTE 10. BENEFIT PLANS
Effective January 1, 1998, the Company established a Cash Balance Retirement
Plan (the "Retirement Plan"), which replaced the Company's former money purchase
pension plan for the benefit of employees other than those of MSG, Cablevision
Electronics and CCG Holdings, Inc. Under the Retirement Plan, the Company will
credit a certain percentage of eligible base pay into an account established for
each participant which will earn a market based rate of return annually. Net
periodic pension cost for the years ended December 31, 2000, 1999 and 1998
amounted to $8,008, $6,218 and $5,555, respectively. At December 31, 2000 and
1999, the accumulated benefit obligation amounted to $22,092 and $11,309,
respectively.
The Company also maintains a 401(k) savings plan, pursuant to which an employee
can contribute a percentage of eligible annual compensation, as defined. The
Company also makes matching contributions for a portion of employee
contributions to the 401(k) savings plan. The cost associated with the 401(k)
savings plan was approximately $7,932, $6,102 and $4,492 for the years ended
December 31, 2000, 1999 and 1998, respectively.
I-50
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
The Company maintains the CSSC Supplemental Benefit Plan (the "Supplemental
Plan") for the benefit of certain officers and employees of the Company. As part
of the Supplemental Plan, the Company established a nonqualified defined benefit
pension plan, which provides that, upon attaining normal retirement age, a
participant will receive a benefit equal to a specified percentage of the
participant's average compensation, as defined. All participants are 100% vested
in the Supplemental Plan. Net periodic pension cost for the years ended December
31, 2000, 1999 and 1998 was negligible. At December 31, 2000 and 1999, the fair
value of Supplemental Plan assets exceeded the projected benefit obligation by
approximately $1,707 and $3,071, respectively.
MSG sponsors several non-contributory pension plans covering MSG's employees.
Benefits payable to retirees under these plans are based upon years of service
and participant's compensation and are funded through trusts established under
the plans. Plan assets are invested primarily in common stocks, bonds, United
States government securities and cash. At December 31, 2000 and 1999, the
accrued benefit cost amounted to $11,363 and $10,796, respectively, and for the
years ended December 31, 2000, 1999 and 1998, net periodic pension cost amounted
to $2,227, $2,611 and $2,254, respectively.
MSG also sponsors a welfare plan which provides certain postretirement health
care and life insurance benefits to certain employees and their dependents who
are eligible for early or normal retirement under MSG's retirement plan. The
welfare plan is insured through a managed care provider and MSG funds these
benefits with premium payments. For the years ended December 31, 2000, 1999 and
1998, the periodic postretirement benefit cost amounted to $187, $204 and $84,
respectively, and the accrued benefit cost amounted to $6,257 and $6,154,
respectively.
NOTE 11. STOCK BENEFIT PLANS
The Company has an Employee Stock Plan (the "1985 Stock Plan") under which the
Company is authorized to issue a maximum of 14,000,000 shares. Pursuant to its
terms, no awards could be granted under the 1985 Stock Plan after December 5,
1995. Under the 1985 Stock Plan, the Company granted incentive stock options,
nonqualified stock options, restricted stock, stock appreciation rights, stock
grants and stock bonus awards. The exercise price of stock options could not be
less than the fair market value per share of Class A Common Stock on the date
the option was granted and the options could expire no longer than ten years
from date of grant. Stock appreciation rights provide for the employee to
receive a cash payment in an amount equal to the difference between the fair
market value of the stock as of the date the right is exercised, and the
exercise price.
The Company also has an Employee Stock Plan (the "Employee Stock Plan"), under
which the Company is authorized to issue a maximum of 13,000,000 shares. Under
the Employee Stock Plan, the Company is able to grant incentive stock options,
nonqualified stock options, restricted stock, conjunctive and alternative stock
appreciation rights, stock grants and stock bonus awards. The other terms of the
Employee Stock Plan are substantially identical to those of the 1985 Stock Plan,
except that under the Employee Stock Plan, the Compensation Committee has the
authority, in its
I-51
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
discretion, to add performance criteria as a condition to any employee's
exercise of an award granted under the Employee Stock Plan.
As a result of stock awards, bonus awards, stock appreciation rights and the
expensing of the cash payment made for certain executive stock options, the
Company recorded expense of approximately $84,195, $255,789 and $146,179 in
2000, 1999 and 1998, respectively. These amounts reflect vesting schedules for
applicable grants as well as fluctuations in the market price of the Company's
Class A Common Stock.
The Company applies APB 25 and related interpretations in accounting for its
stock option plans. Had compensation cost been recognized consistent with
Statement of Financial Accounting Standards No. 123 ("SFAS 123"), for options
granted in 1995 through 2000, the Company's net loss would have increased by
$90,749, $45,607 and $16,151 in 2000, 1999 and 1998, respectively. Pro forma net
income per share would have been $0.80 and pro forma diluted net income per
share would have been $0.78 for the year ended December 31, 2000. Pro forma net
loss per share would have been $(5.41) and $(3.27) for the years ended December
31, 1999 and 1998, respectively.
The per share weighted average value of stock options issued by the Company
during 2000, 1999 and 1998, as determined by the Black-Scholes option pricing
model, was $29.00, $35.27 and $14.25, respectively, on the date of grant. In
these years, the Company assumed no declaration of dividends and an expected
life of five years in determining the value of stock options granted. In
addition, the calculations assumed a risk free interest rate of approximately
5.0%, 6.3% and 5.0% and expected volatility of 45.2%, 49.7% and 52.8% in 2000,
1999 and 1998, respectively.
I-52
Stock transactions under the 1985 Stock Plan and the Employee Stock Plan are as
follows:
Shares Stock
Under Appreciation Stock Available Option
Option Rights Awards For Grant Price Range
------ ------ ------ --------- -----------
Balance, December 31, 1997 ............... 5,507,548 5,340,944 539,002 1,593,010 $6.13-$13.03
1996 Plan amendment ................... -- -- -- 7,000,000
Granted ............................... 2,265,500 2,265,500 -- (2,265,500) $27.63-$43.50
Exercised/issued ...................... (1,263,220) (1,164,932) (221,852) -- $6.13-$30.16
Cancelled-1985 Stock Plan ............. (6,604) (6,604) (6,840) -- $6.91-$13.03
Cancelled-Employee
Stock Plan* ...................... (345,364) (345,360) (32,060) 377,424 $7.13-$12.38
---------- ---------- -------- ----------
Balance, December 31, 1998 ............... 6,157,860 6,089,548 278,250 6,704,934 $6.13-$43.50
Granted ............................... 3,108,561 1,512,449 9,180 (3,117,741) $67.50-$76.31
Exercised/issued ...................... (1,174,609) (1,740,534) -- -- $6.13-$42.88
Cancelled-1985 Stock Plan ............. (22,852) (28,400) -- -- $6.13-$42.88
Cancelled-Employee
Stock Plan* ...................... (609,301) (812,535) (28,538) 637,839 $7.13-$12.38
---------- ---------- -------- ----------
Balance, December 31, 1999 ............... 7,459,659 5,020,528 258,892 4,225,032 $6.13-$76.31
Granted ............................... 3,666,800 3,435,400 -- (3,666,800) $62.72-$74.69
Exercised/issued ...................... (1,677,804) (1,959,032) -- -- $6.13-$74.69
Cancelled-Employee
Stock Plan* ...................... (139,783) (132,783) (258,892) 398,675 $7.88-$74.69
---------- ---------- -------- ----------
Balance, December 31, 2000 ............... 9,308,872 6,364,113 -- 956,907 $6.13-$76.31
========== ========== ======== ==========
- ----------
* includes stock awards paid in cash.
I-53
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
The following table summarizes significant ranges of outstanding and exercisable
options at December 31, 2000:
Options Outstanding Options Exercisable
------------------------------------------ -------------------------
Weighted Weighted Weighted
Average Average Average
Ranges of Remaining Exercise Exercise
Exercise Prices Shares Life in Years Price Shares Price
- -----------------------------------------------------------------------------------------------------
$ 6.13 - 7.63 615,236 5.3 $ 7.11 615,236 $ 7.11
7.64 - 15.26 584,418 4.5 11.49 572,266 11.56
15.27 - 22.89 3,334 7.1 22.47 3,334 22.47
22.90 - 30.53 1,540,032 7.2 27.60 941,554 27.64
30.54 - 38.16 40,000 7.2 33.73 40,000 33.73
38.17 - 45.79 85,085 7.7 41.47 52,081 41.48
61.05 - 68.68 5,836,200 8.8 64.62 949,423 67.30
68.69 - 76.31 604,567 5.2 75.11 376,387 75.66
At December 31, 2000, options for 9,308,872 shares were outstanding with a
weighted average exercise price of $51.67 and a weighted average remaining life
of 7.8 years. At December 31, 2000, options for 3,550,281 shares were
exercisable with a weighted average exercise price of $37.43. Options and stock
appreciation rights granted in 2000, 1999 and 1998 vest in 33-1/3 annual
increments beginning one year from the date of grant.
NOTE 12. COMMITMENTS AND CONTINGENCIES
The Company, through Rainbow Media Holdings, has entered into several contracts,
including rights agreements, with professional sports teams and others relating
to cable television programming. In addition, Rainbow Media Holdings, through
MSG, has employment agreements with both players and coaches of its professional
sports teams. Certain of these contracts, which provide for payments that are
guaranteed regardless of employee injury or termination, are covered by
disability insurance if certain conditions are met.
Future cash payments required under these contracts as of December 31, 2000 are
as follows:
2001 $ 316,902
2002 231,277
2003 193,633
2004 157,336
2005 105,276
Thereafter 1,066,466
----------
Total $2,070,890
==========
I-54
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
NOTE 13. OTHER MATTERS
The Company is party to various lawsuits, some involving substantial amounts.
Management does not believe that the resolution of these lawsuits will have a
material adverse impact on the financial position of the Company.
NOTE 14. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and Cash Equivalents, Accounts Receivable Trade, Notes and Other
Receivables, Prepaid Expenses and Other Assets, Advances to Affiliates, Accounts
Payable and Accrued Liabilities.
The carrying amount approximates fair value due to the short maturity of these
instruments.
At Home Warrants
The fair value of the At Home warrants is based upon the Black-Scholes pricing
model.
Investments in Marketable Securities
Available-for-sale marketable securities are carried at their fair value based
upon quoted market prices.
Bank Debt, Senior Notes and Debentures, Subordinated Notes and Debentures and
Redeemable Exchangeable Preferred Stock of CSC Holdings
The fair values of each of the Company's long-term debt instruments and
redeemable preferred stock of CSC Holdings are based on quoted market prices for
the same or similar issues or on the current rates offered to the Company for
instruments of the same remaining maturities.
I-55
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
Interest Rate Swap Agreements
The fair values of interest rate swap and cap agreements are obtained from
dealer quotes. These values represent the estimated amount the Company would
receive or pay to terminate agreements, taking into consideration current
interest rates and the current creditworthiness of the counterparties.
The fair value of the Company's financial instruments are summarized as follows:
December 31, 2000
--------------------------
Carrying Estimated
Amount Fair Value
------ ----------
At Home warrants ............................. $ 108,452 $ 108,452
========== ==========
Long term debt instruments:
Bank debt .................................. $2,683,432 $2,683,432
Senior notes and debentures ................ 2,693,208 2,633,960
Subordinated notes and debentures .......... 1,048,648 1,099,750
Redeemable exchangeable preferred
stock of CSC Holdings ................... 1,544,294 1,642,921
---------- ----------
$7,969,582 $8,060,063
========== ==========
Interest rate swap agreements:
In a net receivable position ............... $ -- $ 1,980
========== ==========
December 31, 1999
--------------------------
Carrying Estimated
Amount Fair Value
------ ----------
At Home warrants ............................. $ 248,134 $ 867,103
========== ==========
Long term debt instruments:
Bank debt .................................. $2,254,487 $2,254,487
Senior notes and debentures ................ 2,692,602 2,608,845
Subordinated notes and debentures .......... 1,048,513 1,102,500
Redeemable exchangeable preferred
stock of CSC Holdings ................... 1,404,511 1,539,173
---------- ----------
$7,400,113 $7,505,005
========== ==========
Interest rate swap agreements:
In a net payable position .................. $ -- $ 3,265
========== ==========
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
I-56
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
NOTE 15. SEGMENT INFORMATION
The Company classifies its business interests into four segments:
Telecommunication Services, consisting principally of its cable television,
telephone and modem services operations; Rainbow Media Group, consisting
principally of interests in national and regional cable television programming
networks; MSG, which owns and operates professional sports teams, regional cable
television networks, live productions and entertainment venues; and Retail
Electronics, which represents the operations of Cablevision Electronics' retail
electronics stores.
The Company's reportable segments are strategic business units that are managed
separately. The Company evaluates segment performance based on several factors,
of which the primary financial measure is business segment adjusted operating
cash flow (defined as operating income (loss) before depreciation and
amortization, incentive stock plan expense and the costs of year 2000
remediation). The accounting policies of the segments are the same as those
described in the summary of significant accounting policies. Information as to
the operations of the Company's business segments is set forth below.
Years Ended December 31,
-----------------------------------------
2000 1999 1998
---- ---- ----
Revenues
Telecommunication Services ..... $ 2,328,194 $ 2,151,308 $ 1,886,190
Rainbow Media Group ............ 484,816 361,756 283,546
MSG ............................ 876,397 785,234 662,080
Retail Electronics ............. 693,354 603,294 464,388
All Other ...................... 200,499 181,731 77,026
Intersegment eliminations ...... (172,212) (140,338) (108,087)
----------- ----------- -----------
Total ............... $ 4,411,048 $ 3,942,985 $ 3,265,143
=========== =========== ===========
Years Ended December 31,
---------------------------------------
2000 1999 1998
---- ---- ----
Adjusted Operating Cash Flow (Unaudited)
Telecommunication Services ............. $ 931,081 $ 916,233 $ 762,823
Rainbow Media Group .................... 120,453 87,902 53,182
MSG .................................... 171,483 142,606 122,612
Retail Electronics ..................... (56,520) (37,934) (19,737)
All Other .............................. (93,600) (91,858) (42,318)
----------- ----------- ---------
Total ....................... $ 1,072,897 $ 1,016,949 $ 876,562
=========== =========== =========
I-57
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
December 31,
------------------------------
2000 1999
Assets
Telecommunication Services.............................. $4,521,775 $4,490,364
Rainbow Media Group..................................... 843,789 642,976
MSG..................................................... 1,891,993 1,945,115
Retail Electronics...................................... 278,209 220,898
Corporate, other and intersegment eliminations.......... 737,524 (169,045)
---------- ----------
Total........................................ $8,273,290 $7,130,308
========== ==========
A reconciliation of reportable segment amounts to the Company's consolidated
balances is as follows:
Years Ended December 31,
----------------------------------------
2000 1999 1998
Revenues
Total revenue for reportable segments .................... $4,382,761 $3,901,592 $3,296,204
Other revenue and intersegment eliminations .............. 28,287 41,393 (31,061)
---------- ---------- ----------
Total consolidated revenue ........................ $4,411,048 $3,942,985 $3,265,143
========== ========== ==========
Adjusted Operating Cash Flow to Net Loss (Unaudited)
Total adjusted operating cash flow for reportable
segments .......................................... $1,166,497 $1,108,807 $918,880
Other adjusted operating cash flow deficit ............... (93,600) (91,858) (42,318)
Items excluded from adjusted operating cash flow
Depreciation and amortization ..................... (1,018,246) (893,797) (734,107)
Incentive stock plan expense ...................... (84,195) (255,789) (146,179)
Year 2000 remediation ............................. (3,473) (41,477) (7,593)
Interest expense .................................. (569,251) (470,549) (426,402)
Interest income ................................... 6,636 4,809 24,028
Equity in net loss of affiliates .................. (16,685) (19,234) (37,368)
Gain on sale of cable assets and
programming interests , net .................. 1,209,865 -- 170,912
Impairment charges on investments ................. (146,429) (15,100) --
Write off of deferred interest and financing costs (5,209) (4,425) (23,482)
Provision for preferential payment to related party -- -- (980)
Minority interests ................................ (164,679) (120,524) (124,677)
Miscellaneous, net ................................ (51,978) (1,470) (19,218)
---------- ---------- ----------
Net income (loss) ....................... $ 229,253 $ (800,607) $ (448,504)
========== ========== ==========
Substantially all revenues and assets of the Company's reportable segments are
attributed to or located in the United States.
I-58
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
The Company does not have a single external customer which represents 10 percent
or more of its consolidated revenues.
NOTE 16. SUBSEQUENT EVENTS
In January 2001, the Company completed the sale of its cable systems in Boston
and Eastern Massachusetts to AT&T Corporation ("AT&T") in exchange for AT&T's
cable systems in certain northern New York suburbs, 44,260,932 shares of AT&T
stock, valued at approximately $893,500 at closing, and approximately $289,900
in cash. The Company anticipates recording a gain on the sale.
In February 2001, Cablevision entered into an agreement with Metro-Goldwyn-Mayer
Inc. ("MGM") for MGM to acquire a 20% interest in certain programming businesses
of Rainbow Media Holdings for $825,000 in cash.
In March 2001, the Company amended and restated its Certificate of Incorporation
to increase the number of authorized shares of Preferred Stock from 10 million
to 50 million and to increase the number of authorized shares of common stock
from 560 million to 1.88 billion of which:
o 800 million are designated Cablevision NY Group Class A common
stock,
o 320 million are designated Cablevision NY Group Class B common
stock,
o 600 million are designated Rainbow Media Group Class A tracking
stock, and
o 160 million are designated Rainbow Media Group Class B tracking
stock.
In March 2001, the Company amended the Employee Stock Plan to reflect the
redesignation of the Company's Class A common stock into Cablevision NY Group
Class A common stock, and reflect the distribution of Rainbow Media Group Class
A tracking stock. In addition, the number of shares available for issuance under
the Employee Stock Plan was increased by 19,200,000, any or all of which may be
Cablevision NY Group common stock or Rainbow Media Group common stock.
In March 2001, CSC Holdings issued $1,000,000 face amount of 7-5/8% senior notes
due 2011. The notes were issued at a discount of $3,210. The net proceeds were
used to reduce bank debt outstanding. The notes are not redeemable by CSC
Holdings prior to maturity.
On March 29, 2001, the Company distributed a new series of common stock called
Rainbow Media Group tracking stock. The new series is designed to track the
economic performance of the businesses and interests of the Rainbow Media Group
("RMG"), which are currently part, but not all, of the Company's Rainbow Media
Holdings subsidiary. The tracking stock was distributed to holders of the
Company's common stock at a ratio of one share of RMG for every two shares of
the Company's common stock held. The Company's existing common stock was
redesignated as Cablevision NY Group common stock.
I-59
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
As of March 22, 2001, approximately $531,300 in cash had been received from the
monetization of a portion of the Company's investments in Charter and Adelphia
common stock. The proceeds were used to repay Restricted Group bank debt.
On March 28, 2001, a newly-formed wholly-owned subsidiary of Rainbow Media
Holdings acquired Sterling Digital, LLC from CSC Holdings for CSC Holdings'
net cash investment plus interest at CSC Holdings' borrowing rate. CSC
Holdings had acquired Sterling Digital, LLC from Charles F. Dolan on August
31, 2000 for his net investment together with interest thereon amounting to
$4,633. The difference between the amount paid and the book value of the net
assets acquired of $4,083 was reflected as a distribution to shareholder in
the consolidated statements of stockholders' deficiency.
I-60
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
NOTE 17. INTERIM FINANCIAL INFORMATION (Unaudited)
The following is a summary of selected quarterly financial data for the years
ended December 31, 2000 and 1999.
March 31, June 30, September 30, December 31, Total
2000 2000 2000 2000 2000
---- ---- ---- ---- ----
Revenues, net $ 1,048,224 $ 1,081,577 $ 1,035,548 $ 1,245,699 $ 4,411,048
Operating expenses 988,493 1,066,279 1,009,152 1,380,141 4,444,065
----------- ----------- ----------- ----------- -----------
Operating income (loss) $ 59,731 $ 15,298 $ 26,396 $ (134,442) $ (33,017)
=========== =========== =========== =========== ===========
Net income (loss) $ (115,495) $ (171,748) $ (40,142) $ 556,638 $ 229,253
=========== =========== =========== =========== ===========
Basic net income (loss) per
common share $ (.67) $ (.99) $ (.23) $ 3.19 $ 1.32
=========== =========== =========== =========== ===========
Diluted net income (loss) per
common share $ (.67) $ (.99) $ (.23) $ 3.13 $ 1.29
=========== =========== =========== =========== ===========
March 31, June 30, September 30, December 31, Total
1999 1999 1999 1999 1999
---- ---- ---- ---- ----
Revenues, net $ 933,708 $ 946,309 $ 902,310 $ 1,160,658 $ 3,942,985
Operating expenses 1,040,755 954,580 922,674 1,199,090 4,117,099
----------- ----------- ----------- ----------- -----------
Operating loss $ (107,047) $ (8,271) $ (20,364) $ (38,432) $ (174,114)
=========== =========== =========== =========== ===========
Net loss $ (238,647) $ (167,847) $ (178,063) $ (216,050) $ (800,607)
=========== =========== =========== =========== ===========
Basic and diluted net loss per
common share $ (1.57) $ (1.10) $ (1.17) $ (1.27) $ (5.12)
=========== =========== =========== =========== ===========
Net income (loss) per share amounts for each quarter are required to be computed
independently. As a result, their sum may not equal the total year net income
(loss) per share.
I-61
CSC HOLDINGS, INC.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
In April 1999, Cablevision Systems Corporation contributed the cable television
systems acquired from Tele-Communications, Inc. ("TCI Systems") on March 4, 1998
to CSC Holdings, Inc. ("CSC Holdings"). This transaction was accounted for in a
manner similar to a pooling of interests, whereby the assets and liabilities of
the TCI Systems were recorded at historical book value. Prior period
consolidated financial statements of CSC Holdings have been restated to include
the financial position and results of operations of the TCI Systems from March
4, 1998. As a result, the operations of CSC Holdings are identical to the
operations of Cablevision Systems Corporation, except for dividends attributable
to the preferred stock of CSC Holdings which have been reported in minority
interests in the consolidated financial statements of Cablevision Systems
Corporation. Refer to Cablevision Systems Corporation's Management's Discussion
and Analysis of Financial Condition and Results of Operations filed as part of
this document.
II-1
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholder
CSC Holdings, Inc.
We have audited the accompanying consolidated balance sheets of CSC Holdings,
Inc. and subsidiaries (a wholly-owned subsidiary of Cablevision Systems
Corporation) as of December 31, 2000 and 1999, and the related consolidated
statements of operations, stockholder's deficiency and cash flows for each of
the years in the three-year period ended December 31, 2000. In connection
with our audits of the consolidated financial statements, we also audited the
financial statement schedule listed in Item 14(a)(2). These consolidated
financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements and the financial
statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of CSC Holdings, Inc.
and subsidiaries at December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion, the related
financial statement schedule referred to above, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.
/s/ KPMG LLP
Melville, New York
March 29, 2001
II-2
CSC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2000 and 1999
(Dollars in thousands)
ASSETS 2000 1999
---- ----
Cash and cash equivalents ............................. $ 37,940 $ 62,665
Accounts receivable trade (less allowance
for doubtful accounts of $38,878 and $35,357) ..... 304,413 226,304
Notes and other receivables ........................... 149,366 129,596
Inventory, prepaid expenses and other assets .......... 296,388 211,179
Property, plant and equipment, net .................... 3,285,674 2,752,495
Investments in affiliates ............................. 97,224 58,423
Investment securities available-for-sale .............. 811,618 --
Other investments ..................................... 116,940 256,442
Advances to affiliates ................................ 96,519 46,685
Feature film inventory ................................ 347,208 335,826
Net assets held for sale .............................. 309,423 269,349
Franchises, net of accumulated amortization of
$777,526 and $703,237 ............................. 422,900 651,777
Affiliation and other agreements, net of
accumulated amortization of $307,028 and $244,249 . 199,352 173,250
Excess costs over fair value of net assets acquired
and other intangible assets, net of accumulated
amortization of $853,493 and $727,134 ............. 1,665,318 1,816,030
Deferred financing, acquisition and other costs, net of
accumulated amortization of $72,962 and $51,063 ... 133,007 140,287
---------- ----------
$8,273,290 $7,130,308
========== ==========
See accompanying notes to
consolidated financial statements.
II-3
CSC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2000 and 1999
(Dollars in thousands, except per share amounts)
2000 1999
---- ----
LIABILITIES AND STOCKHOLDER'S DEFICIENCY
Accounts payable ................................................ $ 474,088 $ 410,413
Accrued liabilities:
Interest .................................................. 120,032 117,854
Employee related costs .................................... 426,471 463,925
Other ..................................................... 539,565 466,820
Accounts payable to affiliates .................................. 47,388 12,745
Feature film and contract obligations ........................... 331,483 371,126
Deferred revenue ................................................ 229,326 274,043
Bank debt ....................................................... 2,683,432 2,254,487
Senior notes and debentures ..................................... 2,693,208 2,692,602
Subordinated notes and debentures ............................... 1,048,648 1,048,513
Capital lease obligations and other debt ........................ 114,173 99,099
----------- -----------
Total liabilities ......................................... 8,707,814 8,211,627
----------- -----------
Minority interests .............................................. 587,985 592,583
----------- -----------
Series H Redeemable Exchangeable Preferred Stock ................ 434,181 409,757
----------- -----------
Series M Redeemable Exchangeable Preferred Stock ................ 1,110,113 994,754
----------- -----------
Commitments and contingencies
Stockholder's deficiency:
Series A Cumulative Convertible Preferred Stock,
200,000 shares authorized, none issued ............... -- --
Series B Cumulative Convertible Preferred Stock,
200,000 shares authorized, none issued ............... -- --
8% Series D Cumulative Preferred Stock, $.01 par value,
112,500 shares authorized, none issued ($100 per
share liquidation preference) ........................ -- --
Common Stock, $.01 par value, 10,000,000 shares authorized,
1,000 shares issued .................................. -- --
Paid-in capital ........................................... 759,865 763,948
Accumulated deficit ....................................... (3,613,108) (3,842,361)
----------- -----------
(2,853,243) (3,078,413)
Accumulated other comprehensive income .................... 286,440 --
----------- -----------
Total stockholder's deficiency ............................ (2,566,803) (3,078,413)
----------- -----------
$ 8,273,290 $ 7,130,308
=========== ===========
See accompanying notes
to consolidated financial statements.
II-4
CSC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 2000, 1999 and 1998
(Dollars in thousands, except per share amounts)
2000 1999 1998
---- ---- ----
Revenues, net (including retail electronics sales of
$682,109, $603,294 and $464,388) .......................... $ 4,411,048 $ 3,942,985 $ 3,265,143
----------- ----------- -----------
Operating expenses:
Technical and operating ................................... 1,696,907 1,535,423 1,268,786
Retail electronics cost of sales .......................... 549,978 484,760 367,102
Selling, general and administrative ....................... 1,178,934 1,203,119 906,465
Depreciation and amortization ............................. 1,018,246 893,797 734,107
----------- ----------- -----------
4,444,065 4,117,099 3,276,460
----------- ----------- -----------
Operating loss ............................................... (33,017) (174,114) (11,317)
----------- ----------- -----------
Other income (expense):
Interest expense .......................................... (569,251) (470,549) (426,402)
Interest income ........................................... 6,636 4,809 24,028
Equity in net loss of affiliates .......................... (16,685) (19,234) (37,368)
Gain on sale of cable assets and programming interests, net 1,209,865 -- 170,912
Impairment charges on investments ......................... (146,429) (15,100) --
Write off of deferred interest and financing costs ........ (5,209) (4,425) (23,482)
Provision for preferential payment to related party ....... -- -- (980)
Minority interests ........................................ 625 49,563 37,195
Miscellaneous, net ........................................ (51,978) (1,470) (19,218)
----------- ----------- -----------
427,574 (456,406) (275,315)
----------- ----------- -----------
Net income (loss) ............................................ 394,557 (630,520) (286,632)
Dividend requirements applicable to preferred stock .......... (165,304) (170,087) (161,872)
----------- ----------- -----------
Net income (loss) applicable to common shareholder ........... $ 229,253 $ (800,607) $ (448,504)
=========== =========== ===========
See accompanying notes
to consolidated financial statements.
II-5
CSC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIENCY
Years ended December 31, 2000, 1999 and 1998
(Dollars in thousands)
Series C Series I Class A Class B
Preferred Preferred Common Common Paid-in Accumulated
Stock Stock Stock Stock Capital Deficit
----------- ----------- ----------- ----------- ----------- -----------
Balance December 31, 1997 .......... $ 1 $ 14 $ 560 $ 444 $ 171,399 $(2,551,191)
Net loss ......................... -- -- -- -- -- (286,632)
Contribution of assets by Parent . -- -- -- -- 584,708 --
Employee stock transactions ...... -- -- -- -- 2,444 --
Redemption of preferred stock .... (1) -- -- -- (9,408) --
Dividend payment to Parent ....... -- -- -- -- -- (42,059)
Issuance of stock ................ -- -- -- -- 4,849 --
Common stock conversion .......... -- -- (560) (444) 1,004 --
Preferred dividend requirements .. -- -- -- -- -- (161,872)
----------- ----------- ----------- ----------- ----------- -----------
Balance December 31, 1998 .......... -- 14 -- -- 754,996 $(3,041,754)
Net loss ......................... -- -- -- -- -- (630,520)
Conversion of Series I Preferred
Stock to Parent Class A ...... -- (14) -- -- 14 --
Contribution of assets by Parent . -- -- -- -- 8,938 --
Preferred dividend requirements .. -- -- -- -- -- (170,087)
----------- ----------- ----------- ----------- ----------- -----------
Balance December 31, 1999 .......... -- -- -- -- 763,948 (3,842,361)
Net income ....................... -- -- -- -- -- 394,557
Unrealized gains on available-for-
sale securities ............. -- -- -- -- -- --
Comprehensive income .........
Distribution to shareholder ...... -- -- -- -- (4,083) --
Preferred dividend requirements .. -- -- -- -- -- (165,304)
----------- ----------- ----------- ----------- ----------- -----------
Balance December 31, 2000 .......... $ -- $ -- $ -- $ -- $ 759,865 $(3,613,108)
=========== =========== =========== =========== =========== ===========
Accumulated
Other
Comprehensive
Income Total
----------- -----------
Balance December 31, 1997 .......... $ -- $(2,378,773)
Net loss ......................... -- (286,632)
Contribution of assets by Parent . -- 584,708
Employee stock transactions ...... -- 2,444
Redemption of preferred stock .... -- (9,409)
Dividend payment to Parent ....... -- (42,059)
Issuance of stock ................ -- 4,849
Common stock conversion .......... -- --
Preferred dividend requirements .. -- (161,872)
----------- -----------
Balance December 31, 1998 .......... -- $(2,286,744)
Net loss ......................... -- (630,520)
Conversion of Series I Preferred
Stock to Parent Class A ...... -- --
Contribution of assets by Parent . -- 8,938
Preferred dividend requirements .. -- (170,087)
----------- -----------
Balance December 31, 1999 .......... -- (3,078,413)
Net income ....................... -- 394,557
Unrealized gains on available-for-
sale securities ............. 286,440 286,440
-----------
Comprehensive income ......... 680,997
Distribution to shareholder ...... -- (4,083)
Preferred dividend requirements .. -- (165,304)
----------- -----------
Balance December 31, 2000 .......... $ 286,440 $(2,566,803)
=========== ===========
See accompanying notes to
consolidated financial statements.
II-6
CSC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2000, 1999 and 1998
(Dollars in thousands)
2000 1999 1998
---- ---- ----
Cash flows from operating activities:
Net income (loss) ................................................ $ 394,557 $ (630,520) $ (286,632)
----------- ----------- -----------
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization ............................. 1,018,246 893,797 734,107
Equity in net loss of affiliates .......................... 16,685 19,234 37,368
Minority interests ........................................ (625) (49,563) (37,195)
Gain on sale of cable assets and programming interests, net (1,209,865) -- (170,912)
(Gain) loss on investments ................................ 146,429 (10,861) --
Write off of investment in affiliate ...................... -- 15,100 --
Write off of deferred interest and financing costs ........ 5,209 4,425 23,482
(Gain) loss on sale of equipment, net ..................... (803) 9,811 (604)
Amortization of deferred financing and debenture discount . 10,329 9,407 8,532
Change in assets and liabilities, net of effects of
acquisitions and dispositions:
Accounts receivable trade .......................... (73,407) (31,419) 19,007
Notes and other receivables ........................ (18,919) 33,961 (94,164)
Inventory, prepaid expenses and other assets ....... (71,002) (23,243) (51,425)
Advances to affiliates ............................. (3,070) (10,400) (21,664)
Feature film inventory ............................. (13,538) (42,516) (112,734)
Other deferred costs ............................... 2,824 955 11,689
Accounts payable ................................... 52,166 15,306 133,891
Accrued liabilities ................................ 35,918 167,268 172,910
Feature film and contract obligations .............. (45,140) (2,596) 81,376
Deferred revenue ................................... (52,036) (60,170) (18,268)
Minority interests ................................. (18,255) 1,094 (961)
----------- ----------- -----------
Net cash provided by operating activities ..................... 175,703 309,070 427,803
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures ............................................. (1,325,968) (871,166) (561,642)
Payments for acquisitions, net of cash acquired .................. (128,784) (117,660) (264,287)
Net proceeds from sale of cable assets and programming interests . 991,000 -- 446,284
Proceeds from sale of equipment .................................. 776 1,467 8,817
Proceeds from sale of investments ................................ -- 10,861 --
Increase in investments in affiliates, net ....................... (60,709) (49,938) (31,035)
Increase in other investments .................................... (180) -- --
Additions to other intangible assets ............................. (94) (3,443) (13,253)
----------- ----------- -----------
Net cash used in investing activities ......................... $ (523,959) $(1,029,879) $ (415,116)
----------- ----------- -----------
See accompanying notes to
consolidated financial statements.
II-7
CSC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2000, 1999 and 1998
(Dollars in thousands)
(continued)
2000 1999 1998
---- ---- ----
Cash flows from financing activities:
Proceeds from bank debt .............................. $ 4,615,326 $ 3,791,073 $ 5,442,101
Repayment of bank debt ............................... (4,206,381) (3,588,135) (6,304,757)
Repayment of senior debt ............................. -- -- (112,500)
Repayment of subordinated notes payable .............. -- -- (151,000)
Redemption of senior notes payable ................... -- -- (94,848)
Issuance of senior notes and debentures .............. -- 497,670 1,296,076
Redemption of preferred stock ........................ -- (98) (9,409)
Dividends applicable to preferred stock .............. (25,521) (21,915) (29,341)
Payment of dividend to shareholder ................... -- -- (42,059)
Issuance of common stock ............................. -- -- 2,444
Obligation to related party .......................... -- -- (197,183)
Payments on capital lease obligations and other debt . (40,718) (22,036) (12,306)
Additions to deferred financing and other costs ...... (19,175) (46,911) (36,220)
----------- ----------- -----------
Net cash provided by (used in) financing activities 323,531 609,648 (249,002)
----------- ----------- -----------
Net decrease in cash and cash equivalents ............... (24,725) (111,161) (236,315)
Cash and cash equivalents at beginning of year .......... 62,665 173,826 410,141
----------- ----------- -----------
Cash and cash equivalents at end of year ................ $ 37,940 $ 62,665 $ 173,826
=========== =========== ===========
See accompanying notes to
consolidated financial statements.
II-8
CSC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company and Related Matters
On March 4, 1998, CSC Holdings, Inc. (the "Company"), a wholly-owned subsidiary
of Cablevision Systems Corportion, completed a holding company reorganization
(the "Holding Company Reorganization") pursuant to an Amended and Restated
Contribution and Merger Agreement (the "Contribution and Merger Agreement"),
by and among the Company, CSC Parent Corporation ("Parent"), CSC Merger
Corporation, and TCI Communications, Inc., ("TCI"). Pursuant to the
Contribution and Merger Agreement, each outstanding share of the Company's
Class A Common Stock and each outstanding share of the Company's Class B
Common Stock were automatically converted on a share for share basis for
Class A Common Stock and Class B Common Stock of Parent.
As a result of the Holding Company Reorganization, Parent became the holding
company of the Company. In connection with the Holding Company Reorganization,
the Company's name, which formerly was Cablevision Systems Corporation, was
changed to CSC Holdings, Inc. and Parent's name was changed to Cablevision
Systems Corporation ("Cablevision").
The preferred stock and debt of the Company remain unchanged as securities of
CSC Holdings, Inc., except that the Company's 8-1/2% Cumulative Convertible
Exchangeable Preferred Stock, par value $0.01 per share (the "Series I Preferred
Stock"), in accordance with its terms, became exchangeable for Parent's Class A
Common Stock instead of being convertible into the Company's Class A Common
Stock.
In April 1999, Parent contributed certain cable television systems acquired from
TCI (the "TCI Systems") on March 4, 1998 to the Company. This transaction was
accounted for in a manner similar to a pooling of interests, whereby the assets
and liabilities of the TCI Systems were recorded at historical book value (net
assets of $509,574). Prior period consolidated financial statements of the
Company have been restated to include the financial position and results of
operations of the TCI Systems from March 4, 1998.
The Company and its majority-owned subsidiaries own and operate cable television
systems and have ownership interests in companies that produce and distribute
national and regional entertainment and sports programming services, including
Madison Square Garden, L.P. ("MSG"). The Company also owns companies that
provide advertising sales services for the cable television industry, provide
switched telephone service, operate a retail electronics chain and operate
motion picture theaters. Parent allocates certain costs to the Company based
upon its proportionate estimated usage of services. The Company classifies its
business interests into four segments: Telecommunication Services, consisting
principally of its cable television, telephone and modem services operations;
Rainbow Media Group, consisting principally of interests in national and
regional cable television programming networks; MSG, which owns and operates
professional sports teams, regional cable television networks, live productions
and entertainment venues; and Retail Electronics, which represents the
operations of its retail electronics stores.
II-9
CSC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
Authorized Capital Stock
In 1999, the Company's Board of Directors approved an amendment to the Company's
Certificate of Incorporation increasing the authorized capital stock from 10
million to 20 million shares (10 million shares of Common Stock and 10 million
shares of Preferred Stock).
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the
Company and its majority-owned subsidiaries. The Company's interests in less
than majority-owned entities are carried on the equity method. All significant
intercompany transactions and balances are eliminated in consolidation.
Revenue Recognition
The Company recognizes cable television, internet access, telephony and
programming revenues as services are provided to subscribers. Advertising
revenues are recognized when commercials are telecast. Revenue from retail
electronic sales is recognized upon delivery, with an appropriate provision for
returned merchandise based upon historical experience. Revenues derived from
other sources are recognized when services are provided or events occur.
Investments in Marketable Securities
The Company accounts for its investments in marketable securities in accordance
with Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." The Company has classified
such investments as available-for-sale. Accordingly, these investments are
stated at fair value and unrealized holding gains and losses are included in
accumulated other comprehensive income as a separate component of stockholder's
deficiency.
Long-Lived Assets
Property, plant and equipment, including construction materials, are carried at
cost, and includes all direct costs and certain indirect costs associated with
the construction of cable television transmission and distribution systems, and
the costs of new subscriber installations. Franchises are amortized on the
straight-line basis over the average remaining terms (5 to 12 years) of the
franchises at the time of acquisition. Affiliation and other agreements
(primarily cable television system programming agreements) are amortized on a
straight-line basis over periods ranging from 8 to 10 years. Other intangible
assets are amortized on the straight-line basis over the periods benefited (1 to
15 years), except that excess costs over fair value of net assets acquired are
being amortized on the straight-line basis over periods ranging from 6 to 40
years. The Company reviews its long-lived assets (property, plant and equipment,
and related intangible assets that arose from business combinations accounted
for under the purchase method) for impairment whenever events or circumstances
indicate that the carrying amount of an asset may not be recoverable. If the sum
of
II-10
CSC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
the expected cash flows, undiscounted and without interest, is less than the
carrying amount of the asset, an impairment loss is recognized as the amount by
which the carrying amount of the asset exceeds its fair value.
Feature Film Inventory
Rights to feature film inventory acquired under license agreements along with
the related obligations are recorded at the contract value. Costs are charged to
technical and operating expense on a straight-line basis over the respective
contract periods. Amounts payable during the five years subsequent to December
31, 2000 related to feature film telecast rights are $51,626 in 2001, $44,116 in
2002, $41,554 in 2003, $35,052 in 2004 and $17,776 in 2005.
Inventory
Carrying amounts of retail merchandise are determined on an average cost basis
and are stated at the lower of cost or market.
Deferred Financing Costs
Costs incurred to obtain debt are deferred and amortized, on a straight-line
basis, over the life of the related debt.
Income Taxes
Income taxes are provided based upon the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes", which requires the
asset/liability method of accounting for deferred income taxes and permits the
recognition of deferred tax assets, subject to an ongoing assessment of
realizability.
Income (Loss) Per Common Share
Basic and diluted net income (loss) per common share for the years ended
December 31, 2000, 1999 and 1998 are not presented since the Company is a
wholly-owned subsidiary of Parent.
Reclassifications
Certain reclassifications have been made in the 1999 and 1998 financial
statements to conform to the 2000 presentation.
II-11
CSC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
Cash Flows
For purposes of the consolidated statements of cash flows, the Company considers
short-term investments with a maturity at date of purchase of three months or
less to be cash equivalents. The Company paid cash interest of approximately
$556,744, $432,086 and $383,179 during 2000, 1999 and 1998, respectively.
During 2000, 1999 and 1998, the Company's noncash investing and financing
activities were as follows:
Years Ended December 31,
------------------------
2000 1999 1998
---- ---- ----
Capital lease obligations ..................... $ 60,111 $ 57,919 $ 28,795
Preferred stock dividends ..................... 139,783 148,172 132,531
Issuance of common stock to redeem
certain limited partnership interests .... -- -- 4,849
Receipt of warrants from At Home Corporation .. -- -- 74,788
Contribution of assets by Parent .............. -- 8,938 584,708
Redemption of preferred stock with Parent's
common stock ............................. -- 323,233 --
Receipt of marketable securities in connection
with the sale of cable assets ............ 524,606 -- --
Comprehensive Income
Other comprehensive income for the year ended December 31, 2000 of $286,440
represents unrealized net gains on available-for-sale securities.
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
II-12
CSC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
NOTE 2. ACQUISITIONS AND DISPOSITIONS
Acquisitions
2000 Acquisition
In January 2000, Regional Programming Partners, a subsidiary of Rainbow Media
Holdings, Inc. ("Rainbow Media Holdings"), acquired the 70% interest in
SportsChannel Florida Associates held by Front Row Communications for
approximately $130,600 (including the repayment of $20,000 in debt) increasing
its ownership to 100%. The acquisition was accounted for as a purchase with the
operations of the acquired business being consolidated with those of the Company
as of the acquisition date. The purchase price was allocated to the specific
assets acquired based upon an independent appraisal as follows:
Property, plant and equipment .................... $ 2,200
Other assets ..................................... 26,400
Liabilities ...................................... (9,900)
Excess cost over fair value of net assets acquired 111,900
---------
$ 130,600
=========
1999 Acquisitions
At various times during 1999, the Company acquired interests in the real
property and assets specifically related to certain movie theaters for an
aggregate purchase price of approximately $29,700. The acquisitions were
accounted for as purchases with the operations of the acquired theaters being
consolidated with those of the Company as of the acquisition dates. The purchase
price was allocated to the specific assets acquired based upon an independent
appraisal as follows:
Property, plant and equipment .................... $ 13,700
Other assets ..................................... 200
Liabilities ...................................... (2,500)
Excess cost over fair value of net assets acquired 18,300
--------
$ 29,700
========
In December 1999, Parent acquired cable television systems with approximately
4,500 subscribers located in the Port Jervis, New York area for approximately
$7,400, $7,300 of which was paid in shares of Parent's Class A Common Stock.
Concurrent with the acquisition, the acquired assets were contributed to the
Company.
In April 1999, ITT Corporation ("ITT") exercised its second put option for the
remainder of its interest in MSG and concurrently settled certain matters
between the parties for an aggregate payment of $87,000.
II-13
CSC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
See also "Dispositions" for a discussion of an exchange of cable television
assets.
1998 Acquisitions
The WIZ
On February 9, 1998, Cablevision Electronics Investments, Inc. ("Cablevision
Electronics"), a wholly-owned subsidiary of the Company, acquired substantially
all of the assets associated with 40 The WIZ consumer electronics store
locations from The Wiz, Inc. and certain of its subsidiaries and affiliates
(collectively, "TWI"). TWI had filed for bankruptcy protection on December 16,
1997. Cablevision Electronics paid approximately $101,300 for the assets
(including transaction costs and pre-closing operating costs).
The acquisition was accounted for as a purchase with the operations of
Cablevision Electronics being consolidated with the operations of the Company as
of the date of acquisition. The purchase price was allocated to the specific
assets acquired based upon independent appraisals as follows:
Inventory ........................................ $ 66,200
Property and equipment ........................... 16,800
Other assets ..................................... 4,000
Liabilities ...................................... (24,000)
Excess cost over fair value of net assets acquired 38,300
---------
$ 101,300
=========
In 1999, the Company recorded an impairment loss of $35,490, including in
depreciation and amortization, representing the balance of unamortized goodwill
recorded on the TWI acquisition. Current losses and projected future operating
losses caused the Company to reassess the recoverability of the goodwill. The
impairment loss resulted from the carrying amount of this asset exceeding its
estimated fair value based on discounted future cash flows.
Madison Square Garden
In June 1998, the Company purchased 50% of ITT's then remaining interest in MSG
for $94,000 pursuant to ITT's exercise of its first put option, increasing
Regional Programming Partners' interest in MSG to 96.3% (see "1999 Acquisitions"
above).
Clearview
In December 1998, Parent acquired all of the outstanding shares of stock of
Clearview Cinema Group, Inc. ("Clearview") for approximately $158,700 (including
assumed debt of $80,000), of which approximately $33,400 was paid in shares of
Parent's Class A Common Stock. In April 1999, Parent contributed its interest in
the subsidiary formed to purchase Clearview, CCG Holdings, Inc., to the Company.
This transaction was accounted for in a manner similar to a pooling of
II-14
CSC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
interests, whereby the assets and liabilities of CCG Holdings, Inc. were
recorded at historical book value.
The acquisition of Clearview was accounted for as a purchase with the operations
of the acquired business being consolidated with those of the Company as of the
acquisition date. The purchase price was allocated to the specific assets
acquired based upon independent appraisals as follows:
Property and equipment ........................... $ 34,787
Other assets ..................................... 21,518
Liabilities ...................................... (16,433)
Excess cost over fair value of net assets acquired 118,851
---------
$ 158,723
=========
In 2000, the Company recorded an impairment loss of approximately $47,500,
included in depreciation and amortization, representing the balance of
unamortized goodwill related to certain theaters in which the carrying value of
the asset exceeded the estimated fair value based on discounted estimated future
cash flows.
Loews
In December 1998, the Company acquired interests in the real property and assets
specifically related to 15 movie theaters from Loews Cineplex Entertainment
Corporation ("Loews") for an aggregate purchase price of approximately $67,300.
The acquisition was accounted for as a purchase with the operations of the
acquired assets being consolidated with those of the Company as of the
acquisition date. The purchase price was allocated to the specific assets
acquired based upon independent appraisals as follows:
Property and equipment ........................... $ 9,700
Other assets ..................................... 2,200
Excess cost over fair value of net assets acquired 55,400
-------
$67,300
=======
Dispositions
Cable Systems
In November 2000, the Company completed the sale of its cable television systems
in the greater Cleveland, Ohio metropolitan area to Adelphia Communications
Corporation for $991,000 in cash and 10,800,000 shares, valued at closing at
$359,100, in Adelphia Communications Corporation common stock. The Company
recorded a gain of approximately $1,075,400 in connection with the transaction.
II-15
CSC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
In September 2000, the Company completed the sale of its cable television system
serving Kalamazoo, Michigan, for 11,173,376 shares of Charter Communications,
Inc.'s common stock, valued at approximately $165,500 at closing, and recognized
a gain of approximately $128,800.
In October 1998, a subsidiary of the Company transferred its cable television
system in Rensselaer, New York plus approximately $16,000 in cash to Time Warner
Entertainment Company, L.P. ("Time Warner") in exchange for Time Warner's
Litchfield, Connecticut system. The Company recognized a gain of approximately
$15,500 in connection with this transaction.
In 1998, the Company completed the sale of cable television systems for
aggregate sales prices of approximately $426,500 and recognized aggregate gains
of approximately $137,900.
Other
In 2000, Rainbow Media Holdings recognized a gain of approximately $5,700 in
connection with the sale of certain programming assets.
In 1998, Regional Programming Partners completed the sale of an interest in a
sports programming business and recognized a gain of $17,700.
Pro Forma Results of Operations (Unaudited)
The following unaudited pro forma condensed consolidated results of operations
are presented for the year ended December 31, 1998 as if the acquisition of the
TCI Systems and the sale of assets of certain cable systems had occurred on
January 1, 1998. The effects of acquisitions and dispositions made in 2000 and
1999 were not material.
Year Ended
December 31, 1998
-----------------
Net revenues ..................... $ 3,329,627
===========
Net loss ......................... $ (520,968)
===========
The unaudited pro forma information presented above gives effect to certain
adjustments, including the amortization of acquired intangible assets and
increased interest expense on acquisition debt. The pro forma information has
been prepared for comparative purposes only and does not purport to indicate the
results of operations which would actually have occurred had the transactions
been made at the beginning of the period indicated or which may occur in the
future.
II-16
CSC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
NOTE 3. NET ASSETS HELD FOR SALE
The Company had entered into definitive agreements covering the sale of certain
cable television systems as of December 31, 2000 and 1999.
For financial reporting purposes, the assets and liabilities attributable to
cable systems whose sale or transfer was pending at December 31, 2000 and 1999
have been classified in the consolidated balance sheet as net assets held for
sale and are included in the telecommunications segment. Such net assets consist
of the following:
December, 31
-----------------
2000 1999
---- ----
Property, plant and equipment, net ....... $ 238,739 $ 222,695
Intangible assets, net ................... 98,526 73,055
Other assets (including trade receivables,
prepaid expenses, etc.) ............. 11,311 9,796
--------- ---------
Total assets ............................. 348,576 305,546
Total liabilities ........................ (39,153) (36,197)
--------- ---------
Net assets ............................... $ 309,423 $ 269,349
========= =========
The accompanying consolidated statements of operations for the years ended
December 31, 2000, 1999 and 1998 include net revenues aggregating approximately
$190,449, $177,904 and $18,937, respectively, and net income (loss) aggregating
approximately $6,140, $(4,109) and $9,095, respectively, relating to the cable
systems held for sale.
II-17
CSC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
NOTE 4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following assets, which are
depreciated or amortized primarily on a straight-line basis over the estimated
useful lives shown below:
December 31,
---------------------- Estimated
2000 1999 Useful Lives
--------- --------- ------------
Communication transmission and distribution systems:
Customer equipment ........................... $ 601,082 $ 600,271 3 to 8 years
Headends ..................................... 171,735 118,311 7 to 15 years
Multimedia ................................... 45,521 18,732 4 years
Central office equipment ..................... 180,950 132,191 10 years
Infrastructure ............................... 2,441,374 2,189,863 5 to 12 years
Program, service and data processing equipment 948,142 669,908 2 to 9 years
Microwave equipment .......................... 28,806 19,957 2 to 9 years
Construction in progress (including
materials and supplies) .................... 247,743 227,991 --
Furniture and fixtures ............................. 171,523 134,531 1 to 8 years
Transportation equipment ........................... 159,101 143,511 4 to 15 years
Buildings and building improvements ................ 250,236 185,118 20 to 40 years
Leasehold improvements ............................. 391,581 276,015 Term of lease
Land ............................................... 47,842 47,914 --
--------- ---------
5,685,636 4,764,313
Less accumulated depreciation and amortization ..... 2,399,962 2,011,818
--------- ---------
$3,285,674 $2,752,495
========== ==========
At December 31, 2000 and 1999, the gross amount of equipment and related
accumulated amortization recorded under capital leases were as follows:
2000 1999
---- ----
Equipment .................................... $174,061 $120,802
Less accumulated depreciation ................ 50,728 27,763
-------- --------
$123,333 $ 93,039
======== ========
NOTE 5. DEBT
Bank Debt
Restricted Group
For financing purposes, the Company and certain of its subsidiaries are
collectively referred to as the "Restricted Group." The Restricted Group has a
$2.2 billion reducing revolving credit facility, as amended (the "Credit
Agreement") with a group of banks led by Toronto-Dominion (Texas), Inc.
("Toronto-Dominion"), as administrative and arranging agent. The credit facility
matures in March
II-18
CSC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
2007 and consists of a $1.0 billion CSC Holdings credit facility and a $1.2
billion Cablevision MFR, Inc. credit facility.
The total amount of bank debt outstanding under the Credit Agreement at December
31, 2000 and 1999 was $1,942,759 and $1,454,206 (including $16,259 and $12,706,
respectively, outstanding under a separate overdraft facility), respectively. At
December 31, 2000, $887,500 and $1,039,000 was outstanding under the CSC
Holdings and the Cablevision MFR, Inc. credit facility, respectively. As of
December 31, 2000, approximately $49,808 was restricted for certain letters of
credit issued on behalf of the Company. Interest on outstanding amounts may be
paid, at the option of the Company, based on the prime rate or a Eurodollar
rate.
Unrestricted and undrawn funds available to the Restricted Group under the
Credit Agreement amounted to approximately $223,692 at December 31, 2000. The
Credit Agreement contains certain financial covenants that may limit the
Restricted Group's ability to utilize all of the undrawn funds available
thereunder. The Credit Agreement contains various restrictive covenants, among
which are the maintenance of various financial ratios and tests, and limitations
on various payments, including preferred dividends and dividends on its common
stock. The Company was in compliance with the covenants of its Credit Agreement
at December 31, 2000.
As of December 31, 2000, the Company had outstanding interest exchange (swap)
agreements with several of its banks with a total notional value of $250,000.
The swaps require the Company to pay a floating rate of interest based on LIBOR
in exchange for fixed rate payments ranging from 6.125% to 6.76% and have a
maturity of 9 to 22 months. The Company enters into interest rate swap
agreements to hedge against interest rate risk and accounts for these agreements
as hedges whereby interest expense is recorded using the revised rate with any
fees or other payments amortized as yield adjustments. The Company is exposed to
credit loss in the event of nonperformance by the other parties to the interest
rate swap agreements; however, the Company does not anticipate nonperformance by
the counterparties.
The weighted average interest rate on all bank indebtedness of the Restricted
Group was 8.03% and 7.11% on December 31, 2000 and 1999, respectively. The
Company is also obligated to pay fees ranging from .1875% to .25% per annum on
the unused loan commitment and from .4% to 2.0% per annum on letters of credit
issued under the Credit Agreement.
Unrestricted Group
Rainbow Media Holdings
Rainbow Media Holdings had a $300,000, three year credit facility which was
repaid on December 22, 2000 with funds borrowed from the Company. At December
31, 1999, Rainbow Media Holdings had outstanding borrowings under its credit
facility of $52,317, including amounts outstanding under a separate overdraft
facility of $3,317. The weighted average interest rate on Rainbow Media
Holdings' bank debt was 8.9% on December 31, 1999.
II-19
CSC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
At December 31, 2000, Rainbow Media Holdings had $270,475 outstanding (including
interest of $631) pursuant to a demand note payable to the Company which bears
interest at three month LIBOR plus 2.25% and $4,449 outstanding under an
overdraft facility with a bank. The interest rate on the demand note was 8.75%
at December 31, 2000. The intercompany loan together with interest thereon has
been eliminated in consolidation.
American Movie Classics Company
American Movie Classics Company ("AMC"), a wholly-owned subsidiary of Rainbow
Media Holdings, has a $425,000 credit facility consisting of a $200,000 reducing
revolving credit facility and a $225,000 amortizing term loan, both of which
mature on March 31, 2006 ("AMC Credit Facility"). The amount of the available
commitment under the revolver will not begin to be reduced until June 2004. The
term loan will begin amortizing on March 31, 2001 and requires quarterly
payments. Borrowings under the AMC Credit Facility bear interest at current
market rates plus a margin based on the ratio of debt to cash flow, as defined
in the AMC Credit Facility. At December 31, 2000 and 1999, the weighted average
interest rate on bank indebtedness was 8.0% and 7.6%, respectively. As of
December 31, 2000 and 1999, AMC had outstanding borrowings of $359,322 and
$309,456 (including $4,322 and $1,456, respectively, outstanding under a
separate overdraft facility), respectively. Unrestricted funds available to AMC
under the AMC Credit Facility amounted to approximately $70,000 at December 31,
2000.
Substantially all of the assets of AMC, amounting to approximately $383,000 at
December 31, 2000, have been pledged to secure the borrowings under the AMC
Credit Facility. The AMC Credit Facility contains various restrictive covenants
with which AMC was in compliance at December 31, 2000.
Madison Square Garden
MSG has a $500,000 revolving credit facility (the "MSG Credit Facility") with a
group of banks led by Chase Manhattan Bank, as agent, which expires on December
31, 2004. Loans under the MSG Credit Facility bear interest at current market
rates plus a margin based upon MSG's consolidated leverage ratio. At December
31, 2000 and 1999, loans outstanding amounted to $310,000 and $335,000,
respectively, and bore interest at a weighted average rate of 7.2% and 7.0%,
respectively. The MSG Credit Facility contains certain financial covenants with
which MSG was in compliance at December 31, 2000. The MSG Credit Facility also
contains certain convenants that may limit MSG's ability to utilize all of the
undrawn funds available thereunder.
In July 1997, a wholly-owned subsidiary of MSG borrowed $20,000 under promissory
notes with various lending institutions which bore interest at LIBOR plus a
margin and matured in July 2002. In September 2000, these notes were repaid with
borrowings under the MSG Credit Facility.
II-20
CSC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
Cablevision Electronics
Cablevision Electronics has a $130,000 revolving credit facility maturing on
April 9, 2001, as amended. Under the terms of the credit facility, the total
amount of borrowings available to Cablevision Electronics is subject to an
availability calculation based on a percentage of eligible inventory. The total
amount outstanding under the credit agreement at December 31, 2000 and 1999 was
approximately $66,902 and $73,817, respectively and bore interest at 8.6% and
7.8%, respectively. As of December 31, 2000, $24,010 was restricted for certain
letters of credit issued on behalf of Cablevision Electronics. Unrestricted and
undrawn funds available amounted to $37,745 on December 31, 2000 based on the
level of inventory as of that date.
Borrowings under the credit agreement are secured by Cablevision Electronics'
assets. The credit agreement contains various restrictive covenants with which
Cablevision Electronics was in compliance at December 31, 2000.
CCG Holdings, Inc.
CCG Holdings, Inc., a wholly-owned subsidiary of the Company, had a $15,000
revolving credit bank facility maturing on June 30, 2003 which was repaid and
retired in September 2000 with funds made available by the Company. As of
December 31, 1999, there was $9,691 outstanding under this bank facility.
Senior Notes and Debentures
The following table summarizes the Company's senior notes and debentures:
Original
Face Issue Carrying Amount
Amount Discount December 31,
------ -------- -----------------------
2000 1999
---- ----
8-1/8% Senior Notes
due July 2009, issued July 1999 ....... $ 500,000 $ 2,330 $ 498,026 $ 497,786
7-1/4% Senior Notes
due July 2008, issued July 1998 ....... 500,000 -- 500,000 500,000
7-5/8% Senior Debentures
due July 2018, issued July 1998 ....... 500,000 495 499,565 499,541
7-7/8% Senior Debentures
due February 2018, issued February 1998 300,000 3,429 297,061 296,893
7-7/8% Senior Notes
due December 2007, issued December 1997 500,000 525 499,632 499,584
8-1/8% Senior Debentures
due August 2009, issued August 1997 ... 400,000 1,492 398,924 398,798
---------- ---------- ---------- ----------
$2,700,000 $ 8,271 $2,693,208 $2,692,602
========== ========== ========== ==========
II-21
CSC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
The senior notes and debentures are not redeemable by the Company prior to
maturity. The indentures under which the senior notes and debentures were issued
contain various convenants, which are generally less restrictive than those
contained in the Company's Credit Agreement, with which the Company was in
compliance at December 31, 2000.
Subordinated Notes and Debentures
The following table summarizes the Company's senior subordinated notes and
debentures:
Carrying Amount
December 31, Redemption
Principal ------------------------ ---------------------------
Amount 2000 1999 Date* Price
------ ---- ---- ----- -----
9-7/8% Senior Subordinated
Notes due 2006,
issued 1996 ............ $ 150,000 $ 149,618 $ 149,558 May 15, 2001 104.938%
May 15, 2002 103.292%
May 15, 2003 101.646%
10-1/2% Senior Subordinated
Debentures due 2016,
issued 1996 ............ 250,000 250,000 250,000 May 15, 2006 105.250%
May 15, 2007 103.938%
May 15, 2008 102.625%
May 15, 2009 101.313%
9-1/4% Senior Subordinated
Notes due 2005,
issued 1995 ............ 300,000 300,000 300,000 November 1, 2000 104.625%
November 1, 2001 103.1%
November 1, 2002 101.5%
9-7/8% Senior Subordinated
Debentures due 2013,
issued 1993 ............ 200,000 199,243 199,180 February 15, 2003 104.8%
February 15, 2004 103.6%
February 15, 2005 102.4%
February 15, 2006 101.2%
9-7/8% Senior Subordinated
Debentures due 2023,
issued 1993 ............ 150,000 149,787 149,775 ** **
---------- ---------- -----------
$1,050,000 $1,048,648 $ 1,048,513
========== ========== ===========
- ----------
* The notes/debentures are redeemable, at the Company's option, in whole or
in part, on the redemption dates listed at the respective percentage of
the principal amount and thereafter at 100% of the aggregate principal
amount, in each case together with accrued interest to the redemption
date.
** The debentures are redeemable, at the Company's option, on and after April
1, 2003 at the redemption price of 104.938% reducing ratably to 100% of
the principal amount on and after April 1, 2010, in each case together
with accrued interest to the redemption date.
II-22
CSC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
The indentures under which the subordinated notes and debentures were issued
contain various covenants, which are generally less restrictive than those
contained in the Company's Credit Agreement and with which the Company was in
compliance at December 31, 2000.
Summary of Five Year Debt Maturities
Total amounts payable by the Company and its subsidiaries under its various debt
obligations outstanding as of December 31, 2000, including capital leases,
during the five years subsequent to December 31, 2000 are as follows:
2001 $165,000
2002 119,000
2003 383,000
2004 713,000
2005 498,000
NOTE 6. PREFERRED STOCK
The following summarizes the changes in each series of the Company's preferred
stock:
Series I Preferred Series M Preferred Series H Preferred
Shares Balance Shares Balance Shares Balance
----------- ----------- ----------- ----------- ----------- -----------
December 31, 1997 . 13,800,000 $ 323,331 7,987,603 $ 798,760 3,250,478 $ 325,048
Dividends paid in
additional shares -- -- 926,260 92,626 399,050 39,905
----------- ----------- ----------- ----------- ----------- -----------
December 31, 1998 . 13,800,000 323,331 8,913,863 891,386 3,649,528 364,953
Dividend paid in
additional shares -- -- 1,033,678 103,368 448,042 44,804
Redemption ........ (13,800,000) (323,331) -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
December 31, 1999 . -- -- 9,947,541 994,754 4,097,570 409,757
Dividend paid in
additional shares -- -- 1,153,585 115,359 244,243 24,424
----------- ----------- ----------- ----------- ----------- -----------
December 31, 2000 . -- $ -- 11,101,126 $ 1,110,113 4,341,813 $ 434,181
=========== =========== =========== =========== =========== ===========
In September 1999, the Company exercised its right to redeem all of its
outstanding shares of 8-1/2% Series I Cumulative Convertible Exchangeable
Preferred Stock ("Series I Preferred"). The redemption occurred on November 2,
1999, at a price equal to 102.8% of the liquidation preference, plus accrued
dividends. Investors held the Series I Preferred through interests in depositary
shares (each of which represented a 1/10th interest in a share of the Series I
Preferred) which were redeemable simultaneously. Each depositary share was
convertible into approximately 1.4828 shares of Parent's Class A Common Stock.
As of December 31, 1999, 13,797,625 depositary shares out of 13,800,000
depositary shares outstanding had been converted into 20,458,925 shares of
Parent's Class A Common Stock, with the remaining 2,375 depositary shares being
redeemed for cash. The Company paid a cash dividend on the Series I Preferred of
approximately $21,898 in 1999 and $29,325 in 1998.
II-23
CSC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
In February 1996, the Company issued 6,500,000 depositary shares, representing
65,000 shares of 11-1/8% Series L Redeemable Exchangeable Preferred Stock (the
"Series L Preferred Stock"), which were subsequently exchanged for Series M
Redeemable Exchangeable Preferred Stock (the "Series M Preferred Stock") in
August 1996 with terms identical to the Series L Preferred Stock. The depositary
shares are exchangeable, in whole but not in part, at the option of the Company,
for the Company's 11-1/8% Senior Subordinated Debentures due 2008. The Company
is required to redeem the Series M Preferred Stock on April 1, 2008 at a
redemption price equal to the liquidation preference of $10,000 per share plus
accumulated and unpaid dividends. The Series M Preferred Stock is redeemable at
various redemption prices beginning at 105.563% at any time on or after April 1,
2003, at the option of the Company, with accumulated and unpaid dividends
thereon to the date of redemption. Before April 1, 2001, dividends may, at the
option of the Company, be paid in cash or by issuing fully paid and
nonassessable shares of Series M Preferred Stock with an aggregate liquidation
preference equal to the amount of such dividends. On and after April 1, 2001,
dividends must be paid in cash.
In September 1995, the Company issued 2,500,000 shares of its $.01 par value
11-3/4% Series H Redeemable Exchangeable Preferred Stock (the "Series H
Preferred Stock") with an aggregate liquidation preference of $100 per share.
The Company is required to redeem the Series H Preferred Stock on October 1,
2007 at a redemption price per share equal to the liquidation preference of $100
per share, plus accrued and unpaid dividends thereon. Before October 1, 2000,
dividends could, at the option of the Company, be paid in cash or by issuing
fully paid and nonassessable shares of Series H Preferred Stock with an
aggregate liquidation preference equal to the amount of such dividends. On and
after October 1, 2000, dividends must be paid in cash. The terms of the Series H
Preferred Stock permit the Company, at its option, to exchange the Series H
Preferred Stock for the Company's 11-3/4% Senior Subordinated Debentures due
2007 in an aggregate principal amount equal to the aggregate liquidation
preference of the shares of Series H Preferred Stock. The Company paid a cash
dividend on the Series H Preferred Stock of approximately $25,511 in 2000.
NOTE 7. INCOME TAXES
The Company files a consolidated federal income tax return with its more than
80% owned subsidiaries. Rainbow Media Holdings files a separate consolidated
federal income tax return with its subsidiaries. At December 31, 2000, the
Company had consolidated net operating loss carry forwards of approximately
$1,039,792 and Rainbow Media Holdings had consolidated federal net operating
loss carry forwards of approximately $757,033 expiring on various dates through
2020. These net operating loss carry forwards reflect approximately $220,305 in
stock compensation deductions which would result in an adjustment to paid-in
capital upon realization of such net operating loss carry forward. As a result
of certain ownership changes, a portion of Rainbow Media Holdings' pre-1999 loss
carry forwards may be subject to annual limitations on deductions.
II-24
CSC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
The tax effects of temporary differences which give rise to significant portions
of deferred tax assets or liabilities and the corresponding valuation allowance
at December 31, 2000 and 1999 are as follows:
2000 1999
---- ----
Deferred Asset (Liability)
Depreciation and amortization ...................... $ 34,780 $(104,495)
Investments ........................................ (39,408) (98,074)
Benefit plans ...................................... 100,520 126,458
Allowance for doubtful accounts .................... 15,382 10,526
Deferred gains ..................................... (199,274) (40,997)
Benefits of tax loss carry forwards ................ 754,666 886,286
Unrealized gains on available-for-sale securities .. (120,305) --
Other .............................................. 355 9,411
--------- ---------
Net deferred tax assets .......................... 546,716 789,115
Valuation allowance ................................ (546,716) (789,115)
--------- ---------
$ -- $ --
========= =========
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax asset will be realized. The ultimate realization of the deferred tax
asset is dependent upon the generation of future taxable income during the
periods in which temporary differences or net operating loss carry forwards
become deductible. Management considers scheduled reversals of deferred tax
liabilities, projected future taxable income, and tax planning strategies
which can be implemented by the Company in making this assessment.
Although, as a result of the cable systems sales in 2001, the Company may
realize the benefit of certain net operating loss carry forwards, it has
provided a valuation allowance for the full amount of its net deferred tax
assets principally as a result of the Company's history of operating losses.
In 2000 and 1999, the Company recorded approximately $42,500 and $6,700,
respectively, principally of state and local income taxes as a result of
the sale of certain cable television systems and are included in miscellaneous
expenses. This expense differs from the statutory tax rate primarily due to a
$104,000 benefit due to the Company's net operating loss carry forwards.
NOTE 8. OPERATING LEASES
The Company leases certain office, production, transmission, theater, event, and
retail store facilities under terms of leases expiring at various dates through
2027. The leases generally provide for fixed annual rentals plus certain real
estate taxes and other costs. Rent expense for the years ended December 31,
2000, 1999 and 1998 amounted to $99,638, $97,300 and $83,003, respectively.
In addition, the Company rents space on utility poles for its operations. The
Company's pole rental agreements are for varying terms, and management
anticipates renewals as they expire. Pole rental expense for the years ended
December 31, 2000, 1999 and 1998 amounted to approximately $12,237, $13,081 and
$12,490, respectively.
II-25
CSC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
The minimum future annual rentals for all operating leases during the next five
years, including pole rentals from January 1, 2001 through December 31, 2005,
and thereafter, at rates now in force are approximately: 2001, $95,335; 2002,
$91,824; 2003, 88,946; 2004, $87,047; 2005, $78,432; thereafter, $546,081.
NOTE 9. AFFILIATE TRANSACTIONS
The Company purchases services from certain cable television programming and
advertising companies in which Rainbow Media Holdings directly or indirectly
held varying ownership interests during the three years ended December 31, 2000.
Costs incurred by the Company for programming and advertising services provided
by these non-consolidated affiliates and included in operating expense for the
years ended December 31, 2000, 1999 and 1998 amounted to approximately $2,320,
$4,691 and $2,942, respectively. At December 31, 2000 and 1999 amounts due to
certain of these affiliates, primarily for programming services provided to the
Company, aggregated $3,904 and $1,391, respectively, and are included in
accounts payable to affiliates. At December 31, 2000 and 1999, amounts due from
certain of these programming and advertising affiliates aggregated $6,033 and
$801, respectively, and are included in advances to affiliates.
The Company's equity in the net losses of these affiliates was approximately
$20,681, $11,318 and $31,851 in 2000, 1999 and 1998, respectively. At December
31, 2000 and 1999, the Company's investment in these programming and advertising
companies amounted to approximately $54,825 and $46,420, respectively.
During 2000, 1999 and 1998, the Company provided programming services to or
incurred costs on behalf of other affiliates engaged in providing cable
television, cable television programming, and related services. Amounts due from
these affiliates amounted to $15,726 and $16,518 at December 31, 2000 and 1999,
respectively and are included in advances to affiliates.
In October 1997, the Company entered into an agreement with At Home Corporation
("Excite@Home") and certain of its shareholders, pursuant to which the Company
agreed to enter into agreements for the distribution of the Excite@Home service
over certain of the Company's cable television systems on the same terms and
conditions as Excite@Home's founding partners, TCI, Comcast Corporation and Cox
Communications, Inc. The Company received a warrant to purchase 15,751,568
shares of Excite@Home's Series A Common Stock at an exercise price of $.25 per
share. Additionally, in 1998 a warrant to purchase 4,711,028 shares of
Excite@Home's Series A Common Stock at $.25 per share was received in connection
with Parent's acquisition of the TCI Systems. The Excite@Home network
distributes high-speed interactive services to residences and businesses using
its own network architecture and a variety of transport options, including the
cable industry's hybrid fiber coaxial infrastructure.
The original aggregate fair market value of the warrants received of $248,134,
as determined by independent appraisals, has been recorded in other investments
in the accompanying consolidated balance sheets and is accounted for under the
cost method. The fair market value of the warrants
II-26
CSC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
was recorded as deferred revenue and is being amortized to income over the
period in which the Company is obligated to provide the necessary services to
Excite@Home. In 2000, 1999 and 1998, the Company recorded $60,000, $50,136 and
$35,821, respectively, of revenue relating to this transaction. In 2000, the
Company recognized a loss on investments of approximately $139,682 reflecting
the decline in the fair value of the warrants.
In August 1996, the Company entered into an agreement with Northcoast PCS, LLC
("Northcoast") and certain of its affiliates, to form a limited liability
company (the "LLC") to participate in the auctions conducted by the Federal
Communications Commission ("FCC") for certain licenses to conduct a personal
communications service ("PCS") business. The Company has contributed an
aggregate of approximately $114,560 to the LLC (either directly or through a
loan to Northcoast) and holds a 49.9% interest in the LLC and certain
preferential distribution rights. The Company recorded a loss of $2,524, $7,916
and $5,517 in 2000, 1999 and 1998, respectively, representing its share of the
losses of the LLC. Northcoast is a Delaware corporation controlled by John Dolan
who is a nephew of Charles F. Dolan and a cousin of James L. Dolan, the
Company's Chairman and Chief Executive Officer, respectively.
In 1996, Rainbow Media Holdings invested in a joint venture formed with a
subsidiary of Loral Space and Communications, Ltd. for the purpose of exploiting
certain direct broadcast satellite ("DBS") frequencies. Rainbow Media Holdings
also contributed to the joint venture its interest in certain agreements with
the licensee of such frequencies. Rainbow Media Holdings' investment amounted to
$1,188 and $386 at December 31, 2000 and 1999, respectively. Earlier in 1999,
based upon its then current business plans, the Company determined that it could
no longer recover its initial investment in the joint venture and wrote down the
investment by $15,100.
NOTE 10. BENEFIT PLANS
Effective January 1, 1998, the Company established a Cash Balance Retirement
Plan (the "Retirement Plan"), which replaced the Company's former money purchase
pension plan for the benefit of employees other than those of MSG, Cablevision
Electronics and CCG Holdings, Inc. Under the Retirement Plan, the Company will
credit a certain percentage of eligible base pay into an account established for
each participant which will earn a market based rate of return annually. Net
periodic pension cost for the years ended December 31, 2000, 1999 and 1998
amounted to $8,008, $6,218 and $5,555, respectively. At December 31, 2000 and
1999, the accumulated benefit obligation amounted to $22,092 and $11,309,
respectively.
The Company also maintains a 401(k) savings plan, pursuant to which an employee
can contribute a percentage of eligible annual compensation, as defined. The
Company also makes matching contributions for a portion of employee
contributions to the 401(k) savings plan. The cost associated with the 401(k)
savings plan was approximately $7,932, $6,102 and $4,492 for the years ended
December 31, 2000, 1999 and 1998, respectively.
II-27
CSC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
The Company maintains the CSSC Supplemental Benefit Plan (the "Supplemental
Plan") for the benefit of certain officers and employees of the Company. As part
of the Supplemental Plan, the Company established a nonqualified defined benefit
pension plan, which provides that, upon attaining normal retirement age, a
participant will receive a benefit equal to a specified percentage of the
participant's average compensation, as defined. All participants are 100% vested
in the Supplemental Plan. Net periodic pension cost for the years ended December
31, 2000, 1999 and 1998 was negligible. At December 31, 2000 and 1999, the fair
value of Supplemental Plan assets exceeded the projected benefit obligation by
approximately $1,707 and $3,071, respectively.
MSG sponsors several non-contributory pension plans covering MSG's employees.
Benefits payable to retirees under these plans are based upon years of service
and participant's compensation and are funded through trusts established under
the plans. Plan assets are invested primarily in common stocks, bonds, United
States government securities and cash. At December 31, 2000 and 1999, the
accrued benefit cost amounted to $11,363 and $10,796, respectively, and for the
years ended December 31, 2000, 1999 and 1998, net periodic pension cost amounted
to $2,227, $2,611 and $2,254, respectively.
MSG also sponsors a welfare plan which provides certain postretirement health
care and life insurance benefits to certain employees and their dependents who
are eligible for early or normal retirement under MSG's retirement plan. The
welfare plan is insured through a managed care provider and MSG funds these
benefits with premium payments. For the years ended December 31, 2000, 1999 and
1998, the periodic postretirement benefit cost amounted to $187, $204 and $84,
respectively, and the accrued benefit cost amounted to $6,257 and $6,154,
respectively.
NOTE 11. STOCK BENEFIT PLANS
Parent has Employee Stock Plans (the "Stock Plans") under which it is authorized
to issue incentive stock options, nonqualified stock options, restricted stock,
stock appreciation rights, stock grants and stock bonus awards. The exercise
price of stock options can not be less than the fair market value per share of
Parent's Class A Common Stock on the date the option was granted and the options
expire no longer than ten years from date of grant. Stock appreciation rights
provide for the employee to receive a cash payment in an amount equal to the
difference between the fair market value of the stock as of the date the right
is exercised, and the exercise price.
Under the Stock Plans, employees of the Company have received stock awards,
bonus awards, stock appreciation rights and cash payments for certain executive
stock options. As a result, the Company recorded expense of approximately
$84,195, $255,789 and $146,179 in 2000, 1999 and 1998, respectively. These
amounts reflect vesting schedules for applicable grants as well as fluctuations
in the market price of Parent's Class A Common Stock.
II-28
CSC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
NOTE 12. COMMITMENTS AND CONTINGENCIES
The Company, through Rainbow Media Holdings, has entered into several contracts,
including rights agreements, with professional sports teams and others relating
to cable television programming. In addition, Rainbow Media Holdings, through
MSG, has employment agreements with both players and coaches of its professional
sports teams. Certain of these contracts, which provide for payments that are
guaranteed regardless of employee injury or termination, are covered by
disability insurance if certain conditions are met. Future cash payments
required under these contracts as of December 31, 2000 are as follows:
2001 $ 316,902
2002 231,277
2003 193,633
2004 157,336
2005 105,276
Thereafter 1,066,466
----------
Total $2,070,890
==========
NOTE 13. OTHER MATTERS
The Company is party to various lawsuits, some involving substantial amounts.
Management does not believe that the resolution of these lawsuits will have a
material adverse impact on the financial position of the Company.
NOTE 14. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and Cash Equivalents, Accounts Receivable Trade, Notes and Other
Receivables, Prepaid Expenses and Other Assets, Advances to Affiliates, Accounts
Payable, Accounts Payable-Affiliates, and Accrued Liabilities.
The carrying amount approximates fair value due to the short maturity of these
instruments.
At Home Warrants
The fair value of the At Home warrants is based upon the Black-Scholes pricing
model.
Investments in Marketable Securities
Available-for-sale marketable securities are carried at their fair value based
upon quoted market prices.
II-29
CSC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
Bank Debt, Senior Notes and Debentures, Subordinated Notes and Debentures and
Redeemable Exchangeable Preferred Stock
The fair values of each of the Company's long-term debt instruments and
redeemable preferred stock are based on quoted market prices for the same or
similar issues or on the current rates offered to the Company for instruments of
the same remaining maturities.
Interest Rate Swap Agreements
The fair values of interest rate swap and cap agreements are obtained from
dealer quotes. These values represent the estimated amount the Company would
receive or pay to terminate agreements, taking into consideration current
interest rates and the current creditworthiness of the counterparties.
The fair value of the Company's financial instruments are summarized as follows:
December 31, 2000
-------------------------
Carrying Estimated
Amount Fair Value
------ ----------
At Home warrants ................................. $ 108,452 $ 108,452
========== ==========
Long term debt instruments:
Bank debt ..................................... $2,683,432 $2,683,432
Senior notes and debentures ................... 2,693,208 2,633,960
Subordinated notes and debentures ............. 1,048,648 1,099,750
Redeemable exchangeable preferred stock ....... 1,544,294 1,642,921
---------- ----------
$7,969,582 $8,060,063
========== ==========
Interest rate swap agreements:
In a net receivable position .................. $ -- $ 1,980
========== ==========
December 31, 1999
-------------------------
Carrying Estimated
Amount Fair Value
------ ----------
At Home warrants ................................. $ 248,134 $ 867,103
========== ==========
Long term debt instruments:
Bank debt ..................................... $2,254,487 $2,254,487
Senior notes and debentures ................... 2,692,602 2,608,845
Subordinated notes and debentures ............. 1,048,513 1,102,500
Redeemable exchangeable preferred stock ....... 1,404,511 1,539,173
---------- ----------
$7,400,113 $7,505,005
========== ==========
Interest rate swap agreements:
In a net payable position ..................... $ -- $ 3,265
========== ==========
II-30
CSC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
NOTE 15. SEGMENT INFORMATION
The Company classifies its business interests into four segments:
Telecommunication Services, consisting principally of its cable television,
telephone and modem services operations; Rainbow Media Group, consisting
principally of interests in national and regional cable television programming
networks; MSG, which owns and operates professional sports teams, regional cable
television networks, live productions and entertainment venues; and Retail
Electronics, which represents the operations of Cablevision Electronics' retail
electronics stores.
The Company's reportable segments are strategic business units that are managed
separately. The Company evaluates segment performance based on several factors,
of which the primary financial measure is business segment adjusted operating
cash flow (defined as operating income (loss) before depreciation and
amortization, incentive stock plan expense and the costs of year 2000
remediation). The accounting policies of the segments are the same as those
described in the summary of significant accounting policies. Information as to
the operations of the Company's business segments is set forth below.
Years Ended December 31,
-----------------------------------------
2000 1999 1998
---- ---- ----
Revenues
Telecommunication Services ............. $ 2,328,194 $ 2,151,308 $ 1,886,190
Rainbow Media Group .................... 484,816 361,756 283,546
MSG .................................... 876,397 785,234 662,080
Retail Electronics ..................... 693,354 603,294 464,388
All Other .............................. 200,499 181,731 77,026
Intersegment eliminations .............. (172,212) (140,338) (108,087)
----------- ----------- -----------
Total ...................... $ 4,411,048 $ 3,942,985 $ 3,265,143
=========== =========== ===========
Years Ended December 31,
-----------------------------------------
2000 1999 1998
---- ---- ----
Adjusted Operating Cash Flow (Unaudited)
Telecommunication Services ............. $ 931,081 $ 916,233 $ 762,823
Rainbow Media Group .................... 120,453 87,902 53,182
MSG .................................... 171,483 142,606 122,612
Retail Electronics ..................... (56,520) (37,934) (19,737)
All Other .............................. (93,600) (91,858) (42,318)
----------- ----------- -----------
Total ...................... $ 1,072,897 $ 1,016,949 $ 876,562
=========== =========== ===========
II-31
CSC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
December 31,
-------------------------
2000 1999
---- ----
Assets
Telecommunication Services ........................ $ 4,521,775 $ 4,490,364
Rainbow Media Group ............................... 843,789 642,976
MSG ............................................... 1,891,993 1,945,115
Retail Electronics ................................ 278,209 220,898
Corporate, other and intersegment eliminations .... 737,524 (169,045)
----------- -----------
Total ................................. $ 8,273,290 $ 7,130,308
=========== ===========
A reconciliation of reportable segment amounts to the Company's consolidated
balances is as follows:
Years Ended December 31,
-----------------------------------------
2000 1999 1998
---- ---- ----
Revenues
Total revenue for reportable segments ............... $ 4,382,761 $ 3,901,592 $ 3,296,204
Other revenue and intersegment eliminations ......... 28,287 41,393 (31,061)
----------- ----------- -----------
Total consolidated revenue ........................ $ 4,411,048 $ 3,942,985 $ 3,265,143
=========== =========== ===========
Adjusted Operating Cash Flow to Net Loss (Unaudited)
Total adjusted operating cash flow for reportable
segments .......................................... $ 1,166,497 $ 1,108,807 $ 918,880
Other adjusted operating cash flow deficit .......... (93,600) (91,858) (42,318)
Items excluded from adjusted operating cash flow
Depreciation and amortization ..................... (1,018,246) (893,797) (734,107)
Incentive stock plan expense ...................... (84,195) (255,789) (146,179)
Year 2000 remediation ............................. (3,473) (41,477) (7,593)
Interest expense .................................. (569,251) (470,549) (426,402)
Interest income ................................... 6,636 4,809 24,028
Equity in net loss of affiliates .................. (16,685) (19,234) (37,368)
Gain on sale of cable assets and
programming interests, net ...................... 1,209,865 -- 170,912
Impairment charges on investments ................. (146,429) (15,100) --
Write off of deferred interest and financing costs (5,209) (4,425) (23,482)
Provision for preferential payment to related party -- -- (980)
Minority interests ................................ 625 49,563 37,195
Miscellaneous, net ................................ (51,978) (1,470) (19,218)
----------- ----------- -----------
Net income (loss) ............................. $ 394,557 $ (630,520) $ (286,632)
=========== =========== ===========
II-32
CSC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
Substantially all revenues and assets of the Company's reportable segments are
attributed to or located in the United States.
The Company does not have a single external customer which represents 10 percent
or more of its consolidated revenues.
NOTE 16. SUBSEQUENT EVENTS
In January 2001, the Company completed the sale of its cable systems in Boston
and Eastern Massachusetts to AT&T Corporation ("AT&T") in exchange for AT&T's
cable systems in certain northern New York suburbs, 44,260,932 shares of AT&T
stock, valued at approximately $893,500 at closing, and approximately $289,900
in cash. The Company anticipates recording a gain on the sale.
In February 2001, Cablevision entered into an agreement with Metro-Goldwyn-Mayer
Inc. ("MGM") for MGM to acquire a 20% interest in certain programming businesses
of Rainbow Media Holdings for $825,000 in cash.
In March 2001, the Company issued $1,000,000 face amount of 7-5/8% senior notes
due 2011. The notes were issued at a discount of $3,210. The net proceeds were
used to reduce bank debt outstanding. The notes are not redeemable by the
Company prior to maturity.
On March 29, 2001, Cablevision distributed a new series of Cablevision common
stock called Rainbow Media Group tracking stock. The new series is designed to
track the economic performance of the businesses and interests of the Rainbow
Media Group, which are currently part, but not all, of the Company's Rainbow
Media Holdings subsidiary. The tracking stock was distributed to holders of
Cablevision common stock at a ratio of one share of RMG for every two shares of
Cablevision common stock held. Cablevision's common stock was redesignated as
Cablevision NY Group common stock.
As of March 22, 2001, approximately $531,300 in cash had been received from the
monetization of a portion of the Company's investments in Charter and Adelphia
common stock. The proceeds were used to repay Restricted Group bank debt.
On March 28, 2001, a newly-formed wholly-owned subsidiary of Rainbow Media
Holdings acquired Sterling Digital, LLC from the Company for its net cash
investment plus interest at the Company's borrowing rate. The Company had
acquired Sterling Digital, LLC from Charles F. Dolan on August 31, 2000 for
his net investment together with interest thereon amounting to $4,633. The
difference between the amount paid and the book value of the net assets
acquired of $4,083 was reflected as a distribution to shareholder in the
consolidated statements of stockholder's deficiency.
II-33
CSC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
NOTE 17. INTERIM FINANCIAL INFORMATION (Unaudited)
The following is a summary of selected quarterly financial data for the years
ended December 31, 2000 and 1999.
March 31, June 30, September 30, December 31, Total
2000 2000 2000 2000 2000
---- ---- ---- ---- ----
Revenues, net .............. $ 1,048,224 $ 1,081,577 $ 1,035,548 $ 1,245,699 $ 4,411,048
Operating expenses ......... 988,493 1,066,279 1,009,152 1,380,141 4,444,065
----------- ----------- ----------- ----------- -----------
Operating income (loss) .... $ 59,731 $ 15,298 $ 26,396 $ (134,442) $ (33,017)
=========== =========== =========== =========== ===========
Net income (loss) applicable
to common shareholder ... $ (115,495) $ (171,748) $ (40,142) $ 556,638 $ 229,253
=========== =========== =========== =========== ===========
March 31, June 30, September 30, December 31, Total
1999 1999 1999 1999 1999
---- ---- ---- ---- ----
Revenues, net .............. $ 933,708 $ 946,309 $ 902,310 $ 1,160,658 $ 3,942,985
Operating expenses ......... 1,040,755 954,580 922,674 1,199,090 4,117,099
----------- ----------- ----------- ----------- -----------
Operating loss ............. $ (107,047) $ (8,271) $ (20,364) $ (38,432) $ (174,114)
=========== =========== =========== =========== ===========
Net loss applicable
to common shareholder ... $ (238,647) $ (167,847) $ (178,063) $ (216,050) $ (800,607)
=========== =========== =========== =========== ===========
II-34
RAINBOW MEDIA GROUP
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The Rainbow Media Group ("RMG") tracking stock represents an interest in
Cablevision and is not a direct interest in the businesses and interests
included in RMG. Dividends (if any), entitlements in the event of a merger or
similar transaction and rights in liquidation will not necessarily be related
to the performance of RMG or the value of the assets in RMG. Instead, such
determinations will be made by the Cablevision Board of Directors, subject to
the provisions of Cablevision's amended certificate of incorporation. The
Company does not expect to pay any dividends on any series of Cablevision
common stock for the foreseeable future.
In connection with the preparation of the financial information for the RMG
tracking stock, certain allocations of Cablevision costs have been made based on
existing policies. If those policies were altered, which Cablevision is entitled
to do at any time, there could be material adverse effects on the RMG financial
statements.
Recent Transactions
2000 Transactions. In May 2000, Rainbow Media Holdings, Inc. ("Rainbow Media
Holdings") acquired the 50% interest in MuchMusic USA Venture held by Chum,
Ltd., increasing Rainbow Media Holdings' ownership to 100%. In January 2000,
Regional Programming Partners ("RPP") acquired the 70% interest in SportsChannel
Florida Associates held by Front Row Communications, Inc., increasing RPP's
ownership to 100%.
1998 Transactions. In January 1998, Rainbow Media Holdings completed the sale of
an interest in SportsChannel New England, L.P.
The above transactions completed in 2000 and 1998 are collectively referred to
as the "Transactions."
III-1
Results of Operations - Rainbow Media Group
The following table sets forth on a historical basis certain items related to
operations as a percentage of net revenues for the periods indicated.
STATEMENT OF OPERATIONS DATA
Years Ended December 31,
---------------------------------------------------
2000 1999
------------------------ ------------------------ (Increase)
% of Net % of Net Decrease
Amount Revenues Amount Revenues in Net Loss
------ -------- ------ -------- -----------
(Dollars in thousands)
Revenues, net .......................... $ 484,816 100% $ 361,756 100% $ 123,060
Operating expenses:
Technical and operating ............. 187,436 39 146,378 40 (41,058)
Selling, general & administrative ... 193,344 40 152,416 42 (40,928)
Depreciation and amortization ....... 44,911 9 39,902 11 (5,009)
--------- --------- ---------
Operating income ....................... 59,125 12 23,060 6 36,065
Other income (expense):
Interest expense, net ............... (50,596) (11) (32,948) (9) (17,648)
Equity in net loss of affiliates, net (15,961) (3) (7,674) (2) (8,287)
Impairment charges on investments ... (6,747) (1) -- -- (6,747)
Gain on sale of programming interests 5,715 1 -- -- 5,715
Miscellaneous, net .................. (225) -- (1,715) -- 1,490
--------- --------- ---------
Net loss ............................... $ (8,689) (2)% $ (19,277) (5)% $ 10,588
========= ========= =========
Years Ended December 31,
---------------------------------------------------
1999 1998
------------------------ ------------------------ (Increase)
% of Net % of Net Decrease
Amount Revenues Amount Revenues in Net Loss
------ -------- ------ -------- -----------
(Dollars in thousands)
Revenues, net .......................... $ 361,756 100% $ 283,546 100% $ 78,210
Operating expenses:
Technical and operating ............. 146,378 40 123,804 44 (22,574)
Selling, general & administrative ... 152,416 42 120,307 42 (32,109)
Depreciation and amortization ....... 39,902 11 34,424 12 (5,478)
--------- --------- ---------
Operating income ....................... 23,060 6 5,011 2 18,049
Other income (expense):
Interest expense, net ............... (32,948) (9) (32,101) (11) (847)
Equity in net loss of affiliates, net (7,674) (2) (13,402) (5) 5,728
Gain on sale of programming interests -- -- 17,648 6 (17,648)
Miscellaneous, net .................. (1,715) -- 597 -- (2,312)
--------- --------- ---------
Net loss ............................... $ (19,277) (5)% $ (22,247) (8)% $ 2,970
========= ========= =========
III-2
Comparison of Year Ended December 31, 2000 Versus Year Ended December 31, 1999
Rainbow Media Group
Revenues for the year ended December 31, 2000 increased $123.1 million (34%) as
compared to revenues for the prior year. Approximately $56.3 million (16%) of
the increase was a direct result of the Transactions, approximately $46.8
million (13%) of the increase was attributable to growth in programming network
subscribers and rate increases and approximately $20.0 million (5%) of the
increase was attributable to higher advertising and other revenues.
Technical and operating expenses increased $41.1 million (28%) for the year
ended December 31, 2000 over the same 1999 period. Approximately $36.1 million
(25%) of the increase was directly attributable to the Transactions. The
remaining $5.0 million (3%) increase was related to those costs directly
associated with the increases in revenues discussed above. As a percentage of
revenues, technical and operating expenses decreased 1% during 2000 compared to
1999.
Selling, general and administrative expenses increased $40.9 million (27%) for
2000 as compared to the 1999 level. Approximately $34.5 million (23%) of the
increase was attributable to increases in sales and marketing initiatives and
other general cost increases and approximately $15.0 million (10%) was the
direct result of the Transactions. Partially offsetting these increases were
decreases of $5.8 million (4%) from lower charges attributed to RMG related to
Cablevision Parent's incentive stock plan with the remaining decrease of $2.8
million (2%) resulting from lower Year 2000 remediation costs. As a percentage
of revenues, selling, general and administrative expenses decreased 2% in 2000
compared to 1999. Excluding the effects of the incentive stock plan charges and
Year 2000 remediation costs, as a percentage of revenues such costs increased
1%.
Depreciation and amortization expense increased $5.0 million (13%) during 2000
as compared to 1999. Increases of $11.2 million (28%) as a result of the
Transactions were partially offset by net decreases of approximately $6.2
million (15%) due primarily to lower amortization expense as certain intangible
assets became fully amortized during the period.
Net interest expense increased $17.6 million (54%) during 2000 compared to 1999.
The net increase is primarily attributable to higher debt balances.
Equity in net loss of affiliates increased to $16.0 million in 2000 from $7.7
million in 1999. Such amounts consist of RMG's share of the net profits and
losses of certain programming businesses, primarily regional and national sports
programming companies and a national advertising company, in which Rainbow Media
Holdings has varying minority ownership interests.
Impairment charges on investments for the year ended December 31, 2000 of $6.7
million represents an other-than-temporary decline in the fair value of RMG's
investment in Salon.com.
Gain on sale of programming interests for the year ended December 31, 2000
resulted from the sale of certain programming assets.
Net miscellaneous expense decreased to $0.2 million for the year ended December
31, 2000 compared to $1.7 million for the prior year. In 1999, miscellaneous
expense consisted principally of the write off of deferred financing costs in
connection with amendments to American Movie Classics Company's credit
agreement.
III-3
Comparison of Year Ended December 31, 1999 Versus Year Ended December 31, 1998
Rainbow Media Group
Revenues for the year ended December 31, 1999 increased $78.2 million (28%) as
compared to revenues for the prior year. Approximately $55.7 million (20%) of
the increase was attributable to growth in programming network subscribers and
rate increases. Approximately $19.9 million (7%) of the increase was
attributable to higher advertising revenues. The remaining $2.6 million (1%)
increase was derived from increases in other revenue sources.
Technical and operating expenses increased $22.6 million (18%) for the year
ended December 31, 1999 over the same 1998 period due primarily to increases in
those costs directly associated with the increases in revenues discussed above.
As a percentage of revenues, technical and operating expenses decreased 4%
during 1999 compared to 1998.
Selling, general and administrative expenses increased $32.1 million (27%) for
1999 as compared to the 1998 level. Approximately $20.9 million (18%) was
attributable to increases in sales and marketing initiatives and other general
cost increases, approximately $8.4 million (7%) of the increase was due to
charges attributed to RMG related to Cablevision Parent's incentive stock plan,
with the remaining $2.8 million (2%) increase a result of Year 2000 remediation
costs. As a percentage of revenues, selling, general and administrative expenses
remained relatively constant in 1999 compared to 1998. Excluding the effects of
the incentive stock plan charges and Year 2000 remediation costs, as a
percentage of revenues such costs decreased 4%.
Depreciation and amortization expense increased $5.5 million (16%) during 1999
as compared to 1998 as a result of depreciation on fixed asset additions made
during the year, as well as additional amortization expense.
Net interest expense increased $0.8 million (3%) during 1999 compared to 1998.
The net increase is primarily attributable to higher debt balances.
Equity in net loss of affiliates decreased to $7.7 million in 1999 from $13.4
million in 1998. Such amounts consist of RMG's share of the net profits and
losses of certain programming businesses, primarily regional and national sports
programming companies and a national advertising company, in which Rainbow Media
Holdings has varying minority ownership interests.
Gain on sale of programming interests for the year ended December 31, 1998 of
$17.6 million resulted from the sale of an interest in a regional sports
programming business.
Net miscellaneous expense increased to $1.7 million for the year ended December
31, 1999 compared to $0.6 million of net miscellaneous income for the prior
year. In 1999, miscellaneous expense consisted principally of the write off of
deferred financing costs in connection with amendments to American Movie
Classics Company's credit agreement.
Liquidity and Capital Resources
Refer to Cablevision Systems Corporation's Management's Discussion and Analysis
of Financial Condition and Results of Operations filed as part of this document
for a discussion of RMG's liquidity and capital resources.
III-4
RAINBOW MEDIA GROUP
Operating Activities
Cash provided by operating activities amounted to $31.1 million for the year
ended December 31, 2000 compared to $29.7 million for the year ended December
31, 1999. The 2000 cash provided by operating activities consisted primarily of
net income of $90.9 million before depreciation, amortization and other non-cash
items, partially offset by a net decrease in cash resulting from changes in
assets and liabilities of $59.8 million.
Cash provided by operating activities amounted to $29.7 million for the year
ended December 31, 1999 compared to $36.3 million for the year ended December
31, 1998. The 1999 cash provided by operating activities consisted primarily of
net income of $63.7 million before depreciation, amortization and other non-cash
items, partially offset by a net decrease in cash resulting from changes in
assets and liabilities of $34.0 million.
Cash provided by operating activities amounted to $36.3 million for the year
ended December 31, 1998. The 1998 cash provided by operating activities
consisted primarily of net income of $34.8 million before depreciation,
amortization and other non-cash items and a net increase in cash resulting from
changes in assets and liabilities of $1.5 million.
Investing Activities
Net cash used in investing activities for the year ended December 31, 2000 was
$10.9 million compared to $11.9 million for the year ended December 31, 1999.
The 2000 investing activities consisted of capital expenditures of $19.8
million, partially offset by $8.8 million of proceeds from the sale of
programming interests.
Net cash used in investing activities for the year ended December 31, 1999 was
$11.9 million compared to $4.9 million for the year ended December 31, 1998. The
1999 investing activities consisted of $12.6 million of capital expenditures,
partially offset by $0.7 million of proceeds from the sale of equipment.
Net cash used in investing activities for the year ended December 31, 1998 was
$4.9 million, which consisted solely of capital expenditures.
Financing Activities
Net cash used in financing activities amounted to $20.2 million for the year
ended December 31, 2000 compared to $17.8 million for the year ended December
31, 1999. In 2000, financing activities consisted primarily of net distributions
to CNYG of $65.5 million and other net cash payments aggregating $4.6 million,
partially offset by $49.9 million of net proceeds from bank debt.
Net cash used in financing activities amounted to $17.8 million for the year
ended December 31, 1999 compared to $32.6 million for the year ended December
31, 1998. In 1999, financing activities consisted primarily of net distributions
to CNYG of $125.0 million and other cash
III-5
payments aggregating $6.7 million, partially offset by $113.9 million of net
proceeds from bank debt.
Cash used in financing activities amounted to $32.6 million for the year ended
December 31, 1998. In 1998, financing activities consisted primarily of net
distributions to CNYG of $24.0 million, net repayments of bank debt of $5.3
million and the payment of capital lease obligations of $3.3 million.
Year 2000
The Year 2000 issue ("Y2K") refers to the inability of certain computerized
systems and technologies to recognize and/or correctly process dates beyond
December 31, 1999. For the years ended December 31, 2000 and 1999, RMG recorded
approximately $.05 million and $2.8 million of expenses relating to Y2K
remediation.
Accounting Standards Issued But Not Yet Adopted
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities", as amended, ("SFAS 133"), requires that all
derivative financial instruments, such as interest rate swap contracts, be
recognized in the financial statements and measured at fair value regardless of
the purpose or intent for holding them. Changes in the fair value of derivative
financial instruments are either recognized periodically in income or
stockholders' equity (as a component of comprehensive income), depending on
whether the derivative is being used to hedge changes in fair value or cash
flows. SFAS 133, as amended, is effective for fiscal years beginning after June
15, 2000. RMG does not expect that the adoption of SFAS 133 will have a material
effect on its financial condition or results of operations.
III-6
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Cablevision Systems Corporation
We have audited and reported separately herein on the consolidated financial
statements of Cablevision Systems Corporation and subsidiaries ("Cablevision")
as of December 31, 2000 and 1999, and for each of the years in the three-year
period ended December 31, 2000.
We have also audited the accompanying combined balance sheets of Rainbow Media
Group (a combination of certain assets and businesses of Cablevision, as
described in Note 1) as of December 31, 2000 and 1999, and the related combined
statements of operations, group deficiency and cash flows for each of the years
in the three-year period ended December 31, 2000. These combined financial
statements are the responsibility of Cablevision's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
Rainbow Media Group has been operated as an integral part of Cablevision, and
has no separate legal existence. As described in Note 1, these combined
financial statements have been derived from the consolidated financial
statements and accounting records of Cablevision and reflect certain assumptions
and allocations. Moreover, as indicated in Note 4, Rainbow Media Group relies
upon Cablevision for administrative, management and other services. The
financial position, results of operations and cash flows of Rainbow Media Group
could differ from those that might have resulted had Rainbow Media Group
operated autonomously or as an entity independent of Cablevision. The combined
financial statements of Rainbow Media Group are presented for purposes of
additional analysis of Cablevision's consolidated financial statements, and
should be read in conjunction with those statements.
In our opinion, the combined financial statements referred to in the second
paragraph above present fairly, in all material respects, the financial position
of Rainbow Media Group as of December 31, 2000 and 1999, and the results of its
operations and its cash flows on the basis of presentation described in Note 1,
for each of the years in the three-year period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States of
America.
/s/ KPMG LLP
Melville, New York
March 29, 2001
III-7
RAINBOW MEDIA GROUP
(a combination of certain assets and businesses
of Cablevision Systems Corporation)
COMBINED BALANCE SHEETS
December 31, 2000 and 1999
(Dollars in thousands)
2000 1999
---- ----
ASSETS
Current assets:
Cash ............................................. $ 28 $ 105
Trade accounts receivable (less allowance
for doubtful accounts of $11,945 and $9,126) ..... 75,262 46,950
Accounts receivable-affiliates, net .............. 63,132 32,655
Prepaid expenses and other current assets ........ 17,920 4,386
Feature film inventory, net ...................... 61,017 50,068
-------- --------
Total current assets ..................... 217,359 134,164
Long-term feature film inventory, net ................ 278,502 284,708
Property and equipment, net .......................... 62,189 49,274
Investments in affiliates ............................ 56,120 47,398
Other assets ......................................... 10,572 --
Deferred carriage fees (less accumulated
amortization of $15,923 and $4,605) .............. 17,341 19,757
Deferred financing costs (less accumulated
amortization of $754 and $1,769) ................. 6,327 3,212
Deferred transmission costs (less accumulated
amortization of $1,340 and $1,175) ............... 660 825
Intangible assets (less accumulated
amortization of $164,139 and $132,206) ........... 194,719 103,638
-------- --------
$843,789 $642,976
======== ========
See accompanying notes to
combined financial statements.
III-8
RAINBOW MEDIA GROUP
(a combination of certain assets and businesses
of Cablevision Systems Corporation)
COMBINED BALANCE SHEETS
December 31, 2000 and 1999
(Dollars in thousands)
(continued)
2000 1999
---- ----
LIABILITIES AND GROUP DEFICIENCY
Current liabilities:
Bank debt, current ............................ $ 35,771 $ 53,773
Note payable - parent ......................... 270,475 --
Current portion of capital lease obligations .. 4,471 4,381
Accounts payable .............................. 50,597 45,051
Accrued employee related costs ................ 61,251 34,566
Other accrued expenses ........................ 26,784 17,224
Accounts payable-affiliates ................... 44,460 28,648
Note payable - affiliate ...................... -- 90,000
Feature film and contract rights payable ...... 51,557 60,409
----------- -----------
Total current liabilities ............ 545,366 334,052
Bank debt, long-term ............................. 328,000 308,000
Feature film rights payable, long-term ........... 197,021 206,476
Capital lease obligations, long-term ............. 25,194 29,236
Other long-term liabilities ...................... 10,914 --
----------- -----------
Total liabilities .................... 1,106,495 877,764
Deficit investments in affiliates ................ 2,367 2,966
Commitments and contingencies
Group deficiency ................................. (265,073) (237,754)
----------- -----------
$ 843,789 $ 642,976
=========== ===========
See accompanying notes to
combined financial statements.
III-9
RAINBOW MEDIA GROUP
(a combination of certain assets and businesses
of Cablevision Systems Corporation)
COMBINED STATEMENTS OF OPERATIONS
Years ended December 31, 2000, 1999 and 1998
(Dollars in thousands)
2000 1999 1998
---- ---- ----
Revenues, net ........................... $ 484,816 $ 361,756 $ 283,546
--------- --------- ---------
Operating expenses:
Technical and operating ............. 187,436 146,378 123,804
Selling, general and administrative . 193,344 152,416 120,307
Depreciation and amortization ....... 44,911 39,902 34,424
--------- --------- ---------
425,691 338,696 278,535
--------- --------- ---------
Operating income ............ 59,125 23,060 5,011
--------- --------- ---------
Other income (expense):
Interest expense .................... (51,572) (33,061) (32,124)
Interest income ..................... 976 113 23
Equity in net loss of affiliates, net (15,961) (7,674) (13,402)
Impairment charges on investments ... (6,747) -- --
Gain on sale of programming interests 5,715 -- 17,648
Miscellaneous, net .................. (225) (1,715) 597
--------- --------- ---------
(67,814) (42,337) (27,258)
--------- --------- ---------
Net loss .................... $ (8,689) $ (19,277) $ (22,247)
========= ========= =========
See accompanying notes to
combined financial statements.
III-10
RAINBOW MEDIA GROUP
(a combination of certain assets and businesses
of Cablevision Systems Corporation)
COMBINED STATEMENTS OF GROUP DEFICIENCY
Years ended December 31, 2000, 1999 and 1998
(Dollars in thousands)
Balance, January 1, 1998 ................................. $(170,230)
Net loss ............................................. (22,247)
Net contributions from CNYG .......................... 13,725
---------
Balance, December 31, 1998 ............................... (178,752)
Net loss ............................................. (19,277)
Net distributions to CNYG ............................ (39,725)
---------
Balance, December 31, 1999 ............................... (237,754)
Net loss ............................................. (8,689)
Net distributions to CNYG ............................ (18,630)
---------
Balance, December 31, 2000 ............................... $(265,073)
=========
See accompanying notes to
combined financial statements.
III-11
RAINBOW MEDIA GROUP
(a combination of certain assets and businesses
of Cablevision Systems Corporation)
COMBINED STATEMENTS OF CASH FLOWS
Years ended December 31, 2000, 1999 and 1998
(Dollars in thousands)
2000 1999 1998
---- ---- ----
Cash flows from operating activities:
Net loss ................................................ $ (8,689) $ (19,277) $ (22,247)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization ........................ 44,911 39,902 34,424
Amortization and write-off of deferred costs ......... 916 2,258 771
Equity in net loss of affiliates, net ................ 15,961 7,674 13,402
Loss on investments .................................. 6,747 -- --
Gain on sale of programming interests ................ (5,715) -- (17,648)
Gain on sale of equipment ............................ -- (254) --
Non-cash expenses attributed to RMG .................. 36,717 33,409 26,057
Changes in assets and liabilities:
Trade accounts receivable, net ................. (17,473) (17,734) (3,716)
Accounts receivable-affiliates, net ............ (28,867) (3,117) (19,503)
Prepaid expenses and other current assets ...... (6,068) 8,684 (3,701)
Feature film inventory ......................... (686) (70,116) (112,734)
Deferred carriage fees ......................... 2,417 (19,757) --
Accounts payable and accrued liabilities ....... 8,096 12,995 12,512
Accounts payable affiliates .................... 6,184 3,118 23,651
Feature film and contract rights payable ....... (26,524) 51,915 104,989
Deferred revenue ............................... (757) -- --
Other .......................................... 3,894 -- --
--------- --------- ---------
Net cash provided by operating activities 31,064 29,700 36,257
--------- --------- ---------
Cash flows from investing activities:
Capital expenditures .................................... (19,753) (12,643) (4,945)
Proceeds from sale of programming interests ............. 8,828 -- --
Proceeds from sale of equipment ......................... -- 722 --
--------- --------- ---------
Net cash used in investing activities ... (10,925) (11,921) (4,945)
--------- --------- ---------
Cash flows from financing activities:
Net proceeds from (repayments of) bank debt ............. 49,944 113,916 (5,261)
Distributions to CNYG ................................... (65,547) (125,000) (24,023)
Principal payments on capital lease obligations ......... (4,604) (3,973) (3,308)
Financing costs on bank debt ............................ (9) (2,716) --
--------- --------- ---------
Net cash used in financing activities .... (20,216) (17,773) (32,592)
--------- --------- ---------
Net increase (decrease) in cash ............................ (77) 6 (1,280)
Cash at beginning of year .................................. 105 99 1,379
--------- --------- ---------
Cash at end of year ........................................ $ 28 $ 105 $ 99
========= ========= =========
See accompanying notes to
combined financial statements.
III-12
RAINBOW MEDIA GROUP
(a combination of certain assets and businesses
of Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
NOTE 1. BASIS OF PRESENTATION
In March 2001, Cablevision Systems Corporation ("Cablevision") amended its
certificate of incorporation to, among other things, (i) authorize the creation
and distribution of a new class of common stock, to be designated as Rainbow
Media Group ("RMG") tracking stock which is intended to reflect the performance
of the assets and businesses of Cablevision attributed to RMG, (ii) increase the
aggregate number of authorized shares of common stock that Cablevision may issue
from 560 million to 1.88 billion, and (iii) redesignate each share of
Cablevision common stock into a share of Cablevision NY Group ("CNYG") common
stock, which is intended to reflect the performance of all of Cablevision's
assets and businesses which have not been attributed to RMG. The RMG tracking
stock was distributed on March 29, 2001 to holders of Cablevision common stock
at a ratio of one share of RMG for every two shares of Cablevision stock held.
RMG represents a combination of certain assets, liabilities and businesses owned
by Cablevision, consisting of: (i) five nationally-distributed entertainment
programming networks, (ii) Cablevision's interests in five regional Fox Sports
Net networks outside of the New York metropolitan area, (iii) an interest in
National Sports Partners, which owns and distributes Fox Sports Net, (iv) an
interest in National Advertising Partners, which provides advertising
representation services to all of the Fox Sports Net networks, (v) Rainbow
Network Communications, a full service network programming origination and
distribution company and (vi) certain developmental activities of Cablevision's
Rainbow Media Holdings, Inc. ("Rainbow Media Holdings") subsidiary. RMG has been
operated as an integral part of Cablevision, and has no separate legal
existence.
These combined financial statements have been derived from the consolidated
financial statements and accounting records of Cablevision. These combined RMG
financial statements, together with the combined CNYG financial statements,
include all of the accounts contained in Cablevision's consolidated financial
statements.
Amounts in the accompanying combined financial statements reflect Cablevision's
basis in the net assets of the combined businesses. However, minority interests
in the net assets and in the results of operations of these businesses are not
reflected. Such minority interests are recorded in the consolidated financial
statements of Cablevision.
The accompanying RMG combined financial statements are intended to reflect the
assets, liabilities, revenues and expenses that Cablevision has attributed to
RMG, as well as certain allocations deemed reasonable by management, to present
the combined financial position and results of operations of RMG as if it were a
separate entity for all periods presented. However, primarily as a result of
allocations and inter-group related party transactions (Note 4), the financial
information included herein may not necessarily reflect the combined financial
position
III-13
RAINBOW MEDIA GROUP
(a combination of certain assets and businesses
of Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
and results of operations of RMG had it operated as a separate stand-alone
entity during the periods presented.
Even though Cablevision has attributed certain assets, liabilities, revenue and
cash flows to RMG, that attribution does not change the legal title to any
assets or responsibility for any liabilities and does not affect the rights of
any creditors. Further, financial results of CNYG that affect Cablevision's
consolidated financial condition could affect the financial position or results
of operations of RMG. Any dividends or distributions on, or repurchases of,
Cablevision stock will reduce the assets of Cablevision legally available for
dividends on RMG stock. Accordingly, holders of CNYG common stock and RMG
tracking stock will continue to be subject to risks associated with an
investment in a single corporation and in all of Cablevision's businesses,
assets and liabilities.
As a result of the factors described above, the combined financial statements of
RMG should be read in conjunction with the consolidated financial statements of
Cablevision.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Combination
The accompanying combined financial statements include the accounts of the
following consolidated subsidiaries of Cablevision:
American Movie Classics Company ("AMC")
AMC includes the American Movie Classics and WE: Women's
Entertainment programming services;
Bravo Company ("Bravo")
Bravo includes the Bravo and Independent Film Channel programming
services;
MuchMusic USA Venture;
Sportschannel Ohio Associates (also known as Fox Sports Net Ohio);
Sportschannel Florida Associates (also known as Fox Sports Net Florida);
Rainbow Network Communications ("RNC"); and
Sterling Digital LLC.
All significant intra-group transactions and balances have been eliminated in
combination.
Group Deficiency
Group Deficiency represents the aggregate interests of all stockholders,
partners and members in the net assets or liabilities of all combined companies
comprising RMG. Cablevision includes its share of such amount in its
consolidated financial statements, after consideration of the minority interests
of parties other than Cablevision.
III-14
RAINBOW MEDIA GROUP
(a combination of certain assets and businesses
of Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
Revenue Recognition
RMG recognizes revenue when programming services are provided to cable
television systems or other pay television operators. Advertising revenue is
recognized when commercials are telecast.
Investments in Marketable Securities
RMG accounts for its investments in marketable securities in accordance with
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." RMG has classified such investments
as available-for-sale. Accordingly, these investments are stated at fair value
and unrealized holding gains and losses are included in accumulated other
comprehensive income as a component of group deficiency. In 2000, RMG recognized
an impairment loss of $6,747 related to an other-than-temporary decline in the
fair value of its investment in marketable securities. Accordingly, there are no
unrealized gains or losses for the year ended December 31, 2000.
Long-Lived Assets
Property and equipment are carried at cost and depreciated on a straight line
basis over the estimated useful lives of the assets or, with respect to
leasehold improvements, amortized over the shorter of the lease term or the
assets' useful lives.
RMG reviews its long-lived assets (property and equipment, and related
intangible assets that arose from business combinations accounted for under the
purchase method) for impairment whenever events or circumstances indicate that
the carrying amount of an asset may not be recoverable. If the sum of the
expected cash flows, undiscounted and without interest, is less than the
carrying amount of the asset, an impairment loss is recognized as the amount by
which the carrying amount of the asset exceeds its fair value.
Feature Film Inventory
Rights to feature film inventory acquired under license agreements along with
the related obligations are recorded at the contract value. Costs are amortized
on the straight-line basis over the respective license periods throughout the
contract term. Film telecast rights expected to be amortized within one year are
classified as current assets while contract amounts payable within one year are
classified as current liabilities.
Amounts payable during the five years subsequent to December 31, 2000 related to
feature film rights amount to $50,946 in 2001, $43,436 in 2002, $40,874 in 2003,
$34,372 in 2004, and $17,776 in 2005.
III-15
RAINBOW MEDIA GROUP
(a combination of certain assets and businesses
of Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
Investments in Affiliates
Investments in affiliates are carried at cost, adjusted for RMG's equity in net
earnings or losses, if any, from the date of acquisition and any known
impairment in value.
Deferred Carriage Fees
Deferred carriage fees primarily represent payments to a multiple cable system
operator to guarantee carriage of the Bravo and WE: Women's Entertainment
services and are amortized over the period of guarantee (3 to 5 years).
Deferred Financing Costs
Costs incurred to obtain debt are deferred and amortized to interest expense, on
a straight-line basis, over the life of the related debt.
Deferred Transmission Costs
Deferred transmission costs represent prepayments to secure transponder space on
a satellite and are amortized to technical and operating expense over the
projected life (12 years) of the satellite.
Intangible Assets
Intangible assets at December 31, 2000 and 1999 consist of the following:
2000 1999
---- ----
Broadcast rights, advertising relationships
and affiliation agreements, net of
accumulated amortization of $122,243 and $95,230 ..... $159,396 $ 95,066
Excess costs over fair value of net assets
acquired, net of accumulated amortization
of $41,896 and $36,996 ............................... 35,323 8,572
-------- --------
$194,719 $103,638
======== ========
Broadcast rights and affiliation agreements represent the value assigned to
telecast rights to certain sporting events and agreements with cable systems to
carry certain programming services, and are amortized over periods ranging from
10 to 13 years on a straight-line basis. Excess costs over fair value of net
assets acquired resulting from the acquisition of interests of certain
programming businesses are being amortized on a straight-line basis over periods
ranging from 6 to 20 years.
III-16
RAINBOW MEDIA GROUP
(a combination of certain assets and businesses
of Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
Income Taxes
Income taxes are provided based upon the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes", which requires the
asset/liability method of accounting for deferred income taxes and permits the
recognition of deferred tax assets, subject to an ongoing assessment of
realizability.
Earnings (Loss) Per Share
Historical earnings (loss) per share for RMG has been omitted from the combined
statements of operations since RMG stock was not part of the capital structure
of Cablevision for the periods presented. For periods following the distribution
of the tracking stock, per share results for RMG will be presented only in the
consolidated financial statements of Cablevision and will be computed by
applying the "two class" method of Statement of Financial Accounting Standard
No. 128, "Earnings Per Share."
Supplemental Cash Flow Information
RMG paid cash interest of approximately $32,578, $19,727 and $20,673 during
2000, 1999 and 1998, respectively. During 1999, RMG reduced feature film
inventory and rights payable by approximately $26,113 in connection with an
amendment to an existing film license agreement. (See Note 4.)
During 2000, 1999 and 1998, CNYG made contributions of $30,547, $41,998 and
$20,997, respectively, to equity method investee companies attributed to RMG.
Such amounts have been reflected as capital contributions from CNYG to RMG.
During 2000, 1999 and 1998, CNYG received net proceeds of $132,607 and made net
payments of $18,924 and $105,259, respectively, on indebtedness and made
payments of $20,676, $11,245 and $15,123, respectively, of related interest
attributed to RMG. Such amounts have been reflected as capital contributions or
distributions from CNYG to RMG.
During 2000, 1999 and 1998, CNYG made payments of $8,894, $13,108 and $4,017,
respectively, relating to stock plan obligations attributed to RMG. Such amounts
have been reflected as capital contributions from CNYG to RMG.
During 2000, 1999 and 1998, non-cash expenses attributed to RMG consisted
primarily of (i) interest of $20,349, $11,280 and $12,310, respectively, related
to a portion of indebtedness of
III-17
RAINBOW MEDIA GROUP
(a combination of certain assets and businesses
of Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
Rainbow Media Holdings, Inc., and (ii) expenses of $16,368, $22,129 and $13,747,
respectively, related to an incentive stock plan of Cablevision.
During 2000, CNYG acquired controlling interests in two programming businesses
for approximately $140,698 (including cash acquired of $4,384). Such
acquisitions have been attributed to RMG and have been reflected as
contributions to RMG.
During 2000, certain film rights and the related obligations with a net book
value of $3,992 were assigned to CNYG. The assignment was recorded as a capital
distribution from RMG to CNYG.
In 2000, Cablevision attributed the net assets of Sterling Digital LLC with a
book value of $481 (net of cash of $69) to RMG. Such transaction has been
reflected as a contribution to RMG.
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Commitments and Contingencies
Liabilities for loss contingencies arising from claims, assessments, litigation,
fines and penalties and other sources are recorded when it is probable that a
liability has been incurred and the amount of the assessment can be reasonably
estimated.
NOTE 3. LIQUIDITY
Although RMG had a working capital deficit as of December 31, 2000, RMG is
operated as an integral part of Cablevision. Cablevision will cause RMG to have
sufficient liquidity to meet its working capital requirements through (i)
renegotiation or replacement of existing credit facilities, (ii) the sale of
debt or equity securities, (iii) the sale of interests in the businesses,
and/or, if necessary, (iv) advances from CNYG.
NOTE 4. ALLOCATIONS AND RELATED PARTY TRANSACTIONS
Allocations
The combined financial statements of RMG reflect the application of certain
allocation and cash management policies of Cablevision, which are summarized
below. Cablevision's board of directors may modify or rescind any of these
allocation policies without the approval of the
III-18
RAINBOW MEDIA GROUP
(a combination of certain assets and businesses
of Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
stockholders, although no such changes are currently contemplated. Any such
changes adopted by the board of directors would be made in its good faith
business judgment of Cablevision's best interests, taking into consideration the
best interests of all Cablevision shareholders. Management believes that these
allocations have been made on a reasonable basis. However, it is not practicable
to determine whether the allocated amounts represent amounts that might have
been incurred on a stand-alone basis. Explanations of the composition and the
amounts of the more significant allocations are described below.
Corporate General and Administrative Costs
General and administrative costs, including costs of maintaining corporate
headquarters, facilities and common support functions (such as human resources,
legal, accounting, tax, audit, treasury, strategic planning, investor relations,
information technology, etc.) have been allocated by Cablevision generally based
upon management's estimate of proportionate usage. When determinations based
upon usage are impractical, Cablevision uses other methods and criteria that
management believes to be equitable and provide a reasonable estimate of costs
attributable to RMG. Such costs allocated to RMG amounted to $27,011, $18,369
and $14,404 for the years ended December 31, 2000, 1999 and 1998, respectively,
and have been included in selling, general and administrative expenses.
Year 2000 Remediation Costs
Selling, general and administrative expenses for the years ended December 31,
2000 and 1999 includes $49 and $2,813, respectively, of Year 2000 remediation
costs which include direct charges and allocations from Cablevision.
Indebtedness and Interest
Cablevision has attributed indebtedness generally based upon approximate funding
of start up costs for certain of RMG's programming services. As more fully
described in Note 8, indebtedness related to the stand-alone bank facilities of
AMC and Rainbow Media Holdings, currently a 74% owned subsidiary of Cablevision,
has been attributed to RMG. Additionally, inter-group indebtedness of
approximately $90,000 at December 31, 1999 was attributed to RMG reflecting the
start up costs of certain of RMG's programming services. The inter-group
indebtedness was repaid in 2000. Interest expense associated with the
stand-alone bank facilities and this attributed indebtedness amounted to
$47,229, $28,783 and $25,939 for the years ended December 31, 2000, 1999 and
1998, respectively.
Income Taxes
To the extent that federal and state income taxes are determined on a basis that
includes operations of both CNYG and RMG, such taxes are allocated to each
group, and reflected in
III-19
RAINBOW MEDIA GROUP
(a combination of certain assets and businesses
of Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
their respective financial statements, in accordance with Cablevision's tax
allocation policy. In general, this policy provides that the consolidated tax
provision, and related tax payments or refunds, will be allocated between the
groups based principally upon the financial income, taxable income, credits and
other amounts directly related to the respective groups. Under the policy, the
amount of taxes payable or refundable which are allocated to RMG will generally
be comparable to those that would have resulted if the groups had filed separate
tax returns. Further, RMG is responsible to CNYG for its share of any
consolidated income tax liabilities determined in accordance with the policy.
Accordingly, RMG will realize the benefits of its tax attributes when it
generates sufficient taxable income to utilize such attributes.
Stock-Based Compensation
Cablevision charges the businesses attributed to RMG their proportionate share
of the expense or benefit related to certain employee stock incentive plans. For
the years ended December 31, 2000, 1999 and 1998, these charges amounted to
$16,368, $22,129, and $13,747, respectively. Such charges are included in
administrative expenses in the accompanying combined statements of operations.
Amounts accrued for these stock incentive plans aggregated $50,141 and $24,879
as of December 31, 2000 and 1999, respectively, and are included in accrued
employee related costs in the accompanying combined balance sheets.
Health and Welfare Benefits
Employees of entities attributed to RMG participate in health and welfare plans
sponsored by Cablevision. Health and welfare benefit costs have generally been
allocated by Cablevision based upon the proportionate number of participants in
the plan. Such costs amounted to $2,585, $1,746 and $1,660 for the years ended
December 31, 2000, 1999 and 1998, respectively, and have been included in
selling, general and administrative expenses.
Cash Management
Surplus cash is swept nightly from certain entities within RMG to Rainbow Media
Holdings, which is attributed to CNYG. Such inter-group transfers do not bear
interest.
Related-Party Transactions
As described below, RMG provides services to and receives services from
affiliates and CNYG. As many of these transactions are conducted between
subsidiaries under common control of Cablevision, amounts charged for these
services have not necessarily been based upon arm's length negotiations.
However, it is not practicable to determine whether the amounts charged
represent amounts that might have been incurred on a stand-alone basis for RMG.
III-20
RAINBOW MEDIA GROUP
(a combination of certain assets and businesses
of Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
Members of CNYG and RMG may enter into agreements with third party service
providers in which the amounts paid by CNYG or RMG may differ from the
amounts that CNYG or RMG would otherwise pay if such arrangements were on an
arm's-length basis. These arrangements, are in return for the service
provider's or its affiliate's agreement to make payments or provide services
to members of CNYG or RMG on a basis more or less favorable than either group
would otherwise obtain. Where RMG has received the benefit of CNYG's
negotiations in the form of increased affiliation payments or discounted
license fees, CNYG charges RMG the amount of the benefit. In respect of two
such agreements, RMG has recorded charges from CNYG amounting to $15,627,
$15,081 and $14,000 in 2000, 1999 and 1998, respectively, of which $14,000 in
each of the three years has been reflected as a reduction of RMG's
affiliation revenue and $1,627 and $1,081 in 2000 and 1999, respectively, has
been reflected as increased film licensing costs.
RMG provides programming to cable television systems owned or managed by CSC
Holdings, Inc. ("CSC Holdings"), a wholly-owned subsidiary of Cablevision, and
other affiliates under contracts called affiliation agreements. Affiliate
revenues earned by RMG from services provided to these cable television systems
amounted to approximately $74,239, $64,912 and $45,392, for the years ended
December 31, 2000, 1999, and 1998, respectively.
RNC provides certain transmission and production services to programming
entities owned or managed by Rainbow Media Holdings and included in CNYG. For
the years ended December 31, 2000, 1999 and 1998, approximately $9,145, $12,827
and $13,077, respectively, of revenues was earned from services provided to
these entities.
Under contractual agreements, CSC Holdings provides certain consulting services
to AMC. These agreements provide for payment, in addition to expense
reimbursement, of an aggregate fee of 3.5% of the businesses' gross revenues, as
defined. The agreements are automatically renewable every five years at the
option of CSC Holdings. Pursuant to the terms of these agreements, RMG was
charged consulting fees of $7,699, $6,832 and $5,710 in 2000, 1999 and 1998,
respectively.
National Sports Partners, an equity method investee which has been attributed to
RMG, provides certain programming to RMG. RMG was charged approximately $2,709,
$1,869 and $2,273 for the years ended December 31, 2000, 1999 and 1998,
respectively, for this programming.
National Advertising Partners, an equity method investee which has been
attributed to RMG, provides national advertising services to RMG. RMG was
charged fees for such services of approximately $994, $601 and $543 for the
years ended December 31, 2000, 1999 and 1998, respectively.
As of December 31, 2000, AMC had outstanding an interest exchange (cap)
agreement with CSC Holdings with a total notional value of $105,000 maturing on
May 13, 2002. The agreement caps AMC's floating rate of interest based on LIBOR
at 7% through May 2001 and at 7.5% from May 2001 through May 2002. AMC entered
into this cap agreement to hedge against interest rate risk and accounts for
this agreement as a hedge whereby interest expense is recorded using the revised
rate with any fees amortized as a yield adjustment.
III-21
RAINBOW MEDIA GROUP
(a combination of certain assets and businesses
of Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
Note payable-affiliate of $90,000 at December 31, 1999 represents an attributed
portion of a loan made in June 1998 by Regional Programming Partners ("RPP") to
Rainbow Media Holdings. Such loan was a four year demand note maturing on March
31, 2002 and bore interest at a rate of LIBOR plus 7/8% per annum. The loan was
repaid in 2000.
At December 31, 2000, Rainbow Media Holdings had $270,475 (including interest of
$631) outstanding pursuant to a demand note payable to CSC Holdings which bears
interest at three month LIBOR plus 2.25%.
NOTE 5. SIGNIFICANT TRANSACTIONS
In January 2000, RPP acquired the 70% interest in SportsChannel Florida
Associates held by Front Row Communications, Inc. for approximately $130,600
(including the repayment of $20,000 in debt) increasing its ownership to
100%. In May 2000, Rainbow Media Holdings acquired the 50% interest in
MuchMusic USA Venture that it did not already own from Chum Limited for
$10,000 increasing its ownership interest to 100%. These acquisitions were
accounted for as purchases with the operations of the acquired businesses
being combined with those of RMG as of the acquisition dates. The purchase
prices were allocated to the specific assets acquired based upon independent
appraisals as follows:
Property, plant and equipment ............. $ 3,600
Other assets .............................. 28,500
Liabilities (excluding debt of $20,000) ... (15,800)
Excess cost over fair value of net assets
acquired and other intangible assets . 124,300
---------
$ 140,600
=========
In 2000 and 1998, RMG recognized a gain of $5,715 and $17,648, respectively, in
connection with the sale of programming businesses.
The following unaudited pro forma condensed combined results of operations are
presented for the year ended December 31, 1999 as if the acquisition of
SportsChannel Florida Associates had occurred on January 1, 1999. Results of
operations for the acquisition of MuchMusic USA Venture and the sale of the
interest in SportsChannel New England, L.P. are not material.
Year ended
December 31, 1999
-----------------
Net revenues ....................... $ 409,590
=========
Net loss ........................... $ (28,011)
=========
The unaudited pro forma information presented above gives effect to certain
adjustments, including the amortization of acquired intangible assets. The pro
forma information has been
III-22
RAINBOW MEDIA GROUP
(a combination of certain assets and businesses
of Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
prepared for comparative purposes only and does not purport to indicate the
results of operations which would actually have occurred had the acquisition of
SportsChannel Florida Associates been made at the beginning of the period
indicated or which may occur in the future.
NOTE 6. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
December 31,
---------------------- Estimated
2000 1999 Useful Lives
--------- --------- ------------
Program, service and test equipment .. $ 85,881 $ 76,400 5 to 8 years
Furniture and fixtures ............... 18,480 12,921 3 to 8 years
Leasehold improvements ............... 15,606 8,473 Life of lease
--------- ---------
119,967 97,794
Less accumulated depreciation
and amortization .................. (57,778) (48,520)
--------- ---------
$ 62,189 $ 49,274
========= =========
NOTE 7. INVESTMENTS IN AFFILIATES
The following table reflects ownership percentages and balances of equity method
investments attributed to RMG as of December 31, 2000 and 1999:
Ownership Percentages Investment Balances
--------------------- ---------------------
December 31,
---------------------------------------------
2000 1999 2000 1999
---- ---- ---- ----
MuchMusic USA Venture .......... 100% 50% $ -- $ 3,359
SportsChannel Chicago Associates 50 50 33,393 30,260
SportsChannel Pacific Associates 50 50 7,072 6,531
SportsChannel Florida Associates 100 30 -- 36
SportsChannel New England
Limited Partnership ....... 50 50 4,415 2,534
National Sports Partners ....... 50 50 11,241 4,678
National Advertising Partners .. 50 50 (1,166) (2,966)
Regional Sports News ........... 48 -- (1,202) --
-------- --------
$ 53,753 $ 44,432
======== ========
RMG's share of the net loss of these affiliates for the years ended December 31,
2000, 1999 and 1998 aggregated $15,961, $7,674 and $13,402, respectively.
III-23
RAINBOW MEDIA GROUP
(a combination of certain assets and businesses
of Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
NOTE 8. BANK DEBT
AMC has a credit agreement which matures on March 31, 2006 and consists of a
$225,000 amortizing term loan and a $200,000 reducing revolving loan. Borrowings
under the credit agreement bear interest at market rates plus a margin based on
the ratio of debt to cash flow, as defined. At December 31, 2000 and 1999, the
weighted-average interest rate on bank indebtedness approximated 8.0% and 7.6%,
respectively. The term loan will begin amortizing March 31, 2001 and requires
quarterly amortization payments. The revolving loan does not start to reduce
until June 30, 2004. On December 31, 2000 and 1999, $225,000 was outstanding
under the term loan, $130,000 and $83,000 was outstanding under the revolving
loan and $4,322 and $1,456 was outstanding under a separate overdraft facility,
respectively. Unrestricted funds available to AMC under the credit agreement
amounted to approximately $70,000 at December 31, 2000.
Substantially all of the assets of AMC, amounting to approximately $383,000 at
December 31, 2000, have been pledged to secure borrowings under the AMC credit
agreement. The AMC credit agreement contains various restrictive covenants with
which AMC was in compliance at December 31, 2000. AMC must pay an annual
commitment fee of 0.625% on the aggregate unused balance of the revolver.
Rainbow Media Holdings had a $300,000, three year credit facility which was
repaid on December 22, 2000 with funds borrowed from CSC Holdings. At December
31, 1999, Rainbow Media Holdings had outstanding borrowings under its credit
facility of $52,317 (including $3,317 outstanding under a separate overdraft
facility). The weighted average interest rate on Rainbow Media Holdings' bank
debt was 8.9% on December 31, 1999.
At December 31, 2000, Rainbow Media Holdings had $270,475 (including interest of
$631) outstanding pursuant to a demand note payable to CSC Holdings which bears
interest at three month LIBOR plus 2.25% and $4,449 outstanding under an
overdraft facility with a bank. The interest rate on the demand note was 8.75%
at December 31, 2000.
Amounts payable under the AMC credit agreement together with $8,771 payable in
2001 for bank overdrafts, during the five years subsequent to December 31, 2000
are as follows:
III-24
RAINBOW MEDIA GROUP
(a combination of certain assets and businesses
of Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
Year ending
December 31,
------------
2001 $ 35,771
2002 29,250
2003 36,000
2004 61,250
2005 160,750
NOTE 9. INCOME TAXES
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets at December 31, 2000 and 1999 are presented below:
2000 1999
---- ----
Depreciation and amortization $ 14,391 $ 14,391
Benefit plans 20,208 25,273
Allowance for doubtful accounts 5,107 3,354
Deferred gains (52,640) (56,910)
Benefits of tax loss carry forwards 129,260 126,000
--------- ---------
Net deferred tax assets 116,326 112,108
Valuation allowance (116,326) (112,108)
--------- ---------
$ -- $ --
========= =========
The operations of RMG are included in the consolidated federal income tax
returns filed by Rainbow Media Holdings. At December 31, 2000, Rainbow Media
Holdings had consolidated net operating loss carry forwards of approximately
$757,033 of which $307,763 has been allocated to RMG. RMG's portion of the net
operating loss carry forwards reflects approximately $23,689 in stock
compensation deductions which would result in an adjustment to paid-in capital
upon realization of such net operating loss carry forward. A portion of the
carry forwards may be subject to annual limitations on deductions due to changes
in the ownership of Rainbow Media Holdings.
RMG has provided a valuation allowance for the total amount of net deferred tax
assets since realization of these assets is not assured, principally due to
RMG's history of net losses.
NOTE 10. LEASES
RMG leases certain facilities and transponder space on a satellite under
operating lease agreements with third parties which expire at various dates
through 2006. Rent expense for operating leases amounted to approximately
$7,365, $9,704 and $7,026 for the years ended December 31, 2000,
III-25
RAINBOW MEDIA GROUP
(a combination of certain assets and businesses
of Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
1999 and 1998, respectively. The following is a schedule of future minimum lease
payments for operating leases as of December 31, 2000:
2001 $ 8,984
2002 7,038
2003 5,898
2004 6,044
2005 5,772
Thereafter 19,461
-------
Total minimum lease payments $53,197
=======
RMG leases certain equipment and transponder space on a satellite under capital
leases. Future minimum capital lease payments as of December 31, 2000 are:
2001 $ 7,080
2002 7,080
2003 7,080
2004 6,720
2005 2,760
Thereafter 8,760
-------
Total minimum lease payments 39,480
Less amount representing interest (10%) 9,815
-------
Present value of net minimum
capital lease payments 29,665
Less current installments 4,471
-------
Obligations under capital leases,
excluding current installments $25,194
=======
At December 31, 2000 and 1999, the gross amount of origination equipment and
related accumulated amortization recorded under capital leases were as follows:
2000 1999
---- ----
Origination equipment $42,613 $43,831
Less accumulated amortization 19,694 14,467
------- -------
$22,919 $29,364
======= =======
NOTE 11. BENEFIT PLANS
Cablevision sponsors a retirement plan and a 401(k) savings plan pursuant to
which the businesses of RMG contribute a percent of eligible employees' annual
compensation, as defined, to the retirement plan and makes matching
contributions for a portion of employee voluntary contributions to the 401(k)
savings plan. The cost associated with these plans was approximately $1,045,
$810 and $685 for the years ended December 31, 2000, 1999 and 1998,
respectively.
III-26
RAINBOW MEDIA GROUP
(a combination of certain assets and businesses
of Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
NOTE 12. COMMITMENTS AND CONTINGENCIES
Several of the companies which comprise RMG have entered into contracts,
including rights agreements, with professional sports teams and others relating
to cable television programming. Future cash payments required under these
contracts as of December 31, 2000 are as follows:
2001 $ 41,735
2002 41,268
2003 43,336
2004 40,528
2005 22,577
Thereafter 126,485
--------
$315,929
========
Broadcast Music, Inc. ("BMI") and the American Society of Composers, Authors and
Publishers ("ASCAP"), organizations which license the performance of musical
compositions of respective members, allege that certain of the companies within
RMG require a license to exhibit musical compositions in their respective
catalogs and that continued use requires a license. BMI and ASCAP have each
agreed to interim fees based on revenues covering certain periods. The interim
fee agreements have been extended several times, and are currently extended on a
month-to-month basis. These matters have been submitted to a Federal Rate Court,
and are subject to retroactive adjustment either at such time as a final
decision is made by the Court or a final agreement is reached by the parties.
In addition, RMG is party to various legal matters arising out of the ordinary
conduct of its business, some involving substantial amounts. Management does not
believe that the final outcome of these lawsuits, including the BMI and ASCAP
rate matters, will have a material adverse impact on the financial position or
results of operations of RMG.
NOTE 13. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash, Trade Accounts Receivable, Accounts Receivable - Affiliates, Prepaid
Expenses and Other Current Assets, Accounts Payable, Accrued Expenses, Accounts
Payable - Affiliates, Note Payable-Parent, Note Payable-Affiliate, and Contract
Rights Payable.
The carrying amount approximates fair value due to the short maturity of these
instruments.
Investments in Marketable Securities
Available-for-sale marketable securities are carried at their estimated fair
value based upon their quoted market prices.
III-27
RAINBOW MEDIA GROUP
(a combination of certain assets and businesses
of Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
Bank Debt
The estimated fair value of bank debt approximates its carrying value based on
the current rates offered to the entities within RMG for instruments of the same
remaining maturities.
Interest Rate Cap Agreements
At December 31, 2000 and 1999, the fair value of the outstanding cap agreement
was $840 and $599, respectively (net receivable position). Fair value was
obtained from a dealer quote. This value represents the estimated amount RMG
would receive to terminate the agreement, taking into consideration current
interest rates and the current creditworthiness of the counterparty.
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
NOTE 14. CONCENTRATION OF CREDIT RISK
At December 31, 2000 and 1999, RMG had three customers that accounted for
approximately 49% and 44%, respectively, of RMG's net trade receivable balances,
including those due from affiliates, which exposes RMG to a concentration of
credit risk.
NOTE 15. SUBSEQUENT EVENT
In February 2001, Cablevision entered into an agreement with Metro-Goldwyn-Mayer
Inc. ("MGM") for MGM to acquire a 20% interest in certain programming businesses
of Rainbow Media Holdings which are included in RMG for $825,000 in cash.
III-28
CABLEVISION NY GROUP
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Recent Transactions
2000 Acquisition. In August 2000, Rainbow Media Holdings, Inc. ("Rainbow Media
Holdings") purchased the remaining interests in News 12 New Jersey LLC that it
did not already own from the Newark Morning Ledger Co.
2000 Dispositions. In September 2000, CSC Holdings, Inc. ("CSC Holdings")
completed the sale of its cable television system serving Kalamazoo, Michigan
and in November 2000, CSC Holdings completed the sale of cable television
systems in the greater Cleveland, Ohio metropolitan area.
1999 Acquisitions. In April 1999, CSC Holdings purchased ITT Corporation's
("ITT") remaining minority interest in Madison Square Garden. In 1999, CSC
Holdings acquired interests in the real property and assets related to certain
movie theaters.
1998 Acquisitions. In December 1998, CSC Holdings acquired the net assets of
Clearview Cinema Group, Inc. ("Clearview") and certain assets from Loews
Cineplex Entertainment Corporation ("Loews"). In June 1998, CSC Holdings
purchased 50% of ITT's then remaining minority interest in Madison Square Garden
("MSG"). In March 1998, Cablevision Systems Corporation ("Cablevision") acquired
certain cable television systems in New York and New Jersey from
Tele-Communications, Inc. ("TCI"). In addition, in February 1998, Cablevision
Electronics Investments, Inc. ("Cablevision Electronics") acquired substantially
all of the assets associated with 40 The WIZ consumer electronics store
locations (the "WIZ Transaction").
1998 Dispositions. In 1998, CSC Holdings completed the sale of substantially all
of the assets of U.S. Cable Television Group, L.P. and the sale of several
smaller cable television systems. Also in 1998, CSC Holdings transferred its
cable television system in Rensselaer, New York plus approximately $16 million
in cash to Time Warner Entertainment Company, L.P. ("Time Warner") in exchange
for Time Warner's Litchfield, Connecticut system.
The above transactions completed in 2000, 1999 and 1998 are collectively
referred to as the "Transactions."
IV-1
Results of Operations - Cablevision NY Group
The following table sets forth on a historical basis certain items related to
operations as a percentage of net revenues for the periods indicated.
STATEMENT OF OPERATIONS DATA
Years Ended December 31,
-----------------------------------------------------------
2000 1999
---------------------------- ---------------------------- (Increase)
% of Net % of Net Decrease
Amount Revenues Amount Revenues in Net Loss
----------- ----------- ----------- ---------- -----------
(Dollars in thousands)
Revenues, net ........................................ $ 3,946,430 100% $ 3,601,727 100% $ 344,703
Operating expenses:
Technical and operating ........................... 1,529,669 39 1,409,543 39 (120,126)
Retail electronics cost of sales .................. 549,978 14 484,760 13 (65,218)
Selling, general & administrative ................. 985,590 25 1,050,703 29 65,113
Depreciation and amortization ..................... 973,335 25 853,895 24 (119,440)
----------- ----------- -----------
Operating loss ....................................... (92,142) (2) (197,174) (5) 105,032
Other income (expense):
Interest expense, net ............................. (512,019) (13) (432,792) (12) (79,227)
Equity in net loss of affiliates, net ............. (724) -- (11,560) -- 10,836
Gain on sale of cable assets and
programming interests, net .................... 1,204,150 31 -- -- 1,204,150
Impairment charges on investments ................. (139,682) (4) (15,100) -- (124,582)
Write off of deferred interest and financing costs (5,209) -- (3,012) -- (2,197)
Miscellaneous, net ................................ (51,753) (1) (1,168) -- (50,585)
----------- ----------- -----------
Net income (loss) before dividend requirements ....... 402,621 10 (660,806) (18) 1,063,427
Dividend requirements applicable to preferred stock (165,304) (4) (170,087) (5) 4,783
----------- ----------- -----------
Net income (loss) .................................... $ 237,317 6% $ (830,893) (23)% $ 1,068,210
=========== =========== ===========
Years Ended December 31,
-----------------------------------------------------------
1999 1998
---------------------------- ---------------------------- (Increase)
% of Net % of Net Decrease
Amount Revenues Amount Revenues in Net Loss
----------- ----------- ----------- ---------- -----------
(Dollars in thousands)
Revenues, net ........................................ $ 3,601,727 100% $ 2,998,734 100% $ 602,993
Operating expenses:
Technical and operating ........................... 1,409,543 39 1,162,119 39 (247,424)
Retail electronics cost of sales .................. 484,760 13 367,102 12 (117,658)
Selling, general & administrative ................. 1,050,703 29 786,158 26 (264,545)
Depreciation and amortization ..................... 853,895 24 699,683 23 (154,212)
----------- ----------- -----------
Operating loss ....................................... (197,174) (5) (16,328) (1) (180,846)
Other income (expense):
Interest expense, net ............................. (432,792) (12) (370,273) (12) (62,519)
Equity in net loss of affiliates, net ............. (11,560) -- (23,966) (1) 12,406
Gain on sale of cable assets and
programming interests, net .................... -- -- 153,264 5 (153,264)
Impairment charges on investments ................. (15,100) -- -- -- (15,100)
Write off of deferred interest and financing costs (3,012) -- (23,482) (1) 20,470
Provision for preferential payment to related party -- -- (980) -- 980
Miscellaneous, net ................................ (1,168) -- (19,815) (1) 18,647
----------- ----------- -----------
Net loss before dividend requirements ................ (660,806) (18) (301,580) (10) (359,226)
Dividend requirements applicable to preferred stock (170,087) (5) (161,872) (5) (8,215)
----------- ----------- -----------
Net loss ............................................. $ (830,893) (23)% $ (463,452) (15)% $ (367,441)
=========== =========== ===========
IV-2
Comparison of Year Ended December 31, 2000 Versus Year Ended December 31, 1999
Combined Results - Cablevision NY Group
Revenues for the year ended December 31, 2000 increased $344.7 million (10%) as
compared to revenues for the prior year. Approximately $81.5 million (3%)
resulted from higher revenue per cable television subscriber; approximately
$80.0 million (2%) resulted from increases in revenue from Cablevision NY
Group's ("CNYG") programming and entertainment services including Madison Square
Garden; approximately $78.8 million (2%) resulted from higher retail electronics
revenues; approximately $66.8 million (2%) was due to increases in revenue
derived from the developing modem and telephone businesses and deferred revenue
recognized in connection with the warrants previously received from At Home; and
approximately $35.3 million (1%) was attributable to internal growth of 65,800
in the average number of cable television subscribers during the year. Other net
increases, primarily from advertising on CNYG's cable television systems,
amounted to $22.9 million. These increases were partially offset by a decrease
of approximately $20.6 million attributable to the Transactions.
Technical and operating expenses for 2000 increased $120.1 million (9%) over the
1999 amount. Approximately $128.6 million (9%) reflected increased costs
directly associated with the growth in revenues and subscribers discussed above,
as well as increases in programming costs for cable television services,
partially offset by a decrease of $8.5 million attributable to the Transactions.
As a percentage of revenues, technical and operating expenses remained
relatively constant during 2000 as compared to 1999.
Retail electronics cost of sales amounted to approximately $550.0 million (81%
of retail electronics sales) for the year ended December 31, 2000, compared to
approximately $484.8 million (80% of retail electronics sales) for 1999. Cost of
sales includes the cost of merchandise sold, including freight costs incurred,
as well as store occupancy and buying costs for the retail electronics segment.
Selling, general and administrative expenses decreased $65.1 million (6%) for
2000 as compared to the 1999 level. The change from the prior year resulted from
decreases of approximately $151.6 million (14%) reflecting lower charges
attributed to CNYG related to an incentive stock plan, approximately $34.4
million (4%) due to lower Year 2000 remediation costs and approximately $12.5
million (1%) directly attributable to the Transactions. Offsetting these
decreases was an increase of approximately $94.9 million (9%) resulting from
higher administrative, sales and marketing and customer service costs and
approximately $38.5 million (4%) to expense the unamortized portion of deferred
acquisition costs related to CNYG's consumer modem program. As a percentage of
revenues, selling, general and administrative expenses decreased 4% in 2000
compared to 1999. Excluding the effects of the incentive stock plan and Year
2000 remediation costs, as a percentage of revenues such costs increased 2%
during 2000 as compared to 1999.
Operating profit before depreciation and amortization increased $224.5 million
(34%) to $881.2 million for the year ended December 31, 2000 from $656.7 million
for the comparable period in 1999. Approximately $151.6 million (23%) of the
increase resulted from lower costs related to an incentive stock plan and
approximately $72.9 million (11%) resulted from the combined effect of the
revenue and expense changes discussed above. On a pro forma basis, giving effect
to the Transactions as if they had occurred on January 1, 1999 and excluding the
Company's
IV-3
systems held for sale, the incentive stock plan costs referred to above, the
charge related to consumer modems discussed above, and the costs of Year 2000
remediation, operating profit before depreciation and amortization would have
increased 10% in 2000. Operating profit before depreciation and amortization is
presented here to provide additional information about CNYG's ability to meet
future debt service, capital expenditures and working capital requirements.
Operating profit before depreciation and amortization should be considered in
addition to and not as a substitute for net income (loss) and cash flows as
indicators of financial performance and liquidity as reported in accordance with
generally accepted accounting principles.
Depreciation and amortization expense increased $119.4 million (14%) during 2000
as compared to 1999. Approximately $22.3 million (3%) resulted from higher
impairment charges related to goodwill and capitalized software costs. (The 2000
amount included a $47.5 million write-off of goodwill which resulted from the
Clearview acquisition and $10.3 million from the write-off of capitalized
software costs. The 1999 amount included a $35.5 million write-off of goodwill
related to the WIZ Transaction). Approximately $89.3 million (10%) resulted
primarily from depreciation on new plant assets. The remaining $7.8 million (1%)
increase was directly attributable to the Transactions.
Net interest expense increased $79.2 million (18%) during 2000 compared to 1999.
The net increase is primarily attributable to debt incurred to fund capital
expenditures and higher interest rates.
Equity in net loss of affiliates decreased to $.7 million in 2000 from $11.6
million in 1999. Such amounts consist of CNYG's share of the net profits and
losses of certain programming businesses and a personal communications services
business in which Cablevision has varying minority ownership interests.
Gain on sale of cable assets and programming interests for the year ended
December 31, 2000 represents a gain of $1,204.2 million from the disposition of
CNYG's cable television systems in Kalamazoo and Ohio.
Impairment charges on investments for the year ended December 31, 2000
represents a charge of $139.7 million relating to an other-than-temporary
decline in the fair value of the At Home warrants. The 1999 impairment charge of
$15.1 million resulted from the write-off of an investment held by Rainbow Media
Holdings.
Write off of deferred interest and financing costs of $5.2 million in 2000 and
$3.0 million in 1999 consists principally of the write off of deferred financing
costs in connection with amendments to or termination of CSC Holdings' credit
agreements.
Net miscellaneous expense increased to $51.8 million for the year ended December
31, 2000 compared to $1.2 million for the prior year. In 2000, miscellaneous
expense includes a $42.5 million income tax provision resulting from the
Transactions and $9.3 million relates to various other items. In 1999,
miscellaneous expense included $6.7 million related to federal, state and local
income taxes and $5.4 million related to various other items, partially offset
by a gain of $10.9 million which resulted from the sale of certain marketable
securities.
IV-4
Business Segments Results - Cablevision NY Group
CNYG classifies its business interests into three segments: Telecommunication
Services, consisting principally of its cable television, telephone and modem
services operations; MSG, which owns and operates professional sports teams,
regional cable television networks, live productions and entertainment venues;
and Retail Electronics, which represents the operations of Cablevision
Electronics' retail electronics stores. CSC Holdings allocates certain costs to
each segment based upon their proportionate estimated usage of services. The
financial information for the segments does not include inter-segment
eliminations.
Telecommunication Services
Refer to Cablevision Systems Corporation's Management's Discussion and Analysis
of Financial Condition and Results of Operations filed as part of this document.
MSG
Refer to Cablevision Systems Corporation's Management's Discussion and Analysis
of Financial Condition and Results of Operations filed as part of this document.
Retail Electronics
Refer to Cablevision Systems Corporation's Management's Discussion and Analysis
of Financial Condition and Results of Operations filed as part of this document.
IV-5
Comparison of Year Ended December 31, 1999 Versus Year Ended December 31, 1998
Combined Results - Cablevision NY Group
Revenues for the year ended December 31, 1999 increased $603.0 million (20%) as
compared to revenues for the prior year. Approximately $306.6 million (10%) of
the increase was attributable to the Transactions; approximately $204.3 million
(7%) was from increases in other revenue sources such as CNYG's programming and
entertainment services (including Madison Square Garden), advertising on CNYG's
cable television systems, revenue derived from the developing commercial
telephone business and deferred revenue recognized in connection with the
warrants previously received from At Home; and approximately $58.6 million (2%)
resulted from higher revenue per subscriber. The remaining increase of $33.5
million (1%) was attributable to internal growth of 65,700 in the average number
of cable television subscribers during the year.
Technical and operating expenses for 1999 increased $247.4 million (21%) over
the 1998 amount. Approximately $158.1 million (13%) reflected increased costs
directly associated with the growth in revenues and subscribers discussed above,
as well as increases in programming costs for cable television services, with
the remaining $89.3 million (8%) attributable to the Transactions. As a
percentage of revenues, technical and operating expenses remained relatively
constant during 1999 as compared to 1998.
Retail electronics cost of sales amounted to approximately $484.8 million (80%
of retail electronics sales) for the year ended December 31, 1999, compared to
approximately $367.1 million (79% of retail electronics sales) from the date of
the WIZ Transaction through December 31, 1998. Cost of sales includes the cost
of merchandise sold, including freight costs incurred, as well as store
occupancy and buying costs for the retail electronics segment.
Selling, general and administrative expenses increased $264.5 million (34%) for
1999 as compared to the 1998 level. Approximately $101.2 million (13%) was due
to charges attributed to CNYG related to an incentive stock plan and $76.2
million (10%) resulted from higher administrative, sales and marketing, and
customer service costs. An additional $60.6 million (8%) was directly
attributable to the Transactions with the remaining $26.5 million (3%) due to
Year 2000 remediation costs. As a percentage of revenues, selling, general and
administrative expenses increased 3% in 1999 compared to 1998. Excluding the
effects of the incentive stock plan and Year 2000 remediation costs, as a
percentage of revenues such costs remained relatively constant during 1999 as
compared to 1998.
Operating profit before depreciation and amortization decreased $26.6 million
(4%) to $656.7 million for 1999 from $683.4 million for 1998. This decrease
resulted from the combined effects of the revenue and expense changes discussed
above. On a pro forma basis, giving effect to the Transactions as if they had
occurred on January 1, 1998 and excluding the incentive stock plan charges
referred to above and the costs of Year 2000 remediation, operating profit
before depreciation and amortization would have increased 8.1% in 1999.
Operating profit before depreciation and amortization is presented here to
provide additional information about CNYG's ability to meet future debt service,
capital expenditures and working capital requirements. Operating profit before
depreciation and amortization should be considered in addition to and not as a
substitute for net income (loss) and cash flows as indicators of financial
performance and liquidity as reported in accordance with generally accepted
accounting principles.
IV-6
Depreciation and amortization expense increased $154.2 million (22%) during 1999
as compared to 1998. Approximately $103.2 million (15%) of the increase was
directly attributable to the Transactions. The remaining $51.0 million (7%)
increase resulted from depreciation on new plant assets, partially offset by a
decrease in amortization expense resulting from certain intangible assets
becoming fully amortized during 1999.
Net interest expense increased $62.5 million (17%) during 1999 compared to 1998.
The net increase is primarily attributable to debt incurred to fund acquisitions
and capital expenditures, partly offset by generally lower interest rates.
Equity in net loss of affiliates decreased to $11.6 million in 1999 from $24.0
million in 1998. Such amounts consist of CNYG's share of the net profits and
losses of certain programming businesses and a personal communications services
business in which Cablevision has varying minority ownership interests.
Gain on sale of programming interests and cable assets for the year ended
December 31, 1998 consists of a gain of $153.3 million from the disposition of
certain cable television systems.
Write off of deferred interest and financing costs of $3.0 million in 1999
consists principally of the write off of deferred financing costs recorded in
connection with amendments to CSC Holdings' credit agreements. The write off of
deferred interest and financing costs of $23.5 million in 1998 consists
principally of a $14.9 million premium paid to redeem Clearview's senior notes
payable and the write off of deferred financing costs of $4.7 million recorded
in connection with amendments to CSC Holdings' credit agreements.
Impairment charges on investments for the year ended December 31, 1999 of $15.1
million resulted from the write-off of an investment held by Rainbow Media
Holdings.
Provision for preferential payment to related party consists of the expensing of
the proportionate amount due with respect to an annual payment to Charles F.
Dolan made in connection with the acquisition of Cablevision of New York City.
Effective March 4, 1998, these preferential payments were terminated upon the
retirement of Mr. Dolan's preferred interest.
Net miscellaneous expense decreased to $1.2 million for the year ended December
31, 1999 compared to $19.8 million for the prior year. In 1999, miscellaneous
expense included $6.7 million related to federal, state and local income taxes
and $5.4 million related to various other items, partially offset by a gain of
$10.9 million which resulted from the sale of certain marketable securities. In
1998, miscellaneous expense included $13.5 million relating to federal, state
and local income taxes and $6.3 million related to various other items.
IV-7
Business Segments Results - Cablevision NY Group
Telecommunication Services
Refer to Cablevision Systems Corporation's Management's Discussion and Analysis
of Financial Condition and Results of Operations filed as part of this document.
MSG
Refer to Cablevision Systems Corporation's Management's Discussion and Analysis
of Financial Condition and Results of Operations filed as part of this document.
Retail Electronics
Refer to Cablevision Systems Corporation's Management's Discussion and Analysis
of Financial Condition and Results of Operations filed as part of this document.
Liquidity and Capital Resources
Refer to Cablevision Systems Corporation's Management Discussion and Analysis of
Financial Condition and Results of Operations filed as part of this document for
a discussion of CNYG's liquidity and capital resources.
IV-8
CABLEVISION NY GROUP
Operating Activities
Cash provided by operating activities amounted to $119.1 million for the year
ended December 31, 2000 compared to $245.5 million for the year ended December
31, 1999. The 2000 cash provided by operating activities consisted primarily of
income before depreciation, amortization and other non-cash items of $289.7
million, partially offset by a net decrease in cash resulting from changes in
assets and liabilities of $170.6 million.
Cash provided by operating activities amounted to $245.5 million for the year
ended December 31, 1999 compared to $394.1 million for the year ended December
31, 1998. The 1999 cash provided by operating activities consisted primarily of
$197.6 million of income before depreciation, amortization and other non-cash
items and a net increase in cash resulting from changes in assets and
liabilities of $47.9 million.
Cash provided by operating activities amounted to $394.1 million for the year
ended December 31, 1998. The 1998 cash provided by operating activities
consisted primarily of $273.4 million of income before depreciation,
amortization and other non-cash items and an increase in cash resulting from
changes in assets and liabilities of $120.7 million.
Investing Activities
Net cash used in investing activities for the year ended December 31, 2000 was
$531.3 million compared to $1,018.5 million for the year ended December 31,
1999. The 2000 investing activities consisted of $1,306.2 million of capital
expenditures, $128.8 million of payments for acquisitions and other net cash
payments of $78.5 million, partially offset by net proceeds of $982.2 million
from the sale of cable assets and programming interests.
Net cash used in investing activities for the year ended December 31, 1999 was
$1,018.5 million compared to $464.4 million for the year ended December 31,
1998. The 1999 investing activities consisted of $858.5 million of capital
expenditures, $117.7 million of payments for acquisitions and other net cash
payments of $53.2 million, partially offset by net proceeds of $10.9 million
from the sale of marketable securities.
Net cash used in investing activities for the year ended December 31, 1998 was
$464.4 million. The 1998 investing activities consisted of $556.7 million of
capital expenditures, $317.6 million of payments for acquisitions and other net
cash payments of $36.4 million, partially offset by net proceeds of $446.3
million from the sale of cable assets and programming interests.
Financing Activities
Cash provided by financing activities amounted to $387.5 million for the year
ended December 31, 2000 compared to $661.8 million for the year ended
December 31, 1999. In 2000, financing activities consisted primarily of
$359.0 million from the net proceeds from bank debt and other net cash
receipts aggregating $28.5 million.
IV-9
Cash provided by financing activities amounted to $661.8 million for the year
ended December 31, 1999 compared to net cash used in financing activities of
$164.7 million for the year ended December 31, 1998. In 1999, financing
activities consisted primarily of $497.7 million derived from the issuance of
senior notes and debentures, $125.0 million of capital contributions from
RMG, and $89.0 million from the net proceeds from bank debt, partially offset
by other net cash payments aggregating $49.9 million.
Cash used in financing activities amounted to $164.7 million for the year ended
December 31, 1998. In 1998, financing activities consisted primarily of the net
repayment of bank debt, subordinated notes payable, senior notes payable and
senior debt aggregating $1,215.7 million, the repayment of an obligation to a
related party of $197.2 million and other net cash payments aggregating $47.9
million, partially offset by $1,296.1 million derived from the issuance of
senior notes and debentures.
Year 2000
The Year 2000 issue ("Y2K") refers to the inability of certain computerized
systems and technologies to recognize and/or correctly process dates beyond
December 31, 1999. For the years ended December 31, 2000, 1999 and 1998, CNYG
recorded approximately $3.4 million, $38.7 million and $7.6 million,
respectively, of expenses relating to Y2K remediation.
Accounting Standards Issued But Not Yet Adopted
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities", as amended, ("SFAS 133"), requires that all
derivative financial instruments, such as interest rate swap contracts, be
recognized in the financial statements and measured at fair value regardless of
the purpose or intent for holding them. Changes in the fair value of derivative
financial instruments are either recognized periodically in income or
stockholders' equity (as a component of comprehensive income), depending on
whether the derivative is being used to hedge changes in fair value or cash
flows. SFAS 133, as amended, is effective for fiscal years beginning after June
15, 2000. CNYG does not expect that the adoption of SFAS 133 will have a
material effect on its financial condition or results of operations.
IV-10
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Cablevision Systems Corporation
We have audited and reported separately herein on the consolidated financial
statements of Cablevision Systems Corporation and subsidiaries ("Cablevision")
as of December 31, 2000 and 1999, and for each of the years in the three-year
period ended December 31, 2000.
We have also audited the accompanying combined balance sheets of Cablevision NY
Group (a combination of certain assets and businesses of Cablevision, as
described in Note 1) as of December 31, 2000 and 1999, and the related combined
statements of operations, group deficiency and cash flows for each of the years
in the three-year period ended December 31, 2000. These combined financial
statements are the responsibility of Cablevision's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
Cablevision NY Group has been operated as an integral part of Cablevision, and
has no separate legal existence. As described in Note 1, these combined
financial statements have been derived from the consolidated financial
statements and accounting records of Cablevision and reflect certain assumptions
and allocations. Moreover, as indicated in Note 3, Cablevision NY Group relies
upon Cablevision for administrative, management and other services. The
financial position, results of operations and cash flows of Cablevision NY Group
could differ from those that might have resulted had Cablevision NY Group been
operated autonomously or as an entity independent of Cablevision. The combined
financial statements of Cablevision NY Group are presented for purposes of
additional analysis of Cablevision's consolidated financial statements, and
should be read in conjunction with those statements.
In our opinion, the combined financial statements referred to in the second
paragraph above present fairly, in all material respects, the financial position
of Cablevision NY Group as of December 31, 2000 and 1999, and the results of its
operations and its cash flows on the basis of presentation described in Note 1,
for each of the years in the three-year period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States of
America.
/s/ KPMG LLP
Melville, New York
March 29, 2001
IV-11
CABLEVISION NY GROUP
(a combination of certain assets and businesses
of Cablevision Systems Corporation)
COMBINED BALANCE SHEETS
December 31, 2000 and 1999
(Dollars in thousands)
2000 1999
---- ----
ASSETS
0Cash and cash equivalents ......................................... $ 37,912 $ 62,560
Accounts receivable trade (less allowance for doubtful accounts of
$26,933 and $26,231) ........................................... 229,151 179,354
Notes and other receivables ........................................ 139,641 128,852
Inventory, prepaid expenses and other assets ....................... 285,882 208,587
Property, plant and equipment, net ................................. 3,223,485 2,703,221
Investments in affiliates .......................................... 43,471 13,991
Investment securities available-for-sale ........................... 811,046 --
Other investments .................................................. 116,940 256,442
Advances to affiliates ............................................. 388,208 153,044
Net assets held for sale ........................................... 309,423 269,349
Franchises, net of accumulated amortization of
$777,526 and $703,237 .......................................... 422,900 651,777
Affiliation and other agreements, net of accumulated amortization of
$205,450 and $165,474 .......................................... 64,143 106,580
Excess costs over fair value of net assets acquired and other
intangible assets, net of accumulated amortization of
$790,932 and $673,702 .......................................... 1,605,808 1,779,062
Deferred financing, acquisition and other costs, net of
accumulated amortization of $54,945 and $48,119 ................ 108,679 116,493
----------- -----------
$ 7,786,689 $ 6,629,312
=========== ===========
LIABILITIES AND GROUP DEFICIENCY
Accounts payable ................................................... $ 423,500 $ 365,362
Accrued liabilities:
Interest ..................................................... 119,014 114,972
Employee related costs ....................................... 365,220 429,359
Other ........................................................ 513,736 452,502
Accounts payable to affiliates ..................................... 50,403 21,757
Contract obligations ............................................... 78,511 104,241
Deferred revenue ................................................... 222,806 274,043
Bank debt .......................................................... 2,319,661 1,892,714
Senior notes and debentures ........................................ 2,693,208 2,692,602
Subordinated notes and debentures .................................. 1,048,648 1,048,513
Capital lease obligations and other debt ........................... 84,508 65,482
----------- -----------
Total liabilities ............................................ 7,919,215 7,461,547
Series H Redeemable Exchangeable Preferred Stock ................... 434,181 409,757
Series M Redeemable Exchangeable Preferred Stock ................... 1,110,113 994,754
Commitments and contingencies
Group deficiency ................................................... (1,676,820) (2,236,746)
----------- -----------
$ 7,786,689 $ 6,629,312
=========== ===========
See accompanying notes to
combined financial statements.
IV-12
CABLEVISION NY GROUP
(a combination of certain assets and businesses
of Cablevision Systems Corporation)
COMBINED STATEMENTS OF OPERATIONS
Years ended December 31, 2000, 1999 and 1998
(Dollars in thousands)
2000 1999 1998
---- ---- ----
Revenues, net (including retail electronics sales of
$682,109, $603,294 and $464,388) .................................. $ 3,946,430 $ 3,601,727 $ 2,998,734
----------- ----------- -----------
Operating expenses:
Technical and operating ........................................... 1,529,669 1,409,543 1,162,119
Retail electronics cost of sales................................... 549,978 484,760 367,102
Selling, general and administrative ............................... 985,590 1,050,703 786,158
Depreciation and amortization ..................................... 973,335 853,895 699,683
----------- ----------- -----------
4,038,572 3,798,901 3,015,062
----------- ----------- -----------
Operating loss ....................................................... (92,142) (197,174) (16,328)
----------- ----------- -----------
Other income (expense):
Interest expense .................................................. (519,030) (443,105) (397,703)
Interest income ................................................... 7,011 10,313 27,430
Equity in net loss of affiliates, net ............................. (724) (11,560) (23,966)
Gain on sale of cable assets and programming interests, net ....... 1,204,150 -- 153,264
Impairment charges on investments ................................. (139,682) (15,100) --
Write off of deferred interest and financing costs ................ (5,209) (3,012) (23,482)
Provision for preferential payment to related party ............... -- -- (980)
Miscellaneous, net ................................................ (51,753) (1,168) (19,815)
----------- ----------- -----------
494,763 (463,632) (285,252)
----------- ----------- -----------
Net income (loss) before dividend requirements ....................... 402,621 (660,806) (301,580)
Dividend requirements applicable to preferred stock ............... (165,304) (170,087) (161,872)
----------- ----------- -----------
Net income (loss) .................................................... $ 237,317 $ (830,893) $ (463,452)
=========== =========== ===========
See accompanying notes to
combined financial statements.
IV-13
CABLEVISION NY GROUP
(a combination of certain assets and businesses
of Cablevision Systems Corporation)
COMBINED STATEMENTS OF GROUP DEFICIENCY
Years ended December 31, 2000, 1999 and 1998
(Dollars in thousands)
Balance, January 1, 1998 ..................................... $(1,386,761)
Net distributions to RMG ................................ (13,725)
Net loss ................................................ (301,580)
Preferred dividend requirements ......................... (161,872)
Redemption of preferred stock of CSC Holdings ........... (9,409)
Employee stock transactions ............................. 12,082
Net payments to partners or stockholders ................ (65,580)
Issuance of Cablevision common stock .................... 536,250
-----------
Balance, December 31, 1998 ................................... (1,390,595)
Net contributions from RMG .............................. 39,725
Net loss ................................................ (660,806)
Preferred dividend requirements ......................... (170,087)
Redemption of preferred stock of CSC Holdings ........... (98)
Employee stock transactions ............................. 15,170
Net payments to partners or stockholders ................ (76,861)
Issuance of Cablevision common stock .................... 7,305
Purchase of treasury stock .............................. (499)
-----------
Balance, December 31, 1999 ................................... (2,236,746)
Net income .............................................. 402,621
Other comprehensive income .............................. 286,440
-----------
Other comprehensive income ......................... 689,061
Net contributions from RMG .............................. 18,630
Preferred dividend requirements ......................... (165,304)
Employee stock transactions ............................. 25,594
Net payments to partners or stockholders ................ (8,055)
-----------
Balance, December 31, 2000 ................................... $(1,676,820)
===========
See accompanying notes to
combined financial statements.
IV-14
CABLEVISION NY GROUP
(a combination of certain assets and businesses
of Cablevision Systems Corporation)
COMBINED STATEMENTS OF CASH FLOWS
Years ended December 31, 2000, 1999 and 1998
(Dollars in thousands)
2000 1999 1998
---- ---- ----
Cash flows from operating activities:
Net income (loss) ........................................ $ 402,621 $ (660,806) $ (301,580)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization ..................... 973,335 853,895 699,683
Equity in net loss of affiliates, net ............. 724 11,560 23,966
Gain on sale of cable assets and
programming interests, net ..................... (1,204,150) -- (153,264)
(Gain) loss on investments ........................ 139,682 (10,861) --
Write off of deferred interest and financing costs 5,209 3,012 23,482
(Gain) loss on sale of equipment, net ............. (803) 10,061 (604)
Write off of investment in affiliate .............. -- 15,100 --
Amortization of deferred financing and
debenture discount ............................. 9,819 9,067 7,761
Non-cash expenses attributed to RMG ............... (36,717) (33,409) (26,057)
Change in assets and liabilities, net of effects of
acquisitions and dispositions:
Accounts receivable trade .................. (55,934) (13,685) 22,838
Notes and other receivables ................ (11,071) 28,119 (91,091)
Inventory, prepaid expenses and other assets (71,933) (24,652) (50,242)
Advances to affiliates ..................... (27,477) (17,914) (17,501)
Other deferred costs ....................... (18,681) 506 11,689
Accounts payable ........................... 61,883 1,151 117,249
Accrued liabilities ........................ 32,266 162,903 169,669
Contract obligations ....................... (28,376) (28,398) (23,613)
Deferred revenue ........................... (51,279) (60,170) (18,268)
----------- ----------- -----------
Net cash provided by operating activities ............. 119,118 245,479 394,117
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures ..................................... (1,306,215) (858,523) (556,697)
Payments for acquisitions, net of cash acquired .......... (128,784) (117,660) (317,594)
Net proceeds from sale of cable assets and
programming interests ................................. 982,172 -- 446,284
Proceeds from sale of equipment .......................... 776 745 8,817
Proceeds from sale of investments ........................ -- 10,861 --
Increase in investments in affiliates, net ............... (78,964) (48,844) (31,996)
Increase in other investments ............................ (180) -- --
Additions to other intangible assets ..................... (94) (5,072) (13,253)
----------- ----------- -----------
Net cash used in investing activities ................. $ (531,289) $(1,018,493) $ (464,439)
----------- ----------- -----------
See accompanying notes to
combined financial statements.
IV-15
CABLEVISION NY GROUP
(a combination of certain assets and businesses
of Cablevision Systems Corporation)
COMBINED STATEMENTS OF CASH FLOWS
Years ended December 31, 2000, 1999 and 1998
(Dollars in thousands)
(continued)
2000 1999 1998
---- ---- ----
Cash flows from financing activities:
Net proceeds from (repayments of) bank debt .......... $ 359,001 $ 89,022 $ (857,395)
Repayment of senior debt ............................. -- -- (112,500)
Repayment of subordinated notes payable .............. -- -- (151,000)
Redemption of senior notes payable ................... -- -- (94,848)
Issuance of senior notes and debentures .............. -- 497,670 1,296,076
Redemption of subsidiary preferred stock ............. -- (98) (9,409)
Preferred stock dividends ............................ (25,521) (21,915) (29,341)
Issuance of Cablevision common stock ................. 25,594 15,170 12,082
Obligation to related party .......................... -- -- (197,183)
Payments on capital lease obligations and other debt . (36,114) (18,063) (8,998)
Additions to deferred financing and other costs ...... (984) (24,440) (36,220)
Purchase of Cablevision treasury stock ............... -- (499) --
Net capital contributions from RMG ................... 65,547 125,000 24,023
----------- ----------- -----------
Net cash provided by (used in) financing activities 387,523 661,847 (164,713)
----------- ----------- -----------
Net decrease in cash and cash equivalents ............... (24,648) (111,167) (235,035)
Cash and cash equivalents at beginning of year .......... 62,560 173,727 408,762
----------- ----------- -----------
Cash and cash equivalents at end of year ................ $ 37,912 $ 62,560 $ 173,727
=========== =========== ===========
See accompanying notes to
combined financial statements.
IV-16
CABLEVISION NY GROUP
(a combination of certain assets and businesses
of Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
NOTE 1. BASIS OF PRESENTATION
In March 2001, Cablevision Systems Corporation ("Cablevision") amended its
certificate of incorporation to, among other things, (i) authorize the creation
and distribution of a new class of common stock, to be designated as Rainbow
Media Group ("RMG") tracking stock which is intended to reflect the performance
of the assets and businesses of Cablevision attributed to RMG, (ii) increase the
aggregate number of authorized shares of common stock that Cablevision may issue
from 560 million to 1.88 billion, and (iii) redesignate each share of
Cablevision common stock into a share of Cablevision NY Group ("CNYG") common
stock, which is intended to reflect the performance of all of Cablevision's
assets and businesses which have not been attributed to RMG. The RMG tracking
stock was distributed on March 29, 2001 to holders of Cablevision common stock
at a ratio of one share of RMG for every two shares of Cablevision stock held.
CNYG represents a combination of assets, liabilities and businesses owned by
Cablevision which have not been attributed to RMG. These assets, liabilities and
businesses include: (i) cable television businesses, including Cablevision's
residential telephone and high-speed modem businesses, (ii) commercial telephone
and internet operation businesses, (iii) retail electronics businesses, (iv)
Cablevision's interests in New York metropolitan area sports and entertainment
businesses including Madison Square Garden, Radio City Music Hall, MSG Network,
Fox Sports Net New York and professional sports teams, (v) motion picture
theater businesses, (vi) advertising sales representation businesses, (vii)
certain equity interests in a multimedia internet service provider, certain
direct broadcast satellite assets and interests in a wireless personal
communications business, and (viii) certain marketable equity securities. CNYG
has been operated as an integral part of Cablevision, and has no separate legal
existence.
These combined financial statements have been derived from the consolidated
financial statements and accounting records of Cablevision. These combined CNYG
financial statements, together with the combined RMG financial statements,
include all of the accounts contained in Cablevision's consolidated financial
statements.
Amounts in the accompanying combined financial statements reflect Cablevision's
basis in the net assets of the combined businesses. However, minority interests
in the net assets and in the results of operations of these businesses are not
reflected. Such minority interests are recorded in the consolidated financial
statements of Cablevision.
The accompanying CNYG combined financial statements are intended to reflect the
assets, liabilities, revenues and expenses that Cablevision has attributed to
CNYG, as well as certain allocations deemed reasonable by management, to present
the combined financial position and results of operations of CNYG as if it were
a separate entity for all periods presented. However, primarily as a result of
allocations and inter-group related party transactions (Note 3), the financial
information included herein may not necessarily reflect the combined financial
position
IV-17
CABLEVISION NY GROUP
(a combination of certain assets and businesses
of Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
and results of operations of CNYG had it operated as a separate stand-alone
entity during the periods presented.
Even though Cablevision has attributed certain assets, liabilities, revenue and
cash flows to CNYG, that attribution does not change the legal title to any
assets or responsibility for any liabilities and does not affect the rights of
any creditors. Further, financial results of RMG that affect Cablevision's
consolidated financial condition could affect the financial position or results
of operations of CNYG. Any dividends or distributions on, or repurchases of,
Cablevision stock will reduce the assets of Cablevision legally available for
dividends on CNYG stock. Accordingly, holders of RMG tracking stock and CNYG
common stock will continue to be subject to risks associated with an investment
in a single corporation and in all of Cablevision's businesses, assets and
liabilities.
As a result of the factors described above, the combined financial statements of
CNYG should be read in conjunction with the consolidated financial statements of
Cablevision.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Combination
The accompanying combined financial statements include the accounts of all
consolidated subsidiaries of Cablevision that have not been attributed to RMG.
All significant intra-group transactions and balances have been eliminated in
combination. Cablevision's interests in less than majority-owned entities are
carried on the equity method.
Group Deficiency
Group deficiency represents the aggregate interests of all stockholders,
partners and members in the net assets or liabilities of all combined companies
comprising CNYG. Cablevision includes its share of such amount in its
consolidated financial statements, after consideration of the interests of
parties other than Cablevision.
Payments to (from) partners and stockholders appearing in the accompanying
combined statements of group deficiency represent amounts exchanged with
partners and stockholders of partnerships and companies comprising CNYG,
primarily the redemption of ITT Corporation's interests in Madison Square
Garden, L.P. ("MSG") in each of the years presented.
Revenue Recognition
CNYG recognizes cable television, internet access, telephony and programming
revenues as services are provided to subscribers. Advertising revenues are
recognized when commercials are telecast. Revenue from retail electronic sales
is recognized upon delivery, with an appropriate
IV-18
CABLEVISION NY GROUP
(a combination of certain assets and businesses
of Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
provision for returned merchandise based upon historical experience. Revenues
derived from other sources are recognized when services are provided or events
occur.
Investments in Marketable Securities
CNYG accounts for its investments in marketable securities in accordance with
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." CNYG has classified such investments
as available-for-sale. Accordingly, these investments are stated at fair value
and unrealized holding gains and losses are included in accumulated other
comprehensive income as a component of group deficiency.
Long-Lived Assets
Property, plant and equipment, including construction materials, are carried at
cost, and includes all direct costs and certain indirect costs associated with
the construction of cable television transmission and distribution systems, and
the costs of new subscriber installations. Franchises are amortized on the
straight-line basis over the average remaining terms (5 to 12 years) of the
franchises at the time of acquisition. Affiliation and other agreements
(primarily cable television system programming agreements) are amortized on a
straight-line basis over periods ranging from 8 to 10 years. Other intangible
assets are amortized on the straight-line basis over the periods benefited (1 to
15 years), except that excess costs over fair value of net assets acquired are
being amortized on the straight-line basis over periods ranging from 6 to 40
years. CNYG reviews its long-lived assets (property, plant and equipment, and
related intangible assets that arose from business combinations accounted for
under the purchase method) for impairment whenever events or circumstances
indicate that the carrying amount of an asset may not be recoverable. If the sum
of the expected cash flows, undiscounted and without interest, is less than the
carrying amount of the asset, an impairment loss is recognized as the amount by
which the carrying amount of the asset exceeds its fair value.
Inventory
Carrying amounts of retail merchandise are determined on an average cost basis
and are stated at the lower of cost or market.
Deferred Financing Costs
Costs incurred to obtain debt are deferred and amortized to interest expense, on
a straight-line basis, over the life of the related debt.
IV-19
CABLEVISION NY GROUP
(a combination of certain assets and businesses
of Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
Income Taxes
Income taxes are provided based upon the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes", which requires the
asset/liability method of accounting for deferred income taxes and permits the
recognition of deferred tax assets, subject to an ongoing assessment of
realizability.
Income (Loss) Per Share
Historical income (loss) per share for CNYG has been omitted from the statements
of operations since CNYG stock was not part of the capital structure of
Cablevision for the periods presented. For periods following the distribution of
the tracking stock, per share results for CNYG will be presented only in the
consolidated financial statements of Cablevision and will be computed by
applying the "two class" method of Statement of Financial Accounting Standard
No. 128, "Earnings Per Share."
Reclassifications
Certain reclassifications have been made in the 1999 and 1998 financial
statements to conform to the 2000 presentation.
Supplemental Cash Flow Information
For purposes of the combined statements of cash flows, CNYG considers short-term
investments with a maturity at date of purchase of three months or less to be
cash equivalents. CNYG paid cash interest of approximately $524,166, $412,359
and $362,506 during 2000, 1999 and 1998, respectively.
IV-20
CABLEVISION NY GROUP
(a combination of certain assets and businesses
of Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
During 2000, 1999 and 1998, CNYG's noncash investing and financing activities
and other supplemental data are presented below:
Years Ended December 31,
------------------------
2000 1999 1998
---- ---- ----
Capital lease obligations ............................ $ 55,635 $ 53,330 $ 28,795
Issuance of common stock in connection with the
redemption of CSC Holdings' preferred stock ........ -- 323,233 --
Issuance of common stock in connection with
acquisitions and redemption of partnership interests -- 7,305 536,250
Receipt of warrants from At Home Corporation ......... -- -- 74,788
Contributions to equity method investees attributed
to RMG ............................................ (30,547) (41,998) (20,997)
Net proceeds (payments) on indebtedness attributed
to RMG ............................................ 132,607 (18,924) (105,259)
Payments of interest attributed to RMG ............... (20,676) (11,245) (15,123)
Payments of stock plan obligations attributed to RMG . (8,894) (13,108) (4,017)
Payments for acquisitions attributed to RMG (including
the repayment of bank debt of $20,078) ........... (145,331) -- --
Receipt of marketable securities in connection with
the sale of cable assets .......................... 524,606 -- --
Assignment of film rights to CNYG from RMG ........... 3,992 -- --
Comprehensive Income
Other comprehensive income for the year ended December 31, 2000 of $286,440
represents unrealized net gains on available-for-sale securities.
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
IV-21
CABLEVISION NY GROUP
(a combination of certain assets and businesses
of Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
NOTE 3. ALLOCATIONS AND RELATED PARTY TRANSACTIONS
Allocations
The combined financial statements of CNYG reflect the application of certain
allocation and cash management policies of Cablevision, which are summarized
below. Cablevision's board of directors may modify or rescind any of these
allocation policies without the approval of the stockholders, although no such
changes are currently contemplated. Any such changes adopted by the board of
directors would be made in its good faith business judgment of Cablevision's
best interests, taking into consideration the best interests of all Cablevision
shareholders. Management believes that these allocations have been made on a
reasonable basis. However, it is not practicable to determine whether the
allocated amounts represent amounts that might have been incurred on a
stand-alone basis. Explanations of the composition and the amounts of the more
significant allocations are described below.
Corporate General and Administrative Costs
General and administrative costs, including costs of maintaining corporate
headquarters, facilities and common support functions (such as human resources,
legal, accounting, tax, audit, treasury, strategic planning, investor relations,
information technology, etc.) have been allocated by Cablevision generally based
upon actual charges or management's estimate of proportionate usage. When
determinations based upon usage are impractical, Cablevision uses other methods
and criteria that management believes to be equitable and provide a reasonable
estimate of costs attributable to CNYG. CNYG's allocated share of such costs
amounted to $73,356, $64,778 and $47,341 for the years ended December 31, 2000,
1999 and 1998, respectively, and have been included in selling, general and
administrative expenses.
Year 2000 Remediation Costs
Selling, general and administrative expenses for the years ended December 31,
2000, 1999 and 1998 include $3,424, $38,666 and $7,593, respectively, of Year
2000 remediation costs which include direct charges and allocations from
Cablevision.
Indebtedness and Interest
Cablevision has attributed indebtedness generally based upon approximate funding
of start up costs for certain of CNYG's businesses. As more fully described in
Note 7, indebtedness related to the stand-alone bank facilities of CSC Holdings,
Inc. ("CSC Holdings"), Cablevision MFR, Inc., Madison Square Garden, Cablevision
Electronics Investments, Inc. ("Cablevision Electronics") and CCG Holdings, Inc.
has been attributed to CNYG.
IV-22
CABLEVISION NY GROUP
(a combination of certain assets and businesses
of Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
Income Taxes
To the extent that federal and state income taxes are determined on a basis that
includes operations of both CNYG and RMG, such taxes are allocated to each
group, and reflected in their respective financial statements, in accordance
with Cablevision's tax allocation policy. In general, this policy provides that
the consolidated tax provision, and related tax payments or refunds, will be
allocated between the groups based principally upon the financial income,
taxable income, credits and other amounts directly related to the respective
groups. Under the policy, the amount of taxes payable or refundable which are
allocated to CNYG will generally be comparable to those that would have resulted
if the groups had filed separate tax returns. Further, RMG is responsible to
CNYG for its share of any consolidated income tax liabilities determined in
accordance with the policy. RMG's share of such liabilities is generally
determined by reference to the amount of tax that RMG would owe on a separately
filed tax return. Accordingly, CNYG will realize the benefits of its tax
attributes when it generates sufficient taxable income to utilize such
attributes.
Stock-Based Compensation
Cablevision charges the businesses attributed to CNYG their proportionate share
of the expense or benefit related to certain employee stock incentive plans. For
the years ended December 31, 2000, 1999 and 1998, these charges amounted to
$67,827, $233,660, and $132,432, respectively. Such charges are included in
administrative expenses in the accompanying combined statements of operations.
Amounts accrued for these stock incentive plans aggregated $172,815 and $262,699
as of December 31, 2000 and 1999, respectively, and are included in accrued
employee related costs in the accompanying combined balance sheets.
Health and Welfare Benefits
Employees of entities attributed to CNYG participate in health and welfare plans
sponsored by Cablevision. Health and welfare benefit costs have generally been
allocated by Cablevision based upon the proportionate number of participants in
the plan. Such costs amounted to $47,470, $37,464 and $32,159 for the years
ended December 31, 2000, 1999 and 1998, respectively, and have been included in
selling, general and administrative expenses.
Cash Management
Surplus cash is swept nightly from certain entities within RMG to Rainbow Media
Holdings, Inc. ("Rainbow Media Holdings") which is attributed to CNYG. Such
inter-group transfers do not bear interest.
IV-23
CABLEVISION NY GROUP
(a combination of certain assets and businesses
of Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
Related-Party Transactions
As described below, CNYG provides services to and receives services from
affiliates and RMG. As many of these transactions are conducted between
subsidiaries under common control of Cablevision, amounts charged for these
services have not necessarily been based upon arm's length negotiations.
However, it is not practicable to determine whether the amounts charged
represent amounts that might have been incurred on a stand-alone basis for CNYG.
Cablevision held varying ownership interests, directly or indirectly, during the
three years ended December 31, 2000 in certain cable television programming and
entertainment companies attributed to CNYG. Accordingly, CNYG recorded losses of
approximately $1,773, $3,643 and $7,657 in 2000, 1999 and 1998, respectively,
representing its percentage interests in the results of operations of these
programming companies. At December 31, 2000, CNYG's investment in these
programming and entertainment companies amounted to approximately $202. Costs
incurred by CNYG for programming services provided by these affiliates and
included in operating expense for the years ended December 31, 1999 and 1998
amounted to approximately $2,733 and $1,176, respectively.
CNYG has affiliation agreements with certain cable television programming and
transmission and production companies which are included in RMG. Costs incurred
by CNYG for programming services provided by these affiliates and included in
operating expense for the years ended December 31, 2000, 1999 and 1998 amounted
to approximately $22,518, $22,194 and $18,595, respectively. At December 31,
2000 and 1999, amounts due to certain of these affiliates, primarily for
programming services provided to CNYG, aggregated $44,742 and $21,757,
respectively, and are included in accounts payable to affiliates. At December
31, 2000 and 1999, amounts due from certain of these programming affiliates
aggregated $31,787 and $109,378, respectively, and are included in advances to
affiliates.
During 2000, 1999 and 1998, CNYG provided programming services to or incurred
costs on behalf of other affiliates engaged in providing cable television, cable
television programming, and related services. Amounts due from these affiliates
amounted to $12,135 and $14,300 at December 31, 2000 and 1999, respectively, and
are included in advances to affiliates.
Members of CNYG and RMG may enter into agreements with third party service
providers in which the amounts paid by CNYG or RMG may differ from the
amounts that CNYG or RMG would otherwise pay if such arrangements were on an
arm's-length basis. These arrangements are in return for the service
provider's or its affiliate's agreement to make payments or provide services
to members of CNYG or RMG on a basis more or less favorable than either group
would otherwise obtain. Where RMG has received the benefit of CNYG's
negotiations in the form of increased affiliation payments or discounted
license fees, CNYG charges RMG the amount of the benefit. In respect of two
such agreements, RMG has recorded charges from CNYG amounting to $15,627,
$15,081 and $14,000 in 2000, 1999 and 1998, respectively.
In October 1997, CSC Holdings entered into an agreement with At Home Corporation
("Excite@Home") and certain of its shareholders, pursuant to which CSC Holdings
agreed to enter into agreements for the distribution of the Excite@Home service
over CNYG's cable television systems on the same terms and conditions as
Excite@Home's founding partners, Tele-Communications, Inc., Comcast Corporation
and Cox Communications, Inc. CSC Holdings received a warrant to purchase
15,751,568 shares of Excite@Home's Series A Common Stock at an exercise price of
$.25 per share. Additionally, in 1998 a warrant to purchase 4,711,028 shares of
Excite@Home's Series A Common Stock at $.25 per share was received in connection
with the acquisition of the TCI Systems (see Note 4). The Excite@Home network
distributes high-speed
IV-24
CABLEVISION NY GROUP
(a combination of certain assets and businesses
of Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
interactive services to residences and businesses using its own network
architecture and a variety of transport options, including the cable industry's
hybrid fiber coaxial infrastructure.
The original aggregate fair market value of the warrants received of $248,134,
as determined by independent appraisals, has been recorded in other investments
in the accompanying combined balance sheets and is accounted for under the cost
method. The fair market value of the warrants was recorded as deferred revenue
and is being amortized to income over the period in which CSC Holdings is
obligated to provide the necessary services to Excite@Home. In 2000, 1999 and
1998, CNYG recorded $60,000, $50,136 and $35,821, respectively, of revenue
relating to this transaction. In 2000, CNYG recognized a loss on investments of
approximately $139,682 reflecting the decline in the fair value of the warrants.
In August 1996, CSC Holdings entered into an agreement with Northcoast PCS, LLC
("Northcoast") and certain of its affiliates, to form a limited liability
company (the "LLC") to participate in the auctions conducted by the Federal
Communications Commission ("FCC") for certain licenses to conduct a personal
communications service ("PCS") business. CSC Holdings has contributed an
aggregate of approximately $114,560 to the LLC (either directly or through a
loan to Northcoast) and holds a 49.9% interest in the LLC and certain
preferential distribution rights. CNYG recorded a loss of $2,524, $7,916 and
$5,517 in 2000, 1999 and 1998, respectively, representing its share of the
losses of the LLC. Northcoast is a Delaware corporation controlled by John Dolan
who is a nephew of Charles F. Dolan and a cousin of James L. Dolan,
Cablevision's Chairman and Chief Executive Officer, respectively.
In 1996, Rainbow Media Holdings invested in a joint venture formed with a
subsidiary of Loral Space and Communications, Ltd. for the purpose of exploiting
certain direct broadcast satellite ("DBS") frequencies. Rainbow Media Holdings
also contributed to the joint venture its interest in certain agreements with
the licensee of such frequencies. Rainbow Media Holdings' investment amounted to
$1,188 and $386 at December 31, 2000 and 1999, respectively. Earlier in 1999,
based upon its then current business plans, Rainbow Media Holdings determined
that it could no longer recover its investment in the joint venture and wrote
down its investment by $15,100.
As of December 31, 1999, CSC Holdings had outstanding an interest exchange (cap)
agreement with American Movie Classics Company ("AMC"), a subsidiary of Rainbow
Media Holdings which is attributed to RMG, with a total notional value of
$105,000 maturing on May 13, 2002. The agreement caps AMC's floating rate of
interest based on LIBOR at 7% through May 2001 and at 7.5% from May 2001 through
May 2002. CSC Holdings entered into this cap agreement to hedge against interest
rate risk and accounts for this agreement as a hedge whereby interest expense is
recorded using the revised rate with any fees amortized as a yield adjustment.
Advances to affiliates at December 31, 1999 includes a note receivable of
$90,000 representing an attributed portion of a loan made in June 1998 by
Regional Programming Partners to Rainbow
IV-25
CABLEVISION NY GROUP
(a combination of certain assets and businesses
of Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
Media Holdings. Such loan was a four year demand note maturing on March 31, 2002
and bore interest at a rate of LIBOR plus 7/8% per annum. The loan was repaid in
2000.
Advances to affiliates at December 31, 2000 includes amounts due from Rainbow
Media Holdings of $270,475 (including $631 of interest) pursuant to a demand
note payable to CSC Holdings which bears interest based on three month LIBOR
plus 2.25%. The interest rate on the demand note was 8.75% at December 31, 2000.
NOTE 4. ACQUISITIONS AND DISPOSITIONS
Acquisitions
1999 Acquisitions
At various times during 1999, Cablevision acquired interests in the real
property and assets specifically related to certain movie theaters for an
aggregate purchase price of approximately $29,700. The acquisitions were
accounted for as purchases with the operations of the acquired theaters being
combined with those of CNYG as of the acquisition dates. The purchase price was
allocated to the specific assets acquired based upon an independent appraisal as
follows:
Property, plant and equipment .................... $ 13,700
Other assets ..................................... 200
Liabilities ...................................... (2,500)
Excess cost over fair value of net assets acquired 18,300
--------
$ 29,700
========
In December 1999, Cablevision acquired cable television systems with
approximately 4,500 subscribers located in the Port Jervis, New York area for
approximately $7,400, $7,300 of which was paid in shares of Cablevision's Class
A Common Stock.
In April 1999, ITT Corporation ("ITT") exercised its second put option for the
remainder of its interest in MSG and concurrently settled certain matters
between the parties for an aggregate payment of $87,000.
See also "Dispositions" for a discussion of an exchange of cable television
assets.
1998 Acquisitions
The WIZ
On February 9, 1998, Cablevision Electronics, a wholly-owned subsidiary of CSC
Holdings, acquired substantially all of the assets associated with 40 The WIZ
consumer electronics store
IV-26
CABLEVISION NY GROUP
(a combination of certain assets and businesses
of Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
locations from The Wiz, Inc. and certain of its subsidiaries and affiliates
(collectively, "TWI"). TWI had filed for bankruptcy protection on December 16,
1997. Cablevision Electronics paid approximately $101,300 for the assets
(including transaction costs and pre-closing operating costs).
The acquisition was accounted for as a purchase with the operations of
Cablevision Electronics being combined with the operations of CNYG as of the
date of acquisition. The purchase price was allocated to the specific assets
acquired based upon independent appraisals as follows:
Inventory ........................................ $ 66,200
Property and equipment ........................... 16,800
Other assets ..................................... 4,000
Liabilities ...................................... (24,000)
Excess cost over fair value of net assets acquired 38,300
---------
$ 101,300
=========
In 1999, CNYG recorded an impairment loss of $35,490, included in depreciation
and amortization, representing the balance of unamortized goodwill recorded on
the TWI acquisition. Current losses and projected future operating losses caused
CNYG to reassess the recoverability of the goodwill. The impairment loss
resulted from the carrying amount of this asset exceeding its estimated fair
value based on discounted estimated future cash flows.
TCI Systems
On March 4, 1998, Cablevision completed a holding company reorganization
pursuant to an Amended and Restated Contribution and Merger Agreement, dated
June 6, 1997 (the "Contribution and Merger Agreement"), by and among
Cablevision, CSC Holdings and TCI Communications, Inc. ("TCI").
Pursuant to the Contribution and Merger Agreement, TCI caused to be contributed
to Cablevision or its designees all of the partnership interests and capital
stock of certain entities owned directly or indirectly by TCI and all the assets
related to the businesses of certain cable television systems owned and operated
directly or indirectly by TCI ("TCI Systems"). In consideration for those cable
television systems, Cablevision issued to certain TCI entities an aggregate of
48,942,172 shares (after adjusting for the March 1998 and August 1998
two-for-one stock splits) of Cablevision's Class A Common Stock, valued for
accounting purposes at approximately $498,000, and assumed certain liabilities
related to such systems (including an aggregate amount of indebtedness for
borrowed money equal to $669,000).
The acquisition was accounted for as a purchase with the operations of the
acquired systems being combined with those of CNYG as of the acquisition date.
The excess of the purchase price over the net book value of assets acquired of
approximately $746,769 was allocated to the specific assets acquired based upon
independent appraisals as follows:
IV-27
CABLEVISION NY GROUP
(a combination of certain assets and businesses
of Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
Property, plant and equipment .................... $ (17,133)
Franchises ....................................... 594,921
Excess cost over fair value of net assets acquired 168,981
---------
$ 746,769
=========
Madison Square Garden
In June 1998, CSC Holdings purchased 50% of ITT's remaining interest in MSG for
$94,000 pursuant to ITT's exercise of its first put option, increasing Regional
Programming Partners' interest in MSG to 96.3% (see "1999 Acquisitions" above).
Clearview
In December 1998, Cablevision acquired all of the outstanding shares of stock of
Clearview Cinema Group, Inc. ("Clearview") for approximately $158,700 (including
assumed debt of $80,000), of which approximately $33,400 was paid in shares of
Cablevision's Class A Common Stock.
The acquisition was accounted for as a purchase with the operations of the
acquired business being combined with those of CNYG as of the acquisition date.
The purchase price was allocated to the specific assets acquired based upon
independent appraisals as follows.
Property, plant and equipment .................... $ 34,787
Other assets ..................................... 21,518
Liabilities ...................................... (16,433)
Excess cost over fair value of net assets acquired 118,851
---------
$ 158,723
=========
In 2000, CNYG recorded an impairment loss of approximately $47,500, included in
depreciation and amortization, representing the balance of unamortized goodwill
related to certain theaters in which the carrying value of the asset exceeded
the estimated fair value based on discounted future cash flows.
Loews
In December 1998, Cablevision acquired interests in the real property and assets
specifically related to 15 movie theaters from Loews Cineplex Entertainment
Corporation ("Loews") for an aggregate purchase price of approximately $67,300.
IV-28
CABLEVISION NY GROUP
(a combination of certain assets and businesses
of Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
The acquisition was accounted for as a purchase with the operations of the
acquired assets being combined with those of CNYG as of the acquisition date.
The purchase price was allocated to the specific assets acquired based upon
independent appraisals as follows:
Property and equipment ........................... $ 9,700
Other assets ..................................... 2,200
Excess cost over fair value of net assets acquired 55,400
-------
$67,300
=======
Dispositions
Cable Systems
In November 2000, CSC Holdings completed the sale of its cable television
systems in the greater Cleveland, Ohio metropolitan area to Adelphia
Communications Corporation for $991,000 in cash and 10,800,000 shares, valued at
closing at $359,100, in Adelphia Communications Corporation common stock. CNYG
recorded a gain of approximately $1,075,400 in connection with the transaction.
In September 2000, CSC Holdings completed the sale of its cable television
system serving Kalamazoo, Michigan, for 11,173,376 shares of Charter
Communications, Inc.'s common stock, valued at approximately $165,500 at
closing, and CNYG recognized a gain of approximately $128,800.
In October 1998, a subsidiary of CSC Holdings transferred its cable television
system in Rensselaer, New York plus approximately $16,000 in cash to Time Warner
Entertainment Company, L.P. ("Time Warner") in exchange for Time Warner's
Litchfield, Connecticut system. CNYG recognized a gain of approximately $15,500
in connection with this transaction.
In 1998, CSC Holdings completed the sale of certain cable television systems for
aggregate sales prices of approximately $426,500 and CNYG recognized aggregate
gains of approximately $137,700.
Pro Forma Results of Operations (Unaudited)
The following unaudited pro forma condensed combined results of operations are
presented for the year ended December 31, 1998 as if the acquisition of the TCI
Systems and the sale of assets of certain cable systems had occurred on January
1, 1998. The effects of acquisitions and dispositions made in 2000 and 1999 are
not material.
IV-29
CABLEVISION NY GROUP
(a combination of certain assets and businesses
of Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
Year Ended
December 31, 1998
-----------------
Net revenues ........................... $ 3,063,664
===========
Net loss before preferred dividend
requirements ....................... $ (373,598)
===========
The unaudited pro forma information presented above gives effect to certain
adjustments, including the amortization of acquired intangible assets and
increased interest expense on acquisition debt. The pro forma information has
been prepared for comparative purposes only and does not purport to indicate the
results of operations which would actually have occurred had the transactions
been made at the beginning of the period indicated or which may occur in the
future.
NOTE 5. NET ASSETS HELD FOR SALE
Cablevision had entered into definitive agreements covering the sale of certain
cable television systems as of December 31, 2000 and 1999.
For financial reporting purposes, the assets and liabilities attributable to
cable systems whose sale or transfer was pending at December 31, 2000 and 1999
have been classified in the combined balance sheet as net assets held for sale
and consist of the following:
December, 31
----------------------
2000 1999
--------- ---------
Property, plant and equipment, net ....... $ 238,739 $ 222,695
Intangible assets, net ................... 98,526 73,055
Other assets (including trade
receivables, prepaid expenses, etc.) 11,311 9,796
--------- ---------
Total assets ............................. 348,576 305,546
Total liabilities ........................ (39,153) (36,197)
--------- ---------
Net assets ............................... $ 309,423 $ 269,349
========= =========
The accompanying combined statements of operations for the years ended December
31, 2000, 1999 and 1998 include net revenues aggregating approximately $190,449,
$177,904 and $18,937, respectively, and net income (loss) aggregating
approximately $6,140, $(4,109) and $9,095, respectively, relating to the cable
systems held for sale.
IV-30
CABLEVISION NY GROUP
(a combination of certain assets and businesses
of Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
NOTE 6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following assets, which are
depreciated or amortized primarily on a straight-line basis over the estimated
useful lives shown below:
December 31,
-------------------------- Estimated
2000 1999 Useful Lives
----------- ----------- ------------
Communication transmission and distribution systems:
Customer equipment ........................... $ 601,082 $ 600,271 3 to 8 years
Headends ..................................... 171,672 118,311 7 to 15 years
Multimedia ................................... 45,521 18,732 4 years
Central office equipment ..................... 180,950 132,191 10 years
Infrastructure ............................... 2,441,374 2,189,863 5 to 12 years
Program, service and data processing equipment 882,409 603,988 2 to 9 years
Microwave equipment .......................... 9,197 9,477 2 to 9 years
Construction in progress (including
materials and supplies) .................... 247,743 227,991 --
Furniture and fixtures ............................. 153,043 121,610 1 to 8 years
Transportation equipment ........................... 158,579 143,511 4 to 15 years
Buildings and building improvements ................ 250,282 185,118 20 to 40 years
Leasehold improvements ............................. 375,975 267,542 Term of lease
Land ............................................... 47,842 47,914 --
----------- -----------
5,565,669 4,666,519
Less accumulated depreciation and amortization ..... (2,342,184) (1,963,298)
----------- -----------
$ 3,223,485 $ 2,703,221
=========== ===========
At December 31, 2000 and 1999, the gross amount of equipment and related
accumulated amortization recorded under capital leases were as follows:
2000 1999
---- ----
Equipment .................................... $131,448 $ 76,971
Less accumulated depreciation ................ 31,034 13,296
-------- --------
$100,414 $ 63,675
======== ========
NOTE 7. DEBT AND FINANCIAL INSTRUMENTS
Bank Debt
Bank debt of Rainbow Media Holdings and AMC is attributed to RMG. The following
summarizes the credit facilities attributable to CNYG.
Restricted Group
For financing purposes, CSC Holdings and certain of its subsidiaries are
collectively referred to as the "Restricted Group." The Restricted Group has a
$2.2 billion reducing revolving credit facility,
IV-31
CABLEVISION NY GROUP
(a combination of certain assets and businesses
of Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
as amended (the "Credit Agreement") with a group of banks led by
Toronto-Dominion (Texas), Inc. ("Toronto-Dominion"), as administrative and
arranging agent. The credit facility matures in March 2007 and consists of a
$1.0 billion CSC Holdings credit facility and a $1.2 billion Cablevision MFR,
Inc. credit facility.
The total amount of bank debt outstanding under the Credit Agreement at December
31, 2000 and 1999 was $1,942,759 and $1,454,206 (including $16,259 and $12,706,
respectively, outstanding under a separate overdraft facility), respectively. At
December 31, 2000, $887,500 and $1,039,000 was outstanding under the CSC
Holdings facility and the Cablevision MFR, Inc. credit facility, respectively.
As of December 31, 2000, approximately $49,808 was restricted for certain
letters of credit issued on behalf of CSC Holdings. Interest on outstanding
amounts may be paid, at the option of CSC Holdings, based on the prime rate or a
Eurodollar rate.
Unrestricted and undrawn funds available to the Restricted Group under the
Credit Agreement amounted to approximately $223,692 at December 31, 2000. The
Credit Agreement contains certain financial covenants that may limit the
Restricted Group's ability to utilize all of the undrawn funds available
thereunder. The Credit Agreement contains various restrictive covenants, among
which are the maintenance of various financial ratios and tests, and limitations
on various payments, including preferred dividends and dividends on its common
stock. The Restricted Group was in compliance with the covenants of its Credit
Agreement at December 31, 2000.
As of December 31, 2000, CSC Holdings had outstanding interest exchange (swap)
agreements with several of its banks with a total notional value of $250,000.
The swaps require CSC Holdings to pay a floating rate of interest based on LIBOR
in exchange for fixed rate payments ranging from 6.125% to 6.76% and have a
maturity of 9 to 22 months. CSC Holdings enters into interest rate swap
agreements to hedge against interest rate risk and accounts for these agreements
as hedges whereby interest expense is recorded using the revised rate with any
fees or other payments amortized as yield adjustments. CNYG is exposed to credit
loss in the event of nonperformance by the other parties to the interest rate
swap agreements; however, CNYG does not anticipate nonperformance by the
counterparties.
The weighted average interest rate on all Restricted Group bank indebtedness was
8.03% and 7.11% on December 31, 2000 and 1999, respectively. CNYG is also
obligated to pay fees ranging from 0.1875% to 0.25% per annum on the unused loan
commitment and from 0.4% to 2.0% per annum on letters of credit issued under the
Credit Agreement.
Madison Square Garden
MSG has a $500,000 revolving credit agreement (the "MSG Credit Facility") with a
group of banks led by Chase Manhattan Bank, as agent, which expires on December
31, 2004. Loans under the MSG Credit Facility bear interest at current market
rates plus a margin based upon MSG's consolidated leverage ratio. At December
31, 2000 and 1999, loans outstanding amounted to
IV-32
CABLEVISION NY GROUP
(a combination of certain assets and businesses
of Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
$310,000 and $335,000, respectively, and bore interest at a weighted average
rate of 7.2% and 7.0%, respectively. The MSG Credit Facility contains certain
financial covenants with which MSG was in compliance at December 31, 2000. The
MSG Credit Facility also contains certain covenants that may limit MSG's ability
to utilize all of the undrawn funds available thereunder.
In July 1997, a wholly-owned subsidiary of MSG borrowed $20,000 under promissory
notes with various lending institutions which bore interest at LIBOR plus a
margin and matured in July 2002. In September 2000, these notes were repaid with
borrowings under the MSG Credit Facility.
Cablevision Electronics
Cablevision Electronics has a $130,000 revolving credit facility maturing on
April 9, 2001, as amended. Under the terms of the credit facility, the total
amount of borrowings available to Cablevision Electronics is subject to an
availability calculation based on a percentage of eligible inventory. The total
amount outstanding under the credit agreement at December 31, 2000 and 1999 was
approximately $66,902 and $73,817, respectively, and bore interest at 8.6% and
7.8%, respectively. As of December 31, 2000, $24,010 was restricted for certain
letters of credit issued on behalf of Cablevision Electronics. Unrestricted and
undrawn funds available amounted to $37,745 on December 31, 2000 based on the
level of inventory as of that date.
Borrowings under the credit agreement are secured by Cablevision Electronics'
assets. The credit agreement contains various restrictive covenants with which
Cablevision Electronics was in compliance at December 31, 2000.
CCG Holdings, Inc.
CCG Holdings, Inc., a wholly-owned subsidiary of CSC Holdings, had a $15,000
revolving credit bank facility maturing on June 30, 2003 which was repaid and
retired in September 2000 with funds made available by CSC Holdings. As of
December 31, 1999, there was $9,691 outstanding under this bank facility.
IV-33
CABLEVISION NY GROUP
(a combination of certain assets and businesses
of Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
Senior Notes and Debentures
The following table summarizes CSC Holdings' senior notes and debentures:
Original
Face Issue Carrying Amount
Amount Discount December 31,
------ -------- -----------------------
2000 1999
---- ----
8-1/8% Senior Notes
due July 2009, issued July 1999 ....... $ 500,000 $ 2,330 $ 498,026 $ 497,786
7-1/4% Senior Notes
due July 2008, issued July 1998 ....... 500,000 -- 500,000 500,000
7-5/8% Senior Debentures
due July 2018, issued July 1998 ....... 500,000 495 499,565 499,541
7-7/8% Senior Debentures
due February 2018, issued February 1998 300,000 3,429 297,061 296,893
7-7/8% Senior Notes
due December 2007, issued December 1997 500,000 525 499,632 499,584
8-1/8% Senior Debentures
due August 2009, issued August 1997 ... 400,000 1,492 398,924 398,798
---------- ---------- ---------- ----------
$2,700,000 $ 8,271 $2,693,208 $2,692,602
========== ========== ========== ==========
The senior notes and debentures are not redeemable by CSC Holdings prior to
maturity. The indentures under which the senior notes and debentures were issued
contain various convenants, which are generally less restrictive than those
contained in the CSC Holdings' Credit Agreement, with which CSC Holdings was in
compliance at December 31, 2000.
IV-34
CABLEVISION NY GROUP
(a combination of certain assets and businesses
of Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
Subordinated Notes and Debentures
The following table summarizes CSC Holdings' senior subordinated notes and
debentures:
Carrying Amount
December 31, Redemption
Principal ------------------------- ------------------------------
Amount 2000 1999 Date* Price
------ ---- ---- ----- -----
9-7/8% Senior Subordinated
Notes due 2006,
issued 1996 .................... $ 150,000 $ 149,618 $ 149,558 May 15, 2001 104.938%
May 15, 2002 103.292%
May 15, 2003 101.646%
10-1/2% Senior Subordinated
Debentures due 2016,
issued 1996 .................... 250,000 250,000 250,000 May 15, 2006 105.250%
May 15, 2007 103.938%
May 15, 2008 102.625%
May 15, 2009 101.313%
9-1/4% Senior Subordinated
Notes due 2005,
issued 1995 .................... 300,000 300,000 300,000 November 1, 2000 104.625%
November 1, 2001 103.1%
November 1, 2002 101.5%
9-7/8% Senior Subordinated
Debentures due 2013,
issued 1993 .................... 200,000 199,243 199,180 February 15, 2003 104.8%
February 15, 2004 103.6%
February 15, 2005 102.4%
February 15, 2006 101.2%
9-7/8% Senior Subordinated
Debentures due 2023,
issued 1993 .................... 150,000 149,787 149,775 ** **
---------- ---------- ----------
$1,050,000 $1,048,648 $1,048,513
========== ========== ==========
* The notes/debentures are redeemable at CSC Holdings' option, in whole or
in part, on the redemption dates listed at the respective percentage of
the principal amount and thereafter at 100% of the aggregate principal
amount, in each case together with accrued interest to the redemption
date.
** The debentures are redeemable, at CSC Holdings' option, on and after April
1, 2003 at the redemption price of 104.938% reducing ratably to 100% of
the principal amount on and after April 1, 2010, in each case together
with accrued interest to the redemption date.
The indentures under which the subordinated notes and debentures were issued
contain various covenants, which are generally less restrictive than those
contained in CSC Holdings' Credit Agreement and with which CSC Holdings was in
compliance at December 31, 2000.
IV-35
CABLEVISION NY GROUP
(a combination of certain assets and businesses
of Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
Summary of Five Year Debt Maturities
Total amounts payable by CNYG under its various debt obligations outstanding as
of December 31, 2000, including capital leases, during the five years subsequent
to December 31, 2000 are as follows:
2001 $122,000
2002 83,000
2003 340,000
2004 645,000
2005 334,000
NOTE 8. PREFERRED STOCK
The following summarizes the changes in each series of CSC Holdings' preferred
stock:
Series I Preferred Series M Preferred Series H Preferred
Shares Balance Shares Balance Shares Balance
----------- ----------- ----------- ----------- ----------- -----------
December 31, 1997 13,800,000 $ 323,331 7,987,603 $ 798,760 3,250,478 $ 325,048
Dividend paid in
additional shares -- -- 926,260 92,626 399,050 39,905
----------- ----------- ----------- ----------- ----------- -----------
December 31, 1998 13,800,000 323,331 8,913,863 891,386 3,649,528 364,953
Dividend paid in
additional shares -- -- 1,033,678 103,368 448,042 44,804
Redemption ........ (13,800,000) (323,331) -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
December 31, 1999 -- -- 9,947,541 994,754 4,097,570 409,757
Dividend paid in
additional shares -- -- 1,153,585 115,359 244,243 24,424
----------- ----------- ----------- ----------- ----------- -----------
December 31, 2000 -- $ -- 11,101,126 $ 1,110,113 4,341,813 $ 434,181
=========== =========== =========== =========== =========== ===========
In September 1999, CSC Holdings exercised its right to redeem all of its
outstanding shares of 8-1/2% Series I Cumulative Convertible Exchangeable
Preferred Stock ("Series I Preferred"). The redemption occurred on November 2,
1999, at a price equal to 102.8% of the liquidation preference, plus accrued
dividends. Investors held the Series I Preferred through interests in depositary
shares (each of which represented a 1/10th interest in a share of the Series I
Preferred) which were redeemable simultaneously. Each depositary share was
convertible into approximately 1.4828 shares of Cablevision's Class A Common
Stock. As of December 31, 1999, 13,797,625 depositary shares out of 13,800,000
depositary shares outstanding had been converted into 20,458,925 shares of
Cablevision's Class A Common Stock, with the remaining 2,375 depositary shares
being redeemed for cash. CSC Holdings paid a cash dividend on the Series I
Preferred of approximately $21,898 in 1999 and $29,325 in 1998.
In February 1996, CSC Holdings issued 6,500,000 depositary shares, representing
65,000 shares of 11-1/8% Series L Redeemable Exchangeable Preferred Stock (the
"Series L Preferred Stock"), which were subsequently exchanged for Series M
Redeemable Exchangeable Preferred Stock
IV-36
CABLEVISION NY GROUP
(a combination of certain assets and businesses
of Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
(the "Series M Preferred Stock") in August 1996 with terms identical to the
Series L Preferred Stock. The depositary shares are exchangeable, in whole but
not in part, at the option of CSC Holdings, for CSC Holdings' 11-1/8% Senior
Subordinated Debentures due 2008. CSC Holdings is required to redeem the Series
M Preferred Stock on April 1, 2008 at a redemption price equal to the
liquidation preference of $10,000 per share plus accumulated and unpaid
dividends. The Series M Preferred Stock is redeemable at various redemption
prices beginning at 105.563% at any time on or after April 1, 2003, at the
option of CSC Holdings, with accumulated and unpaid dividends thereon to the
date of redemption. Before April 1, 2001, dividends may, at the option of CSC
Holdings, be paid in cash or by issuing fully paid and nonassessable shares of
Series M Preferred Stock with an aggregate liquidation preference equal to the
amount of such dividends. On and after April 1, 2001, dividends must be paid in
cash.
In September 1995, CSC Holdings issued 2,500,000 shares of its $.01 par value
11-3/4% Series H Redeemable Exchangeable Preferred Stock (the "Series H
Preferred Stock") with an aggregate liquidation preference of $100 per share.
CSC Holdings is required to redeem the Series H Preferred Stock on October 1,
2007 at a redemption price per share equal to the liquidation preference of $100
per share, plus accrued and unpaid dividends thereon. Before October 1, 2000,
dividends could, at the option of CSC Holdings, be paid in cash or by issuing
fully paid and nonassessable shares of Series H Preferred Stock with an
aggregate liquidation preference equal to the amount of such dividends. On and
after October 1, 2000, dividends must be paid in cash. The terms of the Series H
Preferred Stock permit CSC Holdings, at its option, to exchange the Series H
Preferred Stock for CSC Holdings' 11-3/4% Senior Subordinated Debentures due
2007 in an aggregate principal amount equal to the aggregate liquidation
preference of the shares of Series H Preferred Stock. CSC Holdings paid a cash
dividend on the Series H Preferred Stock of approximately $25,511 in 2000.
NOTE 9. INCOME TAXES
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets at December 31, 2000 and 1999 are presented below:
2000 1999
---- ----
Depreciation and amortization ........................ $ 20,389 $(118,886)
Investments in affiliates ............................ (39,408) (98,074)
Benefit plans ........................................ 80,312 101,185
Allowance for doubtful accounts ...................... 10,275 7,172
Deferred gains ....................................... (146,634) 15,913
Benefits of tax loss carry forwards .................. 625,406 760,286
Unrealized gains on available-for-sale securities .... (120,305) --
Other ................................................ 355 9,411
--------- ---------
Net deferred tax assets ......................... 430,390 677,007
Valuation allowance .................................. (430,390) (677,007)
--------- ---------
$ -- $ --
========= =========
IV-37
CABLEVISION NY GROUP
(a combination of certain assets and businesses
of Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
The operations of CNYG are included in two consolidated federal income tax
returns; one consolidated return includes the telecommunications and retail
electronics companies ("Cablevision"), and the second consolidated return
includes the Rainbow Media Holdings companies. The Rainbow Media Holdings
consolidated tax returns also include the operations of RMG. At December 31,
2000, Cablevision had net operating loss carry forwards of approximately
$1,039,792 and Rainbow Media Holdings had net operating loss carry forwards of
approximately $757,033, of which $307,763 has been allocated to RMG. CNYG's
portion of the net operating loss carry forwards reflects approximately $196,616
in stock compensation deductions which would result in an adjustment to paid-in
capital upon realization of such losses. As a result of certain ownership
changes, a portion of Rainbow Media Holdings' pre-1999 loss carry forwards may
be subject to annual limitations on deductions.
Although, as a result of the cable systems sales in 2001, Cablevision may
realize the benefit of certain net operating loss carry forwards. CNYG has
provided a valuation allowance for the full amount of its net deferred tax
assets principally as a result of CNYG's history of operating losses.
In 2000 and 1999, CNYG recorded approximately $42,500 and $6,700,
respectively, principally of state and local income taxes as a result of the
sale of certain cable television systems and are included in miscellaneous
expenses. This expense differs from the statutory tax rate primarily due to a
$104,000 benefit due to the Company's net operating loss carry forwards.
NOTE 10. OPERATING LEASES
CNYG leases certain office, production, transmission, theater, event, and retail
store facilities under terms of leases expiring at various dates through 2027.
The leases generally provide for fixed annual rentals plus certain real estate
taxes and other costs. Rent expense for the years ended December 31, 2000, 1999
and 1998 amounted to $92,273, $87,596 and $71,657, respectively.
In addition, CNYG rents space on utility poles for its operations. CNYG 's pole
rental agreements are for varying terms, and management anticipates renewals as
they expire. Pole rental expense for the years ended December 31, 2000, 1999 and
1998 amounted to approximately $12,237, $13,081 and $12,490, respectively.
The minimum future annual rentals for all operating leases during the next five
years, including pole rentals from January 1, 2001 through December 31, 2005,
and thereafter, at rates now in force are approximately: 2001, $86,351; 2002,
$84,786; 2003, $83,048; 2004, $81,003; 2005, $72,660; thereafter, $526,621.
NOTE 11. BENEFIT PLANS
Effective January 1, 1998, CSC Holdings established a Cash Balance Retirement
Plan (the "Retirement Plan"), which replaced CSC Holdings' former money purchase
pension plan for the benefit of employees other than those of MSG, Cablevision
Electronics and CCG Holdings, Inc.
IV-38
CABLEVISION NY GROUP
(a combination of certain assets and businesses
of Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
CSC Holdings also maintains a 401(k) savings plan, pursuant to which an employee
can contribute a percentage of eligible annual compensation, as defined. CNYG
also makes matching contributions for a portion of employee contributions to the
401(k) savings plan.
For the years ended December 31, 2000, 1999 and 1998, CSC Holdings allocated
$14,895, $11,510 and $9,362, respectively, to CNYG with respect to the
Retirement Plan and the 401(k) savings plan.
CSC Holdings maintains the CSSC Supplemental Benefit Plan (the "Supplemental
Plan") for the benefit of certain officers and employees of CNYG. As part of the
Supplemental Plan, CSC Holdings established a nonqualified defined benefit
pension plan, which provides that, upon attaining normal retirement age, a
participant will receive a benefit equal to a specified percentage of the
participant's average compensation, as defined. All participants are 100% vested
in the Supplemental Plan. Net periodic pension cost for the years ended December
31, 2000, 1999 and 1998 was negligible. At December 31, 2000 and 1999, the fair
value of Supplemental Plan assets exceeded the projected benefit obligation by
approximately $1,707 and $3,071, respectively.
MSG sponsors several non-contributory pension plans covering MSG's employees.
Benefits payable to retirees under these plans are based upon years of service
and participant's compensation and are funded through trusts established under
the plans. Plan assets are invested primarily in common stocks, bonds, United
States government securities and cash. At December 31, 2000 and 1999, the
accrued benefit cost amounted to $11,363 and $10,796, respectively, and for the
years ended December 31, 2000, 1999 and 1998, net periodic pension cost amounted
to $2,227, $2,611 and $2,254, respectively.
MSG also sponsors a welfare plan which provides certain postretirement health
care and life insurance benefits to certain employees and their dependents who
are eligible for early or normal retirement under MSG's retirement plan. The
welfare plan is insured through a managed care provider and MSG funds these
benefits with premium payments. For the years ended December 31, 2000 and 1999,
the periodic postretirement benefit cost amounted to $187 and $204,
respectively, and the accrued benefit cost amounted to $6,257 and $6,154,
respectively.
NOTE 12. COMMITMENTS AND CONTINGENCIES
Rainbow Media Holdings has entered into several contracts, including rights
agreements, with professional sports teams and others relating to cable
television programming. In addition, Rainbow Media Holdings, through MSG, has
employment agreements with both players and coaches of its professional sports
teams. Certain of these contracts, which provide for payments that are
guaranteed regardless of employee injury or termination, are covered by
disability insurance if certain conditions are met.
IV-39
CABLEVISION NY GROUP
(a combination of certain assets and businesses
of Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
Future cash payments required under these contracts as of December 31, 2000 are
as follows:
2001 $ 275,167
2002 190,009
2003 150,277
2004 116,808
2005 82,700
Thereafter 939,981
----------
Total $1,754,942
==========
NOTE 13. OTHER MATTERS
The entities which comprise CNYG are party to various lawsuits, some involving
substantial amounts. Management does not believe that the resolution of these
lawsuits will have a material adverse impact on the financial position of CNYG.
NOTE 14. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and Cash Equivalents, Accounts Receivable Trade, Notes and Other
Receivables, Prepaid Expenses and Other Assets, Advances to Affiliates, Accounts
Payable, Accounts Payable-Affiliates, and Accrued Liabilities.
The carrying amount approximates fair value due to the short maturity of these
instruments.
At Home Warrants
The fair value of the At Home warrants is based upon the Black-Scholes pricing
model.
Investments in Marketable Securities
Available-for-sale marketable securities are carried at their fair value based
upon quoted market prices.
Bank Debt, Senior Notes and Debentures, Subordinated Notes and Debentures and
Redeemable Exchangeable Preferred Stock of CSC Holdings
The fair values of each of CNYG's long-term debt instruments and redeemable
preferred stock of CSC Holdings are based on quoted market prices for the same
or similar issues or on the current rates offered to entities which comprise
CNYG for instruments of the same remaining maturities.
IV-40
CABLEVISION NY GROUP
(a combination of certain assets and businesses
of Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
Interest Rate Hedging Agreements
The fair values of interest rate swap and cap agreements are obtained from
dealer quotes. These values represent the estimated amount CNYG would receive or
pay to terminate agreements, taking into consideration current interest rates
and the current creditworthiness of the counterparties.
The fair value of CNYG's financial instruments are summarized as follows:
December 31, 2000
---------------------------
Carrying Estimated
Amount Fair Value
------ ----------
At Home warrants ............................. $ 108,452 $ 108,452
========== ==========
Long term debt instruments:
Bank debt ................................. $2,319,661 $2,319,661
Senior notes and debentures ............... 2,693,208 2,633,960
Subordinated notes and debentures ......... 1,048,648 1,099,750
Redeemable exchangeable preferred
stock of CSC Holdings .................. 1,544,294 1,642,921
---------- ----------
$7,605,811 $7,696,292
========== ==========
Interest rate hedging agreements:
In a net receivable position .............. $ -- $ 1,140
========== ==========
December 31, 1999
---------------------------
Carrying Estimated
Amount Fair Value
------ ----------
At Home warrants ............................. $ 248,134 $ 867,103
========== ==========
Long term debt instruments:
Bank debt ................................. $1,892,714 $1,892,714
Senior notes and debentures ............... 2,692,602 2,608,845
Subordinated notes and debentures ......... 1,048,513 1,102,500
Redeemable exchangeable preferred
stock of CSC Holdings .................. 1,404,511 1,539,173
---------- ----------
$7,038,340 $7,143,232
========== ==========
Interest rate hedging agreements:
In a net payable position ................. $ -- $ 3,864
========== ==========
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
IV-41
CABLEVISION NY GROUP
(a combination of certain assets and businesses
of Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
NOTE 15. SEGMENT INFORMATION
CNYG classifies its business interests into three segments: Telecommunication
Services, consisting principally of its cable television, telephone and modem
services operations; MSG, which owns and operates professional sports teams,
regional cable television networks, live productions and entertainment venues;
and Retail Electronics, which represents the operations of Cablevision
Electronics' retail electronics stores.
CNYG's reportable segments are strategic business units that are managed
separately. CNYG evaluates segment performance based on several factors, of
which the primary financial measure is business segment adjusted operating cash
flow (defined as operating income (loss) before depreciation and amortization,
incentive stock plan expense and the costs of Year 2000 remediation). The
accounting policies of the segments are the same as those described in the
summary of significant accounting policies. Information as to the operations of
CNYG's business segments is set forth below.
Years Ended December 31,
-----------------------------------------
2000 1999 1998
----------- ----------- -----------
Revenues
Telecommunication Services ............. $ 2,328,194 $ 2,151,308 $ 1,886,190
MSG .................................... 876,397 785,234 662,080
Retail Electronics ..................... 693,354 603,294 464,388
All Other .............................. 200,499 181,731 77,026
Intersegment eliminations .............. (152,014) (119,840) (90,950)
----------- ----------- -----------
Total ...................... $ 3,946,430 $ 3,601,727 $ 2,998,734
=========== =========== ===========
Years Ended December 31,
-----------------------------------------
2000 1999 1998
----------- ----------- -----------
Adjusted Operating Cash Flow (Unaudited)
Telecommunication Services ............. $ 931,081 $ 916,233 $ 762,823
MSG .................................... 171,483 142,606 122,612
Retail Electronics ..................... (56,520) (37,934) (19,737)
All Other .............................. (93,600) (91,858) (42,318)
----------- ----------- -----------
Total ...................... $ 952,444 $ 929,047 $ 823,380
=========== =========== ===========
IV-42
CABLEVISION NY GROUP
(a combination of certain assets and businesses
of Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
December 31,
-------------------------
2000 1999
---- ----
Assets
Telecommunication Services ........................ $ 4,521,775 $ 4,490,364
MSG ............................................... 1,891,993 1,945,115
Retail Electronics ................................ 278,209 220,898
Corporate, other and intersegment eliminations .... 1,094,712 (27,065)
----------- -----------
Total ................................. $ 7,786,689 $ 6,629,312
=========== ===========
A reconciliation of reportable segment amounts to CNYG's combined balances is as
follows:
Years Ended December 31,
-----------------------------------------
2000 1999 1998
---- ---- ----
Revenue
Total revenue for reportable segments .................. $ 3,897,945 $ 3,539,836 $ 3,012,658
Other revenue and intersegment eliminations ............ 48,485 61,891 (13,924)
----------- ----------- -----------
Total combined revenue ............................ $ 3,946,430 $ 3,601,727 $ 2,998,734
=========== =========== ===========
Adjusted Operating Cash Flow to Net Loss (Unaudited)
Total adjusted operating cash flow for reportable
segments .......................................... $ 1,046,044 $ 1,020,905 $ 865,698
Other adjusted operating cash flow deficit ............. (93,600) (91,858) (42,318)
Items excluded from adjusted operating cash flow
Depreciation and amortization ..................... (973,335) (853,895) (699,683)
Incentive stock plan expense ...................... (67,827) (233,660) (132,432)
Year 2000 remediation ............................. (3,424) (38,666) (7,593)
Interest expense .................................. (519,030) (443,105) (397,703)
Interest income ................................... 7,011 10,313 27,430
Equity in net loss of affiliates .................. (724) (11,560) (23,966)
Gain on sale of cable assets and
programming interests, net ................... 1,204,150 -- 153,264
Impairment charges on investments ................. (139,682) (15,100) --
Write off of deferred interest and financing costs (5,209) (3,012) (23,482)
Provision for preferential payment to related party -- -- (980)
Miscellaneous, net ................................ (51,753) (1,168) (19,815)
----------- ----------- -----------
Net income (loss) ....................... $ 402,621 $ (660,806) $ (301,580)
=========== =========== ===========
Substantially all revenues and assets of CNYG's reportable segments are
attributed to or located in the United States.
CNYG does not have a single external customer which represents 10 percent or
more of its combined revenues.
IV-43
CABLEVISION NY GROUP
(a combination of certain assets and businesses
of Cablevision Systems Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
NOTE 16. SUBSEQUENT EVENTS
In January 2001, CSC Holdings completed the sale of its cable systems in Boston
and Eastern Massachusetts to AT&T Corporation ("AT&T") in exchange for AT&T's
cable systems in certain northern New York suburbs, 44,260,932 shares of AT&T
stock, valued at approximately $893,500 at closing, and approximately $289,900
in cash. CNYG anticipates recording a gain on the sale.
In March 2001, CSC Holdings issued $1,000,000 face amount of 7-5/8% senior notes
due 2011. The notes were issued at a discount of $3,210. The net proceeds were
used to reduce bank debt outstanding. The notes are not redeemable by CSC
Holdings prior to maturity.
As of March 22, 2001, approximately $531,300 in cash had been received from the
monetization of a portion of CSC Holdings' investments in Charter and Adelphia
common stock. The proceeds were used to repay Restricted Group bank debt.
IV-44